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What changed in EnerSys's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of EnerSys's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+394 added−335 removedSource: 10-K (2023-05-24) vs 10-K (2022-05-25)

Top changes in EnerSys's 2023 10-K

394 paragraphs added · 335 removed · 261 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

51 edited+6 added−5 removed47 unchanged
Biggest changeWe further believe that the power systems and energy management sector have a key role to play in finding innovative solutions to address global climate change. Our climate change policy underscores our goal to carry out all business activities in a sustainable manner.
Biggest changeBeing an excellent neighbor and good corporate citizen in the communities where we work and live is extremely important as well. Our products facilitate positive environmental, social and economic impacts around the world. We believe that the power systems and energy management sector have a key role to play in finding innovative solutions to address global climate change.
Specialty batteries are used in aerospace and defense applications, large over the road trucks, premium automotive and medical. We also provide aftermarket and customer support services to over 10,000 customers in more than 100 countries through a network of distributors, independent representatives and our internal sales force around the world.
Specialty batteries are used in aerospace and defense applications, large over the road trucks, and premium automotive and medical. We also provide aftermarket and customer support services to over 10,000 customers in more than 100 countries through a network of distributors, independent representatives, and our internal sales force around the world.
As discussed elsewhere in this Annual Report on Form 10-K (Annual Report), including in Item 1A. Risk Factors, our operating results are significantly influenced by weather, and major changes in historical weather patterns could have a notable impact on our future operating results.
As discussed elsewhere in this Annual Report on Form 10-K, including in Item 1A. Risk Factors, our operating results are significantly influenced by weather, and major changes in historical weather patterns could have a notable impact on our future operating results.
We have also acquired our first Lithium-Ion product certification in accordance with ISO 26262 (Product Safety). This strategy enables us to provide consistent quality products and services to meet our customers’ needs. Human Capital Management EnerSys is committed to developing a comprehensive, cohesive and positive employee experience.
We have also acquired our first Lithium-Ion product certification in accordance with ISO 26262 (Product Safety). This strategy enables us to provide consistent quality products and services to meet our customers’ needs. Human Capital Management EnerSys is committed to a comprehensive, cohesive and positive employee experience.
We created several committees to assist the company in its philanthropic endeavors that support all communities in which we work. Additionally, we regularly sponsor volunteer events and fundraising campaigns, to encourage our employees to give back to our communities, a commitment that we further support by offering employees paid time off for charitable volunteering.
We created several committees to assist the company in its philanthropic endeavors that support the communities in which we work. Additionally, we regularly sponsor volunteer events and fundraising campaigns, to encourage our employees to give back to our communities, a commitment that we further support by offering employees paid time off for charitable volunteering.
From time to time, we apply for patents on new inventions and designs, but we believe that the growth of our business will depend primarily upon the quality of our products and our relationships with our customers, rather than the extent of our patent protection. We believe we are the leader in TPPL.
From time to time, we apply for patents on new inventions and designs, but we believe that the growth of our business will depend primarily upon the quality of our products and our relationships with our customers, rather than the extent of our patent protection. We believe we are the leader in TPPL technology.
Between fiscal years 2003 through 2020, we made thirty-four acquisitions around the globe. There were no acquisitions in fiscal 2022 and 2021 but we completed the acquisition of NorthStar, headquartered in Stockholm, Sweden in fiscal 2020 and of Alpha in fiscal 2019.
Between fiscal years 2003 through 2023, we made thirty-four acquisitions around the globe. There were no acquisitions in fiscal 2023, 2022 and 2021 but we completed the acquisition of NorthStar, headquartered in Stockholm, Sweden in fiscal 2020 and of Alpha in fiscal 2019.
Because lead is traded on the world’s commodity markets and its price fluctuates daily, we periodically enter into hedging arrangements for a portion of our projected requirements to reduce the volatility of our costs. 7 Table of Contents Competition The industrial energy storage market is highly competitive both among competitors who manufacture and sell industrial batteries and other energy storage systems and solutions and among customers who purchase industrial energy solutions.
Because lead is traded on the world’s commodity markets and its price fluctuates daily, we periodically enter into hedging arrangements for a portion of our projected requirements to reduce the volatility of our costs. 7 Table of Contents Competition The industrial energy storage market is highly competitive both among competitors who manufacture and sell industrial energy storage solutions and batteries and among customers who purchase industrial energy solutions.
As part of our growing sustainability commitment, we announced during fiscal 2022 that we joined the United Nations Global Compact, Alliance to Save Energy, the U.S.
As part of our growing sustainability commitment, we announced during fiscal year 2022 that we joined the United Nations Global Compact, Alliance to Save Energy, the U.S.
We believe in the principles of this standard and reinforce the same by requiring mandatory compliance for all manufacturing, sales and service locations globally that are registered to the ISO 9001 standard. We also focus on specific plant certifications such as AS9100 (Aerospace), ISO13485:2016 (Medical Devices), ISO/TS 22163:2017 (Rail), TL9000 (Telecom), IATF16949:2018 (Automotive).
We believe in the principles of this standard and reinforce the same by requiring mandatory compliance for all manufacturing, sales and service locations globally that are registered to the ISO 9001 standard. We also focus on specific plant certifications such as AS9100 (Aerospace), ISO13485:2016 (Medical Devices), ISO/TS 22163:2017 (Rail), IATF16949:2018 (Automotive).
In addition, we are required to comply with the regulation issued from the European Union called Registration, Evaluation, Authorization and Restriction of Chemicals or “REACH”. Under the regulation, companies which manufacture or import more than one ton of a covered chemical substance per year are required to register it in a central database administered by the European Chemicals Agency.
In addition, we are required to comply with the regulation issued from the European Union called Registration, Evaluation, Authorization and Restriction of Chemicals or “REACH”. Under the regulation, companies that manufacture or import more than one ton of a covered chemical substance per year are required to register it in a central database administered by the European Chemicals Agency.
Our competitors range from development stage companies to large domestic and international corporations. Certain of our competitors produce energy storage products utilizing technologies or chemistries different from our own. We compete primarily on the basis of reputation, product quality, reliability of service, delivery and price. We believe that our products and services are competitively priced.
Our competitors range from development stage companies to large domestic and international corporations. Certain of our competitors produce energy storage products utilizing technologies or chemistries different from our own. We compete primarily on the basis of reputation, product quality, reliability of service, delivery lead time and price. We believe that our products and services are competitively priced.
Army’s 82nd Airborne Division (Paratroopers) where he served as a Signals Intelligence Analyst, Spanish Linguist, and held a Top-Secret security clearance. Andrew M. Zogby, age 62, President, Energy Systems . Mr. Zogby has served as President, Energy Systems Global since July 2020. Prior thereto, from April 2019, he served as President, Energy Systems–Americas.
Army’s 82nd Airborne Division (Paratroopers) where he served as a Signals Intelligence Analyst, Spanish Linguist, and held a Top-Secret security clearance. Andrew M. Zogby, age 63, President, Energy Systems Global. Mr. Zogby has served as President, Energy Systems Global since July 2020. Prior thereto, from April 2019, he served as President, Energy Systems–Americas.
Tinnemeyer studied applied mathematics and electrical engineering at the University of Toronto and holds a MSc in Astronautics and Space Engineering. 9 Table of Contents Shawn M. O’Connell, age 49, President, Motive Power . Mr. O’Connell has served as our President, Motive Power Global since July 2020.
Tinnemeyer studied applied mathematics and electrical engineering at the University of Toronto and holds a MSc in Astronautics and Space Engineering. 9 Table of Contents Shawn M. O’Connell, age 50, President, Motive Power Global. Mr. O’Connell has served as our President, Motive Power Global since July 2020.
For example, if climate change results in drier weather and more accommodating temperatures over a greater period of time, we may be able to increase our productivity, which could positively impact our revenues and gross margins.
For example, if climate change results in drier weather and more accommodating temperatures over a significant period of time, we may be able to increase our productivity, which could positively impact our revenues and gross margins.
Joern Tinnemeyer , age 49, Chief Technology Officer and Senior Vice President . Mr. Tinnemeyer has served as Senior Vice President and Chief Technology Officer since October 2017. He joined EnerSys in August 2016 as its Vice President and Chief Technology Officer. Mr. Tinnemeyer is responsible for global engineering, global quality, and technology development.
Joern Tinnemeyer , age 50, Senior Vice President and Chief Technology Officer. Mr. Tinnemeyer has served as Senior Vice President and Chief Technology Officer since October 2017. He joined EnerSys in August 2016 as its Vice President and Chief Technology Officer. Mr. Tinnemeyer is responsible for global engineering, global quality, and technology development.
Individuals are evaluated based on merit, without concern for race, color, religion, national origin, citizenship, marital status, gender (including pregnancy), gender identity, gender expression, sexual orientation, age, disability, veteran status, or other characteristics protected by law. We are committed to providing equal opportunities to every member of our workforce.
Individuals are evaluated based on merit, without concern for 11 Table of Contents race, color, religion, national origin, citizenship, marital status, gender (including pregnancy), gender identity, gender expression, sexual orientation, age, disability, veteran status, or other characteristics protected by law. We are committed to providing equal opportunities to every member of our workforce.
Funk, age 52, Executive Vice President and Chief Financial Officer . Ms. Funk joined EnerSys in December 2018 and served as Vice President Finance, Americas. She was promoted to Executive Vice President & Chief Fin ancial Officer effective April 1, 2022. Ms.
Funk, age 53, Executive Vice President and Chief Financial Officer . Ms. Funk joined EnerSys in December 2018 and served as Vice President Finance, Americas. She was promoted to Executive Vice President & Chief Fin ancial Officer effective April 1, 2022. Ms.
We are aware of the proposed rule on climate disclosure released by the SEC in March of this year. While we are following the progression of the rule, we are pleased to note that we are preparing to meet many of its conditions in advance. We released our inaugural, comprehensive Sustainability Report, which was aligned with GRI and SASB standards.
We are aware of the proposed rules on climate disclosure released by the SEC in March of last year. While we are following the progression of the rule, we are pleased to note that we are preparing to meet many of its conditions in advance. We released our inaugural, comprehensive Sustainability Report, which was aligned with GRI and SASB standards.
The ISO 45001 is a globally recognized occupational health and safety management systems standard. Climate change impacts The potential impact of climate change on our operations is uncertain. The changing climate may result in weather patterns, increases in the frequency or severity of storms, increased temperatures and rising sea levels.
The ISO 45001 is a globally recognized occupational health and safety management systems standard. Climate change impacts The potential impact of climate change on our operations is uncertain. The changing climate may result in new and erratic weather patterns, increases in the frequency or severity of storms, increased and decreased temperatures and rising sea levels.
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 2022 ended on July 4, 2021, October 3, 2021, January 2, 2022, and March 31, 2022, respectively.
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 ended on July 3, 2022, October 2, 2022, January 1, 2023, and March 31, 2023, respectively.
Conversely, if climate change results in a greater amount of rainfall, snow, ice or other less accommodating weather conditions, we could experience reduced productivity, which could negatively impact our revenues and gross margins.
Conversely, if climate change results in a greater amount of rainfall, snow, ice or other less accommodating weather 10 Table of Contents conditions, we could experience reduced productivity, which could negatively impact our revenues and gross margins.
We allocate our resources to the following key areas: • the design and development of new products; • optimizing and expanding our existing product offering; • waste and scrap reduction; • production efficiency and utilization; • capacity expansion without additional facilities; and • quality attribute maximization. Employees At March 31, 2022, we had approximately 11,400 employees.
We allocate our resources to the following key areas: • the design and development of new products; • optimizing and expanding our existing product offering; • waste and scrap reduction; • production efficiency and utilization; • capacity expansion without additional facilities; and • quality attribute maximization. Employees At March 31, 2023, we had approximately 11,350 employees.
Climate change may also affect the conditions in which we operate, and in some cases, expose us to potentially increased liabilities associated with those environmental conditions. Concerns about climate change could also result in potential new regulations, regulatory actions or requirements to fund energy efficiency activities, any of which could result in increased costs associated with our operations.
Climate change may also affect the conditions in which we operate, and in some cases, expose us to potentially increased liabilities associated with those environmental conditions. Concerns about climate change could also result in new regulations, regulatory actions or requirements to invest in energy efficiency, any of which could result in increased costs associated with our operations.
These actions demonstrate the strength and commitment to sustainability throughout the organization worldwide. 12 Table of Contents Available Information We file annual, quarterly and current reports, proxy statements and other information with the SEC. These filings are available to the public on the Internet at the SEC’s website at http ://www.sec.gov . Our Internet address is http://www.enersys.com .
These actions demonstrate the strength and commitment to sustainability throughout the organization worldwide. Available Information We file annual, quarterly and current reports, proxy statements and other information with the SEC. These filings are available to the public on the Internet at the SEC’s website at http ://www.sec.gov . Our Internet address is http://www.enersys.com .
We consider talent acquisition, development, engagement and retention a key driver of our business success. Our Board of Directors, through the Compensation Committee and the Nominating and Corporate Governance Committee, retains oversight of our human capital management process, including demographics, talent development, employee retention, material aspects of employee compensation, as well as diversity and inclusion and recruitment efforts.
We consider talent acquisition, development, engagement and retention critical key drivers of our business success. Our Board of Directors, through the Compensation Committee and the Nominating and Corporate Governance Committee, retains oversight of our human capital management process, including demographics, talent development, employee retention, material aspects of employee compensation, as well as diversity and inclusion and recruitment efforts.
Product and Process Development Our product and process development efforts are focused on the creation of new stored energy products, and integrated power systems and controls.
Product and Process Development Our product and process development efforts are focused on the creation of new energy storage products, and integrated power systems and controls.
See Note 23 to the Consolidated Financial Statements for information on segment reporting. Fiscal Year Reporting In this Annual Report on Form 10-K, when we refer to our fiscal years, we state “fiscal” and the year, as in “fiscal 2022”, which refers to our fiscal year ended March 31, 2022.
See Note 23 to the Consolidated Financial Statements for information on segment reporting. Fiscal Year Reporting In this Annual Report on Form 10-K, when we refer to our fiscal years, we state “fiscal” and the year, as in “fiscal 2023”, which refers to our fiscal year ended March 31, 2023.
We expect our suppliers will share and embrace our values, as well as our commitment to regulatory compliance. We have formed an ESG steering committee, which includes members of senior management and funded additional staffing to further support the ongoing development of our ESG program.
We expect our suppliers will share and embrace our values, as well as our commitment to regulatory compliance. 12 Table of Contents We have an ESG steering committee, which includes members of senior management and funded additional staffing to further support the ongoing development of our ESG program.
The four quarters in fiscal 2021 ended on July 5, 2020, October 4, 2020, January 3, 2021, and March 31, 2021, respectively. History EnerSys and its predecessor companies have been manufacturers of industrial batteries for over 125 years.
The four quarters in fiscal 2022 ended on July 4, 2021, October 3, 2021, January 2, 2022, and March 31, 2022, respectively. History EnerSys and its predecessor companies have been manufacturers of industrial batteries for over 125 years.
Further, while an increase in severe weather events, such as hurricanes, tropical storms, blizzards and ice storms, can create a greater amount of emergency 10 Table of Contents restoration service work, it often also can result in delays or other negative consequences for our manufacturing operations, or challenges to the consistent delivery of materials from our supply chain or of our products to distributors, which could negatively impact our financial results.
Further, while an increase in severe weather events, such as hurricanes, tropical storms, blizzards and ice storms, can create a greater amount of emergency restoration service work (an area of potential revenue generation), it often also can result in delays or other negative consequences for our manufacturing operations, or challenges to the consistent delivery of materials from our supply chain or of our products to distributors, which could negatively impact our financial results.
Of these employees, approximately 26% were covered by collective bargaining agreements. Employees covered by collective bargaining agreements that expire in the next twelve months were approximately 7% of the total workforce. The average term of these agreements is 2 years, with the longest term being 3.5 years. We consider our employee relations to be good.
Of these employees, approximately 26% were covered by collective bargaining agreements. Employees covered by collective bargaining agreements that expire in the next twelve months were approximately 9% of the total workforce. The average term of these agreements is 2 years, with the longest term being 4.0 years. We consider our employee relations to be good.
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.
The Company identifies the following as its three operating segments, based on lines of business: 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 used in data centers, as well as telecommunications systems, switchgear and electrical control systems used in industrial facilities and electric utilities, large-scale energy storage and energy pipelines.
We did not experience any significant labor unrest or disruption of production during fiscal 2022. Information about Our Executive Officers As of May 25, 2022, our executive officers are: David M. Shaffer, age 57, President and Chief Executive Officer . Mr.
We did not experience any significant labor unrest or disruption of production during fiscal 2023. Information about Our Executive Officers As of May 24, 2023, our executive officers are: David M. Shaffer, age 58, President and Chief Executive Officer . Mr.
Energy Systems also includes highly integrated power solutions and services to broadband, telecom, renewable and industrial customers, as well as thermally managed cabinets and enclosures for electronic equipment and batteries. • Motive Power - power for electric industrial forklifts used in manufacturing, warehousing and other material handling applications as well as mining equipment, diesel locomotive starting and other rail equipment; and • Specialty - premium starting, lighting and ignition applications in transportation, energy solutions for satellites, military aircraft, submarines, ships and other tactical vehicles as well as medical and security systems.
Energy Systems also includes highly integrated power solutions and services to broadband, telecom, renewable and industrial customers, as well as thermally managed cabinets and enclosures for electronic equipment and batteries. • Motive Power - power for electric industrial forklifts used in manufacturing, warehousing and other material handling applications as well as mining equipment, diesel locomotive starting and other rail equipment; and • Specialty - premium batteries for starting, lighting and ignition applications in premium automotive and large over-the-road trucks, energy storage solutions for satellites, military land vehicles, aircraft, submarines, tactical vehicles, as well as medical devices and equipment.
Energy Systems which combine enclosures, power conversion, power distribution and energy storage are used in the telecommunication and broadband, utility industries, uninterruptible power supplies, and numerous applications requiring stored energy solutions. Motive Power batteries and chargers are utilized in electric forklift trucks and other industrial electric powered vehicles.
Energy Systems, which combine power conversion, power distribution, energy storage, and thermally managed enclosures, are used in the telecommunication, broadband, data center, and utility industries, for uninterruptible power and numerous other applications requiring stored energy solutions. Motive Power batteries and chargers are utilized in electric forklift trucks, automated guided vehicles, and other industrial electric powered vehicles.
Relationships between EnerSys and our suppliers must be based on mutual respect and integrity. Our purchasing and quality teams strive to maintain the highest standards and principles of business ethics, courtesy and competence in dealings and transactions with suppliers. Our code of supplier conduct reflects our commitment to the values of honesty, integrity, respect, and responsibility.
Our purchasing and quality teams strive to maintain the highest standards and principles of business ethics, courtesy and competence in dealings and transactions with suppliers. Our code of supplier conduct reflects our commitment to the values of honesty, integrity, respect, and responsibility.
Department of Energy’s Better Plants Program (through which we committed to reducing our energy intensity by 25% over the next 10 years (from a calendar year 2020 baseline)), the United Nations CEO Water Mandate.
We are members of United Nations Global Compact, Alliance to Save Energy, the U.S. Department of Energy’s Better Plants Program (through which we committed to reducing our energy intensity by 25% over the next 10 years (from a calendar year 2020 baseline)), and the United Nations CEO Water Mandate.
We provide employee wages that are consistent with employee positions, skill levels, experience, knowledge and geographic location. We align our executives' and eligible employees' annual bonus opportunity and long-term equity compensation with our stockholders' interests by linking realizable pay with company financial and stock performance.
We provide employee wages that are consistent with employee positions, skill levels, experience, knowledge and geographic location. We align our executives’ and eligible employees’ annual bonus opportunity and long-term equity compensation with our stockholders’ interests by linking realizable pay with company financial performance. In addition, we perform annual pay equity studies to evaluate our global pay practices across the organization.
ITEM 1. BUSINESS Overview EnerSys (the “Company,” “we,” or “us”) is a world leader in stored energy solutions for industrial applications. We also manufacture and distribute energy systems solutions and motive power batteries, specialty batteries, battery chargers, power equipment, battery accessories and outdoor equipment enclosure solutions to customers worldwide.
ITEM 1. BUSINESS Overview EnerSys (the “Company,” “we,” or “us”) is a world leader in energy storage and power solutions for industrial applications. We design, manufacture, and distribute energy systems solutions, motive power batteries, specialty batteries, battery chargers, power equipment, battery accessories and outdoor thermal equipment enclosures solutions for a global customer base.
During the first quarter of fiscal 2021, the Company's chief operating decision maker, or CODM (the Company's Chief Executive Officer), changed the manner in which he reviews financial information for purposes of assessing business performance and allocating resources, by focusing on the lines of business on a global basis, rather than on geographic basis.
The Company's chief operating decision maker, or CODM (the Company's Chief Executive Officer), reviews financial information for purposes of assessing business performance and allocating resources, by focusing on the lines of business on a global basis.
Our health and safety programs are designed around global standards with appropriate variations addressing the multiple jurisdictions and regulations, specific hazards and unique working environments of our manufacturing and production facilities, service centers and headquarter operations. Above all else, we are dedicated to the safety and well-being of our employees.
This undertaking is explained further in our Safety and Health Policy. Our health and safety programs are designed around global standards with appropriate variations addressing the multiple jurisdictions and regulations, specific hazards and unique working environments of our manufacturing and production facilities, service centers and headquarter operations.
Philanthropy and Volunteerism : EnerSys is strongly committed to being an outstanding corporate citizen on a global basis in all the countries and communities where we do business.
Philanthropy and Volunteerism : Over the past fiscal year we created an executive level committee dedicated to encouraging and supporting charitable efforts by EnerSys globally . EnerSys is strongly committed to being an outstanding corporate citizen on a global basis in all the countries and communities where we do business.
Included in this report, we announced key, measurable ESG goals and objectives aimed at advancing progress in sustainability, reducing our environmental footprint and creating an inclusive and empowering workplace for all employees. We also expect to issue our inaugural TCFD report during fiscal 2023.
Included in this report, we announced key, measurable environmental, social, and governance (“ESG”) goals and objectives aimed at advancing progress in sustainability, reducing our environmental footprint and creating an inclusive and empowering workplace for all employees. We also issued our inaugural Task Force of Climate Related Financial Disclosures (TCFD) Report in December 2022.
To that end, we have been integrating the fundamental values of environmental, social, and governance (“ESG”) into our everyday operations and future business strategies. Our sustainability team leads our efforts with respect to climate change management, product sustainability, operations, supply chain management, workforce health and safety, diversity, equity, inclusion, and community engagement.
To that end, we have been integrating the fundamental values of ESG into our everyday operations and future business strategies. Our Sustainability Team leads ESG our efforts with respect to climate change management, product sustainability, operations, supply chain management. Sustainability, reliability and resilience are at the core of who we are and what we do at EnerSys every day.
These customers include material handling equipment dealers, forklift and heavy truck original equipment manufacturers (“OEMs”) and end users of such equipment. End users include manufacturers, distributors, warehouse operators, retailers, airports, mine operators and railroads. Our Specialty products are utilized in transportation, aerospace and defense and medical markets.
End users include manufacturers, distributors, warehouse operators, retailers, airports, mine operators and railroads. Our Specialty products are utilized in transportation, primarily in premium automotive and large over-the-road trucking, aerospace and defense and medical markets.
Our environmental policies and practices aim to protect, conserve, and sustain the world’s natural resources, as well as to protect our customers and the communities in which we live and operate. As one example of this, we offer a complete battery recycling program to assist our customers in preserving our environment and comply with recycling and waste disposal regulations.
As one example of this, we offer a complete battery recycling program to assist our customers in preserving our environment and comply with recycling and waste disposal regulations. Relationships between EnerSys and our suppliers must be based on mutual respect and integrity.
These customers are in diverse markets including telecom, UPS, electric utilities, security systems, emergency lighting, services to broadband, renewable and industrial customers, as well as thermally managed cabinets and enclosures for electronic equipment and batteries. Our Motive Power products are sold to a large, diversified customer base.
These customers are in diverse markets including telecommunication and broadband services, data centers, electric utilities, emergency lighting, renewable energy, and industrial utilities. Our Motive Power products are sold to a large, diversified customer base. These customers include material handling equipment dealers, forklift and heavy truck original equipment manufacturers (“OEMs”) and end users of such equipment.
We intend to continue to conduct a climate risk analysis in the coming year and have completed an analysis of our Scope 1 and 2 emissions. We strive to operate our facilities in a manner that protects the environment and the health and safety of our employees, customers and communities.
In 2022, we also submitted our CDP Climate Change disclosure to maintain transparency with our stakeholders and track our progress towards a low carbon society. We intend to continue to conduct a climate risk analysis in the coming year and have completed an analysis of our Scope 1 and 2 emissions.
The Nominating and Corporate Governance Committee reports on human capital matters at each regularly scheduled Board of Directors meeting. The most significant human capital measures, objectives and initiatives include the following: Equity, Inclusion and Belonging: We strive to create a work environment that emphasizes respect, fairness and dignity and that does not tolerate discrimination or harassment.
The Nominating and Corporate Governance Committee reports on human capital matters at each regularly scheduled Board of Directors meeting. The most significant human capital measures, objectives and initiatives include the following: Health, Safety, and Wellness: Our fundamental responsibility as an employer is to provide a safe and healthy workplace for all our employees.
In addition, we clarified that our Board of Directors oversees our programs related to matters of corporate responsibility and sustainability performance, including climate change, through the Nominating and Corporate Governance Committee. We also announced in April 2022 that we joined the United Nations Global Compact, Alliance to Save Energy, the U.S.
Our Board of Directors oversees our programs related to matters of corporate responsibility and sustainability performance, including climate change, through the Nominating and Corporate Governance Committee. We publish an annual Sustainability Report, including ESG data, as well as a Task Force on Climate Related Financial Disclosures report and submission to the CDP.
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As a result of this change, the Company re-evaluated the identification of its operating segments and reportable segments. The operating segments were identified as Energy Systems, Motive Power and Specialty. The Company’s operating segments also represent its reportable segments under ASC 280, Segment Reporting .
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Additionally, we have taken the initial steps to quantify our Scope 3 emissions as we understand that identifying the impacts associated with our production, distribution, and use of our products is critical for further climate risk mitigation.
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Therefore, the Company had changed its segment presentation from three reportable segments based on geographic basis to three reportable segments based on line of business. All prior comparative periods presented have been recast to reflect these changes.
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We strive to operate our facilities in a manner that protects the environment and the health and safety of our employees, customers and communities. We have established required sustainability training for identified employees and incorporate climate and other sustainability considerations into our formal decision-making processes.
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Health, Safety, and Wellness: Our fundamental responsibility as an employer is to provide a safe and healthy workplace for all our employees. This undertaking is explained further in our Safety and Health Policy.
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Above all else, we are dedicated to the safety and well-being of our employees. Diversity, Equity, Inclusion and Belonging: We strive to create a work environment that emphasizes respect, fairness and dignity and that does not tolerate discrimination or harassment.
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As the COVID-19 pandemic unfolded in 2020, we quickly shifted to a remote work environment where possible, and provided employees with the resources necessary to effectively perform their job responsibilities. Additionally, we implemented changes 11 Table of Contents to our manufacturing and distribution operations to include the use of personal protective equipment, intensive cleaning measures, and social distancing.
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Our products help tackle some of our world’s most significant challenges, be it addressing the impacts of climate change, decarbonization, efficient and affordable distribution of goods, grid reliability, telecommunications, and even medical safety. Our batteries and energy storage solutions are part of building a resilient, low-carbon future.
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We completed an initial pay equity study in fiscal year 2021 to further evaluate our global pay practices across the organization. In response to the COVID-19 pandemic, we provided resources for well-being and work life flexibility for our employees to take care of themselves and their families.
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Sustainability at EnerSys is, however, about more than just the benefits and impacts of our products. Our commitment encompasses essential ESG issues fundamental to how we manage our own operations. Minimizing our environmental footprint and providing a safe and inclusive workplace for our employees are top priorities for EnerSys.
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Our climate change policy underscores our goal to carry out all business activities in a sustainable manner. Our environmental policies and practices aim to protect, conserve, and sustain the world’s natural resources, as well as to protect our customers and the communities in which we live and operate.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

101 edited+72 added−35 removed54 unchanged
Biggest changeThis level of debt could: • increase our vulnerability to adverse general economic and industry conditions, including interest rate fluctuations, because a portion of our borrowings bear, and will continue to bear, interest at floating rates; • require us to dedicate a substantial portion of our cash flow from operations to debt service payments, which would reduce the availability of our cash to fund working capital, capital expenditures or other general corporate purposes, including acquisitions; • limit our flexibility in planning for, or reacting to, changes in our business and industry; • restrict our ability to introduce new products or technologies or exploit business opportunities; • place us at a disadvantage compared with competitors that have proportionately less debt; • limit our ability to borrow additional funds in the future, if we need them, due to financial and restrictive covenants in our debt agreements; and • have a material adverse effect on us if we fail to comply with the financial and restrictive covenants in our debt agreements.
Biggest changeThis level of debt could: • increase our vulnerability to adverse general economic and industry conditions, including interest rate fluctuations, because a portion of our borrowings bear, and will continue to bear, interest at floating rates; • require us to dedicate a substantial portion of our cash flow from operations to debt service payments, which would reduce the availability of our cash to fund working capital, capital expenditures or other general corporate purposes, including acquisitions; • limit our flexibility in planning for, or reacting to, changes in our business and industry; • restrict our ability to introduce new products or technologies or exploit business opportunities; • place us at a disadvantage compared with competitors that have proportionately less debt; • limit our ability to borrow additional funds in the future, if we need them, due to financial and restrictive covenants in our debt agreements; • limit our operating and financial flexibility due to financial and restrictive covenants in our debt agreements; and • have a material adverse effect on us if we fail to comply with the financial and restrictive covenants in our debt agreements. 21 Table of Contents In addition, our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to financial, business, legislative, regulatory and other factors, some of which are beyond our control.
Any determination that our operations or activities, or the activities of our employees, are not in compliance with existing laws, regulations or standards could result in the imposition of substantial fines, interruptions of business, loss of supplier, vendor, customer or other third-party relationships, termination of necessary licenses and permits, or similar results, all of which could potentially harm our business and/or reputation.
Any determination that our operations or activities, or the activities of our employees, are not in compliance with existing laws, regulations or standards could result in the imposition of substantial fines, interruptions of business, loss of supplier, vendor, customer or other third-party relationships, termination of necessary licenses and permits, or similar results, all of which could potentially harm our business and reputation.
Even if an inquiry does not result in these types of determinations, regulatory authorities could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business, and it potentially could create negative publicity which could harm our business and/or reputation.
Even if an inquiry does not result in these types of determinations, regulatory authorities could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business, and it potentially could create negative publicity which could harm our business and reputation.
Our services or any other products that we may introduce in the future may contain undetected software bugs, hardware errors, and other vulnerabilities. These bugs and errors can manifest in any number of ways in our products, including through diminished performance, security vulnerabilities, malfunctions, or even permanently disabled products.
Our services or any other products that we may introduce in the future may contain undetected software bugs, hardware errors and other vulnerabilities. These vulnerabilities can manifest in any number of ways in our products, including through diminished performance, security vulnerabilities, malfunctions, or even permanently disabled products.
We cannot assure you that we will be able to either hedge the costs or secure the availability of our raw material requirements at a reasonable level or, even with respect to our agreements that adjust pricing to a market-based index for lead, pass on to our customers the increased costs of our raw materials without affecting demand or that limited availability of materials will not impact our production capabilities.
However, we cannot assure you that we will be able to either hedge the costs or secure the availability of our raw material requirements at a reasonable level or, even with respect to our agreements that adjust pricing to a market-based index for lead, pass on to our customers the increased costs of our raw materials without affecting demand or that limited availability of materials will not impact our production capabilities.
Failure of these third parties to meet their contractual, regulatory and other obligations to the Company, or the development of factors that materially disrupt our relationships with these third parties, could expose us to the risks of business disruption, higher commodity and interest costs, unfavorable foreign currency rates and higher expenses, which could have a material adverse effect on our business.
Failure of these third parties to meet their contractual, regulatory and other obligations to us, or the development of factors that materially disrupt our relationships with these third parties, could expose us to the risks of business disruption, higher commodity and interest costs, unfavorable foreign currency rates and higher expenses, which could have a material adverse effect on our business.
Additionally, our products may become subject to fees and taxes in order to fund cleanup of such properties, including those operated or used by other lead-battery industry participants. Changes in environmental and climate laws or regulations could lead to new or additional investment in production designs and could increase environmental compliance expenditures.
Additionally, our products may become subject to fees and taxes in order to fund cleanup of such properties, including those operated or used by other lead-battery industry participants. Changes in environmental and climate-related laws and regulations could lead to new or additional investment in production designs and could increase environmental compliance expenditures.
Also, the U.S. Foreign Corrupt Practices Act (“FCPA”) and similar worldwide anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. The FCPA applies to companies, individual directors, officers, employees and agents.
Foreign Corrupt Practices Act (“FCPA”) and similar worldwide anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. The FCPA applies to companies, individual directors, officers, employees and agents.
Any disruption in the supply of battery components could temporarily disrupt production of our products until a different supplier is fully qualified. The cost of our battery products depends in part upon the prices and availability of raw materials such as lithium, nickel, cobalt and/or other metals.
Any disruption in the supply of battery components could temporarily disrupt production of our products until a different supplier is fully qualified. The cost of our battery products depends in part upon the prices and availability of raw materials such as lead, lithium, nickel, cobalt or other metals.
We currently have significant manufacturing and/or distribution facilities outside of the United States, in Argentina, Australia, Belgium, Brazil, Canada, the Czech Republic, France, Germany, India, Italy, Malaysia, Mexico, the PRC, Poland, Spain, Switzerland and the United Kingdom.
We currently have significant manufacturing and distribution facilities outside of the United States, in Argentina, Australia, Belgium, Brazil, Canada, the Czech Republic, France, Germany, India, Italy, Malaysia, Mexico, the PRC, Poland, Spain, Switzerland and the United Kingdom.
This includes, for example, the uncertainty related to the United Kingdom’s withdrawal from the European Union (commonly known as “Brexit”) the current conflict between Russia and Ukraine, ongoing terrorist activity, the adoption and expansion of trade restrictions, including the occurrence or escalation of a "trade war," or other governmental action related to tariffs or trade agreements or policies among the governments of the United States, the PRC and other countries and other global events.
This includes, for example, the uncertainty related to the United Kingdom’s withdrawal from the European Union (commonly known as “Brexit”) the current conflict between Russia and Ukraine, ongoing terrorist activity, the adoption and expansion of trade restrictions, including the occurrence or escalation of a “trade war,” or other governmental action related to tariffs or trade agreements or policies among the governments of the United States, the PRC and other countries and other global events.
For certain important and growing markets, including markets served by our Motive Power and Energy Storage business segments, lithium-based battery technologies have a large and growing market share.
For certain important and growing markets, including markets served by our Motive Power and Energy Storage business segments, lithium-based battery technologies have a growing market share.
In addition, we provide confidential and proprietary information to our third-party business partners in certain cases where doing so is necessary to conduct our business.
We provide confidential and proprietary information to our third-party business partners in certain cases where doing so is necessary to conduct our business.
Any compromise of the confidential data of our customers, suppliers, partners, employees or ourselves, or failure to prevent or mitigate the loss of or damage to this data through breach of our information technology systems or other means could substantially disrupt our operations, harm our customers, employees and other 21 Table of Contents business partners, damage our reputation, violate applicable laws and regulations, subject us to potentially significant costs and liabilities and result in a loss of business that could be material.
Any compromise of the confidential data of our customers, suppliers, partners, employees or ourselves, or failure to prevent or mitigate the loss of or damage to this data through breach of our information technology systems or other means could substantially disrupt our operations, harm our customers, employees and other business partners, damage our reputation, violate applicable laws and regulations, subject us to potentially significant costs and liabilities and result in a loss of business that could be material.
Recent effects of Brexit include changes in customs regulations, shortages of truck drivers in the U.K., and administrative burdens placed on transportation companies, which have led to challenges and delays in moving inventory across U.K./EU borders, and higher importation, freight and distribution costs. If such trends continue, we may experience further cost increases.
Effects of Brexit include changes in customs regulations, shortages of truck drivers in the U.K., and administrative burdens placed on transportation companies have led to challenges and delays in moving inventory across U.K. or EU borders, and higher importation, freight and distribution costs. If such trends continue, we may experience further cost increases.
We depend on third parties, including suppliers, distributors, lead toll operators, freight forwarders, insurance brokers, commodity brokers, major financial institutions and other third party service providers, for key aspects of our business, including the provision of derivative contracts to manage risks of (a) commodity cost volatility, (b) foreign currency exposures and (c) interest rate volatility.
We depend on third parties, including suppliers, distributors, lead toll operators, freight forwarders, insurance brokers, commodity brokers, major financial institutions and other third party service providers, for key aspects of our business, including the provision of derivative contracts to manage risks of commodity cost volatility, foreign currency exposures and interest rate volatility.
These costs have been primarily composed of employee separation costs, including severance payments, and asset impairments or losses from disposal. We also undertake restructuring activities and programs to improve our cost structure in connection with our business acquisitions, which can result in significant charges, including charges for severance payments to terminated employees and asset impairment charges.
These costs have been primarily composed of employee separation costs, including severance payments, and asset impairments or losses from disposal. We also undertake restructuring activities and 15 Table of Contents programs to improve our cost structure in connection with our business acquisitions, which can result in significant charges, including charges for severance payments to terminated employees and asset impairment charges.
These initiatives include relocating manufacturing to lower cost regions, working with our material suppliers to lower costs, product design and manufacturing improvements, personnel reductions and voluntary retirement programs, and strategically planning capital expenditures and development activities. In the past we have recorded net restructuring charges to cover costs associated with our cost reduction initiatives involving restructuring.
These initiatives include relocating manufacturing to lower cost regions, consolidating and closing facilities, working with our material suppliers to lower costs, product design and manufacturing improvements, personnel reductions and voluntary retirement programs, and strategically planning capital expenditures and development activities. In the past we have recorded net restructuring charges to cover costs associated with our cost reduction initiatives involving restructuring.
As a result, we are subject to extensive and changing environmental, health and safety laws and regulations governing, among other things: the generation, handling, storage, use, transportation and disposal of hazardous materials; remediation of polluted ground or water; emissions or discharges of hazardous materials into the ground, 16 Table of Contents air or water; and the health and safety of our employees.
As a result, we are subject to extensive and changing environmental, health and safety laws and regulations governing, among other things: the generation, handling, storage, use, transportation and disposal of hazardous materials; remediation of polluted ground or water; emissions or discharges of hazardous materials into the ground, air or water; and the health and safety of our employees.
A loss of any such personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, financial condition and results of operations. In addition, if we are unsuccessful in our succession planning efforts, the continuity of our business and results of operations could be adversely affected.
A loss of any such personnel, or the inability to recruit and retain qualified personnel in the future, could have a material adverse effect on our business, financial condition and results of operations. In addition, if we are unsuccessful in our succession planning efforts, the continuity of our business and our results of operations could be materially adversely affected.
Government reviews, inquiries, investigations, and actions could harm our business or reputation. As we operate in various locations around the world, our operations in certain countries are subject to significant governmental scrutiny and may be adversely impacted by the results of such scrutiny.
Government reviews, inquiries, investigations and actions could harm our business or reputation. 19 Table of Contents As we operate in various locations around the world, our operations in certain countries are subject to significant governmental scrutiny and may be adversely impacted by the results of such scrutiny.
From time to time, we may experience increases in the cost or a sustained interruption in the supply or shortage of our components. For example, a global shortage and component supply disruptions of electronic and other battery components is currently being reported, and the full impact to us is yet unknown.
From time to time, we may experience increases in the cost or a sustained interruption in the supply or shortage of our components. For example, a global shortage and component supply disruptions of electronic and other battery components is currently being reported, and the full impact to us is not yet known.
We are exposed to exchange rate and inflation risks, and our net earnings and financial condition may suffer due to currency translations. We invoice our foreign sales and service transactions in local and foreign currencies and translate net sales using actual exchange rates during the period.
We are exposed to exchange rate and inflation risks, and our net earnings and financial condition may suffer due to currency translations. 20 Table of Contents We invoice our foreign sales and service transactions in local and foreign currencies and translate net sales using actual exchange rates during the period.
Our dividend payments may change from time to time, and we cannot provide assurance that we will continue to declare dividends at all or in any particular amounts. A reduction in or elimination of our dividend payments could have a negative effect on our share price.
Our dividend payments may change from time to time, and we cannot assure you that we will continue to declare dividends at all or in any particular amounts. A reduction in or elimination of our dividend payments could have a negative effect on our share price.
In the event that one or more European countries were to replace the euro with another currency, our sales into such countries, or into Europe generally, would likely be adversely affected until stable exchange rates are established.
The euro is the dominant currency in our EMEA operations. In the event that one or more European countries were to replace the euro with another currency, our sales into such countries, or into Europe generally, would likely be adversely affected until stable exchange rates are established.
Changes in tax laws or tax rulings could materially affect our financial position, results of operations, and cash flows. The income and non-income tax regimes we are subject to or operate under are unsettled and may be subject to significant change.
Changes in tax laws or tax rulings could materially affect our business, financial position and results of operations. The income and non-income tax regimes to which we are subject or under which we operate are unsettled and may be subject to significant change.
Moreover, Federal Reserve policy, including with respect to rising interest rates and the decision to end its quantitative easing policy, may also result in market volatility and/or a return to unfavorable economic conditions.
Moreover, Federal Reserve Bank of the United States policy, including with respect to rising interest rates and the decision to end its quantitative easing policy, may also result in market volatility or a return to unfavorable economic conditions.
We have a practice of regularly updating our products and some errors in our products may be discovered only after a product has been used by users, and may in some cases be detected only under certain circumstances or after extended use.
We have a practice of regularly updating our products, and some errors in our products may be discovered only after a product has been used. In some cases, any vulnerabilities may only be detected under certain circumstances or after extended use.
We rely on a combination of copyright, trademark, patent and trade secret laws, non-disclosure agreements and other confidentiality procedures and contractual provisions to establish, protect and maintain our proprietary intellectual property and technology and other confidential information. Certain of these technologies, especially TPPL technology, are important to our business and are not protected by patents.
We rely on a combination of copyright, trademark, patent and trade secret laws, non-disclosure agreements and other confidentiality procedures and contractual provisions to establish, protect and maintain our proprietary intellectual property and technology and other confidential information. Certain of these technologies, especially thin plate pure lead (“TPPL”) technology, are important to our business and are not protected by patents.
Any reduced availability of these raw materials or substantial increases in the prices for such materials may increase the cost of our components and consequently, the cost of our products.
Any reduced availability of these raw materials or substantial increases in their prices may increase the cost of our components and consequently, the cost of our products.
We must continue to recruit, retain and motivate senior management and other key employees sufficient to maintain our current business and support our future projects. We are vulnerable to attrition among our current senior management team and other key employees.
We must continue to recruit, retain and motivate senior management 25 Table of Contents and other key employees sufficient to maintain our current business and support our future projects. We are vulnerable to attrition among our current senior management team and other key employees.
If we do not have adequate access to credit, we may be unable to refinance our existing borrowings and credit facilities when they mature and to fund future acquisitions, and this may reduce our flexibility in responding to changing industry conditions. Our indebtedness could adversely affect our financial condition and results of operations.
If we do not have adequate access to credit, we may be unable to refinance our existing borrowings and credit facilities when they mature and fund future acquisitions, which may reduce our flexibility in responding to changing industry conditions and materially adversely affect our business, financial condition and results of operations.
If we are unable to do so on a timely basis or within reasonable cost parameters, or if we are unable to appropriately and timely train our employees to operate any of these new systems, our business could suffer.
If we are unable to do so on a timely basis or within reasonable cost parameters, or if we are unable to appropriately and timely train our employees to operate any of these new systems or technologies, our business could be adversely affected.
Additionally, countries may impose prolonged quarantines and travel restrictions, which may significantly impact the ability of our employees to get to their places of work to produce products, may make it such that we are unable to obtain sufficient components or raw materials and component parts on a timely basis or at a cost-effective price or may significantly hamper our products from moving through the supply chain.
In response to public health epidemics or outbreaks, countries imposed prolonged quarantines and travel restrictions, which may significantly impact the ability of our employees to get to their places of work to produce products, may make it such that we are unable to obtain sufficient components or raw materials and component parts on a timely basis or at a cost-effective price or may significantly hamper our products from moving through the supply chain.
Due to the large and expanding scale of our international business activities, many of these types of changes to the taxation of our activities could increase our worldwide effective tax rate and harm our financial position, results of operations, and cash flows.
Due to the large and expanding scale of our international business activities, many of these types of changes to the taxation of our activities could increase our worldwide effective tax rate and adversely affect our business, financial position and results of operations.
We cannot assure you that we will be able to compete effectively with manufacturing operations of energy storage products in those territories, whether by establishing or expanding our manufacturing operations in those lower-cost territories or acquiring existing manufacturers. Quality problems with our products could harm our reputation and erode our competitive position.
We cannot assure you that we will be able to compete effectively with our competitors located in those territories, whether by establishing or expanding our manufacturing operations in those territories or acquiring existing manufacturers in those territories. Quality problems with our products could harm our reputation and erode our competitive position.
Future acquisitions may involve the issuance of our equity securities as payment, in part or in full, for the businesses or assets acquired. Any future issuances of equity securities would dilute stockholder ownership interests.
Future acquisitions may involve the issuance of our equity securities as payment, in part or in full, for the businesses or assets acquired. Any future issuances of equity securities may dilute our stockholders’ proportionate ownership interests in EnerSys.
Any errors, bugs or other vulnerabilities discovered in our code or backend after release could damage our reputation, drive away users, allow third parties to manipulate or exploit our software, lower revenue and expose us to claims for damages, any of which could seriously harm our business.
Any errors, bugs or other vulnerabilities discovered in our code or backend after release could damage our reputation, alienate users, allow third parties to manipulate or exploit our software, lower revenue and expose us to claims for damages, any of which could adversely affect our business.
Future payment of a regular quarterly cash dividend on our common shares will be subject to, among other things, our results of operations, cash balances and future cash requirements, financial condition, statutory requirements of Delaware law, compliance with the terms of existing and future indebtedness and credit facilities, and other factors that the Board of Directors may deem relevant.
Future payment of a regular quarterly cash dividend on our common shares will be subject to, among other things, our results of operations, cash balances and future cash requirements, financial condition, statutory requirements of Delaware law, compliance with the terms of existing and future indebtedness and credit facilities, changes in federal and state income tax laws, changes in our business model and other factors that our Board of Directors may deem relevant.
We cannot guarantee that our share repurchase programs will be fully consummated or that they will enhance long-term stockholder value. Share repurchases could also increase the volatility of the trading price of our stock and could diminish our cash reserves.
We cannot guarantee that our share repurchase programs will be fully consummated or that they will enhance long-term stockholder value. Share repurchases could also increase the volatility of the market price of our stock and diminish our cash reserves. Our Board of Directors has authorized two share repurchase programs.
The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology or intercompany arrangements, which could increase our worldwide effective tax rate and harm our financial position, results of operations, and cash flows.
The taxing authorities of the jurisdictions in which we operate may challenge our tax positions and methodologies for valuing developed technology or intercompany arrangements, which could increase our worldwide effective tax rate and adversely impact our business, financial position and results of operations.
Other examples of shortages and component supply disruptions could include the supply of electronic components and raw materials (such as resins and other raw metal materials) that go into the production of our products. Any such cost increase or supply interruption could materially and negatively impact our business, prospects, financial condition and operating results.
Other shortages and component supply disruptions could affect the supply of electronic components and raw materials (such as resins and other raw metal materials) that go into the production of our products. Cost increases or supply interruptions could materially and negatively impact our business, prospects, financial condition and operating results.
Monitoring unauthorized use of our brand names is 20 Table of Contents difficult, and we cannot be certain that the steps we have taken will prevent their unauthorized use, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the U.S.
Monitoring unauthorized use of our brand names is difficult, and we cannot assure you that the steps we have taken will prevent the unauthorized use of our brand names, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the U.S.
The programs could affect the trading price of our stock and increase volatility, and any announcement of a termination of these programs may result in a decrease in the trading price of our stock.
The programs could affect the trading price of our stock and increase volatility, and any announcement of a termination of these programs may result in a decrease in the market price of our stock. In addition, these programs could diminish our cash reserves.
In addition, we have been, and in the future, may be liable to contribute to the cleanup of locations owned or operated by other persons to which we or our predecessor companies have sent wastes for disposal, pursuant to federal and other environmental laws.
We may be required to conduct these operations at other properties in the future. In addition, we have been, and in the future, may be liable to contribute to the cleanup of locations owned or operated by other persons to which we or our predecessor companies have sent waste for disposal, pursuant to federal and other environmental laws.
We may also be subject to additional indirect or non-income taxes. The tax laws applicable to our business, including the laws of the United States and other jurisdictions, are subject to interpretation and certain jurisdictions are aggressively interpreting their laws in new ways in an effort to raise additional tax revenue from multi-national companies, like us.
The tax laws applicable to our business, including the laws of the United States and other jurisdictions, are subject to interpretation, and certain jurisdictions are aggressively interpreting their laws in new ways in an effort to raise additional tax revenue from multi-national companies like us.
There can be no assurance that we will be able to recoup increasing costs of our components by increasing prices, which in turn could damage our brand, business, prospects, financial condition and operating results. Our operations expose us to litigation, tax, environmental and other legal compliance risks.
There can be no assurance that we will be able to recoup increasing costs of our components by increasing prices, which in turn could damage our brand, business, prospects, financial condition and operating results.
In addition, these programs could diminish our cash reserves. 22 Table of Contents We depend on our senior management team and other key employees, and significant attrition within our management team or unsuccessful succession planning could adversely affect our business. Our success depends in part on our ability to attract, retain and motivate senior management and other key employees.
We depend on our senior management team and other key employees, and significant attrition within our management team or unsuccessful succession planning could adversely affect our business. Our success depends in part on our ability to attract, retain and motivate senior management and other key employees.
Certain environmental laws assess liability on owners or operators of real property for the cost of investigation, removal or remediation of hazardous substances at their current or former properties or at properties at which they have disposed of hazardous substances. These laws may also assess costs to repair damage to natural resources.
Certain environmental laws assess liability on owners or operators of real property for the cost of investigation, removal or remediation of hazardous substances at their current or former properties. These laws may also assess costs to repair damage to natural resources. We may be responsible for remediating damage to our properties caused by former owners.
While we obtain assurances from those parties that they have systems and processes in place to protect such data, and where applicable, that they will take steps to assure the protections of such data by third parties, nonetheless those partners may also be subject to data intrusion or otherwise compromise the protection of such data.
While we obtain assurances from those parties that they have systems and processes in place to protect such data and, where applicable, that they will take steps to assure the protections of such data by third parties, those partners may be subject to the same risks as we are.
In addition, certain of our competitors own lead smelting facilities which, during periods of lead cost increases or price volatility, may provide a competitive pricing advantage and reduce their exposure to volatile raw material costs. Our ability to maintain and improve our operating margins has depended, and continues to depend, on our ability to control and reduce our costs.
In addition, certain of our competitors own lead smelting facilities which, during periods of lead cost increases or price volatility, may provide a competitive pricing advantage and reduce their exposure to volatile raw material costs.
S. dollar and weak euro and may impact other income /expense and equity on the balance sheet. Most of the risk of fluctuating foreign currencies is in our European operations, which comprised approximately one-third of our net sales during the last three fiscal years. The euro is the dominant currency in our EMEA operations.
In addition, we have balance sheet foreign currency positions that benefit from a stronger U.S. dollar and weak euro and may impact other income expense and equity on the balance sheet. Most of the risk of fluctuating foreign currencies is in our European operations, which comprised approximately one-fifth of our net sales during the last three fiscal years.
The Company closely monitors these proposals as they arise in the countries where it operates. Changes to the statutory tax rate may occur at any time, and any related expense or benefit recorded may be material to the fiscal quarter and year in which the law change is enacted.
We closely monitor these developments in the countries where we operate. Changes to the statutory tax rate may occur at any time, and any related expense or benefit recorded may be material to the fiscal quarter and year in which the law change is enacted.
Our software and related services are highly technical and may contain undetected software bugs or vulnerabilities, which could manifest in ways that could seriously harm our reputation and our business. 23 Table of Contents The software and related services that we offer are highly technical and complex.
Our software and related services are highly technical and may contain undetected software bugs, errors or other vulnerabilities, which could manifest in ways that could adversely affect our reputation and our business. The software and related services that we offer are highly technical and complex.
We maintain systems and processes designed to protect this data, but notwithstanding such protective measures, there is a risk of intrusion, cyberattacks, tampering, theft, misplaced or lost data, programming and/or human errors that could compromise the integrity and privacy of this data, improper use of our systems, software solutions or networks, unauthorized access, use, disclosure, modification or destruction of information, defective products, production downtimes and operational disruptions, which in turn could adversely affect our reputation, competitiveness, and results of operations.
However, notwithstanding such protective measures, there is a risk of intrusion, cyberattacks, tampering, theft, misplaced or lost data, programming or human errors that could compromise the integrity and privacy of this data, improper use of our systems, software solutions or networks, power outages, hardware failures, computer viruses, failure of critical computer systems, unauthorized access, use, disclosure, modification or destruction of information, defective products, production downtimes and operational disruptions, which in turn could adversely affect our business, financial condition and results of operations.
Operating in different regions and countries exposes us to a number of risks, including: 19 Table of Contents • multiple and potentially conflicting laws, regulations and policies that are subject to change; • imposition of currency restrictions, restrictions on repatriation of earnings or other restraints imposition of burdensome import duties, tariffs or quotas; • changes in trade agreements; • imposition of new or additional trade and economic sanctions laws imposed by the U.S. or foreign governments; • war or terrorist acts; and • political and economic instability or civil unrest that may severely disrupt economic activity in affected countries.
Operating in different regions and countries exposes us to a number of risks, including: • multiple and potentially conflicting laws, regulations and policies that are subject to change; • changes in international treaties or trade unions, which may make our products or our customers' products more costly to export or import; • imposition of currency restrictions, restrictions on repatriation of earnings or other restraints imposition of burdensome import duties, tariffs or quotas, which may make our products more costly to export or import; • changes in trade agreements; • disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the FCPA; • compliance with data protection regulations; • imposition of new or additional trade and economic sanctions laws imposed by the U.S. or foreign governments; • war or terrorist acts; and • political and economic instability or civil unrest that may severely disrupt economic activity in affected countries.
We may have exposure to greater than anticipated tax liabilities. Our income tax obligations are based in part on our corporate operating structure and intercompany arrangements, including the manner in which we operate our business, develop, value, manage, protect, and use our intellectual property and the valuations of our intercompany transactions.
Our income tax obligations are based in part on our corporate operating structure and intercompany arrangements, including the manner in which we operate our business, develop, value, manage, protect, and use our intellectual property and the valuations of our intercompany transactions. We may also be subject to additional indirect or non-income based taxes.
The costs of these raw materials, particularly lead, are volatile and beyond our control. Additionally, availability of the raw materials used to manufacture our products may be limited at times resulting in higher prices and/or the need to find alternative suppliers. Furthermore, the cost of raw materials may also be influenced by transportation costs.
We estimate that raw material costs account for over half of our cost of goods sold. The costs of these raw materials, particularly lead, are volatile and beyond our control. Additionally, availability of the raw materials used to manufacture our products may be limited at times, resulting in higher prices or the need to find alternative suppliers.
We cannot assure you that our portfolio of primarily lead-acid products will remain competitive with products based on new technologies. We may not be able to adequately protect our proprietary intellectual property and technology.
We cannot assure you that our portfolio of primarily lead-acid products will remain competitive with products based on new technologies. If we are not able to adequately protect our proprietary intellectual property and technology, we may lose any technological advantages and our business, financial position and results of operations may be materially adversely affected.
Stockholders are cautioned that these and other factors, including those beyond our control, may affect future performance and cause actual results to differ from those which may, from time to time, be anticipated. There may be additional risks that are not presently material or known.
Stockholders are cautioned that these and other factors, including those beyond our control, may affect future performance and cause actual results to differ from those which may, from time to time, be anticipated. The risks that are described below are not the only ones that we face.
As our customers in traditional manufacturing-based industries seek to move their manufacturing operations to these locations, there is a risk that these customers will source their energy storage products from competitors located in those territories and will cease or reduce the purchase of products from our manufacturing plants.
These territories may be farther from our manufacturing plants, and there is a risk that these customers will source their energy storage products from competitors located in those territories and will cease or reduce the purchase of products from us.
Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as COVID-19. We rely on our production facilities, as well as third-party suppliers and manufacturers, in the United States, Australia, Canada, France, Germany, Italy, the People's Republic of China (“PRC”), the United Kingdom and other countries significantly impacted by COVID-19.
We rely on our production facilities, as well as third-party suppliers and manufacturers, in the United States, Australia, Canada, France, Germany, Italy, the People’s Republic of China (“PRC”), the United Kingdom and other countries that were significantly impacted by COVID-19.
In either case, our operating results and net income may be adversely affected. Relocation of our customers’ operations could adversely affect our business. The trend by a number of our North American and Western European customers to move manufacturing operations and expand their businesses in faster growing and low labor-cost markets may have an adverse impact on our business.
The trend by a number of our North American and Western European customers to move manufacturing operations and expand their businesses in faster growing and lower labor-cost markets may have an adverse impact on our business, financial condition and results of operations.
The occurrence of one or more of these events may negatively impact our business, results of operations and financial condition. Our failure to introduce new products and product enhancements and broad market acceptance of new technologies introduced by our competitors could adversely affect our business. Many new energy storage technologies have been introduced over the past several years.
Our failure to introduce new products and product enhancements coupled with broad market acceptance of new technologies introduced by our competitors could adversely affect our business. Many new energy storage technologies have been introduced over the past several years.
In connection with the Organization for Economic Cooperation and Development Base Erosion and Profit Shifting (BEPS) project, companies are required to disclose more information to tax authorities on operations around the world, which may lead to greater audit scrutiny of profits earned in other countries.
In connection with the OECD’s Base Erosion and Profit Shifting (BEPS) project, companies are required to disclose more information to tax authorities on operations around the world, which may lead to greater audit scrutiny of profits earned in other countries. We regularly assess the likely outcomes of our tax audits and disputes to determine the appropriateness of our tax reserves.
Additionally, errors, bugs, or other vulnerabilities may, either directly or if exploited by third parties, affect our ability to make accurate royalty payments. We also could face claims for product liability, tort or breach of warranty. Defending a lawsuit, regardless of its merit, is costly and may divert management’s attention and seriously harm our reputation and our business.
Additionally, errors, bugs or other vulnerabilities may, either directly or if exploited by third parties, affect our ability to make accurate royalty payments. We also could face claims for product liability, tort or breach of warranty as a result.
Additionally, we cannot assure you that we have been or at all times will be in compliance with environmental laws and regulations or that we will not be required to expend significant funds to comply with, or discharge liabilities arising under, environmental laws, regulations and permits, or that we will not be exposed to material environmental, health or safety litigation.
Additionally, we cannot assure you that we have been or at all times will be in compliance with environmental laws and regulations or that we will not be required to expend significant funds to comply with, or discharge liabilities arising under, environmental laws, regulations and permits, or that we will not be exposed to material environmental, health or safety litigation. 23 Table of Contents We are subject to a wide variety of domestic and foreign laws and regulations that could adversely affect our business, financial condition and results of operations.
We are currently investigating and monitoring soil and groundwater contamination at several of our properties, in most cases as required by regulatory permitting processes. We may be required to conduct these operations at other properties in the future.
Soil and groundwater contamination has occurred at some of our current and former properties and may occur or be discovered at other properties in the future. In accordance with regulatory permits, we are currently investigating and monitoring soil and groundwater contamination at several of our properties, in most cases as required by regulatory permitting processes.
We translate our non-U.S. assets and liabilities into U.S. dollars using current exchange rates as of the balance sheet dates.
We translate our non-U.S. assets and liabilities into U.S. dollars using current exchange rates as of the balance sheet dates. Approximately 40% of net sales were generated outside of the United States in fiscal 2023.
To the extent that we do not achieve the profitability enhancement or other benefits of our efficiency and cost reduction initiatives that we anticipate, our results of operations may be materially adversely affected. Our international operations may be adversely affected by actions taken by foreign governments or other forces or events over which we may have no control.
To the extent that we do not achieve the profitability enhancement or other benefits of our efficiency and cost reduction initiatives that we anticipate, our business, financial position and results of operations may be materially adversely affected.
In addition, our efforts to centralize various business processes and functions within our organization in connection with our ERP implementation may disrupt our operations and negatively impact our business, results of operations and financial condition. 18 Table of Contents The failure to successfully implement efficiency and cost reduction initiatives, including restructuring activities, could materially adversely affect our business and results of operations, and we may not realize some or all of the anticipated benefits of those initiatives.
The failure to successfully implement efficiency and cost reduction initiatives, including restructuring activities, could materially adversely affect our business, financial position and results of operations, and we may not realize some or all of the anticipated benefits of those initiatives.
Our operating results could be adversely affected by changes in the cost and availability of raw materials. Lead is our most significant raw material and is used along with significant amounts of plastics, steel, copper and other materials in our manufacturing processes. We estimate that raw material costs account for over half of our cost of goods sold.
Changes in the cost and availability of raw materials could adversely affect our business, financial position and results of operations. Lead is our most significant raw material and is used along with significant amounts of plastics, steel, copper and other materials in our manufacturing processes.
ITEM 1A. RISK FACTORS The following risks and uncertainties, as well as others described in this Annual Report on Form 10-K, could materially and adversely affect our business, our results of operations and financial condition and could cause actual results to differ materially from our expectations and projections.
ITEM 1A. RISK FACTORS The following are certain risk factors that could materially and adversely affect our business, financial condition and our results of operations and could cause actual results to differ materially from our expectations and projections.
Our inability to raise the price of our products in response to increases in prices of raw materials or to maintain a proper supply of raw materials could have an adverse effect on our revenue, operating profit and net income. 15 Table of Contents Increases in costs, disruption of supply or shortage of any of our battery components, such as electronic and mechanical parts, or raw materials used in the production of such parts could harm our business.
Our inability to raise the price of our products in response to increases in prices of raw materials due to pricing pressure, contract terms or other factors or to maintain a proper supply of raw materials could have an adverse effect on our business, financial position and results of operations. 14 Table of Contents Cost increases, supply disruptions or shortages of any of our battery components, such as electronic and mechanical parts, or the raw materials used in the production of such parts could adversely affect our business.
These systems and technologies must be refined, updated and replaced with more advanced systems on a regular basis in order for us to meet our customers’ demands and expectations.
These systems and technologies must be refined, updated and replaced with more advanced systems on a regular basis in order for us to meet our customers’ demands and expectations. We expect that new technologies applicable to our business will continue to emerge and may be superior to, or render obsolete, the technologies we currently use in our products and services.
If we are unable to effectively hedge against currency fluctuations, our operating costs and revenues in our non-U.S. operations may be adversely affected, which would have an adverse effect on our operating profit and net income. We have experienced and may continue to experience, difficulties implementing our new global enterprise resource planning system.
If we are unable to effectively hedge against currency fluctuations, our operating costs and revenues in our non-U.S. operations may be adversely affected. This, in turn, would have an adverse effect on our business, financial position and results of operations.
Our operating results are directly affected by the general global economic conditions of the industries in which our major customer groups operate. Our business segments are highly dependent on the economic and market conditions in each of the geographic areas in which we operate.
The uncertainty in global economic conditions or geographic regions in which our customers operate could adversely affect our business, financial position and operating results. Our operating results are directly affected by the general global economic conditions of the industries in which our major customer groups operate.
In implementing the ERP, we had experienced significant production and shipping delays, increased costs and other difficulties. Any significant disruption or deficiency in the design and implementation of the ERP could adversely affect our ability to process orders, ship product, send invoices and track payments, fulfill contractual obligations or otherwise operate our business.
Any significant disruption or deficiency in the design and implementation of the ERP could adversely affect our ability to process orders, ship products, send invoices and track payments, fulfill contractual obligations or otherwise operate our business. Even with our investment of significant resources into the ERP system, additional and significant implementation issues may arise.
See “Cautionary Note Regarding Forward-Looking Statements.” All forward-looking statements made by us or on our behalf are qualified by the risks described below. We operate in an extremely competitive industry and are subject to pricing pressures. We compete with a number of major international manufacturers and distributors, as well as a large number of smaller, regional competitors.
Business and Operating Risks We operate in an extremely competitive industry and are subject to pricing pressures. We compete with a number of major international manufacturers and distributors, as well as a large number of smaller, regional competitors.
We also may not achieve the benefits that we anticipate from any new system or technology, such as fuel abatement technologies, and a failure to do so could result in higher than anticipated costs or could impair our operating results.
We also may not achieve the benefits that we anticipate from any new system or technology and a failure to do so could result in higher than anticipated costs and adversely affect our results of operations. 18 Table of Contents Work stoppages or similar difficulties could significantly disrupt our operations, reduce our revenues and materially adversely affect our business.

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Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+1 added−3 removed4 unchanged
Biggest changeBetween April 1, 2022 and May 25, 2022, the Company repurchased 318,789 shares for $20 million, and has a remaining authorization of $163 million. 27 Table of Contents STOCK PERFORMANCE GRAPH The following graph compares the changes in cumulative total returns on EnerSys’ common stock with the changes in cumulative total returns of the New York Stock Exchange Composite Index, a broad equity market index, and the total return on a selected peer group index.
Biggest change(3) On November 10, 2021, the Company announced the establishment of a $100 million stock repurchase authorization, with no expiration date. 29 Table of Contents STOCK PERFORMANCE GRAPH The following graph compares the changes in cumulative total returns on EnerSys’ common stock with the changes in cumulative total returns of the New York Stock Exchange Composite Index, a broad equity market index; the Dow Jones US Electrical Components and Equipment index ("DJUSEC"); and the peer group standard industrial classification codes (“SIC Codes”), which was used as a comparable index in fiscal 2022.
Recent Sales of Unregistered Securities During the fourth quarter of fiscal 2022, we did not issue any unregistered securities. Dividends During fiscal 2022, the Company’s quarterly dividend was $0.175 per share. The Company declared aggregate regular cash dividends of $0.70 per share in each of the years ended March 31, 2022, March 31, 2021 and 2020.
Recent Sales of Unregistered Securities During the fourth quarter of fiscal 2023, we did not issue any unregistered securities. Dividends During fiscal 2023, the Company’s quarterly dividend was $0.175 per share. The Company declared aggregate regular cash dividends of $0.70 per share in each of the years ended March 31, 2023, March 31, 2022 and 2021.
Risk Factors for additional information. 26 Table of Contents 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.
Risk Factors for additional information. 28 Table of Contents 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.
Holders of Record As of May 20, 2022, there were approximately 536 record holders of common stock of the Company. Because many of these shares are held by brokers and other institutions on behalf of stockholders, the Company is unable to estimate the total number of stockholders represented by these record holders.
Holders of Record As of May 19, 2023, there were approximately 600 record holders of common stock of the Company. Because many of these shares are held by brokers and other institutions on behalf of stockholders, the Company is unable to estimate the total number of stockholders represented by these record holders.
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) January 3 - January 30, 2022 151,781 $ 74.33 151,781 $ 64,003,961 January 31 - February 27, 2022 263,439 73.93 263,439 44,528,066 February 28 - March 31, 2022 158,545 69.89 159,633 183,452,128 Total 573,765 $ 72.91 574,853 (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 during such fiscal year under the 2017 Equity Incentive Plan and the number of shares exercised through stock option awards during such fiscal year.
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) January 2 - January 31, 2023 — $ — — $ 185,545,418 February 1 - March 1, 2023 49,934 75.92 — 185,545,418 March 2 - March 31, 2023 62 74.60 — 185,545,418 Total 49,996 $ 75.92 — (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.
(3) On November 10, 2021, the Company announced the establishment of a $100 million stock repurchase authorization, with no expiration date. This authorization was in addition to the existing stock repurchase programs and has been completed for fiscal 2022. (4) On March 9, 2022, the Company announced the establishment of a $150 million stock repurchase authorization, with no expiration date.
(2) On March 9, 2022, the Company announced the establishment of a $150.0 million stock repurchase authorization, with no expiration date.
Removed
This program has been completed for fiscal 2022. (2) On November 8, 2017, the Company announced the establishment of a $100 million stock repurchase authorization, with no expiration date, which was utilized. This authorization was in addition to the existing stock repurchase programs and has been completed for fiscal 2022.
Added
The Company determined that the DJUSEC index provides a publicly available index of industry peers with similar market capitalization. *$100 invested on March 31, 2018 in stock or index, including reinvestment of dividends.
Removed
This authorization is in addition to the existing stock repurchase programs.
Removed
The peer group selected is based on the standard industrial classification codes (“SIC Codes”) established by the U.S. government. The index chosen was “Miscellaneous Electrical Equipment and Suppliers” and comprises all publicly traded companies having the same three-digit SIC Code (369) as EnerSys. *$100 invested on March 31, 2017 in stock or index, including reinvestment of dividends.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

96 edited+48 added−29 removed85 unchanged
Biggest changeIn addition, trade receivables increased due to higher revenue during fiscal 2022, as compared to a COVID-19 restricted revenue in fiscal 2021. 42 Table of Contents Primary Working Capital and Primary Working Capital percentages at March 31, 2022, 2021 and 2020 are computed as follows: Balance at March 31, Trade Receivables Inventory Accounts Payable Primary Working Capital Quarter Revenue Annualized Primary Working Capital (%) (in millions) 2022 $ 719.4 $ 715.7 $ (393.1) $ 1,042.0 $ 3,628.1 28.7 % 2021 603.6 518.2 (323.9) 797.9 3,254.2 24.5 2020 595.9 519.5 (281.9) 833.5 3,127.2 26.7 Cash used in investing activities for fiscal 2022, 2021 and 2020 was $69.2 million, $65.0 million and $274.8 million, respectively.
Biggest changePrimary Operating Capital and Primary Operating Capital percentages at March 31, 2023, 2022 and 2021 are computed as follows: ($ in Millions) March 31, 2023 March 31, 2022 March 31, 2021 Accounts receivable, net $ 637.8 $ 719.4 $ 603.6 Inventory, net 797.8 715.7 518.2 Accounts payable (378.6) (393.1) (323.9) Total primary operating capital $ 1,057.0 $ 1,042.0 $ 797.9 Trailing 3 months net sales $ 989.9 $ 907.0 $ 813.5 Trailing 3 months net sales annualized $ 3,959.6 $ 3,628.1 $ 3,254.2 Primary operating capital as a % of annualized net sales 26.7 % 28.7 % 24.5 % Liquidity and Capital Resources We believe that our financial position is strong.
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”).
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”).
Debt issuance costs relating to the refinancing of the Credit Facility was $3.0 million. Proceeds from stock options were $1.3 million. During fiscal 2021, financing activities provided cash of $188.7 million. We borrowed $102.0 million under the Amended 2017 Revolver and repaid $210.0 million of the Amended 2017 Revolver.
Debt issuance costs relating to the refinancing of the Second Amended Credit Facility was $3.0 million. Proceeds from stock options were $1.3 million. During fiscal 2021, financing activities provided cash of $188.7 million. We borrowed $102.0 million under the Amended 2017 Revolver and repaid $210.0 million of the Amended 2017 Revolver.
(2) The $51.5 million adjustment to EBITDA in fiscal 2022 primarily related to $24.3 million of non-cash stock compensation, $26.0 million of restructuring and other exit charges, impairment of indefinite-lived intangibles of $1.2 million.
The $51.5 million adjustment to EBITDA in fiscal 2022 primarily related to $24.3 million of non-cash stock compensation, $26.0 million of restructuring and other exit charges, indefinite-lived intangibles of $1.2 million.
In fiscal 2022, net earnings were $143.9 million, depreciation and amortization $95.9 million, stock-based compensation $24.3 million, non-cash charges relating to exit charges of $6.5 million, primarily relating to the Hagen, Germany plant closure and exiting our operations in Russia following the conflict in Ukraine, loss on valuation of the assets held for sale in India of $3.0 million, allowance for doubtful debts of $2.6 million, non-cash interest of $2.1 million and non-cash charges for impairment of indefinite-lived intangibles of $1.2 million.
Net earnings were $143.9 million, depreciation and amortization $95.9 million, stock-based compensation $24.3 million, non-cash charges relating to exit charges of $6.5 million, primarily relating to the Hagen, Germany plant closure and exiting our operations in Russia following the conflict in Ukraine, loss on valuation of the assets held for sale in India of $3.0 million, allowance for doubtful debts of $2.6 million, non-cash interest of $2.1 million and non-cash charges for impairment of indefinite-lived intangibles of $1.2 million.
Our calculation of EBITDA may be different from the calculations used by other companies, and therefore comparability may be limited. Certain financial covenants in our Second Amended Credit Facility are based on EBITDA, subject to adjustments, which are shown above. Continued availability of credit under our Second Amended Credit Facility is critical to our ability to meet our business plans.
Our calculation of EBITDA may be different from the calculations used by other companies, and therefore comparability may be limited. Certain financial covenants in our Fourth Amended Credit Facility are based on EBITDA, subject to adjustments, which are shown above. Continued availability of credit under our Fourth Amended Credit Facility is critical to our ability to meet our business plans.
The Second 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.
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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our results of operations and financial condition for the fiscal years ended March 31, 2022 and 2021, should be read in conjunction with our audited Consolidated Financial Statements and the notes to those statements included in Item 8.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our results of operations and financial condition for the fiscal years ended March 31, 2023 and 2022, should be read in conjunction with our audited Consolidated Financial Statements and the notes to those statements included in Item 8.
For additional information see Note 1 of Notes to the Consolidated Financial Statements. Asset Impairment Determinations We test for the impairment of our goodwill and indefinite-lived trademarks at least annually and whenever events or circumstances occur indicating that a possible impairment has been incurred. We assess whether goodwill impairment exists using both qualitative and quantitative assessments.
For additional information see Note 1 of Notes to the Consolidated Financial Statements. 34 Table of Contents Asset Impairment Determinations We test for the impairment of our goodwill and indefinite-lived trademarks at least annually and whenever events or circumstances occur indicating that a possible impairment has been incurred. We assess whether goodwill impairment exists using both qualitative and quantitative assessments.
During fiscal 2021, net earnings were $143.3 million, depreciation and amortization $94.1 million, stock-based compensation $19.8 million, non-cash charges relating to exit charges $10.2 million, primarily relating to the Hagen, Germany plant closure, net gain from the disposal of assets of $3.9 million ($4.4 million from the insurance settlement relating to the Richmond fire claim), deferred tax benefit of $9.0 million and non-cash interest of $2.1 million.
Net earnings were $143.3 million, depreciation and amortization $94.1 million, stock-based compensation $19.8 million, non-cash charges relating to exit charges $10.2 million, primarily relating to the Hagen, Germany plant closure, net gain from the disposal of assets of $3.9 million ($4.4 million from the insurance settlement relating to the Richmond fire claim), deferred tax benefit of $9.0 million and non-cash interest of $2.1 million.
Cash charges of approximately $40.0 million are primarily for employee severance related payments, but also include payments for cleanup related to the facility, contractual releases and legal expenses. Non-cash charges from inventory and equipment write-offs are estimated to be $20.0 million. These actions resulted in the reduction of approximately 200 employees.
Cash charges of approximately $40.0 million are primarily for employee severance 41 Table of Contents related payments, but also include payments for cleanup related to the facility, contractual releases and legal expenses. Non-cash charges from inventory and equipment write-offs are estimated to be $20.0 million. These actions resulted in the reduction of approximately 200 employees.
Determining the fair value of assets acquired and liabilities assumed often involves estimates based on third-party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses and may include estimates of attrition, inflation, asset growth rates, discount rates, multiples of earnings or other relevant factors.
Determining the fair value of assets acquired and liabilities assumed often involves estimates based on third-party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses and may include estimates of attrition, inflation, asset growth rates, discount rates, multiples of earnings or other 35 Table of Contents relevant factors.
(3) Debt includes finance lease obligations and letters of credit and is net of all U.S. cash and cash equivalents and foreign cash and investments, as defined in the Second Amended Credit Facility.
(3) Debt includes finance lease obligations and letters of credit and is net of all U.S. cash and cash equivalents and foreign cash and investments, as defined in the Fourth Amended Credit Facility.
There are no prepayment penalties on loans under this credit facility. We are in compliance with all covenants and conditions under our Second Amended Credit Facility and Senior Notes.
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.
The indefinite-lived trademarks are tested for impairment by comparing the carrying value to the fair value based on current revenue projections of the related operations, under the relief from royalty method. Any excess carrying value over the amount 32 Table of Contents of fair value is recognized as impairment.
The indefinite-lived trademarks are tested for impairment by comparing the carrying value to the fair value based on current revenue projections of the related operations, under the relief from royalty method. Any excess carrying value over the amount of fair value is recognized as impairment.
Our Second Amended Credit Facility is committed through September 30, 2026, as long as we continue to comply with the covenants and conditions of the credit facility agreement. 43 Table of Contents Compliance with Debt Covenants All obligations under our Second Amended Credit Facility are secured by, among other things, substantially all of our U.S. assets.
Our Fourth Amended Credit Facility is committed through September 30, 2026, as long as we continue to comply with the covenants and conditions of the credit facility agreement. 46 Table of Contents Compliance with Debt Covenants All obligations under our Fourth Amended Credit Facility are secured by, among other things, substantially all of our U.S. assets.
Assumptions utilized are highly judgmental, especially given the role technology plays in driving the demand for products in the telecommunications and aerospace markets. Based on the results of the annual impairment test as of January 3, 2022, we determined that there was no goodwill impairment.
Assumptions utilized are highly judgmental, especially given the role technology plays in driving the demand for products in the telecommunications and aerospace markets. Based on the results of the annual impairment test as of January 2, 2023, we determined that there was no goodwill impairment.
Other (Income) Expense, Net Fiscal 2022 Fiscal 2021 Increase (Decrease) In Millions As % Net Sales In Millions As % Net Sales In Millions % Other (income) expense, net $ (5.5) (0.2) % $ 7.8 0.2 % $ (13.3) NM NM = not meaningful Other (income) expense, net was income of $5.5 million in fiscal 2022 compared to expense of $7.8 million in fiscal 2021.
Other (Income) Expense, Net Fiscal 2023 Fiscal 2022 Increase (Decrease) In Millions As % Net Sales In Millions As % Net Sales In Millions % Other (income) expense, net $ 8.2 0.2 % $ (5.5) (0.2) % $ 13.7 NM NM = not meaningful Other (income) expense, net was expense of $8.2 million in fiscal 2023 compared to income of $5.5 million in fiscal 2022.
In fiscal 2022, customer pricing has increased due to higher raw material prices and shipping costs, labor and other costs having increased throughout the year. Based on the current volatility of the commodity markets, it is difficult to predict with certainty whether commodity prices will be higher or lower in fiscal 2023 versus fiscal 2022.
In fiscal 2023, customer pricing has increased due to higher raw material prices and shipping costs, labor and other costs having increased throughout the year. 32 Table of Contents Based on the current volatility of the commodity markets, it is difficult to predict with certainty whether commodity prices will be higher or lower in fiscal 2024 versus fiscal 2023.
The Federal Reserve Bank of the United States has discontinued quantitative easing and, started raising short-term interest rates and has signaled they will continue to raise interest rates through the remainder of calendar 2022. The increase in short-term interest rates will increase EnerSys’ variable cost of borrowing under the Second Amended Credit Facility.
The Federal Reserve Bank of the United States has discontinued quantitative easing and, started raising short-term interest rates and has signaled they will continue to raise interest rates. The increase in short-term interest rates will increase EnerSys’ variable cost of borrowing under the Fourth Amended Credit Facility.
For both fiscal 2022 and fiscal 2021, the difference in the foreign effective tax rate versus the U.S. statutory rate of 21% is primarily attributable to lower tax rates in the foreign countries in which we operate.
For both fiscal 2023 and fiscal 44 Table of Contents 2022, the difference in the foreign effective tax rate versus the U.S. statutory rate of 21% is primarily attributable to lower tax rates in the foreign countries in which we operate.
We show both our current ratios and the maximum ratio permitted or minimum ratio required under our Second Amended Credit Facility, for fiscal 2022 and fiscal 2021, respectively.
We show both our current ratios and the maximum ratio permitted or minimum ratio required under our Fourth Amended Credit Facility, for fiscal 2023 and fiscal 2022, respectively.
We have substantial liquidity with $402 million of available cash and cash equivalents and available and undrawn, under all its lines of credit of approximately $482 million at March 31, 2022 to cover short-term liquidity requirements and anticipated growth in the foreseeable future.
We have substantial liquidity with $347 million of available cash and cash equivalents and available and undrawn, under all its lines of credit of approximately $693 million at March 31, 2023 to cover short-term liquidity requirements and anticipated growth in the foreseeable future.
The following table provides a reconciliation of net earnings to EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP) for March 31, 2022 and 2021, in connection with the Second Amended Credit Facility: Fiscal 2022 Fiscal 2021 (in millions, except ratios) Net earnings as reported $ 143.9 $ 143.3 Add back: Depreciation and amortization 95.9 94.1 Interest expense 37.8 38.5 Income tax expense 30.0 26.8 EBITDA (non GAAP) (1) $ 307.6 $ 302.7 Adjustments per credit agreement definitions (2) 51.5 56.3 Adjusted EBITDA (non-GAAP) per credit agreement (1) $ 359.1 $ 359.0 Total net debt (3) $ 905.9 $ 615.0 Leverage ratios (4) : Total net debt/adjusted EBITDA ratio 2.5 X 1.7 X Maximum ratio permitted 3.5 X 3.5 X Consolidated interest coverage ratio (5) 10.0 X 9.8 X Minimum ratio required 3.0 X 3.0 X (1) We have included EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP) because our lenders use them as key measures of our performance.
The following table provides a reconciliation of net earnings to EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP) for March 31, 2023 and 2022, in connection with the Second Amended Credit Facility: Fiscal 2023 Fiscal 2022 (in millions, except ratios) Net earnings as reported $ 175.8 $ 143.9 Add back: Depreciation and amortization 91.2 95.9 Interest expense 59.5 37.8 Income tax expense 34.8 30.0 EBITDA (non GAAP) (1) $ 361.3 $ 307.6 Adjustments per credit agreement definitions (2) 51.7 51.5 Adjusted EBITDA (non-GAAP) per credit agreement (1) $ 413.0 $ 359.1 Total net debt (3) $ 736.0 $ 905.9 Leverage ratios (4) : Total net debt/adjusted EBITDA ratio 1.8 X 2.5 X Maximum ratio permitted 4.25 X 3.5 X Consolidated interest coverage ratio (5) 7.3 X 10.0 X Minimum ratio required 3.0 X 3.0 X (1) We have included EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP) because our lenders use them as key measures of our performance.
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.
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 2021, the Company recorded charges relating to severance of $23.3 million and $7.9 million primarily relating to fixed asset write-offs.
Currency translation had a negative impact of $12.9 million on our cash balance in the twelve months of fiscal 2022 compared to the positive impact of $20.2 million in the twelve months of fiscal 2021.
Currency translation had a negative impact of $20.5 million on our cash balance in the twelve months of fiscal 2023 compared to the negative impact of $12.9 million in the twelve months of fiscal 2022.
Included in interest expense were non-cash charges related to amortization of deferred financing fees of $2.1 million in both fiscal 2022 and fiscal 2021.
Included in interest expense were non-cash charges related to amortization of deferred financing fees of $2.0 million and $2.1 million in fiscal 2023 and fiscal 2022, respectively.
To the extent we prevail in matters for which reserves have been established, or are required to pay amounts in excess of our reserves, our effective tax rate in a given financial statement period could be materially affected. 35 Table of Contents Results of Operations—Fiscal 2022 Compared to Fiscal 2021 The following table presents summary Consolidated Statements of Income data for fiscal year ended March 31, 2022, compared to fiscal year ended March 31, 2021: Fiscal 2022 Fiscal 2021 Increase (Decrease) In Millions As % Net Sales In Millions As % Net Sales In Millions % Net sales $ 3,357.3 100.0 % $ 2,977.9 100.0 % $ 379.4 12.7 % Cost of goods sold 2,604.7 77.6 2,238.8 75.2 365.9 16.3 Inventory adjustment relating to exit activities 2.6 0.1 — — 2.6 NM Gross profit 750.0 22.3 739.1 24.8 10.9 1.5 Operating expenses 520.8 15.5 482.3 16.2 38.5 8.0 Restructuring and other exit charges 18.8 0.6 40.4 1.4 (21.6) (53.5) Impairment of indefinite-lived intangibles 1.2 — — — 1.2 NM Loss on assets held for sale 3.0 0.1 — — 3.0 NM Operating earnings 206.2 6.1 216.4 7.2 (10.2) (4.7) Interest expense 37.8 1.1 38.5 1.3 (0.7) (1.7) Other (income) expense, net (5.5) (0.2) 7.8 0.2 (13.3) NM Earnings before income taxes 173.9 5.2 170.1 5.7 3.8 2.2 Income tax expense 30.0 0.9 26.8 0.9 3.2 12.2 Net earnings 143.9 4.3 143.3 4.8 0.6 0.4 Net earnings attributable to noncontrolling interests — — — — — — Net earnings attributable to EnerSys stockholders $ 143.9 4.3 % $ 143.3 4.8 % $ 0.6 0.4 % NM = not meaningful Overview Our sales in fiscal 2022 were $3.4 billion, a 12.7% increase from prior year's sales.
To the extent we prevail in matters for which reserves have been established, or are required to pay amounts in excess of our reserves, our effective tax rate in a given financial statement period could be materially affected. 38 Table of Contents Results of Operations—Fiscal 2023 Compared to Fiscal 2022 The following table presents summary Consolidated Statements of Income data for fiscal year ended March 31, 2023, compared to fiscal year ended March 31, 2022: Fiscal 2023 Fiscal 2022 Increase (Decrease) In Millions As % Net Sales In Millions As % Net Sales In Millions % Net sales $ 3,708.5 100.0 % $ 3,357.3 100.0 % $ 351.2 10.5 % Cost of goods sold 2,867.8 77.3 2,604.7 77.6 263.1 10.1 Inventory adjustment relating to exit activities 0.6 — 2.6 0.1 (2.0) (73.8) Gross profit 840.1 22.7 750.0 22.3 90.1 12.0 Operating expenses 544.9 14.7 520.8 15.5 24.1 4.6 Restructuring and other exit charges 16.4 0.4 18.8 0.6 (2.4) (12.4) Impairment of indefinite-lived intangibles 0.5 0.1 1.2 — (0.7) (59.3) Loss on assets held for sale — — 3.0 0.1 (3.0) NM Operating earnings 278.3 7.5 206.2 6.1 72.1 35.0 Interest expense 59.5 1.6 37.8 1.1 21.7 57.6 Other (income) expense, net 8.2 0.2 (5.5) (0.2) 13.7 NM Earnings before income taxes 210.6 5.7 173.9 5.2 36.7 21.1 Income tax expense 34.8 0.9 30.0 0.9 4.8 16.0 Net earnings attributable to EnerSys stockholders $ 175.8 4.8 % $ 143.9 4.3 % $ 31.9 22.2 % NM = not meaningful Overview Our sales in fiscal 2023 were $3.7 billion, a 10.5% increase from prior year's sales.
In fiscal 2022, the amounts deducted in the calculation of net debt were U.S. cash and cash equivalents and foreign cash investments of $402 million, and in fiscal 2021, were $399 million. (4) These ratios are included to show compliance with the leverage ratios set forth in our credit facilities.
In fiscal 2023, the amounts deducted in the 48 Table of Contents calculation of net debt were U.S. cash and cash equivalents and foreign cash investments of $346.7 million, and in fiscal 2022, were $402.5 million. (4) These ratios are included to show compliance with the leverage ratios set forth in our credit facilities.
The Company’s income tax provision consists of federal, state and foreign income taxes. The effective income tax rate was 17.3% in fiscal 2022 compared to the fiscal 2021 effective income tax rate of 15.7%.
The Company’s income tax provision consists of federal, state and foreign income taxes. The effective income tax rate was 16.5% in fiscal 2023 compared to the fiscal 2022 effective income tax rate of 17.3%.
Earnings Before Income Taxes Fiscal 2022 Fiscal 2021 Increase (Decrease) In Millions As % Net Sales In Millions As % Net Sales In Millions % Earnings before income taxes $ 173.9 5.2 % $ 170.1 5.7 % $ 3.8 2.2 % As a result of the factors discussed above, fiscal 2022 earnings before income taxes were $173.9 million, an increase of $3.8 million or 2.2% compared to fiscal 2021.
Earnings Before Income Taxes Fiscal 2023 Fiscal 2022 Increase (Decrease) In Millions As % Net Sales In Millions As % Net Sales In Millions % Earnings before income taxes $ 210.6 5.7 % $ 173.9 5.2 % $ 36.7 21.1 % As a result of the factors discussed above, fiscal 2023 earnings before income taxes were $210.6 million, an increase of $36.7 million or 21.1% compared to fiscal 2022.
Income Tax Expense Fiscal 2022 Fiscal 2021 Increase (Decrease) In Millions As % Net Sales In Millions As % Net Sales In Millions % Income tax expense $ 30.0 0.9 % $ 26.8 0.9 % $ 3.2 12.2 % Effective tax rate 17.3 % 15.7 % 1.6 % Our effective income tax rate with respect to any period may be volatile based on the mix of income in the tax jurisdictions in which we operate and the amount of our consolidated income before taxes.
Income Tax Expense Fiscal 2023 Fiscal 2022 Increase (Decrease) In Millions As % Net Sales In Millions As % Net Sales In Millions % Income tax expense $ 34.8 0.9 % $ 30.0 0.9 % $ 4.8 16.0 % Effective tax rate 16.5 % 17.3 % (0.8) % Our effective income tax rate with respect to any period may be volatile based on the mix of income in the tax jurisdictions in which we operate and the amount of our consolidated income before taxes.
The Company's 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.
The Company identifies the following as its three operating segments, based on lines of business: • Energy Systems - uninterruptible power systems, or “UPS” applications for computer and computer-controlled systems used in data centers, as well as telecommunications systems, switchgear and electrical control systems used in industrial facilities and electric utilities, large-scale energy storage and energy pipelines.
The fiscal 2022 foreign effective income tax rate was 11.0% on foreign pre-tax income of $152.1 million compared to an effective income tax rate of 6.8% on foreign pre-tax income of $114.1 million in fiscal 2021.
The fiscal 2023 foreign effective income tax rate was 16.8% on foreign pre-tax income of $171.9 million compared to an effective income tax rate of 11.0% on foreign pre-tax income of $152.1 million in fiscal 2022.
However, given the lag related to increasing our selling prices for inflationary cost increases, our selling prices should be higher in fiscal 2023 versus fiscal 2022. As we concentrate more on energy systems and non-lead chemistries, the emphasis on lead will continue to decline. Liquidity and Capital Resources We believe that our financial position is strong.
However, given the lag related to increasing our selling prices for inflationary cost increases, on average our selling prices should be higher in fiscal 2024 versus fiscal 2023. As we concentrate more on energy systems and non-lead chemistries, the emphasis on lead will continue to decline.
We also recorded a non-cash write off relating to inventories of $0.8 million, which was reported in cost of goods sold. 39 Table of Contents Operating Earnings Operating earnings by segment were as follows: Fiscal 2022 Fiscal 2021 Increase (Decrease) In Millions As % Net Sales (1) In Millions As % Net Sales (1) In Millions % Energy Systems $ 18.6 1.2 % $ 66.9 4.9 % $ (48.3) (72.4) % Motive Power 169.7 12.5 143.6 12.3 26.1 18.3 Specialty 43.5 9.5 46.3 10.6 (2.8) (5.8) Subtotal 231.8 6.9 256.8 8.6 (25.0) (9.7) Inventory adjustment relating to exit activities - Energy Systems (0.2) — — — (0.2) NM Inventory adjustment relating to exit activities - Motive (2.4) (0.2) — — (2.4) NM Restructuring and other exit charges - Energy Systems (2.8) (0.2) (3.1) (0.2) 0.3 (14.9) Restructuring and other exit charges - Motive Power (17.1) (1.3) (36.9) (3.2) 19.8 (53.6) Restructuring and other exit charges - Specialty 1.1 0.2 (0.4) (0.1) 1.5 NM Impairment of indefinite-lived intangibles - Energy Systems (0.5) — — — (0.5) NM Impairment of indefinite-lived intangibles - Motive Power (0.7) — — — (0.7) NM Loss on assets held for sale - Motive Power (3.0) (0.2) — — (3.0) NM Total operating earnings $ 206.2 6.1 % $ 216.4 7.2 % $ (10.2) (4.7) % NM = not meaningful (1) The percentages shown for the segments are computed as a percentage of the applicable segment’s net sales.
We also recorded a non-cash write off relating to inventories of $0.8 million, which was reported in cost of goods sold. 42 Table of Contents Operating Earnings Operating earnings by segment were as follows: Fiscal 2023 Fiscal 2022 Increase (Decrease) In Millions As % Net Sales (1) In Millions As % Net Sales (1) In Millions % Energy Systems $ 62.2 3.6 % $ 18.6 1.2 % $ 43.6 NM Motive Power 178.8 12.3 169.7 12.5 9.1 7.8 Specialty 37.5 7.2 43.5 9.5 (6.0) 4.3 Subtotal 278.5 7.5 231.8 6.9 46.7 27.7 Production tax credits from IRA 45X 17.3 0.5 — — 17.3 NM Inventory adjustment relating to exit activities - Energy Systems 0.2 — (0.2) — 0.4 NM Inventory adjustment relating to exit activities - Motive Power (0.8) (0.1) (2.4) (0.2) 1.6 (63.1) Restructuring and other exit charges - Energy Systems (1.5) (0.1) (2.8) (0.2) 1.3 (46.9) Restructuring and other exit charges - Motive Power (12.8) (0.9) (17.1) (1.3) 4.3 (24.6) Restructuring and other exit charges - Specialty (2.1) (0.4) 1.1 0.2 (3.2) NM Impairment of indefinite-lived intangibles - Energy Systems (0.1) — (0.5) — 0.4 NM Impairment of indefinite-lived intangibles - Motive Power — — (0.7) — 0.7 (80.0) Impairment of indefinite-lived intangibles - Specialty (0.4) (0.1) — — (0.4) NM Loss on assets held for sale - Motive Power — (3.0) (0.2) 3.0 NM Total operating earnings $ 278.3 7.5 % $ 206.2 6.1 % $ 72.1 35.0 % NM = not meaningful (1) The percentages shown for the segments are computed as a percentage of the applicable segment’s net sales.
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 fiscal 2022, our operating cash flow was a use of cash of $65.5 million, compared to a source of cash of $358.4 million in the prior year.
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 fiscal 2023, our operating cash flow provided cash of $279.9 million, compared to a use of funds of $65.6 million in the prior year.
Gross profit, as a percentage of net sales, decreased 250 basis points in fiscal 2022 compared to fiscal 2021.
Gross profit, as a percentage of net sales increased 40 basis points in fiscal 2023 compared to fiscal 2022.
Accrued expenses were a use of funds of $38.6 million primarily from Hagen severance payments of $19.6 million, income tax payments of $17.3 million net of tax provisions, payroll related payments of $10.1 million, partially offset by customer advances of $8.9 million.
Accrued expenses were a use of funds of $38.6 million primarily from Hagen severance payments of $19.6 million, income tax payments of $17.3 million net of tax provisions, payroll related payments of $10.1 million, partially offset by customer advances of $8.9 million. During fiscal 2021, accounts receivable decreased or provided cash of $8.7 million due to improved collections.
In fiscal 2022, we repurchased 1,996,334 shares of common stock for $156.4 million. In fiscal 2021, we did not repurchase any shares, but, in fiscal 2020, we repurchased 581,140 shares for $34.6 million under existing authorizations. A substantial majority of the Company’s cash and investments are held by foreign subsidiaries.
In fiscal 2023 and 2022, we repurchased 358,365 and 1,996,334 shares of common stock for $22.9 million and $156.4 million, respectively. In fiscal 2021, we did not repurchase any shares. A substantial majority of the Company’s cash and investments are held by foreign subsidiaries.
The rate increase in fiscal 2022 compared to fiscal 2021 is primarily due to Swiss tax reform and changes in the mix of earnings among tax jurisdictions.
The rate decrease in fiscal 2023 compared to fiscal 2022 is primarily due to the impact of the IRA and changes in the mix of earnings among tax jurisdictions.
In 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. In fiscal 2020, in connection with the issuance of the 2027 Notes, we capitalized $4.6 million of debt issuance costs.
In fiscal 2023, the Company capitalized $1.2 million in debt issuance costs in connection with the Third and Fourth Amended Credit Facilities. In 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.
However, if economic conditions change materially, we may change our assumptions, and the resulting change could have a material impact on the Consolidated Statements of Income and on the Consolidated Balance Sheets. 34 Table of Contents Equity-Based Compensation We recognize compensation cost relating to equity-based payment transactions by using a fair-value measurement method whereby all equity-based payments to employees, including grants of restricted stock units, stock options, market and performance condition-based awards are recognized as compensation expense based on fair value at grant date over the requisite service period of the awards.
Equity-Based Compensation We recognize compensation cost relating to equity-based payment transactions by using a fair-value measurement method whereby all equity-based payments to employees, including grants of restricted stock units, stock options, market and performance condition-based awards are recognized as compensation expense based on fair value at grant date over the requisite service period of the awards.
Energy Systems also includes highly integrated 29 Table of Contents power solutions and services to broadband, telecom, renewable and industrial customers, as well as thermally managed cabinets and enclosures for electronic equipment and batteries. • Motive Power - power for electric industrial forklifts used in manufacturing, warehousing and other material handling applications, as well as mining equipment, diesel locomotive starting and other rail equipment; and • Specialty - premium starting, lighting and ignition applications in transportation, energy solutions for satellites, military aircraft, submarines, ships and other tactical vehicles, as well as medical and security systems.
Energy Systems also includes highly integrated power solutions and services to broadband, telecom, renewable and industrial customers, as well as thermally managed cabinets and enclosures for electronic equipment and batteries. • Motive Power - power for electric industrial forklifts used in manufacturing, warehousing and other material handling applications as well as mining equipment, diesel locomotive starting and other rail equipment; and • Specialty - premium batteries for starting, lighting and ignition applications in premium automotive and large over-the-road trucks, energy storage solutions for satellites, military land vehicles, aircraft, submarines, tactical vehicles, as well as medical devices and equipment. 31 Table of Contents We evaluate business segment performance based primarily upon operating earnings exclusive of highlighted items.
Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Our discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, opinions, expectations, anticipations and intentions and beliefs.
Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022. Our discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, opinions, expectations, anticipations and intentions and beliefs.
All corporate and centrally incurred costs are allocated to the business segments based principally on net sales. We evaluate business segment cash flow and financial position performance based primarily upon capital expenditures and primary working capital levels.
All corporate and centrally incurred costs are allocated to the business segments based principally on net sales. We evaluate business segment cash flow and financial position performance based primarily upon capital expenditures and primary operating capital levels. Our management structure, financial reporting systems, and associated internal controls and procedures, are all consistent with our three lines of business.
The primary working capital percentage of 28.7% at March 31, 2022 is 420 basis points higher than that for March 31, 2021, and 200 basis points higher than that for March 31, 2020.
The primary operating percentage of 26.7% at March 31, 2023 is 200 basis points lower than that for March 31, 2022, and 220 basis points higher than that for March 31, 2021.
Management completed its evaluation of key inputs used to estimate the fair value of its indefinite-lived trademarks and determined that an impairment charge relating to two of its trademarks that were acquired through legacy acquisitions was appropriate, as it plans to phase out these trademarks.
Management completed its evaluation of key inputs used to estimate the fair value of its indefinite-lived trademarks and determined that an impairment charge was appropriate.
Net Sales Segment sales Fiscal 2022 Fiscal 2021 Increase (Decrease) In Millions % Net Sales In Millions % Net Sales In Millions % Energy Systems $ 1,536.6 45.8 % $ 1,380.2 46.3 % $ 156.4 11.3 % Motive Power 1,361.2 40.5 1,163.8 39.1 197.4 17.0 Specialty 459.5 13.7 433.9 14.6 25.6 5.9 Total net sales $ 3,357.3 100.0 % $ 2,977.9 100.0 % $ 379.4 12.7 % 36 Table of Contents Net sales of our Energy Systems segment in fiscal 2022 increased $156.4 million, or 11.3%, compared to fiscal 2021.
Net Sales Segment sales Fiscal 2023 Fiscal 2022 Increase (Decrease) In Millions % Net Sales In Millions % Net Sales In Millions % Energy Systems $ 1,738.1 46.9 % $ 1,536.6 45.8 % $ 201.5 13.1 % Motive Power 1,451.3 39.1 1,361.2 40.5 90.1 6.6 Specialty 519.1 14.0 459.5 13.7 59.6 13.0 Total net sales $ 3,708.5 100.0 % $ 3,357.3 100.0 % $ 351.2 10.5 % 39 Table of Contents Net sales of our Energy Systems segment in fiscal 2023 increased $201.5 million, or 13.1%, compared to fiscal 2022.
We are experiencing increasing costs in almost all of our other raw materials such as plastic resins, steel, copper and electronics and increased freight costs. 30 Table of Contents Customer Pricing Our selling prices fluctuated during the last several years to offset the volatile cost of commodities.
We are experiencing increasing costs in some of our other raw materials such as steel, copper, plastic resins, acid, separator paper and electronics. We also experienced increased freight costs through most of the year, but saw a decline in the fourth quarter. Customer Pricing Our selling prices fluctuated during the last several years to offset the volatile cost of commodities.
Operating Items Fiscal 2022 Fiscal 2021 Increase (Decrease) In Millions As % Net Sales In Millions As % Net Sales In Millions % Operating expenses $ 520.8 15.5 % $ 482.3 16.2 % $ 38.5 8.0 % Restructuring, exit and other charges 18.8 0.6 40.4 1.4 (21.6) (53.5) Impairment of indefinite-lived intangibles 1.2 — — — 1.2 NM Loss on assets held for sale 3.0 0.1 — — 3.0 NM NM = not meaningful Operating Expenses Operating expenses increased $38.5 million or 8.0% in fiscal 2022 from fiscal 2021 and decreased as a percentage of net sales by 70 basis points.
Operating Items Fiscal 2023 Fiscal 2022 Increase (Decrease) In Millions As % Net Sales In Millions As % Net Sales In Millions % Operating expenses $ 544.9 14.7 % $ 520.8 15.5 % $ 24.1 4.6 % Restructuring, exit and other charges 16.4 0.4 18.8 0.6 (2.4) (12.4) Impairment of indefinite-lived intangibles 0.5 0.1 1.2 — (0.7) (59.3) Operating Expenses Operating expenses increased $24.1 million or 4.6% in fiscal 2023 from fiscal 2022 and decreased as a percentage of net sales by 80 basis points.
Gross Profit Fiscal 2022 Fiscal 2021 Increase (Decrease) In Millions As % Net Sales In Millions As % Net Sales In Millions % Gross profit $ 750.0 22.3 % $ 739.1 24.8 % $ 10.9 1.5 % Gross profit increased $10.9 million or 1.5% in fiscal 2022 compared to fiscal 2021.
Gross Profit Fiscal 2023 Fiscal 2022 Increase (Decrease) In Millions As % Net Sales In Millions As % Net Sales In Millions % Gross profit $ 840.1 22.7 % $ 750.0 22.3 % $ 90.1 12.0 % Gross profit increased $90.1 million or 12.0% in fiscal 2023 compared to fiscal 2022.
If actual results were to differ materially from the estimates made, the reported results could be materially affected. 31 Table of Contents Revenue Recognition In accordance with ASC 606, we recognize revenue only when we have satisfied a performance obligation through transferring control of the promised good or service to a customer.
Revenue Recognition In accordance with ASC 606, we recognize revenue only when we have satisfied a performance obligation through transferring control of the promised good or service to a customer.
Fiscal 2021 Programs Hagen, Germany In fiscal 2021, we committed to a plan to close substantially all of our facility in Hagen, Germany, which produces flooded motive power batteries for forklifts.
A net gain of $0.7 million was recorded as a credit to exit charges in the Consolidated Statements of Income. Fiscal 2021 Programs Hagen, Germany In fiscal 2021, we committed to a plan to close substantially all of our facility in Hagen, Germany, which produces flooded motive power batteries for forklifts.
The decrease in the gross profit margin in fiscal 2022 compared to the prior year reflects the negative impact of higher freight costs and component shortages from our supply chain along with other inflationary pressures in raw materials, labor, supplies and utilities, in excess of pricing recoveries and organic volume growth. Energy Systems was most acutely impacted by these pressures.
The increase in the gross profit margin in fiscal 2023 compared to the prior year reflects the impact of organic volume increases, aggressive price recoveries, and mix improvement more than offsetting the negative impact of higher freight costs and component shortages from our supply chain along with other inflationary pressures in raw materials, labor, supplies and utilities.
Management determined that the future demand for batteries of diesel-electric submarines was not sufficient given the number of competitors in the market. During 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 Statements of Income.
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 fiscal 2022, the Company sold this facility for $1.5 million.
An asset is considered impaired when the undiscounted estimated net cash flows expected to be generated by the asset are less than its carrying amount. The impairment recognized is the amount by which the carrying amount exceeds the fair value of the impaired asset. Business Combinations We account for business combinations in accordance with ASC 805, Business Combinations.
The impairment recognized is the amount by which the carrying amount exceeds the fair value of the impaired asset. Business Combinations We account for business combinations in accordance with ASC 805, Business Combinations.
Actual results, and future changes in estimates of the requisite service period may differ substantially from our current estimates. Income Taxes Our effective tax rate is based on pretax income and statutory tax rates available in the various jurisdictions in which we operate.
Income Taxes Our effective tax rate is based on pretax income and statutory tax rates available in the various jurisdictions in which we operate.
The overall market demand for our products and services 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.
Generally, our mitigation efforts and the recent economic recovery have tempered the impact of the pandemic-related challenges. The overall market demand for our products and services remains robust. Volatility of Commodities and Foreign Currencies Our most significant commodity and foreign currency exposures are related to lead and the Euro, respectively.
In addition to cash flows from operating activities, we had available committed and uncommitted credit lines of approximately $482 million at March 31, 2022 to cover short-term liquidity requirements.
As a result of the above, total cash and cash equivalents decreased by $55.8 million from $402.5 million at March 31, 2022 to $346.7 million at March 31, 2023. In addition to cash flows from operating activities, we had available committed and uncommitted credit lines of approximately $693.4 million at March 31, 2023 to cover short-term liquidity requirements.
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”).
Credit Facilities and Leverage 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”).
EnerSys is experiencing supply chain disruptions and cost spikes in certain materials such as plastic resins, acid, pasting paper and electronic components along with transportation and related logistics challenges and broad-based cost increases. In addition, some locations are experiencing difficulty meeting hiring goals. Generally, our mitigation efforts and the recent economic recovery, have tempered the impact of the pandemic-related challenges.
EnerSys is experiencing some supply chain disruptions and cost spikes in certain materials such as steel, copper, plastic resins, acid, pasting paper and electronic components, while transportation and related logistics challenges are improving with broad-based costs declining from peak levels. In addition, some locations experienced difficulty meeting hiring goals for the majority of the fiscal year.
We discuss below the more significant estimates and related assumptions used in the preparation of our Consolidated Financial Statements.
We discuss below the more significant estimates and related assumptions used in the preparation of our Consolidated Financial Statements. If actual results were to differ materially from the estimates made, the reported results could be materially affected.
Shown below are the leverage ratios at March 31, 2022 and 2021, in connection with the Second Amended Credit Facility. 44 Table of Contents The total net debt, as defined under the Second Amended Credit Facility is $905.9 million for fiscal 2022 and is 2.5 times adjusted EBITDA (non-GAAP), compared to total net debt of $615.0 million and 1.7 times adjusted EBITDA (non-GAAP) for fiscal 2021.
The total net debt, as defined under the Fourth Amended Credit Facility is $736.0 million for fiscal 2023 and is 1.8 times adjusted EBITDA (non-GAAP), compared to total net debt of $905.9 million and 2.5 times adjusted EBITDA (non-GAAP) for fiscal 2022.
Repayment on the Amended 2017 Term Loan was $28.1 million and net payments on short-term debt were $5.3 million. Treasury stock open market purchases were $34.6 million, payment of cash dividends to our stockholders were $29.7 million and payment of taxes related to net share settlement of equity awards were $6.4 million.
Payment of cash dividends to our stockholders were $28.5 million, treasury stock open market purchases were $22.9 million, and payment of taxes related to net share settlement of equity awards were $6.4 million. Proceeds from stock options were $4.4 million, and payments for financing costs for debt modification were $1.1 million.
Impairment of indefinite-lived intangibles During the fourth quarter of fiscal 2022, the Company recorded a non-cash charge of $1.2 million related to impairment of indefinite-lived trademarks.
A net gain of $1.2 million was recorded as a credit to exit charges in the Consolidated Statements of Income. Impairment of indefinite-lived intangibles During the fourth quarter of fiscal 2023 and 2022, the Company recorded non-cash charges of $0.5 million and $1.2 million, respectively, related to impairment of indefinite-lived trademarks.
The fair value of market condition-based awards is estimated at the date of grant using a Monte Carlo Simulation. The fair value of performance condition-based awards is based on the closing stock price on the date of grant, adjusted for a discount to reflect the illiquidity inherent in these awards.
The fair value of market condition-based awards is estimated at the date of grant using a Monte Carlo Simulation.
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.
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. Shown below are the leverage ratios at March 31, 2023 and 2022, in connection with the Fourth Amended Credit Facility.
Operating earnings decreased $10.2 million or 4.7% in fiscal 2022, compared to fiscal 2021 . Operating earnings, as a percentage of net sales, decreased 110 basis points in fiscal 2022, compared to fiscal 2021. The Energy Systems operating earnings decreased 370 basis points in fiscal 2022 compared to fiscal 2021.
Operating earnings increased $72.1 million or 35.0% in fiscal 2023, compared to fiscal 2022 . Operating earnings, as a percentage of net sales, increased 140 basis points in fiscal 2023, compared to fiscal 2022. The Energy Systems operating earnings percentage of net sales increased 240 basis points in fiscal 2023 compared to fiscal 2022.
Interest Expense Fiscal 2022 Fiscal 2021 Increase (Decrease) In Millions As % Net Sales In Millions As % Net Sales In Millions % Interest expense $ 37.8 1.1 % $ 38.5 1.3 % $ (0.7) (1.7) % Interest expense of $37.8 million in fiscal 2022 (net of interest income of $2.1 million) was $0.7 million lower than the $38.5 million in fiscal 2021 (net of interest income of $2.3 million). 40 Table of Contents Our average debt outstanding was $1,150.7 million in fiscal 2022, compared to our average debt outstanding of $1,105.5 million in fiscal 2021.
Interest Expense Fiscal 2023 Fiscal 2022 Increase (Decrease) In Millions As % Net Sales In Millions As % Net Sales In Millions % Interest expense $ 59.5 1.6 % $ 37.8 1.1 % $ 21.7 57.6 % 43 Table of Contents Interest expense of $59.5 million in fiscal 2023 (net of interest income of $1.7 million) was $21.7 million higher than the $37.8 million in fiscal 2022 (net of interest income of $2.1 million).
This increase was due to a 10% increase in organic volume resulting primarily from strong demand and a 3% increase in pricing. A discussion of specific fiscal 2022 versus fiscal 2021 operating results follows, including an analysis and discussion of the results of our reportable segments.
This increase was due to an 8% increase in pricing, and 7% in organic growth, partially offset by a 4% decrease in foreign currency translation impact. A discussion of specific fiscal 2023 versus fiscal 2022 operating results follows, including an analysis and discussion of the results of our reportable segments.
In the twelve months of fiscal 2022, principal currencies in which we do business such as the Euro, Polish zloty, British pound and Swiss franc generally weakened versus the U.S. dollar. As a result of the above, total cash and cash equivalents decreased by $49.3 million from $451.8 million at March 31, 2021 to $402.5 million at March 31, 2022.
In the twelve months of fiscal 2023, principal currencies in which we do business such as the Euro, Polish zloty, and British pound generally weakened and Swiss franc strengthened versus the U.S. dollar.
The large increase in primary working capital dollars, compared to the prior years, reflects the increase in all components of inventory due to supply chain delays, new products and higher inventory costs from higher raw material costs, manufacturing and freight costs, strategic inventory builds to buffer against potential supply chain exposures and to address the high backlog of customer orders.
Inventory increased or used cash of $212.8 million due to supply chain delays, new products and higher inventory costs from higher raw material costs, manufacturing and freight costs, strategic inventory builds to buffer against potential supply chain exposures and to address the high backlog of customer orders. Accounts payable increased or provided cash of $65.3 million.
During the first quarter of fiscal 2021, the Company's chief operating decision maker, or CODM (the Company's Chief Executive Officer), changed the manner in which he reviews financial information for purposes of assessing business performance and allocating resources, by focusing on the lines of business on a global basis, rather than on geographic basis.
The Company's chief operating decision maker, or CODM (the Company's Chief Executive Officer), reviews financial information for purposes of assessing business performance and allocating resources, by focusing on the lines of business on a global basis. The Company excludes certain items that are not included in the segment performance as these are managed and viewed on a consolidated basis.
Primary working capital is trade accounts receivable, plus inventories, minus trade accounts payable and the resulting net amount is divided by the trailing three-month net sales (annualized) to derive a primary working capital percentage. Free cash flows are cash flows from operating activities less capital expenditures.
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.
The estimation of environmental reserves is based on the evaluation of currently available information, prior experience in the remediation of contaminated sites and assumptions with respect to government regulations and enforcement activity, changes in remediation technology and practices, and financial obligations and creditworthiness of other responsible parties and insurers. 33 Table of Contents Warranty We record a warranty reserve for possible claims against our product warranties, which generally run for a period ranging from one to twenty years for our Energy Systems batteries, one to five years for our Motive Power batteries and for a period ranging from one to four for Specialty transportation batteries.
The estimation of environmental reserves is based on the evaluation of currently available information, prior experience in the remediation of contaminated sites and assumptions with respect to government regulations and enforcement activity, changes in remediation technology and practices, and financial obligations and creditworthiness of other responsible parties and insurers.
(5) As defined in the Second Amended Credit Facility, interest expense used in the consolidated interest coverage ratio excludes non-cash interest of $2.1 million for both years of fiscal 2022 and fiscal 2021. 45 Table of Contents RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS See Note 1 to the Consolidated Financial Statements - Summary of Significant Accounting Policies for a description of certain recently issued accounting standards that were adopted or are pending adoption that could have a significant impact on our Consolidated Financial Statements or the Notes to the Consolidated Financial Statements.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS See Note 1 to the Consolidated Financial Statements - Summary of Significant Accounting Policies for a description of certain recently issued accounting standards that were adopted or are pending adoption that could have a significant impact on our Consolidated Financial Statements or the Notes to the Consolidated Financial Statements. Related Party Transactions None.
Management believes that the accounting estimate related to the warranty reserve is a critical accounting estimate because the underlying assumptions used for the reserve can change from time to time and warranty claims could potentially have a material impact on our results of operations.
Management believes that the accounting estimate related to the warranty reserve is a critical accounting estimate because the underlying assumptions used for the reserve can change from time to time and warranty claims could potentially have a material impact on our results of operations. 36 Table of Contents Allowance for Doubtful Accounts Subsequent to the adoption of ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326)” effective April 1, 2020 the Company uses an expected loss model as mandated by the standard.
Zamudio, Spain During 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 Statements of Income.
During 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. Zamudio, Spain During fiscal 2022, the Company closed a minor assembling plant in Zamudio, Spain and sold the same for $1.8 million.
Selling expenses, our main component of operating expenses, increased $14.3 million or 7.0% in fiscal 2022 compared to fiscal 2021. 37 Table of Contents Restructuring, exit and other charges Exit Charges Fiscal 2022 Programs 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.
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 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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+6 added−2 removed12 unchanged
Biggest changeCommodity 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.
Biggest changeIn 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 estimate that a 10% increase in our cost of lead would have increased our cost of goods sold by approximately $70 million for the fiscal year ended March 31, 2022. Foreign Currency Exchange Rate Risks We manufacture and assemble our products globally in the Americas, EMEA and Asia.
We estimate that a 10% increase in our cost of lead would have increased our cost of goods sold by approximately $81 million for the fiscal year ended March 31, 2023. Foreign Currency Exchange Rate Risks We manufacture and assemble our products globally in the Americas, EMEA and Asia.
Depending on the movement in the exchange rates between U.S. Dollars and Euros at maturity, the Company may owe the counterparties an amount that is different from the original notional amount of $300 million. Excluding the cross currency fixed interest rate swap agreements, the vast majority of these contracts will settle within one year.
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 the cross currency fixed interest rate swap agreements, the vast majority of these contracts will settle within one year.
At March 31, 2022 and 2021, we estimate that an unfavorable 10% movement in the exchange rates would have adversely changed our hedge valuations by approximately $36.6 million and $3.7 million, respectively. 47 Table of Contents
At March 31, 2023 and 2022, we estimate that an unfavorable 10% movement in the exchange rates would have adversely changed our hedge valuations by approximately $32.7 million and $36.6 million, respectively. 50 Table of Contents
We had the following contracts outstanding at the dates shown below: 46 Table of Contents Date $’s Under Contract # Pounds Purchased Average Cost/Pound Approximate % of Lead Requirements (1) (in millions) (in millions) March 31, 2022 $56.8 54.0 $1.05 8% March 31, 2021 50.6 54.5 0.93 10 March 31, 2020 30.1 35.0 0.86 6 (1) Based on the fiscal year lead requirements for the periods then ended.
We had the following contracts outstanding at the dates shown below: Date $’s Under Contract # Pounds Purchased Average Cost/Pound Approximate % of Lead Requirements (1) (in millions) (in millions) March 31, 2023 $47.9 50.0 $0.96 8% March 31, 2022 56.8 54.0 1.05 8 March 31, 2021 50.6 54.5 0.93 10 (1) Based on the fiscal year lead requirements for the periods then ended.
Those contracts that result in a liability position at March 31, 2022 are $0.7 million (pre-tax). Those contracts that result in an asset position at March 31, 2022 are $3.3 million (pre-tax). The impact on the Company due to nonperformance by the counterparties has been evaluated and not deemed material.
Those contracts that result in a liability position at March 31, 2023 are $18.9 million (pre-tax). Those contracts that result in an asset position at March 31, 2023 are $2.9 million (pre-tax). The impact on the Company due to nonperformance by the counterparties has been evaluated and not deemed material.
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 $7.1 million on the variable rate portions of our debt.
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 the U.S. and our foreign subsidiaries.
Removed
During the third quarter of fiscal 2022, the Company entered into cross currency fixed interest rate swap agreements, with aggregate notional amounts of $300 million, to hedge its net investments in foreign operations against future volatility in the exchange rates between U.S. Dollars and Euros. These swaps mature on December 15, 2027.
Added
We hedge our net investments in foreign operations against future volatility in the exchange rates between the U.S. dollar and Euro.
Removed
A vast majority of such contracts are for a period not extending beyond one year.
Added
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.
Added
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.
Added
Management considers the interest rate swaps to be highly effective against changes in the cash flows from our underlying variable rate debt based on the criteria in the FASB guidance. Cash flows related to the interest rate swap agreements are included in interest expense over the terms of the agreements.
Added
At March 31, 2023 such agreements effectively convert $200 million of our variable-rate debt to a fixed-rate basis, utilizing the one-month Term SOFR as a floating rate reference. 49 Table of Contents Fluctuations in SOFR and fixed rates affect both our net financial investment position and the amount of cash to be paid or received by us under these agreements.
Added
A 100 basis point increase in interest rates would have increased annual interest expense by approximately $5.8 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.

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