Document
false--03-31Q120170001289308Large Accelerated FilerENSP1Y11393000119850000.180.010.011350000001350000005411277654350229300.01100000010000000000P3YP4Y10923274 0001289308 2016-04-01 2016-07-03 0001289308 2016-08-08 0001289308 2016-03-31 0001289308 2016-07-03 0001289308 2015-04-01 2015-06-28 0001289308 2015-03-31 0001289308 ens:PropertyPlantandEquipmentExcludingManufacturingFacilityMember 2015-04-01 2015-06-28 0001289308 ens:PropertyPlantandEquipmentExcludingManufacturingFacilityMember 2016-04-01 2016-07-03 0001289308 2015-06-28 0001289308 us-gaap:ManufacturingFacilityMember 2015-04-01 2015-06-28 0001289308 us-gaap:FairValueInputsLevel2Member us-gaap:ForwardContractsMember 2016-03-31 0001289308 us-gaap:ForwardContractsMember 2016-03-31 0001289308 us-gaap:FairValueInputsLevel2Member us-gaap:ForeignExchangeForwardMember 2016-03-31 0001289308 us-gaap:ForeignExchangeForwardMember 2016-03-31 0001289308 us-gaap:FairValueInputsLevel2Member 2016-03-31 0001289308 ens:SeniorUnsecuredFivePointZeroPercentageConvertibleNotesDueTwoThousandAndTwentyEightMember 2016-07-03 0001289308 us-gaap:ForwardContractsMember 2016-07-03 0001289308 us-gaap:ForeignExchangeForwardMember 2016-07-03 0001289308 us-gaap:FairValueInputsLevel2Member us-gaap:ForwardContractsMember 2016-07-03 0001289308 us-gaap:FairValueInputsLevel2Member us-gaap:ForeignExchangeForwardMember 2016-07-03 0001289308 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2016-03-31 0001289308 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2016-03-31 0001289308 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2016-07-03 0001289308 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2016-07-03 0001289308 us-gaap:AccruedLiabilitiesMember us-gaap:DesignatedAsHedgingInstrumentMember 2016-07-03 0001289308 us-gaap:AccruedLiabilitiesMember us-gaap:ForwardContractsMember us-gaap:NondesignatedMember 2016-03-31 0001289308 us-gaap:NondesignatedMember 2016-07-03 0001289308 ens:PrepaidAndOtherCurrentAssetsMember us-gaap:ForwardContractsMember us-gaap:NondesignatedMember 2016-07-03 0001289308 us-gaap:AccruedLiabilitiesMember us-gaap:ForeignExchangeForwardMember us-gaap:NondesignatedMember 2016-03-31 0001289308 us-gaap:AccruedLiabilitiesMember us-gaap:DesignatedAsHedgingInstrumentMember 2016-03-31 0001289308 us-gaap:NondesignatedMember 2016-03-31 0001289308 us-gaap:AccruedLiabilitiesMember us-gaap:ForwardContractsMember us-gaap:NondesignatedMember 2016-07-03 0001289308 us-gaap:DesignatedAsHedgingInstrumentMember 2016-03-31 0001289308 us-gaap:AccruedLiabilitiesMember us-gaap:NondesignatedMember 2016-03-31 0001289308 us-gaap:AccruedLiabilitiesMember us-gaap:ForwardContractsMember us-gaap:DesignatedAsHedgingInstrumentMember 2016-03-31 0001289308 ens:PrepaidAndOtherCurrentAssetsMember us-gaap:ForwardContractsMember us-gaap:NondesignatedMember 2016-03-31 0001289308 us-gaap:AccruedLiabilitiesMember us-gaap:ForeignExchangeForwardMember us-gaap:DesignatedAsHedgingInstrumentMember 2016-07-03 0001289308 us-gaap:DesignatedAsHedgingInstrumentMember 2016-07-03 0001289308 ens:PrepaidAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:NondesignatedMember 2016-07-03 0001289308 us-gaap:AccruedLiabilitiesMember us-gaap:ForeignExchangeForwardMember us-gaap:DesignatedAsHedgingInstrumentMember 2016-03-31 0001289308 us-gaap:AccruedLiabilitiesMember us-gaap:ForwardContractsMember us-gaap:DesignatedAsHedgingInstrumentMember 2016-07-03 0001289308 us-gaap:AccruedLiabilitiesMember us-gaap:ForeignExchangeForwardMember us-gaap:NondesignatedMember 2016-07-03 0001289308 ens:PrepaidAndOtherCurrentAssetsMember us-gaap:ForwardContractsMember us-gaap:DesignatedAsHedgingInstrumentMember 2016-03-31 0001289308 ens:PrepaidAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:NondesignatedMember 2016-03-31 0001289308 us-gaap:AccruedLiabilitiesMember us-gaap:NondesignatedMember 2016-07-03 0001289308 ens:PrepaidAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:DesignatedAsHedgingInstrumentMember 2016-03-31 0001289308 ens:PrepaidAndOtherCurrentAssetsMember us-gaap:ForeignExchangeForwardMember us-gaap:DesignatedAsHedgingInstrumentMember 2016-07-03 0001289308 ens:PrepaidAndOtherCurrentAssetsMember us-gaap:ForwardContractsMember us-gaap:DesignatedAsHedgingInstrumentMember 2016-07-03 0001289308 us-gaap:ForwardContractsMember us-gaap:DesignatedAsHedgingInstrumentMember us-gaap:CostOfSalesMember 2016-04-01 2016-07-03 0001289308 us-gaap:ForeignExchangeForwardMember us-gaap:DesignatedAsHedgingInstrumentMember us-gaap:CostOfSalesMember 2016-04-01 2016-07-03 0001289308 us-gaap:DesignatedAsHedgingInstrumentMember 2016-04-01 2016-07-03 0001289308 us-gaap:ForeignExchangeForwardMember us-gaap:DesignatedAsHedgingInstrumentMember 2016-04-01 2016-07-03 0001289308 us-gaap:ForwardContractsMember us-gaap:DesignatedAsHedgingInstrumentMember 2016-04-01 2016-07-03 0001289308 us-gaap:ForeignExchangeForwardMember us-gaap:NondesignatedMember ens:OtherIncomeExpenseMember 2016-04-01 2016-07-03 0001289308 us-gaap:NondesignatedMember 2016-04-01 2016-07-03 0001289308 us-gaap:ForeignExchangeForwardMember us-gaap:NondesignatedMember ens:OtherIncomeExpenseMember 2015-04-01 2015-06-28 0001289308 us-gaap:NondesignatedMember 2015-04-01 2015-06-28 0001289308 us-gaap:ForwardContractsMember us-gaap:DesignatedAsHedgingInstrumentMember us-gaap:CostOfSalesMember 2015-04-01 2015-06-28 0001289308 us-gaap:DesignatedAsHedgingInstrumentMember 2015-04-01 2015-06-28 0001289308 us-gaap:ForeignExchangeForwardMember us-gaap:DesignatedAsHedgingInstrumentMember 2015-04-01 2015-06-28 0001289308 us-gaap:ForeignExchangeForwardMember us-gaap:DesignatedAsHedgingInstrumentMember us-gaap:CostOfSalesMember 2015-04-01 2015-06-28 0001289308 us-gaap:ForwardContractsMember us-gaap:DesignatedAsHedgingInstrumentMember 2015-04-01 2015-06-28 0001289308 us-gaap:ForeignExchangeForwardMember us-gaap:NondesignatedMember 2016-03-31 0001289308 us-gaap:CostOfSalesMember 2016-07-03 0001289308 us-gaap:ForeignExchangeForwardMember us-gaap:NondesignatedMember 2016-07-03 0001289308 us-gaap:ForwardContractsMember 2016-04-01 2016-07-03 0001289308 2016-03-01 2016-03-31 0001289308 2014-04-01 2015-03-31 0001289308 ens:RestructuringsRelatedToImprovingEfficiencyRelatedtoMotivePowerAssemblyandDistributionCenterMember ens:EuropeanOperationsMember 2016-04-01 2016-07-03 0001289308 ens:RestructuringRelatedtoImprovingtheEfficiencyofManufacturingOperationsinClevelandOhioMember ens:NonCashChargesMember us-gaap:AmericasMember 2016-04-01 2016-07-03 0001289308 ens:RestructuringsRelatedToManufacturingFacilityinJiangduMember us-gaap:AsiaMember 2016-04-01 2016-07-03 0001289308 ens:RestructuringsRelatedToImprovingEfficiencyOfManufacturingOperationsInEmeaMember us-gaap:EmployeeSeveranceMember ens:EuropeanOperationsMember 2015-09-28 2015-12-27 0001289308 ens:RestructuringRelatedtoImprovingtheEfficiencyofManufacturingOperationsinClevelandOhioMember us-gaap:EmployeeSeveranceMember us-gaap:AmericasMember 2016-04-01 2016-07-03 0001289308 ens:RestructuringRelatedtoImprovingtheEfficiencyofManufacturingOperationsinClevelandOhioMember ens:PensionCurtailmentMember us-gaap:AmericasMember 2016-04-01 2016-07-03 0001289308 ens:RestructuringRelatedtoImprovingtheEfficiencyofManufacturingOperationsintheAmericasMember ens:PensionCurtailmentMember us-gaap:AmericasMember 2015-04-01 2016-03-31 0001289308 ens:RestructuringRelatedtoImprovingtheEfficiencyofManufacturingOperationsintheAmericasMember us-gaap:AmericasMember 2015-04-01 2016-03-31 0001289308 ens:RestructuringsRelatedToImprovingEfficiencyOfManufacturingOperationsInEmeaMember ens:EuropeanOperationsMember 2015-09-28 2015-12-27 0001289308 ens:RestructuringRelatedtoImprovingtheEfficiencyofManufacturingOperationsintheAmericasMember ens:NonCashChargesMember us-gaap:AmericasMember 2015-04-01 2016-03-31 0001289308 ens:RestructuringsRelatedToManufacturingFacilityinJiangduMember us-gaap:AsiaMember 2016-07-03 0001289308 ens:RestructuringsRelatedToImprovingEfficiencyRelatedtoMotivePowerAssemblyandDistributionCenterMember ens:EuropeanOperationsMember 2016-07-03 0001289308 ens:RestructuringRelatedtoImprovingtheEfficiencyofManufacturingOperationsinClevelandOhioMember ens:CashChargesMember us-gaap:AmericasMember 2016-04-01 2016-07-03 0001289308 ens:RestructuringsRelatedToImprovingEfficiencyOfManufacturingOperationsInEmeaMember ens:EuropeanOperationsMember 2015-04-01 2016-03-31 0001289308 ens:RestructuringsRelatedToManufacturingFacilityinJiangduMember ens:CashChargesMember us-gaap:AsiaMember 2016-04-01 2016-07-03 0001289308 ens:RestructuringsRelatedToImprovingEfficiencyOfManufacturingOperationsInEmeaMember ens:EuropeanOperationsMember 2016-07-03 0001289308 ens:RestructuringRelatedtoImprovingtheEfficiencyofManufacturingOperationsintheAmericasMember ens:NonCashChargesMember us-gaap:AmericasMember 2016-04-01 2016-07-03 0001289308 ens:RestructuringsRelatedToImprovingEfficiencyOfManufacturingOperationsInEmeaMember ens:EuropeanOperationsMember 2016-04-01 2016-07-03 0001289308 ens:RestructuringsRelatedToImprovingEfficiencyOfManufacturingOperationsInEmeaMember ens:EuropeanOperationsMember 2015-12-28 2016-03-31 0001289308 ens:RestructuringRelatedtoImprovingtheEfficiencyofManufacturingOperationsintheAmericasMember us-gaap:AmericasMember 2016-04-01 2016-07-03 0001289308 2015-04-01 2016-03-31 0001289308 ens:RestructuringRelatedtoImprovingtheEfficiencyofManufacturingOperationsintheAmericasMember ens:CashChargesMember us-gaap:AmericasMember 2016-04-01 2016-07-03 0001289308 ens:RestructuringRelatedtoImprovingtheEfficiencyofManufacturingOperationsinClevelandOhioMember us-gaap:AmericasMember 2016-04-01 2016-07-03 0001289308 us-gaap:OtherRestructuringMember 2016-07-03 0001289308 us-gaap:OtherRestructuringMember 2016-04-01 2016-07-03 0001289308 us-gaap:OtherRestructuringMember 2016-03-31 0001289308 us-gaap:EmployeeSeveranceMember 2016-04-01 2016-07-03 0001289308 us-gaap:EmployeeSeveranceMember 2016-03-31 0001289308 us-gaap:EmployeeSeveranceMember 2016-07-03 0001289308 ens:DebtInstrumentQuarterlyInstallmentsBeginningJune302016throughSeptember302018Member 2014-07-08 2014-07-08 0001289308 us-gaap:ConvertibleNotesPayableMember 2016-07-03 0001289308 us-gaap:SecuredDebtMember ens:IncrementalCommitmentAgreementMember us-gaap:SecuredDebtMember 2016-03-31 0001289308 us-gaap:ConvertibleNotesPayableMember 2016-03-31 0001289308 us-gaap:SecuredDebtMember ens:IncrementalCommitmentAgreementMember us-gaap:SecuredDebtMember 2014-07-08 0001289308 us-gaap:RevolvingCreditFacilityMember ens:IncrementalCommitmentAgreementMember us-gaap:LineOfCreditMember 2014-07-08 0001289308 ens:RevolvingCommitmentsandorTermLoansMember ens:IncrementalCommitmentAgreementMember us-gaap:MinimumMember us-gaap:LondonInterbankOfferedRateLIBORMember 2014-07-08 2014-07-08 0001289308 ens:RevolvingCommitmentsandorTermLoansMember ens:IncrementalCommitmentAgreementMember us-gaap:MaximumMember us-gaap:LondonInterbankOfferedRateLIBORMember 2014-07-08 2014-07-08 0001289308 ens:DebtInstrumentQuarterlyInstallmentsBeginningJune302014throughJune302016Member 2014-07-08 2014-07-08 0001289308 ens:SeniorUnsecuredFivePointZeroPercentageConvertibleNotesDueTwoThousandAndTwentyEightMember 2015-04-23 0001289308 ens:DebtInstrumentFinalInstallmentsPayableonSeptember302018Member 2014-07-08 2014-07-08 0001289308 ens:RevolvingCommitmentsandorTermLoansMember ens:IncrementalCommitmentAgreementMember us-gaap:MaximumMember ens:HigherofBankofAmericaPrimeRateorFederalFundsEffectiveRateMember 2014-07-08 2014-07-08 0001289308 us-gaap:SecuredDebtMember ens:IncrementalCommitmentAgreementMember ens:TwoThousandAndElevenCreditFacilityMember us-gaap:SecuredDebtMember 2016-07-03 0001289308 ens:RevolvingCommitmentsandorTermLoansMember ens:IncrementalCommitmentAgreementMember 2014-07-08 0001289308 ens:RevolvingCommitmentsandorTermLoansMember ens:IncrementalCommitmentAgreementMember us-gaap:MinimumMember ens:HigherofBankofAmericaPrimeRateorFederalFundsEffectiveRateMember 2014-07-08 2014-07-08 0001289308 ens:IncrementalCommitmentAgreementMember us-gaap:SecuredDebtMember 2016-07-03 0001289308 ens:SeniorUnsecuredFivePointZeroPercentageConvertibleNotesDueTwoThousandAndTwentyEightMember 2016-03-31 0001289308 us-gaap:SecuredDebtMember ens:IncrementalCommitmentAgreementMember ens:TwoThousandAndElevenCreditFacilityMember 2016-07-03 0001289308 us-gaap:SecuredDebtMember ens:IncrementalCommitmentAgreementMember ens:TwoThousandAndElevenCreditFacilityMember 2016-03-31 0001289308 us-gaap:UnitedStatesPensionPlansOfUSEntityDefinedBenefitMember 2015-04-01 2015-06-28 0001289308 us-gaap:ForeignPensionPlansDefinedBenefitMember 2016-04-01 2016-07-03 0001289308 us-gaap:UnitedStatesPensionPlansOfUSEntityDefinedBenefitMember 2016-04-01 2016-07-03 0001289308 us-gaap:ForeignPensionPlansDefinedBenefitMember 2015-04-01 2015-06-28 0001289308 us-gaap:PerformanceSharesMember 2016-04-01 2016-07-03 0001289308 ens:NonqualifiedStockOptionsMember 2016-07-03 0001289308 us-gaap:RestrictedStockUnitsRSUMember us-gaap:ManagementMember 2016-04-01 2016-07-03 0001289308 us-gaap:RestrictedStockUnitsRSUMember 2016-07-03 0001289308 us-gaap:PerformanceSharesMember 2016-07-03 0001289308 us-gaap:RestrictedStockUnitsRSUMember ens:NonemployeeDirectorsMember 2016-04-01 2016-07-03 0001289308 us-gaap:RestrictedStockUnitsRSUMember 2016-04-01 2016-07-03 0001289308 ens:RedeemableNoncontrollingInterestMember 2016-04-01 2016-07-03 0001289308 ens:NonredeemableNoncontrollingInterestMember 2016-03-31 0001289308 us-gaap:StockholdersEquityTotalMember 2016-03-31 0001289308 us-gaap:StockholdersEquityTotalMember 2016-04-01 2016-07-03 0001289308 ens:RedeemableNoncontrollingInterestMember 2016-03-31 0001289308 ens:NonredeemableNoncontrollingInterestMember 2016-04-01 2016-07-03 0001289308 ens:RedeemableNoncontrollingInterestMember 2016-07-03 0001289308 ens:NonredeemableNoncontrollingInterestMember 2016-07-03 0001289308 us-gaap:StockholdersEquityTotalMember 2016-07-03 0001289308 2015-07-17 2015-07-17 0001289308 us-gaap:AsiaMember 2016-04-01 2016-07-03 0001289308 us-gaap:AmericasMember 2015-04-01 2015-06-28 0001289308 us-gaap:EuropeMember 2015-04-01 2015-06-28 0001289308 us-gaap:AmericasMember 2016-04-01 2016-07-03 0001289308 ens:MotivePowerMember 2015-04-01 2015-06-28 0001289308 ens:MotivePowerMember 2016-04-01 2016-07-03 0001289308 ens:ReservePowerMember 2015-04-01 2015-06-28 0001289308 us-gaap:EuropeMember 2016-04-01 2016-07-03 0001289308 us-gaap:AsiaMember 2015-04-01 2015-06-28 0001289308 ens:ReservePowerMember 2016-04-01 2016-07-03 0001289308 us-gaap:SubsequentEventMember 2016-08-03 2016-08-03 iso4217:USD xbrli:shares xbrli:shares xbrli:pure ens:segment iso4217:USD ens:Employee utreg:lb
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-Q
 
 
 
 

(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 3, 2016
 
¨
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) 
 
 
 
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. 

Large accelerated filer
 
ý
  
Accelerated filer
 
¨
 
 
 
 
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 August 8, 2016: 43,426,979 shares

1


ENERSYS
INDEX – FORM 10-Q
 
 
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
Item 3.
 
 
 
 
Item 4.
 
 
 
 
 
 
 
Item 1.
 
 
 
 
Item 1A.
 
 
 
 
Item 2.
 
 
 
 
Item 4.
 
 
 
 
Item 6.
 
 

 

2

Table of Contents

PART I –
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS

ENERSYS
Consolidated Condensed Balance Sheets (Unaudited)
(In Thousands, Except Share and Per Share Data) 
 
 
July 3, 2016
 
March 31, 2016
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
413,559

 
$
397,307

Accounts receivable, net of allowance for doubtful accounts: July 3, 2016 - $11,985; March 31, 2016 - $11,393
 
456,130

 
490,799

Inventories, net
 
351,604

 
331,081

Prepaid and other current assets
 
80,568

 
77,052

Total current assets
 
1,301,861

 
1,296,239

Property, plant, and equipment, net
 
344,544

 
357,409

Goodwill
 
348,587

 
353,547

Other intangible assets, net
 
163,190

 
159,658

Deferred taxes
 
33,098

 
33,530

Other assets
 
13,291

 
14,105

Total assets
 
$
2,204,571

 
$
2,214,488

Liabilities and Equity
 
 
 
 
Current liabilities:
 
 
 
 
Short-term debt
 
$
12,792

 
$
22,144

Accounts payable
 
221,250

 
228,442

Accrued expenses
 
197,454

 
200,585

Total current liabilities
 
431,496

 
451,171

Long-term debt, net of unamortized debt issuance costs
 
607,818

 
606,221

Deferred taxes
 
46,386

 
46,008

Other liabilities
 
82,635

 
86,656

Total liabilities
 
1,168,335

 
1,190,056

Commitments and contingencies
 


 


Redeemable noncontrolling interests
 
5,948

 
5,997

Equity:
 
 
 
 
Preferred Stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding at July 3, 2016 and at March 31, 2016
 

 

Common Stock, $0.01 par value per share, 135,000,000 shares authorized; 54,350,229 shares issued and 43,426,955 shares outstanding at July 3, 2016; 54,112,776 shares issued and 43,189,502 shares outstanding at March 31, 2016
 
543

 
541

Additional paid-in capital
 
449,450

 
452,097

Treasury stock, at cost, 10,923,274 shares held as of July 3, 2016 and as of March 31, 2016
 
(439,800
)
 
(439,800
)
Retained earnings
 
1,134,434

 
1,097,642

Accumulated other comprehensive loss
 
(119,483
)
 
(97,349
)
Total EnerSys stockholders’ equity
 
1,025,144

 
1,013,131

Nonredeemable noncontrolling interests
 
5,144

 
5,304

Total equity
 
1,030,288

 
1,018,435

Total liabilities and equity
 
$
2,204,571

 
$
2,214,488

See accompanying notes.

3

Table of Contents
ENERSYS
Consolidated Condensed Statements of Income (Unaudited)
(In Thousands, Except Share and Per Share Data)

 
 
Quarter ended
 
 
July 3, 2016
 
June 28, 2015
Net sales
 
$
600,603

 
$
562,068

Cost of goods sold
 
434,269

 
411,653

Gross profit
 
166,334

 
150,415

Operating expenses
 
99,005

 
84,508

Restructuring charges
 
1,297

 
1,218

Gain on sale of facility
 

 
(4,348
)
Operating earnings
 
66,032

 
69,037

Interest expense
 
5,661

 
6,347

Other (income) expense, net
 
1,333

 
695

Earnings before income taxes
 
59,038

 
61,995

Income tax expense
 
14,419

 
14,061

Net earnings
 
44,619

 
47,934

Net earnings (losses) attributable to noncontrolling interests
 
46

 
(453
)
Net earnings attributable to EnerSys stockholders
 
$
44,573

 
$
48,387

Net earnings per common share attributable to EnerSys stockholders:
 
 
 
 
Basic
 
$
1.03

 
$
1.09

Diluted
 
$
1.02

 
$
1.03

Dividends per common share
 
$
0.175

 
$
0.175

Weighted-average number of common shares outstanding:
 
 
 
 
Basic
 
43,269,942

 
44,233,915

Diluted
 
43,829,813

 
46,756,376

See accompanying notes.

4

Table of Contents
ENERSYS
Consolidated Condensed Statements of Comprehensive Income (Unaudited)
(In Thousands)

 
 
Quarter ended
 
 
July 3, 2016
 
June 28, 2015
Net earnings
 
$
44,619

 
$
47,934

Other comprehensive income:
 
 
 
 
Net unrealized gain (loss) on derivative instruments, net of tax
 
670

 
(993
)
Pension funded status adjustment, net of tax
 
281

 
323

Foreign currency translation adjustment
 
(23,340
)
 
20,547

       Total other comprehensive (loss) income, net of tax
 
(22,389
)
 
19,877

Total comprehensive income
 
22,230

 
67,811

Comprehensive loss attributable to noncontrolling interests
 
(209
)
 
(528
)
Comprehensive income attributable to EnerSys stockholders
 
$
22,439

 
$
68,339

See accompanying notes.


5

Table of Contents
ENERSYS
Consolidated Condensed Statements of Cash Flows (Unaudited)
(In Thousands)

 
 
Quarter ended
 
 
July 3, 2016
 
June 28, 2015
Cash flows from operating activities
 
 
 
 
Net earnings
 
$
44,619

 
$
47,934

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
13,768

 
13,615

Write-off of assets relating to restructuring
 
718

 

Non-cash write-off of property, plant and equipment
 
6,300

 

Derivatives not designated in hedging relationships:
 
 
 
 
Net losses
 
302

 
9

Cash (settlements) proceeds
 
(352
)
 
307

Provision for doubtful accounts
 
921

 
496

Deferred income taxes
 
(204
)
 
(4,352
)
Non-cash interest expense
 
347

 
1,763

Stock-based compensation
 
5,067

 
4,239

Gain on sale of facility
 

 
(4,348
)
Gain on disposal of property, plant, and equipment
 
(59
)
 
(25
)
Changes in assets and liabilities:
 
 
 
 
Accounts receivable
 
29,038

 
21,446

Inventories
 
(22,116
)
 
(5,919
)
Prepaid and other current assets
 
(2,889
)
 
2,147

Other assets
 
510

 
(351
)
Accounts payable
 
(4,431
)
 
15,503

Accrued expenses
 
(5,286
)
 
(7,719
)
Other liabilities
 
1,304

 
(2,415
)
Net cash provided by operating activities
 
67,557

 
82,330

 
 
 
 
 
Cash flows from investing activities
 
 
 
 
Capital expenditures
 
(7,487
)
 
(19,670
)
Purchase of businesses
 
(12,392
)
 
(943
)
Proceeds from sale of facility
 

 
9,179

Proceeds from disposal of property, plant, and equipment
 
82

 
69

Net cash used in investing activities
 
(19,797
)
 
(11,365
)
 
 
 
 
 
Cash flows from financing activities
 
 
 
 
Net decrease in short-term debt
 
(9,499
)
 
(684
)
Proceeds from revolving credit borrowings
 
84,300

 
10,000

Repayments of revolving credit borrowings
 
(79,300
)
 
(185,000
)
Proceeds from long-term debt
 

 
300,000

Repayments of Convertible Notes
 

 
(86
)
Repayments of long-term debt
 
(3,750
)
 

Debt issuance costs
 

 
(4,800
)
Option proceeds
 
5

 
55

Payment of taxes related to net share settlement of equity awards
 
(7,644
)
 
(15,346
)
Excess tax benefits from exercise of stock options and vesting of equity awards
 

 
3,450

Purchase of treasury stock
 

 
(637
)
Dividends paid to stockholders
 
(7,600
)
 
(7,785
)
Other
 
(29
)
 
146

Net cash (used in) provided by financing activities
 
(23,517
)
 
99,313

Effect of exchange rate changes on cash and cash equivalents
 
(7,991
)
 
5,580

Net increase in cash and cash equivalents
 
16,252

 
175,858

Cash and cash equivalents at beginning of period
 
397,307

 
268,921

Cash and cash equivalents at end of period
 
$
413,559

 
$
444,779

See accompanying notes.

6

Table of Contents

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 2016 Annual Report on Form 10-K (SEC File No. 001-32253), which was filed on May 31, 2016 (the "2016 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 2017 end on July 3, 2016, October 2, 2016, January 1, 2017, and March 31, 2017, respectively. The four quarters in fiscal 2016 ended on June 28, 2015, September 27, 2015, December 27, 2015, and March 31, 2016, 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 standard permits the use of either the retrospective or cumulative effect transition method upon adoption. The Company has not yet selected a transition method and is currently evaluating the impact, if any, of the adoption of this newly issued guidance on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). This update requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. This update is effective for reporting periods beginning after December 15, 2018, using a modified retrospective approach, with early adoption permitted. The Company is currently assessing the potential impact that the adoption will have on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting (Topic 718)”. This update simplifies several aspects related to how share-based payments are accounted for and presented in the financial statements, including the accounting for forfeitures and tax-effects related to share-based payments at settlement, and the classification of excess tax benefits and shares surrendered for tax withholdings in the statement of cash flows. This update is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. The Company early adopted this standard for the quarter ended July 3, 2016. The impact of the adoption of this standard was as follows:

approximately $740 of excess tax benefits was recorded through income tax expense as a discrete item, adopted on a prospective basis;
excess tax benefits were included within operating cash flows adopted on a prospective basis;
cash paid by the Company when directly withholding shares to satisfy an employee's statutory tax obligations continued to be classified as a financing activity; and
no impact on prior periods due to adopting the guidance on a prospective basis.

The Company has elected to continue its current policy of estimating forfeitures rather than recognizing forfeitures when they occur.

7

Table of Contents

2. Inventories

Inventories, net consist of:

 
 
July 3, 2016
 
March 31, 2016
Raw materials
 
$
89,212

 
$
84,198

Work-in-process
 
106,599

 
104,085

Finished goods
 
155,793

 
142,798

Total
 
$
351,604

 
$
331,081



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 July 3, 2016 and March 31, 2016 and the basis for that measurement:
 
 
 
Total Fair Value
Measurement
July 3, 2016

 
Quoted Price in
Active  Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Lead forward contracts
 
$
1,598

 
$

 
$
1,598

 
$

Foreign currency forward contracts
 
(560
)
 

 
(560
)
 

Total derivatives
 
$
1,038

 
$

 
$
1,038

 
$

 
 
 
Total Fair Value
Measurement
March 31, 2016

 
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Lead forward contracts
 
$
(499
)
 
$

 
$
(499
)
 
$

Foreign currency forward contracts
 
(988
)
 

 
(988
)
 

Total derivatives
 
$
(1,487
)
 
$

 
$
(1,487
)
 
$



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 2016 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 99% and 96% of face value on July 3, 2016 and March 31, 2016, respectively.


8

Table of Contents

The carrying amounts and estimated fair values of the Company’s derivatives and Notes at July 3, 2016 and March 31, 2016 were as follows:

 
 
July 3, 2016
 
 
 
March 31, 2016
 
 
 
 
Carrying
Amount
 
 
 
Fair Value
 
 
 
Carrying
Amount
 
 
 
Fair Value
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives (1)
 
$
1,598

 
  
 
$
1,598

 
  
 
$

 
  
 
$

 
  
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes (2)
 
$
300,000

 
 
 
$
295,500

 

 
$
300,000

 
 
 
$
288,000

 
 
Derivatives (1)
 
560

 
  
 
560

 
  
 
1,487

 
  
 
1,487

 
  

(1)
Represents lead and foreign currency forward contracts (see Note 4 for asset and liability positions of the lead and foreign currency forward contracts at July 3, 2016 at March 31, 2016).
(2)
The fair value amount of the Notes at July 3, 2016 and March 31, 2016 represent the trading value of the Notes.

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 July 3, 2016 and March 31, 2016 were 23.9 million pounds and 27.4 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 July 3, 2016 and March 31, 2016, the Company had entered into a total of $16,223 and $18,206, respectively, of such contracts.

In the coming twelve months, the Company anticipates that $1,687 of pretax gain 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 July 3, 2016 and March 31, 2016, the notional amount of these contracts was $8,073 and $11,156, respectively.


9

Table of Contents

Presented below in tabular form is information on the location and amounts of derivative fair values in the Consolidated Condensed Balance Sheets and derivative gains and losses in the Consolidated Condensed Statements of Income:

Fair Value of Derivative Instruments
July 3, 2016 and March 31, 2016
 
 
 
Derivatives and Hedging Activities Designated as Cash Flow Hedges
 
Derivatives and Hedging Activities Not Designated as Hedging Instruments
 
 
July 3, 2016
 
March 31, 2016
 
July 3, 2016
 
March 31, 2016
Prepaid and other current assets
 
 
 
 
 
 
 
 
Lead forward contracts
 
$
1,598

 
$

 
$

 
$

Foreign currency forward contracts
 
29

 

 

 

Total assets
 
$
1,627

 
$

 
$

 
$

Accrued expenses
 
 
 
 
 
 
 
 
Lead forward contracts
 
$

 
$
499

 
$

 
$

Foreign currency forward contracts
 

 
350

 
589

 
638

Total liabilities
 
$

 
$
849

 
$
589

 
$
638



The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the quarter ended July 3, 2016
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
 
$
1,813

 
Cost of goods sold
 
$
1,059

Foreign currency forward contracts
 
128

 
Cost of goods sold
 
(180
)
Total
 
$
1,941

 
 
 
$
879

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
 
$
(302
)
Total
 
 
$
(302
)

The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the quarter ended June 28, 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
 
$
(1,089
)
 
Cost of goods sold
 
$
(5,402
)
Foreign currency forward contracts
 
(2,060
)
 
Cost of goods sold
 
3,827

Total
 
$
(3,149
)
 
 
 
$
(1,575
)
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
 
$
(9
)
Total
 
 
$
(9
)


5. Income Taxes

The Company’s income tax provision consists of federal, state and foreign income taxes. The tax provision for the first quarters of fiscal 2017 and 2016 were based on the estimated effective tax rates applicable for the full years ending March 31, 2017 and March 31, 2016, 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.


10

Table of Contents

The consolidated effective income tax rates were 24.4% and 22.7%, respectively, for the first quarters of fiscal 2017 and 2016. The rate increase in the first quarter of fiscal 2017 compared to the first quarter of fiscal 2016 is primarily due to the subsequent recognition of a previously unrecognized tax position in fiscal 2016 related to one of the Company's foreign subsidiaries, as well as changes in mix of earnings among tax jurisdictions.

Foreign income as a percentage of worldwide income is estimated to be 55% for the first quarter of fiscal 2017 compared to 57% for the first quarter of fiscal 2016. The foreign effective income tax rates for the first quarter of fiscal 2017 and 2016 were 14.4% and 12.8%, respectively. The rate increase compared to the prior year period is primarily due to the subsequent recognition of a previously unrecognized tax position in fiscal 2016 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. As 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
 
 
July 3, 2016
 
June 28, 2015
Balance at beginning of period
 
$
48,422

 
$
39,810

Current period provisions
 
5,236

 
3,885

Costs incurred
 
(2,359
)
 
(4,361
)
Foreign currency translation adjustment
 
(3,224
)
 
451

Balance at end of period
 
$
48,075

 
$
39,785



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, 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, 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 the competition authorities of Belgium, Germany and the Netherlands relating to conduct and anticompetitive practices of certain industrial battery participants. The Company is responding to inquiries related to these matters. The Company settled the Belgian regulatory proceeding in February 2016 by acknowledging certain anticompetitive practices and conduct and agreeing to pay a fine of $1,962, which was paid in March 2016. As of July 3, 2016 and March 31, 2016, the Company had a reserve balance of $1,844 and $2,038, respectively, in connection with these remaining investigations and other related legal charges. The change in the reserve balance between July 3, 2016 and March 31, 2016 was due to foreign currency translation impact. For the Dutch and German regulatory proceedings, the Company does not believe that such an estimate can be made at this time given the current stage of these proceedings. The foregoing estimate of losses is based upon currently available information for these proceedings. However, the precise scope, timing and time period at issue, as well as the final outcome of the investigations, 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.


11

Table of Contents

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 is separate from the Company’s current metal fabrication facility in Sumter. The Company established a reserve for this facility. As of July 3, 2016 and March 31, 2016, the reserve related to this facility was $1,123. Based on current information, the Company’s management believes these reserves are adequate to satisfy the Company’s environmental liabilities at this facility.

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 July 3, 2016 and March 31, 2016, the Company has hedged the price to purchase approximately 23.9 million pounds and 27.4 million pounds of lead, respectively, for a total purchase price of $18,468 and $21,628, 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 $24,296 and $29,362, respectively, of foreign currency forward contracts with financial institutions as of July 3, 2016 and March 31, 2016.

8. Restructuring Plans

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 $7,300, 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. In fiscal 2016, the Company recorded restructuring charges of $5,232 and recorded an additional $209 during the first quarter of fiscal 2017. The Company incurred $2,993 in costs against the accrual in fiscal 2016 and incurred an additional $808 against the accrual during the first quarter of fiscal 2017. As of July 3, 2016, the reserve balance associated with these actions is $1,594. The Company expects to be committed to an additional $1,900 of restructuring charges related to these actions during fiscal 2017, 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, which was completed during the first quarter of fiscal 2017, consisted of the closing of its Cleveland, Ohio charger manufacturing facility and the transfer of charger production to other Americas manufacturing facilities. The total charges for all actions associated with this program amounted to $2,379, primarily from cash charges for employee severance-related payments and other charges of $1,043, along with a pension curtailment charge of $313 and non-cash charges related to the accelerated depreciation of fixed assets of $1,023. The program resulted in the reduction of approximately 100 employees at its Cleveland facility. In fiscal 2016, the Company recorded restructuring charges of $1,488 including a pension curtailment charge of $313 and non-cash charges of $305 and recorded an additional $174 in cash charges and $718 in non-cash charges during the first quarter of fiscal 2017. The Company incurred $119 in costs against the accrual in fiscal 2016 and incurred an additional $924 against the accrual during the first quarter of fiscal 2017.

During the first quarter of fiscal 2017, the Company announced a restructuring to improve efficiencies primarily related to its motive power production in EMEA. The Company estimates that the total charges for these actions will amount to approximately $3,900, 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 40 employees upon completion. During the first quarter of fiscal 2017, the Company recorded restructuring charges of $60 and incurred $60 in costs against the accrual. As of July 3, 2016, the reserve balance associated with these actions is $0. The Company expects to be committed to an additional $3,800 in restructuring charges related to this action through fiscal 2018, when it expects to complete this program.

During the first quarter of fiscal 2017, the Company announced a program primarily to complete the transfer of equipment and clean-up of its manufacturing facility located in Jiangdu, the People’s Republic of China, which stopped production during the first quarter of fiscal 2016. The Company estimates that the total cash charges for these actions will amount to approximately $750. During the first quarter of fiscal 2017, the Company recorded charges of $136 and incurred $136 in costs against the accrual. As of July 3, 2016, the reserve balance associated with these actions is $0. The Company expects to be committed to an additional $600 in charges related to this action through fiscal 2017, when it expects to complete this program.


12

Table of Contents

A roll-forward of the restructuring reserve is as follows:
 
 
 
Employee
Severance
 
Other
 
Total
Balance as of March 31, 2016
 
$
2,964

 
$
25

 
$
2,989

Accrued
 
442

 
137

 
579

Costs incurred
 
(1,767
)
 
(162
)
 
(1,929
)
Foreign currency impact and other
 
(45
)
 

 
(45
)
Balance as of July 3, 2016
 
$
1,594

 
$

 
$
1,594



9. Debt

The following summarizes the Company’s long-term debt as of July 3, 2016 and March 31, 2016:
 
 
 
July 3, 2016
 
March 31, 2016
 
 
Principal
 
Unamortized Issuance Costs
 
Principal
 
Unamortized Issuance Costs
5.00% Senior Notes due 2023
 
$
300,000

 
$
4,214

 
$
300,000

 
$
4,370

2011 Credit Facility, due 2018
 
313,750

 
1,718

 
312,500

 
1,909

 
 
$
613,750

 
$
5,932

 
$
612,500

 
$
6,279

Less: Unamortized issuance costs
 
5,932

 
 
 
6,279

 
 
Long-term debt, net of unamortized issuance costs
 
$
607,818

 
 
 
$
606,221

 
 


5.00% Senior Notes

The Company's $300,000 5.00% Senior Notes due 2023 bear interest at a rate of 5.00% per annum. 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.

2011 Credit Facility

The Company is party to 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, comprising the “2011 Credit Facility”. The quarterly installments payable on the Term Loan were $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 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 $15,000 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 July 3, 2016, the Company had $175,000 outstanding in revolver borrowings and $138,750 under its Term Loan borrowings.

Short-Term Debt

As of July 3, 2016 and March 31, 2016, the Company had $12,792 and $22,144, respectively, of short-term borrowings. The weighted-average interest rates on these borrowings were approximately 11% and 8% at July 3, 2016 and March 31, 2016, respectively.

Letters of Credit

As of July 3, 2016 and March 31, 2016, the Company had $2,744 and $2,693, respectively, of standby letters of credit.


13

Table of Contents

Debt Issuance Costs

Amortization expense, relating to debt issuance costs, included in interest expense was $347 and $433, respectively, during the quarters ended July 3, 2016 and June 28, 2015. Debt issuance costs, net of accumulated amortization, totaled $5,932 and $6,279, respectively, at July 3, 2016 and March 31, 2016.

Available Lines of Credit

As of July 3, 2016 and March 31, 2016, the Company had available and undrawn, under all its lines of credit, $478,253 and $472,187, respectively, including $155,178 and $144,112, respectively, of uncommitted lines of credit as of July 3, 2016 and March 31, 2016.

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
July 3, 2016
 
June 28, 2015
 
July 3, 2016
 
June 28, 2015
Service cost
 
$
91

 
$
138

 
$
223

 
$
208

Interest cost
 
170

 
168

 
494

 
485

Expected return on plan assets
 
(204
)
 
(215
)
 
(510
)
 
(576
)
Amortization and deferral
 
132

 
134

 
265

 
317

Net periodic benefit cost
 
$
189

 
$
225

 
$
472

 
$
434



11. Stock-Based Compensation

As of July 3, 2016, the Company maintains the Second Amended and Restated EnerSys 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 condition-based share units and other forms of equity-based compensation.

The Company recognized stock-based compensation expense associated with its equity incentive plans of $5,067 for the first quarter of fiscal 2017 and $4,239 for the first quarter of fiscal 2016. 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 first quarter ended July 3, 2016, the Company granted to non-employee directors 1,586 restricted stock units, pursuant to the EnerSys Deferred Compensation Plan for Non-Employee Directors.

During the first quarter ended July 3, 2016, the Company granted to management and other key employees 242,068 non-qualified stock options and 83,720 market condition-based share units that vest three years from the date of grant and 229,638 restricted stock units that vest 25% each year over four years from the date of grant.

Common stock activity during the first quarter ended July 3, 2016 included the vesting of 139,526 restricted stock units and 232,817 market condition-based share units and exercise of 263 stock options.

As of July 3, 2016, there were 451,668 non-qualified stock options, 413,763 restricted stock units and 446,113 market condition-based 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 first quarter ended July 3, 2016:
 
Shares outstanding as of March 31, 2016
 
43,189,502

Shares issued towards equity-based compensation plans, net of equity awards surrendered for option price and taxes
 
237,453

Shares outstanding as of July 3, 2016
 
43,426,955




14

Table of Contents

Treasury Stock

There were no repurchases of treasury stock during the first quarter ended July 3, 2016, and the Company held 10,923,274 shares as treasury stock, at July 3, 2016 and March 31, 2016.

Accumulated Other Comprehensive Income ("AOCI")

The components of AOCI, net of tax, as of July 3, 2016 and March 31, 2016, are as follows:
 
 
March 31, 2016
 
Before Reclassifications
 
Amounts Reclassified from AOCI
 
July 3, 2016
Pension funded status adjustment
 
$
(21,861
)
 
$

 
$
281

 
$
(21,580
)
Net unrealized (loss) gain on derivative instruments
 
388

 
1,225

 
(555
)
 
1,058

Foreign currency translation adjustment
 
(75,876
)
 
(23,085
)
 

 
(98,961
)
Accumulated other comprehensive income (loss)
 
$
(97,349
)
 
$
(21,860
)
 
$
(274
)
 
$
(119,483
)


The following table presents reclassifications from AOCI during the first quarter ended July 3, 2016:

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
 
$
(879
)
 
Cost of goods sold
Tax expense
 
324

 
 
Net unrealized gain on derivative instruments, net of tax
 
$
(555
)
 
 
 
 
 
 
 
Defined benefit pension costs:
 
 
 
 
Prior service costs and deferrals
 
$
397

 
Net periodic benefit cost, included in cost of goods sold and operating expenses - See Note 10
Tax benefit
 
(116
)
 
 
Net periodic benefit cost, net of tax
 
$
281

 
 

The following table presents reclassifications from AOCI during the first quarter ended June 28, 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
 
$
1,575

 
Cost of goods sold
Tax benefit
 
(580
)
 
 
Net unrealized loss on derivative instruments, net of tax
 
$
995

 
 
 
 
 
 
 
Defined benefit pension costs:
 
 
 
 
Prior service costs and deferrals
 
$
451

 
Net periodic benefit cost, included in cost of goods sold and operating expenses - See Note 10
Tax benefit
 
(128
)
 
 
Net periodic benefit cost, net of tax
 
$
323

 
 



15

Table of Contents

The following demonstrates the change in equity attributable to EnerSys stockholders and nonredeemable noncontrolling interests during the first quarter ended July 3, 2016:

 
 
Equity Attributable to EnerSys Stockholders
 
Nonredeemable Noncontrolling Interests
 
Total Equity
Balance as of March 31, 2016
 
$
1,013,131

 
$
5,304

 
$
1,018,435

Total comprehensive income:
 
 
 
 
 
 
Net earnings
 
44,573

 
86

 
44,659

Net unrealized gain on derivative instruments, net of tax
 
670

 

 
670

Pension funded status adjustment, net of tax
 
281

 

 
281

Foreign currency translation adjustment
 
(23,085
)
 
(246
)
 
(23,331
)
     Total other comprehensive loss, net of tax
 
(22,134
)
 
(246
)
 
(22,380
)
Total comprehensive income (loss)
 
22,439

 
(160
)
 
22,279

Other changes in equity:
 
 
 
 
 
 
Cash dividends - common stock ($0.175 per share)
 
(7,600
)
 

 
(7,600
)
Other, including activity related to equity awards
 
(2,826
)
 

 
(2,826
)
Balance as of July 3, 2016
 
$
1,025,144

 
$
5,144

 
$
1,030,288



The following demonstrates the change in redeemable noncontrolling interests during the first quarter ended July 3, 2016:

 
 
Redeemable Noncontrolling Interests
Balance as of March 31, 2016
 
$
5,997

Net loss
 
(40
)
Foreign currency translation adjustment
 
(9
)
Balance as of July 3, 2016
 
$
5,948



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
 
 
July 3, 2016
 
June 28, 2015
Net earnings attributable to EnerSys stockholders
 
$
44,573

 
$
48,387

Weighted-average number of common shares outstanding:
 
 
 
 
Basic
 
43,269,942

 
44,233,915

Dilutive effect of:
 
 
 
 
Common shares from exercise and lapse of equity awards, net of shares assumed reacquired
 
559,871

 
703,434

3.375% Convertible Notes due 2038 (1)
 

 
1,819,027

Diluted weighted-average number of common shares outstanding
 
43,829,813

 
46,756,376

Basic earnings per common share attributable to EnerSys stockholders
 
$
1.03

 
$
1.09

Diluted earnings per common share attributable to EnerSys stockholders
 
$
1.02

 
$
1.03

Anti-dilutive equity awards not included in diluted weighted-average common shares
 
389,956

 



(1) On July 17, 2015, the Company paid $172,388, in aggregate, towards the principal balance of the Convertible Notes, 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.



16

Table of Contents

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 Zug, 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 first quarters ended July 3, 2016 and June 28, 2015 is shown below:

 
 
Quarter ended
 
 
July 3, 2016
 
June 28, 2015
Net sales by segment to unaffiliated customers
 
 
 
 
Americas
 
$
329,720

 
$
317,026

EMEA
 
197,130

 
196,641

Asia
 
73,753

 
48,401

Total net sales
 
$
600,603

 
$
562,068

Net sales by product line
 
 
 
 
Reserve power
 
$
296,041

 
$
264,264

Motive power
 
304,562

 
297,804

Total net sales
 
$
600,603

 
$
562,068

Intersegment sales
 
 
 
 
Americas
 
$
6,004

 
$
10,040

EMEA
 
22,163

 
18,638

Asia
 
3,697

 
6,386

Total intersegment sales (1)
 
$
31,864

 
$
35,064

Operating earnings by segment
 
 
 
 
Americas
 
$
43,310

 
$
45,345

EMEA
 
19,836

 
20,552

Asia
 
4,183

 
10

Restructuring charges - Americas
 
(892
)
 
(570
)
Restructuring charges - EMEA
 
(269
)
 
(648
)
Restructuring charges - Asia
 
(136
)
 

Gain on sale of facility - Asia
 

 
4,348

Total operating earnings (2)
 
$
66,032

 
$
69,037


(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 August 3, 2016, the Board of Directors approved a quarterly cash dividend of $0.175 per share of common stock to be paid on September 30, 2016, to stockholders of record as of September 16, 2016.



17

Table of Contents

ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a safe harbor for forward-looking statements made by or on behalf of EnerSys. EnerSys and its representatives may, from time to time, make written or verbal forward-looking statements, including statements contained in EnerSys’ filings with the Securities and Exchange Commission 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 2016 Annual Report on Form 10-K (the "2016 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