UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July 2,December 31, 2023
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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.) |
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 Yes ¨ 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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| | | | 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). ☐ Yes ý No.
Common Stock outstanding at August 4, 2023: 41,039,915February 2, 2024: 40,415,975 shares
EnerSys
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PART I – | FINANCIAL INFORMATION |
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ITEM 1. | FINANCIAL STATEMENTS |
EnerSys
Consolidated Condensed Balance Sheets (Unaudited)
(In Thousands, Except Share and Per Share Data)
| | July 2, 2023 | | March 31, 2023 |
| | December 31, 2023 | | | | December 31, 2023 | | March 31, 2023 |
Assets | Assets | | | | |
Current assets: | Current assets: | |
Current assets: | |
Current assets: | |
Cash and cash equivalents | 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 | |
Cash and cash equivalents | |
Cash and cash equivalents | |
Accounts receivable, net of allowance for doubtful accounts: December 31, 2023 - $10,312; March 31, 2023 - $8,775 | |
Inventories, net | Inventories, net | | 809,402 | | | 797,798 | |
Prepaid and other current assets | Prepaid and other current assets | | 118,804 | | | 113,601 | |
Total current assets | Total current assets | | 1,753,046 | | | 1,895,881 | |
Property, plant, and equipment, net | Property, plant, and equipment, net | | 512,970 | | | 513,283 | |
Goodwill | Goodwill | | 688,442 | | | 676,715 | |
Other intangible assets, net | Other intangible assets, net | | 354,662 | | | 360,412 | |
Deferred taxes | Deferred taxes | | 49,153 | | | 49,152 | |
Other assets | Other assets | | 122,704 | | | 121,231 | |
Total assets | Total assets | | $ | 3,480,977 | | | $ | 3,616,674 | |
Liabilities and Equity | Liabilities and Equity | | | | |
Current liabilities: | Current liabilities: | |
Current liabilities: | |
Current liabilities: | |
Short-term debt | |
Short-term debt | |
Short-term debt | Short-term debt | | $ | 30,962 | | | $ | 30,642 | |
Accounts payable | Accounts payable | | 343,336 | | | 378,641 | |
Accrued expenses | Accrued expenses | | 261,353 | | | 309,037 | |
Total current liabilities | Total current liabilities | | 635,651 | | | 718,320 | |
Long-term debt, net of unamortized debt issuance costs | Long-term debt, net of unamortized debt issuance costs | | 907,768 | | | 1,041,989 | |
Deferred taxes | Deferred taxes | | 60,767 | | | 61,118 | |
Other liabilities | Other liabilities | | 193,612 | | | 191,366 | |
Total liabilities | Total liabilities | | 1,797,798 | | | 2,012,793 | |
Commitments and contingencies | Commitments and contingencies | | Commitments and contingencies | | |
Equity: | 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 | |
Preferred Stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding at December 31, 2023 and at March 31, 2023 | |
Preferred Stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding at December 31, 2023 and at March 31, 2023 | |
Preferred Stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding at December 31, 2023 and at March 31, 2023 | |
Common Stock, $0.01 par value per share, 135,000,000 shares authorized, 56,347,317 shares issued and 40,399,131 shares outstanding at December 31, 2023; 56,004,613 shares issued and 40,901,059 shares outstanding at March 31, 2023 | |
Additional paid-in capital | 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) | |
Treasury stock at cost, 15,948,186 shares held as of December 31, 2023 and 15,103,554 shares held as of March 31, 2023 | |
Retained earnings | Retained earnings | | 1,989,588 | | | 1,930,148 | |
Contra equity - indemnification receivable | Contra equity - indemnification receivable | | (2,463) | | | (2,463) | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | | (179,476) | | | (183,474) | |
Total EnerSys stockholders’ equity | Total EnerSys stockholders’ equity | | 1,679,767 | | | 1,600,279 | |
Nonredeemable noncontrolling interests | Nonredeemable noncontrolling interests | | 3,412 | | | 3,602 | |
Total equity | Total equity | | 1,683,179 | | | 1,603,881 | |
Total liabilities and equity | Total liabilities and equity | | $ | 3,480,977 | | | $ | 3,616,674 | |
See accompanying notes.
EnerSys
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, 2023 | | January 1, 2023 |
Sales from products | Sales from products | | $ | 807,647 | | | $ | 799,147 | |
Sales from services | Sales from services | | 100,922 | | | 99,824 | |
Net sales | Net sales | | 908,569 | | | 898,971 | |
Cost of goods sold | Cost of goods sold | | 587,203 | | | 635,859 | |
Cost of services | Cost of services | | 77,962 | | | 77,577 | |
Inventory adjustment relating to exit activities | Inventory adjustment relating to exit activities | | 3,098 | | | — | |
Gross profit | Gross profit | | 240,306 | | | 185,535 | |
Operating expenses | Operating expenses | | 144,552 | | | 127,078 | |
Restructuring and other exit charges | Restructuring and other exit charges | | 6,309 | | | 8,328 | |
| Impairment of indefinite-lived intangibles | |
Operating earnings | Operating earnings | | 89,445 | | | 50,129 | |
Interest expense | Interest expense | | 15,244 | | | 11,597 | |
Other expense (income), net | Other expense (income), net | | 668 | | | 1,773 | |
Earnings before income taxes | Earnings before income taxes | | 73,533 | | | 36,759 | |
Income tax expense | Income tax expense | | 6,736 | | | 5,781 | |
| Net earnings attributable to EnerSys stockholders | Net earnings attributable to EnerSys stockholders | | $ | 66,797 | | | $ | 30,978 | |
| Net earnings attributable to EnerSys stockholders | |
| Net earnings attributable to EnerSys stockholders | |
Net earnings per common share attributable to EnerSys stockholders: | Net earnings per common share attributable to EnerSys stockholders: | | | | |
Basic | |
Basic | |
Basic | Basic | | $ | 1.63 | | | $ | 0.76 | |
Diluted | Diluted | | $ | 1.60 | | | $ | 0.75 | |
Dividends per common share | Dividends per common share | | $ | 0.175 | | | $ | 0.175 | |
Weighted-average number of common shares outstanding: | Weighted-average number of common shares outstanding: | | | | |
Basic | Basic | | 40,937,334 | | | 40,786,336 | |
Basic | |
Basic | |
Diluted | 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)
| | | | | | | | | | | | | | |
| | Nine months ended |
| | December 31, 2023 | | January 1, 2023 |
Sales from products | | $ | 2,348,815 | | | $ | 2,417,051 | |
Sales from services | | 322,335 | | | 301,584 | |
Net sales | | 2,671,150 | | | 2,718,635 | |
Cost of goods sold | | 1,672,360 | | | 1,883,401 | |
Cost of services | | 251,052 | | | 240,479 | |
Inventory adjustment relating to exit activities | | 19,165 | | | 681 | |
Gross profit | | 728,573 | | | 594,074 | |
Operating expenses | | 432,284 | | | 398,752 | |
Restructuring and other exit charges | | 19,613 | | | 12,394 | |
Impairment of indefinite-lived intangibles | | 6,020 | | | — | |
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Operating earnings | | 270,656 | | | 182,928 | |
Interest expense | | 39,179 | | | 44,560 | |
Other expense (income), net | | 5,868 | | | 3,507 | |
Earnings before income taxes | | 225,609 | | | 134,861 | |
Income tax expense | | 17,425 | | | 25,001 | |
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Net earnings attributable to EnerSys stockholders | | $ | 208,184 | | | $ | 109,860 | |
Net earnings per common share attributable to EnerSys stockholders: | | | | |
Basic | | $ | 5.11 | | | $ | 2.69 | |
Diluted | | $ | 5.02 | | | $ | 2.66 | |
Dividends per common share | | $ | 0.625 | | | $ | 0.525 | |
Weighted-average number of common shares outstanding: | | | | |
Basic | | 40,770,524 | | | 40,787,654 | |
Diluted | | 41,476,950 | | | 41,267,320 | |
See accompanying notes.
EnerSys
Consolidated Condensed Statements of Comprehensive Income (Unaudited)
(In Thousands)
| | | | Quarter ended | | | | Quarter ended | | Nine months ended |
| | | July 2, 2023 | | July 3, 2022 | | | | December 31, 2023 | | January 1, 2023 | | December 31, 2023 | | January 1, 2023 |
Net earnings | Net earnings | | $ | 66,797 | | | $ | 30,978 | | |
Other comprehensive income (loss): | Other comprehensive income (loss): | | |
Net unrealized gain (loss) on derivative instruments, net of tax | |
Net unrealized gain (loss) on derivative instruments, net of tax | |
Net unrealized gain (loss) on derivative instruments, net of tax | Net unrealized gain (loss) on derivative instruments, net of tax | | $ | 1,786 | | | (8,234) | | |
Pension funded status adjustment, net of tax | Pension funded status adjustment, net of tax | | $ | 20 | | | 89 | | |
Foreign currency translation adjustment | Foreign currency translation adjustment | | $ | 2,002 | | | (52,220) | | |
Total other comprehensive income (loss), net of tax | Total other comprehensive income (loss), net of tax | | $ | 3,808 | | | (60,365) | | |
Total comprehensive income (loss) | Total comprehensive income (loss) | | $ | 70,605 | | | (29,387) | | |
Comprehensive income (loss) attributable to noncontrolling interests | Comprehensive income (loss) attributable to noncontrolling interests | | $ | (190) | | | (210) | | |
Comprehensive income (loss) attributable to EnerSys stockholders | Comprehensive income (loss) attributable to EnerSys stockholders | | $ | 70,795 | | | $ | (29,177) | | |
See accompanying notes.
EnerSys
Consolidated Condensed Statements of Cash Flows (Unaudited)
(In Thousands)
| | | | Quarter ended | | | Nine months ended |
| | | July 2, 2023 | | July 3, 2022 | | | December 31, 2023 | | January 1, 2023 |
Cash flows from operating activities | Cash flows from operating activities | | | | |
Net earnings | Net earnings | | $ | 66,797 | | | $ | 30,978 | |
Net earnings | |
Net earnings | |
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 | Depreciation and amortization | | 22,693 | | | 23,624 | |
Depreciation and amortization | |
Depreciation and amortization | |
Write-off of assets relating to exit activities | Write-off of assets relating to exit activities | | 3,343 | | | 7,445 | |
Impairment of indefinite-lived intangibles | |
| Derivatives not designated in hedging relationships: | Derivatives not designated in hedging relationships: | |
Net (losses) gains | | 503 | | | (216) | |
Derivatives not designated in hedging relationships: | |
Derivatives not designated in hedging relationships: | |
Net losses (gains) | |
Net losses (gains) | |
Net losses (gains) | |
Cash (settlements) proceeds | Cash (settlements) proceeds | | 657 | | | (600) | |
Provision for doubtful accounts | Provision for doubtful accounts | | 504 | | | (173) | |
Deferred income taxes | Deferred income taxes | | 42 | | | 20 | |
Non-cash interest expense | Non-cash interest expense | | 410 | | | 487 | |
Stock-based compensation | Stock-based compensation | | 7,933 | | | 5,330 | |
| (Gain) loss on disposal of property, plant, and equipment | (Gain) loss on disposal of property, plant, and equipment | | 43 | | | (40) | |
(Gain) loss on disposal of property, plant, and equipment | |
(Gain) loss on disposal of property, plant, and equipment | |
| Changes in assets and liabilities: | Changes in assets and liabilities: | |
Changes in assets and liabilities: | |
Changes in assets and liabilities: | |
Accounts receivable | |
Accounts receivable | |
Accounts receivable | Accounts receivable | | 73,198 | | | 5,538 | |
Inventories | Inventories | | (10,965) | | | (81,454) | |
Prepaid and other current assets | Prepaid and other current assets | | (4,089) | | | (5,465) | |
Other assets | Other assets | | (484) | | | (886) | |
Accounts payable | Accounts payable | | (39,307) | | | (33,073) | |
Accrued expenses | Accrued expenses | | (46,647) | | | (24,973) | |
Other liabilities | Other liabilities | | 315 | | | 1,567 | |
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 | |
Cash flows from investing activities | |
Cash flows from investing activities | |
Capital expenditures | |
Capital expenditures | |
Capital expenditures | Capital expenditures | | (16,093) | | | (23,014) | |
Purchase of business | Purchase of business | | (8,270) | | | — | |
| Proceeds from termination of net investment hedges | |
Proceeds from termination of net investment hedges | |
Proceeds from termination of net investment hedges | |
Proceeds from disposal of property, plant, and equipment | Proceeds from disposal of property, plant, and equipment | | 44 | | | 139 | |
Net cash (used in) investing activities | | (24,319) | | | (22,875) | |
Net cash (used in) provided by investing activities | |
| Cash flows from financing activities | Cash flows from financing activities | |
Cash flows from financing activities | |
Cash flows from financing activities | |
Net (repayments) borrowings on short-term debt | |
Net (repayments) borrowings on short-term debt | |
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) | |
Repayments of Second Amended Revolver borrowings | |
Repayments of Second Amended Revolver borrowings | |
| Repayments of Second and Third Amended Term Loans | |
| Repayments of Second and Third Amended Term Loans | |
| Repayments of Second and Third Amended Term Loans | |
| Financing costs for debt modification | |
Financing costs for debt modification | |
Financing costs for debt modification | |
Option proceeds, net | Option proceeds, net | | 7,654 | | | — | |
Payment of taxes related to net share settlement of equity awards | Payment of taxes related to net share settlement of equity awards | | — | | | (633) | |
Purchase of treasury stock | Purchase of treasury stock | | — | | | (22,907) | |
Dividends paid to stockholders | Dividends paid to stockholders | | (7,173) | | | (7,108) | |
Other | Other | | 354 | | | 207 | |
Net cash (used in) provided by financing activities | | (135,949) | | | 97,537 | |
Net cash (used in) financing activities | |
Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | | (3,001) | | | (22,016) | |
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 | Cash and cash equivalents at beginning of period | | 346,665 | | | 402,488 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | | $ | 258,342 | | | $ | 383,243 | |
|
See accompanying notes.
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 adjustments except those otherwise described herein) considered necessary for a fair presentation have been included, unless otherwise disclosed. Operating results for the current quarterthree and nine months ended July 2,December 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2024.
The Consolidated Condensed Balance Sheet at March 31, 2023 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 2023 Annual Report on Form 10-K (SEC File No. 001-32253), which was filed on May 25, 2023 (the “2023 Annual Report”).
EnerSys (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 2024 end on July 2, 2023, October 1, 2023, December 31, 2023, and March 31, 2024, respectively. The four quarters in fiscal 2023 ended on July 3, 2022, October 2, 2022, January 1, 2023, and March 31, 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.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions take into account historical and forward looking factors that the Company believes are reasonable, and the Company’s estimates and assumptions may evolve as conditions change. Actual results could differ from those estimates.
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 business 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 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 a reasonable profit margin. For these arrangements, control transfers over time and the Company measures progress towards completion by selecting the input or output method that best depicts the transfer of control of the underlying goods and services to the customer for each respective arrangement. Methods used by the Company to measure progress toward completion include labor hours, costs incurred and units of production. Revenues recognized over time for the firstthird quarter of fiscal 2024 and 2023 amounted to $58,654$68,707 and $57,004,$55,283, respectively. Revenues recognized over time for the nine months of fiscal 2024 and 2023 amounted to $196,173 and $168,489, respectively.
On July 2,December 31, 2023, the aggregate transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was approximately $149,294,$117,256, of which, the Company estimates that approximately $119,987$59,357 will be recognized as revenue in fiscal 2024, $29,242$57,042 in fiscal 2025, and $18$810 in fiscal 2026, $23 in fiscal 2027, and $24 thereafter.
Any payments that are received from a customer in advance, prior to the satisfaction of a related performance obligation and billings in excess of revenue recognized, are deferred and treated as a contract liability. Advance payments and billings in excess of revenue recognized are classified as current or non-current based on the timing of when recognition of revenue is expected. As of July 2,December 31, 2023, the current and non-current portion of contract liabilities were $29,822$38,828 and $974,$680, respectively. As of March 31, 2023, the current and non-current portion of contract liabilities were $34,594 and $1,437, respectively. Revenues recognized during the firstthird quarter of fiscal 2024 and 2023 that were included in the contract liability at the beginning of the quarter, amounted to $12,39110,072 and $4,590,$7,382, respectively. Revenues recognized during the nine months of fiscal 2024 and 2023 that were included in the contract liability at the beginning of the year, amounted to $17,600 and $9,167, respectively.
Amounts representing work completed and not billed to customers represent contract assets and were $56,177$46,488 and $48,616 as of July 2,December 31, 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,December 31, 2023, the right of return asset related to the value of inventory anticipated to be returned from customers was $4,748$4,684 and refund liability representing amounts estimated to be refunded to customers was $8,317.$7,783.
3. Accounts Receivable
| | July 2, 2023 | | March 31, 2023 |
| | December 31, 2023 | | | | December 31, 2023 | | March 31, 2023 |
Accounts receivable | Accounts receivable | | $ | 575,531 | | | $ | 646,592 | |
Allowance for doubtful accounts | Allowance for doubtful accounts | | 9,033 | | | 8,775 | |
Accounts receivable, net | Accounts receivable, net | | $ | 566,498 | | | $ | 637,817 | |
During the third quarter of fiscal 2023, the Company entered into a Receivables Purchase Agreement (RPA), under which the Company continuously sells its interest in designated pools of trade accounts receivables, at a discount, to a special purpose entity, which in turn sells certain of the receivables to an unaffiliated financial institution ("unaffiliated financial institution") on a monthly basis. The Company may sell certain US-originated accounts receivable balances up to a maximum amount of $150,000. In return for these sales, the Company receives a cash payment equal to the face value of the receivables and 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"), an entity structured to be bankruptcy remote, and
matures in December 2025. The Company is deemed the primary 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 entity from the transfer of the trade accounts
receivables into the special purpose entity. Accordingly, EnerSys Finance is included in the Company’s Consolidated Condensed Financial Statements.
Receivables sold to unaffiliated financial 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 purchase price is received in cash when the receivables are sold, and fees charged relating to this balance are recorded to other (income) expense. Certain unsold receivables held by EnerSys Finance serve as collateral to unaffiliated financial institutions. These unsold receivables are included in “Accounts receivable, net” in the Company’s Consolidated Condensed Balance Sheets. The Company continues servicing the receivables which were sold and in exchange receives a servicing fee from EnerSys Finance under the program.
During the firstthird quarter and the nine months of fiscal 2024, the Company sold $182,391$156,398 and $513,161, respectively, of accounts receivables for approximately $182,391$156,398 and $513,161, respectively, in proceeds to an unaffiliated financial institution, of which $183,352$180,446 and $542,931, respectively, were collected as of July 2,December 31, 2023. During the third quarter and nine months of fiscal 2023, the Company sold $150,000 of accounts receivables for approximately $149,700 in net proceeds to an unaffiliated financial institution, of which $25,623 were collected as of January 1, 2023. Total collateralized accounts receivables of approximately $228,154$183,512 were held by EnerSys Finance at July 2,December 31, 2023.
Any accounts receivables held by EnerSys Finance would likely not be available to other creditors of the Company in the event of bankruptcy or insolvency proceedings relating to the Company until the outstanding balances under the RPA are satisfied. Additionally, the financial obligations of EnerSys Finance to the unaffiliated financial institutions under the program are limited to the assets it owns and there is no recourse to the Company for receivables that are uncollectible as a result of the insolvency of EnerSys Finance or its inability to pay the account debtors.
4. Inventories
| | July 2, 2023 | | March 31, 2023 |
| | December 31, 2023 | | | | December 31, 2023 | | March 31, 2023 |
Raw materials | Raw materials | | $ | 316,477 | | | $ | 323,418 | |
Work-in-process | Work-in-process | | 119,320 | | | 123,401 | |
Finished goods | Finished goods | | 373,605 | | | 350,979 | |
Total | 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 July 2,December 31, 2023 and March 31, 2023, and the basis for that measurement:
| | 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) |
| | Total Fair Value Measurement December 31, 2023 | | | | Total Fair Value Measurement December 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 | Lead forward contracts | | $ | 409 | | | $ | — | | | $ | 409 | | | $ | — | |
Foreign currency forward contracts | 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 | Total derivatives | | $ | (15,391) | | | $ | — | | | $ | (15,391) | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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- Summary of Significant Accounting Policies to the Company's Consolidated Financial Statements included in the 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 Third Amended Credit Facility (as defined in Note 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.
In fiscal 2020, the Company issued its 4.375% Senior Notes due December 15, 2027 (the “2027 Notes”), with an original face value of $300,000. The fair value of the 2027 Notes represents the trading values based upon quoted market prices and are classified as Level 2. The 2027 Notes were trading at approximately 92%95% and 92% of face value on July 2,December 31, 2023 and March 31, 2023, respectively.
The carrying amounts and estimated fair values of the Company’s derivatives and Senior Notes at July 2,December 31, 2023 and March 31, 2023 were as follows:
| | | | July 2, 2023 | | March 31, 2023 | | | December 31, 2023 | | March 31, 2023 |
| | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Financial assets: | Financial assets: | | | | | | | | |
Derivatives (1) | Derivatives (1) | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Derivatives (1) | |
Derivatives (1) | |
Financial liabilities: | Financial liabilities: | |
Senior Notes (2) | |
Senior Notes (2) | |
Senior Notes (2) | Senior Notes (2) | | $ | 300,000 | | | $ | 276,750 | | | $ | 300,000 | | | $ | 276,000 | |
Derivatives (1) | 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,December 31, 2023 and March 31, 2023).
(2)The fair value amount of the Senior Notes at July 2,December 31, 2023 and March 31, 2023 represent the trading value of the instruments.
Non-recurring fair value measurements
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.
On November 8, 2023, the Company's Board of Directors approved a plan to stop production and operations of residential renewable energy products, which include our OutBack and Mojave brands. Management determined that residential renewable energy products no longer fit with the company’s core strategy and resources will be better allocated toward commercial energy solutions for enterprise customers. As a result the Company's indefinite-lived trademark, which were acquired through acquisition, was recorded at fair value on a non-recurring basis at $880 and the remeasurement resulted in an impairment of $6,020 in the third quarter of fiscal 2024. In determining the fair value of these assets, the Company used a royalty rate of 1.5% based on comparable market rates and used discount rate of 24.5%. The inputs used to measure the fair value 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, 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 July 2,December 31, 2023 and March 31, 2023, the Company has hedged the price to purchase approximately 55.052.5 million pounds and 50.0 million pounds of lead, respectively, for a total purchase price of $52,137$50,609 and $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 July 2,December 31, 2023 and March 31, 2023, the Company had entered into a total of $44,760$51,146 and $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,December 31, 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. dollarsDollars and euros.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. The cash proceeds have been included in Proceeds from termination of net investment hedges in our Consolidated Condensed Statements of Cash Flows.
On September 29, 2022, the Company entered into cross-currency fixed interest rate swap contracts with an aggregate notional amount of $150,000, maturing on December 15, 2027. The cross-currency fixed interest rate swap contracts qualify for hedge accounting as a net investment hedging instrument, which allows for them to be remeasured to foreign currency translation adjustment within AOCI (“Accumulated Other Comprehensive Income”) to offset the translation risk from those investments. Balances in the foreign currency translation adjustment accounts remain until the sale or substantially complete liquidation of the foreign entity, upon which they are recognized as a component of other income (expense).
Impact of Hedging Instruments on AOCI
In the coming twelve months, the Company anticipates that $5,069$1,229 of pretax (gain) relating to lead, foreign currency forward contracts and net investment hedges will be reclassified from AOCI as part of cost of goods sold and interest expense. This amount represents the current net unrealized impact of hedging lead, foreign exchange rates and interest rates, which will change as market rates change in the future. 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 resulting from variable lead cost, foreign exchange and interest rates 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 July 2,December 31, 2023 and March 31, 2023, the notional amount of these contracts was $75,798$65,699 and $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
July 2,December 31, 2023 and March 31, 2023
| | | | 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 | | | 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 | | | December 31, 2023 | | March 31, 2023 | | December 31, 2023 | | March 31, 2023 | | December 31, 2023 | | March 31, 2023 |
Prepaid and other current assets: | Prepaid and other current assets: | | | | | | | | | | | | |
Lead forward contracts | Lead forward contracts | | $ | 409 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Lead forward contracts | |
Lead forward contracts | |
Foreign currency forward contracts | Foreign currency forward contracts | | 764 | | | 723 | | | — | | | — | | | — | | | 200 | |
Net investment hedges | Net investment hedges | | — | | | — | | | — | | | — | | | — | | | — | |
Other assets: | Other assets: | |
Interest Rate Swaps | | 3,057 | | | — | | | — | | | — | | | — | | | — | |
Interest rate swaps | |
Interest rate swaps | |
Interest rate swaps | |
Net investment hedges | Net investment hedges | | — | | | — | | | — | | | — | | | — | | | — | |
Total assets | Total assets | | $ | 4,230 | | | $ | 723 | | | $ | — | | | $ | — | | | $ | — | | | $ | 200 | |
Accrued expenses: | Accrued expenses: | | | | | | | | | | | | |
Lead forward contracts | Lead forward contracts | | $ | — | | | $ | 89 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Lead forward contracts | |
Lead forward contracts | |
Foreign currency forward contracts | Foreign currency forward contracts | | — | | | — | | | — | | | — | | | 960 | | | — | |
Other liabilities: | Other liabilities: | |
Interest Rate Swaps | | — | | | 1,162 | | | — | | | — | | | — | | | — | |
Interest rate swaps | |
Interest rate swaps | |
Interest rate swaps | |
Net investment hedges | Net investment hedges | | — | | | — | | | 18,661 | | | 15,760 | | | — | | | — | |
Total liabilities | Total liabilities | | $ | — | | | $ | 1,251 | | | $ | 18,661 | | | $ | 15,760 | | | $ | 960 | | | $ | — | |
The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the quarter ended July 2,December 31, 2023
| 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) | 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 | | $ | 475 | | | Cost of goods sold | | $ | 630 | |
Foreign currency forward contracts | Foreign currency forward contracts | | 899 | | | Cost of goods sold | | 3,095 | |
Interest rate swaps | Interest rate swaps | | 4,849 | | | Interest expense | | 171 | |
Total | Total | | 6,223 | | | 3,896 | |
| 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) | 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 | | $ | (2,790) | | | Interest expense | | $ | 112 | |
Total | 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)538 | |
Total | | | $ | (503)538 | |
The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the quarter ended July 3, 2022January 1, 2023
| 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) | 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 | Foreign currency forward contracts | | 1,255 | | | Cost of goods sold | | 446 | |
Total | 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) |
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 | | $ | 2161,856 | |
Total | | | $ | 2161,856 | |
The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the nine months ended December 31, 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 | | $ | (25) | | | Cost of goods sold | | $ | 4,860 | |
Foreign currency forward contracts | | 769 | | | Cost of goods sold | | 346 | |
Interest rate swaps | | 3,517 | | | Interest expense | | 2,242 | |
Total | | $ | 4,261 | | | | | $ | 7,448 | |
| | | | | | | | | | | | | | | | | | | | |
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 | | $ | (6,509) | | | Interest expense | | $ | 908 | |
Total | | $ | (6,509) | | | | | $ | 908 | |
| | | | | | | | | | | |
Derivatives Not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in Income on Derivative | | Pretax Gain (Loss) |
Foreign currency forward contracts | Other (income) expense, net | | $ | (666) | |
Total | | | $ | (666) | |
The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the nine months ended January 1, 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 | | $ | 1,750 | | | Cost of goods sold | | $ | (5,342) | |
Foreign currency forward contracts | | 1,962 | | | Cost of goods sold | | 2,931 | |
Total | | $ | 3,712 | | | | | $ | (2,411) | |
| | | | | | | | | | | | | | | | | | | | |
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 | | $ | 30,092 | | | Interest expense | | $ | 3,283 | |
Total | | $ | 30,092 | | | | | $ | 3,283 | |
| | | | | | | | | | | |
Derivatives Not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in Income on Derivative | | Pretax Gain (Loss) |
Foreign currency forward contracts | Other (income) expense, net | | $ | 1,383 | |
Total | | | $ | 1,383 | |
7. Income Taxes
The Company’s income tax provision consists of federal, state and foreign income taxes. The tax provision for the firstthird quarter of fiscal 2024 and 2023 was based on the estimated effective tax rates applicable for the full years ending March 31, 2024 and March 31, 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, changes in tax laws and the amount of the Company's consolidated earnings before taxes.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted. The IRA includes multiple incentives to promote clean energy, and energy storage manufacturing among other provisions with tax credits available from 2023 to 2032, subject to phase down beginning in 2030. In particular the IRA creates a refundable tax credit, pursuant to Section 45X of the Internal Revenue Code (“IRC”), for battery cells and battery modules manufactured or assembled in the United States and sold to third parties. On December 14, 2023, the United States Treasury issued proposed regulations which provided further guidance related to the Section 45X Advanced Manufacturing Production Credit. In the firstthird quarter and nine months of fiscal 2024, the IRA impact resulted in a reduction of our costs of goods sold and income tax payable. There ispayable of $59,119 and $100,353, respectively. The issuance of the aforementioned proposed regulations resulted in a possibility that additional clarification guidance is issued with respect$28,683 retroactive adjustment to the Section 45X credit qualifications.beginning of the effective date of the IRA, January 1, 2023, in the third quarter of fiscal 2024. Amounts recognized in the Consolidated Condensed Financial Statements are based on Management's judgement and best estimate utilizing the most current guidance. The Company will continue to evaluate the effects of IRA asto the extent more guidance is issued and the relevant implications to our Consolidated Condensed Financial Statements. Actual results could differ from management’s current estimate.
The consolidated effective income tax rates for the firstthird quarter of fiscal 2024 and 2023 were 9.2%3.2% and 15.7%.23.2% and for the nine months of fiscal 2024 and 2023 were 7.7% and 18.5%, respectively. The rate decrease in the firstthird quarter and nine months of fiscal 2024 compared to the prior year quarter isperiods are primarily due to the impact of the IRA. In addition, there was a discrete foreign exchange tax benefit related to undistributed earnings which was offset by theIRA and mix of earnings among tax jurisdictions.
Foreign income as a percentage of worldwide income is estimated to be 51%52% for fiscal 2024 compared to 77%83% for fiscal 2023. This reduction is primarily due to the impact of the IRA Impact on domestic and total earnings. The foreign effective tax rates for the current quarternine months of fiscal 2024 and 2023 were 12%11% and 11%15%, 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 fiscal 2023 and were taxed at an effective income tax rate of approximately 8% and 9%, respectively. in both periods.
8. Warranty
The Company provides for estimated product warranty expenses when 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 may ultimately differ from amounts provided. An analysis of changes in the liability for product warranties is as follows:
| | | | Quarter ended | | | | Quarter ended | | Nine months ended |
| | | July 2, 2023 | | July 3, 2022 | | | | December 31, 2023 | | January 1, 2023 | | December 31, 2023 | | January 1, 2023 |
Balance at beginning of period | Balance at beginning of period | | $ | 56,630 | | | $ | 54,978 | | |
Current period provisions | Current period provisions | | 8,685 | | | 4,940 | | |
Costs incurred | Costs incurred | | (7,446) | | | (5,744) | | |
| Foreign currency translation adjustment | Foreign currency translation adjustment | | 569 | | | (1,220) | | |
Foreign currency translation adjustment | |
Foreign currency translation adjustment | |
Balance at end of period | Balance at end of period | | $ | 58,438 | | | $ | 52,954 | | |
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 - Commitments, Contingencies and Litigation to the Consolidated Financial Statements contained in the 2023 Annual Report. As of July 2,December 31, 2023 and March 31, 2023, the Company did not have a reserve balance related to these matters.
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 believes that it has adequate reserves to satisfy its environmental liabilities.
Lead, Foreign Currency Forward Contracts and Swaps
To stabilize its lead costs and reduce volatility from currency and interest rate movements, the Company entered into contracts with financial institutions. The vast majority of lead 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 6 - Derivative Financial Instruments for more details.
10. Restructuring and otherOther 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$344 remaining to be incurred by the end of fiscal 2024, mainly related to new plans started in fiscal 2021 and fiscal 2022.2024. Restructuring and exit charges for the firstthird quarter of fiscal 2024 by reportable segments are as follows:
| | Quarter ended July 2, 2023 |
| Energy Systems | | Motive Power | | Specialty | | Total |
| | Quarter ended December 31, 2023 | | | | Quarter ended December 31, 2023 |
| | Energy Systems | | | | Energy Systems | | Motive Power | | Specialty | | Total |
Restructuring charges | Restructuring charges | | $ | 488 | | | $ | — | | | $ | — | | | $ | 488 | |
Exit charges | Exit charges | | — | | | 1,559 | | | 4,262 | | | 5,821 | |
Restructuring and other exit charges | Restructuring and other exit charges | | $ | 488 | | | $ | 1,559 | | | $ | 4,262 | | | $ | 6,309 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended December 31, 2023 |
| | Energy Systems | | Motive Power | | Specialty | | Total |
Restructuring charges | | $ | 2,707 | | | $ | 1,772 | | | $ | 34 | | | $ | 4,513 | |
Exit charges | | 2,364 | | | 6,176 | | | 6,560 | | | 15,100 | |
Restructuring and other exit charges | | $ | 5,071 | | | $ | 7,948 | | | $ | 6,594 | | | $ | 19,613 | |
A roll-forward of the restructuring reserve, excluding exit charges, is as follows:
| | | | | | | | |
Balance as of March 31, 2023 | | $ | 445 | |
Accrued | | 4884,513 | |
Costs incurred | | (505)(2,071) | |
Foreign currency impact | | 4124 | |
Balance as of July 2,December 31, 2023 | | $ | 4323,011 | |
Exit Charges
Fiscal 2024 Program
Renewables
On November 8, 2023, the Company's Board of Directors approved a plan to stop production and operations of residential renewable energy products, which include our OutBack and Mojave brands. Management determined that residential renewable energy products no longer fit with the company’s core strategy and resources will be better allocated toward commercial energy solutions for enterprise customers. The Company currently estimates that the total charges for these actions will amount to approximately $23,500. Non-cash charges for inventory and fixed assets write offs, and impairment of an indefinite-lived intangible asset are estimated to be $22,600, and cash charges for employee severance and retention payments are estimated to be $900. The plan is expected to be completed in fiscal 2024.
During the nine months of fiscal 2024, the Company recorded non-cash charges totaling $6,572 primarily related to indefinite-lived intangible asset write-off and cash charges of $438 related to severance costs. The Company also recorded a non-cash write off relating to inventories of $16,067, which was reported in cost of goods sold.
Spokane
On November 8, 2023, the Company committed to a plan to close its facility in Spokane, Washington, which primarily manufactures enclosure systems for telecommunications and related end markets. Management determined that existing manufacturing locations have the capacity to satisfy demand for these products and will execute more efficient distribution to customers. The Company currently estimates that the total charges for these actions will amount to approximately $3,600 relating to $700 in cash charges for employee severance, and non-cash charges of $2,900 relating to fixed assets, facility lease, and inventory. The plan is expected to be completed in fiscal 2024.
During the nine months of fiscal 2024, the Company recorded cash charges of $585 primarily related to severance costs and non-cash charges totaling $481 related to fixed asset write offs.
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.$11,758. Cash charges are estimated to total $5,700$7,865 primarily relating to severance and other costs to leave the site. Non-cash charges are estimated to be $3,760$3,893 relating to fixed assets, inventory, and contract assets. The plan is expected to be completed in fiscal 2024.
During fiscal 2023, the Company recorded cash charges of $1,682 related primarily related to severance costs and non-cash charges totaling $417 primarily relating to contract assets.
During the current quarternine months of fiscal 2024, the Company recorded cash charges of $4,017$6,183 primarily related to severance costs, relocation expenses, and manufacturing variances and non-cash charges totaling $245.$377. 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 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 $18,500. Cash charges for employee severance related payments, cleanup related to the facility, contractual releases and legal 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 165 employees. The plan ismajority of these charges are expected to be completed inrecorded by the end of calendar 2023.
During fiscal 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 current quarternine months of fiscal 2024, the Company recorded cash charges relating to site clean upcleanup and decommissioning equipment of $881.$3,505.
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 increased uncertainty from the pandemic. The Company plans to retain the facility with limited sales, service and administrative functions along with related personnel for the foreseeable future.
The Company currently estimates that the total charges for these actions will amount to approximately $60,000, of which cash charges for employee severance related payments, cleanup related to the facility, contractual releases and 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 majority of these charges were recorded as of January 1, 2023. These actions resulted in the reduction of approximately 200 employees.
During fiscal 2021, the Company recorded cash charges relating to severance of $23,331 and non-cash charges of $7,946 primarily relating to fixed asset write-offs.
During fiscal 2022, the Company recorded cash charges primarily relating to severance of $8,069 and non-cash charges of $3,522 primarily relating to fixed asset write-offs. The Company also recorded a non-cash write off relating to inventories of $960, which was reported in cost of goods sold.
During fiscal 2023, the Company recorded cash charges of $2,207 relating to primarily to site cleanup and $562 of non-cash charges relating to accelerated depreciation of fixed assets.
During the current quarternine months of fiscal 2024, the Company recorded cash charges of $485$1,690 relating primarily to site cleanup and $143$407 of non-cash charges relating to accelerated depreciation of fixed assets.
11. Debt
The following summarizes the Company’s long-term debt as of July 2,December 31, 2023 and March 31, 2023:
| | July 2, 2023 | | March 31, 2023 |
| Principal | | Unamortized Issuance Costs | | Principal | | Unamortized Issuance Costs |
| | December 31, 2023 | | | | December 31, 2023 | | March 31, 2023 |
| | Principal | | | | Principal | | Unamortized Issuance Costs | | Principal | | Unamortized Issuance Costs |
Senior Notes | Senior Notes | | $ | 300,000 | | | $ | 2,561 | | | $ | 300,000 | | | $ | 2,705 | |
Fourth Amended Credit Facility, due 2026 | 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 | Less: Unamortized issuance costs | | 6,014 | | | | | 6,424 | | | |
Long-term debt, net of unamortized issuance costs | Long-term debt, net of unamortized issuance costs | | $ | 907,768 | | | $ | 1,041,989 | | |
Long-term debt, net of unamortized issuance costs | |
Long-term debt, net of unamortized issuance costs | |
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 4.375% per annum accruing from December 11, 2019. Interest is payable semiannually in arrears on June 15 and December 15 of each year, commencing on June 15, 2020. The 2027 Notes mature on December 15, 2027, unless earlier redeemed or repurchased in full and are unsecured and unsubordinated obligations of the Company. They are fully and unconditionally guaranteed, jointly and severally, by certain of its subsidiaries that are guarantors under the Fourth Amended Credit Facility (defined below). These guarantees are unsecured and unsubordinated obligations of such guarantors.
The Company may redeem, prior to September 15, 2027, all or a portion of the 2027 Notes at a price equal to 100% of the principal amount of the 2027 Notes to be redeemed, plus accrued and unpaid interest and a “make whole” premium to, but excluding, the redemption date. The Company may redeem, on or after September 15, 2027, all or a portion of the 2027 Notes at a price equal to 100% of the principal amount of the 2027 Notes, plus accrued and unpaid interest to, but excluding, the redemption date. If a change of control triggering event occurs, the Company will be required to offer to repurchase the 2027 Notes at a price in cash equal to 101% of the aggregate principal amount of the 2027 Notes, plus accrued and unpaid interest to, but excluding, the date of repurchase.
6.625% Senior Notes due 2032
On January 11, 2024, the Company issued $300,000 in aggregate principal amount of its 6.625% Senior Notes due January 15, 2032 (the “2032 Notes”). Proceeds from this offering, net of debt issuance costs were $297,000 and were utilized to pay down the Fourth Amended Credit Facility. The 2032 Notes bear interest at a rate of 6.625% per annum accruing from January 11, 2024. Interest is payable semiannually in arrears on January 15 and July 15 of each year, commencing on July 15, 2024. The 2032 Notes mature on January 15, 2032, unless earlier redeemed or repurchased in full and are unsecured and unsubordinated obligations of the Company. They are fully and unconditionally guaranteed, jointly and severally, by certain of its subsidiaries that are guarantors under the Fourth Amended Credit Facility (defined below). These guarantees are unsecured and unsubordinated obligations of such guarantors.
The Company may redeem, prior to January 15, 2027, all or a portion of the 2032 Notes at a price equal to 100% of the aggregate principal amount of the 2032 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 January 15, 2027, all or a portion of the 2032
Notes at a price equal to 100% of the principal amount of the 2032 Notes, plus accrued and unpaid interest and a redemption premium to, but excluding, the redemption date. The Company may, in compliance with certain conditions, on any one or more occasions redeem up to 40% of the original aggregate principal amount of the 2032 Notes, with the net cash proceeds of one or more equity offerings at a price equal to 106.625% of the aggregate principal amount of the 2032 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 2032 Notes at a price in cash equal to 101% of the aggregate principal amount of the 2032 Notes, plus accrued and unpaid interest to, but excluding, the date of repurchase.
2017 Credit Facility and Subsequent Amendments
In fiscal 2018, the Company entered into a credit facility (the “2017 Credit Facility”). The 2017 Credit Facility was scheduled to mature on September 30, 2022, initially comprised a $600,000 senior secured revolving credit facility (“2017 Revolver”) and a $150,000 senior secured term loan (“2017 Term Loan”). The Company utilized the borrowings from the 2017 Credit Facility to repay its pre-existing credit facility.
In fiscal 2019, the Company amended the 2017 Credit Facility (as amended, the “Amended Credit Facility”) to fund the Alpha acquisition. The Amended Credit Facility consisted of $449,105 senior secured term loans (the “Amended Term Loan”), including a CAD 133,050 ($99,105) senior secured term loan and a $700,000 senior secured revolving credit facility (the “Amended Revolver”). The amendment resulted in an increase of the 2017 Term Loan and the 2017 Revolver by $299,105 and $100,000, respectively.
During the second quarter of fiscal 2022, the Company entered into a second 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 term loan (the “Second Amended Term Loan”), a CAD 106,440 ($84,229) senior secured term loan and an $850,000 senior secured revolving credit facility (the “Second Amended Revolver”). The second amendment resulted in a decrease of the Amended Term Loan by $150,000 and an increase of the Amended Revolver by $150,000.
During the second quarter of fiscal 2023, the Company entered into a third amendment to the 2017 Credit Facility (as amended, the “Third Amended Credit Facility”). The Third Amended Credit Facility provides a new incremental delayed-draw senior secured term loan up to $300,000 (the “Third Amended Term Loan”), which shall be available to draw at any time until March 15, 2023. Once drawn, the funds will mature on September 30, 2026, the same as the Company's Second Amended Term loanLoan 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 of fiscal 2023, 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 “Fourth Amended Credit Facility”). The Fourth Amended Credit Facility replaces the London Interbank Offered Rate (“LIBOR”) with the Secured Overnight Financing Rate (“SOFR”) in the calculation of interest for both the Second Amended Revolver and the Second Amended Term Loan.
Subsequent to the fourth amendment, the quarterly installments payable on the Second Amended Term Loan are 2,630$2,630 beginning December 31, 2022, 3,945$3,946 beginning December 31, 2024 and 5,261$5,261 beginning December 31, 2025 with a final payment of 157,817$157,821 on September 30, 2026. The Fourth Amended Credit Facility may be increased by an aggregate amount of $350,000 in revolving commitments and /or one or more new tranches of term loans, under certain conditions. Both the Second Amended Revolver and the Second Amended Term Loan bear interest, at the Company's option, at a rate per annum equal to either (i) the SOFR or Canadian Dollar Offered Rate (“CDOR”)plus 10 basis points plus (i) Term SOFR plus between 1.125% and 2.25% (currently 1.25%1.250% and based on the Company's consolidated net leverage ratio) or (ii) the U.S. Dollar Base Rate (whichor Canadian Prime Rate plus between 0.125% and 1.25%, 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 arewere $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%1.500% 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 Fourth 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 Fourth 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 Fourth 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 second quarter of fiscal year 2024 and decreasing subsequently to 4.00x.
As of July 2,December 31, 2023, the Company had $115,000$100,000 outstanding under the Second Amended Revolver, $498,782$197,277 under the Second Amended Term Loan, and $300,000$288,750 outstanding under the Third Amended Term Loan.
Current Portion of Debt
The scheduled repayments within the next twelve months, relating to the Second and Third Amended Term Loans, are $10,521$11,837 and $15,000,$16,875, respectively, and is classified as long-term debt, as the Company expects to refinance the future quarterly payments with revolver borrowings under the Second Amended Credit Facility.
Short-Term Debt
As of July 2,December 31, 2023 and March 31, 2023, the Company had $30,962$30,937 and $30,642, respectively, of short-term borrowings. The weighted average interest rate on these borrowings was approximately 6.6%6.7% and 7.0%, respectively, at July 2,December 31, 2023 and March 31, 2023.
Letters of Credit
As of July 2,December 31, 2023 and March 31, 2023, the Company had $3,665$2,605 and $3,565 of standby letters of credit, respectively.
Debt Issuance Costs
In connection with the Second Amended Credit Facility, the Company capitalized $2,952 in debt issuance costs and wrote off $128 of unamortized debt issuance costs. Amortization expense, relating to debt issuance costs, included in interest expense was $410 and $487, respectively, for the firstthird quarter ended July 2,December 31, 2023 and July 3, 2022, respectively.January 1, 2023, respectively and $1,230 and $1,461 for the nine months of fiscal 2024 and 2023. Debt issuance costs, net of accumulated amortization, totaled $6,014$5,194 and $6,424, respectively, at July 2,December 31, 2023 and March 31, 2023.
Available Lines of Credit
As of July 2,December 31, 2023 and March 31, 2023, the Company had available and undrawn, under all its lines of credit, $823,925$839,632 and $693,444, respectively, including $91,320$92,163 and $90,839, respectively, of uncommitted lines of credit.
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 | | | United States Plans | | International Plans |
Quarter ended | | Quarter ended | Quarter ended | | Quarter ended |
July 2, 2023 | | July 3, 2022 | | July 2, 2023 | | July 3, 2022 | December 31, 2023 | | January 1, 2023 | | December 31, 2023 | | January 1, 2023 |
Service cost | Service cost | | $ | — | | | $ | — | | | $ | 220 | | | $ | 235 | |
Interest cost | Interest cost | | 166 | | | 145 | | | 585 | | | 440 | |
Expected return on plan assets | Expected return on plan assets | | (76) | | | (119) | | | (406) | | | (517) | |
Amortization and deferral | Amortization and deferral | | — | | | — | | | 29 | | | 123 | |
| Net periodic benefit cost | Net periodic benefit cost | | $ | 90 | | | $ | 26 | | | $ | 428 | | | $ | 281 | |
Net periodic benefit cost | |
Net periodic benefit cost | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | United States Plans | | International Plans |
Nine months ended | | Nine months ended |
December 31, 2023 | | January 1, 2023 | | December 31, 2023 | | January 1, 2023 |
Service cost | | $ | — | | | $ | — | | | $ | 660 | | | $ | 681 | |
Interest cost | | 493 | | | 436 | | | 1,690 | | | 1,278 | |
Expected return on plan assets | | (318) | | | (341) | | | (1,025) | | | (1,497) | |
Amortization and deferral | | — | | | — | | | 223 | | | 356 | |
| | | | | | | | |
Net periodic benefit cost | | $ | 175 | | | $ | 95 | | | $ | 1,548 | | | $ | 818 | |
13. Stock-Based Compensation
As of July 2,December 31, 2023, the Company maintains the 20172023 Equity Incentive Plan as amended from time to time (“20172023 EIP”). The 20172023 EIP reserved 4,173,5543,614,500 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 $7,933$9,817 for the firstthird quarter of fiscal 2024 and $5,330$6,906 for the firstthird quarter of fiscal 2023. Stock-based compensation was $22,894 and $18,770 for the nine months of fiscal 2024 and fiscal 2023, respectively. The Company recognizes compensation expense using the straight-line method over the vesting period of the awards.
During the current quarternine months of fiscal 2024, the Company granted to non-employee directors 2,30127,371 restricted stock units, under the 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 current quarternine months of fiscal 2024, the Company granted to management and other key employees 7,215200,314 non-qualified stock options that vest ratably over three years from the date of the grant and 269,751 restricted stock units that vest ratably over four years from the date of grant.
Common stock activity during the current quarternine months of fiscal 2024 included the exercise of 152,963178,835 stock options.options and the vesting of 260,967 restricted stock units and 30,597 TSRs.
As of July 2,December 31, 2023, there were 1,042,7051,215,424 non-qualified stock options, 1,020,3651,040,960 restricted stock units including non-employee director restricted stock units and 31,7061,129 TSRs outstanding.
14. Stockholders’ Equity and Noncontrolling Interests
Common Stock
The following demonstrates the change in the number of shares of common stock outstanding during the current quarternine months ended July 2,December 31, 2023:
| | | | | | | | |
Shares outstanding as of March 31, 2023 | | 40,901,059 | |
Purchase of treasury stock | | (855,034) | |
| | |
Shares issued under equity-based compensation plans, net of equity awards surrendered for option price and taxes | | 128,975353,106 | |
Shares outstanding as of July 2,December 31, 2023 | | 41,030,03440,399,131 | |
Treasury Stock
During the first quarternine months ended July 2,December 31, 2023, the Company did not purchase anypurchased 855,034 shares for $82,331 and purchased 358,365 shares for $22,907 during the first quarternine months ended July 3, 2022.January 1, 2023. At July 2,December 31, 2023 and March 31, 2023, the Company held 15,099,67615,948,186 and 15,103,554 shares as treasury stock, respectively. During the current quarternine months ended July 2,December 31, 2023, the Company also issued 3,87810,402
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 July 2,December 31, 2023 and March 31, 2023, are as follows:
| | March 31, 2023 | | Before Reclassifications | | Amounts Reclassified from AOCI | | July 2, 2023 |
| | March 31, 2023 | | | | March 31, 2023 | | Before Reclassifications | | Amounts Reclassified from AOCI | | December 31, 2023 |
Pension funded status adjustment | Pension funded status adjustment | | $ | (4,423) | | | $ | — | | | $ | 20 | | | $ | (4,403) | |
Net unrealized gain (loss) on derivative instruments | Net unrealized gain (loss) on derivative instruments | | 1,411 | | | 4,771 | | | (2,985) | | | 3,197 | |
Foreign currency translation adjustment (1) | Foreign currency translation adjustment (1) | | (180,462) | | | 2,192 | | | — | | | (178,270) | |
Accumulated other comprehensive (loss) income | Accumulated other comprehensive (loss) income | | $ | (183,474) | | | $ | 6,963 | | | $ | (2,965) | | | $ | (179,476) | |
(1) Foreign currency translation adjustment for the current quarternine months ended July 2,December 31, 2023 includes a $2,224 gain$5,687 loss (net of taxes of $678)$1,734) related to the Company's $150,000 cross-currency fixed interest rate swap contract.
The following table presents reclassifications from AOCI during the firstthird quarter ended July 2,December 31, 2023:
| | | | | | | | | | | | | | |
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)(3,334) | | | Cost of goods sold |
Tax expense | | 911779 | | | |
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)(2,555) | | | |
| | | | |
Derivatives in net investment hedging relationships: | | | | |
Net unrealized gain on derivative instruments | | $ | (796) | | | Interest expense |
Tax expense | | 186 | | | |
Net unrealized gain on derivative instruments, net of tax | | $ | (610) | | | |
| | | | |
Defined benefit pension costs: | | | | |
Prior service costs and deferrals | | $ | 29167 | | | Net periodic benefit cost, included in other (income) expense, net - See Note 12 |
Tax benefit | | (9)(146) | | | |
Net periodic benefit cost, net of tax | | $ | 2021 | | | |
The following table presents reclassifications from AOCI during the first quarternine months ended July 3, 2022:December 31, 2023:
| | | | | | | | | | | | | | |
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)(7,448) | | | Cost of goods sold |
Tax expense | | 2671,741 | | | |
Net unrealized gain on derivative instruments, net of tax | | $ | (874)(5,707) | | | |
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Derivatives in net investment hedging relationships: | | | | |
Net unrealized gain on derivative instruments | | $ | (1,258)(908) | | | Interest expense |
Tax expense | | 294212 | | | |
Net unrealized gain on derivative instruments, net of tax | | $ | (964)(696) | | | |
| | | | |
Defined benefit pension costs: | | | | |
Prior service costs and deferrals | | $ | 123223 | | | Net periodic benefit cost, included in other (income) expense, net - See Note 12 |
Tax benefit | | (34)(161) | | | |
Net periodic benefit cost, net of tax | | $ | 8962 | | | |
The following table presents reclassifications from AOCI during the third quarter ended January 1, 2023:
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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 unrealized loss on derivative instruments | | $ | 2,484 | | | Cost of goods sold |
Tax benefit | | (581) | | | |
Net unrealized loss on derivative instruments, net of tax | | $ | 1,903 | | | |
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Derivatives in net investment hedging relationships: | | | | |
Net unrealized gain on derivative instruments | | $ | (360) | | | Interest expense |
Tax expense | | 84 | | | |
Net unrealized gain on derivative instruments, net of tax | | $ | (276) | | | |
| | | | |
Defined benefit pension costs: | | | | |
Prior service costs and deferrals | | $ | 118 | | | Net periodic benefit cost, included in other (income) expense, net - See Note 12 |
Tax benefit | | (34) | | | |
Net periodic benefit cost, net of tax | | $ | 84 | | | |
The following table presents reclassifications from AOCI during the nine months ended January 1, 2023:
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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 unrealized loss on derivative instruments | | $ | 2,411 | | | Cost of goods sold |
Tax benefit | | (564) | | | |
Net unrealized gain on derivative instruments, net of tax | | $ | 1,847 | | | |
| | | | |
Derivatives in net investment hedging relationships: | | | | |
Net unrealized gain on derivative instruments | | $ | (3,283) | | | Interest expense |
Tax expense | | 767 | | | |
Net unrealized gain on derivative instruments, net of tax | | $ | (2,516) | | | |
| | | | |
Defined benefit pension costs: | | | | |
Prior service costs and deferrals | | $ | 356 | | | Net periodic benefit cost, included in other (income) expense, net - See Note 12 |
Tax benefit | | (102) | | | |
Net periodic benefit cost, net of tax | | $ | 254 | | | |
The following demonstrates the change in equity attributable to EnerSys stockholders and nonredeemable noncontrolling interests during the firstthird quarter and current quarternine months ended July 2,December 31, 2023: | (In Thousands, Except Per Share Data) | (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 | (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 | 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 | Stock-based compensation | | — | | | — | | | 7,933 | | | — | | | — | | | — | | | — | | | 7,933 | | | — | | | 7,933 | |
Exercise of stock options | 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 | Shares issued under equity awards (taxes paid related to net share settlement of equity awards), net | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Purchase of common stock | Purchase of common stock | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Other | Other | | — | | | — | | | 65 | | | 214 | | | — | | | — | | | — | | | 279 | | | — | | | 279 | |
Net earnings | Net earnings | | — | | | — | | | — | | | — | | | 66,797 | | | — | | | — | | | 66,797 | | | — | | | 66,797 | |
Dividends ($0.175 per common share) | Dividends ($0.175 per common share) | | — | | | — | | | 184 | | | — | | | (7,357) | | | — | | | — | | | (7,173) | | | — | | | (7,173) | |
| Dissolution of joint venture | |
Other comprehensive income: | Other comprehensive income: | |
Pension funded status adjustment (net of tax benefit of $9) | |
Pension funded status adjustment (net of tax benefit of $9) | |
Pension funded status adjustment (net of tax benefit of $9) | 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) | Net unrealized gain (loss) on derivative instruments (net of tax expense of $544) | | — | | | — | | | — | | | — | | | — | | | 1,786 | | | — | | | 1,786 | | | — | | | 1,786 | |
Foreign currency translation adjustment | Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | — | | | 2,192 | | | — | | | 2,192 | | | (190) | | | 2,002 | |
Balance at July 2, 2023 | 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 | |
| Stock-based compensation | |
Exercise of stock options | |
Shares issued under equity awards (taxes paid related to net share settlement of equity awards), net | |
Contra equity - adjustment to indemnification receivable for acquisition related tax liability | |
Purchase of common stock | |
Other | |
Net earnings | |
Dividends ($0.225 per common share) | |
Other comprehensive income: | |
Pension funded status adjustment (net of tax benefit of $6) | |
Pension funded status adjustment (net of tax benefit of $6) | |
Pension funded status adjustment (net of tax benefit of $6) | |
Net unrealized gain (loss) on derivative instruments (net of tax of $762) | |
Foreign currency translation adjustment | |
Balance at October 1, 2023 | |
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Stock-based compensation | | — | | | — | | | 9,817 | | | — | | | — | | | — | | | — | | | 9,817 | | | — | | | 9,817 | |
Exercise of stock options | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Shares issued under equity awards (taxes paid related to net share settlement of equity awards), net | | — | | | — | | | (2,144) | | | — | | | — | | | — | | | — | | | (2,144) | | | — | | | (2,144) | |
Contra equity - adjustment to indemnification receivable for acquisition related tax liability | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Purchase of common stock | | — | | | — | | | — | | | (34,991) | | | — | | | — | | | — | | | (34,991) | | | — | | | (34,991) | |
Other | | — | | | — | | | 11 | | | 221 | | | — | | | — | | | — | | | 232 | | | — | | | 232 | |
Net earnings | | — | | | — | | | — | | | — | | | 76,158 | | | — | | | — | | | 76,158 | | | — | | | 76,158 | |
Dividends ($0.225 per common share) | | — | | | — | | | 234 | | | — | | | (9,315) | | | — | | | — | | | (9,081) | | | — | | | (9,081) | |
Other comprehensive income: | | | | | | | | | | | | | | | | — | | | | | — | |
Pension funded status adjustment (net of tax benefit of $146) | | — | | | — | | | — | | | — | | | — | | | 21 | | | — | | | 21 | | | — | | | 21 | |
Net unrealized gain (loss) on derivative instruments (net of tax of $2,051) | | — | | | — | | | — | | | — | | | — | | | (6,722) | | | — | | | (6,722) | | | — | | | (6,722) | |
Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | — | | | 33,258 | | | — | | | 33,258 | | | 98 | | | 33,356 | |
Balance at December 31, 2023 | | $ | — | | | $ | 563 | | | $ | 620,408 | | | $ | (822,658) | | | $ | 2,112,259 | | | $ | (182,050) | | | $ | (1,988) | | | $ | 1,726,534 | | | $ | 3,493 | | | $ | 1,730,027 | |
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The following demonstrates the change in equity attributable to EnerSys stockholders and nonredeemable noncontrolling interests during the firstthird quarter and current quarternine months ended July 3, 2022:January 1, 2023:
| (In Thousands, Except Per Share Data) | (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 | (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 | 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 | Stock-based compensation | | — | | | — | | | 5,330 | | | — | | | — | | | — | | | — | | | 5,330 | | | — | | | 5,330 | |
Exercise of stock options | Exercise of stock options | | — | | | 1 | | | — | | | — | | | — | | | — | | | — | | | 1 | | | — | | | 1 | |
Shares issued under equity awards (taxes paid related to net share settlement of equity awards), net | Shares issued under equity awards (taxes paid related to net share settlement of equity awards), net | | — | | | — | | | (633) | | | — | | | — | | | — | | | — | | | (633) | | | — | | | (633) | |
Purchase of common stock | Purchase of common stock | | — | | | — | | | — | | | (22,907) | | | — | | | — | | | — | | | (22,907) | | | — | | | (22,907) | |
Other | Other | | — | | | — | | | (41) | | | 240 | | | — | | | — | | | — | | | 199 | | | — | | | 199 | |
Net earnings | Net earnings | | — | | | — | | | — | | | — | | | 30,978 | | | — | | | — | | | 30,978 | | | — | | | 30,978 | |
Dividends ($0.175 per common share) | Dividends ($0.175 per common share) | | — | | | — | | | 174 | | | — | | | (7,282) | | | — | | | — | | | (7,108) | | | — | | | (7,108) | |
Dissolution of joint venture | Dissolution of joint venture | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Other comprehensive income: | Other comprehensive income: | |
Pension funded status adjustment (net of tax benefit of $34) | Pension funded status adjustment (net of tax benefit of $34) | | — | | | — | | | — | | | — | | | — | | | 89 | | | — | | | 89 | | | — | | | 89 | |
Pension funded status adjustment (net of tax benefit of $34) | |
Pension funded status adjustment (net of tax benefit of $34) | |
Net unrealized gain (loss) on derivative instruments (net of tax benefit of $2,514) | Net unrealized gain (loss) on derivative instruments (net of tax benefit of $2,514) | | — | | | — | | | — | | | — | | | — | | | (8,234) | | | — | | | (8,234) | | | — | | | (8,234) | |
Foreign currency translation adjustment | Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | — | | | (52,010) | | | — | | | (52,010) | | | (210) | | | (52,220) | |
Balance at July 3, 2022 | 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 | |
| Stock-based compensation | |
Exercise of stock options | |
Shares issued under equity awards (taxes paid related to net share settlement of equity awards), net | |
Contra equity - adjustment to indemnification receivable for acquisition related tax liability | |
Purchase of common stock | |
Other | |
Net earnings | |
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Dividends ($0.175 per common share) | | — | | | — | | | 174 | | | — | | | (7,312) | | | — | | | — | | | (7,138) | | | — | | | (7,138) | |
Other comprehensive income: | | | | | | | | | | | | | | | | | | | | |
Pension funded status adjustment (net of tax benefit of $34) | | — | | | — | | | — | | | — | | | — | | | 81 | | | — | | | 81 | | | — | | | 81 | |
Net unrealized gain (loss) on derivative instruments (net of tax benefit of $647) | | — | | | — | | | — | | | — | | | — | | | 2,116 | | | — | | | 2,116 | | | — | | | 2,116 | |
Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | — | | | (55,961) | | | — | | | (55,961) | | | (214) | | | (56,175) | |
Balance at October 2, 2022 | | $ | — | | | $ | 559 | | | $ | 577,520 | | | $ | (741,510) | | | $ | 1,834,442 | | | $ | (257,414) | | | $ | (2,657) | | | $ | 1,410,940 | | | $ | 3,478 | | | $ | 1,414,418 | |
Stock-based compensation | | — | | | — | | | 6,906 | | | — | | | — | | | — | | | — | | | 6,906 | | | — | | | 6,906 | |
Exercise of stock options | | — | | | 1 | | | 946 | | | — | | | — | | | — | | | — | | | 947 | | | — | | | 947 | |
Shares issued under equity awards (taxes paid related to net share settlement of equity awards), net | | — | | | — | | | (128) | | | — | | | — | | | — | | | — | | | (128) | | | — | | | (128) | |
Contra equity - adjustment to indemnification receivable for acquisition related tax liability | | — | | | — | | | — | | | — | | | — | | | — | | | 194 | | | 194 | | | — | | | 194 | |
Purchase of common stock | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Other | | — | | | — | | | (30) | | | 314 | | | — | | | — | | | — | | | 284 | | | — | | | 284 | |
Net earnings | | — | | | — | | | — | | | — | | | 44,410 | | | — | | | — | | | 44,410 | | | — | | | 44,410 | |
Dividends ($0.225 per common share) | | — | | | — | | | 193 | | | — | | | (7,333) | | | — | | | — | | | (7,140) | | | — | | | (7,140) | |
Other comprehensive income: | | | | | | | | | | | | | | | | — | | | | | — | |
Pension funded status adjustment (net of tax benefit of $34) | | — | | | — | | | — | | | — | | | — | | | 84 | | | — | | | 84 | | | — | | | 84 | |
Net unrealized gain (loss) on derivative instruments (net of tax benefit of $3,298) | | — | | | — | | | — | | | — | | | — | | | 10,806 | | | — | | | 10,806 | | | — | | | 10,806 | |
Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | — | | | 60,456 | | | — | | | 60,456 | | | 109 | | | 60,565 | |
Balance at January 1, 2023 | | $ | — | | | $ | 560 | | | $ | 585,407 | | | $ | (741,196) | | | $ | 1,871,519 | | | $ | (186,068) | | | $ | (2,463) | | | $ | 1,527,759 | | | $ | 3,587 | | | $ | 1,531,346 | |
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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.
| | | | Quarter ended | |
| | July 2, 2023 | | July 3, 2022 | |
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| | December 31, 2023 | |
| | December 31, 2023 | |
| | December 31, 2023 | |
Net earnings attributable to EnerSys stockholders | |
Net earnings attributable to EnerSys stockholders | |
Net earnings attributable to EnerSys stockholders | Net earnings attributable to EnerSys stockholders | | $ | 66,797 | | | $ | 30,978 | | |
Weighted-average number of common shares outstanding: | Weighted-average number of common shares outstanding: | | | | | |
Weighted-average number of common shares outstanding: | |
Weighted-average number of common shares outstanding: | |
Basic | |
Basic | |
Basic | Basic | | 40,937,334 | | | 40,786,336 | | |
Dilutive effect of: | Dilutive effect of: | | |
Dilutive effect of: | |
Dilutive effect of: | |
Common shares from exercise and lapse of equity awards, net of shares assumed reacquired | |
Common shares from exercise and lapse of equity awards, net of shares assumed reacquired | |
Common shares from exercise and lapse of equity awards, net of shares assumed reacquired | 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 | Diluted weighted-average number of common shares outstanding | | 41,698,324 | | | 41,352,646 | | |
Diluted weighted-average number of common shares outstanding | |
Diluted weighted-average number of common shares outstanding | |
Basic earnings per common share attributable to EnerSys stockholders | |
Basic earnings per common share attributable to EnerSys stockholders | |
Basic earnings per common share attributable to EnerSys stockholders | Basic earnings per common share attributable to EnerSys stockholders | | $ | 1.63 | | | $ | 0.76 | | |
Diluted earnings per common share attributable to EnerSys stockholders | Diluted earnings per common share attributable to EnerSys stockholders | | $ | 1.60 | | | $ | 0.75 | | |
Diluted earnings per common share attributable to EnerSys stockholders | |
Diluted earnings per common share attributable to EnerSys stockholders | |
Anti-dilutive equity awards not included in diluted weighted-average common shares | Anti-dilutive equity awards not included in diluted weighted-average common shares | | 432,487 | | | 1,002,352 | | |
Anti-dilutive equity awards not included in diluted weighted-average common shares | |
Anti-dilutive equity awards not included in diluted weighted-average common shares | |
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 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 firstthird quarter and nine months ended July 2,December 31, 2023 and July 3, 2022,January 1, 2023, is shown below:
| | | | Quarter ended | | | | Quarter ended | | Nine months ended |
| July 2, 2023 | | July 3, 2022 | |
| | December 31, 2023 | | | | December 31, 2023 | | January 1, 2023 | | December 31, 2023 | | January 1, 2023 |
Net sales by segment to unaffiliated customers (1) | Net sales by segment to unaffiliated customers (1) | | | | | |
Energy Systems | |
Energy Systems | |
Energy Systems | Energy Systems | | $ | 424,548 | | | $ | 408,579 | | |
Motive Power | Motive Power | | 350,781 | | | 367,851 | | |
Specialty | Specialty | | 133,240 | | | 122,541 | | |
| Total net sales | Total net sales | | $ | 908,569 | | | $ | 898,971 | | |
Total net sales | |
Total net sales | |
Operating earnings by segment | Operating earnings by segment | | | | | |
Energy Systems | |
Energy Systems | |
Energy Systems | Energy Systems | | $ | 29,649 | | | $ | 15,014 | | |
Motive Power | Motive Power | | 50,368 | | | 42,406 | | |
Specialty | Specialty | | 9,817 | | | 9,231 | | |
Corporate and other (3) | Corporate and other (3) | | 17,403 | | | — | | |
| Inventory adjustment relating to exit activities - Energy Systems | |
| Inventory adjustment relating to exit activities - Energy Systems | |
| Inventory adjustment relating to exit activities - Energy Systems | |
Inventory adjustment relating to exit activities - Motive Power | |
Inventory adjustment relating to exit activities - Specialty | Inventory adjustment relating to exit activities - Specialty | | (3,098) | | | — | | |
Restructuring and other exit charges - Energy Systems | Restructuring and other exit charges - Energy Systems | | (488) | | | (162) | | |
Restructuring and other exit charges - Motive Power | Restructuring and other exit charges - Motive Power | | (1,559) | | | (8,166) | | |
Restructuring and other exit charges - Specialty | Restructuring and other exit charges - Specialty | | (4,262) | | | — | | |
Amortization - Energy Systems | Amortization - Energy Systems | | (6,217) | | | (7,330) | | |
Amortization - Motive | | (111) | | | (110) | | |
Amortization - Motive Power | |
Amortization - Specialty | Amortization - Specialty | | (702) | | | (735) | | |
| Intangibles Impairment - Energy Systems | |
| Other - Energy Systems | Other - Energy Systems | | (749) | | | (10) | | |
Other - Motive | | (468) | | | (9) | | |
| Other - Energy Systems | |
| Other - Energy Systems | |
Other - Motive Power | |
Other - Specialty | Other - Specialty | | $ | (138) | | | $ | — | | |
Total operating earnings (2) | Total operating earnings (2) | | $ | 89,445 | | | $ | 50,129 | | |
(1) Reportable segments do not record inter-segment revenues and accordingly there are none to report.
(2) The Company does not allocate interest expense or other (income) expense, net, to the reportable segments.
(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 upstart-up costs for exploration of a new lithium plant as well as start-up operating expenses from the New Ventures operating segment.
17. Subsequent Events
On August 9, 2023,February 7, 2024, the Board of Directors approved a quarterly cash dividend of $0.225 per share of common stock to be paid on SeptemberMarch 29, 20232024 to stockholders of record as of SeptemberMarch 15, 2023.2024.
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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 Annual Report on Form 10-K for the fiscal year ended March 31, 2023 (our “2023 Annual 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;
•changes in macroeconomic and market conditions and market volatility, including inflation, interest rates, the 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 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 locatingidentifying 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 may be significantly harder to achieve, if at all, or may take longer to achieve;
•our effective income tax rate with respect to any period may fluctuate based on the mix of income in the tax jurisdictions, in which we operate, changes in tax laws and the amount of our consolidated earnings before taxes;
•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 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, 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 the effects of climate change, and our ability to deal effectively with damages or 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.
Overview
EnerSys (the “Company,” “we,” or “us”) is a world leader in stored energy solutions for industrial applications. We design, manufacture, and distribute energy systems solutions and motive power batteries, specialty batteries, battery chargers, power equipment, battery accessories and outdoor equipment enclosure solutions to customers worldwide. Energy Systems, which combine 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 aftermarket and customer support services to over 10,000 customers in more than 100 countries through a network of distributors, independent representatives and our internal sales force around the world.
The Company's four operating segments, based on lines of business, are as follows:
•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, spacecraft, commercial aircraft, 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.
Economic Climate
The economic climate in North America, China and EMEA slowed in calendar 2022 after experiencing strong growth during calendar 2021. All regions are experiencingexperienced a rise in inflation in calendar 2023 and are beingwere negatively impacted by the war in Ukraine. We expect interest rates to continue to increasestay elevated and potentially decrease in the second half of calendar year 2024 in the U.S. and the Euro zone. China’s slowing economy is facing further headwinds caused by continued high COVID-19 infection rates.pressure on the renminbi and the impact from its zero COVID polices that were relaxed in August of 2023.
EnerSys is experiencing supplySupply chain disruptions and cost spikes in certain materials that impacted EnerSys during calendar year 2022 and the beginning of calendar year 2023 started to stabilize during the second quarter of calendar year 2023. While there are still pockets of supply chain challenges and some elevated materials costs such as plastic resins, and electronic components along withand utilities, other costs such as transportation have returned to pre-COVID levels. However, recent geopolitical tensions between Hamas and related logistics challengesIsrael have begun to disrupt shipments in the Red Sea. As a result, some ocean freight costs and broad-based cost increases.transit times may temporarily increase until shipping in the region returns to normal. In addition, certain locations are experiencing difficulty meetingwe have broadly achieved our hiring and labor retention goals.goals in certain locations that were facing challenges at the beginning of the year. Generally, our mitigation efforts and ongoing lean initiatives have tempered the impact of the pandemic-related challenges. The overall market demand in our Motive Power and Specialty segments remains robust.robust, but cyclical capex pauses in the communication networks market has decreased demand in the Energy Systems segment since our fiscal second quarter.
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. SinceIn the beginning of fiscal year 2023,2024, we have experienced a range in lead prices from just above $1.10approximately $1.05 per pound to approximately $0.85$0.90 per pound. We are experiencingexperienced 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 25% of our revenue is now subject to agreements that adjust pricing to a market-based index for lead. Customer 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 year.
Based on current commodity markets, it is difficult to predict with certainty whether commodity prices will be higher or lower in fiscal 2024 versus fiscal 2023. However, given the lag related to increasing our selling prices for inflationary cost increase, on average our selling prices should be higher in fiscal 2024 versus fiscal 2023. As we concentrate more on energy systems and non-lead chemistries, the emphasis on lead is expected to 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$911.6 million (yielding a primary operating capital percentage of 28.4%26.5%) at July 2,December 31, 2023, $1,057.0 million (yielding a primary operating capital percentage of 26.7%) at March 31, 2023 and $1,131.5$1,071.7 million at July 3, 2022January 1, 2023 (yielding a primary operating capital percentage of 31.5%29.1%). The primary operating capital percentage of 28.4%26.5% at July 2,December 31, 2023 worsenedimproved by 17020 basis points compared to March 31, 2023 and improved 310260 basis points compared to July 3, 2022.January 1, 2023. The increasedecrease in primary operating capital percentage at July 2,December 31, 2023 compared to March 31, 2023 was primarily due to a reduction in accounts receivable inventory as a result of lower sales and a seasonal reduction in accounts payable compared to the fourth fiscal quarter of the prior fiscal year. The decrease in primary operating capital percentage at July 2,December 31, 2023 compared to July 3, 2022January 1, 2023 was primarily from the sale of $150.0 milliona reduction in accounts receivables throughreceivable and inventory as a Receivables Purchase Agreement (RPA) entered into duringresult of lower sales compared to the third quarter of fiscal 2023.
Primary operating capital and primary operating capital percentages at July 2,December 31, 2023, March 31, 2023 and July 3, 2022January 1, 2023 are computed as follows:
| ($ in Millions) | ($ in Millions) | | July 2, 2023 | | March 31, 2023 | | July 3, 2022 | ($ in Millions) | | December 31, 2023 | | March 31, 2023 | | January 1, 2023 |
Accounts receivable, net | Accounts receivable, net | | $ | 566.5 | | | $ | 637.8 | | | $ | 697.1 | |
Inventory, net | Inventory, net | | 809.4 | | | 797.8 | | | 777.7 | |
Accounts payable | Accounts payable | | (343.3) | | | (378.6) | | | (343.3) | |
Total primary operating capital | Total primary operating capital | | $ | 1,032.6 | | | $ | 1,057.0 | | | $ | 1,131.5 | |
Trailing 3 months net sales | Trailing 3 months net sales | | $ | 908.6 | | | $ | 989.9 | | | $ | 899.0 | |
Trailing 3 months net sales annualized | Trailing 3 months net sales annualized | | $ | 3,634.4 | | | $ | 3,959.6 | | | $ | 3,595.9 | |
| Primary operating capital as a % of annualized net sales | Primary operating capital as a % of annualized net sales | | 28.4 | % | | 26.7 | % | | 31.5 | % |
Primary operating capital as a % of annualized net sales | |
Primary operating capital as a % of annualized net sales | | | 26.5 | % | | 26.7 | % | | 29.1 | % |
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 $258$333 million of available cash and cash equivalents and available and undrawn committed credit lines of approximately $733$747 million at July 2,December 31, 2023, availability subject to credit agreement financial covenants.
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”),and a CAD 106.4 million ($84.2 million) term loan (the “Second Amended 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 of fiscal 2023, 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 loanLoan 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.
On January 11, 2024, we issued $300 million in aggregate principal amount of our 6.625% Senior Notes due 2032 (the “2032 Notes”). Proceeds from this offering, net of debt issuance costs were $297.0 million and were utilized to pay down the Fourth Amended Credit Facility. We plan to use the remaining net proceeds for general corporate purposes, including to repay a portion of the outstanding borrowings under the revolving portion of its existing credit facility (without a reduction in commitment).
During the nine months of fiscal 2024, we purchased 855,034 shares for $82.3 million.
We believe that our strong capital structure and liquidity affords us access to capital for future acquisitions, stock repurchase opportunities and continued dividend payments.
Results of Operations
Net Sales
Net sales increased $9.6decreased $58.7 million or 1.1%6.4% in the firstthird quarter of fiscal 2024 as compared to the firstthird quarter of fiscal 2023. This increasedecrease was the result of an 9%7% decrease in organic volume, partially offset by a 1% increase in pricing offset bypricing.
Net sales decreased $47.5 million or 1.7% in the nine months of fiscal 2024 as compared to the nine months of fiscal 2023. This decrease was due to an 8% decrease in organic growth.volume, partially offset by a 5% increase in pricing and a 1% increase in foreign currency translation.
Segment sales
| | | | Quarter ended July 2, 2023 | | Quarter ended July 3, 2022 | | Increase (Decrease) | | | Quarter ended December 31, 2023 | | Quarter ended January 1, 2023 | | Increase (Decrease) |
| | | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % | | | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Energy Systems | Energy Systems | | $ | 424.6 | | | 46.7 | % | | $ | 408.6 | | | 45.5 | % | | $ | 16.0 | | | 3.9 | % | Energy Systems | | $ | 373.5 | | | 43.4 | | 43.4 | % | | 434.3 | | 47.2 | % | | $ | (60.8) | | | (14.0) | | (14.0) | % |
Motive Power | Motive Power | | 350.8 | | | 38.6 | | | 367.9 | | | 40.9 | | | (17.1) | | | (4.6) | |
Specialty | Specialty | | 133.2 | | | 14.7 | | | 122.5 | | | 13.6 | | | 10.7 | | | 8.7 | |
Total net sales | Total net sales | | $ | 908.6 | | | 100.0 | % | | $ | 899.0 | | | 100.0 | % | | $ | 9.6 | | | 1.1 | % | Total net sales | | $ | 861.5 | | | 100.0 | | 100.0 | % | | $ | 920.2 | | | 100.0 | | 100.0 | % | | $ | (58.7) | | | (6.4) | | (6.4) | % |
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| | Nine months ended December 31, 2023 | | Nine months ended January 1, 2023 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Energy Systems | | $ | 1,220.6 | | | 45.7 | % | | $ | 1,279.9 | | | 47.1 | % | | $ | (59.3) | | | (4.6) | % |
Motive Power | | 1,061.4 | | | 39.7 | | | 1,067.7 | | | 39.3 | | | (6.3) | | | (0.6) | |
Specialty | | 389.1 | | | 14.6 | | | 371.0 | | | 13.7 | | | 18.1 | | | 4.9 | |
Total net sales | | $ | 2,671.1 | | | 100.0 | % | | $ | 2,718.6 | | | 100.0 | % | | $ | (47.5) | | | (1.7) | % |
Net sales of our Energy Systems segment in the firstthird quarter of fiscal 2024 increased $16.0decreased $60.8 million or 3.9%14.0% compared to the firstthird quarter of fiscal 2023. This decrease was due to a 15% decrease in organic volume, partially offset by a 1% increase in price/mix. This decrease in sales was driven by capital spending pauses of our telecommunication and broadband customers. Net sales of our Energy Systems segment in the nine months of fiscal 2024 decreased $59.3 million or 4.6% compared to the nine months of fiscal 2023. This decrease was due to a 12% increasedecrease in pricing/mix partiallyorganic volume, offset by a 7% decreaseincrease in organic growth and a 1%price/mix. This decrease in foreign currency translation impact. This increase in sales was driven by improvementa decrease in pricing partiallydemand from telecommunication and broadband customers as a result in a pause in the capital spending, offset by soft volumes in Europe and Asia.stronger demand within the data centers markets.
Net sales of our Motive Power segment in the firstthird quarter of fiscal 2024 decreased by $17.1$6.4 million or 4.6%1.8% compared to the firstthird quarter of fiscal 2023. This decrease was primarily due to a 14%3% decrease in organic growth partiallyvolume, offset by an 8% increase in pricing/mix and a 1% increase from an acquisition.acquisitions. We continue to benefit from improved pricing and favorable sales mix, partially offset by a return to normal sales patternspatterns. Net sales of our Motive Power segment in the nine months of fiscal 2024 decreased by $6.3 million or 0.6% compared to pre-COVID-19 levels.the nine months of fiscal 2023. This decrease was primarily due to a 7% decrease in organic volume, offset by a 5% increase in price/mix and a 1% increase in foreign currency translation. We continue to benefit from continued improved pricing and favorable sales mix.
Net sales of our Specialty segment in the firstthird quarter of fiscal 2024 increased by $10.7$8.5 million or 8.7%6.8% compared to the firstthird quarter of fiscal 2023. The increase was primarily due to a 7%6% increase in pricing/mixorganic volume and a 1% increase in bothforeign currency translation. This increase in sales was primarily driven by strong demand in the transportation sector. Net sales of our Specialty segment in the nine months of fiscal 2024 increased by $18.1 million or 4.9% compared to the nine months of fiscal 2023. The increase was primarily due to a 3% increase in pricing, a 1% increase in organic volume and a 1% increase in foreign currency translation. This increase in net sales was primarily driven by improved pricing/mixpricing and strong demand in primarily the transportation sector, limitedand space sectors, which is restrained by TPPLour capacity growth 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, 2023 | | Quarter ended January 1, 2023 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Gross Profit | | $ | 248.6 | | | 28.9 | % | | $ | 213.7 | | | 23.2 | % | | $ | 34.9 | | | 16.4 | % |
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| | Nine months ended December 31, 2023 | | Nine months ended January 1, 2023 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Gross Profit | | $ | 728.5 | | | 27.3 | % | | $ | 594.1 | | | 21.9 | % | | $ | 134.4 | | | 22.6 | % |
Gross profit increased $54.8$34.9 million or 29.5%16.4% in the firstthird quarter and increased $134.4 million or 22.6% in the nine months of fiscal 2024 compared to the comparable periodperiods of fiscal 2023. Gross profit, as a percentage of net sales, increased 580570 basis points and increased 540 basis points in the firstthird quarter and nine months of fiscal 2024, respectively, compared to the firstthird quarter and nine months of fiscal 2023. The increase in the gross profit margin in the current quarter reflects the impact of IRA benefits in fiscal year 2024 and a strong performance in our price/mix, which significantly offset year on year cost increases. This step forward, combined IRA benefits and lower freight costs, more than offset higher inflationary pressures in raw materials, labor, supplies and utilities.
Operating Items
| | | | Quarter ended July 2, 2023 | | Quarter ended July 3, 2022 | | Increase (Decrease) | | | Quarter ended December 31, 2023 | | Quarter ended January 1, 2023 | | Increase (Decrease) |
| | | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % | | | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Operating expenses | Operating expenses | | $ | 144.6 | | | 15.9 | % | | $ | 127.1 | | | 14.1 | % | | $ | 17.5 | | | 13.8 | % | Operating expenses | | $ | 143.9 | | | 16.7 | | 16.7 | % | | $ | 134.4 | | | 14.6 | | 14.6 | % | | $ | 9.5 | | | 7.2 | | 7.2 | % |
Restructuring and other exit charges | Restructuring and other exit charges | | $ | 6.3 | | | 0.7 | % | | $ | 8.3 | | | 0.9 | % | | $ | (2.0) | | | (24.2) | % | Restructuring and other exit charges | | $ | 6.1 | | | 0.7 | | 0.7 | % | | $ | 0.8 | | | 0.1 | | 0.1 | % | | $ | 5.3 | | | NM | | NM |
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| | Nine months ended December 31, 2023 | | Nine months ended January 1, 2023 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Operating expenses | | $ | 432.3 | | | 16.2 | % | | $ | 398.8 | | | 14.7 | % | | $ | 33.5 | | | 8.4 | % |
Restructuring and other exit charges | | $ | 19.6 | | | 0.7 | % | | $ | 12.4 | | | 0.5 | % | | $ | 7.2 | | | 58.3 | % |
Operating expenses, as a percentage of sales, increased 180210 basis points and increased 150 basis points in the firstthird quarter and nine months of fiscal 2024, compared to the comparable periodperiods of fiscal 2023.
Selling expenses, our main component of operating expenses, increased $2.9decreased $2.1 million or 5.2%3.6% in the firstthird quarter of fiscal 2024 compared to the firstthird quarter of fiscal 2023, and increased 25decreased 19 basis points as a percentage of net sales. In the nine months of fiscal 2024, selling expenses increased by $4.8 million or 2.9% compared to the nine months of fiscal 2023 and increased 29 basis points as a percentage of net sales. The decrease in selling expenses as a percentage of sales in the current quarter is a result of our cost reduction initiatives partially offsetting labor increases earlier this fiscal year.
Restructuring and Other Exit Charges
Restructuring Programs
Included in our firstthird quarter and nine months of fiscal 2024 operating results of Energy Systems were restructuring charges of $0.5 million.$0.0 million and $2.7 million respectively. Included in our third quarter and nine months of fiscal 2024 operating results of Motive Power were restructuring charges of $0.9 million and $1.8 million, respectively.
Included in our firstthird quarter and nine months of fiscal 2023 operating results of Energy Systems were restructuring charges of $0.2 million.$0.3 million and $1.2 million, respectively. Included in our third quarter and nine months of fiscal 2023 operating results of Motive Power were restructuring charges of $0.1 million and $0.3 million, respectively.
Exit Charges
Fiscal 2024 Programs
On November 8, 2023, the Company's Board of Directors approved a plan to stop production and operations of residential renewable energy products, which include our OutBack and Mojave brands. Management determined that residential renewable energy products no longer fit with the company’s core strategy and resources will be better allocated toward commercial energy solutions for enterprise customers. The Company currently estimates that the total charges for these actions will amount to $23.5 million relating primarily to $22.6 million in non-cash charges primarily including inventory and an indefinite-lived intangible asset write-offs and $0.9 million in cash charges including employee severance and retention payments. The plan is expected to be completed in fiscal 2024.
During the nine months of fiscal 2024, the Company recorded non-cash charges totaling $6.6 million primarily related to indefinite-lived intangible asset write-off and cash charges of $0.4 million related to severance costs. The Company also recorded a non-cash write off relating to inventories of $16.1 million, which was reported in cost of goods sold.
Spokane
On November 8, 2023, the Company committed to a plan to close its facility in Spokane, Washington, which primarily manufactures enclosure systems for telecommunications and related end markets. Management determined that existing
manufacturing locations have the capacity to satisfy demand for these products and will execute more efficient distribution to customers. The Company currently estimates that the total charges for these actions will amount to approximately $3.6 million relating to $0.7 million in cash charges for employee severance, and non-cash charges of $2.9 million fixed assets, facility lease, and inventory. The plan is expected to be completed in fiscal 2024.
During the nine months of fiscal 2024, the Company recorded cash charges of $0.6 million primarily related to severance costs and non-cash charges totaling $0.5 million related to fixed asset write offs.
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 $9.5$11.8 million. Cash charges are estimated to total $5.7$7.9 million primarily relating to severance and other costs to leave the site. Non-cash charges are estimated to be $3.8$3.9 million relating to fixed assets, inventory, and contract assets. The plan is expected to be completed in fiscal 2024.
During fiscal 2023, the Company recorded $1.7 million primarily related to severance costs and non-cash charges totaling $0.4 million primarily relating to contract assets.
During the current quarternine months of fiscal 2024, the Company recorded cash charges of $4.0$6.2 million primarily related to severance costs, relocation expenses, and manufacturing variances and non-cash charges totaling $0.3$0.4 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.
Ooltewah
On June 29, 2022, the Company committed to a plan to close its facility in Ooltewah, Tennessee, which produced flooded motive power batteries for electric forklifts. Management determined that future demand for traditional motive power flooded cells will decrease as customers transition to maintenance free product solutions in lithium and TPPL. The Company currently estimates that the total charges for these actions will amount to approximately $18.5 million. Cash charges for employee severance related payments, cleanup related to the facility, contractual releases and legal expenses are estimated to be $9.2 million and non-cash charges from inventory and fixed asset write-offs are estimated to be $9.3 million. These actions will result in the reduction of approximately 165 employees. The plan ismajority of these charges are expected to be completed inrecorded by the end of calendar 2023.
During fiscal 2023, the Company recorded cash charges relating primarily to severance and manufacturing variances of $2.8 million and non-cash charges of $7.3 million relating to fixed asset write-offs. The Company also recorded a non-cash write-off relating to inventories of $1.6 million, which was reported in cost of goods sold.
During the current quarternine months of fiscal 2024, the Company recorded cash charges relating to site clean upcleanup and decommissioning equipment of $0.9$3.5 million.
Fiscal 2021 Programs
Hagen, Germany
In fiscal 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 market, as well as the near term decline in demand and increased uncertainty from the pandemic. We plan to retain the facility with limited sales, service and administrative functions along with related personnel for the foreseeable future.
We currently estimate that the total charges for these actions will amount to approximately $60.0 million 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 quarternine months of fiscal 2024, the Company recorded cash charges of $0.5$1.7 million relating primarily to site cleanup and $0.1$0.4 million of non-cash charges relating to accelerated depreciation of fixed assets.
Operating Earnings
| | | | Quarter ended July 2, 2023 | | Quarter ended July 3, 2022 | | Increase (Decrease) | | | Quarter ended December 31, 2023 | | Quarter ended January 1, 2023 | | Increase (Decrease) |
| In Millions | | Percentage of Total Net Sales (1) | | In Millions | | Percentage of Total Net Sales (1) | | In Millions | | % |
| | In Millions | | | | In Millions | | Percentage of Total Net Sales (1) | | In Millions | | Percentage of Total Net Sales (1) | | In Millions | | % |
Energy Systems | Energy Systems | | $ | 29.7 | | | 7.0 | % | | $ | 15.0 | | | 3.7 | % | | $ | 14.7 | | | 97.5 | % | Energy Systems | | $ | 14.3 | | | 3.8 | | 3.8 | % | | $ | 27.7 | | | 6.4 | | 6.4 | % | | $ | (13.4) | | | (48.3) | | (48.3) | % |
Motive Power | Motive Power | | 50.3 | | | 14.4 | | | 42.3 | | | 11.5 | | | 8.0 | | | 18.8 | |
Specialty | Specialty | | 9.8 | | | 7.4 | | | 9.2 | | | 7.5 | | | 0.6 | | | 6.3 | |
Corporate and other (2) | Corporate and other (2) | | 17.4 | | | 1.9 | | | — | | | — | | | 17.4 | | | NM | Corporate and other (2) | | 55.7 | | | 6.5 | | 6.5 | | | — | | — | | | — | | — | | | 55.7 | | 55.7 | | | NM | | NM |
Subtotal | Subtotal | | 107.2 | | | 11.8 | | | 66.5 | | | 7.4 | | | 40.7 | | | 60.9 | |
Inventory adjustment relating to exit activities - Energy Systems | | Inventory adjustment relating to exit activities - Energy Systems | | (16.1) | | | (4.3) | | | 0.2 | | | — | | | (16.3) | | | NM |
| Inventory adjustment relating to exit activities -Specialty | | (3.1) | | | (2.3) | | | — | | | — | | | (3.1) | | | NM |
Inventory adjustment relating to exit activities - Motive Power | |
Inventory adjustment relating to exit activities - Motive Power | |
Inventory adjustment relating to exit activities - Motive Power | | | — | | | — | | | 0.7 | | | 0.2 | | | (0.7) | | | NM |
Restructuring and other exit charges - Energy Systems | Restructuring and other exit charges - Energy Systems | | (0.5) | | | (0.1) | | | (0.2) | | | — | | | (0.3) | | | NM | Restructuring and other exit charges - Energy Systems | | (2.4) | | | (0.6) | | (0.6) | | | (0.2) | | (0.2) | | | — | | — | | | (2.2) | | (2.2) | | | NM | | NM |
Restructuring and other exit charges - Motive Power | Restructuring and other exit charges - Motive Power | | (1.5) | | | (0.4) | | | (8.1) | | | (2.2) | | | 6.6 | | | (80.9) | | Restructuring and other exit charges - Motive Power | | (2.9) | | | (0.8) | | (0.8) | | | (0.6) | | (0.6) | | | (0.2) | | (0.2) | | | (2.3) | | (2.3) | | | NM | | NM |
Restructuring and other exit charges - Specialty | Restructuring and other exit charges - Specialty | | (4.3) | | | (3.2) | | | — | | | — | | | (4.3) | | | NM | Restructuring and other exit charges - Specialty | | (0.8) | | | (0.6) | | (0.6) | | | — | | — | | | — | | — | | | (0.8) | | (0.8) | | | NM | | NM |
Amortization of intangible assets - Energy Systems | Amortization of intangible assets - Energy Systems | | (6.2) | | | (1.5) | | | (7.3) | | | (1.8) | | | 1.1 | | | (15.2) | |
Amortization of intangible assets - Motive Power | Amortization of intangible assets - Motive Power | | (0.1) | | | — | | | (0.1) | | | — | | | — | | | 0.9 | |
Amortization of intangible assets - Specialty | Amortization of intangible assets - Specialty | | (0.7) | | | (0.5) | | | (0.7) | | | (0.6) | | | — | | | (4.5) | |
Intangibles Impairment - Energy Systems | | Intangibles Impairment - Energy Systems | | (6.0) | | | (1.6) | | | — | | | — | | | (6.0) | | | NM |
Other - Energy Systems | Other - Energy Systems | | (0.8) | | | (0.2) | | | — | | | — | | | (0.8) | | | NM | Other - Energy Systems | | (2.4) | | | (0.7) | | (0.7) | | | (0.2) | | (0.2) | | | — | | — | | | (2.2) | | (2.2) | | | NM | | NM |
Other - Motive Power | Other - Motive Power | | (0.5) | | | (0.1) | | | — | | | — | | | (0.5) | | | NM | Other - Motive Power | | (0.2) | | | — | | — | | | (0.1) | | (0.1) | | | — | | — | | | (0.1) | | (0.1) | | | NM | | NM |
Other - Specialty | | (0.1) | | | (0.1) | | | — | | | — | | | (0.1) | | | NM |
| | Total operating earnings | Total operating earnings | | $ | 89.4 | | | 9.8 | % | | 50.1 | | | 5.6 | % | | $ | 39.3 | | | 78.4 | % |
| Total operating earnings | |
| Total operating earnings | | | $ | 92.6 | | | 10.7 | % | | $ | 78.5 | | | 8.5 | % | | $ | 14.1 | | | 17.9 | % |
NM = not meaningful
(1) The percentages shown for the segments are computed as a percentage of the applicable segment’s net sales; Corporate and other is computed based on total consolidated net sales
(2) 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 upstart-up costs for exploration of a new lithium plant as well as start-up operating expenses from the New Ventures operating segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended December 31, 2023 | | Nine months ended January 1, 2023 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales (1) | | In Millions | | Percentage of Total Net Sales (1) | | In Millions | | % |
Energy Systems | | $ | 69.6 | | | 5.7 | % | | $ | 60.4 | | | 4.7 | % | | $ | 9.2 | | | 15.0 | % |
Motive Power | | 156.5 | | | 14.7 | | | 129.5 | | | 12.1 | | | 27.0 | | | 20.9 | |
Specialty | | 22.9 | | | 5.9 | | | 30.4 | | | 8.2 | | | (7.5) | | | (24.7) | |
Corporate and other (2) | | 92.0 | | | 3.4 | | | — | | | — | | | 92.0 | | | NM |
Subtotal | | 341.0 | | | 12.8 | | | 220.3 | | 8.1 | | | 120.7 | | | 54.7 | |
Inventory adjustment relating to exit activities - Energy Systems | | (16.1) | | | (1.3) | | | 0.2 | | | — | | | (16.3) | | | NM |
Inventory adjustment relating to exit activities - Motive Power | | — | | | — | | | (0.8) | | | (0.1) | | | 0.8 | | | NM |
Inventory adjustment relating to exit activities - Specialty | | (3.1) | | | (0.8) | | | — | | | — | | | (3.1) | | | NM |
Restructuring and other exit charges - Energy Systems | | (5.1) | | | (0.4) | | | (1.2) | | | (0.1) | | | (3.9) | | | NM |
Restructuring and other exit charges - Motive Power | | (7.9) | | | (0.7) | | | (11.2) | | | (1.1) | | | 3.3 | | | (29.7) | |
Restructuring and other exit charges - Specialty | | (6.6) | | | (1.7) | | | — | | | — | | | (6.6) | | | NM |
Amortization of intangible assets - Energy Systems | | (18.5) | | | (1.5) | | | (21.6) | | | (1.7) | | | 3.1 | | | (13.4) | % |
Amortization of intangible assets - Motive Power | | (0.5) | | | — | | | (0.3) | | | — | | | (0.2) | | | 55.2 | % |
Amortization of intangible assets - Specialty | | (2.1) | | | (0.5) | | | (2.1) | | | (0.6) | | | — | | | (4.3) | % |
Intangibles Impairment - Energy Systems | | (6.0) | | | (0.5) | | | — | | | — | | | (6.0) | | | NM |
Other - Energy Systems | | (3.5) | | | (0.3) | | | (0.2) | | | — | | | (3.3) | | | NM |
Other - Motive Power | | (0.8) | | | (0.1) | | | (0.2) | | | — | | | (0.6) | | | NM |
Other - Specialty | | (0.2) | | | (0.1) | % | | — | | | — | | | (0.2) | | | NM |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total operating earnings | | $ | 270.6 | | | 10.1 | % | | $ | 182.9 | | | 6.7 | % | | $ | 87.7 | | | 48.0 | % |
NM = not meaningful
(1) The percentages shown for the segments are computed as a percentage of the applicable segment’s net sales; Corporate and other is computed based on total consolidated net sales
(2) 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.
Operating earnings increased $39.3$14.1 million or 78.4%17.9% and increased $87.7 million or 48.0% in the firstthird quarter and nine months of fiscal 2024, respectively, compared to the firstthird quarter and nine months of fiscal 2023. Operating earnings, as a percentage of net sales, increased 420220 basis points and 340 basis points in the firstthird quarter and nine months of fiscal 2024, respectively, compared to the firstthird quarter and nine months of fiscal 2023.
The Energy Systems operating earnings, as a percentage of sales, decreased 260 basis points and increased 330100 basis points in the firstthird quarter and nine months of fiscal 2024, respectively, compared to the firstthird quarter and nine months of fiscal 2023. This increase in operating earningsdecrease for the quarter was primarily as a result significant pricing/mix gains andof lower freight costsvolumes that were partially offset by lower volumeslead and freight costs; and the increase for the year was a result of continued price/mix gains that offset higher inflationary costs.costs and lower volumes.
The Motive Power operating earnings, as a percentage of sales, increased 290170 basis points and 260 basis points in the firstthird quarter and nine months of fiscal 2024, respectively, compared to the firstthird quarter and nine months of fiscal 2023. This increase wasThese increases were driven by significant pricing/mix gains partially offset by lower volumes and higher selling general and administrative costs.operating expenses.
The Specialty operating earnings, as a percentage of sales, decreased 10370 basis points and 230 basis points in the firstthird quarter and nine months of fiscal 2024, respectively, compared to the firstthird quarter and nine months of fiscal 2023. This increase in operating earnings from the comparable period wasThese decreases were primarily a result of improved price/mix and higher volumes more than offsetting inflationary cost pressuresmanufacturing and operating expenses.costs that produced an adverse impact on operating earnings.
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, 2023 | | Quarter ended January 1, 2023 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Interest expense | | $ | 11.7 | | | 1.4 | % | | $ | 17.5 | | | 1.9 | % | | $ | (5.8) | | | (33.1) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended December 31, 2023 | | Nine months ended January 1, 2023 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Interest expense | | $ | 39.1 | | | 1.5 | % | | $ | 44.5 | | | 1.6 | % | | $ | (5.4) | | | (12.1) | % |
Interest expense of $15.2$11.7 million in the firstthird quarter of fiscal 2024 (net of interest income of $0.7$0.8 million) was $3.6$5.8 million higherlower than the interest expense of $11.6$17.5 million in the firstthird quarter of fiscal 2023 (net of interest income of $0.4 million).
Interest expense of $39.1 million in the nine months of fiscal 2024 (net of interest income of $2.0 million) was $5.4 million lower than the interest expense of $44.5 million in the nine months of fiscal 2023 (net of interest income of $1.1 million).
The increasedecrease in interest expense in the firstthird quarter of fiscal 2024 and in the nine months of fiscal 2024 is primarily due to higher variablelower borrowing levels and impact from interest rates,rate swaps partially offset lower average borrowing levels.by higher interest rates. Our average debt outstanding was $1,040.7$970.5 million and $1,008.4 million in the firstthird quarter and nine months of fiscal 2024, compared to $1,311.4$1,300.2 million and $1,361.6 million in the firstthird quarter and nine months of fiscal 2023.
Included in interest expense are non-cash charges for deferred financing fees of $0.4 million and $1.2 million for the firstthird quarter and nine months of fiscal 2024 and $0.5 million and $1.5 million in the firstthird quarter and nine monthsof fiscal 2023.
Other (Income) Expense, Net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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)% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter ended December 31, 2023 | | Quarter ended January 1, 2023 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Other (income) expense, net | | $ | 2.2 | | | 0.3 | % | | $ | 3.2 | | | 0.3 | % | | $ | (1.0) | | | (30.2)% |
NM = not meaningful
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended December 31, 2023 | | Nine months ended January 1, 2023 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Other (income) expense, net | | $ | 5.9 | | | 0.2 | % | | $ | 3.5 | | | 0.1 | % | | $ | 2.4 | | | 67.3 | % |
NM = not meaningful
Other (income) expense, (income), net in the firstthird quarter of fiscal 2024 was expense of $0.7$2.2 million compared to expense of $1.7$3.2 million in the firstthird quarter of fiscal 2023. Other (income) expense, net in the nine months of fiscal 2024 was expense of $5.9 million compared to expense of $3.5 million in the nine months of fiscal 2023. Foreign currency impact resulted in a gain of $2.3$0.4 million and a gain of $3.2 million in the firstthird quarter and nine months of fiscal 2024, respectively, compared to a foreign currency loss of $1.3 million and a gain of $1.2 million in the firstthird quarter and nine months of fiscal 2023.2023, respectively. Included in the firstthird quarter and nine months of fiscal 2023 foreign currency impact is a gain of $0.6 million and loss of $5.2$4.5 million relating to the remeasurement of monetary assets from the exit of our Russia operations.
Earnings Before Income Taxes
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter ended December 31, 2023 | | Quarter ended January 1, 2023 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Earnings before income taxes | | $ | 78.7 | | | 9.1 | % | | $ | 57.8 | | | 6.3 | % | | $ | 20.9 | | | 36.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended December 31, 2023 | | Nine months ended January 1, 2023 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Earnings before income taxes | | $ | 225.6 | | | 8.4 | % | | $ | 134.9 | | | 5.0 | % | | $ | 90.7 | | | 67.3 | % |
As a result of the above, earnings before income taxes in the firstthird quarter of fiscal 2024 increased $36.7$20.9 million, or 100.0%36.0%, compared to the firstthird quarter of fiscal 2023 and increased $90.7 million, or 67.3% in the nine months of fiscal 2024 compared to the nine months of fiscal 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, 2023 | | Quarter ended January 1, 2023 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Income tax expense | | $ | 2.5 | | | 0.3 | % | | $ | 13.4 | | | 1.5 | % | | $ | (10.9) | | | (81.4) | % |
Effective tax rate | | 3.2% | | 23.2% | | (20.0)% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended December 31, 2023 | | Nine months ended January 1, 2023 | | Increase (Decrease) |
| | In Millions | | Percentage of Total Net Sales | | In Millions | | Percentage of Total Net Sales | | In Millions | | % |
Income tax expense | | $ | 17.4 | | | 0.7 | % | | $ | 25.0 | | | 0.9 | % | | $ | (7.6) | | | (30.3) | % |
Effective tax rate | | 7.7% | | 18.5% | | (10.8)% |
The Company’s income tax provision consists of federal, state and foreign income taxes. The tax provision for the firstthird quarter of fiscal 2024 and 2023 was based on the estimated effective tax rates applicable for the full years ending March 31, 2024 and March 31, 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, changes in tax laws and the amount of our consolidated earnings before taxes.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted. The IRA includes multiple incentives to promote clean energy, and energy storage manufacturing among other provisions with tax credits available from 2023 to 2032, subject to phase down beginning in 2030. In particular the IRA creates a refundable tax credit, pursuant to Section 45X of the Internal Revenue Code (“IRC”), for battery cells and battery modules manufactured or assembled in the United States and sold to third parties. On December 14, 2023, the United States Treasury issued proposed regulations which provided further guidance related to the Section 45X Advanced Manufacturing Production Credit. In the firstthird quarter and nine months of fiscal 2024, the IRA impact resulted in a reduction of our costs of goods sold and income tax payable.payable of $59.1 million and $100.4 million, respectively. The issuance of the aforementioned proposed regulations resulted in a $28.7 million retroactive adjustment to the beginning of the effective date of the IRA, January 1, 2023, in the third quarter of fiscal 2024. There is a possibility that additional clarification guidance is issued with respect to the Section 45X credit qualifications. Amounts recognized in the Consolidated Condensed Financial Statements are based on Management's judgement and best estimate utilizing the most current guidance. The Company will continue to evaluate the effects of IRA as more guidance is issued and the relevant implications to our Consolidated Condensed Financial Statements. Actual results could differ from management’s current estimate.
The consolidated effective income tax rates for the firstthird quarter of fiscal 2024 and 2023 were 9.2%3.2% and 15.7%23.2% and for the nine months of fiscal 2024 and 2023 were 7.7% and 18.5%, respectively. The rate decrease in the firstthird quarter and nine months of fiscal 2024 compared to the prior year period isperiods are primarily due to the impact of the IRA. In addition, there was a discrete foreign exchange tax benefit related to undistributed earnings which was offset by theIRA and mix of earnings among tax jurisdictions.
Foreign income as a percentage of worldwide income is estimated to be 51%52% for fiscal 2024 compared to 77%83% for fiscal 2023. This reduction is primarily due to the IRA impact of the IRA.on domestic earnings. The foreign effective tax rates for the first quarternine months of fiscal 2024 and 2023 were 12.0%11.0% and 11.0%15.0%, 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 fiscal 2023 and were taxed at an effective income tax rate of approximately 8% and 9%, respectively. in both periods.
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 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2023 Annual Report.
Liquidity and Capital Resources
Cash Flow and Financing Activities
Operating activities provided cash of $74.9$320.2 million in the first quarternine months of fiscal 2024 compared to $71.9$135.8 million of cash usedprovided in the first quarternine months of fiscal 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$139.5 million, and inventory decreased or provided cash of $27.4 million. Additionally, accounts payable decreased or used cash of $45.7 million. These results were due to lower sales in the current quarterperiod compared to the previous quarter. Inventory increased or used cashfourth quarter 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.fiscal 2023. In the current quarternine months of fiscal 2024, net earnings were $66.8$208.2 million, depreciation and amortization $22.7$68.3 million, stock-based compensation $7.9$22.9 million, non-cash charges relating to exit charges $3.3$21.5 million, derivative gainsimpairment of $0.5trademarks $6.0 million, derivatives cash proceeds of $0.7 million, non-cash interest of $0.4 million, and allowance for doubtful debts of $0.5$1.9 million, derivative losses of $0.7 million, derivatives cash settlements of $0.2 million, and non-cash interest of $1.2 million. Prepaid and other current assets were a use of funds of $4.1$3.6 million, primarily from an increase of $7.3$6.9 million in contract assetsprepaid taxes, $4.0 million in other prepaids, and $1.4 million in prepaid insurance partially offset by a decrease of $3.2$8.7 million in other prepaid expenses, such as taxes, insurancenon-trade receivables and other advances. Accrued expenses were a use of funds of $46.6$126.9 million primarily from decrease in tax payments net of accruals of $15.8$101.3 million, including $19.4other miscellaneous accruals of $3.1 million, relating to the IRA production tax credits, payroll related payments of $13.2$16.0 million net of accruals, decrease to sales related accruals of $8.0$3.0 million, and interest payments net of accruals of $5.5 million, deferred income and contract liabilities of $4.8 million, other miscellaneous accruals of $1.5$5.9 million, partially offset by $2.4 million in restructuring and warranty accruals of $1.8 million and freight charges of $1.6 million.
In the first quarter nine monthsof fiscal 2023, operating activities usedprovided cash of $71.9$135.8 million, primarily fromwith the activityincrease in operating cash resulting mainly due to net earnings. Accounts receivable decreased or provided cash of $123.4 million due to sale of $150.0 million accounts receivable inventory, and accounts payable.under the RPA entered into December 21, 2022. Inventory increased or used cash of $81.5 million due to the increase in all$135.9 million. All components of inventory resulting fromincreased due to 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$31.6 million due to seasonal reduction. In the first quarternine months of fiscal 2023, net earnings were $31.0$109.9 million, depreciation and amortization $23.6$69.0 million, stock-based compensation $5.3$18.8 million, non-cash charges relating to exit charges $7.4$8.4 million, primarily relating to the Ooltewah, Tennessee plant closure, derivative gains of $1.4 million, non-cash interest of $1.5 million, and allowance for doubtful debts of $0.2 million and non-cash interest of $0.5$0.7 million. Prepaid and other current assets were a use of funds of $5.5$8.3 million, primarily from an increase of $7.2 million of contract assets, partially offset by a decrease of $1.7$13.6 million in other prepaid expenses, such as taxes, insurance and other advances.advances, partially offset by a $5.3 million decrease in contract assets. Accrued expenses were a use of funds of $25.0$17.1 million primarily from payroll related payments of $13.1$10.4 million selling and other expensesnet of $10.9accruals, tax payments net of accruals of $10.4 million, interest payments net of accrualaccruals of $5.7 million, and other miscellaneous payments of $4.0$6.2 million, partially offset by taxdeferred income and contract liabilities of $3.9 million, freight charges of $3.5 million, warranty accruals of $8.7$1.2 million, other miscellaneous accruals of $1.3 million.
Investing activities used cash of $24.3$65.2 million in the first quarternine months of fiscal 2024, which primarily consisted of capital expenditures of $16.1$59.0 million relating to plant improvements and $8.3 million relating to the purchase of a business.business partially offset by $2.0 million in proceeds from sale of disposed property, plant, and equipment.
Investing activities used cash of $22.9$13.7 million in the first quarter nine monthsof fiscal 2023 which primarily consisted of capital expenditures of $23.0$57.5 million relating to plant improvements.improvements, partially offset by proceeds from termination of a net investment hedge of $43.4 million.
Financing activities used cash of $135.9$271.2 million in the first quarternine months of fiscal 2024. During the first quarternine months of fiscal 2024, we borrowed $80.0$182.5 million under the Second Amended Revolver and repaid $216.4$327.5 million of the Second Amended Revolver. NetWe repaid $19.1 million of the Second and Third Amended Term Loan, and net repayments on short-term debt were $0.4 million. We purchased treasury stock totaling $82.3 million, paid cash dividends to our stockholders totaling $7.2$25.4 million, paid taxes related to settlement of equity awards totaling $9.5 million and received proceeds from stock options of $7.7$9.7 million.
Financing activities providedused cash of $97.5$202.8 million in the first quarternine months of fiscal 2023. During the first quarternine months of fiscal 2023, we borrowed $163.2$291.1 million under the Second Amended Revolver and repaid $27.2$422.1 million of the Second Amended Revolver.Revolver and $1.6 million of the Second Amended Term Loan. Net repayments on short-term debt were $8.0$20.3 million. Treasury stock open market purchases were $22.9 million, payment of cash dividends to our stockholders were $7.1$21.4 million and payment of taxes related to net share settlement of equity awards were $0.6$6.4 million. Payments for financing costs for debt modification were $1.1 million. Proceeds from stock options were $1.1 million.
Currency translation had a negativepositive impact of $3.0$2.3 million on our cash balance in the first quarternine months of fiscal 2024 compared to the negative impact of $22.0$23.8 million in the first quarternine months of fiscal 2023. In the first quarternine months of fiscal 2024, principal currencies in which we do business such as the Euro, Polish zloty, Swiss Franc and British pound generally strengthened versus the U.S. dollar.
As a result of the above, total cash and cash equivalents decreased by $88.3$14.0 million to $258.3$332.7 million, in the first quarternine months of fiscal 2024 compared to a decrease by $19.2of $104.4 million to $383.2$298.1 million, in the first quarternine months of fiscal 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 loanLoan 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 Fourth Amended Credit Facility are secured by, among other things, substantially all of our U.S. assets. The Fourth Amended Credit Facility contains various covenants which, absent prepayment in full of the indebtedness and other obligations, or the receipt of waivers, limit our ability to conduct certain specified business transactions, buy or sell assets out of the ordinary course of business, engage in sale and leaseback transactions, pay dividends and take certain other actions. There are no prepayment penalties on loans under this credit facility.
We are in compliance with all covenants and conditions under our Fourth Amended Credit Facility and Senior Notes. We believe that 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 10 to the Consolidated Financial Statements included in our 2023 Annual Report and Note 11 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. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations of our 2023 Annual Report. As of July 2,December 31, 2023, we had no significant changes to our contractual obligations table contained in our 2023 Annual Report.
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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, 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, 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 July 2,December 31, 2023 are $20.4$26.2 million (pre-tax). Those contracts that result in an asset position at July 2,December 31, 2023 are $5.0$1.0 million (pre-tax). 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. On a selective basis, from time to time, we enter into interest rate swap agreements to reduce the negative impact that increases in interest rates could have on our outstanding variable rate debt. At December 31, 2023 and March 31, 2023 such agreements effectively convert $200.0 million of our variable-rate debt to a fixed-rate basis, utilizing the one-month Term SOFR, as a floating rate reference.
A 100 basis point increase in interest rates would have increased annual interest expense, by approximately $4.5$4.2 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:
| Date | Date | | $’s Under Contract (in millions) | | # Pounds Purchased (in millions) | | Average Cost/Pound | | Approximate % of Lead Requirements (1) | 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 | % |
December 31, 2023 | | December 31, 2023 | | $ | 50.6 | | | 52.5 | | | $ | 0.96 | | | 8 | % |
March 31, 2023 | March 31, 2023 | | 47.9 | | | 50.0 | | | 0.96 | | | 8 | |
July 3, 2022 | | 54.1 | | | 55.5 | | | 0.97 | | | 8 | |
January 1, 2023 | |
(1) Based on the fiscal year lead requirements for the periods then ended.
For the remaining quartersquarter of this fiscal year, we believe approximately 46%100% of the cost of our lead requirements is known. This takes into account the hedge contracts in place at July 2,December 31, 2023, lead purchased by July 2,December 31, 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 $19$18 million in the firstthird quarter and $54 million in the nine months of fiscal 2024.
Foreign Currency Exchange Rate Risks
We manufacture and assemble our products globally in the Americas, EMEA and Asia. Approximately 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.
WeAt a point in time, we hedge approximately 5% - 10% of the nominal amount of our known annual 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 July 2,December 31, 2023 and July 3, 2022,January 1, 2023, we estimate that an unfavorable 10% movement in the exchange rates would have adversely changed our hedge valuations by approximately $27.7$28.9 million and $36.7$11.0 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. The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated any change 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 has materially affected, or is 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 11 - 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 2023 Annual Report, which could materially affect our business, financial condition or future 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 31, 2023 | | 374,974 | | | $ | 93.32 | | | 374,974 | | | $ | 112,213,965 | |
November 1 - November 30, 2023 | | — | | | — | | | — | | | 112,213,965 | |
December 1 - December 31, 2023 | | — | | | — | | | — | | | 112,213,965 | |
Total | | 374,974 | | | $ | 93.32 | | | 374,974 | | | |
(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 2023 Equity Incentive Plan and the number of shares exercised through stock option awards during such fiscal year, approximately $34.0 million.
(2) On March 9, 2022, the Company announced the establishment of a $150.0 million stock repurchase authorization, with no
expiration date.
(3) On November 10, 2021, the Company announced the establishment of a $100.0 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,December 31, 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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3.2 | | |
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| 10.1 | |
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| 10.4 | |
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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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By | /s/ Andrea J. Funk | |
| Andrea J. Funk |
| Chief Financial Officer |
Date: August 9, 2023February 7, 2024