Derivatives And Risk Management

6 Months Ended

Feb. 29, 2012

Derivatives And Risk Management [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 metals 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 declines in gross margin due to the volatility of the commodities’ prices, enters into foreign currency forward contracts which 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. The Company enters into interest rate swap contracts to maintain the majority of the Company’s debt obligations at variable interest rates. These interest rate swap contracts, under which the Company has agreed to pay variable rates of interest and receive fixed rates of interest, are designated as fair value hedges of fixed-rate debt.

At February 29, 2012, the Company’s notional values of its foreign currency contract commitments was $280 million and interest rate swap contract commitments was $800 million.

The following table provides commodity contract commitments as of February 29, 2012:

Commodity	Long/Short	Total
Aluminum	Long	3,225 MT
Aluminum	Short	150 MT
Copper	Long	645 MT
Copper	Short	6,690 MT
Zinc	Long	29 MT
Natural Gas	Long	80,000 MMBtu

•MT = Metric Ton

•MMBtu = One million British thermal units

The Company designates only those contracts which closely match the terms of the underlying transaction as hedges for accounting purposes. For the three and six months ended February 29, 2012 and February 28, 2011, these hedges resulted in substantially no ineffectiveness in the statements of operations, and there were no components excluded from the assessment of hedge effectiveness. Certain of the 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 (underlying) items recognized within the statements of operations (in thousands):

		____Three Months Ended____ February 29,February 28,		_____Six Months Ended______ February 29,February 28,
Derivatives Not Designated as HedgingInstruments	Location	2012	2011	2012	2011
Commodity	Cost of goods sold	$(3,336)	$(5,754)	$241	$(16,040)
Foreign exchange	Net sales	(73)	14	(181)	(4)
Foreign exchange	Cost of goods sold	(304)	289	(537)	869
Foreign exchange	SG&A expenses	6,465	2,485	(694)	(839)
Gain (loss) before taxes		$2,752	$(2,966)	$(1,171)	$(16,014)

The Company’s fair value hedges are designated for accounting purposes with gains and losses on the hedged (underlying) items offsetting the gain or loss on the related derivative transaction. Hedged (underlying) items relate to firm commitments on commercial sales and purchases, capital expenditures and fixed rate debt obligations. As of February 29, 2012, fair value hedge accounting for interest rate swap contracts increased the carrying value of debt instruments by $55.1 million.

		____Three Months Ended____ February 29,February 28,		_____Six Months Ended______ February 29,February 28,
Derivatives Designated as Fair Value HedgingInstruments	Location	2012	2011	2012	2011
Foreign exchange	SG&A expenses	$(4,120)	$(888)	$(1,550)	$(8,775)
Interest rate	Interest expense	15,969	(15,315)	17,174	6,240
Gain (loss) before taxes		$11,849	$(16,203)	$15,624	$(2,535)

Hedged (Underlying)		____Three Months Ended____ February 29,February 28,		_____Six Months Ended______ February 29,February 28,
Items Designated as Fair Value HedgingInstruments	Location	2012	2011	2012	2011
Foreign exchange	Net sales	$—	$11	$—	$49
Foreign exchange	SG&A expenses	4,120	884	1,550	8,732
Interest rate	Interest expense	(15,969)	15,314	(17,174)	(6,241)
Gain (loss) before taxes		$(11,849)	$16,209	$(15,624)	$2,540

The Company recognizes the impact of actual and estimated net periodic settlements of current interest on active interest rate swaps as adjustments to interest expense. The Company recorded reductions to interest expense related to interest rate swaps of $4.4 million and $3.5 million for the three months ended February 29, 2012 and February 28, 2011, respectively, and of $8.6 million and $6.8 million for the six months ended February 29, 2012 and February 28, 2011, respectively. These amounts represent the net of the Company’s periodic variable-rate interest obligations and the swap counterparty’s fixed-rate interest obligations. The Company’s variable-rate obligations are based on a spread from the six-month LIBOR.

Effective Portion of Derivatives Designated as Cash Flow	____Three Months Ended____ February 29,February 28,		_____Six Months Ended______ February 29,February 28,
Hedging Instruments Recognized in AccumulatedOther Comprehensive Income (Loss)	2012	2011	2012	2011
Commodity	$44	$355	$19	$392
Foreign exchange	(467)	154	(1,628)	171
Gain (loss), net of taxes	$(423)	$509	$(1,609)	$563

Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Reclassified from Accumulated		____Three Months Ended____ February 29,February 28,		_____Six Months Ended______ February 29,February 28,
Other Comprehensive Income (Loss)	Location	2012	2011	2012	2011
Commodity	Cost of goods sold	$28	$53	$15	$(30)
Foreign exchange	Net sales	(36)	—	(1,193)	—
Foreign exchange	SG&A expenses	(97)	33	(161)	66
Interest rate	Interest expense	102	115	203	229
Gain (loss), net of taxes		$(3)	$201	$(1,136)	$265

The Company’s derivative instruments were recorded at their respective fair values as follows on the consolidated balance sheets (in thousands):

Derivative Assets	February 29, 2012	August 31, 2011
Commodity — designated	$46	$17
Commodity — not designated	2,285	2,329
Foreign exchange — designated	275	893
Foreign exchange — not designated	5,013	970
Current interest rate — designated	18,266	19,134
Long-term interest rate — designated	36,812	29,515
Derivative assets (other current assets and other assets)*	$62,697	$52,858

Derivative Liabilities	February 29, 2012	August 31, 2011
Commodity — not designated	$3,751	$2,625
Foreign exchange — designated	2,567	805
Foreign exchange — not designated	1,621	2,258
Derivative liabilities (accrued expenses, other payables and long-term liabilities)*	$7,939	$5,688

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

As of February 29, 2012, 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.