Derivative Instruments and Hedging Activities

3 Months Ended

Nov. 30, 2012

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

Note 8:  Derivative Instruments and Hedging Activities

The Company, as a result of its operating and financing activities, is exposed to changes in foreign currency exchange rates and interest rates which may adversely affect its results of operations and financial position.  In seeking to minimize the risks and/or costs associated with such activities, the Company may enter into derivative contracts.

The Company manages its foreign currency related risks primarily through the use of foreign currency forward contracts. The contracts held by the Company are denominated in Euros. The Company has entered into foreign currency forward contracts that are designated as cash flow hedges of exchange rate risk related to foreign currency-denominated purchases of equipment.  Inputs used to measure the fair value of the foreign currency forward contracts are contained within level 1 of the fair value hierarchy.  At November 30, 2012, the Company had cash flow hedges for approximately 252,089 Euros with maturity dates of December 14, 2012 to September 16, 2013.  At November 30, 2012, the fair value of the open contracts was a loss of approximately $2,000 recorded in accumulated other comprehensive income/(loss) in members’ equity.  At November 30, 2011, the Company had cash flow hedges for approximately 140,000 Euros with a maturity date of December 6, 2011.  At November 30, 2011, the fair value of the open contracts was a loss of approximately $3,000 recorded in accumulated other comprehensive income/(loss) in members’ equity. Amounts deferred to accumulated other comprehensive income/(loss) are reclassified into the cost of the equipment when the actual purchase takes place.

The Company is exposed to interest risk primarily through its borrowing activities.  On December 24, 2009, the Company entered into an interest rate swap contract associated with a $27.3 million Industrial Development Revenue Bond issue that matures on September 1, 2019.  The interest rate swap contract requires payment of a fixed interest rate of 2.827 % and the receipt of a variable rate of interest based on the Securities Industry and Financial Market Association (SIFMA) index of .182 % as of November 30, 2012 on $27.3 million of indebtedness. The Company has designated this interest rate swap contract as a cash flow hedge.  Inputs used to measure the fair value of the interest rate swap contracts are contained within level 2 of the fair value hierarchy.  As of November 30, 2012, the fair value of the cash flow hedge reflected a loss of approximately $2.7 million recorded in accumulated other comprehensive income/(loss) and will be reclassified to interest expense over the life of the swap contract. No ineffectiveness was recognized in earnings during the quarter ended November 30, 2012.  The current period loss of $170,000 is classified as interest expense on the statements of operations.  As of November 30, 2012, $705,000 of deferred net losses on the interest rate swap contract contained in accumulated other comprehensive income/(loss) are expected to be reclassified to earnings during the next 12 months. As of November 30, 2011, the fair value of the cash flow hedge reflected a loss of approximately $2.2 million recorded in accumulated other comprehensive income/(loss).

Fair Value of Liability Derivatives

		November 30				August 31
(In Thousands)	Balance Sheet Location	2012		2011		2012
Derivatives Designated as Hedging Instruments:
Foreign Currency Forward Contracts	Other Current Liabilities	$	2	$	3	$	20
Interest Rate Contracts	Other Current Liabilities	705		651		707
Interest Rate Contracts	Other Long-Term Liabilities	2,037		1,511		2,119
Total Liability Derivatives		$	2,744	$	2,165	$	2,846