Derivatives And Risk Management

9 Months Ended

May 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and risk management

NOTE 9. DERIVATIVES AND RISK MANAGEMENT

The Company's worldwide operations and product lines expose it to risks from fluctuations in metal commodity prices, foreign currency exchange rates, natural gas prices and interest rates. One objective of the Company's risk management program is to mitigate these risks using derivative instruments. The Company enters into metal commodity futures and forward contracts to mitigate the risk of unanticipated changes in gross margin due to the volatility of the commodities' prices, enters into foreign currency forward contracts that match the expected settlements for purchases and sales denominated in foreign currencies and enters into natural gas forward contracts to mitigate the risk of unanticipated changes in operating cost due to the volatility of natural gas prices. When sales commitments to customers include a fixed price freight component, the Company occasionally enters into freight forward contracts to reduce the effects of the volatility of ocean freight rates.

At May 31, 2013, the Company's notional value of its foreign currency contract commitments was $307 million.

The following table provides information regarding the Company's commodity contract commitments as of May 31, 2013:

Commodity	Long/Short	Total
Aluminum	Long	4,052	MT
Aluminum	Short	375	MT
Copper	Long	986	MT
Copper	Short	5,024	MT
Zinc	Long	22	MT

MT = Metric Ton

The Company designates only those contracts which closely match the terms of the underlying transaction as hedges for accounting purposes. These hedges resulted in substantially no ineffectiveness in the Company's consolidated statements of operations, and there were no components excluded from the assessment of hedge effectiveness for the three and nine months ended May 31, 2013 and 2012. Certain foreign currency and commodity contracts were not designated as hedges for accounting purposes, although management believes they are essential economic hedges.

The following tables summarize activities related to the Company's derivative instruments and hedged items recognized in the consolidated statements of operations:

		Three Months Ended May 31,					Nine Months Ended May 31,
Derivatives Not Designated as Hedging Instruments (in thousands)	Location	2013		2012			2013		2012
Commodity	Cost of goods sold	$	1,469	$	5,737		$	1,775	$	5,978
Foreign exchange	Net sales	23		(18		)	12		(199		)
Foreign exchange	Cost of goods sold	3		—			3		(537		)
Foreign exchange	SG&A expenses	1,336		1,173			4,216		479
Other	Cost of goods sold	4		—			9		—
Gain (loss) before taxes		$	2,835	$	6,892		$	6,015	$	5,721

The Company's fair value hedges are designated for accounting purposes with gains and losses on the hedged items offsetting the gain or loss on the related derivative transaction. Hedged items relate to firm commitments on commercial sales and purchases and capital expenditures.

Derivatives Designated as Fair Value Hedging Instruments (in thousands)		Three Months Ended May 31,					Nine Months Ended May 31,
	Location	2013		2012			2013			2012
Foreign exchange	Net sales	$	38	$	—		$	(190	)	$	—
Foreign exchange	Cost of goods sold	2,291		—			2,839			—
Foreign exchange	SG&A expenses	—		5,805			—			4,255
Interest rate	Interest expense	—		(6,613		)	—			10,561
Gain (loss) before taxes		$	2,329	$	(808	)	$	2,649		$	14,816

Hedged Items Designated as Fair Value Hedging Instruments (in thousands)		Three Months Ended May 31,						Nine Months Ended May 31,
	Location	2013			2012			2013			2012
Foreign exchange	Net sales	$	(19	)	$	—		$	232		$	—
Foreign exchange	Cost of goods sold	(2,291		)	—			(2,839		)	—
Foreign exchange	SG&A expenses	—			(5,805		)	—			(4,255		)
Interest rate	Interest expense	—			6,613			—			(10,561		)
Gain (loss) before taxes		$	(2,310	)	$	808		$	(2,607	)	$	(14,816	)

Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Recognized in Accumulated Other Comprehensive Income (Loss) (in thousands)	Three Months Ended May 31,						Nine Months Ended May 31,
	2013			2012			2013			2012
Commodity	$	(193	)	$	(22	)	$	(192	)	$	(3	)
Foreign exchange	(17		)	(1,001		)	356			(2,629		)
Gain (loss), net of taxes	$	(210	)	$	(1,023	)	$	164		$	(2,632	)

Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Reclassified from Accumulated Other Comprehensive Income (Loss) (in thousands)		Three Months Ended May 31,						Nine Months Ended May 31,
	Location	2013			2012			2013			2012
Commodity	Cost of  goods sold	$	(62	)	$	3		$	(56	)	$	18
Foreign exchange	Net sales	80			40			141			(1,153		)
Foreign exchange	Cost of goods sold	(37		)	—			13			—
Foreign exchange	SG&A expenses	(47		)	(116		)	29			(277		)
Interest rate	Interest expense	110			102			313			305
Gain (loss), net of taxes		$	44		$	29		$	440		$	(1,107	)

The Company's derivative instruments were recorded at their respective fair values as follows on the consolidated balance sheets:

Derivative Assets (in thousands)	May 31, 2013		August 31, 2012
Commodity — not designated for hedge accounting	$	823	$	407
Foreign exchange — designated for hedge accounting	2,635		670
Foreign exchange — not designated for hedge accounting	1,456		798
Derivative assets (other current assets and other assets)*	$	4,914	$	1,875

Derivative Liabilities (in thousands)	May 31, 2013		August 31, 2012
Commodity — designated for hedge accounting	$	130	$	2
Commodity — not designated for hedge accounting	1,418		993
Foreign exchange — designated for hedge accounting	542		1,272
Foreign exchange — not designated for hedge accounting	2,002		1,248
Other — not designated for hedge accounting	—		32
Derivative liabilities (accrued expenses, other payables and long-term liabilities)*	$	4,092	$	3,547

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* Derivative assets and liabilities do not include the hedged items designated as fair value hedges.

As of May 31, 2013, all of the Company's derivative instruments designated to hedge exposure to the variability in future cash flows of the forecasted transactions will mature within twelve months.

All of the instruments are highly liquid and not entered into for trading purposes.