12. Derivative Financial Instruments

The Company utilizes derivative instruments to reduce its exposure to interest rate, commodity price and foreign exchange risks 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. Those contracts that result in a liability position at March 31, 2011 are $8,438 and therefore the Company believes there is no risk of nonperformance by the counterparties. Those contracts that result in an asset position at March 31, 2011 are $9,575. Although there is no collateral with these agreements, the associated risk of nonperformance is not considered material as the vast majority of these will settle within one year.

Interest Rate Swap Agreements

The Company is exposed to changes in variable interest rates on borrowings under the credit agreements. On a selective basis, from time to time, the Company enters into interest rate swap agreements to reduce the negative impact that increases in interest rates could have on its outstanding variable rate debt.

As of March 31, 2011, such agreements effectively converted $85,000, of the variable-rate debt to a fixed-rate basis, utilizing the three-month LIBOR, as a floating rate reference. Fluctuations in LIBOR and fixed rates affect both the Company's net financial investment position and the amount of cash to be paid or received by the Company under these agreements.

Cash flow hedges are discontinued if it is no longer probable that the original forecasted transaction will occur by the end of the originally specified time periods and any amount previously recorded in AOCI is reclassified to earnings. On March 29, 2011, the Company refinanced its 2008 Credit Facility that rendered the interest rate swaps ineligible for hedge accounting. Consequently, $5,847 that was previously recorded in AOCI relating to these instruments was charged to the income statement, under the caption "Charges related to refinancing." Changes in fair value of the instruments between March 29, 2011 and March 31, 2011 were deemed insignificant but all such future changes in the fair value will be recorded in the income statement under the caption "Other income (expense), net." As of March 31, 2011, the notional value of these derivatives was $85,000 and these agreements will expire between February – May 2013.

The Company recorded unrealized losses on interest rate swaps in AOCI, of $2,835, $3,141 and $5,667 for the fiscal years ended March 31, 2011, 2010 and 2009, respectively, when the swaps were effective. The estimated fair value of the Company's interest rate swap agreements was a liability of $5,847 and $9,710 at March 31, 2011 and 2010, respectively, based on quotes from market makers of these instruments. The Company recorded expense of $6,698, $7,059 and $3,632 in fiscal 2011, 2010 and 2009, respectively, which was recorded as an increase in interest expense.

Lead Hedge Contracts

During the fiscal years ending March 31, 2011, 2010 and 2009, the Company entered into lead hedge contracts to fix the price for lead purchases. Management considers the lead hedge contracts to be highly effective against changes in the cash flows of the underlying lead purchases based on the criteria under FASB guidance. The vast majority of such contracts are for a period not extending beyond one year. The Company recorded unrealized gains (losses) on lead hedge contracts of $15,930, $9,844 and ($44,863), for the fiscal years ended March 31, 2011, 2010 and 2009, respectively, which are included in AOCI. The estimated fair value of open lead hedge contracts at March 31, 2011 and 2010 was an asset position of $9,575 and $62, respectively. The realized net gain (loss) on the settlement of lead hedge contracts during fiscal 2011, 2010 and 2009, was $6,417, $11,973, and ($45,369), respectively, which was recorded as a decrease (increase) in cost of goods sold.

Foreign Currency Forward Contracts

On a selective basis the Company will enter into foreign currency forward contracts and option contracts to reduce the volatility from currency movements that affect the Company. The Company's largest exposure is from the purchase and conversion of U.S. dollar based lead costs into local currencies in Europe, China and Mexico and from intercompany loan and receivable transactions. To hedge these exposures the Company may enter into foreign currency forward contracts and option contracts with financial institutions. Each contract is for a period not extending beyond one year. As of March 31, 2011 and 2010, the Company had entered into a total of $82,829 and $64,234, respectively, foreign currency forward contracts. The Company recorded an unrealized (loss) gain on foreign currency forward contracts of ($4,031), $2,679 and $206 for the fiscal years ended March 31, 2011, 2010 and 2009 respectively, which is included in AOCI. The estimated fair value of open foreign currency forward contracts at March 31, 2011 and 2010 was a (liability) asset of ($2,591) and $1,911, respectively. The realized net gain (loss) on foreign currency hedge contracts during fiscal 2011, 2010 and 2009 was $471, $428 and ($3,255), respectively, which was recorded as a decrease (increase) in cost of goods sold.

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

Fair Value of Derivative Instruments

March 31, 2011 and 2010


		Asset Derivatives				Balance Sheet Location	Liability Derivatives
Derivatives Designated as Hedging Instruments	Balance Sheet Location	March 31, 2011		March 31, 2010			March 31, 2011		March 31, 2010
Derivatives Designated as Hedging Instruments	Balance Sheet Location	Fair Value		Fair Value			Fair Value		Fair Value
Interest rate swap agreements	Other liabilities	$	—	$	—	Other liabilities	$	—	$	9,710
Lead hedge contracts	Prepaid and other current assets		9,575		62	Accrued expenses		—		—
Foreign currency forward contracts	Prepaid and other current assets		—		1,911	Accrued expenses		2,591		—

Total Derivatives Designated as Hedging Instruments		$	9,575	$	1,973		$	2,591	$	9,710

Fair Value of Derivative Instruments

March 31, 2011 and 2010


		Asset Derivatives				Balance Sheet Location	Liability Derivatives
Derivatives Not Designated as Hedging Instruments	Balance Sheet Location	March 31, 2011		March 31, 2010			March 31, 2011		March 31, 2010
Derivatives Not Designated as Hedging Instruments	Balance Sheet Location	Fair Value		Fair Value			Fair Value		Fair Value
Interest rate swap agreements	Other Assets	$	—	$	—	Other liabilities	$	5,847	$	—

Total Derivatives Not Designated as Hedging Instruments		$	—	$	—		$	5,847	$	—

The Effect of Derivative Instruments on the Consolidated Statements of Income

For the fiscal years ending March 31, 2011 and 2010


Derivatives in Cash Flow Hedging Relationships	Amount of Pretax Gain (Loss) Recognized in Accumulated OCI⁽¹⁾ on Derivatives (Effective Portion)						Location of Gain (Loss) Reclassified from Accumulated OCI⁽¹⁾ into Income (Effective Portion)	Amount of Pretax Gain (Loss) Reclassified from Accumulated OCI⁽¹⁾ into Income (Effective Portion)
	March 31, 2011			March 31, 2010				March 31, 2011			March 31, 2010
Interest rate swap agreements	$	(2,835	)	$	(3,141	)	Interest expense	$	(6,698	)	$	(7,059	)
Lead hedge contracts		15,930			9,844		Cost of goods sold		6,417			11,973
Foreign currency forward contracts		(4,031	)		2,679		Cost of goods sold		471			428

Total Derivatives Designated as Hedging Instruments	$	9,064		$	9,382			$	190		$	5,342


Derivatives Not Designated as Hedging Relationships	Amount of Pretax Gain (Loss) Recognized in Income on Derivatives (Ineffective Portion)					Location of Loss Recognized in Income on Derivatives (Ineffective Portion)
	March 31, 2011			March 31, 2010
Interest rate swap agreements	$	(5,847	)	$	—	Charges related to refinancing

Total Derivatives Not Designated as Hedging Instruments	$	(5,847	)	$	—

(1)

OCI = Other comprehensive income

In the coming twelve months, the Company anticipates that $6,118 of the current pretax gain will be reclassified from AOCI as part of cost of goods sold. This amount represents the current unrealized impact of hedging lead and foreign exchange rates, which will change as market rates change in the future, and will ultimately be realized in the income statement as an offset to the corresponding actual changes in lead cost to be realized in connection with the variable lead cost and foreign exchange being hedged.