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DERIVATIVES AND RISK MANAGEMENT
 3 Months Ended
Nov. 30, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and risk management
NOTE 8. 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 November 30, 2017, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $289.5 million and $56.7 million, respectively. At November 30, 2016, the notional values of the Company's foreign currency contract commitments and its commodity contract commitments were $265.8 million and $31.2 million, respectively.

The following table provides information regarding the Company's commodity contract commitments as of November 30, 2017:
Commodity
 
Long/Short
 
Total
Aluminum
 
Long
 
3,475

 MT
Aluminum
 
Short
 
900

 MT
Copper
 
Long
 
714

 MT
Copper
 
Short
 
6,214

 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 unaudited condensed consolidated statements of earnings, and there were no components excluded from the assessment of hedge effectiveness for the three months ended November 30, 2017 and 2016. 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 unaudited condensed consolidated statements of earnings: 
 
 
 
 
Three Months Ended November 30,
Derivatives Not Designated as Hedging Instruments (in thousands)
 
Location
 
2017
 
2016
Commodity
 
Cost of goods sold
 
$
575

 
$
(4,629
)
Foreign exchange
 
Cost of goods sold
 
(19
)
 
(8
)
Foreign exchange
 
SG&A expenses
 
2,380

 
4,049

Gain (loss) before income taxes
 
 
 
$
2,936

 
$
(588
)

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 November 30,
 
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 November 30,
 
 
2017
 
2016
 
 
2017
 
2016
Foreign exchange
 
Net sales
 
$
(237
)
 
$
(22
)
 
Net sales
 
$
237

 
$
22

Foreign exchange
 
Cost of goods sold
 
3,348

 
1,086

 
Cost of goods sold
 
(3,348
)
 
(1,086
)
Gain (loss) before income taxes
 
 
 
$
3,111

 
$
1,064

 
 
 
$
(3,111
)
 
$
(1,064
)
 
 
 
 
 
 
 
 
 
 
 
 
 

Effective Portion of Derivatives Designated as Cash Flow Hedging Instruments Recognized in AOCI (Loss) (in thousands)
 
Three Months Ended November 30,
 
2017
 
2016
Commodity
 
$
—

 
$
99

Foreign exchange
 
11

 
33

Gain, net of income taxes
 
$
11

 
$
132



Refer to Note 3, Accumulated Other Comprehensive Income (Loss), of the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q 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 unaudited condensed consolidated balance sheets. The asset and liability balances in the tables below reflect the gross amounts of derivative instruments at November 30, 2017 and August 31, 2017. The fair value of the Company's derivative instruments on the unaudited condensed consolidated balance sheets was as follows: 

Derivative Assets (in thousands)
 
November 30, 2017
 
August 31, 2017
Commodity — not designated for hedge accounting
 
780

 
767

Foreign exchange — designated for hedge accounting
 
1,785

 
81

Foreign exchange — not designated for hedge accounting
 
2,155

 
1,286

Derivative assets (other current assets)*
 
$
4,720

 
$
2,134


 
Derivative Liabilities (in thousands)
 
November 30, 2017
 
August 31, 2017
Commodity — not designated for hedge accounting
 
499

 
3,251

Foreign exchange — designated for hedge accounting
 
197

 
1,549

Foreign exchange — not designated for hedge accounting
 
1,351

 
3,710

Derivative liabilities (accrued expenses and other payables)*
 
$
2,047

 
$
8,510

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

As of November 30, 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.