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Financial Derivatives
 6 Months Ended
Feb. 29, 2016
Financial Derivatives [Abstract]  
Financial Derivatives

Note 7 – Financial Derivatives

The Company uses certain financial derivatives to mitigate its exposure to volatility in foreign currency exchange rates.  The Company uses these derivative instruments to hedge exposures in the ordinary course of business and does not invest in derivative instruments for speculative purposes.  The Company manages market and credit risks associated with its derivative instruments by establishing and monitoring limits as to the types and degree of risk that may be undertaken, and by entering into transactions with high-quality counterparties. As of February 29, 2016, the Company’s derivative counterparty had an investment grade credit rating.  Financial derivatives consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Values of Derivative Instruments

 

 

Asset (Liability)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

February 29,

 

February 28,

 

August 31,

($ in thousands)

 

Balance Sheet Classification

 

2016

 

2015

 

2015

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

   Foreign currency forward contracts

 

Other current assets

 

$

 -

 

$

 3,230 

 

$

 217 

   Foreign currency forward contracts

 

Other current liabilities

 

 

 (639)

 

 

 (278)

 

 

 (352)

Total derivatives designated as hedging  instruments

 

 

 

$

 (639)

 

$

 2,952 

 

$

 (135)

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

   Foreign currency forward contracts

 

Other current assets

 

$

 14 

 

$

 181 

 

$

 495 

   Foreign currency forward contracts

 

Other current liabilities

 

 

 (187)

 

 

 (115)

 

 

 (61)

Total derivatives not designated as hedging instruments

 

 

 

$

 (173)

 

$

 66 

 

$

 434 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive income ("AOCI") included realized and unrealized after-tax gains of $6.2 million, $5.2 million and $5.4 million at February 29, 2016, February 28, 2015 and August 31, 2015, respectively, related to derivative contracts designated as hedging instruments.

 

Cash Flow Hedging Relationships

 

In order to reduce exposure related to changes in foreign currency exchange rates, the Company, at times, may enter into forward exchange contracts for transactions denominated in a currency other than the functional currency for certain operations.  This activity primarily relates to economically hedging against foreign currency risk in purchasing inventory, sales of finished goods, and future settlement of foreign denominated assets and liabilities. Changes in the fair value of the forward exchange contracts designated as hedging instruments that effectively offset the hedged risks are reported in AOCI, net of related income tax effects.  At February 29, 2016, the Company had an outstanding Canadian Dollar foreign currency forward contract to sell 2.6 million Canadian Dollars at a fixed price to settle during fiscal 2018.   

 

Net Investment Hedging Relationships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Gain/(Loss) Recognized
in OCI on Derivatives

 

 

 

 

Three months ended

 

Six months ended

 

 

 

 

February 29,

 

February 28,

 

February 29,

 

February 28,

($ in thousands)

 

 

 

2016

 

2015

 

2016

 

2015

Foreign currency forward contracts, net of tax (benefit)
expense of $(240),  $1,315,  $409 and $2,048

 

$

 (314)

 

$

 2,068 

 

$

 898 

 

$

 3,213 

 

For the three months ended February 29, 2016 and February 28, 2015, the Company settled foreign currency forward contracts resulting in an after-tax net gain of $1.4 million and $0.9 million, respectively, which were included in other comprehensive income as part of a currency translation adjustment.  For the six months ended February 29, 2016 and February 28, 2015, the Company settled foreign currency forward contracts resulting in an after-tax net gain of $1.2 million and $1.8 million, respectively, which were included in other comprehensive income as part of a currency translation adjustment.  There were no amounts recorded in the condensed consolidated statement of operations related to ineffectiveness of foreign currency forward contracts related to net investment hedges for the three and six months ended February 29, 2016 and February 28, 2015.  

 

At February 29, 2016, February 28, 2015 and August 31, 2015, the Company had outstanding Euro foreign currency forward contracts to sell 28.3 million Euro, 29.0 million Euro and 29.1 million Euro, respectively, at fixed prices to settle during the next fiscal quarter. At February 29, 2016, February 28, 2015 and August 31, 2015, the Company had an outstanding South African Rand foreign currency forward contract to sell 43.0 million South African Rand at fixed prices to settle during the next fiscal quarter.  The Company’s foreign currency forward contracts qualify as hedges of a net investment in foreign operations.

 

Derivatives Not Designated as Hedging Instruments

For derivative contracts in which the Company does not elect hedge accounting treatment, the Company carries the derivative at its fair value in the condensed consolidated balance sheet and recognizes any subsequent changes in its fair value through earnings in the condensed consolidated statement of operations.  The Company generally does not elect hedge accounting treatment for derivative contracts related to future settlements of foreign denominated intercompany receivables and payables.  At February 29, 2016, February 28, 2015 and August 31, 2015, the Company had $10.3 million, $5.8 million and $9.5 million of U.S. dollar equivalent of foreign currency forward contracts outstanding that are not designated as hedging instruments.