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Financial Instruments and Risk Management | 3 Months Ended
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May 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Financial Instruments and Risk Management | Note 11 - 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 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 15% and 13% of our net sales revenue was denominated in foreign currencies during the three month periods ended May 31, 2023 and 2022, respectively. These sales were primarily denominated in Euros, British Pounds and Canadian Dollars. We make most of our inventory purchases from manufacturers in Asia and primarily use the U.S. Dollar for such purchases. During the three month periods ended May 31, 2023 and 2022, we recorded foreign currency exchange rate net gains of $0.4 million and $0.2 million, respectively, in SG&A. We mitigate certain foreign currency exchange rate risk by using forward contracts and cross-currency debt swaps to protect against the foreign currency exchange rate risk inherent in our transactions denominated in foreign currencies. We do not enter into any derivatives or similar instruments for trading or other speculative purposes. Certain of our forward contracts are designated as cash flow hedges (“foreign currency contracts”) and are recorded on the balance sheet at fair value with changes in fair value recorded in Other Comprehensive Income (Loss) (“OCI”) until the hedge transaction is settled, at which point amounts are reclassified from Accumulated Other Comprehensive Income (Loss) (“AOCI”) to our condensed consolidated statements of income. Foreign currency derivatives for which we have not elected hedge accounting consist of our forward contracts and cross-currency debt swaps, and any changes in the fair value of these derivatives are recorded in our condensed consolidated statements of income. These undesignated derivatives are used to hedge monetary net asset and liability positions. Cash flows from our foreign currency derivatives are classified as cash flows from operating activities in our condensed consolidated statements of cash flows, which is consistent with the classification of the cash flows from the underlying hedged item. We evaluate our derivatives designated as cash flow hedges each quarter to assess hedge effectiveness. Interest Rate Risk Interest on our outstanding debt as of May 31, 2023 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 a portion of our outstanding principal balance under the Credit Agreement, which totaled $839.3 million and $936.9 million as of May 31, 2023 and February 28, 2023, respectively. As of May 31, 2023 and February 28, 2023, $625.0 million and $425.0 million of the outstanding principal balance under the Credit Agreement, respectively, was hedged with interest rate swaps to fix the interest rate we pay. 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 condensed consolidated statements of income. Cash flows from our interest rate swaps are classified as cash flows from operating activities in our condensed consolidated statements of cash flows, which is consistent with the classification of the cash flows from the underlying hedged item. We evaluate our derivatives designated as cash flow hedges each quarter to assess hedge effectiveness. The following tables summarize the fair values of our derivative instruments as of the end of the periods presented:
(in thousands) | May 31, 2023
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 |  | 2/2024 |  | € | 27,350 |  |  | $ | 58 |  |  | $ | — |  |  | $ | 27 |  |  | $ | — |
Forward contracts - sell Canadian Dollars | Cash flow |  | 2/2024 |  | $ | 25,500 |  |  | 730 |  |  | — |  |  | — |  |  | — |
Forward contracts - sell Pounds | Cash flow |  | 2/2024 |  | £ | 23,525 |  |  | — |  |  | — |  |  | 1,150 |  |  | — |
Forward contracts - sell Norwegian Kroner | Cash flow |  | 10/2023 |  | kr | 30,000 |  |  | 288 |  |  | — |  |  | — |  |  | — |
Interest rate swaps | Cash flow |  | 2/2026 |  | $ | 625,000 |  |  | 2,527 |  |  | — |  |  | — |  |  | 822 |
Subtotal |  |  |  |  |  |  | 3,603 |  |  | — |  |  | 1,177 |  |  | 822 |
Derivatives not designated under hedge accounting |  |  |  |  |  |  |  |  |  |  |  |  |
Forward contracts - buy Euro | (1) |  | 6/2023 |  | € | 160 |  |  | 5 |  |  | — |  |  | — |  |  | — |
Subtotal |  |  |  |  |  |  | 5 |  |  | — |  |  | — |  |  | — |
Total fair value |  |  |  |  |  |  | $ | 3,608 |  |  | $ | — |  |  | $ | 1,177 |  |  | $ | 822 |
(in thousands) | February 28, 2023
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 |  | 2/2024 |  | € | 29,310 |  |  | $ | 257 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Forward contracts - sell Canadian Dollars | Cash flow |  | 2/2024 |  | $ | 30,000 |  |  | 962 |  |  | 11 |  |  | — |  |  | — |
Forward contracts - sell Pounds | Cash flow |  | 1/2024 |  | £ | 19,400 |  |  | — |  |  | — |  |  | 711 |  |  | — |
Forward contracts - sell Norwegian Kroner | Cash flow |  | 2/2024 |  | kr | 40,000 |  |  | 185 |  |  | — |  |  | — |  |  | — |
Interest rate swaps | Cash flow |  | 2/2026 |  | $ | 425,000 |  |  | 3,941 |  |  | 1,805 |  |  | — |  |  | — |
Subtotal |  |  |  |  |  |  | 5,345 |  |  | 1,816 |  |  | 711 |  |  | — |
Derivatives not designated under hedge accounting |  |  |  |  |  |  |  |  |  |  |  |  |
Forward contracts - buy Euro | (1) |  | 3/2023 |  | € | 500 |  |  | 6 |  |  | — |  |  | — |  |  | — |
Forward contracts - buy Pounds | (1) |  | 3/2023 |  | £ | 400 |  |  | 2 |  |  | — |  |  | — |  |  | — |
Subtotal |  |  |  |  |  |  | 8 |  |  | — |  |  | — |  |  | — |
Total fair value |  |  |  |  |  |  | $ | 5,353 |  |  | $ | 1,816 |  |  | $ | 711 |  |  | $ | — |
(1)These forward contracts, for which we have not elected hedge accounting, hedge monetary net asset and liability positions for the notional amounts reported, creating an economic hedge against currency movements. The pre-tax effects of derivative instruments designated as cash flow hedges were as follows for the periods presented:
| Three Months Ended May 31,
| Gain (Loss) Recognized in AOCI |  | Gain (Loss) Reclassified from AOCI into Income
(in thousands) | 2023 |  | 2022 |  | Location |  | 2023 |  | 2022
Foreign currency contracts - cash flow hedges | $ | (467) |  |  | $ | 2,319 |  |  | Sales revenue, net |  | $ | 338 |  |  | $ | 1,196 |
Interest rate swaps - cash flow hedges | (2,634) |  |  | 2,206 |  |  | Interest expense |  | 1,407 |  |  | (680) |
Total | $ | (3,101) |  |  | $ | 4,525 |  |  |  |  | $ | 1,745 |  |  | $ | 516 |
The pre-tax effects of derivative instruments not designated under hedge accounting were as follows for the periods presented:
| Gain (Loss) Recognized in Income
|  |  | Three Months Ended May 31, |  |
(in thousands) | Location |  | 2023 |  | 2022 |  |  |  |
Forward contracts | SG&A |  | $ | (24) |  |  | $ | — |  |  |  |  |
Cross-currency debt swaps - principal | SG&A |  | — |  |  | 875 |  |  |  |  |
Total |  |  | $ | (24) |  |  | $ | 875 |  |  |  |  |
We expect a net gain of $2.4 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 10 and 12 to these condensed consolidated financial statements for more information. Counterparty Credit Risk Financial instruments, including foreign currency contracts, forward 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.

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- Definition The entire disclosure for financial instruments. This disclosure includes, but is not limited to, fair value measurements of short and long term marketable securities, international currencies forward contracts, and auction rate securities. Financial instruments may include hedging and non-hedging currency exchange instruments, derivatives, securitizations and securities available for sale at fair value. Also included are investment results, realized and unrealized gains and losses as well as impairments and risk management disclosures. + References No definition available. + Details
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