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Derivative Instruments and Fair Value Measurement of Assets and Liabilities
12 Months Ended
Oct. 31, 2012
Derivative Insruments and Fair Value of Assets and Liabilities [Abstract]  
Derivative Instruments and Fair Value of Assets and Liabilities
Derivative Instruments and Fair Value Measurement of Assets and Liabilities
Derivative Instruments

The Company's derivative activities are subject to the management, direction, and control of the Chief Financial Officer and Chief Executive Officer and other officers and employees they select. Certain transactions in excess of specified levels require further approval from the Board of Directors.
The nature of the Company's business activities requires the management of various financial and market risks, including those related to changes in foreign currency exchange rates and aluminum scrap prices. The Company uses foreign currency forwards and options and aluminum forward contracts to mitigate or eliminate certain of those risks. Specifically, the foreign currency forwards are used to offset fluctuations in the value of accounts receivable and payable balances that are denominated in currencies other than the U.S. dollar, which consist principally of the Euro, British Pound and Canadian Dollar. The aluminum forwards are used to minimize the price risk related to customer sales contracts. The Company enters into firm price raw material purchase commitments (which are designed as "normal purchases" under ASC 815) as well as contracts on the London Metal Exchange (LME). The Company's risk management policy as it relates to these LME contracts is to enter into contracts as needed so that raw material purchase levels, including both fixed price purchase commitments as well as LME contracts match the needs of the Company to meet committed sales orders. This is done through the use of both LME forward purchase contracts as well as LME forward sales contracts. The Company does not currently enter into derivative transactions for speculative or trading purposes.
The Company is exposed to credit loss in the event of nonperformance by the counterparties to its derivative transactions. The Company attempts to mitigate this risk by monitoring the creditworthiness of its counterparties and limiting its exposure to individual counterparties. In addition, the Company has established master netting agreements in certain cases to facilitate the settlement of gains and losses on specific derivative contracts.
The Company has not designated any of its derivative contracts for hedge accounting treatment. Therefore, changes in the fair value of these contracts are recorded in the Consolidated Statements of Income as follows:

 
 
 
For the Years Ended
 
Derivatives Not Designated as
Location of Gain or (Loss)
 
October 31,
 
Hedging Instruments
Recognized in Earnings
 
2012
 
2011
 
2010
 
 
 
 
(In thousands)
 
Aluminum forward contracts
Cost of sales
 
$
(476
)
 
$
(307
)
 
$

 
Foreign currency derivatives
Other, net
 
$
895

 
$
(175
)
 
$

 

The fair value of outstanding derivative contracts recorded as assets and liabilities on the accompanying Consolidated Balance Sheet is indicated in the table below:
 
October 31, 2012
 
October 31, 2011
 
(In thousands)
Asset Derivatives
 
 
 
Accounts receivable, net of allowance:
 
 
 
Aluminum forward contracts
$

 
$
110

Prepaid and other current assets:
 
 
 
Aluminum forward contracts
$
10

 
$

Foreign currency derivatives
$
6

 
$

 
 
 
 
Liability Derivatives
 
 
 
Accrued liabilities:
 
 
 
Aluminum forward contracts
$
170

 
$
78

Foreign currency derivatives
$
23

 
$
(134
)
Other liabilities (non-current):
 
 
 
Aluminum forward contracts
$
4

 
$


 
The following table summarizes the notional amounts and fair value of the Company's outstanding derivative contracts:
 
Notional as indicated
 
Fair Value in $
 
October 31,
 
October 31,
 
 
2012
 
2011
 
2012
 
2011
 
 
(In thousands)
Aluminum forward contracts:
 
 
 
 
 
 
 
 
Forward purchase aluminum contracts
LBS
2,370

 
3,417

 
$
(164
)
 
$
(58
)
Forward sales aluminum contracts
LBS

 
(5,346
)
 
$

 
$
90

 
 
 
 
 
 
 
 
 
Foreign currency exchange derivatives:
 
 
 
 
 
 
 
 
Sell EUR, buy GBP
EUR
545

 

 
$

 
$

Sell EUR, buy USD
EUR
7,663

 
8,500

 
$
(23
)
 
$
147

Sell CAD, buy USD
CAD
608

 

 
$
1

 
$

Buy GBP, sell USD
GBP
1,934

 
600

 
$
5

 
$
2

Buy USD, sell CAD
CAD

 
894

 
$

 
$
(15
)


Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted pries in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in market that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates) and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 - Inputs that are both significant to the fair value measurement and unobservable.

The Money Market Fund investments as well as the pension plan assets are measured at fair value based on active market quotations and are therefore classified as Level 1. All of the Company's derivative contracts are valued using quoted market prices from brokers or exchanges and are classified within Level 2 of the fair value hierarchy.
The Company holds Money Market Fund investments that are classified as cash equivalents, pension plan assets and derivative contracts that are measured at fair value on a recurring basis. The Money Market Fund investments are classified as Cash and equivalents, while the pension plan assets are included in Deferred pension and postretirement benefits on the Consolidated Balance Sheets. See Note 11 for further information on the pension plan assets. The derivative instruments are included in various asset and liability accounts as discussed earlier in this footnote.
The following table summarizes the assets and liabilities measured on a recurring basis based on the fair value hierarchy:

 
 
 
October 31, 2012
 
October 31, 2011
 
Level 1
Level 2
Level 3
Total
 
Level 1
Level 2
Level 3
Total
 
(In thousands)
Assets
 
Money market fund investments
$
67,819

$

$

$
67,819

 
$
80,688

$

$

$
80,688

Commodity derivatives

10


10

 

110


110

Foreign currency exchange derivatives

6


6

 

150


150

Pension plan assets
18,562



18,562

 
14,004



14,004

Total assets
$
86,381

$
16

$

$
86,397

 
$
94,692

$
260

$

$
94,952

 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Commodity derivatives
$

$
(174
)
$

$
(174
)
 
$

$
(78
)
$

$
(78
)
Foreign currency exchange derivatives

(23
)

(23
)
 

(16
)

(16
)
Total liabilities
$

$
(197
)
$

$
(197
)
 
$

$
(94
)
$

$
(94
)
 
 
 
 
 
 
 
 
 
 
Net assets (liabilities)
$
86,381

$
(181
)
$

$
86,200

 
$
94,692

$
166

$

$
94,858



As of October 31, 2012 and 2011, the Company did not have any assets or liabilities measured at fair value on a recurring basis classified as Level 3. As of October 31, 2012 and 2011, the Company held approximately $1.2 million and $2.0 million, respectively, of property, plant and equipment recorded at fair value on a non-recurring basis that is classified as Level 3 assets.