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Financial Instruments and Risk Management
 6 Months Ended
Aug. 31, 2020
Financial Instruments, Owned, at Fair Value [Abstract]  
Financial Instruments and Risk Management
Note 15 - Financial Instruments and Risk Management

Foreign Currency Risk - Our functional currency is the U.S. Dollar.  By operating internationally, we are subject to foreign currency risk from transactions denominated in currencies other than the U.S. Dollar (“foreign currencies”).  Such transactions include sales, certain inventory purchases and operating expenses.  As a result of such transactions, portions of our cash, trade accounts receivable and trade accounts payable are denominated in foreign currencies.  During the three and six month periods ended August 31, 2020, approximately 10% and 13%, respectively, of our net sales revenue was in foreign currencies, compared to 14% and 13%, respectively, for the same periods last year. These sales were primarily denominated in Euros, British Pounds, Canadian Dollars, and Mexican Pesos. We make most of our inventory purchases from the Far East and primarily use the U.S. Dollar for such purchases.

In our condensed consolidated statements of income, exchange gains and losses resulting from the remeasurement of foreign taxes receivable, taxes payable, deferred tax assets, and deferred tax liabilities are recognized in their respective income tax lines, and all other foreign exchange gains and losses are recognized in SG&A.  During the three and six month periods ended August 31, 2020, we recorded net exchange gains from foreign currency fluctuations, including the impact of currency hedges and the
cross-currency debt swaps, of $1.8 million and $0.1 million, respectively, in SG&A compared to net foreign exchange gains of $0.8 million and $1.6 million, respectively, for the same periods last year.

We hedge against certain foreign currency exchange rate-risk by using a series of forward contracts and zero-cost collars designated as cash flow hedges and mark-to-market derivatives to protect against the foreign currency exchange risk inherent in our forecasted transactions denominated in currencies other than the U.S. Dollar. We do not enter into any forward exchange contracts or similar instruments for trading or other speculative purposes. The effective portion of the changes in fair value of these instruments is reported in Other Comprehensive Income (“OCI”) and reclassified into SG&A in the same period they are settled. The ineffective portion, which is not material for any year presented, is immediately recognized in SG&A.

Interest Rate Risk - Interest on our outstanding debt as of August 31, 2020 is based on floating interest rates.  If short-term interest rates increase, we will incur higher interest expense on any future outstanding balances of floating rate debt. Floating interest rates are hedged with interest rate swaps to effectively fix interest rates on $225.0 million of the outstanding principal balance under the Credit Agreement, which totaled $286.0 million (excluding prepaid finance fees) as of August 31, 2020.

The following table summarizes the fair values of our derivative instruments as of the end of the periods shown:
(in thousands)August 31, 2020

Derivatives designated as hedging instruments		Hedge
Type		Final
Settlement Date		Notional AmountPrepaid
Expenses
and Other
Current Assets		Other AssetsAccrued
Expenses
and Other
Current Liabilities		Other
Liabilities, Non- current
Zero-cost collar - EuroCash flow02/2021€4,000 $— $— $63 $— 
Foreign currency contracts - sell EuroCash flow02/2022€47,975 — — 1,802 845 
Foreign currency contracts - sell Canadian DollarCash flow02/2022$28,750 — — 708 165 
Zero-cost collar - PoundCash flow02/2021£4,000 — — 266 — 
Foreign currency contracts - sell PoundCash flow02/2022£26,635 — — 621 526 
Foreign currency contracts - sell Mexican PesoCash flow11/2020$15,000 — — — — 
Foreign currency contracts - Sell Australian DollarCash flow11/2020$2,000 — — 110 — 
Interest rate swapsCash flow01/2024$225,000 — — 5,114 8,052 
Subtotal   — — 8,684 9,588 
Derivatives not designated under hedge accounting       
Foreign currency contracts - cross-currency debt swaps - Euro(1)04/2022€6,000 — — — 726 
Foreign currency contracts - cross-currency debt swaps - Pound(1)04/2022£4,500 — — — 512 
Subtotal   — — — 1,238 
Total fair value$— $— $8,684 $10,826 
(in thousands)February 29, 2020

Derivatives designated as hedging instruments		Hedge TypeFinal
Settlement Date		Notional AmountPrepaid
Expenses
and Other
Current Assets		Other AssetsAccrued
Expenses
and Other
Current Liabilities		Other
Liabilities, Non- current
Zero-cost collar - EuroCash flow02/2021€8,000 $74 $— $— $— 
Foreign currency contracts - sell EuroCash flow05/2021€25,875 837 — — 15 
Foreign currency contracts - sell Canadian DollarCash flow02/2021$14,000 202 — — — 
Zero-cost collar - PoundCash flow02/2021£6,500 — — 144 — 
Foreign currency contracts - sell PoundCash flow05/2021£13,000 435 23 — — 
Foreign currency contracts - sell Mexican PesoCash flow05/2020$10,000 12 — — — 
Interest rate swapsCash flow01/2024$225,000 — — 3,489 7,228 
Subtotal   1,560 23 3,633 7,243 
Derivatives not designated under hedge accounting       
Foreign currency contracts - cross-currency debt swaps - Euro(1)04/2020€4,400 473 — — — 
Foreign currency contracts - cross-currency debt swaps - Pound(1)04/2020£5,000 27 — — — 
Subtotal   500 — — — 
Total fair value   $2,060 $23 $3,633 $7,243 

(1)These are foreign currency contracts for which we have not elected hedge accounting.  We refer to them as “cross-currency debt swaps”. They, in effect, adjust the currency denomination of a portion of our outstanding debt to the Euro and British Pound, as applicable, for the notional amounts reported, creating an economic hedge against currency movements. 

The following table summarizes the pre-tax effect of derivative instruments for the periods shown:
 Three Months Ended August 31,
 Gain (Loss)
Recognized in OCI
(effective portion)		Gain (Loss) Reclassified from
Accumulated Other Comprehensive
Income (Loss) into Income		Gain (Loss) Recognized
As Income
(in thousands)20202019Location20202019Location20202019
Currency contracts - cash flow hedges$(7,277)$(482)SG&A$92 $(992) $— $— 
Interest rate swaps - cash flow hedges957 (4,126)Interest expense— — Interest expense(1,207)77 
Cross-currency debt swaps - principal— —  — — SG&A(949)344 
Cross-currency debt swaps - interest— —  — — Interest Expense— — 
Total$(6,320)$(4,608) $92 $(992) $(2,156)$421 

 Six Months Ended August 31,
 Gain (Loss)
Recognized in OCI
(effective portion)		Gain (Loss) Reclassified from
Accumulated Other Comprehensive
Income (Loss) into Income		Gain (Loss) Recognized
As Income
(in thousands)20202019Location20202019Location20202019
Currency contracts - cash flow hedges$(7,203)$(668)SG&A$(673)$(2,210) $— $— 
Interest rate swaps - cash flow hedges(2,449)(9,326)Interest expense— — Interest expense(1,933)231 
Cross-currency debt swaps - principal— —  — — SG&A(1,098)808 
Cross-currency debt swaps - interest— —  — — Interest expense74 74 
Total$(9,652)$(9,994) $(673)$(2,210) $(2,957)$1,113 

We expect pre-tax losses of $8.7 million associated with foreign currency contracts and interest rate swaps currently reported in accumulated other comprehensive income, to be reclassified into income over the next twelve months. The amount ultimately realized, however, will differ as exchange rates vary and the underlying contracts settle. 
Counterparty Credit Risk - Financial instruments, including foreign currency contracts and cross-currency debt swaps, expose us to counterparty credit risk for non-performance. We manage our exposure to counterparty credit risk by only dealing with counterparties who are substantial international financial institutions with significant experience using such derivative instruments. Although our theoretical credit risk is the replacement cost at the then-estimated fair value of these instruments, we believe that the risk of incurring credit losses is remote.