XML 44 R22.htm IDEA: XBRL DOCUMENT v3.24.3
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
 12 Months Ended
Aug. 31, 2024
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 SOFR 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 one of its wholly owned subsidiaries. To manage this foreign currency and interest rate cash flow exposure, some of the Company’s subsidiaries have 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 the 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.
Cash Flow Hedges
As of August 31, 2024, 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 twelve months ended August 31, 2024:
EntityDate
Entered
into		Derivative
Financial
Counter-
party		Derivative
Financial
Instruments		Initial
US$
Notional
Amount		US$
Loan
Held
With		Floating Leg
(swap
counter-party)		Fixed Rate
for PSMT
Subsidiary		Settlement
Dates		Effective
Period of swap
Colombia subsidiary30-Nov-23Citibank, N.A. ("Citi")Cross currency interest rate swap$10,000,000PriceSmart, Inc.5.00%11.27 %30th day of each November, May, August and 28th day of each February (except in case of a leap year, 29th day of each February) beginning on February 29, 2024November 30, 2023 - November 30, 2026
Colombia subsidiary12-Apr-23Citibank, N.A. ("Citi")Cross currency interest rate swap$10,000,000PriceSmart, Inc.4.00%11.40 %11th day of each July, October, January and April, beginning on July 11, 2023April 12, 2023 - April 11, 2028
Colombia subsidiary26-Sep-22Citibank, N.A. ("Citi")Cross currency interest rate swap$12,500,000PriceSmart, Inc.3.00%10.35 %24th day of each December, March, June and September beginning December 26, 2022September 26, 2022 - September 24, 2024
Colombia subsidiary3-May-22Citibank, N.A. ("Citi")Cross currency interest rate swap$10,000,000PriceSmart, Inc.3.00%9.04 %3rd day of each May, August, November and February, beginning on August 3, 2022May 3, 2022 - May 3, 2027
Colombia subsidiary17-Nov-21Citibank, N.A. ("Citi")Cross currency interest rate swap$10,000,000PriceSmart, Inc.3.00%8.40 %17th day of each February, May, August and November, beginning on February 17, 2022November 17, 2021 - November 18, 2024
Colombia subsidiary3-Dec-19Citibank, N.A. ("Citi")Cross currency interest rate swap$7,875,000Citibank, N.A.
Variable rate 3-month SOFR plus 2.45%
7.87 %3rd day of each December, March, June and September beginning March 3, 2020December 3, 2019 - December 3, 2024
Colombia subsidiary27-Nov-19Citibank, N.A. ("Citi")Cross currency interest rate swap$25,000,000Citibank, N.A.
Variable rate 3-month SOFR plus 2.45%
7.93 %27th day of each November, February, May and August beginning February 27, 2020November 27, 2019 - November 27, 2024
Panama subsidiary11-Jul-24Bank of Nova Scotia ("Scotiabank")Interest rate swap$16,500,000Bank of Nova Scotia
3-month SOFR with a 2.95% floor
4.43 %1st day of each March, June, September and December beginning June 3, 2024.February 29, 2024 - March 1, 2029
PriceSmart, Inc.7-Nov-16U.S. Bank, N.A. ("U.S. Bank")Interest rate swap$35,700,000U.S. Bank
Variable rate 3-month SOFR plus 1.7%
3.65 %1st day of each month beginning on April 1, 2017March 1, 2017 - March 1, 2027
For the twelve-month periods ended August 31, 2024, 2023 and 2022, 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 year ended August 31, 2024
$4,784$2,354 $7,138
Interest expense for the year ended August 31, 2023
$4,630$1,205 $5,835
Interest expense for the year ended August 31, 2022
$2,577$3,234 $5,811
(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 swaps and cross-currency 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):
Floating Rate Payer (Swap Counterparty)Notional Amount as of
August 31,
2024		August 31,
2023
U.S. Bank$28,794$30,069
Citibank N.A.72,27065,599
Scotiabank16,500—
Total$117,564$95,668
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):
Derivatives designated as cash flow hedging instrumentsBalance Sheet
Classification		August 31, 2024August 31, 2023
Fair
Value		Net Tax
Effect		Net
OCI		Fair
Value		Net Tax
Effect		Net
OCI
Cross-currency interest rate swapsOther current assets$4,030 $(1,411)$2,619 $—$—$—
Cross-currency interest rate swapsOther non-current assets259 (90)169 5,574(1,950)3,624
Cross-currency interest rate swapsOther current liabilities(1,179)413 (766)— —— 
Cross-currency interest rate swapsOther long-term liabilities(1,778)622 (1,156)(3,321)1,162(2,159)
Interest rate swapsOther non-current assets1,223 (274)949 2,243(501)1,742
Interest rate swapsOther long-term liabilities(322)90 (232)———
Net fair value of derivatives designated as hedging instruments$2,233 $(650)$1,583 $4,496$(1,289)$3,207
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.
The following table summarizes the non-deliverable forward foreign exchange contracts that are open as of August 31, 2024:
Financial
Derivative
(Counterparty)		SubsidiaryDates
Entered into (Range)		Derivative
Financial
Instrument		Total Notional
Amounts
(in thousands)		Settlement
 Dates (Range)
Citibank, N.A. ("Citi")Colombia27-Mar-2024 - 21-Aug-2024Forward foreign exchange contracts (USD)$21,50011-Sep-2024 - 20-Mar-2025
Forward derivative gains and (losses) on non-deliverable forward foreign-exchange contracts are included in Other income (expense), net in the consolidated statements of income in the period of change, but the amounts were immaterial for the twelve months ended August 31, 2024, 2023, and 2022.