Derivative Instruments

3 Months Ended

Nov. 30, 2016

Derivative Instruments

Note 10 – 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. 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 November 30, 2016 exchange rates, forward exchange contracts for the purchase of Polish Zlotys and the sale of Euros and U.S. Dollars; the purchase of Mexican Pesos and the sale of U.S. Dollars; and for the purchase of U.S. Dollars and the sale of Saudi Riyals aggregated to $423.4 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 July 2019, any such gain or loss remaining will be recognized in manufacturing revenue or cost of revenue along with the related transactions. In the event that the underlying 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 results of operations in Interest and foreign exchange at the time of occurrence. At November 30, 2016 exchange rates, approximately $7.3 million would be reclassified to revenue or cost of revenue in the next 12 months.

At November 30, 2016, an interest rate swap agreement maturing in March 2020 had a notional amount of $91.3 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 November 30, 2016 interest rates, approximately $1.3 million would be reclassified to interest expense in the next 12 months.

Fair Values of Derivative Instruments

	Asset Derivatives					Liability Derivatives
		November 30, 2016		August 31, 2016			November 30, 2016		August 31, 2016
(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	$	764	$	1,570	Accounts payable and accrued liabilities	$	11,552	$	4,287
Interest rate swap contracts	Intangibles and other assets, net		—		—	Accounts payable and accrued liabilities		1,725		3,157
		$	764	$	1,570		$	13,277	$	7,444
Derivatives not designated as hedging instruments
Foreign forward exchange contracts	Accounts receivable, net	$	2	$	25	Accounts payable and accrued liabilities	$	64	$	22

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 three months ended November 30,
		2016		2015
Foreign forward exchange contract	Interest and foreign exchange	$	47	$	(186	)
Interest rate swap contracts	Interest and foreign exchange		38		86
		$	85	$	(100	)

Derivatives in cash flow hedging relationships	Gain (loss) recognized in OCI on derivatives (effective portion) three months ended November  30,						Location of loss reclassified from accumulated OCI into income	Loss reclassified from accumulated OCI into income (effective portion) three months ended November  30,						Location of gain (loss) on derivative (ineffective portion and amount excluded from effectiveness testing)	Gain (loss) recognized on derivative (ineffective portion and amount excluded  from effectiveness testing) three months ended November 30,
	2016			2015				2016			2015				2016			2015
Foreign forward exchange contracts	$	(6,456	)	$	(7,043	)	Revenue	$	(87	)	$	(267	)	Revenue	$	(1,258	)	$	4,592
Foreign forward exchange contracts		(834	)		—		Cost of revenue		(56	)		—		Cost of revenue		(32	)		—
Interest rate swap contracts		1,146			(592	)	Interest and foreign exchange		(338	)		(445	)	Interest and foreign exchange		—			—
	$	(6,144	)	$	(7,635	)		$	(481	)	$	(712	)		$	(1,290	)	$	4,592