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Derivative Financial Instruments and Hedging Activities
 6 Months Ended
Feb. 29, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments and Hedging Activities Derivative Financial Instruments and Hedging Activities
The Company is directly and indirectly affected by changes in certain market conditions. These changes in market conditions may adversely impact the Company’s financial performance and are referred to as market risks. The Company, where deemed appropriate, uses derivatives as risk management tools to mitigate the potential impact of certain market risks. The primary market risks managed by the Company through the use of derivative instruments are foreign currency risk and interest rate risk.
Foreign Currency Risk Management
Forward contracts are put in place to manage the foreign currency risk associated with the anticipated foreign currency denominated revenues and expenses. A hedging relationship existed with an aggregate notional amount outstanding of $167 million and $491 million as of February 29, 2024 and August 31, 2023, respectively. The related forward foreign exchange contracts have been designated as hedging instruments and are accounted for as cash flow hedges. The forward foreign exchange contract transactions will effectively lock in the value of anticipated foreign currency denominated revenues and expenses against foreign currency fluctuations. The anticipated foreign currency denominated revenues and expenses being hedged are expected to occur between March 1, 2024 and November 30, 2024.
In addition to derivatives that are designated as hedging instruments and qualify for hedge accounting, the Company also enters into forward contracts to economically hedge transactional exposure associated with commitments arising from trade accounts receivable, trade accounts payable, fixed purchase obligations and intercompany transactions denominated in a currency other than the functional currency of the respective operating entity. The aggregate notional amount of these outstanding contracts as of February 29, 2024 and August 31, 2023, was $2.4 billion and $4.0 billion, respectively.
The gains and losses on cash flow hedges recognized in earnings due to amounts excluded from effectiveness testing were not material for all periods presented and are included as components of net revenue, cost of revenue and selling, general and administrative expense, which are the same line items in which the hedged items are recorded.
In addition, the Company has entered into forward foreign currency exchange contracts to hedge a portion of its net investment in foreign currency denominated operations, which are designated as net investment hedges. The maturity dates and aggregate notional amount outstanding of net investment hedges are as follows (in millions):
Maturity dateFebruary 29, 2024August 31, 2023
September 2023$— $34 
October 2023— 96 
January 2024— 96 
April 2024103 68 
July 2024178 102 
October 202496 — 
Total$377 $396 
The gains and losses on net investment hedges are included in change in foreign currency translation in OCI to offset the change in the carrying value of the net investment being hedged until the complete or substantially complete liquidation of the hedged foreign operation. The amounts excluded from effectiveness testing were not material for all periods presented and are recognized in interest expense, net.
Refer to Note 16 – “Fair Value Measurements” for the fair values and classification of the Company’s derivative instruments.
The following table presents the net (losses) gains from forward contracts recorded in the Condensed Consolidated Statements of Operations for the periods indicated (in millions):
Derivatives Not Designated as Hedging Instruments Under ASC 815Location of (Loss) Gain on Derivatives Recognized in Net IncomeAmount of (Loss) Gain Recognized in Net Income on Derivatives
Three months endedSix months ended
February 29, 2024February 28, 2023February 29, 2024February 28, 2023
Forward foreign exchange contracts(1)
Cost of revenue$(11)$30 $7 $(16)
(1)For the three months ended February 29, 2024, the Company recognized $3 million of foreign currency gains in cost of revenue, which are offset by the losses from the forward foreign exchange contracts. For the six months ended February 29, 2024, the Company recognized $35 million of foreign currency losses in cost of revenue, which are offset by the gains from the forward foreign exchange contracts. For the three months ended February 28, 2023, the Company recognized $53 million of foreign currency losses in cost of revenue, which are offset by the gains from the forward foreign exchange contracts. For the six months ended February 28, 2023, the Company recognized $4 million of foreign currency losses in cost of revenue, in addition to losses from the forward foreign exchange contracts.
Interest Rate Risk Management
The Company periodically enters into interest rate swaps to manage interest rate risk associated with the Company’s borrowings or anticipated debt issuances. As of February 29, 2024, there are no outstanding interest rate swaps.