Derivative Instruments

9 Months Ended

May. 31, 2015

Derivative Instruments

Note 11 – Derivative Instruments

Foreign operations give rise to market risks from changes in foreign currency exchange rates. Foreign currency forward exchange contracts with established financial institutions are utilized to hedge a portion of that risk in Euro. Interest rate swap agreements are used to reduce the impact of changes in interest rates on certain debt. The Company’s foreign currency forward exchange contracts and interest rate swap agreements are designated as cash flow hedges, and therefore the effective portion of unrealized gains and losses is recorded in accumulated other comprehensive income or loss.

At May 31, 2015 exchange rates, forward exchange contracts for the purchase of Polish Zloty and the sale of Euro aggregated $73.7 million. The fair value of the contracts is included on the Consolidated Balance Sheets as Accounts payable and accrued liabilities when there is a loss, or as Accounts receivable, net when there is a gain. As the contracts mature at various dates through February 2017, any such gain or loss remaining will be recognized in manufacturing revenue along with the related transactions. In the event that the underlying sales transaction does not occur or does not occur in the period designated at the inception of the hedge, the amount classified in accumulated other comprehensive loss would be reclassified to the current year’s results of operations in Interest and foreign exchange.

At May 31, 2015, an interest rate swap agreement maturing in March 2020 had a notional amount of $96.5 million. The fair value of the contract is included in Accounts payable and accrued liabilities on the Consolidated Balance Sheets. As interest expense on the underlying debt is recognized, amounts corresponding to the interest rate swap are reclassified from Accumulated other comprehensive loss and charged or credited to interest expense. At May 31, 2015 interest rates, approximately $1.7 million would be reclassified to interest expense in the next 12 months.

Fair Values of Derivative Instruments

	Asset Derivatives					Liability Derivatives
		May 31, 2015		August 31, 2014			May 31, 2015		August 31, 2014
(In thousands)	Balance sheet location	Fair Value		Fair Value		Balance sheet location	Fair Value		Fair Value
Derivatives designated as hedging instruments
Foreign forward exchange contracts	Accounts receivable, net	$	1,271	$	129	Accounts payable and accrued liabilities	$	177	$	704
Interest rate swap contracts	Intangibles and other assets, net		—		—	Accounts payable and accrued liabilities		2,525		1,286
		$	1,271	$	129		$	2,702	$	1,990
Derivatives not designated as hedging instruments
Foreign forward exchange contracts	Accounts receivable, net	$	256	$	71	Accounts payable and accrued liabilities	$	—	$	5

The Effect of Derivative Instruments on the Statements of Income

Derivatives in cash flow hedging relationships	Location of gain (loss) recognized in income on derivatives	Gain (loss) recognized in income on derivatives nine months ended May 31,
		2015			2014
Foreign forward exchange contract	Interest and foreign exchange	$	(22	)	$	230
Interest rate swap contracts	Interest and foreign exchange		69			—
		$	47		$	230

Derivatives in cash flow hedging relationships	Gain (loss) recognized in OCI on derivatives (effective portion) nine months ended May 31,						Location of gain (loss) reclassified from accumulated OCI into income	Gain (loss) reclassified from accumulated OCI into income (effective portion) nine months ended May 31,						Location of gain in income on derivative (ineffective portion and amount excluded from effectiveness testing)	Gain recognized on derivative (ineffective portion and amount excluded from effectiveness testing) nine months ended May 31,
	2015			2014				2015			2014				2015		2014
Foreign forward exchange contracts	$	1,867		$	1,558		Revenue	$	518		$	575		Interest and foreign exchange	$	1,024	$	684
Interest rate swap contracts		(2,640	)		(1,281	)	Interest and foreign exchange		(1,349	)		(1,275	)	Interest and foreign exchange		—		—
	$	(773	)	$	277			$	(831	)	$	(700	)		$	1,024	$	684