Derivative Instruments and Fair Value Measurement of Assets and Liabilities

Derivative Instruments

The Company's derivative activities are subject to the management, direction, and control of the Chief Financial Officer and Chief Executive Officer and other officers and employees they select. Certain transactions in excess of specified levels require further approval from the Board of Directors.

The nature of the Company's business activities requires the management of various financial and market risks, including those related to changes in foreign currency exchange rates and aluminum scrap prices. The Company uses foreign currency forwards and options and aluminum forward and swap contracts to mitigate or eliminate certain of those risks. Specifically, the foreign currency contracts are used to offset fluctuations in the value of accounts receivable and payable balances that are denominated in currencies other than the U.S. dollar, which consist principally of the Euro, British Pound and Canadian Dollar. The aluminum contracts are used to minimize the price risk related to customer sales contracts. The Company enters into firm price raw material purchase commitments (which are designed as "normal purchases" under ASC 815) as well as contracts on the London Metal Exchange (LME). The Company's risk management policy as it relates to these LME contracts is to enter into contracts as needed so that raw material purchase levels, including both fixed price purchase commitments as well as LME contracts match the needs of the Company to meet committed sales orders. This is done through the use of LME forward purchase and sale contracts as well as LME swap contracts. The Company does not currently enter into derivative transactions for speculative or trading purposes.

The Company is exposed to credit loss in the event of nonperformance by the counterparties to its derivative transactions. The Company attempts to mitigate this risk by monitoring the creditworthiness of its counterparties and limiting its exposure to individual counterparties. In addition, the Company has established master netting agreements in certain cases to facilitate the settlement of gains and losses on specific derivative contracts.

The Company has not designated any of its derivative contracts for hedge accounting treatment. Therefore, changes in the fair value of these contracts are recorded in the Condensed Consolidated Statements of Income as follows:



		Three Months Ended
Derivatives Not Designated as	Location of Gain or (Loss)	January 31,
Hedging Instruments	Recognized in Earnings	2013			2012
		(In thousands)
Aluminum derivatives	Cost of sales	$	70		$	961
Foreign currency derivatives	Other, net	$	(708	)	$	721

The fair value of outstanding derivative contracts recorded as assets and liabilities on the accompanying Condensed Consolidated Balance Sheet is indicated in the table below:



	January 31, 2013		October 31, 2012
	(In thousands)
Asset Derivatives
Prepaid and other current assets:
Aluminum derivatives	$	38	$	10
Foreign currency derivatives	$	11	$	6

Liability Derivatives
Accrued liabilities:
Aluminum derivatives	$	79	$	170
Foreign currency derivatives	$	123	$	23
Other liabilities (non-current):
Aluminum derivatives	$	—	$	4

The following table summarizes the notional amounts and fair value of the Company's outstanding derivative contracts:



	Notional as indicated			Fair Value in $
		January 31, 2013	October 31, 2012	January 31, 2013			October 31, 2012
		(In thousands)
Aluminum derivatives:
Aluminum forward purchase contracts	LBS	1,213	2,370	$	46		$	(164	)
Aluminum forward sales contracts	LBS	1,488	—	$	(78	)	$	—
Aluminum swap contracts	LBS	163	—	$	(8	)	$	—

Foreign currency exchange derivatives:
Sell EUR, buy GBP	EUR	940	545	$	(7	)	$	—
Sell EUR, buy USD	EUR	8,873	7,663	$	(111	)	$	(23	)
Sell CAD, buy USD	CAD	443	608	$	(5	)	$	1
Buy GBP, sell USD	GBP	1,756	1,934	$	11		$	5

Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:


•	Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

•

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates) and inputs that are derived principally from or corroborated by observable market data by correlation or other means.


•	Level 3 - Inputs that are both significant to the fair value measurement and unobservable.

The Company holds Money Market Fund investments, pension plan assets and derivative contracts that are measured at fair value on a recurring basis. The Money Market Fund investments and the pension plan assets are measured at fair value based on active market quotations and are therefore classified as Level 1. All of the Company's derivative contracts are valued using quoted market prices from brokers or exchanges and are classified within Level 2 of the fair value hierarchy.

The Money Market Fund investments are classified as Cash and equivalents, while the pension plan assets are included in Deferred pension and postretirement benefits on the Condensed Consolidated Balance Sheets. The derivative instruments are included in various asset and liability accounts as discussed earlier in this footnote.

The following table summarizes the assets and liabilities measured on a recurring basis based on the fair value hierarchy:




	January 31, 2013										October 31, 2012
	Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
	(In thousands)
Assets
Money market fund investments	$	891	$	—		$	—	$	891		$	67,819	$	—		$	—	$	67,819
Aluminum derivatives	—		38			—		38			—		10			—		10
Foreign currency exchange derivatives	—		11			—		11			—		6			—		6
Pension plan assets	19,196		—			—		19,196			18,562		—			—		18,562
Total assets	$	20,087	$	49		$	—	$	20,136		$	86,381	$	16		$	—	$	86,397

Liabilities
Aluminum derivatives	$	—	$	(79	)	$	—	$	(79	)	$	—	$	(174	)	$	—	$	(174	)
Foreign currency exchange derivatives	—		(123		)	—		(123		)	—		(23		)	—		(23		)
Total liabilities	$	—	$	(202	)	$	—	$	(202	)	$	—	$	(197	)	$	—	$	(197	)

Net assets (liabilities)	$	20,087	$	(153	)	$	—	$	19,934		$	86,381	$	(181	)	$	—	$	86,200

As of January 31, 2013 and October 31, 2012 , the Company did not have any assets or liabilities that were measured at fair value on a recurring basis and classified as Level 3. In connection with the Alumco asset purchase transaction (see Note 3), the Company recognized a $0.3 million contingent liability that is recorded at fair value on a non-recurring basis and was classified as Level 3 as of January 31, 2013. The fair value is based on management's assessment of the probability that the acquired business will achieve the financial targets necessary to receive the earn out payment specified in the purchase agreement. In addition, the Company holds approximately $4.2 million of property that is recorded at fair value on a non-recurring basis and based on broker opinions that was classified as Level 3 as of January 31, 2013 and October 31, 2012.