EnerSys - SEC Filing

View:

Download DOC

Download PDF

Download XLS

Download XBRL

ens-20211003

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 3, 2021


☐			TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-32253

EnerSys

(Exact name of registrant as specified in its charter)


Delaware						23-3058564
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

2366 Bernville Road

Reading, Pennsylvania 19605

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: 610-208-1991

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.01 par value per share

ENS

New York Stock Exchange

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “ large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.

Large Accelerated Filer

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 13(a) of the Exchange Act. ¨

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

Common Stock outstanding at November 5, 2021: 41,891,298 shares

ENERSYS

INDEX – FORM 10-Q


			Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Condensed Balance Sheets (Unaudited) as of October 3, 2021 and March 31, 2021		3

	Consolidated Condensed Statements of Income (Unaudited) for the Quarters Ended October 3, 2021 and October 4, 2020		4

	Consolidated Condensed Statements of Income (Unaudited) for the Six Months Ended October 3, 2021 and October 4, 2020		5

	Consolidated Condensed Statements of Comprehensive Income (Unaudited) for the Quarters and Six Months Ended October 3, 2021 and October 4, 2020		6

	Consolidated Condensed Statements of Cash Flows (Unaudited) for the Six Months Ended October 3, 2021 and October 4, 2020		7

	Notes to Consolidated Condensed Financial Statements (Unaudited)		8
	1	Basis of Presentation	8
	2	Revenue Recognition	9
	3	Leases	9
	4	Goodwill and Other Intangible Assets	11
	5	Inventories	12
	6	Fair Value of Financial Instruments	12
	7	Derivative Financial Instruments	13
	8	Income Taxes	15
	9	Warranty	16
	10	Commitments, Contingencies and Litigation	16
	11	Restructuring and Other Exit Charges	17
	12	Debt	17
	13	Retirement Plans	20
	14	Stock-Based Compensation	20
	15	Stockholders’ Equity and Noncontrolling Interests	21
	16	Earnings Per Share	26
	17	Business Segments	27
	18	Subsequent Events	27

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		28

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		40

Item 4.	Controls and Procedures		41

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings		42

Item 1A.	Risk Factors		42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		43

Item 4.	Mine Safety Disclosures		43

Item 6.	Exhibits		44

SIGNATURES			45

Table of Contents


PART I –			FINANCIAL INFORMATION


ITEM 1.			FINANCIAL STATEMENTS

ENERSYS

Consolidated Condensed Balance Sheets (Unaudited)

(In Thousands, Except Share and Per Share Data)


	October 3, 2021		March 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	407,506	$	451,808
Accounts receivable, net of allowance for doubtful accounts: October 3, 2021 - $12,423; March 31, 2021 - $12,992	584,584		603,581
Inventories, net	640,998		518,247
Prepaid and other current assets	135,768		117,681
Total current assets	1,768,856		1,691,317
Property, plant, and equipment, net	500,092		497,056
Goodwill	703,164		705,593
Other intangible assets, net	413,646		430,898
Deferred taxes	65,275		65,212
Other assets	66,421		72,721
Total assets	$	3,517,454	$	3,462,797
Liabilities and Equity
Current liabilities:
Short-term debt	$	36,006	$	34,153
Accounts payable	294,975		323,876
Accrued expenses	273,852		318,959
Total current liabilities	604,833		676,988
Long-term debt, net of unamortized debt issuance costs	1,075,989		969,618
Deferred taxes	77,068		76,412
Other liabilities	185,707		196,203
Total liabilities	1,943,597		1,919,221
Commitments and contingencies
Equity:
Preferred Stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding at October 3, 2021 and at March 31, 2021	—		—
Common Stock, $0.01 par value per share, 135,000,000 shares authorized, 55,732,195 shares issued and 42,630,966 shares outstanding at October 3, 2021; 55,552,810 shares issued and 42,753,020 shares outstanding at March 31, 2021	557		555
Additional paid-in capital	556,202		554,168
Treasury stock at cost, 13,101,229 shares held as of October 3, 2021 and 12,799,790 shares held as of March 31, 2021	(594,649)		(563,481)
Retained earnings	1,734,057		1,669,751
Contra equity - indemnification receivable	(4,001)		(5,355)
Accumulated other comprehensive loss	(122,147)		(115,883)
Total EnerSys stockholders’ equity	1,570,019		1,539,755
Nonredeemable noncontrolling interests	3,838		3,821
Total equity	1,573,857		1,543,576
Total liabilities and equity	$	3,517,454	$	3,462,797

See accompanying notes.

Table of Contents

ENERSYS

Consolidated Condensed Statements of Income (Unaudited)

(In Thousands, Except Share and Per Share Data)


	Quarter ended
	October 3, 2021		October 4, 2020
Net sales	$	791,395	$	708,402
Cost of goods sold	612,575		530,842
Inventory adjustment relating to exit activities	960		—
Gross profit	177,860		177,560
Operating expenses	125,309		119,026
Restructuring and other exit charges	2,857		3,119

Operating earnings	49,694		55,415
Interest expense	9,573		9,829
Other (income) expense, net	198		4,110
Earnings before income taxes	39,923		41,476
Income tax expense	4,297		5,745


Net earnings attributable to EnerSys stockholders	$	35,626	$	35,731
Net earnings per common share attributable to EnerSys stockholders:
Basic	$	0.84	$	0.84
Diluted	$	0.82	$	0.83
Dividends per common share	$	0.175	$	0.175
Weighted-average number of common shares outstanding:
Basic	42,575,576		42,521,659
Diluted	43,255,832		43,087,455

See accompanying notes.

Table of Contents

ENERSYS

Consolidated Condensed Statements of Income (Unaudited)

(In Thousands, Except Share and Per Share Data)


	Six months ended
	October 3, 2021		October 4, 2020
Net sales	$	1,606,288	$	1,413,326
Cost of goods sold	1,234,249		1,060,789
Inventory adjustment relating to exit activities	960		—
Gross profit	371,079		352,537
Operating expenses	249,796		239,396
Restructuring charges and other exit charges	10,689		4,506


Operating earnings	110,594		108,635
Interest expense	18,680		19,994
Other (income) expense, net	(298)		5,572
Earnings before income taxes	92,212		83,069
Income tax expense	12,657		12,155
Net earnings attributable to EnerSys stockholders	79,555		70,914


Net earnings per common share attributable to EnerSys stockholders:
Basic	$	1.87	$	1.67
Diluted	$	1.83	$	1.65
Dividends per common share	$	0.35	$	0.35
Weighted-average number of common shares outstanding:
Basic	42,637,953		42,453,774
Diluted	43,396,588		43,009,755

See accompanying notes.

Table of Contents

ENERSYS

Consolidated Condensed Statements of Comprehensive Income (Unaudited)

(In Thousands)


	Quarter ended				Six months ended
	October 3, 2021		October 4, 2020		October 3, 2021		October 4, 2020
Net earnings	$	35,626	$	35,731	$	79,555	$	70,914
Other comprehensive income:
Net unrealized (loss) gain on derivative instruments, net of tax	(2,233)		1,470		1,664		3,813
Pension funded status adjustment, net of tax	233		305		473		596
Foreign currency translation adjustment	(23,658)		32,833		(8,337)		60,980
Total other comprehensive (loss) income, net of tax	(25,658)		34,608		(6,200)		65,389
Total comprehensive income	9,968		70,339		73,355		136,303
Comprehensive income attributable to noncontrolling interests	15		144		64		152
Comprehensive income attributable to EnerSys stockholders	$	9,953	$	70,195	$	73,291	$	136,151

See accompanying notes.

Table of Contents

ENERSYS

Consolidated Condensed Statements of Cash Flows (Unaudited)

(In Thousands)


	Six months ended
	October 3, 2021		October 4, 2020
Cash flows from operating activities
Net earnings	$	79,555	$	70,914
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	48,340		47,059
Write-off of assets relating to exit activities	3,756		1,753

Derivatives not designated in hedging relationships:
Net gains	(117)		(372)
Cash proceeds	147		846
Provision for doubtful accounts	1,240		182
Deferred income taxes	108		(1,820)
Non-cash interest expense	1,133		1,036
Stock-based compensation	9,424		10,586

(Gain) loss on disposal of property, plant, and equipment	(37)		156

Changes in assets and liabilities:
Accounts receivable	15,914		106,581
Inventories	(125,479)		21,080
Prepaid and other current assets	(18,969)		7,369
Other assets	1,686		3,132
Accounts payable	(32,694)		(49,557)
Accrued expenses	(48,013)		1,282
Other liabilities	(1,565)		(2,954)
Net cash (used in) provided by operating activities	(65,571)		217,273

Cash flows from investing activities
Capital expenditures	(34,622)		(39,905)

Proceeds from disposal of facility	3,268		—

Proceeds from disposal of property, plant, and equipment	133		81
Net cash used in investing activities	(31,221)		(39,824)

Cash flows from financing activities
Net borrowings (repayments) on short-term debt	2,155		(16,502)
Proceeds from Second Amended Revolver borrowings	275,700		45,000

Repayments of Second Amended Revolver borrowings	(5,700)		(100,000)


Repayments of Second Amended Term Loan	(161,447)		(16,837)
Debt issuance costs	(2,952)		—
Option proceeds, net	1,158		1,766
Payment of taxes related to net share settlement of equity awards	(9,000)		(4,602)
Purchase of treasury stock	(31,512)		—
Dividends paid to stockholders	(14,891)		(14,879)
Other	393		255
Net cash provided by (used in) financing activities	53,904		(105,799)
Effect of exchange rate changes on cash and cash equivalents	(1,414)		15,603
Net (decrease) increase in cash and cash equivalents	(44,302)		87,253
Cash and cash equivalents at beginning of period	451,808		326,979
Cash and cash equivalents at end of period	$	407,506	$	414,232

See accompanying notes.

Table of Contents

ENERSYS

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)

(In Thousands, Except Share and Per Share Data)

1. Basis of Presentation

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments except those otherwise described herein) considered necessary for a fair presentation have been included, unless otherwise disclosed. Operating results for the three and six months ended October 3, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2022.

The Consolidated Condensed Balance Sheet at March 31, 2021 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

The financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s 2021 Annual Report on Form 10-K (SEC File No. 001-32253), which was filed on May 26, 2021 (the “2021 Annual Report”).

EnerSys (the “Company”) reports interim financial information for 13-week periods, except for the first quarter, which always begins on April 1, and the fourth quarter, which always ends on March 31. The four quarters in fiscal 2022 end on July 4, 2021, October 3, 2021, January 2, 2022, and March 31, 2022, respectively. The four quarters in fiscal 2021 ended on July 5, 2020, October 4, 2020, January 3, 2021, and March 31, 2021, respectively.

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

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740)”: Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted the standard in the first quarter of fiscal 2022 and the adoption did not have a material impact on the Company's consolidated financial statements.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions take into account historical and forward looking factors that the Company believes are reasonable, including, but not limited to, the potential impacts arising from the coronavirus pandemic including its variants (“COVID-19”) and public and private sector policies and initiatives aimed at reducing its transmission. As the extent and duration of the impacts of COVID-19 remain unclear, the Company’s estimates and assumptions may evolve as conditions change. Actual results could differ significantly from those estimates.

Examples of significant estimates include the allowance for credit losses, the recoverability of property, plant and equipment, the incremental borrowing rate for lease liabilities, the recoverability of intangible assets and other long-lived assets, fair value measurements, including those related to financial instruments, goodwill and intangible assets, valuation allowances on tax assets, pension and postretirement benefit obligations, contingencies and the identification and valuation of assets acquired and liabilities assumed in connection with business combinations.

Table of Contents

2. Revenue Recognition

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

Service revenues related to the work performed for the Company’s customers by its maintenance technicians generally represent a separate and distinct performance obligation. Control for these services passes to the customer as the services are performed. Service revenues for the second quarter of fiscal 2022 and 2021 amounted to $90,112 and $74,327, respectively. Service revenues for the six months of fiscal 2022 and 2021 amounted to $172,630 and $143,085, respectively.

A small portion of the Company's customer arrangements oblige the Company to create customized products for its customers that require the bundling of both products and services into a single performance obligation because the individual products and services that are required to fulfill the customer requirements do not meet the definition for a distinct performance obligation. These customized products generally have no alternative use to the Company and the terms and conditions of these arrangements give the Company the enforceable right to payment for performance completed to date, including a reasonable profit margin. For these arrangements, control transfers over time and the Company measures progress towards completion by selecting the input or output method that best depicts the transfer of control of the underlying goods and services to the customer for each respective arrangement. Methods used by the Company to measure progress toward completion include labor hours, costs incurred and units of production. Revenues recognized over time for the second quarter of fiscal 2022 and 2021 amounted to $43,607 and $35,074, respectively. Revenues recognized over time for the six months of fiscal 2022 and 2021 amounted to $84,511 and $71,176, respectively.

On October 3, 2021, the aggregate transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was approximately $145,299, of which, the Company estimates that approximately $102,976 will be recognized as revenue in fiscal 2022, $35,962 in fiscal 2023, $6,324 in fiscal 2024, and $37 in fiscal 2025.

Any payments that are received from a customer in advance, prior to the satisfaction of a related performance obligation and billings in excess of revenue recognized, are deferred and treated as a contract liability. Advance payments and billings in excess of revenue recognized are classified as current or non-current based on the timing of when recognition of revenue is expected. As of October 3, 2021, the current and non-current portion of contract liabilities were $17,561 and $1,375, respectively. As of March 31, 2021, the current and non-current portion of contract liabilities were $15,992 and $2,072, respectively. Revenues recognized during the second quarter of fiscal 2022 and 2021 that were included in the contract liability at the beginning of the quarter, amounted to $5,467 and $4,175, respectively. Revenues recognized during the six months of fiscal 2022 and 2021 that were included in the contract liability at the beginning of the quarter, amounted to $5,182 and $7,641, respectively.

Amounts representing work completed and not billed to customers represent contract assets and were $53,358 and $46,451 as of October 3, 2021 and March 31, 2021, respectively.

The Company uses historic customer product return data as a basis of estimation for customer returns and records the reduction of sales at the time revenue is recognized. At October 3, 2021, the right of return asset related to the value of inventory anticipated to be returned from customers was $4,604 and refund liability representing amounts estimated to be refunded to customers was $8,059.

3. Leases

The Company leases manufacturing facilities, distribution centers, office space, vehicles and other equipment under non-cancellable leases with initial terms typically ranging from 1 to 17 years.

Short term leases with an initial term of 12 months or less are not presented on the balance sheet and expense is recognized on a straight-line basis over the lease term.

Table of Contents

The following table presents lease assets and liabilities and their balance sheet classification:


	Classification	As of October 3, 2021		As of March 31, 2021
Operating Leases:
Right-of-use assets	Other assets	$	56,116	$	62,159
Operating lease current liabilities	Accrued expenses	19,334		21,774
Operating lease non-current liabilities	Other liabilities	39,025		42,528
Finance Leases:
Right-of-use assets	Property, plant, and equipment, net	$	460	$	573
Finance lease current liabilities	Accrued expenses	220		236
Finance lease non-current liabilities	Other liabilities	328		435

The components of lease expense for the second quarter and six months ended October 3, 2021 and October 4, 2020 were as follows:


		Quarter ended				Six months ended
	Classification	October 3, 2021		October 4, 2020		October 3, 2021		October 4, 2020
Operating Leases:
Operating lease cost	Operating expenses	$	6,422	$	6,745	$	13,138	$	13,681
Variable lease cost	Operating expenses	2,354		1,613		4,927		3,732
Short term lease cost	Operating expenses	1,753		1,578		3,570		3,406
Finance Leases:
Depreciation	Operating expenses	$	59	$	46	$	119	$	88
Interest expense	Interest expense	7		7		15		14
Total		$	10,595	$	9,989	$	21,769	$	20,921

The following table presents the weighted average lease term and discount rates for leases as of October 3, 2021 and March 31, 2021:

October 3, 2021

March 31, 2021

Operating Leases:

Weighted average remaining lease term (years)

5.7 years

5.5 years

Weighted average discount rate

5.09%

5.16%

Finance Leases:

Weighted average remaining lease term (years)

2.7 years

3.1 years

Weighted average discount rate

4.80%

4.81%

Table of Contents

The following table presents future payments due under leases reconciled to lease liabilities as of October 3, 2021:


	Finance Leases		Operating Leases
Six months ended March 31, 2022	$	132	$	11,907
Year ended March 31,
2023	216		17,366
2024	157		11,476
2025	47		7,699
2026	26		5,678
Thereafter	—		13,337
Total undiscounted lease payments	578		67,463
Present value discount	30		9,104
Lease liability	$	548	$	58,359

The following table presents supplemental disclosures of cash flow information related to leases for the second quarter and six months ended October 3, 2021 and October 4, 2020:


	Quarter ended				Six months ended
	October 3, 2021		October 4, 2020		October 3, 2021		October 4, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	7	$	7	$	15	$	14
Operating cash flows from operating leases	6,484		6,739		13,249		13,660
Financing cash flows from finance leases	60		45		120		86
Supplemental non-cash information on lease liabilities arising from right-of-use assets:
Right-of-use assets obtained in exchange for new finance lease liabilities	$	—	$	87	$	—	$	87
Right-of-use assets obtained in exchange for new operating lease liabilities	1,909		955		5,590		7,132

4. Goodwill and Other Intangible Assets

Other Intangible Assets

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


	Balance as of
	October 3, 2021						March 31, 2021
	Gross Amount		Accumulated Amortization		Net Amount		Gross Amount		Accumulated Amortization		Net Amount
Indefinite-lived intangible assets:
Trademarks	$	148,103	$	(953)	$	147,150	$	148,164	$	(953)	$	147,211
Finite-lived intangible assets:
Customer relationships	298,178		(98,633)		199,545		298,576		(87,308)		211,268
Non-compete	2,825		(2,825)		—		2,825		(2,825)		—
Technology	97,304		(34,168)		63,136		97,349		(29,561)		67,788
Trademarks	8,012		(4,197)		3,815		8,012		(3,381)		4,631
Licenses	1,196		(1,196)		—		1,196		(1,196)		—
Total	$	555,618	$	(141,972)	$	413,646	$	556,122	$	(125,224)	$	430,898

Table of Contents

The Company’s amortization expense related to finite-lived intangible assets was $8,329 and $16,748 for the second quarter and six months of fiscal 2022, compared to $8,187 and $16,742 for the second quarter and six months of fiscal 2021. The expected amortization expense based on the finite-lived intangible assets as of October 3, 2021, is $15,786 for the remainder of fiscal 2022, $30,399 in fiscal 2023, $27,544 in fiscal 2024, $26,552 in fiscal 2025 and $25,618 in fiscal 2026.

Goodwill

The following table presents the amount of goodwill, as well as any changes in the carrying amount of goodwill by segment during the six months of fiscal 2022:


	Energy Systems		Motive Power		Specialty		Total
Balance at March 31, 2021	$	279,676	$	327,055	$	98,862	$	705,593

Foreign currency translation adjustment	(1,461)		(720)		(248)		(2,429)
Balance as of October 3, 2021	$	278,215	$	326,335	$	98,614	$	703,164

5. Inventories


	October 3, 2021		March 31, 2021
Raw materials	$	203,548	$	147,040
Work-in-process	117,130		97,715
Finished goods	320,320		273,492
Total	$	640,998	$	518,247

6. Fair Value of Financial Instruments

Recurring Fair Value Measurements

The following tables represent the financial assets and (liabilities) measured at fair value on a recurring basis as of October 3, 2021 and March 31, 2021, and the basis for that measurement:


	Total Fair Value Measurement October 3, 2021		Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Lead forward contracts	$	(2,913)	$	—	$	(2,913)	$	—
Foreign currency forward contracts	165		—		165		—
Total derivatives	$	(2,748)	$	—	$	(2,748)	$	—


	Total Fair Value Measurement March 31, 2021		Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Lead forward contracts	$	(1,980)	$	—	$	(1,980)	$	—
Foreign currency forward contracts	424		—		424		—
Total derivatives	$	(1,556)	$	—	$	(1,556)	$	—

The fair values of lead forward contracts are calculated using observable prices for lead as quoted on the London Metal Exchange (“LME”) and, therefore, were classified as Level 2 within the fair value hierarchy, as described in Note 1- Summary of Significant Accounting Policies to the Company's consolidated financial statements included in the 2021 Annual Report.

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

Table of Contents

Financial Instruments

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

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

In fiscal 2020, the Company issued its 4.375% Senior Notes due December 15, 2027 (the “2027 Notes”), with an original face value of $300,000. The Company's 5.00% Senior Notes due April 30, 2023 (the “2023 Notes”), with an original face value of $300,000, were issued in fiscal 2016. The fair value of the Company's 2027 Notes and 2023 Notes, (collectively, the “Senior Notes”) represent the trading values based upon quoted market prices and are classified as Level 2. The 2027 Notes were trading at approximately 106% and 102% of face value on October 3, 2021 and March 31, 2021, respectively. The 2023 Notes were trading at approximately 103% and 105% of face value on October 3, 2021 and March 31, 2021, respectively.

The carrying amounts and estimated fair values of the Company’s derivatives and Senior Notes at October 3, 2021 and March 31, 2021 were as follows:


	October 3, 2021				March 31, 2021
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Derivatives (1)	$	—	$	—	$	—	$	—
Financial liabilities:
Senior Notes (2)	$	600,000	$	625,890	$	600,000	$	621,000
Derivatives (1)	2,748		2,748		1,556		1,556

(1)Represents lead and foreign currency forward contracts (see Note 7 for asset and liability positions of the lead and foreign currency forward contracts at October 3, 2021 and March 31, 2021).

(2)The fair value amount of the Senior Notes at October 3, 2021 and March 31, 2021 represent the trading value of the instruments.

7. Derivative Financial Instruments

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

Derivatives in Cash Flow Hedging Relationships

Lead Forward Contracts

The Company enters into lead forward contracts to fix the price for a portion of its lead purchases. Management considers the lead forward contracts to be effective against changes in the cash flows of the underlying lead purchases. The vast majority of such contracts are for a period not extending beyond one year. At October 3, 2021 and March 31, 2021, the Company has hedged the price to purchase approximately 49.0 million pounds and 54.5 million pounds of lead, respectively, for a total purchase price of $50,847 and $50,567, respectively.

Foreign Currency Forward Contracts

The Company uses foreign currency forward contracts and options to hedge a portion of the Company’s foreign currency exposures for lead, as well as other foreign currency exposures so that gains and losses on these contracts offset changes in the underlying foreign currency denominated exposures. The vast majority of such contracts are for a period not extending beyond one year. As of October 3, 2021 and March 31, 2021, the Company had entered into a total of $27,192 and $26,033, respectively, of such contracts.

Table of Contents

In the coming twelve months, the Company anticipates that $2,770 of pretax gain relating to lead and foreign currency forward contracts will be reclassified from AOCI (“Accumulated Other Comprehensive Income”) as part of cost of goods sold. This amount represents the current net unrealized impact of hedging lead and foreign exchange rates, which will change as market rates change in the future, and will ultimately be realized in the Consolidated Condensed Statements of Income as an offset to the corresponding actual changes in lead costs to be realized in connection with the variable lead cost and foreign exchange rates being hedged.

Derivatives not Designated in Hedging Relationships

Foreign Currency Forward Contracts

The Company also enters into foreign currency forward contracts to economically hedge foreign currency fluctuations on intercompany loans and foreign currency denominated receivables and payables. These are not designated as hedging instruments and changes in fair value of these instruments are recorded directly in the Consolidated Condensed Statements of Income. As of October 3, 2021 and March 31, 2021, the notional amount of these contracts was $26,027 and $28,995, respectively.

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

Fair Value of Derivative Instruments

October 3, 2021 and March 31, 2021


	Derivatives and Hedging Activities Designated as Cash Flow Hedges				Derivatives and Hedging Activities Not Designated as Hedging Instruments
	October 3, 2021		March 31, 2021		October 3, 2021		March 31, 2021
Prepaid and other current assets:
Lead forward contracts	$	—	$	—	$	—	$	—
Foreign currency forward contracts	295		524		—		—
Total assets	$	295	$	524	$	—	$	—
Accrued expenses:
Lead forward contracts	$	2,913	$	1,980	$	—	$	—
Foreign currency forward contracts	—		—		130		100
Total liabilities	$	2,913	$	1,980	$	130	$	100

The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income

For the quarter ended October 3, 2021


Derivatives Designated as Cash Flow Hedges	Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)		Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
Lead forward contracts	$	(2,409)	Cost of goods sold	$	817
Foreign currency forward contracts	442		Cost of goods sold	132
Total	$	(1,967)		$	949


Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivatives	Pretax Gain (Loss)
Foreign currency forward contracts	Other (income) expense, net	$	123
Total		$	123

Table of Contents

The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income

For the quarter ended October 4, 2020


Derivatives Designated as Cash Flow Hedges	Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)		Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
Lead forward contracts	$	(2,219)	Cost of goods sold	$	(4,854)
Foreign currency forward contracts	(454)		Cost of goods sold	257
Total	$	(2,673)		$	(4,597)


Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivatives	Pretax Gain (Loss)
Foreign currency forward contracts	Other (income) expense, net	$	260
Total		$	260

The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income

For the six months ended October 3, 2021


Derivatives Designated as Cash Flow Hedges	Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)		Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
Lead forward contracts	$	5,163	Cost of goods sold	$	3,276
Foreign currency forward contracts	253		Cost of goods sold	(28)
Total	$	5,416		$	3,248


Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivatives	Pretax Gain (Loss)
Foreign currency forward contracts	Other (income) expense, net	$	117
Total		$	117

The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income

For the six months ended October 4, 2020


Derivatives Designated as Cash Flow Hedges	Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)		Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
Lead forward contracts	$	(3,493)	Cost of goods sold	$	(8,653)
Foreign currency forward contracts	(193)		Cost of goods sold	(26)
Total	$	(3,686)		$	(8,679)


Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivatives	Pretax Gain (Loss)
Foreign currency forward contracts	Other (income) expense, net	$	372
Total		372

8. Income Taxes

The Company’s income tax provision consists of federal, state and foreign income taxes. The tax provision for the second quarter of fiscal 2022 and 2021 was based on the estimated effective tax rates applicable for the full years ending March 31, 2022 and March 31, 2021, respectively, after giving effect to items specifically related to the interim periods. The Company’s effective income tax rate with respect to any period may be volatile based on the mix of income in the tax jurisdictions, in which the Company operates, change in tax laws and the amount of the Company's consolidated earnings before taxes.

Table of Contents

On May 19, 2019, a public referendum held in Switzerland approved the Federal Act on Tax Reform and AHV (Old-Age and Survivors Insurance) Financing (TRAF) as adopted by the Swiss Federal Parliament on September 28, 2018. The Swiss tax reform measures were effective January 1, 2020. The Company recorded an income tax benefit of $1,883 during the six months of fiscal 2021.

The consolidated effective income tax rates for the second quarter of fiscal 2022 and 2021 were 10.8% and 13.9%, and for the six months of fiscal 2022 and 2021 were 13.7% and 14.6%, respectively. The rate decrease in the second quarter compared to the prior quarter is primarily due to Hagen, Germany exit charges and changes in the mix of earnings among tax jurisdictions. The rate decrease in the six months of fiscal 2022 compared to the prior year period is primarily due to Hagen, Germany exit charges and changes in mix of earnings among tax jurisdictions, partially offset by the Swiss tax reform.

Foreign income as a percentage of worldwide income is estimated to be 76% for fiscal 2022 compared to 67% for fiscal 2021. The foreign effective tax rates for the six months of fiscal 2022 and 2021 were 9.9% and 10.6%, respectively. Income from the Company's Swiss subsidiary comprised a substantial portion of the Company's overall foreign mix of income for both fiscal 2022 and fiscal 2021 and were taxed at an effective income tax rate of approximately