(1) BASIS OF PRESENTATION

The Condensed Consolidated Financial Statements include the accounts of Exide Technologies (referred to together with its subsidiaries, unless the context requires otherwise, as “Exide” or the “Company”) and all of its majority-owned subsidiaries. These statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by generally accepted accounting principles in the United States (“GAAP”), or those disclosures normally made in the Company’s annual report on Form 10-K. Accordingly, the reader of this Form 10-Q should refer to the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2011 for further information.

The financial information has been prepared in accordance with the Company’s customary accounting practices. In the Company’s opinion, the accompanying Condensed Consolidated Financial Statements include all adjustments of a normal recurring nature necessary for a fair statement of the results of operations, cash flows, and financial position for the periods presented. This includes accounting and disclosures related to any subsequent events occurring from the balance sheet date through the date the financial statements were issued.

Unless otherwise indicated or unless the context otherwise requires, references to “fiscal year” refer to the period ended March 31 of that year (e.g., “fiscal 2012” refers to the period beginning April 1, 2011 and ending March 31, 2012). Certain comparative prior period amounts in the Condensed Consolidated Financial Statements have been reclassified to conform to current period presentation. Specifically, the Company reclassified approximately $5.3 million and $16.7 million from selling and administrative expenses to cost of sales in the prior year three and nine month periods, respectively, to conform the classification of certain Industrial Energy Europe and Rest of World (“ROW”) headcount and related expenses to that of other operating segments. This reclassification did not impact operating income or cash flows.

On October 11, 2011, the Company was apprised of allegations of intentional misstatement of production and inventory entries at the Company’s Portugal recycling facility. The Company immediately commenced an investigation into the allegations, which has since been concluded. As a result of the investigation, the Company has determined that intentional misstatements of production and inventories were made, which resulted in overstatements of inventory and understatements of cost of sales over a multi-year period. The Company has concluded that the amounts necessary to correct these errors are not material to expected fiscal 2012 full year results and the Company has concluded that the amounts associated with each of the relevant prior fiscal periods impacted are not material. Accordingly, the Company’s financial results for the nine months ended December 31, 2011 include an out of period adjustments of $5.1 million, recorded in the second fiscal quarter, for the Transportation Europe and ROW segment to correct these errors.

 

(2) STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

The stockholders’ equity accounts for both the Company and noncontrolling interests consist of:

 

		Common Stock				Additional Paid-in Capital				Accumulated Deficit				Accumulated Other Comprehensive Income				Noncontrolling Interests				Total Stockholders’ Equity
		(In thousands)
Balance at March 31, 2011		$	775			$	1,127,124			$	(772,652	)		$	49,540			$	1,102			$	405,889
Net income (loss)			—				—				59,435				—				(958	)			58,477
Defined benefit plans, net of tax of $4			—				—				—				(306	)			—				(306	)
Translation adjustment			—				—				—				(41,281	)			433				(40,848	)
Net recognition of unrealized gain on derivatives, net of tax $567			—				—				—				(1,451	)			—				(1,451	)
Common stock issuance/other			6				1,200				—				—				(205	)			1,001
Stock compensation			—				3,684				—				—				—				3,684
Balance at December 31, 2011		$	781			$	1,132,008			$	(713,217	)		$	6,502			$	372			$	426,446

Total comprehensive income and its components are as follows:

 

		For the Three Months Ended								For the Nine Months Ended
		December 31, 2011				December 31, 2010				December 31, 2011				December 31, 2010
		(In thousands)
Net income		$	67,900			$	31,221			$	58,477			$	40,305
Defined benefit plans			(236	)			344				(306	)			476
Cumulative translation adjustment			(7,359	)			(2,519	)			(40,848	)			2,496
Derivatives qualifying as hedges			2,283				1,073				(1,451	)			2,778
Total comprehensive income		$	62,588			$	30,119			$	15,872			$	46,055

(3) ACCOUNTING FOR DERIVATIVES

The Company uses derivative contracts to hedge the volatility arising from changes in the fair value of certain assets and liabilities that are subject to market risk, such as interest rates on debt instruments, foreign currency exchange rates, and certain commodities. The Company does not enter into derivative contracts for trading or speculative purposes.

The Company recognizes outstanding derivative instruments as assets or liabilities, based on measurements of their fair values. If a derivative qualifies for hedge accounting, gains or losses in its fair value that offset changes in the fair value of the asset or liability being hedged (“effective” gains or losses) are reported in accumulated other comprehensive income, and subsequently recorded in earnings only as the related variability on the hedged transaction is recorded in earnings. If a derivative does not qualify for hedge accounting, changes in its fair value are reported in earnings immediately upon occurrence, and the classification of cash flows from these instruments is consistent with that of the transactions being hedged. Derivatives qualify for hedge accounting if they are designated as hedging instruments at their inception, and if they are highly effective in achieving fair value changes that offset the fair value changes of the assets or liabilities being hedged. Regardless of a derivative’s accounting designation, changes in its fair value that are not offset by fair value changes in the asset or liability being hedged are considered ineffective, and are recognized in earnings immediately.

The Company enters into commodity swap and forward contracts for various time periods usually not exceeding one year. The Company uses these contracts to mitigate the effects of its exposure to price variability on certain raw materials and other costs included in the delivered cost of its products. These contracts have generally been designated as cash flow hedging instruments. Changes in the fair value of these contracts are recognized in cost of sales as the products containing the hedged commodities are sold to customers.

The Company enters into foreign currency forward contracts for various time periods ranging from one month to several years. The Company uses these contracts to mitigate the effect of its exposure to foreign currency remeasurement gains and losses on selected transactions that will be settled in a currency other than the functional currency of the transacting entity. These contracts have been designated as fair value hedging instruments. Changes in the fair value of these currency forward contracts are recognized immediately in earnings.

 

The Company also enters into interest rate swaps for time periods ranging from one month to several years in order to mitigate exposures related to interest rates on long-term debt. During the second quarter of fiscal 2012, the Company entered into interest rate swap contracts, which were designated as fair value hedging instruments, to convert a portion of its $675.0 million Senior Secured Notes from a fixed rate of 8.625% to floating rates through February 1, 2018. As of December 31, 2011, the Company has outstanding interest rate swaps with a total notional value of $90.0 million, which were designated as economic hedges in the third quarter of fiscal 2012.

The following tables set forth information on the presentation of these derivative instruments in the Company’s Condensed Consolidated Financial Statements:

 

		Balance Sheet Location		Fair Value As of
				December 31, 2011				March 31, 2011
				(In thousands)
Asset Derivatives:
Interest rate swaps		Current assets		$	2,441			$	—
Commodity swaps		Current assets			427				1,564
Interest rate swaps		Noncurrent assets			2,432				—
Liability Derivatives:
Foreign currency forwards		Current liabilities			236				2,555
Commodity swaps / forwards		Current liabilities			944				1,263

 

		Statement of Operations Location		For the Three Months Ended								For the Nine Months Ended
				December 31, 2011				December 31, 2010				December 31, 2011				December 31, 2010
					(In thousands)
Foreign currency forwards		Other (income)
(Gain) loss		expense, net		$	(3,124	)		$	(2,019	)		$	(9,287	)		$	(4,843	)
Commodity swaps / forwards
Loss (gain)		Cost of goods sold			2,998				4				3,808				(74	)
Interest Rate Swaps
(gain) loss		Interest expense, net			(1,028	)			1,467				(1,546	)			4,365

(4) GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets consist of:

 

		Goodwill (not subject to amortization)				Trademarks and Tradenames (not subject to amortization)				Trademarks and Tradenames (subject to amortization)				Customer Relationships				Technology				Total
		(In thousands)
As of December 31, 2011
Gross amount		$	3,837			$	60,175			$	13,674			$	113,084			$	30,297			$	221,067
Accumulated amortization			—				—				(8,279	)			(35,963	)			(14,566	)			(58,808	)
Net		$	3,837			$	60,175			$	5,395			$	77,121			$	15,731			$	162,259
As of March 31, 2011
Gross amount		$	4,568			$	63,561			$	14,444			$	119,454			$	31,986			$	234,013
Accumulated amortization			—				—				(7,891	)			(34,273	)			(13,431	)			(55,595	)
Net		$	4,568			$	63,561			$	6,553			$	85,181			$	18,555			$	178,418

 

Amortization of intangible assets for the third quarter of fiscal 2012 and 2011 was $1.9 million and $2.2 million, respectively and for the first nine months of fiscal 2012 and 2011, was $6.5 million and $6.5 million, respectively. Excluding the impact of future acquisitions (if any), the Company anticipates annual amortization of intangible assets for each of the next five years to be approximately $8.0 million to $9.0 million. Goodwill and intangible assets have been recorded at the legal entity level and are subject to foreign currency fluctuation.

(5) INVENTORIES

Inventories, valued using the first-in, first-out (“FIFO”) method, consist of:

 

		December 31, 2011				March 31, 2011
		(In thousands)
Raw materials		$	82,271			$	83,584
Work-in-process			129,196				128,003
Finished goods			304,953				308,322
		$	516,420			$	519,909

(6) OTHER NONCURRENT ASSETS

Other noncurrent assets consist of the following:

 

		December 31, 2011				March 31, 2011
		(In thousands)
Deposits (a)		$	6,900			$	21,813
Deferred financing costs			21,391				23,982
Investment in affiliates			2,050				1,988
Capitalized software, net			1,965				3,102
Loan to affiliate			1,005				1,005
Retirement plans			17,181				12,523
Finanical instruments			2,432				—
Other			4,614				4,362
		$	57,538			$	68,775

 

(a)	Deposits principally represent amounts held by beneficiaries as cash collateral for the Company’s contingent obligations with respect to certain environmental matters and operating lease commitments.

(7) DEBT

At December 31, 2011 and March 31, 2011, short-term borrowings of $19.9 million and $9.1 million, respectively, consisted of borrowings under various operating lines of credit and working capital facilities maintained by certain of the Company’s non-U.S. subsidiaries. Certain of these borrowings are collateralized by receivables, inventories and/or property. These borrowing facilities, which are typically for one-year renewable terms, generally bear interest at current local market rates plus up to one percent per annum. The weighted average interest rate on short-term borrowings was approximately 5.5% and 4.7% at December 31, 2011 and March 31, 2011, respectively.

 

Total long-term debt consists of:

 

		December 31, 2011				March 31, 2011
		(In thousands)
8 5/8% Senior Secured Notes due 2018		$	675,000			$	675,000
Floating Rate Convertible Senior Subordinated Notes due 2013			60,000				60,000
Other, including capital lease obligations and other loans at interest rates averaging approximately 6.6%			18,486				14,070
			753,486				749,070
Fair value adjustments on hedged debt (see Note 3—interest rate swaps)			3,496				—
Total			756,982				749,070
Less-current maturities			1,334				2,132
Total long-term debt		$	755,648			$	746,938

Total debt at December 31, 2011 and March 31, 2011 was $776.9 million and $758.2 million, respectively.

(8) INTEREST EXPENSE, NET

Interest income of $0.2 million and $0.2 million is included in interest expense, net for the three months ended December 31, 2011 and 2010, respectively, and $1.1 million and $0.4 million for the nine months ended December 31, 2011 and 2010, respectively.

(9) OTHER EXPENSE (INCOME), NET

Other expense (income), net consists of:

 

		For the Three Months Ended								For the Nine Months Ended
		December 31, 2011				December 31, 2010				December 31, 2011				December 31, 2010
		(In thousands)
Currency remeasurement loss (gain) (a)		$	3,566			$	(4,262	)		$	12,949			$	(4,036	)
Reorganization items (b)			204				826				1,069				2,328
Gain on interest rate swaps			(208	)			—				(4,503	)			—
Other			(159	)			(44	)			(242	)			(403	)
		$	3,403			$	(3,480	)		$	9,273			$	(2,111	)

 

(a)	The currency remeasurement loss (gain) relates primarily to intercompany loans to foreign subsidiaries denominated in Euros, the Australian dollar, Polish Zloty, Belarus ruble, and various other foreign currencies.

(b)	Reorganization items primarily consist of professional fees and claim settlements related to the Company’s prior bankruptcy filing from which the successor Company emerged in May 2004.

 

(10) EMPLOYEE BENEFITS

The components of the Company’s net periodic pension and other post-retirement benefit costs are as follows:

 

		Pension Benefits
		For the Three Months Ended								For the Nine Months Ended
		December 31, 2011				December 31, 2010				December 31, 2011				December 31, 2010
		(In thousands)
Components of net periodic benefit cost:
Service cost		$	618			$	812			$	1,847			$	2,389
Interest cost			8,182				8,366				24,509				24,867
Expected return on plan assets			(7,727	)			(7,221	)			(23,139	)			(21,540	)
Amortization of:
Prior service cost			21				3				64				7
Actuarial loss			168				266				503				796
Net periodic benefit cost		$	1,262			$	2,226			$	3,784			$	6,519

 

		Other Post-Retirement Benefits
		For the Three Months Ended								For the Nine Months Ended
		December 31, 2011				December 31, 2010				December 31, 2011				December 31, 2010
		(In thousands)
Components of net periodic benefit cost:
Service cost		$	126			$	46			$	381			$	137
Interest cost			278				255				837				761
Amortization of:
Prior service cost			(122	)			(122	)			(367	)			(367	)
Actuarial loss			123				27				371				82
Net periodic benefit cost		$	405			$	206			$	1,222			$	613

The estimated fiscal 2012 pension plan contributions are $28.7 million and other post-retirement contributions are $2.0 million. Payments aggregating $21.2 million were made during the nine months ended December 31, 2011.

(11) COMMITMENTS AND CONTINGENCIES

Claims Reconciliation

On April 15, 2002, the “Petition Date”, Exide Technologies, together with certain of its subsidiaries (the “Debtors”), filed voluntary petitions for reorganization under Chapter 11 of the federal bankruptcy laws (“Bankruptcy Code” or “Chapter 11”) in the United States Bankruptcy Court for the District of Delaware (“Bankruptcy Court”). The Debtors continued to operate their businesses and manage their properties as debtors-in-possession throughout the course of the bankruptcy case. The Debtors, along with the Official Committee of Unsecured Creditors, filed a Joint Plan of Reorganization (the “Plan”) with the Bankruptcy Court on February 27, 2004 and, on April 21, 2004, the Bankruptcy Court confirmed the Plan.

Under the Plan, holders of general unsecured claims were eligible to receive collectively 2.5 million shares of common stock and warrants to purchase up to approximately 6.7 million shares of common stock at $29.84 per share. Approximately 13.4% of such common stock and warrants were initially reserved for distribution for disputed claims. The Official Committee of Unsecured Creditors, in consultation with the Company, established such reserve to provide for a pro rata distribution of new common stock and warrants to holders of disputed claims as they become allowed. As claims are evaluated and processed, the Company will object to some claims or portions thereof, and upward adjustments (to the extent common stock and warrants not previously distributed remain) or downward adjustments to the reserve will be made pending or following adjudication of such objections. Predictions regarding the allowance and classification of claims are difficult to make. With respect to environmental claims in particular, it is difficult to assess the Company’s potential liability due to the large number of other potentially responsible parties. For example, a demand for the total cleanup costs of a landfill used by many entities may be asserted by the government using joint and several liability theories. Although the Company believes that there is a reasonable basis to believe that it will ultimately be responsible for only its proportional share of these remediation costs, there can be no assurance that the Company will prevail on these claims. In addition, the scope of remedial costs, or other environmental injuries, is highly variable and estimating these costs involves complex legal, scientific and technical judgments. Many of the claimants who have filed disputed claims, particularly environmental and personal injury claims, produce little or no proof of fault on which the Company can assess its potential liability. Such claimants often either fail to specify a determinate amount of damages or provide little or no basis for the alleged damages. In some cases, the Company is still seeking additional information needed for a claims assessment and information that is unknown to the Company at the current time may significantly affect the Company’s assessment regarding the adequacy of the reserve amounts in the future.

As general unsecured claims have been allowed in the Bankruptcy Court, the Company has distributed approximately one share of common stock per $383.00 in allowed claim amount and approximately one warrant per $153.00 in allowed claim amount. These rates were established based upon the assumption that the common stock and warrants allocated to holders of general unsecured claims on the effective date, including the reserve established for disputed claims, would be fully distributed so that the recovery rates for all allowed unsecured claims would comply with the Plan without the need for any redistribution or supplemental issuance of securities. Effective May 6, 2011, all outstanding warrants expired and were cancelled. No more warrants will be issued to resolve any remaining pre-petition claims. If the amount of general unsecured claims that is eventually allowed exceeds the amount of claims anticipated in the setting of the reserve, additional common stock will be issued for the excess claim amounts at the same rates as used for the other general unsecured claims. If this were to occur, additional common stock would also be issued to the holders of pre-petition secured claims to maintain the ratio of their distribution in common stock at nine times the amount of common stock distributed for all unsecured claims.

Based on information available as of January 27, 2012, approximately 69.4% of common stock and warrants reserved for this purpose has been distributed. The Company also continues to resolve certain non-objected claims.

Private Party Lawsuits and other Legal Proceedings

In 2003, the Company served notices to reject certain executory contracts with EnerSys, which the Company contended were executory, including a 1991 Trademark and Trade Name License Agreement (the “Trademark License”), pursuant to which the Company had licensed to EnerSys use of the “Exide” trademark on certain industrial battery products in the United States and 80 foreign countries. EnerSys objected to the rejection of certain of those contracts, including the Trademark License. In 2006, the Bankruptcy Court granted the Company’s request to reject certain of the contracts, including the Trademark License. EnerSys appealed those rulings. On June 1, 2010, the Third Circuit Court of Appeals reversed the Bankruptcy Court ruling, and remanded to the lower courts, holding that certain of the contracts, including the Trademark License, were not executory contracts and, therefore, were not subject to rejection. On August 27, 2010, acting on the Third Circuit’s mandate, the Bankruptcy Court vacated its prior orders and denied the Company’s motion to reject the contracts on the grounds that the agreements are not executory. On September 20, 2010, the Company filed a complaint in the Bankruptcy Court seeking a declaratory judgment that EnerSys does not have enforceable rights under the Trademark License under Bankruptcy Code provisions which the Company believes are relevant to non-executory contracts. EnerSys has filed a motion to dismiss that complaint, which the Company has opposed, and the motion remains pending.

Environmental Matters

As a result of its multinational manufacturing, distribution and recycling operations, the Company is subject to numerous federal, state, and local environmental, occupational health, and safety laws and regulations, as well as similar laws and regulations in other countries in which the Company operates (collectively, “EH&S laws”).

The Company received a number of notices of violation issued by the Pennsylvania Department of Environmental Protection (“PADEP”) for alleged violations of pollution control laws at its Reading, Pennsylvania recycling facility. To resolve these notices of violation, the Company negotiated a settlement agreement with PADEP that included monetary sanctions of $0.12 million to PADEP. The settlement also included an agreement to perform an emission control project.

The Company is exposed to liabilities under such EH&S laws arising from its past handling, release, storage and disposal of materials now designated as hazardous substances and hazardous wastes. The Company previously has received notification from the U.S. Environmental Protection Agency (“EPA”), equivalent state and local agencies or others alleging or indicating that the Company is or may be responsible for performing and/or investigating environmental remediation, or seeking the repayment of the costs spent by governmental entities or others performing investigations and/or remediation at certain U.S. sites under the Comprehensive Environmental Response, Compensation and Liability Act or similar state laws.

The Company monitors and responds to inquiries from the EPA, equivalent state and local agencies and others at approximately 50 federally defined Superfund or state equivalent sites. While the ultimate outcome of these environmental matters is uncertain due to several factors, including the number of other parties that also may be responsible, the scope of investigation performed at such sites and the remediation alternatives pursued by such federal and equivalent state and local agencies, the Company presently believes any liability for these matters, individually and in the aggregate, will not have a material adverse effect on the Company’s financial condition, cash flows or results of operations.

 

The Company is also involved in the assessment and remediation of various other properties, including certain currently and formerly owned or operating facilities. Such assessment and remedial work is being conducted pursuant to applicable EH&S laws with varying degrees of involvement by appropriate regulatory authorities. In addition, certain environmental matters concerning the Company are pending in various courts or with certain environmental regulatory agencies with respect to these currently or formerly owned or operating locations. While the ultimate outcome of these environmental matters is uncertain, the Company presently believes the resolution of these known environmental matters, individually and in the aggregate, will not have a material adverse effect on the Company’s financial condition, cash flows or results of operations.

The Company has established liabilities for on-site and off-site environmental remediation costs where such costs are probable and reasonably estimable and believes that such liabilities are adequate. As of December 31, 2011 and March 31, 2011, the amount of such liabilities on the Company’s Consolidated Balance Sheets was approximately $27.7 million and $28.2 million respectively. Because environmental liabilities are not accrued until a liability is determined to be probable and reasonably estimable, not all potential future environmental liabilities have been included in the Company’s environmental liabilities and, therefore, additional earnings charges are possible. Also, future findings or changes in estimates could have a material adverse effect on the recorded reserves and cash flows.

The sites that currently have the largest reserves include the following:

Tampa, Florida

The Tampa site is a former secondary lead recycling plant, lead oxide production facility, and sheet lead-rolling mill that operated from 1943 to 1989. Under a RCRA Part B Closure Permit and a Consent Decree with the State of Florida, Exide is required to investigate and remediate certain historic environmental impacts to the site. Cost estimates for remediation (closure and post-closure) are expected to range from $13.0 million to $20.0 million depending on final State of Florida requirements. The remediation activities are expected to occur over the course of several years.

Columbus, Georgia

The Columbus site is a former secondary lead recycling plant that was taken out of service in 1999, but remains part of a larger facility that includes an operating lead-acid battery manufacturing facility. Groundwater remediation activities began in 1988. Costs for supplemental investigations, remediation and site closure are currently estimated at $6.0 million to $9.0 million.

Guarantees

At December 31, 2011, the Company had outstanding letters of credit with a face value of $47.3 million and surety bonds with a face value of $41.9 million. The majority of the letters of credit and surety bonds have been issued as collateral or financial assurance with respect to certain liabilities the Company has recorded including, but not limited to, environmental remediation obligations and self-insured workers’ compensation reserves. Failure of the Company to satisfy its obligations with respect to the primary obligations secured by the letters of credit or surety bonds could entitle the beneficiary of the related letter of credit or surety bond to demand payments pursuant to such instruments. The letters of credit generally have terms up to one year. Collateral held by the sureties in the form of letters of credit at December 31, 2011, pursuant to the terms of the agreement, totaled approximately $39.8 million.

Certain of the Company’s European and Asia Pacific subsidiaries have issued bank guarantees as collateral or financial assurance in connection with environmental obligations, income tax claims and customer contract requirements. At December 31, 2011, bank guarantees with an aggregate face value of $14.1 million were outstanding.

Sales Returns and Allowances

The Company provides for an allowance for product returns and/or allowances. Based upon product examination in the manufacturing re-work process, the Company believes that the majority of its product returns are not the result of product defects. The Company recognizes the estimated cost of product returns as a reduction of net sales in the period in which the related revenue is recognized. The product return estimates are based upon historical trends and claims experience, and include an assessment of the anticipated lag between the date of sale and claim/return date.

 

Changes in the Company’s sales returns and allowances liability (in thousands) are as follows:

 

Balance at March 31, 2011		$	35,707
Accrual for sales returns and allowances			32,869
Settlements made (in cash or credit) and currency translation			(32,715	)
Balance at December 31, 2011		$	35,861

(12) INCOME TAXES

The effective tax rate for the first nine months of fiscal year 2012 and fiscal year 2011 is (7,283.5%) and 6.5% respectively. The effective tax rate for the first nine months of fiscal 2012 included the recognition of taxes on income and losses in almost all of the Company’s jurisdictions with the primary exception of the United Kingdom and Spain, on which full valuation allowances are recorded. The Company released the valuation allowance for France in the third quarter of fiscal 2012 after determining that it was more likely than not that the Company would realize all deductible temporary differences and carryforwards in the foreseeable future. In fiscal 2011, the Company released full valuation allowances for Australia and Italy based on this same more-likely-than-not criteria.

The effective tax rate for the first nine months of fiscal 2012 was impacted by the following discrete items: release of a valuation allowance in France of ($76.7) million; the settlement of the 2003-2010 Spanish audit for $13.4 million; and recording of a valuation allowance on a Portugal deferred tax asset of $1.6 million.

Each quarter, the Company reviews the need to report the future realization of tax benefits of deductible temporary differences or loss carryforwards on its financial statements. All available evidence is considered to determine whether a valuation allowance should be established against these future tax benefits or previously established valuation allowances should be released. This review is performed on a jurisdiction by jurisdiction basis. As global market conditions and the Company’s financial results in certain jurisdictions change, the continued release or establishment of related valuation allowances may occur.

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. With limited exceptions, the Company is no longer subject to U.S. federal income tax examinations by tax authorities for years ended before March 31, 2009. With respect to state and local jurisdictions and countries outside of the United States, with limited exceptions, the Company and its subsidiaries are no longer subject to income tax audits for years ended before March 31, 2005. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest and penalties have been provided for any adjustments that could result from these years.

During the quarter ended December 31, 2011, the Company recorded a $13.4 million settlement with the Spanish tax authorities regarding its current and certain former Spanish subsidiaries. The settlement permanently closes income tax audits for fiscal years 2003 through 2006, and open tax audits for fiscal years 2007 through 2010. As part of the settlement, the Company agreed to withdraw its appeal of audit results for the periods 2003 through 2006. This withdrawal resulted in the forfeiture of the $13.4 million previously paid during the appeal process. The Company and the tax authorities reached an agreement on the major issue raised during the audit.

The Company’s unrecognized tax benefits decreased from $51.5 million to $49.4 million during the first nine months of fiscal 2012 due primarily to the effects of foreign currency translation plus unrecognized tax benefits established during the period less unrecognized tax benefits released during the period due to expiration of statute of limitations. The amount, if recognized, that would affect the Company’s effective tax rate at December 31, 2011 is $40.7 million.

The Company classifies interest and penalties on uncertain tax benefits as income tax expense. At both December 31, 2011 and March 31, 2011, before any tax benefits, the Company had $2.7 million of accrued interest and penalties on unrecognized tax benefits.

During the next twelve months, the Company does not expect the resolution of any tax audits which could potentially reduce unrecognized tax benefits by a material amount. However, expiration of the statute of limitations for a tax year in which the Company has recorded an uncertain tax benefit will occur in the next twelve months. The removal of this uncertain tax benefit would affect the Company’s effective tax rate by $0.4 million.

(13) RESTRUCTURING AND IMPAIRMENTS, NET

During the nine months of fiscal 2012, 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.

 

Summarized restructuring reserve and asset impairment activity:

 

		Severance Costs				Closure Costs				Total Restructuring				Asset Impairments				Total Expenses
		(In thousands)
Balance at March 31, 2011		$	18,732			$	4,607			$	23,339
Expenses			2,812				(708	)			2,104			$	1,618			$	3,722
Payments and Currency Translation			(13,417	)			(34	)			(13,451	)
Balance at December 31, 2011		$	8,127			$	3,865			$	11,992

Remaining expenditures principally represent (i) severance and related benefits payable per employee agreements and/or regulatory requirements, (ii) lease commitments for certain closed facilities, branches and offices, as well as leases for excess and permanently idle equipment payable in accordance with contractual terms, and (iii) certain other closure costs including dismantlement and costs associated with removal obligations incurred in connection with the exit of facilities.

Summarized restructuring and asset impairment expenses by segment:

 

		For the Three Months Ended								For the Nine Months Ended
		December 31, 2011				December 31, 2010				December 31, 2011				December 31, 2010
		(In thousands)
Transportation Americas		$	1,325			$	3,477			$	1,949			$	5,298
Transportation Europe & ROW			438				(1,434	)			(16	)			902
Industrial Energy Americas			209				779				555				978
Industrial Energy Europe & ROW			331				1,162				1,014				9,650
Unallocated			(158	)			97				220				696
TOTAL		$	2,145			$	4,081			$	3,722			$	17,524

(14) EARNINGS PER SHARE

The Company computes basic earnings per share by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net earnings, after adding back the after-tax amount of interest recognized in the period associated with the Company’s Floating Rate Convertible Senior Subordinated Notes, by diluted weighted average shares outstanding. For the three and nine month periods ended December 31, 2011 and 2010, market rates were below the level at which interest payments for these notes are required.

Potentially dilutive shares include the assumed exercise of stock options and the assumed vesting of restricted stock and stock unit awards (using the treasury stock method) as well as the assumed conversion of the convertible debt, if dilutive (using the if-converted method). Shares which are contingently issuable under the Company’s plan of reorganization have been included as outstanding common shares for purposes of calculating basic earnings per share.

 

Basic and diluted earnings per share for the three and nine month periods ended December 31, 2011 and 2010 are summarized as follows:

 

		For the Three Months Ended								For the Nine Months Ended
		December 31, 2011				December 31, 2010				December 31, 2011				December 31, 2010
		(In thousands, except per share amounts)
Net income attributable to Exide Technologies		$	68,215			$	31,210			$	59,435			$	40,124
Interest expense on Floating Rate Convertible Senior Subordinated Notes			—				—				—				—
		$	68,215			$	31,210			$	59,435			$	40,124
Basic weighted average shares outstanding			77,738				76,675				77,628				76,508
Effect of dilutive securities:
Floating Rate Convertible Senior Subordinated Notes			3,697				3,697				3,697				3,697
Employee stock options			—				696				380				516
Employee restricted stock awards (non-vested)			175				411				493				172
			3,872				4,804				4,570				4,385
Diluted weighted average shares outstanding			81,610				81,479				82,198				80,893
Basic earnings per share:		$	0.88			$	0.41			$	0.77			$	0.52
Diluted earnings per share:		$	0.84			$	0.38			$	0.72			$	0.50

For the three and nine months ended December 31, 2011, approximately 3.0 million and 1.8 million stock options, respectively, were excluded from the diluted earnings per share calculation because their exercise prices were greater than the average market price of the related common stock for the periods, and their inclusion would be antidilutive. For the three and nine months ended December 31, 2010, 1.6 million and 2.2 million stock options, respectively, were similarly excluded. The remaining options, if any, were included in the treasury stock method calculation, and the resulting incremental shares were included in the calculation of diluted earnings per share.

(15) FAIR VALUE MEASUREMENTS

The Company uses available market information and appropriate methodologies to estimate the fair value of its financial instruments. Considerable judgment is required in interpreting market data to develop these estimates. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. Certain of these financial instruments are with major financial institutions and expose the Company to market and credit risks and may at times be concentrated with certain counterparties or groups of counterparties. The creditworthiness of counterparties is continually reviewed, and full performance is currently anticipated.

 

The Company’s cash and cash equivalents, accounts receivable, accounts payable, and short-term borrowings all have carrying amounts that are a reasonable estimate of their fair values. The carrying values and estimated fair values of the Company’s long-term obligations and other financial instruments are as follows:

 

		December 31, 2011								March 31, 2011
		Carrying Value				Estimated Fair Value				Carrying Value				Estimated Fair Value
		(In thousands)
(Liability) Asset:
Senior Secured Notes due 2018 (a)		$	(678,496	)		$	(517,219	)		$	(675,000	)		$	(718,031	)
Convertible Senior Subordinated Notes due 2013			(60,000	)			(48,300	)			(60,000	)			(55,425	)
Interest Rate Swaps (b)			4,873				4,873				—				—
Foreign Currency Forwards (b)			(236	)			(236	)			(2,555	)			(2,555	)
Commodity swaps / forwards (b)
Asset			427				427				1,564				1,564
Liability			(944	)			(944	)			(1,263	)			(1,263	)

 

(a)	Carrying value at December 31, 2011 includes $3.5 million increase related to fair value adjustment for the $100.0 million interest rate swaps. See Notes 3 and 7.

(b)	These financial instruments are required to be measured at fair value, and are based on inputs as described in the three-tier hierarchy that prioritizes inputs used in measuring fair value as of the reported date:

 

•

Level 1 – Observable inputs such as quoted prices in active markets for identical assets and liabilities;

 

•

Level 2 – Inputs other than quoted prices in active markets that are observable either directly or indirectly; and

 

•

Level 3 – Inputs from valuation techniques in which one or more key value drivers are not observable, and must be based on the reporting entity’s own assumptions.

The following table represents our financial instruments that are measured at fair value on a recurring basis, and the basis for that measurement:

 

		Total Fair Value Measurement				Quoted Price in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
		(In thousands)
December 31, 2011:
Assets:
Interest rate swaps		$	4,873			$	—			$	4,873			$	—
Commodity swaps / forwards			427				—				427				—
Liabilities:
Foreign currency forwards			236				—				236
Commodity swaps / forwards			944				—				944				—
March 31, 2011:
Assets:
Commodity Swaps			1,564				—				1,564				—
Liabilities:
Foreign currency forwards			2,555				—				2,555				—
Commodity Swaps			1,263				—				1,263				—

The Company uses a market approach to determine the fair values of all of its derivative instruments subject to recurring fair value measurements. The fair value of each financial instrument was determined based upon observable forward prices for the related underlying financial index or commodity price, and each has been classified as Level 2 based on the nature of the underlying markets in which those derivatives are traded. For additional discussion of the Company’s derivative instruments and hedging activities, see Note 3.