DERIVATIVES AND RISK MANAGEMENT

9 Months Ended

May 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and risk management

NOTE 10. 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 May 31, 2019, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $112.0 million and $49.7 million, respectively. At May 31, 2018, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $140.4 million and $64.8 million, respectively.

The following table provides information regarding the Company's commodity contract commitments as of May 31, 2019:

Commodity	Long/Short	Total
Aluminum	Long	4,500	MT
Aluminum	Short	2,350	MT
Copper	Long	669	MT
Copper	Short	5,341	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 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, 2019 and 2018. 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 condensed consolidated statements of earnings (amounts in thousands): 

		Three Months Ended May 31,					Nine Months Ended May 31,
Derivatives Not Designated as Hedging Instruments	Location	2019			2018		2019			2018
Commodity	Cost of goods sold	$	3,408		$	1,498	$	143		$	2,071
Foreign exchange	Cost of goods sold	—			—		—			(50		)
Foreign exchange	SG&A expenses	(72		)	518		(472		)	1,169
Gain (loss) before income taxes		$	3,336		$	2,016	$	(329	)	$	3,190

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,
		2019		2018				2019		2018
Foreign exchange	Net sales	$	—	$	163		Net sales	$	—	$	(163	)
Foreign exchange	Cost of goods sold	—		(429		)	Cost of goods sold	—		429
Gain (loss) before income taxes		$	—	$	(266	)		$	—	$	266
	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,
		2019		2018				2019		2018
Foreign exchange	Net sales	$	—	$	(66	)	Net sales	$	—	$	66
Foreign exchange	Cost of goods sold	—		1,596			Cost of goods sold	—		(1,596		)
Gain (loss) before income taxes		$	—	$	1,530			$	—	$	(1,530	)

Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Recognized in AOCI	Three Months Ended May 31,					Nine Months Ended May 31,
	2019			2018		2019			2018
Foreign exchange, net of income taxes	$	(145	)	$	13	$	(267	)	$	38

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 condensed consolidated balance sheets. The asset and liability balances in the tables below reflect the gross amounts of derivative instruments at May 31, 2019 and August 31, 2018. The fair value of the Company's derivative instruments on the condensed consolidated balance sheets was as follows: 

Derivative Assets (in thousands)	May 31, 2019		August 31, 2018
Commodity — not designated for hedge accounting	$	2,088	$	1,881
Foreign exchange — designated for hedge accounting	—		—
Foreign exchange — not designated for hedge accounting	221		407
Derivative assets (other current assets) (1)	$	2,309	$	2,288

Derivative Liabilities (in thousands)	May 31, 2019		August 31, 2018
Commodity — not designated for hedge accounting	$	322	$	301
Foreign exchange — designated for hedge accounting	373		—
Foreign exchange — not designated for hedge accounting	581		1,095
Derivative liabilities (accrued expenses and other payables) (1)	$	1,276	$	1,396

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

As of May 31, 2019, most 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.