Summary of EXIDE TECHNOLOGIES

Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis provide information which management believes is relevant to an assessment and understanding of the Company's consolidated financial condition and results of operations. The discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto contained in this Report on Form 10-Q.
Some of the statements contained in the following discussion of the Company's financial condition and results of operations refer to future expectations or include other "forward-looking" information. Those statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by these statements. The forward-looking information is based on various factors and was derived from numerous assumptions. See "Cautionary Statement for Purposes of the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995," included in this Report on Form 10-Q for a discussion of factors to be considered when evaluating forward-looking information detailed below. These factors could cause our actual results to differ materially from the forward looking statements contained herein. For a discussion of certain legal contingencies, see Note 11 to the Condensed Consolidated Financial Statements. Executive Overview
The Company is a global producer and recycler of lead-acid batteries. The Company's four business segments, Transportation Americas, Transportation Europe and Rest of World ("ROW"), Industrial Energy Americas, and Industrial Energy Europe and ROW provide a comprehensive range of stored electrical energy products and services for transportation and industrial applications.
Transportation markets include Original Equipment ("OE") and aftermarket automotive, heavy-duty truck, agricultural and marine applications, and new technologies for hybrid vehicles and automotive applications. Industrial markets include batteries for telecommunications systems, electric utilities, railroads, uninterruptible power supplies ("UPS"), lift trucks, mining, and other commercial vehicles.
The Company's four reportable segments are determined based upon the nature of the markets served and the geographic regions in which they operate. The Company's chief operating decision-maker monitors and manages the financial performance of these four business groups.
Factors Which Affect the Company's Financial Performance Lead and other Raw Materials. Lead represents approximately 44.3% of the Company's 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 these situations may cause customer demand for the Company's products to be reduced and the Company's net sales and gross margins to decline. The average price of lead as quoted on the London Metals Exchange ("LME") has decreased 18% from $2,108 per metric ton for the six months ended September 30, 2008 to $1,721 per metric ton for the six months ended September 30, 2009. At October 30, 2009, the quoted price on the LME was $2,321 per metric ton. To the extent that lead prices continue to be volatile and the Company is unable to maintain existing pricing or pass higher material costs resulting from this volatility to its customers, its financial performance will be adversely impacted.
Energy Costs. The Company relies on various sources of energy to support its manufacturing and distribution process, principally natural gas at its recycling facilities, electricity in its battery plants, and diesel fuel for distribution of its products. The Company seeks to recoup increased energy costs through price increases or surcharges. To the extent the Company is unable to pass on higher energy costs to its customers, its financial performance will be adversely impacted.
Competition. The global transportation and industrial energy battery markets are highly competitive. In recent years, competition has continued to intensify and has affected the Company's ability to pass along increased prices to keep pace with rising production costs. The effects of this competition have been exacerbated by excess capacity in certain of the Company's markets, and fluctuating lead prices and low-priced Asian imports in certain of the Company's markets.
Exchange Rates. The Company is exposed to foreign currency risk in most European countries, principally from fluctuations in the Euro. For the first six months of fiscal 2010, the exchange rate of the Euro to the U.S. Dollar has decreased 8.9% on average to $1.40 compared to $1.53 for the first six months of fiscal 2009. At September 30, 2009, the exchange rate of the Euro to the U.S, Dollar was $1.46 or 10.1% higher as compared to $1.33 at March 31, 2009. Fluctuations in foreign currencies impacted the Company's results for the periods presented herein. For the first six months ended September 30, 2009, approximately 53.3% of the Company's net sales were generated in Europe and ROW. Further, approximately 67.4% of the Company's aggregate accounts receivable and inventory as of September 30, 2009 were held by its European subsidiaries.
The Company is also exposed, although to a lesser extent, to foreign currency risk in the U.K., Poland, Australia, and various

Table of Contents

countries in the Pacific Rim. Fluctuations of foreign exchange rates against the U.S. Dollar can result in variations in the U.S. Dollar value of non-U.S. sales, expenses, assets, and liabilities. In some instances, gains in one currency may be offset by losses in another.
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, communications and data and material handling markets. Economic difficulties experienced in these markets and geographic locations impact the Company's financial results. OE volumes in the transportation and motive power channels have been and continue to be depressed, reflecting current unfavorable global economic conditions. In addition, capital spending by major customers in the Company's network power channels continues to be below historic levels.
Seasonality and Weather. The Company sells a disproportionate share of its transportation aftermarket batteries during the fall and early winter (the Company's third and a portion of its fourth fiscal quarters). Retailers and distributors buy automotive batteries during these periods so they will have sufficient inventory for cold weather periods. The impact of seasonality on sales has the effect of increasing the Company's working capital requirements and also makes the Company more sensitive to fluctuations in the availability of liquidity.
Unusually cold winters or hot summers may accelerate battery failure and increase demand for transportation replacement batteries. Mild winters and cool summers may have the opposite effect. As a result, if the Company's sales are reduced by an unusually warm winter or cool summer, it is not possible for the Company to recover these sales in later periods. Further, if the Company's sales are adversely affected by the weather, the Company cannot make offsetting cost reductions to protect its liquidity and gross margins in the short-term because a large portion of the Company's manufacturing and distribution costs are fixed.
Interest Rates. The Company is exposed to fluctuations in interest rates on its variable rate debt, portions of which were hedged during the six months ended September 30, 2009. See Notes 3 and 7 to the Condensed Consolidated Financial Statements in this Report on Form 10-Q. Second quarter of Fiscal 2010 Highlights and Outlook The Company's reported results continue to be impacted in fiscal 2010 by unfavorable global economic conditions, as well as fluctuations in the cost of materials and energy used in the manufacturing and distribution of the Company's products.
In the Americas, the Company obtains the vast majority of its lead requirements from five Company-owned and operated secondary lead recycling plants. These facilities reclaim lead by recycling spent lead-acid batteries, which are obtained for recycling from the Company's customers and outside spent-battery collectors. Recycling helps the Company in the Americas control the cost of its principal raw material as compared to purchasing lead at prevailing market prices. Similar to the fluctuation in lead prices, however, the price of spent batteries has also fluctuated. After a long period of rising prices, the average price of spent batteries decreased approximately 2.1% in the second quarter of fiscal 2010 versus the second quarter of fiscal 2009. The Company continues to take pricing actions and is attempting to secure higher captive spent battery return rates to help mitigate the risks associated with this price volatility.
In Europe, the Company's lead requirements are mainly fulfilled by third-party suppliers. Because of the Company's exposure to the historically volatile lead market prices in Europe, the Company has implemented several measures to offset changes in lead prices, including selective pricing actions and lead price escalators. The Company has automatic lead price escalators with virtually all OEM customers. The Company currently obtains a small portion of its lead requirements from recycling in its European facilities.
The Company expects that volatility in lead and other commodity costs, which affect all business segments, will continue to affect the Company's financial performance. However, selective pricing actions, lead price escalators in certain contracts and fuel surcharges are intended to help mitigate these risks. The implementation of selective pricing actions and price escalators generally lag the rise in market prices of lead and other commodities. Both lead price escalators and fuel surcharges may not be accepted by our customers, and if the price of lead decreases, our customers may seek disproportionate price reductions.
In addition to managing the impact of fluctuation in lead and other commodity costs on the Company's results, the key elements of the Company's underlying business plans and continued strategies are:
(i) Successful execution and completion of the Company's restructuring plan and organizational realignment of divisional and corporate functions intended to result in further targeted headcount reductions.

Table of Contents

(ii) Actions designed to improve the Company's liquidity and operating cash flow through working capital reduction plans, the sale of non-strategic assets and businesses, streamlining cash management processes, implementing plans to minimize the cash costs of the Company's restructuring initiatives, and closely managing capital expenditures.
(iii) Continued factory and distribution productivity improvements through its established EXCELL program and Take Charge! initiative.
(iv) Continued review and rationalization of the various brand offerings of products in its markets to gain efficiencies in manufacturing and distribution, and better leverage the Company's marketing spending.
(v) Increased research and development and engineering investments designed to develop enhanced lead-acid products as well as products utilizing alternative chemistries. In this regard, the Company continues to identify government funding opportunities to support near and long-term technological improvements in energy storage applications.
(vi) Gain further product and process efficiencies with implementation of the Global Procurement structure. This initiative focuses on leveraging existing relationships and creating an infrastructure for global search for products and components.
Critical Accounting Policies and Estimates The Company's discussion and analysis of its financial condition and results of operations is based upon the Company's Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates based on its historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The Company believes that the critical accounting policies and estimates disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2009 affect the preparation of its Condensed Consolidated Financial Statements. The reader of this report should refer to Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2009 for further information. Results of Operations
Three months ended September 30, 2009 compared with three months ended September 30, 2008
Net Sales
Net sales were $631.8 million for the second quarter of fiscal 2010 versus $914.2 million in the second quarter of fiscal 2009. Foreign currency translation (primarily the Euro against the U.S. dollar) unfavorably impacted net sales in the second quarter of fiscal 2010 by approximately $16.2 million. Excluding the foreign currency translation impact, net sales decreased by approximately $266.2 million, or 29.1% primarily the result of lower unit sales and $57.4 million in lead related price reductions.

                                                                                                               FAVORABLE / (UNFAVORABLE)
                                                      For the Three Months Ended                                     Currency          Non-Currency
                                            September 30, 2009          September 30, 2008           TOTAL            Related            Related
                                                                                        (In thousands)
Transportation
Americas                                   $            224,770         $           315,610        $  (90,840 )      $       -        $      (90,840 )
Europe & ROW                                            182,446                     245,355           (62,909 )         (8,142 )             (54,767 )
Industrial Energy
Americas                                                 56,559                      76,830           (20,271 )              -               (20,271 )
Europe & ROW                                            168,040                     276,379          (108,339 )         (8,028 )            (100,311 )

TOTAL                                      $            631,815         $           914,174        $ (282,359 )      $ (16,170 )      $     (266,189 )

Transportation Americas net sales were $224.8 million for the second quarter of fiscal 2010 versus $315.6 million for the second quarter of fiscal 2009. Net sales decreased by $90.8 million or 28.8% due to a decline in aftermarket and OEM unit sales as well as a $10.5 million unfavorable impact caused by the lower average price of lead. Lower unit sales in the current quarter included the transition of two customers (NAPA and CSK) to an alternative supplier. Third-party lead sales for the fiscal 2010 second quarter were approximately $3.6 million higher than such sales during the fiscal 2009 second quarter.

Table of Contents

Transportation Europe and ROW net sales were $182.5 million for the second quarter of fiscal 2010 versus $245.4 million for the second quarter of fiscal 2009. Net sales, excluding an unfavorable impact of $8.1 million in foreign currency translation, decreased by $54.8 million or 22.3% mainly due to lower unit volumes in the aftermarket and OEM channels, as well as $30.4 million in reduced pricing related to the decrease in the market price of lead. Unit sales in the European aftermarket channel, however, increased in the 2010 fiscal second quarter by 5.1% compared to such sales in the comparable 2009 fiscal period.
Industrial Energy Americas net sales were $56.6 million for the second quarter of fiscal 2010 versus $76.8 million for the second quarter of fiscal 2009. Net sales decreased by $20.3 million or 26.4% due to lower unit sales in the motive power and network power markets as well as a $7.6 million unfavorable pricing due to the lower average price of lead.
Industrial Energy Europe and ROW net sales were $168.0 million for the second quarter of fiscal 2010 versus $276.4 million for the second quarter of fiscal 2009. Net sales, excluding an unfavorable foreign currency translation impact of $8.0 million, decreased $100.3 million or 36.3% due to lower unit sales in the network power and motive power markets as well as an $8.9 million unfavorable lead related pricing.
Gross Profit
Gross profit was $129.9 million in the second quarter of fiscal 2010 versus $161.9 million in the second quarter of fiscal 2009. Gross margin increased 2.9% to 20.6% from 17.7% in the second quarter of fiscal 2009. Gross profit in each of the Company's business segments was impacted by lower unit sales, partially offset by improved manufacturing efficiencies. Foreign currency translation unfavorably impacted gross profit in the second quarter of fiscal 2010 by $2.7 million.

                                               For the Three Months Ended
                                 September 30, 2009                   September 30, 2008                       FAVORABLE / (UNFAVORABLE)
                                              Percent of                           Percent of                        Currency         Non-Currency
                              TOTAL            Net Sales           TOTAL            Net Sales          TOTAL          Related           Related
                                                                                (In thousands)
Transportation
Americas                   $     51,815              23.1 %     $     55,741              17.7 %     $  (3,926 )     $       -       $       (3,926 )
Europe & ROW                     29,967              16.4 %           27,011              11.0 %         2,956          (1,242 )              4,198
Industrial Energy
Americas                         13,062              23.1 %           22,990              29.9 %        (9,928 )             -               (9,928 )
Europe & ROW                     35,062              20.9 %           56,142              20.3 %       (21,080 )        (1,450 )            (19,630 )

TOTAL                      $    129,906              20.6 %     $    161,884              17.7 %     $ (31,978 )     $  (2,692 )     $      (29,286 )

Transportation Americas gross profit was $51.8 million or 23.1% of net sales in the second quarter of fiscal 2010 versus $55.7 million or 17.7% of net sales in the second quarter of fiscal 2009. The decrease in gross profit is primarily due to lower unit sales, partially offset by improved plant and distribution efficiencies. The increase in gross margin percentage also reflects the benefits of restructuring initiatives taken in the first quarter of fiscal 2010.
Transportation Europe and ROW gross profit was $30.0 million or 16.4% of net sales in the second quarter of fiscal 2010 versus $27.0 million or 11.0% of net sales in the second quarter of fiscal 2009. Foreign currency translation unfavorably impacted gross profit during the second quarter of fiscal 2010 by approximately $1.2 million. The remaining increase in gross profit was primarily due to benefits realized by the closure of the Auxerre, France battery plant and savings realized in all facilities from the Take Charge! initiative. These savings were partially offset by lower unit sales, principally in the OEM channels.
Industrial Energy Americas gross profit was $13.1 million or 23.1% of net sales in the second quarter of fiscal 2010 versus $23.0 million or 29.9% of net sales in the second quarter of fiscal 2009. The decrease in gross profit was primarily due to lower unit sales in both the network power and motive power markets.
Industrial Energy Europe and ROW gross profit was $35.1 million or 20.9% of net sales in the second quarter of fiscal 2010 versus $56.1 million or 20.3% of net sales in the second quarter of fiscal 2009. Gross profit, excluding an unfavorable foreign currency translation impact of $1.5 million, decreased $19.6 million primarily due to lower unit sales in both the network power and motive power markets, partially offset by improved plant and distribution efficiencies. The closure of the Company's battery facility in the U.K. began to favorably impact results late in the quarter.
Expenses
Total expenses were $128.3 million in the second quarter of fiscal 2010 versus $167.9 million in the second quarter of fiscal 2009, and were impacted by the following items:

Table of Contents

� Selling, marketing, and advertising expenses decreased $15.9 million, to $63.8 million in the second quarter of fiscal 2010 from $79.7 million in the second quarter of fiscal 2009 due in part to a favorable foreign currency translation of $3.0 million. Excluding the foreign currency translation impact, the expenses decreased by $12.9 million primarily due to decreases in sales commissions and other spending controls.

� General and administrative expenses increased $2.9 million, to $46.4 million in the second quarter of fiscal 2010 from $43.5 million in the second quarter of fiscal 2009. The increase included a favorable foreign currency translation impact of $2.1 million. Excluding the foreign currency translation impact, the expenses in the second quarter of fiscal 2010 increased by $5.0 million primarily due to increases in engineering spending and non-cash stock compensation costs, partially offset by decreases in discretionary expenses.

� Restructuring expenses increased $0.7 million to $10.4 million in the second quarter of fiscal 2010 from $9.7 million in the second quarter of fiscal 2009. This increase primarily related to costs associated with headcount reductions in certain manufacturing facilities, principally the Over Hulton, U.K. industrial energy battery plant closure.

� Other (income) expenses were ($7.0) million in the second quarter of fiscal 2010 versus $16.7 million in the second quarter of fiscal 2009. The net change was primarily driven by a currency remeasurement gain of $7.5 million in the current period compared with a $26.8 million loss in the prior year, partially offset by a $8.9 million lower gain on revaluation of warrants.

� Interest expense decreased $3.6 million, to $14.8 million in the second quarter of fiscal 2010 from $18.4 million in the second quarter of fiscal 2009 primarily due to the favorable impact of lower borrowings and interest rates on borrowings under the Company's Credit Agreement.

                                                                                                               FAVORABLE / (UNFAVORABLE)
                                                      For the Three Months Ended                                     Currency          Non-Currency
                                            September 30, 2009          September 30, 2008           TOTAL           Related             Related
                                                                                        (In thousands)
Transportation
Americas                                   $             29,629         $            31,987        $   2,358        $        -        $        2,358
Europe & ROW                                             25,811                      33,582            7,771             1,509                 6,262
Industrial Energy
Americas                                                  9,948                      10,067              119                 -                   119
Europe & ROW                                             43,807                      45,511            1,704             1,561                   143

Unallocated expenses                                     19,182                      46,759           27,577               522                27,055

TOTAL                                      $            128,377         $           167,906        $  39,529        $    3,592        $       35,937

Transportation Americas expenses were $29.6 million in the second quarter of fiscal 2010 versus $32.0 million in the second quarter of fiscal 2009. The decrease in expenses was primarily due to restructuring initiatives.
Transportation Europe and ROW expenses were $25.8 million in the second quarter of fiscal 2010 versus $33.6 million in the second quarter of fiscal 2009. Foreign currency translation favorably impacted expenses in the second quarter of fiscal 2010 by approximately $1.5 million. Excluding the foreign currency translation impact, expenses decreased by $6.3 million primarily due to a higher bad debt provision in the prior year, as well as lower marketing expenses.
Industrial Energy Americas expenses were essentially flat at $10.0 million in the second quarter of fiscal 2010 versus $10.1 million in the second quarter of fiscal 2009.
Industrial Energy Europe and ROW expenses were $43.8 million in the second quarter of fiscal 2010 versus $45.5 million in the second quarter of fiscal 2009. Excluding a favorable foreign currency translation impact of approximately $1.6 million, expenses were essentially flat.
Unallocated corporate expenses were $19.2 million in the second quarter of fiscal 2010 versus $46.8 million in the second quarter of fiscal 2009:

Table of Contents

                                                                  For the Three Months Ended                      FAVORABLE
                                                        September 30, 2009          September 30, 2008          (UNFAVORABLE)
                                                                                    (In thousands)
Corporate expenses                                      $            11,376         $            10,606        $          (770 )
Restructuring                                                           724                         153                   (571 )
Other (income) expense:
Currency remeasurement (gain) loss                                   (7,484 )                    26,805                 34,289
Gain on revaluation of warrants                                        (269 )                    (9,214 )               (8,945 )
Other                                                                    18                           8                    (10 )
Interest, net                                                        14,817                      18,401                  3,584


TOTAL                                                   $            19,182         $            46,759        $        27,577

Foreign currency translation favorably impacted unallocated expenses by $0.5 million in the second quarter of fiscal 2010.

   Income Taxes

                                           For the Three Months Ended
                                   September 30, 2009      September 30, 2008
. . .