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 price volatility in these commodities and (ii) foreign currency forward contracts that match the expected settlements for purchases and sales denominated in foreign currencies.

The Company considers the total notional value of its futures and forward contracts as the best measure of the volume of derivative transactions. At August 31, 2018, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $119.5 million and $55.2 million, respectively. At August 31, 2017, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $300.4 million and $59.3 million, respectively.

The following table provides information regarding the Company's commodity contract commitments as of August 31, 2018:



Commodity	Long/Short	Total
Aluminum	Long	3,975	MT
Aluminum	Short	550	MT
Copper	Long	1,633	MT
Copper	Short	5,817	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 consolidated statements of earnings, and there were no components excluded from the assessment of hedge effectiveness for the years ended August 31, 2018 and 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 consolidated statements of earnings:



		Year Ended August 31,
Derivatives Not Designated as Hedging Instruments (in thousands)	Location	2018			2017			2016
Commodity	Cost of goods sold	$	7,043		$	(9,095	)	$	2,675
Foreign exchange	Cost of goods sold	(50		)	(47		)	19
Foreign exchange	SG&A expenses	110			(5,400		)	11,732
Gain (loss) from continuing operations before income taxes		$	7,103		$	(14,542	)	$	14,426

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.



		Amount of Gain (Loss) Recognized in Income on Derivatives for the Year Ended August 31,										Amount of Gain (Loss) Recognized in Income on Related Hedge Items for the Year Ended August 31,
	Location of Gain (Loss) Recognized in Income on Derivatives	2018			2017			2016			Location of Gain (Loss) Recognized in Income on Related Hedged Items	2018			2017			2016
Foreign exchange	Net sales	$	(66	)	$	25		$	(38	)	Net sales	$	66		$	(25	)	$	38
Foreign exchange	Cost of goods sold	1,596			(1,436		)	(1,075		)	Cost of goods sold	(1,596		)	1,436			1,075
Gain (loss) from continuing operations before income taxes		$	1,530		$	(1,411	)	$	(1,113	)		$	(1,530	)	$	1,411		$	1,113



Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Recognized in Accumulated Other Comprehensive Income (Loss) (in thousands)	August 31,
	2018		2017		2016
Commodity	$	—	$	210	$	(204	)
Foreign exchange	48		546		1,822
Gain (loss), net of income taxes	$	48	$	756	$	1,618

Refer to Note 4, Accumulated Other Comprehensive Income (Loss), 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 consolidated balance sheets. The asset and liability balances in the tables below reflect the gross amounts of derivative instruments at August 31, 2018 and 2017. The fair value of the Company's derivative instruments on the consolidated balance sheets was as follows:



Derivative Assets (in thousands)	August 31,
Derivative Assets (in thousands)	2018		2017
Commodity — not designated for hedge accounting	$	1,881	$	767
Foreign exchange — designated for hedge accounting	—		81
Foreign exchange — not designated for hedge accounting	407		1,286
Derivative assets (other current assets)*	$	2,288	$	2,134



Derivative Liabilities (in thousands)	August 31,
Derivative Liabilities (in thousands)	2018		2017
Commodity — not designated for hedge accounting	301		3,251
Foreign exchange — designated for hedge accounting	—		1,549
Foreign exchange — not designated for hedge accounting	1,095		3,710
Derivative liabilities (accrued expenses and other payables)*	$	1,396	$	8,510

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

As of August 31, 2018 and 2017, 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.