ENERSYS The following discussion and analysis of our results of operations and financial condition for the fiscal years endedMarch 31, 2021 , 2020 and 2019, should be read in conjunction with our audited Consolidated Financial Statements and the notes to those statements included in Item 8. Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Our discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, opinions, expectations, anticipations and intentions and beliefs. Actual results and the timing of events could differ materially from those anticipated in those forward-looking statements as a result of a number of factors. See "Cautionary Note Regarding Forward-Looking Statements," "Business" and "Risk Factors," sections elsewhere in this Annual Report on Form 10-K. In the following discussion and analysis of results of operations and financial condition, certain financial measures may be considered "non-GAAP financial measures" under theSEC rules. These rules require supplemental explanation and reconciliation, which is provided in this Annual Report on Form 10-K.EnerSys' management uses the non-GAAP measures, EBITDA and adjusted EBITDA, in its computation of compliance with loan covenants. These measures, as used byEnerSys , adjust net earnings determined in accordance with GAAP for interest, taxes, depreciation and amortization, and certain charges or credits as permitted by our credit agreements, that were recorded during the periods presented.EnerSys' management uses the non-GAAP measures, "free cash flows", "primary working capital" and "primary working capital percentage" along with capital expenditures, in its evaluation of business segment cash flow and financial position performance. Primary working capital is trade accounts receivable, plus inventories, minus trade accounts payable and the resulting net amount is divided by the trailing three-month net sales (annualized) to derive a primary working capital percentage. Free cash flows are cash flows from operating activities less capital expenditures. These non-GAAP disclosures have limitations as analytical tools, should not be viewed as a substitute for cash flow or operating earnings determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. This supplemental presentation should not be construed as an inference that the Company's future results will be unaffected by similar adjustments to operating earnings determined in accordance with GAAP.
Overview
EnerSys (the "Company," "we," or "us") is a world leader in stored energy solutions for industrial applications. We also manufacture and distribute energy systems solutions and motive power batteries, specialty batteries, battery chargers, power equipment, battery accessories and outdoor equipment enclosure solutions to customers worldwide. Energy Systems which combine enclosures, power conversion, power distribution and energy storage are used in the telecommunication and broadband, utility industries, uninterruptible power supplies, and numerous applications requiring stored energy solutions.Motive Power batteries and chargers are utilized in electric forklift trucks and other industrial electric powered vehicles. Specialty batteries are used in aerospace and defense applications, large over the road trucks, premium automotive and medical. We also provide aftermarket and customer support services to over 10,000 customers in more than 100 countries through a network of distributors, independent representatives and our internal sales force around the world. During the first quarter of fiscal 2021, the Company's chief operating decision maker, or CODM (the Company's Chief Executive Officer), changed the manner in which he reviews financial information for purposes of assessing business performance and allocating resources, by focusing on the lines of business on a global basis, rather than on geographic basis. As a result of this change, the Company re-evaluated the identification of its operating segments and reportable segments. The new operating segments were identified as Energy Systems,Motive Power and Specialty. The Company's operating segments also represent its reportable segments under ASC 280, Segment Reporting. Therefore, the Company has changed its segment presentation from three reportable segments based on geographic basis to three reportable segments based on line of business. All prior comparative periods presented have been recast to reflect these changes.
The Company's three reportable segments, based on lines of business, are as follows:
•Energy Systems - uninterruptible power systems, or "UPS" applications for
computer and computer-controlled systems, as well as telecommunications systems,
switchgear and electrical control systems used in industrial facilities and
electric utilities, large-scale energy storage and energy pipelines. Energy
Systems also includes highly integrated
30
--------------------------------------------------------------------------------
Table of Contents
power solutions and services to broadband, telecom, renewable and industrial
customers, as well as thermally managed cabinets and enclosures for electronic
equipment and batteries.
•Motive Power - power for electric industrial forklifts used in manufacturing,
warehousing and other material handling applications, as well as mining
equipment, diesel locomotive starting and other rail equipment; and
•Specialty - premium starting, lighting and ignition applications in
transportation, energy solutions for satellites, military aircraft, submarines,
ships and other tactical vehicles, as well as medical and security systems.
We evaluate business segment performance based primarily upon operating earnings
exclusive of highlighted items. Highlighted items are those that the Company
deems are not indicative of ongoing operating results, including those charges
that the Company incurs as a result of restructuring activities, impairment of
goodwill and indefinite-lived intangibles and other assets, acquisition
activities and those charges and credits that are not directly related to
operating unit performance, such as significant legal proceedings, ERP system
implementation, amortization of recently acquired intangible assets and tax
valuation allowance changes, including those related to the adoption of the Tax
Cuts and Jobs Act. Because these charges are not incurred as a result of ongoing
operations, or are incurred as a result of a potential or previous acquisition,
they are not as helpful a measure of the performance of our underlying business,
particularly in light of their unpredictable nature and are difficult to
forecast. All corporate and centrally incurred costs are allocated to the
business segments based principally on net sales. We evaluate business segment
cash flow and financial position performance based primarily upon free cash
flows, capital expenditures and primary working capital levels. Although we
monitor the three elements of primary working capital (receivables, inventory
and payables), our primary focus is on the total amount due to the significant
impact it has on our cash flow.
Our management structure, financial reporting systems, and associated internal
controls and procedures, are all consistent with our three lines of business. We
report on a March 31 fiscal year-end. Our financial results are largely driven
by the following factors:
•global economic conditions and general cyclical patterns of the industries in
which our customers operate;
•changes in our selling prices and, in periods when our product costs increase,
our ability to raise our selling prices to pass such cost increases through to
our customers;
•the extent to which we are able to efficiently utilize our global manufacturing
facilities and optimize our capacity;
•the extent to which we can control our fixed and variable costs, including
those for our raw materials, manufacturing, distribution and operating
activities;
•changes in our level of debt and changes in the variable interest rates under
our credit facilities; and
•the size and number of acquisitions and our ability to achieve their intended
benefits.
Current Market Conditions
Economic Climate
Global economies are recovering differently from the COVID-19 pandemic.
EnerSys is experiencing some supply chain disruptions in certain materials such as plastic resins and electronic components along with occasional transportation challenges. In addition, some locations have difficulty meeting hiring goals. Generally, our mitigation efforts and the recent economic recovery, limit the impact of the pandemic-related challenges.
Volatility of Commodities and Foreign Currencies
Our most significant commodity and foreign currency exposures are related to lead and the Euro, respectively. Historically, volatility of commodity costs and foreign currency exchange rates have caused large swings in our production costs. As a result of the COVID-19 pandemic, lead dropped into the low70 cents per pound rate during our first fiscal quarter of 2021 and has currently rallied back to the mid90 cents per pound rate which is approximately the pre-COVID-19 levels. We are experiencing increasing costs in some of our raw materials such as plastic resins, steel, copper and electronics.
Customer Pricing
Our selling prices fluctuated during the last several years to offset the
volatile cost of commodities. Approximately 30% of our revenue is now subject to
agreements that adjust pricing to a market-based index for lead. Lead prices
peaked in the first quarter of fiscal 2019 and then declined sequentially in
every quarter in fiscal 2019. In fiscal 2020, our selling prices declined in
31
--------------------------------------------------------------------------------
Table of Contents
response to declining commodity costs, including lead. In fiscal 2021, lead
prices declined further in the first quarter and then recovered slowly
throughout the rest of the fiscal year. Based on current commodity markets, we
will likely see year over year headwinds from increasing commodity prices, with
some related increase in our selling prices in the upcoming year. As we
concentrate more on energy systems and non-lead chemistries, the emphasis on
lead will continue to decline.
Liquidity and Capital Resources
We believe that our financial position is strong, and we have substantial liquidity with$452 million of available cash and cash equivalents and available and undrawn committed credit lines of approximately$698 million atMarch 31, 2021 to cover short-term liquidity requirements and anticipated growth in the foreseeable future. The nominal amount of credit available is subject to a leverage ratio maximum of 3.5x EBITDA, as discussed in Liquidity and Capital Resources, which effectively limits additional debt or lowered cash balances by approximately$600 million . In fiscal 2020, we issued$300 million in aggregate principal amount of our 4.375% Senior Notes due 2027 (the "2027 Notes"). Proceeds from this offering, net of debt issuance costs were$296.3 million and were utilized to pay down the balance outstanding on the revolver borrowings. In fiscal 2018, we entered into a credit facility ("2017 Credit Facility") that consisted of a$600.0 million senior secured revolving credit facility ("2017 Revolver") and a$150.0 million senior secured term loan ("2017 Term Loan") with a maturity date ofSeptember 30, 2022 . OnDecember 7, 2018 , we amended the 2017 Credit Facility (as amended, the "Amended Credit Facility"). The Amended Credit Facility consists of$449.1 million senior secured term loans (the "Amended 2017 Term Loan"), including aCAD 133.1 million ($99.1 million ) term loan and a$700.0 million senior secured revolving credit facility (the "Amended 2017 Revolver"). The amendment resulted in an increase of the 2017 Term Loan and the 2017 Revolver by$299.1 million and$100.0 million , respectively. In fiscal 2021, we did not repurchase any shares but in fiscal 2020 and 2019 we repurchased$34.6 million and$56.4 million of our common stock under existing authorizations, respectively. In fiscal 2021, 2020 and 2019, we reissued 13,465, 17,410 and 3,256 shares out of our treasury stock, respectively, to participants under the Company's Employee Stock Purchase Plan.
In fiscal 2019, we reissued 1,177,630 shares from our treasury stock to satisfy
A substantial majority of the Company's cash and investments are held by foreign subsidiaries. The majority of that cash and investments is expected to be utilized to fund local operating activities, capital expenditure requirements and acquisitions. The Company believes that it has sufficient sources of domestic and foreign liquidity.
We believe that our strong capital structure and liquidity affords us access to capital for future capital expenditures, acquisition and stock repurchase opportunities and continued dividend payments.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 1 - Summary of Significant Accounting Policies to the Consolidated Financial Statements in Item 8. In preparing our financial statements, management is required to make estimates and assumptions that, among other things, affect the reported amounts in the Consolidated Financial Statements and accompanying notes. These estimates and assumptions are most significant where they involve levels of subjectivity and judgment necessary to account for highly uncertain matters or matters susceptible to change, and where they can have a material impact on our financial condition and operating performance. We discuss below the more significant estimates and related assumptions used in the preparation of our Consolidated Financial Statements. If actual results were to differ materially from the estimates made, the reported results could be materially affected.
Revenue Recognition
We adopted the accounting standard for the recognition of revenue under ASC 606 for the fiscal year beginning onApril 1, 2019 . Under this standard, we recognize revenue only when we have satisfied a performance obligation through transferring control of the promised good or service to a customer. The standard indicates that an entity must determine at contract inception whether it will transfer control of a promised good or service over time or satisfy the performance obligation at a point in time through analysis of the following criteria: (i) the entity has a present right to payment, (ii) the customer has legal title, (iii) the 32 -------------------------------------------------------------------------------- Table of Contents customer has physical possession, (iv) the customer has the significant risks and rewards of ownership and (v) the customer has accepted the asset. Our primary performance obligation to our customers is the delivery of finished goods and products, pursuant to purchase orders. Control of the products sold typically transfers to our customers at the point in time when the goods are shipped as this is also when title generally passes to our customers under the terms and conditions of our customer arrangements.
We assess collectibility based primarily on the customer's payment history and on the creditworthiness of the customer.
Management believes that the accounting estimates related to revenue recognition are critical accounting estimates because they require reasonable assurance of collection of revenue proceeds and completion of all performance obligations. Also, revenues are recorded net of provisions for sales discounts and returns, which are established at the time of sale. These estimates are based on our past experience. For additional information on the new accounting standard for the recognition of revenue see Note 1 of Notes to the Consolidated Financial Statements.
Asset Impairment Determinations
We test for the impairment of our goodwill and indefinite-lived trademarks at least annually and whenever events or circumstances occur indicating that a possible impairment has been incurred.
We assess whether goodwill impairment exists using both qualitative and
quantitative assessments. The qualitative assessment involves determining
whether events or circumstances exist that indicate it is more likely than not
that the fair value of a reporting unit is less than its carrying amount,
including goodwill. If, based on this qualitative assessment, we determine it is
not more likely than not that the fair value of a reporting unit is less than
its carrying amount, or if we elect not to perform a qualitative assessment, a
quantitative assessment is performed to determine whether a goodwill impairment
exists at the reporting unit.
We perform our annual goodwill impairment test on the first day of our fourth
quarter for each of our reporting units based on the income approach, also known
as the discounted cash flow ("DCF") method, which utilizes the present value of
future cash flows to estimate fair value. We also use the market approach, which
utilizes market price data of companies engaged in the same or a similar line of
business as that of our company, to estimate fair value. A reconciliation of the
two methods is performed to assess the reasonableness of fair value of each of
the reporting units.
The future cash flows used under the DCF method are derived from estimates of
future revenues, operating income, working capital requirements and capital
expenditures, which in turn reflect our expectations of specific global,
industry and market conditions. The discount rate developed for each of the
reporting units is based on data and factors relevant to the economies in which
the business operates and other risks associated with those cash flows,
including the potential variability in the amount and timing of the cash flows.
A terminal growth rate is applied to the final year of the projected period and
reflects our estimate of stable growth to perpetuity. We then calculate the
present value of the respective cash flows for each reporting unit to arrive at
the fair value using the income approach and then determine the appropriate
weighting between the fair value estimated using the income approach and the
fair value estimated using the market approach. Finally, we compare the
estimated fair value of each reporting unit to its respective carrying value in
order to determine if the goodwill assigned to each reporting unit is
potentially impaired. If the fair value of the reporting unit exceeds its
carrying value, goodwill is not impaired and no further testing is required. If
the fair value of the reporting unit is less than the carrying value, an
impairment charge is recognized for the amount by which the carrying amount
exceeds the reporting unit's fair value; however, the loss recognized should not
exceed the total amount of goodwill allocated to that reporting unit.
Significant assumptions used include management's estimates of future growth
rates, the amount and timing of future operating cash flows, capital
expenditures, discount rates, as well as market and industry conditions and
relevant comparable company multiples for the market approach. Assumptions
utilized are highly judgmental, especially given the role technology plays in
driving the demand for products in the telecommunications and aerospace markets.
Based on the results of the annual impairment test as of January 4, 2021 , we
determined there were no indicators of goodwill impairment.
The indefinite-lived trademarks are tested for impairment by comparing the
carrying value to the fair value based on current revenue projections of the
related operations, under the relief from royalty method. Any excess carrying
value over the amount of fair value is recognized as impairment. Any impairment
would be recognized in full in the reporting period in which it has been
identified.
33
--------------------------------------------------------------------------------
Table of Contents
With respect to our other long-lived assets other than goodwill and
indefinite-lived trademarks, we test for impairment when indicators of
impairment are present. An asset is considered impaired when the undiscounted
estimated net cash flows expected to be generated by the asset are less than its
carrying amount. The impairment recognized is the amount by which the carrying
amount exceeds the fair value of the impaired asset.
Business Combinations
We account for business combinations in accordance with ASC 805, Business Combinations. We recognize assets acquired and liabilities assumed in acquisitions at their fair values as of the acquisition date, with the acquisition-related transaction and restructuring costs expensed in the period incurred. Determining the fair value of assets acquired and liabilities assumed often involves estimates based on third-party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses and may include estimates of attrition, inflation, asset growth rates, discount rates, multiples of earnings or other relevant factors. In addition, fair values are subject to refinement for up to a year after the closing date of an acquisition. Adjustments recorded to the acquired assets and liabilities are applied prospectively. Fair values are based on estimates using management's assumptions using future growth rates, future attrition of the customer base, discount rates, multiples of earnings or other relevant factors. Any change in the acquisition date fair value of assets acquired and liabilities assumed may materially affect our financial position, results of operations and liquidity. Litigation and Claims From time to time, the Company has been or may be a party to various legal actions and investigations including, among others, employment matters, compliance with government regulations, federal and state employment laws, including wage and hour laws, contractual disputes and other matters, including matters arising in the ordinary course of business. These claims may be brought by, among others, governments, customers, suppliers and employees. Management considers the measurement of litigation reserves as a critical accounting estimate because of the significant uncertainty in some cases relating to the outcome of potential claims or litigation and the difficulty of predicting the likelihood and range of potential liability involved, coupled with the material impact on our results of operations that could result from litigation or other claims.
In determining legal reserves, management considers, among other inputs:
•interpretation of contractual rights and obligations; •the status of government regulatory initiatives, interpretations and investigations; •the status of settlement negotiations; •prior experience with similar types of claims; •whether there is available insurance coverage; and •advice of outside counsel. For certain matters, management is able to estimate a range of losses. When a loss is probable, but no amount of loss within a range of outcomes is more likely than any other outcome, management will record a liability based on the low end of the estimated range. Additionally, management will evaluate whether losses in excess of amounts accrued are reasonably possible, and will make disclosure of those matters based on an assessment of the materiality of those addition possible losses.
Environmental Loss Contingencies
Accruals for environmental loss contingencies (i.e., environmental reserves) are
recorded when it is probable that a liability has been incurred and the amount
can reasonably be estimated. Management views the measurement of environmental
reserves as a critical accounting estimate because of the considerable
uncertainty surrounding estimation, including the need to forecast well into the
future. From time to time, we may be involved in legal proceedings under
federal, state and local, as well as international environmental laws in
connection with our operations and companies that we have acquired. The
estimation of environmental reserves is based on the evaluation of currently
available information, prior experience in the remediation of contaminated sites
and assumptions with respect to government regulations and enforcement activity,
changes in remediation technology and practices, and financial obligations and
creditworthiness of other responsible parties and insurers.
34
--------------------------------------------------------------------------------
Table of Contents
Warranty
We record a warranty reserve for possible claims against our product warranties,
which generally run for a period ranging from one to twenty years for our Energy
Systems batteries, one to seven years for our Motive Power batteries and for a
period ranging from one to four for Specialty transportation batteries. The
assessment of the adequacy of the reserve includes a review of open claims and
historical experience.
Management believes that the accounting estimate related to the warranty reserve
is a critical accounting estimate because the underlying assumptions used for
the reserve can change from time to time and warranty claims could potentially
have a material impact on our results of operations.
Allowance for Doubtful Accounts
Subsequent to the adoption of ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326)" effectiveApril 1, 2020 the Company uses an expected loss model as mandated by the standard. The expected loss model: (i) estimates the risk of loss even when risk is remote, (ii) estimates losses over the contractual life, (iii) considers past events, current conditions and reasonable supported forecasts and (iv) has no recognition threshold. The Company estimates the allowance for credit losses in relation to accounts receivable based on relevant qualitative and quantitative information about historical events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported accounts receivable. Subsequent toApril 1, 2020 , accounts receivable are recorded at amortized cost less an allowance for expected credit losses. The Company maintains an allowance for credit losses for the expected failure or inability of its customers to make required payments. The Company recognizes the allowance for expected credit losses at inception and reassesses quarterly, based on management's expectation of the asset's collectability. The allowance is based on multiple factors including historical experience with bad debts, the credit quality of the customer base, the aging of such receivables and current macroeconomic conditions, as well as management's expectations of conditions in the future. The Company's allowance for uncollectible accounts receivable is based on management's assessment of the collectability of assets pooled together with similar risk characteristics. The Company then adjusts the historical credit loss percentage by current and forecasted economic conditions. The Company then includes a baseline credit loss percentage into the historical credit loss percentage for each aging category to reflect the potential impact of the current and economic conditions. Such a baseline calculation will be adjusted further if changes in the economic environment impacts the Company's expectation for future credit losses. Management believes that the accounting estimate related to the allowance for doubtful accounts is a critical accounting estimate because the underlying assumptions used for the allowance can change from time to time and uncollectible accounts could potentially have a material impact on our results of operations. Retirement Plans We use certain economic and demographic assumptions in the calculation of the actuarial valuation of liabilities associated with our defined benefit plans. These assumptions include the discount rate, expected long-term rates of return on assets and rates of increase in compensation levels. Changes in these assumptions can result in changes to the pension expense and recorded liabilities. Management reviews these assumptions at least annually. We use independent actuaries to assist us in formulating assumptions and making estimates. These assumptions are updated periodically to reflect the actual experience and expectations on a plan-specific basis, as appropriate. For benefit plans which are funded, we establish strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk. We set the expected long-term rate of return based on the expected long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this rate, we consider historical and expected returns for the asset classes in which the plans are invested, advice from pension consultants and investment advisors, and current economic and capital market conditions. The expected return on plan assets is incorporated into the computation of pension expense. The difference between this expected return and the actual return on plan assets is deferred and will affect future net periodic pension costs through subsequent amortization. We believe that the current assumptions used to estimate plan obligations and annual expense are appropriate in the current economic environment. However, if economic conditions change materially, we may change our assumptions, and the resulting change could have a material impact on the Consolidated Statements of Income and on the Consolidated Balance Sheets. 35 -------------------------------------------------------------------------------- Table of Contents Equity-Based Compensation We recognize compensation cost relating to equity-based payment transactions by using a fair-value measurement method whereby all equity-based payments to employees, including grants of restricted stock units, stock options, market and performance condition-based awards are recognized as compensation expense based on fair value at grant date over the requisite service period of the awards. We determine the fair value of restricted stock units based on the quoted market price of our common stock on the date of grant. The fair value of stock options is determined using the Black-Scholes option-pricing model, which uses both historical and current market data to estimate the fair value. The fair value of market condition-based awards is estimated at the date of grant using a Monte Carlo Simulation. The fair value of performance condition-based awards is based on the closing stock price on the date of grant, adjusted for a discount to reflect the illiquidity inherent in these awards. All models incorporate various assumptions such as the risk-free interest rate, expected volatility, expected dividend yield and expected life of the awards. When estimating the requisite service period of the awards, we consider many related factors including types of awards, employee class, and historical experience. Actual results, and future changes in estimates of the requisite service period may differ substantially from our current estimates.
Income Taxes
Our effective tax rate is based on pretax income and statutory tax rates
available in the various jurisdictions in which we operate. We account for
income taxes in accordance with applicable guidance on accounting for income
taxes, which requires that deferred tax assets and liabilities be recognized
using enacted tax rates for the effect of temporary differences between book and
tax bases on recorded assets and liabilities. Accounting guidance also requires
that deferred tax assets be reduced by a valuation allowance, when it is more
likely than not that a tax benefit will not be realized.
The recognition and measurement of a tax position is based on management's best
judgment given the facts, circumstances and information available at the
reporting date. We evaluate tax positions to determine whether the benefits of
tax positions are more likely than not of being sustained upon audit based on
the technical merits of the tax position. For tax positions that are more likely
than not of being sustained upon audit, we recognize the largest amount of the
benefit that is greater than 50% likely of being realized upon ultimate
settlement in the financial statements. For tax positions that are not more
likely than not of being sustained upon audit, we do not recognize any portion
of the benefit in the financial statements. If the more likely than not
threshold is not met in the period for which a tax position is taken, we may
subsequently recognize the benefit of that tax position if the tax matter is
effectively settled, the statute of limitations expires, or if the more likely
than not threshold is met in a subsequent period.
We evaluate, on a quarterly basis, our ability to realize deferred tax assets by
assessing our valuation allowance and by adjusting the amount of such allowance,
if necessary. The factors used to assess the likelihood of realization are our
forecast of future taxable income and available tax planning strategies that
could be implemented to realize the net deferred tax assets.
To the extent we prevail in matters for which reserves have been established, or
are required to pay amounts in excess of our reserves, our effective tax rate in
a given financial statement period could be materially affected.
36
--------------------------------------------------------------------------------
Table of Contents
Results of Operations-Fiscal 2021 Compared to Fiscal 2020
The following table presents summary Consolidated Statements of Income data for
fiscal year ended March 31, 2021 , compared to fiscal year ended March 31, 2020 :
Fiscal 2021 Fiscal 2020 Increase (Decrease)
In As % In As % In
Millions Net Sales Millions Net Sales Millions %
Net sales $ 2,977.9 100.0 % $ 3,087.8 100.0 % $ (109.9) (3.6) %
Cost of goods sold 2,238.8 75.2 2,301.0 74.5 (62.2) (2.7)
Inventory step up to fair value
relating to acquisitions and exit
activities - - 1.9 0.1 (1.9) NM
Gross profit 739.1 24.8 784.9 25.4 (45.8) (5.8)
Operating expenses 482.3 16.2 529.7 17.1 (47.4) (8.9)
Restructuring, exit and other charges 40.4 1.4 20.8 0.7 19.6 94.4
Impairment of goodwill - - 39.7 1.3 (39.7) NM
Impairment of indefinite-lived
intangibles - - 4.5 0.1 (4.5) NM
Operating earnings 216.4 7.2 190.2 6.1 26.2 13.8
Interest expense 38.5 1.3 43.7 1.4 (5.2) (12.0)
Other (income) expense, net 7.8 0.2 (0.5) - 8.3 NM
Earnings before income taxes 170.1 5.7 147.0 4.7 23.1 15.8
Income tax expense 26.8 0.9 9.9 0.3 16.9 NM
Net earnings 143.3 4.8 137.1 4.4 6.2 4.6
Net earnings attributable to
noncontrolling interests - - - - - -
Net earnings attributable to EnerSys
stockholders $ 143.3 4.8 % $ 137.1 4.4 % $ 6.2 4.6 %
NM = not meaningful
Overview
Our sales in fiscal 2021 were
A discussion of specific fiscal 2021 versus fiscal 2020 operating results follows, including an analysis and discussion of the results of our reportable segments.
Net Sales Segment sales Fiscal 2021 Fiscal 2020 Increase (Decrease) In % Net In % Net In Millions Sales Millions Sales Millions %
Energy Systems
$ 22.9 1.7 % Motive Power 1,163.8 39.1 1,348.2 43.7 (184.4) (13.7) Specialty 433.9 14.6 382.3 12.3 51.6 13.5
Total net sales
$ (109.9) (3.6) %
37-------------------------------------------------------------------------------- Table of Contents Net sales of our Energy Systems segment in fiscal 2021 increased$22.9 million , or 1.7%, compared to fiscal 2020. This increase was primarily due to a 2% increase from theNorthStar acquisition and a 1% increase in foreign currency translation impact partially offset by a 1% decrease in pricing. Continued strong demand in telecommunication and data center products has offset softness in demand for power supplies from broadband customers. Net sales of ourMotive Power segment in fiscal 2021 decreased by$184.4 million , or 13.7%, compared to fiscal 2020. This decrease was primarily due to a 14% decrease in organic volume and a 1% decrease in pricing, partially offset by a 1% increase in foreign currency translation impact. COVID-19 restrictions and related economic slowdown impacted this segment more than our other lines of business. Net sales of our Specialty segment in fiscal 2021 increased by$51.6 million , or 13.5%, compared to fiscal 2020. The increase was primarily due to an 8% increase in organic volume, a 6% increase from theNorthStar acquisition and a 1% increase in foreign currency translation impact, partially offset by a 1% decrease in pricing. Demand from customers in the transportation, starting, lighting and ignition market continues to drive significant improvement in revenues in this segment. Gross Profit Fiscal 2021 Fiscal 2020 Increase (Decrease) In As % In As % In Millions Net Sales Millions Net Sales Millions % Gross profit$ 739.1 24.8 %$ 784.9 25.4 % $ (45.8) (5.8) % Gross profit decreased$45.8 million or 5.8% in fiscal 2021 compared to fiscal 2020. Gross profit, as a percentage of net sales, decreased 60 basis points in fiscal 2021 compared to fiscal 2020. The decrease in the gross profit margin in fiscal 2021 compared to the prior year reflects the impact of unfavorable manufacturing variances resulting from inefficiencies caused by pandemic related lower volumes and transition inefficiencies in theNorthStar facilities as they commission the High Speed Lines ("HSL") andEnerSys products, partially offset by lower commodity costs net of pricing and the receipt of$7.5 million of insurance proceeds relating to theRichmond fire business interruption claim. Operating Items Fiscal 2021 Fiscal 2020 Increase (Decrease) In As % In As % In Millions Net Sales Millions Net Sales Millions % Operating expenses$ 482.3 16.2 %$ 529.7 17.1 % $ (47.4) (8.9) % Restructuring, exit and other charges 40.4 1.4 20.8 0.7 19.6 94.4 Impairment of goodwill - - 39.7 1.3 (39.7) NM Impairment of indefinite-lived intangibles - - 4.5 0.1 (4.5) NM NM = not meaningful Operating Expenses Operating expenses decreased$47.4 million or 8.9% in fiscal 2021 from fiscal 2020 and decreased as a percentage of net sales by 90 basis points. Decisive reductions in headcount and discretionary spending made early in our fiscal year along with targeted restructuring and automation efforts, allowed us to substantially reduce our operating expenses, particularly selling expenses, as noted below. Selling expenses, our main component of operating expenses, were 42.4% of total operating expenses in fiscal 2021, compared to 44.7% of total operating expenses in fiscal 2020. 38
-------------------------------------------------------------------------------- Table of Contents Restructuring, exit and other charges
Fiscal 2021
During the third quarter of fiscal 2021, we committed to a plan to substantially close our facility in Hagen,Germany , which produces flooded motive power batteries for forklifts. Management determined that future demand for the motive power batteries produced at this facility was not sufficient, given the conversion from flooded to maintenance free batteries by customers, the existing number of competitors in the market, as well as the near term decline in demand and increased uncertainty from the pandemic. We plan to retain the facility with limited sales, service and administrative functions along with related personnel for the foreseeable future. We currently estimate that the total charges for these actions will amount to approximately$60.0 million , the majority of which are expected to be recorded by the end of calendar 2021. Cash charges of approximately$40.0 million are primarily for employee severance related payments, but also include payments for cleanup related to the facility, contractual releases and legal expenses. Non-cash charges from inventory and equipment write-offs are estimated to be$20.0 million . These actions will result in the reduction of approximately 200 employees. During fiscal 2021, the Company recorded charges relating to severance of$23.3 million and$7.9 million primarily relating to fixed asset write-offs.
During fiscal 2021, we also committed to a plan to close our facility in
Vijayawada,
In addition, included in our fiscal 2021 operating results are restructuring charges of$3.2 million in Energy Systems, primarily relating to our recent acquisitions and$4.0 million inMotive Power primarily relating to improving operational efficiency inEurope .
Fiscal 2020
Included in our fiscal 2020 operating results were restructuring charges of$6.8 million in the Energy Systems,$1.9 million inMotive Power and$2.3 million in Specialty. Restructuring charges in Energy Systems and Specialty primarily related to theNorthStar acquisition.
Also included in our fiscal 2020 operating results were exit charges of
In keeping with our strategy of exiting the manufacture of batteries for
diesel-electric submarines, during fiscal 2020, we sold certain licenses and
assets for
During fiscal 2020, we also wrote off$5.5 million of assets at ourKentucky andTennessee Motive Power plants, as a result of our strategic product mix shift from traditional flooded batteries to maintenance free lead acid and lithium batteries.Richmond, Kentucky Plant Fire During fiscal 2021, the Company settled its claims with its insurance carrier relating to the fire that broke out in the battery formation area of the Company'sRichmond, Kentucky motive power production facility in fiscal 2020. The total claims for both property and business interruption of$46.1 million were received throughMarch 31, 2021 . The final settlement of insurance recoveries and finalization of costs related to the replacement of property, plant and equipment, resulted in a net gain of$4.4 million , which was recorded as a reduction to operating expenses in the Consolidated Statements of Income.
The details of charges and recoveries for fiscal 2021 and fiscal 2020 are as follows:
In fiscal 2020, the Company recorded$17.0 million as receivable, consisting of write-offs for damages caused to its fixed assets and inventories, as well as for cleanup, asset replacement and other ancillary activities directly associated with the fire and received$12.0 million related to its initial claims.
During fiscal 2021, the Company recorded an additional
39
--------------------------------------------------------------------------------
Table of Contents
In addition to the property damage claim, the Company received $12.5 million in
business interruption claims, of which $5.0 million was recorded in fiscal 2020
and $7.5 million in fiscal 2021, and was credited to cost of goods sold, in the
respective periods.
Operating Earnings
Operating earnings by segment were as follows:
Fiscal 2021 Fiscal 2020 Increase (Decrease)
In As % In As % In
Millions Net Sales(1) Millions Net Sales(1) Millions %
Energy Systems $ 66.9 4.9 % $ 67.9 5.0 % $ (1.0) (1.1) %
Motive Power 143.6 12.3 146.7 10.9 (3.1) (2.2)
Specialty 46.3 10.6 42.5 11.1 3.8 8.7
Subtotal 256.8 8.6 257.1 8.3 (0.3) (0.1)
Inventory step up to fair value relating to
acquisitions - Energy Systems - - (0.3) - 0.3 NM
Inventory step up to fair value relating to
acquisitions - Specialty - - (1.6) (0.4) 1.6 NM
Restructuring charges - Energy Systems (3.1) (0.2) (7.3) (0.5) 4.2 (56.2)
Restructuring and other exit charges - Motive
Power (36.9) (3.2) (2.0) (0.1) (34.9) NM
Restructuring and other exit charges -
Specialty (0.4) (0.1) (6.0) (1.6) 5.6 (93.5)
Fixed asset write-off relating to exit
activities and other - Motive Power - - (5.4) (0.4) 5.4 NM
Fixed asset write-off relating to exit
activities and other - Energy Systems - - (0.1) - 0.1 NM
Impairment of goodwill - - (39.7) (1.3) 39.7 NM
Impairment of indefinite-lived intangibles - - (4.5) (0.1) 4.5 NM
Total operating earnings $ 216.4 7.2 % $ 190.2 6.1 % $ 26.2 13.8 %
NM = not meaningful
(1)The percentages shown for the segments are computed as a percentage of the
applicable segment's net sales except for impairment of goodwill and
indefinite-lived intangibles, which are shown as percentage of total company net
sales, as they related to the Company's legacy reporting units as discussed in
Results of Operations-Fiscal 2020 Compared to Fiscal 2019.
Operating earnings increased $26.2 million or 13.8% in fiscal 2021, compared to
fiscal 2020. Operating earnings, as a percentage of net sales, increased 110
basis points in fiscal 2021, compared to fiscal 2020.
The Energy Systems operating earnings decreased 10 basis points in fiscal 2021
compared to fiscal 2020. Energy Systems had a very strong year in its sales of
batteries and enclosures due to strong telecom demand. Weakness in Power
Systems, particularly in the broadband or cable modem/television market largely
negated those benefits, resulting in slightly lower year over year results. We
believe the influence of the "work from home" phenomenon, resulting from the
pandemic made broadband customers focus on expanding capacity in suburban areas
rather than focusing on adding power to their networks.
The Motive Power operating earnings increased 140 basis points in fiscal 2021
compared to fiscal 2020. Our Motive Power segment was the most impacted by
COVID-19 with revenues in the first half of our fiscal year down by 20%, but
recovered in the second half. The Richmond, KY facility has fully recovered from
the damage caused by the fire discussed earlier and is operating at near
historic levels of efficiency. The restructuring of our Hagen facility announced
in November 2020 , also allowed us to start shedding significant fixed costs,
while absorbing Hagen's output in existing facilities.
Despite Specialty operating earnings decreasing by 50 basis points in fiscal
2021 compared to fiscal 2020, this segment had a strong year, primarily from
burgeoning demand from the transportation market. This segment also incurred
significant manufacturing inefficiencies from the pandemic in the first half of
fiscal 2021 and the startup of the new HSL in our
40--------------------------------------------------------------------------------
Table of ContentsSpringfield, MO facilities in the second half. Specialty did increase its operating earnings dollars by$3.8 million , compared to the prior year. Interest Expense Fiscal 2021 Fiscal 2020 Increase (Decrease) In As % In As % In Millions Net Sales Millions Net Sales Millions % Interest expense$ 38.5 1.3 %$ 43.7 1.4 % $ (5.2) (12.0) % Interest expense of$38.5 million in fiscal 2021 (net of interest income of$2.3 million ) was$5.2 million lower than the$43.7 million in fiscal 2020 (net of interest income of$2.2 million ). Our average debt outstanding was$1,105.5 million in fiscal 2021, compared to our average debt outstanding of$1,097.9 million in fiscal 2020. Our average cash interest rate incurred in fiscal 2021 was 3.3% and was 3.8% in fiscal 2020. The decrease in interest expense in fiscal 2021 compared to fiscal 2020 is primarily due to lower average interest rates. In fiscal 2020, in connection with the issuance of the 2027 Notes, we capitalized$4.6 million of debt issuance costs. Included in interest expense were non-cash charges related to amortization of deferred financing fees of$2.1 million in fiscal 2021 and$1.7 million in fiscal 2020. Other (Income) Expense, Net Fiscal 2021 Fiscal 2020 Increase (Decrease) In As % In As % In Millions Net Sales Millions Net Sales Millions % Other (income) expense, net$ 7.8 0.2 %$ (0.5) - % $ 8.3 NM
Other (income) expense, net was expense of
Earnings Before Income Taxes
Fiscal 2021 Fiscal 2020 Increase (Decrease)
In As % In As % In
Millions Net Sales Millions Net Sales Millions %
Earnings before income
taxes $ 170.1 5.7 % $ 147.0 4.7 % $ 23.1 15.8 %
As a result of the factors discussed above, fiscal 2021 earnings before income
taxes were $170.1 million , an increase of $23.1 million or 15.8% compared to
fiscal 2020.
Income Tax Expense
Fiscal 2021 Fiscal 2020 Increase (Decrease)
In As % In As % In
Millions Net Sales Millions Net Sales Millions %Income tax expense$ 26.8 0.9 %$ 9.9 0.3 % $ 16.9 NM Effective tax rate 15.7 % 6.7 % 9.0 % NM = not meaningful Our effective income tax rate with respect to any period may be volatile based on the mix of income in the tax jurisdictions in which we operate and the amount of our consolidated income before taxes. The Company's income tax provision consists of federal, state and foreign income taxes. The effective income tax rate was 15.7% in fiscal 2021 compared to the fiscal 2020 effective income tax rate of 6.7%. The rate increase in fiscal 2021 compared 41 -------------------------------------------------------------------------------- Table of Contents to fiscal 2020 is primarily due to Swiss tax reform, partially offset by the Hagen,Germany exit charges and changes in the mix of earnings among tax jurisdictions. OnMay 19, 2019 , a public referendum held inSwitzerland approved the Federal Act on Tax Reform and AHV (Old-Age and Survivors Insurance ) Financing (TRAF) as adopted by the Swiss Federal Parliament onSeptember 28, 2018 . The Swiss tax reform measures were effectiveJanuary 1, 2020 . We recorded a net deferred tax asset of$22.5 million during fiscal 2020, related to the amortizable goodwill and based on further evaluation with the Swiss tax authority, recorded an additional income tax benefit of$1.9 million during fiscal 2021. The fiscal 2021 foreign effective income tax rate was 6.8% on foreign pre-tax income of$114.1 million compared to an effective income tax rate of (7.4%) on foreign pre-tax income of$110.7 million in fiscal 2020. For both fiscal 2021 and 2020, the difference in the foreign effective tax rate versus theU.S. statutory rate of 21% is primarily attributable to lower tax rates in the foreign countries in which we operate. The rate increase in fiscal 2021 compared to fiscal 2020 is primarily due to Swiss tax reform, partially offset by the Hagen,Germany exit charges and changes in the mix of earnings among tax jurisdictions. Income from our Swiss subsidiary comprised a substantial portion of our overall foreign mix of income for both fiscal 2021 and fiscal 2020 and was taxed, excluding the impact from Swiss tax reform, at approximately 8% and 3%, respectively. Results of Operations-Fiscal 2020 Compared to Fiscal 2019 The following table presents summary Consolidated Statements of Income data for fiscal year endedMarch 31, 2020 , compared to fiscal year endedMarch 31, 2019 : Fiscal 2020 Fiscal 2019 Increase (Decrease) In As % In As % In Millions Net Sales Millions Net Sales Millions % Net sales$ 3,087.8 100.0 %$ 2,808.0 100.0 % $ 279.8 10.0 % Cost of goods sold 2,301.0 74.5 2,104.6 74.9 196.4 9.3 Inventory adjustment relating to acquisition and exit activities 1.9 0.1 10.3 0.4 (8.4) (82.1) Gross profit 784.9 25.4 693.1 24.7 91.8 13.3 Operating expenses 529.7 17.1 441.4 15.7 88.3 20.0 Restructuring and other exit charges 20.8 0.7 34.8 1.2 (14.0) (40.2) Impairment of goodwill 39.7 1.3 - - 39.7 NM Impairment of indefinite-lived intangibles 4.5 0.1 - - 4.5 NM Legal proceedings charge, net - - 4.4 0.2 (4.4) NM Operating earnings 190.2 6.1 212.5 7.6 (22.3) (10.5) Interest expense 43.7 1.4 30.9 1.1 12.8 41.5 Other (income) expense, net (0.5) - (0.5) - - - Earnings before income taxes 147.0 4.7 182.1 6.5 (35.1) (19.4) Income tax expense 9.9 0.3 21.6 0.8 (11.7) (54.5) Net earnings 137.1 4.4 160.5 5.7 (23.4) (14.6) Net earnings (losses) attributable to noncontrolling interests - - 0.3 - (0.3) NM Net earnings attributable toEnerSys stockholders$ 137.1 4.4 %$ 160.2 5.7 % $ (23.1) (14.4) % NM = not meaningful Overview Our sales in fiscal 2020 were$3.1 billion , a 10% increase from prior year's sales. This increase was the result of a 17% increase due to the Alpha andNorthStar acquisitions (as discussed in Part I, Item 1 of this Annual Report), partially offset by a 4% decrease in organic volume, a 2% decrease in foreign currency translation impact and a 1% decrease in pricing. Organic volume decline in fiscal 2020 reflects the impact of the recent fire and ERP execution challenges in ourRichmond, Kentucky facility and weakness in the European and Asian markets. 42
--------------------------------------------------------------------------------
Table of Contents
A discussion of specific fiscal 2020 versus fiscal 2019 operating results follows, including an analysis and discussion of the results of our reportable segments.Net Sales Segment sales Fiscal 2020 Fiscal 2019 Increase (Decrease) In As % In As % In Millions Net Sales Millions Net Sales Millions % Energy Systems$ 1,357.3 44.0 %$ 1,086.3 38.7 % $ 271.0 25.0 % Motive Power 1,348.2 43.7 1,391.8 49.5 (43.6) (3.1) Specialty 382.3 12.3 329.9 11.8 52.4 15.9 Total net sales$ 3,087.8 100.0 %$ 2,808.0 100.0 % $ 279.8 10.0 % Net sales of our Energy Systems segment increased in fiscal 2020 by$271.0 million , or 25.0%, compared to the prior year, primarily due to a 40% increase from the Alpha andNorthStar acquisitions, partially offset by a 12% decrease in organic volume, a 2% decrease in currency translation impact and a 1% decrease in pricing. The decrease in organic volume in fiscal 2020 is primarily from the deferral of spending by telecom and broadband customers and the conclusion of a large enclosure order in the preceding year. Net sales of ourMotive Power segment decreased in fiscal 2020 by$43.6 million , or 3.1%, compared to the prior year, primarily due to a 2% decrease in currency translation impact and a 1% decrease in pricing. The lack of organic growth in motive power product volume was due to greater competition in European markets and theSeptember 2019 fire in ourRichmond, Kentucky facility. Net sales of our Specialty segment increased in fiscal 2020 by$52.4 million , or 15.9%, compared to the prior year, primarily due to a 9% increase from theNorthStar acquisition and an 8% increase in organic volume, partially offset by a 1% decrease in pricing. Organic volume improvement is primarily due to our continuing push into the transportation markets for starting, lighting and ignition batteries for cars and trucks. Gross Profit Fiscal 2020 Fiscal 2019 Increase (Decrease) In As % In As % In Millions Net Sales Millions Net Sales Millions % Gross profit$ 784.9 25.4 %$ 693.1 24.7 % $ 91.8 13.3 % Gross profit increased$91.8 million or 13.3% in fiscal 2020 compared to fiscal 2019. Gross profit, as a percentage of net sales, increased 70 basis points in fiscal 2020 compared to fiscal 2019. This increase in the gross profit margin is largely a function of declines in commodity costs relative to pricing, partially offset by higher manufacturing costs. Operating Items Fiscal 2020 Fiscal 2019 Increase (Decrease) In As % In As % In Millions Net Sales Millions Net Sales Millions % Operating expenses$ 529.7 17.1 %$ 441.4 15.7 % $ 88.3 20.0 % Restructuring and other exit charges 20.8 0.7 34.8 1.2 (14.0) (40.2) Impairment of goodwill 39.7 1.3 - - 39.7 NM Impairment of indefinite-lived intangibles 4.5 0.1 - - 4.5 NM Legal proceedings charge, net - - 4.4 0.2 (4.4) NM NM = not meaningful 43
-------------------------------------------------------------------------------- Table of Contents Operating Expenses Operating expenses increased$88.3 million or 20% in fiscal 2020 from fiscal 2019 and increased as a percentage of net sales by 140 basis points. Excluding the impact of the foreign currency translation, the increase reflects the inclusion of Alpha andNorthStar , as well as an increase of$25.0 million towards new product development. Selling expenses, our main component of operating expenses, were 44.7% of total operating expenses in fiscal 2020, compared to 46.4% of total operating expenses in fiscal 2019.
Impairment of goodwill and indefinite-lived intangibles
Goodwill is tested annually for impairment during the fourth quarter or earlier upon the occurrence of certain events or substantive changes in circumstances that indicate goodwill is more likely than not impaired. In the fourth quarter of fiscal 2020, we conducted our annual goodwill impairment test which indicated that the fair value ofAsia was less than its carrying value. We recorded a non-cash charge of$39.7 million related to goodwill impairment in our legacyAsia reporting unit under the caption "Impairment of goodwill" in the Consolidated Statements of Income. We also recorded a non-cash charge of$4.5 million related to indefinite-lived trademarks in our legacy EMEA segment, under the caption "Impairment of indefinite-lived intangibles" in the Consolidated Statements of Income. The key factors contributing to the impairment inAsia was the increasing pressure on organic sales growth that we began to experience in fiscal 2019 due to a slowdown in telecom spending in the PRC amidst growing trade tensions between theU.S.A andChina . The impact of these trade tensions on our ability to capture market share in the PRC accelerated in the second half of the fiscal year. Throughout fiscal 2020, there was a general slowdown in the Chinese economy which was further exacerbated by the outbreak of the COVID-19 pandemic, causing disruption to two of our plants inChina in the fourth quarter. Also contributing to the poor performance of theAsia region was a general softening of demand inAustralia , that began in fiscal 2019 and continued throughout fiscal 2020. We monitored the performance of ourAsia reporting unit for interim impairment indicators throughout fiscal 2020, but the emergence of COVID-19 inChina inDecember 2019 coupled with the totality of economic headwinds in the region resulted in the recognition of a goodwill impairment loss in connection with our annual impairment test. During the fourth quarter of fiscal 2020, management completed its evaluation of key inputs used to estimate the fair value of its indefinite-lived trademarks and determined that an impairment charge relating to two of its trademarks in the EMEA segment, that were acquired through legacy acquisitions was appropriate, as it plans to phase out these trademarks.
Restructuring, exit and other charges
Fiscal 2020
Included in our fiscal 2020 operating results were restructuring charges of$6.8 million in the Energy Systems,$1.9 million inMotive Power and$2.3 million in Specialty. Restructuring charges in Energy Systems and Specialty primarily related to theNorthStar acquisition.
Also included in our fiscal 2020 operating results were exit charges of
In keeping with our strategy of exiting the manufacture of batteries for
diesel-electric submarines, during fiscal 2020, we sold certain licenses and
assets for
During fiscal 2020, we also wrote off$5.5 million of assets at ourKentucky andTennessee Motive Power plants, as a result of our strategic product mix shift from traditional flooded batteries to maintenance free lead acid and lithium batteries. Fiscal 2019 Included in our fiscal 2019 operating results were restructuring charges of$5.1 million in the Energy Systems,$4.8 million inMotive Power and$0.7 million in Specialty. Also included in our fiscal 2019 operating results were exit charges of$24.1 million , of which$17.7 million related to the closure of our facility in Targovishte,Bulgaria (Specialty),$4.9 million related to the disposition of GAZ Geräte - und 44
--------------------------------------------------------------------------------
Table of
The facility inBulgaria produced diesel-electric submarine batteries. Management determined that the future demand for batteries of diesel-electric submarines was not sufficient given the number of competitors in the market. The$17.7 million charges were primarily non-cash charges of$15.0 million related to the write-off of fixed assets and$2.7 million of severance payments. In addition, cost of goods sold also included a$2.5 million of inventory write-off relating to the closure of theBulgaria facility. These exit activities are a consequence of the Company's strategic decision to streamline its product portfolio and focus its efforts on new technologies.
OnSeptember 19, 2019 , a fire broke out in the battery formation area of ourRichmond, Kentucky motive power production facility. We maintain insurance policies for both property damage and business interruption and are finishing cleanup and repair. We recorded$10.0 million of damages caused to our fixed assets and inventories, as well as for cleanup, asset replacement and other ancillary activities directly associated with the fire, which were initially reflected as a receivable for probable insurance recoveries. We received$12.0 million in advances related to our initial claims for recovery from our property and casualty insurance carriers in fiscal 2020. Subsequent toMarch 31, 2020 , we also received an additional$8.7 million towards the business interruption claim, of which,$5.0 million was booked as a reduction to our cost of goods sold in our fourth quarter. The final settlement of this claim is discussed further under Results of Operations-Fiscal 2021 Compared to Fiscal 2020 in this section. 45 -------------------------------------------------------------------------------- Table of Contents Operating Earnings
Operating earnings by segment were as follows:
Fiscal 2020 Fiscal 2019 Increase (Decrease)
In As % In As % In
Millions Net Sales(1) Millions (2) Net Sales(1) Millions %
Energy Systems $ 67.9 5.0 % $ 45.2 4.2 % $ 22.7 50.1 %
Motive Power 146.7 10.9 172.7 12.4 (26.0) (15.0)
Specialty 42.5 11.1 44.1 13.4 (1.6) (3.7)
Subtotal 257.1 8.3 262.0 9.3 (4.9) (1.9)
Inventory step up to fair value relating to
acquisitions - Energy Systems (0.3) - (7.7) (0.7) 7.4 (96.1)
Inventory step up to fair value relating to
acquisitions - Specialty (1.6) (0.4) (2.6) (0.8) 1.0 (40.2)
Restructuring charges - Energy Systems (7.3) (0.5) (10.7) (1.0) 3.4 (36.0)
Restructuring and other exit charges -
Motive Power (2.0) (0.1) (5.8) (0.4) 3.8 (77.8)
Restructuring and other exit charges -
Specialty (6.0) (1.6) (18.3) (5.6) 12.3 (67.2)
Fixed asset write-off relating to exit
activities and other - Motive Power (5.4) (0.4) - - (5.4) NM
Fixed asset write-off relating to exit
activities and other - Energy Systems (0.1) - - - (0.1) NM
Impairment of goodwill (39.7) (1.3) - - (39.7) NM
Impairment of indefinite-lived intangibles (4.5) (0.1) - - (4.5) NM
Legal proceedings charge - Energy Systems - - (4.3) (0.4) 4.3 NM
Legal proceedings charge - Motive Power - - (0.1) - 0.1 NM
Total operating earnings $ 190.2 6.1 % $ 212.5 7.6 % $ (22.3) (10.5) %
NM = not meaningful
(1)The percentages shown for the segments are computed as a percentage of the
applicable segment's net sales except for impairment of goodwill and
indefinite-lived intangibles, which are shown as percentage of total company net
sales, as they related to the Company's legacy reporting units as discussed
earlier in this section under Impairment of goodwill and indefinite-lived
intangibles.
(2)Restated for ASU No. 2017-07, "Compensation-Retirement Benefits (Topic 715)".
See Note 1 to the Consolidated Financial Statements for more details.
Operating earnings decreased $22.3 million or 10.5% in fiscal 2020, compared to
fiscal 2019. Operating earnings, as a percentage of net sales, decreased 150
basis points in fiscal 2020, compared to fiscal 2019. Excluding the impact of
highlighted items, operating earnings in fiscal 2020 decreased 100 basis points
primarily due to the September 2019 fire at our Richmond, Kentucky motive power
production facility which resulted in missed sales opportunities and higher
manufacturing costs, as well as the decline in our organic volume.
The Energy Systems operating earnings, increased $22.7 million , or 50.1%, in
fiscal 2020 compared to fiscal 2019, with the operating margin increasing 80
basis points to 5.0%. This positive impact was primarily due to Alpha's
contribution to operating earnings of $53.2 million or 9.7% of its sales for
fiscal 2020, as well as the impact of lower commodity costs.
The Motive Power operating earnings, decreased $26.0 million , or 15.0%, in
fiscal 2020 compared to fiscal 2019, with the operating margin decreasing 150
basis points to 10.9%. The decrease is primarily due to the fire at our
Richmond, Kentucky , facility that resulted in missed sales opportunities and
higher manufacturing costs.
46
--------------------------------------------------------------------------------
Table of Contents
The Specialty operating earnings, decreased $1.6 million , or 3.7%, in fiscal
2020 compared to fiscal 2019, with the operating margin decreasing by 230 basis
points to 11.1% mainly due to manufacturing inefficiencies at its primary source
of product, as that facility attempted to ramp up production.
Interest Expense
Fiscal 2020 Fiscal 2019 Increase (Decrease)
In As % In As % In
Millions Net Sales Millions Net Sales Millions %
Interest expense $ 43.7 1.4 % $ 30.9 1.1 % $ 12.8 41.5 %
Interest expense of $43.7 million in fiscal 2020 (net of interest income of $2.2
million ) was $12.8 million higher than the $30.9 million in fiscal 2019 (net of
interest income of $2.1 million ).
Our average debt outstanding was $1,097.9 million in fiscal 2020, compared to
our average debt outstanding of $742.0 million in fiscal 2019. Our average cash
interest rate incurred in fiscal 2020 was 3.8% and was 4.1% in fiscal 2019. The
increase in interest expense was primarily due to higher average debt incurred
to fund the Alpha and NorthStar acquisitions.
In connection with the issuance of the 2027 Notes, we capitalized $4.6 million
of debt issuance costs. Included in interest expense were non-cash charges
related to amortization of deferred financing fees of $1.7 million in fiscal
2020 and $1.3 million in fiscal 2019.
Other (Income) Expense, Net
Fiscal 2020 Fiscal 2019 Increase (Decrease)
In As % In As % In
Millions Net Sales Millions Net Sales Millions %
Other (income) expense, net $ (0.5) - % $ (0.5) - % $ - - %
NM = not meaningful
Other (income) expense, net was income of $0.5 million in fiscal 2020 compared
to income of $0.5 million in fiscal 2019. Foreign currency losses were $0.3
million in fiscal 2020 compared to foreign currency gains of $3.1 million in
fiscal 2019.
Earnings Before Income Taxes
Fiscal 2020 Fiscal 2019 Increase (Decrease)
In As % In As % In
Millions Net Sales Millions Net Sales Millions %
Earnings before income
taxes $ 147.0 4.7 % $ 182.1 6.5 % $ (35.1) (19.4) %
As a result of the factors discussed above, fiscal 2020 earnings before income
taxes were
47--------------------------------------------------------------------------------
Table of Contents
Income Tax Expense
Fiscal 2020 Fiscal 2019 Increase (Decrease)
In As % In As % In
Millions Net Sales Millions Net Sales Millions %
Income tax expense $ 9.9 0.3 % $ 21.6 0.8 % $ (11.7) (54.5) %
Effective tax rate 6.7 % 11.9 % (5.2) %
Our effective income tax rate with respect to any period may be volatile based
on the mix of income in the tax jurisdictions in which we operate and the amount
of our consolidated income before taxes.
On December 22, 2017 , the Tax Cuts and Jobs Act ("Tax Act") was enacted into
law. Among the significant changes resulting from the law, the Tax Act reduced
the U.S. federal income tax rate from 35% to 21% effective January 1, 2018 , and
required companies to pay a one-time transition tax on unrepatriated cumulative
non-U.S. earnings of foreign subsidiaries and created new taxes on certain
foreign sourced earnings. The U.S. federal statutory tax rate for fiscal 2020
and 2019 is 21.0%.
The Company's income tax provision consists of federal, state and foreign income
taxes. The effective income tax rate was 6.7% in fiscal 2020 compared to the
fiscal 2019 effective income tax rate of 11.9%. The rate decrease in fiscal 2020
compared to fiscal 2019 is primarily due to changes in mix of earnings among tax
jurisdictions, Swiss tax reform, and items related to the Tax Act in fiscal
2019.
On May 19, 2019 , a public referendum held in Switzerland approved the Federal
Act on Tax Reform and AHV (Old-Age and Survivors Insurance ) Financing (TRAF) as
adopted by the Swiss Federal Parliament on September 28, 2018 . The Swiss tax
reform measures are effective January 1, 2020 . Certain provisions of the TRAF
were enacted during the second quarter of fiscal 2020. Significant changes in
the tax reform include the abolishment of preferential tax regimes for holding
companies, domicile companies and mixed companies at the cantonal level. The
transitional provisions of the TRAF allow companies to elect tax basis
adjustments to fair value, which is used for tax depreciation and amortization
purposes resulting in a deduction over the transitional period. We recorded a
net deferred tax asset of $22.5 million during fiscal 2020, related to the
amortizable goodwill.
The fiscal 2020 foreign effective income tax rate was (7.4%) on foreign pre-tax
income of $110.7 million compared to effective income tax rate of 12.3% on
foreign pre-tax income of $128.9 million in fiscal 2019. For both fiscal 2020
and 2019, the difference in the foreign effective tax rate versus the U.S.
statutory rate of 21% is primarily attributable to lower tax rates in the
foreign countries in which we operate. The rate decrease in fiscal 2020 compared
to fiscal 2019 is primarily due to Swiss tax reform and changes in the mix of
earnings among tax jurisdictions. Income from our Swiss subsidiary comprised a
substantial portion of our overall foreign mix of income for both fiscal 2020
and fiscal 2019 and was taxed, excluding the impact from Swiss tax reform, at
approximately 3% and 4%, respectively.
Liquidity and Capital Resources
Cash Flow and Financing Activities
Cash and cash equivalents at
Cash provided by operating activities for fiscal 2021, 2020 and 2019, was
48
--------------------------------------------------------------------------------
Table of Contents
In fiscal 2021, net earnings were $143.3 million , depreciation and amortization
$94.1 million , stock-based compensation $19.8 million , non-cash charges relating
to exit charges $10.2 million , primarily relating to the Hagen, Germany plant
closure, net gain from the disposal of assets of $3.9 million ($4.4 million from
the insurance settlement relating to the Richmond fire claim), deferred tax
benefit of $9.0 million and non-cash interest of $2.1 million . Decrease in
primary working capital of $53.7 million , net of currency translation changes
provided a source of funds and are explained below. Prepaid and other current
assets provided a source of funds of $27.3 million , primarily from the receipt
of $29.1 million towards the insurance receivable relating to the Richmond plant
claim in fiscal 2020 and the receipt of a working capital adjustment claim of
$2.0 million , relating to an acquisition made several years ago, partially
offset by an increase of $3.8 million in other prepaid expenses. Accrued
expenses provided a source of funds of $32.4 million primarily from payroll
related accruals of $27.8 million , taxes payable of $4.5 million and selling and
other expenses of $3.3 million , partially offset by payments relating to
warranty of $5.8 million . Other liabilities decreased by $12.7 million primarily
relating to income taxes.
During fiscal 2020, cash provided by operating activities was primarily from net
earnings of $137.1 million , depreciation and amortization of $87.3 million ,
non-cash charges relating to impairment of goodwill and other intangible assets
of $44.2 million , restructuring, exit and other charges of $11.0 million ,
stock-based compensation of $20.8 million , provision for bad debts of $4.8
million and non-cash interest of $1.7 million , partially offset by deferred
taxes of $16.5 million primarily from the Swiss Tax Reform. Cash provided by
earnings adjusted for non-cash items were partially offset by the increase in
primary working capital of $16.4 million , net of currency translation changes.
Accrued expenses increased by $7.1 million , primarily due to payroll accruals of
$8.6 million , sales incentives of $8.0 million , interest of $3.9 million ,
partially offset by payments of $7.3 million related to the German competition
authority matter and $6.1 million paid to the seller in connection with the
Alpha acquisition, for certain reimbursable pre-acquisition items. Prepaid and
other current assets increased by $17.5 million , primarily due to contract
assets of $11.1 million , insurance receivable of $22.0 million relating to the
Richmond plant claim, partially offset by insurance proceeds of $12.0 million
and the receipt of $4.1 million in connection with the Alpha transaction. Other
liabilities decreased by $12.7 million due to income taxes.
During fiscal 2019, cash provided by operating activities was primarily from net
earnings of $160.5 million , depreciation and amortization of $63.3 million ,
non-cash charges relating to write-off of assets of $26.3 million , stock-based
compensation of $22.6 million , non-cash interest of $1.3 million and provision
for bad debts accounts of $1.4 million , partially offset by deferred tax benefit
of $6.5 million . Cash provided by earnings as adjusted for non-cash items was
partially offset by the increase in primary working capital of $30.7 million ,
net of currency translation changes, and a decrease in other long-term
liabilities of $14.9 million , primarily related to income taxes. Prepaid and
other current assets, primarily comprising of contract assets, also resulted in
a decrease of $20.2 million to operating cash.
As explained in the discussion of our use of "non-GAAP financial measures," we
monitor the level and percentage of primary working capital to sales. Primary
working capital was $797.9 million (yielding a primary working capital
percentage of 24.5%) at March 31, 2021 and $833.5 million (yielding a primary
working capital percentage of 26.7%) at March 31, 2020 . The primary working
capital percentage of 24.5% at March 31, 2021 is 220 basis points lower than
that for March 31, 2020 , and 170 basis points lower than that for March 31,
2019 . The large decrease in primary working capital dollars, compared to the
prior year periods is primarily due to improved accounts receivable collections,
improved inventory turns and increased accounts payable primarily due to our
TPPL plant ramp-up.
Primary
Primary Quarter Working
Balance at March 31, (1) Trade Accounts Working Revenue Capital
(2) Receivables Inventory Payable Capital Annualized (%)
(in millions)
2021 $ 603.6 $ 518.2 $ (323.9) $ 797.9 $ 3,254.2 24.5 %
2020 595.9 519.5 (281.9) 833.5 3,127.2 26.7
2019 624.1 503.9 (292.4) 835.6 3,186.4 26.2
(1) The Company acquired NorthStar on September 30, 2019 , as disclosed in Note 4
to the Consolidated Financial Statements. Therefore, the primary working capital
and related calculations as of March 31, 2019 did not include NorthStar's
primary working capital and its components.
(2) The inclusion of NorthStar from its respective date of acquisition did not
have a material impact on the Company's consolidated primary working capital as
of March 31, 2020 .
49
--------------------------------------------------------------------------------
Table of Contents
Cash used in investing activities for fiscal 2021, 2020 and 2019 was $65.0
million , $274.8 million and $723.9 million , respectively. During fiscal 2021 we
did not make any acquisitions.
During fiscal 2020 we acquired
During fiscal 2019, we acquired Alpha for a total purchase consideration of$742.5 million , of which$650.0 million was paid in cash and the balance, after adjusting for working capital of$0.8 million due from seller, was settled by issuing 1,177,630 shares ofEnerSys common stock at a closing date fair value of$93.3 million . See Note 4 to the Consolidated Financial Statements for more details.
In fiscal 2019, we also had a minor acquisition resulting in a cash outflow of
Capital expenditures were
Financing activities used cash of$188.7 million in fiscal 2021. During fiscal 2021, we borrowed$102.0 million under the Amended 2017 Revolver and repaid$210.0 million of the Amended 2017 Revolver. Repayment on the Amended 2017 Term Loan was$39.6 million and net payments on short-term debt were$15.9 million . Proceeds from stock options during fiscal 2021 were$9.1 million . Payment of cash dividends to our stockholders were$29.8 million , payment of taxes related to net share settlement of equity awards were$5.2 million . During fiscal 2020, financing activities provided cash of$62.7 million . We issued our 2027 Notes for$300 million , the proceeds of which were utilized to pay down the existing revolver borrowings. We borrowed$386.7 million under the Amended 2017 Revolver and repaid$517.7 million of the Amended 2017 Revolver. Repayment on the Amended 2017 Term Loan was$28.1 million and net payments on short-term debt were$5.3 million .Treasury stock open market purchases were$34.6 million , payment of cash dividends to our stockholders were$29.7 million and payment of taxes related to net share settlement of equity awards were$6.4 million . During fiscal 2019, financing activities provided cash of$346.6 million . We borrowed$531.1 million under the Amended 2017 Revolver and$299.1 million under the Amended 2017 Term Loan, primarily to fund the Alpha acquisition and repaid$427.6 million of the Amended 2017 Revolver and$11.7 million on the Amended 2017 Term Loan.Treasury stock open market purchases were$56.4 million , payment of cash dividends to our stockholders were$29.7 million and payment of taxes related to net share settlement of equity awards were$3.6 million . Proceeds from stock options were$9.0 million and net borrowings on short-term debt were$37.4 million . As a result of the above, total cash and cash equivalents increased by$124.8 million from$327.0 million atMarch 31, 2020 to$451.8 million atMarch 31, 2021 . In addition to cash flows from operating activities, we had available committed and uncommitted credit lines of approximately$820 million atMarch 31, 2021 to cover short-term liquidity requirements. Our Amended Credit Facility is committed throughSeptember 30, 2022 , as long as we continue to comply with the covenants and conditions of the credit facility agreement. We have$698 million in available committed credit lines under our Amended Credit Facility atMarch 31, 2021 .
Compliance with Debt Covenants
All obligations under our Amended Credit Facility are secured by, among other things, substantially all of ourU.S. assets. The Amended Credit Facility contains various covenants which, absent prepayment in full of the indebtedness and other obligations, or the receipt of waivers, limit our ability to conduct certain specified business transactions, buy or sell assets out of the ordinary course of business, engage in sale and leaseback transactions, pay dividends and take certain other actions. There are no prepayment penalties on loans under this credit facility. We are in compliance with all covenants and conditions under our Amended Credit Facility and Senior Notes. We believe that we will continue to comply with these covenants and conditions, and that we have the financial resources and the capital available to fund the foreseeable organic growth in our business and to remain active in pursuing further acquisition opportunities. See Note 10 to the Consolidated Financial Statements included in this Annual Report on Form 10-K. 50
--------------------------------------------------------------------------------
Table of Contents
Off-Balance Sheet Arrangements
The Company did not have any off-balance sheet arrangements during any of the periods covered by this report.
Contractual Obligations and Commercial Commitments
AtMarch 31, 2021 , we had certain cash obligations, which are due as follows: Less than 2 to 3 4 to 5 After Total 1 year years years 5 years (in millions) Debt obligations$ 976.0 $ 45.6 $ 630.4 $ -$ 300.0 Short-term debt 34.2 34.2 - - - Interest on debt 240.9 33.7 51.1 26.3 129.8 Operating leases 77.1 24.7 27.3 12.1 13.0 Tax Act - Transition Tax 59.2 6.2 18.3 34.7 - Pension benefit payments and profit sharing 39.8 3.2 6.4 7.9 22.3 Restructuring and Hagen exit related accruals 27.2 27.2 - - - Purchase commitments 11.3 11.3 - - - Lead and foreign currency forward contracts 2.6 2.6 - - - Finance lease obligations, including interest 0.7 0.3 0.4 - - Total$ 1,469.0 $ 189.0 $ 733.9 $ 81.0 $ 465.1
Due to the uncertainty of future cash outflows, uncertain tax positions have been excluded from the above table.
Under our Amended Credit Facility and other credit arrangements, we had
outstanding standby letters of credit of
Credit Facilities and Leverage
Our focus on working capital management and cash flow from operations is measured by our ability to reduce debt and reduce our leverage ratios.
In the third quarter of fiscal 2020, we issued
In the second quarter of fiscal 2018, we entered into the 2017 Credit Facility that comprised a$600.0 million senior secured revolving credit facility ("2017 Revolver") and a$150.0 million senior secured term loan ("2017 Term Loan") with a maturity date ofSeptember 30, 2022 . OnDecember 7, 2018 , we amended the 2017 Credit Facility (as amended, the "Amended Credit Facility"). The Amended Credit Facility consists of$449.1 million senior secured term loans (the "Amended 2017 Term Loan"), including aCAD 133.1 million ($99.1 million ) term loan and a$700.0 million senior secured revolving credit facility (the "Amended 2017 Revolver"). The amendment resulted in an increase of the 2017 Term Loan and the 2017 Revolver by$299.1 million and$100.0 million , respectively.
Shown below are the leverage ratios at
The total net debt, as defined under the Amended Credit Facility is$615.0 million for fiscal 2021 and is 1.7 times adjusted EBITDA (non-GAAP), compared to total net debt of$905.6 million and 2.3 times adjusted EBITDA (non-GAAP) for fiscal 2020. 51
--------------------------------------------------------------------------------
Table of Contents
The following table provides a reconciliation of net earnings to EBITDA
(non-GAAP) and adjusted EBITDA (non-GAAP) for
Fiscal 2021 Fiscal 2020
(in millions, except ratios)
Net earnings as reported $ 143.3 $ 137.1
Add back:
Depreciation and amortization 94.1 87.3
Interest expense 38.5 43.7
Income tax expense 26.8 9.9
EBITDA (non GAAP)(1) $ 302.7 $ 278.0
Adjustments per credit agreement definitions(2) 56.3 123.6
Adjusted EBITDA (non-GAAP) per credit agreement(1) $ 359.0 $ 401.6
Total net debt(3) $ 615.0 $ 905.6 Leverage ratios(4):
Total net debt/adjusted EBITDA ratio 1.7 X 2.3 X
Maximum ratio permitted 3.5 X 3.5 X
Consolidated interest coverage ratio(5)
9.8 X 9.1 X
Minimum ratio required 3.0 X 3.0 X
(1)We have included EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP) because our
lenders use them as key measures of our performance. EBITDA is defined as
earnings before interest expense, income tax expense, depreciation and
amortization. EBITDA is not a measure of financial performance under GAAP and
should not be considered an alternative to net earnings or any other measure of
performance under GAAP or to cash flows from operating, investing or financing
activities as an indicator of cash flows or as a measure of liquidity. Our
calculation of EBITDA may be different from the calculations used by other
companies, and therefore comparability may be limited. Certain financial
covenants in our Amended Credit Facility are based on EBITDA, subject to
adjustments, which are shown above. Continued availability of credit under our
Amended Credit Facility is critical to our ability to meet our business plans.
We believe that an understanding of the key terms of our credit agreement is
important to an investor's understanding of our financial condition and
liquidity risks. Failure to comply with our financial covenants, unless waived
by our lenders, would mean we could not borrow any further amounts under our
revolving credit facility and would give our lenders the right to demand
immediate repayment of all outstanding revolving credit and term loans. We would
be unable to continue our operations at current levels if we lost the liquidity
provided under our credit agreements. Depreciation and amortization in this
table excludes the amortization of deferred financing fees, which is included in
interest expense.
(2)The $56.3 million adjustment to EBITDA in fiscal 2021 primarily related to
$19.8 million of non-cash stock compensation, $33.2 million of restructuring and
other exit charges, business integration costs of $7.3 million , partially offset
by $3.9 million of gain ($4.4 million gain less insurance deductibles) relating
to the final settlement of the Richmond, KY fire claim. The $123.6 million
adjustment to EBITDA in fiscal 2020 primarily related to impairment of goodwill
and other intangible assets of $44.2 million , $20.8 million of non-cash stock
compensation, inclusion of $18.5 million of six months of pro forma earnings of
NorthStar , $20.8 million of restructuring and other exit charges and $1.9
million of inventory adjustments (fair value step up relating to the NorthStar
transaction), $14.3 million for insurance reimbursement for business
interruption due to the Richmond, KY fire and other charges of $3.1 million .
(3)Debt includes finance lease obligations and letters of credit and is net of
all U.S. cash and cash equivalents and excludes $53 million of foreign cash and
investments, as defined in the Amended Credit Facility. In fiscal 2021, the
amounts deducted in the calculation of net debt were U.S. cash and cash
equivalents and foreign cash investments of $399 million , and in fiscal 2020,
were $262 million .
(4)These ratios are included to show compliance with the leverage ratios set
forth in our credit facilities. We show both our current ratios and the maximum
ratio permitted or minimum ratio required under our Amended Credit Facility, for
fiscal 2021 and fiscal 2020, respectively.
(5)As defined in the Amended Credit Facility, interest expense used in the
consolidated interest coverage ratio excludes non-cash interest of $2.1 million
and $1.7 million for fiscal 2021 and fiscal 2020, respectively.
52
--------------------------------------------------------------------------------
Table of Contents
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
See Note 1 to the Consolidated Financial Statements - Summary of Significant
Accounting Policies for a description of certain recently issued accounting
standards that were adopted or are pending adoption that could have a
significant impact on our Consolidated Financial Statements or the Notes to the
Consolidated Financial Statements.
Related Party Transactions
None.
Sequential Quarterly Information
The first half of fiscal 2021 was negatively impacted by COVID-19 but the Company rebounded in the second half of the year, which also saw the closure of our Hagen facility inGermany . The Company incurred exit charges of$11.7 million in the third quarter and$19.6 million in the fourth quarter, primarily for severance payments, related to this closure. Gross margins remained relatively stable throughout the two years. In the fourth quarter of fiscal 2020, the Company recorded impairment charges relating to goodwill inAsia of$39.7 million and trademarks in EMEA of$4.5 million in the fourth quarter of fiscal 2020. The Company also had an income tax benefit of$21.0 million in the second quarter of fiscal 2020, on account of the Swiss tax reform. We have also included the operating results ofNorthStar , in our third and fourth quarter results, for the period commencing onSeptember 30, 2019 (the date of acquisition).NorthStar's sales for the third and fourth quarters of fiscal 2020 were$27.8 million and$26.7 million , respectively, while net loss, for the same periods were$13.5 million and$0.5 million , respectively.NorthStar sales for the four quarters of fiscal 2021 were$29.9 million ,$27.3 million ,$17.5 million and$10.3 million , respectively. 53
--------------------------------------------------------------------------------
Table of Contents
Fiscal 2021 Fiscal 2020
July 4 , Oct. 4 , Jan. 3 , March 31 , June 30 , Sept. 29 , Dec. 29 , March 31,
2020 2020 2020 2021 2019 2019 2019 2020
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
(in millions, except share and per share amounts)
Net sales $ 704.9 $ 708.4 $ 751.1 $ 813.5 $ 780.2
529.9 530.9 561.8 616.2 578.7 564.8 574.6 582.9
Inventory step up to fair value
relating to acquisitions and exit
activities - - - - - - 3.8 (1.9)
Gross profit 175.0 177.5 189.3 197.3 201.5 197.3 185.3 200.8
Operating expenses 120.4 119.0 118.0 124.9 130.8 132.3 132.8 133.8
Restructuring, exit and other
charges 1.4 3.1 15.2 20.7 2.4 6.3 9.4 2.7
Impairment of goodwill - - - - - - - 39.7
Impairment of indefinite-lived
intangibles - - - - - - - 4.5
Operating earnings 53.2 55.4 56.1 51.7 68.3 58.7 43.1 20.1
Interest expense 10.2 9.8 9.4 9.1 10.9 10.1 11.1 11.6
Other (income) expense, net 1.4 4.1 2.9 (0.6) (1.2) 0.2 (0.6) 1.1
Earnings before income taxes 41.6 41.5 43.8 43.2 58.6 48.4 32.6 7.4
Income tax expense (benefit) 6.4 5.8 5.2 9.4 10.0 (14.3) 5.3 8.9
Net earnings (loss) 35.2 35.7 38.6 33.8 48.6 62.7 27.3 (1.5)
Net earnings attributable to
noncontrolling interests - - - - - - - -
Net earnings (loss) attributable
to EnerSys stockholders $ 35.2 $
35.7
$ 62.7 $ 27.3 $ (1.5) Net earnings (loss) per common share attributable toEnerSys stockholders: Basic$ 0.83 $ 0.84 $ 0.91 $ 0.79 $ 1.14 $ 1.48 $ 0.65 $ (0.04) Diluted$ 0.82 $ 0.83 $ 0.89 $ 0.78 $ 1.13 $ 1.47 $ 0.64 $ (0.04) Weighted-average number of common shares outstanding: Basic 42,385,888 42,521,659 42,599,834 42,686,413 42,656,339 42,392,039 42,286,641 42,312,315 Diluted 42,932,054 43,087,455 43,290,403 43,587,698 43,118,434 42,708,082 42,838,969 42,312,315 54
-------------------------------------------------------------------------------- Table of ContentsNet Sales
Quarterly net sales by segment were as follows:
Fiscal 2021 Fiscal 2020
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
(in millions)
Net sales by segment:
Energy Systems $ 353.4 $ 340.8 $ 337.2 $ 348.8 $ 353.8 $ 342.9 $ 345.5 $ 315.1
Motive Power 262.8 263.8 304.4 332.8 344.4 335.3 315.5 353.0
Specialty 88.7 103.8 109.5 131.9 82.0 83.9 102.7 113.7
Total $ 704.9 $ 708.4 $ 751.1 $ 813.5 $ 780.2 $ 762.1 $ 763.7 $ 781.8
Segment net sales as %
of total:
Energy Systems 50.1 % 48.1 % 44.9 % 42.9 % 45.4 % 45.0 % 45.3 % 40.3 %
Motive Power 37.3 37.2 40.5 40.9 44.1 44.0 41.3 45.2
Specialty 12.6 14.7 14.6 16.2 10.5 11.0 13.4 14.5
Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %© Edgar Online, source
