EnerSys Form 10-K Summary
Business context and reporting period
EnerSys is a global manufacturer, marketer and distributor of industrial batteries, chargers, power equipment, accessories and related services. Its reportable segments are Americas, EMEA and Asia, and its principal product lines are reserve power and motive power. The filing covers the fiscal year ended March 31, 2013; the fourth quarter ended March 31, 2013. The filing date was May 28, 2013.
- More than 10,000 customers in over 100 countries.
- Approximately 60% of net sales generated outside the United States.
- No customer represented more than 5% of revenue.
Key financial metrics
| Metric | Fiscal 2013 | Fiscal 2012 | Change |
|---|---|---|---|
| Net sales | $2.278 billion | $2.283 billion | (0.3%) |
| Gross profit | $569.4 million | $512.7 million | 11.0% |
| Gross margin | 25.0% | 22.4% | +260 basis points |
| Operating earnings | $249.9 million | $210.8 million | 18.5% |
| Operating margin | 11.0% | 9.3% | +170 basis points |
| Net earnings attributable to EnerSys stockholders | $166.5 million | $144.0 million | 15.6% |
| Diluted EPS | $3.42 | $2.93 | 16.7% |
| Operating cash flow | $244.4 million | $204.2 million | 19.7% |
| Capital expenditures | $55.3 million | $48.9 million | 12.9% |
Fiscal 2013 sales were broadly stable because approximately 2% from acquisitions and 1% from organic volume were offset by approximately 3% from foreign-currency translation. Lower commodity costs, product mix improvements and cost reductions drove the margin expansion.
- Americas revenue increased 4.1% to $1.127 billion; operating earnings increased 23.7% to $171.7 million.
- EMEA revenue decreased 7.0% to $926.2 million, principally due to currency translation and weaker organic volume and pricing; operating earnings were broadly flat at $64.2 million.
- Asia revenue increased 9.4% to $224.5 million; operating earnings increased 74.3% to $21.2 million.
- Reserve power revenue increased 2.4% to $1.119 billion, while motive power revenue decreased 2.7% to $1.159 billion.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $249.3 million at March 31, 2013, compared with $160.5 million at March 31, 2012.
- Total debt, including capital leases and excluding the Convertible Notes discount, was $178.5 million, down from $256.1 million.
- The $350 million revolving credit facility had no outstanding balance at year-end and matures in March 2016.
- Total available committed and uncommitted credit lines were approximately $469 million, including approximately $348.8 million under the revolving facility.
- The $172.5 million principal amount of 3.375% Convertible Notes remains outstanding; the notes have a $40.60 conversion price and may require cash repurchase beginning June 1, 2015 under specified circumstances.
- Adjusted EBITDA under the credit agreement was $314.2 million, with total net debt of $81.6 million and leverage of 0.3 times adjusted EBITDA, versus 0.8 times in fiscal 2012.
- EnerSys repurchased $22.6 million of common stock in fiscal 2013. The company announced its first quarterly dividend of $0.125 per share after year-end.
Material changes versus the prior comparable period
- Revenue declined slightly, but gross profit increased substantially as lower lead and other commodity costs more than offset modest pricing declines and adverse currency translation.
- Operating expenses increased 4.9% to $312.3 million, partly due to higher payroll-related and stock-based compensation costs.
- Restructuring charges increased to $7.2 million from $5.0 million. Fiscal 2013 actions primarily affected EMEA and included the planned closure of the Chaoan, China manufacturing facility.
- The effective tax rate increased to 28.4% from 24.7%, primarily due to changes in the geographic mix of earnings and higher nondeductible expenses.
- No acquisitions were completed in fiscal 2013, compared with four acquisitions totaling $23.6 million in fiscal 2012.
- Stockholders’ equity increased to $1.169 billion from $1.032 billion, despite $22.6 million of share repurchases and a $27.2 million unfavorable currency translation adjustment.
Guidance, outlook, risks and unusual items
Management did not provide a specific fiscal 2014 revenue or earnings guidance figure in the supplied filing. Management stated that revenue and order rates were stable overall, with continued economic expansion in the Americas and Asia but ongoing weakness in Europe. The company expects cost-saving programs, new products and potential acquisitions to support future growth.
- Management expects approximately $3.0 million of additional fiscal 2014 restructuring charges for EMEA programs and approximately $0.7 million related to the Chaoan closure. Certain programs are expected to continue through fiscal 2015.
- EnerSys announced plans to build a battery manufacturing facility in Gaoyou City, China, scheduled for completion by 2015. Facility construction commitments totaled approximately $10.0 million at year-end.
- Lead and other raw materials represented a major cost exposure; management estimated that a 10% increase in lead costs would increase annual cost of goods sold by approximately $54 million. Approximately 35% of revenue was subject to lead-indexed pricing agreements.
- Foreign currency exposure is significant, particularly in EMEA; approximately 60% of sales and expenses are transacted in foreign currencies.
- Environmental, health and safety obligations involving lead and acid, product warranties, litigation, tax matters and pension deficits remain material contingencies. The reserve for the former Sumter, South Carolina facility was $2.9 million.
- The company reported a $42.6 million product warranty liability and a $36.0 million recorded pension obligation at year-end.
- The company was in compliance with its credit covenants and reported effective disclosure controls and internal control over financial reporting. Ernst & Young issued unqualified audit opinions.
Investor verification checklist
- Verify that margin gains are sustainable if lead and other commodity costs rise or pricing pressure intensifies.
- Review the timing and cash impact of the 2015 Convertible Notes repurchase or conversion provisions.
- Assess EMEA demand, currency exposure and the expected benefits and remaining costs of restructuring programs.
- Monitor execution, capital requirements and demand assumptions for the Gaoyou, China facility and other capacity expansions.
- Review environmental reserves, warranty trends, pension funding requirements and unresolved legal or tax matters.
- Reconcile management’s non-GAAP EBITDA and leverage measures to GAAP results and the credit agreement definitions.