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Financial Derivatives
 9 Months Ended
May 31, 2017
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 counterparties that have investment grade credit ratings.  Fair values of derivative instruments are as follows:





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

Balance sheet

 

May 31,

 

May 31,

 

August 31,

($ in thousands)

 

location

 

2017

 

2016

 

2016

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

    Foreign currency forward contracts

 

Other current assets

 

$

 —

 

$

 858 

 

$

 40 

    Foreign currency forward contracts

 

Other current liabilities

 

 

 (2,109)

 

 

 (136)

 

 

 (385)

Total derivatives designated as hedging
instruments

 

 

 

$

 (2,109)

 

$

 722 

 

$

 (345)



 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

    Foreign currency forward contracts

 

Other current assets

 

$

 71 

 

$

 16 

 

$

 33 

    Foreign currency forward contracts

 

Other current liabilities

 

 

 (3)

 

 

 (50)

 

 

 (210)

Total derivatives not designated as hedging
instruments

 

 

 

$

 68 

 

$

 (34)

 

$

 (177)



 

 

 

 

 

 

 

 

 

 

 



Accumulated other comprehensive income included realized and unrealized after-tax gains of $5.1 million, $5.9 million, and $5.6 million at May 31, 2017, May 31, 2016, and August 31, 2016, respectively, related to derivative contracts designated as hedging instruments.



Net Investment Hedging Relationships

The amount of gain or (loss) recognized in other comprehensive income is as follows:





 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended

 

Nine months ended



 

May 31,

 

May 31,

 

May 31,

 

May 31,

($ in thousands)

 

2017

 

2016

 

2017

 

2016

Foreign currency forward contracts, net of tax

   (benefit) expense of ($744), ($260),

   ($181), and $149

 

$

 (1,213)

 

$

 (448)

 

$

 (477)

 

$

 450 



For the three months ended May 31, 2017 and May 31, 2016, the Company settled foreign currency forward contracts resulting in an after-tax net loss of $0.3 million and $1.4 million, respectively, which were included in other comprehensive income as part of a currency translation adjustment.  For the nine months ended May 31, 2017 and May 31, 2016, the Company settled foreign currency forward contracts resulting in an after-tax net gain of $0.6 million and an after-tax net loss of $0.2 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 statements of earnings related to ineffectiveness of foreign currency forward contracts related to net investment hedges for the three and nine months ended May 31, 2017 and May 31, 2016.  



At May 31, 2017,  May 31, 2016, and August 31, 2016,  the Company had outstanding foreign currency forward contracts to sell 32.9 million Euro, 28.5 million Euro,  and 32.6 million Euro, respectively, at fixed prices to settle during the next fiscal quarter. At May 31, 2017,  May 31, 2016, and August 31, 2016, the Company had an outstanding 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

The Company generally does not elect hedge accounting treatment for derivative contracts related to future settlements of foreign denominated intercompany receivables and payables.  If the Company does not elect hedge accounting treatment for a derivative, the Company carries the derivative at its fair value in the condensed consolidated balance sheets and recognizes any subsequent changes in its fair value during a period through earnings in the condensed consolidated statements of earnings.  At May 31, 2017,  May 31, 2016,  and August 31, 2016, the Company had $3.1 million, $8.4 million, and $8.2 million, respectively, of U.S. dollar equivalent of foreign currency forward contracts outstanding that are not designated as hedging instruments.