DERIVATIVES AND RISK MANAGEMENT

12 Months Ended

Aug. 31, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVES AND RISK MANAGEMENT

NOTE 13. 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, 2016, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $258.3 million and $19.8 million, respectively. At August 31, 2015, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $390.8 million and $37.7 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 earnings, and there were no components excluded from the assessment of hedge effectiveness for the years ended August 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 consolidated statements of earnings:

		Year Ended August 31,
Derivatives Not Designated as Hedging Instruments (in thousands)	Location	2016			2015		2014
Commodity	Cost of goods sold	$	2,675		$	7,746	$	2,504
Foreign exchange	Net sales	(4		)	3,016		473
Foreign exchange	Cost of goods sold	19			4,996		(1,078		)
Foreign exchange	SG&A expenses	11,732			23,105		(4,135		)
Gain (loss) before income taxes		$	14,422		$	38,863	$	(2,236	)

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.

Derivatives Designated as Fair Value Hedging Instruments (in thousands)		Year Ended August 31,
	Location	2016			2015			2014
Foreign exchange	Net sales	$	(39	)	$	(105	)	$	93
Foreign exchange	Cost of goods sold	(1,072		)	881			(1,465		)
Gain (loss) before income taxes		$	(1,111	)	$	776		$	(1,372	)

Hedged Items for Derivatives Designated as Fair Value Hedging Instruments (in thousands)		Year Ended August 31,
	Location	2016		2015			2014
Foreign exchange	Net sales	$	39	$	105		$	(91	)
Foreign exchange	Cost of goods sold	1,072		(881		)	1,469
Gain (loss) before income taxes		$	1,111	$	(776	)	$	1,378

Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Recognized in Accumulated Other Comprehensive Income (Loss) (in thousands)	August 31,
	2016			2015			2014
Commodity	$	(204	)	$	(635	)	$	(54	)
Foreign exchange	1,822			(1,832		)	(1,794		)
Gain (loss), net of income taxes	$	1,618		$	(2,467	)	$	(1,848	)

Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Reclassified from Accumulated Other Comprehensive Loss (in thousands)		Year Ended August 31,
	Location	2016			2015			2014
Commodity	Cost of  goods sold	$	(493	)	$	(665	)	$	(160	)
Foreign exchange	Net sales	(380		)	124			(213		)
Foreign exchange	Cost of goods sold	2,283			(2,774		)	(1,717		)
Foreign exchange	SG&A expenses	291			76			53
Interest rate	Interest expense	532			532			532
Gain (loss) before income taxes		2,233			(2,707		)	(1,505		)
Income tax (expense) benefit	Income taxes	(496		)	949			237
Gain (loss), net of income taxes		$	1,737		$	(1,758	)	$	(1,268	)

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, 2016 and 2015. The fair value of the Company's derivative instruments on the consolidated balance sheets was as follows:

Derivative Assets (in thousands)	August 31,
	2016		2015
Commodity — designated for hedge accounting	$	4	$	19
Commodity — not designated for hedge accounting	584		846
Foreign exchange — designated for hedge accounting	1,398		1,500
Foreign exchange — not designated for hedge accounting	750		3,088
Derivative assets (other current assets)*	$	2,736	$	5,453

Derivative Liabilities (in thousands)	August 31,
	2016		2015
Commodity — designated for hedge accounting	$	5	$	129
Commodity — not designated for hedge accounting	117		537
Foreign exchange — designated for hedge accounting	902		874
Foreign exchange — not designated for hedge accounting	1,161		1,263
Derivative liabilities (accrued expenses and other payables)*	$	2,185	$	2,803

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

As of August 31, 2016 and 2015, substantially 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.