EnerSys
For the period ended Sep 29, 2024. Filed Nov 6, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 29, 2024 · Filed Nov 6, 2024
Extracted filing text, with the paragraph anchors used by the comparison.
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Fair Value of Financial Instruments
- 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 September 29, 2024 and March 31, 2024, and the basis for that measurement:
| Total Fair Value Measurement September 29, 2024 | Quoted Price inActive Marketsfor IdenticalAssets(Level 1) | SignificantOtherObservableInputs(Level 2) | SignificantUnobservableInputs(Level 3) | |
|---|---|---|---|---|
| Lead forward contracts | $(576) | $— | $(576) | $— |
| Foreign currency forward contracts | (196) | — | (196) | — |
| Interest Rate Swaps | (1,601) | — | (1,601) | — |
| Net investment hedges | (30,258) | — | (30,258) | — |
| Total derivatives | $(32,631) | $— | $(32,631) | $— |
| Total Fair ValueMeasurementMarch 31, 2024 | Quoted Price inActive Marketsfor IdenticalAssets(Level 1) | SignificantOtherObservableInputs(Level 2) | SignificantUnobservableInputs(Level 3) | |
|---|---|---|---|---|
| Lead forward contracts | $(835) | $— | $(835) | $— |
| Foreign currency forward contracts | 5 | — | 5 | — |
| Interest Rate Swaps | 2,696 | — | 2,696 | — |
| Net investment hedges | (19,167) | — | (19,167) | — |
| Total derivatives | $(17,301) | $— | $(17,301) | $— |
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 2024 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 Fourth Amended Credit Facility (as defined in Note 13), 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.
The fair value of the Company's 2032 Notes and 2027 Notes, (each as defined in Note 13 and collectively, the "Senior Notes"), represent the trading values based upon quoted market prices and are classified as Level 2. The 2032 Notes were trading at approximately 104% and 100% of face value on September 29, 2024 and March 31, 2024, respectively. The 2027 Notes were trading at approximately 96% and 94% of the face value on September 29, 2024 and March 31, 2024, respectively.
The carrying amounts and estimated fair values of the Company’s derivatives and Senior Notes at September 29, 2024 and March 31, 2024 were as follows:
| September 29, 2024 | March 31, 2024 | |||
|---|---|---|---|---|
| CarryingAmount | Fair Value | CarryingAmount | Fair Value | |
| Financial liabilities: | ||||
| Senior Notes (2) | $600,000 | $599,700 | $600,000 | $582,750 |
| Derivatives (1) | $(32,631) | $(32,631) | $(17,301) | $(17,301) |
(1)Represents lead, foreign currency forward contracts, interest rate swaps, and net investment hedges (see Note 8 for asset and liability positions of the lead, foreign currency forward contracts, interest rate swaps, and net investment hedges at September 29, 2024 and March 31, 2024).
(2)The fair value amount of the Senior Notes at September 29, 2024 and March 31, 2024 represent the trading value of the instruments.
- 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 September 29, 2024 and March 31, 2024, the Company has hedged the price to purchase approximately 62.5 million pounds and 53.0 million pounds of lead, respectively, for a total purchase price of $59,350 and $49,977, 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 September 29, 2024 and March 31, 2024, the Company had entered into a total of $51,076 and $46,159, respectively, of such contracts.
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 September 29, 2024 and March 31, 2024 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 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. Additionally, on July 2, 2024, the Company entered into cross-currency fixed interest rate swap contracts with an aggregate notional amount of $150,000, maturing on January 15, 2029. 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 other income (expense).
Impact of Hedging Instruments on AOCI
In the coming twelve months, the Company anticipates that $116 of pretax loss relating to lead, foreign currency forward contracts, interest rate swaps, 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 September 29, 2024 and March 31, 2024, the notional amount of these contracts was $68,312 and $69,319, 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
September 29, 2024 and March 31, 2024
| 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 | ||||
|---|---|---|---|---|---|---|
| September 29, 2024 | March 31, 2024 | September 29, 2024 | March 31, 2024 | September 29, 2024 | March 31, 2024 | |
| Prepaid and other current assets: | ||||||
| Lead forward contracts | $— | $— | $— | $— | $— | $— |
| Foreign currency forward contracts | — | 396 | — | — | 72 | — |
| Net investment hedges | — | — | — | — | — | — |
| Other assets: | ||||||
| Interest rate swaps | — | 2,696 | — | — | — | — |
| Net investment hedges | — | — | — | — | — | — |
| Total assets | $— | $3,092 | $— | $— | $72 | $— |
| Accrued expenses: | ||||||
| Lead forward contracts | $576 | $835 | $— | $— | $— | $— |
| Foreign currency forward contracts | 268 | — | — | — | — | 391 |
| Other liabilities: | ||||||
| Interest rate swaps | 1,601 | — | — | — | — | — |
| Net investment hedges | — | — | 30,258 | 19,167 | — | — |
| Total liabilities | $2,445 | $835 | $30,258 | $19,167 | $— | $391 |
For the quarter ended September 29, 2024
| Derivatives Designated as Cash Flow Hedges | Pretax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion) | Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion) |
|---|---|---|---|
| Lead forward contracts | $(3,123) | Cost of goods sold | $1,783 |
| Foreign currency forward contracts | (539) | Cost of goods sold | 227 |
| Interest rate swaps | (4,313) | Interest expense | 248 |
| Total | $(7,975) | $2,258 |
| 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 | $(12,375) | Interest expense | $711 |
| Total | $(12,375) | $711 |
| 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 | $1,429 |
| Total | $1,429 |
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) |
For the six months ended September 29, 2024
| 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 | $(392) | Cost of goods sold | $297 |
| Foreign currency forward contracts | (191) | Cost of goods sold | 276 |
| Interest rate swaps | (3,231) | Interest expense | 1,066 |
| Total | $(3,814) | $1,639 |
| 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 | $(10,116) | Interest expense | $975 |
| Total | $(10,116) | $975 |
| 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 | $1,783 |
| Total | $1,783 |
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) |
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.