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Enersys (ENS) SEC Filing 10-Q Quarterly report for the period ending Sunday, June 30, 2019

Enersys

CIK: 1289308 Ticker: ENS
Exhibit 99.1 PRESS RELEASE, DATED MAY 29, 2019, OF ENERSYS REGARDING FINANCIAL
RESULTS FOR THE FOURTH QUARTER AND FULL YEAR FISCAL 2019

EnerSys Reports Fourth Quarter and Full Year Fiscal 2019 Results 

Reading, PA, USA, May 29, 2019 – EnerSys (NYSE: ENS), the global leader in stored energy solutions for industrial applications, announced today results for its fourth quarter and full year of fiscal 2019, which ended on March 31, 2019.

Net earnings attributable to EnerSys stockholders (“Net earnings”) for the fourth quarter of fiscal 2019 were $18.5 million, or $0.42 per diluted share, which included an unfavorable highlighted net of tax impact of $43.6 million, or $1.01 per diluted share, from highlighted items described in further detail in the tables shown below, reconciling non-GAAP adjusted financial measures to reported amounts. Included in the $43.6 million are $27.3 million, which were previously disclosed in our recent filings.

Net earnings attributable to EnerSys stockholders for the fourth quarter of fiscal 2018 were $54.0 million, or $1.27 per diluted share, which included a favorable highlighted net of tax impact of $1.5 million or $0.03 per share from highlighted items described in further detail in the tables shown below, reconciling non-GAAP adjusted financial measures to reported amounts. The $1.5 million net of tax impact included a tax benefit of $9.6 million for the release of a foreign valuation allowance, partially offset by a $4.1 million tax expense related to the recently enacted Tax Cuts and Jobs Act (“Tax Act”).

Excluding these highlighted items, adjusted Net earnings per diluted share for the fourth quarter of fiscal 2019, on a non-GAAP basis, were $1.43 which compared to guidance of $1.41 to $1.45 per diluted share for the fourth fiscal quarter given by the Company on February 6, 2019. These earnings compare to the prior year fourth quarter adjusted Net earnings of $1.24 per diluted share. Please refer to the section included herein under the heading “Reconciliation of Non-GAAP Financial Measures” for a discussion of the Company’s use of non-GAAP adjusted financial information, which include tables reconciling GAAP and non-GAAP adjusted financial measures for the quarters and twelve months ended March 31, 2019 and 2018.

Net sales for the fourth quarter of fiscal 2019 were $796.6 million, an increase of 17% from the prior year fourth quarter net sales of $683.0 million and a 17% sequential quarterly increase from the third quarter of fiscal 2019 net sales of $680.0 million. The increase in the current quarter compared to the prior year quarter was the result of a 20% increase due to the Alpha acquisition and a 1% increase each in pricing and organic volume, partially offset by a 5% decrease in foreign currency translation impact. The 17% sequential quarterly increase was primarily due to a 16% increase due to acquisitions and a 2% increase in organic volume, partially offset by a 1% decrease in pricing.

As previously disclosed, EnerSys completed the acquisition of subsidiaries and assets from the Alpha Group on December 7, 2018. For the period ended March 31, 2019 that EnerSys owned Alpha, the contribution of the acquisition was $162.5 million to net sales and $(1.3) million to Net earnings. Excluding the one-time transaction costs, purchase accounting related temporary impacts on inventory valuation, integration and restructuring costs, as well as the amortization of intangible assets, the contribution to net earnings would have been $6.4 million.




The following information was filed by Enersys (ENS) on Wednesday, May 29, 2019 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-Q
 
 
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-32253 
 
 
 
 EnerSys
(Exact name of registrant as specified in its charter) 
 
 
 
Delaware
 
23-3058564
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
2366 Bernville Road
Reading, Pennsylvania 19605
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: 610-208-1991 

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock, $0.01 par value per share
 
ENS
 
New York Stock Exchange

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934. 
Large Accelerated Filer
 
ý
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
  
Smaller reporting company
 
 
 
 
 
 
 
 
Emerging growth company  
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨

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

Common Stock outstanding at August 2, 2019: 42,481,886 shares

1


ENERSYS
INDEX – FORM 10-Q
 
 
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
Item 3.
 
 
 
 
Item 4.
 
 
 
 
 
 
 
Item 1.
 
 
 
 
Item 1A.
 
 
 
 
Item 2.
 
 
 
 
Item 4.
 
 
 
 
Item 6.
 
 

 

2


PART I –
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS

ENERSYS
Consolidated Condensed Balance Sheets (Unaudited)
(In Thousands, Except Share and Per Share Data) 
 
 
June 30, 2019
 
March 31, 2019
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
262,113

 
$
299,212

Accounts receivable, net of allowance for doubtful accounts: June 30, 2019 - $12,477; March 31, 2019 - $10,813
 
621,315

 
624,136

Inventories, net
 
520,115

 
503,869

Prepaid and other current assets
 
116,326

 
109,431

Total current assets
 
1,519,869

 
1,536,648

Property, plant, and equipment, net
 
414,957

 
409,439

Goodwill
 
656,424

 
656,399

Other intangible assets, net
 
454,875

 
462,316

Deferred taxes
 
41,091

 
40,466

Other assets
 
95,202

 
12,925

Total assets
 
$
3,182,418

 
$
3,118,193

Liabilities and Equity
 
 
 
 
Current liabilities:
 
 
 
 
Short-term debt
 
$
35,081

 
$
54,490

Accounts payable
 
302,808

 
292,449

Accrued expenses
 
260,999

 
265,994

Total current liabilities
 
598,888

 
612,933

Long-term debt, net of unamortized debt issuance costs
 
978,632

 
971,756

Deferred taxes
 
81,857

 
82,112

Other liabilities
 
226,468

 
165,375

Total liabilities
 
1,885,845

 
1,832,176

Commitments and contingencies
 


 


Equity:
 
 
 
 
Preferred Stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding at June 30, 2019 and at March 31, 2019
 

 

Common Stock, 0.01 par value per share, 135,000,000 shares authorized, 55,080,346 shares issued and 42,478,439 shares outstanding at June 30, 2019; 54,848,523 shares issued and 42,620,750 shares outstanding at March 31, 2019
 
551

 
548

Additional paid-in capital
 
510,577

 
512,696

Treasury stock at cost, 12,601,907 shares held as of June 30, 2019 and 12,227,773 shares held as of March 31, 2019
 
(553,789
)
 
(530,760
)
Retained earnings
 
1,491,329

 
1,450,325

Contra equity - indemnification receivable
 
(7,840
)
 
(7,840
)
Accumulated other comprehensive loss
 
(147,902
)
 
(142,682
)
Total EnerSys stockholders’ equity
 
1,292,926

 
1,282,287

Nonredeemable noncontrolling interests
 
3,647

 
3,730

Total equity
 
1,296,573

 
1,286,017

Total liabilities and equity
 
$
3,182,418

 
$
3,118,193

See accompanying notes.

3

ENERSYS
Consolidated Condensed Statements of Income (Unaudited)
(In Thousands, Except Share and Per Share Data)

 
 
Quarter ended
 
 
June 30, 2019
 
July 1, 2018
Net sales
 
$
780,230

 
$
670,930

Cost of goods sold
 
578,718

 
505,070

Inventory adjustment relating to exit activities
 

 
526

Gross profit
 
201,512

 
165,334

Operating expenses
 
130,804

 
99,416

Restructuring and other exit charges
 
2,372

 
1,739

Operating earnings
 
68,336

 
64,179

Interest expense
 
10,898

 
6,516

Other (income) expense, net
 
(1,152
)
 
328

Earnings before income taxes
 
58,590

 
57,335

Income tax expense
 
9,954

 
11,315

Net earnings
 
48,636

 
46,020

Net earnings attributable to noncontrolling interests
 

 
160

Net earnings attributable to EnerSys stockholders
 
$
48,636

 
$
45,860

Net earnings per common share attributable to EnerSys stockholders:
 
 
 
 
Basic
 
$
1.14

 
$
1.09

Diluted
 
$
1.13

 
$
1.08

Dividends per common share
 
$
0.175

 
$
0.175

Weighted-average number of common shares outstanding:
 
 
 
 
Basic
 
42,656,339

 
42,012,546

Diluted
 
43,118,434

 
42,573,981

See accompanying notes.

4

ENERSYS
Consolidated Condensed Statements of Comprehensive Income (Unaudited)
(In Thousands)

 
 
Quarter ended
 
 
June 30, 2019
 
July 1, 2018
Net earnings
 
$
48,636

 
$
46,020

Other comprehensive (loss) income:
 
 
 
 
Net unrealized (loss) gain on derivative instruments, net of tax
 
(2,329
)
 
1,005

Pension funded status adjustment, net of tax
 
237

 
300

Foreign currency translation adjustment
 
(3,211
)
 
(72,163
)
Total other comprehensive loss, net of tax
 
(5,303
)
 
(70,858
)
Total comprehensive income (loss)
 
43,333

 
(24,838
)
Comprehensive loss attributable to noncontrolling interests
 
(83
)
 
(339
)
Comprehensive income (loss) attributable to EnerSys stockholders
 
$
43,416

 
$
(24,499
)
See accompanying notes.


5

ENERSYS
Consolidated Condensed Statements of Cash Flows (Unaudited)
(In Thousands)

 
 
Quarter ended
 
 
June 30, 2019
 
July 1, 2018
Cash flows from operating activities
 
 
 
 
Net earnings
 
$
48,636

 
$
46,020

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
20,725

 
13,696

Write-off of assets relating to exit activities
 
802

 
1,073

Derivatives not designated in hedging relationships:
 
 
 
 
Net (gains) losses
 
(34
)
 
718

Cash settlements
 
(376
)
 
(699
)
Provision for doubtful accounts
 
1,105

 
254

Deferred income taxes
 
37

 
(195
)
Non-cash interest expense
 
378

 
313

Stock-based compensation
 
3,874

 
4,341

Loss (gain) on disposal of property, plant, and equipment
 
21

 
(5
)
Changes in assets and liabilities, net of effects of acquisitions:
 
 
 
 
Accounts receivable
 
2,097

 
3,284

Inventories
 
(18,937
)
 
(20,345
)
Prepaid and other current assets
 
(7,033
)
 
488

Other assets
 
1,841

 
(334
)
Accounts payable
 
(6,797
)
 
(9,577
)
Accrued expenses
 
(16,275
)
 
(13,476
)
Other liabilities
 
320

 
20

Net cash provided by operating activities
 
30,384

 
25,576

 
 
 
 
 
Cash flows from investing activities
 
 
 
 
Capital expenditures
 
(17,315
)
 
(15,539
)
Proceeds from disposal of property, plant, and equipment
 
44

 
12

Net cash used in investing activities
 
(17,271
)
 
(15,527
)
 
 
 
 
 
Cash flows from financing activities
 
 
 
 
Net (repayments) borrowings on short-term debt
 
(19,499
)
 
2,953

Proceeds from 2017 Revolver borrowings
 
95,000

 
64,000

Repayments of 2017 Revolver borrowings
 
(85,000
)
 
(54,500
)
Repayments of 2017 Term Loan
 
(5,645
)
 

Option proceeds
 
38

 
6,797

Payment of taxes related to net share settlement of equity awards
 
(6,081
)
 
(3,453
)
Purchase of treasury stock
 
(23,029
)
 

Dividends paid to stockholders
 
(7,499
)
 
(7,371
)
Other
 
(27
)
 
54

Net cash (used in) provided by financing activities
 
(51,742
)
 
8,480

Effect of exchange rate changes on cash and cash equivalents
 
1,530

 
(28,184
)
Net (decrease) increase in cash and cash equivalents
 
(37,099
)
 
(9,655
)
Cash and cash equivalents at beginning of period
 
299,212

 
522,118

Cash and cash equivalents at end of period
 
$
262,113

 
$
512,463

See accompanying notes.

6


ENERSYS
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
(In Thousands, Except Share and Per Share Data)


1. Basis of Presentation

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments except those otherwise described herein) considered necessary for a fair presentation have been included, unless otherwise disclosed. Operating results for the three months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2020.

The Consolidated Condensed Balance Sheet at March 31, 2019 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

The financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s 2019 on Form 10-K (SEC File No. 001-32253), which was filed on May 29, 2019 (the “2019 Annual Report”).

EnerSys (the “Company,”) reports interim financial information for 13-week periods, except for the first quarter, which always begins on April 1, and the fourth quarter, which always ends on March 31. The four quarters in fiscal 2020 end on June 30, 2019, September 29, 2019, December 29, 2019, and March 31, 2020, respectively. The four quarters in fiscal 2019 ended on July 1, 2018, September 30, 2018, December 30, 2018, and March 31, 2019, respectively.

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

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). This update requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. Effective April 1, 2019, the Company adopted the new standard under the modified retrospective approach, which resulted in no adjustment to the April 1, 2019 beginning Retained Earnings. There are optional practical expedients and policy elections made available to simplify the transition to the new standard. The Company has elected the following:

to adopt the optional transition method defined within ASU 2018-11 and not restate comparative prior periods but instead recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption;
the package of three practical expedients addressing whether a contract contains a lease, lease classification and initial direct costs;
to combine lease and non-lease components as a single component for all asset classes;
to use a portfolio approach to determine the incremental borrowing rate; and
to apply the short-term lease exception to leases that, at the commencement date, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
 
Upon adoption, the Company recorded Right-of-use (“ROU”) assets and lease liabilities of approximately $84,878 and $87,248, respectively. In addition, capital lease assets and liabilities are now classified as finance lease right-of-use assets and liabilities. The difference between the operating lease assets and lease liabilities primarily relates to unamortized lease incentives and deferred rent recorded in accordance with the previous lease guidance.

Apart from the aforementioned changes, the adoption of this standard did not have a significant impact on the Company's operating results, financial position or cash flows. The discount rates used to calculate the ROU assets and lease liabilities as of the effective date were based on the remaining lease terms as of the effective date. See Note 3, Leases for additional information.

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815)”: Targeted Improvements to Accounting for Hedging Activities, which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The Company adopted the standard effective April 1, 2019 and the adoption did not have any impact on the Company's operating results, financial position or cash flows.

7



In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220)". The new standard will allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (“Tax Act”). The amendments eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial statements users. However, because the amendment only relates to the reclassification of the income tax effects of the Tax Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The Company adopted this standard effective April 1, 2019 with the election not to reclassify $478 of stranded tax effects, primarily related to the Company's pension plans, from accumulated other comprehensive income (“AOCI”) to retained earnings, as the amount was not material.

Accounting Pronouncements Issued But Not Adopted as of June 30, 2019

In June 2016, the FASB, issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326)”: Measurement of Credit Losses on Financial Instruments, which changes the recognition model for the impairment of financial instruments, including accounts receivable, loans and held-to-maturity debt securities, among others. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In contrast to current guidance, which considers current information and events and utilizes a probable threshold, (an “incurred loss” model), ASU 2016–13 mandates an “expected loss” model. The expected loss model: (i) estimates the risk of loss even when risk is remote, (ii) estimates losses over the contractual life, (iii) considers past events, current conditions and reasonable supported forecasts and (iv) has no recognition threshold. The Company is currently assessing the potential impact that the adoption will have on its consolidated financial statements.

2. Revenue Recognition

The Company adopted ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” on April 1, 2018 using the modified retrospective transition method. There was no cumulative effect of adopting the standard at the date of initial application in retained earnings.

The Company's revenues by reportable segments are presented in Note 17.

Service revenues related to the work performed for the Company’s customers by its maintenance technicians generally represent a separate and distinct performance obligation. Control for these services passes to the customer as the services are performed. Service revenues for the first quarter of fiscal 2020 and fiscal 2019 amounted to $60,718 and $35,482, respectively.

A small portion of the Company's customer arrangements oblige the Company to create customized products for its customers that require the bundling of both products and services into a single performance obligation because the individual products and services that are required to fulfill the customer requirements do not meet the definition for a distinct performance obligation. These customized products generally have no alternative use to the Company and the terms and conditions of these arrangements give the Company the enforceable right to payment for performance completed to date, including a reasonable profit margin. For these arrangements, control transfers over time and the Company measures progress towards completion by selecting the input or output method that best depicts the transfer of control of the underlying goods and services to the customer for each respective arrangement. Methods used by the Company to measure progress toward completion include labor hours, costs incurred and units of production. Revenues recognized over time for the first quarter of fiscal 2020 and fiscal 2019 amounted to $41,495 and $18,404, respectively.

On June 30, 2019, the aggregate transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was approximately $64,647, of which, the Company estimates that approximately $50,030 will be recognized as revenue in fiscal 2020, $14,033 in fiscal 2021, $390 in fiscal 2022, $16 in fiscal 2023 and $178 in fiscal 2024.

Any payments that are received from a customer in advance, prior to the satisfaction of a related performance obligation and billings in excess of revenue recognized, are deferred and treated as a contract liability. Advance payments and billings in excess of revenue recognized are classified as current or non-current based on the timing of when recognition of revenue is expected. As of June 30, 2019, the current and non-current portion of contract liabilities were $14,289 and $6,821, respectively. As of March 31, 2019, the current and non-current portion of contract liabilities were $15,162 and $6,360, respectively. Revenues recognized during the first quarter of fiscal 2020 and fiscal 2019, that were included in the contract liability at the beginning of the quarter, amounted to $4,467 and $1,936, respectively.

Amounts representing work completed and not billed to customers represent contract assets and were $42,520 and $38,778 as of June 30, 2019 and March 31, 2019, respectively.

The Company uses historic customer product return data as a basis of estimation for customer returns and records the reduction of sales at the time revenue is recognized. At June 30, 2019, the right of return asset related to the value of inventory anticipated to be returned from customers was $2,667 and refund liability representing amounts estimated to be refunded to customers was $5,183.


 

8


3. Leases

The Company leases manufacturing facilities, distribution centers, office space, vehicles and other equipment under non-cancellable leases with initial terms typically ranging from 1 to 17 years. At contract inception, the Company reviews the terms of the arrangement to determine if the contract is or contains a lease. Guidance in Topic 842 is used to evaluate whether the contract has an identified asset; if the Company has the right to obtain substantially all economic benefits from the asset; and if it has the right to direct the use of the underlying asset. When determining if a contract has an identified asset, the Company considers both explicit and implicit assets, and whether the supplier has the right to substitute the asset. When determining if the Company has the right to obtain substantially all economic benefits from the asset, the Company considers the primary outputs of the identified asset throughout the period of use and determines if it receives greater than 90% of those benefits. When determining if it has the right to direct the use of an underlying asset, the Company considers if it has the right to direct how and for what purpose the asset is used throughout the period of use and if it controls the decision-making rights over the asset.

Lease terms may include options to extend or terminate the lease. The Company exercises its judgment to determine the term of those leases when extension or termination options are present and include such options in the calculation of the lease term when it is reasonably certain that the Company will exercise those options.

The Company has elected to include both lease and non-lease components in the determination of lease payments for all asset classes. Payments made to a lessor for items such as taxes, insurance, common area maintenance, or other costs commonly referred to as executory costs, are also included in lease payments if they are fixed. The fixed portion of these payments are included in the calculation of the lease liability, while any variable portion would be recognized as variable lease expenses, when incurred. Variable payments made to third parties for these, or similar costs, such as utilities, are not included in the calculation of lease payments.

Both finance and operating leases are reflected as liabilities on the commencement date of the lease based on the present value of the lease payments to be made over the lease term. As most of the leases do not provide an implicit rate, the Company has exercised judgment in electing the incremental borrowing rate based on the information available when the lease commences to determine the present value of future payments. Right-of-use assets are valued at the initial measurement of the lease liability, plus any initial direct costs or rent prepayments and reduced by any lease incentives and any deferred lease payments.

Operating lease expense is recognized on a straight-line basis over the lease term. Finance lease expense includes depreciation, which is recognized on a straight-line basis over the expected life of the leased asset, and interest expense, which is recognized following an effective interest rate method.

Short term leases with an initial term of 12 months or less are not presented on the balance sheet and expense is recognized as incurred.

The following table presents lease assets and liabilities and their balance sheet classification:
 
 
Classification
 
June 30, 2019
Operating Leases:
 
 
 
 
Right-of-use Assets
 
Other assets
 
$
81,627

Operating lease current liabilities
 
Accrued expenses
 
23,265

Operating lease non-current liabilities
 
Other liabilities
 
60,811

Finance Leases:
 
 
 
 
Right-of-use Assets
 
Property, plant, and equipment, net
 
$
10,906

Finance lease current liabilities
 
Current portion of debt
 
10,383

Finance lease non-current liabilities
 
Non-current portion of debt
 
557




9


The components of lease expense for the quarter ended June 30, 2019 were as follows:
 
 
Classification
 
Quarter ended
June 30, 2019
Operating Leases:
 
 
 
 
Operating lease cost
 
Operating expenses
 
$
7,295

Variable lease cost
 
Operating expenses
 
1,706

Short term lease cost
 
Operating expenses
 
2,184

Finance Leases:
 
 
 
 
Depreciation
 
Operating expenses
 
$
143

Interest expense
 
Interest expense
 
12

Total
 
 
 
$
11,340



The following table presents the weighted average lease term and discount rates for our leases:
 
 
Quarter ended
June 30, 2019
Operating Leases:
 
 
Weighted average remaining lease term (years)
 
5.2 years
Weighted average discount rate
 
5.41%
Finance Leases:
 
 
Weighted average remaining lease term (years)
 
3.3 years
Weighted average discount rate
 
4.91%


The following table presents future payments due under leases reconciled to lease liabilities:
 
 
Quarter ended
June 30, 2019
 
 
Finance Leases
 
Operating Leases
Nine months ended March 31, 2020
 
$
10,360

 
$
20,759

Year ended March 31,
 
 
 
 
2021
 
219

 
22,205

2022
 
197

 
16,510

2023
 
150

 
11,514

2024
 
107

 
7,692

Thereafter
 
26

 
18,144

Total undiscounted lease payments
 
11,059

 
96,824

Present value discount
 
119

 
12,748

Lease liability
 
$
10,940

 
$
84,076



The following tables present supplemental disclosures of cash flow information related to leases:
 
 
Quarter ended
June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash flows from finance leases
 
$
12

Operating cash flows from operating leases
 
7,213

Financing cash flows from finance leases
 
142

Supplemental non-cash information on lease liabilities arising from right-of-use assets:
 
 
Right-of-use assets obtained in exchange for new finance lease liabilities
 
$

Right-of-use assets obtained in exchange for new operating lease liabilities
 
2,628



10



4. Acquisition

On December 7, 2018, the Company completed the acquisition of all of the issued and outstanding common stock of Alpha Technologies Services, Inc. (“ATS”) and Alpha Technologies Ltd. (“ATL”), resulting in ATS and ATL becoming wholly-owned subsidiaries of the Company (the “share purchase”). Additionally, the Company acquired substantially all of the assets of Alpha Technologies Inc. and certain assets of Altair Advanced Industries, Inc. and other affiliates of ATS and ATL (all such sellers, together with ATS and ATL, “Alpha”), in each case in accordance with the terms and conditions of certain restructuring agreements (collectively, the “asset acquisition” and together with the share purchase, the “acquisition”). Based in Bellingham, Washington, Alpha is a global industry leader in comprehensive commercial-grade energy solutions for broadband, telecom, renewable, industrial and traffic customers around the world. The initial purchase consideration for the acquisition was $750,000, of which $650,000 was paid in cash and the balance was settled by issuing 1,177,630 shares of EnerSys common stock. These shares were issued out of the Company's treasury stock and were valued at $84.92 per share, which was based on the thirty-day volume weighted average stock price of the Company’s common stock at closing, in accordance with the purchase agreement. The 1,177,630 shares had a closing date fair value of $93,268, based upon the December 7, 2018, closing date spot rate of $79.20. The total purchase consideration, consisting of cash paid of $650,000, shares valued at $93,268 and an adjustment for working capital (due from seller of $766) was $742,502. The Company funded the cash portion of the acquisition with borrowings from the Amended Credit Facility as defined in Note 12. See Note 12 for additional information.

The acquisition expands the Company's footprint in broadband and telecom markets. The goodwill recognized in connection with this transaction reflects the benefits the Company expects to realize from being able to provide a one-stop, fully integrated power solutions offering to its customers, as well as the benefit of cost synergies from alignment of the Alpha group within its own organizational structure.

The results of operations of Alpha have been included in the Company’s Americas segment.

The following table represents the fair values assigned to the assets acquired and liabilities assumed and resulting goodwill. The amounts recognized will be finalized as the information necessary to complete the analysis is obtained, but no later than one year from the acquisition date (“the measurement period”).

The acquired assets and assumed liabilities include the following:
Accounts receivable
 
$
115,467

Inventories
 
84,297

Other current assets
 
6,822

Other intangible assets
 
332,000

Property, plant and equipment
 
20,987

Other assets
 
9,005

Total assets acquired
 
$
568,578

Accounts payable
 
35,803

Accrued liabilities
 
41,918

Deferred income taxes
 
56,331

Other liabilities
 
12,642

Total liabilities assumed
 
$
146,694

Net assets acquired
 
$
421,884

 
 
 
Purchase price:
 
 
Cash paid for net assets acquired
 
$
650,000

Fair value of shares issued for net assets acquired
 
93,268

Working capital adjustment
 
(766
)
Total purchase consideration
 
742,502

Less: Fair value of acquired identifiable assets and liabilities
 
421,884

Goodwill
 
$
320,618




11


The following table summarizes the estimated fair value of Alpha's identifiable intangible assets and the initial assessment of their respective estimated lives:
 
 
Type
 
Life in Years
 
Fair Value
Trademarks
 
Indefinite-lived
 
Indefinite
 
$
56,000

Customer relationships
 
Finite-lived
 
14
 
221,000

Technology
 
Finite-lived
 
10
 
55,000

Total identifiable intangible assets
 
 
 
 
 
$
332,000



The Company recorded the acquisition using the acquisition method of accounting and recognized the assets acquired and liabilities assumed at their fair values as of the date of the acquisition. The excess of the purchase price over the net tangible and intangible assets is recorded to goodwill. Estimated goodwill deductible for tax purposes is $42,262. The measurement of the fair value of assets acquired and liabilities assumed is substantially complete. The Company continues to gather necessary information to finalize the accounting for income taxes associated with the acquisition, and as such the Company could record additional adjustments to the provisional amount recognized as this additional information is obtained.

The following unaudited summary information is presented on a consolidated pro forma basis as if the acquisition had occurred on April 1, 2017:
 
Quarter ended
 
 
July 1, 2018
Net sales
 
$
835,292

Net earnings attributable to EnerSys stockholders
 
58,665

Net earnings per share attributable to EnerSys stockholders - basic
 
1.36

Net earnings per share attributable to EnerSys stockholders - assuming dilution
 
1.34



The pro forma amounts include additional interest expense on the debt issued to finance the purchases, amortization and depreciation expense based on the estimated fair value and useful lives of intangible assets and plant assets, and related tax effects. The pro forma results are not necessarily indicative of the combined results had the Alpha acquisition been completed on April 1, 2017, nor are they indicative of future combined results. The remeasurement of Alpha's deferred taxes due to the Tax Act are being excluded in arriving at these pro forma results.

Other Intangible Assets

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

 
 
Balance as of
 
 
June 30, 2019
 
March 31, 2019
 
 
Gross Amount
 
Accumulated Amortization
 
Net Amount
 
Gross Amount
 
Accumulated Amortization
 
Net Amount
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Trademarks
 
$
152,497

 
$
(953
)
 
$
151,544

 
$
152,484

 
$
(953
)
 
$
151,531

Finite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
 
286,552

 
(48,224
)
 
238,328

 
286,664

 
(42,704
)
 
243,960

Non-compete
 
3,015

 
(2,768
)
 
247

 
3,025

 
(2,807
)
 
218

Technology
 
77,755

 
(14,033
)
 
63,722

 
77,779

 
(12,229
)
 
65,550

Trademarks
 
2,003

 
(1,257
)
 
746

 
2,003

 
(1,236
)
 
767

Licenses
 
1,484

 
(1,196
)
 
288

 
1,477

 
(1,187
)
 
290

Total
 
$
523,306

 
$
(68,431
)
 
$
454,875

 
$
523,432

 
$
(61,116
)
 
$
462,316



The Company’s amortization expense related to finite-lived intangible assets was $7,316 and $2,069, for the first quarter of fiscal 2020 and fiscal 2019, respectively. The expected amortization expense based on the finite-lived intangible assets as of June 30, 2019, is $22,175 for the remainder of fiscal 2020, $29,237 in fiscal 2021, $28,993 in fiscal 2022, $27,694 in fiscal 2023 and $24,287 in fiscal 2024.





12


5. Inventories

Inventories, net consist of:
 
 
June 30, 2019
 
March 31, 2019
Raw materials
 
$
138,886

 
$
138,718

Work-in-process
 
123,416

 
129,736

Finished goods
 
257,813

 
235,415

Total
 
$
520,115

 
$
503,869



6. Fair Value of Financial Instruments

Recurring Fair Value Measurements

The following tables represent the financial assets and (liabilities) measured at fair value on a recurring basis as of June 30, 2019 and March 31, 2019, and the basis for that measurement:
 
 
 
Total Fair Value Measurement June 30, 2019
 
Quoted Price in
Active  Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Lead forward contracts
 
$
223

 
$

 
$
223

 
$

Foreign currency forward contracts
 
170

 

 
170

 

Total derivatives
 
$
393

 
$

 
$
393

 
$

 
 
 
Total Fair Value
Measurement
March 31, 2019

 
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Lead forward contracts
 
$
(902
)
 
$

 
$
(902
)
 
$

Foreign currency forward contracts
 
(249
)
 

 
(249
)
 

Total derivatives
 
$
(1,151
)
 
$

 
$
(1,151
)
 
$



The fair values of lead forward contracts are calculated using observable prices for lead as quoted on the London Metal Exchange (“LME”) and, therefore, were classified as Level 2 within the fair value hierarchy, as described in Note 1, Summary of Significant Accounting Policies to the Company's consolidated financial statements included in its 2019 Annual Report.

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

Financial Instruments

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

The fair value of the Company’s short-term debt and borrowings under the Amended Credit Facility (as defined in Note 12), approximate their respective carrying value, as they are variable rate debt and the terms are comparable to market terms as of the balance sheet dates and are classified as Level 2.

The Company's 5.00% Senior Notes due 2023 (the “Notes”), with an original face value of $300,000, were issued in April 2015. The fair value of the Notes represent the trading values based upon quoted market prices and are classified as Level 2. The Notes were trading at approximately 102% and 99% of face value on June 30, 2019 and March 31, 2019, respectively.


13


The carrying amounts and estimated fair values of the Company’s derivatives and Notes at June 30, 2019 and March 31, 2019 were as follows:

 
 
June 30, 2019
 
March 31, 2019
 
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Financial assets:
 
 
 
 
 
 
 
 
Derivatives (1)
 
$
393

 
$
393

 
$

 
$

Financial liabilities:
 
 
 
 
 
 
 
 
 Notes (2)
 
$
300,000

 
$
306,000

 
$
300,000

 
$
297,000

Derivatives (1)
 

 

 
1,151

 
1,151


(1)
Represents lead and foreign currency forward contracts (see Note 7 for asset and liability positions of the lead and foreign currency forward contracts at June 30, 2019 and March 31, 2019).
(2)
The fair value amount of the Notes at June 30, 2019 and March 31, 2019 represent the trading value of the instruments.

7. Derivative Financial Instruments

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

Derivatives in Cash Flow Hedging Relationships

Lead Forward Contracts

The Company enters into lead forward contracts to fix the price for a portion of its lead purchases. Management considers the lead forward contracts to be effective against changes in the cash flows of the underlying lead purchases. The vast majority of such contracts are for a period not extending beyond one year. At June 30, 2019 and March 31, 2019, the Company has hedged the price to purchase approximately 38.0 million pounds and 42.0 million pounds of lead, respectively, for a total purchase price of $33,012 and $39,218, respectively.

Foreign Currency Forward Contracts

The Company uses foreign currency forward contracts and options to hedge a portion of the Company’s foreign currency exposures for lead, as well as other foreign currency exposures so that gains and losses on these contracts offset changes in the underlying foreign currency denominated exposures. The vast majority of such contracts are for a period not extending beyond one year. As of June 30, 2019 and March 31, 2019, the Company had entered into a total of $29,891 and $42,318, respectively, of such contracts.

In the coming twelve months, the Company anticipates that $3,097 of pretax loss relating to lead and foreign currency forward contracts will be reclassified from AOCI as part of cost of goods sold. This amount represents the current net unrealized impact of hedging lead and foreign exchange rates, which will change as market rates change in the future, and will ultimately be realized in the Consolidated Condensed Statements of Income as an offset to the corresponding actual changes in lead costs to be realized in connection with the variable lead cost and foreign exchange rates being hedged.

Derivatives not Designated in Hedging Relationships

Foreign Currency Forward Contracts

The Company also enters into foreign currency forward contracts to economically hedge foreign currency fluctuations on intercompany loans and foreign currency denominated receivables and payables. These are not designated as hedging instruments and changes in fair value of these instruments are recorded directly in the Consolidated Condensed Statements of Income. As of June 30, 2019 and March 31, 2019, the notional amount of these contracts was $21,339 and $22,201, respectively.


14


Presented below in tabular form is information on the location and amounts of derivative fair values in the Consolidated Condensed Balance Sheets and derivative gains and losses in the Consolidated Condensed Statements of Income:

Fair Value of Derivative Instruments
June 30, 2019 and March 31, 2019
 
 
 
Derivatives and Hedging Activities Designated as Cash Flow Hedges
 
Derivatives and Hedging Activities Not Designated as Hedging Instruments
 
 
June 30, 2019
 
March 31, 2019
 
June 30, 2019
 
March 31, 2019
Prepaid and other current assets:
 
 
 
 
 
 
 
 
Lead forward contracts
 
$
223

 
$

 
$

 
$

Foreign currency forward contracts
 

 

 
170

 

Total assets
 
$
223

 
$

 
$
170

 
$

Accrued expenses:
 
 
 
 
 
 
 
 
Lead forward contracts
 
$

 
$
902

 
$

 
$

Foreign currency forward contracts
 

 
8

 

 
241

Total liabilities
 
$

 
$
910

 
$

 
$
241




The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the quarter ended June 30, 2019
Derivatives Designated as Cash Flow Hedges
 
Pretax Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)
 
Location of Gain (Loss)  Reclassified from AOCI into Income (Effective Portion)
 
Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
Lead forward contracts
 
$
(3,376
)
 
Cost of goods sold
 
$
(441
)
Foreign currency forward contracts
 
(331
)
 
Cost of goods sold
 
(217
)
Total
 
$
(3,707
)
 
 
 
$
(658
)
Derivatives Not Designated as Hedging Instruments
Location of Gain (Loss) Recognized in Income on Derivatives
 
Pretax Gain (Loss)
Foreign currency forward contracts
Other (income) expense, net
 
$
34

Total
 
 
$
34



The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the quarter ended July 1, 2018
Derivatives Designated as Cash Flow Hedges
 
Pretax Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)
 
Location of Gain (Loss)  Reclassified from AOCI into Income (Effective Portion)
 
Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
Lead forward contracts
 
$
515

 
Cost of goods sold
 
$
1,023

Foreign currency forward contracts
 
582

 
Cost of goods sold
 
(1,237
)
Total
 
$
1,097

 
 
 
$
(214
)
Derivatives Not Designated as Hedging Instruments
Location of Gain (Loss) Recognized in Income on Derivatives
 
Pretax Gain (Loss)
Foreign currency forward contracts
Other (income) expense, net
 
$
(718
)
Total
 
 
$
(718
)









15


8. Income Taxes

The Company’s income tax provision consists of federal, state and foreign income taxes. The tax provision for the first quarter of fiscal 2020 and 2019 was based on the estimated effective tax rates applicable for the full years ending March 31, 2020 and March 31, 2019, respectively, after giving effect to items specifically related to the interim periods. The Company’s effective income tax rate with respect to any period may be volatile based on the mix of income in the tax jurisdictions in which the Company operates, change in tax laws and the amount of the Company's consolidated income before taxes.

On December 22, 2017 the Tax Cuts and Jobs Act (“Tax Act”) was signed into law. In fiscal 2019, the Company completed its accounting for the tax effects of enactment of the Tax Act and recognized a one-time transition tax of $84,017, inclusive of uncertain tax positions.
On June 14, 2019 final regulations were issued for items relating to the Tax Act. As a result, in the first quarter of fiscal 2020, the Company recognized the uncertain tax position related to the one-time transition tax liability of $11,462. This did not result in a change to the transition tax liability of $84,017, previously recorded in fiscal 2019.

The consolidated effective income tax rates for the first quarter of fiscal 2020 and 2019 were 17.0% and 19.7%, respectively. The rate decrease in the first quarter of fiscal 2020 compared to the first quarter of fiscal 2019 is primarily due to changes in the mix of earnings among tax jurisdictions.

Foreign income as a percentage of worldwide income is estimated to be 64% for fiscal 2020 compared to 66% for fiscal 2019. The foreign effective income tax rates for the first quarter of fiscal 2020 and 2019 were 11.5% and 11.8%, respectively. The rate decrease compared to the prior year period is primarily due to changes in the mix of earnings among tax jurisdictions. Income from the Company's Swiss subsidiary comprised a substantial portion of the Company's overall foreign mix of income and was taxed at an effective income tax rate of approximately 6% in both the current and prior year quarter of fiscal 2020 and fiscal 2019.

9. Warranty

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

 
 
Quarter ended
 
 
June 30, 2019
 
July 1, 2018
Balance at beginning of period
 
$
54,568

 
$
50,602

Current period provisions
 
7,519

 
4,836

Costs incurred
 
(5,948
)
 
(4,381
)
Foreign currency translation adjustment
 
40

 
(1,368
)
Balance at end of period
 
$
56,179

 
$
49,689



16


10. Commitments, Contingencies and Litigation

Litigation and Other Legal Matters

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

European Competition Investigations

Certain of the Company’s European subsidiaries had received subpoenas and requests for documents and, in some cases, interviews from, and have had on-site inspections conducted by, the competition authorities of Belgium, Germany and the Netherlands relating to conduct and anticompetitive practices of certain industrial battery participants.

The Company settled the Belgian regulatory proceeding in February 2016 by acknowledging certain anticompetitive practices and conduct and agreeing to pay a fine of $1,962, which was paid in March 2016. During the first quarter of fiscal 2019, the Company paid $1,272 towards certain aspects of this matter, which are under appeal. As of June 30, 2019 and March 31, 2019, the Company did not have a reserve balance.

In June 2017, the Company settled a portion of its previously disclosed proceeding involving the German competition authority relating to conduct involving the Company's motive power battery business and agreed to pay a fine of $14,811, which was paid in July 2017. As of June 30, 2019 and March 31, 2019, the Company did not have a reserve balance relating to this matter. Also, in June 2017, the German competition authority issued a fining decision related to the Company's reserve power battery business, which constituted the remaining portion of the previously disclosed German proceeding. The Company appealed this decision. In March 2019, the Company settled this matter by agreeing to pay $7,258, which was paid in April 2019. As of June 30, 2019 and March 31, 2019, the Company had a reserve balance of $0 and $7,258, respectively.

The foregoing estimate of losses is based upon currently available information for these proceedings. However, the precise scope, timing and time period at issue, as well as the final outcome of the investigations or customer claims, remain uncertain. Accordingly, the Company’s estimate may change from time to time, and actual losses could vary.

Environmental Issues

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

The Company is responsible for certain cleanup obligations at the former Yuasa battery facility in Sumter, South Carolina, that predates its ownership of this facility. This manufacturing facility was closed in 2001 and the Company established a reserve for this facility, which was $1,060 and $1,081 as of June 30, 2019 and March 31, 2019, respectively. Based on current information, the Company’s management believes this reserve is adequate to satisfy the Company’s environmental liabilities at this facility. This facility is separate from the Company’s current metal fabrication facility in Sumter.

Lead and Foreign Currency Forward Contracts

To stabilize its lead costs and reduce volatility from currency movements, the Company enters into contracts with financial institutions. The vast majority of such contracts are for a period not extending beyond one year. Please refer to Note 7 - Derivative Financial Instruments for more details.


17


11. Restructuring Plans

During fiscal 2018, the Company announced restructuring programs to improve efficiencies primarily related to supply chain and general operations in EMEA. The Company estimates that the total charges for these actions will amount to approximately $7,400, primarily from cash charges for employee severance-related payments and other charges. The Company estimates that these actions will result in the reduction of approximately 80 employees upon completion. During fiscal 2018, the Company recorded non-cash restructuring charges of $69 and cash charges of $2,260 and an additional $3,104 during fiscal 2019. The Company incurred $1,350 in costs against the accrual in fiscal 2018 and an additional $2,844 in fiscal 2019. During the first quarter of fiscal 2020, the Company recorded restructuring charges of $14 and incurred $189 in costs against the accrual. As of June 30, 2019, the reserve balance associated with these actions is $894. The Company expects to be committed to an additional $2,000 in restructuring charges related to this action, which it expects to complete in fiscal 2021.

During fiscal 2019, the Company announced restructuring programs to improve efficiencies of its operations in EMEA. The Company estimates that the total charges for these actions will amount to approximately $2,500, from charges primarily for employee severance-related payments to approximately 35 employees. During fiscal 2019, the Company recorded restructuring charges of $347 and incurred $83 in costs against the accrual. During the first quarter of fiscal 2020, the Company recorded restructuring charges of $557 and incurred $379 in costs against the accrual. As of June 30, 2019, the reserve balance associated with these actions is $439. The Company expects to complete these actions in fiscal 2021.

During fiscal 2019, the Company announced restructuring programs to improve efficiencies of its operations in the Americas. The Company estimates that the total charges for these actions will amount to approximately $4,100, from cash and non-cash charges primarily for employee severance-related payments to approximately 100 employees. During fiscal 2019, the Company recorded restructuring charges of $1,970, non-cash charges of $2,095 and incurred $1,480 in costs against the accrual. During the first quarter of fiscal 2020, the Company incurred $340 in costs against the accrual. As of June 30, 2019, the reserve balance associated with this action is $147. The Company expects to complete these actions in fiscal 2020.

During fiscal 2019, the Company announced a restructuring program to improve efficiencies of its operations in the Asia and to convert its India operations from mainly reserve power production to motive power production. The Company estimates that the total charges for these actions will amount to approximately $5,300, from cash charges primarily for employee severance-related payments to approximately 150 employees and non-cash charges related to the write-off of fixed assets. During fiscal 2019, the Company recorded cash restructuring charges of $2,772 and non-cash charges of $771 and incurred $1,683 in costs against the accrual. During the first quarter of fiscal 2020, the Company recorded restructuring charges of $363 and incurred $979 in costs against the accrual. As of June 30, 2019, the reserve balance associated with this action is $521. The Company expects to complete this action in fiscal 2020.

During fiscal 2020, the Company announced a restructuring program to improve efficiencies of its operations in the Americas. The Company estimates that the total charges for these actions will amount to approximately $900, from cash charges primarily for employee severance-related payments to approximately 50 employees. During the first quarter of fiscal 2020, the Company recorded restructuring charges of $585 and incurred $113 in costs against the accrual. As of June 30, 2019, the reserve balance associated with this action is $472. The Company expects to complete this action in fiscal 2020.

A roll-forward of the restructuring reserve is as follows:
 
 
Employee
Severance
 
Other
 
Total
Balance as of March 31, 2019
 
$
2,356

 
$
596

 
$
2,952

Accrued
 
1,346

 
173

 
1,519

Costs incurred
 
(1,589
)
 
(411
)
 
(2,000
)
Foreign currency impact
 
4

 
(2
)
 
2

Balance as of June 30, 2019
 
$
2,117

 
$
356

 
$
2,473



Other Exit Charges

During fiscal 2019, the Company committed to a plan to close its facility in Targovishte, Bulgaria, which produced diesel-electric submarine batteries. Management determined that the future demand for batteries of diesel-electric submarines was not sufficient given the number of competitors in the market. Of the estimated total charges of $30,000 for all these actions, the Company had recorded charges amounting to $20,242 in fiscal 2019, relating to severance and inventory and fixed asset write-offs. The Company recorded an additional $672 relating to non-cash charges in the first quarter of fiscal 2020.

During the first quarter of fiscal 2019, in an effort to improve profitability, the Company converted its India operations from mainly reserve power production to motive power production. As a result of the Company’s exit from reserve power, the Company recorded a non-cash write-off of reserve power inventories of $526, which was reported in cost of goods sold. In addition, the Company recorded a $547 write-off related to reserve power fixed assets in restructuring expenses.


18


12. Debt

The following summarizes the Company’s long-term debt as of June 30, 2019 and March 31, 2019:
 
 
 
June 30, 2019
 
March 31, 2019
 
 
Principal
 
Unamortized Issuance Costs
 
Principal
 
Unamortized Issuance Costs
5.00% Senior Notes due 2023
 
$
300,000

 
$
2,341

 
$
300,000

 
$
2,497

Amended Credit Facility, due 2022
 
683,813

 
2,840

 
677,315

 
3,062

 
 
$
983,813

 
$
5,181

 
$
977,315

 
$
5,559

Less: Unamortized issuance costs
 
5,181

 
 
 
5,559

 
 
Long-term debt, net of unamortized issuance costs
 
$
978,632

 
 
 
$
971,756

 
 


5.00% Senior Notes

The Notes bear interest at a rate of 5.00% per annum and have an original face value of $300,000. Interest is payable semiannually in arrears on April 30 and October 30 of each year and commenced on October 30, 2015. The Notes will mature on April 30, 2023, unless earlier redeemed or repurchased in full. The Notes are unsecured and unsubordinated obligations of the Company. The Notes are fully and unconditionally guaranteed (the “Guarantees”), jointly and severally, by certain of its subsidiaries that are guarantors (the “Guarantors”) under the Amended 2017 Credit Facility. The Guarantees are unsecured and unsubordinated obligations of the Guarantors.

2017 Credit Facility and Subsequent Amendment

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

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

As of June 30, 2019, the Company had $249,000 outstanding under the Amended 2017 Revolver and $434,813 under the Amended 2017 Term Loan.

Subsequent to the amendment, the quarterly installments payable on the Amended 2017 Term Loan are $5,645 beginning December 31, 2018, $8,468 beginning December 31, 2019 and $11,290 beginning December 31, 2020 with a final payment of $320,000 on September 30, 2022. The Amended Credit Facility may be increased by an aggregate amount of $325,000 in revolving commitments and / or one or more new tranches of term loans, under certain conditions. Both the Amended 2017 Revolver and the Amended 2017 Term Loan bear interest, at the Company's option, at a rate per annum equal to either (i) the London Interbank Offered Rate (“LIBOR”) or Canadian Dollar Offered Rate (“CDOR”) plus (i) LIBOR plus between 1.25% and 2.00% (currently 1.25% and based on the Company's consolidated net leverage ratio) or (ii) the U.S. Dollar Base Rate (which equals, for any day a fluctuating rate per annum equal to the highest of (a) the Federal Funds Effective Rate plus 0.50%, (b) Bank of America “Prime Rate” and (c) the Eurocurrency Base Rate plus 1%; provided that, if the Base Rate shall be less than zero, such rate shall be deemed zero) (iii) the CDOR Base Rate equal to the higher of (a) Bank of America “Prime Rate” and (b) average 30-day CDOR rate plus 0.50%. Obligations under the Amended Credit Facility are secured by substantially all of the Company’s existing and future acquired assets, including substantially all of the capital stock of the Company’s United States subsidiaries that are guarantors under the Credit Facility and up to 65% of the capital stock of certain of the Company’s foreign subsidiaries that are owned by the Company’s United States subsidiaries.

The Amended Credit Facility allows for up to two temporary increases in the maximum leverage ratio from 3.50x to 4.00x for a four quarter period following an acquisition larger than $250,000. Effective December 7, 2018 through December 30, 2018, the maximum leverage ratio has been increased to 4.00x.

The current portion of the Amended 2017 Term Loan of $31,049 is classified as long-term debt as the Company expects to refinance the future quarterly payments with revolver borrowings under the Amended Credit Facility.

Short-Term Debt

As of June 30, 2019 and March 31, 2019, the Company had $35,081 and $54,490, respectively, of short-term borrowings. The weighted average interest rate on these borrowings was approximately 3% and 4% at June 30, 2019 and March 31, 2019, respectively.

19




Letters of Credit

As of June 30, 2019 and March 31, 2019, the Company had standby letters of credit of $3,822 and $3,955, respectively.

Debt Issuance Costs

Amortization expense, relating to debt issuance costs, included in interest expense was $378 and $313, respectively, for the quarters ended June 30, 2019 and July 1, 2018. Debt issuance costs, net of accumulated amortization, totaled $5,181 and $5,559, respectively, at June 30, 2019 and March 31, 2019.

Available Lines of Credit

As of June 30, 2019 and March 31, 2019, the Company had available and undrawn, under all its lines of credit, $567,941 and $546,960, respectively, including $119,066 and $87,685, respectively, of uncommitted lines of credit as of June 30, 2019 and March 31, 2019.

13. Retirement Plans

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

 
 
United States Plans
 
International Plans
Quarter ended
 
Quarter ended
June 30, 2019
 
July 1, 2018
 
June 30, 2019
 
July 1, 2018
Service cost
 
$

 
$

 
$
235

 
$
255

Interest cost
 
154

 
159

 
376

 
470

Expected return on plan assets
 
(112
)
 
(122
)
 
(538
)
 
(552
)
Amortization and deferral
 
52

 
56

 
253

 
312

Net periodic benefit cost
 
$
94

 
$
93

 
$
326

 
$
485




14. Stock-Based Compensation

As of June 30, 2019, the Company maintains the 2017 Equity Incentive Plan (“2017 EIP”). The 2017 EIP reserved 4,173,554 shares of common stock for the grant of various classes of nonqualified stock options, restricted stock units, market condition-based (“TSR”) and performance condition-based share units (“PSU”) and other forms of equity-based compensation.

The Company recognized stock-based compensation expense associated with its equity incentive plans of $3,874 for the first quarter of fiscal 2020 and $4,341 for the first quarter of fiscal 2019. The Company recognizes compensation expense using the straight-line method over the vesting period of the awards.

During the first quarter of fiscal 2020, the Company granted to non-employee directors 2,276 restricted stock units, pursuant to the 2017 EIP. The awards vest immediately upon the date of grant and are settled in shares of common stock, six months after termination of service as a director.

Common stock activity during the first quarter of fiscal 2020 included the vesting of 154,836 restricted stock units, 171,920 TSRs and the exercise of 661 stock options.

As of June 30, 2019, there were 544,842 non-qualified stock options, 562,791 restricted stock units, 154,974 TSRs and 39,687 PSUs outstanding.


20


15. Stockholders’ Equity and Noncontrolling Interests

Common Stock

The following demonstrates the change in the number of shares of common stock outstanding during the first quarter ended June 30, 2019:
 
Shares outstanding as of March 31, 2019
 
42,620,750

Purchase of treasury stock
 
(376,343
)
Shares issued towards equity-based compensation plans, net of equity awards surrendered for option price and taxes
 
234,032

Shares outstanding as of June 30, 2019
 
42,478,439



Treasury Stock

During the first quarter ended June 30, 2019, the Company purchased 376,343 shares for $23,029. At June 30, 2019 and March 31, 2019, the Company held 12,601,907 and 12,227,773 shares as treasury stock, respectively.

Accumulated Other Comprehensive Income (AOCI )

The components of AOCI, net of tax, as of June 30, 2019 and March 31, 2019, are as follows:

 
 
March 31, 2019
 
Before Reclassifications
 
Amounts Reclassified from AOCI
 
June 30, 2019
Pension funded status adjustment
 
$
(20,791
)
 
$

 
$
237

 
$
(20,554
)
Net unrealized (loss) gain on derivative instruments
 
(130
)
 
(2,831
)
 
502

 
(2,459
)
Foreign currency translation adjustment
 
(121,761
)
 
(3,128
)
 

 
(124,889
)
Accumulated other comprehensive (loss) income
 
$
(142,682
)
 
$
(5,959
)
 
$
739

 
$
(147,902
)




21



The following table presents reclassifications from AOCI during the first quarter ended June 30, 2019:

Components of AOCI
 
Amounts Reclassified from AOCI
 
Location of (Gain) Loss Recognized on Income Statement
Derivatives in cash flow hedging relationships:
 
 
 
 
Net loss on cash flow hedging derivative instruments
 
$
658

 
Cost of goods sold
Tax benefit
 
(156
)
 
 
Net loss on derivative instruments, net of tax
 
$
502

 
 
 
 
 
 
 
Defined benefit pension costs:
 
 
 
 
Prior service costs and deferrals
 
$
305

 
Net periodic benefit cost, included in other (income) expense, net - See Note 13
Tax benefit
 
(68
)
 
 
Net periodic benefit cost, net of tax
 
$
237

 
 


The following table presents reclassifications from AOCI during the first quarter ended July 1, 2018:

Components of AOCI
 
Amounts Reclassified from AOCI
 
Location of (Gain) Loss Recognized on Income Statement
Derivatives in cash flow hedging relationships:
 
 
 
 
Net loss on cash flow hedging derivative instruments
 
$
214

 
Cost of goods sold
Tax benefit
 
(50
)
 
 
Net loss on derivative instruments, net of tax
 
$
164

 
 
 
 
 
 
 
Defined benefit pension costs:
 
 
 
 
Prior service costs and deferrals
 
$
368

 
Net periodic benefit cost, included in other (income) expense, net - See Note 13
Tax benefit
 
(68
)
 
 
Net periodic benefit cost, net of tax
 
$
300

 
 







22


The following demonstrates the change in equity attributable to EnerSys stockholders and nonredeemable noncontrolling interests during the first quarter ended June 30, 2019:

(In Thousands, Except Per Share Data)
 

Preferred
Stock
 
Common
Stock
 
Additional Paid-in
Capital
 
Treasury
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Contra-Equity
 
Total
EnerSys
Stockholders’
Equity
 
Non-
redeemable
Non-
Controlling
Interests
 
Total
Equity
Balance at March 31, 2019
 
$

 
$
548

 
$
512,696

 
$
(530,760
)
 
$
1,450,325

 
$
(142,682
)
 
$
(7,840
)
 
$
1,282,287

 
$
3,730

 
$
1,286,017

Stock-based compensation
 

 

 
3,874

 

 

 

 

 
3,874

 

 
3,874

Exercise of stock options
 

 
3

 
35

 

 

 

 

 
38

 

 
38

Shares issued under equity awards (taxes paid related to net share settlement of equity awards), net
 

 

 
(6,081
)
 

 

 

 

 
(6,081
)
 

 
(6,081
)
Purchase of common stock
 

 

 

 
(23,029
)
 

 

 

 
(23,029
)
 

 
(23,029
)
Other
 

 

 
(80
)
 

 

 

 

 
(80
)
 

 
(80
)
Net earnings
 

 

 

 

 
48,636

 

 

 
48,636

 

 
48,636

Dividends ($0.175 per common share)
 

 

 
133

 

 
(7,632
)
 

 

 
(7,499
)
 

 
(7,499
)
Other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
Pension funded status adjustment (net of tax benefit of $68)
 

 

 

 

 

 
237

 

 
237

 

 
237

Net unrealized gain (loss) on derivative instruments (net of tax benefit of $720)
 

 

 

 

 

 
(2,329
)
 

 
(2,329
)
 

 
(2,329
)
Foreign currency translation adjustment
 

 

 

 

 

 
(3,128
)
 

 
(3,128
)
 
(83
)
 
(3,211
)
Balance at June 30, 2019
 
$

 
$
551

 
$
510,577

 
$
(553,789
)
 
$
1,491,329

 
$
(147,902
)
 
$
(7,840
)
 
$
1,292,926

 
$
3,647

 
$
1,296,573


The following demonstrates the change in equity attributable to EnerSys stockholders and nonredeemable noncontrolling interests during the three months ended July 1, 2018:
(In Thousands, Except Per Share Data)
 

Preferred
Stock
 
Common
Stock
 
Additional Paid-in
Capital
 
Treasury
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Contra-Equity
 
Total
EnerSys
Stockholders’
Equity
 
Non-
redeemable
Non-
Controlling
Interests
 
Total
Equity
Balance at March 31, 2018
 
$

 
$
546

 
$
477,288

 
$
(560,991
)
 
$
1,320,549

 
$
(41,717
)
 
$

 
$
1,195,675

 
$
5,436

 
$
1,201,111

Stock-based compensation
 

 

 
4,341

 

 

 

 

 
4,341

 

 
4,341

Exercise of stock options
 

 
2

 
6,795

 

 

 

 

 
6,797

 

 
6,797

Shares issued under equity awards (taxes paid related to net share settlement of equity awards), net
 

 

 
(3,453
)
 

 

 

 

 
(3,453
)
 

 
(3,453
)
Other
 

 

 
(152
)
 

 

 

 

 
(152
)
 

 
(152
)
Net earnings