UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ý☒ | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended March 31, 2016 or |
for the fiscal year ended March 31, 2023 or |
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¨☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to |
Commission file number: 001-32253
ENERSYS
(Exact name of registrant as specified in its charter)
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Delaware | | 23-3058564 |
(State or other jurisdiction of incorporation or organization)
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2366 Bernville Road
Reading, Pennsylvania 19605
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: 610-208-1991
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol | | Name of each exchange on which registered |
Common Stock, $0.01 par value per share | | ENS | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ý YES Yes ¨ NO No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ YES Yes ý NO No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý YES Yes ¨ NO No
Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES Yes ý NO No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer | | ☒ | | Accelerated filer | | ☐ |
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Large accelerated filer x
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Non-accelerated filer¨ | | Smaller reporting company ¨
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☐(Do not check if a smaller reporting company) | | Smaller reporting company | | ☐ |
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Emerging growth company | | ☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ Yes ý No
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨ YES ☐ Yes ý NO No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates at September 27, 2015October 2, 2022: $2,273,628,924$2,374,598,929 (1) (based upon its closing transaction price on the New York Stock Exchange on September 25, 2015)October 2, 2022).
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(1) | For this purpose only, “non-affiliates” excludes directors and executive officers. |
(1)For this purpose only, “non-affiliates” excludes directors and executive officers.
Common stock outstanding at May 27, 2016: 43,260,60319, 2023: 40,909,454 Shares of Common Stock
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be held on July 28, 2016or about August 3, 2023 are incorporated by reference in Part III of this Annual Report.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a safe harbor for forward-looking statements made by or on behalf of EnerSys. EnerSys and its representatives may, from time to time, make written or verbal forward-looking statements, including statements contained in EnerSys'EnerSys’ filings with the Securities and Exchange Commission ("SEC"(“SEC”) and its reports to stockholders. Generally, the inclusion of the words “anticipates,“anticipate,” “believe,” “expect,” “future,” “intend,” “estimate,” “anticipate,” “will,” “plans,” or the negative of such terms and similar expressions identify statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and that are intended to come within the safe harbor protection provided by those sections. All statements addressing operating performance, events, or developments that EnerSys expects or anticipates will occur in the future, including statements relating to sales growth, earnings or earnings per share growth, and market share, as well as statements expressing optimism or pessimism about future operating results, are forward-looking statements within the meaning of the Reform Act. The forward-looking statements are and will be based on management’s then-current beliefs and assumptions regarding future events and operating performance and on information currently available to management, and are applicable only as of the dates of such statements.
Forward-looking statements involve risks, uncertainties and assumptions. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Actual results may differ materially from those expressed in these forward-looking statements due to a number of uncertainties and risks, including the risks described in this Annual Report on Form 10-K and other unforeseen risks. You should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Annual Report on Form 10-K, even if subsequently made available by us on our website or otherwise, and we undertake no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Annual Report on Form 10-K.
Our actual results may differ materially from those contemplated by the forward-looking statements for a number of reasons, including the following factors:
•economic, financial and other impacts of the COVID-19 pandemic, global supply chain disruptions, and labor shortages;
•general cyclical patterns of the industries in which our customers operate;
•global economic trends, competition and geopolitical risks, including impacts from the ongoing conflict between Russia and Ukraine and the related sanctions and other measures, changes in the rates of investment or economic growth in key markets we serve, or an escalation of sanctions, tariffs or other trade tensions between the U.S. and China or other countries, and related impacts on our global supply chains and strategies;
•the extent to which we cannot control our fixed and variable costs;
•the raw materials in our products may experience significant fluctuations in market price and availability;
•certain raw materials constitute hazardous materials that may give rise to costly environmental and safety claims;
•legislation regarding the restriction of the use of energy or certain hazardous substances in our products;
•risks involved in our operations such as supply chain issues, disruption of markets, changes in import and export laws, environmental regulations, currency restrictions and local currency exchange rate fluctuations;
•our ability to raise our selling prices to our customers when our product costs increase;
•the extent to which we are able to efficiently utilize our global manufacturing facilities and optimize our capacity;
general economic•changes in macroeconomic and market conditions inand market volatility, including inflation, interest rates, the markets in which we operate;value of securities and other financial assets, transportation costs, costs and availability of electronic components, lead, plastic resins, steel, copper and other commodities used by us, and the impact of such changes and volatility on our financial position and business;
•competitiveness of the battery markets and other energy solutions for industrial applications throughout the world;
•our timely development of competitive new products and product enhancements in a changing environment and the acceptance of such products and product enhancements by customers;
•our ability to adequately protect our proprietary intellectual property, technology and brand names;
•litigation and regulatory proceedings to which we might be subject;
•our expectations concerning indemnification obligations;
•changes in our market share in the geographic business segments where we operate;
•our ability to implement our cost reduction initiatives successfully and improve our profitability;
•quality problems associated with our products;
•our ability to implement business strategies, including our acquisition strategy, manufacturing expansion and restructuring plans;
•our acquisition strategy may not be successful in locating advantageous targets;
•our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we acquire into our operations and our ability to realize related revenue synergies, strategic gains, and cost savings within expected time frames;may be significantly harder to achieve, if at all, or may take longer to achieve;
•potential goodwill impairment charges, future impairment charges and fluctuations in the fair values of reporting units or of assets in the event projected financial results are not achieved within expected time frames;
•our debt and debt service requirements which may restrict our operational and financial flexibility, as well as imposing unfavorable interest and financing costs;
•our ability to maintain our existing credit facilities or obtain satisfactory new credit facilities;facilities or other borrowings;
•adverse changes in our short-short and long-term debt levels under our credit facilities;
•our exposure to fluctuations in interest rates on our variable-rate debt;
•our ability to attract and retain qualified management and personnel;
•our ability to maintain good relations with labor unions;
•credit risk associated with our customers, including risk of insolvency and bankruptcy;
•our ability to successfully recover in the event of a disaster affecting our infrastructure;infrastructure, supply chain, or our facilities;
•delays or cancellations in shipments;
•occurrence of natural or man-made disasters or calamities, including health emergencies, the spread of infectious diseases, pandemics, vaccine mandates, outbreaks of hostilities or terrorist acts, or actsthe effects of war, could cause damageclimate change, and our ability to deal effectively with damages or disruption to our operations, our suppliers, channels to market or customers, or could cause costs to increase, or create political or economic instability;disruptions caused by the foregoing; and
•the operation, capacity and security of our information systems and infrastructure.
This list of factors that may affect future performance is illustrative, but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty.
EnerSys
Annual Report on Form 10-K
For the Fiscal Year Ended March 31, 20162023
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PART I
PART I
Overview
EnerSys (the “Company,” “we,” or “us”) is the world’s largest manufacturer, marketera world leader in energy storage and distributor ofpower solutions for industrial batteries.applications. We alsodesign, manufacture, market and distribute related products such asenergy systems solutions, motive power batteries, specialty batteries, battery chargers, power equipment, outdoor cabinet enclosures and battery accessories and weoutdoor thermal equipment enclosures solutions for a global customer base. Energy Systems, which combine power conversion, power distribution, energy storage, and thermally managed enclosures, are used in the telecommunication, broadband, data center, and utility industries, for uninterruptible power and numerous other applications requiring stored energy solutions. Motive Power batteries and chargers are utilized in electric forklift trucks, automated guided vehicles, and other industrial electric powered vehicles. Specialty batteries are used in aerospace and defense applications, large over the road trucks, and premium automotive and medical. We also provide related after-marketaftermarket and customer-supportcustomer support services for industrial batteries. We market and sell our products globally to over 10,000 customers in more than 100 countries through a network of distributors, independent representatives, and our internal sales force.
We operate and manage our business in three geographic regions of the world—Americas, EMEA and Asia, as described below. Our business is highly decentralized with manufacturing locations throughoutforce around the world. More than half
The Company's chief operating decision maker, or CODM (the Company's Chief Executive Officer), reviews financial information for purposes of our manufacturing capacity is located outsideassessing business performance and allocating resources, by focusing on the lines of the United States, and approximately 50% of our net sales were generated outside of the United States.business on a global basis. The Company hasidentifies the following as its three operating segments, based on lines of business:
The Company's three reportable segments, based on geographic regions, defined as follows:
Americas, which includes North and South America, with our segment headquarters in Reading, Pennsylvania, USA;
EMEA, which includes Europe, the Middle East and Africa, with our segment headquarters in Zug, Switzerland; and
Asia, which includes Asia, Australia and Oceania, with our segment headquarters in Singapore.
We have two primary product lines: reserve power and motive power products. Net sales classifications by product linelines of business, are as follows:
Reserve power products are used for backup power for the continuous operation of critical applications in telecommunications systems,•Energy Systems - uninterruptible power systems, or “UPS” applications for computer and computer-controlled systems and other specialty power applications, including securityused in data centers, as well as telecommunications systems, premium starting, lightingswitchgear and ignition applications, in switchgear, electrical control systems used in industrial facilities and electric utilities, large-scale energy storage and energy pipelines, in commercial aircraft, satellites, military aircraft, submarines, shipspipelines. Energy Systems also includes highly integrated power solutions and tactical vehicles. Reserve power products also includeservices to broadband, telecom, renewable and industrial customers, as well as thermally managed cabinets and enclosures for electronic equipment and batteries.
•Motive power products are used to provide Power - power for electric industrial forklifts used in manufacturing, warehousing and other material handling applications as well as mining equipment, diesel locomotive starting and other rail equipment.
equipment; and
•Specialty - premium batteries for starting, lighting and ignition applications in premium automotive and large over-the-road trucks, energy storage solutions for satellites, military land vehicles, aircraft, submarines, tactical vehicles, as well as medical devices and equipment.
Additionally, see
See Note 2223 to the Consolidated Financial Statements for information on segment reporting.
Fiscal Year Reporting
In this Annual Report on Form 10-K, when we refer to our fiscal years, we state “fiscal” and the year, as in “fiscal 2016”2023”, which refers to our fiscal year ended March 31, 2016.2023. The Company reports interim financial information for 13-week periods, except for the first quarter, which always begins on April 1, and the fourth quarter, which always ends on March 31. The four quarters in fiscal 20162023 ended on June 28, 2015, September 27, 2015, December 27, 2015,July 3, 2022, October 2, 2022, January 1, 2023, and March 31, 2016,2023, respectively. The four quarters in fiscal 20152022 ended on June 29, 2014, September 28, 2014, December 28, 2014,July 4, 2021, October 3, 2021, January 2, 2022, and March 31, 2015,2022, respectively.
History
EnerSys and its predecessor companies have been manufacturers of industrial batteries for over 125 years. Morgan Stanley Capital Partners teamed with the management of Yuasa, Inc. in late 2000 to acquire from Yuasa Corporation (Japan) its reserve power and motive power battery businesses in North and South America. We were incorporated in October 2000 for the purpose of completing the Yuasa, Inc. acquisition. On January 1, 2001, we changed our name from Yuasa, Inc. to EnerSys to reflect our focus on the energy systems nature of our businesses.
In 2004, EnerSys completed its initial public offering (the “IPO”) and the Company’s common stock commenced trading on the New York Stock Exchange, under the trading symbol “ENS”.
Key Developments
There have been several key stages in the development of our business, which explain to a significant degree our results of operations over the past several years.
In March 2002, we acquired the reserve power and motive power business of the Energy Storage Group of Invensys plc. (“ESG”ESGI”). Our successful integration of ESGESGI provided global scale in both the reserve and motive power markets. The ESGESGI acquisition also provided us with a further opportunity to reduce costs and improve operating efficiency that, among other initiatives, led to closing underutilized manufacturing plants, distribution facilities, sales offices and eliminating other redundant costs, including staff.efficiency.
DuringBetween fiscal years 2003 through 2015,2023, we made twenty-fivethirty-four acquisitions around the globe. InThere were no acquisitions in fiscal 2016,2023, 2022 and 2021 but we completed the acquisition of ICS Industries Pty. Ltd. (ICS),NorthStar, headquartered in Melbourne, Australia. ICS is a leading full line shelter designerStockholm, Sweden in fiscal 2020 and manufacturer with installation and maintenance services serving the telecommunications, utilities, datacenter, natural resources and transport industries operatingof Alpha in Australia and serving customers in the Asia Pacific region.fiscal 2019.
Our Customers
We serve over 10,000 customers in over 100 countries, on a direct basis or through our distributors. We are not overly dependent on any particular end market. Our customer base is highly diverse, and no single customer accounts for more than 5%10% of our revenues.
Our reserve powerEnergy Systems customers consist of both global and regional customers. These customers are in diverse markets including telecom, UPS,telecommunication and broadband services, data centers, electric utilities, security systems, emergency lighting, premium starting, lightingrenewable energy, and ignition applications and space satellites. In addition, we sell our aerospace and defense products in numerous countries, including the governments of the U.S., Germany and the U.K. and to major defense and aviation original equipment manufacturers (“OEMs”).industrial utilities.
Our motive powerMotive Power products are sold to a large, diversified customer base. These customers include material handling equipment dealers, OEMsforklift and heavy truck original equipment manufacturers (“OEMs”) and end users of such equipment. End users include manufacturers, distributors, warehouse operators, retailers, airports, mine operators and railroads.
Our Specialty products are utilized in transportation, primarily in premium automotive and large over-the-road trucking, aerospace and defense and medical markets. The products are sold globally to OEMs, distribution partners, vehicle fleets and directly to government entities such as the United States of America, Germany and the United Kingdom.
Distribution and Services
We distribute, sell and service reserve and motive powerour products throughout the world, principally through company-owned sales and service facilities, as well as through independent manufacturers’ representatives. Our company-owned network allows us to offer high-quality service, including preventative maintenance programs and customer support. Our warehouses and service locations enable us to respond quickly to customers in the markets we serve. We believe that the extensive industry experience of our sales organization results in strong long-term customer relationships.
Manufacturing and Raw Materials
We manufacture and assemble our products at manufacturing facilities located in the Americas, EMEA and Asia. With a view toward projected demand, we strive to optimize and balance capacity at our battery manufacturing facilities globally, while simultaneously minimizing our product cost. By taking a global view of our manufacturing requirements and capacity, we believe we are better able to anticipate potential capacity bottlenecks and equipment and capital funding needs.
The primary raw materials used to manufacture our products include lead, plastics, steel and copper. We purchase lead from a number of leading suppliers throughout the world. Because lead is traded on the world’s commodity markets and its price fluctuates daily, we periodically enter into hedging arrangements for a portion of our projected requirements to reduce the volatility of our costs.
Competition
The industrial batteryenergy storage market is highly competitive both among competitors who manufacture and sell industrial energy storage solutions and batteries and among customers who purchase industrial batteries.energy solutions. Our competitors range from development stage companies to large domestic and international corporations. Certain of our competitors produce energy storage products utilizing technologies that we do not possess at this time.or chemistries different from our own. We compete primarily on the basis of reputation, product quality, reliability of service, delivery lead time and price. We believe that our products and services are competitively priced.
Energy Systems
Americas
We believe that we have the largest market share in the Americas industrial battery market. We compete principally with East Penn Manufacturing, Exide Technologies and(Stryten), Fiamm, SAFT, New Power, in both the reserve and motive products markets; and also C&D Technologies Inc., EaglePicher (OM Group)Vertiv, ABB, Amphenol, Eltek (a Delta Group company), NorthStar Battery, SAFT as well as Chinese producers in the reserve products market.producers.
EMEAMotive Power
We believe that we have the largest market share in the European industrial battery market. Our primary global competitors arein traditional lead-acid include East Penn Manufacturing, Exide Technologies FIAMM,(Stryten), Hoppecke, SAFTEternity, Midac, Sunlight and TAB, as well as a number of domestic Chinese producers in the reserve products market; and Eternity, Exide Technologies, Hoppecke, Midac and TABmanufacturers.
Additionally, while lithium-ion battery technology in the motive products market.power space has traditionally been relegated to smaller material handling applications, we have seen the entrance of a number of companies into larger battery types, acting as lithium cell packagers or integrators of cells sourced primarily from Asia. The integrators include forklift original equipment manufacturers either directly or through partnership with other entities.
AsiaSpecialty
We havecompete globally within the transportation, aerospace and defense markets and specialized lithium technologies used in these critical applications. Our thin plate pure lead (TPPL) technology is a small share of the fragmented Asian industrial battery market. We compete principally with GS-Yuasa, Shin-Kobe and Zibo Torchsignificant player in the motive products market;applications using absorbed glass materials (AGM). Our major competitors in AGM technology are Clarios, East Penn Manufacturing, Exide Technologies (Stryten), Fiamm, Banner and Amara Raja, China Shoto, Coslight, Exide Industries, LeochAtlas. In the Aerospace and Narada, in the reserve products market.Defense specialized markets our main competitors are Eagle Picher and SAFT.
Warranties
Warranties for our products vary geographically and by product type and are competitive with other suppliers of these types of products. Generally, our reserve powerEnergy Systems product warranties range from one to twenty years, and our motive powerMotive Power product warranties range from one to seven years.five years and from one to four years for Specialty transportation batteries. The length of our warranties is varied to reflect regional characteristics and competitive influences. In some cases, our warranty period may include a pro rata period, which is typically based around the design life of the product and the application served. Our warranties generally cover defects in workmanship and materials and are limited to specific usage parameters.
Intellectual Property
We have numerous patents and patent licenses in the United States and other jurisdictions but do not consider any one patent to be material to our business. From time to time, we apply for patents on new inventions and designs, but we believe that the growth of our business will depend primarily upon the quality of our products and our relationships with our customers, rather than the extent of our patent protection.
We believe we are leadersthe leader in thin plate pure lead technology ("TPPL"). Some aspects of this technology may be patented in the future.TPPL technology. We believe that a significant capital investment would be required by any party desiring to produce products using TPPL technology for our markets.
We own or possess exclusive and non-exclusive licenses and other rights to use a number of trademarks in various jurisdictions. We have obtained registrations for many of these trademarks in the United States and other jurisdictions. Our various trademark registrations currently have durations of approximately 10 to 20 years, varying by mark and jurisdiction of registration and may be renewable. We endeavor to keep all of our material registrations current. We believe that many such rights and licenses are important to our business by helping to develop strong brand-name recognition in the marketplace.
Seasonality
Our business generally does not experience significant quarterly fluctuations in net sales as a result of weather or other trends that can be directly linked to seasonality patterns, butalthough transportation and power electronics can experience seasonality in colder months. Despite that, historically our fourth quarter is our best quarter with higher revenues and generally more working days andwhile our second quarter is the weakest due to the summer holiday season in Western Europe and Americas.North America.
Product and Process Development
Our product and process development efforts are focused on the creation and optimization of new batteryenergy storage products, using existing technologies, which, in certain cases, differentiate our stored energy solutions from that of our competition.and integrated power systems and controls. We allocate our resources to the following key areas:
•the design and development of new products;
•optimizing and expanding our existing product offering;
•waste and scrap reduction;
•production efficiency and utilization;
•capacity expansion without additional facilities; and
•quality attribute maximization.
Employees
At March 31, 2016,2023, we had approximately 9,40011,350 employees. Of these employees, approximately 29%26% were covered by collective bargaining agreements. Employees covered by collective bargaining agreements that did not exceedexpire in the next twelve months were approximately 7%9% of the total workforce. The average term of these agreements is two2 years, with the longest term being three4.0 years. We consider our employee relations to be good. We did not experience any significant labor unrest or disruption of production during fiscal 2016.2023.
Information about Our Executive Officers
As of May 24, 2023, our executive officers are:
David M. Shaffer, age 58, President and Chief Executive Officer. Mr. Shaffer has been a director of EnerSys and has served as our President and Chief Executive Officer since April 2016. Prior thereto, he served as President and Chief Operating Officer since November 2014. From January 2013 through October 2014, he served as our President-EMEA. From 2008 to 2013, Mr. Shaffer was our President-Asia. Prior thereto he was responsible for our telecommunications sales in the Americas. Mr. Shaffer joined EnerSys in 2005 and has worked in various roles of increasing responsibility in the industry since 1989. Mr. Shaffer received his Masters of Business Administration degree from Marquette University and his Bachelor of Science degree in Mechanical Engineering from the University of Illinois.
Andrea J. Funk, age 53, Executive Vice President and Chief Financial Officer. Ms. Funk joined EnerSys in December 2018 and served as Vice President Finance, Americas. She was promoted to Executive Vice President & Chief Financial Officer effective April 1, 2022. Ms. Funk holds a Master of Business Administration degree from The Wharton School of Business, and a Bachelor of Science degree in accounting from Villanova University and was a certified public accountant. Previously, Ms. Funk served as Chief Financial Officer and then Chief Executive Officer of Cambridge Lee Industries LLC from 2010-2018. Prior, she served in positions of increasing responsibility at Carpenter Technology, Arrow International, Rhone-Poulenc Rorer, Bell Atlantic Corporation and Ernst & Young. Since July 2017, Ms. Funk has served on the Board of Directors of Crown Holdings Inc., whose shares are traded on the New York Stock Exchange, and is a member of their Audit and Compensation Committees.
Joern Tinnemeyer, age 50, Senior Vice President and Chief Technology Officer. Mr. Tinnemeyer has served as Senior Vice President and Chief Technology Officer since October 2017. He joined EnerSys in August 2016 as its Vice President and Chief Technology Officer. Mr. Tinnemeyer is responsible for global engineering, global quality, and technology development. His primary focus of expertise includes energy storage systems, system design optimization, safety topologies and control theory. He has worked on some of the most advanced lithium battery packs for major automotive OEMs. He currently also serves as Chairman of NaatBatt, North America’s foremost organization to foster advanced energy storage systems. Mr. Tinnemeyer studied applied mathematics and electrical engineering at the University of Toronto and holds a MSc in Astronautics and Space Engineering.
Shawn M. O’Connell, age 50, President, Motive Power Global. Mr. O’Connell has served as our President, Motive Power Global since July 2020. Prior thereto, from April 2019 through July 2020, he served as our President, Motive Power, our Vice President–Reserve Power Sales and Service for the Americas from February 2017, and Vice President of EnerSys Advanced Systems from December 2015 to January 2017. Mr. O’Connell joined EnerSys in 2011, serving in various sales and marketing capacities in several areas of our business. Mr. O’Connell received his Master of Business Administration degree in International Business from the University of Redlands, CA and his Bachelor of Arts degree in English Literature from the California State University, San Bernardino. Mr. O’Connell is a veteran of the U.S. Army’s 82nd Airborne Division (Paratroopers) where he served as a Signals Intelligence Analyst, Spanish Linguist, and held a Top-Secret security clearance.
Andrew M. Zogby, age 63, President, Energy Systems Global. Mr. Zogby has served as President, Energy Systems Global since July 2020. Prior thereto, from April 2019, he served as President, Energy Systems–Americas. He joined EnerSys upon completion of the acquisition of Alpha Technologies in December 2018. Mr. Zogby served as President of Alpha Technologies since 2008 and brings over 30 years of experience in global broadband, telecommunications and renewable energy industries. He has held corporate leadership positions with several leading technology firms. Mr. Zogby received his Bachelor of Science degree in Industrial and Labor Relations from LeMoyne College, Syracuse, New York, and his Master of Business Administration degree from Duke University’s Fuqua School of Business. He is active in the US Chamber of Commerce, and serves on the C_TEC, Chamber Technology Engagement Center Committee.
Environmental Matters and Climate Change Impacts
We are committed to the protection of the environment and train our employees to perform their duties accordingly. In the manufacture of our products throughout the world, we process, store, dispose of and otherwise use large amounts of hazardous materials, especially lead and acid. As a result, we are subject to extensive and evolving environmental, health and safety laws and regulations governing, among other things: the generation, handling, storage, use, transportation and disposal of hazardous materials; emissions or discharges of hazardous materials into the ground, air or water; and the health and safety of our employees. In addition, we are required to comply with the regulation issued from the European Union called Registration, Evaluation, Authorization and Restriction of Chemicals or “REACH,” that came into force on June 1, 2007.“REACH”. Under the regulation, companies whichthat manufacture or import more than one ton of a covered chemical substance per year are required to register it in a central database administered by the European Chemicals Agency. REACHThe registration process requires a registration over a periodthe submission of 11 years.information to demonstrate the safety of chemicals as used and could result in significant costs or delay the manufacture or sale of our products in the European Union. Additionally, industry associations and their member companies, including EnerSys, have scheduled meetings with the European Union member countries to advocate for their support of an exemption for lead compounds. Compliance with these laws and regulations results in ongoing costs. Failure to comply with these laws and regulations, or to obtain or comply with required environmental permits, could result in fines, criminal charges or other sanctions by regulators. From time to time, we have had instances of alleged or actual noncompliance that have resulted in the imposition of fines, penalties and required corrective actions. Our ongoing compliance with environmental, health and safety laws, regulations and permits could require us to incur significant expenses, limit our ability to modify or expand our facilities or continue production and require us to install additional pollution control equipment and make other capital improvements. In addition, private parties, including current or former employees, can bring personal injury or other claims against us due to the presence of, or their exposure to, hazardous substances used, stored, transported or disposed of by us or contained in our products.
Sumter, South Carolina
We currently are responsible for certain environmental obligations at our former battery facility in Sumter, South Carolina, that predate our ownership of this facility. This battery facility was closed in 2001 and is separate from our current metal fabrication facility in Sumter. We have a reserve for this facility that totaled $1.1 million as of March 31, 2016. Based on current information, we believe this reserve is adequate to satisfy our environmental liabilities at this facility.
Environmental and safety certifications
SixteenSeventeen of our facilities in the Americas, EMEA and Asia are certified to ISO 14001 standards. ISO 14001 is a globally recognized, voluntary program that focuses on the implementation, maintenance and continual improvement of an environmental management system and the improvement of environmental performance. Seven facilities in EuropeEMEA and one in AfricaAsia are certified to OHSAS 18001ISO 45001 standards. OHSAS 18001The ISO 45001 is a globally recognized occupational health and safety management systems standard.
Climate change impacts
The potential impact of climate change on our operations is uncertain. The changing climate may result in new and erratic weather patterns, increases in the frequency or severity of storms, increased and decreased temperatures and rising sea levels. As discussed elsewhere in this Annual Report on Form 10-K, including in Item 1A. Risk Factors, our operating results are significantly influenced by weather, and major changes in historical weather patterns could have a notable impact on our future operating results. For example, if climate change results in drier weather and more accommodating temperatures over a significant period of time, we may be able to increase our productivity, which could positively impact our revenues and gross margins. Conversely, if climate change results in a greater amount of rainfall, snow, ice or other less accommodating weather
conditions, we could experience reduced productivity, which could negatively impact our revenues and gross margins. Further, while an increase in severe weather events, such as hurricanes, tropical storms, blizzards and ice storms, can create a greater amount of emergency restoration service work (an area of potential revenue generation), it often also can result in delays or other negative consequences for our manufacturing operations, or challenges to the consistent delivery of materials from our supply chain or of our products to distributors, which could negatively impact our financial results. Climate change may also affect the conditions in which we operate, and in some cases, expose us to potentially increased liabilities associated with those environmental conditions. Concerns about climate change could also result in new regulations, regulatory actions or requirements to invest in energy efficiency, any of which could result in increased costs associated with our operations. We are aware of the proposed rules on climate disclosure released by the SEC in March of last year. While we are following the progression of the rule, we are pleased to note that we are preparing to meet many of its conditions in advance. We released our inaugural, comprehensive Sustainability Report, which was aligned with GRI and SASB standards. Included in this report, we announced key, measurable environmental, social, and governance (“ESG”) goals and objectives aimed at advancing progress in sustainability, reducing our environmental footprint and creating an inclusive and empowering workplace for all employees. We also issued our inaugural Task Force of Climate Related Financial Disclosures (TCFD) Report in December 2022. As part of our growing sustainability commitment, we announced during fiscal year 2022 that we joined the United Nations Global Compact, Alliance to Save Energy, the U.S. Department of Energy’s Better Plants Program (through which we committed to reducing our energy intensity by 25% over the next 10 years (from a calendar year 2020 baseline)), the United Nations CEO Water Mandate and the CEO Action for Diversity & Inclusion. In 2022, we also submitted our CDP Climate Change disclosure to maintain transparency with our stakeholders and track our progress towards a low carbon society. We intend to continue to conduct a climate risk analysis in the coming year and have completed an analysis of our Scope 1 and 2 emissions. Additionally, we have taken the initial steps to quantify our Scope 3 emissions as we understand that identifying the impacts associated with our production, distribution, and use of our products is critical for further climate risk mitigation.
We strive to operate our facilities in a manner that protects the environment and the health and safety of our employees, customers and communities. We have established required sustainability training for identified employees and incorporate climate and other sustainability considerations into our formal decision-making processes. We have implemented company-wide environmental, health and safety policies and practices, which includes monitoring, training and communication of these policies.
Quality Systems
We utilize a global strategy for quality management systems, policies and procedures, the basis of which is the ISO 9001:20082015 standard, which is a worldwide recognized quality standard. We believe in the principles of this standard and reinforce thisthe same by requiring mandatory compliance for all manufacturing, sales and service locations globally that are registered to the ISO 9001 standard. We also focus on specific plant certifications such as AS9100 (Aerospace), ISO13485:2016 (Medical Devices), ISO/TS 22163:2017 (Rail), IATF16949:2018 (Automotive). We have also acquired our first Lithium-Ion product certification in accordance with ISO 26262 (Product Safety).
This strategy enables us to provide consistent quality products and services to meet our customers’ needs.
Human Capital Management
EnerSys is committed to a comprehensive, cohesive and positive employee experience. We consider talent acquisition, development, engagement and retention critical key drivers of our business success.
Our Board of Directors, through the Compensation Committee and the Nominating and Corporate Governance Committee, retains oversight of our human capital management process, including demographics, talent development, employee retention, material aspects of employee compensation, as well as diversity and inclusion and recruitment efforts. The Nominating and Corporate Governance Committee reports on human capital matters at each regularly scheduled Board of Directors meeting. The most significant human capital measures, objectives and initiatives include the following:
Health, Safety, and Wellness: Our fundamental responsibility as an employer is to provide a safe and healthy workplace for all our employees. This undertaking is explained further in our Safety and Health Policy. Our health and safety programs are designed around global standards with appropriate variations addressing the multiple jurisdictions and regulations, specific hazards and unique working environments of our manufacturing and production facilities, service centers and headquarter operations. Above all else, we are dedicated to the safety and well-being of our employees.
Diversity, Equity, Inclusion and Belonging: We strive to create a work environment that emphasizes respect, fairness and dignity and that does not tolerate discrimination or harassment. Individuals are evaluated based on merit, without concern for
race, color, religion, national origin, citizenship, marital status, gender (including pregnancy), gender identity, gender expression, sexual orientation, age, disability, veteran status, or other characteristics protected by law. We are committed to providing equal opportunities to every member of our workforce. In addition to following all applicable local laws and regulations, for fiscal year 2022, we have also formed an executive steering committee, joined, among other things, the CEO Action for Diversity and Inclusion, and funded additional staffing to further support these efforts.
Philanthropy and Volunteerism: Over the past fiscal year we created an executive level committee dedicated to encouraging and supporting charitable efforts by EnerSys globally. EnerSys is strongly committed to being an outstanding corporate citizen on a global basis in all the countries and communities where we do business. This commitment is reflected in a strong ethic for charitable contributions, endorsement of community activities, encouraging employees to give freely of their own time to serve on boards or committees in many organizations and supporting educational programs in schools and colleges.
We created several committees to assist the company in its philanthropic endeavors that support the communities in which we work. Additionally, we regularly sponsor volunteer events and fundraising campaigns, to encourage our employees to give back to our communities, a commitment that we further support by offering employees paid time off for charitable volunteering.
Training and Career Management: Employees receive regular development feedback through quarterly 1:1 reviews with their manager, which encourages open dialogues to identify and cultivate skills and opportunities. We encourage our leaders to facilitate effective conversations and measure the effectiveness of these conversations by regularly surveying our employees. In addition to training and development opportunities, all new employees are required to participate in seminars to introduce them to the EnerSys business, our strategy, our culture and philosophies. We encourage all our employees to engage in ongoing training, professional development and educational advancement programs. Through our established EnerSys Academy, we provide employees worldwide with resources to expand their knowledge on a broad scope of relevant topics to promote their growth and development.
Compensation and Benefits: To attract, retain and recognize talent, we aim to ensure merit-based, compensation practices and strive to provide competitive compensation and benefit packages to our workforce. We provide employee wages that are consistent with employee positions, skill levels, experience, knowledge and geographic location. We align our executives’ and eligible employees’ annual bonus opportunity and long-term equity compensation with our stockholders’ interests by linking realizable pay with company financial performance. In addition, we perform annual pay equity studies to evaluate our global pay practices across the organization.
Environmental, Social and Governance
At EnerSys, we understand that an effective business strategy must also be one that evaluates and addresses environmental and social risk factors as well as opportunities to leverage sustainable operations and ethical behavior as a means of driving business value. To that end, we have been integrating the fundamental values of ESG into our everyday operations and future business strategies. Our Sustainability Team leads ESG our efforts with respect to climate change management, product sustainability, operations, supply chain management.
Sustainability, reliability and resilience are at the core of who we are and what we do at EnerSys every day. Our products help tackle some of our world’s most significant challenges, be it addressing the impacts of climate change, decarbonization, efficient and affordable distribution of goods, grid reliability, telecommunications, and even medical safety. Our batteries and energy storage solutions are part of building a resilient, low-carbon future.
Sustainability at EnerSys is, however, about more than just the benefits and impacts of our products. Our commitment encompasses essential ESG issues fundamental to how we manage our own operations. Minimizing our environmental footprint and providing a safe and inclusive workplace for our employees are top priorities for EnerSys. Being an excellent neighbor and good corporate citizen in the communities where we work and live is extremely important as well. Our products facilitate positive environmental, social and economic impacts around the world. We believe that the power systems and energy management sector have a key role to play in finding innovative solutions to address global climate change. Our climate change policy underscores our goal to carry out all business activities in a sustainable manner. Our environmental policies and practices aim to protect, conserve, and sustain the world’s natural resources, as well as to protect our customers and the communities in which we live and operate. As one example of this, we offer a complete battery recycling program to assist our customers in preserving our environment and comply with recycling and waste disposal regulations.
Relationships between EnerSys and our suppliers must be based on mutual respect and integrity. Our purchasing and quality teams strive to maintain the highest standards and principles of business ethics, courtesy and competence in dealings and transactions with suppliers. Our code of supplier conduct reflects our commitment to the values of honesty, integrity, respect, and responsibility. We expect our suppliers will share and embrace our values, as well as our commitment to regulatory compliance.
We have an ESG steering committee, which includes members of senior management and funded additional staffing to further support the ongoing development of our ESG program. Our Board of Directors oversees our programs related to matters of corporate responsibility and sustainability performance, including climate change, through the Nominating and Corporate Governance Committee. We publish an annual Sustainability Report, including ESG data, as well as a Task Force on Climate Related Financial Disclosures report and submission to the CDP. We are members of United Nations Global Compact, Alliance to Save Energy, the U.S. Department of Energy’s Better Plants Program (through which we committed to reducing our energy intensity by 25% over the next 10 years (from a calendar year 2020 baseline)), and the United Nations CEO Water Mandate. These actions demonstrate the strength and commitment to sustainability throughout the organization worldwide.
Available Information
We file annual, quarterly and current reports, proxy statements and other information with the SEC. These filings are available to the public on the Internet at the SEC’s website at http:http://www.sec.gov. You may also read and copy any document we file with the SEC at the SEC’s public reference room, located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.
Our Internet address is http://www.enersys.com. We make available free of charge on http://www.enersys.com our annual, quarterly and current reports, and amendments to those reports, as soon as reasonably practical after we electronically file such material with, or furnish it to, the SEC.
The following risks and uncertainties, as well as others described in this Annual Report on Form 10-K,are certain risk factors that could materially and adversely affect our business, financial condition and our results of operations and financial conditions and could cause actual results to differ materially from our expectations and projections. Stockholders are cautioned that these and other factors, including those beyond our control, may affect future performance and cause actual results to differ from those which may, from time to time, be anticipated. There may be additionalThe risks that are described below are not presently material or known. Seethe only ones that we face. These risk factors should be considered in connection with the matters discussed herein under “Cautionary Note Regarding Forward-Looking Statements.”Statements” and other information included and incorporated by reference in this Form 10-K as well as in other reports and materials that we file with the SEC. All forward-looking statements made by us or on our behalf are qualified by the risks described below. Although the risks are organized by headings and by category, many risks are interrelated. You should not interpret the disclosure of any risk factor to imply that the risk has not already materialized.
Business and Operating Risks
We operate in an extremely competitive industry and are subject to pricing pressures.
We compete with a number of major international manufacturers and distributors, as well as a large number of smaller, regional competitors. Due to excess capacity in some sectors of our industry and consolidation among industrial battery purchasers, we have been subjected to significant pricing pressures. We anticipate continued competitive pricing pressure as foreign producers are able to employ labor at significantly lower costs than producers in the U.S. and Western Europe, expand their export capacity and increase their marketing presence in our major Americas and European markets. Several of our competitors have strong technical, marketing, sales, manufacturing, distribution and other resources, as well as significant name recognition, established positions in the market and long-standing relationships with OEMs and other customers. In addition, certain of our competitors own lead smelting facilities which, during periods of lead cost increases or price volatility, may provide a competitive pricing advantage and reduce their exposure to volatile raw material costs. Our ability to maintain and improve our operating margins has depended, and continues to depend,depends on our ability to control and reduce our costs.costs in addition to our ability to maintain business relationships with customers. If we are unable to offset pricing pressures, our profitability and cash flows could be adversely affected. We cannot assure you that we will be able to continue to control our operating expenses, to raise or maintain our prices or increase our unit volume, in order to maintain or improve our operating results.
The uncertainty in global economic conditions could negatively affect the Company’s operating results.
Our operating results are directly affected by the general global economic conditions of the industries in which our major customer groups operate. Our business segments are highly dependent on the economic and market conditions in each of the geographic areas in which we operate. Our products are heavily dependent on the end markets that we serve and our operating results will vary by geographic segment, depending on the economic environment in these markets. Sales of our motive power products, for example, depend significantly on demand for new electric industrial forklift trucks, which in turn depends on end-user demand for additional motive capacity in their distribution and manufacturing facilities. The uncertainty in global economic conditions varies by geographic segment, and can result in substantial volatility in global credit markets, particularly in the United States, where we service the vast majority of our debt. These conditions affect our business by reducing prices that our customers may be able or willing to pay for our products or by reducing the demand for our products, which could in turn negatively impact our sales and earnings generation and result in a material adverse effect on our business, cash flow, results of operations and financial position.
Government reviews, inquiries, investigations, and actions could harm our business or reputation.
As we operate in various locations around the world, our operations in certain countries are subject to significant governmental scrutiny and may be adversely impacted by the results of such scrutiny. The regulatory environment with regard to our business is evolving, and officials often exercise broad discretion in deciding how to interpret and apply applicable regulations. From time to time, we receive formal and informal inquiries from various government regulatory authorities, as well as self-regulatory organizations, about our business and compliance with local laws, regulations or standards. For example, certain of the Company’s European subsidiaries have received subpoenas and requests for documents and, in some cases, interviews from, and have had on-site inspections conducted by the competition authorities of Belgium, Germany and the Netherlands relating to conduct and anticompetitive practices of certain industrial battery participants. The Company is responding to inquiries related to these matters. The Company settled the Belgian regulatory proceeding in February 2016 by acknowledging certain anticompetitive practices and conduct and agreeing to pay a fine of $2.0 million. (See Note 18 to the Consolidated Financial Statements for additional details.) Any determination that our operations or activities, or the activities of our employees, are not in compliance with existing laws, regulations or standards could result in the imposition of substantial fines, interruptions of business, loss of supplier, vendor or other third-party relationships, termination of necessary licenses and permits, or similar results, all of which could potentially harm our business and/or reputation. Even if an inquiry does not result in these types of determinations, regulatory authorities could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business, and it potentially could create negative publicity which could harm our business and/or reputation.
Reliance on third party relationships and derivative agreements could adversely affect the Company’sour business.
We depend on third parties, including suppliers, distributors, lead toll operators, freight forwarders, insurance brokers, commodity brokers, major financial institutions and other third party service providers, for key aspects of our business, including the provision of derivative contracts to manage risks of (a) leadcommodity cost volatility, (b) foreign currency exposures and (c) interest rate volatility. Failure of these third parties to meet their contractual, regulatory and other obligations to the Company,us, or the development of factors that materially disrupt our relationships with these third parties, could expose us to the risks of business disruption, higher leadcommodity and interest costs, unfavorable foreign currency rates and higher expenses, which could have a material adverse effect on our business.
Our operating results could be adversely affected by changesChanges in the cost and availability of raw materials.materials could adversely affect our business, financial position and results of operations.
Lead is our most significant raw material and is used along with significant amounts of plastics, steel, copper and other materials in our manufacturing processes. We estimate that raw material costs account for over half of our cost of goods sold. The costs of these raw materials, particularly lead, are volatile and beyond our control. Additionally, availability of the raw materials used to manufacture our products may be limited at times, resulting in higher prices and/or the need to find alternative suppliers. Furthermore, the cost of raw materials may also be influenced by transportation costs. Volatile raw material costs can significantly affect our operating results and make period-to-period comparisons extremely difficult. WeTo reduce the volatility of our costs, we periodically enter into hedging arrangements for a portion of our projected requirements. However, we cannot assure you that we will be able to either hedge the costs or secure the availability of our raw material requirements at a reasonable level or, even with respect to our agreements that adjust pricing to a market-based index for lead, pass on to our customers the increased costs of our raw materials without affecting demand or that limited availability of materials will not impact our production capabilities. Our inability to raise the price of our products in response to increases in prices of raw materials due to pricing pressure, contract terms or other factors or to maintain a proper supply of raw materials could have an adverse effect on our business, financial position and results of operations.
Cost increases, supply disruptions or shortages of any of our battery components, such as electronic and mechanical parts, or the raw materials used in the production of such parts could adversely affect our business.
From time to time, we may experience increases in the cost or a sustained interruption in the supply or shortage of our components. For example, a global shortage and component supply disruptions of electronic and other battery components is currently being reported, and the full impact to us is not yet known. Other shortages and component supply disruptions could affect the supply of electronic components and raw materials (such as resins and other raw metal materials) that go into the production of our products. Cost increases or supply interruptions could materially and negatively impact our business, prospects, financial condition and operating results. The prices for our components fluctuate depending on market conditions and global demand and could adversely affect our business, prospects, financial condition and operating results. For instance, we are exposed to multiple risks relating to price fluctuations for battery cells. These risks include, but are not limited to:
•supply shortages caused by the inability or unwillingness of our suppliers and their competitors to build or operate component production facilities to supply the numbers of battery components required to support the rapid growth of the electric vehicle industry and other industries in which we operate as demand for such components increases;
•disruption in the supply of electronic circuits due to quality issues or insufficient raw materials;
•a decrease in the number of manufacturers of battery components; and
•an increase in the cost of raw materials.
We are dependent on the continued supply of battery components for our products. To date, we have a limited number of fully qualified suppliers, and have limited flexibility in changing suppliers, though we are actively engaged in activities to qualify additional suppliers. Any disruption in the supply of battery components could temporarily disrupt production of our products until a different supplier is fully qualified.
The cost of our battery products depends in part upon the prices and availability of raw materials such as lead, lithium, nickel, cobalt or other metals. The prices for these materials fluctuate and their available supply may be unstable, depending on market conditions and global demand for these materials, including as a result of increased global production of electric vehicles and energy storage products. Furthermore, fluctuations or shortages in petroleum and other economic conditions may cause us to experience significant increases in freight charges. Any reduced availability of these raw materials or substantial increases in their prices may increase the cost of our components and consequently, the cost of our products. There can be no assurance that we will be able to recoup increasing costs of our components by increasing prices, which in turn could damage our brand, business, prospects, financial condition and operating results.
We have experienced and may continue to experience, difficulties implementing our global enterprise resource planning system, which may adversely affect our business, financial condition and results of operations.
We are engaged in a multi-year implementation of a global enterprise resource planning system (“ERP”). The ERP is designed to standardize business processes to efficiently maintain our financial records and provide critical operational information to our management team. The ERP will continue to require significant investment of human and financial resources. In our prior efforts implementing the ERP, we experienced significant production and shipping delays, increased costs and other difficulties. Any significant disruption or deficiency in the design and implementation of the ERP could adversely affect our ability to process orders, ship products, send invoices and track payments, fulfill contractual obligations or otherwise operate our business. Even with our investment of significant resources into the ERP system, additional and significant implementation issues may arise. In addition, our efforts to centralize various business processes and functions within our organization in connection with our ERP implementation may disrupt our operations, divert management’s attention and negatively impact our business, financial condition and results of operations.
The failure to successfully implement efficiency and cost reduction initiatives, including restructuring activities, could materially adversely affect our business, financial position and results of operations, and we may not realize some or all of the anticipated benefits of those initiatives.
From time to time, we have implemented efficiency and cost reduction initiatives intended to improve our profitability and to respond to changes impacting our business and industry. These initiatives include relocating manufacturing to lower cost regions, consolidating and closing facilities, working with our material suppliers to lower costs, product design and manufacturing improvements, personnel reductions and voluntary retirement programs, and strategically planning capital expenditures and development activities. In the past we have recorded net restructuring charges to cover costs associated with our cost reduction initiatives involving restructuring. These costs have been primarily composed of employee separation costs, including severance payments, and asset impairments or losses from disposal. We also undertake restructuring activities and
programs to improve our cost structure in connection with our business acquisitions, which can result in significant charges, including charges for severance payments to terminated employees and asset impairment charges.
We cannot assure you that our efficiency and cost reduction initiatives will be successfully or timely implemented, or that they will materially and positively impact our profitability. Because our initiatives involve changes to many aspects of our business, the associated cost reductions could adversely impact productivity and sales to an extent we have not anticipated. In addition, our ability to complete our efficiency and cost-savings initiatives and achieve the anticipated benefits within the expected time frame is subject to estimates and assumptions and may vary materially from our expectations, including as a result of factors that are beyond our control. Furthermore, our efforts to improve the efficiencies of our business operations and improve growth may not be successful. Even if we fully execute and implement these activities and they generate the anticipated cost savings, there may be other unforeseeable and unintended consequences that could materially adversely impact our profitability and business, including unintended employee attrition or harm to our competitive position. To the extent that we do not achieve the profitability enhancement or other benefits of our efficiency and cost reduction initiatives that we anticipate, our business, financial position and results of operations may be materially adversely affected.
Our failure to introduce new products and product enhancements coupled with broad market acceptance of new technologies introduced by our competitors could adversely affect our business.
Many new energy storage technologies have been introduced over the past several years. For certain important and growing markets, including markets served by our Motive Power and Energy Storage business segments, lithium-based battery technologies have a growing market share. Our ability to achieve significant and sustained penetration of key developing markets, including markets served by our Motive Power and Energy Storage business segments, will depend upon our success in developing or acquiring these and other technologies and related raw materials and components, either independently, through joint ventures or through acquisitions. If we fail to develop or acquire, and manufacture and sell, products that satisfy our customers’ demands, or we fail to respond effectively to new product announcements by our competitors by quickly introducing competitive products, then market acceptance of our products could be reduced and our business could be adversely affected. We cannot assure you that our portfolio of primarily lead-acid products will remain competitive with products based on new technologies.
If we are not able to adequately protect our proprietary intellectual property and technology, we may lose any technological advantages and our business, financial position and results of operations may be materially adversely affected.
We rely on a combination of copyright, trademark, patent and trade secret laws, non-disclosure agreements and other confidentiality procedures and contractual provisions to establish, protect and maintain our proprietary intellectual property and technology and other confidential information. Certain of these technologies, especially thin plate pure lead (“TPPL”) technology, are important to our business and are not protected by patents. Despite our efforts to protect our proprietary intellectual property and technology and other confidential information, unauthorized parties may attempt to copy or otherwise obtain and use our intellectual property and proprietary technologies. Successful cybersecurity attacks, data breaches, unauthorized exfiltration, unapproved use of machine learning or artificial intelligence tools, or other security incidents could result in the loss of intellectual property and key technological advantages. If we are unable to protect our intellectual property and technology, we may lose any technological advantage we currently enjoy and may be required to take an impairment charge with respect to the carrying value of such intellectual property or goodwill established in connection with the acquisition thereof.In either case, our business, financial position and results of operations may be materially adversely affected.
Relocation of our customers’ operations could adversely affect our business, financial condition and results of operations.
The trend by a number of our North American and Western European customers to move manufacturing operations and expand their businesses in faster growing and lower labor-cost markets may have an adverse impact on our business, financial condition and results of operations. These territories may be farther from our manufacturing plants, and there is a risk that these customers will source their energy storage products from competitors located in those territories and will cease or reduce the purchase of products from us.We cannot assure you that we will be able to compete effectively with our competitors located in those territories, whether by establishing or expanding our manufacturing operations in those territories or acquiring existing manufacturers in those territories.
Quality problems with our products could harm our reputation and erode our competitive position.
The success of our business depends upon the quality of our products and our relationships with customers. In the event that our products fail to meet our customers’ standards, our reputation could be harmed. This could result in the loss of customers, a decrease in revenue and a loss of market share. We cannot assure you that our customers will not experience quality problems with our products. Warranty, recall or product liability claims could also materially adversely affect our business and
reputation. In our business, we are exposed to warranty and product liability claims. In addition, we may be required to participate in the recall of a product.If we fail to meet customer specifications for their products, we may be subject to product quality costs and claims, as well as adverse reputational impacts.A successful warranty or product liability claim against us, or a requirement that we participate in a product recall, could have a material adverse effect on our business, financial condition and results of operations.
We offer our products under a variety of brand names, the protection of which is important to our reputation for quality in the consumer marketplace.
We rely upon a combination of trademark, licensing and contractual covenants to establish and protect the brand names of our products. We have registered many of our trademarks in the U.S. Patent and Trademark Office and in other countries. In many market segments, our reputation is closely related to our brand names. Monitoring unauthorized use of our brand names is difficult, and we cannot assure you that the steps we have taken will prevent the unauthorized use of our brand names, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the U.S. We cannot assure you that our brand names will not be misappropriated or utilized without our consent.In the event of any such actions, our reputation and our business, financial condition and results of operations may be materially adversely affected.
Our growth strategy depends on our ability to continue to expand our market presence through acquisitions, and our business could be materially adversely affected if we are unable to identify suitable acquisition candidates, complete any proposed acquisitions or successfully integrate the businesses we acquire.
As part of our growth strategy, we depend on acquisitions of other product lines, technologies or facilities that complement or expand our existing business. Acquisitions involve numerous risks, including:
•inability to overcome significant competition for acquisition targets in the stored energy industry;
•inability to identify suitable acquisition candidates or negotiate attractive terms;
•difficulty obtaining the financing necessary to complete transactions we pursue, as our credit facilities restrict the amount of additional indebtedness that we may incur to finance acquisitions and place other restrictions on our ability to make acquisitions (and exceeding any of these restrictions would require the consent of our lenders);
•failure to identify all material issues through a customary due diligence investigation, and that material issues will arise later;
•difficulties in the assimilation of the operations, systems, controls, technologies, personnel, services and products of the acquired business;
•potential loss of key employees, customers, suppliers and distributors of the acquired business;
•diversion of our management’s attention from other business concerns;
•incurrence of additional debt or adverse tax and accounting consequences in connection with any acquisitions;
•failure to successfully integrate the acquired businesses in a timely manner, or at all;
•incurrence of significant unanticipated expenses associated with integration activities; and
•anticipated benefits of an acquisition not being realized fully or at all, or taking longer to realize than we expect.
The materialization of any of the foregoing risks could impair our ability to successfully execute our acquisition growth strategy, which could have a material adverse effect on our business.
Any acquisitions that involve the issuance of our equity securities may dilute our stockholder ownership interests, reduce the market price of our stock, or both, and as a result our business, financial condition and results of operations could be adversely affected.
Future acquisitions may involve the issuance of our equity securities as payment, in part or in full, for the businesses or assets acquired. Any future issuances of equity securities may dilute our stockholders’ proportionate ownership interests in EnerSys. In addition, the benefits derived by us from an acquisition might not outweigh or exceed the dilutive effect of any issuance of equity securities in connection with the acquisition.We cannot predict or estimate the amount or timing of any future acquisitions or related issuances of equity securities.Our stockholders bear the risk of any such future offerings reducing the market price of our stock and diluting their proportionate ownership interests in EnerSys.
If our electronic data is compromised, our business could be materially adversely affected.
We and our business partners maintain significant amounts of data electronically in locations around the world. This data relates to all aspects of our business, including current products and services and future products and services under development.This data also contains certain customer, supplier, partner and employee information. We maintain systems and processes designed to protect this data.However, notwithstanding such protective measures, there is a risk of intrusion, cyberattacks, tampering, theft, misplaced or lost data, programming or human errors that could compromise the integrity and privacy of this data, improper use of our systems, software solutions or networks, power outages, hardware failures, computer viruses, failure of critical computer systems, unauthorized access, use, disclosure, modification or destruction of information, defective products, production downtimes and operational disruptions, which in turn could adversely affect our business, financial condition and results of operations.
We provide confidential and proprietary information to our third-party business partners in certain cases where doing so is necessary to conduct our business. While we obtain assurances from those parties that they have systems and processes in place to protect such data and, where applicable, that they will take steps to assure the protections of such data by third parties, those partners may be subject to the same risks as we are.
In particular, we and our third-party business partners experience cybersecurity incidents of varying degrees from time-to-time, including ransomware and phishing attacks as well as distributed denial of service attacks and the theft of data.Cyber threats are constantly evolving, are becoming more sophisticated and are being made by groups and individuals with a wide range of expertise and motives, and this increases the difficulty of detecting and successfully defending against them.
Any compromise of the confidential data of our customers, suppliers, partners, employees or ourselves, or failure to prevent or mitigate the loss of or damage to this data through breach of our information technology systems or other means could substantially disrupt our operations, harm our customers, employees and other business partners, damage our reputation, violate applicable laws and regulations, subject us to potentially significant costs and liabilities and result in a loss of business that could be material.
Our software and related services are highly technical and may contain undetected software bugs, errors or other vulnerabilities, which could manifest in ways that could adversely affect our reputation and our business.
The software and related services that we offer are highly technical and complex. Our services or any other products that we may introduce in the future may contain undetected software bugs, hardware errors and other vulnerabilities. These vulnerabilities can manifest in any number of ways in our products, including through diminished performance, security vulnerabilities, malfunctions, or even permanently disabled products. We have a practice of regularly updating our products, and some errors in our products may be discovered only after a product has been used.In some cases, any vulnerabilities may only be detected under certain circumstances or after extended use. Any errors, bugs or other vulnerabilities discovered in our code or backend after release could damage our reputation, alienate users, allow third parties to manipulate or exploit our software, lower revenue and expose us to claims for damages, any of which could adversely affect our business. Additionally, errors, bugs or other vulnerabilities may, either directly or if exploited by third parties, affect our ability to make accurate royalty payments.We also could face claims for product liability, tort or breach of warranty as a result. Defending a lawsuit, regardless of its merit, is costly and may divert management’s attention and adversely affect our reputation and our business.In addition, if our liability insurance coverage proves inadequate or future coverage is unavailable on acceptable terms or at all, our business could be seriously harmed.
If we cannot keep pace with rapid developments in technology, the use of our products and services and, consequently, our revenues could decline.
Our business continues to demand the use of sophisticated systems and technology. These systems and technologies must be refined, updated and replaced with more advanced systems on a regular basis in order for us to meet our customers’ demands and expectations.We expect that new technologies applicable to our business will continue to emerge and may be superior to, or render obsolete, the technologies we currently use in our products and services.We cannot predict the effects of technological changes on our business, which technological developments or innovations will become widely adopted, and how those technologies may be regulated.Developing and incorporating new or updated systems and technologies into new and existing products and services may require significant investment, take considerable time and may not ultimately be successful.If we are unable to do so on a timely basis or within reasonable cost parameters, or if we are unable to appropriately and timely train our employees to operate any of these new systems or technologies, our business could be adversely affected. We also may not achieve the benefits that we anticipate from any new system or technology and a failure to do so could result in higher than anticipated costs and adversely affect our results of operations.
Work stoppages or similar difficulties could significantly disrupt our operations, reduce our revenues and materially adversely affect our business.
A work stoppage at one or more of our facilities, whether caused by fire, flooding, epidemics, pandemics (including the COVID-19 outbreak), military hostilities, government-imposed shutdowns, severe weather, including that caused by climate change, other natural disaster or otherwise, could have a material adverse effect on our business, financial condition and results of operations. In addition, some of our employees are represented by labor unions or works councils under collective bargaining agreements with varying durations and terms. Although we believe that our relations with our employees are strong, if our unionized workers were to engage in a strike, work stoppage or other slowdown in the future, we could experience a significant disruption of our operations. No assurances can be made that we will not experience work stoppages due to government directives, employee health concerns, and other types of conflicts with labor unions, works councils, and other similar groups in the future.
A work stoppage at one or more of our suppliers could also materially and adversely affect our business if an alternative source of supply is not readily available. In addition, if one or more of our customers were to experience a work stoppage, that customer could cease or limit purchases of our products, which could have a material adverse effect on our business, financial condition and results of operations. In addition, the credit and default risk or bankruptcy of customers or suppliers as a result of work stoppages could likewise materially and adversely affect our business, financial condition and results of operations.
Global Operations Risks
Our results of operations may be negatively impacted by public health epidemics or outbreaks, including the novel coronavirus (“COVID-19”).
Public health epidemics or outbreaks could adversely impact our global operations. The COVID-19 pandemic caused disruption to the global economy, including economic slowdowns and supply chain disruptions that adversely affected our business, financial position and results of operations. In response to public health epidemics or outbreaks, countries imposed prolonged quarantines and travel restrictions, which may significantly impact the ability of our employees to get to their places of work to produce products, may make it such that we are unable to obtain sufficient components or raw materials and component parts on a timely basis or at a cost-effective price or may significantly hamper our products from moving through the supply chain.
We rely on our production facilities, as well as third-party suppliers and manufacturers, in the United States, Australia, Canada, France, Germany, Italy, the People’s Republic of China (“PRC”), the United Kingdom and other countries that were significantly impacted by COVID-19. Shutdowns of certain businesses in many of these countries resulted in disruptions or delays to our supply chain or reduction in demand for certain products. Although disruptions may continue to occur and the future impact of the outbreak is uncertain, the impacts of the public health epidemics or outbreaks (or events similar to COVID-19 in the future) cannot be reliably quantified at this time.
The rapid spread of a contagious illness such as COVID-19, poses the risk that our employees, contractors, suppliers and customers may be prevented from conducting business, which may have a material adverse effect on our business, financial position and results of operations.
The uncertainty in global economic conditions or geographic regions in which our customers operate could adversely affect our business, financial position and operating results.
Our operating results are directly affected by the general global economic conditions of the industries in which our major customer groups operate. Our products are heavily dependent on the end markets that we serve and our operating results will vary by location, depending on the economic environment in these markets. Sales of our motive power products, for example, depend significantly on demand for new electric industrial forklift trucks, which in turn depends on end-user demand for additional motive capacity in their distribution and manufacturing facilities. The uncertainty in global economic conditions varies by geographic location and can result in substantial volatility in global credit markets, particularly in the United States, where we service the vast majority of our debt. Moreover, Federal Reserve Bank of the United States policy, including with respect to rising interest rates and the decision to end its quantitative easing policy, may also result in market volatility or a return to unfavorable economic conditions. These conditions affect our business by reducing prices that our customers may be able or willing to pay for our products or by reducing the demand for our products, which could in turn negatively impact our sales and earnings generation and result in a material adverse effect on our business, cash flow, results of operations and financial position.
Government reviews, inquiries, investigations and actions could harm our business or reputation.
As we operate in various locations around the world, our operations in certain countries are subject to significant governmental scrutiny and may be adversely impacted by the results of such scrutiny. The regulatory environment with regard to our business is evolving, and officials often exercise broad discretion in deciding how to interpret and apply applicable regulations. From time to time, we receive formal and informal inquiries from various government regulatory authorities, as well as self-regulatory organizations, about our business and compliance with local laws, regulations or standards.
Any determination that our operations or activities, or the activities of our employees, are not in compliance with existing laws, regulations or standards could result in the imposition of substantial fines, interruptions of business, loss of supplier, vendor, customer or other third-party relationships, termination of necessary licenses and permits, or similar results, all of which could potentially harm our business and reputation. Even if an inquiry does not result in these types of determinations, regulatory authorities could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business, and it potentially could create negative publicity which could harm our business and reputation.
Our international operations may be adversely affected by actions taken by foreign governments or other forces or events over which we may have no control.
We currently have significant manufacturing and distribution facilities outside of the United States, in Argentina, Australia, Belgium, Brazil, Canada, the Czech Republic, France, Germany, India, Italy, Malaysia, Mexico, the PRC, Poland, Spain, Switzerland and the United Kingdom. Our global operations are dependent upon products manufactured, purchased and sold in the U.S. and internationally, including in countries with political and economic instability or uncertainty. This includes, for example, the uncertainty related to the United Kingdom’s withdrawal from the European Union (commonly known as “Brexit”) the current conflict between Russia and Ukraine, ongoing terrorist activity, the adoption and expansion of trade restrictions, including the occurrence or escalation of a “trade war,” or other governmental action related to tariffs or trade agreements or policies among the governments of the United States, the PRC and other countries and other global events. The global credit and financial markets have recently experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. Sanctions imposed by the United States and other countries in response to such conflicts, including the one in Ukraine, may also adversely impact the financial markets and the global economy, and any economic countermeasures by affected countries and others could exacerbate market and economic instability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. Recent effects of the conflict between Russia and Ukraine includes writing off $4 million in net assets located in Russia during fiscal 2022. Furthermore, Brexit could cause disruptions to, and create uncertainty surrounding our business, including affecting our relationships with our existing and future customers, suppliers and associates, which could have an adverse effect on our business, financial results and operations. Effects of Brexit include changes in customs regulations, shortages of truck drivers in the U.K., and administrative burdens placed on transportation companies have led to challenges and delays in moving inventory across U.K. or EU borders, and higher importation, freight and distribution costs. If such trends continue, we may experience further cost increases.
Some countries have greater political and economic volatility and greater vulnerability to infrastructure and labor disruptions than others. Our business could be negatively impacted by adverse fluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure at important geographic points of exit and entry for our products. Operating in different regions and countries exposes us to a number of risks, including:
•multiple and potentially conflicting laws, regulations and policies that are subject to change;
•changes in international treaties or trade unions, which may make our products or our customers' products more costly to export or import;
•imposition of currency restrictions, restrictions on repatriation of earnings or other restraints imposition of burdensome import duties, tariffs or quotas, which may make our products more costly to export or import;
•changes in trade agreements;
•disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the FCPA;
•compliance with data protection regulations;
•imposition of new or additional trade and economic sanctions laws imposed by the U.S. or foreign governments;
•war or terrorist acts; and
•political and economic instability or civil unrest that may severely disrupt economic activity in affected countries.
The occurrence of one or more of these events may adversely affect our business, financial condition and results of operations.
We are exposed to exchange rate and inflation risks, and our net earnings and financial condition may suffer due to currency translations.
We invoice our foreign sales and service transactions in local and foreign currencies and translate net sales using actual exchange rates during the period. We translate our non-U.S. assets and liabilities into U.S. dollars using current exchange rates as of the balance sheet dates. Approximately 40% of net sales were generated outside of the United States in fiscal 2023. Because a significant portion of our revenues and expenses are denominated in foreign currencies, changes in exchange rates between the U.S. dollar and foreign currencies, including the effects of inflation, primarily the euro, British pound, Polish zloty, Chinese renminbi, Mexican peso and Swiss franc, may adversely affect our revenue, cost of goods sold and operating margins. For example, foreign currency depreciation against the U.S. dollar will reduce the value of our foreign revenues and operating earnings as well as reduce our net investment in foreign subsidiaries. In addition, we have balance sheet foreign currency positions that benefit from a stronger U.S. dollar and weak euro and may impact other income expense and equity on the balance sheet.
Most of the risk of fluctuating foreign currencies is in our European operations, which comprised approximately one-fifth of our net sales during the last three fiscal years. The euro is the dominant currency in our EMEA operations. In the event that one or more European countries were to replace the euro with another currency, our sales into such countries, or into Europe generally, would likely be adversely affected until stable exchange rates are established.
If foreign currencies depreciate against the U.S. dollar, it would make it more expensive for our non-U.S. subsidiaries to purchase certain of our raw material commodities that are priced globally in U.S. dollars, while the related revenue will decrease when translated to U.S. dollars. Significant movements in foreign exchange rates can have a material impact on our results of operations and financial condition. We periodically engage in hedging of our foreign currency exposures, but cannot assure you that we can successfully hedge all of our foreign currency exposures or do so at a reasonable cost.
We quantify and monitor our global foreign currency exposures. Our largest foreign currency exposure is from the purchase and conversion of U.S. dollar-based lead costs into local currencies in Europe. Additionally, we have currency exposures from intercompany financing and intercompany and third party trade transactions. On a selective basis, we enter into foreign currency forward contracts and purchase option contracts to reduce the impact from the volatility of currency movements; however, we cannot be certain that foreign currency fluctuations will not impact our operations in the future.
If we are unable to effectively hedge against currency fluctuations, our operating costs and revenues in our non-U.S. operations may be adversely affected. This, in turn, would have an adverse effect on our business, financial position and results of operations.
Financial and Accounting Risks
We may not be able to maintain adequate credit facilities, which could materially adversely affect our business, financial condition and results of operations.
Our ability to continue our ongoing business operations and fund future growth depends on our ability to maintain adequate credit facilities and to comply with the financial and other covenants in such credit facilities or to secure alternative sources of financing. However, such credit facilities or alternate financing may not be available or, if available, may not be on terms favorable to us. If we do not have adequate access to credit, we may be unable to refinance our existing borrowings and credit facilities when they mature and fund future acquisitions, which may reduce our flexibility in responding to changing industry conditions and materially adversely affect our business, financial condition and results of operations.
Our indebtedness could adversely affect our business, financial condition and results of operations and restrict us in ways that limit our flexibility in operating our business.
As of March 31, 2023, we had $1,073 million of total consolidated debt (including finance leases). This level of debt could:
•increase our vulnerability to adverse general economic and industry conditions, including interest rate fluctuations, because a portion of our borrowings bear, and will continue to bear, interest at floating rates;
•require us to dedicate a substantial portion of our cash flow from operations to debt service payments, which would reduce the availability of our cash to fund working capital, capital expenditures or other general corporate purposes, including acquisitions;
•limit our flexibility in planning for, or reacting to, changes in our business and industry;
•restrict our ability to introduce new products or technologies or exploit business opportunities;
•place us at a disadvantage compared with competitors that have proportionately less debt;
•limit our ability to borrow additional funds in the future, if we need them, due to financial and restrictive covenants in our debt agreements;
•limit our operating and financial flexibility due to financial and restrictive covenants in our debt agreements; and
•have a material adverse effect on us if we fail to comply with the financial and restrictive covenants in our debt agreements.
In addition, our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to financial, business, legislative, regulatory and other factors, some of which are beyond our control. Any failure to make scheduled payments could adversely affect our business, financial condition and results of operations.
We may have exposure to greater than anticipated tax liabilities, which could adversely impact our business, financial position and results of operations.
Our income tax obligations are based in part on our corporate operating structure and intercompany arrangements, including the manner in which we operate our business, develop, value, manage, protect, and use our intellectual property and the valuations of our intercompany transactions. We may also be subject to additional indirect or non-income based taxes. The tax laws applicable to our business, including the laws of the United States and other jurisdictions, are subject to interpretation, and certain jurisdictions are aggressively interpreting their laws in new ways in an effort to raise additional tax revenue from multi-national companies like us. The taxing authorities of the jurisdictions in which we operate may challenge our tax positions and methodologies for valuing developed technology or intercompany arrangements, which could increase our worldwide effective tax rate and adversely impact our business, financial position and results of operations. Although we believe that our provision for income taxes is reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made. In addition, our future income tax rates could be adversely affected by earnings being lower than anticipated in jurisdictions that have lower statutory tax rates and higher than anticipated in jurisdictions that have higher statutory tax rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations, or accounting principles.
Changes in tax laws or tax rulings could materially affect our business, financial position and results of operations.
The income and non-income tax regimes to which we are subject or under which we operate are unsettled and may be subject to significant change. Changes in tax laws or tax rulings, or changes in interpretations of existing laws, could materially affect our business, financial position and results of operations. In addition, many countries in Europe, as well as a number of other countries and organizations, have recently proposed or recommended changes to existing tax laws or have enacted new laws that could significantly increase our tax obligations in many countries where we do business or require us to change the manner in which we operate our business. For example:
•On August 16, 2022, the U.S. Congress passed the Inflation Reduction Act of 2022 (the “IRA”), which, among other provisions, creates a new corporate alternative minimum tax (“CAMT”) of at least 15% for certain large corporations that have at least an average of $1 billion in adjusted financial statement income over a consecutive three-year period effective after December 31, 2022. The IRA also includes a 1% excise tax on certain stock repurchases beginning in 2023. We do not expect to meet the CAMT threshold in the near term. However, we expect a material portion of our U.S. produced batteries and battery cells, including our proprietary TPPL batteries, will qualify for production tax credits under Section 45X of the IRA.
•In 2021, the Organization for Economic Cooperation Development (the “OECD”), through an association of more than 140 countries, announced a consensus around a two-pillar approach to address tax challenges presented by digital commerce. “Pillar 1” focuses on nexus and profit allocation, and net income.“Pillar 2” focuses on a minimum global effective tax rate of 15%. On December 15, 2022, the European Union adopted the Pillar Two directive and EU member states are expected to implement Pillar Two into domestic law by December 31, 2023.
We closely monitor these developments in the countries where we operate. Changes to the statutory tax rate may occur at any time, and any related expense or benefit recorded may be material to the fiscal quarter and year in which the law change is enacted. The European Commission has conducted investigations in multiple countries focusing on whether local country tax rulings or tax legislation provides preferential tax treatment that violates European Union state aid rules and concluded that certain countries, have provided illegal state aid in certain cases. These investigations may result in changes to the tax treatment of our foreign operations. Due to the large and expanding scale of our international business activities, many of these types of changes to the taxation of our activities could increase our worldwide effective tax rate and adversely affect our business, financial position and results of operations. Such changes may also apply retroactively to our historical operations and result in taxes greater than the amounts estimated and recorded in our financial statements.
In relation to the IRA, we expect to receive production tax credits for certain of our products produced in the US, however, the exact impact of these changes is not fully known and may, in some circumstances, depend on guidance issued by the U.S. Department of the Treasury (“Treasury”) regarding the interpretation and implementation of the IRA. Treasury has issued only limited interpretations and additional guidance may be forthcoming. If and when issued, such guidance may impose further requirements or limitations. These and any other changes to government incentives that impose additional restrictions could increase costs, limit our ability to utilize tax benefits, or adversely impact our growth, which could have a material adverse effect on our business, financial condition and results of operations. There can be no assurance that our products will meet the
requirements for the tax credits and compliance with such requirements could increase our labor and other costs. Any reduction in rebates, tax credits or other financial incentives available to manufacturers could negatively affect the market and adversely impact our business operations and expansion potential. In addition, there is no assurance we will have the necessary tax attributes to utilize any such credits that are available and may not be able to monetize such credits on favorable terms.
In connection with the OECD’s Base Erosion and Profit Shifting (BEPS) project, companies are required to disclose more information to tax authorities on operations around the world, which may lead to greater audit scrutiny of profits earned in other countries. We regularly assess the likely outcomes of our tax audits and disputes to determine the appropriateness of our tax reserves. However, any tax authority could take a position on tax treatment that is contrary to our expectations, which could result in tax liabilities in excess of reserves.
Legal and Regulatory Risks
Our operations expose us to litigation, tax, environmental and other legal compliance risks.
We are subject to a variety of litigation, tax, environmental, health and safety and other legal compliance risks. These risks, include, among other things, possibleand any noncompliance could adversely affect our business.
As a global business, we are subject to extensive environmental liability relatingon our operations due to product liability matters, personal injuries, intellectual property rights, contract-related claims, government contracts, taxes, health and safety liabilities,current environmental matters and compliance with U.S. and foreign laws, competition laws and laws governing improper business practices. We or one of our business units could be charged with wrongdoing as a result of such matters. regulations in the jurisdictions we operate.
If convicted or found liable for violation of a law or regulation, we could be subject to significant fines, penalties, repayments or other damages (in certain cases, treble damages). As a global business, we are subject to complex lawsdamages. Laws and regulations in the U.S. and other countries in which we operate. Those laws and regulations may be interpreted in different ways. They may also change from time to time, as may related interpretations and other guidance. Changesguidance, resulting in laws or regulations could result inpotentially higher expenses and payments and uncertainty relating to laws or regulations may also affect how we conduct our operations and structure our investments and could limit our ability to enforce our rights.investments.
In the area of taxes, changes in tax laws and regulations, as well as changes in related interpretations and other tax guidance could materially impact our tax receivables and liabilities and our deferred tax assets and tax liabilities. Additionally, in the
ordinary course of business, we are subject to examinations by various authorities, including tax authorities. In addition to ongoing investigations, there could be additional investigations launched in the future by governmental authorities in various jurisdictions and existing investigations could be expanded. The global and diverse nature of our operations means that these risks will continue to exist and additional legal proceedings and contingencies will arise from time to time. Our results may be affected by the outcome of legal proceedings and other contingencies that cannot be predicted with certainty.
In the manufacture of our products throughout the world, weWe process, store, dispose of and otherwise use large amounts of hazardous materials, especially lead and acid.acid in the manufacturing of our products. As a result, we are subject to extensive and changing environmental, health and safety laws and regulations governing, among other things: the generation, handling, storage, use, transportation and disposal of hazardous materials; remediation of polluted ground or water; emissions or discharges of hazardous materials into the ground, air or water; and the health and safety of our employees. Compliance with these laws and regulations results in ongoing costs. Failure to comply with these laws or regulations, or to obtain or comply with required environmental permits, could result in fines, criminal charges or other sanctions by regulators. From time to time we have had instances of alleged or actual noncompliance that have resulted in the imposition of fines, penalties and required corrective actions. Our ongoing compliance with environmental, health and safety laws, regulations and permits could require us to incur significant expenses, limit our ability to modify or expand our facilities or continue production and require us to install additional pollution control equipment and make other capital improvements. In addition, private parties, including current or former employees, could bring personal injury or other claims against us due to the presence of, or exposure to, hazardous substances used, stored or disposed of by us or contained in our products.
Certain environmental laws assess liability on owners or operators of real property for the cost of investigation, removal or remediation of hazardous substances at their current or former properties or at properties at which they have disposed of hazardous substances.properties. These laws may also assess costs to repair damage to natural resources. We may be responsible for remediating damage to our properties that was caused by former owners. Soil and groundwater contamination has occurred at some of our current and former properties and may occur or be discovered at other properties in the future. WeIn accordance with regulatory permits, we are currently investigating and monitoring soil and groundwater contamination at several of our properties, in most cases as required by regulatory permitting processes. We may be required to conduct these operations at other properties in the future. In addition, we have been, and in the future, may be liable to contribute to the cleanup of locations owned or operated by other persons to which we or our predecessor companies have sent wasteswaste for disposal, pursuant to federal and other environmental laws. Under these laws, the owner or operator of contaminated properties and companies that generated, disposed of or arranged for the disposal of wastes sent to a contaminated disposal facility can be held jointly and severally liable for the investigation and cleanup of such properties, regardless of fault. Additionally, our products may become subject to fees and taxes in order to fund cleanup of such properties, including those operated or used by other lead-battery industry participants.
Changes in environmental and climateclimate-related laws orand regulations could lead to new or additional investment in production designs and could increase environmental compliance expenditures. For example, the European Union has enacted greenhouse gas emissions legislation, and continues to expand the scope of such legislation. The United States Environmental Protection Agency has promulgated regulations applicable to projects involving greenhouse gas emissions above a certain threshold, and the United States and certain states within the United States have enacted, or are considering, limitations on greenhouse gas emissions.
Changes in climate change concerns, or in the regulation of such concerns, including greenhouse gas emissions, could subject us to additional costs and restrictions, including increased energy and raw materials costs. Additionally, we cannot assure you that we have been or at all times will be in compliance with environmental laws and regulations or that we will not be required to expend significant funds to comply with, or discharge liabilities arising under, environmental laws, regulations and permits, or that we will not be exposed to material environmental, health or safety litigation.
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We are subject to a wide variety of domestic and foreign laws and regulations that could adversely affect our business, financial condition and results of operations.
We are subject to a wide variety of domestic and foreign laws and regulations, and legal compliance risks, including securities laws, tax laws, data privacy laws, employment and pension-related laws, competition laws, U.S. and foreign export and trade laws, government procurement regulations, and laws governing improper business practices. We are affected by both new laws and regulations, and changes to existing laws and regulations which may continue to evolve through interpretations by courts and regulators. Furthermore, the laws and regulations to which we are subject may differ from jurisdiction to jurisdiction, further increasing the cost of compliance and the risk of noncompliance.
In particular, the U.S. Foreign Corrupt Practices Act (“FCPA”) and similar worldwide anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. The FCPA applies to companies, individual directors, officers, employees and agents. Under the FCPA, U.S. companies may be held liable for actions taken by strategic or local partners or representatives. The FCPA also imposes accounting standards and requirements on publicly traded U.S. corporations and their foreign affiliates, which are intended to prevent companies and their intermediaries from making improper payments to non-U.S. government officials for the diversionpurpose of corporate funds to the payment of bribes and other improper payments.obtaining or retaining business. Certain of our customer relationships outside of the U.S. are with governmental entities and are therefore subject to such anti-bribery laws. Our policies mandate compliance with these anti-bribery laws. Despite meaningful measures that we undertake to facilitate lawful conduct, which include training and internal control policies, these measures may not always prevent reckless or criminal acts by our employees or agents. As a result, we could be subject to criminal and civil penalties, disgorgement, further changes or enhancements to our procedures, policies and controls, personnel changes or other remedial actions. Violations of these laws, or allegations of such violations, could disrupt our operations, involve significant management distraction and result in a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
There is also a regulationComplying or failing to improvecomply with conflict minerals regulations could materially and adversely affect our supply chain, our relationships with customers and suppliers and our financial results.
We are currently subject to conflict mineral disclosure regulations in the transparencyU.S. and accountabilitymay be affected by new regulations concerning the supply ofconflict and similar minerals coming from the conflict zones in and around the Democratic Republic of Congo. Newadopted by other jurisdictions where we operate. U.S. legislation includesincluded disclosure requirements regarding the use of conflict minerals mined from the Democratic Republic of Congo and adjoining countries and procedures
regarding a manufacturer’s efforts to prevent the sourcing of such conflict minerals. The implementationIn addition, the European Union adopted an EU-wide conflict minerals rule under which most EU importers of thesetin, tungsten, tantalum, gold and their ores will have to conduct due diligence to ensure the minerals do not originate from conflict zones and do not fund armed conflicts. We have and will continue to incur added costs to comply with the disclosure requirements, could affectincluding costs related to determining the sourcing and availabilitysource of such minerals used in the manufacture of our products. As a result, there may only be a limited pool of suppliers who provide conflict-free metals, and we cannot assure you that we will be able to obtain products in sufficient quantities or at competitive prices. Future regulations may become more stringent or costly and our compliance costs and potential liabilities could increase, which may harm our business.
We are exposed to exchange rate risks, and our net earnings and financial condition may suffer due to currency translations.
We invoice our foreign sales and service transactions in local and foreign currencies and translate net sales using actual exchange rates during the period. We translate our non-U.S. assets and liabilities into U.S. dollars using current exchange rates as of the balance sheet dates. Because a significant portion of our revenues and expenses are denominated in foreign currencies, changes in exchange rates between the U.S. dollar and foreign currencies, primarily the euro, British pound, Polish zloty, Chinese renminbi, Mexican peso and Swiss franc may adversely affect our revenue, cost of goods sold and operating margins. For example, foreign currency depreciation against the U.S. dollar will reduce the value of our foreign revenues and operating earnings as well as reduce our net investment in foreign subsidiaries. Approximately 50% of net sales were generated outside of the United States for the last three fiscal years.
Most of the risk of fluctuating foreign currencies is in our EMEA segment, which comprised approximately 40% of our net sales during the last three fiscal years. The euro is the dominant currency in our EMEA operations. In the event that one or more European countries were to replace the euro with another currency, our sales into such countries, or into Europe generally, would likely be adversely affected until stable exchange rates are established.
The translation impact from currency fluctuations on net sales and operating earnings in our Americas and Asia segments are not as significant as our EMEA segment, as a substantial majority of these net sales and operating earnings are in U.S. dollars or foreign currencies that have been closely correlated to the U.S. dollar.
If foreign currencies depreciate against the U.S. dollar, it would make it more expensive for our non-U.S. subsidiaries to purchase certain of our raw material commodities that are priced globally in U.S. dollars, while the related revenue will decrease when translated to U.S. dollars. Significant movements in foreign exchange rates can have a material impact on our results of operations and financial condition. We periodically engage in hedging of our foreign currency exposures, but cannot assure you that we can successfully hedge all of our foreign currency exposures or do so at a reasonable cost.
We quantify and monitor our global foreign currency exposures. Our largest foreign currency exposure is from the purchase and conversion of U.S. dollar based lead costs into local currencies in Europe. Additionally, we have currency exposures from intercompany financing and intercompany and third party trade transactions. On a selective basis, we enter into foreign currency forward contracts and purchase option contracts to reduce the impact from the volatility of currency movements; however, we cannot be certain that foreign currency fluctuations will not impact our operations in the future.
If we are unable to effectively hedge against currency fluctuations, our operating costs and revenues in our non-U.S. operations may be adversely affected, which would have an adverse effect on our operating profit and net income.
We may experience difficulties implementing our new global enterprise resource planning system.
We are engaged in a multi-year implementation of a new global enterprise resource planning system (“ERP”). The ERP is designed to efficiently maintain our books and records and provide information important to the operation of our business to our management team. The ERP will continue to require significant investment of human and financial resources. In implementing the ERP, we may experience significant delays, increased costs and other difficulties. Any significant disruption or deficiency in the design and implementation of the ERP could adversely affect our ability to process orders, ship product, send invoices and track payments, fulfill contractual obligations or otherwise operate our business. While we have invested significant resources in planning, project management and training, additional and significant implementation issues may arise. In addition, our efforts to centralize various business processes and functions within our organization in connection with our ERP implementation may disrupt our operations and negatively impact our business, results of operations and financial condition.
Our international operations may be adversely affected by actions taken by foreign governments or other forces or events over which we may have no control.
We currently have significant manufacturing and/or distribution facilities outside of the United States, in Argentina, Australia, Belgium, Brazil, Bulgaria, Canada, the Czech Republic, France, Germany, India, Italy, Malaysia, Mexico, PRC, Poland, South Africa, Spain, Switzerland, Tunisia and the United Kingdom. We may face political instability, economic uncertainty, and/or difficult labor relations in our foreign operations. We also may face barriers in the form of long-standing relationships between potential customers and their existing suppliers, national policies favoring domestic manufacturers and protective regulations including exchange controls, restrictions on foreign investment or the repatriation of profits or invested capital, changes in export or import restrictions and changes in the tax system or rate of taxation in countries where we do business. We cannot assure you that we will be able to successfully develop and expand our international operations and sales or that we will be able to overcome the significant obstacles and risks of our international operations. This may impair our ability to compete with battery manufacturers who are based in such foreign countries or who have long established manufacturing or distribution facilities or networks in such countries.
Our failure to introduce new products and product enhancements and broad market acceptance of new technologies introduced by our competitors could adversely affect our business.
Many new energy storage technologies have been introduced over the past several years. For certain important and growing markets, such as aerospace and defense, lithium-based battery technologies have a large and growing market share. Our ability to achieve significant and sustained penetration of key developing markets, including aerospace and defense, will depend upon our success in developing or acquiring these and other technologies, either independently, through joint ventures or through acquisitions. If we fail to develop or acquire, and manufacture and sell, products that satisfy our customers’ demands, or we fail to respond effectively to new product announcements by our competitors by quickly introducing competitive products, then market acceptance of our products could be reduced and our business could be adversely affected. We cannot assure you that our lead-acid products will remain competitive with products based on new technologies.
We may not be able to adequately protectascertain the origins of such minerals that we use and may not be able to satisfy requests from customers to certify that our proprietary intellectual property and technology.
products are free of conflict minerals. These requirements also could constrain the pool of suppliers from which we source such minerals. We rely on a combination of copyright, trademark, patent and trade secret laws, non-disclosure agreements and other confidentiality procedures and contractual provisions to establish, protect and maintain our proprietary intellectual property and technology and other confidential information. Certain of these technologies, especially TPPL technology, are important to our business and are not protected by patents. Despite our efforts to protect our proprietary intellectual property and technology and other confidential information, unauthorized parties may attempt to copy or otherwise obtain and use our intellectual property and proprietary technologies. If we arebe unable to protect our intellectual property and technology, we may lose any technological advantage we currently enjoyobtain conflict-free minerals at competitive prices which will increase costs and may be requiredmaterially and adversely affect our manufacturing operations and profitability.
Our failure to take an impairment chargecomply with respect to the carrying value of such intellectual property or goodwill established in connection with the acquisition thereof. In either case, our operating results and net income may be adversely affected.
Relocation of our customers’ operationsdata privacy regulations could adversely affect our business.
There are new and emerging data privacy laws, as well as frequent updates and changes to existing data privacy laws, in most jurisdictions in which we operate. Given the complexity of these laws and the requirements they place on businesses regarding the collection, storage, handling, use, disclosure, transfer and security of personal data, it is important for us to understand their impact and respond accordingly. Failure to comply with data privacy laws can result in substantial fines or penalties, legal liability or reputational damage.
In the UK and Europe, the General Data Protection Regulation (the “GDPR”), which came into effect in 2018, places stringent requirements on companies when handling personal data and there continues to be a growing trend of other countries adopting similar laws, including Canada. Additionally, there continues to be significant uncertainty with respect to the California Consumer Privacy Act of 2018 (the “CCPA”), which went into effect on January 1, 2020, and imposes additional obligations on companies regarding the handling of personal information and provides certain individual privacy rights to persons whose information is collected. Both the GDPR and the CCPA are continuously evolving and developing and may be interpreted and applied differently from jurisdiction to jurisdiction and may create inconsistent or conflicting requirements. For example, the California Privacy Rights Act, which was approved by California voters as a ballot initiative in November 2020, modifies the CCPA significantly, further enhancing and extending an individual’s rights over their personal data and the obligations placed on companies that handle this data. The trend by a numberresulting new regulations became effective on January 1, 2023. Most notably, employee and business data were brought into scope, which raises the compliance requirements for us significantly, in terms of our North Americaninternal controls, processes and Western European customers to move manufacturing operationsgovernance requirements. Furthermore, since 2020, several other U.S. states have enacted (and
additional U.S. states are considering) stringent consumer privacy laws, which may impose varying standards and expand their businesses in faster growing and low labor-cost markets may have an adverse impactrequirements on our business. Asdata collection, use and processing activities. Continued state by state introduction of privacy laws could lead to significantly greater complexity in our customerscompliance requirements globally, which could result in traditional manufacturing-based industries seek to move their manufacturing operations to these locations, there is a risk that these customers will source their energy storage productscomplaints from competitors located in those territories and will ceasedata subjects or reduce the purchase of productsaction from our manufacturing plants. We cannot assure you thatregulators.
If we will beare not able to compete effectivelyrespond, adapt and implement the necessary requirements to ensure compliance with manufacturing operations of energy storage products in those territories, whether by establishing or expanding our manufacturing operations in those lower-cost territories or acquiring existing manufacturers.
We may fail to implement our cost reduction initiatives successfully and improve our profitability.
We must continue to implement cost reduction initiatives to achieve additional cost savings in future periods. We cannot assure you that we will be able to achieve all of the cost savings that we expect to realize from current or future initiatives. In particular, we may be unable to implement one or more of our initiatives successfully or we may experience unexpected cost increases that offset the savings that we achieve. Given the continued competitive pricing pressures experienced in our industry, our failure to realize cost savings woulddata privacy laws, this could adversely affect our results of operations.
Quality problems with our products could harmimpact our reputation and erode our competitive position.
The success ofwe could face exposure to fines levied by regulators. As a result, our business, will depend upon the quality of our products and our relationships with customers. In the event that our products fail to meet our customers’ standards, our reputation could be harmed, which would adversely affect our marketing and sales efforts. We cannot assure you that our customers will not experience quality problems with our products.
We offer our products under a variety of brand names, the protection of which is important to our reputation for quality in the consumer marketplace.
We rely upon a combination of trademark, licensing and contractual covenants to establish and protect the brand names of our products. We have registered many of our trademarks in the U.S. Patent and Trademark Office and in other countries. In many market segments, our reputation is closely related to our brand names. Monitoring unauthorized use of our brand names is difficult, and we cannot be certain that the steps we have taken will prevent their unauthorized use, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the U.S. We cannot assure you that our brand names will not be misappropriated or utilized without our consent or that such actions will not have a material adverse effect on our reputation and on our results of operations.
We may fail to implement our plans to make acquisitions or successfully integrate them into our operations.
As part of our business strategy, we have grown, and plan to continue growing, by acquiring other product lines, technologies or facilities that complement or expand our existing business. There is significant competition for acquisition targets in the industrial battery industry. We may not be able to identify suitable acquisition candidates or negotiate attractive terms. In addition, we may have difficulty obtaining the financing necessary to complete transactions we pursue. In that regard, our credit facilities restrict the amount of additional indebtedness that we may incur to finance acquisitions and place other restrictions on our ability to make acquisitions. Exceeding any of these restrictions would require the consent of our lenders. We may be unable to successfully integrate any assets, liabilities, customers, systems and management personnel we acquire into our operations and we may not be able to realize related revenue synergies and cost savings within expected time frames. Our failure to execute our acquisition strategy could have a material adverse effect on our business. We cannot assure you that our acquisition strategy will be successful or that we will be able to successfully integrate acquisitions we do make.
Any acquisitions that we complete may dilute stockholder ownership interests in EnerSys, may have adverse effects on our financial conditionposition and results of operations could be material adversely affected.
The reduction, modification, elimination or expiration of government incentives for, or regulations regarding, the use of energy systems and batteries could reduce demand for our products and harm our business.
Federal, state, local and foreign government bodies provide incentives to owners, end-users, distributors, system integrators and manufacturers of energy systems and batteries in the form of rebates, tax credits and other financial incentives. However, these incentives may cause unanticipated liabilities.expire on a particular date, end when the allocated funding is exhausted, or may be reduced or terminated as a matter of regulatory or legislative policy.
Future acquisitions may involveThe IRA expanded and extended the issuance of our equity securities as payment, in part or in full, for the businesses or assets acquired. Any future issuances of equity securities would dilute stockholder ownership interests. In addition, future acquisitions might not increase,tax credits and may even decrease our earnings or earnings per shareother tax benefits available to energy systems projects and the benefits derived by us from an acquisition might not outweigh or might not exceedbattery supply chain. We believe this law will bolster and extend future demand for our products in the dilutive effectUnited States. However, we note that implementing regulations for this law are still in process, which creates uncertainty about the extent of the acquisition. We also may incur additional debt or suffer adverse tax and accounting consequences in connection with any future acquisitions.
The failure or security breach of critical computer systems could seriously affect our sales and operations.
We operate a number of critical computer systems throughout our business that can fail for a variety of reasons. If such a failure were to occur, we may not be able to sufficiently recover from the failure in time to avoid the loss of data or any adverseits impact on certain ofus and our operations that are dependent on such systems. This could result in lost sales and the inefficient operation of our facilities for the duration of such a failure.industry.
In addition, similar incentives may exist in, or be developed outside of, the United States, which could impact demand for our computer systems are essential for the exchange of information both within the companyproducts and in communicating with third parties. Despiteservices as we expand our effortsbusiness into foreign jurisdictions. Our international customers and end-users may have access to protect the integrity of our systemstax deductions and network as well as sensitive, confidential or personal data or information, our facilities and systems and those of our third-party service providers may be vulnerable to security breaches, theft, misplaced or lost data, programming and/or human errors that could potentially lead to the compromising of sensitive, confidential or personal data or information, improper use of our systems, software solutions or networks, unauthorized access, use, disclosure, modification or destruction of information, defective products, production downtimes and operational disruptions, which in turn could adversely affect our reputation, competitiveness, and results of operations.
grants toward equipment purchases. Our ability to maintain adequate credit facilities.successfully penetrate new geographic markets may depend on new countries adopting, to the extent such incentives are not currently in place and maintaining such incentives.
Our ability to continue our ongoing business operations and fund future growth depends on our ability to maintain adequate credit facilities and to comply with the financial and other covenants in such credit facilities or to secure alternative sources ofGeneral Risk Factors
financing. However, such credit facilities or alternate financing may not be available or, if available, may not be on terms favorable to us. If we do not have adequate access to credit, we may be unable to refinance our existing borrowings and credit facilities when they mature and to fund future acquisitions, and this may reduce our flexibility in responding to changing industry conditions.
Our indebtedness could adversely affect our financial condition and results of operations.
As of March 31, 2016, we had $628.6 million of total consolidated debt (including capital lease obligations). This level of debt could:
increase our vulnerability to adverse general economic and industry conditions, including interest rate fluctuations, because a portion of our borrowings bear, and will continue to bear, interest at floating rates;
require us to dedicate a substantial portion of our cash flow from operations to debt service payments, which would reduce the availability of our cash to fund working capital, capital expenditures or other general corporate purposes, including acquisitions;
limit our flexibility in planning for, or reacting to, changes in our business and industry;
restrict our ability to introduce new products or new technologies or exploit business opportunities;
place us at a disadvantage compared with competitors that have proportionately less debt;
limit our ability to borrow additional funds in the future, if we need them, due to financial and restrictive covenants in our debt agreements; and
have a material adverse effect on us if we fail to comply with the financial and restrictive covenants in our debt agreements.
There can be no assurance that we will continue to declare cash dividends at all or in any particular amounts.amounts, and any reduction in or elimination of our dividend payment could reducethe market price of our stock.
During fiscal 2016, we announced the declaration of aWe intend to pay quarterly cash dividenddividends subject to capital availability and periodic determinations by our Board of $0.175 per shareDirectors that cash dividends are in the best interest of common stock for quarters ended June 28, 2015, September 27, 2015, December 27, 2015 and March 31, 2016. On May 5, 2016, we announced a fiscal 2017 first quarter cash dividend of $0.175 per share of common stock.our stockholders. Future payment of a regular quarterly cash dividend on our common shares will be subject to, among other things, our results of operations, cash balances and future cash requirements, financial condition, statutory requirements of Delaware law, compliance with the terms of existing and future indebtedness and credit facilities, changes in federal and state income tax laws, changes in our business model and other factors that theour Board of Directors may deem relevant. Our dividend payments may change from time to time, and we cannot provide assuranceassure you that we will continue to declare dividends at all or in any particular amounts. A reduction in or elimination of our dividend payments could have a negative effect on our share price.
We cannot guarantee that our share repurchase programs will be fully consummated or that they will enhance long-term stockholder value. Share repurchases could also increase the volatility of the market price of our stock and diminish our cash reserves.
Our Board of Directors has authorized two share repurchase programs. These programs authorize the repurchase of up to a combined $250 million of our common stock, of which authority, as of March 31, 2023, approximately $185 million remains available. The other program authorizes the repurchase of up to such number of shares as shall equal the dilutive effects of any equity-based award granted during such fiscal year and the number of shares exercised through stock option awards during such fiscal year. Although our Board of Directors has authorized these share repurchase programs, the programs do not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares. We cannot guarantee that the programs will be fully consummated or that they will enhance long-term stockholder value. The programs could affect the trading price of our stock and increase volatility, and any announcement of a termination of these programs may result in a decrease in the market price of our stock. In addition, these programs could diminish our cash reserves.
We depend on our senior management team and other key employees, and significant attrition within our management team or unsuccessful succession planning could adversely affect our business.
Our success depends in part on our ability to attract, retain and motivate senior management and other key employees. Achieving this objective may be difficult due to many factors, including fluctuations in global economic and industry conditions, competitors’ hiring practices, cost reduction activities, and the effectiveness of our compensation programs. Competition for qualified personnel can be very intense. We must continue to recruit, retain and motivate senior management
and other key employees sufficient to maintain our current business and support our future projects. We are vulnerable to attrition among our current senior management team and other key employees. A loss of any such personnel, or the inability to recruit and retain qualified personnel in the future, could have ana material adverse effect on our business, financial condition and results of operations. In addition, if we are unsuccessful in our succession planning efforts, the continuity of our business and our results of operations could be materially adversely affected.
If our internal controls are found to be ineffective, our results of operations or our stock price may be adversely affected.
Our most recent evaluation resulted in our conclusion that, as of March 31, 2023, our internal control over financial reporting was effective. We believe that we currently have adequate internal control procedures in place for future periods, including processes related to newly acquired businesses. However, if our internal control over financial reporting is found to be ineffective, investors may lose confidence in the reliability of our financial statements, which may adversely affect our results of operations or stock price.
Changes in accounting principles and guidance could result in unfavorable accounting charges or effects, which could adversely affect our business.
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the U.S. Any change in these principles could have a significant effect on our reported financial position and financial results. The adoption of new or revised accounting principles may require us to make changes to our systems, processes and internal controls, which could have a significant effect on our reported financial results and internal controls, cause unexpected financial reporting fluctuations, retroactively affect previously reported results or require us to make costly changes to our operational processes and accounting systems upon our following the adoption of these standards. Any of these results could adversely affect our business.
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ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
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| | | | |
ITEM 1B.2. | UNRESOLVED STAFF COMMENTSPROPERTIES |
None.
The Company’s worldwide headquarters is located in Reading, Pennsylvania. Geographic headquartersPennsylvania, U.S.A. Headquarters for our Americas and EMEA and Asia segmentsoperations are located in Reading, Pennsylvania, U.S.A., and Zug, Switzerland, and Singapore, respectively. The Company owns approximately 80% of its manufacturing facilities and distribution centers worldwide. The following sets forth the Company’s principal owned or leased facilities by business segment:facilities:
Americas: Sylmar, California; Longmont, Colorado; Tampa, Florida; Suwanee, Georgia; Hays, Kansas; Richmond, Kentucky; Springfield and Warrensburg, Missouri; Cleveland, Ohio; Horsham, Pennsylvania; Sumter, South Carolina; Ooltewah, TennesseeTennessee; Spokane and Spokane,Bellingham, Washington in the United States;States. Burnaby, Canada; Monterrey and Tijuana, in Mexico; Buenos Aires, Argentina and SaoSão Paulo, in Brazil.
EMEA: Targovishte, Bulgaria; Hostomice, Czech Republic; Arras, France; Hagen and Zwickau in Germany; Bielsko-Biala, Poland; Stockholm, Sweden; Newport and Culham, in the United Kingdom; Port Elizabeth, South Africa; and Tunis, Tunisia.Kingdom.
Asia: Jiangsu, Chongqing and Yangzhou, in the PRC and Andhra Pradesh in India.PRC.
We consider our plants and facilities, whether owned or leased, to be in satisfactory condition and adequate to meet the needs of our current businesses and projected growth. Information as to material lease commitments is included in Note 93 - Leases to the Consolidated Financial Statements.
From time to time, we are involved in litigation incidental to the conduct of our business. See Litigation and Other Legal Matters in Note 1819 - Commitments, Contingencies and Litigation to the Consolidated Financial Statements, which is incorporated herein by reference.
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ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
PART II
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ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information
The Company’s common stock has been listed on the New York Stock Exchange under the symbol “ENS” since it began trading on July 30, 2004. Prior to that time, there had been no public market for our common stock. The following table sets forth, on a per share basis for the periods presented, the range of high, low and closing prices of the Company’s common stock.
|
| | | | | | | | | | | | | | | | |
Quarter Ended | | High Price | | Low Price | | Closing Price | | Dividends Declared |
March 31, 2016 | | $ | 58.89 |
| | $ | 42.60 |
| | $ | 55.72 |
| | $ | 0.175 |
|
December 27, 2015 | | 66.95 |
| | 51.02 |
| | 57.18 |
| | 0.175 |
|
September 27, 2015 | | 71.85 |
| | 49.21 |
| | 51.66 |
| | 0.175 |
|
June 28, 2015 | | 73.27 |
| | 63.63 |
| | 71.58 |
| | 0.175 |
|
| | | | | | | | |
March 31, 2015 | | $ | 66.89 |
| | $ | 57.47 |
| | $ | 64.24 |
| | $ | 0.175 |
|
December 28, 2014 | | 63.39 |
| | 50.63 |
| | 61.78 |
| | 0.175 |
|
September 28, 2014 | | 70.00 |
| | 57.88 |
| | 60.07 |
| | 0.175 |
|
June 29, 2014 | | 71.94 |
| | 62.72 |
| | 68.91 |
| | 0.175 |
|
Holders of Record
As of May 27, 2016,19, 2023, there were approximately 370600 record holders of common stock of the Company. Because many of these shares are held by brokers and other institutions on behalf of stockholders, the Company is unable to estimate the total number of stockholders represented by these record holders.
Recent Sales of Unregistered Securities
During the fourth quarter of fiscal 2016,2023, we did not issue any unregistered securities.
Dividends
During fiscal 2023, the Company’s quarterly dividend was $0.175 per share. The Company declared aggregate regular cash dividends of $0.70 per share in each of the years ended March 31, 2023, March 31, 2022 and 2021.
The Company anticipates that it will continue to pay quarterly cash dividends in the future. However, the payment and amount of future dividends remain within the discretion of the Board and will depend upon the Company's future earnings, financial condition, capital requirements, restrictions under existing or future credit facilities or debt and other factors. See “There can be no assurance that we will continue to declare cash dividends at all or in any particular amounts.” Under Item 1A. Risk Factors for additional information.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table summarizes the number of shares of common stock we purchased from participants in our equity incentive plans, as well as repurchases of common stock authorized by the Board of Directors. As provided by the Company’s equity incentive plans, (a) vested options outstanding may be exercised through surrender to the Company of option shares or vested options outstanding under the Company’s equity incentive plans to satisfy the applicable aggregate exercise price (and any withholding tax) required to be paid upon such exercise and (b) the withholding tax requirements related to the vesting and settlement of restricted stock units and market share unitsequity awards may be satisfied by the surrender of shares of the Company’s common stock.
Purchases of Equity Securities
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | (a) Total number of shares (or units) purchased | | (b) Average price paid per share (or unit) | | (c) Total number of shares (or units) purchased as part of publicly announced plans or programs | | (d) Maximum number (or approximate dollar value) of shares (or units) that may be purchased under the plans or programs(1)(2)(3) |
January 2 - January 31, 2023 | | — | | | $ | — | | | — | | | $ | 185,545,418 | |
February 1 - March 1, 2023 | | 49,934 | | | 75.92 | | | — | | | 185,545,418 | |
March 2 - March 31, 2023 | | 62 | | | 74.60 | | | — | | | 185,545,418 | |
Total | | 49,996 | | | $ | 75.92 | | | — | | | |
(1) The Company's Board of Directors has authorized the Company to repurchase up to such number of shares as shall equal the dilutive effects of any equity based award granted, approximately $25.0 million, during such fiscal year under the 2017 Equity Incentive Plan and the number of shares exercised through stock option awards during such fiscal year.
(2) On March 9, 2022, the Company announced the establishment of a $150.0 million stock repurchase authorization, with no
expiration date.
(3) On November 10, 2021, the Company announced the establishment of a $100 million stock repurchase authorization, with no expiration date.
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| | | | | | | | | | | | | | |
Period | | (a) Total number of shares (or units) purchased | | (b) Average price paid per share (or unit) | | (c) Total number of shares (or units) purchased as part of publicly announced plans or programs | | (d) Maximum number (or approximate dollar value) of shares (or units) that may be purchased under the plans or programs(1)(2) |
December 28, 2015 - January 24, 2016 | | 961,444 |
| | $ | 60.63 |
| | 961,444 |
| | $ | 38,600,000 |
|
January 25, 2016 - February 21, 2016 | | 131,962 |
| | 44.38 |
| | 131,962 |
| | 32,743,463 |
|
February 22, 2016 - March 31, 2016 | | 113,352 |
| | 47.27 |
| | 113,352 |
| | 27,385,432 |
|
Total | | 1,206,758 |
| | $ | 57.60 |
| | 1,206,758 |
| | |
| |
(1)
| The Company's Board of Directors has authorized the Company to repurchase up to such number of shares as shall equal the dilutive effects of any equity-based award granted during such fiscal year under the Second Amended and Restated 2010 Equity Incentive Plan and the number of shares exercised through stock option awards during such fiscal year. This repurchase program was exhausted for fiscal 2016. |
| |
(2)
| The Company's Board of Directors has authorized the Company to repurchase up to a $180 million of its common stock. On August 13, 2015, the Company prepaid $180 million, pursuant to an accelerated share repurchase (“ASR”) with a major financial institution, and received an initial delivery of 2,000,000 shares. On January 13, 2016, the ASR was settled and the Company received an additional 961,444 shares and $13.6 million in cash for the remaining amount not settled in shares. The Company repurchased a total of 2,961,444 shares under the ASR for a total cash investment of $166.4 million at an average price of $56.19. The Company also purchased an additional 245,314 shares during the fourth quarter through open market transactions for a total cash investment of $11.2 million at an average price of $45.72. |
STOCK PERFORMANCE GRAPH
The following graph compares the changes in cumulative total returns on EnerSys’ common stock with the changes in cumulative total returns of the New York Stock Exchange Composite Index, a broad equity market index; the Dow Jones US Electrical Components and Equipment index ("DJUSEC"); and the total return on a selected peer group index. The peer group selected is based on the standard industrial classification codes (“SIC Codes”) established by, which was used as a comparable index in fiscal 2022. The Company determined that the U.S. government. TheDJUSEC index chosen was “Miscellaneous Electrical Equipment and Suppliers” and comprises allprovides a publicly traded companies having the same three-digit SIC Code (369) as EnerSys.available index of industry peers with similar market capitalization.
The graph was prepared assuming that $100 was invested in EnerSys’ common stock, the New York Stock Exchange Composite Index and the peer group (duly updated for changes) on March 31, 2011.
*$100 invested on March 31, 20112018 in stock or index, including reinvestment of dividends.
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ITEM 6. | SELECTED FINANCIAL DATA |
|
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended March 31, |
| | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| | (In thousands, except share and per share data) |
Consolidated Statements of Income: | | | | | | | | | | |
Net sales | | $ | 2,316,249 |
| | $ | 2,505,512 |
| | $ | 2,474,433 |
| | $ | 2,277,559 |
| | $ | 2,283,369 |
|
Cost of goods sold | | 1,704,472 |
| | 1,864,601 |
| | 1,844,813 |
| | 1,708,203 |
| | 1,770,664 |
|
Gross profit | | 611,777 |
| | 640,911 |
| | 629,620 |
| | 569,356 |
| | 512,705 |
|
Operating expenses | | 352,767 |
| | 358,381 |
| | 344,421 |
| | 312,324 |
| | 297,806 |
|
Restructuring and other exit charges | | 12,978 |
| | 11,436 |
| | 27,326 |
| | 7,164 |
| | 4,988 |
|
Impairment of goodwill, indefinite-lived intangibles and fixed assets | | 36,252 |
| | 23,946 |
| | 5,179 |
| | — |
| | — |
|
Legal proceedings charge / (reversal of legal accrual, net of fees) | | 3,201 |
| | (16,233 | ) | | 58,184 |
| | — |
| | (900 | ) |
Gain on sale of facility | | (3,420 | ) | | — |
| | — |
| | — |
| | — |
|
Operating earnings | | 209,999 |
| | 263,381 |
| | 194,510 |
| | 249,868 |
| | 210,811 |
|
Interest expense | | 22,343 |
| | 19,644 |
| | 17,105 |
| | 18,719 |
| | 16,484 |
|
Other (income) expense, net | | 5,719 |
| | (5,602 | ) | | 13,658 |
| | 916 |
| | 3,068 |
|
Earnings before income taxes | | 181,937 |
| | 249,339 |
| | 163,747 |
| | 230,233 |
| | 191,259 |
|
Income tax expense | | 50,113 |
| | 67,814 |
| | 16,980 |
| | 65,275 |
| | 47,292 |
|
Net earnings | | 131,824 |
| | 181,525 |
| | 146,767 |
| | 164,958 |
| | 143,967 |
|
Net (losses) earnings attributable to noncontrolling interests | | (4,326 | ) | | 337 |
| | (3,561 | ) | | (1,550 | ) | | (36 | ) |
Net earnings attributable to EnerSys stockholders | | $ | 136,150 |
| | $ | 181,188 |
| | $ | 150,328 |
| | $ | 166,508 |
| | $ | 144,003 |
|
Net earnings per common share attributable to EnerSys stockholders: | | | | | | | | | | |
Basic | | $ | 3.08 |
| | $ | 3.97 |
| | $ | 3.17 |
| | $ | 3.47 |
| | $ | 2.95 |
|
Diluted | | $ | 2.99 |
| | $ | 3.77 |
| | $ | 3.02 |
| | $ | 3.42 |
| | $ | 2.93 |
|
Weighted-average number of common shares outstanding: | | | | | | | | | | |
Basic | | 44,276,713 |
| | 45,606,317 |
| | 47,473,690 |
| | 48,022,005 |
| | 48,748,205 |
|
Diluted | | 45,474,130 |
| | 48,052,729 |
| | 49,788,155 |
| | 48,635,449 |
| | 49,216,035 |
|
| | | | | | | | | | |
| | Fiscal Year Ended March 31, |
| | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| | (In thousands) |
Consolidated cash flow data: | | | | | | | | | | |
Net cash provided by operating activities | | $ | 307,571 |
| | $ | 194,471 |
| | $ | 193,621 |
| | $ | 244,400 |
| | $ | 204,196 |
|
Net cash used in investing activities | | (80,923 | ) | | (59,616 | ) | | (232,005 | ) | | (55,092 | ) | | (72,420 | ) |
Net cash (used in) provided by financing activities | | (105,729 | ) | | (59,313 | ) | | 21,562 |
| | (95,962 | ) | | (79,382 | ) |
Other operating data: | | | | | | | | | | |
Capital expenditures | | 55,880 |
| | 63,625 |
| | 61,995 |
| | 55,286 |
| | 48,943 |
|
| | | | | | | | | | |
| | As of March 31, |
| | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| | (In thousands) |
Consolidated balance sheet data: | | | | | | | | | | |
Cash and cash equivalents | | $ | 397,307 |
| | $ | 268,921 |
| | $ | 240,103 |
| | $ | 249,348 |
| | $ | 160,490 |
|
Working capital | | 845,068 |
| | 769,881 |
| | 719,297 |
| | 685,403 |
| | 611,372 |
|
Total assets (1) | | 2,214,488 |
| | 2,136,555 |
| | 2,318,959 |
| | 1,984,512 |
| | 1,920,321 |
|
Total debt, including capital leases, excluding discount on the Convertible Notes (1)(2) | | 628,631 |
| | 513,213 |
| | 319,401 |
| | 175,134 |
| | 251,467 |
|
Total EnerSys stockholders’ equity | | 1,013,131 |
| | 1,038,900 |
| | 1,246,402 |
| | 1,169,401 |
| | 1,032,195 |
|
(1) Net of debt issuance costs
(2) Convertible Notes as defined under Liquidity and Capital Resources in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
|
| |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of our results of operations and financial condition for the fiscal years ended March 31, 2016, 20152023 and 2014,2022, should be read in conjunction with our audited consolidated financial statementsConsolidated Financial Statements and the notes to those statements included in Item 8. Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Our discussion and analysis of our results of operations and financial condition for the fiscal years ended March 31, 2022 and 2021, has been omitted from this Form 10-K and can be found in Part II, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022. Our discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, opinions, expectations, anticipations and intentions and beliefs. Actual results and the timing of events could differ materially from those anticipated in those forward-looking statements as a result of a number of factors. See “Cautionary Note Regarding Forward-Looking Statements,” “Business” and “Risk Factors,” sections elsewhere in this Annual Report on Form 10-K. In the following discussion and analysis of results of operations and financial condition, certain financial measures may be considered “non-GAAP financial measures” under the SEC rules. These rules require supplemental explanation and reconciliation, which is provided in this Annual Report on Form 10-K.
EnerSys’ management uses the non-GAAP measures, EBITDA and Adjustedadjusted EBITDA, in its computation of compliance with loan covenants.covenants and adjusted EBITDA in evaluating its financial performance. These measures, as used by EnerSys, adjust net earnings determined in accordance with GAAP for interest, taxes, depreciation and amortization, and certain charges or credits as permitted by our credit agreements, that were recorded during the periods presented.
EnerSys’ management uses the non-GAAP measures,"primary working capital" and "primary working capital percentage" (see definition in “Overview” below) along with capital expenditures, in its evaluation of business segment cash flow and financial position performance.
These non-GAAP disclosures have limitations as analytical tools, should not be viewed as a substitute for cash flow or operating earnings determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. This supplemental presentation should not be construed as an inference that the Company’s future results will be unaffected by similar adjustments to operating earnings determined in accordance with GAAP.
Overview
EnerSys (the “Company,” “we,” or “us”) is the world’s largest manufacturer, marketer and distributor ofa world leader in stored energy solutions for industrial batteries.applications. We also manufacture market and distribute products such asenergy systems solutions and motive power batteries, specialty batteries, battery chargers, power equipment, battery accessories and outdoor equipment enclosure solutions to customers worldwide. Energy Systems which combine enclosures, power conversion, power distribution and energy storage are used in the telecommunication and broadband, utility industries, uninterruptible power supplies, and numerous applications requiring stored energy solutions. Additionally, weMotive Power batteries and chargers are utilized in electric forklift trucks and other industrial electric powered vehicles. Specialty batteries are used in aerospace and defense applications, large over the road trucks, premium automotive and medical. We also provide related aftermarket and customer-supportcustomer support services for our products. We market our products globally to over 10,000 customers in more than 100 countries through a network of distributors, independent representatives and our internal sales force.
We operate and manage our business in three geographic regions of the world—Americas, EMEA and Asia, as described below. Our business is highly decentralized with manufacturing locations throughoutforce around the world. More than half
The Company's chief operating decision maker, or CODM (the Company's Chief Executive Officer), reviews financial information for purposes of our manufacturing capacity is located outsideassessing business performance and allocating resources, by focusing on the United States, and approximately 50%lines of our net sales were generated outside the United States.business on a global basis. The Company hasexcludes certain items that are not included in the segment performance as these are managed and viewed on a consolidated basis. The Company identifies the following as its three reportable businessoperating segments, based on geographic regions, definedlines of business:
•Energy Systems - uninterruptible power systems, or “UPS” applications for computer and computer-controlled systems used in data centers, as follows:well as telecommunications systems, switchgear and electrical control systems used in industrial facilities and electric utilities, large-scale energy storage and energy pipelines. Energy Systems also includes highly integrated power solutions and services to broadband, telecom, renewable and industrial customers, as well as thermally managed cabinets and enclosures for electronic equipment and batteries.
•Motive Power - power for electric industrial forklifts used in manufacturing, warehousing and other material handling applications as well as mining equipment, diesel locomotive starting and other rail equipment; and
•Specialty - premium batteries for starting, lighting and ignition applications in premium automotive and large over-the-road trucks, energy storage solutions for satellites, military land vehicles, aircraft, submarines, tactical vehicles, as well as medical devices and equipment.
Americas, which includes North and South America, with our segment headquarters in Reading, Pennsylvania, USA;31
EMEA, which includes Europe, the Middle East and Africa, with our segment headquarters in Zug, Switzerland; andTable of ContentsAsia, which includes Asia, Australia and Oceania, with our segment headquarters in Singapore.
We evaluate business segment performance based primarily upon operating earnings exclusive of highlighted items. Highlighted items are those that the Company deems are not indicative of ongoing operating results, including those charges that the Company incurs as a result of restructuring activities, impairment of goodwill and indefinite-lived intangibles and other assets, acquisition activities and those charges and credits that are not directly related to operating unit performance, such as significant legal proceedings, ERP system implementation, amortization of recently acquired intangible assets and tax valuation allowance changes, including those related to the adoption of the Tax Cuts and Jobs Act. Because these charges are not incurred as a result of ongoing operations, or are incurred as a result of a potential or previous acquisition, they are not as helpful a measure of the performance of our underlying business, segment performance.particularly in light of their unpredictable nature and are difficult to forecast. All corporate and centrally incurred costs are allocated to the business segments based principally on net sales. We evaluate business segment cash flow and financial position performance based primarily upon capital expenditures and primary workingoperating capital levels (see definition of primary working capital in “Liquidity and Capital Resources” below). Although we monitor the three elements of primary working capital (receivables, inventory and payables), our primary focus is on the total amount due to the significant impact it has on our cash flow.levels.
Our management structure, financial reporting systems, and associated internal controls and procedures, are all consistent with our three geographic business segments.lines of business. We report on a March 31 fiscal year-end. Our financial results are largely driven by the following factors:
•global economic conditions and general cyclical patterns of the industries in which our customers operate;
•changes in our selling prices and, in periods when our product costs increase, our ability to raise our selling prices to pass such cost increases through to our customers;
•the extent to which we are able to efficiently utilize our global manufacturing facilities and optimize our capacity;
•the extent to which we can control our fixed and variable costs, including those for our raw materials, manufacturing, distribution and operating activities;
•changes in our level of debt and changes in the variable interest rates under our credit facilities; and
•the size and number of acquisitions and our ability to achieve their intended benefits.
We have two primary product lines: reserve power products and motive power products. Net sales classifications by product line are as follows:
Reserve power products are used for backup power for the continuous operation of critical applications in telecommunications systems, UPS applications for computer and computer-controlled systems, and other specialty power applications, including security systems, premium starting, lighting and ignition applications, in switchgear, electrical control systems used in electric utilities, large-scale energy storage, energy pipelines, in commercial aircraft, satellites, military aircraft, submarines, ships and tactical vehicles. Reserve power products also include thermally managed cabinets and enclosures for electronic equipment and batteries.
Motive power products are used to provide power for electric industrial forklifts used in manufacturing, warehousing and other material handling applications as well as mining equipment, diesel locomotive starting and other rail equipment.
Current Market Conditions
Economic Climate
Recent indicators continue to suggest a mixed trend inThe economic activity among the different geographical regions. Economic activity remains goodclimate in North America, China and EMEA began to slow in the first half of calendar 2022 after experiencing strong growth during calendar 2021. All regions are experiencing a rise in inflation and are being negatively impacted by the war in Ukraine, however the rate of inflation broadly began to slow at the end of the year and into calendar year 2023. We expect interest rates to continue to increase in the U.S. and the euro zone. China’s economy faced further headwinds caused by continued COVID-19 lockdowns due to rising cases and its zero-Covid approach through the majority of the year. In calendar year 2023, China reopened its borders for the first time in three years and, as a result, its economy is expected to experience moderate growth. The U.S. economy is expected to continue to slow in calendar 2023 while EMEA is expected to be flat to slightly up.
EnerSys is experiencing limited growth. Our Asia region continues to experiencesome supply chain disruptions and cost spikes in certain materials such as steel, copper, plastic resins, acid, pasting paper and electronic components, while transportation and related logistics challenges are improving with broad-based costs declining from peak levels. In addition, some locations experienced difficulty meeting hiring goals for the fastest growthmajority of any region in which we do business.the fiscal year. Generally, our mitigation efforts and the recent economic recovery have tempered the impact of the pandemic-related challenges. The overall market demand for our products and services remains robust.
Volatility of Commodities and Foreign Currencies
Our most significant commodity and foreign currency exposures are related to lead and the euro,Euro, respectively. Historically, the volatility of commodity costs and foreign currency exchange rates have caused large swings in our production costs. AsSince the global economic climate changes, we anticipate that our commodity costs and foreign currency exposures may continue to fluctuate as they have in the past several years. During the pastbeginning of fiscal year on a consolidated basis,2023, we have experienced lower commodity costs. However,a range in lead prices from just above $1.10 per pound to approximately $0.85 per pound. We are experiencing increasing costs in some of our EMEA region’s commodityother raw materials such as steel, copper, plastic resins, acid, separator paper and electronics. We also experienced increased freight costs are down only slightly due to unfavorable movementsthrough most of the year, but saw a decline in foreign exchange rates. In addition, these unfavorable movements in foreign exchange rates have led to lower revenues.the fourth quarter.
Customer Pricing
Our selling prices fluctuated during the last several years to offset the volatile cost of commodities. Approximately 30% of our revenue is currentlynow subject to agreements that adjust pricing to a market-based index for lead. DuringCustomer pricing changes generally lag movements in lead prices and other costs by approximately six to nine months. In fiscal 2016,2023, customer pricing has increased due to higher raw material prices and shipping costs, labor and other costs having increased throughout the year.
Based on the current volatility of the commodity markets, it is difficult to predict with certainty whether commodity prices will be higher or lower in fiscal 2024 versus fiscal 2023. However, given the lag related to increasing our selling prices remained relatively flat, comparedfor inflationary cost increases, on average our selling prices should be higher in fiscal 2024 versus fiscal 2023. As we concentrate more on energy systems and non-lead chemistries, the emphasis on lead will continue to decline.
Primary Operating Capital
As part of managing the comparable prior year period. performance of our business, we monitor the level of primary operating capital, and its ratio to net sales. We define primary operating capital as accounts receivable, plus inventories, minus accounts payable. The resulting net amount is divided by the trailing three month net sales (annualized) to derive a primary operating capital percentage. We believe these three elements included in primary operating capital are most operationally driven, and this performance measure provides us with information about the asset intensity and operating efficiency of the business on a company-wide basis that management can monitor and analyze trends over time. Primary operating capital was $1,057.0 million (yielding a primary operating capital percentage of 26.7%) at March 31, 2023 and $1,042.0 million (yielding a primary working operating percentage of 28.7%) at March 31, 2022. The primary operating percentage of 26.7% at March 31, 2023 is 200 basis points lower than that for March 31, 2022, and 220 basis points higher than that for March 31, 2021. The change in the ratio is a result of the continued supply chain constraints, inflationary pressures across our business, and strategic inventory build that have outweighed benefits received from the sale of $150.0 million in accounts receivables through a Receivables Purchase Agreement (RPA) entered into during the third quarter of fiscal 2023.
Primary Operating Capital and Primary Operating Capital percentages at March 31, 2023, 2022 and 2021 are computed as follows:
| | | | | | | | | | | | | | | | | | | | |
($ in Millions) | | March 31, 2023 | | March 31, 2022 | | March 31, 2021 |
Accounts receivable, net | | $ | 637.8 | | | $ | 719.4 | | | $ | 603.6 | |
Inventory, net | | 797.8 | | | 715.7 | | | 518.2 | |
Accounts payable | | (378.6) | | | (393.1) | | | (323.9) | |
Total primary operating capital | | $ | 1,057.0 | | | $ | 1,042.0 | | | $ | 797.9 | |
Trailing 3 months net sales | | $ | 989.9 | | | $ | 907.0 | | | $ | 813.5 | |
Trailing 3 months net sales annualized | | $ | 3,959.6 | | | $ | 3,628.1 | | | $ | 3,254.2 | |
| | | | | | |
Primary operating capital as a % of annualized net sales | | 26.7 | % | | 28.7 | % | | 24.5 | % |
Liquidity and Capital Resources
We believe that our financial position is strong, and westrong. We have substantial liquidity with $397$347 million of available cash and cash equivalents and available and undrawn, committed and uncommitted creditunder all its lines of credit of approximately $472$693 million at March 31, 20162023 to cover short-term liquidity requirements and anticipated growth in the foreseeable future. Our $350The nominal amount of credit available is subject to a leverage ratio maximum of 4.25x EBITDA, as discussed in Liquidity and Capital Resources.
During the second quarter of fiscal 2023, the Company entered into a third amendment to the 2017 Credit Facility (as amended, the “Third Amended Credit Facility”). The Third Amended Credit Facility provided new incremental delayed-draw senior secured term loan up to $300 million (the “Third Amended Term Loan”), which was available to draw until March 15, 2023. During the fourth quarter, the Company drew $300 million in the form of the Third Amended Term Loan. The funds will mature on September 30, 2026, the same as the Company's Second Amended Term loan and Second Amended Revolver. In connection with the agreement, the Company incurred $1.2 million in third party administrative and legal fees recognized in interest expense and capitalized $1.1 million in charges from existing lenders as a deferred asset. Additionally, the Company derecognized the capitalized deferred asset and recognized the $1.1 million as a deferred financing costs.
During the fourth quarter of fiscal 2023, the Company entered into a fourth amendment to the 2017 Credit Facility (as amended, the “Fourth Amended Credit Facility”). The Fourth Amended Credit Facility replaces the London Interbank Offered Rate
(“LIBOR”) with the Secured Overnight Financing Rate (“SOFR”) in the calculation of interest for both the Second Amended Revolver and the Second Amended Term Loan.
During the second quarter of fiscal 2022, we entered into a second amendment to the Amended Credit Facility (as amended, the “Second Amended Credit Facility”). As a result, the Second Amended Credit Facility, now scheduled to mature on September 30, 2026, consists of a $130.0 million senior secured term loan (the “Second Amended Term Loan”), a CAD 106.4 million ($84.2 million) term loan and an $850.0 million senior secured revolving credit facility (as amended,(the “Second Amended Revolver”). This amendment resulted in a decrease of the "2011 Credit Facility"), which we entered into in March 2011 was expanded in July 2014Amended Term Loan by increasing the revolver by an additional $150$150.0 million and an increase of the Amended Revolver by adding a $150 million senior secured incremental term loan (the "Term Loan"). The 2011 Credit Facility is committed through September 2018 as long as we continue to comply with its covenants and conditions.$150.0 million.
Current market conditions related toDuring fiscal 2023, our liquidity and capital resources are favorable. We believe current conditions remain favorable for the Company to have continued positiveoperating cash flow from operations that, along with availableprovided cash andof $279.9 million, compared to a use of funds of $65.6 million in the prior year. The change in the operating cash equivalents and our undrawn lines of credit, will be sufficient to fund our capital expenditures, acquisitions and other investments for growth.
In April 2015, we issued $300 million of 5.00% Senior Notesflows in fiscal 2023 was primarily due 2023 (the “Notes”), with the net proceeds used primarily to fund the payment of principal and accreted interest outstanding on the senior 3.375% convertible notes due 2038 (the “Convertible Notes”) that were settled in July 2015. See Note 8 to the Consolidated Financial Statements for additional details.
Subsequentdecreases in primary operating capital dollars, compared to the extinguishmentprior year, reflecting the impact sold receivables as a part of our asset securitization agreement and less of an increase in inventory compared to the Convertible Notes, other than the Notes and the 2011 Credit Facility, we have no other significant amount of long-term debt maturing in the near future.prior year.
In fiscal 2016,2023 and 2022, we repurchased $178358,365 and 1,996,334 shares of common stock for $22.9 million of treasury stock through open market purchases and through an ASR with a major financial institution. Share repurchases had a modest positive impact on earnings per diluted share.$156.4 million, respectively. In fiscal 2021, we did not repurchase any shares.
Our leverage increased in fiscal 2016 mainly to fund our share repurchase program. We believe that our strong capital structure and liquidity affords us access to capital for future acquisitions and additional stock repurchase opportunities and continued dividend payments.
A substantial majority of the Company’s cash and investments are held by foreign subsidiariessubsidiaries. The majority of that cash and are considered to be indefinitely reinvested andinvestments is expected to be utilized to fund local operating activities, capital expenditure requirements and acquisitions. The Company believes that it has sufficient sources of domestic and foreign liquidity.
Cost Savings Initiatives-RestructuringThe Federal Reserve Bank of the United States has discontinued quantitative easing and, started raising short-term interest rates and has signaled they will continue to raise interest rates.The increase in short-term interest rates will increase EnerSys’ variable cost of borrowing under the Fourth Amended Credit Facility.
Cost savings programs remain a continuous element ofWe believe that our business strategystrong capital structure and are directed primarily at further reductions in plant manufacturing (labor and overhead), raw material costs and our operating expenses (primarily selling, general and administrative). In orderliquidity affords us access to realize cost savings benefitscapital for a majority of these initiatives, costs are incurred either in the form offuture capital expenditures, funding the cash obligations of previously recorded restructuring expenses or current period expenses.acquisition and stock repurchase opportunities and continued dividend payments.
During fiscal 2012, we announced restructuring programs related to our operations in EMEA, primarily consisting of the transfer of manufacturing of select products between certain of our manufacturing operations and restructuring of our selling, general and administrative operations. These actions were completed during fiscal 2014 and resulted in the reduction of approximately 85 employees with an estimated annual savings of $6.0 million.
During fiscal 2013, we announced further restructuring related to improving the efficiency of our manufacturing operations in EMEA, primarily consisting of cash expenses for employee severance-related payments and non-cash expenses associated with the write-off of certain fixed assets and inventory. These actions were substantially completed in fiscal 2015 and resulted in the reduction of approximately 140 employees. Our fiscal 2015 operating results reflect the full benefit of the estimated $7.0 million of favorable annualized pre-tax earnings impact of the fiscal 2013 programs. There are no further costs to be incurred under these programs.
During fiscal 2014, we announced additional restructuring programs to improve the efficiency of our manufacturing, sales and engineering operations in EMEA including the restructuring of its manufacturing operations in Bulgaria. The restructuring of the Bulgaria operations was announced during the third quarter of fiscal 2014 and consists of the transfer of motive power and a portion of reserve power battery manufacturing to our facilities in Western Europe. These actions resulted in the reduction of approximately 500 employees upon completion during fiscal 2016. Our fiscal 2015 operating results reflect substantially all of the approximately $19.0 million of expected favorable annualized pre-tax earnings impact of the fiscal 2014 programs.
During fiscal 2016 we announced restructuring programs related to improving operational efficiencies in EMEA and the Americas. These actions when completed in fiscal 2017 are expected to result in the reduction of approximately 240 employees and the closure of our Cleveland, Ohio manufacturing facility. Approximately $3.0 million pre-tax in savings have been reflected in the fiscal 2016 results.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in NotesNote 1 - Summary of Significant Accounting Policies to the Consolidated Financial Statements in Item 8. In preparing our financial statements, management is required to make estimates and assumptions that, among other things, affect the reported amounts in the Consolidated Financial Statements and accompanying notes. These estimates and assumptions are most significant where they involve levels of subjectivity and judgment necessary to account for highly uncertain matters or matters susceptible to change, and where they can have a material impact on our financial condition and operating performance. We discuss below the more significant estimates and related assumptions used in the preparation of our consolidated financial statements.Consolidated Financial Statements. If actual results were to differ materially from the estimates made, the reported results could be materially affected.
Revenue Recognition
WeIn accordance with ASC 606, we recognize revenue only when we have satisfied a performance obligation through transferring control of the promised good or service to a customer. The standard indicates that an entity must determine at contract inception whether it will transfer control of a promised good or service over time or satisfy the performance obligation at a point in time through analysis of the following criteria: (i) the entity has a present right to payment, (ii) the customer has legal title, (iii) the customer has physical possession, (iv) the customer has the significant risks and rewards of ownership and (v) the customer has accepted the asset. Our primary performance obligation to our customers is the delivery of finished goods and products, pursuant to purchase orders. Control of the products sold typically transfers to our customers at the point in time when the earnings processgoods are shipped as this is complete. This occursalso when risk and title transfers, collectibility is reasonably assured and pricing is fixed or determinable. Shipment termsgenerally passes to our battery product customers are either shipping point or destinationunder the terms and do not differ significantly betweenconditions of our business segments. Accordingly, revenue is recognized when risk and title is transferred to the customer. Amounts invoiced to customers for shipping and handling are classified as revenue. Taxes on revenue producing transactions are not included in net sales.customer arrangements.
We recognize revenue from the service of reserve power and motive power products when the respective services are performed.
Management believes that the accounting estimates related to revenue recognition are critical accounting estimates because they require reasonable assurance of collection of revenue proceeds and completion of all performance obligations. Also, revenues are recorded net of provisions for sales discounts and returns, which are established at the time of sale. These estimates are based on our past experience. For additional information see Note 1 of Notes to the Consolidated Financial Statements.
Asset Impairment Determinations
We test for the impairment of our goodwill and indefinite-lived trademarks at least annually and whenever events or circumstances occur indicating that a possible impairment has been incurred.
We assess whether goodwill impairment exists using both qualitative and quantitative assessments. The qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If, based on this qualitative assessment, we determine it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, or if we elect not to perform a qualitative assessment, a quantitative assessment is performed to determine whether a goodwill impairment exists at the reporting unit.
We perform our annual goodwill impairment test on the first day of our fourth quarter for each of our reporting units based on the income approach, also known as the discounted cash flow (“DCF”) method, which utilizes the present value of future cash flows to estimate fair value. We also use the market approach, which utilizes market price data of companies engaged in the same or a similar line of business as that of our company, to estimate fair value. A reconciliation of the two methods is performed to assess the reasonableness of fair value of each of the reporting units.
The future cash flows used under the DCF method are derived from estimates of future revenues, operating income, working capital requirements and capital expenditures, which in turn reflect our expectations of specific global, industry and market conditions. The discount rate developed for each of the reporting units is based on data and factors relevant to the economies in which the business operates and other risks associated with those cash flows, including the potential variability in the amount and timing of the cash flows. A terminal growth rate is applied to the final year of the projected period and reflects our estimate of stable growth to perpetuity. We then calculate the present value of the respective cash flows for each reporting unit to arrive at the fair value using the income approach and then determine the appropriate weighting between the fair value estimated using the income approach and the fair value estimated using the market approach. Finally, we compare the estimated fair value of each reporting unit to its respective carrying value in order to determine if the goodwill assigned to each reporting unit is potentially impaired. If the carrying amount of a reporting unit exceeds its fair value, we are required to perform a second step of the goodwill impairment test to measure the amount of impairment loss, if any. Step two of the goodwill impairment analysis measures the impairment charge by allocating the reporting unit's fair value to all of the assets and liabilities of the reporting unit in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. This allocation process is performed only for the purpose of measuring the goodwill impairment, and not to adjust the carrying values of the recognized tangible assets and liabilities. Any excess of the carrying value of the reporting unit's goodwill over the implied fair value of the reporting unit'sunit exceeds its carrying value, goodwill is recorded asnot impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value, an impairment loss.charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
Significant assumptions used include management’s estimates of future growth rates, the amount and timing of future operating cash flows, capital expenditures, discount rates, as well as market and industry conditions and relevant comparable company multiples for the market approach. Assumptions utilized are highly judgmental, especially given the role technology plays in driving the demand for products in the telecommunications and aerospace markets.
Based on the results of the annual impairment test as of January 2, 2023, we determined that there was no goodwill impairment.
The indefinite-lived trademarks are tested for impairment by comparing the carrying value to the fair value based on current revenue projections of the related operations, under the relief from royalty method. Any excess carrying value over the amount of fair value is recognized as impairment. Any impairment would be recognized in full in the reporting period in which it has been identified.
Based on the results of the annual impairment test as of January 2, 2023, we determined that there were impairments to two indefinite-lived trademarks. For additional information see Note 7 Notes to the Consolidated Financial Statements.
With respect to our other long-lived assets other than goodwill and indefinite-lived trademarks, we test for impairment when indicators of impairment are present. An asset is considered impaired when the undiscounted estimated net cash flows expected to be generated by the asset are less than its carrying amount. The impairment recognized is the amount by which the carrying amount exceeds the fair value of the impaired asset.
Our annual goodwill impairment test, which we performed during the fourth quarter of fiscal 2016, resultedBusiness Combinations
We account for business combinations in an impairment charge for goodwillaccordance with ASC 805, Business Combinations. We recognize assets acquired and trademarksliabilities assumed in our Purcell and Quallion/ABSL US reporting units, which are both partacquisitions at their fair values as of the Americas operating segment,acquisition date, with the acquisition-related transaction and a charge for goodwill and fixed assets
restructuring costs expensed in our South Africa joint venture, which is a part of the EMEA operating segment, as discussed in Note 5 to the Consolidated Financial Statements. The excess of fair value over carrying value for each of our other reporting units as of December 28, 2015, the annual testing date, ranged from approximately 8% to approximately 118% of carrying value. The ABSL UK and Asia reporting units have the lowest excess of fair value over carrying value at 8% and 21%, respectively. The aggregate carrying value as of March 31, 2016, of goodwill and indefinite-lived intangibles of ABSL UK and Asia were $9.5 million and $58.3 million, respectively.
In order to evaluate the sensitivity ofperiod incurred. Determining the fair value calculationsof assets acquired and liabilities assumed often involves estimates based on third-party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses and may include estimates of attrition, inflation, asset growth rates, discount rates, multiples of earnings or other
relevant factors. In addition, fair values are subject to refinement for up to a year after the goodwill impairment test, we applied a hypothetical 10% decreaseclosing date of an acquisition. Adjustments recorded to the fairacquired assets and liabilities are applied prospectively.
Fair values are based on estimates using management's assumptions using future growth rates, future attrition of each reporting unit. This hypothetical 10% decrease would resultthe customer base, discount rates, multiples of earnings or other relevant factors.
Any change in the ABSL UK reporting unit having aacquisition date fair value below its carrying value of 3%. For the remaining reporting units, such hypothetical decrease would result in excess fair values over carrying values range from approximately 9% to approximately 96%assets acquired and liabilities assumed may materially affect our financial position, results of the carrying values. We will continue to evaluate goodwill on an annual basis as of the beginning of our fourth fiscal quarteroperations and whenever events or changes in circumstances, such as significant adverse changes in business climate or operating results, changes in management's business strategy or loss of a major customer, indicate that there may be a potential indicator of impairment.liquidity.
Litigation and Claims
From time to time, the Company has been or may be a party to various legal actions and investigations including, among others, employment matters, compliance with government regulations, federal and state employment laws, including wage and hour laws, contractual disputes and other matters, including matters arising in the ordinary course of business. These claims may be brought by, among others, governments, customers, suppliers and employees. Management considers the measurement of litigation reserves as a critical accounting estimate because of the significant uncertainty in some cases relating to the outcome of potential claims or litigation and the difficulty of predicting the likelihood and range of potential liability involved, coupled with the material impact on our results of operations that could result from litigation or other claims.
In determining legal reserves, management considers, among other inputs:
•interpretation of contractual rights and obligations;
•the status of government regulatory initiatives, interpretations and investigations;
•the status of settlement negotiations;
•prior experience with similar types of claims;
•whether there is available insurance coverage; and
•advice of outside counsel.
For certain matters, management is able to estimate a range of losses. When a loss is probable, but no amount of loss within a range of outcomes is more likely than any other outcome, management will record a liability based on the low end of the estimated range. Additionally, management will evaluate whether losses in excess of amounts accrued are reasonably possible, and will make disclosure of those matters based on an assessment of the materiality of those addition possible losses.
Environmental Loss Contingencies
Accruals for environmental loss contingencies (i.e., environmental reserves) are recorded when it is probable that a liability has been incurred and the amount can reasonably be estimated. Management views the measurement of environmental reserves as a critical accounting estimate because of the considerable uncertainty surrounding estimation, including the need to forecast well into the future. From time to time, we may be involved in legal proceedings under federal, state and local, as well as international environmental laws in connection with our operations and companies that we have acquired. The estimation of environmental reserves is based on the evaluation of currently available information, prior experience in the remediation of contaminated sites and assumptions with respect to government regulations and enforcement activity, changes in remediation technology and practices, and financial obligations and creditworthiness of other responsible parties and insurers.
Warranty
We record a warranty reserve for possible claims against our product warranties, which generally run for a period ranging from one to twenty years for our reserve powerEnergy Systems batteries, one to five years for our Motive Power batteries and for a period ranging from one to seven yearsfour for our motive powerSpecialty transportation batteries. The assessment of the adequacy of the reserve includes a review of open claims and historical experience.
Management believes that the accounting estimate related to the warranty reserve is a critical accounting estimate because the underlying assumptions used for the reserve can change from time to time and warranty claims could potentially have a material impact on our results of operations.
Allowance for Doubtful Accounts
We encounter risks associated with salesSubsequent to the adoption of ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326)” effective April 1, 2020 the Company uses an expected loss model as mandated by the standard. The expected loss model: (i) estimates the risk of loss even when risk is remote, (ii) estimates losses over the contractual life, (iii) considers past events, current conditions and reasonable supported forecasts and (iv) has no recognition threshold.
The Company estimates the collectionallowance for credit losses in relation to accounts receivable based on relevant qualitative and quantitative information about historical events, current conditions, and reasonable and supportable forecasts that affect the collectability of the associatedreported accounts receivable. We record a provision forSubsequent to April 1, 2020, accounts receivable that are consideredrecorded at amortized cost less an allowance for expected credit losses. The Company maintains an allowance for credit losses for the expected failure or inability of its customers to be uncollectible. In order to calculatemake required payments. The Company recognizes the appropriate provision, management analyzesallowance for expected credit losses at inception and reassesses quarterly, based on management’s expectation of the creditworthinessasset’s collectability. The allowance is based on multiple factors including historical experience with bad debts, the credit quality of specific customers andthe customer base, the aging of customer balances. Management also considers generalsuch receivables and specific industrycurrent macroeconomic conditions, as well as management’s expectations of conditions in the future. The Company’s allowance for uncollectible accounts receivable is based on management’s assessment of the collectability of assets pooled together with similar risk characteristics. The Company then adjusts the historical credit loss percentage by current and forecasted economic conditions, industry concentrationconditions. The Company then includes a baseline credit loss percentage into the historical credit loss percentage for each aging category to reflect the potential impact of the current and contractual rights and obligations.economic conditions. Such a baseline calculation will be adjusted further if changes in the economic environment impacts the Company's expectation for future credit losses.
Management believes that the accounting estimate related to the allowance for doubtful accounts is a critical accounting estimate because the underlying assumptions used for the allowance can change from time to time and uncollectible accounts could potentially have a material impact on our results of operations.
Retirement PlansLiquidity and Capital Resources
We use certain economicbelieve that our financial position is strong. We have substantial liquidity with $347 million of available cash and demographic assumptionscash equivalents and available and undrawn, under all its lines of credit of approximately $693 million at March 31, 2023 to cover short-term liquidity requirements and anticipated growth in the foreseeable future. The nominal amount of credit available is subject to a leverage ratio maximum of 4.25x EBITDA, as discussed in Liquidity and Capital Resources.
During the second quarter of fiscal 2023, the Company entered into a third amendment to the 2017 Credit Facility (as amended, the “Third Amended Credit Facility”). The Third Amended Credit Facility provided new incremental delayed-draw senior secured term loan up to $300 million (the “Third Amended Term Loan”), which was available to draw until March 15, 2023. During the fourth quarter, the Company drew $300 million in the form of the Third Amended Term Loan. The funds will mature on September 30, 2026, the same as the Company's Second Amended Term loan and Second Amended Revolver. In connection with the agreement, the Company incurred $1.2 million in third party administrative and legal fees recognized in interest expense and capitalized $1.1 million in charges from existing lenders as a deferred asset. Additionally, the Company derecognized the capitalized deferred asset and recognized the $1.1 million as a deferred financing costs.
During the fourth quarter of fiscal 2023, the Company entered into a fourth amendment to the 2017 Credit Facility (as amended, the “Fourth Amended Credit Facility”). The Fourth Amended Credit Facility replaces the London Interbank Offered Rate
(“LIBOR”) with the Secured Overnight Financing Rate (“SOFR”) in the calculation of interest for both the actuarial valuationSecond Amended Revolver and the Second Amended Term Loan.
During the second quarter of liabilities associated withfiscal 2022, we entered into a second amendment to the Amended Credit Facility (as amended, the “Second Amended Credit Facility”). As a result, the Second Amended Credit Facility, now scheduled to mature on September 30, 2026, consists of a $130.0 million senior secured term loan (the “Second Amended Term Loan”), a CAD 106.4 million ($84.2 million) term loan and an $850.0 million senior secured revolving credit facility (the “Second Amended Revolver”). This amendment resulted in a decrease of the Amended Term Loan by $150.0 million and an increase of the Amended Revolver by $150.0 million.
During fiscal 2023, our defined benefit plans. These assumptions includeoperating cash flow provided cash of $279.9 million, compared to a use of funds of $65.6 million in the discount rate, expected long-term ratesprior year. The change in the operating cash flows in fiscal 2023 was primarily due to the decreases in primary operating capital dollars, compared to the prior year, reflecting the impact sold receivables as a part of return on assetsour asset securitization agreement and ratesless of an increase in compensation levels. Changes in these assumptions can result in changesinventory compared to the pension expenseprior year.
In fiscal 2023 and recorded liabilities. Management reviews these assumptions at least annually. We use independent actuaries to assist us in formulating assumptions2022, we repurchased 358,365 and making estimates. These assumptions1,996,334 shares of common stock for $22.9 million and $156.4 million, respectively. In fiscal 2021, we did not repurchase any shares.
A substantial majority of the Company’s cash and investments are updated periodically to reflect the actual experienceheld by foreign subsidiaries. The majority of that cash and expectations on a plan-specific basis, as appropriate. During fiscal 2016, we revised our mortality assumptions to incorporate the new set of improvement tables issued by the Society of Actuaries for purposes of measuring U.S. pension and other post-retirement obligations at year-end.
For benefit plans which are funded, we establish strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk. We set theinvestments is expected long-term rate of return based on the expected long-term average rates of return to be achieved byutilized to fund local operating activities, capital expenditure requirements and acquisitions. The Company believes that it has sufficient sources of domestic and foreign liquidity.
The Federal Reserve Bank of the underlying investment portfolios. In establishing this rate, we consider historicalUnited States has discontinued quantitative easing and, expected returns forstarted raising short-term interest rates and has signaled they will continue to raise interest rates.The increase in short-term interest rates will increase EnerSys’ variable cost of borrowing under the asset classes in which the plans are invested, advice from pension consultants and investment advisors, and current economic and capital market conditions. The expected return on plan assets is incorporated into the computation of pension expense. The difference between this expected return and the actual return on plan assets is deferred and will affect future net periodic pension costs through subsequent amortization.Fourth Amended Credit Facility.
We believe that our strong capital structure and liquidity affords us access to capital for future capital expenditures, acquisition and stock repurchase opportunities and continued dividend payments.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 1 - Summary of Significant Accounting Policies to the currentConsolidated Financial Statements in Item 8. In preparing our financial statements, management is required to make estimates and assumptions used to estimate plan obligations and annual expense are appropriatethat, among other things, affect the reported amounts in the current economic environment. However, if economic conditionsConsolidated Financial Statements and accompanying notes. These estimates and assumptions are most significant where they involve levels of subjectivity and judgment necessary to account for highly uncertain matters or matters susceptible to change, materially, we may change our assumptions, and the resulting change couldwhere they can have a material impact on our financial condition and operating performance. We discuss below the consolidated statementsmore significant estimates and related assumptions used in the preparation of incomeour Consolidated Financial Statements. If actual results were to differ materially from the estimates made, the reported results could be materially affected.
Revenue Recognition
In accordance with ASC 606, we recognize revenue only when we have satisfied a performance obligation through transferring control of the promised good or service to a customer. The standard indicates that an entity must determine at contract inception whether it will transfer control of a promised good or service over time or satisfy the performance obligation at a point in time through analysis of the following criteria: (i) the entity has a present right to payment, (ii) the customer has legal title, (iii) the customer has physical possession, (iv) the customer has the significant risks and rewards of ownership and (v) the customer has accepted the asset. Our primary performance obligation to our customers is the delivery of finished goods and products, pursuant to purchase orders. Control of the products sold typically transfers to our customers at the point in time when the goods are shipped as this is also when title generally passes to our customers under the terms and conditions of our customer arrangements.
Management believes that the accounting estimates related to revenue recognition are critical accounting estimates because they require reasonable assurance of collection of revenue proceeds and completion of all performance obligations. Also, revenues are recorded net of provisions for sales discounts and returns, which are established at the time of sale. These estimates are based on our past experience. For additional information see Note 1 of Notes to the consolidated balance sheets.Consolidated Financial Statements.
Equity-Based Compensation
Asset Impairment Determinations
We recognize compensation cost relating to equity-based payment transactions by using a fair-value measurement method whereby all equity-based payments to employees, including grants of restricted stock units, stock options and market condition-based awards are recognized as compensation expense based on fair value at grant date overtest for the requisite service period of the awards. We determine the fair value of restricted stock units based on the quoted market priceimpairment of our common stock on the date of grant.goodwill and indefinite-lived trademarks at least annually and whenever events or circumstances occur indicating that a possible impairment has been incurred.
We assess whether goodwill impairment exists using both qualitative and quantitative assessments. The fair value of stock options is determined using the Black-Scholes option-pricing model, which uses both historical and current market data to estimate the fair value. The fair value of market condition-based awards is estimated at the date of grant using a binomial lattice modelqualitative assessment involves determining whether events or Monte Carlo Simulation. All models incorporate various assumptions such as the risk-free interest rate, expected volatility, expected dividend yield and expected life of the awards. When estimating the requisite service period of the awards, we consider many related factors including types of awards, employee class, and historical experience. Actual results, and future changes in estimates of the requisite service period may differ substantially from our current estimates.
Income Taxes
Our effective tax rate is based on pretax income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate. We account for income taxes in accordance with applicable guidance on accounting for income taxes, which requirescircumstances exist that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between book and tax bases on recorded assets and liabilities. Accounting guidance also requires that deferred tax assets be reduced by a valuation allowance, whenindicate it is more likely than not that a tax benefit will not be realized.
The recognition and measurementthe fair value of a tax positionreporting unit is less than its carrying amount, including goodwill. If, based on management’s best judgment given the facts, circumstances and information available at the reporting date. We evaluate tax positions tothis qualitative assessment, we determine whether the benefits of tax positions are more likely than not of being sustained upon audit based on the technical merits of the tax position. For tax positions that are more likely than not of being sustained upon audit, we recognize the largest amount of the benefit thatit is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not more likely than not of being sustained upon audit, we do not recognize any portion of the benefit in the financial statements. If the more likely than not threshold is not met in the period for which a tax position is taken, we may subsequently recognize the benefit of that tax position if the tax matter is effectively settled, the statute of limitations expires, or if the more likely than not threshold is met in a subsequent period.
We evaluate, on a quarterly basis, our ability to realize deferred tax assets by assessing our valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets.
To the extent we prevail in matters for which reserves have been established, or are required to pay amounts in excess of our reserves, our effective tax rate in a given financial statement period could be materially affected.
Results of Operations—Fiscal 2016 Compared to Fiscal 2015
The following table presents summary consolidated statement of income data for fiscal year ended March 31, 2016, compared to fiscal year ended March 31, 2015:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2016 | | Fiscal 2015 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Net sales | | $ | 2,316.2 |
| | 100.0 | % | | $ | 2,505.5 |
| | 100.0 | % | | $ | (189.3 | ) | | (7.6 | )% |
Cost of goods sold | | 1,704.5 |
| | 73.6 |
| | 1,864.6 |
| | 74.4 |
| | (160.1 | ) | | (8.6 | ) |
Gross profit | | 611.7 |
| | 26.4 |
| | 640.9 |
| | 25.6 |
| | (29.2 | ) | | (4.6 | ) |
Operating expenses | | 352.7 |
| | 15.2 |
| | 358.4 |
| | 14.3 |
| | (5.7 | ) | | (1.6 | ) |
Restructuring and other exit charges | | 12.9 |
| | 0.5 |
| | 11.4 |
| | 0.5 |
| | 1.5 |
| | 13.5 |
|
Impairment of goodwill, indefinite-lived intangibles and fixed assets | | 36.3 |
| | 1.6 |
| | 23.9 |
| | 1.0 |
| | 12.4 |
| | 51.4 |
|
Legal proceedings charge / (reversal of legal accrual, net of fees) | | 3.2 |
| | 0.1 |
| | (16.2 | ) | | (0.7 | ) | | 19.4 |
| | NM |
|
Gain on sale of facility | | (3.4 | ) | | (0.1 | ) | | — |
| | — |
| | (3.4 | ) | | NM |
|
Operating earnings | | 210.0 |
| | 9.1 |
| | 263.4 |
| | 10.5 |
| | (53.4 | ) | | (20.3 | ) |
Interest expense | | 22.3 |
| | 1.0 |
| | 19.7 |
| | 0.8 |
| | 2.6 |
| | 13.7 |
|
Other (income) expense, net | | 5.7 |
| | 0.2 |
| | (5.6 | ) | | (0.2 | ) | | 11.3 |
| | NM |
|
Earnings before income taxes | | 182.0 |
| | 7.9 |
| | 249.3 |
| | 9.9 |
| | (67.3 | ) | | (27.0 | ) |
Income tax expense | | 50.1 |
| | 2.2 |
| | 67.8 |
| | 2.7 |
| | (17.7 | ) | | (26.1 | ) |
Net earnings | | 131.9 |
| | 5.7 |
| | 181.5 |
| | 7.2 |
| | (49.6 | ) | | (27.4 | ) |
Net (losses) earnings attributable to noncontrolling interests | | (4.3 | ) | | (0.2 | ) | | 0.3 |
| | — |
| | (4.6 | ) | | NM |
|
Net earnings attributable to EnerSys stockholders | | $ | 136.2 |
| | 5.9 | % | | $ | 181.2 |
| | 7.2 | % | | $ | (45.0 | ) | | (24.9 | )% |
NM = not meaningful
Overview
Our sales in fiscal 2016 were $2.3 billion, an 8% decrease from prior year's sales. This was the result of a 7% decrease due to foreign currency translation impact and a 2% decrease in organic volume, partially offset by a 1% increase from acquisitions.
Gross margin percentage in fiscal 2016 increased by 80 basis points to 26.4% compared to fiscal 2015, mainly due to lower commodity costs and favorable product mix combined with the benefits of restructuring programs in EMEA, despite a small decline in organic volume and an increase in warranty costs.
A discussion of specific fiscal 2016 versus fiscal 2015 operating results follows, including an analysis and discussion of the results of our reportable segments.
Net Sales
Net sales by reportable segment were as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2016 | | Fiscal 2015 | | Increase (Decrease) |
| | In Millions | | % Net Sales | | In Millions | | % Net Sales | | In Millions | | % |
Americas | | $ | 1,276.0 |
| | 55.1 | % | | $ | 1,322.4 |
| | 52.8 | % | | $ | (46.4 | ) | | (3.5 | )% |
EMEA | | 787.4 |
| | 34.0 |
| | 948.8 |
| | 37.9 |
| | (161.4 | ) | | (17.0 | ) |
Asia | | 252.8 |
| | 10.9 |
| | 234.3 |
| | 9.3 |
| | 18.5 |
| | 7.9 |
|
Total net sales | | $ | 2,316.2 |
| | 100.0 | % | | $ | 2,505.5 |
| | 100.0 | % | | $ | (189.3 | ) | | (7.6 | )% |
The Americas segment’s revenue decreased by $46.4 million or 3.5% in fiscal 2016, as compared to fiscal 2015, primarily due a decrease in currency translation impact and organic volume of approximately 2%, each.
The EMEA segment’s revenue decreased by $161.4 million or 17.0% in fiscal 2016, as compared to fiscal 2015, primarily due to a decrease in currency translation impact and organic volume of approximately 12% and 6%, respectively, partially offset by a 1% increase in pricing.
The Asia segment’s revenue increased by $18.5 million or 7.9% in fiscal 2016, as compared to fiscal 2015, primarily due to an increase from acquisitions and organic volume of approximately 13% and 6%, respectively, partially offset by a 10% decrease in currency translation impact and a 1% decrease due to pricing.
Net sales by product line were as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2016 | | Fiscal 2015 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Reserve power | | $ | 1,109.2 |
| | 47.9 | % | | $ | 1,252.7 |
| | 50.0 | % | | $ | (143.5 | ) | | (11.5 | )% |
Motive power | | 1,207.0 |
| | 52.1 |
| | 1,252.8 |
| | 50.0 |
| | (45.8 | ) | | (3.7 | ) |
Total net sales | | $ | 2,316.2 |
| | 100.0 | % | | $ | 2,505.5 |
| | 100.0 | % | | $ | (189.3 | ) | | (7.6 | )% |
Sales in our reserve power product line decreased in fiscal 2016 by $143.5 million or 11.5% compared to the prior year primarily due to currency translation impact and lower organic volume of approximately 7% each, partially offset by a 2% increase from acquisitions.
Sales in our motive power product line decreased in fiscal 2016 by $45.8 million or 3.7% compared to the prior year primarily due to currency translation impact of 7%, partially offset by approximately 2% increase in organic volume and 1% increase in pricing.
Gross Profit
|
| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2016 | | Fiscal 2015 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Gross profit | | $ | 611.7 |
| | 26.4 | % | | $ | 640.9 |
| | 25.6 | % | | $ | (29.2 | ) | | (4.6 | )% |
Gross profit decreased $29.2 million or 4.6% in fiscal 2016 compared to fiscal 2015. Gross profit, excluding the effect of foreign currency translation, decreased $0.9 million or 0.1% in fiscal 2016 compared to fiscal 2015. The 80 basis point improvement in the gross profit margin is primarily due to lower commodity costs and favorable product mix combined with the benefits of restructuring programs in EMEA, despite a small decline in organic volume and an increase in warranty costs.
Operating Items
|
| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2016 | | Fiscal 2015 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Operating expenses | | $ | 352.7 |
| | 15.2 | % | | $ | 358.4 |
| | 14.3 | % | | $ | (5.7 | ) | | (1.6 | )% |
Restructuring and other exit charges | | 12.9 |
| | 0.5 |
| | 11.4 |
| | 0.5 |
| | 1.5 |
| | 13.5 |
|
Impairment of goodwill, indefinite-lived intangibles and fixed assets | | 36.3 |
| | 1.6 |
| | 23.9 |
| | 1.0 |
| | 12.4 |
| | 51.4 |
|
Legal proceedings charge / (reversal of legal accrual, net of fees) | | 3.2 |
| | 0.1 |
| | (16.2 | ) | | (0.7 | ) | | 19.4 |
| | NM |
|
Gain on sale of facility | | (3.4 | ) | | (0.1 | ) | | — |
| | — |
| | (3.4 | ) | | NM |
|
NM = not meaningful
Operating Expenses
Operating expenses decreased $5.7 million or 1.6% in fiscal 2016 from fiscal 2015. Operating expenses, excluding the effect of foreign currency translation, increased $16.1 million or 4.6% in fiscal 2016 compared to fiscal 2015. As a percentage of sales, operating expenses increased from 14.3% in fiscal 2015 to 15.2% in fiscal 2016 primarily due to lower sales coupled with higher implementation costs for a new ERP system in the Americas, higher bad debt, professional services, employee incentive and stock compensation and other payroll related expenses.
Restructuring and other exit charges
Included in fiscal 2016 operating results are restructuring and other exit charges in EMEA of $9.4 million and restructuring charges of $2.1 million and $1.4 million in Americas and Asia, respectively.
Included in fiscal 2015 operating results are restructuring and other exit charges in EMEA of $7.5 million and restructuring charges of $3.9 million in Asia.
Impairment of goodwill, indefinite-lived intangibles and fixed assets
In the fourth quarter of fiscal 2016, we conducted step one of our annual goodwill impairment test which indicated that the fair valuesvalue of three of oura reporting units - Purcell and Quallion/ABSL US in the Americas operating segment and our South Africa joint venture in the EMEA operating segment, wereunit is less than their respectiveits carrying value, requiring usamount, or if we elect not to perform step two of thea qualitative assessment, a quantitative assessment is performed to determine whether a goodwill impairment analysis.
Based on our analysis, the implied fair value of goodwill was lower than the carrying value of the goodwill for the Purcell and Quallion/ABSL US reporting units in the Americas operating segment and our joint venture in South Africa in the EMEA operating segment. We recorded a non-cash charge of $31.5 million related to goodwill impairment in the Americas and the EMEA operating segments. In addition, we recorded non-cash charges of $3.4 million related to impairment of indefinite-lived trademarks in the Americas and $1.4 million related to fixed assets in the EMEA operating segment. The combined charges resulted in a tax benefit of $4.2 million, for a net charge of $32.1 million.
The key factors contributing to the impairments in both fiscal years were thatexists at the reporting units in the Americas were recent acquisitions that have not performed to management's expectations. In the case of Purcell, the impairment was the result of lower estimated projected revenue and profitability in the near term caused by reduced level of capital spending by major customers in the telecommunications industry. In the case of Quallion/ABSL US, the impairment was the result of lower estimated projected revenue and profitability in the near term caused by delays, both in introducing new products and in programs serving the aerospace and defense markets. In the case of the South Africa joint venture, declining business conditions in South Africa resulted in negative cash flows.unit.
Legal proceedings charge / (reversal of legal accrual, net of fees)
Certain of our European subsidiaries have received subpoenas and requests for documents and, in some cases, interviews from, and have had on-site inspections conducted by the competition authorities of Belgium, Germany and the Netherlands relating to conduct and anticompetitive practices of certain industrial battery participants. We are responding to inquiries related to these matters. We settled the Belgian regulatory proceeding in February 2016 by acknowledging certain anticompetitive practices and conduct and agreeing to pay a fine of $2.0 million, which we paid in March 2016 and as of March 31, 2016, we had a reserve balance of $2.0 million in connection with these remaining investigations and other related legal charges. For the Dutch and German regulatory proceedings, we do not believe that such an estimate can be made at this time given the early stages of these proceedings. The foregoing estimate of losses is based upon currently available information for these proceedings. However, the precise scope, timing and time period at issue, as well as the final outcome of the investigations, remains uncertain. Accordingly, our estimate may change from time to time, and actual losses could vary.
Included in our fiscal 2016 results is the reversal of a $0.8 million legal accrual in Americas, relating to legal fees, subsequent to the final settlement of the Altergy matter.
Operating Earnings
Operating earnings by segment were as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2016 | | Fiscal 2015 | | Increase (Decrease) |
| | In Millions | | As % Net Sales(1) | | In Millions | | As % Net Sales(1) | | In Millions | | % |
Americas | | $ | 182.7 |
| | 14.3 | % | | $ | 162.8 |
| | 12.3 | % | | $ | 19.9 |
| | 12.3 | % |
EMEA | | 75.6 |
| | 9.6 |
| | 109.8 |
| | 11.6 |
| | (34.2 | ) | | (31.1 | ) |
Asia | | 0.7 |
| | 0.2 |
| | 9.9 |
| | 4.2 |
| | (9.2 | ) | | (94.3 | ) |
Subtotal | | 259.0 |
| | 11.2 |
| | 282.5 |
| | 11.3 |
| | (23.5 | ) | | (8.3 | ) |
Restructuring charges - Americas | | (2.1 | ) | | (0.2 | ) | | — |
| | — |
| | (2.1 | ) | | NM |
|
Restructuring and other exit charges - EMEA | | (9.4 | ) | | (1.2 | ) | | (7.5 | ) | | (0.8 | ) | | (1.9 | ) | | 25.6 |
|
Restructuring charges - Asia | | (1.4 | ) | | (0.6 | ) | | (3.9 | ) | | (1.7 | ) | | 2.5 |
| | (63.3 | ) |
Impairment of goodwill and indefinite-lived intangibles - Americas | | (33.0 | ) | | (2.6 | ) | | (23.1 | ) | | (1.8 | ) | | (9.9 | ) | | 42.3 |
|
Impairment of goodwill and fixed assets - EMEA | | (3.3 | ) | | (0.4 | ) | | (0.8 | ) | | (0.1 | ) | | (2.5 | ) | | NM |
|
Reversal of legal accrual, net of fees - Americas | | 0.8 |
| | 0.1 |
| | 16.2 |
| | 1.2 |
| | (15.4 | ) | | (95.1 | ) |
Legal proceedings charge - EMEA | | (4.0 | ) | | (0.5 | ) | | — |
| | — |
| | (4.0 | ) | | NM |
|
Gain on sale of facility - Asia | | 3.4 |
| | 1.4 |
| | — |
| | — |
| | 3.4 |
| | NM |
|
Total | | $ | 210.0 |
| | 9.1 | % | | $ | 263.4 |
| | 10.5 | % | | $ | (53.4 | ) | | (20.3 | )% |
NM = not meaningful
| |
(1) | The percentages shown for the segments are computed as a percentage of the applicable segment’s net sales. |
Fiscal 2016 operating earnings of $210.0 million were $53.4 million lower than in fiscal 2015 and were 9.1% of sales. Fiscal 2016 operating earnings included $49.0 million in restructuring, impairment charges and legal proceedings accrual, net of reversals and a gain on sale of facility, compared to $19.1 million in fiscal 2015. Without these net charges, operating earnings were $259.0 million or 11.2% of sales in fiscal 2016 compared to $282.5 million or 11.3% of sales in fiscal 2015, which reflects a relatively stable environment for revenues, pricing and commodity costs between the two fiscal years.
The Americas segment’s operating earnings, excluding the highlighted items discussed above, increased $19.9 million or 12.3% in fiscal 2016 compared to fiscal 2015, with the operating margin increasing 200 basis points to 14.3%. This increase of operating margin in our Americas segment is primarily due to improved product mix and pricing, lower commodity costs, partially offset by higher implementation costs relating to a new ERP system.
The EMEA segment’s operating earnings, excluding the highlighted items discussed above, decreased $34.2 million or 31.1% in fiscal 2016 compared to fiscal 2015, with the operating margin decreasing 200 basis points to 9.6%. This decrease primarily reflects foreign currency headwinds and lower reserve power product sales, particularly in the emerging markets.
Operating earnings in Asia, excluding the highlighted items discussed above, decreased $9.2 million or 94.3% in fiscal 2016 compared to fiscal 2015, with the operating margin decreasing by 400 basis points to 0.2% primarily due to lower operating results of our subsidiary in India, foreign currency headwinds and reduced telecom sales.
Interest Expense
|
| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2016 | | Fiscal 2015 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Interest expense | | $ | 22.3 |
| | 1.0 | % | | $ | 19.7 |
| | 0.8 | % | | $ | 2.6 |
| | 13.7 | % |
Interest expense of $22.3 million in fiscal 2016 (net of interest income of $1.9 million) was $2.6 million higher than the $19.7 million in fiscal 2015 (net of interest income of $1.3 million). The increase in interest expense in fiscal 2016 compared to fiscal 2015 was primarily due to higher average debt outstanding, partially offset by lower accreted interest on the Convertible Notes in fiscal 2016 compared to fiscal 2015.
Our average debt outstanding (including the average amount of the Convertible Notes discount of $0.2 million) was $626.8 million in fiscal 2016, compared to our average debt outstanding (including the average amount of the Convertible Notes discount of $5.6 million) of $422.5 million in fiscal 2015. Our average cash interest rate incurred in fiscal 2016 was 3.1% compared to 2.3% in fiscal 2015. This higher average debt outstanding is the result of our stock buy back program under which $178 million of our shares were purchased during fiscal 2016.
Included in interest expense was non-cash, accreted interest on the Convertible Notes of $1.3 million in fiscal 2016 and $8.3 million in fiscal 2015. Also included in interest expense were non-cash charges related to amortization of deferred financing fees of $1.5 million in fiscal 2016 and $1.3 million in fiscal 2015.
Other (Income) Expense, Net
|
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2016 | | Fiscal 2015 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Other (income) expense, net | | $ | 5.7 |
| | 0.2 | % | | $ | (5.6 | ) | | (0.2 | )% | | $ | 11.3 |
| | NM |
NM = not meaningful
Other (income) expense, net was expense of $5.7 million in fiscal 2016 compared to income of $5.6 million in fiscal 2015. The unfavorable impact in fiscal 2016 is mainly attributable to foreign currency losses of $5.4 million in fiscal 2016 compared to foreign currency gains in fiscal 2015 of $5.0 million.
Earnings Before Income Taxes
|
| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2016 | | Fiscal 2015 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Earnings before income taxes | | $ | 182.0 |
| | 7.9 | % | | $ | 249.3 |
| | 9.9 | % | | $ | (67.3 | ) | | (27.0 | )% |
As a result of the factors discussed above, fiscal 2016 earnings before income taxes were $182.0 million, a decrease of $67.3 million or 27.0% compared to fiscal 2015.
Income Tax Expense
|
| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2016 | | Fiscal 2015 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Income tax expense | | $ | 50.1 |
| | 2.2 | % | | $ | 67.8 |
| | 2.7 | % | | $ | (17.7 | ) | | (26.1 | )% |
Effective tax rate | | 27.5 | % | | | | 27.2 | % | | | | 0.3 | % | | |
Our effective income tax rate with respect to any period may be volatile based on the mix of income in the tax jurisdictions in which we operate and the amount of our consolidated income before taxes.
The Company’s income tax provisions consist of federal, state and foreign income taxes. The effective income tax rate was 27.5% in fiscal 2016 compared to the fiscal 2015 effective income tax rate of 27.2%. The rate increase in fiscal 2016 as compared to fiscal 2015 is primarily due to changes in the mix of earnings among tax jurisdictions. The fiscal 2016 effective income tax rate also includes an increase due to a larger non-deductible goodwill impairment charges as compared to fiscal 2015.
The fiscal 2016 foreign effective income tax rate on foreign pre-tax income of $117.7 million was 16.9% compared to foreign pre-tax income of $173.0 million and effective income tax rate of 14.8% in fiscal 2015. For both fiscal 2016 and fiscal 2015 the difference in the foreign effective tax rate versus the U.S. statutory rate of 35% is primarily attributable to lower tax rates in the foreign countries in which we operate.
Income from our Swiss subsidiary comprised a substantial portion of our overall foreign mix of income for both fiscal 2016 and fiscal 2015 and is taxed at approximately 7%.
Results of Operations—Fiscal 2015 Compared to Fiscal 2014
The following table presents summary consolidated statement of income data for fiscal year ended March 31, 2015, compared to fiscal year ended March 31, 2014:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2015 | | Fiscal 2014 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Net sales | | $ | 2,505.5 |
| | 100.0 | % | | $ | 2,474.4 |
| | 100.0 | % | | $ | 31.1 |
| | 1.3 | % |
Cost of goods sold | | 1,864.6 |
| | 74.4 |
| | 1,844.8 |
| | 74.6 |
| | 19.8 |
| | 1.1 |
|
Gross profit | | 640.9 |
| | 25.6 |
| | 629.6 |
| | 25.4 |
| | 11.3 |
| | 1.8 |
|
Operating expenses | | 358.4 |
| | 14.3 |
| | 344.4 |
| | 13.9 |
| | 14.0 |
| | 4.1 |
|
Restructuring and other exit charges | | 11.4 |
| | 0.5 |
| | 27.4 |
| | 1.1 |
| | (16.0 | ) | | (58.2 | ) |
Impairment of goodwill and indefinite-lived intangibles | | 23.9 |
| | 1.0 |
| | 5.2 |
| | 0.2 |
| | 18.7 |
| | NM |
|
Legal proceedings charge (reversal of legal accrual, net of fees) | | (16.2 | ) | | (0.7 | ) | | 58.2 |
| | 2.3 |
| | (74.4 | ) | | NM |
|
Operating earnings | | 263.4 |
| | 10.5 |
| | 194.4 |
| | 7.9 |
| | 69.0 |
| | 35.4 |
|
Interest expense | | 19.7 |
| | 0.8 |
| | 17.1 |
| | 0.7 |
| | 2.6 |
| | 14.8 |
|
Other (income) expense, net | | (5.6 | ) | | (0.2 | ) | | 13.6 |
| | 0.6 |
| | (19.2 | ) | | NM |
|
Earnings before income taxes | | 249.3 |
| | 9.9 |
| | 163.7 |
| | 6.6 |
| | 85.6 |
| | 52.3 |
|
Income tax expense | | 67.8 |
| | 2.7 |
| | 17.0 |
| | 0.7 |
| | 50.8 |
| | NM |
|
Net earnings | | 181.5 |
| | 7.2 |
| | 146.7 |
| | 5.9 |
| | 34.8 |
| | 23.7 |
|
Net earnings (losses) attributable to noncontrolling interests | | 0.3 |
| | — |
| | (3.6 | ) | | (0.1 | ) | | 3.9 |
| | NM |
|
Net earnings attributable to EnerSys stockholders | | $ | 181.2 |
| | 7.2 | % | | $ | 150.3 |
| | 6.0 | % | | $ | 30.9 |
| | 20.5 | % |
NM = not meaningful
Overview
Our sales in fiscal 2015 were $2.5 billion, a 1.3% increase from prior year's sales. This was the result of a 2% increase in organic volume and a 3% increase from acquisitions partially offset by a 4% decrease due to foreign currency translation impact.
Gross margin percentage in fiscal 2015 increased by 20 basis points to 25.6% compared to fiscal 2014, mainly due to higher organic volume and favorable product mix combined with the benefits of restructuring programs in EMEA.
A discussion of specific fiscal 2015 versus fiscal 2014 operating results follows, including an analysis and discussion of the results of our reportable segments.
Net Sales
Net sales by reportable segment were as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2015 | | Fiscal 2014 | | Increase (Decrease) |
| | In Millions | | % Net Sales | | In Millions | | % Net Sales | | In Millions | | % |
Americas | | $ | 1,322.4 |
| | 52.8 | % | | $ | 1,267.6 |
| | 51.2 | % | | $ | 54.8 |
| | 4.3 | % |
EMEA | | 948.8 |
| | 37.9 |
| | 966.1 |
| | 39.1 |
| | (17.3 | ) | | (1.8 | ) |
Asia | | 234.3 |
| | 9.3 |
| | 240.7 |
| | 9.7 |
| | (6.4 | ) | | (2.6 | ) |
Total net sales | | $ | 2,505.5 |
| | 100.0 | % | | $ | 2,474.4 |
| | 100.0 | % | | $ | 31.1 |
| | 1.3 | % |
The Americas segment’s revenue increased by $54.8 million or 4.3% in fiscal 2015, as compared to fiscal 2014, primarily due to an increase in acquisitions and organic volume of approximately 4% and 2%, respectively, partially offset by a negative currency translation impact of approximately 2%.
The EMEA segment’s revenue decreased by $17.3 million or 1.8% in fiscal 2015, as compared to fiscal 2014, primarily due to an 8% decrease due to currency translation impact, partially offset by an increase of 5% in organic volume and a 1% increase in pricing.
The Asia segment’s revenue decreased by $6.4 million or 2.6% in fiscal 2015, as compared to fiscal 2014, primarily due to a 14% decrease in organic volume and a 3% decrease in currency translation impact, partially offset by a 14% increase in acquisitions. The decrease in Asia's organic volume was primarily due to lower sales to a major Chinese telecommunication company under a new tender program pursuant to which we participated at a lower volume.
Net sales by product line were as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2015 | | Fiscal 2014 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Reserve power | | $ | 1,252.7 |
| | 50.0 | % | | $ | 1,234.5 |
| | 49.9 | % | | $ | 18.2 |
| | 1.5 | % |
Motive power | | 1,252.8 |
| | 50.0 |
| | 1,239.9 |
| | 50.1 |
| | 12.9 |
| | 1.1 |
|
Total net sales | | $ | 2,505.5 |
| | 100.0 | % | | $ | 2,474.4 |
| | 100.0 | % | | $ | 31.1 |
| | 1.3 | % |
Sales in our reserve power product line increased in fiscal 2015 by $18.2 million or 1.5% compared to the prior year primarily due to acquisitions and higher organic volume which contributed approximately 5% and 1%, respectively, offset by negative currency translation impact of 4%.
Sales in our motive power product line increased in fiscal 2015 by $12.9 million or 1.1% compared to the prior year primarily due to higher organic volume and acquisitions of 2% each, pricing of approximately 1%, offset partially by negative currency translation impact of 4%.
Gross Profit
|
| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2015 | | Fiscal 2014 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Gross profit | | $ | 640.9 |
| | 25.6 | % | | $ | 629.6 |
| | 25.4 | % | | $ | 11.3 |
| | 1.8 | % |
Gross profit increased $11.3 million or 1.8% in fiscal 2015 compared to fiscal 2014. Gross profit, excluding the effect of foreign currency translation, increased $30.0 million or 4.7% in fiscal 2015 compared to fiscal 2014. This increase was primarily attributed to higher organic volume and favorable mix combined with the benefits of restructuring programs in EMEA.
Operating Items
|
| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2015 | | Fiscal 2014 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Operating expenses | | $ | 358.4 |
| | 14.3 | % | | $ | 344.4 |
| | 13.9 | % | | $ | 14.0 |
| | 4.1 | % |
Restructuring and other exit charges | | 11.4 |
| | 0.5 |
| | 27.4 |
| | 1.1 |
| | (16.0 | ) | | (58.2 | ) |
Impairment of goodwill and indefinite-lived intangibles | | 23.9 |
| | 1.0 |
| | 5.2 |
| | 0.2 |
| | 18.7 |
| | NM |
|
Legal proceedings charge / (reversal of legal accrual, net of fees) | | (16.2 | ) | | (0.7 | ) | | 58.2 |
| | 2.3 |
| | (74.4 | ) | | NM |
|
NM = not meaningful
Operating Expenses
Operating expenses increased $14.0 million or 4.1% in fiscal 2015 from fiscal 2014. Operating expenses, excluding the effect of foreign currency translation, increased $8.0 million or 2.3% in fiscal 2015 compared to fiscal 2014. As a percentage of sales, operating expenses increased from 13.9% in fiscal 2014 to 14.3% in fiscal 2015 primarily due to acquisitions, stock-based compensation, implementation costs for a new ERP system in the Americas, and payroll related expenses.
Restructuring and other exit charges
Included in fiscal 2015 operating results were restructuring and other exit charges in EMEA of $7.5 million and restructuring charges of $3.9 million in Asia.
In fiscal 2014, we recorded $27.4 million of restructuring charges, primarily for staff reductions and write-off of fixed assets and inventory in EMEA including relocating our motive power and a portion of our reserve power manufacturing from Bulgaria to our facilities in Western Europe. Included in these charges were exit charges of $5.6 million related to certain operations in Europe.
Impairment of goodwill and indefinite-lived intangibles
We perform our annual goodwill impairment test on the first day of our fourth quarter or whenever an event occurs that would more likely than not reduce the fair valuefor each of aour reporting unit below its carrying amount. We useunits based on the income approach, also known as the discounted cash flow (“DCF”) method, which utilizes the present value of future cash flows to estimate fair value for each of our reporting units.value. We also use the market approach, which utilizes market price data of companies engaged in the same or a similar line of business as that of our company, to estimate fair value. A reconciliation of the two methods is performed to assess the reasonableness of fair value of each of the reporting units.
The impairment testfuture cash flows used under the DCF method are derived from estimates of future revenues, operating income, working capital requirements and capital expenditures, which in turn reflect our expectations of specific global, industry and market conditions. The discount rate developed for each of the reporting units is based on data and factors relevant to the economies in which the business operates and other risks associated with those cash flows, including the potential variability in the amount and timing of the cash flows. A terminal growth rate is applied to the final year of the projected period and reflects our estimate of stable growth to perpetuity. We then calculate the present value of the respective cash flows for each reporting unit to arrive at the fair value using the income approach and then determine the appropriate weighting between the fair value estimated using the income approach and the fair value estimated using the market approach. Finally, we compare the estimated fair value of each reporting unit to its respective carrying value in order to determine if the goodwill assigned to each reporting unit is a two-step process. Step one consists of a comparison ofpotentially impaired. If the fair value of athe reporting unit againstexceeds its carrying amount, including thevalue, goodwill allocated to each reporting unit.is not impaired and no further testing is required. If the carrying amountfair value of the reporting unit is less than the carrying value, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
Significant assumptions used include management’s estimates of future growth rates, the amount and timing of future operating cash flows, capital expenditures, discount rates, as well as market and industry conditions and relevant comparable company multiples for the market approach. Assumptions utilized are highly judgmental, especially given the role technology plays in excessdriving the demand for products in the telecommunications and aerospace markets.
Based on the results of itsthe annual impairment test as of January 2, 2023, we determined that there was no goodwill impairment.
The indefinite-lived trademarks are tested for impairment by comparing the carrying value to the fair value step two requires the comparisonbased on current revenue projections of the impliedrelated operations, under the relief from royalty method. Any excess carrying value over the amount of fair value is recognized as impairment. Any impairment would be recognized in full in the reporting period in which it has been identified.
Based on the results of the annual impairment test as of January 2, 2023, we determined that there were impairments to two indefinite-lived trademarks. For additional information see Note 7 Notes to the Consolidated Financial Statements.
With respect to our other long-lived assets other than goodwill and indefinite-lived trademarks, we test for impairment when indicators of impairment are present. An asset is considered impaired when the undiscounted estimated net cash flows expected to be generated by the asset are less than its carrying amount. The impairment recognized is the amount by which the carrying amount exceeds the fair value of the reporting unit’s goodwill against the carrying amountimpaired asset.
Business Combinations
We account for business combinations in accordance with ASC 805, Business Combinations. We recognize assets acquired and liabilities assumed in acquisitions at their fair values as of the reporting unit’s goodwill. Any excess ofacquisition date, with the carrying value ofacquisition-related transaction and
restructuring costs expensed in the reporting unit’s goodwill overperiod incurred. Determining the implied fair value of the reporting unit’s goodwill is recordedassets acquired and liabilities assumed often involves estimates based on third-party valuations, such as an impairment loss.appraisals, or internal valuations based on discounted cash flow analyses and may include estimates of attrition, inflation, asset growth rates, discount rates, multiples of earnings or other
relevant factors. In the fourth quarter of fiscal 2015, we conducted step one of our annual goodwill impairment test which indicated that theaddition, fair values are subject to refinement for up to a year after the closing date of two of our reporting units - Purcell and Quallion/ABSL US - inan acquisition. Adjustments recorded to the Americas operating segment were less than their respective carrying value, and we proceeded to perform step two of the goodwill impairment analysis.
Step two of the goodwill impairment analysis measures the impairment charge by allocating the reporting unit's fair value to all of theacquired assets and liabilities are applied prospectively.
Fair values are based on estimates using management's assumptions using future growth rates, future attrition of the reporting unitcustomer base, discount rates, multiples of earnings or other relevant factors.
Any change in a hypothetical analysis that calculates the impliedacquisition date fair value of goodwillassets acquired and liabilities assumed may materially affect our financial position, results of operations and liquidity.
Litigation and Claims
From time to time, the Company has been or may be a party to various legal actions and investigations including, among others, employment matters, compliance with government regulations, federal and state employment laws, including wage and hour laws, contractual disputes and other matters, including matters arising in the same mannerordinary course of business. These claims may be brought by, among others, governments, customers, suppliers and employees. Management considers the measurement of litigation reserves as if the reporting unit was being acquired in a business combination. This allocation process was performed only for the purpose of measuring the goodwill impairment, and not to adjust the carrying valuescritical accounting estimate because of the recognized tangible assetssignificant uncertainty in some cases relating to the outcome of potential claims or litigation and liabilities. Anythe difficulty of predicting the likelihood and range of potential liability involved, coupled with the material impact on our results of operations that could result from litigation or other claims.
In determining legal reserves, management considers, among other inputs:
•interpretation of contractual rights and obligations;
•the status of government regulatory initiatives, interpretations and investigations;
•the status of settlement negotiations;
•prior experience with similar types of claims;
•whether there is available insurance coverage; and
•advice of outside counsel.
For certain matters, management is able to estimate a range of losses. When a loss is probable, but no amount of loss within a range of outcomes is more likely than any other outcome, management will record a liability based on the low end of the estimated range. Additionally, management will evaluate whether losses in excess of the carrying valueamounts accrued are reasonably possible, and will make disclosure of those matters based on an assessment of the reporting unit's goodwill overmateriality of those addition possible losses.
Environmental Loss Contingencies
Accruals for environmental loss contingencies (i.e., environmental reserves) are recorded when it is probable that a liability has been incurred and the implied fair valueamount can reasonably be estimated. Management views the measurement of environmental reserves as a critical accounting estimate because of the reporting unit's goodwill is recorded as an impairment loss. Based on our analysis,considerable uncertainty surrounding estimation, including the implied fair value of goodwill was lower thanneed to forecast well into the carrying value of the goodwill for the Purcell and Quallion/ABSL US reporting unitsfuture. From time to time, we may be involved in the Americas operating segment. We recorded a non-cash charge of $20.3 million related to goodwill impairment in the Americas and EMEA operating segments and $3.6 million related to impairment of indefinite-lived trademarks in the Americas. The combined charges resulted in a tax benefit of $3.2 million, for a net charge of $20.7 million.
The key factors contributing to the impairments were that both reporting units were recent acquisitions that have not performed to our expectations. In the case of Purcell, sales were negatively impacted by the slowdown in the enclosure business resulting from lower capital spending by a major customer in the telecommunications market. In the case of Quallion/ABSL US, the cancellation of certain programs with a major contractor serving the aerospace and defense markets resulted in poor performance. The sales levels began to decline in our second quarter of fiscal 2015, and despite our initial expectation that the declines were temporary, their downward trend continued through fiscal 2015.
Legal proceedings charge / (reversal of legal accrual, net of fees)
In the fourth quarter of fiscal 2014, the Company recorded a $58.2 million legal proceedings chargeunder federal, state and local, as well as international environmental laws in connection with an adverse arbitration result involving disputes betweenour operations and companies that we have acquired. The estimation of environmental reserves is based on the Company's wholly-owned subsidiary, EnerSys Delaware Inc. (“EDI”), and Altergy Systems (“Altergy”). EDI and Altergy were parties to a Supply and Distribution Agreement (the “SDA”) pursuant to which EDI was, among other things, granted the exclusive right to distribute and sell certain fuel cell products manufactured by Altergy for various applications throughout the United States. Commencing in 2011, various disputes arose and, becauseevaluation of the mandatory arbitration provisioncurrently available information, prior experience in the SDA, the parties moved forward with arbitration in August 2013.
After discovery, a hearingremediation of contaminated sites and post-hearing submissions by each party, on May 13, 2014, the arbitration panel issued an award in favor of Altergy. As a result, the arbitration panel concluded that Altergy should recover $58.2 million in net money damages from EDI.
On August 12, 2014, EDI, on behalf of itself and its affiliates, entered into a binding term sheet with Altergy that resolved the outstanding legal challenges related to this award. In accordance with the term sheet, in September 2014, EDI and Altergy entered into (a) a settlement agreement and release of claims pursuant to which EDI paid Altergy $40.0 million in settlement of this award, a separate proceeding related to certain rights of EDI as a shareholder of Altergy and related litigations and the parties granted the other a release and (b) a stock purchase agreement pursuant to which Altergy paid EDI $2.0 million to purchase EDI’s entire equity interest in Altergy. On September 16, 2014, courts in the respective jurisdictions had issued orders ending all of the ongoing litigation between EDI and Altergy. Since the full amount of the initial award of $58.2 million was recorded in the fourth quarter of fiscal 2014, the Company reversed approximately $16.2 million, net of professional fees, from this previously recorded legal proceedings charge during the second quarter of fiscal 2015. The Company also included the $2.0 million received in exchange for its equity interest in Altergy in the Consolidated Statements of Income in Other (income) expense, net during the second quarter of fiscal 2015. The Company had previously written off the carrying value of the investment of $5.0 million in the third quarter of fiscal 2014.
Operating Earnings
Operating earnings by segment were as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2015 | | Fiscal 2014 | | Increase (Decrease) |
| | In Millions | | As % Net Sales(1) | | In Millions | | As % Net Sales(1) | | In Millions | | % |
Americas | | $ | 162.8 |
| | 12.3 | % | | $ | 179.1 |
| | 14.1 | % | | $ | (16.3 | ) | | (9.1 | )% |
EMEA | | 109.8 |
| | 11.6 |
| | 84.9 |
| | 8.8 |
| | 24.9 |
| | 29.4 |
|
Asia | | 9.9 |
| | 4.2 |
| | 21.2 |
| | 8.8 |
| | (11.3 | ) | | (53.2 | ) |
Subtotal | | 282.5 |
| | 11.3 |
| | 285.2 |
| | 11.5 |
| | (2.7 | ) | | (0.9 | ) |
Restructuring and other exit charges-EMEA | | (7.5 | ) | | (0.8 | ) | | (27.1 | ) | | (2.8 | ) | | 19.6 |
| | (72.1 | ) |
Restructuring charges-Asia | | (3.9 | ) | | (1.7 | ) | | (0.3 | ) | | (0.1 | ) | | (3.6 | ) | | NM |
|
Impairment of goodwill and indefinite-lived intangibles-Americas | | (23.1 | ) | | (1.8 | ) | | — |
| | — |
| | (23.1 | ) | | NM |
|
Goodwill impairment charge-EMEA | | (0.8 | ) | | (0.1 | ) | | — |
| | — |
| | (0.8 | ) | | NM |
|
Goodwill impairment charge-Asia | | — |
| | — |
| | (5.2 | ) | | (2.2 | ) | | 5.2 |
| | NM |
|
Legal proceedings (charge) reversal of legal accrual, net of fees-Americas | | 16.2 |
| | 1.2 |
| | (58.2 | ) | | (4.6 | ) | | 74.4 |
| | NM |
|
Total | | $ | 263.4 |
| | 10.5 | % | | $ | 194.4 |
| | 7.9 | % | | $ | 69.0 |
| | 35.4 | % |
NM = not meaningful
| |
(1) | The percentages shown for the segments are computed as a percentage of the applicable segment’s net sales. |
Fiscal 2015 operating earnings of $263.4 million were $69.0 million higher than in fiscal 2014 and were 10.5% of sales. Fiscal 2015 operating earnings included $19.1 million in net restructuring, impairment charges and reversal of legal proceedings accrual compared to $90.8 million in fiscal 2014. Without these charges, operating earnings were $282.5 million or 11.3% of sales in fiscal 2015 compared to $285.2 million or 11.5% of sales in fiscal 2014, which reflects a relatively stable environment for revenues, pricing and commodity costs between the two fiscal years.
The Americas segment’s operating earnings, excluding the highlighted items discussed above, decreased $16.3 million or 9.1% in fiscal 2015 compared to fiscal 2014, with the operating margin decreasing 180 basis points to 12.3%. This decrease of operating margin in our Americas segment was primarily due to lower pricing for a single customer, our recent acquisition of Purcell, which had not delivered the accretion we had expected, due primarily to the delay in capital spending in their enclosure programs by a large telecommunications customer, stock-based compensation and implementation costs relating to an ERP system.
The EMEA segment’s operating earnings, excluding the highlighted items discussed above, increased $24.9 million or 29.4% in fiscal 2015 compared to fiscal 2014, with the operating margin increasing 280 basis points to 11.6%. Benefits of the restructuring programs on both production and operating expenses and better pricing and customer mix drove the improvements. This improvement in EMEA earnings primarily reflected improved market segment mix across the business, 4G expansion, and strong reserve power demand in emerging markets and shifts to our premium TPPL solutions, further amplified by the execution of our restructuring programs.
Operating earnings in Asia, excluding the highlighted items discussed above, decreased $11.3 million or 53.2% in fiscal 2015 compared to fiscal 2014, with the operating margin decreasing by 460 basis points to 4.2% primarily due to costs associated
with a temporary shutdown at one of our plants in the PRC, transition to our new plant in the PRC, reduction in telecom sales in the PRC and adverse impact of currency translation in Australia and Japan.
Interest Expense
|
| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2015 | | Fiscal 2014 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Interest expense | | $ | 19.7 |
| | 0.8 | % | | $ | 17.1 |
| | 0.7 | % | | $ | 2.6 |
| | 14.8 | % |
Interest expense of $19.7 million in fiscal 2015 (net of interest income of $1.3 million) was $2.6 million higher than the $17.1 million in fiscal 2014 (net of interest income of $1.0 million). The increase in interest expense in fiscal 2015 compared to fiscal 2014 was primarily due to higher average debt outstanding and increased accreted interest on the Convertible Notes partially offset by lower average interest rates.
Our average debt outstanding (including the average amount of the Convertible Notes discount of $5.6 million) was $422.5 million in fiscal 2015, compared to our average debt outstanding (including the average amount of the Convertible Notes discount of $13.5 million) of $236.9 million in fiscal 2014. Our average cash interest rate incurred in fiscal 2015 was 2.3% compared to 3.5% in fiscal 2014. This higher average debt outstanding was the result of our stock buy back program under which over $205 million of our shares were purchased during fiscal 2015.
Included in interest expense was non-cash, accreted interest on the Convertible Notes of $8.3 million in fiscal 2015 and $7.6 million in fiscal 2014. Also included in interest expense were non-cash charges related to amortization of deferred financing fees of $1.3 million in fiscal 2015 and $1.1 million in fiscal 2014.
Other (Income) Expense, Net
|
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2015 | | Fiscal 2014 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Other (income) expense, net | | $ | (5.6 | ) | | (0.2 | )% | | $ | 13.6 |
| | 0.6 | % | | $ | (19.2 | ) | | NM |
NM = not meaningful
Other (income) expense, net was income of $5.6 million in fiscal 2015 compared to expense of $13.6 million in fiscal 2014. The favorable impact in fiscal 2015 was mainly attributable to foreign currency gains of $5.0 million in fiscal 2015 compared to foreign currency losses in fiscal 2014 of $5.8 million due mainly to the impact of a strong U.S. dollar and a weak euro on our foreign exchange exposures. Also contributing to the favorable impact in fiscal 2015 was the receipt of $2.0 million in exchange for our equity interest in Altergy pursuant to the final legal settlement with Altergy compared to the write-off of $5.0 million relating to the carrying value of our investment in Altergy and $1.5 million relating to other charges in fiscal 2014.
Earnings Before Income Taxes
|
| | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2015 | | Fiscal 2014 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Earnings before income taxes | | $ | 249.3 |
| | 9.9 | % | | $ | 163.7 |
| | 6.6 | % | | $ | 85.6 |
| | 52.3 | % |
As a result of the factors discussed above, fiscal 2015 earnings before income taxes were $249.3 million, an increase of $85.6 million or 52.3% compared to fiscal 2014.
Income Tax Expense
|
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2015 | | Fiscal 2014 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Income tax expense | | $ | 67.8 |
| | 2.7 | % | | $ | 17.0 |
| | 0.7 | % | | $ | 50.8 |
| | NM |
Effective tax rate | | 27.2 | % | | | | 10.4 | % | | | | 16.8 | % | | |
NM = not meaningful
Our effective income tax rateassumptions with respect to anygovernment regulations and enforcement activity, changes in remediation technology and practices, and financial obligations and creditworthiness of other responsible parties and insurers.
Warranty
We record a warranty reserve for possible claims against our product warranties, which generally run for a period may be volatileranging from one to twenty years for our Energy Systems batteries, one to five years for our Motive Power batteries and for a period ranging from one to four for Specialty transportation batteries. The assessment of the adequacy of the reserve includes a review of open claims and historical experience.
Management believes that the accounting estimate related to the warranty reserve is a critical accounting estimate because the underlying assumptions used for the reserve can change from time to time and warranty claims could potentially have a material impact on our results of operations.
Allowance for Doubtful Accounts
Subsequent to the adoption of ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326)” effective April 1, 2020 the Company uses an expected loss model as mandated by the standard. The expected loss model: (i) estimates the risk of loss even when risk is remote, (ii) estimates losses over the contractual life, (iii) considers past events, current conditions and reasonable supported forecasts and (iv) has no recognition threshold.
The Company estimates the allowance for credit losses in relation to accounts receivable based on relevant qualitative and quantitative information about historical events, current conditions, and reasonable and supportable forecasts that affect the mixcollectability of incomethe reported accounts receivable. Subsequent to April 1, 2020, accounts receivable are recorded at amortized cost less an allowance for expected credit losses. The Company maintains an allowance for credit losses for the expected failure or inability of its customers to make required payments. The Company recognizes the allowance for expected credit losses at inception and reassesses quarterly, based on management’s expectation of the asset’s collectability. The allowance is based on multiple factors including historical experience with bad debts, the credit quality of the customer base, the aging of such receivables and current macroeconomic conditions, as well as management’s expectations of conditions in the tax jurisdictions in which we operate and the amount of our consolidated income before taxes.
future. The Company’s income tax provisions consistallowance for uncollectible accounts receivable is based on management’s assessment of federal, statethe collectability of assets pooled together with similar risk characteristics. The Company then adjusts the historical credit loss percentage by current and foreign income taxes.forecasted economic conditions. The effective income tax rate was 27.2% in fiscal 2015 comparedCompany then includes a baseline credit loss percentage into the historical credit loss percentage for each aging category to reflect the fiscal 2014 effective income tax ratepotential impact of 10.4%. The rate increase in fiscal 2015 as compared to fiscal 2014 was primarily due to the reversal ofcurrent and economic conditions. Such a previously recognized deferred tax valuation allowance related to one of our foreign subsidiaries of $24.9 million in fiscal 2014 andbaseline calculation will be adjusted further if changes in the mixeconomic environment impacts the Company's expectation for future credit losses.
Management believes that the accounting estimate related to the allowance for doubtful accounts is a critical accounting estimate because the underlying assumptions used for the allowance can change from time to time and uncollectible accounts could potentially have a material impact on our results of earnings among tax jurisdictions, which were significantly impacted by a legal proceedings charge recorded in fiscal 2014. The fiscal 2015 effective income tax rate also includes an increase due to non-deductible goodwill impairment charges.operations.
The fiscal 2015 foreign effective income tax rate on foreign pre-tax income of $173.0 million was 14.8%. The difference in the foreign effective tax rate versus the U.S. statutory rate of 35% was primarily attributable to lower tax rates in the foreign countries in which we operate. The fiscal 2014 foreign effective income tax rate on foreign pre-tax income of $116.0 million was a net benefit of 4.0%. The difference in the foreign effective tax rate versus the U.S. statutory rate of 35% was primarily due to a release of a valuation allowance in a European subsidiary combined with lower statutory tax rates in foreign countries. The foreign effective income tax rate of fiscal 2014 without the valuation allowance release was 17.5%, and was higher than the fiscal 2015 foreign effective income tax rate of 14.8% due to a change in mix of earnings between foreign jurisdictions.
Income from our Swiss subsidiary comprised a substantial portion of our overall foreign mix of income for both fiscal 2015 and fiscal 2014 and was taxed at approximately 7%.
Liquidity and Capital Resources
We believe that our financial position is strong. We have substantial liquidity with $347 million of available cash and cash equivalents and available and undrawn, under all its lines of credit of approximately $693 million at March 31, 2023 to cover short-term liquidity requirements and anticipated growth in the foreseeable future. The nominal amount of credit available is subject to a leverage ratio maximum of 4.25x EBITDA, as discussed in Liquidity and Capital Resources.
During the second quarter of fiscal 2023, the Company entered into a third amendment to the 2017 Credit Facility (as amended, the “Third Amended Credit Facility”). The Third Amended Credit Facility provided new incremental delayed-draw senior secured term loan up to $300 million (the “Third Amended Term Loan”), which was available to draw until March 15, 2023. During the fourth quarter, the Company drew $300 million in the form of the Third Amended Term Loan. The funds will mature on September 30, 2026, the same as the Company's Second Amended Term loan and Second Amended Revolver. In connection with the agreement, the Company incurred $1.2 million in third party administrative and legal fees recognized in interest expense and capitalized $1.1 million in charges from existing lenders as a deferred asset. Additionally, the Company derecognized the capitalized deferred asset and recognized the $1.1 million as a deferred financing costs.
During the fourth quarter of fiscal 2023, the Company entered into a fourth amendment to the 2017 Credit Facility (as amended, the “Fourth Amended Credit Facility”). The Fourth Amended Credit Facility replaces the London Interbank Offered Rate
(“LIBOR”) with the Secured Overnight Financing Rate (“SOFR”) in the calculation of interest for both the Second Amended Revolver and the Second Amended Term Loan.
During the second quarter of fiscal 2022, we entered into a second amendment to the Amended Credit Facility (as amended, the “Second Amended Credit Facility”). As a result, the Second Amended Credit Facility, now scheduled to mature on September 30, 2026, consists of a $130.0 million senior secured term loan (the “Second Amended Term Loan”), a CAD 106.4 million ($84.2 million) term loan and an $850.0 million senior secured revolving credit facility (the “Second Amended Revolver”). This amendment resulted in a decrease of the Amended Term Loan by $150.0 million and an increase of the Amended Revolver by $150.0 million.
During fiscal 2023, our operating cash flow provided cash of $279.9 million, compared to a use of funds of $65.6 million in the prior year. The change in the operating cash flows in fiscal 2023 was primarily due to the decreases in primary operating capital dollars, compared to the prior year, reflecting the impact sold receivables as a part of our asset securitization agreement and less of an increase in inventory compared to the prior year.
In fiscal 2023 and 2022, we repurchased 358,365 and 1,996,334 shares of common stock for $22.9 million and $156.4 million, respectively. In fiscal 2021, we did not repurchase any shares.
A substantial majority of the Company’s cash and investments are held by foreign subsidiaries. The majority of that cash and investments is expected to be utilized to fund local operating activities, capital expenditure requirements and acquisitions. The Company believes that it has sufficient sources of domestic and foreign liquidity.
The Federal Reserve Bank of the United States has discontinued quantitative easing and, started raising short-term interest rates and has signaled they will continue to raise interest rates.The increase in short-term interest rates will increase EnerSys’ variable cost of borrowing under the Fourth Amended Credit Facility.
We believe that our strong capital structure and liquidity affords us access to capital for future capital expenditures, acquisition and stock repurchase opportunities and continued dividend payments.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 1 - Summary of Significant Accounting Policies to the Consolidated Financial Statements in Item 8. In preparing our financial statements, management is required to make estimates and assumptions that, among other things, affect the reported amounts in the Consolidated Financial Statements and accompanying notes. These estimates and assumptions are most significant where they involve levels of subjectivity and judgment necessary to account for highly uncertain matters or matters susceptible to change, and where they can have a material impact on our financial condition and operating performance. We discuss below the more significant estimates and related assumptions used in the preparation of our Consolidated Financial Statements. If actual results were to differ materially from the estimates made, the reported results could be materially affected.
Revenue Recognition
In accordance with ASC 606, we recognize revenue only when we have satisfied a performance obligation through transferring control of the promised good or service to a customer. The standard indicates that an entity must determine at contract inception whether it will transfer control of a promised good or service over time or satisfy the performance obligation at a point in time through analysis of the following criteria: (i) the entity has a present right to payment, (ii) the customer has legal title, (iii) the customer has physical possession, (iv) the customer has the significant risks and rewards of ownership and (v) the customer has accepted the asset. Our primary performance obligation to our customers is the delivery of finished goods and products, pursuant to purchase orders. Control of the products sold typically transfers to our customers at the point in time when the goods are shipped as this is also when title generally passes to our customers under the terms and conditions of our customer arrangements.
Management believes that the accounting estimates related to revenue recognition are critical accounting estimates because they require reasonable assurance of collection of revenue proceeds and completion of all performance obligations. Also, revenues are recorded net of provisions for sales discounts and returns, which are established at the time of sale. These estimates are based on our past experience. For additional information see Note 1 of Notes to the Consolidated Financial Statements.
Asset Impairment Determinations
We test for the impairment of our goodwill and indefinite-lived trademarks at least annually and whenever events or circumstances occur indicating that a possible impairment has been incurred.
We assess whether goodwill impairment exists using both qualitative and quantitative assessments. The qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If, based on this qualitative assessment, we determine it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, or if we elect not to perform a qualitative assessment, a quantitative assessment is performed to determine whether a goodwill impairment exists at the reporting unit.
We perform our annual goodwill impairment test on the first day of our fourth quarter for each of our reporting units based on the income approach, also known as the discounted cash flow (“DCF”) method, which utilizes the present value of future cash flows to estimate fair value. We also use the market approach, which utilizes market price data of companies engaged in the same or a similar line of business as that of our company, to estimate fair value. A reconciliation of the two methods is performed to assess the reasonableness of fair value of each of the reporting units.
The future cash flows used under the DCF method are derived from estimates of future revenues, operating income, working capital requirements and capital expenditures, which in turn reflect our expectations of specific global, industry and market conditions. The discount rate developed for each of the reporting units is based on data and factors relevant to the economies in which the business operates and other risks associated with those cash flows, including the potential variability in the amount and timing of the cash flows. A terminal growth rate is applied to the final year of the projected period and reflects our estimate of stable growth to perpetuity. We then calculate the present value of the respective cash flows for each reporting unit to arrive at the fair value using the income approach and then determine the appropriate weighting between the fair value estimated using the income approach and the fair value estimated using the market approach. Finally, we compare the estimated fair value of each reporting unit to its respective carrying value in order to determine if the goodwill assigned to each reporting unit is potentially impaired. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
Significant assumptions used include management’s estimates of future growth rates, the amount and timing of future operating cash flows, capital expenditures, discount rates, as well as market and industry conditions and relevant comparable company multiples for the market approach. Assumptions utilized are highly judgmental, especially given the role technology plays in driving the demand for products in the telecommunications and aerospace markets.
Based on the results of the annual impairment test as of January 2, 2023, we determined that there was no goodwill impairment.
The indefinite-lived trademarks are tested for impairment by comparing the carrying value to the fair value based on current revenue projections of the related operations, under the relief from royalty method. Any excess carrying value over the amount of fair value is recognized as impairment. Any impairment would be recognized in full in the reporting period in which it has been identified.
Based on the results of the annual impairment test as of January 2, 2023, we determined that there were impairments to two indefinite-lived trademarks. For additional information see Note 7 Notes to the Consolidated Financial Statements.
With respect to our other long-lived assets other than goodwill and indefinite-lived trademarks, we test for impairment when indicators of impairment are present. An asset is considered impaired when the undiscounted estimated net cash flows expected to be generated by the asset are less than its carrying amount. The impairment recognized is the amount by which the carrying amount exceeds the fair value of the impaired asset.
Business Combinations
We account for business combinations in accordance with ASC 805, Business Combinations. We recognize assets acquired and liabilities assumed in acquisitions at their fair values as of the acquisition date, with the acquisition-related transaction and
restructuring costs expensed in the period incurred. Determining the fair value of assets acquired and liabilities assumed often involves estimates based on third-party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses and may include estimates of attrition, inflation, asset growth rates, discount rates, multiples of earnings or other
relevant factors. In addition, fair values are subject to refinement for up to a year after the closing date of an acquisition. Adjustments recorded to the acquired assets and liabilities are applied prospectively.
Fair values are based on estimates using management's assumptions using future growth rates, future attrition of the customer base, discount rates, multiples of earnings or other relevant factors.
Any change in the acquisition date fair value of assets acquired and liabilities assumed may materially affect our financial position, results of operations and liquidity.
Litigation and Claims
From time to time, the Company has been or may be a party to various legal actions and investigations including, among others, employment matters, compliance with government regulations, federal and state employment laws, including wage and hour laws, contractual disputes and other matters, including matters arising in the ordinary course of business. These claims may be brought by, among others, governments, customers, suppliers and employees. Management considers the measurement of litigation reserves as a critical accounting estimate because of the significant uncertainty in some cases relating to the outcome of potential claims or litigation and the difficulty of predicting the likelihood and range of potential liability involved, coupled with the material impact on our results of operations that could result from litigation or other claims.
In determining legal reserves, management considers, among other inputs:
•interpretation of contractual rights and obligations;
•the status of government regulatory initiatives, interpretations and investigations;
•the status of settlement negotiations;
•prior experience with similar types of claims;
•whether there is available insurance coverage; and
•advice of outside counsel.
For certain matters, management is able to estimate a range of losses. When a loss is probable, but no amount of loss within a range of outcomes is more likely than any other outcome, management will record a liability based on the low end of the estimated range. Additionally, management will evaluate whether losses in excess of amounts accrued are reasonably possible, and will make disclosure of those matters based on an assessment of the materiality of those addition possible losses.
Environmental Loss Contingencies
Accruals for environmental loss contingencies (i.e., environmental reserves) are recorded when it is probable that a liability has been incurred and the amount can reasonably be estimated. Management views the measurement of environmental reserves as a critical accounting estimate because of the considerable uncertainty surrounding estimation, including the need to forecast well into the future. From time to time, we may be involved in legal proceedings under federal, state and local, as well as international environmental laws in connection with our operations and companies that we have acquired. The estimation of environmental reserves is based on the evaluation of currently available information, prior experience in the remediation of contaminated sites and assumptions with respect to government regulations and enforcement activity, changes in remediation technology and practices, and financial obligations and creditworthiness of other responsible parties and insurers.
Warranty
We record a warranty reserve for possible claims against our product warranties, which generally run for a period ranging from one to twenty years for our Energy Systems batteries, one to five years for our Motive Power batteries and for a period ranging from one to four for Specialty transportation batteries. The assessment of the adequacy of the reserve includes a review of open claims and historical experience.
Management believes that the accounting estimate related to the warranty reserve is a critical accounting estimate because the underlying assumptions used for the reserve can change from time to time and warranty claims could potentially have a material impact on our results of operations.
Allowance for Doubtful Accounts
Subsequent to the adoption of ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326)” effective April 1, 2020 the Company uses an expected loss model as mandated by the standard. The expected loss model: (i) estimates the risk of loss even when risk is remote, (ii) estimates losses over the contractual life, (iii) considers past events, current conditions and reasonable supported forecasts and (iv) has no recognition threshold.
The Company estimates the allowance for credit losses in relation to accounts receivable based on relevant qualitative and quantitative information about historical events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported accounts receivable. Subsequent to April 1, 2020, accounts receivable are recorded at amortized cost less an allowance for expected credit losses. The Company maintains an allowance for credit losses for the expected failure or inability of its customers to make required payments. The Company recognizes the allowance for expected credit losses at inception and reassesses quarterly, based on management’s expectation of the asset’s collectability. The allowance is based on multiple factors including historical experience with bad debts, the credit quality of the customer base, the aging of such receivables and current macroeconomic conditions, as well as management’s expectations of conditions in the future. The Company’s allowance for uncollectible accounts receivable is based on management’s assessment of the collectability of assets pooled together with similar risk characteristics. The Company then adjusts the historical credit loss percentage by current and forecasted economic conditions. The Company then includes a baseline credit loss percentage into the historical credit loss percentage for each aging category to reflect the potential impact of the current and economic conditions. Such a baseline calculation will be adjusted further if changes in the economic environment impacts the Company's expectation for future credit losses.
Management believes that the accounting estimate related to the allowance for doubtful accounts is a critical accounting estimate because the underlying assumptions used for the allowance can change from time to time and uncollectible accounts could potentially have a material impact on our results of operations.
Retirement Plans
We use certain economic and demographic assumptions in the calculation of the actuarial valuation of liabilities associated with our defined benefit plans. These assumptions include the discount rate, expected long-term rates of return on assets and rates of increase in compensation levels. Changes in these assumptions can result in changes to the pension expense and recorded liabilities. Management reviews these assumptions at least annually. We use independent actuaries to assist us in formulating assumptions and making estimates. These assumptions are updated periodically to reflect the actual experience and expectations on a plan-specific basis, as appropriate.
For benefit plans which are funded, we establish strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk. We set the expected long-term rate of return based on the expected long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this rate, we consider historical and expected returns for the asset classes in which the plans are invested, advice from pension consultants and investment advisors, and current economic and capital market conditions. The expected return on plan assets is incorporated into the computation of pension expense. The difference between this expected return and the actual return on plan assets is deferred and will affect future net periodic pension costs through subsequent amortization.
We believe that the current assumptions used to estimate plan obligations and annual expense are appropriate in the current economic environment. However, if economic conditions change materially, we may change our assumptions, and the resulting change could have a material impact on the Consolidated Statements of Income and on the Consolidated Balance Sheets.
Equity-Based Compensation
We recognize compensation cost relating to equity-based payment transactions by using a fair-value measurement method whereby all equity-based payments to employees, including grants of restricted stock units, stock options, market and performance condition-based awards are recognized as compensation expense based on fair value at grant date over the requisite service period of the awards. We determine the fair value of restricted stock units based on the quoted market price of our common stock on the date of grant. The fair value of stock options is determined using the Black-Scholes option-pricing model, which uses both historical and current market data to estimate the fair value. The fair value of market condition-based awards is estimated at the date of grant using a Monte Carlo Simulation. The fair value of performance condition-based awards is based on the closing stock price on the date of grant, adjusted for a discount to reflect the illiquidity inherent in these awards.
All models incorporate various assumptions such as the risk-free interest rate, expected volatility, expected dividend yield and expected life of the awards. When estimating the requisite service period of the awards, we consider many related factors including types of awards, employee class, and historical experience. Actual results, and future changes in estimates of the requisite service period may differ substantially from our current estimates.
Income Taxes
Our effective tax rate is based on pretax income and statutory tax rates available in the various jurisdictions in which we operate. We account for income taxes in accordance with applicable guidance on accounting for income taxes, which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between book and tax bases on recorded assets and liabilities. Accounting guidance also requires that deferred tax assets be reduced by a valuation allowance, when it is more likely than not that a tax benefit will not be realized.
The recognition and measurement of a tax position is based on management’s best judgment given the facts, circumstances and information available at the reporting date. We evaluate tax positions to determine whether the benefits of tax positions are more likely than not of being sustained upon audit based on the technical merits of the tax position. For tax positions that are more likely than not of being sustained upon audit, we recognize the largest amount of the benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not more likely than not of being sustained upon audit, we do not recognize any portion of the benefit in the financial statements. If the more likely than not threshold is not met in the period for which a tax position is taken, we may subsequently recognize the benefit of that tax position if the tax matter is effectively settled, the statute of limitations expires, or if the more likely than not threshold is met in a subsequent period.
We evaluate, on a quarterly basis, our ability to realize deferred tax assets by assessing our valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets.
To the extent we prevail in matters for which reserves have been established, or are required to pay amounts in excess of our reserves, our effective tax rate in a given financial statement period could be materially affected.
Results of Operations—Fiscal 2023 Compared to Fiscal 2022
The following table presents summary Consolidated Statements of Income data for fiscal year ended March 31, 2023, compared to fiscal year ended March 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2023 | | Fiscal 2022 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Net sales | | $ | 3,708.5 | | | 100.0 | % | | $ | 3,357.3 | | | 100.0 | % | | $ | 351.2 | | | 10.5 | % |
Cost of goods sold | | 2,867.8 | | | 77.3 | | | 2,604.7 | | | 77.6 | | | 263.1 | | | 10.1 | |
Inventory adjustment relating to exit activities | | 0.6 | | | — | | | 2.6 | | | 0.1 | | | (2.0) | | | (73.8) | |
Gross profit | | 840.1 | | | 22.7 | | | 750.0 | | | 22.3 | | | 90.1 | | | 12.0 | |
Operating expenses | | 544.9 | | | 14.7 | | | 520.8 | | | 15.5 | | | 24.1 | | | 4.6 | |
Restructuring and other exit charges | | 16.4 | | | 0.4 | | | 18.8 | | | 0.6 | | | (2.4) | | | (12.4) | |
| | | | | | | | | | | | |
Impairment of indefinite-lived intangibles | | 0.5 | | | 0.1 | | | 1.2 | | | — | | | (0.7) | | | (59.3) | |
Loss on assets held for sale | | — | | | — | | | 3.0 | | | 0.1 | | | (3.0) | | | NM |
| | | | | | | | | | | | |
Operating earnings | | 278.3 | | | 7.5 | | | 206.2 | | | 6.1 | | | 72.1 | | | 35.0 | |
Interest expense | | 59.5 | | | 1.6 | | | 37.8 | | | 1.1 | | | 21.7 | | | 57.6 | |
Other (income) expense, net | | 8.2 | | | 0.2 | | | (5.5) | | | (0.2) | | | 13.7 | | | NM |
Earnings before income taxes | | 210.6 | | | 5.7 | | | 173.9 | | | 5.2 | | | 36.7 | | | 21.1 | |
Income tax expense | | 34.8 | | | 0.9 | | | 30.0 | | | 0.9 | | | 4.8 | | | 16.0 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Net earnings attributable to EnerSys stockholders | | $ | 175.8 | | | 4.8 | % | | $ | 143.9 | | | 4.3 | % | | $ | 31.9 | | | 22.2 | % |
NM = not meaningful
Overview
Our sales in fiscal 2023 were $3.7 billion, a 10.5% increase from prior year's sales. This increase was due to an 8% increase in pricing, and 7% in organic growth, partially offset by a 4% decrease in foreign currency translation impact.
A discussion of specific fiscal 2023 versus fiscal 2022 operating results follows, including an analysis and discussion of the results of our reportable segments.
Net Sales
Segment sales
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2023 | | Fiscal 2022 | | Increase (Decrease) |
| | In Millions | | % Net Sales | | In Millions | | % Net Sales | | In Millions | | % |
Energy Systems | | $ | 1,738.1 | | | 46.9 | % | | $ | 1,536.6 | | | 45.8 | % | | $ | 201.5 | | | 13.1 | % |
Motive Power | | 1,451.3 | | | 39.1 | | | 1,361.2 | | | 40.5 | | | 90.1 | | | 6.6 | |
Specialty | | 519.1 | | | 14.0 | | | 459.5 | | | 13.7 | | | 59.6 | | | 13.0 | |
Total net sales | | $ | 3,708.5 | | | 100.0 | % | | $ | 3,357.3 | | | 100.0 | % | | $ | 351.2 | | | 10.5 | % |
Net sales of our Energy Systems segment in fiscal 2023 increased $201.5 million, or 13.1%, compared to fiscal 2022. This increase was due to a 9% increase in organic volume and an 8% increase in pricing, partially offset by a 4% decrease in foreign currency translation impact. This increase in sales was driven by an increase in pricing/mix and organic volume primarily as a result of improved component availability and pass through of higher costs, as well as organic volume primarily in Americas battery systems.
Net sales of our Motive Power segment in fiscal 2023 increased by $90.1 million, or 6.6%, compared to fiscal 2022. This increase was due to a 9% increase in pricing and a 3% increase in organic volume partially offset by a 5% decrease in foreign currency translation impact. We continue to benefit from continued improved pricing and favorable sales mix as we grow our maintenance free products.
Net sales of our Specialty segment in fiscal 2023 increased by $59.6 million, or 13%, compared to fiscal 2022. The increase was due to a 9% increase in organic volume and a 6% increase in pricing, partially offset by a 2% decrease in foreign currency translation impact. This increase in net sales was primarily driven by improved pricing and strong market demand.
Gross Profit
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2023 | | Fiscal 2022 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Gross profit | | $ | 840.1 | | | 22.7 | % | | $ | 750.0 | | | 22.3 | % | | $ | 90.1 | | | 12.0 | % |
Gross profit increased $90.1 million or 12.0% in fiscal 2023 compared to fiscal 2022. Gross profit, as a percentage of net sales increased 40 basis points in fiscal 2023 compared to fiscal 2022. The increase in the gross profit margin in fiscal 2023 compared to the prior year reflects the impact of organic volume increases, aggressive price recoveries, and mix improvement more than offsetting the negative impact of higher freight costs and component shortages from our supply chain along with other inflationary pressures in raw materials, labor, supplies and utilities.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted. The IRA includes multiple incentives to promote clean energy, and energy storage manufacturing among other provisions with tax credits available from 2023 to 2032, subject to phase down beginning in 2030. In particular the IRA creates a refundable tax credit, pursuant to Section 45X of the Internal Revenue Code (“IRC”), for battery cells and battery modules manufactured or assembled in the United States and sold to third parties. In the period ended March 31, 2023, the IRA impact resulted in a $17.3 million reduction of our costs of goods sold and income tax payable. We will continue to evaluate the effects of IRA as more guidance is issued and the relevant implications to our consolidated financial statements.
Operating Items
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2023 | | Fiscal 2022 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Operating expenses | | $ | 544.9 | | | 14.7 | % | | $ | 520.8 | | | 15.5 | % | | $ | 24.1 | | | 4.6 | % |
Restructuring, exit and other charges | | 16.4 | | | 0.4 | | | 18.8 | | | 0.6 | | | (2.4) | | | (12.4) | |
| | | | | | | | | | | | |
Impairment of indefinite-lived intangibles | | 0.5 | | | 0.1 | | | 1.2 | | | — | | | (0.7) | | | (59.3) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Operating Expenses
Operating expenses increased $24.1 million or 4.6% in fiscal 2023 from fiscal 2022 and decreased as a percentage of net sales by 80 basis points. Selling expenses, our main component of operating expenses, increased $6.1 million or 2.8% in fiscal 2023 compared to fiscal 2022.
Restructuring, exit and other charges
Exit Charges
Fiscal 2023 Programs
Sylmar
In November 2022, the Company committed to a plan to close its facility in Sylmar, California, which manufactures specialty lithium batteries for aerospace and medical applications. Management determined to close the site upon the expiration of its lease on the property and to redirect production through consolidation into existing locations. The Company currently estimates total charges in the exit to amount to $5.5 million. Cash charges are estimated to total $4.4 million primarily relating to severance and other costs to leave the site. Non-cash charges are estimated to be $1.1 million relating to fixed assets, inventory, and contract assets. The plan is expected to be completed in fiscal 2024.
During fiscal 2023, the Company recorded $1.7 million primarily related to severance costs and non-cash charges totaling $0.4 million primarily relating to contract assets.
Ooltewah
In June, 2022, the Company committed to a plan to close its facility in Ooltewah, Tennessee, which produced flooded motive power batteries for electric forklifts. Management determined that future demand for traditional motive power flooded cells will decrease as customers transition to maintenance free product solutions in lithium and TPPL. The Company currently estimates that the total charges for these actions will amount to approximately $18.5 million.Cash charges for employee severance related payments, cleanup related to the facility, contractual releases and legal expenses are estimated to be $9.2 million and non-cash charges from inventory and fixed asset write-offs are estimated to be $9.3 million. These actions will result in the reduction of approximately 165 employees. The plan is expected to be completed in calendar 2023.
During fiscal 2023, the Company recorded cash charges relating primarily to severance and manufacturing variances of $2.8 million and non-cash charges of $7.3 million relating to fixed asset write-offs. The Company also recorded a non-cash write-off relating to inventories of $1.6 million, which was reported in cost of goods sold.
Fiscal 2022 Programs
Russia
In February 2022, as a result of the Russia-Ukraine conflict, economic sanctions were imposed on Russian individuals and entities, including financial institutions, by countries around the world, including the U.S. and the European Union. On March 3, 2022, the Company announced that it was indefinitely suspending its operations in Russia in order to comply with the sanctions. As a result of this decision, the Company wrote off net assets of $4.0 million relating to its Russian subsidiary. The Company also incurred cash charges of $1.3 million relating to severance and exiting lease obligations. During fiscal 2023, the Company sold inventory previously written off resulting in the reversal of $0.9 million in cost of goods sold and reversal of $0.7 million of cash charges primarily relating to lease obligations.
Zamudio, Spain
During fiscal 2022, the Company closed a minor assembling plant in Zamudio, Spain and sold the same for $1.8 million. A net gain of $0.7 million was recorded as a credit to exit charges in the Consolidated Statements of Income.
Fiscal 2021 Programs
Hagen, Germany
In fiscal 2021, we committed to a plan to close substantially all of our facility in Hagen, Germany, which produces flooded motive power batteries for forklifts. Management determined that future demand for the motive power batteries produced at this facility was not sufficient, given the conversion from flooded to maintenance free batteries by customers, the existing number of competitors in the market, as well as the near term decline in demand and increased uncertainty from the pandemic. We plan to retain the facility with limited sales, service and administrative functions along with related personnel for the foreseeable future.
We currently estimate that the total charges for these actions will amount to approximately $60.0 million, the majority of which were recorded by the end of calendar 2021. Cash charges of approximately $40.0 million are primarily for employee severance
related payments, but also include payments for cleanup related to the facility, contractual releases and legal expenses. Non-cash charges from inventory and equipment write-offs are estimated to be $20.0 million. These actions resulted in the reduction of approximately 200 employees.
During fiscal 2023, the Company recorded cash charges of $2.2 million relating primarily to site cleanup and $0.6 million of non-cash charges relating to accelerated depreciation of fixed assets.
During fiscal 2022, the Company recorded cash charges, primarily relating to severance of $8.1 million and non-cash charges of $3.5 million primarily relating to fixed asset write-offs. The Company also recorded a non-cash write off relating to inventories of $1.0 million, which was reported in cost of goods sold.
During fiscal 2021, the Company recorded charges relating to severance of $23.3 million and $7.9 million primarily relating to fixed asset write-offs.
Targovishte, Bulgaria
During fiscal 2019, the Company committed to a plan to close its facility in Targovishte, Bulgaria, which produced diesel-electric submarine batteries. Management determined that the future demand for batteries of diesel-electric submarines was not sufficient given the number of competitors in the market. During fiscal 2022, the Company sold this facility for $1.5 million. A net gain of $1.2 million was recorded as a credit to exit charges in the Consolidated Statements of Income.
Impairment of indefinite-lived intangibles
During the fourth quarter of fiscal 2023 and 2022, the Company recorded non-cash charges of $0.5 million and $1.2 million, respectively, related to impairment of indefinite-lived trademarks. Management completed its evaluation of key inputs used to estimate the fair value of its indefinite-lived trademarks and determined that an impairment charge was appropriate.
Loss on assets held for sale
Vijayawada, India
During fiscal 2021, we also committed to a plan to close our facility in Vijayawada, India to align with the strategic vision for our new line of business structure and footprint and recorded exit charges of $1.5 million primarily relating to asset write-offs. In fiscal 2022, the Company reclassified property, plant and equipment with a carrying value of $4.6 million to assets held for sale on the Consolidated Balance Sheet and recognized an impairment loss of $3.0 million under the caption Loss on assets held for sale on its Consolidated Statement of Income, by writing down the carrying value of these assets to their estimated fair value of $1.6 million, based on their expected proceeds, less costs to sell. We also recorded a non-cash write off relating to inventories of $0.8 million, which was reported in cost of goods sold.
Operating Earnings
Operating earnings by segment were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2023 | | Fiscal 2022 | | Increase (Decrease) |
| | In Millions | | As % Net Sales(1) | | In Millions | | As % Net Sales(1) | | In Millions | | % |
Energy Systems | | $ | 62.2 | | | 3.6 | % | | $ | 18.6 | | | 1.2 | % | | $ | 43.6 | | | NM |
Motive Power | | 178.8 | | | 12.3 | | | 169.7 | | | 12.5 | | | 9.1 | | | 7.8 | |
Specialty | | 37.5 | | | 7.2 | | | 43.5 | | | 9.5 | | | (6.0) | | | 4.3 | |
Subtotal | | 278.5 | | | 7.5 | | | 231.8 | | | 6.9 | | | 46.7 | | | 27.7 | |
Production tax credits from IRA 45X | | 17.3 | | | 0.5 | | | — | | | — | | | 17.3 | | | NM |
Inventory adjustment relating to exit activities - Energy Systems | | 0.2 | | | — | | | (0.2) | | | — | | | 0.4 | | | NM |
Inventory adjustment relating to exit activities - Motive Power | | (0.8) | | | (0.1) | | | (2.4) | | | (0.2) | | | 1.6 | | | (63.1) | |
Restructuring and other exit charges - Energy Systems | | (1.5) | | | (0.1) | | | (2.8) | | | (0.2) | | | 1.3 | | | (46.9) | |
Restructuring and other exit charges - Motive Power | | (12.8) | | | (0.9) | | | (17.1) | | | (1.3) | | | 4.3 | | | (24.6) | |
Restructuring and other exit charges - Specialty | | (2.1) | | | (0.4) | | | 1.1 | | | 0.2 | | | (3.2) | | | NM |
| | | | | | | | | | | | |
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Impairment of indefinite-lived intangibles - Energy Systems | | (0.1) | | | — | | | (0.5) | | | — | | | 0.4 | | | NM |
Impairment of indefinite-lived intangibles - Motive Power | | — | | | — | | | (0.7) | | | — | | | 0.7 | | | (80.0) | |
Impairment of indefinite-lived intangibles - Specialty | | (0.4) | | | (0.1) | | | — | | | — | | | (0.4) | | | NM |
Loss on assets held for sale - Motive Power | | | | — | | | (3.0) | | | (0.2) | | | 3.0 | | | NM |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total operating earnings | | $ | 278.3 | | | 7.5 | % | | $ | 206.2 | | | 6.1 | % | | $ | 72.1 | | | 35.0 | % |
NM = not meaningful
(1)The percentages shown for the segments are computed as a percentage of the applicable segment’s net sales.
Operating earnings increased $72.1 million or 35.0% in fiscal 2023, compared to fiscal 2022. Operating earnings, as a percentage of net sales, increased 140 basis points in fiscal 2023, compared to fiscal 2022.
The Energy Systems operating earnings percentage of net sales increased 240 basis points in fiscal 2023 compared to fiscal 2022. The increase in operating earnings is as a result of improvements in pricing and volume offset by an increase in lead pricing, high inflationary costs in raw materials costs, higher freight costs, warranty/inventory provisions, and selling, general, and administrative costs.
The Motive Power operating earnings as a percentage of net sales decreased 20 basis points in fiscal 2023 compared to fiscal 2022. This decrease was driven by the impact of zero-margin pricing pass through of inflationary costs and adverse foreign currency translation impact, partially offset by improved product mix.
Specialty operating earnings percentage of net sales decreased 230 basis points in fiscal 2023 compared to fiscal 2022. Pricing and customer demand in the transportation and aerospace and defense markets were stronger in the current year compared to prior year, but capacity constraints and higher inflation costs, combined with increased operating expenses negatively impacted the performance of this line of business.
Interest Expense
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| | Fiscal 2023 | | Fiscal 2022 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Interest expense | | $ | 59.5 | | | 1.6 | % | | $ | 37.8 | | | 1.1 | % | | $ | 21.7 | | | 57.6 | % |
Interest expense of $59.5 million in fiscal 2023 (net of interest income of $1.7 million) was $21.7 million higher than the $37.8 million in fiscal 2022 (net of interest income of $2.1 million).
Our average debt outstanding was $1,303.4 million in fiscal 2023, compared to our average debt outstanding of $1,150.7 million in fiscal 2022. Our average cash interest rate incurred in fiscal 2023 and fiscal 2022 was 4.6% and 3.3%, respectively. The increase in interest expense in fiscal 2023 compared to fiscal 2022 is primarily due to higher borrowing levels, higher short term interest rates, and an additional $1.2 million in third party administrative and legal fees related to the Third Amended Credit Facility, partially offset by the benefit from the $300 million and $150 million cross currency fixed interest rate swaps.
In fiscal 2023, the Company capitalized $1.2 million in debt issuance costs in connection with the Third and Fourth Amended Credit Facilities. In fiscal 2022, in connection with the Second Amended Credit Facility, we capitalized $3.0 million in debt issuance costs and wrote off $0.1 million of unamortized debt issuance costs. Included in interest expense were non-cash charges related to amortization of deferred financing fees of $2.0 million and $2.1 million in fiscal 2023 and fiscal 2022, respectively.
Other (Income) Expense, Net
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| | Fiscal 2023 | | Fiscal 2022 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Other (income) expense, net | | $ | 8.2 | | | 0.2 | % | | $ | (5.5) | | | (0.2) | % | | $ | 13.7 | | | NM |
NM = not meaningful
Other (income) expense, net was expense of $8.2 million in fiscal 2023 compared to income of $5.5 million in fiscal 2022. Foreign currency impact resulted in a loss of $0.7 million in fiscal 2023 compared to a foreign currency gain of $7.2 million in fiscal 2022. Included in the fiscal 2023 foreign currency impact is a loss of $4.5 million relating to the remeasurement of monetary assets from the exit of our Russia operations. Additionally, we incurred $1.4 million in costs to terminate our net investment hedges and $0.6 million in transaction fees relating to the asset securitization agreement.
Earnings Before Income Taxes
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2023 | | Fiscal 2022 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Earnings before income taxes | | $ | 210.6 | | | 5.7 | % | | $ | 173.9 | | | 5.2 | % | | $ | 36.7 | | | 21.1 | % |
As a result of the factors discussed above, fiscal 2023 earnings before income taxes were $210.6 million, an increase of $36.7 million or 21.1% compared to fiscal 2022.
Income Tax Expense
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| | Fiscal 2023 | | Fiscal 2022 | | Increase (Decrease) |
| | In Millions | | As % Net Sales | | In Millions | | As % Net Sales | | In Millions | | % |
Income tax expense | | $ | 34.8 | | | 0.9 | % | | $ | 30.0 | | | 0.9 | % | | $ | 4.8 | | | 16.0 | % |
Effective tax rate | | 16.5 | % | | | | 17.3 | % | | | | (0.8) | % | | |
Our effective income tax rate with respect to any period may be volatile based on the mix of income in the tax jurisdictions in which we operate and the amount of our consolidated income before taxes.
The Company’s income tax provision consists of federal, state and foreign income taxes. The effective income tax rate was 16.5% in fiscal 2023 compared to the fiscal 2022 effective income tax rate of 17.3%. The rate decrease in fiscal 2023 compared to fiscal 2022 is primarily due to the impact of the IRA and changes in the mix of earnings among tax jurisdictions.
The fiscal 2023 foreign effective income tax rate was 16.8% on foreign pre-tax income of $171.9 million compared to an effective income tax rate of 11.0% on foreign pre-tax income of $152.1 million in fiscal 2022. For both fiscal 2023 and fiscal
2022, the difference in the foreign effective tax rate versus the U.S. statutory rate of 21% is primarily attributable to lower tax rates in the foreign countries in which we operate. The rate increase in fiscal 2023 compared to fiscal 2022 is primarily due to a reduction in favorable permanent items and changes in mix of earnings among tax jurisdictions.
Liquidity and Capital Resources
Cash Flow and Financing Activities
Cash and cash equivalents at March 31, 2016, 20152023, 2022 and 2014,2021, were $397.3$346.7 million, $268.9$402.5 million and $240.1$451.8 million, respectively.
Cash provided by operating activities for fiscal 2016, 2015 and 2014,2023 was $307.6 million, $194.5$279.9 million. Cash used by operating activities for 2022 was $65.6 million and $193.6 million, respectively.cash provided by operating activities in 2021 was $358.4 million.
During fiscal 2016,2023, accounts receivable decreased or provided cash of $67.6 million due to sale of $150.0 million accounts receivable under the RPA entered into December 21, 2022. Inventory increased or used cash of $96.4 million. All components of inventory increased due to strategic investment, supply chain delays, new products and higher inventory costs from operating activities was provided primarily from nethigher raw material costs, manufacturing, and to address the high backlog of customer orders. Accounts payable decreased or used cash of $4.2 million due to timing of payments for strategic inventory. Net earnings of $131.8were $175.8 million, depreciation and amortization of $56.0$91.2 million, stock-based compensation, $26.4 million, non-cash charges relating to write-offexit charges of goodwill$8.9 million, primarily relating to the Ooltewah and Sylmar plant closures, exiting our operations in Russia following the conflict in Ukraine, non-cash interest of $2.0 million, and non-cash charges for impairment of indefinite-lived intangibles of $0.5 million. Prepaid and other current assets provided funds of $36.3$23.7 million, primarily from an increase of $10.8 million of contract assets, as well as an increase of $12.9 million in other prepaid expenses, such as taxes, insurance and other advances. Accrued expenses provided funds of $5.7 million primarily from increases to contract liabilities of $6.3 million, freight of $2.4 million, warranties of $2.2 million, and other miscellaneous accruals of $5.2 million partially offset by decreases to tax related liabilities of $7.8 million, including the decrease in income taxes payable of $17.3 million related to the IRA production credits, and interest payments net of accruals of $3.2 million.
During fiscal 2022, accounts receivable increased or used cash of $129.0 million due to higher revenue during fiscal 2022, as compared to a COVID-19 restricted revenue in fiscal 2021. Inventory increased or used cash of $212.8 million due to supply chain delays, new products and higher inventory costs from higher raw material costs, manufacturing and freight costs, strategic inventory builds to buffer against potential supply chain exposures and to address the high backlog of customer orders. Accounts payable increased or provided cash of $65.3 million. Net earnings were $143.9 million, depreciation and amortization $95.9 million, stock-based compensation $24.3 million, non-cash charges relating to exit charges of $6.5 million, primarily relating to the Hagen, Germany plant closure and exiting our operations in Russia following the conflict in Ukraine, loss on valuation of the assets held for sale in India of $3.0 million, allowance for doubtful debts of $2.6 million, non-cash interest of $2.1 million and non-cash charges for impairment of indefinite-lived intangibles of $1.2 million. Prepaid and other current assets were a use of funds of $32.0 million, primarily from an increase of $13.6 million of contract assets, as well as an increase of $12.3 million in other prepaid expenses, such as taxes, insurance and other advances. Accrued expenses were a use of funds of $38.6 million primarily from Hagen severance payments of $19.6 million, provisionincome tax payments of doubtful$17.3 million net of tax provisions, payroll related payments of $10.1 million, partially offset by customer advances of $8.9 million.
During fiscal 2021, accounts receivable decreased or provided cash of $4.7$8.7 million restructuringdue to improved collections. Inventory decreased or provided cash of $3.8$24.2 million due to improved inventory turns and accounts payable increased or provided cash of $20.8 million due to our TPPL plant ramp-up. Net earnings were $143.3 million, depreciation and amortization $94.1 million, stock-based compensation $19.8 million, non-cash charges relating to exit charges $10.2 million, primarily relating to the Hagen, Germany plant closure, net gain from the disposal of assets of $3.9 million ($4.4 million from the insurance settlement relating to the Richmond fire claim), deferred tax benefit of $9.0 million and non-cash interest of $2.8$2.1 million. Prepaid and other current assets provided a source of funds of $27.3 million, primarily from the receipt of $29.1 million towards the insurance receivable relating to the Richmond plant claim in fiscal 2020 and werethe receipt of a working capital adjustment claim of $2.0 million, relating to an acquisition made several years ago, partially offset by an increase of $3.8 million in other prepaid expenses. Accrued expenses provided a gainsource of $4.3funds of $32.4 million on sale of our facility in the PRC. Also contributing to our cash provided from operating activities was the decrease in primary working capital of $55.0 million, net of currency translation changes.
During fiscal 2015, cash from operating activities was provided primarily from net earningspayroll related accruals of $181.5$27.8 million, depreciationtaxes payable of $4.5 million and amortization of $57.0 million, non-cash charges relating to write-off of goodwillselling and other assetsexpenses of $23.9 million, deferred taxes of $31.9 million, stock-based compensation of $25.3 million, non-cash interest and restructuring charges of $9.5 million and $3.3 million, respectively, and were partially offset by a non-cash gain of $2.0 million on disposition of our equity interest in Altergy and non-cash creditspayments relating to the reversalwarranty of the remaining legal accrual of $16.2$5.8 million. Also partially offsetting our cash provided from operating activities was the increase in Primary Working Capital of $49.9Other liabilities decreased by $12.7 million net of currency translation changes and our payment of $40.0 million towards the Altergy award, pursuant to the final legal settlement of the Altergy matter and accrued income tax expense of $15.5 million.
During fiscal 2014, cash from operating activities was provided primarily from net earnings of $146.7 million, depreciation and amortization of $54.0 million, non-cash charges relating to write-off of goodwill and other assets of $10.2 million, restructuring charges of $11.5 million, a net source of $25.6 million from non-cash interest expense and stock compensation, $90.3 million from other accrued, including the legal proceedings charge of $58.2 million, and was partially offset by cash used for the increase in Primary Working Capital of $77.0 million and deferred taxes of $49.7 million, net of currency translation changes.income taxes.
As explained in the discussion of our use of “non-GAAP financial measures,” we monitor the level and percentage of Primary Working Capital to sales. Primary Working Capital for this purpose is trade accounts receivable, plus inventories, minus trade accounts payable and the resulting net amount is divided by the trailing three-month net sales (annualized) to derive a primary working capital percentage. Primary Working Capital was $593.4 million (yielding a Primary Working Capital percentage of 24.3%) at March 31, 2016 and $636.6 million (yielding a Primary Working Capital percentage of 25.3%) at March 31, 2015.
Primary Working Capital and Primary Working Capital percentages at March 31, 2016, 2015 and 2014 are computed as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
At March 31, | | Trade Receivables | | Inventory | | Accounts Payable | | Primary Working Capital | | Quarter Revenue Annualized | | Primary Working Capital (%) |
| | | | (in millions) | | | | |
2016 | | $ | 490.8 |
| | $ | 331.0 |
| | $ | (228.4 | ) | | $ | 593.4 |
| | $ | 2,445.9 |
| | 24.3 | % |
2015 | | 518.2 |
| | 337.0 |
| | (218.6 | ) | | 636.6 |
| | 2,519.6 |
| | 25.3 |
|
2014 | | 564.6 |
| | 361.8 |
| | (259.5 | ) | | 666.9 |
| | 2,661.0 |
| | 25.1 |
|
Cash used in investing activities for fiscal 2016, 20152023, 2022 and 20142021 was $80.9$44.8 million, $59.6$69.2 million and $232.0$65.0 million, respectively.
During fiscal 2023, 2022, and fiscal 2021 we did not make any acquisitions.
Capital expenditures were $55.9$88.8 million, $63.6$74.0 million and $62.0$70.0 million in fiscal 2016, 20152023, 2022 and 2014,2021, respectively. Our current year’s capital spending focused primarily on continuous improvement to our equipment and facilities world-wide, the continuation
In fiscal 2023, we received proceeds from termination of a new ERP system implementation fornet investment hedge of $43.4 million, and we received $3.3 million from the sale of two of our Americas and Asia businesses and an office building expansion to our Reading, Pennsylvania offices.facilities in Europe during fiscal 2022.
During fiscal 2016, we acquired ICS Industries Pty. Ltd. (ICS), headquartered in Melbourne Australia for $34.5 million. There were no acquisitions in fiscal 2015. In fiscal 2014, our purchases of and investments in businesses were $171.5 million with three significant acquisitions comprising Purcell Systems Inc., a designer, manufacturer and marketer of thermally managed electronic equipment and battery cabinet enclosures, Quallion, LLC, a manufacturer of lithium ion cells and batteries for medical devices, defense, aviation and space, and UTS Holdings Sdn. Bhd. and its subsidiaries, a distributor of motive and reserve power battery products and services.
During fiscal 2016 financingFinancing activities used cash of $105.7$270.5 million primarily duein fiscal 2023. During fiscal 2023, we entered into the Third Amended Credit Facility providing additional borrowing through the Third Amended Term Loan. The proceeds of $300.0 million from the new Third Amended Term Loan were used to revolverrepay our 2023 Senior notes for the same amount. Additionally, we borrowed $310.5 million under the Second Amended Revolver and repaid $500.5 million of the Second Amended Revolver and $5.2 million of the Second Amended Term loan. Net repayments of $360.8 million, purchase of treasury stock for $178.2 million, principal payment of $172.3 million to the Convertible Notes holders, paymenton short-term debt were $21.7 million. Payment of cash dividends to our stockholders of $30.9were $28.5 million, repayment on Term Loan of $7.5treasury stock open market purchases were $22.9 million, and debt issuance costspayment of $5.0 million relating to the Notes. This was partially offset by revolver borrowings of $355.8 million and the issuance of $300.0 million of the Notes. Taxes paidtaxes related to net share settlement of equity awards netwere $6.4 million. Proceeds from stock options were $4.4 million, and payments for financing costs for debt modification were $1.1 million.
During the second quarter of option proceedsfiscal 2022, we entered into the Second Amended Credit Facility.As a result, financing activities provided cash of $98.4 million in fiscal 2022. During fiscal 2022, we borrowed $523.4 million under the Second Amended Revolver and related tax benefits also resulted in arepaid $88.4 million of the Second Amended Revolver. Repayment on the Second Amended Term Loan was $161.4 million and net outflow of $10.9 million. Net borrowings on short-term debt were $4.2$20.6 million.
During fiscal 2015, financing activities used cash of $59.3 Treasury stock open market purchases were $156.4 million, primarily due to revolver borrowings and repayments of $372.7 million and $322.7 million, respectively, and $150.0 million incremental term loan borrowing under the 2011 Credit Facility, purchase of treasury stock for $205.4 million and payment of cash dividends to our stockholders were $29.4 million and payment of $31.7 million. Taxes paidtaxes related to net share settlement of equity awards were $9.1 million. Debt issuance costs relating to the refinancing of the Second Amended Credit Facility was $3.0 million. Proceeds from stock options were $1.3 million.
During fiscal 2021, financing activities provided cash of $188.7 million. We borrowed $102.0 million under the Amended 2017 Revolver and repaid $210.0 million of the Amended 2017 Revolver. Repayment on the Amended 2017 Term Loan was $39.6 million and net of option proceeds and related tax benefits resulted in a net outflow of $8.6 million. Net repaymentspayments on short-term debt were $11.9$15.9 million.
During Proceeds from stock options during fiscal 2014, we borrowed $251.9 million on our revolver and repaid $126.92021 were $9.1 million. Borrowings on short-term debt were $8.5 million. During fiscal 2014, we repurchased $69.9 millionPayment of our common stock and paid cash dividends to our stockholders were $29.8 million, payment of $23.7 million. We also acquired the share of noncontrolling interests in one of our foreign subsidiaries for $6.0 million and paid deferred consideration of $4.8 million in connection with an acquisition made in fiscal 2012. Taxes paidtaxes related to net share settlement of equity awards netwere $5.2 million.
Currency translation had a negative impact of option proceeds and related tax benefits resulted$20.5 million on our cash balance in a net outflowthe twelve months of $6.3fiscal 2023 compared to the negative impact of $12.9 million in the twelve months of fiscal 2014.2022. In the twelve months of fiscal 2023, principal currencies in which we do business such as the Euro, Polish zloty, and British pound generally weakened and Swiss franc strengthened versus the U.S. dollar.
As a result of the above, total cash and cash equivalents increased $128.4decreased by $55.8 million from $268.9$402.5 million at March 31, 20152022 to $397.3$346.7 million at March 31, 2016.2023.
We currently are in compliance with all covenants and conditions under our credit agreements.
In addition to cash flows from operating activities, we had available committed and uncommitted credit lines of approximately $472$693.4 million at March 31, 20162023 to cover short-term liquidity requirements. Our 2011Fourth Amended Credit Facility is committed through September 2018,30, 2026, as long as we continue to comply with the covenants and conditions of the credit facility agreement. Included in our available credit lines at March 31, 2016 is $328 million
Compliance with Debt Covenants
All obligations under our 2011Fourth Amended Credit Facility.Facility are secured by, among other things, substantially all of our U.S. assets. The Fourth Amended Credit Facility contains various covenants which, absent prepayment in full of the indebtedness and other obligations, or the receipt of waivers, limit our ability to conduct certain specified business transactions, buy or sell assets out of the ordinary course of business, engage in sale and leaseback transactions, pay dividends and take certain other actions. There are no prepayment penalties on loans under this credit facility.
We are in compliance with all covenants and conditions under our Fourth Amended Credit Facility and Senior Notes. We believe that our cash flow from operations,we will continue to comply with these covenants and conditions, and that we have the financial resources and the capital available cash and cash equivalents and available borrowing capacity under our credit facilities will be sufficient to meet our liquidity needs, including normal levels of capital expenditures, forfund the foreseeable future; however, there can be no assurance thatorganic growth in our business and to remain active in pursuing further acquisition opportunities. See Note 10 to the Consolidated Financial Statements included in this will be the case.Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
The Company did not have any off-balance sheet arrangements during any of the periods covered by this report.
Contractual Obligations and Commercial Commitments
At March 31, 2016,2023, we had certain cash obligations, which are due as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total | | Less than 1 year | | 2 to 3 years | | 4 to 5 years | | After 5 years |
| | (in millions) |
Debt obligations | | $ | 1,048.4 | | | $ | 25.4 | | | $ | 76.3 | | | $ | 946.7 | | | $ | — | |
Short-term debt | | 30.6 | | | 30.6 | | | — | | | — | | | — | |
Interest on debt (1) | | 218.0 | | | 65.6 | | | 120.8 | | | 31.6 | | | — | |
Operating leases | | 101.7 | | | 24.8 | | | 36.3 | | | 22.9 | | | 17.7 | |
Tax Act - Transition Tax | | 46.3 | | | 11.6 | | | 34.7 | | | — | | | — | |
Pension benefit payments and profit sharing | | 40.2 | | | 3.0 | | | 6.6 | | | 8.5 | | | 22.1 | |
| | | | | | | | | | |
Purchase commitments | | 13.9 | | | 13.9 | | | — | | | — | | | — | |
| | | | | | | | | | |
| | | | | | | | | | |
Total | | $ | 1,499.1 | | | $ | 174.9 | | | $ | 274.7 | | | $ | 1,009.7 | | | $ | 39.8 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | Total | | Less than 1 year | | 2 to 3 years | | 4 to 5 years | | After 5 years |
| | (in millions) |
Debt obligations | | $ | 612.5 |
| | $ | 15.0 |
| | $ | 297.5 |
| | $ | — |
| | $ | 300.0 |
|
Short-term debt | | 22.1 |
| | 22.1 |
| | — |
| | — |
| | — |
|
Interest on debt | | 121.4 |
| | 21.5 |
| | 38.6 |
| | 30.0 |
| | 31.3 |
|
Operating leases | | 69.0 |
| | 20.3 |
| | 27.2 |
| | 15.1 |
| | 6.4 |
|
Pension benefit payments and profit sharing | | 35.7 |
| | 2.7 |
| | 5.2 |
| | 6.7 |
| | 21.1 |
|
Restructuring | | 3.0 |
| | 3.0 |
| | — |
| | — |
| | — |
|
Lead and foreign currency forward contracts | | 1.5 |
| | 1.5 |
| | — |
| | — |
| | — |
|
Purchase commitments | | 15.2 |
| | 15.2 |
| | — |
| | — |
| | — |
|
Capital lease obligations, including interest | | 0.2 |
| | 0.1 |
| | 0.1 |
| | — |
| | — |
|
Total | | $ | 880.6 |
| | $ | 101.4 |
| | $ | 368.6 |
| | $ | 51.8 |
| | $ | 358.8 |
|
(1) Interest payments for variable rate debt was calculated using the current applicable rate.
Due to the uncertainty of future cash outflows, uncertain tax positions have been excluded from the above table.
Under our 2011Fourth Amended Credit Facility and other credit arrangements, we had outstanding standby letters of credit of $2.7$3.6 million as of March 31, 2016.2023.
Credit Facilities and Leverage
Our focusDuring the second quarter of fiscal 2023, the Company entered into a third amendment to the 2017 Credit Facility (as amended, the “Third Amended Credit Facility”). The Third Amended Credit Facility provided new incremental delayed-draw senior secured term loan up to $300 million (the “Third Amended Term Loan”), which was available to draw until March 15, 2023. During the fourth quarter, the Company drew $300 million in the form of the Third Amended Term Loan. The funds will mature on working capital managementSeptember 30, 2026, the same as the Company's Second Amended Term loan and cash flowSecond Amended Revolver. In connection with the agreement, the Company incurred $1.2 million in third party administrative and legal fees recognized in interest expense and capitalized $1.1 million in charges from operations is measuredexisting lenders as a deferred asset. Additionally, the Company derecognized the capitalized deferred asset and recognized the $1.1 million as a deferred financing costs.
During the fourth quarter of fiscal 2023, the Company entered into a fourth amendment to the 2017 Credit Facility (as amended, the “Fourth Amended Credit Facility”). The Fourth Amended Credit Facility replaces the London Interbank Offered Rate (“LIBOR”) with the Secured Overnight Financing Rate (“SOFR”) in the calculation of interest for both the Second Amended Revolver and the Second Amended Term Loan.
During the second quarter of fiscal 2022, we entered into a second amendment to the Amended Credit Facility (as amended, the “Second Amended Credit Facility”). As a result, the Second Amended Credit Facility, now scheduled to mature on September 30, 2026, consists of a $130.0 million senior secured term loan (the “Second Amended Term Loan”), a CAD 106.4 million ($84.2 million) term loan and an $850.0 million senior secured revolving credit facility (the “Second Amended Revolver”). This amendment resulted in a decrease of the Amended Term Loan by our ability to reduce debt$150.0 million and reduce our leverage ratios. an increase of the Amended Revolver by $150.0 million.
Shown below are the leverage ratios at March 31, 20162023 and 2015,2022, in connection with our 2011the Fourth Amended Credit Facility.
The total net debt, as defined under our 2011the Fourth Amended Credit Facility is $491.9$736.0 million for fiscal 20162023 and is 1.51.8 times adjusted EBITDA (non-GAAP), compared to total net debt of $905.9 million and 2.5 times adjusted EBITDA (non-GAAP) as described below.for fiscal 2022.
The following table provides a reconciliation of net earnings to EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP) as per our 2011for March 31, 2023 and 2022, in connection with the Second Amended Credit Facility:
| | | | Fiscal 2016 | | Fiscal 2015 | | Fiscal 2023 | | Fiscal 2022 |
| | (in millions, except ratios) | | | (in millions, except ratios) |
Net earnings as reported | | $ | 131.9 |
| | $ | 181.5 |
| Net earnings as reported | | $ | 175.8 | | | $ | 143.9 | |
Add back: | | | | | Add back: | |
Depreciation and amortization | | 56.0 |
| | 57.0 |
| Depreciation and amortization | | 91.2 | | | 95.9 | |
Interest expense | | 22.3 |
| | 19.7 |
| Interest expense | | 59.5 | | | 37.8 | |
Income tax expense | | 50.1 |
| | 67.8 |
| Income tax expense | | 34.8 | | | 30.0 | |
EBITDA (non GAAP)(1) | | $ | 260.3 |
| | $ | 326.0 |
| EBITDA (non GAAP)(1) | | $ | 361.3 | | | $ | 307.6 | |
Adjustments per credit agreement definitions(2) | | 60.5 |
| | 52.6 |
| Adjustments per credit agreement definitions(2) | | 51.7 | | | 51.5 | |
Adjusted EBITDA (non-GAAP) per credit agreement | | $ | 320.8 |
| | $ | 378.6 |
| |
Adjusted EBITDA (non-GAAP) per credit agreement(1) | | Adjusted EBITDA (non-GAAP) per credit agreement(1) | | $ | 413.0 | | | $ | 359.1 | |
Total net debt(3) | | $ | 491.9 |
| | $ | 392.3 |
| Total net debt(3) | | $ | 736.0 | | | $ | 905.9 | |
Leverage ratios: | | | | | |
Total net debt/adjusted EBITDA ratio(4) | | 1.5 X |
| | 1.0 X |
| |
Leverage ratios(4): | | Leverage ratios(4): | | | | |
Total net debt/adjusted EBITDA ratio | | Total net debt/adjusted EBITDA ratio | | 1.8 X | | 2.5 X |
Maximum ratio permitted | | 3.25 X |
| | 3.25 X |
| Maximum ratio permitted | | 4.25 X | | 3.5 X |
Consolidated interest coverage ratio(5) | | 16.4 X |
| | 37.5 X |
| Consolidated interest coverage ratio(5) | | 7.3 X | | 10.0 X |
Minimum ratio required | | 4.5 X |
| | 4.5 X |
| Minimum ratio required | | 3.0 X | | 3.0 X |
| |
(1) | We have included EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP) because our lenders use it as a key measure of our performance. EBITDA is defined as earnings before interest expense, income tax expense, depreciation and amortization. EBITDA is not a measure of financial performance under GAAP and should not be considered an alternative to net earnings or any other measure of performance under GAAP or to cash flows from operating, investing or financing activities as an indicator of cash flows or as a measure of liquidity. Our calculation of EBITDA may be different from the calculations used by other companies, and therefore comparability may be limited. Certain financial covenants in our 2011 Credit Facility are based on EBITDA, subject to adjustments, which are shown above. Continued availability of credit under our 2011 Credit Facility is critical to our ability to meet our business plans. We believe that an understanding of the key terms of our credit agreement is important to an investor’s understanding of our financial condition and liquidity risks. Failure to comply with our financial covenants, unless waived by our lenders, would mean we could not borrow any further amounts under our revolving credit facility and would give our lenders the right to demand immediate repayment of all outstanding revolving credit loans. We would be unable to continue our operations at current levels if we lost the liquidity provided under our credit agreements. Depreciation and amortization in this table excludes the amortization of deferred financing fees, which is included in interest expense. |
| |
(2) | The $60.5 million adjustment to EBITDA in fiscal 2016 primarily related to $19.6 million of non-cash stock compensation, $3.8 million of non-cash restructuring and other exit charges and $36.3 million of impairment of goodwill, indefinite-lived intangibles and fixed assets and $0.7 million of acquisition expenses. The $52.6 million adjustment to EBITDA in fiscal 2015 primarily related to $25.3 million of non-cash stock compensation, $3.3 million of non-cash restructuring and other exit charges and $23.9 million of impairment of goodwill and indefinite-lived intangibles. |
| |
(3) | Debt includes capital lease obligations and letters of credit and is net of U.S. cash and cash equivalents and a portion of European cash investments, as defined in the 2011 Credit Facility. In fiscal 2016, the amounts deducted in the calculation of net debt were U.S. cash and cash equivalents and foreign cash investments of $148 million, respectively, and in fiscal 2015, $128 million, respectively. |
| |
(4) | These ratios are included to show compliance with the leverage ratios set forth in our credit facilities. We show both our current ratios and the maximum ratio permitted or minimum ratio required under our 2011 Credit Facility. |
| |
(5) | As defined in the 2011 Credit Facility, for fiscal 2016 interest expense used in the consolidated interest coverage ratio excludes non-cash interest of $2.8 million. For fiscal 2015, interest expense used in the consolidated interest coverage ratio excludes non-cash interest of $9.5 million. |
(1)We have included EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP) because our lenders use them as key measures of our performance. EBITDA is defined as earnings before interest expense, income tax expense, depreciation and amortization. EBITDA is not a measure of financial performance under GAAP and should not be considered an alternative to net earnings or any other measure of performance under GAAP or to cash flows from operating, investing or financing activities as an indicator of cash flows or as a measure of liquidity. Our calculation of EBITDA may be different from the calculations used by other companies, and therefore comparability may be limited. Certain financial covenants in our Fourth Amended Credit Facility are based on EBITDA, subject to adjustments, which are shown above. Continued availability of credit under our Fourth Amended Credit Facility is critical to our ability to meet our business plans. We believe that an understanding of the key terms of our credit agreement is important to an investor’s understanding of our financial condition and liquidity risks. Failure to comply with our financial covenants, unless waived by our lenders, would mean we could not borrow any further amounts under our revolving credit facility and would give our lenders the right to demand immediate repayment of all outstanding revolving credit and term loans. We would be unable to continue our operations at current levels if we lost the liquidity provided under our credit agreements. Depreciation and amortization in this table excludes the amortization of deferred financing fees, which is included in interest expense.
(2)The $51.7 million adjustment to EBITDA in fiscal 2023 primarily related to $26.4 million of non-cash stock compensation, $22.4 million of restructuring and other exit charges, impairment of indefinite-lived intangibles of $0.5 million, and $1.4 million for swap termination fees. The $51.5 million adjustment to EBITDA in fiscal 2022 primarily related to $24.3 million of non-cash stock compensation, $26.0 million of restructuring and other exit charges, indefinite-lived intangibles of $1.2 million.
(3)Debt includes finance lease obligations and letters of credit and is net of all U.S. cash and cash equivalents and foreign cash and investments, as defined in the Fourth Amended Credit Facility. In fiscal 2023, the amounts deducted in the
calculation of net debt were U.S. cash and cash equivalents and foreign cash investments of $346.7 million, and in fiscal 2022, were $402.5 million.
(4)These ratios are included to show compliance with the leverage ratios set forth in our credit facilities. We show both our current ratios and the maximum ratio permitted or minimum ratio required under our Fourth Amended Credit Facility, for fiscal 2023 and fiscal 2022, respectively.
(5)As defined in the Second Amended Credit Facility, interest expense used in the consolidated interest coverage ratio excludes non-cash interest of $3.1 million and $2.1 million for fiscal 2023 and fiscal 2022, respectively.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
See Note 1 to the Consolidated Financial Statements - Summary of Significant Accounting Policies for a description of certain recently issued accounting standards that were adopted or are pending adoption that could have a significant impact on our Consolidated Financial Statements or the Notes to the Consolidated Financial Statements.
Related Party Transactions
None.
Sequential Quarterly Information
Fiscal 2016 and 2015 quarterly operating results, and the associated quarterly trends within each of those two fiscal years, are affected by the same economic and business conditions as described in the fiscal 2016 versus fiscal 2015 analysis previously discussed.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2016 | | Fiscal 2015 |
| | June 28, 2015 1st Qtr. | | Sep. 27, 2015 2nd Qtr. | | Dec. 27, 2015 3rd Qtr. | | March 31, 2016 4th Qtr. | | June 29, 2014 1st Qtr. | | Sep. 28, 2014 2nd Qtr. | | Dec. 28, 2014 3rd Qtr. | | March 31, 2015 4th Qtr. |
| | (in millions, except share and per share amounts) |
Net sales | | $ | 562.1 |
| | $ | 569.1 |
| | $ | 573.6 |
| | $ | 611.4 |
| | $ | 634.1 |
| | $ | 629.9 |
| | $ | 611.6 |
| | $ | 629.9 |
|
Cost of goods sold | | 411.7 |
| | 414.1 |
| | 427.8 |
| | 450.9 |
| | 471.5 |
| | 467.4 |
| | 454.3 |
| | 471.4 |
|
Gross profit | | 150.4 |
| | 155.0 |
| | 145.8 |
| | 160.5 |
| | 162.6 |
| | 162.5 |
| | 157.3 |
| | 158.5 |
|
Operating expenses | | 84.5 |
| | 89.6 |
| | 87.1 |
| | 91.5 |
| | 89.1 |
| | 96.9 |
| | 86.2 |
| | 86.2 |
|
Restructuring and other exit charges | | 1.2 |
| | 2.6 |
| | 3.2 |
| | 5.9 |
| | 1.8 |
| | 1.8 |
| | 2.4 |
| | 5.4 |
|
Impairment of goodwill, indefinite-lived intangibles and fixed assets | | — |
| | — |
| | — |
| | 36.3 |
| | — |
| | — |
| | — |
| | 23.9 |
|
Legal proceedings charge / (reversal of legal accrual, net of fees) | | — |
| | 3.2 |
| | — |
| | — |
| | — |
| | (16.2 | ) | | — |
| | — |
|
(Gain) loss on sale of facility | | (4.3 | ) | | — |
| | — |
| | 0.9 |
| | — |
| | — |
| | — |
| | — |
|
Operating earnings | | 69.0 |
| | 59.6 |
| | 55.5 |
| | 25.9 |
| | 71.7 |
| | 80.0 |
| | 68.7 |
| | 43.0 |
|
Interest expense | | 6.3 |
| | 5.1 |
| | 5.3 |
| | 5.6 |
| | 4.9 |
| | 4.3 |
| | 5.0 |
| | 5.5 |
|
Other (income) expense, net | | 0.7 |
| | 0.7 |
| | 1.2 |
| | 3.1 |
| | 1.0 |
| | (3.4 | ) | | (0.9 | ) | | (2.3 | ) |
Earnings before income taxes | | 62.0 |
| | 53.8 |
| | 49.0 |
| | 17.2 |
| | 65.8 |
| | 79.1 |
| | 64.6 |
| | 39.8 |
|
Income tax expense | | 14.1 |
| | 14.0 |
| | 10.8 |
| | 11.2 |
| | 16.7 |
| | 22.5 |
| | 15.3 |
| | 13.3 |
|
Net earnings | | 47.9 |
| | 39.8 |
| | 38.2 |
| | 6.0 |
| | 49.1 |
| | 56.6 |
| | 49.3 |
| | 26.5 |
|
Net (losses) earnings attributable to noncontrolling interests | | (0.5 | ) | | (0.2 | ) | | (0.3 | ) | | (3.3 | ) | | (0.1 | ) | | 0.3 |
| | 0.1 |
| | — |
|
Net earnings attributable to EnerSys stockholders | | $ | 48.4 |
| | $ | 40.0 |
| | $ | 38.5 |
| | $ | 9.3 |
| | $ | 49.2 |
| | $ | 56.3 |
| | $ | 49.2 |
| | $ | 26.5 |
|
Net earnings per common share attributable to EnerSys stockholders: | | | | | | | | | | | | | | | | |
Basic | | $ | 1.09 |
| | $ | 0.89 |
| | $ | 0.87 |
| | $ | 0.21 |
| | $ | 1.05 |
| | $ | 1.22 |
| | $ | 1.09 |
| | $ | 0.60 |
|
Diluted | | $ | 1.03 |
| | $ | 0.87 |
| | $ | 0.86 |
| | $ | 0.21 |
| | $ | 0.99 |
| | $ | 1.16 |
| | $ | 1.04 |
| | $ | 0.57 |
|
Weighted-average number of common shares outstanding: | | | | | | | | | | | | | | | | |
Basic | | 44,233,915 |
| | 44,944,027 |
| | 44,394,925 |
| | 43,533,985 |
| | 46,899,303 |
| | 46,133,637 |
| | 45,188,942 |
| | 44,203,385 |
|
Diluted | | 46,756,376 |
| | 46,005,399 |
| | 44,976,204 |
| | 44,158,541 |
| | 49,726,238 |
| | 48,537,276 |
| | 47,368,173 |
| | 46,579,230 |
|
Net Sales
Quarterly net sales by segment were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2016 | | Fiscal 2015 |
| | 1st Qtr. | | 2nd Qtr. | | 3rd Qtr. | | 4th Qtr. | | 1st Qtr. | | 2nd Qtr. | | 3rd Qtr. | | 4th Qtr. |
| | (in millions) |
Net sales by segment: | | | | | | | | | | | | | | | | |
Americas | | $ | 317.0 |
| | $ | 322.5 |
| | $ | 306.3 |
| | $ | 330.2 |
| | $ | 330.9 |
| | $ | 333.2 |
| | $ | 314.3 |
| | $ | 344.0 |
|
EMEA | | 196.7 |
| | 189.4 |
| | 196.8 |
| | 204.5 |
| | 242.0 |
| | 233.3 |
| | 242.3 |
| | 231.2 |
|
Asia | | 48.4 |
| | 57.2 |
| | 70.5 |
| | 76.7 |
| | 61.2 |
| | 63.4 |
| | 55.0 |
| | 54.7 |
|
Total | | $ | 562.1 |
| | $ | 569.1 |
| | $ | 573.6 |
| | $ | 611.4 |
| | $ | 634.1 |
| | $ | 629.9 |
| | $ | 611.6 |
| | $ | 629.9 |
|
Segment net sales as % of total: | | | | | | | | | | | | | | | | |
Americas | | 56.4 | % | | 56.7 | % | | 53.4 | % | | 54.0 | % | | 52.2 | % | | 52.9 | % | | 51.4 | % | | 54.6 | % |
EMEA | | 35.0 |
| | 33.3 |
| | 34.3 |
| | 33.4 |
| | 38.1 |
| | 37.0 |
| | 39.6 |
| | 36.7 |
|
Asia | | 8.6 |
| | 10.0 |
| | 12.3 |
| | 12.6 |
| | 9.7 |
| | 10.1 |
| | 9.0 |
| | 8.7 |
|
Total | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Quarterly net sales by product line were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2016 | | Fiscal 2015 |
| | 1st Qtr. | | 2nd Qtr. | | 3rd Qtr. | | 4th Qtr. | | 1st Qtr. | | 2nd Qtr. | | 3rd Qtr. | | 4th Qtr. |
| | (in millions) |
Net sales by product line: | | | | | | | | | | | | | | | | |
Reserve power | | $ | 264.3 |
| | $ | 274.2 |
| | $ | 272.0 |
| | $ | 298.7 |
| | $ | 311.4 |
| | $ | 315.5 |
| | $ | 307.0 |
| | $ | 318.8 |
|
Motive power | | 297.8 |
| | 294.9 |
| | 301.6 |
| | 312.7 |
| | 322.7 |
| | 314.4 |
| | 304.6 |
| | 311.1 |
|
Total | | $ | 562.1 |
| | $ | 569.1 |
| | $ | 573.6 |
| | $ | 611.4 |
| | $ | 634.1 |
| | $ | 629.9 |
| | $ | 611.6 |
| | $ | 629.9 |
|
Product line net sales as % of total: | | | | | | | | | | | | | | | | |
Reserve power | | 47.0 | % | | 48.2 | % | | 47.4 | % | | 48.9 | % | | 49.1 | % | | 50.1 | % | | 50.2 | % | | 50.6 | % |
Motive power | | 53.0 |
| | 51.8 |
| | 52.6 |
| | 51.1 |
| | 50.9 |
| | 49.9 |
| | 49.8 |
| | 49.4 |
|
Total | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
|
| | | | |
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market Risks
Our cash flows and earnings are subject to fluctuations resulting from changes in interest rates,raw material costs, foreign currency exchange rates and raw material costs.interest rates. We manage our exposure to these market risks through internally established policies and procedures and, when deemed appropriate, through the use of derivative financial instruments. Our policy does not allow speculation in derivative instruments for profit or execution of derivative instrument contracts for which there are no underlying exposures. We do not use financial instruments for trading purposes and are not a party to any leveraged derivatives. We monitor our underlying market risk exposures on an ongoing basis and believe that we can modify or adapt our hedging strategies as needed.
Counterparty Risks
We have entered into lead forward purchase contracts, and foreign exchange forward and purchased option contracts and cross currency fixed interest rate swaps to manage the risk associated with our exposures to fluctuations resulting from changes in raw material costs, and foreign currency
exchange rates and interest rates. The Company’s agreements are with creditworthy financial institutions. Those contracts that result in a liability position at March 31, 20162023 are $1.8$18.9 million (pre-tax). Those contracts that result in an asset position at March 31, 20162023 are $0.3$2.9 million (pre-tax) and the vast majority of these will settle within one year.. The impact on the Company due to nonperformance by the counterparties has been evaluated and not deemed material.
We hedge our net investments in foreign operations against future volatility in the exchange rates between the U.S. dollar and Euro. On September 29, 2022, we terminated our cross-currency fixed interest rate swap contracts with an aggregate notional amount of $300 million and executed cross-currency fixed interest rate swap contracts with an aggregate notional amount of $150 million, maturing on December 15, 2027. Depending on the movement in the exchange rates between the U.S. dollar and Euro at maturity, the Company may owe the counterparties an amount that is different from the notional amount of $150 million.
Excluding the cross currency fixed interest rate swap agreements, the vast majority of these contracts will settle within one year.
Interest Rate Risks
We are exposed to changes in variable U.S. interest rates on borrowings under our credit agreements, as well as short term borrowings in the U.S. and our foreign subsidiaries. On a selective basis, from time to time, we enter into interest rate swap agreements to reduce the negative impact that increases in interest rates could have on our outstanding variable rate debt. Management considers the interest rate swaps to be highly effective against changes in the cash flows from our underlying variable rate debt based on the criteria in the FASB guidance. Cash flows related to the interest rate swap agreements are included in interest expense over the terms of the agreements. At March 31, 2023 such agreements effectively convert $200 million of our variable-rate debt to a fixed-rate basis, utilizing the one-month Term SOFR as a floating rate reference.
Fluctuations in SOFR and fixed rates affect both our net financial investment position and the amount of cash to be paid or received by us under these agreements.
A 100 basis point increase in interest rates would have increased annual interest expense by approximately $3.3$5.8 million on the variable rate portions of our debt.
Commodity Cost Risks—Lead Contracts
We have a significant risk in our exposure to certain raw materials. Our largest single raw material cost is for lead, for which the cost remains volatile. In order to hedge against increases in our lead cost, we have entered into forward contracts with financial institutions to fix the price of lead. A vast majority of such contracts are for a period not extending beyond one year. We had the following contracts outstanding at the dates shown below:
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Date | | $’s Under Contract | | # Pounds Purchased | | Average Cost/Pound | | Approximate % of Lead Requirements (1) |
| | (in millions) | | (in millions) | | | | |
March 31, 2023 | | $47.9 | | 50.0 | | $0.96 | | 8% |
March 31, 2022 | | 56.8 | | 54.0 | | 1.05 | | 8 |
March 31, 2021 | | 50.6 | | 54.5 | | 0.93 | | 10 |
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Date | | $’s Under Contract | | # Pounds Purchased | | Average Cost/Pound | | Approximate % of Lead Requirements (1) |
| | (in millions) | | (in millions) | | | | |
March 31, 2016 | | $21.6 | | 27.4 | | $0.79 | | 6% |
March 31, 2015 | | 76.1 | | 91.6 | | 0.83 | | 19 |
March 31, 2014 | | 86.5 | | 89.9 | | 0.96 | | 19 |
(1)Based on the fiscal year lead requirements for the periods then ended. | |
(1) | Based on the fiscal year lead requirements for the period then ended. |
We estimate that a 10% increase in our cost of lead would have increased our annual cost of goods sold by approximately $54$81 million for the fiscal year ended March 31, 2016.2023.
Foreign Currency Exchange Rate Risks
We manufacture and assemble our products globally in the Americas, EMEA and Asia. Approximately 50%40% of our sales and related expenses are transacted in foreign currencies. Our sales revenue, production costs, profit margins and competitive position are affected by the strength of the currencies in countries where we manufacture or purchase goods relative to the strength of the currencies in countries where our products are sold. Additionally, as we report our financial statements in U.S. dollars, our financial results are affected by the strength of the currencies in countries where we have operations relative to the strength of the U.S. dollar. The principal foreign currencies in which we conduct business are the Euro, Swiss franc, British pound, Polish zloty, Chinese renminbi, Canadian dollar, Brazilian Real and Mexican peso.
We quantify and monitor our global foreign currency exposures. Our largest foreign currency exposure is from the purchase and conversion of U.S. dollar based lead costs into local currencies in Europe. Additionally, we have currency exposures from intercompany financing and intercompany and third party trade transactions. On a selective basis, we enter into foreign currency forward contracts and purchase option contracts to reduce the impact from the volatility of currency movements; however, we cannot be certain that foreign currency fluctuations will not impact our operations in the future.
ToWe hedge these exposures, we have enteredapproximately 10% - 15% of the nominal amount of our known foreign exchange transactional exposures. We primarily enter into forwardforeign currency exchange contracts to reduce the earnings and options with financial institutions to fixcash flow impact of the value at which we will buy or sell certain currencies.variation of non-functional currency denominated receivables and payables. The vast majority of such contracts are for a period not extending beyond one year. Forward
Gains and losses resulting from hedging instruments offset the foreign exchange gains or losses on the underlying assets and liabilities being hedged. The maturities of the forward exchange contracts outstandinggenerally coincide with the settlement dates of the related transactions. Realized and unrealized gains and losses on these contracts are recognized in the same period as gains and losses on the hedged items. We also selectively hedge anticipated transactions that are subject to foreign exchange exposure, primarily with foreign currency exchange contracts, which are designated as cash flow hedges in accordance with Topic 815 - Derivatives and Hedging. During the third quarter of fiscal 2022, we also entered into cross currency fixed interest rate swap agreements, to hedge our net investments in foreign operations against future volatility in the exchange rates between U.S. Dollars and Euros.
At March 31, 2016 were $29.4 million. The details2023 and 2022, we estimate that an unfavorable 10% movement in the exchange rates would have adversely changed our hedge valuations by approximately $32.7 million and $36.6 million, respectively.
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Transactions Hedged | | $US Equivalent (in millions) | | Average Rate Hedged | | Approximate % of Annual Requirements (1) |
Sell Euros for U.S. dollars | | $ | 11.4 |
| | $/€ | | 1.11 |
| | 5 | % |
Sell Euros for Polish zloty | | 5.7 |
| | PLN/€ | | 4.30 |
| | 8 |
|
Sell Euros for British pounds | | 5.2 |
| | £/€ | | 0.76 |
| | 13 |
|
Sell Malaysian Ringgit for Euros | | 2.8 |
| | MYR/€ | | 4.17 |
| | 92 |
|
Sell Australian dollars for U.S. dollars | | 1.7 |
| | $/AUD | | 0.72 |
| | 19 |
|
Sell Japanese Yen for U.S. dollars | | 1.7 |
| | ¥/$ | | 120.45 |
| | 69 |
|
Sell Australian dollars for British Pounds | | 0.9 |
| | AUD/£ | | 1.94 |
| | 10 |
|
Total | | $ | 29.4 |
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(1) | Based on the fiscal year currency requirements for the year ended March 31, 2016. |
Foreign exchange translation adjustments are recorded as a separate component of accumulated other comprehensive income in EnerSys’ stockholders’ equity and noncontrolling interests.
Based on changes in the timing and amount of interest rate and foreign currency exchange rate movements and our actual exposures and hedges, actual gains and losses in the future may differ from our historical results.
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ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Contents
EnerSys
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Report of Independent Registered Public Accounting Firm
TheTo the Stockholders and the Board of Directors and Stockholders of EnerSys
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of EnerSys (the Company) as of March 31, 20162023 and 2015, and2022, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended March 31, 2016. Our audits also included2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial statement schedule listedposition of the Company at March 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the Index at Item 15(a). period ended March 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of March 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated May 24, 2023, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on thesethe Company’s financial statements and schedule based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion,Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements referredthat were communicated or required to above present fairly,be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in all material respects, the consolidated financial position of EnerSys at March 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 2016, in conformity with U.S. generally accepted accounting principles. Also, inany way our opinion on the related financial statement schedule, when considered in relation to the basicconsolidated financial statements, taken as a whole, presents fairly in all material respectsand we are not, by communicating the information set forth therein.critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
As discussed in Note 1 to the consolidated financial statements, EnerSys changed the classification | | | | | | | | |
| | Valuation of Goodwill and Indefinite-Lived Intangible Assets |
Description of the Matter | | As reflected in the Company’s consolidated financial statements, the Company’s goodwill balance was $676.7 million as of March 31, 2023. In addition, the Company’s indefinite-lived intangible assets were $143.7 million as of March 31, 2023. As discussed in Note 1 to the consolidated financial statements, goodwill and indefinite-lived intangible assets are tested for impairment at least annually.
Auditing management’s annual quantitative goodwill and indefinite-lived intangible assets impairment tests was complex and involved a high degree of subjectivity for certain reporting units and certain indefinite-lived intangible assets due to the significant estimation required in determining the fair value of the reporting units and the indefinite-lived intangible assets. The fair value estimates related to these reporting units and indefinite-lived intangible assets were sensitive to significant assumptions such as discount rates, revenue growth rates, operating margins, working capital rates, royalty rates, and terminal growth rates, which are forward-looking and could be affected by future economic and market conditions.
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How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s annual quantitative goodwill and indefinite-lived intangible asset impairment tests. For example, we tested controls over management’s review of the valuation models, the significant assumptions used to develop the estimate including forecasted revenue growth rates and profitability, and the completeness and accuracy of the data used in the valuations. To test the estimated fair value of the Company’s reporting units and indefinite-lived intangible assets, we performed audit procedures that included, among other procedures, assessing fair value methodologies and testing the significant assumptions discussed above and the completeness and accuracy of the underlying data used by the Company in its analyses. For example, we compared the significant assumptions used by management to current industry, market and economic trends, to historical results of the Company's business and other guideline companies within the same industry and to other relevant factors. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units and indefinite-lived intangible assets that would result from changes in the assumptions. We also involved internal valuation specialists to assist in our evaluation of the significant assumptions and methodologies used by the Company. In addition, we tested management’s reconciliation of the fair value of the reporting units to the market capitalization of the Company.
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| | Income Taxes - Uncertain Tax Positions |
Description of the Matter | | As discussed in Note 14 to the Company’s consolidated financial statements, the Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Also as disclosed in Note 14, approximately 82% of the Company’s consolidated earnings before taxes are generated in foreign jurisdictions. Uncertainty in a tax position taken or to be taken on a tax return may arise as tax laws are subject to interpretation. The Company must identify its uncertain tax positions and uses significant judgment in (1) determining whether a tax position’s technical merits are more-likely-than-not to be sustained and (2) measuring the amount of tax benefit that qualifies for recognition. As of March 31, 2023, the Company has recognized accrued liabilities of $3.5 million for uncertain tax positions. Auditing the completeness of the Company’s uncertain tax positions and the evaluation of the technical merits of those uncertain tax positions is complex given the scope of its international operations and the significant judgment required in evaluating the technical merits of the Company’s uncertain tax positions.
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How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over identifying uncertain tax positions and evaluating the technical merits of those positions. For example, we tested controls over the review of the Company’s foreign operations, including the tax positions taken by those operations, differences between statutory and effective tax rates, permanent differences impacting taxable income, and the monitoring of tax audits. We involved our tax professionals with subject matter expertise in the areas of international taxation and transfer pricing to assess the technical merits of the Company’s tax positions. This included assessing the Company’s correspondence with the relevant tax authorities and evaluating income tax opinions or other third-party advice obtained by the Company. We also used our knowledge of, and experience with, the application of international and local income tax laws by the relevant income tax authorities to evaluate the Company’s accounting for those tax positions. We analyzed the Company’s assumptions and data used to determine the amount of tax benefit to recognize and tested the accuracy of the calculations. We also evaluated the Company’s income tax disclosures included in Note 14 to the consolidated financial statements in relation to these matters.
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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), EnerSys’ internal control over financial reporting as of March 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated May 31, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 1998.
Philadelphia, Pennsylvania
May 31, 201624, 2023
Report of Independent Registered Public Accounting Firm
TheTo the Stockholders and the Board of Directors and Stockholders of EnerSys
Opinion on Internal Control over Financial Reporting
We have audited EnerSys’ internal control over financial reporting as of March 31, 2016,2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). EnerSys’In our opinion, EnerSys (the Company) maintained, in all material respects, effective internal control over financial reporting as of March 31, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2023 consolidated financial statements of the Company and our report dated May 24, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying ManagementManagement’s Annual Report on Internal Control over Financial Reporting.Reporting. Our responsibility is to express an opinion on the company’sCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, EnerSys maintained, in all material respects, effective internal control over financial reporting as of March 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of EnerSys as of March 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended March 31, 2016 of EnerSys and our report dated May 31, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
May 31, 201624, 2023
EnerSys
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Data)
| | | | | | | | | | | | | | |
| | March 31, |
| | 2023 | | 2022 |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 346,665 | | | $ | 402,488 | |
Accounts receivable, net of allowance for doubtful accounts (2023–$8,775; 2022–$12,219) | | 637,817 | | | 719,434 | |
Inventories, net | | 797,798 | | | 715,712 | |
Prepaid and other current assets | | 113,601 | | | 155,559 | |
Total current assets | | 1,895,881 | | | 1,993,193 | |
Property, plant, and equipment, net | | 513,283 | | | 503,264 | |
Goodwill | | 676,715 | | | 700,640 | |
Other intangible assets, net | | 360,412 | | | 396,202 | |
Deferred taxes | | 49,152 | | | 60,479 | |
Other assets | | 121,231 | | | 82,868 | |
Total assets | | $ | 3,616,674 | | | $ | 3,736,646 | |
Liabilities and Equity | | | | |
Current liabilities: | | | | |
Short-term debt | | $ | 30,642 | | | $ | 55,084 | |
Current portion of finance leases | | 90 | | | 185 | |
Accounts payable | | 378,641 | | | 393,096 | |
Accrued expenses | | 308,947 | | | 289,765 | |
Total current liabilities | | 718,320 | | | 738,130 | |
Long-term debt, net of unamortized debt issuance costs | | 1,041,989 | | | 1,243,002 | |
Finance leases | | 254 | | | 231 | |
Deferred taxes | | 61,118 | | | 78,228 | |
Other liabilities | | 191,112 | | | 183,780 | |
Total liabilities | | 2,012,793 | | | 2,243,371 | |
Commitments and contingencies | | | | |
Equity: | | | | |
Preferred Stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding at March 31, 2023 and at March 31, 2022 | | — | | | — | |
Common Stock, $0.01 par value per share, 135,000,000 shares authorized, 56,004,613 shares issued and 40,901,059 shares outstanding at March 31, 2023; 55,748,924 shares issued and 40,986,658 shares outstanding at March 31, 2022 | | 560 | | | 557 | |
Additional paid-in capital | | 596,464 | | | 571,464 | |
Treasury stock at cost, 15,103,554 shares held as of March 31, 2023 and 14,762,266 shares held as of March 31, 2022 | | (740,956) | | | (719,119) | |
Retained earnings | | 1,930,148 | | | 1,783,586 | |
Contra equity - indemnification receivable | | (2,463) | | | (3,620) | |
Accumulated other comprehensive loss | | (183,474) | | | (143,495) | |
Total EnerSys stockholders’ equity | | 1,600,279 | | | 1,489,373 | |
Nonredeemable noncontrolling interests | | 3,602 | | | 3,902 | |
Total equity | | 1,603,881 | | | 1,493,275 | |
Total liabilities and equity | | $ | 3,616,674 | | | $ | 3,736,646 | |
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| | March 31, |
| | 2016 | | 2015 |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 397,307 |
| | $ | 268,921 |
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Accounts receivable, net of allowance for doubtful accounts (2016–11,393; 2015–$7,562) | | 490,799 |
| | 518,165 |
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Inventories, net | | 331,081 |
| | 337,011 |
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Prepaid and other current assets | | 77,052 |
| | 77,572 |
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Total current assets | | 1,296,239 |
| | 1,201,669 |
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Property, plant, and equipment, net | | 357,409 |
| | 356,854 |
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Goodwill | | 353,547 |
| | 369,730 |
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Other intangible assets, net | | 159,658 |
| | 158,160 |
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Deferred taxes | | 33,530 |
| | 36,516 |
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Other assets | | 14,105 |
| | 13,626 |
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Total assets | | $ | 2,214,488 |
| | $ | 2,136,555 |
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Liabilities and Equity | | | | |
Current liabilities: | | | | |
Short-term debt | | $ | 22,144 |
| | $ | 19,715 |
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Current portion of capital lease obligations | | 89 |
| | 237 |
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Accounts payable | | 228,442 |
| | 218,574 |
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Accrued expenses | | 200,496 |
| | 193,262 |
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Total current liabilities | | 451,171 |
| | 431,788 |
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Long-term debt | | 606,221 |
| | 493,224 |
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Capital lease obligations | | 177 |
| | 37 |
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Deferred taxes | | 46,008 |
| | 77,201 |
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Other liabilities | | 86,479 |
| | 81,579 |
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Total liabilities | | 1,190,056 |
| | 1,083,829 |
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Commitments and contingencies | |
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Redeemable noncontrolling interests | | 5,997 |
| | 6,956 |
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Redeemable equity component of Convertible Notes | | — |
| | 1,330 |
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Equity: | | | | |
Preferred Stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding at March 31, 2016 and at March 31, 2015 | | — |
| | — |
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Common Stock, $0.01 par value, 135,000,000 shares authorized, 54,112,776 shares issued and 43,189,502 shares outstanding at March 31, 2016; 53,664,639 shares issued and 44,068,588 shares outstanding at March 31, 2015 | | 541 |
| | 537 |
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Additional paid-in capital | | 452,097 |
| | 525,967 |
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Treasury stock at cost, 10,923,274 shares held as of March 31, 2016 and 9,596,051 shares held as of March 31, 2015 | | (439,800 | ) | | (376,005 | ) |
Retained earnings | | 1,097,642 |
| | 997,376 |
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Accumulated other comprehensive loss | | (97,349 | ) | | (108,975 | ) |
Total EnerSys stockholders’ equity | | 1,013,131 |
| | 1,038,900 |
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Nonredeemable noncontrolling interests | | 5,304 |
| | 5,540 |
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Total equity | | 1,018,435 |
| | 1,044,440 |
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Total liabilities and equity | | $ | 2,214,488 |
| | $ | 2,136,555 |
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See accompanying notes.
EnerSys
Consolidated Statements of Income
(In Thousands, Except Share and Per Share Data)
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2023 | | 2022 | | 2021 |
Sales from products | | $ | 3,307,781 | | | $ | 3,004,231 | | | $ | 2,681,719 | |
Sales from services | | 400,798 | | | 353,088 | | | 296,213 | |
Net sales | | 3,708,579 | | | 3,357,319 | | | 2,977,932 | |
Cost of goods sold | | 2,597,296 | | | 2,360,150 | | | 2,033,636 | |
Cost of services | | 270,464 | | | 244,597 | | | 205,146 | |
Inventory step up to fair value relating to acquisitions and exit activities | | 681 | | | 2,604 | | | — | |
Gross profit | | 840,138 | | | 749,968 | | | 739,150 | |
Operating expenses | | 544,858 | | | 520,810 | | | 482,401 | |
Restructuring and other exit charges | | 16,439 | | | 18,756 | | | 40,374 | |
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Impairment of indefinite-lived intangibles | | 480 | | | 1,178 | | | — | |
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Loss on assets held for sale | | — | | | 2,973 | | | — | |
Operating earnings | | 278,361 | | | 206,251 | | | 216,375 | |
Interest expense | | 59,529 | | | 37,777 | | | 38,436 | |
Other (income) expense, net | | 8,193 | | | (5,465) | | | 7,804 | |
Earnings before income taxes | | 210,639 | | | 173,939 | | | 170,135 | |
Income tax expense | | 34,829 | | | 30,028 | | | 26,761 | |
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Net earnings attributable to EnerSys stockholders | | $ | 175,810 | | | $ | 143,911 | | | $ | 143,374 | |
Net earnings per common share attributable to EnerSys stockholders: | | | | | | |
Basic | | $ | 4.31 | | | $ | 3.42 | | | $ | 3.37 | |
Diluted | | $ | 4.25 | | | $ | 3.36 | | | $ | 3.32 | |
Dividends per common share | | $ | 0.70 | | | $ | 0.70 | | | $ | 0.70 | |
Weighted-average number of common shares outstanding: | | | | | | |
Basic | | 40,809,235 | | | 42,106,337 | | | 42,548,449 | |
Diluted | | 41,326,755 | | | 42,783,373 | | | 43,224,403 | |
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| | Fiscal year ended March 31, |
| | 2016 | | 2015 | | 2014 |
Net sales | | $ | 2,316,249 |
| | $ | 2,505,512 |
| | $ | 2,474,433 |
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Cost of goods sold | | 1,704,472 |
| | 1,864,601 |
| | 1,844,813 |
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Gross profit | | 611,777 |
| | 640,911 |
| | 629,620 |
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Operating expenses | | 352,767 |
| | 358,381 |
| | 344,421 |
|
Restructuring and other exit charges | | 12,978 |
| | 11,436 |
| | 27,326 |
|
Impairment of goodwill, indefinite-lived intangibles and fixed assets | | 36,252 |
| | 23,946 |
| | 5,179 |
|
Legal proceedings charge / (reversal of legal accrual, net of fees) | | 3,201 |
| | (16,233 | ) | | 58,184 |
|
Gain on sale of facility | | (3,420 | ) | | — |
| | — |
|
Operating earnings | | 209,999 |
| | 263,381 |
| | 194,510 |
|
Interest expense | | 22,343 |
| | 19,644 |
| | 17,105 |
|
Other (income) expense, net | | 5,719 |
| | (5,602 | ) | | 13,658 |
|
Earnings before income taxes | | 181,937 |
| | 249,339 |
| | 163,747 |
|
Income tax expense | | 50,113 |
| | 67,814 |
| | 16,980 |
|
Net earnings | | 131,824 |
| | 181,525 |
| | 146,767 |
|
Net (losses) earnings attributable to noncontrolling interests | | (4,326 | ) | | 337 |
| | (3,561 | ) |
Net earnings attributable to EnerSys stockholders | | $ | 136,150 |
| | $ | 181,188 |
| | $ | 150,328 |
|
Net earnings per common share attributable to EnerSys stockholders: | | | | | | |
Basic | | $ | 3.08 |
| | $ | 3.97 |
| | $ | 3.17 |
|
Diluted | | $ | 2.99 |
| | $ | 3.77 |
| | $ | 3.02 |
|
Dividends per common share | | $ | 0.70 |
| | $ | 0.70 |
| | $ | 0.50 |
|
Weighted-average number of common shares outstanding: | | | | | | |
Basic | | 44,276,713 |
| | 45,606,317 |
| | 47,473,690 |
|
Diluted | | 45,474,130 |
| | 48,052,729 |
| | 49,788,155 |
|
See accompanying notes.
EnerSys
Consolidated Statements of Comprehensive Income
(In Thousands)
| | | | Fiscal year ended March 31, | | | Fiscal year ended March 31, |
| | 2016 | | 2015 | | 2014 | | | 2023 | | 2022 | | 2021 |
Net earnings | | $ | 131,824 |
| | $ | 181,525 |
| | $ | 146,767 |
| Net earnings | | $ | 175,810 | | | $ | 143,911 | | | $ | 143,374 | |
Other comprehensive income (loss): | | | | | | | |
Other comprehensive (loss) income: | | Other comprehensive (loss) income: | |
Net unrealized gain (loss) on derivative instruments, net of tax | | 483 |
| | 2,158 |
| | (1,421 | ) | Net unrealized gain (loss) on derivative instruments, net of tax | | (1,552) | | | 2,603 | | | 6,283 | |
Pension funded status adjustment, net of tax | | 1,858 |
| | (8,512 | ) | | (2,038 | ) | Pension funded status adjustment, net of tax | | 8,214 | | | 8,310 | | | 1,847 | |
Foreign currency translation adjustment | | 8,035 |
| | (171,830 | ) | | 29,339 |
| Foreign currency translation adjustment | | (46,941) | | | (38,397) | | | 91,277 | |
Total other comprehensive income (loss), net of tax | | 10,376 |
| | (178,184 | ) | | 25,880 |
| |
Total other comprehensive (loss) gain, net of tax | | Total other comprehensive (loss) gain, net of tax | | (40,279) | | | (27,484) | | | 99,407 | |
Total comprehensive income | | 142,200 |
| | 3,341 |
| | 172,647 |
| Total comprehensive income | | 135,531 | | | 116,427 | | | 242,781 | |
Comprehensive loss attributable to noncontrolling interests | | (5,576 | ) | | (1,027 | ) | | (4,871 | ) | |
Comprehensive gain (loss) attributable to noncontrolling interests | | Comprehensive gain (loss) attributable to noncontrolling interests | | (300) | | | 128 | | | 284 | |
Comprehensive income attributable to EnerSys stockholders | | $ | 147,776 |
| | $ | 4,368 |
| | $ | 177,518 |
| Comprehensive income attributable to EnerSys stockholders | | $ | 135,831 | | | $ | 116,299 | | | $ | 242,497 | |
See accompanying notes.
EnerSys
Consolidated Statements of Changes in Equity |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In Thousands) | |
Preferred Stock | | Common Stock | | Paid-in Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total EnerSys Stockholders’ Equity | | Non- redeemable Non- Controlling Interests | | Total Equity |
Balance at March 31, 2013 | | $ | — |
| | $ | 529 |
| | $ | 501,646 |
| | $ | (100,776 | ) | | $ | 727,347 |
| | $ | 40,655 |
| | $ | 1,169,401 |
| | $ | 5,882 |
| | $ | 1,175,283 |
|
Stock-based compensation | | — |
| | — |
| | 16,742 |
| | — |
| | — |
| | — |
| | 16,742 |
| | — |
| | 16,742 |
|
Exercise of stock options (taxes paid related to net share settlement of equity awards), net | | — |
| | 3 |
| | (7,873 | ) | | — |
| | — |
| | — |
| | (7,870 | ) | | — |
| | (7,870 | ) |
Tax benefit from stock options | | — |
| | — |
| | 1,612 |
| | — |
| | — |
| | — |
| | 1,612 |
| | — |
| | 1,612 |
|
Purchase of common stock | | — |
| | — |
| | — |
| | (69,867 | ) | | — |
| | — |
| | (69,867 | ) | | — |
| | (69,867 | ) |
Purchase of noncontrolling interests | | — |
| | — |
| | (2,866 | ) | | — |
| | — |
| | — |
| | (2,866 | ) | | — |
| | (2,866 | ) |
Debt conversion feature | | — |
| | — |
| | (9,613 | ) | | — |
| | — |
| | — |
| | (9,613 | ) | | — |
| | (9,613 | ) |
Net earnings (excluding $3,536 of losses attributable to redeemable noncontrolling interests) | | — |
| | — |
| | — |
| | — |
| | 150,328 |
| | — |
| | 150,328 |
| | (25 | ) | | 150,303 |
|
Dividends ($0.50 per common share) | | — |
| | — |
| | 606 |
| | — |
| | (24,287 | ) | | — |
| | (23,681 | ) | | — |
| | (23,681 | ) |
Redemption value adjustment attributable to redeemable noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | (4,974 | ) | | — |
| | (4,974 | ) | | — |
| | (4,974 | ) |
Other comprehensive income: | | | | | | | | | | | | | | | | | | |
Pension funded status adjustment (net of tax benefit of $26) | | — |
| | — |
| | — |
| | — |
| | — |
| | (2,038 | ) | | (2,038 | ) | | — |
| | (2,038 | ) |
Net unrealized gain (loss) on derivative instruments (net of tax benefit of $834) | | — |
| | — |
| | — |
| | — |
| | — |
| | (1,421 | ) | | (1,421 | ) | | — |
| | (1,421 | ) |
Foreign currency translation adjustment (excludes ($1,340) related to redeemable noncontrolling interests) | | — |
| | — |
| | — |
| | — |
| | — |
| | 30,649 |
| | 30,649 |
| | 30 |
| | 30,679 |
|
Balance at March 31, 2014 | | $ | — |
| | $ | 532 |
| | $ | 500,254 |
| | $ | (170,643 | ) | | $ | 848,414 |
| | $ | 67,845 |
| | $ | 1,246,402 |
| | $ | 5,887 |
| | $ | 1,252,289 |
|
Stock-based compensation | | — |
| | — |
| | 25,259 |
| | — |
| | — |
| | — |
| | 25,259 |
| | — |
| | 25,259 |
|
Exercise of stock options (taxes paid related to net share settlement of equity awards), net | | — |
| | 5 |
| | (12,676 | ) | | — |
| | — |
| | — |
| | (12,671 | ) | | — |
| | (12,671 | ) |
Tax benefit from stock options | | — |
| | — |
| | 4,071 |
| | — |
| | — |
| | — |
| | 4,071 |
| | — |
| | 4,071 |
|
Purchase of common stock | | — |
| | — |
| | — |
| | (205,362 | ) | | — |
| | — |
| | (205,362 | ) | | — |
| | (205,362 | ) |
Purchase of noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (119 | ) | | (119 | ) |
Debt conversion feature | | — |
| | — |
| | 8,283 |
| | — |
| | — |
| | — |
| | 8,283 |
| | — |
| | 8,283 |
|
Other | | — |
| | — |
| | (3 | ) | | — |
| | — |
| | — |
| | (3 | ) | | — |
| | (3 | ) |
Net earnings (excluding $191 of earnings attributable to redeemable noncontrolling interests) | | — |
| | — |
| | — |
| | — |
| | 181,188 |
| | — |
| | 181,188 |
| | 146 |
| | 181,334 |
|
Dividends ($0.70 per common share) | | — |
| | — |
| | 779 |
| | — |
| | (32,518 | ) | | — |
| | (31,739 | ) | | — |
| | (31,739 | ) |
Redemption value adjustment attributable to redeemable noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | 292 |
| | — |
| | 292 |
| | — |
| | 292 |
|
Other comprehensive income: | | | | | | | | | | | | | | | | | | |
Pension funded status adjustment (net of tax benefit of $3,250) | | — |
| | — |
| | — |
| | — |
| | — |
| | (8,512 | ) | | (8,512 | ) | | — |
| | (8,512 | ) |
Net unrealized gain (loss) on derivative instruments (net of tax expense of $1,266) | | — |
| | — |
| | — |
| | — |
| | — |
| | 2,158 |
| | 2,158 |
| | — |
| | 2,158 |
|
Foreign currency translation adjustment (excludes ($990) related to redeemable noncontrolling interests) | | — |
| | — |
| | — |
| | — |
| | — |
| | (170,466 | ) | | (170,466 | ) | | (374 | ) | | (170,840 | ) |
Balance at March 31, 2015 | | $ | — |
| | $ | 537 |
| | $ | 525,967 |
| | $ | (376,005 | ) | | $ | 997,376 |
| | $ | (108,975 | ) | | $ | 1,038,900 |
| | $ | 5,540 |
| | $ | 1,044,440 |
|
Stock-based compensation | | — |
| | — |
| | 19,603 |
| | — |
| | — |
| | — |
| | 19,603 |
| | — |
| | 19,603 |
|
Exercise of stock options (taxes paid related to net share settlement of equity awards), net | | — |
| | 4 |
| | (15,209 | ) | | — |
| | — |
| | — |
| | (15,205 | ) | | — |
| | (15,205 | ) |
Tax benefit from stock options | | — |
| | — |
| | 4,291 |
| | — |
| | — |
| | — |
| | 4,291 |
| | — |
| | 4,291 |
|
Purchase of common stock | | — |
| | — |
| | — |
| | (178,244 | ) | | — |
| | — |
| | (178,244 | ) | | — |
| | (178,244 | ) |
Reissuance of treasury stock to Convertible Notes holders | | — |
| | — |
| | — |
| | 114,449 |
| | — |
| | — |
| | 114,449 |
| | — |
| | 114,449 |
|
Adjustment to equity on debt extinguishment | | — |
| | — |
| | (84,140 | ) | | — |
| | — |
| | — |
| | (84,140 | ) | | — |
| | (84,140 | ) |
Debt conversion feature | | — |
| | — |
| | 1,330 |
| | — |
| | — |
| | — |
| | 1,330 |
| | — |
| | 1,330 |
|
Other | | — |
| | — |
| | (477 | ) | | — |
| | — |
| | — |
| | (477 | ) | | — |
| | (477 | ) |
Net earnings (excluding $4,272 of losses attributable to redeemable noncontrolling interests) | | — |
| | — |
| | — |
| | — |
| | 136,150 |
| | — |
| | 136,150 |
| | (54 | ) | | 136,096 |
|
Dividends ($0.70 per common share) | | — |
| | — |
| | 732 |
| | — |
| | (31,612 | ) | | — |
| | (30,880 | ) | | — |
| | (30,880 | ) |
Redemption value adjustment attributable to redeemable noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | (4,272 | ) | | — |
| | (4,272 | ) | | — |
| | (4,272 | ) |
Other comprehensive income: | | | | | | | | | | | | | | | | | | |
Pension funded status adjustment (net of tax expense of $587) | | — |
| | — |
| | — |
| | — |
| | — |
| | 1,858 |
| | 1,858 |
| | — |
| | 1,858 |
|
Net unrealized gain (loss) on derivative instruments (net of tax expense of $277) | | — |
| | — |
| | — |
| | — |
| | — |
| | 483 |
| | 483 |
| | — |
| | 483 |
|
Foreign currency translation adjustment (excludes ($1,068) related to redeemable noncontrolling interests) | | — |
| | — |
| | — |
| | — |
| | — |
| | 9,285 |
| | 9,285 |
| | (182 | ) | | 9,103 |
|
Balance at March 31, 2016 | | $ | — |
| | $ | 541 |
| | $ | 452,097 |
| | $ | (439,800 | ) | | $ | 1,097,642 |
| | $ | (97,349 | ) | | $ | 1,013,131 |
| | $ | 5,304 |
| | $ | 1,018,435 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In Thousands, Except Per Share Data) | | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Contra-Equity | | Total EnerSys Stockholders’ Equity | | Non- redeemable Non- Controlling Interests | | Total Equity |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2020 | | $ | — | | | $ | 551 | | | $ | 529,100 | | | $ | (564,376) | | | $ | 1,556,980 | | | $ | (215,006) | | | $ | (6,724) | | | $ | 1,300,525 | | | $ | 3,537 | | | $ | 1,304,062 | |
Stock-based compensation | | — | | | — | | | 19,817 | | | — | | | — | | | — | | | — | | | 19,817 | | | — | | | 19,817 | |
Exercise of stock options | | — | | | 4 | | | 9,110 | | | — | | | — | | | — | | | — | | | 9,114 | | | — | | | 9,114 | |
Shares issued under equity awards (taxes paid related to net share settlement of equity awards), net | | — | | | — | | | (5,153) | | | — | | | — | | | — | | | — | | | (5,153) | | | — | | | (5,153) | |
Reissuance of treasury stock towards employee stock purchase plan | | — | | | — | | | (49) | | | 895 | | | — | | | — | | | — | | | 846 | | | — | | | 846 | |
Contra equity - adjustment to indemnification receivable for acquisition related tax liability | | — | | | — | | | — | | | — | | | — | | | — | | | 1,369 | | | 1,369 | | | — | | | 1,369 | |
Other | | — | | | — | | | 571 | | | — | | | — | | | — | | | — | | | 571 | | | — | | | 571 | |
Net earnings | | — | | | — | | | — | | | — | | | 143,374 | | | — | | | — | | | 143,374 | | | — | | | 143,374 | |
Dividends ($0.70 per common share) | | — | | | — | | | 772 | | | — | | | (30,603) | | | — | | | — | | | (29,831) | | | — | | | (29,831) | |
Other comprehensive income: | | | | | | | | | | | | | | | | | | | | |
Pension funded status adjustment (net of tax benefit of $424) | | — | | | — | | | — | | | — | | | — | | | 1,847 | | | — | | | 1,847 | | | — | | | 1,847 | |
Net unrealized gain (loss) on derivative instruments (net of tax expense of $1,952) | | — | | | — | | | — | | | — | | | — | | | 6,283 | | | — | | | 6,283 | | | — | | | 6,283 | |
Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | — | | | 90,993 | | | — | | | 90,993 | | | 284 | | | 91,277 | |
Balance at March 31, 2021 | | $ | — | | | $ | 555 | | | $ | 554,168 | | | $ | (563,481) | | | $ | 1,669,751 | | | $ | (115,883) | | | $ | (5,355) | | | $ | 1,539,755 | | | $ | 3,821 | | | $ | 1,543,576 | |
Stock-based compensation | | — | | | — | | | 24,289 | | | — | | | — | | | — | | | — | | | 24,289 | | | — | | | 24,289 | |
Exercise of stock options | | — | | | 2 | | | 1,334 | | | — | | | — | | | — | | | — | | | 1,336 | | | — | | | 1,336 | |
Shares issued under equity awards (taxes paid related to net share settlement of equity awards), net | | — | | | — | | | (9,150) | | | — | | | — | | | — | | | — | | | (9,150) | | | — | | | (9,150) | |
Purchase of common stock | | — | | | — | | | — | | | (156,366) | | | — | | | — | | | — | | | (156,366) | | | — | | | (156,366) | |
Contra equity - adjustment to indemnification receivable for acquisition related tax liability | | — | | | — | | | — | | | — | | | — | | | — | | | 1,735 | | | 1,735 | | | — | | | 1,735 | |
Other | | — | | | — | | | 100 | | | 728 | | | — | | | — | | | — | | | 828 | | | — | | | 828 | |
Net earnings | | — | | | — | | | — | | | — | | | 143,911 | | | — | | | — | | | 143,911 | | | — | | | 143,911 | |
Dividends ($0.70 per common share) | | — | | | — | | | 723 | | | — | | | (30,076) | | | — | | | — | | | (29,353) | | | — | | | (29,353) | |
Dissolution of joint venture | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (47) | | | (47) | |
Other comprehensive income: | | | | | | | | | | | | | | | | | | | | |
Pension funded status adjustment (net of tax benefit of $1,910) | | — | | | — | | | — | | | — | | | — | | | 8,310 | | | — | | | 8,310 | | | — | | | 8,310 | |
Net unrealized gain (loss) on derivative instruments (net of tax expense of $789) | | — | | | — | | | — | | | — | | | — | | | 2,603 | | | — | | | 2,603 | | | — | | | 2,603 | |
Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | — | | | (38,525) | | | — | | | (38,525) | | | 128 | | | (38,397) | |
Balance at March 31, 2022 | | $ | — | | | $ | 557 | | | $ | 571,464 | | | $ | (719,119) | | | $ | 1,783,586 | | | $ | (143,495) | | | $ | (3,620) | | | $ | 1,489,373 | | | $ | 3,902 | | | $ | 1,493,275 | |
Stock-based compensation | | — | | | — | | | 26,371 | | | — | | | — | | | — | | | — | | | 26,371 | | | — | | | 26,371 | |
Exercise of stock options | | — | | | 3 | | | 4,390 | | | — | | | — | | | — | | | — | | | 4,393 | | | — | | | 4,393 | |
Shares issued under equity awards (taxes paid related to net share settlement of equity awards), net | | — | | | — | | | (6,453) | | | — | | | — | | | — | | | — | | | (6,453) | | | — | | | (6,453) | |
Purchase of common stock | | — | | | — | | | — | | | (22,907) | | | — | | | — | | | — | | | (22,907) | | | — | | | (22,907) | |
Contra equity - adjustment to indemnification receivable for acquisition related tax liability | | — | | | — | | | — | | | — | | | — | | | — | | | 1,157 | | | 1,157 | | | — | | | 1,157 | |
Other | | — | | | — | | | (19) | | | 1,070 | | | — | | | — | | | — | | | 1,051 | | | — | | | 1,051 | |
Net earnings | | — | | | — | | | — | | | — | | | 175,810 | | | — | | | — | | | 175,810 | | | — | | | 175,810 | |
Dividends ($0.70 per common share) | | — | | | — | | | 711 | | | — | | | (29,248) | | | — | | | — | | | (28,537) | | | — | | | (28,537) | |
| | | | | | | | | | | | | | | | | | | | |
Other comprehensive income: | | | | | | | | | | | | | | | | — | | | — | | | |
Pension funded status adjustment (net of tax expense of $2,947) | | — | | | — | | | — | | | — | | | — | | | 8,214 | | | — | | | 8,214 | | | — | | | 8,214 | |
Net unrealized gain (loss) on derivative instruments (net of tax benefit of $469) | | — | | | — | | | — | | | — | | | — | | | (1,552) | | | — | | | (1,552) | | | — | | | (1,552) | |
Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | — | | | (46,641) | | | — | | | (46,641) | | | (300) | | | (46,941) | |
Balance at March 31, 2023 | | $ | — | | | $ | 560 | | | $ | 596,464 | | | $ | (740,956) | | | $ | 1,930,148 | | | $ | (183,474) | | | $ | (2,463) | | | $ | 1,600,279 | | | $ | 3,602 | | | $ | 1,603,881 | |
See accompanying notes.
EnerSys
Consolidated Statements of Cash Flows
(In Thousands)
|
| | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2016 | | 2015 | | 2014 |
Cash flows from operating activities | | | | | | |
Net earnings | | $ | 131,824 |
| | $ | 181,525 |
| | $ | 146,767 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | | 55,994 |
| | 57,040 |
| | 53,972 |
|
Non-cash restructuring charges | | 3,800 |
| | 3,349 |
| | 11,497 |
|
(Gain) on disposition of equity interest in Altergy / write - off of investment in Altergy | | — |
| | (2,000 | ) | | 5,000 |
|
Impairment of goodwill, indefinite-lived intangibles and fixed assets | | 36,252 |
| | 23,946 |
| | 5,179 |
|
Derivatives not designated in hedging relationships: | | | | | | |
Net losses (gains) | | 409 |
| | (972 | ) | | 188 |
|
Cash proceeds (settlements) | | 648 |
| | 654 |
| | (703 | ) |
Provision for doubtful accounts | | 4,749 |
| | 1,125 |
| | 907 |
|
Deferred income taxes | | (753 | ) | | 31,886 |
| | (49,748 | ) |
Reversal of legal accrual, net of fees - See Note 18 | | (799 | ) | | (16,233 | ) | | — |
|
Non-cash interest expense | | 2,794 |
| | 9,546 |
| | 8,826 |
|
Stock-based compensation | | 19,603 |
| | 25,259 |
| | 16,742 |
|
Gain on sale of facility | | (4,348 | ) | | — |
| | — |
|
(Gain) loss on disposal of fixed assets | | (114 | ) | | 8 |
| | (100 | ) |
Changes in assets and liabilities, net of effects of acquisitions: | | | | | | |
Accounts receivable | | 31,142 |
| | (13,250 | ) | | (70,134 | ) |
Inventory | | 11,667 |
| | (10,153 | ) | | 8,144 |
|
Prepaid and other current assets | | 4,751 |
| | (18,998 | ) | | (7,669 | ) |
Other assets | | (331 | ) | | 701 |
| | (1,347 | ) |
Accounts payable | | 12,178 |
| | (26,500 | ) | | (14,979 | ) |
Accrued expenses | | (4,739 | ) | | (64,147 | ) | | 90,339 |
|
Other liabilities | | 2,844 |
| | 11,685 |
| | (9,260 | ) |
Net cash provided by operating activities | | 307,571 |
| | 194,471 |
| | 193,621 |
|
Cash flows from investing activities | | | | | | |
Capital expenditures | | (55,880 | ) | | (63,625 | ) | | (61,995 | ) |
Purchase of businesses, net of cash acquired | | (35,439 | ) | | — |
| | (171,528 | ) |
Proceeds from sale of facility | | 9,179 |
| | — |
| | — |
|
Proceeds from disposition of equity interest in Altergy | | — |
| | 2,000 |
| | — |
|
Proceeds from disposal of property, plant, and equipment and other assets | | 1,217 |
| | 2,009 |
| | 1,518 |
|
Net cash used in investing activities | | (80,923 | ) | | (59,616 | ) | | (232,005 | ) |
Cash flows from financing activities | | | | | | |
Net increase (decrease) in short-term debt | | 4,233 |
| | (11,923 | ) | | 8,458 |
|
Proceeds from revolving credit borrowings | | 355,800 |
| | 372,700 |
| | 251,900 |
|
Repayments of revolving credit borrowings | | (360,800 | ) | | (322,700 | ) | | (126,900 | ) |
Proceeds from long-term debt | | 300,000 |
| | 150,000 |
| | — |
|
Payments of long-term debt | | (7,500 | ) | | — |
| | — |
|
Repurchase of Convertible Notes | | (172,266 | ) | | (234 | ) | | — |
|
Deferred financing fees | | (5,031 | ) | | (1,076 | ) | | (853 | ) |
Capital lease obligations and other | | (127 | ) | | (260 | ) | | (404 | ) |
Option proceeds (taxes paid related to net share settlement of equity awards), net | | (15,205 | ) | | (12,671 | ) | | (7,871 | ) |
Excess tax benefits from exercise of stock options and vesting of equity awards | | 4,291 |
| | 4,071 |
| | 1,612 |
|
Purchase of treasury stock | | (178,244 | ) | | (205,362 | ) | | (69,867 | ) |
Dividends paid to stockholders | | (30,880 | ) | | (31,739 | ) | | (23,681 | ) |
Payment of deferred purchase consideration | | — |
| | — |
| | (4,820 | ) |
Purchase of noncontrolling interests | | — |
| | (119 | ) | | (6,012 | ) |
Net cash (used in) provided by financing activities | | (105,729 | ) | | (59,313 | ) | | 21,562 |
|
Effect of exchange rate changes on cash and cash equivalents | | 7,467 |
| | (46,724 | ) | | 7,577 |
|
Net increase (decrease) in cash and cash equivalents | | 128,386 |
| | 28,818 |
| | (9,245 | ) |
Cash and cash equivalents at beginning of year | | 268,921 |
| | 240,103 |
| | 249,348 |
|
Cash and cash equivalents at end of year | | $ | 397,307 |
| | $ | 268,921 |
| | $ | 240,103 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2023 | | 2022 | | 2021 |
Cash flows from operating activities | | | | | | |
Net earnings | | $ | 175,810 | | | $ | 143,911 | | | $ | 143,374 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | | 91,153 | | | 95,878 | | | 94,082 | |
Write-off of assets relating to restructuring and other exit charges | | 8,920 | | | 6,503 | | | 10,231 | |
Loss on assets held for sale | | — | | | 2,973 | | | — | |
| | | | | | |
| | | | | | |
Impairment of indefinite-lived intangibles | | 480 | | | 1,178 | | | — | |
| | | | | | |
Derivatives not designated in hedging relationships: | | | | | | |
Net losses (gains) | | (1,182) | | | 157 | | | (430) | |
Cash proceeds (settlements) | | 470 | | | 255 | | | 905 | |
Provision for doubtful accounts | | (431) | | | 2,621 | | | 178 | |
Deferred income taxes | | (15,236) | | | 1,115 | | | (8,994) | |
Non-cash interest expense | | 1,964 | | | 2,107 | | | 2,072 | |
Stock-based compensation | | 26,371 | | | 24,289 | | | 19,817 | |
| | | | | | |
Gain on disposal of property, plant, and equipment | | (113) | | | (490) | | | (3,883) | |
| | | | | | |
Changes in assets and liabilities, net of effects of acquisitions: | | | | | | |
Accounts receivable | | 67,553 | | | (128,956) | | | 8,713 | |
Inventories | | (96,413) | | | (212,839) | | | 24,176 | |
Prepaid and other current assets | | 23,689 | | | (32,044) | | | 27,292 | |
Other assets | | (6,298) | | | 270 | | | 424 | |
Accounts payable | | (4,236) | | | 65,316 | | | 20,797 | |
| | | | | | |
Accrued expenses | | 5,747 | | | (38,578) | | | 32,357 | |
Other liabilities | | 1,690 | | | 749 | | | (12,736) | |
Net cash provided by (used in) operating activities | | 279,938 | | | (65,585) | | | 358,375 | |
| | | | | | |
Cash flows from investing activities | | | | | | |
Capital expenditures | | (88,772) | | | (74,041) | | | (70,020) | |
| | | | | | |
Proceeds from disposal of facility | | — | | | 3,268 | | | — | |
Insurance proceeds relating to property, plant and equipment | | — | | | — | | | 4,800 | |
Proceeds from disposal of property, plant, and equipment | | 586 | | | 1,540 | | | 176 | |
Proceeds from termination of net investment hedges | | 43,384 | | | — | | | — | |
Net cash used in investing activities | | (44,802) | | | (69,233) | | | (65,044) | |
| | | | | | |
Cash flows from financing activities | | | | | | |
Net borrowings (repayments) on short-term debt | | (21,719) | | | 20,556 | | | (15,934) | |
Proceeds from Second Amended 2017 Revolver borrowings | | 310,500 | | | 523,400 | | | 102,000 | |
| | | | | | |
| | | | | | |
Repayments of Second Amended 2017 Revolver borrowings | | (500,500) | | | (88,400) | | | (210,000) | |
| | | | | | |
Proceeds from Amended 2017 Term Loan | | 300,000 | | | — | | | — | |
Repayments of 2023 Senior Notes | | (300,000) | | | — | | | — | |
| | | | | | |
Repayments of Second Amended 2017 Term Loan | | (5,215) | | | (161,447) | | | (39,589) | |
| | | | | | |
| | | | | | |
Debt issuance costs | | (1,121) | | | (2,952) | | | — | |
Finance lease obligations and other | | 1,110 | | | 810 | | | 650 | |
Option proceeds, net | | 4,392 | | | 1,336 | | | 9,114 | |
Payment of taxes related to net share settlement of equity awards | | (6,453) | | | (9,150) | | | (5,153) | |
| | | | | | |
Purchase of treasury stock | | (22,907) | | | (156,366) | | | — | |
Dividends paid to stockholders | | (28,537) | | | (29,353) | | | (29,812) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Net cash (used in) provided by financing activities | | (270,450) | | | 98,434 | | | (188,724) | |
Effect of exchange rate changes on cash and cash equivalents | | (20,509) | | | (12,936) | | | 20,222 | |
Net (decrease) increase in cash and cash equivalents | | (55,823) | | | (49,320) | | | 124,829 | |
Cash and cash equivalents at beginning of year | | 402,488 | | | 451,808 | | | 326,979 | |
Cash and cash equivalents at end of year | | $ | 346,665 | | | $ | 402,488 | | | $ | 451,808 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
See accompanying notes.
Notes to Consolidated Financial Statements
March 31, 20162023
(In Thousands, Except Share and Per Share Data)
1.Summary of Significant Accounting Policies
Description of Business
EnerSys (the “Company”) and its predecessor companies have been manufacturers of industrial batteries for over 125 years. EnerSys is a global leader in stored energy solutions for industrial applications. The Company manufactures, markets and distributes industrial batteries and related products such as chargers, outdoor cabinet enclosures, power equipment and battery accessories, and provides related after-market and customer-support services for its products. With the Alpha acquisition, the Company is also a provider of highly integrated power solutions and services to broadband, telecom, renewable and industrial batteries.customers.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries and any partially owned subsidiaries that the Company has the ability to control. Control generally equates to ownership percentage, whereby investments that are more than 50% owned are generally consolidated, investments in affiliates of 50% or less but greater than 20% are generally accounted for using the equity method, and investments in affiliates of 20% or less are accounted for using the cost method. All intercompany transactions and balances have been eliminated in consolidation.
The Company also consolidates certain subsidiaries in which the noncontrolling interest party has within its control the right to require the Company to redeem all or a portion of its interest in the subsidiary. The redeemable noncontrolling interests are reported at their estimated redemption value, and the amount presented in temporary equity is not less than the initial amount reported in temporary equity. Any adjustment to the redemption value impacts retained earnings but does not impact net income or comprehensive income. Noncontrolling interests which are redeemable only upon future events, the occurrence of which is not currently probable, are recorded at carrying value.
Foreign Currency Translation
Results of foreign operations of subsidiaries, whose functional currency is the local currency, are translated into U.S. dollars using average exchange rates during the periods. The assets and liabilities are translated into U.S. dollars using exchange rates as of the balance sheet dates. Gains or losses resulting from translating the foreign currency financial statements are accumulated as a separate component of accumulated other comprehensive income (“AOCI”) in EnerSys’ stockholders’ equity and noncontrolling interests.
Transaction gains and losses resulting from exchange rate changes on transactions denominated in currencies other than the functional currency of the applicable subsidiary are included in the Consolidated Statements of Income, within “Other (income) expense, net”, in the year in which the change occurs.
Revenue Recognition
The Company recognizes revenue when (or as) performance obligations are satisfied by transferring control of the earnings processperformance obligation to a customer. Control of a performance obligation may transfer to the customer either at a point in time or over time depending on an evaluation of the specific facts and circumstances for each contract, including the terms and conditions of the contract as agreed with the customer, as well as the nature of the products or services to be provided.
The Company's primary performance obligation to its customers is complete. This occursthe delivery of finished goods and products, pursuant to
purchase orders. Control of the products sold typically transfers to its customers at the point in time when riskthe goods are shipped
as this is also when title generally passes to its customers under the terms and title transfers, collectibility is reasonably assuredconditions of the customer arrangements.
Each customer purchase order sets forth the transaction price for the products and pricing is fixed or determinable. Shipment terms are either shipping point or destinationservices purchased under that arrangement. Some customer arrangements include variable consideration, such as volume rebates, some of which depend upon the customers meeting specified performance criteria, such as a purchasing level over a period of time. The Company uses judgment to estimate the most likely amount of variable consideration at each reporting date. When estimating variable consideration, the Company also applies judgment when considering the probability of whether a reversal of revenue could occur and do not differ significantly betweenonly recognize revenue subject to this constraint.
Service revenues related to the work performed for the Company’s business segments. Accordingly, revenue is recognized when riskcustomers by its maintenance technicians generally represent a separate and title are transferreddistinct performance obligation. Control for these services passes to the customer. Amounts invoiced to customers for shipping and handling are classifiedcustomer as revenue. Taxes on revenue producing transactions are not included in net sales.
The Company recognizes revenue from the service of its products when the respective services are performed.
The Company's typical payment terms are made30 days and sales arrangements do not contain any significant financing component for its customers.
The Company uses historic customer product return data as a basis of estimation for customer returns and records the reduction of sales at the time of sale for sales returns and other allowances based on the Company’s historical experience.revenue is recognized.
Freight Expense
Amountscharges billed to customers for outbound freightare included in sales and the related shipping costs are classified asincluded in cost of sales in the Consolidated Statements of Income. Costs incurred byIf shipping activities are performed after a customer obtains control of a product, the Company applies a policy election to account for outbound freightshipping as an activity to fulfill the promise to transfer the product to the customer.
The Company applies a policy election to exclude transaction taxes collected from customers from sales when the tax is both imposed on and concurrent with a specific revenue-producing transaction.
The Company generally provides customers with a product warranty that provides assurance that the products meet standard specifications and are free of defects. The Company maintains a reserve for claims incurred under standard product warranty programs. Performance obligations related to service warranties are not material to the Consolidated Financial Statements.
The Company pays sales commissions to its sales representatives, which may be considered as incremental costs to customers, inbound and transfer freightobtain a contract. However, since the recoverability period is less than one year, the Company has utilized the practical expedient to record these costs of obtaining a contract as an expense as they are classified in cost of goodsincurred.
sold.
Warranties
The Company’s products are warranted for a period ranging from one to twenty years for reserve powerEnergy Systems batteries, from one to five years for Motive Power batteries and for a period ranging from one to sevenfour years for motive powerSpecialty transportation batteries. The Company provides for estimated product warranty expenses when the related products are sold. The assessment of the adequacy of the reserve includes a review of open claims and historical experience.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less when purchased.
Concentration of Credit Risk
Financial instruments that subject the Company to potential concentration of credit risk consist principally of short-term cash investments and trade accounts receivable. The Company invests its cash with various financial institutions and in various investment instruments limiting the amount of credit exposure to any one financial institution or entity. The Company has bank deposits that exceed federally insured limits. In addition, certain cash investments may be made in U.S. and foreign government bonds, or other highly rated investments guaranteed by the U.S. or foreign governments. Concentration of credit risk with respect to trade receivables is limited by a large, diversified customer base and its geographic dispersion. The Company performs ongoing credit evaluations of its customers’ financial condition and requires collateral, such as letters of credit, in certain circumstances.
Accounts Receivable
Accounts receivable are recorded net of an allowance for expected credit losses. The Company maintains allowancesan allowance for doubtful accountscredit losses for estimated losses resulting from the expected failure or inability of its customers to make required payments. The Company recognizes the allowance for expected credit losses at inception and reassesses quarterly based on management’s expectation of the asset’s collectability. The allowance is based on management’s estimatemultiple factors including historical experience with bad debts, the credit quality of uncollectible accounts, analysisthe customer base, the aging of historical datasuch receivables and trends,current macroeconomic conditions, as well as reviewsmanagement’s expectations of all relevant factors concerningconditions in the financial capability of its customers. Accountsfuture. The Company’s allowance for uncollectible accounts receivable are considered to be past dueis based on how payments are received compared tomanagement’s assessment of the customer’s credit terms.collectability of assets pooled together with similar risk characteristics. Accounts are written off when management determines the account is uncollectible. The following table sets forth the changes in the Company's allowance for doubtful
accounts:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance at Beginning of Period | | Provision for Doubtful Debts | | Write-offs, net of Recoveries and Other | | Balance at End of Period |
Fiscal year ended March 31, 2021 | | $ | 15,246 | | | $ | 178 | | | $ | (2,432) | | | $ | 12,992 | |
Fiscal year ended March 31, 2022 | | 12,992 | | | 2,621 | | | (3,394) | | | 12,219 | |
Fiscal year ended March 31, 2023 | | 12,219 | | | (431) | | | (3,013) | | | 8,775 | |
Inventories
Inventories are stated at the lower of cost or market.net realizable value. Cost is determined using the first-in, first-out (FIFO) method. The cost of inventory consists of material, labor, and associated overhead.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost and include expenditures that substantially increase the useful lives of the assets. Depreciation is provided using the straight-line method over the estimated useful lives of the assets as follows: 10 to 33 years for buildings and improvements and 3 to 15 years for machinery and equipment.
Maintenance and repairs are expensed as incurred. Interest on capital projects is capitalized during the construction period.
Business Combinations
The purchase priceCompany records an acquisition using the acquisition method of an acquired company is allocated between tangibleaccounting and intangiblerecognizes the assets acquired and liabilities assumed from the acquired business based onat their estimated fair values withas of the residualdate of the acquisition. The excess of the purchase price over the net tangible and intangible assets is recorded asto goodwill. The results of operations of the acquired business are included in the Company’s operating results from the date of acquisition.
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived trademarks are tested for impairment at least annually and whenever events or circumstances occur indicating that a possible impairment may have been incurred. The Company assesses whether goodwill impairment exists using both the qualitative and quantitative assessments. The qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If based on this qualitative assessment the Company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if the Company elects not to perform a qualitative assessment, a quantitative assessment is performed by determining the fair value of the Company's reporting units.
Goodwill is tested for impairment by determining the fair value of the Company’s reporting units. These estimated fair values are based on financial projections, certain cash flow measures, and market capitalization.
The goodwill impairment test involves a two-step process. In the first step, the Company compares the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired
and no further testing is required. If the fair value of the reporting unit is less than the carrying value, the Company must perform the second step of the impairment test to measure the amount of impairment loss, if any. In the second step, the reporting unit's fair value is allocated to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. If the implied fair value of the reporting unit's goodwill is less than the carrying value, the difference is recorded as an impairment loss.
The indefinite-lived trademarks are tested for impairment by comparing the carrying value to the fair value based on current revenue projections of the related operations, under the relief from royalty method. Any excess carrying value over the amount of fair value is recognized as impairment. Any impairment would be recognized in full in the reporting period in which it has been identified.
The Company estimates the fair value of its reporting units using a weighting of fair values derived from both the income approach and the market approach. Under the income approach, the Company calculates the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on management's estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the business's ability to execute on the projected cash flows. The market approach estimates fair value based on market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as the reporting unit. The weighting of the fair value derived from the market approach ranges from 0% to 50% depending on the level of comparability of these publicly-traded companies to the reporting unit.
In order to assess the reasonableness of the calculated fair values of its reporting units, the Company also compares the sum of the reporting units' fair values to its market capitalization and calculates an implied control premium (the excess of the sum of the reporting units' fair values over the market capitalization). The Company evaluates the control premium by comparing it to control premiums of recent comparable market transactions.
The Company assesses whether indefinite-lived intangible assets impairment exists using both the qualitative and quantitative assessments. The qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If based on this qualitative assessment, the Company determines it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount or if the Company elects not to perform a qualitative assessment, a quantitative assessment is performed to determine whether an indefinite-lived intangible asset impairment exists. The Company tests the indefinite-lived intangible assets for impairment by comparing the carrying value to the fair value based on current revenue projections of the related operations, under the relief from royalty method. Any excess of the carrying value over the amount of fair value is recognized as an impairment. Any such impairment is recognized in the reporting period in which it has been identified.
Finite-lived assets such as customer relationships, patents,technology, trademarks, licenses, and non-compete agreements are amortized on a straight-line basis over their estimated useful lives, generally over periods ranging from 3 to 20 years. The Company reviews the carrying values of these assets for possible impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on undiscounted estimated cash flows expected to result from its use and eventual disposition. The Company continually evaluates the reasonableness of the useful lives of these assets.
Impairment of Long-Lived Assets
The Company reviews the carrying values of its long-lived assets to be held and used for possible impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable, based on undiscounted estimated cash flows expected to result from its use and eventual disposition. The factors considered by the Company in performing this assessment include current operating results, trends and other economic factors. In assessing the recoverability of the carrying value of a long-lived asset, the Company must make assumptions regarding future cash flows and other factors. If these estimates or the related assumptions change in the future, the Company may be required to record an impairment loss for these assets.
Environmental Expenditures
The Company records a loss and establishes a reserve for environmental remediation liabilities when it is probable that an asset has been impaired or a liability exists and the amount of the liability can be reasonably estimated. Reasonable estimates involve judgments made by management after considering a broad range of information including notifications, demands or settlements that have been received from a regulatory authority or private party, estimates performed by independent engineering companies and outside counsel, available facts, existing and proposed technology, the identification of other potentially responsible parties, their ability to contribute and prior experience. These judgments are reviewed quarterly as more information is received and the amounts reserved are updated as necessary. However, the reserves may materially differ from ultimate actual liabilities if the loss contingency is difficult to estimate or if management’s judgments turn out to be inaccurate. If management believes no best estimate exists, the minimum probable loss is accrued.
Derivative Financial Instruments
The Company utilizes derivative instruments to mitigate volatility related to interest rates, lead prices and foreign currency exposures. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. The
Company recognizes derivatives as either assets or liabilities in the accompanying Consolidated Balance Sheets and measures those instruments at fair value. Changes in the fair value of those instruments are reported in AOCI if they qualify for hedge accounting or in earnings if they do not qualify for hedge accounting. Derivatives qualify for hedge accounting if they are designated as hedge instruments and if the hedge is highly effective in achieving offsetting changes in the fair value or cash flows of the asset or liability hedged. EffectivenessFor lead and foreign currency forward contracts, effectiveness is measured on a regular basis using statistical analysis and by comparing the overall changes in the expected cash flows onof the lead and foreign currency forward contractshedging instrument with the changes in the expected all-in cash outflow required for the underlying lead and foreign currency purchases. This analysis is performed on the initial purchases quarterly that cover the quantities hedged. Accordingly, gains and losses from changes in derivative fair value of effective hedges are deferred and reported in AOCI until the underlying transaction affects earnings. In the case of cross currency fixed interest rate swap agreements, the swaps are remeasured with changes in fair value recognized in foreign currency translation adjustment within AOCI to offset the translation risk from the underlying investments. Balances in the foreign currency translation adjustment accounts remain until the sale or substantially complete liquidation of the foreign entity, upon which they are recognized as a component of income (expense).
The Company has commodity, foreign exchange and interest rate hedging authorization from the Board of Directors and has established a hedging and risk management program that includes the management of market and counterparty risk. Key risk control activities designed to ensure compliance with the risk management program include, but are not limited to, credit review and approval, validation of transactions and market prices, verification of risk and transaction limits, portfolio stress tests,
sensitivity analyses and frequent portfolio reporting, including open positions, determinations of fair value and other risk management metrics.
Market risk is the potential loss the Company and its subsidiaries may incur as a result of price changes associated with a particular financial or commodity instrument. The Company utilizes forward contracts, options, and swaps as part of its risk management strategies, to minimize unanticipated fluctuations in earnings caused by changes in commodity prices, interest rates and/and / or foreign currency exchange rates. All derivatives are recognized on the balance sheet at their fair value, unless they qualify for the Normal Purchase Normal Sale exemption.
Credit risk is the potential loss the Company may incur due to the counterparty’s non-performance. The Company is exposed to credit risk from interest rate, foreign currency and commodity derivatives with financial institutions. The Company has credit policies to manage their credit risk, including the use of an established credit approval process, monitoring of the counterparty positions and the use of master netting agreements.
The Company has elected to offset net derivative positions under master netting arrangements. The Company does not have any positions involving cash collateral (payables or receivables) under a master netting arrangement as of March 31, 20162023 and 2015.2022.
The Company does not have any credit-related contingent features associated with its derivative instruments.
Fair Value of Financial Instruments
The Company usesgroups its recurring, non-recurring and disclosure-only fair value measurements into the following valuation techniques to measurelevels when making fair value for its financial assets and financial liabilities:
|
| | | | | | | |
Level 1 | | Inputs are unadjusted quoted prices in active markets for identical assets or liabilities. |
| |
Level 2 | | Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data. |
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Level 3 | | Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable. |
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The Company and its subsidiaries use, as appropriate, a market approach (generally, data from market transactions), an income approach (generally, present value techniques and option-pricing models), and/and / or a cost approach (generally, replacement cost) to measure the fair value of an asset or liability. These valuation approaches incorporate inputs such as observable, independent market data and/and / or unobservable data that management believes are predicated on the assumptions market participants would use to price an asset or liability. These inputs may incorporate, as applicable, certain risks such as nonperformance risk, which includes credit risk.
Lead contracts, foreign currency contracts and interest rate contracts generally use an income approach to measure the fair value of these contracts, utilizing readily observable inputs, such as forward interest rates (e.g., London Interbank OfferedSecured Overnight Financing Rate
—“LIBOR” "SOFR") and, forward foreign currency exchange rates (e.g., GBP and euro) and commodity prices (e.g., London Metals Exchange), as well as inputs that may not be observable, such as credit valuation adjustments. When observable inputs are used to measure all or most of the value of a contract, the contract is classified as Level 2. Over-the-counter (OTC) contracts are valued using quotes obtained from an exchange, binding and non-binding broker quotes. Furthermore, the Company obtains independent quotes from the market to validate the forward price curves. OTC contracts include forwards, swaps and options. To the extent possible, fair value measurements utilize various inputs that include quoted prices for similar contracts or market-corroborated inputs.
When unobservable inputs are significant to the fair value measurement, the asset or liability is classified as Level 3. Additionally, Level 2 fair value measurements include adjustments for credit risk based on the Company’s own creditworthiness (for net liabilities) and its counterparties’ creditworthiness (for net assets). The Company assumes that observable market prices include sufficient adjustments for liquidity and modeling risks. The Company did not have any contractsfair value measurements that transferred between Level 2 and Level 3 as well as Level 1 and Level 2.
Income Taxes
The Company accounts for income taxes using the asset and liability approach, which requires deferred tax assets and liabilities be recognized using enacted tax rates to measure the effect of temporary differences between book and tax bases on recorded assets and liabilities. Valuation allowances are recorded to reduce deferred tax assets, if it is more likely than not some portion or all of the deferred tax assets will not be recognized.realized. The need to establish valuation allowances against deferred tax assets is assessed quarterly. The primary factors used to assess the likelihood of realization are expected reversals of taxable temporary timing differences, forecasts of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets.
The Company has not recorded United States income or foreign withholding taxes related to undistributed earnings of foreign subsidiaries because the Company currently plans to keep these amounts indefinitely invested overseas.
The Company recognizes tax related interest and penalties in income tax expense in its Consolidated Statement of Income.
With respect to accounting for uncertainty in income taxes, the Company evaluates tax positions to determine whether the benefits of tax positions are more likely than not of being sustained upon audit based on the technical merits of the tax position. For tax positions that are more likely than not of being sustained upon audit, the Company recognizes the largest amount of the benefit that is greater than 50% likely of being realized upon ultimate settlement. For tax positions that are not more likely than not of being sustained upon audit, the Company does not recognize any portion of the benefit. If the more likely than not threshold is not met in the period for which a tax position is taken, the Company may subsequently recognize the benefit of that tax position if the tax matter is effectively settled, the statute of limitations expires, or if the more likely than not threshold is met in a subsequent period.
No additional income taxes have been provided for any undistributed foreign earnings or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations.
Regarding the GILTI tax rules, the Company is allowed to make an accounting policy choice of either (1) treating the taxes due on future US inclusions in taxable income as a current-period expense when incurred (“period cost method”) or (2) factoring amounts into a Company’s measurement of its deferred taxes (“deferred method”). The Company has elected the period cost method.
Deferred Financing Fees
Debt issuance costs that are incurred by the Company in connection with the issuance of debt are deferred and amortized to interest expense over the life of the underlying indebtedness, adjusted to reflect any early repayments.repayments and are shown as a deduction from long-term debt.
Stock-Based Compensation Plans
The Company measures the cost of employee services received in exchange for the award of an equity instrument based on the grant-date fair value of the award, with such cost recognized over the applicable vesting period.
Market and Performance condition-based awards
The Company grants two types of market condition-based awards - market share units and performance condition-based awards.
Beginning in fiscal 2017 and until fiscal 2020, the Company granted market share units.
The fair value of the market share units is estimated at the date of grant using a binomial lattice model with the following assumptions: a risk-free interest rate, dividend yield, time to maturity and expected volatility. These units vest and are settled in common stock on the third anniversary of the date of grant. Market share units are converted into between zero and two shares of common stock for each unit granted at the end of a three-year performance cycle. The conversion ratio is calculated by dividing the average closing share price of the Company’s common stock during the ninety calendar days immediately preceding the vesting date by the average closing share price of the Company’s common stock during the ninety calendar days immediately preceding the grant date, with the resulting quotient capped at two. This quotient is then multiplied by the number of market share units granted to yield the number of shares of common stock to be delivered on the vesting date.
The fair value of the performance market share units is estimated at the date of grant using a Monte Carlo Simulation.condition-based awards (“TSR”). A participant may earn between 0% to 200% of the number of awards granted, based on the total shareholder return (the "TSR") of the Company's common stock over a three-year period, ranging from 0%relative to 200%the shareholder return of the number of performance market share units granted.a defined peer group. The awards will cliff vest on the third anniversary of the date of grant and are settled in common stock on the first anniversary of the vesting date. The TSR is calculated by dividing the sixty or ninety calendar day average price at end of the period (as applicable) and the reinvested dividends thereon by such sixty or ninety calendar day average price at start of the period. The maximum number of awards earned is capped at 200% of the target award. Additionally, no payout will be awarded in the event that the TSR at the vesting date reflects less than a 25% return from the average price at the grant date. Performance marketThese share units are similar to the market share units granted prior to fiscal 2016, except that under these awards, the targets are more difficult to achieve and may beas they are tied to the TSR as compared toof a defined peer group.
The fair value of these awards is estimated at the date of grant, using a Monte Carlo Simulation.
The Company recognizes compensation expense using the straight-line method over the life of the market share units and performance market share unitscondition-based awards except for those issued to certain retirement-eligible participants, which are expensed on an accelerated basis.
In fiscal 2019 and fiscal 2020, the Company granted performance condition-based awards (“PSU”). A participant may earn between 0% to 200% of the number of awards granted, based on the Company’s cumulative adjusted earnings per share performance over a three-year period. The vesting of these awards is contingent upon meeting or exceeding performance conditions. The awards cliff vest on the third anniversary of the date of grant and are settled in common stock on the first anniversary of the vesting date. The maximum number of awards earned is capped at 200% of the target award. Expense for the performance condition-based award is recorded when the achievement of the performance condition is considered probable of achievement and is recorded on a straight-line basis over the requisite service period. If such performance criteria are not met, no compensation cost is recognized, and any recognized compensation cost is reversed. The closing stock price on the date of grant, adjusted for a discount to reflect the illiquidity inherent in the PSUs, represents the grant-date fair value for these awards.
Restricted Stock Units
The fair value of restricted stock units is based on the closing market price of the Company’s common stock on the date of grant. These awards generally vest, and are settled in common stock, at 25% per year, over a four-year period from the date of grant. The Company recognizes compensation expense using the straight-line method over the life of the restricted stock units.
Stock Options
The fair value of the options granted is estimated at the date of grant using the Black-Scholes option-pricing model utilizing assumptions based on historical data and current market data. The assumptions include expected term of the options, risk-free interest rate, expected volatility, and dividend yield. The expected term represents the expected amount of time that options granted are expected to be outstanding, based on historical and forecasted exercise behavior. The risk-free rate is based on the rate at the grant date of zero-coupon U.S. Treasury Notes with a term equal to the expected term of the option. Expected volatility is estimated using historical volatility rates based on historical weekly price changes over a term equal to the expected term of the options. The Company’s dividend yield is based on historical data. The Company recognizes compensation expense using the straight-line method over the vesting period of the options except for those issued to certain retirement-eligible participants, which are expensed on an accelerated basis.
Forfeitures
Forfeitures of share-based awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.
Earnings Per Share
Basic earnings per common share (“EPS”) are computed by dividing net earnings attributable to EnerSys stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. At March 31, 2016, 20152023, 2022 and 2014,2021, the Company had outstanding stock options, restricted stock units, market share unitscondition and performance market share units,condition-based awards, which could potentially dilute basic earnings per share in the future. The Convertible Notes, prior to their extinguishment on July 17, 2015, had a dilutive impact on the EPS for the fiscal years of 2016, 2015 and 2014.
Segment Reporting
A segment for reporting purposes is based on the financial performance measures that are regularly reviewed by theThe Company's chief operating decision maker, to assessor CODM (the Company's Chief Executive Officer), reviews financial information for purposes of assessing business performance and allocating resources, by focusing on the lines of business on a global basis. The Company excludes certain items that are not included in the segment performance as these are managed and to make decisions aboutviewed on a public entity’s allocationconsolidated basis. The Company identifies the following as its three operating segments, based on lines of resources. Based on this guidance, the Company reports its segment results based upon the three geographical regions of operations.business:
Americas, which•Energy Systems - uninterruptible power systems, or “UPS” applications for computer and computer-controlled systems used in data centers, as well as telecommunications systems, switchgear and electrical control systems used in industrial facilities and electric utilities, large-scale energy storage and energy pipelines. Energy Systems also includes Northhighly integrated power solutions and South America, with segment headquarters in Reading, Pennsylvania, USA,
EMEA, which includes Europe, the Middle East and Africa, with segment headquarters in Zug, Switzerland, and
Asia, which includes Asia, Australia and Oceania, with segment headquarters in Singapore.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” providing guidance on revenue from contracts with customers that will supersede most current revenue recognition guidance, including industry-specific guidance. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to broadband, telecom, renewable and industrial customers, at an amount that the entity expects to be entitled toas well as thermally managed cabinets and enclosures for electronic equipment and batteries.
•Motive Power - power for electric industrial forklifts used in exchangemanufacturing, warehousing and other material handling applications as well as mining equipment, diesel locomotive starting and other rail equipment; and
•Specialty - premium batteries for those goods or services. In July 2015, the FASB voted to delay the effective datestarting, lighting and ignition applications in premium automotive and large over-the-road trucks, energy storage solutions for interimsatellites, military land vehicles, aircraft, submarines, tactical vehicles, as well as medical devices and annual reporting periods beginning after December 15, 2017, with early adoption permissible one year earlier. The standard permits the useequipment.
retrospective or cumulative effect transition method upon adoption. The Company has not yet selected a transition method and is currently evaluating the impact, if any, of the adoption of this newly issued guidance on its consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The update simplifies the presentation of debt issuance costs by requiring that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update and amortization of the costs will continue to be reported as interest expense. For public companies, this update is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, and is to be applied retrospectively. Early adoption of this revised guidance is permitted for financial statements that have not been previously issued. The Company has elected to early adopt the revised guidance and as such debt issuance costs are now presented as a direct reduction of long-term debt on the Company’s Consolidated Balance Sheets, as further reflected in Note 8.
In July 2015, the FASB issued ASU 2015-011, “Simplifying the Measurement of Inventory (Topic 330).” This update requires inventory to be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. This update will be effective for the Company for all annual and interim periods beginning after December 15, 2016. The amendments in this update should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. This update will not have a material impact on the Company's consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments (Topic 805).” The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update are effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company is currently evaluating the impact, if any, of the adoption of this newly issued guidance on its consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes (Topic 740).”
This update simplifies the presentation of deferred income taxes, by requiring that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this update. The amendments in this update are effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The amendments may be applied prospectively or retrospectively. The Company early adopted ASU 2015-17 on a retrospective basis, and deferred taxes previously classified as components of current assets and current liabilities were reclassified to non-current assets and non-current liabilities, respectively, as of March 31, 2015 (see Note 13).
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). This update requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. This update is effective for reporting periods beginning after December 15, 2018, using a modified retrospective approach, with early adoption permitted. The Company is currently assessing the potential impact that the adoption will have on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting(Topic 718)”. This update simplifies several aspects related to how share-based payments are accounted for and presented in the financial statements, including the accounting for forfeitures and tax-effects related to share-based payments at settlement, and the classification of excess tax benefits and shares surrendered for tax withholdings in the statement of cash flows. This update is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing the potential impact that the adoption will have on its consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions take into account historical and forward looking factors that the Company believes are reasonable, and the Company’s estimates and assumptions may evolve as conditions change. Actual results could differ from those estimates.
2. Acquisitions
On July 23, 2015,Examples of significant estimates include the Company completedallowance for credit losses, the acquisitionrecoverability of ICS Industries Pty. Ltd. (ICS), headquartered in Melbourne, Australia,property, plant and equipment, the incremental borrowing rate for $34,496, netlease liabilities, the recoverability of cash acquired. ICS is a leading full line shelter designerintangible assets and manufacturer with installation and maintenance services serving the telecommunications, utilities, datacenter, natural resources and transport industries operating in Australia and serving customers in the Asia Pacific region. The Company acquired tangibleother long-lived assets, fair value measurements, including those related to financial instruments, goodwill and intangible assets, valuation allowances on tax assets, pension and postretirement benefit obligations, contingencies and the identification and valuation of assets acquired and liabilities assumed in connection with business combinations.
2. Revenue Recognition
The Company's revenues by reportable segments are presented in Note 23.
Service revenues for fiscal 2023, 2022 and 2021 amounted to $400,798, $353,088 and $296,213, respectively.
A small portion of the acquisition, including trademarks, technology,Company's customer relationships, non-competition agreements and goodwill. Based on the final valuation, trademarks were valued at $1,322, technology at $1,399, customer relationships at $10,211, non-competition agreements at $142 and goodwill was recorded at $13,898. The useful lives of technology were estimated at 10 years, customer relationships were estimated at 11 years and non-competition agreements ranged from 2-5 years. Trademarks were considered to be indefinite-lived assets.
There was no tax deductible goodwill associated with this acquisition.
There were no acquisitions in fiscal 2015.
On January 27, 2014,arrangements oblige the Company completedto create customized products for its customers that require the acquisitionbundling of UTS Holdings Sdn. Bhd. and its subsidiaries, a distributor of motive and reserve power batteryboth products and services headquarteredinto a single performance obligation because the individual products and services that are required to fulfill the customer requirements do not meet the definition for a distinct performance obligation. These customized products generally have no alternative use to the Company and the terms and conditions of these arrangements give the Company the enforceable right to payment for performance completed to date, including a reasonable profit margin. For these arrangements, control transfers over time and the Company measures progress towards completion by selecting the input or output method that best depicts the transfer of control of the underlying goods and services to the customer for each respective arrangement. Methods used by the Company to measure progress toward completion include labor hours, costs incurred and units of production. Revenues recognized over time for fiscal 2023, 2022 and 2021 amounted to $244,013, $193,824 and $155,217, respectively.
On March 31, 2023, the aggregate transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was approximately $137,654, of which, the Company estimates that approximately $128,914 will be recognized as revenue in Kuala Lumpur, Malaysia,fiscal 2024, $8,740 in fiscal 2025.
Any payments that are received from a customer in advance, prior to the satisfaction of a related performance obligation and billings in excess of revenue recognized, are deferred and treated as a contract liability. Advance payments and billings in excess of revenue recognized are classified as current or non-current based on the timing of when recognition of revenue is expected. As of March 31, 2023, the current and non-current portion of contract liabilities were $34,594 and $1,437, respectively. As of March 31, 2022, the current and non-current portion of contract liabilities were $27,870 and $1,387, respectively. Revenues recognized during fiscal 2023 and fiscal 2022, that were included in the contract liability at the beginning of the year, amounted to $9,799 and $6,775, respectively.
Amounts representing work completed and not billed to customers represent contract assets and were $48,616 and $59,924 as of March 31, 2023 and March 31, 2022, respectively.
The Company uses historic customer product return data as a basis of estimation for $25,332, netcustomer returns and records the reduction of sales at the time revenue is recognized. At March 31, 2023, the right of return asset related to the value of inventory anticipated to be returned from customers was $5,380 and refund liability representing amounts estimated to be refunded to customers was $9,602.
3. Leases
The Company leases manufacturing facilities, distribution centers, office space, vehicles and other equipment under non-cancellable leases with initial terms typically ranging from 1 to 16 years. At contract inception, the Company reviews the terms
of the arrangement to determine if the contract is or contains a lease. Guidance in Topic 842 is used to evaluate whether the contract has an identified asset; if the Company has the right to obtain substantially all economic benefits from the asset; and if it has the right to direct the use of the underlying asset. When determining if a contract has an identified asset, the Company considers both explicit and implicit assets, and whether the supplier has the right to substitute the asset. When determining if the Company has the right to obtain substantially all economic benefits from the asset, the Company considers the primary outputs of the identified asset throughout the period of use and determines if it receives greater than 90% of those benefits. When determining if it has the right to direct the use of an underlying asset, the Company considers if it has the right to direct how and for what purpose the asset is used throughout the period of use and if it controls the decision-making rights over the asset.
Lease terms may include options to extend or terminate the lease. The Company exercises its judgment to determine the term of those leases when extension or termination options are present and include such options in the calculation of the lease term when it is reasonably certain that the Company will exercise those options.
The Company has elected to include both lease and non-lease components in the determination of lease payments for all asset classes. Payments made to a lessor for items such as taxes, insurance, common area maintenance, or other costs commonly referred to as executory costs, are also included in lease payments if they are fixed. The fixed portion of these payments are included in the calculation of the lease liability, while any variable portion would be recognized as variable lease expenses, when incurred. Variable payments made to third parties for these, or similar costs, such as utilities, are not included in the calculation of lease payments.
Both finance and operating leases are reflected as liabilities on the commencement date of the lease based on the present value of the lease payments to be made over the lease term. As most of the leases do not provide an implicit rate, the Company has exercised judgment in electing the incremental borrowing rate based on the information available when the lease commences to determine the present value of future payments. Right-of-use assets are valued at the initial measurement of the lease liability, plus any initial direct costs or rent prepayments and reduced by any lease incentives and any deferred lease payments.
Operating lease expense is recognized on a straight-line basis over the lease term. Finance lease expense includes depreciation, which is recognized on a straight-line basis over the expected life of the leased asset, and interest expense, which is recognized following an effective interest rate method.
Short term leases with an initial term of 12 months or less are not presented on the balance sheet and expense is recognized as incurred. The current and non-current portion of operating lease liabilities are reflected in accrued expenses and other liabilities, respectively, on the consolidated balance sheets. The right-of use assets relating to operating and finance leases are reflected in other assets and property, plant and equipment, respectively, on the consolidated balance sheets.
The following table presents lease assets and liabilities and their balance sheet classification:
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| | Classification | | As of March 31, 2023 | | As of March 31, 2022 |
Operating Leases: | | | | | | |
Right-of-use assets | | Other assets | | $ | 85,237 | | | $ | 71,085 | |
Operating lease current liabilities | | Accrued expenses | | 21,230 | | | 20,086 | |
Operating lease non-current liabilities | | Other liabilities | | 66,555 | | | 52,904 | |
Finance Leases: | | | | | | |
Right-of-use assets | | Property, plant, and equipment, net | | $ | 342 | | | $ | 344 | |
Finance lease current liabilities | | Current portion of finance leases | | 90 | | | 185 | |
Finance lease non-current liabilities | | Finance leases | | 254 | | | 231 | |
The components of lease expense for the fiscal years ended March 31, 2023 and March 31, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Classification | | March 31, 2023 | | March 31, 2022 |
Operating Leases: | | | | | | |
Operating lease cost | | Operating expenses | | $ | 20,232 | | | $ | 26,392 | |
Variable lease cost | | Operating expenses | | 9,816 | | | 9,620 | |
Short term lease cost | | Operating expenses | | 4,310 | | | 6,218 | |
Finance Leases: | | | | | | |
Depreciation | | Operating expenses | | $ | 95 | | | $ | 233 | |
Interest expense | | Interest expense | | 10 | | | 26 | |
Total | | | | $ | 34,463 | | | $ | 42,489 | |
The following table presents the weighted average lease term and discount rates for leases as of March 31, 2023 and March 31, 2022:
| | | | | | | | | | | | | | |
| | March 31, 2023 | | March 31, 2022 |
Operating Leases: | | | | |
Weighted average remaining lease term (years) | | 5.9 years | | 6.1 years |
Weighted average discount rate | | 4.93% | | 4.43% |
Finance Leases: | | | | |
Weighted average remaining lease term (years) | | 3.7 years | | 2.3 years |
Weighted average discount rate | | 6.79% | | 4.79% |
The following table presents future payments due under leases reconciled to lease liabilities as of March 31, 2023:
| | | | | | | | | | | | | | |
| | Finance Leases | | Operating Leases |
Year ended March 31, | | | | |
2024 | | $ | 121 | | | $ | 24,824 | |
2025 | | 101 | | | 20,141 | |
2026 | | 80 | | | 16,122 | |
2027 | | 55 | | | 13,338 | |
2028 | | 26 | | | 9,550 | |
Thereafter | | — | | | 17,736 | |
Total undiscounted lease payments | | 383 | | | 101,711 | |
Present value discount | | 39 | | | 13,926 | |
Lease liability | | $ | 344 | | | $ | 87,785 | |
The following table presents supplemental disclosures of cash acquired. flow information related to leases for the fiscal years ended March 31, 2023 and March 31, 2022:
| | | | | | | | | | | | | | |
| | March 31, 2023 | | March 31, 2022 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | |
Operating cash flows from finance leases | | $ | 15 | | | $ | 26 | |
Operating cash flows from operating leases | | 27,176 | | | 26,731 | |
Financing cash flows from finance leases | | 151 | | | 238 | |
Supplemental non-cash information on lease liabilities arising from right-of-use assets: | | | | |
Right-of-use assets obtained in exchange for new finance lease liabilities | | $ | 254 | | | $ | — | |
Right-of-use assets obtained in exchange for new operating lease liabilities | | 24,423 | | | 33,493 | |
4. Accounts Receivable
| | | | | | | | | | | | | | |
| | March 31, |
| | 2023 | | 2022 |
Accounts receivable | | $ | 646,592 | | | $ | 731,653 | |
Allowance for doubtful accounts | | 8,775 | | | 12,219 | |
Accounts receivable, net | | $ | 637,817 | | | $ | 719,434 | |
During fiscal 2023, the Company entered into a Receivables Purchase Agreement (RPA), under which the Company continuously sells its interest in designated pools of trade accounts receivables, at a discount, to a special purpose entity, which in turn sells certain of the receivables to an unaffiliated financial institution ("unaffiliated financial institution") on a monthly basis.The Company acquired tangiblemay sell certain US-originated accounts receivable balances up to a maximum amount of $150,000. In return for these sales, the Company receives a cash payment equal to the face value of the receivables and intangible assets, including trademarks, customer relationships and goodwill. Based onis charged a fee of Secured Overnight Financing Rate (“SOFR”) plus 85 basis points against the final valuation, trademarks were valued at $1,410, non-compete at $160, customer relationships at $3,200 and goodwill was recorded at $10,796.sold receivable balance. The useful life of customer relationships was estimated at 8 years and trademarks were consideredprogram is conducted through EnerSys Finance LLC ("EnerSys Finance"), an entity structured to be indefinite-lived assets.
On October 8, 2013,bankruptcy remote, and matures in December 2025. The Company is deemed the primary beneficiary of EnerSys Finance as the Company completedhas both the acquisitionpower to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive the benefits that could potentially be significant to the entity from the transfer of Purcell Systems, Inc., a designer, manufacturer and marketer of thermally managed electronic equipment and battery cabinet enclosures, headquartered in Spokane, Washington, for $119,540, net of cash acquired. The Company acquired tangible and intangible assets, including trademarks, technology, customer relationships and goodwill. Based on the final valuation, trademarks were valued at $16,800, technology at $7,900, customer relationships at $35,700, and goodwill was recorded at $50,889. The useful lives of technology and customer lists were estimated at 10 and 9 years, respectively. Trademarks were considered to be indefinite-lived assets.
On October 28, 2013,trade accounts receivables into the Company completed the acquisition of Quallion, LLC, a manufacturer of lithium ion cells and batteries for medical devices, defense, aviation and space, headquartered in Sylmar, California, for $25,800, net of cash acquired. The Company acquired tangible and intangible assets, in connection with the acquisition, including trademarks, technology, customer relationships and goodwill. Based on the final valuation, trademarks were valued at $500, technology at $4,400, customer relationships at $3,400, and goodwill was recorded at $13,502. The useful lives of technology and customer relationships were estimated at 20 and 14 years, respectively. Trademarks were considered to be indefinite-lived assets.
The results of these acquisitions have beenspecial purpose entity.Accordingly, EnerSys Finance is included in the Company’s resultsConsolidated Financial Statements.
Receivables sold to unaffiliated financial institutions under the program are excluded from “Accounts receivable, net” on the Company’s Consolidated Balance Sheets, and cash receipts are reflected as cash provided by operating activities on the Consolidated Statements of operations fromCash Flows. The purchase price is received in cash when the dates of their respective acquisitions. Pro forma earningsreceivables are sold, and earnings per share computations have not been presented as these acquisitions are not considered material. Net sales and Net earnings attributable to EnerSys stockholders, related to the fiscal 2014 acquisitions were $68,231 and $2,126, respectively, during fiscal 2014.
3. Inventories
Inventories, net consist of:
|
| | | | | | | | |
| | March 31, |
| | 2016 | | 2015 |
Raw materials | | $ | 84,198 |
| | $ | 82,954 |
|
Work-in-process | | 104,085 |
| | 106,196 |
|
Finished goods | | 142,798 |
| | 147,861 |
|
Total | | $ | 331,081 |
| | $ | 337,011 |
|
Inventory reserves for obsolescence and other estimated losses, mainlyfees charged relating to finished goods,this balance are recorded to other (income) expense. Certain unsold receivables held by EnerSys Finance serve as collateral to unaffiliated financial institutions. These unsold receivables are included in “Accounts receivable, net” in the Company’s Consolidated Balance Sheets. The Company continues servicing the receivables which were $23,570sold and $20,242in exchange receives a servicing fee from EnerSys Finance under the program.
During fiscal 2023, the Company sold $343,013 of accounts receivables for approximately $192,713 in net proceeds to an unaffiliated financial institution, of which $193,013 were collected as of March 31, 2023. Total collateralized accounts receivables of approximately $274,121, were held by EnerSys Finance at March 31, 2016 and 2015, respectively, and have been included2023.
Any accounts receivables held by EnerSys Finance would likely not be available to other creditors of the Company in the net amounts shown above.event of bankruptcy or insolvency proceedings relating to the Company until the outstanding balances under the RPA are satisfied. Additionally, the financial obligations of EnerSys Finance to the unaffiliated financial institutions under the program are limited to the assets it owns and there is no recourse to the Company for receivables that are uncollectible as a result of the insolvency of EnerSys Finance or its inability to pay the account debtors.
4.
5. Inventories
| | | | | | | | | | | | | | |
| | March 31, |
| | 2023 | | 2022 |
Raw materials | | $ | 323,418 | | | $ | 260,604 | |
Work-in-process | | 123,401 | | | 109,441 | |
Finished goods | | 350,979 | | | 345,667 | |
Total | | $ | 797,798 | | | $ | 715,712 | |
6. Property, Plant, and Equipment
Property, plant, and equipment consist of:
| | | | | | | | | | | | | | |
| | March 31, |
| | 2023 | | 2022 |
Land, buildings, and improvements | | $ | 312,294 | | | $ | 313,090 | |
Machinery and equipment | | 881,198 | | | 851,251 | |
Construction in progress | | 75,053 | | | 69,550 | |
| | 1,268,545 | | | 1,233,891 | |
Less accumulated depreciation | | (755,262) | | | (730,627) | |
Total | | $ | 513,283 | | | $ | 503,264 | |
|
| | | | | | | | |
| | March 31, |
| | 2016 | | 2015 |
Land, buildings, and improvements | | $ | 249,112 |
| | $ | 224,617 |
|
Machinery and equipment | | 570,394 |
| | 546,513 |
|
Construction in progress | | 35,450 |
| | 48,889 |
|
| | 854,956 |
| | 820,019 |
|
Less accumulated depreciation | | (497,547 | ) | | (463,165 | ) |
Total | | $ | 357,409 |
| | $ | 356,854 |
|
Depreciation expense for the fiscal years ended March 31, 2016, 20152023, 2022, and 20142021 totaled $47,686, $49,261,$60,405, $62,584, and $49,463,$60,956, respectively. Interest capitalized in connection with major capital expenditures amounted to $1,526, $1,989,$857, $447, and $1,046$1,319 for the fiscal years ended March 31, 2016, 20152023, 2022 and 2014,2021, respectively.
5.
7. Goodwill and Other Intangible Assets
Other Intangible Assets
Information regarding the Company’s other intangible assets are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, |
| | 2023 | | 2022 |
| | Gross Amount | | Accumulated Amortization | | Net Amount | | Gross Amount | | Accumulated Amortization | | Net Amount |
Indefinite-lived intangible assets: | | | | | | | | | | | | |
Trademarks | | $ | 144,702 | | | $ | (953) | | | $ | 143,749 | | | $ | 145,808 | | | $ | (953) | | | $ | 144,855 | |
Finite-lived intangible assets: | | | | | | | | | | | | |
Customer relationships | | 295,293 | | | (130,262) | | | 165,031 | | | 298,577 | | | (109,820) | | | 188,757 | |
Non-compete | | 2,825 | | | (2,825) | | | — | | | 2,825 | | | (2,825) | | | — | |
Technology | | 96,713 | | | (47,585) | | | 49,128 | | | 97,367 | | | (38,712) | | | 58,655 | |
Trademarks | | 8,946 | | | (6,442) | | | 2,504 | | | 8,947 | | | (5,012) | | | 3,935 | |
Licenses | | 1,196 | | | (1,196) | | | — | | | 1,196 | | | (1,196) | | | — | |
Total | | $ | 549,675 | | | $ | (189,263) | | | $ | 360,412 | | | $ | 554,720 | | | $ | (158,518) | | | $ | 396,202 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, |
| | 2016 | | 2015 |
| | Gross Amount | | Accumulated Amortization | | Net Amount | | Gross Amount | | Accumulated Amortization | | Net Amount |
Indefinite-lived intangible assets: | | | | | | | | | | | | |
Trademarks | | $ | 98,245 |
| | $ | (953 | ) | | $ | 97,292 |
| | $ | 100,546 |
| | $ | (953 | ) | | $ | 99,593 |
|
Finite-lived intangible assets: | | | | | | | | | | | | |
Customer relationships | | 65,963 |
| | (18,485 | ) | | 47,478 |
| | 55,482 |
| | (12,377 | ) | | 43,105 |
|
Non-compete | | 2,856 |
| | (2,457 | ) | | 399 |
| | 2,680 |
| | (2,155 | ) | | 525 |
|
Technology | | 18,494 |
| | (5,423 | ) | | 13,071 |
| | 17,049 |
| | (3,642 | ) | | 13,407 |
|
Trademarks | | 2,004 |
| | (983 | ) | | 1,021 |
| | 2,004 |
| | (898 | ) | | 1,106 |
|
Licenses | | 1,487 |
| | (1,090 | ) | | 397 |
| | 1,482 |
| | (1,058 | ) | | 424 |
|
Total | | $ | 189,049 |
| | $ | (29,391 | ) | | $ | 159,658 |
| | $ | 179,243 |
| | $ | (21,083 | ) | | $ | 158,160 |
|
The Company’s amortization expense related to finite-lived intangible assets was $8,308, $7,779,$30,748, $33,294, and $4,279,$33,126, for the years ended March 31, 2016, 20152023, 2022 and 2014,2021, respectively. The expected amortization expense based on the finite-lived intangible assets as of March 31, 2016,2023, is $8,253$27,648 in 2017, $8,000fiscal 2024, $26,530 in 2018, $7,953fiscal 2025, $25,603 in 2019, $7,803fiscal 2026, $24,780 in 2020fiscal 2027 and $7,563$24,275 in 2021.fiscal 2028.
Goodwill
The following table presents the changes in the carrying amount of goodwill by reportable segment are as follows:during fiscal 2022 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Energy Systems | | Motive Power | | Specialty | | | | | | | | Total |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Balance at March 31, 2021 | | $ | 279,676 | | | $ | 327,055 | | | $ | 98,862 | | | | | | | | | $ | 705,593 | |
Foreign currency translation adjustment | | (215) | | | (3,752) | | | (986) | | | | | | | | | (4,953) | |
Balance at March 31, 2022 | | $ | 279,461 | | | $ | 323,303 | | | $ | 97,876 | | | | | | | | | $ | 700,640 | |
Foreign currency translation adjustment | | (21,257) | | | (1,773) | | | (895) | | | | | | | | | (23,925) | |
Balance at March 31, 2023 | | $ | 258,204 | | | $ | 321,530 | | | $ | 96,981 | | | | | | | | | $ | 676,715 | |
|
| | | | | | | | | | | | | | | | |
| | Fiscal year ended March 31, 2016 |
| | Americas | | EMEA | | Asia | | Total |
Balance at beginning of year | | $ | 190,321 |
| | $ | 146,962 |
| | $ | 32,447 |
| | $ | 369,730 |
|
Goodwill acquired during the year | | 497 |
| | — |
| | 13,898 |
| | 14,395 |
|
Goodwill impairment charge | | (29,578 | ) | | (1,833 | ) | | — |
| | (31,411 | ) |
Reclassification of reporting unit | | 6,712 |
| | (6,712 | ) | | — |
| | — |
|
Foreign currency translation adjustment | | (1,755 | ) | | 2,975 |
| | (387 | ) | | 833 |
|
Balance at end of year | | $ | 166,197 |
| | $ | 141,392 |
| | $ | 45,958 |
| | $ | 353,547 |
|
|
| | | | | | | | | | | | | | | | |
| | Fiscal year ended March 31, 2015 |
| | Americas | | EMEA | | Asia | | Total |
Balance at beginning of year | | $ | 215,630 |
| | $ | 177,586 |
| | $ | 32,840 |
| | $ | 426,056 |
|
Adjustments related to the finalization of purchase accounting for fiscal 2014 acquisitions | | (3,256 | ) | | — |
| | 1,542 |
| | (1,714 | ) |
Goodwill impairment charge | | (19,621 | ) | | (750 | ) | | — |
| | (20,371 | ) |
Foreign currency translation adjustment | | (2,432 | ) | | (29,874 | ) | | (1,935 | ) | | (34,241 | ) |
Balance at end of year | | $ | 190,321 |
| | $ | 146,962 |
| | $ | 32,447 |
| | $ | 369,730 |
|
|
| | | | | | | | | | | | | | | | |
| | March 31, 2016 |
| | Americas | | EMEA | | Asia | | Total |
Gross carrying value | | $ | 215,396 |
| | $ | 143,975 |
| | $ | 51,137 |
| | $ | 410,508 |
|
Accumulated goodwill impairment charges | | (49,199 | ) | | (2,583 | ) | | (5,179 | ) | | (56,961 | ) |
Net book value | | $ | 166,197 |
| | $ | 141,392 |
| | $ | 45,958 |
| | $ | 353,547 |
|
|
| | | | | | | | | | | | | | | | |
| | March 31, 2015 |
| | Americas | | EMEA | | Asia | | Total |
Gross carrying value | | $ | 209,942 |
| | $ | 147,712 |
| | $ | 37,626 |
| | $ | 395,280 |
|
Accumulated goodwill impairment charges | | (19,621 | ) | | (750 | ) | | (5,179 | ) | | (25,550 | ) |
Net book value | | $ | 190,321 |
| | $ | 146,962 |
| | $ | 32,447 |
| | $ | 369,730 |
|
Impairment of goodwill, finite and indefinite-lived intangibles and fixed assets
Goodwill is tested annually for impairment during the fourth quarter or earlier upon the occurrence of certain events or substantive changes in circumstances that indicate goodwill is more likely than not impaired. The Company did not record any impairment relating to its goodwill during fiscal 2023, 2022, and 2021.
InDuring the fourth quarter of fiscal 2016,2023 and 2022, the Company conducted step onerecorded non-cash charges of the annual goodwill impairment test which indicated that the fair values of three of its reporting units - Purcell$480 and Quallion/ABSL US in the Americas and it's South Africa joint venture in the EMEA operating segment - were less than their respective carrying values, requiring the Company to perform step two of the goodwill impairment analysis.
Based on the aforementioned analysis, the implied fair value of goodwill was lower than the carrying value of the goodwill for the Purcell and Quallion/ABSL US reporting units in the Americas operating segment and the South Africa joint venture in the EMEA operating segment.
The Company recorded a non-cash charge of $31,411 related to goodwill impairment in the Americas and EMEA operating segment, $3,420$1,178, respectively, related to impairment of indefinite-lived trademarks in the Americas and $1,421 related to impairment of fixed assets in the EMEA operating segment for an aggregate charge of $36,252 under the caption "Impairment“Impairment of goodwill, indefinite-lived intangibles and fixed assets"intangibles” in the Consolidated Statements of Income.
The Management completed its evaluation of key factors contributinginputs used to the impairments in both fiscal years were that the reporting units in the Americas were recent acquisitions that have not performed to management's expectations. In the case of Purcell, the impairment was the result of lower estimated projected revenue and profitability in the near term caused by reduced levels of capital spending by major customers in the telecommunications industry. In the case of Quallion/ABSL US, the impairment was the result of lower estimated projected revenue and profitability in the near term caused by delays, both in introducing new products and in programs serving the aerospace and defense markets. In the case of the South Africa joint venture, declining business conditions in South Africa resulted in negative cash flows.
In fiscal 2015, as a result of failing step one of the annual goodwill impairment test, the Company performed step two of the goodwill impairment analysis and thereby recorded a non-cash charge of $20,371 related to goodwill impairment in the Americas and EMEA operating segments and $3,575 related to impairment of indefinite-lived trademarks in the Americas.
In fiscal 2014, the Company determined thatestimate the fair value of its subsidiary in India, whichindefinite-lived trademarks and determined that an impairment charge was acquired in fiscal 2012, was less than its carrying amount based on the Company's analysis of the estimated future expected cash flows the Company anticipated from the operations of this subsidiary. Accordingly, the Company recorded a non-cash charge of $5,179 for goodwill impairment relating to this subsidiary.appropriate.
The Company estimated tax-deductible goodwill to be approximately $20,766$86,709 and $24,446$101,499 as of March 31, 20162023 and 2015,2022, respectively.
6.8. Prepaid and Other Current Assets
Prepaid and other current assets consist of the following:
| | | | | | | | | | | | | | |
| | March 31, |
| | 2023 | | 2022 |
Contract assets | | $ | 48,616 | | | $ | 59,924 | |
Prepaid non-income taxes | | 17,946 | | | 25,585 | |
Non-trade receivables | | 6,978 | | | 16,670 | |
Prepaid income taxes | | 4,915 | | | 7,162 | |
Other | | 35,146 | | | 46,218 | |
Total | | $ | 113,601 | | | $ | 155,559 | |
|
| | | | | | | | |
| | March 31, |
| | 2016 | | 2015 |
Prepaid non-income taxes | | $ | 19,289 |
| | $ | 19,231 |
|
Prepaid income taxes | | 35,294 |
| | 30,577 |
|
Non-trade receivables | | 2,876 |
| | 4,050 |
|
Other | | 19,593 |
| | 23,714 |
|
Total | | $ | 77,052 |
| | $ | 77,572 |
|
7.9. Accrued Expenses
Accrued expenses consist of the following:
| | | | | | | | | | | | | | |
| | March 31, |
| | 2023 | | 2022 |
Payroll and benefits | | $ | 80,826 | | | $ | 81,058 | |
Accrued selling expenses | | 47,330 | | | 48,894 | |
Contract liabilities | | 34,594 | | | 27,870 | |
Warranty | | 24,226 | | | 20,716 | |
Operating lease liabilities | | 21,230 | | | 20,086 | |
VAT and other non-income taxes | | 15,321 | | | 16,458 | |
Freight | | 16,482 | | | 14,167 | |
Income taxes payable | | 8,152 | | | 1,229 | |
Interest | | 7,531 | | | 10,793 | |
Pension | | 1,314 | | | 1,294 | |
Restructuring | | 445 | | | 1,030 | |
Other | | 51,496 | | | 46,170 | |
Total | | $ | 308,947 | | | $ | 289,765 | |
(1)Income taxes payable includes amounts relating to the Tax Act - Transition Tax totaling $11,572 and $6,172 net of income taxes payable in a prepaid position of $3,420 and $4,943 for fiscal 2023 and fiscal 2022, respectively. .
|
| | | | | | | | |
| | March 31, |
| | 2016 | | 2015 |
Payroll and benefits | | $ | 48,470 |
| | $ | 47,323 |
|
Accrued selling expenses | | 32,759 |
| | 31,269 |
|
Income taxes payable | | 17,345 |
| | 17,721 |
|
Warranty | | 20,198 |
| | 18,285 |
|
Freight | | 13,791 |
| | 14,315 |
|
VAT and other non-income taxes | | 4,302 |
| | 8,657 |
|
Deferred income | | 9,840 |
| | 12,188 |
|
Restructuring | | 2,989 |
| | 3,820 |
|
Interest | | 6,297 |
| | 1,970 |
|
Pension | | 1,321 |
| | 1,226 |
|
Other | | 43,184 |
| | 36,488 |
|
Total | | $ | 200,496 |
| | $ | 193,262 |
|
8.10. Debt
Summary of Long-Term Debt
The following summarizes the Company’s long-term debt:
|
| | | | | | | | | | | | | | | | |
| | As of March 31, |
| | 2016 | | 2015 |
| | Principal | | Unamortized Issuance Costs | | Principal | | Unamortized Issuance Costs |
5.00% Senior Notes due 2023 | | $ | 300,000 |
| | $ | 4,370 |
| | $ | — |
| | $ | — |
|
2011 Credit Facility, due 2018 | | 312,500 |
| | 1,909 |
| | 325,000 |
| | 2,615 |
|
3.375% Convertible Notes, net of discount, due 2038 | | — |
| | — |
| | 170,936 |
| | 97 |
|
| | $ | 612,500 |
| | $ | 6,279 |
| | $ | 495,936 |
| | $ | 2,712 |
|
Less: Unamortized issuance costs | | 6,279 |
| | | | 2,712 |
| | |
Less: Current portion | | — |
| | | | — |
| | |
Long-term debt, net of unamortized issuance costs | | $ | 606,221 |
| | | | $ | 493,224 |
| | |
As discussed in Note 1, the Company elected to early adopt accounting guidance issued in April 2015 to simplify the presentation of debt issuance costs. This change in accounting principle was implemented retrospectively as of March 31, 2015. Debt issuance costs that are incurred by the Company in connection with the issuance of debt are deferred2023 and amortized to interest expense using the effective interest method over the contractual term of the underlying indebtedness. The Company has reclassified debt issuance costs as a direct reduction to the related debt obligation on the balance sheet as of March 31, 2015.2022:
5.00% | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| | Principal | | Unamortized Issuance Costs | | Principal | | Unamortized Issuance Costs |
Senior Notes | | $ | 300,000 | | | $ | 2,705 | | | $ | 600,000 | | | $ | 3,905 | |
Second Amended Credit Facility, due 2026 | | 748,413 | | | 3,719 | | | 650,268 | | | 3,361 | |
| | $ | 1,048,413 | | | $ | 6,424 | | | $ | 1,250,268 | | | $ | 7,266 | |
Less: Unamortized issuance costs | | 6,424 | | | | | 7,266 | | | |
| | | | | | | | |
Long-term debt, net of unamortized issuance costs | | $ | 1,041,989 | | | | | $ | 1,243,002 | | | |
The Company's Senior Notes comprise the following:
4.375% Senior Notes due 2027
On April 23, 2015,December 11, 2019, the Company issued $300,000 in aggregate principal amount of its 4.375% Senior Notes due December 15, 2027 (the “2027 Notes”). Proceeds from this offering, net of debt issuance costs were $296,250 and were utilized to pay down the Amended 2017 Revolver (defined below). The 2027 Notes bear interest at a rate of 4.375% per annum accruing from December 11, 2019. Interest is payable semiannually in arrears on June 15 and December 15 of each year, commencing on June 15, 2020. The 2027 Notes mature on December 15, 2027, unless earlier redeemed or repurchased in full and are unsecured and unsubordinated obligations of the Company. They are fully and unconditionally guaranteed, jointly and severally, by certain of its subsidiaries that are guarantors under the Fourth Amended Credit Facility (defined below). These guarantees are unsecured and unsubordinated obligations of such guarantors.
The Company may redeem, prior to September 15, 2027, all or a portion of the 2027 Notes at a price equal to 100% of the principal amount of the 2027 Notes to be redeemed, plus accrued and unpaid interest and a “make whole” premium to, but excluding, the redemption date. The Company may redeem, on or after September 15, 2027, all or a portion of the 2027 Notes at a price equal to 100% of the principal amount of the 2027 Notes, plus accrued and unpaid interest to, but excluding, the redemption date. If a change of control triggering event occurs, the Company will be required to offer to repurchase the 2027 Notes at a price in cash equal to 101% of the aggregate principal amount of the 2027 Notes, plus accrued and unpaid interest to, but excluding, the date of repurchase. The 2027 Notes were rank pari passu with the 2023 Notes (defined below) prior to their redemption.
5.00% Senior Notes due 2023
The 5% Senior Notes due April 30, 2023 (the “Notes”“2023 Notes”). The Notes bear interest at a rate of 5.00% per annum accruing from April 23, 2015.and have an original face value of $300,000. Interest is payable semiannually in arrears on April 30 and October 30 of each year commencingand commenced on October 30, 2015. The 2023 Notes will mature on April 30, 2023, unless earlier redeemed or repurchased in full. The 2023 Notes are unsecured and unsubordinated obligations of the Company. The 2023 Notes are fully and unconditionally guaranteed, (the “Guarantees”), jointly and severally, by eachcertain of its subsidiaries that are guarantors under the 2011Second Amended Credit Facility (the "Guarantors"). The GuaranteesFacility. These guarantees are unsecured and unsubordinated obligations of such guarantors.
On February 10, 2023, the Guarantors. The net proceedsCompany issued a notice of redemption for all $300,000 aggregate principal amount of its outstanding 5.00% Senior Notes due 2023 (the “2023 Notes”) with a redemption date (the “Redemption Date) on March 13, 2023, at a redemption price equal to 100% of the 2023 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the Redemption Date. As of March 31, 2023, all principal and unamortized issuance costs are unrecognized from the sale ofbalance sheet.
2017 Credit Facility and Subsequent Amendments
In fiscal 2018, the Notes were used primarilyCompany entered into a credit facility (the “2017 Credit Facility”). The 2017 Credit Facility scheduled to repay and retire in full the principal amount
of the Company’s senior 3.375% convertible notes (the “Convertible Notes”), as discussed below, as well as, fund the accelerated share repurchase program discussed in Note 15.
2011 Senior Secured Credit Facility
The Company is party tomature on September 30, 2022, initially comprised a $350,000$600,000 senior secured revolving credit facility (“2017 Revolver”) and a
$150,000 senior secured term loan (“2017 Term Loan”). The Company utilized the borrowings from the 2017 Credit Facility to repay its pre-existing credit facility.
In fiscal 2019, the Company amended the 2017 Credit Facility (as amended, the "2011“Amended Credit Facility"Facility”) to fund the Alpha acquisition. The Amended Credit Facility consisted of $449,105 senior secured term loans (the “Amended Term Loan”), as well as, an Incremental Commitment Agreement pursuant to which certain banks agreed to provide incrementalincluding a CAD 133,050 ($99,105) senior secured term loan commitments of $150,000 and incremental revolving commitments of $150,000. Pursuant to these changes, the 2011 Credit Facility is now comprised of a $500,000$700,000 senior secured revolving credit facility (the “Amended Revolver”). The amendment resulted in an increase of the 2017 Term Loan and the 2017 Revolver by $299,105 and $100,000, respectively.
During the second quarter of fiscal 2022, the Company entered into a $150,000second amendment to the 2017 Credit Facility (as amended, the “Second Amended Credit Facility”). The Second Amended Credit Facility, scheduled to mature on September 30, 2026, consists of a $130,000 senior secured incremental term loan (the "Term Loan"“Second Amended Term Loan”) that matures, a CAD 106,440 ($84,229) senior secured term loan and an $850,000 senior secured revolving credit facility (the “Second Amended Revolver”). The second amendment resulted in a decrease of the Amended Term Loan by $150,000 and an increase of the Amended Revolver by $150,000.
During the second quarter of fiscal 2023, the Company entered into a third amendment to the 2017 Credit Facility (as amended, the “Third Amended Credit Facility”). The Third Amended Credit Facility provides a new incremental delayed-draw senior secured term loan up to $300,000 (the “Third Amended Term Loan”), which shall be available to draw at any time until March 15, 2023. Once drawn, the funds will mature on September 30, 2018.2026, the same as the Company's Second Amended Term loan and Second Amended Revolver. In connection with the agreement, the Company incurred $1,161 in third party administrative and legal fees recognized in interest expense and capitalized $1,096 in charges from existing lenders as a deferred asset. During the fourth quarter, the Company drew $300,000 in the form of the Third Amended Term Loan. Additionally, the Company derecognized the capitalized deferred asset and recognized the $1,096 as a deferred financing costs.
During the fourth quarter of fiscal 2023, the Company entered into a fourth amendment to the 2017 Credit Facility (as amended, the “Fourth Amended Credit Facility”). The Fourth Amended Credit Facility replaces the London Interbank Offered Rate (“LIBOR”) with the Secured Overnight Financing Rate (“SOFR”) in the calculation of interest for both the Second Amended Revolver and the Second Amended Term Loan.
Subsequent to the fourth amendment, the quarterly installments payable on the Second Amended Term Loan is payable in quarterly installments of $1,875are $2,608 beginning June 30, 2015December 31, 2022, $3,912 beginning December 31, 2024 and $3,750$5,216 beginning June 30, 2016December 31, 2025 with a final payment of $108,750$156,472 on September 30, 2018.2026. The 2011Fourth Amended Credit Facility may be increased by an aggregate amount of $300,000$350,000 in revolving commitments and/orand /or one or more new tranches of term loans, under certain conditions. Both revolving loansthe Second Amended Revolver and the Second Amended Term Loan under the 2011 Credit Facility will bear interest, at the Company's option, at a rate per annum equal to either (i) the London InterbankSOFR or Canadian Dollar Offered Rate (“LIBOR”CDOR”) plus (i) Term SOFR plus between 1.25%1.125% and 1.75%2.25% (currently 1.25% and based on the Company's consolidated net leverage ratio) or (ii) the U.S. Dollar Base Rate (which isequals, for any day a fluctuating rate per annum equal to the highest of (a) the Federal Funds Effective Rate plus 0.50%, (b) Bank of America prime“Prime Rate” and (c) the Eurocurrency Base Rate plus 1%; provided that, if the Base Rate shall be less than zero, such rate shall be deemed zero) (iii) the CDOR Base Rate equal to the higher of (a) Bank of America “Prime Rate” and (b) average 30-day CDOR rate plus 0.50%.
The quarterly installments payable on the Third Amended Term Loan are $3,750 beginning June 30, 2023, $5,625 beginning December 31, 2024 and $7,500 beginning December 31, 2025 with a final payment of $232,500 on September 30, 2026. The Third Amended Term Loan bears interest, at the Company's option, at a rate per annum equal to either (i) the Secured Overnight Financing Rate (“SOFR”) plus 10 basis points plus (i) Term SOFR plus between 1.375% and 2.50% (currently 1.50% and based on the Company's consolidated net leverage ratio) or (ii) the U.S. Dollar Base Rate plus between 0.375% and 1.50%, which equals, for any day a fluctuating rate per annum equal to the highest of (a) the Federal Funds Effective Rate)Rate plus between 0.25%0.50%, (b) Bank of America “Prime Rate” and 0.75% (based(c) the Term SOFR plus 1%; provided that, if the Base Rate shall be less than zero, such rate shall be deemed zero). Until the funds were drawn on March 13, 2023, the Company paid a commitment fee of 0.175% to 0.35% at a rate per annum on the Company’s consolidated net leverage ratio). unused portion.
Obligations under the 2011Fourth Amended Credit Facility are secured by substantially all of the Company’s existing and future acquired assets, including substantially all of the capital stock of the Company’s United States subsidiaries that are guarantors under the credit facility,Second Amended Credit Facility and up to 65% of the capital stock of certain of the Company’s foreign subsidiaries that are owned by the Company’s United States companies.subsidiaries.
There are no prepayment penalties on loans under the 2011 Credit Facility.
The Company had $170,000 revolver borrowings and $142,500 Term Loan borrowings outstanding under its 2011Fourth Amended Credit Facility asallows for up to two temporary increases in the maximum leverage ratio to 4.50x from 4.00x to 4.25x for a four quarter period following an acquisition larger than $250,000. Effective with the Third Amended Credit Facility, the maximum leverage ratio increased from 3.50x to 4.25x effective to the last day of the second quarter of fiscal year 2024 and decreasing subsequently to 4.00x.
As of March 31, 2016.2023, the Company had $245,000 outstanding under the Second Amended Revolver, $203,413 under the Second Amended Term Loan, and $300,000 outstanding under the Third Amended Term Loan.
The current portionscheduled repayments within the next twelve months of fiscal 2024, relating to the Second and Third Amended Term Loan ofLoans is $10,431 and $15,000, respectively, and is classified as long-term debt, as the Company expects to refinance the future quarterly payments with revolver borrowings under its 2011the Second Amended Credit Facility.
Senior Unsecured 3.375% Convertible NotesInterest Rates on Long Term Debt
The Company's 3.375% Convertible Notes, with an original face value of $172,500, were issued whenweighted average interest rate on the Company’s stock price was tradinglong term debt at $30.19 per share. On March 31, 2015, the Company’s stock price closed at $64.24 per share. On May 7, 2015, the Company filed a notice of redemption for all of the Convertible Notes with a redemption date of June 8, 2015 at a price equal to $1,000.66 per $1,000 original principal amount of Convertible Notes, which is equal to 100% of the accreted principal amount of the Convertible Notes being repurchased plus accrued2023 and unpaid interest. Holders were permitted to convert their Convertible Notes at their option on or before June 5, 2015.
Ninety-nine percent of the Convertible Notes holders exercised their conversion rights on or before June 5, 2015, pursuant to which, on July 17, 2015, the Company paid $172,388, in aggregate, towards the principal balance including accreted interest, cash equivalent of fractional shares issued towards conversion premium and settled the conversion premium by issuing, in the aggregate, 1,889,431 shares of the Company's common stock from its treasury shares, thereby resulting in the extinguishment of all of the Convertible Notes as of that date. There was no impact to the income statement from the extinguishment as the fair value of the total settlement consideration transferred and allocated to the liability component approximated the carrying value of the Convertible Notes. The remaining consideration allocated to the equity component resulted in an adjustment to equity of $84,140.
The following represents the principal amount of the liability component, the unamortized discount, and the net carrying amount of our Convertible Notes as of March 31, 20162022, was 4.6% and 2015, respectively:3.3%, respectively.
|
| | | | | | | | |
| | March 31, |
| | 2016 | | 2015 |
Principal | | $ | — |
| | $ | 172,266 |
|
Unamortized discount | | — |
| | (1,330 | ) |
Net carrying amount | | $ | — |
| | $ | 170,936 |
|
The amount of interest cost recognized for the amortization of the discount on the liability component of the Convertible Notes was $1,330, $8,283 and $7,614, respectively, for the fiscal years ended March 31, 2016, 2015 and 2014.
The Company paid $15,176, $10,088in cash, $58,368, $37,776 and $8,490,$36,365, net of interest received, for interest during the fiscal years ended March 31, 2016, 20152023, 2022 and 2014,2021, respectively.
Covenants
The Company’s financing agreements contain various covenants, which, absent prepayment in full of the indebtedness and other obligations, or the receipt of waivers, would limit the Company’s ability to conduct certain specified business transactions including incurring debt, mergers, consolidations or similar transactions, buying or selling assets out of the ordinary course of business, engaging in sale and leaseback transactions, paying dividends and certain other actions. The Company is in compliance with all such covenants.
Short-Term Debt
As of March 31, 20162023 and 2015,2022, the Company had $22,144$30,642 and $19,715,$55,084, respectively, of short-term borrowings from banks.borrowings. The weighted-average interest ratesrate on these borrowings werewas approximately 8%7.0% and 10%2.4%, respectively, for fiscal years ended March 31, 20162023 and 2015, respectively.2022.
Letters of Credit
As of March 31, 20162023 and 2015,2022, the Company had $2,693$3,565 and $3,862,$2,959, respectively, of standby letters of credit.
Deferred Financing FeesDebt Issuance Costs
In fiscal 2023, the Company capitalized $1,122 in debt issuance costs in connection with the issuance of the Notes,Third and Fourth Amended Credit Facilities. In fiscal 2022, the Company incurred $5,031capitalized $2,952 in debt issuance costs.costs and wrote off $128 of unamortized debt issuance costs in connection with the Second Amended Credit Facility. Amortization expense, relating to debt issuance costs, included in interest expense was $1,464, $1,263,$1,964, $2,107, and $1,141$2,072 for the fiscal years ended March 31, 2016, 20152023, 2022 and 2014,2021, respectively. Debt issuance costs, net of accumulated amortization, totaled $6,279$6,424 and $2,712$7,266 as of March 31, 20162023 and 2015,2022, respectively.
Available Lines of Credit
As of March 31, 20162023 and 2015,2022, the Company had available and undrawn, under all its lines of credit, $472,187$693,444 and $464,733,$482,305, respectively, including $144,112$90,839 and $141,533,$69,430, respectively, of uncommitted lines of credit as of March 31, 20162023 and March 31, 2015.2022.
9. Leases
The Company’s future minimum lease payments under operating leases that have noncancelable terms in excess of one year as of March 31, 2016 are as follows:
|
| | | | |
| | Operating Leases |
2017 | | $ | 20,291 |
|
2018 | | 16,014 |
|
2019 | | 11,160 |
|
2020 | | 8,750 |
|
2021 | | 6,387 |
|
Thereafter | | 6,447 |
|
Total minimum lease payments | | $ | 69,049 |
|
Rental expense was $34,590, $35,974, and $34,923 for the fiscal years ended March 31, 2016, 2015 and 2014, respectively. Certain operating lease agreements contain renewal or purchase options and/or escalation clauses.
10.11. Other Liabilities
Other liabilities consist of the following:
| | | | | | | | | | | | | | |
| | March 31, |
| | 2023 | | 2022 |
Operating lease liabilities | | $ | 66,555 | | | $ | 52,904 | |
Tax Act - Transition Tax | | 34,715 | | | 46,587 | |
Warranty | | 32,404 | | | 34,262 | |
Pension | | 24,528 | | | 28,566 | |
Net investment hedges | | 15,760 | | | 4,090 | |
Liability for uncertain tax positions | | 3,930 | | | 5,210 | |
Contract liabilities | | 1,437 | | | 1,387 | |
Other | | 11,783 | | | 10,774 | |
Total | | $ | 191,112 | | | $ | 183,780 | |
|
| | | | | | | | |
| | March 31, |
| | 2016 | | 2015 |
Pension | | $ | 41,309 |
| | $ | 42,144 |
|
Warranty | | 28,224 |
| | 21,525 |
|
Deferred income | | 6,007 |
| | 6,564 |
|
Liability for uncertain tax benefits | | 2,176 |
| | 3,796 |
|
Other | | 8,763 |
| | 7,550 |
|
Total | | $ | 86,479 |
| | $ | 81,579 |
|
11.12. Fair Value of Financial Instruments
Recurring Fair Value Measurements
The following tables represent the financial assets and (liabilities) measured at fair value on a recurring basis as of March 31, 20162023 and March 31, 20152022 and the basis for that measurement:
| | | | Total Fair Value Measurement March 31, 2016 | | Quoted Price in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value Measurement March 31, 2023 | | Quoted Price in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Lead forward contracts | | $ | (499 | ) | | $ | — |
| | $ | (499 | ) | | $ | — |
| Lead forward contracts | | $ | (89) | | | $ | — | | | $ | (89) | | | $ | — | |
Foreign currency forward contracts | | (988 | ) | | — |
| | (988 | ) | | — |
| Foreign currency forward contracts | | 923 | | | — | | | 923 | | | — | |
Interest rate swaps | | Interest rate swaps | | (1,162) | | | — | | | (1,162) | | | — | |
Net investment hedges | | Net investment hedges | | (15,760) | | | — | | | (15,760) | | | — | |
Total derivatives | | $ | (1,487 | ) | | $ | — |
| | $ | (1,487 | ) | | $ | — |
| Total derivatives | | $ | (16,088) | | | $ | — | | | $ | (16,088) | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Fair Value Measurement March 31, 2022 | | Quoted Price in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Lead forward contracts | | $ | 2,520 | | | $ | — | | | $ | 2,520 | | | $ | — | |
Foreign currency forward contracts | | (256) | | | — | | | (256) | | | — | |
Net investment hedges | | 298 | | | — | | | 298 | | | — | |
Total derivatives | | $ | 2,562 | | | $ | — | | | $ | 2,562 | | | $ | — | |
|
| | | | | | | | | | | | | | | | |
| | Total Fair Value Measurement March 31, 2015 | | Quoted Price in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Lead forward contracts | | $ | (341 | ) | | $ | — |
| | $ | (341 | ) | | $ | — |
|
Foreign currency forward contracts | | 4,155 |
| | — |
| | 4,155 |
| | — |
|
Total derivatives | | $ | 3,814 |
| | $ | — |
| | $ | 3,814 |
| | $ | — |
|
The fair values of lead forward contracts are calculated using observable prices for lead as quoted on the London Metal Exchange (“LME”) and, therefore, were classified as Level 2 within the fair value hierarchy as described in Note 1, Summary of Significant Accounting Policies.
The fair values for foreign currency forward contracts, interest rate swaps, and net investment hedges are based upon current quoted market prices and are classified as Level 2 based on the nature of the underlying market in which these derivatives are traded.
The fair value of interest rate swap agreements are based on observable prices as quoted for receiving the variable one month term SOFR and paying fixed interest rates and, therefore, were classified as Level 2.
Financial Instruments
The fair values of the Company’s cash and cash equivalents accounts receivable and accounts payable approximate carrying value due to their short maturities.
The fair value of the Company’s short-term debt and borrowings under the 2011Second Amended Credit Facility (as defined in Note 8)10), approximate their respective carrying value, as they are variable rate debt and the terms are comparable to market terms as of the balance sheet dates and are classified as Level 2.
The Company's 5.00% Senior Notes due 2023, with an original facefair value of $300,000, were issued in April 2015. The fair values of thesethe Company's 2027 Notes and 2023 Notes, (collectively, the “Senior Notes”) represent the trading values based upon quoted market prices and are classified as Level 2. The 2027 Notes were trading at approximately 96%92% and 95% of face value on March 31, 2016.
The Company's 3.375% Convertible Notes, with an original face value of $172,500, were issued when the Company’s stock price was trading at $30.19 per share. On2023 and March 31, 2015, the Company’s stock price closed at $64.24 per share. On July 17, 2015, the Company paid $172,388,2022, respectively. The 2023 Notes, which were redeemed in aggregate, towards the principal balance including accreted interest, cash equivalent of fractional shares issued towards conversion premium and settled the conversion premium by issuing,fiscal 2023 as discussed in the aggregate, 1,889,431 shares of the Company's common stock from its treasury shares, thereby resulting in the extinguishment of all of the Convertible Notes as of that date. The fair value of the Convertible Notes as of March 31, 2015, whichNote 10, were trading at 161% asapproximately 101% of that date, represented the trading values based upon quoted market prices at and were classified as Level 2.face value on March 31, 2022.
The carrying amounts and estimated fair values of the Company’s derivatives theand Senior Notes and Convertible Notes (as defined in Note 8) at March 31, 20162023 and 20152022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | March 31, 2022 | |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | |
Financial assets: | | | | | | | | | |
Derivatives(1) | | $ | — | | | $ | — | | | $ | 2,562 | | | $ | 2,562 | | |
Financial liabilities: | | | | | | | | | |
Senior Notes (2) | | $ | 300,000 | | | $ | 276,000 | | | $ | 600,000 | | | $ | 585,750 | | |
Derivatives(1) | | (16,088) | | | (16,088) | | | — | | | — | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2016 | | | | March 31, 2015 | | |
| | Carrying Amount | | | | Fair Value | | | | Carrying Amount | | | | Fair Value | | |
Financial assets: | | | | | | | | | | | | | | | | |
Derivatives(1) | | $ | — |
| | | | $ | — |
| | | | $ | 4,155 |
| | | | $ | 4,155 |
| | |
Financial liabilities: | | | | | | | | | | | | | | | | |
Notes (2) | | 300,000 |
| | | | 288,000 |
| | | | — |
| | | | — |
| | |
Convertible Notes (2) (3) | | — |
| | | | — |
| | | | 170,936 |
| | | | 277,348 |
| | |
Derivatives(1) | | $ | 1,487 |
| | | | $ | 1,487 |
| | | | $ | 341 |
| | | | $ | 341 |
| | |
(1)Represents lead, foreign currency forward contracts, interest rate swaps, and net investment hedges (see Note 13 for asset and liability positions of the lead, foreign currency forward contracts and net investment hedges at March 31, 2023 and March 31, 2022).(2)The fair value amount of the Senior Notes at March 31, 2023 and March 31, 2022 represent the trading value of the instruments.
| |
(1) | Represents lead and foreign currency forward contracts (see Note 12 for asset and liability positions of the lead and foreign currency forward contracts at March 31, 2016 and March 31, 2015). |
| |
(2) | The fair value amount of the Notes at March 31, 2016 and the Convertible Notes at March 31, 2015 represents the trading value of the instruments. |
| |
(3) | The carrying amount of the Convertible Notes at March 31, 2015 represents the $172,266 principal balance, less the unamortized debt discount (see Note 8 for further details). |
Non-recurring fair value measurements
The valuation of goodwill and other intangible assets is based on information and assumptions available to the Company at the time of acquisition, using income and market approaches to determine fair value. The Company tests goodwill and other intangible assets annually for impairment, or when indications of potential impairment exist (see Note 1).
Goodwill is tested for impairment by determining the fair value of the Company’s reporting units. The unobservable inputs used to measure the fair value of the reporting units include projected growth rates, profitability, and the risk factor premium added to the discount rate. The remeasurement of goodwillthe reporting unit fair value is classified as a Level 3 fair value assessment due to the significance of unobservable inputs developed using company-specific information.
The inputs used to measure the fair value of other intangible assets were largely unobservable and accordingly were also classified as Level 3. The fair value of trademarks is based on an estimate of the royalties saved that would have been paid to a third party had the Company not owned the trademark. For fiscal 2016, the Company used royalty rates ranging between 0.5%-2.5% based on comparable market rates, and used discount rates ranging between 16.0%-24.0%. For fiscal 2015, the Company used royalty rates ranging between 1.0%-2.5% based on comparable market rates, and used discount rates ranging between 19.0%-23.5%.
The fair value of other indefinite-lived intangibles was estimated using the income approach, based on cash flow projections of revenue growth rates, taking into consideration industry and market conditions.
In connection with the annual impairment testing conducted as of December 28, 2015 for fiscal 2016,January 2, 2023, two of the Company's indefinite-lived trademarks, associated with Purcell and Quallion/ABSL USwhich were acquired through acquisitions, were recorded at fair value on a nonrecurringnon-recurring basis at $10,000$6,900 and $990, respectively,the remeasurements resulted in an impairment of $480. In determining the fair value of these assets, the Company used a royalty rate of 1.5% based on comparable market rates and used discount rate of 24.0%. In fiscal 2022, the Company recorded an impairment relating to additional two trademarks, which were recorded at a fair value on a non-recurring basis of $980 and the remeasurement resulted in an aggregate impairment charge of $3,420.$1,178. In determining the fair value of these assets, the Company used a royalty rate of 1.25% based on comparable market rates and used a discount rate of 13.0% and 14.5%.
In connection with the annualThese impairment testing conducted as of December 29, 2014 for fiscal 2015,charges relating to goodwill and indefinite-lived trademarks associated with Purcell and Quallion/ABSL US were recorded at fair value on a nonrecurring basis at $13,300 and $1,070, respectively, and the remeasurement resulted in an aggregate impairment charge of $3,575.
These charges are included under the caption "Impairmentcaptions Impairment of goodwill and Impairment of indefinite-lived intangibles and fixed assets" in the Consolidated Statements of Income.
Ooltewah
On June 29, 2022, the Company committed to a plan to close its facility in Ooltewah, Tennessee, which focused on manufacturing flooded motive power batteries for electric forklifts. Management determined that future demand for traditional motive power flooded cells will decrease as customers transition to maintenance free product solutions in lithium and Thin Plate Pure Lead (TPPL). As a result, the Company concluded that the carrying value of the asset group was not recoverable and recorded during the first quarter of fiscal 2023 a write-off of $7,300 of the fixed assets, for which there is expected to be no salvageable value. The valuation technique used to measure the fair value of fixed assets was a combination of the income and market approaches. The inputs used to measure the fair value of these fixed assets under the income approach were largely unobservable and accordingly were classified as Level 3
Russia
In February 2022, as a result of the Russia-Ukraine conflict, economic sanctions were imposed on Russian individuals and entities, including financial institutions, by countries around the world, including the U.S. and the European Union. On March 3, 2022, the Company announced that it was indefinitely suspending its operations in Russia in order to comply with the sanctions. As a result of this decision, the Company wrote off net assets of $3,999 relating to its Russian subsidiary, based on a non-recurring basis.
Vijayawada, India
During fiscal 2021, the Company committed to a plan to close its facility in Vijayawada, India to align with its strategic vision for the new line of business structure and footprint. As a result of this decision, in fiscal 2022, the Company reclassified property, plant and equipment with a carrying value of $4,573 to assets held for sale on the Consolidated Balance Sheet and recognized an impairment loss of $2,973 under the caption Loss on assets held for sale on its consolidated statement of income, by recording the carrying value of these assets to their estimated fair value of $1,600, based on a non-recurring basis. The fair value was based on the expected proceeds, less costs to sell.
Hagen, Germany
In fiscal 2021, the Company committed to a plan to substantially close all of its facility in Hagen, Germany, which produces flooded motive power batteries for forklifts. Management determined that future demand for the motive power batteries produced at this facility was not sufficient, given the conversion from flooded to maintenance free batteries by customers, the existing number of competitors in the market, as well as the near term decline in demand and increased uncertainty from the pandemic. As a result, the Company concluded that the carrying value of the asset group is not recoverable and recorded a write-off of $3,975 of the fixed assets to their estimated fair value of $14,456, which was recognized in the third quarter of fiscal 2021. The valuation technique used to measure the fair value of fixed assets was a combination of the income and market approaches. The inputs used to measure the fair value of these fixed assets under the income approach were largely unobservable and accordingly were classified as Level 3.
13. Derivative Financial Instruments
The Company utilizes derivative instruments to reduce its exposure to fluctuations in commodity prices, and foreign exchange rates and interest under established procedures and controls. The Company does not enter into derivative contracts for speculative purposes. The Company’s agreements are with creditworthy financial institutions and the Company anticipates performance by counterparties to these contracts and therefore no material loss is expected.
Derivatives in Cash Flow Hedging Relationships
Lead Forward Contracts
The Company enters into lead forward contracts to fix the price for a portion of its lead purchases. Management considers the lead forward contracts to be effective against changes in the cash flows of the underlying lead purchases. The vast majority of such contracts are for a period not extending beyond one year and the notional amounts atyear. At March 31, 20162023 and 2015 were 27.42022, the Company has hedged the price to purchase approximately 50.0 million pounds and 91.654.0 million pounds of lead, respectively, for a total purchase price of $47,921 and $56,768, respectively.
Foreign Currency Forward Contracts
The Company uses foreign currency forward contracts and options to hedge a portion of the Company’s foreign currency exposures for lead, as well as other foreign currency exposures so that gains and losses on these contracts offset changes in the underlying foreign currency denominated exposures. The vast majority of such contracts are for a period not extending beyond one year. As of March 31, 20162023 and 2015,2022, the Company had entered into a total of $18,206$45,823 and $75,878,$29,676, respectively, of such contracts.
Interest Rate Swap Agreements
The Company is exposed to changes in variable interest rates on borrowings under our credit agreement. On a selective basis, from time to time, it enters into interest rate swap agreements to reduce the negative impact that increases in interest rates could have on our outstanding variable rate debt. At March 31, 2023 such agreements effectively convert $200,000 of our variable-rate debt to a fixed-rate basis, utilizing the one-month term SOFR, as a floating rate reference. Fluctuations in SOFR and fixed rates affect both our net financial investment position and the amount of cash to be paid or received by us under these agreements.
Derivatives in Net Investment Hedging Relationships
Net Investment Hedges
The Company uses cross currency fixed interest rate swaps to hedge its net investments in foreign operations against future volatility in the exchange rates between the U.S. Dollar and Euro.
On September 29, 2022, the Company terminated its $300,000 cross-currency fixed interest rate swap contracts, originally entered into on December 23, 2021, and received a net settlement of $43,384. The cash proceeds have been included in Proceeds from termination of net investment hedges in our Consolidated Statements of Cash Flows.
On September 29, 2022, the Company entered into cross-currency fixed interest rate swap contracts with an aggregate notional amount of $150,000, maturing on December 15, 2027. The cross-currency fixed interest rate swap contracts qualify for hedge accounting as a net investment hedging instrument, which allows for them to be remeasured to foreign currency translation adjustment within AOCI (“Accumulated Other Comprehensive Income”) to offset the translation risk from those investments. Balances in the foreign currency translation adjustment accounts remain until the sale or substantially complete liquidation of the foreign entity, upon which they are recognized as a component of income (expense).
Impact of Hedging Instruments on AOCI
In the coming twelve months, the Company anticipates that $601$5,818 of net pretaxgainrelating to lead, and foreign currency forward contracts, interest rate swaps, and net investment hedges will be reclassified from AOCI as part of cost of goods sold.sold and interest expense. This amount represents the current net unrealized impact of hedging lead, and foreign exchange rates and interest rates, which will change as market rates change in the future, andfuture. This amount will ultimately be realized in the Consolidated StatementStatements of Income as an offset to the corresponding actual changes in lead, foreign exchange rates and lead costs to be realized in connection with theresulting from variable lead cost, and foreign exchange and interest rates being hedged.
Derivatives not Designated in Hedging Relationships
Foreign Currency Forward Contracts
The Company also enters into foreign currency forward contracts to economically hedge foreign currency fluctuations on intercompany loans and foreign currency denominated receivables and payables. These are not designated as hedging instruments and changes in fair value of these instruments are recorded directly in the Consolidated Statements of Income. As of March 31, 20162023 and 2015,2022, the notional amount of these contracts was $11,156$102,558 and $26,246,$22,990, respectively.
Presented below in tabular form is information on the location and amounts of derivative fair values in the Consolidated Balance Sheets and derivative gains and losses in the Consolidated Statements of Income:
Fair Value of Derivative Instruments
March 31, 20162023 and 20152022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Derivatives and Hedging Activities Designated as Cash Flow Hedges | | Derivatives and Hedging Activities Designated as Net Investment Hedges | | Derivatives and Hedging Activities Not Designated as Hedging Instruments |
| | March 31, 2023 | | March 31, 2022 | | March 31, 2023 | | March 31, 2022 | | March 31, 2023 | | March 31, 2022 |
Prepaid and other current assets: | | | | | | | | | | | | |
Lead forward contracts | | $ | — | | | $ | 2,520 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Foreign currency forward contracts | | 723 | | | 256 | | | — | | | — | | | 200 | | | — | |
| | | | | | | | | | | | |
Net investment hedges | | — | | | — | | | — | | | 4,388 | | | — | | | — | |
Total assets | | $ | 723 | | | $ | 2,776 | | | $ | — | | | $ | 4,388 | | | $ | 200 | | | $ | — | |
Accrued expenses: | | | | | | | | | | | | |
Lead forward contracts | | $ | 89 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Foreign currency forward contracts | | — | | | — | | | — | | | — | | | — | | | 512 | |
| | | | | | | | | | | | |
Other liabilities: | | | | | | | | | | | | |
Interest rate swaps | | 1,162 | | | — | | | — | | | — | | | — | | | — | |
Net investment hedges | | — | | | — | | | 15,760 | | | 4,090 | | | — | | | — | |
Total liabilities | | $ | 1,251 | | | $ | — | | | $ | 15,760 | | | $ | 4,090 | | | $ | — | | | $ | 512 | |
|
| | | | | | | | | | | | | | | | |
| | Derivatives and Hedging Activities Designated as Cash Flow Hedges | | Derivatives and Hedging Activities Not Designated as Hedging Instruments |
| | March 31, 2016 | | March 31, 2015 | | March 31, 2016 | | March 31, 2015 |
Prepaid and other current assets | | | | | | | | |
Foreign currency forward contracts | | $ | — |
| | $ | 3,735 |
| | $ | — |
| | $ | 420 |
|
Total assets | | $ | — |
| | $ | 3,735 |
| | $ | — |
| | $ | 420 |
|
Accrued expenses | | | | | | | | |
Lead hedge forward contracts | | $ | 499 |
| | $ | 341 |
| | $ | — |
| | $ | — |
|
Foreign currency forward contracts | | 350 |
| | — |
| | 638 |
| | — |
|
Total liabilities | | $ | 849 |
| | $ | 341 |
| | $ | 638 |
| | $ | — |
|
The Effect of Derivative Instruments on the Consolidated Statements of Income
For the fiscal year ended March 31, 20162023
| | | | | | | | | | | | | | | | | | | | |
Derivatives Designated as Cash Flow Hedges | | Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion) | | Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | | Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion) |
Lead forward contracts | | $ | (3,883) | | | Cost of goods sold | | $ | (3,765) | |
Foreign currency forward contracts | | 1,849 | | | Cost of goods sold | | 2,589 | |
Interest Rate Swaps | | (1,162) | | | Interest expense | | — | |
Total | | $ | (3,196) | | | | | $ | (1,176) | |
|
| | | | | | | | | | |
Derivatives Designated as Cash Flow Hedges | | Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion) | | Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | | Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion) |
Lead hedge forward contracts | | $ | (3,361 | ) | | Cost of goods sold | | $ | (11,085 | ) |
Foreign currency forward contracts | | (3,023 | ) | | Cost of goods sold | | 3,941 |
|
Total | | $ | (6,384 | ) | | | | $ | (7,144 | ) |
| | | | | | | | | | | | | | | | | | | | |
Derivatives Designated as Net Investment Hedges | | Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion) | | Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | | Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion) |
Cross currency fixed interest rate swaps | | $ | 29,021 | | | Interest expense | | $ | 3,587 | |
Total | | $ | 29,021 | | | | | $ | 3,587 | |
| | | | | | | | | | | |
Derivatives Not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in Income on Derivatives | | Pretax Gain (Loss) |
Foreign currency forward contracts | Other (income) expense, net | | $ | 1,182 | |
Total | | | $ | 1,182 | |
|
| | | | |
Derivatives Not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in Income on Derivative | Pretax Gain (Loss) |
Foreign currency forward contracts | Other (income) expense, net | $ | (409 | ) |
Total | | $ | (409 | ) |
| | |
The Effect of Derivative Instruments on the Consolidated Statements of Income
For the fiscal year ended March 31, 20152022
| | Derivatives Designated as Cash Flow Hedges | | Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion) | | Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | | Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | Derivatives Designated as Cash Flow Hedges | | Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion) | | Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | | Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion) |
Lead hedge forward contracts | | $ | (7,743 | ) | | Cost of goods sold | | $ | (4,347 | ) | |
Lead forward contracts | | Lead forward contracts | | $ | 12,193 | | | Cost of goods sold | | $ | 8,974 | |
Foreign currency forward contracts | | 8,206 |
| | Cost of goods sold | | 1,386 |
| Foreign currency forward contracts | | 941 | | | Cost of goods sold | | 768 | |
Total | | $ | 463 |
| | $ | (2,961 | ) | Total | | $ | 13,134 | | | $ | 9,742 | |
|
| | | | |
Derivatives Not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in Income on Derivative | Pretax Gain (Loss) |
Foreign currency forward contracts | Other (income) expense, net | $ | 972 |
|
Total | | $ | 972 |
|
| | |
| | | | | | | | | | | | | | | | | | | | |
Derivatives Designated as Net Investment Hedges | | Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion) | | Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | | Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion) |
Cross currency fixed interest rate swaps | | $ | 1,479 | | | Interest expense | | $ | 1,181 | |
Total | | $ | 1,479 | | | | | $ | 1,181 | |
| | | | | | | | | | | |
Derivatives Not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in Income on Derivatives | | Pretax Gain (Loss) |
Foreign currency forward contracts | Other (income) expense, net | | $ | (157) | |
Total | | | $ | (157) | |
| | | |
The Effect of Derivative Instruments on the Consolidated Statements of Income
For the fiscal year ended March 31, 20142021
| | | | | | | | | | | | | | | | | | | | |
Derivatives Designated as Cash Flow Hedges | | Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion) | | Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | | Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion) |
Lead forward contracts | | $ | 202 | | | Cost of goods sold | | $ | (7,411) | |
Foreign currency forward contracts | | 130 | | | Cost of goods sold | | (492) | |
Total | | $ | 332 | | | | | $ | (7,903) | |
|
| | | | | | | | | | |
Derivatives Designated as Cash Flow Hedges | | Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion) | | Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | | Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion) |
Lead hedge forward contracts | | $ | (1,562 | ) | | Cost of goods sold | | $ | 718 |
|
Foreign currency forward contracts | | (682 | ) | | Cost of goods sold | | (707 | ) |
Total | | $ | (2,244 | ) | | | | $ | 11 |
|
| | | | | | | | | | | |
Derivatives Not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in Income on Derivatives | | Pretax Gain (Loss) |
Foreign currency forward contracts | Other (income) expense, net | | $ | 430 | |
Total | | | $ | 430 | |
|
| | | | |
Derivatives Not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in Income on Derivative | Pretax Gain (Loss) |
Foreign currency forward contracts | Other (income) expense, net | $ | (188 | ) |
Total | | $ | (188 | ) |
13.14. Income Taxes
Income tax expense is composed of the following: | | | | | | | | | | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2023 | | 2022 | | 2021 |
Current income tax expense | | | | | | |
Current: | | | | | | |
Federal | | $ | 21,203 | | | $ | 9,558 | | | $ | 12,591 | |
State | | 5,654 | | | 4,022 | | | 4,133 | |
Foreign | | 23,208 | | | 15,333 | | | 19,031 | |
Total current income tax expense | | 50,065 | | | 28,913 | | | 35,755 | |
Deferred income tax (benefit) expense | | | | | | |
Federal | | (18,370) | | | 1,183 | | | 1,495 | |
State | | (2,534) | | | (1,453) | | | 735 | |
Foreign | | 5,668 | | | 1,385 | | | (11,224) | |
Total deferred income tax (benefit) expense | | (15,236) | | | 1,115 | | | (8,994) | |
Total income tax expense | | $ | 34,829 | | | $ | 30,028 | | | $ | 26,761 | |
|
| | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2016 | | 2015 | | 2014 |
Current: | | | | | | |
Federal | | $ | 29,082 |
| | $ | 12,299 |
| | $ | 41,256 |
|
State | | 4,750 |
| | 3,044 |
| | 2,845 |
|
Foreign | | 17,034 |
| | 20,585 |
| | 22,627 |
|
Total current | | 50,866 |
| | 35,928 |
| | 66,728 |
|
Deferred: | | | | | | |
Federal | | (3,706 | ) | | 25,113 |
| | (18,410 | ) |
State | | 124 |
| | 1,771 |
| | (4,088 | ) |
Foreign | | 2,829 |
| | 5,002 |
| | (27,250 | ) |
Total deferred | | (753 | ) | | 31,886 |
| | (49,748 | ) |
Income tax expense | | $ | 50,113 |
| | $ | 67,814 |
| | $ | 16,980 |
|
Earnings before income taxes consists of the following:
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2023 | | 2022 | | 2021 |
United States | | $ | 38,703 | | | $ | 21,871 | | | $ | 56,055 | |
Foreign | | 171,936 | | | 152,068 | | | 114,080 | |
Earnings before income taxes | | $ | 210,639 | | | $ | 173,939 | | | $ | 170,135 | |
|
| | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2016 | | 2015 | | 2014 |
United States | | $ | 64,235 |
| | $ | 76,327 |
| | $ | 47,753 |
|
Foreign | | 117,702 |
| | 173,012 |
| | 115,994 |
|
Earnings before income taxes | | $ | 181,937 |
| | $ | 249,339 |
| | $ | 163,747 |
|
Income taxes paid by the Company for the fiscal years ended March 31, 2016, 20152023, 2022 and 20142021 were $44,625, $42,404$46,309, $50,484 and $76,644,$32,002, respectively.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted. The IRA includes multiple incentives to promote clean energy, and energy storage manufacturing among other provisions with tax credits available from 2023 to 2032, subject to phase down beginning in 2030. In particular the IRA creates a refundable tax credit, pursuant to Section 45X of the Internal Revenue Code (“IRC”), for battery cells and battery modules manufactured or assembled in the United States and sold to third parties. In the period ended March 31, 2023, the IRA impact resulted in a reduction of our costs of goods sold and income tax payable. We will continue to evaluate the effects of IRA as more guidance is issued and the relevant implications to our consolidated financial statements.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law in the U.S. to provide certain relief as a result of the COVID-19 pandemic. In addition, governments around the world have enacted or implemented various forms of tax relief measures in response to the economic conditions in the wake of COVID-19. As of March 31, 2023, neither the CARES Act nor changes to income tax laws or regulations in other jurisdictions had a significant impact on the Company’s effective tax rate.
The following table sets forth the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities:
| | | | | | | | | | | | | | |
| | March 31, |
| | 2023 | | 2022 |
Deferred tax assets: | | | | |
Accounts receivable | | $ | 219 | | | $ | 481 | |
Inventories | | 6,387 | | | 8,581 | |
Net operating loss carryforwards | | 48,801 | | | 56,010 | |
Lease liabilities | | 20,888 | | | 17,590 | |
Capitalized R&D Expenditures | | 16,378 | | | — | |
Accrued expenses | | 31,949 | | | 33,571 | |
Other assets | | 22,029 | | | 19,941 | |
Gross deferred tax assets | | 146,651 | | | 136,174 | |
Less valuation allowance | | (31,172) | | | (31,017) | |
Total deferred tax assets | | 115,479 | | | 105,157 | |
Deferred tax liabilities: | | | | |
Property, plant and equipment | | 42,884 | | | 41,105 | |
Lease Right-of-use assets | | 20,888 | | | 17,590 | |
Intangible assets | | 59,152 | | | 60,827 | |
Other liabilities | | 4,521 | | | 3,384 | |
Total deferred tax liabilities | | 127,445 | | | 122,906 | |
Net deferred tax liabilities | | $ | (11,966) | | | $ | (17,749) | |
|
| | | | | | | | |
| | March 31, |
| | 2016 | | 2015 |
Deferred tax assets: | | | | |
Accounts receivable | | $ | 1,450 |
| | $ | 907 |
|
Inventories | | 6,596 |
| | 5,855 |
|
Net operating loss carryforwards | | 50,094 |
| | 46,069 |
|
Accrued expenses | | 25,436 |
| | 28,830 |
|
Other assets | | 22,551 |
| | 21,279 |
|
Gross deferred tax assets | | 106,127 |
| | 102,940 |
|
Less valuation allowance | | (25,416 | ) | | (20,063 | ) |
Total deferred tax assets | | 80,711 |
| | 82,877 |
|
Deferred tax liabilities: | | | | |
Property, plant and equipment | | 25,302 |
| | 23,851 |
|
Other intangible assets | | 65,879 |
| | 65,432 |
|
Convertible Notes | | — |
| | 30,012 |
|
Other liabilities | | 2,008 |
| | 4,267 |
|
Total deferred tax liabilities | | 93,189 |
| | 123,562 |
|
Net deferred tax liabilities | | $ | (12,478 | ) | | $ | (40,685 | ) |
As described in Note 1, the Company early adopted ASU 2015-17 on a retrospective basis effective March 31, 2016. As a result, the Company reclassified $31,749 and $1,583 of deferred tax assets and liabilities, respectively, from current deferred taxes resulting in non-current net deferred tax assets and liabilities of $36,516 and $77,201, respectively in the Consolidated Balance Sheet as of March 31, 2015.
The Company has approximately $1,977$719 in United States federal net operating loss carryforwards, all of which are limited by Section 382 of the Internal Revenue Code, with expirations between 2023 and 2027. The Company has approximately $159,088$171,160 of foreign net operating loss carryforwards, of which $120,353$136,800 may be carried forward indefinitely and $38,735$34,360 expire between 2019fiscal 2023 and 2024.fiscal 2041. In addition, the Company also hadhas approximately $38,142$22,936 of state net operating loss carryforwards with expirations between 2017fiscal 2023 and 2036.fiscal 2042.
The following table sets forth the changes in the Company's valuation allowance for fiscal 2023, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance at Beginning of Period | | Additions Charged to Expense | | Valuation Allowance Reversal | | Business Combination Adjustments | | Other(1) | | Balance at End of Period |
Fiscal year ended March 31, 2021 | | $ | 20,951 | | | $ | 8,437 | | | $ | (2,904) | | | $ | 6,384 | | | $ | (940) | | | $ | 31,928 | |
Fiscal year ended March 31, 2022 | | 31,928 | | | 4,486 | | | (1,535) | | | — | | | (3,862) | | | 31,017 | |
Fiscal year ended March 31, 2023 | | 31,017 | | | 2,654 | | | (586) | | | — | | | (1,913) | | | 31,172 | |
(1)Includes the impact of currency changes and the expiration of net operating losses for which a full valuation allowance was recorded.
As of March 31, 20162023 and 2015,2022, the Company had no federal valuation allowance was $1,050. As of March 31, 2016 and 2015, the valuation allowance associated with the state tax jurisdictions was $656$343 and $608,$686, respectively.
As of March 31, 20162023 and 2015,2022, the valuation allowance associated with certain foreign tax jurisdictions was $23,710$30,829 and $18,404,$30,331, respectively. The change includes anOf the net increase of $6,262$155, $2,068 was recorded as an increase to tax expense primarily related to net operating loss carryforwardsdeferred tax assets generated in the current year that the Company believes are not more likely than not to be realized, and a decrease of $956offset by $(1,913) primarily related to foreign currency fluctuations.translation adjustments and expiration of foreign net operating losses for which a full valuation allowance was recorded.
A reconciliation of income taxes at the statutory rate (21.0% for fiscal 2023, 2022 and 2021) to the income tax provision is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2023 | | 2022 | | 2021 |
United States statutory income tax expense | | $ | 44,233 | | | $ | 36,527 | | | $ | 35,729 | |
Increase (decrease) resulting from: | | | | | | |
State income taxes, net of federal effect | | 1,714 | | | 1,724 | | | 4,000 | |
Nondeductible expenses and other | | 6,028 | | | 1,217 | | | 5,273 | |
Net effect of GILTI, FDII, BEAT | | 2,457 | | | 5,405 | | | 1,985 | |
| | | | | | |
Effect of foreign operations | | (12,978) | | | (14,192) | | | (20,035) | |
Valuation allowance | | 2,068 | | | 2,951 | | | 5,533 | |
Switzerland Tax Reform | | — | | | — | | | (1,883) | |
Research and Development Credit | | (5,063) | | | (3,604) | | | (3,841) | |
IRA Impact | | (3,630) | | | — | | | — | |
Income tax expense | | $ | 34,829 | | | $ | 30,028 | | | $ | 26,761 | |
|
| | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2016 | | 2015 | | 2014 |
United States statutory income tax expense (at 35%) | | $ | 63,678 |
| | $ | 87,269 |
| | $ | 57,311 |
|
Increase (decrease) resulting from: | | | | | | |
State income taxes, net of federal effect | | 3,282 |
| | 3,206 |
| | (647 | ) |
Nondeductible expenses, domestic manufacturing deduction and other | | (3,796 | ) | | 8,666 |
| | 5,124 |
|
Goodwill impairment | | 6,475 |
| | 5,194 |
| | 1,760 |
|
Effect of foreign operations | | (25,788 | ) | | (38,313 | ) | | (26,037 | ) |
Valuation allowance | | 6,262 |
| | 1,792 |
| | (20,531 | ) |
Income tax expense | | $ | 50,113 |
| | $ | 67,814 |
| | $ | 16,980 |
|
The effective income tax rates for the fiscal years ended March 31, 2016, 20152023, 2022 and 20142021 were 27.5%16.5%, 27.2%17.3% and 10.4%15.7%, respectively. The effective income tax rate with respect to any period may be volatile based on the mix of income in the tax jurisdictions in which we operatethe Company operates and the amount of ourits consolidated income before taxes. The rate decrease in fiscal 2023 compared to fiscal 2022 is primarily due to the impact of IRA offset by changes in mix of earnings among tax jurisdictions. The rate increase in fiscal 2022 compared to fiscal 2021 is primarily due to Swiss tax reform and changes in the mix of earnings among tax jurisdictions.
On May 19, 2019, a public referendum held in Switzerland approved the Federal Act on Tax Reform and AHV (Old-Age and Survivors Insurance) Financing (TRAF) as adopted by the Swiss Federal Parliament on September 28, 2018. The Swiss tax reform measures were effective January 1, 2020. The Company recorded a net deferred tax asset of $22,500 during fiscal 20162020, related to the amortizable goodwill and based on further evaluation with the Swiss tax authority, recorded an additional income tax benefit of $1,883 during fiscal 2021.
In fiscal 2023, the foreign effective income tax rate on foreign pre-tax income of $117,702$171,936 was 16.9%16.8%. TheIn fiscal 20152022, the foreign effective income tax rate on foreign pre-tax income of $173,012$152,068 was 14.8%. The11.0% and in fiscal 20142021, the foreign effective income tax rate on foreign pre-tax income of $115,994$114,080 was (4.0)%6.8%. The rate increase in fiscal 2023 compared to fiscal 2022 is primarily due to a reduction in favorable permanent items and changes in mix of earnings among tax jurisdictions. The rate increase in fiscal 2022 compared to fiscal 2021 is primarily due to Swiss tax reform and changes in the mix of earnings among tax jurisdictions.
Income from the Company's Swiss subsidiary comprised a substantial portion of ourits overall foreign mix of income for the fiscal years ended March 31, 2016, 20152023, 2022 and 20142021 and iswas taxed, excluding the impact from the Swiss tax reform, at approximately 7%., 4% and 8%, respectively.
At March 31, 2016, theThe Company has not recorded United States income or foreign withholding taxes on approximately $878,225$1,340,000 and $1,180,000 of undistributed earnings of foreign subsidiaries that could be subject to taxation if remitted to the United States becausefor fiscal years 2023 and 2022, respectively. During fiscal 2023, previously undistributed earnings of certain foreign subsidiaries were no longer considered indefinitely reinvested, as a result, the Company currently plansrecorded $4,000 in additional income taxes. The Company intends to keep these amountscontinue to be indefinitely invested overseas. It is not practical to calculatereinvested on the remaining undistributed foreign earnings and outside basis differences and therefore, no additional income tax expense that would result upon repatriationtaxes have been provided.
A reconciliationUncertain Tax Positions
The following table summarizes activity of the beginning and ending amounttotal amounts of unrecognized tax benefits is as follows:benefits:
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2023 | | 2022 | | 2021 |
Balance at beginning of year | | $ | 4,770 | | | $ | 6,785 | | | $ | 7,795 | |
Increases related to current year tax positions | | 24 | | | 21 | | | 346 | |
Increases related to the Alpha acquisition | | — | | | — | | | — | |
Increases related to prior year tax positions | | (1) | | | 598 | | | 325 | |
Decreases related to prior tax positions | | — | | | — | | | — | |
Decreases related to prior year tax positions settled | | (77) | | | (784) | | | — | |
Lapse of statute of limitations | | (1,221) | | | (1,850) | | | (1,681) | |
Balance at end of year | | $ | 3,495 | | | $ | 4,770 | | | $ | 6,785 | |
|
| | | |
March 31, 2013 | $ | 16,485 |
|
Increases related to current year tax positions | 207 |
|
Increases related to prior year tax positions | 2,877 |
|
Decreases related to prior tax positions due to foreign currency translation | (68 | ) |
Decreases related to prior year tax positions | (14,835 | ) |
Lapse of statute of limitations | (923 | ) |
March 31, 2014 | 3,743 |
|
Increases related to current year tax positions | 3,241 |
|
Increases related to prior year tax positions | 9 |
|
Decreases related to prior tax positions due to foreign currency translation | (85 | ) |
Decreases related to prior year tax positions settled | (2,695 | ) |
Lapse of statute of limitations | (101 | ) |
March 31, 2015 | 4,112 |
|
Increases related to current year tax positions | 422 |
|
Increases related to prior year tax positions | 470 |
|
Decreases related to prior tax positions due to foreign currency translation | — |
|
Decreases related to prior year tax positions | (2,315 | ) |
Lapse of statute of limitations | (314 | ) |
March 31, 2016 | $ | 2,375 |
|
All of the balance of unrecognized tax benefits at March 31, 2016,2023, if recognized, would be included in the Company’s Consolidated Statements of Income and have a favorable impact on both the Company’s net earnings and effective tax rate.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. jurisdictions and is routinely subject to income tax examinations.As of March 31, 2022, the most significant tax examinations in process are the United States and Switzerland. The Company regularly assesses the likely outcomes of its tax audits and disputes to determine the appropriateness of its tax reserves. However, any tax authority could take a position on tax treatment that is contrary to the Company’s expectations, which could result in tax liabilities in excess of reserves.With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2013.2009.
While the net effect on total unrecognized tax benefits cannot be reasonably estimated, approximately $178$511 is expected to reverse in fiscal 20172023 due to expiration of various statute of limitations.
The Company recognizes tax related interest and penalties in income tax expense in its Consolidated Statements of Income. As of March 31, 20162023 and 2015,2022, the Company had an accrual of $310$435 and $170,$440, respectively, for interest and penalties.
14.15. Retirement Plans
Defined Benefit Plans
The Company providessponsors several retirement benefits to substantially alland pension plans covering eligible salaried and hourly employees. The Company uses a measurement date of March 31 for its pension plans.
Net periodic pension cost for fiscal 2016, 20152023, 2022 and 2014,2021, includes the following components:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | United States Plans | | International Plans |
| | Fiscal year ended March 31, | | Fiscal year ended March 31, |
| | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
Service cost | | $ | — | | | $ | — | | | $ | — | | | $ | 918 | | | $ | 1,114 | | | $ | 993 | |
Interest cost | | 582 | | | 517 | | | 533 | | | 1,715 | | | 1,427 | | | 1,388 | |
Expected return on plan assets | | (455) | | | (526) | | | (272) | | | (2,005) | | | (2,200) | | | (1,899) | |
Amortization and deferral | | — | | | 7 | | | 476 | | | 478 | | | 1,205 | | | 1,053 | |
| | | | | | | | | | | | |
Net periodic benefit cost | | $ | 127 | | | $ | (2) | | | $ | 737 | | | $ | 1,106 | | | $ | 1,546 | | | $ | 1,535 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | United States Plans | | International Plans |
| | Fiscal year ended March 31, | | Fiscal year ended March 31, |
| | 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 |
Service cost | | $ | 482 |
| | $ | 400 |
| | $ | 348 |
| | $ | 820 |
| | $ | 767 |
| | $ | 829 |
|
Interest cost | | 682 |
| | 673 |
| | 619 |
| | 1,904 |
| | 2,546 |
| | 2,412 |
|
Expected return on plan assets | | (855 | ) | | (889 | ) | | (796 | ) | | (2,247 | ) | | (2,248 | ) | | (2,134 | ) |
Amortization and deferral | | 481 |
| | 319 |
| | 479 |
| | 1,249 |
| | 688 |
| | 56 |
|
Curtailment loss | | 313 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net periodic benefit cost | | $ | 1,103 |
| | $ | 503 |
| | $ | 650 |
| | $ | 1,726 |
| | $ | 1,753 |
| | $ | 1,163 |
|
The following table sets forth a reconciliation of the related benefit obligation, plan assets, and accrued benefit costs related to the pension benefits provided by the Company for those employees covered by defined benefit plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | United States Plans | | International Plans |
| | March 31, | | March 31, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Change in projected benefit obligation | | | | | | | | |
Benefit obligation at the beginning of the period | | $ | 16,205 | | | $ | 17,806 | | | $ | 70,833 | | | $ | 83,252 | |
Service cost | | — | | | — | | | 918 | | | 1,114 | |
Interest cost | | 582 | | | 517 | | | 1,715 | | | 1,427 | |
| | | | | | | | |
Benefits paid, inclusive of plan expenses | | (843) | | | (802) | | | (2,052) | | | (2,328) | |
Plan curtailments and settlements | | — | | | — | | | — | | | (141) | |
Actuarial (gains) losses | | (1,888) | | | (1,316) | | | (15,995) | | | (8,545) | |
Foreign currency translation adjustment | | — | | | — | | | (3,701) | | | (3,946) | |
Benefit obligation at the end of the period | | $ | 14,056 | | | $ | 16,205 | | | $ | 51,718 | | | $ | 70,833 | |
|
| | | | | | | | | | | | | | | | |
| | United States Plans | | International Plans |
| | March 31, | | March 31, |
| | 2016 | | 2015 | | 2016 | | 2015 |
Change in projected benefit obligation | | | | | | | | |
Benefit obligation at the beginning of the period | | $ | 18,059 |
| | $ | 15,290 |
| | $ | 72,091 |
| | $ | 69,227 |
|
Service cost | | 482 |
| | 400 |
| | 820 |
| | 767 |
|
Interest cost | | 682 |
| | 673 |
| | 1,904 |
| | 2,546 |
|
Plan amendments | | — |
| | — |
| | — |
| | — |
|
Benefits paid, inclusive of plan expenses | | (912 | ) | | (770 | ) | | (1,944 | ) | | (1,904 | ) |
Plan curtailments and settlements | | (120 | ) | | — |
| | — |
| | (54 | ) |
Actuarial (gains) losses | | (542 | ) | | 2,466 |
| | (4,144 | ) | | 14,198 |
|
Foreign currency translation adjustment | | — |
| | — |
| | 407 |
| | (12,689 | ) |
Benefit obligation at the end of the period | | $ | 17,649 |
| | $ | 18,059 |
| | $ | 69,134 |
| | $ | 72,091 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in plan assets | | | | | | | | |
Fair value of plan assets at the beginning of the period | | $ | 16,166 | | | $ | 16,265 | | | $ | 42,067 | | | $ | 42,844 | |
Actual return on plan assets | | (1,348) | | | 443 | | | (3,722) | | | 1,784 | |
Employer contributions | | — | | | 260 | | | 6,428 | | | 1,979 | |
Benefits paid, inclusive of plan expenses | | (843) | | | (802) | | | (2,052) | | | (2,328) | |
Plan curtailments and settlements | | — | | | — | | | — | | | (141) | |
Foreign currency translation adjustment | | — | | | — | | | (2,617) | | | (2,071) | |
Fair value of plan assets at the end of the period | | $ | 13,975 | | | $ | 16,166 | | | $ | 40,104 | | | $ | 42,067 | |
Funded status deficit | | $ | (81) | | | $ | (39) | | | $ | (11,614) | | | $ | (28,766) | |
|
| | | | | | | | | | | | | | | | |
Change in plan assets | | | | | | | | |
Fair value of plan assets at the beginning of the period | | $ | 12,379 |
| | $ | 11,309 |
| | $ | 34,401 |
| | $ | 33,706 |
|
Actual return on plan assets | | (124 | ) | | 1,051 |
| | (591 | ) | | 4,918 |
|
Employer contributions | | 496 |
| | 789 |
| | 1,504 |
| | 1,890 |
|
Benefits paid, inclusive of plan expenses | | (912 | ) | | (770 | ) | | (1,944 | ) | | (1,904 | ) |
Plan curtailments and settlements | | — |
| | — |
| | — |
| | (54 | ) |
Foreign currency translation adjustment | | — |
| | — |
| | (1,056 | ) | | (4,155 | ) |
Fair value of plan assets at the end of the period | | $ | 11,839 |
| | $ | 12,379 |
| | $ | 32,314 |
| | $ | 34,401 |
|
Funded status deficit | | $ | (5,810 | ) | | $ | (5,680 | ) | | $ | (36,820 | ) | | $ | (37,690 | ) |
| | | | | | | | | | | | | | |
| | March 31, |
| | 2023 | | 2022 |
Amounts recognized in the Consolidated Balance Sheets consist of: | | | | |
Non-current assets | | $ | 14,147 | | | $ | 1,055 | |
Accrued expenses | | (1,314) | | | (1,294) | |
Other liabilities | | (24,528) | | | (28,566) | |
Funded status deficit | | $ | (11,695) | | | $ | (28,805) | |
|
| | | | | | | | |
| | March 31, |
| | 2016 | | 2015 |
Amounts recognized in the Consolidated Balance Sheets consist of: | | | | |
Accrued expenses | | $ | (1,321 | ) | | $ | (1,226 | ) |
Other liabilities | | (41,309 | ) | | (42,144 | ) |
| | $ | (42,630 | ) | | $ | (43,370 | ) |
The following table represents pension components (before tax) and related changes (before tax) recognized in AOCI for the Company’s pension plans for the years ended March 31, 2016, 20152023, 2022 and 2014:2021: | | | | | | | | | | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2023 | | 2022 | | 2021 |
Amounts recorded in AOCI before taxes: | | | | | | |
Prior service cost | | $ | (128) | | | $ | (174) | | | $ | (230) | |
Net loss | | (2,307) | | | (14,049) | | | (25,450) | |
Net amount recognized | | $ | (2,435) | | | $ | (14,223) | | | $ | (25,680) | |
The following table represents changes in plan assets and benefit obligations recognized in AOCI for the Company’s pension plans for the years ended March 31, 2023, 2022 and 2021:
|
| | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2016 | | 2015 | | 2014 |
Amounts recorded in AOCI before taxes: | | | | | | |
Prior service cost | | $ | (445 | ) | | $ | (800 | ) | | $ | (1,036 | ) |
Net loss | | (26,628 | ) | | (28,734 | ) | | (19,239 | ) |
Net amount recognized | | $ | (27,073 | ) | | $ | (29,534 | ) | | $ | (20,275 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2023 | | 2022 | | 2021 |
Changes in plan assets and benefit obligations: | | | | | | |
New prior service cost | | $ | — | | | $ | — | | | $ | — | |
Net loss (gain) arising during the year | | (10,352) | | | (9,362) | | | (753) | |
Effect of exchange rates on amounts included in AOCI | | (957) | | | (883) | | | 1,909 | |
Amounts recognized as a component of net periodic benefit costs: | | | | | | |
Amortization of prior service cost | | (41) | | | (45) | | | (46) | |
Amortization or settlement recognition of net loss | | (438) | | | (1,167) | | | (1,484) | |
Total recognized in other comprehensive (income) loss | | $ | (11,788) | | | $ | (11,457) | | | $ | (374) | |
|
| | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2016 | | 2015 | | 2014 |
Changes in plan assets and benefit obligations: | | | | | | |
New prior service cost | | $ | — |
| | $ | — |
| | $ | 255 |
|
Net loss arising during the year | | (988 | ) | | 13,831 |
| | 2,262 |
|
Effect of exchange rates on amounts included in AOCI | | 142 |
| | (3,565 | ) | | 920 |
|
Amounts recognized as a component of net periodic benefit costs: | | | | | | |
Amortization of prior service cost | | (382 | ) | | (101 | ) | | (81 | ) |
Amortization or settlement recognition of net loss | | (1,661 | ) | | (906 | ) | | (694 | ) |
Total recognized in other comprehensive income | | $ | (2,889 | ) | | $ | 9,259 |
| | $ | 2,662 |
|
The amounts included in AOCI as of March 31, 20162023 that are expected to be recognized as components of net periodic pension cost (before tax) during the next twelve months are as follows:
| | | | | |
Prior service cost | $ | (43) | |
Net loss | (69) | |
Net amount expected to be recognized | $ | (112) | |
| |
|
| | | |
Prior service cost | $ | (44 | ) |
Net loss | (1,560 | ) |
Net amount expected to be recognized | $ | (1,604 | ) |
| |
The accumulated benefit obligation related to all defined benefit pension plans and information related to unfunded and underfunded defined benefit pension plans at the end of each fiscal year are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | United States Plans | | International Plans |
| | March 31, | | March 31, |
| | 2023 | | 2022 | | 2023 | | 2022 |
All defined benefit plans: | | | | | | | | |
Accumulated benefit obligation | | $ | 14,056 | | | $ | 16,205 | | | $ | 49,290 | | | $ | 67,301 | |
Unfunded defined benefit plans: | | | | | | | | |
Projected benefit obligation | | $ | — | | | $ | — | | | $ | 25,562 | | | $ | 29,570 | |
Accumulated benefit obligation | | — | | | — | | | 23,704 | | | 27,156 | |
Defined benefit plans with a projected benefit obligation in excess of the fair value of plan assets: | | | | | | | | |
Projected benefit obligation | | $ | 11,671 | | | $ | 5,479 | | | $ | 25,908 | | | $ | 29,570 | |
Fair value of plan assets | | 11,403 | | | 5,188 | | | 335 | | | — | |
Defined benefit plans with an accumulated benefit obligation in excess of the fair value of plan assets: | | | | | | | | |
Projected benefit obligation | | $ | 11,671 | | | $ | 5,479 | | | $ | 25,562 | | | $ | 29,570 | |
Accumulated benefit obligation | | 11,671 | | | 5,479 | | | 23,704 | | | 27,156 | |
Fair value of plan assets | | 11,403 | | | 5,188 | | | — | | | — | |
|
| | | | | | | | | | | | | | | | |
| | United States Plans | | International Plans |
| | March 31, | | March 31, |
| | 2016 | | 2015 | | 2016 | | 2015 |
All defined benefit plans: | | | | | | | | |
Accumulated benefit obligation | | $ | 17,649 |
| | $ | 18,059 |
| | $ | 65,732 |
| | $ | 68,272 |
|
Unfunded defined benefit plans: | | | | | | | | |
Projected benefit obligation | | $ | — |
| | $ | — |
| | $ | 30,272 |
| | $ | 28,984 |
|
Accumulated benefit obligation | | — |
| | — |
| | 28,875 |
| | 27,768 |
|
Defined benefit plans with a projected benefit obligation in excess of the fair value of plan assets: | | | | | | | | |
Projected benefit obligation | | $ | 17,649 |
| | $ | 18,059 |
| | $ | 69,134 |
| | $ | 72,091 |
|
Fair value of plan assets | | 11,839 |
| | 12,379 |
| | 32,314 |
| | 34,401 |
|
Defined benefit plans with an accumulated benefit obligation in excess of the fair value of plan assets: | | | | | | | | |
Projected benefit obligation | | $ | 17,649 |
| | $ | 18,059 |
| | $ | 69,134 |
| | $ | 72,091 |
|
Accumulated benefit obligation | | 17,649 |
| | 18,059 |
| | 65,732 |
| | 68,272 |
|
Fair value of plan assets | | 11,839 |
| | 12,379 |
| | 32,314 |
| | 34,401 |
|
Assumptions
Significant assumptions used to determine the net periodic benefit cost for the U.S. and International plans were as follows:
| | | | United States Plans | | International Plans | | | United States Plans | | International Plans |
| | Fiscal year ended March 31, | | Fiscal year ended March 31, | | | Fiscal year ended March 31, | | Fiscal year ended March 31, |
| | 2016 | | 2015 | | 2014 | | 2016 | | 2015 | | 2014 | | | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
Discount rate | | 3.8 | % | | 4.5 | % | | 4.0 | % | | 1.25-3.4% | | 3.0-4.6% | | 2.5-4.4% | Discount rate | | 3.7 | % | | 3.0 | % | | 3.0 | % | | 1.5%-5.4% | | 0.5%-2.3% | | 1.3%-2.3% |
Expected return on plan assets | | 7.0 |
| | 7.8 |
| | 7.8 |
| | 3.2-6.5 | | 4.4-7.0 | | 4.0-7.0 | Expected return on plan assets | | 5.5 | | | 5.5 | | | 6.0 | | | 3.1-5.3 | | 2.7-5.3 | | 3.8-5.5 |
Rate of compensation increase | | N/A |
| | N/A |
| | N/A |
| | 1.5-3.75 | | 2.0-4.0 | | 2.0-4.0 | Rate of compensation increase | | N/A | | N/A | | N/A | | 1.8-5.5 | | 1.5-4.0 | | 2.0-3.5 |
N/A = not applicable
Significant assumptions used to determine the projected benefit obligations for the U.S. and International plans were as follows:
|
| | | | | | | | | | |
| | United States Plans | | International Plans |
| | March 31, | | March 31, |
| | 2016 | | 2015 | | 2016 | | 2015 |
Discount rate | | 3.9 | % | | 3.8 | % | | 1.8-3.7% | | 1.25-3.4% |
Expected return on plan assets | | 7.0 |
| | 7.0 |
| | 3.3-6.5 | | 3.2-6.5 |
Rate of compensation increase | | N/A |
| | N/A |
| | 1.5-4.0 | | 1.5-3.75 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | United States Plans | | International Plans |
| | March 31, | | March 31, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Discount rate | | 4.9 | % | | 3.7 | % | | 3.5%-6% | | 1.5%-5.4% |
| | | | | | | | |
Rate of compensation increase | | N/A | | N/A | | 2.3-4.5 | | 1.8-5.5 |
N/A = not applicable
The United States plans do not include compensation in the formula for determining the pension benefit as it is based solely on years of service.
The expected long-term rate of return for the Company’s pension plan assets is based upon the target asset allocation and is determined using forward looking assumptions in the context of historical returns and volatilities for each asset class, as well as correlations among asset classes. The Company evaluates the rate of return assumptions for each of its plans on an annual basis.
Pension Plan Investment Strategy
The Company’s investment policy emphasizes a balanced approach to investing in securities of high quality and ready marketability. Investment flexibility is encouraged so as not to exclude opportunities available through a diversified investment strategy.
Equity investments are maintained within a target range of 40%-75% - 75% of the total portfolio market value for the U.S. plans and with a target of approximately 65% for international plans. The investment strategy for the UK plan has been updated this year to reflect a de-risking exercise that occurred where the UK plan moved from 65%/35% equity/bonds to 100% bonds. Investments in debt securities include issues of various maturities, and the average quality rating of bonds should be investment grade with a minimum quality rating of “B” at the time of purchase.
The Company periodically reviews the asset allocation of its portfolio. The proportion committed to equities, debt securities and cash and cash equivalents is a function of the values available in each category and risk considerations. The plan’s overall return will be compared to and is expected to meet or exceed established benchmark funds and returns over a three to five year period.
The objectives of the Company’s investment strategies are: (a) the achievement of a reasonable long-term rate of total return consistent with an emphasis on preservation of capital and purchasing power, (b) stability of annual returns through a portfolio that reflects a conservative mix of risk level, which is appropriate to conservative accounts,versus return, and (c) reflective of the Company’s willingness to forgo significantly above-average rewards in order to minimize above-average risks. These objectives may not be met each year but should be attained over a reasonable period of time.
The following table represents ourthe Company's pension plan investments measured at fair value as of March 31, 20162023 and 20152022 and the basis for that measurement:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2016 |
| | United States Plans | | International Plans |
| | 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) | | 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) |
Asset category: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 928 |
| | $ | 928 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Equity securities | | | | | | | | | | | | | | | | |
US(a) | | 7,324 |
| | 7,324 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
International(b) | | 1,015 |
| | 1,015 |
| | — |
| | — |
| | 21,439 |
| | — |
| | 21,439 |
| | — |
|
Fixed income(c) | | 2,572 |
| | 2,572 |
| | — |
| | — |
| | 10,875 |
| | — |
| | 10,875 |
| | — |
|
Total | | $ | 11,839 |
| | $ | 11,839 |
| | $ | — |
| | $ | — |
| | $ | 32,314 |
| | $ | — |
| | $ | 32,314 |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 |
| | United States Plans | | International Plans |
| | 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) | | 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) |
Asset category: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 1,714 | | | $ | 1,714 | | | $ | — | | | $ | — | | | $ | 7,775 | | | $ | 7,775 | | | $ | — | | | $ | — | |
Equity securities | | | | | | | | | | | | | | | | |
US(a) | | 8,308 | | | 8,308 | | | — | | | — | | | — | | | — | | | — | | | — | |
International(b) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Fixed income(c) | | 3,953 | | | 3,953 | | | — | | | — | | | 32,329 | | | — | | | 32,329 | | | — | |
Total | | $ | 13,975 | | | $ | 13,975 | | | $ | — | | | $ | — | | | $ | 40,104 | | | $ | 7,775 | | | $ | 32,329 | | | $ | — | |
| | | | March 31, 2015 | | | March 31, 2022 |
| | United States Plans | | International Plans | | | United States Plans | | International Plans |
| | 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) | | 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) | | | 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) | | 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) |
Asset category: | | | | | | | | | | | | | | | | | Asset category: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 1,248 |
| | $ | 1,248 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| Cash and cash equivalents | | $ | 1,576 | | | $ | 1,576 | | | $ | — | | | $ | — | | | $ | 98 | | | $ | 98 | | | $ | — | | | $ | — | |
Equity securities | | | | | | | | | | | | | | | | | Equity securities | |
US(a) | | 7,282 |
| | 7,282 |
| | — |
| | — |
| | 3,431 |
| | 3,431 |
| | — |
| | — |
| US(a) | | 10,350 | | | 10,350 | | | — | | | — | | | — | | | — | | | — | | | — | |
International(b) | | 1,075 |
| | 1,075 |
| | — |
| | — |
| | 18,646 |
| | 18,646 |
| | — |
| | — |
| International(b) | | — | | | — | | | — | | | — | | | 28,296 | | | — | | | 28,296 | | | — | |
Fixed income(c) | | 2,774 |
| | 2,774 |
| | — |
| | — |
| | 12,324 |
| | 12,324 |
| | — |
| | — |
| Fixed income(c) | | 4,240 | | | 4,240 | | | — | | | — | | | 13,673 | | | — | | | 13,673 | | | — | |
Total | | $ | 12,379 |
| | $ | 12,379 |
| | $ | — |
| | $ | — |
| | $ | 34,401 |
| | $ | 34,401 |
| | $ | — |
| | $ | — |
| Total | | $ | 16,166 | | | $ | 16,166 | | | $ | — | | | $ | — | | | $ | 42,067 | | | $ | 98 | | | $ | 41,969 | | | $ | — | |
The fair values presented above were determined based on valuation techniques to measure fair value as discussed in Note 1.
| |
(a) | US equities include companies that are well diversified by industry sector and equity style (i.e., growth and value strategies). Active and passive management strategies are employed. Investments are primarily in large capitalization stocks and, to a lesser extent, mid- and small-cap stocks. |
| |
(b) | International equities are invested in companies that are traded on exchanges outside the U.S. and are well diversified by industry sector, country and equity style. Active and passive strategies are employed. The vast majority of the investments are made in companies in developed markets with a small percentage in emerging markets. |
| |
(c) | Fixed income consists primarily of investment grade bonds from diversified industries. |
(a)US equities include companies that are well diversified by industry sector and equity style (i.e., growth and value strategies). Active and passive management strategies are employed. Investments are primarily in large capitalization stocks and, to a lesser extent, mid- and small-cap stocks.
(b)International equities are invested in companies that are traded on exchanges outside the U.S. and are well diversified by industry sector, country and equity style. Active and passive strategies are employed. The vast majority of the investments are made in companies in developed markets with a small percentage in emerging markets.
(c)Fixed income consists primarily of investment grade bonds from diversified industries.
The Company expects to make cash contributions of approximately $2,145$1,717 to its pension plans in fiscal 2017.
2024.
Estimated future benefit payments under the Company’s pension plans are as follows:
| | | | | |
| |
2024 | $ | 3,037 | |
2025 | 3,203 | |
2026 | 3,427 | |
2027 | 3,874 | |
2028 | 4,634 | |
Years 2029-2033 | 22,093 | |
|
| | | |
| Pension Benefits |
2017 | $ | 2,703 |
|
2018 | 2,481 |
|
2019 | 2,751 |
|
2020 | 3,157 |
|
2021 | 3,526 |
|
Years 2022-2026 | 21,036 |
|
Defined Contribution Plan
The Company maintains defined contribution plans primarily in the U.S. and U.K. Eligible employees can contribute a portion of their pre-tax and/and / or after-tax income in accordance with plan guidelines and the Company will make contributions based on the employees’ eligible pay and/orand /or will match a percentage of the employee contributions up to certain limits. Matching contributions charged to expense for the fiscal years ended March 31, 2016, 20152023, 2022 and 20142021 were $6,730, $7,174$20,993, $18,402 and $6,311,$16,460, respectively.
15.16. Stockholders’ Equity and Noncontrolling Interests
Preferred Stock and Common Stock
The Company’s certificate of incorporation authorizes the issuance of up to 1,000,000 shares of preferred stock, par value $0.01 per share (“Preferred Stock”). At March 31, 20162023 and 2015,2022, no shares of Preferred Stock were issued or outstanding. The Board of Directors of the Company has the authority to specify the terms of any Preferred Stock at the time of issuance.
The following demonstrates the change in the number of shares of common stock outstanding during fiscal years ended March 31, 2014, 20152021, 2022 and 2016,2023, respectively:
|
| | | | |
| |
Shares outstanding as of March 31, 20132020 | 47,840,20442,323,305 |
|
Purchase of treasury stock | (1,191,145— | ) |
| |
Shares issued as part oftowards equity-based compensation plans, net of equity awards surrendered for option price and taxes | 293,067429,715 |
|
Shares outstanding as of March 31, 20142021 | 46,942,12642,753,020 |
|
Purchase of treasury stock | (3,274,829(1,996,334) | ) |
Shares issued as part ofunder equity-based compensation plans, net of equity awards surrendered for option price and taxes | 401,291229,972 |
|
Shares outstanding as of March 31, 20152022 | 44,068,58840,986,658 |
|
Purchase of treasury stock | (3,216,654(358,365) | ) |
Shares issued from treasury stock to settle conversion premium on Convertible Notes | 1,889,431 |
|
Shares issued as part ofunder equity-based compensation plans, net of equity awards surrendered for option price and taxes | 448,137272,766 |
|
Shares outstanding as of March 31, 20162023 | 43,189,50240,901,059 |
|
Treasury Stock
In fiscal 2016 and 2015,2023, the Company purchased 3,216,654 shares of its common stock for $178,244 and 3,274,829358,365 shares for $205,362, respectively. Of the$22,907. The Company purchased 1,996,334 shares purchasedfor $156,366 in fiscal 2016, 2,961,444 were acquired through an accelerated share repurchase program ("ASR") for a total cash investment of $166,392 at an average price of $56.19.2022 but did not purchase any shares in fiscal 2021. At March 31, 20162023 and 2015,2022, the Company held 10,923,27415,103,554 and 9,596,05114,762,266 shares as treasury stock, respectively.
Treasury Stock Reissuance
On July 17, 2015,During fiscal 2023, fiscal 2022 and fiscal 2021, the Company settled the conversion premium on the Convertible Notes by issuing 1,889,431also issued 17,077, 13,858 and 13,465 shares fromout of its treasury stock. The reissuance was recordedstock, respectively, valued at $62.55 per share, on a last-in, first-out method, andLIFO basis, to participants under the difference between the repurchase cost and the fair value at reissuance was recorded as an adjustment to stockholders' equity.Company's Employee Stock Purchase Plan.
Accumulated Other Comprehensive Income ("AOCI"(“AOCI”)
The components of AOCI, net of tax, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Beginning Balance | | Before Reclassifications | | Amount Reclassified from AOCI | | Ending Balance |
March 31, 2023 | | | | | | | | |
Pension funded status adjustment | | $ | (12,637) | | | $ | 7,872 | | | $ | 342 | | | $ | (4,423) | |
Net unrealized gain (loss) on derivative instruments | | 2,963 | | | (2,453) | | | 901 | | | 1,411 | |
Foreign currency translation adjustment (1) | | (133,821) | | | (46,641) | | | — | | | (180,462) | |
Accumulated other comprehensive loss | | $ | (143,495) | | | $ | (41,222) | | | $ | 1,243 | | | $ | (183,474) | |
March 31, 2022 | | | | | | | | |
Pension funded status adjustment | | $ | (20,947) | | | $ | 7,374 | | | $ | 936 | | | $ | (12,637) | |
Net unrealized gain (loss) on derivative instruments | | 360 | | | 10,063 | | | (7,460) | | | 2,963 | |
Foreign currency translation adjustment | | (95,296) | | | (38,525) | | | — | | | (133,821) | |
Accumulated other comprehensive loss | | $ | (115,883) | | | $ | (21,088) | | | $ | (6,524) | | | $ | (143,495) | |
March 31, 2021 | | | | | | | | |
Pension funded status adjustment | | $ | (22,794) | | | $ | 680 | | | $ | 1,167 | | | $ | (20,947) | |
Net unrealized gain (loss) on derivative instruments | | (5,923) | | | 250 | | | 6,033 | | | 360 | |
Foreign currency translation adjustment | | (186,289) | | | 90,993 | | | — | | | (95,296) | |
Accumulated other comprehensive loss | | $ | (215,006) | | | $ | 91,923 | | | $ | 7,200 | | | $ | (115,883) | |
|
| | | | | | | | | | | | | | | | |
| | Beginning Balance | | Before Reclassifications | | Amount Reclassified from AOCI | | Ending Balance |
March 31, 2016 | | | | | | | | |
Pension funded status adjustment | | $ | (23,719 | ) | | $ | 298 |
| | $ | 1,560 |
| | $ | (21,861 | ) |
Net unrealized gain (loss) on derivative instruments | | (95 | ) | | (4,027 | ) | | 4,510 |
| | 388 |
|
Foreign currency translation adjustment | | (85,161 | ) | | 9,285 |
| | — |
| | (75,876 | ) |
Accumulated other comprehensive loss | | $ | (108,975 | ) | | $ | 5,556 |
| | $ | 6,070 |
| | $ | (97,349 | ) |
March 31, 2015 | | | | | | | | |
Pension funded status adjustment | | $ | (15,207 | ) | | $ | (9,259 | ) | | $ | 747 |
| | $ | (23,719 | ) |
Net unrealized gain (loss) on derivative instruments | | (2,253 | ) | | 289 |
| | 1,869 |
| | (95 | ) |
Foreign currency translation adjustment | | 85,305 |
| | (170,466 | ) | | — |
| | (85,161 | ) |
Accumulated other comprehensive loss | | $ | 67,845 |
| | $ | (179,436 | ) | | $ | 2,616 |
| | $ | (108,975 | ) |
March 31, 2014 | | | | | | | | |
Pension funded status adjustment | | $ | (13,169 | ) | | $ | (2,662 | ) | | $ | 624 |
| | $ | (15,207 | ) |
Net unrealized (loss) on derivative instruments | | (832 | ) | | (1,414 | ) | | (7 | ) | | (2,253 | ) |
Foreign currency translation adjustment | | 54,656 |
| | 30,649 |
| | — |
| | 85,305 |
|
Accumulated other comprehensive income | | $ | 40,655 |
| | $ | 26,573 |
| | $ | 617 |
| | $ | 67,845 |
|
(1) Foreign currency translation adjustment for the fiscal year ended March 31, 2023 and March 31, 2022 includes a $19,491 gain (net of taxes of $4,557) and $228 gain (net of taxes $70), respectively, related to the Company's $300,000 and $150,000 cross-currency fixed interest rate swap contracts.
The following table presents reclassifications from AOCI during the twelve months ended March 31, 2016:2023:
| | | | | | | | | | | | | | |
Components of AOCI | | Amounts Reclassified from AOCI | | Location of (Gain) Loss Recognized on Income Statement |
Derivatives in Cash Flow Hedging Relationships: | | | | |
Net unrealized loss on derivative instruments | | $ | 1,176 | | | Cost of goods sold |
Tax benefit | | (275) | | | |
Net unrealized loss on derivative instruments, net of tax | | $ | 901 | | | |
| | | | |
Derivatives in net investment hedging relationships: | | | | |
Net unrealized gain on derivative instruments | | $ | (3,587) | | | Interest expense |
Tax expense | | 839 | | | |
Net unrealized gain on derivative instruments, net of tax | | $ | (2,748) | | | |
| | | | |
Defined benefit pension costs: | | | | |
Prior service costs and deferrals | | $ | 478 | | | Net periodic benefit cost, included in other (income) expense, net - See Note 15 |
Tax benefit | | (136) | | | |
Net periodic benefit cost, net of tax | | $ | 342 | | | |
|
| | | | | | |
Components of AOCI | | Amounts Reclassified from AOCI | | Location of (Gain) Loss Recognized on Income Statement |
Derivatives in Cash Flow Hedging Relationships: | | | | |
Net unrealized loss on derivative instruments | | $ | 7,144 |
| | Cost of goods sold |
Tax benefit | | (2,634 | ) | | |
Net unrealized loss on derivative instruments, net of tax | | $ | 4,510 |
| | |
| | | | |
Defined benefit pension costs: | | | | |
Prior service costs and deferrals | | $ | 2,043 |
| | Net periodic benefit cost, included in cost of goods sold, operating expenses - See Note 14 |
Tax benefit | | (483 | ) | | |
Net periodic benefit cost, net of tax | | $ | 1,560 |
| | |
The following table presents reclassifications from AOCI during the twelve months ended March 31, 2015:2022:
| | | | | | | | | | | | | | |
Components of AOCI | | Amounts Reclassified from AOCI | | Location of (Gain) Loss Recognized on Income Statement |
Derivatives in Cash Flow Hedging Relationships: | | | | |
Net unrealized gain on derivative instruments | | $ | (9,742) | | | Cost of goods sold |
Tax benefit | | 2,282 | | | |
Net unrealized loss on derivative instruments, net of tax | | $ | (7,460) | | | |
| | | | |
Derivatives in net investment hedging relationships: | | | | |
Net unrealized gain on derivative instruments | | $ | (1,181) | | | Interest expense |
Tax expense | | 276 | | | |
Net unrealized gain on derivative instruments, net of tax | | $ | (905) | | | |
| | | | |
Defined benefit pension costs: | | | | |
Prior service costs and deferrals | | $ | 1,212 | | | Net periodic benefit cost, included in other (income) expense, net - See Note 15 |
Tax benefit | | (276) | | | |
Net periodic benefit cost, net of tax | | $ | 936 | | | |
|
| | | | | | |
Components of AOCI | | Amounts Reclassified from AOCI | | Location of (Gain) Loss Recognized on Income Statement |
Derivatives in Cash Flow Hedging Relationships: | | | | |
Net unrealized loss on derivative instruments | | $ | 2,961 |
| | Cost of goods sold |
Tax benefit | | (1,092 | ) | | |
Net unrealized loss on derivative instruments, net of tax | | $ | 1,869 |
| | |
| | | | |
Defined benefit pension costs: | | | | |
Prior service costs and deferrals | | $ | 1,007 |
| | Net periodic benefit cost, included in cost of goods sold, operating expenses - See Note 14 |
Tax benefit | | (260 | ) | | |
Net periodic benefit cost, net of tax | | $ | 747 |
| | |
The following demonstrates the change in redeemable noncontrolling intereststable presents reclassifications from AOCI during the fiscal yearstwelve months ended March 31, 2014, 2015 and 2016, respectively:2021:
| | | | | | | | | | | | | | |
Components of AOCI | | Amounts Reclassified from AOCI | | Location of (Gain) Loss Recognized on Income Statement |
Derivatives in Cash Flow Hedging Relationships: | | | | |
Net unrealized loss on derivative instruments | | $ | 7,903 | | | Cost of goods sold |
Tax benefit | | (1,870) | | | |
Net unrealized loss on derivative instruments, net of tax | | $ | 6,033 | | | |
| | | | |
Defined benefit pension costs: | | | | |
Prior service costs and deferrals | | $ | 1,529 | | | Net periodic benefit cost, included in other (income) expense, net - See Note 15 |
Tax benefit | | (362) | | | |
Net periodic benefit cost, net of tax | | $ | 1,167 | | | |
|
| | | |
| |
Balance as of March 31, 2013 | $ | 11,095 |
|
Net losses attributable to redeemable noncontrolling interests | (3,536 | ) |
Redemption value adjustment | 4,974 |
|
Purchase of subsidiary shares from redeemable noncontrolling interests | (3,146 | ) |
Foreign currency translation adjustment | (1,340 | ) |
Balance as of March 31, 2014 | $ | 8,047 |
|
Net earnings attributable to redeemable noncontrolling interests | 191 |
|
Redemption value adjustment | (292 | ) |
Foreign currency translation adjustment | (990 | ) |
Balance as of March 31, 2015 | $ | 6,956 |
|
Net losses attributable to redeemable noncontrolling interests | (4,272 | ) |
Redemption value adjustment | 4,272 |
|
Other | 109 |
|
Foreign currency translation adjustment | (1,068 | ) |
Balance as of March 31, 2016 | $ | 5,997 |
|
16.17. Stock-Based Compensation
As of March 31, 2016,2023, the Company maintains the Second Amended and Restated EnerSys 20102017 Equity Incentive Plan (“20102017 EIP”). The 20102017 EIP reserved 3,177,4774,173,554 shares of common stock for the grant of various classes of nonqualified stock options, restricted stock units, market condition-based on total shareholder return (“TSR”) and performance condition-based share units (“PSU”) and other forms of equity-based compensation. Shares subject to any awards that expire without being exercised or that are forfeited or settled in cash shall again be available for future grants of awards under the 20102017 EIP. Shares subject to stock option or stock appreciation right awards, that have been retained by the Company in payment or satisfaction of the exercise price and any applicable tax withholding obligation of an awardsuch awards, shall not count againstbe available for future grant under the limit described above.2017 EIP.
As of March 31, 2016, 1,327,4272023, 2,221,003 shares are available for future grants. The Company’s management equity incentive plans are intended to provide an incentive to employees and non-employee directors of the Company to remain in the service of the Company and to increase their interest in the success of the Company in order to promote the long-term interests of the
Company. The plans seek to promote the highest level of performance by providing an economic interest in the long-term performance of the Company. The Company settles employee share-based compensation awards with newly issued shares.
Stock Options
During fiscal 2016,2023, the Company granted to management and other key employees 127,966310,140 non-qualified options that vest threeratably over 3 years from the date of grant. Options granted prior to fiscal 2016 as well as the options granted in fiscal 2016 expire 10 years from the date of grant.
For fiscal 2016, 2015 and 2014, theThe Company recognized $1,419stock-based compensation expense relating to stock options of $6,232, with a related tax benefit of $477, $1,470$848 for fiscal 2023, $6,235 with a related tax benefit of $502$738 for fiscal 2022 and $0, respectively,$3,514 with a related tax benefit of stock-based compensation expense associated with stock option grants.$368 for fiscal 2021.
For purposes of determining the fair value of stock options granted, in fiscal 2016 and fiscal 2015, the Company used a Black-Scholes Model with the following assumptions:
| | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
Risk-free interest rate | | 2.92 | % | | 0.89 | % | | 0.39 | % |
Dividend yield | | 0.99 | % | | 0.76 | % | | 0.93 | % |
Expected life (years) | | 6 | | 6 | | 6 |
Volatility | | 37.4 | % | | 37.3 | % | | 37.2 | % |
|
| | | | | | |
| | 2016 | | 2015 |
Risk-free interest rate | | 1.79 | % | | 1.94 | % |
Dividend yield | | 1.02 | % | | 1.00 | % |
Expected life (years) | | 6 |
| | 6 |
|
Volatility | | 32.75 | % | | 40.48 | % |
The following table summarizes the Company’s stock option activity in the years indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Options | | Weighted- Average Remaining Contract Term (Years) | | Weighted- Average Exercise Price | | Aggregate Intrinsic Value |
Options outstanding as of March 31, 2020 | | 791,582 | | | 7.8 | | $ | 67.55 | | | $ | — | |
Granted | | 295,068 | | | | | 79.62 | | | — | |
Exercised | | (247,975) | | | | | 66.11 | | | 6,382 | |
Forfeited | | (34,854) | | | | | 69.20 | | | 290 | |
Expired | | (4,320) | | | | | 80.25 | | | — | |
Options outstanding as of March 31, 2021 | | 799,501 | | | 7.8 | | $ | 72.31 | | | $ | 14,781 | |
Granted | | 246,222 | | | | | 97.32 | | | — | |
Exercised | | (42,640) | | | | | 65.71 | | | 1,079 | |
Forfeited | | (27,478) | | | | | 71.26 | | | 520 | |
Expired | | — | | | | | — | | | — | |
Options outstanding as of March 31, 2022 | | 975,605 | | | 7.5 | | $ | 78.94 | | | $ | 3,605 | |
Granted | | 310,140 | | | | | 75.33 | | | — | |
Exercised | | (75,180) | | | | | 65.22 | | | 1,561 | |
Forfeited | | (9,575) | | | | | 80.05 | | | 39 | |
Expired | | (4,679) | | | | | 85.12 | | | — | |
Options outstanding as of March 31, 2023 | | 1,196,311 | | | 7.3 | | $ | 78.83 | | | $ | 12,150 | |
Options exercisable as of March 31, 2023 | | 643,454 | | | 6.0 | | $ | 75.74 | | | $ | 8,015 | |
Options vested and expected to vest, as of March 31, 2023 | | 1,178,740 | | | 7.3 | | $ | 78.80 | | | $ | 12,000 | |
|
| | | | | | | | | | | | | |
| | Number of Options | | Weighted- Average Remaining Contract Term (Years) | | Weighted- Average Exercise Price | | Aggregate Intrinsic Value |
Options outstanding as of March 31, 2013 | | 77,986 |
| | 2.5 | | $ | 14.76 |
| | $ | 2,404 |
|
Exercised | | (11,813 | ) | | | | 14.72 |
| | 537 |
|
Options outstanding as of March 31, 2014 | | 66,173 |
| | 1.4 | | $ | 14.77 |
| | $ | 3,608 |
|
Granted | | 76,512 |
| | | | 69.85 |
| | — |
|
Exercised | | (39,868 | ) | | | | 14.50 |
| | 1,819 |
|
Options outstanding as of March 31, 2015 | | 102,817 |
| | 7 | | $ | 55.86 |
| | $ | 1,291 |
|
Granted | | 127,966 |
| | | | 68.40 |
| | — |
|
Exercised | | (11,986 | ) | | | | 14.64 |
| | 639 |
|
Expired | | (8,500 | ) | | | |
|
| |
|
|
Options outstanding as of March 31, 2016 | | 210,297 |
| | 8.5 | | $ | 67.54 |
| | $ | 218 |
|
Options exercisable as of March 31, 2016 | | 31,322 |
| | 6.8 | | $ | 60.28 |
| | $ | 218 |
|
Options vested and expected to vest as of March 31, 2016 | | 207,673 |
| | 8.5 | | $ | 67.53 |
| | $ | 218 |
|
The following table summarizes information regarding stock options outstanding as of March 31, 2016:2023:
|
| | | | | | | | | |
| | Options Outstanding |
Range of Exercise Prices | | Number of Options | | Weighted- Average Remaining Contractual Life | | Weighted- Average Exercise Price |
$15.01-$20.00 | | 5,819 |
| | 1.1 | | $ | 18.33 |
|
$20.01-$69.85 | | 204,478 |
| | 8.7 | | $ | 68.94 |
|
| | 210,297 |
| | 8.5 | | $ | 67.54 |
|
| | | | | | | | | | | | | | | | | | | | |
Range of Exercise Prices | | Number of Options | | Weighted- Average Remaining Contractual Life (Years) | | Weighted- Average Exercise Price |
$57.60-$60.00 | | 160,227 | | | 5.9 | | $ | 57.73 | |
$60.01-$70.00 | | 32,500 | | | 1.9 | | $ | 68.69 | |
$70.01-$80.00 | | 510,031 | | | 8.1 | | $ | 75.33 | |
$80.01-$90.00 | | 256,634 | | | 6.2 | | $ | 83.00 | |
$90.01-$100.99 | | 236,919 | | | 8.4 | | $ | 97.54 | |
| | 1,196,311 | | | 7.3 | | $ | 78.83 | |
Restricted Stock Units, Market and Market Share UnitsPerformance-condition based Awards
Non-Employee Directors
In fiscal 2016,2023, the Company granted to non-employee directors 28,97039,792 deferred restricted stock units (“DSU”) at the fair value of $55.32$42.95 per restricted stock unit at the date of grant. In fiscal 2015,2022, such grants amounted to 14,78124,055 restricted stock units at the fair value of $61.16$60.29 per restricted stock unit at the date of grant and in fiscal 2014,2021, such grants amounted to 17,06439,726 restricted stock units at the
fair value of $53.92$39.93 per restricted stock unit at the date of grant. The awards vest immediately upon the date of grant and the payment ofare settled in shares of common stock under this grant are payable upon such director’ssix months after termination of service as a director.
InThe Company also granted to non-employee directors, during fiscal 2016, 20152023, fiscal 2022 and 2014, the Company granted 565, 3,434fiscal 2021, 1,635, 781, and 5,2321,435 restricted stock units, respectively, at various fair values of $66.90, $88.27 and $71.53, respectively, under the deferred compensation plans.plan for non-employee directors.
Employees
In fiscal 2016,2023, the Company granted to management and other key employees 120,287345,449 restricted stock units that vest ratably over four years from the date of grant, at the fair value of $68.40$70.88 per restricted stock unit and 212,635 performance market share units at a weighted average fair value of $59.94 per unit at the date of grant.unit.
In fiscal 2015,2022, the Company granted to management and other key employees 118,312229,600 restricted stock units that vest ratably over four years from the date of grant at the fair value of $69.83$91.81 per restricted stock unit and 152,300 performance market share units at a weighted average fair value of $70.42 per market share unit at the date of grant.unit.
In fiscal 2014,2021, the Company granted to management and other key employees 161,629283,101 restricted stock units that vest ratably over four years from the date of grant at thea fair value of $50.70$75.39 per restricted stock unit and 189,438 market share units at a weighted average fair value of $65.03 per market share unit at the date of grant.unit.
For purposes of determining the fair value of performance market share units granted in fiscal 2016 and fiscal 2015, the Company used a Monte Carlo Simulation with the following assumptions:
|
| | | | | | |
| | 2016 | | 2015 |
Risk-free interest rate | | 1.00 | % | | 0.87 | % |
Dividend yield | | — | % | | — | % |
Expected life (years) | | 3 |
| | 3 |
|
Volatility | | 25.52 | % | | 30.83 | % |
For purposes of determining the fair value of market share units granted in fiscal 2014, the Company used a binomial lattice model with the following assumptions:
|
| | |
| 2014 |
Risk-free interest rate | 0.52 | % |
Dividend yield | 1.00 | % |
Expected life (years) | 3 |
|
Volatility | 33.89 | % |
A summary of the changes in restricted stock units, TSRs and market share unitsPSUs awarded to employees and directors that were outstanding under the Company’s equity compensation plans during fiscal 20162023 is presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Restricted Stock Units (RSU) | | Market condition-based Share Units (TSR) | | Performance condition-based Share Units (PSU) |
| | Number of RSU | | Weighted- Average Grant Date Fair Value | | Number of TSR | | Weighted- Average Grant Date Fair Value | | Number of PSU | | Weighted- Average Grant Date |
Non-vested awards as of March 31, 2022 | | 877,765 | | | $ | 65.48 | | | 74,983 | | | $ | 71.25 | | | 76,873 | | | $ | 55.56 | |
Granted | | 386,876 | | | 66.90 | | | — | | | — | | | — | | | — | |
Stock dividend | | 9,982 | | | 64.20 | | | 454 | | | 66.61 | | | 227 | | | 55.56 | |
Performance factor | | — | | | — | | | — | | | — | | | — | | | — | |
Vested | | (230,427) | | | 73.71 | | | (29,171) | | | 85.62 | | | (21,195) | | | 68.48 | |
Forfeitures | | (34,413) | | | 76.08 | | | (14,613) | | | 62.02 | | | (55,905) | | | 50.67 | |
Non-vested awards as of March 31, 2023 | | 1,009,783 | | | $ | 65.48 | | | 31,653 | | | $ | 62.19 | | | — | | | $ | — | |
|
| | | | | | | | | | | | | | |
| | Restricted Stock Units (RSU) | | Performance Market Share Units and Market Share Units (MSU) |
| | Number of RSU | | Weighted- Average Grant Date Fair Value | | Number of MSU | | Weighted- Average Grant Date Fair Value |
Non-vested awards as of March 31, 2015 | | 502,223 |
| | $ | 45.30 |
| | 616,188 |
| | $ | 55.75 |
|
Granted | | 149,822 |
| | 66.66 |
| | 212,635 |
| | 59.94 |
|
Stock dividend | | 5,984 |
| | 51.72 |
| | 6,603 |
| | 64.45 |
|
Performance factor | | — |
| | — |
| | 255,534 |
| | 41.28 |
|
Vested | | (137,636 | ) | | 46.15 |
| | (536,490 | ) | | 41.55 |
|
Canceled | | (17,953 | ) | | 63.28 |
| | (5,524 | ) | | 63.33 |
|
Non-vested awards as of March 31, 2016 | | 502,440 |
| | $ | 51.26 |
| | 548,946 |
| | $ | 64.46 |
|
The Company recognized stock-based compensation expense relating to restricted stock units, TSRs and market share unitsPSUs of approximately $18,184,$20,139, with a related tax benefit of $4,446$3,746 for fiscal 2016, $23,789,2023, $18,054, with a related tax benefit of $4,790$3,072 for fiscal 20152022 and $16,742,$16,303, with a related tax benefit of $2,843$2,121 for fiscal 2014.2021.
All Award Plans
As of March 31, 2016,2023, unrecognized compensation expense associated with the non-vested incentiveequity awards outstanding was $24,219$53,157 and is expected to be recognized over a weighted-average period of 1524 months.
17.18. Earnings Per Share
The following table sets forth the reconciliation from basic to diluted weighted-average number of common shares outstanding and the calculations of net earnings per common share attributable to EnerSys stockholders.
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2023 | | 2022 | | 2021 |
Net earnings attributable to EnerSys stockholders | | $ | 175,810 | | | $ | 143,911 | | | $ | 143,374 | |
Weighted-average number of common shares outstanding: | | | | | | |
Basic | | 40,809,235 | | | 42,106,337 | | | 42,548,449 | |
Dilutive effect of: | | | | | | |
Common shares from exercise and lapse of equity awards, net of shares assumed reacquired | | 517,520 | | | 677,036 | | | 675,954 | |
Diluted weighted-average number of common shares outstanding | | 41,326,755 | | | 42,783,373 | | | 43,224,403 | |
Basic earnings per common share attributable to EnerSys stockholders | | $ | 4.31 | | | $ | 3.42 | | | $ | 3.37 | |
Diluted earnings per common share attributable to EnerSys stockholders | | $ | 4.25 | | | $ | 3.36 | | | $ | 3.32 | |
Anti-dilutive equity awards not included in diluted weighted-average common shares | | 710,678 | | | 951,057 | | | 281,483 | |
|
| | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2016 | | 2015 | | 2014 |
Net earnings attributable to EnerSys stockholders | | $ | 136,150 |
| | $ | 181,188 |
| | $ | 150,328 |
|
Weighted-average number of common shares outstanding: | | | | | | |
Basic | | 44,276,713 |
| | 45,606,317 |
| | 47,473,690 |
|
Dilutive effect of: | | | | | | |
Common shares from exercise and lapse of equity awards, net of shares assumed reacquired | | 644,036 |
| | 879,406 |
| | 1,034,505 |
|
Convertible Notes | | 553,381 |
| | 1,567,006 |
| | 1,279,960 |
|
Diluted weighted-average number of common shares outstanding | | 45,474,130 |
| | 48,052,729 |
| | 49,788,155 |
|
Basic earnings per common share attributable to EnerSys stockholders | | $ | 3.08 |
| | $ | 3.97 |
| | $ | 3.17 |
|
Diluted earnings per common share attributable to EnerSys stockholders | | $ | 2.99 |
| | $ | 3.77 |
| | $ | 3.02 |
|
Anti-dilutive equity awards not included in diluted weighted-average common shares | | — |
| | — |
| | — |
|
On July 17, 2015, the Company paid $172,388, in aggregate, towards the principal balance of the Convertible Notes, including accreted interest, cash equivalent of fractional shares issued towards conversion premium and settled the conversion premium by issuing, in the aggregate, 1,889,431 shares of its common stock, which were included in the diluted weighted average shares outstanding for the period prior to the extinguishment.
During the second quarter of fiscal 2016, the Company entered into an ASR with a major financial institution to repurchase $120,000 to $180,000 of its common stock. The Company prepaid $180,000 and received an initial delivery of 2,000,000 shares with a fair market value of approximately $108,100. The ASR was accounted for as a treasury stock repurchase, reducing the weighted average number of basic and diluted shares outstanding by the 2,000,000 shares initially repurchased, and as a forward contract indexed to the Company's own common shares to reflect the future settlement provisions.
On January 19, 2016, the ASR was settled and the Company received an additional 961,444 shares. See Note 15 for more information.
18.19. Commitments, Contingencies and Litigation
Litigation and Other Legal Matters
In the ordinary course of business, the Company and its subsidiaries are routinely defendants in or parties to many pending and threatened legal actions and proceedings, including actions brought on behalf of various classes of claimants. These actions and proceedings are generally based on alleged violations of environmental, anti-competition, employment, contract and other laws. In some of these actions and proceedings, claims for substantial monetary damages are asserted against the Company and its subsidiaries. In the ordinary course of business, the Company and its subsidiaries are also subject to regulatory and governmental examinations, information gathering requests, inquiries, investigations, and threatened legal actions and proceedings. In connection with formal and informal inquiries by federal, state, local and foreign agencies, suchthe Company and its subsidiaries
receive numerous requests, subpoenas and orders for documents, testimony and information in connection with various aspects of their activities.
European Competition Investigations
Certain of the Company’s European subsidiaries havehad received subpoenas and requests for documents and, in some cases, interviews from, and have had on-site inspections conducted by the competition authorities of Belgium, Germany and the Netherlands relating to conduct and anticompetitive practices of certain industrial battery participants. TheAs of March 31, 2023 and March 31, 2022, the Company is responding to inquiriesdid not have a reserve balance related to these matters.
The Company settled the Belgian regulatory proceeding in February 2016 by acknowledging certain anticompetitive practices and conduct and agreeing to pay a fine of $1,962, which was paid in March 2016 and as of March 31, 2016, the Company had a reserve balance of $2,038 in connection with these remaining investigations and other related legal charges. For the Dutch and German regulatory proceedings, the Company does not believe that such an estimate can be made at this time given the early stages of these proceedings. The foregoing estimate of losses is based upon currently available information for these proceedings. However, the precise scope, timing and time period at issue, as well as the final outcome of the investigations remainsor customer claims, remain uncertain. Accordingly, the Company’s estimate may change from time to time, and actual losses could vary.
In the fourth quarterTable of fiscal 2014, the Company recorded a $58,184 legal proceedings charge in connection with an adverse arbitration result involving disputes between the Company's wholly-owned subsidiary, EnerSys Delaware Inc. (“EDI”), and Altergy Systems (“Altergy”). In accordance with the final term sheet, EDI paid Altergy $40,000 in settlement of this award. Altergy paid $2,000 to purchase EDI’s entire equity interest in Altergy. Since the full amount of the initial award of $58,184 was recorded in fiscal 2014, the Company reversed approximately $16,233, net of professional fees, from this previously recorded legal proceedings charge in fiscal 2015 and $799 in fiscal 2016. The Company also included the $2,000 received in exchange for its equity interest in Altergy in the Consolidated Statements of Income in Other (income) expense, net in fiscal 2015. The Company had previously written off the carrying value of the investment of $5,000 in fiscal 2014.Contents
Environmental Issues
As a result of its operations, the Company is subject to various federal, state and local, as well as international environmental laws and regulations and is exposed to the costs and risks of registering, handling, processing, storing, transporting, and disposing of hazardous substances, especially lead and acid. The Company’s operations are also subject to federal, state, local and international occupational safety and health regulations, including laws and regulations relating to exposure to lead in the workplace.
The Company is responsible for certain cleanup obligations at the former Yuasa battery facility in Sumter, South Carolinabelieves that predates its ownership of this facility. This manufacturing facility was closed in 2001 and is separate from the Company’s current metal fabrication facility in Sumter. The Companyit has established a reserve for this facility. As of March 31, 2016 and 2015, theadequate reserves related to this facility were $1,123 and $2,902, respectively. Based on current information, the Company’s management believes these reserves are adequate to satisfy the Company’sits environmental liabilities at this facility.liabilities.
Collective Bargaining
At March 31, 2015,2023, the Company had approximately 9,40011,350 employees. Of these employees, approximately 29%26% were covered by collective bargaining agreements. Employees covered by collective bargaining agreements that did not exceedexpire in the next twelve months were approximately 7%9% of the total workforce. The average term of these agreements is two2 years, with the longest term being three4.0 years. The Company considers its employee relations to be good and did not experience any significant labor unrest or disruption of production during fiscal 2016.2023.
Lead, Foreign Currency Forward Contracts and Swaps
To stabilize its lead costs and reduce volatility from currency movements, the Company has enteredenters into contracts with financial institutions to fix the price of lead. The vast majority of such contracts are for a period not extending beyond one year. Under these contracts, at March 31, 2016 and 2015, the Company has hedged the price to purchase approximately 27.4 million pounds and 91.6 million pounds of lead, respectively, for a total purchase price of $21,628 and $76,143, respectively.
Foreign Currency Forward Contracts
The Company quantifies and monitors its global foreign currency exposures. On a selective basis, the Company will enter into foreign currency forward and option contracts to reduce the volatility from currency movements that affect the Company.institutions. The vast majority of such contracts are for a period not extending beyond one year. The Company’s largest exposure is from the purchase and conversion of U.S. dollar based lead costs into local currencies in EMEA. Additionally, the Company has currency exposures from intercompany financing and intercompany and third-party trade transactions. To hedge these exposures, the Company hasalso entered into a total of $29,362cross currency fixed interest rate swap agreements to hedge its net investments in foreign operations against future volatility in the exchange rates between U.S. Dollars and $102,124, respectively, of foreign currency forward contracts with financial institutions as of March 31, 2016Euros and 2015, respectively.these agreements mature on December 15, 2027. Please refer to Note 13 - Derivative Financial Instruments for more details.
Other
The Company has various purchase and capital commitments incidentincidental to the ordinary conduct of business. In the aggregate, such commitments are not at prices in excess of current market.
19.
20.Restructuring, Exit and Other Charges
Restructuring Programs
Fiscal 2023
The Company had committed to various restructuring plans aimed at improving operational efficiencies across its lines of business. A substantial portion of these plans are complete, with an estimated $445 remaining to be incurred by the end of fiscal 2023, mainly related to plans started in fiscal 2021 and fiscal 2022. Restructuring and Other Exit Chargesexit charges for the reportable segments are as follows:
Restructuring Plans
During fiscal 2012,2023, the Company recorded charges related to our fiscal 2022 programs in the Energy Systems segment to improve operational efficiencies. The charges related to severance payments and amounted to $1,230 to approximately 9 employees in the Energy Systems’ segment.
During fiscal 2022, the Company announced and completed restructuring programs in the Energy Systems segment to improve operational efficiencies. The charges related to severance payments and amounted to $1,284 to approximately 10 employees in the Energy Systems’ segment.
During fiscal 2021, the Company announced restructuring plansprograms in the Energy Systems segment relating to its recent acquisitions of Alpha and NorthStar, as part of its targeted synergy plans. The Company also announced a restructuring program to improve global operational efficiencies in its Motive Power segment. The charges, in both segments were primarily cash charges relating to severance payments and amounted to $3,187 to approximately 47 employees in the Energy Systems segment and $4,012 to approximately 32 employees in the Motive Power segment. In addition there was a $169 charge related to its operations in EMEA, primarily consistingthe Specialty segment.
Restructuring and exit charges for fiscal 2023, 2022 and 2021 by reportable segments are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal year ended March 31, 2023 |
| | Energy Systems | | Motive Power | | Specialty | | Total |
Restructuring charges | | $ | 1,318 | | | $ | 327 | | | $ | 42 | | | $ | 1,687 | |
Exit charges | | 123 | | | 12,537 | | | 2,092 | | | 14,752 | |
Restructuring and other exit charges | | $ | 1,441 | | | $ | 12,864 | | | $ | 2,134 | | | $ | 16,439 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal year ended March 31, 2022 |
| | Energy Systems | | Motive Power | | Specialty | | Total |
Restructuring charges | | $ | 2,005 | | | $ | 2,348 | | | $ | 75 | | | $ | 4,428 | |
Exit charges | | 708 | | | 14,711 | | | (1,091) | | | 14,328 | |
Restructuring and other exit charges | | $ | 2,713 | | | $ | 17,059 | | | $ | (1,016) | | | $ | 18,756 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal year ended March 31, 2021 |
| | Energy Systems | | Motive Power | | Specialty | | Total |
Restructuring charges | | $ | 3,187 | | | $ | 4,012 | | | $ | 169 | | | $ | 7,368 | |
Exit charges | | — | | | 32,786 | | | 220 | | | 33,006 | |
Restructuring and other exit charges | | $ | 3,187 | | | $ | 36,798 | | | $ | 389 | | | $ | 40,374 | |
A roll-forward of the transferrestructuring reserve is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Employee Severance | | Other | | Total |
Balance at March 31, 2020 | | $ | 3,325 | | | $ | — | | | $ | 3,325 | |
Accrued | | 6,537 | | | 831 | | | 7,368 | |
Costs incurred | | (7,550) | | | (831) | | | (8,381) | |
Foreign currency impact and other | | 283 | | | — | | | 283 | |
Balance at March 31, 2021 | | $ | 2,595 | | | $ | — | | | $ | 2,595 | |
Accrued | | 4,428 | | | — | | | 4,428 | |
Costs incurred | | (6,013) | | | — | | | (6,013) | |
Foreign currency impact and other | | 20 | | | — | | | 20 | |
Balance at March 31, 2022 | | $ | 1,030 | | | $ | — | | | $ | 1,030 | |
Accrued | | 1,687 | | | — | | | 1,687 | |
Costs incurred | | (2,224) | | | — | | | (2,224) | |
Foreign currency impact and other | | (48) | | | — | | | (48) | |
Balance at March 31, 2023 | | $ | 445 | | | $ | — | | | $ | 445 | |
Exit Charges
Fiscal 2023 Programs
Sylmar
In November 2022, the Company committed to a plan to close its facility in Sylmar, California, which manufactures specialty lithium batteries for aerospace and medical applications. Management determined to close the site upon the expiration of its manufacturing operationslease on the property and restructuring of its selling, general and administrative operations, which resultedto redirect production through consolidation into existing locations. The Company currently estimates total charges in the reduction of approximately 85 employees upon completion atexit to amount to $5,528. Cash charges are estimated to total $4,413 primarily relating to severance and other costs to leave the end of the second quarter of fiscal 2014.site. Non-cash charges are estimated to be $1,115 relating to fixed assets, inventory, and contract assets. The total charges for these actions amountedplan is expected to $3,545, primarily from cash expenses for employee severance-related payments. The Company recorded restructuring charges of $3,070be completed in fiscal 2012 and $475 of charges in fiscal 2013 with no additional charges in fiscal 2014. The Company incurred $2,433 of costs against the accrual during fiscal 2012, and $913 of costs incurred in fiscal 2013 with $185 of additional incurred against the accrual during fiscal 2014. This plan was completed as of September 29, 2013.2024.
During fiscal 2013,2023, the Company announced a restructuring related to improving the efficiency of its manufacturing operations in EMEA. This program was completed during the third quarter of fiscal 2016. Total charges for this program were $6,895, primarily for cash expenses of $5,496 for employee severance-related payments of approximately 140 employees and non-cash expenses of $1,399 associated with the write-off of certain fixed assets and inventory. The Company incurred $5,207 of costs against the accrual through fiscal 2015, and incurred $271 in costs against the accrual during fiscal 2016.
During fiscal 2014, the Company announced further restructuring programs to improve the efficiency of its manufacturing, sales and engineering operations in EMEA including the restructuring of its manufacturing operations in Bulgaria. The restructuring of the Bulgaria operations was announced during the third quarter of fiscal 2014 and consisted of the transfer of motive power and a portion of reserve power battery manufacturing to the Company's facilities in Western Europe. This program was completed during the fourth quarter of fiscal 2016. Total charges for this program were $22,930 primarily for cash expenses of $11,996 for employee severance-related payments of approximately 500 employees and other charges and non-cash expenses of $10,934 associated with the write-off of certain fixed assets and inventory. The Company recorded restructuring charges of $22,115 through fiscal 2015, consisting of non-cash charges of $10,934 and cash charges of $11,181 and recorded an additional $1,229 in cash charges and a favorable accrual adjustment of $414 during fiscal 2016. The Company incurred $9,737 of costs against the accrual through fiscal 2015, and incurred $2,068 in costs against the accrual during fiscal 2016.
During the third quarter of fiscal 2015, the Company announced a restructuring$1,682 related to its manufacturing facility located in Jiangdu, the People’s Republic of China ("PRC"), pursuant to which the Company completed the transfer of the manufacturing at that location to its other facilities in PRC, as part of the closure of the Jiangdu facility in the first quarter of fiscal 2016. This program was completed during the fourth quarter of fiscal 2016. Total charges for this program were $5,291 primarily for cash expenses of $4,893 for employee severance-related payments of approximately 300 employees and other charges and non-cash expenses of $398. The Company recorded cash restructuring charges of $3,870 during fiscal 2015 and recorded an additional $1,023 in cash charges and $398 in non-cash charges during fiscal 2016. The Company incurred $1,874 of costs against the accrual through fiscal 2015, and incurred $2,970 in costs against the accrual during fiscal 2016.
During fiscal 2015, the Company announced a restructuring primarily related to severance costs and non-cash charges totaling $417 primarily relating to contract assets.
Ooltewah
On June 29, 2022, the Company committed to a portion ofplan to close its salesfacility in Ooltewah, Tennessee, which produced flooded motive power batteries for electric forklifts. Management determined that future demand for traditional motive power flooded cells will decrease as customers transition to maintenance free product solutions in lithium and engineering organizations in Europe to improve efficiencies. This program was completed during the fourth quarter of fiscal 2016. Total charges for this program were $804 for cash expenses for employee severance-related payments of approximately 15 employees.TPPL. The Company recorded cash restructuring charges of $450 during fiscal 2015 and recorded an additional $354
during fiscal 2016. The Company incurred $193 of costs against the accrual through fiscal 2015, and incurred $698 in costs against the accrual during fiscal 2016.
During the first quarter of fiscal 2016, the Company completed a restructuring related to a reduction of two executives associated with one of Americas’ recent acquisitions to improve efficiencies. The Company recorded total severance-related charges of $570, all of which was paid during the first quarter of fiscal 2016, primarily per the terms of a pre-existing employee agreement.
During the second quarter of fiscal 2016, the Company announced a restructuring to improve efficiencies primarily related to its motive power assembly and distribution center in Italy and its sales and administration organizations in EMEA. In addition, during the third quarter of fiscal 2016, the Company announced a further restructuring related to its manufacturing operations in Europe. The Companycurrently estimates that the total charges for these actions will amount to approximately $6,800, primarily from cash$18,500. Cash charges for employee severance-relatedseverance related payments, cleanup related to the facility, contractual releases and other charges. The Company estimates that theselegal expenses are estimated to be $9,200 and non-cash charges from inventory and fixed asset write-offs are estimated to be $9,300. These actions will result in the reduction of approximately 120 employees upon completion. During 2016, the Company recorded restructuring charges of $5,232 and incurred $2,993 in costs against the accrual. As of March 31, 2016, the reserve balance associated with these actions is $2,238.165 employees. The Company expects to be committed to an additional $1,600 of restructuring charges related to these actions during fiscal 2016, and expects to complete the program during fiscal 2017.
During the second quarter of fiscal 2016, the Company announced a restructuring related to improving the efficiency of its manufacturing operations in the Americas. The program consists of the announced closing of its Cleveland, Ohio charger manufacturing facility whichplan is expected to be completed duringin calendar 2023.
During fiscal 2023, the second quarterCompany recorded cash charges relating to severance and manufacturing variances of fiscal 2017,$2,735 and non-cash charges of $7,261 relating to fixed asset write-offs. The Company also recorded a non-cash write off relating to inventories of $1,613, which was reported in cost of goods sold.
Fiscal 2022 Programs
Russia
In February 2022, as a result of the Russia-Ukraine conflict, economic sanctions were imposed on Russian individuals and entities, including financial institutions, by countries around the world, including the U.S. and the European Union. On March 3, 2022, the Company announced that it was indefinitely suspending its operations in Russia in order to comply with the transfersanctions. As a result of productionthis decision, the Company wrote off net assets of $3,999 relating to other Americas manufacturing facilities.its Russian subsidiary. The Company also incurred cash charges of $1,284 relating to severance and exiting lease obligations. During fiscal 2023, the Company sold inventory previously written off resulting in the reversal of $932 in cost of goods sold and reversal of $739 of cash charges primarily relating to lease obligations.
Zamudio, Spain
During fiscal 2022, the Company closed a minor assembling plant in Zamudio, Spain and sold the same for $1,779. A net gain of $740 was recorded as a credit to exit charges in the Consolidated Statements of Income.
Fiscal 2021 Programs
Hagen, Germany
In fiscal 2021, the Company's Board of Directors approved a plan to substantially close all of its facility in Hagen, Germany, which produces flooded motive power batteries for forklifts. Management determined that future demand for the motive power batteries produced at this facility was not sufficient, given the conversion from flooded to maintenance free batteries by customers, the existing number of competitors in the market, as well as the near term decline in demand and increased
uncertainty from the pandemic. The Company plans to retain the facility with limited sales, service and administrative functions along with related personnel for the foreseeable future.
The Company currently estimates that the total charges for allthese actions associated with this program will amount to approximately $2,100, primarily from cash$60,000, the majority of which has been recorded as of March 31, 2022. Cash charges for employee severance-relatedseverance related payments, cleanup related to the
facility, contractual releases and other charges of $1,500, along with a pension curtailment charge of $313legal expenses are estimated to be $40,000 and non-cash charges relatedfrom inventory and equipment write-offs are estimated to the accelerated depreciation of fixed assets of $300. The Company estimates that thesebe $20,000. These actions will resultresulted in the reduction of approximately 100 employees at its Cleveland facility. 200 employees.
During fiscal 2016,2021, the Company recorded restructuringcash charges relating to severance of $1,488 including a pension curtailment charge of $313$23,331 and non-cash charges of $305 related$7,946 primarily relating to fixed asset write-offs.
During fiscal 2022, the Company recorded cash charges primarily relating to severance of $8,069 and non-cash charges of $3,522 primarily relating to fixed asset write-offs. The Company also recorded a non-cash write off relating to inventories of $960, which was reported in cost of goods sold.
During fiscal 2023, the Company recorded cash charges of $2,207 relating to primarily to site cleanup and $562 of non-cash charges relating to accelerated depreciation of fixed assets and incurred $119 of cost againstassets.
Vijayawada, India
During fiscal 2021, the accrual. As of March 31, 2016, the reserve balance associated with these actions is $751. The Company expects to be committed to an additional $600a plan to close its facility in Vijayawada, India to align with its strategic vision for the new line of restructuring charges related to these actions during fiscal 2017 when it expects to complete this program.
A roll-forward of the restructuring reserve is as follows:
|
| | | | | | | | | | | | |
| | Employee Severance | |
Other | | Total |
Balance at March 31, 2013 | | $ | 1,738 |
| | $ | 221 |
| | $ | 1,959 |
|
Accrued | | 10,285 |
| | 1,378 |
| | 11,663 |
|
Costs incurred | | (4,966 | ) | | (525 | ) | | (5,491 | ) |
Foreign currency impact and other | | 255 |
| | 28 |
| | 283 |
|
Balance at March 31, 2014 | | $ | 7,312 |
| | $ | 1,102 |
| | $ | 8,414 |
|
Accrued | | 6,140 |
| | 843 |
| | 6,983 |
|
Costs incurred | | (10,378 | ) | | (803 | ) | | (11,181 | ) |
Foreign currency impact and other | | (108 | ) | | (288 | ) | | (396 | ) |
Balance at March 31, 2015 | | $ | 2,966 |
| | $ | 854 |
| | $ | 3,820 |
|
Accrued | | 8,859 |
| | 419 |
| | 9,278 |
|
Accrual adjustments | | — |
| | (414 | ) | | (414 | ) |
Costs incurred | | (8,817 | ) | | (872 | ) | | (9,689 | ) |
Foreign currency impact and other | | (44 | ) | | 38 |
| | (6 | ) |
Balance at March 31, 2016 | | $ | 2,964 |
| | $ | 25 |
| | $ | 2,989 |
|
Other Exit Charges
During fiscal 2016, the Companybusiness structure and footprint and recorded exit charges of $3,098$1,509, primarily relating to asset write-offs. In fiscal 2022, the Company reclassified property, plant and equipment with a carrying value of $4,573 to assets held for sale on the Consolidated Balance Sheet and recognized an impairment loss of $2,973 under the caption Loss on assets held for sale on its consolidated statement of income, by writing down the carrying value of these assets to their estimated fair value of $1,600, based on their expected proceeds, less costs to sell. The Company also recorded a non-cash write off relating to inventories of $820, which was reported in cost of goods sold.
Targovishte, Bulgaria
During fiscal 2019, the Company committed to a plan to close its facility in Targovishte, Bulgaria, which produced diesel-electric submarine batteries. Management determined that the future demand for batteries of diesel-electric submarines was not sufficient given the number of competitors in the market. Of the estimated total charges of $26,000 for this plan, the Company had recorded charges amounting to $20,242 in fiscal 2019, relating to severance and inventory and fixed asset write-offs and an additional $5,123 relating to cash and non-cash charges during fiscal 2020. During fiscal 2021, in keeping with its strategy of exiting the manufacture of batteries for diesel-electric submarines, the Company completed further actions which resulted in $220 relating to cash and non-cash charges. During fiscal 2022, the Company sold this facility for $1,489. A net gain of $1,208 was recorded as a credit to exit charges in the Consolidated Statements of Income.
Fiscal 2020 Programs
Richmond, Kentucky Plant Fire
During fiscal 2021, the Company settled its claims with its insurance carrier relating to the fire that broke out in the battery formation area of the Company's Richmond, Kentucky motive power production facility in fiscal 2020. The total claims, for both property and business interruption of $46,117 were received through March 31, 2021.
The final settlement of insurance recoveries and finalization of costs related to certain operationsthe replacement of property, plant and equipment, resulted in Europe.a net gain of $4,397, which was recorded as a reduction to operating expenses in the Consolidated Statements of Income.
The details of charges and recoveries for fiscal 2021 and fiscal 2020 are as follows:
20.
In fiscal 2020, the Company recorded as a receivable, $17,037, consisting of write-offs for damages caused to its fixed assets and inventories, as well as for cleanup, asset replacement and other ancillary activities directly associated with the fire and received $12,000 related to its initial claims.
During fiscal 2021, the Company recorded an additional $16,580 as a receivable for cleanup and received $21,617 from the insurance carrier.
In addition to the property damage claim, the Company received $12,500 in business interruption claims, of which $5,000 was recorded in fiscal 2020 and $7,500 in fiscal 2021, and was credited to cost of goods sold, in the respective periods.
21. Warranty
The Company provides for estimated product warranty expenses when the related products are sold, with related liabilities included within accrued expenses and other liabilities. BecauseAs warranty estimates are forecasts that are based on the best available information, primarily historical claims experience, costs of claims costs may ultimately differ from amounts provided. An analysis of changes in the liability for product warranties is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2023 | | 2022 | | 2021 |
Balance at beginning of year | | $ | 54,978 | | | $ | 58,962 | | | $ | 63,525 | |
Current year provisions | | 29,132 | | | 17,645 | | | 27,645 | |
Costs incurred | | (25,251) | | | (20,648) | | | (34,346) | |
| | | | | | |
Foreign currency translation adjustment | | (2,229) | | | (981) | | | 2,138 | |
Balance at end of year | | $ | 56,630 | | | $ | 54,978 | | | $ | 58,962 | |
|
| | | |
| |
Balance at March 31, 2013 | $ | 42,591 |
|
Current year provisions | 16,098 |
|
Costs incurred | (22,862 | ) |
Fair value of warranty reserves of acquired businesses | 2,817 |
|
Foreign currency translation adjustment | 1,782 |
|
| |
Balance at March 31, 2014 | 40,426 |
|
Current year provisions | 18,413 |
|
Costs incurred | (16,015 | ) |
Foreign currency translation adjustment | (3,014 | ) |
| |
Balance at March 31, 2015 | 39,810 |
|
Current year provisions | 19,735 |
|
Costs incurred | (13,998 | ) |
Foreign currency translation adjustment | 2,875 |
|
| |
Balance at March 31, 2016 | $ | 48,422 |
|
21.22. Other (Income) Expense, Net
Other (income) expense, net consists of the following:
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2023 | | 2022 | | 2021 |
Foreign exchange transaction (gains) losses | | $ | 671 | | | $ | (7,169) | | | $ | 6,696 | |
Non-service components of pension expense | | 315 | | | 430 | | | 1,279 | |
Other | | 7,207 | | | 1,274 | | | (171) | |
Total | | $ | 8,193 | | | $ | (5,465) | | | $ | 7,804 | |
|
| | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2016 | | 2015 | | 2014 |
Foreign exchange transaction (gains) losses | | $ | 5,425 |
| | $ | (5,011 | ) | | $ | 5,845 |
|
(Gain) on disposition of equity interest in Altergy / write-off of investment in Altergy | | — |
| | (2,000 | ) | | 5,000 |
|
Other | | 294 |
| | 1,409 |
| | 2,813 |
|
Total | | $ | 5,719 |
| | $ | (5,602 | ) | | $ | 13,658 |
|
22.23. Business Segments
The Company's chief operating decision maker, or CODM (the Company's Chief Executive Officer), reviews financial information for purposes of assessing business performance and allocating resources, by focusing on the lines of business on a global basis. The Company excludes certain items that are not included in the segment performance as these are managed and viewed on a consolidated basis. The Company identifies the following as its three operating segments, based on lines of business:
◦Energy Systems - uninterruptible power systems, or “UPS” applications for computer and computer-controlled systems used in data centers, as well as telecommunications systems, switchgear and electrical control systems used in industrial facilities and electric utilities, large-scale energy storage and energy pipelines. Energy Systems also includes highly integrated power solutions and services to broadband, telecom, renewable and industrial customers, as well as thermally managed cabinets and enclosures for electronic equipment and batteries.
◦Motive Power - power for electric industrial forklifts used in manufacturing, warehousing and other material handling applications as well as mining equipment, diesel locomotive starting and other rail equipment; and
◦Specialty - premium batteries for starting, lighting and ignition applications in premium automotive and large over-the-road trucks, energy storage solutions for satellites, military land vehicles, aircraft, submarines, tactical vehicles, as well as medical devices and equipment.
The operating segments also represent the Company's reportable segments under ASC 280, Segment Reporting.
Summarized financial information related to the Company’s reportable segments at March 31, 2016, 20152023, 2022 and 20142021 and for each of the fiscal years then ended is shown below.
| | | | | | | | | | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2023 | | 2022 | | 2021 |
Net sales by segment to unaffiliated customers | | | | | | |
Energy Systems | | $ | 1,738,195 | | | $ | 1,536,673 | | | $ | 1,380,278 | |
Motive Power | | 1,451,244 | | | 1,361,254 | | | 1,163,710 | |
Specialty | | 519,140 | | | 459,392 | | | 433,944 | |
Total net sales | | $ | 3,708,579 | | | $ | 3,357,319 | | | $ | 2,977,932 | |
Operating earnings by segment | | | | | | |
Energy Systems | | $ | 62,305 | | | $ | 18,531 | | | $ | 67,060 | |
Motive Power | | 178,904 | | | 169,740 | | | 143,541 | |
Specialty | | 37,469 | | | 43,491 | | | 46,148 | |
Production tax credits from IRA 45X | | 17,283 | | | — | | | — | |
Inventory step up to fair value relating to acquisitions and exit activities - Energy Systems | | 211 | | | (186) | | | — | |
Inventory adjustment relating to exit activities - Motive | | (892) | | | (2,418) | | | — | |
Inventory step up to fair value relating to acquisitions - Specialty | | — | | | — | | | — | |
Restructuring and other exit charges - Energy Systems | | (1,441) | | | (2,713) | | | (3,187) | |
Restructuring and other exit charges - Motive Power | | (12,864) | | | (17,059) | | | (36,798) | |
Restructuring and other exit charges - Specialty | | (2,134) | | | 1,016 | | | (389) | |
Impairment of goodwill (3) | | — | | | — | | | — | |
Impairment of indefinite-lived intangibles - Energy Systems | | (100) | | | (501) | | | — | |
Impairment of indefinite-lived intangibles - Motive Power | | — | | | (677) | | | — | |
Impairment of indefinite-lived intangibles - Specialty | | (380) | | | — | | | — | |
Loss on assets held for sale - Motive Power | | — | | | (2,973) | | | — | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Total operating earnings(2) | | $ | 278,361 | | | $ | 206,251 | | | $ | 216,375 | |
| | | | | | |
Capital Expenditures | | | | | | |
Energy Systems | | $ | 37,249 | | | $ | 33,614 | | | $ | 34,826 | |
Motive Power | | 16,373 | | | 13,887 | | | 14,154 | |
Specialty | | 35,150 | | | 26,540 | | | 21,040 | |
Total | | $ | 88,772 | | | $ | 74,041 | | | $ | 70,020 | |
| | | | | | |
Depreciation and Amortization | | | | | | |
Energy Systems | | $ | 52,034 | | | $ | 54,580 | | | $ | 57,864 | |
Motive Power | | 22,404 | | | 24,918 | | | 21,706 | |
Specialty | | 16,715 | | | 16,380 | | | 14,512 | |
Total | | $ | 91,153 | | | $ | 95,878 | | | $ | 94,082 | |
(1)Reportable segments do not record inter-segment revenues and accordingly there are none to report.
(2)The Company does not allocate interest expense or other (income) expense, net, to the reportable segments.
|
| | | | | | | | | | | | |
| | Fiscal year ended March 31, |
| | 2016 | | 2015 | | 2014 |
Net sales by segment to unaffiliated customers | | | | | | |
Americas | | $ | 1,276,027 |
| | $ | 1,322,337 |
| | $ | 1,267,598 |
|
EMEA | | 787,402 |
| | 948,845 |
| | 966,152 |
|
Asia | | 252,820 |
| | 234,330 |
| | 240,683 |
|
Total net sales | | $ | 2,316,249 |
| | $ | 2,505,512 |
| | $ | 2,474,433 |
|
Net sales by product line | | | | | | |
Reserve power | | $ | 1,109,154 |
| | $ | 1,252,637 |
| | $ | 1,234,538 |
|
Motive power | | 1,207,095 |
| | 1,252,875 |
| | 1,239,895 |
|
Total net sales | | $ | 2,316,249 |
| | $ | 2,505,512 |
| | $ | 2,474,433 |
|
Intersegment sales | | | | | | |
Americas | | $ | 32,984 |
| | $ | 29,987 |
| | $ | 33,951 |
|
EMEA | | 78,812 |
| | 69,396 |
| | 77,549 |
|
Asia | | 23,590 |
| | 33,786 |
| | 29,428 |
|
Total intersegment sales(1) | | $ | 135,386 |
| | $ | 133,169 |
| | $ | 140,928 |
|
Operating earnings | | | | | | |
Americas | | $ | 182,774 |
| | $ | 162,741 |
| | $ | 179,080 |
|
EMEA | | 75,666 |
| | 109,861 |
| | 84,902 |
|
Asia | | 570 |
| | 9,928 |
| | 21,217 |
|
Restructuring charges—Americas | | (2,058 | ) | | — |
| | — |
|
Restructuring and other exit charges—EMEA | | (9,501 | ) | | (7,567 | ) | | (27,078 | ) |
Restructuring charges—Asia | | (1,419 | ) | | (3,869 | ) | | (248 | ) |
Impairment of goodwill and indefinite-lived intangibles—Americas | | (32,999 | ) | | (23,196 | ) | | — |
|
Impairment of goodwill and fixed assets—EMEA | | (3,253 | ) | | (750 | ) | | — |
|
Goodwill impairment charge—Asia | | — |
| | — |
| | (5,179 | ) |
Legal proceedings (charge) / reversal of legal accrual, net of fees—Americas | | 799 |
| | 16,233 |
| | (58,184 | ) |
Legal proceedings charge—EMEA | | (4,000 | ) | | — |
| | — |
|
Gain on sale of facility—Asia | | 3,420 |
| | — |
| | — |
|
Total operating earnings(2) | | $ | 209,999 |
| | $ | 263,381 |
| | $ | 194,510 |
|
Property, plant and equipment, net | | | | | | |
Americas | | $ | 177,720 |
| | $ | 168,274 |
| | $ | 155,988 |
|
EMEA | | 112,839 |
| | 114,681 |
| | 145,308 |
|
Asia | | 66,850 |
| | 73,899 |
| | 68,870 |
|
Total | | $ | 357,409 |
| | $ | 356,854 |
| | $ | 370,166 |
|
Capital Expenditures | | | | | | |
Americas | | $ | 39,127 |
| | $ | 34,768 |
| | $ | 24,641 |
|
EMEA | | 12,625 |
| | 16,215 |
| | 14,871 |
|
Asia | | 4,128 |
| | 12,642 |
| | 22,483 |
|
Total | | $ | 55,880 |
| | $ | 63,625 |
| | $ | 61,995 |
|
Depreciation and Amortization | | | | | | |
Americas | | $ | 31,070 |
| | $ | 30,724 |
| | $ | 26,596 |
|
EMEA | | 16,337 |
| | 19,664 |
| | 22,708 |
|
Asia | | 8,587 |
| | 6,652 |
| | 4,668 |
|
Total | | $ | 55,994 |
| | $ | 57,040 |
| | $ | 53,972 |
|
101
| |
(1) | Intersegment sales are presented on a cost-plus basis which takes into consideration the effect of transfer prices between legal entities. |
| |
(2) | The Company does not allocate interest expense or other (income) expense, net to the reportable segments. |
The Company's property, plant and equipment by reportable segments as of March 31, 2023 and 2022 are as follows:
| | | | | | | | | | | | | | |
| | March 31, 2023 | | March 31, 2022 |
Property, plant and equipment, net | | | | |
Energy Systems | | $ | 199,414 | | | $ | 216,853 | |
Motive Power | | 142,301 | | | 145,431 | |
Specialty | | 171,568 | | | 140,980 | |
Total | | $ | 513,283 | | | $ | 503,264 | |
The Company markets its products and services in over 100 countries. Sales are attributed to countries based on the location of sales order approval and acceptance. Sales to customers in the United States were 51.0%63.4%, 46.0%60.7% and 44.0%59.8% for fiscal years ended March 31, 2016, 20152023, 2022 and 2014,2021, respectively. Property, plant and equipment, net, attributable to the United States as of March 31, 20162023 and 2015,2022, were $149,348$336,970 and $140,514,$320,208, respectively. No single country, outside the United States, accounted for more than 10% of the consolidated net sales or net property, plant and equipment and, therefore, was deemed not material for separate disclosure.
23. Quarterly Financial Data (Unaudited)
The Company reports interim financial information for 13-week periods, except for the first quarter, which always begins on April 1, and the fourth quarter, which always ends on March 31. The four quarters in fiscal 2016 ended on June 28, 2015, September 27, 2015, December 27, 2015, and March 31, 2016, respectively. The four quarters in fiscal 2015 ended on June 29, 2014, September 28, 2014, December 28, 2014, and March 31, 2015, respectively.
|
| | | | | | | | | | | | | | | | | | | | |
| | 1st Quarter | | 2nd Quarter | | 3rd Quarter | | 4th Quarter | | Fiscal Year |
Fiscal year ended March 31, 2016 | | | | | | | | | | |
Net sales | | $ | 562,068 |
| | $ | 569,134 |
| | $ | 573,573 |
| | $ | 611,474 |
| | $ | 2,316,249 |
|
Gross profit | | 150,415 |
| | 154,939 |
| | 145,882 |
| | 160,541 |
| | 611,777 |
|
Operating earnings(1)(3)(5)(6) | | 69,037 |
| | 59,548 |
| | 55,461 |
| | 25,953 |
| | 209,999 |
|
Net earnings | | 47,934 |
| | 39,768 |
| | 38,214 |
| | 5,908 |
| | 131,824 |
|
Net earnings attributable to EnerSys stockholders | | 48,387 |
| | 40,025 |
| | 38,478 |
| | 9,260 |
| | 136,150 |
|
Net earnings per common share attributable to EnerSys stockholders—basic | | $ | 1.09 |
| | $ | 0.89 |
| | $ | 0.87 |
| | $ | 0.21 |
| | $ | 3.08 |
|
Net earnings per common share attributable to EnerSys stockholders—diluted | | $ | 1.03 |
| | $ | 0.87 |
| | $ | 0.86 |
| | $ | 0.21 |
| | $ | 2.99 |
|
Fiscal year ended March 31, 2015 | | | | | | | | | | |
Net sales | | $ | 634,110 |
| | $ | 629,927 |
| | $ | 611,578 |
| | $ | 629,897 |
| | $ | 2,505,512 |
|
Gross profit | | 162,577 |
| | 162,540 |
| | 157,265 |
| | 158,529 |
| | 640,911 |
|
Operating earnings(2)(4)(6) | | 71,689 |
| | 80,053 |
| | 68,683 |
| | 42,956 |
| | 263,381 |
|
Net earnings | | 49,115 |
| | 56,550 |
| | 49,331 |
| | 26,529 |
| | 181,525 |
|
Net earnings attributable to EnerSys stockholders | | 49,169 |
| | 56,316 |
| | 49,252 |
| | 26,451 |
| | 181,188 |
|
Net earnings per common share attributable to EnerSys stockholders—basic | | $ | 1.05 |
| | $ | 1.22 |
| | $ | 1.09 |
| | $ | 0.60 |
| | $ | 3.97 |
|
Net earnings per common share attributable to EnerSys stockholders—diluted | | $ | 0.99 |
| | $ | 1.16 |
| | $ | 1.04 |
| | $ | 0.57 |
| | $ | 3.77 |
|
| |
(1) | Included in Operating earnings were restructuring and other exit charges of $1,218, $2,629, $3,204 and $5,927 for the first, second, third and fourth quarters of fiscal 2016, respectively. |
| |
(2) | Included in Operating earnings were restructuring and other exit charges of $1,829, $1,810, $2,437 and $5,360 for the first, second, third and fourth quarters of fiscal 2015, respectively. |
| |
(3) | Included in Operating earnings for the fourth quarter of fiscal 2016 was a charge relating to the impairment of goodwill, indefinite-lived intangibles and fixed assets for $36,252. |
| |
(4) | Included in Operating earnings for the fourth quarter of fiscal 2015 was a charge relating to the impairment of goodwill and other indefinite-lived intangibles for $23,946. |
| |
(5) | Included in Operating earnings for the first quarter of fiscal 2016 was a gain on sale of facility of $4,348 and in the fourth quarter of fiscal 2016, charges relating to the same of $928. |
| |
(6) | Included in Operating earnings for the second quarter of fiscal 2016 was a legal proceedings charge of $3,201. During the second quarter of fiscal 2015, the Company reversed $16,233, net of professional fees upon final settlement of a legal matter. |
24. Subsequent Events
On May 5, 2016,24, 2023, the Company announced the paymentBoard of Directors approved a quarterly cash dividend of $0.175 per share of common stock to be paid on June 24, 2016,30, 2023, to stockholders of record as of June 10, 2016.16, 2023.
On May 16, 2016, under the 2010 EIP, the Company granted 242,068 stock options, which vest over three years, 229,638 restricted stock units, which vest 25% each year over four-years from the date of grant, and 83,720 market condition-based share units, which vest three years from the date of grant.
On April 16, 2016, the Company announced that it had completed the acquisition of certain assets of Enser Corporation, headquartered in Pinellas Park, Florida. Enser is a leading manufacturer of molten salt “thermal” batteries used in powering a multitude of electronics, guidance and other electrical loads on advanced weapon systems.
SCHEDULE II
EnerSys
Valuation and Qualifying Accounts
(In Thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance at Beginning of Period | | Additions Charged to Expense | | Charge-Offs | | Purchase Accounting Adjustments | | Other(1) | | Balance at End of Period |
Allowance for doubtful accounts: | | | | | | | | | | | | |
Fiscal year ended March 31, 2014 | | $ | 9,292 |
| | $ | 907 |
| | $ | (963 | ) | | $ | — |
| | $ | 210 |
| | $ | 9,446 |
|
Fiscal year ended March 31, 2015 | | 9,446 |
| | 1,125 |
| | (2,315 | ) | | — |
| | (694 | ) | | 7,562 |
|
Fiscal year ended March 31, 2016 | | 7,562 |
| | 4,749 |
| | (649 | ) | | — |
| | (269 | ) | | 11,393 |
|
| | | | | | | | | | | | |
Allowance for inventory valuation: | | | | | | | | | | | | |
Fiscal year ended March 31, 2014 | | $ | 17,372 |
| | $ | 5,944 |
| | $ | (3,283 | ) | | $ | — |
| | $ | 283 |
| | $ | 20,316 |
|
Fiscal year ended March 31, 2015 | | 20,316 |
| | 9,306 |
| | (7,707 | ) | | — |
| | (1,673 | ) | | 20,242 |
|
Fiscal year ended March 31, 2016 | | 20,242 |
| | 10,052 |
| | (6,534 | ) | | — |
| | (190 | ) | | 23,570 |
|
| | | | | | | | | | | | |
Deferred tax asset—valuation allowance: (2) | | | | | | | | | | | | |
Fiscal year ended March 31, 2014 | | $ | 54,542 |
| | $ | 6,951 |
| | $ | (27,269 | ) | | $ | 327 |
| | $ | (10,968 | ) | | $ | 23,583 |
|
Fiscal year ended March 31, 2015 | | 23,583 |
| | 4,222 |
| | (3,796 | ) | | (327 | ) | | (3,619 | ) | | 20,063 |
|
Fiscal year ended March 31, 2016 | | 20,063 |
| | 6,670 |
| | (361 | ) | | — |
| | (956 | ) | | 25,416 |
|
| | | | | |
(1) | Primarily the impact of currency changes. |
| |
(2) | In fiscal 2016, "other" was primarily the impact of currency changes. In fiscal 2015 and 2014, "Other" also included the reversal of deferred tax accounts and related valuation allowance upon the sale of certain foreign subsidiaries of the Company. In fiscal 2014, there was also an adjustment relating to the net operating losses of a foreign subsidiary of the Company and the related valuation allowance. |
|
| |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
|
| | | | |
ITEM 9A. | CONTROLS AND PROCEDURES |
(a) Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.
(b) Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of the fiscal year to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The report called for by Item 308(a) of Regulation S-K is included herein as “Management Report on Internal Control Over Financial Reporting.”
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. With the participation of the Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of March 31, 2016.2023.
The attestation report called for by Item 308(b) of Registration S-K is included herein as “Report of Independent Registered Public Accounting Firm,” which appears in Item 8 in this Annual Report on Form 10-K.
|
| | | | | | | |
/s/ David M. Shaffer | | /s/ MichaelAndrea J. SchmidtleinFunk |
David M. Shaffer Chief Executive Officer
| | MichaelAndrea J. Schmidtlein
Funk Chief Financial Officer |
|
| | | | |
ITEM 9B. | OTHER INFORMATION |
Not applicable.
| | | | | |
ITEM 9C. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
Not applicable.
PART III
|
| | | | |
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required by this item is incorporated by reference from the sections entitled “Board of Directors,” “Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance—Independence of Directors,” “Corporate Governance—Process for Selection of Director Nominee Candidates,” “Audit Committee Report,” and “Certain Relationships and Related Transactions—Employment of Related Parties” of the Company’s definitive proxy statement for its 20142023 Annual Meeting of Stockholders (the “Proxy Statement”) to be filed no later than 120 days after the fiscal year end.
We have adopted a Code of Business Conduct and Ethics that applies to all of our officers, directors and employees (including our Chief Executive Officer, Chief Financial Officer, and Corporate Controller) and have posted the Code on our website at www.enersys.com, and a copy is available in print to any stockholder who requires a copy. If we waive any provision of the Code applicable to any director, our Chief Executive Officer, Chief Financial Officer, and Corporate Controller, such waiver will be promptly disclosed to the Company’s stockholders through the Company’s website.
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| | | | |
ITEM 11. | EXECUTIVE COMPENSATION |
The information required by this item is incorporated by reference from the sections entitled “Corporate Governance—Compensation Committee” and “Executive Compensation” of the Proxy Statement”) to be filed no later than 120 days after the fiscal year end.
|
| | | | |
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT RELATED STOCKHOLDER MATTERS |
The information required by this item is incorporated by reference from the section entitled “Security Ownership of Certain Beneficial Owners and Management” of the Proxy Statement to be filed no later than 120 days after the fiscal year end.
| | | | Equity Compensation Plan Information | | | Equity Compensation Plan Information |
Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | | | Weighted-average exercise price of outstanding options, warrants and rights (b) | | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | | | Weighted-average exercise price of outstanding options, warrants and rights (b) | | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
Equity compensation plans approved by security holders | | 1,517,217 |
| | (1) | | $ | 67.53 |
| | (2) | | 1,327,427 |
| Equity compensation plans approved by security holders | | 2,243,675 | | | (1) | | $ | 78.80 | | | (2) | | 2,221,003 | |
Equity compensation plans not approved by security holders | | — |
| | | | — |
| | | | — |
| Equity compensation plans not approved by security holders | | — | | | | | — | | | | | — | |
Total | | 1,517,217 |
| | | | $ | 67.53 |
| | | | 1,327,427 |
| Total | | 2,243,675 | | | | | $ | 78.80 | | | | | 2,221,003 | |
(1)Assumes a 200% payout on market and performance condition-based awards.
(2)Awards of restricted stock units, market and performance condition-based awards and deferred stock units held in both the EnerSys Voluntary Deferred Compensation Plan for Non-Employee Directors and the EnerSys Voluntary Deferred Compensation Plan for Executives were not included in calculating the weighted-average exercise price as they will be settled in shares of common stock for no consideration.
| | | | | |
(1) | Assumes a 200% payout of market share units and performance market share units. |
| |
(2) | Awards of restricted stock units, market share units, performance market share units and deferred stock units and stock units held in both the EnerSys Voluntary Deferred Compensation Plan for Non-Employee Directors and the EnerSys Voluntary Deferred Compensation Plan for Executives were not included in calculating the weighted-average exercise price as they will be settled in shares of common stock for no consideration. |
|
| |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by this item is incorporated by reference from the sections entitled “Corporate Governance,” and “Certain Relationships and Related Transactions” of the Proxy Statement to be filed no later than 120 days after the fiscal year end.
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| | | | |
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information required by this item is incorporated by reference from the section entitled “Audit Committee Report” of the Proxy Statement to be filed no later than 120 days after the fiscal year end.
PART IV
|
| | | | |
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
(a) The following documents are filed as part of this Report:
(1) Consolidated Financial Statements
See Index to Consolidated Financial Statements.
(2) Financial Statement Schedule
The following consolidated financial statement schedule should be read in conjunction with the consolidated financial statements (see Item 8. “Financial Statements and Supplementary Data:”): Schedule II—Valuation and Qualifying Accounts.
All other schedules are omitted because they are not applicable or the required information is contained in the consolidated financial statements or notes thereto.
(b) The following documents are filed herewith as exhibits:
| | | | | | | | |
Exhibit Number | | Description of Exhibit |
| | |
Exhibit Number3.1 | | Description of Exhibit |
3.1 | | |
| |
3.2 | | Second |
| |
4.1 | | Indenture, dated as of May 28, 2008, between EnerSys and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.13.1 to EnerSys’ Current Report on Form 8-K (File No. 001-32253) filed on May 28, 2008)November 10, 2021). |
| |
4.24.1 | | |
| |
4.34.2 | | FirstFourth Supplemental Indenture, dated as of April 23, 2015,December 11, 2019, among EnerSys, the Guarantors party thereto and MUFG Union Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.24.1 to EnerSys’ Current Report on Form 8-K (File No. 00-32253) filed on April 23, 2015)December 11, 2019). |
| | |
4.44.3 | | |
| | |
10.14.4 | | Amended and Restated |
| | |
10.1 | | Credit Agreement, dated as of July 8, 2014,August 4, 2017, among EnerSys, certain other borrowers and guarantors identified therein, Bank of America, N.A., as Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, RB International Finance (USA) LLCadministrative agent, swing line lender and PNC Bank, National Association, as Co-Documentation AgentsLetters of Credit issuer, and Co-Managers and the various lending institutionsother lenders party thereto (incorporated herein by reference to Annex A to Exhibit 10.1 to10.4 of EnerSys’ CurrentQuarterly Report on Form 8-K10-Q for the quarter ended July 2, 2017 (File No. 001-32253) filed with the SEC on July 8, 2014)August 9, 2017). |
| |
10.2 | | Incremental Commitment Agreement, dated July 8, 2014, among EnerSys and certain financial institutions (incorporated by reference to Exhibit 10.2 to EnerSys’ Current Report on Form 8-K (File No. 001-32253) filed on July 8, 2014). |
| | |
10.3 | | Stock Subscription Agreement, dated March 22, 2002, among EnerSys Holdings Inc., Morgan Stanley Dean Witter Capital Partners IV, L.P., Morgan Stanley Dean Witter Capital Investors IV, L.P., MSDW IV 892 Investors, L.P., Morgan Stanley Global Emerging Markets Private Investment Fund, L.P. and Morgan Stanley Global Emerging Markets Private Investors, L.P. (incorporated by reference to Exhibit 10.27 to Amendment No. 3 to EnerSys’ Registration Statement on Form S-1 (File No. 333-115553) filed on July 13, 2004). |
| |
10.3 | | |
| | |
Exhibit Number10.4 | | Description of Exhibit |
10.4 | |
10.5 | Employment Agreement, dated November 9, 2000, between Yuasa, Inc. | |
| |
| | | | | | | | |
10.5Exhibit Number | | Side LetterDescription of Exhibit |
10.6 | | |
| |
10.7 | | |
| | |
10.610.8 | | Consulting Agreement with Richard W. Zuidema (incorporated by reference to Exhibit 10.3 to EnerSys Quarterly Report on Form 10-Q for the period ended September 27, 2015 (File No. 001-32253) filed on November 2, 2015). |
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10.7 | | |
| | |
10.810.9 | | |
| |
10.10 | | |
| | |
10.11 | | |
| | |
10.12 | | |
| | |
10.13 | | |
| | |
10.14 | | |
| | |
10.15 | | |
| | |
10.910.16 | | EnerSys 2013 Management Incentive Plan (incorporated by reference to Appendix A to EnerSys’ Definitive Proxy Statement on Schedule 14A (File No. 001-32253) filed on June 27, 2013). |
| | |
10.10 | | |
| | |
10.11 | | Form of 2004 Equity Incentive Plan (incorporated by reference to Exhibit 10.24 to Amendment No. 3 to EnerSys’ Registration Statement on Form S-1 (File No. 333-115553) filed on July 13, 2004). |
| |
10.12 | | EnerSys Amended and Restated 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.27 to EnerSys Annual Report on Form 10-K (File No. 001-32253) filed on June 11, 2008). |
| |
10.13 | | EnerSys Management Incentive Plan for fiscal year 2008 (incorporatedherein by reference to Exhibit 10.1 toof EnerSys’ Current Report on Form 8-K (File No. 001-32253) filed with the SEC on April 2, 2007)June 12, 2017). |
| | |
10.1410.17 | | Second Amended and Restated EnerSys 2010 |
| |
10.15 | | EnerSys Voluntary Deferred Compensation Plan for Executives as amended August 5, 2010, and May 26, 2011 (incorporated herein by reference to Exhibit 10.23 to10.5 of EnerSys’ AnnualQuarterly Report on Form 10-K10-Q for the quarter ended July 2, 2017 (File No. 001-32253) filed with the SEC on May 31, 2011)August 9, 2017). |
| | |
10.1610.18 | | Form |
| |
10.17 | | Form15, 2021, among EnerSys, certain of Restricted Stock Agreementits subsidiaries party thereto, Bank of America, N.A., as administrative agent, swing line lender and l/c issuer, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 toof EnerSys’ Current Report on Form 8-K (File No. 001-32253) filed with the SEC on December 9, 2005)July 15, 2021). |
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10.1810.19 | | |
| | |
10.20 | | |
| | | | | | | | |
Exhibit Number | | Description of Exhibit |
| | |
10.21 | | |
| | |
10.22 | | |
| | |
10.23 | | |
| | |
10.24 | | |
| | |
10.25 | | Assignment of Employment Agreement, dated December 6, 2018, between Alpha Technologies, Inc. and Alpha Technologies Services, Inc. regarding Employment Agreement, dated as of October 6, 2008, between Alpha Technologies, Inc. and Andrew Zogby and subsequent extensions (incorporated by reference to Exhibit 10.32 of EnerSys’ Annual Report on Form 10-K for the fiscal year ended March 31, 2020 (File No. 001-32253) filed with the SEC on June 1, 2020). |
| | |
10.26 | | |
| | |
10.1910.27 | | |
| | |
10.2010.28 | | Form of Restricted Stock Unit Agreement |
| |
10.21 | | Form of Restricted Stock Unit Agreement – Non-Employee Directors (incorporated by reference to Exhibit 10.29 to EnerSys’ Annual Report on Form 10-K (File No. 001-32253) filed on June 1, 2009). |
| |
|
| | |
Exhibit Number10.29 | | Description of Exhibit |
10.22 | | Form of Restricted Stock Unit Agreement – Employees – 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.30 to EnerSys’ Annual Report on Form 10-K (File No. 001-32253) filed on June 1, 2010). |
| |
10.23 | | Form of Market Share Restricted Stock Unit Agreement – Employees (incorporated by reference to Exhibit 10.31 to EnerSys’ Annual Report on Form 10-K (File No. 001-32253) filed on June 1, 2010). |
| |
10.24 | | Form of Market Share Restricted Stock Unit Agreement – Employees – 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.32 to EnerSys’ Annual Report on Form 10-K (File No. 001-32253) filed on May 31, 2011). |
| |
10.25 | | Form of Restricted Stock Unit Agreement – Employees and Senior Executives – 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.33 to EnerSys’ Annual Report on Form 10-K (File No. 001-32253) filed on May 31, 2011). |
| | |
10.26 | | Form of Restricted Stock Unit Agreement – Employees – 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.31 to EnerSys’ Annual Report on Form 10-K (File No. 001-32253) filed on May 31, 2011). |
| |
10.27 | | |
| |
10.28 | | Form10.32 of Restricted Stock Unit Agreement – Employees – 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.39 to EnerSys’ Annual Report on Form 10-K for the fiscal year ended March 31, 20132021 (File No. 001-32253) filed on May 28, 2013)26, 2021). |
| | |
10.2910.30 | | |
| | |
10.3010.31 | | |
| |
10.31 | | Form of Stock Option Agreement - Senior Executives - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.33 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2014 (File No. 001-32253) filed on May 28, 2014). |
| |
10.32 | | Form of Restricted Stock Unit Agreement - Employees - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.34 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2014 (File No. 001-32253) filed on May 28, 2014). |
| | |
10.33 | | Form of Market Share Unit Agreement - Employees - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.35 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2014 (File No. 001-32253) filed on May 28, 2014). |
| | |
10.34 | | Form of Market Share Unit Agreement - Senior Executives - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.37 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2014 (File No. 001-32253) filed on May 28, 2014). |
| | |
10.35 | | Form of Indemnification Agreement - Directors and Officers (incorporated by reference to Exhibit 10.36 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2014 (File No. 001-32253) filed on May 28, 2014). |
| | |
10.36 | | Form of Stock Option Agreement - Employees - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.42 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2015 (File No. 001-32253) filed on May 27, 2015). |
| | |
|
| | |
Exhibit Number21.1 | | Description of Exhibit |
10.37 | | Form of Stock Option Agreement - Executives - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.43 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2015 (File No. 001-32253) filed on May 27, 2015). |
| | |
10.38 | | Form of Stock Option Agreement - Senior Executives - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.44 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2015 (File No. 001-32253) filed on May 27, 2015). |
| | |
10.39 | | Form of Restricted Stock Unit Agreement - Employees - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.45 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2015 (File No. 001-32253) filed on May 27, 2015). |
| | |
10.40 | | Form of Market Share Unit Agreement - Employees - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.46 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2015 (File No. 001-32253) filed on May 27, 2015). |
| | |
10.41 | | Form of Market Share Unit Agreement - Executives - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.47 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2015 (File No. 001-32253) filed on May 27, 2015). |
| | |
10.42 | | Form of Market Share Unit Agreement - Senior Executives - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.48 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2015 (File No. 001-32253) filed on May 27, 2015). |
| | |
10.43 | | Form of Fifth Amendment to Credit Agreement, dated as of November 23, 2015, among EnerSys, various lenders and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to EnerSys Quarterly Report on Form 10-Q for the period ended December 27, 2015 (File No. 001-32253) filed on January 28, 2016). |
| | |
10.44 | | Form of Market Share Unit Agreement - Senior Executives - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to EnerSys Quarterly Report on Form 10-Q for the period ended September 27, 2015 (File No. 001-32253) filed on November 2, 2016). |
| | |
10.45 | | Form of Stock Option Agreement - Senior Executives - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to EnerSys Quarterly Report on Form 10-Q for the period ended September 27, 2015 (File No. 001-32253) filed on November 2, 2016). |
| | |
10.46 | | Form of Stock Option Agreement - Employees - 2010 Equity Incentive Plan (filed herewith). |
| | |
10.47 | | Form of Restricted Stock Unit Agreement - Employees - 2010 Equity Incentive Plan (filed herewith). |
| | |
10.48 | | Form of Performance Share Unit Agreement - Employees - 2010 Equity Incentive Plan (filed herewith). |
| | |
10.49 | | Employment Agreement, dated December 21, 2015, between EH Europe GmbH and Holger P. Aschke (filed herewith). |
| | |
11.1 | | Statement regarding Computation of Per Share Earnings.* |
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12.1 | | Computation of Ratio of Earnings to Fixed Charges (filed herewith). |
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21.1 | | |
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23.1 | | |
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31.1 | | |
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31.2 | | |
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| | |
Exhibit Number32.1 | | Description of Exhibit |
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32.1 | | |
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Exhibit Number | | Description of Exhibit |
101.INS | |
101.INS | | XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. |
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101.SCH | | XBRL Taxonomy Extension Schema Document |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | | XBRL Taxonomy Extension Definition Document |
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101.LAB | | XBRL Taxonomy Extension Label Document |
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101.PRE | | XBRL Taxonomy Extension Presentation Document |
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*101.DEF | Information required to be presented in Exhibit 11 is provided in Note 17 of Notes to Consolidated Financial Statements under Part II, Item 8 of this Annual Report on Form 10-K. | XBRL Taxonomy Extension Definition Document |
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101.LAB | | XBRL Taxonomy Extension Label Document |
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101.PRE | | XBRL Taxonomy Extension Presentation Document |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | | | | | | | | | | | | |
| | ENERSYS |
| | |
| | By | | /s/ DAVID M. SHAFFER |
May 24, 2023 | | | | David M. Shaffer |
May 31, 2016 | | | | David M. Shaffer
Chief Executive Officer
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose name appears below hereby appoints David M. Shaffer and MichaelAndrea J. SchmidtleinFunk and each of them, as his true and lawful agent, with full power of substitution and resubstitution, for him and in his, place or stead, in any and all capacities, to execute any and all amendments to the within annual report, and to file the same, together with all exhibits thereto, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this annual report has been signed below by the following persons in the capacities and on the dates indicated:
| | | | | | | | | | | | | | |
Name | | Title | | Date |
| | |
/s/ DAVID M. SHAFFER | | Chief Executive Officer | | May 24, 2023 |
David M. Shaffer | | |
| | |
/s/ ANDREA J. FUNK | | Chief Financial Officer (Principal Accounting Officer) | | May 24, 2023 |
Andrea J. Funk | | |
| | |
| | | | |
Name | | Title | | Date |
| | |
/s/ DAVID M. SHAFFERCAROLINE CHAN | | Chief Executive OfficerDirector | | May 31, 201624, 2023 |
David M. ShafferCaroline Chan | | | | |
| | |
/s/ MICHAEL J. SCHMIDTLEIN | | Chief Financial Officer | | May 31, 2016 |
Michael J. Schmidtlein | | |
| | |
/s/ KERRY M. KANE | | Vice President and Corporate Controller (Principal Accounting Officer) | | May 31, 2016 |
Kerry M. Kane | | |
| | |
/s/ HWAN-YOON F. CHUNG | | Director | | May 31, 201624, 2023 |
Hwan-yoon F. Chung | | | | |
| | | | |
/s/ STEVEN M. FLUDDER | | Director | | May 24, 2023 |
Steven M. Fludder | | | |
| | | | |
/s/ HOWARD I. HOFFEN | | Director | | May 31, 201624, 2023 |
Howard I. Hoffen | | |
| | | | |
/s/ ARTHUR T. KATSAROS | | Director | | May 31, 201624, 2023 |
Arthur T. Katsaros | | |
| | | | |
/s/ JOHN F. LEHMAN | | Director | | May 31, 2016 |
John F. Lehman | | | | |
| | |
/s/ GENERAL ROBERT MAGNUS, USMC (RETIRED) | | Director | | May 31, 201624, 2023 |
General Robert Magnus, USMC (Retired) | | | | |
| | | | |
/s/ DENNIS S. MARLOTAMARA MORYTKO | | Director | | May 31, 201624, 2023 |
Dennis S. MarloTamara Morytko | | | | |
| | |
/s/ JOSEPH C. MUSCARI | | Director | | May 31, 2016 |
Joseph C. Muscari | | | | |
| | | | |
/s/ PAUL J. TUFANO | | Director | | May 31, 201624, 2023 |
Paul J. Tufano | | | | |
Exhibit Index
|
| | |
Exhibit Number | | Description of Exhibit |
3.1/s/ RONALD P. VARGO | | Fifth Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Amendment No. 3 to EnerSys’ Registration Statement on Form S-1 (File No. 001-32253) filed on February 6, 2013).Director | | May 24, 2023 |
Ronald P. Vargo | |
3.2 | | Second Amended and Restated Bylaws (incorporated by reference to Exhibits 3.3 to EnerSys’ Quarterly Report on Form 10-Q for the period ended September 30, 2014 (File No. 001-32253) filed on November 5, 2014). |
| |
4.1 | | Indenture, dated as of May 28, 2008, between EnerSys and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.1 to EnerSys’ Current Report on Form 8-K (File No. 001-32253) filed on May 28, 2008). |
| |
4.2 | | Indenture, dated as of April 23, 2015, among EnerSys, the Guarantors party thereto and MUFG Union Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to EnerSys’ Current Report on Form 8-K (File No. 00-32253) filed on April 23, 2015). |
| |
4.3 | | First Supplemental Indenture, dated as of April 23, 2015, among EnerSys, the Guarantors party thereto and MUFG Union Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.2 to EnerSys’ Current Report on Form 8-K (File No. 00-32253) filed on April 23, 2015). |
| | |
4.4 | | Form of 5.00% Senior Note due 2023 (incorporated by reference to Exhibit 4.2 to EnerSys’ Current Report on Form 8-K (File No. 00-32253) filed on April 23, 2015). |
| | |
10.1 | | Amended and Restated Credit Agreement, dated as of July 8, 2014, among EnerSys, Bank of America, N.A., as Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, RB International Finance (USA) LLC and PNC Bank, National Association, as Co-Documentation Agents and Co-Managers and the various lending institutions party thereto (incorporated by reference to Annex A to Exhibit 10.1 to EnerSys’ Current Report on Form 8-K (File No. 001-32253) filed on July 8, 2014). |
| |
10.2 | | Incremental Commitment Agreement, dated July 8, 2014, among EnerSys and certain financial institutions (incorporated by reference to Exhibit 10.2 to EnerSys’ Current Report on Form 8-K (File No. 001-32253) filed on July 8, 2014). |
| | |
10.3 | | Stock Subscription Agreement, dated March 22, 2002, among EnerSys Holdings Inc., Morgan Stanley Dean Witter Capital Partners IV, L.P., Morgan Stanley Dean Witter Capital Investors IV, L.P., MSDW IV 892 Investors, L.P., Morgan Stanley Global Emerging Markets Private Investment Fund, L.P. and Morgan Stanley Global Emerging Markets Private Investors, L.P. (incorporated by reference to Exhibit 10.27 to Amendment No. 3 to EnerSys’ Registration Statement on Form S-1 (File No. 333-115553) filed on July 13, 2004). |
| |
10.4 | | Employment Agreement, dated November 9, 2000, between Yuasa, Inc. and John D. Craig and letter of amendment thereto (incorporated by reference to Exhibit 10.2 to EnerSys’ Registration Statement on Form S-1 (File No. 333-115553) filed on May 17, 2004). |
| |
10.5 | | Side Letter to Employment Agreement, dated October 30, 2014, between EnerSys and John D. Craig (incorporated by reference to Exhibit 10.4 to EnerSys' Quarterly Report on Form 10-Q for the period ended September 28, 2014 (File No. 001-32253) filed on November 5, 2014). |
| | |
10.6 | | Consulting Agreement with Richard W. Zuidema (incorporated by reference to Exhibit 10.3 to EnerSys Quarterly Report on Form 10-Q for the period ended September 27, 2015 (File No. 001-32253) filed on November 2, 2015). |
| |
10.7 | | Form of Severance Agreement, (incorporated by reference to Exhibit 10.37 to EnerSys’ Annual Report on Form 10-K (File No. 001-32253) filed on May 28, 2013). |
| | |
10.8 | | Employment Offer Letter, dated October 20, 2014, of EnerSys Delaware Inc. to David M. Shaffer (incorporated by reference to Exhibit 10.5 to EnerSys' Quarterly Report on Form 10-Q for the period ended September 28, 2014 (File No. 001-32253) filed on November 5, 2014). |
| | |
|
| | |
Exhibit Number | | Description of Exhibit |
10.9/s/ RUDOLPH WYNTER | | EnerSys 2013 Management Incentive Plan (incorporated by reference to Appendix A to EnerSys’ Definitive Proxy Statement on Schedule 14A (File No. 001-32253) filed on June 27, 2013).Director | | May 24, 2023 |
Rudolph Wynter | | |
10.10 | | Form of Stock Option Agreement (six-month vesting) (incorporated by reference to Exhibit 10.31 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2008 (File No. 001-32253) filed on June 1, 2009). |
| | |
10.11 | | Form of 2004 Equity Incentive Plan (incorporated by reference to Exhibit 10.24 to Amendment No. 3 to EnerSys’ Registration Statement on Form S-1 (File No. 333-115553) filed on July 13, 2004). |
| |
10.12 | | EnerSys Amended and Restated 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.27 to EnerSys Annual Report on Form 10-K (File No. 001-32253) filed on June 11, 2008). |
| |
10.13 | | EnerSys Management Incentive Plan for fiscal year 2008 (incorporated by reference to Exhibit 10.1 to EnerSys’ Current Report on Form 8-K (File No. 001-32253) filed on April 2, 2007). |
| |
10.14 | | Second Amended and Restated EnerSys 2010 Equity Incentive Plan (filed herewith). |
| |
10.15 | | EnerSys Voluntary Deferred Compensation Plan for Executives as amended August 5, 2010, and May 26, 2011 (incorporated by reference to Exhibit 10.23 to EnerSys’ Annual Report on Form 10-K (File No. 001-32253) filed on May 31, 2011). |
| |
10.16 | | Form of Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.26 to Amendment No. 3 to EnerSys’ Registration Statement on Form S-1 (File No. 333-115553) filed on July 13, 2004). |
| |
10.17 | | Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.1 to EnerSys’ Current Report on Form 8-K (File No. 001-32253) filed on December 9, 2005). |
| |
10.18 | | Form of Stock Option Agreement (four-year vesting) (incorporated by reference to Exhibit 10.1 to EnerSys’ Current Report on Form 8-K (File No. 001-32253) filed on May 23, 2007). |
| |
10.19 | | Form of Stock Option Agreement (three-year vesting) (incorporated by reference to Exhibit 10.2 to EnerSys’ Current Report on Form 8-K (File No. 001-32253) filed on May 6, 2008). |
| |
10.20 | | Form of Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.1 to EnerSys’ Current Report on Form 8-K (File No. 001-32253) filed on May 23, 2007). |
| |
10.21 | | Form of Restricted Stock Unit Agreement – Non-Employee Directors (incorporated by reference to Exhibit 10.29 to EnerSys’ Annual Report on Form 10-K (File No. 001-32253) filed on June 1, 2009). |
| |
10.22 | | Form of Restricted Stock Unit Agreement – Employees – 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.30 to EnerSys’ Annual Report on Form 10-K (File No. 001-32253) filed on June 1, 2010). |
| |
10.23 | | Form of Market Share Restricted Stock Unit Agreement – Employees (incorporated by reference to Exhibit 10.31 to EnerSys’ Annual Report on Form 10-K (File No. 001-32253) filed on June 1, 2010). |
| |
10.24 | | Form of Market Share Restricted Stock Unit Agreement – Employees – 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.32 to EnerSys’ Annual Report on Form 10-K (File No. 001-32253) filed on May 31, 2011). |
| |
10.25 | | Form of Restricted Stock Unit Agreement – Employees and Senior Executives – 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.33 to EnerSys’ Annual Report on Form 10-K (File No. 001-32253) filed on May 31, 2011). |
| | |
10.26 | | Form of Restricted Stock Unit Agreement – Employees – 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.31 to EnerSys’ Annual Report on Form 10-K (File No. 001-32253) filed on May 31, 2011). |
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|
| | |
Exhibit Number | | Description of Exhibit |
10.27 | | Form of Deferred Stock Unit Agreement – Non-Employee Directors – 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.35 to EnerSys’ Annual Report on Form 10-K (File No. 001-32253) filed on May 31, 2011). |
| |
10.28 | | Form of Restricted Stock Unit Agreement – Employees – 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.39 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2013 (File No. 001-32253) filed on May 28, 2013). |
| |
10.29 | | Form of Market Share Restricted Stock Unit Agreement – Employees – 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.39 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2013 (File No. 001-32253) filed on May 28, 2013). |
| |
10.30 | | Form of Stock Option Agreement - Employees - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.32 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2014 (File No. 001-32253) filed on May 28, 2014). |
| |
10.31 | | Form of Stock Option Agreement - Senior Executives - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.33 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2014 (File No. 001-32253) filed on May 28, 2014). |
| |
10.32 | | Form of Restricted Stock Unit Agreement - Employees - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.34 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2014 (File No. 001-32253) filed on May 28, 2014). |
| | |
10.33 | | Form of Market Share Unit Agreement - Employees - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.35 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2014 (File No. 001-32253) filed on May 28, 2014). |
| | |
10.34 | | Form of Market Share Unit Agreement - Senior Executives - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.37 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2014 (File No. 001-32253) filed on May 28, 2014). |
| | |
10.35 | | Form of Indemnification Agreement - Directors and Officers (incorporated by reference to Exhibit 10.36 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2014 (File No. 001-32253) filed on May 28, 2014). |
| | |
10.36 | | Form of Stock Option Agreement - Employees - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.42 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2015 (File No. 001-32253) filed on May 27, 2015). |
| | |
10.37 | | Form of Stock Option Agreement - Executives - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.43 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2015 (File No. 001-32253) filed on May 27, 2015). |
| | |
10.38 | | Form of Stock Option Agreement - Senior Executives - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.44 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2015 (File No. 001-32253) filed on May 27, 2015). |
| | |
10.39 | | Form of Restricted Stock Unit Agreement - Employees - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.45 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2015 (File No. 001-32253) filed on May 27, 2015). |
| | |
10.40 | | Form of Market Share Unit Agreement - Employees - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.46 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2015 (File No. 001-32253) filed on May 27, 2015). |
| | |
10.41 | | Form of Market Share Unit Agreement - Executives - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.47 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2015 (File No. 001-32253) filed on May 27, 2015). |
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Exhibit Number | | Description of Exhibit |
10.42 | | Form of Market Share Unit Agreement - Senior Executives - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.48 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2015 (File No. 001-32253) filed on May 27, 2015). |
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10.43 | | Form of Fifth Amendment to Credit Agreement, dated as of November 23, 2015, among EnerSys, various lenders and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to EnerSys Quarterly Report on Form 10-Q for the period ended December 27, 2015 (File No. 001-32253) filed on January 28, 2016). |
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10.44 | | Form of Market Share Unit Agreement - Senior Executives - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to EnerSys Quarterly Report on Form 10-Q for the period ended September 27, 2015 (File No. 001-32253) filed on November 2, 2016). |
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10.45 | | Form of Stock Option Agreement - Senior Executives - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to EnerSys Quarterly Report on Form 10-Q for the period ended September 27, 2015 (File No. 001-32253) filed on November 2, 2016). |
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10.46 | | Form of Stock Option Agreement - Employees - 2010 Equity Incentive Plan (filed herewith). |
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10.47 | | Form of Restricted Stock Unit Agreement - Employees - 2010 Equity Incentive Plan (filed herewith). |
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10.48 | | Form of Performance Share Unit Agreement - Employees - 2010 Equity Incentive Plan (filed herewith). |
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10.49 | | Employment Agreement, dated December 21, 2015, between EH Europe GmbH and Holger P. Aschke (filed herewith). |
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11.1 | | Statement regarding Computation of Per Share Earnings.* |
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12.1 | | Computation of Ratio of Earnings to Fixed Charges (filed herewith). |
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21.1 | | Subsidiaries of the Registrant (filed herewith). |
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23.1 | | Consent of Ernst & Young LLP (filed herewith). |
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31.1 | | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) Under the Securities Exchange Act of 1934 (filed herewith). |
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31.2 | | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) Under the Securities Exchange Act of 1934 (filed herewith). |
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32.1 | | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). |
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101.INS | | XBRL Instance Document |
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101.SCH | | XBRL Taxonomy Extension Schema Document |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | | XBRL Taxonomy Extension Definition Document |
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101.LAB | | XBRL Taxonomy Extension Label Document |
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101.PRE | | XBRL Taxonomy Extension Presentation Document |
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* | Information required to be presented in Exhibit 11 is provided in Note 17 of Notes to Consolidated Financial Statements under Part II, Item 8 of this Annual Report on Form 10-K. |