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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 2, 2022
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 4, 2022: 40,829,557 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

PART I –FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS

EnerSys
Consolidated Condensed Balance Sheets (Unaudited)
(In Thousands, Except Share and Per Share Data) 
October 2, 2022March 31, 2022
Assets
Current assets:
Cash and cash equivalents$294,423 $402,488 
Accounts receivable, net of allowance for doubtful accounts: October 2, 2022 - $10,914; March 31, 2022 - $12,219
705,481 719,434 
Inventories, net811,998 715,712 
Prepaid and other current assets148,774 155,559 
Total current assets1,960,676 1,993,193 
Property, plant, and equipment, net481,551 503,264 
Goodwill658,265 700,640 
Other intangible assets, net374,047 396,202 
Deferred taxes56,163 60,479 
Other assets93,461 82,868 
Total assets$3,624,163 $3,736,646 
Liabilities and Equity
Current liabilities:
Short-term debt$34,581 $55,084 
Accounts payable344,941 393,096 
Accrued expenses292,969 289,950 
Total current liabilities672,491 738,130 
Long-term debt, net of unamortized debt issuance costs1,295,827 1,243,002 
Deferred taxes76,748 78,228 
Other liabilities164,679 184,011 
Total liabilities2,209,745 2,243,371 
Commitments and contingencies
Equity:
Preferred Stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding at October 2, 2022 and at March 31, 2022
  
Common Stock, $0.01 par value per share, 135,000,000 shares authorized, 55,935,472 shares issued and 40,821,711 shares outstanding at October 2, 2022; 55,748,924 shares issued and 40,986,658 shares outstanding at March 31, 2022
559 557 
Additional paid-in capital577,520 571,464 
Treasury stock at cost, 15,113,761 shares held as of October 2, 2022 and 14,762,266 shares held as of March 31, 2022
(741,510)(719,119)
Retained earnings1,834,442 1,783,586 
Contra equity - indemnification receivable(2,657)(3,620)
Accumulated other comprehensive loss(257,414)(143,495)
Total EnerSys stockholders’ equity1,410,940 1,489,373 
Nonredeemable noncontrolling interests3,478 3,902 
Total equity1,414,418 1,493,275 
Total liabilities and equity$3,624,163 $3,736,646 
See accompanying notes.
3

EnerSys
Consolidated Condensed Statements of Income (Unaudited)
(In Thousands, Except Share and Per Share Data)
 Quarter ended
 October 2, 2022October 3, 2021
Net sales$899,437 $791,395 
Cost of goods sold703,002 612,575 
Inventory adjustment relating to exit activities1,544 960 
Gross profit194,891 177,860 
Operating expenses137,357 125,309 
Restructuring and other exit charges 3,265 2,857 
Operating earnings54,269 49,694 
Interest expense15,461 9,573 
Other (income) expense, net(1,446)198 
Earnings before income taxes40,254 39,923 
Income tax expense 5,782 4,297 
Net earnings attributable to EnerSys stockholders$34,472 $35,626 
Net earnings per common share attributable to EnerSys stockholders:
Basic$0.85 $0.84 
Diluted$0.84 $0.82 
Dividends per common share $0.175 $0.175 
Weighted-average number of common shares outstanding:
Basic40,740,989 42,575,576 
Diluted41,167,622 43,255,832 
See accompanying notes.



4

EnerSys
Consolidated Condensed Statements of Income (Unaudited)
(In Thousands, Except Share and Per Share Data)
 Six months ended
 October 2, 2022October 3, 2021
Net sales$1,798,408 $1,606,288 
Cost of goods sold1,416,438 1,234,249 
Inventory adjustment relating to exit activities1,544 960 
Gross profit380,426 371,079 
Operating expenses264,435 249,796 
Restructuring charges and other exit charges11,593 10,689 
Operating earnings104,398 110,594 
Interest expense27,058 18,680 
Other expense (income), net327 (298)
Earnings before income taxes77,013 92,212 
Income tax expense11,563 12,657 
Net earnings attributable to EnerSys stockholders$65,450 $79,555 
Net earnings per common share attributable to EnerSys stockholders:
Basic$1.61 $1.87 
Diluted$1.59 $1.83 
Dividends per common share $0.35 $0.35 
Weighted-average number of common shares outstanding:
Basic40,763,663 42,637,953 
Diluted41,260,134 43,396,588 
See accompanying notes.
5

EnerSys
Consolidated Condensed Statements of Comprehensive Income (Unaudited)
(In Thousands)
 Quarter endedSix months ended
 October 2, 2022October 3, 2021October 2, 2022October 3, 2021
Net earnings$34,472 $35,626 $65,450 $79,555 
Other comprehensive (loss) income:
Net unrealized (loss) gain on derivative instruments, net of tax2,116 (2,233)(6,118)1,664 
Pension funded status adjustment, net of tax81 233 170 473 
Foreign currency translation adjustment (56,175)(23,658)(108,395)(8,337)
Total other comprehensive (loss) income, net of tax(53,978)(25,658)(114,343)(6,200)
Total comprehensive (loss) income (19,506)9,968 (48,893)73,355 
Comprehensive (loss) income attributable to noncontrolling interests(214)15 (424)64 
Comprehensive (loss) income attributable to EnerSys stockholders$(19,292)$9,953 $(48,469)$73,291 
See accompanying notes.

6

EnerSys
Consolidated Condensed Statements of Cash Flows (Unaudited)
(In Thousands)
 Six months ended
 October 2, 2022October 3, 2021
Cash flows from operating activities
Net earnings$65,450 $79,555 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization46,405 48,340 
Write-off of assets relating to exit activities 9,081 3,756 
Derivatives not designated in hedging relationships:
Net (losses) gains472 (117)
Cash (settlements) proceeds(2,015)147 
Provision for doubtful accounts206 1,240 
Deferred income taxes(126)108 
Non-cash interest expense974 1,133 
Stock-based compensation11,864 9,424 
(Gain) loss on disposal of property, plant, and equipment(135)(37)
Changes in assets and liabilities:
Accounts receivable(18,409)15,914 
Inventories(138,327)(125,479)
Prepaid and other current assets(17,544)(18,969)
Other assets(266)1,686 
Accounts payable(21,417)(32,694)
Accrued expenses(9,443)(48,013)
Other liabilities2,929 (1,565)
Net cash used in operating activities(70,301)(65,571)
Cash flows from investing activities
Capital expenditures(39,653)(34,622)
Proceeds from disposal of facility 3,268 
Proceeds from termination of net investment hedges43,384  
Proceeds from disposal of property, plant, and equipment376 133 
Net cash provided by (used in) investing activities4,107 (31,221)
Cash flows from financing activities
Net (repayments) borrowings on short-term debt(17,067)2,155 
Proceeds from Second Amended Revolver borrowings244,100 275,700 
Repayments of Second Amended Revolver borrowings(184,100)(5,700)
Repayments of Second Amended Term Loan (161,447)
Debt Issuance Costs (2,952)
Financing costs for debt modification (1,096) 
Option proceeds, net 114 1,158 
Payment of taxes related to net share settlement of equity awards(6,257)(9,000)
Purchase of treasury stock(22,907)(31,512)
Dividends paid to stockholders(14,246)(14,891)
Other568 393 
Net cash (used in) provided by financing activities(891)53,904 
Effect of exchange rate changes on cash and cash equivalents(40,980)(1,414)
Net decrease in cash and cash equivalents(108,065)(44,302)
Cash and cash equivalents at beginning of period402,488 451,808 
Cash and cash equivalents at end of period$294,423 $407,506 
See accompanying notes.
7

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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 2, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2023.

The Consolidated Condensed Balance Sheet at March 31, 2022 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 2022 Annual Report on Form 10-K (SEC File No. 001-32253), which was filed on May 25, 2022 (the “2022 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 2023 end on July 3, 2022, October 2, 2022, January 1, 2023, and March 31, 2023, respectively. The four quarters in fiscal 2022 ended on July 4, 2021, October 3, 2021, January 2, 2022, and March 31, 2022, 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.


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.
8

Table of Contents

2. Revenue Recognition

The Company’s revenues by reportable segments are presented in Note 17 and are consistent with how we organize and manage our operations, as well as product line net sales information.

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 2023 and 2022 amounted to $100,990 and $90,112, respectively. Service revenues for the six months of fiscal 2023 and 2022 amounted to $200,814 and $172,630, respectively.

A small portion of the Company's customer arrangements oblige the Company to create customized products for its customers that require combining 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 2023 and 2022 amounted to $56,202 and $43,607, respectively. Revenues recognized over time for the six months of fiscal 2023 and 2022 amounted to $113,206 and $84,511, respectively.

On October 2, 2022, the aggregate transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was approximately $167,127, of which, the Company estimates that approximately $125,736 will be recognized as revenue in fiscal 2023, $37,152 in fiscal 2024, and $4,239 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 2, 2022, the current and non-current portion of contract liabilities were $23,995 and $1,232, respectively. As of March 31, 2022, the current and non-current portion of contract liabilities were $27,870 and $1,387, respectively. Revenues recognized during the second quarter of fiscal 2023 and 2022 that were included in the contract liability at the beginning of the quarter, amounted to $5,832 and $5,467, respectively. Revenues recognized during the six months of fiscal 2023 and 2022 that were included in the contract liability at the beginning of the year, amounted to $6,877 and $5,182, respectively.

Amounts representing work completed and not billed to customers represent contract assets and were $64,824 and $59,924 as of October 2, 2022 and March 31, 2022, 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 2, 2022, the right of return asset related to the value of inventory anticipated to be returned from customers was $4,605 and refund liability representing amounts estimated to be refunded to customers was $8,831.

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 2, 2022
As of
March 31, 2022
Operating Leases:
Right-of-use assetsOther assets$70,990 $71,085 
Operating lease current liabilitiesAccrued expenses20,362 20,086 
Operating lease non-current liabilitiesOther liabilities53,059 52,904 
Finance Leases:
Right-of-use assetsProperty, plant, and equipment, net$122 $344 
Finance lease current liabilitiesAccrued expenses53 185 
Finance lease non-current liabilitiesOther liabilities109 231 

The components of lease expense for the second quarter and six months ended October 2, 2022 and October 3, 2021 were as follows:
Quarter endedSix months ended
ClassificationOctober 2, 2022October 3, 2021October 2, 2022October 3, 2021
Operating Leases:
Operating lease costOperating expenses$6,668 $6,422 $13,252 $13,138 
Variable lease costOperating expenses3,221 2,354 6,628 4,927 
Short term lease costOperating expenses1,411 1,753 2,849 3,570 
Finance Leases:
DepreciationOperating expenses$19 $59 $71 $119 
Interest expenseInterest expense2 7 6 15 
Total$11,321 $10,595 $22,806 $21,769 

The following table presents the weighted average lease term and discount rates for leases as of October 2, 2022 and March 31, 2022:
October 2, 2022
March 31, 2022
Operating Leases:
Weighted average remaining lease term (years)6.1 years6.1 years
Weighted average discount rate4.56%4.43%
Finance Leases:
Weighted average remaining lease term (years)2.6 years2.3 years
Weighted average discount rate4.60%4.79%
The following table presents future payments due under leases reconciled to lease liabilities as of October 2, 2022:

Finance LeasesOperating Leases
Six months ended March 31, 2023$38 $12,400 
Year ended March 31,
202462 19,209 
202542 14,024 
202623 10,401 
2027 8,214 
Thereafter 20,184 
Total undiscounted lease payments165 84,432 
Present value discount3 11,011 
Lease liability$162 $73,421 

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The following table presents supplemental disclosures of cash flow information related to leases for the second quarter and six months ended October 2, 2022 and October 3, 2021:
Quarter endedSix months ended
October 2, 2022October 3, 2021October 2, 2022October 3, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases$2 $7 $6 $15 
Operating cash flows from operating leases6,576 6,484 12,910 13,249 
Financing cash flows from finance leases20 60 72 120 
Supplemental non-cash information on lease liabilities arising from right-of-use assets:
Right-of-use assets obtained in exchange for new finance lease liabilities$ $ $ $ 
Right-of-use assets obtained in exchange for new operating lease liabilities2,764 1,909 5,537 5,590 

4. Goodwill and Other Intangible Assets

Other Intangible Assets

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

Balance as of
October 2, 2022March 31, 2022
Gross AmountAccumulated AmortizationNet AmountGross AmountAccumulated AmortizationNet Amount
Indefinite-lived intangible assets:
Trademarks$144,779 $(953)$143,826 $145,808 $(953)$144,855 
Finite-lived intangible assets:
Customer relationships294,374 (120,746)173,628 298,577 (109,820)188,757 
Non-compete2,825 (2,825) 2,825 (2,825) 
Technology96,560 (43,165)53,395 97,367 (38,712)58,655 
Trademarks8,925 (5,727)3,198 8,947 (5,012)3,935 
Licenses1,196 (1,196) 1,196 (1,196) 
Total$548,659 $(174,612)$374,047 $554,720 $(158,518)$396,202 

The Company’s amortization expense related to finite-lived intangible assets was $8,012 and $16,094 for the second quarter and six months of fiscal 2023, compared to $8,329 and $16,748 for the second quarter and six months of fiscal 2022. The expected amortization expense based on the finite-lived intangible assets as of October 2, 2022, is $14,631 for the remainder of fiscal 2023, $27,691 in fiscal 2024, $26,550 in fiscal 2025, $25,616 in fiscal 2026 and $24,822 in fiscal 2027.

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 2023:
Energy SystemsMotive PowerSpecialtyTotal
Balance at March 31, 2022
$279,461 $323,303 $97,876 $700,640 
Foreign currency translation adjustment(29,588)(10,223)(2,564)(42,375)
Balance as of October 2, 2022
$249,873 $313,080 $95,312 $658,265 

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5. Inventories
October 2, 2022March 31, 2022
Raw materials$321,649 $260,604 
Work-in-process119,313 109,441 
Finished goods371,036 345,667 
Total$811,998 $715,712 

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 2, 2022 and March 31, 2022, and the basis for that measurement:
 
Total Fair Value Measurement October 2, 2022Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Lead forward contracts$(942)$ $(942)$ 
Foreign currency forward contracts1,628  1,628  
Net investment hedges(3,498) (3,498) 
Total derivatives$(2,812)$ $(2,812)$ 
 
Total Fair Value
Measurement
March 31, 2022
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Lead forward contracts$2,520 $ $2,520 $ 
Foreign currency forward contracts(256) (256) 
Net investment hedges298  298  
Total derivatives$2,562 $ $2,562 $ 

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 2022 Annual Report.

The fair values for foreign currency forward contracts and net investment hedges 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.

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 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 88% and 95% of face value on October 2, 2022 and March 31, 2022, respectively. The 2023 Notes were trading at approximately 99% and 101% of face value on October 2, 2022 and March 31, 2022, respectively.

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The carrying amounts and estimated fair values of the Company’s derivatives and Senior Notes at October 2, 2022 and March 31, 2022 were as follows:
 October 2, 2022March 31, 2022
 Carrying
Amount
Fair ValueCarrying
Amount
Fair Value
Financial assets:
Derivatives (1)
$(2,812)$(2,812)$2,562 $2,562 
Financial liabilities:
 Senior Notes (2)
$600,000 $561,750 $600,000 $585,750 
(1)Represents lead, foreign currency forward contracts and net investment hedges (see Note 7 for asset and liability positions of the lead, foreign currency forward contracts and net investment hedges at October 2, 2022 and March 31, 2022).
(2)The fair value amount of the Senior Notes at October 2, 2022 and March 31, 2022 represent the trading value of the instruments.

Non-recurring fair value measurements

On June 29, 2022, the Company committed to a plan to close its facility in Ooltewah, Tennessee, which focused on manufacturing flooded motive power batteries for electric forklifts. Management determined that future demand for traditional motive power flooded cells will decrease as customers transition to maintenance free product solutions in lithium and Thin Plate Pure Lead (TPPL). As a result, the Company concluded that the carrying value of the asset group was not recoverable and recorded during the first quarter of fiscal 2023 a write-off of $7,300 of the fixed assets, for which there is expected to be no salvageable value. The valuation technique used to measure the fair value of fixed assets was a combination of the income and market approaches. The inputs used to measure the fair value of these fixed assets under the income approach were largely unobservable and accordingly were classified as Level 3.


7. Derivative Financial Instruments

The Company utilizes derivative instruments to reduce its exposure to fluctuations in commodity prices, foreign exchange rates and interest, 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 2, 2022 and March 31, 2022, the Company has hedged the price to purchase approximately 67.5 million pounds and 54.0 million pounds of lead, respectively, for a total purchase price of $59,429 and $56,768, 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 2, 2022 and March 31, 2022, the Company had entered into a total of $35,916 and $29,676, respectively, of such contracts.

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Derivatives in Net Investment Hedging Relationships

Net Investment Hedges

The Company uses cross currency fixed interest rate swaps to hedge its net investments in foreign operations against future volatility in the exchange rates between the U.S. Dollar and euro.

On September 29, 2022, the Company terminated its $300,000 cross-currency fixed interest rate swap contracts, originally entered into on December 23, 2021, and received a net settlement of $43,384. The cash proceeds have been included in Proceeds from termination of net investment hedges in our Consolidated Condensed Statements of Cash Flows.

On September 29, 2022, the Company entered into a cross-currency fixed interest rate swap contracts with an aggregate notional amount of $150,000, maturing on December 15, 2027. The cross-currency fixed interest rate swap contracts qualify for hedge accounting as a net investment hedging instrument, which allows for them to be remeasured to foreign currency translation adjustment within AOCI (“Accumulated Other Comprehensive Income”) to offset the translation risk from those investments. Balances in the foreign currency translation adjustment accounts remain until the sale or substantially complete liquidation of the foreign entity, upon which they are recognized as a component of income (expense).

Impact of Hedging Instruments on AOCI

In the coming twelve months, the Company anticipates that $2,378 of pretax loss relating to lead, foreign currency forward contracts and net investment hedges will be reclassified from AOCI as part of cost of goods sold and interest expense. This amount represents the current net unrealized impact of hedging lead, foreign exchange rates and interest rates, which will change as market rates change in the future. This amount will ultimately be realized in the Consolidated Condensed Statements of Income as an offset to the corresponding actual changes in lead, foreign exchange rates and interest costs resulting from variable lead cost, foreign exchange and interest rates 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 2, 2022 and March 31, 2022, the notional amount of these contracts was $52,128 and $22,990, respectively.

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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 2, 2022 and March 31, 2022
 
 Derivatives and Hedging  Activities Designated as Cash Flow HedgesDerivatives and Hedging Activities Designated as Net Investment HedgesDerivatives and Hedging Activities Not Designated as Hedging Instruments
 October 2, 2022March 31, 2022October 2, 2022March 31, 2022October 2, 2022March 31, 2022
Prepaid and other current assets:
Lead forward contracts$— $2,520 $— $— $— $— 
Foreign currency forward contracts596 256 — — 1,031  
Net investment hedges— — 1,143 4,388 — — 
Other assets:
Net investment hedges— —   — — 
Total assets$596 $2,776 $1,143 $4,388 $1,031 $ 
Accrued expenses:
Lead forward contracts$942 $ $— $— $ $ 
Foreign currency forward contracts— — — — — 512 
Other liabilities:
Net investment hedges— — 4,641 4,090 — — 
Total liabilities$942 $ $4,641 $4,090 $ $512 


The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the quarter ended October 2, 2022
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$334 Cost of goods sold$(1,893)
Foreign currency forward contracts1,361 Cost of goods sold826 
Total$1,695 $(1,067)
Derivatives Designated as Net Investment Hed