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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 July 3, 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 August 5, 2022: 40,658,246 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) 
July 3, 2022March 31, 2022
Assets
Current assets:
Cash and cash equivalents$383,243 $402,488 
Accounts receivable, net of allowance for doubtful accounts: July 3, 2022 - $11,229; March 31, 2022 - $12,219
697,116 719,434 
Inventories, net777,660 715,712 
Prepaid and other current assets154,175 155,559 
Total current assets2,012,194 1,993,193 
Property, plant, and equipment, net489,294 503,264 
Goodwill682,113 700,640 
Other intangible assets, net385,449 396,202 
Deferred taxes54,108 60,479 
Other assets98,753 82,868 
Total assets$3,721,911 $3,736,646 
Liabilities and Equity
Current liabilities:
Short-term debt$45,628 $55,084 
Accounts payable343,340 393,096 
Accrued expenses266,463 289,950 
Total current liabilities655,431 738,130 
Long-term debt, net of unamortized debt issuance costs1,376,694 1,243,002 
Deferred taxes77,528 78,228 
Other liabilities173,488 184,011 
Total liabilities2,283,141 2,243,371 
Commitments and contingencies
Equity:
Preferred Stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding at July 3, 2022 and at March 31, 2022
  
Common Stock, $0.01 par value per share, 135,000,000 shares authorized, 55,770,404 shares issued and 40,652,871 shares outstanding at July 3, 2022; 55,748,924 shares issued and 40,986,658 shares outstanding at March 31, 2022
558 557 
Additional paid-in capital576,294 571,464 
Treasury stock at cost, 15,117,533 shares held as of July 3, 2022 and 14,762,266 shares held as of March 31, 2022
(741,786)(719,119)
Retained earnings1,807,282 1,783,586 
Contra equity - indemnification receivable(3,620)(3,620)
Accumulated other comprehensive loss(203,650)(143,495)
Total EnerSys stockholders’ equity1,435,078 1,489,373 
Nonredeemable noncontrolling interests3,692 3,902 
Total equity1,438,770 1,493,275 
Total liabilities and equity$3,721,911 $3,736,646 
See accompanying notes.
3

EnerSys
Consolidated Condensed Statements of Income (Unaudited)
(In Thousands, Except Share and Per Share Data)
 Quarter ended
 July 3, 2022July 4, 2021
Net sales$898,971 $814,893 
Cost of goods sold713,436 621,674 
Gross profit185,535 193,219 
Operating expenses127,078 124,487 
Restructuring and other exit charges 8,328 7,832 
Operating earnings50,129 60,900 
Interest expense11,597 9,107 
Other (income) expense, net1,773 (496)
Earnings before income taxes36,759 52,289 
Income tax expense 5,781 8,360 
Net earnings attributable to EnerSys stockholders$30,978 $43,929 
Net earnings per common share attributable to EnerSys stockholders:
Basic$0.76 $1.03 
Diluted$0.75 $1.01 
Dividends per common share $0.175 $0.175 
Weighted-average number of common shares outstanding:
Basic40,786,336 42,700,329 
Diluted41,352,646 43,537,344 
See accompanying notes.



4

EnerSys
Consolidated Condensed Statements of Comprehensive Income (Unaudited)
(In Thousands)
 Quarter ended
 July 3, 2022July 4, 2021
Net earnings$30,978 $43,929 
Other comprehensive (loss) income:
Net unrealized (loss) gain on derivative instruments, net of tax(8,234)3,897 
Pension funded status adjustment, net of tax89 240 
Foreign currency translation adjustment (52,220)15,321 
Total other comprehensive (loss) income, net of tax(60,365)19,458 
Total comprehensive (loss) income (29,387)63,387 
Comprehensive (loss) income attributable to noncontrolling interests(210)49 
Comprehensive (loss) income attributable to EnerSys stockholders$(29,177)$63,338 
See accompanying notes.

5

EnerSys
Consolidated Condensed Statements of Cash Flows (Unaudited)
(In Thousands)
 Quarter ended
 July 3, 2022July 4, 2021
Cash flows from operating activities
Net earnings$30,978 $43,929 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization23,624 24,433 
Write-off of assets relating to exit activities 7,445 2,141 
Derivatives not designated in hedging relationships:
Net (losses) gains(216)6 
Cash (settlements) proceeds(600)(14)
Provision for doubtful accounts(173)1,039 
Deferred income taxes20 145 
Non-cash interest expense487 518 
Stock-based compensation5,330 3,659 
(Gain) loss on disposal of property, plant, and equipment(40)4 
Changes in assets and liabilities:
Accounts receivable5,538 24,834 
Inventories(81,454)(46,307)
Prepaid and other current assets(5,465)(15,595)
Other assets(886)344 
Accounts payable(33,073)(36,746)
Accrued expenses(24,973)(50,314)
Other liabilities1,567 (219)
Net cash used in operating activities(71,891)(48,143)
Cash flows from investing activities
Capital expenditures(23,014)(16,435)
Proceeds from disposal of facility 3,268 
Proceeds from disposal of property, plant, and equipment139 49 
Net cash used in investing activities(22,875)(13,118)
Cash flows from financing activities
Net (repayments) borrowings on short-term debt(8,022)5,512 
Proceeds from Second Amended Revolver borrowings163,200 65,700 
Repayments of Second Amended Revolver borrowings(27,200)(5,700)
Repayments of Second Amended Term Loan (11,447)
Option proceeds, net  386 
Payment of taxes related to net share settlement of equity awards(633)(4,803)
Purchase of treasury stock(22,907)(31,512)
Dividends paid to stockholders(7,108)(7,435)
Other207 214 
Net cash provided by financing activities97,537 10,915 
Effect of exchange rate changes on cash and cash equivalents(22,016)4,771 
Net decrease in cash and cash equivalents(19,245)(45,575)
Cash and cash equivalents at beginning of period402,488 451,808 
Cash and cash equivalents at end of period$383,243 $406,233 
See accompanying notes.
6

Table of Contents
EnerSys
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
(In Thousands, Except Share and Per Share Data)


1. Basis of Presentation

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments except those otherwise described herein) considered necessary for a fair presentation have been included, unless otherwise disclosed. Operating results for the three months ended July 3, 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.
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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 first quarter of fiscal 2023 and 2022 amounted to $99,824 and $82,518, respectively.

A small portion of the Company's customer arrangements oblige the Company to create customized products for its customers that require the bundling of both products and services into a single performance obligation because the individual products and services that are required to fulfill the customer requirements do not meet the definition for a distinct performance obligation. These customized products generally have no alternative use to the Company and the terms and conditions of these arrangements give the Company the enforceable right to payment for performance completed to date, including a reasonable profit margin. For these arrangements, control transfers over time and the Company measures progress towards completion by selecting the input or output method that best depicts the transfer of control of the underlying goods and services to the customer for each respective arrangement. Methods used by the Company to measure progress toward completion include labor hours, costs incurred and units of production. Revenues recognized over time for the first quarter of fiscal 2023 and 2022 amounted to $57,004 and $40,904, respectively.

On July 3, 2022, the aggregate transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was approximately $187,522, of which, the Company estimates that approximately $159,653 will be recognized as revenue in fiscal 2023, $24,579 in fiscal 2024, and $3,290 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 July 3, 2022, the current and non-current portion of contract liabilities were $27,733 and $1,266, 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 first quarter of fiscal 2023 and 2022 that were included in the contract liability at the beginning of the quarter, amounted to $4,590 and $3,596, respectively.

Amounts representing work completed and not billed to customers represent contract assets and were $66,643 and $59,924 as of July 3, 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 July 3, 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 $8,053.

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
July 3, 2022
As of
March 31, 2022
Operating Leases:
Right-of-use assetsOther assets$68,504 $71,085 
Operating lease current liabilitiesAccrued expenses21,303 20,086 
Operating lease non-current liabilitiesOther liabilities49,475 52,904 
Finance Leases:
Right-of-use assetsProperty, plant, and equipment, net$279 $344 
Finance lease current liabilitiesAccrued expenses164 185 
Finance lease non-current liabilitiesOther liabilities180 231 

The components of lease expense for the first quarter ended July 3, 2022 and July 4, 2021 were as follows:
Quarter ended
ClassificationJuly 3, 2022July 4, 2021
Operating Leases:
Operating lease costOperating expenses$6,584 $6,716 
Variable lease costOperating expenses3,407 2,573 
Short term lease costOperating expenses1,438 1,817 
Finance Leases:
DepreciationOperating expenses$52 $60 
Interest expenseInterest expense4 8 
Total$11,485 $11,174 

The following table presents the weighted average lease term and discount rates for leases as of July 3, 2022 and March 31, 2022:
July 3, 2022
March 31, 2022
Operating Leases:
Weighted average remaining lease term (years)5.9 years6.1 years
Weighted average discount rate4.49%4.43%
Finance Leases:
Weighted average remaining lease term (years)2.2 years2.3 years
Weighted average discount rate4.78%4.79%
The following table presents future payments due under leases reconciled to lease liabilities as of July 3, 2022:

Finance LeasesOperating Leases
Nine months ended March 31, 2023$143 $18,345 
Year ended March 31,
2024145 18,311 
202544 13,009 
202624 9,296 
2027 7,196 
Thereafter 16,446 
Total undiscounted lease payments356 82,603 
Present value discount12 11,825 
Lease liability$344 $70,778 

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The following table presents supplemental disclosures of cash flow information related to leases for the first quarter July 3, 2022 and July 4, 2021:
Quarter ended
July 3, 2022July 4, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases$4 $8 
Operating cash flows from operating leases6,334 6,765 
Financing cash flows from finance leases52 60 
Supplemental non-cash information on lease liabilities arising from right-of-use assets:
Right-of-use assets obtained in exchange for new finance lease liabilities$ $ 
Right-of-use assets obtained in exchange for new operating lease liabilities2,773 3,681 

4. Goodwill and Other Intangible Assets

Other Intangible Assets

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

Balance as of
July 3, 2022March 31, 2022
Gross AmountAccumulated AmortizationNet AmountGross AmountAccumulated AmortizationNet Amount
Indefinite-lived intangible assets:
Trademarks$145,188 $(953)$144,235 $145,808 $(953)$144,855 
Finite-lived intangible assets:
Customer relationships296,853 (115,309)181,544 298,577 (109,820)188,757 
Non-compete2,825 (2,825) 2,825 (2,825) 
Technology97,054 (40,947)56,107 97,367 (38,712)58,655 
Trademarks8,933 (5,370)3,563 8,947 (5,012)3,935 
Licenses1,196 (1,196) 1,196 (1,196) 
Total$552,049 $(166,600)$385,449 $554,720 $(158,518)$396,202 

The Company’s amortization expense related to finite-lived intangible assets was $8,082 for the first quarter of fiscal 2023, compared to $8,419 for the first quarter of fiscal 2022. The expected amortization expense based on the finite-lived intangible assets as of July 3, 2022, is $22,643 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 current quarter of fiscal 2023:
Energy SystemsMotive PowerSpecialtyTotal
Balance at March 31, 2022
$279,461 $323,303 $97,876 $700,640 
Foreign currency translation adjustment(11,735)(5,440)(1,352)(18,527)
Balance as of July 3, 2022
$267,726 $317,863 $96,524 $682,113 

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5. Inventories

July 3, 2022March 31, 2022
Raw materials$295,354 $260,604 
Work-in-process118,762 109,441 
Finished goods363,544 345,667 
Total$777,660 $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 July 3, 2022 and March 31, 2022, and the basis for that measurement:
 
Total Fair Value Measurement July 3, 2022Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Lead forward contracts$(5,431)$ $(5,431)$ 
Foreign currency forward contracts244  244  
Net investment hedges22,635  22,635  
Total derivatives$17,448 $ $17,448 $ 
 
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 July 3, 2022 and March 31, 2022, respectively. The 2023 Notes were trading at approximately 99% and 101% of face value on July 3, 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 July 3, 2022 and March 31, 2022 were as follows:
 July 3, 2022March 31, 2022
 Carrying
Amount
Fair ValueCarrying
Amount
Fair Value
Financial assets:
Derivatives (1)
$17,448 $17,448 $2,562 $2,562 
Financial liabilities:
 Senior Notes (2)
$600,000 $560,250 $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 July 3, 2022 and March 31, 2022).
(2)The fair value amount of the Senior Notes at July 3, 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 current 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 July 3, 2022 and March 31, 2022, the Company has hedged the price to purchase approximately 55.5 million pounds and 54.0 million pounds of lead, respectively, for a total purchase price of $54,078 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 July 3, 2022 and March 31, 2022, the Company had entered into a total of $33,463 and $29,676, respectively, of such contracts.

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Derivatives in Net Investment Hedging Relationships

Net Investment Hedges

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. These swaps mature on December 15, 2027 and qualify for hedge accounting as a net investment hedging instrument, which allows the swaps 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 $1,714 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 July 3, 2022 and March 31, 2022, the notional amount of these contracts was $51,256 and $22,990, respectively.

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

Fair Value of Derivative Instruments
July 3, 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
 July 3, 2022March 31, 2022July 3, 2022March 31, 2022July 3, 2022March 31, 2022
Prepaid and other current assets:
Lead forward contracts$ $2,520 $— $— $ $ 
Foreign currency forward contracts475 256 — —   
Net investment hedges— — 5,041 4,388 — — 
Other assets:
Net investment hedges— — 17,594  — — 
Total assets$475 $2,776 $22,635 $4,388 $ $ 
Accrued expenses:
Lead forward contracts$5,431 $ $— $— $ $ 
Foreign currency forward contracts  — — 231 512 
Other liabilities:
Net investment hedges— —  4,090 — — 
Total liabilities$5,431 $ $ $4,090 $231 $512 

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The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the quarter ended July 3, 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$(10,862)Cost of goods sold$695 
Foreign currency forward contracts1,255 Cost of goods sold446 
Total$(9,607)$1,141 
Derivatives Designated as Net Investment 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)
Cross currency fixed interest rate swaps$23,595 Interest expense$1,258 
Total$23,595 $1,258 

Derivatives Not Designated as Hedging InstrumentsLocation of Gain (Loss) Recognized in Income on DerivativesPretax Gain (Loss)
Foreign currency forward contractsOther (income) expense, net$216 
Total$216 


The Effect of Derivative Instruments on the Consolidated Condensed Statements of Income
For the quarter ended July 4, 2021
Derivatives Designated as Cash Flow HedgesPretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)Location of Gain (Loss)  Reclassified from AOCI into Income (Effective Portion)Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
Lead forward contracts$7,572 Cost of goods sold$2,459 
Foreign currency forward contracts(189)Cost of goods sold(160)
Total$7,383 $2,299 
Derivatives Not Designated as Hedging InstrumentsLocation of Gain (Loss) Recognized in Income on DerivativesPretax Gain (Loss)
Foreign currency forward contractsOther (income) expense, net$(6)
Total$(6)

8. Income Taxes

The Company’s income tax provision consists of federal, state and foreign income taxes. The tax provision for the first quarter of fiscal 2023 and 2022 was based on the estimated effective tax rates applicable for the full years ending March 31, 2023 and March 31, 2022, respectively, after giving effect to items specifically related to the interim periods. The Company’s effective income tax rate with respect to any period may be volatile based on the mix of income in the tax jurisdictions, in which the Company operates, change in tax laws and the amount of the Company's consolidated earnings before taxes.

The consolidated effective income tax rates for the first quarter of fiscal 2023 and 2022 were 15.7% and 16.0%. The rate decrease in the first quarter compared to the prior quarter is primarily due to changes in the mix of earnings among tax jurisdictions.

Foreign income as a percentage of worldwide income is estimated to be 77% for fiscal 2023 compared to 87% for fiscal 2022. The foreign effective tax rates for the first quarter of fiscal 2023 and 2022 were 11% and 9%, respectively. Income from the Company's Swiss subsidiary comprised a substantial portion of the Company's overall foreign mix of income for both fiscal 2023 and fiscal 2022 and were taxed at an effective income tax rate of approximately 9% and 8%, respectively.
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9. Warranty

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

 Quarter ended
 July 3, 2022July 4, 2021
Balance at beginning of period$54,978 $58,962 
Current period provisions4,940 5,330 
Costs incurred(5,744)(5,252)
Foreign currency translation adjustment(1,220)127 
Balance at end of period$52,954 $59,167 


10. 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 2022 Annual Report. As of July 3, 2022 and March 31, 2022, 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 cross currency fixed interest rate swap agreements to hedge its net investments in foreign operations against future volatility in the exchange rates between U.S. dollars and euros and these agreements mature on December 15, 2027. Please refer to Note 7 - Derivative Financial Instruments for more details.
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11. Restructuring and other Exit Charges

Restructuring Programs

As disclosed in the 2022 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 $717 remaining to be incurred by the end of fiscal 2023, mainly related to plans started in fiscal 2021. Restructuring and exit charges for the first quarter of fiscal 2023 by reportable segments are as follows:
Quarter ended July 3, 2022
Energy SystemsMotive PowerSpecialtyTotal
Restructuring charges$162 $ $ $162 
Exit charges 8,166  8,166 
Restructuring and other exit charges$162 $8,166 $ $8,328 


A roll-forward of the restructuring reserve, excluding exit charges, is as follows:
Balance as of March 31, 2022$1,030 
Accrued162 
Costs incurred(417)
Foreign currency impact (58)
Balance as of July 3, 2022$717 

Exit Charges

Fiscal 2023 Program

On June 29, 2022, the Company committed to a plan to close its facility in Ooltewah, Tennessee, which produces 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). The Company currently estimates that the total charges for these actions will amount to approximately $18,500, of which $7,300 of non-cash charges relating to fixed asset write-offs were recorded during the current quarter ended July 3, 2022. Cash charges for employee severance related payments, cleanup related to the facility, contractual releases and legal expenses are estimated to be $9,200 and other non-cash charges are estimated to be $2,000. These actions will result in the reduction of approximately 165 employees. The plan is expected to be completed by calendar 2023.

Fiscal 2022 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 produces 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 March 31, 2022. 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 the first quarter of fiscal 2023, the Company recorded cash charges of $721 relating to site clean up and $145 of non-cash charges relating to accelerated depreciation of fixed assets.

Targovishte, Bulgaria

During fiscal 2019, the Company committed to a plan to close its facility in Targovishte, Bulgaria, which produced diesel-electric submarine batteries. Management determined that the future demand for batteries of diesel-electric submarines was not sufficient given the number of competitors in the market. Of the estimated total charges of $26,000 for this plan, the Company had recorded charges amounting to $20,242 in fiscal 2019, relating to severance and inventory and fixed asset write-offs and an additional $5,123 relating to cash and non-cash charges during fiscal 2020. During fiscal 2021, in keeping with its strategy of
exiting the manufacture of batteries for diesel-electric submarines, the Company completed further actions which resulted in
$220 relating to cash and non-cash charges. During the first quarter of fiscal 2022, the Company sold this facility for $1,489. A net gain of $1,208 was recorded as a credit to exit charges in the Consolidated Condensed Statement of Income.

Zamudio, Spain

During the first quarter of fiscal 2022, the Company closed a minor assembling plant in Zamudio, Spain and sold the same for $1,779. A net gain of $740 was recorded as a credit to exit charges in the Consolidated Condensed Statement of Income.


12. Debt

The following summarizes the Company’s long-term debt as of July 3, 2022 and March 31, 2022:
 
July 3, 2022March 31, 2022
PrincipalUnamortized Issuance CostsPrincipalUnamortized Issuance Costs
Senior Notes$600,000 $3,605 $600,000 $3,905 
Second Amended Credit Facility, due 2026783,473 3,174 650,268 3,361 
$1,383,473 $6,779 $1,250,268 $7,266 
Less: Unamortized issuance costs 6,779 7,266 
Long-term debt, net of unamortized issuance costs$1,376,694 $1,243,002 
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 Second 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. The 2027 Notes rank pari passu with the 2023 Notes (defined below).


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5.00% Senior Notes due 2023

The 5% Senior Notes due April 30, 2023 (the “2023 Notes”) bear interest at a rate of 5.00% per annum and have an original face value of $300,000. Interest is payable semiannually in arrears on April 30 and October 30 of each year and commenced on October 30, 2015. The 2023 Notes will mature on April 30, 2023, unless earlier redeemed or repurchased in full. The 2023 Notes are unsecured and unsubordinated obligations of the Company. The 2023 Notes are fully and unconditionally guaranteed, jointly and severally, by certain of its subsidiaries that are guarantors under the Second Amended Credit Facility. These guarantees are unsecured and unsubordinated obligations of such guarantors.

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 Amended 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.

Subsequent to the second amendment, the quarterly installments payable on the Second Amended Term Loan are $