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Fair Value Measures

6 Months Ended

Feb. 29, 2024

FAIR VALUE MEASURES

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date. In determining fair value, the use of various valuation methodologies, including market, income and cost approaches, are permissible. The inputs to these methodologies consider market comparable information, taking into account the principal or most advantageous market in which we would transact, when pricing the asset or liability.

Fair Value Hierarchy

The accounting guidance for fair value measurements establishes a three-level fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy ranks the reliability of the inputs, based upon the lowest level of input that is significant to the fair value measurement, used to determine fair value. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect its placement within the fair value hierarchy. We have categorized our assets and liabilities within the fair value hierarchy as follows:

Level 1 – applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 – applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 – applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The assumptions used in determining fair value represent our best estimates, but these estimates involve inherent uncertainties and the application of our judgment. As a result, if factors change, our fair value estimates could be materially different in the future and may adversely affect our business and financial results.

(a) Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables show, by level within the fair value hierarchy, our assets and liabilities that are measured at fair value on a recurring basis as of February 29, 2024, and August 31, 2023. We did not have any transfers between levels of fair value measurements during the six months ended February 29, 2024 and the fiscal year ended August 31, 2023.


	Fair Value Measurements as of February 29, 2024
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Money market funds(1)	$	103,333	$	—	$	—	$	103,333
Mutual funds(2)	—		68,519		—		68,519

Derivative instruments(3)	—		418		—		418
Total assets measured at fair value	$	103,333	$	68,937	$	—	$	172,270

Liabilities
Derivative instruments(3)	$	—	$	490	$	—	$	490
Contingent Liability(4)	—		—		8,282		8,282
Total liabilities measured at fair value	$	—	$	490	$	8,282	$	8,772


	Fair Value Measurements as of August 31, 2023
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Money market funds(1)	$	137,125	$	—	$	—	$	137,125
Mutual funds(2)	—		32,210		—		32,210

Derivative instruments(3)	—		4,383		—		4,383
Total assets measured at fair value	$	137,125	$	36,593	$	—	$	173,718

Liabilities
Derivative instruments(3)	$	—	$	608	$	—	$	608
Contingent Liability(4)	—		—		8,008		8,008
Total liabilities measured at fair value	$	—	$	608	$	8,008	$	8,616

(1) Our money market funds are readily convertible into cash. The net asset value of each fund on the last day of the reporting period is used to determine its fair value. Our money market funds are included in Cash and cash equivalents within the Consolidated Balance Sheets.

(2) Our mutual funds' fair value is based on the fair value of the underlying investments held by the mutual funds, allocated to each share of the mutual fund using a net asset value approach. The fair value of the underlying investments is based on observable inputs. Our mutual funds are included in Investments within the Consolidated Balance Sheets.

(3) Our derivative instruments as of February 29, 2024 included our foreign exchange forward contracts and, as of August 31, 2023, included our foreign exchange forward contracts and our 2022 Swap Agreement. We utilize the income approach to measure fair value for our foreign exchange forward contracts. The income approach uses pricing models that rely on market observable inputs such as spot, forward and interest rates, as well as credit default swap spreads. To estimate fair value for our interest rate swap agreement, we utilize a present value of future cash flows, leveraging a model-derived valuation that uses observable inputs such as interest rate yield curves. Refer to Note 5, Derivative Instruments, for more information on our derivative instruments and their classification within the Consolidated Balance Sheets.

(4) Our contingent liability resulted from the acquisition of a business during fiscal 2023. This liability reflects the present value of potential future payments that are contingent upon the achievement of certain specified milestones. The acquisition date fair value of the contingent liability was $7.9 million and was valued using a scenario-based method. This method incorporates unobservable inputs and assumptions made by management, including the probability of achieving specified milestones, expected time until payment and the discount rate. The fair value of the contingent liability is remeasured each reporting period until the contingency is resolved, with any changes in fair value recorded in Selling, general and administrative ("SG&A") within the Consolidated Statements of Income. The change in the fair value of the contingent liability from the acquisition date through February 29, 2024 was driven by the passage of time, with no changes made to key assumptions used in our fair value estimates.

(b) Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

Assets that are measured at fair value on a non-recurring basis primarily include our property, equipment and leasehold improvements ("PPE"), lease right-of-use ("ROU") assets, goodwill and intangible assets. These assets are assessed for impairment whenever events or circumstances indicate their carrying value may not be fully recoverable, and at least annually for goodwill. The fair values of these non-financial assets are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparable information and discounted cash flow projections.

We elected not to carry our Long-term debt on the Consolidated Balance Sheets at fair value. The carrying value of our Long-term debt is net of related unamortized discounts and debt issuance costs.

Our Long-term debt is comprised of our Senior Notes and 2022 Credit Facilities. Our Senior Notes are publicly traded; therefore, the fair value of our Senior Notes is estimated based on quoted prices in active markets as of the reporting date, which are considered Level 1 inputs. The fair value of our 2022 Credit Facilities is estimated based on quoted market prices for similar instruments, adjusted for unobservable inputs to ensure comparability to our investment rating, maturity terms and principal outstanding, which are considered Level 3 inputs. Refer to Note 10, Debt for definitions of these terms and more information on the Senior Notes and 2022 Credit Facilities.

The following table summarizes information on our outstanding debt as of February 29, 2024 and August 31, 2023:


		February 29, 2024				August 31, 2023
(in thousands)	Fair Value Hierarchy	Principal Amount		Estimated Fair Value		Principal Amount		Estimated Fair Value
2027 Notes	Level 1	$	500,000	$	465,950	$	500,000	$	460,890
2032 Notes	Level 1	500,000		434,735		500,000		423,700
2022 Term Facility	Level 3	250,000		251,093		375,000		376,406
2022 Revolving Facility	Level 3	250,000		247,813		250,000		246,875
Total principal amount		$	1,500,000	$	1,399,591	$	1,625,000	$	1,507,871
Total unamortized discounts and debt issuance costs		(10,512)				(12,300)
Total net carrying value of debt		$	1,489,488			$	1,612,700

- 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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