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DERIVATIVES AND RISK MANAGEMENT
9 Months Ended
May. 31, 2015
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 May 31, 2015, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $399.8 million and $46.5 million, respectively. At May 31, 2014, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $457.7 million and $41.5 million, respectively.

The following table provides information regarding the Company's commodity contract commitments as of May 31, 2015:
Commodity
 
Long/Short
 
Total
Aluminum
 
Long
 
3,746

 MT
Aluminum
 
Short
 
325

 MT
Copper
 
Long
 
826

 MT
Copper
 
Short
 
5,364

 MT
Zinc
 
Long
 
29

 MT
Natural Gas
 
Long
 
180,000

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 the three and nine months ended May 31, 2015 and 2014. 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 May 31,
 
Nine Months Ended May 31,
Derivatives Not Designated as Hedging Instruments (in thousands)
 
Location
 
2015
 
2014
 
2015
 
2014
Commodity
 
Cost of goods sold
 
$
(354
)
 
$
1,346

 
$
4,947

 
$
1,985

Foreign exchange
 
Net sales
 

 
(351
)
 
3,005

 
(736
)
Foreign exchange
 
Cost of goods sold
 
562

 
(326
)
 
4,913

 
(697
)
Foreign exchange
 
SG&A expenses
 
2,405

 
1,183

 
22,479

 
(5,632
)
Gain (loss) before income taxes
 
 
 
$
2,613

 
$
1,852

 
$
35,344

 
$
(5,080
)

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 May 31,
 
Nine Months Ended May 31,
 
Location
 
2015
 
2014
 
2015
 
2014
Foreign exchange
 
Net sales
 
$
207

 
$
(55
)
 
$
566

 
$
(28
)
Foreign exchange
 
Cost of goods sold
 
(283
)
 
(1,053
)
 
642

 
(2,133
)
Gain (loss) before income taxes
 
 
 
$
(76
)
 
$
(1,108
)
 
$
1,208

 
$
(2,161
)

Hedged Items Designated as Fair Value Hedging Instruments (in thousands)
 
 
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
Location
 
2015
 
2014
 
2015
 
2014
Foreign exchange
 
Net sales
 
$
(207
)
 
$
62

 
$
(565
)
 
$
25

Foreign exchange
 
Cost of goods sold
 
283

 
1,053

 
(642
)
 
2,133

Gain (loss) before income taxes
 
 
 
$
76

 
$
1,115

 
$
(1,207
)
 
$
2,158



Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Recognized in Accumulated Other Comprehensive Income (Loss) (in thousands)
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2015
 
2014
 
2015
 
2014
Commodity
 
$
(76
)
 
$
65

 
$
(492
)
 
$
(48
)
Foreign exchange
 
130

 
325

 
(1,879
)
 
(1,605
)
Gain (loss), net of income taxes
 
$
54

 
$
390

 
$
(2,371
)
 
$
(1,653
)


Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Reclassified from Accumulated Other Comprehensive Income (Loss) (in thousands)
 
 
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
Location
 
2015
 
2014
 
2015
 
2014
Commodity
 
Cost of goods sold
 
$
(174
)
 
$
43

 
$
(278
)
 
$
(110
)
Foreign exchange
 
Net sales
 
(114
)
 
20

 
(38
)
 
(213
)
Foreign exchange
 
Cost of goods sold
 
(617
)
 
(57
)
 
(1,560
)
 
(1,231
)
Foreign exchange
 
SG&A expenses
 
14

 
10

 
46

 
35

Interest rate
 
Interest expense
 
87

 
87

 
260

 
260

Gain (loss), net of income taxes
 
 
 
(804
)
 
$
103

 
$
(1,570
)
 
$
(1,259
)


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 May 31, 2015 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)
 
May 31, 2015
 
August 31, 2014
Commodity — designated for hedge accounting
 
$
16

 
$
42

Commodity — not designated for hedge accounting
 
942

 
869

Foreign exchange — designated for hedge accounting
 
1,414

 
136

Foreign exchange — not designated for hedge accounting
 
3,240

 
1,853

Derivative assets (other current assets)*
 
$
5,612

 
$
2,900


 
Derivative Liabilities (in thousands)
 
May 31, 2015
 
August 31, 2014
Commodity — designated for hedge accounting
 
$
242

 
$
6

Commodity — not designated for hedge accounting
 
603

 
162

Foreign exchange — designated for hedge accounting
 
951

 
325

Foreign exchange — not designated for hedge accounting
 
1,178

 
1,010

Derivative liabilities (accrued expenses and other payables)*
 
$
2,974

 
$
1,503

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

As of May 31, 2015, most 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.