Fair Value Measurements and Derivatives

3 Months Ended

May 31, 2019

Fair Value Disclosures [Abstract]

Fair Value Measurements and Derivatives

(4) Fair Value Measurements and Derivatives

The Company applies the authoritative guidance on “Fair Value Measurements," which among other things, requires enhanced disclosures about investments that are measured and reported at fair value. This guidance establishes a hierarchal disclosure framework that prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment.  Investments with readily available active quoted prices, or for which fair value can be measured from actively quoted prices, generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Investments measured and reported at fair value are classified and disclosed in one of the following categories:

Level 1 - Quoted market prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 inputs that are either directly or indirectly observable.

Level 3 - Unobservable inputs developed using the Company's estimates and assumptions, which reflect those that market participants would use.

The following table presents financial assets measured at fair value on a recurring basis at May 31, 2019:

			Fair Value Measurements at Reporting Date Using
	Total		Level 1		Level 2
Cash and cash equivalents:
Cash and money market funds	$	60,004	$	60,004	$	—
Derivatives:
Designated for hedging	$	19	$	—	$	19
Investment securities:
Mutual funds	$	2,994	$	2,994	$	—
Total investment securities	$	2,994	$	2,994	$	—

The following table presents financial assets and liabilities measured at fair value on a recurring basis at February 28, 2019:

			Fair Value Measurements at Reporting Date Using
	Total		Level 1		Level 2
Cash and cash equivalents:
Cash and money market funds	$	58,236	$	58,236	$	—
Derivatives:
Designated for hedging	$	88	$	—	$	88
Investment securities:
Mutual funds	$	2,858	$	2,858	$	—
Total investment securities	$	2,858	$	2,858	$	—

At May 31, 2019, the carrying amount of the Company's accounts receivable, short-term debt, accounts payable, accrued expenses, bank obligations and long-term debt approximates fair value because of (i) the short-term nature of the financial instrument; (ii) the interest rate on the financial instrument being reset every quarter to reflect current market rates; or (iii) the stated or implicit interest rate approximates the current market rates or are not materially different from market rates.

Derivative Instruments

The Company's derivative instruments include forward foreign currency contracts utilized to hedge a portion of its foreign currency inventory purchases. The forward foreign currency derivatives qualifying for hedge accounting are designated as cash flow hedges and valued using observable forward rates for the same or similar instruments (Level 2). The duration of open forward foreign currency contracts ranges from 1 month - 9 months and are classified in the balance sheet according to their terms. The Company also has an interest rate swap agreement as of May 31, 2019 that hedges interest rate exposure related to the forecasted outstanding balance of its Florida Mortgage, with monthly payments due through March 2026. The swap agreement locks the interest rate on the debt at 3.48% (inclusive of credit spread) through the maturity date of the loan. Interest rate swap agreements qualifying for hedge accounting are designated as cash flow hedges and valued based on a comparison of the change in fair value of the actual swap contracts designated as the hedging instruments and the change in fair value of a hypothetical swap contract (Level 2). We calculate the fair value of interest rate swap agreements quarterly based on the quoted market price for the same or similar financial instruments. Interest rate swaps are classified in the balance sheet as either assets or liabilities based on the fair value of the instruments at the end of the period.

Financial Statement Classification

The following table discloses the fair value as of May 31, 2019 and February 28, 2019 of derivative instruments:

	Derivative Assets and Liabilities
		Fair Value
	Account	May 31, 2019			February 28, 2019
Designated derivative instruments
Foreign currency contracts	Prepaid expenses and other current assets	$	275		$	172
Interest rate swap agreements	Other long-term liabilities		(256	)		(84	)
Total derivatives		$	19		$	88

Cash Flow Hedges

It is the Company's policy to enter into derivative instrument contracts with terms that coincide with the underlying exposure being hedged. As such, the Company’s derivative instruments are expected to be highly effective. On March 1, 2019, the Company adopted ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities, which eliminated the requirement to separately measure and report hedge ineffectiveness. For derivative instruments that are designated and qualify as a cash flow hedge, the entire change in fair value of the hedging instrument included in the assessment of the hedge ineffectiveness is recorded to other comprehensive income (“OCI”). When the amounts recorded in OCI are reclassified to earnings, they are presented in the same income statement line item as the effect of the hedged item. The adoption of ASU No. 2017-12 did not have a material impact on the Company’s consolidated financial statements.

During Fiscal 2019, the Company entered into forward foreign currency contracts, which have a current outstanding notional value of $7,200 and are designated as cash flow hedges at May 31, 2019. The current outstanding notional value of the Company's interest rate swap at May 31, 2019 is $7,989. For cash flow hedges, the gain or loss is reported as a component of Other comprehensive (loss) income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The net (loss) income recognized in Other comprehensive (loss) income for foreign currency contracts is expected to be recognized in Cost of sales within the next twelve months. No amounts were excluded from the assessment of hedge effectiveness during the respective periods. The gain or loss on the Company’s interest rate swap is recorded in Other comprehensive (loss) income and subsequently reclassified into Interest and bank charges in the period in which the hedged transaction affects earnings. As of May 31, 2019, no foreign currency contracts or interest rate swaps originally designated for hedge accounting were de-designated or terminated.

Activity related to cash flow hedges recorded during the three months ended May 31, 2019  and 2018 was as follows:

	Three months ended
	May 31, 2019
	Pretax Gain (Loss) Recognized in Other Comprehensive Income			Pretax (Loss) Gain Reclassified from Accumulated Other Comprehensive Income		Gain (Loss) for Ineffectiveness
Cash flow hedges
Foreign currency contracts	$	218		$	119	$	—
Interest rate swaps		(172	)		—		—

	Three months ended
	May 31, 2018
	Pretax Gain Recognized in Other Comprehensive Income		Pretax Loss Reclassified from Accumulated Other Comprehensive Income			Gain for Ineffectiveness in Other Income (a)
Cash flow hedges
Foreign currency contracts	$	366	$	(235	)	$	33
Interest rate swaps		11		—			—

(a) Amount represents the ineffectiveness recorded in the prior year quarter. Prior to the adoption of ASU 2017-12, hedge ineffectiveness (as defined under ASC 815) was recorded in Other income (loss).