Clarios International Inc. [BTRY] Filings

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.

 

 

 

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

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.

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

 

 

                 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

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

 

		i

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;

 

		ii

•

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

 

1

 

2

 

3

 

4

 

5

 

6

 

7

 

8

 

9

 

10

 

11

 

12

 

13

 

14

 

15

 

16

 

17

 

18

 

19

 

20

 

21

 

22

 

23

 

24

 

25

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

 

26

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

 

27

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

 

28

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.

 

29

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

 

30

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

 

31

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

 

32

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

 

33

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

 

34

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

 

35

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.

 

36

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

 

37

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

 

38

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,

 

39

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

 

40

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

 

41

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

 

42

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;

 

43

•

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.

 

44

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.

 

45

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.

 

46

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

 

47

•

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 662⁄3% 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 662⁄3% supermajority vote; and

 

•

the removal of directors for cause only upon the affirmative vote of the holders of at least 662⁄3% 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.

 

48

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.

 

49

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.

 

50

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.

 

51

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.”

 

52

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.”

 

53

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.

 

54

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.

 

55

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).

 

56

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.”

 

57

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

 

58

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.

 

59

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	%		$

 

60

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.

 

61

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

 

62

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

 

63

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

 

64