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DERIVATIVES AND RISK MANAGEMENT
 12 Months Ended
Aug. 31, 2015
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, (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. When sales commitments to customers include a fixed price freight component, the Company occasionally enters into freight forward contracts to reduce the effects of the volatility of ocean freight rates.

At August 31, 2015, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $390.8 million and $37.7 million, respectively. At August 31, 2014, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $406.6 million and $59.6 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, 2015 and 2014. 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
 
2015
 
2014
 
2013
Commodity
 
Cost of goods sold
 
$
7,746

 
$
2,504

 
$
2,456

Foreign exchange
 
Net sales
 
3,016

 
473

 
—

Foreign exchange
 
Cost of goods sold
 
4,996

 
(1,078
)
 
—

Foreign exchange
 
SG&A expenses
 
23,105

 
(4,135
)
 
5,089

Other
 
Cost of goods sold
 
—

 
—

 
9

Gain (loss) before income taxes
 
 
 
$
38,863

 
$
(2,236
)
 
$
7,554


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.
Derivatives Designated as Fair Value
Hedging Instruments (in thousands)
 
 
 
Year Ended August 31,
 
Location
 
2015
 
2014
 
2013
Foreign exchange
 
Net sales
 
$
(105
)
 
$
93

 
$
(151
)
Foreign exchange
 
Cost of goods sold
 
881

 
(1,465
)
 
2,241

Gain (loss) before income taxes
 

 
$
776

 
$
(1,372
)
 
$
2,090

 
Hedged Items Designated as Fair Value
Hedging Instruments (in thousands)
 
 
 
Year Ended August 31,
 
Location
 
2015
 
2014
 
2013
Foreign exchange
 
Net sales
 
$
105

 
$
(91
)
 
$
153

Foreign exchange
 
Cost of goods sold
 
(881
)
 
1,469

 
(2,241
)
Gain (loss) before income taxes
 
 
 
$
(776
)
 
$
1,378

 
$
(2,088
)


Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Recognized in Accumulated Other Comprehensive Income (Loss) (in thousands)
 
August 31,
 
2015
 
2014
 
2013
Commodity
 
$
(635
)
 
$
(54
)
 
$
(218
)
Foreign exchange
 
(1,832
)
 
(1,794
)
 
439

Gain (loss), net of income taxes
 
$
(2,467
)
 
$
(1,848
)
 
$
221



Effective Portion of Derivatives Designated as Cash Flow
Hedging Instruments Reclassified from
Accumulated Other Comprehensive Income (Loss) (in thousands)
 
 
 
Year Ended August 31,
 
Location
 
2015
 
2014
 
2013
Commodity
 
Cost of  goods sold
 
$
(665
)
 
$
(160
)
 
$
(260
)
Foreign exchange
 
Net sales
 
124

 
(213
)
 
73

Foreign exchange
 
Cost of goods sold
 
(2,774
)
 
(1,717
)
 
18

Foreign exchange
 
SG&A expenses
 
76

 
53

 
17

Interest rate
 
Interest expense
 
532

 
532

 
617

Gain (loss) before income taxes
 
 
 
(2,707
)
 
(1,505
)
 
465

Income tax (expense) benefit
 
Income taxes
 
949

 
237

 
(128
)
Gain (loss), net of income taxes
 
 
 
$
(1,758
)
 
$
(1,268
)
 
$
337



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, 2015 and 2014. The fair value of the Company's derivative instruments on the consolidated balance sheets was as follows: 
Derivative Assets (in thousands)
 
August 31,
 
2015
 
2014
Commodity — designated for hedge accounting
 
$
19

 
$
42

Commodity — not designated for hedge accounting
 
846

 
869

Foreign exchange — designated for hedge accounting
 
1,500

 
136

Foreign exchange — not designated for hedge accounting
 
3,088

 
1,853

Derivative assets (other current assets)*
 
$
5,453

 
$
2,900


 
Derivative Liabilities (in thousands)
 
August 31,
 
2015
 
2014
Commodity — designated for hedge accounting
 
$
129

 
$
6

Commodity — not designated for hedge accounting
 
537

 
162

Foreign exchange — designated for hedge accounting
 
874

 
325

Foreign exchange — not designated for hedge accounting
 
1,263

 
1,010

Derivative liabilities (accrued expenses and other payables)*
 
$
2,803

 
$
1,503

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

As of August 31, 2015 and 2014, 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.