v3.25.2
Fair Value
 3 Months Ended
May 31, 2025
Fair Value Disclosures [Abstract]  
Fair Value
Note 11 - Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques under the accounting guidance related to fair value measurements are based on observable and unobservable inputs. These inputs are classified into the following hierarchy:

Level 1:Quoted prices for identical assets or liabilities in active markets;

Level 2:Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable; and

Level 3:Unobservable inputs that reflect the reporting entity’s own assumptions.

Recurring Fair Value Measurements

All of our financial assets and liabilities, except for our investments in U.S. Treasury Bills and our contingent consideration liability, are classified as Level 2 because their valuation is dependent on observable inputs and other quoted prices for similar assets or liabilities, or model-derived valuations whose significant value drivers are observable. Our investments in U.S. Treasury Bills are classified as Level 1 because their value is based on quoted prices in active markets for identical assets. Our contingent consideration liability is classified as Level 3 because its valuation is primarily based on a significant input unobservable in the market, specifically, projected adjusted EBITDA derived from internal forecasts.
The following table presents the fair value of our financial assets and liabilities:
 
Fair Value
(in thousands)May 31, 2025February 28, 2025
Assets: 
Cash equivalents (money market accounts)$3,265 $3,852 
U.S. Treasury Bills
11,380 11,268 
Interest rate swaps2,529 1,065 
Foreign currency derivatives266 2,163 
Total assets$17,440 $18,348 
  
Liabilities: 
Interest rate swaps$— $221 
Contingent consideration
4,100 4,100 
Foreign currency derivatives7,356 119 
Total liabilities$11,456 $4,440 

All of our financial assets and liabilities, except for our investments in U.S. Treasury Bills, are measured and recorded at fair value on a recurring basis. Our investments in U.S. Treasury Bills are recorded at amortized cost. As of May 31, 2025 and February 28, 2025, the current carrying amounts of our U.S. Treasury Bills were $2.6 million and $2.5 million, respectively, and were included within prepaid expenses and other current assets in our condensed consolidated balance sheets. As of May 31, 2025 and February 28, 2025, the non-current carrying amounts of our U.S. Treasury Bills were $8.8 million and $8.7 million, respectively, and were included within other assets in our condensed consolidated balance sheets.

The carrying amounts of cash, accounts payable, accrued expenses and other current liabilities and income taxes payable approximate fair value because of the short maturity of these items. The carrying amounts of receivables approximate fair value due to the effect of the related allowance for credit losses. The carrying amount of our floating rate long-term debt approximates its fair value.

Our investments in U.S. Treasury Bills are classified as held-to-maturity because we have the positive intent and ability to hold the securities to maturity. We invest in U.S. Treasury Bills with maturities ranging from less than one to five years. As of both May 31, 2025 and February 28, 2025, gross unrealized gains were $0.1 million and losses were not material. During the three month periods ended May 31, 2025 and 2024, we recognized interest income on these investments of $0.1 million and an immaterial amount, respectively, which is included in “Non-operating income, net” in our condensed consolidated statements of (loss) income.

In connection with the acquisition of Olive & June in December 2024, we recognized contingent consideration, as a result of the total purchase consideration including contingent cash consideration of up to $15.0 million payable annually in three equal installments subject to Olive & June achieving certain adjusted EBITDA targets during calendar years 2025, 2026 and 2027. If the annual adjusted EBITDA target is not met, no payment is required. As of the acquisition date, we recorded a liability for the estimated fair value of the contingent consideration of $4.1 million, of which $1.8 million and $2.3 million was included within accrued expenses and other current liabilities and other liabilities, non-current, respectively, in our consolidated balance sheet. This contingent consideration liability is remeasured at fair value each reporting period until the contingency is resolved, with changes in fair value recognized in SG&A. As of the end of the first quarter of fiscal 2026, there was no change to the estimated fair value of the contingent consideration liability. The fair value of the contingent consideration liability was determined using a Monte Carlo simulation model, which utilizes projected adjusted EBITDA and
corresponding volatility and discount rates to estimate the probability of the adjusted EBITDA targets being achieved. The projected adjusted EBITDA during the earn-out period was derived from internal forecasts and represents a Level 3 input, and was discounted to the acquisition date and current reporting period using an estimated discount rate of 13%. Adjusted EBITDA volatility was calculated based upon peer companies, and the third quartile of 46% was selected as a key input into the Monte Carlo simulation model. In the simulated scenarios where a payment is earned, the projected contingent payments were discounted to the acquisition date and current reporting period using an estimated credit risk discount rate of 7.1%. Changes in these inputs may result in a significant increase or decrease in the fair value of the contingent consideration liability with a corresponding impact to SG&A.

We use foreign currency forward contracts to manage our exposure to changes in foreign currency exchange rates. In addition, we use interest rate swaps to manage our exposure to changes in interest rates. All of our derivative assets and liabilities are recorded at fair value. See Notes 12 and 13 for more information on our derivatives.

Non-Recurring Fair Value Measurements

Assets remeasured to fair value on a non-recurring basis during the first quarter of fiscal 2026 represent goodwill, indefinite-lived intangible assets and definite-lived intangible assets, which were impaired. We did not remeasure any assets to fair value on a non-recurring basis during the first quarter of fiscal 2025.

The following table presents the remaining carrying value of the assets that were remeasured to fair value on a non-recurring basis:
Fair Value Measurements
Fiscal 2026 Asset Impairment Charges
(in thousands)May 31, 2025Level 1Level 2Level 3
Goodwill$861,786 $— $— $861,786 $316,955 
Indefinite-lived intangible assets
317,600 — — 317,600 48,000 
Definite-lived intangible assets
148,582 — — 148,582 49,430 
Total$1,327,968 $— $— $1,327,968 $414,385 

During the first quarter of fiscal 2026, our impairment testing resulted in impairment charges of $317.0 million, $48.0 million and $49.4 million to reduce the carrying values of our goodwill, indefinite-lived intangible assets and definite-lived intangible assets to their estimated fair values of $861.8 million, $317.6 million and $148.6 million, respectively. Refer to Note 5 for additional information on the assets impaired and their remaining carrying values as of May 31, 2025.

We estimate the fair value of our reporting units using an income approach based upon projected future DCF Model. Under the DCF Model, the fair value of each reporting unit is determined based on the present value of estimated future cash flows, discounted at a risk-adjusted rate of return. We use internal forecasts and strategic long-term plans to estimate future cash flows, including net sales revenue, gross profit margin, and earnings before interest and taxes margins. Other key estimates used in the DCF Model include, but are not limited to, discount rates, statutory tax rates, terminal growth rates, as well as working capital and capital expenditures needs. The discount rates are based on a weighted-average cost of capital utilizing industry market data of our peer group companies. Accordingly, this fair value measurement is classified as Level 3 since it is based primarily upon unobservable inputs that reflect management's assumptions.

We estimate the fair value of our trade names and trademark licenses using the relief from royalty method income approach which is based upon a DCF Model. The relief-from-royalty method estimates the fair value of a trade name or trademark license by discounting the hypothetical avoided royalty
payments to their present value over the economic life of the asset. We estimate the fair value of our customer relationships and lists using the distributor method income approach which is based upon a DCF Model. The distributor method uses financial margin information for distributors within the applicable industry and most representative of the Company to estimate a royalty rate. The determination of fair value using these methods entails a significant number of estimates and assumptions, which require management judgment, and include net sales revenue growth rates, discount rates, royalty rates, residual growth rates (as applicable) and customer attrition rates (as applicable). We use internal forecasts and strategic long-term plans to estimate net sales revenue growth rates and royalty rates. We utilize a constant growth model to determine the residual growth rates which are based upon long-term industry growth expectations and long-term expected inflation. Accordingly, this fair value measurement is classified as Level 3 since it is based primarily upon unobservable inputs that reflect management's assumptions. The most significant unobservable input (Level 3) used to estimate the fair value our indefinite-lived intangible assets and our definite-lived intangible assets was a royalty rate that ranged from 1.4% to 5.5%.

For additional information regarding the testing and analysis performed, refer to Note 5 and “Critical Accounting Policies and Estimates” in Item 2., “Management's Discussion and Analysis of Financial Condition and Results of Operations.”