DERIVATIVES AND RISK MANAGEMENT

3 Months Ended

Nov. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and risk management

NOTE 8. 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 November 30, 2014, the notional value of the Company's foreign currency contract commitments and its commodity contract commitments was $423.6 million and $50.8 million, respectively. At November 30, 2013, the notional value of the Company's foreign currency contract commitments and its commodity contract commitments was $433.3 million and $54.9 million, respectively.

The following table provides information regarding the Company's commodity contract commitments as of November 30, 2014:

Commodity	Long/Short	Total
Aluminum	Long	2,366	MT
Aluminum	Short	100	MT
Copper	Long	1,531	MT
Copper	Short	5,012	MT
Zinc	Long	7	MT
Natural Gas	Long	540,000	MMBTUs

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 earnings, and there were no components excluded from the assessment of hedge effectiveness for each of the three months ended November 30, 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 earnings:

		Three Months Ended November 30,
Derivatives Not Designated as Hedging Instruments (in thousands)	Location	2014		2013
Commodity	Cost of goods sold	$	3,435	$	510
Foreign exchange	Net sales	2,436		(159		)
Foreign exchange	Cost of goods sold	1,871		(121		)
Foreign exchange	SG&A expenses	12,200		(4,693		)
Gain (loss) before income taxes		$	19,942	$	(4,463	)

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.

Derivatives Designated as Fair Value Hedging Instruments (in thousands)		Three Months Ended November 30,
	Location	2014			2013
Foreign exchange	Net sales	$	(175	)	$	(113	)
Foreign exchange	Cost of goods sold	1,154			(127		)
Gain (loss) before income taxes		$	979		$	(240	)

Hedged Items Designated as Fair Value Hedging Instruments (in thousands)		Three Months Ended November 30,
	Location	2014			2013
Foreign exchange	Net sales	$	179		$	93
Foreign exchange	Cost of goods sold	(1,154		)	125
Gain (loss) before income taxes		$	(975	)	$	218

Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Recognized in Accumulated Other Comprehensive Income (Loss) (in thousands)	Three Months Ended November 30,
	2014			2013
Commodity	$	(68	)	$	(89	)
Foreign exchange	(457		)	(1,528		)
Gain (loss), net of income taxes	$	(525	)	$	(1,617	)

Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Reclassified from Accumulated Other Comprehensive Income (Loss) (in thousands)		Three Months Ended November 30,
	Location	2014			2013
Commodity	Cost of goods sold	$	(13	)	$	(89	)
Foreign exchange	Net sales	—			(231		)
Foreign exchange	Cost of goods sold	(130		)	(758		)
Foreign exchange	SG&A expenses	17			12
Interest rate	Interest expense	87			86
Gain (loss), net of income taxes		$	(39	)	$	(980	)

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 November 30, 2014 and August 31, 2014. The fair value of the Company's derivative instruments on the consolidated balance sheets was as follows:

Derivative Assets (in thousands)	November 30, 2014		August 31, 2014
Commodity — designated for hedge accounting	$	5	$	42
Commodity — not designated for hedge accounting	2,132		869
Foreign exchange — designated for hedge accounting	1,111		136
Foreign exchange — not designated for hedge accounting	3,529		1,853
Derivative assets (other current assets)*	$	6,777	$	2,900

Derivative Liabilities (in thousands)	November 30, 2014		August 31, 2014
Commodity — designated for hedge accounting	$	97	$	6
Commodity — not designated for hedge accounting	467		162
Foreign exchange — designated for hedge accounting	774		325
Foreign exchange — not designated for hedge accounting	1,271		1,010
Derivative liabilities (accrued expenses and other payables)*	$	2,609	$	1,503

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

As of November 30, 2014, 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.