DERIVATIVES AND RISK MANAGEMENT

9 Months Ended

May 31, 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 May 31, 2016, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $290.0 million and $23.0 million, respectively. 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.

The following table provides information regarding the Company's commodity contract commitments as of May 31, 2016:

Commodity	Long/Short	Total
Aluminum	Long	3,429	MT
Aluminum	Short	175	MT
Copper	Long	238	MT
Copper	Short	3,425	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 nine months ended May 31, 2016 and 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 May 31,						Nine Months Ended May 31,
Derivatives Not Designated as Hedging Instruments (in thousands)	Location	2016			2015			2016			2015
Commodity	Cost of goods sold	$	224		$	(354	)	$	2,172		$	4,947
Foreign exchange	Net sales	—			—			(4		)	3,005
Foreign exchange	Cost of goods sold	(9		)	562			72			4,913
Foreign exchange	SG&A expenses	(6,304		)	2,405			9,410			22,479
Gain (loss) before income taxes		$	(6,089	)	$	2,613		$	11,650		$	35,344

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	2016			2015			2016			2015
Foreign exchange	Net sales	$	(122	)	$	207		$	(39	)	$	566
Foreign exchange	Cost of goods sold	901			(283		)	90			642
Gain (loss) before income taxes		$	779		$	(76	)	$	51		$	1,208

Hedged Items Designated as Fair Value Hedging Instruments (in thousands)		Three Months Ended May 31,						Nine Months Ended May 31,
	Location	2016			2015			2016			2015
Foreign exchange	Net sales	$	122		$	(207	)	$	39		$	(565	)
Foreign exchange	Cost of goods sold	(901		)	283			(90		)	(642		)
Gain (loss) before income taxes		$	(779	)	$	76		$	(51	)	$	(1,207	)

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,
	2016			2015			2016			2015
Commodity	$	(56	)	$	(76	)	$	(280	)	$	(492	)
Foreign exchange	40			130			749			(1,879		)
Gain (loss), net of income taxes	$	(16	)	$	54		$	469		$	(2,371	)

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	2016			2015			2016			2015
Commodity	Cost of goods sold	$	(263	)	$	(269	)	$	(373	)	$	(429	)
Foreign exchange	Net sales	(168		)	(111		)	(561		)	(37		)
Foreign exchange	Cost of goods sold	223			(1,044		)	641			(2,447		)
Foreign exchange	SG&A expenses	53			17			123			57
Interest rate	Interest expense	134			134			400			400
Gain (loss) before income taxes		(21		)	(1,273		)	230			(2,456		)
Income tax (expense) benefit		(11		)	469			(88		)	886
Gain (loss), net of income taxes		$	(32	)	$	(804	)	$	142		$	(1,570	)

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 May 31, 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)	May 31, 2016		August 31, 2015
Commodity — designated for hedge accounting	$	8	$	19
Commodity — not designated for hedge accounting	447		846
Foreign exchange — designated for hedge accounting	1,719		1,500
Foreign exchange — not designated for hedge accounting	1,245		3,088
Derivative assets (other current assets)*	$	3,419	$	5,453

Derivative Liabilities (in thousands)	May 31, 2016		August 31, 2015
Commodity — designated for hedge accounting	$	88	$	129
Commodity — not designated for hedge accounting	66		537
Foreign exchange — designated for hedge accounting	342		874
Foreign exchange — not designated for hedge accounting	987		1,263
Derivative liabilities (accrued expenses and other payables)*	$	1,483	$	2,803

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

As of May 31, 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.