DERIVATIVES AND RISK MANAGEMENT

6 Months Ended

Feb. 28, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and risk management

NOTE 8. 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.

At February 28, 2018, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $300.9 million and $55.3 million, respectively. 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.

The following table provides information regarding the Company's commodity contract commitments as of February 28, 2018:

Commodity	Long/Short	Total
Aluminum	Long	2,650	MT
Aluminum	Short	—	MT
Copper	Long	1,009	MT
Copper	Short	5,999	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, 2018 and February 28, 2017. 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 February 28,						Six Months Ended February 28,
Derivatives Not Designated as Hedging Instruments (in thousands)	Location	2018			2017			2018			2017
Commodity	Cost of goods sold	$	(2	)	$	(146	)	$	573		$	(4,775	)
Foreign exchange	Cost of goods sold	(31		)	(25		)	(50		)	(33		)
Foreign exchange	SG&A expenses	(1,729		)	(678		)	651			3,371
Gain (loss) before income taxes		$	(1,762	)	$	(849	)	$	1,174		$	(1,437	)

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 February 28,						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 February 28,
		2018			2017				2018			2017
Foreign exchange	Net sales	$	8		$	66		Net sales	$	(8	)	$	(66	)
Foreign exchange	Cost of goods sold	(1,323		)	(1,693		)	Cost of goods sold	1,323			1,693
Gain (loss) before income taxes		$	(1,315	)	$	(1,627	)		$	1,315		$	1,627

	Location of gain (loss) recognized in income on derivatives	Amount of gain (loss) recognized in income on derivatives for the six months ended February 28,						Location of gain (loss) recognized in income on related hedged items	Amount of gain (loss) recognized in income on related hedge items for the six months ended February 28,
		2018			2017				2018			2017
Foreign exchange	Net sales	$	(229	)	$	44		Net sales	$	229		$	(44	)
Foreign exchange	Cost of goods sold	2,025			(607		)	Cost of goods sold	(2,025		)	607
Gain (loss) before income taxes		$	1,796		$	(563	)		$	(1,796	)	$	563

Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Recognized in AOCI (in thousands)	Three Months Ended February 28,				Six Months Ended February 28,
	2018		2017		2018		2017
Commodity	$	—	$	118	$	—	$	217
Foreign exchange	14		192		25		225
Gain (loss), net of income taxes	$	14	$	310	$	25	$	442

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 February 28, 2018 and August 31, 2017. 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, 2018		August 31, 2017
Commodity — not designated for hedge accounting	$	1,070	$	767
Foreign exchange — designated for hedge accounting	936		81
Foreign exchange — not designated for hedge accounting	2,851		1,286
Derivative assets (other current assets)*	$	4,857	$	2,134

Derivative Liabilities (in thousands)	February 28, 2018		August 31, 2017
Commodity — not designated for hedge accounting	$	289	$	3,251
Foreign exchange — designated for hedge accounting	671		1,549
Foreign exchange — not designated for hedge accounting	868		3,710
Derivative liabilities (accrued expenses and other payables)*	$	1,828	$	8,510

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

As of February 28, 2018, 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.