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Financial Instruments and Risk Management
 6 Months Ended
Aug. 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Financial Instruments and Risk Management
Note 12 - 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 12% and 14% of our net sales revenue was denominated in foreign currencies during the three and six month periods ended August 31, 2023, respectively, compared to 12% for both of the same periods last year. 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 and six month periods ended August 31, 2023, we recorded foreign currency exchange rate net losses of $0.8 million and $0.4 million, respectively, in SG&A, compared to net losses of $2.7 million and $2.5 million, respectively, for the same periods last year. 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 certain 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 August 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 $846.8 million and $936.9 million as of August 31, 2023 and February 28, 2023, respectively. As of August 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)August 31, 2023

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
Forward contracts - sell EuroCash flow2/2024€21,500 $67 $— $165 $— 
Forward contracts - sell Canadian DollarsCash flow12/2024$25,250 370 77 — — 
Forward contracts - sell PoundsCash flow2/2024£20,925 — — 949 — 
Forward contracts - sell Norwegian KronerCash flow2/2024kr20,000 103 — — — 
Interest rate swapsCash flow2/2026$625,000 3,582 1,740 — — 
Subtotal   4,122 1,817 1,114 — 
Derivatives not designated under hedge accounting       
Forward contracts - buy Euro(1)9/2023€2,200 — — 33 — 
Forward contracts - buy Pounds(1)9/2023£1,100 — — 6 — 
Subtotal   — — 39 — 
Total fair value$4,122 $1,817 $1,153 $— 

(in thousands)February 28, 2023

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
Forward contracts - sell EuroCash flow2/2024€29,310 $257 $— $— $— 
Forward contracts - sell Canadian DollarsCash flow2/2024$30,000 962 11 — — 
Forward contracts - sell PoundsCash flow1/2024£19,400 — — 711 — 
Forward contracts - sell Norwegian KronerCash flow2/2024kr40,000 185 — — — 
Interest rate swapsCash flow2/2026$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 August 31,
 Gain (Loss)
Recognized in AOCI		Gain (Loss) Reclassified
from AOCI into Income
(in thousands)20232022Location20232022
Foreign currency contracts - cash flow hedges$(779)$6,226 Sales revenue, net$(383)$2,715 
Interest rate swaps - cash flow hedges5,644 1,423 Interest expense2,027 (281)
Total$4,865 $7,649  $1,644 $2,434 
 Six Months Ended August 31,
 Gain (Loss)
Recognized in AOCI		Gain (Loss) Reclassified
from AOCI into Income
(in thousands)20232022Location20232022
Foreign currency contracts - cash flow hedges$(1,246)$8,545 Sales revenue, net$(45)$3,911 
Interest rate swaps - cash flow hedges3,010 3,629 Interest expense3,434 (961)
Total$1,764 $12,174  $3,389 $2,950 

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 August 31,Six Months Ended August 31,
(in thousands)Location2023202220232022
Forward contractsSG&A$(16)$(250)$(40)$(250)
Cross-currency debt swaps - principalSG&A— — — 875 
Total $(16)$(250)$(40)$625 

We expect a net gain of $3.0 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 11 and 13 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.