Financial Derivatives

12 Months Ended

Aug. 31, 2012

Financial Derivatives [Abstract]

Financial Derivatives

K. FINANCIAL DERIVATIVES

Financial derivatives consist of the following:

	Fair Values of Derivative Instruments
	Asset (Liability)
		August 31,		August 31,
$ in thousands	Balance Sheet Location	2012		2011
Derivatives designated as hedging instruments:
Foreign currency forward contracts	Other current liabilities	$	(436)	$	(218)
Interest rate swap	Other current liabilities		(90)		(267)
Interest rate swap	Other noncurrent liabilities		-		(149)
Total derivatives designated as hedging instruments		$	(526)	$	(634)
Derivatives not designated as hedging instruments:
Foreign currency forward contracts	Other current assets		12		-
Foreign currency forward contracts	Other current liabilities		(37)		-
Total derivatives not designated as hedging instruments		$	(25)	$	-

In addition, accumulated other comprehensive income included gains, net of related income tax effects of $2.4 million and $0.5 million at August 31, 2012 and 2011, respectively, related to derivative contracts designated as hedging instruments.

Cash Flow Hedging Relationships

In order to reduce interest rate risk on the BSI Term Note, the Company entered into an interest rate swap agreement with Wells Fargo Bank, N.A. that is designed to effectively convert or hedge the variable interest rate on the entire amount of this borrowing to achieve a  net fixed rate of 6.05 percent per annum.  Under the terms of the interest rate swap, the Company receives variable interest rate payments and makes fixed interest rate payments on an amount equal to the outstanding balance of the BSI Term Note (see Note J, Credit Arrangements).  Changes in the fair value of the interest rate swap designated as the hedging instrument that effectively offset the variability of cash flows associated with the variable-rate, long-term debt obligation are reported in AOCI, net of related income tax effects. 

In order to reduce exposures related to changes in foreign currency exchange rates, the Company, at times, may enter into forward exchange or option contracts for transactions denominated in a currency other than the functional currency for certain of its 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 fair value of the forward exchange contracts or option contracts designated as hedging instruments that effectively offset the hedged risks are reported in AOCI, net of related income tax effects.  The Company had $3.0 million and $0.0million of U.S. dollar equivalent cash flow forward exchange contracts and option contracts outstanding as of August 31, 2012 and 2011, respectively. In addition, the amount of gain or loss recognized in OCI, the amount of gain or loss reclassified from AOCI into income and the amount of gain or loss recognized in income related to the outstanding cash flow hedging relationships were immaterial.

Net Investment Hedging Relationships

In order to reduce translation exposure resulting from translating the financial statements of its international subsidiaries into U.S. dollars, the Company, at times, utilizes Euro foreign currency forward contracts to hedge a portion of its Euro net investment exposure in its foreign operations.  These foreign currency forward contracts qualify as a hedge of net investments in foreign operations.  Changes in fair value of the net investment hedge contracts are reported in OCI as part of the currency translation adjustment, net of tax.

		Amount of Gain/(Loss) Recognized in OCI on Derivatives
		For the years ended August 31,
$ in thousands		2012		2011		2010
Foreign currency forward contracts(1)	$	1,677	$	(800)	$	296
(1)Net of tax expense (benefit) of $1,023,  ($489) and $181 for the years ended August 31, 2012, 2011 and 2010, respectively.

During fiscal 2012, 2011 and 2010, the Company settled Euro foreign currency forward contracts resulting in after-tax net gains (losses) of $1.8 million, ($0.7 million) and $0.3 million, respectively, which were included in OCI as part of a currency translation adjustment.  There were no amounts recorded in the consolidated statement of operations related to ineffectiveness of Euro foreign currency forward contracts for the years ended August 31, 2012, 2011 and 2010.  Accumulated currency translation adjustment in AOCI at August 31, 2012, 2011 and 2010 reflected realized and unrealized after-tax gains of $2.4 million, $0.7 million and $1.5 million, respectively.

At August 31, 2012 and 2011, the Company had outstanding Euro foreign currency forward contracts to sell 26.5 million Euro and 10.0 million Euro, respectively, 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.