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SIGNIFICANT ACCOUNTING MATTERS | 12 Months Ended
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Feb. 29, 2016
SIGNIFICANT ACCOUNTING MATTERS |
SIGNIFICANT ACCOUNTING MATTERS | NOTE 2 –SIGNIFICANT ACCOUNTING MATTERS Fiscal year 2016 Venezuelan re-measurement change In February 2013, the Venezuelan government devalued its currency from 4.30 to 6.30 Bolivars per U.S. Dollar for all goods and services. In March 2013, the Venezuelan government announced an additional complementary auction-based exchange rate mechanism known as SICAD, which was made available to certain companies that operate in designated industries. Through February 2016, SICAD was being used in limited circumstances, which we believe precluded us from accessing such rates. In February 2015, the Venezuelan government unveiled another foreign exchange mechanism known as SIMADI, which was the lowest rate in its then three-tier foreign exchange system. SIMADI was a somewhat less restrictive auction system whose value was intended to be determined by market forces. SIMADI underwent a trial period and accounted for a small percentage of Venezuela’s foreign exchange. During its availability, a number of circumstances precluded us from accessing such rates. In February 2016, the Venezuelan government announced further changes to its foreign currency exchange system. These changes included an immediate devaluation of its official rate, now known as DIPRO, from 6.30 Bolivars per U.S. Dollar to 10.00 Bolivars per U.S. Dollar. The changes also included the dissolution of its previous alternative exchange rate systems, and the institution of a new alternative exchange system known as DICOM governing all other transactions not covered by DIPRO. DICOM replaced SIMADI, which was the lowest rate in the previous exchange system. SIMADI closed at February 29, 2016 at approximately 205 Bolivars per U.S. Dollar. DICOM opened in early March 2016 at approximately 207 Bolivars per U.S. Dollar. As a result of the further devaluation of the official rate, continued economic instability from declines in oil prices and the declaration of an economic emergency, among other factors, we determined that SIMADI was the most appropriate rate to use to re-measure our financial statements as of February 29, 2016. The determination was further substantiated by the announcement of DICOM as an intended market-based rate, which opened at approximately the same rate as SIMADI shortly after the end of our fiscal year. As a result of the adoption of SIMADI, we recorded a charge of $9.57 million (before and after tax) from the re-measurement of our Venezuelan monetary assets and liabilities at February 29, 2016. In addition to re-measuring our monetary holdings in Venezuela, we recorded $9.16 million of non-cash impairment charges (before and after tax) with respect to inventory and property and equipment in order to reflect their respective estimated net real izable and fair values as of February 29, 2016. The following table summarizes the financial impact of the adjustments described above, made during the fourth quarter of fiscal year 2016: IMPACT OF VENEZUELAN RE-MEASUREMENT RELATED CHARGES (in thousands)
|  | Balance at February 29, 2016
|  | Before Adjustment |  | Adjustments |  | After Adjustment |  | Location of Income Statement Impact
Cash and cash equivalents |  | $ | 1,302 |  | $ | (1,292) |  | $ | 10 |  | SG&A
Other net assets, principally working capital other than inventory |  |  | 8,120 |  |  | (8,284) |  |  | (164) |  | SG&A
Inventory |  |  | 9,378 |  |  | (9,078) |  |  | 300 |  | Cost of goods sold
Property and equipment, net |  |  | 82 |  |  | (79) |  |  | 3 |  | SG&A
Net investment in Venezuelan operations |  | $ | 18,882 |  | $ | (18,733) |  | $ | 149 |  |
Absent further changes to the exchange systems, or unless future developments call for further changes, we intend to use DICOM to re-measure our financial statements on a go-forward basis. However, even with the recent changes made by the Venezuelan government, there remains a significant degree of uncertainty as to whether DICOM will hold its current value or maintain enough liquidity to satisfy demand, or whether the floating exchange mechanism will survive the existing economic and political instabilities. Our business in Venezuela continues to be entirely self-funded with earnings from operations. We have no current need or intention to repatriate Venezuelan earnings. Within Venezuela we market primarily liquid, solid- and powder-based personal care and grooming products, which are sourced almost entirely within the country. We do not have, nor do we foresee having, any need to access DICOM. For fiscal years 2016, 2015 and 2014, sales in Venezuela represented 1.4, 0.7 and 0.6 percent, respectively, of the Company’s consolidated net sales revenue at the official exchange rate of 6.3 Bolivars per U.S. Dollar. At the current DICOM exchange rate, sales in Venezuela represent less than 0.1 percent of the Company’s consolidated net sales revenue for each period. For fiscal years 2016, 2015 and 2014, operating income (loss) in Venezuela was approximately ($9.95), $2.87 and $2.67 million, respectively, at the official exchange rate of 6.3 Bolivars per U.S. Dollar. As referred to previously, the fiscal year 2016 operating loss includes re-measurement and non-cash impairment charges totaling ($18.73) million. At the current DICOM exchange rate, we expect that fiscal year 2017 U.S. Dollar reported net sales and operating income from Venezuela will no longer be meaningful to the Company’s consolidated and Beauty segment results. Developments within the Venezuelan economy, including any future governmental interventions, are beyond our ability to control or predict, and we cannot assess the impacts, if any, such events may have on our Venezuelan business. Fiscal year 2015 change in accounting estimate In the third quarter of fiscal year 2015, we revised our product liability estimates to reflect more relevant historical claims experience. The effect of the change in estimate was recorded in SG&A. The change increased operating income, net income and diluted earnings per share by $2.22 million, $1.36 million and $0.05 per share, respectively, for fiscal year 2015.

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