Derivatives And Risk Management

6 Months Ended

Feb. 28, 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 February 28, 2013, the Company's notional value of its foreign currency contract commitments was $239 million.

The following table provides information regarding the Company's commodity contract commitments as of February 28, 2013:

Commodity	Long/Short	Total
Aluminum	Long	6,338	MT
Aluminum	Short	3,125	MT
Copper	Long	872	MT
Copper	Short	3,810	MT
Natural Gas	Long	10,000	MMBtu
Zinc	Long	22	MT

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. 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 six months ended February 28, 2013 and February 29, 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						Six Months Ended
Derivatives Not Designated as Hedging Instruments (in thousands)	Location	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
Commodity	Cost of goods sold	$	717		$	(3,336	)	$	306		$	241
Commodity	SG&A expenses	588			—			—			—
Foreign exchange	Net sales	—			(73		)	(11		)	(181		)
Foreign exchange	Cost of goods sold	—			(304		)	—			(537		)
Foreign exchange	SG&A expenses	2,916			6,465			2,880			(694		)
Other	Cost of goods sold	(10		)	—			5			—
Gain (loss) before taxes		$	4,211		$	2,752		$	3,180		$	(1,171	)

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						Six Months Ended
	Location	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
Foreign exchange	Net sales	$	(228	)	$	—		$	(228	)	$	—
Foreign exchange	Cost of goods sold	777			—			548			—
Foreign exchange	SG&A expenses	—			(4,120		)	—			(1,550		)
Interest rate	Interest expense	—			15,969			—			17,174
Gain before taxes		$	549		$	11,849		$	320		$	15,624

Hedged Items Designated as Fair Value Hedging Instruments (in thousands)		Three Months Ended						Six Months Ended
	Location	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
Foreign exchange	Net sales	$	274		$	—		$	251		$	—
Foreign exchange	Cost of goods sold	(705		)	—			(548		)	—
Foreign exchange	SG&A expenses	—			4,120			—			1,550
Interest rate	Interest expense	—			(15,969		)	—			(17,174		)
Loss before taxes		$	(431	)	$	(11,849	)	$	(297	)	$	(15,624	)

Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Recognized in Accumulated Other Comprehensive Income (Loss) (in thousands)	Three Months Ended						Six Months Ended
	February 28, 2013			February 29, 2012			February 28, 2013		February 29, 2012
Commodity	$	(13	)	$	44		$	1	$	19
Foreign exchange	70			(467		)	373		(1,628		)
Gain (loss), net of taxes	$	57		$	(423	)	$	374	$	(1,609	)

Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Reclassified from Accumulated Other Comprehensive Income (Loss) (in thousands)		Three Months Ended					Six Months Ended
	Location	February 28, 2013		February 29, 2012			February 28, 2013		February 29, 2012
Commodity	Cost of  goods sold	$	6	$	28		$	6	$	15
Foreign exchange	Net sales	10		(36		)	61		(1,193		)
Foreign exchange	Cost of goods sold	91		—			50		—
Foreign exchange	SG&A expenses	66		(97		)	76		(161		)
Interest rate	Interest expense	101		102			203		203
Gain (loss), net of taxes		$	274	$	(3	)	$	396	$	(1,136	)

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

Derivative Assets (in thousands)	February 28, 2013		August 31, 2012
Commodity — not designated for hedge accounting	$	1,923	$	407
Foreign exchange — designated for hedge accounting	674		670
Foreign exchange — not designated for hedge accounting	430		798
Derivative assets (other current assets and other assets)*	$	3,027	$	1,875

Derivative Liabilities (in thousands)	February 28, 2013		August 31, 2012
Commodity — designated for hedge accounting	$	8	$	2
Commodity — not designated for hedge accounting	1,052		993
Foreign exchange — designated for hedge accounting	250		1,272
Foreign exchange — not designated for hedge accounting	179		1,248
Other — not designated for hedge accounting	4		32
Derivative liabilities (accrued expenses, other payables and long-term liabilities)*	$	1,493	$	3,547

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

As of February 28, 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.