DERIVATIVES AND RISK MANAGEMENT

9 Months Ended

May 31, 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 May 31, 2017, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $262.8 million and $36.9 million, respectively. 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.

The following table provides information regarding the Company's commodity contract commitments as of May 31, 2017:

Commodity	Long/Short	Total
Aluminum	Long	1,925	MT
Aluminum	Short	25	MT
Copper	Long	555	MT
Copper	Short	5,250	MT
Zinc	Long	7	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 nine months ended May 31, 2017 and May 31, 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 May 31,						Nine Months Ended May 31,
Derivatives Not Designated as Hedging Instruments (in thousands)	Location	2017			2016			2017			2016
Commodity	Cost of goods sold	$	1,654		$	224		$	(3,121	)	$	2,172
Foreign exchange	Net sales	(2		)	—			(2		)	(4		)
Foreign exchange	Cost of goods sold	(5		)	(9		)	(38		)	72
Foreign exchange	SG&A expenses	(1,076		)	(6,304		)	2,295			9,410
Gain (loss) before income taxes		$	571		$	(6,089	)	$	(866	)	$	11,650

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.

	Location of gain (loss) recognized in income on derivatives	Amount of gain (loss) recognized in income on derivatives for the three months ended May 31,						Location of gain (loss) recognized in income on related hedged items	Amount of gain (loss) recognized in income on related hedge items for the three months ended May 31,
		2017			2016				2017			2016
Foreign exchange	Net sales	$	(102	)	$	(122	)	Net sales	$	102		$	122
Foreign exchange	Cost of goods sold	1,042			901			Cost of goods sold	(1,042		)	(901		)
Gain (loss) before income taxes		$	940		$	779			$	(940	)	$	(779	)

	Location of gain (loss) recognized in income on derivatives	Amount of gain (loss) recognized in income on derivatives for the nine months ended May 31,						Location of gain (loss) recognized in income on related hedged items	Amount of gain (loss) recognized in income on related hedge items for the nine months ended May 31,
		2017			2016				2017			2016
Foreign exchange	Net sales	$	(58	)	$	(39	)	Net sales	$	58		$	39
Foreign exchange	Cost of goods sold	435			90			Cost of goods sold	(435		)	(90		)
Gain (loss) before income taxes		$	377		$	51			$	(377	)	$	(51	)

Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Recognized in AOCI (Loss) (in thousands)	Three Months Ended May 31,						Nine Months Ended May 31,
	2017			2016			2017		2016
Commodity	$	(9	)	$	(56	)	$	208	$	(280	)
Foreign exchange	263			40			488		749
Gain (loss), net of income taxes	$	254		$	(16	)	$	696	$	469

Refer to Note 3, Accumulated Other Comprehensive Income (Loss), of the unaudited condensed consolidated financial statements included in this quarterly report on Form 10-Q for the effective portion of derivatives designated as cash flow hedging instruments reclassified from AOCI.

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 May 31, 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)	May 31, 2017		August 31, 2016
Commodity — designated for hedge accounting	$	13	$	4
Commodity — not designated for hedge accounting	324		584
Foreign exchange — designated for hedge accounting	606		1,398
Foreign exchange — not designated for hedge accounting	2,374		750
Derivative assets (other current assets)*	$	3,317	$	2,736

Derivative Liabilities (in thousands)	May 31, 2017		August 31, 2016
Commodity — designated for hedge accounting	$	—	$	5
Commodity — not designated for hedge accounting	238		117
Foreign exchange — designated for hedge accounting	101		902
Foreign exchange — not designated for hedge accounting	1,805		1,161
Derivative liabilities (accrued expenses and other payables)*	$	2,144	$	2,185

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

As of May 31, 2017, 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.