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 October 3, 2010
¨ | 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) |
Registrants 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 November 4, 2010: 49,210,578 shares
INDEXFORM 10-Q
Page | ||||||
PART IFINANCIAL INFORMATION |
||||||
Item 1. | Financial Statements | |||||
Consolidated Condensed Balance Sheets (Unaudited) October 3, 2010 and March 31, 2010 |
3 | |||||
4 | ||||||
5 | ||||||
6 | ||||||
7 | ||||||
Notes to Consolidated Condensed Financial Statements (Unaudited) |
8 | |||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
23 | ||||
Item 3. |
39 | |||||
Item 4. |
41 | |||||
PART IIOTHER INFORMATION |
||||||
Item 1. |
42 | |||||
Item 1A. |
42 | |||||
Item 2. |
42 | |||||
Item 6. |
43 | |||||
44 |
2
PART IFINANCIAL INFORMATION
Item 1. | Financial Statements |
Consolidated Condensed Balance Sheets (Unaudited)
(In Thousands, Except Share and Per Share Data)
October 3, 2010 |
March 31, 2010 |
|||||||
Assets | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 173,028 | $ | 201,042 | ||||
Accounts receivable, net |
418,470 | 383,641 | ||||||
Inventories, net |
302,034 | 254,371 | ||||||
Deferred taxes |
17,303 | 16,378 | ||||||
Prepaid and other current assets |
54,125 | 39,849 | ||||||
Total current assets |
964,960 | 895,281 | ||||||
Property, plant, and equipment, net |
320,842 | 315,141 | ||||||
Goodwill |
321,749 | 317,265 | ||||||
Other intangible assets, net |
90,777 | 90,136 | ||||||
Other assets |
33,897 | 34,187 | ||||||
Total assets |
$ | 1,732,225 | $ | 1,652,010 | ||||
Liabilities and equity | ||||||||
Current liabilities: |
||||||||
Short-term debt |
$ | 151 | $ | 43 | ||||
Current portion of long-term debt and capital lease obligations |
19,081 | 26,695 | ||||||
Accounts payable |
206,537 | 198,345 | ||||||
Accrued expenses |
198,649 | 194,430 | ||||||
Total current liabilities |
424,418 | 419,513 | ||||||
Long-term debt and capital lease obligations |
314,837 | 323,748 | ||||||
Deferred taxes |
70,079 | 70,023 | ||||||
Other liabilities |
59,064 | 54,502 | ||||||
Total liabilities |
868,398 | 867,786 | ||||||
Equity: |
||||||||
Common Stock, $0.01 par value per share, 135,000,000 shares authorized; 50,952,397 shares issued and 49,152,397 outstanding at October 3, 2010; 50,381,832 shares issued and 48,581,832 outstanding at March 31, 2010 |
509 | 504 | ||||||
Additional paid-in capital |
440,387 | 428,579 | ||||||
Treasury stock, at cost, 1,800,000 shares held as of October 3, 2010 and March 31, 2010 |
(19,800 | ) | (19,800 | ) | ||||
Retained earnings |
352,986 | 303,410 | ||||||
Accumulated other comprehensive income |
85,331 | 67,204 | ||||||
Total EnerSys stockholders equity |
859,413 | 779,897 | ||||||
Non-controlling interest |
4,414 | 4,327 | ||||||
Total equity |
863,827 | 784,224 | ||||||
Total liabilities and equity |
$ | 1,732,225 | $ | 1,652,010 | ||||
See accompanying notes.
3
Consolidated Condensed Statements of Income (Unaudited)
(In Thousands, Except Share and Per Share Data)
Quarter ended | ||||||||
October 3, 2010 |
September 27, 2009 |
|||||||
Net sales |
$ | 472,843 | $ | 367,325 | ||||
Cost of goods sold |
362,122 | 278,708 | ||||||
Gross profit |
110,721 | 88,617 | ||||||
Operating expenses |
63,475 | 60,284 | ||||||
Restructuring charges |
2,750 | 3,184 | ||||||
Operating earnings |
44,496 | 25,149 | ||||||
Interest expense |
6,040 | 5,622 | ||||||
Other expense, net |
1,063 | 824 | ||||||
Earnings before income taxes |
37,393 | 18,703 | ||||||
Income tax expense |
10,844 | 5,798 | ||||||
Net earnings |
$ | 26,549 | $ | 12,905 | ||||
Net earnings per common share: |
||||||||
Basic |
$ | 0.54 | $ | 0.27 | ||||
Diluted |
$ | 0.53 | $ | 0.26 | ||||
Weighted-average shares of common stock outstanding: |
||||||||
Basic |
49,120,985 | 48,031,005 | ||||||
Diluted |
49,746,602 | 48,838,160 | ||||||
See accompanying notes.
4
Consolidated Condensed Statements of Income (Unaudited)
(In Thousands, Except Share and Per Share Data)
Six Months Ended | ||||||||
October 3, 2010 |
September 27, 2009 |
|||||||
Net sales |
$ | 907,812 | $ | 707,590 | ||||
Cost of goods sold |
700,477 | 541,512 | ||||||
Gross profit |
207,335 | 166,078 | ||||||
Operating expenses |
121,886 | 114,692 | ||||||
Restructuring charges |
3,473 | 6,703 | ||||||
Operating earnings |
81,976 | 44,683 | ||||||
Interest expense |
12,067 | 11,000 | ||||||
Other expense, net |
972 | 2,706 | ||||||
Earnings before income taxes |
68,937 | 30,977 | ||||||
Income tax expense |
19,361 | 9,661 | ||||||
Net earnings |
$ | 49,576 | $ | 21,316 | ||||
Net earnings per common share: |
||||||||
Basic |
$ | 1.01 | $ | 0.44 | ||||
Diluted |
$ | 1.00 | $ | 0.44 | ||||
Weighted-average shares of common stock outstanding: |
||||||||
Basic |
48,970,233 | 47,983,703 | ||||||
Diluted |
49,594,758 | 48,646,427 | ||||||
See accompanying notes.
5
Consolidated Condensed Statements of Cash Flows (Unaudited)
(In Thousands)
Six Months Ended | ||||||||
October 3, 2010 |
September 27, 2009 |
|||||||
Cash flows from operating activities |
||||||||
Net earnings |
$ | 49,576 | $ | 21,316 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
22,445 | 21,667 | ||||||
Provision for doubtful accounts |
519 | 2,266 | ||||||
Change in deferred income taxes |
(445 | ) | 103 | |||||
Stock-based compensation |
4,336 | 3,741 | ||||||
Non-cash interest expense |
3,955 | 3,523 | ||||||
Loss (Gain) on disposal of fixed assets |
328 | (391 | ) | |||||
Changes in assets and liabilities, net of effects of acquisitions: |
||||||||
Accounts receivable |
(28,934 | ) | 25,751 | |||||
Inventory |
(42,219 | ) | (4,664 | ) | ||||
Prepaid and other current assets |
(6,119 | ) | (6,070 | ) | ||||
Other assets |
(1,121 | ) | 1,114 | |||||
Accounts payable |
4,956 | 25,439 | ||||||
Accrued expenses |
(4,684 | ) | (10,007 | ) | ||||
Other liabilities |
4,480 | (2,402 | ) | |||||
Net cash provided by operating activities |
7,073 | 81,386 | ||||||
Cash flows from investing activities |
||||||||
Capital expenditures |
(24,252 | ) | (19,799 | ) | ||||
Purchases of businesses, net of cash acquired |
(1,495 | ) | (4,160 | ) | ||||
Proceeds from disposal of property, plant, and equipment |
53 | 1,181 | ||||||
Net cash used in investing activities |
(25,694 | ) | (22,778 | ) | ||||
Cash flows from financing activities |
||||||||
Net increase (decrease) in short-term debt |
113 | (6,919 | ) | |||||
Payments of long-term debt |
(19,582 | ) | (5,844 | ) | ||||
Capital lease obligations and other |
153 | (214 | ) | |||||
Net effect from exercising of stock options and vesting of equity awards |
4,198 | 874 | ||||||
Tax benefits from exercises of stock options and vesting of equity awards |
3,280 | 1,149 | ||||||
Net cash used in financing activities |
(11,838 | ) | (10,954 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents |
2,445 | 8,173 | ||||||
Net (decrease) increase in cash and cash equivalents |
(28,014 | ) | 55,827 | |||||
Cash and cash equivalents at beginning of period |
201,042 | 163,161 | ||||||
Cash and cash equivalents at end of period |
$ | 173,028 | $ | 218,988 | ||||
See accompanying notes.
6
Consolidated Condensed Statements of Comprehensive Income (Unaudited)
(In Thousands)
Quarter ended | Six months ended | |||||||||||||||
October 3, 2010 |
September 27, 2009 |
October 3, 2010 |
September 27, 2009 |
|||||||||||||
Net earnings |
$ | 26,549 | $ | 12,905 | $ | 49,576 | $ | 21,316 | ||||||||
Other comprehensive income (loss): |
||||||||||||||||
Net unrealized gain (loss) on derivative instruments, net of tax |
5,394 | (3,050 | ) | 1,831 | 206 | |||||||||||
Pension funded status adjustment, net of tax |
(209 | ) | 0 | (114 | ) | (207 | ) | |||||||||
Foreign currency translation adjustments |
49,479 | 19,515 | 16,410 | 57,442 | ||||||||||||
Total comprehensive income |
$ | 81,213 | $ | 29,370 | $ | 67,703 | $ | 78,757 | ||||||||
See accompanying notes.
7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
(In Thousands, Except Share and Per Share Data)
NOTE 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 adjustments, consisting of normal recurring accruals 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 Companys 2010 Annual Report on Form 10-K (SEC File No. 001-32253), which was filed on June 1, 2010.
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 2011 end on July 4, 2010, October 3, 2010, January 2, 2011, and March 31, 2011, respectively. The four quarters in fiscal 2010 ended on June 28, 2009, September 27, 2009, December 27, 2009, and March 31, 2010, respectively.
NOTE 2: Recently Issued Accounting Standards
No new accounting standards became applicable to the Company during the second quarter of fiscal 2011.
NOTE 3: Inventories
Inventories, net consist of:
October 3, 2010 |
March 31, 2010 |
|||||||
Raw materials |
$ | 75,793 | $ | 66,288 | ||||
Work-in-process |
85,215 | 80,397 | ||||||
Finished goods |
141,026 | 107,686 | ||||||
Total |
$ | 302,034 | $ | 254,371 | ||||
Inventory reserves for obsolescence and other estimated losses were $14,558 and $11,678 at October 3, 2010 and March 31, 2010, respectively, and have been included in the net amounts shown above.
8
ENERSYS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)(Continued)
(In Thousands, Except Share and Per Share Data)
NOTE 4: Fair Value Of Financial Instruments
The Financial Accounting Standards Board (FASB) guidance defines fair value 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. This guidance includes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entitys pricing based upon their own market assumptions. 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 October 3, 2010 and March 31, 2010 and the basis for that measurement:
Total Fair Value Measurement October 3, 2010 |
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 |
$ | (9,005 | ) | $ | | $ | (9,005 | ) | $ | | ||||||
Lead forward contracts |
5,778 | | 5,778 | | ||||||||||||
Foreign currency forward contracts |
(1,692 | ) | | (1,692 | ) | | ||||||||||
Total derivatives |
$ | (4,919 | ) | $ | | $ | (4,919 | ) | $ | | ||||||
Total Fair Value Measurement March 31, 2010 |
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 |
$ | (9,710 | ) | $ | | $ | (9,710 | ) | $ | | ||||||
Lead forward contracts |
62 | | 62 | | ||||||||||||
Foreign currency forward contracts |
1,911 | | 1,911 | | ||||||||||||
Total derivatives |
$ | (7,737 | ) | $ | | $ | (7,737 | ) | $ | | ||||||
The fair value of interest rate swap agreements are based on observable prices as quoted for receiving the variable three month London Interbank Offered Rates (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.
9
ENERSYS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)(Continued)
(In Thousands, Except Share and Per Share Data)
Financial Instruments
The Companys financial instruments include cash and cash equivalents, debt and derivatives. Because of short maturities, the carrying amount of cash and cash equivalents and short-term debt approximates fair value.
The fair value of the Companys senior secured credit facility approximates its carrying value, as it is variable rate debt. The senior unsecured 3.375% Convertible Notes due 2038 (the Convertible Notes), with a face value of $172,500, were issued when the Companys stock price was trading at $30.19 per share. On October 1, 2010, the Companys stock price closed at $25.08 per share. Because the Convertible Notes have a conversion option at $40.60 per share, and due to current conditions in the financial markets, the Companys Convertible Notes were trading at 100% of face value on October 1, 2010 but only 94% of face value on March 31, 2010. As of October 3, 2010 and March 31, 2010, the unamortized discount on the Convertible Notes was $33,684 and $36,580, respectively, and included in the equity component of the Consolidated Condensed Balance Sheets in accordance with the accounting guidance (see Note 10 regarding Debt).
The Company uses lead hedge contracts to manage its lead cost risk. The Company uses foreign currency forward and option contracts to manage risk on the purchase and conversion of U.S. dollar based lead costs into local currencies in Europe, as well as currency exposures from intercompany and third party trade transactions. The Company uses interest rate swap agreements to manage risk on a portion of its floating-rate debt.
The carrying amounts and estimated fair values of the Companys financial instruments at October 3, 2010 and March 31, 2010 are as follows:
October 3, 2010 |
March 31, 2010 |
|||||||||||||||
Carrying Amount |
Fair Value | Carrying Amount |
Fair Value | |||||||||||||
Financial assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 173,028 | $ | 173,028 | $ | 201,042 | $ | 201,042 | ||||||||
Derivatives (3) |
5,778 | 5,778 | 1,973 | 1,973 | ||||||||||||
Financial liabilities: |
||||||||||||||||
Long-Term Debt |
||||||||||||||||
Term A Loan |
$ | 192,656 | $ | 192,656 | $ | 201,094 | $ | 201,094 | ||||||||
Convertible Notes |
138,816 | (1) | 172,500 | (2) | 135,920 | (1) | 161,978 | (2) | ||||||||
Euro Term Loan |
| | 11,158 | 11,158 | ||||||||||||
Other |
41 | 41 | 41 | 41 | ||||||||||||
Capital lease obligations |
2,405 | 2,405 | 2,230 | 2,230 | ||||||||||||
Derivatives (3) |
10,697 | 10,697 | 9,710 | 9,710 |
(1) | The carrying amounts of the Convertible Notes at October 3, 2010 and March 31, 2010 represent the $172,500 principal value, less the unamortized debt discount (see Note 10). |
(2) | The fair value amounts of the Convertible Notes represent the trading values of the $172,500 principal value of the Convertible Notes at October 1, 2010 and March 31, 2010. |
(3) | Represents interest rate swap agreements, lead and foreign currency hedges (see Note 5 for asset and liability positions of the interest rate swap agreements, lead and foreign currency hedges at October 3, 2010 and March 31, 2010). |
10
ENERSYS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)(Continued)
(In Thousands, Except Share and Per Share Data)
NOTE 5: Derivative Financial Instruments
The Company accounts for derivative instruments and hedging activities in accordance with the applicable accounting guidance. The guidance establishes accounting and reporting standards for derivative instruments and hedging activities, and requires that all derivatives be recognized as either assets or liabilities at fair value. The Company does not enter into derivative contracts for speculative trading purposes. Derivatives are used to hedge the volatility arising from movements in a portion of the cost of lead purchases, as well as to hedge certain interest rates and foreign exchange rate risks. The changes in the fair value of these contracts are recorded in accumulated other comprehensive income until the related purchased lead, incurred interest rates or foreign currency exposures are charged to earnings. At that time, the portion recorded in accumulated other comprehensive income is recognized in the Consolidated Condensed Statements of Income. The amount of accumulated other comprehensive income related to interest rates, lead and foreign exchange contracts at October 3, 2010 and March 31, 2010, net of tax, was an unrecognized loss of $3,204 and $5,034, respectively.
During the second quarters of fiscal 2011 and 2010, the Company recorded losses of ($1,846) and ($1,584), respectively, on interest rate swaps, which were recorded as increases in interest expense. During the second quarters of fiscal 2011 and 2010, the Company recorded gains of $1,249 and $5,317, respectively, on the settlement of lead hedge contracts and gains of $399 and $103, respectively, on foreign currency hedges, which were recorded as decreases to cost of goods sold.
During the six months of fiscal 2011 and 2010, the Company recorded losses of ($3,821) and ($3,100), respectively, on interest rate swaps, which were recorded as increases in interest expense. During the six months of fiscal 2011 and 2010, the Company recorded (losses) gains of ($3,842) and $8,433, respectively, on the settlement of lead hedge contracts and gains of $2,337 and $1,173, respectively, on foreign currency hedges, which were recorded as increases or decreases to cost of goods sold.
In the coming twelve months, the Company anticipates that $4,368 of the current pretax loss will be reclassified from accumulated other comprehensive income as part of interest expense. In the coming twelve months, the Company anticipates that $3,769 of the current pretax gain will be reclassified from accumulated other comprehensive income 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 cost to be realized in connection with the variable lead cost and foreign exchange being hedged.
11
ENERSYS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)(Continued)
(In Thousands, Except Share and Per Share Data)
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 Designated as Hedging Instruments
In the Consolidated Condensed Balance Sheets
October 3, 2010 and March 31, 2010
Description |
Balance Sheet Location |
Asset Derivatives | Balance Sheet Location |
Liability Derivatives | ||||||||||||||||||||
October 3, 2010 |
March 31, 2010 |
October 3, 2010 |
March 31, 2010 |
|||||||||||||||||||||
Interest rate swap agreements |
Other assets | $ | | $ | | Other liabilities | $ | 9,005 | $ | 9,710 | ||||||||||||||
Lead hedge forward contracts |
Prepaid and other current assets |
5,778 | 62 | Accrued expenses | | | ||||||||||||||||||
Foreign currency forward contracts |
Prepaid and other current assets |
| 1,911 | Accrued expenses | 1,692 | | ||||||||||||||||||
Total derivatives designated as hedging instruments |
$ | 5,778 | $ | 1,973 | $ | 10,697 | $ | 9,710 | ||||||||||||||||
The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the quarters ended October 3, 2010 and September 27, 2009
Cash Flow Hedging Relationships |
Amount of Pretax Gain (Loss) Recognized in OCI (1) on Derivatives (Effective Portion) |
Location of Gain (Loss) Reclassified from Accumulated OCI (1) into Income (Effective Portion) |
Amount of Pretax Gain (Loss) Reclassified from Accumulated OCI (1) (Effective Portion) |
|||||||||||||||
October 3, 2010 |
September 27, 2009 |
October 3, 2010 |
September 27, 2009 |
|||||||||||||||
Interest rate swap agreements |
$ | (1,444 | ) | $ | (2,048 | ) | Interest expense | $ | (1,846 | ) | $ | (1,584 | ) | |||||
Lead hedge contracts |
11,815 | 2,173 | Cost of goods sold | 1,249 | 5,317 | |||||||||||||
Foreign currency forward contracts |
(2,270 | ) | (980 | ) | Cost of goods sold | 399 | 103 | |||||||||||
Total derivatives designated as hedging instruments |
$ | 8,101 | $ | (855 | ) | $ | (198 | ) | $ | 3,836 | ||||||||
The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the six months ended October 3, 2010 and September 27, 2009
Cash Flow Hedging Relationships |
Amount of Pretax Gain (Loss) Recognized in OCI (1) on Derivatives (Effective Portion) |
Location of Gain (Loss) Reclassified from Accumulated OCI (1) into Income (Effective Portion) |
Amount of Pretax Gain (Loss) Reclassified from Accumulated OCI (1) (Effective Portion) |
|||||||||||||||
October 3, 2010 |
September 27, 2009 |
October 3, 2010 |
September 27, 2009 |
|||||||||||||||
Interest rate swap agreements |
$ | (3,116 | ) | $ | (767 | ) | Interest expense | $ | (3,821 | ) | $ | (3,100 | ) | |||||
Lead hedge contracts |
1,874 | 7,417 | Cost of goods sold | (3,842 | ) | 8,433 | ||||||||||||
Foreign currency forward contracts |
(1,266 | ) | 164 | Cost of goods sold | 2,337 | 1,173 | ||||||||||||
Total derivatives designated as hedging instruments |
$ | (2,508 | ) | $ | 6,814 | $ | (5,326 | ) | $ | 6,506 | ||||||||
(1) | OCI = Other comprehensive income |
12
ENERSYS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)(Continued)
(In Thousands, Except Share and Per Share Data)
NOTE 6: Income Taxes
The Companys income tax provisions for all periods consist of federal, state and foreign income taxes. The tax provisions for the second quarters of fiscal 2011 and 2010 were based on the estimated effective tax rates applicable for the full years ending March 31, 2011 and March 31, 2010, respectively, after giving effect to items specifically related to the interim periods.
The effective income tax rates for the second quarters of fiscal 2011 and 2010 were 29.0% and 31.0%, respectively. The effective income tax rates for the six months of 2011 and 2010 were 28.1% and 31.2%, respectively. The rate decreases in the second quarter and six months of fiscal 2011 as compared to the comparable prior year periods are primarily due to a change in the mix of earnings among tax jurisdictions.
NOTE 7: Warranties
The Company provides for estimated product warranty expenses when the related products are sold, with related liabilities included within accrued expenses. 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 | Six months ended | |||||||||||||||
October 3, 2010 |
September 27, 2009 |
October 3, 2010 |
September 27, 2009 |
|||||||||||||
Balance at beginning of period |
$ | 31,301 | $ | 30,719 | $ | 31,739 | $ | 30,914 | ||||||||
Current period provisions |
5,026 | 2,102 | 8,931 | 3,701 | ||||||||||||
Costs incurred |
(4,485 | ) | (3,114 | ) | (8,037 | ) | (6,066 | ) | ||||||||
Foreign exchange and other |
1,378 | 632 | 587 | 1,790 | ||||||||||||
Balance at end of period |
$ | 33,220 | $ | 30,339 | $ | 33,220 | $ | 30,339 | ||||||||
13
ENERSYS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)(Continued)
(In Thousands, Except Share and Per Share Data)
NOTE 8: 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 Companys financial condition, results of operations, or cash flows (see Note 19 to the Consolidated Financial Statements included in the Companys 2010 Annual Report on Form 10-K).
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 Companys 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.
As more fully described in Notes 19 to the Consolidated Financial Statements included in the Companys 2010 Annual Report on Form 10-K, the Company has potential environmental liabilities at its Sumter, South Carolina facility and has reserves of $3,295 at October 3, 2010, and $3,682 at March 31, 2010. Based on information available at this time, management believes that the Companys reserves are sufficient to satisfy its environmental liabilities.
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 October 3, 2010 and March 31, 2010, the Company has hedged the price to purchase 41,727 and 63,335 pounds of lead, respectively, for a total purchase price of $37,188 and $60,724, 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 Companys 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 $62,873 and $64,234, respectively, of foreign currency forward contracts with financial institutions as of October 3, 2010 and March 31, 2010.
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 October 3, 2010 and March 31, 2010, such agreements effectively convert $170,000 of the Companys 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 Companys net financial investment position and the amount of cash to be paid or received under these agreements.
14
ENERSYS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)(Continued)
(In Thousands, Except Share and Per Share Data)
NOTE 9: Restructuring Plans
The Company has acquisition related restructuring plans and non-acquisition related restructuring plans. The Company bases its accounting and disclosures on applicable accounting guidance. As a result, charges to net earnings were made in the periods in which restructuring plan liabilities were incurred.
Acquisition related restructuring plans charged to earnings
In fiscal 2010, the Company acquired the stock of OEB Traction Batteries and certain operating assets and liabilities of the reserve power battery business of Accu Holding AG and its Swedish sales subsidiary (all collectively referred to as Oerlikon). The Company is in the process of closing the two manufacturing facilities of Oerlikon which will result in the reduction of 90 employees. For the first six months of fiscal year 2011, the Company recorded $562 in charges related to this plan and incurred $1,014 against the accrual. As of October 3, 2010, the reserve balance associated with these actions is $783. The Company expects to be committed to an additional $1,300 of restructuring charges in fiscal 2011.
A roll-forward of the acquisition related restructuring reserve for the six months of fiscal 2011 is as follows:
Employee Severance |
Other | Total | ||||||||||
Balance at March 31, 2010 |
$ | 1,292 | $ | | $ | 1,292 | ||||||
Accrued |
| 562 | 562 | |||||||||
Costs incurred |
(638 | ) | (376 | ) | (1,014 | ) | ||||||
Foreign currency impact and other |
(57 | ) | | (57 | ) | |||||||
Balance at October 3, 2010 |
$ | 597 | $ | 186 | $ | 783 | ||||||
Non-acquisition related restructuring plans
In February and May 2009, the Company announced a plan to restructure certain of its European and American operations, which will result in a reduction of approximately 515 employees upon completion across its operations. These actions are primarily in Europe, the most significant of which was the closure of its leased Italian manufacturing facility and the opening of a new Italian distribution center. The Company estimates that the total charges for these actions will amount to approximately $33,000, which includes cash expenses of approximately $24,000, primarily for employee severance-related payments, and a non-cash charge of approximately $9,000, primarily for impairment of fixed assets.
In addition, during the second quarter of fiscal 2011, the Company announced a further restructuring of its European operations, which will result in the reduction of approximately 55 employees upon completion across its operations. The Company estimates that the total charges for these actions will amount to approximately $3,800, primarily from cash expenses for employee severance-related payments.
Based on commitments incurred to date, the Company recorded restructuring charges of $31,457 in fiscal 2009 and 2010 with $2,911 of additional charges during the six months of fiscal 2011. The Company incurred $3,772 of costs against the accrual during the six months of fiscal 2011. As of October 3, 2010, the reserve balance associated with these actions is $6,774. The Company expects to be committed to approximately $2,400 of restructuring charges in fiscal 2011.
A roll-forward of the non-acquisition related restructuring reserve for the six months of fiscal 2011 is as follows:
Employee Severance |
Total | |||||||
Balance at March 31, 2010 |
$ | 7,482 | $ | 7,482 | ||||
Accrued |
2,911 | 2,911 | ||||||
Costs incurred |
(3,772 | ) | (3,772 | ) | ||||
Foreign currency impact and other |
153 | 153 | ||||||
Balance at October 3, 2010 |
$ | 6,774 | $ | 6,774 | ||||
15
ENERSYS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)(Continued)
(In Thousands, Except Share and Per Share Data)
NOTE 10: Debt
The following summarizes the Companys long-term debt and capital lease obligations:
October 3, 2010 |
March 31, 2010 |
|||||||
Term A Loan: Payable in quarterly installments of 1.25% in year 1, 1.88% in years 2-3, 2.50% in year 4, 3.13% in year 5 and 14.39% in year 6, with the remaining balance due on June 27, 2014, bearing interest at 1.85% at October 3, 2010 |
$ | 192,656 | $ | 201,094 | ||||
Convertible Notes bearing interest at 3.375% (net of unamortized discount of $33,684 and $36,580, respectively) |
138,816 | 135,920 | ||||||
Euro Term Loan: Payable in quarterly installments between 1,000 and 1,750 beginning March 31, 2008 through June 30, 2011, bearing interest at 1.90% at September 30, 2010. Euro Term Loan was paid in full on September 30, 2010. |
| 11,158 | ||||||
Other debt |
41 | 41 | ||||||
Capital lease obligations |
2,405 | 2,230 | ||||||
Sub-total |
333,918 | 350,443 | ||||||
Less current portion |
19,081 | 26,695 | ||||||
Total long-term debt and capital lease obligations |
$ | 314,837 | $ | 323,748 | ||||
Senior Unsecured 3.375% Convertible Notes
The Convertible Notes are general senior unsecured obligations and rank equally with the Companys existing and future senior unsecured obligations and are junior to any of the Companys existing or future secured obligations to the extent of the value of the collateral securing such obligations. The Convertible Notes are not guaranteed by, and are structurally subordinate in right of payment to, all of the (i) existing and future indebtedness and other liabilities of the Companys subsidiaries and (ii) preferred stock of the Companys subsidiaries to the extent of their respective liquidation preferences.
16
ENERSYS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)(Continued)
(In Thousands, Except Share and Per Share Data)
The Convertible Notes require the semi-annual payment of interest in arrears on June 1 and December 1 of each year beginning December 1, 2008, at 3.375% per annum on the principal amount outstanding. The Convertible Notes will accrete principal beginning on June 1, 2015 and will bear contingent interest, if any, beginning with the six-month interest period commencing on June 1, 2015 under certain circumstances. The Convertible Notes will mature on June 1, 2038, unless earlier converted, redeemed or repurchased. Prior to maturity the holders may convert their Convertible Notes into shares of the Companys common stock under certain circumstances. When issued, the initial conversion rate was 24.6305 shares per $1,000 principal amount of Convertible Notes, which was equivalent to an initial conversion price of approximately $40.60 per share.
At any time after June 6, 2015, the Company may at its option redeem the Convertible Notes, in whole or in part, for cash, at a redemption price equal to 100% of the accreted principal amount of Convertible Notes to be redeemed, plus any accrued and unpaid interest. A holder of Convertible Notes may require the Company to repurchase some or all of the holders Convertible Notes for cash upon the occurrence of a fundamental change as defined in the indenture and on each of June 1, 2015, 2018, 2023, 2028 and 2033 at a price equal to 100% of the accreted principal amount of the Convertible Notes being repurchased, plus accrued and unpaid interest, if any, in each case. It is the Companys current intent to settle the principal amount of any conversions in cash, and any additional conversion consideration in cash, shares of the Companys common stock or a combination of cash and shares.
If applicable, the Company will pay a make-whole premium on Convertible Notes converted in connection with certain fundamental changes that occur prior to June 6, 2015. The amount of the make-whole premium, if any, will be based on the Companys common stock price and the effective date of the fundamental change. The indenture contains a detailed description of how the make-whole premium will be determined and a table showing the make-whole premium that would apply at various stock prices. No make-whole premium would be paid if the price of the Companys common stock on the effective date of the fundamental change is less than $29.00 per share. Any make-whole premium will be payable in shares of the Companys common stock (or the consideration into which the Companys common stock has been exchanged in the fundamental change) on the conversion date for the Convertible Notes converted in connection with the fundamental change.
At October 3, 2010 and March 31, 2010, there was $172,500 aggregate principal amount of the Convertible Notes outstanding.
The following represents the principal amount of the liability component, the unamortized discount, and the net carrying amount of our Convertible Notes as of October 3, 2010 and March 31, 2010, respectively:
October 3, 2010 |
March 31, 2010 |
|||||||
Principal |
$ | 172,500 | $ | 172,500 | ||||
Unamortized discount |
(33,684 | ) | (36,580 | ) | ||||
Net carrying amount |
$ | 138,816 | $ | 135,920 | ||||
As of October 3, 2010, the remaining discount will be amortized over a period of 56 months. The conversion price of the $172,500 in aggregate principal amount of the Convertible Notes is approximately $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 is 8.50%. The amount of interest cost recognized for the amortization of the discount on the liability component of the Convertible Notes was $1,463 and $1,345, respectively, during the quarters ended October 3, 2010 and September 27, 2009 and $2,896 and $2,662, respectively, during the six months ended October 3, 2010 and September 27, 2009.
17
ENERSYS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)(Continued)
(In Thousands, Except Share and Per Share Data)
Senior Secured Credit Facility
At October 3, 2010, the Companys $350,000 senior secured credit facility consisted of a $225,000 Term A Loan and an undrawn $125,000 revolving credit facility.
The $225,000 senior secured Term A Loan is subject to a quarterly principal amortization of 1.25% in Year 1, 1.88% in Years 2-3, 2.50% in Year 4, 3.13% in Year 5 and 14.39% in Year 6 and matures on June 27, 2014. The $125,000 revolving credit facility matures on June 27, 2013. Borrowings under the credit agreements bear interest at a floating rate based, at the Companys option, upon (i) a LIBOR rate plus an applicable percentage (currently 1.50%), or (ii) the greater of the federal funds rate plus 0.5% or the prime rate, plus an applicable percentage (currently 0.50%). There are no prepayment penalties on loans under the $350,000 senior secured credit facility.
At October 3, 2010 and March 31, 2010, there was $192,656 and $201,094, respectively, outstanding under the Term A Loan and there were no borrowings under the revolving credit facility.
Obligations under the senior secured credit facility are secured by substantially all of the Companys existing and hereafter acquired assets located in the United States, including substantially all of the capital stock of the Companys United States subsidiaries that are guarantors under the credit facility, and 65% of the capital stock of certain of the Companys foreign subsidiaries that are owned by the Companys United States companies. The Companys credit agreements contain various covenants that, absent prepayment in full of the indebtedness and other obligations, or the receipt of waivers, would limit the Companys ability to conduct certain specified business transactions including incurring debt, mergers, consolidations or similar transactions, buying or selling assets out of the ordinary course of business, engaging in sale and leaseback transactions, repurchasing the Companys common stock, paying dividends and certain other actions. At October 3, 2010, the Company was in compliance with all such covenants.
Other debt excluding capital lease obligations
At October 3, 2010 and March 31, 2010, there were $41 and $11,199, respectively, of borrowings outstanding outside the United States. Borrowings outside the United States at October 3, 2010 were considerably lower due to the Euro Term Loan, which was due to mature on June 30, 2011, being repaid in full on September 30, 2010.
18
ENERSYS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)(Continued)
(In Thousands, Except Share and Per Share Data)
NOTE 11: Retirement Plans
The following table presents the interim disclosure requirements of components of the Companys net periodic benefit cost related to its defined benefit pension plans:
United States Plans | International Plans | |||||||||||||||
Quarter ended | Quarter ended | |||||||||||||||
October 3, 2010 |
September 27, 2009 |
October 3, 2010 |
September 27, 2009 |
|||||||||||||
Service cost |
$ | 65 | $ | 66 | $ | 141 | $ | 160 | ||||||||
Interest cost |
162 | 159 | 617 | 643 | ||||||||||||
Expected return on plan assets |
(156 | ) | (123 | ) | (406 | ) | (320 | ) | ||||||||
Amortization and deferral |
56 | 82 | 4 | 4 | ||||||||||||
Net periodic benefit cost |
$ | 127 | $ | 184 | $ | 356 | $ | 487 | ||||||||
United States Plans | International Plans | |||||||||||||||
Six months ended | Six months ended | |||||||||||||||
October 3, 2010 |
September 27, 2009 |
October 3, 2010 |
September 27, 2009 |
|||||||||||||
Service cost |
$ | 130 | $ | 133 | $ | 276 | $ | 310 | ||||||||
Interest cost |
323 | 318 | 1,209 | 1,258 | ||||||||||||
Expected return on plan assets |
(312 | ) | (246 | ) | (794 | ) | (628 | ) | ||||||||
Amortization and deferral |
113 | 163 | 8 | 8 | ||||||||||||
Net periodic benefit cost |
$ | 254 | $ | 368 | $ | 699 | $ | 948 | ||||||||
Significant assumptions used in the accounting for the pension benefit plans are as follows:
United States Plans | International Plans | |||||||||||||||
Six months ended | Six months ended | |||||||||||||||
October 3, 2010 |
September 27, 2009 |
October 3, 2010 |
September 27, 2009 |
|||||||||||||
Discount rate |
6.5 | % | 6.0 | % | 3.8 - 6.0 | % | 4.3 - 6.0 | % | ||||||||
Expected return on plan assets |
8.0 | % | 8.0 | % | 5.5 - 7.0 | % | 5.5 - 7.5 | % | ||||||||
Rate of compensation increase |
N/A | N/A | 2.0 - 3.5 | % | 2.0 - 3.5 | % |
The Company presently anticipates contributing approximately $1,800 to its defined benefit pension plans in fiscal 2011, based on current actuarial information.
The Company has defined contribution plans covering all U.S. based employees who are not covered by a collective bargaining agreement and substantially all UK employees, both direct and salaried.
19
ENERSYS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)(Continued)
(In Thousands, Except Share and Per Share Data)
NOTE 12: Stock-Based Compensation
As of October 3, 2010, the Company maintains four equity incentive plans: the EnerSys Amended and Restated 2000 Management Equity Plan, the 2004 Equity Incentive Plan, the Amended and Restated 2006 Equity Incentive Plan, and the 2010 Equity Incentive Plan which reserved 13,489,583 shares of the Companys 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. As of October 3, 2010, the Company had 3,165,601 shares available for future grants.
The Company recognized equity-based compensation expense associated with its equity incentive plans of $2,226, with a related tax benefit of $645, for the second quarter of fiscal 2011, and $2,136, with a related tax benefit of $641, for the second quarter of fiscal 2010. The Company recognized equity-based compensation expense associated with its equity incentive plans of $4,336, with a related tax benefit of $1,215, for the six months of fiscal 2011, and $3,741, with a related tax benefit of $1,122, for the six months of fiscal 2010.
Common stock activity for the six months of fiscal 2011 included the exercise of 516,161 options for $7,133 and the vesting of 176,149 restricted stock and restricted stock units. Common stock activity for the six months of fiscal 2010 included the exercise of 202,544 options for $2,230 and the vesting of 96,717 restricted stock and restricted stock units.
Stock Incentive Plans
Non-qualified stock options have been granted to employees under the equity incentive plans at prices not less than the fair market value of the shares on the dates the options were granted. Stock options issued prior to fiscal 2009 vest and become exercisable 25% per year over a four-year period from the date of grant. Stock options issued in fiscal 2009 and 2010 generally vest and become exercisable 33.3% per year over a three-year period from the date of grant. Stock options generally expire 10 years from the date of grant. No stock options were granted during the six months of fiscal 2011.
Restricted Stock
The Company approved grants of restricted stock at the fair market value of the Companys common stock on the date of grant and vests 25% per year over a four-year period from the date of grant. At October 3, 2010 and March 31, 2010, there were no shares and 1,000 shares, respectively, of restricted stock outstanding. No restricted stock was granted during the six months of fiscal 2011.
Restricted Stock Units
In August 2010, the Company granted to non-employee directors 21,248 restricted stock units at the market price of $22.59 per restricted stock unit at the date of grant. These restricted stock units vest thirteen-months following the date of grant. In May 2010, the Company granted to management and other key employees 287,212 restricted stock units at fair market value and 124,093 market share units. Restricted stock units are granted at the fair market value of the Companys common stock on the date of grant and vest and are settled in common stock 25% per year over a four-year period from the date of grant.
Market share units are granted at fair value on the date of grant and vest and are settled in common shares on the third anniversary of the date of grant. Market share units are converted into between zero and two shares of common stock for each unit granted at the end of a three-year performance cycle. The conversion ratio is calculated by dividing the average closing share price of the Companys common stock during the ninety calendar days immediately preceding the vesting date by the average closing share price of the Companys common stock during the ninety calendar days immediately preceding the grant date, with the resulting quotient capped at two. This quotient is then multiplied by the number of market share units granted to yield the number of shares of common stock to be delivered on the vesting date.
The compensation cost to be recorded is based on the fair value at the grant date. The fair value of the restricted stock units granted in the first quarter of fiscal 2011 was based on the market price of $25.67 per share at the date of grant. The fair value of the market share units granted in the first quarter of fiscal 2011 was estimated at the date of grant at $34.45 per share using a binominal matrix-pricing model with the following assumptions: a risk-free interest rate of 1.30%, dividend yield of zero, time to maturity of 3 years and expected volatility of 43.0%.
As of October 3, 2010, 743,325 restricted stock units and 124,093 market share units were outstanding. At March 31, 2010, 608,630 restricted stock units were outstanding.
20
ENERSYS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)(Continued)
(In Thousands, Except Share and Per Share Data)
NOTE 13: Earnings Per Share
Net earnings per sharebasic is based on the weighted average number of shares of the Companys common stock outstanding. Net earnings per sharediluted gives effect to all potentially dilutive common shares that were outstanding during the period. As of October 3, 2010 and September 27, 2009, the Company had outstanding stock options, restricted stock, market share units and restricted stock units that could potentially dilute basic earnings per share in the future. Weighted average common sharesbasic and common sharesdiluted were as follows:
Quarter ended | Six months ended | |||||||||||||||
October 3, 2010 |
September 27, 2009 |
October 3, 2010 |
September 27, 2009 |
|||||||||||||
Weighted average shares of common stock outstandingbasic |
49,120,985 | 48,031,005 | 48,970,233 | 47,983,703 | ||||||||||||
Assumed exercise and lapse of equity awards, net of shares assumed reacquired |
625,617 | 807,155 | 624,525 | 662,724 | ||||||||||||
Weighted average common sharesdiluted |
49,746,602 | 48,838,160 | 49,594,758 | 48,646,427 | ||||||||||||
Anti-dilutive equity awards not included in weighted average common sharesdiluted |
574,928 | 1,698,256 | 460,725 | 1,784,268 | ||||||||||||
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 Companys current intent to settle the principal amount of any conversions in cash, and any additional conversion consideration in cash, shares of the Companys common stock or a combination of cash and shares. No contingent shares were included in diluted shares outstanding during the second quarters and six months of fiscal 2011 and 2010, as the specified conversion price exceeded the average market price of the Companys common stock, and the inclusion of contingent shares would have been anti-dilutive.
21
ENERSYS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)(Continued)
(In Thousands, Except Share and Per Share Data)
NOTE 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 Companys reportable business segments:
Quarter ended | Six months ended | |||||||||||||||
October 3, 2010 |
September 27, 2009 |
October 3, 2010 |
September 27, 2009 |
|||||||||||||
Net sales by segment |
||||||||||||||||
Europe |
$ | 207,359 | $ | 168,015 | $ | 395,860 | $ | 324,159 | ||||||||
Americas |
221,171 | 164,554 | 426,840 | 314,788 | ||||||||||||
Asia |
44,313 | 34,756 | 85,112 | 68,643 | ||||||||||||
Total net sales |
$ | 472,843 | $ | 367,325 | $ | 907,812 | $ | 707,590 | ||||||||
Operating earnings by segment |
||||||||||||||||
Europe |
$ | 9,291 | $ | 1,357 | $ | 19,195 | $ | 2,037 | ||||||||
Americas |
34,119 | 22,283 | 60,078 | 37,966 | ||||||||||||
Asia |
3,836 | 4,693 | 6,176 | 11,383 | ||||||||||||
Restructuring charges (Europe) |
(2,750 | ) | (3,184 | ) | (3,473 | ) | (5,986 | ) | ||||||||
Restructuring charges (Americas) |
| | | (717 | ) | |||||||||||
Total operating earnings |
$ | 44,496 | $ | 25,149 | $ | 81,976 | $ | 44,683 | ||||||||
NOTE 15: Subsequent Events
The Company evaluated all subsequent events through the date that the consolidated financial statements were issued. No material subsequent events have occurred since October 3, 2010 that required recognition or disclosure in the Condensed Consolidated Financial Statements.
22
ITEM 2. | MANAGEMENTS 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 managements 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 Companys 2010 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 material 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 foreign operations such as disruption of markets, changes in import and export laws, 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; |
| unanticipated 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; |
| unanticipated quality problems associated with our products; |
| our ability to implement business strategies, including our acquisition strategy, and restructuring plans; |
23
| 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, whether in the United States or abroad, 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. |
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 Companys 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 Companys ongoing operating results.
24
Overview
We are the global leader in stored energy solutions for industrial applications. 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 worldAmericas, 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 are generated outside of the United States. Under the criteria of the FASB guidance, 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 and, as a result, our level of debt.
25
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:
| general cyclical patterns of the industries in which our customers operate; |
| changes in our market share in the geographic business segments where we 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, UPS, applications for computer and computer-controlled systems, and other specialty power applications, including security systems, for premium starting, lighting and ignition applications, in switchgear and electrical control systems used in electric utilities and energy pipelines, and in commercial aircraft and military aircraft, submarines, ships and tactical vehicles. |
| 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, rail car lighting and rail signaling equipment. |
26
Economic Climate
The general global economic recovery that we have experienced since the summer of 2009 is reflected in the increases in our global revenue. Our revenue reached a low point in the first quarter of fiscal 2010; revenue in the second quarter of fiscal 2011 was 39% higher than the low point last year. We are encouraged by the continued improvement in our incoming order rate, which is trending upward along with increases in global economic activity.
Volatility of Commodities and Foreign Currencies
Volatility of commodity costs and foreign currency exchange rates have caused large swings in our production costs. Lead is the primary commodity we purchase and the euro is the primary foreign currency to which we are exposed. 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. Our estimated lead cost, due to increases in average lead prices, in the six months of fiscal 2011 compared to the six months of fiscal 2010 was an increase of approximately $91 million.
Customer Pricing
We have been subjected to pricing pressures over the past several years, which we expect will continue. Additionally, in our current environment, increased commodity costs and improved customer demand have contributed to pricing improvements. Our selling prices fluctuated substantially during the last several years to partially 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 as measured on a sequential quarterly basis. As the cycle of lead costs turned upward in the early part of fiscal 2010, we began to increase average selling prices to help offset the higher costs. During the six months of fiscal 2011, our selling prices increased to reflect the rising commodity prices. Selling price increases offset approximately $46 million of the increased lead cost in the six months of fiscal 2011. Approximately 35% to 40% of our revenue is currently subject to agreements that adjust pricing to a market-based index for lead.
27
Cost Savings Initiatives-Restructuring
To help improve our level of profitability, we continue to take actions to rationalize and automate our production facilities and move capacity to lower cost facilities.
Cost savings programs remain a continuous element of our business strategy and are directed primarily at further reductions in plant manufacturing and raw materials costs and our operating expenses, primarily selling, general and administrative. We viewed the recent economic decline as a time for us to accelerate the consolidation of certain operations and undertake additional restructuring of our business.
In fiscal 2011, we began a further restructuring of our European operations. The benefits of this action are expected to occur in future periods. We believe that the restructuring actions taken over the last 4 years will have a favorable pre-tax earnings impact of approximately $40 million, or $0.58 per share, on an annualized basis when fully implemented by the end of fiscal 2012.
Liquidity and Capital Resources
Our capital structure and liquidity remain strong. As of October 3, 2010, we had approximately $173 million of cash and cash equivalents, approximately $131 million of undrawn, committed credit lines, and over $93 million of uncommitted credit lines. 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.
28
Results of Operations
Net Sales
Quarter ended October 3, 2010 |
Quarter ended September 27, 2009 |
Increase (Decrease) | ||||||||||||||||||||||
Current quarter by segment |
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage | ||||||||||||||||||
Europe |
$ | 207.4 | 43.8 | % | $ | 168.0 | 45.7 | % | $ | 39.4 | 23.4 | % | ||||||||||||
Americas |
221.1 | 46.8 | 164.6 | 44.8 | 56.5 | 34.4 | ||||||||||||||||||
Asia |
44.3 | 9.4 | 34.7 | 9.5 | 9.6 | 27.5 | ||||||||||||||||||
Total net sales |
$ | 472.8 | 100.0 | % | $ | 367.3 | 100.0 | % | $ | 105.5 | 28.7 | % | ||||||||||||
Six months ended October 3, 2010 |
Six months ended September 27, 2009 |
Increase (Decrease) | ||||||||||||||||||||||
Year to date by segment |
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage | ||||||||||||||||||
Europe |
$ | 395.9 | 43.6 | % | $ | 324.1 | 45.8 | % | $ | 71.8 | 22.1 | % | ||||||||||||
Americas |
426.8 | 47.0 | 314.9 | 44.5 | 111.9 | 35.6 | ||||||||||||||||||
Asia |
85.1 | 9.4 | 68.6 | 9.7 | 16.5 | 24.0 | ||||||||||||||||||
Total net sales |
$ | 907.8 | 100.0 | % | $ | 707.6 | 100.0 | % | $ | 200.2 | 28.3 | % | ||||||||||||
Net sales increased $105.5 million or 28.7% in the second quarter of fiscal 2011 and increased $200.2 million or 28.3% in the six months of fiscal 2011 from the comparable periods in fiscal 2010. This increase for the quarter was the result of an 18% increase in organic volume, a 5% increase from acquisitions and a 7% increase due to pricing, partially offset by a 1% decrease from weaker foreign currencies, primarily the euro and British pound. The increase for the six months of fiscal 2011 from the comparable period in fiscal 2010 was the result of a 19% increase in organic volume, a 5% increase from acquisitions and a 6% increase due to pricing, partially offset by a 2% decrease from weaker foreign currencies.
Segment sales
The improving economic and market conditions have had a significant impact on our unit sales volume. All of our segments experienced organic volume improvements in the second quarter of fiscal 2011, compared to the comparable period of 2010.
Our Europe segments net sales increased $39.4 million or 23.4% in the second quarter of fiscal 2011, as compared to the second quarter of fiscal 2010, primarily due to an increase in organic volume of 14%. Price increases and acquisitions contributed approximately 9% and 5%, respectively, to the improvement, which was partially offset by a 5% decrease due to weaker foreign currencies. Our Europe segments revenue increased $71.8 million or 22.1% in the six months of fiscal 2011, as compared to the six months of fiscal 2010, primarily due to an increase in organic volume which contributed approximately a 15% increase, complemented by approximately 8% and 5% of increases due to price and acquisitions, respectively, partially offset by a 6% decrease from weaker foreign currencies.
Our Americas segments revenue increased $56.5 million or 34.4% in the second quarter of fiscal 2011, as compared to the second quarter of fiscal 2010, primarily due to higher organic volume, which contributed approximately a 21% increase. Pricing, acquisitions and foreign currency changes contributed approximately 6%, 6% and 1%, respectively, to the improvement. Our Americas segments revenue increased $111.9 million or 35.6% in the six months of fiscal 2011, as compared to the six months of fiscal 2010, primarily due to higher organic volume which contributed approximately a 22% increase and pricing, acquisitions and foreign currency changes contributed approximately 6%, 7% and 1%, respectively.
Our Asia segments revenue increased $9.6 million or 27.5% in the second quarter of fiscal 2011, as compared to the second quarter of fiscal 2010, primarily due to higher organic volume of 25% and 7% due to foreign currency changes, partially offset by lower pricing of 4%. Our Asia segments revenue increased $16.5 million or 24.0% in the six months of fiscal 2011, as compared to the six months of fiscal 2010, primarily due to higher organic volume which contributed approximately a 19% increase and 6% due to foreign currency changes, partially offset by lower pricing of 1%.
29
Product line sales
Quarter ended October 3, 2010 |
Quarter ended September 27, 2009 |
Increase (Decrease) | ||||||||||||||||||||||
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage | |||||||||||||||||||
Reserve Power |
$ | 247.3 | 52.3 | % | $ | 198.0 | 53.9 | % | $ | 49.3 | 24.9 | % | ||||||||||||
Motive Power |
225.5 | 47.7 | 169.3 | 46.1 | 56.2 | 33.2 | ||||||||||||||||||
Total net sales |
$ | 472.8 | 100.0 | % | $ | 367.3 | 100.0 | % | $ | 105.5 | 28.7 | % | ||||||||||||
Six months ended October 3, 2010 |
Six months ended September 27, 2009 |
Increase (Decrease) | ||||||||||||||||||||||
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage | |||||||||||||||||||
Reserve Power |
$ | 454.9 | 50.1 | % | $ | 380.8 | 53.8 | % | $ | 74.1 | 19.5 | % | ||||||||||||
Motive Power |
452.9 | 49.9 | 326.8 | 46.2 | 126.1 | 38.6 | ||||||||||||||||||
Total net sales |
$ | 907.8 | 100.0 | % | $ | 707.6 | 100.0 | % | $ | 200.2 | 28.3 | % | ||||||||||||
Sales of our reserve power products in the second quarter and six months of fiscal 2011 increased $49.3 million or 24.9% and $74.1 or 19.5%, respectively, compared to the comparable periods of fiscal 2010. In the second quarter of fiscal 2011, organic volume growth contributed 20% of the increase, pricing and acquisitions contributed approximately 4% and 2%, respectively, to the improvement, which was partially offset by a 1% decrease due to foreign currency changes. In the six months of fiscal 2011, higher organic volume was approximately 16%, pricing and acquisitions contributed approximately 3% and 2%, respectively, to the improvement, which was partially offset by a 2% decrease due to foreign currency changes.
Sales of our motive power products in the second quarter and six months of fiscal 2011 increased $56.2 million or 33.2% and $126.1 million or 38.6%, respectively, compared to the comparable periods of fiscal 2010. The second quarter increase was primarily due to higher organic volume, which contributed approximately a 16% increase. Pricing and acquisitions contributed 10% and 8%, respectively, to the improvement which was partially offset by a 1% decrease due to foreign currency changes. In the six months of fiscal 2011, organic volume increase was approximately 22% with pricing and acquisitions contributing 10% and 9%, respectively, partially offset by a 2% decrease due to foreign currency changes.
30
Gross Profit
Quarter ended October 3, 2010 |
Quarter ended September 27, 2009 |
Increase (Decrease) | ||||||||||||||||||||||
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage | |||||||||||||||||||
Gross Profit |
$ | 110.7 | 23.4 | % | $ | 88.6 | 24.1 | % | $ | 22.1 | 24.9 | % | ||||||||||||
Six months ended October 3, 2010 |
Six months ended September 27, 2009 |
Increase (Decrease) | ||||||||||||||||||||||
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage | |||||||||||||||||||
Gross Profit |
$ | 207.3 | 22.8 | % | $ | 166.1 | 23.5 | % | $ | 41.2 | 24.8 | % | ||||||||||||
Gross profit increased 24.9% or $22.1 million in the second quarter of fiscal 2011, and increased 24.8% or $41.2 million in the six months of fiscal 2011 when compared to the comparable periods of fiscal 2010.
Gross profit, as a percentage of net sales decreased 70 basis points in the second quarter as well as the six month period of fiscal 2011, when compared to the comparable periods of fiscal 2010. This decrease is primarily attributed to product mix and higher commodity costs offset by on-going cost reduction programs and higher selling prices, as discussed below.
We estimate that the cost of lead alone, our most significant raw material, increased our cost of sales by approximately $43 and $91 million, respectively, in the second quarter and six months of fiscal 2011, compared to the comparable periods in fiscal 2010. Selling price increases offset approximately $24 million and $46 million, respectively, of the increased lead cost in the second quarter and in the six months of fiscal 2011.
Our sales initiatives will continue to emphasize pricing activities to improve gross profit and continue to focus on improving product mix to higher margin products.
Additionally, we remain highly focused on our long-standing and on-going cost reduction programs, which we believe continue to be highly effective in reducing our costs. This was a significant factor in the improvement of our gross profit percentages in the second quarter of fiscal 2011 to 23.4% and to 22.8% in the six months of fiscal 2011 compared to the rate of 21.4% in our fourth quarter of fiscal 2010.
Operating Items
Quarter ended October 3, 2010 |
Quarter ended September 27, 2009 |
Increase (Decrease) | ||||||||||||||||||||||
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage | |||||||||||||||||||
Operating expenses |
$ | 63.5 | 13.4 | % | $ | 60.3 | 16.4 | % | $ | 3.2 | 5.3 | % | ||||||||||||
Restructuring charges |
$ | 2.7 | 0.6 | % | $ | 3.2 | 0.9 | % | $ | (0.5 | ) | (13.6 | )% | |||||||||||
Six months ended October 3, 2010 |
Six months ended September 27, 2009 |
Increase (Decrease) | ||||||||||||||||||||||
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage | |||||||||||||||||||
Operating expenses |
$ | 121.9 | 13.4 | % | $ | 114.7 | 16.2 | % | $ | 7.2 | 6.3 | % | ||||||||||||
Restructuring charges |
$ | 3.4 | 0.4 | % | $ | 6.7 | 0.9 | % | $ | (3.3 | ) | (48.2 | )% | |||||||||||
31
Operating expenses as a percentage of net sales decreased 300 basis points and 280 basis points respectively, in the second quarter and six months of fiscal 2011 in comparison to the comparable periods of fiscal 2010. This decrease in the percentage is largely the result of leveraging our operating expenses with higher revenue. Operating expenses, excluding the effect of foreign currency translation, increased 4.8% or $2.8 million in the second quarter of fiscal 2011 and increased 7.1% or $8.1 million in the six months of fiscal 2011 when compared to the comparable periods of fiscal 2010, due primarily to higher sales volume. Selling expenses, our main component of operating expenses, were 58.3% and 59.6% of total operating expenses in the second quarter and six months of fiscal 2011 compared to 55.8% and 58.6% of total operating expenses in the second quarter and six months of fiscal 2010.
Restructuring charges
Included in our second quarter and six months of fiscal 2011 operating results are $2.7 million and $3.4 million, respectively, of restructuring charges primarily for staff reductions made in Europe, and included in our second quarter and six months of fiscal 2010 operating results are $3.2 million and $6.7 million, respectively, of restructuring charges primarily for staff reductions made in Europe and Americas.
32
Operating Earnings
Quarter ended October 3, 2010 |
Quarter ended September 27, 2009 |
Increase (Decrease) | ||||||||||||||||||||||
Current quarter by segment |
In Millions |
Percentage of Total Net Sales (1) |
In Millions |
Percentage of Total Net Sales (1) |
In Millions |
Percentage | ||||||||||||||||||
Europe |
$ | 9.3 | 4.5 | % | $ | 1.4 | 0.8 | % | $ | 7.9 | NM | % | ||||||||||||
Americas |
34.1 | 15.4 | 22.2 | 13.5 | 11.9 | 53.1 | ||||||||||||||||||
Asia |
3.8 | 8.7 | 4.7 | 13.5 | (0.9 | ) | (18.3 | ) | ||||||||||||||||
Subtotal |
47.2 | 10.0 | 28.3 | 7.7 | 18.9 | 66.8 | ||||||||||||||||||
Restructuring charges-Europe |
(2.7 | ) | (1.3 | ) | (3.2 | ) | (1.9 | ) | 0.5 | 13.6 | ||||||||||||||
Total operating earnings |
$ | 44.5 | 9.4 | % | $ | 25.1 | 6.8 | % | $ | 19.4 | 76.9 | % | ||||||||||||
(1) | The percentages shown for the segments are computed as a percentage of the applicable segments net sales. |
NM = not meaningful
Six months ended October 3, 2010 |
Six months ended September 27, 2009 |
Increase (Decrease) | ||||||||||||||||||||||
Year to date by segment |
In Millions |
Percentage of Total Net Sales (1) |
In Millions |
Percentage of Total Net Sales (1) |
In Millions |
Percentage | ||||||||||||||||||
Europe |
$ | 19.2 | 4.9 | % | $ | 2.0 | 0.6 | % | $ | 17.2 | NM | % | ||||||||||||
Americas |
60.0 | 14.1 | 38.0 | 12.1 | 22.0 | 58.2 | ||||||||||||||||||
Asia |
6.2 | 7.3 | 11.4 | 16.6 | (5.2 | ) | (45.7 | ) | ||||||||||||||||
Subtotal |
85.4 | 9.4 | 51.4 | 7.3 | 34.0 | 66.3 | ||||||||||||||||||
Restructuring charges-Europe |
(3.4 | ) | (0.9 | ) | (6.0 | ) | (1.8 | ) | 2.6 | (42.0 | ) | |||||||||||||
Restructuring charges-Americas |
| | (0.7 | ) | (0.3 | ) | 0.7 | NM | ||||||||||||||||
Total operating earnings |
$ | 82.0 | 9.0 | % | $ | 44.7 | 6.3 | % | $ | 37.3 | 83.5 | % | ||||||||||||
(1) | The percentages shown for the segments are computed as a percentage of the applicable segments net sales. |
Operating earnings increased 76.9% or $19.4 million in the second quarter and increased 83.5% or $37.3 million in the six months of fiscal 2011 in comparison to the second quarter and six months of fiscal 2010. Operating earnings as a percentage of net sales, as shown in the table above, increased 260 basis points in the second quarter of fiscal 2011 and increased 270 basis points in the six months of fiscal 2011 when compared to the comparable periods of 2010. Operating earnings improved primarily due to higher sales volume, price realization and cost reduction initiatives, partially offset by higher commodity costs. There were additional offsets from restructuring charges in Europe in fiscal 2011 and in Europe and Americas in fiscal 2010.
We experienced a substantial increase in operating earnings in our Europe segment in the second quarter of fiscal 2011 in comparison to the comparable quarter in the prior year, with the operating margin increasing 370 basis points to 4.5%. This improvement in our Europe segment earnings is primarily attributable to an improvement in organic volume and pricing and benefits of the restructuring programs on both production and operating expenses.
Our Americas segment had an increase in operating earnings in the second quarter of fiscal 2011 in comparison to the comparable quarter in the prior year, with the operating margin increasing 190 basis points to 15.4%. The margin improvement was primarily from higher sales volume and price realization partially offset by higher commodity costs.
Operating earnings decreased in our Asia segment in the second quarter of fiscal 2011 in comparison to the comparable quarter in the prior year, with the operating margin decreasing to 8.7% from 13.5%. Higher commodity and freight costs and more difficult pricing conditions accounted for the lower operating earnings, partially offset by higher sales volume in Asia compared to the second quarter of fiscal 2010.
Operating earnings increased significantly in our Europe segment in the six months of fiscal 2011 in comparison to the comparable period in the prior year, with the operating margin increasing 430 basis points to 4.9%. This significant improvement in Europe earnings is primarily attributable to an increase in organic volume and pricing as European macro-economic conditions improved and the benefits of the restructuring programs on both production and operating expenses.
Operating earnings in our Americas segment increased 58.2% in the six months of fiscal 2011 in comparison to the comparable period in the prior year, while the operating margin increased 200 basis points to 14.1%. Earnings improved in our Americas segment due primarily to 22% increase in organic volumes from improved macro-economic conditions.
33
Operating earnings in our Asia segment decreased 45.7% in the six months of fiscal 2011 in comparison to the comparable period in the prior year, with the operating margin as a percentage of sales decreasing from 16.6% to 7.3%. This reduction in our Asia segment earnings was primarily attributable to higher commodity and freight costs, and more difficult pricing conditions. In addition, there was a $1.1 million gain from the sale of assets in the six month period of fiscal 2010.
Interest Expense
Quarter ended October 3, 2010 |
Quarter ended September 27, 2009 |
Increase (Decrease) | ||||||||||||||||||||||
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage | |||||||||||||||||||
Interest expense |
$ | 6.1 | 1.3 | % | $ | 5.6 | 1.5 | % | $ | 0.5 | 7.4 | % | ||||||||||||
Six months ended October 3, 2010 |
Six months ended September 27, 2009 |
Increase (Decrease) | ||||||||||||||||||||||
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage | |||||||||||||||||||
Interest expense |
$ | 12.1 | 1.3 | % | $ | 11.0 | 1.6 | % | $ | 1.1 | 9.7 | % | ||||||||||||
Interest expense of $6.1 million in the second quarter of fiscal 2011 (net of interest income of $0.3 million) was $0.5 million higher than the interest expense of $5.6 million in the second quarter of fiscal 2010 (net of interest income of $0.2 million). Interest expense of $12.1 million in the six months of fiscal 2011 (net of interest income of $0.5 million) was $1.1 million higher than the $11.0 million (net of interest income of $0.4 million) in the six months of fiscal 2010.
The increase in interest expense in the second quarter of fiscal 2011 compared to the second quarter of 2010 is attributable primarily to the write off of deferred financing fees due to the early payment of the Euro Term Loan, higher non-cash accretion on our Convertible Notes and higher effective interest rates on our interest rate swaps, partially offset by lower borrowing levels.
The increase in interest expense in the six months of fiscal 2011 compared to the six months of 2010 is attributable primarily to more days in the six month period of fiscal 2011 versus 2010, higher non-cash accretion on our Convertible Notes, the write off of non-cash deferred financing fees due to the early payment of the Euro Term Loan, and higher effective interest rates on our interest rate swaps, partially offset by lower borrowing levels.
Our average debt outstanding (reflecting the reduction of the Convertible Notes discount) was $343.3 million and $346.7 million in the second quarter and six months of fiscal 2011, compared to $365.6 million and $369.3 million, respectively, in the second quarter and six months of fiscal 2010. The average Convertible Notes discount excluded from our average debt outstanding was $34.2 million and $ 35.2 million, respectively in the second quarter and six months of fiscal 2011 and $40.3 million and $41.0 million, respectively, in the second quarter and six months of fiscal 2010.
Included in interest expense is non-cash, accreted interest on the Convertible Notes of $1.4 million and $2.9 million, respectively, in the second quarter and six months of fiscal 2011 and $1.3 million and $2.7 million, respectively, in the second quarter and six months of fiscal 2010.
Also included in interest expense are non-cash charges for deferred financing fees of $0.7 million and $1.1 million, respectively, in the second quarter and six months of fiscal 2011, compared to $0.4 million and $0.9 million, respectively, in the second quarter and six months of fiscal 2010.
34
Other Expense, Net
Quarter ended October 3, 2010 |
Quarter ended September 27, 2009 |
Increase (Decrease) | ||||||||||||||||||||||
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage | |||||||||||||||||||
Other expense, net |
$ | 1.0 | 0.2 | % | $ | 0.8 | 0.2 | % | $ | 0.2 | 29.0 | % | ||||||||||||
Six months ended October 3, 2010 |
Six months ended September 27, 2009 |
Increase (Decrease) | ||||||||||||||||||||||
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage | |||||||||||||||||||
Other expense, net |
$ | 1.0 | 0.1 | % | $ | 2.7 | 0.4 | % | $ | (1.7 | ) | (64.1 | )% | |||||||||||
Other expense, net was $1.0 million for the second quarter of fiscal 2011 and $0.8 million compared to the second quarter of fiscal 2010. Other expense is mainly attributable to net foreign currency transaction losses.
Other expense, net was $1.0 million in the six months of fiscal 2011 compared to $2.7 million in the comparable period of fiscal 2010. This $1.7 million favorable change is primarily attributed to $1.6 million lower foreign currency transaction losses in the current fiscal period.
Earnings Before Income Taxes
Quarter ended October 3, 2010 |
Quarter ended September 27, 2009 |
Increase (Decrease) | ||||||||||||||||||||||
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage | |||||||||||||||||||
Earnings before income taxes |
$ | 37.4 | 7.9 | % | $ | 18.7 | 5.1 | % | $ | 18.7 | NM | |||||||||||||
Six months ended October 3, 2010 |
Six months ended September 27, 2009 |
Increase (Decrease) | ||||||||||||||||||||||
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage | |||||||||||||||||||
Earnings before income taxes |
$ | 68.9 | 7.6 | % | $ | 31.0 | 4.4 | % | $ | 37.9 | NM | |||||||||||||
As a result of the above, earnings before income taxes in the second quarter of fiscal 2011 increased $18.7 million compared to the second quarter of fiscal 2010 and earnings before income taxes in the six months of fiscal 2011 increased $37.9 million compared to six months of fiscal 2010. Earnings before income taxes as a percentage of sales were 7.9% and 7.6% respectively, in the second quarter and six months of fiscal 2011 in comparison to 5.1% and 4.4%, respectively, in the second quarter and six months of fiscal 2010.
35
Income Tax Expense
Quarter ended October 3, 2010 |
Quarter ended September 27, 2009 |
Increase (Decrease) | ||||||||||||||||||||||
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage | |||||||||||||||||||
Income tax expense |
$ | 10.8 | 2.3 | % | $ | 5.8 | 1.6 | % | $ | 5.0 | 87.0 | % | ||||||||||||
Effective tax rate |
29.0% | 31.0% | (2.0)% | |||||||||||||||||||||
Six months ended October 3, 2010 |
Six months ended September 27, 2009 |
Increase (Decrease) | ||||||||||||||||||||||
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage | |||||||||||||||||||
Income tax expense |
$ | 19.3 | 2.1 | % | $ | 9.7 | 1.4 | % | $ | 9.6 | NM | |||||||||||||
Effective tax rate |
28.1% | 31.2% | (3.1)% | |||||||||||||||||||||
The effective income tax rates for the second quarters of fiscal 2011 and 2010 were 29.0% and 31.0%, respectively. The effective income tax rates for the six months of fiscal 2011 and 2010 were 28.1% and 31.2%, respectively. The rate decreases in the second quarter and six months of fiscal 2011 as compared to the comparable prior year periods are due to a change in the mix of earnings among tax jurisdictions.
Net Earnings
Quarter ended October 3, 2010 |
Quarter ended September 27, 2009 |
Increase (Decrease) | ||||||||||||||||||||||
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage | |||||||||||||||||||
Net earnings |
$ | 26.6 | 5.6 | % | $ | 12.9 | 3.5 | % | $ | 13.7 | NM | |||||||||||||
Six months ended October 3, 2010 |
Six months ended September 27, 2009 |
Increase (Decrease) | ||||||||||||||||||||||
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage of Total Net Sales |
In Millions |
Percentage | |||||||||||||||||||
Net earnings |
$ | 49.6 | 5.5 | % | $ | 21.3 | 3.0 | % | $ | 28.3 | NM | |||||||||||||
As a result of the above, net earnings in the second quarter of fiscal 2011 were $26.6 million (5.6% of net sales), compared to net earnings in the second quarter of fiscal 2010 of $12.9 million (3.5% of net sales). Net earnings in the six months of fiscal 2011 were $49.6 million (5.5% of net sales), compared to net earnings in the six months of fiscal 2010 of $21.3 million (3.0% of net sales).
Net earnings per common share in the second quarter of fiscal 2011 were $0.54 per basic share and $0.53 per diluted share, compared to $0.27 per basic share and $0.26 per diluted share in the second quarter of fiscal 2010. Net earnings per common share in the six months of fiscal 2011 were $1.01 per basic share and $1.00 per diluted share, compared to $0.44 per basic and diluted share in the six months of fiscal 2010.
36
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. Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended March 31, 2010.
Liquidity and Capital Resources
During the six months of fiscal 2011, cash from operating activities of $7.1 million was provided primarily from net earnings of $49.6 million and depreciation and amortization of $22.4 million, substantially offset by cash used for the increase in primary working capital of $66.2 million. In the six months of fiscal 2010, cash from operating activities of $81.4 million was provided primarily from net earnings of $21.3 million, depreciation and amortization of $21.7 million, augmented by positive cash flow from reduced primary working capital of $46.5 million, in a period of declining sales.
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 $514.0 million (yielding a primary working capital percentage of 27.2%) at October 3, 2010, $417.4 million (yielding a primary working capital percentage of 28.4%) at September 27, 2009, and $439.7 million (yielding a primary working capital percentage of 24.4%) at March 31, 2010. The primary working capital percentage of 27.2% at October 3, 2010 is 2.8 percentage points above that for March 31, 2010, and 1.2 percentage points below that for the prior year quarter.
Primary working capital increased during the six months of fiscal 2011 due to an increase in accounts receivable and inventory, partially offset by an increase in accounts payable. Trade receivables increased as a result of the increase in revenue along with moderately slower collections. We experienced a planned increase in inventory, partly in preparation for anticipated new business. Relative to recent quarterly sales, the inventory level is now similar to that of the first quarter of this fiscal year since most of the increase in inventory, excluding the impact of foreign currency translation, took place in the first quarter. Accounts payable in the six months of fiscal 2011 increased modestly with the relative increase in sales.
Primary working capital and primary working capital percentages at October 3, 2010, March 31, 2010 and September 27, 2009 are computed as follows:
(In Millions) | ||||||||||||||||||||||||
Balance At |
Trade Receivables |
Inventory | Accounts Payable |
Total | Quarter Revenue Annualized |
Primary Working Capital % |
||||||||||||||||||
October 3, 2010 | $ | 418.5 | $ | 302.0 | $ | (206.5 | ) | 514.0 | $ | 1,891.4 | 27.2 | % | ||||||||||||
March 31, 2010 | 383.6 | 254.4 | (198.3 | ) | 439.7 | 1,802.1 | 24.4 | % | ||||||||||||||||
September 27, 2009 | 351.6 | 227.9 | (162.1 | ) | 417.4 | 1,469.2 | 28.4 | % |
37
Investing activities used cash of $25.7 million in the six months of fiscal 2011, compared to cash used of $22.8 million in the comparable period in fiscal 2010. This increase was primarily due to the increase in capital expenditures, which were $24.3 million in the six months of fiscal 2011, compared to $19.8 million in the comparable period of fiscal 2010. Acquisitions accounted for cash of $1.5 million and $4.2 million in the six months of fiscal 2011 and 2010, respectively.
Financing activities utilized cash of $11.8 million in the six months of fiscal 2011, primarily reflecting payments of long-term debt of $19.6 million, partially offset by the exercise of stock options and the related tax benefits that contributed $7.5 million. Financing activities used cash of $11.0 million in the six months of fiscal 2010, reflecting the scheduled payments of long-term debt and short term repayments of $12.8 million, partially offset by the exercise of stock options and the related tax benefits totaling $2.0 million.
As a result of the above, total cash and cash equivalents decreased by $28.0 million to $173.0 million in the six months of fiscal 2011 compared to an increase of $55.8 million to $219.0 million in the comparable period of fiscal 2010.
All obligations under our U.S. credit agreement are secured by, among other things, substantially all of our U.S. assets. Our U.S. credit agreements contain 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 the $350 million senior secured 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 adequate availability of funds to meet our cash requirements. See Note 8 to the Consolidated Financial Statements included in our 2010 Annual Report on Form 10-K for a detailed description of debt.
38
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.
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. At October 3, 2010 and March 31, 2010, such agreements effectively convert $170.0 million of our 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 our net financial investment position and the amount of cash to be paid or received by us under these agreements. The following commentary provides details for the outstanding interest rate swap agreements:
In October 2005, we entered into interest rate swap agreements to fix interest rates on $75.0 million of floating rate debt through December 22, 2010. The fixed rates per year plus an applicable credit spread began December 22, 2005, and were 4.25% during the first year, 4.525% the second year, 4.80% the third year, 5.075% the fourth year, and 5.47% in the fifth year. In connection with the issuance of $172.5 million aggregate principal amount of Convertible Notes and the repayment of a portion of the senior secured Term Loan B, in May 2008, we terminated $30.0 million of these interest rate swap agreements at a loss of $1.2 million.
In August 2007, we entered into interest rate swap agreements, which became effective in February 2008, to fix interest rates on $40.0 million of floating rate debt through February 22, 2011, at 4.85% per year.
In November 2007, we entered into interest rate swap agreements which became effective in May 2008, to fix interest rates on $40.0 million of floating rate debt through May 7, 2013, at 4.435% per year.
In December 2007, we entered into $45.0 million of interest rate swap agreements, which became effective in February and May 2008, to fix the interest rates on $20.0 million of floating rate debt through February 22, 2013, at 4.134% per year, and to fix the interest rates on $25.0 million of floating rate debt through May 7, 2013, at 4.138% per year.
A 100 basis point increase in interest rates would increase interest expense by approximately $0.2 million on the non-hedged variable rate portions of our debt.
39
Commodity Cost RisksLead 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) |
||||||||||||
October 3, 2010 |
$ | 37.2 | 41.7 | $ | 0.89 | 9 | % | |||||||||
March 31, 2010 |
$ | 60.7 | 63.4 | $ | 0.96 | 17 | % | |||||||||
September 27, 2009 |
$ | 44.1 | 45.9 | $ | 0.96 | 13 | % |
(1) | Based on approximate annual lead requirements for the periods then ended. |
For the remaining two quarters of this fiscal year, we believe approximately 58% of the cost of our lead requirement is known. This takes into account the hedge contracts in place at October 3, 2010, lead purchased by October 3, 2010 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 $13 million or 3% of net sales based on revenue and costs in the second quarter of fiscal 2011.
Foreign Currency Exchange Rate Risks
We manufacture and assemble our products primarily in Bulgaria, China, the Czech Republic, France, Germany, Mexico, Poland, the United Kingdom and the United States. 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 on a regular basis. Periodically, we will enter into foreign currency forward contracts and option contracts to reduce our impact from the volatility of currency movements. Based primarily on statistical currency correlations on our estimated exposures in fiscal 2011, we are confident that the pretax effect on annual earnings of changes in the principal currencies in which we conduct our business would not be in excess of approximately $10 million in more than one year out of twenty years.
40
Our largest 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 trade transactions. 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. Each contract is for a period not extending beyond one year. As of October 3, 2010 and March 31, 2010, we had contracts outstanding of $62.9 million and $64.2 million, respectively, as follows:
October 3, 2010 | March 31, 2010 | |||||||||||||||||||||||
Transactions Hedged |
$US Equivalent (in millions) |
Average Rate Hedged |
Approximate % of Annual Requirements (1) |
$US Equivalent (in millions) |
Average Rate Hedged |
Approximate % of Annual Requirements (1) |
||||||||||||||||||
Sell euros for U.S. dollars |
$ | 16.6 | $/ 1.25 | 16 | % | $ | 25.6 | $/ 1.37 | 18 | % | ||||||||||||||
Sell euros for Polish zloty |
30.6 | PLN/ 4.05 | 45 | % | 30.5 | PLN/ 4.11 | 52 | |||||||||||||||||
Sell euros for British pounds |
10.5 | /£ 0.84 | 45 | % | 8.1 | /£ 0.89 | 46 | |||||||||||||||||
Sell U.S. dollars for Chinese renminbi |
2.0 | ¥/$ 6.75 | 14 | % | | | | |||||||||||||||||
Other |
3.2 | | ||||||||||||||||||||||
Total |
$ | 62.9 | $ | 64.2 | ||||||||||||||||||||
(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.
41
PART IIOTHER 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, 2010, 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 common shares we purchased from participants in our equity incentive plans. As provided by such 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 |
||||||||||||
July 5 August 1, 2010 |
296 | $ | 24.22 | | | |||||||||||
August 2 August 29, 2010 |
| | | | ||||||||||||
August 30 October 3, 2010 |
4,450 | 24.13 | | | ||||||||||||
Total |
4,746 | $ | 24.14 | | | |||||||||||
42
Item 6. | Exhibits |
Exhibit |
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 (incorporated by reference to Exhibits 3.2 to Amendment No. 3 to EnerSys Registration Statement on Form S-1 (File No. 333-115553) filed on July 13, 2004). | |
4.1 | 2004 Securityholder Agreement (incorporated by reference to Exhibit 4.2 to Amendment No. 4 to EnerSys Registration Statement on Form S-1 (File No. 333-115553) filed on July 26, 2004). | |
4.2 | Consent to Waiver dated as of November 1, 2007, between EnerSys, Morgan Stanley Dean Witter Capital Partners IV, L.P. and MSDW IV 892 Investors, L.P. (incorporated by reference to Exhibit 4.2 to EnerSys Annual Report on Form 10-K (File No. 001-32253) filed on June 11, 2008). | |
4.3 | Consent to Waiver dated as of February 2, 2008, by and between Morgan Stanley Dean Witter Capital Partners IV, L.P., MSDW IV 892 Investors, L.P. and EnerSys. (incorporated by reference to Exhibit 4.3 to EnerSys Annual Report on Form 10-K (File No. 001-32253) filed on June 11, 2008). | |
10.1 | Form Severance Agreement (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 |
43
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: November 9, 2010
44
EnerSys
EXHIBIT INDEX
Exhibit |
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 (incorporated by reference to Exhibits 3.2 to Amendment No. 3 to EnerSys Registration Statement on Form S-1 (File No. 333-115553) filed on July 13, 2004). | |
4.1 | 2004 Securityholder Agreement (incorporated by reference to Exhibit 4.2 to Amendment No. 4 to EnerSys Registration Statement on Form S-1 (File No. 333-115553) filed on July 26, 2004). | |
4.2 | Consent to Waiver dated as of November 1, 2007, between EnerSys, Morgan Stanley Dean Witter Capital Partners IV, L.P. and MSDW IV 892 Investors, L.P. (incorporated by reference to Exhibit 4.2 to EnerSys Annual Report on Form 10-K (File No. 001-32253) filed on June 11, 2008). | |
4.3 | Consent to Waiver dated as of February 2, 2008, by and between Morgan Stanley Dean Witter Capital Partners IV, L.P., MSDW IV 892 Investors, L.P. and EnerSys. (incorporated by reference to Exhibit 4.3 to EnerSys Annual Report on Form 10-K (File No. 001-32253) filed on June 11, 2008). | |
10.1 | Form Severance Agreement (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 |
45