XML 29 R15.htm IDEA: XBRL DOCUMENT
v3.20.2

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | 9 Months Ended
--- | ---
May 31, 2020
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES [Abstract] |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | NOTE 8 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company is exposed to interest rate risk relating to its ongoing business operations. To manage interest rate exposure, the Company enters into hedge transactions (interest rate swaps) using derivative financial instruments. The objective of entering into interest rate swaps is to eliminate the variability of cash flows in the LIBOR interest payments associated with variable-rate loans over the life of the loans. As changes in interest rates impact the future cash flow of interest payments, the hedges provide a synthetic offset to interest rate movements. In addition, the Company is exposed to foreign currency and interest rate cash flow exposure related to non-functional currency long-term debt of three of its wholly owned subsidiaries. To manage this foreign currency and interest rate cash flow exposure, the Company’s subsidiaries entered into cross-currency interest rate swaps that convert their U.S. dollar denominated floating interest payments to functional currency fixed interest payments during the life of the hedging instrument. As changes in foreign exchange and interest rates impact the future cash flow of interest payments, the hedges are intended to offset changes in cash flows attributable to interest rate and foreign exchange movements. These derivative instruments (cash flow hedging instruments) are designated and qualify as cash flow hedges, with the entire gain or loss on the derivative reported as a component of other comprehensive loss. Amounts are deferred in other comprehensive loss and reclassified into earnings in the same income statement line item that is used to present earnings effect of the hedged item when the hedged item affects earnings. The Company is exposed to foreign-currency exchange-rate fluctuations in the normal course of business, including foreign-currency exchange-rate fluctuations on U.S. dollar denominated liabilities within its international subsidiaries whose functional currency is other than the U.S. dollar. The Company manages these fluctuations, in part, through the use of non-deliverable forward foreign-exchange contracts (NDFs) that are intended to offset changes in cash flow attributable to currency exchange movements. These contracts are intended primarily to economically address exposure to U.S. dollar merchandise inventory expenditures made by the Company’s international subsidiaries whose functional currency is other than the U.S. dollar. Currently, these contracts do not qualify for derivative hedge accounting. The Company seeks to mitigate foreign-currency exchange-rate risk with the use of these contracts and does not intend to engage in speculative transactions. These contracts do not contain any credit-risk-related contingent features. The Company uses other derivatives not designated as hedging instruments that consist primarily of written call options in which the Company receives a premium from the holder. This premium lowers the cost of the Company’s hedging activities. The Company recognizes changes in fair value of the derivative instrument, as well as the offsetting change in the fair value of the hedged item, in Other expense, net in the consolidated statements of income in the period of change. Cash Flow Hedges As of May 31, 2020, all of the Company’s interest rate swap and cross-currency interest rate swap derivative financial instruments are designated and qualify as cash flow hedges. The Company formally documents the hedging relationships for its derivative instruments that qualify for hedge accounting. The following table summarizes agreements for which the Company has recorded cash flow hedge accounting for the nine months ended May 31, 2020:
Subsidiary |  | Date ‎Entered ‎into |  | Derivative ‎Financial ‎Counter- ‎party |  | Derivative ‎Financial ‎Instruments |  | Initial ‎US$ ‎Notional ‎Amount |  | Bank ‎US$ ‎loan ‎Held ‎with |  | Floating Leg ‎(swap ‎counter-party) |  | Fixed Rate ‎for PSMT ‎Subsidiary |  | Settlement ‎Dates |  | Effective ‎Period of swap
Colombia |  | 3-Dec-19 |  | Citibank, N.A. ("Citi") |  | Cross currency interest rate swap |  | $ | 7,875,000 |  | Citibank, N.A. |  | Variable rate 3-month Libor plus 2.45% |  | 7.87 | % |  | 3rd day of each December, March, June, and September, beginning on March 3, 2020 |  | December 3, 2019 - December 3, 2024
Colombia |  | 27-Nov-19 |  | Citibank, N.A. ("Citi") |  | Cross currency interest rate swap |  | $ | 25,000,000 |  | Citibank, N.A. |  | Variable rate 3-month Libor plus 2.45% |  | 7.93 | % |  | 27th day of each November, February, May and August beginning February 27, 2020 |  | November 27, 2019 - November 27, 2024
Colombia |  | 24-Sep-19 |  | Citibank, N.A. ("Citi") |  | Cross currency interest rate swap |  | $ | 12,500,000 |  | PriceSmart, Inc. |  | Variable rate 3-month Libor plus 2.50% |  | 7.09 | % |  | 24th day of each December, March, June and September beginning December 24, 2019 |  | September 24, 2019 - September 26, 2022
Panama |  | 25-Jun-18 |  | Bank of Nova Scotia ("Scotiabank") |  | Interest rate swap |  | $ | 14,625,000 |  | Bank of Nova Scotia |  | Variable rate 3-month Libor plus 3.0% |  | 5.99 | % |  | 23rd day of each month beginning on July 23, 2018 |  | June 25, 2018 - March 23, 2023
Honduras |  | 26-Feb-18 |  | Citibank, N.A. ("Citi") |  | Cross currency interest rate swap |  | $ | 13,500,000 |  | Citibank, N.A. |  | Variable rate 3-month Libor plus 3.00% |  | 9.75 | % |  | 29th day of May, August, November and February beginning May 29, 2018 |  | February 26, 2018 - February 24, 2024
PriceSmart, Inc |  | 7-Nov-16 |  | MUFG Union Bank, N.A. ("Union Bank") |  | Interest rate swap |  | $ | 35,700,000 |  | Union Bank |  | Variable rate 1-month Libor plus 1.7% |  | 3.65 | % |  | 1st day of each month beginning on April 1, 2017 |  | March 1, 2017 - March 1, 2027
Costa Rica |  | 28-Aug-15 |  | Citibank, N.A. ("Citi") |  | Cross currency interest rate swap |  | $ | 7,500,000 |  | Citibank, N.A. |  | Variable rate 3-month Libor plus 2.50% |  | 7.65 | % |  | 28th day of August, November, February, and May beginning on November 30, 2015 |  | August 28, 2015 - August 28, 2020
For the three and nine months ended May 31, 2020 and 2019, the Company included the gain or loss on the hedged items (that is, variable-rate borrowings) in the same line item—interest expense—as the offsetting gain or loss on the related interest rate swaps as follows (in thousands):
Income Statement Classification |  | Interest ‎expense on ‎borrowings(1) |  | Cost of ‎swaps (2) |  | Total
Interest expense for the three months ended May 31, 2020 |  | $ | 1,067 |  | $ | 620 |  | $ | 1,687
Interest expense for the three months ended May 31, 2019 |  | $ | 1,204 |  | $ | 110 |  | $ | 1,314
Interest expense for the nine months ended May 31, 2020 |  | $ | 3,287 |  | $ | 1,477 |  | $ | 4,764
Interest expense for the nine months ended May 31, 2019 |  | $ | 3,606 |  | $ | 380 |  | $ | 3,986
(1)This amount is representative of the interest expense recognized on the underlying hedged transactions. (2)This amount is representative of the interest expense recognized on the cross-currency interest rate swaps designated as cash flow hedging instruments. The total notional balance of the Company’s pay-fixed/receive-variable interest rate swaps and cross-currency interest rate swaps was as follows (in thousands):
|  | Notional Amount as of
|  | May 31, |  | August 31,
Floating Rate Payer (Swap Counterparty) |  | 2020 |  | 2019
Union Bank |  | $ | 34,213 |  | $ | 35,169
Citibank N.A. |  |  | 50,650 |  |  | 24,225
Scotiabank |  |  | 16,500 |  |  | 18,375
Total |  | $ | 101,363 |  | $ | 77,769
Derivatives listed on the table below were designated as cash flow hedging instruments. The table summarizes the effect of the fair value of interest rate swap and cross-currency interest rate swap derivative instruments that qualify for derivative hedge accounting and its associated tax effect on accumulated other comprehensive (income)/loss (in thousands):
|  |  |  | May 31, 2020 |  | August 31, 2019
Derivatives designated as cash flow hedging instruments |  | Balance Sheet Classification |  | Fair ‎Value |  | Net Tax ‎Effect |  | Net ‎OCI |  | Fair ‎Value |  | Net Tax ‎Effect |  | Net ‎OCI
Cross-currency interest rate swaps |  | Other non-current assets |  | $ | 428 |  | $ | (132) |  | $ | 296 |  | $ | — |  | $ | — |  | $ | —
Cross-currency interest rate swaps |  | Other current assets |  |  | — |  |  | — |  |  | — |  |  | 2,736 |  |  | (903) |  |  | 1,833
Interest rate swaps |  | Other long-term liabilities |  |  | (4,005) |  |  | 933 |  |  | (3,072) |  |  | (2,178) |  |  | 517 |  |  | (1,661)
Cross-currency interest rate swaps |  | Other long-term liabilities |  |  | (1,562) |  |  | 475 |  |  | (1,087) |  |  | (732) |  |  | 220 |  |  | (512)
Cross-currency interest rate swaps |  | Other current liabilities |  |  | (30) |  |  | 9 |  |  | (21) |  |  | — |  |  | — |  |  | —
Net fair value of derivatives designated as hedging instruments |  |  |  | $ | (5,169) |  | $ | 1,285 |  | $ | (3,884) |  | $ | (174) |  | $ | (166) |  | $ | (340)
Fair Value Instruments From time to time the Company enters into non-deliverable forward foreign-exchange contracts. These contracts are treated for accounting purposes as fair value contracts and do not qualify for derivative hedge accounting. The use of non-deliverable forward foreign-exchange contracts is intended to offset changes in cash flow attributable to currency exchange movements. These contracts are intended primarily to economically hedge exposure to U.S. dollar merchandise inventory expenditures made by the Company’s international subsidiaries whose functional currency is other than the U.S. dollar. As of May 31, 2020, the Company did not have any material non-deliverable forward foreign-exchange contracts. Other Instruments Other derivatives not designated as hedging instruments consist primarily of written call options in which the Company receives a premium that it uses to reduce the costs associated with its hedging activities. As of May 31, 2020, the Company has settled its outstanding call options and does not have any other contracts not designated as hedging instruments. For the three and nine months ended May 31, 2020, the Company included in its consolidated statements of income the loss of its other non-designated derivative contracts as follows (in thousands):
|  |  | Three Months Ended |  |  | Nine Months Ended
|  |  | May 31, |  | May 31, |  |  | May 31, |  | May 31,
Income Statement Classification |  |  | 2020 |  | 2019 |  |  | 2020 |  | 2019
Other expense, net |  | $ | — |  | $ | — |  | $ | (912) |  | $ | —

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration