XNYS:ENS EnerSys Quarterly Report 10-Q Filing - 7/1/2012

Effective Date 7/1/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended July 1, 2012

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND 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.    x  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  x    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   x    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    x  NO.

Common Stock outstanding at August 3, 2012: 48,020,321 shares

 

 

 


Table of Contents

ENERSYS

INDEX – FORM 10-Q

 

          Page  

PART I — FINANCIAL INFORMATION

  

Item 1.

  

Financial Statements

  
   Consolidated Condensed Balance Sheets (Unaudited)
As of July 1, 2012 and March 31, 2012
     3   
   Consolidated Condensed Statements of Income (Unaudited)
For the Quarters Ended July 1, 2012 and July 3, 2011
     4   
   Consolidated Condensed Statements of Comprehensive Income (Unaudited)
For the Quarters Ended July 1, 2012 and July 3, 2011
     5   
   Consolidated Condensed Statements of Cash Flows (Unaudited)
For the Quarters Ended July 1, 2012 and July 3, 2011
     6   
  

Notes to Consolidated Condensed Financial Statements (Unaudited)

     7   
  

  1. Basis of Presentation

     7   
  

  2. Inventories

     7   
  

  3. Fair Value of Financial Instruments

     8   
  

  4. Derivative Financial Instruments

     9   
  

  5. Income Taxes

     11   
  

  6. Warranties

     11   
  

  7. Commitments, Contingencies and Litigation

     12   
  

  8. Restructuring Plans

     13   
  

  9. Debt

     14   
  

10. Retirement Plans

     15   
  

11. Stock-Based Compensation

     15   
  

12. Stockholders’ Equity

     16   
  

13. Earnings Per Share

     17   
  

14. Business Segments

     18   
  

15. Subsequent Events

     18   

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     19   

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

     29   

Item 4.

  

Controls and Procedures

     31   

PART II — OTHER INFORMATION

  

Item 1.

  

Legal Proceedings

     32   

Item 1A.

  

Risk Factors

     32   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     32   

Item 4.

  

Mine Safety Disclosures

     32   

Item 6.

  

Exhibits

     33   

SIGNATURES

     34   

 

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 1,     March 31,  
     2012     2012  
Assets     

Current assets:

    

Cash and cash equivalents

   $ 180,711      $ 160,490   

Accounts receivable, net of allowance for doubtful accounts (July 1, 2012 - $9,297; March 31, 2012 - $10,022)

     478,483        466,769   

Inventories, net

     350,046        361,774   

Deferred taxes

     32,539        30,247   

Prepaid and other current assets

     46,367        52,393   
  

 

 

   

 

 

 

Total current assets

     1,088,146        1,071,673   

Property, plant, and equipment, net

     346,643        353,215   

Goodwill

     344,771        352,737   

Other intangible assets, net

     105,714        107,082   

Other assets

     38,819        40,248   
  

 

 

   

 

 

 

Total assets

   $ 1,924,093      $ 1,924,955   
  

 

 

   

 

 

 
Liabilities and Equity     

Current liabilities:

    

Short-term debt

   $ 11,099      $ 16,042   

Current portion of long-term debt and capital lease obligations

     2,789        2,949   

Accounts payable

     231,049        249,996   

Accrued expenses

     181,862        191,314   
  

 

 

   

 

 

 

Total current liabilities

     426,799        460,301   

Long-term debt and capital lease obligations

     258,637        237,110   

Deferred taxes

     82,887        84,479   

Other liabilities

     92,185        92,468   
  

 

 

   

 

 

 

Total liabilities

     860,508        874,358   

Commitments and contingencies

     —          —     

Redeemable noncontrolling interests

     9,142        9,782   

Equity:

    

Common Stock, $0.01 par value per share, 135,000,000 shares authorized; 52,464,406 shares issued and 48,017,521 outstanding at July 1, 2012; 52,247,014 shares issued and 47,800,129 shares outstanding at March 31, 2012

     524        522   

Additional paid-in capital

     479,583        474,924   

Treasury stock, at cost, 4,446,885 shares held as of July 1, 2012 and March 31, 2012

     (78,183     (78,183

Retained earnings

     606,643        560,839   

Accumulated other comprehensive income

     37,511        74,093   
  

 

 

   

 

 

 

Total EnerSys stockholders’ equity

     1,046,078        1,032,195   

Noncontrolling interests

     8,365        8,620   
  

 

 

   

 

 

 

Total equity

     1,054,443        1,040,815   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 1,924,093      $ 1,924,955   
  

 

 

   

 

 

 

See accompanying notes.

 

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Table of Contents

ENERSYS

Consolidated Condensed Statements of Income (Unaudited)

(In Thousands, Except Share and Per Share Data)

 

     Quarter Ended  
     July 1,
2012
    July 3,
2011
 

Net sales

   $ 593,910      $ 569,229   

Cost of goods sold

     445,604        447,258   
  

 

 

   

 

 

 

Gross profit

     148,306        121,971   

Operating expenses

     77,681        72,846   

Restructuring charges

     370        410   
  

 

 

   

 

 

 

Operating earnings

     70,255        48,715   

Interest expense

     4,732        3,414   

Other (income) expense, net

     1,250        1,227   
  

 

 

   

 

 

 

Earnings before income taxes

     64,273        44,074   

Income tax expense

     18,709        10,578   
  

 

 

   

 

 

 

Net earnings

     45,564        33,496   

Net losses attributable to noncontrolling interests

     (240     —     
  

 

 

   

 

 

 

Net earnings attributable to EnerSys stockholders

     45,804        33,496   
  

 

 

   

 

 

 

Net earnings per common share attributable to EnerSys stockholders:

    

Basic

   $ 0.96      $ 0.67   
  

 

 

   

 

 

 

Diluted

   $ 0.95      $ 0.66   
  

 

 

   

 

 

 

Weighted-average shares of common stock outstanding:

    

Basic

     47,901,203        50,052,627   
  

 

 

   

 

 

 

Diluted

     48,426,991        50,668,276   
  

 

 

   

 

 

 

See accompanying notes.

 

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Table of Contents

ENERSYS

Consolidated Condensed Statements of Comprehensive Income (Unaudited)

(In Thousands)

 

     Quarter ended  
     July 1,     July 3,  
     2012     2011  

Net earnings

   $ 45,564      $ 33,496   

Other comprehensive income:

    

Net unrealized gain (loss) on derivative instruments, net of tax

     (5,346     2,746   

Pension funded status adjustment, net of tax

     215        (27

Foreign currency translation adjustments

     (31,975     14,977   
  

 

 

   

 

 

 

Total comprehensive income

     8,458        51,192   

Comprehensive loss attributable to noncontrolling interests

     (764     —     
  

 

 

   

 

 

 

Comprehensive income attributable to EnerSys stockholders

   $ 9,222      $ 51,192   
  

 

 

   

 

 

 

 

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Table of Contents

ENERSYS

Consolidated Condensed Statements of Cash Flows (Unaudited)

(In Thousands)

 

     Quarter Ended  
     July 1,
2012
    July 3,
2011
 

Cash flows from operating activities

  

 

Net earnings

   $ 45,564      $ 33,496   

Adjustments to reconcile net earnings to net cash provided by operating activities:

    

Depreciation and amortization

     12,450        12,122   

Derivatives not designated in hedging relationships:

    

Net losses

     129        —     

Cash settlements

     (730     —     

Provision for doubtful accounts

     (131     598   

Deferred income taxes

     (707     46   

Non-cash interest expense

     2,139        1,878   

Stock-based compensation

     3,373        2,718   

(Gain) loss on disposal of property, plant, and equipment

     (108     52   

Changes in assets and liabilities, net of effects of acquisitions:

    

Accounts receivable

     (22,841     983   

Inventory

     (190     (15,748

Prepaid expenses and other current assets

     3,141        (2,667

Other assets

     (1,394     1,201   

Accounts payable

     (12,471     (11,021

Accrued expenses

     (8,619     (6,701

Other liabilities

     4,610        45   
  

 

 

   

 

 

 

Net cash provided by operating activities

     24,215        17,002   

Cash flows from investing activities

    

Capital expenditures

     (16,060     (11,674

Proceeds from disposal of property, plant, and equipment

     14        44   
  

 

 

   

 

 

 

Net cash used in investing activities

     (16,046     (11,630

Cash flows from financing activities

    

Net (decrease) increase in short-term debt

     (4,095     9,382   

Proceeds from revolving credit borrowings

     122,650        —     

Repayment of revolving credit borrowings

     (107,150     —     

Proceeds from long-term debt – other

     5,959        —     

Capital lease obligations and other

     (195     (1,103

Net effect from exercising of stock options and vesting of equity awards

     (870     (763

Excess tax benefits from exercises of stock options and vesting of equity awards

     2,159        2,921   

Purchase of treasury stock

     —          (9,753
  

 

 

   

 

 

 

Net cash provided by financing activities

     18,458        684   

Effect of exchange rate changes on cash and cash equivalents

     (6,406     1,652   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     20,221        7,708   

Cash and cash equivalents at beginning of period

     160,490        108,869   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 180,711      $ 116,577   
  

 

 

   

 

 

 

See accompanying notes.

 

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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 2012 Annual Report on Form 10-K (SEC File No. 001-32253), which was filed on May 25, 2012.

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 2013 end on July 1, 2012, September 30, 2012, December 30, 2012, and March 31, 2013, respectively. The four quarters in fiscal 2012 ended on July 3, 2011, October 2, 2011, January 1, 2012, and March 31, 2012, 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 their 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. Any adjustment to the redemption value impacts retained earnings but does not impact net income or comprehensive income. Redeemable noncontrolling interests which are redeemable only upon future events, the occurrence of which is not currently probable, are recorded at carrying value.

Certain amounts in the prior year’s financial statements have been reclassified to conform to the current-year presentation.

Recently Adopted Accounting Pronouncements

In the first quarter of fiscal 2013, the Company conformed its presentation of results of operations, in accordance with new guidance on the presentation of comprehensive income (loss). The guidance requires total comprehensive income (loss) for interim periods to be presented in single continuous statement or in two separate, but consecutive, statements. The new guidance does not change where the components of comprehensive income (loss) are recognized.

2. Inventories

Inventories, net consist of:

 

     July 1,
2012
     March 31,
2012
 

Raw materials

   $ 93,669       $ 100,538   

Work-in-process

     111,348         111,629   

Finished goods

     145,029         149,607   
  

 

 

    

 

 

 

Total

   $ 350,046       $ 361,774   
  

 

 

    

 

 

 

Inventory reserves for obsolescence and other estimated losses were $15,983 and $14,831 at July 1, 2012 and March 31, 2012, respectively, and have been included in the net amounts shown above.

 

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Table of Contents

3. Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the following valuation techniques to measure fair value for its financial assets and financial liabilities:

 

Level 1    Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2    Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
Level 3    Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

The following tables represent the financial assets and (liabilities), measured at fair value on a recurring basis as of July 1, 2012 and March 31, 2012 and the basis for that measurement:

 

     Total Fair Value
Measurement
July 1, 2012
    Quoted Price in
Active Markets

for Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
    Significant
Unobservable
Inputs
(Level 3)
 

Interest rate swap agreements

   $ (3,076   $ —         $ (3,076   $ —     

Lead forward contracts

     (4,308     —           (4,308     —     

Foreign currency forward contracts

     202        —           202        —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total derivatives

   $ (7,182   $ —         $ (7,182   $ —     
  

 

 

   

 

 

    

 

 

   

 

 

 

 

     Total Fair Value
Measurement
March 31, 2012
    Quoted Price in
Active Markets

for Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
    Significant
Unobservable
Inputs
(Level 3)
 

Interest rate swap agreements

   $ (3,872   $ —         $ (3,872   $ —     

Lead forward contracts

     (851     —           (851     —     

Foreign currency forward contracts

     782        —           782        —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total derivatives

   $ (3,941 )   $ —         $ (3,941 )   $ —     
  

 

 

   

 

 

    

 

 

   

 

 

 

The fair value of interest rate swap agreements are based on observable prices as quoted for receiving the variable three month LIBOR and paying fixed interest rates and, therefore, were classified as Level 2.

The fair value 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.

The fair value 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 value 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 2011 Credit Facility, the China Term Loan, the India Term Loan and short-term debt approximate their carrying value, as they are variable rate debt and the current terms are comparable to market terms as of the balance sheet dates and are classified as Level 2.

 

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Table of Contents

The Company’s $172,500 senior unsecured 3.375% convertible notes (“Convertible Notes”), with a face value of $172,500, were issued when the Company’s stock price was trading at $30.19 per share. On July 1, 2012, the Company’s stock price closed at $35.07 per share. The Convertible Notes have a conversion option at $40.60 per share. The fair value of these notes represent the trading values based upon quoted market prices and are classified as Level 2. The Convertible Notes were trading at 112% of face value on July 1, 2012, and 116% of face value on March 31, 2012.

The carrying amounts and estimated fair values of the Company’s derivatives and Convertible Notes at July 1, 2012 and March 31, 2012 were as follows:

 

     July 1,
2012
    March 31,
2012
 
     Carrying
Amount
    Fair Value     Carrying
Amount
    Fair Value  

Financial assets:

        

Derivatives (1)

   $ 202      $ 202      $ 782      $ 782   

Financial liabilities:

        

Convertible Notes

   $ 149,968 (2)    $ 193,200 (3)    $ 148,272 (2)    $ 200,100 (3) 

Derivatives (1)

     7,384        7,384        4,723        4,723   

 

(1) 

Represents interest rate swap agreements, lead and foreign currency hedges (see Note 4 for asset and liability positions of the interest rate swap agreements, lead and foreign currency hedges at July 1, 2012 and March 31, 2012).

(2) 

The carrying amounts of the Convertible Notes at July 1, 2012 and March 31, 2012 represent the $172,500 principal value, less the unamortized debt discount (see Note 9).

(3) 

The fair value amounts of the Convertible Notes at July 1, 2012 and March 31, 2012 represent the trading values of the Convertible Notes with a principal value of $172,500.

4. Derivative Financial Instruments

The Company utilizes derivative instruments to reduce its exposure to commodity price, foreign exchange risks and interest 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 Hedge Forward Contracts

The Company enters into lead hedge forward contracts to fix the price for a portion of lead purchases. Management considers the lead hedge forward contracts to be effective against changes in the cash flows of the underlying lead purchases based on the criteria under FASB guidance. The vast majority of such contracts are for a period not extending beyond one year and the notional amounts at July 1, 2012 and March 31, 2012 were 60.5 million and 60.0 million pounds, respectively.

Foreign Currency Forward Contracts

The Company purchases lead and other commodities in certain countries where the foreign currency exposure is different from the functional currency of that country. The Company uses foreign currency forward contracts to hedge a portion of the Company’s foreign currency exposures for lead and other commodity purchases 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 1, 2012 and March 31, 2012, the Company had entered into a total of $53,318 and $42,121, respectively, of such contracts.

In the coming twelve months, the Company anticipates that $6,495 of pretax loss relating to lead and foreign currency forward contracts will be reclassified from AOCI as part of cost of goods sold. This amount represents the current 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 income statement 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.

 

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Table of Contents

Derivatives not Designated in Hedging Relationships

Interest Rate Swap Agreements

As of July 1, 2012 and March 31, 2012, the Company maintained interest rate swap agreements that converted $85,000 of variable-rate debt to a fixed-rate basis, utilizing the three-month LIBOR, as a floating rate reference. These agreements expire between February 2013 and May 2013. Changes in the fair value of these agreements of $15 and $710 in expense during the first quarter of fiscal 2013 and 2012, respectively, have been recorded in the consolidated condensed statements of income in other (income) expense, net.

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. These are not designated as hedging instruments. As of July 1, 2012 and March 31, 2012, the notional amount of these contracts was $30,582 and $11,410, respectively. Net changes in the fair value of these contracts of $114 in expense during the first quarter of fiscal 2013 have been recorded in the consolidated condensed statements of income in other (income) expense, net.

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 1, 2012 and March 31, 2012

 

    Derivatives and Hedging Activities
Designated as Cash Flow Hedges
    Derivatives and Hedging Activities Not
Designated as Hedging Instruments
 
    July 1,     March 31,     July 1,     March 31,  
    2012     2012     2012     2012  

Prepaid and other current assets

       

Foreign currency forward contracts

  $ 284      $ 670      $ —        $ 112   

Other assets

       

Lead hedge forward contracts

    —          30        —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 284      $ 700      $ —        $ 112   
 

 

 

   

 

 

   

 

 

   

 

 

 

Accrued expenses

       

Interest rate swap agreements

  $ —        $ —        $ 3,076      $ 3,628   

Lead hedge forward contracts

    4,137        881        —          —     

Foreign currency forward contracts

    —          —          82        —     

Other liabilities

       

Lead hedge forward contracts

    171        —          —          —     

Interest rate swap agreements

    —          —          —          244   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

  $ 4,308      $ 881      $ 3,158      $ 3,872   
 

 

 

   

 

 

   

 

 

   

 

 

 

The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income

For the quarter ended July 1, 2012

 

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 hedge contracts

   $ (6,413   Cost of goods sold    $ 1,498   

Foreign currency forward contracts

     707      Cost of goods sold      1,278   
  

 

 

      

 

 

 

Total

   $ (5,706      $ 2,776   
  

 

 

      

 

 

 

 

Derivatives Not Designated as Hedging Instruments

  

Location of Gain (Loss)

Recognized in Income on

Derivative

   Gain (Loss)  
     

 

 

 

Interest rate swap contracts

   Other (income) expense, net    $ (15

Foreign currency forward contracts

   Other (income) expense, net      (114
     

 

 

 

Total

      $ (129
     

 

 

 

 

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The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income

For the quarter ended July 3, 2011

 

Derivatives in a Cash Flow Hedging Relationship

   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 hedge contracts

   $ (1,422   Cost of goods sold    $ (895

Foreign currency forward contracts

     156      Cost of goods sold      (1,935
  

 

 

      

 

 

 

Total

   $ (1,266      $ (2,830
  

 

 

      

 

 

 

 

Derivatives Not Designated as Hedging Instruments

  

Location of Gain (Loss)

Recognized in Income

on Derivative

   Gain (Loss)  

Interest rate swap contracts

   Other (income) expense, net    $ (710
     

 

 

 

Total

      $ (710
     

 

 

 

5. Income Taxes

The Company’s income tax provisions for all periods consist of federal, state and foreign income taxes. The tax provisions for the first quarters of fiscal 2013 and 2012 were based on the estimated effective tax rates applicable for the full years ending March 31, 2013 and March 31, 2012, respectively, after giving effect to items specifically related to the interim periods.

The effective income tax rates for the first quarters of fiscal 2013 and 2012 were 29.1% and 24.0%, respectively. The rate increase in the first quarter of fiscal 2013 as compared to the prior year quarter is primarily due to changes in the mix of earnings among tax jurisdictions, the expiration of certain U.S. corporate tax exemptions and the decrease in favorable discrete items compared to prior year quarter.

6. Warranties

The Company provides for estimated product warranty expenses when the related products are sold, with related liabilities included within accrued expenses and other liabilities. Warranty estimates are forecasts that are based on the best available information, primarily historical claims experience, and claims costs may differ from amounts provided. An analysis of changes in the liability for product warranties is as follows:

 

     Quarter ended  
     July 1,
2012
    July 3,
2011
 

Balance at beginning of period

   $ 42,067      $ 36,006   

Current period provisions

     5,596        6,185   

Costs incurred

     (4,495     (4,441

Foreign exchange and other

     (680     435   
  

 

 

   

 

 

 

Balance at end of period

   $ 42,488      $ 38,185   
  

 

 

   

 

 

 

 

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7. Commitments, Contingencies and Litigation

Litigation and Other Legal Matters

The Company is involved in litigation incidental to the conduct of its business, the results of which, in the opinion of management, are not likely to be material to the Company’s financial condition, results of operations, or cash flows. See Note 19 to the Consolidated Financial Statements included in the Company’s 2012 Annual Report on Form 10-K. There have been no significant changes since March 31, 2012.

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 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. See Note 19 to the Consolidated Financial Statements included in the Company’s 2012 Annual Report on Form 10-K for a full description of environmental issues. There have been no significant changes since March 31, 2012.

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 1, 2012 and March 31, 2012, the Company has hedged the price to purchase 60.5 million and 60.0 million pounds of lead, respectively, for a total purchase price of $55,397 and $56,610, 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 maturity period for substantially all these contracts is less than one year. The Company’s largest exposure is from the purchase and conversion of U.S. dollar based lead costs into local currencies in Europe. Additionally, the Company has currency exposures from intercompany and third party trade transactions. To hedge these exposures, the Company has entered into a total of $83,900 and $53,531, respectively, of foreign currency forward contracts with financial institutions as of July 1, 2012 and March 31, 2012.

Interest Rate Swap Agreements

The Company is exposed to changes in variable U.S. interest rates on borrowings under its credit agreements. On a selective basis, from time to time, the Company enters into interest rate swap agreements to reduce the negative impact that increases in interest rates could have on its outstanding variable rate debt. At July 1, 2012 and March 31, 2012, such agreements which expire between February 2013 and May 2013, converted $85,000 of variable-rate debt to a fixed-rate basis, utilizing the three-month LIBOR, as a floating rate reference. Fluctuations in LIBOR and fixed rates affect both the Company’s net financial investment position and the amount of cash to be paid or received under these agreements.

 

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8. Restructuring Plans

During fiscal 2011, the Company announced a restructuring of its European operations, which will result in the reduction of approximately 60 employees upon completion across its operations. The Company estimates that the total charges for these actions will amount to approximately $5,200, primarily from cash expenses for employee severance-related payments and site closure costs. Based on commitments incurred to date, the Company recorded restructuring charges of $5,178 in fiscal 2011 through 2012, with no additional charges in the first quarter of fiscal 2013. The Company incurred $4,579 of costs against the accrual during fiscal 2011 through 2012, with an additional $121 of costs incurred during the first quarter of fiscal 2013. As of July 1, 2012, the reserve balance associated with these actions is $408. The Company does not expect to be committed to significant additional restructuring charges in fiscal 2013 related to these actions.

During fiscal 2012, the Company announced restructuring plans related to its operations in Europe, primarily consisting of the transfer of manufacturing of select products between certain of its manufacturing operations and restructuring of its selling, general and administrative operations, which is expected to result in the reduction of approximately 80 employees upon completion. The Company estimates that the total charges for these actions will amount to approximately $4,200, primarily from cash expenses for employee severance-related payments. The Company recorded restructuring charges of $3,070 in fiscal 2012 with an additional $370 of costs incurred during the first quarter of fiscal 2013. The Company incurred $2,433 of costs against the accrual during fiscal 2012, with an additional $389 of costs incurred during the first quarter of fiscal 2013. As of July 1, 2012, the reserve balance associated with these actions is $603. The Company expects to be committed to an additional $760 of restructuring charges in fiscal 2013 related to these actions.

A roll-forward of the restructuring reserve is as follows:

 

     Employee
Severance
 

Balance at March 31, 2012

   $ 1,186   

Accrued

     370   

Costs incurred

     (510

Foreign currency impact and other

     (35
  

 

 

 

Balance at July 1, 2012

   $ 1,011   
  

 

 

 

 

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9. Debt

The following summarizes the Company’s long-term debt including capital lease obligations:

 

     July 1,
2012
     March 31,
2012
 

3.375% Convertible Notes, net of discount, due 2038

   $ 149,968       $ 148,272   

2011 Credit Facility due 2016

     94,900         79,400   

China Term Loan due 2017

     11,172         6,034   

India Term Loan due 2017

     4,642         5,383   

Capital lease obligations and other

     744         970   
  

 

 

    

 

 

 
     261,426         240,059   

Less current portion

     2,789         2,949   
  

 

 

    

 

 

 

Total long-term debt and capital lease obligations

   $ 258,637       $ 237,110   
  

 

 

    

 

 

 

The Convertible Notes are represented by a liability component which is reported herein as long-term debt, net of discount and an equity component representing the convertible feature, which is included in additional paid-in-capital in EnerSys stockholders’ equity.

The following represents the principal amount of the liability component, the unamortized discount, and the net carrying amount of our Convertible Notes as of July 1, 2012 and March 31, 2012, respectively:

 

     July 1,
2012
    March 31,
2012
 

Principal

   $ 172,500      $ 172,500   

Unamortized discount

     (22,532     (24,228
  

 

 

   

 

 

 

Net carrying amount

   $ 149,968      $ 148,272   
  

 

 

   

 

 

 

Carrying amount of equity component

   $ 29,850      $ 29,850   
  

 

 

   

 

 

 

As of July 1, 2012, the remaining discount will be amortized over a period of 35 months. The conversion price of the $172,500 in aggregate principal amount of the Convertible Notes is $40.60 per share and the number of shares on which the aggregate consideration to be delivered upon conversion is 4,248,761.

The effective interest rate on the liability component of the Convertible Notes was 8.50%. The amount of interest cost recognized for the amortization of the discount on the liability component of the Convertible Notes was $1,696 and $1,558, respectively, during the quarters ended July 1, 2012 and July 3, 2011.

Available Lines of Credit

As of July 1, 2012 and March 31, 2012, the Company had available and undrawn, under all its lines of credit, $357,554 and $377,230, respectively. Included in the July 1, 2012 and March 31, 2012 amounts are $97,375 and $95,340, respectively, of uncommitted lines of credit.

As of July 1, 2012 and March 31, 2012, the Company had $9,100 and $9,108, respectively, of standby letters of credit. As of July 1, 2012 and March 31, 2012, the Company had no bank guarantees.

 

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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 1,
2012
    July 3,
2011
    July 1,
2012
    July 3,
2011
 

Service cost

   $ 81      $ 70      $ 177      $ 181   

Interest cost

     164        166        594        653   

Expected return on plan assets

     (189     (176     (464     (458

Amortization and deferral

     100        58        52        7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 156      $ 118      $ 359      $ 383   
  

 

 

   

 

 

   

 

 

   

 

 

 

11. Stock-Based Compensation

As of July 1, 2012, the Company maintains the EnerSys 2010 Equity Incentive Plan (“2010 EIP”). The 2010 EIP reserved 3,177,477 shares of common stock for the grant of various types of equity awards including nonqualified stock options, restricted stock, restricted stock units, market share units and other forms of equity-based compensation.

The Company recognized equity-based compensation expense associated with its equity incentive plans of $3,373, with a related tax benefit of $978, for the first quarter of fiscal 2013, and $2,718 with a related tax benefit of $653, for the first quarter of fiscal 2012.

In the first quarter of fiscal 2013, the Company granted to management and other key employees 202,452 restricted stock units which vest 25% each year over four years from the date of grant, and 292,125 market share units which vest three years from the date of grant. In the first quarter of fiscal 2012, the Company granted to management and other key employees 96,840 restricted stock units and 224,397 market share units with similar vesting as in fiscal 2013 grants.

Common stock activity for the first quarter of fiscal 2013 included the exercise of 49,980 options and the vesting of 226,593 restricted stock units and for the comparable period in fiscal 2012 included the exercise of 79,800 options and the vesting of 243,676 restricted stock units. Net cash paid, reflecting the cost of equity awards surrendered for option price and withholding taxes were $870 and $763, respectively, for the first quarter of fiscal 2013 and 2012.

As of July 1, 2012 there were 581,183 non-qualified stock options, 592,349 restricted stock units and 638,688 market share units outstanding. At March 31, 2012, there were 633,663 non-qualified stock options, 617,240 restricted stock units and 346,563 market share units outstanding.

 

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12. Stockholders’ Equity

Common Stock

The following demonstrates the change in the number of shares of Common Stock outstanding during the first quarter ended July 1, 2012:

 

Shares outstanding as of March 31, 2012

     47,800,129   

Shares issued as part of equity-based compensation plans, net of equity awards surrendered for option price and taxes

     217,392   
  

 

 

 

Shares outstanding as of July 1, 2012

     48,017,521   
  

 

 

 

Treasury Stock

There were no stock repurchases during the first quarter of fiscal 2013. During the first quarter of fiscal 2012, the Company purchased 294,200 shares of its common stock for $9,753 from institutional shareholders. At July 1, 2012 and March 31, 2012, the Company held 4,446,885 shares as treasury stock.

Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income are as follows:

 

     March 31,
2012
    Before-Tax
Amount
    Tax  Benefit
(Expense)
     Net-of-Tax
Amount
    July 1,
2012
 

Pension funded status adjustment

   $ (8,982   $ 215      $ —         $ 215      $ (8,767

Unrealized gain (loss) on derivative instruments

     1,175        (8,482     3,136         (5,346     (4,171

Foreign currency translation adjustment

     81,900        (31,451     —           (31,451     50,449   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Accumulated other comprehensive income

   $ 74,093      $ (39,718   $ 3,136       $ (36,582   $ 37,511   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

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13. Earnings Per Share

The following table sets forth the reconciliation from basic to diluted average common shares and the calculations of net earnings per common share:

 

    Quarter ended  
    July 1,
2012
    July 3,
2011
 

Net earnings attributable to EnerSys stockholders

  $ 45,804      $ 33,496   
 

 

 

   

 

 

 

Average common shares:

   

Basic (weighted average outstanding shares)

    47,901,203        50,052,627   

Dilutive potential common shares from exercise and lapse of equity awards, net of shares assumed reacquired

    525,788        615,649   
 

 

 

   

 

 

 

Diluted (weighted average outstanding shares)

    48,426,991        50,668,276   
 

 

 

   

 

 

 

Basic earnings per common share attributable to EnerSys stockholders

  $ 0.96      $ 0.67   
 

 

 

   

 

 

 

Diluted earnings per common share attributable to EnerSys stockholders

  $ 0.95      $ 0.66   
 

 

 

   

 

 

 

Anti-dilutive equity awards not included in weighted average common shares – diluted

    107,217        317,435   
 

 

 

   

 

 

 

The aggregate number of common shares that the Company could be obligated to issue upon conversion of its Convertible Notes that the Company sold in May 2008 is 4,248,761. It is the Company’s current intent to settle the principal amount of any conversions in cash, and any additional conversion consideration in cash, shares of the Company’s common stock or a combination of cash and shares. No contingent shares were included in diluted shares outstanding during the first quarters of fiscal 2013 and 2012, as the specified conversion price exceeded the average market price of the Company’s common stock, and the inclusion of contingent shares would have been anti-dilutive.

 

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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,

 

   

Europe, which includes Europe, the Middle East and Africa, with segment headquarters in Zurich, Switzerland, and

 

   

Asia, which includes Asia, Australia and Oceania, with segment headquarters in Singapore.

The following table provides selected financial data for the Company’s reportable business segments and product lines:

 

     Quarter ended  
     July 1,
2012
    July 3,
2011
 

Net sales by segment to unaffiliated customers

    

Europe

   $ 237,051      $ 252,992   

Americas

     288,924        259,228   

Asia

     67,935        57,009   
  

 

 

   

 

 

 

Total net sales

   $ 593,910      $ 569,229   
  

 

 

   

 

 

 

Net sales by product line

    

Reserve power

   $ 289,294      $ 265,936   

Motive power

     304,616        303,293   
  

 

 

   

 

 

 

Total net sales

   $ 593,910      $ 569,229   
  

 

 

   

 

 

 

Intersegment sales

    

Europe

   $ 22,162      $ 16,132   

Americas

     10,554        10,146   

Asia

     6,359        3,054   
  

 

 

   

 

 

 

Total intersegment sales (1)

   $ 39,075      $ 29,332   
  

 

 

   

 

 

 

Operating earnings by segment

    

Europe

   $ 17,220      $ 14,137   

Americas

     44,514        31,618   

Asia

     8,891        3,370   

Restructuring charges (Europe)

     (370     (410
  

 

 

   

 

 

 

Total operating earnings (2)

   $ 70,255      $ 48,715   
  

 

 

   

 

 

 

 

(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

The Company evaluated all subsequent events through the date that the Consolidated Condensed Financial Statements were issued. No material subsequent events have occurred since July 1, 2012 that required recognition or disclosure in the Consolidated Condensed Financial Statements.

 

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

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a safe harbor for forward-looking statements made by or on behalf of EnerSys. EnerSys and its representatives may, from time to time, make written or verbal forward-looking statements, including statements contained in our filings with the Securities and Exchange Commission and its reports to stockholders. Generally, the inclusion of the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will,” 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 views and assumptions regarding future events and operating performance, 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 2012 Annual Report on Form 10-K and other unforeseen risks. You should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q, even if subsequently made available on our website or otherwise, and we undertake no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

Our actual results may differ materially from those contemplated by the forward-looking statements for a number of reasons, including the following factors:

 

   

general cyclical patterns of the industries in which our customers operate;

 

   

the extent to which we cannot control our fixed and variable costs;

 

   

the raw materials in our products may experience significant fluctuations in market price and availability;

 

   

certain raw materials constitute hazardous materials that may give rise to costly environmental and safety claims;

 

   

legislation regarding the restriction of the use of certain hazardous substances in our products;

 

   

risks involved in our operations such as disruption of markets, changes in import and export laws, environmental regulations, currency restrictions and currency exchange rate fluctuations;

 

   

our ability to raise our selling prices to our customers when our product costs increase;

 

   

the extent to which we are able to efficiently utilize our global manufacturing facilities and optimize our capacity;

 

   

general economic conditions in the markets in which we operate;

 

   

competitiveness of the battery markets throughout the world;

 

   

our timely development of competitive new products and product enhancements in a changing environment and the acceptance of such products and product enhancements by customers;

 

   

our ability to adequately protect our proprietary intellectual property, technology and brand names;

 

   

litigation and regulatory proceedings to which we might be subject;

 

   

changes in our market share in the geographic business segments where we operate;

 

   

our ability to implement our cost reduction initiatives successfully and improve our profitability;

 

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quality problems associated with our products;

 

   

our ability to implement business strategies, including our acquisition strategy, manufacturing expansion and restructuring plans;

 

   

our acquisition strategy may not be successful in locating advantageous targets;

 

   

our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames;

 

   

our debt and debt service requirements which may restrict our operational and financial flexibility, as well as imposing unfavorable interest and financing costs;

 

   

our ability to maintain our existing credit facilities or obtain satisfactory new credit facilities;

 

   

adverse changes in our short and long-term debt levels under our credit facilities;

 

   

our exposure to fluctuations in interest rates on our variable-rate debt;

 

   

our ability to attract and retain qualified personnel;

 

   

our ability to maintain good relations with labor unions;

 

   

credit risk associated with our customers, including risk of insolvency and bankruptcy;

 

   

our ability to successfully recover in the event of a disaster affecting our infrastructure; and

 

   

terrorist acts or acts of war, could cause damage or disruption to our operations, our suppliers, channels to market or customers, or could cause costs to increase, or create political or economic instability; and

 

   

the operation, capacity and security of our information systems and infrastructure.

This list of factors that may affect future performance is illustrative, but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

In the following discussion and analysis of results of operations and financial condition, certain financial measures may be considered “non-GAAP financial measures” under Securities and Exchange Commission rules. These rules require supplemental explanation and reconciliation, which is provided in this Quarterly Report on Form 10-Q. EnerSys’ management uses the non-GAAP measures “primary working capital”, “primary working capital percentage” (see definitions in “Liquidity and Capital Resources” below) and capital expenditures in its evaluation of business segment cash flow and financial position performance. These disclosures have limitations as an analytical tool, should not be viewed as a substitute for cash flow determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Management believes that this non-GAAP supplemental information is helpful in understanding the Company’s ongoing operating results.

 

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Overview

EnerSys (the “Company,” “we,” or “us”) is the world’s largest manufacturer, marketer and distributor of industrial batteries. We also manufacture, market and distribute related products such as chargers, power equipment and battery accessories, and we provide related after-market and customer-support services for industrial batteries. We market and sell our products globally to over 10,000 customers in more than 100 countries through a network of distributors, independent representatives and our internal sales force.

We operate and manage our business in three geographic regions of the world—Americas, Europe and Asia, as described below. Our business is highly decentralized with manufacturing locations throughout the world. More than half of our manufacturing capacity is located outside of the United States, and approximately 60% of our net sales were generated outside of the United States. The Company has three reportable business segments based on geographic regions, defined as follows:

 

   

Americas, which includes North and South America, with our segment headquarters in Reading, Pennsylvania, USA,

 

   

Europe, which includes Europe, the Middle East and Africa, with our segment headquarters in Zurich, Switzerland, and

 

   

Asia, which includes Asia, Australia and Oceania, with our segment headquarters in Singapore.

We evaluate business segment performance based primarily upon operating earnings exclusive of highlighted items. Highlighted items are those that the Company deems are not indicative of ongoing operating results, including those charges that the Company incurs as a result of restructuring activities and those charges and credits that are not directly related to ongoing business segment performance. All corporate and centrally incurred costs are allocated to the business segments based principally on net sales. We evaluate business segment cash flow and financial position performance based primarily upon capital expenditures and primary working capital levels (see definition of primary working capital in “Liquidity and Capital Resources” below). Although we 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.

 

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Our management structure, financial reporting systems, and associated internal controls and procedures, are all consistent with our three geographic business segments. We report on a March 31 fiscal year-end. Our financial results are largely driven by the following factors:

 

   

global economic conditions and general cyclical patterns of the industries in which our customers operate;

 

   

changes in our selling prices and, in periods when our product costs increase, our ability to raise our selling prices to pass such cost increases through to our customers;

 

   

the extent to which we are able to efficiently utilize our global manufacturing facilities and optimize our capacity;

 

   

the extent to which we can control our fixed and variable costs, including those for our raw materials, manufacturing, distribution and operating activities;

 

   

changes in our level of debt and changes in the variable interest rates under our credit facilities; and

 

   

the size and number of acquisitions and our ability to achieve their intended benefits.

We have two primary industrial battery product lines: reserve power products and motive power products. Net sales classifications by product line are as follows:

 

   

Reserve power products are used for backup power for the continuous operation of critical applications in telecommunications systems, uninterruptible power systems, or “UPS” applications for computer and computer-controlled systems, and other specialty power applications, including security systems, premium starting, lighting and ignition applications, in switchgear, electrical control systems used in electric utilities and energy pipelines, in commercial aircraft, satellites, military aircraft, submarines, ships, tactical vehicles and portable energy packs.

 

   

Motive power products are used to provide power for manufacturing, warehousing and other material handling equipment, primarily electric industrial forklift trucks, mining equipment, and for diesel locomotive starting and other rail equipment.

 

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Economic Climate

Recent indicators continue to suggest a mixed trend in economic activity among our different geographical regions. The Americas region continued its economic recovery which has been in place since fiscal 2010. Asia’s economic expansion continues but at a slower rate. The ongoing financial crisis in Europe is a factor in slowing overall economic growth in this region and leading to declining economic growth in many of the Western European countries. Overall, on a consolidated basis, we have experienced neutral trends in our sequential quarterly revenue and order rate.

Volatility of Commodities and Foreign Currencies

Our most significant commodity and foreign currency exposures are related to lead and the euro. Historically, volatility of commodity costs and foreign currency exchange rates have caused large swings in our production costs. As the global economic climate changes, we anticipate that our commodity costs may continue to fluctuate significantly as they have in the past several years. The decrease in our cost of lead due to a decrease in average lead prices was approximately $21 million in the current quarter of fiscal 2013, compared to the first quarter of fiscal 2012.

Customer Pricing

Our selling prices fluctuated during the last several years to offset the volatile cost of commodities. Beginning in the third quarter of fiscal 2009, as a result of reductions in the cost of lead, our average selling prices began to decline on a sequential quarterly basis. As the cycle of lead costs turned upward in early fiscal 2010, we began to increase average selling prices to help offset the higher costs. During the current quarter of fiscal 2013, our selling prices declined slightly to reflect declining lead costs, which reduced cost of sales by approximately $21 million compared to the prior year quarter. Approximately 35% of our revenue is currently subject to agreements that adjust pricing to a market-based index for lead.

Liquidity and Capital Resources

Our capital structure and liquidity remain strong. As of July 1, 2012, we had approximately $181 million of cash and cash equivalents, approximately $261 million of undrawn, committed credit lines, and approximately $97 million of available and uncommitted credit lines. A substantial majority of the Company’s cash and investments are held by foreign subsidiaries and are considered to be indefinitely reinvested and expected to be utilized to fund local operating activities, capital expenditure requirements and acquisitions. The company believes that it has sufficient sources of domestic liquidity.

 

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Table of Contents

Results of Operations

Net Sales

 

     Quarter ended
July 1, 2012
    Quarter ended
July 3, 2011
    Increase (Decrease)  
Current quarter by segment    In
Millions
     Percentage
of Total
Net Sales
    In
Millions
     Percentage
of Total
Net Sales
    In
Millions
    %  

Europe

   $ 237.1         39.9   $ 253.0         44.4   $ (15.9     (6.3 )% 

Americas

     288.9         48.7        259.2         45.6        29.7        11.5   

Asia

     67.9         11.4        57.0         10.0        10.9        19.2   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total net sales

   $ 593.9         100.0   $ 569.2         100.0   $ 24.7        4.3
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net sales increased $24.7 million or 4.3% in the first quarter of fiscal 2013 from the comparable period in fiscal 2012. This increase for the quarter was the result of a 7% increase in organic volume, a 3% increase from acquisitions, and a 6% decrease due to foreign currency translation impact.

Segment sales

The Americas segment experienced improved year over year economic and market conditions which led to organic volume improvements in the first quarter of fiscal 2013 compared to the prior year quarter. Our Europe segment experienced sales growth from organic volume and acquisitions, offset by pricing and foreign currency translation impact in the first quarter of fiscal 2013, compared to the comparable period of fiscal 2012, while our Asia segment improved with double digit growth primarily from organic volume.

Our Europe segment’s net sales decreased $15.9 million or 6.3% in the first quarter of fiscal 2013, as compared to the first quarter of fiscal 2012, primarily due to a 12% decrease related to weaker foreign currencies and 2% decrease due to pricing. Higher organic volume and acquisitions contributed an increase of approximately 4% each.

Our Americas segment’s revenue increased $29.7 million or 11.5% in the first quarter of fiscal 2013, as compared to the first quarter of fiscal 2012, primarily due to higher organic volume, which contributed approximately 8% of the increased revenue. Acquisitions and pricing contributed approximately 3% and 1%, respectively, to the improvement offset by negative currency translation impact of approximately 1%.

Our Asia segment’s revenue increased $10.9 million or 19.2% in the first quarter of fiscal 2013, as compared to the first quarter of fiscal 2012, primarily due to higher organic volume and acquisitions, which contributed approximately 16% and 6%, respectively. Currency translation impact and pricing partially offset this increase by approximately 2% and 1%, respectively.

Product line sales

 

     Quarter ended
July 1, 2012
    Quarter ended
July 3, 2011
    Increase (Decrease)  
     In
Millions
     Percentage
of Total
Net Sales
    In
Millions
     Percentage
of Total
Net Sales
    In
Millions
     %  

Reserve power

   $ 289.3         48.7   $ 265.9         46.7   $ 23.4         8.8

Motive power

     304.6         51.3        303.3         53.3        1.3         0.4   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total net sales

   $ 593.9         100.0   $ 569.2         100.0   $ 24.7         4.3
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Sales of our reserve power products in the first quarter of fiscal 2013 increased $23.4 million or 8.8% compared to the first quarter of fiscal 2012. In the first quarter of fiscal 2013, organic volume and acquisitions contributed approximately 11% and 4%, respectively, partially offset by negative currency translation impact of approximately 6%.

Sales of our motive power products in the first quarter of fiscal 2013 increased $1.3 million or 0.4% compared to the first quarter of fiscal 2012. The first quarter increase was primarily due to higher organic volume of approximately 4% and acquisitions of approximately 3% offset by negative currency translation impact of approximately 6%.

 

24


Table of Contents

Gross Profit

 

     Quarter ended
July 1, 2012
    Quarter ended
July 3, 2011
    Increase (Decrease)  
     In
Millions
     Percentage
of Total
Net Sales
    In
Millions
     Percentage
of Total
Net Sales
    In
Millions
     %  

Gross Profit

   $ 148.3         25.0   $ 122.0         21.4   $ 26.3         21.6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Gross profit increased $26.3 million or 21.6% in the first quarter of fiscal 2013 when compared to the first quarter of fiscal 2012.

Gross profit, as a percentage of net sales increased 360 basis points in the first quarter of fiscal 2013, when compared to the first quarter of fiscal 2012. This increase is primarily attributed to increased volume, lower commodity costs and on-going cost reduction programs.

We estimate that the cost of lead alone, our most significant raw material, decreased our cost of sales by approximately $21 million in the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012 while selling prices reduced sales by $1.0 million.

Our gross profit initiatives will continue to emphasize cost reduction activities to improve gross profit and continue to focus on improving product mix to higher margin products.

Operating Items

 

     Quarter ended
July 1, 2012
    Quarter ended
July 3, 2011
    Increase (Decrease)  
     In
Millions
     Percentage
of Total
Net Sales
    In
Millions
     Percentage
of Total
Net Sales
    In
Millions
     %  

Operating expenses

   $ 77.7         13.1   $ 72.9         12.8   $ 4.8         6.6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Restructuring charges

   $ 0.4         0.1   $ 0.4         0.1   $ —           —  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Operating expenses as a percentage of net sales increased 30 basis points in the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012. Operating expenses, excluding the effect of foreign currency translation, increased 12.9% or $9.3 million in the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012, due primarily to higher sales volume and the higher operating costs of recent acquisitions. Selling expenses, our main component of operating expenses, were 60.7% of total operating expenses in the first quarter of fiscal 2013 compared to 59.9% of total operating expenses in the first quarter of fiscal 2012.

Restructuring charges

Included in each of our first quarters of fiscal 2013 and fiscal 2012 operating results are $0.4 million of restructuring charges, primarily for staff reductions in Europe.

 

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Table of Contents

Operating Earnings

 

     Quarter ended
July 1, 2012
    Quarter ended
July 3, 2011
    Increase (Decrease)  
Current quarter by segment    In
Millions
    Percentage
of Total
Net Sales (1)
    In
Millions
    Percentage
of Total
Net Sales (1)
    In
Millions
     %  

Europe

   $ 17.2        7.3   $ 14.1        5.6   $ 3.1         21.8

Americas

     44.5        15.4        31.6        12.2        12.9         40.8   

Asia

     8.9        13.1        3.4        5.9        5.5         163.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Subtotal

     70.6        11.9        49.1        8.6        21.5         43.8   

Restructuring charges-Europe

     (0.4     (0.2     (0.4     (0.2     —           —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total operating earnings

   $ 70.2        11.8   $ 48.7        8.6   $ 21.5         44.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

(1) 

The percentages shown for the segments are computed as a percentage of the applicable segment’s net sales.

Operating earnings increased $21.5 million or 44.2% in the first quarter of fiscal 2013 in comparison to the first quarter of fiscal 2012. Operating earnings as a percentage of net sales, as shown in the table above, increased 320 basis points in the first quarter of fiscal 2013 when compared to the first quarter of fiscal 2012.

We experienced an increase in operating earnings in our Europe segment in the first quarter of fiscal 2013 in comparison to the comparable quarter in the prior year, with the operating margin increasing 170 basis points to 7.3%. This increase in operating margin is attributable to an increase in organic volume and lower commodity costs, along with the benefits of the restructuring programs on both production and operating expenses.

Our Americas segment had an increase in operating earnings in the first quarter of fiscal 2013 in comparison to the first quarter of fiscal 2012, with the operating margin increasing 320 basis points to 15.4%. The operating margin increase is primarily attributable to higher organic volume and lower commodity costs.

Operating earnings increased 163.8% in our Asia segment in the first quarter of fiscal 2013 in comparison to the first quarter of fiscal 2012, with the operating margin increasing 720 basis points to 13.1%. The improvement in the first quarter of fiscal 2013 in comparison to the prior year quarter is primarily due to improved volume and a better mix of higher margin products in the region.

Interest Expense

 

     Quarter ended
July 1, 2012
    Quarter ended
July 3, 2011
    Increase (Decrease)  
     In
Millions
     Percentage
of Total
Net Sales
    In
Millions
     Percentage
of Total
Net Sales
    In
Millions
     %  

Interest expense

   $ 4.7         0.8   $ 3.4         0.6   $ 1.3         38.6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Interest expense of $4.7 million in the first quarter of fiscal 2013 (net of interest income of $0.2 million) was $1.3 million higher than the interest expense of $3.4 million in the first quarter of fiscal 2012 (net of interest income of $0.3 million).

The increase in interest expense in the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012 is attributable to higher interest expense in Asia and South America.

Included in interest expense are non-cash charges for deferred financing fees of $0.3 million in both the first quarters of fiscal 2013 and 2012.

Included in interest expense for the first quarter of fiscal 2013 and 2012 is non-cash, accreted interest on the Convertible Notes of $1.7 million and $1.6 million, respectively. (See Note 9 to the Consolidated Condensed Financial Statements).

Our average debt outstanding (reflecting the reduction of the Convertible Notes discount) was $266.0 million in the first quarter of fiscal 2013, compared to $258.5 million in the first quarter of fiscal 2012. The average Convertible Notes discount excluded from our average debt outstanding was $23.4 million in the first quarter of fiscal 2013 and $29.9 million in the first quarter of fiscal 2012.

 

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Table of Contents

Other (Income) Expense, Net

 

     Quarter ended
July 1, 2012
    Quarter ended
July 3, 2011
    Increase (Decrease)  
     In
Millions
     Percentage
of Total
Net Sales
    In
Millions
     Percentage
of Total
Net Sales
    In
Millions
     %  

Other (income) expense, net

   $ 1.2         0.2   $ 1.2         0.2   $ —           — 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Other (income) expense, net for the first quarter of fiscal 2013 was $1.2 million compared to $1.2 million in the first quarter of fiscal 2012. Foreign currency losses in the first quarter of fiscal 2013 were $0.7 million compared to $0.1 million foreign currency gains in the prior year quarter. Unrealized losses on interest rate swaps in the first quarter of fiscal 2012 were $0.7 million and were negligible in the first quarter of fiscal 2013.

Earnings Before Income Taxes

 

     Quarter ended
July 1, 2012
    Quarter ended
July 3, 2011
    Increase (Decrease)  
     In
Millions
     Percentage
of Total
Net Sales
    In
Millions
     Percentage
of Total
Net Sales
    In
Millions
     %  

Earnings before income taxes

   $ 64.3         10.8   $ 44.1         7.8   $ 20.2         45.8
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

As a result of the above, earnings before income taxes in the first quarter of fiscal 2013 increased $20.2 million or 45.8% compared to the first quarter of fiscal 2012. Earnings before income taxes as a percentage of net sales were 10.8% in the first quarter of fiscal 2013 compared to 7.8% in the first quarter of fiscal 2012.

Income Tax Expense

 

     Quarter ended
July 1, 2012
    Quarter ended
July 3, 2011
    Increase (Decrease)  
     In
Millions
     Percentage
of Total
Net Sales
    In
Millions
     Percentage
of Total
Net Sales
    In
Millions
     %  

Income tax expense

   $ 18.7         3.1   $ 10.6         1.9   $ 8.1         76.9
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Effective tax rate

     29.1%        24.0%        5.1%   
  

 

 

   

 

 

   

 

 

 

The Company’s income tax provisions for both periods consist of federal, state and foreign income taxes. The tax provisions for the first quarters of fiscal 2013 and fiscal 2012 were based on the estimated effective tax rates applicable for the full years ending March 31, 2013 and March 31, 2012, respectively, after giving effect to items specifically related to the interim periods.

The effective income tax rates for the first quarters of fiscal 2013 and fiscal 2012 were 29.1% and 24.0%, respectively. The rate increase in the first quarter of fiscal 2013 as compared to the prior year quarter is primarily due to changes in the mix of earnings among tax jurisdictions, the expiration of certain U.S. corporate tax exemptions and the decrease in favorable discrete items compared to prior year quarter.

 

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Table of Contents

Net Earnings Attributable to EnerSys Stockholders

 

     Quarter ended
July 1, 2012
    Quarter ended
July 3, 2011
    Increase (Decrease)  
     In
Millions
     Percentage
of Total
Net Sales
    In
Millions
     Percentage
of Total
Net Sales
    In
Millions
     %  

Net earnings attributable to EnerSys stockholders

   $ 45.8         7.7   $ 33.5         5.9   $ 12.3         36.7
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

As a result of the above, net earnings in the first quarter of fiscal 2013 were $45.8 million or 7.7% of net sales, compared to net earnings in the first quarter of fiscal 2012 of $33.5 million or 5.9% of net sales.

Net earnings per common share in the first quarter of fiscal 2013 were $0.96 per basic share and $0.95 per diluted share, compared to $0.67 per basic share and $0.66 per diluted share in the first quarter of fiscal 2012 which reflects a $0.04 benefit from lower average shares outstanding from the $9.8 million stock repurchases net of shares issued under equity awards during fiscal 2012.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies from those discussed under the caption “Critical Accounting Policies and Estimates” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2012 Annual Report on Form 10-K.

Liquidity and Capital Resources

Operating activities provided cash of $24.2 million in the first quarter of fiscal 2013 compared to $17.0 million in the first quarter of fiscal 2012. In the first quarter of fiscal 2013, net earnings of $45.6 million and depreciation and amortization of $12.5 million were offset by cash used for the increase in primary working capital of $35.5 million, net of currency translation changes. In the first quarter of fiscal 2012, net earnings of $33.5 million and depreciation and amortization of $12.1 million were offset by cash used for the increase in primary working capital of $25.8 million, net of currency translation changes.

Primary working capital for this purpose is trade accounts receivable, plus inventories, minus trade accounts payable. The resulting net amount is divided by the trailing three month net sales (annualized) to derive a primary working capital percentage. Primary working capital was $597.5 million (yielding a primary working capital percentage of 25.2%) at July 1, 2012, $578.6 million (yielding a primary working capital percentage of 24.4%) at March 31, 2012 and $585.2 million at July 3, 2011 (yielding a primary working capital percentage of 25.7%). The primary working capital percentage of 25.2% at July 1, 2012 is 0.8 percentage points higher than that for March 31, 2012, and 0.5 percentage points lower than that for the prior year quarter.

Primary working capital increased during the first quarter of fiscal 2013, largely due to an increase in accounts receivable and decrease in accounts payable.

Primary working capital and primary working capital percentages at July 1, 2012, March 31, 2012 and July 3, 2011 are computed as follows:

 

(In Millions)  

Balance At

   Trade
Receivables
     Inventory      Accounts
Payable
    Total      Quarter
Revenue
Annualized
     Primary
Working
Capital %
 

July 1, 2012

   $ 478.5       $ 350.0       $ (231.0   $ 597.5       $ 2,375.6         25.2

March 31, 2012

     466.8         361.8         (250.0     578.6         2,371.0         24.4   

July 3, 2011

     468.5         359.2         (242.5     585.2         2,276.9         25.7   

Investing activities used cash of $16.0 million in the first quarter of fiscal 2013, compared to cash used of $11.6 million in the comparable period in fiscal 2012, comprised of capital expenditures.

Financing activities provided cash of $18.5 million in the first quarter of fiscal 2013, primarily reflecting borrowings and repayments of $122.7 million and $107.2 million, respectively, on our revolver. Borrowings on long term debt of $6.0 million were offset by repayments on short term debt of $4.1 million in Asia. Exercise of stock options and the related tax benefits contributed $1.3 million. In the first quarter of fiscal 2012, financing activities provided cash of $0.7 million, primarily reflecting borrowings on short-term debt of $9.4 million and the exercise of stock options and the related tax benefits that contributed $2.2 million, offset by the repurchase of common stock of $9.8 million and capital lease payments of $1.1 million.

 

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Table of Contents

As a result of the above, total cash and cash equivalents increased by $20.2 million to $180.7 million in the first quarter of fiscal 2013 compared to an increase of $7.7 million to $116.6 million in the comparable period of fiscal 2012.

All obligations under our 2011 Senior Secured Revolving Credit Facility are secured by, among other things, substantially all of our U.S. assets. This credit agreement 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 credit agreements. Since we believe that we will continue to comply with these covenants and conditions, we believe 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 8 to the Consolidated Financial Statements included in our 2012 Annual Report on Form 10-K for a detailed description of debt.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risks

Our cash flows and earnings are subject to fluctuations resulting from changes in interest rates, foreign currency exchange rates and raw material costs. We manage our exposure to these market risks through internally established policies and procedures and, when deemed appropriate, through the use of derivative financial instruments. Our policy does not allow speculation in derivative instruments for profit or execution of derivative instrument contracts for which there are no underlying exposures. We do not use financial instruments for trading purposes and are not a party to any leveraged derivatives. We monitor our underlying market risk exposures on an ongoing basis and believe that we can modify or adapt our hedging strategies as needed.

Counterparty Risks

We have entered into interest rate swap agreements to manage risk on a portion of our long-term floating-rate debt. We have entered into lead forward purchase contracts to manage risk on the cost of lead. We have entered into foreign exchange forward contracts and purchased option contracts to manage risk on foreign currency exposures. The Company’s agreements are with creditworthy financial institutions. Those contracts that result in a liability position at July 1, 2012 are $7.8 million (pre-tax), therefore there is no risk of nonperformance by the counterparties. Those contracts that result in an asset position at July 1, 2012 are $0.6 million (pre-tax) and the impact on the Company due to nonperformance by the counterparties is not material.

Interest Rate Risks

We are exposed to changes in variable U.S. interest rates on borrowings under our credit agreements. On a selective basis, from time to time, we enter into interest rate swap agreements to reduce the negative impact that increases in interest rates could have on our outstanding variable rate debt. Changes in the fair value of these contracts for the quarters ended July 1, 2012 and July 3, 2011 have been recorded in the income statement in other (income) expense, net.

At July 1, 2012 and March 31, 2012, the aggregate notional amount of interest rate swap agreements is $85.0 million. These agreements expire between February – May 2013.

Under the interest rate swaps, the Company receives three-month LIBOR and pays a fixed interest rate which averaged 4.28% and 4.46% on July 1, 2012 and July 3, 2011, respectively.

A 100 basis point increase in interest rates would increase annual interest expense by approximately $0.9 million on the variable rate portions of our debt.

 

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Table of Contents

Commodity Cost Risks – Lead Contracts

We have a significant risk in our exposure to certain raw materials. Our largest single raw material cost is for lead, for which the cost remains volatile. In order to hedge against increases in our lead cost, we have entered into contracts with financial institutions to fix the price of lead. A vast majority of such contracts are for a period not extending beyond one year. We had the following contracts outstanding at the dates shown below:

 

Date

   $’s  Under
Contract
(in millions)
     # Pounds
Purchased
(in millions)
     Average
Cost/Pound
     Approximate %
of Lead
Requirements (1)
 

July 1, 2012

   $ 55.4         60.5       $ 0.92         12

March 31, 2012

     56.6         60.0         0.94         12   

July 3, 2011

     32.8         31.0         1.06         7   

 

(1) 

Based on approximate annual lead requirements for the periods then ended.

For the remaining three quarters of this fiscal year, we believe approximately 31% of the cost of our lead requirement is known. This takes into account the hedge contracts in place at July 1, 2012, lead purchased by July 1, 2012 that will be reflected in future costs under our FIFO accounting treatment, and the benefit from our lead tolling program.

We estimate that a 10% increase in our cost of lead would increase our cost of goods sold by approximately $14 million in the first quarter of fiscal 2013.

Foreign Currency Exchange Rate Risks

We manufacture and assemble our products globally in the Americas, Europe and Asia. Approximately 60% of our sales and expenses are transacted in foreign currencies. Our sales revenue, production costs, profit margins and competitive position are affected by the strength of the currencies in countries where we manufacture or purchase goods relative to the strength of the currencies in countries where our products are sold. Additionally, as we report our financial statements in U.S. dollars, our financial results are affected by the strength of the currencies in countries where we have operations relative to the strength of the U.S. dollar. The principal foreign currencies in which we conduct business are the Euro, Swiss franc, British pound, Polish zloty, Chinese renminbi and Mexican peso.

We quantify and monitor our global foreign currency exposures. Our largest foreign currency exposure is from the purchase and conversion of U.S. dollar based lead costs into local currencies in Europe. Additionally, we have currency exposures from intercompany financing and trade transactions. On a selective basis, we enter into foreign currency forward contracts and option contracts to reduce the impact from the volatility of currency movements; however, we cannot be certain that foreign currency fluctuations will not impact our operations in the future.

 

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Table of Contents

To hedge these exposures, we have entered into forward contracts with financial institutions to fix the value at which we will buy or sell certain currencies. The vast majority of such contracts is for a period not extending beyond one year. Forward contracts outstanding as of July 1, 2012 and March 31, 2012 were $83.9 million and $53.5 million, respectively. The details of contracts outstanding as of July 1, 2012 were as follows:

 

     July 1, 2012  

Transactions Hedged

   $US
Equivalent
(in millions)
     Average
Rate
Hedged
     Approximate
% of Annual
Requirements (1)
 

Sell Euros for U.S. dollars

   $ 20.0       $/€ 1. 27         10

Sell Euros for Polish zloty

     17.6       PLN/€ 4.28         22   

Sell Euros for British pounds

     22.4       £/€ 0.82         35   

Sell Japanese yen for U.S. dollars

     17.0       ¥/$ 80.71         54   

Sell Australian dollars for U.S. dollars

     2.2       $/AUD 1.01         23   

Sell U.S. dollars for Mexican pesos

     2.5       MXN/$ 13.38         50   

Other

     2.2         
  

 

 

       

Total

   $ 83.9         
  

 

 

       

 

(1) 

Based on the fiscal year currency requirements.

Foreign exchange translation adjustments are recorded in the consolidated condensed statements of comprehensive income.

Based on changes in the timing and amount of interest rate and foreign currency exchange rate movements and our actual exposures and hedges, actual gains and losses in the future may differ from our historical results.

 

ITEM 4. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.

(b) Internal Control Over Financial Reporting. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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Table of Contents

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are involved in litigation incidental to the conduct of our business. We do not expect that any of this litigation, individually or in the aggregate, will have a material adverse effect on our financial condition, results of operations or cash flow.

Item 1A. Risk Factors

In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended March 31, 2012, which could materially affect our business, financial condition or future results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table summarizes the number of shares of common stock we purchased from participants in our equity incentive plans as well as repurchases of common stock authorized by the Board of Directors. As provided by our equity incentive plans, vested options outstanding may be exercised through surrender to the Company of option shares or vested options outstanding under the Plan to satisfy the applicable aggregate exercise price (and any withholding tax) required to be paid upon such exercise.

Purchases of Equity Securities

 

Period

   (a)
Total number
of shares (or
units)
purchased
     (b)
Average price
paid  per share
(or unit)
     (c)
Total number of
shares (or units)
purchased as part of
publicly announced
plans or programs
     (d)
Maximum number  (or
approximate dollar
value) of shares (or units)
that may be purchased
under the plans or
programs (1)
 

April 1 – April 29, 2012

     —         $ —           —         $ 254,895   

April 30 – May 27, 2012

     66,535         30.81         —           56,328,047 (2) 

May 28 – July 1, 2012

     —           —           —           57,156,645   
  

 

 

    

 

 

    

 

 

    

Total

     66,535       $ 30.81         —        
  

 

 

    

 

 

    

 

 

    

 

(1) 

On May 26, 2011, the Company’s Board of Directors authorized the Company to repurchase up to the number of shares exercised through previous stock option awards and common stock issued under the 2010 Equity Incentive Plan. As of April 29, 2012, May 27, 2012 and July 1, 2012, this repurchase limit amounted to a total 7,757 shares, 192,576 shares, and 217,792 shares, respectively, that may be repurchased under this program. For purposes of presenting the approximate dollar value of shares that may be purchased under this program, we multiplied the remaining balance under this program by $32.86 per share, which is the average closing price of the Company’s common stock during the period.

(2) 

On May 24, 2012, the Company’s Board of Directors authorized the Company to repurchase up to $50 million of its common stock.

Item 4. Mine Safety Disclosures

Not applicable.

 

32


Table of Contents
ITEM 6. EXHIBITS

 

Exhibit
Number

  

Description of Exhibit

    3.1    Fifth Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Amendment No. 3 to EnerSys’ Registration Statement on Form S-1 (File No. 333-115553) filed on July 13, 2004).
    3.2    Bylaws (filed herewith).
  10.1    Form of Restricted Stock Unit Agreement – Employees – 2010 Equity Incentive Plan (filed herewith).
  10.2    Form of Market Share Restricted Stock Unit Agreement – Employees – 2010 Equity Incentive Plan (filed herewith).
  31.1    Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) Under the Securities Exchange Act of 1934 (filed herewith).
  31.2    Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) Under the Securities Exchange Act of 1934 (filed herewith).
  32.1    Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

33


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

ENERSYS (Registrant)
By  

/s/ Michael J. Schmidtlein

  Michael J. Schmidtlein
  Senior Vice President Finance & Chief Financial Officer

Date: August 8, 2012

 

34


Table of Contents

EnerSys

EXHIBIT INDEX

 

ITEM 6. EXHIBITS

 

Exhibit
Number

  

Description of Exhibit

    3.1    Fifth Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Amendment No. 3 to EnerSys’ Registration Statement on Form S-1 (File No. 333-115553) filed on July 13, 2004).
    3.2    Bylaws (filed herewith).
  10.1    Form of Restricted Stock Unit Agreement – Employees – 2010 Equity Incentive Plan (filed herewith).
  10.2    Form of Market Share Restricted Stock Unit Agreement – Employees – 2010 Equity Incentive Plan (filed herewith).
  31.1    Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) Under the Securities Exchange Act of 1934 (filed herewith).
  31.2    Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) Under the Securities Exchange Act of 1934 (filed herewith).
  32.1    Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

35

XNYS:ENS EnerSys Quarterly Report 10-Q Filling

EnerSys XNYS:ENS Stock - Get Quarterly Report SEC Filing of EnerSys XNYS:ENS stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XNYS:ENS EnerSys Quarterly Report 10-Q Filing - 7/1/2012
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