DERIVATIVES AND RISK MANAGEMENT

12 Months Ended

Aug. 31, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVES AND RISK MANAGEMENT

NOTE 12. DERIVATIVES AND RISK MANAGEMENT

The Company's global 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 (i) metal commodity futures and forward contracts to mitigate the risk of unanticipated changes in gross margin due to the volatility of the commodities' prices, (ii) foreign currency forward contracts that match the expected settlements for purchases and sales denominated in foreign currencies and (iii) 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 August 31, 2014, the notional value of the Company's foreign currency contract commitments and its commodity contract commitments was $406.6 million and $59.6 million, respectively. At August 31, 2013, the notional value of the Company's foreign currency contract commitments and its commodity contract commitments was $331.0 million and $49.3 million, respectively.

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 years ended August 31, 2014 and 2013. 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:

		Year Ended August 31,
Derivatives Not Designated as Hedging Instruments (in thousands)	Location	2014			2013		2012
Commodity	Cost of goods sold	$	2,504		$	2,456	$	4,496
Foreign exchange	Net sales	473			—		(199		)
Foreign exchange	Cost of goods sold	(1,078		)	—		(537		)
Foreign exchange	SG&A expenses	(4,135		)	5,089		(872		)
Other	Cost of goods sold	—			9		—
Gain (loss) before income taxes		$	(2,236	)	$	7,554	$	2,888

The Company's fair value hedges are designated for accounting purposes with the gains or losses on the hedged items offsetting the gains or losses on the related derivative transactions. Hedged items relate to firm commitments on commercial sales and purchases and capital expenditures.

During fiscal 2012, the Company terminated its interest rate swap transactions having a notional value of $800 million. The Company's interest rate swap transactions resulted in a $6.5 million reduction in interest expense for the year ended August 31, 2012. This amount represents the net of the Company's periodic variable-rate interest obligation and the swap counterparty's fixed-rate interest obligation. See Note 11, Credit Arrangements for additional information. 

Derivatives Designated as Fair Value Hedging Instruments (in thousands)		Year Ended August 31,
	Location	2014			2013			2012
Foreign exchange	Net sales	$	93		$	(151	)	$	—
Foreign exchange	Cost of goods sold	(1,465		)	2,241			—
Foreign exchange	SG&A expenses	—			—			383
Interest rate	Interest expense	—			—			10,561
Gain (loss) before income taxes		$	(1,372	)	$	2,090		$	10,944

Hedged Items Designated as Fair Value Hedging Instruments (in thousands)		Year Ended August 31,
	Location	2014			2013			2012
Foreign exchange	Net sales	$	(91	)	$	153		$	—
Foreign exchange	Cost of goods sold	1,469			(2,241		)	—
Foreign exchange	SG&A expenses	—			—			(383		)
Interest rate	Interest expense	—			—			(10,561		)
Gain (loss) before income taxes		$	1,378		$	(2,088	)	$	(10,944	)

Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Recognized in Accumulated Other Comprehensive Income (Loss) (in thousands)	August 31,
	2014			2013			2012
Commodity	$	(54	)	$	(218	)	$	—
Foreign exchange	(1,794		)	439			(1,545		)
Gain (loss), net of income taxes	$	(1,848	)	$	221		$	(1,545	)

Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Reclassified from Accumulated Other Comprehensive Income (Loss) (in thousands)		Year Ended August 31,
	Location	2014			2013			2012
Commodity	Cost of  goods sold	$	(104	)	$	(169	)	$	27
Foreign exchange	Net sales	(213		)	46			(826		)
Foreign exchange	Cost of goods sold	(1,349		)	20			—
Foreign exchange	SG&A expenses	52			39			(300		)
Interest rate	Interest expense	346			401			521
Gain (loss), net of income taxes		$	(1,268	)	$	337		$	(578	)

The Company enters into derivative agreements that include provisions to allow the set-off of certain amounts. Derivative instruments are presented on a gross basis on the Company's consolidated balance sheets. The asset and liability balances in the tables below reflect the gross amounts of derivative instruments at August 31, 2014 and 2013. The fair value of the Company's derivative instruments on the consolidated balance sheets was as follows:

Derivative Assets (in thousands)	August 31,
	2014		2013
Commodity — designated for hedge accounting	$	42	$	—
Commodity — not designated for hedge accounting	869		1,066
Foreign exchange — designated for hedge accounting	136		1,626
Foreign exchange — not designated for hedge accounting	1,853		1,238
Derivative assets (other current assets)*	$	2,900	$	3,930

Derivative Liabilities (in thousands)	August 31,
	2014		2013
Commodity — designated for hedge accounting	$	6	$	129
Commodity — not designated for hedge accounting	162		1,268
Foreign exchange — designated for hedge accounting	325		432
Foreign exchange — not designated for hedge accounting	1,010		1,738
Derivative liabilities (accrued expenses and other payables)*	$	1,503	$	3,567

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

As of August 31, 2014 and 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 were not entered into for trading purposes.