Derivatives And Risk Management

12 Months Ended

Aug. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and risk management

NOTE 12. 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 August 31, 2013, the Company's notional value of its foreign currency contract commitments and its commodity contract commitments was $331.0 million and $49.3 million, respectively.

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 years ended August 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:

		Year Ended August 31,
Derivatives Not Designated as Hedging Instruments (in thousands)	Location	2013		2012			2011
Commodity	Cost of goods sold	$	2,456	$	4,496		$	(10,857	)
Foreign exchange	Net sales	—		(199		)	38
Foreign exchange	Cost of goods sold	—		(537		)	1,412
Foreign exchange	SG&A expenses	5,089		(872		)	(8,025		)
Other	Cost of goods sold	9		—			—
Gain (loss) before taxes		$	7,554	$	2,888		$	(17,432	)

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

During 2012, the Company terminated its interest rate swap transactions having a notional value of $800 million. The Company recorded net of the Company's periodic variable-rate interest obligations and the swap counterparty's fixed-rate interest obligations as a reduction to interest expense of $6.5 million and $15.7 million for the years ended August 31, 2012 and 2011, respectively. See Note 11, Credit Arrangements for additional information. 

Derivatives Designated as Fair Value Hedging Instruments (in thousands)		Year Ended August 31,
	Location	2013			2012		2011
Foreign exchange	Net sales	$	(151	)	$	—	$	—
Foreign exchange	Cost of goods sold	2,241			—		—
Foreign exchange	SG&A expenses	—			383		(15,053		)
Interest rate	Interest expense	—			10,561		33,485
Gain before taxes		$	2,090		$	10,944	$	18,432

Hedged Items Designated as Fair Value Hedging Instruments (in thousands)		Year Ended August 31,
	Location	2013			2012			2011
Foreign exchange	Net sales	$	153		$	—		$	91
Foreign exchange	Cost of goods sold	(2,241		)	—			—
Foreign exchange	SG&A expenses	—			(383		)	14,955
Interest rate	Interest expense	—			(10,561		)	(33,485		)
Loss before taxes		$	(2,088	)	$	(10,944	)	$	(18,439	)

Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Recognized in Accumulated Other Comprehensive Income (Loss) (in thousands)	August 31,
	2013			2012			2011
Commodity	$	(218	)	$	—		$	26
Foreign exchange	439			(1,545		)	797
Gain (loss), net of taxes	$	221		$	(1,545	)	$	823

Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Reclassified from Accumulated Other Comprehensive Income (Loss) (in thousands)		Year Ended August 31,
	Location	2013			2012			2011
Commodity	Cost of  goods sold	$	(169	)	$	27		$	195
Foreign exchange	Net sales	46			(826		)	—
Foreign exchange	Cost of goods sold	20			—			—
Foreign exchange	SG&A expenses	39			(300		)	365
Interest rate	Interest expense	401			521			458
Gain (loss), net of taxes		$	337		$	(578	)	$	1,018

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

Derivative Assets (in thousands)	August 31,
	2013		2012
Commodity — not designated for hedge accounting	$	1,066	$	407
Foreign exchange — designated for hedge accounting	1,626		670
Foreign exchange — not designated for hedge accounting	1,238		798
Derivative assets (other current assets and other assets)*	$	3,930	$	1,875

Derivative Liabilities (in thousands)	August 31,
	2013		2012
Commodity — designated for hedge accounting	$	129	$	2
Commodity — not designated for hedge accounting	1,268		993
Foreign exchange — designated for hedge accounting	432		1,272
Foreign exchange — not designated for hedge accounting	1,738		1,248
Other — not designated for hedge accounting	—		32
Derivative liabilities (accrued expenses, other payables and long-term liabilities)*	$	3,567	$	3,547

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

As of August 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.