DERIVATIVES AND RISK MANAGEMENT

6 Months Ended

Feb. 28, 2017

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.

At February 28, 2017, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $256.4 million and $36.3 million, respectively. 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.

The following table provides information regarding the Company's commodity contract commitments as of February 28, 2017:

Commodity	Long/Short	Total
Aluminum	Long	2,630	MT
Aluminum	Short	325	MT
Copper	Long	419	MT
Copper	Short	4,808	MT
Zinc	Long	15	MT

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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 unaudited 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 28, 2017 and February 29, 2016. 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 unaudited condensed consolidated statements of earnings:

		Three Months Ended						Six Months Ended
Derivatives Not Designated as Hedging Instruments (in thousands)	Location	February 28, 2017			February 29, 2016			February 28, 2017			February 29, 2016
Commodity	Cost of goods sold	$	(146	)	$	(224	)	$	(4,775	)	$	1,948
Foreign exchange	Net sales	—			(4		)	—			(4		)
Foreign exchange	Cost of goods sold	(25		)	31			(33		)	81
Foreign exchange	SG&A expenses	(678		)	10,495			3,371			15,714
Gain (loss) before income taxes		$	(849	)	$	10,298		$	(1,437	)	$	17,739

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)		Three Months Ended						Six Months Ended
	Location	February 28, 2017			February 29, 2016			February 28, 2017			February 29, 2016
Foreign exchange	Net sales	$	66		$	(61	)	$	44		$	83
Foreign exchange	Cost of goods sold	(1,693		)	183			(607		)	(811		)
Gain (loss) before income taxes		$	(1,627	)	$	122		$	(563	)	$	(728	)

Hedged Items Designated as Fair Value Hedging Instruments (in thousands)		Three Months Ended						Six Months Ended
	Location	February 28, 2017			February 29, 2016			February 28, 2017			February 29, 2016
Foreign exchange	Net sales	$	(66	)	$	62		$	(44	)	$	(83	)
Foreign exchange	Cost of goods sold	1,693			(183		)	607			811
Gain (loss) before income taxes		$	1,627		$	(121	)	$	563		$	728

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 28, 2017		February 29, 2016		February 28, 2017		February 29, 2016
Commodity	$	118	$	253	$	217	$	(224	)
Foreign exchange	192		241		225		709
Gain, net of income taxes	$	310	$	494	$	442	$	485

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 28, 2017			February 29, 2016			February 28, 2017			February 29, 2016
Commodity	Cost of goods sold	$	(33	)	$	(59	)	$	(125	)	$	(110	)
Foreign exchange	Net sales	329			(450		)	244			(393		)
Foreign exchange	Cost of goods sold	(172		)	426			(44		)	418
Foreign exchange	SG&A expenses	138			35			290			70
Interest rate	Interest expense	132			132			266			266
Gain before income taxes		394			84			631			251
Income taxes	Income taxes	(64		)	(28		)	(111		)	(77		)
Gain, net of income taxes		$	330		$	56		$	520		$	174

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 unaudited condensed consolidated balance sheets. The asset and liability balances in the tables below reflect the gross amounts of derivative instruments at February 28, 2017 and August 31, 2016. The fair value of the Company's derivative instruments on the unaudited condensed consolidated balance sheets was as follows:

Derivative Assets (in thousands)	February 28, 2017		August 31, 2016
Commodity — designated for hedge accounting	$	170	$	4
Commodity — not designated for hedge accounting	277		584
Foreign exchange — designated for hedge accounting	631		1,398
Foreign exchange — not designated for hedge accounting	1,169		750
Derivative assets (other current assets)*	$	2,247	$	2,736

Derivative Liabilities (in thousands)	February 28, 2017		August 31, 2016
Commodity — designated for hedge accounting	$	—	$	5
Commodity — not designated for hedge accounting	595		117
Foreign exchange — designated for hedge accounting	718		902
Foreign exchange — not designated for hedge accounting	777		1,161
Derivative liabilities (accrued expenses and other payables)*	$	2,090	$	2,185

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

As of February 28, 2017, 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.