Financial Instruments and Risk Management

3 Months Ended

May 31, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Financial Instruments and Risk Management

Note 10 - 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, accounts receivable and accounts payable are denominated in foreign currencies. Approximately 16% and 15% of our net sales revenue was denominated in foreign currencies during the three month periods ended May 31, 2024 and 2023, 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.

In our condensed consolidated statements of income, foreign currency exchange rate gains and losses resulting from the remeasurement of foreign income tax receivables and payables, and deferred income tax assets and liabilities are recognized in income tax expense, and all other foreign currency exchange rate gains and losses are recognized in SG&A. During the three month periods ended May 31, 2024 and 2023, we recorded foreign currency exchange rate net losses of $0.1 million and net gains of $0.2 million, respectively, in income tax expense. During the three month periods ended May 31, 2024 and 2023, we recorded foreign currency exchange rate net gains of an immaterial amount and $0.4 million, respectively, in SG&A. We mitigate certain foreign currency exchange rate risk by using forward contracts 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 certain forward contracts, 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, 2024 and February 29, 2024 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 $754.3 million and $672.0 million as of May 31, 2024 and February 29, 2024, respectively. As of May 31, 2024 and February 29, 2024, $300.0 million and $500.0 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, 2024
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	2/2025	€	29,000	$	249	$	—	$	87	$	—
Forward contracts - sell Canadian Dollars	Cash flow	2/2025	$	18,350	153		—		34		—
Forward contracts - sell Pounds	Cash flow	11/2025	£	21,750	16		—		375		2



Forward contracts - sell Norwegian Kroner	Cash flow	2/2025	kr	15,000	—		—		1		—
Interest rate swaps	Cash flow	2/2026	$	300,000	2,127		1,585		—		—
Subtotal					2,545		1,585		497		2

Derivatives not designated under hedge accounting


Forward contracts - sell Euro	(1)	6/2024	€	1,000	—		—		6		—
Forward contracts - buy Pounds	(1)	6/2024	£	700	14		—		—		—
Subtotal					14		—		6		—
Total fair value					$	2,559	$	1,585	$	503	$	2


(in thousands)	February 29, 2024
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	2/2025	€	36,500	$	377	$	—	$	90	$	—
Forward contracts - sell Canadian Dollars	Cash flow	2/2025	$	20,750	151		—		57		—

Forward contracts - sell Pounds	Cash flow	2/2025	£	20,250	59		—		234		—


Forward contracts - sell Norwegian Kroner	Cash flow	8/2024	kr	5,000	5		—		—		—
Interest rate swaps	Cash flow	2/2026	$	500,000	1,314		1,190		—		—
Subtotal					1,906		1,190		381		—

Derivatives not designated under hedge accounting
Forward contracts - sell Euro	(1)	3/2024	€	430	—		—		3		—
Forward contracts - sell Pounds	(1)	3/2024	£	735	—		—		2		—
Subtotal					—		—		5		—
Total fair value					$	1,906	$	1,190	$	386	$	—

(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)	2024		2023		Location	2024		2023
Foreign currency contracts - cash flow hedges	$	(108)	$	(467)	Sales revenue, net	$	184	$	338
Interest rate swaps - cash flow hedges	2,292		(2,634)		Interest expense	1,084		1,407


Total	$	2,184	$	(3,101)		$	1,268	$	1,745

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	2024		2023
Forward contracts	SG&A	$	22	$	(24)


Total		$	22	$	(24)

We expect a net gain of $2.0 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 9 and 11 for more information.

Counterparty Credit Risk

Financial instruments, including foreign currency contracts, forward contracts, 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.