EnerSys(ENS) - 2025 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This section provides EnerSys's unaudited consolidated financial information, including statements, notes, management's discussion, and market risk disclosures Item 1. Financial Statements This section presents EnerSys's unaudited consolidated condensed financial statements, including balance sheets, statements of income, comprehensive income, and cash flows, along with detailed notes explaining accounting policies, acquisitions, revenue recognition, asset valuations, debt, equity, and segment performance Consolidated Condensed Balance Sheets (Unaudited) This section provides a snapshot of EnerSys's financial position, detailing assets, liabilities, and equity at specific dates Consolidated Condensed Balance Sheet Highlights | Metric | December 29, 2024 (in Thousands) | March 31, 2024 (in Thousands) | | :--------------------------------- | :------------------------------- | :----------------------------- | | Total Assets | $4,027,660 | $3,466,006 | | Cash and cash equivalents | $463,164 | $333,324 | | Inventories, net | $753,380 | $697,698 | | Long-term debt, net | $1,273,062 | $801,965 | | Total Liabilities | $2,179,402 | $1,708,934 | | Total Equity | $1,848,258 | $1,757,072 | Consolidated Condensed Statements of Income (Unaudited) for the Quarters Ended December 29, 2024 and December 31, 2023 This section presents EnerSys's quarterly financial performance, including net sales, gross profit, operating earnings, and earnings per share Quarterly Income Statement Highlights | Metric | Quarter Ended Dec 29, 2024 (in Thousands) | Quarter Ended Dec 31, 2023 (in Thousands) | | :------------------------ | :---------------------------------------- | :---------------------------------------- | | Net sales | $906,152 | $861,548 | | Gross profit | $298,176 | $248,648 | | Operating earnings | $142,649 | $92,597 | | Net earnings | $114,812 | $76,158 | | Basic EPS | $2.92 | $1.88 | | Diluted EPS | $2.88 | $1.86 | | Dividends per common share| $0.24 | $0.225 | Consolidated Condensed Statements of Income (Unaudited) for the Nine Months Ended December 29, 2024 and December 31, 2023 This section details EnerSys's year-to-date financial performance, including net sales, gross profit, operating earnings, and earnings per share Nine-Month Income Statement Highlights | Metric | Nine Months Ended Dec 29, 2024 (in Thousands) | Nine Months Ended Dec 31, 2023 (in Thousands) | | :------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Net sales | $2,642,737 | $2,671,150 |\ | Gross profit | $788,693 | $728,573 |\ | Operating earnings | $333,367 | $270,656 |\ | Net earnings | $267,189 | $208,184 |\ | Basic EPS | $6.70 | $5.11 |\ | Diluted EPS | $6.58 | $5.02 |\ | Dividends per common share| $0.705 | $0.625 | Consolidated Condensed Statements of Comprehensive Income (Unaudited) This section outlines EnerSys's comprehensive income, including net earnings and other comprehensive income components like foreign currency adjustments Comprehensive Income Highlights | Metric | Quarter Ended Dec 29, 2024 (in Thousands) | Quarter Ended Dec 31, 2023 (in Thousands) | | :-------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net earnings | $114,812 | $76,158 | | Foreign currency translation adjustment | $(72,235) | $33,356 | | Total comprehensive income (loss) | $46,278 | $102,813 | | Metric | Nine Months Ended Dec 29, 2024 (in Thousands) | Nine Months Ended Dec 31, 2023 (in Thousands) | | :-------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net earnings | $267,189 | $208,184 | | Foreign currency translation adjustment | $(56,742) | $3,694 | | Total comprehensive income (loss) | $210,165 | $209,499 | Consolidated Condensed Statements of Cash Flows (Unaudited) This section presents EnerSys's cash flow activities from operations, investing, and financing, highlighting changes in cash and equivalents Cash Flow Highlights (Nine Months Ended) | Metric | Dec 29, 2024 (in Thousands) | Dec 31, 2023 (in Thousands) | | :-------------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $125,110 | $320,247 | | Net cash used in investing activities | $(307,547) | $(65,238) | | Net cash provided by (used in) financing activities | $328,853 | $(271,224) | | Net increase (decrease) in cash and cash equivalents | $129,840 | $(13,951) | | Cash and cash equivalents at end of period | $463,164 | $332,714 | - Investing activities used significantly more cash in the nine months ended December 29, 2024, primarily due to the acquisition of a business for $206.024 million, compared to $8.27 million in the prior year[19] Notes to Consolidated Condensed Financial Statements (Unaudited) This section provides detailed explanations and disclosures supporting the consolidated condensed financial statements, covering accounting policies and significant transactions 1. Basis of Presentation This note outlines the accounting principles, estimates, and recent FASB guidance applied in preparing the unaudited interim financial statements - The unaudited consolidated condensed financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions, relying on management estimates and assumptions[20][25] - A $36.31 million change in estimate for production tax credits under the Inflation Reduction Act (IRA) was recognized in the third quarter of fiscal 2025 due to final regulations on IRC section 45X[27] - New FASB guidance on segment disclosures (effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024) will impact disclosures but not financial results[28][29] 2. Acquisition This note details the acquisition of Bren-Tronics Defense LLC, including the purchase price, provisional fair values, and recognized goodwill - On July 26, 2024, EnerSys acquired Bren-Tronics Defense LLC, a manufacturer of portable power solutions for military and defense applications, for $206.024 million[31] Bren-Tronics Acquisition Provisional Fair Values | Asset/Liability Category | Provisional Fair Value (in Thousands) | | :----------------------- | :------------------------------------ | | Total assets acquired | $167,283 | | Total liabilities assumed| $12,799 | | Net assets acquired | $154,484 | | Consideration transferred| $206,024 | | Goodwill | $51,540 | - Goodwill of $51.54 million was recognized, primarily attributable to the assembled workforce and management experience, and is deductible for tax purposes[32][33][34] The acquisition results are included in the Specialty operating segment[34] 3. Revenue Recognition This note explains EnerSys's policies for recognizing revenue from services and customized products, including transaction prices for unsatisfied obligations - Service revenues are recognized as services are performed, while customized products combining goods and services are recognized over time using input or output methods[35][36] Revenues Recognized Over Time | Period | Dec 29, 2024 (in Thousands) | Dec 31, 2023 (in Thousands) | | :---------- | :-------------------------- | :-------------------------- | | Quarter ended | $46,197 | $68,707 | | Nine months ended | $148,049 | $196,173 | - As of December 29, 2024, the aggregate transaction price allocated to unsatisfied performance obligations was approximately $123.137 million, with $42.573 million expected to be recognized in fiscal 2025[37] 4. Accounts Receivable This note provides details on accounts receivable, including the allowance for doubtful accounts and the company's receivables purchase agreement Accounts Receivable, Net | Metric | December 29, 2024 (in Thousands) | March 31, 2024 (in Thousands) | | :------------------------ | :------------------------------- | :---------------------------- | | Accounts receivable, net | $545,223 | $524,725 | | Allowance for doubtful accounts | $8,674 | $8,107 | - The company continuously sells its interest in designated pools of trade accounts receivables (up to $150 million) to an unaffiliated financial institution under a Receivables Purchase Agreement (RPA), which matures in December 2025[42] Accounts Receivables Sold Under RPA (Nine Months Ended) | Metric | Dec 29, 2024 (in Thousands) | Dec 31, 2023 (in Thousands) | | :------------------------ | :-------------------------- | :-------------------------- | | Accounts receivables sold | $575,011 | $513,161 | 5. Goodwill and Other Intangible Assets This note details the composition of other intangible assets and goodwill by segment, including amortization expense and acquisition impacts Other Intangible Assets, Net | Category | December 29, 2024 (in Thousands) | March 31, 2024 (in Thousands) | | :------------------------ | :------------------------------- | :---------------------------- | | Indefinite-lived intangible assets: Trademarks | $129,079 | $130,214 | | Finite-lived intangible assets: Customer relationships | $193,350 | $147,382 | | Finite-lived intangible assets: Technology | $56,924 | $40,739 | | Total | $384,453 | $319,407 | Goodwill by Segment | Segment | March 31, 2024 (in Thousands) | Acquisitions (in Thousands) | Foreign Currency Adjustment (in Thousands) | December 29, 2024 (in Thousands) | | :------------- | :---------------------------- | :-------------------------- | :----------------------------------------- | :------------------------------- | | Energy Systems | $259,369 | — | $(15,783) | $243,586 | | Motive Power | $326,359 | — | $(2,677) | $323,682 | | Specialty | $97,206 | $51,540 | $(440) | $148,306 | | Total | $682,934 | $51,540 | $(18,900) | $715,574 | - Amortization expense for finite-lived intangible assets was $23.459 million for the nine months ended December 29, 2024, compared to $21.1 million for the prior year period[47] 6. Inventories This note breaks down EnerSys's inventory by category, including raw materials, work-in-process, and finished goods Inventories, Net | Category | December 29, 2024 (in Thousands) | March 31, 2024 (in Thousands) | | :-------------- | :------------------------------- | :---------------------------- | | Raw materials | $313,813 | $284,773 | | Work-in-process | $121,519 | $115,191 | | Finished goods | $318,048 | $297,734 | | Total | $753,380 | $697,698 | 7. Fair Value of Financial Instruments This note describes the fair value measurements of financial instruments, including derivatives and non-recurring impairments, classified by valuation levels Total Derivatives Fair Value Measurement (Level 2) | Category | December 29, 2024 (in Thousands) | March 31, 2024 (in Thousands) | | :------------------------ | :------------------------------- | :---------------------------- | | Lead forward contracts | $(1,579) | $(835) | | Foreign currency forward contracts | $1,706 | $5 | | Interest Rate Swaps | $1,204 | $2,696 | | Net investment hedges | $(16,827) | $(19,167) | | Total derivatives | $(15,496) | $(17,301) | - All recurring fair value measurements for derivatives and Senior Notes are classified as Level 2, based on observable market prices[50][51][53] - A non-recurring impairment of $6.02 million was recorded in the third quarter of fiscal 2024 for an indefinite-lived trademark related to residential renewable energy products, classified as Level 3[56] 8. Derivative Financial Instruments This note explains EnerSys's use of derivative instruments to manage commodity, foreign exchange, and interest rate exposures, detailing hedged amounts and anticipated reclassifications - EnerSys uses derivative instruments (lead forward contracts, foreign currency forward contracts, interest rate swaps, and cross-currency fixed interest rate swaps) to manage exposure to commodity prices, foreign exchange rates, and interest rates, not for speculative purposes[57][58][60][61][62] - As of December 29, 2024, the company had hedged approximately 70.3 million pounds of lead for $64.348 million and had cross-currency fixed interest rate swap contracts with an aggregate notional amount of $600 million to hedge net investments in foreign operations[59][63][239] - An estimated $9.374 million of pretax gain relating to various hedges is anticipated to be reclassified from AOCI into cost of goods sold and interest expense in the coming twelve months[64] 9. Income Taxes This note provides details on EnerSys's consolidated effective income tax rates, explaining changes due to earnings, OECD Pillar 2, and jurisdictional mix Consolidated Effective Income Tax Rates | Period | Dec 29, 2024 | Dec 31, 2023 | | :---------- | :----------- | :----------- | | Quarter ended | 9.4% | 3.2% | | Nine months ended | 7.9% | 7.7% | - The increase in the effective tax rate for the third quarter is primarily due to the interim period allocation of annual tax from significantly increased quarterly earnings, the impact of OECD Pillar 2, and the mix of earnings among tax jurisdictions[75] - Foreign income is estimated to be 48% of worldwide income for fiscal 2025 (down from 52% in fiscal 2024), with the foreign effective tax rate for the nine months increasing to 15% from 11% due to Pillar 2 impacts[76] 10. Warranty This note details changes in EnerSys's product warranty liability, including provisions made and costs incurred during the reporting periods Product Warranty Liability Changes (in Thousands) | Metric | Quarter Ended Dec 29, 2024 | Quarter Ended Dec 31, 2023 | | :-------------------------- | :------------------------- | :------------------------- | | Balance at beginning of period | $62,543 | $58,836 | | Current period provisions | $7,301 | $6,072 | | Costs incurred | $(6,444) | $(6,953) | | Balance at end of period | $62,120 | $58,565 | | Metric | Nine Months Ended Dec 29, 2024 | Nine Months Ended Dec 31, 2023 | | :-------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | $60,819 | $56,630 | | Current period provisions | $21,475 | $22,541 | | Costs incurred | $(19,196) | $(21,373) | | Balance at end of period | $62,120 | $58,565 | 11. Commitments, Contingencies and Litigation This note outlines EnerSys's involvement in legal actions and regulatory proceedings, and its use of financial instruments to manage market volatility - The company is routinely involved in legal actions and regulatory proceedings, including those related to environmental, anticompetition, employment, and contract laws[78] - No reserve balance was held for European competition investigations as of December 29, 2024, or March 31, 2024[79] - The company uses lead, foreign currency forward contracts, and interest rate swaps to manage commodity, currency, and interest rate volatility[82] 12. Restructuring and Other Exit Charges This note details EnerSys's restructuring plans and associated exit charges, including estimated remaining costs and specific facility closures Restructuring and Other Exit Charges (in Thousands) | Period | Dec 29, 2024 | Dec 31, 2023 | | :---------- | :----------- | :----------- | | Quarter ended | $1,213 | $6,070 | | Nine months ended | $9,375 | $19,613 | - The company committed to restructuring plans to improve operational efficiencies, with an estimated $1.346 million remaining to be incurred by the end of fiscal 2025[83] - Fiscal 2024 programs included stopping residential renewable energy products (OutBack and Mojave brands) with estimated total charges of $24.5 million, and closing the Spokane facility with estimated total charges of $3.6 million[84][86] - Fiscal 2023 programs included closing the Sylmar facility (estimated $13.63 million) and the Ooltewah facility (estimated $18.5 million)[89][92] The Fiscal 2021 program involved closing the Hagen, Germany facility (estimated $60 million)[97] 13. Debt This note provides details on EnerSys's long-term debt, including Senior Notes and Credit Facility balances, new issuances, and available credit lines Long-Term Debt, Net of Unamortized Issuance Costs (in Thousands) | Category | December 29, 2024 | March 31, 2024 | | :---------------------------- | :---------------- | :------------- | | Senior Notes | $594,442 | $593,936 | | Fourth Amended Credit Facility| $678,620 | $208,029 | | Total | $1,273,062 | $801,965 | - The company issued $300 million of 6.625% Senior Notes due January 15, 2032, on January 11, 2024, using proceeds to pay down the Fourth Amended Credit Facility[103] - As of December 29, 2024, the company had $470 million outstanding under the Second Amended Revolver, $110 million under the Second Amended Term Loan, and $100 million under the Third Amended Term Loan[117] - Available and undrawn lines of credit totaled $460.128 million as of December 29, 2024[122] 14. Retirement Plans This note presents the net periodic benefit cost for EnerSys's defined benefit pension plans, broken down by US and international plans Net Periodic Benefit Cost for Defined Benefit Pension Plans (in Thousands) | Plan Type & Period | Dec 29, 2024 | Dec 31, 2023 | | :----------------- | :----------- | :----------- | | US Plans (Qtr) | $85 | $(5) | | International Plans (Qtr) | $640 | $697 | | US Plans (9M) | $289 | $175 | | International Plans (9M) | $1,967 | $1,548 | 15. Stock-Based Compensation This note details EnerSys's stock-based compensation expense, including shares reserved under equity plans and outstanding equity awards Stock-Based Compensation Expense (in Thousands) | Period | Dec 29, 2024 | Dec 31, 2023 | | :---------- | :----------- | :----------- | | Quarter ended | $8,076 | $9,817 | | Nine months ended | $20,263 | $22,894 | - The 2023 Equity Incentive Plan reserved 3,614,500 shares for various equity awards[124] During the nine months of fiscal 2025, 252,513 non-qualified stock options and 314,487 restricted stock units were granted to management and key employees[127] - As of December 29, 2024, 1,334,171 non-qualified stock options, 1,039,825 restricted stock units, and 1,140 TSRs were outstanding[127] 16. Stockholders' Equity and Noncontrolling Interests This note outlines changes in EnerSys's common stock and treasury stock, along with the components of accumulated other comprehensive income (loss) Common Stock and Treasury Stock Activity (Nine Months Ended Dec 29, 2024) | Metric | Shares Outstanding | | :-------------------------------------- | :----------------- | | Shares outstanding as of March 31, 2024 | 40,271,936 | | Purchase of treasury stock | (1,176,436) | | Shares issued under equity-based compensation plans, net | 329,172 | | Shares outstanding as of December 29, 2024 | 39,424,672 | - The company purchased 1,176,436 shares for $113.928 million as treasury stock during the nine months ended December 29, 2024[129] Accumulated Other Comprehensive Income (Loss) (AOCI) (in Thousands) | Component | December 29, 2024 | March 31, 2024 | | :-------------------------------------- | :---------------- | :------------- | | Pension funded status adjustment | $(9,516) | $(9,798) | | Net unrealized gain (loss) on derivative instruments | $191 | $755 | | Foreign currency translation adjustment | $(252,514) | $(195,808) | | Total AOCI | $(261,839) | $(204,851) | 17. Earnings Per Share This note presents EnerSys's basic and diluted earnings per share, along with the weighted-average number of common shares outstanding Earnings Per Share (EPS) Attributable to EnerSys Stockholders | Period | Basic EPS (Dec 29, 2024) | Diluted EPS (Dec 29, 2024) | Basic EPS (Dec 31, 2023) | Diluted EPS (Dec 31, 2023) | | :---------- | :----------------------- | :------------------------- | :----------------------- | :------------------------- | | Quarter ended | $2.92 | $2.88 | $1.88 | $1.86 | | Nine months ended | $6.70 | $6.58 | $5.11 | $5.02 | - The diluted weighted-average number of common shares outstanding for the quarter ended December 29, 2024, was 39,922,913, compared to 41,047,893 for the prior year period[139] 18. Business Segments This note describes EnerSys's operating segments, including the new New Ventures segment, and provides net sales and operating earnings by segment - Effective April 1, 2023, EnerSys created a new operating segment named New Ventures, focusing on energy storage and management systems for demand charge reduction, utility back-up power, and dynamic fast charging for electric vehicles[140] Net Sales by Segment to Unaffiliated Customers (in Thousands) | Segment | Qtr Ended Dec 29, 2024 | Qtr Ended Dec 31, 2023 | 9M Ended Dec 29, 2024 | 9M Ended Dec 31, 2023 | | :------------- | :--------------------- | :--------------------- | :-------------------- | :-------------------- | | Energy Systems | $389,219 | $373,573 | $1,132,361 | $1,220,587 | | Motive Power | $358,847 | $355,396 | $1,091,746 | $1,061,383 | | Specialty | $155,161 | $132,579 | $415,705 | $389,180 | | Other | $2,925 | — | $2,925 | — | | Total net sales| $906,152 | $861,548 | $2,642,737 | $2,671,150 | Operating Earnings by Segment (in Thousands) | Segment | Qtr Ended Dec 29, 2024 | Qtr Ended Dec 31, 2023 | 9M Ended Dec 29, 2024 | 9M Ended Dec 31, 2023 | | :------------- | :--------------------- | :--------------------- | :-------------------- | :-------------------- | | Energy Systems | $25,250 | $14,309 | $68,611 | $69,521 | | Motive Power | $52,667 | $52,715 | $166,223 | $156,531 | | Specialty | $9,556 | $7,496 | $21,794 | $22,900 | | Corporate and other | $67,813 | $55,758 | $118,919 | $92,055 | 19. Subsequent Events This note discloses significant events occurring after the reporting period, including the approval of a quarterly cash dividend - On February 5, 2025, the Board of Directors approved a quarterly cash dividend of $0.24 per share of common stock, payable on March 28, 2025[144] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on EnerSys's financial performance and condition, covering net sales, gross profit, operating expenses, liquidity, and capital resources It also includes cautionary notes on forward-looking statements and discusses the economic climate, supply chain, and commodity/foreign currency volatility CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This note advises that forward-looking statements are subject to risks and uncertainties, and actual results may differ due to various factors - Forward-looking statements are based on management's current beliefs and assumptions and are subject to various risks, uncertainties, and assumptions, meaning actual results may differ materially from expectations[146][147] - Key factors that may affect future performance include global economic trends, supply chain disruptions, geopolitical risks (e.g., Russia-Ukraine, Middle East, US-China tensions), inflation, interest rates, and commodity price volatility[148] Overview This section introduces EnerSys as a global leader in stored energy solutions, highlights the Bren-Tronics acquisition, and discusses the current economic climate - EnerSys is a global leader in stored energy solutions for industrial applications, operating through four segments: Energy Systems, Motive Power, Specialty, and New Ventures[152][155] - The company completed the acquisition of Bren-Tronics Defense LLC for $206.0 million on July 26, 2024, integrating its portable power solutions into the Specialty segment[153] - Global economic conditions are mixed, with ongoing geopolitical tensions, elevated interest rates, and inflation, though supply chain challenges are stabilizing, and customer pricing changes generally lag commodity movements by six to nine months[154][156][158] Primary Operating Capital This section analyzes EnerSys's primary operating capital, its percentage of annualized net sales, and changes driven by acquisitions and inventory management - Primary operating capital (accounts receivable + inventories - accounts payable) was $947.4 million (26.1% of annualized net sales) at December 29, 2024[160][162] - The primary operating capital percentage increased by 270 basis points compared to March 31, 2024, mainly due to the Bren-Tronics acquisition, strategic inventory build-up, and decreased accounts payable[160] - Compared to December 31, 2023, the primary operating capital percentage slightly decreased by 40 basis points due to improved inventory management and easing supply chain constraints[160] Liquidity and Capital Resources This section details EnerSys's financial strength, including cash reserves, available credit, recent debt issuances, and treasury stock purchases - EnerSys maintains a strong financial position with $463 million in cash and cash equivalents and approximately $375 million in available undrawn committed credit lines as of December 29, 2024[163] - The company issued $300 million of 6.625% Senior Notes due 2032 on January 11, 2024, using the proceeds to pay down the Fourth Amended Credit Facility[168] - During the nine months of fiscal 2025, the company purchased 1,176,436 shares for $113.9 million as treasury stock[169] Results of Operations This section provides a detailed analysis of EnerSys's financial performance, examining net sales, gross profit, operating items, and earnings Net Sales This section analyzes EnerSys's net sales performance, detailing quarterly and nine-month changes driven by volume, pricing, acquisitions, and currency Net Sales Performance | Period | Net Sales (Dec 29, 2024) | YoY Change | Net Sales (Dec 31, 2023) | | :---------- | :----------------------- | :--------- | :----------------------- | | Q3 FY25 | $906.2 million | +5.2% | $861.5 million | | 9M FY25 | $2,642.8 million | -1.1% | $2,671.1 million | - Q3 FY25 net sales increase was driven by a 2% increase in organic volume, a 2% increase in pricing, and a 3% increase from acquisitions, partially offset by a 2% decrease from foreign currency translation[170] - Specialty segment net sales increased by 17.0% in Q3 FY25 and 6.8% in 9M FY25, primarily due to acquisitions (21% and 11% respectively) and increased volumes in Aerospace and Defense[175] Gross Profit This section examines EnerSys's gross profit and margin performance, attributing increases to IRA benefits, improved product mix, and acquisition impact Gross Profit Performance | Period | Gross Profit (Dec 29, 2024) | Gross Profit % of Net Sales (Dec 29, 2024) | Gross Profit (Dec 31, 2023) | Gross Profit % of Net Sales (Dec 31, 2023) | | :---------- | :-------------------------- | :----------------------------------------- | :-------------------------- | :----------------------------------------- | | Q3 FY25 | $298.2 million | 32.9% | $248.6 million | 28.9% | | 9M FY25 | $788.7 million | 29.8% | $728.5 million | 27.3% | - The increase in gross profit margin reflects greater impact of IRA benefits, improved mix from higher-margin maintenance-free sales, and the accretive impact of Bren-Tronics margins[176] Operating Items This section reviews EnerSys's operating expenses and restructuring charges, detailing their impact on overall financial performance Operating Expenses This section analyzes changes in EnerSys's operating expenses as a percentage of sales, driven by acquisitions, investments, and cost savings initiatives Operating Expenses as % of Sales | Period | Dec 29, 2024 | Dec 31, 2023 | | :---------- | :----------- | :----------- | | Q3 FY25 | 17.0% | 16.7% | | 9M FY25 | 16.9% | 16.2% | - The increases in operating expenses as a percentage of sales are primarily due to the Bren-Tronics acquisition, increased investment in Fast Charge and Storage, and other payroll costs, partially offset by cost savings in Energy Systems[177] - Selling expenses decreased by $9.5 million or 5.5% in the nine months of fiscal 2025, reflecting cost reduction initiatives in Energy Systems[178] Restructuring and Other Exit Charges This section details EnerSys's restructuring and exit charges, including specific programs for discontinuing products and closing facilities Restructuring and Other Exit Charges (in Millions) | Period | Dec 29, 2024 | Dec 31, 2023 | | :---------- | :----------- | :----------- | | Q3 FY25 | $1.2 | $6.1 | | 9M FY25 | $9.3 | $19.6 | - Fiscal 2024 programs included the discontinuation of residential renewable energy products (OutBack and Mojave brands) with estimated total charges of $24.5 million, and the closure of the Spokane facility with estimated total charges of $3.6 million[181][183] - Fiscal 2023 programs involved closing the Sylmar facility (estimated $13.6 million) and the Ooltewah facility (estimated $18.5 million)[185][188](index=188&type=chunk] The Fiscal 2021 program included closing the Hagen, Germany facility (estimated $60.0 million)[194] Operating Earnings This section analyzes EnerSys's operating earnings performance by segment, highlighting growth drivers such as higher volumes and acquisitions Total Operating Earnings Performance | Period | Operating Earnings (Dec 29, 2024) | Operating Earnings % of Net Sales (Dec 29, 2024) | Operating Earnings (Dec 31, 2023) | Operating Earnings % of Net Sales (Dec 31, 2023) | | :---------- | :-------------------------------- | :----------------------------------------------- | :-------------------------------- | :----------------------------------------------- | | Q3 FY25 | $142.7 million | 15.7% | $92.6 million | 10.7% | | 9M FY25 | $333.4 million | 12.6% | $270.6 million | 10.1% | - Energy Systems operating earnings increased 76.5% in Q3 FY25 due to higher volumes from network communication customers[203] Motive Power operating earnings increased 6.2% in 9M FY25 due to volume growth and favorable commodity costs[204] - Specialty operating earnings increased 27.5% in Q3 FY25, driven by the accretive Bren-Tronics acquisition, partially offset by declines in transportation OEM volume[205] Interest Expense This section details EnerSys's interest expense, explaining changes due to varying borrowing levels and interest rates on outstanding debt Interest Expense (in Millions) | Period | Dec 29, 2024 | Dec 31, 2023 | | :---------- | :----------- | :----------- | | Q3 FY25 | $14.9 | $11.7 | | 9M FY25 | $38.4 | $39.1 | - The increase in Q3 FY25 interest expense is primarily due to higher borrowing levels, with average debt outstanding at $1,284.7 million (Q3 FY25) compared to $970.5 million (Q3 FY24)[208] - The slight decrease in 9M FY25 interest expense benefited from slightly lower interest rates, despite higher average debt outstanding of $1,096.3 million (9M FY25) compared to $1,008.4 million (9M FY24)[208] Other (Income) Expense, Net This section reviews EnerSys's net other income and expense, primarily influenced by foreign currency gains and losses Other (Income) Expense, Net (in Millions) | Period | Dec 29, 2024 | Dec 31, 2023 | | :---------- | :----------- | :----------- | | Q3 FY25 | $1.1 expense | $2.2 expense | | 9M FY25 | $4.8 expense | $5.9 expense | - The decrease in net other expense for both periods is primarily due to higher foreign currency gains, with a $2.2 million gain in Q3 FY25 and a $4.2 million gain in 9M FY25[212] Earnings Before Income Taxes This section presents EnerSys's earnings before income taxes, reflecting overall improved financial performance for the periods Earnings Before Income Taxes (in Millions) | Period | Dec 29, 2024 | Dec 31, 2023 | | :---------- | :----------- | :----------- | | Q3 FY25 | $126.7 | $78.7 | | 9M FY25 | $290.2 | $225.6 | - Earnings before income taxes increased by 61.1% in Q3 FY25 and 28.6% in 9M FY25, reflecting improved overall financial performance[214] Income Tax Expense This section details EnerSys's income tax expense and effective tax rates, explaining changes due to earnings, OECD Pillar 2, and jurisdictional mix Income Tax Expense and Effective Tax Rate | Period | Income Tax Expense (Dec 29, 2024) | Effective Tax Rate (Dec 29, 2024) | Income Tax Expense (Dec 31, 2023) | Effective Tax Rate (Dec 31, 2023) | | :---------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Q3 FY25 | $11.9 million | 9.4% | $2.5 million | 3.2% | | 9M FY25 | $23.0 million | 7.9% | $17.4 million | 7.7% | - The increase in effective tax rates is primarily due to higher quarterly earnings, the impact of OECD Pillar 2, and changes in the mix of earnings among tax jurisdictions[219] - The foreign effective tax rate for the nine months of fiscal 2025 was 15%, up from 11% in the prior year, mainly due to the impact of Pillar 2[220] Critical Accounting Policies and Estimates This section confirms no material changes to EnerSys's critical accounting policies and estimates since the last annual report - There have been no material changes to the company's critical accounting policies and estimates from those discussed in the 2024 Annual Report on Form 10-K[221] Liquidity and Capital Resources (Cash Flow and Financing Activities) This section analyzes EnerSys's cash flow from operating, investing, and financing activities, detailing the impact of acquisitions and capital expenditures Cash Flow Activities (Nine Months Ended) | Activity | Dec 29, 2024 (in Millions) | Dec 31, 2023 (in Millions) | | :---------------------------------------- | :------------------------- | :------------------------- | | Net cash provided by operating activities | $125.1 | $320.2 | | Net cash used in investing activities | $(307.5) | $(65.2) | | Net cash provided by (used in) financing activities | $328.9 | $(271.2) | | Net increase (decrease) in cash and cash equivalents | $129.8 | $(14.0) | - The decrease in operating cash flow was mainly due to activity in accounts receivable, inventory, prepaid and other current assets, accrued expenses, and accounts payable[223] - Investing activities used significantly more cash due to the Bren-Tronics acquisition ($206 million) and increased capital expenditures ($90.8 million)[225] Compliance with Debt Covenants This section confirms EnerSys's compliance with all debt covenants and its capacity to fund future growth and acquisitions - EnerSys is in compliance with all covenants and conditions under its Fourth Amended Credit Facility and Senior Notes[234] - The company believes it has the financial resources and capital to fund foreseeable organic growth and pursue future acquisition opportunities[234] Contractual Obligations and Commercial Commitments This section states that there have been no significant changes to EnerSys's contractual obligations since the last annual report - As of December 29, 2024, there have been no significant changes to the company's contractual obligations table presented in its 2024 Annual Report[235] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section details EnerSys's exposure to market risks, including raw material costs, foreign currency exchange rates, and interest rates, and outlines the strategies and derivative financial instruments used to manage these exposures without engaging in speculative trading Market Risks This section identifies EnerSys's primary market risks, including raw material costs, foreign currency, and interest rates, and its non-speculative management approach - EnerSys's cash flows and earnings are subject to fluctuations from changes in raw material costs, foreign currency exchange rates, and interest rates[236] - The company manages these market risks through internal policies and derivative financial instruments, strictly avoiding speculative trading[236] Counterparty Risks This section addresses counterparty risks in derivative agreements and details the use of cross-currency swaps to hedge foreign investment exposure - Derivative agreements are with creditworthy financial institutions, and the impact of nonperformance by counterparties is not deemed material[238] - The company uses cross-currency fixed interest rate swap contracts with an aggregate notional amount of $600 million to hedge net investments in foreign operations against USD/Euro exchange rate volatility[239] Interest Rate Risks This section discusses EnerSys's exposure to variable interest rates, the use of interest rate swaps, and the potential impact of rate increases - EnerSys is exposed to changes in variable U.S. interest rates on its credit agreements and foreign short-term borrowings[241] - Interest rate swap agreements effectively convert $200.0 million of variable-rate debt to a fixed-rate basis[241] - A 100 basis point increase in interest rates would increase annual interest expense by approximately $5.1 million on the variable rate portions of debt[242] Commodity Cost Risks – Lead Contracts This section highlights lead as a significant raw material cost, detailing outstanding forward contracts and the impact of price fluctuations - Lead is the company's largest single raw material cost, and its price remains volatile[243] Lead Forward Contracts Outstanding | Date | $'s Under Contract (in millions) | Pounds Purchased (in millions) | Average Cost/Pound | | :-------------- | :------------------------------- | :------------------------------- | :----------------- | | December 29, 2024 | $64.3 | 70.3 | $0.92 | | March 31, 2024 | $50.0 | 53.0 | $0.94 | - A 10% increase in the cost of lead would have increased cost of goods sold by approximately $53.0 million in the nine months of fiscal 2025[245] Foreign Currency Exchange Rate Risks This section addresses EnerSys's exposure to foreign currency fluctuations, particularly the Euro, and its hedging strategies using forward contracts and swaps - Approximately 40% of sales and related expenses are transacted in foreign currencies, with the Euro being the largest foreign currency exposure[246][247] - The company hedges approximately 5% - 10% of its known annual foreign exchange transactional exposures using foreign currency forward contracts and cross-currency fixed interest rate swaps[248][249] - An unfavorable 10% movement in exchange rates would have adversely changed hedge valuations by approximately $75.5 million as of December 29, 2024[250] Item 4. Controls and Procedures Management, with the participation of the CEO and CFO, concluded that disclosure controls and procedures were effective as of the end of the reporting period The assessment of internal control over financial reporting for the recently acquired Bren-Tronics business is ongoing and was omitted from the current scope - Disclosure controls and procedures were evaluated and deemed effective as of December 29, 2024[251] - The assessment of internal control over financial reporting for the Bren-Tronics acquisition (completed July 26, 2024) was omitted from the scope, as it accounted for approximately 3% of sales in Q3 FY25 and 6% of total assets as of December 29, 2024[252] PART II – OTHER INFORMATION This section provides additional information, including legal proceedings, risk factors, equity sales, and corporate governance updates Item 1. Legal Proceedings This section refers to Note 11 of the Consolidated Condensed Financial Statements for details on legal proceedings incidental to the company's ordinary course of business - Information regarding legal proceedings is incorporated by reference from Note 11 – Commitments, Contingencies and Litigation to the Consolidated Condensed Financial Statements[254] Item 1A. Risk Factors This section directs readers to the company's 2024 Annual Report on Form 10-K for a comprehensive discussion of risk factors that could materially affect its business, financial condition, or future results - Readers should carefully consider the risk factors discussed in Part I, Item 1A. Risk Factors in the company's 2024 Annual Report on Form 10-K[255] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section summarizes the company's purchases of equity securities, including shares acquired from participants in equity incentive plans and repurchases authorized by the Board of Directors, highlighting a new $200.0 million stock repurchase authorization Purchases of Equity Securities (Quarter Ended Dec 29, 2024) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | :-------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | | September 30 - October 31, 2024 | 3,396 | $98.58 | — | | November 1 - November 30, 2024 | 395,587 | $97.93 | 395,587 | | December 1 - December 29, 2024 | — | — | — | | Total | 398,983 | $97.94 | 395,587 | - On November 6, 2024, the company announced a new $200.0 million stock repurchase authorization with no expiration date[260] Item 4. Mine Safety Disclosures This item is not applicable to EnerSys - This item is not applicable[261] Item 5. Other Information This section discloses a Rule 10b5-1 trading plan entered into by the CEO, which was subsequently satisfied, and amendments to the company's Bylaws effective February 5, 2025, updating director nomination requirements and clarifying meeting procedures - David M. Shaffer, President and CEO, entered into a Rule 10b5-1 trading plan on August 26, 2024, for up to 20,000 shares, which was satisfied by November 25, 2024[262] - Effective February 5, 2025, the Board of Directors amended the company's Bylaws to update procedural and disclosure requirements for director nominations, clarify chair authority during meetings, incorporate universal proxy requirements, and modify majority voting standards for uncontested director elections[263] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including the Fifth Amended and Restated Bylaws, various certifications, and XBRL taxonomy documents - Exhibits include the Fifth Amended and Restated Bylaws (Exhibit 3.2), Certifications of Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1), and XBRL Instance Document and Taxonomy Extension Documents[265] SIGNATURES This section contains the required signatures for the Form 10-Q, certifying its submission by the registrant through its Chief Financial Officer - The report was signed by Andrea J. Funk, Chief Financial Officer, on February 5, 2025[268]