Derivatives

9 Months Ended

Feb. 28, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

13. DERIVATIVES

We operate on a global basis and are exposed to the risk that our financial condition, results of operations and cash flows could be adversely affected by changes in foreign currency exchange rates and changes in interest rates. To reduce the potential effects of foreign currency exchange rate movements on net earnings, we enter into derivative financial instruments in the form of foreign currency exchange forward contracts with major financial institutions and have also entered into interest rate swap contracts as a hedge against changes in interest rates. Derivatives are recorded at fair value in other current assets, other assets, accrued liabilities and other long-term liabilities. Derivatives that are not determined to be effective hedges are adjusted to fair value with a corresponding adjustment to earnings. We do not use financial instruments for trading or speculative purposes.

Derivatives Not Designated as Hedging Instruments

We forecast our net exposure in various receivables and payables to fluctuations in the value of various currencies, and have entered into a number of foreign currency forward contracts each month to mitigate that exposure. These contracts are recorded net at fair value on our condensed consolidated balance sheets, classified as Level 2 in the fair value hierarchy. Gains and losses from these contracts are recognized in other income in our condensed consolidated statements of income (loss). The notional amount of forward contracts in place was $18.5 million and $4.4 million as of February 28, 2023 and May 31, 2022, respectively, and consisted of hedges of transactions up to April 2023.


(in thousands)
Fair Value of Derivatives Not Designated as Hedging Instruments	Balance Sheet Location	February 28, 2023		May 31, 2022
Foreign currency forward contracts, net	Other accruals	$	162	$	(78	)

The location and amount of gains (losses) from derivatives not designated as hedging instruments in our condensed consolidated statements of income (loss) were as follows:


		Three months ended
(in thousands) Derivatives Not Designated as Hedging Instruments	Location in statements of income (loss)	February 28, 2023			February 28, 2022
Foreign currency forward contracts	Other (expense) income	$	(1,564	)	$	(363	)


		Nine months ended
(in thousands) Derivatives Not Designated as Hedging Instruments	Location in statements of income (loss)	February 28, 2023			February 28, 2022
Foreign currency forward contracts	Other (expense) income	$	(9,812	)	$	648

Derivatives Designated as Hedging Instruments

In November 2022, we entered into a receive-variable, pay-fixed interest rate swap agreement with an initial $250 million notional value, which is designated as a cash flow hedge. This agreement fixed a portion of the variable interest due on our term loan facility, with an effective date of December 2, 2022 and a maturity date of June 30, 2027. Under the terms of the agreement, we pay a fixed interest rate of 6.215% (4.215% rate and 2.00% margin) and receive a variable rate of interest based on term SOFR from the counterparty, which is reset according to the duration of the SOFR term. The fair value of the interest rate swap as of February 28, 2023 was $714,000.

We record the fair value of our interest rate swaps on a recurring basis using Level 2 observable market inputs for similar assets or liabilities in active markets.


(in thousands) Fair Value of Derivatives Designated as Hedging Instruments	Balance Sheet Location	February 28, 2023			May 31, 2022
Interest rate swaps – current	Other current assets	$	2,689		$	-
Interest rate swaps – non-current	Other non-current liabilities		(1,975	)		-

The following table summarizes the other comprehensive income (loss) before reclassifications of pre-tax derivative gains and losses:


(in thousands)	Other Comprehensive Income Before Reclassifications During
	Three months ended				Nine months ended
Derivatives Designated as Hedging Instruments	February 28, 2023		February 28, 2022		February 28, 2023		February 28, 2022
Interest rate swaps	$	3,083	$	—	$	655	$	—

The following table summarizes the reclassification of pre-tax derivative gains and losses into net income from accumulated other comprehensive income (loss):


(in thousands)		Gain (Loss) Reclassified During
		Three months ended				Nine months ended
Derivatives Designated as Hedging Instruments	Location of Gain (Loss) Reclassified	February 28, 2023		February 28, 2022		February 28, 2023		February 28, 2022
Interest rate swaps	Interest expense	$	105	$	—	$	105	$	—