UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended March 31, 2020 or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition
period from to
Commission file number: 001-32253
ENERSYS
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
23-3058564
(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:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, $0.01 par value per share
ENS
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large Accelerated Filer
☒
Accelerated filer
Non-accelerated filer
☐ (Do not check if a smaller reporting company)
Smaller reporting company
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Emerging growth company
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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. ☐
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates at September 29, 2019: $2,642,464,560 (1) (based
upon its closing transaction price on the New York Stock Exchange on September 29, 2019).
(1) For this purpose only, “non-affiliates” excludes directors and executive officers.
Common stock outstanding at May 28, 2020: 42,452,053 Shares of Common Stock
Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be held on or about July 30, 2020 are incorporated
DOCUMENTS INCORPORATED BY REFERENCE
by reference in Part III of this Annual Report.
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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 this Annual Report on Form 10-K and other unforeseen risks. You
should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Annual Report on Form 10-K, even if
subsequently made available by us on our website or otherwise, and we undertake no obligation to update or revise these statements to reflect events or
circumstances occurring after the date of this Annual Report on Form 10-K.
Our actual results may differ materially from those contemplated by the forward-looking statements for a number of reasons, including the following
factors:
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economic, financial and other impacts of the COVID-19 pandemic;
general cyclical patterns of the industries in which our customers operate;
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 certain hazardous substances in our products;
risks involved in our operations such as disruption of markets, changes in import and export laws, environmental regulations, currency restrictions and local
currency exchange rate fluctuations;
our ability to raise our selling prices to our customers when our product costs increase;
the extent to which we are able to efficiently utilize our global manufacturing facilities and optimize our capacity;
general economic conditions in the markets in which we operate;
competitiveness of the battery markets and other energy solutions for industrial applications throughout the world;
our timely development of competitive new products and product enhancements in a changing environment and the acceptance of such products and product
enhancements by customers;
our ability to adequately protect our proprietary intellectual property, technology and brand names;
litigation and regulatory proceedings to which we might be subject;
our expectations concerning indemnification obligations;
changes in our market share in the geographic business segments where we operate;
our ability to implement our cost reduction initiatives successfully and improve our profitability;
quality problems associated with our products;
our ability to implement business strategies, including our acquisition strategy, manufacturing expansion and restructuring plans;
our acquisition strategy may not be successful in locating advantageous targets;
our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we acquire into our operations and our ability to realize
related revenue synergies, strategic gains, and cost savings may be significantly harder to achieve, if at all, or may take longer to achieve;
potential goodwill impairment charges, future impairment charges and fluctuations in the fair values of reporting units or of assets in the event projected financial
results are not achieved within expected time frames;
our debt and debt service requirements which may restrict our operational and financial flexibility, as well as imposing unfavorable interest and financing costs;
our ability to maintain our existing credit facilities or obtain satisfactory new credit facilities;
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;
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our ability to successfully recover in the event of a disaster affecting our infrastructure, supply chain, or our facilities, such as the Richmond, Kentucky facility,
including, but not limited to, satisfactory resolution of insurance coverage and claims for both property damage, business interruption and other insurable losses,
strategy for business interruption and revenue loss;
occurrence of natural or man-made disasters or calamities, including health emergencies, the spread of infectious diseases, pandemics, 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.
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EnerSys
Annual Report on Form 10-K
For the Fiscal Year Ended March 31, 2020
Index
PART I
Cautionary Note Regarding Forward-Looking Statements
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits, Financial Statement Schedules
Signatures
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ITEM 1.
BUSINESS
Overview
PART I
EnerSys (the “Company,” “we,” or “us”) is the world’s largest manufacturer, marketer and distributor of industrial batteries. We also manufacture, market
and distribute products such as battery chargers, power equipment, battery accessories, and outdoor cabinet enclosures. Additionally, we provide related
aftermarket and customer-support services for our products. We market our products globally to over 10,000 customers in more than 100 countries through
a network of distributors, independent representatives and our internal sales force.
We operate and manage our business in three geographic regions of the world—Americas, EMEA and Asia, as described below. Our business is highly
decentralized with manufacturing locations throughout the world. More than half of our manufacturing capacity is located outside of the United States, and
approximately 40% of our net sales were generated outside of the United States. The Company has three reportable business segments based on geographic
regions, defined as follows:
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Americas, which includes North and South America, with our segment headquarters in Reading, Pennsylvania, U.S.A.;
EMEA, which includes Europe, the Middle East and Africa, with our segment headquarters in Zug, Switzerland; and
Asia, which includes Asia, Australia and Oceania, with our segment headquarters in Singapore.
We have two primary product lines: reserve power and motive power products. Net sales classifications by product line are as follows:
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Reserve power products are used for backup power for the continuous operation of critical applications in telecommunications systems,
uninterruptible power systems, or “UPS” applications for computer and computer-controlled systems, and other specialty power applications,
including medical and security systems, premium starting, lighting and ignition applications, in switchgear, electrical control systems used in
electric utilities, large-scale energy storage, energy pipelines, in commercial aircraft, satellites, military aircraft, submarines, ships and tactical
vehicles. Reserve power products also include thermally managed cabinets and enclosures for electronic equipment and batteries. With the Alpha
acquisition, we are a provider of highly integrated power solutions and services to broadband, telecom, renewable and industrial customers.
• Motive power products are used to provide power for electric industrial forklifts used in manufacturing, warehousing and other material handling
applications as well as mining equipment, diesel locomotive starting and other rail equipment.
See Note 23 to the Consolidated Financial Statements for information on segment reporting.
Fiscal Year Reporting
In this Annual Report on Form 10-K, when we refer to our fiscal years, we state “fiscal” and the year, as in “fiscal 2020”, which refers to our fiscal year
ended March 31, 2020. 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 2020 ended on June 30, 2019, September 29, 2019, December
29, 2019, and March 31, 2020, respectively. The four quarters in fiscal 2019 ended on July 1, 2018, September 30, 2018, December 30, 2018, and
March 31, 2019, respectively.
History
EnerSys and its predecessor companies have been manufacturers of industrial batteries for over 125 years. Morgan Stanley Capital Partners teamed with
the management of Yuasa, Inc. in late 2000 to acquire from Yuasa Corporation (Japan) its reserve power and motive power battery businesses in North and
South America. We were incorporated in October 2000 for the purpose of completing the Yuasa, Inc. acquisition. On January 1, 2001, we changed our
name from Yuasa, Inc. to EnerSys to reflect our focus on the energy systems nature of our businesses.
In 2004, EnerSys completed its initial public offering (the “IPO”) and the Company’s common stock commenced trading on the New York Stock
Exchange, under the trading symbol “ENS”.
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Key Developments
There have been several key stages in the development of our business, which explain to a significant degree our results of operations over the past several
years.
In March 2002, we acquired the reserve power and motive power business of the Energy Storage Group of Invensys plc. (“ESG”). Our successful
integration of ESG provided global scale in both the reserve and motive power markets. The ESG acquisition also provided us with a further opportunity to
reduce costs and improve operating efficiency.
During fiscal years 2003 through 2020, we made thirty-four acquisitions around the globe. In fiscal 2020, we completed the acquisition of NorthStar,
headquartered in Stockholm, Sweden. In fiscal 2019, we completed the acquisition of Alpha.
NorthStar Acquisition
On September 30, 2019, we completed the acquisition of NorthStar, for $77.8 million in cash consideration and the assumption of $107.0 million in debt,
which was funded using existing cash and credit facilities. NorthStar, through its direct and indirect subsidiaries, manufactures and distributes thin plate
pure lead (“TPPL”) batteries and battery enclosures. NorthStar has two large manufacturing facilities in Springfield, Missouri.
The results of the NorthStar acquisition have been included in our results of operations from the date of acquisition. Pro forma earnings and earnings per
share computations have not been presented as this acquisition was not considered material.
The North American and European results of operations of NorthStar have been included in our Americas segment and EMEA segment, respectively.
Alpha Acquisition
On December 7, 2018, the Company completed the acquisition of all of the issued and outstanding common stock of Alpha Technologies Services, Inc.
(“ATS”) and Alpha Technologies Ltd. (“ATL”), resulting in ATS and ATL becoming wholly-owned subsidiaries of the Company (the “Alpha share
purchase”). Additionally, the Company acquired substantially all of the assets of Alpha Technologies Inc. and certain assets of Altair Advanced Industries,
Inc. and other affiliates of ATS and ATL (all such sellers, together with ATS and ATL, “Alpha”), in each case in accordance with the terms and conditions
of certain restructuring agreements (collectively, the “Alpha asset acquisition” and together with the Alpha share purchase, the “Alpha acquisition”). Based
in Bellingham, Washington, Alpha is a global industry leader in the comprehensive commercial-grade energy solutions for broadband, telecom, renewable,
industrial and traffic customers around the world. The initial purchase consideration for the Alpha acquisition was $750.0 million of which $650.0 million
was paid in cash and the balance was settled by issuing 1,177,630 shares of EnerSys common stock. These shares were issued out of the Company's
treasury stock and were valued at $84.92 per share, which was based on the thirty-day volume weighted average stock price of the Company’s common
stock at closing, in accordance with the purchase agreement. The 1,177,630 shares had a closing date fair value of $93.3 million, based upon the December
7, 2018 closing date spot rate of $79.20. The total purchase consideration, consisting of cash paid of $650.0 million, shares valued at $93.3 million and
adjustment for working capital (due from seller of $0.8 million) was $742.5 million.
The Company funded the cash portion of the acquisition with borrowings from the Amended Credit Facility (as defined in the Liquidity and Capital
Resources section in Item 7. below).
The results of operations of Alpha have been included in the Company’s Americas segment beginning December 8, 2018.
Our Customers
We serve over 10,000 customers in over 100 countries, on a direct basis or through our distributors. We are not overly dependent on any particular end
market. Our customer base is highly diverse, and no single customer accounts for more than 10% of our revenues.
Our reserve power customers consist of both global and regional customers. These customers are in diverse markets including telecom, UPS, electric
utilities, security systems, emergency lighting, premium starting, lighting and ignition applications and space satellites. In addition, we sell our aerospace
and defense products in numerous countries, including the governments of the U.S., Germany and the U.K. and to major defense and aviation original
equipment manufacturers (“OEMs”).
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Our motive power products are sold to a large, diversified customer base. These customers include material handling equipment dealers, forklift and heavy
truck OEMs and end users of such equipment. End users include manufacturers, distributors, warehouse operators, retailers, airports, mine operators and
railroads.
Distribution and Services
We distribute, sell and service reserve and motive power products throughout the world, principally through company-owned sales and service facilities, as
well as through independent manufacturers’ representatives. Our company-owned network allows us to offer high-quality service, including preventative
maintenance programs and customer support. Our warehouses and service locations enable us to respond quickly to customers in the markets we serve. We
believe that the extensive industry experience of our sales organization results in strong long-term customer relationships.
Manufacturing and Raw Materials
We manufacture and assemble our products at manufacturing facilities located in the Americas, EMEA and Asia. With a view toward projected demand,
we strive to optimize and balance capacity at our battery manufacturing facilities globally, while simultaneously minimizing our product cost. By taking a
global view of our manufacturing requirements and capacity, we believe we are better able to anticipate potential capacity bottlenecks and equipment and
capital funding needs.
The primary raw materials used to manufacture our products include lead, plastics, steel and copper. We purchase lead from a number of leading suppliers
throughout the world. Because lead is traded on the world’s commodity markets and its price fluctuates daily, we periodically enter into hedging
arrangements for a portion of our projected requirements to reduce the volatility of our costs.
Competition
The industrial energy storage market is highly competitive both among competitors who manufacture and sell industrial batteries and other energy storage
systems and solutions and among customers who purchase industrial energy solutions. Our competitors range from development stage companies to large
domestic and international corporations. Certain of our competitors produce energy storage products utilizing technologies or chemistries different from our
own. We compete primarily on the basis of reputation, product quality, reliability of service, delivery and price. We believe that our products and services
are competitively priced.
Americas
We believe that we have the largest market share in the Americas industrial battery market. We compete principally with East Penn Manufacturing, Exide
Technologies and New Power in both the reserve and motive products markets; and also C&D Technologies Inc., EaglePicher (GTCR Group), SAFT, as
well as Chinese producers in the reserve products market.
EMEA
We believe that we have the largest market share in the European industrial battery market. Our primary competitors are Exide Technologies, FIAMM,
Hoppecke, SAFT, as well as Chinese producers in the reserve products market; and Exide Technologies, Eternity, Hoppecke, Midac, Sunlight and TAB in
the motive products market.
Asia
We have a small share of the fragmented Asian industrial battery market. We compete principally with GS-Yuasa, Shin-Kobe, Hoppecke and Zibo Torch in
the motive products market; and Amara Raja, China Shoto, Coslight, Exide Industries, Leoch and Narada, in the reserve products market.
Warranties
Warranties for our products vary geographically and by product type and are competitive with other suppliers of these types of products. Generally, our
reserve power product warranties range from one to twenty years and our motive power product warranties range from one to seven years. The length of
our warranties is varied to reflect regional characteristics and competitive influences. In some cases, our warranty period may include a pro rata period,
which is typically based around the
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design life of the product and the application served. Our warranties generally cover defects in workmanship and materials and are limited to specific usage
parameters.
Intellectual Property
We have numerous patents and patent licenses in the United States and other jurisdictions but do not consider any one patent to be material to our business.
From time to time, we apply for patents on new inventions and designs, but we believe that the growth of our business will depend primarily upon the
quality of our products and our relationships with our customers, rather than the extent of our patent protection.
We believe we are leaders in TPPL. We believe that a significant capital investment would be required by any party desiring to produce products using
TPPL technology for our markets.
We own or possess exclusive and non-exclusive licenses and other rights to use a number of trademarks in various jurisdictions. We have obtained
registrations for many of these trademarks in the United States and other jurisdictions. Our various trademark registrations currently have durations of
approximately 10 to 20 years, varying by mark and jurisdiction of registration and may be renewable. We endeavor to keep all of our material registrations
current. We believe that many such rights and licenses are important to our business by helping to develop strong brand-name recognition in the
marketplace.
Seasonality
Our business generally does not experience significant quarterly fluctuations in net sales as a result of weather or other trends that can be directly linked to
seasonality patterns, but historically our fourth quarter is our best quarter with higher revenues and generally more working days and our second quarter is
the weakest due to the summer holiday season in Western Europe and North America.
Product and Process Development
Our product and process development efforts are focused on the creation of new stored energy products, and integrated power systems and controls. We
allocate our resources to the following key areas:
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the design and development of new products;
optimizing and expanding our existing product offering;
waste and scrap reduction;
production efficiency and utilization;
capacity expansion without additional facilities; and
quality attribute maximization.
Employees
At March 31, 2020, we had approximately 11,400 employees. Of these employees, approximately 29% were covered by collective bargaining agreements.
Employees covered by collective bargaining agreements that expire in the next twelve months were approximately 12% of the total workforce. The average
term of these agreements is two years, with the longest term being three years. We consider our employee relations to be good. We did not experience any
significant labor unrest or disruption of production during fiscal 2020.
Information about Our Executive Officers
As of June 1, 2020, our executive officers are:
David M. Shaffer, age 55, President and Chief Executive Officer. Mr. Shaffer has been a director of EnerSys and has served as our President and Chief
Executive Officer since April 2016. Prior thereto, he served as President and Chief Operating Officer since November 2014. From January 2013 through
October 2014, he served as our President-EMEA. From 2008 to 2013, Mr. Shaffer was our President-Asia. Prior thereto he was responsible for our
telecommunications sales in the Americas. Mr. Shaffer joined EnerSys in 2005 and has worked in various roles of increasing responsibility in the industry
since 1989.
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Holger P. Aschke, age 50, President-Europe, Middle East and Africa (EMEA) and Asia. Mr. Aschke has served as President-EMEA since January 2016.
From April 2010 to January 2016, he was the Vice President Sales and Marketing Reserve Power-Europe. Mr. Aschke joined a predecessor company in
1996 and has held a wide range of operational and sales roles of increased responsibility in the Company’s EMEA business. Mr. Aschke completed a
commercial IT education and apprenticeship sponsored by the University of Dortmund (Germany) and completed the Advanced Management Program
from INSEAD (France).
Michael J. Schmidtlein, age 59, Executive Vice President and Chief Financial Officer. Mr. Schmidtlein has served as Executive Vice President and Chief
Financial Officer since January 2016. Prior thereto, since February 2010, he was our Senior Vice President-Finance and Chief Financial Officer. From
November 2005 until February 2010, Mr. Schmidtlein was Vice President-Corporate Controller and Chief Accounting Officer. Prior thereto,
Mr. Schmidtlein was the Plant Manager of our manufacturing facility in Warrensburg, Missouri. In 1995, he joined the Energy Storage Group of Invensys
plc, which EnerSys acquired in 2002. Mr. Schmidtlein is a certified public accountant and received his Bachelor of Science degree in Accounting from the
University of Missouri.
Shawn M. O’Connell, age 47, President, Motive Power - Americas. Mr. O’Connell has served as our President, Motive Power - Americas since April 2019.
Prior thereto he served as our Vice President - Reserve Power Sales and Service for the Americas from February 2017 to March 2019, and Vice President
of EnerSys Advanced Systems from December 2015 to January 2017. Mr. O’Connell joined EnerSys in 2011, serving in various sales and marketing
capacities in several areas of our business. Mr. O’Connell received his Master of Business Administration degree in International Business from the
University of Redlands, CA and his Bachelor of Arts degree in English Literature from the California State University, San Bernardino. Mr. O’Connell is a
veteran of the U.S. Army’s 82nd Airborne Division (Paratroopers) where he served as a Signals Intelligence Analyst, Spanish Linguist, and held a Top
Secret security clearance.
Andrew M. Zogby, age 60, President, Energy Systems - Americas. Mr. Zogby has served as President, Energy Systems - Americas since April 2019. He
joined EnerSys upon completion of the acquisition of Alpha Technologies in December 2018. Mr. Zogby served as Alpha Technologies' President since
2008 and brings over 30 years of experience in global broadband, telecommunications and renewal energy industries. He has held corporate leadership
positions with several leading technology firms. Mr. Zogby received his Bachelor of Science degree in Industrial and Labor Relations from LeMoyne
College, Syracuse, NY, and his Master in Business Administration degree from Duke University’s Fuqua School of Business. He is active in the US
Chamber of Commerce, and serves on the Chamber’s Energy, Clean Air & Natural Resources Committee and the
Chamber Technology Engagement Center Committee.
Environmental Matters and Climate Change Impacts
We are committed to the protection of the environment and train our employees to perform their duties accordingly. In the manufacture of our products
throughout the world, we process, store, dispose of and otherwise use large amounts of hazardous materials, especially lead and acid. As a result, we are
subject to extensive and evolving environmental, health and safety laws and regulations governing, among other things: the generation, handling, storage,
use, transportation and disposal of hazardous materials; emissions or discharges of hazardous materials into the ground, air or water; and the health and
safety of our employees. In addition, we are required to comply with the regulation issued from the European Union called Registration, Evaluation,
Authorization and Restriction of Chemicals or “REACH”. Under the regulation, companies which manufacture or import more than one ton of a covered
chemical substance per year are required to register it in a central database administered by the European Chemicals Agency. The registration process
requires the submission of information to demonstrate the safety of chemicals as used and could result in significant costs or delay the manufacture or sale
of our products in the European Union. Additionally, industry associations and their member companies, including EnerSys, have scheduled meetings with
the European Union member countries to advocate for their support of an exemption for lead compounds. Compliance with these laws and regulations
results in ongoing costs. Failure to comply with these laws and regulations, or to obtain or comply with required environmental permits, could result in
fines, criminal charges or other sanctions by regulators. From time to time, we have had instances of alleged or actual noncompliance that have resulted in
the imposition of fines, penalties and required corrective actions. Our ongoing compliance with environmental, health and safety laws, regulations and
permits could require us to incur significant expenses, limit our ability to modify or expand our facilities or continue production and require us to install
additional pollution control equipment and make other capital improvements. In addition, private parties, including current or former employees, can bring
personal injury or other claims against us due to the presence of, or their exposure to, hazardous substances used, stored, transported or disposed of by us or
contained in our products.
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Sumter, South Carolina
We currently are responsible for certain environmental obligations at our former battery facility in Sumter, South Carolina, that predate our ownership of
this facility. This battery facility was closed in 2001 and is separate from our current metal fabrication facility in Sumter. We have a reserve of $1.1 million
for this facility as of March 31, 2020. Based on current information, we believe this reserve is adequate to satisfy our environmental liabilities at this
facility.
Environmental and safety certifications
Seventeen of our facilities in the Americas, EMEA and Asia are certified to ISO 14001 standards. ISO 14001 is a globally recognized, voluntary program
that focuses on the implementation, maintenance and continual improvement of an environmental management system and the improvement of
environmental performance. Six facilities in EMEA and Asia are certified to OHSAS 18001 standards. OHSAS 18001 is a globally recognized
occupational health and safety management systems standard.
Climate change impacts
The potential impact of climate change on our operations is uncertain. Climate change may result in, among other things, changes in rainfall and storm
patterns and intensity and increased temperature and sea levels. As discussed elsewhere in this Annual Report on Form 10-K (Annual Report), including in
Item 1A. Risk Factors, our operating results are significantly influenced by weather, and significant changes in historical weather patterns could
significantly impact our future operating results. For example, if climate change results in drier weather and more accommodating temperatures over a
greater period of time, we may be able to increase our productivity, which could positively impact our revenues and gross margins. Conversely, if climate
change results in a greater amount of rainfall, snow, ice or other less accommodating weather conditions, we could experience reduced productivity, which
could negatively impact our revenues and gross margins. Further, while an increase in severe weather events, such as hurricanes, tropical storms, blizzards
and ice storms, can create a greater amount of emergency restoration service work, it often also can result in delays or other negative consequences for our
manufacturing operations, which could negatively impact our financial results. Climate change may also affect the conditions in which we operate, and in
some cases, expose us to potentially increased liabilities associated with those environmental conditions. Concerns about climate change could also result
in potential new regulations, regulatory actions or requirements to fund energy efficiency activities, any of which could result in increased costs associated
with our operations.
We strive to operate our facilities in a manner that protects the environment and the health and safety of our employees, customers and communities. We
have implemented company-wide environmental, health and safety policies and practices, which includes monitoring, training and communication of these
policies, formulation of relevant policies and standards.
Quality Systems
We utilize a global strategy for quality management systems, policies and procedures, the basis of which is the ISO 9001:2015 standard, which is a
worldwide recognized quality standard. We believe in the principles of this standard and reinforce this by requiring mandatory compliance for all
manufacturing, sales and service locations globally that are registered to the ISO 9001 standard. This strategy enables us to provide consistent quality
products and services to meet our customers’ needs.
Workplace, Social and Corporate Governance
Under the direction of our Chief Executive Officer and the board of directors, we are focused on achieving a high level of social responsibility, respectful
workplace and strong corporate governance. We operate our business in a manner intended to address climate change and reduce its environmental impact,
including by encouraging recycling.
We are also focused on our social responsibility within our workforce and our community. Integrity and respect are our core values and are ingrained in
EnerSys’ culture and workplace. We want EnerSys to be the employer of choice for all and are focused on hiring and retaining diverse and highly talented
employees and empowering them to create value for our stockholders. In our employee selection process and operation of our business, we adhere to equal
employment opportunity policies and encourage the participation of our employees in training programs that will enhance their effectiveness in the
performance of their duties.
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In order to foster the highest standards of ethics and conduct in all business relationships, we have adopted a Code of Business Conduct and Ethics. This
policy, which covers a wide range of business practices and procedures, applies to our officers, directors and employees.
We also have an active integrity hotline to ensure we address potential issues quickly, efficiently, and with appropriate discretion when poor behaviors or
actions are experienced or observed. At EnerSys, we have zero tolerance for behavior that creates a hostile workplace or makes employees feel
uncomfortable in their work environment.
Available Information
We file annual, quarterly and current reports, proxy statements and other information with the SEC. These filings are available to the public on the Internet
at the SEC’s website at http://www.sec.gov.
Our Internet address is http://www.enersys.com. We make available free of charge on http://www.enersys.com our annual, quarterly and current reports, and
amendments to those reports, as soon as reasonably practical after we electronically file such material with, or furnish it to, the SEC.
ITEM 1A.
RISK FACTORS
The following risks and uncertainties, as well as others described in this Annual Report on Form 10-K, could materially and adversely affect our business,
our results of operations and financial condition and could cause actual results to differ materially from our expectations and projections. Stockholders are
cautioned that these and other factors, including those beyond our control, may affect future performance and cause actual results to differ from those
which may, from time to time, be anticipated. There may be additional risks that are not presently material or known. See “Cautionary Note Regarding
Forward-Looking Statements.” All forward-looking statements made by us or on our behalf are qualified by the risks described below.
We operate in an extremely competitive industry and are subject to pricing pressures.
We compete with a number of major international manufacturers and distributors, as well as a large number of smaller, regional competitors. Due to excess
capacity in some sectors of our industry and consolidation among industrial battery purchasers, we have been subjected to significant pricing pressures. We
anticipate continued competitive pricing pressure as foreign producers are able to employ labor at significantly lower costs than producers in the U.S. and
Western Europe, expand their export capacity and increase their marketing presence in our major Americas and European markets. Several of our
competitors have strong technical, marketing, sales, manufacturing, distribution and other resources, as well as significant name recognition, established
positions in the market and long-standing relationships with OEMs and other customers. In addition, certain of our competitors own lead smelting facilities
which, during periods of lead cost increases or price volatility, may provide a competitive pricing advantage and reduce their exposure to volatile raw
material costs. Our ability to maintain and improve our operating margins has depended, and continues to depend, on our ability to control and reduce our
costs. We cannot assure you that we will be able to continue to control our operating expenses, to raise or maintain our prices or increase our unit volume,
in order to maintain or improve our operating results.
Our results of operations may be negatively impacted by the novel coronavirus outbreak.
In December 2019, the 2019 novel coronavirus surfaced in Wuhan, China (“COVID-19”). The World Health Organization declared a global emergency on
January 30, 2020, with respect to the outbreak and several countries have initiated travel restrictions, closed borders and social distancing directives,
including instructions requiring “shelter-in-place”. In addition to these existing travel restrictions, countries may impose prolonged quarantines and further
restrict travel, which may significantly impact the ability of our employees to get to their places of work to produce products, may make it such that we are
unable to obtain sufficient components or raw materials and component parts on a timely basis or at a cost-effective price or may significantly hamper our
products from moving through the supply chain. The impacts of the outbreak are unknown and rapidly evolving.
Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such COVID-19. We rely on our production
facilities, as well as third-party suppliers and manufacturers, in the United States, Australia, Canada, France, Germany, Italy, the PRC, the United Kingdom
and other countries significantly impacted by COVID-19. This outbreak has resulted in the extended shutdown of certain businesses in many of these
countries, which has resulted and may continue to result in disruptions or delays to our supply chain. Any disruption in these businesses will likely impact
our sales and operating
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results. COVID-19 has had, and may continue to have, an adverse impact on our operations, supply chains and distribution systems and increase our
expenses, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are
taking. Due to these impacts and measures, we have experienced, and may continue to experience, significant and unpredictable reductions in demand for
certain of our products. The degree and duration of disruptions to business activity are unknown at this time.
A widespread health crisis could adversely affect the global economy, resulting in an economic downturn that could impact demand for our products.
The future impact of the outbreak is highly uncertain and cannot be predicted and there is no assurance that the outbreak will not have a material adverse
impact on our business, financial condition and results of operations. The extent of the impact will depend on future developments, including actions taken
to contain COVID-19, and if these impacts persist or exacerbate over an extended period of time.
The uncertainty in global economic conditions could negatively affect the Company’s operating results.
Our operating results are directly affected by the general global economic conditions of the industries in which our major customer groups operate. Our
business segments are highly dependent on the economic and market conditions in each of the geographic areas in which we operate. Our products are
heavily dependent on the end markets that we serve and our operating results will vary by geographic segment, depending on the economic environment in
these markets. Sales of our motive power products, for example, depend significantly on demand for new electric industrial forklift trucks, which in turn
depends on end-user demand for additional motive capacity in their distribution and manufacturing facilities. The uncertainty in global economic
conditions varies by geographic segment, and can result in substantial volatility in global credit markets, particularly in the United States, where we service
the vast majority of our debt. These conditions affect our business by reducing prices that our customers may be able or willing to pay for our products or
by reducing the demand for our products, which could in turn negatively impact our sales and earnings generation and result in a material adverse effect on
our business, cash flow, results of operations and financial position.
Government reviews, inquiries, investigations, and actions could harm our business or reputation.
As we operate in various locations around the world, our operations in certain countries are subject to significant governmental scrutiny and may be
adversely impacted by the results of such scrutiny. The regulatory environment with regard to our business is evolving, and officials often exercise broad
discretion in deciding how to interpret and apply applicable regulations. From time to time, we receive formal and informal inquiries from various
government regulatory authorities, as well as self-regulatory organizations, about our business and compliance with local laws, regulations or standards.
For example, certain of the Company’s European subsidiaries received subpoenas and requests for documents and, in some cases, interviews from, and
have had on-site inspections conducted by the competition authorities of Belgium, Germany and the Netherlands relating to conduct and anticompetitive
practices of certain industrial battery participants. The Company settled the Belgian regulatory proceeding in February 2016 by acknowledging certain
anticompetitive practices and conduct and agreeing to pay a fine of $2.0 million, which was paid in March 2016. In June 2017, the Company settled a
portion of its previously disclosed proceeding involving the German competition authority relating to conduct involving the Company's motive power
battery business and agreed to pay a fine of $14.8 million, which was paid in July 2017, and settled the remaining portion related to the Company's reserve
power battery business and agreed to pay a fine of $7.3 million, which was paid in April 2019. In July 2017, the Company settled the Dutch regulatory
proceeding and agreed to pay a fine of $11.2 million, which was paid in August 2017. As of March 31, 2020, the Company had no reserve balance in
connection with these investigations and related legal matters. However, the precise scope, timing and time period at issue, as well as the final outcome of
the investigations or customer claims, remain uncertain and could be materially adverse to our business. (See Note 19 to the Consolidated Financial
Statement).
Any determination that our operations or activities, or the activities of our employees, are not in compliance with existing laws, regulations or standards
could result in the imposition of substantial fines, interruptions of business, loss of supplier, vendor, customer or other third-party relationships, termination
of necessary licenses and permits, or similar results, all of which could potentially harm our business and/or reputation. Even if an inquiry does not result in
these types of determinations, regulatory authorities could cause us to incur substantial costs or require us to change our business practices in a manner
materially adverse to our business, and it potentially could create negative publicity which could harm our business and/or reputation.
Reliance on third party relationships and derivative agreements could adversely affect the Company’s business.
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We depend on third parties, including suppliers, distributors, lead toll operators, freight forwarders, insurance brokers, commodity brokers, major financial
institutions and other third party service providers, for key aspects of our business, including the provision of derivative contracts to manage risks of (a)
commodity cost volatility, (b) foreign currency exposures and (c) interest rate volatility. Failure of these third parties to meet their contractual, regulatory
and other obligations to the Company, or the development of factors that materially disrupt our relationships with these third parties, could expose us to the
risks of business disruption, higher commodity and interest costs, unfavorable foreign currency rates and higher expenses, which could have a material
adverse effect on our business.
Our operating results could be adversely affected by changes in the cost and availability of raw materials.
Lead is our most significant raw material and is used along with significant amounts of plastics, steel, copper and other materials in our manufacturing
processes. We estimate that raw material costs account for over half of our cost of goods sold. The costs of these raw materials, particularly lead, are
volatile and beyond our control. Additionally, availability of the raw materials used to manufacture our products may be limited at times resulting in higher
prices and/or the need to find alternative suppliers. Furthermore, the cost of raw materials may also be influenced by transportation costs. Volatile raw
material costs can significantly affect our operating results and make period-to-period comparisons extremely difficult. We cannot assure you that we will
be able to either hedge the costs or secure the availability of our raw material requirements at a reasonable level or, even with respect to our agreements that
adjust pricing to a market-based index for lead, pass on to our customers the increased costs of our raw materials without affecting demand or that limited
availability of materials will not impact our production capabilities. Our inability to raise the price of our products in response to increases in prices of raw
materials or to maintain a proper supply of raw materials could have an adverse effect on our revenue, operating profit and net income.
Our operations expose us to litigation, tax, environmental and other legal compliance risks.
We are subject to a variety of litigation, tax, environmental, health and safety and other legal compliance risks. These risks include, among other things,
possible liability relating to product liability matters, personal injuries, intellectual property rights, contract-related claims, government contracts, taxes,
health and safety liabilities, environmental matters and compliance with U.S. and foreign laws, competition laws and laws governing improper business
practices. We or one of our business units could be charged with wrongdoing as a result of such matters. If convicted or found liable, we could be subject to
significant fines, penalties, repayments or other damages (in certain cases, treble damages). As a global business, we are subject to complex laws and
regulations in the U.S. and other countries in which we operate. Those laws and regulations may be interpreted in different ways. They may also change
from time to time, as may related interpretations and other guidance. Changes in laws or regulations could result in higher expenses and payments, and
uncertainty relating to laws or regulations may also affect how we conduct our operations and structure our investments and could limit our ability to
enforce our rights.
In the area of taxes, changes in tax laws and regulations, as well as changes in related interpretations and other tax guidance could materially impact our tax
receivables and liabilities and our deferred tax assets and tax liabilities. Additionally, in the ordinary course of business, we are subject to examinations by
various authorities, including tax authorities. In addition to ongoing examinations, there could be additional investigations launched in the future by
governmental authorities in various jurisdictions and existing investigations could be expanded. The global and diverse nature of our operations means that
these risks will continue to exist and additional legal proceedings and contingencies will arise from time to time. Our results may be affected by the
outcome of legal proceedings and other contingencies that cannot be predicted with certainty.
In the manufacture of our products throughout the world, we process, store, dispose of and otherwise use large amounts of hazardous materials, especially
lead and acid. As a result, we are subject to extensive and changing environmental, health and safety laws and regulations governing, among other things:
the generation, handling, storage, use, transportation and disposal of hazardous materials; remediation of polluted ground or water; emissions or discharges
of hazardous materials into the ground, air or water; and the health and safety of our employees. In light of the efforts to slow the spread of COVID-19 by
many governments, we have also become subject to a number of restrictions on the operation of our business. Compliance with these laws and regulations
results in ongoing costs. Failure to comply with these laws or regulations, or to obtain or comply with required environmental permits, could result in fines,
criminal charges or other sanctions by regulators. From time to time we have had instances of alleged or actual noncompliance that have resulted in the
imposition of fines, penalties and required corrective actions. Our ongoing compliance with environmental, health and safety laws, regulations and permits
could require us to incur significant expenses, limit our ability to modify or expand our facilities or continue production and require us to install additional
pollution control equipment and make other capital improvements. In addition, private parties, including current or former employees, could bring personal
injury or other claims against us due to the presence of, or exposure to, hazardous substances used, stored or disposed of by us or contained in our products.
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Certain environmental laws assess liability on owners or operators of real property for the cost of investigation, removal or remediation of hazardous
substances at their current or former properties or at properties at which they have disposed of hazardous substances. These laws may also assess costs to
repair damage to natural resources. We may be responsible for remediating damage to our properties caused by former owners. Soil and groundwater
contamination has occurred at some of our current and former properties and may occur or be discovered at other properties in the future. We are currently
investigating and monitoring soil and groundwater contamination at several of our properties, in most cases as required by regulatory permitting processes.
We may be required to conduct these operations at other properties in the future. In addition, we have been, and in the future, may be liable to contribute to
the cleanup of locations owned or operated by other persons to which we or our predecessor companies have sent wastes for disposal, pursuant to federal
and other environmental laws. Under these laws, the owner or operator of contaminated properties and companies that generated, disposed of or arranged
for the disposal of wastes sent to a contaminated disposal facility can be held jointly and severally liable for the investigation and cleanup of such
properties, regardless of fault. Additionally, our products may become subject to fees and taxes in order to fund cleanup of such properties, including those
operated or used by other lead-battery industry participants.
Changes in environmental and climate laws or regulations could lead to new or additional investment in production designs and could increase
environmental compliance expenditures.
For example, the European Union has enacted greenhouse gas emissions legislation, and continues to expand the scope of such legislation. The United
States Environmental Protection Agency has promulgated regulations applicable to projects involving greenhouse gas emissions above a certain threshold,
and the United States and certain states within the United States have enacted, or are considering, limitations on greenhouse gas emissions.
Changes in climate change concerns, or in the regulation of such concerns, including greenhouse gas emissions, could subject us to additional costs and
restrictions, including increased energy and raw materials costs. Additionally, we cannot assure you that we have been or at all times will be in compliance
with environmental laws and regulations or that we will not be required to expend significant funds to comply with, or discharge liabilities arising under,
environmental laws, regulations and permits, or that we will not be exposed to material environmental, health or safety litigation.
Also, the U.S. Foreign Corrupt Practices Act (“FCPA”) and similar worldwide anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and
their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. The FCPA applies to
companies, individual directors, officers, employees and agents. Under the FCPA, U.S. companies may be held liable for actions taken by strategic or local
partners or representatives. The FCPA also imposes accounting standards and requirements on publicly traded U.S. corporations and their foreign affiliates,
which are intended to prevent the diversion of corporate funds to the payment of bribes and other improper payments. Certain of our customer relationships
outside of the U.S. are with governmental entities and are therefore subject to such anti-bribery laws. Our policies mandate compliance with these anti-
bribery laws. Despite meaningful measures that we undertake to facilitate lawful conduct, which include training and internal control policies, these
measures may not always prevent reckless or criminal acts by our employees or agents. As a result, we could be subject to criminal and civil penalties,
disgorgement, further changes or enhancements to our procedures, policies and controls, personnel changes or other remedial actions. Violations of these
laws, or allegations of such violations, could disrupt our operations, involve significant management distraction and result in a material adverse effect on
our competitive position, results of operations, cash flows or financial condition.
There is also a regulation to improve the transparency and accountability concerning the supply of minerals coming from the conflict zones in and around
the Democratic Republic of Congo. U.S. legislation included disclosure requirements regarding the use of conflict minerals mined from the Democratic
Republic of Congo and adjoining countries and procedures regarding a manufacturer’s efforts to prevent the sourcing of such conflict minerals. In addition,
the European Union adopted a EU-wide conflict minerals rule under which most EU importers of tin, tungsten, tantalum, gold and their ores will have to
conduct due diligence to ensure the minerals do not originate from conflict zones and do not fund armed conflicts. Large manufacturers also will have to
disclose how they plan to monitor their sources to comply with the rules. Compliance with the regulation is required by January 1, 2021. The
implementation of these requirements could affect the sourcing and availability of minerals used in the manufacture of our products. As a result, there may
only be a limited pool of suppliers who provide conflict-free metals, and we cannot assure you that we will be able to obtain products in sufficient
quantities or at competitive prices. Future regulations may become more stringent or costly and our compliance costs and potential liabilities could
increase, which may harm our business.
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We are exposed to exchange rate risks, and our net earnings and financial condition may suffer due to currency translations.
We invoice our foreign sales and service transactions in local and foreign currencies and translate net sales using actual exchange rates during the period.
We translate our non-U.S. assets and liabilities into U.S. dollars using current exchange rates as of the balance sheet dates. Because a significant portion of
our revenues and expenses are denominated in foreign currencies, changes in exchange rates between the U.S. dollar and foreign currencies, primarily the
euro, British pound, Polish zloty, Chinese renminbi, Mexican peso and Swiss franc may adversely affect our revenue, cost of goods sold and operating
margins. For example, foreign currency depreciation against the U.S. dollar will reduce the value of our foreign revenues and operating earnings as well as
reduce our net investment in foreign subsidiaries. Approximately 40% of net sales were generated outside of the United States in fiscal 2020.
Most of the risk of fluctuating foreign currencies is in our EMEA segment, which comprised approximately one-third of our net sales during the last three
fiscal years. The euro is the dominant currency in our EMEA operations. In the event that one or more European countries were to replace the euro with
another currency, our sales into such countries, or into Europe generally, would likely be adversely affected until stable exchange rates are established.
The translation impact from currency fluctuations on net sales and operating earnings in our Americas and Asia segments are not as significant as our
EMEA segment, as a substantial majority of these net sales and operating earnings are in U.S. dollars or foreign currencies that have been closely
correlated to the U.S. dollar.
If foreign currencies depreciate against the U.S. dollar, it would make it more expensive for our non-U.S. subsidiaries to purchase certain of our raw
material commodities that are priced globally in U.S. dollars, while the related revenue will decrease when translated to U.S. dollars. Significant
movements in foreign exchange rates can have a material impact on our results of operations and financial condition. We periodically engage in hedging of
our foreign currency exposures, but cannot assure you that we can successfully hedge all of our foreign currency exposures or do so at a reasonable cost.
We quantify and monitor our global foreign currency exposures. Our largest foreign currency exposure is from the purchase and conversion of U.S. dollar-
based lead costs into local currencies in Europe. Additionally, we have currency exposures from intercompany financing and intercompany and third party
trade transactions. On a selective basis, we enter into foreign currency forward contracts and purchase option contracts to reduce the impact from the
volatility of currency movements; however, we cannot be certain that foreign currency fluctuations will not impact our operations in the future.
If we are unable to effectively hedge against currency fluctuations, our operating costs and revenues in our non-U.S. operations may be adversely affected,
which would have an adverse effect on our operating profit and net income.
We have experienced and may continue to experience, difficulties implementing our new global enterprise resource planning system.
We are engaged in a multi-year implementation of a new global enterprise resource planning system (“ERP”). The ERP is designed to efficiently maintain
our financial records and provide information important to the operation of our business to our management team. The ERP will continue to require
significant investment of human and financial resources. In implementing the ERP, we have experienced significant production and shipping delays,
increased costs and other difficulties. Any significant disruption or deficiency in the design and implementation of the ERP will adversely affect our ability
to process orders, ship product, send invoices and track payments, fulfill contractual obligations or otherwise operate our business. While we have invested
significant resources in planning, project management and training, additional and significant implementation issues may arise. In addition, our efforts to
centralize various business processes and functions within our organization in connection with our ERP implementation may disrupt our operations and
negatively impact our business, results of operations and financial condition.
The failure to successfully implement efficiency and cost reduction initiatives, including restructuring activities, could materially adversely affect our
business and results of operations, and we may not realize some or all of the anticipated benefits of those initiatives.
From time to time we have implemented efficiency and cost reduction initiatives intended to improve our profitability and to respond to changes impacting
our business and industry. These initiatives include relocating manufacturing to lower cost regions, working with our material suppliers to lower costs,
product design and manufacturing improvements, personnel reductions and voluntary retirement programs, and strategically planning capital expenditures
and development activities. In the past we have recorded net restructuring charges to cover costs associated with our cost reduction initiatives involving
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restructuring. These costs have been primarily composed of employee separation costs, including severance payments, and asset impairments or losses
from disposal. We also undertake restructuring activities and programs to improve our cost structure in connection with our business acquisitions, which
can result in significant charges, including charges for severance payments to terminated employees and asset impairment charges.
We cannot assure you that our efficiency and cost reduction initiatives will be successfully or timely implemented, or that they will materially and
positively impact our profitability. Because our initiatives involve changes to many aspects of our business, the associated cost reductions could adversely
impact productivity and sales to an extent we have not anticipated. In addition, our ability to complete our efficiency and cost-savings initiatives and
achieve the anticipated benefits within the expected time frame is subject to estimates and assumptions and may vary materially from our expectations,
including as a result of factors that are beyond our control. Furthermore, our efforts to improve the efficiencies of our business operations and improve
growth may not be successful. Even if we fully execute and implement these activities and they generate the anticipated cost savings, there may be other
unforeseeable and unintended consequences that could materially adversely impact our profitability and business, including unintended employee attrition
or harm to our competitive position. To the extent that we do not achieve the profitability enhancement or other benefits of our efficiency and cost
reduction initiatives that we anticipate, our results of operations may be materially adversely affected.
Our international operations may be adversely affected by actions taken by foreign governments or other forces or events over which we may have no
control.
We currently have significant manufacturing and/or distribution facilities outside of the United States, in Argentina, Australia, Belgium, Brazil, Canada, the
Czech Republic, France, Germany, India, Italy, Malaysia, Mexico, the PRC, Poland, Spain, Switzerland and the United Kingdom. Our global operations are
dependent upon products manufactured, purchased and sold in the U.S. and internationally, including in countries with political and economic instability or
uncertainty. This includes, for example, the uncertainty related to the United Kingdom’s withdrawal from the European Union (commonly known as
“Brexit”) and the adoption and expansion of trade restrictions, including the occurrence or escalation of a "trade war," or other governmental action related
to tariffs or trade agreements or policies among the governments of the United States, PRC and other countries. On January 31, 2020, the United Kingdom
left the European Union pursuant to a withdrawal agreement which provides for, among other things, a transition period ending on December 31, 2020
during which the United Kingdom will remain (i) subject to all European Union laws and all international agreements that the European Union has signed
and (ii) in the European Union Customs Union and the European Union Single Market. Before July 1, 2020, the United Kingdom and the European Union
can jointly extend this transition period once by up to one to two years.
Some countries have greater political and economic volatility and greater vulnerability to infrastructure and labor disruptions than others. Our business
could be negatively impacted by adverse fluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the
transportation and shipping infrastructure at important geographic points of exit and entry for our products. Operating in different regions and countries
exposes us to a number of risks, including:
• multiple and potentially conflicting laws, regulations and policies that are subject to change;
•
imposition of currency restrictions, restrictions on repatriation of earnings or other restraints imposition of burdensome import duties, tariffs or
quotas;
changes in trade agreements;
imposition of new or additional trade and economic sanctions laws imposed by the U.S. or foreign governments;
war or terrorist acts; and
political and economic instability or civil unrest that may severely disrupt economic activity in affected countries.
•
•
•
•
The occurrence of one or more of these events may negatively impact our business, results of operations and financial condition.
Our failure to introduce new products and product enhancements and broad market acceptance of new technologies introduced by our competitors could
adversely affect our business.
Many new energy storage technologies have been introduced over the past several years. For certain important and growing markets, such as aerospace and
defense, lithium-based battery technologies have a large and growing market share. Our ability to achieve significant and sustained penetration of key
developing markets, including aerospace and defense, will depend upon our success in developing or acquiring these and other technologies, either
independently, through joint ventures or through acquisitions. If we fail to develop or acquire, and manufacture and sell, products that satisfy our
customers’ demands, or we fail to respond effectively to new product announcements by our competitors by quickly introducing competitive products, then
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market acceptance of our products could be reduced and our business could be adversely affected. We cannot assure you that our portfolio of primarily
lead-acid products will remain competitive with products based on new technologies.
We may not be able to adequately protect our proprietary intellectual property and technology.
We rely on a combination of copyright, trademark, patent and trade secret laws, non-disclosure agreements and other confidentiality procedures and
contractual provisions to establish, protect and maintain our proprietary intellectual property and technology and other confidential information. Certain of
these technologies, especially TPPL technology, are important to our business and are not protected by patents. Despite our efforts to protect our
proprietary intellectual property and technology and other confidential information, unauthorized parties may attempt to copy or otherwise obtain and use
our intellectual property and proprietary technologies. If we are unable to protect our intellectual property and technology, we may lose any technological
advantage we currently enjoy and may be required to take an impairment charge with respect to the carrying value of such intellectual property or goodwill
established in connection with the acquisition thereof. In either case, our operating results and net income may be adversely affected.
Relocation of our customers’ operations could adversely affect our business.
The trend by a number of our North American and Western European customers to move manufacturing operations and expand their businesses in faster
growing and low labor-cost markets may have an adverse impact on our business. As our customers in traditional manufacturing-based industries seek to
move their manufacturing operations to these locations, there is a risk that these customers will source their energy storage products from competitors
located in those territories and will cease or reduce the purchase of products from our manufacturing plants. We cannot assure you that we will be able to
compete effectively with manufacturing operations of energy storage products in those territories, whether by establishing or expanding our manufacturing
operations in those lower-cost territories or acquiring existing manufacturers.
Quality problems with our products could harm our reputation and erode our competitive position.
The success of our business will depend upon the quality of our products and our relationships with customers. In the event that our products fail to meet
our customers’ standards, our reputation could be harmed, which would adversely affect our marketing and sales efforts. We cannot assure you that our
customers will not experience quality problems with our products.
We offer our products under a variety of brand names, the protection of which is important to our reputation for quality in the consumer marketplace.
We rely upon a combination of trademark, licensing and contractual covenants to establish and protect the brand names of our products. We have registered
many of our trademarks in the U.S. Patent and Trademark Office and in other countries. In many market segments, our reputation is closely related to our
brand names. Monitoring unauthorized use of our brand names is difficult, and we cannot be certain that the steps we have taken will prevent their
unauthorized use, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the U.S. We cannot assure you that
our brand names will not be misappropriated or utilized without our consent or that such actions will not have a material adverse effect on our reputation
and on our results of operations.
We may fail to implement our plans to make acquisitions or successfully integrate them into our operations.
As part of our business strategy, we have grown, and plan to continue growing, by acquiring other product lines, technologies or facilities that complement
or expand our existing business, such as the acquisition of Alpha during fiscal 2019 and NorthStar during fiscal 2020. There is significant competition for
acquisition targets in the stored energy industry. We may not be able to identify suitable acquisition candidates or negotiate attractive terms. In addition, we
may have difficulty obtaining the financing necessary to complete transactions we pursue. In that regard, our credit facilities restrict the amount of
additional indebtedness that we may incur to finance acquisitions and place other restrictions on our ability to make acquisitions. Exceeding any of these
restrictions would require the consent of our lenders. Even if acquisition candidates are identified, we cannot be sure that our diligence will surface all
material issues that may be present, including as they relate to inside Alpha and/or NorthStar or their respective business, or that it would be possible to
uncover all material issues through a customary amount of due diligence, or that factors outside of such acquisition candidate, Alpha, NorthStar and their
business and outside of their respective control will not arise later. If any such material issues arise, they may materially and adversely impact the on-going
business of EnerSys and our stockholders’ investment. We may be unable to successfully integrate any assets, liabilities, customers, systems and
management personnel we acquire into our operations and we may not be able to realize related revenue synergies and cost savings within expected time
frames. For example, the ability of EnerSys to realize the anticipated
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benefits of the Alpha and NorthStar acquisitions will depend, to a large extent, on our ability to combine Alpha’s, NorthStar's and our businesses in a
manner that facilitates growth opportunities and realizes anticipated synergies, and achieves the projected stand-alone cost savings and revenue growth
trends identified by each company. It is expected that we will benefit from operational and general and administrative cost synergies resulting from the
warehouse and transportation integration, direct procurement savings on overlapping materials, purchasing scale on indirect spend categories and
optimization of duplicate positions and processes. We may also enjoy revenue synergies, driven by a strong portfolio of brands with exposure to higher
growth segments and the ability to leverage our collective distribution strength. In order to achieve these expected benefits, we must successfully combine
the businesses of Alpha, NorthStar and EnerSys in a manner that permits these cost savings and synergies to be realized and must achieve the anticipated
savings and synergies without adversely affecting current revenues and investments in future growth. If we experience difficulties with the integration
process or are not able to successfully achieve these objectives, the anticipated benefits of the Alpha and NorthStar acquisitions may not be realized fully or
at all or may take longer to realize than expected. Our failure to execute our acquisition strategy could have a material adverse effect on our business. We
cannot assure you that our acquisition strategy will be successful or that we will be able to successfully integrate acquisitions we do make.
Any acquisitions that we complete may dilute stockholder ownership interests in EnerSys, may have adverse effects on our financial condition and results
of operations and may cause unanticipated liabilities.
Future acquisitions may involve the issuance of our equity securities as payment, in part or in full, for the businesses or assets acquired. Any future
issuances of equity securities would dilute stockholder ownership interests. In addition, future acquisitions might not increase, and may even decrease, our
earnings or earnings per share and the benefits derived by us from an acquisition might not outweigh or might not exceed the dilutive effect of the
acquisition. We also may incur additional debt or suffer adverse tax and accounting consequences in connection with any future acquisitions.
The failure or cyber security breach of critical computer systems could seriously affect our sales and operations.
We operate a number of critical computer systems throughout our business that can fail for a variety of reasons. If such a failure were to occur, we may not
be able to sufficiently recover from the failure in time to avoid the loss of data or any adverse impact on certain of our operations that are dependent on
such systems. This could result in lost sales and the inefficient operation of our facilities for the duration of such a failure.
In addition, these computer systems are essential for the exchange of information both within the company and in communicating with third parties.
Despite our efforts to protect the integrity of these systems and network as well as sensitive, confidential or personal data or information, our facilities and
systems and those of our third-party service providers may be vulnerable to security breaches, theft, misplaced or lost data, programming and/or human
errors that could potentially lead to the compromising of sensitive, confidential or personal data or information, improper use of our systems, software
solutions or networks, unauthorized access, use, disclosure, modification or destruction of information, defective products, production downtimes and
operational disruptions, which in turn could adversely affect our reputation, competitiveness, and results of operations.
We may not be able to maintain adequate credit facilities.
Our ability to continue our ongoing business operations and fund future growth depends on our ability to maintain adequate credit facilities and to comply
with the financial and other covenants in such credit facilities or to secure alternative sources of financing. However, such credit facilities or alternate
financing may not be available or, if available, may not be on terms favorable to us. If we do not have adequate access to credit, we may be unable to
refinance our existing borrowings and credit facilities when they mature and to fund future acquisitions, and this may reduce our flexibility in responding to
changing industry conditions.
Our indebtedness could adversely affect our financial condition and results of operations.
As of March 31, 2020, we had $1,160.6 million of total consolidated debt (including finance leases). This level of debt could:
•
•
increase our vulnerability to adverse general economic and industry conditions, including interest rate fluctuations, because a portion of our
borrowings bear, and will continue to bear, interest at floating rates;
require us to dedicate a substantial portion of our cash flow from operations to debt service payments, which would reduce the availability of our
cash to fund working capital, capital expenditures or other general corporate purposes, including acquisitions;
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•
•
•
•
•
limit our flexibility in planning for, or reacting to, changes in our business and industry;
restrict our ability to introduce new products or new technologies or exploit business opportunities;
place us at a disadvantage compared with competitors that have proportionately less debt;
limit our ability to borrow additional funds in the future, if we need them, due to financial and restrictive covenants in our debt agreements; and
have a material adverse effect on us if we fail to comply with the financial and restrictive covenants in our debt agreements.
There can be no assurance that we will continue to declare cash dividends at all or in any particular amounts.
During fiscal 2020, we announced the declaration of a quarterly cash dividend of $0.175 per share of common stock for quarters ended June 30, 2019,
September 29, 2019, December 29, 2019 and March 31, 2020. On May 21, 2020, we announced a fiscal 2021 first quarter cash dividend of $0.175 per
share of common stock. Future payment of a regular quarterly cash dividend on our common shares will be subject to, among other things, our results of
operations, cash balances and future cash requirements, financial condition, statutory requirements of Delaware law, compliance with the terms of existing
and future indebtedness and credit facilities, and other factors that the Board of Directors may deem relevant. Our dividend payments may change from
time to time, and we cannot provide assurance that we will continue to declare dividends at all or in any particular amounts. A reduction in or elimination
of our dividend payments could have a negative effect on our share price.
We cannot guarantee that our share repurchase programs will be fully consummated or that they will enhance long-term stockholder value. Share
repurchases could also increase the volatility of the trading price of our stock and could diminish our cash reserves.
Our Board of Directors has authorized two share repurchase programs, one authorizing the repurchase of up to $100 million of our common stock, of
which authority, as of March 31, 2020, approximately $59 million remains available and another authorizing the repurchase of up to such number of shares
as shall equal the dilutive effects of any equity based award granted during such fiscal year and the number of shares exercised through stock option awards
during such fiscal year. Although our board of directors has authorized these share repurchase programs, the programs do not obligate us to repurchase any
specific dollar amount or to acquire any specific number of shares. We cannot guarantee that the programs will be fully consummated or that they will
enhance long-term stockholder value. The programs could affect the trading price of our stock and increase volatility, and any announcement of a
termination of these programs may result in a decrease in the trading price of our stock. In addition, these programs could diminish our cash reserves. The
Company does not plan on utilizing the share repurchase authorization in the present financial environment.
We depend on our senior management team and other key employees, and significant attrition within our management team or unsuccessful succession
planning could adversely affect our business.
Our success depends in part on our ability to attract, retain and motivate senior management and other key employees. Achieving this objective may be
difficult due to many factors, including fluctuations in global economic and industry conditions, competitors’ hiring practices, cost reduction activities, and
the effectiveness of our compensation programs. Competition for qualified personnel can be very intense. We must continue to recruit, retain and motivate
senior management and other key employees sufficient to maintain our current business and support our future projects. We are vulnerable to attrition
among our current senior management team and other key employees. A loss of any such personnel, or the inability to recruit and retain qualified personnel
in the future, could have an adverse effect on our business, financial condition and results of operations. In addition, if we are unsuccessful in our
succession planning efforts, the continuity of our business and results of operations could be adversely affected.
We may have exposure to greater than anticipated tax liabilities.
Our income tax obligations are based in part on our corporate operating structure and intercompany arrangements, including the manner in which we
operate our business, develop, value, manage, protect, and use our intellectual property and the valuations of our intercompany transactions. We may also
be subject to additional indirect or non-income taxes. The tax laws applicable to our business, including the laws of the United States and other
jurisdictions, are subject to interpretation and certain jurisdictions are aggressively interpreting their laws in new ways in an effort to raise additional tax
revenue from multi-national companies, like us. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for
valuing developed technology or intercompany arrangements, which could increase our worldwide effective tax rate and harm our financial position,
results of operations, and cash flows. Although we believe that our provision for income taxes is reasonable, the ultimate tax outcome may differ from the
amounts recorded in our financial statements and may materially affect our
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financial results in the period or periods for which such determination is made. In addition, our future income tax rates could be adversely affected by
earnings being lower than anticipated in jurisdictions that have lower statutory tax rates and higher than anticipated in jurisdictions that have higher
statutory tax rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations, or accounting principles.
Changes in tax laws or tax rulings could materially affect our financial position, results of operations, and cash flows.
The income and non-income tax regimes we are subject to or operate under are unsettled and may be subject to significant change. Changes in tax laws or
tax rulings, or changes in interpretations of existing laws, could materially affect our financial position, results of operations, and cash flows. For example,
changes to U.S. tax laws enacted in December 2017 had a significant impact on our tax obligations and effective tax rate for fiscal 2019 and 2018. In fiscal
year 2020, Switzerland enacted the Federal Act on Tax Reform and AHV (Old-Age and Survivors Insurance) Financing (TRAF) which became effective
on January 1, 2020. These enactments and future possible guidance from the applicable taxing authorities may have a material impact on the Company’s
operating results. In addition, many countries in Europe, as well as a number of other countries and organizations, have recently proposed or recommended
changes to existing tax laws or have enacted new laws that could significantly increase our tax obligations in many countries where we do business or
require us to change the manner in which we operate our business. The Company closely monitors these proposals as they arise in the countries where it
operates. Changes to the statutory tax rate may occur at any time, and any related expense or benefit recorded may be material to the fiscal quarter and year
in which the law change is enacted. The European Commission has conducted investigations in multiple countries focusing on whether local country tax
rulings or tax legislation provides preferential tax treatment that violates European Union state aid rules and concluded that certain countries, including
Ireland, have provided illegal state aid in certain cases. These investigations may result in changes to the tax treatment of our foreign operations. Due to the
large and expanding scale of our international business activities, many of these types of changes to the taxation of our activities could increase our
worldwide effective tax rate and harm our financial position, results of operations, and cash flows.
In connection with the Organization for Economic Cooperation and Development Base Erosion and Profit Shifting (BEPS) project, companies are required
to disclose more information to tax authorities on operations around the world, which may lead to greater audit scrutiny of profits earned in other countries.
The Company regularly assesses the likely outcomes of its tax audits and disputes to determine the appropriateness of its tax reserves. However, any tax
authority could take a position on tax treatment that is contrary to the Company’s expectations, which could result in tax liabilities in excess of reserves.
Our software and related services are highly technical and may contain undetected software bugs or vulnerabilities, which could manifest in ways that
could seriously harm our reputation and our business.
The software and related services that we offer, including those as a result of the Alpha acquisition, are highly technical and complex. Our services or any
other products that we may introduce in the future may contain undetected software bugs, hardware errors, and other vulnerabilities. These bugs and errors
can manifest in any number of ways in our products, including through diminished performance, security vulnerabilities, malfunctions, or even
permanently disabled products. We have a practice of regularly updating our products and some errors in our products may be discovered only after a
product has been used by users, and may in some cases be detected only under certain circumstances or after extended use. Any errors, bugs or other
vulnerabilities discovered in our code or backend after release could damage our reputation, drive away users, allow third parties to manipulate or exploit
our software, lower revenue and expose us to claims for damages, any of which could seriously harm our business. Additionally, errors, bugs, or other
vulnerabilities may, either directly or if exploited by third parties, affect our ability to make accurate royalty payments.
We also could face claims for product liability, tort or breach of warranty. Defending a lawsuit, regardless of its merit, is costly and may divert
management’s attention and seriously harm our reputation and our business. In addition, if our liability insurance coverage proves inadequate or future
coverage is unavailable on acceptable terms or at all, our business could be seriously harmed.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
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ITEM 2.
PROPERTIES
The Company’s worldwide headquarters is located in Reading, Pennsylvania, U.S.A. Geographic headquarters for our Americas, EMEA and Asia
segments are located in Reading, Pennsylvania, U.S.A., Zug, Switzerland and Singapore, respectively. The Company owns approximately 80% of its
manufacturing facilities and distribution centers worldwide. The following sets forth the Company’s principal owned or leased facilities by business
segment:
Americas: Sylmar, California; Longmont, Colorado; Tampa, Florida; Suwanee, Georgia, Hays, Kansas; Richmond, Kentucky; Springfield and
Warrensburg, Missouri; Horsham, Pennsylvania; Sumter, South Carolina; Ooltewah, Tennessee, Spokane, Washington and Bellingham, Washington
in the United States; Burnaby, in Canada; Monterrey and Tijuana in Mexico; Buenos Aires, Argentina and São Paulo, in Brazil.
EMEA: Hostomice, Czech Republic; Arras, France; Hagen in Germany; Bielsko-Biala, Poland; Stockholm, Sweden and Newport and Culham in the
United Kingdom.
Asia: Chongqing and Yangzhou in the PRC and Andhra Pradesh in India.
We consider our plants and facilities, whether owned or leased, to be in satisfactory condition and adequate to meet the needs of our current businesses and
projected growth. Information as to material lease commitments is included in Note 3 - Leases to the Consolidated Financial Statements.
ITEM 3.
LEGAL PROCEEDINGS
From time to time, we are involved in litigation incidental to the conduct of our business. See Litigation and Other Legal Matters in Note 19 -
Commitments, Contingencies and Litigation to the Consolidated Financial Statements, which is incorporated herein by reference.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market Information
The Company’s common stock has been listed on the New York Stock Exchange under the symbol “ENS” since it began trading on July 30, 2004. Prior to
that time, there had been no public market for our common stock.
Holders of Record
As of May 28, 2020, there were approximately 303 record holders of common stock of the Company. Because many of these shares are held by brokers and
other institutions on behalf of stockholders, the Company is unable to estimate the total number of stockholders represented by these record holders.
Recent Sales of Unregistered Securities
During the fourth quarter of fiscal 2020, we did not issue any unregistered securities.
Dividends
During fiscal 2020, the Company’s quarterly dividend was $0.175 per share. The Company declared aggregate regular cash dividends of $0.70 per share in
each of the years ended March 31, 2019 and 2018.
The Company anticipates that it will continue to pay quarterly cash dividends in the future. However, the payment and amount of future dividends remain
within the discretion of the Board and will depend upon the Company's future earnings, financial condition, capital requirements, restrictions under existing
or future credit facilities or debt and other factors. See “There can be no assurance that we will continue to declare cash dividends at all or in any particular
amounts.” Under Item 1A. Risk Factors for additional information.
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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 equity awards may be satisfied by the surrender of shares of the Company’s common stock.
Purchases of Equity Securities
(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
7,208 $
9,021
—
16,229 $
74.75
72.21
—
73.34
— $
—
—
—
(d)
Maximum number
(or approximate
dollar value) of shares
(or units) that may be
purchased under the
plans or programs(1)(2)
9,002,889
9,002,889
9,002,889
Period
December 30, 2019 - January 26, 2020
January 27, 2020 - February 23, 2020
February 24, 2020 - March 31, 2020
Total
(1) The Company's Board of Directors has authorized the Company to repurchase up to such number of shares as shall equal the dilutive effects of any
equity based award granted during such fiscal year under the 2017 Equity Incentive Plan and the number of shares exercised through stock option
awards during such fiscal year.
(2) On November 8, 2017, the Company announced the establishment of a $100 million stock repurchase authorization, with no expiration date and a
remaining authorization of $59.1 million. The authorization is in addition to the existing stock repurchase programs.
The Company does not plan on utilizing the share repurchase authorization in the present financial environment.
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STOCK PERFORMANCE GRAPH
The following graph compares the changes in cumulative total returns on EnerSys’ common stock with the changes in cumulative total returns of the New
York Stock Exchange Composite Index, a broad equity market index, and the total return on a selected peer group index. The peer group selected is based
on the standard industrial classification codes (“SIC Codes”) established by the U.S. government. The index chosen was “Miscellaneous Electrical
Equipment and Suppliers” and comprises all publicly traded companies having the same three-digit SIC Code (369) as EnerSys.
The graph was prepared assuming that $100 was invested in EnerSys’ common stock, the New York Stock Exchange Composite Index and the peer group
(duly updated for changes) on March 31, 2015.
*$100 invested on March 31, 2015 in stock or index, including reinvestment of dividends.
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ITEM 6.
SELECTED FINANCIAL DATA
Consolidated Statements of Income:
Net sales
Cost of goods sold
Inventory step up to fair value relating to acquisitions and exit
activities
Gross profit
Operating expenses
Restructuring, exit and other charges
Impairment of goodwill
Impairment of finite, indefinite-lived intangibles and fixed assets
Legal proceedings charge, net of settlement income
Gain on sale of facility
Operating earnings
Interest expense
Other (income) expense, net
Earnings before income taxes
Income tax expense
Net earnings
Net earnings (losses) attributable to noncontrolling interests
Net earnings attributable to EnerSys stockholders
Net earnings per common share attributable to EnerSys
stockholders:
Basic
Diluted
Weighted-average number of common shares outstanding:
$
$
$
Basic
Diluted
Fiscal Year Ended March 31,
2020
2019
2018
2017
2016
(In thousands, except share and per share data)
$
3,087,868
$
2,808,017 $
2,104,612
2,581,891 $
1,920,030
2,367,149 $
1,713,115
2,316,249
1,704,472
2,301,148
1,854
784,866
529,643
20,766
39,713
4,549
—
—
190,195
43,673
(415)
146,937
9,821
137,116
—
137,116
$
10,379
693,026
441,415
34,709
—
—
4,437
—
212,465
30,868
(614)
182,211
21,584
160,627
388
160,239 $
3,457
658,404
382,077
5,481
—
—
—
—
270,846
25,001
7,519
238,326
118,493
119,833
239
119,594 $
2,157
651,877
369,863
7,160
12,216
1,800
23,725
—
237,113
22,197
2,221
212,695
54,472
158,223
(1,991)
160,214 $
3.23
3.20
$
$
3.79 $
3.73 $
2.81 $
2.77 $
3.69 $
3.64 $
42,411,834
42,896,775
42,335,023
43,008,952
42,612,036
43,119,856
43,389,333
44,012,543
44,276,713
45,474,130
—
611,777
352,767
12,978
31,411
4,841
3,201
(3,420)
209,999
22,343
5,719
181,937
50,113
131,824
(4,326)
136,150
3.08
2.99
As a result of the adoption of ASU 2017-07, “Compensation—Retirement Benefits (Topic 715)” during the first quarter of 2019, the Company has recast the prior years of fiscal 2018 and 2017,
those being the years presented in the primary financial statements in the year of adoption of the standard.
Consolidated cash flow data:
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Other operating data:
Capital expenditures
Consolidated balance sheet data:
Cash and cash equivalents
Working capital
Total assets
Total debt, including finance leases
Total EnerSys stockholders’ equity
2020
2019
2018
2017
2016
Fiscal Year Ended March 31,
(In thousands)
$
253,398
$
(274,819)
62,683
101,425
197,855 $
(723,883)
346,577
211,048 $
(72,357)
(166,888)
246,030 $
(61,833)
(62,542)
307,571
(80,923)
(105,729)
70,372
69,832
50,072
55,880
2020
2019
2018
2017
2016
(In thousands)
As of March 31,
$
326,979
$
962,586
3,301,698
1,151,844
1,300,525
299,212 $
923,715
3,118,193
1,036,534
1,282,287
522,118 $
1,048,057
2,486,925
598,020
1,195,675
500,329 $
951,484
2,293,029
606,133
1,103,456
397,307
845,068
2,214,488
628,631
1,013,131
On April 1, 2019, we adopted ASU No. 2016-02 which required us to recognize lease right-of-use assets and corresponding lease liabilities on the consolidated balance sheet. No prior periods
were restated as further discussed in Note 1 of Notes to the Consolidated Financial Statements.
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ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our results of operations and financial condition for the fiscal years ended March 31, 2020, 2019 and 2018,
should be read in conjunction with our audited Consolidated Financial Statements and the notes to those statements included in Item 8. Financial
Statements and Supplementary Data, of this Annual Report on Form 10-K. Our discussion contains forward-looking statements based upon current
expectations that involve risks and uncertainties, such as our plans, objectives, opinions, expectations, anticipations and intentions and beliefs. Actual
results and the timing of events could differ materially from those anticipated in those forward-looking statements as a result of a number of factors. See
“Cautionary Note Regarding Forward-Looking Statements,” “Business” and “Risk Factors,” sections elsewhere in this Annual Report on Form 10-K. In
the following discussion and analysis of results of operations and financial condition, certain financial measures may be considered “non-GAAP financial
measures” under the SEC rules. These rules require supplemental explanation and reconciliation, which is provided in this Annual Report on Form 10-K.
EnerSys’ management uses the non-GAAP measures, EBITDA and adjusted EBITDA, in its computation of compliance with loan covenants. These
measures, as used by EnerSys, adjust net earnings determined in accordance with GAAP for interest, taxes, depreciation and amortization, and certain
charges or credits as permitted by our credit agreements, that were recorded during the periods presented.
EnerSys’ management uses the non-GAAP measures, "primary working capital" and "primary working capital percentage" (see definition in “Liquidity
and Capital Resources” below) along with capital expenditures, in its evaluation of business segment cash flow and financial position performance.
These non-GAAP disclosures have limitations as analytical tools, should not be viewed as a substitute for cash flow or operating earnings determined in
accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP, nor are
they necessarily comparable to non-GAAP performance measures that may be presented by other companies. This supplemental presentation should not be
construed as an inference that the Company’s future results will be unaffected by similar adjustments to operating earnings determined in accordance with
GAAP.
Overview
EnerSys (the “Company,” “we,” or “us”) is the world’s largest manufacturer, marketer and distributor of industrial batteries. We also manufacture, market
and distribute products such as battery chargers, power equipment, battery accessories, and outdoor cabinet enclosures. Additionally, we provide related
aftermarket and customer-support services for our products. We market our products globally to over 10,000 customers in more than 100 countries through
a network of distributors, independent representatives and our internal sales force.
We operate and manage our business in three geographic regions of the world—Americas, EMEA and Asia, as described below. Our business is highly
decentralized with manufacturing locations throughout the world. More than half of our manufacturing capacity is located outside the United States, and
approximately 40% of our net sales were generated outside the United States. The Company currently has three reportable business segments based on
geographic regions, defined as follows:
•
•
•
Americas, which includes North and South America, with our segment headquarters in Reading, Pennsylvania, U.S.A.;
EMEA, which includes Europe, the Middle East and Africa, with our segment headquarters in Zug, Switzerland; and
Asia, which includes Asia, Australia and Oceania, with our segment headquarters in Singapore.
We evaluate business segment performance based primarily upon operating earnings exclusive of highlighted items. Highlighted items are those that the
Company deems are not indicative of ongoing operating results, including those charges that the Company incurs as a result of restructuring activities,
impairment of goodwill and indefinite-lived intangibles and other assets, acquisition activities and those charges and credits that are not directly related to
operating unit performance, such as significant legal proceedings, ERP system implementation, amortization of recently acquired intangible assets and tax
valuation allowance changes, including those related to the adoption of the Tax Cuts and Jobs Act. Because these charges are not incurred as a result of
ongoing operations, or are incurred as a result of a potential or previous acquisition, they are not as helpful a measure of the performance of our underlying
business, particularly in light of their unpredictable nature and are difficult to forecast. All corporate and centrally incurred costs are allocated to the
business segments based principally on net sales. We evaluate business segment cash flow and financial position performance based primarily upon capital
expenditures and primary working capital levels (see definition of primary working capital in “Liquidity and Capital Resources” below). Although we
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monitor the three elements of primary working capital (receivables, inventory and payables), our primary focus is on the total amount due to the significant
impact it has on our cash flow.
Our management structure, financial reporting systems, and associated internal controls and procedures, are all consistent with our three geographic
business segments. We report on a March 31 fiscal year-end. Our financial results are largely driven by the following factors:
•
•
•
•
•
•
global economic conditions and general cyclical patterns of the industries in which our customers operate;
changes in our selling prices and, in periods when our product costs increase, our ability to raise our selling prices to pass such cost increases
through to our customers;
the extent to which we are able to efficiently utilize our global manufacturing facilities and optimize our capacity;
the extent to which we can control our fixed and variable costs, including those for our raw materials, manufacturing, distribution and operating
activities;
changes in our level of debt and changes in the variable interest rates under our credit facilities; and
the size and number of acquisitions and our ability to achieve their intended benefits.
We have two primary product lines: reserve power and motive power products. Net sales classifications by product line are as follows:
•
Reserve power products are used for backup power for the continuous operation of critical applications in telecommunications systems,
uninterruptible power systems, or “UPS” applications for computer and computer-controlled systems, and other specialty power applications,
including medical and security systems, premium starting, lighting and ignition applications, in switchgear, electrical control systems used in
electric utilities, large-scale energy storage, energy pipelines, in commercial aircraft, satellites, military aircraft, submarines, ships and tactical
vehicles. Reserve power products also include thermally managed cabinets and enclosures for electronic equipment and batteries. With the recent
Alpha acquisition, we are a provider of highly integrated power solutions and services to broadband, telecom, renewable and industrial customers.
• Motive power products are used to provide power for electric industrial forklifts used in manufacturing, warehousing and other material handling
applications as well as mining equipment, diesel locomotive starting and other rail equipment.
Current Market Conditions
Economic Climate
The COVID-19 pandemic has weakened economic activity around the world. China’s economic activity was the hardest hit during our fourth fiscal quarter
and two of our plants in China were shut down for several weeks and order demand slowed significantly. In Europe and North America, the impact of
COVID-19 was felt towards the end of our fourth quarter so the economic impact was not as severe as in China. We believe that EMEA and Americas
economies will be much harder hit by the impact of COVID-19 during our first fiscal quarter of fiscal 2021.
While the adverse direct impact from COVID-19 was felt by our factories in China and our overall supply chain, our factories in both the Americas and
EMEA, deemed essential critical infrastructure suppliers, remain in operation with some near full capacity while others are experiencing lower demand,
particularly those in our motive power lines of business. We have been able to meet customer demand while maintaining the safety considerations for those
in our facilities and as many employees continue to work effectively from home. The pandemic continues to pose challenges in many of our markets
including delayed 5G deployments and lower OEM sales to our transportation and motive power customers as they experience lower demand with their
end customers.
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. As a result of the COVID-19 pandemic and a forecasted global
economic recession, we anticipate that our commodity costs will be lower in the near future and foreign currency exposures may continue to fluctuate as
they have in the past several years. Since the outbreak of COVID-19 in our fourth fiscal quarter of 2020, we have experienced declining commodity costs.
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Customer Pricing
Our selling prices fluctuated during the last several years to offset the volatile cost of commodities. Approximately 30% of our revenue is currently subject
to agreements that adjust pricing to a market-based index for lead. Lead prices rose for the most part of fiscal 2018, peaked in the first quarter of fiscal 2019
and then declined sequentially in every quarter in fiscal 2019. In fiscal 2020, our selling prices declined in response to declining commodity costs,
including lead. Based on current commodity markets, we will likely see year over year benefits from declining commodity prices, with some related
reduction in our selling prices in the upcoming year.
Liquidity and Capital Resources
We believe that our financial position is strong, and we have substantial liquidity with $327 million of available cash and cash equivalents and available
and undrawn credit lines of approximately $694 million at March 31, 2020 to cover short-term liquidity requirements and anticipated growth in the
foreseeable future. The nominal amount of credit available is subject to a leverage ratio maximum of 3.5x EBITDA, as discussed in the Liquidity and
Capital Resources, which effectively limits additional debt or lowered cash balances by approximately $500 million.
In fiscal 2020, we issued $300 million in aggregate principal amount of our 4.375% Senior Notes due 2027 (the “2027 Notes”). Proceeds from this
offering, net of debt issuance costs were $296.3 million and were utilized to pay down the balance outstanding on the revolver borrowings.
In fiscal 2018, we entered into a credit facility (“2017 Credit Facility”) that consisted of a $600.0 million senior secured revolving credit facility (“2017
Revolver”) and a $150.0 million senior secured term loan (“2017 Term Loan”) with a maturity date of September 30, 2022. On December 7, 2018, we
amended the 2017 Credit Facility (as amended, the “Amended Credit Facility”). The Amended Credit Facility consists of $449.1 million senior secured
term loans (the “Amended 2017 Term Loan”), including a CAD 133.1 million ($99.1 million) term loan and a $700.0 million senior secured revolving
credit facility (the “Amended 2017 Revolver”). The amendment resulted in an increase of the 2017 Term Loan and the 2017 Revolver by $299.1 million
and $100.0 million, respectively.
In fiscal 2020 and 2019 we repurchased $34.6 million and $56.0 million of our common stock under existing authorizations, respectively. In fiscal 2020
and fiscal 2019, we reissued 17,410 and 3,256 shares out of our treasury stock, respectively, to participants under the Company's Employee Stock Purchase
Plan.
In fiscal 2019, we reissued 1,177,630 shares from our treasury stock to satisfy $100.0 million of the initial purchase consideration of $750.0 million, in
connection with the Alpha acquisition.
In fiscal 2018, we repurchased $121.0 million of our common stock through an accelerated share repurchase program (“ASR”) with a major financial
institution and through open market purchases.
A substantial majority of the Company’s cash and investments are held by foreign subsidiaries. The majority of that cash and investments is expected to be
utilized to fund local operating activities, capital expenditure requirements and acquisitions. The Company believes that it has sufficient sources of
domestic and foreign liquidity.
We believe that our strong capital structure and liquidity affords us access to capital for future capital expenditures, acquisition and stock repurchase
opportunities and continued dividend payments.
Cost Savings Initiatives
Cost savings programs remain a continuous element of our business strategy and are directed primarily at further reductions in plant manufacturing (labor
and overhead), raw material costs and our operating expenses (primarily selling, general and administrative). In order to realize cost savings benefits for a
majority of these initiatives, costs are incurred either in the form of capital expenditures, funding the cash obligations of previously recorded restructuring
expenses or current period expenses.
In January 2017, we started our Operational Excellence program, referred to as the EnerSys Operating System, or EOS, which serves as our continuous
improvement engine. During fiscal 2018 and 2019, we were able to fund our investment in new product development and digital core with savings of
approximately $25 million in each year, primarily from restructuring programs. Our global deployment of EOS began to slow in fiscal 2019 and we have
struggled to maintain pace with surging customer demand for TPPL amidst disruptions in fiscal 2019 from our ERP implementation and in fiscal 2020
from a fire, both
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adversely impacting our productivity at our Richmond motive power facility. We constantly evaluate the return on investment to ensure we achieve our
targeted improvement by the end of fiscal 2021.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 1 - Summary of Significant Accounting Policies to the Consolidated Financial Statements in
Item 8. In preparing our financial statements, management is required to make estimates and assumptions that, among other things, affect the reported
amounts in the Consolidated Financial Statements and accompanying notes. These estimates and assumptions are most significant where they involve
levels of subjectivity and judgment necessary to account for highly uncertain matters or matters susceptible to change, and where they can have a material
impact on our financial condition and operating performance. We discuss below the more significant estimates and related assumptions used in the
preparation of our Consolidated Financial Statements. If actual results were to differ materially from the estimates made, the reported results could be
materially affected.
Revenue Recognition
We adopted the new accounting standard for the recognition of revenue under ASC 606 for the fiscal year beginning on April 1, 2019. Under this standard,
we recognize revenue only when we have satisfied a performance obligation through transferring control of the promised good or service to a customer.
The standard indicates that an entity must determine at contract inception whether it will transfer control of a promised good or service over time or satisfy
the performance obligation at a point in time through analysis of the following criteria: (i) the entity has a present right to payment, (ii) the customer has
legal title, (iii) the customer has physical possession, (iv) the customer has the significant risks and rewards of ownership and (v) the customer has accepted
the asset. Our primary performance obligation to our customers is the delivery of finished goods and products, pursuant to purchase orders. Control of the
products sold typically transfers to our customers at the point in time when the goods are shipped as this is also when title generally passes to our customers
under the terms and conditions of our customer arrangements.
We assess collectibility based primarily on the customer’s payment history and on the creditworthiness of the customer.
Management believes that the accounting estimates related to revenue recognition are critical accounting estimates because they require reasonable
assurance of collection of revenue proceeds and completion of all performance obligations. Also, revenues are recorded net of provisions for sales
discounts and returns, which are established at the time of sale. These estimates are based on our past experience. For additional information on the new
accounting standard for the recognition of revenue see Note 1 of Notes to the Consolidated Financial Statements.
Asset Impairment Determinations
We test for the impairment of our goodwill and indefinite-lived trademarks at least annually and whenever events or circumstances occur indicating that a
possible impairment has been incurred.
We perform our annual goodwill impairment test on the first day of our fourth quarter for each of our reporting units based on the income approach, also
known as the discounted cash flow (“DCF”) method, which utilizes the present value of future cash flows to estimate fair value. We also use the market
approach, which utilizes market price data of companies engaged in the same or a similar line of business as that of our company, to estimate fair value. A
reconciliation of the two methods is performed to assess the reasonableness of fair value of each of the reporting units.
The future cash flows used under the DCF method are derived from estimates of future revenues, operating income, working capital requirements and
capital expenditures, which in turn reflect our expectations of specific global, industry and market conditions. The discount rate developed for each of the
reporting units is based on data and factors relevant to the economies in which the business operates and other risks associated with those cash flows,
including the potential variability in the amount and timing of the cash flows. A terminal growth rate is applied to the final year of the projected period and
reflects our estimate of stable growth to perpetuity. We then calculate the present value of the respective cash flows for each reporting unit to arrive at the
fair value using the income approach and then determine the appropriate weighting between the fair value estimated using the income approach and the fair
value estimated using the market approach. Finally, we compare the estimated fair value of each reporting unit to its respective carrying value in order to
determine if the goodwill assigned to each reporting unit is potentially impaired. If the fair value of the reporting unit exceeds its carrying value, goodwill
is not impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value, an impairment charge is recognized
for
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the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of
goodwill allocated to that reporting unit.
Significant assumptions used include management’s estimates of future growth rates, the amount and timing of future operating cash flows, capital
expenditures, discount rates, as well as market and industry conditions and relevant comparable company multiples for the market approach. Assumptions
utilized are highly judgmental, especially given the role technology plays in driving the demand for products in the telecommunications and aerospace
markets.
Our annual goodwill impairment test, which we performed during the fourth quarter of fiscal 2020, resulted in an impairment charge for goodwill of $39.7
million in our Asia reporting unit, and a $4.5 million impairment of trademarks in EMEA, as discussed in Note 7 to the Consolidated Financial Statements.
There was no goodwill remaining in the Asia reporting unit after this impairment charge was recorded. The excess of fair value over carrying value for
each of our reporting units for which we performed a quantitative goodwill impairment test, as of December 30, 2019, the annual testing date, ranged from
approximately 9% to approximately 180% of carrying value, except in the case of our Asia region.
In order to evaluate the sensitivity of the fair value calculations on the goodwill impairment test, we applied a hypothetical 10% decrease to the fair values
of each reporting unit. This hypothetical 10% decrease would result in excess fair values over carrying values range from approximately 40% to
approximately 152% of the carrying values, except our South America reporting unit, where the fair value would be below the carrying value by 2%. South
America's goodwill was $1.9 million and $2.6 million as of March 31, 2020 and 2019, respectively.
We evaluate goodwill on an annual basis as of the beginning of our fourth fiscal quarter and whenever events or changes in circumstances, such as
significant adverse changes in business climate or operating results, changes in management's business strategy or loss of a major customer, indicate that
there may be a potential indicator of impairment.
The indefinite-lived trademarks are tested for impairment by comparing the carrying value to the fair value based on current revenue projections of the
related operations, under the relief from royalty method. Any excess carrying value over the amount of fair value is recognized as impairment. Any
impairment would be recognized in full in the reporting period in which it has been identified.
With respect to our other long-lived assets other than goodwill and indefinite-lived trademarks, we test for impairment when indicators of impairment are
present. An asset is considered impaired when the undiscounted estimated net cash flows expected to be generated by the asset are less than its carrying
amount. The impairment recognized is the amount by which the carrying amount exceeds the fair value of the impaired asset.
Business Combinations
We account for business combinations in accordance with ASC 805, Business Combinations. We recognize assets acquired and liabilities assumed in
acquisitions at their fair values as of the acquisition date, with the acquisition-related transaction and
restructuring costs expensed in the period incurred. Determining the fair value of assets acquired and liabilities assumed often involves estimates based on
third-party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses and may include estimates of attrition, inflation,
asset growth rates, discount rates, multiples of earnings or other relevant factors. In addition, fair values are subject to refinement for up to a year after the
closing date of an acquisition. Adjustments recorded to the acquired assets and liabilities are applied prospectively.
Fair values are based on estimates using management's assumptions using future growth rates, future attrition of the customer base, discount rates,
multiples of earnings or other relevant factors.
Any change in the acquisition date fair value of assets acquired and liabilities assumed may materially affect our financial position, results of operations
and liquidity.
Litigation and Claims
From time to time, the Company has been or may be a party to various legal actions and investigations including, among others, employment matters,
compliance with government regulations, federal and state employment laws, including wage and hour laws, contractual disputes and other matters,
including matters arising in the ordinary course of business. These claims may be brought by, among others, governments, customers, suppliers and
employees. Management considers the measurement of litigation reserves as a critical accounting estimate because of the significant uncertainty in some
cases relating to the outcome
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of potential claims or litigation and the difficulty of predicting the likelihood and range of potential liability involved, coupled with the material impact on
our results of operations that could result from litigation or other claims.
In determining legal reserves, management considers, among other inputs:
•
•
•
•
•
•
interpretation of contractual rights and obligations;
the status of government regulatory initiatives, interpretations and investigations;
the status of settlement negotiations;
prior experience with similar types of claims;
whether there is available insurance coverage; and
advice of outside counsel.
For certain matters, management is able to estimate a range of losses. When a loss is probable, but no amount of loss within a range of outcomes is more
likely than any other outcome, management will record a liability based on the low end of the estimated range. Additionally, management will evaluate
whether losses in excess of amounts accrued are reasonably possible, and will make disclosure of those matters based on an assessment of the materiality of
those addition possible losses.
Environmental Loss Contingencies
Accruals for environmental loss contingencies (i.e., environmental reserves) are recorded when it is probable that a liability has been incurred and the
amount can reasonably be estimated. Management views the measurement of environmental reserves as a critical accounting estimate because of the
considerable uncertainty surrounding estimation, including the need to forecast well into the future. From time to time, we may be involved in legal
proceedings under federal, state and local, as well as international environmental laws in connection with our operations and companies that we have
acquired. The estimation of environmental reserves is based on the evaluation of currently available information, prior experience in the remediation of
contaminated sites and assumptions with respect to government regulations and enforcement activity, changes in remediation technology and practices, and
financial obligations and creditworthiness of other responsible parties and insurers.
Warranty
We record a warranty reserve for possible claims against our product warranties, which generally run for a period ranging from one to twenty years for our
reserve power batteries and for a period ranging from one to seven years for our motive power batteries. The assessment of the adequacy of the reserve
includes a review of open claims and historical experience.
Management believes that the accounting estimate related to the warranty reserve is a critical accounting estimate because the underlying assumptions used
for the reserve can change from time to time and warranty claims could potentially have a material impact on our results of operations.
Allowance for Doubtful Accounts
We encounter risks associated with sales and the collection of the associated accounts receivable. We record a provision for accounts receivable that are
considered to be uncollectible. In order to calculate the appropriate provision, management analyzes the creditworthiness of specific customers and the
aging of customer balances. Management also considers general and specific industry economic conditions, industry concentration and contractual rights
and obligations.
Management believes that the accounting estimate related to the allowance for doubtful accounts is a critical accounting estimate because the underlying
assumptions used for the allowance can change from time to time and uncollectible accounts could potentially have a material impact on our results of
operations.
Retirement Plans
We use certain economic and demographic assumptions in the calculation of the actuarial valuation of liabilities associated with our defined benefit plans.
These assumptions include the discount rate, expected long-term rates of return on assets and rates of increase in compensation levels. Changes in these
assumptions can result in changes to the pension expense and recorded liabilities. Management reviews these assumptions at least annually. We use
independent actuaries to assist us in formulating assumptions and making estimates. These assumptions are updated periodically to reflect the actual
experience and expectations on a plan-specific basis, as appropriate.
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For benefit plans which are funded, we establish strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with
the aim of achieving a prudent balance between return and risk. We set the expected long-term rate of return based on the expected long-term average rates
of return to be achieved by the underlying investment portfolios. In establishing this rate, we consider historical and expected returns for the asset classes in
which the plans are invested, advice from pension consultants and investment advisors, and current economic and capital market conditions. The expected
return on plan assets is incorporated into the computation of pension expense. The difference between this expected return and the actual return on plan
assets is deferred and will affect future net periodic pension costs through subsequent amortization.
We believe that the current assumptions used to estimate plan obligations and annual expense are appropriate in the current economic environment.
However, if economic conditions change materially, we may change our assumptions, and the resulting change could have a material impact on the
Consolidated Statements of Income and on the Consolidated Balance Sheets.
Equity-Based Compensation
We recognize compensation cost relating to equity-based payment transactions by using a fair-value measurement method whereby all equity-based
payments to employees, including grants of restricted stock units, stock options, market and performance condition-based awards are recognized as
compensation expense based on fair value at grant date over the requisite service period of the awards. We determine the fair value of restricted stock units
based on the quoted market price of our common stock on the date of grant. The fair value of stock options is determined using the Black-Scholes option-
pricing model, which uses both historical and current market data to estimate the fair value. The fair value of market condition-based awards is estimated at
the date of grant using a Monte Carlo Simulation. The fair value of performance condition-based awards is based on the closing stock price on the date of
grant, adjusted for a discount to reflect the illiquidity inherent in these awards.
All models incorporate various assumptions such as the risk-free interest rate, expected volatility, expected dividend yield and expected life of the awards.
When estimating the requisite service period of the awards, we consider many related factors including types of awards, employee class, and historical
experience. Actual results, and future changes in estimates of the requisite service period may differ substantially from our current estimates.
Income Taxes
Our effective tax rate is based on pretax income and statutory tax rates available in the various jurisdictions in which we operate. We account for income
taxes in accordance with applicable guidance on accounting for income taxes, which requires that deferred tax assets and liabilities be recognized using
enacted tax rates for the effect of temporary differences between book and tax bases on recorded assets and liabilities. Accounting guidance also requires
that deferred tax assets be reduced by a valuation allowance, when it is more likely than not that a tax benefit will not be realized.
The recognition and measurement of a tax position is based on management’s best judgment given the facts, circumstances and information available at the
reporting date. We evaluate tax positions to determine whether the benefits of tax positions are more likely than not of being sustained upon audit based on
the technical merits of the tax position. For tax positions that are more likely than not of being sustained upon audit, we recognize the largest amount of the
benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not more likely than
not of being sustained upon audit, we do not recognize any portion of the benefit in the financial statements. If the more likely than not threshold is not met
in the period for which a tax position is taken, we may subsequently recognize the benefit of that tax position if the tax matter is effectively settled, the
statute of limitations expires, or if the more likely than not threshold is met in a subsequent period.
We evaluate, on a quarterly basis, our ability to realize deferred tax assets by assessing our valuation allowance and by adjusting the amount of such
allowance, if necessary. The factors used to assess the likelihood of realization are our forecast of future taxable income and available tax planning
strategies that could be implemented to realize the net deferred tax assets.
To the extent we prevail in matters for which reserves have been established, or are required to pay amounts in excess of our reserves, our effective tax rate
in a given financial statement period could be materially affected.
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Results of Operations—Fiscal 2020 Compared to Fiscal 2019
The following table presents summary Consolidated Statement of Income data for fiscal year ended March 31, 2020, compared to fiscal year ended
March 31, 2019:
Fiscal 2020
Fiscal 2019
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
Net sales
Cost of goods sold
$
3,087.8
2,301.0
100.0% $
74.5
0.1
25.4
17.1
0.7
1.3
0.1
—
6.1
1.4
—
4.7
0.3
4.4
2,808.0
2,104.6
10.3
693.1
441.4
34.8
—
—
4.4
212.5
30.9
(0.5)
182.1
21.6
160.5
100.0% $
74.9
0.4
24.7
15.7
1.2
—
—
0.2
7.6
1.1
—
6.5
0.8
5.7
279.8
196.4
(8.4)
91.8
88.3
(14.0)
39.7
4.5
(4.4)
(22.3)
12.8
—
(35.1)
(11.7)
(23.4)
1.9
784.9
529.7
20.8
39.7
4.5
—
190.2
43.7
(0.5)
147.0
9.9
137.1
%
10.0 %
9.3
(82.1)
13.3
20.0
(40.2)
NM
NM
NM
(10.5)
41.5
—
(19.4)
(54.5)
(14.6)
—
—
0.3
—
(0.3)
NM
$
137.1
4.4% $
160.2
5.7% $
(23.1)
(14.4)%
Inventory step up to fair value relating to
acquisitions and exit activities
Gross profit
Operating expenses
Restructuring, exit and other charges
Impairment of goodwill
Impairment of indefinite-lived
intangibles
Legal proceedings charge, net
Operating earnings
Interest expense
Other (income) expense, net
Earnings before income taxes
Income tax expense
Net earnings
Net earnings attributable to
noncontrolling interests
Net earnings attributable to EnerSys
stockholders
NM = not meaningful
Overview
Our sales in fiscal 2020 were $3.1 billion, a 10% increase from prior year's sales. This increase was the result of a 17% increase due to the Alpha and
NorthStar acquisitions (as discussed in Part I, Item 1 of this Annual Report), partially offset by a 4% decrease in organic volume, a 2% decrease in foreign
currency translation impact and a 1% decrease in pricing. Organic volume decline in fiscal 2020 reflects the impact of the recent fire and ERP execution
challenges in our Richmond, Kentucky facility and weakness in the European and Asian markets.
A discussion of specific fiscal 2020 versus fiscal 2019 operating results follows, including an analysis and discussion of the results of our reportable
segments.
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Net Sales
Segment sales
Americas
EMEA
Asia
Total net sales
Fiscal 2020
Fiscal 2019
Increase (Decrease)
In
Millions
% Net
Sales
In
Millions
% Net
Sales
In
Millions
%
$
2,082.3
67.4% $
1,690.9
60.2% $
787.3
218.2
25.5
7.1
860.6
256.5
30.7
9.1
$
3,087.8
100.0% $
2,808.0
100.0% $
391.4
(73.3)
(38.3)
279.8
23.1 %
(8.5)
(14.9)
10.0 %
The Americas segment’s net sales increased by $391.4 million or 23.1% in fiscal 2020, as compared to fiscal 2019, primarily due to a 26% increase from
the Alpha and NorthStar acquisitions, partially offset by a 1% decrease each in organic volume, pricing and currency translation impact.
The EMEA segment’s net sales decreased by $73.3 million or 8.5% in fiscal 2020, as compared to fiscal 2019, primarily due to a 6% decrease in organic
volume, a 4% decrease in currency translation impact and a 1% decrease in pricing, partially offset by a 2% increase from the NorthStar acquisition. The
decrease in organic volume was driven in part by the return of a competitor to the market in fiscal 2020. This competitor was absent in fiscal 2019 due to a
fire at their facility.
The Asia segment’s net sales decreased by $38.3 million or 14.9% in fiscal 2020, as compared to fiscal 2019, primarily due to a 11% decrease in organic
volume reflecting dramatic declines of telecom demand in China and the impact from the COVID-19 pandemic, a 3% decrease in currency translation
impact and a 1% decrease in pricing.
Product line sales
Reserve power
Motive power
Total net sales
Fiscal 2020
Fiscal 2019
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
$
$
1,739.6
1,348.2
3,087.8
56.3% $
43.7
100.0% $
1,416.2
1,391.8
2,808.0
50.4% $
49.6
100.0% $
323.4
(43.6)
279.8
%
22.8 %
(3.1)
10.0 %
Sales in our reserve power products increased in fiscal 2020 by $323.4 million or 22.8% compared to the prior year, primarily due to a 33% increase from
the Alpha and NorthStar acquisitions, partially offset by a 7% decrease in organic volume, a 2% decrease in currency translation impact and a 1% decrease
in pricing. The decrease in organic volume in fiscal 2020 is primarily from the deferral of spending by telecom and broadband customers and the
conclusion of a large enclosure order a year ago.
Sales in our motive power products decreased in fiscal 2020 by $43.6 million or 3.1% compared to the prior year, primarily due to a 2% decrease in
currency translation impact and a 1% decrease in pricing. The lack of organic growth in motive power product volume is due to weak European markets,
the recent fire in our Richmond, Kentucky facility and the impact from the COVID-19 pandemic on our fourth fiscal quarter sales.
Gross Profit
Gross profit
$
784.9
25.4% $
693.1
24.7% $
91.8
13.3%
Fiscal 2020
Fiscal 2019
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
%
Gross profit increased $91.8 million or 13.3% in fiscal 2020 compared to fiscal 2019. Gross profit, as a percentage of net sales, increased 70 basis points in
fiscal 2020 compared to fiscal 2019. This increase in the gross profit margin is largely a function of declines in commodity costs relative to pricing,
partially offset by higher manufacturing costs.
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Operating Items
Fiscal 2020
Fiscal 2019
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
Operating expenses
$
529.7
17.1% $
441.4
15.7% $
Restructuring, exit and other charges
Impairment of goodwill
Impairment of indefinite-lived
intangibles
Legal proceedings charge, net
NM = not meaningful
Operating Expenses
20.8
39.7
4.5
—
0.7
1.3
0.1
—
34.8
—
—
4.4
1.2
—
—
0.2
88.3
(14.0)
39.7
4.5
(4.4)
%
20.0 %
(40.2)
NM
NM
NM
Operating expenses increased $88.3 million or 20% in fiscal 2020 from fiscal 2019 and increased as a percentage of net sales by 140 basis points.
Excluding the impact of the foreign currency translation, the increase reflects the inclusion of Alpha and NorthStar, as well as an increase of $25.0 million
towards new product development.
Selling expenses, our main component of operating expenses, were 44.7% of sales in fiscal 2020, compared to 46.4% of sales in fiscal 2019.
Impairment of goodwill and indefinite-lived intangibles
Goodwill is tested annually for impairment during the fourth quarter or earlier upon the occurrence of certain events or substantive changes in
circumstances that indicate goodwill is more likely than not impaired.
In the fourth quarter of fiscal 2020, we conducted our annual goodwill impairment test which indicated that the fair value of Asia was less than its carrying
value. We recorded a non-cash charge of $39.7 million related to goodwill impairment in Asia under the caption “Impairment of goodwill” in the
Consolidated Statements of Income. We also recorded a non-cash charge of $4.5 million related to indefinite-lived trademarks in EMEA, under the caption
“Impairment of indefinite-lived intangibles” in the Consolidated Statements of Income. The key factors contributing to the impairment in Asia was the
increasing pressure on organic sales growth that we began to experience in fiscal 2019 due to a slowdown in telecom spending in the PRC amidst growing
trade tensions between the U.S.A and China. The impact of these trade tensions on our ability to capture market share in PRC accelerated in the second half
of the fiscal year. Throughout fiscal 2020, there was a general slowdown in the Chinese economy which was further exacerbated by the outbreak of the
COVID -19 pandemic, causing disruption to two of our plants in China in the fourth quarter. Also contributing to the poor performance of the Asia region
was a general softening of demand in Australia, that began in fiscal 2019 and continued throughout fiscal 2020. We monitored the performance of our Asia
reporting unit for interim impairment indicators throughout fiscal 2020, but the emergence of COVID-19 in China in December 2019 coupled with the
totality of economic headwinds in the region resulted in the recognition of a goodwill impairment loss in connection with our annual impairment test.
During the fourth quarter of fiscal 2020, management completed its evaluation of key inputs used to estimate the fair value of its indefinite-lived
trademarks and determined that an impairment charge relating to two of its trademarks in the EMEA reporting unit, that were acquired through legacy
acquisitions was appropriate, as it plans to phase out these trademarks.
Restructuring, exit and other charges
Included in our fiscal 2020 operating results are restructuring charges of $2.5 million in the Americas and $7.0 million in EMEA, both primarily relating to
the recent NorthStar acquisition and $1.5 million in Asia. Also included in the fiscal 2020 operating results are exit charges of $5.1 million in EMEA,
including $2.2 million of cash charges, relating to the closure of our facility in Targovishte, Bulgaria, that commenced in fiscal 2019 as explained below.
In keeping with our strategy of exiting the manufacture of batteries for diesel-electric submarines, during fiscal 2020, we sold certain licenses and assets for
$2.0 million and recorded a net gain of $0.9 million, which is reported as other exit charges.
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During fiscal 2020, we also wrote off $5.5 million of assets at our Kentucky and Tennessee plants, as a result of our strategic product mix shift from
traditional flooded batteries to maintenance free lead acid and lithium batteries.
Included in our fiscal 2019 operating results are restructuring and exit charges of $4.0 million in Americas, $27.0 million in EMEA and $3.8 million in
Asia. Of the $27.0 million charges in EMEA, $17.7 million related to the closure of our facility in Targovishte, Bulgaria, $4.9 million related to the
disposition of GAZ Geräte - und Akkumulatorenwerk Zwickau GmbH, a wholly-owned German subsidiary, $3.4 million related to improving efficiencies
of our general operations and $1.0 million related to dissolving a joint venture in Tunisia. The facility in Bulgaria produced diesel-electric submarine
batteries. Management determined that the future demand for batteries of diesel-electric submarines was not sufficient given the number of competitors in
the market. The $17.7 million charges were primarily non-cash charges of $15.0 million related to the write-off of fixed assets and $2.7 million of
severance payments. In addition, cost of goods sold also included a $2.5 million of inventory write-off relating to the closure of the Bulgaria facility. These
exit activities are a consequence of the Company's strategic decision to streamline its product portfolio and focus its efforts on new technologies. The
charges in Asia primarily relate to improving efficiencies in the PRC in light of recent decline in demand.
Richmond, Kentucky Plant Fire
On September 19, 2019, a fire broke out in the battery formation area of our Richmond, Kentucky motive power production facility. We maintain insurance
policies for both property damage and business interruption and are finishing cleanup and repair. We believe that the total claim, including the replacement
of inventory and equipment, the cleanup and repairs to the building, as well as the claim for business interruption is nearly $50 million.
We recorded $10.0 million of damages caused to our fixed assets and inventories, as well as for cleanup, asset replacement and other ancillary activities
directly associated with the fire, which were initially reflected as a receivable for probable insurance recoveries. We received $12.0 million in advances
related to our initial claims for recovery from our property and casualty insurance carriers in fiscal 2020. Subsequent to March 31, 2020, we also received
an additional $8.7 million towards the business interruption claim, of which, $5.0 million was booked as a reduction to our cost of goods sold in our fourth
quarter.
37
Table of Contents
Operating Earnings
Operating earnings by segment were as follows:
Americas
EMEA
Asia
Subtotal
Inventory step up to fair value relating to
acquisitions and exit activities
- Americas
Restructuring charges - Americas
Inventory adjustment relating to exit activities -
EMEA
Restructuring and other exit charges - EMEA
Inventory adjustment relating to exit activities -
Asia
Restructuring charges - Asia
Fixed asset write-off relating to exit activities
and other - Americas
Impairment of indefinite-lived intangibles -
EMEA
Impairment of goodwill - Asia
Legal proceedings charge, net - EMEA
Total operating earnings
NM = not meaningful
$
Fiscal 2020
Fiscal 2019
Increase (Decrease)
In
Millions
As %
Net Sales(1)
In
Millions
As %
Net Sales(1)
In
Millions
$
206.9
9.9 % $
186.9
11.0 % $
50.2
—
257.1
(1.9)
(2.5)
—
(11.3)
—
(1.5)
(5.5)
(4.5)
(39.7)
—
190.2
6.4
—
8.3
(0.1)
(0.1)
—
(1.4)
—
(0.7)
(0.3)
(0.6)
(18.2)
71.9
3.2
262.0
(7.2)
(4.0)
(2.6)
(27.0)
(0.5)
(3.8)
—
—
—
—
6.1 % $
(4.4)
212.5
8.4
1.3
9.3
(0.4)
(0.2)
(0.3)
(3.1)
(0.2)
(1.4)
20.0
(21.7)
(3.2)
(4.9)
5.3
1.5
2.6
15.7
0.5
2.3
—
(5.5)
—
—
(0.5)
7.6 % $
(4.5)
(39.7)
4.4
(22.3)
%
10.8 %
(30.3)
(100.0)
(1.9)
NM
(36.4)
NM
(54.0)
NM
(61.0)
NM
NM
NM
NM
(10.5)%
(1) The percentages shown for the segments are computed as a percentage of the applicable segment’s net sales.
Operating earnings decreased $22.3 million or 10.5% in fiscal 2020, compared to fiscal 2019. Operating earnings, as a percentage of net sales, decreased
150 basis points in fiscal 2020, compared to fiscal 2019. Excluding the impact of highlighted items, operating earnings in fiscal 2020 decreased 100 basis
points primarily due to the recent fire at our Richmond, Kentucky facility which continued to result in missed sales opportunities and higher manufacturing
costs, as well as the decline in our organic volume in EMEA and Asia.
The Americas segment’s operating earnings, increased $20.0 million or 10.8% in fiscal 2020 compared to fiscal 2019, with the operating margin decreasing
110 basis points to 9.9%. The decrease is primarily due to the recent fire at our Richmond, Kentucky, facility which continued to result in missed sales
opportunities and higher manufacturing costs. This negative impact was partially offset by the impact of lower commodity costs and Alpha's contribution to
operating earnings of $53.2 million or 9.7% of its sales for fiscal 2020.
The EMEA segment’s operating earnings, decreased $21.7 million or 30.3% in fiscal 2020 compared to fiscal 2019, with the operating margin decreasing
200 basis points to 6.4%. The decrease was primarily due to the lower volume previously discussed.
The Asia segment's operating earnings, decreased $3.2 million in fiscal 2020 compared to fiscal 2019, with the operating margin decreasing by 130 basis
points to 0%. Lower organic volume caused by the slowdown in the Chinese economy as well as the recent disruption due to the COVID-19 pandemic to
our two plants were the primary reasons for the poor performance of our Asia region.
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Table of Contents
Interest Expense
Interest expense
$
43.7
1.4% $
30.9
1.1% $
12.8
41.5%
Fiscal 2020
Fiscal 2019
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
%
Interest expense of $43.7 million in fiscal 2020 (net of interest income of $2.2 million) was $12.8 million higher than the $30.9 million in fiscal 2019 (net
of interest income of $2.1 million).
Our average debt outstanding was $1,097.9 million in fiscal 2020, compared to our average debt outstanding of $742.0 million in fiscal 2019. Our average
cash interest rate incurred in fiscal 2020 was 3.8% and was 4.1% in fiscal 2019. The increase in interest expense was primarily due to higher average debt
incurred to fund the Alpha and NorthStar acquisitions.
In connection with the issuance of the 2027 Notes, we capitalized $4.6 million of debt issuance costs. Included in interest expense were non-cash charges
related to amortization of deferred financing fees of $1.7 million in fiscal 2020 and $1.3 million in fiscal 2019.
Other (Income) Expense, Net
Other (income) expense, net
$
(0.5)
—% $
(0.5)
—% $
—
—%
Fiscal 2020
Fiscal 2019
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
%
Other (income) expense, net was income of $0.5 million in fiscal 2020 compared to income of $0.5 million in fiscal 2019. Foreign currency losses were
$0.3 million in fiscal 2020 compared to foreign currency gains of $3.1 million in fiscal 2019.
Earnings Before Income Taxes
Earnings before income taxes
$
147.0
4.7% $
182.1
6.5% $
(35.1)
(19.4)%
Fiscal 2020
Fiscal 2019
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
%
As a result of the factors discussed above, fiscal 2020 earnings before income taxes were $147.0 million, a decrease of $35.1 million or 19.4% compared to
fiscal 2019.
Income Tax Expense
Fiscal 2020
Fiscal 2019
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
Income tax expense
Effective tax rate
$
9.9
6.7%
0.3% $
21.6
0.8% $
(11.7)
11.9%
(5.2)%
%
(54.5)%
Our effective income tax rate with respect to any period may be volatile based on the mix of income in the tax jurisdictions in which we operate and the
amount of our consolidated income before taxes.
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was enacted into law. Among the significant changes resulting from the law, the Tax Act
reduced the U.S. federal income tax rate from 35% to 21% effective January 1, 2018, and required companies to pay a one-time transition tax on
unrepatriated cumulative non-U.S. earnings of foreign subsidiaries and created new taxes on certain foreign sourced earnings. The U.S. federal statutory tax
rate for fiscal 2020 and 2019 is 21.0%.
The Company’s income tax provision consists of federal, state and foreign income taxes. The effective income tax rate was 6.7% in fiscal 2020 compared
to the fiscal 2019 effective income tax rate of 11.9%. The rate decrease in fiscal 2020 compared
39
Table of Contents
to fiscal 2019 is primarily due to changes in mix of earnings among tax jurisdictions, Swiss tax reform, and items related to the Tax Act in fiscal 2019.
On May 19, 2019, a public referendum held in Switzerland approved the Federal Act on Tax Reform and AHV (Old-Age and Survivors Insurance)
Financing (TRAF) as adopted by the Swiss Federal Parliament on September 28, 2018. The Swiss tax reform measures are effective January 1, 2020.
Certain provisions of the TRAF were enacted during the second quarter of fiscal 2020. Significant changes in the tax reform include the abolishment of
preferential tax regimes for holding companies, domicile companies and mixed companies at the cantonal level. The transitional provisions of the TRAF
allow companies to elect tax basis adjustments to fair value, which is used for tax depreciation and amortization purposes resulting in a deduction over the
transitional period. We recorded a net deferred tax asset of $22.5 million during fiscal 2020, related to the amortizable goodwill.
The fiscal 2020 foreign effective income tax rate was (7.4%) on foreign pre-tax income of $110.7 million compared to effective income tax rate of 12.3%
on foreign pre-tax income of $128.9 million in fiscal 2019. For both fiscal 2020 and 2019, the difference in the foreign effective tax rate versus the U.S.
statutory rate of 21% is primarily attributable to lower tax rates in the foreign countries in which we operate. The rate decrease in fiscal 2020 compared to
fiscal 2019 is primarily due to Swiss tax reform and changes in the mix of earnings among tax jurisdictions. Income from our Swiss subsidiary comprised a
substantial portion of our overall foreign mix of income for both fiscal 2020 and fiscal 2019 and was taxed, excluding the impact from Swiss tax reform, at
approximately 3% and 4%, respectively.
Results of Operations—Fiscal 2019 Compared to Fiscal 2018
The following table presents summary Consolidated Statement of Income data for fiscal year ended March 31, 2019, compared to fiscal year ended
March 31, 2018:
Fiscal 2019
Fiscal 2018
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
Net sales
Cost of goods sold
$
2,808.0
2,104.6
100.0% $
74.9
0.4
24.7
15.7
1.2
0.2
7.6
1.1
—
6.5
0.8
5.7
2,581.8
1,920.0
3.4
658.4
382.1
5.5
—
270.8
25.0
7.5
238.3
118.5
119.8
100.0% $
74.4
0.1
25.5
14.8
0.2
—
10.5
1.0
0.3
9.2
4.6
4.6
226.2
184.6
6.9
34.7
59.3
29.3
4.4
(58.3)
5.9
(8.0)
(56.2)
(96.9)
40.7
10.3
693.1
441.4
34.8
4.4
212.5
30.9
(0.5)
182.1
21.6
160.5
%
8.8 %
9.6
NM
5.3
15.5
NM
NM
(21.6)
23.5
NM
(23.5)
(81.8)
34.0
0.3
—
0.2
—
0.1
62.3
$
160.2
5.7% $
119.6
4.6% $
40.6
34.0 %
Inventory adjustment relating to
acquisition and exit activities
Gross profit
Operating expenses
Restructuring and other exit charges
Legal proceedings charge, net
Operating earnings
Interest expense
Other (income) expense, net
Earnings before income taxes
Income tax expense
Net earnings
Net earnings (losses) attributable to
noncontrolling interests
Net earnings attributable to EnerSys
stockholders
NM = not meaningful
Overview
Our sales in fiscal 2019 were $2.8 billion, an 8.8% increase from prior year's sales. This increase was the result of a 6% increase due to the Alpha
acquisition (as discussed in Part I, Item 1 of this Annual Report), a 3% increase in organic volume and a 2% increase in pricing, partially offset by a 2%
decrease in foreign currency translation impact.
A discussion of specific fiscal 2019 versus fiscal 2018 operating results follows, including an analysis and discussion of the results of our reportable
segments.
40
Table of Contents
Net Sales
Segment sales
Americas
EMEA
Asia
Total net sales
Fiscal 2019
Fiscal 2018
Increase (Decrease)
In
Millions
% Net
Sales
In
Millions
% Net
Sales
In
Millions
%
$
1,690.9
60.2% $
1,429.8
55.4% $
860.6
256.5
30.7
9.1
849.5
302.5
32.9
11.7
$
2,808.0
100.0% $
2,581.8
100.0% $
261.1
11.1
(46.0)
226.2
18.3 %
1.3
(15.2)
8.8 %
The Americas segment’s net sales increased by $261.1 million or 18.3% in fiscal 2019, as compared to fiscal 2018, primarily due to an 11% increase due to
the Alpha acquisition, a 6% increase in organic volume and a 3% increase in pricing, partially offset by a 2% decrease in currency translation impact.
The EMEA segment’s net sales increased by $11.1 million or 1.3% in fiscal 2019, as compared to fiscal 2018, primarily due to a 5% increase in organic
volume, partially offset by a 4% decrease in currency translation impact.
The Asia segment’s net sales decreased by $46.0 million or 15.2% in fiscal 2019, as compared to fiscal 2018, primarily due to a 14% decrease in organic
volume reflecting dramatic declines in China telecom demands and a general softening of demand in Australia, and a 3% decrease in currency translation
impact, partially offset by a 2% increase in pricing.
Product line sales
Fiscal 2019
Fiscal 2018
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
%
Reserve power
Motive power
Total net sales
$
$
1,416.2
1,391.8
2,808.0
50.4% $
49.6
100.0% $
1,247.9
1,333.9
2,581.8
48.3% $
51.7
100.0% $
168.3
57.9
226.2
13.5%
4.3
8.8%
Sales in our reserve power products increased in fiscal 2019 by $168.3 million or 13.5% compared to the prior year, primarily due to a 13% increase due to
the Alpha acquisition, a 2% increase in pricing, and a 1% increase in organic volume, partially offset by a 2% decrease in currency translation impact.
Sales in our motive power products increased in fiscal 2019 by $57.9 million or 4.3% compared to the prior year, primarily due to a 5% increase in organic
volume and a 1% increase in pricing, partially offset by a 2% decrease in currency translation impact.
Gross Profit
Gross profit
$
693.1
24.7% $
658.4
25.5% $
34.7
5.3%
Fiscal 2019
Fiscal 2018
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
%
Gross profit increased $34.7 million or 5.3% in fiscal 2019 compared to fiscal 2018. Gross profit, as a percentage of net sales, decreased 80 basis points in
fiscal 2019 compared to fiscal 2018. The decrease in the gross profit margin was primarily due to an increase in commodity costs, freight and tariffs of
approximately $60 million, which were offset by comparable increase in organic volume and pricing, but still resulted in gross margin dilution. However,
this dilutive effect had reversed by our fourth quarter of fiscal 2019, due to a decline in commodity costs. Gross profit, as a percentage of net sales, was also
negatively impacted by the opening balance sheet adjustment to Alpha inventories of $7.2 million.
41
Table of Contents
Operating Items
Operating expenses
$
Restructuring and other exit charges
Legal proceedings charge, net
NM = not meaningful
Operating Expenses
Fiscal 2019
Fiscal 2018
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
441.4
34.8
4.4
15.7% $
382.1
14.8% $
1.2
0.2
5.5
—
0.2
—
59.3
29.3
4.4
%
15.5%
NM
NM
Operating expenses increased $59.3 million or 15.5% in fiscal 2019 from fiscal 2018 and increased as a percentage of net sales by 90 basis points. The
impact of foreign currency translation resulted in a decrease of $8.5 million. Excluding the impact of the foreign currency translation, the increase in dollars
was primarily due to Alpha acquisition related costs and payroll related expenses.
Selling expenses, our main component of operating expenses, were 46.4% in fiscal 2019, compared to 51.5% in fiscal 2018.
Restructuring and other exit charges
With the recent Alpha acquisition, the Company commenced restructuring in the Americas, as part of its targeted synergy plans. The Company also
continued meaningful restructuring actions in EMEA with the intent to improve profitability and streamline management’s focus.
Included in our fiscal 2019 operating results were restructuring and exit charges of $4.0 million in Americas, $27.0 million in EMEA and $3.8 million in
Asia. Of the $27.0 million charges in EMEA, $17.7 million related to the closure of our facility in Targovishte, Bulgaria, $4.9 million related to the
disposition of GAZ Geräte - und Akkumulatorenwerk Zwickau GmbH, a wholly-owned German subsidiary, $3.4 million related to improving efficiencies
of our general operations and $1.0 million related to dissolving a joint venture in Tunisia. The facility in Bulgaria produced diesel-electric submarine
batteries. Management determined that the future demand for batteries of diesel-electric submarines was not sufficient given the number of competitors in
the market. The $17.7 million charges were primarily non-cash charges of $15.0 million related to the write-off of fixed assets and $2.7 million of
severance payments. In addition, cost of goods sold also included a $2.5 million of inventory write-off relating to the closure of the Bulgaria facility. These
exit activities were a consequence of the Company's strategic decision to streamline its product portfolio and focus its efforts on new technologies. The
charges in Asia primarily related to improving efficiencies in the PRC in light of recent decline in demand.
Included in our fiscal 2018 operating results is a $5.5 million charge of restructuring and other exit charges, comprising $1.3 million in Americas, $4.0
million in EMEA and $0.2 million in Asia. The charges in the Americas primarily related to improving efficiencies of our general operations, while charges
in EMEA related to restructuring programs to improve efficiencies in our manufacturing, supply chain and general operations. In addition, cost of goods
sold also included a $3.4 million of inventory write-off relating to the closing of our Cleveland, Ohio charger manufacturing facility.
Legal proceedings charge (settlement income)
European Competition Investigations
Certain of our 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. We settled the Belgian regulatory proceeding in February 2016 by acknowledging certain anticompetitive practices and
conduct and agreeing to pay a fine of $2.0 million, which was paid in March 2016. During fiscal 2019, the Company paid $2.4 million towards certain
aspects of this matter, which are under appeal. As of March 31, 2019 and March 31, 2018, the Company had a reserve balance of $0 million and $2.3
million, respectively.
42
Table of Contents
In June 2017, the Company settled a portion of its previously disclosed proceeding involving the German competition authority relating to conduct
involving the Company's motive power battery business and agreed to pay a fine of $14.8 million, which was paid in July 2017. Also in June 2017, the
German competition authority issued a fining decision related to the Company's reserve power battery business, which constitutes the remaining portion of
the previously disclosed German proceeding. The Company appealed this decision. In March 2019, the Company settled this matter by agreeing to pay
$7.3 million, which was paid in April 2019. As of March 31, 2019 and March 31, 2018, the Company had a reserve balance of $7.3 million and $0,
respectively.
For the Dutch regulatory proceeding, we reserved $10.2 million as of March 31, 2017. In July 2017, the Company settled the Dutch regulatory proceeding
and agreed to pay a fine of $11.2 million, which was paid in August 2017. As of March 31, 2019 and March 31, 2018, the Company had a reserve balance
of $0 and $10.2 million, respectively, relating to the Dutch regulatory proceeding.
As of March 31, 2019 and March 31, 2018, we had a total reserve balance of $7.3 million and $2.3 million, respectively, in connection with these
remaining investigations and other related legal matters, included in Accrued Expenses on the Consolidated Balance Sheets. The foregoing estimate of
losses is based upon currently available information for these proceedings. However, the precise scope, timing and time period at issue, as well as the final
outcome of the investigations or customer claims, remain uncertain. Accordingly, the Company’s estimate may change from time to time, and actual losses
could vary.
EnerSys Sarl Litigation
One of the parties to a litigation related to a 1999 fire in a French hotel under construction involving the Company’s French subsidiary, EnerSys Sarl, which
was acquired by the Company in 2002, that was adverse to the Company, appealed the ruling by the Court of Appeal of Lyon on June 11, 2013, which ruled
in the Company’s favor, entitling the Company to a refund of the monies paid of €2.0 million, or $2.8 million to the French Supreme Court, which appeal
was denied in January 2015. During the third quarter of fiscal 2019, the Company and the adverse party settled this final item with the Company receiving
a refund, including interest, from the adverse party of €2.5 million, or $2.8 million, for monies paid. The Company believes that it has no further liability
with respect to this matter.
Operating Earnings
Operating earnings by segment were as follows:
Americas
EMEA
Asia
Subtotal
Inventory adjustment relating to exit
activities - Americas
Restructuring charges - Americas
Inventory adjustment relating to exit
activities - EMEA
Restructuring and other exit charges -
EMEA
Inventory adjustment relating to exit
activities - Asia
Restructuring charges - Asia
Legal proceedings charge - EMEA
Total operating earnings
NM = not meaningful
Fiscal 2019
Fiscal 2018
Increase (Decrease)
In
Millions
As %
Net Sales(1)
In
Millions (2)
As %
Net Sales(1)
In
Millions
$
186.9
71.9
3.2
262.0
(7.2)
(4.0)
(2.6)
(27.0)
(0.5)
(3.8)
(4.4)
11.0 % $
8.4
1.3
9.3
(0.4)
(0.2)
(0.3)
(3.1)
(0.2)
(1.4)
(0.5)
189.4
77.7
12.6
279.7
(3.4)
(1.3)
—
(4.0)
—
(0.2)
—
13.3 % $
9.1
4.2
10.8
(0.2)
(0.1)
—
(2.5)
(5.8)
(9.4)
(17.7)
(3.8)
(2.7)
(2.6)
(0.5)
(23.0)
—
(0.1)
—
(0.5)
(3.6)
(4.4)
%
(1.4)%
(7.3)
(74.6)
(6.4)
NM
NM
NM
NM
NM
NM
NM
$
212.5
7.6 % $
270.8
10.5 % $
(58.3)
(21.5)%
(1) The percentages shown for the segments are computed as a percentage of the applicable segment’s net sales.
43
Table of Contents
(2) Restated for ASU No. 2017-07, “Compensation—Retirement Benefits (Topic 715)”. See Note 1 to the Consolidated Financial Statement for more
details.
Operating earnings decreased $58.3 million or 21.5% in fiscal 2019, compared to fiscal 2018. Operating earnings, as a percentage of net sales, decreased
290 basis points in fiscal 2019, compared to fiscal 2018. Excluding the impact of highlighted items, operating earnings in fiscal 2019 decreased 150 basis
points primarily due to an increase in commodity costs, freight and tariffs, although offset by organic volume improvement and price recoveries, caused a
dilutive effect along with higher operating expense.
The Americas segment’s operating earnings, decreased $2.5 million or 1.4% in fiscal 2019 compared to fiscal 2018, with the operating margin decreasing
230 basis points to 11.0%. This decrease was primarily due to higher commodity costs, transaction costs related to the Alpha acquisition and product delays
caused by ERP execution challenges, partially offset by organic volume improvement, price recoveries and cost saving initiatives.
The EMEA segment’s operating earnings, decreased $5.8 million or 7.3% in fiscal 2019 compared to fiscal 2018, with the operating margin decreasing 70
basis points to 8.4%. This decrease was primarily due to higher commodity costs and freight, partially offset by organic volume improvement and cost
saving initiatives.
Operating earnings in Asia, decreased $9.4 million or 74.6% in fiscal 2019 compared to fiscal 2018, with the operating margin decreasing by 290 basis
points to 1.3%. This was primarily due to a decrease in organic volume from a slow down in telecom spending in the PRC and a general softening of
demand in Australia as well as higher commodity costs, in the first half of fiscal 2019 in the PRC.
Interest Expense
Interest expense
$
30.9
1.1% $
25.0
1.0% $
5.9
23.5%
Fiscal 2019
Fiscal 2018
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
%
Interest expense of $30.9 million in fiscal 2019 (net of interest income of $2.1 million) was $5.9 million higher than the $25.0 million in fiscal 2018 (net of
interest income of $3.0 million).
Our average debt outstanding was $742.0 million in fiscal 2019, compared to our average debt outstanding of $672.8 million in fiscal 2018. Our average
cash interest rate incurred in fiscal 2019 was 4.1% compared to 3.7% in fiscal 2018. The increase in interest expense was primarily due to higher interest
rates and higher average debt. The increased borrowings was primarily to fund the Alpha acquisition.
Included in interest expense were non-cash charges related to amortization of deferred financing fees of $1.3 million in fiscal 2019 and $1.6 million in
fiscal 2018.
Other (Income) Expense, Net
Other (income) expense, net
NM = not meaningful
Fiscal 2019
Fiscal 2018
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
%
$
(0.5)
—% $
7.5
0.3% $
(8.0)
NM
Other (income) expense, net was income of $0.5 million in fiscal 2019 compared to expense of $7.5 million in fiscal 2018 primarily due to foreign
currency gains of $3.1 million in fiscal 2019 compared to foreign currency losses of $5.5 million in fiscal 2018.
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Table of Contents
Earnings Before Income Taxes
Earnings before income taxes
$
182.1
6.5% $
238.3
9.2% $
(56.2)
(23.5)%
Fiscal 2019
Fiscal 2018
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
%
As a result of the factors discussed above, fiscal 2019 earnings before income taxes were $182.1 million, a decrease of $56.2 million or 23.5% compared to
fiscal 2018.
Income Tax Expense
Income tax expense
Effective tax rate
Fiscal 2019
Fiscal 2018
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
$
21.6
0.8% $
118.5
4.6% $
(96.9)
%
(81.8)%
11.9%
49.7%
(37.8)%
Our effective income tax rate with respect to any period may be volatile based on the mix of income in the tax jurisdictions in which we operate and the
amount of our consolidated income before taxes.
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was enacted into law. Among the significant changes resulting from the law, the Tax Act
reduced the U.S. federal income tax rate from 35% to 21% effective January 1, 2018, and required companies to pay a one-time transition tax on
unrepatriated cumulative non-U.S. earnings of foreign subsidiaries and created new taxes on certain foreign sourced earnings. The U.S. federal statutory tax
rate for fiscal 2019 is 21.0%.
On December 22, 2017, the SEC issued Staff Accounting Bulletin No.118 (“SAB 118”) that provided guidance on the financial statement implications of
the Tax Act. In fiscal 2018, we recorded a provisional amount for the Transition Tax liability, resulting in an increase in income tax expense of $97.5
million. In fiscal 2019, we completed our accounting for the tax effects of enactment of the Tax Act and recognized an income tax benefit of $13.5 million,
net of uncertain tax positions, resulting from a decrease in the mandatory one-time transition tax on unremitted earnings of our foreign business. We made
the election on the 2017 Federal Income Tax Return to pay the one-time Tax Act liability over an eight-year period without interest, as allowed under the
tax enactment.
The Company’s income tax provision consists of federal, state and foreign income taxes. The effective income tax rate was 11.9% in fiscal 2019 compared
to the fiscal 2018 effective income tax rate of 49.7%. The rate decrease in fiscal 2019 compared to fiscal 2018 is primarily due to the impact of the Tax Act,
partially offset by increases for additional tax valuation allowances related to certain of our foreign subsidiaries, increases due to non-deductible legal
proceedings charge related to the European competition investigation and changes in the mix of earnings among tax jurisdictions in fiscal 2019.
The fiscal 2019 foreign effective income tax rate was 12.3% on foreign pre-tax income of $128.9 million compared to effective income tax rate of 5.2% on
foreign pre-tax income of $163.9 million in fiscal 2018. For both fiscal 2019 and 2018, the difference in the foreign effective tax rate versus the U.S.
statutory rate of 21% and 31.55%, respectively, is primarily attributable to lower tax rates in the foreign countries in which we operate. The rate increase in
fiscal 2019 compared to fiscal 2018 is primarily due to additional tax valuation allowances related to certain of our foreign subsidiaries, increases due to
non-deductible legal proceedings charge related to the European competition investigation and changes in the mix of earnings among tax jurisdictions in
fiscal 2019.
Income from our Swiss subsidiary comprised a substantial portion of our overall foreign mix of income for both fiscal 2019 and fiscal 2018 and is taxed at
an effective income tax rate of approximately 4% and 8%, respectively.
45
Table of Contents
Liquidity and Capital Resources
Cash Flow and Financing Activities
Cash and cash equivalents at March 31, 2020, 2019 and 2018, were $327.0 million, $299.2 million and $522.1 million, respectively.
Cash provided by operating activities for fiscal 2020, 2019 and 2018, was $253.4 million, $197.9 million and $211.0 million, respectively.
During fiscal 2020, cash provided by operating activities was primarily from net earnings of $137.1 million, depreciation and amortization of $87.3
million, non-cash charges relating to impairment of goodwill and other intangible assets of $44.2 million, restructuring, exit and other charges of $11.0
million, stock-based compensation of $20.8 million, provision for bad debts of $4.8 million and non-cash interest of $1.7 million, partially offset by
deferred taxes of $16.5 million primarily from the Swiss Tax Reform. Cash provided by earnings adjusted for non-cash items were partially offset by the
increase in primary working capital of $16.4 million, net of currency translation changes. Accrued expenses increased by $7.1 million, primarily due to
payroll accruals of $8.6 million, sales incentives of $8.0 million, interest of $3.9 million, partially offset by payments of $7.3 million related to the German
competition authority matter and $6.1 million paid to the seller in connection with the Alpha acquisition, for certain reimbursable pre-acquisition items.
Prepaid and other current assets increased by $17.5 million, primarily due to contract assets of $11.1 million, insurance receivable of $22.0 million relating
to the Richmond plant claim, partially offset by insurance proceeds of $12.0 million and the receipt of $4.1 million in connection with the Alpha
transaction. Other liabilities decreased by $12.7 million due to income taxes.
During fiscal 2019, cash provided by operating activities was primarily from net earnings of $160.5 million, depreciation and amortization of $63.3
million, non-cash charges relating to write-off of assets of $26.3 million, stock-based compensation of $22.6 million, non-cash interest of $1.3 million and
provision for bad debts accounts of $1.4 million, partially offset by deferred tax benefit of $6.5 million. Cash provided by earnings as adjusted for non-cash
items was partially offset by the increase in primary working capital of $30.7 million, net of currency translation changes, and a decrease in other long-term
liabilities of $14.9 million, primarily related to income taxes. Prepaid and other current assets, primarily comprising of contract assets, also resulted in a
decrease of $20.2 million to operating cash.
During fiscal 2018, cash provided by operating activities was primarily from net earnings of $119.8 million, depreciation and amortization of $54.3 million,
stock-based compensation of $19.5 million, non-cash charges relating to write-off of assets of $3.7 million, non-cash interest of $1.6 million and provision
for bad debts of $0.8 million, partially offset by deferred tax benefit of $20.3 million. Cash provided by earnings as adjusted for non-cash items was
improved by an increase of $94.0 million in long term liabilities primarily due to the Transition Tax liability and was partially offset by the increase in
primary working capital of $49.0 million, net of currency translation changes, and a decrease in accrued expenses of $26.6 million, comprising primarily of
legal proceedings related payments, payroll related expenses and income taxes. Prepaid and other current assets, comprising of prepaid taxes, also provided
an increase of $14.5 million to operating cash.
As explained in the discussion of our use of “non-GAAP financial measures,” we monitor the level and percentage of primary working capital to sales.
Primary working capital for this purpose is trade accounts receivable, plus inventories, minus trade accounts payable and the resulting net amount is
divided by the trailing three-month net sales (annualized) to derive a primary working capital percentage. Primary working capital was $833.5 million
(yielding a primary working capital percentage of 26.7%) at March 31, 2020 and $835.6 million (yielding a primary working capital percentage of 26.2%)
at March 31, 2019. The primary working capital percentage of 26.7% at March 31, 2020 is 50 basis points higher than that for March 31, 2019, and 100
basis points higher than that for March 31, 2018. The primary working capital dollars are consistent with prior year. The increase in fiscal 2019 compared
to fiscal 2018, was primarily due to the inclusion of the Alpha acquisition and higher inventory levels.
46
Table of Contents
Primary Working Capital and Primary Working Capital percentages at March 31, 2020, 2019 and 2018 are computed as follows:
Balance at March 31, (1) (2) (3)
Trade
Receivables
Inventory
Primary
Working
Capital
Quarter
Revenue
Annualized
Primary
Working
Capital
(%)
Accounts
Payable
(in millions)
2020 $
2019
595.9 $
624.1
519.5 $
503.9
(281.9) $
(292.4)
833.5 $
835.6
3,127.2
3,186.4
26.7%
26.2
25.7
(1) The Company acquired NorthStar on September 30, 2019, as disclosed in Note 4 to the Consolidated Financial Statements. Therefore, the Primary working capital and
2,732.2
(258.9)
546.3
414.2
701.6
2018
related calculations as of March 31, 2018 and March 31, 2019 did not include NorthStar's primary working capital and its components.
(2) The Company acquired Alpha on December 7, 2018, as disclosed in Note 4 to the Consolidated Financial Statements. Therefore, the Primary working capital and related
calculations as of March 31, 2018 did not include Alpha's primary working capital and its components.
(3) The inclusion of the NorthStar from its respective date of acquisition did not have a material impact on the Company's consolidated Primary working capital as of March
31, 2020.
Cash used in investing activities for fiscal 2020, 2019 and 2018 was $274.8 million, $723.9 million and $72.4 million, respectively.
During fiscal 2020 we acquired NorthStar for $176.5 million.
During fiscal 2019, we acquired Alpha for a total purchase consideration of $742.5 million, of which $650.0 was paid in cash and the balance, after
adjusting for working capital of $0.8 million due from seller, was settled by issuing 1,177,630 shares of EnerSys common stock at a closing date fair value
of $93.3 million. See Note 4 to the Consolidated Financial Statements for more details.
In fiscal 2019 and 2018, we also had minor acquisitions resulting in a cash outflow of $5.4 million and $3.0 million, respectively.
Capital expenditures were $101.4 million, $70.4 million and $69.8 million in fiscal 2020, 2019 and 2018, respectively.
During fiscal 2020, financing activities provided cash of $62.7 million. We issued our 2027 Notes for $300 million, the proceeds of which were utilized to
pay down the existing revolver borrowings. We borrowed $386.7 million under the Amended 2017 Revolver and repaid $517.7 million of the Amended
2017 Revolver. Repayment on the Amended 2017 Term Loan was $28.1 million and net payments on short-term debt were $5.3 million. Treasury stock
open market purchases were $34.6 million, payment of cash dividends to our stockholders were $29.7 million and payment of taxes related to net share
settlement of equity awards were $6.4 million.
During fiscal 2019, financing activities provided cash of $346.6 million. We borrowed $531.1 million under the Amended 2017 Revolver and $299.1
million under the Amended 2017 Term Loan, primarily to fund the Alpha acquisition and repaid $427.6 million of the Amended 2017 Revolver and $11.7
million on the Amended 2017 Term Loan. Treasury stock open market purchases were $56.4 million, payment of cash dividends to our stockholders were
$29.7 million and payment of taxes related to net share settlement of equity awards were $3.6 million. Proceeds from stock options were $9.0 million and
net borrowings on short-term debt were $37.4 million.
During fiscal 2018, financing activities used cash of $166.9 million. In fiscal 2018, we entered into a 2017 Credit Facility and borrowed $379.8 million
under the 2017 Revolver and $150.0 million under the 2017 Term loan. Repayments on the 2017 Revolver during fiscal 2018 were $244.3 million.
Borrowings and repayments on the 2011 Revolver during fiscal 2018 were $147.1 million and $312.1 million, respectively, and repayment of the 2011
Term loan was $127.5 million. On August 4, 2017, the outstanding balance on the 2011 Revolver and the 2011 Term Loan of $240.0 million and $123.0
million, respectively, was repaid utilizing the proceeds from the 2017 Credit Facility. We also paid $100.0 million under the ASR agreement, which was
settled on January 9, 2018. Treasury stock open market purchases were $21.2 million, payment of cash dividends to our stockholders were $29.7 million,
payment of taxes related to net share settlement of equity awards were $7.5 million and debt issuance costs were $2.7 million. Net borrowings on short-
term debt were $0.2 million and proceeds from stock options were $1.0 million.
47
Table of Contents
As a result of the above, total cash and cash equivalents increased by $27.8 million from $299.2 million at March 31, 2019 to $327.0 million at March 31,
2020.
In addition to cash flows from operating activities, we had available committed and uncommitted credit lines of approximately $694 million at March 31,
2020 to cover short-term liquidity requirements. Our Amended Credit Facility is committed through September 30, 2022, as long as we continue to comply
with the covenants and conditions of the credit facility agreement. We have $587 million in available credit lines under our Amended Credit Facility at
March 31, 2020.
Compliance with Debt Covenants
All obligations under our Amended Credit Facility are secured by, among other things, substantially all of our U.S. assets. The 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 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 this Annual
Report on Form 10-K.
Off-Balance Sheet Arrangements
The Company did not have any off-balance sheet arrangements during any of the periods covered by this report.
Contractual Obligations and Commercial Commitments
At March 31, 2020, we had certain cash obligations, which are due as follows:
Debt obligations
Short-term debt
Interest on debt
Operating leases
Tax Act - Transition Tax
Pension benefit payments and profit sharing
Restructuring
Purchase commitments
Lead and foreign currency forward contracts
Finance lease obligations, including interest
Total
Total
Less than
1 year
2 to 3
years
(in millions)
4 to 5
years
After
5 years
$
1,113.2 $
38.9 $
474.3 $
300.0 $
300.0
46.5
186.3
84.1
64.8
36.2
3.3
10.7
3.2
0.6
46.5
41.2
24.6
6.2
2.8
3.3
10.7
3.2
0.2
—
72.0
32.4
12.3
6.0
—
—
—
0.3
—
33.8
14.0
27.0
7.0
—
—
—
0.1
—
39.3
13.1
19.3
20.4
—
—
—
—
$
1,548.9 $
177.6 $
597.3 $
381.9 $
392.1
Due to the uncertainty of future cash outflows, uncertain tax positions have been excluded from the above table.
Under our Amended Credit Facility and other credit arrangements, we had outstanding standby letters of credit of $7.7 million as of March 31, 2020.
Credit Facilities and Leverage
Our focus on working capital management and cash flow from operations is measured by our ability to reduce debt and reduce our leverage ratios.
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Table of Contents
In the third quarter of fiscal 2020, we issued $300 million in aggregate principal amount of our 4.375% Senior Notes due 2027 (the “2027 Notes”).
Proceeds from this offering, net of debt issuance costs were $296.3 million and were utilized to pay down the balance outstanding on the revolver
borrowings.
In the second quarter of fiscal 2018, we entered into the 2017 Credit Facility that comprised a $600.0 million senior secured revolving credit facility (“2017
Revolver”) and a $150.0 million senior secured term loan (“2017 Term Loan”) with a maturity date of September 30, 2022. We repaid our then existing
facility (“2011 Credit Facility”), which comprised a $500 million senior secured revolving credit facility (“2011 Revolver”) and a $150.0 million senior
secured incremental term loan (the “2011 Term Loan”) with the proceeds from the 2017 Credit facility. On December 7, 2018, we amended the 2017 Credit
Facility (as amended, the “Amended Credit Facility”). The Amended Credit Facility consists of $449.1 million senior secured term loans (the “Amended
2017 Term Loan”), including a CAD 133.1 million ($99.1 million) term loan and a $700.0 million senior secured revolving credit facility (the “Amended
2017 Revolver”). The amendment resulted in an increase of the 2017 Term Loan and the 2017 Revolver by $299.1 million and $100.0 million, respectively.
Shown below are the leverage ratios at March 31, 2020 and 2019, in connection with the Amended Credit Facility.
The total net debt, as defined under the Amended Credit Facility is $905.6 million for fiscal 2020 and is 2.3 times adjusted EBITDA (non-GAAP),
compared to total net debt of $835.8 million and 2.0 times adjusted EBITDA (non-GAAP) for fiscal 2019.
The following table provides a reconciliation of net earnings to EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP) for March 31, 2020 and 2019,
in connection with the Amended Credit Facility:
Net earnings as reported
Add back:
Depreciation and amortization
Interest expense
Income tax expense
EBITDA (non GAAP)(1)
Adjustments per credit agreement definitions(2)
Adjusted EBITDA (non-GAAP) per credit agreement(1)
Total net debt(3)
Leverage ratios(4):
Total net debt/adjusted EBITDA ratio(4)
Maximum ratio permitted
Consolidated interest coverage ratio(5)
Minimum ratio required
Fiscal 2020
Fiscal 2019
(in millions, except ratios)
$
137.1 $
160.5
$
$
$
87.3
43.7
9.9
278.0 $
123.6
401.6 $
905.6 $
2.3 X
3.5 X
9.1 X
3.0 X
63.3
30.9
21.6
276.3
139.0
415.3
835.8
2.0 X
4.0 X
9.9 X
3.0 X
(1) We have included EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP) because our lenders use them as key measures of our performance.
EBITDA is defined as earnings before interest expense, income tax expense, depreciation and amortization. EBITDA is not a measure of financial
performance under GAAP and should not be considered an alternative to net earnings or any other measure of performance under GAAP or to cash
flows from operating, investing or financing activities as an indicator of cash flows or as a measure of liquidity. Our calculation of EBITDA may be
different from the calculations used by other companies, and therefore comparability may be limited. Certain financial covenants in our Amended
Credit Facility are based on EBITDA, subject to adjustments, which are shown above. Continued availability of credit under our Amended Credit
Facility is critical to our ability to meet our business plans. We believe that an understanding of the key terms of our credit agreement is important
to an investor’s understanding of our financial condition and liquidity risks. Failure to comply with our financial covenants, unless waived by our
lenders, would mean we could not borrow any further amounts under our revolving credit facility and would give our lenders the right to demand
immediate repayment of all outstanding revolving credit and term loans. We would be unable to continue our operations at current levels if we lost
the liquidity provided under our credit agreements. Depreciation and amortization in this table excludes the amortization of deferred financing fees,
which is included in interest expense.
49
Table of Contents
(2) The $123.6 million adjustment to EBITDA in fiscal 2020 primarily related to impairment of goodwill and other intangible assets of $44.2 million,
$20.8 million of non-cash stock compensation, inclusion of $18.5 million of six months of pro forma earnings of NorthStar, $20.8 million of
restructuring and other exit charges and $1.9 million of inventory adjustments (fair value step up relating to the NorthStar transaction), $14.3 for
insurance reimbursement for business interruption due to the Richmond, KY fire and other charges of $3.1 million. The $139.0 million adjustment
to EBITDA in fiscal 2019 primarily related to the inclusion of $69.3 million of nine months of pro forma earnings of Alpha, $13.6 million for fees
and expenses related to the Alpha transaction, $22.6 million of non-cash stock compensation, $23.2 million of non-cash restructuring and other exit
charges and $10.3 million of inventory adjustments (including a fair value step up relating to the Alpha transaction of $7.2 million).
(3) Debt includes finance lease obligations and letters of credit and is net of all U.S. cash and cash equivalents and all but $64 million of foreign cash
and investments, as defined in the Amended Credit Facility. In fiscal 2020, the amounts deducted in the calculation of net debt were U.S. cash and
cash equivalents and foreign cash investments of $262 million, and in fiscal 2019, were $200 million.
(4) These ratios are included to show compliance with the leverage ratios set forth in our credit facilities. We show both our current ratios and the
maximum ratio permitted or minimum ratio required under our Amended Credit Facility, for fiscal 2020 and fiscal 2019, respectively.
(5) As defined in the Amended Credit Facility, interest expense used in the consolidated interest coverage ratio excludes non-cash interest of $1.7
million and $1.3 million for fiscal 2020 and fiscal 2019, respectively.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
See Note 1 to the Consolidated Financial Statements - Summary of Significant Accounting Policies for a description of certain recently issued accounting
standards that were adopted or are pending adoption that could have a significant impact on our Consolidated Financial Statements or the Notes to the
Consolidated Financial Statements.
Related Party Transactions
None.
50
Table of Contents
Sequential Quarterly Information
Fiscal 2020 and 2019 quarterly operating results, and the associated quarterly trends within each of those two fiscal years, are affected by the same
economic and business conditions except for impairment charges relating to goodwill in Asia of $39.7 million and trademarks in EMEA of $4.5 million in
the fourth quarter of fiscal 2020 (as discussed in Results of Operations - Fiscal 2020 Compared to Fiscal 2019 in Item 7), income tax benefit of $21.0
million in the second quarter of fiscal 2020, on account of the Swiss tax reform and a tax benefit of $13.5 million in the third quarter of fiscal 2019 as a
result of the Tax Act.
We have also included the operating results of NorthStar, in our third and fourth quarter results, for the period commencing on September 30, 2019 (the
date of acquisition) and ending on March 31, 2020. NorthStar's sales for the third and fourth quarters of fiscal 2020 were $27.8 million and $26.7 million,
respectively while net loss, for the same periods were $13.5 million and $0.5 million, respectively. We have also included the operating results of Alpha, in
our third and fourth quarter results, for the period commencing on December 7, 2018 (the date of acquisition) and ending on March 31, 2019. The sales for
the third and fourth quarters of fiscal 2019 were $26.8 million and $135.7 million, respectively. Alpha's net loss and net earnings, for the same periods were
$4.4 million and $3.2 million, respectively.
Fiscal 2020
Fiscal 2019
June 30,
2019
1st Qtr.
Sept. 29,
2019
2nd Qtr.
Dec. 29,
2019
3rd Qtr.
March 31,
2020
4th Qtr.
July 1,
2018
1st Qtr.
Sept. 30,
2018
2nd Qtr.
Dec. 30,
2018
3rd Qtr.
March 31,
2019
4th Qtr.
$
$
780.2
578.7
$
762.1
564.8
763.7 $
574.6
781.8 $
582.9
670.9 $
505.1
660.5 $
499.6
680.0 $
511.7
(in millions, except share and per share amounts)
Net sales
Cost of goods sold
Inventory step up to fair value
relating to acquisitions and
exit activities
Gross profit
Operating expenses
Restructuring, exit and other
charges
Impairment of goodwill
Impairment of indefinite-
lived intangibles
Legal proceedings (settlement
income) charge
Operating earnings
Interest expense
Other (income) expense, net
Earnings before income taxes
Income tax expense (benefit)
Net earnings (loss)
Net earnings attributable to
noncontrolling interests
Net earnings (loss)
attributable to EnerSys
stockholders
Net earnings (loss) per
common share attributable to
EnerSys stockholders:
Basic
Diluted
Weighted-average number of
common shares outstanding:
Basic
Diluted
—
201.5
130.8
2.4
—
—
—
68.3
10.9
(1.2)
58.6
10.0
48.6
—
197.3
132.3
6.3
—
—
—
58.7
10.1
0.2
48.4
(14.3)
62.7
—
—
3.8
185.3
132.8
9.4
—
—
—
43.1
11.1
(0.6)
32.6
5.3
27.3
—
(1.9)
200.8
133.8
2.7
39.7
4.5
—
20.1
11.6
1.1
7.4
8.9
(1.5)
—
0.5
165.3
99.3
1.8
—
—
—
64.2
6.5
0.4
57.3
11.3
46.0
0.1
—
160.9
96.5
1.1
—
—
—
63.3
6.4
(1.3)
58.2
10.8
47.4
—
3.7
164.6
112.0
5.4
—
—
(2.8)
50.0
7.1
—
42.9
(5.7)
48.6
0.2
$
48.6
$
62.7
$
27.3 $
(1.5) $
45.9 $
47.4 $
48.4 $
$
$
1.14
1.13
$
$
1.48
1.47
$
$
0.65 $
0.64 $
(0.04) $
(0.04) $
1.09 $
1.08 $
1.13 $
1.11 $
1.14 $
1.12 $
42,656,339
43,118,434
42,392,039
42,708,082
42,286,641
42,838,969
42,312,315
42,312,315
42,012,546
42,573,981
42,133,484
42,773,706
42,337,459
43,102,598
42,856,604
43,585,523
51
796.6
588.2
6.1
202.3
133.6
26.5
—
—
7.2
35.0
10.9
0.4
23.7
5.2
18.5
—
18.5
0.43
0.42
Table of Contents
Net Sales
Quarterly net sales by segment were as follows:
Fiscal 2020
Fiscal 2019
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
(in millions)
$
$
517.1
203.2
59.9
524.9
182.8
54.4
$
$
503.1
202.3
58.3
$
537.2
199.0
45.6
392.5
210.5
67.9
$
$
388.6
204.0
67.9
402.0
217.8
60.2
$
$
780.2
$
762.1
$
763.7
$
781.8
$
670.9
$
660.5
$
680.0
$
507.8
228.3
60.5
796.6
66.3%
68.9%
65.9%
68.7%
58.5%
58.8%
59.1%
63.7%
26.0
7.7
24.0
7.1
26.5
7.6
25.5
5.8
31.4
10.1
30.9
10.3
32.0
8.9
28.7
7.6
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Net sales by segment:
Americas
EMEA
Asia
Total
Segment net sales as % of
total:
Americas
EMEA
Asia
Total
Quarterly net sales by product line were as follows:
Fiscal 2020
Fiscal 2019
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
(in millions)
Net sales by product line:
Reserve power
Motive power
Total
$
$
435.8
344.4
780.2
$
$
426.8
335.3
762.1
$
$
448.2
315.5
763.7
$
$
428.8
353.0
781.8
$
$
324.0
346.9
670.9
$
$
313.4
347.1
660.5
$
$
329.5
350.5
680.0
$
$
449.3
347.3
796.6
Product line net sales as %
of total:
Reserve power
Motive power
Total
55.9%
44.1
56.0%
44.0
58.7%
41.3
54.9%
45.1
48.3%
51.7
47.4%
52.6
48.5%
51.5
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
56.4%
43.6
100.0%
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risks
Our cash flows and earnings are subject to fluctuations resulting from changes in raw material costs, foreign currency exchange rates and interest rates. We
manage our exposure to these market risks through internally established policies and procedures and, when deemed appropriate, through the use of
derivative financial instruments. Our policy does not allow speculation in derivative instruments for profit or execution of derivative instrument contracts
for which there are no underlying exposures. We do not use financial instruments for trading purposes and are not a party to any leveraged derivatives. We
monitor our underlying market risk exposures on an ongoing basis and believe that we can modify or adapt our hedging strategies as needed.
Counterparty Risks
We have entered into lead forward purchase contracts and foreign exchange forward and purchased option contracts to manage the risk associated with our
exposures to fluctuations resulting from changes in raw material costs and foreign currency
52
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exchange rates. The Company’s agreements are with creditworthy financial institutions. Those contracts that result in a liability position at March 31, 2020
are $3.2 million (pre-tax). Those contracts that result in an asset position at March 31, 2020 are $0.8 million (pre-tax) and the vast majority of these will
settle within one year. The impact on the Company due to nonperformance by the counterparties has been evaluated and not deemed material.
Interest Rate Risks
We are exposed to changes in variable U.S. interest rates on borrowings under our credit agreements, as well as short term borrowings in our foreign
subsidiaries.
A 100 basis point increase in interest rates would have increased annual interest expense by approximately $5.6 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
$’s Under Contract
# Pounds Purchased
Average
Cost/Pound
Approximate % of
Lead Requirements (1)
March 31, 2020
March 31, 2019
March 31, 2018
(in millions)
$30.1
39.2
72.2
(in millions)
35.0
42.0
62.9
(1) Based on the fiscal year lead requirements for the periods then ended.
$0.86
0.93
1.15
6%
7
14
We estimate that a 10% increase in our cost of lead would have increased our cost of goods sold by approximately
$62 million for the fiscal year ended March 31, 2020.
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.
We hedge approximately 10% - 15% of the nominal amount of our known foreign exchange transactional exposures. We primarily enter into foreign
currency exchange contracts to reduce the earnings and cash flow impact of the variation of non-functional currency denominated receivables and payables.
The vast majority of such contracts are for a period not extending beyond one year.
Gains and losses resulting from hedging instruments offset the foreign exchange gains or losses on the underlying assets and liabilities being hedged. The
maturities of the forward exchange contracts generally coincide with the settlement dates of the related transactions. Realized and unrealized gains and
losses on these contracts are recognized in the same period as gains and losses on the hedged items. We also selectively hedge anticipated transactions that
are subject to foreign exchange exposure,
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primarily with foreign currency exchange contracts, which are designated as cash flow hedges in accordance with Topic 815 - Derivatives and Hedging.
At March 31, 2020 and 2019, we estimate that an unfavorable 10% movement in the exchange rates would have adversely changed our hedge valuations by
approximately $3.0 million and $1.9 million, respectively.
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ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Contents
EnerSys
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (on Consolidated Financial Statements and Schedule)
Report of Independent Registered Public Accounting Firm (on Internal Control Over Financial Reporting)
Audited Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 2020 and 2019
Consolidated Statements of Income for the Fiscal Years Ended March 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended March 31, 2020, 2019 and 2018
Consolidated Statements of Changes in Equity for the Fiscal Years Ended March 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
2. Revenue Recognition
3. Leases
4. Acquisitions
5. Inventories
6. Property, Plant, and Equipment
7. Goodwill and Other Intangible Assets
8. Prepaid and Other Current Assets
9. Accrued Expenses
10. Debt
11. Other Liabilities
12. Fair Value Measurements
13. Derivative Financial Instruments
14. Income Taxes
15. Retirement Plans
16. Stockholders’ Equity
17. Stock-Based Compensation
18. Earnings Per Share
19. Commitments, Contingencies and Litigation
20. Restructuring, Exit and Other Charges
21. Warranty
22. Other (Income) Expense, Net
23. Business Segments
24. Quarterly Financial Data (Unaudited)
25. Subsequent Events
55
Page
56
59
60
61
62
63
64
65
65
73
74
76
78
78
78
80
81
81
84
84
85
88
91
96
98
100
101
102
105
105
106
107
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Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of EnerSys
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of EnerSys (the Company) as of March 31, 2020 and 2019, the related consolidated
statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended March 31, 2020, and the
related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 31, 2020 and 2019, and
the results of its operations and its cash flows for each of the three years in the period ended March 31, 2020, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's
internal control over financial reporting as of March 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated June 1, 2020 expressed an unqualified
opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or
required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions
on the critical audit matters or on the accounts or disclosures to which they relate.
Description of the
Matter
Valuation of Goodwill and Indefinite-Lived Intangible Assets
As reflected in the Company’s consolidated financial statements, at March 31, 2020, the Company’s goodwill balance was
$663.9 million. As discussed in Note 7 to the consolidated financial statements, the Company recognized a $39.7 million
goodwill impairment loss associated with its Asia reporting unit in fiscal 2020. In addition, the Company’s indefinite-lived
intangible assets were $146.4 million as of March 31, 2020, and included $56.0 million of trademarks recognized in connection
with the December 2018 acquisition of Alpha. As discussed in Note 1 to the consolidated financial statements, goodwill and
other indefinite-lived intangible assets are tested for impairment at least annually.
Auditing management’s annual quantitative goodwill and other indefinite-lived intangible assets impairment tests was complex
and involved a high degree of subjectivity due to the significant estimation required in determining the fair value of the
reporting units and the other indefinite-lived intangible assets. The fair value estimates related to the Company’s reporting units
and other indefinite-lived intangible assets were sensitive to significant assumptions such as discount rates, revenue growth
rates, operating margins, working capital rates, royalty rates, and terminal growth rates, which are forward-looking and could be
affected by future economic and market conditions.
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How We Addressed
the Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s
quantitative goodwill and other indefinite-lived intangible assets annual impairment tests. For example, we tested controls over
management’s review of the valuation models, the significant assumptions used to develop the estimate including forecasted
revenue growth rates and profitability, and the completeness and accuracy of the data used in the valuations.
To test the estimated fair value of the Company’s reporting units and other indefinite-lived intangible assets, we performed audit
procedures that included, among others, assessing fair value methodologies and testing the significant assumptions discussed
above and the completeness and accuracy of the underlying data used by the Company in its analyses. For example, we
compared the significant assumptions used by management to current industry, market and economic trends, to historical results
of the Company's business and other guideline companies within the same industry and to other relevant factors. We assessed
the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the
changes in the fair value of the reporting units and other indefinite-lived intangible assets that would result from changes in the
assumptions. We also involved internal valuation specialists to assist in our evaluation of the significant assumptions and
methodologies used by the Company. In addition, we tested management’s reconciliation of the fair value of the reporting units
to the market capitalization of the Company.
Acquisition of NorthStar
Description of the
Matter
As discussed in Note 4 to the Company’s consolidated financial statements, the Company completed the acquisition of N
Holding, AB (“NorthStar”) on September 30, 2019 for $77.8 million in cash consideration and the assumption of $107.0 million
in debt in a transaction that was accounted for as a business combination. The Company recognized the intangible assets
acquired at their estimated fair values as of the date of the acquisition. These valuations required management to make
significant judgments, estimates, and assumptions, especially with respect to the identifiable intangible assets, which were based
in part upon historical experience and forward-looking information obtained from management of the acquired company.
Auditing the Company's accounting for its acquisition of NorthStar was complex due to the significant estimation uncertainty in
determining the fair value of identified intangible assets, which principally consisted of technology-related intangibles of $19.0
million, customer relationships of $9.0 million, and trademarks of $6.0 million. In particular, the income approach used to
determine the fair value of acquired identifiable intangible assets was complex and required the use of assumptions that were
inherently uncertain. The significant assumptions included discount rates and certain assumptions that form the basis of the
forecasted results, including revenue growth rates, profit margins, royalty rates, and terminal growth rates. These significant
assumptions are forward-looking and could be affected by future economic and market conditions.
How We Addressed
the Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s
accounting for the acquisition of NorthStar. For example, we tested controls over the completeness, recognition, and
measurement of intangible assets acquired. We also tested controls over management’s review of the valuation models, the
significant underlying assumptions used to develop the estimates and the completeness and accuracy of the data used in the
valuations.
To test the estimated fair value of the acquired technology-related intangibles, customer relationships and trademarks, we
evaluated (1) whether all material intangible assets were properly identified, (2) the significant assumptions discussed above
that were used in valuing these intangible assets and (3) the completeness and accuracy of the underlying data used by the
Company in its analyses. Specifically, when evaluating the assumptions related to the revenue growth rates and projected profit
margins, we compared the assumptions to the past performance of NorthStar in addition to current industry, market, and
economic trends. We evaluated whether the assumptions used in developing the discount rate were consistent with the economic
environment, market information, management’s plans, and the risk associated with the future cash flows. We also considered
whether the assumptions were consistent with evidence obtained in other areas of the audit, such as assumptions used by the
Company in the preparation of its budget and performed sensitivity analyses over the significant assumptions to evaluate the
changes in the fair value of the identifiable intangible assets that would result from changes in the assumptions. In addition, we
involved internal valuation specialists to assist in our evaluation of the significant assumptions and methodologies used by the
Company.
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Table of Contents
Description of the
Matter
Income Taxes - Uncertain Tax Positions
As discussed in Note 14 to the Company’s consolidated financial statements, the Company and its subsidiaries file income tax
returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Also as disclosed in Note 14, over 75% of
the Company’s consolidated earnings before taxes are generated in foreign jurisdictions. Uncertainty in a tax position taken or to
be taken on a tax return may arise as tax laws are subject to interpretation. The Company must identify its uncertain tax
positions and uses significant judgment in (1) determining whether a tax position’s technical merits are more-likely-than-not to
be sustained and (2) measuring the amount of tax benefit that qualifies for recognition. As of March 31, 2020, the Company
accrued liabilities of $7.8 million for uncertain tax positions.
Auditing the completeness of the Company’s uncertain tax positions and the evaluation of the technical merits of those
uncertain tax positions is complex given the scope of its international operations and the significant judgment required in
evaluating the technical merits of the Company’s uncertain tax positions.
How We Addressed
the Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over
identifying uncertain tax positions and evaluating the technical merits of those positions. For example, we tested controls over
the review of the Company’s foreign operations, including the tax positions taken by those operations, differences between
statutory and effective tax rates, permanent differences impacting taxable income, and the monitoring of tax audits.
We involved our tax professionals with subject matter expertise in the areas of international taxation and transfer pricing to
assess the technical merits of the Company’s tax positions. This included assessing the Company’s correspondence with the
relevant tax authorities and evaluating income tax opinions or other third-party advice obtained by the Company. We also used
our knowledge of, and experience with, the application of international and local income tax laws by the relevant income tax
authorities to evaluate the Company’s accounting for those tax positions. We analyzed the Company’s assumptions and data
used to determine the amount of tax benefit to recognize and tested the accuracy of the calculations. We also evaluated the
Company’s income tax disclosures included in Note 14 to the consolidated financial statements in relation to these matters.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 1998.
Philadelphia, Pennsylvania
June 1, 2020
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Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of EnerSys
Opinion on Internal Control over Financial Reporting
We have audited EnerSys’ internal control over financial reporting as of March 31, 2020, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion,
EnerSys (the Company) maintained, in all material respects, effective internal control over financial reporting as of March 31, 2020, based on the COSO
criteria.
As indicated in the accompanying Management Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the
effectiveness of internal control over financial reporting did not include the internal controls of NorthStar, which is included in the 2020 consolidated
financial statements of the Company and constituted 6.7% of total assets as of March 31, 2020 and 1.8% of net sales for the year then ended. Our audit of
internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of NorthStar.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2020
consolidated financial statements of the Company and our report dated June 1, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
June 1, 2020
59
Table of Contents
EnerSys
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Data)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts
(2020–$15,246; 2019–$10,813)
Inventories
Prepaid and other current assets
Total current assets
Property, plant, and equipment, net
Goodwill
Other intangible assets, net
Deferred taxes
Other assets
Total assets
Current liabilities:
Short-term debt
Current portion of finance leases
Accounts payable
Accrued expenses
Total current liabilities
Liabilities and Equity
Long-term debt, net of unamortized debt issuance costs
Finance leases
Deferred taxes
Other liabilities
Total liabilities
Commitments and contingencies
Equity:
Preferred Stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding at
March 31, 2020 and at March 31, 2019
Common Stock, $0.01 par value per share, 135,000,000 shares authorized, 55,114,808 shares issued
and 42,323,305 shares outstanding at March 31, 2020; 54,848,523 shares issued and 42,620,750
shares outstanding at March 31, 2019
Additional paid-in capital
Treasury stock at cost, 12,791,503 shares held as of March 31, 2020 and 12,227,773 shares held as of
March 31, 2019
Retained earnings
Accumulated other comprehensive loss
Contra equity - indemnification receivable
Total EnerSys stockholders’ equity
Nonredeemable noncontrolling interests
Total equity
Total liabilities and equity
See accompanying notes.
60
March 31,
2020
2019
$
326,979 $
299,212
595,873
519,460
120,593
1,562,905
480,014
663,936
455,685
55,803
83,355
624,136
503,869
109,431
1,536,648
409,439
656,399
462,316
40,466
12,925
3,301,698 $
3,118,193
46,544 $
162
281,873
271,740
600,319
1,104,731
407
78,363
213,816
1,997,636
54,490
10,113
292,449
255,881
612,933
971,756
175
82,112
165,200
1,832,176
—
—
551
529,100
(564,376)
1,556,980
(215,006)
(6,724)
1,300,525
3,537
1,304,062
3,301,698 $
548
512,696
(530,760)
1,450,325
(142,682)
(7,840)
1,282,287
3,730
1,286,017
3,118,193
$
$
$
Table of Contents
EnerSys
Consolidated Statements of Income
(In Thousands, Except Share and Per Share Data)
Net sales
Cost of goods sold
Inventory step up to fair value relating to acquisitions and exit activities
Gross profit
Operating expenses
Restructuring, exit and other charges
Impairment of goodwill
Impairment of indefinite-lived intangibles
Legal proceedings charge, net
Operating earnings
Interest expense
Other (income) expense, net
Earnings before income taxes
Income tax expense
Net earnings
Net earnings attributable to noncontrolling interests
Net earnings attributable to EnerSys stockholders
Net earnings per common share attributable to EnerSys stockholders:
Basic
Diluted
Dividends per common share
Weighted-average number of common shares outstanding:
Basic
Diluted
Fiscal year ended March 31,
2020
3,087,868 $
2019
2,808,017 $
$
2,301,148
2,104,612
1,854
784,866
529,643
20,766
39,713
4,549
—
190,195
43,673
(415)
146,937
9,821
137,116
—
10,379
693,026
441,415
34,709
—
—
4,437
212,465
30,868
(614)
182,211
21,584
160,627
388
$
$
$
$
137,116 $
160,239 $
3.23 $
3.20 $
0.70 $
3.79 $
3.73 $
0.70 $
2018
2,581,891
1,920,030
3,457
658,404
382,077
5,481
—
—
—
270,846
25,001
7,519
238,326
118,493
119,833
239
119,594
2.81
2.77
0.70
42,411,834
42,335,023
42,612,036
42,896,775
43,008,952
43,119,856
See accompanying notes.
61
Table of Contents
EnerSys
Consolidated Statements of Comprehensive Income
(In Thousands)
Net earnings
Other comprehensive (loss) income:
Net unrealized (loss) gain on derivative instruments, net of tax
Pension funded status adjustment, net of tax
Foreign currency translation adjustment
Total other comprehensive (loss) gain, net of tax
Total comprehensive income
Comprehensive (loss) gain attributable to noncontrolling interests
Comprehensive income attributable to EnerSys stockholders
Fiscal year ended March 31,
2020
2019
2018
$
137,116 $
160,627 $
119,833
(5,793)
(2,003)
(64,721)
(72,517)
64,599
(193)
3,295
1,712
(106,555)
(101,548)
59,079
(195)
$
64,792 $
59,274 $
(5,400)
3,052
113,739
111,391
231,224
523
230,701
See accompanying notes.
62
Table of Contents
EnerSys
Consolidated Statements of Changes in Equity
Treasury
Stock
$ (439,800)
Retained
Earnings
$ 1,231,444
Accumulated
Other
Comprehensive
Income (Loss)
Total
EnerSys
Stockholders’
Equity
Contra-
Equity
Non-
redeemable
Non-
Controlling
Interests
$
(152,824)
$ — $ 1,103,456
$
4,913
Total
Equity
$ 1,108,369
Additional
Paid-in
Capital
$ 464,092
Common
Stock
544
—
(In Thousands, Except Per Share Data)
Balance at March 31, 2017
Stock-based compensation
Shares issued under equity awards (taxes paid related to net share
settlement of equity awards), net
Purchase of common stock
Other
Net earnings
Dividends ($0.70 per common share)
Other comprehensive income:
Pension funded status adjustment (net of tax benefit of $808)
Net unrealized gain (loss) on derivative instruments (net of tax
benefit of $2,071)
Foreign currency translation adjustment
Balance at March 31, 2018
Stock-based compensation
Exercise of stock options
Shares issued under equity awards (taxes paid related to net share
settlement of equity awards), net
Purchase of common stock
Reissuance of treasury stock, on LIFO basis, towards Alpha
purchase consideration
Reissuance of treasury stock towards employee stock purchase
plan
Contra equity - indemnification receivable for acquisition related
tax liability
Other
Net earnings
Dividends ($0.70 per common share)
Dissolution of joint venture
Other comprehensive income:
Pension funded status adjustment (net of tax benefit of $120)
Net unrealized gain (loss) on derivative instruments (net of tax
expense of $1,006)
Foreign currency translation adjustment
Balance at March 31, 2019
Stock-based compensation
Exercise of stock options
Shares issued under equity awards (taxes paid related to net share
settlement of equity awards), net
Purchase of common stock
Reissuance of treasury stock towards employee stock purchase
plan
Contra equity - adjustment to indemnification receivable for
acquisition related tax liability
Other
Net earnings
Dividends ($0.70 per common share)
Other comprehensive income:
Pension funded status adjustment (net of tax expense of $468)
Net unrealized gain (loss) on derivative instruments (net of tax
benefit of $1,793)
Foreign currency translation adjustment
Preferred
Stock
$ — $
—
—
—
—
—
—
—
—
—
$ — $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ — $
—
—
—
—
—
—
—
—
—
—
—
—
2
—
—
—
—
—
—
—
546
—
2
—
—
—
—
—
—
—
—
—
—
—
—
3
—
—
—
—
—
—
—
—
—
—
548
—
$ 477,288
$ (560,991)
$ 1,320,549
$
113,455
$ — $ 1,195,675
19,453
(6,533)
—
—
—
(121,191)
(402)
—
678
—
—
—
—
—
—
—
—
—
—
—
—
(137)
119,594
(30,352)
—
—
—
—
—
—
—
—
—
3,052
(5,400)
113,455
(41,717)
22,608
9,046
(3,630)
—
—
—
—
(56,436)
6,805
86,463
—
—
(141)
—
720
—
—
—
—
204
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
160,239
(30,463)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,712
3,295
(105,972)
20,780
1,414
(6,393)
—
—
—
—
(34,561)
(73)
—
(80)
—
756
—
—
—
945
—
—
—
—
—
—
—
—
—
—
—
—
—
—
137,116
(30,461)
—
—
—
—
—
—
—
—
—
—
—
—
(2,003)
(5,793)
(64,528)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(7,840)
—
—
—
—
—
—
—
—
—
—
—
—
1,116
—
—
—
—
—
—
19,453
(6,531)
(121,191)
(539)
119,594
(29,674)
3,052
(5,400)
22,608
9,048
(3,630)
(56,436)
93,268
204
(7,840)
(141)
160,239
(29,743)
—
—
—
—
239
—
—
—
19,453
(6,531)
(121,191)
(539)
119,833
(29,674)
3,052
(5,400)
284
5,436
113,739
$ 1,201,111
$
—
—
—
—
—
—
—
—
22,608
9,048
(3,630)
(56,436)
93,268
204
(7,840)
(141)
388
—
160,627
(29,743)
—
(1,511)
(1,511)
1,712
3,295
—
—
1,712
3,295
20,780
1,417
(6,393)
(34,561)
872
1,116
(80)
137,116
(29,705)
(2,003)
(5,793)
(583)
$
3,730
(106,555)
$ 1,286,017
—
—
—
—
—
—
—
—
—
—
—
20,780
1,417
(6,393)
(34,561)
872
1,116
(80)
137,116
(29,705)
(2,003)
(5,793)
(193)
$
3,537
(64,721)
$ 1,304,062
$ 512,696
$ (530,760)
$ 1,450,325
$
(142,682)
$ (7,840)
(105,972)
$ 1,282,287
Balance at March 31, 2020
$ — $
551
$ 529,100
$ (564,376)
$ 1,556,980
$
(215,006)
$ (6,724)
See accompanying notes.
63
(64,528)
$ 1,300,525
Table of Contents
EnerSys
Consolidated Statements of Cash Flows
(In Thousands)
Cash flows from operating activities
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization
Write-off of assets relating to restructuring and other exit charges
Impairment of goodwill
Impairment of indefinite-lived intangibles and fixed assets
Derivatives not designated in hedging relationships:
Net losses (gains)
Cash (settlements) proceeds
Provision for doubtful accounts
Deferred income taxes
Non-cash interest expense
Stock-based compensation
(Gain) loss on disposal of property, plant, and equipment
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable
Inventories
Prepaid and other current assets
Other assets
Accounts payable
Legal proceedings accrual
Accrued expenses
Other liabilities
Net cash provided by operating activities
Cash flows from investing activities
Capital expenditures
Purchase of businesses
Proceeds from sale of facility
Insurance proceeds relating to property, plant and equipment
Proceeds from disposal of property, plant, and equipment
Net cash used in investing activities
Cash flows from financing activities
Net (repayments) borrowings on short-term debt
Proceeds from Amended 2017 Revolver borrowings
Proceeds from 2027 Notes
Proceeds from 2011 Revolver borrowings
Repayments of Amended 2017 Revolver borrowings
Repayments of 2011 Revolver borrowings
Proceeds from Amended 2017 Term Loan
Repayments of Amended 2017 Term Loan
Repayments of 2011 Term Loan
Debt issuance costs
Finance lease obligations and other
Option proceeds
Payment of taxes related to net share settlement of equity awards
Purchase of treasury stock
Dividends paid to stockholders
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Fiscal year ended March 31,
2020
2019
2018
$
137,116
$
160,627 $
119,833
87,344
10,986
39,713
4,549
178
(793)
4,821
(16,486)
1,673
20,780
(86)
26,486
(9,379)
(17,508)
3,089
(33,490)
—
7,055
(12,650)
253,398
(101,425)
(176,548)
720
403
2,031
(274,819)
(5,325)
386,700
300,000
—
(517,700)
—
—
(28,138)
—
(4,607)
995
1,417
(6,393)
(34,561)
(29,705)
62,683
(13,495)
27,767
299,212
63,348
26,308
—
—
1,856
(1,802)
1,385
(6,456)
1,316
22,608
(258)
5,974
(46,614)
(20,195)
(7,611)
9,944
7,258
(4,937)
(14,896)
197,855
(70,372)
(654,614)
—
—
1,103
(723,883)
37,424
531,100
—
—
(427,600)
—
299,105
(11,666)
—
(1,393)
368
9,048
(3,630)
(56,436)
(29,743)
346,577
(43,455)
(222,906)
522,118
54,317
3,736
—
—
(180)
43
822
(20,313)
1,603
19,453
116
(32,242)
(38,075)
14,470
(1,150)
21,266
—
(26,614)
93,963
211,048
(69,832)
(2,988)
—
—
463
(72,357)
214
379,750
—
147,050
(244,250)
(312,050)
150,000
—
(127,500)
(2,677)
(29)
958
(7,489)
(121,191)
(29,674)
(166,888)
49,986
21,789
500,329
Cash and cash equivalents at end of year
$
326,979
$
299,212 $
522,118
Supplemental disclosures:
Non-cash investing and financing activities:
Common stock issued as partial consideration for Alpha acquisition
$
— $
93,268 $
—
See accompanying notes.
64
Table of Contents
1. Summary of Significant Accounting Policies
Description of Business
Notes to Consolidated Financial Statements
March 31, 2020
(In Thousands, Except Share and Per Share Data)
EnerSys (the “Company”) and its predecessor companies have been manufacturers of industrial batteries for over 125 years. EnerSys is a global leader in
stored energy solutions for industrial applications. The Company manufactures, markets and distributes industrial batteries and related products such as
chargers, outdoor cabinet enclosures, power equipment and battery accessories, and provides related after-market and customer-support services for its
products. With the Alpha acquisition, the Company is also a provider of highly integrated power solutions and services to broadband, telecom, renewable
and industrial customers.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries and any partially owned subsidiaries that the
Company has the ability to control. Control generally equates to ownership percentage, whereby investments that are more than 50% owned are generally
consolidated, investments in affiliates of 50% or less but greater than 20% are generally accounted for using the equity method, and investments in
affiliates of 20% or less are accounted for using the cost method. All intercompany transactions and balances have been eliminated in consolidation.
Foreign Currency Translation
Results of foreign operations of subsidiaries, whose functional currency is the local currency, are translated into U.S. dollars using average exchange rates
during the periods. The assets and liabilities are translated into U.S. dollars using exchange rates as of the balance sheet dates. Gains or losses resulting
from translating the foreign currency financial statements are accumulated as a separate component of accumulated other comprehensive income (“AOCI”)
in EnerSys’ stockholders’ equity and noncontrolling interests.
Transaction gains and losses resulting from exchange rate changes on transactions denominated in currencies other than the functional currency of the
applicable subsidiary are included in the Consolidated Statements of Income, within “Other (income) expense, net”, in the year in which the change occurs.
Revenue Recognition
Prior to March 31, 2018, revenues were recognized under ASC 605, Revenue Recognition, when (i) persuasive evidence of an arrangement existed, (ii)
delivery occurred or services were rendered, (iii) the price was fixed or determinable and (iv) collectibility was reasonably assured.
Beginning April 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers. Concurrent with the adoption of the new standard, the
Company updated its revenue recognition policy as follows:
The Company determines revenue recognition by applying the following steps:
1. identify the contract with a customer;
2. identify the performance obligations in the contract;
3. determine the transaction price;
4. allocate the transaction price to the performance obligations; and
5. recognize revenue as the performance obligations are satisfied.
The Company recognizes revenue when (or as) performance obligations are satisfied by transferring control of the performance obligation to a customer.
Control of a performance obligation may transfer to the customer either at a point in time or over time depending on an evaluation of the specific facts and
circumstances for each contract, including the terms and conditions of the contract as agreed with the customer, as well as the nature of the products or
services to be provided.
The Company's primary performance obligation to its customers is the delivery of finished goods and products, pursuant to
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Table of Contents
purchase orders. Control of the products sold typically transfers to its customers at the point in time when the goods are shipped
as this is also when title generally passes to its customers under the terms and conditions of our customer arrangements.
Each customer purchase order sets forth the transaction price for the products and services purchased under that arrangement. Some customer arrangements
include variable consideration, such as volume rebates, some of which depend upon the customers meeting specified performance criteria, such as a
purchasing level over a period of time. The Company uses judgment to estimate the most likely amount of variable consideration at each reporting date.
When estimating variable consideration, the Company also applies judgment when considering the probability of whether a reversal of revenue could occur
and only recognize revenue subject to this constraint.
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.
The Company's typical payment terms are 30 days and sales arrangements do not contain any significant financing component for its customers.
The Company uses historic customer product return data as a basis of estimation for customer returns and records the reduction of sales at the time revenue
is recognized.
Freight charges billed to customers are included in sales and the related shipping costs are included in cost of sales in the Consolidated Statements of
Income. If shipping activities are performed after a customer obtains control of a product, the Company applies a policy election to account for shipping as
an activity to fulfill the promise to transfer the product to the customer.
The Company applies a policy election to exclude transaction taxes collected from customers from sales when the tax is both imposed on and concurrent
with a specific revenue-producing transaction.
The Company generally provides customers with a product warranty that provides assurance that the products meet standard specifications and are free of
defects. The Company maintains a reserve for claims incurred under standard product warranty programs. Performance obligations related to service
warranties are not material to the Consolidated Financial Statements.
The Company pays sales commissions to its sales representatives, which may be considered as incremental costs to obtain a contract. However, since the
recoverability period is less than one year, the Company has utilized the practical expedient to record these costs of obtaining a contract as an expense as
they are incurred.
Warranties
The Company’s products are warranted for a period ranging from one to twenty years for reserve power batteries and for a period ranging from one to
seven years for motive power batteries. The Company provides for estimated product warranty expenses when the related products are sold. The
assessment of the adequacy of the reserve includes a review of open claims and historical experience.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less when purchased.
Concentration of Credit Risk
Financial instruments that subject the Company to potential concentration of credit risk consist principally of short-term cash investments and trade
accounts receivable. The Company invests its cash with various financial institutions and in various investment instruments limiting the amount of credit
exposure to any one financial institution or entity. The Company has bank deposits that exceed federally insured limits. In addition, certain cash
investments may be made in U.S. and foreign government bonds, or other highly rated investments guaranteed by the U.S. or foreign
governments. Concentration of credit risk with respect to trade receivables is limited by a large, diversified customer base and its geographic dispersion.
The Company performs ongoing credit evaluations of its customers’ financial condition and requires collateral, such as letters of credit, in certain
circumstances.
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Accounts Receivable
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. The
allowance is based on management’s estimate of uncollectible accounts, analysis of historical data and trends, as well as reviews of all relevant factors
concerning the financial capability of its customers. Accounts receivable are considered to be past due based on when payments are received compared to
the customer’s credit terms. Accounts are written off when management determines the account is uncollectible.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. The cost of inventory consists of
material, labor, and associated overhead.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost and include expenditures that substantially increase the useful lives of the assets. Depreciation is
provided using the straight-line method over the estimated useful lives of the assets as follows: 10 to 33 years for buildings and improvements and 3 to 15
years for machinery and equipment.
Maintenance and repairs are expensed as incurred. Interest on capital projects is capitalized during the construction period.
Business Combinations
The Company records an acquisition using the acquisition method of accounting and recognizes the assets acquired and liabilities assumed at their fair
values as of the date of the acquisition. The excess of the purchase price over the net tangible and intangible assets is recorded to goodwill. The results of
operations of the acquired business are included in the Company’s operating results from the date of acquisition.
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived trademarks are tested for impairment at least annually and whenever events or circumstances occur indicating that a possible
impairment may have been incurred. Goodwill is tested for impairment by determining the fair value of the Company’s reporting units. These estimated
fair values are based on financial projections, certain cash flow measures, and market capitalization.
The Company estimates the fair value of its reporting units using a weighting of fair values derived from both the income approach and the market
approach. Under the income approach, the Company calculates the fair value of a reporting unit based on the present value of estimated future cash flows.
Cash flow projections are based on management's estimates of revenue growth rates and operating margins, taking into consideration industry and market
conditions. The discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific
characteristics and the uncertainty related to the business's ability to execute on the projected cash flows. The market approach estimates fair value based
on market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as
the reporting unit. The weighting of the fair value derived from the market approach ranges from 0% to 50% depending on the level of comparability of
these publicly-traded companies to the reporting unit.
In order to assess the reasonableness of the calculated fair values of its reporting units, the Company also compares the sum of the reporting units' fair
values to its market capitalization and calculates an implied control premium (the excess of the sum of the reporting units' fair values over the market
capitalization). The Company evaluates the control premium by comparing it to control premiums of recent comparable market transactions.
The Company assesses whether indefinite-lived intangible assets impairment exists using both the qualitative and quantitative assessments. The qualitative
assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of an indefinite-lived
intangible asset is less than its carrying amount. If based on this qualitative assessment, the Company determines it is more likely than not that the fair
value of an indefinite-lived intangible asset is less than its carrying amount or if the Company elects not to perform a qualitative assessment, a quantitative
assessment is performed to determine whether an indefinite-lived intangible asset impairment exists. The Company tests the indefinite-lived intangible
assets for impairment by comparing the carrying value to the fair value based on current revenue projections of
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the related operations, under the relief from royalty method. Any excess of the carrying value over the amount of fair value is recognized as an impairment.
Any such impairment is recognized in the reporting period in which it has been identified.
Finite-lived assets such as customer relationships, technology, trademarks, licenses, and non-compete agreements are amortized on a straight-line basis over
their estimated useful lives, generally over periods ranging from 3 to 20 years. The Company continually evaluates the reasonableness of the useful lives of
these assets.
Impairment of Long-Lived Assets
The Company reviews the carrying values of its long-lived assets to be held and used for possible impairment whenever events or changes in circumstances
indicate that the carrying value may not be recoverable, based on undiscounted estimated cash flows expected to result from its use and eventual
disposition. The factors considered by the Company in performing this assessment include current operating results, trends and other economic factors. In
assessing the recoverability of the carrying value of a long-lived asset, the Company must make assumptions regarding future cash flows and other factors.
If these estimates or the related assumptions change in the future, the Company may be required to record an impairment loss for these assets.
Environmental Expenditures
The Company records a loss and establishes a reserve for environmental remediation liabilities when it is probable that an asset has been impaired or a
liability exists and the amount of the liability can be reasonably estimated. Reasonable estimates involve judgments made by management after considering
a broad range of information including notifications, demands or settlements that have been received from a regulatory authority or private party, estimates
performed by independent engineering companies and outside counsel, available facts, existing and proposed technology, the identification of other
potentially responsible parties, their ability to contribute and prior experience. These judgments are reviewed quarterly as more information is received and
the amounts reserved are updated as necessary. However, the reserves may materially differ from ultimate actual liabilities if the loss contingency is
difficult to estimate or if management’s judgments turn out to be inaccurate. If management believes no best estimate exists, the minimum probable loss is
accrued.
Derivative Financial Instruments
The Company utilizes derivative instruments to mitigate volatility related to interest rates, lead prices and foreign currency exposures. The Company does
not hold or issue derivative financial instruments for trading or speculative purposes. The Company recognizes derivatives as either assets or liabilities in
the accompanying Consolidated Balance Sheets and measures those instruments at fair value. Changes in the fair value of those instruments are reported in
AOCI if they qualify for hedge accounting or in earnings if they do not qualify for hedge accounting. Derivatives qualify for hedge accounting if they are
designated as hedge instruments and if the hedge is highly effective in achieving offsetting changes in the fair value or cash flows of the asset or liability
hedged. Effectiveness is measured on a regular basis using statistical analysis and by comparing the overall changes in the expected cash flows on the lead
and foreign currency forward contracts with the changes in the expected all-in cash outflow required for the lead and foreign currency purchases. This
analysis is performed on the initial purchases quarterly that cover the quantities hedged. Accordingly, gains and losses from changes in derivative fair value
of effective hedges are deferred and reported in AOCI until the underlying transaction affects earnings.
The Company has commodity, foreign exchange and interest rate hedging authorization from the Board of Directors and has established a hedging and risk
management program that includes the management of market and counterparty risk. Key risk control activities designed to ensure compliance with the risk
management program include, but are not limited to, credit review and approval, validation of transactions and market prices, verification of risk and
transaction limits, portfolio stress tests, sensitivity analyses and frequent portfolio reporting, including open positions, determinations of fair value and
other risk management metrics.
Market risk is the potential loss the Company and its subsidiaries may incur as a result of price changes associated with a particular financial or commodity
instrument. The Company utilizes forward contracts, options, and swaps as part of its risk management strategies, to minimize unanticipated fluctuations in
earnings caused by changes in commodity prices, interest rates and / or foreign currency exchange rates. All derivatives are recognized on the balance sheet
at their fair value, unless they qualify for the Normal Purchase Normal Sale exemption.
Credit risk is the potential loss the Company may incur due to the counterparty’s non-performance. The Company is exposed to credit risk from interest
rate, foreign currency and commodity derivatives with financial institutions. The Company has credit
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policies to manage their credit risk, including the use of an established credit approval process, monitoring of the counterparty positions and the use of
master netting agreements.
The Company has elected to offset net derivative positions under master netting arrangements. The Company does not have any positions involving cash
collateral (payables or receivables) under a master netting arrangement as of March 31, 2020 and 2019.
The Company does not have any credit-related contingent features associated with its derivative instruments.
Fair Value of Financial Instruments
The Company groups its recurring, non-recurring and disclosure-only fair value measurements into the following levels when making fair value
measurement disclosures:
Level 1
Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2
Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in
markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally
from or corroborated by observable market data.
Level 3
Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date (an exit price). The Company and its subsidiaries use, as appropriate, a market approach (generally, data from market transactions), an
income approach (generally, present value techniques and option-pricing models), and / or a cost approach (generally, replacement cost) to measure the fair
value of an asset or liability. These valuation approaches incorporate inputs such as observable, independent market data and / or unobservable data that
management believes are predicated on the assumptions market participants would use to price an asset or liability. These inputs may incorporate, as
applicable, certain risks such as nonperformance risk, which includes credit risk.
Lead contracts, foreign currency contracts and interest rate contracts generally use an income approach to measure the fair value of these contracts, utilizing
readily observable inputs, such as forward interest rates (e.g., London Interbank Offered Rate—“LIBOR”), forward foreign currency exchange rates (e.g.,
GBP and euro) and commodity prices (e.g., London Metals Exchange), as well as inputs that may not be observable, such as credit valuation adjustments.
When observable inputs are used to measure all or most of the value of a contract, the contract is classified as Level 2. Over-the-counter (OTC) contracts
are valued using quotes obtained from an exchange, binding and non-binding broker quotes. Furthermore, the Company obtains independent quotes from
the market to validate the forward price curves. OTC contracts include forwards, swaps and options. To the extent possible, fair value measurements utilize
various inputs that include quoted prices for similar contracts or market-corroborated inputs.
When unobservable inputs are significant to the fair value measurement, the asset or liability is classified as Level 3. Additionally, Level 2 fair value
measurements include adjustments for credit risk based on the Company’s own creditworthiness (for net liabilities) and its counterparties’ creditworthiness
(for net assets). The Company assumes that observable market prices include sufficient adjustments for liquidity and modeling risks. The Company did not
have any fair value measurements that transferred between Level 2 and Level 3 as well as Level 1 and Level 2.
Income Taxes
The Company accounts for income taxes using the asset and liability approach, which requires deferred tax assets and liabilities be recognized using
enacted tax rates to measure the effect of temporary differences between book and tax bases on recorded assets and liabilities. Valuation allowances are
recorded to reduce deferred tax assets, if it is more likely than not some portion or all of the deferred tax assets will not be realized. The need to establish
valuation allowances against deferred tax assets is assessed quarterly. The primary factors used to assess the likelihood of realization are expected reversals
of taxable temporary timing differences, forecasts of future taxable income and available tax planning strategies that could be implemented to realize the
net deferred tax assets.
The Company recognizes tax related interest and penalties in income tax expense in its Consolidated Statement of Income.
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With respect to accounting for uncertainty in income taxes, the Company evaluates tax positions to determine whether the benefits of tax positions are more
likely than not of being sustained upon audit based on the technical merits of the tax position. For tax positions that are more likely than not of being
sustained upon audit, the Company recognizes the largest amount of the benefit that is greater than 50% likely of being realized upon ultimate settlement.
For tax positions that are not more likely than not of being sustained upon audit, the Company does not recognize any portion of the benefit. If the more
likely than not threshold is not met in the period for which a tax position is taken, the Company may subsequently recognize the benefit of that tax position
if the tax matter is effectively settled, the statute of limitations expires, or if the more likely than not threshold is met in a subsequent period.
No additional income taxes have been provided for any undistributed foreign earnings or any additional outside basis difference inherent in these entities,
as these amounts continue to be indefinitely reinvested in foreign operations.
Regarding the GILTI tax rules, the Company is allowed to make an accounting policy choice of either (1) treating the taxes due on future US inclusions in
taxable income as a current-period expense when incurred (“period cost method”) or (2) factoring amounts into a Company’s measurement of its deferred
taxes (“deferred method”). The Company has elected the period cost method.
Deferred Financing Fees
Debt issuance costs that are incurred by the Company in connection with the issuance of debt are deferred and amortized to interest expense over the life of
the underlying indebtedness, adjusted to reflect any early repayments and are shown as a deduction from long-term debt.
Stock-Based Compensation Plans
The Company measures the cost of employee services received in exchange for the award of an equity instrument based on the grant-date fair value of the
award, with such cost recognized over the applicable vesting period.
Market and Performance condition-based awards
The Company grants market condition-based awards and performance condition-based awards.
Beginning in fiscal 2017, the Company granted market condition-based awards (“TSR”). A participant may earn between 0% to 200% of the number of
awards granted, based on the total shareholder return of the Company's common stock over a three-year period, relative to the shareholder return of a
defined peer group. The awards cliff vest on the third anniversary of the date of grant and are settled in common stock on the first anniversary of the
vesting date. The TSR is calculated by dividing the sixty or ninety calendar day average price at end of the period (as applicable) and the reinvested
dividends thereon by such sixty or ninety calendar day average price at start of the period. The maximum number of awards earned is capped at 200% of
the target award. Additionally, no payout will be awarded in the event that the TSR at the vesting date reflects less than a 25% return from the average price
at the grant date. These share units are similar to the share units granted prior to fiscal 2016, except that under these awards, the targets are more difficult to
achieve as they are tied to the TSR of a defined peer group. The fair value of these awards is estimated at the date of grant, using a Monte Carlo Simulation.
The Company recognizes compensation expense using the straight-line method over the life of the market condition-based awards except for those issued
to certain retirement-eligible participants, which are expensed on an accelerated basis.
In fiscal 2019 and fiscal 2020, the Company granted performance condition-based awards (“PSU”). A participant may earn between 0% to 200% of the
number of awards granted, based on the Company’s cumulative adjusted earnings per share performance over a three-year period. The vesting of these
awards is contingent upon meeting or exceeding performance conditions. The awards cliff vest on the third anniversary of the date of grant and are settled
in common stock on the first anniversary of the vesting date. The maximum number of awards earned is capped at 200% of the target award. Expense for
the performance condition-based award is recorded when the achievement of the performance condition is considered probable of achievement and is
recorded on a straight-line basis over the requisite service period. If such performance criteria are not met, no compensation cost is recognized, and any
recognized compensation cost is reversed. The closing stock price on the date of grant, adjusted for a discount to reflect the illiquidity inherent in the PSUs,
represents the grant-date fair value for these awards.
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Restricted Stock Units
The fair value of restricted stock units is based on the closing market price of the Company’s common stock on the date of grant. These awards generally
vest, and are settled in common stock, at 25% per year, over a four-year period from the date of grant. The Company recognizes compensation expense
using the straight-line method over the life of the restricted stock units.
Stock Options
The fair value of the options granted is estimated at the date of grant using the Black-Scholes option-pricing model utilizing assumptions based on
historical data and current market data. The assumptions include expected term of the options, risk-free interest rate, expected volatility, and dividend yield.
The expected term represents the expected amount of time that options granted are expected to be outstanding, based on historical and forecasted exercise
behavior. The risk-free rate is based on the rate at the grant date of zero-coupon U.S. Treasury Notes with a term equal to the expected term of the option.
Expected volatility is estimated using historical volatility rates based on historical weekly price changes over a term equal to the expected term of the
options. The Company’s dividend yield is based on historical data. The Company recognizes compensation expense using the straight-line method over the
vesting period of the options except for those issued to certain retirement-eligible participants, which are expensed on an accelerated basis.
Forfeitures
Forfeitures of share-based awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.
Earnings Per Share
Basic earnings per common share (“EPS”) are computed by dividing net earnings attributable to EnerSys stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common
stock were exercised or converted into common stock. At March 31, 2020, 2019 and 2018, the Company had outstanding stock options, restricted stock
units, market and performance condition-based awards, which could potentially dilute basic earnings per share in the future.
Segment Reporting
A segment for reporting purposes is based on the financial performance measures that are regularly reviewed by the chief operating decision maker to
assess segment performance and to make decisions about a public entity’s allocation of resources. Based on this guidance, the Company reports its segment
results based upon the three geographical regions of operations.
•
•
•
Americas, which includes North and South America, with segment headquarters in Reading, Pennsylvania, U.S.A.,
EMEA, which includes Europe, the Middle East and Africa, with segment headquarters in Zug, Switzerland, and
Asia, which includes Asia, Australia and Oceania, with segment headquarters in Singapore.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which sets out the principles for the recognition, measurement, presentation
and disclosure of leases for both parties to a contract (i.e. lessees and lessors). This update requires lessees to apply a dual approach, classifying leases as
either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This
classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the
lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their
classification. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type
leases, direct financing leases and operating leases. Effective April 1, 2019, the Company adopted the new standard under the modified retrospective
approach, which resulted in no adjustment to the April 1, 2019 beginning Retained Earnings. There are optional practical expedients and policy elections
made available to simplify the transition to the new standard. The Company has elected the following:
•
to adopt the optional transition method defined within ASU 2018-11 and not restate comparative prior periods but instead recognize a cumulative
effect adjustment to the opening balance of retained earnings in the period of adoption;
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•
•
•
•
the package of three practical expedients addressing whether a contract contains a lease, lease classification and initial direct costs;
to combine lease and non-lease components as a single component for all asset classes;
to use a portfolio approach to determine the incremental borrowing rate; and
to apply the short-term lease exception to leases that, at the commencement date, has a lease term of 12 months or less and does not include an
option to purchase the underlying asset that the lessee is reasonably certain to exercise.
Upon adoption, the Company recorded Right-of-use (“ROU”) assets and lease liabilities of approximately $84,878 and $87,248, respectively. In addition,
capital lease assets and liabilities are now classified as finance lease right-of-use assets and liabilities. The difference between the operating lease assets and
lease liabilities primarily relates to unamortized lease incentives and deferred rent recorded in accordance with the previous lease guidance.
Apart from the aforementioned changes, the adoption of this standard did not have a significant impact on the Company's operating results, financial
position or cash flows. The discount rates used to calculate the ROU assets and lease liabilities as of the effective date were based on the remaining lease
terms as of the effective date. See Note 3, Leases for additional information.
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815)”: Targeted Improvements to Accounting for Hedging
Activities, which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management
activities in the financial statements. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires
the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The Company adopted the
standard effective April 1, 2019 and the adoption did not have any impact on the Company's operating results, financial position or cash flows.
In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220)”. The new standard will allow a
reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (“Tax
Act”). The amendments eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial
statements users. However, because the amendment only relates to the reclassification of the income tax effects of the Tax Act, the underlying guidance that
requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The Company adopted this
standard effective April 1, 2019 with the election not to reclassify $478 of stranded tax effects, primarily related to the Company's pension plans, from
accumulated other comprehensive income (“AOCI”) to retained earnings, as the amount was not material.
Accounting Pronouncements Issued But Not Adopted as of March 31, 2020
In June 2016, the FASB, issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326)”: Measurement of Credit Losses on Financial
Instruments, which changes the recognition model for the impairment of financial instruments, including accounts receivable, loans and held-to-maturity
debt securities, among others. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal
years. In contrast to current guidance, which considers current information and events and utilizes a probable threshold, (an “incurred loss” model), ASU
2016–13 mandates an “expected loss” model. The expected loss model: (i) estimates the risk of loss even when risk is remote, (ii) estimates losses over the
contractual life, (iii) considers past events, current conditions and reasonable supported forecasts and (iv) has no recognition threshold. The Company does
not believe that the adoption will have a material impact on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740)”: Simplifying the Accounting for Income Taxes, which is intended to
simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also
clarifies and amends existing guidance to improve consistent application. The guidance is effective for fiscal years beginning after December 15, 2020,
including interim periods within those fiscal years. The Company is currently assessing the potential impact that the adoption will have on its consolidated
financial statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”: Facilitation of the Effects of Reference Rate Reform on Financial
Reporting, which provides temporary optional expedients to ease the financial reporting burdens of the expected market transition from London Interbank
Offered Rate (LIBOR) to an alternative reference rate such as Secured Overnight Financing Rate (SOFR). The guidance was effective upon issuance and
generally can be applied through December
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31, 2022. The Company is currently assessing the potential impact that the adoption will have on its consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions take into
account historical and forward looking factors that the Company believes are reasonable, including, but not limited to, the potential impacts arising from
the coronavirus pandemic of 2019 (“COVID-19”) and public and private sector policies and initiatives aimed at reducing its transmission. As the extent and
duration of the impacts of COVID-19 remain unclear, the Company’s estimates and assumptions may evolve as conditions change. Actual results could
differ significantly 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 23.
Service revenues for fiscal 2020 and fiscal 2019 amounted to $270,704 and $157,236, respectively.
A small portion of the Company's customer arrangements oblige the Company to create customized products for its customers that require the bundling of
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 fiscal 2020 and fiscal 2019 amounted to $142,153 and $100,809, respectively.
On March 31, 2020, the aggregate transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was approximately $100,420,
of which, the Company estimates that approximately $76,189 will be recognized as revenue in 2021, $18,767 in fiscal 2022, $5,403 in fiscal 2023, $61 in
fiscal 2024 and $0 in fiscal 2025.
Any payments that are received from a customer in advance, prior to the satisfaction of a related performance obligation and billings in excess of revenue
recognized, are deferred and treated as a contract liability. Advance payments and billings in excess of revenue recognized are classified as current or non-
current based on the timing of when recognition of revenue is expected. As of March 31, 2020, the current and non-current portion of contract liabilities
were $17,342 and $8,356, respectively. As of March 31, 2019, the current and non-current portion of contract liabilities were $15,162 and $6,360,
respectively. Revenues recognized during fiscal 2020 and fiscal 2019, that were included in the contract liability at the beginning of the year, amounted to
$18,697 and $6,132, respectively.
Amounts representing work completed and not billed to customers represent contract assets and were $39,048 and $38,778 as of March 31, 2020 and
March 31, 2019, 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 March 31, 2020, the right of return asset related to the value of inventory anticipated to be returned from customers was $4,198 and
refund liability representing amounts estimated to be refunded to customers was $6,804.
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3. Leases
The Company leases manufacturing facilities, distribution centers, office space, vehicles and other equipment under non-cancellable leases with initial
terms typically ranging from 1 to 17 years. At contract inception, the Company reviews the terms of the arrangement to determine if the contract is or
contains a lease. Guidance in Topic 842 is used to evaluate whether the contract has an identified asset; if the Company has the right to obtain substantially
all economic benefits from the asset; and if it has the right to direct the use of the underlying asset. When determining if a contract has an identified asset,
the Company considers both explicit and implicit assets, and whether the supplier has the right to substitute the asset. When determining if the Company
has the right to obtain substantially all economic benefits from the asset, the Company considers the primary outputs of the identified asset throughout the
period of use and determines if it receives greater than 90% of those benefits. When determining if it has the right to direct the use of an underlying asset,
the Company considers if it has the right to direct how and for what purpose the asset is used throughout the period of use and if it controls the decision-
making rights over the asset.
Lease terms may include options to extend or terminate the lease. The Company exercises its judgment to determine the term of those leases when
extension or termination options are present and include such options in the calculation of the lease term when it is reasonably certain that the Company
will exercise those options.
The Company has elected to include both lease and non-lease components in the determination of lease payments for all asset classes. Payments made to a
lessor for items such as taxes, insurance, common area maintenance, or other costs commonly referred to as executory costs, are also included in lease
payments if they are fixed. The fixed portion of these payments are included in the calculation of the lease liability, while any variable portion would be
recognized as variable lease expenses, when incurred. Variable payments made to third parties for these, or similar costs, such as utilities, are not included
in the calculation of lease payments.
Both finance and operating leases are reflected as liabilities on the commencement date of the lease based on the present value of the lease payments to be
made over the lease term. As most of the leases do not provide an implicit rate, the Company has exercised judgment in electing the incremental borrowing
rate based on the information available when the lease commences to determine the present value of future payments. Right-of-use assets are valued at the
initial measurement of the lease liability, plus any initial direct costs or rent prepayments and reduced by any lease incentives and any deferred lease
payments.
Operating lease expense is recognized on a straight-line basis over the lease term. Finance lease expense includes depreciation, which is recognized on a
straight-line basis over the expected life of the leased asset, and interest expense, which is recognized following an effective interest rate method.
Short term leases with an initial term of 12 months or less are not presented on the balance sheet and expense is recognized as incurred. The current and
non-current portion of operating lease liabilities are reflected in accrued expenses and other liabilities, respectively, on the consolidated balance sheets. The
right-of use assets relating to operating and finance leases are reflected in other assets and property, plant and equipment, respectively, on the consolidated
balance sheets.
The following table presents lease assets and liabilities:
Operating Leases:
Right-of-use assets
Operating lease current liabilities
Operating lease non-current liabilities
Finance Leases:
Right-of-use assets
Finance lease current liabilities
Finance lease non-current liabilities
74
March 31, 2020
$
$
70,045
21,128
51,215
540
162
407
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The components of lease expense for the fiscal year ended March 31, 2020 were as follows:
Operating Leases:
Operating lease cost
Variable lease cost
Short term lease cost
Finance Leases:
Depreciation
Interest expense
Total
Classification
March 31, 2020
Operating expenses
Operating expenses
Operating expenses
Operating expenses
Interest expense
$
$
$
28,855
8,238
7,553
461
37
45,144
The following table presents the weighted average lease term and discount rates for leases as of March 31, 2020:
Operating Leases:
Weighted average remaining lease term (years)
Weighted average discount rate
Finance Leases:
Weighted average remaining lease term (years)
Weighted average discount rate
5 years
5.17%
3.5 years
4.92%
The following table presents future payments due under leases reconciled to lease liabilities as of March 31, 2020:
Year ended March 31,
2021
2022
2023
2024
2025
Thereafter
Total undiscounted lease payments
Present value discount
Lease liability
Finance Leases
Operating Leases
$
192 $
195
154
104
15
10
670
101
$
569 $
24,603
19,452
12,951
8,437
5,552
13,138
84,133
11,790
72,343
The following table presents supplemental disclosures of cash flow information related to leases for the fiscal year ended March 31, 2020:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases
Operating cash flows from operating leases
Financing cash flows from finance leases
Supplemental non-cash information on lease liabilities arising from right-of-use assets:
Right-of-use assets obtained in exchange for new finance lease liabilities
Right-of-use assets obtained in exchange for new operating lease liabilities
March 31, 2020
$
$
37
28,593
461
—
11,902
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Disclosures related to periods prior to adoption of ASU 2016-02, Leases (Topic 842)
The Company’s future minimum lease payments under operating leases that have noncancelable terms in excess of one year as of March 31, 2019 are as
follows:
2020
2021
2022
2023
2024
Thereafter
Total minimum lease payments
$
$
31,483
24,290
16,514
11,596
8,683
23,757
116,323
Rental expense was $40,261 and $38,146 for the fiscal years ended March 31, 2019 and 2018, respectively. Certain operating lease agreements contain
renewal or purchase options and / or escalation clauses.
4. Acquisitions
NorthStar
On September 30, 2019, the Company completed the acquisition of N Holding, AB (“NorthStar”) for $77,777 in cash consideration and the assumption of
$107,018 in debt, which was funded using existing cash and credit facilities. NorthStar, through its direct and indirect subsidiaries, manufactures and
distributes thin plate pure lead (“TPPL”) batteries and battery enclosures. NorthStar has two large manufacturing facilities in Springfield, Missouri. The
Company acquired tangible and intangible assets, including trademarks, technology, customer relationships and goodwill. Based on valuations performed,
trademarks were valued at $6,000, technology at $19,000, customer relationships at $9,000, and goodwill was recorded at $73,788. The useful lives of
technology were estimated at 10 years, customer relationships were estimated at 15 to 18 years and trademarks were estimated at 5 years. Goodwill
deductible for tax purposes is $72,056.
The results of the NorthStar acquisition have been included in the Company’s results of operations from the date of acquisition. Pro forma earnings and
earnings per share computations have not been presented as this acquisition is not considered material.
The North American and European results of operations of NorthStar have been included in the Company’s Americas segment and EMEA segment,
respectively.
Alpha
On December 7, 2018, the Company completed the acquisition of all of the issued and outstanding common stock of Alpha Technologies Services, Inc.
(“ATS”) and Alpha Technologies Ltd. (“ATL”), resulting in ATS and ATL becoming wholly-owned subsidiaries of the Company (the “Alpha share
purchase”). Additionally, the Company acquired substantially all of the assets of Alpha Technologies Inc. and certain assets of Altair Advanced Industries,
Inc. and other affiliates of ATS and ATL (all such sellers, together with ATS and ATL, “Alpha”), in each case in accordance with the terms and conditions
of certain restructuring agreements (collectively, the “Alpha asset acquisition” and together with the Alpha share purchase, the “Alpha acquisition”). Based
in Bellingham, Washington, Alpha is a global industry leader in comprehensive commercial-grade energy solutions for broadband, telecom, renewable,
industrial and traffic customers around the world. The initial purchase consideration for the Alpha acquisition was $750,000, of which $650,000 was paid
in cash and the balance was settled by issuing 1,177,630 shares of EnerSys common stock. These shares were issued out of the Company's treasury stock
and were valued at $84.92 per share, which was based on the thirty-day volume weighted average stock price of the Company’s common stock at closing,
in accordance with the purchase agreement. The 1,177,630 shares had a closing date fair value of $93,268, based upon the December 7, 2018, closing date
spot rate of $79.20. The total purchase consideration, consisting of cash paid of $650,000, shares valued at $93,268 and an adjustment for working capital
(due post - closing from seller of $766) was $742,502. The Company funded the cash portion of the Alpha acquisition with borrowings from the Amended
Credit Facility as defined in Note 10. See Note 10 for additional information.
The Alpha acquisition expanded the Company's footprint in broadband and telecom markets. The goodwill recognized in connection with this transaction
reflects the benefits the Company expects to realize from being able to provide a one-stop,
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fully integrated power solutions offering to its customers, as well as the benefit of cost synergies from alignment of the Alpha group within its own
organizational structure.
The results of operations of Alpha have been included in the Company’s Americas segment.
For the period ended March 31, 2019, that EnerSys owned Alpha, the contribution of the acquisition to net sales was $162,454 and net loss of $1,252,
excluding the effect of the transaction and integration costs, and interest expense on the debt to finance the acquisition.
The Company finalized the measurement of all provisional amounts recognized for the Alpha business combination. The final amounts recognized in
connection with the Alpha business combination are in the table below.
Accounts receivable
Inventories
Other current assets
Other intangible assets
Property, plant and equipment
Other assets
Total assets acquired
Accounts payable
Accrued liabilities
Deferred income taxes
Other liabilities
Total liabilities assumed
Net assets acquired
Purchase price:
Cash paid for net assets acquired
Fair value of shares issued for net assets acquired
Working capital adjustment
Total purchase consideration
Less: Fair value of acquired identifiable assets and liabilities
Goodwill
The following table summarizes the fair value of Alpha's identifiable intangible assets and their respective lives:
Trademarks
Customer relationships
Technology
Total identifiable intangible assets
Goodwill deductible for tax purposes is $33,926.
Type
Indefinite-lived
Finite-lived
Finite-lived
Life in Years
Indefinite
14
10
77
$
$
$
$
$
$
$
$
115,467
84,297
6,822
332,000
20,987
9,005
568,578
35,803
41,918
54,941
12,642
145,304
423,274
650,000
93,268
(766)
742,502
423,274
319,228
Fair Value
56,000
221,000
55,000
332,000
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The following unaudited summary information is presented on a consolidated pro forma basis as if the acquisition had occurred on April 1, 2017:
Net sales
Net earnings attributable to EnerSys stockholders
Net earnings per share attributable to EnerSys stockholders - basic
Net earnings per share attributable to EnerSys stockholders - assuming dilution
Fiscal year ended
March 31, 2019
March 31, 2018
$
3,250,332 $
181,915
4.19
4.12
3,124,527
126,965
2.90
2.87
The pro forma amounts include additional interest expense on the debt issued to finance the purchases, amortization and depreciation expense based on the
estimated fair value and useful lives of intangible assets and plant assets, and related tax effects. The pro forma results are not necessarily indicative of the
combined results had the Alpha acquisition been completed on April 1, 2017, nor are they indicative of future combined results. The pro forma results for
the twelve months of fiscal 2019 and 2018 exclude pre-tax transaction costs of $12,883, as well as the pre-tax amortization of the acquisition date step up
to fair value of inventories of $7,263 as they are considered non-recurring in nature. The remeasurement of Alpha's deferred taxes due to the Tax Act are
being excluded in arriving at these pro forma results.
The Company made no significant acquisitions in fiscal 2018.
5. Inventories
Raw materials
Work-in-process
Finished goods
Total
6. Property, Plant, and Equipment
Property, plant, and equipment consist of:
Land, buildings, and improvements
Machinery and equipment
Construction in progress
Less accumulated depreciation
Total
March 31,
2020
2019
141,906 $
91,520
286,034
519,460 $
138,718
129,736
235,415
503,869
March 31,
2020
2019
291,271 $
722,955
93,921
1,108,147
(628,133)
480,014 $
268,006
683,955
54,278
1,006,239
(596,800)
409,439
$
$
$
$
Depreciation expense for the fiscal years ended March 31, 2020, 2019 and 2018 totaled $56,331, $48,618, and $45,874, respectively. Interest capitalized in
connection with major capital expenditures amounted to $2,030, $1,581, and $1,082 for the fiscal years ended March 31, 2020, 2019 and 2018,
respectively.
7. Goodwill and Other Intangible Assets
Other Intangible Assets
Information regarding the Company’s other intangible assets are as follows:
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Gross
Amount
2020
Accumulated
Amortization
Net
Amount
Gross
Amount
2019
Accumulated
Amortization
Net
Amount
March 31,
Indefinite-lived intangible assets:
Trademarks
$
147,356 $
(953) $
146,403 $
152,484 $
(953) $
151,531
Finite-lived intangible assets:
Customer relationships
Non-compete
Technology
Trademarks
Licenses
292,155
3,021
96,047
8,008
1,196
(64,855)
(2,817)
(20,349)
(1,928)
(1,196)
227,300
286,664
204
75,698
6,080
—
3,025
77,779
2,003
1,477
(42,704)
(2,807)
(12,229)
(1,236)
(1,187)
243,960
218
65,550
767
290
Total
$
547,783 $
(92,098) $
455,685 $
523,432 $
(61,116) $
462,316
The Company’s amortization expense related to finite-lived intangible assets was $31,013, $14,730, and $8,443, for the years ended March 31, 2020, 2019
and 2018, respectively. The expected amortization expense based on the finite-lived intangible assets as of March 31, 2020, is $32,659 in fiscal 2021,
$32,420 in fiscal 2022, $31,122 in fiscal 2023, $27,725 in fiscal 2024 and $26,494 in fiscal 2025.
Goodwill
The changes in the carrying amount of goodwill by reportable segment are as follows:
Balance at beginning of year
Acquisitions during the year
Measurement period adjustments
Goodwill impairment charge
Foreign currency translation adjustment
Balance at end of year
Balance at beginning of year
Acquisitions during the year
Foreign currency translation adjustment
Balance at end of year
Fiscal year ended March 31, 2020
Americas
EMEA
Asia
Total
$
470,194 $
143,269 $
42,936 $
72,056
(1,390)
—
(16,704)
1,732
—
—
(5,221)
—
—
(39,713)
(3,223)
$
524,156 $
139,780 $
— $
656,399
73,788
(1,390)
(39,713)
(25,148)
663,936
Fiscal year ended March 31, 2019
Americas
EMEA
Asia
Total
$
151,255 $
155,825 $
45,725 $
320,618
(1,679)
—
(12,556)
—
(2,789)
$
470,194 $
143,269 $
42,936 $
352,805
320,618
(17,024)
656,399
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A reconciliation of goodwill and accumulated goodwill impairment losses, by reportable segment, is as follows:
Gross carrying value
Accumulated goodwill impairment charges
Net book value
Gross carrying value
Accumulated goodwill impairment charges
Net book value
March 31, 2020
Americas
EMEA
Asia
Total
582,001 $
(57,845)
524,156 $
145,933 $
(6,153)
139,780 $
44,892 $
(44,892)
— $
772,826
(108,890)
663,936
March 31, 2019
Americas
EMEA
Asia
Total
528,039 $
(57,845)
470,194 $
149,422 $
(6,153)
143,269 $
48,115 $
(5,179)
42,936 $
725,576
(69,177)
656,399
$
$
$
$
Impairment of goodwill, finite and indefinite-lived intangibles
Goodwill is tested annually for impairment during the fourth quarter or earlier upon the occurrence of certain events or substantive changes in
circumstances that indicate goodwill is more likely than not impaired.
In the fourth quarter of fiscal 2020, the Company conducted its annual goodwill impairment test which indicated that the fair value of Asia was less than its
carrying value. The Company recorded a non-cash charge of $39,713 related to goodwill impairment in Asia under the caption “Impairment of goodwill” in
the Consolidated Statements of Income. The Company also recorded a non-cash charge of $4,549 related to impairment of indefinite-lived trademarks in
EMEA under the caption “Impairment of indefinite-lived intangibles” in the Consolidated Statements of Income. The key factors contributing to the
impairment in Asia was the increasing pressure on organic sales growth that the Company began to experience in fiscal 2019 due to a slowdown in telecom
spending in the PRC amidst growing trade tensions between the U.S.A and China. The impact of these trade tensions on the Company's ability to capture
market share in PRC accelerated in the second half of the fiscal year. Throughout fiscal 2020, there was a general slowdown in the Chinese economy which
was further exacerbated by the outbreak of the COVID -19 pandemic, causing disruption to two of the Company's plants in China in the fourth quarter.
Also contributing to the poor performance of the Asia region was a general softening of demand in Australia, that began in fiscal 2019 and continued
throughout fiscal 2020. The Company monitored the performance of its Asia reporting unit for interim impairment indicators throughout fiscal 2020, but
the emergence of COVID-19 in China in December 2019 coupled with the totality of economic headwinds in the region resulted in the recognition of a
goodwill impairment loss in connection with our annual impairment test.
During the fourth quarter of fiscal 2020, management completed its evaluation of key inputs used to estimate the fair value of its indefinite-lived
trademarks and determined that an impairment charge relating to two of its trademarks in EMEA, that were acquired through legacy acquisitions was
appropriate, as it plans to phase out these trademarks.
The Company did not record any impairment relating to its goodwill and intangible assets during fiscal 2019 and 2018.
The Company estimated tax-deductible goodwill to be approximately $120,708 and $58,699 as of March 31, 2020 and 2019, respectively.
8. Prepaid and Other Current Assets
Prepaid and other current assets consist of the following:
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Contract assets
Prepaid non-income taxes
Non-trade receivables
Prepaid income taxes
Other
Total
9. Accrued Expenses
Accrued expenses consist of the following:
Payroll and benefits
Accrued selling expenses
Warranty
Operating lease liabilities
VAT and other non-income taxes
Project related accruals
Contract liabilities
Freight
Income taxes payable
Legal proceedings
Interest
Tax Act - Transition Tax
Restructuring
Pension
Other
Total
10. Debt
March 31,
2020
2019
$
39,048 $
23,069
19,380
13,062
26,034
$
120,593 $
March 31,
2020
2019
$
62,131 $
43,292
27,766
21,128
14,209
—
17,342
14,222
304
—
11,180
6,172
3,325
1,350
49,319
$
271,740 $
38,778
22,490
10,823
9,608
27,732
109,431
54,285
35,394
21,646
—
17,125
16,301
15,162
14,423
9,234
7,258
7,248
5,290
2,952
1,207
48,356
255,881
The following summarizes the Company’s long-term debt as of March 31, 2020 and March 31, 2019:
2020
2019
Principal
Unamortized Issuance
Costs
Principal
Unamortized Issuance
Costs
$
$
$
600,000 $
513,224
1,113,224 $
8,493
1,104,731
6,306 $
2,187
8,493 $
$
300,000 $
677,315
977,315 $
5,559
971,756
2,497
3,062
5,559
Senior Notes
Amended Credit Facility, due 2022
Less: 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 2027 (the “2027 Notes”). Proceeds
from this offering, net of debt issuance costs were $296,250 and were utilized to pay down the
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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. The 2027 Notes are unsecured and unsubordinated obligations of the Company. The 2027 Notes are fully
and unconditionally guaranteed, jointly and severally, by certain of its subsidiaries that are guarantors under the Amended Credit Facility. These guarantees
are unsecured and unsubordinated obligations of such guarantors.
The Company may redeem, prior to September 15, 2027, all or a portion of the 2027 Notes at a price equal to 100% of the principal amount of the 2027
Notes to be redeemed, plus accrued and unpaid interest and a “make whole” premium to, but excluding, the redemption date. The Company may redeem,
on or after September 15, 2027, all or a portion of the 2027 Notes at a price equal to 100% of the principal amount of the 2027 Notes, plus accrued and
unpaid interest to, but excluding, the redemption date. If a change of control triggering event occurs, the Company will be required to offer to repurchase
the 2027 Notes at a price in cash equal to 101% of the aggregate principal amount of the 2027 Notes, plus accrued and unpaid interest to, but excluding, the
date of repurchase. The 2027 Notes rank pari passu with the 2023 Notes.
5.00% Senior Notes due 2023
The 5% Senior Notes due April 30, 2023 (the “2023 Notes”) bear interest at a rate of 5.00% per annum and have an original face value of $300,000.
Interest is payable semiannually in arrears on April 30 and October 30 of each year and commenced on October 30, 2015. The 2023 Notes will mature on
April 30, 2023, unless earlier redeemed or repurchased in full. The 2023 Notes are unsecured and unsubordinated obligations of the Company. The 2023
Notes are fully and unconditionally guaranteed, jointly and severally, by certain of its subsidiaries that are guarantors under the Amended Credit Facility.
These guarantees are unsecured and unsubordinated obligations of such guarantors.
2017 Credit Facility and Subsequent Amendment
In fiscal 2018, the Company entered into a credit facility (the “2017 Credit Facility”). The 2017 Credit Facility 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's previous credit facility (“2011 Credit Facility”) consisted of a $500,000 senior secured revolving credit facility (“2011 Revolver”)
and a $150,000 senior secured incremental term loan (the “2011 Term Loan”) with a maturity date of September 30, 2018. On August 4, 2017, the
outstanding balance on the 2011 Revolver and the 2011 Term Loan of $240,000 and $123,750, respectively, was repaid utilizing borrowings from the 2017
Credit Facility. 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 consists of $449,105 senior secured term loans (the “Amended 2017 Term Loan”), including a CAD 133,050 ($99,105) term loan and a
$700,000 senior secured revolving credit facility (the “Amended 2017 Revolver”). The amendment resulted in an increase of the 2017 Term Loan and the
2017 Revolver by $299,105 and $100,000, respectively.
As of March 31, 2020, the Company had $108,000 outstanding under the Amended 2017 Revolver and $405,224 under the Amended 2017 Term Loan.
Subsequent to the amendment, the quarterly installments payable on the Amended 2017 Term Loan are $5,645 beginning December 31, 2018, $8,468
beginning December 31, 2019 and $11,290 beginning December 31, 2020 with a final payment of $320,000 on September 30, 2022. The Amended Credit
Facility may be increased by an aggregate amount of $325,000 in revolving commitments and /or one or more new tranches of term loans, under certain
conditions. Both the Amended 2017 Revolver and the Amended 2017 Term Loan bear interest, at the Company's option, at a rate per annum equal to either
(i) the London Interbank Offered Rate (“LIBOR”) or Canadian Dollar Offered Rate (“CDOR”) plus (i) LIBOR plus between 1.25% and 2.00% (currently
1.50% and based on the Company's consolidated net leverage ratio) or (ii) the U.S. Dollar Base Rate (which equals, for any day a fluctuating rate per
annum equal to the highest of (a) the Federal Funds Effective Rate plus 0.50%, (b) Bank of America “Prime Rate” and (c) the Eurocurrency Base Rate plus
1%; provided that, if the Base Rate shall be less than zero, such rate shall be deemed zero) (iii) the CDOR Base Rate equal to the higher of (a) Bank of
America “Prime Rate” and (b) average 30-day CDOR rate plus 0.50%. Obligations under the 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 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.
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The Amended Credit Facility allows for up to two temporary increases in the maximum leverage ratio from 3.50x to 4.00x for a four quarter period
following an acquisition larger than $250,000. Effective December 7, 2018 through December 28, 2019, the maximum leverage ratio was increased to
4.00x. On December 29, 2019, the maximum leverage ratio returned to 3.50x.
The current portion of the Amended 2017 Term Loan of $38,859 is classified as long-term debt as the Company expects to refinance the future quarterly
payments with revolver borrowings under the Amended Credit Facility.
Interest Rates on Long Term Debt
The weighted average interest rate on the long term debt at March 31, 2020 and March 31, 2019, was 3.7% and 4.1%, respectively.
Interest Paid
The Company paid in cash, $38,632, $29,552 and $23,527, net of interest received, for interest during the fiscal years ended March 31, 2020, 2019 and
2018, respectively.
Covenants
The Company’s financing agreements contain various covenants, which, absent prepayment in full of the indebtedness and other obligations, or the receipt
of waivers, would limit the Company’s ability to conduct certain specified business transactions including incurring debt, mergers, consolidations or similar
transactions, buying or selling assets out of the ordinary course of business, engaging in sale and leaseback transactions, paying dividends and certain other
actions. The Company is in compliance with all such covenants.
Short-Term Debt
As of March 31, 2020 and 2019, the Company had $46,544 and $54,490, respectively, of short-term borrowings. The weighted-average interest rate on
these borrowings was approximately 3% and 4%, respectively, for fiscal years ended March 31, 2020 and 2019.
Letters of Credit
As of March 31, 2020 and 2019, the Company had $7,720 and $3,955, respectively, of standby letters of credit.
Debt Issuance Costs
In fiscal 2020, the Company capitalized $4,607 of debt issuance costs in connection with the issuance of the 2027 Notes. In fiscal 2019, the Company
capitalized $1,393 in debt issuance costs and wrote off $483 of unamortized debt issuance costs related to the Amended Credit Facility. In fiscal 2018, the
Company capitalized $2,677 in debt issuance costs and wrote off $301 of unamortized debt issuance costs related to the 2011 Credit Facility. Amortization
expense, relating to debt issuance costs, included in interest expense was $1,673, $1,316, and $1,302 for the fiscal years ended March 31, 2020, 2019 and
2018, respectively. Debt issuance costs, net of accumulated amortization, totaled $8,493 and $5,559 as of March 31, 2020 and 2019, respectively.
Available Lines of Credit
As of March 31, 2020 and 2019, the Company had available and undrawn, under all its lines of credit, $693,640 and $546,960, respectively, including
$105,946 and $87,685, respectively, of uncommitted lines of credit as of March 31, 2020 and March 31, 2019.
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11. Other Liabilities
Other liabilities consist of the following:
Tax Act - Transition Tax
Operating lease liabilities
Pension
Warranty
Liability for uncertain tax positions
Contract liabilities
Other
Total
12. Fair Value of Financial Instruments
Recurring Fair Value Measurements
March 31,
2020
2019
$
58,630 $
51,215
40,496
35,759
8,080
8,356
11,280
55,489
—
39,924
32,922
20,240
6,360
10,265
$
213,816 $
165,200
The following tables represent the financial assets and (liabilities) measured at fair value on a recurring basis as of March 31, 2020 and March 31, 2019 and
the basis for that measurement:
Lead forward contracts
Foreign currency forward contracts
Total derivatives
Lead forward contracts
Foreign currency forward contracts
Total derivatives
Total Fair Value
Measurement
March 31, 2020
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(2,433) $
1
(2,432) $
— $
—
— $
(2,433) $
1
(2,432) $
Total Fair Value
Measurement
March 31, 2019
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(902) $
(249)
(1,151) $
— $
—
— $
(902) $
(249)
(1,151) $
—
—
—
—
—
—
$
$
$
$
The fair values of lead forward contracts are calculated using observable prices for lead as quoted on the London Metal Exchange (“LME”) and, therefore,
were classified as Level 2 within the fair value hierarchy as described in Note 1, Summary of Significant Accounting Policies.
The fair values for foreign currency forward contracts 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.
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 Amended Credit Facility (as defined in Note 10), approximate their respective
carrying value, as they are variable rate debt and the terms are comparable to market terms as of the balance sheet dates and are classified as Level 2.
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The fair value of the Company's 2027 Notes and 2023 Notes, (collectively, the “Senior Notes”) represent the trading values based upon quoted market
prices and are classified as Level 2. The 2027 Notes were trading at approximately 94% on March 31, 2020. The 2023 Notes were trading at approximately
97% and 99% of face value on March 31, 2020 and March 31, 2019, respectively.
The carrying amounts and estimated fair values of the Company’s derivatives and Senior Notes at March 31, 2020 and 2019 were as follows:
Financial assets:
Derivatives(1)
Financial liabilities:
Senior Notes (2)
Derivatives(1)
March 31, 2020
March 31, 2019
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
$
$
— $
— $
— $
—
600,000 $
573,000 $
300,000 $
2,432
2,432
1,151
297,000
1,151
(1) Represents lead and foreign currency forward contracts (see Note 13 for asset and liability positions of the lead and foreign currency forward
contracts at March 31, 2020 and March 31, 2019).
(2) The fair value amount of the Senior Notes at March 31, 2020 and March 31, 2019 represent the trading value of the instruments.
Non-recurring fair value measurements
The valuation of goodwill and other intangible assets is based on information and assumptions available to the Company at the time of acquisition, using
income and market approaches to determine fair value. The Company tests goodwill and other intangible assets annually for impairment, or when
indications of potential impairment exist (see Note 1).
Goodwill is tested for impairment by determining the fair value of the Company’s reporting units. The unobservable inputs used to measure the fair value
of the reporting units include projected growth rates, profitability, and the risk factor premium added to the discount rate. The remeasurement of the
reporting unit fair value is classified as a Level 3 fair value assessment due to the significance of unobservable inputs developed using company-specific
information.
The inputs used to measure the fair value of other intangible assets were largely unobservable and accordingly were also classified as Level 3. The fair
value of trademarks is based on an estimate of the royalties saved that would have been paid to a third party had the Company not owned the trademark.
The fair value of other indefinite-lived intangibles was estimated using the income approach, based on cash flow projections of revenue growth rates,
taking into consideration industry and market conditions.
In connection with the annual impairment testing conducted as of December 30, 2019 for fiscal 2020, indefinite-lived trademarks associated with the
Company's EMEA reporting unit were recorded at fair value on a non-recurring basis at $1,700 and the remeasurement resulted in an impairment of
$4,549. In determining the fair value of these assets, the Company used a royalty rate of 1.25% based on comparable market rates and used a discount rate
of 13.0%.
These impairment charges relating to goodwill and indefinite-lived trademarks are included under the captions Impairment of goodwill and Impairment of
indefinite-lived intangibles in the Consolidated Statements of Income.
On March 5, 2019, the Company committed to a plan to close its facility in Targovishte, Bulgaria, which produced diesel-electric submarine batteries.
Management determined that the future demand for batteries of diesel-electric submarines was not sufficient given the number of competitors in the
market. As a result, the Company concluded that the carrying value of the asset group is not recoverable and recorded a write-off of $14,958 in the fixed
assets to their estimated fair value of $242, which was recognized in the fourth quarter of fiscal 2019. 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.
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13. Derivative Financial Instruments
The Company utilizes derivative instruments to reduce its exposure to fluctuations in commodity prices and foreign exchange rates, 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 March 31, 2020 and 2019, the Company has hedged the price to purchase approximately 35.0 million pounds and 42.0 million pounds of lead,
respectively, for a total purchase price of $30,078 and $39,218, respectively.
Foreign Currency Forward Contracts
The Company uses foreign currency forward contracts and options to hedge a portion of the Company’s foreign currency exposures for lead, as well as
other foreign currency exposures so that gains and losses on these contracts offset changes in the underlying foreign currency denominated exposures. The
vast majority of such contracts are for a period not extending beyond one year. As of March 31, 2020 and 2019, the Company had entered into a total of
$34,008 and $42,318, respectively, of such contracts.
In the coming twelve months, the Company anticipates that $7,635 of pretax loss relating to lead and foreign currency forward contracts will be reclassified
from AOCI as part of cost of goods sold. This amount represents the current net unrealized impact of hedging lead and foreign exchange rates, which will
change as market rates change in the future, and will ultimately be realized in the Consolidated Statements of Income as an offset to the corresponding
actual changes in lead costs to be realized in connection with the variable lead cost and foreign exchange rates being hedged.
Derivatives not Designated in Hedging Relationships
Foreign Currency Forward Contracts
The Company also enters into foreign currency forward contracts to economically hedge foreign currency fluctuations on intercompany loans and foreign
currency denominated receivables and payables. These are not designated as hedging instruments and changes in fair value of these instruments are
recorded directly in the Consolidated Statements of Income. As of March 31, 2020 and 2019, the Company had entered into a total of $42,232 and $22,201,
respectively, of such contracts.
Presented below in tabular form is information on the location and amounts of derivative fair values in the Consolidated Balance Sheets and derivative
gains and losses in the Consolidated Statements of Income:
Fair Value of Derivative Instruments
March 31, 2020 and 2019
Derivatives and Hedging Activities Designated as Cash
Flow Hedges
Derivatives and Hedging Activities Not Designated as
Hedging Instruments
March 31, 2020
March 31, 2019
March 31, 2020
March 31, 2019
Prepaid and other current assets:
Foreign currency forward contracts
Total assets
Accrued expenses:
Lead forward contracts
Foreign currency forward contracts
Total liabilities
$
$
$
—
— $
902 $
8
910 $
375
375 $
— $
—
— $
—
—
—
241
241
—
— $
2,433 $
374
2,807 $
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The Effect of Derivative Instruments on the Consolidated Statements of Income
For the fiscal year ended March 31, 2020
Derivatives Designated as Cash Flow Hedges
Lead forward contracts
Foreign currency forward contracts
Total
Derivatives Not Designated as Hedging Instruments
Foreign currency forward contracts
Total
Pretax Gain (Loss)
Recognized in AOCI on
Derivative (Effective Portion)
(8,683)
$
Location of Gain
(Loss) Reclassified
from
AOCI into Income
(Effective Portion)
Cost of goods sold $
Pretax Gain (Loss)
Reclassified from AOCI into
Income (Effective Portion)
(1,690)
(54)
Cost of goods sold
$
(8,737)
$
539
(1,151)
Location of Gain (Loss)
Recognized in Income
on Derivatives
Pretax Gain (Loss)
Other (income) expense, net $
$
(178)
(178)
The Effect of Derivative Instruments on the Consolidated Statements of Income
For the fiscal year ended March 31, 2019
Derivatives Designated as Cash Flow Hedges
Lead forward contracts
Foreign currency forward contracts
Total
Derivatives Not Designated as Hedging Instruments
Foreign currency forward contracts
Total
Pretax Gain (Loss)
Recognized in AOCI on
Derivative (Effective Portion)
(12,531)
$
Location of Gain
(Loss) Reclassified
from
AOCI into Income
(Effective Portion)
Cost of goods sold $
Pretax Gain (Loss)
Reclassified from AOCI into
Income (Effective Portion)
(15,666)
1,551
Cost of goods sold
$
(10,980)
$
385
(15,281)
Location of Gain (Loss)
Recognized in Income
on Derivatives
Pretax Gain (Loss)
Other (income) expense, net $
$
(1,856)
(1,856)
The Effect of Derivative Instruments on the Consolidated Statements of Income
For the fiscal year ended March 31, 2018
Derivatives Designated as Cash Flow Hedges
Lead forward contracts
Foreign currency forward contracts
Total
Derivatives Not Designated as Hedging Instruments
Foreign currency forward contracts
Total
Pretax Gain (Loss)
Recognized in AOCI on
Derivative (Effective Portion)
(805)
$
Location of Gain
(Loss) Reclassified
from
AOCI into Income
(Effective Portion)
Cost of goods sold $
Pretax Gain (Loss)
Reclassified from AOCI into
Income (Effective Portion)
5,860
$
(3,524)
(4,329)
Cost of goods sold
$
(2,718)
3,142
Location of Gain (Loss)
Recognized in Income
on Derivatives
Pretax Gain (Loss)
Other (income) expense, net $
$
180
180
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14. Income Taxes
Current income tax expense
Current:
Federal
State
Foreign
Total current income tax expense
Deferred income tax (benefit) expense
Federal
State
Foreign
Total deferred income tax (benefit) expense
Total income tax expense
Earnings before income taxes consists of the following:
United States
Foreign
Earnings before income taxes
Fiscal year ended March 31,
2020
2019
2018
$
9,185 $
6,377 $
2,561
14,561
26,307
5,489
741
(22,716)
(16,486)
$
9,821 $
5,027
16,636
28,040
(5,031)
(669)
(756)
(6,456)
21,584 $
115,315
3,461
20,030
138,806
(9,551)
789
(11,551)
(20,313)
118,493
Fiscal year ended March 31,
2020
2019
2018
$
$
36,193 $
110,744
146,937 $
53,339 $
128,872
182,211 $
74,440
163,886
238,326
Income taxes paid by the Company for the fiscal years ended March 31, 2020, 2019 and 2018 were $48,653, $53,866 and $28,044, respectively.
U.S. Tax Cuts and Jobs Act of 2017
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was enacted into law. Among the significant changes resulting from the law, the Tax Act
reduced the U.S. federal income tax rate from 35% to 21% effective January 1, 2018, and required companies to pay a one-time transition tax on
unrepatriated cumulative non-U.S. earnings of foreign subsidiaries and created new taxes on certain foreign sourced earnings. The U.S. federal statutory tax
rate for fiscal 2020 and 2019 was 21.0%.
In fiscal 2018, the Company recorded a provisional amount for the Transition Tax liability, resulting in an increase in income tax expense of $97,500. In
fiscal 2019, the Company completed its accounting for the tax effects of enactment of the Tax Act. The Company recognized an income tax benefit of
$13,483, net of uncertain tax positions, resulting from a decrease in the mandatory one-time transition tax on unrepatriated cumulative non-U.S. earnings of
the Company's foreign businesses. The Company made the election on the 2017 Federal Income Tax Return to pay the one-time Tax Act liability over an
eight-year period without interest, as allowed under the tax enactment.
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The following table sets forth the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities:
Deferred tax assets:
Accounts receivable
Inventories
Net operating loss carryforwards
Accrued expenses
Capitalized research and development costs
Other assets
Gross deferred tax assets
Less valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Property, plant and equipment
Intangible assets
Other liabilities
Total deferred tax liabilities
Net deferred tax liabilities
March 31,
2020
2019
$
1,110 $
5,010
44,340
26,113
—
19,793
96,366
(20,951)
75,415
30,229
66,529
1,217
97,975
$
(22,560) $
1,297
4,081
48,423
21,574
7,061
17,656
100,092
(17,519)
82,573
25,656
96,826
1,737
124,219
(41,646)
The Company has approximately $1,258 in United States federal net operating loss carryforwards, all of which are limited by Section 382 of the Internal
Revenue Code, with expirations between 2023 and 2027. The Company has approximately $158,252 of foreign net operating loss carryforwards, of which
$112,405 may be carried forward indefinitely and $45,847 expire between fiscal 2021 and fiscal 2035. In addition, the Company also has approximately
$34,473 of state net operating loss carryforwards with expirations between fiscal 2021 and fiscal 2040.
As of March 31, 2020 and 2019, the federal valuation allowance was $0 and $1,027, respectively. The decrease of $1,027 is due finalized purchase
accounting related to the prior year acquisition of Alpha. As of March 31, 2020 and 2019, the valuation allowance associated with the state tax jurisdictions
was $896 and $898, respectively. As of March 31, 2020 and 2019, the valuation allowance associated with certain foreign tax jurisdictions was $20,055 and
$15,594, respectively. Of the net increase of $4,461, $4,351 was recorded as an increase to tax expense primarily related to deferred tax assets attributable
to Swiss tax reform generated in the current year that the Company believes are not more likely than not to be realized. The remaining increase of $110 is
primarily related to foreign currency translation adjustments.
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A reconciliation of income taxes at the statutory rate (21.0% for fiscal 2020, 21.0% for fiscal 2019 and 31.55% for fiscal 2018) to the income tax provision
is as follows:
United States statutory income tax expense
Increase (decrease) resulting from:
Impact of Tax Act
State income taxes, net of federal effect
Nondeductible expenses, domestic manufacturing deduction (fiscal 2018)
and other
Legal proceedings charge - European Competition Investigations
Net effect of GILTI, FDII, BEAT
Goodwill impairment - See Note 7
Effect of foreign operations
Valuation allowance
Switzerland Tax Reform
Research and Development Credit
Income tax expense
Fiscal year ended March 31,
2020
2019
2018
$
30,857 $
38,264 $
75,196
—
2,764
5,953
—
3,025
10,714
(17,605)
4,349
(26,846)
(3,390)
(13,483)
3,285
4,378
2,405
2,320
—
(16,763)
2,879
—
(1,701)
$
9,821 $
21,584 $
83,400
3,146
2,008
—
—
—
(35,048)
(9,279)
—
(930)
118,493
The effective income tax rates for the fiscal years ended March 31, 2020, 2019 and 2018 were 6.7%, 11.9% and 49.7%, respectively. The effective income
tax rate with respect to any period may be volatile based on the mix of income in the tax jurisdictions in which the Company operates and the amount of its
consolidated income before taxes. The rate decrease in fiscal 2020 compared to fiscal 2019 is primarily due to changes in mix of earnings among tax
jurisdictions, Swiss tax reform, and items related to the Tax Act in fiscal 2019. The rate decrease in fiscal 2019 compared to fiscal 2018 is primarily due to
the impact of the Tax Act, partially offset by increases for additional tax valuation allowances related to certain of our foreign subsidiaries, increases due to
non-deductible legal proceedings charge related to the European competition investigation, and changes in the mix of earnings among tax jurisdictions in
fiscal 2019.
On May 19, 2019, a public referendum held in Switzerland approved the Federal Act on Tax Reform and AHV (Old-Age and Survivors Insurance)
Financing (TRAF) as adopted by the Swiss Federal Parliament on September 28, 2018. The Swiss tax reform measures are effective January 1, 2020.
Certain provisions of the TRAF were enacted during the second quarter of fiscal 2020. Significant changes in the tax reform include the abolishment of
preferential tax regimes for holding companies, domicile companies and mixed companies at the cantonal level. The transitional provisions of the TRAF
allow companies to elect tax basis adjustments to fair value, which is used for tax depreciation and amortization purposes resulting in a deduction over the
transitional period. The Company recorded a net deferred tax asset of $22,500 during fiscal 2020, related to the amortizable goodwill.
In fiscal 2020, the foreign effective income tax rate on foreign pre-tax income of $110,744 was (7.4)%. In fiscal 2019, the foreign effective income tax rate
on foreign pre-tax income of $128,872 was 12.3% and in fiscal 2018, the foreign effective income tax rate on foreign pre-tax income of $163,886 was
5.2%. The rate decrease in fiscal 2020 compared to fiscal 2019 is primarily due to Swiss tax reform and changes in the mix of earnings among tax
jurisdictions. The rate increase in fiscal 2019 compared to fiscal 2018 is primarily due to additional tax valuation allowances related to certain of the
Company’s foreign subsidiaries, increases due to non-deductible legal proceedings charge related to the European competition investigation, and changes in
the mix of earnings among tax jurisdictions in fiscal 2019.
Income from the Company's Swiss subsidiary comprised a substantial portion of its overall foreign mix of income for the fiscal years ended March 31,
2020, 2019 and 2018 and was taxed, excluding the impact from the Swiss tax reform, at approximately 3%, 4% and 8%, respectively.
The Company has approximately $1,376,000 and $1,167,000 of undistributed earnings of foreign subsidiaries for fiscal years 2020 and 2019, respectively.
Since the Company’s undistributed foreign earnings and outside basis differences inherent in foreign entities continue to be indefinitely reinvested in
foreign operations, no additional income taxes have been provided.
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Uncertain Tax Positions
The following table summarizes activity of the total amounts of unrecognized tax benefits:
Balance at beginning of year
Increases related to current year tax positions
Increases related to the Alpha acquisition
Increases related to prior year tax positions
Decreases related to prior tax positions
Decreases related to prior year tax positions settled
Lapse of statute of limitations
Balance at end of year
Fiscal year ended March 31,
2020
2019
2018
$
20,165 $
1,568 $
598
769
—
(11,463)
—
(2,274)
129
7,840
11,463
(544)
(93)
(198)
$
7,795 $
20,165 $
1,450
397
—
11
—
(1)
(289)
1,568
The decrease of prior year tax positions during fiscal 2020, are related to items included in the Tax Act. In connection with the Alpha acquisition, the
Company finalized purchase accounting during the fiscal year and recorded an unrecognized tax benefit of $769, as well as an indemnification asset of
$769 representing the Seller's obligation to indemnify the Company for the outcome of potential contingent liabilities relating to uncertain tax positions.
All of the balance of unrecognized tax benefits at March 31, 2020, if recognized, would be included in the Company’s Consolidated Statements of Income
and have a favorable impact on both the Company’s net earnings and effective tax rate.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions,
the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2009.
While the net effect on total unrecognized tax benefits cannot be reasonably estimated, approximately $1,250 is expected to reverse in fiscal 2021 due to
expiration of various statute of limitations.
The Company recognizes tax related interest and penalties in income tax expense in its Consolidated Statements of Income. As of March 31, 2020 and
2019, the Company had an accrual of $285 and $75, respectively, for interest and penalties.
15. Retirement Plans
Defined Benefit Plans
The Company sponsors several retirement and pension plans covering eligible salaried and hourly employees. The Company uses a measurement date of
March 31 for its pension plans.
Net periodic pension cost for fiscal 2020, 2019 and 2018, includes the following components:
United States Plans
Fiscal year ended March 31,
International Plans
Fiscal year ended March 31,
Service cost
Interest cost
Expected return on plan assets
Amortization and deferral
Net periodic benefit cost
2020
2019
2018
2020
2019
2018
$
— $
— $
— $
906 $
997 $
616
(448)
188
631
(514)
184
658
(496)
303
1,485
(2,136)
910
1,831
(2,151)
1,520
$
356 $
301 $
465 $
1,165 $
2,197 $
1,025
1,795
(2,264)
1,468
2,024
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The following table sets forth a reconciliation of the related benefit obligation, plan assets, and accrued benefit costs related to the pension benefits
provided by the Company for those employees covered by defined benefit plans:
United States Plans
March 31,
International Plans
March 31,
2020
2019
2020
2019
Change in projected benefit obligation
Benefit obligation at the beginning of the period
$
16,647 $
16,713 $
75,038 $
Service cost
Interest cost
Benefits paid, inclusive of plan expenses
Plan curtailments and settlements
Actuarial losses (gains)
Foreign currency translation adjustment
Benefit obligation at the end of the period
—
616
(1,132)
—
1,980
—
—
631
(1,061)
—
364
—
906
1,485
(2,262)
(678)
(3,024)
(2,863)
$
18,111 $
16,647 $
68,602 $
Change in plan assets
Fair value of plan assets at the beginning of the period
$
13,763 $
13,928 $
36,791 $
Actual return on plan assets
Employer contributions
Benefits paid, inclusive of plan expenses
Plan curtailments and settlements
Foreign currency translation adjustment
Fair value of plan assets at the end of the period
Funded status deficit
(649)
54
(1,132)
—
—
12,036 $
(6,075) $
758
138
(1,061)
—
—
13,763 $
(2,884) $
(1,605)
2,098
(2,262)
(482)
(1,709)
32,831 $
(35,771) $
$
$
82,033
997
1,831
(1,758)
(1,130)
(261)
(6,674)
75,038
38,757
2,109
1,670
(1,758)
(1,130)
(2,857)
36,791
(38,247)
Amounts recognized in the Consolidated Balance Sheets consist of:
Accrued expenses
Other liabilities
Total liabilities
92
March 31,
2020
2019
(1,350)
(40,496)
$
(41,846) $
(1,207)
(39,924)
(41,131)
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The following table represents pension components (before tax) and related changes (before tax) recognized in AOCI for the Company’s pension plans for
the years ended March 31, 2020, 2019 and 2018:
Amounts recorded in AOCI before taxes:
Prior service cost
Net loss
Net amount recognized
Changes in plan assets and benefit obligations:
New prior service cost
Net loss (gain) arising during the year
Effect of exchange rates on amounts included in AOCI
Amounts recognized as a component of net periodic benefit costs:
Amortization of prior service cost
Amortization or settlement recognition of net loss
Total recognized in other comprehensive (income) loss
Fiscal year ended March 31,
2020
2019
2018
(258) $
(25,796)
(26,054) $
(307) $
(24,051)
(24,358) $
(385)
(27,762)
(28,147)
Fiscal year ended March 31,
2020
2019
2018
— $
3,793
(804)
(43)
(1,250)
1,696 $
— $
(99)
(1,984)
(45)
(1,659)
(3,787) $
—
(1,953)
3,019
(46)
(1,725)
(705)
$
$
$
$
The amounts included in AOCI as of March 31, 2020 that are expected to be recognized as components of net periodic pension cost (before tax) during the
next twelve months are as follows:
Prior service cost
Net loss
Net amount expected to be recognized
$
$
(43)
(1,462)
(1,505)
The accumulated benefit obligation related to all defined benefit pension plans and information related to unfunded and underfunded defined benefit
pension plans at the end of each year are as follows:
All defined benefit plans:
Accumulated benefit obligation
Unfunded defined benefit plans:
Projected benefit obligation
Accumulated benefit obligation
United States Plans
International Plans
March 31,
March 31,
2020
2019
2020
2019
$
18,110 $
16,647 $
65,337 $
71,350
$
— $
—
— $
30,773 $
—
28,926
32,320
30,328
Defined benefit plans with a projected benefit obligation in excess of the fair value of
plan assets:
Projected benefit obligation
Fair value of plan assets
$
18,110 $
16,647 $
68,603 $
12,036
13,763
32,831
Defined benefit plans with an accumulated benefit obligation in excess of the fair
value of plan assets:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
$
18,110 $
16,647 $
68,603 $
18,110
12,036
16,647
13,763
65,337
32,831
75,038
36,791
74,235
70,654
36,077
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Assumptions
Significant assumptions used to determine the net periodic benefit cost for the U.S. and International plans were as follows:
United States Plans
Fiscal year ended March 31,
International Plans
Fiscal year ended March 31,
2020
2019
2018
3.8%
6.3
N/A
3.9%
6.3
N/A
4.1%
6.8
N/A
2020
1.0-2.7%
4.3-6.0
2.0-4.0
2019
1.4-3.3%
4.1-6.0
1.8-4.0
2018
1.5-3.5%
3.6-6.3
1.5-4.0
Discount rate
Expected return on plan assets
Rate of compensation increase
N/A = not applicable
Significant assumptions used to determine the projected benefit obligations for the U.S. and International plans were as follows:
Discount rate
Rate of compensation increase
N/A = not applicable
United States Plans
International Plans
March 31,
March 31,
2020
2019
3.0%
N/A
3.8%
N/A
2020
1.3-2.3%
2.0-3.5
2019
1.0-2.7%
2.0-4.0
The United States plans do not include compensation in the formula for determining the pension benefit as it is based solely on years of service.
The expected long-term rate of return for the Company’s pension plan assets is based upon the target asset allocation and is determined using forward
looking assumptions in the context of historical returns and volatilities for each asset class, as well as correlations among asset classes. The Company
evaluates the rate of return assumptions for each of its plans on an annual basis.
Pension Plan Investment Strategy
The Company’s investment policy emphasizes a balanced approach to investing in securities of high quality and ready marketability. Investment flexibility
is encouraged so as not to exclude opportunities available through a diversified investment strategy.
Equity investments are maintained within a target range of 40% - 75% of the total portfolio market value for the U.S. plans and with a target of
approximately 65% for international plans. Investments in debt securities include issues of various maturities, and the average quality rating of bonds
should be investment grade with a minimum quality rating of “B” at the time of purchase.
The Company periodically reviews the asset allocation of its portfolio. The proportion committed to equities, debt securities and cash and cash equivalents
is a function of the values available in each category and risk considerations. The plan’s overall return will be compared to and is expected to meet or
exceed established benchmark funds and returns over a three to five year period.
The objectives of the Company’s investment strategies are: (a) the achievement of a reasonable long-term rate of total return consistent with an emphasis
on preservation of capital and purchasing power, (b) stability of annual returns through a portfolio that reflects a conservative mix of risk versus return, and
(c) reflective of the Company’s willingness to forgo significantly above-average rewards in order to minimize above-average risks. These objectives may
not be met each year but should be attained over a reasonable period of time.
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The following table represents the Company's pension plan investments measured at fair value as of March 31, 2020 and 2019 and the basis for that
measurement:
March 31, 2020
United States Plans
International Plans
Total Fair
Value
Measurement
Quoted Price
In Active
Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total Fair
Value
Measurement
Quoted Price
In Active
Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
1,221
$
1,221
$
— $
— $
141 $
141 $
— $
6,860
—
3,955
6,860
—
3,955
$
12,036
$
12,036
$
—
—
—
— $
—
—
—
— $
—
20,059
12,631
32,831 $
—
—
—
141 $
—
20,059
12,631
32,690 $
—
—
—
—
—
March 31, 2019
United States Plans
International Plans
Total Fair
Value
Measurement
Quoted Price
In Active
Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Fair Value
Measurement
Quoted Price
In Active
Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
1,080
$
1,080
$
— $
— $
83 $
83 $
— $
8,275
—
4,408
8,275
—
4,408
$
13,763
$
13,763
$
—
—
—
— $
—
—
—
— $
—
23,875
12,833
36,791 $
—
—
—
83 $
—
23,875
12,833
36,708 $
—
—
—
—
—
Asset category:
Cash and cash
equivalents
Equity securities
US(a)
International(b)
Fixed income(c)
Total
Asset category:
Cash and cash
equivalents
Equity securities
US(a)
International(b)
Fixed income(c)
Total
The fair values presented above were determined based on valuation techniques to measure fair value as discussed in Note 1.
(a) US equities include companies that are well diversified by industry sector and equity style (i.e., growth and value strategies). Active and passive
management strategies are employed. Investments are primarily in large capitalization stocks and, to a lesser extent, mid- and small-cap stocks.
(b) International equities are invested in companies that are traded on exchanges outside the U.S. and are well diversified by industry sector, country
and equity style. Active and passive strategies are employed. The vast majority of the investments are made in companies in developed markets
with a small percentage in emerging markets.
(c) Fixed income consists primarily of investment grade bonds from diversified industries.
The Company expects to make cash contributions of approximately $2,398 to its pension plans in fiscal 2021.
Estimated future benefit payments under the Company’s pension plans are as follows:
2021
2022
2023
2024
2025
Years 2026-2030
$
2,835
2,907
3,135
3,258
3,768
20,353
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Defined Contribution Plan
The Company maintains defined contribution plans primarily in the U.S. and U.K. Eligible employees can contribute a portion of their pre-tax and / or
after-tax income in accordance with plan guidelines and the Company will make contributions based on the employees’ eligible pay and /or will match a
percentage of the employee contributions up to certain limits. Matching contributions charged to expense for the fiscal years ended March 31, 2020, 2019
and 2018 were $15,835, $12,078 and $8,931, respectively.
16. Stockholders’ Equity
Preferred Stock and Common Stock
The Company’s certificate of incorporation authorizes the issuance of up to 1,000,000 shares of preferred stock, par value $0.01 per share (“Preferred
Stock”). At March 31, 2020 and 2019, no shares of Preferred Stock were issued or outstanding. The Board of Directors of the Company has the authority to
specify the terms of any Preferred Stock at the time of issuance.
The following demonstrates the change in the number of shares of common stock outstanding during fiscal years ended March 31, 2018, 2019 and 2020,
respectively:
Shares outstanding as of March 31, 2017
Purchase of treasury stock
Shares issued towards equity-based compensation plans, net of equity awards surrendered for option price and taxes
Shares outstanding as of March 31, 2018
Purchase of treasury stock
Shares issued towards purchase consideration of Alpha acquisition
Shares issued under equity-based compensation plans, net of equity awards surrendered for option price and taxes
Shares outstanding as of March 31, 2019
Purchase of treasury stock
Shares issued under equity-based compensation plans, net of equity awards surrendered for option price and taxes
Shares outstanding as of March 31, 2020
43,447,536
(1,756,831)
224,295
41,915,000
(726,347)
1,177,630
254,467
42,620,750
(581,140)
283,695
42,323,305
Treasury Stock
In fiscal 2020, the Company purchased 581,140 shares for $34,561. In fiscal 2019, the Company purchased 726,347 shares of its common stock for
$56,436 and in fiscal 2018, purchased 1,756,831 shares for $121,191. Of the shares purchased in fiscal 2018, 1,495,714 were acquired through an
accelerated share repurchase program (“ASR”) for a total cash investment of $100,000 at an average price of $66.86. At March 31, 2020 and 2019, the
Company held 12,791,503 and 12,227,773 shares as treasury stock, respectively.
Treasury Stock Reissuance
In fiscal 2019, the Company acquired Alpha. The initial purchase consideration for the acquisition was $750,000, of which $650,000 was paid in cash and
the balance was settled by issuing 1,177,630 shares of EnerSys common stock. These shares were issued out of the Company's treasury stock and were
valued at $84.92 per share, which was based on the thirty-day volume weighted average stock price of the Company’s common stock at closing. The
1,177,630 shares had a closing date fair value of $93,268. During fiscal 2020 and fiscal 2019, the Company also issued 17,410 and 3,256 shares out of its
treasury stock, respectively, valued at $62.55 per share, on a LIFO basis, to participants under the Company's Employee Stock Purchase Plan.
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Accumulated Other Comprehensive Income (“AOCI”)
The components of AOCI, net of tax, are as follows:
March 31, 2020
Pension funded status adjustment
Net unrealized gain (loss) on derivative instruments
Foreign currency translation adjustment
Accumulated other comprehensive loss
March 31, 2019
Pension funded status adjustment
Net unrealized gain (loss) on derivative instruments
Foreign currency translation adjustment
Accumulated other comprehensive loss
March 31, 2018
Pension funded status adjustment
Net unrealized gain (loss) on derivative instruments
Foreign currency translation adjustment
Accumulated other comprehensive loss
Beginning
Balance
Before
Reclassifications
Amount Reclassified
from AOCI
Ending
Balance
$
$
$
$
$
(20,791) $
(2,819) $
(130)
(121,761)
(142,682) $
(6,672)
(64,528)
(74,019) $
1,695 $
816 $
879
—
(22,503) $
(3,425)
(15,789)
339 $
1,373 $
(8,396)
(105,972)
11,691
—
(41,717) $
(114,029) $
13,064 $
(25,555) $
1,692 $
1,360 $
1,975
(129,244)
(2,868)
113,455
(2,532)
—
$
(152,824) $
112,279 $
(1,172) $
(22,794)
(5,923)
(186,289)
(215,006)
(20,791)
(130)
(121,761)
(142,682)
(22,503)
(3,425)
(15,789)
(41,717)
The following table presents reclassifications from AOCI during the twelve months ended March 31, 2020:
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
Tax benefit
Net unrealized loss on derivative instruments, net of tax
Defined benefit pension costs:
Prior service costs and deferrals
Tax benefit
Net periodic benefit cost, net of tax
$
$
$
$
1,151 Cost of goods sold
(272)
879
Net periodic benefit cost, included in other (income)
expense, net - See Note 15
1,098
(282)
816
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The following table presents reclassifications from AOCI during the twelve months ended March 31, 2019:
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
Tax benefit
Net unrealized loss on derivative instruments, net of tax
Defined benefit pension costs:
Prior service costs and deferrals
Tax benefit
Net periodic benefit cost, net of tax
$
$
$
$
15,281 Cost of goods sold
(3,590)
11,691
Net periodic benefit cost, included in other (income)
expense, net - See Note 15
1,704
(331)
1,373
The following table presents reclassifications from AOCI during the twelve months ended March 31, 2018:
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
Tax expense
Net unrealized gain on derivative instruments, net of tax
Defined benefit pension costs:
Prior service costs and deferrals
Tax benefit
Net periodic benefit cost, net of tax
17. Stock-Based Compensation
$
$
$
$
(3,142) Cost of goods sold
610
(2,532)
Net periodic benefit cost, included in other (income)
expense, net - See Note 15
1,771
(411)
1,360
As of March 31, 2020, the Company maintains the 2017 Equity Incentive Plan (“2017 EIP”). The 2017 EIP reserved 4,173,554 shares of common stock for
the grant of various classes of nonqualified stock options, restricted stock units, market and performance condition-based share units and other forms of
equity-based compensation. Shares subject to any awards that expire without being exercised or that are forfeited or settled in cash shall again be available
for future grants of awards under the 2017 EIP. Shares subject to stock option or stock appreciation right awards, that have been retained by the Company
in payment or satisfaction of the exercise price and any applicable tax withholding obligation of such awards, shall not be available for future grant under
the 2017 EIP.
As of March 31, 2020, 3,593,817 shares are available for future grants. The Company’s management equity incentive plans are intended to provide an
incentive to employees and non-employee directors of the Company to remain in the service of the Company and to increase their interest in the success of
the Company in order to promote the long-term interests of the Company. The plans seek to promote the highest level of performance by providing an
economic interest in the long-term performance of the Company. The Company settles employee share-based compensation awards with newly issued
shares.
Stock Options
During fiscal 2020, the Company granted to management and other key employees 284,109 non-qualified options that vest ratably over 3 years from the
date of grant. Options expire 10 years from the date of grant.
The Company recognized stock-based compensation expense relating to stock options of $2,996, with a related tax benefit of $565 for fiscal 2020, stock-
based compensation expense of $3,251 with a related tax benefit of $634 for fiscal 2019 and stock-based compensation of $2,741 with a related tax benefit
of $700 for fiscal 2018.
For purposes of determining the fair value of stock options granted, the Company used a Black-Scholes Model with the following assumptions:
Risk-free interest rate
Dividend yield
Expected life (years)
2020
2019
2018
1.52%
1.21%
6
2.77%
0.93%
6
2.08%
0.84%
6
Volatility
29.1%
26.8%
29.2%
The following table summarizes the Company’s stock option activity in the years indicated:
Options outstanding as of March 31, 2017
Granted
Exercised
Forfeited
Expired
Options outstanding as of March 31, 2018
Granted
Exercised
Forfeited
Options outstanding as of March 31, 2019
Granted
Exercised
Forfeited
Options outstanding as of March 31, 2020
Options exercisable as of March 31, 2020
Options vested and expected to vest, as of March 31, 2020
Number of
Options
Weighted-
Average
Remaining
Contract
Term (Years)
Weighted-
Average
Exercise
Price
Aggregate
Intrinsic
Value
451,668
169,703
(62,197)
(11,495)
(2,089)
545,590
192,700
(171,630)
(11,754)
554,906
284,109
(24,826)
(22,607)
791,582
350,660
777,307
8.4 $
62.29 $
83.14
63.44
70.22
18.25
8.4 $
68.65 $
75.17
63.66
75.17
8.0 $
72.31 $
57.75
57.60
72.19
67.55 $
70.65 $
67.66 $
7.8 $
6.4 $
7.8 $
7,520
—
1,132
75
137
2,679
—
2,707
—
1,040
—
383
88
—
—
—
The following table summarizes information regarding stock options outstanding as of March 31, 2020:
Range of Exercise Prices
$55.00-$60.00
$65.01-$70.00
$75.01-$83.14
Number of
Options
Weighted-
Average
Remaining
Contractual Life (Years)
Weighted-
Average
Exercise Price
391,986
73,368
326,228
791,582
8.4 $
4.8 $
7.6 $
7.8 $
57.71
68.82
79.10
67.55
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Restricted Stock Units, Market and Performance-condition based Awards
Non-Employee Directors
In fiscal 2020, the Company granted to non-employee directors 40,462 deferred restricted stock units at the fair value of $39.74 per restricted stock unit at
the date of grant. In fiscal 2019, such grants amounted to 35,065 restricted stock units at the fair value of $46.30 per restricted stock unit at the date of grant
and in fiscal 2018, such grants amounted to 33,408 restricted stock units at the fair value of $46.24 per restricted stock unit at the date of grant. The awards
vest immediately upon the date of grant and are settled in shares of common stock six months after termination of service as a director.
In fiscal 2020, the Company also granted to non-employee directors, 1,147 restricted stock units and in fiscal 2019 and 2018, granted 1,441 and 1,345
restricted stock units, respectively, at fair values of $58.05, $75.32 and $73.39, for fiscal 2020, fiscal 2019 and 2018, respectively, under the deferred
compensation plan for non-employee directors.
Employees
In fiscal 2020, the Company granted to management and other key employees 301,321 restricted stock units that vest ratably over four years from the date
of grant, at the fair value of $57.75 per restricted stock unit, 62,512 performance condition-based share units (“PSU”) at the fair value of $50.69 and 51,063
market condition-based share units (“TSR”) at the fair value of $62.05 per unit at the date of grant. The PSUs and TSRs cliff vest three years from the date
of grant.
In fiscal 2019, the Company granted to management and other key employees 204,599 restricted stock units that vest ratably over four years from the date
of grant at the fair value of $75.17 per restricted stock unit, 45,883 PSUs at the fair value of $68.48 and 36,646 TSRs at a weighted average fair value of
$86.23 per unit at the date of grant that cliff vest three years from the date of grant.
In fiscal 2018, the Company granted to management and other key employees 161,229 restricted stock units that vest ratably over four years from the date
of grant at a fair value of $83.14 per restricted stock unit and 60,187 TSRs at a weighted average fair value of $105.74 per unit at the date of grant that cliff
vest three years from the date of grant.
For purposes of determining the fair value of the PSUs granted in fiscal 2020 and fiscal 2019, the Company used the market price at the date of grant to
which a discount for illiquidity was applied to reflect post vesting restrictions.
For purposes of determining the fair value of TSRs granted in fiscal 2020, fiscal 2019, and fiscal 2018, the Company used a Monte Carlo Simulation with
the following assumptions:
Risk-free interest rate
Dividend yield
Expected life (years)
Volatility
2020
2019
2018
1.50%
—%
3
34.39%
2.66%
—%
3
26.41%
1.57%
—%
3
27.49%
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A summary of the changes in restricted stock units, TSRs and PSUs awarded to employees and directors that were outstanding under the Company’s equity
compensation plans during fiscal 2020 is presented below:
Non-vested awards as of March 31, 2019
Granted
Stock dividend
Performance factor
Vested
Forfeitures
Non-vested awards as of March 31, 2020
Restricted Stock Units (RSU)
Market condition-based Share Units
(TSR)
Performance condition-based Share
Units (PSU)
Number of
RSU
721,647 $
342,930
9,108
—
(169,486)
(23,864)
880,335 $
Weighted-
Average
Grant Date
Fair Value
57.72
58.05
55.83
—
70.18
69.56
55.61
Number of
TSR
352,584 $
51,063
2,226
—
(172,314)
(24,839)
208,720 $
Weighted-
Average
Grant Date
Fair Value
72.83
62.00
81.97
—
59.95
74.83
80.78
Number of
PSU
42,526 $
62,512
990
—
—
(4,898)
101,130 $
Weighted-
Average
Grant Date
68.48
50.65
58.74
—
—
65.78
57.49
The Company recognized stock-based compensation expense relating to restricted stock units, TSRs and PSUs of $17,784, with a related tax benefit of
$2,544 for fiscal 2020, $19,357, with a related tax benefit of $3,085 for fiscal 2019 and $16,712, with a related tax benefit of $3,325 for fiscal 2018.
All Award Plans
As of March 31, 2020, unrecognized compensation expense associated with the non-vested equity awards outstanding was $44,633 and is expected to be
recognized over a weighted-average period of 26 months.
18. Earnings Per Share
The following table sets forth the reconciliation from basic to diluted weighted-average number of common shares outstanding and the calculations of net
earnings per common share attributable to EnerSys stockholders.
Net earnings attributable to EnerSys stockholders
Weighted-average number of common shares outstanding:
Basic
Dilutive effect of:
Fiscal year ended March 31,
2020
2019
2018
$
137,116 $
160,239 $
119,594
42,411,834
42,335,023
42,612,036
Common shares from exercise and lapse of equity awards, net of shares
assumed reacquired
Diluted weighted-average number of common shares outstanding
Basic 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
484,941
42,896,775
673,929
43,008,952
$
$
3.23 $
3.20 $
3.79 $
3.73 $
507,820
43,119,856
2.81
2.77
698,546
355,728
59,482
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19. Commitments, Contingencies and Litigation
Litigation and Other Legal Matters
In the ordinary course of business, the Company and its subsidiaries are routinely defendants in or parties to 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.
The Company settled the Belgian regulatory proceeding in February 2016 by acknowledging certain anticompetitive practices and conduct and agreeing to
pay a fine of $1,962, which was paid in March 2016. During fiscal 2019, the Company also paid $2,402 towards certain aspects related to this matter,
which are under appeal. As of March 31, 2020 and March 31, 2019, the Company did not have a reserve balance related to these matters.
In June 2017, the Company settled a portion of its previously disclosed proceeding involving the German competition authority relating to conduct
involving the Company's motive power battery business and agreed to pay a fine of $14,811, which was paid in July 2017. As of March 31, 2020 and
March 31, 2019, the Company did not have a reserve balance relating to this matter.
Also, in March 2019, the Company settled the remaining portion of its previously disclosed proceeding involving the German competition authority
relating to conduct involving the Company’s reserve power battery business and agreed to pay a fine of $7,258, which was paid in April 2019. As of
March 31, 2020 and March 31, 2019, the Company had a reserve balance of $0 and $7,258, respectively.
In July 2017, the Company settled the Dutch regulatory proceeding and agreed to pay a fine of $11,229, which was paid in August 2017.
The foregoing estimate of losses is based upon currently available information for these proceedings. However, the precise scope, timing and time period at
issue, as well as the final outcome of the investigations or customer claims, remain uncertain. Accordingly, the Company’s estimate may change from time
to time, and actual losses could vary.
EnerSys SARL Litigation
One of the parties to a litigation related to a 1999 fire in a French hotel under construction involving the Company’s French subsidiary, EnerSys SARL,
which was acquired by the Company in 2002, that was adverse to the Company, appealed the ruling by the Court of Appeal of Lyon on June 11, 2013,
which ruled in the Company’s favor, entitling the Company to a refund of the monies paid of €2,000, or $2,756 to the French Supreme Court, which appeal
was denied in January 2015. During the third quarter of fiscal 2019, the Company and the adverse party settled this final item with the Company receiving
a refund, including interest, from the adverse party of €2,500, or $2,843, for monies paid. The Company believes that it has no further liability with respect
to this matter.
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.
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The Company is responsible for certain cleanup obligations at the former Yuasa battery facility in Sumter, South Carolina that predates its ownership of this
facility. This manufacturing facility was closed in 2001 and the Company established a reserve for this facility which was $1,060 and $1,081 as of
March 31, 2020 and 2019, respectively. Based on current information, the Company’s management believes this reserve is adequate to satisfy the
Company’s environmental liabilities at this facility. This facility is separate from the Company’s current metal fabrication facility in Sumter.
Collective Bargaining
At March 31, 2020, the Company had approximately 11,400 employees. Of these employees, approximately 29% were covered by collective bargaining
agreements. Employees covered by collective bargaining agreements that expire in the next twelve months were approximately 12% of the total workforce.
The average term of these agreements is 2 years, with the longest term being 3 years. The Company considers its employee relations to be good and did not
experience any significant labor unrest or disruption of production during fiscal 2020.
Lead and Foreign Currency Forward Contracts
To stabilize its lead costs and reduce volatility from currency movements, the Company enters into contracts with financial institutions. The vast majority
of such contracts are for a period not extending beyond one year. Please refer to Note 13 - Derivative Financial Instruments for more details.
Other
The Company has various purchase and capital commitments incidental to the ordinary conduct of business. In the aggregate, such commitments are not at
prices in excess of current market.
20. Restructuring, Exit and Other Charges
Restructuring Programs
During fiscal 2016, the Company announced restructurings to improve efficiencies primarily related to its motive power assembly and distribution center in
Italy and its sales and administration organizations in EMEA. In addition, the Company announced a further restructuring related to its manufacturing
operations in Europe. The program was completed during the third quarter of fiscal 2018. Total charges for this program were $6,568, primarily for cash
expenses of $6,161 for employee severance payments of 130 employees and other charges of $407. In fiscal 2016, 2017 and 2018, the Company recorded
restructuring charges of $5,232, $1,251 and $85, respectively. In fiscal 2016, 2017 and 2018 the Company incurred costs against the accrual of $2,993,
$3,037 and $499, respectively.
During fiscal 2017, the Company announced restructuring programs to improve efficiencies primarily related to its motive power production in EMEA.
This program was completed during fiscal 2019. The total charges for these actions were $4,714, primarily from cash charges for employee severance-
related payments and other charges. These actions resulted in the reduction of 45 employees. During fiscal 2017, the Company recorded restructuring
charges of $3,104 and an additional $1,610 during fiscal 2018. The Company incurred $749 in costs against the accrual in fiscal 2017 and an additional
$2,403 during fiscal 2018. During fiscal 2019, the Company incurred $1,682 against the accrual.
During fiscal 2017, the Company announced restructurings primarily to complete the transfer of equipment and clean-up of its manufacturing facility
located in Jiangdu, the People’s Republic of China, which stopped production during the first quarter of fiscal 2016. This program was completed during
the fourth quarter of fiscal 2018. The total cash charges for these actions amounted to $991. During fiscal 2017, the Company recorded restructuring
charges of $779 and an additional $212 during fiscal 2018. The Company incurred $648 in costs against the accrual in fiscal 2017 and an additional $341
during fiscal 2018.
During fiscal 2018, the Company announced restructuring programs to improve efficiencies primarily related to supply chain and general operations in
EMEA. The Company estimates that the total charges for these actions will amount to approximately $7,500, primarily from cash charges for employee
severance-related payments and other charges. The Company estimates that these actions will result in the reduction of approximately 80 employees upon
completion. During fiscal 2018, the Company recorded non-cash restructuring charges of $69 and cash charges of $2,260 and incurred $1,350 in costs
against the accrual. During fiscal 2019, the Company recorded restructuring charges of $3,104 and incurred $2,844 in costs against the accrual. During fiscal
2020, the Company recorded restructuring charges of $975 and incurred $1,193 in costs against the accrual. As of
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March 31, 2020, the reserve balance associated with these actions is $817. The Company expects to be committed to an additional $1,100 in restructuring
charges related to this action, which it expects to complete in fiscal 2021.
During the second quarter of fiscal 2018, the Company completed the sale of its Cleveland, Ohio facility and recorded a non-cash loss on the sale of the
building of $210 and other cash charges of $75. The Cleveland facility ceased charger production in fiscal 2017.
During fiscal 2018, the Company announced a restructuring program to improve efficiencies of its general operations in the Americas. This program was
completed during fiscal 2019. The total charges for these actions were $960, from cash charges for employee severance-related payments to approximately
60 salaried employees. During fiscal 2018, the Company recorded restructuring charges of $960 and incurred $755 in costs against the accrual. During
fiscal 2019, the Company incurred $207 in costs against the accrual.
During fiscal 2019, the Company announced restructuring programs to improve efficiencies of its operations in EMEA. The Company estimates that the
total charges for these actions will amount to approximately $2,500, from charges primarily for employee severance-related payments to approximately 35
employees. During fiscal 2019, the Company recorded restructuring charges of $347 and incurred $83 in costs against the accrual. During fiscal 2020, the
Company recorded restructuring charges of $575 and incurred $784 in costs against the accrual. As of March 31, 2020, the reserve balance associated with
these actions is $48. The Company expects to complete these actions in fiscal 2021.
During fiscal 2019, the Company announced restructuring programs to improve efficiencies of its operations in the Americas. The Company estimates that
the total charges for these actions will amount to approximately $4,100, from cash and non-cash charges primarily for employee severance-related
payments to approximately 85 employees. During fiscal 2019, the Company recorded cash restructuring charges of $1,970, non-cash charges of $2,095 and
incurred $1,480 in costs against the accrual. During fiscal 2020, the Company incurred $480 in costs against the accrual. As of March 31, 2020, the reserve
balance associated with this action is $10. The Company expects to complete these actions in fiscal 2021.
During fiscal 2019, the Company announced a restructuring program to improve efficiencies of its operations in Asia and to convert its India operations
from mainly reserve power production to motive power production. The total charges for these actions amount to $4,390, from cash charges primarily for
employee severance-related payments to approximately 160 employees, and non-cash charges related to the write-off of fixed assets. During fiscal 2019,
the Company recorded cash restructuring charges of $2,772 and non-cash charges of $771 and incurred $1,683 in costs against the accrual. During fiscal
2020, the Company recorded cash restructuring charges of $717, non-cash charges of $130 and incurred $1,853 in costs against the accrual. As of March
31, 2020, the reserve balance associated with these actions is $0. The Company completed these actions in fiscal 2020.
During fiscal 2020, the Company announced restructuring programs to improve efficiencies of its operations in EMEA. The Company estimates that the
total charges for these actions will amount to approximately $7,500, from cash charges primarily for employee severance-related payments to
approximately 70 employees. During fiscal 2020, the Company recorded restructuring charges of $5,422 and incurred $3,197 in costs against the accrual.
As of March 31, 2020, the reserve balance associated with these actions is $2,019. The Company expects to complete these actions in fiscal 2021.
During fiscal 2020, the Company announced restructuring programs to improve efficiencies of its operations in the Americas. The Company estimates that
the total charges for these actions will amount to approximately $2,600, from cash charges primarily for employee severance-related payments to
approximately 60 employees. During fiscal 2020, the Company recorded restructuring charges of $2,586 and incurred $2,145 in costs against the accrual.
As of March 31, 2020, the reserve balance associated with these actions is $431. The Company expects to complete this action in fiscal 2021.
During fiscal 2020, the Company announced a restructuring program to improve efficiencies of its operations in Asia. The total charges for these actions
amount to $577, primarily from cash charges for employee severance-related payments to approximately 30 employees. During fiscal 2020, the Company
recorded cash restructuring charges of $522, non-cash charges of $55 and incurred $522 in costs against the accrual. As of March 31, 2020, the reserve
balance associated with this action is $0. The Company completed this action in fiscal 2020.
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A roll-forward of the restructuring reserve is as follows:
Balance at March 31, 2017
Accrued
Costs incurred
Foreign currency impact and other
Balance at March 31, 2018
Accrued
Costs incurred
Foreign currency impact and other
Balance at March 31, 2019
Accrued
Costs incurred
Foreign currency impact and other
Balance at March 31, 2020
Other Exit Charges
Employee
Severance
$
2,668 $
4,757
(4,849)
317
$
2,893 $
6,554
(6,893)
(198)
$
2,356 $
10,395
(9,179)
(247)
$
3,325 $
Other
Total
144 $
445
(574)
1
16 $
1,639
(1,086)
27
596 $
402
(995)
(3)
— $
2,812
5,202
(5,423)
318
2,909
8,193
(7,979)
(171)
2,952
10,797
(10,174)
(250)
3,325
During fiscal 2019, the Company committed to a plan to close its facility in Targovishte, Bulgaria, which produced diesel-electric submarine batteries.
Management determined that the future demand for batteries of diesel-electric submarines was not sufficient given the number of competitors in the
market. The Company estimated that the total charges for these actions will amount to approximately $30,000. In fiscal 2019, the Company recorded
charges of $20,242 relating to severance and inventory and fixed asset write-offs. The Company recorded an additional $5,123 relating to cash and non-
cash charges during fiscal 2020.
In keeping with its strategy of exiting the manufacture of batteries for diesel-electric submarines, during the second quarter of fiscal 2020, the Company
also sold certain licenses and assets for $2,031 and recorded a net gain of $892, which is reported in exit charges.
During the second quarter of fiscal 2020, the Company wrote off $5,441 of assets at its Kentucky and Tennessee plants, as a result of its strategic product
mix shift from traditional flooded batteries to maintenance free lead acid and lithium batteries.
During fiscal 2019, the Company recorded exit charges of $4,930 relating to the disposition of GAZ Geräte- und Akkumulatorenwerk Zwickau GmbH, a
wholly-owned German subsidiary and $957 relating to dissolving a joint venture in Tunisia. These exit activities are a consequence of the Company's
strategic decision to streamline its product portfolio and focus its efforts on new technologies.
During fiscal 2019, as part of the aforementioned program to convert its India operations from mainly reserve power production to motive power
production, the Company recorded a non-cash write off of reserve power inventories of $526, which was reported in cost of goods sold and a $660 non-
cash write-off related to reserve power fixed assets in restructuring charges.
During fiscal 2018, the Company wrote off $3,457 of inventories, relating to the closing of its Cleveland, Ohio charger manufacturing facility, which was
reported in cost of goods sold.
During fiscal 2018, the Company recorded exit charges of $3,292 related to the South Africa joint venture, consisting of cash charges of $2,575 primarily
relating to severance and non-cash charges of $717. Included in the non-cash charges were $2,157 relating to the inventory adjustment which was reported
in cost of goods sold, partially offset by a credit of $1,099 relating to a change in estimate of contract losses and a $341 gain on deconsolidation of the joint
venture. Weakening of the general economic environment in South Africa, reflecting the limited growth in the mining industry, affected the joint venture’s
ability to compete effectively in the marketplace and consequently, the Company initiated an exit plan in consultation with its joint venture partner in the
second quarter of fiscal 2018. The joint venture was under liquidation, which resulted in a loss of control and deconsolidation of the joint venture. The
impact of the deconsolidation has been reflected in the Consolidated Statement of Income in fiscal 2018 and was deemed not material.
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Richmond, Kentucky Plant Fire
On September 19, 2019, a fire broke out in the battery formation area of the Company's Richmond, Kentucky motive power production facility. The
Company maintains insurance policies for both property damage and business interruption and are finishing cleanup and repair. The Company estimates
that the total claim, including the replacement of inventory and equipment, the cleanup and repairs to the building, as well as the claim for business
interruption may exceed $50,000.
As of March 31, 2020, the Company recorded $17,037 of damages caused to its fixed assets and inventories, as well as for cleanup, asset replacement and
other ancillary activities directly associated with the fire, which were initially reflected as a receivable for probable insurance recoveries. The Company
received $12,000 in advances related to its initial claims for recovery from its property and casualty insurance carriers in fiscal 2020. The Company also
recorded a receivable of $5,000 related to a partial settlement of its claim for business interruption which is recorded as a reduction to cost of goods sold in
the Consolidated Statements of Income.
21. 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:
Balance at beginning of year
Current year provisions
Costs incurred
Warranty reserves of acquired businesses
Foreign currency translation adjustment
Balance at end of year
22. Other (Income) Expense, Net
Other (income) expense, net consists of the following:
Foreign exchange transaction losses (gains)
Non-service components of pension expense
Other
Total
Fiscal year ended March 31,
2020
2019
2018
$
54,568 $
50,602 $
27,622
(25,778)
6,995
118
23,679
(25,053)
7,535
(2,195)
$
63,525 $
54,568 $
46,116
21,706
(18,820)
—
1,600
50,602
Fiscal year ended March 31,
2020
2019
2018
264 $
615
(1,294)
(415) $
(3,044) $
1,502
928
(614) $
5,499
1,464
556
7,519
$
$
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23. Business Segments
Summarized financial information related to the Company’s reportable segments at March 31, 2020, 2019 and 2018 and for each of the fiscal years then
ended is shown below.
Net sales by segment to unaffiliated customers
Americas
EMEA
Asia
Total net sales
Net sales by product line
Reserve power
Motive power
Total net sales
Intersegment sales
Americas
EMEA
Asia
Total intersegment sales(1)
Operating earnings by segment
Americas
EMEA
Asia
Inventory step up to fair value relating to acquisitions - Americas
Inventory adjustment relating to exit activities - Americas
Inventory adjustment relating to exit activities - EMEA
Inventory adjustment relating to exit activities - Asia
Restructuring charges - Americas
Restructuring and other exit charges - EMEA
Restructuring charges - Asia
Impairment of indefinite-lived intangibles - EMEA
Impairment of goodwill - Asia
Fixed asset write-off relating to exit activities and other - Americas
Legal proceedings charge, net - EMEA
Total operating earnings(2)
Property, plant and equipment, net
Americas
EMEA
Asia
Total
Capital Expenditures
Americas
EMEA
Asia
Total
Depreciation and Amortization
Americas
Fiscal year ended March 31,
2020
2019
2018
$
2,082,290 $
1,690,912 $
1,429,888
787,256
218,322
860,563
256,542
849,420
302,583
3,087,868 $
2,808,017 $
2,581,891
1,739,675 $
1,416,173 $
1,348,193
1,391,844
3,087,868 $
2,808,017 $
1,247,900
1,333,991
2,581,891
46,299 $
28,753 $
148,773
21,053
123,274
34,531
216,125 $
186,558 $
206,908 $
186,814 $
50,168
1
(1,854)
—
—
—
(2,586)
(11,315)
(1,424)
(4,549)
(39,713)
(5,441)
—
190,195 $
71,963
3,213
(7,263)
—
(2,590)
(526)
(4,066)
(26,989)
(3,654)
—
—
—
(4,437)
212,465 $
325,435 $
257,559 $
104,909
49,670
94,932
56,948
480,014 $
409,439 $
74,931 $
23,788
2,706
101,425 $
45,029 $
18,972
6,371
70,372 $
29,513
133,164
23,375
186,052
189,466
77,671
12,647
—
(3,457)
—
—
(1,246)
(4,023)
(212)
—
—
—
—
270,846
210,998
118,263
60,999
390,260
46,905
18,392
4,535
69,832
65,711 $
40,675 $
30,421
$
$
$
$
$
$
$
$
$
$
$
$
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EMEA
Asia
Total
14,291
7,342
87,344 $
15,128
7,545
63,348 $
16,198
7,698
54,317
$
(1) Intersegment sales are presented on a cost-plus basis which takes into consideration the effect of transfer prices between legal entities.
(2) The Company does not allocate interest expense or other (income) expense, net, to the reportable segments.
The Company markets its products and services in over 100 countries. Sales are attributed to countries based on the location of sales order approval and
acceptance. Sales to customers in the United States were 58.1%, 48.5% and 49.2% for fiscal years ended March 31, 2020, 2019 and 2018, respectively.
Property, plant and equipment, net, attributable to the United States as of March 31, 2020 and 2019, were $277,358 and $202,985, respectively. No single
country, outside the United States, accounted for more than 10% of the consolidated net sales or net property, plant and equipment and, therefore, was
deemed not material for separate disclosure.
24. Quarterly Financial Data (Unaudited)
The Company reports interim financial information for 13-week periods, except for the first quarter, which always begins on April 1, and the fourth quarter,
which always ends on March 31. The four quarters in fiscal 2020 ended on June 30, 2019, September 29, 2019, December 29, 2019, and March 31, 2020,
respectively. The four quarters in fiscal 2019 ended on July 1, 2018, September 30, 2018, December 30, 2018, and March 31, 2019, respectively.
Fiscal year ended March 31, 2020
Net sales
$
780,230 $
762,137 $
763,698 $
781,803 $
3,087,868
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Fiscal Year
Gross profit
Operating earnings(1)(3)(5)
Net earnings (loss)(7)
Net earnings (loss) attributable to EnerSys
stockholders
Net earnings (loss) per common share
attributable to EnerSys stockholders—basic
$
Net earnings (loss) per common share
attributable to EnerSys stockholders—diluted $
Fiscal year ended March 31, 2019
201,512
68,336
48,636
197,317
58,710
62,698
185,241
43,084
27,305
200,796
20,065
(1,523)
784,866
190,195
137,116
48,636
62,698
27,305
(1,523)
137,116
1.14 $
1.48 $
0.65 $
(0.04) $
1.13 $
1.47 $
0.64 $
(0.04) $
3.23
3.20
Net sales
$
670,930 $
660,462 $
680,022 $
796,603 $
2,808,017
Gross profit
Operating earnings(2)(4)(6)
Net earnings(8)
Net earnings attributable to EnerSys
stockholders
Net earnings per common share attributable
to EnerSys stockholders—basic
Net earnings per common share attributable
to EnerSys stockholders—diluted
$
$
165,334
64,179
46,020
160,880
63,357
47,447
164,546
49,951
48,614
202,266
34,978
18,546
693,026
212,465
160,627
45,860
47,424
48,417
18,538
160,239
1.09 $
1.13 $
1.14 $
0.43 $
1.08 $
1.11 $
1.12 $
0.42 $
3.79
3.73
(1) Included in Operating earnings were inventory adjustments relating to the inventory step up to fair value relating to the NorthStar acquisition of
$3,845 and $(1,991) in the third and fourth quarter of fiscal 2020, respectively.
(2) Included in Operating earnings were inventory adjustment relating to exit activities of $526 and $2,590 in the first and fourth quarter of fiscal 2019,
respectively. Also included were inventory adjustments relating to the inventory step up to fair value relating to Alpha acquisition of $3,747 and
$3,516 in the third and fourth quarter of fiscal 2019, respectively.
(3) Included in Operating earnings were restructuring and other exit charges of $2,372, $6,282, $9,417 and $2,695 for the first, second, third and fourth
quarters of fiscal 2020, respectively.
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(4) Included in Operating earnings were restructuring and other exit charges of $1,739, $1,121, $5,392 and $26,457 for the first, second, third and
fourth quarters of fiscal 2019, respectively.
(5) Included in Operating earnings for the fourth quarter of fiscal 2020 were charges relating to the impairment of goodwill for $39,713 and other
indefinite-lived intangibles for $4,549.
(6) Included in Operating earnings were legal proceedings settlement income of $2,843 in the third quarter and expense of $7,280 in the fourth quarter
of fiscal 2019.
(7) Included in net earnings was a tax benefit of $21,000 for the second quarter of fiscal 2020, on account of the Swiss tax reform.
(8) Included in net earnings was a tax benefit of $13,483 for the third quarter of fiscal 2019, on account of the Tax Act.
25. Subsequent Events
On May 21, 2020, the Company announced the payment of a quarterly cash dividend of $0.175 per share of common stock to be paid on June 26, 2020, to
stockholders of record as of June 12, 2020.
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Allowance for doubtful accounts:
Fiscal year ended March 31, 2018
Fiscal year ended March 31, 2019
Fiscal year ended March 31, 2020
SCHEDULE II
EnerSys
Valuation and Qualifying Accounts
(In Thousands)
Allowance for Doubtful Accounts
Balance at
Beginning of
Period
Additions
Charged to
Expense
Write-Offs Net
of Recoveries
Other(1)
Balance at
End of
Period
$
12,662 $
822 $
(1,400) $
559 $
12,643
10,813
1,385
4,821
(2,459)
(642)
(756)
254
12,643
10,813
15,246
Tax Valuation Allowance
Balance at
Beginning of
Period
Additions
Charged to
Expense
Valuation
Allowance
Reversal
Business
Combination
Adjustments
Other(1) (2) (3)
Balance at
End of
Period
Deferred tax asset—valuation allowance:
Fiscal year ended March 31, 2018
Fiscal year ended March 31, 2019
Fiscal year ended March 31, 2020
$
27,053 $
4,853 $
(14,132) $
— $
(2,519) $
15,255
17,519
2,978
7,494
(99)
(3,145)
1,157
(688)
(1,772)
(229)
15,255
17,519
20,951
(1)
(2)
(3)
Primarily the impact of currency changes.
In fiscal 2019, “Other” included expiration of net operating losses for which a full valuation allowance was recorded.
In fiscal 2018, “Other” also included an offset to adjustments to foreign net operating losses for which a full valuation allowance was recorded.
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ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation,
the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls
and procedures are effective. The Company completed the NorthStar acquisition on September 30, 2019 and has not yet included NorthStar in the
assessment of the effectiveness of the Company's internal control over financial reporting. Accordingly, pursuant to the SEC's general guidance that an
assessment of a recently acquired business may be omitted from the scope of an assessment in the year of acquisition, the scope of the Company's
assessment of the effectiveness of its disclosure controls and procedures does not include NorthStar. NorthStar accounted for 6.7% of total assets as of
March 31, 2020 and 1.8% of net sales for the year ended March 31, 2020.
(b) Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of the fiscal year to which this report relates that have
materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The report called for by Item 308(a) of Regulation S-K is included herein as “Management Report on Internal Control Over Financial Reporting.”
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. With the participation of the Chief
Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting
based on the framework and criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework).
Management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of
NorthStar, which was acquired on September 30, 2019, and is included in the 2020 consolidated financial statements of the Company, accounted for 6.7%
of total assets as of March 31, 2020 and 1.8% of net sales for the year ended March 31, 2020.
Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of March 31, 2020.
The attestation report called for by Item 308(b) of Registration S-K is included herein as “Report of Independent Registered Public Accounting Firm,”
which appears in Item 8 in this Annual Report on Form 10-K.
/s/ David M. Shaffer
David M. Shaffer
Chief Executive Officer
/s/ Michael J. Schmidtlein
Michael J. Schmidtlein
Chief Financial Officer
ITEM 9B.
OTHER INFORMATION
Not applicable.
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PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated by reference from the sections entitled “Board of Directors,” “Executive Officers,” “Section 16(a)
Beneficial Ownership Reporting Compliance,” “Corporate Governance—Independence of Directors,” “Corporate Governance—Process for Selection of
Director Nominee Candidates,” “Audit Committee Report,” and “Certain Relationships and Related Transactions—Employment of Related Parties” of the
Company’s definitive proxy statement for its 2020 Annual Meeting of Stockholders (the “Proxy Statement”) to be filed no later than 120 days after the
fiscal year end.
We have adopted a Code of Business Conduct and Ethics that applies to all of our officers, directors and employees (including our Chief Executive Officer,
Chief Financial Officer, and Corporate Controller) and have posted the Code on our website at www.enersys.com, and a copy is available in print to any
stockholder who requires a copy. If we waive any provision of the Code applicable to any director, our Chief Executive Officer, Chief Financial Officer,
and Corporate Controller, such waiver will be promptly disclosed to the Company’s stockholders through the Company’s website.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the sections entitled “Corporate Governance—Compensation Committee” and
“Executive Compensation” of the Proxy Statement”) to be filed no later than 120 days after the fiscal year end.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT RELATED STOCKHOLDER
MATTERS
The information required by this item is incorporated by reference from the section entitled “Security Ownership of Certain Beneficial Owners and
Management” of the Proxy Statement to be filed no later than 120 days after the fiscal year end.
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security
holders
Total
Equity Compensation Plan Information
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants
and rights
(a)
2,290,152 (1)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
$
67.66 (2)
—
2,290,152
$
—
67.66
Number of
securities
remaining available
for future issuance
under equity
compensation plans
(excluding
securities reflected
in column (a))
(c)
3,593,817
—
3,593,817
(1) Assumes a 200% payout on market and performance condition-based awards.
(2) Awards of restricted stock units, market and performance condition-based awards and deferred stock units and stock units held in both the EnerSys
Voluntary Deferred Compensation Plan for Non-Employee Directors and the EnerSys Voluntary Deferred Compensation Plan for Executives were
not included in calculating the weighted-average exercise price as they will be settled in shares of common stock for no consideration.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference from the sections entitled “Corporate Governance,” and “Certain Relationships and
Related Transactions” of the Proxy Statement to be filed no later than 120 days after the fiscal year end.
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ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated by reference from the section entitled “Audit Committee Report” of the Proxy Statement to be filed
no later than 120 days after the fiscal year end.
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PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Report:
(1) Consolidated Financial Statements
See Index to Consolidated Financial Statements.
(2) Financial Statement Schedule
The following consolidated financial statement schedule should be read in conjunction with the consolidated financial statements (see Item 8. “Financial
Statements and Supplementary Data:”): Schedule II—Valuation and Qualifying Accounts.
All other schedules are omitted because they are not applicable or the required information is contained in the consolidated financial statements or notes
thereto.
(b) The following documents are filed herewith as exhibits:
Exhibit Number
3.1
Description of Exhibit
Fifth Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to Amendment No. 3 to EnerSys’ Registration
Statement on Form S-1 (File No. 001-32253) filed on February 6, 2013).
3.2
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
Third Amended and Restated Bylaws (incorporated by reference to Exhibits 3.1 to EnerSys’ Current Report on Form 8-K (File No.
001-32253) filed on August 3, 2016).
Indenture, dated as of April 23, 2015, among EnerSys, the Guarantors party thereto and MUFG Union Bank, N.A., as Trustee
(incorporated by reference to Exhibit 4.1 to EnerSys’ Current Report on Form 8-K (File No. 00-32253) filed on April 23, 2015).
Fourth Supplemental Indenture, dated as of December 11, 2019, among EnerSys, the Guarantors party thereto and MUFG Union
Bank, N.A., as Trustee (incorporated by reference to Exhibit 4.2 to EnerSys’ Current Report on Form 8-K (File No. 00-32253) filed
on December 11, 2019).
Form of 4.375% Senior Note due 2027 (incorporated by reference to Exhibit 4.3 to EnerSys’ Current Report on Form 8-K (File No.
00-32253) filed on December 11, 2019).
Description of Capital Stock (filed herewith).
Credit Agreement, dated as of August 4, 2017, among EnerSys, certain other borrowers and guarantors identified therein, Bank of
America, N.A., as administrative agent, swing line lender and Letters of Credit issuer, and other lenders party thereto (incorporated
herein by reference to Exhibit 10.4 of EnerSys’ Quarterly Report on Form 10-Q for the quarter ended July 2, 2017 (File No. 001-
32253) filed with the SEC on August 9, 2017).
Stock Subscription Agreement, dated March 22, 2002, among EnerSys Holdings Inc., Morgan Stanley Dean Witter Capital Partners
IV, L.P., Morgan Stanley Dean Witter Capital Investors IV, L.P., MSDW IV 892 Investors, L.P., Morgan Stanley Global Emerging
Markets Private Investment Fund, L.P. and Morgan Stanley Global Emerging Markets Private Investors, L.P. (incorporated by
reference to Exhibit 10.27 to Amendment No. 3 to EnerSys’ Registration Statement on Form S-1 (File No. 333-115553) filed on July
13, 2004).
Employment Offer Letter, dated October 20, 2014, of EnerSys Delaware Inc. to David M. Shaffer (incorporated by reference to
Exhibit 10.5 to EnerSys' Quarterly Report on Form 10-Q for the period ended September 28, 2014 (File No. 001-32253) filed on
November 5, 2014).
EnerSys 2013 Management Incentive Plan (incorporated by reference to Appendix A to EnerSys’ Definitive Proxy Statement on
Schedule 14A (File No. 001-32253) filed on June 27, 2013).
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Exhibit Number
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
Description of Exhibit
Second Amended and Restated EnerSys 2010 Equity Incentive Plan (incorporated by reference to Appendix A to EnerSys’ Definitive
Proxy Statement on Schedule 14A (File No. 001-32253) filed on June 23, 2016).
EnerSys Voluntary Deferred Compensation Plan for Executives as amended August 5, 2010, and May 26, 2011 (incorporated by
reference to Exhibit 10.23 to EnerSys’ Annual Report on Form 10-K (File No. 001-32253) filed on May 31, 2011).
EnerSys 2018 Employee Stock Purchase Plan (incorporated by reference to Appendix A to EnerSys’ Definitive Proxy Statement on
Schedule 14A (File No. 001-32253) filed on June 21, 2018).
Form of Market Share Restricted Stock Unit Agreement – Employees (incorporated by reference to Exhibit 10.31 to EnerSys’ Annual
Report on Form 10-K (File No. 001-32253) filed on June 1, 2010).
Form of Deferred Stock Unit Agreement – Non-Employee Directors – 2010 Equity Incentive Plan (incorporated by reference to
Exhibit 10.35 to EnerSys’ Annual Report on Form 10-K (File No. 001-32253) filed on May 31, 2011).
Form of Severance Agreement, (incorporated by reference to Exhibit 10.37 to EnerSys’ Annual Report on Form 10-K (File No. 001-
32253) filed on May 28, 2013).
Form of Stock Option Agreement - Employees - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.32 to EnerSys’
Annual Report on Form 10-K for the year ended March 31, 2014 (File No. 001-32253) filed on May 28, 2014).
Form of Stock Option Agreement - Senior Executives - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.33 to
EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2014 (File No. 001-32253) filed on May 28, 2014).
Form of Indemnification Agreement - Directors and Officers (incorporated by reference to Exhibit 10.37 to EnerSys’ Annual Report
on Form 10-K for the year ended March 31, 2016 (File No. 001-32253) filed on May 28, 2014).
Form of Indemnification Agreement - Directors and Officers (incorporated by reference to Exhibit 10.26 to EnerSys’ Annual Report
on Form 10-K for the year ended March 31, 2017 (File No. 001-32253) filed on May 30, 2017).
Form of Stock Option Agreement - Employees - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.42 to EnerSys’
Annual Report on Form 10-K for the year ended March 31, 2015 (File No. 001-32253) filed on May 27, 2015).
Form of Stock Option Agreement - Executives - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.43 to EnerSys’
Annual Report on Form 10-K for the year ended March 31, 2015 (File No. 001-32253) filed on May 27, 2015).
Form of Stock Option Agreement - Senior Executives - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.44 to
EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2015 (File No. 001-32253) filed on May 27, 2015).
Form of Restricted Stock Unit Agreement - Employees - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.45 to
EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2015 (File No. 001-32253) filed on May 27, 2015).
Form of Stock Option Agreement - Senior Executives - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to
EnerSys’ Quarterly Report on Form 10-Q for the period ended September 27, 2015 (File No. 001-32253) filed on November 2, 2015).
Form of Stock Option Agreement - Employees - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.46 to EnerSys’
Annual Report on Form 10-K for the year ended March 31, 2016 (File No. 001-32253) filed on May 31, 2016).
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Exhibit Number
Description of Exhibit
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
21.1
23.1
31.1
31.2
32.1
Form of Restricted Stock Unit Agreement - Employees - 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.47 to
EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2016 (File No. 001-32253) filed on May 31, 2016).
Employment Agreement, dated December 21, 2015, between EH Europe GmbH and Holger P. Aschke (incorporated by reference to
Exhibit 10.49 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2016 (File No. 001-32253) filed on May 31,
2016).
Employment Agreement, dated April 1, 2016, between EnerSys Reserve Power Pte Ltd. and Myles Jones (incorporated by reference
to Exhibit 10.41 to EnerSys’ Annual Report on Form 10-K for the year ended March 31, 2017 (File No. 001-32253) filed on May 30,
2017).
Form of letter agreement, dated June 7, 2017, between EnerSys and David M. Shaffer (incorporated herein by reference to Exhibit
10.1 of EnerSys’ Current Report on Form 8-K (File No. 001-32253) filed with the SEC on June 12, 2017).
Form of letter agreement, dated June 7, 2017, between EnerSys and an executive officer (incorporated herein by reference to Exhibit
10.1 of EnerSys’ Current Report on Form 8-K (File No. 001-32253) filed with the SEC on June 12, 2017).
Form of Deferred Stock Unit Agreement - Non-Employee Directors - 2017 Equity Incentive Plan (incorporated herein by reference to
Exhibit 10.5 of EnerSys’ Quarterly Report on Form 10-Q for the quarter ended July 2, 2017 (File No. 001-32253) filed with the SEC
on August 9, 2017).
EnerSys 2017 Equity Incentive Plan filed on June 20, 2017.
Form of Severance Letter Agreement, dated April 1, 2019, between EnerSys and Shawn M. O’Connell.
Employment Agreement, dated as of October 6, 2008, between Alpha Technologies, Inc. and Andrew Zogby.
Employment Agreement, dated as of September 13, 2012, between Alpha Technologies, Inc. and Andrew Zogby.
Employment Agreement Extension, effective June 27, 2017, between Alpha Technologies, Inc. and Andrew Zogby.
Assignment of Employment Agreement, dated December 6, 2018, between Alpha Technologies, Inc. and Alpha Technologies
Services, Inc. regarding Employment Agreement, dated as of October 6, 2008, between Alpha Technologies, Inc. and Andrew Zogby
and subsequent extensions 2020.
Subsidiaries of the Registrant (filed herewith).
Consent of Ernst & Young LLP (filed herewith).
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) Under the Securities Exchange Act of 1934 (filed
herewith).
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) Under the Securities Exchange Act of 1934 (filed
herewith).
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
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Exhibit Number
101.INS
Description of Exhibit
XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded
within the inline XBRL document.
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Document
101.LAB
XBRL Taxonomy Extension Label Document
101.PRE
XBRL Taxonomy Extension Presentation Document
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
June 1, 2020
ENERSYS
By
POWER OF ATTORNEY
/s/ DAVID M. SHAFFER
David M. Shaffer
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose name appears below hereby appoints David M. Shaffer and Michael J.
Schmidtlein and each of them, as his true and lawful agent, with full power of substitution and resubstitution, for him and in his, place or stead, in any and
all capacities, to execute any and all amendments to the within annual report, and to file the same, together with all exhibits thereto, with the Securities and
Exchange Commission, granting unto each said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this annual report has been signed below by the following persons in the
capacities and on the dates indicated:
Name
Title
/s/ DAVID M. SHAFFER
Chief Executive Officer
David M. Shaffer
Date
June 1, 2020
/s/ MICHAEL J. SCHMIDTLEIN
Chief Financial Officer
June 1, 2020
Michael J. Schmidtlein
/s/ KERRY M. KANE
Kerry M. Kane
Vice President and Corporate Controller (Principal
Accounting Officer)
June 1, 2020
/s/ HWAN-YOON F. CHUNG
Director
Hwan-yoon F. Chung
/s/ NELDA J. CONNORS
Nelda J. Connors
/s/ HOWARD I. HOFFEN
Howard I. Hoffen
Director
Director
/s/ ARTHUR T. KATSAROS
Director
Arthur T. Katsaros
/s/ JOHN F. LEHMAN
John F. Lehman
Director
/s/ GENERAL ROBERT MAGNUS, USMC (RETIRED)
Director
General Robert Magnus, USMC (Retired)
/s/ DENNIS S. MARLO
Dennis S. Marlo
/s/ PAUL J. TUFANO
Paul J. Tufano
/s/ RONALD P. VARGO
Ronald P. Vargo
Director
Director
Director
117
June 1, 2020
June 1, 2020
June 1, 2020
June 1, 2020
June 1, 2020
June 1, 2020
June 1, 2020
June 1, 2020
June 1, 2020
DESCRIPTION OF CAPITAL STOCK
EXHIBIT 4.4
The following information describes our capital stock and provisions of our certificate of incorporation, as amended, and bylaws, as amended. This
description is only a summary. You should refer to our certificate of incorporation and bylaws, which have been filed with the Securities and Exchange
Commission.
General Matters
Our authorized capital stock consists of 135,000,000 shares of common stock, par value $0.01 per share, of which 42,452,053 shares were issued and
outstanding as of May 28, 2020 and 1,000,000 shares of undesignated preferred stock, par value $0.01 per share, none of which was outstanding as of
May 28, 2020.
The following summary describes the material provisions of our capital stock. This summary is not meant to be a complete description of our capital stock
and we urge you to read our certificate of incorporation and our bylaws, which are incorporated by reference into this prospectus.
Certain provisions of our certificate of incorporation and bylaws summarized below may be deemed to have an anti-takeover effect and may delay or
prevent a tender offer or takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over
the market price for shares of common stock.
Common Stock
We have one class of common stock. All holders of shares of common stock are entitled to the same rights and privileges. Holders of shares of common
stock are entitled to one vote per share on the election or removal of our directors and on all other matters to be voted on by our stockholders.
Holders of shares of common stock are not entitled to any preemptive or preferential rights to subscribe for additional shares of any class of our capital
stock. The holders of shares of common stock are entitled to receive dividends, when, as and if declared by our board of directors, out of funds legally
available therefor. Holders of shares of common stock are entitled to share ratably, upon dissolution or liquidation, in the assets available for distribution to
holders of shares of common stock after the payment of all prior claims.
Preferred Stock
Our authorized capital stock includes 1,000,000 shares of undesignated preferred stock, none of which is issued or outstanding. Our board of directors is
authorized, without further action by our stockholders, to provide for the issuance of such preferred stock in one or more series and to fix the dividend rate,
conversion privileges, voting rights, redemption rights, redemption price or prices, liquidation preferences and qualifications, limitations and restrictions
thereof with respect to each series. Holders of shares of preferred stock may be entitled to receive a preference payment in the event of any liquidation,
dissolution or winding-up of our company before any payment is made to the holders of shares of our common stock. In some circumstances, the issuance
of shares of preferred stock may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of control by a holder of
a large block of our securities or the removal of incumbent management. Upon the affirmative vote of our board of directors, without stockholder approval,
we may issue shares of preferred stock with voting and conversion rights that could adversely affect the holders of shares of our common stock. We have
no current intention to issue any shares of preferred stock.
Section 203 of the Delaware General Corporation Law
Section 203 of the Delaware General Corporation Law may have the effect of delaying, deferring or preventing a change of control. In general, Section 203
of the Delaware General Corporation Law prohibits a publicly held
Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the date such
stockholder became an “interested stockholder,” unless:
•
•
•
prior to such date the board of directors approved either the “business combination” or the transaction that resulted in the stockholder
becoming an “interested stockholder”;
upon consummation of the transaction that resulted in the stockholder becoming an “interested stockholder,” the “interested stockholder”
owned at least 85% of the voting stock outstanding at the time the transaction commenced, excluding for purposes of determining the voting
stock outstanding those shares owned by persons who are directors and also officers and certain other stockholders; or
on or subsequent to such date the “business combination” is approved by the board of directors and authorized at an annual or special meeting
of stockholders by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the “interested stockholder.”
A “business combination” includes certain mergers, stock or asset sales and other transactions resulting in a financial benefit to the “interested
stockholder.” An “interested stockholder” is a person who, together with affiliates and associates, owns (or in the preceding three years, did own) 15% or
more of the outstanding voting stock. The statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may
discourage attempts to acquire us.
Limitation of Liability and Indemnification of Directors and Officers
We have included in our certificate of incorporation and bylaws provisions to:
•
•
eliminate the personal liability of our directors for monetary damages resulting from breaches of their fiduciary duty, but such provision does
not eliminate liability for breaches of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, violations under Section 174 of the Delaware General Corporation Law or for any transaction from which the
director derived an improper personal benefit; and
indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law, including circumstances in
which indemnification is otherwise discretionary.
Acting pursuant to the provisions of our certificate of incorporation and bylaws and the provisions of Section 145 of the Delaware General Corporation
Law, we have entered into agreements with each of our officers and directors to indemnify them to the fullest extent permitted by such provisions and such
law. We also are authorized to carry directors’ and officers’ insurance providing indemnification for our directors, officers and certain employees for some
liabilities. We believe that these indemnification provisions and insurance are useful to attract and retain qualified directors and executive officers.
The limitation of liability and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a
lawsuit against directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation
against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, investments in our
common stock may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these
indemnification provisions.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors or officers pursuant to the provisions described
above, or otherwise, we have been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
Other Provisions of our Certificate of Incorporation and Bylaws
Classified Board of Directors.
Our certificate of incorporation provides for our board of directors to be divided into three classes of directors serving staggered three-year terms. Each
class shall consist, as nearly as may be practicable, of one-third of the total number of directors constituting our entire board of directors. As a result,
approximately one-third of our board of directors will be elected each year. When coupled with the provisions of our certificate of incorporation and bylaws
authorizing only our board of directors to fill vacant directorships, a stockholder may be precluded from removing incumbent directors without cause and
simultaneously gaining control of our board of directors by filling the vacancies created by such removal with its own nominees. This provision of our
certificate of incorporation may not be amended or repealed by our stockholders except with the consent of the holders of at least two-thirds of our
outstanding common stock.
Special Meeting of Stockholders.
Our certificate of incorporation provides that special meetings of our stockholders may be called only by our board of directors or our Chairman of the
Board. This provision makes it more difficult for stockholders to take action opposed by our board of directors. This provision of our certificate of
incorporation may not be amended or repealed by our stockholders except with the consent of the holders of at least two-thirds of our outstanding common
stock.
No Stockholder Action by Written Consent.
Our certificate of incorporation provides that no action required or permitted to be taken at any annual or special meeting of our stockholders may be taken
without a meeting, and the power of our stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. Such
provision limits the ability of any stockholder to take action immediately and without prior notice to our board of directors. Such a limitation on a majority
stockholder’s ability to act might affect such person’s or entity’s decision to purchase our voting securities. This provision of our certificate of incorporation
may not be amended or repealed by the stockholders except with the consent of the holders of at least two-thirds of our outstanding common stock.
Advance Notice Requirements for Stockholder Proposals and Director Nominations.
Our bylaws provide that stockholders seeking to bring business before an annual meeting of stockholders, or to nominate candidates for election as
directors at an annual or special meeting of stockholders, must provide timely notice thereof in writing. To be timely, a stockholder’s notice must be
delivered to, or mailed and received at, our principal executive offices: in the case of an annual meeting that is called for a date that is within 30 days before
or after the anniversary date of the immediately preceding annual meeting of stockholders, not less than 90 days nor more than 120 days prior to such
anniversary date or, in the case of a special meeting called for the purpose of electing directors, not less than 90 days nor more than 120 days prior to such
special meeting or not later than the close of business on the tenth day following the date on which public disclosure of the date of the meeting is made; and
in the case of an annual meeting that is called for a date that is not within 30 days before or after the anniversary date of the immediately preceding annual
meeting, not later than the close of business on the tenth day following the date on which public disclosure of the date of the meeting was made. Our
bylaws also specify certain requirements for a stockholder’s notice to be in proper written form. These provisions may preclude some stockholders from
bringing matters before the stockholders at an annual or special meeting or from making nominations for directors at an annual or special meeting. You
should refer to our bylaws for a complete description of these requirements. As set forth below, our bylaws may not be amended or repealed by our
stockholders, except with the consent of holders of at least two-thirds of our outstanding common stock.
Majority Vote Requirement for Uncontested Director Elections.
The Corporate Governance and Nominating Committee has established informal procedures under which a director nominee must tender his or her
contingent resignation to the Nominating and Corporate Governance Committee in advance of an annual meeting of stockholders. If the Director Nominee
fails to receive a majority number of votes for re-election in an uncontested election at an annual meeting, the Nominating and Corporate Governance
Committee will make a recommendation to the board of directors whether to accept or reject the resignation or whether other action shall be taken. The
board of directors will act on the Committee's recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date of
the certification of the election results. The resignation becomes effective only if the director fails to receive a majority number of votes for re-election in
an uncontested election at an annual meeting and the board of directors accepts the resignation.
Adjournment of Meetings of Stockholders.
Our bylaws provide that when a meeting of our stockholders is convened, the presiding officer, if directed by our board of directors, may adjourn the
meeting if no quorum is present for the transaction of business or if our board of directors determines that adjournment is necessary or appropriate to enable
the stockholders to consider fully information that our board of directors determines has not been made sufficiently or timely available to stockholders or to
otherwise effectively exercise their voting rights. This provision will, under certain circumstances, make more difficult or delay actions by the stockholders
opposed by our board of directors. The effect of such provision could be to delay the timing of a stockholders’ meeting, including in cases where
stockholders have brought proposals before the stockholders that are in opposition to those brought by our board of directors and therefore may provide our
board of directors with additional flexibility in responding to such stockholder proposals. As set forth below, our bylaws may not be amended or repealed
by our stockholders, except with the consent of holders of at least two-thirds of our outstanding common stock.
No Cumulative Voting.
The Delaware General Corporation Law provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless our
certificate of incorporation provides otherwise. Our certificate of incorporation does not provide for cumulative voting.
Authorized but Unissued Capital Stock.
Our certificate of incorporation authorizes our board of directors to issue one or more classes or series of preferred stock, and to determine, with respect to
any such class or series of preferred stock, the voting powers (if any), designations, powers, preferences, rights and qualifications, limitations or restrictions
of such preferred stock. We have no current intention to issue any shares of preferred stock.
The Delaware General Corporation Law does not require stockholder approval for any issuance of previously authorized shares of our capital stock.
However, the listing requirements of the New York Stock Exchange, which will apply so long as our common stock is listed on the New York Stock
Exchange, require, among other things, stockholder approval of certain related party transactions involving issuances of common stock, or securities
convertible into or exercisable for common stock, if the issuance exceeds 1% of the number of shares of common stock outstanding or 1% of the voting
power outstanding before the issuance. In addition, shareholder approval is required for certain issuances of common stock, or securities convertible into or
exercisable for common stock, equal to or in excess of 20% of the voting power outstanding before such issuance or the number of shares of our common
stock outstanding before the issuance of common stock or securities convertible into or exercisable for common stock. These additional shares may be used
for a variety of corporate purposes, including future public offerings, to raise additional capital or to facilitate acquisitions.
One of the effects of the existence of unissued and unreserved common stock or preferred stock may be to enable our board of directors to issue shares to
persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of our company by means of
a merger, tender offer, proxy contest
or otherwise, and thereby protect the continuity of our management and possibly deprive the stockholders of opportunities to sell their shares of common
stock at prices higher than prevailing market prices.
Amendment of the Bylaws.
Our certificate of incorporation provides that our bylaws may not be amended or repealed by our stockholders except with the consent of holders of at least
two-thirds of our outstanding common stock and grants our board of directors the authority to amend and repeal our bylaws without a stockholder vote in
any manner not inconsistent with the laws of Delaware or our certificate of incorporation. This provision makes it more difficult for our stockholders to
make changes to our bylaws that are opposed by our board of directors. This provision of our certificate of incorporation may not be amended or repealed
by our stockholders except with the consent of holders of at least two-thirds of our outstanding common stock.
Transfer Agent and Registrar
Computershare is the transfer agent and registrar for our common stock.
Exhibit 10.28
April 1, 2019
Shawn M. O’Connell
{Address}
{City, State, Zip Code}
Re: Severance Agreement
Dear Shawn:
EnerSys (the “Company”) considers it essential and in the best interests of its stockholders to foster the continuous
employment of key management personnel. In this regard, the Board of Directors of the Company (the “Board”) recognizes that
the possibility of a termination of employment related to a change in control of the Company may exist and that such possibility,
and the uncertainty and questions that it may raise among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders.
The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and
dedication of members of the Company’s senior management, including you, to their assigned duties without distraction in the
face of potentially disturbing circumstances arising from the possibility of a termination of employment.
In order to induce you to remain in the employ of the Company, the Company agrees that you will receive the severance
benefits set forth in this letter agreement (the “Agreement”) in the event your employment with the Company is terminated under
the circumstances described below.
1.
Term of Agreement.
1.1 The term of this Agreement will commence on the date above (the “Effective Date”) and will continue for a
period of three (3) years thereafter. Commencing on the third anniversary of the Effective Date and on each anniversary thereafter
(“Anniversary Date”), this Agreement will automatically be renewed for one (1) additional year beyond the
term otherwise established, unless one party provides written notice to the other party, at least one (1) year in advance of an
Anniversary Date, of its intent not to renew this Agreement for an additional one year term. Nothing in this provision will
preclude termination as otherwise provided or permitted under this Agreement. Notwithstanding the foregoing, if a Change in
Control occurs after the Effective Date and during the term of this Agreement, this Agreement will continue in effect for a limited
period of two (2) years after the date of such Change in Control, unless terminated sooner in accordance with this Agreement.
1.2 You acknowledge that your employment with the Company constitutes “at-will” employment and that, because
you are an at-will employee, either you or the Company may terminate your employment at any time, upon written notice of
termination within a reasonable period of time before the effective date of the termination, subject to the procedures and
consequences set forth in this Agreement.
2. Severance Benefits.
2.1 Termination by the Company without Cause or by You with Good Reason in connection with a Change in
Control: If your employment hereunder is terminated by the Company other than for death, disability, or Cause or by you for
Good Reason, in each case (i) during the six (6) month period prior to a Change in Control and it is reasonably demonstrated by
you that your termination of employment was at the request of a third party who has taken steps reasonably calculated to effect a
Change in Control or otherwise arose in connection with or anticipation of a Change in Control or (ii) on or within twenty-four
(24) months after a Change in Control (such time periods, the “Protection Period”), you will be entitled to receive:
a. A lump sum cash payment within sixty (60) days following your termination of employment equal to the sum
of (i) your annual base compensation then in effect (or immediately prior to any reduction resulting in a
termination for Good Reason) and (ii) your annual cash bonus at such target level then in effect (or
immediately prior to any reduction resulting in a termination for Good Reason);
a. If you and your dependents, if applicable, were enrolled in the Company’s medical, vision, and/or dental
benefit plans on the date prior to the date of termination of employment, you may elect COBRA continuation
coverage and for a period of one (1) year, you will pay the amount of premiums you would have paid for such
coverage for such medical, vision, and/or dental benefits had you and your dependents, if applicable, continued
to receive such coverage as an active employee, at the same level of coverage in effect as of your date of
termination of employment; provided, however, that such reduced premiums will cease if you become eligible
to participate in comparable programs of a subsequent employer prior to the end of such one (1) year period;
and further provided that the Company will have no obligation to continue to maintain any plan or program
during such period, solely as a result of the provisions of this Agreement. If required by law, regulation, or
applicable guidance in order to
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not trigger any excise or penalty taxes, the Company shall have the right to substitute such coverage described
herein with a cash subsidy in its sole discretion;
b. Immediate and full vesting of any unvested and outstanding equity awards granted to you, payable
pursuant to the terms of any plan or other agreement under or pursuant to which any such equity awards were
granted; provided that to the extent the benefits provided under this paragraph conflict with the terms of any
such plan or agreement, the terms of such plan or agreement will control; and
c. A pro-rata payment from the Company’s annual incentive plan for the fiscal year in which your termination
occurred, equal to the payment you would have received had you remained in the employment of the Company
through the end of such fiscal year, multiplied by a fraction, the numerator of which is the number of full
months elapsed from the start of such fiscal year to the date of your termination of employment, and the
denominator of which is 12. Such amount, if any, will be paid at the time such award would otherwise have
been paid to other participants had your employment not terminated, but in no event later than two and one-half
months following the end of such fiscal year.
2.2 Good Reason: You will be considered to have terminated employment hereunder for Good Reason if such
termination of employment is on account of any of the following actions by the Company, which occur during the Protection
Period, without your express written consent:
a. A reduction of ten percent (10%) or more in your annual base compensation, other than a reduction which
is proportionate to a Company-wide reduction in senior management pay;
b. Any material diminution of your positions, duties, or responsibilities;
c. Any permanent reassignment of you to a location greater than fifty (50) miles from the location of your
primary office, unless such new location is closer to your primary residence; or
d. A material breach by the Company of its obligations under this Agreement.
Notwithstanding the foregoing, a termination by you will not be for “Good Reason,” unless you have given the Company
at least ten (10) business days written notice specifying the grounds upon which you intend to terminate your employment
hereunder for “Good Reason” and such notice is received by the Company within ninety (90) days of the date the event of “Good
Reason” occurred. In addition, any action or inaction by the Company which is remedied within
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thirty (30) days following such written notice will not constitute “Good Reason” for termination hereunder and will render such
notice null and void.
2.3 Change in Control. Change in Control means a “Change in Control” as defined under the EnerSys 2010 Equity
Incentive Plan, as such term may be amended therein from time to time.
2.4 Cause. “Cause” means any of the following events: (a) breach of your fiduciary duty to the Company or your
duty of loyalty to the Company; (b) willful act of material dishonesty with respect to any material matter involving the Company;
(c) theft or material misuse of Company property; (d) failure to conform in any material respect to the Company’s code of
conduct (i.e., the policies and procedures related to the employment of employees by the Company as set forth in an employee
handbook or any similar document or as communicated to you); (e) excessive absenteeism (which will not include authorized
absences for leave pursuant to the Family and Medical Leave Act, the Americans With Disabilities Act, or the Company’s
vacation, paid time off, or short-term disability leave plans, policies, or arrangements, or service in the uniformed services as
such term is defined by the Uniformed Services Employment and Reemployment Rights Act) having a material adverse effect on
Company business operations; (f) conviction of, or plea of guilty or nolo contendere to, a felony, any criminal charge involving
moral turpitude, or illegal substance abuse charges; (g) continuing neglect of management duties and responsibilities that has a
material adverse effect on the Company; (h) willful failure to timely report to the Board or direct supervisor information having a
material adverse effect on Company business operations; or (i) failure to meet reasonable and achievable documented
performance expectations (other than any such failure resulting from incapacity due to physical or mental illness).
2.5 Clawback – For Cause Matters. If, within ninety (90) days after a termination of your employment that entitles
you to severance benefits under Section 2, the Board becomes aware of facts that, if known during your employment, it
reasonably believes would have justified termination of your employment for Cause, the Company may refrain from paying any
unpaid amounts due under Section 2 or require you to promptly (but in no event less than ninety (90) days after notice to you of
such determination by the Board) repay any amounts previously paid or the value of any benefits previously received under
Section 2.
2.6 Accrued Benefits. Upon your termination of employment for any reason, you, or your estate, as applicable,
will receive your accrued but unpaid annual base compensation and any accrued but unpaid or otherwise vested benefits under
any Company benefit or incentive plan.
3. Best Net Benefit Limitation. Anything contained in this Agreement to the contrary notwithstanding, if any of the payments
or benefits received or to be received by you pursuant to this Agreement (which the parties agree will not include any portion of
payments allocated to the non-solicitation and non-competition provisions of Section 4 that are classified as payments of
reasonable compensation for purposes of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”)), when
taken together with payments and benefits provided to you under any other plans, contracts, or arrangements with the Company
(all such payments and benefits,
4
the “Total Payments”), will be subject to any excise tax imposed under Code Section 4999 (together with any interest or
penalties, the “Excise Tax”), then such Total Payments will be reduced to the extent necessary so that no portion thereof will be
subject to the Excise Tax; provided, however, that if you would receive in the aggregate greater value (as determined under Code
Section 280G and the regulations thereunder) on an after tax basis if the Total Payments were not subject to such reduction, then
no such reduction will be made. To effectuate the reduction described above, if applicable, the Company will first reduce or
eliminate the payments and benefits provided under this Agreement. All calculations required to be made under this Section,
including the portion of the payments hereunder to be allocated to the restrictive covenants set forth in Section 4, will be made by
the Company’s independent public accountants, subject to the right of your representative to review the same. The parties
recognize that the actual implementation of the provisions of this Section are complex and agree to deal with each other in good
faith to resolve any questions or disagreements arising hereunder.
4. Covenant Not to Compete; Nonsolicitation; Confidential Information; Nondisparagement.
4.1 You agree with the Company that you will not at any time, except in performance of your obligations to the
Company or with the prior written consent of the Company, directly or indirectly, reveal to any “Person” (as defined in Section
3(9) of the Employee Retirement Income Security Act of 1974, as amended) (other than the Company, or its employees, officers,
directors, shareholders, or agents) or use for your own benefit any information deemed to be confidential by the Company or any
of its subsidiaries or affiliates (such subsidiaries and affiliates, collectively “Affiliates”) (“Confidential Information”) relating to
the assets, liabilities, employees, goodwill, business affairs of the Company or any of its Affiliates, including, without limitation,
any information concerning past, present, or prospective customers, manufacturing processes, marketing, operating, or financial
data, or other confidential information used by, or useful to, the Company or any of its Affiliates and known (whether or not
known with the knowledge and permission of the Company or any of its Affiliates and whether or not at any time prior to the
Effective Date developed, devised, or otherwise created in whole or in part by your efforts) to you by reason of your employment
by, shareholdings in or other association with the Company or any of its Affiliates. You further agree that you will retain all
copies and extracts of any written or electronic Confidential Information acquired or developed by you during any such
employment, shareholding, or association in trust for the sole benefit of the Company, its Affiliates, and their successors and
assigns. You further agree that you will not, without the prior written consent of the Company, remove or take from the
Company’s or any of its Affiliate’s premises (or if previously removed or taken, you will promptly return) any written or
electronic Confidential Information or any copies or extracts thereof. Upon the request and at the expense of the Company, you
will promptly make all disclosures, execute all instruments and papers, and perform all acts reasonably necessary to vest and
confirm in the Company and its Affiliates, fully and completely, all rights created or contemplated by this Section 4.1. The term
“Confidential Information” will not include information that is or becomes generally available to the public other than as a result
of a disclosure by, or at the direction of, you. Your agreements set forth in this Section 4.1 regarding Confidential Information are
independent of, and in
5
addition to, your agreements set forth in the rest of Section 4 and will not be construed either to enlarge or to contract the scope
of such other agreements.
4.2 You agree with the Company that, for so long as you are employed by the Company or any of its Affiliates and
continuing for the Restricted Period (as defined below), you will not, without the prior written consent of the Company, directly
or indirectly, and whether as principal or investor or as an employee, officer, director, manager, partner, consultant, agent, or
otherwise, alone or in association with any other Person, become involved in a Competing Business (as defined below) in the
Americas, Europe, or Asia, or any other geographic area in which the Company or any of its Affiliates has engaged during such
period in any of the activities which comprise a Competing Business, or in which you have knowledge of the Company’s plans to
engage in any of the activities which comprise a Competing Business (including, without limitation, any area in which any
customer of the Company or any of its Affiliates may be located). This Section 4.2 will not be violated, however, by your
investment of up to $100,000 in the aggregate in one or several publicly-traded companies that engage in a Competing Business.
4.3 As a separate and independent covenant, you agree with the Company that, for so long as you are employed by
the Company or any of its Affiliates and continuing for the Restricted Period (as defined below), you will not in any way, directly
or indirectly (except in the course of your employment with the Company and its Affiliates), for the purpose of conducting or
engaging in any Competing Business, call upon, solicit, advise, or otherwise do, or attempt to do, business with any Person who
is, or was, during the then most recent 12-month period, a customer of the Company or any of its Affiliates, or take away or
interfere or attempt to take away or interfere with any custom, trade, business, patronage, or affairs of the Company or any of its
Affiliates, or hire or attempt to hire, or otherwise engage or attempt to engage as an independent contractor or otherwise any
Person who is, or was during the then most recent 12-month period, an employee, officer, representative, or agent of the
Company or any of its Affiliates, or solicit, induce, or attempt to solicit or induce any Person who is an employee, officer,
representative, or agent of the Company or any of its Affiliates to leave the employ of the Company or any of its Affiliates or
cease their business relationship with Company or any of its Affiliates (as the case may be), or violate the terms of their contracts,
or any employment arrangements, with the Company or any of its Affiliates.
4.4 For purposes of this Section 4, a “Competing Business” means a business or enterprise (other than the
Company and its Affiliates) that is engaged in any or all of the design, manufacture, importing, development, distribution,
marketing, or sale of:
a. reserve power products (including, without limitation, those products used for backup power for the
continuous operation of critical applications in telecommunications systems, uninterruptible power systems, or
UPS, applications for computer and computer-controlled systems, and other specialty power applications,
including security systems, for premium starting, lighting and ignition applications, in switchgear and electrical
control systems used in
6
electric utilities and energy pipelines, and in commercial aircraft and military aircraft, submarines, ships and
tactical vehicles); and/or
b. motive power products (including, without limitation, products used to provide power for manufacturing,
warehousing, and other material handling equipment, such as electrical industrial forklift trucks, mining
equipment, and diesel locomotive starting, rail car lighting, and rail signaling equipment); and/or
c. lithium ion cells or batteries (for aerospace and defense applications, or otherwise); and/or
d. hydrogen fuel cells; and/or
e. any other product the Company is producing, marketing, researching, or developing at the time of your
termination of employment.
“Competing Business” also includes the design, engineering, installation, or service of stationary and DC power
systems, and any consulting and/or turnkey services relating thereto.
4.5 You confirm that all Confidential Information is and will remain the exclusive property of the Company and its
Affiliates. All business records, papers, and documents kept or made by you relating to the business of the Company will be and
remain the property of the Company and its Affiliates.
4.6 You agree to refrain from performing any act, engaging in any conduct or course of action or making or
publishing any statements, claims, allegations or assertions which have or may reasonably have the effect of demeaning the name
or business reputation of the Company or any of its subsidiaries, or any of its or their employees, officers, directors, agents or
advisors in their capacities as such or which adversely affects (or may reasonably be expected adversely to affect) the best
interests (economic or otherwise) of any of them. Subject to the provisions of this Agreement, nothing in this Section 4.6 will
preclude you from fulfilling any duty or obligation that you may have at law, from responding to any subpoena or official inquiry
from any court or government agency, including providing truthful testimony, documents subpoenaed or requested or otherwise
cooperating in good faith with any proceeding or investigation; or from taking any reasonable actions to enforce your rights
under this Agreement in accordance with the dispute provisions specified in Section 7 hereof.
4.7 Without intending to limit the remedies available to the Company and its Affiliates, you agree that a breach of
any of the covenants contained in this Section 4 may result in material and irreparable injury to the Company or its Affiliates for
which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in
the event of such a breach or threat thereof, the Company and its Affiliates will be entitled to seek a temporary restraining order
or a preliminary or permanent injunction, or both, without bond or other security, restraining you from engaging in activities
prohibited by this Section 4 or such other relief as may be required specifically to enforce any of the covenants in
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this Section 4. Such injunctive relief in any court will be available to the Company and its Affiliates in lieu of, or prior to or
pending determination in, any arbitration proceeding.
4.8 Although you and the Company consider the restrictions contained in this Section 4 to be the minimum
restriction reasonable for the purposes of preserving the Company’s goodwill and other proprietary rights, if a final determination
is made by a court that the time or territory, or any other restriction contained in this Section 4 is an unreasonable or otherwise
unenforceable restriction against you, the provisions of this Section 4 will not be rendered void, but will be deemed amended to
apply as to such maximum time and territory and to such other extent as the court may determine to be reasonable.
4.9 Notwithstanding anything to the contrary in Section 2.1, in the event that you breach any of the covenants
contained in this Section 4:
a. Any remaining payments or benefits to be provided under Section 2.1 will not be paid or will cease
immediately upon such breach; and
b. The Company will be entitled to the immediate repayment of all payments and benefits provided under
Section 2.1.
8
4.10 You agree that the covenants contained in this Section 4 may be assigned by the Company, as needed, to
affect its purpose and intent and that the Company’s assignee will be entitled to the full benefit of the restrictions enjoyed by the
Company under the terms of these covenants.
4.11 The term “Restricted Period” means one (1) year following the termination of your employment for any
reason; provided, however, that the Restricted Period will be extended by a period of time equal to any period during which you
are in breach of any of the covenants set forth in this Section 4.
5. Binding Effect and Benefit.
5.1 The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, or
otherwise) to all or substantially all of the business or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession
had taken place. Failure by the Company to obtain such assumption and agreement prior to the effectiveness of any such
succession will constitute a material breach of this Agreement. As used in this Agreement, “the Company” means the Company
as defined above and any successor to the respective business or assets of the Company as abovementioned which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
5.2 This Agreement will inure to the benefit of and be enforceable by your personal or legal representatives,
executors, administrators, heirs, distributees, devisees, and legatees. If you should die while any amount is payable to you under
this Agreement if you had continued to live, all such amounts, unless otherwise provided herein, will be paid in accordance with
the terms of this Agreement to your devisee, legatee, or other designee, or, if there is no such designee, to your estate.
6. Assignment. This Agreement will not be assignable by either party hereto, except as provided in Section 4.10 and by the
Company to any successor in interest to the business of the Company, provided that the Company (if it remains a separate entity)
will remain fully liable under this Agreement for all obligations, payments, and otherwise.
7. Arbitration. Subject to Section 4.7, any dispute or controversy arising under or in connection with this Agreement that cannot
be mutually resolved by the parties hereto will be settled exclusively by arbitration in Philadelphia, Pennsylvania before one
arbitrator of exemplary qualifications and stature, who will be selected jointly by you and the Company, or, if you and the
Company cannot agree on the selection of the arbitrator, will be selected by the American Arbitration Association. Judgment may
be entered on the arbitrator’s award in any court having jurisdiction. The parties hereby agree that the arbitrator will be
empowered to enter an equitable decree mandating specific enforcement of the terms of this Agreement. Each party will bear its
own costs, including legal fees and out-of-pocket expenses, incurred in connection with any arbitration, and the party that
prevails will bear all expenses of the arbitrator.
9
8. No Mitigation or Offset. In the event of termination of your employment, you will be under no obligation to seek other
employment and there will be no offset against any payment or benefit provided for in this Agreement on account of any
remuneration or benefits from any subsequent employment that you may obtain.
9. Application of Code Section 409A.
9.1 Notwithstanding anything in this Agreement to the contrary, the receipt of any benefits under this Agreement
as a result of a termination of employment will be subject to satisfaction of the condition precedent that you undergo a
“separation from service” within the meaning of Treas. Reg. § 1.409A-1(h) or any successor thereto. In addition, if you are
deemed to be a “specified employee” within the meaning of that term under Code Section 409A(a)(2)(B), then with regard to any
payment or the provisions of any benefit that is required to be delayed pursuant to Code Section 409A(a)(2)(B), such payment or
benefit will not be made or provided prior to the earlier of (i) the expiration of the six (6) month period measured from the date of
your “separation from service” (as such term is defined in Treas. Reg. § 1.409A-1(h)), or (ii) the date of your death (the “Delay
Period”). Within ten (10) days following the expiration of the Delay Period, all payments and benefits delayed pursuant to this
Section (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) will be
paid or reimbursed to you in a lump sum, and any remaining payments and benefits due under this Agreement will be paid or
provided in accordance with the normal payment dates specified for them herein. To the extent that the foregoing applies to the
provision of any ongoing welfare benefits to you that would not be required to be delayed if the premiums therefore were paid by
you, you will pay the full costs of premiums for such welfare benefits during the Delay Period and the Company will pay you an
amount equal to the amount of such premiums paid by you during the Delay Period within ten (10) days after the conclusion of
such Delay Period.
9.2 Except as otherwise expressly provided herein, to the extent any expense reimbursement or other in-kind
benefit is determined to be subject to Code Section 409A, the amount of any such expenses eligible for reimbursement or in-kind
benefits in one calendar year will not affect the expenses eligible for reimbursement or in-kind benefits in any other taxable year
(except under any lifetime limit applicable to expenses for medical care), in no event will any expenses be reimbursed or in-kind
benefits be provided after the last day of the calendar year following the calendar year in which you incurred such expenses or
received such benefits, and in no event will any right to reimbursement or in-kind benefits be subject to liquidation or exchange
for another benefit.
9.3 Any payments made pursuant to Section 2.1, to the extent of payments made from the date of termination
through March 15th of the calendar year following such date, are intended to constitute separate payments for purposes of Treas.
Reg. §1.409A-2(b)(2) and thus payable pursuant to the “short-term deferral” rule set forth in Treas. Reg. §1.409A-1(b)(4); to the
extent such payments are made following said March 15th, they are intended to constitute separate payments for purposes of
Treas. Reg. §1.409A-2(b)(2) made upon an involuntary termination from service and payable pursuant to Treas. Reg. §1.409A-
1(b)(9)(iii), to the maximum extent permitted by said provision.
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9.4 To the extent it is determined that any benefits described in Section 2.1(b) are taxable to Executive, they are
intended to be payable pursuant to Treas. Reg. §1.409A-1(b)(9)(v), to the maximum extent permitted by said provision.
10. Miscellaneous.
10.1 The invalidity or unenforceability of any provision of this Agreement will not affect the validity or
enforceability of any other provision of this Agreement, which will remain in full force and effect.
11
10.2 The validity, interpretation, construction, and performance of this Agreement will be governed by the laws of
the Commonwealth of Pennsylvania, without regard to its conflict of laws principles.
10.3 No waiver by you or the Company at any time of any breach of, or compliance with, any provision of this
Agreement to be performed by the Company or you, respectively, will be deemed a waiver of that or any other provision at any
subsequent time.
10.4 Upon any termination of employment that entitles you to payments and benefits under Section 2, you must,
within 60 days of your termination of employment, execute a legally enforceable release agreement substantially in the form of
Exhibit A attached hereto prior to the receipt of such payments and benefits. If such 60 day period begins in one taxable year and
ends in a second taxable year, the payments and benefits will be provided or commence being provided, if at all, in the second
taxable year. Any payments made to you will be paid net of any applicable withholding required under federal, state, local, or
foreign law.
10.5 This Agreement is the exclusive agreement with respect to the severance benefits payable to you in the event
of a termination of your employment. All prior negotiations and agreements are hereby merged into this Agreement. You
acknowledge and agree that any employment agreement, offer letter, and/or any agreement regarding change in control or
termination benefits, previously entered into between you and the Company is immediately null and void.
10.6 Notwithstanding the termination of this Agreement, the provisions which specify continuing obligations,
compensation and benefits, and rights will remain in effect until such time as all such obligations are discharged, all such
compensation and benefits are received, and no party or beneficiary has any remaining actual or contingent rights under this
Agreement.
11. Legal Fees. In the event of a dispute following a Change in Control, the Company, or its successor, will reimburse you for
all reasonable legal fees and expenses incurred by you in attempting to obtain or enforce rights or benefits provided by this
Agreement, if, with respect to any such right or benefit, you are successful in obtaining or enforcing such right or benefit
(including by negotiated settlement).
If you agree to the terms of this Agreement, please sign on the line provided below and return two signed copies to the
Company. A fully executed copy will be returned to you for your files after it is signed by the Company.
_________________________
Sincerely,
ENERSYS
By: /s/ David M. Shaffer
12
Title: President and Chief Executive Officer
Dated: April 1, 2019
Agreed to and accepted:
/s/ Shawn M. O’Connell
Shawn M. O’Connell
Dated: April 1, 2019
13
APPENDIX A
FORM OF GENERAL RELEASE
Reference is made to the Severance Agreement dated as of ____________ (the “Severance Agreement”), between
EnerSys, a Delaware corporation (the “Company”), and ______________ (the “Executive”). Capitalized terms used herein
without definition shall have the meanings assigned to them in the Severance Agreement, a copy of which is attached hereto.
SECTION 1.
Mutual Release.
(a) General Waiver and Release. In consideration of their respective obligations under the Severance Agreement
in connection with and following the Executive’s termination of employment with the Company and its affiliates, and subject to
the limitations set forth in Section 2 hereof, the Company, on the one hand, does hereby release and forever discharge the
Executive, and the Executive, on the other hand, does hereby release and forever discharge the Company, its present, former, and
future shareholders, affiliates, direct and indirect parents, subsidiaries, successors, directors, officers, employees, agents,
attorneys, heirs, and assigns (the “Company Parties” and, together with the Executive, the “Released Parties”), from any and all
claims, actions, causes of action, suits, costs, controversies, judgments, decrees, verdicts, damages, liabilities, attorneys’ fees,
covenants, contracts, and agreements that the Executive may have against the Company Parties or the Company Parties may have
against the Executive, or in the future may possess based on events occurring during the term of the Executive’s employment
with the Company arising out of (i) the Executive’s employment relationship with or service as an employee or officer of the
Company and its affiliates or the termination of such relationship or service or (ii) any event, condition, circumstance or
obligation that occurred, existed or arose on or prior to the date the Executive signs this Release, with respect to each other,
including, but not limited to, any claims arising under Title VII of the Civil Rights Act of 1964, the Rehabilitation Act of 1973,
the Americans with Disabilities Act of 1990, the Civil Rights Act of 1866, the Civil Rights Act of 1991, the Employee
Retirement Income Security Act of 1974, the Family Medical Leave Act of 1993, or any other federal or state or local law or any
foreign jurisdiction, whether such claim arises under statute, common law, or in equity, and whether or not any of the Released
Parties are presently aware of the existence of such claim, damage, action or cause of action, suit, or demand (collectively,
including claims, actions, and causes of action set forth in Section 1(b) below, the “Claims”). The Executive and the Company
Parties also do forever release, discharge, and waive any right the Executive or the Company Parties may have to recover in any
proceeding brought by any federal, state, or local agency against the Company Parties and the Executive, respectively, to enforce
any laws. Each of the parties hereto agrees that the value received or to be received in the future as described in the Severance
Agreement shall be in full satisfaction of any and all claims, actions, or causes of action for payment or other benefits of any kind
that the Executive may have against the Company Parties and that the Company Parties may have against the Executive;
provided, however, that nothing in this Agreement shall preclude the Company from recouping, or refusing to pay, (i) severance
benefits under the Severance Agreement in accordance with Section 2.5 thereof or (ii) cash or equity incentive-based
compensation paid or
14
payable to the Executive in the event of a restatement of the Company’s financial statements pursuant to applicable law or
regulation or Company policy adopted consistent with applicable law or regulation.
(b) ADEA Release. In further recognition of the above, the Executive hereby releases and forever discharges
each of the Company Parties from any and all claims, actions and causes of action that the Executive may have as of the date the
Executive signs and delivers to the Company this Release arising under the federal Age Discrimination in Employment Act of
1967, as amended, and the applicable rules and regulations promulgated thereunder (“ADEA”).
SECTION 2.
Limitations.
(a) No Impact on Obligations under the Severance Agreement or the Shareholder Agreement. The releases
contained herein do not, are not intended to, and shall not be interpreted to serve as a release or waiver by the Executive or the
Company Parties with respect to their respective rights and obligations set forth in the Severance Agreement. In particular, and
without limiting the generality of the preceding sentence, the Executive does not waive or release any claim the Executive might
now or in the future have to be paid or receive the payments and benefits provided for in Section 2 of the Severance Agreement,
and the Company Parties do not waive or release any claim they might now or in the future have under Section 4 of the
Severance Agreement.
(b) No Impact on Indemnification Rights. The releases contained herein do not, are not intended to, and shall not
be interpreted to serve as a release or waiver by the Executive with respect to any indemnification rights the Executive may have
and such indemnification rights shall not be effected, modified, or extinguished by the Executive’s execution of this Release.
SECTION 3.
No Pending Litigation.
The Executive represents and agrees that the Executive has not filed, and will not file, any action, complaint, charge,
grievance, or arbitration against any Company Party, except that such agreement shall not apply to any claim based on any matter
which, pursuant to Section 2, is excluded from the scope of this Release. The Company hereby represents and agrees that no
Company Party has filed, and no Company Party will file, any action, complaint, charge, grievance, or arbitration against the
Executive except that such agreement shall not apply to any claim based on any matter which, pursuant to Section 2, is excluded
from the scope of this Release.
SECTION 4.
Acknowledgment.
The Executive acknowledges and confirms that (i) the Executive has been advised in writing by the Company in
connection with the Executive’s termination to consult with an attorney of the Executive’s choice prior to signing this Release
and to have such attorney explain to the Executive the terms of the Release, including, without limitation, the terms relating to the
Executive’s release of Claims arising under ADEA; (ii) the Executive has read this Release
15
carefully and completely and understands each of the terms hereof; and (iii) the Executive was given not less than twenty-one
(21) days to consider the terms of the Release and to consult with an attorney of the Executive’s choosing with respect thereto,
and that for a period of seven (7) days following the Executive’s signing of this Agreement, the Executive shall have the option to
revoke this Agreement in accordance with the terms set forth in Section 6 below.
SECTION 5.
Successors.
The rights and obligations under this Agreement shall inure to any and all successors of the Company.
SECTION 6.
Revocation.
The Executive shall have the right to revoke this Release during the seven-day period commencing immediately following
the date the Executive signs and delivers this Agreement to the Company (the “Revocation Period”). The period shall expire at
5:00 p.m., Eastern Standard Time, on the last day of the seven-day period; provided, however, that if such seventh day is not a
business day, the period shall extend to 5:00 p.m. on the next succeeding business day. In the event of any such revocation by the
Executive, the obligations of the Company under this Release shall terminate and be of no further force and effect as of the date
of such revocation. No such revocation by the Executive shall be effective unless it is in writing and signed by the Executive and
received by a representative of the Company prior to the expiration of the Revocation Period.
SECTION 7.
Counterparts.
This Release may be executed in two or more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
ENERSYS
By:
Name:
Title:
ACCEPTED AND AGREED:
[Name]
Dated:
16
.
'
EMPLOYMENT AGREEMENT
Exhibit 10.29
This Employment Agreement (this "Agreement") is made as of this _6th day of October 2008, by
and between ALPHA TECHNOLOGIES, Inc., a Washington corporation, with offices located at 3767 Alpha Way, Bellingham,
WA 98226 (hereinafter called the "Corporation") and Andrew Zogby, residing at 15421 Harrow Lane, Poway, CA 92064
RECITALS
A. The Corporation is engaged in the design, manufacture (through sub-contracts), and distribution of various products and
technology relating to uninterruptible power supplies and power converters for the cable television and telecommunications
industries and the Alternate Energy Market (the "Technology").
B.
Executive wishes to accept such engagement on the terms and conditions described herein.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter contained, the parties hereto agree as follows:
AGREEMENT
1. EMPLOYMENT.
The Corporation agrees to employ Executive, and Executive agrees to serve the Corporation. upon the terms and conditions
hereinafter set forth.
2. TERM.
The employment of Executive hereunder originally commenced on November 10th
business on December 31st, 2012 (the "Termination Date"), unless sooner terminated in the manner hereinafter provided.
, 2008, and shall terminate as of the close of
3. DUTIES AND EXTENT OF SERVICES.
A.
Duties. Executive shall be the President and COO of the Corporation with responsibility for management of the day to
day affairs of the Corporation, and the management, coordination and overall development of the business of the
Corporation, including managing its relationship with its vendors, sub-contractors. suppliers, licensors, distributors and
others, and including product design, development and marketing, subject to the direction, oversight and approval of the
Corporation's Board of Directors or Executive Committee. In addition Executive shall direct and supervise all officers,
agents and employees of the Corporation (other than the Chairman of the Board), and shall see that all orders and
resolutions of the Board of Directors and the Executive Committee are carried into effect. Executive shall also perform
such other duties and exercise such other powers as the By-laws may provide or the Board of Directors or Executive
Committee may assign. Executive agrees to serve on the Board of Directors and the Executive Committee of the
Corporation, or on additional boards or committees. if elected or requested.
B. Location. The principal place of employment of Executive shall be at the principal office of the Corporation located in
Bellingham, Washington.
1
4. COMPENSATION.
The Corporation shall pay to executive compensation comprised of the Salary and bonus as follows:
A. The Corporation agrees to pay to Executive as compensation for all of the services to be rendered by Executive under or pursuant
to this Agreement, a Salary at the rate of $ 240,000.00 US Dollars per annum (the “Salaryu). payable in accordance with the
normal payroll practices of the Corporation.
B. A performance based bonus of $150,000.00 per year will be paid based on objectives and goals to be determined jointly by the
Executive and the Executive Committee.
5. EXECUTIVE BENEFITS.
A. Vacation. Executive shall be entitled to 3 weeks' paid vacation in each year. The Corporation shall endeavor to be flexible in its
administration of the vacation time available to Executive. In addition, Executive shall be entitled to sick leave in accordance with
the Corporation's regular policies which at present provides for 5 days annually.
B. Medical Plan. Executive shall be provided, with such health, accident and disability insurance plans as are generally provided to
other executives of the Corporation.
C. Additional Executive Benefit Plans. During the term of employment hereunder, Executive shall be entitled to participate, at the
Corporation's expense, in all pension and retirement plans established by the Corporation for its employees and executive (to the
extent permitted by the terms of those plans).
D. Indemnification. The Corporation shall indemnify the Executive and hold him harmless in accordance with RCW 23B.08.510, et seq.
as amended, to the maximum extent permitted by law and by the Articles of Incorporation and Bylaws of the Corporation, as
amended, with respect to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative,
investigative or of any other nature, arising out of any act or omission by the Executive in carrying out his duties hereunder or as a
Director of the Corporation (in the event he serves in such capacity); provided, however, that the Corporation shall not be required
to provide such indemnification to the extent Executive receives payment therefore under any policy of insurance carried by the
Corporation.
6. EXPENSES: PERQUISITES.
A. Reimbursement: Vouchers. Subject to the Corporation's policies regarding the reimbursement and non-reimbursement of expenses,
the Corporation shall reimburse Executive for all reasonable business expenses incurred by Executive in connection with his
employment hereunder. The Executive shall submit to the Corporation such vouchers or expense statements satisfactorily
evidencing such expenses as may be reasonably requested by the Corporation.
7. CONFIDENTIALITY: CORPORATION TO OWN INVENTIONS.
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A. Acknowledgment of Proprietary Information. Executive acknowledges that he may become aware of information that is furnished by, or
was created by, the Corporation or any of the Corporation's suppliers, vendors, subcontractors, licensors or other parties which have a
contractual relationship with the Corporation (hereinafter, the "Disclosing Party"), which has commercial value and which is of a
confidential nature or is marked as being confidential, or has not been publicly released by authorized representatives of the Dlscloslng
Party. This information, includes, but is not limited to, designs, methods, inventions, improvements, trade secrets, processes, data and
know-how, software programs, techniques, marketing plans, strategies, forecasts, business methods, copyrightable material and
customer lists, whether in oral or written form ("confidential information").
B. Duty of Confldentlality. Executive agrees that all this confidential information is the sole property of the Disclosing Party, including all
patents, copyrights or other rights in connection with that information, and promises not to use or disclose any of that Information, either
during his employment by the Corporation or after its termination, without the written consent of the Disclosing Party, unless it is
necessary in the ordinary course of performing his duties to the Corporation or the Disclosing party. Executive agrees, at the Disclosing
Party's request, to execute any additional confidentiality agreements which may be required by the customers of the Disclosing Party in
connection with specific customer contracts. In addition, Executive agrees that he shall deliver to the Disclosing Party all documents
and materials which may contain such confidential information immediately when requested by the Disclosing Party. Moreover. if the
Disclosing Party does not request it, Executive shall deliver to the Disclosing Party all manually or electronically written materials which
may contain any confidential information upon the termination of his employment for any reason. Notwithstanding anything herein to the
contrary, Executive may disclose confidential information in a court proceeding if he is ordered by a court to do so, provided he informs
the court of the confidentiality obligations to which he is subject, and requests an appropriate protective order or disclosure in camera.
C. Disclosure of Invention/Anticipated Research. Executive agrees to promptly disclose in writing to the Corporation any new designs,
methods or processes, machines, product ideas or designs, methods or processes, computer programs or techniques ("inventions")
which he makes or conceives during the term of his employment. He also shall disclose to the Corporation, in advance, any
development of inventions which he plans to undertake during his employment if he desires to remove such endeavors from the
operation of this Agreement. Executive understands that the Corporation cannot obligate him to assign certain inventions under the law.
However, he shall make these disclosures for his own protection as well as for the protection of the Corporation. The Corporation shall
promptly advise Executive whether any invention or anticipated development which he discloses relates to the Corporation's actual or
demonstrably anticipated research and development. All disclosures shall be kept confidential by the Corporation.
D. Ownership of Inventions. Executive agrees that all inventions which he develops either:
(1) Using equipment, supplies, facilities or trade secret information of the Corporation;
(2) During hours for which he was compensated by the Corporation;
(3) Which relates to the business of the Corporation, or to Its actual or demonstrably anticipated research and development; or
(4) Which results, in whole or in part, from work performed by Executive for the Corporation;
shall be the sole property of the Corporation. or it's assigns, which shall also be the owner of all patents, copyrights, and 3'other rights in
connection with the invention.
Executive further agrees to assist the Corporation in every proper way, but at the Corporation's expense, to obtain and from time to
time enforce patents, copyrights, and other rights in connection with such inventions and improvements in any way and all
countries, and to that end Executive shall execute all documents for use in applying for and obtaining such patents and copyrights
and for enforcing them as the Corporation may desire. Executive's obligation in this connection shall continue beyond the
termination of his employment, but the Corporation shall compensate him at a reasonable rate after termination for time actually
spent by him on behalf of the Corporation with respect to such assistance.
The provisions of this paragraph 7.D. do not apply to any inventions for which no equipment, supplies, facilities or trade secret
information of the Corporation were used and which was developed entirely on Executive's own time, unless the invention relates
directly to (1) the business of the Corporation, or (2) the Corporation's actual or demonstrably anticipated results from any work
performed by Executive for the Corporation.
E. No Breach of Existing Agreement. Executive represents that his performance of all the terms of this paragraph 7 shall not breach
any agreement to keep in confidence proprietary information acquired by him prior to his employment by the Corporation, nor
violate any obligation he may have to any former employer.
F. Non-Solicitation. Executive agrees that until 1 year from and after the termination or expiration of his employment by the
Corporation, whereto pursuant to the terms of this Agreement or otherwise, and without regard to the reason for such termination of
employment, he shall not:
(1) directly or indirectly solicit, entice or induce any employee of the Corporation, or any of its subsidiary or affiliated companies, to
be employed by any person, firm or corporation which is, directly or indirectly, in competition with the business activities of the
Corporation, or any of its subsidiary or affiliated companies; or
(2) directly or indirectly approach any such employee for these purposes; or
(3) authorize or knowingly assist in the taking of such actions by other persons on behalf of any such person. firm or corporation.
G. Conflicting Interest. Executive agrees that during the term of his employment by the Corporation, whether under this Agreement or
otherwise, he shall not at any time, except with the express prior consent of the Board of Directors or the Chairman of the Board,
enter into, on behalf of the Corporation, or any of its subsidiaries or afflliated companies, or cause the Corporation or any of its
subsidiaries or affiliated companies to enter into, directly or indirectly, any transactions with any business or investment organization
in which he or any member of his Immediate family may be interested as a partner, trustee, director, officer, employee, shareholder,
lender of money, beneficiary, or guarantor.
8. NON COMPETITION.
A. Executive hereby agrees and understands that this non-competition is a condition of employment with the Corporation that he shall not,
until 1 year after the termination or expiration of his employment by the Corporation, whether pursuant to the terms of this Agreement or
otherwise, and without regard to the reason for such termination, directly or indirectly engage or be interested in any business which Is
competitive with the business of the Corporation, or any of its subsidiaries or affiliates, including any line of business which utilizes the
Technology. Executive shall be deemed to be directly or indirectly interested in a business if he shall be engaged or interested in such
business as a stockholder. director, officer,
employee, salesman, sales representative, agent, broker, partner. individual proprietor, lender. consultant or otherwise, but not if such
interest is limited solely to the ownership of 5% or less of the equity or debt securities of any Corporation whose shares are listed for
tracking on a national securities exchange or quoted in the National Association of Securities Dealers automated quotation system.
9. INJUNCTIVE REUEF.
Executive acknowledges that the services to be rendered by him hereunder are of a special, unique and extraordinary character and that it
would be very difficult or impossible to replace such services and further that irreparable injury would be sustained by the Corporation and
its subsidiary or affiliated companies in the event of a violation by Executive of any of the provisions of paragraphs 7 and 8 of this
Agreement, and by reason thereof Executive consents and agrees that If he violates any of the provisions of this Agreement, the
Corporation shall be entitled to an injunction to be issued by any court of competent jurisdiction restraining him from committing or
continuing any violation of this Agreement.
10. TERMINATION.
In the event of Executive's death or total disability (which for purposes hereof shall mean inability of Executive to perform his duties for a
A.
period of 60 or more days during a 12 month period), this Agreement shall terminate (in the case of total disability, effective only upon notice by
Corporation) and the Corporation shall within 30 days of such termination, pay to Executive or his estate Executive's Salary to the effective date of
termination.
The Corporation may, effective only upon notice, terminate the employment of Executive for cause (which shall mean only gross negligence
B.
or willful misconduct in connection with the performance of Executive's duties hereunder, immoral actions or behavior by Executive, or criminal
prosecution or conviction, or the voluntary resignation of Executive prior to the expiration of the term hereof, other than by reason of a default by the
Corporation hereunder, in which case Executive shall be entitled to his Salary to the effective date of termination (which shall be paid within 30 days of
such termination), but shall be entitled to no further compensation accruing after the effective date of termination.
C.
The Corporation may, effective only upon notice, terminate the employment of Executive without cause (as defined above), in which case the
Corporation shall, within 30 days of such termination, pay to Executive his Salary to the effective date of termination, together with a lump-sum payment
equal to 6 months of his then current base Salary. If a change of control as defined in Paragraph 10 E has taken place, then the lump-sum payment will be
equal to a 0.5 multiple of the annual base Salary immediately prior to the change of control. In addition, if a
change of control does take place during the term of this agreement, the Executive will be deemed fully vested in the Supplemental Executive Bonus Plan
when applicable and active.
D. The Corporation and the Executive each have as their sole right, the option to negotiate the renewal of this agreement at the end of the term as
provided for in paragraph 2. Should the Corporation fail to offer to renew or extend the agreement at substantially the same terms and conditions as
the original agreement, the Corporation shall pay a lump-sum payment equal to 2 months of the Executive's then current Salary. If the Corporation
exercises it's right to not renew or extend the agreement and a change of control as defined in paragraph 10 E has taken place, the Corporation shall
pay a lump-sum payment equal to 6 months of the Executive's then current monthly Salary.
E.
Change of control shall mean for purposes of termination, the transfer of ownership and control of the Board of Directors or Executive Committee
from Mr. Fred Kaiser to any other parties, corporation, partnerships, etc., outside his direct control or the replacement of or change of reporting
relationship of the Presi5ent and Chief Operating Officer.
F.
The payment described in this paragraph 10 are and shall be Executive's sole compensation with respect to
termination, and shall constitute Executive's sole and exclusive remedy, in lieu of all rights and claims of Executive, at law
or in equity, with respect to a claim of wrongful termination by the Corporation.
11. NO CONFLICTING AGREEMENTS.
Executive represents and warrants that he is not a party to any agreement, contract or understanding, whether employment or
otherwise which would in any way restrict or prohibit him from undertaking or performing employment in accordance with the
terms and conditions of this Agreement.
12. ENTIRE AGREEMENT.
This Agreement set forth the entire understanding of the parties with respect to the employment of Executive hereunder, and no
statement, representation, warranty or covenant has been made by either party except as expressly set forth herein. This
Agreement shall not be changed or terminated orally. This Agreement supersedes and cancels au prior agreements between
the parties, whether written or oral, relating to the employment of Executive. and supersedes and cancels the Consultant
Agreement, but it does not supersede or cancel any previous confidentiality or non-disclosure agreements, the terms and
restriction of which shall continue to apply to Executive, except to the extent of any inconsistency with the terms and provisions
of this Agreement.
13. APPLICABLE LAW: JURISDICTION.
This Agreement shall be governed by and construed in accordance with the substantive laws of the State of Washington, as
applied to residents of that state. Jurisdiction and venue for any action interpreting or enforcing this Agreement shall lie
exclusively in the Federal District Court for the Western District of Washington.
14. NOTICES.
All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly
given if delivered or mailed, first class, postage prepaid, certified mail, return receipt requested, to each of the parties at it's or
his address above written or at such other address as either of the parties may designate in conformity with the foregoing.
15. BINDING AGREEMENT.
Executive shall not delegate or assign any of his rights or obligations under this Agreement. All of the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of, and be enforceable by, the Executive and his heirs and
personal representatives and the Corporation and its successors and assigns.
16. SEVERABILITY.
17. If, at any time subsequent to the date hereof, any provision of this Agreement shall be held by any court of
competent jurisdiction to be illegal, void or unenforceable, such provision shall be of no force and effect, but the
illegality or unenforceability of such provision shall not impair the enforceability of any other provision of this
Agreement.
18. SURVIVAL. 6
The provisions of paragraphs 7, 8, 9 and 13 shall survive the termination hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on the date first above written.
Corporation: Executive:
ALPHA TECHNOLOGIES, INC.
By: /s/ F. Kaiser /s/ Andrew M. Zogby
Its: Chairman & CE 10-07-08
7
Exhibit 10.30
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of this 13th day of September 2012 by and between
Alpha Technologies, Inc, a Washington corporation, with offices located at 3767 Alpha Way, Bellingham, WA 98226
(hereinafter called the "Corporation") and Andrew Zogby, residing at 5 Catkin Court, Bellingham WA 98229.
RECITALS
A. The Corporation is engaged in the design, manufacture (through sub-contracts}, and distribution of various
products and technology relating to uninterruptible power supplies and power converters for the cable television
and telecommunications industries (the "Technology").
B.
Executive wishes to accept such engagement on the terms and conditions described herein.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter contained, the parties hereto agree as
follows:
AGREEMENT
1. EMPLOYMENT.
The Corporation agrees to employ Executive, and Executive agrees to serve the Corporation, upon the terms and
conditions hereinafter set forth.
2. TERM.
The employment of Executive hereunder originally commenced on November 1st, 2008, and
extended effective January 1st, 2013 and shall terminate as of the close of business on
December 31st, 2017 (the "Termination Date"), unless sooner terminated in the manner hereinafter provided.
3. DUTIES AND EXTENT OF SERVICES.
A. Duties. Executive shall be the President and COO of the Corporation with responsibility for management of
the day to day affairs of the Corporation, and the management, coordination and overall development of the
business of the Corporation, including managing its relationship with its vendors, sub-contractors, suppliers,
licensors, distributors and others, and including product design, development and marketing, subject to the
direction, oversight and approval of the Corporation's Board of Directors
or Executive Committee. In addition Executive shall direct and supervise all officers, \
agents and employees of the Corporation (other than the Chairman of the Board), and shall see that all
orders and resolutions of the Board of Directors and the Executive Committee are carried into effect.
Executive shall also perform such other duties and exercise such other powers as the By-laws may provide
or the Board of Directors or Executive Committee may assign. Executive agrees to serve on the Board of
Directors and the Executive Committee of the Corporation, or on additional boards or committees, if elected
or requested.
B. Location. The principal place of employment of Executive shall be at the facilities located in Bellingham,
Washington.
1
4. COMPENSATION.
The Corporation shall pay to executive compensation comprised of the Salary and bonus as follows:
A. The Corporation agrees to pay to Executive as compensation for all of the services to be rendered by Executive
under or pursuant to this Agreement, a Salary at the rate of
$348,000 US dollars per annum (the "Salary"), payable in accordance with the normal payroll practices of the
Corporation.
B. A performance bonus of $150,000 per year will be paid based on objectives and goals to be determined jointly by
the Executive and the Executive Committee.
5. EXECUTIVE BENEFITS.
A. Vacation. Executive shall be entitled to 4 weeks paid vacation in each year. The Corporation shall endeavor to be
flexible in its administration of the vacation time available to Executive. In addition, Executive shall be entitled to
'.
"
sick leave in accordance with the Corporation's regular policies which at present provides for 5 days annually.
B. Medical Plan. Executive shall be provided, with such health, accident and disability insurance plans as are
generally provided to other executives of the Corporation.
C. Additional Executive Benefit Plans. During the term of employment hereunder, Executive shall be entitled to
participate, at the Corporation's expense, in all standard pension and retirement plans established by the
Corporation for its employees and executive (to the extent permitted by the terms of those plans).
D.
Indemnification. The Corporation shall indemnify the Executive and hold him harmless in accordance with RCW
23B.08.510, et seq. as amended, to the maximum extent permitted by law and by the Articles of Incorporation
and Bylaws of the Corporation, as amended, with respect to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, investigative or of any other nature, arising out of any act or
omission by the Executive in carrying out his duties hereunder or as a Director of the Corporation (in the event
he serves in such capacity}; provided, however, that the Corporation shall not be required to provide such
indemnification to the extent Executive receives payment therefore under any policy of insurance carried by the
Corporation.
6. EXPENSES: PERQUISITES.
A. Reimbursement: Vouchers. Subject to the Corporation's policies regarding the reimbursement and non-
reimbursement of expenses, the Corporation shall reimburse Executive for all reasonable business expenses
incurred by Executive in connection with his employment hereunder. The Executive shall submit to the
Corporation such vouchers or expense statements satisfactorily evidencing such expenses as may be
reasonably requested by the Corporation.
7. CONFIDENTIALITY: CORPORATION TO OWN INVENTIONS.
2
A. Acknowledgment of Proprietary Information. Executive acknowledges that he may become aware of information
that is furnished by, or was created by, the Corporation or any of the Corporation's suppliers, vendors,
subcontractors, licensors or other parties which have a contractual relationship with the Corporation (hereinafter,
the "Disclosing Party"), which has commercial value and which is of a confidential nature or is marked as being
confidential, or has not been publicly released by authorized representatives of the Disclosing Party. This
information, includes, but is not limited to, designs, methods, inventions, improvements, trade secrets, processes,
data and know-how, software programs, techniques, marketing plans, strategies, forecasts, business methods,
copyrightable material and customer lists, whether in oral or written form (“confidential information").
B. Duty of Confidentiality. Executive agrees that all this confidential information is the sole property of the Disclosing
Party, including all patents, copyrights or other rights in connection with that information, and promises not to use
or disclose any of that information, either during his employment by the Corporation or after its termination,
without the written consent of the Disclosing Party, unless it is necessary in the ordinary course of performing his
duties to the Corporation or the Disclosing party. Executive agrees, at the Disclosing Party's request, to execute
any additional confidentiality agreements which may be required by the customers of the Disclosing Party in
connection with specific customer contracts. In addition, Executive agrees that he shall deliver to the Disclosing
Party all documents and materials which may contain such confidential information immediately when requested
by the Disclosing Party. Moreover, if the Disclosing Party does not request it, Executive shall deliver to the
Disclosing Party all manually or electronically written materials which may contain any confidential information
upon the termination of his employment for any reason. Notwithstanding anything herein to the contrary,
Executive may disclose confidential information in a court proceeding if he is ordered by a court to do so,
provided he informs the court of the confidentiality obligations to which he is subject, and requests an appropriate
protective order or disclosure in camera.
C. Disclosure of Invention/Anticipated Research. Executive agrees to promptly disclose in writing to the Corporation
any new designs, methods or processes, machines, product ideas or designs, methods or processes, computer
programs or techniques ("inventions") which he makes or conceives during the term of his employment. He also
shall disclose to the Corporation, in advance, any development of inventions which he plans to undertake during
his employment if he desires to remove such endeavors from the operation of this Agreement. Executive
understands that the Corporation cannot obligate him to assign certain inventions under the law. However, he
shall make these disclosures for his own protection as well as for the protection of the Corporation. The
Corporation shall promptly advise Executive whether any invention or anticipated development which he
discloses relates to the Corporation's actual or demonstrably anticipated research and development. All
disclosures shall be kept confidential by the Corporation.
D. Ownership of Inventions. Executive agrees that all inventions which he develops either:
(1) Using equipment, supplies, facilities or trade secret information of the Corporation;
(2) During hours for which he was compensated by the Corporation;
(3) Which relates to the business of the Corporation, or to its actual or demonstrably anticipated research and
development; or
(4) Which results, in whole or in part, from work performed by Executive for the Corporation;
shall be the sole property of the Corporation, or it's assigns, which shall also be the owner of all patents,
copyrights, and other rights in connection with the invention.
Executive further agrees to assist the Corporation in every proper way, but at the Corporation's expense, to
obtain and from time to time enforce patents, copyrights, and other rights in connection with such inventions
and improvements in any way and all countries, and to that end Executive shall execute all documents for
use in applying for and obtaining such patents and copyrights and for enforcing them as the Corporation
may desire. Executive's obligation in this connection shall continue beyond the termination of his
employment, but the Corporation shall compensate him at a reasonable rate after termination for time
actually spent by him on behalf of the Corporation with respect to such assistance.
The provisions of this paragraph 7.D. do not apply to any inventions for which no equipment, supplies,
facilities or trade secret information of the Corporation were used and which was developed entirely on
Executive's own time, unless the invention relates directly to (1) the business of the Corporation, or (2) the
Corporation's actual or demonstrably anticipated results from any work performed by Executive for the
Corporation.
E. No Breach of Existing Agreement. Executive represents that his performance of all the terms of this
paragraph 7 shall not breach any agreement to keep in confidence proprietary information acquired by him
prior to his employment by the Corporation, nor violate any obligation he may have to any former employer.
F. Non Solicitation. Executive agrees that until 1 year from and after the termination or expiration of his
employment by the Corporation, whereto pursuant to the terms of this Agreement or otherwise, and without
regard to the reason for such termination of employment, he shall not:
(1) directly or indirectly solicit, entice or induce any employee of the Corporation, or any of its subsidiary or
affiliated companies, to be employed by any person, firm or corporation which is, directly or indirectly, in
competition with the business activities of the Corporation, or any of its subsidiary or affiliated
companies; or
(2) directly or indirectly approach any such employee for these purposes; or
(3) authorize or knowingly assist in the taking of such actions by other persons on behalf of any such
person, firm or corporation.
G. Conflicting Interest. Executive agrees that during the term of his employment by the Corporation, whether
under this Agreement or otherwise, he shall not at any time, except with the express prior consent of the
Board of Directors or the Chairman of the Board, enter into, on behalf of the Corporation, or any of its
subsidiaries or affiliated companies, or cause the Corporation or any of its subsidiaries or affiliated
companies to enter into, directly or indirectly, any transactions with any business or investment organization
in which he or any member of his immediate family may be interested as a
partner, trustee, director, officer, employee, shareholder, lender of money, beneficiary, or guarantor.
8. NON-COMPETITION.
A. Executive hereby agrees and understands that this non-competition is a condition of employment with the
Corporation that he shall not, until 1 year after the termination or expiration of his employment by the Corporation,
whether pursuant to the terms of this Agreement or otherwise, and without regard to the reason for such
termination, directly or indirectly engage or be interested in any business which is competitive with the business of
the Corporation, or any of its subsidiaries or affiliates, including any line of business which utilizes the Technology.
Executive shall be deemed to be directly or indirectly interested in a business if he shall be engaged or interested in
such, business as a stockholder, director, officer,
employee, salesman, sales representative, agent, broker, partner, individual proprietor, lender, consultant or
otherwise, but not if such interest is limited solely to the ownership of 5% or less of the equity or debt securities of
any Corporation whose shares are listed for tracking on a national securities exchange or quoted in the National
Association of Securities Dealers automated quotation system.
9.
INJUNCTIVE RELIEF.
Executive acknowledges that the services to be rendered by him hereunder are of a special, unique and
extraordinary character and that it would be very difficult or impossible to replace such services and further that
irreparable injury would be sustained by the Corporation and its subsidiary or affiliated companies in the event of a
violation by Executive of any of the provisions of paragraphs 7 and 8 of this Agreement, and by reason thereof
Executive consents and agrees that if he violates any of the provisions of this Agreement, the Corporation shall be
entitled to an injunction to be issued by any court of competent jurisdiction restraining him from committing or
continuing any violation of this Agreement.
10. TERMINATION.
A.
In the event of Executive's death or total disability (which for purposes hereof shall mean inability of
Executive to perform his duties for a period of 60 or more days during a 12 month period), this Agreement shall
terminate (in the case of total disability, effective only upon notice by Corporation) and the Corporation shall within
30 days of such termination, pay to Executive or his estate Executive's Salary to the effective date of termination.
The Corporation may, effective only upon notice, terminate the employment of Executive for cause (which
B.
shall mean only gross negligence or willful misconduct in connection with the performance of Executive's duties
hereunder, immoral actions or behavior by Executive, or criminal prosecution or conviction, or the voluntary
resignation of Executive prior to the expiration of the term hereof, other than by reason of a default by the
Corporation hereunder, in which case Executive shall be entitled to his Salary to the effective date of termination
(which shall be paid within 30 days of such termination), but shall be entitled to no further compensation accruing
after the effective date of termination.
The Corporation may, effective only upon notice, terminate the employment of Executive without cause
C.
(as defined above), in which case the Corporation shall, within 30 days of such termination, pay to Executive his
Salary to the effective date of termination, together with a lump-sum payment equal to 12 months of his then current
monthly Salary. If a change of control as defined in Paragraph 10 E has taken place, then the lump-sum payment
will be equal to a 1 multiple of the annual base Salary immediately prior to the change of control.
D.
E.
F.
The Corporation and the Executive each have as their sole right, the option to negotiate the renewal of
this agreement at the end of the term as provided for in paragraph 2. Should the Corporation fail to offer to
renew or extend the agreement at substantially the same terms and conditions as the original agreement,
the Corporation shall pay a lump-sum payment equal to 2 months of the Executive's then current monthly
Salary. If the Corporation exercises it's right to not renew or extend the agreement and a change of control
as defined in paragraph 10 E has taken place, the Corporation shall pay a lump-sum payment equal to 12
months of the Executive's then current monthly Salary.
Change of control shall mean for purposes of termination, the transfer of ownership and control of the
Board of Directors or Executive Committee from Mr. Fred Kaiser to any other parties, corporation,
partnerships, etc., outside his direct control or the replacement of or change of reporting relationship of the
President and Chief Operating Officer. Excluded shall be any change of control to another Alpha Group
company or the Kaiser/Bosari Foundation. 5
The payment described in this paragraph 10 are and shall be Executive's sole compensation with respect to
termination, and shall constitute Executive's sole and exclusive remedy, in lieu of all rights and claims of
Executive, at law or in equity, with respect to a claim of wrongful termination by the Corporation.
11. NO CONFLICTING AGREEMENTS.
Executive represents and warrants that he is not a party to any agreement, contract or understanding, whether
employment or otherwise which would in any way restrict or prohibit him from undertaking or performing employment in
accordance with the terms and conditions of this Agreement.
12. ENTIRE AGREEMENT.
This Agreement set forth the entire understanding of the parties with respect to the employment of Executive hereunder,
and no statement, representation, warranty or covenant has been made by either party except as expressly set forth
herein. This Agreement shall not be changed or terminated orally. This Agreement supersedes and cancels all prior
agreements between the parties, whether written or oral, relating to the employment of Executive, and supersedes and
cancels the Consultant Agreement, but it does not supersede or cancel any previous confidentiality or non-disclosure
agreements, the terms and restriction of which shall continue to apply to Executive, except to the extent of any
inconsistency with the terms and provisions of this Agreement.
13. APPLICABLE LAW; JURISDICTION.
This Agreement shall be governed by and construed in accordance with the substantive laws of the State of Washington,
as applied to residents of that state. Jurisdiction and venue for any action interpreting or enforcing this Agreement shall
lie exclusively in the Federal District Court for the Western District of Washington.
14. NOTICES.
All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have
been duly given if delivered or mailed, first class, postage prepaid, certified mail, return receipt requested, to each of the
parties at it's or his address above written or at such other address as either of the parties may designate in conformity
with the foregoing.
15. BINDING AGREEMENT.
Executive shall not delegate or assign any of his rights or obligations under this Agreement. All of the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of, and be enforceable by, the Executive and
his heirs and personal representatives and the Corporation and its successors and assigns.
16. SEVERABILITY.
If, at any time subsequent to the date hereof, any provision of this Agreement shall be held by any court of competent
jurisdiction to be illegal, void or unenforceable, such provision shall be of no force and effect, but the illegality or
unenforceability of such provision shall not impair the enforceability of any other provision of this Agreement.
17. SURVIVAL.
6
The provisions of paragraphs 7, 8, 9 and 13 shall survive the termination hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on the date first above written.
Corporation: Executive:
ALPHA TECHNOLOGIES, INC.
By: /s/ F. Kaiser /s/ Andrew M. Zogby 09/13/12
Its: Chairman & CE
7
Employment Agreement Extension
ALPHA TECHNOLOGIES
Exhibit 10.31
Alpha Technologies, Inc., a Washington corporation (the "Corporation") and Andrew Zogby enter into this Employment
Extension Agreement effective June 27, 2017 (the "Extension").
A. The Corporation employed Zogby beginning on November 10, 2008. The Corporation and Employee entered
Employment Agreements on October 6, 2008 and on September 13, 2012.
B. The Corporation and Employee desire to continue their employment under this Extension's terms and conditions.
Recitals
The Corporation and Employee agree to the following terms.
Agreement
1.
2.
3.
4.
Section 2. Modified Term. The Corporation and Employee are currently parties to a September 12, 2012
Employment Agreement (the "Employment Agreement") that includes a December 31, 2017 termination date.
The Corporation and Employee agree to extend the Employment Agreement's termination date from December
31, 2017 until December 31, 2022.
Section 4. Compensation. Salary is $440,000 USO per annum. Performance Bonus is $350,000 USO per
annum.
Section 10 D. Termination. Should the Corporation fail to offer to renew or extend the
agreement at substantially the same terms and conditions as the original agreement, the Corporation shall pay
a lump sum payment equal to 12 months of the Executive's then current monthly salary.
All Other Terms Unchanged. The Corporation and Employee agree that all other terms of the Employment
Agreement shall remain unchanged with the sole exception of the modified termination date.
The Corporation and the Employee agree to these terms on the dates listed below.
Alpha Technologies, Inc., a Washington Corporation
By: /s/ F. Kaiser
Its: CEO
/s/ Andrew M. Zogby
Dated: 25 July 2017
ASSIGNMENT OF EMPLOYMENT CONTRACT Exhibit 10.32
FOR VALUE RECEIVED, the undersigned Assignor hereby assigns, transfers and sets over to Alpha Technologies Services, Inc.
(Assignee) all rights, title and interest held by the Assignor in and to the following described contract:
Employment Contract by and between Mr. Andrew Zogby and Alpha Technologies, Inc. dated 6 October 2008, and subsequently renewed.
The Assignor warrants and represents that said contract is in full force and effect and is fully assignable.
The Assignee hereby assumes and agrees to perform all the remaining and executory obligations of the Assignor under the contract and
agrees to indemnify and hold the Assignor harmless from any claim or demand resulting from non-performance by the Assignee.
The Assignee shall be entitled to all money remaining to be paid under the contract, which rights are also assigned hereunder.
The Assignor warrants that the contract is without modification, and remains on the terms contained.
The Assignor further warrants that it has full right and authority to transfer said contract and that the contract rights herein transferred are free
of lien, encumbrance or adverse claim.
This assignment shall be binding upon and inure to the benefit of the parties, their successors and assigns.
Signed this 6th day of December, 2018.
Assignor Alpha Technologies, Inc. John O'Rourke, Secretary/Treasurer
ENERSYS
Subsidiaries
Exhibit 21.1
EnerSys Argentina S.A.
EnerSys Australia Pty Ltd.
ICS Industries Pty Ltd.
ICS Sheet Metal Pty Ltd.
International Communication Shelters Australasia Pty Ltd.
Lancord Pty Ltd.
Lenmic Pty Ltd.
National Infrastructure Pty Ltd.
National Infrastructure Services Pty Ltd.
Powercom (NSW) Pty Ltd.
Alpha Technologies Pty. Ltd.
EnerSys GmbH
EnerSys BVBA
EnerSys Brasil Ltda.
EnerSys Participacoes Ltda.
Industrial Battery Holding Ltda.
Alpha Innovations Industria e Comercio de Produtos Eletronicos Ltda.
EnerSys AD (99.8%) *
EnerSys Canada Inc.
Alpha Technologies Ltd.
Argus Research Ltd.
Alpha Technical Services Ltd.
EnerSys Cayman Euro L.P.
EnerSys Cayman Holdings L.P.
EnerSys Cayman Inc.
YCI, Inc.
EnerSystem Chile Ltda.
EnerSys (Chaozhou) Huada Batteries Company Limited
EnerSys (China) Huada Batteries Company Limited
EnerSys (Chongqing) Huada Batteries Company Limited
EnerSys (Jiangsu) Huada Batteries Company Limited (94.7%) *
EnerSys (Yangzhou) Huada Batteries Co. Ltd.
Shenzhen Huada Power Supply Mechanical & Electrical Co. Ltd.
Alphatec Technologies (Shenzhen) Co. Ltd.
SiteTel Shanghai Co Ltd.
EnerSys, s.r.o.
EnerSys A/S
EnerSys Europe Oy
EnerSys SARL
Hawker GmbH
Argentina
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Austria
Belgium
Brazil
Brazil
Brazil
Brazil
Bulgaria
Canada
Canada
Canada
Canada
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Chile
China
China
China
China
China
China
China
China
Czech Republic
Denmark
Finland
France
Germany
EnerSys AE
EnerSys Asia Limited
Telecomponents & Supply (Hong Kong) Ltd.
EnerSys Hungária Kft.
EnerSys Battery Private Limited
EnerSys India Batteries Private Ltd.
Alpha Tech Energy Solutions India Private Limited
EnerSys S.r.l.
EnerSys Holdings (Luxembourg) Sarl
EnerSys Luxembourg Finance Sarl
DCPM Engineering Sdn Bhd
EnerSys Malaysia Sdn Bhd
MIB Energy Sdn Bhd
UTS Holdings Sdn Bhd
UTS Technology (JB) Sdn Bhd
UTS Technology (PG) Sdn Bhd
EnerSys de Mexico, S de R.L. de CV
EnerSys de Mexico II, S de R.L. de CV
Powersonic, S de R.L. de CV
Yecoltd, S. de R.L. de CV
Batterias Hawker de Mexico S. de R.L. de C.V.
Alpha Mexico Network Power S.A. de C.V.
Riverfront Holding S. de R.L. de C.V.
Alpha Innovations Mexico S. de R.L. de C.V.
ENAS Industrial Batteries Morocco Sarl
EnerSys AS
EnerSys sp. z o.o.
EnerSys CJSC
Battery Power International Pte Ltd.
EnerSys Reserve Power Pte. Ltd.
EnerSys South East Asia Pte. Ltd.
NaviSemi Energy Pte Ltd.
EnerSys, s.r.o.
Acumuladores Industriales EnerSys SA
EnerSys AB
Purcell Systems International AB
N Holding AB
SiteTel Sweden AB
EH Batterien AG
EH Europe GmbH
EH Global Holdings GmbH
EH Swiss Holdings GmbH
EnerSys BV
Enersys Akü Sanaya Dis Ticaret Limited Sirketi
EnerSys LLC
NorthStar Battery DMCC
Greece
Hong Kong
Hong Kong
Hungary
India
India
India
Italy
Luxembourg
Luxembourg
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Morocco
Norway
Poland
Russia
Singapore
Singapore
Singapore
Singapore
Slovak Republic
Spain
Sweden
Sweden
Sweden
Sweden
Switzerland
Switzerland
Switzerland
Switzerland
The Netherlands
Turkey
Ukraine
United Arab Emirates
ABSL Power Solutions Ltd.
EnerSys Holdings UK Ltd.
EnerSys Ltd.
NaviSemi Inc.
ABSL Power Solutions Inc.
EnerSys Advanced Systems Inc.
EnerSys Capital Inc.
EnerSys Delaware Inc.
EnerSys Delaware LLC I
EnerSys Delaware LLC II
EnerSys Delaware LLC III
EnerSys Delaware LLC IV
EnerSys Delaware LLC V
EnerSys Energy Products Inc.
EnerSys European Holding Co.
EnerSys Mexico Holdings LLC
EnerSys Mexico Management LLC
Esfinco,LLC
Hawker Powersource, Inc.
Hawker Power Systems, Inc.
Purcell Systems, Inc.
Quallion LLC
NorthStar Battery Company, LLC
New Pacifico Realty, Inc.
Alpha Technologies Services, Inc.
Alpha Broadband Services Inc.
Alpha Alternative Energy Inc.
Cooperative Enterprises Inc.
Outback Power Technologies, Inc.
* These entities are majority-owned by EnerSys with the remaining interests held by third parties.
United Kingdom
United Kingdom
United Kingdom
California
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Missouri
Nevada
Nevada
Nevada
Nevada
Washington
Washington
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-8 No. 333-226712) pertaining to the EnerSys 2018 Employee Stock Purchase Plan,
(2) Registration Statement (Form S-8 No. 333-219838) pertaining to the EnerSys 2017 Equity Incentive Plan, and
(3) Registration Statement (Form S-8 No. 333-168717) pertaining to the EnerSys 2010 Equity Incentive Plan;
of our reports dated June 1, 2020, with respect to the consolidated financial statements and schedule of EnerSys and the effectiveness of internal control
over financial reporting of EnerSys included in this Annual Report (Form 10-K) of EnerSys for the year ended March 31, 2020.
Exhibit 23.1
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
June 1, 2020
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a)/15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
EXHIBIT 31.1
I, David M. Shaffer, certify that:
1.
2.
3.
4.
5.
I have reviewed this Annual Report on Form 10-K of EnerSys;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
(b)
(c)
(d)
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
(b)
Date: June 1, 2020
ENERSYS
By
/s/ David M. Shaffer
David M. Shaffer
Chief Executive Officer
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a)/15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
EXHIBIT 31.2
I, Michael J. Schmidtlein, certify that:
1.
2.
3.
4.
5.
I have reviewed this Annual Report on Form 10-K of EnerSys;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
(b)
(c)
(d)
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
ENERSYS
By
/s/ Michael J. Schmidtlein
Michael J. Schmidtlein
Chief Financial Officer
(b)
Date: June 1, 2020
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18. U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
I certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of EnerSys on
Form 10-K for the fiscal year ended March 31, 2020 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934
and that information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of EnerSys.
ENERSYS
By
/s/ David M. Shaffer
David M. Shaffer
Chief Executive Officer
By
/s/ Michael J. Schmidtlein
Michael J. Schmidtlein
Chief Financial Officer
Date: June 1, 2020