10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 27, 2015
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¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-32253
EnerSys
(Exact name of registrant as specified in its charter)
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Delaware | | 23-3058564 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
2366 Bernville Road
Reading, Pennsylvania 19605
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: 610-208-1991
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý YES ¨ NO.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.
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Large accelerated filer | | ý | | Accelerated filer | | ¨ |
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Non-accelerated filer | | ¨ (Do not check if a smaller reporting company) | | Smaller reporting company | | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). ¨ YES ý NO.
Common Stock outstanding at January 22, 2016: 43,434,816 shares
ENERSYS
INDEX – FORM 10-Q
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 4. | | |
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Item 6. | | |
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PART I – | FINANCIAL INFORMATION |
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ITEM 1. | FINANCIAL STATEMENTS |
ENERSYS
Consolidated Condensed Balance Sheets (Unaudited)
(In Thousands, Except Share and Per Share Data)
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| | | | | | | | |
| | December 27, 2015 | | March 31, 2015 |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 346,117 |
| | $ | 268,921 |
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Accounts receivable, net of allowance for doubtful accounts: December 27, 2015 - $10,123; March 31, 2015 - $7,562 | | 463,220 |
| | 518,165 |
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Inventories, net | | 341,170 |
| | 337,011 |
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Deferred taxes | | 30,558 |
| | 31,749 |
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Prepaid and other current assets | | 134,372 |
| | 77,572 |
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Total current assets | | 1,315,437 |
| | 1,233,418 |
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Property, plant, and equipment, net | | 357,496 |
| | 356,854 |
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Goodwill | | 382,949 |
| | 369,730 |
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Other intangible assets, net | | 162,623 |
| | 158,160 |
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Other assets | | 45,473 |
| | 42,173 |
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Total assets | | $ | 2,263,978 |
| | $ | 2,160,335 |
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Liabilities and Equity | | | | |
Current liabilities: | | | | |
Short-term debt | | $ | 23,503 |
| | $ | 19,715 |
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Accounts payable | | 214,273 |
| | 218,574 |
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Accrued expenses | | 200,787 |
| | 195,082 |
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Total current liabilities | | 438,563 |
| | 433,371 |
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Long-term debt, net of unamortized debt issuance costs | | 626,669 |
| | 493,224 |
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Deferred taxes | | 70,428 |
| | 99,398 |
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Other liabilities | | 81,081 |
| | 81,616 |
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Total liabilities | | 1,216,741 |
| | 1,107,609 |
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Commitments and contingencies | |
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Redeemable noncontrolling interests | | 4,824 |
| | 6,956 |
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Redeemable equity component of Convertible Notes | | — |
| | 1,330 |
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Equity: | | | | |
Preferred Stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding at December 27, 2015 and at March 31, 2015 | | — |
| | — |
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Common Stock, $0.01 par value per share, 135,000,000 shares authorized; 54,112,776 shares issued and 44,396,260 shares outstanding at December 27, 2015; 53,664,639 shares issued and 44,068,588 shares outstanding at March 31, 2015 | | 541 |
| | 537 |
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Additional paid-in capital | | 435,286 |
| | 525,967 |
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Treasury stock, at cost, 9,716,516 shares held as of December 27, 2015; 9,596,051 shares held as of March 31, 2015 | | (370,293 | ) | | (376,005 | ) |
Retained earnings | | 1,100,396 |
| | 997,376 |
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Accumulated other comprehensive loss | | (128,790 | ) | | (108,975 | ) |
Total EnerSys stockholders’ equity | | 1,037,140 |
| | 1,038,900 |
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Nonredeemable noncontrolling interests | | 5,273 |
| | 5,540 |
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Total equity | | 1,042,413 |
| | 1,044,440 |
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Total liabilities and equity | | $ | 2,263,978 |
| | $ | 2,160,335 |
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See accompanying notes.
ENERSYS
Consolidated Condensed Statements of Income (Unaudited)
(In Thousands, Except Share and Per Share Data)
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| | | | | | | | |
| | Quarter ended |
| | December 27, 2015 | | December 28, 2014 |
Net sales | | $ | 573,573 |
| | $ | 611,578 |
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Cost of goods sold | | 427,691 |
| | 454,313 |
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Gross profit | | 145,882 |
| | 157,265 |
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Operating expenses | | 87,217 |
| | 86,145 |
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Restructuring and other exit charges | | 3,204 |
| | 2,437 |
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Operating earnings | | 55,461 |
| | 68,683 |
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Interest expense | | 5,329 |
| | 4,947 |
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Other (income) expense, net | | 1,142 |
| | (866 | ) |
Earnings before income taxes | | 48,990 |
| | 64,602 |
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Income tax expense | | 10,776 |
| | 15,271 |
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Net earnings | | 38,214 |
| | 49,331 |
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Net earnings (losses) attributable to noncontrolling interests | | (264 | ) | | 79 |
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Net earnings attributable to EnerSys stockholders | | $ | 38,478 |
| | $ | 49,252 |
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Net earnings per common share attributable to EnerSys stockholders: | | | | |
Basic | | $ | 0.87 |
| | $ | 1.09 |
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Diluted | | $ | 0.86 |
| | $ | 1.04 |
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Dividends per common share | | $ | 0.175 |
| | $ | 0.175 |
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Weighted-average number of common shares outstanding: | | | | |
Basic | | 44,394,925 |
| | 45,188,942 |
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Diluted | | 44,976,204 |
| | 47,368,173 |
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See accompanying notes.
ENERSYS
Consolidated Condensed Statements of Income (Unaudited)
(In Thousands, Except Share and Per Share Data)
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| | Nine months ended |
| | December 27, 2015 | | December 28, 2014 |
Net sales | | $ | 1,704,775 |
| | $ | 1,875,615 |
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Cost of goods sold | | 1,253,539 |
| | 1,393,233 |
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Gross profit | | 451,236 |
| | 482,382 |
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Operating expenses | | 261,286 |
| | 272,114 |
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Restructuring and other exit charges | | 7,051 |
| | 6,076 |
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Legal proceedings charge / (reversal of legal accrual, net of fees) | | 3,201 |
| | (16,233 | ) |
Gain on sale of facility | | (4,348 | ) | | — |
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Operating earnings | | 184,046 |
| | 220,425 |
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Interest expense | | 16,696 |
| | 14,192 |
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Other (income) expense, net | | 2,573 |
| | (3,244 | ) |
Earnings before income taxes | | 164,777 |
| | 209,477 |
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Income tax expense | | 38,861 |
| | 54,481 |
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Net earnings | | 125,916 |
| | 154,996 |
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Net earnings (losses) attributable to noncontrolling interests | | (974 | ) | | 259 |
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Net earnings attributable to EnerSys stockholders | | $ | 126,890 |
| | $ | 154,737 |
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Net earnings per common share attributable to EnerSys stockholders: | | | | |
Basic | | $ | 2.85 |
| | $ | 3.36 |
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Diluted | | $ | 2.76 |
| | $ | 3.19 |
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Dividends per common share | | $ | 0.525 |
| | $ | 0.525 |
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Weighted-average number of common shares outstanding: | | | | |
Basic | | 44,524,289 |
| | 46,073,961 |
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Diluted | | 45,912,659 |
| | 48,543,896 |
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See accompanying notes.
ENERSYS
Consolidated Condensed Statements of Comprehensive Income (Unaudited)
(In Thousands)
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| | Quarter ended | | Nine months ended |
| | December 27, 2015 | | December 28, 2014 | | December 27, 2015 | | December 28, 2014 |
Net earnings | | $ | 38,214 |
| | $ | 49,331 |
| | $ | 125,916 |
| | $ | 154,996 |
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Other comprehensive income: | | | | | | | | |
Net unrealized gain (loss) on derivative instruments, net of tax | | 4,021 |
| | (5,268 | ) | | (1,416 | ) | | (2,701 | ) |
Pension funded status adjustment, net of tax | | 292 |
| | 155 |
| | 930 |
| | 521 |
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Foreign currency translation adjustment | | (13,099 | ) | | (42,925 | ) | | (20,754 | ) | | (95,940 | ) |
Total other comprehensive loss, net of tax | | (8,786 | ) | | (48,038 | ) | | (21,240 | ) | | (98,120 | ) |
Total comprehensive income | | 29,428 |
| | 1,293 |
| | 104,676 |
| | 56,876 |
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Comprehensive loss attributable to noncontrolling interests | | (823 | ) | | (286 | ) | | (2,399 | ) | | (735 | ) |
Comprehensive income attributable to EnerSys stockholders | | $ | 30,251 |
| | $ | 1,579 |
| | $ | 107,075 |
| | $ | 57,611 |
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See accompanying notes.
ENERSYS
Consolidated Condensed Statements of Cash Flows (Unaudited)
(In Thousands)
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| | Nine months ended |
| | December 27, 2015 | | December 28, 2014 |
Cash flows from operating activities | | | | |
Net earnings | | $ | 125,916 |
| | $ | 154,996 |
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Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 41,915 |
| | 42,124 |
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Write-off of assets relating to restructuring | | 398 |
| | 644 |
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Derivatives not designated in hedging relationships: | | | | |
Net losses (gains) | | 119 |
| | (132 | ) |
Cash proceeds | | 386 |
| | 461 |
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Provision for doubtful accounts | | 3,169 |
| | 609 |
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Deferred income taxes | | (3,248 | ) | | 21,951 |
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Non-cash interest expense | | 2,447 |
| | 7,078 |
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Stock-based compensation | | 14,883 |
| | 21,339 |
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Gain on sale of facility | | (4,348 | ) | | — |
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Gain on disposal of property, plant, and equipment | | (8 | ) | | (79 | ) |
Reversal of legal accrual, net of fees | | (799 | ) | | (16,233 | ) |
Gain on disposition of equity interest in Altergy | | — |
| | (2,000 | ) |
Changes in assets and liabilities: | | | | |
Accounts receivable | | 53,969 |
| | 23,556 |
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Inventories | | (5,705 | ) | | (52,050 | ) |
Prepaid and other current assets | | 1,646 |
| | (5,857 | ) |
Other assets | | (1,201 | ) | | (168 | ) |
Accounts payable | | (1,244 | ) | | (9,056 | ) |
Accrued expenses | | 2,498 |
| | (65,547 | ) |
Other liabilities | | 1,922 |
| | 11,277 |
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Net cash provided by operating activities | | 232,715 |
| | 132,913 |
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Cash flows from investing activities | | | | |
Capital expenditures | | (45,695 | ) | | (47,184 | ) |
Purchase of businesses | | (39,079 | ) | | — |
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Proceeds from sale of facility | | 9,179 |
| | — |
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Proceeds from disposal of property, plant, and equipment | | 866 |
| | 177 |
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Proceeds from disposition of equity interest in Altergy | | — |
| | 2,000 |
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Net cash used in investing activities | | (74,729 | ) | | (45,007 | ) |
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Cash flows from financing activities | | | | |
Net increase (decrease) in short-term debt | | 5,535 |
| | (17,824 | ) |
Proceeds from revolving credit borrowings | | 300,000 |
| | 337,700 |
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Repayments of revolving credit borrowings | | (288,000 | ) | | (282,700 | ) |
Proceeds from long-term debt | | 300,000 |
| | 150,000 |
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Repayments of Convertible Notes | | (172,266 | ) | | (234 | ) |
Repayments of long-term debt | | (3,750 | ) | | — |
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Debt issuance costs | | (4,986 | ) | | (1,076 | ) |
Taxes paid related to net share settlement of equity awards, net of option proceeds | | (15,209 | ) | | (12,656 | ) |
Excess tax benefits from exercise of stock options and vesting of equity awards | | 4,175 |
| | 3,341 |
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Purchase of treasury stock | | (120,637 | ) | | (176,028 | ) |
Prepayment of accelerated stock repurchase | | (60,000 | ) | | — |
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Dividends paid to stockholders | | (23,322 | ) | | (24,021 | ) |
Other | | (106 | ) | | (183 | ) |
Net cash used in financing activities | | (78,566 | ) | | (23,681 | ) |
Effect of exchange rate changes on cash and cash equivalents | | (2,224 | ) | | (24,345 | ) |
Net increase in cash and cash equivalents | | 77,196 |
| | 39,880 |
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Cash and cash equivalents at beginning of period | | 268,921 |
| | 240,103 |
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Cash and cash equivalents at end of period | | $ | 346,117 |
| | $ | 279,983 |
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See accompanying notes.
ENERSYS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
(In Thousands, Except Share and Per Share Data)
1. Basis of Presentation
The accompanying interim unaudited consolidated condensed financial statements of EnerSys (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required for complete financial statements. In the opinion of management, the unaudited consolidated condensed financial statements include all normal recurring adjustments considered necessary for the fair presentation of the financial position, results of operations, and cash flows for the interim periods presented. The financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s 2015 Annual Report on Form 10-K (SEC File No. 001-32253), which was filed on May 27, 2015 (the "2015 Annual Report").
The Company reports interim financial information for 13-week periods, except for the first quarter, which always begins on April 1, and the fourth quarter, which always ends on March 31. The four quarters in fiscal 2016 end on June 28, 2015, September 27, 2015, December 27, 2015, and March 31, 2016, respectively. The four quarters in fiscal 2015 ended on June 29, 2014, September 28, 2014, December 28, 2014, and March 31, 2015, respectively.
The consolidated condensed financial statements include the accounts of the Company and its wholly-owned subsidiaries and any partially owned subsidiaries that the Company has the ability to control. All intercompany transactions and balances have been eliminated in consolidation.
The Company also consolidates certain subsidiaries in which the noncontrolling interest party has within its control the right to require the Company to redeem all or a portion of its interest in the subsidiary. The redeemable noncontrolling interests are reported at their estimated redemption value, and the amount presented in temporary equity is not less than the initial amount reported in temporary equity. Any adjustment to the redemption value impacts retained earnings but does not impact net income or comprehensive income. Noncontrolling interests which are redeemable only upon future events, the occurrence of which is not currently probable, are recorded at carrying value.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) providing guidance on revenue from contracts with customers that will supersede most current revenue recognition guidance, including industry-specific guidance. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. In July 2015, the FASB voted to delay the effective date for interim and annual reporting periods beginning after December 15, 2017, with early adoption permissible one year earlier. The Company is currently evaluating the impact, if any, of the adoption of this newly issued guidance on its consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The update simplifies the presentation of debt issuance costs by requiring that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update and amortization of the costs will continue to be reported as interest expense. For public companies, this update is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, and is to be applied retrospectively. Early adoption of this revised guidance is permitted for financial statements that have not been previously issued. The Company has elected to early adopt the revised guidance for its current quarter ended December 27, 2015 and as such debt issuance costs are now presented as a direct reduction of long-term debt on the Company’s condensed consolidated balance sheets, as further reflected in Note 9.
In July 2015, the FASB issued ASU 2015-011, “Simplifying the Measurement of Inventory (Topic 330).” This update requires inventory to be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. This update will be effective for the Company for all annual and interim periods beginning after December 15, 2016. The amendments in this update should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. This update will not have a material impact on the Company's consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments (Topic 805).”
The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.
The amendments in this update are effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company is currently evaluating the impact, if any, of the adoption of this newly issued guidance on its consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes (Topic 740).”
This update simplifies the presentation of deferred income taxes, by requiring that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying
component of an entity be offset and presented as a single amount is not affected by the amendments in this Update. The amendments in this update are effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company is currently evaluating the impact, if any, of the adoption of this newly issued guidance on its consolidated financial statements.
2. Inventories
Inventories, net consist of:
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| | December 27, 2015 | | March 31, 2015 |
Raw materials | | $ | 91,308 |
| | $ | 82,954 |
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Work-in-process | | 104,371 |
| | 106,196 |
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Finished goods | | 145,491 |
| | 147,861 |
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Total | | $ | 341,170 |
| | $ | 337,011 |
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3. Fair Value of Financial Instruments
Recurring Fair Value Measurements
The following tables represent the financial assets and (liabilities) measured at fair value on a recurring basis as of December 27, 2015 and March 31, 2015 and the basis for that measurement:
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| | Total Fair Value Measurement December 27, 2015 | | Quoted Price in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Lead forward contracts | | $ | 289 |
| | $ | — |
| | $ | 289 |
| | $ | — |
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Foreign currency forward contracts | | 264 |
| | — |
| | 264 |
| | — |
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Total derivatives | | $ | 553 |
| | $ | — |
| | $ | 553 |
| | $ | — |
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| | Total Fair Value Measurement March 31, 2015 | | Quoted Price in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Lead forward contracts | | $ | (341 | ) | | $ | — |
| | $ | (341 | ) | | $ | — |
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Foreign currency forward contracts | | 4,155 |
| | — |
| | 4,155 |
| | — |
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Total derivatives | | $ | 3,814 |
| | $ | — |
| | $ | 3,814 |
| | $ | — |
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The fair values of lead forward contracts are calculated using observable prices for lead as quoted on the London Metal Exchange (“LME”) and, therefore, were classified as Level 2 within the fair value hierarchy, as described in Note 1, Summary of Significant Accounting Policies to the Company's consolidated financial statements included in its 2015 Annual Report.
The fair values for foreign currency forward contracts are based upon current quoted market prices and are classified as Level 2 based on the nature of the underlying market in which these derivatives are traded.
Financial Instruments
The fair values of the Company’s cash and cash equivalents, accounts receivable and accounts payable approximate carrying value due to their short maturities.
The fair value of the Company’s short-term debt and borrowings under the 2011 Credit Facility (as defined in Note 9), approximate their respective carrying value, as they are variable rate debt and the terms are comparable to market terms as of the balance sheet dates and are classified as Level 2.
The Company's 5.00% Senior Notes due 2023 (the "Notes"), with an original face value of $300,000, were issued in April 2015. The fair values of these Notes represent the trading values based upon quoted market prices and are classified as Level 2. The Notes were trading at approximately 100% of face value on December 27, 2015.
The carrying amounts and estimated fair values of the Company’s derivatives, Notes and Convertible Notes (as defined in Note 9) at December 27, 2015 and March 31, 2015 were as follows:
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| | December 27, 2015 | | | | March 31, 2015 | | |
| | Carrying Amount | | | | Fair Value | | | | Carrying Amount | | | | Fair Value | | |
Financial assets: | | | | | | | | | | | | | | | | |
Derivatives (1) | | $ | 553 |
| | | | $ | — |
| | | | $ | 4,155 |
| | | | $ | 4,155 |
| | |
Financial liabilities: | | | | | | | | | | | | | | | | |
Notes (2) | | $ | 300,000 |
| | | | $ | 300,000 |
| | (2) | | $ | — |
| | | | $ | — |
| | |
Convertible Notes (2) (3) | | — |
| | | | — |
| | | | 170,936 |
| | (3) | | 277,348 |
| | (2) |
Derivatives (1) | | — |
| | | | — |
| | | | 341 |
| | | | 341 |
| | |
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(1) | Represents lead and foreign currency forward contracts. |
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(2) | The fair value amount of the Notes at December 27, 2015 and the Convertible Notes at March 31, 2015 represent the trading value of the instruments. |
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(3) | The carrying amount of the Convertible Notes at March 31, 2015 represent the $172,266 principal balance, less the unamortized debt discount (see Note 9 for further details). |
Non-recurring fair value measurements
The valuation of goodwill and other intangible assets is based on information and assumptions available to the Company at the time of acquisition, using income and market approaches to determine fair value. The Company tests goodwill and other intangible assets annually for impairment, or when indications of potential impairment exist (see Note 1 to the Company's consolidated financial statements included in the Company's 2015 Annual Report for details).
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 goodwill is classified as a Level 3 fair value assessment due to the significance of unobservable inputs developed using company-specific information.
The inputs used to measure the fair value of other intangible assets were largely unobservable and accordingly were also classified as Level 3. The fair value of indefinite-lived assets, such as trademarks, is based on the royalties saved that would have been paid to a third party had the Company not owned the trademark.
The fair value of other intangible assets was estimated using the income approach, based on cash flow projections of revenue growth rates, taking into consideration industry and market conditions.
During the nine months of fiscal 2016, no assets or liabilities were recorded at fair value on a non-recurring basis.
4. Derivative Financial Instruments
The Company utilizes derivative instruments to reduce its exposure to fluctuations in commodity prices and foreign exchange rates under established procedures and controls. The Company does not enter into derivative contracts for speculative purposes. The Company’s agreements are with creditworthy financial institutions and the Company anticipates performance by counterparties to these contracts and therefore no material loss is expected.
Derivatives in Cash Flow Hedging Relationships
Lead Forward Contracts
The Company enters into lead forward contracts to fix the price for a portion of its lead purchases. Management considers the lead forward contracts to be effective against changes in the cash flows of the underlying lead purchases. The vast majority of such contracts are for a period not extending beyond one year and the notional amounts at December 27, 2015 and March 31, 2015 were 44.2 million pounds and 91.6 million pounds, respectively.
Foreign Currency Forward Contracts
The Company uses foreign currency forward contracts and options to hedge a portion of the Company’s foreign currency exposures for lead as well as other foreign currency exposures so that gains and losses on these contracts offset changes in the underlying foreign currency denominated exposures. The vast majority of such contracts are for a period not extending beyond one year. As of December 27, 2015 and March 31, 2015, the Company had entered into a total of $55,564 and $75,878, respectively, of such contracts.
In the coming twelve months, the Company anticipates that $2,407 of pretax loss relating to lead and foreign currency forward contracts will be reclassified from accumulated other comprehensive income (“AOCI”) as part of cost of goods sold. This amount represents the current net unrealized impact of hedging lead and foreign exchange rates, which will change as market rates change in the future, and will ultimately be realized in the Consolidated Condensed Statement of Income as an offset to the corresponding actual changes in lead costs to be realized in connection with the variable lead cost and foreign exchange rates being hedged.
Derivatives not Designated in Hedging Relationships
Foreign Currency Forward Contracts
The Company also enters into foreign currency forward contracts to economically hedge foreign currency fluctuations on intercompany loans and foreign currency denominated receivables and payables. These are not designated as hedging instruments and changes in fair value of these instruments are recorded directly in the Consolidated Condensed Statements of Income. As of December 27, 2015 and March 31, 2015, the notional amount of these contracts was $15,270 and $26,246, respectively.
Presented below in tabular form is information on the location and amounts of derivative fair values in the Consolidated Condensed Balance Sheets and derivative gains and losses in the Consolidated Condensed Statements of Income:
Fair Value of Derivative Instruments
December 27, 2015 and March 31, 2015
|
| | | | | | | | | | | | | | | | |
| | Derivatives and Hedging Activities Designated as Cash Flow Hedges | | Derivatives and Hedging Activities Not Designated as Hedging Instruments |
| | December 27, 2015 | | March 31, 2015 | | December 27, 2015 | | March 31, 2015 |
Prepaid and other current assets | | | | | | | | |
Lead forward contracts | | $ | 289 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Foreign currency forward contracts | | 350 |
| | 3,735 |
| | — |
| | 420 |
|
Total assets | | $ | 639 |
| | $ | 3,735 |
| | $ | — |
| | $ | 420 |
|
Accrued expenses | | | | | | | | |
Lead forward contracts | | $ | — |
| | $ | 341 |
| | $ | — |
| | $ | — |
|
Foreign currency forward contracts | | — |
| | — |
| | 86 |
| | — |
|
Total liabilities | | $ | — |
| | $ | 341 |
| | $ | 86 |
| | $ | — |
|
The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the quarter ended December 27, 2015
|
| | | | | | | | | | |
Derivatives Designated as Cash Flow Hedges | | Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion) | | Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | | Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion) |
Lead forward contracts | | $ | 1,109 |
| | Cost of goods sold | | $ | (4,448 | ) |
Foreign currency forward contracts | | 525 |
| | Cost of goods sold | | (296 | ) |
Total | | $ | 1,634 |
| | | | $ | (4,744 | ) |
|
| | | | | |
Derivatives Not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in Income on Derivative | | Pretax Gain (Loss) |
Foreign currency forward contracts | Other (income) expense, net | | $ | 175 |
|
Total | | | $ | 175 |
|
The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the quarter ended December 28, 2014
|
| | | | | | | | | | |
Derivatives Designated as Cash Flow Hedges | | Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion) | | Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | | Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion) |
Lead forward contracts | | $ | (5,898 | ) | | Cost of goods sold | | $ | 1,554 |
|
Foreign currency forward contracts | | 32 |
| | Cost of goods sold | | 920 |
|
Total | | $ | (5,866 | ) | | | | $ | 2,474 |
|
|
| | | | | |
Derivatives Not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in Income on Derivative | | Pretax Gain (Loss) |
Foreign currency forward contracts | Other (income) expense, net | | $ | (232 | ) |
Total | | | $ | (232 | ) |
The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the nine months ended December 27, 2015
|
| | | | | | | | | | |
Derivatives Designated as Cash Flow Hedges | | Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion) | | Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | | Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion) |
Lead forward contracts | | $ | (4,006 | ) | | Cost of goods sold | | $ | (7,461 | ) |
Foreign currency forward contracts | | (2,048 | ) | | Cost of goods sold | | 3,655 |
|
Total | | $ | (6,054 | ) | | | | $ | (3,806 | ) |
|
| | | | | |
Derivatives Not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in Income on Derivative | | Pretax Gain (Loss) |
Foreign currency forward contracts | Other (income) expense, net | | $ | (119 | ) |
Total | | | $ | (119 | ) |
The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the nine months ended December 28, 2014
|
| | | | | | | | | | |
Derivatives Designated as Cash Flow Hedges | | Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion) | | Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | | Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion) |
Lead forward contracts | | $ | (6,158 | ) | | Cost of goods sold | | $ | (121 | ) |
Foreign currency forward contracts | | 2,756 |
| | Cost of goods sold | | 992 |
|
Total | | $ | (3,402 | ) | | | | $ | 871 |
|
|
| | | | | |
Derivatives Not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in Income on Derivative | | Pretax Gain (Loss) |
Foreign currency forward contracts | Other (income) expense, net | | $ | 132 |
|
Total | | | $ | 132 |
|
5. Income Taxes
The Company’s income tax provision consists of federal, state and foreign income taxes. The tax provision for the third quarters of fiscal 2016 and 2015 were based on the estimated effective tax rates applicable for the full years ending March 31, 2016 and March 31, 2015, respectively, after giving effect to items specifically related to the interim periods. The Company’s effective income tax rate with respect to any period may be volatile based on the mix of income in the tax jurisdictions in which the Company operates and the amount of the Company's consolidated income before taxes.
The consolidated effective income tax rates were 22.0% and 23.6%, respectively, for the third quarters of fiscal 2016 and 2015 and 23.6% and 26.0%, respectively, for the nine months of fiscal 2016 and fiscal 2015. The rate decrease in the third quarter of fiscal 2016 compared to the third quarter of fiscal 2015 is primarily due to the recognition in fiscal 2016 of a tax benefit related to international restructuring and changes in mix of earnings among tax jurisdictions. The rate decrease in the nine months of fiscal 2016 compared to the nine months of fiscal 2015 is primarily due to the recognition in fiscal 2016 of a tax benefit related to international restructuring, subsequent recognition of a domestic deferred tax asset related to executive compensation, and a previously unrecognized tax position related to one of the Company's foreign subsidiaries, as well as changes in the mix of earnings among tax jurisdictions.
Foreign income as a percentage of worldwide income is estimated to be 51% for the nine months of fiscal 2016 compared to 56% for the nine months of fiscal 2015. The foreign effective income tax rates for the nine months of fiscal 2016 and 2015 were 10.1% and 14.7%, respectively. The rate decrease compared to the prior year period is primarily due to the recognition in fiscal 2016 of a tax benefit related to international restructuring and subsequent recognition of a previously unrecognized tax position related to one of the Company's foreign subsidiaries, as well as changes in the mix of earnings among tax jurisdictions. Income from the Company's Swiss subsidiary comprised a substantial portion of the Company's overall foreign mix of income and is taxed at an effective income tax rate of approximately 6%.
6. Warranty
The Company provides for estimated product warranty expenses when the related products are sold, with related liabilities included within accrued expenses and other liabilities. Because warranty estimates are forecasts that are based on the best available information, primarily historical claims experience, claims costs may differ from amounts provided. An analysis of changes in the liability for product warranties is as follows:
|
| | | | | | | | | | | | | | | | |
| | Quarter ended | | Nine months ended |
| | December 27, 2015 | | December 28, 2014 | | December 27, 2015 | | December 28, 2014 |
Balance at beginning of period | | $ | 40,140 |
| | $ | 40,518 |
| | $ | 39,810 |
| | $ | 40,426 |
|
Current period provisions | | 5,756 |
| | 4,083 |
| | 14,339 |
| | 13,700 |
|
Costs incurred | | (4,422 | ) | | (3,706 | ) | | (12,930 | ) | | (12,171 | ) |
Foreign currency translation adjustment | | (427 | ) | | (612 | ) | | (172 | ) | | (1,672 | ) |
Balance at end of period | | $ | 41,047 |
| | $ | 40,283 |
| | $ | 41,047 |
| | $ | 40,283 |
|
7. Commitments, Contingencies and Litigation
Litigation and Other Legal Matters
In the ordinary course of business, the Company and its subsidiaries are routinely defendants in or parties to many pending and threatened legal actions and proceedings, including actions brought on behalf of various classes of claimants. These actions and proceedings are generally based on alleged violations of environmental, anti-competition, employment, contract and other laws. In some of these actions and proceedings, claims for substantial monetary damages are asserted against the Company and its subsidiaries. In the ordinary course of business, the Company and its subsidiaries are also subject to regulatory and governmental examinations, information gathering requests, inquiries, investigations, and threatened legal actions and proceedings. In connection with formal and informal inquiries by federal, state, local and foreign agencies, such 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 have received subpoenas and requests for documents and, in some cases, interviews from, and have had on-site inspections conducted by, certain European competition authorities, including Belgium and the Netherlands, relating to conduct and anticompetitive practices of certain industrial battery participants. The Company is responding to these inquiries and has reserved $4,000 in connection with these investigations and other related legal charges. For the Dutch regulatory proceeding, the Company does not believe that such an estimate can be made at this time given the early stages of its investigation. The foregoing estimate of losses is based upon currently available information for this proceeding. However, the precise scope, timing and time period at issue, as well as the final outcome of the investigations, remains uncertain. Accordingly, the Company’s estimate may change from time to time, and actual losses could vary.
Environmental Issues
As a result of its operations, the Company is subject to various federal, state, and local, as well as international environmental laws and regulations and is exposed to the costs and risks of registering, handling, processing, storing, transporting, and disposing of hazardous substances, especially lead and acid. The Company’s operations are also subject to federal, state, local and international occupational safety and health regulations, including laws and regulations relating to exposure to lead in the workplace.
The Company is responsible for certain cleanup obligations at the former Yuasa battery facility in Sumter, South Carolina, that predates its ownership of this facility. This manufacturing facility was closed in 2001, and the Company established a reserve that amounted to $1,123 and $2,902, respectively, as of December 27, 2015 and March 31, 2015. Based on current information, the Company’s management believes these reserves are adequate to satisfy the Company’s environmental liabilities at this facility. This site is separate from the Company’s current metal fabrication facility in Sumter, South Carolina.
Lead Contracts
To stabilize its costs, the Company has entered into contracts with financial institutions to fix the price of lead. The vast majority of such contracts are for a period not extending beyond one year. Under these contracts, at December 27, 2015 and March 31, 2015, the Company has hedged the price to purchase 44.2 million pounds and 91.6 million pounds of lead, respectively, for a total purchase price of $34,072 and $76,143, respectively.
Foreign Currency Forward Contracts
The Company quantifies and monitors its global foreign currency exposures. On a selective basis, the Company will enter into foreign currency forward and option contracts to reduce the volatility from currency movements that affect the Company. The vast majority of such contracts are for a period not extending beyond one year. The Company’s largest exposure is from the purchase and conversion of U.S. dollar based lead costs into local currencies in EMEA. Additionally, the Company has currency exposures from intercompany financing and intercompany and third party trade transactions. To hedge these exposures, the Company has entered into a total of $70,834 and $102,124, respectively, of foreign currency forward contracts with financial institutions as of December 27, 2015 and March 31, 2015.
8. Restructuring Plans
During fiscal 2013, the Company announced a restructuring related to improving the efficiency of its manufacturing operations in EMEA. This program was completed during the second quarter of fiscal 2016. Total charges for this program were $6,895, primarily for cash expenses of $5,496 for employee severance-related payments of approximately 140 employees and non-cash expenses of $1,399 associated with the write-off of certain fixed assets and inventory. The Company incurred $5,207 of costs against the accrual through fiscal 2015, and incurred $271 in costs against the accrual during the nine months of fiscal 2016.
During fiscal 2014, the Company announced further restructuring programs to improve the efficiency of its manufacturing, sales and engineering operations in EMEA including the restructuring of its manufacturing operations in Bulgaria. The restructuring of the Bulgaria operations was announced during the third quarter of fiscal 2014 and consists of the transfer of motive power and a portion of reserve power battery manufacturing to the Company's facilities in Western Europe. The Company estimates that the total charges for all actions announced
during fiscal 2014 will amount to approximately $22,800, primarily from non-cash charges related to the write-off of fixed assets and inventory of $11,000, along with cash charges for employee severance-related payments and other charges of $11,800. The Company estimates that these actions will result in the reduction of approximately 500 employees upon completion. The Company recorded restructuring charges of $22,115 through fiscal 2015, consisting of non-cash charges of $10,934 and cash charges of $11,181 and recorded an additional $826 in cash charges and a favorable accrual adjustment of $316 during the nine months of fiscal 2016. The Company incurred $9,737 in costs against the accrual through fiscal 2015 and incurred an additional $914 against the accrual during the nine months of fiscal 2016. As of December 27, 2015, the reserve balance associated with these actions is $843. The Company expects to be committed to an additional $100 of restructuring charges related to these actions in fiscal 2016 when it expects to complete the program.
During the third quarter of fiscal 2015, the Company announced a restructuring related to its manufacturing facility located in Jiangdu, the People’s Republic of China ("PRC"), pursuant to which the Company completed the transfer of the manufacturing at that location to its other facilities in PRC, as part of the closure of the Jiangdu facility in the first quarter of fiscal 2016. The Company estimates that the total charges for these actions will amount to approximately $5,400 primarily from cash charges for employee severance-related payments and other charges of $5,000, along with non-cash charges related to the write off of fixed assets of $400. The Company estimates that these actions will result in the reduction of approximately 300 employees upon completion. The Company recorded restructuring charges of $3,870 during fiscal 2015 consisting of cash charges for employee severance-related payments and recorded an additional $513 in cash charges and $398 in non-cash charges during the nine months of fiscal 2016. The Company incurred $1,874 in costs against the accrual through fiscal 2015 and incurred an additional $2,509 against the accrual during the nine months of fiscal 2016. As of December 27, 2015, the reserve balance associated with these actions is $0. The Company expects to be committed to an additional $700 of restructuring charges related to these actions in 2016 when it expects to complete the program.
During fiscal 2015, the Company announced a restructuring primarily related to a portion of its sales and engineering organizations in Europe to improve efficiencies. The Company estimates that the total charges for these actions will amount to approximately $800, primarily from cash charges for employee severance-related payments. The Company estimates that these actions will result in the reduction of approximately 10 employees upon completion in fiscal 2016. In fiscal 2015, the Company recorded restructuring charges of $450 and recorded an additional $337 during the nine months of fiscal 2016. The Company incurred $193 in costs against the accrual in fiscal 2015 and incurred an additional $377 against the accrual during the nine months of fiscal 2016. As of December 27, 2015, the reserve balance associated with these actions is $304. The Company expects no additional restructuring charges related to these actions during fiscal 2016, and expects to complete the program during fiscal 2016.
During the first quarter of fiscal 2016, the Company completed a restructuring related to a reduction of two executives associated with one of Americas’ recent acquisitions to improve efficiencies. The Company recorded total severance-related charges of $570, all of which was paid during the first quarter of fiscal 2016, primarily per the terms of a pre-existing employee agreement.
During the second quarter of fiscal 2016, the Company announced a restructuring to improve efficiencies primarily related to its motive power assembly and distribution center in Italy and its sales and administration organizations in EMEA. In addition, during the third quarter of fiscal 2016, the Company announced a further restructuring related to its manufacturing operations in Europe. The Company estimates that the total charges for these actions will amount to approximately $6,600, primarily from cash charges for employee severance-related payments and other charges. The Company estimates that these actions will result in the reduction of approximately 120 employees upon completion. During the nine months of fiscal 2016, the Company recorded restructuring charges of $3,858 and incurred $1,607 in costs against the accrual. As of December 27, 2015, the reserve balance associated with these actions is $2,230. The Company expects to be committed to an additional $2,800 of restructuring charges related to these actions during fiscal 2016, and expects to complete the program during fiscal 2017.
During the second quarter of fiscal 2016, the Company announced a restructuring related to improving the efficiency of its manufacturing operations in the Americas. The program consists of the announced closing of its Cleveland, Ohio charger manufacturing facility which is expected to be completed during the first quarter of fiscal 2017, with the transfer of production to other Americas manufacturing facilities. The Company estimates that the total charges for all actions associated with this program will amount to approximately $2,100, primarily from cash charges for employee severance-related payments and other charges of $1,500, along with a pension curtailment charge of $313 and non-cash charges related to the accelerated depreciation of fixed assets of $300. The Company estimates that these actions will result in the reduction of approximately 100 employees at its Cleveland facility. During the nine months of fiscal 2016, the Company recorded restructuring charges of $865 including a pension curtailment charge of $313. As of December 27, 2015, the reserve balance associated with these actions is $552. The Company expects to be committed to an additional $1,100 of restructuring charges related to these actions during fiscal 2016 and fiscal 2017, and expects to complete the program during fiscal 2017.
A roll-forward of the restructuring reserve is as follows:
|
| | | | | | | | | | | | |
| | Employee Severance | | Other | | Total |
Balance as of March 31, 2015 | | $ | 2,966 |
| | $ | 854 |
| | $ | 3,820 |
|
Accrued | | 6,523 |
| | 133 |
| | 6,656 |
|
Accrual Adjustment | | — |
| | (316 | ) | | (316 | ) |
Costs incurred | | (5,755 | ) | | (493 | ) | | (6,248 | ) |
Foreign currency impact and other | | (16 | ) | | 33 |
| | 17 |
|
Balance as of December 27, 2015 | | $ | 3,718 |
| | $ | 211 |
| | $ | 3,929 |
|
9. Debt
The following summarizes the Company’s long-term debt as of December 27, 2015 and March 31, 2015 giving effect to the adoption of ASU 2015-3:
|
| | | | | | | | | | | | | | | | |
| | December 27, 2015 | | March 31, 2015 |
| | Principal | | Unamortized Issuance Costs | | Principal | | Unamortized Issuance Costs |
5.00% Senior Notes due 2023 | | $ | 300,000 |
| | $ | 4,526 |
| | $ | — |
| | $ | — |
|
2011 Credit Facility, due 2018 | | 333,250 |
| | 2,055 |
| | 325,000 |
| | 2,615 |
|
3.375% Convertible Notes, net of discount, due 2038 | | — |
| | — |
| | 170,936 |
| | 97 |
|
Total | | $ | 633,250 |
| | $ | 6,581 |
| | $ | 495,936 |
| | $ | 2,712 |
|
Long-term debt, net of unamortized issuance costs | | $ | 626,669 |
| | | | $ | 493,224 |
| | |
As discussed in Note 1, the Company elected to early adopt accounting guidance issued in April 2015 to simplify the presentation of debt issuance costs. This change in accounting principle was implemented retrospectively as of March 31, 2015. Debt issuance costs that are incurred by the Company in connection with the issuance of debt are deferred and amortized to interest expense using the effective interest method over the contractual term of the underlying indebtedness. The Company has reclassified debt issuance costs as a direct reduction to the related debt obligation on the balance sheet as of March 31, 2015.
5.00% Senior Notes
On April 23, 2015, the Company issued $300,000 in aggregate principal amount of 5.00% Senior Notes due 2023 (the “Notes”). The Notes bear interest at a rate of 5.00% per annum accruing from April 23, 2015. Interest is payable semiannually in arrears on April 30 and October 30 of each year, commencing on October 30, 2015. The Notes will mature on April 30, 2023, unless earlier redeemed or repurchased in full. The Notes are unsecured and unsubordinated obligations of the Company. The Notes are fully and unconditionally guaranteed (the “Guarantees”), jointly and severally, by each of its subsidiaries that are guarantors under the 2011 Credit Facility (the "Guarantors"). The Guarantees are unsecured and unsubordinated obligations of the Guarantors. The net proceeds from the sale of the Notes were used primarily to repay and retire in full the principal amount of the Company’s senior 3.375% convertible notes (the “Convertible Notes”), as discussed below, as well as fund the accelerated share repurchase program discussed in Note 12.
2011 Credit Facility
The Company is party to a $350,000 senior secured revolving credit facility (as amended, “2011 Credit Facility”) and, on July 8, 2014, amended the credit facility while also entering into an Incremental Commitment Agreement pursuant to which certain banks agreed to provide incremental term loan commitments of $150,000 and incremental revolving commitments of $150,000. Pursuant to these changes, the 2011 Credit Facility is now comprised of a $500,000 senior secured revolving credit facility and a $150,000 senior secured incremental term loan (the "Term Loan") that matures on September 30, 2018. The Term Loan is payable in quarterly installments of $1,875 beginning June 30, 2015 and $3,750 beginning June 30, 2016 with a final payment of $108,750 on September 30, 2018. The 2011 Credit Facility may be increased by an aggregate amount of $300,000 in revolving commitments and/or one or more new tranches of term loans, under certain conditions. Both revolving loans and the Term Loan under the 2011 Credit Facility will bear interest, at the Company's option, at a rate per annum equal to either (i) the London Interbank Offered Rate (“LIBOR”) plus between 1.25% and 1.75% (currently 1.25% and based on the Company's consolidated net leverage ratio) or (ii) the Base Rate (which is the highest of (a) the Bank of America prime rate, and (b) the Federal Funds Effective Rate) plus between 0.25% and 0.75% (based on the Company’s consolidated net leverage ratio). Obligations under the 2011 Credit Facility are secured by substantially all of the Company’s existing and future acquired assets, including substantially all of the capital stock of the Company’s United States subsidiaries that are guarantors under the credit facility, and 65% of the capital stock of certain of the Company’s foreign subsidiaries that are owned by the Company’s United States subsidiaries.
The current portion of the Term Loan of $11,250 is classified as long-term debt as the Company expects to refinance the future quarterly payments with revolver borrowings under its 2011 Credit Facility.
As of December 27, 2015, the Company had $187,000 outstanding in revolver borrowings and $146,250 under its Term Loan borrowings.
3.375% Convertible Notes
On May 7, 2015, the Company filed a notice of redemption for all of the Convertible Notes with a redemption date of June 8, 2015. 99% of the Convertible Notes holders exercised their conversion rights on or before June 5, 2015, pursuant to which, on July 17, 2015, the Company paid $172,388, in aggregate, towards the principal balance including accreted interest, cash equivalent of fractional shares issued towards conversion premium and settled the conversion premium by issuing, in the aggregate, 1,889,431 shares of the Company's common stock from its treasury shares, thereby resulting in the extinguishment of all of the Convertible Notes as of that date. There was no impact to the income statement on the extinguishment as the fair value of the total settlement consideration transferred and allocated to the liability component approximated the carrying value of the Convertible Notes. The remaining consideration allocated to the equity component resulted in an adjustment to equity of $84,140.
The following represents the principal amount of the liability component, the unamortized discount, and the net carrying amount of the Convertible Notes as of December 27, 2015 and March 31, 2015:
|
| | | | | | | | |
| | December 27, 2015 | | March 31, 2015 |
Principal | | $ | — |
| | $ | 172,266 |
|
Unamortized discount | | — |
| | (1,330 | ) |
Net carrying amount | | $ | — |
| | $ | 170,936 |
|
Short-Term Debt
As of December 27, 2015 and March 31, 2015, the Company had $23,503 and $19,715, respectively, of short-term borrowings. The weighted-average interest rates on these borrowings were approximately 8% and 10% at December 27, 2015 and March 31, 2015, respectively.
Letters of Credit
As of December 27, 2015 and March 31, 2015, the Company had $4,396 and $3,862, respectively, of standby letters of credit.
Debt Issuance Costs
In connection with the issuance of the Notes, the Company incurred $4,986 in debt issuance costs. Amortization expense, relating to debt issuance costs, included in interest expense was $343 and $332, respectively, during the quarters ended December 27, 2015 and December 28, 2014 and $1,117 and $932, respectively, for the nine months ended December 27, 2015 and December 28, 2014. Debt issuance costs, net of accumulated amortization, totaled $6,581 and $2,712, respectively, at December 27, 2015 and March 31, 2015.
Available Lines of Credit
As of December 27, 2015 and March 31, 2015, the Company had available and undrawn, under all its lines of credit, $447,369 and $464,733, respectively, including $136,619 and $141,533, respectively, of uncommitted lines of credit as of December 27, 2015 and March 31, 2015.
10. Retirement Plans
The following tables present the components of the Company’s net periodic benefit cost related to its defined benefit pension plans:
|
| | | | | | | | | | | | | | | | |
| | United States Plans | | International Plans |
Quarter ended | | Quarter ended |
December 27, 2015 | | December 28, 2014 | | December 27, 2015 | | December 28, 2014 |
Service cost | | $ | 118 |
| | $ | 96 |
| | $ | 201 |
| | $ | 189 |
|
Interest cost | | 172 |
| | 168 |
| | 476 |
| | 624 |
|
Expected return on plan assets | | (213 | ) | | (223 | ) | | (563 | ) | | (551 | ) |
Amortization and deferral | | 111 |
| | 64 |
| | 310 |
| | 166 |
|
Curtailment loss | | 313 |
| | — |
| | — |
| | — |
|
Net periodic benefit cost | | $ | 501 |
| | $ | 105 |
| | $ | 424 |
| | $ | 428 |
|
|
| | | | | | | | | | | | | | | | |
| | United States Plans | | International Plans |
Nine months ended | | Nine months ended |
December 27, 2015 | | December 28, 2014 | | December 27, 2015 | | December 28, 2014 |
Service cost | | $ | 364 |
| | $ | 300 |
| | $ | 617 |
| | $ | 602 |
|
Interest cost | | 510 |
| | 505 |
| | 1,447 |
| | 1,966 |
|
Expected return on plan assets | | (643 | ) | | (666 | ) | | (1,715 | ) | | (1,724 | ) |
Amortization and deferral | | 370 |
| | 238 |
| | 946 |
| | 518 |
|
Curtailment loss | | 313 |
| | — |
| | — |
| | — |
|
Net periodic benefit cost | | $ | 914 |
| | $ | 377 |
| | $ | 1,295 |
| | $ | 1,362 |
|
11. Stock-Based Compensation
As of December 27, 2015, the Company maintains the EnerSys Second Amended and Restated 2010 Equity Incentive Plan, as amended (“2010 EIP”). The 2010 EIP reserved 3,177,477 shares of common stock for the grant of various classes of nonqualified stock options, restricted stock units, market share units and other forms of equity-based compensation.
The Company recognized stock-based compensation expense associated with its equity incentive plans of $4,545 for the third quarter of fiscal 2016 and $4,280 for the third quarter of fiscal 2015. Stock-based compensation expense was $14,883 for the nine months of fiscal 2016 and $21,339 for the nine months of fiscal 2015. The Company recognizes compensation expense using the straight-line method over the vesting period of the awards, except for awards issued to certain retirement-eligible participants, which are expensed on an accelerated basis.
During the nine months ended December 27, 2015, the Company granted to non-employee directors 28,582 restricted stock units, pursuant to the EnerSys Deferred Compensation Plan for Non-Employee Directors.
During the nine months ended December 27, 2015, the Company granted to management and other key employees 127,966 non-qualified stock options, 212,278 performance-based market share units that vest three years from the date of grant and 120,287 restricted stock units that vest 25% each year over four years from the date of grant.
Common stock activity during the nine months ended December 27, 2015 included the vesting of 137,636 restricted stock units and 536,490 market share units and exercise of 11,986 stock options.
As of December 27, 2015, there were 210,297 non-qualified stock options, 502,378 restricted stock units and 547,213 market share units outstanding.
12. Stockholders’ Equity and Noncontrolling Interests
Common Stock
The following demonstrates the change in the number of shares of common stock outstanding during the nine months ended December 27, 2015:
|
| | | |
Shares outstanding as of March 31, 2015 | | 44,068,588 |
|
Purchase of treasury stock | | (2,009,896 | ) |
Shares issued to Convertible Notes holders | | 1,889,431 |
|
Shares issued towards equity-based compensation plans, net of equity awards surrendered for option price and taxes | | 448,137 |
|
Shares outstanding as of December 27, 2015 | | 44,396,260 |
|
Treasury Stock Reissuance
On July 17, 2015, the Company settled the conversion premium on the Convertible Notes by issuing 1,889,431 shares from its treasury stock. The reissuance was recorded on a last-in, first-out method, and the difference between the repurchase cost and the fair value at reissuance was recorded as an adjustment to stockholders' equity.
Accelerated Share Repurchase
During the second quarter of fiscal 2016, the Company entered into an accelerated share repurchase agreement (“ASR”) with a major financial institution to repurchase $120,000 to $180,000 of its common stock. The Company prepaid $180,000 and received an initial delivery of 2,000,000 shares with a fair market value of approximately $108,100. The ASR is accounted for as a treasury stock repurchase, reducing the weighted average number of basic and diluted shares outstanding by the 2,000,000 shares initially repurchased, and as a forward contract indexed to the Company's own common shares to reflect the future settlement provisions. Because the minimum repurchase will be $120,000, as of December 27, 2015, $11,900 representing the difference between the fair value of shares delivered and the minimum notional amount of $120,000 is accounted for as an equity instrument and is included in additional paid-in capital and the optional $60,000 is included in prepaid and other current assets in the Consolidated Condensed Balance Sheet. The ASR is not accounted for as a derivative instrument.
No shares were received during the current quarter pursuant to the ASR.
On January 19, 2016, the ASR was settled and the Company received an additional 961,444 shares and $13,608 in cash for the remaining amount not settled in shares. The Company repurchased a total of 2,961,444 shares under the ASR for a total cash investment of $166,392 at an average price of $56.19. See Note 15.
At December 27, 2015 and March 31, 2015, the Company held 9,716,516 shares and 9,596,051 shares as treasury stock, respectively.
Accumulated Other Comprehensive Income ("AOCI")
The components of AOCI, net of tax, as of December 27, 2015 and March 31, 2015, are as follows:
|
| | | | | | | | | | | | | | | | |
| | March 31, 2015 | | Before Reclassifications | | Amounts Reclassified from AOCI | | December 27, 2015 |
Pension funded status adjustment | | $ | (23,719 | ) | | $ | — |
| | $ | 930 |
| | $ | (22,789 | ) |
Net unrealized (loss) gain on derivative instruments | | (95 | ) | | (3,818 | ) | | 2,402 |
| | (1,511 | ) |
Foreign currency translation adjustment | | (85,161 | ) | | (19,329 | ) | | — |
| | (104,490 | ) |
Accumulated other comprehensive income (loss) | | $ | (108,975 | ) | | $ | (23,147 | ) | | $ | 3,332 |
| | $ | (128,790 | ) |
The following table presents reclassifications from AOCI during the third quarter ended December 27, 2015:
|
| | | | | | |
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 | | $ | 4,744 |
| | Cost of goods sold |
Tax benefit | | (1,753 | ) | | |
Net unrealized loss on derivative instruments, net of tax | | $ | 2,991 |
| | |
| | | | |
Defined benefit pension costs: | | | | |
Prior service costs and deferrals | | $ | 421 |
| | Net periodic benefit cost, included in cost of goods sold and operating expenses - See Note 10 |
Tax benefit | | (129 | ) | | |
Net periodic benefit cost, net of tax | | $ | 292 |
| | |
The following table presents reclassifications from AOCI during the third quarter ended December 28, 2014:
|
| | | | | | |
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 | | $ | (2,474 | ) | | Cost of goods sold |
Tax expense | | 912 |
| | |
Net unrealized gain on derivative instruments, net of tax | | $ | (1,562 | ) | | |
| | | | |
Defined benefit pension costs: | | | | |
Prior service costs and deferrals | | $ | 230 |
| | Net periodic benefit cost, included in cost of goods sold and operating expenses - See Note 10 |
Tax benefit | | (75 | ) | | |
Net periodic benefit cost, net of tax | | $ | 155 |
| | |
The following table presents reclassifications from AOCI during the nine months ended December 27, 2015:
|
| | | | | | |
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 | | $ | 3,806 |
| | Cost of goods sold |
Tax benefit | | (1,404 | ) | | |
Net unrealized loss on derivative instruments, net of tax | | $ | 2,402 |
| | |
| | | | |
Defined benefit pension costs: | | | | |
Prior service costs and deferrals | | $ | 1,316 |
| | Net periodic benefit cost, included in cost of goods sold and operating expenses - See Note 10 |
Tax benefit | | (386 | ) | | |
Net periodic benefit cost, net of tax | | $ | 930 |
| | |
The following table presents reclassifications from AOCI during the nine months ended December 28, 2014:
|
| | | | | | |
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 | | $ | (871 | ) | | Cost of goods sold |
Tax expense | | 320 |
| | |
Net unrealized gain on derivative instruments, net of tax | | $ | (551 | ) | | |
| | | | |
Defined benefit pension costs: | | | | |
Prior service costs and deferrals | | $ | 756 |
| | Net periodic benefit cost, included in cost of goods sold and operating expenses - See Note 10 |
Tax benefit | | (235 | ) | | |
Net periodic benefit cost, net of tax | | $ | 521 |
| | |
The following demonstrates the change in equity attributable to EnerSys stockholders and nonredeemable noncontrolling interests during the nine months ended December 27, 2015:
|
| | | | | | | | | | | | |
| | Equity Attributable to EnerSys Stockholders | | Nonredeemable Noncontrolling Interests | | Total Equity |
Balance as of March 31, 2015 | | $ | 1,038,900 |
| | $ | 5,540 |
| | $ | 1,044,440 |
|
Total comprehensive income: | | | | | | |
Net earnings (losses) | | 126,890 |
| | (53 | ) | | 126,837 |
|
Net unrealized loss on derivative instruments, net of tax | | (1,416 | ) | | — |
| | (1,416 | ) |
Pension funded status adjustment, net of tax | | 930 |
| | — |
| | 930 |
|
Foreign currency translation adjustment | | (19,329 | ) | | (214 | ) | | (19,543 | ) |
Total other comprehensive loss, net of tax | | (19,815 | ) | | (214 | ) | | (20,029 | ) |
Total comprehensive income (loss) | | 107,075 |
| | (267 | ) | | 106,808 |
|
Other changes in equity: | | | | | | |
Purchase of treasury stock including ASR | | (120,637 | ) | | — |
| | (120,637 | ) |
Reissuance of treasury stock to Convertible Notes holders | | 114,449 |
| | — |
| | 114,449 |
|
Adjustment to equity on debt extinguishment | | (84,140 | ) | | — |
| | (84,140 | ) |
Cash dividends - common stock ($0.525 per share) | | (23,322 | ) | | — |
| | (23,322 | ) |
Reclassification of redeemable equity component of Convertible Notes | | 1,330 |
| | — |
| | 1,330 |
|
Other, including activity related to equity awards | | 3,485 |
| | — |
| | 3,485 |
|
Balance as of December 27, 2015 | | $ | 1,037,140 |
| | $ | 5,273 |
| | $ | 1,042,413 |
|
The following demonstrates the change in redeemable noncontrolling interests during the nine months ended December 27, 2015:
|
| | | | |
| | Redeemable Noncontrolling Interests |
Balance as of March 31, 2015 | | $ | 6,956 |
|
Net loss | | (921 | ) |
Foreign currency translation adjustment | | (1,211 | ) |
Balance as of December 27, 2015 | | $ | 4,824 |
|
13. Earnings Per Share
The following table sets forth the reconciliation from basic to diluted weighted-average number of common shares outstanding and the calculations of net earnings per common share attributable to EnerSys stockholders.
|
| | | | | | | | | | | | | | | | |
| | Quarter ended | | Nine months ended |
| | December 27, 2015 | | December 28, 2014 | | December 27, 2015 | | December 28, 2014 |
Net earnings attributable to EnerSys stockholders | | $ | 38,478 |
| | $ | 49,252 |
| | $ | 126,890 |
| | $ | 154,737 |
|
Weighted-average number of common shares outstanding: | | | | | | | | |
Basic | | 44,394,925 |
| | 45,188,942 |
| | 44,524,289 |
| | 46,073,961 |
|
Dilutive effect of: | | | | | | | | |
Common shares from exercise and lapse of equity awards, net of shares assumed reacquired | | 581,279 |
| | 791,739 |
| | 650,529 |
| | 898,436 |
|
Convertible Notes | | — |
| | 1,387,492 |
| | 737,841 |
| | 1,571,499 |
|
Diluted weighted-average number of common shares outstanding | | 44,976,204 |
| | 47,368,173 |
| | 45,912,659 |
| | 48,543,896 |
|
Basic earnings per common share attributable to EnerSys stockholders | | $ | 0.87 |
| | $ | 1.09 |
| | $ | 2.85 |
| | $ | 3.36 |
|
Diluted earnings per common share attributable to EnerSys stockholders | | $ | 0.86 |
| | $ | 1.04 |
| | $ | 2.76 |
| | $ | 3.19 |
|
Anti-dilutive equity awards not included in diluted weighted-average common shares | | — |
| | — |
| | — |
| | 138 |
|
On July 17, 2015, the Company paid $172,388, in aggregate, towards the principal balance including accreted interest, cash equivalent of fractional shares issued towards conversion premium and settled the conversion premium by issuing, in the aggregate, 1,889,431 shares of its common stock, which were included in the diluted weighted average shares outstanding for the period prior to the extinguishment.
During the second quarter of fiscal 2016, the Company entered into an ASR with a major financial institution to repurchase $120,000 to $180,000 of its common stock. The Company prepaid $180,000 and received an initial delivery of 2,000,000 shares with a fair market value of approximately $108,100. The ASR is accounted for as a treasury stock repurchase, reducing the weighted average number of basic and diluted shares outstanding by the 2,000,000 shares initially repurchased, and as a forward contract indexed to the Company's own common shares to reflect the future settlement provisions.
No shares were received pursuant to the ASR during the current quarter.
On January 19, 2016, the ASR was settled and the Company received an additional 961,444 shares. See Note 15 for more information.
14. Business Segments
The Company has three reportable business segments based on geographic regions, defined as follows:
| |
• | Americas, which includes North and South America, with segment headquarters in Reading, Pennsylvania, USA; |
| |
• | EMEA, which includes Europe, the Middle East and Africa, with segment headquarters in Zurich, Switzerland; and |
| |
• | Asia, which includes Asia, Australia and Oceania, with segment headquarters in Singapore. |
Summarized financial information related to the Company's reportable segments for the quarters and nine months ended December 27, 2015 and December 28, 2014 is shown below:
|
| | | | | | | | | | | | | | | | |
| | Quarter ended | | Nine months ended |
| | December 27, 2015 | | December 28, 2014 | | December 27, 2015 | | December 28, 2014 |
Net sales by segment to unaffiliated customers | | | | | | | | |
Americas | | $ | 306,331 |
| | $ | 314,263 |
| | $ | 945,839 |
| | $ | 978,376 |
|
EMEA | | 196,829 |
| | 242,345 |
| | 582,896 |
| | 717,620 |
|
Asia | | 70,413 |
| | 54,970 |
| | 176,040 |
| | 179,619 |
|
Total net sales | | $ | 573,573 |
| | $ | 611,578 |
| | $ | 1,704,775 |
| | $ | 1,875,615 |
|
Net sales by product line | | | | | | | | |
Reserve power | | $ | 271,948 |
| | $ | 306,989 |
| | $ | 810,448 |
| | $ | 933,888 |
|
Motive power | | 301,625 |
| | 304,589 |
| | 894,327 |
| | 941,727 |
|
Total net sales | | $ | 573,573 |
| | $ | 611,578 |
| | $ | 1,704,775 |
| | $ | 1,875,615 |
|
Intersegment sales | | | | | | | | |
Americas | | $ | 6,334 |
| | $ | 11,657 |
| | $ | 23,041 |
| | $ | 31,552 |
|
EMEA | | 17,537 |
| | 16,433 |
| | 59,999 |
| | 51,324 |
|
Asia | | 8,205 |
| | 6,560 |
| | 20,937 |
| | 27,144 |
|
Total intersegment sales (1) | | $ | 32,076 |
| | $ | 34,650 |
| | $ | 103,977 |
| | $ | 110,020 |
|
Operating earnings by segment | | | | | | | | |
Americas | | $ | 40,572 |
| | $ | 40,884 |
| | $ | 134,344 |
| | $ | 120,751 |
|
EMEA | | 16,525 |
| | 27,805 |
| | 54,218 |
| | 79,845 |
|
Asia | | 1,568 |
| | 2,431 |
| | 1,388 |
| | 9,672 |
|
Restructuring charges - Americas | | (865 | ) | | — |
| | (1,435 | ) | | — |
|
Restructuring and other exit charges - EMEA | | (2,153 | ) | | (563 | ) | | (4,706 | ) | | (4,202 | ) |
Restructuring charges - Asia | | (186 | ) | | (1,874 | ) | | (910 | ) | | (1,874 | ) |
Reversal of legal accrual, net of fees - Americas | | — |
| | — |
| | 799 |
| | 16,233 |
|
Legal proceedings charge - EMEA | | — |
| | — |
| | (4,000 | ) | | — |
|
Gain on sale of facility - Asia | | — |
| | — |
| | 4,348 |
| | — |
|
Total operating earnings (2) | | $ | 55,461 |
| | $ | 68,683 |
| | $ | 184,046 |
| | $ | 220,425 |
|
| |
(1) | Intersegment sales are presented on a cost-plus basis, which takes into consideration the effect of transfer prices between legal entities. |
| |
(2) | The Company does not allocate interest expense or other (income) expense to the reportable segments. |
15. Subsequent Events
On January 19, 2016, the ASR was settled and the Company received an additional 961,444 shares and $13,608 in cash for the remaining amount not settled in shares. The Company repurchased a total of 2,961,444 shares under the ASR for a total cash investment of $166,392 at an average price of $56.19.
On January 28, 2016, the Board of Directors approved a quarterly cash dividend of $0.175 per share of common stock to be paid on March 25, 2016, to stockholders of record as of March 11, 2016.
|
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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 the Company’s filings with the Securities and Exchange Commission and its reports to stockholders. Generally, the inclusion of the words “anticipate,” “believe,” “expect,” “future,” “intend,” “estimate,” “will,” “plans,” or the negative of such terms and similar expressions identify statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and that are intended to come within the safe harbor protection provided by those sections. All statements addressing operating performance, events, or developments that EnerSys expects or anticipates will occur in the future, including statements relating to sales growth, earnings or earnings per share growth, and market share, as well as statements expressing optimism or pessimism about future operating results, are forward-looking statements within the meaning of the Reform Act. The forward-looking statements are and will be based on management’s then-current beliefs and assumptions regarding future events and operating performance and on information currently available to management, and are applicable only as of the dates of such statements.
Forward-looking statements involve risks, uncertainties and assumptions. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Actual results may differ materially from those expressed in these forward-looking statements due to a number of uncertainties and risks, including the risks described in the Company’s 2015 Annual Report on Form 10-K (the "2015 Annual Report") and other unforeseen risks. You should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q, even if subsequently made available by us on our website or otherwise, and we undertake no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.
Our actual results may differ materially from those contemplated by the forward-looking statements for a number of reasons, including the following factors:
| |
• | general cyclical patterns of the industries in which our customers operate; |
| |
• | the extent to which we cannot control our fixed and variable costs; |
| |
• | the raw materials in our products may experience significant fluctuations in market price and availability; |
| |
• | certain raw materials constitute hazardous materials that may give rise to costly environmental and safety claims; |
| |
• | legislation regarding the restriction of the use of certain hazardous substances in our products; |
| |
• | risks involved in our operations such as disruption of markets, changes in import and export laws, environmental regulations, currency restrictions and local currency exchange rate fluctuations; |
| |
• | our ability to raise our selling prices to our customers when our product costs increase; |
| |
• | the extent to which we are able to efficiently utilize our global manufacturing facilities and optimize our capacity; |
| |
• | general economic conditions in the markets in which we operate; |
| |
• | competitiveness of the battery markets and other energy solutions for industrial applications throughout the world; |
| |
• | our timely development of competitive new products and product enhancements in a changing environment and the acceptance of such products and product enhancements by customers; |
| |
• | our ability to adequately protect our proprietary intellectual property, technology and brand names; |
| |
• | litigation and regulatory proceedings to which we might be subject; |
| |
• | our expectations concerning indemnification obligations; |
| |
• | changes in our market share in the geographic business segments where we operate; |
| |
• | our ability to implement our cost reduction initiatives successfully and improve our profitability; |
| |
• | quality problems associated with our products; |
| |
• | our ability to implement business strategies, including our acquisition strategy, manufacturing expansion and restructuring plans; |
| |
• | our acquisition strategy may not be successful in locating advantageous targets; |
| |
• | our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames; |
| |
• | potential goodwill impairment charges, future impairment charges and fluctuations in the fair values of reporting units or of assets in the event projected financial results are not achieved within expected time frames; |
| |
• | our debt and debt service requirements which may restrict our operational and financial flexibility, as well as imposing unfavorable interest and financing costs; |
| |
• | our ability to maintain our existing credit facilities or obtain satisfactory new credit facilities; |
| |
• | adverse changes in our short and long-term debt levels under our credit facilities; |
| |
• | our exposure to fluctuations in interest rates on our variable-rate debt; |
| |
• | our ability to attract and retain qualified management and personnel; |
| |
• | our ability to maintain good relations with labor unions; |
| |
• | credit risk associated with our customers, including risk of insolvency and bankruptcy; |
| |
• | our ability to successfully recover in the event of a disaster affecting our infrastructure; |
| |
• | terrorist acts or acts of war, could cause damage or disruption to our operations, our suppliers, channels to market or customers, or could cause costs to increase, or create political or economic instability; and |
| |
• | the operation, capacity and security of our information systems and infrastructure. |
This list of factors that may affect future performance is illustrative, but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty.
In the following discussion and analysis of results of operations and financial condition, certain financial measures may be considered “non-GAAP financial measures” under Securities and Exchange Commission rules. These rules require supplemental explanation and reconciliation, which is provided in this Quarterly Report on Form 10-Q. EnerSys’ management uses the non-GAAP measures “primary working capital”, “primary working capital percentage” and capital expenditures in its evaluation of business segment cash flow and financial position performance. These disclosures have limitations as an analytical tool, should not be viewed as a substitute for cash flow determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Management believes that this non-GAAP supplemental information is helpful in understanding the Company’s ongoing operating results.
Overview
EnerSys (the “Company,” “we,” or “us”) is the world’s lar