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Financial Instruments
 12 Months Ended
Aug. 31, 2012
Financial Instruments [Abstract]  
Financial Instruments

 

11.            FINANCIAL INSTRUMENTS 

 

Fair Value of Financial Instruments 

 

The book value of our financial instruments at August 31, 2012 and 2011 approximated their fair values.  The assessment of the fair values of our financial instruments is based on a variety of factors and assumptions.  Accordingly, the fair values may not represent the actual values of the financial instruments that could have been realized at August 31, 2012 or 2011, or that will be realized in the future, and do not include expenses that could be incurred in an actual sale or settlement.  The following methods and assumptions were used to determine the fair values of our financial instruments, none of which were held for trading or speculative purposes: 

 

Cash, Cash Equivalents, and Accounts Receivable – The carrying amounts of cash, cash equivalents, and accounts receivable approximate their fair values due to the liquidity and short-term maturity of these instruments. 

 

Other Assets – Our other assets, including notes receivable, were recorded at the net realizable value of estimated future cash flows from these instruments. 

 

Debt Obligations – At August 31, 2012, our debt obligations consisted of a variable-rate line of credit and a variable term loan with a one-year remaining maturity.  The interest rate on these obligations is variable and is adjusted to reflect current market interest rates that would be available to us for a similar instrument.  In addition, the Revolving Line of Credit agreement is renewed on an annual basis and the terms are reflective of current market conditions.  As a result, the carrying value of the obligations on the Revolving Line of Credit and Term Loan approximate their fair value. 

 

Derivative Instruments 

 

During the normal course of business, we are exposed to fluctuations in foreign currency exchange rates due to our international operations and interest rates.  To manage risks associated with foreign currency exchange and interest rates, we may make limited use of derivative financial instruments.  Derivatives are financial instruments that derive their value from one or more underlying financial instruments.  As a matter of policy, our derivative instruments are entered into for periods that do not exceed the related underlying exposures and do not constitute positions that are independent of those exposures.  In addition, we do not enter into derivative contracts for trading or speculative purposes, nor were we party to any leveraged derivative instrument.  The notional amounts of derivatives do not represent actual amounts exchanged by the parties to the instrument and thus, are not a measure of exposure to the Company through its use of derivatives.  Additionally, we enter into derivative agreements only with highly rated counterparties. 

 

Foreign Currency Exposure – Due to the global nature of our operations, we are subject to risks associated with transactions that are denominated in currencies other than the United States dollar, as well as the effects of translating amounts denominated in foreign currencies to United States dollars as a normal part of the reporting process.  The objective of our foreign currency risk management activities is to reduce foreign currency risk in the consolidated financial statements.  In order to manage foreign currency risks, we may make limited use of foreign currency forward contracts and other foreign currency related derivative instruments in the normal course of business.  Although we cannot eliminate all aspects of our foreign currency risk, we believe that our strategy, which may include the use of derivative instruments, can reduce the impacts of foreign currency related issues on our consolidated financial statements. 

 

During the fiscal year ended August 31, 2010 we utilized foreign currency forward contracts to manage the volatility of certain intercompany financing transactions and other transactions that are denominated in foreign currencies.  Because these contracts did not meet specific hedge accounting requirements, gains and losses on these contracts, which expired on a quarterly basis, were recognized in selling, general, and administrative expense, and were used to offset a portion of the gains or losses of the related accounts.  We recognized losses totaling $0.2 million from these contracts during fiscal 2010. 

 

Interest Rate Risk Management  – Due to the limited nature of our current interest rate risk, we do not make regular use of interest rate derivatives, and we were not a party to any interest rate derivative instruments during the fiscal years ended August 31, 2012, 2011, or 2010.