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Derivative Instruments and Hedging Activities | 6 Months Ended
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Nov. 30, 2011
Derivative Instruments and Hedging Activities |
Derivative Instruments and Hedging Activities |
Note 8 — Derivative Instruments and Hedging Activities We are exposed to interest rate risk associated with fluctuations in interest rates on our variable rate debt. During the first quarter of fiscal 2012, we entered into two derivative financial instruments in order to manage our variable interest rate exposure over a medium- to long-term period. In June, we entered into a floating-to-fixed interest rate swap to hedge interest on $50,000 of notional principal balance under our revolving credit agreement. Also in June, we entered into an interest rate cap agreement on $50,000 of notional principal interest under our revolving credit agreement. We do not hold or issue derivative instruments for trading purposes and are not a party to any instruments with leverage or prepayment features. In connection with derivative financial instruments, there exists the risk of the possible inability of counterparties to meet the terms of their contracts. We mitigate this risk by performing financial reviews before the contract is entered into, as well as on-going periodic evaluations. We do not expect any significant losses from counterparty defaults. We classify the derivatives as assets or liabilities on the balance sheet. Accounting for the change in fair value of the derivatives is a function of whether the instrument qualifies for, and has been designated as, a hedging relationship, and the type of hedging relationship. As of November 30, 2011, all of our derivative instruments were classified as cash flow hedges. The fair value of the interest rate swap and interest cap agreements represents the difference in the present values of cash flows calculated at the contracted interest rates and at current market interest rates at the end of the reporting period. The fair value of the Company’s interest rate derivatives are classified as Level 2 in the fair value hierarchy. Level 2 refers to fair values estimated using significant other observable inputs including quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. At November 30, 2011, the fair value of the Company’s interest rate derivatives was recorded as follows:
|  |  |  | Derivative |  | Derivative |
|  |  |  | Assets |  | Liabilities |
|  | Balance Sheet Classification |  | November 30, 2011 |  | November 30, 2011 |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |
Interest rate cap |  | Long-term assets |  | $ | 685 |  | $ | — |
Interest rate swap |  | Long-term liabilities |  | $ | — |  | $ | (3,144 | )
We include gains and losses on the derivative instruments in other comprehensive income. We recognize the gains and losses on our derivative instruments as an adjustment to interest expense in the period the hedged interest payment affects earnings. The impact of the interest rate swap and interest cap agreement on the condensed consolidated statement of income for the three- and six-month periods ended November 30, 2011 was as follows:
|  | Three Months Ended |  | Six Months Ended |
|  | November 30, 2011 |  | November 30, 2011 |
Gain (loss) recognized in other comprehensive income — effective portion |  | $ | (221 | ) | $ | (2,736 | )
Gain (loss) reclassified from accumulated other comprehensive income into income |  | $ | — |  | $ | — |
Gain (loss) recognized in income — ineffective portion |  | $ | — |  | $ | — |
We expect minimal gain or loss to be reclassified into earnings within the next 12 months.

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- Definition The entire disclosure for the entity's entire derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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