Financial Instruments and Risk Management

12 Months Ended

Feb. 28, 2021

Financial Instruments, Owned, at Fair Value [Abstract]

Financial Instruments and Risk Management

Note 17 - Financial Instruments and Risk Management

Foreign Currency Risk

The U.S. Dollar is the functional currency for the Company and all of its subsidiaries and is also the reporting currency for the Company. 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. Approximately 12%, 14%, and 13% of our net sales revenue was denominated in foreign currencies during fiscal 2021, 2020 and 2019, respectively. These sales were primarily denominated in British Pounds, Euros, Mexican Pesos and Canadian Dollars. We make most of our inventory purchases from the Far East and primarily use the U.S. Dollar for such purchases.

In our consolidated statements of income, foreign currency exchange rate 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 currency exchange rate gains and losses are recognized in SG&A. We recorded foreign currency exchange rate net losses in SG&A, including the impact of our foreign currency contracts and cross-currency debt swaps of $0.6 million during fiscal 2021 and net gains of $2.2 million and $1.3 million during fiscal 2020 and 2019, respectively.

We mitigate certain foreign currency exchange rate risk by using a series of foreign currency contracts, which include forward contracts and zero-cost collars, designated as cash flow hedges, and mark-to-market cross-currency debt swaps to protect against the foreign currency exchange rate risk inherent in our forecasted transactions denominated in foreign currencies. We do not enter into any derivatives or similar instruments for trading or other speculative purposes. Our foreign currency contracts are designated as cash flow hedges and are recorded on the balance sheet at fair value with changes in fair value recorded in OCI until the hedge transaction is settled, at which point amounts are reclassified from AOCI to our consolidated statements of income. Derivatives for which we have not elected hedge accounting consist of our cross-currency debt swaps, and any changes in the fair value of the derivatives are recorded in our consolidated statements of income. We evaluate our derivatives designated as cash flow hedges each quarter to assess hedge effectiveness. Any ineffectiveness, which is not material for any year presented, is immediately recognized in our consolidated statements of income.

Interest Rate Risk

Interest on our outstanding debt as of February 28, 2021 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 $329.0 million as of February 28, 2021. Our interest rate swaps are designated as cash flow hedges and are recorded on the balance sheet at fair value with changes in fair value recorded in OCI until the hedge transaction is settled, at which point amounts are reclassified from AOCI to our consolidated statements of income. We evaluate our derivatives designated as cash flow hedges each quarter to assess hedge effectiveness. Any ineffectiveness, which is not material for any year presented, is immediately recognized in our consolidated statements of income.

The following tables summarize the fair values of our derivative instruments at the end of fiscal 2021 and 2020:


(in thousands)	February 28, 2021
Derivatives designated as hedging instruments	Hedge Type	Final Settlement Date	Notional Amount	Prepaid Expenses and Other Current Assets		Other Assets		Accrued Expenses and Other Current Liabilities		Other Liabilities Non-current

Forward contracts - sell Euro	Cash flow	2/2022	€39,000	—		—		1,851		—
Forward contracts - sell Canadian Dollars	Cash flow	2/2023	$34,000	—		33		1,061		—

Forward contracts - sell Pounds	Cash flow	2/2023	£34,500	—		—		2,026		21

Forward contracts - sell Australian Dollars	Cash flow	11/2021	A$4,000	—		—		18		—
Interest rate swaps	Cash flow	1/2024	$225,000	—		—		4,407		5,534
Subtotal				—		33		9,363		5,555

Derivatives not designated under hedge accounting
Cross-currency debt swaps - Euro	(1)	04/2022	€6,000	—		—		—		817
Cross-currency debt swaps - Pounds	(1)	04/2022	£4,500	—		—		—		756
Subtotal				—		—		—		1,573
Total fair value				$	—	$	33	$	9,363	$	7,128


(in thousands)	February 29, 2020
Derivatives designated as hedging instruments	Hedge Type	Final Settlement Date	Notional Amount	Prepaid Expenses and Other Current Assets		Other Assets		Accrued Expenses and Other Current Liabilities		Other Liabilities Non-current
Zero-cost collar - Euro	Cash flow	2/2021	€8,000	$	74	$	—	$	—	$	—
Forward contracts - sell Euro	Cash flow	5/2021	€25,875	837		—		—		15
Forward contracts - sell Canadian Dollars	Cash flow	2/2021	$14,000	202		—		—		—
Zero-cost collar - Pounds	Cash flow	2/2021	£6,500	—		—		144		—
Forward contracts - sell Pounds	Cash flow	5/2021	£13,000	435		23		—		—
Forward contracts - sell Mexican Pesos	Cash flow	5/2020	$10,000	12		—		—		—
Interest rate swaps	Cash flow	1/2024	$225,000	—		—		3,489		7,228
Subtotal				1,560		23		3,633		7,243

Derivatives not designated under hedge accounting
Cross-currency debt swaps - Euro	(1)	04/2020	€4,400	473		—		—		—
Cross-currency debt swaps - Pounds	(1)	04/2020	£5,000	27		—		—		—
Subtotal				500		—		—		—
Total fair value				$	2,060	$	23	$	3,633	$	7,243

(1)These cross-currency debt swaps, for which we have not elected hedge accounting, 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 pre-tax effects of derivative instruments designated as cash flow hedges for fiscal 2021 and 2020 were as follows:


	Fiscal Years Ended Last Day of February,
	Gain (Loss) Recognized in OCI				Gain (Loss) Reclassified from AOCI into Income
(in thousands)	2021		2020		Location	2021		2020
Foreign currency contracts - cash flow hedges	$	(7,932)	$	3,198	SG&A	$	(1,564)	$	2,977
Interest rate swaps - cash flow hedges	(3,673)		(11,152)		Interest expense	(4,449)		(262)
Total	$	(11,605)	$	(7,954)		$	(6,013)	$	2,715

The pre-tax effects of derivative instruments not designated under hedge accounting for fiscal 2021 and 2020 were as follows:


	Fiscal Years Ended Last Day of February,
	Gain (Loss) Recognized in Income
(in thousands)	Location	2021		2020
Cross-currency debt swaps - principal	SG&A	$	(1,432)	$	574
Cross-currency debt swaps - interest	Interest Expense	72		147
Total		$	(1,360)	$	721

We expect a net loss of $9.3 million associated with foreign currency contracts and interest rate swaps currently recorded in AOCI, to be reclassified into income over the next twelve months. The amount ultimately realized, however, will differ as exchange rates and interest rates change and the underlying contracts settle. See Notes 1, 16 and 18 to these consolidated financial statements for more information.

Counterparty Credit Risk

Financial instruments, including foreign currency contracts, cross-currency debt swaps and interest rate 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. We believe that the risk of incurring credit losses is remote.

Risks Inherent in Cash and Cash Equivalents

As the levels of our cash and cash equivalents change, they can become more subject to foreign currency exchange rate risk, interest rate risk, credit risk, and liquidity risk. Cash consists of interest-bearing, non-interest-bearing and short-term investment accounts. We consider money market accounts to be cash equivalents.

The following table summarizes our cash and cash equivalents at the end of fiscal 2021 and 2020:


	Fiscal Years Ended Last Day of February
	2021			2020
(in thousands)	Carrying Amount		Range of Interest Rates	Carrying Amount		Range of Interest Rates
Cash, interest and non-interest-bearing accounts	$	43,489	0.00% to 0.30%	$	21,819	0.00% to 0.30%
Money market accounts	1,631		0.01% to 2.47%	2,648		0.15% to 5.39%
Total cash and cash equivalents	$	45,120		$	24,467