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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended January 1, 2023

☐			TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-32253 

 EnerSys

(Exact name of registrant as specified in its charter) 

Delaware						23-3058564
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

2366 Bernville Road

Reading, Pennsylvania 19605

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: 610-208-1991 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.01 par value per share

ENS

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ý  Yes    ¨  No.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934. 

Large Accelerated Filer

ý

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    ☐  Yes    ý  No.

Common Stock outstanding at February 3, 2023: 40,850,523 shares

1

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EnerSys

INDEX – FORM 10-Q

 

2

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									Page
PART I – FINANCIAL INFORMATION
Item 1.			Financial Statements
			Consolidated Condensed Balance Sheets (Unaudited) as of January 1, 2023 and March 31, 2022						4
			Consolidated Condensed Statements of Income (Unaudited) for the Quarters Ended January 1, 2023 and January 2, 2022						5
			Consolidated Condensed Statements of Income (Unaudited) for the Nine Months Ended January 1, 2023 and January 2, 2022						6
			Consolidated Condensed Statements of Comprehensive Income (Unaudited) for the Quarters and Nine Months ended January 1, 2023 and January 2, 2022						7
			Consolidated Condensed Statements of Cash Flows (Unaudited) for the Nine Months Ended January 1, 2023 and January 2, 2022						8
			Notes to Consolidated Condensed Financial Statements (Unaudited)						9
			1			Basis of Presentation			9
			2			Revenue Recognition			10
			3			Leases			10
			4			Accounts Receivable			12
			5			Goodwill and Other Intangible Assets			13
			6			Inventories			13
			7			Fair Value of Financial Instruments			13
			8			Derivative Financial Instruments			15
			9			Income Taxes			19
			10			Warranty			19
			11			Commitments, Contingencies and Litigation			20
			12			Restructuring and Other Exit Charges			20
			13			Debt			20
			14			Retirement Plans			23
			15			Stock-Based Compensation			23
			16			Stockholders’ Equity and Noncontrolling Interests			24
			17			Earnings Per Share			31
			18			Business Segments			32
			19			Subsequent Events			32
Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations						33
Item 3.			Quantitative and Qualitative Disclosures about Market Risk						45
Item 4.			Controls and Procedures						47
PART II – OTHER INFORMATION
Item 1.			Legal Proceedings						48
Item 1A.			Risk Factors						48
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds						49
Item 4.			Mine Safety Disclosures						49
Item 6.			Exhibits						50
SIGNATURES									51

3

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Table of Contents

PART I –			FINANCIAL INFORMATION

ITEM 1.			FINANCIAL STATEMENTS

EnerSys

Consolidated Condensed Balance Sheets (Unaudited)

(In Thousands, Except Share and Per Share Data) 

						January 1, 2023						March 31, 2022
Assets
Current assets:
Cash and cash equivalents						$	298,081					$	402,488
Accounts receivable, net of allowance for doubtful accounts: January 1, 2023 - $10,031; March 31, 2022 - $12,219						581,753						719,434
Inventories, net						835,198						715,712
Prepaid and other current assets						155,159						155,559
Total current assets						1,870,191						1,993,193
Property, plant, and equipment, net						495,751						503,264
Goodwill						673,701						700,640
Other intangible assets, net						367,712						396,202
Deferred taxes						57,210						60,479
Other assets						103,302						82,868
Total assets						$	3,567,867					$	3,736,646
Liabilities and Equity
Current liabilities:
Short-term debt						$	32,019					$	55,084
Accounts payable						345,255						393,096
Accrued expenses						292,687						289,950
Total current liabilities						669,961						738,130
Long-term debt, net of unamortized debt issuance costs						1,105,124						1,243,002
Deferred taxes						74,526						78,228
Other liabilities						186,910						184,011
Total liabilities						2,036,521						2,243,371
Commitments and contingencies
Equity:
Preferred Stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding at January 1, 2023 and at March 31, 2022						—						—
Common Stock, $0.01 par value per share, 135,000,000 shares authorized, 55,952,890 shares issued and 40,844,224 shares outstanding at January 1, 2023; 55,748,924 shares issued and 40,986,658 shares outstanding at March 31, 2022						560						557
Additional paid-in capital						585,407						571,464
Treasury stock at cost, 15,108,666 shares held as of January 1, 2023 and 14,762,266 shares held as of March 31, 2022						(741,196)						(719,119)
Retained earnings						1,871,519						1,783,586
Contra equity - indemnification receivable						(2,463)						(3,620)
Accumulated other comprehensive loss						(186,068)						(143,495)
Total EnerSys stockholders’ equity						1,527,759						1,489,373
Nonredeemable noncontrolling interests						3,587						3,902
Total equity						1,531,346						1,493,275
Total liabilities and equity						$	3,567,867					$	3,736,646

See accompanying notes.

4

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Table of Contents

EnerSys

Consolidated Condensed Statements of Income (Unaudited)

(In Thousands, Except Share and Per Share Data)

						Quarter ended
						January 1, 2023						January 2, 2022
Net sales						$	920,227					$	844,006
Cost of goods sold						707,442						659,668
Inventory adjustment relating to exit activities						(863)						—
Gross profit						213,648						184,338
Operating expenses						134,317						130,701
Restructuring and other exit charges						801						2,472
Operating earnings						78,530						51,165
Interest expense						17,502						9,744
Other expense (income), net						3,180						(1,413)
Earnings before income taxes						57,848						42,834
Income tax expense						13,438						6,570
Net earnings attributable to EnerSys stockholders						$	44,410					$	36,264
Net earnings per common share attributable to EnerSys stockholders:
Basic						$	1.09					$	0.87
Diluted						$	1.08					$	0.85
Dividends per common share						$	0.175					$	0.175
Weighted-average number of common shares outstanding:
Basic						40,835,636						41,905,815
Diluted						41,281,693						42,497,045

See accompanying notes.

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EnerSys

Consolidated Condensed Statements of Income (Unaudited)

(In Thousands, Except Share and Per Share Data)

						Nine months ended
						January 1, 2023						January 2, 2022
Net sales						$	2,718,635					$	2,450,294
Cost of goods sold						2,123,880						1,893,917
Inventory adjustment relating to exit activities						681						960
Gross profit						594,074						555,417
Operating expenses						398,752						380,497
Restructuring charges and other exit charges						12,394						13,161
Operating earnings						182,928						161,759
Interest expense						44,560						28,424
Other expense (income), net						3,507						(1,711)
Earnings before income taxes						134,861						135,046
Income tax expense						25,001						19,227
Net earnings attributable to EnerSys stockholders						$	109,860					$	115,819
Net earnings per common share attributable to EnerSys stockholders:
Basic						$	2.69					$	2.73
Diluted						$	2.66					$	2.69
Dividends per common share						$	0.525					$	0.525
Weighted-average number of common shares outstanding:
Basic						40,787,654						42,393,907
Diluted						41,267,320						43,096,740

See accompanying notes.

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EnerSys

Consolidated Condensed Statements of Comprehensive Income (Unaudited)

(In Thousands)

						Quarter ended												Nine months ended
						January 1, 2023						January 2, 2022						January 1, 2023						January 2, 2022
Net earnings						$	44,410					$	36,264					$	109,860					$	115,819
Other comprehensive income (loss):
Net unrealized gain (loss) on derivative instruments, net of tax						10,806						(786)						4,688						878
Pension funded status adjustment, net of tax						84						216						254						689
Foreign currency translation adjustment						60,565						(18,214)						(47,830)						(26,551)
Total other comprehensive income (loss), net of tax						71,455						(18,784)						(42,888)						(24,984)
Total comprehensive income (loss)						115,865						17,480						66,972						90,835
Comprehensive income (loss) attributable to noncontrolling interests						109						56						(315)						120
Comprehensive income (loss) attributable to EnerSys stockholders						$	115,756					$	17,424					$	67,287					$	90,715

See accompanying notes.

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EnerSys

Consolidated Condensed Statements of Cash Flows (Unaudited)

(In Thousands)

						Nine months ended
						January 1, 2023						January 2, 2022
Cash flows from operating activities
Net earnings						$	109,860					$	115,819
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization						68,998						72,322
Write-off of assets relating to exit activities						8,360						3,922
Derivatives not designated in hedging relationships:
Net (losses) gains						(1,383)						(421)
Cash (settlements) proceeds						40						342
Provision for doubtful accounts						(720)						1,933
Deferred income taxes						(716)						(24)
Non-cash interest expense						1,461						1,620
Stock-based compensation						18,770						15,817
(Gain) loss on disposal of property, plant, and equipment						(193)						(528)
Changes in assets and liabilities:
Accounts receivable						123,398						(40,264)
Inventories						(135,905)						(163,747)
Prepaid and other current assets						(8,323)						(18,344)
Other assets						(899)						1,322
Accounts payable						(31,614)						(9,086)
Accrued expenses						(17,149)						(58,233)
Other liabilities						1,858						(480)
Net cash provided by (used in) operating activities						135,843						(78,030)
Cash flows from investing activities
Capital expenditures						(57,512)						(52,351)
Proceeds from disposal of facility						—						3,268
Proceeds from termination of net investment hedges						43,384						—
Proceeds from disposal of property, plant, and equipment						452						1,433
Net cash (used in) investing activities						(13,676)						(47,650)
Cash flows from financing activities
Net (repayments) borrowings on short-term debt						(20,317)						(297)
Proceeds from Second Amended Revolver borrowings						291,100						424,800
Repayments of Second Amended Revolver borrowings						(422,082)						(39,800)
Repayments of Second Amended Term Loan						(1,625)						(161,447)
Debt Issuance Costs						—						(2,952)
Financing costs for debt modification						(1,096)						—
Option proceeds, net						1,060						1,273
Payment of taxes related to net share settlement of equity awards						(6,385)						(9,120)
Purchase of treasury stock						(22,907)						(114,534)
Dividends paid to stockholders						(21,386)						(22,187)
Other						842						607
Net cash (used in) provided by financing activities						(202,796)						76,343
Effect of exchange rate changes on cash and cash equivalents						(23,778)						(5,411)
Net decrease in cash and cash equivalents						(104,407)						(54,748)
Cash and cash equivalents at beginning of period						402,488						451,808
Cash and cash equivalents at end of period						$	298,081					$	397,060

See accompanying notes.

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EnerSys

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)

(In Thousands, Except Share and Per Share Data)

1. Basis of Presentation

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles 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 of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments except those otherwise described herein) considered necessary for a fair presentation have been included, unless otherwise disclosed. Operating results for the three and nine months ended January 1, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2023.

The Consolidated Condensed Balance Sheet at March 31, 2022 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

The financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s 2022 Annual Report on Form 10-K (SEC File No. 001-32253), which was filed on May 25, 2022 (the “2022 Annual Report”).

EnerSys (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 2023 end on July 3, 2022, October 2, 2022, January 1, 2023, and March 31, 2023, respectively. The four quarters in fiscal 2022 ended on July 4, 2021, October 3, 2021, January 2, 2022, and March 31, 2022, respectively.

The consolidated condensed financial statements include the accounts of the Company and its wholly-owned subsidiaries and any partially owned subsidiaries that the Company has the ability to control. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions take into account historical and forward looking factors that the Company believes are reasonable, including, but not limited to, the potential impacts arising from the coronavirus pandemic including its variants (“COVID-19”) and public and private sector policies and initiatives aimed at reducing its transmission. As the extent and duration of the impacts of COVID-19 remain unclear, the Company’s estimates and assumptions may evolve as conditions change. Actual results could differ significantly from those estimates.

Examples of significant estimates include the allowance for credit losses, the recoverability of property, plant and equipment, the incremental borrowing rate for lease liabilities, the recoverability of intangible assets and other long-lived assets, fair value measurements, including those related to financial instruments, goodwill and intangible assets, valuation allowances on tax assets, pension and postretirement benefit obligations, contingencies and the identification and valuation of assets acquired and liabilities assumed in connection with business combinations.

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2. Revenue Recognition

The Company’s revenues by reportable segments are presented in Note 18 and are consistent with how we organize and manage our operations, as well as product line net sales information.

Service revenues related to the work performed for the Company’s customers by its maintenance technicians generally represent a separate and distinct performance obligation. Control for these services passes to the customer as the services are performed. Service revenues for the third quarter of fiscal 2023 and 2022 amounted to $100,770 and $87,958, respectively. Service revenues for the nine months of fiscal 2023 and 2022 amounted to $301,584 and $260,588, respectively.

A small portion of the Company's customer arrangements oblige the Company to create customized products for its customers that require combining both products and services into a single performance obligation because the individual products and services that are required to fulfill the customer requirements do not meet the definition for a distinct performance obligation. These customized products generally have no alternative use to the Company and the terms and conditions of these arrangements give the Company the enforceable right to payment for performance completed to date, including a reasonable profit margin. For these arrangements, control transfers over time and the Company measures progress towards completion by selecting the input or output method that best depicts the transfer of control of the underlying goods and services to the customer for each respective arrangement. Methods used by the Company to measure progress toward completion include labor hours, costs incurred and units of production. Revenues recognized over time for the third quarter of fiscal 2023 and 2022 amounted to $55,283 and $49,058, respectively. Revenues recognized over time for the nine months of fiscal 2023 and 2022 amounted to $168,489 and $133,569, respectively.

On January 1, 2023, the aggregate transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was approximately $159,245, of which, the Company estimates that approximately $76,200 will be recognized as revenue in fiscal 2023, $67,002 in fiscal 2024, and $16,043 in fiscal 2025.

Any payments that are received from a customer in advance, prior to the satisfaction of a related performance obligation and billings in excess of revenue recognized, are deferred and treated as a contract liability. Advance payments and billings in excess of revenue recognized are classified as current or non-current based on the timing of when recognition of revenue is expected. As of January 1, 2023, the current and non-current portion of contract liabilities were $30,859 and $1,482, respectively. As of March 31, 2022, the current and non-current portion of contract liabilities were $27,870 and $1,387, respectively. Revenues recognized during the third quarter of fiscal 2023 and 2022 that were included in the contract liability at the beginning of the quarter, amounted to $7,382 and $4,890, respectively. Revenues recognized during the nine months of fiscal 2023 and 2022 that were included in the contract liability at the beginning of the year, amounted to $9,167 and $6,722, respectively.

Amounts representing work completed and not billed to customers represent contract assets and were $54,006 and $59,924 as of January 1, 2023 and March 31, 2022, respectively.

The Company uses historic customer product return data as a basis of estimation for customer returns and records the reduction of sales at the time revenue is recognized. At January 1, 2023, the right of return asset related to the value of inventory anticipated to be returned from customers was $4,608 and refund liability representing amounts estimated to be refunded to customers was $9,484.

3. Leases

The Company leases manufacturing facilities, distribution centers, office space, vehicles and other equipment under non-cancellable leases with initial terms typically ranging from 1 to 17 years.

Short term leases with an initial term of 12 months or less are not presented on the balance sheet and expense is recognized on a straight-line basis over the lease term.

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The following table presents lease assets and liabilities and their balance sheet classification:

						Classification						As of January 1, 2023						As of March 31, 2022
Operating Leases:
Right-of-use assets						Other assets						$	79,081					$	71,085
Operating lease current liabilities						Accrued expenses						21,219						20,086
Operating lease non-current liabilities						Other liabilities						60,587						52,904
Finance Leases:
Right-of-use assets						Property, plant, and equipment, net						$	233					$	344
Finance lease current liabilities						Accrued expenses						74						185
Finance lease non-current liabilities						Other liabilities						191						231

The components of lease expense for the third quarter and nine months ended January 1, 2023 and January 2, 2022 were as follows:

												Quarter ended												Nine months ended
						Classification						January 1, 2023						January 2, 2022						January 1, 2023						January 2, 2022
Operating Leases:
Operating lease cost						Operating expenses						$	6,980					$	6,649					$	20,232					$	19,787
Variable lease cost						Operating expenses						3,189						2,288						9,817						7,215
Short term lease cost						Operating expenses						1,461						1,497						4,310						5,067
Finance Leases:
Depreciation						Operating expenses						$	23					$	58					$	94					$	177
Interest expense						Interest expense						3						6						9						21
Total												$	11,656					$	10,498					$	34,462					$	32,267

The following table presents the weighted average lease term and discount rates for leases as of January 1, 2023 and March 31, 2022:

January 1, 2023

March 31, 2022

Operating Leases:

Weighted average remaining lease term (years)

6.0 years

6.1 years

Weighted average discount rate

4.61%

4.43%

Finance Leases:

Weighted average remaining lease term (years)

3.5 years

2.3 years

Weighted average discount rate

5.39%

4.79%

The following table presents future payments due under leases reconciled to lease liabilities as of January 1, 2023:

						Finance Leases						Operating Leases
Three months ended March 31, 2023						$	27					$	6,926
Year ended March 31,
2024						92						22,321
2025						72						17,263
2026						51						13,517
2027						27						10,993
Thereafter						14						23,092
Total undiscounted lease payments						283						94,112
Present value discount						18						12,306
Lease liability						$	265					$	81,806

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The following table presents supplemental disclosures of cash flow information related to leases for the third quarter and nine months ended January 1, 2023 and January 2, 2022:

						Quarter ended												Nine months ended
						January 1, 2023						January 2, 2022						January 1, 2023						January 2, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases						$	3					$	6					$	9					$	21
Operating cash flows from operating leases						6,778						6,775						19,688						20,024
Financing cash flows from finance leases						22						59						94						179
Supplemental non-cash information on lease liabilities arising from right-of-use assets:
Right-of-use assets obtained in exchange for new finance lease liabilities						$	121					$	—					$	121					$	—
Right-of-use assets obtained in exchange for new operating lease liabilities						6,424						13,987						11,961						19,577

4. Accounts Receivable

						January 1, 2023						March 31, 2022
Accounts receivable						$	591,784					$	731,653
Allowance for doubtful accounts						10,031						12,219
Accounts receivable, net						$	581,753					$	719,434

During the third quarter of 2023, the Company entered into a Receivables Purchase Agreement (RPA), under which the Company continuously sells its interest in designated pools of trade accounts receivables, at a discount, to a special purpose entity, which in turn sells certain of the receivables to an unaffiliated financial institution ("unaffiliated financial institution") on a monthly basis. The Company may sell certain US-originated accounts receivable balances up to a maximum amount of $150,000. In return for these sales, the Company receives a cash payment equal to the face value of the receivables and is charged a fee of Secured Overnight Financing Rate (“SOFR”) plus 85 basis points against the sold receivable balance. The program is conducted through EnerSys Finance LLC ("EnerSys Finance"), an entity structured to be bankruptcy remote, and matures in December 2025. The Company is deemed the primary beneficiary of EnerSys Finance as the Company has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive the benefits that could potentially be significant to the entity from the transfer of the trade accounts receivables into the special purpose entity. Accordingly, EnerSys Finance is included in the Company’s consolidated condensed financial statements.

Receivables sold to unaffiliated financial institutions under the program are excluded from “Accounts receivable, net” on the Company’s consolidated condensed balance sheets, and cash receipts are reflected as cash provided by operating activities on the consolidated condensed statements of cash flows. The purchase price is received in cash when the receivables are sold, and fees charged relating to this balance are recorded to other (income) expense. Certain unsold receivables held by EnerSys Finance serve as collateral to unaffiliated financial institutions. These unsold receivables are included in “Accounts receivable, net” in the Company’s consolidated balance sheets. The Company continues servicing the receivables which were sold and in exchange receives a servicing fee from EnerSys Finance under the program.

During the third quarter and nine months of 2023, the Company sold $150,000 of accounts receivables for approximately $149,700 in net proceeds to an unaffiliated financial institution, of which $25,623 were collected as of January 1, 2023. Total collateralized accounts receivables of approximately $252,664, were held by EnerSys Finance at January 1, 2023.

Any accounts receivables held by EnerSys Finance would likely not be available to other creditors of the Company in the event of bankruptcy or insolvency proceedings relating to the Company until the outstanding balances under the RPA are satisfied. Additionally, the financial obligations of EnerSys Finance to the unaffiliated financial institutions under the program are limited to the assets it owns and there is no recourse to the Company for receivables that are uncollectible as a result of the insolvency of EnerSys Finance or its inability to pay the account debtors.

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5. Goodwill and Other Intangible Assets

Other Intangible Assets

Information regarding the Company’s other intangible assets are as follows:

						Balance as of
						January 1, 2023																		March 31, 2022
						Gross Amount						Accumulated Amortization						Net Amount						Gross Amount						Accumulated Amortization						Net Amount
Indefinite-lived intangible assets:
Trademarks						$	145,158					$	(953)					$	144,205					$	145,808					$	(953)					$	144,855
Finite-lived intangible assets:
Customer relationships						295,280						(125,958)						169,322						298,577						(109,820)						188,757
Non-compete						2,825						(2,825)						—						2,825						(2,825)						—
Technology						96,706						(45,380)						51,326						97,367						(38,712)						58,655
Trademarks						8,944						(6,085)						2,859						8,947						(5,012)						3,935
Licenses						1,196						(1,196)						—						1,196						(1,196)						—
Total						$	550,109					$	(182,397)					$	367,712					$	554,720					$	(158,518)					$	396,202

The Company’s amortization expense related to finite-lived intangible assets was $7,785 and $23,879 for the third quarter and nine months of fiscal 2023, compared to $8,318 and $25,066 for the third quarter and nine months of fiscal 2022. The expected amortization expense based on the finite-lived intangible assets as of January 1, 2023, is $6,846 for the remainder of fiscal 2023, $27,691 in fiscal 2024, $26,550 in fiscal 2025, $25,616 in fiscal 2026 and $24,822 in fiscal 2027.

Goodwill

The following table presents the amount of goodwill, as well as any changes in the carrying amount of goodwill by segment during the nine months of fiscal 2023:

						Energy Systems						Motive Power						Specialty						Total
Balance at March 31, 2022						$	279,461					$	323,303					$	97,876					$	700,640
Foreign currency translation adjustment						(22,155)						(3,597)						(1,187)						(26,939)
Balance as of January 1, 2023						$	257,306					$	319,706					$	96,689					$	673,701

6. Inventories

						January 1, 2023						March 31, 2022
Raw materials						$	336,827					$	260,604
Work-in-process						123,120						109,441
Finished goods						375,251						345,667
Total						$	835,198					$	715,712

7. Fair Value of Financial Instruments

Recurring Fair Value Measurements

The following tables represent the financial assets and (liabilities) measured at fair value on a recurring basis as of January 1, 2023 and March 31, 2022, and the basis for that measurement:

 

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						Total Fair Value Measurement January 1, 2023						Quoted Price in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Lead forward contracts						$	8,085					$	—					$	8,085					$	—
Foreign currency forward contracts						464						—						464						—
Net investment hedges						(14,384)						—						(14,384)						—
Total derivatives						$	(5,835)					$	—					$	(5,835)					$	—

 

						Total Fair Value Measurement March 31, 2022						Quoted Price in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Lead forward contracts						$	2,520					$	—					$	2,520					$	—
Foreign currency forward contracts						(256)						—						(256)						—
Net investment hedges						298						—						298						—
Total derivatives						$	2,562					$	—					$	2,562					$	—

The fair values of lead forward contracts are calculated using observable prices for lead as quoted on the London Metal Exchange (“LME”) and, therefore, were classified as Level 2 within the fair value hierarchy, as described in Note 1- Summary of Significant Accounting Policies to the Company's Consolidated Financial Statements included in the 2022 Annual Report.

The fair values for foreign currency forward contracts and net investment hedges are based upon current quoted market prices and are classified as Level 2 based on the nature of the underlying market in which these derivatives are traded.

Financial Instruments

The fair values of the Company’s cash and cash equivalents approximate carrying value due to their short maturities.

The fair value of the Company’s short-term debt and borrowings under the Third Amended Credit Facility (as defined in Note 13), approximate their respective carrying value, as they are variable rate debt and the terms are comparable to market terms as of the balance sheet dates and are classified as Level 2.

In fiscal 2020, the Company issued its 4.375% Senior Notes due December 15, 2027 (the “2027 Notes”), with an original face value of $300,000. The Company's 5.00% Senior Notes due April 30, 2023 (the “2023 Notes”), with an original face value of $300,000, were issued in fiscal 2016. The fair value of the 2027 Notes and 2023 Notes (collectively, the “Senior Notes”) represent the trading values based upon quoted market prices and are classified as Level 2. The 2027 Notes were trading at approximately 90% and 95% of face value on January 1, 2023 and March 31, 2022, respectively. The 2023 Notes were trading at approximately 99% and 101% of face value on January 1, 2023 and March 31, 2022, respectively.

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The carrying amounts and estimated fair values of the Company’s derivatives and Senior Notes at January 1, 2023 and March 31, 2022 were as follows:

						January 1, 2023												March 31, 2022
						Carrying Amount						Fair Value						Carrying Amount						Fair Value
Financial assets:
Derivatives (1)						$	(5,835)					$	(5,835)					$	2,562					$	2,562
Financial liabilities:
Senior Notes (2)						$	600,000					$	567,450					$	600,000					$	585,750

(1)Represents lead, foreign currency forward contracts and net investment hedges (see Note 7 for asset and liability positions of the lead, foreign currency forward contracts and net investment hedges at January 1, 2023 and March 31, 2022).

(2)The fair value amount of the Senior Notes at January 1, 2023 and March 31, 2022 represent the trading value of the instruments.

Non-recurring fair value measurements

On June 29, 2022, the Company committed to a plan to close its facility in Ooltewah, Tennessee, which focused on manufacturing flooded motive power batteries for electric forklifts. Management determined that future demand for traditional motive power flooded cells will decrease as customers transition to maintenance free product solutions in lithium and Thin Plate Pure Lead (TPPL). As a result, the Company concluded that the carrying value of the asset group was not recoverable and recorded during the first quarter of fiscal 2023 a write-off of $7,300 of the fixed assets, for which there is expected to be no salvageable value. The valuation technique used to measure the fair value of fixed assets was a combination of the income and market approaches. The inputs used to measure the fair value of these fixed assets under the income approach were largely unobservable and accordingly were classified as Level 3.

8. Derivative Financial Instruments

The Company utilizes derivative instruments to reduce its exposure to fluctuations in commodity prices, foreign exchange rates and interest, under established procedures and controls. The Company does not enter into derivative contracts for speculative purposes. The Company’s agreements are with creditworthy financial institutions and the Company anticipates performance by counterparties to these contracts and therefore no material loss is expected.

Derivatives in Cash Flow Hedging Relationships

Lead Forward Contracts

The Company enters into lead forward contracts to fix the price for a portion of its lead purchases. Management considers the lead forward contracts to be effective against changes in the cash flows of the underlying lead purchases. The vast majority of such contracts are for a period not extending beyond one year. At January 1, 2023 and March 31, 2022, the Company has hedged the price to purchase approximately 65.0 million pounds and 54.0 million pounds of lead, respectively, for a total purchase price of $60,025 and $56,768, respectively.

Foreign Currency Forward Contracts

The Company uses foreign currency forward contracts and options to hedge a portion of the Company’s foreign currency exposures for lead, as well as other foreign currency exposures so that gains and losses on these contracts offset changes in the underlying foreign currency denominated exposures. The vast majority of such contracts are for a period not extending beyond one year. As of January 1, 2023 and March 31, 2022, the Company had entered into a total of $48,769 and $29,676, respectively, of such contracts.

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Derivatives in Net Investment Hedging Relationships

Net Investment Hedges

The Company uses cross currency fixed interest rate swaps to hedge its net investments in foreign operations against future volatility in the exchange rates between the U.S. Dollar and Euro.

On September 29, 2022, the Company terminated its $300,000 cross-currency fixed interest rate swap contracts, originally entered into on December 23, 2021, and received a net settlement of $43,384. The cash proceeds have been included in Proceeds from termination of net investment hedges in our Consolidated Condensed Statements of Cash Flows.

On September 29, 2022, the Company entered into cross-currency fixed interest rate swap contracts with an aggregate notional amount of $150,000, maturing on December 15, 2027. The cross-currency fixed interest rate swap contracts qualify for hedge accounting as a net investment hedging instrument, which allows for them to be remeasured to foreign currency translation adjustment within AOCI (“Accumulated Other Comprehensive Income”) to offset the translation risk from those investments. Balances in the foreign currency translation adjustment accounts remain until the sale or substantially complete liquidation of the foreign entity, upon which they are recognized as a component of income (expense).

Impact of Hedging Instruments on AOCI

In the coming twelve months, the Company anticipates that $11,280 of pretax (gain) relating to lead, foreign currency forward contracts and net investment hedges will be reclassified from AOCI as part of cost of goods sold and interest expense. This amount represents the current net unrealized impact of hedging lead, foreign exchange rates and interest rates, which will change as market rates change in the future. This amount will ultimately be realized in the Consolidated Condensed Statements of Income as an offset to the corresponding actual changes in lead, foreign exchange rates and interest costs resulting from variable lead cost, foreign exchange and interest rates hedged.

Derivatives not Designated in Hedging Relationships

Foreign Currency Forward Contracts

The Company also enters into foreign currency forward contracts to economically hedge foreign currency fluctuations on intercompany loans and foreign currency denominated receivables and payables. These are not designated as hedging instruments and changes in fair value of these instruments are recorded directly in the Consolidated Condensed Statements of Income. As of January 1, 2023 and March 31, 2022, the notional amount of these contracts was $67,252 and $22,990, respectively.

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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

January 1, 2023 and March 31, 2022

 

						Derivatives and Hedging  Activities Designated as Cash Flow Hedges												Derivatives and Hedging Activities Designated as Net Investment Hedges												Derivatives and Hedging Activities Not Designated as Hedging Instruments
						January 1, 2023						March 31, 2022						January 1, 2023						March 31, 2022						January 1, 2023						March 31, 2022
Prepaid and other current assets:
Lead forward contracts						$	8,085					$	2,520					$	—					$	—					$	—					$	—
Foreign currency forward contracts						—						256						—						—						832						—
Net investment hedges						—						—						1,167						4,388						—						—
Other assets:
Net investment hedges						—						—						—						—						—						—
Total assets						$	8,085					$	2,776					$	1,167					$	4,388					$	832					$	—
Accrued expenses:
Lead forward contracts						$	—					$	—					$	—					$	—					$	—					$	—
Foreign currency forward contracts						368						—						—						—						—						512
Other liabilities:
Net investment hedges						—						—						15,551						4,090						—						—
Total liabilities						$	368					$	—					$	15,551					$	4,090					$	—					$	512

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

For the quarter ended January 1, 2023

Derivatives Designated as Cash Flow Hedges						Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)						Location of Gain (Loss)  Reclassified from AOCI into Income (Effective Portion)						Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
Lead forward contracts						$	12,278					Cost of goods sold						$	(4,144)
Foreign currency forward contracts						(654)						Cost of goods sold						1,660
Total						$	11,624											$	(2,484)

Derivatives Designated as Net Investment Hedges						Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)						Location of Gain (Loss)  Reclassified from AOCI into Income (Effective Portion)						Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
Cross currency fixed interest rate swaps						$	(10,526)					Interest expense						$	360
Total						(10,526)												360

Derivatives Not Designated as Hedging Instruments			Location of Gain (Loss) Recognized in Income on Derivatives						Pretax Gain (Loss)
Foreign currency forward contracts			Other (income) expense, net						$	1,856
Total									$	1,856

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

For the quarter ended January 2, 2022

Derivatives Designated as Cash Flow Hedges						Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)						Location of Gain (Loss)  Reclassified from AOCI into Income (Effective Portion)						Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
Lead forward contracts						$	4,198					Cost of goods sold						$	5,147
Foreign currency forward contracts						296						Cost of goods sold						374
Total						$	4,494											$	5,521
Derivatives Designated as Net Investment Hedges						Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)						Location of Gain (Loss)  Reclassified from AOCI into Income (Effective Portion)						Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
Cross currency fixed interest rate swaps						$	(5,530)					Interest expense						$	88
Total						(5,530)												88

Derivatives Not Designated as Hedging Instruments			Location of Gain (Loss) Recognized in Income on Derivatives						Pretax Gain (Loss)
Foreign currency forward contracts			Other (income) expense, net						$	304
Total									$	304

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

For the nine months ended January 1, 2023

Derivatives Designated as Cash Flow Hedges						Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)						Location of Gain (Loss)  Reclassified from AOCI into Income (Effective Portion)						Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
Lead forward contracts						$	1,750					Cost of goods sold						$	(5,342)
Foreign currency forward contracts						1,962						Cost of goods sold						2,931
Total						$	3,712											$	(2,411)

Derivatives Designated as Net Investment Hedges						Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)						Location of Gain (Loss)  Reclassified from AOCI into Income (Effective Portion)						Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
Cross currency fixed interest rate swaps						$	30,092					Interest expense						$	3,283
Total						30,092												3,283

Derivatives Not Designated as Hedging Instruments			Location of Gain (Loss) Recognized in Income on Derivative						Pretax Gain (Loss)
Foreign currency forward contracts			Other (income) expense, net						$	1,383
Total									$	1,383

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

For the nine months ended January 2, 2022

Derivatives Designated as Cash Flow Hedges						Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)						Location of Gain (Loss)  Reclassified from AOCI into Income (Effective Portion)						Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
Lead forward contracts						$	9,361					Cost of goods sold						$	8,423
Foreign currency forward contracts						549						Cost of goods sold						346
Total						$	9,910											$	8,769

Derivatives Designated as Net Investment Hedges						Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)						Location of Gain (Loss)  Reclassified from AOCI into Income (Effective Portion)						Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
Cross currency fixed interest rate swaps						$	(5,530)					Interest expense						$	88
Total						(5,530)												88

Derivatives Not Designated as Hedging Instruments			Location of Gain (Loss) Recognized in Income on Derivative						Pretax Gain (Loss)
Foreign currency forward contracts			Other (income) expense, net						421
Total									421

9. Income Taxes

The Company’s income tax provision consists of federal, state and foreign income taxes. The tax provision for the third quarter of fiscal 2023 and 2022 was based on the estimated effective tax rates applicable for the full years ending March 31, 2023 and March 31, 2022, respectively, after giving effect to items specifically related to the interim periods. The Company’s effective income tax rate with respect to any period may be volatile based on the mix of income in the tax jurisdictions, in which the Company operates, change in tax laws and the amount of the Company's consolidated earnings before taxes.

The consolidated effective income tax rates for the third quarter of fiscal 2023 and 2022 were 23.2% and 15.3% and for the nine months of fiscal 2023 and 2022 were 18.5% and 14.2%, respectively. The rate increase in the third quarter and nine months of fiscal 2023 compared to the prior year periods are primarily due to taxes associated with a modification of the Company’s indefinite reinvestment position related to undistributed earnings in certain foreign subsidiaries and changes in mix of earnings among tax jurisdictions.

Foreign income as a percentage of worldwide income is estimated to be 80% for fiscal 2023 compared to 87% for fiscal 2022. The foreign effective tax rates for the nine months of fiscal 2023 and 2022 were 15% and 10%, respectively. Income from the Company's Swiss subsidiary comprised a substantial portion of the Company's overall foreign mix of income for both fiscal 2023 and fiscal 2022 and were taxed at an effective income tax rate of approximately 9% and 8%, respectively.

10. Warranty

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

						Quarter ended												Nine months ended
						January 1, 2023						January 2, 2022						January 1, 2023						January 2, 2022
Balance at beginning of period						$	52,394					$	56,222					$	54,978					$	58,962
Current period provisions						7,557						4,237						18,958						11,898
Costs incurred						(5,948)						(6,269)						(17,005)						(15,641)
Foreign currency translation adjustment						1,197						221						(1,731)						(808)
Balance at end of period						$	55,200					$	54,411					$	55,200					$	54,411

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11. Commitments, Contingencies and Litigation

Litigation and Other Legal Matters

In the ordinary course of business, the Company and its subsidiaries are routinely defendants in or parties to pending and threatened legal actions and proceedings, including actions brought on behalf of various classes of claimants. These actions and proceedings are generally based on alleged violations of environmental, anticompetition, employment, contract and other laws. In some of these actions and proceedings, claims for substantial monetary damages are asserted against the Company and its subsidiaries. In the ordinary course of business, the Company and its subsidiaries are also subject to regulatory and governmental examinations, information gathering requests, inquiries, investigations, and threatened legal actions and proceedings. In connection with formal and informal inquiries by federal, state, local and foreign agencies, the Company and its subsidiaries receive numerous requests, subpoenas and orders for documents, testimony and information in connection with various aspects of their activities.

European Competition Investigations

Certain of the Company’s European subsidiaries had received subpoenas and requests for documents and, in some cases, interviews from, and have had on-site inspections conducted by, the competition authorities of Belgium, Germany and the Netherlands relating to conduct and anticompetitive practices of certain industrial battery participants. For additional information regarding these matters, see Note 19 - Commitments, Contingencies and Litigation to the Consolidated Financial Statements contained in the 2022 Annual Report. As of January 1, 2023 and March 31, 2022, the Company did not have a reserve balance related to these matters.

The precise scope, timing and time period at issue, as well as the final outcome of the investigations or customer claims, remain uncertain. Accordingly, the Company’s estimate may change from time to time, and actual losses could vary.

Environmental Issues

As a result of its operations, the Company is subject to various federal, state, and local, as well as international environmental laws and regulations and is exposed to the costs and risks of registering, handling, processing, storing, transporting, and disposing of hazardous substances, especially lead and acid. The Company’s operations are also subject to federal, state, local and international occupational safety and health regulations, including laws and regulations relating to exposure to lead in the workplace. The Company believes that it has adequate reserves to satisfy its environmental liabilities.

Lead, Foreign Currency Forward Contracts and Swaps

To stabilize its lead costs and reduce volatility from currency and interest rate movements, the Company entered into contracts with financial institutions. The vast majority of lead and foreign currency contracts are for a period not extending beyond one year. The Company also entered into a cross currency fixed interest rate swap agreement, maturing on December 15, 2027, to hedge its net investments in foreign operations against future volatility in the exchange rates between the U.S. Dollar and Euro. Please refer to Note 8 - Derivative Financial Instruments for more details.

12. Restructuring and other Exit Charges

Restructuring Programs

As disclosed in the 2022 Annual Report, the Company committed to restructuring plans aimed at improving operational efficiencies across its lines of business. A substantial portion of these plans are complete with an estimated $871 remaining to be incurred by the end of fiscal 2023, mainly related to plans started in fiscal 2021 and fiscal 2022. Restructuring and exit charges for the third quarter and nine months of fiscal 2023 by reportable segments are as follows:

						Quarter ended January 1, 2023
						Energy Systems						Motive Power						Specialty						Total
Restructuring charges						$	266					$	124					$	—					$	390
Exit charges						(108)						526						(7)						411
Restructuring and other exit charges						$	158					$	650					$	(7)					$	801

						Nine months ended January 1, 2023
						Energy Systems						Motive Power						Specialty						Total
Restructuring charges						$	1,205					$	276					$	—					$	1,481
Exit charges						(108)						11,028						(7)						10,913
Restructuring and other exit charges						$	1,097					$	11,304					$	(7)					$	12,394

A roll-forward of the restructuring reserve, excluding exit charges, is as follows:

Balance as of March 31, 2022						$	1,030
Accrued						1,481
Costs incurred						(1,607)
Foreign currency impact						(33)
Balance as of January 1, 2023						$	871

Exit Charges

Fiscal 2023 Program

On June 29, 2022, the Company committed to a plan to close its facility in Ooltewah, Tennessee, which produced flooded motive power batteries for electric forklifts. Management determined that future demand for traditional motive power flooded cells will decrease as customers transition to maintenance free product solutions in lithium and TPPL. The Company currently estimates that the total charges for these actions will amount to approximately $18,500. Cash charges for employee severance related payments, cleanup related to the facility, contractual releases and legal expenses are estimated to be $9,200 and non-cash charges from inventory and fixed asset write-offs are estimated to be $9,300. These actions will result in the reduction of approximately 165 employees. The plan is expected to be completed in calendar 2023.

During the nine months of fiscal 2023, the Company recorded cash charges relating to severance and manufacturing variances of $2,263 and non-cash charges of $7,261 relating to fixed asset write-offs. The Company also recorded a non-cash write off relating to inventories of $1,613, which was reported in cost of goods sold.

Fiscal 2022 Program

Hagen, Germany

In fiscal 2021, the Company's Board of Directors approved a plan to close substantially all of its facility in Hagen, Germany, which produced flooded motive power batteries for electric forklifts. Management determined that future demand for the motive power batteries produced at this facility was not sufficient, given the conversion from flooded to maintenance free batteries by customers, the existing number of competitors in the market, as well as the near term decline in demand and increased uncertainty from the pandemic. The Company plans to retain the facility with limited sales, service and administrative functions along with related personnel for the foreseeable future.

The Company currently estimates that the total charges for these actions will amount to approximately $60,000, of which cash charges for employee severance related payments, cleanup related to the facility, contractual releases and legal expenses were estimated to be $40,000 and non-cash charges from inventory and equipment write-offs were estimated to be $20,000. The majority of these charges were recorded as of January 1, 2023. These actions resulted in the reduction of approximately 200 employees.

During fiscal 2021, the Company recorded cash charges relating to severance of $23,331 and non-cash charges of $7,946 primarily relating to fixed asset write-offs.

During fiscal 2022, the Company recorded cash charges primarily relating to severance of $8,069 and non-cash charges of $3,522 primarily relating to fixed asset write-offs. The Company also recorded a non-cash write off relating to inventories of $960, which was reported in cost of goods sold.

During the nine months of fiscal 2023, the Company recorded cash charges of $1,525 relating to primarily to site cleanup and $419 of non-cash charges relating to accelerated depreciation of fixed assets.

Russia

In February 2022, as a result of the Russia-Ukraine conflict, economic sanctions were imposed on Russian individuals and entities, including financial institutions, by countries around the world, including the U.S. and the European Union. On March 3, 2022, the Company announced that it was indefinitely suspending its operations in Russia in order to comply with the sanctions. As a result of this decision, the Company wrote off net assets of $3,999 relating to its Russian subsidiary. The Company also incurred cash charges of $1,284 relating to severance and exiting lease obligations. During the third quarter of fiscal 2023, the Company sold inventory previously written off resulting in the reversal of $932 in cost of goods sold and reversal of $739 of cash charges primarily relating to lease obligations.

Targovishte, Bulgaria

During fiscal 2019, the Company committed to a plan to close its facility in Targovishte, Bulgaria, which produced diesel-electric submarine batteries. Management determined that the future demand for batteries of diesel-electric submarines was not sufficient given the number of competitors in the market. Of the estimated total charges of $26,000 for this plan, the Company had recorded charges amounting to $20,242 in fiscal 2019, relating to severance and inventory and fixed asset write-offs and an additional $5,123 relating to cash and non-cash charges during fiscal 2020. During fiscal 2021, in keeping with its strategy of

exiting the manufacture of batteries for diesel-electric submarines, the Company completed further actions which resulted in

$220 relating to cash and non-cash charges. During the nine months of fiscal 2022, the Company sold this facility for $1,489. A net gain of $1,208 was recorded as a credit to exit charges in the Consolidated Condensed Statement of Income.

Zamudio, Spain

During the nine months of fiscal 2022, the Company closed a minor assembling plant in Zamudio, Spain and sold the same for $1,779. A net gain of $740 was recorded as a credit to exit charges in the Consolidated Condensed Statement of Income.

13. Debt

The following summarizes the Company’s long-term debt as of January 1, 2023 and March 31, 2022:

 

						January 1, 2023												March 31, 2022
						Principal						Unamortized Issuance Costs						Principal						Unamortized Issuance Costs
Senior Notes						$	600,000					$	3,005					$	600,000					$	3,905
Third Amended Credit Facility, due 2026						510,929						2,800						650,268						3,361
						$	1,110,929					$	5,805					$	1,250,268					$	7,266
Less: Unamortized issuance costs						5,805												7,266
Long-term debt, net of unamortized issuance costs						$	1,105,124											$	1,243,002

The Company's Senior Notes comprise the following:

4.375% Senior Notes due 2027

On December 11, 2019, the Company issued $300,000 in aggregate principal amount of its 4.375% Senior Notes due December 15, 2027 (the “2027 Notes”). Proceeds from this offering, net of debt issuance costs were $296,250 and were utilized to pay down the Amended 2017 Revolver (defined below). The 2027 Notes bear interest at a rate of 4.375% per annum accruing from December 11, 2019. Interest is payable semiannually in arrears on June 15 and December 15 of each year, commencing on June 15, 2020. The 2027 Notes mature on December 15, 2027, unless earlier redeemed or repurchased in full and are unsecured and unsubordinated obligations of the Company. They are fully and unconditionally guaranteed, jointly and severally, by certain of its subsidiaries that are guarantors under the Third Amended Credit Facility (defined below). These guarantees are unsecured and unsubordinated obligations of such guarantors.

The Company may redeem, prior to September 15, 2027, all or a portion of the 2027 Notes at a price equal to 100% of the principal amount of the 2027 Notes to be redeemed, plus accrued and unpaid interest and a “make whole” premium to, but excluding, the redemption date. The Company may redeem, on or after September 15, 2027, all or a portion of the 2027 Notes at a price equal to 100% of the principal amount of the 2027 Notes, plus accrued and unpaid interest to, but excluding, the redemption date. If a change of control triggering event occurs, the Company will be required to offer to repurchase the 2027

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Notes at a price in cash equal to 101% of the aggregate principal amount of the 2027 Notes, plus accrued and unpaid interest to, but excluding, the date of repurchase. The 2027 Notes rank pari passu with the 2023 Notes (defined below).

5.00% Senior Notes due 2023

The 5% Senior Notes due April 30, 2023 (the “2023 Notes”) bear interest at a rate of 5.00% per annum and have an original face value of $300,000. Interest is payable semiannually in arrears on April 30 and October 30 of each year and commenced on October 30, 2015. The 2023 Notes will mature on April 30, 2023, unless earlier redeemed or repurchased in full. The 2023 Notes are unsecured and unsubordinated obligations of the Company. The 2023 Notes are fully and unconditionally guaranteed, jointly and severally, by certain of its subsidiaries that are guarantors under the Third Amended Credit Facility (defined below). These guarantees are unsecured and unsubordinated obligations of such guarantors.

2017 Credit Facility and Subsequent Amendments

In fiscal 2018, the Company entered into a credit facility (the “2017 Credit Facility”). The 2017 Credit Facility was scheduled to mature on September 30, 2022, initially comprised a $600,000 senior secured revolving credit facility (“2017 Revolver”) and a $150,000 senior secured term loan (“2017 Term Loan”). The Company utilized the borrowings from the 2017 Credit Facility to repay its pre-existing credit facility.

In fiscal 2019, the Company amended the 2017 Credit Facility (as amended, the “Amended Credit Facility”) to fund the Alpha acquisition. The Amended Credit Facility consisted of $449,105 senior secured term loans (the “Amended Term Loan”), including a CAD 133,050 ($99,105) senior secured term loan and a $700,000 senior secured revolving credit facility (the “Amended Revolver”). The amendment resulted in an increase of the 2017 Term Loan and the 2017 Revolver by $299,105 and $100,000, respectively.

During the second quarter of fiscal 2022, the Company entered into a second amendment to the 2017 Credit Facility (as amended, the “Second Amended Credit Facility”). The Second Amended Credit Facility, scheduled to mature on September 30, 2026, consists of a $130,000 senior secured term loan (the “Second Amended Term Loan”), a CAD 106,440 ($84,229) senior secured term loan and an $850,000 senior secured revolving credit facility (the “Second Amended Revolver”). The second amendment resulted in a decrease of the Amended Term Loan by $150,000 and an increase of the Amended Revolver by $150,000.

The quarterly installments payable on the Second Amended Term Loan are $2,607 beginning December 31, 2022, $3,910 beginning December 31, 2024 and $5,213 beginning December 31, 2025 with a final payment of $156,402 on September 30, 2026. Both the Second Amended Revolver and the Second Amended Term Loan bear interest, at the Company's option, at a rate per annum equal to either (i) the London Interbank Offered Rate (“LIBOR”) or Canadian Dollar Offered Rate (“CDOR”) plus (i) LIBOR plus between 1.125% and 2.25% (currently 1.75% and based on the Company's consolidated total net leverage ratio) or (ii) the U.S. Dollar Base Rate plus between 0.125% and 1.25%, (currently 0.75% and based on the Company's consolidated total net leverage ratio) which equals, for any day a fluctuating rate per annum equal to the highest of (a) the Federal Funds Effective Rate plus 0.50%, (b) Bank of America “Prime Rate” and (c) the Eurocurrency Base Rate plus 1%; provided that, if the Base Rate shall be less than zero, such rate shall be deemed zero (iii) the CDOR Base Rate equal to the higher of (a) Bank of America “Prime Rate” and (b) average 30-day CDOR rate plus 0.50%. The Third Amended Credit Facility (defined below) provides for alternate benchmark rates such as the Secured Overnight Financing Rate (“SOFR”) to replace LIBOR when it is phased out.

During the second quarter of fiscal 2023, the Company entered into a third amendment to the 2017 Credit Facility (as amended, the “Third Amended Credit Facility”). The Third Amended Credit Facility provides a new incremental delayed-draw senior secured term loan up to $300,000 (the “Third Amended Term Loan”), which shall be available to draw at any time until March 15, 2023. Once drawn, the funds will mature on September 30, 2026, the same as the Company's Second Amended Term loan and Second Amended Revolver. In connection with the agreement, the Company incurred $1,161 in third party administrative and legal fees recognized in interest expense and capitalized $1,096 in charges from existing lenders as a deferred asset.

The Third Amended Credit Facility may be increased by an aggregate amount of $350,000 in revolving commitments and / or one or more new tranches of term loans, under certain conditions. The Third Amended Term Loan bears interest, at the Company's option, at a rate per annum equal to either (i) the Secured Overnight Financing Rate (“SOFR”) plus 10 basis points plus (i) SOFR plus between 1.375% and 2.50% or (ii) the U.S. Dollar Base Rate plus between 0.375% and 1.50%, which equals, for any day a fluctuating rate per annum equal to the highest of (a) the Federal Funds Effective Rate plus 0.50%, (b) Bank of America “Prime Rate” and (c) the Term SOFR plus 1%; provided that, if the Base Rate shall be less than zero, such

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rate shall be deemed zero). Until the funds are drawn, the Company must pay a commitment fee of 0.175% to 0.35% (currently 0.30% and based on the Company's consolidated total net leverage ratio) at a rate per annum on the unused portion.

Obligations under the Third Amended Credit Facility are secured by substantially all of the Company’s existing and future acquired assets, including substantially all of the capital stock of the Company’s United States subsidiaries that are guarantors under the Third Amended Credit Facility and up to 65% of the capital stock of certain of the Company’s foreign subsidiaries that are owned by the Company’s United States subsidiaries.

The Third Amended Credit Facility allows for up to two temporary increases in the maximum leverage ratio to 4.50x from 4.00x to 4.25x for a four quarter period following an acquisition larger than $250,000. Effective with the Third Amended Credit Facility, the maximum leverage ratio increased from 3.50x to 4.25x effective to the last day of the second quarter of fiscal year 2024 and decreasing subsequently to 4.00x.

As of January 1, 2023, the Company had $305,000 outstanding under the Second Amended Revolver, $205,929 under the Second Amended Term Loan, and none outstanding under the Third Amended Term Loan.

Current Portion of Debt

The current portion of the Second Amended Term Loan and the 2023 Notes are $10,428 and $300,000, respectively, and are classified as long-term debt, as the Company expects to refinance the future quarterly payments with borrowings under the Second Amended Revolver and redemption of the 2023 Notes with borrowings under the Third Amended Term Loan.

Short-Term Debt

As of January 1, 2023 and March 31, 2022, the Company had $32,019 and $55,084, respectively, of short-term borrowings. The weighted average interest rate on these borrowings was approximately 6.3% and 2.4%, respectively, at January 1, 2023 and March 31, 2022.

Letters of Credit

As of January 1, 2023 and March 31, 2022, the Company had $3,564 and $2,959 of standby letters of credit, respectively.

Debt Issuance Costs

In connection with the Second Amended Credit Facility, the Company capitalized $2,952 in debt issuance costs and wrote off $128 of unamortized debt issuance costs. Amortization expense, relating to debt issuance costs, included in interest expense was $487 and $487, respectively, for the third quarter ended January 1, 2023 and January 2, 2022 and $1,461 and $1,620 for the nine months of fiscal 2023 and 2022, respectively. Debt issuance costs, net of accumulated amortization, totaled $5,805 and $7,266, respectively, at January 1, 2023 and March 31, 2022.

Available Lines of Credit

As of January 1, 2023 and March 31, 2022, the Company had available and undrawn, under all its lines of credit, $931,292 and $482,305, respectively, including $88,687 and $69,430, respectively, of uncommitted lines of credit.

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14. Retirement Plans

The following tables present the components of the Company’s net periodic benefit cost related to its defined benefit pension plans: 

						United States Plans												International Plans
						Quarter ended												Quarter ended
						January 1, 2023						January 2, 2022						January 1, 2023						January 2, 2022
Service cost						$	—					$	—					$	228					$	282
Interest cost						146						127						425						352
Expected return on plan assets						(104)						(137)						(495)						(545)
Amortization and deferral						—						(5)						118						290
Net periodic benefit cost						$	42					$	(15)					$	276					$	379

						United States Plans												International Plans
						Nine months ended												Nine months ended
						January 1, 2023						January 2, 2022						January 1, 2023						January 2, 2022
Service cost						$	—					$	—					$	681					$	872
Interest cost						436						387						1,278						1,078
Expected return on plan assets						(341)						(394)						(1,497)						(1,663)
Amortization and deferral						—						5						356						890
Net periodic benefit cost						$	95					$	(2)					$	818					$	1,177

15. Stock-Based Compensation

As of January 1, 2023, the Company maintains the 2017 Equity Incentive Plan as amended from time to time (“2017 EIP”). The 2017 EIP reserved 4,173,554 shares of common stock for the grant of various classes of nonqualified stock options, restricted stock units, market condition-based on total shareholder return (“TSR”) and performance condition-based share units (“PSU”) and other forms of equity-based compensation.

The Company recognized stock-based compensation expense associated with its equity incentive plans of $6,906 for the third quarter of fiscal 2023 and $6,393 for the third quarter of fiscal 2022. Stock-based compensation was $18,770 and $15,817 for the nine months of fiscal 2023 and fiscal 2022, respectively. The Company recognizes compensation expense using the straight-line method over the vesting period of the awards.

During the nine months of fiscal 2023, the Company granted to non-employee directors 39,219 restricted stock units, under the deferred compensation plan for non-employee directors. The awards vest immediately upon the date of grant and are settled in shares of common stock.

During the nine months of fiscal 2023, the Company granted to management and other key employees 310,140 non-qualified stock options that vest ratably over three years from the date of grant and 345,449 restricted stock units that vest ratably over four years from the date of grant.

Common stock activity during the nine months of fiscal 2023 included the exercise of 18,719 stock options and the vesting of 223,957 restricted stock units, 29,171 TSRs and 21,195 PSUs.

As of January 1, 2023, there were 1,258,054 non-qualified stock options, 1,015,681 restricted stock units including non-employee director restricted stock units and 31,584 TSRs outstanding.

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16. Stockholders’ Equity and Noncontrolling Interests

Common Stock

The following demonstrates the change in the number of shares of common stock outstanding during the nine months ended January 1, 2023:

 

Shares outstanding as of March 31, 2022						40,986,658
Purchase of treasury stock						(358,365)
Shares issued under equity-based compensation plans, net of equity awards surrendered for option price and taxes						215,931
Shares outstanding as of January 1, 2023						40,844,224

Treasury Stock

During the nine months ended January 1, 2023, the Company purchased 358,365 shares for $22,907 and 1,422,569 shares for $114,534 during the nine months ended January 2, 2022. At January 1, 2023 and March 31, 2022, the Company held 15,108,666 and 14,762,266 shares as treasury stock, respectively. During the nine months ended January 1, 2023, the Company also issued 11,965 shares out of its treasury stock, valued at $62.55 per share, on a LIFO basis, to participants under the Company's Employee Stock Purchase Plan.

Accumulated Other Comprehensive Income (“AOCI ”)

The components of AOCI, net of tax, as of January 1, 2023 and March 31, 2022, are as follows:

						March 31, 2022						Before Reclassifications						Amounts Reclassified from AOCI						January 1, 2023
Pension funded status adjustment						$	(12,637)					$	—					$	254					$	(12,383)
Net unrealized gain (loss) on derivative instruments						2,963						2,841						1,847						7,651
Foreign currency translation adjustment (1)						(133,821)						(47,515)						—						(181,336)
Accumulated other comprehensive (loss) income						$	(143,495)					$	(44,674)					$	2,101					$	(186,068)

(1) Foreign currency translation adjustment for the nine months ended January 1, 2023 includes a $20,543 gain (net of taxes of $6,266) related to the Company's $300,000 and $150,000 cross-currency fixed interest rate swap contracts.

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The following table presents reclassifications from AOCI during the third quarter ended January 1, 2023:

Components of AOCI						Amounts Reclassified from AOCI						Location of (Gain) Loss Recognized on Income Statement
Derivatives in cash flow hedging relationships:
Net unrealized loss on derivative instruments						$	2,484					Cost of goods sold
Tax benefit						(581)
Net unrealized loss on derivative instruments, net of tax						$	1,903
Derivatives in net investment hedging relationships:
Net unrealized gain on derivative instruments						$	(360)					Interest expense
Tax expense						84
Net unrealized gain on derivative instruments, net of tax						$	(276)
Defined benefit pension costs:
Prior service costs and deferrals						$	118					Net periodic benefit cost, included in other (income) expense, net - See Note 14
Tax benefit						(34)
Net periodic benefit cost, net of tax						$	84

The following table presents reclassifications from AOCI during the nine months ended January 1, 2023:

Components of AOCI						Amounts Reclassified from AOCI						Location of (Gain) Loss Recognized on Income Statement
Derivatives in cash flow hedging relationships:
Net unrealized loss on derivative instruments						$	2,411					Cost of goods sold
Tax benefit						(564)
Net unrealized loss on derivative instruments, net of tax						$	1,847
Derivatives in net investment hedging relationships:
Net unrealized gain on derivative instruments						$	(3,283)					Interest expense
Tax expense						767
Net unrealized gain on derivative instruments, net of tax						$	(2,516)
Defined benefit pension costs:
Prior service costs and deferrals						$	356					Net periodic benefit cost, included in other (income) expense, net - See Note 14
Tax benefit						(102)
Net periodic benefit cost, net of tax						$	254

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The following table presents reclassifications from AOCI during the third quarter ended January 2, 2022:

Components of AOCI						Amounts Reclassified from AOCI						Location of (Gain) Loss Recognized on Income Statement
Derivatives in cash flow hedging relationships:
Net unrealized gain on derivative instruments						$	(5,521)					Cost of goods sold
Tax expense						1,294
Net unrealized gain on derivative instruments, net of tax						$	(4,227)
Derivatives in net investment hedging relationships:
Net unrealized gain on derivative instruments						$	(88)					Interest expense
Tax expense						20
Net unrealized gain on derivative instruments, net of tax						$	(68)
Defined benefit pension costs:
Prior service costs and deferrals						$	285					Net periodic benefit cost, included in other (income) expense, net - See Note 14
Tax benefit						(69)
Net periodic benefit cost, net of tax						$	216

The following table presents reclassifications from AOCI during the nine months ended January 2, 2022:

Components of AOCI						Amounts Reclassified from AOCI						Location of (Gain) Loss Recognized on Income Statement
Derivatives in cash flow hedging relationships:
Net unrealized gain on derivative instruments						$	(8,769)					Cost of goods sold
Tax expense						2,055
Net unrealized loss on derivative instruments, net of tax						$	(6,714)
Derivatives in net investment hedging relationships:
Net unrealized gain on derivative instruments						$	(88)					Interest expense
Tax expense						20
Net unrealized gain on derivative instruments, net of tax						$	(68)
Defined benefit pension costs:
Prior service costs and deferrals						$	895					Net periodic benefit cost, included in other (income) expense, net - See Note 14
Tax benefit						(206)
Net periodic benefit cost, net of tax						$	689

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The following demonstrates the change in equity attributable to EnerSys stockholders and nonredeemable noncontrolling interests during the third quarter and nine months ended January 1, 2023:

(In Thousands, Except Per Share Data)						Preferred Stock						Common Stock						Additional Paid-in Capital						Treasury Stock						Retained Earnings						Accumulated Other Comprehensive Income (Loss)						Contra-Equity						Total EnerSys Stockholders’ Equity						Non- redeemable Non- Controlling Interests						Total Equity
Balance at March 31, 2022						$	—					$	557					$	571,464					$	(719,119)					$	1,783,586					$	(143,495)					$	(3,620)					$	1,489,373					$	3,902					$	1,493,275
Stock-based compensation						—						—						5,330						—						—						—						—						5,330						—						5,330
Exercise of stock options						—						1						—						—						—						—						—						1						—						1
Shares issued under equity awards (taxes paid related to net share settlement of equity awards), net						—						—						(633)						—						—						—						—						(633)						—						(633)
Purchase of common stock						—						—						—						(22,907)						—						—						—						(22,907)						—						(22,907)
Other						—						—						(41)						240						—						—						—						199						—						199
Net earnings						—						—						—						—						30,978						—						—						30,978						—						30,978
Dividends ($0.175 per common share)						—						—						174						—						(7,282)						—						—						(7,108)						—						(7,108)
Other comprehensive income:
Pension funded status adjustment (net of tax benefit of $34)						—						—						—						—						—						89						—						89						—						89
Net unrealized gain (loss) on derivative instruments (net of tax benefit of $2,514)						—						—						—						—						—						(8,234)						—						(8,234)						—						(8,234)
Foreign currency translation adjustment						—						—						—						—						—						(52,010)						—						(52,010)						(210)						(52,220)
Balance at July 3, 2022						$	—					$	558					$	576,294					$	(741,786)					$	1,807,282					$	(203,650)					$	(3,620)					$	1,435,078					$	3,692					$	1,438,770
Stock-based compensation						—						—						6,534						—						—						—						—						6,534						—						6,534
Exercise of stock options						—						1						114						—						—						—						—						115						—						115
Shares issued under equity awards (taxes paid related to net share settlement of equity awards), net						—						—						(5,624)						—						—						—						—						(5,624)						—						(5,624)
Contra equity - adjustment to indemnification receivable for acquisition related tax liability						—						—						—						—						—						—						963						963						—						963
Purchase of common stock						—						—						—						—						—						—						—						—						—						—
Other						—						—						28						276						—						—						—						304						—						304
Net earnings						—						—						—						—						34,472						—						—						34,472						—						34,472
Dividends ($0.175 per common share)						—						—						174						—						(7,312)						—						—						(7,138)						—						(7,138)
Other comprehensive income:
Pension funded status adjustment (net of tax benefit of $34)						—						—						—						—						—						81						—						81						—						81
Net unrealized gain (loss) on derivative instruments (net of tax of $647)						—						—						—						—						—						2,116						—						2,116						—						2,116
Foreign currency translation adjustment						—						—						—						—						—						(55,961)						—						(55,961)						(214)						(56,175)
Balance at October 2, 2022						$	—					$	559					$	577,520					$	(741,510)					$	1,834,442					$	(257,414)					$	(2,657)					$	1,410,940					$	3,478					$	1,414,418

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Stock-based compensation						—						—						6,906						—						—						—						—						6,906						—						6,906
Exercise of stock options						—						1						946						—						—						—						—						947						—						947
Shares issued under equity awards (taxes paid related to net share settlement of equity awards), net						—						—						(128)						—						—						—						—						(128)						—						(128)
Contra equity - adjustment to indemnification receivable for acquisition related tax liability						—						—						—						—						—						—						194						194						—						194
Purchase of common stock						—						—						—						—						—						—						—						—						—						—
Other						—						—						(30)						314						—						—						—						284						—						284
Net earnings						—						—						—						—						44,410						—						—						44,410						—						44,410
Dividends ($0.175 per common share)						—						—						193						—						(7,333)						—						—						(7,140)						—						(7,140)
Other comprehensive income:																																																—												—
Pension funded status adjustment (net of tax benefit of $34)						—						—						—						—						—						84						—						84						—						84
Net unrealized gain (loss) on derivative instruments (net of tax of $3,298)						—						—						—						—						—						10,806						—						10,806						—						10,806
Foreign currency translation adjustment						—						—						—						—						—						60,456						—						60,456						109						60,565
Balance at January 1, 2023						$	—					$	560					$	585,407					$	(741,196)					$	1,871,519					$	(186,068)					$	(2,463)					$	1,527,759					$	3,587					$	1,531,346

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The following demonstrates the change in equity attributable to EnerSys stockholders and nonredeemable noncontrolling interests during the third quarter and nine months ended January 2, 2022:

(In Thousands, Except Per Share Data)						Preferred Stock						Common Stock						Additional Paid-in Capital						Treasury Stock						Retained Earnings						Accumulated Other Comprehensive Income (Loss)						Contra-Equity						Total EnerSys Stockholders’ Equity						Non- redeemable Non- Controlling Interests						Total Equity
Balance at March 31, 2021						$	—					$	555					$	554,168					$	(563,481)					$	1,669,751					$	(115,883)					$	(5,355)					$	1,539,755					$	3,821					$	1,543,576
Stock-based compensation						—						—						3,659						—						—						—						—						3,659						—						3,659
Exercise of stock options						—						1						386						—						—						—						—						387						—						387
Shares issued under equity awards (taxes paid related to net share settlement of equity awards), net						—						—						(4,803)						—						—						—						—						(4,803)						—						(4,803)
Purchase of common stock						—						—						—						(31,512)						—						—						—						(31,512)						—						(31,512)
Other						—						—						44						170						—						—						—						214						—						214
Net earnings						—						—						—						—						43,929						—						—						43,929						—						43,929
Dividends ($0.175 per common share)						—						—						173						—						(7,608)						—						—						(7,435)						—						(7,435)
Dissolution of joint venture						—						—						—						—						—						—						—						—						(47)						(47)
Other comprehensive income:
Pension funded status adjustment (net of tax benefit of $68)						—						—						—						—						—						240						—						240						—						240
Net unrealized gain (loss) on derivative instruments (net of tax expense of $1,187)						—						—						—						—						—						3,897						—						3,897						—						3,897
Foreign currency translation adjustment						—						—						—						—						—						15,272						—						15,272						49						15,321
Balance at July 4, 2021						$	—					$	556					$	553,627					$	(594,823)					$	1,706,072					$	(96,474)					$	(5,355)					$	1,563,603					$	3,823					$	1,567,426
Stock-based compensation						—						—						5,765						—						—						—						—						5,765						—						5,765
Exercise of stock options						—						1						770						—						—						—						—						771						—						771
Shares issued under equity awards (taxes paid related to net share settlement of equity awards), net						—						—						(4,197)						—						—						—						—						(4,197)						—						(4,197)
Contra equity - adjustment to indemnification receivable for acquisition related tax liability						—						—						—						—						—						—						1,354						1,354						—						1,354
Purchase of common stock						—						—						—						—						—						—						—						—						—						—
Other						—						—						52						174						—						—						—						226						—						226
Net earnings						—						—						—						—						35,626						—						—						35,626						—						35,626
Dividends ($0.175 per common share)						—						—						185						—						(7,641)						—						—						(7,456)						—						(7,456)
Other comprehensive income:
Pension funded status adjustment (net of tax benefit of $69)						—						—						—						—						—						233						—						233						—						233
Net unrealized gain (loss) on derivative instruments (net of tax benefit of $683)						—						—						—						—						—						(2,233)						—						(2,233)						—						(2,233)
Foreign currency translation adjustment						—						—						—						—						—						(23,673)						—						(23,673)						15						(23,658)
Balance at October 3, 2021						$	—					$	557					$	556,202					$	(594,649)					$	1,734,057					$	(122,147)					$	(4,001)					$	1,570,019					$	3,838					$	1,573,857

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Stock-based compensation						—						—						6,393						—						—						—						—						6,393						—						6,393
Exercise of stock options						—						—						115						—						—						—						—						115						—						115
Shares issued under equity awards (taxes paid related to net share settlement of equity awards), net						—						—						(120)						—						—						—						—						(120)						—						(120)
Contra equity - adjustment to indemnification receivable for acquisition related tax liability						—						—						—						—						—						—						381						381						—						381
Purchase of common stock						—						—						—						(83,022)						—						—						—						(83,022)						—						(83,022)
Other						—						—						31						195						—						—						—						226						—						226
Net earnings						—						—						—						—						36,264						—						—						36,264						—						36,264
Dividends ($0.175 per common share)						—						—						184						—						(7,480)						—						—						(7,296)						—						(7,296)
Other comprehensive income:																																																—												—
Pension funded status adjustment (net of tax benefit of $69)						—						—						—						—						—						216						—						216						—						216
Net unrealized gain (loss) on derivative instruments (net of tax benefit of $241)						—						—						—						—						—						(786)						—						(786)						—						(786)
Foreign currency translation adjustment						—						—						—						—						—						(18,270)						—						(18,270)						56						(18,214)
Balance at January 2, 2022						$	—					$	557					$	562,805					$	(677,476)					$	1,762,841					$	(140,987)					$	(3,620)					$	1,504,120					$	3,894					$	1,508,014

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17. Earnings Per Share

The following table sets forth the reconciliation from basic to diluted weighted-average number of common shares outstanding and the calculations of net earnings per common share attributable to EnerSys stockholders.

 

						Quarter ended												Nine months ended
						January 1, 2023						January 2, 2022						January 1, 2023						January 2, 2022
Net earnings attributable to EnerSys stockholders						$	44,410					$	36,264					$	109,860					$	115,819
Weighted-average number of common shares outstanding:
Basic						40,835,636						41,905,815						40,787,654						42,393,907
Dilutive effect of:
Common shares from exercise and lapse of equity awards, net of shares assumed reacquired						446,057						591,230						479,666						702,833
Diluted weighted-average number of common shares outstanding						41,281,693						42,497,045						41,267,320						43,096,740
Basic earnings per common share attributable to EnerSys stockholders						$	1.09					$	0.87					$	2.69					$	2.73
Diluted earnings per common share attributable to EnerSys stockholders						$	1.08					$	0.85					$	2.66					$	2.69
Anti-dilutive equity awards not included in diluted weighted-average common shares						1,200,525						835,192						1,181,550						429,532

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18. Business Segments

Summarized financial information related to the Company's reportable segments for the third quarter and nine months ended January 1, 2023 and January 2, 2022, is shown below:

						Quarter ended												Nine months ended
						January 1, 2023						January 2, 2022						January 1, 2023						January 2, 2022
Net sales by segment to unaffiliated customers (1)
Energy Systems						$	434,310					$	385,242					$	1,279,913					$	1,126,287
Motive Power						361,788						339,510						1,067,632						996,313
Specialty						124,129						119,254						371,090						327,694
Total net sales						$	920,227					$	844,006					$	2,718,635					$	2,450,294
Operating earnings by segment
Energy Systems						$	20,623					$	3,542					$	38,836					$	11,777
Motive Power						46,969						39,030						128,936						130,660
Specialty						10,876						11,065						28,231						33,443
Inventory adjustment relating to exit activities - Energy Systems						211						—						211						—
Inventory adjustment relating to exit activities - Motive Power						652						—						(892)						(960)
Restructuring and other exit charges - Energy Systems						(158)						(682)						(1,097)						(1,331)
Restructuring and other exit charges - Motive Power						(650)						(1,679)						(11,304)						(12,888)
Restructuring and other exit charges - Specialty						7						(111)						7						1,058
Total operating earnings (2)						$	78,530					$	51,165					$	182,928					$	161,759

(1) Reportable segments do not record inter-segment revenues and accordingly there are none to report.

(2) The Company does not allocate interest expense or other (income) expense, net, to the reportable segments.

19. Subsequent Events

On February 8, 2023, the Board of Directors approved a quarterly cash dividend of $0.175 per share of common stock to be paid on March 31, 2023, to stockholders of record as of March 17, 2023.

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

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a safe harbor for forward-looking statements made by or on behalf of EnerSys. EnerSys and its representatives may, from time to time, make written or verbal forward-looking statements, including statements contained in EnerSys’ filings with the Securities and Exchange Commission (“SEC”) and its reports to stockholders. Generally, the inclusion of the words “anticipate,” “believe,” “expect,” “future,” “intend,” “estimate,” “will,” “plans,” or the negative of such terms and similar expressions identify statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and that are intended to come within the safe harbor protection provided by those sections. All statements addressing operating performance, events, or developments that EnerSys expects or anticipates will occur in the future, including statements relating to sales growth, earnings or earnings per share growth, and market share, as well as statements expressing optimism or pessimism about future operating results, are forward-looking statements within the meaning of the Reform Act. The forward-looking statements are and will be based on management’s then-current beliefs and assumptions regarding future events and operating performance and on information currently available to management, and are applicable only as of the dates of such statements.

Forward-looking statements involve risks, uncertainties and assumptions. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Actual results may differ materially from those expressed in these forward-looking statements due to a number of uncertainties and risks, including the risks described in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2022 (our “2022 Annual Report”) and other unforeseen risks. You should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q, even if subsequently made available by us on our website or otherwise, and we undertake no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

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

•economic, financial and other impacts of the COVID-19 pandemic, including global supply chain disruptions;

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

•global economic trends, competition and geopolitical risks, including impacts from the ongoing conflict between Russia and Ukraine and the related sanctions and other measures, changes in the rates of investment or economic growth in key markets we serve, or an escalation of sanctions, tariffs or other trade tensions between the U.S. and China or other countries, and related impacts on our global supply chains and strategies;

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

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

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

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

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

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

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

•changes in macroeconomic and market conditions and market volatility, including inflation, interest rates, the value of securities and other financial assets, transportation costs, costs and availability of electronic components, lead, plastic resins, steel, copper and other commodities used by us, and the impact of such changes and volatility on our financial position and business;

•competitiveness of the battery markets and other energy solutions for industrial applications throughout the world;

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

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

•litigation and regulatory proceedings to which we might be subject;

•our expectations concerning indemnification obligations;

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

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

•quality problems associated with our products;

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

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

•our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we acquire into our operations and our ability to realize related revenue synergies, strategic gains, and cost savings may be significantly harder to achieve, if at all, or may take longer to achieve;

•potential goodwill impairment charges, future impairment charges and fluctuations in the fair values of reporting units or of assets in the event projected financial results are not achieved within expected time frames;

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

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

•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;

•risks related to the discontinuation of the London Interbank Offered Rate and other reference rates, including increased expenses and the effectiveness of hedging strategies;

•our ability to attract and retain qualified management and personnel;

•our ability to maintain good relations with labor unions;

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

•our ability to successfully recover in the event of a disaster affecting our infrastructure, supply chain, or our facilities;

•delays or cancellations in shipments;

•occurrence of natural or man-made disasters or calamities, including health emergencies, the spread of infectious diseases, pandemics, vaccine mandates, outbreaks of hostilities or terrorist acts, or the effects of climate change, and our ability to deal effectively with damages or disruptions caused by the foregoing; and

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

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

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Overview

EnerSys (the “Company,” “we,” or “us”) is a world leader in stored energy solutions for industrial applications. We design, manufacture, and distribute energy systems solutions and motive power batteries, specialty batteries, battery chargers, power equipment, battery accessories and outdoor equipment enclosure solutions to customers worldwide. Energy Systems, which combine power conversion, power distribution, energy storage, and enclosures, are used in the telecommunication, broadband, data center and utility industries, uninterruptible power supplies, and numerous applications requiring stored energy solutions. Motive Power batteries and chargers are utilized in electric forklift trucks, automated guided vehicles (AGVs), and other industrial electric powered vehicles. Specialty batteries are used in aerospace and defense applications, large over the road trucks, premium automotive and medical products. We also provide aftermarket and customer support services to over 10,000 customers in more than 100 countries through a network of distributors, independent representatives and our internal sales force around the world.

The Company's three reportable segments, based on lines of business, are as follows:

•Energy Systems - uninterruptible power systems, or “UPS” applications for computer and computer-controlled systems, as well as telecommunications systems, switchgear and electrical control systems used in industrial facilities and electric utilities, large-scale energy storage and energy pipelines. Energy Systems also includes highly integrated power solutions and services to broadband, telecom, data center, and renewable and industrial customers, as well as thermally managed cabinets and enclosures for electronic equipment and batteries.

•Motive Power - power for electric industrial forklifts used in manufacturing, warehousing and other material handling applications, AGVs, as well as mining equipment, diesel locomotive starting and other rail equipment; and

•Specialty - premium starting, lighting and ignition applications in transportation, energy solutions for satellites, military aircraft, submarines, ships and other tactical vehicles as well as medical devices and equipment.

Economic Climate

The economic climate in North America, China and EMEA slowed in calendar 2022 after experiencing strong growth during calendar 2021. All regions are experiencing a rise in inflation and are being negatively impacted by the war in Ukraine. We expect interest rates to continue to increase in the U.S. and the Euro zone. China’s slowing economy is facing further headwinds caused by continued high COVID-19 infection rates.

EnerSys is experiencing supply chain disruptions and cost spikes in certain materials such as plastic resins and electronic components along with transportation and related logistics challenges and broad-based cost increases. In addition, certain locations are experiencing difficulty meeting hiring and labor retention goals. Generally, our mitigation efforts and ongoing lean initiatives, have tempered the impact of the pandemic-related challenges. The overall market demand remains robust.

Volatility of Commodities and Foreign Currencies

Our most significant commodity and foreign currency exposures are related to lead and the Euro, respectively. Historically, volatility of commodity costs and foreign currency exchange rates have caused large swings in our production costs. Since the beginning of fiscal year 2023, we have experienced a range in lead prices from just above $1.10 per pound to approximately $0.85 per pound. We are experiencing elevated costs in some of our other raw materials such as plastic resins, steel, copper, acid, separator paper and electronics and elevated freight and increased energy costs.

Customer Pricing

Our selling prices fluctuated during the last several years to offset the volatile cost of commodities. Approximately 30% of our revenue is now subject to agreements that adjust pricing to a market-based index for lead. Customer pricing changes generally lag movements in lead prices and other costs by approximately six to nine months. In fiscal 2023, customer pricing has increased due to certain commodity prices and other costs having increased throughout the year.

Based on current commodity markets, we expect to see continued headwinds from inflated commodity prices, labor and energy costs with related increases in our selling prices in the upcoming year. As we concentrate more on energy systems and non-lead chemistries, the emphasis on lead is expected to continue to decline.

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Primary Operating Capital

As part of managing the performance of our business, we monitor the level of primary operating capital, and its ratio to net sales. We define primary operating capital as accounts receivable, plus inventories, minus accounts payable. The resulting net amount is divided by the trailing three month net sales (annualized) to derive a primary operating capital percentage. We believe these three elements included in primary operating capital are most operationally driven, and this performance measure provides us with information about the asset intensity and operating efficiency of the business on a company-wide basis that management can monitor and analyze trends over time. Primary operating capital was $1,071.7 million (yielding a primary operating capital percentage of 29.1%) at January 1, 2023, $1,042.0 million (yielding a primary operating capital percentage of 28.7%) at March 31, 2022 and $989.9 million at January 2, 2022 (yielding a primary operating capital percentage of 29.3%). The primary operating capital percentage of 29.1% at January 1, 2023 worsened by 40 basis points compared to March 31, 2022 and improved 20 basis points compared to January 2, 2022. The changes in the ratio are a result of the continued supply chain constraints and inflationary pressures across our business that have outweighed benefits received from the sale of $150.0 million in accounts receivables through a Receivables Purchase Agreement (RPA) entered into during the third quarter of fiscal 2023.

Primary operating capital and primary operating capital percentages at January 1, 2023, March 31, 2022 and January 2, 2022 are computed as follows:

($ in Millions)						January 1, 2023						March 31, 2022						January 2, 2022
Accounts receivable, net						$	581.8					$	719.4					$	636.0
Inventory, net						835.2						715.7						671.4
Accounts payable						(345.3)						(393.1)						(317.5)
Total primary operating capital						$	1,071.7					$	1,042.0					$	989.9
Trailing 3 months net sales						$	920.2					$	907.0					$	844.0
Trailing 3 months net sales annualized						$	3,680.8					$	3,628.1					$	3,376.0
Primary operating capital as a % of annualized net sales						29.1		%				28.7		%				29.3		%

Liquidity and Capital Resources

We believe that our financial position is strong, and we have substantial liquidity to cover short-term liquidity requirements and anticipated growth in the foreseeable future, with $298 million of available cash and cash equivalents and available and undrawn committed credit lines of approximately $843 million at January 1, 2023, availability subject to credit agreement financial covenants.

A substantial majority of the Company’s cash and investments are held by foreign subsidiaries and are considered to be indefinitely reinvested and expected to be utilized to fund local operating activities, capital expenditure requirements and acquisitions. The Company believes that it has sufficient sources of domestic and foreign liquidity.

During the third quarter of fiscal 2023, the Company entered into a Receivables Purchase Agreement (RPA). The RPA provides for EnerSys to sell up to $150 million of accounts receivable based on a borrowing base calculation. In December 2022 EnerSys sold $150.0 million of accounts receivables for approximately $149.7 million in net proceeds to an unaffiliated financial institution, of which $25.6 million were collected as of January 1, 2023. Total collateralized accounts receivables of approximately $252.7 million were held by EnerSys Finance at January 1, 2023. The RPA is for a three-year term and matures on December 20, 2025.

During the second quarter of fiscal 2023, the Company entered into a third amendment to the 2017 Credit Facility (as amended, the “Third Amended Credit Facility”). The Third Amended Credit Facility provides a new incremental delayed-draw senior secured term loan up to $300 million, which shall be available to draw at any time until March 15, 2023. Once the Company draws the funds, they will mature on September 30, 2026, the same as the Company's Second Amended Term Loan and Second Amended Revolver. Our 5% Senior Notes mature on April 30, 2023, unless earlier redeemed or repurchased. We expect to refinance the redemption of the 2023 Notes in the fourth quarter of fiscal 2023 with borrowings under the Third Amended Term Loan.

During the nine months of fiscal 2023, the Company repurchased 358,365 shares of common stock for approximately $22.9 million.

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We believe that our strong capital structure and liquidity affords us access to capital for future acquisitions, stock repurchase opportunities and continued dividend payments.

Results of Operations

Net Sales

Net sales increased $76.2 million or 9.0% in the third quarter of fiscal 2023 as compared to the third quarter of fiscal 2022. This increase was the result of an 8% increase in pricing and a 5% increase in organic growth, partially offset by a 4% decrease in foreign currency translation impact.

Net sales increased $268.3 million or 11.0% in the nine months of fiscal 2023 as compared to the nine months of fiscal 2022. This increase was due to an 8% increase in both pricing and organic volume, partially offset by a 5% decrease in foreign currency translation impact.

Segment sales

						Quarter ended January 1, 2023												Quarter ended January 2, 2022												Increase (Decrease)
						In Millions						Percentage of Total Net Sales						In Millions						Percentage of Total Net Sales						In Millions						%
Energy Systems						$	434.3					47.2		%				$	385.2					45.7		%				$	49.1					12.7		%
Motive Power						361.8						39.3						339.5						40.2						22.3						6.6
Specialty						124.1						13.5						119.3						14.1						4.8						4.1
Total net sales						$	920.2					100.0		%				$	844.0					100.0		%				$	76.2					9.0		%

						Nine months ended January 1, 2023												Nine months ended January 2, 2022												Increase (Decrease)
						In Millions						Percentage of Total Net Sales						In Millions						Percentage of Total Net Sales						In Millions						%
Energy Systems						$	1,279.9					47.1		%				$	1,126.2					46.0		%				$	153.7					13.6		%
Motive Power						1,067.7						39.3						996.3						40.6						71.4						7.2
Specialty						371.0						13.7						327.8						13.4						43.2						13.2
Total net sales						$	2,718.6					100.0		%				$	2,450.3					100.0		%				$	268.3					11.0		%

Net sales of our Energy Systems segment in the third quarter of fiscal 2023 increased $49.1 million or 12.7% compared to the third quarter of fiscal 2022. This increase was due to a 9% in pricing and 8% increase in organic growth, partially offset by a 4% decrease in foreign currency translation impact. Net sales of our Energy Systems segment in the nine months of fiscal 2023 increased $153.7 million or 13.6% compared to the nine months of fiscal 2022. This increase was due to a 9% increase in both organic volume and pricing, partially offset by a 4% decrease in foreign currency translation impact. This increase in sales was driven by improvement in pricing and organic volume primarily from the higher volume sales in battery sales in the Americas and improved power product sales in broadband and telecom.

Net sales of our Motive Power segment in the third quarter of fiscal 2023 increased by $22.3 million or 6.6% compared to the third quarter of fiscal 2022. This increase was primarily due to a 9% increase in pricing and a 3% increase in organic volume, partially offset by a 5% decrease in foreign currency translation impact. Net sales of our Motive Power segment in the nine months of fiscal 2023 increased by $71.4 million or 7.2% compared to the nine months of fiscal 2022. This increase was primarily due to a 9% increase in pricing and 4% increase in organic volume, partially offset by a 6% decrease in foreign currency translation impact. We continue to benefit from continued improved pricing and favorable sales mix.

Net sales of our Specialty segment in the third quarter of fiscal 2023 increased by $4.8 million or 4.1% compared to the third quarter of fiscal 2022. The increase was primarily due to a 5% increase in pricing and a 1% increase in organic volume, partially offset by a 2% decrease in foreign currency translation. Net sales of our Specialty segment in the nine months of fiscal 2023 increased by $43.2 million or 13.2% compared to the nine months of fiscal 2022. The increase was primarily due to a 10%

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increase in organic volume and a 6% increase in pricing, partially offset by a 3% decrease in foreign currency translation impact. This increase in net sales was primarily driven by improved pricing and strong demand in primarily the transportation sector, which is restrained by our capacity growth in our Missouri plants.

Gross Profit 

						Quarter ended January 1, 2023												Quarter ended January 2, 2022												Increase (Decrease)
						In Millions						Percentage of Total Net Sales						In Millions						Percentage of Total Net Sales						In Millions						%
Gross Profit						$	213.7					23.2		%				$	184.3					21.8		%				$	29.4					15.9		%

						Nine months ended January 1, 2023												Nine months ended January 2, 2022												Increase (Decrease)
						In Millions						Percentage of Total Net Sales						In Millions						Percentage of Total Net Sales						In Millions						%
Gross Profit						$	594.1					21.9		%				$	555.4					22.7		%				$	38.7					7.0		%

Gross profit increased $29.4 million or 15.9% in the third quarter and increased $38.7 million or 7.0% in the nine months of fiscal 2023 compared to the comparable periods of fiscal 2022. Gross profit, as a percentage of net sales, increased 140 basis points and decreased 80 basis points in the third quarter and nine months of fiscal 2023, respectively, compared to the third quarter and nine months of fiscal 2022. The increase in the gross profit margin in the current quarter reflects a strong performance in our price/mix, which more than offset year on year and sequential cost increases. This step forward has helped to offset full year higher freight costs and component shortages from supply chain constraints along with other inflationary pressures in raw materials, labor, supplies and utilities, which still exceed pricing recoveries on a year to date basis, as well as adverse foreign currency translation impact. Gross profit, as a percentage of net sales, increased sequentially 150 basis points from the second quarter of fiscal 2023 due to impressive product price and mix improvements, representing the second sequential increase in gross profit margin since the third quarter of fiscal 2021.

Operating Items 

						Quarter ended January 1, 2023												Quarter ended January 2, 2022												Increase (Decrease)
						In Millions						Percentage of Total Net Sales						In Millions						Percentage of Total Net Sales						In Millions						%
Operating expenses						$	134.4					14.6		%				$	130.7					15.4		%				$	3.7					2.8		%
Restructuring and other exit charges						$	0.8					0.1		%				$	2.5					0.3		%				$	(1.7)					(67.6)		%

						Nine months ended January 1, 2023												Nine months ended January 2, 2022												Increase (Decrease)
						In Millions						Percentage of Total Net Sales						In Millions						Percentage of Total Net Sales						In Millions						%
Operating expenses						$	398.8					14.7		%				$	380.5					15.5		%				$	18.3					4.8		%
Restructuring and other exit charges						$	12.4					0.5		%				$	13.2					0.6		%				$	(0.8)					(5.8)		%

Operating expenses, as a percentage of sales, decreased 80 basis points in both the third quarter and nine months of fiscal 2023, compared to the comparable periods of fiscal 2022.

Selling expenses, our main component of operating expenses, increased $2.5 million or 4.5% in the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022, but decreased 30 basis points as a percentage of net sales. In the nine months of

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fiscal 2023, selling expenses increased by $4.6 million or 2.8% compared to the nine months of fiscal 2022, but decreased 50 basis points as a percentage of net sales.

Restructuring and Other Exit Charges

Restructuring Programs

Included in our third quarter and nine months of fiscal 2023 operating results of Energy Systems were restructuring charges of $0.3 million and $1.2 million, respectively. Included in our third quarter and nine months of fiscal 2023 operating results of Motive Power were restructuring charges of $0.1 million and $0.3 million, respectively.

Included in our third quarter and nine months of fiscal 2022 operating results of Energy Systems were restructuring charges of $0.7 million and $1.8 million, respectively. Included in our third quarter and nine months of fiscal 2022 operating results of Motive Power were restructuring charges of $0.3 million and $1.5 million, respectively.

Exit Charges

Fiscal 2023 Program

On June 29, 2022, the Company committed to a plan to close its facility in Ooltewah, Tennessee, which produced flooded motive power batteries for electric forklifts. Management determined that future demand for traditional motive power flooded cells will decrease as customers transition to maintenance free product solutions in lithium and TPPL. The Company currently estimates that the total charges for these actions will amount to approximately $18.5 million. Cash charges for employee severance related payments, cleanup related to the facility, contractual releases and legal expenses are estimated to be $9.2 million and non-cash charges from inventory and fixed asset write-offs are estimated to be $9.3 million. These actions will result in the reduction of approximately 165 employees. The plan is expected to be completed in calendar 2023.

During the nine months of fiscal 2023, the Company recorded cash charges relating primarily to severance and manufacturing variances of $2.3 million and non-cash charges of $7.3 million relating to fixed asset write-offs. The Company also recorded a non-cash write-off relating to inventories of $1.6 million, which was reported in cost of goods sold.

Fiscal 2022 Programs

Hagen, Germany

In fiscal 2021, we committed to a plan to close substantially all of our facility in Hagen, Germany, which produced flooded motive power batteries for electric forklifts. Management determined that future demand for the motive power batteries produced at this facility was not sufficient, given the conversion from flooded to maintenance free batteries by customers, the existing number of competitors in the market, as well as the near term decline in demand and increased uncertainty from the pandemic. We plan to retain the facility with limited sales, service and administrative functions along with related personnel for the foreseeable future.

We currently estimate that the total charges for these actions will amount to approximately $60.0 million of which cash charges for employee severance related payments, cleanup related to the facility, contractual releases and legal expenses were estimated to be $40.0 million and non-cash charges from inventory and equipment write-offs were estimated to be $20.0 million. The majority of these charges have been recorded as of October 2, 2022. These actions resulted in the reduction of approximately 200 employees.

During fiscal 2021, the Company recorded cash charges relating to severance of $23.3 million and non-cash charges of $7.9 million primarily relating to fixed asset write-offs.

During fiscal 2022, the Company recorded cash charges, primarily relating to severance of $8.1 million and non-cash charges of $3.5 million primarily relating to fixed asset write-offs. The Company also recorded a non-cash write off relating to inventories of $1.0 million, which was reported in cost of goods sold.

During the nine months of fiscal 2023, the Company recorded cash charges of $1.5 million relating primarily to site cleanup and $0.4 million of non-cash charges relating to accelerated depreciation of fixed assets.

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Russia

In February 2022, as a result of the Russia-Ukraine conflict, economic sanctions were imposed on Russian individuals and entities, including financial institutions, by countries around the world, including the U.S. and the European Union. On March 3, 2022, the Company announced that it was indefinitely suspending its operations in Russia in order to comply with the sanctions. As a result of this decision, the Company wrote off net assets of $4.0 million relating to its Russian subsidiary. The Company also incurred cash charges of $1.3 million relating to severance and exiting lease obligations. During the third quarter of fiscal 2023, the Company sold inventory previously written off resulting in the reversal of $0.9 million in cost of goods sold and reversal of $0.7 million of cash charges primarily relating to lease obligations.

Targovishte, Bulgaria

During fiscal 2019, the Company committed to a plan to close its facility in Targovishte, Bulgaria, which produced diesel-electric submarine batteries. Management determined that the future demand for batteries of diesel-electric submarines was not sufficient given the number of competitors in the market. During the nine months of fiscal 2022, the Company sold this facility for $1.5 million. A net gain of $1.2 million was recorded as a credit to exit charges in the Consolidated Condensed Statement of Income.

Zamudio, Spain

During the nine months of fiscal 2022, the Company closed a minor assembling plant in Zamudio, Spain and sold the same for $1.8 million. A net gain of $0.7 million was recorded as a credit to exit charges in the Consolidated Condensed Statement of Income.

Operating Earnings

						Quarter ended January 1, 2023												Quarter ended January 2, 2022												Increase (Decrease)
						In Millions						Percentage of Total Net Sales (1)						In Millions						Percentage of Total Net Sales (1)						In Millions						%
Energy Systems						$	20.5					4.7		%				$	3.5					0.9		%				$	17.0					NM %
Motive Power						47.0						13.0						39.0						11.5						8.0						20.3
Specialty						10.9						8.8						11.1						9.3						(0.2)						(1.7)
Subtotal						78.4						8.5						53.6						6.4						24.8						46.3
Inventory adjustment relating to exit activities - Energy Systems						0.2						—						—						—						0.2						NM
Inventory adjustment relating to exit activities - Motive Power						0.7						0.2						—						—						0.7						NM
Restructuring and other exit charges - Energy Systems						(0.2)						—						(0.7)						(0.2)						0.5						(76.8)
Restructuring and other exit charges - Motive Power						(0.6)						(0.2)						(1.7)						(0.5)						1.1						(61.3)
Restructuring and other exit charges - Specialty						—						—						(0.1)						(0.1)						0.1						NM
Total operating earnings						$	78.5					8.5		%				$	51.1					6.1		%				$	27.4					53.5		%

NM = not meaningful

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

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						Nine months ended January 1, 2023												Nine months ended January 2, 2022												Increase (Decrease)
						In Millions						Percentage of Total Net Sales (1)						In Millions						Percentage of Total Net Sales (1)						In Millions						%
Energy Systems						$	38.8					3.0		%				$	11.8					1.0		%				$	27.0					NM %
Motive Power						128.8						12.1						130.6						13.1						(1.8)						(1.3)
Specialty						28.3						7.6						33.5						10.2						(5.2)						(15.6)
Subtotal						195.9						7.2						175.9						7.2						20.0						11.4
Inventory adjustment relating to exit activities - Energy Systems						0.2						—						—						—						0.2						NM
Inventory adjustment relating to exit activities - Motive Power						(0.8)						(0.1)						(1.0)						(0.1)						0.2						(7.1)
Restructuring and other exit charges - Energy Systems						(1.2)						(0.1)						(1.4)						(0.1)						0.2						(17.6)
Restructuring and other exit charges - Motive Power						(11.2)						(1.1)						(12.9)						(1.3)						1.7						(12.3)
Restructuring and other exit charges - Specialty						—						—						1.1						0.3						(1.1)						NM
Total operating earnings						$	182.9					6.7		%				$	161.7					6.6		%				$	21.2					13.1		%

NM = not meaningful

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

Operating earnings increased $27.4 million or 53.5% and increased $21.2 million or 13.1% in the third quarter and nine months of fiscal 2023, respectively, compared to the third quarter and nine months of fiscal 2022. Operating earnings, as a percentage of net sales, increased 240 basis points and 10 basis points in the third quarter and nine months of fiscal 2023, respectively, compared to the third quarter and nine months of fiscal 2022.

The Energy Systems operating earnings, as a percentage of sales, increased 380 basis points and 200 basis points in the third quarter and nine months of fiscal 2023, respectively, compared to the third quarter and nine months of fiscal 2022. This increase in operating earnings was primarily as a result of higher volumes, price increases, and product mix improvement. This improvement was offset by higher inflationary costs in raw materials, increasing freight costs, higher utility costs driving unfavorable manufacturing variances, higher selling, general and administrative expenses (SG&A) costs, and adverse foreign currency translation impact.

The Motive Power operating earnings, as a percentage of sales, increased 150 basis points and decreased 100 basis points in the third quarter and nine months of fiscal 2023, respectively, compared to the third quarter and nine months of fiscal 2022. This increase was driven by pricing actions and improved product mix offsetting inflationary pressure on costs and adverse foreign currency translation impact, whereas in the first nine months of fiscal 2022 inflation pressures were not fully mitigated by price increases.

The Specialty operating earnings, as a percentage of sales, decreased 50 basis points and 260 basis points in the third quarter and nine months of fiscal 2023, respectively, compared to the third quarter and nine months of fiscal 2022. Despite our efforts to mitigate inflationary pressure on costs with price increases, the decrease in operating earnings was driven by higher manufacturing costs, operating expenses and adverse foreign currency translation impact.

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Interest Expense

						Quarter ended January 1, 2023												Quarter ended January 2, 2022												Increase (Decrease)
						In Millions						Percentage of Total Net Sales						In Millions						Percentage of Total Net Sales						In Millions						%
Interest expense						$	17.5					1.9		%				$	9.7					1.2		%				$	7.8					79.6		%

						Nine months ended January 1, 2023												Nine months ended January 2, 2022												Increase (Decrease)
						In Millions						Percentage of Total Net Sales						In Millions						Percentage of Total Net Sales						In Millions						%
Interest expense						$	44.5					1.6		%				$	28.4					1.2		%				$	16.1					56.8		%

Interest expense of $17.5 million in the third quarter of fiscal 2023 (net of interest income of $0.4 million) was $7.8 million higher than the interest expense of $9.7 million in the third quarter of fiscal 2022 (net of interest income of $0.6 million).

Interest expense of $44.5 million in the nine months of fiscal 2023 (net of interest income of $1.1 million) was $16.1 million higher than the interest expense of $28.4 million in the nine months of fiscal 2022 (net of interest income of $1.7 million).

The increase in interest expense in the third quarter of fiscal 2023 and nine months of fiscal 2023 is primarily due to higher borrowing levels, higher short term interest rates, and an additional $1.2 million in third party administrative and legal fees related to the Third Amended Credit Facility, partially offset by the benefit from the $300 million and $150 million cross currency fixed interest rate swaps. Our average debt outstanding was $1,300.2 million and $1,361.6 million in the third quarter and nine months of fiscal 2023, compared to $1,184.0 million and $1,105.8 million in the third quarter and nine months of fiscal 2022.

In connection with the Second Amended Credit Facility, we capitalized $3.0 million in debt issuance costs and wrote off $0.1 million of unamortized debt issuance costs. Included in interest expense are non-cash charges for deferred financing fees of $0.5 million and $1.5 million in the third quarter and nine months of fiscal 2023, respectively, compared to $0.5 million and $1.6 million in the third quarter and nine months of fiscal 2022.

In connection with the Third Amended Credit Facility, we incurred $1.2 million in third party administrative and legal fees recognized in interest expense and capitalized $1.1 million in charges from existing lenders as a deferred asset.

Other (Income) Expense, Net

						Quarter ended January 1, 2023												Quarter ended January 2, 2022												Increase (Decrease)
						In Millions						Percentage of Total Net Sales						In Millions						Percentage of Total Net Sales						In Millions						%
Other expense (income), net						$	3.2					0.3		%				$	(1.4)					(0.2)		%				$	4.6					NM

NM = not meaningful

						Nine months ended January 1, 2023												Nine months ended January 2, 2022												Increase (Decrease)
						In Millions						Percentage of Total Net Sales						In Millions						Percentage of Total Net Sales						In Millions						%
Other expense (income), net						$	3.5					0.1		%				$	(1.7)					(0.1)		%				$	5.2					NM

NM = not meaningful

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Other expense (income), net in the third quarter of fiscal 2023 was expense of $3.2 million compared to income of $1.4 million in the third quarter of fiscal 2022. Other expense (income), net in the nine months of fiscal 2023 was expense of $3.5 million compared to income of $1.7 million in the nine months of fiscal 2022. Foreign currency impact resulted in a loss of $1.3 million and gain of $1.2 million in the third quarter and nine months of fiscal 2023, respectively, compared to a foreign currency gain of $2.2 million and $3.1 million in the third quarter and nine months of fiscal 2022, respectively. Included in the third quarter and nine months of fiscal 2023 foreign currency impact is a gain of $0.6 million and loss of $4.5 million relating to the remeasurement of monetary assets from the exit of our Russia operations.

Earnings Before Income Taxes

						Quarter ended January 1, 2023												Quarter ended January 2, 2022												Increase (Decrease)
						In Millions						Percentage of Total Net Sales						In Millions						Percentage of Total Net Sales						In Millions						%
Earnings before income taxes						$	57.8					6.3		%				$	42.8					5.1		%				$	15.0					35.1		%

						Nine months ended January 1, 2023												Nine months ended January 2, 2022												Increase (Decrease)
						In Millions						Percentage of Total Net Sales						In Millions						Percentage of Total Net Sales						In Millions						%
Earnings before income taxes						$	134.9					5.0		%				$	135.0					5.5		%				$	(0.1)					(0.1)		%

As a result of the above, earnings before income taxes in the third quarter of fiscal 2023 increased $15.0 million, or 35.1%, compared to the third quarter of fiscal 2022 and decreased $0.1 million, or 0.1% in the nine months of fiscal 2023 compared to the nine months of fiscal 2022.

Income Tax Expense 

						Quarter ended January 1, 2023												Quarter ended January 2, 2022												Increase (Decrease)
						In Millions						Percentage of Total Net Sales						In Millions						Percentage of Total Net Sales						In Millions						%
Income tax expense						$	13.4					1.5		%				$	6.5					0.8		%				$	6.9					NM
Effective tax rate						23.2%												15.3%												7.9%

						Nine months ended January 1, 2023												Nine months ended January 2, 2022												Increase (Decrease)
						In Millions						Percentage of Total Net Sales						In Millions						Percentage of Total Net Sales						In Millions						%
Income tax expense						$	25.0					0.9		%				$	19.2					0.8		%				$	5.8					30.0		%
Effective tax rate						18.5%												14.2%												4.3%

The Company’s income tax provision consists of federal, state and foreign income taxes. The tax provision for the third quarter of fiscal 2023 and 2022 was based on the estimated effective tax rates applicable for the full years ending March 31, 2023 and March 31, 2022, respectively, after giving effect to items specifically related to the interim periods. Our effective income tax rate with respect to any period may be volatile based on the mix of income in the tax jurisdictions, in which we operate, change in tax laws and the amount of our consolidated earnings before taxes.

The consolidated effective income tax rates for the third quarter of fiscal 2023 and 2022 were 23.2% and 15.3%, respectively, and were 18.5% and 14.2% for the nine months of fiscal 2023 and 2022, respectively. The rate increase in the third quarter and nine months of fiscal 2023 compared to the prior year periods are primarily due to taxes associated with a modification of the Company’s indefinite reinvestment position related to undistributed earnings in certain foreign subsidiaries and changes in mix of earnings among tax jurisdictions.

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Foreign income as a percentage of worldwide income is estimated to be 80% for fiscal 2023 compared to 87% for fiscal 2022. The foreign effective tax rates for the nine months of fiscal 2023 and 2022 were 14.5% and 10.2%, respectively. Income from the Company's Swiss subsidiary comprised a substantial portion of the Company's overall foreign mix of income for both fiscal 2023 and fiscal 2022 and were taxed at an effective income tax rate of approximately 9% and 8%, respectively.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies from those discussed under the caption “Critical Accounting Policies and Estimates” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Annual Report.

Liquidity and Capital Resources

Cash Flow and Financing Activities

Operating activities provided cash of $135.8 million in the nine months of fiscal 2023 compared to $78.0 million of cash used in the nine months of fiscal 2022, with the increase in operating cash resulting mainly due to activity in accounts receivable, inventory, and accounts payable. Accounts receivable decreased or provided cash of $123.4 million due to sale of $150.0 million accounts receivable under the RPA entered into December 21, 2022. Inventory increased or used cash of $135.9 million. All components of inventory increased due to strategic investment, supply chain delays, new products and higher inventory costs from higher raw material costs, manufacturing and freight costs and to address the high backlog of customer orders. Accounts payable decreased or used cash of $31.6 million due to seasonal reduction. In the nine months of fiscal 2023, net earnings were $109.9 million, depreciation and amortization $69.0 million, stock-based compensation $18.8 million, non-cash charges relating to exit charges $8.4 million, primarily relating to the Ooltewah, Tennessee plant closure, derivative losses of $1.4 million, non-cash interest of $1.5 million, and allowance for doubtful debts of $0.7 million. Prepaid and other current assets were a use of funds of $8.3 million, primarily from an increase of $13.6 million in other prepaid expenses, such as taxes, insurance and other advances, partially offset by a $5.3 million decrease in contract assets. Accrued expenses were a use of funds of $17.1 million primarily from payroll related payments of $10.4 million net of accruals, tax payments net of accruals of $10.4 million, interest payments net of accruals of $6.2 million, partially offset by deferred income and contract liabilities of $3.9 million, freight charges of $3.5 million, warranty accruals of $1.2 million, other miscellaneous accruals of $1.3 million.

In the nine months of fiscal 2022, operating activities used cash of $78.0 million primarily from the activity in accounts receivable, inventory, and accounts payable. Inventory and accounts receivable increased or used cash of $163.7 million and $40.3 million, respectively, and accounts payable decreased or used cash of $9.1 million. In the nine months of fiscal 2022, net earnings were $115.8 million, depreciation and amortization $72.3 million, stock-based compensation $15.8 million, non-cash charges relating to exit charges $3.9 million, primarily relating to the Hagen, Germany plant closure, allowance for doubtful debts of $1.9 million and non-cash interest of $1.6 million. Prepaid and other current assets were a use of funds of $18.3 million, primarily from an increase of $14.4 million in other prepaid expenses, such as taxes, insurance and other advances, as well as an increase of $3.9 million of contract assets. Accrued expenses were a use of funds of $58.2 million primarily from payroll related payments of $23.1 million, income tax payments of $20.4 million, Hagen severance payments of $19.6 million and interest payments net of accrual of $7.0 million, partially offset by customer advances of $11.7 million.

Investing activities used cash of $13.7 million in the nine months of fiscal 2023, which primarily consisted of capital expenditures of $57.5 million relating to plant improvements, partially offset by proceeds from termination of a net investment hedge of $43.4 million.

Investing activities used cash of $47.7 million in the nine months of fiscal 2022, which primarily consisted of capital expenditures of $52.4 million relating to plant improvements. We also received $3.3 million from the sale of our facilities in Europe.

Financing activities used cash of $202.8 million in the nine months of fiscal 2023. During the nine months of fiscal 2023, we borrowed $291.1 million under the Second Amended Revolver and repaid $422.1 million of the Second Amended Revolver and $1.6 million of the Second Amended Term loan. Net repayments on short-term debt were $20.3 million. Treasury stock open market purchases were $22.9 million, payment of cash dividends to our stockholders were $21.4 million and payment of taxes related to net share settlement of equity awards were $6.4 million. Payments for financing costs for debt modification were $1.1 million. Proceeds from stock options were $1.1 million.

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Financing activities provided cash of $76.4 million in the nine months of fiscal 2022. During the nine months of fiscal 2022, we borrowed $424.8 million under the Second Amended Revolver and repaid $39.8 million of the Second Amended Revolver. Repayment on the Second Amended Term Loan was $161.4 million and net payments on short-term debt were $0.3 million. Treasury stock open market purchases were $114.5 million, payment of cash dividends to our stockholders were $22.2 million and payment of taxes related to net share settlement of equity awards were $9.1 million. Debt issuance costs relating to the refinancing of the 2017 Credit Facility was $3.0 million. Proceeds from stock options were $1.3 million.

Currency translation had a negative impact of $23.8 million on our cash balance in the nine months of fiscal 2023 compared to the negative impact of $5.4 million in the nine months of fiscal 2022. In the nine months of fiscal 2023, principal currencies in which we do business such as the Euro, Polish zloty, Swiss Franc and British pound generally weakened versus the U.S. dollar.

As a result of the above, total cash and cash equivalents decreased by $104.4 million to $298.1 million, in the nine months of fiscal 2023 compared to a decrease by $54.7 million to $397.1 million, in the nine months of fiscal 2022.

Compliance with Debt Covenants

On July 15, 2021, we entered into a second amendment to our 2017 Credit Facility that resulted in the extension of the maturity date for the Second Amended Credit Facility to September 30, 2026, resetting of the principal amortization with respect to the Second Amended Term Loan, refinancing and reducing the existing Amended Term Loan, increasing the existing Amended Revolver, and certain other modifications.

On September 8, 2022, we entered into a third amendment to our 2017 Credit Facility. The Third Amended Credit Facility provides a new incremental delayed-draw senior secured term loan up to $300,000 (the “Third Amended Term Loan”), which shall be available to draw at any time until March 15, 2023. Once drawn, the funds will mature on September 30, 2026, the same as the Company's Second Amended Term Loan and the Second Amended Revolver.

All obligations under our Third Amended Credit Facility are secured by, among other things, substantially all of our U.S. assets. The Third Amended Credit Facility contains various covenants which, absent prepayment in full of the indebtedness and other obligations, or the receipt of waivers, limit our ability to conduct certain specified business transactions, buy or sell assets out of the ordinary course of business, engage in sale and leaseback transactions, pay dividends and take certain other actions. There are no prepayment penalties on loans under this credit facility.

We are in compliance with all covenants and conditions under our Third Amended Credit Facility and Senior Notes. We believe that we will continue to comply with these covenants and conditions, and that we have the financial resources and the capital available to fund the foreseeable organic growth in our business and to remain active in pursuing further acquisition opportunities. See Note 10 to the Consolidated Financial Statements included in our 2022 Annual Report and Note 13 to the Consolidated Condensed Financial Statements included in this Quarterly Report on Form 10-Q for a detailed description of our debt.

Contractual Obligations and Commercial Commitments

A table of our obligations is contained in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations of our 2022 Annual Report. As of January 1, 2023, we had no significant changes to our contractual obligations table contained in our 2022 Annual Report.

ITEM 3.			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risks

Our cash flows and earnings are subject to fluctuations resulting from changes in raw material costs, foreign currency exchange rates and interest rates. 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.

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Counterparty Risks

We have entered into lead forward purchase contracts, foreign exchange forward and purchased option contracts and cross currency fixed interest rate swaps to manage the risk associated with our exposures to fluctuations resulting from changes in raw material costs, foreign currency exchange rates and interest rates. The Company’s agreements are with creditworthy financial institutions. Those contracts that result in a liability position at January 1, 2023 are $15.7 million (pre-tax). Those contracts that result in an asset position at January 1, 2023 are $9.9 million (pre-tax). The impact on the Company due to nonperformance by the counterparties has been evaluated and not deemed material.

We hedge our net investments in foreign operations against future volatility in the exchange rates between the U.S. dollar and Euro. On September 29, 2022, we terminated our cross-currency fixed interest rate swap contracts with an aggregate notional amount of $300 million and executed cross-currency fixed interest rate swap contracts with an aggregate notional amount of $150 million, maturing on December 15, 2027. Depending on the movement in the exchange rates between the U.S. dollar and Euro at maturity, the Company may owe the counterparties an amount that is different from the notional amount of $150 million.

Excluding our cross currency fixed interest rate swap agreements, the vast majority of these contracts will settle within one year.

Interest Rate Risks

We are exposed to changes in variable U.S. interest rates on borrowings under our credit agreements as well as short-term borrowings in our foreign subsidiaries.

A 100 basis point increase in interest rates would have increased annual interest expense, by approximately $5.4 million on the variable rate portions of our debt.

Commodity Cost Risks – Lead Contracts

We have a significant risk in our exposure to certain raw materials. Our largest single raw material cost is for lead, for which the cost remains volatile. In order to hedge against increases in our lead cost, we have entered into forward 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)
January 1, 2023						$	60.0					65.0						$	0.92					10		%
March 31, 2022						56.8						54.0						1.05						8
January 2, 2022						49.9						48.0						1.04						8

(1) Based on the fiscal year lead requirements for the periods then ended.

For the remaining quarter of this fiscal year, we believe approximately 100% of the cost of our lead requirements is known. This takes into account the hedge contracts in place at January 1, 2023, lead purchased by January 1, 2023 that will be reflected in future costs under our FIFO accounting policy, and the benefit from our lead tolling program.

We estimate that a 10% increase in our cost of lead would have increased our cost of goods sold by approximately $17 million and $60 million in the third quarter and in the nine months of fiscal 2023.

Foreign Currency Exchange Rate Risks

We manufacture and assemble our products globally in the Americas, EMEA and Asia. Approximately 40% of our sales and related 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, Canadian dollar, Brazilian real and Mexican peso.

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

We hedge approximately 5% - 10% of the nominal amount of our known foreign exchange transactional exposures. We primarily enter into foreign currency exchange contracts to reduce the earnings and cash flow impact of the variation of non-functional currency denominated receivables and payables. The vast majority of such contracts are for a period not extending beyond one year.

Gains and losses resulting from hedging instruments offset the foreign exchange gains or losses on the underlying assets and liabilities being hedged. The maturities of the forward exchange contracts generally coincide with the settlement dates of the related transactions. Realized and unrealized gains and losses on these contracts are recognized in the same period as gains and losses on the hedged items. We also selectively hedge anticipated transactions that are subject to foreign exchange exposure, primarily with foreign currency exchange contracts, which are designated as cash flow hedges in accordance with Topic 815 - Derivatives and Hedging. During the third quarter of fiscal year 2022, we also entered into cross-currency fixed interest rate swap agreements, to hedge our net investments in foreign operations against future volatility in the exchange rates between the U.S. dollar and Euro.

At January 1, 2023 and January 2, 2022, we estimate that an unfavorable 10% movement in the exchange rates would have adversely changed our hedge valuations by approximately $11.0 million and $42.2 million, respectively.

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. The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated any change 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) and determined that there was no change in our internal control over financial reporting during the quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II			OTHER INFORMATION

Item 1.			Legal Proceedings

From time to time, we are involved in litigation incidental to the conduct of our business. See Litigation and Other Legal Matters in Note 11 - Commitments, Contingencies and Litigation to the Consolidated Condensed Financial Statements, which is incorporated herein by reference.

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 2022 Annual Report, which could materially affect our business, financial condition or future results.

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

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table summarizes the number of shares of common stock we purchased from participants in our equity incentive plans, as well as repurchases of common stock authorized by the Board of Directors. As provided by the Company’s equity incentive plans, (a) vested options outstanding may be exercised through surrender to the Company of option shares or vested options outstanding under the Company’s equity incentive plans to satisfy the applicable aggregate exercise price (and any withholding tax) required to be paid upon such exercise and (b) the withholding tax requirements related to the vesting and settlement of restricted stock units and market and performance condition-based share units may be satisfied by the surrender of shares of the Company’s common stock.

Purchases of Equity Securities

Period						(a) Total number of shares (or units) purchased						(b) Average price paid per share (or unit)						(c) Total number of shares (or units) purchased as part of publicly announced plans or programs						(d) Maximum number (or approximate dollar value) of shares (or units) that may be purchased under the plans or programs (1) (2) (3)
October 3 - October 31, 2022						—						$	—					—						$	185,545,418
November 1 - November 30, 2022						14,391						70.83						—						185,545,418
December 1, 2022 - January 1, 2023						1,857						74.31						—						185,545,418
Total						16,248						$	71.23					—

(1) The Company's Board of Directors has authorized the Company to repurchase up to such number of shares as shall equal the dilutive effects of any equity based award granted, approximately $25.0 million, during such fiscal year under the 2017 Equity Incentive Plan and the number of shares exercised through stock option awards during such fiscal year.

(2) On March 9, 2022, the Company announced the establishment of a $150.0 million stock repurchase authorization, with no

expiration date.

(3) On November 10, 2021, the Company announced the establishment of a $100 million stock repurchase authorization, with no expiration date.

Item 4.			Mine Safety Disclosures

Not applicable.

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ITEM 6.			EXHIBITS

 

Exhibit Number						Description of Exhibit
3.1						Fifth Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Amendment No. 3 to the Company’s Registration Statement on Form S-1 (File No. 333-115553) filed on July 13, 2004).
3.2						Third Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-32253) filed on August 3, 2016).
10.1						Receivables Purchase Agreement, dated December 21, 2022, by and among EnerSys, Wells Fargo Bank, National Association, EnerSys Finance, LLC and certain other persons from time to time party thereto as purchasers. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-32253) filed on December 21, 2022)
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 - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL 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

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SIGNATURES

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

 

ENERSYS (Registrant)
By			/s/ Andrea J. Funk
			Andrea J. Funk
			Chief Financial Officer

Date: February 8, 2023

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