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Derivative Instruments
 3 Months Ended
Nov. 30, 2019
Derivative Instruments
Note 12 – 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, 2019 exchange rates,
 notional amounts of
forward exchange contracts for the purchase of Polish Zlotys and the sale of Euros and Pound Sterling; and the purchase of Mexican Pesos and the sale of U.S. Dollars aggregated to $71.4 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
May 2022
, 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, 2019 exchange rates, approximately $1.0 million would be reclassified to revenue or cost of revenue in the next year.
At November 30, 2019, an interest rate swap agreement maturing in September 2023
had a notional amount of $108.6 million and an interest rate swap agreement maturing June 2024 had a notional amount of $150.0 million
. The fair value of the contract
s
are
included on the Consolidated Balance Sheets in Accounts payable and accrued liabilities when there is a loss, or in Accounts receivable, net when there is a gain. 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, 2019 interest rates, approximately $1.2 million would be reclassified to interest expense in the next year.
Fair Values of Derivative Instruments
 
Asset Derivatives
 
Liability Derivatives
 
  
 
November 30,
2019
   
August 31,
2019
   
 
November 30,
2019
    
August 31,
2019
 
(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
  $
386
     $
64
   
Accounts payable
 
and
 
accrued liabilities
  $
640
     $
437
 
Interest rate swap contracts
 
Accounts receivable, net
   
—  
      
—  
    
Accounts payable and
 
accrued liabilities
   
7,369
      
10,255
 
                                         
  
  $
386
     $
64
   
  $
8,009
     $
10,692
 
                                         
Derivatives not designated as hedging instruments
 
 
 
 
  
 
 
  
 
 
 
  
 
 
Foreign forward exchange contracts
 
Accounts receivable, net
  $
56
     $
—  
    
Accounts payable and
 
accrued liabilities
  $
165
     $
587
 
The Effect of Derivative Instruments on the Statements of Income
Three Months Ended November 30, 2019
 
                     
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,
 
 
 
2019
   
2018
 
Foreign forward exchange contract
 
Interest and foreign exchange
  $
71
     $
  380
 
 
 
 
 
 
 
 
 
 
 
                                                         
Derivatives in cash flow
hedging
relationships
  
Gain (loss) recognized
in OCI on derivatives
three months ended
November 30,
    
Location of gain
(loss) reclassified
from accumulated
OCI into income
 
Gain (loss) reclassified
from accumulated OCI
into income three
months ended
November 30,
    
Location of gain
(loss) on derivative
(amount
excluded from
effectiveness
testing)
 
Gain (loss) recognized
on derivative
(amount excluded from
effectiveness testing)
three months ended
November 30,
  
 
2019
   
2018
   
 
2019
   
2018
   
 
2019
   
2018
 
Foreign forward exchange contracts
  $
573
     $
72
   
Revenue
  $
(166
 )   $
(256)
   
Revenue
  $
453
     $
262
 
Foreign forward exchange contracts
   
(594
 )    
(1,495
 )  
Cost of revenue
   
(75
 )    
(232
 )  
Cost of revenue
   
134
      
389
 
Interest rate swap contracts
   
2,719
     
(1,773
 )  
Interest and
foreign exchange
   
(167
 )    
(144
 )  
Interest and
foreign exchange
   
(165
 )    
(47
 )
                                                         
  $
2,698
    $
(3,196
)   
  $
(408
 )   $
(632
 )  
  $
422
     $
604
 
                                                         
 
 
 
 
 
 
 
 
 
 
The following table presents the amounts in the Consolidated Statements of Income in which the effects of the cash flow hedges are recorded and the effects of the cash flow hedge activity on these line items for the three months ended November 30, 2019 and 2018:
                                 
 
For the Three Months
Ended November 30,
 
 
2019
 
 
2018
 
 
Total
 
 
Amount of
 
gain 
(loss) on cash
flow hedge
activity
 
 
Total
 
 
Amount of
 
gain 
(loss) on cash
flow hedge
activity
 
Revenue
 
$
769,359
 
 
$
(166
)
 
$
604,523
 
 
$
(256
)
Cost of revenue
 
 
677,170
 
 
 
(75
)
 
 
531,990
 
 
 
(232
)
Interest and foreign exchange
 
 
12,852
 
 
 
(167
)
 
 
4,404
 
 
 
(144
)