No immediate change in work schedule, pay and benefits is expected for the more than 230 who work at Exide Technologies in Fort Smith as a result of the company filing for Chapter 11 bankruptcy reorganization.
In the documents filed over the weekend and announced early Monday (June 10), officials with the battery-making company blamed the financial bind on Wal-Mart Stores Inc., the continued economic woes in the European market and the high price of lead.
The company has 13 manufacturing operations in the U.S., including the Fort Smith plant located at the corner of Zero Street and Old Greenwood Road, and 74 branch operations which sell and distribute products. Exide has 3,600 U.S. employees, with 1,100 salaried and 2,500 hourly, including 540 union workers.
Susan Jaramillo, a communications consultant with Exide, said the Fort Smith plant employs 231 – 193 hourly and 38 salaried.
Exide’s industrial batteries are used in the material handling industry for electric fork-lift trucks as well as in other machinery, including floor cleaning machinery, powered wheelchairs, railroad locomotives, mining equipment, and electric road vehicles. Also, the company’s “network” power batteries provide energy storage for systems that require uninterrupted power supply and are used to power telecommunications systems, computer installations and data centers, hospitals, air traffic control systems, security systems, electric utilities, railways, and various military applications.
Only the company’s U.S. operations, including the GNB Industrial Division, are part of the filing. The international operations are excluded from the filing, and Exide plans to continue to operate globally without interruption during the reorganization. The company is using GCG as administrative agent between the company and the Court through the bankruptcy proceedings. The company said it has more than 20,000 creditors.
In the bankruptcy documents, Exide said higher production costs, “intense” competition, ongoing struggles in the European market and increased difficulty in obtaining affordable credit resulted in the decision to reorganize.
Exide officials said in the documents that competition has “intensified” with large retailers able to “use their buying power to negotiate lower prices and longer payment terms,” or to simply cut off the supplier.
“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,” noted an Exide bankruptcy document.
Following the loss of the Wal-Mart business, Exide moved to reduce expenses by closing its Frisco, Texas, plant and idling its Reading, Penn., smelting operation.
Exide was also hit with higher costs when operations at its Vernon, Calif., lead recycling plant were suspended by the federal Environmental Protection Agency. On April 24, 2013, the EPA suspended the operations, saying the plant’s storm-water system was not in compliance with state requirements. The shutdown forced Exide to use third-party lead recyclers which is expected to reduce the company’s bottom line by $24 million in the six-month period following the shutdown.
The cost of lead is also a problem.
“Suppliers of raw materials have subjected Exide to pricing premiums, and Exide has been unable to pass along higher production costs to customers,” according to the filing.
The company said Monday the reorganization should not change business operations or employee pay.
“Operations both in the U.S. and in the rest of the world will continue to serve customers in a timely manner with the same quality products, and outstanding customer care as they did before the filing” James Bolch, Exide president and CEO, said in a statement. “All post-filing obligations to U.S. suppliers will be paid on time and within terms. We intend to pay U.S. employees as usual and do not expect any material changes to their benefits. Outside of the U.S., obligations to employees and suppliers will not be impacted by the filing.”
However, it’s possible that not all operations, products and services will survive the reorganization.
Bolch said in the statement that the restructuring “will allow us to strengthen our balance sheet and complete the operational changes that build upon the strategies that we have been pursuing. Over and above these efforts, we intend to become even more aggressive in reducing costs, taking actions with respect to underperforming business segments and to focus on the most attractive areas for future growth.”
Exide secured $500 million debtor-in-possession (DIP) financing through a group of financial institutions and investors in connection with the filing.
Exide noted in its statement: “Once approved by the Court, this financing will enhance the Company’s global liquidity position with approximately $300 million in new capital, in order to allow it to pursue its restructuring goals. The proceeds of the DIP financing together with cash generated from daily operations and cash on hand will be used to fund post-petition operating expenses. Exide’s global management team will continue to manage both the U.S. and global businesses.”
Link here for the bankruptcy filing, and link here for the "first day" filing document that provides more details on the reasons for the action.