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DERIVATIVES AND RISK MANAGEMENT | 9 Months Ended
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May 31, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives and risk management | NOTE 9. 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 May 31, 2016, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $290.0 million and $23.0 million, respectively. At May 31, 2015, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $399.8 million and $46.5 million, respectively. The following table provides information regarding the Company's commodity contract commitments as of May 31, 2016:
Commodity |  | Long/Short |  | Total
Aluminum |  | Long |  | 3,429 |  | MT
Aluminum |  | Short |  | 175 |  | MT
Copper |  | Long |  | 238 |  | MT
Copper |  | Short |  | 3,425 |  | MT
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, 2016 and 2015. 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:
|  |  |  | Three Months Ended May 31, |  | Nine Months Ended May 31,
Derivatives Not Designated as Hedging Instruments (in thousands) |  | Location |  | 2016 |  | 2015 |  | 2016 |  | 2015
Commodity |  | Cost of goods sold |  | $ | 224 |  |  | $ | (354 | ) |  | $ | 2,172 |  |  | $ | 4,947 |
Foreign exchange |  | Net sales |  | — |  |  | — |  |  | (4 | ) |  | 3,005 |
Foreign exchange |  | Cost of goods sold |  | (9 | ) |  | 562 |  |  | 72 |  |  | 4,913 |
Foreign exchange |  | SG&A expenses |  | (6,304 | ) |  | 2,405 |  |  | 9,410 |  |  | 22,479 |
Gain (loss) before income taxes |  |  |  | $ | (6,089 | ) |  | $ | 2,613 |  |  | $ | 11,650 |  |  | $ | 35,344 |
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.
Derivatives Designated as Fair Value Hedging Instruments (in thousands) |  |  |  | Three Months Ended May 31, |  | Nine Months Ended May 31,
| Location |  | 2016 |  | 2015 |  | 2016 |  | 2015
Foreign exchange |  | Net sales |  | $ | (122 | ) |  | $ | 207 |  |  | $ | (39 | ) |  | $ | 566 |
Foreign exchange |  | Cost of goods sold |  | 901 |  |  | (283 | ) |  | 90 |  |  | 642 |
Gain (loss) before income taxes |  |  |  | $ | 779 |  |  | $ | (76 | ) |  | $ | 51 |  |  | $ | 1,208 |
Hedged Items Designated as Fair Value Hedging Instruments (in thousands) |  |  |  | Three Months Ended May 31, |  | Nine Months Ended May 31,
| Location |  | 2016 |  | 2015 |  | 2016 |  | 2015
Foreign exchange |  | Net sales |  | $ | 122 |  |  | $ | (207 | ) |  | $ | 39 |  |  | $ | (565 | )
Foreign exchange |  | Cost of goods sold |  | (901 | ) |  | 283 |  |  | (90 | ) |  | (642 | )
Gain (loss) before income taxes |  |  |  | $ | (779 | ) |  | $ | 76 |  |  | $ | (51 | ) |  | $ | (1,207 | )
Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Recognized in Accumulated Other Comprehensive Income (Loss) (in thousands) |  | Three Months Ended May 31, |  | Nine Months Ended May 31,
| 2016 |  | 2015 |  | 2016 |  | 2015
Commodity |  | $ | (56 | ) |  | $ | (76 | ) |  | $ | (280 | ) |  | $ | (492 | )
Foreign exchange |  | 40 |  |  | 130 |  |  | 749 |  |  | (1,879 | )
Gain (loss), net of income taxes |  | $ | (16 | ) |  | $ | 54 |  |  | $ | 469 |  |  | $ | (2,371 | )
Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Reclassified from Accumulated Other Comprehensive Income (Loss) (in thousands) |  |  |  | Three Months Ended May 31, |  | Nine Months Ended May 31,
| Location |  | 2016 |  | 2015 |  | 2016 |  | 2015
Commodity |  | Cost of goods sold |  | $ | (263 | ) |  | $ | (269 | ) |  | $ | (373 | ) |  | $ | (429 | )
Foreign exchange |  | Net sales |  | (168 | ) |  | (111 | ) |  | (561 | ) |  | (37 | )
Foreign exchange |  | Cost of goods sold |  | 223 |  |  | (1,044 | ) |  | 641 |  |  | (2,447 | )
Foreign exchange |  | SG&A expenses |  | 53 |  |  | 17 |  |  | 123 |  |  | 57 |
Interest rate |  | Interest expense |  | 134 |  |  | 134 |  |  | 400 |  |  | 400 |
Gain (loss) before income taxes |  |  |  | (21 | ) |  | (1,273 | ) |  | 230 |  |  | (2,456 | )
Income tax (expense) benefit |  |  |  | (11 | ) |  | 469 |  |  | (88 | ) |  | 886 |
Gain (loss), net of income taxes |  |  |  | $ | (32 | ) |  | $ | (804 | ) |  | $ | 142 |  |  | $ | (1,570 | )
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, 2016 and August 31, 2015. The fair value of the Company's derivative instruments on the condensed consolidated balance sheets was as follows:
Derivative Assets (in thousands) |  | May 31, 2016 |  | August 31, 2015
Commodity — designated for hedge accounting |  | $ | 8 |  |  | $ | 19 |
Commodity — not designated for hedge accounting |  | 447 |  |  | 846 |
Foreign exchange — designated for hedge accounting |  | 1,719 |  |  | 1,500 |
Foreign exchange — not designated for hedge accounting |  | 1,245 |  |  | 3,088 |
Derivative assets (other current assets)* |  | $ | 3,419 |  |  | $ | 5,453 |
Derivative Liabilities (in thousands) |  | May 31, 2016 |  | August 31, 2015
Commodity — designated for hedge accounting |  | $ | 88 |  |  | $ | 129 |
Commodity — not designated for hedge accounting |  | 66 |  |  | 537 |
Foreign exchange — designated for hedge accounting |  | 342 |  |  | 874 |
Foreign exchange — not designated for hedge accounting |  | 987 |  |  | 1,263 |
Derivative liabilities (accrued expenses and other payables)* |  | $ | 1,483 |  |  | $ | 2,803 |
_________________ * Derivative assets and liabilities do not include the hedged items designated as fair value hedges. As of May 31, 2016, 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.

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