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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 SymbolName of each exchange on which registered
Common Stock, $0.01 par value per share ENSNew 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 Filerý  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
1


ENERSYS
INDEX – FORM 10-Q
 
  Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 4.
Item 6.
2

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, 2021March 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, net640,998 518,247 
Prepaid and other current assets135,768 117,681 
Total current assets1,768,856 1,691,317 
Property, plant, and equipment, net500,092 497,056 
Goodwill703,164 705,593 
Other intangible assets, net413,646 430,898 
Deferred taxes65,275 65,212 
Other assets66,421 72,721 
Total assets$3,517,454 $3,462,797 
Liabilities and Equity
Current liabilities:
Short-term debt$36,006 $34,153 
Accounts payable294,975 323,876 
Accrued expenses273,852 318,959 
Total current liabilities604,833 676,988 
Long-term debt, net of unamortized debt issuance costs1,075,989 969,618 
Deferred taxes77,068 76,412 
Other liabilities185,707 196,203 
Total liabilities1,943,597 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 capital556,202 554,168 
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 earnings1,734,057 1,669,751 
Contra equity - indemnification receivable(4,001)(5,355)
Accumulated other comprehensive loss(122,147)(115,883)
Total EnerSys stockholders’ equity1,570,019 1,539,755 
Nonredeemable noncontrolling interests3,838 3,821 
Total equity1,573,857 1,543,576 
Total liabilities and equity$3,517,454 $3,462,797 
See accompanying notes.
3

Table of Contents
ENERSYS
Consolidated Condensed Statements of Income (Unaudited)
(In Thousands, Except Share and Per Share Data)
 Quarter ended
 October 3, 2021October 4, 2020
Net sales$791,395 $708,402 
Cost of goods sold612,575 530,842 
Inventory adjustment relating to exit activities960  
Gross profit177,860 177,560 
Operating expenses125,309 119,026 
Restructuring and other exit charges 2,857 3,119 
Operating earnings49,694 55,415 
Interest expense9,573 9,829 
Other (income) expense, net198 4,110 
Earnings before income taxes39,923 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:
Basic42,575,576 42,521,659 
Diluted43,255,832 43,087,455 
See accompanying notes.



4

Table of Contents
ENERSYS
Consolidated Condensed Statements of Income (Unaudited)
(In Thousands, Except Share and Per Share Data)
 Six months ended
 October 3, 2021October 4, 2020
Net sales$1,606,288 $1,413,326 
Cost of goods sold1,234,249 1,060,789 
Inventory adjustment relating to exit activities960  
Gross profit371,079 352,537 
Operating expenses249,796 239,396 
Restructuring charges and other exit charges10,689 4,506 
Operating earnings110,594 108,635 
Interest expense18,680 19,994 
Other (income) expense, net(298)5,572 
Earnings before income taxes92,212 83,069 
Income tax expense12,657 12,155 
Net earnings attributable to EnerSys stockholders79,555 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:
Basic42,637,953 42,453,774 
Diluted43,396,588 43,009,755 
See accompanying notes.
5

Table of Contents
ENERSYS
Consolidated Condensed Statements of Comprehensive Income (Unaudited)
(In Thousands)
 Quarter endedSix months ended
 October 3, 2021October 4, 2020October 3, 2021October 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 tax233 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 interests15 144 64 152 
Comprehensive income attributable to EnerSys stockholders$9,953 $70,195 $73,291 $136,151 
See accompanying notes.

6

Table of Contents
ENERSYS
Consolidated Condensed Statements of Cash Flows (Unaudited)
(In Thousands)
 Six months ended
 October 3, 2021October 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 amortization48,340 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 proceeds147 846 
Provision for doubtful accounts1,240 182 
Deferred income taxes108 (1,820)
Non-cash interest expense1,133 1,036 
Stock-based compensation9,424 10,586 
(Gain) loss on disposal of property, plant, and equipment(37)156 
Changes in assets and liabilities:
Accounts receivable15,914 106,581 
Inventories(125,479)21,080 
Prepaid and other current assets(18,969)7,369 
Other assets1,686 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 facility3,268  
Proceeds from disposal of property, plant, and equipment133 81 
Net cash used in investing activities(31,221)(39,824)
Cash flows from financing activities
Net borrowings (repayments) on short-term debt2,155 (16,502)
Proceeds from Second Amended Revolver borrowings275,700 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)
Other393 255 
Net cash provided by (used in) financing activities53,904 (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 period451,808 326,979 
Cash and cash equivalents at end of period$407,506 $414,232 
See accompanying notes.
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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.
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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.
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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 assetsOther assets$56,116 $62,159 
Operating lease current liabilitiesAccrued expenses19,334 21,774 
Operating lease non-current liabilitiesOther liabilities39,025 42,528 
Finance Leases:
Right-of-use assetsProperty, plant, and equipment, net$460 $573 
Finance lease current liabilitiesAccrued expenses220 236 
Finance lease non-current liabilitiesOther liabilities328 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 endedSix months ended
ClassificationOctober 3, 2021October 4, 2020October 3, 2021October 4, 2020
Operating Leases:
Operating lease costOperating expenses$6,422 $6,745 $13,138 $13,681 
Variable lease costOperating expenses2,354 1,613 4,927 3,732 
Short term lease costOperating expenses1,753 1,578 3,570 3,406 
Finance Leases:
DepreciationOperating expenses$59 $46 $119 $88 
Interest expenseInterest expense7 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 years5.5 years
Weighted average discount rate5.09%5.16%
Finance Leases:
Weighted average remaining lease term (years)2.7 years3.1 years
Weighted average discount rate4.80%4.81%
















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

Finance LeasesOperating Leases
Six months ended March 31, 2022$132 $11,907 
Year ended March 31,
2023216 17,366 
2024157 11,476 
202547 7,699 
202626 5,678 
Thereafter 13,337 
Total undiscounted lease payments578 67,463 
Present value discount30 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 endedSix months ended
October 3, 2021October 4, 2020October 3, 2021October 4, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases$7 $7 $15 $14 
Operating cash flows from operating leases6,484 6,739 13,249 13,660 
Financing cash flows from finance leases60 45 120 86 
Supplemental non-cash information on lease liabilities arising from right-of-use assets:
Right-of-use assets obtained in exchange for new finance lease liabilities$ $87 $ $87 
Right-of-use assets obtained in exchange for new operating lease liabilities1,909 955 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, 2021March 31, 2021
Gross AmountAccumulated AmortizationNet AmountGross AmountAccumulated AmortizationNet Amount
Indefinite-lived intangible assets:
Trademarks$148,103 $(953)$147,150 $148,164 $(953)$147,211 
Finite-lived intangible assets:
Customer relationships298,178 (98,633)199,545 298,576 (87,308)211,268 
Non-compete2,825 (2,825) 2,825 (2,825) 
Technology97,304 (34,168)63,136 97,349 (29,561)67,788 
Trademarks8,012 (4,197)3,815 8,012 (3,381)4,631 
Licenses1,196 (1,196) 1,196 (1,196) 
Total$555,618 $(141,972)$413,646 $556,122 $(125,224)$430,898 

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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 SystemsMotive PowerSpecialtyTotal
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, 2021March 31, 2021
Raw materials$203,548 $147,040 
Work-in-process117,130 97,715 
Finished goods320,320 273,492 
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, 2021Quoted 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 contracts165  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 contracts424  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.



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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, 2021March 31, 2021
 Carrying
Amount
Fair ValueCarrying
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.

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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 HedgesDerivatives and Hedging Activities Not Designated as Hedging Instruments
 October 3, 2021March 31, 2021October 3, 2021March 31, 2021
Prepaid and other current assets:
Lead forward contracts$ $ $ $ 
Foreign currency forward contracts295 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 HedgesPretax 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$817 
Foreign currency forward contracts442 Cost of goods sold132 
Total$(1,967)$949 
Derivatives Not Designated as Hedging InstrumentsLocation of Gain (Loss) Recognized in Income on DerivativesPretax Gain (Loss)
Foreign currency forward contractsOther (income) expense, net$123 
Total$123 

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The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the quarter ended October 4, 2020
Derivatives Designated as Cash Flow HedgesPretax 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 sold257 
Total$(2,673)$(4,597)
Derivatives Not Designated as Hedging InstrumentsLocation of Gain (Loss) Recognized in Income on DerivativesPretax Gain (Loss)
Foreign currency forward contractsOther (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 HedgesPretax 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 contracts253 Cost of goods sold(28)
Total$5,416 $3,248 
Derivatives Not Designated as Hedging InstrumentsLocation of Gain (Loss) Recognized in Income on DerivativesPretax Gain (Loss)
Foreign currency forward contractsOther (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 HedgesPretax 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 InstrumentsLocation of Gain (Loss) Recognized in Income on DerivativesPretax Gain (Loss)
Foreign currency forward contractsOther (income) expense, net$372 
Total372 

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.

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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 8% in both periods.

9. Warranty

The Company provides for estimated product warranty expenses when products are sold, with related liabilities included within accrued expenses and other liabilities. As warranty estimates are forecasts that are based on the best available information, primarily historical claims experience, costs of claims may ultimately differ from amounts provided. An analysis of changes in the liability for product warranties is as follows:

 Quarter endedSix months ended
 October 3, 2021October 4, 2020October 3, 2021October 4, 2020
Balance at beginning of period$59,167 $59,771 $58,962 $63,525 
Current period provisions2,331 7,683 7,661 14,657 
Costs incurred(4,120)(8,662)(9,372)