S-1 1 d149744ds1.htm S-1 S-1
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As filed with the Securities and Exchange Commission on July 2, 2021.

Registration No. 333-          

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Clarios International Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   3714   86-3573574
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

5757 N Green Bay Avenue

Florist Tower Milwaukee, Wisconsin, 53209 (414) 214-6500

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

 

Claudio Morfe
Vice President, General Counsel and Corporate Secretary
Clarios International Inc.
5757 N Green Bay Avenue

Florist Tower
Milwaukee, Wisconsin, 53209
(414) 214-6500

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

 

 

Copies to:

 

Michael Kaplan

Derek Dostal
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
(212) 450-4000

 

David Lopez

Helena Grannis

Cleary Gottlieb Steen & Hamilton LLP

One Liberty Plaza

New York, New York 10006
(212) 225-2000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title Of Each Class Of
Securities To Be Registered
  Proposed Maximum
Aggregate
Offering Price(1)(2)
  Amount Of
Registration Fee(3)

Common Stock, par value $0.01 per share

  $100,000,000   $10,910

Series A Mandatory Convertible Preferred Stock, par value $0.01 per share(4)(5)

  $100,000,000   $10,910

Common Stock, par value $0.01 per share(6)

  $               $            

Total

  $               $            

 

 

(1)

Includes                 shares of common stock and                  shares of Mandatory Convertible Preferred Stock which the underwriters have the right to purchase to cover over-allotments.

(2)

Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.

(3)

To be paid in connection with the initial filing of the registration statement.

(4)

This registration statement also registers an estimated                  shares of our common stock that are issuable upon conversion of the Series A Mandatory Convertible Preferred Stock registered hereby at the initial maximum conversion rate of                  shares of common stock per share of Mandatory Convertible Preferred Stock, based on the assumed initial public offering price of $                 per share of common stock, which is the midpoint of the estimated offering price range shown on the cover of the common stock prospectus which forms a part of this registration statement. Under Rule 457(i), there is no additional filing fee payable with respect to the shares of common stock issuable upon conversion of the Mandatory Convertible Preferred Stock because no additional consideration will be received in connection with the exercise of the conversion privilege. The number of shares of our common stock issuable upon such conversion will vary based on the public offering price of the common stock registered hereby.

(5)

The number of shares of our common stock issuable upon conversion of the Series A Mandatory Convertible Preferred Stock is subject to anti-dilution adjustments upon the occurrence of certain events described herein. Pursuant to Rule 416 under the Securities Act, the number of shares of our common stock to be registered includes an indeterminable number of shares of common stock that may become issuable upon conversion of the Series A Mandatory Convertible Preferred Stock as a result of such anti-dilution adjustments.

(6)

This registration statement also registers shares of common stock that may be issued as dividends on the Series A Mandatory Convertible Preferred Stock in accordance with the terms thereof.

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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EXPLANATORY NOTE

This registration statement contains a prospectus relating to an offering of shares of our common stock (for purposes of this Explanatory Note, the “Common Stock Prospectus”), together with separate prospectus pages relating to an offering of our Series A Mandatory Convertible Preferred Stock (for purposes of this Explanatory Note, the “Mandatory Convertible Preferred Stock Prospectus”). The complete Common Stock Prospectus follows immediately. Following the Common Stock Prospectus are the following alternative pages for the Mandatory Convertible Preferred Stock Prospectus:

 

   

front and back cover pages, which will replace the front and back cover pages of the Common Stock Prospectus;

 

   

pages for the “Summary—The Offering” section, which will replace the “Summary—The Offering” section of the Common Stock Prospectus;

 

   

pages for the “Description of Mandatory Convertible Preferred Stock” section, which will replace the “Mandatory Convertible Preferred Stock Offering” section of the Common Stock Prospectus;

 

   

pages for the “Material U.S. Federal Income Tax Considerations” section, which will replace the “Material U.S. Federal Tax Consequences for Non-U.S. Holders of Common Stock” section of the Common Stock Prospectus; and

 

   

pages for the “Underwriting” section, which will replace the “Underwriting” section of the Common Stock Prospectus.

The following disclosures or references contained within the Common Stock Prospectus will be replaced or removed in the Mandatory Convertible Preferred Stock Prospectus:

 

   

references to “Mandatory Convertible Preferred Stock Offering” will be replaced with references to “Description of Mandatory Convertible Preferred Stock” in the Mandatory Convertible Preferred Stock Prospectus;

 

   

references to “this offering” contained in “Summary—Redemption of Existing Senior Preferred Stock,” “Summary—Summary Historical Financial and Other Data,” “Use of Proceeds”, “Dividend Policy,” “Capitalization,” “Dilution,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Management,” “Principal and Selling Stockholders,” “Certain Relationships and Related Party Transactions,” “Description of Capital Stock” and “Shares Eligible for Future Sale” (except under the heading “—Lock-up Agreements”) will be replaced with references to “the Concurrent Offering” in the Mandatory Convertible Preferred Stock Prospectus;

 

   

references to “the Concurrent Offering” contained in “Summary—Summary Historical Financial and Other Data,” “Use of Proceeds,” “Certain Relationships and Related Party Transactions,” “Description of Capital Stock” and “Shares Eligible for Future Sale” will be replaced with references to “this offering” in the Mandatory Convertible Preferred Stock Prospectus;

 

   

references to the “concurrent issuance of                  shares of the Mandatory Convertible Preferred Stock” will be replaced with references to “issuance of up to                  shares of the Mandatory Convertible Preferred Stock in this offering” in the Mandatory Convertible Preferred Stock Prospectus;

 

   

references to “common stock” or “our common stock” under the first paragraph under “Summary,” “Summary—Risks Related to Our Business and Our Industry, Regulation and Our Offering,” in the first paragraph under “Risk Factors,” “Legal Matters” and “Where You Can Find More Information” will be replaced with “the Mandatory Convertible Preferred Stock” in the Mandatory Convertible Preferred Stock Prospectus;

 

   

the disclosure under “Summary—Concurrent Offering” will be replaced in its entirety with “Concurrently with this offering, we are offering, by means of a separate prospectus,                 shares of our common stock (and up to an additional                 shares of our common stock that the underwriters in the Concurrent Offering have the option to purchase from us to cover over-allotments). We estimate that the net proceeds to us from the sale of shares of our common stock in the Concurrent


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Offering will be approximately $                 (or approximately $                 if the underwriters in the Concurrent Offering exercise their over-allotment option to purchase additional shares of our common stock in full), assuming an initial public offering price of $                 per share (which is the midpoint of the estimated offering price range shown on the cover page of the prospectus relating to the Concurrent Offering), in each case after deducting estimated expenses and underwriting discounts and commissions. The closing of this offering is conditioned upon the closing of the Concurrent Offering, but the closing of the Concurrent Offering is not conditioned upon the closing of this offering, and there can be no assurance that the Concurrent Offering will be completed on the terms described in the prospectus relating to the Concurrent Offering or at all.” in the Mandatory Convertible Preferred Stock Prospectus;

 

   

references to “midpoint of the estimated offering price range shown on the cover page of this prospectus” will be replaced with “midpoint of the estimated offering price range shown on the cover page of the prospectus relating to the Concurrent Offering” in the Mandatory Convertible Preferred Stock Prospectus;

 

   

references to “assuming the number of shares offered by us, shown on the cover page of this prospectus” will be replaced with “assuming the number of shares of common stock offered by us, shown on the cover page of the prospectus relating to the Concurrent Offering” in the Mandatory Convertible Preferred Stock Prospectus; and

 

   

the reference to “, if completed,” and the reference to “of that offering” will be removed from the third paragraph under the “Use of Proceeds” section in the Mandatory Convertible Preferred Stock Prospectus.

All words and phrases similar to those specified above that appear throughout the Common Stock Prospectus will be revised accordingly to make appropriate references in the Mandatory Convertible Preferred Stock Prospectus.

Each of the complete Common Stock Prospectus and Mandatory Convertible Preferred Stock Prospectus will be filed with the Securities and Exchange Commission in accordance with Rule 424 under the Securities Act of 1933, as amended. The closing of the offering of common stock is not conditioned upon the closing of the offering of Series A Mandatory Convertible Preferred Stock, but the closing of the offering of Series A Mandatory Convertible Preferred Stock is conditioned upon the closing of the offering of common stock.


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

 

Subject to Completion, Dated                 , 2021

Preliminary Prospectus

 

 

LOGO

                 Shares

Clarios International Inc.

Common Stock

$                 per share

 

 

Clarios International Inc. is offering                  shares of its common stock.

This is our initial public offering and no public market exists for our common stock. We anticipate that the initial public offering price will be between $                 and $                 per share.

We have applied to list our common stock on the New York Stock Exchange (“NYSE”) under the symbol “BTRY.”

Concurrently with this offering, we are also making a public offering (the “Concurrent Offering”) of                  shares of our                 % Series A Mandatory Convertible Preferred Stock, par value $0.01 per share (the “Mandatory Convertible Preferred Stock”). The Concurrent Offering is being made by means of a separate prospectus and not by means of this prospectus. We have granted the underwriters of that offering an option for a period of 30 days to purchase up to an additional                  shares of the Mandatory Convertible Preferred Stock, to cover overallotments. We cannot assure you that the Concurrent Offering will be completed or, if completed, on what terms it will be completed. The closing of this offering is not conditioned upon the closing of the Concurrent Offering, but the closing of the Concurrent Offering is conditioned upon the closing of this offering.

After the completion of this offering, certain entities affiliated with Brookfield Asset Management Inc. (“Brookfield”) and Caisse de dépôt et placement du Québec (collectively, the “Sponsor Group”) will continue to own a majority of the voting power of shares eligible to vote in the election of our directors, representing approximately     % of the combined voting power of our outstanding common stock assuming no exercise of the underwriters’ option to purchase additional shares of common stock. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE. See “Management—Controlled Company Exception” and “Principal Stockholders.” Following the completion of the offering, public investors will own approximately     %, representing approximately     % of the combined voting power, of our outstanding shares of common stock assuming no exercise of the underwriters’ option to purchase additional shares of common stock.

Investing in our common stock involves risks. See “Risk Factors” beginning on page 26.

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

     Per Share      Total  

Initial public offering price

   $                    $                

Underwriting discounts and commissions

   $        $    

Proceeds to us before expenses(1)

   $        $    

 

(1)

See “Underwriting” for a description of compensation to be paid to the underwriters.

We have granted the underwriters an option for a period of 30 days to purchase up to an additional                  shares of common stock to cover over-allotments, if any. See “Underwriting.”

The underwriters expect to deliver the shares to purchasers on or about                 , 2021.

 

 

 

BofA Securities    J.P. Morgan
Barclays    BMO Capital Markets    Credit Suisse
Deutsche Bank Securities    Goldman Sachs & Co. LLC
Citigroup    HSBC    RBC Capital Markets
Scotiabank    TD Securities
CIBC Capital Markets    Guggenheim Securities
Credit Agricole CIB    ING    National Bank of Canada Financial Inc.
Natixis    Santander    Siebert Williams Shank

The date of this prospectus is                 , 2021


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TABLE OF CONTENTS

 

 

 

     PAGE  

Summary

     1  

Risk Factors

     26  

Cautionary Note Regarding Forward-Looking Statements

     54  

Use of Proceeds

     56  

Dividend Policy

     57  

Capitalization

     58  

Dilution

     60  

Unaudited Pro Forma Financial Information

     61  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     67  

Business

     100  

Management

     124  

Executive Compensation

     132  

Certain Relationships and Related Party Transactions

     149  

Mandatory Convertible Preferred Stock Offering

     153  

Description of Material Indebtedness

     157  

Principal Stockholders

     163  

Description of Capital Stock

     165  

Material U.S. Federal Tax Considerations for Non-U.S. Holders of Common Stock

     173  

Shares Eligible for Future Sale

     176  

Underwriting

     178  

Legal Matters

     188  

Experts

     188  

Where You Can Find More Information

     188  

Index to Consolidated and Combined Financial Statements

     F-1  

 

 

In this prospectus, “Clarios,” the “Company,” “our company,” “we,” “us” and “our” refer to (i) Clarios International Inc., together with its consolidated subsidiaries after giving effect to the consummation of the acquisition by the Sponsor Group of the power solutions business (the “Power Solutions Business”) of Johnson Controls International PLC (“JCI”) (the “Acquisition”) on April 30, 2019 (the “Acquisition Date”) or (ii) to the Power Solutions Business prior to the Acquisition Date.

We and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may provide you. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.

 

 

Market and Industry Data

This prospectus includes industry and market data that we obtained from periodic industry publications, third-party studies and surveys, as well as from filings of public companies in our industry and internal company surveys. These sources include government and industry sources. Industry publications and surveys generally

 

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state that the information contained therein has been obtained from sources believed to be reliable. Although we believe the industry and market data to be reliable as of the date of this prospectus, this information could prove to be inaccurate. Industry and market data could be wrong because of the method by which sources obtained their data and because information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties. In addition, we do not know all of the assumptions regarding general economic conditions or growth that were used in preparing the forecasts from the sources relied upon or cited herein.

Trademarks and Trade Names

We own or have rights to trademarks, service marks and trade names that we use in connection with the operation of our business. Other trademarks, service marks and trade names appearing in this prospectus are the property of their respective owners. Solely for convenience, some of the trademarks, service marks and trade names referred to in this prospectus are listed without the ® and symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks and trade names.

Basis of Presentation and Other Information

Prior to the consummation of the Acquisition, Clarios Global LP had no operations and did not have material assets. As a result of the Acquisition, a new basis of accounting was created on May 1, 2019. The audited combined financial statements as of and for the year ended September 30, 2018 and as of and for the seven month period ended April 30, 2019, which are included elsewhere in this prospectus, are those of the Power Solutions Business and are referred to herein as “Predecessor” combined financial information. The historical financial statements and data included herein after such date are those of Clarios Global LP. In connection with this offering, we are undergoing a reorganization pursuant to which Clarios Global LP will become a wholly owned indirect subsidiary of Clarios International Inc., which is a newly created holding company that will not have any material operations or assets other than the ownership, directly or indirectly, of the equity interests of Clarios Global LP. See “Unaudited Pro Forma Financial Information” for additional information.

The consolidated results of operations and cash flows of the Company beginning on May 1, 2019 and the consolidated financial position of the Company as of balance sheet dates subsequent to April 30, 2019 are referred to therein as “Successor” consolidated financial information. In this prospectus, “financial statements” refer to the Predecessor combined financial statements and the Successor consolidated financial statements for the respective periods presented. Combined financial and operating data for the year ended September 30, 2019 represents combined results of the Predecessor for the seven months ended April 30, 2019 and the Successor for the five months ended September 30, 2019. This combination does not comply with accounting principles generally accepted in the United States of America (“U.S. GAAP”) or with the rules for pro forma presentation.

The Predecessor and Successor financial information presented herein is not comparable primarily due to the fact that the Successor financial information reflects:

 

   

The application of acquisition accounting as of May 1, 2019, as further described in Note 2, “Acquisitions” to the audited consolidated financial statements for the year ended September 30, 2020, which requires the acquirer to reflect the fair value of the net assets acquired in a business combination as of the date of acquisition which often exceeds the net assets’ carrying value on the acquired business’s financial statements. As a result of applying acquisition accounting, the carrying value of the Successor’s net assets exceeds the carrying value of the Predecessor’s net assets on the consolidated statement of financial position. The most significant implications to the consolidated statements of income (loss) for the Successor periods due to the application of acquisition accounting are increased depreciation and amortization expense;

 

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Additional debt and interest expense associated with debt financing arrangements entered into in connection with the Acquisition, as further described in Note 8, “Debt and Financing Arrangements,” to the audited consolidated financial statements for the year ended September 30, 2020; and

 

   

Certain pass-through entities for purposes of Canadian and U.S. income taxation and, therefore, no income taxes are reflected in the Successor financial statements for those entities.

For the Predecessor periods, these financial statements included elsewhere in this prospectus were prepared on a combined carve-out basis derived from the consolidated financial statements and accounting records of JCI as if the Company had been operating as a stand-alone company. These financial statements have been prepared in accordance with U.S. GAAP. Management believes the assumptions underlying the financial statements, including the assumptions regarding allocating general corporate expenses from JCI, are reasonable and applied consistently for the periods presented. Nevertheless, the financial statements may not include all actual expenses that would have been incurred by the Company and may not reflect the combined results of operations and cash flows had it been a stand-alone company during the Predecessor periods presented. Actual costs that would have been incurred if the Company had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. For additional information, see Note 1, “Basis of Presentation,” of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus.

 

  iii  


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SUMMARY

This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before deciding to invest in our common stock. You should read this entire prospectus carefully, including the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and our consolidated and combined financial statements and pro forma financial statements and the notes related to those financial statements included elsewhere in this prospectus, before investing in our common stock.

Our Company

Clarios is one of the world’s largest suppliers of energy storage solutions. We design and manufacture advanced, low-voltage battery technologies for global mobility and industrial applications, offering reliability, safety and comfort to everyday lives. Our batteries power cars, commercial vehicles, motorcycles, marine vehicles, powersports vehicles and industrial products. In our core low-voltage mobility battery markets, we are the only global manufacturer and are significantly larger than our nearest competitor by revenue. We believe we are unique in terms of our global capabilities, with the number one market position in both the Americas and Europe, Middle East and Africa (“EMEA”), and the number three market position in Asia. The majority of demand for our products comes from the aftermarket channel (“aftermarket”), driven by consumer replacements. We sell more than 140 million batteries annually that are distributed to original equipment manufacturer (“OEM”) and aftermarket customers in over 140 countries. Our scale, global footprint and vertical integration allow us to operate with a best-in-class cost structure, lead the industry in technological innovation and deliver greater value to customers and consumers. We have established one of the world’s most successful examples of a circular economy. We design, manufacture, transport, recycle and recover the materials in vehicle batteries using a closed-loop system. Our batteries are designed so that up to 99% of the materials can be responsibly recovered, recycled and repurposed directly into new batteries.

Our batteries provide reliable, essential, low-voltage power to a full range of propulsion technologies and will remain critical with the transition of the global transportation network from internal combustion engines (“ICE”) to hybrid and electric vehicles (“EV”). Our batteries support a range of functions critical to vehicle performance ranging from the more traditional roles of engine starting and ignition and supporting key-off loads, to more demanding emerging functions such as start-stop, advanced driver assistance systems (“ADAS”), over-the-air software updates and autonomous driving. Importantly, our batteries provide the fail-safe power required to support electric and autonomous vehicles (“AV”). Our advanced products are well-positioned to enable the increasing electrical load requirements seen in nearly all vehicles entering the market today, and especially the technologies of start-stop, EV and AV, which require more robust, advanced energy solutions. We believe the battery mix shift towards higher-margin advanced products represents a significant opportunity for Clarios as we deliver a compelling value proposition to our consumers by combining advanced technology solutions for mission critical systems with a lower cost solution than competing technologies.

Our product portfolio includes starting, lighting and ignition batteries (“SLI”) and advanced battery technologies (“Advanced Batteries”), which include enhanced flooded batteries (“EFB”) and absorbent glass mat batteries (“AGM”). We believe our products have differentiating factors, such as PowerFrame, which reduces lead usage and bolsters corrosion resistance, our patented EFB design and our certified non-spillable AGM battery technology. We also develop and manufacture low-voltage lithium-ion battery technologies for select markets. We distribute our products primarily through the aftermarket and OEM channels. We sell our products through a number of well-recognized global and regional brands such as VARTA®, LTH®, Heliar®, OPTIMA®, Delkor® and MAC®. Principally outside of North America we go to market with these owned brands which, based on consumer awareness studies, are consistently #1 or #2 in nearly every major market in which we participate. We also provide private label brands to our aftermarket customers including DieHard, Interstate, Duralast, Bosch and EverStart.


 

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LOGO

For the twelve months ended September 30, 2020, approximately 80% of our unit volume and an even larger share of our gross profit was generated through the replacement aftermarket channel. In the automotive market, our batteries have an average life of three to six years and the battery is replaced, on average, two to four times over a vehicle’s useful life, depending on the battery technology, application, driving habits and geography. Given aftermarket customers require not only a high-quality product but also outstanding service and support, we deliver value far beyond the supply of batteries. We have developed deep channel partnerships and have longstanding relationships with large domestic and international aftermarket customers such as Interstate, AutoZone, Bosch, Advance Auto Parts, Walmart and LKQ, serving as a critical partner in one of their largest and most important sales categories. We operate an entire logistics network for battery delivery (in some cases, direct to store) and for the return of spent batteries to be recycled, often through our owned recycling network. We benefit from our scale and technology developed with OEMs, which allow us to deliver a high level of expertise to the replacement channel, including training, technical and system expertise and category management. Our scale also allows us to fulfill store level demand in a timely fashion and at competitive cost. These differentiators are increasingly important as the complexity of monitoring and installing Advanced Batteries continues to rise. Additionally, we continue to innovate around aftermarket distribution through point of sale and digital channels, particularly in China.

The remaining roughly 20% of our unit volume is generated through the OEM channel, which is comprised of sales to major car, commercial vehicle, motorcycle, marine, powersports vehicle and industrial manufacturers globally. Our capabilities and expertise have also positioned us as the partner of choice for our OEM customers, including Ford Motor Company, General Motors Company, Volkswagen, Tesla, Inc., BYD Auto Co., Ltd, Li Auto Inc., The Daimler Motor Company Limited, BMW, PACCAR Inc., Polaris, Toyota Motor Corporation and Caterpillar Inc. Our OEM business is driven by global demand for new vehicles and equipment but serves as a key driver of our future aftermarket replacement business. Our focus is to be sourced as “first fit” with both leading traditional OEMs and emerging EV OEMs globally, which in turn bolsters our replacement business in the aftermarket channel. Our customers look to us to provide low-voltage systems integration expertise and drive technological innovation. We work closely with OEMs during development of future platform launches, designing energy storage technologies that will cost-effectively help them meet increasing environmental, safety and vehicle electrification requirements. Our leading global position in the OEM channel allows us to collaborate with a wide range of customers in bringing to market new technologies that can support and accelerate advancements in powertrain technology and autonomy. In addition, our global footprint allows us to serve OEMs with the same product in multiple regions with localized production, which simplifies their procurement processes on global vehicle platforms. No customer accounted for more than 10% of total volume for the twelve months ended September 30, 2020.

Our global scale and market position allow us to be a driving force in shaping environmental policy within our industry. We seek to be a leader in sustainability principles in both strategy and day-to-day operations by pursuing sustainable growth opportunities and investments in our business, reducing waste and ensuring the reuse of materials through a closed-loop recycling system. Our investments in sustainable operations create value for all stakeholders in our business. They are both a source of pride for our employees and a competitive advantage allowing us to deliver higher production volumes, limit commodity supply risk and price exposure, and generate higher margins, all while minimizing impacts on the environment. By collaborating closely with our customers to manage used batteries responsibly, we seek to help our customers meet their sustainability goals. As our recycling services translate directly to value to our customers, we deepen our relationships, position ourselves as


 

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a supplier of choice and establish our company as a future-focused leader. We have helped to shape environmental policy around the world, working with local regulatory bodies in regions where we operate to improve applicable regulatory standards, resulting in significant improvements over the past two decades within our industry. We continue to invest in reducing lead air emissions from, and employee lead-blood levels at, our facilities worldwide. We believe that our efforts to exceed industry-leading environmental and safety standards globally have been a key driver of our success.

Our business has a long history of organic growth. In the future, we believe we will benefit from top-line and bottom-line growth through an expanding global car parc and favorable mix shift to Advanced Batteries driven by replacement batteries for the large number of start-stop vehicles already on the road. We also expect our business to benefit from increasing power demands in electrified and autonomous vehicles, increased penetration in high-growth regions around the world, particularly in China, expansion to adjacent end markets and successful execution of significant cost-saving and margin enhancement initiatives already underway. Our strong cash flow provides the opportunity to redeploy capital and explore acquisition opportunities. The strength and resilience of our business model is exhibited in our track record of solid financial performance. For the fiscal year ended September 30, 2020, our business generated $7,602 million in revenue and sold 143 million batteries and for the fiscal year ended September 30, 2019, our business generated $8,528 million in revenue and sold 153 million batteries. As of March 31, 2021, we had approximately $10.3 billion of long-term debt outstanding, including deferred financing costs and finance leases, and $550 million of cash and cash equivalents. The following chart reflects certain operating data for the year ended September 30, 2020.

 

LOGO

Industry Transformation

In the broader transportation industry, three major forces are contributing to a meaningful acceleration in the electrical power consumption requirements of today’s vehicles: policy and regulatory changes focused on the environment; increasing consumer demands focused on comfort, safety, and convenience; and economic considerations that govern technology choices. The increased electrical power consumption in vehicles has driven a shift toward more capable, higher-margin Advanced Batteries that can help vehicles meet regulatory standards and consumer expectations in a cost-effective way. We sit at the forefront of this industry transformation and enable these shifts with our leading Advanced Battery portfolio and best-in-class product development expertise. As the low-voltage solution provider of choice for OEMs, we inform their system architecture requirements and help define the future of our industry.

Governments and global regulatory bodies are placing an increased emphasis on environmental, material and safety practices. In light of policy changes, OEMs have continued to focus on improving fuel efficiency and reducing greenhouse gas emissions in order to meet increasingly stringent regulatory requirements in various


 

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markets. Advanced Battery technologies have been critical to enabling the industry’s response to satisfy these new requirements from powering critical systems in start-stop vehicles to ensuring reliable performance and functional safety in battery electric vehicles (“BEVs”).

Consumers are also seeking additional comfort, connectivity and safety features in their vehicles, increasing vehicle electrical loads significantly. Based on our estimates and analysis, computing and electrical requirements have grown meaningfully in the last decade. The number of electrical devices in vehicles is expected to triple from 2009 to 2025 and potential peak power requirements have increased approximately 50% over the last ten years. We expect these increasing power demands to further accelerate, particularly with the advent and advancement of partially and fully autonomous vehicles.

As electrical power consumption requirements have increased, there has consequently been significant demand for innovation in battery technology. These trends are driving the sales mix of batteries towards Advanced Battery technologies as start-stop powertrains are further developed and additional safety and autonomous features are built into all cars. As the role of autonomous functions continues to move from sensing and indication to control of the vehicle, reliable power management in the vehicle becomes increasingly critical. This technological shift places additional requirements on the low-voltage battery to ensure there is sufficient power available for safe vehicle operation, particularly in the event of a failure or loss of the primary power source. This challenge has increasingly been addressed by using multiple low-voltage batteries to provide redundancy and meet the relevant automotive functional safety standards, with increased reliance on Advanced Batteries.

 

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The increasing electrification of vehicles has driven a rapid shift towards Advanced Batteries to support “next-generation vehicles”, those powered by something other than a traditional ICE powertrain without electrification technology. Next-generation vehicles—those with start-stop, mild hybrid, full hybrid, plug-in hybrid or fully electric technologies—now account for approximately 20% of the global car parc and will reach more than 50% by 2030, according to IHS Markit. In a BEV, batteries are categorized as either high-voltage or low-voltage. A high-voltage lithium-ion propulsion battery typically replaces the internal combustion engine and provides power to generate the torque needed for directional movement. However, all EVs, including BEVs, require a low-voltage battery to work in tandem with the high-voltage battery to provide critical functionality during all stages of use – when the vehicle is driving, when the engine or high-voltage battery is off and when an emergency occurs. While the vehicle is in motion, the battery supports peak power demands that exceed the direct current to direct current (“DC/DC”) converter’s capabilities, such as power steering and seat heaters.


 

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While the vehicle is at rest, the low-voltage battery provides power to engage the primary high-voltage battery, both during charging and to initiate driving. The low-voltage battery also supports key-off functions such as theft-protection, entertainment and connected-vehicle technologies such as over-the-air updates. Perhaps most importantly, when a failure occurs resulting in a loss of power from the high-voltage battery or DC/DC converter, the low-voltage battery supplies power to safety-critical systems, providing a crucial layer of redundancy necessary to ensure the vehicle can be safely navigated.

OEMs face evolving pressures of both environmental regulation and consumer expectations, and they look to us as key advisors in shaping their strategies for next-generation power supply architectures. The choices around battery technology, sizing and utilization are key factors for them in finding the right balance of performance, quality and cost. We are uniquely positioned to provide that support due to our broad, global relationships with nearly all OEMs, our engagement with other key Tier 1 suppliers, our vehicle and systems evaluation capabilities and our knowledge of all applicable battery technologies. As a trusted partner to our customers, we help shape the specification and operating strategy of the battery.

Advanced Battery technologies like AGM and EFB remain the preferred next-generation low-voltage solution by OEM customers and are currently specified into all powertrain configurations, including mild-hybrids, plug-in hybrids and BEVs. We believe the cost of our Advanced Batteries is approximately a quarter of that of low-voltage lithium-ion today. In low-voltage applications, AGM batteries provide a preferable alternative to lithium-ion, as they are able to handle the key-off and peak loads in electric vehicles, are inherently safe and have a superior cost structure. Based on IHS Markit projected electric vehicle platforms and production volumes through 2025, the vast majority of new vehicles will utilize lead battery technology for their low-voltage requirements. The superior performance of our products and our industry-leading AGM capacity position us well to capture additional market share in next-generation vehicle battery demand.

Overall, we anticipate the battery market to grow in line with the expansion of the global car parc and global GDP growth. IHS Markit estimates the current global car parc to consist of approximately 1.3 billion vehicles in 2020, growing to 1.6 billion vehicles in 2030. A significant amount of the global car parc’s growth is expected to come from China, a region in which we continue to experience strong market penetration and have a runway for meaningful growth.

 

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Source: IHS Markit

Next-generation vehicles now account for approximately 61% of all new car sales and are expected to reach approximately 86% of new car sales by 2030, according to IHS Markit. This shift in OEM volumes, and the growing Advanced Battery replacement demand as the next-generation car parc grows, is expected to more than double demand for AGM batteries by 2030. Given increasing low-voltage system needs, we expect the replacement rate of two to four times over the life of a vehicle to remain consistent going forward. Advanced


 

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Batteries are approximately twice as profitable as an SLI battery, providing a meaningful tailwind for growth. Our installed manufacturing capacity positions us well to capitalize on meaningful growth. Our operations comprise more than 50% of installed AGM capacity globally, with leading market positions in the Americas, EMEA and Asia. Our leading position in AGM is a result of leveraging our significant scale to research and develop new technologies in a way and at a pace that our competitors find difficult to match. In comparison to flooded technologies, AGM is more difficult to manufacture due to key differentiating characteristics, such as plate compression and electrolyte saturation level. As a result, there is a wide variation in performance and quality across the global supply base. Innovations such as our proprietary continuous plate-making technology, our high-precision battery assembly process and our unique approach to filling and forming batteries have enabled a level of consistency and quality in our AGM products that significantly outperforms those of our competitors. Developing these technologies is both costly and complex. Our significant financial resources and deep bench of research professionals have helped us to become the market leader in manufacturing and developing AGM batteries globally.

 

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The manufacture and distribution of products in our industry is a heavily regulated activity. Stringent environmental, material and safety regulations drive significant requirements for both battery manufacturers and automotive OEMs with respect to handling and manufacturing lead-based products. Industry regulators heavily scrutinize the construction of new battery manufacturing facilities. As such, we leverage our existing manufacturing footprint to maximize the efficiency of our existing plants, increasing our throughput and improving our favorable cost base. Used, spent batteries and their handling are also subject to regulation. The recovery of these batteries entails complex logistics networks and deep supply chain integration with players in the battery recycling industry, requiring scale and end-to-end solutions which are difficult to replicate. Permits to build greenfield battery recycling facilities are increasingly difficult to obtain. These facilities benefit from significant economies of scale, requiring a large capital commitment up front and significant commercial risk. Lastly, in terms of our go-to-market strategy, there are significant restrictions imposed on the shipment of flooded batteries direct-to-consumer. This regulatory restriction requires that competitors in our industry must develop their own distribution channels and commercial relationships, such as the ones we have developed with OEMs and our aftermarket customers over a long period of time.

Our Competitive Strengths

We are the global market leader in Advanced Battery technologies with unmatched scale and geographic reach

We are the largest and only global supplier of low-voltage mobility energy storage solutions. On a global basis, we are significantly larger than our second largest competitor by sales – and have meaningful operations in every geographic region and sales of our products into over 140 countries. Within our reporting segments, we


 

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have a number one market position in both the Americas and EMEA and a number three position in Asia. In both the Americas and EMEA, our sales are far greater than our nearest competitor.

We sell our products to almost every major OEM in the world and work with emerging electric vehicle companies to support their low-voltage needs. Many of our global OEM customers design common global vehicle architectures. Our global supply chain provides us an advantage through our ability to support their common battery requirements across all regions. In the aftermarket, we go to market through private label brands, most notably in North America, and through our leading global first-line brands. We provide private label brands to many aftermarket customers, including DieHard through Advance Auto Parts; Duralast through AutoZone; and Bosch® in many markets globally. Our portfolio of leading global first-line brands includes the world’s most recognized battery brands, based on aided brand awareness and consumer preference studies in regions where we operate. These include OPTIMA®, VARTA®, LTH®, Heliar®, Delkor® and MAC®. In addition, we partner with our partially owned joint venture Interstate Batteries on manufacturing and distribution throughout North America. We believe consumers trust our brands to deliver best-in-class electrical and cycling performance and look for features offered by our batteries as the safest solution to power their vehicles.

We have a replacement-driven business model with meaningful scale that is focused on the attractive and recurring mobility aftermarket

Through stable, recurring demand for our products, combined with leading manufacturing capabilities, we consistently generate strong cash flows. Our significant aftermarket exposure, approximately 80% of total unit volumes in fiscal year 2020, provides a resilient and consistently growing base to our business. On average, automotive batteries are replaced two to four times in a vehicle’s life and purchases cannot be delayed due to the critical nature of the product. The importance of our products and our high-touch level of service have positioned us as a key supplier to large aftermarket retailers in one of their most significant product categories. We also benefit in this category through a first fit advantage given our relationships with leading OEMs that positions us well for the aftermarket replacement. Additionally, our aftermarket customers rely upon our expertise and extensive OEM relationships to understand how the car parc is evolving over time and provide direction in positioning themselves for the future. The insight and knowledge we are able to share fosters stickiness and loyalty with these customers.

The scale of our business enhances our competitiveness in the attractive and higher-margin aftermarket channel. Margins in the aftermarket are significantly higher than the OEM channel on similar products and our substantial aftermarket presence insulates the exposure of our earnings to more cyclical new vehicle sales. Given the complex logistics and high service levels required by our aftermarket retail and distribution customers, we believe the size and scale of our closed-loop, vertically integrated product distribution and recycling network is unique and difficult to replicate. Further, the size and footprint of our operations in the geographies where we compete enable us to optimize the distribution of our products to minimize logistics costs associated with an inherently heavy product that is difficult to ship.

We benefit from the secular tailwinds driving a mix-shift toward higher priced Advanced Batteries with rapid growth in the aftermarket

New car sales and the evolution of the existing car parc towards next-generation vehicles are expected to accelerate OEMs’ and consumers’ need for Advanced Batteries. Our extensive capabilities, backed by our 130+ year history in battery manufacturing, enable us to deliver innovative solutions to meet these demands. Our history of innovation and commitment to advancing our product and manufacturing technology is demonstrated by our more than 1,680 patents granted and more than 520 patents currently pending. As a result, we are at the forefront of technological development and are well-positioned to capture the growing mix-shift to Advanced Batteries. Our product development strategy is based on understanding OEM application needs and partnering


 

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with them to select the optimal low-voltage battery for each application. We maintain commercial relationships with almost all major OEMs and have active dialogue with them on both commercial and technological matters. Our team has developed a robust Advanced Battery pipeline to address future levels of autonomy and electrified powertrains and is well-positioned to be the leading low-voltage battery supplier to the next-generation of vehicles. We expect these new products to enhance our share of business with OEMs and to be higher-margin contributors to our bottom line.

Increasing electrical loads are driving OEMs to specify Advanced Batteries in a growing number of new vehicle platforms. We expect Advanced Batteries to be approximately half of low-voltage batteries sold by 2035, as more vehicles with “first fit” Advanced Batteries enter the typical aftermarket replacement cycle. Based on our extensive OEM relationships we believe we are well-positioned to capture the aftermarket growth occurring as a result of the mix shift to next-generation vehicles. Our OEM relationships benefit our aftermarket position in several ways. First, Original Equipment Service (“OES”) providers generally replace batteries on a like-for-like basis with the OEM specification. Second, our engagement and depth of relationship with most of the world’s OEMs provide us a differentiated amount of insight into the future of the car parc and how low-voltage battery needs will change over time. Our aftermarket retail customers depend on us for this expertise as we work collaboratively with them to define their product roadmaps, understand the evolving landscape and the tools needed to support it, and derive win-win solutions for our businesses. With our leading existing AGM manufacturing capacity, we believe we are well-positioned to fulfill this demand as volumes naturally accrue in the aftermarket.

 

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We anticipate this shift in product mix to significantly enhance our financial profile. Currently, Advanced Batteries are approximately twice as profitable as SLI batteries. In particular, we expect that the continued penetration of AGM products into the higher-margin aftermarket will significantly enhance our profitability. While Advanced Battery volumes comprised 20% of our total unit sales in 2020, in the aftermarket they accounted for only 9%. We expect a wave of aftermarket Advanced Battery replacements in the coming years as these new batteries already sold through the OEM channel approach their first natural replacement cycle, particularly in the Americas. This would result in a higher penetration of Advanced Battery sales in the aftermarket in the future.

We have a strong and expanding position in China and are strategically positioned for growth in the highly profitable AGM product in that market

The Chinese automotive industry is large and attractive with more than 254 million vehicles in operation, according to IHS Markit. Over the past five years, the Chinese car parc has grown from 156 million to 254 million vehicles, representing a 10.3% compound annual growth rate (“CAGR”), making it the fastest


 

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growing car parc in the world. We have a strong, competitive position with a more than 40% market share in BEVs and expect significant growth within the region given the proliferation of next-generation new vehicle sales and the relatively low age of the current car parc. These factors each contribute to growth in the aftermarket, driving favorable volume and product mix for our business. Approximately half of our sales in China are Advanced Batteries and we expect significant growth in Advanced Batteries throughout the region. Our existing AGM capacity currently comprises approximately 70% of total AGM capacity within the country. In order to keep up with the growth in the region, we have three state-of-the-art manufacturing facilities, including our latest facility that is coming online this year. We believe our installed capacity positions us to meet expected demand and to take advantage of significant growth in the world’s fastest growing car parc. We have seen our revenue increase significantly in China driven by increased sales of Advanced Batteries into both the OEM and aftermarket channels. We expect to continue this growth driven by both the expansion of the Chinese car parc and by increasing our market share in China.

Our scale and operational excellence provide us with a best-in-class cost structure

Our scale and vertical integration help us maintain a low-cost profile. Our technology leadership position drives a mix benefit for our business from higher-margin Advanced Batteries. These factors combined drive a meaningfully higher margin profile for our business relative to our competitors. We believe our cost structure benefits from superior design, scaled manufacturing plants, optimized footprint in low-cost countries, automation, plant efficiencies and purchasing synergies. The size of these advantages depends on the region and competitor, but we believe each is durable and together provide a strong base to continue to build our leadership position.

As an example of the benefits of our vertically integrated model, in fiscal year 2020, our Mexico recycling facilities were able to operate at a cost basis 70% less than the cost of our average third-party tolling contract when evaluated on a per-ton basis. Our recycling infrastructure, with facilities in Mexico, Colombia and Germany, and long-term tolling agreements with third-party recyclers, ensures a diversified supply of lead, thereby limiting our commodity exposure and supply risk. In our long-term tolling agreements, we provide independent recyclers used batteries collected through our expansive distribution network for processing and recycling. We then collect finished lead from those recyclers for a per-ton fee, providing us stable access to lead through the closed-loop recycling ecosystem.

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Note: 8,000 batteries recycled per hour figure includes batteries recycled through our third-party tolling partners.

Our management team, together with external advisors and Brookfield, Caisse de dépôt et placement du Québec (“CDPQ”) and others (together, our “Sponsor”), identified over $400 million of cost-saving opportunities


 

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in connection with and from the date they acquired Clarios from Johnson Controls (the “Acquisition”). Approximately 50% of these initiatives are in the areas of manufacturing and recycling efficiencies. For example, we believe we can achieve significant cost-savings by reducing bottlenecks and increasing throughput in our plants in the United States, bringing them more in line with the performance of our plants in other countries. The remaining cost savings consist of opportunities within procurement; selling, general and administrative; and logistics, with minimal financial commitment required to achieve these cost savings initiatives. These initiatives include optimizing shipping routes and external services, consolidating spending and accelerating our transformation to a lean, regionally-focused organizational structure with increased accountability at the local level. To date, we believe we have achieved approximately $175 million of annualized cost savings since the Acquisition. We continue to pursue the remaining $225 million in incremental cost savings against our original $400 million plan, which we expect to realize over the next two to four years—and intend to continue to identify new opportunities to further improve our global operations.

Our commitment to setting high Environment, Social and Governance (“ESG”) standards is core to both our business philosophy and operations and has created competitive differentiation

Our Clarios Sustainability Blueprint is our roadmap as we build a better, safer, stronger company. The Blueprint’s five pillars guide our ESG efforts: Value, Operational Excellence, Life-Cycle Stewardship, Transparency and Advocacy. Through these efforts, we work to unlock our capabilities in battery innovation, design, materials sourcing, manufacturing, distribution, circular economy and recycling. We believe that our efforts to exceed industry-leading environmental and safety standards globally have been a key driver of our success. Through our business practices, we have demonstrated a dedication to sustainability by continued improvement in our emissions performance. Core to our operations are the closed-loop recycling program and circular supply chain. Lead is one of the world’s most recycled materials with conventional batteries being the most recycled consumer product globally (up to 99% of the materials in batteries can be recovered, recycled and reused to make new batteries). The closed-loop encompasses more than the physical process of recycling. We manage all aspects of the supply chain including the delivery and collection of batteries. The holistic management of the entire program establishes a significant competitive advantage in that it provides an overall raw material cost advantage, ensures sustainability of supply, helps insulate the business from lead price fluctuations and strengthens ties with aftermarket customers. Furthermore, we believe our commitment to safe and sustainable practices helps mitigate potential environmental risks and associated compliance costs. We endeavor to pursue key growth opportunities at the intersection of sustainability and leading technology, including enabling the global car parc’s electrification with Advanced Batteries, our involvement in expanding the recycling of lithium-ion batteries and our general pursuit of identifying solutions to improve fuel economy and reduce greenhouse gas emissions. In addition to these commercial goals, to help set global standards we founded the Responsible Battery Coalition, led the creation of the World Economic Forum’s Global Battery Alliance and have developed a unique public/private partnership with UNICEF and Pure Earth—Protecting Every Child’s Potential. These efforts are an extension of our Sustainability Blueprint and help us to continue advancing our industry’s commitment to sustainable practices.

We have a strong financial profile and track record of growth that position us for sustained earnings power

We efficiently convert our revenue into cash flows while deploying capital to support ongoing operations and future growth. We continuously invest in our operations and technology which we believe helps us maintain our industry-leading operating excellence and product leadership. Since 2010, our company has undergone a significant investment cycle to support future growth, including building additional capacity for Advanced Battery technologies globally and market growth in China. Our past investments in China, including three state-of-the-art manufacturing facilities, position us to enjoy significant growth in the world’s fastest growing car parc.


 

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Notes:

(1)

All periods presented for Clarios fiscal year-end basis ending September 30

(2)

2019 and later periods reflect the adoption of ASC606, Revenue from Contracts with Customers

(3)

Clarios fiscal 2019 is composed of two periods – the “Predecessor” period, from October 1, 2019 to April 30, 2019 and the “Successor” period, from May 1, 2019 to September 30, 2019

(4)

2018 and earlier periods reflect historical revenues of the Power Solutions Business

We have also demonstrated resiliency through our history with steady performance and market share gains during downturns. During the Financial Crisis in 2008 and 2009, our global aftermarket volumes were stable despite sharp declines in new vehicle sales in many of the markets in which we participate. More recently in 2020, the automotive aftermarket proved resilient in the face of the coronavirus (“COVID-19”) pandemic. Following temporary lockdowns and restrictions on mobility in March and April 2020 in North America and EMEA, aftermarket volumes outperformed prior year periods given pent-up replacement demand in May, June and July.

 

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Our Growth Strategies

Increasing demand for Advanced Battery technologies as a result of greater electrical loads, electric vehicle adoption and the rise of autonomous driving will drive significant growth

Next-generation vehicles today account for over 60% of all new car production but only 20% of the global car parc. By 2030, next-generation vehicles are expected to reach 86% penetration of new car sales and over 50% of the car parc, according to IHS Markit. We have been at the forefront of this technological shift since the beginning, and, in the case of OEMs, our AGM technology represents an integral part of such customers’ medium-term and long-term technology planning for next-generation platforms. We expect to experience a favorable mix shift in our revenue and profitability as electrification penetration accelerates with advanced technologies carrying a higher price point and approximately twice the profitability relative to a traditional SLI battery. While our current AGM technology already provides better electrical performance versus legacy technologies, including better functional safety, cycling ability and cold start technology, we intend to continue to drive innovation through our OEM and R&D partnerships on future platform development. We have several launches planned for our next-generation AGM technology in the coming years.

We have select emerging market growth opportunities underpinned by our strong positioning in China and other rapidly expanding car parcs

We have traditionally expanded globally into emerging markets in a phased and gradual approach. While each emerging market requires a unique approach, we typically begin by serving regional aftermarkets through exports of products with flagship brands like Optima and Varta. We also serve markets in conjunction with our global OEM customers, who often request our support for global vehicle platforms in additional regions. We then gradually establish distribution and retail relationships, introduce or strengthen brands, and look to embed closed loop structures. In some cases, we also elect to establish joint ventures and ultimately a fully localized footprint and commercial model. Today we see opportunities to execute this growth model in diverse and dynamic markets across Asia and Africa, as examples. We are particularly excited by the potential to leverage our current and in-development advanced battery technologies as a platform for growth.

We are well-positioned to benefit from strong growth in emerging markets through our wholly owned and joint venture operations. China is the world’s fastest growing car parc with 254 million vehicles in operation and is experiencing a significant mix shift to Advanced Batteries. We have the largest AGM installed capacity in China—a market in which local manufacturing capabilities and expertise are critical. Given the newer age of the car parc, the rapidly expanding aftermarket channel represents an accelerating growth opportunity in China as the parc ages. Our recent investments in building out capacity, distribution infrastructure and regional management in China position us well to capitalize with both OEM and aftermarket customers.

Profitable growth in any regional aftermarket demands a network of strong and solvent distributors able to provide effective coverage to a diverse range of workshops and battery retailers. This is especially critical in China given its rate of expansion, size and relative immaturity of the automotive aftermarket. Our approach to build out this network relies heavily on the experience, playbook and learnings of our business in Mexico, where we guided a fragmented collection of many undersized family businesses into a small set of professionalized operations, constantly expanding our reach within and beyond the auto segment. This approach, coupled with an aggressive digital strategy to simplify and drive supply chain efficiency, provides Clarios with a working blueprint to grow in the China aftermarket. E-commerce is a critical component of this digital strategy and our VARTA® brand is currently the #1 online brand in China.

We also see additional opportunities to grow in other emerging markets, including through our wholly owned significant operations in Korea and in Latin America. Today, our products reach customers in over 140 countries. Our products are used in rapidly expanding emerging car parcs globally, including those across all of Asia, the Middle East, Africa, Central and South America and Eastern Europe.


 

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We have a long history of expanding our market share globally through joint ventures and distribution partnerships. As one such example, we are particularly excited about the long-term growth fundamentals of India. India’s car parc today is expected to grow at a CAGR of 5% through 2030 according to IHS Markit. We have operated in India for nearly 25 years through our interest in publicly traded Amara Raja Batteries Limited (“ARBL”). As of March 31, 2021, our 24% interest in ARBL had a market value of approximately $478 million. We sold a 10% stake in May 2021 and currently hold a 14% interest in ARBL’s public shares. This remaining investment will be reclassified prospectively as an investment in marketable common stock within current assets on our balance sheet.

Given the attractive opportunity we see in-country, we will continue to approach the India market with an import to localized manufacturing strategy anchored to the timing of the advanced battery mix shift opportunity. Our business plan may contemplate expansions of advanced battery imports from other of our manufacturing regions, acquisitions and additional investment as the mix shift toward advanced batteries evolves. We believe our long operating history in India uniquely positions us to benefit from rapid long-term growth in the market.

We will continue to expand our business in developed markets through further engagement with both new and existing OEM and aftermarket customers

We continue to strengthen our relationships with our strong core base of over 3,200 aftermarket and OEM customers. We see substantial ability for further market penetration as we expand share across our existing customer base. We have consistently grown share in the developed aftermarket as demand increasingly shifts towards higher quality and more advanced batteries. We expect our leading cost structure, scale, capitalization and production to meet these quality standards and rising environmental standards to drive consolidation over time. In addition, we are well-positioned to serve the growing number of new entrants in our core sectors, including new electric vehicle OEMs and aftermarket customers. In 2020, ten new light vehicle and commercial vehicle OEMs entered the public equity markets in the U.S. alone, with an additional entrant in EMEA. Despite low current volumes, we have focused on growing relationships with the majority of these players. By embedding early with these auto market participants as the low-voltage battery solution provider of choice, we face an opportunity to grow in tandem with these emerging manufacturers as they scale. The new entrants are collectively expected to grow revenue at a CAGR of 111% from 2021 to 2024 according to broker consensus and industry estimates. We also see growing opportunities in emerging aftermarket service business models that act as service hubs for emerging OEMs and the expanding mobility platform sector. By growing capabilities through partnerships and the emerging online-to-offline e-commerce model, we have achieved outsized growth in China and aim to leverage these strategies to further our leadership in developed markets. In EMEA, we have the opportunity to grow through introducing battery software as a diagnostic and point of sale marketing influence tools as well as other digital strategies. We expect to capitalize on these and other secular changes in the aftermarket as next-generation vehicles become a larger portion of the aftermarket.

We have the opportunity to extend our offerings to adjacent markets

As the largest supplier of low-voltage energy product storage solutions for the global mobility industry, we have consistently delivered innovation within our core offering. We have developed our technologies through in-house R&D capabilities, strategic partnerships and acquisitions of innovative concepts, which we are able to commercialize and scale quickly across our global manufacturing footprint. This experience has provided us with a perspective on the interplay of advanced technology and the economic considerations that drive their adoption. We believe our unique position allows us to leverage our capabilities and technology to extend into other applications and adjacencies, beyond traditional mobility. Just as increasing electrical loads impact core mobility markets, they are expected to impact off-highway equipment markets that also face a secular shift towards autonomy and electrification. Beyond vehicles, we also see growth opportunities across the telecommunications, uninterruptable power and various energy storage sub sectors, among others. We already serve a collection of diversified applications, including marine, military and powersports, among others. Our product offerings in


 

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these markets serve both mobile and stationary applications, and we have begun to evaluate technology and products in a range of new stationary applications, such as providing safe, high-power technology for data centers and electric vehicle charging. We believe the market for these products is expected to grow to $6.1 billion by 2025. Many of these markets are either going through technology disruption or are in early stages of development, allowing us to leverage our scale and know-how. We also see the potential to utilize our existing capabilities in low-voltage system integration, in addition to our manufacturing and recycling footprint, to provide cost-effective solutions.

We are continuously identifying inorganic growth opportunities to expand our core business and leverage our technology and capabilities into new markets

Monitoring strategic assets within our core markets for opportunistic acquisitions and inorganic growth has become a higher priority under our new ownership. Our scale and technology capabilities provide unmatched synergy potential with acquisition targets and allows us to differentiate from other potential buyers. We have leading market positions in nearly every market globally, though emerging markets are more fragmented today than developed markets. Consistent with our organic growth strategy, we may also pursue acquisitions in emerging markets across Asia, the Middle East, Africa and Latin America. Our footprint today is partially a product of inorganic growth and this remains a core part of our strategy going forward.

Beyond our core markets, we see the potential to leverage our existing recycling network and knowhow into electric vehicle high-voltage lithium-ion battery recycling. We are working with the U.S. Department of Energy (“DOE”) and industry partners to leverage our closed-loop and logistics expertise and develop and apply innovative technologies to lithium-ion recycling in connection with low-voltage and high-voltage lithium-ion batteries. Through this work, Clarios was selected as a winner of the U.S. Department of Energy Office of Energy Efficiency and Renewable Energy’s Lithium-Ion Battery Recycling Prize competition. We see a future where we will recycle additional types of batteries for our customers, OEMs and aftermarket retailers. Despite the significant market opportunity, very few lithium-ion automotive batteries are currently available to be recycled and this initiative will take time to grow to scale as the market develops. However, we are planning for the long-term to ensure all batteries regardless of chemistry are responsibly recycled as well as working with local governments in their goal to secure domestic supply chains of critical minerals for the future.

In addition, we are beginning to explore strategies to leverage our expertise across battery management systems and may pursue partnerships, joint ventures or acquisitions to supplement our growth strategy. We have a history of acquiring, integrating and growing businesses as part of our broader organization and a track record of enhancing our scale and growth through joint ventures, including both equity investments and consolidated entities.

Risk Factors Summary

Before you invest in our stock, you should carefully consider all the information in this prospectus, including matters set forth under the heading “Risk Factors.” Some of the more significant challenges and risks relating to an investment in our common stock include those associated with the following:

 

   

the impact of COVID-19 and its collateral consequences, including production slowdowns, extended disruption of economic activity in our business and lower economic expectations;

 

   

automotive vehicle production levels, mix and schedules;

 

   

the technological evolution of the battery and automotive industries;

 

   

competitiveness of the automotive battery market;

 

   

commodity prices;

 

   

our ability to respond to rapid technological changes;


 

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our ability to timely develop competitive new products and product enhancements in a changing environment and the acceptance of such products and product enhancements by customers;

 

   

the potential impact of financial, economic, political and other risks related to conducting business internationally, including disruption of markets, changes in import and export laws, environmental, health and safety laws and regulations, currency restrictions and currency exchange rate fluctuations;

 

   

risks associated with operating in regulated industries, including our ability to comply with, and liabilities related to, applicable laws, including environmental, health and safety laws and regulations and competition laws, as well as our ability to successfully adapt to any changes in such laws and regulations;

 

   

the availability and market prices of raw materials and component products;

 

   

legislation restricting the use of certain hazardous substances in our products;

 

   

our reliance on third parties for important products and services;

 

   

the risks associated with our acquisition strategy and integrating acquisitions;

 

   

the risks associated with future acquisitions and new investments;

 

   

the extent to which we are able to efficiently utilize our global manufacturing facilities and optimize our capacity; and

 

   

our ability to service our substantial indebtedness.

Before you invest in our common stock, you should carefully consider all the information in this prospectus, including matters set forth under the heading “Risk Factors.”

Recent Developments

Set forth below are preliminary estimates of selected unaudited financial and other information for the nine months ended June 30, 2021 and actual unaudited financial results for the nine months ended June 30, 2020. Our unaudited interim consolidated financial statements for the nine months ended June 30, 2021 are not yet available. The following information reflects our preliminary estimates based on currently available information and is subject to change.

 

     Nine months ended June 30,  
     2021      2020  
     (in millions)  

Net sales

   $                    $                

Loss before income taxes

   $        $    

Total Adjusted EBITDA

   $        $    

 

   

For the nine months ended June 30, 2021, we expect to report net sales of $             , representing growth in the amount of              % over the nine months ended June 30, 2020. Net sales growth was driven primarily by            .

 

   

For the nine months ended June 30, 2021, we expect to report a loss before income taxes of $             , as compared to loss before income taxes of $             for the nine months ended June 30, 2020. This expected loss before income taxes is primarily due to            .

 

   

For the nine months ended June 30, 2021, we expect to report Total Adjusted EBITDA of $             , representing an increase of $              as compared to the nine months ended June 30, 2020. Total Adjusted EBITDA is a non-U.S. GAAP financial measure. See below for a reconciliation of expected loss before income taxes to Total Adjusted EBITDA for the nine months ended June 30, 2021 and the actual results for the nine months ended June 30, 2020. For further information about the limitations of


 

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the use of Total Adjusted EBITDA, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity—Total Adjusted EBITDA and Indenture EBITDA.”

The following table reconciles expected loss before income taxes to Total Adjusted EBITDA for the nine months ended June 30, 2021, and reconciles actual loss before income taxes to Total Adjusted EBITDA for the nine months ended June 30, 2020:

 

     Nine months ended June 30,  
     2021      2020  
     (in millions)  

Loss before income taxes

   $                    $                

Net financing charges

     

Restructuring and impairment costs

     

Intangible asset amortization

     

Depreciation

     

Deal and stand up costs (1)

     

Impacts of purchase accounting (2)

     

Core valuation change (3)

     

Factoring fees (4)

     

Other items (5)

     
  

 

 

    

 

 

 

Total Adjusted EBITDA

   $        $    
  

 

 

    

 

 

 

 

 

(1)

Expenses related to the Acquisition and costs to establish standalone business functions.

(2)

The amortization of the step-up in value of our equity method investments resulted in a reduction in equity income.

(3)

Represents the non-cash change in value of battery cores primarily due to the change in the value of lead.

(4)

Includes costs associated with ongoing receivable factoring programs. To mitigate long collection terms for accounts receivable from certain aftermarket customers, the Company actively engages in receivable factoring programs, through which accounts receivable are sold to third-party intermediaries in exchange for a fee based on LIBOR plus a spread.

(5)

Consists of other items including:            .

The data presented above reflects our preliminary estimates for the nine months ended June 30, 2021 based solely upon information available to us as of the date of this prospectus and is not a comprehensive statement of our financial or other results for the nine months ended June 30, 2021. This data has been prepared by, and is the responsibility of, our management. We currently expect that our final results will be consistent with the estimates set forth above, but such estimates are preliminary and our final results could differ from these estimates due to the completion of our financial closing procedures, final adjustments and other developments that may arise between now and the time such unaudited interim consolidated financial statements for the nine months ended June 30, 2021 are issued. For example, during the course of the preparation of the respective financial statements and related notes, additional items that would require adjustments to be made to the preliminary estimated financial information presented above may be identified. There can be no assurance that these estimates will be realized, and estimates are subject to risks and uncertainties, many of which are not within our control. See “Risk Factors,” “Special Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information regarding these risks and uncertainties, including other factors that could cause our preliminary estimates to differ from the actual financial results that we will report for the nine months ended June 30, 2021.

In May 2021, the Company made $50 million in voluntary principal payments on the USD Term Loan. In June 2021, the Company redeemed $100 million principal amount of the 2026 USD Secured Notes and


 

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$50 million principal amount of the 2025 Secured Notes at a redemption price of 103 plus accrued interest. In June 2021, the Company also made $180 million in voluntary principal payments on the USD Term Loan.

Our Corporate Structure

The following diagram depicts our organizational structure immediately following the consummation of the Transactions (as defined herein) and this offering, based on an assumed initial public offering price of $             per share (the midpoint of the estimated price range set forth on the cover page of this prospectus) and assuming the underwriters do not exercise their over-allotment option. This chart is provided for illustrative purposes only and does not purport to represent all legal entities within our organizational structure.

 

LOGO

Corporate Information

We were incorporated in Delaware on April 14, 2021. Our principal executive offices are located at 5757 N Green Bay Avenue, Florist Tower, Milwaukee, Wisconsin, 53209 and our telephone number is (414) 214-6500. Our website is https://www.clarios.com. Our website and the information contained therein or connected thereto is not incorporated into this prospectus or the registration statement of which it forms a part.


 

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Concurrent Mandatory Convertible Preferred Stock Offering

Concurrently with this offering, we are offering, by means of a separate prospectus,              shares of the Mandatory Convertible Preferred Stock (and up to an additional              shares of the Mandatory Convertible Preferred Stock that the underwriters in the concurrent offering have the option to purchase from us, exercisable within 30 days from the date of the prospectus for the concurrent offering, to cover over-allotments). We estimate that the net proceeds to us from the sale of shares of the Mandatory Convertible Preferred Stock in the concurrent offering, if completed, will be approximately $             (or approximately $             if the underwriters in the concurrent offering exercise their over-allotment option to purchase additional shares of the Mandatory Convertible Preferred Stock in full), in each case after deducting estimated expenses and underwriting discounts and commissions. At any time prior to the mandatory conversion date, holders of Mandatory Convertible Preferred Stock may elect to convert each share of the Mandatory Convertible Preferred Stock into shares of our common stock at the minimum conversion rate of shares of our common stock per share of the Mandatory Convertible Preferred Stock, subject to anti-dilution adjustments. In addition, unless converted earlier, each share of the Mandatory Convertible Preferred Stock will automatically and mandatorily convert on the mandatory conversion date into between              and              shares of our common stock, subject to certain anti-dilution and other adjustments. Any of these issuances may dilute your ownership interest in us. The closing of this offering is not conditioned upon the closing of the concurrent offering, but the closing of the concurrent offering is conditioned upon the closing of this offering, and there can be no assurance that the concurrent offering will be completed on the terms described herein or at all. For additional information, see “Mandatory Convertible Preferred Stock Offering.”


 

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THE OFFERING

This summary highlights information presented in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all the information you should consider before investing in our common shares. You should carefully read this entire prospectus before investing in our common shares including “Risk Factors” and our consolidated and combined financial statements.

 

Common stock offered

             shares (or              shares if the underwriters exercise their option to purchase additional shares of common stock in full).

 

Common stock to be outstanding after this offering

             shares (or              shares if the underwriters exercise their option to purchase additional shares of common stock in full).

 

Use of proceeds

We estimate that the net proceeds to us from this offering will be approximately $         million, or approximately $         million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $             per share (the midpoint of the range set forth on the cover page of this prospectus), after deducting estimated underwriting discounts and commissions and estimated offering expenses.

 

  Each $1.00 increase (decrease) in the public offering price per share would increase (decrease) our net proceeds, after deducting estimated underwriting discounts and commissions, by $         million (assuming no exercise of the underwriters’ over-allotment option).

 

  We estimate that the net proceeds to us from the Concurrent Offering, if completed, will be approximately $             million, or approximately $             million if the underwriters of that offering exercise their over-allotment option to purchase additional shares of the Mandatory Convertible Preferred Stock in full, after deducting estimated underwriting discounts and commissions and estimated offering expenses.

 

  We intend to use the net proceeds to us from this offering and the Concurrent Offering, if it is completed, to (i) redeem approximately $             of the 2026 USD Secured Notes (as defined herein), (ii) redeem approximately $             of the 2025 Secured Notes (as defined herein), (iii) redeem approximately $             million of the Unsecured Notes (as defined herein) and (iv) repay approximately $             of outstanding indebtedness under the USD Term Loan (as defined herein). See “Use of Proceeds.”

 

Controlled company

Upon the closing of this offering, entities affiliated with the Sponsor Group will continue to beneficially own more than 50% of the voting power for the election of members of our board of directors and we will be a “controlled company” under NYSE rules. As a controlled company, we qualify for, and intend to rely on, exemptions from certain corporate governance requirements of the NYSE. See


 

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“Management—Controlled Company Exception.” Following the completion of this offering, our insiders and affiliates will own approximately         % and our public investors will own approximately         % of our outstanding shares of common stock assuming no exercise of the underwriters’ option to purchase additional shares of common stock.

 

Listing

We have applied to list our common stock on the NYSE under the trading symbol “BTRY.”

 

Concurrent Mandatory Convertible Preferred Stock Offering:

Concurrently with this offering, we are offering, by means of a separate prospectus,              shares of the Mandatory Convertible Preferred Stock, and we have granted the underwriters of that offering a 30-day option to purchase up to an additional              shares of the Mandatory Convertible Preferred Stock, to cover over-allotments.

 

  We cannot assure you that the Concurrent Offering will be completed or, if completed, on what terms it will be completed. The closing of this offering is not conditioned upon the closing of the Concurrent Offering, but the closing of the Concurrent Offering is conditioned upon the closing of this offering. See the section of this prospectus entitled “Mandatory Convertible Preferred Stock Offering” for a summary of the terms of the Mandatory Convertible Preferred Stock and a further description of the Concurrent Offering.

The number of shares of common stock that will be outstanding after this offering is based on                  shares common stock outstanding as of                 , 2021, and excludes:

 

   

             shares of common stock reserved for issuance under our 2021 Long-Term Incentive Plan, as more fully described in “Executive Compensation—Narrative Description to the Summary Compensation Table and Grants of Plan-Based Awards Table—2021 Long-Term Incentive Plan,” and the cash-settled restricted stock units we expect to grant under this plan in connection with this offering to certain non-employee directors, with a value at grant of $145,000 (or $312,500 for the chair of our board of directors) based on the initial public offering price per share of common stock, as more fully described in “Executive Compensation—Compensation of our Directors;” and

 

   

             shares of our common stock (or              shares if the underwriters in the Concurrent Offering exercise their over-allotment option in full) issuable upon conversion of the Mandatory Convertible Preferred Stock being offered in the Concurrent Offering, in each case assuming mandatory conversion based on an applicable market value of our common stock equal to the assumed initial public offering price of $             per share of common stock, which is the midpoint of the estimated offering price range shown on the cover page of this prospectus, subject to anti-dilution, make-whole and other adjustments or any shares of our common stock that may be issued in payment of a dividend, fundamental change dividend make-whole amount or accumulated dividend amount.

In addition, unless we specifically state otherwise, the information in this prospectus assumes:

 

   

the filing of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering;

 

   

no exercise of the underwriters’ option to purchase up to an additional                  shares of common stock in this offering;


 

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the completion of the concurrent offering of              shares of the Mandatory Convertible Preferred Stock and assuming no exercise by the underwriters of that offering of their over-allotment option to purchase additional shares of Mandatory Convertible Preferred Stock; and

 

   

an assumed initial public offering price of $             per share of common stock (which is the midpoint of the estimated offering price range shown on the cover page of this prospectus).


 

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SUMMARY HISTORICAL CONSOLIDATED AND COMBINED AND

UNAUDITED PRO FORMA FINANCIAL AND OTHER DATA

The following summary consolidated and combined and unaudited pro forma financial data of Clarios should be read in conjunction with, and are qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated and combined financial statements and pro forma financial statements and the notes related to those financial statements included elsewhere in this prospectus. The summary historical financial and operating data presented below for the year ended September 30, 2018 and the seven month period ended April 30, 2019 (Predecessor) represent the Power Solutions Business as it was historically managed and operated by JCI. The historical combined financial and operating data may not be indicative of the consolidated financial position, results of operations and cash flows of the Company in the future or if it had operated independently of JCI. The summary historical financial and operating data presented below for the six months ended March 31, 2021 and 2020, the year ended September 30, 2020 and the five month period ended September 30, 2019 (Successor) represent the Company after the Acquisition.

We derived the combined statement of income data and statement of cash flow data of the Predecessor for the year ended September 30, 2018 and the seven month period ended April 30, 2019 from the audited combined carve-out financial statements of the Company included elsewhere in this prospectus. We derived the consolidated statement of income data and statement of cash flow data of the Successor for the year ended September 30, 2020 and the five month period ended September 30, 2019 from the audited consolidated financial statements of the Company included elsewhere in this prospectus. We derived the consolidated statements of income data and statement of cash flows data for the six months ended March 31, 2021 and 2020, and the statement of financial position data as of March 31, 2021, from the unaudited consolidated financial statements of the Company included elsewhere in this prospectus. Although the seven month period ended April 30, 2019 relates to the Predecessor and the five month period ended September 30, 2019 relates to the Successor, to assist with period-to-period comparison we have combined these periods as a sum of the amounts without any other adjustments and refer to the combined period as the combined year ended September 30, 2019. This combination does not comply with U.S. GAAP or with the rules for pro forma presentation.

The summary unaudited pro forma consolidated financial information presented below has been derived from our unaudited pro forma consolidated financial statements included elsewhere in this prospectus. The summary unaudited pro forma consolidated statement of income (loss) data for the year ended September 30, 2020 have been prepared to give pro forma effect to (i) the Transactions (as defined herein) and (ii) this offering and the receipt and use of the net proceeds therefrom, as if each of the foregoing transactions had been completed as of October 1, 2019. The summary unaudited pro forma condensed consolidated financial data is presented for informational purposes only and should not be considered indicative of actual results of operations that would have been achieved had the Transactions been consummated on the date indicated and do not purport to be indicative of statements of financial position or results of operations as of any future date or for any future period.


 

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The following information should be read together with the information under the headings “Unaudited Pro Forma Financial Information,” “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated and combined financial statements of the Company and related notes included elsewhere in this prospectus.

 

    Pro Forma     Historical  
    Six Months
Ended
March 31,
2021
    Year
Ended
September 30,
2020
    Six Months
Ended
March 31,
2021
    Six Months
Ended
March 31,
2020
    Year
Ended
September 30,
2020
    Year
Ended
September 30,
2019
    Five Months
Ended
September 30,
2019
    Seven Months
Ended
April 30,

2019
    Year
Ended
September 30,
2018
 
    (in millions)  
    Successor     Successor     Successor     Successor     Successor     Combined     Successor     Predecessor     Predecessor  

Statement of Income Data:

                 

Net sales

  $ 4,499     $ 7,602     $ 4,499     $ 3,915     $ 7,602     $ 8,528     $ 3,535     $ 4,993     $ 8,000  

Cost of sales

    3,581       6,405     3,581       3,247       6,405       7,273       3,214       4,059       6,293  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross Profit

    918       1,197     918       668       1,197       1,255       321       934       1,707  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

                 

Selling, general and administrative expenses

    (455     (936 )     (455     (462     (936     (818     (459     (359     (474

Equity income

    45       48       45       28       48       47       17       30       58  

Restructuring and impairment costs

    (253     (11     (253     —         (11     —         —         —         (11

Net financing charges

    (297     (587     (366     (339     (717     (297     (274     (23     (40
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    (42     (289     (111     (105     (419     187       (395     582       1,240  

Income tax provision (benefit)

    28       (93     137       (19     (17     147       (31     178       601  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (loss)

    (70     (196     (248     (86     (402     40       (364     404       639  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) attributable to noncontrolling interests

    1       (3     (1     (1     (3     15       (8     23       47  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to the Company

    (71     (193     (249     (85     (399     25       (356     381       592  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax:

                 

Foreign currency translation

        93       (146     (176     (149     (61     (88     (154

Realized and unrealized gains (losses) on derivatives

        60       (74     (71     (48     (52     4       (21

Realized and unrealized losses on marketable securities

        —         —         —         —         —         —         (4
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    Pro Forma     Historical  
    Six Months
Ended
March 31,
2021
    Year
Ended
September 30,
2020
    Six Months
Ended
March 31,
2021
    Six Months
Ended
March 31,
2020
    Year
Ended
September 30,
2020
    Year
Ended
September 30,
2019
    Five Months
Ended
September 30,
2019
    Seven Months
Ended
April 30,

2019
    Year
Ended
September 30,
2018
 
    (in millions)  
    Successor     Successor     Successor     Successor     Successor     Combined     Successor     Predecessor     Predecessor  

Other comprehensive income (loss), net of tax

        153       (220     (247     (197     (113     (84     (179
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

        (95     (306     (649     (157     (477     320       460  

Comprehensive income (loss) attributable to noncontrolling interests

        1       3       1       —         (20     20       38  
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to the Company

                            $ (96   $ (309   $ (650   $ (157   $ (457   $ 300     $ 422  
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    Historical  
    Six Months
Ended
March 31,

2021
    Six Months
Ended
March 31,

2020
    Year Ended
September 30,
2020
    Year Ended
September 30,
2019
    Five Months
Ended
September 30,
2019
    Seven Months
Ended
April 30, 2019
    Year Ended
September 30,
2018
 
    (in millions)  
    Successor     Successor     Successor     Combined     Successor     Predecessor     Predecessor  

Selected Statement of Cash Flows Data:

             

Net cash provided by (used in):

             

Operating activities

  $ 321     $ 50     $ 617     $ 727     $ 510     $ 217     $ 745  

Investing activities

    (161     (166     (202     (13,084     (12,915     (169     (359

Financing activities

    (296     111       (74     12,742       12,792       (50     (389

 

     As of March 31, 2021  
     Actual      Pro
Forma
 
     (in millions)  

Selected Statement of Financial Position Data:

     

Cash and cash equivalents

   $ 550      $ 550  

Total assets

     15,250        15,506  

Total liabilities

     13,519        12,502  

Total equity

     1,731        3,004  

 

(1)

The pro forma consolidated statement of financial position data gives effect to the Transactions, as if they occurred on March 31, 2021.


 

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Other Financial Data

Other Financial Data

 

    Six Months
Ended
March 31,

2021
    Six Months
Ended
March 31,

2020
    Year
Ended
September 30,
2020
    Year
Ended
September 30,
2019
    Five Months
Ended
September 30,
2019
    Seven Months
Ended
April 30,

2019
    Year
Ended
September 30,
2018
 
    (in millions)  
    Successor     Successor     Successor     Combined     Successor     Predecessor     Predecessor  

Adjusted EBITDA:

             

Americas

  $ 556     $ 505     $ 924     $ 1,013     $ 432     $ 581     $ 1,059  

EMEA

    279       173       324       408       163       245       469  

Asia

    104       57       112       123       38       85       142  

Corporate expenses

    (62     (47     (100     (89     (39     (50     (85
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Adjusted EBITDA(1)

  $ 877     $ 688     $ 1,260     $ 1,455     $ 594     $ 861     $ 1,585  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity—Total Adjusted EBITDA and Indenture EBITDA” for a reconciliation of Total Adjusted EBITDA to net income (loss) for the periods presented.


 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risks and all of the other information set forth in this prospectus before deciding to invest in shares of our common stock. If any of the following risks actually occurs, our business, financial condition or results of operations would likely suffer. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment. The risks discussed below are not the only risks we face. Additional risks or uncertainties not currently known to us, or that we currently deem immaterial may also have a material adverse effect on our business, financial condition, prospects, results of operations or cash flows.

Risks Relating to Our Business and Industry

Our business has been and continues to be negatively impacted by the COVID-19 pandemic.

In December 2019 a novel strain of coronavirus SARS-CoV-2, causing a disease referred to as COVID-19, was reported in Wuhan, China. The coronavirus has since spread to, and infections have been found in, the vast majority of countries around the world, including the United States and throughout EMEA. In March 2020, the World Health Organization recognized the COVID-19 outbreak as a pandemic based on the global spread of the disease, the severity of illnesses it causes and its effects on society. In response to the COVID-19 outbreak, the governments of many countries, states and cities have taken preventative or protective actions, such as imposing restrictions on travel and business operations, and advising or requiring individuals to limit or forego their time outside of their homes. The continuing surges of COVID-19 cases, along with new strains and variants being discovered and challenges associated with the roll out and availability of vaccines have resulted in the reimposition of certain restrictions in certain states and countries and may lead to other restrictions being implemented in response to efforts to reduce the spread of COVID-19. Accordingly, the COVID-19 outbreak has severely restricted the level of economic activity in many countries, continues to adversely impact global economic activity and has contributed to significant volatility in financial markets.

The Company’s operating performance is subject to global economic and market conditions, including their impacts on the aftermarket retail channel and global automotive industry. During the six months ended March 31, 2021, the COVID-19 outbreak impacted the Company’s operational and financial performance, primarily due to higher transportation rates and operational inefficiencies as we adjusted production levels to align with changing market demand and implemented enhanced safety measures to protect the health of our employees. During the year ended September 30, 2020, the COVID-19 outbreak impacted the Company’s operational and financial performance, primarily due to lower sales volumes to our OEM customers, many of whom have experienced temporary shut-downs, and to a lesser extent our aftermarket customers due to temporary store closures and a reduction in purchases due to stay at home orders. We also experienced operational inefficiencies as we adjusted production levels to align with changing market demand and, in response to regulatory requirements, implemented enhanced safety measures to protect the health of our employees. Further, we experienced, and may continue to experience, disruptions or delays in supply chain and elevated transportation costs in order to maintain the supply of materials and delivery of our products.

Because of the impacts COVID-19 had on the Company’s operations during the six months ended March 31, 2021 and the year ended September 30, 2020, the Company assessed certain accounting matters that require consideration of forecasted financial information using the information reasonably available to the Company, which does not include the unknown future impacts of COVID-19. Such accounting matters include, but are not limited to, its allowance for doubtful accounts, the carrying value of the Company’s goodwill, intangible assets and other long-lived assets and valuation allowances on deferred tax assets. As a result of these assessments, there were no impairments or material increases in allowance for doubtful accounts or valuation allowances that impacted the Company’s consolidated financial statements. Although the Company’s operations have resumed, there is no guarantee that COVID-19 will not require additional assessments in the future and these assessments will not result in material impacts to the consolidated financial statements in future reporting

 

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periods. Events and changes in circumstances arising after the date hereof, including those resulting from the impacts of COVID-19, could affect future periods and management’s planning for future periods.

The extent of the future impact of the COVID-19 outbreak on the Company’s operational and financial performance will depend on certain developments, including the duration, intensity and continued spread of the outbreak, the impact and effectiveness of vaccination efforts, the emergence of new strains of the virus and any future resurgences of COVID-19 or variant strains, regulatory and private sector responses, which may be precautionary, and the impact to the Company’s customers, workforce and vendors, all of which are uncertain and cannot be predicted. As COVID-19 vaccines are becoming available and being distributed and as operations begin to return to pre-pandemic levels, new potential legal liabilities may be created regarding workplace safety and employee rights. The Company’s financial condition and results could also be impacted by significant changes in commodity prices, foreign currency exchange rates and interest rates that may result from volatility in the economic and financial markets as a result of the COVID-19 pandemic. Changing market conditions may also affect the estimates and assumptions made by management. Such estimates and assumptions affect, among other things, the Company’s goodwill, long-lived asset and indefinite-lived intangible asset valuations, equity investment valuations, valuation of deferred and income tax contingencies, measurement of compensation cost for certain cash bonus plans, and pension plan assumptions.

An extended period of global supply chain and economic disruption as a result of the COVID-19 pandemic could have a material negative impact on our business, results of operations, access to sources of liquidity and financial condition, though the full extent and duration is uncertain. To the extent that the COVID-19 pandemic adversely impacts our business, results of operations, liquidity or financial condition, it may also have the effect of increasing many of the other risks described in this “Risk Factors” section.

A large portion of our profit is derived from a relatively small number of major customers. Decreased demand from our customers in the aftermarket retail channel and automotive industry, or the loss of any significant customer, may in the future adversely affect our results of operations.

Our North American aftermarket channel within our Americas segment is our largest market and is concentrated among four major transportation services customers. There can be no assurance that we will be able to retain these customers or that, if we were to lose one or more of these customers, we would be able to replace such customers with customers that generate a comparable amount of net sales. A number of factors could cause us to lose business or revenue from a customer, and some of these factors are not predictable and are beyond our control. For example, a customer may demand price reductions, engage in business with a competitor or reduce previously forecasted demand. Consequently, the loss of one of our major customers could have a materially adverse impact on our business, results of operations and financial condition.

Our financial performance also depends, in part, on conditions in the automotive industry. The automotive industry is highly cyclical and, in addition to general economic conditions, also depends on other factors, such as consumer confidence and consumer preferences. Lower global automotive sales could result in our OEM customers significantly lowering vehicle production schedules, which could adversely affect our earnings and cash flow. Sales to OEMs accounted for approximately 20% of our total unit sales during the year ended September 30, 2020. Declines in the North American, European and Asian automotive production levels as a result of COVID-19 has reduced, and additional declines and pricing pressure from OEMs could further reduce, our sales and our profitability, and therefore adversely affect our results of operations. Decreased volumes to our OEM customers, many of whom experienced or continue to experience temporary shut-downs or reductions in business adversely impacted our results of operations in the year ended September 30, 2020. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Products produced by OEMs are subject to market acceptance and products that are perceived to be less desirable (whether in terms of price, quality, styling, safety, overall value, fuel efficiency, or other attributes) can exacerbate this risk. With increased consumer interconnectedness through the internet, social media and other media, mere allegations relating to quality, safety, fuel efficiency, corporate social responsibility or other key attributes can negatively impact the

 

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reputation or market acceptance of the products produced by OEMs on which our financial performance partially depends, even where such allegations prove to be inaccurate or unfounded or do not relate to the performance of our products. Further, advancements in technology, regulatory changes and other factors that are difficult to predict may significantly affect the demand for our products, including as a result of the vehicle industry moving to autonomous vehicles and other mobility services. Finally, if any OEMs reach a point where they cannot fund their operations, we may incur write-offs of accounts receivable, incur impairment charges or require additional restructuring actions beyond our current restructuring plans, which, if significant, would have a material adverse effect on our business and results of operations.

If we do not respond appropriately, the technological evolution of the battery and automotive industries could adversely affect our business.

We expect that the automotive industry, and as a result the battery industry, will experience significant and continued change in the coming years. In order to remain competitive, we must remain responsive to developments in the automotive industry. As technology continues to develop and the automotive industry changes, we face substantial pressure to remain competitive. Industry participants are seeking to disrupt the traditional business model of the industry through the introduction of new technologies, products, services, business models and methods of travel that focus on minimizing the environmental impact of automobiles. For example, there has been a shift in recent years from traditional gas-powered vehicles to a higher proportion of electric alternatives. Although we have made substantial investments in battery technologies and we believe our business is well-positioned to remain competitive, there can be no assurance that we will be able to keep pace with the rate of technological change, or that others will not acquire similar or superior technologies sooner than we do or that we will acquire technologies on an exclusive basis or at a significant price advantage. If we do not continue to innovate and develop or acquire new and compelling products that capitalize upon new technologies in response to OEM and consumer preferences, our business, results of operations and financial condition may be materially adversely affected.

Volatility in commodity prices may adversely affect our results of operations.

Lead is a major component of lead-acid batteries and the price of lead has been highly volatile. In the past, lead tollers have been able to exert significant price pressure due to shocks in lead supply. See “—Our reliance on certain significant suppliers subjects us to numerous risks, including possible interruptions in supply, which could adversely affect our business.” We attempt to manage the impact of changing lead prices through the recycling of used batteries returned to us by our aftermarket customers, commercial terms and commodity hedging programs. Our ability to mitigate the impact of lead price changes can be impacted by many factors, including customer negotiations, inventory level fluctuations and sales volume/mix changes, any of which could have an adverse effect on our results of operations.

Increases in other commodity costs can negatively impact our profitability if we are not able to recover commodity cost increases through price increases to our customers on new orders. In cases where commodity price risk cannot be naturally offset or hedged through supply based fixed price contracts, we use commodity hedge contracts to minimize overall price risk associated with our anticipated commodity purchases. Unfavorability in our hedging programs during a period of declining commodity prices could result in lower margins as we reduce prices to match the market on a fixed commodity cost level. Additionally, to the extent we do not or are unable to hedge certain commodities and commodity prices substantially increase, such increases will have an adverse effect on our results of operations.

Our liquidity is affected by the seasonality of our business, and warm winters and cool summers adversely affect our results of operations.

We sell a disproportionate share of our automotive aftermarket batteries during the fall and early winter. Resellers buy automotive batteries during these periods so that they will have sufficient inventory for cold

 

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weather periods. This seasonality increases our working capital requirements and makes our business more sensitive to fluctuations in the availability of liquidity. Unusually cold winters or hot summers may accelerate battery failure and increase demand for automotive replacement batteries. Mild winters and cool summers may have the opposite effect. As a result, if our sales are reduced by an unusually warm winter or cool summer, it may not be possible to recover these sales in later periods. Further, if our sales are adversely affected by the weather, we cannot make offsetting cost reductions to protect our liquidity and gross margins in the short-term because a large portion of our manufacturing and distribution costs are fixed. These circumstances could result in a material adverse effect on our business, financial condition and results of operations.

Our future growth is dependent upon our ability to develop or acquire new technologies that achieve market acceptance with acceptable margins.

Our future success depends on our ability to develop or acquire and manufacture and make competitive, increasingly complex products and services to market quickly and cost-effectively. Our ability to develop or acquire new products and services requires the investment of significant resources. For example, in recent years we have made significant capital investments to expand our product offerings to include AGM and EFB technologies, which power vehicles that automatically shut down and restart the internal combustion engine to reduce the amount of time the engine spends idling, thereby reducing fuel consumption and emissions (“start-stop vehicles”), as well as investing in lithium-ion battery technology for certain hybrid and electric vehicles. These acquisitions and development efforts divert resources from other potential investments in our business and they may not lead to the development of new technologies, products or services on a timely basis. Moreover, as we introduce new products, we may be unable to detect and correct defects in the design of a product or in its application to a specified use, which could result in loss of sales or delays in market acceptance. Even after introduction, new or enhanced products may not satisfy customer preferences and product failures may cause customers to reject our products. As a result, these products may not achieve market acceptance and our brand image could suffer. In addition, the markets for our products and services may not develop or grow as we anticipate. As a result, the failure of our technology, products or services to gain market acceptance, the potential for product defects, product quality issues or the obsolescence of our products and services could significantly reduce our revenues, increase our operating costs or otherwise materially and adversely affect our business, financial condition, results of operations and cash flows.

Risks associated with our non-U.S. operations could adversely affect our business, financial condition and results of operations.

We have significant operations in a number of countries outside the U.S., some of which are located in emerging markets. Long-term economic uncertainty in some of the regions of the world in which we operate, such as Asia, South America, EMEA and emerging markets generally, could result in the disruption of markets and negatively affect cash flows from our operations to cover our capital needs and debt service requirements.

In addition, as a result of our global presence, a significant portion of our revenues and expenses is denominated in currencies other than the U.S. dollar. We are therefore subject to non-U.S. currency risks and non-U.S. exchange exposure. While we employ financial instruments to hedge some of our transactional foreign exchange exposure, these activities do not insulate us completely from those exposures. Exchange rates can be volatile and a substantial weakening of foreign currencies against the U.S. dollar could reduce our profitability in various locations outside of the U.S. and adversely impact the comparability of results from period to period.

There are other risks that are inherent in our non-U.S. operations, including the potential for changes in socio-economic conditions, laws and regulations, including, among others, competition, import, export, labor and environmental, health and safety laws and regulations, and monetary and fiscal policies, protectionist measures that may prohibit acquisitions or joint ventures, or impact trade volumes, unsettled political conditions; government-imposed plant or other operational shutdowns, backlash from foreign labor organizations related to our restructuring actions, corruption; natural and man-made disasters, hazards and losses, violence, civil and labor unrest, and possible terrorist attacks.

 

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These and other factors may have a material adverse effect on our non-U.S. operations and therefore on our business and results of operations.

Our operations in China subject us to increased risks, including risks related to evolving economic, political and social conditions.

Our business is subject to risks inherent in doing business internationally. In particular, we face risks relating to our business in China, as the volume growth in our business has been driven by increasing volume in our Asia segment. Approximately 6.0% of our net sales were from our Asia segment for the year ended September 30, 2020. The Chinese economy differs from the economies of most developed countries in many respects, including the amount of government involvement, the level of development, the growth rate, the control of foreign exchange and the allocation of resources. The Chinese government exercises significant control over China’s economic growth through the allocation of resources, control of the incurrence and payment of foreign currency-denominated obligations, setting of monetary policy and provision of preferential treatment to particular industries or companies. In recent years, the Chinese government has been reforming its economic and political systems, and we expect this to continue. Although we believe that these reforms have had a positive effect on our ability to do business in China, we cannot assure you that these reforms will continue or that the Chinese government will not take actions that impair our platform in China. In addition, recent international unrest involving mounting trade tension between China and the United States presents additional risks and uncertainties. If our ability to do business in China is adversely impacted, our business, results of operation and financial condition could be materially adversely affected.

General economic, credit and capital market conditions could adversely affect our financial performance, our ability to grow or sustain our business and our ability to access the capital markets.

We compete around the world in various geographic regions and global economic conditions affect our business. Any future financial distress in the industries and/or markets where we compete could negatively affect our revenues and financial performance in future periods, result in future restructuring charges, and adversely impact our ability to grow or sustain our business.

The capital and credit markets provide us with liquidity to operate and grow our business beyond the liquidity that operating cash flows provide. A worldwide economic downturn and/or disruption of the capital and credit markets could reduce our access to capital necessary for our operations and executing our strategic plan. If our access to capital were to become significantly constrained, or if costs of capital increased significantly due to lowered credit ratings, prevailing industry conditions, the volatility of the capital markets or other factors; then our financial condition, results of operations and cash flows could be adversely affected.

Our businesses operate in regulated industries and are subject to a variety of complex and continually changing laws and regulations.

Our operations and employees are subject to various U.S. federal, state and local licensing laws, codes and standards and regulations and similar foreign laws, codes, standards and regulations. Changes in laws or regulations could require us to change the way we operate or to utilize resources to maintain compliance, which could increase costs or otherwise disrupt operations. In addition, failure to comply with any applicable U.S. or foreign laws or regulations could result in substantial fines, damages or revocation of our operating permits and licenses. Competition, antitrust or other regulatory investigations can continue for several years, be costly to defend and can result in substantial fines and private damages in jurisdictions around the world. We have in the past been subject to and cooperated with such investigations. If we are subject to such an investigation, the fact that we may decide to cooperate with regulators or settle with private plaintiffs standing alone may not improve our risk profile or reduce our potential liability as a result of such investigation. In addition, any obstruction of any investigation, including any noncompliance with any confidentiality agreements in connection with any such investigation, could result in additional liability and materially impact our business. Moreover, if laws and

 

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regulations were to change or if we or our products failed to comply with the laws described above or other applicable U.S. or foreign laws or regulations, our business, financial condition and results of operations could be adversely affected.

Due to the international scope of our operations, the system of laws and regulations to which we are subject is complex and includes regulations issued by the U.S. Customs and Border Protection, the U.S. Department of Commerce’s Bureau of Industry and Security, the U.S. Treasury Department’s Office of Foreign Assets Control and various non-U.S. governmental agencies, including applicable export controls, anti-trust, customs, data privacy restrictions, currency exchange control and transfer pricing regulations, laws regulating the foreign ownership of assets and laws governing certain materials that may be in our products. No assurances can be made that we will continue to be found to be operating in compliance with, or be able to detect violations of, any such laws or regulations. For example, some foreign data privacy regulations are more stringent than those in the U.S. and continue to evolve. Further, existing free trade laws and regulations, such as the United States-Mexico-Canada Agreement, or any successor agreement, provide certain beneficial duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other requirements. Changes in laws or policies governing the terms of foreign trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries where we manufacture products or from where we import products or raw materials (either directly or through our suppliers) could have an impact on our competitive position, business and financial results.

We cannot predict the nature, scope or effect of future regulatory requirements to which our operations might be subject or the manner in which existing laws might be administered or interpreted.

Failure to comply with evolving data privacy and data security laws and regulations could lead to government enforcement actions (which could include civil or criminal penalties), private litigation or adverse publicity and could have a material adverse effect on our business.

Privacy and data security have become significant issues in the United States, Europe and in many other jurisdictions where we conduct our operations. Our collection, processing, distribution and storage of personal information is subject to a variety of laws and regulations both in the United States and abroad, which could limit the way we market and provide our products and services. Compliance with these privacy and data security requirements is rigorous and time-intensive and may increase our cost of doing business and, despite these efforts, there is a risk that we fail to comply and may become subject to government enforcement actions, fines and penalties, litigation and reputational harm, which could materially and adversely affect our business, financial condition and results of operations. In addition, the regulatory framework for the handling of personal and confidential information is rapidly evolving and is likely to remain uncertain for the foreseeable future as new privacy laws are being enacted globally and existing laws are being updated and strengthened.

For example, in May 2018, the General Data Protection Regulation (“GDPR”) superseded prior European Union data protection legislation, and it imposes more stringent European Union data protection requirements and provides for greater penalties for noncompliance. Under the GDPR, fines of up to 20 million euro or up to 4% of the annual global turnover of the infringer, whichever is greater, could be imposed. The GDPR is wide-ranging in scope and imposes numerous additional requirements on companies that process personal data, including imposing special requirements in respect of the processing of personal data, requiring the consent of individuals to whom the personal data relates is obtained in certain circumstances, requiring additional disclosures to individuals regarding data processing activities, requiring that safeguards are implemented to protect the security and confidentiality of personal data, creating mandatory data breach notification requirements in certain circumstances and requiring that certain measures (including contractual requirements) are put in place when engaging third-party processors. The GDPR also provides individuals with various rights in respect of their personal data, including rights of access, erasure, portability, rectification, restriction, and objection.

Further, the United Kingdom’s vote in favor of exiting the European Union, often referred to as Brexit, and ongoing developments in the United Kingdom have created uncertainty with regard to data protection regulation

 

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in the United Kingdom. As of January 1, 2021, and the expiry of transitional arrangements agreed to between the United Kingdom and the European Union, data processing in the United Kingdom is governed by a United Kingdom version of the GDPR (combining the GDPR and the Data Protection Act 2018), exposing us to two parallel regimes, each of which potentially authorizes similar fines and other potentially divergent enforcement actions for certain violations. Pursuant to the Trade and Cooperation Agreement, which went into effect on January 1, 2021, the United Kingdom and the European Union agreed to a specified period during which the United Kingdom will be treated like a European Union member state in relation to transfers of personal data to the United Kingdom for four months from January 1, 2021. This period may be extended by two further months. Unless the European Commission makes an adequacy finding in respect of the United Kingdom before the expiration of such specified period, the United Kingdom will become an inadequate third country under the GDPR and transfers of data from the European Economic Area to the United Kingdom will require a transfer mechanism, such as the standard contractual clauses. Furthermore, following the expiration of the specified period, there will be increasing scope for divergence in application, interpretation and enforcement of the data protection law as between the United Kingdom and the European Union.

Other jurisdictions outside the European Union are similarly introducing or enhancing privacy and data security laws, rules and regulations, which could increase our compliance costs and the risks associated with noncompliance. For example, California recently enacted the California Consumer Privacy Act (the “CCPA”), which creates new individual privacy rights for California consumers (as defined in the law) and places increased privacy and security obligations on companies handling personal information of consumers or households. The CCPA, which went into effect on January 1, 2020, requires covered companies to provide new disclosure to consumers about such companies’ data collection, use and sharing practices, provide methods for such consumers to access and delete their personal information, with exceptions, as well as allowing consumers to opt-out of certain sales or transfers of their personal information. The CCPA provides for civil penalties for violations and further provides consumers with a new private right of action in the event of a data breach involving certain sensitive information as a result of the business’ failure to implement reasonable security measures. This private right of action may increase the likelihood of, and risks associated with, data breach litigation. The California Attorney General’s enforcement authority under the CCPA became effective July 1, 2020, and it remains unclear how various provisions of the CCPA will be interpreted and enforced. As currently written, the CCPA impacts certain of our business activities and exemplifies the vulnerability of our business to the evolving regulatory environment related to personal information. A ballot initiative from privacy rights advocates intended to augment and expand the CCPA called the California Privacy Rights Act (“CPRA”) was passed in November 2020 and will take effect in January 2023 (with a look back to January 2022). The CPRA significantly modifies the CCPA, including by imposing additional obligations on covered companies and expanding consumers’ rights with respect to certain sensitive personal information, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply. The CPRA also creates a new state agency that will be vested with authority to implement and enforce the CCPA and the CPRA. In addition, all 50 states have laws including obligations to provide notification of security breaches of computer databases that contain personal information to affected individuals, state officers and others. Aspects of the CCPA, the CPRA and other laws and regulations relating to data protection, privacy and information security, as well as their enforcement, remain unclear and we may be required to modify our practices in an effort to comply with them.

We cannot yet fully determine the impact these or future laws, rules and regulations concerning data privacy and security may have on our business or operations. These laws, rules and regulations may be inconsistent from one jurisdiction to another, subject to differing interpretations and may be interpreted to conflict with our practices. Additionally, we may be bound by contractual requirements applicable to our collection, use, processing and disclosure of various types of data, including personal information, and may be bound by, or voluntarily comply with, self-regulatory or other industry standards relating to these matters. Compliance with U.S. and international privacy and data security laws and regulations could require us to take on more onerous obligations in our contracts and restrict our ability to collect, use and disclose data. Because the interpretation and application of data protection laws, regulations, standards and other obligations are still uncertain, and often

 

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contradictory and in flux, it is possible that the scope and requirements of these laws may be interpreted and applied in a manner that is inconsistent with our practices and our efforts to comply with the evolving data protection rules may be unsuccessful. Failure to comply with U.S. and international privacy and data security laws and regulations could result in government enforcement actions (which could include civil or criminal penalties), private litigation or adverse publicity and could negatively affect our results of operations and business. Claims that we have violated individuals’ privacy rights, failed to comply with privacy and data security laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time consuming to defend and could result in adverse publicity that could increase our operation costs, impact our financial performance and adversely affect enrollments.

We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act 2010 and similar anti-bribery laws around the world.

The U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act 2010 and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials or other persons for the purpose of obtaining or retaining business. Recent years have seen a substantial increase in anti-bribery law enforcement activity, with more frequent and aggressive investigations and enforcement proceedings by both U.S. and non-U.S. regulators, and increases in criminal and civil proceedings brought against companies and individuals. Our policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that are recognized as having governmental and commercial corruption and local customs and practices that can be inconsistent with anti-bribery laws. We cannot assure you that our internal control policies and procedures will always protect us from reckless or criminal acts committed by our employees or third-party intermediaries. In the event that we believe or have reason to believe that our employees or agents have or may have violated applicable anti-corruption laws, or if we are subject to allegations of any such violations, we may be required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Violations of these laws may result in criminal or civil sanctions, which could disrupt our business and result in a material adverse effect on our reputation, business, financial condition, results of operations and cash flows. In addition, we could be subject to commercial impacts such as lost revenue from customers who decline to do business with us as a result of such compliance matters, or we could be subject to lawsuits brought by private litigants, each of which could have a material adverse effect on our reputation, business, financial condition, results of operations and cash flows.

Our business may be adversely affected if we are unable to adequately establish, maintain, protect and enforce our intellectual property and proprietary rights or prevent third parties from making unauthorized use of such rights.

Our intellectual property is an essential asset of our business. Failure to adequately protect our intellectual property rights could result in our competitors offering similar products and services, potentially resulting in the loss of our competitive advantage and a decrease in our revenue, which would adversely affect our business prospects, financial condition and results of operations. Our success depends in part on our ability to protect our proprietary rights and intellectual property. We rely on a combination of intellectual property rights, such as trademarks, trade secrets (including know-how), patents and copyrights, in addition to confidentiality provisions and licensing arrangements to establish, maintain, protect and enforce our proprietary rights. For example, we rely on trademark protection to protect our rights to various marks as well as distinctive logos and other marks associated with our products and services. We also rely on agreements under which we contract to own, or license rights to use, intellectual property developed by employees, contractors and other third parties. In addition, while we generally enter into confidentiality agreements with our employees and third parties to protect our trade secrets, know-how, business strategy and other proprietary information, such confidentiality agreements could be breached or otherwise may not provide meaningful protection for our trade secrets and know-how related to the design, manufacture or operation of our products. Similarly, while we seek to enter into agreements with all of our employees who develop intellectual property during their employment to assign the

 

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rights in such intellectual property to us, we may fail to enter into such agreements with all relevant employees, such agreements may be breached or may not be self-executing, and we may be subject to claims that such employees misappropriated relevant rights from their previous employers. Accordingly, we cannot guarantee that the steps we have taken to protect our intellectual property will be adequate to prevent infringement of our rights or misappropriation of our technology, trade secrets or know-how, that we have secured, or will be able to secure, appropriate permissions or protections for all of the intellectual property rights we use or claim rights to, or that third parties will not terminate our license rights. For example, effective patent, trademark, copyright and trade secret protection may be unavailable or limited in some of the countries in which we operate. Furthermore, intellectual property laws and our procedures and restrictions provide only limited protection and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed or misappropriated.

If we fail to protect our intellectual property rights adequately, we may lose an important advantage in the markets in which we compete. Our efforts to protect these rights may be insufficient or ineffective, and any of our intellectual property rights may be challenged, which could result in them being narrowed in scope or declared invalid or unenforceable. Other parties may also independently develop technologies, products and services that are substantially similar or superior to ours. We also may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. If it became necessary for us to resort to litigation to protect our intellectual property rights, any proceedings could be burdensome and costly, and we may not prevail. Further, adequate remedies may not be available in the event of an unauthorized use or disclosure of our trade secrets and manufacturing expertise. Finally, for those products in our portfolio that rely on patent protection, once a patent has expired, the product is generally open to competition. Products under patent protection usually generate significantly higher revenues than those not protected by patents. If we fail to successfully enforce our intellectual property rights, our competitive position could suffer, which could harm our business, financial condition, results of operations and cash flows.

From time to time, we are party to intellectual property-related litigations and proceedings that are expensive and time consuming to defend, and, if resolved adversely, could materially adversely impact our business, financial condition and results of operations.

Our commercial success depends in part on avoiding infringement, misappropriation or other violations of the intellectual property and proprietary rights of third parties and other intellectual property-related disputes. Some third-party intellectual property rights may prove to be extremely broad, and it may not be possible for us to conduct our operations in such a way as to avoid violating those intellectual property rights. As we face increasing competition, the possibility of intellectual property rights claims against us grows. Such claims and litigation may involve patent holding companies or other adverse intellectual property rights holders who have no relevant product revenue, and, therefore, our own issued and pending patents and other intellectual property rights may provide little or no deterrence to these rights holders in bringing intellectual property rights claims against us. There may be intellectual property rights held by others, including issued or pending patents and registered trademarks, that cover significant aspects of our technologies, products or services, and we cannot assure that we are not infringing or violating, and have not infringed or violated, any third-party intellectual property rights, or that we will not be held to have done so or be accused of doing so in the future. In addition, we are party to a number of complex intellectual property agreements with our licensing partners and certain provisions in such agreements may be susceptible to multiple interpretations. Any disputes with our licensing partners with respect to such agreements could narrow what we believe to be the scope of our rights to the relevant intellectual property or increase our obligations under such agreements, either of which could have a material adverse effect on our business, financial condition, results of operations and cash flows

We are, from time to time, subject to claims of intellectual property infringement by third parties, including practicing entities and non-practicing entities. Regardless of the merit of such claims, any claim that we have violated intellectual property or other proprietary rights of third parties, whether or not it results in litigation, is settled out of court or is determined in our favor, could be expensive and time-consuming, and could divert the

 

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time and attention of management and technical personnel from our business. The litigation process is subject to inherent uncertainties, and we may not prevail in litigation matters regardless of the merits of our position. Further, our liability insurance may not cover potential claims of this type adequately or at all. Intellectual property lawsuits or claims may become extremely disruptive if plaintiffs were to succeed in blocking the trade of our products and services. Furthermore, an adverse outcome of a dispute may result in an injunction and could require us to pay substantial monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a party’s intellectual property rights. Any settlement or adverse judgment resulting from such a claim could (i) require us to enter into a licensing agreement to continue using the technology, content or other intellectual property that is the subject of the claim; (ii) restrict or prohibit our use of such technology, content or other intellectual property; (iii) require us to expend significant resources to alter the design and operation of our systems and technology or the content of our courses; and (iv) require us to indemnify third parties. Royalty or licensing agreements, if required or desirable, may be unavailable on terms acceptable to us, or at all, and may require significant royalty payments and other expenditures. We may also be required to develop alternative non-infringing technology, which could require significant time and expense. There also can be no assurance that we would be able to develop or license suitable alternative technology, content or other intellectual property to permit us to continue offering the affected technology, content or services to our partners. If we cannot develop or license technology for any allegedly infringing aspect of our business, we would be forced to limit our battery technologies, products and services and may be unable to compete effectively. Any of these events could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are subject to requirements and liabilities relating to environmental, health and safety laws and regulations and environmental remediation matters, including those related to the manufacturing and recycling of lead-acid batteries, which could adversely affect our business, financial condition, results of operation and reputation.

We are subject to numerous federal, foreign, international, state and local environmental, health and safety laws and regulations governing, among other matters, emissions to air, water and land, solid and hazardous waste storage, treatment, recycling, disposal and transportation, chemical exposure, worker and public health and safety, and remediation of the presence or releases of hazardous materials, including as they pertain to decommissioning our facilities, lead/lead compounds and sulfuric acid, the primary materials used in the manufacture of lead-acid batteries, and to solvents and metal compounds used in the manufacture or repair of lithium-ion batteries. There are significant capital, operating and other costs associated with compliance with or liability under environmental, health and safety laws and regulations. We have been subject to allegations, litigation, notices of violation, consent decrees and orders with governmental authorities, and failures to comply, particularly to the extent such noncompliance is determined to be part of a continuing pattern of noncompliance, with respect to such laws and regulations, including obtaining and complying with any permits required to conduct our operations, could subject us to civil or criminal liability, monetary damages, reputational damages, fines and/or a cessation or interruption of operations or an increase in costs to continue such operations in the future. Certain environmental laws, including the U.S. Superfund law and state equivalents, make us potentially liable on a strict, joint and several basis for the investigation and remediation of contamination at, or originating from, facilities that are currently or formerly owned or operated by us and third-party sites to which we send or have sent materials for disposal or materials for recycling, along with related natural resources damages. Such liability may not be limited to the cleanup of contamination, particularly when such contamination is present in residential areas. We are and have been involved in investigation and remediation activities at our current and former, and third-party sites. We cannot provide any assurance that we will not incur liability relating to the investigation or remediation of contamination or natural resources damages in the future, including contamination we did not cause, which could adversely affect our business, financial condition, results of operation and reputation. As an example, in December 2020, we were named in a lawsuit filed by the state of California seeking relief associated with environmental contamination generated by a former Exide lead recycling facility in Vernon, California to which we had sent lead bearing battery scrap and spent lead-acid batteries for the purpose of recycling, reimbursement of costs incurred to date by the plaintiff related to its

 

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investigation and clean up and potentially the costs of future investigation and remediation. We are currently unable to reasonably estimate the potential loss or range of potential losses as a result of this lawsuit.

Environmental, health and safety laws and regulations may also become more stringent in the future, which could increase costs of compliance, require us to manufacture with alternative technologies and materials or otherwise make material changes to our operations, resulting in significant increases to the cost of production. For example, we benefit from an exemption for lead-acid batteries from the European Union’s End-of-Life Vehicle Directive (Directive 2000/53/EC). If the European Union removes the exemption or declines to grant extensions of the exemption, and therefore makes it unlawful to use lead-acid batteries in light-duty vehicles, our business, financial condition and results of operations may be adversely affected. Similarly, there is a possibility that lead/lead compounds for use in lead-acid batteries and/or components of lithium-ion batteries could be added to the EU’s Registration, Evaluation, Authorisation, and Restriction of Chemicals (“REACH”) authorization list, the U.S.’s Toxic Substances Control Act (“TSCA”) high priority list, and/or the California Safer Consumer Products Priority Product list, which, in any of these cases, could result in litigation, cause us to incur significant costs in order to comply and adversely affect our business, financial condition and results of operations. In addition, costs, including capital and operating costs, relating to compliance with existing, modified or new environmental, health and safety laws and regulations can be material, and in the future we may be unable to generate sufficient funds or access other sources of capital to fund unforeseen environmental liabilities or expenditures. If we or our business partners fail to adhere to environmental, health and safety requirements, including obtaining and complying with any permits required to conduct operations, it could adversely affect our business, financial condition, results of operation and reputation.

In addition, increased public awareness and concern regarding environmental and social corporate responsibility and any concerns or allegations around our environmental, health and safety practices and compliance with laws and regulations in connection with the manufacturing, use, collection and recycling of our products could negatively impact the reputation of our company and products and our business could be materially and adversely affected by any reduction in the market acceptance of our products, even where such concerns or allegations prove to be inaccurate or unfounded or do not relate to the performance of our products or the safety of our manufacturing, collection and recycling processes.

Global climate change (and related laws) could negatively affect our business, financial condition and results of operation. Increased public awareness and concern regarding global climate change may result in more regional and/or federal requirements to reduce or mitigate the effects of greenhouse gas emissions.

There continues to be a lack of consistency between states, the U.S. federal government and other countries regarding legislation and regulations relating to climate change, which creates economic and regulatory uncertainty. Such regulatory uncertainty extends to incentives, that if discontinued, could adversely impact the demand for batteries for energy efficient vehicles. These factors may impact the demand for our products, obsolescence of our products and our results of operations.

There is a growing consensus that greenhouse gas emissions are linked to global climate change. Climate change, such as extreme weather conditions, create financial risk to our business. For example, as described above, the demand for our products and services, such as automotive replacement batteries, may be affected by unseasonable weather conditions. Climate changes could also disrupt our operations by impacting the availability and cost of materials needed for manufacturing and could increase insurance and other operating costs. These factors may impact our decisions to construct new facilities or maintain existing facilities in areas most prone to physical climate risks. We could also face indirect financial risks passed through the supply chain and process disruptions due to physical climate changes could result in price modifications for our products and the resources needed to produce them. In addition, increased public awareness and concern regarding climate change may impact the demand for our products or obsolescence of our products.

 

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A variety of other factors could adversely affect our results of operations.

Any of the following could materially and adversely impact our results of operations: loss of, or changes in, automobile battery supply contracts with our large original equipment and aftermarket customers; contracts, or the interruption or cessation of operations of, with certain of our suppliers including long-term tolling agreements; the increasing quality and useful life of batteries or use of alternative battery technologies, both of which may adversely impact the lead-acid battery market, including replacement cycle; delays or cancellations of new vehicle programs; market and financial consequences of any recalls that may be required on our products; delays or difficulties in new product development, including lithium-ion technology; impact of potential increases in lithium-ion battery volumes on established lead-acid battery volumes as lithium-ion battery technology grows and costs become more competitive; financial instability or market declines of our customers or suppliers; slower than projected market development in emerging markets; interruption of supply of certain single-source components; changing nature of our joint ventures and relationships with our strategic business partners; unseasonable weather conditions in various parts of the world; transportation delays within our plant network or increased prices for logistics services; our ability to secure sufficient tolling capacity to recycle batteries; price and availability of battery cores used in recycling; and the pace of the development of the market for hybrid and electric vehicles.

Our reliance on certain significant suppliers subjects us to numerous risks, including possible interruptions in supply, which could adversely affect our business.

Our ability to maintain consistent quality throughout our operations depends in part upon our ability to acquire certain products in sufficient quantities. Our suppliers are subject to environmental, health and safety laws and regulations and failure to comply with such laws and regulations could result in a cessation or interruption of their operations or increased costs which are passed on to their customers, including us. Supply shortages for a particular component can delay production and thus delay shipments to customers and our receipt of related net sales. This could cause us to experience a reduction in sales, increased costs and could adversely affect relationships with existing and prospective customers. In particular, a disruption to lead supply could adversely impact our business, financial condition and results of operations.

Negative or unexpected tax consequences could adversely affect our results of operations.

Adverse changes in the underlying profitability and financial outlook of our operations in several jurisdictions could lead to additional changes in our valuation allowances against deferred tax assets and other tax reserves on our statement of financial position, and the future sale of certain businesses could potentially result in the reversal of outside basis differences that could adversely affect our results of operations and cash flows. Additionally, changes in tax laws in the U.S. or in other countries where we have significant operations could materially affect deferred tax assets and liabilities on our consolidated statements of financial position and our income tax provision in our consolidated statements of income. We are also subject to tax audits by governmental authorities. Negative unexpected results from one or more such tax audits could adversely affect our results of operations.

Recently enacted tax reform bills could adversely affect our business and financial conditions.

The Tax Cuts and Jobs Act, or the TCJA, enacted on December 22, 2017, significantly affected U.S. tax law, including by changing how the U.S. imposes tax on certain types of income of corporations and by reducing the U.S. federal corporate income tax rate to 21%. It also imposed new limitations on several tax benefits, including deductions for business interest, use of net operating loss carryforwards, taxation of foreign income, and the foreign tax credit, among others. In response to the COVID-19 pandemic, the Families First Coronavirus Response Act, or FFCR Act, enacted on March 18, 2020 and the Coronavirus Aid Relief, and Economic Security Act, or CARES Act, enacted on March 27, 2020, further amended the U.S. federal tax code, including in respect of certain changes that were made by the TCJA, generally on a temporary basis. There can be no assurance that

 

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future tax law changes will not increase the rate of the corporate income tax significantly, impose new limitations on deductions, credits or other tax benefits, or make other changes that may adversely affect our business, cash flows or financial performance. In addition, the IRS has yet to issue guidance on a few important issues regarding the changes made by the TCJA and the CARES Act. In the absence of such guidance, we will take positions with respect to several unsettled issues. There is no assurance that the IRS or a court will agree with the positions taken by us, in which case tax penalties and interest may be imposed that could adversely affect our business, cash flows or financial performance.

Other future changes in tax laws or regulations, or the interpretation thereof, tax policy initiatives and reforms under consideration and the practices of tax authorities could adversely affect us. We are unable to predict what tax reform may be proposed or enacted in the future or what effect such changes would have on our business, but such changes could affect our financial position and overall or effective tax rates in the future, reduce after-tax returns to our stockholders, and increase the complexity, burden and cost of tax compliance. If our effective tax rate increases, our operating results and cash flow could be adversely affected. Our effective income tax rate can vary significantly between periods due to a few complex factors including, but not limited to, projected levels of taxable income, tax audits conducted and settled by tax authorities, and adjustments to income taxes upon finalization of income tax returns.

Legal proceedings in which we are, or may be, a party may adversely affect us.

We are currently, and may in the future, become subject to legal proceedings and commercial or contractual disputes. These are typically claims that arise in the normal course of business including, without limitation, commercial or contractual disputes with our suppliers or customers, intellectual property matters and third-party liability, including product liability claims and employment claims. We may in the future be named as a defendant in tort exposure claims and other actions where the third-party use of our products or where our operations (including those involving the collection, recycling, transportation and storage of lead bearing materials as well as those involving the assembly, manufacture, storage and transportation of components, work in process and finished products) have allegedly resulted in contamination to the soil, groundwater and drinking water supplies or elevated concentrations of lead in individuals. Plaintiffs in these cases are generally seeking damages for personal injuries, medical monitoring and diminution in property values, and are also seeking punitive damages and injunctive relief to address the alleged injury or remediation of the alleged contamination. Furthermore, we are currently, and may in the future, be named as a defendant in other claims relating to environmental, health and safety laws and regulations we are subject to. See “—We are subject to requirements and liabilities relating to environmental, health and safety laws and regulations and environmental remediation matters, including those related to the manufacturing and recycling of lead-acid batteries, which could adversely affect our business, financial condition, results of operation and reputation.” For example, in December 2020, we were named in a lawsuit filed by the state of California seeking relief associated with environmental contamination generated by a former Exide lead recycling facility in Vernon, California to which we have sent lead bearing battery scrap and spent lead acid batteries for the purpose of recycling, reimbursement of costs incurred to date by the plaintiff related to its investigation and clean up and potentially the costs of future investigation and remediation. We are currently unable to reasonably estimate the potential loss or range of potential losses as a result of this lawsuit. There is a possibility that litigation in which we are involved may have an adverse impact on our results of operations and cash flows that is greater than we anticipate and/or negatively affect our reputation.

The potential insolvency or financial distress of third parties could adversely impact our business and results of operations.

We are exposed to the risk that third parties to various arrangements who owe us money or goods and services, or who purchase goods and services from us, will not be able to perform their obligations or continue to place orders due to insolvency or financial distress. If third parties fail to perform their obligations under arrangements with us, we may be forced to replace the underlying commitment at current or above market prices

 

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or on other terms that are less favorable to us. In such events, we may incur losses, or our results of operations, financial condition or liquidity could otherwise be adversely affected.

We may be unable to complete or integrate acquisitions or joint ventures effectively, which may adversely affect our growth, profitability and results of operations.

Acquisitions of businesses and assets, as well as joint ventures (or other strategic arrangements), may play a role in our future growth. We cannot be certain that we will be able to identify attractive acquisition or joint venture targets, obtain financing for acquisitions on satisfactory terms, successfully acquire identified targets, form joint ventures or manage the timing of acquisitions with capital obligations. Acquisitions, partnerships, alliances and subsequent integrations thereof would require significant managerial, operational and financial resources and could result in a diversion of resources from our existing business, which in turn could have an adverse effect on our growth and business operations. Additionally, we may not be successful in integrating acquired businesses or joint ventures into our existing operations and achieving projected synergies which could result in impairment of assets, including goodwill and acquired intangible assets. We must necessarily base any assessment of potential acquisitions, partnerships or alliances on assumptions with respect to operations, profitability and other matters that may subsequently prove to be incorrect. Future acquisitions and alliances, as well as other investments, may not produce anticipated synergies or perform in accordance with our expectations. The cost and duration of integrating newly acquired businesses could also materially exceed our expectations.

Competition for acquisition opportunities in the industry in which we operate may rise, thereby increasing our costs of making acquisitions or causing us to refrain from making further acquisitions. If we were to use equity securities to finance a future acquisition, our then-current stockholders would experience dilution. We are also subject to applicable antitrust laws and must avoid anticompetitive behavior. These and other factors related to acquisitions and joint ventures may negatively and adversely impact our growth, profitability and results of operations.

Risks associated with joint venture investments may adversely affect our business and financial results.

We have entered into several joint ventures and we may enter into additional joint ventures in the future. Our joint venture partners may at any time have economic, business or legal interests or goals that are inconsistent with our goals or with the goals of the joint venture. In addition, we may compete against our joint venture partners in certain of our other markets. Disagreements with our business partners may impede our ability to maximize the benefits of our partnerships. Our joint venture arrangements may require us, among other matters, to pay certain costs or to make certain capital investments or to seek our joint venture partner’s consent to take certain actions. In addition, our joint venture partners may be unable or unwilling to meet their economic or other obligations under the operative documents, and we may be required to either fulfill those obligations alone to ensure the ongoing success of a joint venture or to dissolve and liquidate a joint venture. These risks could result in a material adverse effect on our business and financial results.

A failure of our information technology (IT) and data security infrastructure could adversely impact our business and operations.

We rely upon the capacity, reliability and security of our IT and data security infrastructure and our ability to expand and continually update this infrastructure in response to the changing needs of our business. As we implement new systems or integrate existing systems, they may not perform as expected. We also face the challenge of supporting our older systems and implementing necessary upgrades. If we experience a problem with the functioning of an important IT system or a security breach of our IT systems, including during system upgrades and/or new system implementations, the resulting disruptions could have an adverse effect on our business. Furthermore, we collect and maintain information in digital form that is necessary to conduct our business, and we are increasingly dependent on our IT and data security infrastructure to operate our business. In the ordinary course of our business, we collect, store and transmit large amounts of confidential information,

 

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including intellectual property, proprietary business information and personal information. It is critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. We have established physical, electronic and organizational measures to safeguard and secure our systems to prevent a data compromise, and rely on commercially available systems, software, tools, and monitoring to provide security for our IT systems and the processing, transmission and storage of digital information. We have also outsourced elements of our IT systems, and as a result a number of third-party vendors may or could have access to our confidential information.

Despite our implementation of security measures, our IT systems, like those of other companies, are vulnerable to damage or interruption from a variety of sources, including physical damage, telecommunications or network failures or interruptions, system malfunction, natural disasters, malicious human acts, terrorism and war. Such IT systems, including our servers, are additionally vulnerable to physical or electronic break-ins, security breaches from inadvertent or intentional actions by our employees, third-party service providers, contractors, consultants, business partners, and/or other third parties, or from cyber-attacks by malicious third parties (including the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering, and other means to affect service reliability and threaten the confidentiality, integrity, and availability of information). The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased. We can provide no assurance that our current IT systems, or those of the third parties upon which we rely, are fully protected against cyber security threats. We may not be able to anticipate all types of security threats, and we may not be able to implement preventive measures effective against all such security threats. The techniques used by cyber criminals change frequently, may not be recognized until launched and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations or hostile foreign governments or agencies. It is possible that we or our third-party vendors may experience cybersecurity and other breach incidents that remain undetected for an extended period. Even when a security breach is detected, the full extent of the breach may not be determined immediately. The costs to us to mitigate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant and, while we have implemented security measures to protect our IT and data security infrastructure, our efforts to address these problems may not be successful.

Any system failure, accident or security breach could result in disruptions to our operations or those of our customers. A material network breach in the security of our IT systems could include the theft of our intellectual property (including our trade secrets), customer information, human resources information or other confidential matter or the theft of the confidential information of our customers. To the extent that any disruption or security breach results in a loss or damage to our or our customers’ data, or an inappropriate disclosure of confidential, proprietary or customer information, it could cause significant damage to our reputation, affect our relationships with our customers, lead to claims against the Company and ultimately harm our business. In addition, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future. If our IT systems fail and our redundant systems or disaster recovery plans are not adequate to address such failures, or if our business interruption insurance does not sufficiently compensate us for any losses that we may incur, our revenues and profits could be reduced and the reputation of our brand and our business could be materially and adversely affected.

We are also reliant on the security practices of our third-party service providers, which may be outside of our direct control. The services provided by these third parties are subject to the same risk of outages, other failures and security breaches described above. If these third parties fail to adhere to adequate security practices, or experience a breach of their systems, the data of our employees, customers and business associates may be improperly accessed, used or disclosed. In addition, our providers have broad discretion to change and interpret the terms of service and other policies with respect to us, and those actions may be unfavorable to our business operations. Our providers may also take actions beyond our control that could harm our business, including discontinuing or limiting our access to one or more services, increasing pricing terms, terminating or seeking to

 

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terminate our contractual relationship altogether, or altering how we are able to process data in a way that is unfavorable or costly to us. Although we expect that we could obtain similar services from other third parties, if our arrangements with our current providers were terminated, we could experience interruptions in our business, as well as delays and additional expenses in arranging for alternative cloud infrastructure services. Any loss or interruption to our systems or the services provided by third parties would adversely affect our business, financial condition and results of operations.

A material disruption of our operations, particularly at our manufacturing or recycling facilities, could adversely affect our business.

If our operations, particularly at our manufacturing or recycling facilities, were to be disrupted as a result of significant equipment failures, natural disasters, power outages, fires, explosions, terrorism, sabotage, adverse weather conditions, public health crises, labor disputes, regulatory changes or other reasons, we may be unable to effectively fill customer orders and otherwise meet obligations to or demand from our customers, which could adversely affect our financial performance. Should we be unable to resume operations at any facility, we may incur unplanned costs, including restructuring and/or impairment costs, as well as revisions to our asset retirement obligations for those facilities.

Interruptions in production could increase our costs and reduce our sales. Any interruption in production capability could require us to make substantial capital expenditures or purchase alternative material at higher costs to fill customer orders, which could negatively affect our profitability and financial condition. We maintain property damage insurance that we believe to be adequate to provide for reconstruction of facilities and equipment, as well as business interruption insurance to mitigate losses resulting from significant production interruption or shutdown caused by an insured loss. However, any recovery under our insurance policies may not offset the lost sales or increased costs that may be experienced during the disruption of operations, which could adversely affect our business, financial condition, results of operations and cash flow.

Our business success depends on attracting and retaining qualified personnel.

Our ability to sustain and grow our business requires us to hire, retain and develop a highly skilled and diverse management team and workforce. Failure to ensure that we have the leadership capacity with the necessary skill set and experience could impede our ability to deliver our growth objectives and execute our strategic plan. Organizational and reporting changes resulting from the Acquisition, or as a result of any future leadership transition or corporate initiatives could result in increased turnover. Additionally, any unplanned turnover or inability to attract and retain key employees could have a negative effect on our results of operations.

Our business may be adversely affected by work stoppages, union negotiations, labor disputes and other matters associated with our labor force.

We employ approximately 16,897 people worldwide. Approximately 57% of these employees are covered by collective bargaining agreements or works council. Although we believe that our relations with the labor unions and works councils that represent our employees are generally good and we have experienced no material strikes or work stoppages recently, no assurances can be made that we will not experience in the future these and other types of conflicts with labor unions, works council, other groups representing employees or our employees generally, or that any future negotiations with our labor unions will not result in significant increases in our cost of labor. Additionally, a work stoppage at one of our suppliers could materially and adversely affect our operations if an alternative source of supply were not readily available. Stoppages by employees of our customers could also result in reduced demand for our products.

We may be unable to successfully implement our business strategy, which could adversely affect our business, financial condition, cash flows or results of operations.

Our ability to achieve our business and financial objectives is subject to a variety of factors, many of which are beyond our control. For example, we may not be successful in increasing our manufacturing and distribution

 

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efficiency through productivity, process improvements and cost reduction initiatives. Further, we may not be able to realize the benefits of these improvements and initiatives within the time frames we currently expect. For example, in January 2021, we announced that we will be streamlining our recycling infrastructure through the closure of one of our recycling facilities in North America. We may incur costs related to the closure including workforce reductions and non-cash asset impairments, among others. Any failure to successfully implement our business strategy could adversely affect our business, financial condition, cash flows, or results of operations, and could further impair our ability to make certain strategic capital expenditures.

We provide warranties with respect to certain of our products that may require us to bear the costs of product repair or replacement.

We provide warranties with respect to certain of our products. Our management is required to make assumptions and to apply judgment regarding a number of factors, including anticipated rate of warranty claims, the durability and reliability of our products, and after-care costs in negotiating warranties and estimating warranty expenses. Our assumptions could prove to be materially different from the actual performance of our batteries, which could result in substantial expense to repair or replace defective products in the future and may exceed expected levels against which we have established reserves.

In addition, with new products and products that remain under development, we will be required to base our warranty estimates on our historical experience with similar products, testing of the batteries under laboratory conditions and limited performance information obtained through testing activities with customers. As a result, actual warranty claims may be significantly different from our estimates.

The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business.

Following the completion of this offering, we will be required to comply with various regulatory and reporting requirements, including those required by the Securities and Exchange Commission (the “SEC”). Complying with these reporting and other regulatory requirements will be time-consuming and will result in increased costs to us and could have a negative effect on our business, financial condition and results of operations.

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934 (as amended, the “Exchange Act”) and requirements of the Sarbanes-Oxley Act of 2002 (as amended, the “Sarbanes-Oxley Act”). These requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures, we may need to commit significant resources, hire additional staff and provide additional management oversight. We will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. Sustaining our growth also will require us to commit additional management, operational and financial resources to identify new professionals to join Clarios and to maintain appropriate operational and financial systems to adequately support expansion. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations.

Risks Relating to our Indebtedness

We have a substantial amount of indebtedness, which could adversely affect our financial condition and ability to operate our business.

As of March 31, 2021, we had approximately $10.3 billion of long-term debt outstanding, including deferred financing costs and finance leases, and approximately $1.3 billion of additional borrowing capacity

 

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under the ABL Facility and the Revolving Facility (including undrawn letters of credit), subject to borrowing base availability and other customary conditions. Our substantial indebtedness, combined with our other financial obligations and contractual commitments, could have important consequences for our business. For example, it could:

 

   

make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations under any of our debt instruments, including restrictive covenants, could result in an event of default under the agreements governing such indebtedness;

 

   

require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing funds available for working capital, capital expenditures, acquisitions, business development and other purposes;

 

   

compromise our ability to capitalize on business opportunities and to react to competitive pressures, as compared to our competitors, due to our high level of debt and the restrictive covenants in the credit agreements that govern our Senior Secured Credit Facilities and the ABL Facility and the indentures governing our outstanding notes;

 

   

limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate;

 

   

limit our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working capital, capital expenditures, acquisitions and other corporate purposes;

 

   

prevent us from raising the funds necessary to repurchase all the notes tendered to us upon the occurrence of certain changes of control, which would constitute a default under the agreements governing such indebtedness; and

 

   

limit our ability to redeem, repurchase, defease or otherwise acquire or retire for value any subordinated indebtedness we may incur.

These restrictions could adversely affect our financial condition and limit our ability to successfully implement our growth strategy.

In addition, we may need additional financing to support our business and pursue our growth strategy, including for strategic acquisitions. Our ability to obtain additional financing, if and when required, will depend on investor demand, our operating performance, the condition of the capital markets and other factors. We cannot assure you that additional financing will be available to us on favorable terms when required, or at all. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to those of our common stock, and, in the case of equity and equity-linked securities, our existing stockholders may experience dilution.

The credit agreements that govern the Senior Secured Credit Facilities and the ABL Facility and the indentures governing our outstanding notes each impose significant operating and financial restrictions on our company, which may prevent us from capitalizing on business opportunities.

The credit agreements that govern the Senior Secured Credit Facilities and the ABL Facility and indentures governing our outstanding notes each impose significant operating and financial restrictions on our company. These restrictions limit our ability and the ability of certain of our subsidiaries to, among other things:

 

   

incur or guarantee additional debt or issue disqualified stock or preferred stock;

 

   

pay dividends and make other distributions on, or redeem or repurchase, capital stock;

 

   

make certain investments;

 

   

incur certain liens;

 

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enter into transactions with affiliates;

 

   

merge or consolidate;

 

   

enter into agreements that prohibit the ability of restricted subsidiaries to make dividends or other payments to us and certain of our other subsidiaries;

 

   

designate restricted subsidiaries as unrestricted subsidiaries;

 

   

prepay, redeem or repurchase certain indebtedness that is subordinated in right of payment to the notes;

 

   

and transfer or sell assets.

In addition, we will be required to comply with, based on level of utilization of the ABL Facility, a fixed-charge coverage ratio financial covenant under the ABL Facility and, based on level of utilization of the Revolving Facility, a leverage-based financial covenant under the Revolving Facility. See “Description of Material Indebtedness.”

As a result of the restrictions described above, we will be limited as to how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.

Our failure to comply with the restrictive covenants described above as well as other terms of our indebtedness and/or the terms of any future indebtedness from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date. If we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our results of operations and financial condition could be adversely affected.

We are a holding company and all of our operations are conducted through our subsidiaries. Our ability to pay dividends to you will depend on cash flow generated by our subsidiaries, which may be subject to limitations beyond our control.

As a holding company, our subsidiaries own all of our assets and conduct all of our operations. Accordingly, our ability to pay dividends to you will depend upon our receipt of dividends and other distributions from our subsidiaries. Furthermore, we have certain existing indebtedness, and may incur additional indebtedness or enter into other arrangements in the future, that contain terms that restrict or prohibit our subsidiaries from paying dividends, making other distributions and making loans to us. The restrictions on these subsidiaries’ ability to pay dividends to us have not to date had a material impact on our liquidity or our ability to pay dividends to our shareholders. However, we cannot assure you that the agreements governing our existing or future indebtedness will permit our subsidiaries to provide us with sufficient dividends or distributions or permit us to loan money or enter into other similar arrangements to fund dividend payments. To the extent our subsidiaries do not have funds available or are otherwise restricted from paying dividends to us, our ability to pay dividends to our stockholders will be adversely affected.

Interest rate fluctuations may have a material adverse effect on our business, results of operations, financial condition and cash flows. The discontinuation of U.S. dollar LIBOR may have an adverse effect on the interest rate payable under our credit facilities.

Indebtedness under the Senior Secured Credit Facilities and the ABL Facility bears interest at variable rates and we may incur additional variable interest rate indebtedness in the future. This exposes us to interest rate risk, and any interest rate swaps we enter into in order to reduce interest rate volatility may not fully mitigate our interest rate risk. If interest rates were to increase, our debt service obligations on the variable rate indebtedness would increase even if the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease.

 

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In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021. The First Lien Credit Agreement (as defined below) provides for the discontinuation of U.S. dollar LIBOR by including provisions broadly consistent with the “hardwired” approach recommended prior to the date of the Repricing Amendment by the Alternative Rates Reference Committee convened by the Federal Reserve Board. The “hardwired” approach provides for (i) a transition to a benchmark based on the secured overnight funds rate (“SOFR”) or another benchmark determined after giving regard to any recommendation by the Federal Reserve Board and any evolving or then-prevailing market convention for syndicated credit facilities and (ii) certain spread adjustments and other changes necessary to implement such replacement benchmark. The transition to a replacement benchmark is triggered by the earliest to occur of several events, including the cessation of publication of U.S. dollar LIBOR and the public announcement by the regulatory supervisor of the administrator of U.S. dollar LIBOR that U.S. dollar LIBOR is no longer representative. The ABL Credit Agreement (as defined below) provides for the discontinuation of U.S. dollar LIBOR by including provisions that require the administrative agent and the Borrower to endeavor to establish an alternative benchmark that gives due consideration to the then prevailing market convention for syndicated loans. Currently, it is not possible to determine with certainty the future utilization of U.S. dollar LIBOR or of any particular replacement benchmark. As such, the potential effect of any such event on our business, financial condition, cash flows and results of operations cannot yet be determined. However, any such event could have an adverse effect on our business, financial condition, cash flows and results from operations and could cause the market value of our common shares and/or debt securities to decline.

Risks Related to Our Common Stock and this Offering

There may not be an active, liquid trading market for our common stock.

Prior to this offering, there has been no public market for shares of our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of a trading market on the NYSE or how liquid that market may become. If an active trading market does not develop, you may have difficulty selling any of our common stock that you purchase. The initial public offering price of shares of our common stock is, or will be, determined by negotiation between us and the underwriters and may not be indicative of prices that will prevail following the completion of this offering. The market price of shares of our common stock may decline below the initial public offering price, and you may not be able to resell your shares of our common stock at or above the initial public offering price.

We expect that our stock price will fluctuate significantly, and you may not be able to resell your shares at or above the initial public offering price.

The trading price of our common stock is likely to be volatile and subject to wide price fluctuations in response to various factors, including:

 

   

market conditions in the broader stock market in general, or in our industry in particular;

 

   

actual or anticipated fluctuations in our quarterly financial and operating results;

 

   

introduction of new products and services by us or our competitors;

 

   

issuance of new or changed securities analysts’ reports or recommendations;

 

   

sales of large blocks of our stock;

 

   

additions or departures of key personnel;

 

   

regulatory developments;

 

   

litigation and governmental investigations; and

 

   

economic and political conditions or events.

 

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These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business.

If securities or industry analysts do not publish research or reports about our business, or they publish inaccurate or unfavorable reports about our business, the price of our common stock and trading volume could decline.

The trading market for our common stock will also be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our stock price could decline.

If a substantial number of shares become available for sale and are sold in a short period of time, the market price of our common stock could decline.

If our existing stockholders sell substantial amounts of our common stock in the public market following this offering, the market price of our common stock could decrease significantly. The perception in the public market that our existing stockholders might sell shares of common stock could also depress our market price. Upon completion of this offering, we will have outstanding                  shares of common stock and options to purchase                  shares. Our directors, executive officers and additional other holders of our common stock will be subject to the lock-up agreements described in “Underwriting” and the Rule 144 holding period requirements described in “Shares Eligible for Future Sale.” After all of these lock-up periods have expired and the holding periods have elapsed,                  additional shares will be eligible for sale in the public market. The market price of shares of our common stock may drop significantly when the restrictions on resale by our existing stockholders lapse. A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities.

Insiders will continue to have substantial control over us after this offering and could limit your ability to influence the outcome of key transactions and significant corporate matters.

As of                 , 2021, the Sponsor Group, our controlling shareholder, held approximately     % of our outstanding equity interests. Following the completion of this offering, our controlling shareholder will own approximately     % of our shares, and as such, will continue to be our controlling shareholder following the completion of this offering. As a result of its ownership of     % of our shares, the Sponsor Group will have the power to, among other matters, elect the members of our board of directors and decide upon certain major corporate transactions. Other matters requiring approval by the Sponsor Group pursuant to the Stockholders Agreement we will enter into in connection with this offering (the “Stockholders Agreement”) include certain amendments to our certificate of incorporation and bylaws, increasing or decreasing the size of our board of directors, removing and appointing our chief executive officer and chief financial officer and material changes to our lines of business. In addition, the Stockholders Agreement will provide that approval by the Sponsor Group is required for certain transactions in excess of $                 million, such as incurring debt, issuing equity, the declaration or payment of dividends on capital stock and any acquisition or disposition of any asset or business having consideration or fair value in excess of $                 million, including any transaction resulting in a change of control. The Sponsor Group will retain this control pursuant to the Stockholders Agreement as long as it owns or controls at least 25% of our outstanding common stock.

 

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The Stockholders Agreement will require us to, among other things, for so long as the Sponsor Group is controlled by Brookfield and the Sponsor Group owns or controls at least: (i) 25% of the aggregate number of outstanding shares of our common stock, nominate a number of individuals designated by the Sponsor Group for election as directors (each a “Sponsor Director”) such that, upon the election of each such individual, the number of Sponsor Directors serving as directors of our company will be equal to a majority of the board of directors (including the chair of the board of directors), and (ii) between 15% and 24.99% of the aggregate number of outstanding shares of our common stock, nominate a number of Sponsor Directors such that, upon the election of each such individual, the number of Sponsor Directors serving as directors of our company will be equal to the greater of (x) 25% of the board of directors and (y) three directors.

In addition, certain of our directors may be employed by or otherwise affiliated with one or more entities forming the Sponsor Group. Although these directors attempt to perform their duties within each entity independently, such employment relationships and affiliations could give rise to potential conflicts of interest when a director is faced with a decision that could have different implications for the applicable entities. These potential conflicts could arise, for example, over matters such as the desirability of changes to our business and operations, funding and capital matters, regulatory matters, matters arising with respect to agreements with the Sponsor Group, board composition, employee retention or recruiting, labor, tax, employee benefit, indemnification and our dividend policy and declarations of dividends, among other matters.

Furthermore, our principal stockholders, directors and executive officers and entities affiliated with them will own approximately     % of the outstanding shares of our common stock after this offering. As a result, these stockholders, if acting together, would be able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. The concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.

We have opted out of Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”), which prohibits a publicly held Delaware corporation from engaging in a business combination transaction with an interested stockholder for a period of three years after the interested stockholder became such unless the transaction fits within an applicable exemption, such as board approval of the business combination or the transaction which resulted in such stockholder becoming an interested stockholder. However, our amended certificate of incorporation will contain similar provisions providing that we may not engage in such transactions, provided that the Sponsor Group and its affiliates and any of their respective direct or indirect transferees and any group as to which such persons are a party will not constitute “interested stockholders” for purposes of this provision. Therefore, the Sponsor Group will be able to transfer control of us to a third-party by transferring their shares of our common stock (subject to certain restrictions and limitations), which would not require the approval of our board of directors or our other stockholders.

We will be a “controlled company” within the meaning of the rules of the NYSE and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

Upon closing of this offering, the Sponsor Group will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE. Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:

 

   

the requirement that a majority of the board of directors consist of independent directors; and

 

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the requirement that our compensation and governance committee be composed entirely of independent directors.

While the Sponsor Group controls a majority of the voting power of our outstanding common stock, we intend to rely on these exemptions and, as a result, will not have a majority of independent directors on our board of directors. In addition, we have opted to have a governance and compensation committee and such committee will not be fully independent. Upon the closing of this offering, we expect that seven of our 11 directors will not qualify as “independent directors” under the applicable rules of the NYSE. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.

Some provisions of Delaware law and our certificate of incorporation and bylaws may deter third parties from acquiring us.

Our amended and restated certificate of incorporation and bylaws will provide for, among other things:

 

   

division of our board of directors into three classes of directors, with each class as equal in number as possible, serving staggered three-year terms;

 

   

at any time after the Sponsor Group, together permitted transferees, owns less than a majority of our outstanding common stock (the “Majority Ownership Requirement”), there will be:

 

   

restrictions on the ability of our stockholders to call a special meeting and the business that can be conducted at such meeting or to act by written consent;

 

   

supermajority approval requirements for amending or repealing provisions in the certificate of incorporation and bylaws including (i) the provision requiring a 6623% supermajority vote for stockholders to amend our amended and restated bylaws, (ii) the provisions providing for a classified board of directors (the election and term of our directors), (iii) the provisions regarding resignation and removal of directors, (iv) the provisions regarding competition and corporate opportunities, (v) the provisions regarding entering into business combinations with interested stockholders, (vi) the provisions regarding stockholder action by written consent, (vii) the provisions regarding calling special meetings of stockholders, (viii) the provisions regarding filling vacancies on our board of directors and newly created directorships, (ix) the provisions eliminating monetary damages for breaches of fiduciary duty by a director, (x) the provision regarding forum selection and (xi) the amendment provision requiring that the above provisions be amended only with a 6623% supermajority vote; and

 

   

the removal of directors for cause only upon the affirmative vote of the holders of at least 6623% of the shares of common stock entitled to vote generally in the election of directors;

 

   

the authorization of undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;

 

   

the absence of cumulative voting in the election of directors; and

 

   

advance notice requirements for stockholder proposals.

These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our company. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging future takeover attempts. These provisions could also make it more difficult for stockholders to nominate directors for election to our board of directors and take other corporate actions.

 

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Our amended and restated certificate of incorporation will require exclusive forum in certain courts in the State of Delaware or the federal district courts of the United States for certain types of lawsuits that may have the effect of discouraging lawsuits against our directors and officers.

Our amended and restated certificate of incorporation will require, to the fullest extent permitted by law, that (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or stockholders to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or our bylaws or (iv) any action asserting a claim against us governed by the internal affairs doctrine will have to be brought in a state court located within the State of Delaware (or if no state court of the State of Delaware has jurisdiction, the federal district court for the District of Delaware), in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. The foregoing provision will not apply to claims arising under the Securities Act, the Exchange Act or other federal securities laws for which there is exclusive federal or concurrent federal and state jurisdiction.

Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. In addition, our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the federal securities laws of the United States, including, in each case, the applicable rules and regulations promulgated thereunder. We note, however, that there is uncertainty as to whether a court would enforce this provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Section 22 of the Securities Act creates concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.

Although we believe these exclusive forum provisions benefit us by providing increased consistency in the application of Delaware law and federal securities laws in the types of lawsuits to which each applies, the exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers or stockholders, which may discourage lawsuits with respect to such claims. Further, in the event a court finds either exclusive forum provision contained in our amended and restated certificate of incorporation to be unenforceable or inapplicable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.

We do not anticipate paying any cash dividends in the foreseeable future.

We currently intend to retain our future earnings, if any, for the foreseeable future, to fund the development and growth of our business. We do not intend to pay any dividends to holders of our common stock. Any future determination to pay dividends will be at the discretion of our board of directors, subject to applicable laws, and will depend on our results of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant by our board of directors. If we issue any Mandatory Convertible Preferred Stock, no dividends may be declared or paid on our common stock unless accumulated and unpaid dividends on the Mandatory Convertible Preferred Stock have been declared and paid, or set aside for payment, on all outstanding shares of the Mandatory Convertible Preferred Stock for all preceding dividend periods. See “Dividend Policy.” As a result, capital appreciation in the price of our common stock, if any, will be your only source of gain on an investment in our common stock.

 

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New investors in our common stock will experience immediate and substantial book value dilution after this offering.

The initial public offering price of our common stock will be substantially higher than the pro forma net tangible book value per share of our common stock. Dilution is the difference between the initial public offering price per share of common stock and the pro forma net tangible book value per share of common stock after this offering. If you purchase shares of common stock in this offering, you will incur immediate and substantial dilution in the amount of approximately $                 per share per share of common stock, based on the midpoint of the price range set forth on the cover of this prospectus. In addition, if we issue additional equity securities in the future, including to our employees and directors under our equity incentive plan, investors purchasing shares of common stock in this offering will experience additional dilution. See “Dilution.”

Concurrently with this offering, we are offering              shares of the Mandatory Convertible Preferred Stock, plus up to an additional              shares of the Mandatory Convertible Preferred Stock if the underwriters in that offering exercise their over-allotment option to purchase additional shares of Mandatory Convertible Preferred Stock in full.

Unless converted earlier as described below, each share of the Mandatory Convertible Preferred Stock will automatically and mandatorily convert on the mandatory conversion date into between                           and shares of our common stock, subject to certain anti-dilution and other adjustments. The number of shares of common stock issuable upon conversion will be determined based on the Average VWAP (as defined below) per share of our common stock over the 20 consecutive trading day period beginning on, and including, the 21st scheduled trading day immediately preceding the mandatory conversion date in accordance with the certificate of designations setting forth the terms of the Mandatory Convertible Preferred Stock (the “Certificate of Designations”). Assuming mandatory conversion based on an applicable market value of our common stock equal to the assumed initial public offering price of $             per share of common stock, which is the midpoint of the estimated offering price range shown on the cover page of this prospectus,              shares of our common stock (or              shares if the underwriters in the Concurrent Offering exercise their over-allotment option in full) are issuable upon conversion of the Mandatory Convertible Preferred Stock being offered in the Concurrent Offering, subject to anti-dilution, make-whole and other adjustments. At any time prior to the mandatory conversion date, holders of Mandatory Convertible Preferred Stock may elect to convert each share of the Mandatory Convertible Preferred Stock into shares of our common stock at the minimum conversion rate of shares of our common stock per share of the Mandatory Convertible Preferred Stock, subject to anti-dilution adjustments. If holders elect to convert any shares of the Mandatory Convertible Preferred Stock during a specified period beginning on the effective date of a fundamental change (as defined in the Certificate of Designations), such shares of the Mandatory Convertible Preferred Stock will be converted into shares of our common stock at an increased conversion rate and subject to additional payments and/or deliveries in respect of a fundamental change dividend make-whole amount and an accumulated dividend amount.

We may also choose to pay dividends on the Mandatory Convertible Preferred Stock in shares of our common stock, and the number of shares of common stock issued for such purpose will be based on the Average VWAP per share of our common stock over a certain period, subject to certain limitations described in the Certificate of Designations. See “Mandatory Convertible Preferred Stock Offering.”

Any of these issuances may dilute your ownership interest in us and any of these events or the perception that these conversions and/or issuances could occur may have an adverse impact on the price of our common stock.

 

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The Mandatory Convertible Preferred Stock may adversely affect the market price of our common stock.

The market price of our common stock is likely to be influenced by the Mandatory Convertible Preferred Stock. For example, the market price of our common stock could become more volatile and could be depressed by:

 

   

investors’ anticipation of the potential resale in the market of a substantial number of additional shares of our common stock received upon conversion of the Mandatory Convertible Preferred Stock;

 

   

possible sales of our common stock by investors who view the Mandatory Convertible Preferred Stock as a more attractive means of equity participation in us than owning shares of our common stock; and

 

   

hedging or arbitrage trading activity that may develop involving the Mandatory Convertible Preferred Stock and our common stock.

Certain rights of the holders of the Mandatory Convertible Preferred Stock, if issued, could delay or prevent an otherwise beneficial takeover or takeover attempt of us.

Certain rights of the holders of the Mandatory Convertible Preferred Stock could make it more difficult or more expensive for a third party to acquire us. For example, if a fundamental change were to occur on or prior to                 , 2024, holders of the Mandatory Convertible Preferred Stock, if issued, may have the right to convert their Mandatory Convertible Preferred Stock, in whole or in part, at an increased conversion rate and will also be entitled to receive a fundamental change dividend make-whole amount and an accumulated dividend amount as described in the Certificate of Designations. These features of the Mandatory Convertible Preferred Stock could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management.

Our common stock will rank junior to the Mandatory Convertible Preferred Stock, if issued, with respect to the payment of dividends and amounts payable in the event of our liquidation, dissolution or winding-up of our affairs.

Our common stock will rank junior to the Mandatory Convertible Preferred Stock, if issued, with respect to the payment of dividends and amounts payable in the event of our liquidation, dissolution or winding-up of our affairs. Unless accumulated and unpaid dividends have been declared and paid, or set aside for payment, on all outstanding shares of the Mandatory Convertible Preferred Stock, if issued, for all preceding dividend periods, no dividends may be declared or paid on our common stock and we will not be permitted to purchase, redeem or otherwise acquire any of our common stock, subject to limited exceptions. In the event of our voluntary or involuntary liquidation, dissolution or winding-up of our affairs, no distribution of our assets may be made to holders of our common stock until we have paid to holders of the Mandatory Convertible Preferred Stock, if issued, a liquidation preference equal to $50.00 per share plus accumulated and unpaid dividends.

Holders of the Mandatory Convertible Preferred Stock, if issued, will have the right to elect two directors in the case of certain dividend arrearages.

Whenever dividends on any shares of the Mandatory Convertible Preferred Stock have not been declared and paid for the equivalent of six or more dividend periods, whether or not for consecutive dividend periods, the authorized number of directors on our board of directors will, at the next annual meeting of stockholders or at a special meeting of stockholders, if any, automatically be increased by two and the holders of such shares of the Mandatory Convertible Preferred Stock, if issued, voting together as a single class with holders of any and all of other series of our Voting Preferred Stock (as defined under “Mandatory Convertible Preferred Stock Offering”) then outstanding will be entitled, at our next annual meeting of stockholders or at a special meeting of stockholders, if any, to vote for the election of a total of two additional members of our board of directors, subject to certain terms and limitations. This right to elect directors will dilute the representation of the holders of our common stock on our board of directors and may adversely affect the market price of our common stock.

 

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Our internal controls over financial reporting may not be effective and our independent registered public accounting firm may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.

As a public company, we will be required to comply with SEC rules that implement Section 404 of the Sarbanes-Oxley Act and make a formal assessment of the effectiveness of our internal controls over financial reporting.

When evaluating our internal controls over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. We cannot be certain as to the timing of completion of our evaluation, testing and any remediation actions or the impact of the same on our operations. If we are not able to implement the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or with adequate compliance, our independent registered public accounting firm may issue an adverse opinion due to ineffective internal controls over financial reporting, and we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result, there could be a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, we may be required to incur costs in improving our internal control system and the hiring of additional personnel. Any such action could negatively affect our results of operations and cash flows.

We will be required to pay the Sponsor Group for certain tax benefits, and the amounts of such payments could be material.

We will enter into a tax receivable agreement with the Sponsor Group that will provide for the payment by us to the Sponsor Group of 85% of the amount of the tax savings that we and our subsidiaries are deemed to realize (which may exceed our actual tax savings) as a result of the utilization of tax attributes existing at the time of this offering. These tax attributes include net operating losses and tax basis in certain of our assets, in each case that relate to periods (or portions thereof) ending on or prior to the closing date of this offering and to which we will succeed as a result of certain internal restructuring transactions.

We expect that the payments we make under the tax receivable agreement could be material. Assuming no material changes in the relevant tax law, and that we and our subsidiaries earn sufficient income to realize the full tax benefits subject to the tax receivable agreement, we expect that future payments under the tax receivable agreement will aggregate to between $                 million and $                 million. Payments in accordance with the terms of the tax receivable agreement could have an adverse effect on our liquidity and financial condition.

In addition, under some circumstances, the tax receivable agreement will terminate and we will be required to make a payment equal to the present value of the expected future payments under the tax receivable agreement, including upon certain mergers, asset sales and other transactions constituting a “change of control” under the tax receivable agreement, if certain credit events described in the tax receivable agreement occur with respect to us, if we materially breach our obligations under the tax receivable agreement, or if the Sponsor Group elects to exercise its right after the fifteenth anniversary of this offering to terminate the tax receivable agreement. The amount of any such termination payment will be calculated under certain assumptions, including those relating to our and our subsidiaries’ future taxable income. In these situations, our obligations under the tax receivable agreement could have a material and adverse impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales or other “change of control” transactions.

To the extent that we are unable to make payments under the tax receivable agreement for any reason, such payments will be deferred and will accrue interest until paid, which could adversely affect our results of operations and could also affect our liquidity in periods in which such payments are made.

For additional information related to the tax receivable agreement, see “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

 

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To the extent that we are unable to make payments under the tax receivable agreement for any reason, such payments will be deferred and will accrue interest until paid, which could adversely affect our results of operations and could also affect our liquidity in periods in which such payments are made.

For additional information related to the tax receivable agreement, see “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made statements under the captions “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” “Industry Overview” and in other sections of this prospectus that are forward-looking statements. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, and other future conditions. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. Forward-looking statements contained in this prospectus include, among other things, statements relating to:

 

   

the impact of COVID-19 and its collateral consequences, including production slowdowns, extended disruption of economic activity in our business and lower economic expectations;

 

   

automotive vehicle production levels, mix and schedules;

 

   

the technological evolution of the battery and automotive industries;

 

   

competitiveness of the automotive battery market;

 

   

commodity prices;

 

   

our ability to respond to rapid technological changes;

 

   

our ability to timely develop competitive new products and product enhancements in a changing environment and the acceptance of such products and product enhancements by customers;

 

   

the potential impact of financial, economic, political and other risks related to conducting business internationally, including disruption of markets, changes in import and export laws, environmental, health and safety laws and regulations, currency restrictions and currency exchange rate fluctuations;

 

   

risks associated with operating in regulated industries, including our ability to comply with, and liabilities related to, applicable laws, including environmental, health and safety laws and regulations and competition laws, as well as our ability to successfully adapt to any changes in such laws and regulations;

 

   

the availability and market prices of raw materials and component products;

 

   

legislation restricting the use of certain hazardous substances in our products;

 

   

our reliance on third parties for important products and services;

 

   

the risks associated with our acquisition strategy and integrating acquisitions;

 

   

the risks associated with future acquisitions and new investments;

 

   

the extent to which we are able to efficiently utilize our global manufacturing facilities and optimize our capacity; and

 

   

our ability to service our substantial indebtedness.

These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled “Risk Factors.” In addition, even if results, level of activity, performance or achievements are consistent with the forward-looking statements contained in this prospectus, those results, level of activity, performance or achievements may not be indicative of results or developments in subsequent periods.

 

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Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this prospectus to conform our prior statements to actual results or revised expectations.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from this offering will be approximately $                million, or approximately $                million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $ per share (the midpoint of the range set forth on the cover page of this prospectus), after deducting estimated underwriting discounts and commissions and estimated offering expenses.

We estimate that the net proceeds to us from the Concurrent Offering of the Mandatory Convertible Preferred Stock, if completed, will be approximately $             million, or approximately $             million if the underwriters exercise their over-allotment option to purchase additional shares of the Mandatory Convertible Preferred Stock in full, after deducting estimated underwriting discounts and commissions and estimated offering expenses.

We intend to use the net proceeds to us from this offering and the Concurrent Offering of the Mandatory Convertible Preferred Stock, if it is completed, to (i) redeem approximately $             of the 2026 USD Secured Notes, (ii) redeem approximately $             of the 2025 Secured Notes, (iii) redeem approximately $             of the Unsecured Notes and (iv) repay approximately $             of outstanding indebtedness under the USD Term Loan. The 2026 USD Secured Notes bear interest at a rate of 6.250% per year, the 2025 USD Secured Notes bear interest at a rate of 6.750% per year and the Unsecured Notes bear interest at a rate of 8.500% per year. Amounts borrowed under the USD Term Loan are subject to interest at a rate per annum equal to an applicable margin plus, at our option, either (a) for base rate loans denominated in U.S. Dollars, a base rate determined by reference to the highest of (i) the rate last quoted by The Wall Street Journal (or, if such rate is not quoted by The Wall Street Journal, another national publication selected by the administrative agent in consultation with the Borrower) as the U.S. “Prime Rate” in effect on such day, (ii) the Federal Funds Effective Rate plus 0.50% per annum and (iii) the one month U.S. Dollar LIBOR rate (which shall not be less than 0.00%) plus 1.00% per annum or (b) for Eurodollar rate loans, a rate determined by reference to the highest of (i) the U.S. Dollar LIBOR rate (in the case of the USD Term Loan) or the EURIBOR rate (in the case of the Euro Term Loan) based on the interest period of the applicable borrowing and (ii) 0.00%. The applicable margin for the USD Term Loan is 2.25% per annum in the case of base rate loans and 3.25% per annum in the case of Eurodollar rate loans and the applicable margin for the Euro Term Loan is 3.25% per annum for EURIBOR rate loans. The 2026 USD Secured Notes will mature on May 15, 2026, the 2025 USD Secured Notes will mature on May 15, 2025, the Unsecured Notes will mature on May 15, 2027 and the USD Term Loan will mature on April 30, 2026.

Each $1.00 increase (decrease) in the public offering price per share would increase (decrease) our net proceeds, after deducting estimated underwriting discounts and commissions, by $                 million (assuming no exercise of the underwriters’ over-allotment option).

 

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DIVIDEND POLICY

Following the consummation of this offering, we do not currently intend to pay dividends on our common stock. We currently intend to retain any future earnings to fund the development and expansion of our business, including further acquisitions, and, therefore, we do not anticipate paying cash dividends on our common stock in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors, subject to applicable laws, and will depend on our results of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant by our board of directors. If we issue any Mandatory Convertible Preferred Stock, no dividends may be declared or paid on our common stock unless accumulated and unpaid dividends on the Mandatory Convertible Preferred Stock have been declared and paid, or set aside for payment, on all outstanding shares of the Mandatory Convertible Preferred Stock for all preceding dividend periods. See “Mandatory Convertible Preferred Stock Offering.”

 

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CAPITALIZATION

The following table sets forth our cash, cash equivalents and capitalization as of March 31, 2021:

 

   

on an actual basis;

 

   

on an as adjusted basis to give effect to the Transactions; and

 

   

on an as further adjusted basis to reflect:

 

   

the sale by us of                  shares of common stock in this offering, at an assumed initial public offering price of $                 per share, the midpoint of the range set forth on the cover page of this prospectus, and the concurrent issuance of                  shares of the Mandatory Convertible Preferred Stock, assuming such offering is completed as described in this prospectus; and

 

   

the application of the net proceeds as described in “Use of Proceeds.”

This table should be read in conjunction with “Unaudited Pro Forma Financial Information,” “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated and combined financial statements and notes thereto included elsewhere in this prospectus.

 

    March 31, 2021  
    Actual     As adjusted     As further
adjusted
 

Cash and cash equivalents

  $ 550     $                       $                    
 

 

 

   

 

 

   

 

 

 

Long-term debt:

     

Dollar secured notes (1)

  $ 1,500     $       $    

Euro secured notes (1)(2)

    821      

Unsecured notes (1)

    1,950      

USD term loan (3)

    3,963      

Euro term loan (3)

    2,217      

Revolving facility (3)

    —        

ABL facility (3)

    —        

Other (4)

    3      

Total long-term debt (5)

    10,454      

Stockholders’ equity:

     

Mandatory Convertible Preferred Stock, $0.01 par value per share,                 shares authorized,                 shares outstanding actual and                 shares outstanding as adjusted (6)

    —        

Common stock, $0.01 par value per share,                 shares                 authorized,                 shares outstanding actual and                 shares outstanding as adjusted

    —        

Additional paid-in capital

    —        

Total stockholders’ equity (7)

  $ 1,731     $       $    
 

 

 

   

 

 

   

 

 

 

Total capitalization

  $ 12,185     $       $    
 

 

 

   

 

 

   

 

 

 

 

(1)

In connection with the Acquisition, our wholly-owned subsidiaries, Clarios Global LP (the “Borrower”) and Clarios US Finance Company, Inc. (the “Co-Borrower” and, together with the Borrower, the “Borrowers”) issued $1,000 million aggregate principal amount of the dollar secured notes, €700 million aggregate principal amount of the euro secured notes and $1,950 million aggregate principal amount of the unsecured notes. We used the net proceeds from the issuance of the notes to finance the Acquisition. See “Description of Material Indebtedness.”

(2)

Represents the U.S. dollar equivalent of the €700 million aggregate principal amount of euro secured notes. Euro secured notes are shown in U.S. dollars at an exchange rate of $1.1732 per €1.00, which was the exchange rate in effect on March 31, 2021.

(3)

In connection with the Acquisition, the Borrowers also entered into (i) senior secured credit facilities (the “Senior Secured Credit Facilities”), initially consisting of (x) borrowings of $6,409 million equivalent principal

 

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  amount under a first lien term loan facility (the “Term Loan Facility”) consisting of (1) borrowings of $4,200 million under a U.S. Dollar denominated tranche (the “USD Term Loan”) with an effective interest rate of 3.359% as of March 31, 2021 and (2) borrowings of €1,955 million under a Euro denominated tranche (the “Euro Term Loan”) with an effective interest rate of 3.250% as of March 31, 2021 and (y) $750 million in aggregate commitments under a first lien revolving credit facility (the “Revolving Facility”) and (ii) $500 million in aggregate commitments under an asset based revolving credit facility (the “ABL Facility”). We used the proceeds of the borrowings under the Term Loan Facility and the ABL Facility to pay the cash consideration for the Acquisition and pay related fees and expenses. On March 5, 2020, the parties thereto entered into an incremental amendment to the ABL Facility pursuant to which the aggregate commitments were increased by $250 million to $750 million in the aggregate. As of March 31, 2021, approximately $750 million of additional borrowings were available under the Revolving Facility and $598 million were available under the ABL Facility (after giving effect to $73 million of outstanding letters of credit). See “Description of Material Indebtedness.”
(4)

Related to the VIE Transaction described in Note 2, “Acquisitions” of the notes to the consolidated financial statements included elsewhere in this prospectus.

(5)

Total debt excludes approximately $(241) million of capitalized debt issuance costs and approximately $50 million of finance leases.

(6)

Assuming the Concurrent Offering is completed as described in this prospectus.

(7)

In connection with the Transactions, we will enter into a tax receivable agreement with the Sponsor Group that provides for the payment to the Sponsor Group of 85% of the benefits, if any, that we realize as a result of certain tax attributes subject to the tax receivable agreement (including deductions for payments of imputed interest). We expect to record a $792 million undiscounted liability based on management’s estimate of the aggregate amount that it will pay to the Sponsor Group under the tax receivable agreement. This liability, when incurred, will result in an equivalent decrease of stockholders’ equity as a result of payments being made to the Sponsor Group. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

Each $1.00 increase (decrease) in the assumed initial public offering price of $                 per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by new investors and total consideration paid by all stockholders by approximately $                , assuming that the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of common stock offered by us would increase (decrease) the total consideration paid by new investors and total consideration paid by all stockholders by $                , assuming the assumed initial public offering price of $                 per share of common stock remains the same, and after deducting estimated underwriting discounts and commissions.

 

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DILUTION

Our pro forma net tangible book value as of                 , 2021 was $                 or $                 per share of common stock. Pro forma net tangible book value per share represents tangible assets, less liabilities, divided by the aggregate number of shares of common stock outstanding. After giving effect to the sale by us of the                  shares of common stock in this offering, at an assumed initial public offering price of $                 per share, the midpoint of the range set forth on the cover page of this prospectus, and the concurrent issuance of                  shares of the Mandatory Convertible Preferred Stock, assuming the Concurrent Offering is completed as described in this prospectus, and the receipt and application of the net proceeds, our pro forma net tangible book value as of                 , 2021 would have been $                 or $                 per share. This represents an immediate increase in pro forma net tangible book value to existing stockholders of $                 per share and an immediate dilution to new investors of $                 per share. Dilution per share represents the difference between the price per share to be paid by new investors for the shares of common stock sold in this offering and the pro forma net tangible book value per share immediately after this offering. The following table illustrates this per share dilution:

 

Assumed initial public offering price

      $                    

Pro forma net tangible book value per share

   $                       

Increase in pro forma net tangible book value per share attributable to new investors

     

Pro forma net tangible book value per share after offering

     
     

 

 

 

Dilution per share to new investors

      $    
     

 

 

 

The dilution information discussed above is illustrative only and may change based on the actual initial public offering price and other terms of this offering. A $1.00 increase (decrease) in the assumed initial public offering price of $                 per share of common stock, the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by $                 per share and increase (decrease) the immediate dilution to new investors by $                 per share, in each case assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions. Similarly, each increase of 1,000,000 shares in the number of shares of common stock offered by us would increase our pro forma as adjusted net tangible book value by approximately $                 per share and decrease the dilution to new investors by approximately $                 per share, and each decrease of 1,000,000 shares in the number of shares of common stock offered by us would decrease our pro forma as adjusted net tangible book value by approximately $                 per share and increase the dilution to new investors by approximately $                 per share, in each case assuming the assumed initial public offering price of $                 per share of common stock remains the same, and after deducting estimated underwriting discounts and commissions.

The following table sets forth, on a pro forma basis, as of                 , 2021, the number of shares of common stock purchased from us, the total consideration paid, or to be paid, and the average price per share paid, or to be paid, by existing stockholders and by the new investors, at an assumed initial public offering price of $                 per share, the midpoint of the range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and offering expenses payable by us:

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number      Percent     Amount      Percent  

Existing stockholders

                   $                                 $                

New investors

            

Total

        100   $                      100   $                

 

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UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following Unaudited Pro Forma Consolidated Financial Information of Clarios consists of the Unaudited Pro Forma Consolidated Statement of Income (Loss) for the year ended September 30, 2020 and the six months ended March 31, 2021, and the Unaudited Pro Forma Consolidated Statement of Financial Position as of March 31, 2021. The Unaudited Pro Forma Consolidated Financial Information reported below should be read in conjunction with our historical audited consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this information statement.

The Unaudited Pro Forma Consolidated Financial Information has been prepared in accordance with Article 11 of the SEC’s Regulation S-X. In May 2020, the SEC adopted Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses”, or the “Final Rule”. The Final Rule became effective on January 1, 2021 and the Unaudited Pro Forma Consolidated Financial Information is presented in accordance therewith.

The Unaudited Pro Forma Consolidated Financial Information presented below has been derived from our historical audited consolidated financial statements included elsewhere in this prospectus. The pro forma adjustments include transaction accounting adjustments in accordance with U.S. GAAP to illustrate the effects of the following transactions:

 

   

the effects of the Tax Receivable Agreement, as described under “Certain Relationships and Related Party Transactions—Tax Receivable Agreement;”

 

   

the partial repayment of existing debt from net proceeds received under the offering; and

 

   

a provision for corporate income taxes on the income attributable to Clarios as a result of the incorporation of Clarios International Inc. as an indirect parent of Clarios Global LP, inclusive of all U.S. federal, state, and local income taxes.

The Unaudited Pro Forma Consolidated Financial Information as if each of the foregoing transactions had been completed as of March 31, 2021 with respect to the unaudited pro forma consolidated balance sheet as of March 31, 2021 and as of October 1, 2019 with respect to the unaudited pro forma consolidated statement of income (loss) for the year ended September 30, 2020 and the six months ended March 31, 2021.

The pro forma adjustments are based on currently available information and certain estimates and assumptions. Our management believes that the assumptions provide a reasonable basis for presenting the significant effects of the transactions described above, as contemplated, and the pro forma adjustments give appropriate effect to those assumptions. This information is for illustrative purposes only and does not purport to represent what Clarios’ financial position and results of operations actually would have been had the offering and related transactions occurred on the dates indicated, or to project Clarios’ financial performance for any future period. The Unaudited Pro Forma Consolidated Financial Information is based on information and assumptions which are described in the accompanying notes.

The Unaudited Pro Forma Consolidated Financial Information and the related notes should be read in conjunction with “Risk Factors,” “Use of Proceeds,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Certain Relationships and Related Party Transactions” and our audited consolidated and combined financial statements and the related notes included elsewhere in this prospectus.

 

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CLARIOS INTERNATIONAL INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (LOSS)

FOR THE SIX MONTHS ENDED MARCH 31, 2021

(in millions)

 

     Historical
Clarios Global LP
    Transaction
Accounting
Adjustments
    Note Ref     Pro Forma
Clarios
International Inc.
 

Net sales

   $         4,499     $                         $         4,499  

Cost of sales

     3,581           3,581  
  

 

 

   

 

 

     

 

 

 

Gross Profit

     918           918  
  

 

 

   

 

 

     

 

 

 

Selling, general and administrative expenses

     (455         (455

Equity income

     45           45  

Restructuring and impairment costs

     (253         (253

Net financing charges

     (366     69       (b     (297
  

 

 

   

 

 

     

 

 

 

Income (loss) before income taxes

     (111     69         (42

Income tax provision (benefit)

     137       (109     (c     28  
  

 

 

   

 

 

     

 

 

 

Net income (loss)

     (248     178         (70

Income (loss) attributable to noncontrolling interests

     1           1  
  

 

 

   

 

 

     

 

 

 

Net income (loss) attributable to the Company

   $ (249   $ 178       $ (71
  

 

 

   

 

 

     

 

 

 

Earings (loss) per share

        

Basic and diluted

     n/a         (g  

Weighted-average shares outstanding

     n/a         (g  

See accompanying notes to the Unaudited Pro Forma Consolidated Financial Information

 

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CLARIOS INTERNATIONAL INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (LOSS)

FOR THE YEAR ENDED SEPTEMBER 30, 2020

(in millions)

 

     Historical
Clarios Global LP
    Transaction
Accounting
Adjustments
    Note Ref     Pro Forma
Clarios
International Inc.
 

Net sales

   $         7,602     $                         $         7,602  

Cost of sales

     6,405           6,405  
  

 

 

   

 

 

     

 

 

 

Gross Profit

     1,197           1,197  
  

 

 

   

 

 

     

 

 

 

Selling, general and administrative expenses

     (936         (936

Equity income

     48           48  

Restructuring and impairment costs

     (11         (11

Net financing charges

     (717     130       (b     (587
  

 

 

   

 

 

     

 

 

 

Income (loss) before income taxes

     (419     130         (289

Income tax benefit

     (17     (76     (c     (93
  

 

 

   

 

 

     

 

 

 

Net income (loss)

     (402     206         (196

Income (loss) attributable to noncontrolling interests

     (3         (3
  

 

 

   

 

 

     

 

 

 

Net income (loss) attributable to the Company

   $ (399   $ 206       $ (193
  

 

 

   

 

 

     

 

 

 

Earnings (loss) per share

        

Basic and diluted

     n/a         (g  

Weighted-average shares outstanding

     n/a         (g  

See accompanying notes to the Unaudited Pro Forma Consolidated Financial Information

 

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CLARIOS INTERNATIONAL INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS OF MARCH 31, 2021

(in millions)

 

     Historical
Clarios Global LP
    Transaction
Accounting
Adjustments
    Note Ref      Pro Forma
Clarios
International Inc.
 

Assets

                              

Cash and cash equivalents

   $ 550          $ 550  

Accounts receivable—net

     1,116            1,116  

Inventories

     1,388            1,388  

Other current assets

     256            256  
  

 

 

   

 

 

      

 

 

 

Current assets

     3,310            3,310  
  

 

 

   

 

 

      

 

 

 

Operating lease right-of-use assets

     86            86  

Property, plant and equipment—net

     3,281            3,281  

Goodwill

     1,787            1,787  

Other intangible assets—net

     5,817            5,817  

Equity method investments

     764            764  

Noncurrent income tax assets

     163       256       (d)      419  

Other noncurrent assets

     42            42  
  

 

 

   

 

 

      

 

 

 

Total assets

   $ 15,250     $ 256        $ 15,506  
  

 

 

   

 

 

      

 

 

 

Liabilities and Equity

         

Short-term debt

   $ 9          $ 9  

Current portion of long-term debt

     51     $            51  

Operating lease—current liabilities

     33            33  

Accounts payable

     1,159            1,159  

Accrued compensation and benefits

     140            140  

Accrued interest

     115            115  

Other current liabilities

     505            505  
  

 

 

   

 

 

      

 

 

 

Current liabilities

     2,012            2,012  
  

 

 

   

 

 

      

 

 

 

Long-term debt

     10,212       (1,711     (b)        8,501  

Operating lease—noncurrent liabilities

     54            54  

Pension and postretirement benefits

     211            211  

Noncurrent income tax liabilities

     847       (98     (d)      749  

Other noncurrent liabilities

     183            183  

Amounts payable pursuant to Tax Receivable Agreement

     —         792       (a)        792  
  

 

 

   

 

 

      

 

 

 

Long-term liabilities

     11,507       (1,017        10,490  
  

 

 

   

 

 

      

 

 

 

Common stock (par value $0.01)

     —         —         (e)      —    

Additional paid-in capital

     —         3,389       (f)        3,389  

Parent company investment

     1,927       (1,927     (e)      —    

Accumulated deficit

     —         (189     (b)      (189

Accumulated other comprehensive loss

     (206     —            (206
  

 

 

   

 

 

      

 

 

 

Equity attributable to the Company

     1,721       1,273          2,994  

Noncontrolling interest

     10       —            10  
  

 

 

   

 

 

      

 

 

 

Total equity

     1,731       1,273          3,004  
  

 

 

   

 

 

      

 

 

 

Total liabilities and stockholders’ equity

   $ 15,250     $ 256        $ 15,506  
  

 

 

   

 

 

      

 

 

 

See accompanying notes to the Unaudited Pro Forma Consolidated Financial Information

 

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NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The accompanying consolidated financial statements have been prepared from Clarios’ historical accounting records and include the following unaudited pro forma adjustments as of March 31, 2021 and for the six months ended March 31, 2021 and the year ended September 30, 2020.

Note 1: Transaction Accounting Adjustments

This note should be read in conjunction with other notes in the Unaudited Pro Forma Consolidated Financial Statements. Adjustments included in the column under the heading “Transaction Accounting Adjustments” represent the following:

 

  (a)

As described in greater detail in the section entitled “Certain Relationships and Related Party Transactions—Tax Receivable Agreement,” prior to the completion of this offering we will enter into a tax receivable agreement with the Sponsor Group. The agreement provides for the payment to the Sponsor Group of 85% of the benefits, if any, that we realize as a result of certain tax attributes subject to the tax receivable agreement (including deductions for payments of imputed interest) and is effective upon the completion of this offering.

The tax receivable agreement will be accounted for as a liability, with amounts accrued upon the agreement’s effective date as payments under the agreement are expected to be both probable and reasonably estimable as of that date. We expect to record a $792 million undiscounted liability based on management’s estimate of the aggregate amount that it will pay to the Sponsor Group.

Management’s estimate is based on an analysis that compares the Company’s assumed income tax liability with its hypothetical liability had we not been able to utilize the Covered Tax Benefits (as defined within “Certain Relationships and Related Party Transactions—Tax Receivable Agreement”), giving effect to the Transactions undertaken for this offering including the recognition of deferred tax assets pertaining to operations that will be subject to Canadian and U.S. income taxation as more fully discussed in (c) below. Payments under the tax receivable agreement will not result in any future tax benefits for the Company. The Company will continue to make payments until all such Covered Tax Benefits have been realized or expire. Based on existing tax law and projections of taxable income, the Company estimates the liability will be substantially paid within a period of approximately 15 years from the date of this offering. The actual period over which the Company is required to make payments under the tax receivable agreement is subject to various uncertainties, including changes in tax law and fluctuations in taxable income throughout duration of the tax receivable agreement, and may materially differ from the Company’s current estimate.

 

  (b)

Reflects the following:

 

  i.

Adjustments to long-term debt to reflect the use of net proceeds from this offering to repay outstanding indebtedness of $1,772 million, including $450 million of the 6.25% 2026 USD Secured Notes, $200 million of the 6.75% 2025 Secured Notes, $975 million of the 8.50% Unsecured Notes, and $147 million of the 4.47% USD Term Loan as of October 1, 2019, net of a reduction to previously deferred financing fees of approximately $61 million.

 

  ii.

Adjustments to accumulated deficit for an early debt repayment penalty of $128 million and write-off of previously deferred financing fees of approximately $61 million.

 

  iii.

An adjustment to interest expense assuming the outstanding indebtedness had been repaid as of October 1, 2019.

 

  (c)

As noted throughout this registration statement, prior to the organizational transactions undertaken for this offering, the Company includes certain pass through entities for purposes of Canadian and U.S. income taxation and, therefore, no income taxes are reflected in the historical financial statements for those entities. As a result of the organizational transactions, these entities are now directly subject to

 

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  U.S. income taxation, thus, the pro forma statements of income reflect a tax benefit on pre-tax losses for U.S. federal, state and local income tax purposes. A U.S. federal and blended state statutory tax rate of approximately 24%, which was calculated assuming the U.S. federal rate currently in effect and the highest statutory rates apportioned to each applicable state and local jurisdiction, has been applied to the U.S. pre-tax losses to reflect the additional estimated income tax benefits. This U.S. federal and blended state statutory tax rate was applied in each reporting period and does not reflect the Company’s global effective tax rate, which includes other tax adjustments, such as foreign taxes and other tax charges or benefits, and does not take into account any historical or possible future tax events that may impact the Company. Further, the pro forma statements of income reflect adjustments for any income tax effects of pre-tax adjustments and additional impacts attributable to the organizational transactions, including certain tax benefits on net financing expenses.

 

  (d)

Reflects an increase in deferred tax assets and a decrease in deferred tax liabilities related to tax benefits from future deductions attributable to the organizational transactions and offering, with an offsetting increase to additional paid-in capital. The Company determined the deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using the enacted tax rates in effect for the year in which the differences are expected to reverse. As noted in (c) above, the Company was previously not subject to U.S. income taxation. As such, most of the deferred tax adjustments relate to the recording of U.S. net deferred tax assets including net operating losses and tax basis in certain depreciable and amortizable assets. Additionally, net deferred taxes have increased to reflect certain tax carryovers associated with net financing expenses. At this time, the Company considers it more likely than not that it will have sufficient taxable income in the future that will allow it to realize these deferred tax assets.

 

  (e)

On issuance, the Parent company investment in Clarios will be re-designated as Clarios Shareholders’ Equity and will be allocated between shares of our common stock and additional paid in capital based on the number of shares of common stock outstanding at the issuance date.

 

  (f)

Reflects the adjustments to additional paid-in capital resulting from the Transactions, calculated as follows (in millions):

Net adjustment from recognition of tax receivable agreement liability, see note (a)

   $ (792

Net adjustment from recognition of deferred tax, see note (d)

     354  

Reclassification of parent company investment to additional paid in capital, see note (e)

     1,927  

Portion of shareholder’s equity over par value related to net proceeds from this offering

     1,900  

Additional paid-in capital

   $ 3,389  

 

  (g)

Pro forma basic and diluted loss per share and pro forma weighted-average basic and diluted shares outstanding for the six months ended March 31, 2021 and the year ended September 30, 2020 reflect the number of shares of Clarios common stock that are expected to be outstanding upon completion of the offering.

We refer to the transactions related to this offering collectively as the “Transactions.”

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information should be read together with the information under the headings “Basis of Presentation and Other Information,” “Summary—Summary Historical Consolidated and Combined and Unaudited Pro Forma Financial and Other Data,” “Capitalization” and “Unaudited Pro Forma Financial Information” and our consolidated and combined financial statements and the notes related thereto included elsewhere in this prospectus. The following discussion and analysis of our financial condition and results of operations contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those set forth under “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” Actual results may differ materially from those contained in any forward-looking statement.

In order to provide a more meaningful basis for comparing the results of operations for the year ended September 30, 2020 to the corresponding prior year periods, we have presented financial information for the year ended September 30, 2019 by combining financial information for our Successor period (the five months ended September 30, 2019) and our Predecessor period (the seven months ended April 30, 2019). We believe that describing certain year-over-year variances and trends for the year ended September 30, 2020 as compared to the corresponding prior year periods without regard to the concept of Successor and Predecessor (i.e., on a combined basis) facilitates a meaningful analysis of our results of operations and is useful in identifying current business trends. The combined results represent the sum of the reported amounts for the Predecessor period for the seven months ended April 30, 2019 and the Successor period for the five months ended September 30, 2019. These combined results are not considered to be prepared in accordance with U.S. GAAP and have not been prepared as pro forma results under applicable regulations. The combined operating results may not reflect the actual results we would have achieved absent the Acquisition and may not be indicative of future results. The year ended September 30, 2020, which is the most recent annual period shown, reflects a full year of the Successor business results. See “—Factors Affecting the Comparability of Our Results of Operations—The Acquisition.”

Overview

Clarios is one of the world’s largest suppliers of energy storage solutions. We design and manufacture advanced, low-voltage battery technologies for global mobility and industrial applications, offering reliability, safety and comfort to everyday lives. Our batteries power cars, commercial vehicles, motorcycles, marine vehicles, powersports vehicles and industrial products. In our core low-voltage mobility battery markets, we are the only global manufacturer and are significantly larger than our nearest competitor by revenue. We believe we are unique in terms of our global capabilities, with the number one market position in both the Americas and EMEA, and the number three market position in Asia. The majority of demand for our products comes from the aftermarket channel, driven by consumer replacements. We sell more than 140 million batteries annually that are distributed to OEM and aftermarket customers in over 140 countries. Our scale, global footprint and vertical integration allow us to operate with a best-in-class cost structure, lead the industry in technological innovation and deliver greater value to customers and consumers. We have established one of the world’s most successful examples of a circular economy. We design, manufacture, transport, recycle and recover the materials in vehicle batteries using a closed-loop system. Our batteries are designed so that up to 99% of the materials can be responsibly recovered, recycled and repurposed directly into new batteries.

Our batteries provide reliable, low-voltage power to a full range of propulsion technologies and will remain critical with the transition of the global transportation network from ICE to hybrid and EVs. Our batteries support a range of functions critical to vehicle performance ranging from the more traditional roles of engine starting and ignition and supporting key-off loads, to more demanding emerging functions such as start-stop, ADAS, over-the-air software updates and autonomous driving. Importantly, our batteries provide the fail-safe power required to support electric and AVs. Our advanced products are well-positioned to enable the increasing electrical load requirements seen in nearly all vehicles entering the market today, and especially the technologies of start-stop, EV and AV, which require more robust, advanced energy solutions. We believe the battery mix

 

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shift towards higher-margin advanced products represents a significant opportunity for Clarios as we deliver a compelling value proposition to our consumers by combining advanced technology solutions for mission critical systems with a lower cost solution than competing technologies.

Our product portfolio includes SLI and Advanced Batteries, which include EFB and AGM. We believe our products have differentiating factors, such as PowerFrame, which reduces lead usage and bolsters corrosion resistance, our patented EFB design and our certified non-spillable AGM batteries. We also develop and manufacture low-voltage lithium-ion battery technologies for select markets. We distribute our products primarily through the aftermarket and OEMs. We sell our products through a number of well-recognized global and regional brands such as VARTA®, LTH®, Heliar®, OPTIMA®, Delkor® and MAC® Batteries. Principally outside of North America we go to market with these owned brands which, based on consumer awareness studies, are consistently #1 or #2 in nearly every major market in which we participate. We also provide private label brands to our aftermarket customers including DieHard, Interstate, Duralast, Bosch and EverStart.

 

LOGO

For the twelve months ended September 30, 2020, approximately 80% of our unit volume and an even larger share of our gross profit was generated through the replacement aftermarket channel. In the automotive market, our batteries have an average life of three to six years and the battery is replaced, on average, two to four times over a vehicle’s useful life, depending on the battery technology, application, driving habits and geography. Given aftermarket customers require not only a high-quality product but also outstanding service and support, we deliver value far beyond the supply of batteries. We have developed deep channel partnerships and have longstanding relationships with large domestic and international aftermarket customers such as Interstate, AutoZone, Bosch, Advance Auto Parts, Walmart and LKQ, serving as a critical partner in one of their largest and most important sales categories. We operate an entire logistics network for battery delivery (in some cases, direct to store) and for the return of spent batteries to be recycled, often through our owned recycling network. We benefit from our scale and technology developed with OEMs, which allow us to deliver a high level of expertise to the replacement channel, including training, technical and system expertise and category management. Our scale also allows us to fulfill store level demand in a timely fashion and at competitive cost. These differentiators are increasingly important as the complexity of monitoring and installing Advanced Batteries continues to rise. Additionally, we continue to innovate around aftermarket distribution through point of sale and digital channels, particularly in China.

The remaining roughly 20% of our unit volume is generated through the OEM channel, which is comprised of sales to major car, commercial vehicle, motorcycle, marine, powersports vehicle and industrial manufacturers globally. Our capabilities and expertise have also positioned us as the partner of choice for our OEM customers, including Ford Motor Company, General Motors Company, Volkswagen, Tesla, Inc., BYD Auto Co., Ltd, Li Auto Inc., The Daimler Motor Company Limited, BMW, PACCAR Inc., Polaris, Toyota Motor Corporation and Caterpillar Inc. Our OEM business is driven by global demand for new vehicles and equipment but serves as a key driver of our future aftermarket replacement business. Our focus is to be sourced as “first fit” with both leading traditional OEMs and emerging EV OEMs globally, which in turn bolsters our replacement business in the aftermarket channel. Our customers look to us to provide low-voltage systems integration expertise and drive technological innovation. We work closely with OEMs during development of future platform launches, designing energy storage technologies that will cost-effectively help them meet increasing environmental, safety and vehicle electrification requirements. Our leading global position in the OEM channel allows us to collaborate with a wide range of customers in bringing to market new technologies that can support and accelerate advancements in powertrain technology and autonomy. In addition, our global footprint allows us to serve OEMs with the same product in multiple regions with localized production, which simplifies their procurement

 

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processes on global vehicle platforms. No customer accounted for more than 10% of total volume for the twelve months ended September 30, 2020.

Material Trends Affecting Our Results of Operations

COVID-19

In December 2019, a novel strain of coronavirus SARS-CoV-2, causing a disease referred to as COVID-19, was reported in Wuhan, China. The coronavirus has since spread to, and infections have been found in, the vast majority of countries around the world, including the United States and throughout EMEA. In March 2020, the World Health Organization recognized the COVID-19 outbreak as a pandemic based on the global spread of the disease, the severity of illnesses it causes and its effects on society. In response to the COVID-19 outbreak, the governments of many countries, states and cities have imposed and re-imposed from time to time preventative or protective actions, such as imposing restrictions on travel and business operations, and advising or requiring individuals to limit or forego their time outside of their homes. Accordingly, the COVID-19 outbreak has severely restricted the level of economic activity in many countries, and continues to adversely impact global economic activity and has contributed to significant volatility in financial markets.

The Company’s operating performance is subject to global economic and market conditions, including their impacts on the global automotive industry. During the year ended September 30, 2020, the COVID-19 outbreak adversely impacted the Company’s operational and financial performance, primarily due to lower sales volumes to our OEM customers, many of whom have experienced temporary shut-downs, and to a lesser extent our aftermarket customers due to temporary store closures and a reduction in purchases due to stay at home orders. We also experienced operational inefficiencies as we adjusted production levels to align with changing market demand and, in response to regulatory requirements, implemented enhanced safety measures to protect the health of our employees. During the disruption caused by COVID-19, we have managed our balance sheet prudently and have maintained appropriate liquidity, refer to “Liquidity and Capital Resources” and “Liquidity Outlook” for further information.

The extent of the future impact of the COVID-19 outbreak on the Company’s operational and financial performance will depend on certain developments, including the duration, intensity and continued spread of the pandemic, including new variants and virus strains, regulatory and private sector responses, which may be precautionary, the development and availability of vaccines and the impact to the Company’s customers, workforce and vendors, all of which are uncertain and cannot be predicted. The Company’s financial condition and results could also be impacted by significant changes in commodity prices, foreign currency exchange rates and interest rates that may result from volatility in the economic and financial markets as a result of the COVID-19 pandemic. We currently expect that the COVID-19 pandemic may negatively impact our financial condition and results of operations in future periods. While we have seen positive trends of recovery in the aftermarket as the easing of mobility restrictions progresses across our geographies, such trends could reverse as COVID-19 outbreaks recur in certain areas, and we currently expect OEM market disruption to adversely affect OEM volumes for the year ending September 30, 2021. Changing market conditions may also affect the estimates and assumptions made by management. Such estimates and assumptions affect, among other things, the Company’s goodwill, long-lived asset and indefinite-lived intangible asset valuations; equity investment valuations; valuation of deferred income taxes and income tax contingencies; measurement of compensation cost for certain cash bonus plans; and pension plan assumptions. Events and changes in circumstances arising in future periods, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.

Technological Changes

Our business is impacted by technological changes in the battery and automotive markets in the geographic segments in which we operate. Increasing electrical loads in new vehicles have led to a shift from conventional

 

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flooded batteries to advanced lead-acid batteries. In turn, we have invested in new product and process technologies and have expanded product offerings to AGM and EFB technologies that power start-stop vehicles, as well as lithium-ion battery technology for certain hybrid and EVs. Advanced lead-acid batteries have represented an increasing portion of our product mix over time (particularly in EMEA and Asia, where demand for Advanced Batteries has increased) with two primary effects to our results: (i) net sales and gross profit have improved faster than volume growth as these batteries offer both price and profitability advantages compared to conventional flooded batteries, and (ii) our capital expenditures have increased in order to increase production capacity for AGM and EFB batteries to meet increased demand. Between September 30, 2014 and September 30, 2020, our capital expenditures related to AGM and EFB batteries totaled approximately $472 million. As a result, we have experienced increasing depreciation costs. We currently expect elevated capital expenditures related to AGM and EFB batteries to continue.

Growth in Asia

Over two billion people in Asia are expected to enter the middle class by 2030 according to The Brookings Institution. For the year ended September 30, 2020, approximately 11% of our net sales were in Asia. We expect this business to grow as more customers in Asia enter the middle class and purchase vehicles, as growth in our business has historically been driven by increasing volume in these markets. In response to this trend, we have invested approximately $277 million between September 30, 2016 and September 30, 2020 in an effort to expand our capacity in the region.

Seasonality

Our business is impacted by seasonal factors, as aftermarket replacements are highest in the winter months. Our net sales reflect our channel partners’ stocking patterns to meet this increased demand, and have historically been greatest between our fourth and first fiscal quarters (late summer through early winter). Global climate change may impact the seasonality of our business as the demand for our products, such as automotive replacement batteries, may be affected by unseasonable weather conditions.

Lead Price Volatility

The price volatility of lead as traded on the London Metal Exchange has several impacts on our business:

 

   

In the Americas aftermarket, we operate a closed-loop system through which we typically collect one spent battery core for every new battery we sell. This effectively minimizes the impact of lead pricing on our margins.

 

   

In other segments and channels, we typically treat lead as a pass-through cost to our customers with a lag between the price we charge our customers and the market price of lead to match the cost of lead reflected in our cost of goods sold. This practice minimizes, but does not eliminate, the impact of lead price volatility on our profits in these geographic segments and channels. When lead prices are particularly volatile, we experience volatility in our net sales and margins.

 

   

In addition, during periods of high lead price volatility, some customers may shift buying patterns, pulling ahead purchases in anticipation of higher lead prices in the future or delaying purchases in anticipation of lower lead prices in the future. If lead prices continue to be volatile and our customers shift buying patterns in this manner, our quarterly results may be volatile and, consequently, it may be difficult to compare results on a quarter-to-quarter basis.

Factors Affecting the Comparability of Our Results of Operations

As a result of a number of factors, our historical results of operations may not be comparable from period to period or going forward. Set forth below is a brief discussion of the key factors impacting the comparability of our results of operations.

 

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The Acquisition

On April 30, 2019, the Power Solutions Business of JCI was acquired by Clarios International LP (“Holdings”). As a result of the Acquisition, a new basis of accounting was created on May 1, 2019. The audited consolidated and combined financial statements as of and for the year ended September 30, 2018 and as of and for the seven month period ended April 30, 2019, which are included elsewhere in this prospectus, are referred to therein as “Predecessor” combined financial information. The consolidated results of operations and cash flows of the Company beginning on May 1, 2019 and the consolidated financial position of the Company as of balance sheet dates subsequent to April 30, 2019 are referred to therein as “Successor” consolidated financial information.

The Predecessor and Successor financial information presented herein is not comparable primarily due to the fact that the Successor financial information reflects:

 

   

The application of acquisition accounting as of May 1, 2019, as further described in Note 2, “Acquisitions,” to the audited consolidated and combined financial statements included elsewhere in this prospectus, which requires the acquirer to reflect the fair value of the net assets acquired in a business combination as of the date of acquisition which often exceeds the net assets’ carrying value on the acquired business’s financial statements. As a result of applying acquisition accounting, the carrying value of the Successor’s net assets exceeds the carrying value of the Predecessor’s net assets on the consolidated statement of financial position. The most significant implications to the consolidated statements of income (loss) for the Successor periods due to the application of acquisition accounting are increased depreciation and amortization expense;

 

   

Additional debt and interest expense associated with debt financing arrangements entered into in connection with the Acquisition, as further described in Note 8, “Debt and Financing Arrangements,” to the audited consolidated and combined financial statements included elsewhere in this prospectus; and

 

   

Certain pass-through entities for purposes of Canadian and U.S. income taxation and, therefore, no income taxes are reflected in the Successor financial statements for those entities.

The Transactions

In connection with this offering, we intend to enter into the Transactions. As a result, our results of operations in the future may not be directly comparable to the historical results presented in this prospectus. For more information see “Unaudited Pro Forma Financial Information.”

How We Assess Our Performance

We use Total Adjusted EBITDA to analyze and evaluate the performance of our business and to provide a greater understanding with respect to our results of operations, including within each of our segments. We believe that Total Adjusted EBITDA is an important measure that excludes many of the costs associated with our existing capital structure and excludes costs that management believes do not reflect our ongoing operating performance. Accordingly, Total Adjusted EBITDA is a key metric that management uses to assess the period-to-period performance of our core business operations and our segments.

Total Adjusted EBITDA helps to identify trends in the performance of our core ongoing operations by excluding the effects related to (i) non-cash items, (ii) costs and charges that do not relate to our ongoing operations, and (iii) certain other adjustments. We believe that presenting Total Adjusted EBITDA enables investors to assess our performance from period to period using the same metric utilized by management and to evaluate our performance relative to other companies that are not subject to such factors. See Note 19, “Segment Information,” of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus for further information and “—Total Adjusted EBITDA and Indenture EBITDA” for a reconciliation of Total Adjusted EBITDA to net income (loss) for the given period.

 

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Total Adjusted EBITDA may not be comparable to similar measures used by other companies. Total Adjusted EBITDA is a non-U.S. GAAP financial measure. It has important limitations as analytical tools and you should not consider it in isolation or as substitutes for analysis of our financial performance as reported under U.S. GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance or as alternatives to cash flow from operating activities as measures of our liquidity.

Because of these limitations, Total Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using Total Adjusted EBITDA only for supplemental purposes.

Components of Results of Operations

Net Sales

Net sales consist of gross sales less sales adjustments related to provisions for customer returns, allowances and rebates. Net sales are derived from sales of lead-acid and lithium-ion batteries to customers globally. We have generally been able to increase the average prices of our products in the low single digit percentages on an annual basis. During economic downturns, the annual increase in such prices has generally been in the mid-single digit percentages.

The Company services both automotive OEM and the battery aftermarket by providing Advanced Battery technology. The Company’s revenue is generated through the manufacture and sale of automotive battery products, of which the delivery of goods ordered typically represents the Company’s sole performance obligation with respect to distinct goods and services offered to customers. The Company recognizes revenue at the point in time when control over the goods transfers to the customer as specified by the shipping terms agreed upon with the customer.

Cost of Sales

Our cost of sales consists of costs relating to battery production, battery recycling and logistics. Battery production costs consist of the costs of (i) procuring raw materials (primarily lead, polypropylene, separators and sulfuric acid), (ii) component manufacturing and (iii) direct and indirect conversion costs. Battery recycling costs consist of costs associated with recycling used batteries, including those relating to collecting used batteries, tolling contracts with secondary lead smelting companies, breaking and separation, and smelting. Logistics costs consist of costs related to shipping (i) raw materials to component plants, assembly plants and smelters, (ii) components to assembly plants and dry unformed batteries to fill and form facilities (primarily in North America), and (iii) finished batteries to distribution centers and to aftermarket customers.

Selling, General and Administrative Expenses

SG&A expenses include salaries and benefits of our commercial organizations and administrative functions, marketing and commission costs, engineering and product development costs, and administrative costs at the regional and global headquarter level.

Restructuring and Impairment Costs

To better align its resources with its growth strategies and reduce the cost structure of its global operations to address dynamics in certain underlying markets, the Company commits to restructuring plans as necessary, which may include workforce reductions, global plant closures and consolidations, asset impairments and other cost-reduction initiatives.

 

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Net Financing Charges

Net financing charges primarily relate to net interest expense, banking and factoring fees, and net foreign exchange results for financing activities.

Equity Income

Equity income primarily relates to our share of non-consolidated, partially-owned affiliates. Investments in partially-owned affiliates for which the Company exercises significant influence but does not have control are accounted for by the equity method. We own portions of battery manufacturers in countries and regions where we do not own plants, and businesses engaged in the distribution of lead-acid batteries.

Income Tax Provision

The Predecessor income tax provision in the combined statements of income was calculated as if the Company filed separate income tax returns and operated as a stand-alone business for the periods presented. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of the actual tax balances of the Company as part of consolidated JCI. Prior to the Acquisition, the Company’s operations historically were included in JCI’s U.S. federal and state tax returns or non-U.S. jurisdiction tax returns. JCI’s global tax model was developed based upon its entire portfolio of businesses. Accordingly, the Company’s tax results as presented for the periods prior to the Acquisition are not necessarily indicative of future performance and do not necessarily reflect the results that would have been generated if the company had operated as an independent company for the periods presented. As portions of the Company’s operations were included in JCI’s tax returns for periods prior to the Acquisition, payments to certain tax authorities were made by JCI, and not by the Company. For the periods prior to the Acquisition, the Company did not maintain taxes payable to/from JCI and the Company’s subsidiaries were deemed to settle the annual current tax balances immediately with the legal tax-paying entities in the respective jurisdictions.

The Successor income tax provision, deferred taxes and uncertain tax positions reflect management’s best estimate of current and future taxes to be paid. Due to U.S. and Canadian pass-through entities, no income tax impacts are reflected in the Successor financial statements for those jurisdictions. The Company is subject to income taxes in numerous foreign jurisdictions. Significant judgments and estimates are required in the determination of the consolidated income tax expense. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax assets in the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations.

Refer to Note 13, “Income Taxes,” of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus for further information.

 

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Results of Continuing Operations

Six Months Ended March 31, 2021 Compared to Six Months Ended March 31, 2020 (in millions; unaudited)

 

Consolidated Statements of Income (Loss)

   Six Months Ended
March 31,
             
     2021     2020     Change     % Change  

Net sales

   $ 4,499   $ 3,915   $ 584     15

Cost of sales

     3,581     3,247     334     10
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     918     668     250     37

Selling, general and administrative expenses

     (455     (462     7     (2 )% 

Equity income

     45     28     17     61

Restructuring and impairment costs

     (253         (253  

Net financing charges

     (366     (339     (27     8
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (111     (105     (6     6

Income tax provision (benefit)

     137     (19     156     *  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (248     (86     (162     *  

Income (loss) attributable to noncontrolling interests

     1     (1     2       *  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to the Company

   $ (249   $ (85   $ (164     *  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

*

Metric not meaningful

Net Sales

Net sales increased $584 million to $4,499 million for the six months ended March 31, 2021 from $3,915 million for the six months ended March 31, 2020, primarily due to the effect of increased volumes of $494 million, favorable pricing and product mix of $146 million, and the favorable impacts of foreign currency translation of $89 million, partially offset by the impact of lower lead costs on pricing of $145 million. Approximately $129 million of the increase in volumes was due to the effects of the COVID-19 pandemic in the six months ended March 31, 2020, which impacted the global economy and resulted in lower sales volumes to our OEM customers, many of whom experienced temporary shut-downs, and to a lesser extent our aftermarket customers due to temporary store closures and a reduction in purchases due to stay at home orders. In the six months ended March 31, 2021, strong demand primarily from our aftermarket customers favorably impacted volumes, and higher volumes of advanced batteries contributed to favorable product mix. Refer to “—Segment Analysis” below for a discussion of net sales by segment.

Gross Profit

Gross profit increased $250 million, or 37%, to $918 million for the six months ended March 31, 2021 from $668 million for the six months ended March 31, 2020. The increase was primarily due to favorable pricing and product mix, an increase in volumes and the favorable impacts of foreign currency translation, partially offset by higher transportation costs and higher operating costs across our global battery plants. The change in value of battery cores due to the change in the value of lead had a positive non-cash impact of $32 million in the six months ended March 31, 2021, compared to a negative non-cash impact of $46 million in the six months ended March 31, 2020. In the six months ended March 31, 2021, the negative impact to our cost structure from the COVID-19 pandemic was approximately $38 million, which was primarily comprised of higher transportation rates and other additional expenses as we implemented enhanced safety measures to protect the health of our employees. In the six months ended March 31, 2020, the negative impact to our cost structure from the COVID-19 pandemic was approximately $16 million, which was primarily comprised of stranded fixed costs and additional expenses as we adjusted production levels to align with changing market demand and implemented

 

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enhanced safety measures to protect the health of our employees. See “—Material Trends Affecting Our Results of Operations – COVID-19.”

Selling, General and Administrative Expenses

SG&A expenses decreased $7 million, or 2%, to $455 million for the six months ended March 31, 2021 from $462 million for the six months ended March 31, 2020, primarily due to $44 million of certain items in the six months ended March 31, 2020, including, among others, incremental stand up costs, consulting costs related to operational improvement initiatives, severance costs, and the non-cash impact of revaluing an investment in marketable common stock. In the six months ended March 31, 2021, there were $18 million of certain net items, including, among others, incremental stand up costs, consulting costs related to operational improvement and strategic initiatives, and the non-cash impact of revaluing an investment in marketable common stock. These impacts were partially offset by an increase in charitable contributions, and higher depreciation and amortization expense in the six months ended March 31, 2021. The Company also received approximately $2 million of COVID-19 related recoveries in the six months ended March 31, 2021.

Equity Income

Equity income increased $17 million, to $45 million for the six months ended March 31, 2021 from $28 million for the six months ended March 31, 2020, primarily due to favorable operational results of certain equity method investments and $6 million of remeasurement gains related to the consolidation of certain equity method investments in the six months ended March 31, 2021. Refer to Note 2, “—Acquisitions,” of the notes to the unaudited consolidated financial statements included elsewhere in this prospectus for further information.

Restructuring and Impairment Costs

The Company incurred $253 million of restructuring and impairment costs in the six months ended March 31, 2021. Refer to Note 15, “—Restructuring and Impairment Costs,” of the notes to the unaudited consolidated financial statements included elsewhere in this prospectus for further information related to the Company’s restructuring plans and impairment costs.

Upon cessation of the Company’s lead recycling operations in its North America recycling plant in March 2021, the Company estimates that annual cost of sales in the Americas segment will decrease by approximately $50 million by optimizing our supply chain network. The Company expects the benefit of these actions will be partially realized in the second half of fiscal 2021 and fully realized in fiscal 2022, though savings estimates may vary based upon variable costs in our supply chain network. Restructuring plan activities, which include the decommissioning of the North America recycling plant, are expected to be substantially complete by the end of fiscal 2022. Outstanding restructuring reserves at March 31, 2021 related to this restructuring action were approximately $11 million, which are expected to be substantially paid by the end of fiscal 2022. Additional costs associated with the decommissioning of the North America recycling plant, which the Company expects to incur but was not yet obligated as of March 31, 2021, are preliminarily estimated to be as much as $40 million and are anticipated to be substantially incurred by the end of fiscal 2022. The Company’s preliminary estimate of additional plan costs are subject to further refinement, which may be material, based upon changes in the facts and circumstances regarding closure activities undertaken.

Upon completion of the organizational transformation initiative announced in the first quarter of fiscal 2021, the Company estimates that annual operating costs will decrease by approximately $30 million, which is primarily the result of lower cost of sales and SG&A due to reduced employee-related costs. The Company expects the annual benefit of these actions will be partially realized in fiscal 2021 and fully realized in fiscal 2022. The restructuring action is substantially complete as of March 31, 2021. Outstanding restructuring reserves at March 31, 2021 related to this restructuring action were approximately $17 million, which is expected to be substantially paid by the end of fiscal 2021.

 

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The Company did not incur any restructuring and impairment costs for the six months ended March 31, 2020.

Net Financing Charges

Net financing charges increased $27 million to $366 million for the six months ended March 31, 2021 from $339 million for the six months ended March 31, 2020. The change in net financing charges is primarily due to $16 million of expense associated with the repricing of the Term Loan Facility, including $12 million of expense to write-off unamortized deferred financing costs on the extinguishment of debt, and net foreign exchange results for financing activities. Refer to Note 8, “—Debt and Financing Arrangements,” of the notes to the unaudited consolidated financial statements included elsewhere in this prospectus for further information.

Income Tax Provision

For the six months ended March 31, 2021 the provision for income taxes was $137 million compared to a benefit from income taxes of $(19) million for the six months ended March 31, 2020. The change in the provision for income taxes is primarily due to increased income tax impacts of foreign exchange fluctuations, an increase in prior year uncertain tax positions and changes in global mix of income, partially offset by changes in the deferred tax liability related to basis differences of certain subsidiaries. Refer to Note 13, “—Income Taxes,” of the notes to consolidated financial statements for further information.

Year Ended September 30, 2020 Compared to Year Ended September 30, 2019 (in millions)

 

    Successor     Predecessor     Combined              
Consolidated & Combined Statements of
Income (Loss)
  Year Ended
September 30,
2020
    Five Months
Ended
September 30,
2019
    Seven Months
Ended
April 30,
2019
    Year Ended
September 30,
2019
    Change     % Change  

Net sales

  $ 7,602     $ 3,535     $ 4,993     $ 8,528     $ (926     (11 )% 

Cost of sales

    6,405       3,214       4,059       7,273       (868     (12 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    1,197       321       934       1,255       (58     (5 )% 

Selling, general and administrative expenses

    (936     (459     (359     (818     (118     14

Equity income

    48       17       30       47       1       2

Restructuring and impairment costs

    (11     —         —         —         (11     *  

Net financing charges

    (717     (274     (23     (297     (420     *  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    (419     (395     582       187       (606     *  

Income tax provision (benefit)

    (17     (31     178       147       (164     *  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    (402     (364     404       40       (442     *  

Income (loss) attributable to noncontrolling interests

    (3     (8     23       15       (18     *  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to the Company

  $ (399   $ (356   $ 381     $ 25     $ (424     *  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*

Metric not meaningful

Net Sales

Net sales decreased $926 million to $7,602 million for the year ended September 30, 2020 from $8,528 million for the year ended September 30, 2019, primarily due to the effect of decreased volumes of

 

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$552 million, the impact of lower lead costs on pricing of $314 million, and the unfavorable impact of foreign currency translation of $94 million, partially offset by favorable pricing and product mix of $34 million. Approximately $485 million of the decrease in volumes was due to the impact of the COVID-19 pandemic on the global economy, with the remaining decrease in volumes primarily due to declines in macroeconomic conditions in China and global OEM production, as well as mild weather in the U.S. and Europe. The COVID-19 pandemic resulted in lower sales volumes to our OEM customers, many of whom experienced temporary shut-downs, and to a lesser extent our aftermarket customers due to temporary store closures and a reduction in purchases due to stay at home orders. These negative impacts were partially offset by higher volumes of Advanced Batteries to our aftermarket customers, which contributed to favorable product mix. Refer to the “Segment Analysis” below for a discussion of net sales by segment.

Gross Profit

Gross profit decreased $58 million, or 5%, to $1,197 million for the year ended September 30, 2020 from $1,255 million for the year ended September 30, 2019. The negative impact to our cost structure from the COVID-19 pandemic was approximately $130 million in the year ended September 30, 2020, which was primarily comprised of stranded fixed costs and additional expenses as we adjusted production levels to align with changing market demand and implemented enhanced safety measures to protect the health of our employees. See “Material Trends Affecting Our Results of Operations—COVID-19.” The change in value of battery cores due to the change in the value of lead had a negative non-cash impact of $49 million in the year ended September 30, 2020, compared to a positive non-cash impact of $14 million in the year ended September 30, 2019. The decrease in gross profit was also partially due to increased depreciation expense of $36 million in the year ended September 30, 2020 related to the purchase accounting impacts of the Acquisition. Net mark-to-market adjustments on pension and postretirement plans had a net unfavorable year-over-year impact on cost of sales of $15 million primarily due to a decrease in discount rates. Other unfavorable impacts included higher operating costs across our global battery plants, lower overall volumes and the negative impact of foreign currency translation, partially offset by the favorable impact of pricing, lower transportation and purchasing costs, and an increase in volumes of Advanced Batteries to our aftermarket customers. In addition, purchase accounting related to the Acquisition negatively impacted gross profit by $296 million in the year ended September 30, 2019 due to inventory selling through at fair value. Refer to the “Segment Analysis” below for a discussion of Adjusted EBITDA by segment.

Selling, General and Administrative Expenses

SG&A expenses increased $118 million, or 14%, to $936 million for the year ended September 30, 2020 from $818 million for the year ended September 30, 2019, primarily due to $234 million of increased depreciation and amortization expense in the year ended September 30, 2020 due to the purchase accounting impacts of the Acquisition; partially offset by the benefits of general and administrative cost saving initiatives year over year. In the year ended September 30, 2020, the Company incurred $89 million of certain items, including, among others, incremental stand up costs, consulting costs related to operational improvement initiatives and severance costs. In the year ended September 30, 2019, the Company incurred $137 million of transaction costs, incremental stand-up costs and consulting costs related to operational improvement initiatives. Net mark-to-market adjustments on pension and postretirement plans had a net unfavorable year-over-year impact on SG&A of $1 million primarily due to a decrease in discount rates.

Equity Income

Equity income increased $1 million to $48 million for the year ended September 30, 2020 from $47 million for the year ended September 30, 2019, primarily due to favorable operational results of certain equity method investments in the year ended September 30, 2020, partially offset by $7 million of higher unfavorable purchase accounting impacts in the year ended September 30, 2020 related to the Acquisition.

 

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Restructuring and Impairment Costs

The Company incurred $11 million of restructuring and impairment costs in the year ended September 30, 2020 related to the announcement that it will discontinue assembly operations at one of its U.S. plants. These costs include approximately $10 million of non-cash asset impairment costs related to certain assets identified as having no alternative use and $1 million of costs primarily related to workforce reductions. Refer to Note 15, “Restructuring and Impairment Costs,” of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus for further information.

The Company currently estimates that upon completion of the restructuring action, annual operating costs in the Americas segment will decrease by approximately $20 million. The Company expects the annual benefit of these actions will be substantially realized in fiscal 2021. For fiscal 2020, the savings were approximately 50% of the expected annual operating cost reduction as the action was taken mid-year. The restructuring action is expected to be substantially complete by the end of fiscal 2021. Outstanding restructuring reserves at September 30, 2020 were immaterial.

The Company did not incur any restructuring and impairment costs for the year ended September 30, 2019.

Net Financing Charges

Net financing charges increased $420 million to $717 million for the year ended September 30, 2020 from $297 million for the year ended September 30, 2019. The change in net financing charges is primarily due to an increase in interest expense and deferred financing cost amortization in the year ended September 30, 2020 driven by the third-party debt in connection with the Acquisition, and unfavorable net foreign exchange results for financing activities. Refer to Note 8, “Debt and Financing Arrangements,” of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus for further information.

Income Tax Provision

For the year ended September 30, 2020 the provision from income taxes was $(17) million compared to $147 million for the year ended September 30, 2019. The change in the provision for income taxes is primarily due to the fact that subsequent to the Acquisition, the structure of certain legal entities has been changed such that they are not subject to Canadian or U.S. income taxes at the Successor company level, income tax impacts of foreign exchange fluctuations and tax charges in the seven months ended April 30, 2019 related to pre-acquisition transactions resulting in adjustments to the outside basis of certain subsidiaries and valuation allowances. Refer to Note 13, “Income Taxes,” of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus for further information.

Year Ended September 30, 2019 Compared to Year Ended September 30, 2018 (in millions)

 

    Successor     Predecessor     Combined     Predecessor              

Consolidated & Combined Statements of
Income (Loss)

  Five Months
Ended
September 30,
2019
    Seven Months
Ended
April 30,
2019
    Year Ended
September
30, 2019
    Year Ended
September 30,
2018
    Change     % Change  

Net sales

  $ 3,535     $ 4,993     $ 8,528     $ 8,000     $ 528       7

Cost of sales

    3,214       4,059       7,273       6,293       980       16
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    321       934       1,255       1,707       (452     (26 )% 

Selling, general and administrative expenses

    (459     (359     (818     (474     (344     73

Equity income

    17       30       47       58       (11     (19 )% 

Restructuring and impairment costs

    —           —       —         (11     11       (100 )% 

Net financing charges

    (274     (23     (297     (40     (257     *  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    Successor     Predecessor     Combined     Predecessor              

Consolidated & Combined Statements of
Income (Loss)

  Five Months
Ended
September 30,
2019
    Seven Months
Ended
April 30,
2019
    Year Ended
September
30, 2019
    Year Ended
September 30,
2018
    Change     % Change  

Income (loss) before income taxes

    (395     582       187       1,240       (1,053     (85 )% 

Income tax provision (benefit)

    (31     178       147       601       (454     (76 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    (364     404       40       639       (599     (94 )% 

Income (loss) attributable to noncontrolling interests

    (8     23       15       47       (32     (68 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to the Company

  $ (356   $ 381     $ 25     $ 592     $ (567     (96 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*

Metric not meaningful

Net Sales

Net sales increased $528 million to $8,528 million for the year ended September 30, 2019 from $8,000 million for the year ended September 30, 2018, primarily due to an approximately $1,037 million increase in net sales from the effects of the change in revenue recognition from the implementation of the new revenue standard, and the favorable impact of pricing and product mix of $104 million, partially offset by the impact of lower lead costs on pricing of $326 million, the unfavorable impact of foreign currency translation $223 million and the effect of decreased volumes of $64 million. The decrease in volumes was primarily due to declines in macroeconomic conditions in China and global OEM production. These negative impacts were partially offset by higher volumes of Advanced Batteries, which contributed to favorable product mix. Refer to Note 1, “Summary of the Business and Significant Accounting Policies,” of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus for further information regarding the adoption of the new revenue standard. Refer to “Segment Analysis” below for a discussion of net sales by segment.

Gross Profit

Gross profit decreased $452 million, or 26%, to $1,255 million for the year ended September 30, 2019 from $1,707 million for the year ended September 30, 2018, primarily due to $321 million of purchase accounting impacts related to the Acquisition in the year ended September 30, 2019, which consisted of increased depreciation and amortization, and the sell through of inventory at fair value. Net mark-to-market adjustments on pension and postretirement plans had a net unfavorable year-over-year impact on cost of sales of $22 million primarily due to a decrease in discount rates. Other unfavorable impacts included higher operating and transportation costs driven by inflation and efforts to satisfy customer demand, lower overall volumes and the negative impact of foreign currency translation, partially offset by the favorable impact of pricing and an increase in volumes of Advanced Batteries. Additionally, the change in value of battery cores due to the change in the value of lead had a positive non-cash impact of $14 million in the five months ended September 30, 2019.

Selling, General and Administrative Expenses

SG&A expenses increased $344 million, or 73%, to $818 million for the year ended September 30, 2019 from $474 million for the year ended September 30, 2018, primarily due to $165 million of purchase accounting impacts related to the Acquisition (increased depreciation and amortization); $137 million of transaction costs, incremental stand-up costs and consulting costs related to operational improvement initiatives in the year ended September 30, 2019; and a prior year gain on business deconsolidation. Net mark-to-market adjustments on pension and postretirement plans had a net unfavorable year-over-year impact on SG&A of $14 million primarily due to a decrease in discount rates.

 

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Equity Income

Equity income decreased $11 million to $47 million for the year ended September 30, 2019 from $58 million for the year ended September 30, 2018, primarily due to $6 million of purchase accounting impacts related to the Acquisition in the five months ended September 30, 2019.

Restructuring and Impairment Costs

We did not incur any restructuring and impairment costs for the year ended September 30, 2019, compared to $11 million for the year ended September 30, 2018. Restructuring and impairment costs primarily consists of workforce reductions.

Net Financing Charges

Net financing charges increased $257 million to $297 million for the year ended September 30, 2019 from $40 million for the year ended September 30, 2018. The change in net financing charges is primarily due to an increase in interest expense and bond cost amortization in the five months ended September 30, 2019 driven by an increase in third-party debt in connection with the Acquisition, partially offset by favorable net foreign exchange results for financing activities. Refer to Note 8, “Debt and Financing Arrangements,” of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus for further information.

Income Tax Provision

For the year ended September 30, 2019 the provision for income taxes decreased to $147 million from $601 million for the year ended September 30, 2018. The change in the provision for income taxes is primarily due to the fact that subsequent to the Acquisition, the structure of certain legal entities has been changed such that they are not subject to U.S. income taxes at the Successor company level and tax charges in the year ended September 30, 2018 related to pre-acquisition legal entity restructuring and tax impacts of the TCJA.

Segment Analysis

Management evaluates the performance of its business segments primarily on segment earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which represents net income before income taxes and noncontrolling interest, depreciation, intangible asset amortization, net financing charges, restructuring and impairment costs, net mark-to-market adjustments related to pension and postretirement plans, deal and stand-up costs, impacts of purchase accounting, core valuation changes and other items. For more information, see Note 18, “Segment Information,” of the notes to the unaudited consolidated financial statements and Note 19, “Segment Information,” of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus.

Six Months Ended March 31, 2021 Compared to Six Months Ended March 31, 2020 (in millions, unaudited)

Net Sales

 

     Six Months Ended
March 31,
               
     2021      2020      Change      % Change  

Americas

   $ 2,641      $ 2,419      $ 222        9

EMEA

     1,344        1,058        286        27

Asia

     514        438        76        17
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 4,499      $ 3,915      $ 584        15
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Americas: Net sales increased $222 million to $2,641 million for the six months ended March 31, 2021 from $2,419 million for the six months ended March 31, 2020, primarily due to the effect of increased volumes of $199 million, and favorable pricing and product mix of $75 million, partially offset by the unfavorable impacts of foreign currency translation of $26 million, and the impact of lower lead costs on pricing of $26 million. Approximately $37 million of the increase in volumes was due to the effects of the COVID-19 pandemic in the six months ended March 31, 2020, which impacted the global economy and resulted in lower sales volumes to our OEM customers, many of whom experienced temporary shut-downs, and to a lesser extent our aftermarket customers due to temporary store closures and a reduction in purchases due to stay at home orders. In the six months ended March 31, 2021, strong demand primarily to our aftermarket customers favorably impacted volumes, and higher volumes of advanced batteries contributed to favorable product mix.

EMEA: Net sales increased $286 million to $1,344 million for the six months ended March 31, 2021 from $1,058 million for the six months ended March 31, 2020, primarily due to the effect of increased volumes of $230 million, the favorable impacts of foreign currency translation of $86 million, and favorable pricing and product mix of $50 million, partially offset by the impact of lower lead costs on pricing of $80 million. Approximately $39 million of the increase in volumes was due to the effects of the COVID-19 pandemic in the six months ended March 31, 2020, which impacted the global economy and resulted in lower sales volumes to our OEM customers, many of whom experienced temporary shut-downs, and to a lesser extent our aftermarket customers due to temporary store closures and a reduction in purchases due to stay at home orders. In the six months ended March 31, 2021, strong demand primarily to our aftermarket customers favorably impacted volumes, and higher volumes of advanced batteries contributed to favorable product mix.

Asia: Net sales increased $76 million to $514 million for the six months ended March 31, 2021 from $438 million for the six months ended March 31, 2020, primarily due to the effect of increased volumes of $68 million, the favorable impacts of foreign currency translation of $29 million, and favorable pricing and product mix of $18 million, partially offset by the impact of lower lead costs on pricing of $39 million. Approximately $53 million of the increase in volumes was due to the effects of the COVID-19 pandemic in the six months ended March 31, 2020, which impacted the global economy and resulted in lower sales volumes to our OEM customers, many of whom experienced temporary shut-downs, and to a lesser extent our aftermarket customers due to temporary store closures and a reduction in purchases due to stay at home orders. In the six months ended March 31, 2021, strong demand primarily to our aftermarket customers favorably impacted volumes, and higher volumes of advanced batteries contributed to favorable product mix.

Adjusted EBITDA

 

     Six Months
Ended March31,
             
     2021     2020     Change     % Change  

Americas

   $ 556     $ 505     $ 51       10

EMEA

     279       173       106       61

Asia

     104       57       47       82

Corporate expenses

     (62     (47     (15     32
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 877     $ 688     $ 189       27
  

 

 

   

 

 

   

 

 

   

 

 

 

Americas: Adjusted EBITDA increased $51 million to $556 million for the six months ended March 31, 2021 from $505 million for the six months ended March 31, 2020. In the six months ended March 31, 2021, the negative impact to our earnings from the COVID-19 pandemic was approximately $38 million, which was primarily comprised of higher transportation rates and other additional expenses as we implemented enhanced safety measures to protect the health of our employees. In the six months ended March 31, 2020, the negative impact to our earnings from the COVID-19 pandemic was approximately $15 million, which was primarily comprised of lower sales volumes, stranded fixed costs and additional expenses as we adjusted production levels

 

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to align with changing market demand and implemented enhanced safety measures to protect the health of our employees. See “—Material Trends Affecting Our Results of Operations – COVID-19.” Other impacts included favorable pricing and product mix of $99 million, higher volumes of $26 million, lower SG&A of $13 million, and an increase in equity income of $11 million, partially offset by higher operating costs of $72 million including higher transportation and purchasing costs, and the unfavorable impact of foreign currency translation of $3 million.

EMEA: Adjusted EBITDA increased $106 million to $279 million for the six months ended March 31, 2021 from $173 million for the six months ended March 31, 2020. In the six months ended March 31, 2020, the negative impact to our earnings from the COVID-19 pandemic was approximately $9 million, which was primarily comprised of lower sales volumes, stranded fixed costs and additional expenses as we adjusted production levels to align with changing market demand and implemented enhanced safety measures to protect the health of our employees. See “—Material Trends Affecting Our Results of Operations – COVID-19.” Other impacts included higher volumes of $37 million, lower operating costs of $33 million including lower purchasing costs, favorable pricing and product mix of $23 million, and the favorable impact of foreign currency translation of $10 million, partially offset by higher SG&A of $4 million and a decrease in equity income of $2 million.

Asia: Adjusted EBITDA increased $47 million to $104 million for the six months ended March 31, 2021 from $57 million for the six months ended March 31, 2020. In the six months ended March 31, 2020, the negative impact to our earnings from the COVID-19 pandemic was approximately $9 million, which was primarily comprised of lower sales volumes, stranded fixed costs and additional expenses as we adjusted production levels to align with changing market demand and implemented enhanced safety measures to protect the health of our employees. See “—Material Trends Affecting Our Results of Operations – COVID-19.” Other impacts included lower operating costs of $23 million including lower purchasing costs, higher volumes of $7 million, favorable pricing and product mix of $7 million, the favorable impact of foreign currency translation of $2 million, and an increase in equity income of $1 million, partially offset by higher SG&A of $2 million.

Corporate expenses: Corporate costs increased $15 million to ($62) million for the six months ended March 31, 2021 from ($47) million for the six months ended March 31, 2020 primarily due to an increase in charitable contributions.

Year Ended September 30, 2020 Compared to Year Ended September 30, 2019 (in millions)

Net Sales

 

     Successor      Predecessor      Combined               
     Year Ended
September 30,
2020
     Five Months
Ended
September 30,
2019
     Seven Months
Ended
April 30,
2019
     Year Ended
September 30,
2019
     Change     % Change  

Americas

   $ 4,710      $ 2,230      $ 3,090      $ 5,320      $ (610     (11 )% 

EMEA

     2,036        946        1,281        2,227        (191     (9 )% 

Asia

     856        359        622        981        (125     (13 )% 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 7,602      $ 3,535      $ 4,993      $ 8,528      $ (926     (11 )% 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Americas: Net sales decreased $610 million to $4,710 million for the year ended September 30, 2020 from $5,320 million for the year ended September 30, 2019, primarily due to the effect of decreased volumes of $300 million, the impact of lower lead costs on pricing of $265 million, and the unfavorable impact of foreign currency translation of $63 million, partially offset by favorable pricing and product mix of $18 million. Approximately $243 million of the decrease in volumes was due to the impact of the COVID-19 pandemic on the global economy, with the remaining decrease in volumes primarily due to declines in OEM production, as well as mild weather in the U.S. The COVID-19 pandemic resulted in lower sales volumes to our OEM customers, many

 

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of whom experienced temporary shut-downs, and to a lesser extent our aftermarket customers due to temporary store closures and a reduction in purchases due to stay at home orders. These negative impacts were partially offset by higher volumes of Advanced Batteries to our aftermarket customers, which contributed to favorable product mix.

EMEA: Net sales decreased $191 million to $2,036 million for the year ended September 30, 2020 from $2,227 million for the year ended September 30, 2019, primarily due to the effect of decreased volumes of $115 million, unfavorable pricing and channel mix of $47 million, the impact of lower lead costs on pricing of $21 million, and the unfavorable impact of foreign currency translation of $8 million. Approximately $160 million of the decrease in volumes was due to the impact of the COVID-19 pandemic on the global economy resulting in lower sales values to our OEM customers, many of whom experienced temporary shut-downs; the offsetting increase in volumes was due to strong volumes to our aftermarket customers in EMEA.

Asia: Net sales decreased $125 million to $856 million for the year ended September 30, 2020 from $981 million for the year ended September 30, 2019, primarily due to the effect of decreased volumes of $84 million, the impact of lower lead costs on pricing of $28 million, and the unfavorable impact of foreign currency translation of $23 million, partially offset by favorable pricing and product mix of $10 million. Approximately $82 million of the decrease in volumes was due to the impact of the COVID-19 pandemic on the global economy, with the remaining decrease in volumes primarily due to declines in macroeconomic conditions in China and global OEM production. The COVID-19 pandemic resulted in lower sales volumes to our OEM customers, many of whom experienced temporary shut-downs, and to a lesser extent our aftermarket customers due to temporary store closures and a reduction in purchases due to stay at home orders. These negative impacts were partially offset by higher volumes of Advanced Batteries to our aftermarket customers, which contributed to favorable product mix.

Adjusted EBITDA

 

     Successor     Predecessor     Combined              
     Year Ended
September 30,
2020
    Five Months
Ended
September 30,
2019
    Seven Months
Ended
April 30,
2019
    Year Ended
September 30,
2019
    Change     % Change  

Americas

   $ 924     $ 432     $ 581     $ 1,013     $ (89     (9 )% 

EMEA

     324       163       245       408       (84     (21 )% 

Asia

     112       38       85       123       (11     (9 )% 

Corporate expenses

     (100     (39     (50     (89     (11     12
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 1,260     $ 594     $ 861     $ 1,455     $ (195     (13 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Americas: Adjusted EBITDA decreased $89 million to $924 million for the year ended September 30, 2020 from $1,013 million for the year ended September 30, 2019. The negative impact to our earnings from the COVID-19 pandemic was approximately $129 million in the year ended September 30, 2020, which was primarily comprised of lower sales volumes, stranded fixed costs and additional expenses as we adjusted production levels to align with changing market demand and implemented enhanced safety measures to protect the health of our employees. See “Material Trends Affecting Our Results of Operations—COVID-19.” Other impacts included the unfavorable impact of foreign currency translation of $12 million and lower volumes of $6 million, partially offset by lower operating costs of $27 million including lower transportation costs and purchasing costs, favorable pricing and product mix of $20 million, an increase in equity income of $7 million, and lower SG&A of $4 million.

EMEA: Adjusted EBITDA decreased $84 million to $324 million for the year ended September 30, 2020 from $408 million for the year ended September 30, 2019. The negative impact to our earnings from the COVID-19 pandemic was approximately $62 million in the year ended September 30, 2020, which was primarily

 

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comprised of lower sales volumes, stranded fixed costs and additional expenses as we adjusted production levels to align with changing market demand and implemented enhanced safety measures to protect the health of our employees. See “Material Trends Affecting Our Results of Operations—COVID-19.” Other impacts included unfavorable pricing and product mix of $39 million and the unfavorable impact of foreign currency translation of $3 million, partially offset by higher volumes of $12 million, lower SG&A of $4 million, an increase in equity income of $3 million and lower operating costs of $1 million including lower purchasing costs.

Asia: Adjusted EBITDA decreased $11 million to $112 million for the year ended September 30, 2020 from $123 million for the year ended September 30, 2019. The negative impact to our earnings from the COVID-19 pandemic was approximately $14 million in the year ended September 30, 2020, which was primarily comprised of lower sales volumes, stranded fixed costs and additional expenses as we adjusted production levels to align with changing market demand and implemented enhanced safety measures to protect the health of our employees. See “Material Trends Affecting Our Results of Operations—COVID-19.” Other impacts included the unfavorable impact of foreign currency translation of $3 million, lower volumes of $1 million, and a decrease in equity income of $1 million partially offset by lower SG&A of $5 million, and lower operating costs of $3 million including lower transportation and purchasing costs.

Corporate expenses: Corporate expenses increased $11 million to ($100) million for the year ended September 30, 2020 from ($89) million for the year ended September 30, 2019 primarily due to incremental costs related to operating as a stand-alone Successor company.

Year Ended September 30, 2019 Compared to Year Ended September 30, 2018 (in millions)

Net Sales

 

     Successor     Predecessor      Combined      Predecessor               
     Five Months
Ended
September 30,
2019
    Seven Months
Ended
April 30,
2019
     Year Ended
September 30,
2019
     Year Ended
September 30,
2018
     Change     % Change  

Americas

   $ 2,230     $ 3,090      $ 5,320      $ 4,349      $ 971       22

EMEA

     946       1,281        2,227        2,478        (251     (10 )% 

Asia

     359       622        981        1,173        (192     (16 )% 
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 3,535     $ 4,993      $ 8,528      $ 8,000      $ 528       7
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Americas: Net sales increased $971 million to $5,320 million for the year ended September 30, 2019 from $4,349 million for the year ended September 30, 2018, primarily due to an approximately $1,037 million increase in net sales from the effects of the change in revenue recognition from the implementation of the new revenue standard, and the favorable impact of pricing and product mix of $110 million, partially offset by impact of lower lead costs on pricing $109 million, the unfavorable impact of foreign currency translation of $41 million and the effect of decreased volumes of $26 million. The decrease in volumes was primarily due to declines in global OEM production. These negative impacts were partially offset by higher volumes of Advanced Batteries, which contributed to favorable product mix.

EMEA: Net sales decreased $251 million to $2,227 million for the year ended September 30, 2019 from $2,478 million for the year ended September 30, 2018, primarily due to the impact of lower lead costs on pricing of $176 million, the unfavorable impact of foreign currency translation of $126 million, and the unfavorable impact of pricing and channel mix of $17 million, partially offset by the effect of increased volumes of $68 million. The increase in volumes was primarily due to higher volumes of Advanced Batteries, which also contributed to favorable product mix to partially offset unfavorable channel mix.

Asia: Net sales decreased $192 million to $981 million for the year ended September 30, 2019 from $1,173 million for the year ended September 30, 2018, primarily due to the effect of decreased volumes of

 

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$108 million, the impact of lower lead costs on pricing of $41 million and the unfavorable impact of foreign currency translation of $57 million, partially offset by the favorable impact of pricing and product mix of $14 million. The decrease in volumes was primarily due to declines in macroeconomic conditions in China and global OEM production.

Adjusted EBITDA

 

     Successor     Predecessor     Combined     Predecessor              
     Five Months
Ended
September 30,
2019
    Seven Months
Ended
April 30,
2019
    Year Ended
September 30,
2019
    Year Ended
September 30,
2018
    Change     % Change  

Americas

   $ 432     $ 581     $ 1,013     $ 1,059     $ (46     (4 )% 

EMEA

     163       245       408       469       (61     (13 )% 

Asia

     38       85       123       142       (19     (13 )% 

Corporate expenses

     (39     (50     (89     (85     (4     5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 594     $ 861     $ 1,455     $ 1,585     $ (130     (8 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Americas: Adjusted EBITDA decreased $46 million to $1,013 million for the year ended September 30, 2019 from $1,059 million for the year ended September 30, 2018, primarily due to higher operating costs of $75 million including higher transportation costs, higher SG&A of $14 million, lower volumes of $14 million and the unfavorable impact of foreign currency translation of $11 million, partially offset by favorable pricing and product mix of $67 million, and an increase in equity income of $1 million.

EMEA: Adjusted EBITDA decreased $61 million to $408 million for the year ended September 30, 2019 from $469 million for the year ended September 30, 2018, primarily due to unfavorable pricing and channel mix of $60 million, the unfavorable impact of foreign currency translation of $22 million, higher operating costs of $4 million, and a decrease in equity income of $4 million, partially offset by lower SG&A of $20 million, and higher volumes of $9 million.

Asia: Adjusted EBITDA decreased $19 million to $123 million for the year ended September 30, 2019 from $142 million for the year ended September 30, 2018, primarily due to higher operating costs of $16 million, lower volumes of $14 million and the unfavorable impact of foreign currency translation of $5 million, partially offset by favorable pricing and product mix of $13 million and lower SG&A of $3 million.

Corporate expenses: Corporate expenses increased $4 million to ($89) million for the year ended September 30, 2019 from ($85) million for the year ended September 30, 2018 primarily due to incremental costs related to operating as a stand-alone Successor company.

Liquidity and Capital Resources

Our primary sources of liquidity are cash flows from operations and bank borrowings. At March 31, 2021 we had cash and cash equivalents of $550 million to fund our general working capital needs.

Managing our balance sheet prudently and maintaining appropriate liquidity are high priorities. We have taken a number of actions to preserve liquidity. As described more fully below, in March 2020 we entered into an incremental amendment to the ABL Facility to increase the aggregate commitments thereunder by $250 million to $750 million in the aggregate (subject to borrowing base availability). As of March 31, 2021, there were no outstanding borrowings under the Revolving Facility and the ABL Facility, and approximately $750 million of additional borrowings would have been available under the Revolving Facility and $598 million of additional borrowings would have been available under the ABL Facility (after giving effect to $73 million of outstanding letters of credit). In addition, on May 20, 2020, we issued $500 million aggregate principal amount of 6.750%

 

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Senior Secured Notes due 2025 (the “2025 Secured Notes”). We used the net proceeds from the issuance of the 2025 Secured Notes for general corporate purposes. In March 2021 and October 2020, we used our available liquidity to pay down approximately $100 million and $150 million, respectively, of the outstanding principal balance of the Term Loan Facility. In May 2021, we made $50 million in voluntary principal payments on the Term Loan Facility. In June 2021, we used our available liquidity to redeem $100 million of our outstanding 2026 Secured Notes and $50 million of our outstanding 2025 Secured Notes. In June 2021, we also made $180 million in voluntary principal payments on the Term Loan Facility.

Our primary cash needs are for working capital, capital expenditures, operating expenses, acquisitions, the repayment of principal and the payment of interest on our indebtedness. Our capital expenditures have been primarily related to investments in capacity for advanced battery production, growth in China, environmental upgrades, continuous improvement and maintenance, and were $113 million and $165 million for the six months ended March 31, 2021 and 2020, respectively.

Refer to Note 16, “Commitments and Contingencies,” Note 8, “Debt and Financing Arrangements,” and Note 7, “Leases,” of the notes to the unaudited consolidated financial statements included elsewhere in this prospectus for further information regarding the Company’s purchase obligations, long term debt obligations and lease obligations, respectively.    

Cash Flows

The following table presents a summary of cash flows from operating, investing and financing activities for the periods presented:

For the Six Months Ended March 31, 2021 compared to the Six Months Ended March 31, 2020 (in millions; unaudited)

 

     Six Months Ended March 31,        
             2021                     2020             Change  

Net cash provided by (used by):

      

Operating activities

   $ 321     $ 50     $ 271  

Investing activities

     (161     (166     5  

Financing activities

     (296     111       (407

Capital expenditures (included in investing activities)

     (113     (165     52  

Cash provided by operating activities increased by $271 million to a $321 million inflow for the six months ended March 31, 2021 compared to a $50 million inflow for the six months ended March 31, 2020. The increase in cash provided by operations for the six months ended March 31, 2021 compared to the six months ended March 31, 2020 was primarily due to fluctuations in working capital, including timing of accounts payable and lower interest payments on the Company’s debt, partially offset by the timing to income tax payments in the six months ended March 31, 2021.

Cash used by investing activities decreased by $5 million to a $161 million outflow for the six months ended March 31, 2021 compared to a $166 million outflow for the six months ended March 31, 2020. The decrease in cash used by investing activities primarily related a decrease in capital expenditures partially offset by cash paid for the China Transaction in the six months ended March 31, 2021. See Note 2, “Acquisitions,” of the notes to the unaudited consolidated financial statements included elsewhere in this prospectus for further information.

Cash used by financing activities changed by $407 million to a $296 million outflow for the six months ended March 31, 2021 compared to a $111 million inflow for the six months ended March 31, 2020. The change

 

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in cash used by financing activities was primarily due to an approximately $150 million voluntary principal payment of the Term Loan Facility, $100 million principal payment related to Debt Repricing, and a change in noncontrolling interest share related to the China Transaction in the six months ended March 31, 2021, compared to increased borrowings on the ABL Facility and Revolving Facility partially offset by a change in noncontrolling interest share related to the Bosch Transaction in the six months ended March 31, 2020. See Note 2, “Acquisitions,” and Note 8, “Debt and Financing Arrangements,” of the notes to the unaudited consolidated financial statements included elsewhere in this prospectus for further information.

For the Year Ended September 30, 2020 compared to the Year Ended September 30, 2019 (in millions)

 

     Successor     Predecessor     Combined        
     Year Ended
September 30,
2020
    Five Months
Ended
September 30,
2019
    Seven Months
Ended
April 30,
2019
    Year Ended
September 30,
2019
    Change  

Net cash provided by (used by):

          

Operating activities

   $ 617     $ 510     $ 217     $ 727     $ (110

Investing activities

     (202     (12,915     (169     (13,084     12,882  

Financing activities

     (74     (12,792     (50     12,742       (12,816

Capital expenditures (included in investing activities)

   $ (314   $ (181   $ (192   $ (373   $ 59  

Cash provided by operating activities decreased by $110 million, to $617 million for the year ended September 30, 2020 compared to $727 million for the year ended September 30, 2019. The decrease in cash provided by operations for the year ended September 30, 2020 compared to the year ended September 30, 2019 was primarily due to a full year of interest payments in the year ended September 30,2020 on the Company’s debt entered into in connection with the Acquisition. See Note 8, “Debt and FinancingArrangements,” of the notes to the audited consolidated and combined financial statements included elsewhere inthis prospectus for further information. Fluctuations in working capital included a decrease in accounts receivabledue to lower sales levels and timing of customer receipts, a decrease in inventory due to customer demand levelsexceeding production levels and a decrease in accounts payable due to timing and mix of supplier payments in the year ended September 30, 2020.

Cash used by investing activities decreased by $12,882 million, to a $202 million outflow for the year ended September 30, 2020 compared to a $13,084 million outflow for the year ended September 30, 2019. The decrease in cash used by investing activities primarily related to cash paid to JCI related to the Acquisition in the year ended September 30, 2019.

Cash used by financing activities changed by $12,816 million, to a $74 million outflow for the year ended September 30, 2020 compared to a $12,742 million inflow for the year ended September 30, 2019. The change in cash used by financing activities was primarily due to an increase in third-party debt and an equity injection related to the Acquisition in the year ended September 30, 2019. In the year ended September 30, 2020, the cash used by financing activities was primarily due to a change in noncontrolling interest share related to the Bosch Transaction, partially offset by a net increase in long-term debt. See Note 2, “Acquisitions,” and Note 8, “Debt and Financing Arrangements,” of the notes to the audited consolidated and combined financial statements included elsewhere in this prospectus for further information.

 

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For the Year Ended September 30, 2019 compared to the Year Ended September 30, 2018 (in millions)

 

     Successor     Predecessor     Combined     Predecessor        
     Five Months
Ended
September 30,
2019
    Seven Months
Ended
April 30,
2019
    Year Ended
September 30,
2019
    Year Ended
September 30,
2018
    Change  

Net cash provided by (used by):

          

Operating activities

   $ 510     $ 217     $ 727     $ 745     $ (18

Investing activities

     (12,915     (169     (13,084     (359     (12,725

Financing activities

     12,792       (50     12,742       (389     13,131  

Capital expenditures (included in investing activities)

     (181     (192     (373     (372     (1

Cash provided by operating activities decreased by $18 million to $727 million for the year ended September 30, 2019 compared to $745 million for the year ended September 30, 2018. The decrease in cash provided by operations for the year ended September 30, 2019 compared to the year ended September 30, 2018 was primarily due to fluctuations in working capital, including increased prepayments made in the Successor period, partially offset by decreases in accounts receivable due to timing of cash receipts.

Cash used by investing activities increased by $12,725 million to $13,084 million for the year ended September 30, 2019 compared to $359 million for the year ended September 30, 2018. The increase in cash used by investing activities for the year ended September 30, 2019 related to cash paid to JCI related to the Acquisition, partially offset by the collection of a loan to an affiliate.

Cash provided by financing activities increased by $13,131 million to $12,742 million for the year ended September 30, 2019 compared to $389 million outflow for the year ended September 30, 2018. The increase in cash provided by financing activities in the year ended September 30, 2019 was primarily due to an increase in third-party debt and an equity injection related to the Acquisition.

Total Adjusted EBITDA and Indenture EBITDA

Total Adjusted EBITDA

We use Total Adjusted EBITDA to analyze and evaluate the performance of our business and to provide a greater understanding with respect to our results of operations, including within each of our segments. We believe that Total Adjusted EBITDA is an important measure that excludes many of the costs associated with our existing capital structure and excludes costs that management believes do not reflect our ongoing operating performance. Accordingly, Total Adjusted EBITDA is a key metric that management uses to assess the period-to-period performance of our core business operations and our segments.

Required Reported Data—Indenture EBITDA

We are required to report Indenture EBITDA, which is defined as “Consolidated EBITDA” and “EBITDA” under our credit agreements that govern the Senior Secured Credit Facilities and the ABL Facility and the indentures governing our outstanding notes. In addition, the credit agreements that govern the Senior Secured Credit Facilities and the ABL Facility and the indentures governing our outstanding notes contain certain restrictive covenants that govern debt incurrence and the making of restricted payments, among other matters. These restrictive covenants utilize Indenture EBITDA as a primary component of the compliance metric governing our ability to undertake certain actions otherwise proscribed by such covenants.

Our management considers Indenture EBITDA to be relevant to the operation of our business because Indenture EBITDA is required pursuant to the terms of the reporting covenants under the credit agreements that govern the Senior Secured Credit Facilities and the ABL Facility and the indentures governing our outstanding notes and because these metrics are relevant to lenders and noteholders.

 

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Indenture EBITDA is calculated under the credit agreements that govern the Senior Secured Credit Facilities and the ABL Facility and the indentures governing our outstanding notes as net income before income tax provision, net financing charges, restructuring and impairment costs, allocation for support functions and other costs and intangible asset amortization and depreciation adjusted to exclude certain items which we believe are not reflective of ongoing performance, including the effects related to (i) non-cash items, (ii) costs and charges that do not relate to our ongoing operations and (iii) certain other adjustments including the run-rate effect of certain cost savings and synergies.

The following tables reconcile net income (loss) to Total Adjusted EBITDA and Indenture EBITDA for the periods presented (in millions):

 

     Six Months Ended March 31,     Twelve
Months
Ended March
31, 2021
 
             2021                     2020          

Net loss attributable to the Company

   $ (249   $ (85   $ (563

Income (loss) attributable to noncontrolling interests

     1     (1     (1
  

 

 

   

 

 

   

 

 

 

Net loss

     (248     (86     (564

Income tax provision (benefit)

     137     (19     139  
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (111     (105     (425

Net financing charges

     366     339     744  

Restructuring and impairment costs

     253     —       264  

Intangible asset amortization

     200     193     401  

Depreciation

     183     171     358  

Deal and stand up costs (1)

     17     7     39  

Impacts of purchase accounting (2)

     7     7     13  

Pension mark-to-market adjustment (3)

     —       —       66  

Core valuation change (4)

     (32     46     (29

Factoring fees (5)

     (9     (15     (20

Other items (6)

     3     45     38  
  

 

 

   

 

 

   

 

 

 

Total Adjusted EBITDA

   $ 877   $ 688   $ 1,449  
  

 

 

   

 

 

   

 

 

 

Net contribution from non-controlling interests, equity method investments, and unrestricted subsidiary earnings (7)

     8     (8     16  

Pension service cost (8)

     (7     (8     (14

Transportation and launch costs (9)

     47     18     55  

Lithium-ion losses (10)

     18     18     39  

Cost savings already realized and new pricing impact (11)

     45     44     116  

Other adjusting items (12)

     —       2     —    

Additional expenses related to COVID-19 (13)

     36     16     155  
  

 

 

   

 

 

   

 

 

 

Indenture EBITDA

   $ 1,024   $ 770   $ 1,816  
  

 

 

   

 

 

   

 

 

 

 

(1)

Expenses related to the Acquisition and costs to establish standalone business functions.

(2)

The amortization of the step-up in value of our equity method investments resulted in a reduction in equity income.

(3)

Non-cash accounting impact of net mark-to-market losses related to pension and other postretirement benefit plans.

(4)

Represents the non-cash change in value of battery cores primarily due to the change in the value of lead.

(5)

Includes costs associated with ongoing receivable factoring programs. To mitigate long collection terms for accounts receivable from certain aftermarket customers, the Company actively engages in receivable factoring programs, through which accounts receivable are sold to third-party intermediaries in exchange for a fee based on LIBOR plus a spread.

 

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(6)

Consists of other items including: (i) consulting costs related to operational improvement initiatives ($7 million and $24 million for the six and twelve months ended March 31, 2021, respectively, and $27 million for the six months ended March 31, 2020), (ii) transaction costs associated with the Bosch Transaction ($9 million for the six months ended March 31, 2020), (iii) severance costs ($12 million for the twelve months ended March 31, 2021 and $7 million for the six months ended March 31, 2020), (iv) mark-to-market adjustments for investments in marketable common stock ($6 million and $7 million gain for the six and twelve months ended March 31, 2021, respectively, and $2 million loss for the six months ended March 31, 2020), (v) insurance recovery on disposal of certain assets ($1 million for both the six and twelve months ended March 31, 2021), (vi) equipment moving and installation costs related to discontinuing assembly operations of one of the Company’s U.S. plants ($5 million and $11 million for the six and twelve months ended March 31, 2021, respectively), (vii) stranded fixed costs and inefficiencies related to the ramp down in operations at one of the Company’s North America recycling plants ($4 million for both the six and twelve months ended March 31, 2021), (viii) loss on disposal of certain assets ($1 million and $2 million for the six and twelve months ended March 31, 2021, respectively), (ix) remeasurement gains related to the consolidation of certain partially-owned affiliates ($6 million for both the six and twelve months ended March 31, 2021), and (x) mark-to-market adjustments related to fuel forward contracts which do not qualify for hedge accounting treatment ($1 million gain for both the six and twelve months ended March 31, 2021).

(7)

Reflects net adjustments relating to (i) the exclusion of the portion of earnings that are attributable to non-controlling interests from consolidated investments that are not 100% owned by the Company (($3) million for both the six and twelve months ended March 31, 2021, and ($10) million for the six months ended March 31, 2020), (ii) the inclusion of the proportionate share of EBITDA from significant equity method investments ($23 million and $36 million for the six and twelve months ended March 31, 2021, respectively, and $15 million for the six months ended March 31, 2020), and (iii) removal of earnings from an equity method investment that is an unrestricted subsidiary following the consummation of the Acquisition (($12) million and ($17) million for the six and twelve months ended March 31, 2021, respectively, and ($13) million for the six months ended March 31, 2020).

(8)

Adjustment for non-cash accounting impact of interest, settlement losses and expected return on assets related to pension and other postretirement benefits.

(9)

Adjustments for (i) the reversal of launch costs incurred primarily in connection with capacity improvements in the U.S. and China and other inefficiencies, and (ii) transportation costs relating to one-time intracompany inventory transfers.

(10)

Reversal of losses from the lithium-ion division of the Company.

(11)

Adjustments to reflect (i) cost savings initiatives ($43 million and $110 million pro forma for the six and twelve months ended March 31, 2021, respectively, and $27 million pro forma for the six months ended March 31, 2020) and (ii) the impact of new pricing ($2 million and $6 million pro forma for the six and twelve months ended March 31, 2021, respectively, and $17 million pro forma for the six months ended March 31, 2020).

(12)

Consists of additional individually insignificant adjusting items.

 

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(13)

Represents additional expenses resulting from the COVID-19 pandemic, including stranded fixed costs and higher transportation rates as we adjusted production levels to align with changing market demand - including the temporary complete closure of select facilities - and implemented enhanced safety and cleaning measures to protect the health of our employees. See “—Material Trends Affecting Our Results of Operations—COVID-19.”

 

     Year Ended September 30,  
     2020      2019      2018  

Net income (loss) attributable to the Company

   $ (399    $ 25    $ 592

Income (loss) attributable to noncontrolling interests

     (3      15      47
  

 

 

    

 

 

    

 

 

 

Net income (loss)

     (402      40      639

Income tax provision (benefit)

     (17      147      601
  

 

 

    

 

 

    

 

 

 

Income (loss) before income taxes

     (419      187      1,240

Net financing charges

     717      297      40

Restructuring and impairment costs

     11      —          11

Allocation for JCI support functions and other(1)

     —          62      94

Intangible asset amortization

     394      165      8

Depreciation

     346      280      243

Deal and stand up costs(2)

     29      142      —    

Impacts of purchase accounting(3)

     13      302      —    

Pension mark-to-market adjustment(4)

     66      50      14

Core valuation change(5)

     49      (14      —    

Factoring fees(6)

     (26      (34      (27

Other items(7)

     80      18      (38
  

 

 

    

 

 

    

 

 

 

Total Adjusted EBITDA

   $ 1,260    $ 1,455    $ 1,585