QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
−Removed: In the normal course of business, we are exposed to foreign currency exchange risk that could impact our financial position and results of operations.
Foreign Currency Exchange Risk
−Removed: We conduct business outside the U.S.
−Removed: in several currencies including the Euro, British Pound Sterling, Indian Rupee, and Philippine Peso.
−Removed: The financial statements of these foreign subsidiaries are translated into U.S.
−Removed: dollars using period-end rates of exchange for assets and liabilities and average rates for the period for revenues and expenses.
−Removed: To the extent that our international activities recorded in local currencies increase in the future, our exposure to fluctuations in currency exchange rates will correspondingly increase.
−Removed: To manage the exposures related to the effects of foreign exchange rate fluctuations, we utilize derivative instruments (foreign currency forward contracts).
−Removed: By their nature, all derivative instruments involve, to varying degrees, elements of market and credit risk.
−Removed: The market risk associated with these instruments resulting from currency exchange movements is expected to offset the market risk of the underlying transactions, assets and liabilities being hedged.
−Removed: We do not believe there is significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with a major financial institution.
−Removed: Further, our policy is to deal with counterparties having a minimum investment grade or better credit rating.
−Removed: Credit risk is managed through the continuous monitoring of exposures to such counterparties.
−Removed: Our primary objective in holding derivatives is to reduce the volatility of earnings associated with changes in foreign currency.
−Removed: Foreign Currency Hedges
−Removed: As of August 31, 2019, we maintained the following foreign currency forward contracts to hedge our exposures:
−Removed: Philippine Peso –
−Removed: foreign currency forward contracts to hedge approximately 75% of our Philippine Peso exposure through the fourth quarter of fiscal 2020.
−Removed: Indian Rupee –
−Removed: foreign currency forward contracts to hedge approximately 50% of our Indian Rupee exposure through the end of the third quarter of fiscal 2020, and 25% of our Indian Rupee exposure through the fourth quarter of fiscal 2020.
−Removed: Euro –
−Removed: foreign currency forward contracts to hedge approximately 75% of our Euro exposure through the first quarter of fiscal 2020, 50% of our Euro exposure from the second quarter through the third quarter of fiscal 2020, and 25% of our Euro exposure through the fourth quarter of fiscal 2020.
−Removed: British Pound Sterling –
−Removed: foreign currency forward contracts to hedge approximately 75% of our British Pound sterling exposure through the first quarter of fiscal 2020, 50% of our British Pound Sterling exposure from the second quarter through the third quarter of fiscal 2020, and 25% of our British Pound Sterling exposure through the fourth quarter of fiscal 2020.
−Removed: As of August 31, 2019, the gross notional value of foreign currency forward contracts to purchase Philippine Pesos and Indian Rupees with U.S.
−Removed: dollars was ₱1.4 billion and Rs.1.4 billion, respectively.
−Removed: The gross notional value of foreign currency forward contracts to purchase U.S.
−Removed: dollars with Euros and British Pound Sterling was €35.7 million and £20.5 million, respectively.
−Removed: A loss on derivatives of $1.8 million was recorded into operating income during fiscal 2019, compared to a gain of $3.1 million in fiscal 2018.
−Removed: The gains and losses on foreign currency forward contracts mitigate the variability in operating expenses associated with currency movements.
−Removed: These transactions are designated and accounted for as cash flow hedges in accordance with applicable accounting guidance.
−Removed: The changes in fair value for these foreign currency forward contracts are initially reported as a component of accumulated other comprehensive loss and subsequently reclassified into operating expenses when the hedged exposure affects earnings.
−Removed: The related cash flow impacts of all our derivative activities are reflected as cash flows from operating activities.
−Removed: A sensitivity analysis was performed based on the estimated fair value of all foreign currency forward contracts outstanding at August 31, 2019.
−Removed: dollar had been 10% weaker, the fair value of outstanding foreign currency forward contracts would have increased by $10.8 million, which would have had an immaterial impact on our Consolidated Balance Sheets.
+Added: In the normal course of business, we are exposed to foreign currency exchange risk as we conduct business outside the U.S.
+Added: in several currencies including the British Pound Sterling, Euro, Indian Rupee, and Philippine Peso.
+Added: Changes in the exchange rates for such currencies into U.S.
+Added: dollars can affect our revenues, earnings, and the carrying values of our assets and liabilities in our consolidated balance sheet, either positively or negatively.
+Added: To manage the exposures related to the effects of foreign exchange rate fluctuations, the we utilize derivative instruments (foreign currency forward contracts).
+Added: The changes in fair value for these foreign currency forward contracts are initially reported as a component of AOCL and subsequently reclassified into operating expenses when the hedged exposure affects earnings.
+Added: A sensitivity analysis was performed based on the estimated fair value of all foreign currency forward contracts outstanding at August 31, 2020.
+Added: dollar had been 10% weaker, the fair value of outstanding foreign currency forward contracts would have increased by $13.0 million, which would have had an immaterial impact on our Consolidated Balance Sheet.
Such a change in fair value of our financial instruments would be substantially offset by changes in our expense base.
−Removed: If we had no hedges in place as of August 31, 2019, a hypothetical 10% weaker U.S.
−Removed: dollar against all foreign currencies from the quoted foreign currency exchange rates at August 31, 2019, would result in a decrease in operating income by $28.0 million over the next 12 months.
+Added: If we had no hedges in place as of August 31, 2020, a hypothetical 10% weaker U.S.
+Added: dollar against all foreign currencies from the quoted foreign currency exchange rates at August 31, 2020, with operating results held constant in local currencies, would result in a decrease in operating income by $35.4 million over the next 12 months.
A hypothetical 10% weaker U.S.
−Removed: dollar against all foreign currencies at August 31, 2019 would increase the fair value of total assets by $66.9 million and equity by $60.1 million.
−Removed: Volatility in the British Pound Sterling exchange rate is expected to continue in the short term as the UK negotiates its exit from the European Union.
−Removed: In the longer term, any impact from Brexit will depend on, in part, on the outcome of tariff, regulatory, and other negotiations.
+Added: dollar against all foreign currencies at August 31, 2020 would have increased the fair value of total assets by $66.3 million and equity by $41.6 million.
+Added: Volatility in the British Pound Sterling exchange rate remains a possibility in the short term as the UK continues the transition resulting from its exit from the European Union.
+Added: In the longer term, any impact from Brexit will depend on, in part, the outcome of tariff, regulatory, and other negotiations.
+Added: Refer to Item 1A.
+Added: Risk Factors of this Annual Report on Form 10-K for further discussion on Brexit.
+Added: Refer to Note 6, Derivative Instruments in the Notes to the Company’s Consolidated Financial Statements included in Item 8.
+Added: of this Annual Report on Form 10-K for more information on our foreign currency exposures and our foreign currency forward contracts.
Interest Rate Risk
−Removed: Cash and Cash Equivalents and Investments
−Removed: The fair market value of our cash and cash equivalents and investments at August 31, 2019, was $385.6 million.
+Added: Cash and Cash Equivalents and Investments
+Added: The fair market value of our cash and cash equivalents and investments at August 31, 2020 was $605.2 million.
Our cash and cash equivalents consist of demand deposits and money market funds with original maturities of three months or less and are reported at fair value.
−Removed: Our investments consist of both mutual funds and certificates of deposit as both are part of our investment strategy.
−Removed: These mutual funds and certificates of deposit are included as Investments (current assets) on our consolidated balance sheets as the mutual funds can be liquidated at our discretion and the certificates of deposit have original maturities greater than three months, but less than one year.
−Removed: The mutual funds and certificates of deposit are held for investment purposes and are not considered debt securities.
−Removed: It is anticipated that the fair market value of our cash and cash equivalents and investments will continue to be immaterially affected by fluctuations in interest rates.
−Removed: Preservation of principal is the primary goal of our cash and investment policy.
−Removed: Pursuant to our established investment guidelines, we try to achieve high levels of credit quality, liquidity and diversification.
−Removed: Our investment guidelines do not permit us to invest in puts, calls, strips, short sales, straddles, options, commodities, precious metals, futures or investments on margin.
+Added: We are exposed to interest rate risk through fluctuations of interest rates on our investments.
As we have a restrictive investment policy, our financial exposure to fluctuations in interest rates is expected to remain low.
−Removed: We do not believe that the value or liquidity of our cash and cash equivalents and investments have been significantly impacted by current market events.
−Removed: As of August 31, 2019, the fair value of our long-term debt was $575.0 million, which approximated its carrying amount.
−Removed: The application of a floating interest rate equal to the daily LIBOR rate plus a spread using a debt leverage pricing grid, approximates the current market rate for similar instruments.
−Removed: It is anticipated that the fair market value of our debt will continue to be immaterially affected by fluctuations in interest rates.
−Removed: We do not believe that the value of our debt has been significantly impacted by current market events.
−Removed: The debt bears interest on the outstanding principal amount at a rate equal to the daily LIBOR rate plus a spread using a debt leverage pricing grid currently at 0.875%.
−Removed: During fiscal years 2019, 2018 and 2017, we recorded interest expense of $19.8 million, $15.9 million and $8.4 million, respectively, on our outstanding debt amounts.
−Removed: Assuming all terms of our outstanding long-term debt remained the same, a hypothetical 25 basis point change (up or down) in the one-month LIBOR rate would result in a $1.4 million change to our annual interest expense.
+Added: Refer to Note 3, Summary of Significant Accounting Policie s in the Notes to the Company’s Consolidated Financial Statements included in Item 8.
+Added: of this Annual Report on Form 10-K for more information on our cash and cash equivalents and investments policies.
+Added: As of August 31, 2020, we had long term debt outstanding under the 2019 Revolving Credit Facility with a principal balance of $ 575.0 million.
+Added: The debt bears interest on the outstanding principle at a rate equal to LIBOR plus a spread, using a debt leverage pricing grid.
+Added: The variable rate of interest on our long-term debt can expose us to interest rate volatility due to changes in LIBOR.
+Added: To mitigate this exposure, on March 5, 2020, we entered into an interest rate swap agreement with a notional amount of $ 287.5 million to hedge the variable interest rate obligation, effectively converting the floating interest rate to fixed for the hedged portion.
+Added: Thus, we are only exposed to base interest rate risk on floating rate borrowings in excess of any amounts that are not hedged, or $ 287.5 million of our outstanding principal balance.
+Added: Assuming all terms of our outstanding long-term debt remained the same, a hypothetical 25 basis point change (up or down) in the one-month LIBOR would result in a $0.7
+Added: million change to our annual interest expense for the portion of the long-term debt not hedged by the interest rate swap agreement.
+Added: Refer to Note 12, Debt in the Notes to the Company’s Consolidated Financial Statements included in Item 8.
+Added: of this Annual Report on Form 10-K for additional information regarding our outstanding debt obligations.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.