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FAIR VALUE

3 Months Ended

Nov. 30, 2020

NOTE 10. FAIR VALUE

The Company has established a fair value hierarchy which prioritizes the inputs to the valuation techniques used to measure fair value into three levels. These levels are determined based on the lowest level input that is significant to the fair value measurement. Levels within the hierarchy are defined within the Summary of Significant Accounting Policies footnote in our 2020 Form 10-K.

The following tables summarize information regarding the Company's financial assets and financial liabilities that were measured at fair value on a recurring basis:


			Fair Value Measurements at Reporting Date Using
(in thousands)	November 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Investment deposit accounts (1)	$	394,943	$	394,943	$	—	$	—
Commodity derivative assets (2)	291		291		—		—
Foreign exchange derivative assets (2)	1,329		—		1,329		—
Liabilities:
Commodity derivative liabilities (2)	19,496		5,882		—		13,614
Foreign exchange derivative liabilities (2)	1,555		—		1,555		—


			Fair Value Measurements at Reporting Date Using
(in thousands)	August 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Investment deposit accounts (1)	$	449,824	$	449,824	$	—	$	—
Commodity derivative assets (2)	202		202		—		—
Foreign exchange derivative assets (2)	1,484		—		1,484		—
Liabilities:
Commodity derivative liabilities (2)	19,000		3,993		—		15,007
Foreign exchange derivative liabilities (2)	459		—		459		—

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(1) Investment deposit accounts are short-term in nature, and the value is determined by principal plus interest. The investment portfolio mix can change each period based on the Company's assessment of investment options.

(2) Derivative assets and liabilities classified as Level 1 are commodity futures contracts valued based on quoted market prices in the London Metal Exchange or New York Mercantile Exchange. Amounts in Level 2 are based on broker quotes in the over-the-counter market. Derivative liabilities classified as Level 3 are described below. Further discussion regarding the Company's use of derivative instruments is included in Note 9, Derivatives.

The fair value estimate of the Level 3 commodity derivative is based on an internally developed discounted cash flow model primarily utilizing unobservable inputs in which there is little or no market data. The Company forecasts future energy rates using a range of historical prices ("floating rate"). The floating rate is the only significant unobservable input used in the Company's discounted cash flow model.

November 30, 2020

Unobservable Inputs

Low

High

Average

Floating rate (PLN)

151.66

247.56

203.96

Below is a reconciliation of the beginning and ending balances of the Level 3 commodity derivative recognized in the condensed consolidated statements of comprehensive income. The fluctuation in energy rates over time may cause volatility in the fair value estimate and is the primary reason for the unrealized gain in other comprehensive income ("OCI") in the three months ended November 30, 2020.


(in thousands)	November 30, 2020
Balance at September 1, 2020	$	(15,007)
Total gains, realized and unrealized

Recognized in OCI(1)	1,393
Ending balance	$	(13,614)

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(1) Gains recognized in OCI are included in the unrealized holding gain on the condensed consolidated statements of comprehensive income.

There were no material non-recurring fair value remeasurements during the three months ended November 30, 2020 or 2019.

The carrying values of the Company's short-term items approximate fair value.

The carrying values and estimated fair values of the Company's financial assets and liabilities that are not required to be measured at fair value on the condensed consolidated balance sheets were as follows:


		November 30, 2020				August 31, 2020
(in thousands)	Fair Value Hierarchy	Carrying Value		Fair Value		Carrying Value		Fair Value
2027 Notes (1)	Level 2	$	300,000	$	317,835	$	300,000	$	319,377
2026 Notes (1)	Level 2	350,000		365,803		350,000		367,374
2023 Notes (1)	Level 2	330,000		348,813		330,000		345,335
Poland Term Loan(2)	Level 2	39,944		39,944		40,713		40,713

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(1) The fair value of the notes was determined based on indicated market values.

(2) The Poland Term Loan contains variable interest rates, and as a result, the carrying value approximates fair value.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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