Note 5 - Derivative Instruments and Hedging Activities

6 Months Ended

Feb. 25, 2017

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

5.

Derivative Instruments and Hedging Activities

The Company uses derivative financial instruments to mitigate its exposure to fluctuations in foreign currencies on certain forecasted transactions denominated in foreign currencies. US GAAP requires that all of the Company’s derivative instruments be recorded on the balance sheet at fair value. All subsequent changes in a derivative’s fair value are recognized in income, unless specific hedge accounting criteria are met.

Derivative instruments that qualify for hedge accounting are classified as a hedge of the variability of cash flows to be received or paid related to a recognized asset, liability or forecasted transaction. Changes in the fair value of a derivative that is highly effective and designated as a cash flow hedge are recognized in accumulated other comprehensive (loss) income until the hedged item or forecasted transaction is recognized in earnings. The Company performs an assessment at the inception of the hedge and on a quarterly basis thereafter, to determine whether its derivatives are highly effective in offsetting changes in the value of the hedged items. Any changes in the fair value resulting from hedge ineffectiveness are immediately recognized as income or expense.

In

January

2015,

the Company entered into

sixteen

forward contracts to exchange Canadian dollars (“CAD”) for U.S. dollars at fixed exchange rates in order to manage its exposure related to certain forecasted CAD denominated sales of

one

of its subsidiaries. The hedged transactions are specified as the

first

amount of CAD denominated revenues invoiced by

one

of the Company’s domestic subsidiaries each fiscal quarter, beginning in the

third

fiscal quarter of

2015

and continuing through the

second

fiscal quarter of

2019.

In total, the Company will sell approximately

31.0

million CAD at an average Canadian-dollar exchange rate of

0.7825

over these quarterly periods. The Company concluded that the forward contracts met the criteria to qualify as a cash flow hedge under US GAAP. Accordingly, the Company has reflected all changes in the fair value of the forward contracts in accumulated other comprehensive (loss) income, a component of shareholders’ equity. Upon the maturity of each foreign exchange forward contract, the gain or loss on the contract will be recorded as an adjustment to revenues.

As of

February

25,

2017,

the Company had forward contracts with a notional value of approximately

13.8

million CAD outstanding and recorded the fair value of the contracts of

$0.1

million in other long-term assets and

$0.1

million in prepaid expenses and other current assets with a corresponding gain in accumulated other comprehensive (loss) income of

$0.1

million, which was recorded net of tax.

During the

twenty

-

six

weeks ended

February

25,

2017,

the Company reclassified

$0.1

million from accumulated other comprehensive (loss) income to revenue, related to the derivative financial instruments. The gain in accumulated other comprehensive (loss) income as of

February

25,

2017

is expected to be reclassified to revenues prior to its maturity on

February

22,

2019.