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Derivative Financial Instruments and Hedging Activities
 12 Months Ended
Aug. 31, 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.
All derivative instruments are recorded gross on the Consolidated Balance Sheets at their respective fair values. Changes in fair value of derivative instruments are recorded in the Consolidated Statements of Operations, or as a component of AOCI in the Consolidated Balance Sheets, as discussed below.
Foreign Currency Risk Management
The Company enters into forward foreign exchange contracts to manage the foreign currency risk associated with the anticipated foreign currency denominated revenues and expenses.
Cash Flow Hedges
The Company enters into forward foreign exchange contracts to effectively lock in the value of anticipated foreign currency denominated revenues and expenses against foreign currency fluctuations. The related forward foreign exchange contracts have been designated as hedging instruments and are accounted for as cash flow hedges. The effective portion of the gain or loss on cash flow hedges is initially reported as a component of AOCI, net of tax, and is subsequently reclassified into the line item within the Consolidated Statements of Operations in which the hedged items are recorded, in the same period in which the hedged item affects earnings. The gains and losses recognized in earnings due to hedge ineffectiveness and the amount excluded from effectiveness testing 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. The aggregate notional amount of these outstanding contracts as of August 31, 2024, and 2023, was $353 million and $491 million, respectively. The anticipated foreign currency denominated revenues and expenses being hedged are expected to occur between September 1, 2024, and August 31, 2025.
Net Investment Hedges
In addition, the Company has entered into forward foreign exchange contracts to hedge a portion of its net investment in foreign currency denominated operations, which are designated as net investment hedges. The effective portion of the gain or loss is included in change in foreign currency translation in OCI to offset the change in the carrying value of the net investment being hedged until the complete or substantially complete liquidation of the hedged foreign operation. The gains and losses recognized in earnings due to hedge ineffectiveness and the amounts excluded from effectiveness testing are included in interest expense, net. The maturity dates and aggregate notional amount of these outstanding contracts are as follows (in millions):
Maturity dateAugust 31, 2024August 31, 2023
September 2023$— $34 
October 2023— 96 
January 2024— 96 
April 2024— 68 
July 2024— 102 
October 2024140 — 
January 2025106 — 
July 202555 — 
January 2026106 — 
Total$407 $396 
Non-Designated Derivatives
In addition to derivatives that are designated as hedging instruments and qualify for hedge accounting, the Company also enters into forward foreign exchange 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 gains and losses from changes in fair values are recognized immediately in current earnings. The aggregate notional amount of these outstanding contracts as of August 31, 2024, and 2023, was $2.6 billion and $4.0 billion, respectively.
The Effect of Derivative Instruments on AOCI and the Consolidated Statements of Operations
The following table sets forth the gains and losses of the Company's derivative instruments designated as cash flow hedges and net investment hedges in OCI, and not designated as hedging instruments in the Consolidated Statements of Operations for the periods presented (in millions):
Fiscal Year Ended August 31,
Financial Statement Line Item202420232022
Derivative instruments designated as cash flow hedges:
(Losses) gains recognized in OCI(1)
$(21)$(25)$1 
Losses (gains) reclassified from AOCI into earnings(1)(2)
Forward foreign exchange contractsCost of revenue$22 $44 $30 
Interest rate contractsInterest expense, net$(3)$(2)$2 
Derivative instruments designated as net investment hedges:
Losses recognized in OCI(1)
$(16)$(4)$— 
Gains reclassified from AOCI into earnings(1)
Gain from the divestiture of businesses$(4)$— $— 
Derivative instruments not designated as hedging instruments:
Gains (losses) recognized in earnings from forward foreign exchange contractsCost of revenue$16 $(111)$(71)
(Losses) gains recognized in earnings from changes in foreign currencyCost of revenue$(52)$58 $87 
(1)Amounts are net of tax, which are immaterial for the fiscal years ended August 31, 2024, 2023, and 2022.
(2)The Company expects to reclassify $8 million into earnings during the next twelve months, which will primarily be classified as a component of cost of revenue.
The gains and losses recognized in earnings due to amounts excluded from effectiveness testing were not material for all periods presented.
Refer to Note 18 – “Fair Value Measurements” for the fair values and classification of the Company’s derivative instruments.
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.
Contemporaneously with the issuance of the 5.450% Senior Notes in April 2023, the Company settled cash flow hedges with an aggregate notional amount of $150 million and $100 million, with effective dates of May 2021 and August 2022, respectively. The cash received for the cash flow hedges at settlement was $15 million. The settled cash flow hedges are recorded in the Consolidated Balance Sheets as a component of AOCI and are amortized to interest expense, net in the Consolidated Statements of Operations. As of August 31, 2024, there are no outstanding interest rate swaps.
Contemporaneously with the issuance of the 4.250% Senior Notes in April 2022, the Company settled cash flow hedges with an aggregate notional amount of $250 million and $170 million, with effective dates of November 2020 and March 2022, respectively. The cash received for the cash flow hedges at settlement was $46 million. The settled cash flow hedges are recorded in the Consolidated Balance Sheets as a component of AOCI and are amortized to interest expense, net in the Statements of Operations.
Contemporaneously with the issuance of the 3.000% Senior Notes in July 2020, the Company amended interest rate swap agreements with a notional amount of $200 million, with mandatory termination dates from August 15, 2020, through February 15, 2022 (the “2020 Extended Interest Rate Swaps”). In addition, the Company entered into interest rate swaps to offset future exposures of fluctuations in the fair value of the 2020 Extended Interest Rate Swaps (the “Offsetting Interest Rate Swaps”). The change in fair value of the 2020 Extended Interest Rate Swaps and Offsetting Interest Rate Swaps was recorded in the Consolidated Statements of Operations through the maturity date of February 15, 2022, as an adjustment to interest expense, net.