Notes to Consolidated Financial Statements
March 31, 2016
(In Thousands, Except Share and Per Share Data)
1. Summary of Significant Accounting Policies
Description of Business
EnerSys (the “Company”) and its predecessor companies have been manufacturers of industrial batteries for over 125 years. EnerSys is a global leader in stored energy solutions for industrial applications. The Company manufactures, markets and distributes industrial batteries and related products such as chargers, outdoor cabinet enclosures, power equipment and battery accessories, and provides related after-market and customer-support services for industrial batteries.
Principles of Consolidation
The consolidated 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. Control generally equates to ownership percentage, whereby investments that are more than
50%
owned are generally consolidated, investments in affiliates of
50%
or less but greater than
20%
are generally accounted for using the equity method, and investments in affiliates of
20%
or less are accounted for using the cost method. All intercompany transactions and balances have been eliminated in consolidation.
The Company also consolidates certain subsidiaries in which the noncontrolling interest party has within its control the right to require the Company to redeem all or a portion of its interest in the subsidiary. The redeemable noncontrolling interests are reported at their estimated redemption value, and the amount presented in temporary equity is not less than the initial amount reported in temporary equity. Any adjustment to the redemption value impacts retained earnings but does not impact net income or comprehensive income. Noncontrolling interests which are redeemable only upon future events, the occurrence of which is not currently probable, are recorded at carrying value.
Foreign Currency Translation
Results of foreign operations of subsidiaries, whose functional currency is the local currency, are translated into U.S. dollars using average exchange rates during the periods. The assets and liabilities are translated into U.S. dollars using exchange rates as of the balance sheet dates. Gains or losses resulting from translating the foreign currency financial statements are accumulated as a separate component of accumulated other comprehensive income (“AOCI”) in EnerSys’ stockholders’ equity and noncontrolling interests.
Transaction gains and losses resulting from exchange rate changes on transactions denominated in currencies other than the functional currency of the applicable subsidiary are included in the Consolidated Statements of Income, within “Other (income) expense, net”, in the year in which the change occurs.
Revenue Recognition
The Company recognizes revenue when the earnings process is complete. This occurs when risk and title transfers, collectibility is reasonably assured and pricing is fixed or determinable. Shipment terms are either shipping point or destination and do not differ significantly between the Company’s business segments. Accordingly, revenue is recognized when risk and title are transferred to the customer. Amounts invoiced to customers for shipping and handling are classified as revenue. Taxes on revenue producing transactions are not included in net sales.
The Company recognizes revenue from the service of its products when the respective services are performed.
Accruals are made at the time of sale for sales returns and other allowances based on the Company’s historical experience.
Freight Expense
Amounts billed to customers for outbound freight costs are classified as sales in the Consolidated Statements of Income. Costs incurred by the Company for outbound freight costs to customers, inbound and transfer freight are classified in cost of goods
sold.
Warranties
The Company’s products are warranted for a period ranging from
one
to
twenty
years for reserve power batteries and for a period ranging from
one
to
seven
years for motive power batteries. The Company provides for estimated product warranty expenses when the related products are sold. The assessment of the adequacy of the reserve includes a review of open claims and historical experience.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity of
three
months or less when purchased.
Concentration of Credit Risk
Financial instruments that subject the Company to potential concentration of credit risk consist principally of short-term cash investments and trade accounts receivable. The Company invests its cash with various financial institutions and in various investment instruments limiting the amount of credit exposure to any one financial institution or entity. The Company has bank deposits that exceed federally insured limits. In addition, certain cash investments may be made in U.S. and foreign government bonds, or other highly rated investments guaranteed by the U.S. or foreign governments. Concentration of credit risk with respect to trade receivables is limited by a large, diversified customer base and its geographic dispersion. The Company performs ongoing credit evaluations of its customers’ financial condition and requires collateral, such as letters of credit, in certain circumstances.
Accounts Receivable
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. The allowance is based on management’s estimate of uncollectible accounts, analysis of historical data and trends, as well as reviews of all relevant factors concerning the financial capability of its customers. Accounts receivable are considered to be past due based on how payments are received compared to the customer’s credit terms. Accounts are written off when management determines the account is uncollectible.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. The cost of inventory consists of material, labor, and associated overhead.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost and include expenditures that substantially increase the useful lives of the assets. Depreciation is provided using the straight-line method over the estimated useful lives of the assets as follows:
10
to
33
years for buildings and improvements and
3
to
15
years for machinery and equipment.
Maintenance and repairs are expensed as incurred. Interest on capital projects is capitalized during the construction period.
Business Combinations
The purchase price of an acquired company is allocated between tangible and intangible assets acquired and liabilities assumed from the acquired business based on their estimated fair values, with the residual of the purchase price recorded as goodwill. The results of operations of the acquired business are included in the Company’s operating results from the date of acquisition.
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived trademarks are tested for impairment at least annually and whenever events or circumstances occur indicating that a possible impairment may have been incurred. Goodwill is tested for impairment by determining the fair value of the Company’s reporting units. These estimated fair values are based on financial projections, certain cash flow measures, and market capitalization.
The goodwill impairment test involves a two-step process. In the first step, the Company compares the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired
and no further testing is required. If the fair value of the reporting unit is less than the carrying value, the Company must perform the second step of the impairment test to measure the amount of impairment loss, if any. In the second step, the reporting unit's fair value is allocated to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. If the implied fair value of the reporting unit's goodwill is less than the carrying value, the difference is recorded as an impairment loss.
The indefinite-lived trademarks are tested for impairment by comparing the carrying value to the fair value based on current revenue projections of the related operations, under the relief from royalty method. Any excess carrying value over the amount of fair value is recognized as impairment. Any impairment would be recognized in full in the reporting period in which it has been identified.
The Company estimates the fair value of its reporting units using a weighting of fair values derived from both the income approach and the market approach. Under the income approach, the Company calculates the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on management's estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the business's ability to execute on the projected cash flows. The market approach estimates fair value based on market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as the reporting unit. The weighting of the fair value derived from the market approach ranges from 0% to 50% depending on the level of comparability of these publicly-traded companies to the reporting unit.
In order to assess the reasonableness of the calculated fair values of its reporting units, the Company also compares the sum of the reporting units' fair values to its market capitalization and calculates an implied control premium (the excess of the sum of the reporting units' fair values over the market capitalization). The Company evaluates the control premium by comparing it to control premiums of recent comparable market transactions.
Finite-lived assets such as customer relationships, patents, and non-compete agreements are amortized over their estimated useful lives, generally over periods ranging from
3
to
20
years. The Company reviews the carrying values of these assets for possible impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on undiscounted estimated cash flows expected to result from its use and eventual disposition. The Company continually evaluates the reasonableness of the useful lives of these assets.
Impairment of Long-Lived Assets
The Company reviews the carrying values of its long-lived assets to be held and used for possible impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable, based on undiscounted estimated cash flows expected to result from its use and eventual disposition. The factors considered by the Company in performing this assessment include current operating results, trends and other economic factors. In assessing the recoverability of the carrying value of a long-lived asset, the Company must make assumptions regarding future cash flows and other factors. If these estimates or the related assumptions change in the future, the Company may be required to record an impairment loss for these assets.
Environmental Expenditures
The Company records a loss and establishes a reserve for environmental remediation liabilities when it is probable that an asset has been impaired or a liability exists and the amount of the liability can be reasonably estimated. Reasonable estimates involve judgments made by management after considering a broad range of information including notifications, demands or settlements that have been received from a regulatory authority or private party, estimates performed by independent engineering companies and outside counsel, available facts existing and proposed technology, the identification of other potentially responsible parties, their ability to contribute and prior experience. These judgments are reviewed quarterly as more information is received and the amounts reserved are updated as necessary. However, the reserves may materially differ from ultimate actual liabilities if the loss contingency is difficult to estimate or if management’s judgments turn out to be inaccurate. If management believes no best estimate exists, the minimum probable loss is accrued.
Derivative Financial Instruments
The Company utilizes derivative instruments to mitigate volatility related to interest rates, lead prices and foreign currency exposures. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. The
Company recognizes derivatives as either assets or liabilities in the accompanying Consolidated Balance Sheets and measures those instruments at fair value. Changes in the fair value of those instruments are reported in AOCI if they qualify for hedge accounting or in earnings if they do not qualify for hedge accounting. Derivatives qualify for hedge accounting if they are designated as hedge instruments and if the hedge is highly effective in achieving offsetting changes in the fair value or cash flows of the asset or liability hedged. Effectiveness is measured on a regular basis using statistical analysis and by comparing the overall changes in the expected cash flows on the lead and foreign currency forward contracts with the changes in the expected all-in cash outflow required for the lead and foreign currency purchases. This analysis is performed on the initial purchases quarterly that cover the quantities hedged. Accordingly, gains and losses from changes in derivative fair value of effective hedges are deferred and reported in AOCI until the underlying transaction affects earnings.
The Company has commodity, foreign exchange and interest rate hedging authorization from the Board of Directors and has established a hedging and risk management program that includes the management of market and counterparty risk. Key risk control activities designed to ensure compliance with the risk management program include, but are not limited to, credit review and approval, validation of transactions and market prices, verification of risk and transaction limits, portfolio stress tests, sensitivity analyses and frequent portfolio reporting, including open positions, determinations of fair value and other risk management metrics.
Market risk is the potential loss the Company and its subsidiaries may incur as a result of price changes associated with a particular financial or commodity instrument. The Company utilizes forward contracts, options, and swaps as part of its risk management strategies, to minimize unanticipated fluctuations in earnings caused by changes in commodity prices, interest rates and/or foreign currency exchange rates. All derivatives are recognized on the balance sheet at their fair value, unless they qualify for the Normal Purchase Normal Sale exemption.
Credit risk is the potential loss the Company may incur due to the counterparty’s non-performance. The Company is exposed to credit risk from interest rate, foreign currency and commodity derivatives with financial institutions. The Company has credit policies to manage their credit risk, including the use of an established credit approval process, monitoring of the counterparty positions and the use of master netting agreements.
The Company has elected to offset net derivative positions under master netting arrangements. The Company does not have any positions involving cash collateral (payables or receivables) under a master netting arrangement as of
March 31, 2016
and
2015
.
The Company does not have any credit-related contingent features associated with its derivative instruments.
Fair Value of Financial Instruments
The Company uses the following valuation techniques to measure fair value for its financial assets and financial liabilities:
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Level 1
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Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
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Level 2
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Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
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Level 3
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Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.
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Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The Company and its subsidiaries use, as appropriate, a market approach (generally, data from market transactions), an income approach (generally, present value techniques and option-pricing models), and/or a cost approach (generally, replacement cost) to measure the fair value of an asset or liability. These valuation approaches incorporate inputs such as observable, independent market data and/or unobservable data that management believes are predicated on the assumptions market participants would use to price an asset or liability. These inputs may incorporate, as applicable, certain risks such as nonperformance risk, which includes credit risk.
Lead contracts, foreign currency contracts and interest rate contracts generally use an income approach to measure the fair value of these contracts, utilizing readily observable inputs, such as forward interest rates (e.g., London Interbank Offered Rate
—“LIBOR”) and forward foreign currency exchange rates (e.g., GBP and euro) and commodity prices (e.g., London Metals Exchange), as well as inputs that may not be observable, such as credit valuation adjustments. When observable inputs are used to measure all or most of the value of a contract, the contract is classified as Level 2. Over-the-counter (OTC) contracts are valued using quotes obtained from an exchange, binding and non-binding broker quotes. Furthermore, the Company obtains independent quotes from the market to validate the forward price curves. OTC contracts include forwards, swaps and options. To the extent possible, fair value measurements utilize various inputs that include quoted prices for similar contracts or market-corroborated inputs.
When unobservable inputs are significant to the fair value measurement, the asset or liability is classified as Level 3. Additionally, Level 2 fair value measurements include adjustments for credit risk based on the Company’s own creditworthiness (for net liabilities) and its counterparties’ creditworthiness (for net assets). The Company assumes that observable market prices include sufficient adjustments for liquidity and modeling risks. The Company did not have any contracts that transferred between Level 2 and Level 3 as well as Level 1 and Level 2.
Income Taxes
The Company accounts for income taxes using the asset and liability approach, which requires deferred tax assets and liabilities be recognized using enacted tax rates to measure the effect of temporary differences between book and tax bases on recorded assets and liabilities. Valuation allowances are recorded to reduce deferred tax assets, if it is more likely than not some portion or all of the deferred tax assets will not be recognized. The need to establish valuation allowances against deferred tax assets is assessed quarterly. The primary factors used to assess the likelihood of realization are forecasts of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets.
The Company has not recorded United States income or foreign withholding taxes related to undistributed earnings of foreign subsidiaries because the Company currently plans to keep these amounts indefinitely invested overseas.
The Company recognizes tax related interest and penalties in income tax expense in its Consolidated Statement of Income.
With respect to accounting for uncertainty in income taxes, the Company evaluates tax positions to determine whether the benefits of tax positions are more likely than not of being sustained upon audit based on the technical merits of the tax position. For tax positions that are more likely than not of being sustained upon audit, the Company recognizes the largest amount of the benefit that is greater than 50% likely of being realized upon ultimate settlement. For tax positions that are not more likely than not of being sustained upon audit, the Company does not recognize any portion of the benefit. If the more likely than not threshold is not met in the period for which a tax position is taken, the Company may subsequently recognize the benefit of that tax position if the tax matter is effectively settled, the statute of limitations expires, or if the more likely than not threshold is met in a subsequent period.
Deferred Financing Fees
Debt issuance costs that are incurred by the Company in connection with the issuance of debt are deferred and amortized to interest expense over the life of the underlying indebtedness, adjusted to reflect any early repayments.
Stock-Based Compensation Plans
The Company measures the cost of employee services received in exchange for the award of an equity instrument based on the grant-date fair value of the award, with such cost recognized over the applicable vesting period.
Market condition-based awards
The Company grants two types of market condition-based awards - market share units and performance market share units.
The fair value of the market share units is estimated at the date of grant using a binomial lattice model with the following assumptions: a risk-free interest rate, dividend yield, time to maturity and expected volatility. These units vest and are settled in common stock on the third anniversary of the date of grant. Market share units are converted into between
zero
and
two
shares of common stock for each unit granted at the end of a three-year performance cycle. The conversion ratio is calculated by dividing the average closing share price of the Company’s common stock during the ninety calendar days immediately preceding the vesting date by the average closing share price of the Company’s common stock during the ninety calendar days immediately preceding the grant date, with the resulting quotient capped at
two
. This quotient is then multiplied by the number of market share units granted to yield the number of shares of common stock to be delivered on the vesting date.
The fair value of the performance market share units is estimated at the date of grant using a Monte Carlo Simulation. A participant may earn based on the total shareholder return (the "TSR") of the Company's common stock over a three-year period ranging from 0% to 200% of the number of performance market share units granted. The awards will cliff vest on the third anniversary of the grant date. The TSR is calculated by dividing the sixty or ninety calendar day average price at end of the period (as applicable) and the reinvested dividends thereon by such sixty or ninety calendar day average price at start of the period. The maximum number of awards earned is capped at 200% of the target award. Additionally, no payout will be awarded in the event that the TSR at the vesting date reflects less than a 25% return from the average price at the grant date. Performance market share units are similar to the market share units except that the targets are more difficult to achieve and may be tied to TSR as compared to a peer group.
The Company recognizes compensation expense using the straight-line method over the life of the market share units and performance market share units except for those issued to certain retirement-eligible participants, which are expensed on an accelerated basis.
Restricted Stock Units
The fair value of restricted stock units is based on the closing market price of the Company’s common stock on the date of grant. These awards generally vest, and are settled in common stock, at
25%
per year, over a
four
-year period from the date of grant. The Company recognizes compensation expense using the straight-line method over the life of the restricted stock units.
Stock Options
The fair value of the options granted is estimated at the date of grant using the Black-Scholes option-pricing model utilizing assumptions based on historical data and current market data. The assumptions include expected term of the options, risk-free interest rate, expected volatility, and dividend yield. The expected term represents the expected amount of time that options granted are expected to be outstanding, based on historical and forecasted exercise behavior. The risk-free rate is based on the rate at the grant date of zero-coupon U.S. Treasury Notes with a term equal to the expected term of the option. Expected volatility is estimated using historical volatility rates based on historical weekly price changes over a term equal to the expected term of the options. The Company’s dividend yield is based on historical data. The Company recognizes compensation expense using the straight-line method over the vesting period of the options except for those issued to certain retirement-eligible participants, which are expensed on an accelerated basis.
Earnings Per Share
Basic earnings per common share (“EPS”) are computed by dividing net earnings attributable to EnerSys stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. At
March 31, 2016
,
2015
and
2014
, the Company had outstanding stock options, restricted stock units, market share units and performance market share units, which could potentially dilute basic earnings per share in the future. The Convertible Notes, prior to their extinguishment on July 17, 2015, had a dilutive impact on the EPS for the fiscal years of 2016, 2015 and 2014.
Segment Reporting
A segment for reporting purposes is based on the financial performance measures that are regularly reviewed by the chief operating decision maker to assess segment performance and to make decisions about a public entity’s allocation of resources. Based on this guidance, the Company reports its segment results based upon the
three
geographical regions of operations.
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•
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Americas
, which includes North and South America, with segment headquarters in Reading, Pennsylvania, USA,
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•
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EMEA
, which includes Europe, the Middle East and Africa, with segment headquarters in Zug, Switzerland, and
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•
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Asia
, which includes Asia, Australia and Oceania, with segment headquarters in Singapore.
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New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” providing guidance on revenue from contracts with customers that will supersede most current revenue recognition guidance, including industry-specific guidance. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. In July 2015, the FASB voted to delay the effective date for interim and annual reporting periods beginning after December 15, 2017, with early adoption permissible one year earlier. The standard permits the use of either the
retrospective or cumulative effect transition method upon adoption. The Company has not yet selected a transition method and is currently evaluating the impact, if any, of the adoption of this newly issued guidance on its consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The update simplifies the presentation of debt issuance costs by requiring that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update and amortization of the costs will continue to be reported as interest expense. For public companies, this update is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, and is to be applied retrospectively. Early adoption of this revised guidance is permitted for financial statements that have not been previously issued. The Company has elected to early adopt the revised guidance and as such debt issuance costs are now presented as a direct reduction of long-term debt on the Company’s Consolidated Balance Sheets, as further reflected in Note 8.
In July 2015, the FASB issued ASU 2015-011, “Simplifying the Measurement of Inventory (Topic 330).” This update requires inventory to be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. This update will be effective for the Company for all annual and interim periods beginning after December 15, 2016. The amendments in this update should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. This update will not have a material impact on the Company's consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments (Topic 805).” The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update are effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company is currently evaluating the impact, if any, of the adoption of this newly issued guidance on its consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes (Topic 740).”
This update simplifies the presentation of deferred income taxes, by requiring that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this update. The amendments in this update are effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The amendments may be applied prospectively or retrospectively. The Company early adopted ASU 2015-17 on a retrospective basis, and deferred taxes previously classified as components of current assets and current liabilities were reclassified to non-current assets and non-current liabilities, respectively, as of March 31, 2015 (see Note 13).
In February 2016, the FASB issued ASU 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. This update is effective for reporting periods beginning after December 15, 2018, using a modified retrospective approach, with early adoption permitted. The Company is currently assessing the potential impact that the adoption will have on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting(Topic 718)”. This update simplifies several aspects related to how share-based payments are accounted for and presented in the financial statements, including the accounting for forfeitures and tax-effects related to share-based payments at settlement, and the classification of excess tax benefits and shares surrendered for tax withholdings in the statement of cash flows. This update is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing the potential impact that the adoption will have on its consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
2. Acquisitions
On July 23, 2015, the Company completed the acquisition of ICS Industries Pty. Ltd. (ICS), headquartered in Melbourne, Australia, for
$34,496
, net of cash acquired. ICS is a leading full line shelter designer and manufacturer with installation and maintenance services serving the telecommunications, utilities, datacenter, natural resources and transport industries operating in Australia and serving customers in the Asia Pacific region. The Company acquired tangible and intangible assets, in connection with the acquisition, including trademarks, technology, customer relationships, non-competition agreements and goodwill. Based on the final valuation, trademarks were valued at
$1,322
, technology at
$1,399
, customer relationships at
$10,211
, non-competition agreements at
$142
and goodwill was recorded at
$13,898
. The useful lives of technology were estimated at
10 years
, customer relationships were estimated at
11
years and non-competition agreements ranged from
2
-
5
years. Trademarks were considered to be indefinite-lived assets.
There was no tax deductible goodwill associated with this acquisition.
There were no acquisitions in fiscal 2015.
On January 27, 2014, the Company completed the acquisition of UTS Holdings Sdn. Bhd. and its subsidiaries, a distributor of motive and reserve power battery products and services, headquartered in Kuala Lumpur, Malaysia, for
$25,332
, net of cash acquired. The Company acquired tangible and intangible assets, including trademarks, customer relationships and goodwill. Based on the final valuation, trademarks were valued at
$1,410
, non-compete at
$160
, customer relationships at
$3,200
and goodwill was recorded at
$10,796
. The useful life of customer relationships was estimated at
8
years and trademarks were considered to be indefinite-lived assets.
On October 8, 2013, the Company completed the acquisition of Purcell Systems, Inc., a designer, manufacturer and marketer of thermally managed electronic equipment and battery cabinet enclosures, headquartered in Spokane, Washington, for
$119,540
, net of cash acquired. The Company acquired tangible and intangible assets, including trademarks, technology, customer relationships and goodwill. Based on the final valuation, trademarks were valued at
$16,800
, technology at
$7,900
, customer relationships at
$35,700
, and goodwill was recorded at
$50,889
. The useful lives of technology and customer lists were estimated at
10
and
9
years, respectively. Trademarks were considered to be indefinite-lived assets.
On October 28, 2013, the Company completed the acquisition of Quallion, LLC, a manufacturer of lithium ion cells and batteries for medical devices, defense, aviation and space, headquartered in Sylmar, California, for
$25,800
, net of cash acquired. The Company acquired tangible and intangible assets, in connection with the acquisition, including trademarks, technology, customer relationships and goodwill. Based on the final valuation, trademarks were valued at
$500
, technology at
$4,400
, customer relationships at
$3,400
, and goodwill was recorded at
$13,502
. The useful lives of technology and customer relationships were estimated at
20
and
14
years, respectively. Trademarks were considered to be indefinite-lived assets.
The results of these acquisitions have been included in the Company’s results of operations from the dates of their respective acquisitions. Pro forma earnings and earnings per share computations have not been presented as these acquisitions are not considered material. Net sales and Net earnings attributable to EnerSys stockholders, related to the fiscal 2014 acquisitions were
$68,231
and
$2,126
, respectively, during fiscal 2014.
3. Inventories
Inventories, net consist of:
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March 31,
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2016
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2015
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Raw materials
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$
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84,198
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$
|
82,954
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Work-in-process
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104,085
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106,196
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Finished goods
|
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142,798
|
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147,861
|
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Total
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$
|
331,081
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$
|
337,011
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Inventory reserves for obsolescence and other estimated losses, mainly relating to finished goods, were
$23,570
and
$20,242
at
March 31, 2016
and
2015
, respectively, and have been included in the net amounts shown above.
4. Property, Plant, and Equipment
Property, plant, and equipment consist of:
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March 31,
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2016
|
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2015
|
Land, buildings, and improvements
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|
$
|
249,112
|
|
|
$
|
224,617
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Machinery and equipment
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570,394
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546,513
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Construction in progress
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35,450
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48,889
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854,956
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820,019
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Less accumulated depreciation
|
|
(497,547
|
)
|
|
(463,165
|
)
|
Total
|
|
$
|
357,409
|
|
|
$
|
356,854
|
|
Depreciation expense for the fiscal years ended
March 31, 2016
,
2015
and
2014
totaled
$47,686
,
$49,261
, and
$49,463
, respectively. Interest capitalized in connection with major capital expenditures amounted to
$1,526
,
$1,989
, and
$1,046
for the fiscal years ended
March 31, 2016
,
2015
and
2014
, respectively.
5. Goodwill and Other Intangible Assets
Other Intangible Assets
Information regarding the Company’s other intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2016
|
|
2015
|
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Net
Amount
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Net
Amount
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
98,245
|
|
|
$
|
(953
|
)
|
|
$
|
97,292
|
|
|
$
|
100,546
|
|
|
$
|
(953
|
)
|
|
$
|
99,593
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
65,963
|
|
|
(18,485
|
)
|
|
47,478
|
|
|
55,482
|
|
|
(12,377
|
)
|
|
43,105
|
|
Non-compete
|
|
2,856
|
|
|
(2,457
|
)
|
|
399
|
|
|
2,680
|
|
|
(2,155
|
)
|
|
525
|
|
Technology
|
|
18,494
|
|
|
(5,423
|
)
|
|
13,071
|
|
|
17,049
|
|
|
(3,642
|
)
|
|
13,407
|
|
Trademarks
|
|
2,004
|
|
|
(983
|
)
|
|
1,021
|
|
|
2,004
|
|
|
(898
|
)
|
|
1,106
|
|
Licenses
|
|
1,487
|
|
|
(1,090
|
)
|
|
397
|
|
|
1,482
|
|
|
(1,058
|
)
|
|
424
|
|
Total
|
|
$
|
189,049
|
|
|
$
|
(29,391
|
)
|
|
$
|
159,658
|
|
|
$
|
179,243
|
|
|
$
|
(21,083
|
)
|
|
$
|
158,160
|
|
The Company’s amortization expense related to finite-lived intangible assets was
$8,308
,
$7,779
, and
$4,279
, for the years ended
March 31, 2016
,
2015
and
2014
, respectively. The expected amortization expense based on the finite-lived intangible assets as of
March 31, 2016
, is
$8,253
in 2017,
$8,000
in 2018,
$7,953
in 2019,
$7,803
in 2020 and
$7,563
in 2021.
Goodwill
The changes in the carrying amount of goodwill by reportable segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended March 31, 2016
|
|
|
Americas
|
|
EMEA
|
|
Asia
|
|
Total
|
Balance at beginning of year
|
|
$
|
190,321
|
|
|
$
|
146,962
|
|
|
$
|
32,447
|
|
|
$
|
369,730
|
|
Goodwill acquired during the year
|
|
497
|
|
|
—
|
|
|
13,898
|
|
|
14,395
|
|
Goodwill impairment charge
|
|
(29,578
|
)
|
|
(1,833
|
)
|
|
—
|
|
|
(31,411
|
)
|
Reclassification of reporting unit
|
|
6,712
|
|
|
(6,712
|
)
|
|
—
|
|
|
—
|
|
Foreign currency translation adjustment
|
|
(1,755
|
)
|
|
2,975
|
|
|
(387
|
)
|
|
833
|
|
Balance at end of year
|
|
$
|
166,197
|
|
|
$
|
141,392
|
|
|
$
|
45,958
|
|
|
$
|
353,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended March 31, 2015
|
|
|
Americas
|
|
EMEA
|
|
Asia
|
|
Total
|
Balance at beginning of year
|
|
$
|
215,630
|
|
|
$
|
177,586
|
|
|
$
|
32,840
|
|
|
$
|
426,056
|
|
Adjustments related to the finalization of purchase accounting for fiscal 2014 acquisitions
|
|
(3,256
|
)
|
|
—
|
|
|
1,542
|
|
|
(1,714
|
)
|
Goodwill impairment charge
|
|
(19,621
|
)
|
|
(750
|
)
|
|
—
|
|
|
(20,371
|
)
|
Foreign currency translation adjustment
|
|
(2,432
|
)
|
|
(29,874
|
)
|
|
(1,935
|
)
|
|
(34,241
|
)
|
Balance at end of year
|
|
$
|
190,321
|
|
|
$
|
146,962
|
|
|
$
|
32,447
|
|
|
$
|
369,730
|
|
A reconciliation of goodwill and accumulated goodwill impairment losses, by reportable segment, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
Americas
|
|
EMEA
|
|
Asia
|
|
Total
|
Gross carrying value
|
|
$
|
215,396
|
|
|
$
|
143,975
|
|
|
$
|
51,137
|
|
|
$
|
410,508
|
|
Accumulated goodwill impairment charges
|
|
(49,199
|
)
|
|
(2,583
|
)
|
|
(5,179
|
)
|
|
(56,961
|
)
|
Net book value
|
|
$
|
166,197
|
|
|
$
|
141,392
|
|
|
$
|
45,958
|
|
|
$
|
353,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2015
|
|
|
Americas
|
|
EMEA
|
|
Asia
|
|
Total
|
Gross carrying value
|
|
$
|
209,942
|
|
|
$
|
147,712
|
|
|
$
|
37,626
|
|
|
$
|
395,280
|
|
Accumulated goodwill impairment charges
|
|
(19,621
|
)
|
|
(750
|
)
|
|
(5,179
|
)
|
|
(25,550
|
)
|
Net book value
|
|
$
|
190,321
|
|
|
$
|
146,962
|
|
|
$
|
32,447
|
|
|
$
|
369,730
|
|
Impairment of goodwill, indefinite-lived intangibles and fixed assets
Goodwill is tested annually for impairment during the fourth quarter or earlier upon the occurrence of certain events or substantive changes in circumstances that indicate goodwill is more likely than not impaired.
In the fourth quarter of fiscal 2016, the Company conducted step one of the annual goodwill impairment test which indicated that the fair values of three of its reporting units - Purcell and Quallion/ABSL US in the Americas and it's South Africa joint venture in the EMEA operating segment - were less than their respective carrying values, requiring the Company to perform step two of the goodwill impairment analysis.
Based on the aforementioned analysis, the implied fair value of goodwill was lower than the carrying value of the goodwill for the Purcell and Quallion/ABSL US reporting units in the Americas operating segment and the South Africa joint venture in the EMEA operating segment.
The Company recorded a non-cash charge of
$31,411
related to goodwill impairment in the Americas and EMEA operating segment,
$3,420
related to impairment of indefinite-lived trademarks in the Americas and
$1,421
related to impairment of fixed assets in the EMEA operating segment for an aggregate charge of
$36,252
under the caption "Impairment of goodwill, indefinite-lived intangibles and fixed assets" in the Consolidated Statements of Income.
The key factors contributing to the impairments in both fiscal years were that the reporting units in the Americas were recent acquisitions that have not performed to management's expectations. In the case of Purcell, the impairment was the result of lower estimated projected revenue and profitability in the near term caused by reduced levels of capital spending by major customers in the telecommunications industry. In the case of Quallion/ABSL US, the impairment was the result of lower estimated projected revenue and profitability in the near term caused by delays, both in introducing new products and in programs serving the aerospace and defense markets. In the case of the South Africa joint venture, declining business conditions in South Africa resulted in negative cash flows.
In
fiscal 2015
, as a result of failing step one of the annual goodwill impairment test, the Company performed step two of the goodwill impairment analysis and thereby recorded a non-cash charge of
$20,371
related to goodwill impairment in the Americas and EMEA operating segments and
$3,575
related to impairment of indefinite-lived trademarks in the Americas.
In fiscal 2014, the Company determined that the fair value of its subsidiary in India, which was acquired in fiscal 2012, was less than its carrying amount based on the Company's analysis of the estimated future expected cash flows the Company anticipated from the operations of this subsidiary. Accordingly, the Company recorded a non-cash charge of
$5,179
for goodwill impairment relating to this subsidiary.
The Company estimated tax-deductible goodwill to be approximately
$20,766
and
$24,446
as of
March 31, 2016
and
2015
, respectively.
6. Prepaid and Other Current Assets
Prepaid and other current assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2016
|
|
2015
|
Prepaid non-income taxes
|
|
$
|
19,289
|
|
|
$
|
19,231
|
|
Prepaid income taxes
|
|
35,294
|
|
|
30,577
|
|
Non-trade receivables
|
|
2,876
|
|
|
4,050
|
|
Other
|
|
19,593
|
|
|
23,714
|
|
Total
|
|
$
|
77,052
|
|
|
$
|
77,572
|
|
7. Accrued Expenses
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2016
|
|
2015
|
Payroll and benefits
|
|
$
|
48,470
|
|
|
$
|
47,323
|
|
Accrued selling expenses
|
|
32,759
|
|
|
31,269
|
|
Income taxes payable
|
|
17,345
|
|
|
17,721
|
|
Warranty
|
|
20,198
|
|
|
18,285
|
|
Freight
|
|
13,791
|
|
|
14,315
|
|
VAT and other non-income taxes
|
|
4,302
|
|
|
8,657
|
|
Deferred income
|
|
9,840
|
|
|
12,188
|
|
Restructuring
|
|
2,989
|
|
|
3,820
|
|
Interest
|
|
6,297
|
|
|
1,970
|
|
Pension
|
|
1,321
|
|
|
1,226
|
|
Other
|
|
43,184
|
|
|
36,488
|
|
Total
|
|
$
|
200,496
|
|
|
$
|
193,262
|
|
8. Debt
Summary of Long-Term Debt
The following summarizes the Company’s long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
2016
|
|
2015
|
|
|
Principal
|
|
Unamortized Issuance Costs
|
|
Principal
|
|
Unamortized Issuance Costs
|
5.00% Senior Notes due 2023
|
|
$
|
300,000
|
|
|
$
|
4,370
|
|
|
$
|
—
|
|
|
$
|
—
|
|
2011 Credit Facility, due 2018
|
|
312,500
|
|
|
1,909
|
|
|
325,000
|
|
|
2,615
|
|
3.375% Convertible Notes, net of discount, due 2038
|
|
—
|
|
|
—
|
|
|
170,936
|
|
|
97
|
|
|
|
$
|
612,500
|
|
|
$
|
6,279
|
|
|
$
|
495,936
|
|
|
$
|
2,712
|
|
Less: Unamortized issuance costs
|
|
6,279
|
|
|
|
|
2,712
|
|
|
|
Less: Current portion
|
|
—
|
|
|
|
|
—
|
|
|
|
Long-term debt, net of unamortized issuance costs
|
|
$
|
606,221
|
|
|
|
|
$
|
493,224
|
|
|
|
As discussed in Note 1, the Company elected to early adopt accounting guidance issued in April 2015 to simplify the presentation of debt issuance costs. This change in accounting principle was implemented retrospectively as of March 31, 2015. Debt issuance costs that are incurred by the Company in connection with the issuance of debt are deferred and amortized to interest expense using the effective interest method over the contractual term of the underlying indebtedness. The Company has reclassified debt issuance costs as a direct reduction to the related debt obligation on the balance sheet as of
March 31, 2015
.
5.00% Senior Notes
On April 23, 2015, the Company issued
$300,000
in aggregate principal amount of
5.00%
Senior Notes due 2023 (the “Notes”). The Notes bear interest at a rate of 5.00% per annum accruing from April 23, 2015. Interest is payable semiannually in arrears on April 30 and October 30 of each year, commencing 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 each of its subsidiaries that are guarantors under the 2011 Credit Facility (the "Guarantors"). The Guarantees are unsecured and unsubordinated obligations of the Guarantors. The net proceeds from the sale of the Notes were used primarily to repay and retire in full the principal amount
of the Company’s senior 3.375% convertible notes (the “Convertible Notes”), as discussed below, as well as, fund the accelerated share repurchase program discussed in Note 15.
2011 Senior Secured Credit Facility
The Company is party to a $350,000 senior secured revolving credit facility (as amended, the "2011 Credit Facility"), as well as, an Incremental Commitment Agreement pursuant to which certain banks agreed to provide incremental term loan commitments of
$150,000
and incremental revolving commitments of
$150,000
. Pursuant to these changes, the 2011 Credit Facility is now comprised of a
$500,000
senior secured revolving credit facility and a
$150,000
senior secured incremental term loan (the "Term Loan") that matures on September 30, 2018. The Term Loan is payable in quarterly installments of
$1,875
beginning June 30, 2015 and
$3,750
beginning June 30, 2016 with a final payment of
$108,750
on September 30, 2018. The 2011 Credit Facility may be increased by an aggregate amount of
$300,000
in revolving commitments and/or one or more new tranches of term loans, under certain conditions. Both revolving loans and the Term Loan under the 2011 Credit Facility will bear interest, at the Company's option, at a rate per annum equal to either (i) the London Interbank Offered Rate (“LIBOR”) plus between
1.25%
and
1.75%
(currently 1.25% and based on the Company's consolidated net leverage ratio) or (ii) the Base Rate (which is the highest of (a) the Bank of America prime rate, and (b) the Federal Funds Effective Rate) plus between
0.25%
and
0.75%
(based on the Company’s consolidated net leverage ratio). Obligations under the 2011 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
65%
of the capital stock of certain of the Company’s foreign subsidiaries that are owned by the Company’s United States companies.
There are no prepayment penalties on loans under the 2011 Credit Facility. The Company had
$170,000
revolver borrowings and
$142,500
Term Loan borrowings outstanding under its 2011 Credit Facility as of
March 31, 2016
.
The current portion of the Term Loan of
$15,000
is classified as long-term debt as the Company expects to refinance the quarterly payments with revolver borrowings under its 2011 Credit Facility.
Senior Unsecured 3.375% Convertible Notes
The Company's
3.375%
Convertible Notes, with an original face value of
$172,500
, were issued when the Company’s stock price was trading at
$30.19
per share. On
March 31, 2015
, the Company’s stock price closed at
$64.24
per share. On May 7, 2015, the Company filed a notice of redemption for all of the Convertible Notes with a redemption date of June 8, 2015 at a price equal to
$1,000.66
per $1,000 original principal amount of Convertible Notes, which is equal to 100% of the accreted principal amount of the Convertible Notes being repurchased plus accrued and unpaid interest. Holders were permitted to convert their Convertible Notes at their option on or before June 5, 2015.
Ninety-nine
percent of the Convertible Notes holders exercised their conversion rights on or before June 5, 2015, pursuant to which, on July 17, 2015, the Company paid
$172,388
, in aggregate, towards the principal balance including accreted interest, cash equivalent of fractional shares issued towards conversion premium and settled the conversion premium by issuing, in the aggregate,
1,889,431
shares of the Company's common stock from its treasury shares, thereby resulting in the extinguishment of all of the Convertible Notes as of that date. There was no impact to the income statement from the extinguishment as the fair value of the total settlement consideration transferred and allocated to the liability component approximated the carrying value of the Convertible Notes. The remaining consideration allocated to the equity component resulted in an adjustment to equity of
$84,140
.
The following represents the principal amount of the liability component, the unamortized discount, and the net carrying amount of our Convertible Notes as of
March 31, 2016
and
2015
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2016
|
|
2015
|
Principal
|
|
$
|
—
|
|
|
$
|
172,266
|
|
Unamortized discount
|
|
—
|
|
|
(1,330
|
)
|
Net carrying amount
|
|
$
|
—
|
|
|
$
|
170,936
|
|
The amount of interest cost recognized for the amortization of the discount on the liability component of the Convertible Notes was
$1,330
,
$8,283
and
$7,614
, respectively, for the fiscal years ended
March 31, 2016
,
2015
and
2014
.
The Company paid
$15,176
,
$10,088
and
$8,490
, net of interest received, for interest during the fiscal years ended
March 31, 2016
,
2015
and
2014
, respectively.
The Company’s financing agreements contain various covenants, which, absent prepayment in full of the indebtedness and other obligations, or the receipt of waivers, would limit the Company’s ability to conduct certain specified business transactions including incurring debt, mergers, consolidations or similar transactions, buying or selling assets out of the ordinary course of business, engaging in sale and leaseback transactions, paying dividends and certain other actions. The Company is in compliance with all such covenants.
Short-Term Debt
As of
March 31, 2016
and
2015
, the Company had
$22,144
and
$19,715
, respectively, of short-term borrowings from banks. The weighted-average interest rates on these borrowings were approximately
8%
and
10%
for fiscal years ended
March 31, 2016
and
2015
, respectively.
Letters of Credit
As of
March 31, 2016
and
2015
, the Company had
$2,693
and
$3,862
, respectively, of standby letters of credit.
Deferred Financing Fees
In connection with the issuance of the Notes, the Company incurred
$5,031
in debt issuance costs. Amortization expense, relating to debt issuance costs, included in interest expense was
$1,464
,
$1,263
, and
$1,141
for the fiscal years ended
March 31, 2016
,
2015
and
2014
, respectively. Debt issuance costs, net of accumulated amortization, totaled
$6,279
and
$2,712
as of
March 31, 2016
and
2015
, respectively.
Available Lines of Credit
As of
March 31, 2016
and
2015
, the Company had available and undrawn, under all its lines of credit,
$472,187
and
$464,733
, respectively, including
$144,112
and
$141,533
, respectively, of uncommitted lines of credit as of
March 31, 2016
and
March 31, 2015
.
9. Leases
The Company’s future minimum lease payments under operating leases that have noncancelable terms in excess of one year as of
March 31, 2016
are as follows:
|
|
|
|
|
|
|
|
Operating
Leases
|
2017
|
|
$
|
20,291
|
|
2018
|
|
16,014
|
|
2019
|
|
11,160
|
|
2020
|
|
8,750
|
|
2021
|
|
6,387
|
|
Thereafter
|
|
6,447
|
|
Total minimum lease payments
|
|
$
|
69,049
|
|
Rental expense was
$34,590
,
$35,974
, and
$34,923
for the fiscal years ended
March 31, 2016
,
2015
and
2014
, respectively. Certain operating lease agreements contain renewal or purchase options and/or escalation clauses.
10. Other Liabilities
Other liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2016
|
|
2015
|
Pension
|
|
$
|
41,309
|
|
|
$
|
42,144
|
|
Warranty
|
|
28,224
|
|
|
21,525
|
|
Deferred income
|
|
6,007
|
|
|
6,564
|
|
Liability for uncertain tax benefits
|
|
2,176
|
|
|
3,796
|
|
Other
|
|
8,763
|
|
|
7,550
|
|
Total
|
|
$
|
86,479
|
|
|
$
|
81,579
|
|
11. 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
March 31, 2016
and
March 31, 2015
and the basis for that measurement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
Measurement
March 31, 2016
|
|
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Lead forward contracts
|
|
$
|
(499
|
)
|
|
$
|
—
|
|
|
$
|
(499
|
)
|
|
$
|
—
|
|
Foreign currency forward contracts
|
|
(988
|
)
|
|
—
|
|
|
(988
|
)
|
|
—
|
|
Total derivatives
|
|
$
|
(1,487
|
)
|
|
$
|
—
|
|
|
$
|
(1,487
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
Measurement
March 31, 2015
|
|
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Lead forward contracts
|
|
$
|
(341
|
)
|
|
$
|
—
|
|
|
$
|
(341
|
)
|
|
$
|
—
|
|
Foreign currency forward contracts
|
|
4,155
|
|
|
—
|
|
|
4,155
|
|
|
—
|
|
Total derivatives
|
|
$
|
3,814
|
|
|
$
|
—
|
|
|
$
|
3,814
|
|
|
$
|
—
|
|
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 as described in Note 1, Summary of Significant Accounting Policies.
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, accounts receivable and accounts payable approximate carrying value due to their short maturities.
The fair value of the Company’s short-term debt and borrowings under the 2011 Credit Facility (as defined in Note 8), 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, with an original face value of
$300,000
, were issued in April 2015. The fair values of these Notes represent the trading values based upon quoted market prices and are classified as Level 2. The Notes were trading at approximately
96%
of face value on
March 31, 2016
.
The Company's
3.375%
Convertible Notes, with an original face value of
$172,500
, were issued when the Company’s stock price was trading at
$30.19
per share. On
March 31, 2015
, the Company’s stock price closed at
$64.24
per share. On July 17, 2015, the Company paid
$172,388
, in aggregate, towards the principal balance including accreted interest, cash equivalent of fractional shares issued towards conversion premium and settled the conversion premium by issuing, in the aggregate,
1,889,431
shares of the Company's common stock from its treasury shares, thereby resulting in the extinguishment of all of the Convertible Notes as of that date. The fair value of the Convertible Notes as of
March 31, 2015
, which were trading at
161%
as of that date, represented the trading values based upon quoted market prices at and were classified as Level 2.
The carrying amounts and estimated fair values of the Company’s derivatives, the Notes and Convertible Notes (as defined in Note 8) at
March 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
|
March 31, 2015
|
|
|
|
|
Carrying
Amount
|
|
|
|
Fair Value
|
|
|
|
Carrying
Amount
|
|
|
|
Fair Value
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
(1)
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
4,155
|
|
|
|
|
$
|
4,155
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
(2)
|
|
300,000
|
|
|
|
|
288,000
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
Convertible Notes
(2) (3)
|
|
—
|
|
|
|
|
—
|
|
|
|
|
170,936
|
|
|
|
|
277,348
|
|
|
|
Derivatives
(1)
|
|
$
|
1,487
|
|
|
|
|
$
|
1,487
|
|
|
|
|
$
|
341
|
|
|
|
|
$
|
341
|
|
|
|
|
|
(1)
|
Represents lead and foreign currency forward contracts (see Note 12 for asset and liability positions of the lead and foreign currency forward contracts at
March 31, 2016
and
March 31, 2015
).
|
|
|
(2)
|
The fair value amount of the Notes at
March 31, 2016
and the Convertible Notes at
March 31, 2015
represents the trading value of the instruments.
|
|
|
(3)
|
The carrying amount of the Convertible Notes at
March 31, 2015
represents the
$172,266
principal balance, less the unamortized debt discount (see Note 8 for further details).
|
Non-recurring fair value measurements
The valuation of goodwill and other intangible assets is based on information and assumptions available to the Company at the time of acquisition, using income and market approaches to determine fair value. The Company tests goodwill and other intangible assets annually for impairment, or when indications of potential impairment exist (see Note 1).
Goodwill is tested for impairment by determining the fair value of the Company’s reporting units. The unobservable inputs used to measure the fair value of the reporting units include projected growth rates, profitability, and the risk factor premium added to the discount rate. The remeasurement of goodwill is classified as a Level 3 fair value assessment due to the significance of unobservable inputs developed using company-specific information.
The inputs used to measure the fair value of other intangible assets were largely unobservable and accordingly were also classified as Level 3. The fair value of trademarks, is based on the royalties saved that would have been paid to a third party had the Company not owned the trademark. For
fiscal 2016
, the Company used royalty rates ranging between
0.5%
-
2.5%
based on comparable market rates, and used discount rates ranging between
16.0%
-
24.0%
. For
fiscal 2015
, the Company used royalty rates ranging between
1.0%
-
2.5%
based on comparable market rates, and used discount rates ranging between
19.0%
-
23.5%
.
The fair value of other indefinite-lived intangibles was estimated using the income approach, based on cash flow projections of revenue growth rates, taking into consideration industry and market conditions.
In connection with the annual impairment testing conducted as of December 28, 2015 for
fiscal 2016
, indefinite-lived trademarks associated with Purcell and Quallion/ABSL US were recorded at fair value on a nonrecurring basis at
$10,000
and
$990
, respectively, and the remeasurement resulted in an aggregate impairment charge of
$3,420
.
In connection with the annual impairment testing conducted as of December 29, 2014 for
fiscal 2015
, indefinite-lived trademarks associated with Purcell and Quallion/ABSL US were recorded at fair value on a nonrecurring basis at
$13,300
and
$1,070
, respectively, and the remeasurement resulted in an aggregate impairment charge of
$3,575
.
These charges are included under the caption "Impairment of goodwill, indefinite-lived intangibles and fixed assets" in the Consolidated Statements of Income.
12. 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 and the notional amounts at
March 31, 2016
and
2015
were
27.4 million
pounds and
91.6 million
pounds, 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
March 31, 2016
and
2015
, the Company had entered into a total of
$18,206
and
$75,878
, respectively, of such contracts.
In the coming twelve months, the Company anticipates that
$601
of net pretax gain 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 Statement 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 Statements of Income. As of
March 31, 2016
and
2015
, the notional amount of these contracts was
$11,156
and
$26,246
, respectively.
Presented below in tabular form is information on the location and amounts of derivative fair values in the Consolidated Balance Sheets and derivative gains and losses in the Consolidated Statements of Income:
Fair Value of Derivative Instruments
March 31, 2016 and 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives and Hedging Activities
Designated as Cash Flow Hedges
|
|
Derivatives and Hedging Activities
Not Designated as Hedging Instruments
|
|
|
March 31, 2016
|
|
March 31, 2015
|
|
March 31, 2016
|
|
March 31, 2015
|
Prepaid and other current assets
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
—
|
|
|
$
|
3,735
|
|
|
$
|
—
|
|
|
$
|
420
|
|
Total assets
|
|
$
|
—
|
|
|
$
|
3,735
|
|
|
$
|
—
|
|
|
$
|
420
|
|
Accrued expenses
|
|
|
|
|
|
|
|
|
Lead hedge forward contracts
|
|
$
|
499
|
|
|
$
|
341
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign currency forward contracts
|
|
350
|
|
|
—
|
|
|
638
|
|
|
—
|
|
Total liabilities
|
|
$
|
849
|
|
|
$
|
341
|
|
|
$
|
638
|
|
|
$
|
—
|
|
The Effect of Derivative Instruments on the Consolidated Statements of Income
For the fiscal year ended
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Designated as Cash Flow Hedges
|
|
Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)
|
|
Location of Gain
(Loss) Reclassified
from
AOCI into Income
(Effective Portion)
|
|
Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
|
Lead hedge forward contracts
|
|
$
|
(3,361
|
)
|
|
Cost of goods sold
|
|
$
|
(11,085
|
)
|
Foreign currency forward contracts
|
|
(3,023
|
)
|
|
Cost of goods sold
|
|
3,941
|
|
Total
|
|
$
|
(6,384
|
)
|
|
|
|
$
|
(7,144
|
)
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments
|
Location of Gain (Loss)
Recognized in Income
on Derivative
|
Pretax Gain (Loss)
|
Foreign currency forward contracts
|
Other (income) expense, net
|
$
|
(409
|
)
|
Total
|
|
$
|
(409
|
)
|
|
|
|
The Effect of Derivative Instruments on the Consolidated Statements of Income
For the fiscal year ended
March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Designated as Cash Flow Hedges
|
|
Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)
|
|
Location of Gain
(Loss) Reclassified
from
AOCI into Income
(Effective Portion)
|
|
Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
|
Lead hedge forward contracts
|
|
$
|
(7,743
|
)
|
|
Cost of goods sold
|
|
$
|
(4,347
|
)
|
Foreign currency forward contracts
|
|
8,206
|
|
|
Cost of goods sold
|
|
1,386
|
|
Total
|
|
$
|
463
|
|
|
|
|
$
|
(2,961
|
)
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments
|
Location of Gain (Loss)
Recognized in Income
on Derivative
|
Pretax Gain (Loss)
|
Foreign currency forward contracts
|
Other (income) expense, net
|
$
|
972
|
|
Total
|
|
$
|
972
|
|
|
|
|
The Effect of Derivative Instruments on the Consolidated Statements of Income
For the fiscal year ended
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Designated as Cash Flow Hedges
|
|
Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)
|
|
Location of Gain
(Loss) Reclassified
from
AOCI into Income
(Effective Portion)
|
|
Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
|
Lead hedge forward contracts
|
|
$
|
(1,562
|
)
|
|
Cost of goods sold
|
|
$
|
718
|
|
Foreign currency forward contracts
|
|
(682
|
)
|
|
Cost of goods sold
|
|
(707
|
)
|
Total
|
|
$
|
(2,244
|
)
|
|
|
|
$
|
11
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments
|
Location of Gain (Loss)
Recognized in Income
on Derivative
|
Pretax Gain (Loss)
|
Foreign currency forward contracts
|
Other (income) expense, net
|
$
|
(188
|
)
|
Total
|
|
$
|
(188
|
)
|
13. Income Taxes
Income tax expense is composed of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended March 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
29,082
|
|
|
$
|
12,299
|
|
|
$
|
41,256
|
|
State
|
|
4,750
|
|
|
3,044
|
|
|
2,845
|
|
Foreign
|
|
17,034
|
|
|
20,585
|
|
|
22,627
|
|
Total current
|
|
50,866
|
|
|
35,928
|
|
|
66,728
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
(3,706
|
)
|
|
25,113
|
|
|
(18,410
|
)
|
State
|
|
124
|
|
|
1,771
|
|
|
(4,088
|
)
|
Foreign
|
|
2,829
|
|
|
5,002
|
|
|
(27,250
|
)
|
Total deferred
|
|
(753
|
)
|
|
31,886
|
|
|
(49,748
|
)
|
Income tax expense
|
|
$
|
50,113
|
|
|
$
|
67,814
|
|
|
$
|
16,980
|
|
Earnings before income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended March 31,
|
|
|
2016
|
|
2015
|
|
2014
|
United States
|
|
$
|
64,235
|
|
|
$
|
76,327
|
|
|
$
|
47,753
|
|
Foreign
|
|
117,702
|
|
|
173,012
|
|
|
115,994
|
|
Earnings before income taxes
|
|
$
|
181,937
|
|
|
$
|
249,339
|
|
|
$
|
163,747
|
|
Income taxes paid by the Company for the fiscal years ended
March 31, 2016
,
2015
and
2014
were
$44,625
,
$42,404
and
$76,644
, respectively.
The following table sets forth the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2016
|
|
2015
|
Deferred tax assets:
|
|
|
|
|
Accounts receivable
|
|
$
|
1,450
|
|
|
$
|
907
|
|
Inventories
|
|
6,596
|
|
|
5,855
|
|
Net operating loss carryforwards
|
|
50,094
|
|
|
46,069
|
|
Accrued expenses
|
|
25,436
|
|
|
28,830
|
|
Other assets
|
|
22,551
|
|
|
21,279
|
|
Gross deferred tax assets
|
|
106,127
|
|
|
102,940
|
|
Less valuation allowance
|
|
(25,416
|
)
|
|
(20,063
|
)
|
Total deferred tax assets
|
|
80,711
|
|
|
82,877
|
|
Deferred tax liabilities:
|
|
|
|
|
Property, plant and equipment
|
|
25,302
|
|
|
23,851
|
|
Other intangible assets
|
|
65,879
|
|
|
65,432
|
|
Convertible Notes
|
|
—
|
|
|
30,012
|
|
Other liabilities
|
|
2,008
|
|
|
4,267
|
|
Total deferred tax liabilities
|
|
93,189
|
|
|
123,562
|
|
Net deferred tax liabilities
|
|
$
|
(12,478
|
)
|
|
$
|
(40,685
|
)
|
As described in Note 1, the Company early adopted ASU 2015-17 on a retrospective basis effective March 31, 2016. As a result, the Company reclassified
$31,749
and
$1,583
of deferred tax assets and liabilities, respectively, from current deferred taxes resulting in non-current net deferred tax assets and liabilities of
$36,516
and
$77,201
, respectively in the Consolidated Balance Sheet as of March 31, 2015.
The Company has approximately
$1,977
in United States federal net operating loss carryforwards, all of which are limited by Section 382 of the Internal Revenue Code, with expirations between 2023 and 2027. The Company has approximately
$159,088
of foreign net operating loss carryforwards, of which
$120,353
may be carried forward indefinitely and
$38,735
expire between 2019 and 2024. In addition, the Company also had approximately
$38,142
of state net operating loss carryforwards with expirations between 2017 and 2036.
As of
March 31, 2016
and
2015
, the federal valuation allowance was
$1,050
. As of
March 31, 2016
and
2015
, the valuation allowance associated with the state tax jurisdictions was
$656
and
$608
, respectively. As of
March 31, 2016
and
2015
, the valuation allowance associated with certain foreign tax jurisdictions was
$23,710
and
$18,404
, respectively. The change includes an increase of
$6,262
to tax expense primarily related to net operating loss carryforwards generated in the current year that the Company believes are not more likely than not to be realized, and a decrease of
$956
primarily related to currency fluctuations.
A reconciliation of income taxes at the statutory rate to the income tax provision is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended March 31,
|
|
|
2016
|
|
2015
|
|
2014
|
United States statutory income tax expense (at 35%)
|
|
$
|
63,678
|
|
|
$
|
87,269
|
|
|
$
|
57,311
|
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
State income taxes, net of federal effect
|
|
3,282
|
|
|
3,206
|
|
|
(647
|
)
|
Nondeductible expenses, domestic manufacturing deduction and other
|
|
(3,796
|
)
|
|
8,666
|
|
|
5,124
|
|
Goodwill impairment
|
|
6,475
|
|
|
5,194
|
|
|
1,760
|
|
Effect of foreign operations
|
|
(25,788
|
)
|
|
(38,313
|
)
|
|
(26,037
|
)
|
Valuation allowance
|
|
6,262
|
|
|
1,792
|
|
|
(20,531
|
)
|
Income tax expense
|
|
$
|
50,113
|
|
|
$
|
67,814
|
|
|
$
|
16,980
|
|
The effective income tax rates for the fiscal years ended
March 31, 2016
,
2015
and
2014
were
27.5%
,
27.2%
and
10.4%
, respectively. The effective income tax rate with respect to any period may be volatile based on the mix of income in the tax jurisdictions in which we operate and the amount of our consolidated income before taxes.
The fiscal 2016 foreign effective income tax rate on foreign pre-tax income of
$117,702
was
16.9%
. The fiscal 2015 foreign effective income tax rate on foreign pre-tax income of
$173,012
was
14.8%
. The fiscal 2014 foreign effective income tax rate on foreign pre-tax income of
$115,994
was
(4.0)%
.
Income from the Company's Swiss subsidiary comprised a substantial portion of our overall foreign mix of income for the fiscal years ended
March 31, 2016
,
2015
and
2014
and is taxed at approximately
7%
.
At
March 31, 2016
, the Company has not recorded United States income or foreign withholding taxes on approximately
$878,225
of undistributed earnings of foreign subsidiaries that could be subject to taxation if remitted to the United States because the Company currently plans to keep these amounts indefinitely invested overseas. It is not practical to calculate the income tax expense that would result upon repatriation of these earnings.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
March 31, 2013
|
$
|
16,485
|
|
Increases related to current year tax positions
|
207
|
|
Increases related to prior year tax positions
|
2,877
|
|
Decreases related to prior tax positions due to foreign currency translation
|
(68
|
)
|
Decreases related to prior year tax positions
|
(14,835
|
)
|
Lapse of statute of limitations
|
(923
|
)
|
March 31, 2014
|
3,743
|
|
Increases related to current year tax positions
|
3,241
|
|
Increases related to prior year tax positions
|
9
|
|
Decreases related to prior tax positions due to foreign currency translation
|
(85
|
)
|
Decreases related to prior year tax positions settled
|
(2,695
|
)
|
Lapse of statute of limitations
|
(101
|
)
|
March 31, 2015
|
4,112
|
|
Increases related to current year tax positions
|
422
|
|
Increases related to prior year tax positions
|
470
|
|
Decreases related to prior tax positions due to foreign currency translation
|
—
|
|
Decreases related to prior year tax positions
|
(2,315
|
)
|
Lapse of statute of limitations
|
(314
|
)
|
March 31, 2016
|
$
|
2,375
|
|
All of the balance of unrecognized tax benefits at
March 31, 2016
, if recognized, would be included in the Company’s Consolidated Statements of Income and have a favorable impact on both the Company’s net earnings and effective tax rate.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2013.
While the net effect on total unrecognized tax benefits cannot be reasonably estimated, approximately
$178
is expected to reverse in fiscal 2017 due to expiration of various statute of limitations.
The Company recognizes tax related interest and penalties in income tax expense in its Consolidated Statements of Income. As of
March 31, 2016
and
2015
, the Company had an accrual of
$310
and
$170
, respectively, for interest and penalties.
14. Retirement Plans
Defined Benefit Plans
The Company provides retirement benefits to substantially all eligible salaried and hourly employees. The Company uses a measurement date of March 31 for its pension plans.
Net periodic pension cost for fiscal
2016
,
2015
and
2014
, includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Plans
|
|
International Plans
|
|
|
Fiscal year ended March 31,
|
|
Fiscal year ended March 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Service cost
|
|
$
|
482
|
|
|
$
|
400
|
|
|
$
|
348
|
|
|
$
|
820
|
|
|
$
|
767
|
|
|
$
|
829
|
|
Interest cost
|
|
682
|
|
|
673
|
|
|
619
|
|
|
1,904
|
|
|
2,546
|
|
|
2,412
|
|
Expected return on plan assets
|
|
(855
|
)
|
|
(889
|
)
|
|
(796
|
)
|
|
(2,247
|
)
|
|
(2,248
|
)
|
|
(2,134
|
)
|
Amortization and deferral
|
|
481
|
|
|
319
|
|
|
479
|
|
|
1,249
|
|
|
688
|
|
|
56
|
|
Curtailment loss
|
|
313
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net periodic benefit cost
|
|
$
|
1,103
|
|
|
$
|
503
|
|
|
$
|
650
|
|
|
$
|
1,726
|
|
|
$
|
1,753
|
|
|
$
|
1,163
|
|
The following table sets forth a reconciliation of the related benefit obligation, plan assets, and accrued benefit costs related to the pension benefits provided by the Company for those employees covered by defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Plans
|
|
International Plans
|
|
|
March 31,
|
|
March 31,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Change in projected benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation at the beginning of the period
|
|
$
|
18,059
|
|
|
$
|
15,290
|
|
|
$
|
72,091
|
|
|
$
|
69,227
|
|
Service cost
|
|
482
|
|
|
400
|
|
|
820
|
|
|
767
|
|
Interest cost
|
|
682
|
|
|
673
|
|
|
1,904
|
|
|
2,546
|
|
Plan amendments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Benefits paid, inclusive of plan expenses
|
|
(912
|
)
|
|
(770
|
)
|
|
(1,944
|
)
|
|
(1,904
|
)
|
Plan curtailments and settlements
|
|
(120
|
)
|
|
—
|
|
|
—
|
|
|
(54
|
)
|
Actuarial (gains) losses
|
|
(542
|
)
|
|
2,466
|
|
|
(4,144
|
)
|
|
14,198
|
|
Foreign currency translation adjustment
|
|
—
|
|
|
—
|
|
|
407
|
|
|
(12,689
|
)
|
Benefit obligation at the end of the period
|
|
$
|
17,649
|
|
|
$
|
18,059
|
|
|
$
|
69,134
|
|
|
$
|
72,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the beginning of the period
|
|
$
|
12,379
|
|
|
$
|
11,309
|
|
|
$
|
34,401
|
|
|
$
|
33,706
|
|
Actual return on plan assets
|
|
(124
|
)
|
|
1,051
|
|
|
(591
|
)
|
|
4,918
|
|
Employer contributions
|
|
496
|
|
|
789
|
|
|
1,504
|
|
|
1,890
|
|
Benefits paid, inclusive of plan expenses
|
|
(912
|
)
|
|
(770
|
)
|
|
(1,944
|
)
|
|
(1,904
|
)
|
Plan curtailments and settlements
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(54
|
)
|
Foreign currency translation adjustment
|
|
—
|
|
|
—
|
|
|
(1,056
|
)
|
|
(4,155
|
)
|
Fair value of plan assets at the end of the period
|
|
$
|
11,839
|
|
|
$
|
12,379
|
|
|
$
|
32,314
|
|
|
$
|
34,401
|
|
Funded status deficit
|
|
$
|
(5,810
|
)
|
|
$
|
(5,680
|
)
|
|
$
|
(36,820
|
)
|
|
$
|
(37,690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2016
|
|
2015
|
Amounts recognized in the Consolidated Balance Sheets consist of:
|
|
|
|
|
Accrued expenses
|
|
$
|
(1,321
|
)
|
|
$
|
(1,226
|
)
|
Other liabilities
|
|
(41,309
|
)
|
|
(42,144
|
)
|
|
|
$
|
(42,630
|
)
|
|
$
|
(43,370
|
)
|
The following table represents pension components (before tax) and related changes (before tax) recognized in AOCI for the Company’s pension plans for the years ended
March 31, 2016
,
2015
and
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended March 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Amounts recorded in AOCI before taxes:
|
|
|
|
|
|
|
Prior service cost
|
|
$
|
(445
|
)
|
|
$
|
(800
|
)
|
|
$
|
(1,036
|
)
|
Net loss
|
|
(26,628
|
)
|
|
(28,734
|
)
|
|
(19,239
|
)
|
Net amount recognized
|
|
$
|
(27,073
|
)
|
|
$
|
(29,534
|
)
|
|
$
|
(20,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended March 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Changes in plan assets and benefit obligations:
|
|
|
|
|
|
|
New prior service cost
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
255
|
|
Net loss arising during the year
|
|
(988
|
)
|
|
13,831
|
|
|
2,262
|
|
Effect of exchange rates on amounts included in AOCI
|
|
142
|
|
|
(3,565
|
)
|
|
920
|
|
Amounts recognized as a component of net periodic benefit costs:
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
(382
|
)
|
|
(101
|
)
|
|
(81
|
)
|
Amortization or settlement recognition of net loss
|
|
(1,661
|
)
|
|
(906
|
)
|
|
(694
|
)
|
Total recognized in other comprehensive income
|
|
$
|
(2,889
|
)
|
|
$
|
9,259
|
|
|
$
|
2,662
|
|
The amounts included in AOCI as of
March 31, 2016
that are expected to be recognized as components of net periodic pension cost during the next twelve months are as follows:
|
|
|
|
|
Prior service cost
|
$
|
(44
|
)
|
Net loss
|
(1,560
|
)
|
Net amount expected to be recognized
|
$
|
(1,604
|
)
|
|
|
The accumulated benefit obligation related to all defined benefit pension plans and information related to unfunded and underfunded defined benefit pension plans at the end of each year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Plans
|
|
International Plans
|
|
|
March 31,
|
|
March 31,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
All defined benefit plans:
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
17,649
|
|
|
$
|
18,059
|
|
|
$
|
65,732
|
|
|
$
|
68,272
|
|
Unfunded defined benefit plans:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
30,272
|
|
|
$
|
28,984
|
|
Accumulated benefit obligation
|
|
—
|
|
|
—
|
|
|
28,875
|
|
|
27,768
|
|
Defined benefit plans with a projected benefit obligation in excess of the fair value of plan assets:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
17,649
|
|
|
$
|
18,059
|
|
|
$
|
69,134
|
|
|
$
|
72,091
|
|
Fair value of plan assets
|
|
11,839
|
|
|
12,379
|
|
|
32,314
|
|
|
34,401
|
|
Defined benefit plans with an accumulated benefit obligation in excess of the fair value of plan assets:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
17,649
|
|
|
$
|
18,059
|
|
|
$
|
69,134
|
|
|
$
|
72,091
|
|
Accumulated benefit obligation
|
|
17,649
|
|
|
18,059
|
|
|
65,732
|
|
|
68,272
|
|
Fair value of plan assets
|
|
11,839
|
|
|
12,379
|
|
|
32,314
|
|
|
34,401
|
|
Assumptions
Significant assumptions used to determine the net periodic benefit cost for the U.S. and International plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Plans
|
|
International Plans
|
|
|
Fiscal year ended March 31,
|
|
Fiscal year ended March 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Discount rate
|
|
3.8
|
%
|
|
4.5
|
%
|
|
4.0
|
%
|
|
1.25-3.4%
|
|
3.0-4.6%
|
|
2.5-4.4%
|
Expected return on plan assets
|
|
7.0
|
|
|
7.8
|
|
|
7.8
|
|
|
3.2-6.5
|
|
4.4-7.0
|
|
4.0-7.0
|
Rate of compensation increase
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
1.5-3.75
|
|
2.0-4.0
|
|
2.0-4.0
|
Significant assumptions used to determine the projected benefit obligations for the U.S. and International plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States Plans
|
|
International Plans
|
|
|
March 31,
|
|
March 31,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Discount rate
|
|
3.9
|
%
|
|
3.8
|
%
|
|
1.8-3.7%
|
|
1.25-3.4%
|
Expected return on plan assets
|
|
7.0
|
|
|
7.0
|
|
|
3.3-6.5
|
|
3.2-6.5
|
Rate of compensation increase
|
|
N/A
|
|
|
N/A
|
|
|
1.5-4.0
|
|
1.5-3.75
|
N/A = not applicable
The United States plans do not include compensation in the formula for determining the pension benefit as it is based solely on years of service.
The expected long-term rate of return for the Company’s pension plan assets is based upon the target asset allocation and is determined using forward looking assumptions in the context of historical returns and volatilities for each asset class, as well as, correlations among asset classes. The Company evaluates the rate of return assumptions for each of its plans on an annual basis.
Pension Plan Investment Strategy
The Company’s investment policy emphasizes a balanced approach to investing in securities of high quality and ready marketability. Investment flexibility is encouraged so as not to exclude opportunities available through a diversified investment strategy.
Equity investments are maintained within a target range of
40%
-
75%
of the total portfolio market value for the U.S. plans and with a target of approximately 65% for international plans. Investments in debt securities include issues of various maturities, and the average quality rating of bonds should be investment grade with a minimum quality rating of “B” at the time of purchase.
The Company periodically reviews the asset allocation of its portfolio. The proportion committed to equities, debt securities and cash and cash equivalents is a function of the values available in each category and risk considerations. The plan’s overall return will be compared to and expected to meet or exceed established benchmark funds and returns over a three to five year period.
The objectives of the Company’s investment strategies are: (a) the achievement of a reasonable long-term rate of total return consistent with an emphasis on preservation of capital and purchasing power, (b) stability of annual returns through a portfolio risk level, which is appropriate to conservative accounts, and (c) reflective of the Company’s willingness to forgo significantly above-average rewards in order to minimize above-average risks. These objectives may not be met each year but should be attained over a reasonable period of time.
The following table represents our pension plan investments measured at fair value as of
March 31, 2016
and
2015
and the basis for that measurement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
United States Plans
|
|
International Plans
|
|
|
Total Fair
Value
Measurement
|
|
Quoted Price
In Active
Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total Fair
Value
Measurement
|
|
Quoted Price
In Active
Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Asset category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
928
|
|
|
$
|
928
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
(a)
|
|
7,324
|
|
|
7,324
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
International
(b)
|
|
1,015
|
|
|
1,015
|
|
|
—
|
|
|
—
|
|
|
21,439
|
|
|
—
|
|
|
21,439
|
|
|
—
|
|
Fixed income
(c)
|
|
2,572
|
|
|
2,572
|
|
|
—
|
|
|
—
|
|
|
10,875
|
|
|
—
|
|
|
10,875
|
|
|
—
|
|
Total
|
|
$
|
11,839
|
|
|
$
|
11,839
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
32,314
|
|
|
$
|
—
|
|
|
$
|
32,314
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2015
|
|
|
United States Plans
|
|
International Plans
|
|
|
Total Fair
Value
Measurement
|
|
Quoted Price
In Active
Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
Fair Value
Measurement
|
|
Quoted Price
In Active
Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Asset category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,248
|
|
|
$
|
1,248
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
(a)
|
|
7,282
|
|
|
7,282
|
|
|
—
|
|
|
—
|
|
|
3,431
|
|
|
3,431
|
|
|
—
|
|
|
—
|
|
International
(b)
|
|
1,075
|
|
|
1,075
|
|
|
—
|
|
|
—
|
|
|
18,646
|
|
|
18,646
|
|
|
—
|
|
|
—
|
|
Fixed income
(c)
|
|
2,774
|
|
|
2,774
|
|
|
—
|
|
|
—
|
|
|
12,324
|
|
|
12,324
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
12,379
|
|
|
$
|
12,379
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
34,401
|
|
|
$
|
34,401
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The fair values presented above were determined based on valuation techniques to measure fair value as discussed in Note 1.
|
|
(a)
|
US equities include companies that are well diversified by industry sector and equity style (i.e., growth and value strategies). Active and passive management strategies are employed. Investments are primarily in large capitalization stocks and, to a lesser extent, mid- and small-cap stocks.
|
|
|
(b)
|
International equities are invested in companies that are traded on exchanges outside the U.S. and are well diversified by industry sector, country and equity style. Active and passive strategies are employed. The vast majority of the investments are made in companies in developed markets with a small percentage in emerging markets.
|
|
|
(c)
|
Fixed income consists primarily of investment grade bonds from diversified industries.
|
The Company expects to make cash contributions of approximately
$2,145
to its pension plans in fiscal 2017.
Estimated future benefit payments under the Company’s pension plans are as follows:
|
|
|
|
|
|
Pension
Benefits
|
2017
|
$
|
2,703
|
|
2018
|
2,481
|
|
2019
|
2,751
|
|
2020
|
3,157
|
|
2021
|
3,526
|
|
Years 2022-2026
|
21,036
|
|
Defined Contribution Plan
The Company maintains defined contribution plans primarily in the U.S. and U.K. Eligible employees can contribute a portion of their pre-tax and/or after-tax income in accordance with plan guidelines and the Company will make contributions based on the employees’ eligible pay and/or will match a percentage of the employee contributions up to certain limits. Matching contributions charged to expense for the fiscal years ended
March 31, 2016
,
2015
and
2014
were
$6,730
,
$7,174
and
$6,311
, respectively.
15. Stockholders’ Equity and Noncontrolling Interests
Preferred Stock and Common Stock
The Company’s certificate of incorporation authorizes the issuance of up to
1,000,000
shares of preferred stock, par value
$0.01
per share (“Preferred Stock”). At
March 31, 2016
and
2015
, no shares of Preferred Stock were issued or outstanding. The Board of Directors of the Company has the authority to specify the terms of any Preferred Stock at the time of issuance.
The following demonstrates the change in the number of shares of common stock outstanding during fiscal years ended March 31,
2014
,
2015
and
2016
, respectively:
|
|
|
|
|
|
Shares outstanding as of March 31, 2013
|
47,840,204
|
|
Purchase of treasury stock
|
(1,191,145
|
)
|
Shares issued as part of equity-based compensation plans, net of equity awards surrendered for option price and taxes
|
293,067
|
|
Shares outstanding as of March 31, 2014
|
46,942,126
|
|
Purchase of treasury stock
|
(3,274,829
|
)
|
Shares issued as part of equity-based compensation plans, net of equity awards surrendered for option price and taxes
|
401,291
|
|
Shares outstanding as of March 31, 2015
|
44,068,588
|
|
Purchase of treasury stock
|
(3,216,654
|
)
|
Shares issued from treasury stock to settle conversion premium on Convertible Notes
|
1,889,431
|
|
Shares issued as part of equity-based compensation plans, net of equity awards surrendered for option price and taxes
|
448,137
|
|
Shares outstanding as of March 31, 2016
|
43,189,502
|
|
Treasury Stock
In
fiscal 2016
and
2015
, the Company purchased
3,216,654
shares of its common stock for
$178,244
and
3,274,829
shares for
$205,362
, respectively. Of the shares purchased in
fiscal 2016
,
2,961,444
were acquired through an accelerated share repurchase program ("ASR") for a total cash investment of
$166,392
at an average price of
$56.19
. At
March 31, 2016
and
2015
, the Company held
10,923,274
and
9,596,051
shares as treasury stock, respectively.
Treasury Stock Reissuance
On July 17, 2015, the Company settled the conversion premium on the Convertible Notes by issuing
1,889,431
shares from its treasury stock. The reissuance was recorded on a last-in, first-out method, and the difference between the repurchase cost and the fair value at reissuance was recorded as an adjustment to stockholders' equity.
Accumulated Other Comprehensive Income ("AOCI")
The components of AOCI, net of tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
Before Reclassifications
|
|
Amount Reclassified from AOCI
|
|
Ending
Balance
|
March 31, 2016
|
|
|
|
|
|
|
|
|
Pension funded status adjustment
|
|
$
|
(23,719
|
)
|
|
$
|
298
|
|
|
$
|
1,560
|
|
|
$
|
(21,861
|
)
|
Net unrealized gain (loss) on derivative instruments
|
|
(95
|
)
|
|
(4,027
|
)
|
|
4,510
|
|
|
388
|
|
Foreign currency translation adjustment
|
|
(85,161
|
)
|
|
9,285
|
|
|
—
|
|
|
(75,876
|
)
|
Accumulated other comprehensive loss
|
|
$
|
(108,975
|
)
|
|
$
|
5,556
|
|
|
$
|
6,070
|
|
|
$
|
(97,349
|
)
|
March 31, 2015
|
|
|
|
|
|
|
|
|
Pension funded status adjustment
|
|
$
|
(15,207
|
)
|
|
$
|
(9,259
|
)
|
|
$
|
747
|
|
|
$
|
(23,719
|
)
|
Net unrealized gain (loss) on derivative instruments
|
|
(2,253
|
)
|
|
289
|
|
|
1,869
|
|
|
(95
|
)
|
Foreign currency translation adjustment
|
|
85,305
|
|
|
(170,466
|
)
|
|
—
|
|
|
(85,161
|
)
|
Accumulated other comprehensive loss
|
|
$
|
67,845
|
|
|
$
|
(179,436
|
)
|
|
$
|
2,616
|
|
|
$
|
(108,975
|
)
|
March 31, 2014
|
|
|
|
|
|
|
|
|
Pension funded status adjustment
|
|
$
|
(13,169
|
)
|
|
$
|
(2,662
|
)
|
|
$
|
624
|
|
|
$
|
(15,207
|
)
|
Net unrealized (loss) on derivative instruments
|
|
(832
|
)
|
|
(1,414
|
)
|
|
(7
|
)
|
|
(2,253
|
)
|
Foreign currency translation adjustment
|
|
54,656
|
|
|
30,649
|
|
|
—
|
|
|
85,305
|
|
Accumulated other comprehensive income
|
|
$
|
40,655
|
|
|
$
|
26,573
|
|
|
$
|
617
|
|
|
$
|
67,845
|
|
The following table presents reclassifications from AOCI during the
twelve
months ended
March 31, 2016
:
|
|
|
|
|
|
|
|
Components of AOCI
|
|
Amounts Reclassified from AOCI
|
|
Location of (Gain) Loss Recognized on Income Statement
|
Derivatives in Cash Flow Hedging Relationships:
|
|
|
|
|
Net unrealized loss on derivative instruments
|
|
$
|
7,144
|
|
|
Cost of goods sold
|
Tax benefit
|
|
(2,634
|
)
|
|
|
Net unrealized loss on derivative instruments, net of tax
|
|
$
|
4,510
|
|
|
|
|
|
|
|
|
Defined benefit pension costs:
|
|
|
|
|
Prior service costs and deferrals
|
|
$
|
2,043
|
|
|
Net periodic benefit cost, included in cost of goods sold, operating expenses - See Note 14
|
Tax benefit
|
|
(483
|
)
|
|
|
Net periodic benefit cost, net of tax
|
|
$
|
1,560
|
|
|
|
The following table presents reclassifications from AOCI during the twelve months ended
March 31, 2015
:
|
|
|
|
|
|
|
|
Components of AOCI
|
|
Amounts Reclassified from AOCI
|
|
Location of (Gain) Loss Recognized on Income Statement
|
Derivatives in Cash Flow Hedging Relationships:
|
|
|
|
|
Net unrealized loss on derivative instruments
|
|
$
|
2,961
|
|
|
Cost of goods sold
|
Tax benefit
|
|
(1,092
|
)
|
|
|
Net unrealized loss on derivative instruments, net of tax
|
|
$
|
1,869
|
|
|
|
|
|
|
|
|
Defined benefit pension costs:
|
|
|
|
|
Prior service costs and deferrals
|
|
$
|
1,007
|
|
|
Net periodic benefit cost, included in cost of goods sold, operating expenses - See Note 14
|
Tax benefit
|
|
(260
|
)
|
|
|
Net periodic benefit cost, net of tax
|
|
$
|
747
|
|
|
|
The following demonstrates the change in redeemable noncontrolling interests during the fiscal years ended
March 31,
2014
,
2015
and
2016
, respectively:
|
|
|
|
|
|
|
Balance as of March 31, 2013
|
$
|
11,095
|
|
Net losses attributable to redeemable noncontrolling interests
|
(3,536
|
)
|
Redemption value adjustment
|
4,974
|
|
Purchase of subsidiary shares from redeemable noncontrolling interests
|
(3,146
|
)
|
Foreign currency translation adjustment
|
(1,340
|
)
|
Balance as of March 31, 2014
|
$
|
8,047
|
|
Net earnings attributable to redeemable noncontrolling interests
|
191
|
|
Redemption value adjustment
|
(292
|
)
|
Foreign currency translation adjustment
|
(990
|
)
|
Balance as of March 31, 2015
|
$
|
6,956
|
|
Net losses attributable to redeemable noncontrolling interests
|
(4,272
|
)
|
Redemption value adjustment
|
4,272
|
|
Other
|
109
|
|
Foreign currency translation adjustment
|
(1,068
|
)
|
Balance as of March 31, 2016
|
$
|
5,997
|
|
16. Stock-Based Compensation
As of
March 31, 2016
, the Company maintains the Second Amended and Restated EnerSys 2010 Equity Incentive Plan (“2010 EIP”). The 2010 EIP reserved
3,177,477
shares of common stock for the grant of various classes of nonqualified stock options, restricted stock units, market share units and other forms of equity-based compensation. Shares subject to any awards that expire without being exercised or that are forfeited or settled in cash shall again be available for future grants of awards under the 2010 EIP. Shares subject to awards that have been retained by the Company in payment or satisfaction of the exercise price and any applicable tax withholding obligation of an award shall not count against the limit described above.
As of
March 31, 2016
,
1,327,427
shares are available for future grants. The Company’s management equity incentive plans are intended to provide an incentive to employees and non-employee directors of the Company to remain in the service of the Company and to increase their interest in the success of the Company in order to promote the long-term interests of the Company. The plans seek to promote the highest level of performance by providing an economic interest in the long-term performance of the Company. The Company settles employee share-based compensation awards with newly issued shares.
Stock Options
During
fiscal 2016
, the Company granted to management and other key employees
127,966
non-qualified options that vest
three
years from the date of grant. Options granted prior to
fiscal 2016
as well as the options granted in
fiscal 2016
expire
10
years from the date of grant.
For fiscal
2016
,
2015
and
2014
, the Company recognized
$1,419
with a related tax benefit of
$477
,
$1,470
with a related tax benefit of
$502
and
$0
, respectively, of stock-based compensation expense associated with stock option grants.
For purposes of determining the fair value of stock options granted in
fiscal 2016
and
fiscal 2015
, the Company used a Black-Scholes Model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Risk-free interest rate
|
|
1.79
|
%
|
|
1.94
|
%
|
Dividend yield
|
|
1.02
|
%
|
|
1.00
|
%
|
Expected life (years)
|
|
6
|
|
|
6
|
|
Volatility
|
|
32.75
|
%
|
|
40.48
|
%
|
The following table summarizes the Company’s stock option activity in the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Weighted-
Average
Remaining
Contract
Term (Years)
|
|
Weighted-
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value
|
Options outstanding as of March 31, 2013
|
|
77,986
|
|
|
2.5
|
|
$
|
14.76
|
|
|
$
|
2,404
|
|
Exercised
|
|
(11,813
|
)
|
|
|
|
14.72
|
|
|
537
|
|
Options outstanding as of March 31, 2014
|
|
66,173
|
|
|
1.4
|
|
$
|
14.77
|
|
|
$
|
3,608
|
|
Granted
|
|
76,512
|
|
|
|
|
69.85
|
|
|
—
|
|
Exercised
|
|
(39,868
|
)
|
|
|
|
14.50
|
|
|
1,819
|
|
Options outstanding as of March 31, 2015
|
|
102,817
|
|
|
7
|
|
$
|
55.86
|
|
|
$
|
1,291
|
|
Granted
|
|
127,966
|
|
|
|
|
68.40
|
|
|
—
|
|
Exercised
|
|
(11,986
|
)
|
|
|
|
14.64
|
|
|
639
|
|
Expired
|
|
(8,500
|
)
|
|
|
|
|
|
|
|
|
Options outstanding as of March 31, 2016
|
|
210,297
|
|
|
8.5
|
|
$
|
67.54
|
|
|
$
|
218
|
|
Options exercisable as of March 31, 2016
|
|
31,322
|
|
|
6.8
|
|
$
|
60.28
|
|
|
$
|
218
|
|
Options vested and expected to vest as of March 31, 2016
|
|
207,673
|
|
|
8.5
|
|
$
|
67.53
|
|
|
$
|
218
|
|
The following table summarizes information regarding stock options outstanding as of
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
Range of Exercise Prices
|
|
Number of
Options
|
|
Weighted-
Average
Remaining
Contractual Life
|
|
Weighted-
Average
Exercise Price
|
$15.01-$20.00
|
|
5,819
|
|
|
1.1
|
|
$
|
18.33
|
|
$20.01-$69.85
|
|
204,478
|
|
|
8.7
|
|
$
|
68.94
|
|
|
|
210,297
|
|
|
8.5
|
|
$
|
67.54
|
|
Restricted Stock Units and Market Share Units
In
fiscal 2016
, the Company granted to non-employee directors
28,970
deferred restricted stock units at the fair value of
$55.32
per restricted stock unit at the date of grant. In
fiscal 2015
, such grants amounted to
14,781
restricted stock units at the fair value of
$61.16
per restricted stock unit at the date of grant and in
fiscal 2014
, amounted to
17,064
restricted stock units at the
fair value of
$53.92
per restricted stock unit at the date of grant. The awards vest immediately upon the date of grant and the payment of shares of common stock under this grant are payable upon such director’s termination of service as a director.
In
fiscal 2016
,
2015
and
2014
, the Company granted
565
,
3,434
and
5,232
restricted stock units, respectively, at various fair values, under deferred compensation plans.
In
fiscal 2016
, the Company granted to management and other key employees
120,287
restricted stock units at the fair value of
$68.40
per restricted stock unit and
212,635
performance market share units at a weighted average fair value of
$59.94
per unit at the date of grant.
In
fiscal 2015
, the Company granted to management and other key employees
118,312
restricted stock units at the fair value of
$69.83
per restricted stock unit and
152,300
performance market share units at a weighted average fair value of
$70.42
per market share unit at the date of grant.
In
fiscal 2014
, the Company granted to management and other key employees
161,629
restricted stock units at the fair value of
$50.70
per restricted stock unit and
189,438
market share units at a weighted average fair value of
$65.03
per market share unit at the date of grant.
For purposes of determining the fair value of performance market share units granted in
fiscal 2016
and
fiscal 2015
, the Company used a Monte Carlo Simulation with the following assumptions:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Risk-free interest rate
|
|
1.00
|
%
|
|
0.87
|
%
|
Dividend yield
|
|
—
|
%
|
|
—
|
%
|
Expected life (years)
|
|
3
|
|
|
3
|
|
Volatility
|
|
25.52
|
%
|
|
30.83
|
%
|
For purposes of determining the fair value of market share units granted in
fiscal 2014
, the Company used a binomial lattice model with the following assumptions:
|
|
|
|
|
2014
|
Risk-free interest rate
|
0.52
|
%
|
Dividend yield
|
1.00
|
%
|
Expected life (years)
|
3
|
|
Volatility
|
33.89
|
%
|
A summary of the changes in restricted stock units and market share units awarded to employees and directors that were outstanding under the Company’s equity compensation plans during
fiscal 2016
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units (RSU)
|
|
Performance Market Share Units and Market Share Units (MSU)
|
|
|
Number of
RSU
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
Number of
MSU
|
|
Weighted-
Average
Grant Date
Fair Value
|
Non-vested awards as of March 31, 2015
|
|
502,223
|
|
|
$
|
45.30
|
|
|
616,188
|
|
|
$
|
55.75
|
|
Granted
|
|
149,822
|
|
|
66.66
|
|
|
212,635
|
|
|
59.94
|
|
Stock dividend
|
|
5,984
|
|
|
51.72
|
|
|
6,603
|
|
|
64.45
|
|
Performance factor
|
|
—
|
|
|
—
|
|
|
255,534
|
|
|
41.28
|
|
Vested
|
|
(137,636
|
)
|
|
46.15
|
|
|
(536,490
|
)
|
|
41.55
|
|
Canceled
|
|
(17,953
|
)
|
|
63.28
|
|
|
(5,524
|
)
|
|
63.33
|
|
Non-vested awards as of March 31, 2016
|
|
502,440
|
|
|
$
|
51.26
|
|
|
548,946
|
|
|
$
|
64.46
|
|
The Company recognized stock-based compensation expense relating to restricted stock units and market share units of approximately
$18,184
, with a related tax benefit of
$4,446
for
fiscal 2016
,
$23,789
, with a related tax benefit of
$4,790
for
fiscal 2015
and
$16,742
, with a related tax benefit of
$2,843
for
fiscal 2014
.
All Award Plans
As of
March 31, 2016
, unrecognized compensation expense associated with the non-vested incentive awards outstanding was
$24,219
and is expected to be recognized over a weighted-average period of
15
months.
17. Earnings Per Share
The following table sets forth the reconciliation from basic to diluted weighted-average number of common shares outstanding and the calculations of net earnings per common share attributable to EnerSys stockholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended March 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Net earnings attributable to EnerSys stockholders
|
|
$
|
136,150
|
|
|
$
|
181,188
|
|
|
$
|
150,328
|
|
Weighted-average number of common shares outstanding:
|
|
|
|
|
|
|
Basic
|
|
44,276,713
|
|
|
45,606,317
|
|
|
47,473,690
|
|
Dilutive effect of:
|
|
|
|
|
|
|
Common shares from exercise and lapse of equity awards, net of shares assumed reacquired
|
|
644,036
|
|
|
879,406
|
|
|
1,034,505
|
|
Convertible Notes
|
|
553,381
|
|
|
1,567,006
|
|
|
1,279,960
|
|
Diluted weighted-average number of common shares outstanding
|
|
45,474,130
|
|
|
48,052,729
|
|
|
49,788,155
|
|
Basic earnings per common share attributable to EnerSys stockholders
|
|
$
|
3.08
|
|
|
$
|
3.97
|
|
|
$
|
3.17
|
|
Diluted earnings per common share attributable to EnerSys stockholders
|
|
$
|
2.99
|
|
|
$
|
3.77
|
|
|
$
|
3.02
|
|
Anti-dilutive equity awards not included in diluted weighted-average common shares
|
|
—
|
|
|
—
|
|
|
—
|
|
On July 17, 2015, the Company paid
$172,388
, in aggregate, towards the principal balance of the Convertible Notes, including accreted interest, cash equivalent of fractional shares issued towards conversion premium and settled the conversion premium by issuing, in the aggregate,
1,889,431
shares of its common stock, which were included in the diluted weighted average shares outstanding for the period prior to the extinguishment.
During the second quarter of
fiscal 2016
, the Company entered into an ASR with a major financial institution to repurchase
$120,000
to
$180,000
of its common stock. The Company prepaid
$180,000
and received an initial delivery of
2,000,000
shares with a fair market value of approximately
$108,100
. The ASR was accounted for as a treasury stock repurchase, reducing the weighted average number of basic and diluted shares outstanding by the
2,000,000
shares initially repurchased, and as a forward contract indexed to the Company's own common shares to reflect the future settlement provisions.
On January 19, 2016, the ASR was settled and the Company received an additional
961,444
shares. See Note 15 for more information.
18. 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 many 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, anti-competition, 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, such 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 have 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 is responding to inquiries related to these matters. 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 and as of
March 31, 2016
, the Company had a reserve balance of $2,038 in connection with these remaining investigations and other related legal charges. For the Dutch and German regulatory proceedings, the Company does not believe that such an estimate can be made at this time given the early stages of these proceedings. 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, remains uncertain. Accordingly, the Company’s estimate may change from time to time, and actual losses could vary.
Altergy
In the fourth quarter of fiscal 2014, the Company recorded a
$58,184
legal proceedings charge in connection with an adverse arbitration result involving disputes between the Company's wholly-owned subsidiary, EnerSys Delaware Inc. (“EDI”), and Altergy Systems (“Altergy”). In accordance with the final term sheet, EDI paid Altergy
$40,000
in settlement of this award. Altergy paid
$2,000
to purchase EDI’s entire equity interest in Altergy. Since the full amount of the initial award of
$58,184
was recorded in fiscal 2014, the Company reversed approximately
$16,233
, net of professional fees, from this previously recorded legal proceedings charge in fiscal 2015 and $799 in fiscal 2016. The Company also included the
$2,000
received in exchange for its equity interest in Altergy in the Consolidated Statements of Income in Other (income) expense, net in fiscal 2015. The Company had previously written off the carrying value of the investment of
$5,000
in fiscal 2014.
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 is separate from the Company’s current metal fabrication facility in Sumter. The Company has established a reserve for this facility. As of
March 31, 2016
and
2015
, the reserves related to this facility were
$1,123
and
$2,902
, respectively. Based on current information, the Company’s management believes these reserves are adequate to satisfy the Company’s environmental liabilities at this facility.
Collective Bargaining
At March 31, 2015, the Company had approximately
9,400
employees. Of these employees, approximately
29%
were covered by collective bargaining agreements. Employees covered by collective bargaining agreements that did not exceed twelve months were approximately
7%
of the total workforce. The average term of these agreements is
two
years, with the longest term being
three
years. The Company considers its employee relations to be good and did not experience any significant labor unrest or disruption of production during fiscal 2016.
Lead Contracts
To stabilize its costs, the Company has entered into contracts with financial institutions to fix the price of lead. The vast majority of such contracts are for a period not extending beyond one year. Under these contracts, at
March 31, 2016
and
2015
, the Company has hedged the price to purchase approximately
27.4 million
pounds and
91.6 million
pounds of lead, respectively, for a total purchase price of
$21,628
and
$76,143
, respectively.
Foreign Currency Forward Contracts
The Company quantifies and monitors its global foreign currency exposures. On a selective basis, the Company will enter into foreign currency forward and option contracts to reduce the volatility from currency movements that affect the Company. The vast majority of such contracts are for a period not extending beyond one year. The Company’s largest exposure is from the purchase and conversion of U.S. dollar based lead costs into local currencies in EMEA. Additionally, the Company has currency exposures from intercompany financing and intercompany and third-party trade transactions. To hedge these exposures, the Company has entered into a total of
$29,362
and
$102,124
, respectively, of foreign currency forward contracts with financial institutions as of
March 31, 2016
and
2015
, respectively.
Other
The Company has various purchase and capital commitments incident to the ordinary conduct of business. In the aggregate, such commitments are not at prices in excess of current market.
19. Restructuring and Other Exit Charges
Restructuring Plans
During fiscal 2012, the Company announced restructuring plans related to its operations in EMEA, primarily consisting of the transfer of manufacturing of select products between certain of its manufacturing operations and restructuring of its selling, general and administrative operations, which resulted in the reduction of approximately
85
employees upon completion at the end of the second quarter of fiscal 2014. The total charges for these actions amounted to
$3,545
, primarily from cash expenses for employee severance-related payments. The Company recorded restructuring charges of
$3,070
in fiscal 2012 and
$475
of charges in fiscal 2013 with
no
additional charges in fiscal 2014. The Company incurred
$2,433
of costs against the accrual during fiscal 2012, and
$913
of costs incurred in fiscal 2013 with
$185
of additional incurred against the accrual during fiscal 2014. This plan was completed as of September 29, 2013.
During fiscal 2013, the Company announced a restructuring related to improving the efficiency of its manufacturing operations in EMEA. This program was completed during the third quarter of
fiscal 2016
. Total charges for this program were
$6,895
, primarily for cash expenses of
$5,496
for employee severance-related payments of approximately
140
employees and non-cash expenses of
$1,399
associated with the write-off of certain fixed assets and inventory. The Company incurred
$5,207
of costs against the accrual through
fiscal 2015
, and incurred
$271
in costs against the accrual during
fiscal 2016
.
During fiscal 2014, the Company announced further restructuring programs to improve the efficiency of its manufacturing, sales and engineering operations in EMEA including the restructuring of its manufacturing operations in Bulgaria. The restructuring of the Bulgaria operations was announced during the third quarter of fiscal 2014 and consisted of the transfer of motive power and a portion of reserve power battery manufacturing to the Company's facilities in Western Europe. This program was completed during the fourth quarter of
fiscal 2016
. Total charges for this program were
$22,930
primarily for cash expenses of
$11,996
for employee severance-related payments of approximately
500
employees and other charges and non-cash expenses of
$10,934
associated with the write-off of certain fixed assets and inventory. The Company recorded restructuring charges of
$22,115
through
fiscal 2015
, consisting of non-cash charges of
$10,934
and cash charges of
$11,181
and recorded an additional
$1,229
in cash charges and a favorable accrual adjustment of
$414
during
fiscal 2016
. The Company incurred
$9,737
of costs against the accrual through
fiscal 2015
, and incurred
$2,068
in costs against the accrual during
fiscal 2016
.
During the third quarter of
fiscal 2015
, the Company announced a restructuring related to its manufacturing facility located in Jiangdu, the People’s Republic of China ("PRC"), pursuant to which the Company completed the transfer of the manufacturing at that location to its other facilities in PRC, as part of the closure of the Jiangdu facility in the first quarter of
fiscal 2016
. This program was completed during the fourth quarter of
fiscal 2016
. Total charges for this program were
$5,291
primarily for cash expenses of
$4,893
for employee severance-related payments of approximately
300
employees and other charges and non-cash expenses of
$398
. The Company recorded cash restructuring charges of
$3,870
during
fiscal 2015
and recorded an additional
$1,023
in cash charges and
$398
in non-cash charges during
fiscal 2016
. The Company incurred
$1,874
of costs against the accrual through
fiscal 2015
, and incurred
$2,970
in costs against the accrual during
fiscal 2016
.
During
fiscal 2015
, the Company announced a restructuring primarily related to a portion of its sales and engineering organizations in Europe to improve efficiencies. This program was completed during the fourth quarter of
fiscal 2016
. Total charges for this program were
$804
for cash expenses for employee severance-related payments of approximately
15
employees. The Company recorded cash restructuring charges of
$450
during
fiscal 2015
and recorded an additional
$354
during
fiscal 2016
. The Company incurred
$193
of costs against the accrual through
fiscal 2015
, and incurred
$698
in costs against the accrual during
fiscal 2016
.
During the first quarter of
fiscal 2016
, the Company completed a restructuring related to a reduction of two executives associated with one of Americas’ recent acquisitions to improve efficiencies. The Company recorded total severance-related charges of
$570
, all of which was paid during the first quarter of
fiscal 2016
, primarily per the terms of a pre-existing employee agreement.
During the second quarter of
fiscal 2016
, the Company announced a restructuring to improve efficiencies primarily related to its motive power assembly and distribution center in Italy and its sales and administration organizations in EMEA. In addition, during the third quarter of
fiscal 2016
, the Company announced a further restructuring related to its manufacturing operations in Europe. The Company estimates that the total charges for these actions will amount to approximately
$6,800
, 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
120
employees upon completion. During 2016, the Company recorded restructuring charges of
$5,232
and incurred
$2,993
in costs against the accrual. As of March 31, 2016, the reserve balance associated with these actions is
$2,238
. The Company expects to be committed to an additional
$1,600
of restructuring charges related to these actions during
fiscal 2016
, and expects to complete the program during fiscal 2017.
During the second quarter of
fiscal 2016
, the Company announced a restructuring related to improving the efficiency of its manufacturing operations in the Americas. The program consists of the announced closing of its Cleveland, Ohio charger manufacturing facility which is expected to be completed during the second quarter of fiscal 2017, with the transfer of production to other Americas manufacturing facilities. The Company estimates that the total charges for all actions associated with this program will amount to approximately
$2,100
, primarily from cash charges for employee severance-related payments and other charges of
$1,500
, along with a pension curtailment charge of
$313
and non-cash charges related to the accelerated depreciation of fixed assets of
$300
. The Company estimates that these actions will result in the reduction of approximately
100
employees at its Cleveland facility. During
fiscal 2016
, the Company recorded restructuring charges of
$1,488
including a pension curtailment charge of
$313
and non-cash charges of
$305
related to accelerated depreciation of fixed assets and incurred
$119
of cost against the accrual. As of March 31, 2016, the reserve balance associated with these actions is
$751
. The Company expects to be committed to an additional
$600
of restructuring charges related to these actions during fiscal 2017 when it expects to complete this program.
A roll-forward of the restructuring reserve is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
Severance
|
|
Other
|
|
Total
|
Balance at March 31, 2013
|
|
$
|
1,738
|
|
|
$
|
221
|
|
|
$
|
1,959
|
|
Accrued
|
|
10,285
|
|
|
1,378
|
|
|
11,663
|
|
Costs incurred
|
|
(4,966
|
)
|
|
(525
|
)
|
|
(5,491
|
)
|
Foreign currency impact and other
|
|
255
|
|
|
28
|
|
|
283
|
|
Balance at March 31, 2014
|
|
$
|
7,312
|
|
|
$
|
1,102
|
|
|
$
|
8,414
|
|
Accrued
|
|
6,140
|
|
|
843
|
|
|
6,983
|
|
Costs incurred
|
|
(10,378
|
)
|
|
(803
|
)
|
|
(11,181
|
)
|
Foreign currency impact and other
|
|
(108
|
)
|
|
(288
|
)
|
|
(396
|
)
|
Balance at March 31, 2015
|
|
$
|
2,966
|
|
|
$
|
854
|
|
|
$
|
3,820
|
|
Accrued
|
|
8,859
|
|
|
419
|
|
|
9,278
|
|
Accrual adjustments
|
|
—
|
|
|
(414
|
)
|
|
(414
|
)
|
Costs incurred
|
|
(8,817
|
)
|
|
(872
|
)
|
|
(9,689
|
)
|
Foreign currency impact and other
|
|
(44
|
)
|
|
38
|
|
|
(6
|
)
|
Balance at March 31, 2016
|
|
$
|
2,964
|
|
|
$
|
25
|
|
|
$
|
2,989
|
|
Other Exit Charges
During
fiscal 2016
, the Company recorded exit charges of
$3,098
related to certain operations in Europe.
20. 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. Because warranty estimates are forecasts that are based on the best available information, primarily historical claims experience, claims costs may differ from amounts provided. An analysis of changes in the liability for product warranties is as follows:
|
|
|
|
|
|
|
Balance at March 31, 2013
|
$
|
42,591
|
|
Current year provisions
|
16,098
|
|
Costs incurred
|
(22,862
|
)
|
Fair value of warranty reserves of acquired businesses
|
2,817
|
|
Foreign currency translation adjustment
|
1,782
|
|
|
|
Balance at March 31, 2014
|
40,426
|
|
Current year provisions
|
18,413
|
|
Costs incurred
|
(16,015
|
)
|
Foreign currency translation adjustment
|
(3,014
|
)
|
|
|
Balance at March 31, 2015
|
39,810
|
|
Current year provisions
|
19,735
|
|
Costs incurred
|
(13,998
|
)
|
Foreign currency translation adjustment
|
2,875
|
|
|
|
Balance at March 31, 2016
|
$
|
48,422
|
|
21. Other (Income) Expense, Net
Other (income) expense, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended March 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Foreign exchange transaction (gains) losses
|
|
$
|
5,425
|
|
|
$
|
(5,011
|
)
|
|
$
|
5,845
|
|
(Gain) on disposition of equity interest in Altergy / write-off of investment in Altergy
|
|
—
|
|
|
(2,000
|
)
|
|
5,000
|
|
Other
|
|
294
|
|
|
1,409
|
|
|
2,813
|
|
Total
|
|
$
|
5,719
|
|
|
$
|
(5,602
|
)
|
|
$
|
13,658
|
|
22. Business Segments
Summarized financial information related to the Company’s reportable segments at
March 31, 2016
,
2015
and
2014
and for each of the fiscal years then ended is shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended March 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Net sales by segment to unaffiliated customers
|
|
|
|
|
|
|
Americas
|
|
$
|
1,276,027
|
|
|
$
|
1,322,337
|
|
|
$
|
1,267,598
|
|
EMEA
|
|
787,402
|
|
|
948,845
|
|
|
966,152
|
|
Asia
|
|
252,820
|
|
|
234,330
|
|
|
240,683
|
|
Total net sales
|
|
$
|
2,316,249
|
|
|
$
|
2,505,512
|
|
|
$
|
2,474,433
|
|
Net sales by product line
|
|
|
|
|
|
|
Reserve power
|
|
$
|
1,109,154
|
|
|
$
|
1,252,637
|
|
|
$
|
1,234,538
|
|
Motive power
|
|
1,207,095
|
|
|
1,252,875
|
|
|
1,239,895
|
|
Total net sales
|
|
$
|
2,316,249
|
|
|
$
|
2,505,512
|
|
|
$
|
2,474,433
|
|
Intersegment sales
|
|
|
|
|
|
|
Americas
|
|
$
|
32,984
|
|
|
$
|
29,987
|
|
|
$
|
33,951
|
|
EMEA
|
|
78,812
|
|
|
69,396
|
|
|
77,549
|
|
Asia
|
|
23,590
|
|
|
33,786
|
|
|
29,428
|
|
Total intersegment sales
(1)
|
|
$
|
135,386
|
|
|
$
|
133,169
|
|
|
$
|
140,928
|
|
Operating earnings
|
|
|
|
|
|
|
Americas
|
|
$
|
182,774
|
|
|
$
|
162,741
|
|
|
$
|
179,080
|
|
EMEA
|
|
75,666
|
|
|
109,861
|
|
|
84,902
|
|
Asia
|
|
570
|
|
|
9,928
|
|
|
21,217
|
|
Restructuring charges—Americas
|
|
(2,058
|
)
|
|
—
|
|
|
—
|
|
Restructuring and other exit charges—EMEA
|
|
(9,501
|
)
|
|
(7,567
|
)
|
|
(27,078
|
)
|
Restructuring charges—Asia
|
|
(1,419
|
)
|
|
(3,869
|
)
|
|
(248
|
)
|
Impairment of goodwill and indefinite-lived intangibles—Americas
|
|
(32,999
|
)
|
|
(23,196
|
)
|
|
—
|
|
Impairment of goodwill and fixed assets—EMEA
|
|
(3,253
|
)
|
|
(750
|
)
|
|
—
|
|
Goodwill impairment charge—Asia
|
|
—
|
|
|
—
|
|
|
(5,179
|
)
|
Legal proceedings (charge) / reversal of legal accrual, net of fees—Americas
|
|
799
|
|
|
16,233
|
|
|
(58,184
|
)
|
Legal proceedings charge—EMEA
|
|
(4,000
|
)
|
|
—
|
|
|
—
|
|
Gain on sale of facility—Asia
|
|
3,420
|
|
|
—
|
|
|
—
|
|
Total operating earnings
(2)
|
|
$
|
209,999
|
|
|
$
|
263,381
|
|
|
$
|
194,510
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
Americas
|
|
$
|
177,720
|
|
|
$
|
168,274
|
|
|
$
|
155,988
|
|
EMEA
|
|
112,839
|
|
|
114,681
|
|
|
145,308
|
|
Asia
|
|
66,850
|
|
|
73,899
|
|
|
68,870
|
|
Total
|
|
$
|
357,409
|
|
|
$
|
356,854
|
|
|
$
|
370,166
|
|
Capital Expenditures
|
|
|
|
|
|
|
Americas
|
|
$
|
39,127
|
|
|
$
|
34,768
|
|
|
$
|
24,641
|
|
EMEA
|
|
12,625
|
|
|
16,215
|
|
|
14,871
|
|
Asia
|
|
4,128
|
|
|
12,642
|
|
|
22,483
|
|
Total
|
|
$
|
55,880
|
|
|
$
|
63,625
|
|
|
$
|
61,995
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
Americas
|
|
$
|
31,070
|
|
|
$
|
30,724
|
|
|
$
|
26,596
|
|
EMEA
|
|
16,337
|
|
|
19,664
|
|
|
22,708
|
|
Asia
|
|
8,587
|
|
|
6,652
|
|
|
4,668
|
|
Total
|
|
$
|
55,994
|
|
|
$
|
57,040
|
|
|
$
|
53,972
|
|
|
|
(1)
|
Intersegment sales are presented on a cost-plus basis which takes into consideration the effect of transfer prices between legal entities.
|
|
|
(2)
|
The Company does not allocate interest expense or other (income) expense, net to the reportable segments.
|
The Company markets its products and services in over
100
countries. Sales are attributed to countries based on the location of sales order approval and acceptance. Sales to customers in the United States were
51.0%
,
46.0%
and
44.0%
for fiscal years ended
March 31, 2016
,
2015
and
2014
, respectively. Property, plant and equipment, net, attributable to the United States as of
March 31, 2016
and
2015
, were
$149,348
and
$140,514
, respectively. No single country, outside the United States, accounted for more than 10% of the consolidated net sales or net property, plant and equipment and, therefore, was deemed not material for separate disclosure.
23. Quarterly Financial Data (Unaudited)
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 2016 ended on June 28, 2015, September 27, 2015, December 27, 2015, and March 31, 2016, respectively. The four quarters in fiscal 2015 ended on June 29, 2014, September 28, 2014, December 28, 2014, and March 31, 2015, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter
|
|
4th Quarter
|
|
Fiscal Year
|
Fiscal year ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
562,068
|
|
|
$
|
569,134
|
|
|
$
|
573,573
|
|
|
$
|
611,474
|
|
|
$
|
2,316,249
|
|
Gross profit
|
|
150,415
|
|
|
154,939
|
|
|
145,882
|
|
|
160,541
|
|
|
611,777
|
|
Operating earnings
(1)(3)(5)(6)
|
|
69,037
|
|
|
59,548
|
|
|
55,461
|
|
|
25,953
|
|
|
209,999
|
|
Net earnings
|
|
47,934
|
|
|
39,768
|
|
|
38,214
|
|
|
5,908
|
|
|
131,824
|
|
Net earnings attributable to EnerSys stockholders
|
|
48,387
|
|
|
40,025
|
|
|
38,478
|
|
|
9,260
|
|
|
136,150
|
|
Net earnings per common share attributable to EnerSys stockholders—basic
|
|
$
|
1.09
|
|
|
$
|
0.89
|
|
|
$
|
0.87
|
|
|
$
|
0.21
|
|
|
$
|
3.08
|
|
Net earnings per common share attributable to EnerSys stockholders—diluted
|
|
$
|
1.03
|
|
|
$
|
0.87
|
|
|
$
|
0.86
|
|
|
$
|
0.21
|
|
|
$
|
2.99
|
|
Fiscal year ended March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
634,110
|
|
|
$
|
629,927
|
|
|
$
|
611,578
|
|
|
$
|
629,897
|
|
|
$
|
2,505,512
|
|
Gross profit
|
|
162,577
|
|
|
162,540
|
|
|
157,265
|
|
|
158,529
|
|
|
640,911
|
|
Operating earnings
(2)(4)(6)
|
|
71,689
|
|
|
80,053
|
|
|
68,683
|
|
|
42,956
|
|
|
263,381
|
|
Net earnings
|
|
49,115
|
|
|
56,550
|
|
|
49,331
|
|
|
26,529
|
|
|
181,525
|
|
Net earnings attributable to EnerSys stockholders
|
|
49,169
|
|
|
56,316
|
|
|
49,252
|
|
|
26,451
|
|
|
181,188
|
|
Net earnings per common share attributable to EnerSys stockholders—basic
|
|
$
|
1.05
|
|
|
$
|
1.22
|
|
|
$
|
1.09
|
|
|
$
|
0.60
|
|
|
$
|
3.97
|
|
Net earnings per common share attributable to EnerSys stockholders—diluted
|
|
$
|
0.99
|
|
|
$
|
1.16
|
|
|
$
|
1.04
|
|
|
$
|
0.57
|
|
|
$
|
3.77
|
|
|
|
(1)
|
Included in Operating earnings were restructuring and other exit charges of
$1,218
,
$2,629
,
$3,204
and
$5,927
for the first, second, third and fourth quarters of
fiscal 2016
, respectively.
|
|
|
(2)
|
Included in Operating earnings were restructuring and other exit charges of
$1,829
,
$1,810
,
$2,437
and
$5,360
for the first, second, third and fourth quarters of
fiscal 2015
, respectively.
|
|
|
(3)
|
Included in Operating earnings for the fourth quarter of
fiscal 2016
was a charge relating to the impairment of goodwill, indefinite-lived intangibles and fixed assets for
$36,252
.
|
|
|
(4)
|
Included in Operating earnings for the fourth quarter of
fiscal 2015
was a charge relating to the impairment of goodwill and other indefinite-lived intangibles for
$23,946
.
|
|
|
(5)
|
Included in Operating earnings for the first quarter of
fiscal 2016
was a gain on sale of facility of
$4,348
and in the fourth quarter of
fiscal 2016
, charges relating to the same of
$928
.
|
|
|
(6)
|
Included in Operating earnings for the second quarter of
fiscal 2016
was a legal proceedings charge of
$3,201
. During the second quarter of
fiscal 2015
, the Company reversed
$16,233
, net of professional fees upon final settlement of a legal matter.
|
24. Subsequent Events
On May 5, 2016, the Company announced the payment of a quarterly cash dividend of
$0.175
per share of common stock to be paid on
June 24, 2016
, to stockholders of record as of
June 10, 2016
.
On May 16, 2016, under the 2010 EIP, the Company granted
242,068
stock options, which vest over
three
years,
229,638
restricted stock units, which vest
25%
each year over
four
-years from the date of grant, and
83,720
market condition-based share units, which vest
three
years from the date of grant.
On April 16, 2016, the Company announced that it had completed the acquisition of certain assets of Enser Corporation, headquartered in Pinellas Park, Florida. Enser is a leading manufacturer of molten salt “thermal” batteries used in powering a multitude of electronics, guidance and other electrical loads on advanced weapon systems.