Derivatives/Hedges

9 Months Ended

Dec. 31, 2011

Derivatives/Hedges [Abstract]

Derivatives/Hedges

Note 15: Derivatives/Hedges

Modine uses derivative financial instruments from time to time as a tool to manage certain financial risks.  Their use has been restricted primarily to hedging assets and obligations already held by Modine, and they have been used to protect cash flows rather than generate income or engage in speculative activity.  Leveraged derivatives are prohibited by Company policy.

Accounting for derivatives and hedging activities requires derivative financial instruments to be measured at fair value and recognized as assets or liabilities in the consolidated balance sheets.  Accounting for the gain or loss resulting from the change in the fair value of the derivative financial instruments depends on whether it has been designed, and is effective, as a hedge and, if so, on the nature of the hedging activity.

Commodity derivatives:  The Company enters into futures contracts related to certain of the Company's forecasted purchases of aluminum and copper.  The Company's strategy in entering into these contracts is to reduce its exposure to changing purchase prices for future purchases of these commodities.  These contracts have been designated as cash flow hedges by the Company.  Accordingly, unrealized gains and losses on these contracts are deferred as a component of accumulated other comprehensive (loss) income (AOCI) and recognized as a component of earnings at the same time that the underlying purchases of aluminum and copper impact earnings.

Interest rate derivatives: In conjunction with the repayment of then existing Senior Notes during the nine months ended December 31, 2010, the remaining unamortized balance for interest rate derivatives of $1,606 was reflected as a component of interest expense.

Foreign exchange contracts:  The Company maintains a foreign exchange risk management strategy that uses derivative financial instruments in a limited way to mitigate foreign currency exchange risk.  The Company periodically enters into foreign currency exchange contracts to hedge specific foreign currency-denominated transactions and foreign currency-denominated assets and liabilities.  The effect of this practice is to minimize the impact of foreign exchange rate movements on the Company's earnings and projected cash flows.  The Company has not designated its forward contracts as hedges.  Accordingly, unrealized gains and losses related to the change in fair value are recorded in other expense (income) – net.  The Company's foreign currency exchange contracts do not subject it to significant risk due to exchange rate movements because gains and losses on these contracts are offset by changes due to foreign currency fluctuations of the underlying assets and liabilities.

The fair value of the derivative financial instruments recorded in the consolidated balance sheets as of December 31, 2011 and March 31, 2011 are as follows:

	Balance Sheet Location	December 31, 2011		March 31, 2011
Derivative instruments designated as cash flow hedges:
Commodity derivatives	Deferred income taxes and other current assets	$	28	$	929
Commodity derivatives	Accrued expenses and other current liabilities		5,429		650
Derivatives not designated as hedges:
Foreign exchange contracts	Deferred income taxes and other current assets	$	256	$	-

The amounts recorded in AOCI and in the consolidated statement of operations for the three and nine months ended December 31, 2011 are as follows:

				Three months ended December 31, 2011			Nine months ended December 31, 2011
	Amount of Loss Recognized in AOCI		Location of Loss Reclassified from AOCI into Continuing Operations	Amount of Loss Reclassified from AOCI into Continuing Operations			Amount of Loss Reclassified from AOCI into Continuing Operations
Designated derivative instruments:
Commodity derivatives	$	5,239	Cost of sales	$	1,329		$	1,738
Total	$	5,239		$	1,329		$	1,738
				Three months ended December 31, 2011			Nine months ended December 31, 2011
			Location of (Gain) Recognized in Income	Amount of (Gain) Recognized in Income			Amount of (Gain) Recognized in Income
Derivatives not designated:
Foreign exchange contracts			Other expense (income) – net	$	(258	)	$	(258	)
Total				$	(258	)	$	(258	)

The amounts recorded in AOCI and in the consolidated statement of operations for the three and nine months ended December 31, 2010 are as follows:

				Three months ended December 31, 2010			Nine months ended December 31, 2010
	Amount of Loss Recognized in AOCI		Location of (Gain) Loss Reclassified from AOCI into Continuing Operations	Amount of (Gain) Reclassified from AOCI into Continuing Operations			Amount of Loss Reclassified from AOCI into Continuing Operations
Designated derivative instruments:
Commodity derivatives	$	1,087	Cost of sales	$	(135	)	$	48
Interest rate derivative		-	Interest expense		-			1,751
Total	$	1,087		$	(135	)	$	1,799