DERIVATIVES AND RISK MANAGEMENT

6 Months Ended

Feb. 29, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and risk management

NOTE 9. 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 February 29, 2016, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $296.5 million and $30.1 million, respectively. At February 28, 2015, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $402.3 million and $50.0 million, respectively.

The following table provides information regarding the Company's commodity contract commitments as of February 29, 2016:

Commodity	Long/Short	Total
Aluminum	Long	5,141	MT
Aluminum	Short	250	MT
Copper	Long	294	MT
Copper	Short	4,423	MT
Zinc	Long	7	MT

MT = Metric Ton

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 condensed consolidated statements of earnings, and there were no components excluded from the assessment of hedge effectiveness for the three and six months ended February 29, 2016 and February 28, 2015. 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 condensed consolidated statements of earnings:

		Three Months Ended					Six Months Ended
Derivatives Not Designated as Hedging Instruments (in thousands)	Location	February 29, 2016			February 28, 2015		February 29, 2016			February 28, 2015
Commodity	Cost of goods sold	$	(224	)	$	1,866	$	1,948		$	5,301
Foreign exchange	Net sales	(4		)	569		(4		)	3,005
Foreign exchange	Cost of goods sold	31			2,480		81			4,351
Foreign exchange	SG&A expenses	10,495			7,874		15,714			20,074
Gain before income taxes		$	10,298		$	12,789	$	17,739		$	32,731

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						Six Months Ended
	Location	February 29, 2016			February 28, 2015			February 29, 2016			February 28, 2015
Foreign exchange	Net sales	$	(61	)	$	534		$	83		$	359
Foreign exchange	Cost of goods sold	183			(229		)	(811		)	925
Gain (loss) before income taxes		$	122		$	305		$	(728	)	$	1,284

Hedged Items Designated as Fair Value Hedging Instruments (in thousands)		Three Months Ended						Six Months Ended
	Location	February 29, 2016			February 28, 2015			February 29, 2016			February 28, 2015
Foreign exchange	Net sales	$	62		$	(537	)	$	(83	)	$	(358	)
Foreign exchange	Cost of goods sold	(183		)	229			811			(925		)
Gain (loss) before income taxes		$	(121	)	$	(308	)	$	728		$	(1,283	)

Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Recognized in Accumulated Other Comprehensive Income (Loss) (in thousands)	Three Months Ended					Six Months Ended
	February 29, 2016		February 28, 2015			February 29, 2016			February 28, 2015
Commodity	$	253	$	(348	)	$	(224	)	$	(416	)
Foreign exchange	241		(1,552		)	709			(2,009		)
Gain (loss), net of income taxes	$	494	$	(1,900	)	$	485		$	(2,425	)

Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Reclassified from Accumulated Other Comprehensive Income (Loss) (in thousands)		Three Months Ended						Six Months Ended
	Location	February 29, 2016			February 28, 2015			February 29, 2016			February 28, 2015
Commodity	Cost of goods sold	$	(59	)	$	(140	)	$	(110	)	$	(160	)
Foreign exchange	Net sales	(450		)	74			(393		)	74
Foreign exchange	Cost of goods sold	426			(1,203		)	418			(1,403		)
Foreign exchange	SG&A expenses	35			19			70			40
Interest rate	Interest expense	132			132			266			266
Gain (loss) before income taxes		84			(1,118		)	251			(1,183		)
Income tax (expense) benefit		(28		)	391			(77		)	417
Gain (loss), net of income taxes		$	56		$	(727	)	$	174		$	(766	)

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 condensed consolidated balance sheets. The asset and liability balances in the tables below reflect the gross amounts of derivative instruments at February 29, 2016 and August 31, 2015. The fair value of the Company's derivative instruments on the condensed consolidated balance sheets was as follows:

Derivative Assets (in thousands)	February 29, 2016		August 31, 2015
Commodity — designated for hedge accounting	$	24	$	19
Commodity — not designated for hedge accounting	96		846
Foreign exchange — designated for hedge accounting	1,273		1,500
Foreign exchange — not designated for hedge accounting	2,992		3,088
Derivative assets (other current assets)*	$	4,385	$	5,453

Derivative Liabilities (in thousands)	February 29, 2016		August 31, 2015
Commodity — designated for hedge accounting	$	122	$	129
Commodity — not designated for hedge accounting	688		537
Foreign exchange — designated for hedge accounting	719		874
Foreign exchange — not designated for hedge accounting	645		1,263
Derivative liabilities (accrued expenses and other payables)*	$	2,174	$	2,803

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

As of February 29, 2016, 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.