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FergusonUNITED 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, 2022 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
Common Stock, $0.01 par value per share
Trading Symbol
ENS
Name of each exchange on which registered
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
☒
Non-accelerated filer
☐ (Do not check if a smaller reporting company)
Emerging growth company
☐
Accelerated filer
Smaller reporting company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
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Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☒
State the aggregate market value of the voting and non-voting common equity held by non-affiliates at October 3, 2021: $3,243,228,271 (1) (based upon its
closing transaction price on the New York Stock Exchange on October 3, 2021).
(1) For this purpose only, “non-affiliates” excludes directors and executive officers.
Common stock outstanding at May 20, 2022: 40,652,607 Shares of Common Stock
Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be held on or about August 4, 2022 are incorporated by
DOCUMENTS INCORPORATED BY REFERENCE
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, including global supply chain disruptions;
general cyclical patterns of the industries in which our customers operate;
global economic trends, competition and geopolitical risks, including impacts from the ongoing conflict between Russia and Ukraine and the related
sanctions and other measures, changes in the rates of investment or economic growth in key markets we serve, or an escalation of sanctions, tariffs or
other trade tensions between the U.S. and China or other countries, and related impacts on our global supply chains and strategies;
the extent to which we cannot control our fixed and variable costs;
the raw materials in our products may experience significant fluctuations in market price and availability;
certain raw materials constitute hazardous materials that may give rise to costly environmental and safety claims;
legislation regarding the restriction of the use of energy or certain hazardous substances in our products;
risks involved in our operations such as supply chain issues, disruption of markets, changes in import and export laws, environmental regulations,
currency restrictions and local currency exchange rate fluctuations;
our ability to raise our selling prices to our customers when our product costs increase;
the extent to which we are able to efficiently utilize our global manufacturing facilities and optimize our capacity;
changes in macroeconomic and market conditions and market volatility, including inflation, interest rates, the value of securities and other financial
assets, transportation costs, costs and availability of electronic components, lead, plastic resins, steel, copper and other commodities used by us, and the
impact of such changes and volatility on our financial position and business;
competitiveness of the battery markets and other energy solutions for industrial applications throughout the world;
our timely development of competitive new products and product enhancements in a changing environment and the acceptance of such products and
product enhancements by customers;
our ability to adequately protect our proprietary intellectual property, technology and brand names;
litigation and regulatory proceedings to which we might be subject;
our expectations concerning indemnification obligations;
changes in our market share in the business segments where we operate;
our ability to implement our cost reduction initiatives successfully and improve our profitability;
quality problems associated with our products;
our ability to implement business strategies, including our acquisition strategy, manufacturing expansion and restructuring plans;
our acquisition strategy may not be successful in locating advantageous targets;
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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;
risks related to the discontinuation of the London Interbank Offered Rate and other reference rates, including increased expenses and the effectiveness
of hedging strategies;
our ability to attract and retain qualified management and personnel;
our ability to maintain good relations with labor unions;
credit risk associated with our customers, including risk of insolvency and bankruptcy;
our ability to successfully recover in the event of a disaster affecting our infrastructure, supply chain, or our facilities;
delays or cancellations in shipments;
occurrence of natural or man-made disasters or calamities, including health emergencies, the spread of infectious diseases, pandemics, vaccine
mandates, outbreaks of hostilities or terrorist acts, or the effects of climate change, and our ability to deal effectively with damages or disruptions caused
by the foregoing; and
the operation, capacity and security of our information systems and infrastructure.
This list of factors that may affect future performance is illustrative, but by no means exhaustive. Accordingly, all forward-looking statements should be
evaluated with the understanding of their inherent uncertainty.
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EnerSys
Annual Report on Form 10-K
For the Fiscal Year Ended March 31, 2022
Index
PART I
Cautionary Note Regarding Forward-Looking Statements
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Item 9C.
Disclosure regarding foreign jurisdictions that prevent inspections
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 15.
Exhibits, Financial Statement Schedules
Signatures
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ITEM 1.
BUSINESS
Overview
PART I
EnerSys (the “Company,” “we,” or “us”) is a world leader in stored energy solutions for industrial applications. We also manufacture and distribute energy
systems solutions and motive power batteries, specialty batteries, battery chargers, power equipment, battery accessories and outdoor equipment enclosure
solutions to customers worldwide. Energy Systems which combine enclosures, power conversion, power distribution and energy storage are used in the
telecommunication and broadband, utility industries, uninterruptible power supplies, and numerous applications requiring stored energy solutions. Motive
Power batteries and chargers are utilized in electric forklift trucks and other industrial electric powered vehicles. Specialty batteries are used in aerospace and
defense applications, large over the road trucks, premium automotive and medical. We also provide aftermarket and customer support services to over 10,000
customers in more than 100 countries through a network of distributors, independent representatives and our internal sales force around the world.
During the first quarter of fiscal 2021, the Company's chief operating decision maker, or CODM (the Company's Chief Executive Officer), changed the manner
in which he reviews financial information for purposes of assessing business performance and allocating resources, by focusing on the lines of business on a
global basis, rather than on geographic basis. As a result of this change, the Company re-evaluated the identification of its operating segments and reportable
segments. The operating segments were identified as Energy Systems, Motive Power and Specialty. The Company’s operating segments also represent its
reportable segments under ASC 280, Segment Reporting. Therefore, the Company had changed its segment presentation from three reportable segments based
on geographic basis to three reportable segments based on line of business. All prior comparative periods presented have been recast to reflect these changes.
The Company's three reportable segments, based on lines of business, are as follows:
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Energy Systems - uninterruptible power systems, or “UPS” applications for computer and computer-controlled systems, as well as
telecommunications systems, switchgear and electrical control systems used in industrial facilities and electric utilities, large-scale energy storage and
energy pipelines. Energy Systems also includes highly integrated power solutions and services to broadband, telecom, renewable and industrial
customers, as well as thermally managed cabinets and enclosures for electronic equipment and batteries.
• Motive Power - power for electric industrial forklifts used in manufacturing, warehousing and other material handling applications as well as mining
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equipment, diesel locomotive starting and other rail equipment; and
Specialty - premium starting, lighting and ignition applications in transportation, energy solutions for satellites, military aircraft, submarines, ships and
other tactical vehicles as well as medical and security systems.
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 2022”, which refers to our fiscal year ended
March 31, 2022. 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 2022 ended on July 4, 2021, October 3, 2021, January 2, 2022, and March 31, 2022,
respectively. The four quarters in fiscal 2021 ended on July 5, 2020, October 4, 2020, January 3, 2021, and March 31, 2021, 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. (“ESGI”). Our successful integration of
ESGI provided global scale in both the reserve and motive power markets. The ESGI acquisition also provided us with a further opportunity to reduce costs and
improve operating efficiency.
Between fiscal years 2003 through 2020, we made thirty-four acquisitions around the globe. There were no acquisitions in fiscal 2022 and 2021 but we
completed the acquisition of NorthStar, headquartered in Stockholm, Sweden in fiscal 2020 and of Alpha in fiscal 2019.
Our Customers
We serve over 10,000 customers in over 100 countries, on a direct basis or through our distributors. We are not overly dependent on any particular end market.
Our customer base is highly diverse, and no single customer accounts for more than 10% of our revenues.
Our Energy Systems customers consist of both global and regional customers. These customers are in diverse markets including telecom, UPS, electric utilities,
security systems, emergency lighting, services to broadband, renewable and industrial customers, as well as thermally managed cabinets and enclosures for
electronic equipment and batteries.
Our Motive Power products are sold to a large, diversified customer base. These customers include material handling equipment dealers, forklift and heavy
truck original equipment manufacturers (“OEMs”) and end users of such equipment. End users include manufacturers, distributors, warehouse operators,
retailers, airports, mine operators and railroads.
Our Specialty products are utilized in transportation, aerospace and defense and medical markets. The products are sold globally to OEMs, distribution partners,
vehicle fleets and directly to government entities such as the United States of America, Germany and the United Kingdom.
Distribution and Services
We distribute, sell and service our 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.
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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.
Energy Systems
We compete principally with East Penn Manufacturing, Exide Technologies (Stryten), Fiamm, SAFT, New Power, C&D Technologies Inc., Vertiv, ABB,
Amphenol, Eltek (a Delta Group company), as well as Chinese producers.
Motive Power
Our primary global competitors in traditional lead-acid include East Penn Manufacturing, Exide Technologies (Stryten), Hoppecke, Eternity, Midac, Sunlight
and TAB, as well as a number of domestic Chinese manufacturers.
Additionally, while lithium-ion battery technology in the motive power space has traditionally been relegated to smaller material handling applications, we have
seen the entrance of a number of companies into larger battery types, acting as lithium cell packagers or integrators of cells sourced primarily from Asia. The
integrators include forklift original equipment manufacturers either directly or through partnership with other entities.
Specialty
We compete globally within the Transportation, Aerospace and Defense markets and specialized lithium technologies used in these critical applications. Our
thin plate pure lead (TPPL) technology is a significant player in the applications using absorbed glass materials (AGM). Our major competitors in AGM
technology are Clarios, East Penn Manufacturing, Exide Technologies (Stryten), Fiamm, Banner and Atlas. In the Aerospace and Defense specialized markets
our main competitors are Eagle Picher and SAFT.
Warranties
Warranties for our products vary geographically and by product type and are competitive with other suppliers of these types of products. Generally, our Energy
Systems product warranties range from one to twenty years, our Motive Power product warranties range from one to five years and from one to four years for
Specialty transportation batteries. The length of our warranties is varied to reflect regional characteristics and competitive influences. In some cases, our
warranty period may include a pro rata period, which is typically based around the design life of the product and the application served. Our warranties
generally cover defects in workmanship and materials and are limited to specific usage parameters.
Intellectual Property
We have numerous patents and patent licenses in the United States and other jurisdictions but do not consider any one patent to be material to our business.
From time to time, we apply for patents on new inventions and designs, but we believe that the growth of our business will depend primarily upon the quality of
our products and our relationships with our customers, rather than the extent of our patent protection.
We believe we are the leader 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.
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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, although transportation and power electronics can experience seasonality in colder months. Despite that, historically our fourth quarter is
our best quarter with higher revenues and generally more working days while 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:
the design and development of new products;
optimizing and expanding our existing product offering;
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production efficiency and utilization;
capacity expansion without additional facilities; and
quality attribute maximization.
Employees
At March 31, 2022, we had approximately 11,400 employees. Of these employees, approximately 26% were covered by collective bargaining agreements.
Employees covered by collective bargaining agreements that expire in the next twelve months were approximately 7% of the total workforce. The average term
of these agreements is 2 years, with the longest term being 3.5 years. We consider our employee relations to be good. We did not experience any significant
labor unrest or disruption of production during fiscal 2022.
Information about Our Executive Officers
As of May 25, 2022, our executive officers are:
David M. Shaffer, age 57, President and Chief Executive Officer. Mr. Shaffer has been a director of EnerSys and has served as our President and Chief
Executive Officer since April 2016. Prior thereto, he served as President and Chief Operating Officer since November 2014. From January 2013 through
October 2014, he served as our President-EMEA. From 2008 to 2013, Mr. Shaffer was our President-Asia. Prior thereto he was responsible for our
telecommunications sales in the Americas. Mr. Shaffer joined EnerSys in 2005 and has worked in various roles of increasing responsibility in the industry since
1989. Mr. Shaffer received his Masters of Business Administration degree from Marquette University and his Bachelor of Science degree in Mechanical
Engineering from the University of Illinois.
Andrea J. Funk, age 52, Executive Vice President and Chief Financial Officer. Ms. Funk joined EnerSys in December 2018 and served as Vice President
Finance, Americas. She was promoted to Executive Vice President & Chief Financial Officer effective April 1, 2022. Ms. Funk holds a Master of Business
Administration degree from The Wharton School of Business, and a Bachelor of Science degree in accounting from Villanova University and was a certified
public accountant. Previously, Ms. Funk served as Chief Financial Officer and then Chief Executive Officer of Cambridge Lee Industries LLC from 2010-2018.
Prior, she served in positions of increasing responsibility at Carpenter Technology, Arrow International, Rhone-Poulenc Rorer, Bell Atlantic Corporation and
Ernst & Young. Since July 2017, Ms. Funk has served on the Board of Directors of Crown Holdings Inc., whose shares are traded on the New York Stock
Exchange, and is a member of their Audit and Compensation Committees.
Joern Tinnemeyer, age 49, Chief Technology Officer and Senior Vice President. Mr. Tinnemeyer has served as Senior Vice President and Chief Technology
Officer since October 2017. He joined EnerSys in August 2016 as its Vice President and Chief Technology Officer. Mr. Tinnemeyer is responsible for global
engineering, global quality, and technology development. His primary focus of expertise includes energy storage systems, system design optimization, safety
topologies and control theory. He has worked on some of the most advanced lithium battery packs for major automotive OEMs. He currently also serves as
Chairman of NaatBatt, North America’s foremost organization to foster advanced energy storage systems. Mr. Tinnemeyer studied applied mathematics and
electrical engineering at the University of Toronto and holds a MSc in Astronautics and Space Engineering.
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Shawn M. O’Connell, age 49, President, Motive Power. Mr. O’Connell has served as our President, Motive Power Global since July 2020. Prior thereto, from
April 2019 through July 2020, he served as our President, Motive Power, our Vice President–Reserve Power Sales and Service for the Americas from February
2017, and Vice President of EnerSys Advanced Systems from December 2015 to January 2017. Mr. O’Connell joined EnerSys in 2011, serving in various sales
and marketing capacities in several areas of our business. Mr. O’Connell received his Master of Business Administration degree in International Business from
the University of Redlands, CA and his Bachelor of Arts degree in English Literature from the California State University, San Bernardino. Mr. O’Connell is a
veteran of the U.S. Army’s 82nd Airborne Division (Paratroopers) where he served as a Signals Intelligence Analyst, Spanish Linguist, and held a Top-Secret
security clearance.
Andrew M. Zogby, age 62, President, Energy Systems. Mr. Zogby has served as President, Energy Systems Global since July 2020. Prior thereto, from April
2019, he served as President, Energy Systems–Americas. He joined EnerSys upon completion of the acquisition of Alpha Technologies in December 2018. Mr.
Zogby served as President of Alpha Technologies since 2008 and brings over 30 years of experience in global broadband, telecommunications and renewable
energy industries. He has held corporate leadership positions with several leading technology firms. Mr. Zogby received his Bachelor of Science degree in
Industrial and Labor Relations from LeMoyne College, Syracuse, New York, and his Master of Business Administration degree from Duke University’s Fuqua
School of Business. He is active in the US Chamber of Commerce, and serves on the C_TEC, Chamber Technology Engagement Center Committee.
Environmental Matters and Climate Change Impacts
We are committed to the protection of the environment and train our employees to perform their duties accordingly. In the manufacture of our products
throughout the world, we process, store, dispose of and otherwise use large amounts of hazardous materials, especially lead and acid. As a result, we are subject
to extensive and evolving environmental, health and safety laws and regulations governing, among other things: the generation, handling, storage, use,
transportation and disposal of hazardous materials; emissions or discharges of hazardous materials into the ground, air or water; and the health and safety of our
employees. In addition, we are required to comply with the regulation issued from the European Union called Registration, Evaluation, Authorization and
Restriction of Chemicals or “REACH”. 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.
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. Seven facilities in EMEA and Asia are certified to ISO 45001 standards. The ISO 45001 is a globally recognized occupational health and safety
management systems standard.
Climate change impacts
The potential impact of climate change on our operations is uncertain. The changing climate may result in weather patterns, increases in the frequency or
severity of storms, increased temperatures and rising 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 major changes in historical weather patterns could have a notable
impact on our future operating results. For example, if climate change results in drier weather and more accommodating temperatures over a 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
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restoration service work, it often also can result in delays or other negative consequences for our manufacturing operations, or challenges to the consistent
delivery of materials from our supply chain or of our products to distributors, which could negatively impact our financial results. Climate change may also
affect the conditions in which we operate, and in some cases, expose us to potentially increased liabilities associated with those environmental conditions.
Concerns about climate change could also result in 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 are aware of the proposed rule on climate disclosure released by the SEC in March of
this year. While we are following the progression of the rule, we are pleased to note that we are preparing to meet many of its conditions in advance. We
released our inaugural, comprehensive Sustainability Report, which was aligned with GRI and SASB standards. Included in this report, we announced key,
measurable ESG goals and objectives aimed at advancing progress in sustainability, reducing our environmental footprint and creating an inclusive and
empowering workplace for all employees. We also expect to issue our inaugural TCFD report during fiscal 2023. As part of our growing sustainability
commitment, we announced during fiscal 2022 that we joined the United Nations Global Compact, Alliance to Save Energy, the U.S. Department of Energy’s
Better Plants Program (through which we committed to reducing our energy intensity by 25% over the next 10 years (from a calendar year 2020 baseline)), the
United Nations CEO Water Mandate and the CEO Action for Diversity & Inclusion. We intend to continue to conduct a climate risk analysis in the coming year
and have completed an analysis of our Scope 1 and 2 emissions.
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.
Quality Systems
We utilize a global strategy for quality management systems, policies and procedures, the basis of which is the ISO 9001:2015 standard, a worldwide
recognized quality standard. We believe in the principles of this standard and reinforce the same by requiring mandatory compliance for all manufacturing, sales
and service locations globally that are registered to the ISO 9001 standard. We also focus on specific plant certifications such as AS9100 (Aerospace),
ISO13485:2016 (Medical Devices), ISO/TS 22163:2017 (Rail), TL9000 (Telecom), IATF16949:2018 (Automotive). We have also acquired our first Lithium-
Ion product certification in accordance with ISO 26262 (Product Safety).
This strategy enables us to provide consistent quality products and services to meet our customers’ needs.
Human Capital Management
EnerSys is committed to developing a comprehensive, cohesive and positive employee experience. We consider talent acquisition, development, engagement
and retention a key driver of our business success.
Our Board of Directors, through the Compensation Committee and the Nominating and Corporate Governance Committee, retains oversight of our human
capital management process, including demographics, talent development, employee retention, material aspects of employee compensation, as well as diversity
and inclusion and recruitment efforts. The Nominating and Corporate Governance Committee reports on human capital matters at each regularly scheduled
Board of Directors meeting. The most significant human capital measures, objectives and initiatives include the following:
Equity, Inclusion and Belonging: We strive to create a work environment that emphasizes respect, fairness and dignity and that does not tolerate
discrimination or harassment. Individuals are evaluated based on merit, without concern for race, color, religion, national origin, citizenship, marital status,
gender (including pregnancy), gender identity, gender expression, sexual orientation, age, disability, veteran status, or other characteristics protected by law. We
are committed to providing equal opportunities to every member of our workforce. In addition to following all applicable local laws and regulations, for fiscal
year 2022, we have also formed an executive steering committee, joined, among other things, the CEO Action for Diversity and Inclusion, and funded
additional staffing to further support these efforts.
Health, Safety, and Wellness: Our fundamental responsibility as an employer is to provide a safe and healthy workplace for all our employees. This
undertaking is explained further in our Safety and Health Policy.
Our health and safety programs are designed around global standards with appropriate variations addressing the multiple jurisdictions and regulations, specific
hazards and unique working environments of our manufacturing and production facilities, service centers and headquarter operations. Above all else, we are
dedicated to the safety and well-being of our employees. As the COVID-19 pandemic unfolded in 2020, we quickly shifted to a remote work environment
where possible, and provided employees with the resources necessary to effectively perform their job responsibilities. Additionally, we implemented changes
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to our manufacturing and distribution operations to include the use of personal protective equipment, intensive cleaning measures, and social distancing.
Philanthropy and Volunteerism: EnerSys is strongly committed to being an outstanding corporate citizen on a global basis in all the countries and
communities where we do business. This commitment is reflected in a strong ethic for charitable contributions, endorsement of community activities,
encouraging employees to give freely of their own time to serve on boards or committees in many organizations and supporting educational programs in schools
and colleges.
We created several committees to assist the company in its philanthropic endeavors that support all communities in which we work. Additionally, we regularly
sponsor volunteer events and fundraising campaigns, to encourage our employees to give back to our communities, a commitment that we further support by
offering employees paid time off for charitable volunteering.
Training and Career Management: Employees receive regular development feedback through quarterly 1:1 reviews with their manager, which encourages
open dialogues to identify and cultivate skills and opportunities. We encourage our leaders to facilitate effective conversations and measure the effectiveness of
these conversations by regularly surveying our employees. In addition to training and development opportunities, all new employees are required to participate
in seminars to introduce them to the EnerSys business, our strategy, our culture and philosophies. We encourage all our employees to engage in ongoing
training, professional development and educational advancement programs. Through our established EnerSys Academy, we provide employees worldwide with
resources to expand their knowledge on a broad scope of relevant topics to promote their growth and development.
Compensation and Benefits: To attract, retain and recognize talent, we aim to ensure merit-based, compensation practices and strive to provide competitive
compensation and benefit packages to our workforce. We provide employee wages that are consistent with employee positions, skill levels, experience,
knowledge and geographic location. We align our executives' and eligible employees' annual bonus opportunity and long-term equity compensation with our
stockholders' interests by linking realizable pay with company financial and stock performance. We completed an initial pay equity study in fiscal year 2021 to
further evaluate our global pay practices across the organization. In response to the COVID-19 pandemic, we provided resources for well-being and work life
flexibility for our employees to take care of themselves and their families.
Environmental, Social and Governance
At EnerSys, we understand that an effective business strategy must also be one that evaluates and addresses environmental and social risk factors as well as
opportunities to leverage sustainable operations and ethical behavior as a means of driving business value. To that end, we have been integrating the
fundamental values of environmental, social, and governance (“ESG”) into our everyday operations and future business strategies. Our sustainability team leads
our efforts with respect to climate change management, product sustainability, operations, supply chain management, workforce health and safety, diversity,
equity, inclusion, and community engagement.
We further believe that the power systems and energy management sector have a key role to play in finding innovative solutions to address global climate
change. Our climate change policy underscores our goal to carry out all business activities in a sustainable manner. Our environmental policies and practices
aim to protect, conserve, and sustain the world’s natural resources, as well as to protect our customers and the communities in which we live and operate. As
one example of this, we offer a complete battery recycling program to assist our customers in preserving our environment and comply with recycling and waste
disposal regulations.
Relationships between EnerSys and our suppliers must be based on mutual respect and integrity. Our purchasing and quality teams strive to maintain the highest
standards and principles of business ethics, courtesy and competence in dealings and transactions with suppliers. Our code of supplier conduct reflects our
commitment to the values of honesty, integrity, respect, and responsibility. We expect our suppliers will share and embrace our values, as well as our
commitment to regulatory compliance.
We have formed an ESG steering committee, which includes members of senior management and funded additional staffing to further support the ongoing
development of our ESG program. In addition, we clarified that our Board of Directors oversees our programs related to matters of corporate responsibility and
sustainability performance, including climate change, through the Nominating and Corporate Governance Committee. We also announced in April 2022 that we
joined the United Nations Global Compact, Alliance to Save Energy, the U.S. Department of Energy’s Better Plants Program (through which we committed to
reducing our energy intensity by 25% over the next 10 years (from a calendar year 2020 baseline)), the United Nations CEO Water Mandate. These actions
demonstrate the strength and commitment to sustainability throughout the organization worldwide.
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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.
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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 public health epidemics or outbreaks, including the novel coronavirus (“COVID-19”).
Public health epidemics or outbreaks could adversely impact our business. In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan,
Hubei Province, China. While initially the outbreak was largely concentrated in China, infections have been reported globally and causing disruption to many
economies. The extent to which the coronavirus continues to impact our operations will depend on future developments, which are highly uncertain and cannot
be predicted with confidence, including the duration of the outbreak, new variants and new information which may emerge concerning the severity of the
coronavirus and the actions to contain the coronavirus or treat its impact, as well as the distribution and effectiveness of COVID-19 vaccines, among others. In
particular, the continued spread of the coronavirus globally could adversely impact our operations, including among others, our manufacturing and supply chain,
sales and marketing and could have an adverse impact on our business and our financial results. Additionally, countries may impose prolonged quarantines and
travel restrictions, which may significantly impact the ability of our employees to get to their places of work to produce products, may make it such that we are
unable to obtain sufficient components or raw materials and component parts on a timely basis or at a cost-effective price or may significantly hamper our
products from moving through the supply chain.
Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as 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 People's Republic of China (“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 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. The rapid spread of a contagious
illness such as a novel coronavirus, or fear of such an event, can have a material adverse effect on the demand for our products and services and therefore have a
material adverse effect on our business and results of operations.
A widespread health crisis could adversely affect the global economy, resulting in an economic downturn that could impact demand for our products.
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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 location, depending on the economic environment in these markets. Sales of our motive
power products, for example, depend significantly on demand for new electric industrial forklift trucks, which in turn depends on end-user demand for
additional motive capacity in their distribution and manufacturing facilities. The uncertainty in global economic conditions varies by geographic location and
can result in substantial volatility in global credit markets, particularly in the United States, where we service the vast majority of our debt. Moreover, Federal
Reserve policy, including with respect to rising interest rates and the decision to end its quantitative easing policy, may also result in market volatility and/or a
return to unfavorable economic conditions. These conditions affect our business by reducing prices that our customers may be able or willing to pay for our
products or by reducing the demand for our products, which could in turn negatively impact our sales and earnings generation and result in a material adverse
effect on our business, cash flow, results of operations and financial position.
Government reviews, inquiries, investigations, and actions could harm our business or reputation.
As we operate in various locations around the world, our operations in certain countries are subject to significant governmental scrutiny and may be adversely
impacted by the results of such scrutiny. The regulatory environment with regard to our business is evolving, and officials often exercise broad discretion in
deciding how to interpret and apply applicable regulations. From time to time, we receive formal and informal inquiries from various government regulatory
authorities, as well as self-regulatory organizations, about our business and compliance with local laws, regulations or standards.
Any determination that our operations or activities, or the activities of our employees, are not in compliance with existing laws, regulations or standards could
result in the imposition of substantial fines, interruptions of business, loss of supplier, vendor, customer or other third-party relationships, termination of
necessary licenses and permits, or similar results, all of which could potentially harm our business and/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.
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 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.
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Increases in costs, disruption of supply or shortage of any of our battery components, such as electronic and mechanical parts, or raw materials used in the
production of such parts could harm our business.
From time to time, we may experience increases in the cost or a sustained interruption in the supply or shortage of our components. For example, a global
shortage and component supply disruptions of electronic and other battery components is currently being reported, and the full impact to us is yet unknown.
Other examples of shortages and component supply disruptions could include the supply of electronic components and raw materials (such as resins and other
raw metal materials) that go into the production of our products. Any such cost increase or supply interruption could materially and negatively impact our
business, prospects, financial condition and operating results. The prices for our components fluctuate depending on market conditions and global demand and
could adversely affect our business, prospects, financial condition and operating results. For instance, we are exposed to multiple risks relating to price
fluctuations for battery cells. These risks include, but are not limited to:
•
•
•
•
supply shortages caused by the inability or unwillingness of our suppliers and their competitors to build or operate component production facilities to
supply the numbers of battery components required to support the rapid growth of the electric vehicle industry and other industries in which we operate
as demand for such components increases;
disruption in the supply of electronic circuits due to quality issues or insufficient raw materials;
a decrease in the number of manufacturers of battery components; and
an increase in the cost of raw materials.
We are dependent on the continued supply of battery components for our products. To date we have a limited number of fully qualified suppliers, and have
limited flexibility in changing suppliers, though we are actively engaged in activities to qualify additional suppliers. Any disruption in the supply of battery
components could temporarily disrupt production of our products until a different supplier is fully qualified.
The cost of our battery products depends in part upon the prices and availability of raw materials such as lithium, nickel, cobalt and/or other metals. The prices
for these materials fluctuate and their available supply may be unstable, depending on market conditions and global demand for these materials, including as a
result of increased global production of electric vehicles and energy storage products. Furthermore, fluctuations or shortages in petroleum and other economic
conditions may cause us to experience significant increases in freight charges. Any reduced availability of these raw materials or substantial increases in the
prices for such materials may increase the cost of our components and consequently, the cost of our products. There can be no assurance that we will be able to
recoup increasing costs of our components by increasing prices, which in turn could damage our brand, business, prospects, financial condition and operating
results.
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,
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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.
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 an 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
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will have to disclose how they plan to monitor their sources to comply with the rules. Compliance with the regulation began 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.
We are exposed to exchange rate and inflation risks, and our net earnings and financial condition may suffer due to currency translations.
We invoice our foreign sales and service transactions in local and foreign currencies and translate net sales using actual exchange rates during the period. We
translate our non-U.S. assets and liabilities into U.S. dollars using current exchange rates as of the balance sheet dates. Because a significant portion of our
revenues and expenses are denominated in foreign currencies, changes in exchange rates between the U.S. dollar and foreign currencies including the effects of
inflation, primarily the euro, British pound, Polish zloty, Chinese renminbi, Mexican peso and Swiss franc may adversely affect our revenue, cost of goods sold
and operating margins. For example, foreign currency depreciation against the U.S. dollar will reduce the value of our foreign revenues and operating earnings
as well as reduce our net investment in foreign subsidiaries. Approximately 40% of net sales were generated outside of the United States in fiscal 2022. In
addition, we have balance sheet foreign currency positions that benefit from a stronger U. S. dollar and weak euro and may impact other income /expense and
equity on the balance sheet.
Most of the risk of fluctuating foreign currencies is in our European operations, which comprised approximately one-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 operations are not as significant as our
European operations, as a substantial majority of these net sales and operating earnings in the Americas are in U.S. dollars and Asia is a smaller sales region.
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 had experienced significant production and shipping delays, increased costs and
other difficulties. Any significant disruption or deficiency in the design and implementation of the ERP could adversely affect our ability to process orders, ship
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.
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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
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”)
the current conflict between Russia and Ukraine, ongoing terrorist activity, the adoption and expansion of trade restrictions, including the occurrence or
escalation of a "trade war," or other governmental action related to tariffs or trade agreements or policies among the governments of the United States, the PRC
and other countries and other global events. The global credit and financial markets have recently experienced extreme volatility and disruptions, including
severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and
uncertainty about economic stability. The financial markets and the global economy may also be adversely affected by the current or anticipated impact of
military conflict, including the conflict between Russia and Ukraine, or other geopolitical events. Sanctions imposed by the United States and other countries in
response to such conflicts, including
the one in Ukraine, may also adversely impact the financial markets and the global economy, and any economic countermeasures by affected countries and
others could exacerbate market and economic instability. There can be no assurance that further deterioration in credit and financial markets and confidence in
economic conditions will not occur. Recent effects of the conflict between Russia and Ukraine includes writing off $4.0 million in net assets located in Russia
during the fourth quarter of fiscal 2022, and we do not expect to be able to repatriate any monies located in Russia. Furthermore, Brexit could cause disruptions
to, and create uncertainty surrounding our business, including affecting our relationships with our existing and future customers, suppliers and associates, which
could have an adverse effect on our business, financial results and operations. Recent effects of Brexit include changes in customs regulations, shortages of
truck drivers in the U.K., and administrative burdens placed on transportation companies, which have led to challenges and delays in
moving inventory across U.K./EU borders, and higher importation, freight and distribution costs. If such trends continue, we may experience further cost
increases.
Some countries have greater political and economic volatility and greater vulnerability to infrastructure and labor disruptions than others. Our business could be
negatively impacted by adverse fluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and
shipping infrastructure at important geographic points of exit and entry for our products. Operating in different regions and countries exposes us to a number of
risks, including:
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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;
• multiple and potentially conflicting laws, regulations and policies that are subject to change;
•
•
•
• 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, including markets served
by our Motive Power and Energy Storage business segments, lithium-based battery technologies have a large and growing market share. Our ability to achieve
significant and sustained penetration of key developing markets, including markets served by our Motive Power and Energy Storage business segments, will
depend upon our success in developing or acquiring these and other technologies and related raw materials and components, either independently, through joint
ventures or through acquisitions. If we fail to develop or acquire, and manufacture and sell, products that satisfy our customers’ demands, or we fail to respond
effectively to new product announcements by our competitors by quickly introducing competitive products, then market acceptance of our products could be
reduced and our business could be adversely affected. We cannot assure you that our portfolio of primarily lead-acid products will remain competitive with
products based on new technologies.
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
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difficult, and we cannot be certain that the steps we have taken will prevent their unauthorized use, particularly in foreign countries where the laws may not
protect our proprietary rights as fully as in the U.S. We cannot assure you that our brand names will not be misappropriated or utilized without our consent or
that such actions will not have a material adverse effect on our reputation and on our results of operations.
We may fail to implement our plans to make acquisitions or successfully integrate them into our operations.
As part of our business strategy, we have grown, and plan to continue growing, by acquiring other product lines, technologies or facilities that complement or
expand our existing business. There is significant competition for acquisition targets in the 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, 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 and its 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 benefits of the acquisition
will depend, to a large extent, on our ability to combine 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 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 acquisition 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.
If our electronic data is compromised, our business could be significantly harmed.
We and our business partners maintain significant amounts of data electronically in locations around the world. This data relates to all aspects of our business,
including current and future products and services under development, and also contains certain customer, supplier, partner and employee data. We maintain
systems and processes designed to protect this data, but notwithstanding such protective measures, there is a risk of intrusion, cyberattacks, tampering, theft,
misplaced or lost data, programming and/or human errors that could compromise the integrity and privacy of this data, 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. In addition, we provide confidential and
proprietary information to our third-party business partners in certain cases where doing so is necessary to conduct our business. While we obtain assurances
from those parties that they have systems and processes in place to protect such data, and where applicable, that they will take steps to assure the protections of
such data by third parties, nonetheless those partners may also be subject to data intrusion or otherwise compromise the protection of such data. Any
compromise of the confidential data of our customers, suppliers, partners, employees or ourselves, or failure to prevent or mitigate the loss of or damage to this
data through breach of our information technology systems or other means could substantially disrupt our operations, harm our customers, employees and other
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business partners, damage our reputation, violate applicable laws and regulations, subject us to potentially significant costs and liabilities and result in a loss of
business that could be material.
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.
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, 2022, we had $1,299 million of total consolidated debt (including finance leases). This level of debt could:
•
•
•
•
•
•
•
increase our vulnerability to adverse general economic and industry conditions, including interest rate fluctuations, because a portion of our borrowings
bear, and will continue to bear, interest at floating rates;
require us to dedicate a substantial portion of our cash flow from operations to debt service payments, which would reduce the availability of our cash to
fund working capital, capital expenditures or other general corporate purposes, including acquisitions;
limit our flexibility in planning for, or reacting to, changes in our business and industry;
restrict our ability to introduce new products or technologies or exploit business opportunities;
place us at a disadvantage compared with competitors that have proportionately less debt;
limit our ability to borrow additional funds in the future, if we need them, due to financial and restrictive covenants in our debt agreements; 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 2022, we announced the declaration of a quarterly cash dividend of $0.175 per share of common stock for quarters ended July 4, 2021, October 3,
2021, January 2, 2022 and March 31, 2022. On May 20, 2022, we announced a fiscal 2023 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 $150 million of our common stock, of which
authority, as of May 25, 2022, approximately $163 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.
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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 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. 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, 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.
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The software and related services that we offer are highly technical and complex. Our services or any other products that we may introduce in the future may
contain undetected software bugs, hardware errors, and other vulnerabilities. These 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.
A failure to keep pace with developments in technology could impair our operations or competitive position.
Our business continues to demand the use of sophisticated systems and technology. These systems and technologies must be refined, updated and replaced with
more advanced systems on a regular basis in order for us to meet our customers’ demands and expectations. If we are unable to do so on a timely basis or within
reasonable cost parameters, or if we are unable to appropriately and timely train our employees to operate any of these new systems, our business could suffer.
We also may not achieve the benefits that we anticipate from any new system or technology, such as fuel abatement technologies, and a failure to do so could
result in higher than anticipated costs or could impair our operating results.
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. Headquarters for our Americas and EMEA operations are located in
Reading, Pennsylvania, U.S.A., and Zug, Switzerland, 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:
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 and Bellingham, Washington in the United
States. Burnaby, Canada; Monterrey and Tijuana, Mexico; Buenos Aires, Argentina and São Paulo, Brazil.
EMEA: Hostomice, Czech Republic; Arras, France; Bielsko-Biala, Poland; Stockholm, Sweden; Newport and Culham, United Kingdom.
Asia: Chongqing and Yangzhou, the PRC.
We consider our plants and facilities, whether owned or leased, to be in satisfactory condition and adequate to meet the needs of our current businesses and
projected growth. Information as to material lease commitments is included in Note 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 20, 2022, there were approximately 536 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 2022, we did not issue any unregistered securities.
Dividends
During fiscal 2022, 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, 2022, March 31, 2021 and 2020.
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.
Period
January 3 - January 30, 2022
January 31 - February 27, 2022
February 28 - March 31, 2022
Total
Purchases of Equity Securities
(a)
Total number
of shares (or
units)
purchased
(b)
Average price
paid per share
(or unit)
151,781 $
263,439
158,545
573,765 $
74.33
73.93
69.89
72.91
(c)
Total number of
shares (or units)
purchased as part of
publicly announced
plans or programs
(d)
Maximum number
(or approximate
dollar value) of shares
(or units) that may be
purchased under the
plans or programs
(1)(2)(3)
151,781 $
263,439
159,633
574,853
64,003,961
44,528,066
183,452,128
(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. This program has been completed for fiscal 2022.
(2) On November 8, 2017, the Company announced the establishment of a $100 million stock repurchase authorization, with no expiration date, which was
utilized. This authorization was in addition to the existing stock repurchase programs and has been completed for fiscal 2022.
(3) On November 10, 2021, the Company announced the establishment of a $100 million stock repurchase authorization, with no expiration date. This
authorization was in addition to the existing stock repurchase programs and has been completed for fiscal 2022.
(4) On March 9, 2022, the Company announced the establishment of a $150 million stock repurchase authorization, with no
expiration date. This authorization is in addition to the existing stock repurchase programs. Between April 1, 2022 and
May 25, 2022, the Company repurchased 318,789 shares for $20 million, and has a remaining authorization
of $163 million.
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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.
*$100 invested on March 31, 2017 in stock or index, including reinvestment of dividends.
ITEM 6.
[RESERVED]
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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, 2022 and 2021, 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 and adjusted
EBITDA in evaluating its financial performance. These measures, as used by EnerSys, adjust net earnings determined in accordance with GAAP for interest,
taxes, depreciation and amortization, and certain charges or credits as permitted by our credit agreements, that were recorded during the periods presented.
EnerSys’ management uses the non-GAAP measures, “free cash flows”, “primary working capital” and “primary working capital percentage” along with
capital expenditures, in its evaluation of business segment cash flow and financial position performance. Primary working capital 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. Free cash flows are cash flows from operating activities less capital expenditures.
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 a world leader in stored energy solutions for industrial applications. We also manufacture and distribute energy
systems solutions and motive power batteries, specialty batteries, battery chargers, power equipment, battery accessories and outdoor equipment enclosure
solutions to customers worldwide. Energy Systems which combine enclosures, power conversion, power distribution and energy storage are used in the
telecommunication and broadband, utility industries, uninterruptible power supplies, and numerous applications requiring stored energy solutions. Motive
Power batteries and chargers are utilized in electric forklift trucks and other industrial electric powered vehicles. Specialty batteries are used in aerospace and
defense applications, large over the road trucks, premium automotive and medical. We also provide aftermarket and customer support services to over 10,000
customers in more than 100 countries through a network of distributors, independent representatives and our internal sales force around the world.
During the first quarter of fiscal 2021, the Company's chief operating decision maker, or CODM (the Company's Chief Executive Officer), changed the manner
in which he reviews financial information for purposes of assessing business performance and allocating resources, by focusing on the lines of business on a
global basis, rather than on geographic basis. As a result of this change, the Company re-evaluated the identification of its operating segments and reportable
segments. The operating segments were identified as Energy Systems, Motive Power and Specialty. The Company’s operating segments also represent its
reportable segments under ASC 280, Segment Reporting. Therefore, the Company changed its segment presentation from three reportable segments based on
geographic basis to three reportable segments based on line of business. All prior comparative periods presented have been recast to reflect these changes.
The Company's three reportable segments, based on lines of business, are as follows:
•
Energy Systems - uninterruptible power systems, or “UPS” applications for computer and computer-controlled systems, as well as
telecommunications systems, switchgear and electrical control systems used in industrial facilities and electric utilities, large-scale energy storage and
energy pipelines. Energy Systems also includes highly integrated
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power solutions and services to broadband, telecom, renewable and industrial customers, as well as thermally managed cabinets and enclosures for
electronic equipment and batteries.
• Motive Power - power for electric industrial forklifts used in manufacturing, warehousing and other material handling applications, as well as mining
•
equipment, diesel locomotive starting and other rail equipment; and
Specialty - premium starting, lighting and ignition applications in transportation, energy solutions for satellites, military aircraft, submarines, ships and
other tactical vehicles, as well as medical and security systems.
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. Although we monitor the three elements of primary working capital (receivables, inventory and payables), our primary focus is
on the total amount due to the significant impact it has on our cash flow.
Our management structure, financial reporting systems, and associated internal controls and procedures, are all consistent with our three lines of business. We
report on a March 31 fiscal year-end. Our financial results are largely driven by the following factors:
•
•
•
•
•
•
global economic conditions and general cyclical patterns of the industries in which our customers operate;
changes in our selling prices and, in periods when our product costs increase, our ability to raise our selling prices to pass such cost increases through to
our customers;
the extent to which we are able to efficiently utilize our global manufacturing facilities and optimize our capacity;
the extent to which we can control our fixed and variable costs, including those for our raw materials, manufacturing, distribution and operating
activities;
changes in our level of debt and changes in the variable interest rates under our credit facilities; and
the size and number of acquisitions and our ability to achieve their intended benefits.
Current Market Conditions
Economic Climate
The economic climate in North America and China experienced strong growth during calendar 2021. In calendar 2022, both regional economies have slowed.
The U.S economy slowed due to rising interest rates and inflation worries, while China’s economy has been slowed by COVID-19 lockdowns. EMEA’s
economy grew moderately faster than normal in calendar 2021. In calendar 2022 the economic impact from the war in Ukraine will likely cause the EMEA
economies to achieve only slow growth. Inflation has increased in all regions during calendar 2021 and continues in calendar 2022.
EnerSys is experiencing supply chain disruptions and cost spikes in certain materials such as plastic resins, acid, pasting paper and electronic components along
with transportation and related logistics challenges and broad-based cost increases. In addition, some locations are experiencing difficulty meeting hiring goals.
Generally, our mitigation efforts and the recent economic recovery, have tempered the impact of the pandemic-related challenges. The overall market demand
for our products and services remains robust.
Volatility of Commodities and Foreign Currencies
Our most significant commodity and foreign currency exposures are related to lead and the Euro, 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, lead costs dropped into the low 70
cents per pound during our first fiscal quarter of 2021 and increased to just below $1.10 per pound in March 2022, which is above the pre-COVID-19 levels. We
are experiencing increasing costs in almost all of our other raw materials such as plastic resins, steel, copper and electronics and increased freight 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 now subject to
agreements that adjust pricing to a market-based index for lead. Customer pricing changes generally lag movements in lead prices and other costs by
approximately six to nine months. In fiscal 2022, customer pricing has increased due to higher raw material prices and shipping costs, labor and other costs
having increased throughout the year.
Based on the current volatility of the commodity markets, it is difficult to predict with certainty whether commodity prices will be higher or lower in fiscal 2023
versus fiscal 2022. However, given the lag related to increasing our selling prices for inflationary cost increases, our selling prices should be higher in fiscal
2023 versus fiscal 2022. As we concentrate more on energy systems and non-lead chemistries, the emphasis on lead will continue to decline.
Liquidity and Capital Resources
We believe that our financial position is strong. We have substantial liquidity with $402 million of available cash and cash equivalents and available and
undrawn, under all its lines of credit of approximately $482 million at March 31, 2022 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 Liquidity and Capital
Resources, which effectively limits additional debt or lowered cash balances by approximately $350 million.
During the second quarter of fiscal 2022, we entered into a second amendment to the Amended Credit Facility (as amended, the “Second Amended Credit
Facility”). As a result, the Second Amended Credit Facility, now scheduled to mature on September 30, 2026, consists of a $130.0 million senior secured term
loan (the “Second Amended Term Loan”), a CAD 106.4 million ($84.2 million) term loan and an $850.0 million senior secured revolving credit facility (the
“Second Amended Revolver”). This amendment resulted in a decrease of the Amended Term Loan by $150.0 million and an increase of the Amended Revolver
by $150.0 million.
During fiscal 2022, our operating cash flow was a use of cash of $65.5 million, compared to a source of cash of $358.4 million in the prior year. The use of cash
in fiscal 2022 was primarily due to the large increase in primary working capital dollars, compared to the prior year, reflects the increase in all components of
inventory due to supply chain delays, new products and higher inventory costs from higher raw material costs, manufacturing and freight costs, strategic
inventory builds to buffer against potential supply chain exposures and to address the high backlog of customer orders.
In fiscal 2022, we repurchased 1,996,334 shares of common stock for $156.4 million. In fiscal 2021, we did not repurchase any shares, but, in fiscal 2020, we
repurchased 581,140 shares for $34.6 million under existing authorizations.
A substantial majority of the Company’s cash and investments are held by foreign subsidiaries. The majority of that cash and investments is expected to be
utilized to fund local operating activities, capital expenditure requirements and acquisitions. The Company believes that it has sufficient sources of domestic and
foreign liquidity.
The Federal Reserve Bank of the United States has discontinued quantitative easing and, started raising short-term interest rates and has signaled they will
continue to raise interest rates through the remainder of calendar 2022. The increase in short-term interest rates will increase EnerSys’ variable cost of
borrowing under the Second Amended Credit Facility.
We believe that our strong capital structure and liquidity affords us access to capital for future capital expenditures, acquisition and stock repurchase
opportunities and continued dividend payments.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 1 - Summary of Significant Accounting Policies to the Consolidated Financial Statements in Item 8. In
preparing our financial statements, management is required to make estimates and assumptions that, among other things, affect the reported amounts in the
Consolidated Financial Statements and accompanying notes. These estimates and assumptions are most significant where they involve levels of subjectivity and
judgment necessary to account for highly uncertain matters or matters susceptible to change, and where they can have a material impact on our financial
condition and operating performance. We discuss below the more significant estimates and related assumptions used in the preparation of our Consolidated
Financial Statements. If actual results were to differ materially from the estimates made, the reported results could be materially affected.
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Revenue Recognition
In accordance with ASC 606, we recognize revenue only when we have satisfied a performance obligation through transferring control of the promised good or
service to a customer. The standard indicates that an entity must determine at contract inception whether it will transfer control of a promised good or service
over time or satisfy the performance obligation at a point in time through analysis of the following criteria: (i) the entity has a present right to payment, (ii) the
customer has legal title, (iii) the customer has physical possession, (iv) the customer has the significant risks and rewards of ownership and (v) the customer has
accepted the asset. Our primary performance obligation to our customers is the delivery of finished goods and products, pursuant to purchase orders. Control of
the products sold typically transfers to our customers at the point in time when the goods are shipped as this is also when title generally passes to our customers
under the terms and conditions of our customer arrangements.
Management believes that the accounting estimates related to revenue recognition are critical accounting estimates because they require reasonable assurance of
collection of revenue proceeds and completion of all performance obligations. Also, revenues are recorded net of provisions for sales discounts and returns,
which are established at the time of sale. These estimates are based on our past experience. For additional information see Note 1 of Notes to the Consolidated
Financial Statements.
Asset Impairment Determinations
We test for the impairment of our goodwill and indefinite-lived trademarks at least annually and whenever events or circumstances occur indicating that a
possible impairment has been incurred.
We assess whether goodwill impairment exists using both qualitative and quantitative assessments. The qualitative assessment involves determining whether
events or circumstances exist that indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If,
based on this qualitative assessment, we determine it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, or if we
elect not to perform a qualitative assessment, a quantitative assessment is performed to determine whether a goodwill impairment exists at the reporting unit.
We perform our annual goodwill impairment test on the first day of our fourth quarter for each of our reporting units based on the income approach, also known
as the discounted cash flow (“DCF”) method, which utilizes the present value of future cash flows to estimate fair value. We also use the market approach,
which utilizes market price data of companies engaged in the same or a similar line of business as that of our company, to estimate fair value. A reconciliation
of the two methods is performed to assess the reasonableness of fair value of each of the reporting units.
The future cash flows used under the DCF method are derived from estimates of future revenues, operating income, working capital requirements and capital
expenditures, which in turn reflect our expectations of specific global, industry and market conditions. The discount rate developed for each of the reporting
units is based on data and factors relevant to the economies in which the business operates and other risks associated with those cash flows, including the
potential variability in the amount and timing of the cash flows. A terminal growth rate is applied to the final year of the projected period and reflects our
estimate of stable growth to perpetuity. We then calculate the present value of the respective cash flows for each reporting unit to arrive at the fair value using
the income approach and then determine the appropriate weighting between the fair value estimated using the income approach and the fair value estimated
using the market approach. Finally, we compare the estimated fair value of each reporting unit to its respective carrying value in order to determine if the
goodwill assigned to each reporting unit is potentially impaired. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no
further testing is required. If the fair value of the reporting unit is less than the carrying value, an impairment charge is recognized for the amount by which the
carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting
unit.
Significant assumptions used include management’s estimates of future growth rates, the amount and timing of future operating cash flows, capital
expenditures, discount rates, as well as market and industry conditions and relevant comparable company multiples for the market approach. Assumptions
utilized are highly judgmental, especially given the role technology plays in driving the demand for products in the telecommunications and aerospace markets.
Based on the results of the annual impairment test as of January 3, 2022, we determined that there was no goodwill impairment.
The indefinite-lived trademarks are tested for impairment by comparing the carrying value to the fair value based on current revenue projections of the related
operations, under the relief from royalty method. Any excess carrying value over the amount
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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 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.
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Warranty
We record a warranty reserve for possible claims against our product warranties, which generally run for a period ranging from one to twenty years for our
Energy Systems batteries, one to five years for our Motive Power batteries and for a period ranging from one to four for Specialty transportation batteries. The
assessment of the adequacy of the reserve includes a review of open claims and historical experience.
Management believes that the accounting estimate related to the warranty reserve is a critical accounting estimate because the underlying assumptions used for
the reserve can change from time to time and warranty claims could potentially have a material impact on our results of operations.
Allowance for Doubtful Accounts
Subsequent to the adoption of ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326)” effective April 1, 2020 the Company uses an expected
loss model as mandated by the standard. The expected loss model: (i) estimates the risk of loss even when risk is remote, (ii) estimates losses over the
contractual life, (iii) considers past events, current conditions and reasonable supported forecasts and (iv) has no recognition threshold.
The Company estimates the allowance for credit losses in relation to accounts receivable based on relevant qualitative and quantitative information about
historical events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported accounts receivable. Subsequent to
April 1, 2020, accounts receivable are recorded at amortized cost less an allowance for expected credit losses. The Company maintains an allowance for credit
losses for the expected failure or inability of its customers to make required payments. The Company recognizes the allowance for expected credit losses at
inception and reassesses quarterly, based on management’s expectation of the asset’s collectability. The allowance is based on multiple factors including
historical experience with bad debts, the credit quality of the customer base, the aging of such receivables and current macroeconomic conditions, as well as
management’s expectations of conditions in the future. The Company’s allowance for uncollectible accounts receivable is based on management’s assessment of
the collectability of assets pooled together with similar risk characteristics. The Company then adjusts the historical credit loss percentage by current and
forecasted economic conditions. The Company then includes a baseline credit loss percentage into the historical credit loss percentage for each aging category
to reflect the potential impact of the current and economic conditions. Such a baseline calculation will be adjusted further if changes in the economic
environment impacts the Company's expectation for future credit losses.
Management believes that the accounting estimate related to the allowance for doubtful accounts is a critical accounting estimate because the underlying
assumptions used for the allowance can change from time to time and uncollectible accounts could potentially have a material impact on our results of
operations.
Retirement Plans
We use certain economic and demographic assumptions in the calculation of the actuarial valuation of liabilities associated with our defined benefit plans. These
assumptions include the discount rate, expected long-term rates of return on assets and rates of increase in compensation levels. Changes in these assumptions
can result in changes to the pension expense and recorded liabilities. Management reviews these assumptions at least annually. We use independent actuaries to
assist us in formulating assumptions and making estimates. These assumptions are updated periodically to reflect the actual experience and expectations on a
plan-specific basis, as appropriate.
For benefit plans which are funded, we establish strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the
aim of achieving a prudent balance between return and risk. We set the expected long-term rate of return based on the expected long-term average rates of return
to be achieved by the underlying investment portfolios. In establishing this rate, we consider historical and expected returns for the asset classes in which the
plans are invested, advice from pension consultants and investment advisors, and current economic and capital market conditions. The expected return on plan
assets is incorporated into the computation of pension expense. The difference between this expected return and the actual return on plan assets is deferred and
will affect future net periodic pension costs through subsequent amortization.
We believe that the current assumptions used to estimate plan obligations and annual expense are appropriate in the current economic environment. However, if
economic conditions change materially, we may change our assumptions, and the resulting change could have a material impact on the Consolidated Statements
of Income and on the Consolidated Balance Sheets.
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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 2022 Compared to Fiscal 2021
The following table presents summary Consolidated Statements of Income data for fiscal year ended March 31, 2022, compared to fiscal year ended March 31,
2021:
Fiscal 2022
Fiscal 2021
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
%
$
3,357.3
2,604.7
100.0 % $
77.6
2,977.9
2,238.8
100.0 % $
75.2
2.6
750.0
520.8
18.8
1.2
3.0
206.2
37.8
(5.5)
173.9
30.0
143.9
—
0.1
22.3
15.5
0.6
—
0.1
6.1
1.1
(0.2)
5.2
0.9
4.3
—
—
739.1
482.3
40.4
—
—
216.4
38.5
7.8
170.1
26.8
143.3
—
—
24.8
16.2
1.4
—
—
7.2
1.3
0.2
5.7
0.9
4.8
—
$
143.9
4.3 % $
143.3
4.8 % $
379.4
365.9
2.6
10.9
38.5
(21.6)
1.2
3.0
(10.2)
(0.7)
(13.3)
3.8
3.2
0.6
—
0.6
12.7 %
16.3
NM
1.5
8.0
(53.5)
NM
NM
(4.7)
(1.7)
NM
2.2
12.2
0.4
—
0.4 %
Net sales
Cost of goods sold
Inventory adjustment relating to exit
activities
Gross profit
Operating expenses
Restructuring and other exit charges
Impairment of indefinite-lived intangibles
Loss on assets held for sale
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 2022 were $3.4 billion, a 12.7% increase from prior year's sales. This increase was due to a 10% increase in organic volume resulting
primarily from strong demand and a 3% increase in pricing.
A discussion of specific fiscal 2022 versus fiscal 2021 operating results follows, including an analysis and discussion of the results of our reportable segments.
Net Sales
Segment sales
Energy Systems
Motive Power
Specialty
Total net sales
Fiscal 2022
Fiscal 2021
Increase (Decrease)
In
Millions
% Net
Sales
In
Millions
% Net
Sales
In
Millions
%
$
$
1,536.6
1,361.2
459.5
3,357.3
45.8 % $
40.5
13.7
100.0 % $
1,380.2
1,163.8
433.9
2,977.9
46.3 % $
39.1
14.6
100.0 % $
156.4
197.4
25.6
379.4
11.3 %
17.0
5.9
12.7 %
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Net sales of our Energy Systems segment in fiscal 2022 increased $156.4 million, or 11.3%, compared to fiscal 2021. This increase was due to a 10% increase
in organic volume and a 1% increase in pricing / mix. Continued strong demand in telecommunications and broadband was offset by supply chain driven
constraints for our power systems products.
Net sales of our Motive Power segment in fiscal 2022 increased by $197.4 million, or 17.0%, compared to fiscal 2021. This increase was primarily due to a
14% increase in organic volume and a 3% increase in pricing. The prior year's COVID-19 restrictions and related economic slowdown impacted this segment
more than our other lines of business.
Net sales of our Specialty segment in fiscal 2022 increased by $25.6 million, or 5.9%, compared to fiscal 2021. The increase was primarily due to a 4% increase
in pricing and a 2% increase in organic volume. Strong demand from transportation was joined with a resurgence in aerospace and defense sales but logistical
challenges were impediments to our sales performance.
Gross Profit
Gross profit
$
750.0
22.3 % $
739.1
24.8 % $
10.9
1.5 %
Fiscal 2022
Fiscal 2021
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
%
Gross profit increased $10.9 million or 1.5% in fiscal 2022 compared to fiscal 2021. Gross profit, as a percentage of net sales, decreased 250 basis points in
fiscal 2022 compared to fiscal 2021. The decrease in the gross profit margin in fiscal 2022 compared to the prior year reflects the negative impact of higher
freight costs and component shortages from our supply chain along with other inflationary pressures in raw materials, labor, supplies and utilities, in excess of
pricing recoveries and organic volume growth. Energy Systems was most acutely impacted by these pressures. Motive Power and Specialty have also been
impacted by higher costs but have a quicker pace of cost recovery relative to Energy Systems.
Operating Items
Fiscal 2022
Fiscal 2021
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
%
Operating expenses
$
Restructuring, exit and other charges
Impairment of indefinite-lived intangibles
Loss on assets held for sale
520.8
18.8
1.2
3.0
15.5 % $
0.6
—
0.1
482.3
40.4
—
—
16.2 % $
1.4
—
—
38.5
(21.6)
1.2
3.0
8.0 %
(53.5)
NM
NM
NM = not meaningful
Operating Expenses
Operating expenses increased $38.5 million or 8.0% in fiscal 2022 from fiscal 2021 and decreased as a percentage of net sales by 70 basis points. Selling
expenses, our main component of operating expenses, increased $14.3 million or 7.0% in fiscal 2022 compared to fiscal 2021.
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Restructuring, exit and other charges
Exit Charges
Fiscal 2022 Programs
Russia
In February 2022, as a result of the Russia-Ukraine conflict, economic sanctions were imposed on Russian individuals and entities, including financial
institutions, by countries around the world, including the U.S. and the European Union. On March 3, 2022, the Company announced that it was indefinitely
suspending its operations in Russia in order to comply with the sanctions. As a result of this decision, the Company wrote off net assets of $4.0 million relating
to its Russian subsidiary. The Company also incurred cash charges of $1.3 million relating to severance and exiting lease obligations.
Zamudio, Spain
During fiscal 2022, the Company closed a minor assembling plant in Zamudio, Spain and sold the same for $1.8 million. A net gain of $0.7 million was
recorded as a credit to exit charges in the Consolidated Statements of Income.
Fiscal 2021 Programs
Hagen, Germany
In fiscal 2021, we committed to a plan to close substantially all of our facility in Hagen, Germany, which produces flooded motive power batteries for forklifts.
Management determined that future demand for the motive power batteries produced at this facility was not sufficient, given the conversion from flooded to
maintenance free batteries by customers, the existing number of competitors in the market, as well as the near term decline in demand and increased uncertainty
from the pandemic. We plan to retain the facility with limited sales, service and administrative functions along with related personnel for the foreseeable future.
We currently estimate that the total charges for these actions will amount to approximately $60.0 million, the majority of which were recorded by the end of
calendar 2021. Cash charges of approximately $40.0 million are primarily for employee severance related payments, but also include payments for cleanup
related to the facility, contractual releases and legal expenses. Non-cash charges from inventory and equipment write-offs are estimated to be $20.0 million.
These actions resulted in the reduction of approximately 200 employees.
During fiscal 2022, the Company recorded cash charges, primarily relating to severance of $8.1 million and non-cash charges of $3.5 million primarily relating
to fixed asset write-offs. The Company also recorded a non-cash write off relating to inventories of $1.0 million, which was reported in cost of goods sold.
During fiscal 2021, the Company recorded charges relating to severance of $23.3 million and $7.9 million primarily relating to fixed asset write-offs.
Targovishte, Bulgaria
During fiscal 2019, the Company committed to a plan to close its facility in Targovishte, Bulgaria, which produced diesel-electric submarine batteries.
Management determined that the future demand for batteries of diesel-electric submarines was not sufficient given the number of competitors in the market.
During fiscal 2022, the Company sold this facility for $1.5 million. A net gain of $1.2 million was recorded as a credit to exit charges in the Consolidated
Statements of Income.
Fiscal 2020 Programs
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 were reported as other exit charges in Specialty.
During fiscal 2020, we also wrote off $5.5 million of assets at our Kentucky and Tennessee Motive Power plants, as a result of our strategic product mix shift
from traditional flooded batteries to maintenance free lead acid and lithium batteries.
38
Table of Contents
Richmond, Kentucky Plant Fire
During fiscal 2021, the Company settled its claims with its insurance carrier relating to the fire that broke out in the battery formation area of the
Company's Richmond, Kentucky motive power production facility in fiscal 2020. The total claims for both property and business interruption of $46.1 million
were received through March 31, 2021. The final settlement of insurance recoveries and finalization of costs related to the replacement of property, plant and
equipment, resulted in a net gain of $4.4 million, which was recorded as a reduction to operating expenses in the Consolidated Statements of Income.
The details of charges and recoveries for fiscal 2021 and fiscal 2020 are as follows:
In fiscal 2020, the Company recorded $17.0 million as receivable, consisting of write-offs for damages caused to its fixed assets and inventories, as well as for
cleanup, asset replacement and other ancillary activities directly associated with the fire and received $12.0 million related to its initial claims.
During fiscal 2021, the Company recorded an additional $16.6 million as receivable for cleanup and received $21.6 million from the insurance carrier.
In addition to the property damage claim, the Company received $12.5 million in business interruption claims, of which $5.0 million was recorded in fiscal
2020 and $7.5 million in fiscal 2021, and was credited to cost of goods sold, in the respective periods.
Impairment of indefinite-lived intangibles
During the fourth quarter of fiscal 2022, the Company recorded a non-cash charge of $1.2 million related to impairment of indefinite-lived trademarks.
Management completed its evaluation of key inputs used to estimate the fair value of its indefinite-lived trademarks and determined that an impairment charge
relating to two of its trademarks that were acquired through legacy acquisitions was appropriate, as it plans to phase out these trademarks.
Loss on assets held for sale
Vijayawada, India
During fiscal 2021, we also committed to a plan to close our facility in Vijayawada, India to align with the strategic vision for our new line of business structure
and footprint and recorded exit charges of $1.5 million primarily relating to asset write-offs. In fiscal 2022, the Company reclassified property, plant and
equipment with a carrying value of $4.6 million to assets held for sale on the Consolidated Balance Sheet and recognized an impairment loss of $3.0 million
under the caption Loss on assets held for sale on its consolidated statement of income, by writing down the carrying value of these assets to their estimated fair
value of $1.6 million, based on their expected proceeds, less costs to sell. We also recorded a non-cash write off relating to inventories of $0.8 million, which
was reported in cost of goods sold.
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Table of Contents
Operating Earnings
Operating earnings by segment were as follows:
Fiscal 2022
Fiscal 2021
Increase (Decrease)
In
Millions
As %
Net Sales
(1)
In
Millions
As %
Net Sales
(1)
In
Millions
Energy Systems
Motive Power
Specialty
Subtotal
Inventory adjustment relating to exit activities -
Energy Systems
Inventory adjustment relating to exit activities -
Motive
Restructuring and other exit charges - Energy
Systems
Restructuring and other exit charges - Motive Power
Restructuring and other exit charges - Specialty
Impairment of indefinite-lived intangibles - Energy
Systems
Impairment of indefinite-lived intangibles - Motive
Power
Loss on assets held for sale - Motive Power
Total operating earnings
$
$
NM = not meaningful
18.6
169.7
43.5
231.8
(0.2)
(2.4)
(2.8)
(17.1)
1.1
(0.5)
(0.7)
(3.0)
206.2
1.2 % $
12.5
9.5
6.9
—
(0.2)
(0.2)
(1.3)
0.2
—
—
(0.2)
6.1 % $
66.9
143.6
46.3
256.8
—
—
(3.1)
(36.9)
(0.4)
—
—
—
216.4
4.9 % $
12.3
10.6
8.6
—
—
(0.2)
(3.2)
(0.1)
—
—
—
7.2 % $
(48.3)
26.1
(2.8)
(25.0)
(0.2)
(2.4)
0.3
19.8
1.5
(0.5)
(0.7)
(3.0)
(10.2)
%
(72.4)%
18.3
(5.8)
(9.7)
NM
NM
(14.9)
(53.6)
NM
NM
NM
NM
(4.7)%
(1) The percentages shown for the segments are computed as a percentage of the applicable segment’s net sales.
Operating earnings decreased $10.2 million or 4.7% in fiscal 2022, compared to fiscal 2021. Operating earnings, as a percentage of net sales, decreased 110
basis points in fiscal 2022, compared to fiscal 2021.
The Energy Systems operating earnings decreased 370 basis points in fiscal 2022 compared to fiscal 2021. Higher lead and freight costs along with lack of
component availability negatively impacted the performance and sales mix of this line of business.
The Motive Power operating earnings increased 20 basis points in fiscal 2022 compared to fiscal 2021. The strong recovery in organic growth along with price
increases improved the performance of this line of business. However, the prior year period benefited from $11.9 million of insurance recoveries.
Specialty operating earnings decreased 110 basis points in fiscal 2022 compared to fiscal 2021. Pricing and customer demand in the transportation and
aerospace and defense markets were stronger in the current year compared to prior year, but capacity constraints and higher inflation costs, combined with
increased operating expenses negatively impacted the performance of this line of business.
Interest Expense
Interest expense
$
37.8
1.1 % $
38.5
1.3 % $
(0.7)
(1.7)%
Fiscal 2022
Fiscal 2021
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
%
Interest expense of $37.8 million in fiscal 2022 (net of interest income of $2.1 million) was $0.7 million lower than the $38.5 million in fiscal 2021 (net of
interest income of $2.3 million).
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Table of Contents
Our average debt outstanding was $1,150.7 million in fiscal 2022, compared to our average debt outstanding of $1,105.5 million in fiscal 2021. Our average
cash interest rate incurred in fiscal 2022 and fiscal 2021 was 3.3%. The decrease in interest expense in fiscal 2022 compared to fiscal 2021 is primarily due to
the benefit from the $300 million cross currency fixed interest rate swaps, partially offset by higher borrowings.
In fiscal 2022, in connection with the Second Amended Credit Facility, we capitalized $3.0 million in debt issuance costs and wrote off $0.1 million of
unamortized debt issuance costs. In fiscal 2020, 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 $2.1 million in both fiscal 2022 and fiscal 2021.
Other (Income) Expense, Net
Other (income) expense, net
$
(5.5)
(0.2)% $
7.8
0.2 % $
(13.3)
NM
Fiscal 2022
Fiscal 2021
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
%
NM = not meaningful
Other (income) expense, net was income of $5.5 million in fiscal 2022 compared to expense of $7.8 million in fiscal 2021. Foreign currency impact resulted in
a gain of $7.2 million in fiscal 2022 compared to a foreign currency loss of $6.7 million in fiscal 2021.
Earnings Before Income Taxes
Earnings before income taxes
$
173.9
5.2 % $
170.1
5.7 % $
3.8
2.2 %
Fiscal 2022
Fiscal 2021
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
%
As a result of the factors discussed above, fiscal 2022 earnings before income taxes were $173.9 million, an increase of $3.8 million or 2.2% compared to fiscal
2021.
Income Tax Expense
Income tax expense
Effective tax rate
Fiscal 2022
Fiscal 2021
Increase (Decrease)
In
Millions
As %
Net Sales
In
Millions
As %
Net Sales
In
Millions
$
30.0
17.3 %
0.9 % $
26.8
15.7 %
0.9 % $
3.2
1.6 %
%
12.2 %
Our effective income tax rate with respect to any period may be volatile based on the mix of income in the tax jurisdictions in which we operate and the amount
of our consolidated income before taxes.
The Company’s income tax provision consists of federal, state and foreign income taxes. The effective income tax rate was 17.3% in fiscal 2022 compared to
the fiscal 2021 effective income tax rate of 15.7%. The rate increase in fiscal 2022 compared to fiscal 2021 is primarily due to Swiss tax reform and changes in
the mix of earnings among tax jurisdictions.
On May 19, 2019, a public referendum held in Switzerland approved the Federal Act on Tax Reform and AHV (Old-Age and Survivors Insurance) Financing
(TRAF) as adopted by the Swiss Federal Parliament on September 28, 2018. The Swiss tax reform measures were effective January 1, 2020. We recorded a net
deferred tax asset of $22.5 million during fiscal 2020, related to the amortizable goodwill and based on further evaluation with the Swiss tax authority, recorded
an additional income tax benefit of $1.9 million during fiscal 2021.
The fiscal 2022 foreign effective income tax rate was 11.0% on foreign pre-tax income of $152.1 million compared to an effective income tax rate of 6.8% on
foreign pre-tax income of $114.1 million in fiscal 2021. For both fiscal 2022 and fiscal 2021, the difference in the foreign effective tax rate versus the U.S.
statutory rate of 21% is primarily attributable to lower tax rates in the foreign countries in which we operate. The rate increase in fiscal 2022 compared to fiscal
2021 is primarily due to
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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 2022 and fiscal 2021 and was taxed, excluding the impact from Swiss tax reform, at approximately 4% and 8%,
respectively.
Liquidity and Capital Resources
Cash Flow and Financing Activities
Cash and cash equivalents at March 31, 2022, 2021 and 2020, were $402.5 million, $451.8 million and $327.0 million, respectively.
Cash used by operating activities for fiscal 2022 was $65.6 million. Cash provided by operating activities for 2021 and 2020, was $358.4 million and $253.4
million, respectively.
During fiscal 2022, primary working capital, net of currency translation changes, resulted in an outflow of funds of $276.5 million. In fiscal 2022, net earnings
were $143.9 million, depreciation and amortization $95.9 million, stock-based compensation $24.3 million, non-cash charges relating to exit charges of $6.5
million, primarily relating to the Hagen, Germany plant closure and exiting our operations in Russia following the conflict in Ukraine, loss on valuation of the
assets held for sale in India of $3.0 million, allowance for doubtful debts of $2.6 million, non-cash interest of $2.1 million and non-cash charges for impairment
of indefinite-lived intangibles of $1.2 million. Prepaid and other current assets were a use of funds of $32.0 million, primarily from an increase of $13.6 million
of contract assets, as well as an increase of $12.3 million in other prepaid expenses, such as taxes, insurance and other advances. Accrued expenses were a use
of funds of $38.6 million primarily from Hagen severance payments of $19.6 million, income tax payments of $17.3 million net of tax provisions, payroll
related payments of $10.1 million, partially offset by customer advances of $8.9 million.
During fiscal 2021, net earnings were $143.3 million, depreciation and amortization $94.1 million, stock-based compensation $19.8 million, non-cash charges
relating to exit charges $10.2 million, primarily relating to the Hagen, Germany plant closure, net gain from the disposal of assets of $3.9 million ($4.4 million
from the insurance settlement relating to the Richmond fire claim), deferred tax benefit of $9.0 million and non-cash interest of $2.1 million. Decrease in
primary working capital of $53.7 million, net of currency translation changes provided a source of funds and are explained below. Prepaid and other current
assets provided a source of funds of $27.3 million, primarily from the receipt of $29.1 million towards the insurance receivable relating to the Richmond plant
claim in fiscal 2020 and the receipt of a working capital adjustment claim of $2.0 million, relating to an acquisition made several years ago, partially offset by
an increase of $3.8 million in other prepaid expenses. Accrued expenses provided a source of funds of $32.4 million primarily from payroll related accruals of
$27.8 million, taxes payable of $4.5 million and selling and other expenses of $3.3 million, partially offset by payments relating to warranty of $5.8 million.
Other liabilities decreased by $12.7 million primarily relating to income taxes.
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.
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 was $1,042.0 million (yielding a primary working capital percentage of 28.7%) at March 31, 2022 and $797.9 million (yielding a primary
working capital percentage of 24.5%) at March 31, 2021. The primary working capital percentage of 28.7% at March 31, 2022 is 420 basis points higher than
that for March 31, 2021, and 200 basis points higher than that for March 31, 2020. The large increase in primary working capital dollars, compared to the prior
years, reflects the increase in all components of inventory due to supply chain delays, new products and higher inventory costs from higher raw material costs,
manufacturing and freight costs, strategic inventory builds to buffer against potential supply chain exposures and to address the high backlog of customer
orders. In addition, trade receivables increased due to higher revenue during fiscal 2022, as compared to a COVID-19 restricted revenue in fiscal 2021.
42
Table of Contents
Primary Working Capital and Primary Working Capital percentages at March 31, 2022, 2021 and 2020 are computed as follows:
Balance at March 31,
2022
2021
2020
Trade
Receivables
Inventory
Accounts
Payable
(in millions)
Primary
Working
Capital
Quarter
Revenue
Annualized
Primary
Working
Capital
(%)
$
719.4 $
603.6
595.9
715.7 $
518.2
519.5
(393.1) $
(323.9)
(281.9)
1,042.0 $
797.9
833.5
3,628.1
3,254.2
3,127.2
28.7 %
24.5
26.7
Cash used in investing activities for fiscal 2022, 2021 and 2020 was $69.2 million, $65.0 million and $274.8 million, respectively.
During fiscal 2022 and fiscal 2021 we did not make any acquisitions. During fiscal 2020 we acquired NorthStar for $176.5 million.
Capital expenditures were $74.0 million, $70.0 million and $101.4 million in fiscal 2022, 2021 and 2020, respectively.
We also received $3.3 million from the sale of two of our facilities in Europe during fiscal 2022.
During the second quarter of fiscal 2022, we entered into the Second Amended Credit Facility. As a result, financing activities provided cash of $98.4 million in
fiscal 2022. During fiscal 2022, we borrowed $523.4 million under the Second Amended Revolver and repaid $88.4 million of the Second Amended Revolver.
Repayment on the Second Amended Term Loan was $161.4 million and net borrowings on short-term debt were $20.6 million. Treasury stock open market
purchases were $156.4 million, payment of cash dividends to our stockholders were $29.4 million and payment of taxes related to net share settlement of equity
awards were $9.1 million. Debt issuance costs relating to the refinancing of the Credit Facility was $3.0 million. Proceeds from stock options were $1.3 million.
During fiscal 2021, financing activities provided cash of $188.7 million. We borrowed $102.0 million under the Amended 2017 Revolver and repaid $210.0
million of the Amended 2017 Revolver. Repayment on the Amended 2017 Term Loan was $39.6 million and net payments on short-term debt were $15.9
million. Proceeds from stock options during fiscal 2021 were $9.1 million. Payment of cash dividends to our stockholders were $29.8 million, payment of taxes
related to net share settlement of equity awards were $5.2 million.
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.
Currency translation had a negative impact of $12.9 million on our cash balance in the twelve months of fiscal 2022 compared to the positive impact of $20.2
million in the twelve months of fiscal 2021. In the twelve months of fiscal 2022, principal currencies in which we do business such as the Euro, Polish zloty,
British pound and Swiss franc generally weakened versus the U.S. dollar.
As a result of the above, total cash and cash equivalents decreased by $49.3 million from $451.8 million at March 31, 2021 to $402.5 million at March 31, 2022.
In addition to cash flows from operating activities, we had available committed and uncommitted credit lines of approximately $482 million at March 31, 2022
to cover short-term liquidity requirements. Our Second Amended Credit Facility is committed through September 30, 2026, as long as we continue to comply
with the covenants and conditions of the credit facility agreement.
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Table of Contents
Compliance with Debt Covenants
All obligations under our Second Amended Credit Facility are secured by, among other things, substantially all of our U.S. assets. The Second 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 Second 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, 2022, 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 and Hagen exit related accruals
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
$
$
1,250.3 $
55.1
157.0
84.6
52.5
39.4
2.9
22.2
0.7
0.4
1,665.1 $
5.4 $
55.1
41.4
23.0
6.2
3.0
2.9
22.2
0.7
0.2
160.1 $
324.2 $
—
58.5
29.5
27.0
6.4
—
—
—
0.2
445.8 $
920.7 $
—
44.0
15.5
19.3
7.8
—
—
—
—
1,007.3 $
—
—
13.1
16.6
—
22.2
—
—
—
—
51.9
Due to the uncertainty of future cash outflows, uncertain tax positions have been excluded from the above table.
Under our Second Amended Credit Facility and other credit arrangements, we had outstanding standby letters of credit of $3.0 million as of March 31, 2022.
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.
During the second quarter of fiscal 2022, we entered into a second amendment to the Amended Credit Facility (as amended, the “Second Amended Credit
Facility”). As a result, the Second Amended Credit Facility, now scheduled to mature on September 30, 2026, consists of a $130.0 million senior secured term
loan (the “Second Amended Term Loan”), a CAD 106.4 million ($84.2 million) term loan and an $850.0 million senior secured revolving credit facility (the
“Second Amended Revolver”). This amendment resulted in a decrease of the Amended Term Loan by $150.0 million and an increase of the Amended Revolver
by $150.0 million.
Shown below are the leverage ratios at March 31, 2022 and 2021, in connection with the Second Amended Credit Facility.
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Table of Contents
The total net debt, as defined under the Second Amended Credit Facility is $905.9 million for fiscal 2022 and is 2.5 times adjusted EBITDA (non-GAAP),
compared to total net debt of $615.0 million and 1.7 times adjusted EBITDA (non-GAAP) for fiscal 2021.
The following table provides a reconciliation of net earnings to EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP) for March 31, 2022 and 2021, in
connection with the Second Amended Credit Facility:
Net earnings as reported
Add back:
Depreciation and amortization
Interest expense
Income tax expense
(1)
EBITDA (non GAAP)
Adjustments per credit agreement definitions
Adjusted EBITDA (non-GAAP) per credit agreement
(2)
(1)
(3)
Total net debt
(4)
Leverage ratios :
Total net debt/adjusted EBITDA ratio
Maximum ratio permitted
Consolidated interest coverage ratio
(5)
Minimum ratio required
$
$
$
$
Fiscal 2022
Fiscal 2021
(in millions, except ratios)
143.9 $
95.9
37.8
30.0
307.6 $
51.5
359.1 $
905.9 $
2.5 X
3.5 X
10.0 X
3.0 X
143.3
94.1
38.5
26.8
302.7
56.3
359.0
615.0
1.7 X
3.5 X
9.8 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 Second
Amended Credit Facility are based on EBITDA, subject to adjustments, which are shown above. Continued availability of credit under our Second
Amended Credit Facility is critical to our ability to meet our business plans. We believe that an understanding of the key terms of our credit agreement
is important to an investor’s understanding of our financial condition and liquidity risks. Failure to comply with our financial covenants, unless waived
by our lenders, would mean we could not borrow any further amounts under our revolving credit facility and would give our lenders the right to demand
immediate repayment of all outstanding revolving credit and term loans. We would be unable to continue our operations at current levels if we lost the
liquidity provided under our credit agreements. Depreciation and amortization in this table excludes the amortization of deferred financing fees, which is
included in interest expense.
(2) The $51.5 million adjustment to EBITDA in fiscal 2022 primarily related to $24.3 million of non-cash stock compensation, $26.0 million of
restructuring and other exit charges, impairment of indefinite-lived intangibles of $1.2 million. The $56.3 million adjustment to EBITDA in fiscal 2021
primarily related to $19.8 million of non-cash stock compensation, $33.2 million of restructuring and other exit charges, business integration costs of
$7.3 million, partially offset by $3.9 million of gain ($4.4 million gain less insurance deductibles) relating to the final settlement of the Richmond, KY
fire claim.
(3) Debt includes finance lease obligations and letters of credit and is net of all U.S. cash and cash equivalents and foreign cash and investments, as defined
in the Second Amended Credit Facility. In fiscal 2022, the amounts deducted in the calculation of net debt were U.S. cash and cash equivalents and
foreign cash investments of $402 million, and in fiscal 2021, were $399 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 Second Amended Credit Facility, for fiscal 2022 and fiscal 2021, respectively.
(5) As defined in the Second Amended Credit Facility, interest expense used in the consolidated interest coverage ratio excludes non-cash interest of $2.1
million for both years of fiscal 2022 and fiscal 2021.
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Table of Contents
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.
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, foreign exchange forward and purchased option contracts and cross currency fixed interest rate swaps to
manage the risk associated with our exposures to fluctuations resulting from changes in raw material costs, foreign currency exchange rates and interest rates.
The Company’s agreements are with creditworthy financial institutions. Those contracts that result in a liability position at March 31, 2022 are $0.7
million (pre-tax). Those contracts that result in an asset position at March 31, 2022 are $3.3 million (pre-tax). The impact on the Company due to
nonperformance by the counterparties has been evaluated and not deemed material.
During the third quarter of fiscal 2022, the Company entered into cross currency fixed interest rate swap agreements, with aggregate notional amounts of $300
million, to hedge its net investments in foreign operations against future volatility in the exchange rates between U.S. Dollars and Euros. These swaps mature on
December 15, 2027. Depending on the movement in the exchange rates between U.S. Dollars and Euros at maturity, the Company may owe the counterparties
an amount that is different from the original notional amount of $300 million.
Excluding the cross currency fixed interest rate swap agreements, the vast majority of these contracts will settle within one year.
Interest Rate Risks
We are exposed to changes in variable U.S. interest rates on borrowings under our credit agreements, as well as short term borrowings in our foreign
subsidiaries.
A 100 basis point increase in interest rates would have increased annual interest expense by approximately $7.1 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:
46
Table of Contents
Date
$’s Under Contract
# Pounds Purchased
Average
Cost/Pound
Approximate % of
Lead Requirements
(1)
March 31, 2022
March 31, 2021
March 31, 2020
(in millions)
$56.8
50.6
30.1
(in millions)
54.0
54.5
35.0
(1) Based on the fiscal year lead requirements for the periods then ended.
$1.05
0.93
0.86
8%
10
6
We estimate that a 10% increase in our cost of lead would have increased our cost of goods sold by approximately $70 million for the fiscal year ended
March 31, 2022.
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, primarily with foreign currency exchange contracts, which are designated as cash flow hedges in accordance with Topic 815 -
Derivatives and Hedging. During the third quarter of fiscal 2022, we also entered into cross currency fixed interest rate swap agreements, to hedge our net
investments in foreign operations against future volatility in the exchange rates between U.S. Dollars and Euros.
At March 31, 2022 and 2021, we estimate that an unfavorable 10% movement in the exchange rates would have adversely changed our hedge valuations by
approximately $36.6 million and $3.7 million, respectively.
47
Table of Contents
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) (PCAOB ID: 42)
Report of Independent Registered Public Accounting Firm (on Internal Control Over Financial Reporting)
Audited Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 2022 and 2021
Consolidated Statements of Income for the Fiscal Years Ended March 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended March 31, 2022, 2021 and 2020
Consolidated Statements of Changes in Equity for the Fiscal Years Ended March 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
Page
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. Subsequent Events
48
49
51
52
53
54
55
57
58
58
65
66
68
68
68
69
70
70
71
73
73
75
79
82
87
89
92
92
93
96
96
97
99
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, 2022 and 2021, 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, 2022, and the related notes
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company at March 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period
ended March 31, 2022, 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, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated May 25, 2022 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 Indefinite-Lived Intangible Assets
As reflected in the Company’s consolidated financial statements, the Company’s indefinite-lived intangible assets were $144.9
million as of March 31, 2022 and included $56.0 million of trademarks recognized in connection with the acquisition of the Alpha
Group. As discussed in Note 1 to the consolidated financial statements, indefinite-lived intangible assets are tested for impairment at
least annually.
Auditing management’s annual quantitative indefinite-lived intangible asset impairment tests was complex and involved a high
degree of subjectivity due to the significant estimation required in determining the fair value of the indefinite-lived intangible assets.
The fair value estimates related to the Company’s indefinite-lived intangible assets were sensitive to significant assumptions such as
discount rates, revenue growth rates, royalty rates, and terminal growth rates, which are forward-looking and could be affected by
future economic and market conditions.
49
Table of Contents
How We Addressed
the Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s annual
quantitative indefinite-lived intangible asset impairment tests. For example, we tested controls over management’s review of the
valuation models, the significant assumptions used to develop the estimate including forecasted revenue growth rates and royalty
rates, and the completeness and accuracy of the data used in the valuations.
To test the estimated fair value of the Company’s indefinite-lived intangible assets, we performed audit procedures that included,
among other procedures, assessing fair value methodologies and testing the significant assumptions discussed above and the
completeness and accuracy of the underlying data used by the Company in its analyses. For example, we compared the significant
assumptions used by management to current industry, market and economic trends, to historical results of the Company's business
and other guideline companies within the same industry and to other relevant factors. We assessed the historical accuracy of
management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the
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.
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, approximately 87%
of the Company’s consolidated earnings before taxes are generated in foreign jurisdictions for the year ended March 31, 2022.
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,
2022, the Company has recognized accrued liabilities of $4.8 million for uncertain tax positions.
How We Addressed
the Matter in Our
Audit
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.
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
May 25, 2022
50
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, 2022, 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, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2022 consolidated
financial statements of the Company and our report dated May 25, 2022 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
May 25, 2022
51
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
(2022–$12,219; 2021–$12,992)
Inventories, net
Prepaid and other current assets
Total current assets
Property, plant, and equipment, net
Goodwill
Other intangible assets, net
Deferred taxes
Other assets
Total assets
Liabilities and Equity
Current liabilities:
Short-term debt
Current portion of finance leases
Accounts payable
Accrued expenses
Total current liabilities
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, 2022 and at March 31, 2021
Common Stock, $0.01 par value per share, 135,000,000 shares authorized, 55,748,924 shares issued and
40,986,658 shares outstanding at March 31, 2022; 55,552,810 shares issued and 42,753,020 shares
outstanding at March 31, 2021
Additional paid-in capital
Treasury stock at cost, 14,762,266 shares held as of March 31, 2022 and 12,799,790 shares held as of
March 31, 2021
Retained earnings
Contra equity - indemnification receivable
Accumulated other comprehensive loss
Total EnerSys stockholders’ equity
Nonredeemable noncontrolling interests
Total equity
Total liabilities and equity
See accompanying notes.
52
March 31,
2022
2021
$
402,488 $
451,808
719,434
715,712
155,559
1,993,193
503,264
700,640
396,202
60,479
82,868
3,736,646 $
55,084 $
185
393,096
289,765
738,130
1,243,002
231
78,228
183,780
2,243,371
603,581
518,247
117,681
1,691,317
497,056
705,593
430,898
65,212
72,721
3,462,797
34,153
236
323,876
318,723
676,988
969,618
435
76,412
195,768
1,919,221
—
—
557
571,464
(719,119)
1,783,586
(3,620)
(143,495)
1,489,373
3,902
1,493,275
3,736,646 $
555
554,168
(563,481)
1,669,751
(5,355)
(115,883)
1,539,755
3,821
1,543,576
3,462,797
$
$
$
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 and other exit charges
Impairment of goodwill
Impairment of indefinite-lived intangibles
Loss on assets held for sale
Operating earnings
Interest expense
Other (income) expense, net
Earnings before income taxes
Income tax expense
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,
2022
3,357,319 $
2,604,747
2,604
749,968
520,810
18,756
—
1,178
2,973
206,251
37,777
(5,465)
173,939
30,028
143,911 $
3.42 $
3.36 $
0.70 $
2021
2,977,932 $
2,238,782
—
739,150
482,401
40,374
—
—
—
216,375
38,436
7,804
170,135
26,761
143,374 $
3.37 $
3.32 $
0.70 $
$
$
$
$
$
2020
3,087,868
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
3.23
3.20
0.70
42,106,337
42,783,373
42,548,449
43,224,403
42,411,834
42,896,775
See accompanying notes.
53
Table of Contents
EnerSys
Consolidated Statements of Comprehensive Income
(In Thousands)
Net earnings
Other comprehensive (loss) income:
Net unrealized gain (loss) 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 gain (loss) attributable to noncontrolling interests
Comprehensive income attributable to EnerSys stockholders
Fiscal year ended March 31,
2022
2021
2020
143,911 $
143,374 $
137,116
2,603
8,310
(38,397)
(27,484)
116,427
128
116,299 $
6,283
1,847
91,277
99,407
242,781
284
242,497 $
(5,793)
(2,003)
(64,721)
(72,517)
64,599
(193)
64,792
$
$
See accompanying notes.
54
Table of Contents
(In Thousands, Except Per Share Data)
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
Balance at March 31, 2020
Stock-based compensation
Exercise of stock options
Shares issued under equity awards (taxes paid related to net share settlement
of equity awards), net
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 benefit of $424)
Net unrealized gain (loss) on derivative instruments (net of tax expense of
$1,952)
Foreign currency translation adjustment
Balance at March 31, 2021
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
Contra equity - adjustment to indemnification receivable for acquisition
related tax liability
Other
Net earnings
Dividends ($0.70 per common share)
Dissolution of joint venture
Other comprehensive income:
EnerSys
Consolidated Statements of Changes in Equity
Preferred
Stock
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Contra-
Equity
Total
EnerSys
Stockholders’
Equity
Non-
redeemable
Non-
Controlling
Interests
Total
Equity
$
$
$
— $
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
548 $ 512,696 $ (530,760) $ 1,450,325 $
—
3
20,780
1,414
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(6,393)
—
(73)
—
(34,561)
945
—
(80)
—
756
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
137,116
(30,461)
—
—
—
551 $ 529,100 $ (564,376) $ 1,556,980 $
—
4
19,817
9,110
—
—
—
—
—
—
—
—
—
—
—
—
—
(5,153)
(49)
—
895
—
571
—
772
—
—
—
—
—
—
—
—
—
—
—
—
—
—
143,374
(30,603)
—
—
—
555 $ 554,168 $ (563,481) $ 1,669,751 $
—
2
24,289
1,334
—
—
—
—
—
—
—
—
143,911
(30,076)
—
—
—
—
—
—
—
—
(9,150)
—
—
(156,366)
—
728
—
—
—
—
100
—
723
—
55
(142,682) $ (7,840) $
—
—
—
—
—
—
—
—
—
(2,003)
(5,793)
(64,528)
—
—
—
—
—
1,116
—
—
—
—
—
—
(215,006) $ (6,724) $
—
—
—
—
—
—
—
—
1,847
6,283
90,993
—
—
—
—
1,369
—
—
—
—
—
—
(115,883) $ (5,355) $
—
—
—
—
—
—
—
—
—
—
—
—
—
1,735
—
—
—
—
1,282,287 $
20,780
1,417
3,730 $ 1,286,017
20,780
1,417
—
—
(6,393)
(34,561)
872
1,116
(80)
137,116
(29,705)
(2,003)
(5,793)
(64,528)
—
—
—
—
—
—
—
—
—
(193)
(6,393)
(34,561)
872
1,116
(80)
137,116
(29,705)
(2,003)
(5,793)
(64,721)
1,300,525 $
19,817
9,114
3,537 $ 1,304,062
19,817
9,114
—
—
(5,153)
846
1,369
571
143,374
(29,831)
1,847
6,283
90,993
—
—
—
—
—
—
—
—
284
(5,153)
846
1,369
571
143,374
(29,831)
1,847
6,283
91,277
1,539,755 $
24,289
1,336
3,821 $ 1,543,576
24,289
1,336
—
—
(9,150)
(156,366)
1,735
828
143,911
(29,353)
—
—
—
—
—
—
—
(47)
(9,150)
(156,366)
1,735
828
143,911
(29,353)
(47)
Table of Contents
Pension funded status adjustment (net of tax benefit of $1,910)
Net unrealized gain (loss) on derivative instruments (net of tax expense of
$789)
Foreign currency translation adjustment
Balance at March 31, 2022
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8,310
2,603
(38,525)
—
—
—
8,310
2,603
(38,525)
—
—
128
8,310
2,603
(38,397)
$
— $
557 $ 571,464 $ (719,119) $ 1,783,586 $
(143,495) $ (3,620) $
1,489,373 $
3,902 $ 1,493,275
See accompanying notes.
56
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
Loss on assets held for sale
Impairment of goodwill
Impairment of indefinite-lived intangibles
Derivatives not designated in hedging relationships:
Net losses (gains)
Cash proceeds (settlements)
Provision for doubtful accounts
Deferred income taxes
Non-cash interest expense
Stock-based compensation
Gain 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
Accrued expenses
Other liabilities
Net cash (used in) provided by operating activities
Cash flows from investing activities
Capital expenditures
Purchase of businesses
Proceeds from disposal 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 borrowings (repayments) on short-term debt
Proceeds from Second Amended 2017 Revolver borrowings
Proceeds from 2027 Notes
Repayments of Second Amended 2017 Revolver borrowings
Repayments of Second Amended 2017 Term Loan
Debt issuance costs
Finance lease obligations and other
Option proceeds, net
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 (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Fiscal year ended March 31,
2022
2021
2020
$
143,911
$
143,374
$
137,116
95,878
6,503
2,973
—
1,178
157
255
2,621
1,115
2,107
24,289
(490)
(128,956)
(212,839)
(32,044)
270
65,316
(38,578)
749
(65,585)
(74,041)
—
3,268
—
1,540
(69,233)
20,556
523,400
—
(88,400)
(161,447)
(2,952)
810
1,336
(9,150)
(156,366)
(29,353)
98,434
(12,936)
(49,320)
451,808
94,082
10,231
—
—
—
(430)
905
178
(8,994)
2,072
19,817
(3,883)
8,713
24,176
27,292
424
20,797
32,357
(12,736)
358,375
(70,020)
—
—
4,800
176
(65,044)
(15,934)
102,000
—
(210,000)
(39,589)
—
650
9,114
(5,153)
—
(29,812)
(188,724)
20,222
124,829
326,979
$
402,488
$
451,808
$
See accompanying notes.
57
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
326,979
Table of Contents
Summary of Significant Accounting Policies
Description of Business
Notes to Consolidated Financial Statements
March 31, 2022
(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
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
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 the 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.
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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 Energy Systems batteries, from one to five years for Motive Power
batteries and for a period ranging from one to four years for Specialty transportation batteries. The Company provides for estimated product warranty expenses
when the related products are sold. The assessment of the adequacy of the reserve includes a review of open claims and historical experience.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less when purchased.
Concentration of Credit Risk
Financial instruments that subject the Company to potential concentration of credit risk consist principally of short-term cash investments and trade accounts
receivable. The Company invests its cash with various financial institutions and in various investment instruments limiting the amount of credit exposure to any
one financial institution or entity. The Company has bank deposits that exceed federally insured limits. In addition, certain cash investments may be made in
U.S. and foreign government bonds, or other highly rated investments guaranteed by the U.S. or foreign governments. Concentration of credit risk with respect
to trade receivables is limited by a large, diversified customer base and its geographic dispersion. The Company performs ongoing credit evaluations of its
customers’ financial condition and requires collateral, such as letters of credit, in certain circumstances.
Accounts Receivable
Accounts receivable are recorded net of an allowance for expected credit losses. The Company maintains an allowance for credit losses for the expected failure
or inability of its customers to make required payments. The Company recognizes the allowance for expected credit losses at inception and reassesses quarterly
based on management’s expectation of the asset’s collectability. The allowance is based on multiple factors including historical experience with bad debts, the
credit quality of the customer base, the aging of such receivables and current macroeconomic conditions, as well as management’s expectations of conditions in
the future. The Company’s allowance for uncollectible accounts receivable is based on management’s assessment of the collectability of assets pooled together
with similar risk characteristics. Accounts are written off when management determines the account is uncollectible. The following table sets forth the changes
in the Company's allowance for doubtful
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accounts:
Fiscal year ended March 31, 2020
Fiscal year ended March 31, 2021
Fiscal year ended March 31, 2022
Inventories
Balance at Beginning
of Period
Provision
for Doubtful
Debts
Write-offs, net of
Recoveries and
Other
Balance at
End of
Period
$
10,813 $
15,246
12,992
4,821 $
178
2,621
(388) $
(2,432)
(3,394)
15,246
12,992
12,219
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (FIFO) method. The cost of inventory consists of
material, labor, and associated overhead.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost and include expenditures that substantially increase the useful lives of the assets. Depreciation is provided
using the straight-line method over the estimated useful lives of the assets as follows: 10 to 33 years for buildings and improvements and 3 to 15 years for
machinery and equipment.
Maintenance and repairs are expensed as incurred. Interest on capital projects is capitalized during the construction period.
Business Combinations
The 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. The Company assesses whether goodwill impairment exists using both the qualitative and quantitative assessments. The
qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of a reporting unit is
less than its carrying amount, including goodwill. If based on this qualitative assessment the Company determines it is more likely than not that the fair value of
a reporting unit is less than its carrying amount, or if the Company elects not to perform a qualitative assessment, a quantitative assessment is performed by
determining the fair value of the Company's reporting units.
Goodwill is tested for impairment by determining the fair value of the Company’s reporting units. These estimated fair values are based on financial projections,
certain cash flow measures, and market capitalization.
The 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.
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The Company assesses whether indefinite-lived intangible assets impairment exists using both the qualitative and quantitative assessments. The qualitative
assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of an indefinite-lived intangible
asset is less than its carrying amount. If based on this qualitative assessment, the Company determines it is more likely than not that the fair value of an
indefinite-lived intangible asset is less than its carrying amount or if the Company elects not to perform a qualitative assessment, a quantitative assessment is
performed to determine whether an indefinite-lived intangible asset impairment exists. The Company tests the indefinite-lived intangible assets for impairment
by comparing the carrying value to the fair value based on current revenue projections of the related operations, under the relief from royalty method. Any
excess of the carrying value over the amount of fair value is recognized as an impairment. Any such impairment is recognized in the reporting period in which it
has been identified.
Finite-lived assets such as customer relationships, 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. For lead and
foreign currency forward contracts, effectiveness is measured on a regular basis using statistical analysis and by comparing the overall changes in the expected
cash flows of the hedging instrument with the changes in the expected all-in cash outflow required for the underlying lead and foreign currency purchases. This
analysis is performed on the initial purchases quarterly that cover the quantities hedged. Accordingly, gains and losses from changes in derivative fair value of
effective hedges are deferred and reported in AOCI until the underlying transaction affects earnings. In the case of cross currency fixed interest rate swap
agreements, the swaps are remeasured with changes in fair value recognized in foreign currency translation adjustment within AOCI to offset the translation risk
from the underlying investments. Balances in the foreign currency translation adjustment accounts remain until the sale or substantially complete liquidation of
the foreign entity, upon which they are recognized as a component of income (expense).
The Company has commodity, foreign exchange and interest rate hedging authorization from the Board of Directors and has established a hedging and risk
management program that includes the management of market and counterparty risk. Key risk control activities designed to ensure compliance with the risk
management program include, but are not limited to, credit review and approval, validation of transactions and market prices, verification of risk and transaction
limits, portfolio stress tests,
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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 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, 2022 and 2021.
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.
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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.
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 and until fiscal 2020, 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.
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In fiscal 2019 and fiscal 2020, the Company granted performance condition-based awards (“PSU”). A participant may earn between 0% to 200% of the number
of awards granted, based on the Company’s cumulative adjusted earnings per share performance over a three-year period. The vesting of these awards is
contingent upon meeting or exceeding performance conditions. The awards cliff vest on the third anniversary of the date of grant and are settled in common
stock on the first anniversary of the vesting date. The maximum number of awards earned is capped at 200% of the target award. Expense for the performance
condition-based award is recorded when the achievement of the performance condition is considered probable of achievement and is recorded on a straight-line
basis over the requisite service period. If such performance criteria are not met, no compensation cost is recognized, and any recognized compensation cost is
reversed. The closing stock price on the date of grant, adjusted for a discount to reflect the illiquidity inherent in the PSUs, represents the grant-date fair value
for these awards.
Restricted Stock Units
The fair value of restricted stock units is based on the closing market price of the Company’s common stock on the date of grant. These awards generally vest,
and are settled in common stock, at 25% per year, over a four-year period from the date of grant. The Company recognizes compensation expense using the
straight-line method over the life of the restricted stock units.
Stock Options
The fair value of the options granted is estimated at the date of grant using the Black-Scholes option-pricing model utilizing assumptions based on historical
data and current market data. The assumptions include expected term of the options, risk-free interest rate, expected volatility, and dividend yield. The expected
term represents the expected amount of time that options granted are expected to be outstanding, based on historical and forecasted exercise behavior. The risk-
free rate is based on the rate at the grant date of zero-coupon U.S. Treasury Notes with a term equal to the expected term of the option. Expected volatility is
estimated using historical volatility rates based on historical weekly price changes over a term equal to the expected term of the options. The Company’s
dividend yield is based on historical data. The Company recognizes compensation expense using the straight-line method over the vesting period of the options
except for those issued to certain retirement-eligible participants, which are expensed on an accelerated basis.
Forfeitures
Forfeitures of share-based awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.
Earnings Per Share
Basic earnings per common share (“EPS”) are computed by dividing net earnings attributable to EnerSys stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock
were exercised or converted into common stock. At March 31, 2022, 2021 and 2020, the Company had outstanding stock options, restricted stock units, market
condition and performance condition-based awards, which could potentially dilute basic earnings per share in the future.
Segment Reporting
Effective April 1, 2020, the Company's chief operating decision maker, or CODM (the Company's Chief Executive Officer), changed the manner in which he
reviews financial information for purposes of assessing business performance and allocating resources, by focusing on the lines of business on a global basis,
rather than on geographic basis. As a result of this change, the Company re-evaluated the identification of its operating segments and reportable segments and
identified the following as its three operating segments, based on lines of business:
•
Energy Systems - uninterruptible power systems, or “UPS” applications for computer and computer-controlled systems, as well as
telecommunications systems, switchgear and electrical control systems used in industrial facilities and electric utilities, large-scale energy storage and
energy pipelines. Energy Systems also includes highly integrated power solutions and services to broadband, telecom, renewable and industrial
customers, as well as thermally managed cabinets and enclosures for electronic equipment and batteries.
• Motive Power - power for electric industrial forklifts used in manufacturing, warehousing and other material handling applications, as well as mining
•
equipment, diesel locomotive starting and other rail equipment; and
Specialty - premium starting, lighting and ignition applications in transportation, energy solutions for satellites, military aircraft, submarines, ships and
other tactical vehicles, as well as medical and security systems.
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The operating segments also represent the Company's reportable segments under ASC 280, Segment Reporting. All prior comparative periods presented have
been recast to conform to these changes.
Recently Adopted Accounting Pronouncements
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 adopted the standard in the first quarter of fiscal 2022 and the adoption did not have a material
impact on the Company's 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 2022, 2021 and 2020 amounted to $353,088, $296,213 and $270,704, 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 2022, 2021 and 2020
amounted to $193,824, $155,217 and $142,153, respectively.
On March 31, 2022, the aggregate transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was approximately $198,861, of
which, the Company estimates that approximately $182,473 will be recognized as revenue in fiscal 2023, $13,394 in fiscal 2024, $2,994 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, 2022, the current and non-current portion of contract liabilities were
$27,870 and $1,387, respectively. As of March 31, 2021, the current and non-current portion of contract liabilities were $15,992 and $2,072, respectively.
Revenues recognized during fiscal 2022 and fiscal 2021, that were included in the contract liability at the beginning of the year, amounted to $6,775 and
$14,064, respectively.
Amounts representing work completed and not billed to customers represent contract assets and were $59,924 and $46,451 as of March 31, 2022 and March 31,
2021, respectively.
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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, 2022, the right of return asset related to the value of inventory anticipated to be returned from customers was $4,606 and refund
liability representing amounts estimated to be refunded to customers was $8,051.
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 and their balance sheet classification:
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
Classification
Other assets
Accrued expenses
Other liabilities
Property, plant, and equipment, net
Current portion of finance leases
Finance leases
As of
March 31, 2022
As of
March 31, 2021
$
$
71,085 $
20,086
52,904
344 $
185
231
62,159
21,774
42,528
573
236
435
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The components of lease expense for the fiscal years ended March 31, 2022 and March 31, 2021 were as follows:
Operating Leases:
Operating lease cost
Variable lease cost
Short term lease cost
Finance Leases:
Depreciation
Interest expense
Total
Classification
March 31, 2022
March 31, 2021
Operating expenses
Operating expenses
Operating expenses
Operating expenses
Interest expense
$
$
$
26,392 $
9,620
6,218
233 $
26
42,489 $
27,888
7,781
6,675
221
33
42,598
The following table presents the weighted average lease term and discount rates for leases as of March 31, 2022 and March 31, 2021:
Operating Leases:
Weighted average remaining lease term (years)
Weighted average discount rate
Finance Leases:
Weighted average remaining lease term (years)
Weighted average discount rate
March 31, 2022
March 31, 2021
6.1 years
4.43%
2.3 years
4.79%
5.5 years
5.16%
3.1 years
4.81%
The following table presents future payments due under leases reconciled to lease liabilities as of March 31, 2022:
Year ended March 31,
2023
2024
2025
2026
2027
Thereafter
Total undiscounted lease payments
Present value discount
Lease liability
Finance Leases
Operating Leases
$
$
210 $
152
46
25
—
—
433
17
416 $
22,954
17,066
12,387
8,856
6,681
16,630
84,574
11,584
72,990
The following table presents supplemental disclosures of cash flow information related to leases for the fiscal years ended March 31, 2022 and March 31, 2021:
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, 2022
March 31, 2021
$
$
26 $
26,731
238
— $
33,493
33
28,036
216
266
14,763
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4. Acquisitions
The Company made no acquisitions in fiscal 2022 and fiscal 2021. The NorthStar acquisition was made in fiscal 2020 and details are as follows:
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 $76,784. As a result of the change in operating segments
discussed in Note 23, goodwill associated with the acquisition of NorthStar has been allocated to the Energy Systems and Specialty segments on a relative fair
value basis. 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 $68,522.
During fiscal 2021, the Company finalized the measurement of all provisional amounts recognized in connection with the NorthStar business combination. The
purchase accounting adjustments resulted in an increase to goodwill by $2,996 as a result of finalizing income tax accounting.
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.
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,
2022
2021
260,604 $
109,441
345,667
715,712 $
147,040
97,715
273,492
518,247
March 31,
2022
2021
313,090 $
851,251
69,550
1,233,891
(730,627)
503,264 $
313,031
822,725
60,049
1,195,805
(698,749)
497,056
$
$
$
$
Depreciation expense for the fiscal years ended March 31, 2022, 2021, and 2020 totaled $62,584, $60,956, and $56,331, respectively. Interest capitalized in
connection with major capital expenditures amounted to $447, $1,319, and $2,030 for the fiscal years ended March 31, 2022, 2021 and 2020, respectively.
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7. Goodwill and Other Intangible Assets
Other Intangible Assets
Information regarding the Company’s other intangible assets are as follows:
Indefinite-lived intangible assets:
Trademarks
Finite-lived intangible assets:
Customer relationships
Non-compete
Technology
Trademarks
Licenses
Total
$
Gross
Amount
2022
Accumulated
Amortization
March 31,
Net
Amount
Gross
Amount
2021
Accumulated
Amortization
Net
Amount
$
145,808 $
(953) $
144,855 $
148,164 $
(953) $
147,211
298,577
2,825
97,367
8,947
1,196
554,720 $
(109,820)
(2,825)
(38,712)
(5,012)
(1,196)
(158,518) $
188,757
—
58,655
3,935
—
396,202 $
298,576
2,825
97,349
8,012
1,196
556,122 $
(87,308)
(2,825)
(29,561)
(3,381)
(1,196)
(125,224) $
211,268
—
67,788
4,631
—
430,898
The Company’s amortization expense related to finite-lived intangible assets was $33,294, $33,126, and $31,013, for the years ended March 31, 2022, 2021 and
2020, respectively. The expected amortization expense based on the finite-lived intangible assets as of March 31, 2022, is $30,725 in fiscal 2023, $27,691 in
fiscal 2024, $26,550 in fiscal 2025, $25,616 in fiscal 2026 and $24,822 in fiscal 2027.
Goodwill
Concurrent with the change in operating segments effective April 1, 2020, goodwill was reassigned to the affected reporting units that have been identified
within each operating segment, using a relative fair value approach outlined in ASC 350, Intangibles - Goodwill and Other.
The following table presents the amount of goodwill that has been reassigned to each of the Company's reporting units as of April 1, 2020, using the relative fair
value approach, as well as changes in the carrying amount of goodwill by segment during fiscal 2021 and 2022:
(1)
Balance at April 1, 2020
Measurement period adjustments
Foreign currency translation adjustment
Balance at March 31, 2021
Foreign currency translation adjustment
Balance at March 31, 2022
Energy Systems
Motive Power
Specialty
Total
$
$
$
263,150 $
1,348
15,178
279,676 $
(215)
279,461 $
308,497 $
—
18,558
327,055 $
(3,752)
323,303 $
92,289 $
1,648
4,925
98,862 $
(986)
97,876 $
663,936
2,996
38,661
705,593
(4,953)
700,640
(1) Represents the reallocation of goodwill as a result of the Company reorganizing its segments as described in Note 1.
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. The Company did not record any impairment relating to its goodwill during fiscal 2022 and 2021.
In fiscal 2020, the Company conducted its annual goodwill impairment test which indicated that the fair value of its legacy Asia reporting unit 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 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 People's Republic of China (“PRC”) amidst growing
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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 the 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 its annual
impairment test.
During the fourth quarter of fiscal 2022, the Company recorded a non-cash charge of $1,178 related to impairment of indefinite-lived trademarks under the
caption “Impairment of indefinite-lived intangibles” in the Consolidated Statements of Income. 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 that were acquired through
legacy acquisitions was appropriate, as it plans to phase out these trademarks. The Company had also recorded an impairment charge relating to the same
trademarks in fiscal 2020 for $4,549.
The Company estimated tax-deductible goodwill to be approximately $101,499 and $110,063 as of March 31, 2022 and 2021, respectively.
8. Prepaid and Other Current Assets
Prepaid and other current assets consist of the following:
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
Contract liabilities
Warranty
Operating lease liabilities
VAT and other non-income taxes
Freight
Interest
Hagen exit related accruals
Pension
Tax Act - Transition Tax
Restructuring
Other
Total
(1)
March 31,
2022
2021
59,924 $
25,585
16,670
7,162
46,218
155,559 $
March 31,
2022
2021
81,058 $
48,894
27,870
20,716
20,086
16,458
14,167
10,793
1,832
1,294
1,229
1,030
44,338
289,765 $
46,451
25,251
10,925
6,562
28,492
117,681
92,305
47,364
15,992
18,982
21,774
14,267
13,097
10,592
24,593
1,514
11,855
2,595
43,793
318,723
$
$
$
$
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(1) Transition Tax for both years of fiscal 2022 and fiscal 2021 was $6,172. In fiscal 2022, income taxes were in a prepaid position of $4,943 and were
netted against the transition tax payable. In fiscal 2021, income taxes payable were $5,683.
10. Debt
The following summarizes the Company’s long-term debt as of March 31, 2022 and March 31, 2021:
Senior Notes
Second Amended Credit Facility, due 2026
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
2022
2021
Principal
Unamortized Issuance
Costs
Principal
Unamortized Issuance
Costs
$
$
$
600,000 $
650,268
1,250,268 $
7,266
1,243,002
3,905 $
3,361
7,266 $
$
600,000 $
376,039
976,039 $
6,421
969,618
5,106
1,315
6,421
On December 11, 2019, the Company issued $300,000 in aggregate principal amount of its 4.375% Senior Notes due December 15, 2027 (the “2027 Notes”).
Proceeds from this offering, net of debt issuance costs were $296,250 and were utilized to pay down the Amended 2017 Revolver (defined below). The 2027
Notes bear interest at a rate of 4.375% per annum accruing from December 11, 2019. Interest is payable semiannually in arrears on June 15 and December 15 of
each year, commencing on June 15, 2020. The 2027 Notes mature on December 15, 2027, unless earlier redeemed or repurchased in full and are unsecured and
unsubordinated obligations of the Company. They are fully and unconditionally guaranteed, jointly and severally, by certain of its subsidiaries that are
guarantors under the Second Amended Credit Facility (defined below). These guarantees are unsecured and unsubordinated obligations of such guarantors.
The Company may redeem, prior to September 15, 2027, all or a portion of the 2027 Notes at a price equal to 100% of the principal amount of the 2027 Notes
to be redeemed, plus accrued and unpaid interest and a “make whole” premium to, but excluding, the redemption date. The Company may redeem, on or after
September 15, 2027, all or a portion of the 2027 Notes at a price equal to 100% of the principal amount of the 2027 Notes, plus accrued and unpaid interest to,
but excluding, the redemption date. If a change of control triggering event occurs, the Company will be required to offer to repurchase the 2027 Notes at a price
in cash equal to 101% of the aggregate principal amount of the 2027 Notes, plus accrued and unpaid interest to, but excluding, the date of repurchase. The 2027
Notes rank pari passu with the 2023 Notes (defined below).
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 Second Amended Credit Facility. These guarantees
are unsecured and unsubordinated obligations of such guarantors.
2017 Credit Facility and Subsequent Amendments
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 utilized the borrowings from the 2017 Credit Facility to repay its pre-existing credit facility.
In fiscal 2019, the Company amended the 2017 Credit Facility (as amended, the “Amended Credit Facility”) to fund the Alpha acquisition. The Amended Credit
Facility consisted of $449,105 senior secured term loans (the “Amended Term Loan”), including a CAD 133,050 ($99,105) senior secured term loan and a
$700,000 senior secured revolving credit facility (the
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“Amended Revolver”). The amendment resulted in an increase of the 2017 Term Loan and the 2017 Revolver by $299,105 and $100,000, respectively.
During the second quarter of fiscal 2022, the Company entered into a second amendment to the Amended Credit Facility (as amended, the “Second Amended
Credit Facility”). The Second Amended Credit Facility, scheduled to mature on September 30, 2026, consists of a $130,000 senior secured term loan (the
“Second Amended Term Loan”), a CAD 106,440 ($84,229) senior secured term loan and an $850,000 senior secured revolving credit facility (the “Second
Amended Revolver”). The second amendment resulted in a decrease of the Amended Term Loan by $150,000 and an increase of the Amended Revolver by
$150,000.
Subsequent to the second amendment, the quarterly installments payable on the Second Amended Term Loan are $2,678 beginning December 31, 2022, $4,017
beginning December 31, 2024 and $5,356 beginning December 31, 2025 with a final payment of $160,672 on September 30, 2026. The Second Amended
Credit Facility may be increased by an aggregate amount of $350,000 in revolving commitments and /or one or more new tranches of term loans, under certain
conditions. Both the Second Amended Revolver and the Second Amended Term Loan bear interest, at the Company's option, at a rate per annum equal to either
(i) the London Interbank Offered Rate (“LIBOR”) or Canadian Dollar Offered Rate (“CDOR”) plus (i) LIBOR plus between 1.125% 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%. The Second Amended Credit Facility provides for alternate benchmark rates such as the Secured
Overnight Financing Rate (“SOFR”) to replace LIBOR when it is phased out.
Obligations under the Second 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 Second Amended Credit Facility and up to 65% of
the capital stock of certain of the Company’s foreign subsidiaries that are owned by the Company’s United States subsidiaries.
The Second 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.
As of March 31, 2022, the Company had $435,000 outstanding under the Second Amended Revolver and $215,268 under the Second Amended Term Loan.
The scheduled repayments within the next twelve months of fiscal 2023, relating to the Second Amended Term Loan is $5,356 and is classified as long-term
debt, as the Company expects to refinance the future quarterly payments with revolver borrowings under the Second Amended Credit Facility.
Interest Rates on Long Term Debt
The weighted average interest rate on the long term debt at March 31, 2022 and March 31, 2021, was 3.3% and 3.5%, respectively.
Interest Paid
The Company paid in cash, $37,776, $36,365 and $38,632, net of interest received, for interest during the fiscal years ended March 31, 2022, 2021 and 2020,
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.
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Short-Term Debt
As of March 31, 2022 and 2021, the Company had $55,084 and $34,153, respectively, of short-term borrowings. The weighted-average interest rate on these
borrowings was approximately 2.4% and 2%, respectively, for fiscal years ended March 31, 2022 and 2021.
Letters of Credit
As of March 31, 2022 and 2021, the Company had $2,959 of standby letters of credit.
Debt Issuance Costs
In fiscal 2022, the Company capitalized $2,952 in debt issuance costs and wrote off $128 of unamortized debt issuance costs in connection with the Second
Amended Credit Facility. In fiscal 2020, the Company capitalized $4,607 of debt issuance costs in connection with the issuance of the 2027 Notes. Amortization
expense, relating to debt issuance costs, included in interest expense was $2,107, $2,072, and $1,673 for the fiscal years ended March 31, 2022, 2021 and 2020,
respectively. Debt issuance costs, net of accumulated amortization, totaled $7,266 and $6,421 as of March 31, 2022 and 2021, respectively.
Available Lines of Credit
As of March 31, 2022 and 2021, the Company had available and undrawn, under all its lines of credit, $482,305 and $697,875, respectively, including $69,430
and $122,303, respectively, of uncommitted lines of credit as of March 31, 2022 and March 31, 2021.
11. Other Liabilities
Other liabilities consist of the following:
Operating lease liabilities
Tax Act - Transition Tax
Warranty
Pension
Liability for uncertain tax positions
Contract liabilities
Other
Total
12. Fair Value of Financial Instruments
Recurring Fair Value Measurements
March 31,
2022
2021
$
$
52,904 $
46,587
34,262
28,566
5,210
1,387
14,864
183,780 $
42,528
53,045
39,980
40,450
7,185
2,072
10,508
195,768
The following tables represent the financial assets and (liabilities) measured at fair value on a recurring basis as of March 31, 2022 and March 31, 2021 and the
basis for that measurement:
Total Fair Value
Measurement March 31,
2022
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Lead forward contracts
Foreign currency forward contracts
Net investment hedges
Total derivatives
$
$
— $
—
—
— $
2,520 $
(256)
298
2,562 $
—
—
—
—
2,520 $
(256)
298
2,562 $
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Lead forward contracts
Foreign currency forward contracts
Total derivatives
Total Fair Value
Measurement March 31,
2021
$
$
(1,980) $
424
(1,556) $
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
— $
—
— $
(1,980) $
424
(1,556) $
—
—
—
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 and net investment hedges are based upon current quoted market prices and are classified as Level 2
based on the nature of the underlying market in which these derivatives are traded.
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 Second 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.
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 95% and 102% of face value on March 31, 2022 and March 31, 2021, respectively.
The 2023 Notes were trading at approximately 101% and 105% of face value on March 31, 2022 and March 31, 2021, respectively.
The carrying amounts and estimated fair values of the Company’s derivatives and Senior Notes at March 31, 2022 and 2021 were as follows:
Financial assets:
(1)
Derivatives
Financial liabilities:
(2)
Senior Notes
(1)
Derivatives
March 31, 2022
March 31, 2021
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
$
$
2,562 $
2,562 $
— $
—
600,000 $
—
585,750 $
—
600,000 $
1,556
621,000
1,556
(1) Represents lead, foreign currency forward contracts and net investment hedges (see Note 13 for asset and liability positions of the lead, foreign currency
forward contracts and net investment hedges at March 31, 2022 and March 31, 2021).
(2) The fair value amount of the Senior Notes at March 31, 2022 and March 31, 2021 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.
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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 January 3, 2022, two of the Company's indefinite-lived trademarks, that were acquired
through legacy acquisitions were recorded at fair value on a non-recurring basis at $980 and the remeasurement resulted in an impairment of $1,178. In
determining the fair value of these assets, the Company used a royalty rate of 1.25% based on comparable market rates and used discount rates of 13.0% and
14.5%. In fiscal 2020, the Company recorded an impairment relating to the same trademarks, which were recorded at a fair value on a non-recurring basis of
$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.
Russia
In February 2022, as a result of the Russia-Ukraine conflict, economic sanctions were imposed on Russian individuals and entities, including financial
institutions, by countries around the world, including the U.S. and the European Union. On March 3, 2022, the Company announced that it was indefinitely
suspending its operations in Russia in order to comply with the sanctions. As a result of this decision, the Company wrote off net assets of $3,999 relating to its
Russian subsidiary, based on a non-recurring basis.
Vijayawada, India
During fiscal 2021, the Company committed to a plan to close its facility in Vijayawada, India to align with its strategic vision for the new line of business
structure and footprint. As a result of this decision, in fiscal 2022, the Company reclassified property, plant and equipment with a carrying value of $4,573 to
assets held for sale on the Consolidated Balance Sheet and recognized an impairment loss of $2,973 under the caption Loss on assets held for sale on its
consolidated statement of income, by recording the carrying value of these assets to their estimated fair value of $1,600, based on a non-recurring basis. The fair
value was based on the expected proceeds, less costs to sell.
In fiscal 2021, the Company committed to a plan to substantially close all of its facility in Hagen, Germany, which produces flooded motive power batteries for
forklifts. Management determined that future demand for the motive power batteries produced at this facility was not sufficient, given the conversion from
flooded to maintenance free batteries by customers, the existing number of competitors in the market, as well as the near term decline in demand and increased
uncertainty from the pandemic. As a result, the Company concluded that the carrying value of the asset group is not recoverable and recorded a write-off of
$3,975 of the fixed assets to their estimated fair value of $14,456, which was recognized in the third quarter of fiscal 2021. The valuation technique used to
measure the fair value of fixed assets was a combination of the income and market approaches. The inputs used to measure the fair value of these fixed assets
under the income approach were largely unobservable and accordingly were classified as Level 3.
13. Derivative Financial Instruments
The Company utilizes derivative instruments to reduce its exposure to fluctuations in commodity prices, foreign exchange rates and interest under established
procedures and controls. The Company does not enter into derivative contracts for speculative purposes. The Company’s agreements are with creditworthy
financial institutions and the Company anticipates performance by counterparties to these contracts and therefore no material loss is expected.
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Table of Contents
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, 2022 and 2021, the Company has hedged the price to purchase approximately 54.0 million pounds and 54.5 million pounds of lead, respectively,
for a total purchase price of $56,768 and $50,567, 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, 2022 and 2021, the Company had entered into a total of $29,676 and
$26,033, respectively, of such contracts.
Derivatives in Net Investment Hedging Relationships
Net Investment Hedges
On December 23, 2021, the Company entered into cross currency fixed interest rate swap agreements, with aggregate notional amounts of $300,000, to hedge
its net investments in foreign operations against future volatility in the exchange rates between U.S. Dollars and Euros. These swaps mature on December 15,
2027 and qualify for hedge accounting as a net investment hedging instrument, which allows the swaps to be remeasured to foreign currency translation
adjustment within AOCI to offset the translation risk from those investments. Balances in the foreign currency translation adjustment accounts remain until the
sale or substantially complete liquidation of the foreign entity, upon which they are recognized as a component of income (expense).
Impact of Hedging Instruments on AOCI
In the coming twelve months, the Company anticipates that $8,436 of pretax gain relating to lead, foreign currency forward contracts and net investment hedges
will be reclassified from AOCI as part of cost of goods sold and interest expense. This amount represents the current net unrealized impact of hedging lead,
foreign exchange rates and interest rates, which will change as market rates change in the future. This amount will ultimately be realized in the Consolidated
Statements of Income as an offset to the corresponding actual changes in lead, foreign exchange rates and lead costs resulting from variable lead cost, foreign
exchange and interest rates hedged.
Derivatives not Designated in Hedging Relationships
Foreign Currency Forward Contracts
The Company also enters into foreign currency forward contracts to economically hedge foreign currency fluctuations on intercompany loans and foreign
currency denominated receivables and payables. These are not designated as hedging instruments and changes in fair value of these instruments are recorded
directly in the Consolidated Statements of Income. As of March 31, 2022 and 2021, the notional amount of these contracts was $22,990 and $28,995,
respectively.
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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, 2022 and 2021
Derivatives and Hedging Activities
Designated as Cash Flow Hedges
Derivatives and Hedging Activities Designated
as Net Investment Hedges
Derivatives and Hedging Activities Not
Designated as Hedging Instruments
March 31, 2022
March 31, 2021
March 31, 2022
March 31, 2021
March 31, 2022
March 31, 2021
Prepaid and other current assets:
Lead forward contracts
Foreign currency forward
contracts
Net investment hedges
Total assets
Accrued expenses:
Lead forward contracts
Foreign currency forward
contracts
Other liabilities:
Net investment hedges
Total liabilities
$
$
$
$
2,520 $
256
—
2,776 $
— $
524
—
524 $
— $
1,980 $
—
—
— $
—
—
1,980 $
— $
—
4,388
4,388 $
— $
—
4,090
4,090 $
— $
—
—
— $
— $
—
—
— $
— $
—
—
— $
— $
512
—
512 $
—
—
—
—
—
100
—
100
The Effect of Derivative Instruments on the Consolidated Statements of Income
For the fiscal year ended March 31, 2022
Derivatives Designated as Cash Flow Hedges
Lead forward contracts
Foreign currency forward contracts
Total
Derivatives Designated as Net Investment Hedges
Cross currency fixed interest rate swaps
Total
Derivatives Not Designated as Hedging Instruments
Foreign currency forward contracts
Total
Pretax Gain (Loss)
Recognized in AOCI on
Derivative (Effective Portion)
12,193
$
941
13,134
$
Location of Gain
(Loss) Reclassified
from
AOCI into Income
(Effective Portion)
Pretax Gain (Loss) Reclassified
from AOCI into Income
(Effective Portion)
Cost of goods sold $
Cost of goods sold
$
8,974
768
9,742
Pretax Gain (Loss)
Recognized in AOCI on
Derivative (Effective Portion)
1,479
$
1,479
$
Location of Gain
(Loss) Reclassified
from
AOCI into Income
(Effective Portion)
Pretax Gain (Loss) Reclassified
from AOCI into Income
(Effective Portion)
Interest expense $
$
1,181
1,181
Location of Gain (Loss)
Recognized in Income
on Derivatives
Other (income) expense, net $
$
Pretax Gain (Loss)
(157)
(157)
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Table of Contents
The Effect of Derivative Instruments on the Consolidated Statements of Income
For the fiscal year ended March 31, 2021
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)
202
$
130
332
$
Location of Gain
(Loss) Reclassified
from
AOCI into Income
(Effective Portion)
Pretax Gain (Loss) Reclassified
from AOCI into Income
(Effective Portion)
Cost of goods sold $
Cost of goods sold
$
(7,411)
(492)
(7,903)
Location of Gain (Loss)
Recognized in Income
on Derivatives
Other (income) expense, net $
$
Pretax Gain (Loss)
430
430
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)
$
(54)
(8,737)
$
Location of Gain
(Loss) Reclassified
from
AOCI into Income
(Effective Portion)
Pretax Gain (Loss) Reclassified
from AOCI into Income
(Effective Portion)
Cost of goods sold $
Cost of goods sold
$
(1,690)
539
(1,151)
Location of Gain (Loss)
Recognized in Income
on Derivatives
Other (income) expense, net $
$
Pretax Gain (Loss)
(178)
(178)
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Table of Contents
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,
2022
2021
2020
9,558 $
4,022
15,333
28,913
1,183
(1,453)
1,385
1,115
30,028 $
12,591 $
4,133
19,031
35,755
1,495
735
(11,224)
(8,994)
26,761 $
9,185
2,561
14,561
26,307
5,489
741
(22,716)
(16,486)
9,821
Fiscal year ended March 31,
2022
2021
2020
21,871 $
152,068
173,939 $
56,055 $
114,080
170,135 $
36,193
110,744
146,937
$
$
$
$
Income taxes paid by the Company for the fiscal years ended March 31, 2022, 2021 and 2020 were $50,484, $32,002 and $48,653, respectively.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law in the U.S. to provide certain relief as a result
of the COVID-19 pandemic. In addition, governments around the world have enacted or implemented various forms of tax relief measures in response to the
economic conditions in the wake of COVID-19. As of March 31, 2022, neither the CARES Act nor changes to income tax laws or regulations in other
jurisdictions had a significant impact on the Company’s effective tax rate.
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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
Lease liabilities
Accrued expenses
Other assets
Gross deferred tax assets
Less valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Property, plant and equipment
Lease Right-of-use assets
Intangible assets
Other liabilities
Total deferred tax liabilities
Net deferred tax liabilities
March 31,
2022
2021
$
481 $
8,581
56,010
17,590
33,571
19,941
136,174
(31,017)
105,157
41,105
17,590
60,827
3,384
122,906
(17,749) $
$
2,029
8,831
62,663
15,685
36,775
18,173
144,156
(31,928)
112,228
38,364
15,685
66,743
2,636
123,428
(11,200)
The Company has approximately $899 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 $202,176 of foreign net operating loss carryforwards, of which $155,338 may
be carried forward indefinitely and $46,838 expire between fiscal 2023 and fiscal 2041. In addition, the Company also has approximately $28,994 of state net
operating loss carryforwards with expirations between fiscal 2023 and fiscal 2042.
The following table sets forth the changes in the Company's valuation allowance for fiscal 2022, 2021 and 2020:
Fiscal year ended March 31, 2020
Fiscal year ended March 31, 2021
Fiscal year ended March 31, 2022
Balance at
Beginning of
Period
Additions
Charged to
Expense
Valuation
Allowance
Reversal
Business
Combination
Adjustments
Other
(1)
Balance at
End of
Period
$
17,519 $
20,951
31,928
7,494 $
8,437
4,486
(3,145) $
(2,904)
(1,535)
(688) $
6,384
—
(229) $
(940)
(3,862)
20,951
31,928
31,017
(1)
Includes the impact of currency changes and the expiration of net operating losses for which a full valuation allowance was recorded.
As of March 31, 2022 and 2021, the Company had no federal valuation allowance and the valuation allowance associated with the state tax jurisdictions was
$686 for both years.
As of March 31, 2022 and 2021, the valuation allowance associated with certain foreign tax jurisdictions was $30,331 and $31,242, respectively. Of the net
decrease of $(911), $2,951 was recorded as an increase to tax expense primarily related to deferred tax assets generated in the current year that the Company
believes are not more likely than not to be realized, offset by $(3,862) primarily related to foreign currency translation adjustments and expiration of foreign net
operating losses for which a full valuation allowance was recorded.
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Table of Contents
A reconciliation of income taxes at the statutory rate (21.0% for fiscal 2022, 2021 and 2020) to the income tax provision is as follows:
United States statutory income tax expense
Increase (decrease) resulting from:
State income taxes, net of federal effect
Nondeductible expenses and other
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,
2022
2021
2020
36,527 $
35,729 $
1,724
1,217
5,405
—
(14,192)
2,951
—
(3,604)
30,028 $
4,000
5,273
1,985
—
(20,035)
5,533
(1,883)
(3,841)
26,761 $
30,857
2,764
5,953
3,025
10,714
(17,605)
4,349
(26,846)
(3,390)
9,821
$
$
The effective income tax rates for the fiscal years ended March 31, 2022, 2021 and 2020 were 17.3%, 15.7% and 6.7%, 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 increase in fiscal 2022 compared to fiscal 2021 is primarily due to Swiss tax reform and changes in the mix of
earnings among tax jurisdictions. The rate increase in fiscal 2021 compared to fiscal 2020 is primarily due to Swiss tax reform, partially offset by the Hagen,
Germany exit charges and changes in the mix of earnings among tax jurisdictions.
On May 19, 2019, a public referendum held in Switzerland approved the Federal Act on Tax Reform and AHV (Old-Age and Survivors Insurance) Financing
(TRAF) as adopted by the Swiss Federal Parliament on September 28, 2018. The Swiss tax reform measures were effective January 1, 2020. The Company
recorded a net deferred tax asset of $22,500 during fiscal 2020, related to the amortizable goodwill and based on further evaluation with the Swiss tax authority,
recorded an additional income tax benefit of $1,883 during fiscal 2021.
In fiscal 2022, the foreign effective income tax rate on foreign pre-tax income of $152,068 was 11.0%. In fiscal 2021, the foreign effective income tax rate on
foreign pre-tax income of $114,080 was 6.8% and in fiscal 2020, the foreign effective income tax rate on foreign pre-tax income of $110,744 was (7.4)%. The
rate increase in fiscal 2022 compared to fiscal 2021 is primarily due to Swiss tax reform and changes in the mix of earnings among tax jurisdictions. The rate
increase in fiscal 2021 compared to fiscal 2020 is primarily due to Swiss tax reform, partially offset by the Hagen, Germany exit charges and changes in the mix
of earnings among tax jurisdictions.
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, 2022,
2021 and 2020 and was taxed, excluding the impact from the Swiss tax reform, at approximately 4%, 8% and 3%, respectively.
The Company has approximately $1,180,000 and $1,591,000 of undistributed earnings of foreign subsidiaries for fiscal years 2022 and 2021, respectively.
During fiscal 2022, the Company remitted $550,000 of undistributed earnings from a foreign subsidiary, with no tax impact. Additionally, the Company
recorded $2,000 in additional income taxes related to the indefinite suspension of its business operations in Russia. The Company intends to continue to be
indefinitely reinvested on the remaining undistributed foreign earnings and outside basis differences and therefore, no additional income taxes have been
provided.
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Table of Contents
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,
2022
2021
2020
$
$
6,785 $
21
—
598
—
(784)
(1,850)
4,770 $
7,795 $
346
—
325
—
—
(1,681)
6,785 $
20,165
598
769
—
(11,463)
—
(2,274)
7,795
All of the balance of unrecognized tax benefits at March 31, 2022, 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 and is routinely subject to
income tax examinations. As of March 31, 2022, the most significant tax examinations in process are the United States and Switzerland. The Company
regularly assesses the likely outcomes of its tax audits and disputes to determine the appropriateness of its tax reserves. However, any tax authority could take a
position on tax treatment that is contrary to the Company’s expectations, which could result in tax liabilities in excess of reserves. With few exceptions, the
Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2010.
While the net effect on total unrecognized tax benefits cannot be reasonably estimated, approximately $1,050 is expected to reverse in fiscal 2023 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, 2022 and 2021, the
Company had an accrual of $440 and $400, 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 2022, 2021 and 2020, includes the following components:
United States Plans
Fiscal year ended March 31,
International Plans
Fiscal year ended March 31,
2022
2021
2020
2022
2021
2020
Service cost
Interest cost
Expected return on plan assets
Amortization and deferral
Net periodic benefit cost
$
$
— $
517
(526)
7
(2) $
— $
616
(448)
188
356 $
1,114 $
1,427
(2,200)
1,205
1,546 $
993 $
1,388
(1,899)
1,053
1,535 $
906
1,485
(2,136)
910
1,165
— $
533
(272)
476
737 $
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Table of Contents
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,
2022
2021
2022
2021
Change in projected benefit obligation
Benefit obligation at the beginning of the period
Service cost
Interest cost
Benefits paid, inclusive of plan expenses
Plan curtailments and settlements
Actuarial (gains) losses
Foreign currency translation adjustment
Benefit obligation at the end of the period
Change in plan assets
Fair value of plan assets at the beginning of the period
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
Amounts recognized in the Consolidated Balance Sheets consist of:
Non current assets
Accrued expenses
Other liabilities
Funded status deficit
$
$
$
$
$
17,806 $
—
517
(802)
—
(1,316)
—
16,205 $
16,265 $
443
260
(802)
—
—
16,166 $
(39) $
83
18,111 $
—
533
(802)
—
(36)
—
17,806 $
12,036 $
4,379
652
(802)
—
—
16,265 $
(1,541) $
83,252 $
1,114
1,427
(2,328)
(141)
(8,545)
(3,946)
70,833 $
42,844 $
1,784
1,979
(2,328)
(141)
(2,071)
42,067 $
68,602
993
1,388
(2,087)
(91)
7,761
6,686
83,252
32,831
6,272
1,869
(2,087)
(91)
4,050
42,844
(28,766) $
(40,408)
March 31,
2022
2021
$
$
1,055 $
(1,294)
(28,566)
(28,805) $
15
(1,514)
(40,450)
(41,949)
Table of Contents
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, 2022, 2021 and 2020:
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,
2022
2021
2020
(174) $
(14,049)
(14,223) $
(230) $
(25,450)
(25,680) $
(258)
(25,796)
(26,054)
Fiscal year ended March 31,
2022
2021
2020
— $
(9,362)
(883)
(45)
(1,167)
(11,457) $
— $
(753)
1,909
(46)
(1,484)
(374) $
—
3,793
(804)
(43)
(1,250)
1,696
$
$
$
$
The amounts included in AOCI as of March 31, 2022 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)
(474)
(517)
The accumulated benefit obligation related to all defined benefit pension plans and information related to unfunded and underfunded defined benefit pension
plans at the end of each fiscal year are as follows:
All defined benefit plans:
Accumulated benefit obligation
Unfunded defined benefit plans:
Projected benefit obligation
Accumulated benefit obligation
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
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
United States Plans
March 31,
International Plans
March 31,
2022
2021
2022
2021
16,205 $
17,806 $
67,301 $
78,360
— $
—
— $
—
29,570 $
27,156
34,932
31,970
5,479 $
5,188
17,806 $
16,265
29,570 $
—
82,814
42,390
5,479 $
5,479
5,188
17,806 $
17,806
16,265
29,570 $
27,156
—
82,814
77,928
42,390
$
$
$
$
84
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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:
Discount rate
Expected return on plan assets
Rate of compensation increase
N/A = not applicable
United States Plans
Fiscal year ended March 31,
International Plans
Fiscal year ended March 31,
2022
2021
2020
3.0 %
5.5
3.0 %
6.0
3.8 %
6.3
N/A
N/A
N/A
2022
0.5%-2.3%
2.7-5.25
1.5-4.0
2021
1.3%-2.3%
3.8-5.5
2.0-3.5
2020
1.0%-2.7%
4.3-6.0
2.0-4.0
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
March 31,
International Plans
March 31,
2022
N/A
3.7 %
2021
N/A
3.0 %
2022
1.5%-5.4%
1.8-5.5
2021
0.5%-2.3%
1.5-4.0
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, 2022 and 2021 and the basis for that
measurement:
United States Plans
Quoted Price
In Active
Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Total Fair
Value
Measurement
March 31, 2022
Significant
Unobservable
Inputs
(Level 3)
Total Fair
Value
Measurement
International Plans
Quoted Price
In Active
Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
1,576
$
1,576
$
—
$
—
$
98
$
98
$
—
$
10,350
—
4,240
10,350
—
4,240
16,166
$
16,166
$
—
—
—
—
$
—
—
—
—
—
28,296
13,673
$
42,067
$
—
—
—
98
—
28,296
13,673
$
41,969
$
—
—
—
—
—
United States Plans
Quoted Price
In Active
Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Total Fair
Value
Measurement
March 31, 2021
Significant
Unobservable
Inputs
(Level 3)
Total Fair
Value
Measurement
International Plans
Quoted Price
In Active
Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
1,454
$
1,454
$
—
$
—
$
81
$
81
$
—
$
10,435
—
4,376
10,435
—
4,376
16,265
$
16,265
$
—
—
—
—
$
—
—
—
—
—
28,144
14,619
$
42,844
$
—
—
—
81
—
28,144
14,619
$
42,763
$
—
—
—
—
—
$
$
$
$
Asset category:
Cash and cash equivalents
Equity securities
US
International
(b)
(a)
(c)
Fixed income
Total
Asset category:
Cash and cash equivalents
Equity securities
US
International
(b)
(a)
(c)
Fixed income
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 $1,717 to its pension plans in fiscal 2023.
Estimated future benefit payments under the Company’s pension plans are as follows:
2023
2024
2025
2026
2027
Years 2028-2032
$
3,031
2,975
3,378
3,708
4,064
22,244
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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, 2022, 2021 and 2020 were
$18,402, $16,460 and $15,835, 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, 2022 and 2021, 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, 2020, 2021 and 2022,
respectively:
Shares outstanding as of March 31, 2019
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, 2020
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, 2021
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, 2022
42,620,750
(581,140)
283,695
42,323,305
—
429,715
42,753,020
(1,996,334)
229,972
40,986,658
Treasury Stock
In fiscal 2022, the Company purchased 1,996,334 shares for $156,366. The Company did not purchase any shares in fiscal 2021 but purchased 581,140 shares
for $34,561 in fiscal 2020. At March 31, 2022 and 2021, the Company held 14,762,266 and 12,799,790 shares as treasury stock, respectively.
Treasury Stock Reissuance
During fiscal 2022, fiscal 2021 and fiscal 2020, the Company also issued 13,858, 13,465 and 17,410 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, 2022
Pension funded status adjustment
Net unrealized gain (loss) on derivative instruments
Foreign currency translation adjustment
Accumulated other comprehensive loss
(1)
March 31, 2021
Pension funded status adjustment
Net unrealized gain (loss) on derivative instruments
Foreign currency translation adjustment
Accumulated other comprehensive loss
March 31, 2020
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
$
$
$
$
$
$
(20,947) $
360
(95,296)
(115,883) $
(22,794) $
(5,923)
(186,289)
(215,006) $
(20,791) $
(130)
(121,761)
(142,682) $
7,374 $
10,063
(38,525)
(21,088) $
680 $
250
90,993
91,923 $
(2,819) $
(6,672)
(64,528)
(74,019) $
936 $
(7,460)
—
(6,524) $
1,167 $
6,033
—
7,200 $
816 $
879
—
1,695 $
(12,637)
2,963
(133,821)
(143,495)
(20,947)
360
(95,296)
(115,883)
(22,794)
(5,923)
(186,289)
(215,006)
(1) Foreign currency translation adjustment for the fiscal year ended March 31, 2022 includes a $228 gain (net of taxes of $70) relating to the net investment hedges entered into
by the Company on December 23, 2021.
The following table presents reclassifications from AOCI during the twelve months ended March 31, 2022:
Components of AOCI
Amounts Reclassified from AOCI
Location of (Gain) Loss Recognized on Income Statement
Derivatives in Cash Flow Hedging Relationships:
Net unrealized gain on derivative instruments
Tax expense
Net unrealized gain on derivative instruments, net of tax
Derivatives in net investment 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
$
$
$
$
$
$
(9,742) Cost of goods sold
2,282
(7,460)
Interest expense
Net periodic benefit cost, included in other (income)
expense, net - See Note 15
(1,181)
276
(905)
1,212
(276)
936
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The following table presents reclassifications from AOCI during the twelve months ended March 31, 2021:
Components of AOCI
Amounts Reclassified from AOCI
Location of (Gain) Loss Recognized on Income Statement
Derivatives in Cash Flow Hedging Relationships:
Net unrealized loss on derivative instruments
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
$
$
$
$
7,903 Cost of goods sold
(1,870)
6,033
Net periodic benefit cost, included in other (income)
expense, net - See Note 15
1,529
(362)
1,167
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
17. Stock-Based Compensation
$
$
$
$
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
As of March 31, 2022, 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 condition-based on total shareholder return (“TSR”) and performance
condition-based share units (“PSU”) and other forms of equity-based compensation. Shares subject to any awards that expire without being exercised or that are
forfeited or settled in cash shall again be available for future grants of awards under the 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, 2022, 2,822,479 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 2022, the Company granted to management and other key employees 246,222 non-qualified options that vest ratably over 3 years from the date of
grant. Options expire 10 years from the date of grant.
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The Company recognized stock-based compensation expense relating to stock options of $6,235, with a related tax benefit of $738 for fiscal 2022, $3,514 with
a related tax benefit of $368 for fiscal 2021 and $2,996 with a related tax benefit of $565 for fiscal 2020.
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)
Volatility
2022
2021
2020
0.89 %
0.76 %
6
37.3 %
0.39 %
0.93 %
6
37.2 %
1.52 %
1.21 %
6
29.1 %
The following table summarizes the Company’s stock option activity in the years indicated:
Options outstanding as of March 31, 2019
Granted
Exercised
Forfeited
Expired
Options outstanding as of March 31, 2020
Granted
Exercised
Forfeited
Expired
Options outstanding as of March 31, 2021
Granted
Exercised
Forfeited
Options outstanding as of March 31, 2022
Options exercisable as of March 31, 2022
Options vested and expected to vest, as of March 31, 2022
Number of
Options
Weighted-
Average
Remaining
Contract
Term (Years)
Weighted-
Average
Exercise
Price
Aggregate
Intrinsic
Value
554,906
284,109
(24,826)
(22,607)
—
791,582
295,068
(247,975)
(34,854)
(4,320)
799,501
246,222
(42,640)
(27,478)
975,605
472,571
960,129
8.0 $
7.8 $
7.8 $
7.5 $
6.1 $
7.4 $
72.31 $
57.75
57.60
72.19
—
67.55 $
79.62
66.11
69.20
80.25
72.31 $
97.32
65.71
71.26
78.94 $
72.71 $
78.77 $
1,040
—
383
88
—
—
—
6,382
290
—
14,781
—
1,079
520
3,605
2,250
3,590
The following table summarizes information regarding stock options outstanding as of March 31, 2022:
Range of Exercise Prices
$57.60-$60.00
$60.01-$70.00
$70.01-$80.00
$80.01-$90.00
$90.01-100.99
Number of
Options
Weighted-
Average
Remaining
Contractual Life (Years)
Weighted-
Average
Exercise Price
194,661
56,530
222,765
260,247
241,402
975,605
7.0 $
2.9 $
7.3 $
7.2 $
9.4 $
7.5 $
57.73
68.78
75.27
83.00
97.43
78.94
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Restricted Stock Units, Market and Performance-condition based Awards
Non-Employee Directors
In fiscal 2022, the Company granted to non-employee directors 24,055 deferred restricted stock units (“DSU”) at the fair value of $60.29 per restricted stock
unit at the date of grant. In fiscal 2021, such grants amounted to 39,726 restricted stock units at the fair value of $39.93 per restricted stock unit at the date of
grant and in fiscal 2020, such grants amounted to 40,462 restricted stock units at the fair value of $39.74 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.
The Company also granted to non-employee directors, during fiscal 2022, fiscal 2021 and 2020, 781, 1,435 and 1,147 restricted stock units, respectively, at fair
values of $88.27, $71.53 and $58.05, respectively, under the deferred compensation plan for non-employee directors.
Employees
In fiscal 2022, the Company granted to management and other key employees 229,600 restricted stock units that vest ratably over four years from the date of
grant, at the fair value of $91.81 per restricted stock unit.
In fiscal 2021, the Company granted to management and other key employees 283,101 restricted stock units that vest ratably over four years from the date of
grant at the fair value of $75.39 per restricted stock unit.
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 a fair value of $57.75 per restricted stock unit, 62,512 PSUs at the fair value of $50.69 and 51,063 TSRs at a weighted average fair value of $62.05 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, 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, the Company used a Monte Carlo Simulation with the following assumptions:
Risk-free interest rate
Dividend yield
Expected life (years)
Volatility
2020
1.50 %
— %
3
34.39 %
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 2022 is presented below:
Restricted Stock Units (RSU)
Market condition-based Share Units
(TSR)
Performance condition-based Share
Units (PSU)
Non-vested awards as of March 31, 2021
Granted
Stock dividend
Performance factor
Vested
Forfeitures
Non-vested awards as of March 31, 2022
Number of
TSR
125,960 $
—
670
1,116
(46,295)
(6,468)
74,983 $
Weighted-
Average
Grant Date
Fair Value
Number of
PSU
Weighted-
Average
Grant Date
83.48
—
71.04
—
104.89
70.77
71.25
98,346 $
—
714
—
(670)
(21,517)
76,873 $
57.55
—
56.04
—
68.48
64.25
55.56
Number of
RSU
880,284 $
254,436
7,639
—
(228,765)
(35,829)
877,765 $
Weighted-
Average
Grant Date
Fair Value
60.07
88.27
64.22
—
68.34
73.40
65.48
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The Company recognized stock-based compensation expense relating to restricted stock units, TSRs and PSUs of $18,054, with a related tax benefit of $3,072
for fiscal 2022, $16,303, with a related tax benefit of $2,121 for fiscal 2021 and $17,784, with a related tax benefit of $2,544 for fiscal 2020.
All Award Plans
As of March 31, 2022, unrecognized compensation expense associated with the non-vested equity awards outstanding was $48,867 and is expected to be
recognized over a weighted-average period of 24 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:
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
$
$
$
Fiscal year ended March 31,
2022
2021
2020
143,911 $
143,374 $
137,116
42,106,337
42,548,449
42,411,834
677,036
42,783,373
675,954
43,224,403
3.42 $
3.36 $
3.37 $
3.32 $
484,941
42,896,775
3.23
3.20
951,057
281,483
698,546
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. As of March 31, 2022 and March 31, 2021, the Company did not have a reserve balance related to these matters.
The precise scope, timing and time period at issue, as well as the final outcome of the investigations or customer claims, remain uncertain. Accordingly, the
Company’s estimate may change from time to time, and actual losses could vary.
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Environmental Issues
As a result of its operations, the Company is subject to various federal, state and local, as well as international environmental laws and regulations and is
exposed to the costs and risks of registering, handling, processing, storing, transporting, and disposing of hazardous substances, especially lead and acid. The
Company’s operations are also subject to federal, state, local and international occupational safety and health regulations, including laws and regulations
relating to exposure to lead in the workplace. The Company believes that it has adequate reserves to satisfy its environmental liabilities.
Collective Bargaining
At March 31, 2022, the Company had approximately 11,400 employees. Of these employees, approximately 26% were covered by collective bargaining
agreements. Employees covered by collective bargaining agreements that expire in the next twelve months were approximately 7% of the total workforce. The
average term of these agreements is 2 years, with the longest term being 3.5 years. The Company considers its employee relations to be good and did not
experience any significant labor unrest or disruption of production during fiscal 2022.
Lead, Foreign Currency Forward Contracts and Swaps
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. The Company also entered into cross currency fixed interest rate swap agreements to hedge its
net investments in foreign operations against future volatility in the exchange rates between U.S. Dollars and Euros and these agreements mature on December
15, 2027. Please refer to Note 13 - Derivative Financial Instruments for more details.
Other
The Company has various purchase and capital commitments 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
Fiscal 2022
The Company had committed to various restructuring plans aimed at improving operational efficiencies across its lines of business. A substantial portion of
these plans are complete, with an estimated $2,135 remaining to be incurred by the end of fiscal 2023, mainly related to plans started in fiscal 2021 and fiscal
2022. Restructuring and exit charges for the reportable segments are as follows:
During fiscal 2022, the Company announced and completed restructuring programs in the Energy Systems segment to improve operational efficiencies. The
charges related to severance payments and amounted to $1,284 to approximately 10 employees in the Energy Systems’ segment.
During fiscal 2021, the Company announced restructuring programs in the Energy Systems segment relating to its recent acquisitions of Alpha and NorthStar,
as part of its targeted synergy plans. The Company also announced a restructuring program to improve global operational efficiencies in its Motive Power
segment. The charges, in both segments were primarily cash charges relating to severance payments and amounted to $3,187 to approximately 47 employees in
the Energy Systems segment and $4,012 to approximately 32 employees in the Motive Power segment. In addition there was a $169 charge related to the
Specialty segment.
During fiscal 2020, the Company announced restructuring programs to improve efficiencies across all its lines of business. The charges were primarily
severance payments to approximately 160 employees. The Company completed these actions in fiscal 2021.
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Restructuring and exit charges for fiscal 2022, 2021 and 2020 by reportable segments are as follows:
Energy Systems
Fiscal year ended March 31, 2022
Specialty
Motive Power
2,005 $
708
2,713 $
2,348 $
14,711
17,059 $
75 $
(1,091)
(1,016) $
Total
4,428
14,328
18,756
Energy Systems
Fiscal year ended March 31, 2021
Specialty
Motive Power
3,187 $
—
3,187 $
4,012 $
32,786
36,798 $
169 $
220
389 $
Total
7,368
33,006
40,374
Energy Systems
Fiscal year ended March 31, 2020
Specialty
Motive Power
6,808 $
526
7,334 $
1,860 $
5,541
7,401 $
2,318 $
3,713
6,031 $
Total
10,986
9,780
20,766
$
$
$
$
$
$
Employee
Severance
Other
Total
$
$
$
$
2,356 $
10,395
(9,179)
(247)
3,325 $
6,537
(7,550)
283
2,595 $
4,428
(6,013)
20
1,030 $
596 $
402
(995)
(3)
— $
831
(831)
—
— $
—
—
—
— $
2,952
10,797
(10,174)
(250)
3,325
7,368
(8,381)
283
2,595
4,428
(6,013)
20
1,030
Restructuring charges
Exit charges
Restructuring and other exit charges
Restructuring charges
Exit charges
Restructuring and other exit charges
Restructuring charges
Exit charges
Restructuring and other exit charges
A roll-forward of the restructuring reserve is as follows:
Balance at March 31, 2019
Accrued
Costs incurred
Foreign currency impact and other
Balance at March 31, 2020
Accrued
Costs incurred
Foreign currency impact and other
Balance at March 31, 2021
Accrued
Costs incurred
Foreign currency impact and other
Balance at March 31, 2022
Exit Charges
Fiscal 2022 Program
Russia
In February 2022, as a result of the Russia-Ukraine conflict, economic sanctions were imposed on Russian individuals and entities, including financial
institutions, by countries around the world, including the U.S. and the European Union. On March 3, 2022, the Company announced that it was indefinitely
suspending its operations in Russia in order to comply with the sanctions. As a result of this decision, the Company wrote off net assets of $3,999 relating to its
Russian subsidiary. The Company also incurred cash charges of $1,284 relating to severance and exiting lease obligations.
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Zamudio, Spain
During fiscal 2022, the Company closed a minor assembling plant in Zamudio, Spain and sold the same for $1,779. A net gain of $740 was recorded as a credit
to exit charges in the Consolidated Statements of Income.
Fiscal 2021 Programs
Hagen, Germany
In fiscal 2021, the Company's Board of Directors approved a plan to substantially close all of its facility in Hagen, Germany, which produces flooded motive
power batteries for forklifts. Management determined that future demand for the motive power batteries produced at this facility was not sufficient, given the
conversion from flooded to maintenance free batteries by customers, the existing number of competitors in the market, as well as the near term decline in
demand and increased
uncertainty from the pandemic. The Company plans to retain the facility with limited sales, service and administrative functions along with related personnel for
the foreseeable future.
The Company currently estimates that the total charges for these actions will amount to approximately $60,000, the majority of which has been recorded as of
March 31, 2022. Cash charges for employee severance related payments, cleanup related to the facility, contractual releases and legal expenses are estimated to
be $40,000 and non-cash charges from inventory and equipment write-offs are estimated to be $20,000. These actions resulted in the reduction of approximately
200 employees.
During fiscal 2021, the Company recorded cash charges relating to severance of $23,331 and non-cash charges of $7,946 primarily relating to fixed asset write-
offs.
During fiscal 2022, the Company recorded cash charges primarily relating to severance of $8,069 and non-cash charges of $3,522 primarily relating to fixed
asset write-offs. The Company also recorded a non-cash write off relating to inventories of $960, which was reported in cost of goods sold.
Vijayawada, India
During fiscal 2021, the Company committed to a plan to close its facility in Vijayawada, India to align with its strategic vision for the new line of business
structure and footprint and recorded exit charges of $1,509, primarily relating to asset write-offs. In fiscal 2022, the Company reclassified property, plant and
equipment with a carrying value of $4,573 to assets held for sale on the Consolidated Balance Sheet and recognized an impairment loss of $2,973 under the
caption Loss on assets held for sale on its consolidated statement of income, by writing down the carrying value of these assets to their estimated fair value of
$1,600, based on their expected proceeds, less costs to sell. The Company also recorded a non-cash write off relating to inventories of $820, which was reported
in cost of goods sold.
Targovishte, Bulgaria
During fiscal 2019, the Company committed to a plan to close its facility in Targovishte, Bulgaria, which produced diesel-electric submarine batteries.
Management determined that the future demand for batteries of diesel-electric submarines was not sufficient given the number of competitors in the market. Of
the estimated total charges of $26,000 for this plan, the Company had recorded charges amounting to $20,242 in fiscal 2019, relating to severance and inventory
and fixed asset write-offs and an additional $5,123 relating to cash and non-cash charges during fiscal 2020. During fiscal 2021, in keeping with its strategy of
exiting the manufacture of batteries for diesel-electric submarines, the Company completed further actions which resulted in $220 relating to cash and non-cash
charges. During fiscal 2022, the Company sold this facility for $1,489. A net gain of $1,208 was recorded as a credit to exit charges in the Consolidated
Statements of Income.
Fiscal 2020 Programs
During fiscal 2020, in keeping with its strategy of exiting the manufacture of batteries for diesel-electric submarines, the Company also sold certain licenses and
assets for $2,031 and recorded a net gain of $892, which were reported as other exit charges in the Specialty segment.
During fiscal 2020, the Company also wrote off $5,441 of assets at its Kentucky and Tennessee Motive Power plants, as a result of its strategic product mix shift
from traditional flooded batteries to maintenance free lead acid and lithium batteries.
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Richmond, Kentucky Plant Fire
During fiscal 2021, the Company settled its claims with its insurance carrier relating to the fire that broke out in the battery formation area of the
Company's Richmond, Kentucky motive power production facility in fiscal 2020. The total claims, for both property and business interruption of $46,117 were
received through March 31, 2021.
The final settlement of insurance recoveries and finalization of costs related to the replacement of property, plant and equipment, resulted in a net gain of
$4,397, which was recorded as a reduction to operating expenses in the Consolidated Statements of Income.
The details of charges and recoveries for fiscal 2021 and fiscal 2020 are as follows:
In fiscal 2020, the Company recorded as a receivable, $17,037, consisting of write-offs for damages caused to its fixed assets and inventories, as well as for
cleanup, asset replacement and other ancillary activities directly associated with the fire and received $12,000 related to its initial claims.
During fiscal 2021, the Company recorded an additional $16,580 as a receivable for cleanup and received $21,617 from the insurance carrier.
In addition to the property damage claim, the Company received $12,500 in business interruption claims, of which $5,000 was recorded in fiscal 2020 and
$7,500 in fiscal 2021, and was credited to cost of goods sold, in the respective periods.
21. Warranty
The Company provides for estimated product warranty expenses when 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 (gains) losses
Non-service components of pension expense
Other
Total
Fiscal year ended March 31,
2022
2021
2020
58,962 $
17,645
(20,648)
—
(981)
54,978 $
63,525 $
27,645
(34,346)
—
2,138
58,962 $
54,568
27,622
(25,778)
6,995
118
63,525
Fiscal year ended March 31,
2022
2021
2020
(7,169) $
430
1,274
(5,465) $
6,696 $
1,279
(171)
7,804 $
264
615
(1,294)
(415)
$
$
$
$
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23. Business Segments
Effective April 1, 2020, the Company's chief operating decision maker, or CODM (the Company's Chief Executive Officer), changed the manner in which he
reviews financial information for purposes of assessing business performance and allocating resources, by focusing on the lines of business on a global basis,
rather than on geographic basis. As a result of this change, the Company re-evaluated the identification of its operating segments and reportable segments and
identified the following as its three operating segments, based on lines of business:
•
Energy Systems - uninterruptible power systems, or “UPS” applications for computer and computer-controlled systems, as well as
telecommunications systems, switchgear and electrical control systems used in industrial facilities and electric utilities, large-scale energy storage and
energy pipelines. Energy Systems also includes highly integrated power solutions and services to broadband, telecom, renewable and industrial
customers, as well as thermally managed cabinets and enclosures for electronic equipment and batteries.
• Motive Power - power for electric industrial forklifts used in manufacturing, warehousing and other material handling applications, as well as mining
•
equipment, diesel locomotive starting and other rail equipment; and
Specialty - premium starting, lighting and ignition applications in transportation, energy solutions for satellites, military aircraft, submarines, ships and
other tactical vehicles, as well as medical and security systems.
The operating segments also represent the Company's reportable segments under ASC 280, Segment Reporting. All prior comparative periods presented have
been recast to conform to these changes.
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Summarized financial information related to the Company’s reportable segments at March 31, 2022, 2021 and 2020 and for each of the fiscal years then ended
is shown below.
Net sales by segment to unaffiliated customers
Energy Systems
Motive Power
Specialty
Total net sales
Operating earnings by segment
Energy Systems
Motive Power
Specialty
Inventory step up to fair value relating to acquisitions and exit activities - Energy
Systems
Inventory adjustment relating to exit activities - Motive
Inventory step up to fair value relating to acquisitions - Specialty
Restructuring and other exit charges - Energy Systems
Restructuring and other exit charges - Motive Power
Restructuring and other exit charges - Specialty
Impairment of goodwill
Impairment of indefinite-lived intangibles - Energy Systems
Impairment of indefinite-lived intangibles - Motive Power
Impairment of indefinite-lived intangibles - Specialty
Loss on assets held for sale - Motive Power
Fixed asset write-off relating to exit activities and other - Energy Systems
Fixed asset write-off relating to exit activities and other - Motive Power
Fixed asset write-off relating to exit activities - Specialty
Total operating earnings
(2)
(3)
Capital Expenditures
Energy Systems
Motive Power
Specialty
Total
Depreciation and Amortization
Energy Systems
Motive Power
Specialty
Total
Fiscal year ended March 31,
2022
2021
2020
1,536,673 $
1,361,254
459,392
3,357,319 $
1,380,278 $
1,163,710
433,944
2,977,932 $
1,357,475
1,348,193
382,200
3,087,868
18,531 $
169,740
43,491
(186)
(2,418)
—
(2,713)
(17,059)
1,016
—
(501)
(677)
—
(2,973)
—
—
—
206,251 $
33,614 $
13,887
26,540
74,041 $
54,580 $
24,918
16,380
95,878 $
67,060 $
143,541
46,148
—
—
—
(3,187)
(36,798)
(389)
—
—
—
—
—
—
—
—
216,375 $
34,826 $
14,154
21,040
70,020 $
57,864 $
21,706
14,512
94,082 $
67,809
146,814
42,454
(304)
—
(1,550)
(7,284)
(2,021)
(6,020)
(39,713)
(1,297)
(2,861)
(391)
—
(50)
(5,380)
(11)
190,195
40,768
22,285
38,372
101,425
53,793
20,900
12,651
87,344
$
$
$
$
$
$
$
$
(1) Reportable segments do not record inter-segment revenues and accordingly there are none to report.
(2) The Company does not allocate interest expense or other (income) expense, net, to the reportable segments.
(3) The impairment of goodwill in fiscal 2020 related to the Company's legacy reportable segments as discussed in Note 7.
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The Company's property, plant and equipment by reportable segments as of March 31, 2022 and 2021 are as follows:
Property, plant and equipment, net
Energy Systems
Motive Power
Specialty
Total
March 31, 2022
March 31, 2021
$
$
216,853 $
145,431
140,980
503,264 $
224,513
152,468
120,075
497,056
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 60.7%, 59.8% and 58.1% for fiscal years ended March 31, 2022, 2021 and 2020, respectively.
Property, plant and equipment, net, attributable to the United States as of March 31, 2022 and 2021, were $320,208 and $291,578, 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. Subsequent Events
On May 25, 2022, the Board of Directors approved a quarterly cash dividend of $0.175 per share of common stock to be paid on June 30, 2022, to stockholders
of record as of June 16, 2022.
Between April 1, 2022 through May 25, 2022, the Company repurchased 318,789 shares for approximately $20,000.
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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.
(b) Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of the fiscal year to which this report relates that have materially
affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The report called for by Item 308(a) of Regulation S-K is included herein as “Management Report on Internal Control Over Financial Reporting.”
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. With the participation of the Chief Executive
Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework and criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework).
Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of March 31, 2022.
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/ Andrea J. Funk
Andrea J. Funk
Chief Financial Officer
ITEM 9B.
OTHER INFORMATION
Not applicable.
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
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 2022 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)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of
securities
remaining available
for future issuance
under equity
compensation plans
(excluding
securities reflected
in column (a))
(c)
(1)
2,036,135
—
2,036,135
$
$
(2)
78.77
—
78.77
2,822,479
—
2,822,479
(1) Assumes a 200% payout on market and performance condition-based awards.
(2) Awards of restricted stock units, market and performance condition-based awards and deferred stock units held in both the EnerSys Voluntary Deferred
Compensation Plan for Non-Employee Directors and the EnerSys Voluntary Deferred Compensation Plan for Executives were not included in
calculating the weighted-average exercise price as they will be settled in shares of common stock for no consideration.
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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ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(a) The following documents are filed as part of this Report:
(1) Consolidated Financial Statements
See Index to Consolidated Financial Statements.
All other schedules are omitted because they are not applicable or the required information is contained in the consolidated financial statements or notes thereto.
(b) The following documents are filed herewith as exhibits:
Exhibit Number
Description of Exhibit
3.1
3.2
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
10.5
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).
Fourth 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 November 10, 2021).
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 4.1 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 4.2 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).
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).
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Exhibit Number
10.6
Description of Exhibit
EnerSys Voluntary Deferred Compensation Plan for Executives as amended August 5, 2010, and May 26, 2011 (incorporated by referen
to Exhibit 10.23 to EnerSys’ Annual Report on Form 10-K (File No. 001-32253) filed on May 31, 2011).
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
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 Deferred Stock Unit Agreement – Non-Employee Directors – 2010 Equity Incentive Plan (incorporated by reference to Exhibi
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 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 - 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).
Form of letter agreement, dated June 7, 2017, between EnerSys and David M. Shaffer (incorporated herein by reference to Exhibit 10.1
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
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).
Second Amendment to Credit Agreement, dated as of July 15, 2021, among EnerSys, certain of its subsidiaries party thereto, Bank of
America, N.A., as administrative agent, swing line lender and l/c issuer, and the other lenders party thereto (incorporated by reference t
Exhibit 10.1 of EnerSys’ Current Report on Form 8-K (File No. 001-32253) filed with the SEC on July 15, 2021).
Form of Severance Letter Agreement, dated April 1, 2019, between EnerSys and Shawn M. O’Connell (incorporated by reference to
Exhibit 10.28 of EnerSys’ Annual Report on Form 10-K for the fiscal year ended March 31, 2020 (File No. 001-32253) filed with the S
on June 1, 2020).
Employment Agreement, dated as of October 6, 2008, between Alpha Technologies, Inc. and Andrew Zogby (incorporated by reference
Exhibit 10.29 of EnerSys’ Annual Report on Form 10-K for the fiscal year ended March 31, 2020 (File No. 001-32253) filed with the S
on June 1, 2020).
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Exhibit Number
10.21
Description of Exhibit
Employment Agreement, dated as of September 13, 2012, between Alpha Technologies, Inc. and Andrew Zogby (incorporated by
reference to Exhibit 10.30 of EnerSys’ Annual Report on Form 10-K for the fiscal year ended March 31, 2020 (File No. 001-32253) fil
with the SEC on June 1, 2020).
10.22
10.23
10.24
10.25
10.26
10.27
10.28
Employment Agreement Extension, effective June 27, 2017, between Alpha Technologies, Inc. and Andrew Zogby (incorporated by
reference to Exhibit 10.31 of EnerSys’ Annual Report on Form 10-K for the fiscal year ended March 31, 2020 (File No. 001-32253) fil
with the SEC on June 1, 2020).
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 subseq
extensions (incorporated by reference to Exhibit 10.32 of EnerSys’ Annual Report on Form 10-K for the fiscal year ended March 31, 20
(File No. 001-32253) filed with the SEC on June 1, 2020).
Form of Severance Letter Agreement, dated April 1, 2021, between EnerSys and Andrea J. Funk (incorporated by reference to Exhibit
10.1 of EnerSys’ Current Report on Form 8-K (File No. 001-32253) filed with the SEC on April 1, 2022).
Amended and Restated 2017 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.32 of EnerSys’ Annual Report on Fo
10-K for the fiscal year ended March 31, 2021 (File No. 001-32253) filed on May 26, 2021).
Form of Deferred Stock Unit Agreement – Non-Employee Directors – Amended and Restated 2017 Equity Incentive Plan (incorporated
herein by reference to Exhibit 10.32 of EnerSys’ Annual Report on Form 10-K for the fiscal year ended March 31, 2021 (File No. 001-
32253) filed on May 26, 2021).
Form of Stock Option Agreement – Employees – Amended and Restated 2017 Equity Incentive Plan (incorporated herein by reference
Exhibit 10.32 of EnerSys’ Annual Report on Form 10-K for the fiscal year ended March 31, 2021 (File No. 001-32253) filed on May 2
2021).
Form of Restricted Stock Unit Agreement - Employees – Amended and Restated 2017 Equity Incentive Plan (incorporated herein by
reference to Exhibit 10.32 of EnerSys’ Annual Report on Form 10-K for the fiscal year ended March 31, 2021 (File No. 001-32253) fil
on May 26, 2021).
10.29
Form of Retirement (filed herewith).
21.1
23.1
31.1
31.2
32.1
101.INS
101.SCH
101.CAL
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 Sec
906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
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Table of Contents
Exhibit Number
101.DEF
Description of Exhibit
XBRL Taxonomy Extension Definition Document
101.LAB
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101.PRE
XBRL Taxonomy Extension Presentation Document
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Table of Contents
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.
SIGNATURES
May 25, 2022
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 Andrea J. Funk 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
Date
Title
/s/ DAVID M. SHAFFER
David M. Shaffer
/s/ ANDREA J. FUNK
Andrea J. Funk
/s/ KERRY M. KANE
Kerry M. Kane
/s/ CAROLINE CHAN
Caroline Chan
/s/ HWAN-YOON F. CHUNG
Hwan-yoon F. Chung
/s/ STEVEN M. FLUDDER
Steven M. Fludder
/s/ HOWARD I. HOFFEN
Howard I. Hoffen
/s/ ARTHUR T. KATSAROS
Arthur T. Katsaros
/s/ GENERAL ROBERT MAGNUS, USMC (RETIRED)
General Robert Magnus, USMC (Retired)
/s/ PAUL J. TUFANO
Paul J. Tufano
/s/ RONALD P. VARGO
Ronald P. Vargo
Chief Executive Officer
Chief Financial Officer
Sr. Vice President and Corporate Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
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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 40,652,607 shares were issued and
outstanding as of May 20, 2022 and 1,000,000 shares of undesignated preferred stock, par value $0.01 per share, none of which was outstanding as of May 20,
2022.
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.
This Retirement and Continued Vesting Agreement (“Agreement”) is made by and between ENERSYS, a Delaware Corporation (the
“Company”) and _________, an adult individual with an address at ____________ (“Employee”).
RETIREMENT AND CONTINUED VESTING AGREEMENT
BACKGROUND
WHEREAS, Employee has heretofore been employed by the Company through one of its subsidiaries as its ____________.
WHEREAS, Employee has voluntarily resigned Employee’s employment with the Company effective as of ________ (“Separation Date”)
and has requested that the Company agree to allow certain equity-based incentive awards (which would have otherwise been automatically
cancelled and/or forfeited upon the Separation Date) to continue to vest and/or receive the same treatment absent such separation following the
Separation Date in consideration of, and in exchange for, Employee’s execution and delivery of this Agreement.
WHEREAS, the Company accepts Employee’s resignation of employment agrees to allow certain of the Employee’s equity-based
incentive awards to continue to vest in accordance with their respective terms following the Separation Date, subject to, and conditioned upon,
Employee’s execution and delivery of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter contained and the Company’s agreement to allow the
aforementioned equity-based incentive awards to continue to vest notwithstanding Employee’s voluntary termination of employment, and of other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, each intending to be legally
bound, hereby agree as follows:
1.
Background; Effectiveness of Agreement.
1.1
Incorporation of Background; Certain Defined Terms. The above recitals and defined terms set forth therein are hereby
incorporated by reference and made a part of this Agreement as if set forth in their entirety.
1.2
Effective Date. This Agreement shall become effective as of the date both parties sign it (the “Effective Date”).
2.
Existing Equity-Based Awards; Other Payments.
1.1
Continued Conditional Vesting of Existing Equity-Based Awards. In consideration of the Protective Covenants set forth in
Section 3 and the release set forth in Section 4, the Company agrees that, notwithstanding the terms and conditions of (a) the Restricted
Stock/ Performance Share Unit/Stock Option Agreements (as such term is hereinafter defined in Section 2.2) or (b) the EnerSys 2017
Equity Incentive Plan, as amended from time to time (the “2017 Equity Incentive Plan”) or the 2010 Equity Incentive Plan (as such terms
are hereinafter defined in Section 2.2) (collectively, the “Equity Incentive Plans”), Employee’s retirement will not affect those restricted
stock units, market share units, performance share units, or nonqualified stock options set forth in clauses (a) through (i) of Section 2.2
that were awarded to Employee prior to the Effective Date (collectively, the “Existing Equity-Based Awards”). Therefore, the Existing
Equity-Based Awards will, subject to Section 3.4, continue to vest (and also be subject to expiration, cancellation and forfeiture) after the
Effective Date in accordance with the terms of the Restricted Stock/Market Share Unit/Performance Share Unit/Stock Option
Agreements. The number of restricted stock units, market share units, performance share units and stock options that remain
outstanding and unvested under the Restricted Stock/Market Share Unit/Performance Share Unit/Stock Option Agreements as of the
Effective Date and the years during which such units would vest (absent an intervening expiration, cancellation or forfeiture) are set forth
on Schedule 1 attached hereto. The period commencing on the Effective Date and ending the date upon which all of the Existing Equity-
Based Awards have either vested or been forfeited will be referred to herein at the “Vesting Period”.
1
1.2
Restricted Stock/Performance Share Unit/Stock Option Agreements; 2017 and 2010 Equity Incentive Plans. As used
herein, the term “Restricted Stock/Performance Share Unit/Stock Option Agreements” means, collectively, the following agreements
between the Company and Employee: (a) , together with all of the terms and conditions of the EnerSys 2010
Equity Incentive Plan, as amended (the “2010 Equity Incentive Plan”) and the EnerSys 2017 Equity Incentive Plan, as amended (the
“2017 Equity Incentive Plan”) (collectively, the “Equity Incentive Plans”) pursuant to which such Restricted Stock/Performance Share
Unit/Stock Option Agreements were executed.
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