The Consolidated Condensed Balance Sheet at March 31, 2024 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 2024 Annual Report on Form 10-K (SEC File No. 001-32253), which was filed on May 22, 2024 (the “2024 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 2025 end on June 30, 2024, September 29, 2024, December 29, 2024, and March 31, 2025, respectively. The four quarters in fiscal 2024 ended on July 2, 2023, October 1, 2023, December 31, 2023, and March 31, 2024, respectively.
第四次修正協議後，第二修訂期限貸款的季度分期付款爲$2,609 2022年12月31日起，分別爲$3,913 2024年12月31日起，分別爲$5,218 2025年12月31日起，分別爲$，最後一筆付款爲$156,532 2026年9月30日爲止，第四次修訂信貸設施的總額可根據一定條件增加$350,000 旋轉承諾和/或一項或多項新的期限貸款，根據特定條件，第二次修訂循環貸款和第二次修訂期限貸款均可按照公司的選擇以年利率計算，利率等於（i）SOFR加 10 點子加 1.125%和2.25%（目前爲 1.250%，基於該公司的綜合淨槓桿率）或（ii）美元基準利率或加拿大總理利率加上 0.125%和1.25%，即對於任何一天，一個按年利率浮動的利率，等於（a）聯邦基金實際利率加 0.50%，（b）美國銀行「Prime Rate」和（c）歐元貨幣基準利率加上 1%; provided that, if the Base Rate shall be less
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
Six months ended
September 29, 2024
October 1, 2023
September 29, 2024
October 1, 2023
Net earnings attributable to EnerSys stockholders
$
82,266
$
65,229
$
152,377
$
132,026
Weighted-average number of common shares outstanding:
Basic
40,165,080
40,922,959
40,184,546
40,930,146
Dilutive effect of:
Common shares from exercise and lapse of equity awards, net of shares assumed reacquired
698,125
761,675
740,114
761,333
Diluted weighted-average number of common shares outstanding
40,863,205
41,684,634
40,924,660
41,691,479
Basic earnings per common share attributable to EnerSys stockholders
$
2.05
$
1.59
$
3.79
$
3.23
Diluted earnings per common share attributable to EnerSys stockholders
$
2.01
$
1.56
$
3.72
$
3.17
Anti-dilutive equity awards not included in diluted weighted-average common shares
659,451
412,230
503,275
422,359
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18. Business Segments
Effective April 1, 2023, the Company created a new line of business and operating segment named New Ventures in addition to the existing lines of businesses: Energy Systems, Motive Power, and Specialty. The results of New Ventures include start-up operating expenses captured within the "Corporate and other" category of operating earnings. New Ventures provides energy storage and management systems for demand charge reduction, utility back-up power, and dynamic fast charging for electric vehicles.
Summarized financial information related to the Company's reportable segments for the second quarter and six months ended September 29, 2024 and October 1, 2023, is shown below:
Quarter ended
Six months ended
September 29, 2024
October 1, 2023
September 29, 2024
October 1, 2023
Net sales by segment to unaffiliated customers (1)
Energy Systems
$
382,091
$
422,466
$
743,142
$
847,014
Motive Power
366,744
355,206
732,899
705,987
Specialty
134,834
123,361
260,544
256,601
Total net sales
$
883,669
$
901,033
$
1,736,585
$
1,809,602
Operating earnings by segment
Energy Systems
$
24,361
$
25,563
$
43,361
$
55,212
Motive Power
57,590
53,448
113,556
103,816
Specialty
7,338
5,587
12,238
15,404
Corporate and other (2)
25,281
18,894
51,106
36,297
Inventory step up to fair value relating to acquisitions - Specialty
(1,883)
—
(1,883)
—
Inventory adjustment relating to exit activities - Specialty
—
—
—
(3,098)
Restructuring and other exit charges - Energy Systems
(747)
(2,227)
(4,524)
(2,715)
Restructuring and other exit charges - Motive Power
(1,088)
(3,479)
(2,483)
(5,038)
Restructuring and other exit charges - Specialty
(389)
(1,528)
(1,155)
(5,790)
Amortization - Energy Systems
(6,013)
(6,219)
(12,014)
(12,436)
Amortization - Motive Power
(187)
(231)
(370)
(342)
Amortization - Specialty
(1,952)
(702)
(2,654)
(1,404)
Acquisition expense - Energy Systems
(5)
(8)
(11)
(13)
Acquisition expense - Motive Power
(3)
(77)
(11)
(162)
Acquisition expense - Specialty
(1,082)
—
(2,434)
—
Integration costs - Energy Systems
(55)
(166)
(225)
(249)
Integration costs - Motive Power
—
—
—
—
Integration costs - Specialty
(1,779)
—
(1,779)
—
Other - Energy Systems
—
(136)
—
(797)
Other - Motive Power
—
(45)
—
(428)
Other - Specialty
—
(60)
—
(198)
Total operating earnings (3)
$
99,387
$
88,614
$
190,718
$
178,059
(1) Reportable segments do not record inter-segment revenues and accordingly there are none to report.
(2) Corporate and other includes amounts managed on a company-wide basis and not directly allocated to any reportable segments, primarily relating to IRA production tax credits. Also, included are start-up costs for exploration of a new lithium plant as well as start-up operating expenses from the New Ventures operating segment.
(3) The Company does not allocate interest expense or other (income) expense, net, to the reportable segments.
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19. Subsequent Events
On November 6, 2024, the Board of Directors approved a quarterly cash dividend of $0.24 per share of common stock to be paid on December 27, 2024 to stockholders of record as of December 13, 2024.
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ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 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, 2024 (our “2024 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 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, tensions across the Middle East, 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;
•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 identifying 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;
•our effective income tax rate with respect to any period may fluctuate based on the mix of income in the tax jurisdictions, in which we operate, changes in tax laws and the amount of our consolidated earnings before taxes;
•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;
•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 forklifts, 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, portable power solutions for soldiers in the field, medical and security systems applications. New Ventures provides energy storage and management systems for demand charge reduction, utility back-up power, and dynamic fast charging for electric vehicles. 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 four operating 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 industrial customers, as well as thermally managed cabinets and enclosures for electronic equipment and batteries.
•Motive Power - power for electric industrial forklifts, AGVs other material handling equipment used in manufacturing and warehousing operations, as well equipment used in floor care, mining, rail and airport ground support applications.
•Specialty - premium starting, lighting and ignition applications in transportation, energy solutions for satellites, spacecraft, commercial aircraft, military aircraft, submarines, ships, other tactical vehicles, defense applications and portable power solutions for soldiers in the field, as well as medical devices and equipment.
•New Ventures - energy storage and management systems for demand charge reduction, utility back-up power, and dynamic fast charging for electric vehicles.
Bren-Tronics Acquisition
On July 26, 2024, the Company completed the acquisition of all of the equity of Bren-Tronics Defense LLC for $205.3 million in cash consideration, subject to adjustments as set forth in the stock purchase agreement. Bren-Tronics Defense LLC, headquartered in Commack, New York, is a leading manufacturer of highly reliable portable power solutions, including small and large format lithium batteries and charging solutions, for military and defense applications. The financial results contributed from this business are reported within our Specialty line of business.
Economic Climate
Global economic conditions are mixed with the impacts of elevated interest rates and heightened geopolitical tensions having various levels of impacts in North America, China and EMEA. The war in Ukraine continues to have widespread economic repercussions, particularly in Europe. The ongoing Israel-Hamas conflict is disrupting stability in the Middle East, raising significant concerns about the potential for further escalation across the region. Inflation in North America, China and EMEA, while somewhat more controlled compared to the sharp increases in 2023, remains a challenge with some signs of cooling in the U.S. and Europe. Interest rate cuts of 50 basis points by the Federal Reserve in September are expected to be followed by further rate cuts at the end of the calendar year. The European Central Bank (ECB) cut its main interest rate by 25 basis points in September following its initial rate cut in June. China’s economy saw some bright spots entering calendar year 2024 as a result of increasing travel and consumer spending due to relaxed COVID policies, but the region faces ongoing challenges from a weakened real estate market and declining exports.
The supply chain has been stabilizing since the second quarter of calendar year 2023. While some supply chain challenges and elevated costs remain, particularly for materials like copper and plastics, other costs, such as transportation, have returned to pre-COVID levels. However, the ongoing Israel-Hamas conflict have periodically disrupted some shipments in the Red Sea. As a result, some ocean freight costs and transit times may temporarily increase until shipping in the region returns to normal. Generally, our mitigation efforts and ongoing lean initiatives have tempered the impact of broad market challenges. The market demand in our Motive Power segment remains healthy, but we saw a decrease in demand in the Class 8 truck market in the first half of our fiscal year, which impacted the Specialty segment. The cyclical capex pauses in the communication networks market has decreased demand in the Energy Systems segment since our second quarter fiscal 2024, but we saw some improved order rates in the second quarter fiscal 2025.
Volatility of Commodities and Foreign Currencies
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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. In the fiscal year 2025, we have experienced a range in lead prices from approximately $1.05 per pound to $0.90 per pound. Costs in some of our other raw materials such as steel, acid, separator paper and electronics have moderated since the middle of fiscal year 2024, but we have seen some price increases in other raw materials such as copper since the beginning of fiscal year 2025.
Customer Pricing
Our selling prices fluctuated during the last several years to offset the volatile cost of commodities. Approximately 25% 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 2024 and 2025, customer pricing has increased due to certain commodity prices and other costs having increased throughout the year.
Based on current commodity markets, it is difficult to predict with certainty whether commodity prices will be higher or lower in fiscal 2025 versus fiscal 2024. However, given the lag related to increasing our selling prices for inflationary cost increase, on average our selling prices should be higher in fiscal 2025 versus fiscal 2024. As we concentrate more on energy systems and non-lead chemistries, the emphasis on lead is expected to continue to decline.
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 $978.8 million (yielding a primary operating capital percentage of 27.7%) at September 29, 2024, $852.9 million (yielding a primary operating capital percentage of 23.4%) at March 31, 2024 and $990.2 million at October 1, 2023 (yielding a primary operating capital percentage of 27.5%). The primary operating capital percentage of 27.7% at September 29, 2024 increased by 430 basis points compared to March 31, 2024 and increased 20 basis points compared to October 1, 2023. The increase in primary operating capital percentage at September 29, 2024 compared to March 31, 2024 was primarily due to the addition of Bren-Tronics balances as well as increases to inventory for strategic build up and decreases to accounts payable levels due to timing of payments this quarter. Accounts receivable amounts increased comparatively mainly due to longer termed collections from customers compared to the fourth fiscal quarter of the prior fiscal year. The slight increase in primary operating capital percentage at September 29, 2024 compared to October 1, 2023 was increases from Bren-Tronics offset by reduction in accounts receivable due to higher collections and inventory due to improved inventory management actions and easing of supply chain constraints compared to the second quarter of fiscal 2024.
Primary operating capital and primary operating capital percentages at September 29, 2024, March 31, 2024 and October 1, 2023 are computed as follows:
($ in Millions)
September 29, 2024
March 31, 2024
October 1, 2023
Accounts receivable, net
$
549.0
$
524.7
$
536.5
Inventory, net
763.5
697.7
776.5
Accounts payable
(333.7)
(369.5)
(322.8)
Total primary operating capital
$
978.8
$
852.9
$
990.2
Trailing 3 months net sales
$
883.7
$
910.7
$
901.0
Trailing 3 months net sales annualized
$
3,534.8
$
3,642.8
$
3,604.0
Primary operating capital as a % of annualized net sales
27.7
%
23.4
%
27.5
%
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 $408 million of available cash and cash equivalents and available and undrawn committed credit lines of approximately $445 million at September 29, 2024, availability subject to credit agreement financial covenants.
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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 second quarter of fiscal 2022, we entered into a second amendment to the Amended Credit Facility (as amended, the “Second Amended Credit Facility”). As a result, the Second Amended Credit Facility, now scheduled to mature on September 30, 2026, consists of a $130.0 million senior secured term loan and a CAD 106.4 million ($84.2 million) term loan (the “Second Amended Term Loan”) and an $850.0 million senior secured revolving credit facility (the “Second Amended Revolver”). This amendment resulted in a decrease of the Amended Term Loan by $150.0 million and an increase of the Amended Revolver by $150.0 million.
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 provided a new incremental delayed-draw senior secured term loan up to $300 million (the “Third Amended Term Loan”), which was available to draw until March 15, 2023. During the fourth quarter of fiscal 2023, the Company drew $300 million in the form of the Third Amended Term Loan. 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 $1.2 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. Additionally, the Company derecognized the capitalized deferred asset and recognized the $1.1 million as deferred financing costs.
During the fourth quarter of fiscal 2023, the Company entered into a fourth amendment to the 2017 Credit Facility (as amended, the “Fourth Amended Credit Facility”). The Fourth Amended Credit Facility replaces the London Interbank Offered Rate (“LIBOR”) with the Secured Overnight Financing Rate (“SOFR”) in the calculation of interest for both the Second Amended Revolver and the Second Amended Term Loan.
On January 11, 2024, we issued $300 million in aggregate principal amount of our 6.625% Senior Notes due 2032 (the “2032 Notes”). Proceeds from this offering, net of debt issuance costs, were $297.0 million and were utilized to pay down the Fourth Amended Credit Facility.
During the six months of fiscal 2025, we purchased 780,849 shares for $75.2 million.
We believe that our strong capital structure and liquidity affords us access to capital for future acquisitions, capital investments, stock repurchase opportunities and continued dividend payments.
Results of Operations
Net Sales
Net sales decreased $17.3 million or 1.9% in the second quarter of fiscal 2025 as compared to the second quarter of fiscal 2024. This decrease was the result of a 3% decrease in organic volume and a 1% decrease in pricing, partially offset by a 2% increase in acquisitions.
Net sales decreased $73.0million or 4.0% in the six months of fiscal 2025 as compared to the six months of fiscal 2024. This decrease was due to an 3% decrease in organic volume, a 1% decrease in pricing, and a 1% decrease in foreign currency translation, partially offset by a 1% increase in acquisitions.
Segment sales
Quarter ended September 29, 2024
Quarter ended October 1, 2023
Increase (Decrease)
In Millions
Percentage of Total Net Sales
In Millions
Percentage of Total Net Sales
In Millions
%
Energy Systems
$
382.1
43.2
%
422.5
46.9
%
$
(40.4)
(9.6)
%
Motive Power
366.7
41.5
355.2
39.4
11.5
3.2
Specialty
134.9
15.3
123.3
13.7
11.6
9.3
Total net sales
$
883.7
100.0
%
$
901.0
100.0
%
$
(17.3)
(1.9)
%
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Six months ended September 29, 2024
Six months ended October 1, 2023
Increase (Decrease)
In Millions
Percentage of Total Net Sales
In Millions
Percentage of Total Net Sales
In Millions
%
Energy Systems
$
743.1
42.8
%
$
847.1
46.8
%
$
(103.9)
(12.3)
%
Motive Power
732.9
42.2
706.0
39.0
26.9
3.8
Specialty
260.6
15.0
256.5
14.2
4.0
1.5
Total net sales
$
1,736.6
100.0
%
$
1,809.6
100.0
%
$
(73.0)
(4.0)
%
Net sales of our Energy Systems segment in the second quarter of fiscal 2025 decreased $40.4 million or 9.6% compared to the second quarter of fiscal 2024. This decrease was due to an 8% decrease in organic volume and a 2% decrease in pricing. This decrease in sales was driven by continued capital spending pauses of our network communications customers, which was partially offset by an increase in datacenter customers. Net sales of our Energy Systems segment in the six months of fiscal 2025 decreased $103.9 million or 12.3% compared to the six months of fiscal 2024. This decrease was due to a 9% decrease in organic volume, a 2% decrease in pricing, and a 1% decrease in foreign currency translation. This decrease in sales was driven by continued capital spending pauses of our network communications customers particularly of our higher margin power electronics products.
Net sales of our Motive Power segment in the second quarter of fiscal 2025 increased by $11.5 million or 3.2% compared to the second quarter of fiscal 2024. This increase was primarily due to a 3% increase in organic volume. Net sales of our Motive Power segment in the six months of fiscal 2025 increased by $26.9million or 3.8% compared to the six months of fiscal 2024. This increase was primarily due to a 5% increase in organic volume, offset by a 1% decrease in foreign currency translation. We continue to benefit from increased volumes of our maintenance-free thin plate pure lead and lithium product sales mix for the quarter and six months.
Net sales of our Specialty segment in the second quarter of fiscal 2025 increased by $11.6 million or 9.3% compared to the second quarter of fiscal 2024. The increase was primarily due to a 12% increase in acquisitions and a 1% increase in pricing, partially offset by a 4% decrease in organic volume. This increase in sales was primarily driven by increased volumes in Aerospace and Defense including impacts from the Bren-Tronics acquisition. Net sales of our Specialty segment in the six months of fiscal 2025 increased by $4.0 million or 1.5% compared to the six months of fiscal 2024. The increase was primarily due to a 6% increase in acquisitions, partially offset by a 3% decrease in organic volume and a 1% decrease in pricing. This increase in sales was primarily driven by increased volumes in Aerospace and Defense including impacts from the Bren-Tronics acquisition, partially offset by decreased demand in OEM transportation customers.
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Gross Profit
Quarter ended September 29, 2024
Quarter ended October 1, 2023
Increase (Decrease)
In Millions
Percentage of Total Net Sales
In Millions
Percentage of Total Net Sales
In Millions
%
Gross Profit
$
252.1
28.5
%
$
239.6
26.6
%
$
12.5
5.2
%
Six months ended September 29, 2024
Six months ended October 1, 2023
Increase (Decrease)
In Millions
Percentage of Total Net Sales
In Millions
Percentage of Total Net Sales
In Millions
%
Gross Profit
$
490.5
28.2
%
$
479.9
26.5
%
$
10.6
2.2
%
Gross profit increased $12.5 million or 5.2% in the second quarter and increased $10.6million or 2.2% in the six months of fiscal 2025 compared to the comparable periods of fiscal 2024. Gross profit, as a percentage of net sales, increased 190 basis points and increased 170 basis points in the second quarter and six months of fiscal 2025, respectively, compared to the second quarter and six months of fiscal 2024. . The increase in the gross profit margin in the current quarter and six months reflects greater impact of IRA benefits compared to the same periods in fiscal year 2024 as well as improved mix from higher margin maintenance-free sales in Motive Power.
Operating Items
Quarter ended September 29, 2024
Quarter ended October 1, 2023
Increase (Decrease)
In Millions
Percentage of Total Net Sales
In Millions
Percentage of Total Net Sales
In Millions
%
Operating expenses
$
150.5
17.0
%
$
143.8
16.0
%
$
6.8
4.7
%
Restructuring and other exit charges
$
2.2
0.3
%
$
7.2
0.8
%
$
(5.0)
(69.3)
%
Six months ended September 29, 2024
Six months ended October 1, 2023
Increase (Decrease)
In Millions
Percentage of Total Net Sales
In Millions
Percentage of Total Net Sales
In Millions
%
Operating expenses
$
291.7
16.8
%
$
288.4
15.9
%
$
3.3
1.1
%
Restructuring and other exit charges
$
8.1
0.5
%
$
13.5
0.8
%
$
(5.4)
(39.7)
%
Operating expenses, as a percentage of sales, increased 100 basis points and increased 90 basis points in the second quarter and six months of fiscal 2025, compared to the comparable periods of fiscal 2024. The increases are primarily a result of additional costs incurred relating to the Bren-Tronics acquisition as compared to the prior year.
Selling expenses, a main component of operating expenses, decreased $3.4 million or 5.7% in the second quarter of fiscal 2025 compared to the second quarter of fiscal 2024, and decreased 25 basis points as a percentage of net sales. In the six months of fiscal 2025, selling expenses decreased by $8.4 million or 7.2% compared to the six months of fiscal 2024 and decreased 21 basis points as a percentage of net sales. The decrease in selling expenses as a percentage of sales in the current quarter is a result of our cost reduction initiatives partially offsetting labor increases earlier this fiscal year.
Restructuring and Other Exit Charges
Restructuring Programs
Included in our second quarter and six months of fiscal 2025 operating results of Energy Systems were restructuring charges of $0.9 million and $3.8 million respectively. Included in our second quarter and six months of fiscal 2025 operating results of Motive Power were restructuring charges of $0.0 million and $0.8 million, respectively. Included in our second quarter and six months of fiscal 2025 operating results of Specialty were restructuring charges of $0.1 million and $0.4 million, respectively.
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Table of Contents
Included in our second quarter and six months of fiscal 2024 operating results of Energy Systems were restructuring charges of $2.2 million and $2.7 million, respectively. Included in our second quarter and six months of fiscal 2024 operating results of Motive Power were restructuring charges of $0.8 million and $0.8 million, respectively.
Exit Charges
Fiscal 2024 Programs
Renewables
On November 8, 2023, the Company's Board of Directors approved a plan to stop production and operations of residential renewable energy products, which include our OutBack and Mojave brands. Management determined that residential renewable energy products no longer fit with the company’s core strategy and resources will be better allocated toward commercial energy solutions for enterprise customers. The Company currently estimates that the total charges for these actions will amount to $24.5 million relating primarily to $23.6 million in non-cash charges primarily including inventory and an indefinite-lived intangible asset write-offs and $0.9 million in cash charges including employee severance and retention payments. The plan is expected to be completed in fiscal 2024.
During fiscal 2024, the Company recorded non-cash charges totaling $0.6 million primarily related to fixed assets and cash charges of $0.7 million related to severance costs. The Company also recorded a non-cash write-offs relating to inventories of $17.1 million, which was reported in cost of goods sold, and impairment of indefinite lived intangible asset of $6.0 million.
Spokane
On November 8, 2023, the Company committed to a plan to close its facility in Spokane, Washington, which primarily manufactures enclosure systems for telecommunications and related end markets. Management determined that existing manufacturing locations have the capacity to satisfy demand for these products and will execute more efficient distribution to customers. The Company currently estimates that the total charges for these actions will amount to approximately $3.6 million relating to $1.4 million in cash charges for employee severance, and non-cash charges of $2.2 million fixed assets, facility lease, and inventory. The majority of the charges were incurred in fiscal 2024.
During fiscal 2024, the Company recorded cash charges of $1.3 million primarily related to severance costs and non-cash charges totaling $2.1 million related to lease right of use asset and fixed asset write-offs.
During the six months of fiscal 2025, the Company recorded cash charges of $0.7 million primarily related to manufacturing variances.
Fiscal 2023 Programs
Sylmar
In November 2022, the Company committed to a plan to close its facility in Sylmar, California, which manufactures specialty lithium batteries for aerospace and medical applications. Management determined to close the site upon the expiration of its lease on the property and to redirect production through consolidation into existing locations. The Company currently estimates total charges in the exit to amount to $13.5 million. Cash charges are estimated to total $9.6 million primarily relating to severance and other costs to leave the site. Non-cash charges are estimated to be $3.9 million relating to fixed assets, inventory, and contract assets. The plan was substantially complete as the end of fiscal 2024.
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Table of Contents
During fiscal 2023, the Company recorded $1.7 million primarily related to severance costs and non-cash charges totaling $0.4 million primarily relating to contract assets.
During fiscal 2024, the Company recorded cash charges of $7.2 million related primarily related to severance costs, relocation expenses, and manufacturing variances, and non-cash charges totaling $0.4 million. The Company also recorded a non-cash write-off relating to inventories of $3.1 million, which was reported in cost of goods sold.
.During the six months of fiscal 2025, the Company recorded cash charges of $0.8 million primarily related to relocation costs.
Ooltewah
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 majority of these charges were recorded by the end of fiscal 2024.
During fiscal 2023, the Company recorded cash charges relating primarily to severance and manufacturing variances of $2.8 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.
During fiscal 2024, the Company recorded cash charges relating to site cleanup and decommissioning equipment of $4.4 million.
During the six months of fiscal 2025, the Company recorded cash charges relating to site cleanup and decommissioning equipment of $0.3 million.
Fiscal 2021 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 Janurary 1, 2023. These actions resulted in the reduction of approximately 200 employees.
During fiscal 2021, the Company recorded cash charges relating to severance of $23.3 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 fiscal 2023, the Company recorded cash charges of $2.2 million relating primarily to site cleanup and $0.6 million of non-cash charges relating to accelerated depreciation of fixed assets.
During fiscal 2024, the Company recorded cash charges of $2.1 million relating primarily to site cleanup and $0.5 million of non-cash charges relating to accelerated depreciation of fixed assets.
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Table of Contents
During the six months of fiscal 2025, the Company recorded cash charges of $1.1 million relating primarily to site cleanup and $0.2 million of non-cash charges relating to accelerated depreciation of fixed assets.
Operating Earnings
Quarter ended September 29, 2024
Quarter ended October 1, 2023
Increase (Decrease)
In Millions
Percentage
of Total
Net Sales (1)
In Millions
Percentage
of Total
Net Sales (1)
In Millions
%
Energy Systems
$
24.2
6.4
%
$
25.6
6.1
%
$
(1.4)
(4.7)
%
Motive Power
57.6
15.7
53.4
15.0
4.2
7.7
Specialty
7.5
5.4
5.6
4.5
1.9
31.3
Corporate and other (2)
25.3
2.9
18.9
2.1
6.4
33.8
Subtotal
114.6
13.0
103.5
11.5
11.1
10.7
Inventory adjustment related to recent acquisitions - Specialty
(1.9)
(1.4)
—
—
(1.9)
NM
Restructuring and other exit charges - Energy Systems
(0.7)
(0.2)
(2.2)
(0.5)
1.5
(66.5)
Restructuring and other exit charges - Motive Power
(1.1)
(0.3)
(3.5)
(1.0)
2.4
(68.7)
Restructuring and other exit charges - Specialty
(0.4)
(0.3)
(1.5)
(1.2)
1.1
(74.5)
Amortization of intangible assets - Energy Systems
(6.0)
(1.6)
(6.3)
(1.5)
0.3
(3.3)
Amortization of intangible assets - Motive Power
(0.2)
(0.1)
(0.2)
(0.1)
—
(19.0)
Amortization of intangible assets - Specialty
(2.0)
(1.4)
(0.7)
(0.6)
(1.3)
NM
Integration costs - Energy Systems
—
—
(0.2)
—
0.2
(66.9)
Integration costs - Specialty
(1.8)
(1.3)
—
—
(1.8)
NM
Acquisition activity expense - Motive
—
—
(0.1)
—
0.1
NM
Acquisition activity expense - Specialty
(1.1)
(0.8)
—
—
(1.1)
NM
Other - Energy Systems
—
—
(0.1)
—
0.1
NM
Other - Specialty
—
—
(0.1)
—
0.1
NM
Total operating earnings
$
99.4
11.2
%
$
88.6
9.8
%
$
10.8
12.2
%
NM = not meaningful
(1) The percentages shown for the segments are computed as a percentage of the applicable segment’s net sales; Corporate and other is computed based on total consolidated net sales
(2) Corporate and other includes amounts managed on a company-wide basis and not directly allocated to any reportable segments, primarily relating to IRA production tax credits. Also, included are start-up costs for exploration of a new lithium plant as well as start-up operating expenses from the New Ventures operating segment.
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Table of Contents
Six months ended September 29, 2024
Six months ended October 1, 2023
Increase (Decrease)
In Millions
Percentage
of Total
Net Sales (1)
In Millions
Percentage
of Total
Net Sales (1)
In Millions
%
Energy Systems
$
43.2
5.8
%
$
55.3
6.5
%
$
(12.1)
(21.5)
%
Motive Power
113.6
15.5
103.7
14.7
9.9
9.4
Specialty
12.4
4.7
15.4
6.0
(3.0)
(20.6)
Corporate and other (2)
51.1
2.9
36.3
2.0
14.8
40.8
%
Subtotal
220.3
12.7
210.7
11.6
9.6
4.5
Inventory adjustment relating to exit activities - Specialty
—
—
(3.1)
(1.2)
3.1
NM
Inventory adjustment related to recent acquisitions - Specialty
(1.9)
(0.7)
—
—
(1.9)
NM
Restructuring and other exit charges - Energy Systems
(4.5)
(0.6)
(2.7)
(0.3)
(1.8)
66.6
Restructuring and other exit charges - Motive Power
(2.5)
(0.3)
(5.0)
(0.7)
2.5
(50.7)
Restructuring and other exit charges - Specialty
(1.1)
(0.4)
(5.8)
(2.3)
4.7
(80.1)
Amortization of intangible assets - Energy Systems
(12.0)
(0.7)
(12.5)
(0.7)
0.5
(3.4)
%
Amortization of intangible assets - Motive Power
(0.4)
(0.1)
(0.3)
—
(0.1)
8.2
%
Amortization of intangible assets - Specialty
(2.7)
(1.0)
(1.4)
(0.5)
(1.3)
89.0
%
Integration costs - Energy Systems
(0.2)
—
(0.3)
—
0.1
(9.6)
%
Integration costs - Specialty
(1.8)
(0.7)
—
—
(1.8)
NM
Acquisition activity expense - Motive
—
—
(0.2)
—
0.2
NM
Acquisition activity expense - Specialty
(2.5)
(0.9)
—
—
(2.5)
NM
Other - Energy Systems
—
—
(0.8)
(0.1)
0.8
NM
Other - Motive Power
—
—
(0.4)
(0.1)
0.4
NM
Other - Specialty
—
—
(0.2)
(0.1)
0.2
NM
Total operating earnings
$
190.7
11.0
%
$
178.0
9.8
%
$
12.7
7.1
%
NM = not meaningful
(1) The percentages shown for the segments are computed as a percentage of the applicable segment’s net sales; Corporate and other is computed based on total consolidated net sales
(2) Corporate and other includes amounts managed on a company-wide basis and not directly allocated to any reportable segments, primarily relating to IRA production tax credits. Also, included are start-up costs for exploration of a new lithium plant as well as start-up operating expenses from the New Ventures operating segment.
Operating earnings increased $10.8 million or 12.2% and increased $12.7million or 7.1% in the second quarter and six months of fiscal 2025, respectively, compared to the second quarter and six months of fiscal 2024. Operating earnings, as a percentage of net sales, increased 140 basis points and 120 basis points in the second quarter and six months of fiscal 2025, respectively, compared to the second quarter and six months of fiscal 2024.
The Energy Systems operating earnings, as a percentage of sales, increased 30 basis points and decreased 70 basis points in the second quarter and six months of fiscal 2025, respectively, compared to the second quarter and six months of fiscal 2024. The increase for the quarter was primarily as a result of lower commodity costs as well as lower operating expenses as a percentage of sales on lower volumes partially offset by unfavorable product mix; and the decrease for the six months was a result of continued lower volumes and unfavorable mix from lower high margin power electronics sales, partially offset by lower operating costs.
The Motive Power operating earnings, as a percentage of sales, increased 70 basis points and 80 basis points in the second quarter and six months of fiscal 2025, respectively, compared to the second quarter and six months of fiscal 2024. These increases were driven by continued volume growth in addition to favorable lead costs.
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Table of Contents
The Specialty operating earnings, as a percentage of sales, increased 90 basis points and decreased 130 basis points in the second quarter and six months of fiscal 2025, respectively, compared to the second quarter and six months of fiscal 2024. The increase for the quarter is a result of the accretive Bren-Tronics acquisition combined with robust Aerospace and Defense volumes, partially offset by declines in transportation OEM volume. The decrease for the six months is a result of the volume declines from the transportation OEM customers which outweighed the improvements from the Bren-Tronics acquisition.
Interest Expense
Quarter ended September 29, 2024
Quarter ended October 1, 2023
Increase (Decrease)
In Millions
Percentage of Total Net Sales
In Millions
Percentage of Total Net Sales
In Millions
%
Interest expense
$
12.5
1.4
%
$
12.2
1.4
%
$
0.3
2.2
%
Six months ended September 29, 2024
Six months ended October 1, 2023
Increase (Decrease)
In Millions
Percentage of Total Net Sales
In Millions
Percentage of Total Net Sales
In Millions
%
Interest expense
$
23.5
1.4
%
$
27.4
1.5
%
$
(3.9)
(14.5)
%
Interest expense of $12.5 million in the second quarter of fiscal 2025 (net of interest income of $0.7 million) was $0.3 million higher than the interest expense of $12.2 million in the second quarter of fiscal 2024 (net of interest income of $0.5 million).
Interest expense of $23.5 million in the six months of fiscal 2025 (net of interest income of $1.8 million) was $3.9 million lower than the interest expense of $27.4 million in the six months of fiscal 2024 (net of interest income of $1.2 million).
The increase in interest expense in the second quarter of fiscal 2025 and the decrease in the six months of fiscal 2025 is primarily due to higher borrowing levels in the quarter where the six months benefited from lower average borrowing levels. Our average debt outstanding was $1,126.9 million and $1,009.2 million in the second quarter and six months of fiscal 2025, compared to $990.3 million and $1,030.3 million in the second quarter and six months of fiscal 2024.
Included in interest expense are non-cash charges for deferred financing fees of $0.5 million and $1.0 million for the second quarter and six months of fiscal 2025 and $0.4 million and $0.8 million in the second quarter and six monthsof fiscal 2024.
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Table of Contents
Other (Income) Expense, Net
Quarter ended September 29, 2024
Quarter ended October 1, 2023
Increase (Decrease)
In Millions
Percentage of Total Net Sales
In Millions
Percentage of Total Net Sales
In Millions
%
Other (income) expense, net
$
2.7
0.3
%
$
3.0
0.3
%
$
(0.3)
(9.2)%
NM = not meaningful
Six months ended September 29, 2024
Six months ended October 1, 2023
Increase (Decrease)
In Millions
Percentage of Total Net Sales
In Millions
Percentage of Total Net Sales
In Millions
%
Other (income) expense, net
$
3.7
0.2
%
$
3.7
0.2
%
$
—
2.0
%
NM = not meaningful
Other (income) expense, net in the second quarter of fiscal 2025 was expense of $2.7 million compared to expense of $3.0 million in the second quarter of fiscal 2024. Other (income) expense, net in the six months of fiscal 2025 was expense of $3.7 million compared to expense of $3.7 million in the six months of fiscal 2024. Foreign currency impact resulted in a gain of $0.8 million and a gain of $2.1 million in the second quarter and six months of fiscal 2025, respectively, compared to a foreign currency gain of $0.5 million and a gain of $2.8 million in the second quarter and six months of fiscal 2024, respectively.
Earnings Before Income Taxes
Quarter ended September 29, 2024
Quarter ended October 1, 2023
Increase (Decrease)
In Millions
Percentage of Total Net Sales
In Millions
Percentage of Total Net Sales
In Millions
%
Earnings before income taxes
$
84.2
9.5
%
$
73.4
8.1
%
$
10.8
14.7
%
Six months ended September 29, 2024
Six months ended October 1, 2023
Increase (Decrease)
In Millions
Percentage of Total Net Sales
In Millions
Percentage of Total Net Sales
In Millions
%
Earnings before income taxes
$
163.5
9.4
%
$
146.9
8.1
%
$
16.6
11.3
%
As a result of the above, earnings before income taxes in the second quarter of fiscal 2025 increased $10.8 million, or 14.7%, compared to the second quarter of fiscal 2024 and increased $16.6 million, or 11.3% in the six months of fiscal 2025 compared to the six months of fiscal 2024.
Income Tax Expense
Quarter ended September 29, 2024
Quarter ended October 1, 2023
Increase (Decrease)
In Millions
Percentage of Total Net Sales
In Millions
Percentage of Total Net Sales
In Millions
%
Income tax expense
$
1.9
0.2
%
$
8.2
0.9
%
$
(6.3)
(76.5)
%
Effective tax rate
2.3%
11.2%
(8.9)%
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Table of Contents
Six months ended September 29, 2024
Six months ended October 1, 2023
Increase (Decrease)
In Millions
Percentage of Total Net Sales
In Millions
Percentage of Total Net Sales
In Millions
%
Income tax expense
$
11.1
0.6
%
$
14.9
0.8
%
$
(3.8)
(25.3)
%
Effective tax rate
6.8%
10.2%
(3.4)%
The Company’s income tax provision consists of federal, state and foreign income taxes. The tax provision for the second quarter of fiscal 2025 and 2024 was based on the estimated effective tax rates applicable for the full years ending March 31, 2025 and March 31, 2024, 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, changes in tax laws and the amount of our consolidated earnings before taxes.
The Organization for Economic Co-operation and Development (OECD) has a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as Pillar 2), with certain aspects of Pillar 2 effective for taxable years beginning after December 31, 2023. While it is uncertain whether the U.S. will enact legislation to adopt Pillar 2, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement Pillar 2. On August 26, 2024, the U.S. Tax Court issued a ruling in Varian. The ruling related to the U.S. taxation of deemed foreign dividends in the transition tax of the Tax Cuts and Jobs Act (our fiscal 2018). The impact of the enacted legislation and ruling is included below. The Company will continue to monitor and evaluate as new legislation and guidance is issued.
The consolidated effective income tax rates for the second quarter of fiscal 2025 and 2024 were 2.3% and 11.2% and for the six months of fiscal 2025 and 2024 were 6.8% and 10.2%. The rate decrease in the second quarter compared to the prior year period is primarily due to a discrete tax benefit as a result of Varian, offset by the impact of Pillar 2. The rate decrease in the six months of fiscal 2025 compared to the prior year periods are primarily due to a discrete tax benefit as a result of Varian, offset primarily by a discrete foreign exchange tax benefit related to undistributed earnings in first quarter of fiscal 2024, impact of Pillar 2, and mix of earnings among tax jurisdictions.
Foreign income as a percentage of worldwide income is estimated to be 53% for fiscal 2025 compared to 56% for fiscal 2024. The foreign effective tax rates for the six months of fiscal 2025 and 2024 were 15% and 13%, respectively. The foreign effective tax rate increase in the second quarter compared to the second quarter of the prior year is primarily due to the impact of Pillar 2. Income from the Company's Swiss subsidiary comprised a substantial portion of the Company's overall foreign mix of income for both fiscal 2025 and fiscal 2024 and were taxed at an effective income tax rate of approximately 11% and 9%, 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 2024 Annual Report.
Liquidity and Capital Resources
Cash Flow and Financing Activities
Operating activities provided cash of $44.0 million in the six months of fiscal 2025 compared to $185.7 million of cash provided in the six months of fiscal 2024, with the decrease in operating cash resulting mainly due to activity in accounts receivable, inventory, accrued expenses and accounts payable. Inventory increased or used cash of $12.4 million, and accounts receivable increased or used cash of $9.3 million. Additionally, accounts payable decreased or used cash of $40.1 million. In the six months of fiscal 2025, net earnings were $152.4 million, depreciation and amortization $48.8 million, stock-based compensation $12.2 million, allowance for doubtful debts of $1.1 million, non-cash interest of $1.0 million and, non-cash charges relating to exit charges $0.2 million. Prepaid and other current assets were a use of funds of $26.2 million, primarily from an increase of $19.4 million in contract assets, $7.6 million in other prepaid expenses, and $1.6 million in prepaid insurance, partially offset by a decrease of $2.4 million in prepaid taxes. Accrued expenses were a use of funds of $83.9 million primarily from decrease in tax accruals of $81.8 million, interest payments net of accruals of $31.6million, other miscellaneous accruals of $3.9 million, sales related accruals of $5.0 million, and payroll related payments of $0.5 million net of accruals, partially offset by $36.4 million in accrued interest, warranty accruals of $1.6 million, and $0.9 million in contract liabilities.
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Table of Contents
In the six monthsof fiscal 2024, operating activities provided cash of $185.7 million, with the increase in operating cash resulting mainly due to net earnings. Accounts receivable decreased or provided cash of $93.4 million due to lower sales in the current quarter compared to the previous quarter. Inventory decreased or provided cash of $10.5 million due to lower inventory turns as compared to the previous quarter. Accounts payable decreased or used cash of $57.2 million due to seasonal reduction. In the six months of fiscal 2024, net earnings were $132.0 million, depreciation and amortization $45.2 million, stock based compensation $13.1 million, non-cash charges relating to exit charges $4.1 million, allowance for doubtful debts $1.5 million, derivative losses of $1.2 million, non-cash interest of $0.8 million, and derivatives cash proceeds of $0.7 million. Prepaid and other current assets were a use of funds of $13.9 million, primarily from an increase of $6.3 million in contract assets and $3.9 million in prepaid insurance partially offset by a decrease of $3.7 million in other prepaid expenses, such as taxes, non-trade receivables and other advances. Accrued expenses were a use of funds of $44.8 million primarily from decrease in tax accruals of $37.4 million, deferred income and contract liabilities of $10.8 million, payroll related payments of $4.7 million net of accruals, decrease to sales related accruals of $2.9 million, and interest payments net of accruals of $1.0 million, partially offset by $2.9 million of freight charges, warranty accruals of $2.5 million, and other miscellaneous accruals of $7.2 million.
Investing activities used cash of $282.5 million in the six months of fiscal 2025, which primarily consisted of the Bren-Tronics acquisition of $205.3 million, capital expenditures of $66.5 million relating to plant improvements and $10.9 million relating to investment in equity securities.
Investing activities used cash of $42.1 million in the six months of fiscal 2024, which primarily consisted of capital expenditures of $35.9 million relating to plant improvements and $8.3 million relating to the purchase of a business partially offset by $2.0 million in proceeds from sale of disposal property, plant, and equipment.
Financing activities provided cash of $305.3 million in the six months of fiscal 2025. During the six months of fiscal 2025, we borrowed $476.6 million under the Second Amended Revolver and repaid 76.7 million of the Second Amended Revolver. Net repayments on short-term debt were $0.4 million. We purchased treasury stock totaling $75.2 million, paid cash dividends to our stockholders totaling $18.6 million, and received proceeds from stock options of $7.4 million. Payments for financing costs for debt modification were $0.4 million. We paid $8.0 million for taxes related to net share settlement of equity awards.
Financing activities used cash of $153.5 million in the six months of fiscal 2024. During the six months of fiscal 2024, we borrowed $172.5 million under the Second Amended Revolver and repaid $252.5 million of the Second Amended Revolver. We repaid $12.7 million of the Second Amended Term Loan, and net repayments on short-term debt were $0.1 million. We purchased treasury stock totaling $47.3 million, paid cash dividends to our stockholders totaling $16.3 million and received proceeds from stock options of $9.7 million.
Currency translation had a positive impact of $7.8 million on our cash balance in the six months of fiscal 2025 compared to the negative impact of $9.1 million in the six months of fiscal 2024. In the six months of fiscal 2025, principal currencies in which we do business such as the Euro, Polish zloty, Swiss Franc and British pound strengthened versus the U.S. dollar.
As a result of the above, total cash and cash equivalents increased by $74.6 million to $407.9 million, in the six months of fiscal 2025 compared to a decrease of $18.9 million to $327.8 million, in the six months of fiscal 2024.
Compliance with Debt Covenants
During the second quarter of fiscal 2022, we entered into a second amendment to the Amended Credit Facility (as amended, the “Second Amended Credit Facility”). As a result, the Second Amended Credit Facility, now scheduled to mature on September 30, 2026, consists of a $130.0 million senior secured term loan (the “Second Amended Term Loan”), a CAD 106.4 million ($84.2 million) term loan and an $850.0 million senior secured revolving credit facility (the “Second Amended Revolver”). This amendment resulted in a decrease of the Amended Term Loan by $150.0 million and an increase of the Amended Revolver by $150.0 million.
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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 provided a new incremental delayed-draw senior secured term loan up to $300 million (the “Third Amended Term Loan”), which was available to draw until March 15, 2023. During the fourth quarter, the Company drew $300 million in the form of the Third Amended Term Loan. 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 $1.2 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. Additionally, the Company derecognized the capitalized deferred asset and recognized the $1.1 million as deferred financing costs.
During the fourth quarter of fiscal 2023, the Company entered into a fourth amendment to the 2017 Credit Facility (as amended, the “Fourth Amended Credit Facility”). The Fourth Amended Credit Facility replaces the London Interbank Offered Rate (“LIBOR”) with the Secured Overnight Financing Rate (“SOFR”) in the calculation of interest for both the Second Amended Revolver and the Second Amended Term Loan.
All obligations under our Fourth Amended Credit Facility are secured by, among other things, substantially all of our U.S. assets. The Fourth 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 Fourth Amended Credit Facility and Senior Notes. We believe that we will continue to comply with the financial 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 2024 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 2024 Annual Report. As of September 29, 2024, we had no significant changes to our contractual obligations table contained in our 2024 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.
Counterparty Risks
We have entered into lead forward purchase contracts, foreign exchange forward and purchased option contracts, interest rate swaps, 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 September 29, 2024 are $20.2 million (pre-tax). Those contracts that result in an asset position at September 29, 2024 are $5.2 million (pre-tax). The impact on the Company due to nonperformance by the counterparties has been evaluated and not deemed material.
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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. Additionally, on July 2, 2024,we entered into cross-currency fixed interest rate swap contracts with an aggregate notional amount of $150 million, maturing on January 15, 2029. 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 $300 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. On a selective basis, from time to time, we enter into interest rate swap agreements to reduce the negative impact that increases in interest rates could have on our outstanding variable rate debt. At September 29, 2024 and March 31, 2024 such agreements effectively convert $200.0 million of our variable-rate debt to a fixed-rate basis, utilizing the one-month Term SOFR, as a floating rate reference.
A 100 basis point increase in interest rates would have increased annual interest expense by approximately $4.4 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. The 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)
September 29, 2024
$
59.4
62.5
$
0.95
8
%
March 31, 2024
50.0
53.0
0.94
8
October 1, 2023
58.2
59.0
0.99
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 68% of the cost of our lead requirements is known. This takes into account the hedge contracts in place at September 29, 2024, lead purchased by September 29, 2024 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 $35.0 million in the second quarter.
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.
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.
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At a point in time, we hedge approximately 5% - 10% of the nominal amount of our known annual 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 September 29, 2024 and October 1, 2023, we estimate that an unfavorable 10% movement in the exchange rates would have adversely changed our hedge valuations by approximately $48.8 million and $27.1 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. We completed the Bren-Tronics acquisition on July 26, 2024 and are in the process, but have not yet concluded our assessment of the effectiveness of our internal control over financial reporting including this recent acquisition. Accordingly, pursuant to the SEC's general guidance that an assessment of a recently acquired business may be omitted from the scope of an assessment in the year of acquisition, the scope of our assessment of the effectiveness of our disclosure controls and procedures does not include Bren-Tronics. For the second quarter and six months of fiscal 2025, Bren-Tronics accounted for less than 2% of sales and as of September 29, 2024 less than 5% of total assets.
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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 2024 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)
July 1 - July 31, 2024
3,134
$
111.67
—
$
121,214,054
August 1 - August 31, 2024
360,109
97.09
274,996
94,347,501
September 1 - September 29, 2024
378,270
97.46
376,420
57,668,306
Total
741,513
$
97.34
651,416
(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 awards issued during such fiscal year under the 2017 Equity Incentive Plan and the 2023 Equity Incentive Plan and the number of shares exercised through stock option awards during such fiscal year, approximately $34.0 million.
(2) On March 9, 2022, the Company announced the establishment of a $150.0 million stock repurchase authorization, with no
expiration date.
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5.
Other Information
During the quarter ended September 29, 2024, none of our directors or officers (as defined in Section 16 of the Securities Exchange Act of 1934, as amended) adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (each as defined in Item 408(a) and (c) of Regulation S-K) except as follows:
On August 26, 2024, David M. Shaffer, President and Chief Executive Officer and member of the board of directors, entered into a trading plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act (a "10b5-1 Plan"). Mr. Shaffer’s 10b5-1 Plan provides for the potential sale of up to 20,000 shares of EnerSys common stock, subject to certain conditions, the 10b5-1 Plan expires on August 22, 2025.
Item 8.01 Other Events.
On November 6, 2024, EnerSys's Board of Directors authorized a new $200 million stock repurchase program. The authorized repurchases shall be made from time to time in either the open market or through privately negotiated transactions. The timing, volume and nature of share repurchases will be at the sole discretion of management, dependent on market conditions, applicable securities laws, and other factors, and may be suspended or discontinued at any time. No assurance can be given that any particular amount of common stock will be repurchased. All or part of the repurchases may be implemented under a Rule 10b5-1 trading plan, which would allow repurchases under pre-set terms at times when EnerSys might otherwise be prevented from doing so under insider trading laws or because of self-imposed blackout periods. This repurchase program may be modified, extended or terminated by the Board of Directors at any time.
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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.