Derivative Instruments and Hedging Activities

9 Months Ended

May 31, 2013

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 May 31, 2013, the Company had cash flow hedges for approximately 2.8 million Euros with maturity dates of June 28, 2013 to December 8, 2014. At May 31, 2013, the fair value of the open contracts reflected a loss of approximately $52,000 recorded in accumulated other comprehensive income/(loss) in members’ equity. At May 31, 2012, the Company had cash flow hedges for approximately 850,000 Euros with maturity dates of June 1, 2012 to December 31, 2012. At May 31, 2012, the fair value of the open contracts reflected a loss of approximately $75,000 recorded in accumulated other comprehensive income/(loss) in members’ equity. At August 31, 2012, the Company had cash flow hedges for approximately 341,000 Euros with maturity dates of September 14, 2012 to December 31, 2012. At August 31, 2012, the fair value of the open contracts reflected a loss of approximately $20,000 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 .154 % as of May 31, 2013 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 May 31, 2013, the fair value of the cash flow hedge reflected a loss of approximately $2.2 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 May 31, 2013. The current period loss of $170,000 is classified as interest expense on the statements of operations. As of May 31, 2013, $709,000 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 May 31, 2012 and August 31, 2012, the fair value of the cash flow hedge reflected a loss of approximately $2.6 million and $2.8 million, respectively recorded in accumulated other comprehensive income/(loss).

Fair Value of Liability Derivatives

		May 31				August 31
(In Thousands)	Balance Sheet Location	2013		2012		2012
Derivatives Designated as Hedging Instruments:
Foreign Currency Forward Contracts	Other Current Liabilities	$	45	$	75	$	20
Interest Rate Contracts	Other Current Liabilities	709		685		707
Foreign Currency Forward Contracts	Other Long-Term Liabilities	7		—		—
Interest Rate Contracts	Other Long-Term Liabilities	1,519		1,923		2,119

Total Liability Derivatives		$	2,280	$	2,683	$	2,846

- Definition

The entire disclosure for the entity's entire derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items.

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+ Details

AMERICAN CRYSTAL SUGAR CO /MN/ 10-Q