UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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ý☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2017
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¨☐ | TRANSITION REPORT UNDER 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)
| | (I.R.S. Employer Identification No.)
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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 |
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 YESYes ¨ 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 (§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 ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.
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Large Accelerated Filer | | ý | | Accelerated filer | | ☐ |
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Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
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Large accelerated filer | | ý | | Accelerated filer | | ¨ |
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Non-accelerated filer | | ¨ (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 is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). ¨☐ YESYes ý NO.No.
Common Stock outstanding at February 2, 2018: 41,910,079August 4, 2023: 41,039,915 shares
EnerSys
ENERSYS
INDEX – FORM 10-Q
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PART I – | FINANCIAL INFORMATION |
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ITEM 1. | FINANCIAL STATEMENTS |
ENERSYSEnerSys
Consolidated Condensed Balance Sheets (Unaudited)
(In Thousands, Except Share and Per Share Data)
| | | | | | | | | | | | | | |
| | July 2, 2023 | | March 31, 2023 |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 258,342 | | | $ | 346,665 | |
Accounts receivable, net of allowance for doubtful accounts: July 2, 2023 - $9,033; March 31, 2023 - $8,775 | | 566,498 | | | 637,817 | |
Inventories, net | | 809,402 | | | 797,798 | |
Prepaid and other current assets | | 118,804 | | | 113,601 | |
Total current assets | | 1,753,046 | | | 1,895,881 | |
Property, plant, and equipment, net | | 512,970 | | | 513,283 | |
Goodwill | | 688,442 | | | 676,715 | |
Other intangible assets, net | | 354,662 | | | 360,412 | |
Deferred taxes | | 49,153 | | | 49,152 | |
Other assets | | 122,704 | | | 121,231 | |
Total assets | | $ | 3,480,977 | | | $ | 3,616,674 | |
Liabilities and Equity | | | | |
Current liabilities: | | | | |
Short-term debt | | $ | 30,962 | | | $ | 30,642 | |
Accounts payable | | 343,336 | | | 378,641 | |
Accrued expenses | | 261,353 | | | 309,037 | |
Total current liabilities | | 635,651 | | | 718,320 | |
Long-term debt, net of unamortized debt issuance costs | | 907,768 | | | 1,041,989 | |
Deferred taxes | | 60,767 | | | 61,118 | |
Other liabilities | | 193,612 | | | 191,366 | |
Total liabilities | | 1,797,798 | | | 2,012,793 | |
Commitments and contingencies | | | | |
Equity: | | | | |
Preferred Stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding at July 2, 2023 and at March 31, 2023 | | — | | | — | |
Common Stock, $0.01 par value per share, 135,000,000 shares authorized, 56,129,710 shares issued and 41,030,034 shares outstanding at July 2, 2023; 56,004,613 shares issued and 40,901,059 shares outstanding at March 31, 2023 | | 565 | | | 560 | |
Additional paid-in capital | | 612,295 | | | 596,464 | |
Treasury stock at cost, 15,099,676 shares held as of July 2, 2023 and 15,103,554 shares held as of March 31, 2023 | | (740,742) | | | (740,956) | |
Retained earnings | | 1,989,588 | | | 1,930,148 | |
Contra equity - indemnification receivable | | (2,463) | | | (2,463) | |
Accumulated other comprehensive loss | | (179,476) | | | (183,474) | |
Total EnerSys stockholders’ equity | | 1,679,767 | | | 1,600,279 | |
Nonredeemable noncontrolling interests | | 3,412 | | | 3,602 | |
Total equity | | 1,683,179 | | | 1,603,881 | |
Total liabilities and equity | | $ | 3,480,977 | | | $ | 3,616,674 | |
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| | December 31, 2017 | | March 31, 2017 |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 571,322 |
| | $ | 500,329 |
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Accounts receivable, net of allowance for doubtful accounts: December 31, 2017 - $13,032; March 31, 2017 - $12,662 | | 494,934 |
| | 486,646 |
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Inventories, net | | 421,970 |
| | 360,694 |
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Prepaid and other current assets | | 73,588 |
| | 71,246 |
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Total current assets | | 1,561,814 |
| | 1,418,915 |
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Property, plant, and equipment, net | | 374,736 |
| | 348,549 |
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Goodwill | | 348,878 |
| | 328,657 |
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Other intangible assets, net | | 149,368 |
| | 153,960 |
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Deferred taxes | | 34,730 |
| | 31,587 |
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Other assets | | 12,476 |
| | 11,361 |
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Total assets | | $ | 2,482,002 |
| | $ | 2,293,029 |
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Liabilities and Equity | | | | |
Current liabilities: | | | | |
Short-term debt | | $ | 16,842 |
| | $ | 18,359 |
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Accounts payable | | 227,294 |
| | 222,493 |
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Accrued expenses | | 206,032 |
| | 226,579 |
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Total current liabilities | | 450,168 |
| | 467,431 |
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Long-term debt, net of unamortized debt issuance costs | | 689,021 |
| | 587,609 |
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Deferred taxes | | 39,670 |
| | 45,923 |
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Other liabilities | | 177,169 |
| | 83,697 |
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Total liabilities | | 1,356,028 |
| | 1,184,660 |
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Commitments and contingencies | |
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Equity: | | | | |
Preferred Stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding at December 31, 2017 and at March 31, 2017 | | — |
| | — |
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Common Stock, $0.01 par value per share, 135,000,000 shares authorized; 54,590,184 shares issued and 42,126,817 shares outstanding at December 31, 2017; 54,370,810 shares issued and 43,447,536 shares outstanding at March 31, 2017 | | 546 |
| | 544 |
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Additional paid-in capital | | 452,248 |
| | 464,092 |
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Treasury stock, at cost, 12,463,367 shares held as of December 31, 2017; 10,923,274 shares held as of March 31, 2017 | | (540,991 | ) | | (439,800 | ) |
Retained earnings | | 1,274,038 |
| | 1,231,444 |
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Accumulated other comprehensive loss | | (65,017 | ) | | (152,824 | ) |
Total EnerSys stockholders’ equity | | 1,120,824 |
| | 1,103,456 |
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Nonredeemable noncontrolling interests | | 5,150 |
| | 4,913 |
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Total equity | | 1,125,974 |
| | 1,108,369 |
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Total liabilities and equity | | $ | 2,482,002 |
| | $ | 2,293,029 |
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See accompanying notes.
ENERSYSEnerSys
Consolidated Condensed Statements of Income (Unaudited)
(In Thousands, Except Share and Per Share Data)
| | | | | | | | | Quarter ended |
| | Quarter ended | | | July 2, 2023 | | July 3, 2022 |
| | December 31, 2017 | | January 1, 2017 | |
Sales from products | | Sales from products | | $ | 807,647 | | | $ | 799,147 | |
Sales from services | | Sales from services | | 100,922 | | | 99,824 | |
Net sales | | $ | 658,935 |
| | $ | 563,697 |
| Net sales | | 908,569 | | | 898,971 | |
Cost of goods sold | | 491,970 |
| | 408,315 |
| Cost of goods sold | | 587,203 | | | 635,859 | |
Cost of services | | Cost of services | | 77,962 | | | 77,577 | |
Inventory adjustment relating to exit activities | | — |
| | (502 | ) | Inventory adjustment relating to exit activities | | 3,098 | | | — | |
Gross profit | | 166,965 |
| | 155,884 |
| Gross profit | | 240,306 | | | 185,535 | |
Operating expenses | | 96,717 |
| | 85,014 |
| Operating expenses | | 144,552 | | | 127,078 | |
Restructuring charges and other exit charges (credits) | | 1,808 |
| | (1,153 | ) | |
Legal proceedings charge | | — |
| | 17,000 |
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Restructuring and other exit charges | | Restructuring and other exit charges | | 6,309 | | | 8,328 | |
| Operating earnings | | 68,440 |
| | 55,023 |
| Operating earnings | | 89,445 | | | 50,129 | |
Interest expense | | 6,469 |
| | 5,646 |
| Interest expense | | 15,244 | | | 11,597 | |
Other (income) expense, net | | (557 | ) | | (1,247 | ) | |
Other expense (income), net | | Other expense (income), net | | 668 | | | 1,773 | |
Earnings before income taxes | | 62,528 |
| | 50,624 |
| Earnings before income taxes | | 73,533 | | | 36,759 | |
Income tax expense | | 88,307 |
| | 13,529 |
| Income tax expense | | 6,736 | | | 5,781 | |
Net (loss) earnings | | (25,779 | ) | | 37,095 |
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Net earnings attributable to noncontrolling interests | | 68 |
| | 860 |
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Net (loss) earnings attributable to EnerSys stockholders | | $ | (25,847 | ) | | $ | 36,235 |
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Net (loss) earnings per common share attributable to EnerSys stockholders: | | | | | |
| Net earnings attributable to EnerSys stockholders | | Net earnings attributable to EnerSys stockholders | | $ | 66,797 | | | $ | 30,978 | |
Net earnings per common share attributable to EnerSys stockholders: | | Net earnings per common share attributable to EnerSys stockholders: | | | | |
Basic | | $ | (0.61 | ) | | $ | 0.83 |
| Basic | | $ | 1.63 | | | $ | 0.76 | |
Diluted | | $ | (0.61 | ) | | $ | 0.82 |
| Diluted | | $ | 1.60 | | | $ | 0.75 | |
Dividends per common share | | $ | 0.175 |
| | $ | 0.175 |
| Dividends per common share | | $ | 0.175 | | | $ | 0.175 | |
Weighted-average number of common shares outstanding: | | | | | Weighted-average number of common shares outstanding: | | | | |
Basic | | 42,125,745 |
| | 43,429,525 |
| Basic | | 40,937,334 | | | 40,786,336 | |
Diluted | | 42,125,745 |
| | 44,049,674 |
| Diluted | | 41,698,324 | | | 41,352,646 | |
See accompanying notes.
ENERSYS
Consolidated Condensed Statements of Income (Unaudited)
(In Thousands, Except Share and Per Share Data)
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| | Nine months ended |
| | December 31, 2017 | | January 1, 2017 |
Net sales | | $ | 1,898,849 |
| | $ | 1,740,348 |
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Cost of goods sold | | 1,408,913 |
| | 1,254,678 |
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Inventory adjustment relating to exit activities | | — |
| | 2,157 |
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Gross profit | | 489,936 |
| | 483,513 |
|
Operating expenses | | 283,478 |
| | 277,512 |
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Restructuring charges | | 4,417 |
| | 5,037 |
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Legal proceedings charge | | — |
| | 17,000 |
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Operating earnings | | 202,041 |
| | 183,964 |
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Interest expense | | 18,712 |
| | 16,820 |
|
Other (income) expense, net | | 4,736 |
| | (496 | ) |
Earnings before income taxes | | 178,593 |
| | 167,640 |
|
Income tax expense | | 112,899 |
| | 43,133 |
|
Net earnings | | 65,694 |
| | 124,507 |
|
Net earnings (losses) attributable to noncontrolling interests | | 118 |
| | (1,937 | ) |
Net earnings attributable to EnerSys stockholders | | $ | 65,576 |
| | $ | 126,444 |
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Net earnings per common share attributable to EnerSys stockholders: | | | | |
Basic | | $ | 1.53 |
| | $ | 2.92 |
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Diluted | | $ | 1.51 |
| | $ | 2.88 |
|
Dividends per common share | | $ | 0.525 |
| | $ | 0.525 |
|
Weighted-average number of common shares outstanding: | | | | |
Basic | | 42,837,986 |
| | 43,375,474 |
|
Diluted | | 43,345,926 |
| | 43,943,010 |
|
See accompanying notes.
ENERSYSEnerSys
Consolidated Condensed Statements of Comprehensive Income (Unaudited)
(In Thousands)
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| | | | | | | | | | | | | | | | |
| | Quarter ended | | Nine months ended |
| | December 31, 2017 | | January 1, 2017 | | December 31, 2017 | | January 1, 2017 |
Net (loss) earnings | | $ | (25,779 | ) | | $ | 37,095 |
| | $ | 65,694 |
| | $ | 124,507 |
|
Other comprehensive (loss) income: | | | | | | | | |
Net unrealized (loss) gain on derivative instruments, net of tax | | (587 | ) | | (2,017 | ) | | 29 |
| | 411 |
|
Pension funded status adjustment, net of tax | | 331 |
| | 198 |
| | 996 |
| | 747 |
|
Foreign currency translation adjustment | | 14,053 |
| | (52,754 | ) | | 86,901 |
| | (74,922 | ) |
Total other comprehensive gain (loss), net of tax | | 13,797 |
| | (54,573 | ) | | 87,926 |
| | (73,764 | ) |
Total comprehensive (loss) income | | (11,982 | ) | | (17,478 | ) | | 153,620 |
| | 50,743 |
|
Comprehensive income (loss) attributable to noncontrolling interests | | 156 |
| | 648 |
| | 237 |
| | (2,343 | ) |
Comprehensive (loss) income attributable to EnerSys stockholders | | $ | (12,138 | ) | | $ | (18,126 | ) | | $ | 153,383 |
| | $ | 53,086 |
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| | | | | | | | | | | | | | | | | | |
| | Quarter ended | | |
| | July 2, 2023 | | July 3, 2022 | | | | |
Net earnings | | $ | 66,797 | | | $ | 30,978 | | | | | |
Other comprehensive income (loss): | | | | | | | | |
Net unrealized gain (loss) on derivative instruments, net of tax | | $ | 1,786 | | | (8,234) | | | | | |
Pension funded status adjustment, net of tax | | $ | 20 | | | 89 | | | | | |
Foreign currency translation adjustment | | $ | 2,002 | | | (52,220) | | | | | |
Total other comprehensive income (loss), net of tax | | $ | 3,808 | | | (60,365) | | | | | |
Total comprehensive income (loss) | | $ | 70,605 | | | (29,387) | | | | | |
Comprehensive income (loss) attributable to noncontrolling interests | | $ | (190) | | | (210) | | | | | |
Comprehensive income (loss) attributable to EnerSys stockholders | | $ | 70,795 | | | $ | (29,177) | | | | | |
See accompanying notes.
ENERSYSEnerSys
Consolidated Condensed Statements of Cash Flows (Unaudited)
(In Thousands)
| | | | Nine months ended | | | Quarter ended |
| | December 31, 2017 | | January 1, 2017 | | | July 2, 2023 | | July 3, 2022 |
Cash flows from operating activities | | | | | Cash flows from operating activities | | | | |
Net earnings | | $ | 65,694 |
| | $ | 124,507 |
| Net earnings | | $ | 66,797 | | | $ | 30,978 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | Adjustments to reconcile net earnings to net cash provided by operating activities: | |
Depreciation and amortization | | 40,320 |
| | 40,468 |
| Depreciation and amortization | | 22,693 | | | 23,624 | |
Write-off of assets relating to restructuring charges | | 210 |
| | 1,435 |
| |
Non-cash write-off of property, plant and equipment | | — |
| | 6,300 |
| |
Write-off of assets relating to exit activities | | Write-off of assets relating to exit activities | | 3,343 | | | 7,445 | |
| Derivatives not designated in hedging relationships: | | | | | Derivatives not designated in hedging relationships: | |
Net (gains) losses | | (105 | ) | | 202 |
| |
Cash settlements | | (234 | ) | | (646 | ) | |
Net (losses) gains | | Net (losses) gains | | 503 | | | (216) | |
Cash (settlements) proceeds | | Cash (settlements) proceeds | | 657 | | | (600) | |
Provision for doubtful accounts | | 775 |
| | 1,952 |
| Provision for doubtful accounts | | 504 | | | (173) | |
Deferred income taxes | | (7,228 | ) | | (683 | ) | Deferred income taxes | | 42 | | | 20 | |
Non-cash interest expense | | 1,289 |
| | 1,041 |
| Non-cash interest expense | | 410 | | | 487 | |
Stock-based compensation | | 14,773 |
| | 14,556 |
| Stock-based compensation | | 7,933 | | | 5,330 | |
Loss (gain) on disposal of property, plant, and equipment | | 69 |
| | (10 | ) | |
Legal proceedings accrual | | — |
| | 17,000 |
| |
Changes in assets and liabilities, net of effects of acquisitions: | | | | | |
| (Gain) loss on disposal of property, plant, and equipment | | (Gain) loss on disposal of property, plant, and equipment | | 43 | | | (40) | |
| Changes in assets and liabilities: | | Changes in assets and liabilities: | |
Accounts receivable | | 12,987 |
| | 22,843 |
| Accounts receivable | | 73,198 | | | 5,538 | |
Inventories | | (44,389 | ) | | (55,888 | ) | Inventories | | (10,965) | | | (81,454) | |
Prepaid and other current assets | | (1,241 | ) | | (11,545 | ) | Prepaid and other current assets | | (4,089) | | | (5,465) | |
Other assets | | (1,142 | ) | | 857 |
| Other assets | | (484) | | | (886) | |
Accounts payable | | (10,619 | ) | | (14,701 | ) | Accounts payable | | (39,307) | | | (33,073) | |
Accrued expenses | | (30,485 | ) | | 13,856 |
| Accrued expenses | | (46,647) | | | (24,973) | |
Other liabilities | | 89,228 |
| | 5,163 |
| Other liabilities | | 315 | | | 1,567 | |
Net cash provided by operating activities | | 129,902 |
| | 166,707 |
| |
Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | | 74,946 | | | (71,891) | |
| | | | | |
Cash flows from investing activities | | | | | Cash flows from investing activities | |
Capital expenditures | | (43,086 | ) | | (36,008 | ) | Capital expenditures | | (16,093) | | | (23,014) | |
Purchase of businesses | | (2,964 | ) | | (12,392 | ) | |
Purchase of business | | Purchase of business | | (8,270) | | | — | |
| Proceeds from disposal of property, plant, and equipment | | 395 |
| | 568 |
| Proceeds from disposal of property, plant, and equipment | | 44 | | | 139 | |
Net cash used in investing activities | | (45,655 | ) | | (47,832 | ) | |
Net cash (used in) investing activities | | Net cash (used in) investing activities | | (24,319) | | | (22,875) | |
| | | | | |
Cash flows from financing activities | | | | | Cash flows from financing activities | |
Net (payments) borrowings on short-term debt | | (1,376 | ) | | 13,639 |
| |
Proceeds from 2017 Revolver borrowings | | 356,750 |
| | — |
| |
Proceeds from 2011 Revolver borrowings | | 147,050 |
| | 191,300 |
| |
Repayments of 2017 Revolver borrowings | | (111,450 | ) | | — |
| |
Repayments of 2011 Revolver borrowings | | (312,050 | ) | | (186,750 | ) | |
Proceeds from 2017 Term Loan | | 150,000 |
| | — |
| |
Repayments of 2011 Term Loan | | (127,500 | ) | | (11,250 | ) | |
Debt issuance costs | | (2,677 | ) | | — |
| |
Option proceeds | | 758 |
| | 5 |
| |
Net (repayments) borrowings on short-term debt | | Net (repayments) borrowings on short-term debt | | (404) | | | (8,022) | |
Proceeds from Second Amended Revolver borrowings | | Proceeds from Second Amended Revolver borrowings | | 80,000 | | | 163,200 | |
| Repayments of Second Amended Revolver borrowings | | Repayments of Second Amended Revolver borrowings | | (216,380) | | | (27,200) | |
| Option proceeds, net | | Option proceeds, net | | 7,654 | | | — | |
Payment of taxes related to net share settlement of equity awards | | (7,477 | ) | | (7,668 | ) | Payment of taxes related to net share settlement of equity awards | | — | | | (633) | |
Purchase of treasury stock | | (121,191 | ) | | — |
| Purchase of treasury stock | | — | | | (22,907) | |
Dividends paid to stockholders | | (22,339 | ) | | (22,800 | ) | Dividends paid to stockholders | | (7,173) | | | (7,108) | |
Other | | (19 | ) | | (77 | ) | Other | | 354 | | | 207 | |
Net cash used in financing activities | | (51,521 | ) | | (23,601 | ) | |
Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | | (135,949) | | | 97,537 | |
Effect of exchange rate changes on cash and cash equivalents | | 38,267 |
| | (25,432 | ) | Effect of exchange rate changes on cash and cash equivalents | | (3,001) | | | (22,016) | |
Net increase in cash and cash equivalents | | 70,993 |
| | 69,842 |
| |
Net decrease in cash and cash equivalents | | Net decrease in cash and cash equivalents | | (88,323) | | | (19,245) | |
Cash and cash equivalents at beginning of period | | 500,329 |
| | 397,307 |
| Cash and cash equivalents at beginning of period | | 346,665 | | | 402,488 | |
Cash and cash equivalents at end of period | | $ | 571,322 |
| | $ | 467,149 |
| Cash and cash equivalents at end of period | | $ | 258,342 | | | $ | 383,243 | |
|
See accompanying notes.
ENERSYS
EnerSys
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
(In Thousands, Except Share and Per Share Data)
1. Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals)adjustments except those otherwise described herein) considered necessary for a fair presentation have been included, unless otherwise disclosed. Operating results for the three and nine-month periodscurrent quarter ended December 31, 2017July 2, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2018.2024.
The consolidated condensed balance sheetConsolidated Condensed Balance Sheet at March 31, 20172023 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
The financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s 20172023 Annual Report on Form 10-K (SEC File No. 001-32253), which was filed on May 30, 201725, 2023 (the “2017“2023 Annual Report”).
The CompanyEnerSys (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 20182024 end on July 2, 2017,2023, October 1, 2017,2023, December 31, 2017,2023, and March 31, 2018,2024, respectively. The four quarters in fiscal 20172023 ended on July 3, 2016,2022, October 2, 2016,2022, January 1, 2017,2023, and March 31, 2017,2023, respectively.
The consolidated condensed 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. All intercompany transactions and balances have been eliminated in consolidation.
Recently Issued Accounting Pronouncements
Use of Estimates
In May 2014,The preparation of financial statements in conformity with accounting principles generally accepted in the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “RevenueUnited 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 Contractsthose estimates.
Examples of significant estimates include the allowance for credit losses, the recoverability of property, plant and equipment, the incremental borrowing rate for lease liabilities, the recoverability of intangible assets and other 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 Customers (Topic 606)” providing guidance on revenue from contractsbusiness combinations.
2. Revenue Recognition
The Company’s revenues by reportable segments are presented in Note 16 and are consistent with how we organize and manage our operations, as well as product line net sales information.
Service revenues related to the work performed for the Company’s customers by its maintenance technicians generally represent a separate and distinct performance obligation. Control for these services passes to the customer as the services are performed.
A small portion of the Company's customer arrangements oblige the Company to create customized products for its customers that will supersede most current revenue recognition guidance,require combining both products and services into 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 industry-specific guidance. The underlying principle isa 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 an entity will recognize revenue to depictbest depicts the transfer of control of the underlying goods orand services to customers at an amount that the entity expectscustomer for each respective arrangement. Methods used by the Company to be entitled to in exchange for those goods or services. In July 2015, the FASB voted to delay the effective date for interimmeasure progress toward completion include labor hours, costs incurred and annual reporting periods beginning after December 15, 2017, with early adoption permissible one year earlier. The standard permits the useunits of either modified retrospective or full retrospective transition methods. The Company has substantially completed an impact assessment of the potential changes from adopting ASU 2014-09. The impact assessment included a review of customer arrangements across all of its global business units and an in-depth analysis of its global revenue processes and accounting policies to identify potential areas where change may be needed to comply with this guidance. The Company plans to apply the modified retrospective transition method. The Company assembled an implementation work team to assess and document the accounting conclusionsproduction. Revenues recognized over time for the adoptionfirst quarter of ASU 2014-09. Based on this analysis,fiscal 2024 and 2023 amounted to $58,654 and $57,004, respectively.
On July 2, 2023, the aggregate transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was approximately $149,294, of which, the Company does not believe the adoption of the ASUestimates that approximately $119,987 will havebe recognized as revenue in fiscal 2024, $29,242 in fiscal 2025, and $18 in fiscal 2026, $23 in fiscal 2027, and $24 thereafter.
Any payments that are received from a material impactcustomer in advance, prior to the consolidated financial statements. The Company continues to assess the potential impact on accounting policies, internal control processessatisfaction of a related performance obligation and related disclosures required under the new guidance.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which sets out the principles for the recognition, measurement, presentationbillings in excess of revenue recognized, are deferred and disclosure of leases for both parties totreated as a contract (i.e. lesseesliability. Advance payments and lessors). This update requires lessees to apply a dual approach, classifying leasesbillings in excess of revenue recognized are classified as either financecurrent or operating leasesnon-current based on the principletiming of whether or notwhen recognition of revenue is expected. As of July 2, 2023, the lease is effectively a financed purchasecurrent and non-current portion of contract liabilities were $29,822 and $974, respectively. As of March 31, 2023, the leased asset by the lessee. This classification will determine whether the lease expense iscurrent and non-current portion of contract liabilities were $34,594 and $1,437, respectively. Revenues 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 annual 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 October 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740)”: Intra-Entity Transfers of Assets Other than Inventory. ASU 2016-16 requires that an entity recognize the income tax consequences of an intra-entity transfer of assets other than inventory when the transfer occurs. This update is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. The Company early adopted the standard on a modified retrospective basis during the first quarter of fiscal 2018 through a cumulative-effect adjustment directly to retained earnings of $137, as of2024 and 2023 that were included in the contract liability at the beginning of the periodquarter, amounted to $12,391 and $4,590, respectively.
Amounts representing work completed and not billed to customers represent contract assets and were $56,177 and $48,616 as of adoption.July 2, 2023 and March 31, 2023, respectively.
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 revenue is recognized. At July 2, 2023, the right of return asset related to the value of inventory anticipated to be returned from customers was $4,748 and refund liability representing amounts estimated to be refunded to customers was $8,317.
3. Accounts Receivable
| | | | | | | | | | | | | | |
| | July 2, 2023 | | March 31, 2023 |
Accounts receivable | | $ | 575,531 | | | $ | 646,592 | |
Allowance for doubtful accounts | | 9,033 | | | 8,775 | |
Accounts receivable, net | | $ | 566,498 | | | $ | 637,817 | |
During the third quarter of 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 may sell certain US-originated accounts receivable balances up to a maximum amount of $150,000. In March 2017,return for these sales, the FASB issued ASU No. 2017-07, “Compensation—Retirement Benefits (Topic 715)”Company receives a cash payment equal to the face value of the receivables and is charged a fee of Secured Overnight Financing Rate (“SOFR”) plus 85 basis points against the sold receivable balance. The program is conducted through EnerSys Finance LLC ("EnerSys Finance"), which requires an entity to report the service cost component of pension and other postretirement benefit costs in the same line item as other compensation costs. The other components of net (benefit) cost will be requiredstructured to be presentedbankruptcy remote, and matures in the income statement separately from the service cost component and outside a subtotal of income from operations. This standard is effective for interim and annual reporting periods beginning after December
15, 2017, with early adoption permitted. 2025. The Company is currently assessingdeemed the potentialprimary beneficiary of EnerSys Finance as the Company has both the power 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 adoption will have on its consolidated financial statements.entity from the transfer of the trade accounts
In August 2017,receivables into the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815)”: Targeted Improvements to Accounting for Hedging Activities, which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activitiesspecial purpose entity.Accordingly, EnerSys Finance is included in the Company’s Consolidated Condensed Financial Statements.
Receivables sold to unaffiliated financial statements.institutions under the program are excluded from “Accounts receivable, net” on the Company’s Consolidated Condensed Balance Sheets, and cash receipts are reflected as cash provided by operating activities on the Consolidated Condensed Statements of Cash Flows. The guidance eliminatespurchase price is received in cash when the requirementreceivables are sold, and fees charged relating to separately measurethis balance are recorded to other (income) expense. Certain unsold receivables held by EnerSys Finance serve as collateral to unaffiliated financial institutions. These unsoldreceivablesareincludedin“Accountsreceivable,net”intheCompany’s Consolidated Balance Sheets. The Company continues servicing the receivables which were sold and report hedge ineffectiveness and generally requiresin exchange receives a servicing fee from EnerSys Finance under the entire changeprogram.
During the first quarter of 2024, the Company sold $182,391 of accounts receivables for approximately $182,391 in proceeds to an unaffiliated financial institution, of which $183,352 were collected as of July 2, 2023. Total collateralized accounts receivables of approximately $228,154 were held by EnerSys Finance at July 2, 2023.
Any accounts receivables held by EnerSys Finance would likely not be available to other creditors of the Company in the fair valueevent 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 hedging instrumentresult of the insolvency of EnerSys Finance or its inability to be presented inpay the same income statement line as the hedged item. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted in any interim period or fiscal year before the effective date. The Company is currently assessing the potential impact that the adoption will have on its consolidated financial statements.account debtors.
2. Inventories
Inventories, net consist of:
|
| | | | | | | | |
| | December 31, 2017 | | March 31, 2017 |
Raw materials | | $ | 96,666 |
| | $ | 85,604 |
|
Work-in-process | | 138,540 |
| | 107,177 |
|
Finished goods | | 186,764 |
| | 167,913 |
|
Total | | $ | 421,970 |
| | $ | 360,694 |
|
3.
4. Inventories
| | | | | | | | | | | | | | |
| | July 2, 2023 | | March 31, 2023 |
Raw materials | | $ | 316,477 | | | $ | 323,418 | |
Work-in-process | | 119,320 | | | 123,401 | |
Finished goods | | 373,605 | | | 350,979 | |
Total | | $ | 809,402 | | | $ | 797,798 | |
5. 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 December 31, 2017July 2, 2023 and March 31, 2017,2023, and the basis for that measurement:
| | | | Total Fair Value Measurement December 31, 2017 | | 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 July 2, 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 | | $ | 47 |
| | $ | — |
| | $ | 47 |
| | $ | — |
| Lead forward contracts | | $ | 409 | | | $ | — | | | $ | 409 | | | $ | — | |
Foreign currency forward contracts | | (266 | ) | | — |
| | (266 | ) | | — |
| Foreign currency forward contracts | | (196) | | | — | | | (196) | | | — | |
Interest Rate Swaps | | Interest Rate Swaps | | 3,057 | | | — | | | 3,057 | | | — | |
Net investment hedges | | Net investment hedges | | (18,661) | | | — | | | (18,661) | | | — | |
Total derivatives | | $ | (219 | ) | | $ | — |
| | $ | (219 | ) | | $ | — |
| Total derivatives | | $ | (15,391) | | | $ | — | | | $ | (15,391) | | | $ | — | |
|
| | | | | | | | | | | | | | | | |
| | Total Fair Value Measurement March 31, 2017
| | Quoted Price in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Lead forward contracts | | $ | 1,163 |
| | $ | — |
| | $ | 1,163 |
| | $ | — |
|
Foreign currency forward contracts | | (313 | ) | | — |
| | (313 | ) | | — |
|
Total derivatives | | $ | 850 |
| | $ | — |
| | $ | 850 |
| | $ | — |
|
9
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | $ | (89) | | | $ | — | | | $ | (89) | | | $ | — | |
Foreign currency forward contracts | | 923 | | | — | | | 923 | | | — | |
Interest Rate Swaps | | (1,162) | | | — | | | (1,162) | | | — | |
Net investment hedges | | (15,760) | | | — | | | (15,760) | | | — | |
Total derivatives | | $ | (16,088) | | | $ | — | | | $ | (16,088) | | | $ | — | |
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, 1- Summary of Significant Accounting Policies to the Company's consolidated financial statementsConsolidated Financial Statements included in its 2017the 2023 Annual Report.
The fair values for foreign currency forward contracts 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 approximate carrying value due to their short maturities.
The fair value of the Company’s short-term debt and borrowings under the new 2017Third Amended Credit Facility and the previous 2011 Credit Facility (each as(as defined in Note 9)11), 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%In fiscal 2020, the Company issued its 4.375% Senior Notes due 2023December 15, 2027 (the “Notes”“2027 Notes”), with an original face value of $300,000, were issued in April 2015.$300,000. The fair value of thesethe 2027 Notes representrepresents the trading values based upon quoted market prices and are classified as Level 2. The 2027 Notes were trading at approximately 104%92% and 101%92% of face value on December 31, 2017July 2, 2023 and March 31, 2017,2023, respectively.
The carrying amounts and estimated fair values of the Company’s derivatives and Senior Notes at December 31, 2017July 2, 2023 and March 31, 20172023 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | July 2, 2023 | | March 31, 2023 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Financial assets: | | | | | | | | |
Derivatives (1) | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Financial liabilities: | | | | | | | | |
Senior Notes (2) | | $ | 300,000 | | | $ | 276,750 | | | $ | 300,000 | | | $ | 276,000 | |
Derivatives (1) | | $ | (15,391) | | | $ | (15,391) | | | $ | (16,088) | | | $ | (16,088) | |
| | | | | | | | |
(1)Represents lead, foreign currency forward contracts, interest rate swaps, and net investment hedges (see Note 6 for asset and liability positions of the lead, foreign currency forward contracts, interest rate swaps, and net investment hedges at July 2, 2023 and March 31, 2023).
(2)The fair value amount of the Senior Notes at July 2, 2023 and March 31, 2023 represent the trading value of the instruments.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | | | | March 31, 2017 | | |
| | Carrying Amount | | | | Fair Value | | | | Carrying Amount | | | | Fair Value | | |
Financial assets: | | | | | | | | | | | | | | | | |
Derivatives (1) | | $ | 47 |
| | | | $ | 47 |
| | | | $ | 1,163 |
| | | | $ | 1,163 |
| | |
Financial liabilities: | | | | | | | | | | | | | | | | |
Notes (2) | | $ | 300,000 |
| | | | $ | 313,500 |
| |
| | $ | 300,000 |
| | | | $ | 303,000 |
| | |
Derivatives (1) | | 266 |
| | | | 266 |
| | | | 313 |
| | | | 313 |
| | |
| |
(1) | Represents lead and foreign currency forward contracts (see Note 4 for asset and liability positions of the lead and foreign currency forward contracts at December 31, 2017 and March 31, 2017). |
| |
(2) | The fair value amount of the Notes at December 31, 2017 and March 31, 2017 represent the trading value of the instruments. |
Non-recurring fair value measurements
4.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.
6. 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. At December 31, 2017July 2, 2023 and March 31, 2017,2023, the Company has hedged the price to purchase approximately 54.055.0 million pounds and 45.050.0 million pounds of lead, respectively, for a total purchase price of $60,849$52,137 and $46,550,$47,921, 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 December 31, 2017July 2, 2023 and March 31, 2017,2023, the Company had entered into a total of $52,801$44,760 and $30,751,$45,823, 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 July 2, 2023 and 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 December 23, 2021, the Company entered into cross currency fixed interest rate swap agreements, with aggregate notional amounts of $300,000, to hedge its net investments in foreign operations against future volatility in the exchange rates between U.S. dollars and euros. 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.
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 $3,133$5,069 of pretax gain(gain) relating to lead, and foreign currency forward contracts and net investment hedges will be reclassified from accumulated other comprehensive income (“AOCI”)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 Condensed Statements of Income as an offset to the corresponding actual changes in lead, foreign exchange rates and interest 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 Condensed Statements of Income. As of December 31, 2017July 2, 2023 and March 31, 2017,2023, the notional amount of these contracts was $24,132$75,798 and $13,560,$102,558, respectively.
Presented below in tabular form is information on the location and amounts of derivative fair values in the Consolidated Condensed Balance Sheets and derivative gains and losses in the Consolidated Condensed Statements of Income:
Fair Value of Derivative Instruments
December 31, 2017July 2, 2023 and March 31, 20172023
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
| | July 2, 2023 | | March 31, 2023 | | July 2, 2023 | | March 31, 2023 | | July 2, 2023 | | March 31, 2023 |
Prepaid and other current assets: | | | | | | | | | | | | |
Lead forward contracts | | $ | 409 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Foreign currency forward contracts | | 764 | | | 723 | | | — | | | — | | | — | | | 200 | |
Net investment hedges | | — | | | — | | | — | | | — | | | — | | | — | |
Other assets: | | | | | | | | | | | | |
Interest Rate Swaps | | 3,057 | | | — | | | — | | | — | | | — | | | — | |
Net investment hedges | | — | | | — | | | — | | | — | | | — | | | — | |
Total assets | | $ | 4,230 | | | $ | 723 | | | $ | — | | | $ | — | | | $ | — | | | $ | 200 | |
Accrued expenses: | | | | | | | | | | | | |
Lead forward contracts | | $ | — | | | $ | 89 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Foreign currency forward contracts | | — | | | — | | | — | | | — | | | 960 | | | — | |
Other liabilities: | | | | | | | | | | | | |
Interest Rate Swaps | | — | | | 1,162 | | | — | | | — | | | — | | | — | |
Net investment hedges | | — | | | — | | | 18,661 | | | 15,760 | | | — | | | — | |
Total liabilities | | $ | — | | | $ | 1,251 | | | $ | 18,661 | | | $ | 15,760 | | | $ | 960 | | | $ | — | |
|
| | | | | | | | | | | | | | | | |
| | Derivatives and Hedging Activities Designated as Cash Flow Hedges | | Derivatives and Hedging Activities Not Designated as Hedging Instruments |
| | December 31, 2017 | | March 31, 2017 | | December 31, 2017 | | March 31, 2017 |
Prepaid and other current assets | | | | | | | | |
Lead forward contracts | | $ | 47 |
| | $ | 1,163 |
| | $ | — |
| | $ | — |
|
Foreign currency forward contracts | | — |
| | 11 |
| | 14 |
| | — |
|
Total assets | | $ | 47 |
| | $ | 1,174 |
| | $ | 14 |
| | $ | — |
|
Accrued expenses | | | | | | | | |
Foreign currency forward contracts | | $ | 280 |
| | $ | — |
| | $ | — |
| | $ | 324 |
|
Total liabilities | | $ | 280 |
| | $ | — |
| | $ | — |
| | $ | 324 |
|
The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the quarter ended July 2, 2023
| | | | | | | | | | | | | | | | | | | | |
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 | | $ | 475 | | | Cost of goods sold | | $ | 630 | |
Foreign currency forward contracts | | 899 | | | Cost of goods sold | | 3,095 | |
Interest rate swaps | | 4,849 | | | Interest expense | | 171 | |
Total | | 6,223 | | | | | 3,896 | |
| | | | | | | | | | | | | | | | | | | | |
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 | | $ | (2,790) | | | Interest expense | | $ | 112 | |
Total | | (2,790) | | | | | 112 | |
| | | | | | | | | | | |
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 | | $ | (503) | |
Total | | | $ | (503) | |
December 31, 2017
|
| | | | | | | | | | |
Derivatives Designated as Cash Flow Hedges | | Pretax Gain (Loss) Recognized in AOCI on Derivatives (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 | | $ | (396 | ) | | Cost of goods sold | | $ | 2,266 |
|
Foreign currency forward contracts | | (87 | ) | | Cost of goods sold | | (1,811 | ) |
Total | | $ | (483 | ) | | | | $ | 455 |
|
|
| | | | | |
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 | | $ | 93 |
|
Total | | | $ | 93 |
|
The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the quarter ended January 1, 2017 |
| | | | | | | | | | |
Derivatives Designated as Cash Flow Hedges | | Pretax Gain (Loss) Recognized in AOCI on Derivatives (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 | | $ | (2,362 | ) | | Cost of goods sold | | $ | 1,524 |
|
Foreign currency forward contracts | | 595 |
| | Cost of goods sold | | (93 | ) |
Total | | $ | (1,767 | ) | | | | $ | 1,431 |
|
July 3, 2022 | | Derivatives Not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in Income on Derivatives | | Pretax Gain (Loss) | |
Derivatives Designated as Cash Flow Hedges | | 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 | | Lead forward contracts | | $ | (10,862) | | | Cost of goods sold | | $ | 695 | |
Foreign currency forward contracts | Other (income) expense, net | | $ | (25 | ) | Foreign currency forward contracts | | 1,255 | | | Cost of goods sold | | 446 | |
Total | | $ | (25 | ) | Total | | $ | (9,607) | | | $ | 1,141 | |
| Derivatives Designated as Net Investment Hedges | | 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 | | Cross currency fixed interest rate swaps | | $ | 23,595 | | | Interest expense | | $ | 1,258 | |
Total | | Total | | 23,595 | | | 1,258 | |
| | | | | | | | | | | |
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 | | $ | 216 | |
Total | | | $ | 216 | |
The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the nine months ended December 31, 2017
|
| | | | | | | | | | |
Derivatives Designated as Cash Flow Hedges | | Pretax Gain (Loss) Recognized in AOCI on Derivatives (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 | | $ | 2,686 |
| | Cost of goods sold | | $ | 2,177 |
|
Foreign currency forward contracts | | (3,175 | ) | | Cost of goods sold | | (2,714 | ) |
Total | | $ | (489 | ) | | | | $ | (537 | ) |
|
| | | | | |
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 | | $ | 105 |
|
Total | | | $ | 105 |
|
The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the nine months ended January 1, 2017
|
| | | | | | | | | | |
Derivatives Designated as Cash Flow Hedges | | Pretax Gain (Loss) Recognized in AOCI on Derivatives (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 | | $ | 2,258 |
| | Cost of goods sold | | $ | 2,800 |
|
Foreign currency forward contracts | | 873 |
| | Cost of goods sold | | (319 | ) |
Total | | $ | 3,131 |
| | | | $ | 2,481 |
|
|
| | | | | |
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 | | $ | (202 | ) |
Total | | | $ | (202 | ) |
5.7. Income Taxes
The Company’s income tax provision consists of federal, state and foreign income taxes. The tax provision for the third quartersfirst quarter of fiscal 20182024 and 20172023 was based on the estimated effective tax rates applicable for the full years ending March 31, 20182024 and March 31, 2017,2023, respectively, after giving effect to items specifically related to the interim periods. The Company’s effective income tax rate with respect to any period may be volatile based on the mix of income in the tax jurisdictions, in which the Company operates, changechanges in tax laws and the amount of the Company's consolidated incomeearnings before taxes.
On December 22, 2017,August 16, 2022, the Tax Cuts and JobsInflation Reduction Act of 2022 (“Tax Act”IRA”) was enacted into law. Amongenacted. 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 significant changes resulting fromIRA creates a refundable tax credit, pursuant to Section 45X of the law,Internal Revenue Code (“IRC”), for battery cells and battery modules manufactured or assembled in the Tax Act reducesUnited States and sold to third parties. In the U.S. federalfirst quarter of fiscal 2024, the IRA impact resulted in a reduction of our costs of goods sold and income tax rate from 35%payable. There is a possibility that additional clarification guidance is issued with respect to 21% effective January 1, 2018,the Section 45X credit qualifications. Amounts recognized in the Consolidated Condensed Financial Statements are based on Management's judgement and requires companiesbest estimate utilizing the most current guidance. The Company will continue to pay a one-time transition tax on unrepatriated cumulative non-U.S. earnings of foreign subsidiaries and creates new taxes on certain foreign sourced earnings. In accordance with ASC 740, “Income Taxes,” the Company is required to recordevaluate the effects of tax law changes in the period enacted. The rate changeIRA as more guidance is administratively effective at the beginning of the Company's fiscal year, using a blended rate for the annual period. As a result, the Company's blended U.S. statutory tax rate for fiscal 2018 is 31.5%.
As of December 31, 2017, the Company has not completed its accounting for the tax effects of enactment of the Tax Act; however, in certain cases, as described below, the Company made a reasonable estimate of the effects on its existing deferred tax balancesissued and the one-time transition tax. The Company'srelevant implications to our Consolidated Condensed Financial Statements. Actual results for the three and nine months ended December 31, 2017, contain estimates of the impact of the Tax Act as permitted by Staff Accounting Bulletin 118 “SAB 118” issued by the Securities and Exchange Commission on December 22, 2017. These amounts are considered provisional and may be affected by future guidance if and when issued.could differ from management’s current estimate.
As a result of the Tax Act, the third quarter fiscal 2018 financial statements include a provisional net tax expense of $77,347 which is comprised of the following:
Foreign tax effects: The one-time transition tax is based on the Company's total post-1986 earnings and profits (E&P) that was previously deferred from U.S. income taxes. The Company recorded a provisional amount for a one-time transition tax liability for its foreign subsidiaries, resulting in an increase in income tax expense of $94,000. The estimated transition tax of $94,000 is recorded under current income tax payable and non-current income tax payable, at $7,520 and $86,480, respectively, and is payable over eight years. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when the Company finalizes both the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and the amounts held in cash or other specified assets. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations.
Deferred tax assets and liabilities: The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, the Company is still analyzing certain aspects of the Tax Act and refining its calculations, which could potentially affect the measurement of these balances or give rise to new deferred tax amounts. The provisional amount recorded, related to the remeasurement of the Company's deferred tax balance was a tax benefit of $14,706.
Finally, the Company recorded a provisional tax benefit of $1,947 related to the reduction of the fiscal 2018 federal tax rate to 31.5%.
In all cases, the Company may adjust these provisional amounts which could potentially affect the measurement and impact on tax expense as the Company refines its calculations within a reasonable period not to exceed one year from the enactment date.
The consolidated effective income tax rates for the third quartersfirst quarter of fiscal 20182024 and 20172023 were 141.2%9.2% and 26.7%, respectively, and for the nine months of fiscal 2018 and 2017 were 63.2% and 25.7%, respectively.15.7%. The rate increasedecrease in the thirdfirst quarter and nine months of fiscal 2018 compared to the comparable prior year periods of fiscal 2017quarter is primarily due to the impact of the Tax Act in the third quarter of fiscal 2018,IRA. In addition, there was a discrete foreign exchange tax benefit related to undistributed earnings which was offset by the German regulatory proceedings charge of $17,000 (with no associated tax benefit) recorded in the third quarter of fiscal 2017 and changes in the mix of earnings among tax jurisdictions.
Foreign income as a percentage of worldwide income is estimated to be 64%51% for fiscal 20182024 compared to 60%77% for fiscal 2017. The foreign effective income tax rates for the nine months of fiscal 2018 and 2017 were 11.4% and 15.9%, respectively. The rate decrease compared to the prior year period2023. This reduction is primarily due to the German regulatory proceedings chargeimpact of $17,000 (with no associatedthe IRA. The foreign effective tax benefit) recorded inrates for the thirdcurrent quarter of fiscal 20172024 and changes in the mix of earnings among tax jurisdictions.2023 were 12% and 11%, respectively. Income from the Company's Swiss subsidiary comprised a substantial portion of the Company's overall foreign mix of income for both fiscal 2024 and isfiscal 2023 and were taxed at an effective income tax rate of approximately 6%.8% and 9%, respectively.
6.
8. 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. As 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:
|
| | | | | | | | | | | | | | | | |
| | Quarter ended | | Nine months ended |
| | December 31, 2017 | | January 1, 2017 | | December 31, 2017 | | January 1, 2017 |
Balance at beginning of period | | $ | 47,113 |
| | $ | 48,112 |
| | $ | 46,116 |
| | $ | 48,422 |
|
Current period provisions | | 6,204 |
| | 4,085 |
| | 13,012 |
| | 14,932 |
|
Costs incurred | | (3,843 | ) | | (4,250 | ) | | (10,880 | ) | | (12,492 | ) |
Foreign currency translation adjustment | | 23 |
| | (1,720 | ) | | 1,249 |
| | (4,635 | ) |
Balance at end of period | | $ | 49,497 |
| | $ | 46,227 |
| | $ | 49,497 |
| | $ | 46,227 |
|
| | | | | | | | | | | | | | | | | | |
| | Quarter ended | | |
| | July 2, 2023 | | July 3, 2022 | | | | |
Balance at beginning of period | | $ | 56,630 | | | $ | 54,978 | | | | | |
Current period provisions | | 8,685 | | | 4,940 | | | | | |
Costs incurred | | (7,446) | | | (5,744) | | | | | |
| | | | | | | | |
Foreign currency translation adjustment | | 569 | | | (1,220) | | | | | |
Balance at end of period | | $ | 58,438 | | | $ | 52,954 | | | | | |
7.9. 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 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, anticompetition, 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, the 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 had 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.
For additional information regarding these matters, see Note 19 - The Company settledCommitments, Contingencies and Litigation to the Belgian regulatory proceedingConsolidated Financial Statements contained 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.the 2023 Annual Report. As of December 31, 2017July 2, 2023 and March 31, 2017,2023, the Company haddid not have a reserve balance of $2,058 and $1,830, respectively, relating to certain ancillary matters associated with the Belgian regulatory proceeding. The change in the reserve balance between December 31, 2017 and March 31, 2017 was solely due to foreign currency translation impact.
In June 2017, the Company settled a portion of its previously disclosed proceeding involving the German competition authority relating to conduct involving the Company's motive power battery business and agreed to pay a fine of $14,811, which was paid in July 2017. As of December 31, 2017 and March 31, 2017, the Company had a reserve balance of $0 and $13,463, respectively, relating to this matter. Also in June 2017, the German competition authority issued a fining decision related to the Company's reserve power battery business, which constitutes the remaining portion of the previously disclosed German proceeding. The Company is appealing this decision, including payment of the proposed fine of $11,415, and believes that the reserve power matter does not, based on current facts and circumstances known to management, require an accrual. The Company is not required to escrow any portion of this fine during the appeal process.these matters.
In July 2017, the Company settled the Dutch regulatory proceeding and agreed to pay a fine of $11,229, which was paid in August 2017. As of December 31, 2017 and March 31, 2017, the Company had a reserve balance of $0 and $10,258, respectively, relating to the Dutch regulatory proceeding.
As of December 31, 2017 and March 31, 2017, the Company had a total reserve balance of $2,058 and $25,551, respectively, in connection with these investigations and other related legal matters, included in accrued expenses on the Consolidated Condensed Balance Sheets. 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 or customer claims, remain uncertain. Accordingly, the Company’s estimate may change from time to time, and actual losses could vary.
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 Carolina,believes that predates its ownership of this facility. This manufacturing facility was closed in 2001 and the Company established a reserve for this facility, which was $1,117 and $1,123 as of December 31, 2017 and March 31, 2017. Based on current information, the Company’s management believes this reserve isit has adequate reserves to satisfy the Company’sits environmental liabilities at this facility. This facility is separate from the Company’s current metal fabrication facility in Sumter.liabilities.
Lead, and Foreign Currency Forward Contracts and Swaps
To stabilize its lead costs and reduce volatility from currency and interest rate movements, the Company entersentered into contracts with financial institutions. The vast majority of suchlead and foreign currency contracts are for a period not extending beyond one year. The Company also entered into a cross currency fixed interest rate swap agreement, maturing on December 15, 2027, to hedge its net investments in foreign operations against future volatility in the exchange rates between the U.S. Dollar and Euro. The Company also entered into floating to fixed interest rate swap agreements maturing on September 30, 2026, to hedge its exposure to variable interest rates. Please refer to Note 46 - Derivative Financial Instruments for more details.
8.
10. Restructuring Plansand other Exit Charges
Restructuring Programs
As disclosed in the 2023 Annual Report, the Company committed to restructuring plans aimed at improving operational efficiencies across its lines of business. A substantial portion of these plans are complete with an estimated $432 remaining to be incurred by the end of fiscal 2024, mainly related to plans started in fiscal 2021 and fiscal 2022. Restructuring and exit charges for the first quarter of fiscal 2024 by reportable segments are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter ended July 2, 2023 |
| | Energy Systems | | Motive Power | | Specialty | | Total |
Restructuring charges | | $ | 488 | | | $ | — | | | $ | — | | | $ | 488 | |
Exit charges | | — | | | 1,559 | | | 4,262 | | | 5,821 | |
Restructuring and other exit charges | | $ | 488 | | | $ | 1,559 | | | $ | 4,262 | | | $ | 6,309 | |
A roll-forward of the restructuring reserve, excluding exit charges, is as follows:
| | | | | | | | |
Balance as of March 31, 2023 | | $ | 445 | |
Accrued | | 488 | |
Costs incurred | | (505) | |
Foreign currency impact | | 4 | |
Balance as of July 2, 2023 | | $ | 432 | |
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 $9,460. Cash charges are estimated to total $5,700 primarily relating to severance and other costs to leave the site. Non-cash charges are estimated to be $3,760 relating to fixed assets, inventory, and contract assets. The plan is expected to be completed in fiscal 2024.
During fiscal 2016,2023, the Company announced restructurings to improve efficienciesrecorded cash charges of $1,682 related primarily related to its motive power assemblyseverance costs and distribution center in Italy and its sales and administration organizations in EMEA. In addition,non-cash charges totaling $417 primarily relating to contract assets.
During the Company announced a further restructuring related to its manufacturing operations in Europe. The program was completed during the thirdcurrent quarter of fiscal 2018. Total charges for this program were $6,568 primarily for cash expenses of $6,161 for employee severance-related payments of approximately 130 employees and other charges of $407. In fiscal 2016,2024, the Company recorded restructuringcash charges of $5,232 and recorded an additional $1,251 during fiscal 2017. The Company incurred $2,993 in costs against the accrual in fiscal 2016 and incurred an additional $3,037 against the accrual during fiscal 2017. During the nine months of fiscal 2018, the Company recorded restructuring charges of $85 and incurred $499 against the accrual.
During fiscal 2017, the Company announced restructuring programs to improve efficiencies$4,017 primarily related to severance costs, relocation expenses, and manufacturing variances and non-cash charges totaling $245. The Company also recorded a non-cash write off relating to inventories of $3,098, which was reported in cost of goods sold.
Ooltewah
On June 29, 2022, the Company committed to a plan to close its facility in Ooltewah, Tennessee, which produced flooded motive power productionbatteries 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 EMEA.lithium and TPPL. The Company currently estimates that the total charges for these actions will amount to approximately $4,700, 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 45 employees upon completion. During fiscal 2017, the Company recorded restructuring charges of $3,104 and incurred $749
in costs against the accrual. During the nine months of fiscal 2018, the Company recorded restructuring charges of $1,610 and incurred $1,725 against the accrual. As of December 31, 2017, the reserve balance associated with these actions is $2,406.165 employees. The Company does not expect to be committed to additional restructuring charges related to this action, whichplan is expected to be completed in calendar 2023.
During fiscal 2019.2023, the Company recorded cash charges relating to severance and manufacturing variances of $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.
During the firstcurrent quarter of fiscal 2017, the Company announced a restructuring primarily to complete the transfer of equipment and clean-up of its manufacturing facility located in Jiangdu, the People’s Republic of China, which stopped production during fiscal 2016. This program was completed during the first quarter of fiscal 2018. The total cash charges for these actions amounted to $779. During fiscal 2017,2024, the Company recorded cash charges relating to site clean up and decommissioning equipment of $779$881.
Fiscal 2021 Program
Hagen, Germany
In fiscal 2021, the Company's Board of Directors approved a plan to close substantially all of its facility in Hagen, Germany, which produced flooded motive power batteries for electric 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 incurred $648 in costs againstincreased uncertainty from the accrual. During the nine months of fiscal 2018, the Company recorded charges of $0 and incurred $129 in costs against the accrual.
During fiscal 2018, the Company announced restructuring programs to improve efficiencies primarily related to supply chain and general operations in EMEA.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 these actions will amount to approximately $3,400, primarily from$60,000, of which cash charges for employee severance-relatedseverance related payments, cleanup related to the facility, contractual releases and other charges.legal expenses were estimated to be $40,000 and non-cash charges from inventory and equipment write-offs were estimated to be $20,000. The Company estimates thatmajority of these charges were recorded as of January 1, 2023. These actions will resultresulted in the reduction of approximately 50 employees upon completion. 200 employees.
During the nine months of fiscal 2018,2021, the Company recorded restructuringcash charges relating to severance of $23,331 and non-cash charges of $1,477$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 incurred $1,069 in costs against the accrual. Asnon-cash charges of December 31, 2017, the reserve balance associated with these actions is $406.$3,522 primarily relating to fixed asset write-offs. The Company expectsalso recorded a non-cash write off relating to be committedinventories of $960, which was reported in cost of goods sold.
During fiscal 2023, the Company recorded cash charges of $2,207 relating to an additional $1,900 in restructuringprimarily to site cleanup and $562 of non-cash charges relatedrelating to this action, which it expects to complete in fiscal 2019.accelerated depreciation of fixed assets.
During the secondcurrent quarter of fiscal 2018,2024, the Company completed the sale of its Cleveland, Ohio facility and recorded a non-cash loss on the sale of the building of $210 and other cash charges of $75. The Cleveland facility ceased charger production in fiscal 2017.$485 relating primarily to site cleanup and $143 of non-cash charges relating to accelerated depreciation of fixed assets.
During fiscal 2018, the Company announced a restructuring program to improve efficiencies of its general operations in the Americas. The Company estimates that the total charges for these actions will amount to approximately $1,000, from cash charges for employee severance-related payments to approximately 60 salaried employees. During the nine months of fiscal 2018, the Company recorded restructuring charges of $960 and incurred $386 in costs against the accrual. As of December 31, 2017, the reserve balance associated with this action is $574. The Company expects to complete this action in fiscal 2019.
A roll-forward of the restructuring reserve is as follows:
|
| | | | | | | | | | | | |
| | Employee Severance | | Other | | Total |
Balance as of March 31, 2017 | | $ | 2,668 |
| | $ | 144 |
| | $ | 2,812 |
|
Accrued | | 3,890 |
| | 317 |
| | 4,207 |
|
Costs incurred | | (3,421 | ) | | (462 | ) | | (3,883 | ) |
Foreign currency impact | | 249 |
| | 1 |
| | 250 |
|
Balance as of December 31, 2017 | | $ | 3,386 |
| | $ | — |
| | $ | 3,386 |
|
9.11. Debt
The following summarizes the Company’s long-term debt as of December 31, 2017July 2, 2023 and March 31, 2017:2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | July 2, 2023 | | March 31, 2023 |
| | Principal | | Unamortized Issuance Costs | | Principal | | Unamortized Issuance Costs |
Senior Notes | | $ | 300,000 | | | $ | 2,561 | | | $ | 300,000 | | | $ | 2,705 | |
Fourth Amended Credit Facility, due 2026 | | 613,782 | | | 3,453 | | | 748,413 | | | 3,719 | |
| | | | | | | | |
| | $ | 913,782 | | | $ | 6,014 | | | $ | 1,048,413 | | | $ | 6,424 | |
Less: Unamortized issuance costs | | 6,014 | | | | | 6,424 | | | |
Long-term debt, net of unamortized issuance costs | | $ | 907,768 | | | | | $ | 1,041,989 | | | |
|
| | | | | | | | | | | | | | | | |
| | December 31, 2017 | | March 31, 2017 |
| | Principal | | Unamortized Issuance Costs | | Principal | | Unamortized Issuance Costs |
5.00% Senior Notes due 2023 | | $ | 300,000 |
| | $ | 3,278 |
| | $ | 300,000 |
| | $ | 3,746 |
|
2017 Credit Facility, due 2022 | | 395,300 |
| | 3,001 |
| | — |
| | — |
|
2011 Credit Facility, due 2018 | | — |
| | — |
| | 292,500 |
| | 1,145 |
|
| | $ | 695,300 |
| | $ | 6,279 |
| | $ | 592,500 |
| | $ | 4,891 |
|
Less: Unamortized issuance costs | | 6,279 |
| | | | 4,891 |
| | |
Long-term debt, net of unamortized issuance costs | | $ | 689,021 |
| | | | $ | 587,609 |
| | |
5.00% Senior Notes
The Company's Senior Notes comprise the following:
4.375% Senior Notes due 2027
On 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 5.00%4.375% per annum.annum accruing from December 11, 2019. Interest is payable semiannually in arrears on April 30June 15 and October 30December 15 of each year, commencing on October 30, 2015.June 15, 2020. The 2027 Notes will mature on April 30, 2023,December 15, 2027, unless earlier redeemed or repurchased in full. The Notesfull and are unsecured and unsubordinated obligations of the Company. The NotesThey are fully and unconditionally guaranteed, (the “Guarantees”), jointly and severally, by certain of its subsidiaries that are guarantors (the “Guarantors”) under the 2011Fourth Amended Credit Facility and its successor, the 2017 Credit Facility. The Guarantees(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 Guarantors.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.
2017 Credit Facility and Subsequent Amendments
On August 4, 2017,In fiscal 2018, the Company entered into a new credit facility (“2017(the “2017 Credit Facility”). The 2017 Credit Facility matureswas scheduled to mature on September 30, 2022, and comprisesinitially comprised a $600,000 senior secured revolving credit facility (“2017 Revolver”) and a $150,000 senior secured term loan (“2017 Term Loan”). The Company's previousCompany utilized the borrowings from the 2017 Credit Facility to repay its pre-existing credit facility (“2011facility.
In fiscal 2019, the Company amended the 2017 Credit Facility (as amended, the “Amended Credit Facility”) comprisedto fund the Alpha acquisition. The Amended Credit Facility consisted of $449,105 senior secured term loans (the “Amended Term Loan”), including a $500,000CAD 133,050 ($99,105) senior secured term loan and a $700,000 senior secured revolving credit facility (“2011(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 “2011“Second Amended Term Loan”) with, a maturity dateCAD 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. On August 4,2026, 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 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 outstanding balance on“Fourth Amended Credit Facility”). The Fourth Amended Credit Facility replaces the 2011London Interbank Offered Rate (“LIBOR”) with the Secured Overnight Financing Rate (“SOFR”) in the calculation of interest for both the Second Amended Revolver and the 2011Second Amended Term Loan of $240,000 and $123,750, respectively, was repaid utilizing borrowings fromLoan.
Subsequent to the 2017 Credit Facility.
As of December 31, 2017,fourth amendment, the Company had $245,300 outstanding on the 2017 Revolver and $150,000 under the 2017 Term Loan.
The quarterly installments payable on the 2017Second Amended Term Loan are $1,8752,630 beginning December 31, 2018, $2,8132022, 3,945 beginning December 31, 20192024 and $3,7505,261 beginning December 31, 20202025 with a final payment of $105,000157,817 on September 30, 2022.2026. The 2017Fourth Amended Credit Facility may be increased by an aggregate amount of $325,000$350,000 in revolving commitments and/orand /or one or more new tranches of term loans, under certain conditions. Both the 2017Second Amended Revolver and the 2017Second Amended Term Loan 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 2.00%2.25% (currently 1.25% and based on the Company's consolidated net leverage ratio) or (ii) the U.S. Dollar Base Rate (which equals, 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 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) 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 plus 0.50%, (b) Bank of America “Prime Rate” and (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 unused portion.
Obligations under the 2017Fourth 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 2017Fourth 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 subsidiaries.
The current portionFourth Amended Credit Facility allows 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 Fourth Amended Credit Facility, the maximum leverage ratio increased from 3.50x to 4.25x effective to the last day of the 2017second quarter of fiscal year 2024 and decreasing subsequently to 4.00x.
As of July 2, 2023, the Company had $115,000 outstanding under the Second Amended Revolver, $498,782 under the Second Amended Term Loan, and $300,000 outstanding under the Third Amended Term Loan.
Current Portion of $1,875Debt
The scheduled repayments within the next twelve months, relating to the Second and Third Amended Term Loans, are $10,521 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 2017the Second Amended Credit Facility.
Short-Term Debt
As of December 31, 2017July 2, 2023 and March 31, 2017,2023, the Company had $16,842$30,962 and $18,359,$30,642, respectively, of short-term borrowings. The weighted-averageweighted average interest rate on these borrowings was approximately 8%approximately 6.6% and 7% 7.0%, respectively, at December 31, 2017July 2, 2023 and March 31, 2017, respectively.2023.
Letters of Credit
As of December 31, 2017July 2, 2023 and March 31, 2017,2023, the Company had $3,074$3,665 and $2,189, respectively,$3,565 of standby letters of credit.credit, respectively.
Debt Issuance Costs
In connection with the refinancing,Second Amended Credit Facility, the Company incurred $2,677capitalized $2,952 in debt issuance costs and wrote off $301 relating to the 2011 Credit Facility.$128 of unamortized debt issuance costs. Amortization expense, relating to debt issuance costs, included in interest expense was $314$410 and $347,$487, respectively, for the quartersfirst quarter ended December 31, 2017July 2, 2023 and January 1, 2017 and $988 and $1,041, respectively, for the nine months ended December 31, 2017 and January 1, 2017.July 3, 2022, respectively. Debt issuance costs, net of accumulated amortization, totaled $6,279$6,014 and $4,891,$6,424, respectively, at December 31, 2017July 2, 2023 and March 31, 2017.2023.
Available Lines of Credit
As of December 31, 2017July 2, 2023 and March 31, 2017,2023, the Company had available and undrawn, under all its lines of credit, $503,807$823,925 and $475,947,$693,444, respectively, including $150,832$91,320 and $142,872,$90,839, respectively, of uncommitted lines of credit ascredit.
Table of December 31, 2017 and March 31, 2017.Contents
10.12. Retirement Plans
The following tables present the components of the Company’s net periodic benefit cost related to its defined benefit pension plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | United States Plans | | International Plans |
Quarter ended | | Quarter ended |
July 2, 2023 | | July 3, 2022 | | July 2, 2023 | | July 3, 2022 |
Service cost | | $ | — | | | $ | — | | | $ | 220 | | | $ | 235 | |
Interest cost | | 166 | | | 145 | | | 585 | | | 440 | |
Expected return on plan assets | | (76) | | | (119) | | | (406) | | | (517) | |
Amortization and deferral | | — | | | — | | | 29 | | | 123 | |
| | | | | | | | |
Net periodic benefit cost | | $ | 90 | | | $ | 26 | | | $ | 428 | | | $ | 281 | |
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| | | | | | | | | | | | | | | | |
| | United States Plans | | International Plans |
Quarter ended | | Quarter ended |
December 31, 2017 | | January 1, 2017 | | December 31, 2017 | | January 1, 2017 |
Service cost | | $ | — |
| | $ | 96 |
| | $ | 257 |
| | $ | 212 |
|
Interest cost | | 159 |
| | 158 |
| | 449 |
| | 441 |
|
Expected return on plan assets | | (132 | ) | | (204 | ) | | (565 | ) | | (442 | ) |
Amortization and deferral | | 69 |
| | 76 |
| | 365 |
| | 238 |
|
Net periodic benefit cost | | $ | 96 |
| | $ | 126 |
| | $ | 506 |
| | $ | 449 |
|
|
| | | | | | | | | | | | | | | | |
| | United States Plans | | International Plans |
Nine months ended | | Nine months ended |
December 31, 2017 | | January 1, 2017 | | December 31, 2017 | | January 1, 2017 |
Service cost | | $ | — |
| | $ | 278 |
| | $ | 756 |
| | $ | 658 |
|
Interest cost | | 493 |
| | 498 |
| | 1,325 |
| | 1,402 |
|
Expected return on plan assets | | (372 | ) | | (612 | ) | | (1,670 | ) | | (1,424 | ) |
Amortization and deferral | | 228 |
| | 340 |
| | 1,076 |
| | 756 |
|
Net periodic benefit cost | | $ | 349 |
| | $ | 504 |
| | $ | 1,487 |
| | $ | 1,392 |
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11.13. Stock-Based Compensation
As of December 31, 2017,July 2, 2023, the Company maintains the 2017 Equity Incentive Plan as amended from time to time (“2017 EIP”). The 2017 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.
The Company recognized stock-based compensation expense associated with its equity incentive plans of $5,250$7,933 for the third quarter of fiscal 2018 and $4,699 for the thirdfirst quarter of fiscal 2017. Stock-based compensation expense was $14,7732024 and $5,330 for the nine monthsfirst quarter of fiscal 2018 and $14,556 for the nine months of fiscal 2017.2023. The Company recognizes compensation expense using the straight-line method over the vesting period of the awards.
During the nine monthscurrent quarter of fiscal 2018,2024, the Company granted to non-employee directors 32,5512,301 restricted stock units, pursuant tounder the 2017 EIP.
deferred compensation plan for non-employee directors. The awards vest immediately upon the date of grant and are settled in shares of common stock.
During the nine monthscurrent quarter of fiscal 2018,2024, the Company granted to management and other key employees 169,703 non-qualified7,215 restricted stock options and 60,008 market condition-based share units that vest threeratably over four years from the date of grant, and 160,313 restricted stock units that vest 25% each year over four years from the date of grant.
Common stock activity during the nine monthscurrent quarter of fiscal 20182024 included the vestingexercise of 149,458152,963 stock options.
As of July 2, 2023, there were 1,042,705 non-qualified stock options, 1,020,365 restricted stock units including non-employee director restricted stock units and 142,426 market condition-based share units and the exercise of 58,595 stock options.
31,706 TSRs outstanding.
As of December 31, 2017, there were 549,192 non-qualified stock options, 635,712 restricted stock units and 349,078 market condition-based share units outstanding.
12.14. Stockholders’ Equity and Noncontrolling Interests
Common Stock
The following demonstrates the change in the number of shares of common stock outstanding during the nine monthscurrent quarter ended December 31, 2017:July 2, 2023:
|
| | | | | | | |
Shares outstanding as of March 31, 20172023 | | 43,447,53640,901,059 |
|
Purchase of treasury stock | | (1,540,093 | ) |
| | |
Shares issued towardsunder equity-based compensation plans, net of equity awards surrendered for option price and taxes | | 219,374128,975 |
|
Shares outstanding as of December 31, 2017July 2, 2023 | | 42,126,81741,030,034 |
|
Treasury Stock
Accelerated Share Repurchase
During the secondfirst quarter of fiscal 2018,ended July 2, 2023, the Company entered into an accelerated share repurchase agreement (“ASR”) with a major financial institution to repurchase up to $100,000 of its common stock. The Company prepaid $100,000did not purchase any shares and received an initial delivery of 1,278,976 shares with a fair market value of approximately $80,000. The ASR is accounted for as a treasury stock repurchase, reducing the weighted average number of basic and diluted shares outstanding by the 1,278,976 shares initially received, and as a forward contract indexed to the Company's own common shares to reflect the future settlement provisions. Because the maximum repurchase will be $100,000, as of December 31, 2017, $20,000 representing the difference between the fair value of shares delivered and the maximum notional amount of $100,000, is accounted for as an equity instrument and is included in additional paid-in capital. The ASR is not accounted for as a derivative instrument.
No shares were received pursuant to the ASR during the current quarter.
On January 9, 2018, the ASR was settled, and the Company received an additional 216,738 shares. See Note 15 - Subsequent Events, for more information.
Treasury Stock
During the nine months ended December 31, 2017, the Company also acquired 261,117purchased 358,365 shares for $21,191 through open market purchases.
$22,907 the first quarter ended July 3, 2022. At December 31, 2017July 2, 2023 and March 31, 2017,2023, the Company held 12,463,36715,099,676 and 10,923,27415,103,554 shares as treasury stock, respectively. During the current quarterended July 2, 2023, the Company also issued 3,878
shares out of its treasury stock, valued at $62.55 per share, on a LIFO basis, to participants under the Company's Employee Stock Purchase Plan.
Accumulated Other Comprehensive Income (“AOCI ”)
The components of AOCI, net of tax, as of December 31, 2017July 2, 2023 and March 31, 2017,2023, are as follows:
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| | | | | | | | | | | | | | | | |
| | March 31, 2017 | | Before Reclassifications | | Amounts Reclassified from AOCI | | December 31, 2017 |
Pension funded status adjustment | | $ | (25,555 | ) | | $ | — |
| | $ | 996 |
| | $ | (24,559 | ) |
Net unrealized gain (loss) on derivative instruments | | 1,975 |
| | (309 | ) | | 338 |
| | 2,004 |
|
Foreign currency translation adjustment | | (129,244 | ) | | 86,782 |
| | — |
| | (42,462 | ) |
Accumulated other comprehensive (loss) income | | $ | (152,824 | ) | | $ | 86,473 |
| | $ | 1,334 |
| | $ | (65,017 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | Before Reclassifications | | Amounts Reclassified from AOCI | | July 2, 2023 |
Pension funded status adjustment | | $ | (4,423) | | | $ | — | | | $ | 20 | | | $ | (4,403) | |
Net unrealized gain (loss) on derivative instruments | | 1,411 | | | 4,771 | | | (2,985) | | | 3,197 | |
Foreign currency translation adjustment (1) | | (180,462) | | | 2,192 | | | — | | | (178,270) | |
Accumulated other comprehensive (loss) income | | $ | (183,474) | | | $ | 6,963 | | | $ | (2,965) | | | $ | (179,476) | |
The following table presents reclassifications from AOCI during(1)Foreign currency translation adjustment for the thirdcurrent quarter ended December 31, 2017:July 2, 2023 includes a $2,224 gain (net of taxes of $678) related to the Company's $150,000 cross-currency fixed interest rate swap contract.
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| | | | | | |
Components of AOCI | | Amounts Reclassified from AOCI | | Location of (Gain) Loss Recognized on Income Statement |
Derivatives in cash flow hedging relationships: | | | | |
Net gain on cash flow hedging derivative instruments | | $ | (455 | ) | | Cost of goods sold |
Tax expense | | 168 |
| | |
Net gain on derivative instruments, net of tax | | $ | (287 | ) | | |
| | | | |
Defined benefit pension costs: | | | | |
Prior service costs and deferrals | | $ | 434 |
| | Net periodic benefit cost, included in cost of goods sold and operating expenses - See Note 10 |
Tax benefit | | (103 | ) | | |
Net periodic benefit cost, net of tax | | $ | 331 |
| | |
Table of Contents
The following table presents reclassifications from AOCI during the thirdfirst quarter ended January 1, 2017:
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| | | | | | |
Components of AOCI | | Amounts Reclassified from AOCI | | Location of (Gain) Loss Recognized on Income Statement |
Derivatives in cash flow hedging relationships: | | | | |
Net gain on cash flow hedging derivative instruments | | $ | (1,431 | ) | | Cost of goods sold |
Tax expense | | 528 |
| | |
Net gain on derivative instruments, net of tax | | $ | (903 | ) | | |
| | | | |
Defined benefit pension costs: | | | | |
Prior service costs and deferrals | | $ | 314 |
| | Net periodic benefit cost, included in cost of goods sold and operating expenses - See Note 10 |
Tax benefit | | (116 | ) | | |
Net periodic benefit cost, net of tax | | $ | 198 |
| | |
July 2, 2023:
The following table presents reclassifications from AOCI during the nine months ended December 31, 2017:
| | | | | | | | | | | | | | |
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 | | $ | (3,896) | | | Cost of goods sold |
Tax expense | | 911 | | | |
Net unrealized loss on derivative instruments, net of tax | | $ | (2,985) | | | |
| | | | |
Derivatives in net investment hedging relationships: | | | | |
Net unrealized gain on derivative instruments | | $ | (112) | | | Interest expense |
Tax expense | | 26 | | | |
Net unrealized gain on derivative instruments, net of tax | | $ | (86) | | | |
| | | | |
Defined benefit pension costs: | | | | |
Prior service costs and deferrals | | $ | 29 | | | Net periodic benefit cost, included in other (income) expense, net - See Note 12 |
Tax benefit | | (9) | | | |
Net periodic benefit cost, net of tax | | $ | 20 | | | |
|
| | | | | | |
Components of AOCI | | Amounts Reclassified from AOCI | | Location of (Gain) Loss Recognized on Income Statement |
Derivatives in cash flow hedging relationships: | | | | |
Net loss on cash flow hedging derivative instruments | | $ | 537 |
| | Cost of goods sold |
Tax benefit | | (199 | ) | | |
Net loss on derivative instruments, net of tax | | $ | 338 |
| | |
| | | | |
Defined benefit pension costs: | | | | |
Prior service costs and deferrals | | $ | 1,304 |
| | Net periodic benefit cost, included in cost of goods sold and operating expenses - See Note 10 |
Tax benefit | | (308 | ) | | |
Net periodic benefit cost, net of tax | | $ | 996 |
| | |
The following table presents reclassifications from AOCI during the nine monthsfirst quarter ended January 1, 2017:July 3, 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 | | $ | (1,141) | | | Cost of goods sold |
Tax expense | | 267 | | | |
Net unrealized gain on derivative instruments, net of tax | | $ | (874) | | | |
| | | | |
Derivatives in net investment hedging relationships: | | | | |
Net unrealized gain on derivative instruments | | $ | (1,258) | | | Interest expense |
Tax expense | | 294 | | | |
Net unrealized gain on derivative instruments, net of tax | | $ | (964) | | | |
| | | | |
Defined benefit pension costs: | | | | |
Prior service costs and deferrals | | $ | 123 | | | Net periodic benefit cost, included in other (income) expense, net - See Note 12 |
Tax benefit | | (34) | | | |
Net periodic benefit cost, net of tax | | $ | 89 | | | |
|
| | | | | | |
Components of AOCI | | Amounts Reclassified from AOCI | | Location of (Gain) Loss Recognized on Income Statement |
Derivatives in cash flow hedging relationships: | | | | |
Net gain on cash flow hedging derivative instruments | | $ | (2,481 | ) | | Cost of goods sold |
Tax expense | | 915 |
| | |
Net gain on derivative instruments, net of tax | | $ | (1,566 | ) | | |
| | | | |
Defined benefit pension costs: | | | | |
Prior service costs and deferrals | | $ | 1,096 |
| | Net periodic benefit cost, included in cost of goods sold and operating expenses - See Note 10 |
Tax benefit | | (349 | ) | | |
Net periodic benefit cost, net of tax | | $ | 747 |
| | |
The following demonstrates the change in equity attributable to EnerSys stockholders and nonredeemable noncontrolling interests during the nine monthsfirst quarter and current quarter ended July 2, 2023:December 31, 2017: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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, 2023 | | $ | — | | | $ | 560 | | | $ | 596,464 | | | $ | (740,956) | | | $ | 1,930,148 | | | $ | (183,474) | | | $ | (2,463) | | | $ | 1,600,279 | | | $ | 3,602 | | | $ | 1,603,881 | |
Stock-based compensation | | — | | | — | | | 7,933 | | | — | | | — | | | — | | | — | | | 7,933 | | | — | | | 7,933 | |
Exercise of stock options | | — | | | 5 | | | 7,649 | | | — | | | — | | | — | | | — | | | 7,654 | | | — | | | 7,654 | |
Shares issued under equity awards (taxes paid related to net share settlement of equity awards), net | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Purchase of common stock | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Other | | — | | | — | | | 65 | | | 214 | | | — | | | — | | | — | | | 279 | | | — | | | 279 | |
Net earnings | | — | | | — | | | — | | | — | | | 66,797 | | | — | | | — | | | 66,797 | | | — | | | 66,797 | |
Dividends ($0.175 per common share) | | — | | | — | | | 184 | | | — | | | (7,357) | | | — | | | — | | | (7,173) | | | — | | | (7,173) | |
| | | | | | | | | | | | | | | | | | | | |
Other comprehensive income: | | | | | | | | | | | | | | | | | | | | |
Pension funded status adjustment (net of tax benefit of $9) | | — | | | — | | | — | | | — | | | — | | | 20 | | | — | | | 20 | | | — | | | 20 | |
Net unrealized gain (loss) on derivative instruments (net of tax expense of $544) | | — | | | — | | | — | | | — | | | — | | | 1,786 | | | — | | | 1,786 | | | — | | | 1,786 | |
Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | — | | | 2,192 | | | — | | | 2,192 | | | (190) | | | 2,002 | |
Balance at July 2, 2023 | | $ | — | | | $ | 565 | | | $ | 612,295 | | | $ | (740,742) | | | $ | 1,989,588 | | | $ | (179,476) | | | $ | (2,463) | | | $ | 1,679,767 | | | $ | 3,412 | | | $ | 1,683,179 | |
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| | Equity Attributable to EnerSys Stockholders | | Nonredeemable Noncontrolling Interests | | Total Equity |
Balance as of March 31, 2017 | | $ | 1,103,456 |
| | $ | 4,913 |
| | $ | 1,108,369 |
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Total comprehensive income: | | | | | | |
Net earnings | | 65,576 |
| | 118 |
| | 65,694 |
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Net unrealized gain on derivative instruments, net of tax | | 29 |
| | — |
| | 29 |
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Pension funded status adjustment, net of tax | | 996 |
| | — |
| | 996 |
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Foreign currency translation adjustment | | 86,782 |
| | 119 |
| | 86,901 |
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Total other comprehensive gain, net of tax | | 87,807 |
| | 119 |
| | 87,926 |
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Total comprehensive income | | 153,383 |
| | 237 |
| | 153,620 |
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Other changes in equity: | | | | | | |
Purchase of treasury stock including ASR | | (121,191 | ) | | — |
| | (121,191 | ) |
Cash dividends - common stock ($0.525 per share) | | (22,339 | ) | | — |
| | (22,339 | ) |
Other, including activity related to equity awards | | 7,515 |
| | — |
| | 7,515 |
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Balance as of December 31, 2017 | | $ | 1,120,824 |
| | $ | 5,150 |
| | $ | 1,125,974 |
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The following demonstrates the change in equity attributable to EnerSys stockholders and nonredeemable noncontrolling interests during the first quarter and current quarter ended July 3, 2022:
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(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, 2022 | | $ | — | | | $ | 557 | | | $ | 571,464 | | | $ | (719,119) | | | $ | 1,783,586 | | | $ | (143,495) | | | $ | (3,620) | | | $ | 1,489,373 | | | $ | 3,902 | | | $ | 1,493,275 | |
Stock-based compensation | | — | | | — | | | 5,330 | | | — | | | — | | | — | | | — | | | 5,330 | | | — | | | 5,330 | |
Exercise of stock options | | — | | | 1 | | | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | | 1 | |
Shares issued under equity awards (taxes paid related to net share settlement of equity awards), net | | — | | | — | | | (633) | | | — | | | — | | | — | | | — | | | (633) | | | — | | | (633) | |
Purchase of common stock | | — | | | — | | | — | | | (22,907) | | | — | | | — | | | — | | | (22,907) | | | — | | | (22,907) | |
Other | | — | | | — | | | (41) | | | 240 | | | — | | | — | | | — | | | 199 | | | — | | | 199 | |
Net earnings | | — | | | — | | | — | | | — | | | 30,978 | | | — | | | — | | | 30,978 | | | — | | | 30,978 | |
Dividends ($0.175 per common share) | | — | | | — | | | 174 | | | — | | | (7,282) | | | — | | | — | | | (7,108) | | | — | | | (7,108) | |
Dissolution of joint venture | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Other comprehensive income: | | | | | | | | | | | | | | | | | | | | |
Pension funded status adjustment (net of tax benefit of $34) | | — | | | — | | | — | | | — | | | — | | | 89 | | | — | | | 89 | | | — | | | 89 | |
Net unrealized gain (loss) on derivative instruments (net of tax benefit of $2,514) | | — | | | — | | | — | | | — | | | — | | | (8,234) | | | — | | | (8,234) | | | — | | | (8,234) | |
Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | — | | | (52,010) | | | — | | | (52,010) | | | (210) | | | (52,220) | |
Balance at July 3, 2022 | | $ | — | | | $ | 558 | | | $ | 576,294 | | | $ | (741,786) | | | $ | 1,807,282 | | | $ | (203,650) | | | $ | (3,620) | | | $ | 1,435,078 | | | $ | 3,692 | | | $ | 1,438,770 | |
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13.
15. 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.
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| | Quarter ended | | |
| | July 2, 2023 | | July 3, 2022 | | | | |
Net earnings attributable to EnerSys stockholders | | $ | 66,797 | | | $ | 30,978 | | | | | |
Weighted-average number of common shares outstanding: | | | | | | | | |
Basic | | 40,937,334 | | | 40,786,336 | | | | | |
Dilutive effect of: | | | | | | | | |
Common shares from exercise and lapse of equity awards, net of shares assumed reacquired | | 760,990 | | | 566,310 | | | | | |
Diluted weighted-average number of common shares outstanding | | 41,698,324 | | | 41,352,646 | | | | | |
Basic earnings per common share attributable to EnerSys stockholders | | $ | 1.63 | | | $ | 0.76 | | | | | |
Diluted earnings per common share attributable to EnerSys stockholders | | $ | 1.60 | | | $ | 0.75 | | | | | |
Anti-dilutive equity awards not included in diluted weighted-average common shares | | 432,487 | | | 1,002,352 | | | | | |
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| | Quarter ended | | Nine months ended |
| | December 31, 2017 | | January 1, 2017 | | December 31, 2017 | | January 1, 2017 |
Net (loss) earnings attributable to EnerSys stockholders | | $ | (25,847 | ) | | $ | 36,235 |
| | $ | 65,576 |
| | $ | 126,444 |
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Weighted-average number of common shares outstanding: | | | | | | | | |
Basic | | 42,125,745 |
| | 43,429,525 |
| | 42,837,986 |
| | 43,375,474 |
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Dilutive effect of: | | | | | | | | |
Common shares from exercise and lapse of equity awards, net of shares assumed reacquired | | — |
| | 620,149 |
| | 507,940 |
| | 567,536 |
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Diluted weighted-average number of common shares outstanding | | 42,125,745 |
| | 44,049,674 |
| | 43,345,926 |
| | 43,943,010 |
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Basic (loss) earnings per common share attributable to EnerSys stockholders | | $ | (0.61 | ) | | $ | 0.83 |
| | $ | 1.53 |
| | $ | 2.92 |
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Diluted (loss) earnings per common share attributable to EnerSys stockholders | | $ | (0.61 | ) | | $ | 0.82 |
| | $ | 1.51 |
| | $ | 2.88 |
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Anti-dilutive equity awards not included in diluted weighted-average common shares | | 279,066 |
| | 62,470 |
| | 264,517 |
| | 232,542 |
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14.
16. Business Segments
Effective April 1, 2023, the Company created a new line of business and operating segment named New Ventures in addition to the existing lines of businesses: Energy Systems, Motive Power, and Specialty. The Company has three reportable business segments based on geographic regions, defined as follows:
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• | Americas, which includes North and South America, with segment headquarters in Reading, Pennsylvania, USA;
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• | EMEA, which includes Europe, the Middle East and Africa, with segment headquarters in Zug, Switzerland; and
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• | Asia, which includes Asia, Australia and Oceania, with segment headquarters in Singapore.
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results of New Ventures include start-up operating expenses captured within the "Corporate and other" category of operating earnings. New Ventures provides energy storage and management systems for demand charge reduction, utility back-up power, and dynamic fast charging for electric vehicles.
Summarized financial information related to the Company's reportable segments for the thirdfirst quarter ended July 2, 2023 and nine months ended December 31, 2017 and January 1, 2017July 3, 2022, is shown below:
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| | Quarter ended | | |
| | July 2, 2023 | | July 3, 2022 | | | | |
Net sales by segment to unaffiliated customers (1) | | | | | | | | |
Energy Systems | | $ | 424,548 | | | $ | 408,579 | | | | | |
Motive Power | | 350,781 | | | 367,851 | | | | | |
Specialty | | 133,240 | | | 122,541 | | | | | |
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Total net sales | | $ | 908,569 | | | $ | 898,971 | | | | | |
Operating earnings by segment | | | | | | | | |
Energy Systems | | $ | 29,649 | | | $ | 15,014 | | | | | |
Motive Power | | 50,368 | | | 42,406 | | | | | |
Specialty | | 9,817 | | | 9,231 | | | | | |
Corporate and other (3) | | 17,403 | | | — | | | | | |
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Inventory adjustment relating to exit activities - Specialty | | (3,098) | | | — | | | | | |
Restructuring and other exit charges - Energy Systems | | (488) | | | (162) | | | | | |
Restructuring and other exit charges - Motive Power | | (1,559) | | | (8,166) | | | | | |
Restructuring and other exit charges - Specialty | | (4,262) | | | — | | | | | |
Amortization - Energy Systems | | (6,217) | | | (7,330) | | | | | |
Amortization - Motive | | (111) | | | (110) | | | | | |
Amortization - Specialty | | (702) | | | (735) | | | | | |
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Other - Energy Systems | | (749) | | | (10) | | | | | |
Other - Motive | | (468) | | | (9) | | | | | |
Other - Specialty | | $ | (138) | | | $ | — | | | | | |
Total operating earnings (2) | | $ | 89,445 | | | $ | 50,129 | | | | | |
(1) Reportable segments do not record inter-segment revenues and accordingly there are none to report. |
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| | Quarter ended | | Nine months ended |
| | December 31, 2017 | | January 1, 2017 | | December 31, 2017 | | January 1, 2017 |
Net sales by segment to unaffiliated customers | | | | | | | | |
Americas | | $ | 353,237 |
| | $ | 313,972 |
| | $ | 1,049,344 |
| | $ | 968,516 |
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EMEA | | 224,931 |
| | 186,069 |
| | 621,864 |
| | 563,765 |
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Asia | | 80,767 |
| | 63,656 |
| | 227,641 |
| | 208,067 |
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Total net sales | | $ | 658,935 |
| | $ | 563,697 |
| | $ | 1,898,849 |
| | $ | 1,740,348 |
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Net sales by product line | | | | | | | | |
Reserve power | | $ | 326,989 |
| | $ | 271,291 |
| | $ | 924,404 |
| | $ | 844,781 |
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Motive power | | 331,946 |
| | 292,406 |
| | 974,445 |
| | 895,567 |
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Total net sales | | $ | 658,935 |
| | $ | 563,697 |
| | $ | 1,898,849 |
| | $ | 1,740,348 |
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Intersegment sales | | | | | | | | |
Americas | | $ | 7,144 |
| | $ | 6,319 |
| | $ | 23,360 |
| | $ | 19,304 |
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EMEA | | 29,989 |
| | 22,086 |
| | 97,369 |
| | 66,186 |
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Asia | | 6,213 |
| | 6,285 |
| | 16,524 |
| | 18,070 |
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Total intersegment sales (1) | | $ | 43,346 |
| | $ | 34,690 |
| | $ | 137,253 |
| | $ | 103,560 |
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Operating earnings by segment | | | | | | | | |
Americas | | $ | 43,137 |
| | $ | 45,949 |
| | $ | 140,827 |
| | $ | 139,149 |
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EMEA | | 23,794 |
| | 20,435 |
| | 54,888 |
| | 57,268 |
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Asia | | 3,318 |
| | 3,984 |
| | 10,744 |
| | 11,741 |
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Restructuring charges - Americas | | (961 | ) | | — |
| | (1,246 | ) | | (892 | ) |
Inventory adjustment relating to exit activities - EMEA | | — |
| | 502 |
| | — |
| | (2,157 | ) |
Restructuring charges - EMEA | | (848 | ) | | 1,153 |
| | (3,172 | ) | | (3,663 | ) |
Restructuring charges - Asia | | — |
| | — |
| | — |
| | (482 | ) |
Legal proceedings charge - EMEA | | — |
| | (17,000 | ) | | — |
| | (17,000 | ) |
Total operating earnings (2) | | $ | 68,440 |
| | $ | 55,023 |
| | $ | 202,041 |
| | $ | 183,964 |
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(1) Intersegment sales are presented on a cost-plus basis, which takes into consideration the effect of transfer prices between legal entities.
(2)(2) The Company does not allocate interest expense or other (income) expense, net, to the reportable segments.
(3) Corporate and other includes amounts managed on a company-wide basis and not directly allocated to any reportable segments, primarily relating to IRA production tax credits. Also, included are start up costs for exploration of a new lithium plant as well as start-up operating expenses from the New Ventures operating segment.
15.17. Subsequent Events
On JanuaryAugust 9, 2018, the ASR was settled, and the Company received an additional 216,738 shares. The Company repurchased a total of 1,495,714 shares under the ASR for a total cash investment of $100,000 at an average price of $66.86.
On February 7, 2018,2023, the Board of Directors approved a quarterly cash dividend of $0.175$0.225 per share of common stock to be paid on
March 30, 2018, September 29, 2023 to stockholders of record as of March 16, 2018.September 15, 2023.
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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’ filings with the Securities and Exchange Commission (“SEC”) and its reports to stockholders. Generally, the inclusion of the words “anticipate,” “believe,” “expect,” “future,” “intend,” “estimate,” “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 the Company’s 2017 Annual Report on Form 10-K (the "2017for the fiscal year ended March 31, 2023 (our “2023 Annual Report"Report”) 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 Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q.
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, including global supply chain disruptions;
•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 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.
In the following discussion and analysis
Table of results of operations and financial condition, certain financial measures may be considered “non-GAAP financial measures” under Securities and Exchange Commission rules. These rules require supplemental explanation and reconciliation, which is provided in this Quarterly Report on Form 10-Q. EnerSys’ management uses the non-GAAP measures “primary working capital” and “primary working capital percentage” in its evaluation of business segment cash flow and financial position performance. These disclosures have limitations as an analytical tool, should not be viewed as a substitute for cash flow 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. Management believes that this non-GAAP supplemental information is helpful in understanding the Company’s ongoing operating results.Contents
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 alsodesign, manufacture, market and distribute products such asenergy systems solutions and motive power batteries, specialty batteries, battery chargers, power equipment, battery accessories and outdoor cabinet enclosures. Additionally, weequipment enclosure solutions to customers worldwide. Energy Systems, which combine power conversion, power distribution, energy storage, and enclosures, are used in the telecommunication, broadband, data center and utility industries, uninterruptible power supplies, and numerous applications requiring stored energy solutions. Motive Power batteries and chargers are utilized in electric forklift trucks, automated guided vehicles (AGVs), and other industrial electric powered vehicles. Specialty batteries are used in aerospace and defense applications, large over the road trucks, premium automotive and medical products. New Ventures provides energy storage and management systems for demand charge reduction, utility back-up power, and dynamic fast charging for electric vehicles. 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 of our manufacturing capacity is located outside the United States, and approximately 50% of our net sales were generated outside the United States.
The Company has three reportable businessCompany's four operating segments, based on geographic regions, defined as follows:
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• | Americas, which includes North and South America, with our segment headquarters in Reading, Pennsylvania, USA;
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• | EMEA, which includes Europe, the Middle East and Africa, with our segment headquarters in Zug, Switzerland; and
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• | Asia, which includes Asia, Australia and Oceania, with our segment headquarters in Singapore.
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We have two primary product lines: reserve power and motive power products. Net sales classifications by product linelines of business, are as follows:
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• | Reserve power products•Energy Systems - uninterruptible power systems, or “UPS” applications for computer and computer-controlled systems, 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, data center, and 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, AGVs, as well as mining equipment, diesel locomotive starting and other rail equipment. •Specialty - premium starting, lighting and ignition applications in transportation, energy solutions for satellites, military aircraft, submarines, ships and other tactical vehicles as well as medical devices and equipment. •New Ventures - energy storage and management systems for demand charge reduction, utility back-up power, and dynamic fast charging for electric vehicles.
are used for backup power for the continuous operation of critical applications in telecommunications systems, uninterruptible power systems, or “UPS” applications for computer and computer-controlled systems, and other specialty power applications, including medical and 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.
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• | 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.
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Economic Climate
Recent indicatorsThe economic climate in North America, China and EMEA slowed in 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. We expect interest rates to continue to suggest a mixed trendincrease in economic activity among the different geographical regions. North AmericaU.S. and EMEAthe Euro zone. China’s slowing economy is facing further headwinds caused by continued high COVID-19 infection rates.
EnerSys is experiencing supply chain disruptions and cost spikes in certain materials such as plastic resins and electronic components along with transportation and related logistics challenges and broad-based cost increases. In addition, certain locations are experiencing moderate economic growth. Our Asia region continues to grow faster than any other region in which we do business.difficulty meeting hiring and labor retention goals. Generally, our mitigation efforts and ongoing lean initiatives, have tempered the impact of the pandemic-related challenges. The overall market demand remains robust.
Volatility of Commodities and Foreign Currencies
Our most significant commodity and foreign currency exposures are related to lead and the Euro, respectively. Historically, 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. Over the pastbeginning of fiscal year on a consolidated basis,2023, we have experienced rising commoditya range in lead prices from just above $1.10 per pound to approximately $0.85 per pound. We are experiencing elevated costs in some of our other raw materials such as plastic resins, steel, copper, acid, separator paper and electronics and elevated freight and increased energy costs. However, these increased costs have moderated during fiscal year 2024.
Customer Pricing
Our selling prices fluctuated during the last several years to offset the volatile cost of commodities. Approximately 30%25% 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 2023 and 2024, customer pricing has increased due to certain commodity prices and other costs having increased throughout the nine months ofyear.
Based on current commodity markets, it is difficult to predict with certainty whether commodity prices will be higher or lower in fiscal 2018, we increased2024 versus fiscal 2023. However, given the lag related to increasing our selling prices for inflationary cost increase, on average our selling prices should be higher in responsefiscal 2024 versus fiscal 2023. As we concentrate more on energy systems and non-lead chemistries, the emphasis on lead is expected to increased commodity costs.continue to decline.
Primary Operating Capital
As part of managing the 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 $1,032.6 million (yielding a primary operating capital percentage of 28.4%) at July 2, 2023, $1,057.0 million (yielding a primary operating capital percentage of 26.7%) at March 31, 2023 and $1,131.5 million at July 3, 2022 (yielding a primary operating capital percentage of 31.5%). The primary operating capital percentage of 28.4% at July 2, 2023 worsened by 170 basis points compared to March 31, 2023 and improved 310 basis points compared to July 3, 2022. The increase in primary operating capital percentage at July 2, 2023 compared to March 31, 2023 was primarily due to a reduction in sales compared to the fourth fiscal quarter of the prior fiscal year. The decrease in primary operating capital percentage at July 2, 2023 compared to July 3, 2022 was primarily from the sale of $150.0 million in accounts receivables through a Receivables Purchase Agreement (RPA) entered into during the third quarter of fiscal 2023.
Primary operating capital and primary operating capital percentages at July 2, 2023, March 31, 2023 and July 3, 2022 are computed as follows:
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($ in Millions) | | July 2, 2023 | | March 31, 2023 | | July 3, 2022 |
Accounts receivable, net | | $ | 566.5 | | | $ | 637.8 | | | $ | 697.1 | |
Inventory, net | | 809.4 | | | 797.8 | | | 777.7 | |
Accounts payable | | (343.3) | | | (378.6) | | | (343.3) | |
Total primary operating capital | | $ | 1,032.6 | | | $ | 1,057.0 | | | $ | 1,131.5 | |
Trailing 3 months net sales | | $ | 908.6 | | | $ | 989.9 | | | $ | 899.0 | |
Trailing 3 months net sales annualized | | $ | 3,634.4 | | | $ | 3,959.6 | | | $ | 3,595.9 | |
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Primary operating capital as a % of annualized net sales | | 28.4 | % | | 26.7 | % | | 31.5 | % |
Liquidity and Capital Resources
We believe that our financial position is strong, and we have substantial liquidity to cover short-term liquidity requirements and anticipated growth in the foreseeable future, with $571$258 million of available cash and cash equivalents and available and undrawn committed credit lines of approximately $504$733 million at December 31, 2017July 2, 2023, availability subject to cover short-term liquidity requirements and anticipated growth in the foreseeable future.credit agreement financial covenants.
In the second quarter of fiscal 2018, we entered into a new credit facility (“2017 Credit Facility”) that comprises a $600 million senior secured revolving credit facility (“2017 Revolver”) and a $150 million senior secured term loan (“2017 Term Loan”) with a maturity date of September 30, 2022. We repaid the existing facility (“2011 Credit Facility”), which comprised a $500 million senior secured revolving credit facility (“2011 Revolver”) and a $150 million senior secured incremental term loan (the “2011 Term Loan”) with the proceeds of the new facility. We believe that the 2017 Credit Facility provides us with sufficient liquidity to fund acquisitions and stock repurchase programs.
In the nine months of fiscal 2018, we repurchased $121 million of treasury stock through an accelerated share repurchase (“ASR”) agreement with a major financial institution and through open market purchases. Share repurchases and a decline in our share price helped offset the dilutive impact of stock awards in the nine months of fiscal 2018.
A substantial majority of the Company’s cash and investments are held by foreign subsidiaries and are considered to be indefinitely reinvested and 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.
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 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 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.
We believe that our strong capital structure and liquidity affords us access to capital for future acquisition andacquisitions, stock repurchase opportunities and continued dividend payments.
Results of Operations
Net Sales
Segment sales
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| | Quarter ended December 31, 2017 | | Quarter ended January 1, 2017 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Americas | | $ | 353.2 |
| | 53.6 | % | | $ | 314.0 |
| | 55.7 | % | | $ | 39.2 |
| | 12.5 | % |
EMEA | | 224.9 |
| | 34.1 |
| | 186.1 |
| | 33.0 |
| | 38.8 |
| | 20.9 |
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Asia | | 80.8 |
| | 12.3 |
| | 63.6 |
| | 11.3 |
| | 17.2 |
| | 26.9 |
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Total net sales | | $ | 658.9 |
| | 100.0 | % | | $ | 563.7 |
| | 100.0 | % | | $ | 95.2 |
| | 16.9 | % |
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| | Nine months ended December 31, 2017 | | Nine months ended January 1, 2017 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Americas | | $ | 1,049.3 |
| | 55.3 | % | | $ | 968.5 |
| | 55.6 | % | | $ | 80.8 |
| | 8.3 | % |
EMEA | | 621.9 |
| | 32.7 |
| | 563.8 |
| | 32.4 |
| | 58.1 |
| | 10.3 |
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Asia | | 227.6 |
| | 12.0 |
| | 208.0 |
| | 12.0 |
| | 19.6 |
| | 9.4 |
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Total net sales | | $ | 1,898.8 |
| | 100.0 | % | | $ | 1,740.3 |
| | 100.0 | % | | $ | 158.5 |
| | 9.1 | % |
Net sales increased $95.2$9.6 million or 16.9%1.1% in the thirdfirst quarter of fiscal 20182024 as compared to the thirdfirst quarter of fiscal 2017.2023. This increase was the result of an 8%9% increase in pricing offset by an 8% decrease in organic volume,growth.
Segment sales
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| | Quarter ended July 2, 2023 | | Quarter ended July 3, 2022 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Energy Systems | | $ | 424.6 | | | 46.7 | % | | $ | 408.6 | | | 45.5 | % | | $ | 16.0 | | | 3.9 | % |
Motive Power | | 350.8 | | | 38.6 | | | 367.9 | | | 40.9 | | | (17.1) | | | (4.6) | |
Specialty | | 133.2 | | | 14.7 | | | 122.5 | | | 13.6 | | | 10.7 | | | 8.7 | |
Total net sales | | $ | 908.6 | | | 100.0 | % | | $ | 899.0 | | | 100.0 | % | | $ | 9.6 | | | 1.1 | % |
Net sales of our Energy Systems segment in the first quarter of fiscal 2024 increased $16.0 million or 3.9% compared to the first quarter of fiscal 2023. This increase was due to a 5%12% increase in pricing/mix partially offset by a 7% decrease in organic growth and a 1% decrease in foreign currency translation impact and a 4%impact. This increase in pricing.sales was driven by improvement in pricing partially offset by soft volumes in Europe and Asia.
Net sales increased $158.5 million or 9.1%of our Motive Power segment in the nine months of fiscal 2018 from the comparable period in fiscal 2017. This increase was the result of a 4% increase in pricing, a 3% increase in organic volume and a 2% increase in foreign currency translation impact.
The Americas segment’s net sales increased $39.2 million or 12.5% in the thirdfirst quarter of fiscal 2018 as2024 decreased by $17.1 million or 4.6% compared to the thirdfirst quarter of fiscal 2017,2023. This decrease was primarily due to a 9%14% decrease in organic growth partially offset by an 8% increase in organic volume and a 3% increase in pricing. Net sales increased $80.8 million or 8.3% in the nine months of fiscal 2018, as compared to the nine months of fiscal 2017, primarily due to a 5% increase in organic volume and a 3% increase in pricing.
The EMEA segment’s net sales increased $38.8 million or 20.9% in the third quarter of fiscal 2018 as compared to the third quarter of fiscal 2017, primarily due to a 13% increase due to foreign currency translation impact, a 5% increase in pricing and a 3% increase in organic volume. Net sales increased $58.1 million or 10.3% in the nine months of fiscal 2018, as compared to the nine months of fiscal 2017, primarily due to a 5% increase each in pricing and foreign currency translation impact.
The Asia segment’s net sales increased $17.2 million or 26.9% in the third quarter of fiscal 2018 as compared to the third quarter of fiscal 2017, primarily due to a 17% increase in organic volume and a 5% increase each in pricing and foreign currency translation impact. Net sales increased $19.6 million or 9.4% in the nine months of fiscal 2018, as compared to the nine months of fiscal 2017, primarily due to a 4% increase each in pricing and organic volumepricing/mix and a 1% increase duefrom an acquisition. We continue to foreign currency translation impact.
Product linebenefit from improved pricing and favorable sales
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| | Quarter ended December 31, 2017 | | Quarter ended January 1, 2017 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Reserve power | | $ | 327.0 |
| | 49.6 | % | | $ | 271.3 |
| | 48.1 | % | | $ | 55.7 |
| | 20.5 | % |
Motive power | | 331.9 |
| | 50.4 |
| | 292.4 |
| | 51.9 |
| | 39.5 |
| | 13.5 |
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Total net sales | | $ | 658.9 |
| | 100.0 | % | | $ | 563.7 |
| | 100.0 | % | | $ | 95.2 |
| | 16.9 | % |
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| | Nine months ended December 31, 2017 | | Nine months ended January 1, 2017 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Reserve power | | $ | 924.4 |
| | 48.7 | % | | $ | 844.7 |
| | 48.5 | % | | $ | 79.7 |
| | 9.4 | % |
Motive power | | 974.4 |
| | 51.3 |
| | 895.6 |
| | 51.5 |
| | 78.8 |
| | 8.8 |
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Total net sales | | $ | 1,898.8 |
| | 100.0 | % | | $ | 1,740.3 |
| | 100.0 | % | | $ | 158.5 |
| | 9.1 | % |
mix, partially offset by a return to normal sales patterns to pre-COVID-19 levels.
Net sales of our reserve power productsSpecialty segment in the thirdfirst quarter of fiscal 20182024 increased $55.7by $10.7 million or 20.5%8.7% compared to the thirdfirst quarter of fiscal 2017.2023. The increase was primarily due to a 11%7% increase in organic volume and a 5% increase each in pricing and foreign currency translation impact. Net sales of our reserve power products in the nine months of fiscal 2018 increased $79.7 million or 9.4% compared to the nine months of fiscal 2017, primarily due to a 4% increase each in organic volume and pricingpricing/mix and a 1% increase due to foreign currency translation impact.
Net sales of our motive power products in the third quarter of fiscal 2018 increased by $39.5 million or 13.5% compared to the third quarter of fiscal 2017. The increase was primarily due to a 5% increase each inboth organic volume and foreign currency translation impact and a 4%translation. This increase in pricing. Netnet sales of our motive power products in the nine months of fiscal 2018 increased $78.8 million or 8.8% compared to the nine months of fiscal 2017. The increase was primarily due to a 4% increasedriven by improved pricing/mix and strong demand in pricing, a 3% increase due to organic volume and a 2% increase due to foreign currency translation impact.primarily the transportation sector, limited by TPPL capacity in our Missouri plants.
Gross Profit
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| | Quarter ended July 2, 2023 | | Quarter ended July 3, 2022 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Gross Profit | | $ | 240.3 | | | 26.4 | % | | $ | 185.5 | | | 20.6 | % | | $ | 54.8 | | | 29.5 | % |
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| | Quarter ended December 31, 2017 | | Quarter ended January 1, 2017 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Gross Profit | | $ | 166.9 |
| | 25.3 | % | | $ | 155.9 |
| | 27.7 | % | | $ | 11.0 |
| | 7.1 | % |
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| | Nine months ended December 31, 2017 | | Nine months ended January 1, 2017 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Gross Profit | | $ | 489.9 |
| | 25.8 | % | | $ | 483.5 |
| | 27.8 | % | | $ | 6.4 |
| | 1.3 | % |
Gross profit increased $11.0$54.8 million or 7.1%29.5% in the thirdfirst quarter and $6.4 million or 1.3% incompared to the nine monthscomparable period of fiscal 2018 compared to comparable prior year periods of fiscal 2017.2023. Gross profit, as a percentage of net sales, decreased 240 basis points and 200increased 580 basis points in the thirdfirst quarter and nine months of fiscal 2018 as compared to the thirdfirst quarter and nine months of fiscal 2017, respectively.2023. The decreaseincrease in the gross profit margin in both the thirdcurrent quarter reflects a strong performance in our price/mix, which significantly offset year on year cost increases. This step forward, combined IRA benefits and nine months is primarily due to an increaselower freight costs, more than offset higher inflationary pressures in commodity costs of approximately $34 millionraw materials, labor, supplies and $102 million, respectively, partially offset by an increase in organic volume and pricing.utilities.
Operating Items
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| | Quarter ended July 2, 2023 | | Quarter ended July 3, 2022 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Operating expenses | | $ | 144.6 | | | 15.9 | % | | $ | 127.1 | | | 14.1 | % | | $ | 17.5 | | | 13.8 | % |
Restructuring and other exit charges | | $ | 6.3 | | | 0.7 | % | | $ | 8.3 | | | 0.9 | % | | $ | (2.0) | | | (24.2) | % |
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| | Quarter ended December 31, 2017 | | Quarter ended January 1, 2017 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Operating expenses | | $ | 96.7 |
| | 14.7 | % | | $ | 85.0 |
| | 15.1 | % | | $ | 11.7 |
| | 13.8 | % |
Restructuring charges | | $ | 1.8 |
| | 0.2 | % | | $ | (1.2 | ) | | (0.2 | )% | | $ | 3.0 |
| | NM |
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Legal proceedings charge | | $ | — |
| | — | % | | $ | 17.0 |
| | 3.0 | % | | $ | (17.0 | ) | | NM |
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| | Nine months ended December 31, 2017 | | Nine months ended January 1, 2017 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Operating expenses | | $ | 283.5 |
| | 14.9 | % | | $ | 277.5 |
| | 15.9 | % | | $ | 6.0 |
| | 2.1 | % |
Restructuring charges | | $ | 4.4 |
| | 0.2 | % | | $ | 5.0 |
| | 0.3 | % | | $ | (0.6 | ) | | (12.3 | )% |
Legal proceedings charge | | $ | — |
| | — | % | | $ | 17.0 |
| | 1.0 | % | | $ | (17.0 | ) | | NM |
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NM = not meaningful
Operating expenses, for the third quarter of fiscal 2018, increased $11.7 million but decreased as a percentage of net sales, by 40increased 180 basis points. The impactpoints in the first quarter and of foreign currency translation resulted in an increase of $2.4 million. Excluding this impact of the foreign currency translation, the increase in dollars was primarily due to payroll related expenses and our investment relatingfiscal 2024, compared to the development of our digital core and new products, which were partially offset by our cost saving initiatives.
Operating expenses for the nine monthscomparable period of fiscal 2018 increased $6.0 million but decreased as a percentage of net sales by 100 basis points. The impact of foreign currency translation resulted in an increase of $2.8 million. Excluding this impact of the foreign currency translation, the increase in dollars was primarily due to the aforementioned investment in our digital core and new products, partially offset by cost saving initiatives.2023.
Selling expenses, our main component of operating expenses, were 51.9% and 52.4% of total operating expensesincreased $2.9 million or 5.2% in the thirdfirst quarter and nine months of fiscal 2018, respectively,2024 compared to 56.9% and 54.5% of total operating expenses in the thirdfirst quarter and nine months of fiscal 2017, respectively.2023, and increased 25 basis points as a percentage of net sales.
Restructuring and Other Exit Charges
Restructuring Programs
Included in our thirdfirst quarter of fiscal 20182024 operating results areof Energy Systems were restructuring charges of $1.0 million in the Americas and $0.8 million in EMEA. The charges in the Americas relate to improving efficiencies of our general operations, while charges in EMEA relate to restructuring programs to improve efficiencies in our motive power production, supply chain and general operations.$0.5 million.
Included in our thirdfirst quarter of fiscal 20172023 operating results isof Energy Systems were restructuring charges of $0.2 million.
Exit Charges
Fiscal 2023 Programs
Sylmar
In November 2022, the Company committed to a creditplan 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 $1.2 million relatingits lease on the property and to restructuring and other exitredirect production through consolidation into existing locations. The Company currently estimates total charges in EMEA consisting of cashthe exit to amount to $9.5 million. Cash charges of $0.5are estimated to total $5.7 million primarily relating to severance and a credit of $1.7other costs to leave the site. Non-cash charges are estimated to be $3.8 million relating to South Africa joint venture exit activities. In addition,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.
During the current quarter of fiscal 2024, the Company recorded cash charges of $4.0 million primarily related to severance costs, relocation expenses, and manufacturing variances and non-cash charges totaling $0.3 million. The Company also recorded a non-cash write off relating to inventories of $3.1 million, which was reported in cost of goods sold also includessold.
Ooltewah
On June 29, 2022, the Company committed to a $0.5plan 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 creditand 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 inventory adjustmentapproximately 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 the South Africa joint venture. Includedfixed asset write-offs. The Company also recorded a non-cash write-off relating to inventories of $1.6 million, which was reported in our nine months of fiscal 2017 operating results is a $5.0 million charge consisting of restructuring and other exit charges in EMEA of $3.7 million, restructuring charges of $0.9 million in the Americas and $0.4 million in Asia. Of the restructuring and exit charges in EMEA of $3.7 million, $2.5 million of restructuring charges related to European manufacturing operations and $1.2 million of exit charges related to our joint venture in South Africa. In addition, cost of goods sold also includes a $2.1 million inventory adjustment chargesold.
During the current quarter of fiscal 2024, the Company recorded cash charges relating to the South Africa joint venture.site clean up and decommissioning equipment of $0.9 million.
Fiscal 2017 - Legal Proceedings Charge2021 Programs
Hagen, Germany
In connection with previously disclosed matters involving European anticompetition authorities, includedfiscal 2021, we committed to a plan to close substantially all of our facility in Hagen, Germany, which produced flooded motive power batteries for electric 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 operating resultsmarket, 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 thirdforeseeable future.
We currently estimate that the total charges for these actions will amount to approximately $60.0 million of which cash charges for employee severance related payments, cleanup related to the facility, contractual releases and legal expenses were estimated to be $40.0 million and non-cash charges from inventory and equipment write-offs were estimated to be $20.0 million. The majority of these charges have been recorded as of October 2, 2022. These actions resulted in the reduction of approximately 200 employees.
During fiscal 2021, the Company recorded cash charges relating to severance of $23.3 million and non-cash charges of $7.9 million primarily relating to fixed asset write-offs.
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 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 the current quarter and nine months of fiscal 2017 were $17.02024, the Company recorded cash charges of $0.5 million relating primarily to site cleanup and $0.1 million of non-cash charges involving the German competition authority. In July 2017, we paid a fine of $14.8 million relating to conduct involving our motive power business. We are currently appealing the German competition authority’s fining decision related to our reserve power battery business. For more detailed information, see Note 7 to the Consolidated Condensed Financial Statements.accelerated depreciation of fixed assets.
Operating Earnings
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter ended July 2, 2023 | | Quarter ended July 3, 2022 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales (1) | | In Millions | | Percentage of Total Net Sales (1) | | In Millions | | % |
Energy Systems | | $ | 29.7 | | | 7.0 | % | | $ | 15.0 | | | 3.7 | % | | $ | 14.7 | | | 97.5 | % |
Motive Power | | 50.3 | | | 14.4 | | | 42.3 | | | 11.5 | | | 8.0 | | | 18.8 | |
Specialty | | 9.8 | | | 7.4 | | | 9.2 | | | 7.5 | | | 0.6 | | | 6.3 | |
Corporate and other (2) | | 17.4 | | | 1.9 | | | — | | | — | | | 17.4 | | | NM |
Subtotal | | 107.2 | | | 11.8 | | | 66.5 | | | 7.4 | | | 40.7 | | | 60.9 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Inventory adjustment relating to exit activities -Specialty | | (3.1) | | | (2.3) | | | — | | | — | | | (3.1) | | | NM |
Restructuring and other exit charges - Energy Systems | | (0.5) | | | (0.1) | | | (0.2) | | | — | | | (0.3) | | | NM |
Restructuring and other exit charges - Motive Power | | (1.5) | | | (0.4) | | | (8.1) | | | (2.2) | | | 6.6 | | | (80.9) | |
Restructuring and other exit charges - Specialty | | (4.3) | | | (3.2) | | | — | | | — | | | (4.3) | | | NM |
Amortization of intangible assets - Energy Systems | | (6.2) | | | (1.5) | | | (7.3) | | | (1.8) | | | 1.1 | | | (15.2) | |
Amortization of intangible assets - Motive Power | | (0.1) | | | — | | | (0.1) | | | — | | | — | | | 0.9 | |
Amortization of intangible assets - Specialty | | (0.7) | | | (0.5) | | | (0.7) | | | (0.6) | | | — | | | (4.5) | |
Other - Energy Systems | | (0.8) | | | (0.2) | | | — | | | — | | | (0.8) | | | NM |
Other - Motive Power | | (0.5) | | | (0.1) | | | — | | | — | | | (0.5) | | | NM |
Other - Specialty | | (0.1) | | | (0.1) | | | — | | | — | | | (0.1) | | | NM |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total operating earnings | | $ | 89.4 | | | 9.8 | % | | 50.1 | | | 5.6 | % | | $ | 39.3 | | | 78.4 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Quarter ended December 31, 2017 | | Quarter ended January 1, 2017 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales (1) | | In Millions | | Percentage of Total Net Sales (1) | | In Millions | | % |
Americas | | $ | 43.1 |
| | 12.2 | % | | $ | 46.0 |
| | 14.6 | % | | $ | (2.9 | ) | | (6.1 | )% |
EMEA | | 23.8 |
| | 10.6 |
| | 20.4 |
| | 11.0 |
| | 3.4 |
| | 16.4 |
|
Asia | | 3.3 |
| | 4.1 |
| | 4.0 |
| | 6.3 |
| | (0.7 | ) | | (16.7 | ) |
Subtotal | | 70.2 |
| | 10.7 |
| | 70.4 |
| | 12.5 |
| | (0.2 | ) | | (0.2 | ) |
Restructuring charges - Americas | | (1.0 | ) | | (0.3 | ) | | — |
|
| — |
| | (1.0 | ) | | NM |
|
Inventory adjustment relating to exit activities - EMEA | | — |
| | — |
| | 0.5 |
| | 0.3 |
| | (0.5 | ) | | NM |
|
Restructuring charges - EMEA | | (0.8 | ) | | (0.4 | ) | | 1.2 |
| | 0.6 |
| | (2.0 | ) | | NM |
|
Legal proceedings charge - EMEA | | — |
| | — |
| | (17.0 | ) | | (9.1 | ) | | 17.0 |
| | NM |
|
Total operating earnings | | $ | 68.4 |
| | 10.4 | % | | $ | 55.1 |
| | 9.8 | % | | $ | 13.3 |
| | 24.4 | % |
NM = not meaningful
(1(1) )The percentages shown for the segments are computed as a percentage of the applicable segment’s net sales.sales; Corporate and other is computed based on total consolidated net sales
NM =(2) Corporate and other includes amounts managed on a company-wide basis and not meaningful
|
| | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended December 31, 2017 | | Nine months ended January 1, 2017 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales (1) | | In Millions | | Percentage of Total Net Sales (1) | | In Millions | | % |
Americas | | $ | 140.8 |
| | 13.4 | % | | $ | 139.2 |
| | 14.4 | % | | $ | 1.6 |
| | 1.2 | % |
EMEA | | 54.9 |
| | 8.8 |
| | 57.1 |
| | 10.2 |
| | (2.2 | ) | | (4.2 | ) |
Asia | | 10.7 |
| | 4.7 |
| | 11.8 |
| | 5.6 |
| | (1.1 | ) | | (8.5 | ) |
Subtotal | | 206.4 |
| | 10.9 |
| | 208.1 |
| | 12.0 |
| | (1.7 | ) | | (0.8 | ) |
Restructuring charges - Americas | | (1.3 | ) | | (0.1 | ) | | (0.9 | ) | | (0.1 | ) | | (0.4 | ) | | 39.7 |
|
Inventory adjustment relating to exit activities - EMEA | | — |
| | — |
| | (2.1 | ) | | (0.4 | ) | | 2.1 |
| | NM |
|
Restructuring charges - EMEA | | (3.1 | ) | | (0.5 | ) | | (3.7 | ) | | (0.6 | ) | | 0.6 |
| | (13.4 | ) |
Restructuring charges - Asia | | — |
| | — |
| | (0.4 | ) | | (0.2 | ) | | 0.4 |
| | NM |
|
Legal proceedings charge - EMEA | | — |
| | — |
| | (17.0 | ) | | (3.0 | ) | | 17.0 |
| | NM |
|
Total operating earnings | | $ | 202.0 |
| | 10.7 | % | | $ | 184.0 |
| | 10.6 | % | | $ | 18.0 |
| | 9.8 | % |
directly allocated to any reportable segments, primarily relating to IRA production tax credits. Also, included are start up costs for exploration of a new lithium plant as well as start-up operating expenses from the New Ventures operating segment.
(1
) The percentages shown for the segments are computed as a percentage of the applicable segment’s net sales.
NM = not meaningful
Operating earnings increased $13.3$39.3 million or 24.4% and increased $18.0 million or 9.8%78.4% in the thirdfirst quarter and nine months of fiscal 2018,2024, respectively, compared to the thirdfirst quarter and nine months of fiscal 2017.2023. Operating earnings, as a percentage of net sales, increased 60420 basis points in the first quarter of fiscal 2024, respectively, compared to the first quarter of fiscal 2023.
The Energy Systems operating earnings, as a percentage of sales, increased 330 basis points in the first quarter of fiscal 2024, respectively, compared to the first quarter of fiscal 2023. This increase in operating earnings was primarily as a result significant pricing/mix gains and lower freight costs partially offset by lower volumes and higher inflationary costs.
The Motive Power operating earnings, as a percentage of sales, increased 290 basis points in the first quarter of fiscal 2024, respectively, compared to the first quarter of fiscal 2023. This increase was driven by significant pricing/mix gains partially offset by lower volumes and higher selling general and administrative costs.
The Specialty operating earnings, as a percentage of sales, decreased 10 basis points in the thirdfirst quarter and nine months of fiscal 2018,2024, respectively, compared to the third quarter and nine months of fiscal 2017. Excluding the impact of the $6.3 million write-off of previously capitalized costs relating to the ERP system implementation in our Americas region during the first quarter of fiscal 2017,2023. This increase in operating earnings infrom the current nine months decreased 30 basis points due to an increase in leadcomparable period was a result of improved price/mix and higher volumes more than offsetting inflationary cost partially offset by price recoveriespressures and cost saving initiatives.
operating expenses.
The Americas segment's operating earnings, excluding restructuring charges, decreased 240 basis points and 100 basis points, in the third quarter and nine months
Table of fiscal 2018, respectively, when compared to the third quarter and nine months of fiscal 2017, primarily due to higher commodity costs partially offset by price recoveries and cost saving initiatives. Excluding the impact of the $6.3 million write-off of previously capitalized costs relating to the ERP system implementation during the nine months of fiscal 2017, operating earnings in the nine months of fiscal 2018 decreased by 160 basis points compared to the prior year period.Contents
The EMEA segment's operating earnings, excluding restructuring charges and legal proceedings charge discussed above, decreased 40 and 140 basis points in the third quarter and nine months of fiscal 2018, respectively, compared to the third quarter and nine months of fiscal 2017, primarily due to an increase in lead cost, partially offset by price recoveries and cost saving initiatives.
Operating earnings decreased 220 basis points and 90 basis points in the Asia segment in the third quarter and nine months of fiscal 2018, respectively, compared to the third quarter and nine months of fiscal 2017 primarily due to higher commodity costs, partially offset by price recoveries and a slow down in telecom spending during the first half of fiscal 2018 in the People's Republic of China.
Interest Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter ended July 2, 2023 | | Quarter ended July 3, 2022 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Interest expense | | $ | 15.2 | | | 1.7 | % | | $ | 11.6 | | | 1.3 | % | | $ | 3.6 | | | 31.5 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Quarter ended December 31, 2017 | | Quarter ended January 1, 2017 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Interest expense | | $ | 6.5 |
| | 1.0 | % | | $ | 5.6 |
| | 1.0 | % | | $ | 0.9 |
| | 14.6 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended December 31, 2017 | | Nine months ended January 1, 2017 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Interest expense | | $ | 18.7 |
| | 1.0 | % | | $ | 16.8 |
| | 1.0 | % | | $ | 1.9 |
| | 11.2 | % |
Interest expense of $6.5$15.2 million in the thirdfirst quarter of fiscal 20182024 (net of interest income of $0.8$0.7 million) was $0.9$3.6 million higher than the interest expense of $5.6$11.6 million in the thirdfirst quarter of fiscal 20172023 (net of interest income of $0.5 million). Interest expense of $18.7 million in the nine months of fiscal 2018 (net of interest income of $2.2 million) was $1.9 million higher than the interest expense of $16.8 million in the nine months of fiscal 2017 (net of interest income of $1.3$0.4 million).
The increase in interest expense in both the thirdfirst quarter and nine months of fiscal 20182024 is primarily due to higher variable interest rates, partially offset lower average debt outstanding.borrowing levels. Our average debt outstanding was $727.1 million and $674.2$1,040.7 million in the thirdfirst quarter and nine months of fiscal 2018, respectively,2024, compared to $626.4 million and $629.2$1,311.4 million in the thirdfirst quarter and nine months of fiscal 2017, respectively. The increase in our average debt was primarily to fund treasury repurchase activity as discussed in Note 12 to the Consolidated Condensed Financial Statements.2023.
Included in interest expense are non-cash charges for deferred financing fees of $0.3 $0.4 million the first quarter of fiscal 2024 and $1.3$0.5 million in the thirdfirst quarter and nine months of fiscal 2018, respectively, and $0.3 million and $1.0 million, in the third quarter and nine months of fiscal 2017, respectively.2023.
Other (Income) Expense, Net
|
| | | | | | | | | | | | | | | | | | | | | |
| | Quarter ended December 31, 2017 | | Quarter ended January 1, 2017 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Other (income) expense, net | | $ | (0.6 | ) | | (0.1 | )% | | $ | (1.1 | ) | | (0.2 | )% | | $ | 0.5 |
| | (55.3 | )% |
|
| | | | | | | | | | | | | | | | | | | | |
| | Nine months ended December 31, 2017 | | Nine months ended January 1, 2017 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Other (income) expense, net | | $ | 4.7 |
| | 0.3 | % | | $ | (0.4 | ) | | — | % | | $ | 5.1 |
| | NM |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter ended July 2, 2023 | | Quarter ended July 3, 2022 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Other expense (income), net | | $ | 0.7 | | | 0.1 | % | | $ | 1.7 | | | 0.2 | % | | $ | (1.0) | | | (62.3)% |
NM = not meaningful
Other expense (income) expense,, net in the thirdfirst quarter of fiscal 20182024 was incomeexpense of $0.6$0.7 million compared to incomeexpense of $1.1$1.7 million in the thirdfirst quarter of fiscal 2017. Other (income) expense, net in the nine months of fiscal 2018 was expense of $4.7 million compared to income of $0.4 million in the nine months of fiscal 2017.2023. Foreign currency impact resulted in a gain of $0.7$2.3 million in the thirdfirst quarter of fiscal 2018, and2024 compared to a foreign currency loss of $1.3 million in the first quarter of fiscal 2023. Included in the first quarter of fiscal 2023 foreign currency impact is a loss of $4.4$5.2 million in nine monthsrelating to the remeasurement of fiscal 2018, compared to foreign currency gainmonetary assets from the exit of $1.6 million and $1.2 million, respectively, in the comparable prior year periods.our Russia operations.
Earnings Before Income Taxes
|
| | | | | | | | | | | | | | | | | | | | | |
| | Quarter ended December 31, 2017 | | Quarter ended January 1, 2017 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Earnings before income taxes | | $ | 62.5 |
| | 9.5 | % | | $ | 50.6 |
| | 9.0 | % | | $ | 11.9 |
| | 23.5 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended December 31, 2017 | | Nine months ended January 1, 2017 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Earnings before income taxes | | $ | 178.6 |
| | 9.4 | % | | $ | 167.6 |
| | 9.6 | % | | $ | 11.0 |
| | 6.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter ended July 2, 2023 | | Quarter ended July 3, 2022 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Earnings before income taxes | | $ | 73.5 | | | 8.1 | % | | $ | 36.8 | | | 4.1 | % | | $ | 36.7 | | | 100.0 | % |
As a result of the above, earnings before income taxes in the thirdfirst quarter of fiscal 20182024 increased $11.9$36.7 million, or 23.5%100.0%, compared to the thirdfirst quarter of fiscal 2017 and increased $11.0 million, or 6.5%, in the nine months of fiscal 2018 compared to the nine months of fiscal 2017.2023.
Income Tax Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter ended July 2, 2023 | | Quarter ended July 3, 2022 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Income tax expense | | $ | 6.7 | | | 0.7 | % | | $ | 5.8 | | | 0.6 | % | | $ | 0.9 | | | 16.5 | % |
Effective tax rate | | 9.2% | | 15.7% | | (6.5)% |
|
| | | | | | | | | | | | | | | | | | | | |
| | Quarter ended December 31, 2017 | | Quarter ended January 1, 2017 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Income tax expense | | $ | 88.3 |
| | 13.4 | % | | $ | 13.5 |
| | 2.4 | % | | $ | 74.8 |
| | NM |
Effective tax rate | | 141.2% | | 26.7% | | 114.5% |
|
| | | | | | | | | | | | | | | | | | | | |
| | Nine months ended December 31, 2017 | | Nine months ended January 1, 2017 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Income tax expense | | $ | 112.9 |
| | 6.0 | % | | $ | 43.1 |
| | 2.4 | % | | $ | 69.8 |
| | NM |
Effective tax rate | | 63.2% | | 25.7% | | 37.5% |
NM = not meaningful
The Company’s income tax provision consists of federal, state and foreign income taxes. The tax provision for the third quartersfirst quarter of fiscal 20182024 and 20172023 was based on the estimated effective tax rates applicable for the full years ending March 31, 20182024 and March 31, 2017,2023, respectively, after giving effect to items specifically related to the interim periods. 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, changechanges in tax laws and the amount of our consolidated incomeearnings before taxes.
On December 22, 2017,August 16, 2022, the Tax Cuts and JobsInflation Reduction Act of 2022 (“Tax Act”IRA”) was enacted into law. Amongenacted. 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 significant changes resulting fromIRA creates a refundable tax credit, pursuant to Section 45X of the law,Internal Revenue Code (“IRC”), for battery cells and battery modules manufactured or assembled in the Tax Act reducesUnited States and sold to third parties. In the U.S. federalfirst quarter of fiscal 2024, the IRA impact resulted in a reduction of our costs of goods sold and income tax rate from 35%payable. There is a possibility that additional clarification guidance is issued with respect to 21% effective January 1, 2018,the Section 45X credit qualifications. Amounts recognized in the Consolidated Condensed Financial Statements are based on Management's judgement and requires companiesbest estimate utilizing the most current guidance. The Company will continue to pay a one-time transition tax on unrepatriated cumulative non-U.S. earnings of foreign subsidiaries and creates new taxes on certain foreign sourced earnings. In accordance with ASC 740, “Income Taxes,” we are required to recordevaluate the effects of tax law changes in the period enacted. The rate changeIRA as more guidance is administratively effective at the beginning of our fiscal year, using a blended rate for the annual period. As a result, our blended U.S. statutory tax rate for fiscal 2018 is 31.5%.
As of December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Tax Act; however, in certain cases, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balancesissued and the one-time transition tax. Ourrelevant implications to our Consolidated Condensed Financial Statements. Actual results for the three and nine months ended December 31, 2017, contain estimates of the impact of the Tax Act as permitted by Staff Accounting Bulletin 118 “SAB 118” issued by the Securities and Exchange Commission on December 22, 2017. These amounts are considered provisional and may be affected by future guidance if and when issued.could differ from management’s current estimate.
As a result of the Tax Act, the third quarter fiscal 2018 financial statements include a provisional net tax expense of $77.3 million which is comprised of the following:
Foreign tax effects: The one-time transition tax is based on our total post-1986 earnings and profits (E&P) that we previously deferred from U.S. income taxes. We recorded a provisional amount for our one-time transition tax liability for our foreign subsidiaries, resulting in an increase in income tax expense of $94.0 million. The estimated transition tax of $94.0 million is recorded under current income tax payable and non-current income tax payable, at $7.5 million and $86.5 million, respectively, and is payable over eight years. Further, the transition tax is based in part on the amount of those earnings held in cash and other
specified assets. This amount may change when we finalize both the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and the amounts held in cash or other specified assets. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations.
Deferred tax assets and liabilities: We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, we are still analyzing certain aspects of the Tax Act and refining our calculations, which could potentially affect the measurement of these balances or give rise to new deferred tax amounts. The provisional amount recorded related to the remeasurement of our deferred tax balance was a tax benefit of $14.7 million.
Finally, we recorded a provisional tax benefit of $2.0 million related to the reduction of the fiscal 2018 federal tax rate to 31.5%.
In all cases, we may adjust these provisional amounts which could potentially affect the measurement and impact on tax expense as we refine our calculations within a reasonable period not to exceed one year from the enactment date.
The consolidated effective income tax rates were 141.2% and 26.7%, respectively, for the third quartersfirst quarter of fiscal 20182024 and 20172023 were 9.2% and 63.2% and 25.7%15.7%, respectively, forrespectively. The rate decrease in the nine monthsfirst quarter of fiscal 2018 and 2017. The rate increase in the third quarter and nine months of fiscal 20182024 compared to the comparable prior year periods of fiscal 2017period is primarily due to the impact of the Tax Act in the third quarter of fiscal 2018,IRA. In addition, there was a discrete foreign exchange tax benefit related to undistributed earnings which was offset by the German regulatory proceedings charge of $17.0 million (with no associated tax benefit) recorded in the third quarter of fiscal 2017 and changes in the mix of earnings among tax jurisdictions.
Foreign income as a percentage of worldwide income is estimated to be 64%51% for fiscal 20182024 compared to 60%77% for fiscal 2017. The foreign effective income tax rates for the nine months of fiscal 2018 and 2017 were 11.4% and 15.9%, respectively. The rate decrease compared to the prior year period2023. This reduction is primarily due to the German regulatory proceedings chargeimpact of $17.0 million (with no associatedthe IRA. The foreign effective tax benefit) recorded inrates for the thirdfirst quarter of fiscal 20172024 and changes in the mix of earnings among tax jurisdictions.2023 were 12.0% and 11.0%, respectively. Income from ourthe Company's Swiss subsidiary comprised a substantial portion of ourthe Company's overall foreign mix of income for both fiscal 2024 and isfiscal 2023 and were taxed at an effective income tax rate of approximately 6%.8% and 9%, respectively.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies from those discussed under the caption “Critical Accounting Policies and Estimates” in “ItemItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations in our 20172023 Annual Report.
Liquidity and Capital Resources
Cash Flow and Financing Activities
Operating activities provided cash of $129.9$74.9 million in the nine monthsfirst quarter of fiscal 20182024 compared to $166.7$71.9 million of cash used in the comparable periodfirst quarter of fiscal 2017.2023, with the increase in operating cash resulting mainly due to net earnings and activity in accounts receivable, inventory, and accounts payable. Accounts receivable decreased or provided cash of $73.2 million due to lower sales in the current quarter compared to the previous quarter. Inventory increased or used cash of $11.0 million due to lower inventory turns as compared to the previous quarter. Accounts payable decreased or used cash of $39.3 million due to seasonal reduction. In the nine monthscurrent quarter of fiscal 2018, cash provided by operating activities was primarily from2024, net earnings of $65.7were $66.8 million, depreciation and amortization of $40.3$22.7 million, stock-based compensation $7.9 million, non-cash charges relating to exit charges $3.3 million, derivative gains of $14.8$0.5 million, deferred taxes benefitderivatives cash proceeds of $7.2$0.7 million, non-cash interest of $1.3$0.4 million, and provisionallowance for doubtful accountsdebts of $0.8$0.5 million. Cash provided by earnings as adjusted for non-cash items was improved byPrepaid and other current assets were a use of funds of $4.1 million, primarily from an increase of $89.2$7.3 million in long termcontract assets partially offset by a decrease of $3.2 million in other prepaid expenses, such as taxes, insurance and other advances. Accrued expenses were a use of funds of $46.6 million primarily from tax payments net of accruals of $15.8 million, including $19.4 million relating to the IRA production tax credits, payroll related payments of $13.2 million net of accruals, decrease to sales related accruals of $8.0 million, interest payments net of accruals of $5.5 million, deferred income and contract liabilities of $4.8 million, other miscellaneous accruals of $1.5 million partially offset by warranty accruals of $1.8 million and freight charges of $1.6 million.
In the first quarter of fiscal 2023, operating activities used cash of $71.9 million primarily from the activity in accounts receivable, inventory, and accounts payable. Inventory increased or used cash of $81.5 million due to the one-time transition tax liability the Tax Act and was partially offset by the increase in primary working capitalall components of $42.0inventory resulting from strategic investment, supply chain delays, new products and higher inventory costs from higher raw material costs, manufacturing and freight costs and to address the high backlog of customer orders. Accounts receivable decreased or provided cash of $5.5 million. Accounts payable decreased or used cash of $33.1 million net of currency translation changes, and a decrease in accrued expenses of $30.5 million, comprising primarily of legal proceedings related payments, payroll related expenses and income taxes.
due to seasonal reduction. In the nine monthsfirst quarter of fiscal 2017, cash provided by operating activities was primarily from2023, net earnings of $124.5were $31.0 million, depreciation and amortization of $40.5$23.6 million, stock-based compensation $5.3 million, non-cash charges consisting of write-offs relating to restructuring and other exit charges and ERP implementation$7.4 million, primarily relating to the Ooltewah, Tennessee plant closure, allowance for doubtful debts of $7.7 million, stock-based compensation of $14.6 million, provision of doubtful accounts of $2.0$0.2 million and non-cash interest of $1.0$0.5 million. Cash provided by operating activities were partially offset by the increase in primary working capital of $47.7 million, net of currency translation changes. Cash provided by operating activities were positively impacted by legal proceedings accrual of $17.0 million and accrued expenses of $13.9 million, comprising primarily of income and other taxes, while prepaidPrepaid and other current assets comprising primarily of prepaid taxes, resulted in an outflow of $11.5 million.
As explained in the discussion of ourwere a use of “non-GAAP financial measures,” we monitor the levelfunds of $5.5 million, primarily from an increase of $7.2 million of contract assets, partially offset by a decrease of $1.7 million in other prepaid expenses, such as taxes, insurance and percentageother advances. Accrued expenses were a use of primary working capital to sales. Primary working capital for this purpose is trade accounts receivable, plus inventories, minus trade accounts payable. The resultingfunds of $25.0 million primarily from payroll related payments of $13.1 million, selling and other expenses of $10.9 million, interest payments net amount is dividedof accrual of $5.7 million, and other miscellaneous payments of $4.0 million, partially offset by the trailing three month net sales (annualized) to derive a primary working capital percentage. Primary working capital was $689.6 million (yielding a primary working capital percentagetax accruals of 26.2%) at December 31, 2017, $624.8 million (yielding a primary working capital percentage of 24.9%) at $8.7 million.
March 31, 2017 and $611.6 million at January 1, 2017 (yielding a primary working capital percentage of 27.1%). The primary working capital percentage of 26.2% at December 31, 2017 is 130 basis points higher than that for March 31, 2017, and is 90 basis points lower than that for the prior year period. Primary working capital percentage increased during the nine months of fiscal 2018 largely due to higher inventory levels. The reason for the increase in inventory is due to rising lead costs, a longer supply chain on selective products and to meet rising fourth quarter demand.
Primary working capital and primary working capital percentages at December 31, 2017, March 31, 2017 and January 1, 2017 are computed as follows:
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($ in Millions) |
Balance At | | Trade Receivables | | Inventory | | Accounts Payable | | Total | | Quarter Revenue Annualized | | Primary Working Capital % |
December 31, 2017 | | $ | 494.9 |
| | $ | 422.0 |
| | $ | (227.3 | ) | | $ | 689.6 |
| | $ | 2,635.7 |
| | 26.2 | % |
March 31, 2017 | | 486.6 |
| | 360.7 |
| | (222.5 | ) | | 624.8 |
| | 2,507.2 |
| | 24.9 |
|
January 1, 2017 | | 444.3 |
| | 370.2 |
| | (202.9 | ) | | 611.6 |
| | 2,254.8 |
| | 27.1 |
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Investing activities used cash of $45.7$24.3 million in the nine monthsfirst quarter of fiscal 2018 and2024, which primarily consisted of capital expenditures of $43.1$16.1 million relating to plant improvements and $8.3 million relating to the purchase of a $3.0 million acquisition.business.
Investing activities used cash of $47.8$22.9 million in the nine monthsfirst quarter of fiscal 2017 and2023, which primarily consisted of capital expenditures of $36.0$23.0 million and acquisitions of $12.4 million.
relating to plant improvements.
Financing activities used cash of $51.5$135.9 million in the nine monthsfirst quarter of fiscal 2018.2024. During the secondfirst quarter of fiscal 2018, we entered into a 2017 Credit Facility. During the nine months of fiscal 2018,2024, we borrowed $356.8$80.0 million under the 2017Second Amended Revolver and $150.0repaid $216.4 million of the Second Amended Revolver. Net repayments on short-term debt were $0.4 million. We paid cash dividends to our stockholders totaling $7.2 million and received proceeds from stock options of $7.7 million.
Financing activities provided cash of $97.5 million in the first quarter of fiscal 2023. During the first quarter of fiscal 2023, we borrowed $163.2 million under the 2018 Term loan. Repayments onSecond Amended Revolver and repaid $27.2 million of the 2017 Revolver during the nine months of fiscal 2018 were $111.5 million. Borrowings andSecond Amended Revolver. Net repayments on the 2011 Revolver during the nine months of fiscal 2018short-term debt were $147.1 million and $312.1 million, respectively, and repayment of the 2011 Term loan was $127.5$8.0 million. On August 4, 2017, the outstanding balance on the 2011 Revolver and the 2011 Term Loan of $240.0 million and $123.0 million, respectively, was repaid utilizing the proceeds from the 2017 Credit Facility. We also paid $100.0 million under the ASR agreement, which was settled on January 9, 2018. Treasury stock open market purchases were $21.2$22.9 million, payment of cash dividends to our stockholders were $22.3 million, payment of taxes related to net share settlement of equity awards were $7.5 million and debt issuance costs were $2.7 million. Net repayments on short-term debt were $1.4 million and proceeds from stock options were $0.8 million.
Financing activities used cash of $23.6 million in the nine months of fiscal 2017 primarily due to revolver borrowings of $191.3 million and repayments of $186.8 million, repayment of our Term Loan of $11.3 million, payment of cash dividends to our stockholders of $22.8$7.1 million and payment of taxes related to net share settlement of equity awards of $7.7 million. Net borrowings on short-term debt were $13.6$0.6 million.
Currency translation had a positivenegative impact of $38.3$3.0 million on our cash balance in the nine monthsfirst quarter of fiscal 20182024 compared to athe negative impact of $25.4$22.0 million in the nine monthsfirst quarter of fiscal 2017. During2023. In the nine monthsfirst quarter of fiscal 2018,2024, principal currencies in which we do business such as the Euro, Polish zloty, Swiss franc,Franc and British pound Polish zloty, Chinese renminbi and Mexican pesogenerally strengthened versus the U.S. dollar.
As a result of the above, total cash and cash equivalents increaseddecreased by $71.0$88.3 million to $571.3$258.3 million, in the nine monthsfirst quarter of fiscal 20182024 compared to an increasea decrease by $69.8$19.2 million to $467.1$383.2 million, in the comparable periodfirst quarter of fiscal 2017.2023.
Compliance with Debt Covenants
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 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 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.
All obligations under our 2017Fourth Amended Credit Facility are secured by, among other things, substantially all of our U.S. assets. The 2017Fourth 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 credit agreementFourth Amended Credit Facility and our 5.00% Senior Notes due 2023.Notes. We believe that we will continue to comply with these covenants and conditions, and that we have the financial resources and the capital available to fund the foreseeable organic growth in our business and to remain active in pursuing further acquisition opportunities. See Note 810 to the Consolidated Financial Statements included in our 20172023 Annual Report and Note 911 to the Consolidated Condensed Financial Statements included in this Quarterly Report on Form 10-Q for a detailed description of our debt.
Contractual Obligations and Commercial Commitments
A table of our obligations is contained in Part II, Item 7,7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations of our 20172023 Annual Report for the year ended March 31, 2017.Report. As of December 31, 2017,July 2, 2023, we entered into the new 2017 Credit Facility, comprising a $600 million senior secured revolving credit facility (“2017 Revolver”) and a $150 million senior secured term loan (“2017 Term Loan”) with a maturity date of September 30, 2022. We repaid all outstanding balances onhad no significant changes to our 2011 Credit Facility as of August 4, 2017.contractual obligations table contained in our 2023 Annual Report.
As of December 31, 2017, principal and interest payments due under the 2017 Credit Facility are as follows: $5.4 million in fiscal 2018, $14.6 million in fiscal 2019, $20.1 million in fiscal 2020, $23.5 million in fiscal 2021, $25.1 million in fiscal 2022 and $398.9 million in fiscal 2023.
As of December 31, 2017, the estimated transition tax of $94.0 million which is recorded under current income tax payable and non-current income tax payable, at $7.5 million and $86.5 million, respectively, is payable over eight years. The payment schedule is as follows:
$7.5 million payable in the first five years, beginning fiscal 2019 through fiscal 2024, $14.1 million in fiscal 2025, $18.9 in fiscal 2026 and the final payment of $23.5 million in fiscal 2027.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market Risks
Our cash flows and earnings are subject to fluctuations resulting from changes in raw material costs, foreign currency exchange rates and 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, interest rate swaps, 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 December 31, 2017July 2, 2023 are $1.1$20.4 million (pre-tax). Those contracts that result in an asset position at December 31, 2017July 2, 2023 are $0.9$5.0 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 our 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 our foreign subsidiaries.
A 100 basis point increase in interest rates would have increased annual interest expense, on an annualized basis, by approximately $4.1$4.5 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 (in millions) | | # Pounds Purchased (in millions) | | Average Cost/Pound | | Approximate % of Lead Requirements (1) |
December 31, 2017 | | $ | 60.8 |
| | 54.0 |
| | $ | 1.13 |
| | 9 | % |
March 31, 2017 | | 46.6 |
| | 45.0 |
| | 1.03 |
| | 8 |
|
January 1, 2017 | | 34.4 |
| | 34.5 |
| | 1.00 |
| | 8 |
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Date | | $’s Under Contract (in millions) | | # Pounds Purchased (in millions) | | Average Cost/Pound | | Approximate % of Lead Requirements (1) |
July 2, 2023 | | $ | 52.1 | | | 55.0 | | | $ | 0.95 | | | 9 | % |
March 31, 2023 | | 47.9 | | | 50.0 | | | 0.96 | | | 8 | |
July 3, 2022 | | 54.1 | | | 55.5 | | | 0.97 | | | 8 | |
(1(1) )Based on approximate annualthe fiscal year lead requirements for the periods then ended.
For the remaining quarterquarters of this fiscal year, we believe approximately 100%46% of the cost of our lead requirements is known. This takes into account the hedge contracts in place at December 31, 2017,July 2, 2023, lead purchased by December 31, 2017July 2, 2023 that will be reflected in future costs under our FIFO accounting policy, and the benefit from our lead tolling program.
We estimate that a 10% increase in our cost of lead would have increased our cost of goods sold by approximately $18$19 million and $52 million, respectively, in the thirdfirst quarter and nine months of fiscal 2018.2024.
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.
We hedge approximately 10%5% - 15%10% of the nominal amount of our known foreign exchange transactional exposures. We primarily enter into foreign currency exchange contracts to reduce the earnings and cash flow impact of the variation of non-functional currency denominated receivables and payables. The vast majority of such contracts are for a period not extending beyond one year.
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 generally 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 year 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 the U.S. dollar and Euro.
At December 31, 2017July 2, 2023 and January 1, 2017,July 3, 2022, we estimate that an unfavorable 10% movement in the exchange rates would have adversely changed our hedge valuations by approximately $2.8$27.7 million and $3.6$36.7 million, respectively.
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ITEM 4. | CONTROLS AND PROCEDURES |
(a) Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our 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, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.
(b) Internal Control Over Financial Reporting. There have not beenThe Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated any changeschange in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) and determined that there was no change in our internal control over financial reporting during the quarter to which this report relates that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.
From time to time, we are involved in litigation incidental to the conduct of our business. See Litigation and Other Legal Matters in Note 711 - Commitments, Contingencies and Litigation to the Consolidated Condensed Financial Statements, which is incorporated herein by reference.
In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our 20172023 Annual Report, for the year ended March 31, 2017 which could materially affect our business, financial condition or future results, and the following:
Future changes in U.S. tax law could adversely affect us or our affiliates.
On December 22, 2017, the U.S. President signed into law a sweeping tax reform bill known as the “Tax Cuts and Jobs Act” (“Tax Act”). The effects of the Tax Act are not yet entirely clear and will depend on, among other things, additional regulatory and administrative guidance, as well as any statutory technical corrections that are subsequently enacted. While the Tax Act reduces the statutory U.S. federal income tax rate generally applicable to U.S. corporations, the Tax Act could nevertheless have a significant adverse effect on the U.S. federal income taxation of our and our subsidiaries’ operations, including by limiting or eliminating various deductions or credits (including interest expense deductions and deductions relating to employee compensation), imposing taxes with respect to certain accumulated earnings of non-U.S. entities on a current basis, changing the timing of the recognition of income or its character and imposing additional corporate taxes under certain circumstances to combat perceived base erosion issues, among other changes.
The Tax Act, or any related, similar or amended legislation or other changes in U.S. federal income tax laws, could adversely affect the U.S. federal income taxation of our and our affiliates’ ongoing operations and may also adversely affect the integration efforts relating to, and potential synergies from, past strategic transactions. Any such changes and related consequences could have a material adverse impact on our financial results.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
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 and performance condition-based share units may be satisfied by the surrender of shares of the Company’s common stock.
Purchases of Equity Securities
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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) (3) |
April 1 - April 30, 2023 | | — | | | $ | — | | | — | | | $ | 194,545,418 | |
May 1 - May 31, 2023 | | 15,897 | | | 95.43 | | | — | | | 194,545,418 | |
June 1 - June 30, 2023 | | 105,122 | | | 104.48 | | | — | | | 194,545,418 | |
Total | | 121,019 | | | $ | 103.29 | | | — | | | |
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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) (3) |
October 2 – October 29, 2017 | | 179 |
| | $ | 68.41 |
| | — |
| | $ | 24,738,883 |
|
October 30 – November 26, 2017 | | 1,851 |
| | 67.14 |
| | — |
| | 24,738,883 |
|
November 27 – December 31, 2017 | | — |
| | — |
| | — |
| | 24,738,883 |
|
Total | | 2,030 |
| | $ | 67.25 |
| | — |
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(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 awards issued during such fiscal year under the 2017 Equity Incentive Plan and the number of shares exercised through stock option awards during such fiscal year, approximately $34.0 million.
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(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 2010 Equity Incentive Plan and the number of shares exercised through stock option awards during such fiscal year. These amounted to 2,030 shares, repurchased at an average price of $67.25. |
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(2) | On August 24, 2017, the Company prepaid $100 million, pursuant to an ASR agreement with a major financial institution, and received on August 29, 2017, an initial delivery of 1,278,976 shares. No shares were received pursuant to the ASR during the current quarter. On January 9, 2018, the ASR was settled, and the Company received an additional 216,738 shares. |
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(3) | On November 8, 2017, the Company announced the establishment of a $100 million stock repurchase authorization, with no expiration date. The authorization is in addition to the existing stock repurchase programs. |
(2)On March 9, 2022, the Company announced the establishment of a $150.0 million stock repurchase authorization, with no
(3) On November 10, 2021, the Company announced the establishment of a $100.0 million stock repurchase authorization, with no expiration date.
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Item 4. | Mine Safety Disclosures |
Not applicable.
During the quarter ended July 2, 2023, none of our directors or officers (as defined in Section 16 of the Securities Exchange Act of 1934, as amended) adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (each as defined in Item 408(a) and (c) of Regulation S-K).
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Exhibit Number | | Description of Exhibit |
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Exhibit Number3.1 | | Description of Exhibit |
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31.110.1 | | |
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10.2 | | |
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10.5 | | |
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31.1 | | |
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31.2 | | |
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32.1 | | |
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SIGNATURES
Pursuant to the requirements 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.
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ENERSYS (Registrant) | |
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ENERSYS (Registrant)By | /s/ Andrea J. Funk | |
| | Andrea J. Funk |
By | /s/ Michael J. Schmidtlein | |
| Michael J. Schmidtlein |
| Chief Financial Officer |
Date: February 7, 2018
Date: August 9, 2023