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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
 12 Months Ended
Aug. 31, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
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 a non-functional currency long-term debt of one of its wholly owned subsidiaries. To manage this foreign currency and interest rate cash flow exposure, the Company’s subsidiary entered into a cross-currency interest rate swap that converts its 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 hedge is 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 effective portion of the gain or loss on the derivative reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction is determined to be ineffective.  There were no such amounts recorded for ineffectiveness for the periods reported herein related to the interest rate or cross-currency interest rate swaps of long-term debt.

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 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.

Cash Flow Hedges

As of August 31, 2015, 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 transactions during the twelve months ended August 31, 2015:

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
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
Honduras
 
24-Mar-15
 
Citibank, N.A. ("Citi")
 
Cross currency interest rate swap
 
$
8,500,000

 
Citibank, N.A.
 
Variable rate 3-month Libor plus 3.25%
 
10.75
%
 
24th day of March, June, September, and December beginning on June 24, 2015
 
March 24,2015 - March 20, 2020
El Salvador
 
16-Dec-14
 
Bank of Nova Scotia ("Scotiabank")
 
Interest rate swap
 
$
4,000,000

 
Bank of Nova Scotia
 
Variable rate 30-day Libor plus 3.5%
 
4.78
%
 
29th day of each month beginning on December 29, 2014
 
December 01, 2014 - August 29, 2019
Colombia
 
10-Dec-14
 
Citibank, N.A. ("Citi")
 
Cross currency interest rate swap
 
$
15,000,000

 
Citibank, N.A.
 
Variable rate 3-month Libor plus 2.8%
 
8.25
%
 
4th day of March, June, Sept, Dec. beginning on March 4, 2015
 
December 4, 2014 - December 3, 2019
Panama
 
9-Dec-14
 
Bank of Nova Scotia ("Scotiabank")
 
Interest rate swap
 
$
10,000,000

 
Bank of Nova Scotia
 
Variable rate 30-day Libor plus 3.5%
 
5.159
%
 
28th day of each month beginning December 29, 2014
 
November 28, 2014 - November 29, 2019
Honduras
 
23-Oct-14
 
Citibank, N.A. ("Citi")
 
Cross currency interest rate swap
 
$
5,000,000

 
Citibank, N.A.
 
Variable rate 3-month Libor plus 3.5%
 
11.6
%
 
22nd day of January, April, July, and October beginning on January 22, 2015
 
October 22, 2014 - October 22, 2017
Panama
 
1-Aug-14
 
Bank of Nova Scotia ("Scotiabank")
 
Interest rate swap
 
$
5,000,000

 
Bank of Nova Scotia
 
Variable rate 30-day Libor plus 3.5%
 
4.89
%
 
21st day of each month beginning on September 22, 2014
 
August 21, 2014 - August 21, 2019
Panama
 
22-May-14
 
Bank of Nova Scotia ("Scotiabank")
 
Interest rate swap
 
$
19,800,000

 
Bank of Nova Scotia
 
Variable rate 30-day Libor plus 3.5%
 
4.98
%
 
4th day of each month beginning on June 4, 2014
 
May 5, 2014 - April 4, 2019
Panama
 
22-May-14
 
Bank of Nova Scotia ("Scotiabank")
 
Interest rate swap
 
$
3,970,000

 
Bank of Nova Scotia
 
Variable rate 30-day Libor plus 3.5%
 
4.98
%
 
4th day of each month beginning on June 4, 2014
 
May 5, 2014 - April 4, 2019
Colombia
 
11-Dec-12
 
Bank of Nova Scotia ("Scotiabank")
 
Cross currency interest rate swap
 
$
8,000,000

 
Bank of Nova Scotia
 
Variable rate 3-month Libor plus 0.7%
 
4.79
%
 
March, June, September and December, beginning on March 5, 2013
 
December 5, 2012 - December 5, 2014 Settled on December 5, 2014
Colombia
 
21-Feb-12
 
Bank of Nova Scotia ("Scotiabank")
 
Cross currency interest rate swap
 
$
8,000,000

 
Bank of Nova Scotia
 
Variable rate 3-month Libor plus 0.6%
 
6.02
%
 
February, May, August and November beginning on May 22, 2012
 
Settled on August 6, 2015
Colombia
 
21-Oct-11
 
Bank of Nova Scotia ("Scotiabank")
 
Cross currency interest rate swap
 
$
2,000,000

 
Bank of Nova Scotia
 
Variable rate 3-month Libor plus 0.7%
 
5.30
%
 
January, April, July and October, beginning on October 29, 2011
 
Settled on July 31, 2015
Colombia
 
21-Oct-11
 
Bank of Nova Scotia ("Scotiabank")
 
Cross currency interest rate swap
 
$
6,000,000

 
Bank of Nova Scotia
 
Variable rate 3-month Libor plus 0.7%
 
5.45
%
 
March, June, September and December, beginning on December 29, 2011
 
Settled on July 31, 2015
Colombia
 
5-May-11
 
Bank of Nova Scotia ("Scotiabank")
 
Cross currency interest rate swap
 
$
8,000,000

 
Bank of Nova Scotia
 
Variable rate 3-month Libor plus 0.7%
 
6.09
%
 
January, April, July and October, beginning on July 5, 2011
 
Settled on July 23, 2015
     
    



 

For the twelve-month periods ended August 31, 2015, 2014, and 2013 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)
 
Loss on Swaps(2)
 
Interest expense
Interest expense for the year ended August 31, 2015
$
2,205

 
$
2,827

 
$
5,032

Interest expense for the year ended August 31, 2014
$
674

 
$
1,632

 
$
2,306

Interest expense for the year ended August 31, 2013
$
739

 
$
1,821

 
$
2,560


(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 interest rate and 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
August 31,
 Floating Rate Payer (Swap Counterparty)
2015
 
2014
Scotiabank
$
37,458

 
$
52,200

Citibank N.A.
34,287

 
—

Total
$
71,745

 
$
52,200



The following table summarizes the fair value of interest rate swap and cross-currency interest rate swap derivative instruments that qualify for derivative hedge accounting (in thousands, except footnote data):
 
 
August 31, 2015
 
August 31, 2014
Derivatives designated as cash flow hedging instruments
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Cross-currency interest rate swaps(1)(2)
 
Prepaid expenses and other current assets (Cross-currency interest rate swaps)
 
$
—

 
Prepaid expenses and other current assets (Cross-currency interest rate swaps)
 
$
495

Cross-currency interest rate swaps(1)(2)
 
Other non-current assets
 
4,129

 
Other non-current assets
 
970

Interest rate swaps(3)

 
Other non-current assets
 
—

 
Other non-current assets
 
125

Interest rate swaps(3)
 
Other long-term liabilities
 
(387
)
 
Other long-term liabilities
 
—

Cross currency interest rate swap(4)
 
Other long-term liabilities
 
(1,312
)
 
Other long-term liabilities
 
—

Net fair value of derivatives designated as hedging instruments - assets (liability)(5)
 
 
 
$
2,430

 
 
 
$
1,590



(1) 
The effective portion of the cross-currency interest rate swaps was recorded to Accumulated other comprehensive (income)/loss for $(2.8) million and $(917,000) net of tax as of August 31, 2015 and August 31, 2014, respectively.  
(2) 
The Company has recorded a deferred tax liability amount with an offset to other comprehensive income of $(1.3) million and $(548,000) as of August 31, 2015 and August 31, 2014, respectively, related to asset positions of cross-currency interest rate swaps. However, the equity effect of this deferred tax liability is offset by the full valuation allowance provided for the net deferred tax asset recorded for this subsidiary.
(3) 
The effective portion of the interest rate swaps was recorded to Accumulated other comprehensive loss for $289,000 and $(94,000) net of tax as of August 31, 2015 and August 31, 2014, respectively.  The Company has recorded a deferred tax (liability)/asset amount with an offset to other comprehensive income of $98,000 and $(31,000) as of August 31, 2015 and August 31, 2014, respectively.
(4) 
The effective portion of the cross-currency interest rate swaps was recorded to Accumulated other comprehensive (income)/loss for $830,000 and $0 net of tax as of August 31, 2015 and August 31, 2014, respectively.  The Company has recorded a deferred tax asset amount with an offset to other comprehensive income - tax of $482,000 and $0 as of August 31, 2015 and August 31, 2014, respectively.
(5) 
Derivatives listed on the above table were designated as cash flow hedging instruments.

The following table summarizes the derivatives that were settled during the twelve months ended August 31, 2015 (in thousands):
Date
 
Payment of Derivative Obligation
 
Foreign Exchange on Derivative Obligation
 
 Recognize Settlement of Derivative Right net of Bank Fees
 
Swap Derivative (Gain)Loss
 
23-Jul-15
 
$
5,141

 
$
2,929

 
$
(2,859
)
 
$
50

 
31-Jul-15
 
1,343

 
670

 
(657
)
 
11

 
31-Jul-15
 
4,029

 
2,011

 
(1,971
)
 
21

 
6-Aug-15
 
4,944

 
3,181

 
(3,056
)
 
70

 
 
 
$
15,457

 
$
8,791

 
$
(8,543
)
 
$
152

(1) 

(1) Reclassified from accumulated other comprehensive income (loss) to other income (expense) for settlement of derivative instruments in the amount of $100,000, net of tax.

Fair Value Instruments

The Company has entered 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.

The following table summarizes these agreements as of August 31, 2015:
Subsidiary
 
Dates entered into
 
Derivative Financial Counter-party
 
Derivative Financial Instrument
 
Notional Amount
(in thousands)
 
Settlement Date
 
Effective Period of Forward
Costa Rica
 
31-Aug-15
 
Citibank, N.A.
 
Forward foreign exchange contracts
 
$
3,750

 
August 30, 2016
 
August 31, 2015-August 30, 2016


For the twelve-month periods ended August 31, 2015, 2014 and 2013, the Company included in its consolidated statements of income the forward derivative (gain) or loss on the non-deliverable forward foreign-exchange contracts as follows (in thousands):
 
 
Twelve Months Ended August 31,
Income Statement Classification
 
2015
 
2014
 
2013
Other income (expense), net
 
$
6,533

 
$
(463
)
 
$
(580
)


    

The following table summarizes the fair value of foreign currency forward contracts that do not qualify for derivative hedge accounting (in thousands):
 
 
August 31, 2015
 
August 31, 2014
 
 
Derivatives designated as fair value hedging instruments
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Foreign currency forward contracts
 
Other accrued expenses
 
$
(66
)
 
Other accrued expenses
 
$
(14
)
Net fair value of derivatives designated as hedging instruments that do not qualify for hedge accounting
 
 
 
$
(66
)
 
 
 
$
(14
)