EnerSys [ENS] Filings

10-Q 1 ens-20231001.htm 10-Q ens-20231001

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 1, 2023


☐			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 3, 2023: 40,399,131 shares

EnerSys

INDEX – FORM 10-Q


			Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Condensed Balance Sheets (Unaudited) as of October 1 , 2023 and March 31, 2023		3

	Consolidated Condensed Statements of Income (Unaudited) for the Quarters Ended October 1 , 2023 and October 2 , 2022		4

	Consolidated Condensed Statements of Income (Unaudited) for the Six Months Ended October 1, 2023 and O ctober 2, 2022		5

	Consolidated Condensed Statements of Comprehensive Income (Unaudited) for the Quarters and Six Months Ended October 1, 2023 and October 2, 2022		6

	Consolidated Condensed Statements of Cash Flows (Unaudited) for the Six Months Ended October 1, 2023 and October 2, 2022		7

	Notes to Consolidated Condensed Financial Statements (Unaudited)		8
	1	Basis of Presentation	8
	2	Revenue Recognition	9

	3	Accounts Receivable	9

	4	Inventories	10
	5	Fair Value of Financial Instruments	10
	6	Derivative Financial Instruments	12
	7	Income Taxes	16
	8	Warranty	17
	9	Commitments, Contingencies and Litigation	17
	10	Restructuring and Other Exit Charges	18
	11	Debt	19
	12	Retirement Plans	21
	13	Stock-Based Compensation	21
	14	Stockholders’ Equity and Noncontrolling Interests	22
	15	Earnings Per Share	28
	16	Business Segments	29
	17	Subsequent Events	29

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		30

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		44

Item 4.	Controls and Procedures		46

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings		47

Item 1A.	Risk Factors		47

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		48

Item 4.	Mine Safety Disclosures		48

Item 6.	Exhibits		49

SIGNATURES			50

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PART I –			FINANCIAL INFORMATION


ITEM 1.			FINANCIAL STATEMENTS

EnerSys

Consolidated Condensed Balance Sheets (Unaudited)

(In Thousands, Except Share and Per Share Data)


	October 1, 2023		March 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	327,751	$	346,665
Accounts receivable, net of allowance for doubtful accounts: October 1, 2023 - $9,688; March 31, 2023 - $8,775	536,501		637,817
Inventories, net	776,503		797,798
Prepaid and other current assets	145,497		113,601
Total current assets	1,786,252		1,895,881
Property, plant, and equipment, net	510,524		513,283
Goodwill	677,349		676,715
Other intangible assets, net	346,324		360,412
Deferred taxes	47,416		49,152
Other assets	125,128		121,231
Total assets	$	3,492,993	$	3,616,674
Liabilities and Equity
Current liabilities:
Short-term debt	$	30,544	$	30,642
Accounts payable	322,805		378,641
Accrued expenses	311,918		309,037
Total current liabilities	665,267		718,320
Long-term debt, net of unamortized debt issuance costs	949,934		1,041,989
Deferred taxes	60,547		61,118
Other liabilities	153,864		191,366
Total liabilities	1,829,612		2,012,793
Commitments and contingencies
Equity:
Preferred Stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding at October 1, 2023 and at March 31, 2023	—		—
Common Stock, $0.01 par value per share, 135,000,000 shares authorized, 56,347,317 shares issued and 40,771,015 shares outstanding at October 1, 2023; 56,004,613 shares issued and 40,901,059 shares outstanding at March 31, 2023	563		560
Additional paid-in capital	612,490		596,464
Treasury stock at cost, 15,576,302 shares held as of October 1, 2023 and 15,103,554 shares held as of March 31, 2023	(787,888)		(740,956)
Retained earnings	2,045,416		1,930,148
Contra equity - indemnification receivable	(1,988)		(2,463)
Accumulated other comprehensive loss	(208,607)		(183,474)
Total EnerSys stockholders’ equity	1,659,986		1,600,279
Nonredeemable noncontrolling interests	3,395		3,602
Total equity	1,663,381		1,603,881
Total liabilities and equity	$	3,492,993	$	3,616,674

See accompanying notes.

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EnerSys

Consolidated Condensed Statements of Income (Unaudited)

(In Thousands, Except Share and Per Share Data)


	Quarter ended
	October 1, 2023		October 2, 2022
Sales from products	$	789,312	$	798,447
Sales from services	111,721		100,990
Net sales	901,033		899,437
Cost of goods sold	574,143		622,845
Cost of services	87,271		80,157
Inventory adjustment relating to exit activities	—		1,544
Gross profit	239,619		194,891
Operating expenses	143,771		137,357
Restructuring and other exit charges	7,234		3,265

Operating earnings	88,614		54,269
Interest expense	12,217		15,461
Other expense (income), net	2,979		(1,446)
Earnings before income taxes	73,418		40,254
Income tax expense	8,189		5,782


Net earnings attributable to EnerSys stockholders	$	65,229	$	34,472
Net earnings per common share attributable to EnerSys stockholders:
Basic	$	1.59	$	0.85
Diluted	$	1.56	$	0.84
Dividends per common share	$	0.225	$	0.175
Weighted-average number of common shares outstanding:
Basic	40,922,959		40,740,989
Diluted	41,684,634		41,167,622

See accompanying notes.

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EnerSys

Consolidated Condensed Statements of Income (Unaudited)

(In Thousands, Except Share and Per Share Data)


	Six months ended
	October 1, 2023		October 2, 2022
Sales from products	$	1,596,959	$	1,597,594
Sales from services	212,643		200,814
Net sales	1,809,602		1,798,408
Cost of goods sold	1,161,346		1,258,704
Cost of services	165,233		157,734
Inventory adjustment relating to exit activities	3,098		1,544
Gross profit	479,925		380,426
Operating expenses	288,323		264,435
Restructuring and other exit charges	13,543		11,593


Operating earnings	178,059		104,398
Interest expense	27,461		27,058
Other expense (income), net	3,647		327
Earnings before income taxes	146,951		77,013
Income tax expense	14,925		11,563


Net earnings attributable to EnerSys stockholders	$	132,026	$	65,450
Net earnings per common share attributable to EnerSys stockholders:
Basic	$	3.23	$	1.61
Diluted	$	3.17	$	1.59
Dividends per common share	$	0.40	$	0.35
Weighted-average number of common shares outstanding:
Basic	40,930,146		40,763,663
Diluted	41,691,479		41,260,134

See accompanying notes.

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EnerSys

Consolidated Condensed Statements of Comprehensive Income (Unaudited)

(In Thousands)


	Quarter ended				Six months ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Net earnings	$	65,229	$	34,472	$	132,026	$	65,450
Other comprehensive income (loss):
Net unrealized gain (loss) on derivative instruments, net of tax	2,495		2,116		4,281		(6,118)
Pension funded status adjustment, net of tax	21		81		41		170
Foreign currency translation adjustment	(31,664)		(56,175)		(29,662)		(108,395)
Total other comprehensive income (loss), net of tax	(29,148)		(53,978)		(25,340)		(114,343)
Total comprehensive income (loss)	36,081		(19,506)		106,686		(48,893)
Comprehensive income (loss) attributable to noncontrolling interests	(17)		(214)		(207)		(424)
Comprehensive income (loss) attributable to EnerSys stockholders	$	36,098	$	(19,292)	$	106,893	$	(48,469)

See accompanying notes.

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EnerSys

Consolidated Condensed Statements of Cash Flows (Unaudited)

(In Thousands)


	Six months ended
	October 1, 2023		October 2, 2022
Cash flows from operating activities
Net earnings	$	132,026	$	65,450
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	45,214		46,405
Write-off of assets relating to exit activities	4,146		9,081

Derivatives not designated in hedging relationships:
Net losses (gains)	1,204		472
Cash (settlements) proceeds	695		(2,015)
Provision for doubtful accounts	1,456		206
Deferred income taxes	46		(126)
Non-cash interest expense	820		974
Stock-based compensation	13,077		11,864

(Gain) loss on disposal of property, plant, and equipment	158		(135)

Changes in assets and liabilities:
Accounts receivable	93,368		(18,409)
Inventories	10,529		(138,327)
Prepaid and other current assets	(13,891)		(17,544)
Other assets	(1,306)		(266)
Accounts payable	(57,233)		(21,417)
Accrued expenses	(44,803)		(9,443)
Other liabilities	217		2,929
Net cash provided by (used in) operating activities	185,723		(70,301)

Cash flows from investing activities
Capital expenditures	(35,854)		(39,653)
Purchase of business	(8,270)		—

Proceeds from termination of net investment hedges	—		43,384
Proceeds from disposal of property, plant, and equipment	2,007		376
Net cash (used in) provided by investing activities	(42,117)		4,107

Cash flows from financing activities
Net (repayments) borrowings on short-term debt	(61)		(17,067)
Proceeds from Second Amended Revolver borrowings	172,500		244,100

Repayments of Second Amended Revolver borrowings	(252,500)		(184,100)


Repayments of Second and Third Amended Term Loans	(12,736)		—

Financing costs for debt modification	—		(1,096)
Option proceeds, net	9,668		114
Payment of taxes related to net share settlement of equity awards	(7,348)		(6,257)
Purchase of treasury stock	(47,340)		(22,907)
Dividends paid to stockholders	(16,341)		(14,246)
Other	690		568
Net cash (used in) financing activities	(153,468)		(891)
Effect of exchange rate changes on cash and cash equivalents	(9,052)		(40,980)
Net decrease in cash and cash equivalents	(18,914)		(108,065)
Cash and cash equivalents at beginning of period	346,665		402,488
Cash and cash equivalents at end of period	$	327,751	$	294,423

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 1, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2024.

The Consolidated Condensed Balance Sheet at March 31, 2023 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 2023 Annual Report on Form 10-K (SEC File No. 001-32253), which was filed on May 25, 2023 (the “2023 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 2024 end on July 2, 2023, October 1, 2023, December 31, 2023, and March 31, 2024, respectively. The four quarters in fiscal 2023 ended on July 3, 2022, October 2, 2022, January 1, 2023, and March 31, 2023, 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, and the Company’s estimates and assumptions may evolve as conditions change. Actual results could differ 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 16 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.

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 2024 and 2023 amounted to $68,812 and $56,202, respectively. Revenues recognized over time for the six months of fiscal 2024 and 2023 amounted to $127,466 and $113,206, respectively.

On October 1, 2023, the aggregate transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was approximately $121,895, of which, the Company estimates that approximately $89,876 will be recognized as revenue in fiscal 2024, $31,657 in fiscal 2025, and $315 in fiscal 2026, $23 in fiscal 2027, and $24 thereafter.

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 1, 2023, the current and non-current portion of contract liabilities were $23,501 and $955, respectively. As of March 31, 2023, the current and non-current portion of contract liabilities were $34,594 and $1,437, respectively. Revenues recognized during the second quarter of fiscal 2024 and 2023 that were included in the contract liability at the beginning of the quarter, amounted to $6,737 and $5,832, respectively. Revenues recognized during the six months of fiscal 2024 and 2023 that were included in the contract liability at the beginning of the year, amounted to $14,113 and $6,877, respectively.

Amounts representing work completed and not billed to customers represent contract assets and were $54,825 and $48,616 as of October 1, 2023 and March 31, 2023, 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 1, 2023, the right of return asset related to the value of inventory anticipated to be returned from customers was $4,647 and refund liability representing amounts estimated to be refunded to customers was $7,748.

3. Accounts Receivable


	October 1, 2023		March 31, 2023
Accounts receivable	$	546,189	$	646,592
Allowance for doubtful accounts	9,688		8,775
Accounts receivable, net	$	536,501	$	637,817

During the third quarter of 2023, the Company entered into a Receivables Purchase Agreement (RPA), under which the Company continuously sells its interest in designated pools of trade accounts receivables, at a discount, to a special purpose entity, which in turn sells certain of the receivables to an unaffiliated financial institution ("unaffiliated financial institution") on a monthly basis. The Company may sell certain US-originated accounts receivable balances up to a maximum amount of $150,000. In return for these sales, the Company receives a cash payment equal to the face value of the receivables and is charged a fee of Secured Overnight Financing Rate (“SOFR”) plus 85 basis points against the sold receivable balance. The program is conducted through EnerSys Finance LLC ("EnerSys Finance"), an entity structured to be bankruptcy remote, and

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matures in December 2025. The Company is deemed the primary beneficiary of EnerSys Finance as the Company has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive the benefits that could potentially be significant to the entity from the transfer of the trade accounts receivables into the special purpose entity. Accordingly, EnerSys Finance is included in the Company’s Consolidated Condensed Financial Statements.

Receivables sold to unaffiliated financial institutions under the program are excluded from “Accounts receivable, net” on the Company’s Consolidated Condensed Balance Sheets, and cash receipts are reflected as cash provided by operating activities on the Consolidated Condensed Statements of Cash Flows. The purchase price is received in cash when the receivables are sold, and fees charged relating to this balance are recorded to other (income) expense. Certain unsold receivables held by EnerSys Finance serve as collateral to unaffiliated financial institutions. These unsold receivables are included in “Accounts receivable, net” in the Company’s Consolidated Condensed Balance Sheets. The Company continues servicing the receivables which were sold and in exchange receives a servicing fee from EnerSys Finance under the program.

During the second quarter and the six months of fiscal 2024, the Company sold $174,372 and $356,763, respectively, of accounts receivables for approximately $174,372 and $356,763, respectively, in proceeds to an unaffiliated financial institution, of which $179,132 and $362,484, respectively, were collected as of October 1, 2023. Total collateralized accounts receivables of approximately $219,657 were held by EnerSys Finance at October 1, 2023.

Any accounts receivables held by EnerSys Finance would likely not be available to other creditors of the Company in the event of bankruptcy or insolvency proceedings relating to the Company until the outstanding balances under the RPA are satisfied. Additionally, the financial obligations of EnerSys Finance to the unaffiliated financial institutions under the program are limited to the assets it owns and there is no recourse to the Company for receivables that are uncollectible as a result of the insolvency of EnerSys Finance or its inability to pay the account debtors.

4. Inventories


	October 1, 2023		March 31, 2023
Raw materials	$	309,500	$	323,418
Work-in-process	117,218		123,401
Finished goods	349,785		350,979
Total	$	776,503	$	797,798

5. 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 1, 2023 and March 31, 2023, and the basis for that measurement:


	Total Fair Value Measurement October 1, 2023		Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Lead forward contracts	$	52	$	—	$	52	$	—
Foreign currency forward contracts	(1,010)		—		(1,010)		—
Interest Rate Swaps	4,671		—		4,671		—
Net investment hedges	(14,960)		—		(14,960)		—
Total derivatives	$	(11,247)	$	—	$	(11,247)	$	—

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	Total Fair Value Measurement March 31, 2023		Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Lead forward contracts	$	(89)	$	—	$	(89)	$	—
Foreign currency forward contracts	923		—		923		—
Interest Rate Swaps	(1,162)		—		(1,162)		—
Net investment hedges	(15,760)		—		(15,760)		—
Total derivatives	$	(16,088)	$	—	$	(16,088)	$	—

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 2023 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.

The fair value of interest rate swap agreements are based on observable prices as quoted for receiving the variable one month term SOFR and paying fixed interest rates and, therefore, were classified as Level 2.

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 Third Amended Credit Facility (as defined in Note 11), 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 fair value of the 2027 Notes represents the trading values based upon quoted market prices and are classified as Level 2. The 2027 Notes were trading at approximately 91% and 92% of face value on October 1, 2023 and March 31, 2023, respectively.

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The carrying amounts and estimated fair values of the Company’s derivatives and Senior Notes at October 1, 2023 and March 31, 2023 were as follows:


	October 1, 2023				March 31, 2023
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Derivatives (1)	$	—	$	—	$	—	$	—
Financial liabilities:
Senior Notes (2)	$	300,000	$	272,610	$	300,000	$	276,000
Derivatives (1)	$	(11,247)	$	(11,247)	$	(16,088)	$	(16,088)

(1)Represents lead, foreign currency forward contracts, interest rate swaps, and net investment hedges (see Note 6 for asset and liability positions of the lead, foreign currency forward contracts, interest rate swaps, and net investment hedges at October 1, 2023 and March 31, 2023).

(2)The fair value amount of the Senior Notes at October 1, 2023 and March 31, 2023 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.

6. 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 1, 2023 and March 31, 2023, the Company has hedged the price to purchase approximately 59.0 million pounds and 50.0 million pounds of lead, respectively, for a total purchase price of $58,166 and $47,921, 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 1, 2023 and March 31, 2023, the Company had entered into a total of $43,756 and $45,823, respectively, of such contracts.

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Interest Rate Swap Agreements

The Company is exposed to changes in variable interest rates on borrowings under our credit agreement. On a selective basis, from time to time, it enters into interest rate swap agreements to reduce the negative impact that increases in interest rates could have on our outstanding variable rate debt. At October 1, 2023 and March 31, 2023 such agreements effectively convert $200,000 of our variable-rate debt to a fixed-rate basis, utilizing the one-month term SOFR, as a floating rate reference. Fluctuations in SOFR and fixed rates affect both our net financial investment position and the amount of cash to be paid or received by us under these agreements.

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 December 23, 2021, the Company entered into cross currency fixed interest rate swap agreements, with aggregate notional amounts of $300,000, to hedge its net investments in foreign operations against future volatility in the exchange rates between U.S. dollars and euros. 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 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 $7,239 of pretax (gain) 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 1, 2023 and March 31, 2023, the notional amount of these contracts was $64,301 and $102,558, 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 1, 2023 and March 31, 2023


	Derivatives and Hedging Activities Designated as Cash Flow Hedges				Derivatives and Hedging Activities Designated as Net Investment Hedges				Derivatives and Hedging Activities Not Designated as Hedging Instruments
	October 1, 2023		March 31, 2023		October 1, 2023		March 31, 2023		October 1, 2023		March 31, 2023
Prepaid and other current assets:
Lead forward contracts	$	52	$	—	$	—	$	—	$	—	$	—
Foreign currency forward contracts	689		723		—		—		—		200
Net investment hedges	—		—		—		—		—		—
Other assets:
Interest rate swaps	4,671		—		—		—		—		—
Net investment hedges	—		—		—		—		—		—
Total assets	$	5,412	$	723	$	—	$	—	$	—	$	200
Accrued expenses:
Lead forward contracts	$	—	$	89	$	—	$	—	$	—	$	—
Foreign currency forward contracts	—		—		—		—		1,699		—
Other liabilities:
Interest rate swaps	—		1,162		—		—		—		—
Net investment hedges	—		—		14,960		15,760		—		—
Total liabilities	$	—	$	1,251	$	14,960	$	15,760	$	1,699	$	—

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

For the quarter ended October 1, 2023


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	$	1,903	Cost of goods sold	$	453
Foreign currency forward contracts	(40)		Cost of goods sold	(235)
Interest rate swaps	1,614		Interest expense	—
Total	$	3,477		$	218


Derivatives Designated as Net Investment 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)
Cross currency fixed interest rate swaps	$	3,701	Interest expense	$	—
Total	$	3,701		$	—


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	$	(701)
Total		$	(701)

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

For the quarter ended October 2, 2022


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	$	334	Cost of goods sold	$	(1,893)
Foreign currency forward contracts	1,361		Cost of goods sold	826
Total	$	1,695		$	(1,067)

Derivatives Designated as Net Investment 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)
Cross currency fixed interest rate swaps	$	17,023	Interest expense	$	1,665
Total	$	17,023		$	1,665


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	$	(688)
Total		$	(688)

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

For the six months ended October 1, 2023


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	$	2,378	Cost of goods sold	$	3,548
Foreign currency forward contracts	859		Cost of goods sold	(64)
Interest rate swaps	6,463		Interest expense	630
Total	$	9,700		$	4,114


Derivatives Designated as Net Investment 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)
Cross currency fixed interest rate swaps	$	911	Interest expense	$	112
Total	$	911		$	112


Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	Pretax Gain (Loss)
Foreign currency forward contracts	Other (income) expense, net	$	(1,204)
Total		$	(1,204)

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

For the six months ended October 2, 2022


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	$	(10,528)	Cost of goods sold	$	(1,198)
Foreign currency forward contracts	2,616		Cost of goods sold	1,272
Total	$	(7,912)		$	74


Derivatives Designated as Net Investment 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)
Cross currency fixed interest rate swaps	$	40,618	Interest expense	$	2,923
Total	$	40,618		$	2,923


Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	Pretax Gain (Loss)
Foreign currency forward contracts	Other (income) expense, net	$	(472)
Total		$	(472)

7. 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 2024 and 2023 was based on the estimated effective tax rates applicable for the full years ending March 31, 2024 and March 31, 2023, 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, changes in tax laws and the amount of the Company's consolidated earnings before taxes.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted. The IRA includes multiple incentives to promote clean energy, and energy storage manufacturing among other provisions with tax credits available from 2023 to 2032, subject to phase down beginning in 2030. In particular the IRA creates a refundable tax credit, pursuant to Section 45X of the Internal Revenue Code (“IRC”), for battery cells and battery modules manufactured or assembled in the United States and sold to third parties. In the second quarter and six months of fiscal 2024, the IRA impact resulted in a reduction of our costs of goods sold and income tax payable of $21,816 and $41,234, respectively. There is a possibility that additional clarification guidance is issued with respect to the Section 45X credit qualifications. Amounts recognized in the Consolidated Condensed Financial Statements are based on Management's judgement and best estimate utilizing the most current guidance. The Company will continue to evaluate the effects of IRA as more guidance is issued and the relevant implications to our Consolidated Condensed Financial Statements. Actual results could differ from management’s current estimate.

The consolidated effective income tax rates for the second quarter of fiscal 2024 and 2023 were 11.2% and 14.4% and for the six months of fiscal 2024 and 2023 were 10.2% and 15.0%, respectively. The rate decrease in the second quarter and six months of fiscal 2024 compared to the prior year periods are primarily due to the impact of the IRA offset by the mix of earnings among tax jurisdictions.

Foreign income as a percentage of worldwide income is estimated to be 56% for fiscal 2024 compared to 83% for fiscal 2023. This reduction is primarily due to the IRA Impact on domestic earnings. The foreign effective tax rates for the six months of fiscal 2024 and 2023 were 13% and 12%, respectively. Income from the Company's Swiss subsidiary comprised a substantial portion of the Company's overall foreign mix of income for both fiscal 2024 and fiscal 2023 and were taxed at an effective income tax rate of approximately 9% in both periods.

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8. 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 ended				Six months ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Balance at beginning of period	$	58,438	$	52,954	$	56,630	$	54,978
Current period provisions	7,784		6,461		16,469		11,401
Costs incurred	(6,974)		(5,313)		(14,420)		(11,057)

Foreign currency translation adjustment	(412)		(1,708)		157		(2,928)
Balance at end of period	$	58,836	$	52,394	$	58,836	$	52,394

9. Commitments, Contingencies and Litigation

Litigation and Other Legal Matters

In the ordinary course of business, the Company and its subsidiaries are routinely defendants in or parties to pending and threatened legal actions and proceedings, including actions brought on behalf of various classes of claimants. These actions and proceedings are generally based on alleged violations of environmental, anticompetition, employment, contract and other laws. In some of these actions and proceedings, claims for substantial monetary damages are asserted against the Company and its subsidiaries. In the ordinary course of business, the Company and its subsidiaries are also subject to regulatory and governmental examinations, information gathering requests, inquiries, investigations, and threatened legal actions and proceedings. In connection with formal and informal inquiries by federal, state, local and foreign agencies, the Company and its subsidiaries receive numerous requests, subpoenas and orders for documents, testimony and information in connection with various aspects of their activities.

European Competition Investigations

Certain of the Company’s European subsidiaries had received subpoenas and requests for documents and, in some cases, interviews from, and have had on-site inspections conducted by, the competition authorities of Belgium, Germany and the Netherlands relating to conduct and anticompetitive practices of certain industrial battery participants. For additional information regarding these matters, see Note 19 - Commitments, Contingencies and Litigation to the Consolidated Financial Statements contained in the 2023 Annual Report. As of October 1, 2023 and March 31, 2023, the Company did not have a reserve balance related to these matters.

The precise scope, timing and time period at issue, as well as the final outcome of the investigations or customer claims, remain uncertain. Accordingly, the Company’s estimate may change from time to time, and actual losses could vary.

Environmental Issues

As a result of its operations, the Company is subject to various federal, state, and local, as well as international environmental laws and regulations and is exposed to the costs and risks of registering, handling, processing, storing, transporting, and disposing of hazardous substances, especially lead and acid. The Company’s operations are also subject to federal, state, local and international occupational safety and health regulations, including laws and regulations relating to exposure to lead in the workplace. The Company believes that it has adequate reserves to satisfy its environmental liabilities.

Lead, Foreign Currency Forward Contracts and Swaps

To stabilize its lead costs and reduce volatility from currency and interest rate movements, the Company entered into contracts with financial institutions. The vast majority of lead and foreign currency contracts are for a period not extending beyond one year. The Company also entered into a cross currency fixed interest rate swap agreement, maturing on December 15, 2027, to hedge its net investments in foreign operations against future volatility in the exchange rates between the U.S. Dollar and Euro. The Company also entered into floating to fixed interest rate swap agreements maturing on September 30, 2026, to hedge its exposure to variable interest rates. Please refer to Note 6 - Derivative Financial Instruments for more details.

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10. Restructuring and Other Exit Charges

Restructuring Programs

As disclosed in the 2023 Annual Report, the Company committed to restructuring plans aimed at improving operational efficiencies across its lines of business. A substantial portion of these plans are complete with an estimated $4,959 remaining to be incurred by the end of fiscal 2024, mainly related to new plans started in fiscal 2024. Restructuring and exit charges for the second quarter of fiscal 2024 by reportable segments are as follows:


	Quarter ended October 1, 2023
	Energy Systems		Motive Power		Specialty		Total
Restructuring charges	$	2,226	$	847	$	34	$	3,107
Exit charges	—		2,632		1,495		4,127
Restructuring and other exit charges	$	2,226	$	3,479	$	1,529	$	7,234


	Six months ended October 1, 2023
	Energy Systems		Motive Power		Specialty		Total
Restructuring charges	$	2,714	$	847	$	34	$	3,595
Exit charges	—		4,191		5,757		9,948
Restructuring and other exit charges	$	2,714	$	5,038	$	5,791	$	13,543

A roll-forward of the restructuring reserve, excluding exit charges, is as follows:


Balance as of March 31, 2023	$	445
Accrued	3,595
Costs incurred	(1,490)
Foreign currency impact	(3)
Balance as of October 1, 2023	$	2,547

Exit Charges

Fiscal 2024 Program

Renewables

On November 8, 2023, the Company's Board of Directors approved a plan to stop production and operations of residential renewable energy products, which include our OutBack and Mojave brands. Management determined that residential renewable energy products no longer fit with the company’s core strategy and resources will be better allocated toward commercial energy solutions for enterprise customers. The Company currently estimates that the charges for these actions will amount to approximately $15,000 to $25,000 relating to non-cash charges including inventory and an indefinite-lived intangible asset write-offs and approximately $1,000 in cash charges including employee severance and retention payments.

Fiscal 2023 Programs

Sylmar

In November 2022, the Company committed to a plan to close its facility in Sylmar, California, which manufactures specialty lithium batteries for aerospace and medical applications. Management determined to close the site upon the expiration of its lease on the property and to redirect production through consolidation into existing locations. The Company currently estimates total charges in the exit to amount to $10,957. Cash charges are estimated to total $7,155 primarily relating to severance and other costs to leave the site. Non-cash charges are estimated to be $3,802 relating to fixed assets, inventory, and contract assets. The plan is expected to be completed in fiscal 2024.

During fiscal 2023, the Company recorded cash charges of $1,682 related primarily related to severance costs and non-cash charges totaling $417 primarily relating to contract assets.

During the six months of fiscal 2024, the Company recorded cash charges of $5,512 primarily related to severance costs, relocation expenses, and manufacturing variances and non-cash charges totaling $245. The Company also recorded a non-cash write off relating to inventories of $3,098, which was reported in cost of goods sold.

Ooltewah

On June 29, 2022, the Company committed to a plan to close its facility in Ooltewah, Tennessee, which produced 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 TPPL. The Company currently estimates that the total charges for these actions will amount to approximately $18,500. Cash charges for employee severance related payments, cleanup related to the facility, contractual releases and legal expenses are estimated to be $9,200 and non-cash charges from inventory and fixed asset write-offs are estimated to be $9,300. These actions will result in the reduction of approximately 165 employees. The majority of these charges are expected to be recorded by the end of calendar 2023.

During fiscal 2023, the Company recorded cash charges relating to severance and manufacturing variances of $2,735 and non-cash charges of $7,261 relating to fixed asset write-offs. The Company also recorded a non-cash write off relating to inventories of $1,613, which was reported in cost of goods sold.

During the six months of fiscal 2024, the Company recorded cash charges relating to site clean up and decommissioning equipment of $2,176.

Fiscal 2021 Program

Hagen, Germany

In fiscal 2021, the Company's Board of Directors approved a plan to close substantially all of its facility in Hagen, Germany, which produced flooded motive power batteries for electric forklifts. Management determined that future demand for the motive power batteries produced at this facility was not sufficient, given the conversion from flooded to maintenance free batteries by customers, the existing number of competitors in the market, as well as the near term decline in demand and increased uncertainty from the pandemic. The Company plans to retain the facility with limited sales, service and administrative functions along with related personnel for the foreseeable future.

The Company currently estimates that the total charges for these actions will amount to approximately $60,000, of which cash charges for employee severance related payments, cleanup related to the facility, contractual releases and legal expenses were estimated to be $40,000 and non-cash charges from inventory and equipment write-offs were estimated to be $20,000. The majority of these charges were recorded as of January 1, 2023. These actions resulted in the reduction of approximately 200 employees.

During fiscal 2021, the Company recorded cash charges relating to severance of $23,331 and non-cash charges of $7,946 primarily relating to fixed asset write-offs.

During fiscal 2022, the Company recorded cash charges primarily relating to severance of $8,069 and non-cash charges of $3,522 primarily relating to fixed asset write-offs. The Company also recorded a non-cash write off relating to inventories of $960, which was reported in cost of goods sold.

During fiscal 2023, the Company recorded cash charges of $2,207 relating to primarily to site cleanup and $562 of non-cash charges relating to accelerated depreciation of fixed assets.

During the six months of fiscal 2024, the Company recorded cash charges of $1,162 relating primarily to site cleanup and $279 of non-cash charges relating to accelerated depreciation of fixed assets.

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11. Debt

The following summarizes the Company’s long-term debt as of October 1, 2023 and March 31, 2023:


	October 1, 2023				March 31, 2023
	Principal		Unamortized Issuance Costs		Principal		Unamortized Issuance Costs
Senior Notes	$	300,000	$	2,417	$	300,000	$	2,705
Fourth Amended Credit Facility, due 2026	655,538		3,187		748,413		3,719

	$	955,538	$	5,604	$	1,048,413	$	6,424
Less: Unamortized issuance costs	5,604				6,424
Long-term debt, net of unamortized issuance costs	$	949,934			$	1,041,989

The Company's Senior Notes comprise the following:

4.375% Senior Notes due 2027

On December 11, 2019, the Company issued $300,000 in aggregate principal amount of its 4.375% Senior Notes due December 15, 2027 (the “2027 Notes”). Proceeds from this offering, net of debt issuance costs were $296,250 and were utilized to pay down the Amended 2017 Revolver (defined below). The 2027 Notes bear interest at a rate of 4.375% per annum accruing from December 11, 2019. Interest is payable semiannually in arrears on June 15 and December 15 of each year, commencing on June 15, 2020. The 2027 Notes mature on December 15, 2027, unless earlier redeemed or repurchased in full and are unsecured and unsubordinated obligations of the Company. They are fully and unconditionally guaranteed, jointly and severally, by certain of its subsidiaries that are guarantors under the Fourth Amended Credit Facility (defined below). These guarantees are unsecured and unsubordinated obligations of such guarantors.

The Company may redeem, prior to September 15, 2027, all or a portion of the 2027 Notes at a price equal to 100% of the principal amount of the 2027 Notes to be redeemed, plus accrued and unpaid interest and a “make whole” premium to, but excluding, the redemption date. The Company may redeem, on or after September 15, 2027, all or a portion of the 2027 Notes at a price equal to 100% of the principal amount of the 2027 Notes, plus accrued and unpaid interest to, but excluding, the redemption date. If a change of control triggering event occurs, the Company will be required to offer to repurchase the 2027 Notes at a price in cash equal to 101% of the aggregate principal amount of the 2027 Notes, plus accrued and unpaid interest to, but excluding, the date of repurchase.

2017 Credit Facility and Subsequent Amendments

In fiscal 2018, the Company entered into a credit facility (the “2017 Credit Facility”). The 2017 Credit Facility was scheduled to mature on September 30, 2022, initially comprised a $600,000 senior secured revolving credit facility (“2017 Revolver”) and a $150,000 senior secured term loan (“2017 Term Loan”). The Company utilized the borrowings from the 2017 Credit Facility to repay its pre-existing credit facility.

In fiscal 2019, the Company amended the 2017 Credit Facility (as amended, the “Amended Credit Facility”) to fund the Alpha acquisition. The Amended Credit Facility consisted of $449,105 senior secured term loans (the “Amended Term Loan”), including a CAD 133,050 ($99,105) senior secured term loan and a $700,000 senior secured revolving credit facility (the “Amended Revolver”). The amendment resulted in an increase of the 2017 Term Loan and the 2017 Revolver by $299,105 and $100,000, respectively.

During the second quarter of fiscal 2022, the Company entered into a second amendment to the 2017 Credit Facility (as amended, the “Second Amended Credit Facility”). The Second Amended Credit Facility, scheduled to mature on September 30, 2026, consists of a $130,000 senior secured term loan (the “Second Amended Term Loan”), a CAD 106,440 ($84,229) senior secured term loan and an $850,000 senior secured revolving credit facility (the “Second Amended Revolver”). The second amendment resulted in a decrease of the Amended Term Loan by $150,000 and an increase of the Amended Revolver by $150,000.

During the second quarter of fiscal 2023, the Company entered into a third amendment to the 2017 Credit Facility (as amended, the “Third Amended Credit Facility”). The Third Amended Credit Facility provides a new incremental delayed-draw senior secured term loan up to $300,000 (the “Third Amended Term Loan”), which shall be available to draw at any time until March 15, 2023. Once drawn, the funds will mature on September 30, 2026, the same as the Company's Second Amended Term loan

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and Second Amended Revolver. In connection with the agreement, the Company incurred $1,161 in third party administrative and legal fees recognized in interest expense and capitalized $1,096 in charges from existing lenders as a deferred asset. During the fourth quarter of fiscal 2023, the Company drew $300,000 in the form of the Third Amended Term Loan. Additionally, the Company derecognized the capitalized deferred asset and recognized the $1,096 as deferred financing costs.

During the fourth quarter of fiscal 2023, the Company entered into a fourth amendment to the 2017 Credit Facility (as amended, the “Fourth Amended Credit Facility”). The Fourth Amended Credit Facility replaces the London Interbank Offered Rate (“LIBOR”) with the Secured Overnight Financing Rate (“SOFR”) in the calculation of interest for both the Second Amended Revolver and the Second Amended Term Loan.

Subsequent to the fourth amendment, the quarterly installments payable on the Second Amended Term Loan are $2,606 beginning December 31, 2022, $3,909 beginning December 31, 2024 and $5,211 beginning December 31, 2025 with a final payment of $156,345 on September 30, 2026. The Fourth Amended Credit Facility may be increased by an aggregate amount of $350,000 in revolving commitments and /or one or more new tranches of term loans, under certain conditions. Both the Second Amended Revolver and the Second Amended Term Loan bear interest, at the Company's option, at a rate per annum equal to either (i) the SOFR or Canadian Dollar Offered Rate (“CDOR”) plus (i) Term SOFR plus between 1.125% and 2.25% (currently 1.25% and based on the Company's consolidated net leverage ratio) or (ii) the U.S. Dollar Base Rate (which equals, for any day a fluctuating rate per annum equal to the highest of (a) the Federal Funds Effective Rate plus 0.50%, (b) Bank of America “Prime Rate” and (c) the Eurocurrency Base Rate plus 1%; provided that, if the Base Rate shall be less than zero, such rate shall be deemed zero) (iii) the CDOR Base Rate equal to the higher of (a) Bank of America “Prime Rate” and (b) average 30-day CDOR rate plus 0.50%.

The quarterly installments payable on the Third Amended Term Loan were $3,750 beginning June 30, 2023, $5,625 beginning December 31, 2024 and $7,500 beginning December 31, 2025 with a final payment of $232,500 on September 30, 2026. The Third Amended Term Loan bears interest, at the Company's option, at a rate per annum equal to either (i) SOFR plus 10 basis points plus (i) Term SOFR plus between 1.375% and 2.50% (currently 1.50% and based on the Company's consolidated net leverage ratio) or (ii) the U.S. Dollar Base Rate plus between 0.375% and 1.50%, which equals, for any day a fluctuating rate per annum equal to the highest of (a) the Federal Funds Effective Rate plus 0.50%, (b) Bank of America “Prime Rate” and (c) the Term SOFR plus 1%; provided that, if the Base Rate shall be less than zero, such rate shall be deemed zero). Until the funds were drawn on March 13, 2023, the Company paid a commitment fee of 0.175% to 0.35% at a rate per annum on the unused portion.

Obligations under the Fourth Amended Credit Facility are secured by substantially all of the Company’s existing and future acquired assets, including substantially all of the capital stock of the Company’s United States subsidiaries that are guarantors under the Fourth Amended Credit Facility and up to 65% of the capital stock of certain of the Company’s foreign subsidiaries that are owned by the Company’s United States subsidiaries.

The Fourth Amended Credit Facility allows for up to two temporary increases in the maximum leverage ratio to 4.50x from 4.00x to 4.25x for a four quarter period following an acquisition larger than $250,000. Effective with the Fourth Amended Credit Facility, the maximum leverage ratio increased from 3.50x to 4.25x effective to the last day of the second quarter of fiscal year 2024 and decreasing subsequently to 4.00x.

As of October 1, 2023, the Company had $165,000 outstanding under the Second Amended Revolver, $198,038 under the Second Amended Term Loan, and $292,500 outstanding under the Third Amended Term Loan.

Current Portion of Debt

The scheduled repayments within the next twelve months, relating to the Second and Third Amended Term Loans, are $10,423 and $15,000, respectively, and is classified as long-term debt, as the Company expects to refinance the future quarterly payments with revolver borrowings under the Second Amended Credit Facility.

Short-Term Debt

As of October 1, 2023 and March 31, 2023, the Company had $30,544 and $30,642, respectively, of short-term borrowings. The weighted average interest rate on these borrowings was approximately 6.8% and 7.0%, respectively, at October 1, 2023 and March 31, 2023.

Letters of Credit

As of October 1, 2023 and March 31, 2023, the Company had $3,633 and $3,565 of standby letters of credit, respectively.

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Debt Issuance Costs

In connection with the Second Amended Credit Facility, the Company capitalized $2,952 in debt issuance costs and wrote off $128 of unamortized debt issuance costs. Amortization expense, relating to debt issuance costs, included in interest expense was $410 and $487, respectively, for the second quarter ended October 1, 2023 and October 2, 2022, respectively and $820 and $974 for the six months of fiscal 2024 and 2023. Debt issuance costs, net of accumulated amortization, totaled $5,604 and $6,424, respectively, at October 1, 2023 and March 31, 2023.

Available Lines of Credit

As of October 1, 2023 and March 31, 2023, the Company had available and undrawn, under all its lines of credit, $772,599 and $693,444, respectively, including $89,994 and $90,839, respectively, of uncommitted lines of credit.

12. Retirement Plans

The following tables present the components of the Company’s net periodic benefit cost related to its defined benefit pension plans:


	United States Plans				International Plans
	Quarter ended				Quarter ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Service cost	$	—	$	—	$	218	$	218
Interest cost	166		145		584		413
Expected return on plan assets	(76)		(118)		(406)		(485)
Amortization and deferral	—		—		27		115

Net periodic benefit cost	$	90	$	27	$	423	$	261


	United States Plans				International Plans
	Six months ended				Six months ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Service cost	$	—	$	—	$	438	$	453
Interest cost	332		290		1,169		853
Expected return on plan assets	(152)		(237)		(812)		(1,002)
Amortization and deferral	—		—		56		238

Net periodic benefit cost	$	180	$	53	$	851	$	542

13. Stock-Based Compensation

As of October 1, 2023, the Company maintains the 2023 Equity Incentive Plan (“2023 EIP”). The 2023 EIP reserved 3,614,500 shares of common stock for the grant of various classes of nonqualified stock options, restricted stock units, market condition-based on total shareholder return (“TSR”) and performance condition-based share units (“PSU”) and other forms of equity-based compensation.

The Company recognized stock-based compensation expense associated with its equity incentive plans of $5,144 for the second quarter of fiscal 2024 and $6,534 for the second quarter of fiscal 2023. Stock-based compensation was $13,077 and $11,864 for the six months of fiscal 2024 and fiscal 2023, respectively. The Company recognizes compensation expense using the straight-line method over the vesting period of the awards.

During the six months of fiscal 2024, the Company granted to non-employee directors 25,161 restricted stock units, under the deferred compensation plan for non-employee directors. The awards vest immediately upon the date of grant and are settled in shares of common stock.

During the six months of fiscal 2024, the Company granted to management and other key employees 200,314 non-qualified stock options that vest ratably over three years from the date of the grant and 269,751 restricted stock units that vest ratably over four years from the date of grant.

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Common stock activity during the six months of fiscal 2024 included the exercise of 178,835 stock options and the vesting of 260,967 restricted stock units and 30,597 TSRs.

As of October 1, 2023, there were 1,215,424 non-qualified stock options, 1,038,692 restricted stock units including non-employee director restricted stock units and 1,112 TSRs outstanding.

14. Stockholders’ Equity and Noncontrolling Interests

Common Stock

The following demonstrates the change in the number of shares of common stock outstanding during the six months ended October 1, 2023:


Shares outstanding as of March 31, 2023						40,901,059
Purchase of treasury stock						(480,060)
Shares issued under equity-based compensation plans, net of equity awards surrendered for option price and taxes						350,016
Shares outstanding as of October 1, 2023						40,771,015

Treasury Stock

During the six months ended October 1, 2023, the Company purchased 480,060 shares for $47,340 and purchased 358,365 shares for $22,907 during the six months ended October 2, 2022. At October 1, 2023 and March 31, 2023, the Company held 15,576,302 and 15,103,554 shares as treasury stock, respectively. During the six months ended October 1, 2023, the Company also issued 7,312 shares out of its treasury stock, valued at $62.55 per share to participants under the Company's Employee Stock Purchase Plan.

Accumulated Other Comprehensive Income (“AOCI ”)

The components of AOCI, net of tax, as of October 1, 2023 and March 31, 2023, are as follows:


	March 31, 2023		Before Reclassifications		Amounts Reclassified from AOCI		October 1, 2023
Pension funded status adjustment	$	(4,423)	$	—	$	41	$	(4,382)
Net unrealized gain (loss) on derivative instruments	1,411		7,433		(3,152)		5,692
Foreign currency translation adjustment (1)	(180,462)		(29,455)		—		(209,917)
Accumulated other comprehensive (loss) income	$	(183,474)	$	(22,022)	$	(3,111)	$	(208,607)

(1) Foreign currency translation adjustment for the six months ended October 1, 2023 includes a $608 gain (net of taxes of $187) related to the Company's $150,000 cross-currency fixed interest rate swap contract.

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The following table presents reclassifications from AOCI during the second quarter ended October 1, 2023:


Components of AOCI	Amounts Reclassified from AOCI		Location of (Gain) Loss Recognized on Income Statement
Derivatives in cash flow hedging relationships:
Net unrealized gain on derivative instruments	$	(218)	Cost of goods sold
Tax expense	51
Net unrealized gain on derivative instruments, net of tax	$	(167)

Derivatives in net investment hedging relationships:
Net unrealized gain on derivative instruments	$	—	Interest expense
Tax expense	—
Net unrealized gain on derivative instruments, net of tax	$	—

Defined benefit pension costs:
Prior service costs and deferrals	$	27	Net periodic benefit cost, included in other (income) expense, net - See Note 12
Tax benefit	(6)
Net periodic benefit cost, net of tax	$	21

The following table presents reclassifications from AOCI during the six months ended October 1, 2023:


Components of AOCI	Amounts Reclassified from AOCI		Location of (Gain) Loss Recognized on Income Statement
Derivatives in cash flow hedging relationships:
Net unrealized gain on derivative instruments	$	(4,114)	Cost of goods sold
Tax expense	962
Net unrealized gain on derivative instruments, net of tax	$	(3,152)

Derivatives in net investment hedging relationships:
Net unrealized gain on derivative instruments	$	(112)	Interest expense
Tax expense	26
Net unrealized gain on derivative instruments, net of tax	$	(86)

Defined benefit pension costs:
Prior service costs and deferrals	$	56	Net periodic benefit cost, included in other (income) expense, net - See Note 12
Tax benefit	(15)
Net periodic benefit cost, net of tax	$	41

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The following table presents reclassifications from AOCI during the second quarter ended October 2, 2022:


Components of AOCI	Amounts Reclassified from AOCI		Location of (Gain) Loss Recognized on Income Statement
Derivatives in cash flow hedging relationships:
Net unrealized loss on derivative instruments	$	1,067	Cost of goods sold
Tax benefit	(249)
Net unrealized loss on derivative instruments, net of tax	$	818

Derivatives in net investment hedging relationships:
Net unrealized gain on derivative instruments	$	(1,665)	Interest expense
Tax expense	389
Net unrealized gain on derivative instruments, net of tax	$	(1,276)

Defined benefit pension costs:
Prior service costs and deferrals	$	115	Net periodic benefit cost, included in other (income) expense, net - See Note 12
Tax benefit	(34)
Net periodic benefit cost, net of tax	$	81

The following table presents reclassifications from AOCI during the six months ended October 2, 2022:

Components of AOCI

Amounts Reclassified from AOCI

Location of (Gain) Loss Recognized on Income Statement

Derivatives in cash flow hedging relationships:

Net unrealized gain on derivative instruments

(74)

Cost of goods sold

Tax expense

Net unrealized gain on derivative instruments, net of tax

(56)