DERIVATIVES AND RISK MANAGEMENT

12 Months Ended

Aug. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVES AND RISK MANAGEMENT

NOTE 12. 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 and (ii) foreign currency forward contracts that match the expected settlements for purchases and sales denominated in foreign currencies.

The Company considers the total notional value of its futures and forward contracts as the best measure of the volume of derivative transactions. At August 31, 2017, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $300.4 million and $59.3 million, respectively. 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.

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, 2017 and 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 consolidated statements of earnings:

		Year Ended August 31,
Derivatives Not Designated as Hedging Instruments (in thousands)	Location	2017			2016		2015
Commodity	Cost of goods sold	$	(9,095	)	$	2,675	$	7,746
Foreign exchange	Net sales	—			—		3,005
Foreign exchange	Cost of goods sold	(47		)	19		4,996
Foreign exchange	SG&A expenses	(5,400		)	11,732		23,105
Gain (loss) from continuing operations before income taxes		$	(14,542	)	$	14,426	$	38,852

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.

		Amount of gain (loss) recognized in income on derivatives for the year ended August 31,										Amount of gain (loss) recognized in income on related hedge items for the year ended August 31,
	Location of gain (loss) recognized in income on derivatives	2017			2016			2015			Location of gain (loss) recognized in income on related hedged items	2017			2016		2015
Foreign exchange	Net sales	$	25		$	(38	)	$	(236	)	Net sales	$	(25	)	$	38	$	236
Foreign exchange	Cost of goods sold	(1,436		)	(1,075		)	888			Cost of goods sold	1,436			1,075		(888		)
Gain (loss) from continuing operations before income taxes		$	(1,411	)	$	(1,113	)	$	652			$	1,411		$	1,113	$	(652	)

Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Recognized in Accumulated Other Comprehensive Income (Loss) (in thousands)	August 31,
	2017		2016			2015
Commodity	$	210	$	(204	)	$	(635	)
Foreign exchange	546		1,822			(1,832		)
Gain (loss), net of income taxes	$	756	$	1,618		$	(2,467	)

Refer to Note 4, Accumulated Other Comprehensive Income (Loss), 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 consolidated balance sheets. The asset and liability balances in the tables below reflect the gross amounts of derivative instruments at August 31, 2017 and 2016. The fair value of the Company's derivative instruments on the consolidated balance sheets was as follows:

Derivative Assets (in thousands)	August 31,
	2017		2016
Commodity — not designated for hedge accounting	$	767	$	584
Foreign exchange — designated for hedge accounting	81		1,398
Foreign exchange — not designated for hedge accounting	1,286		750
Derivative assets (other current assets)*	$	2,134	$	2,732
Commodity — designated for hedge accounting	$	—	$	4
Derivative assets (assets held for sale - current)*	$	—	$	4

Derivative Liabilities (in thousands)	August 31,
	2017		2016
Commodity — not designated for hedge accounting	3,251		117
Foreign exchange — designated for hedge accounting	1,549		902
Foreign exchange — not designated for hedge accounting	3,710		1,161
Derivative liabilities (accrued expenses and other payables)*	$	8,510	$	2,180
Commodity — designated for hedge accounting	$	—	$	5
Derivative liabilities (liabilities held for sale - current)*	$	—	$	5

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

As of August 31, 2017 and 2016, 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.