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Financial Derivatives
 3 Months Ended
Nov. 30, 2017
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

 

November 30,

 

November 30,

 

August 31,

($ in thousands)

 

location

 

2017

 

2016

 

2017

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

    Foreign currency forward contracts

 

Other current assets

 

$

 —

 

$

 1,546 

 

$

 —

    Foreign currency forward contracts

 

Other current liabilities

 

 

 (365)

 

 

 (204)

 

 

 (1,633)

Total derivatives designated as hedging

   instruments

 

 

 

$

 (365)

 

$

 1,342 

 

$

 (1,633)



 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

    Foreign currency forward contracts

 

Other current assets

 

$

 34 

 

$

 123 

 

$

 9 

    Foreign currency forward contracts

 

Other current liabilities

 

 

 (120)

 

 

 (48)

 

 

 (114)

Total derivatives not designated as hedging

   instruments

 

 

 

$

 (86)

 

$

 75 

 

$

 (105)



 

 

 

 

 

 

 

 

 

 

 



Accumulated other comprehensive income included realized and unrealized after-tax gains of $4.0 million, $6.5 million, and $3.9 million at November 30, 2017, November 30, 2016, and August 31, 2017, respectively, related to derivative contracts designated as hedging instruments.



Net Investment Hedging Relationships

The amount of gain recognized in other comprehensive income is as follows:





 

 

 

 

 

 



 

Three months ended



 

November 30,

 

November 30,

($ in thousands)

 

2017

 

2016

Foreign currency forward contracts, net of tax expense of $57 and $610

 

$

 123 

 

$

 918 



For the three months ended November 30, 2017 and November 30, 2016, the Company settled foreign currency forward contracts resulting in an after-tax net loss of $0.7 million and $0.1 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 months ended November 30, 2017 and November 30, 2016.  



At November 30, 2017,  November 30, 2016, and August 31, 2017,  the Company had outstanding foreign currency forward contracts to sell 32.6 million Euro, 32.6 million Euro,  and 32.8 million Euro, respectively, at fixed prices to settle during the next fiscal quarter. At November 30, 2017,  November 30, 2016, and August 31, 2017, 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 November 30, 2017,  November 30, 2016,  and August 31, 2017, the Company had $6.2 million, $6.9 million, and $5.0 million, respectively, of U.S. dollar equivalent of foreign currency forward contracts outstanding that are not designated as hedging instruments.