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Derivative Instruments and Hedging Activities | 3 Months Ended
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Aug. 31, 2012
Derivative Instruments and Hedging Activities |
Derivative Instruments and Hedging Activities |
Note 7 — 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. We use a floating-to-fixed interest rate swap to hedge interest on $50 million of notional principal balance under our revolving credit agreement. We also use an interest rate cap agreement on $50 million 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 August 31, 2012, all of our derivative instruments were classified as cash flow hedges. The fair value of our interest rate swap and our 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. We record the fair value of assets and liabilities in accordance with the hierarchy established by the authoritative guidance for fair value measurements. The fair value of our interest rate derivatives are classified as Level 2, which 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. The following table summarizes the classification and fair values of our interest rate derivative instruments reported in the condensed consolidated balance sheet as of August 31, 2012.
|  |  |  | Derivative |  | Derivative |
Derivatives designated |  |  |  | Assets |  | Liabilities |
as hedging instruments |  | Balance Sheet Classification |  | August 31, 2012 |  | August 31, 2012 |
Interest rate cap |  | Long-term assets |  | $ | 0.2 |  | $ | — |
Interest rate swap |  | Long-term liabilities |  | — |  | (5.0 | )
The following table summarizes the classification and fair values of our interest rate derivative instruments reported in the condensed consolidated balance sheet as of May 31, 2012.
|  |  |  | Derivative |  | Derivative |
Derivatives designated |  |  |  | Assets |  | Liabilities |
as hedging instruments |  | Balance Sheet Classification |  | May 31, 2012 |  | May 31, 2012 |
Interest rate cap |  | Long-term assets |  | $ | 0.2 |  | $ | — |
Interest rate swap |  | Long-term liabilities |  | — |  | (4.5 | )
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 for the three-month periods ended August 31, 2012 and 2011 was an unrealized loss of $0.4 million and $2.5 million, respectively, recorded in accumulated other comprehensive income (loss). 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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