Derivative Instruments and Hedging Activities

3 Months Ended

Aug. 31, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities.

The Company is exposed to certain market risks relating to its ongoing business operations, including foreign currency risk, interest rate risk and commodity price risk. The Company currently manages foreign currency risk and interest rate risk through the use of derivatives.

Derivatives Designated as Hedging Instruments

Interest Rate Instruments—The Company uses interest rate swap agreements (cash flow hedges) in U.S. dollars as a means of fixing the interest rate on portions of its floating-rate debt instruments. As of August 31, 2014, the Company had a swap liability of $14.8 million, which consisted of $7.0 million short-term and $8.0 million long-term, partially offset by a $0.2 million credit valuation adjustment. As of May 31, 2014, the Company had a swap liability of $20.2 million, which consisted of $8.8 million short-term and $11.6 million long-term, partially offset by a $0.2 million credit valuation adjustment.

The table below summarizes existing swap agreements at August 31, 2014 and May 31, 2014:

(in millions)						Fair Value at			Fair Value at
		Notional				August 31, 2014			May 31, 2014
Structure	Currency	Amount		Effective Date	Termination Date	Asset (Liability)			Asset (Liability)
5 years	USD	$	195.0	September 25, 2009	September 25, 2014	$	(1.3	)	$	(1.7	)
2 years	USD	190.0		March 25, 2013	March 25, 2015	(0.7		)	(1.0		)
3 years	USD	270.0		December 27, 2013	September 25, 2016	(4.7		)	(5.8		)
5 years	USD	350.0		September 25, 2012	September 25, 2017	(4.2		)	(6.0		)
5 years	USD	350.0		September 25, 2012	September 25, 2017	(4.1		)	(5.9		)
Credit valuation adjustment						0.2			0.2
Total interest rate instruments						$	(14.8	)	$	(20.2	)

The interest rate swaps are recorded in other accrued expenses and other long-term liabilities. As a result of cash flow hedge treatment being applied, all unrealized gains and losses related to the derivative instruments are recorded in accumulated other comprehensive income (loss). Hedge effectiveness is tested quarterly to determine if hedge treatment is still appropriate. The tables below summarize the effective portion and ineffective portion of the Company’s interest rate swaps before tax for the three months endedAugust 31, 2014 and 2013:

(in millions)	Three Months Ended
Derivatives in cash flow hedging relationship	August 31, 2014		August 31, 2013
Interest rate swaps:
Amount of gain (loss) recognized in OCI	$	5.3	$	21.7
Amount of (gain) loss reclassified from accumulated OCI into interest expense (effective portion)	4.8		7.5
Amount (gain) loss recognized in other income (expense) (ineffective portion and amount excluded from effectiveness testing)	—		—

As of August 31, 2014, the effective interest rate, including the applicable lending margin, on 47.13% ($1,355.0 million) of the outstanding principal of the Company’s U.S. dollar term loan was fixed at 5.07% through the use of interest rate swaps. The remaining unhedged balances of the U.S. dollar term loans had an effective interest rate of 3.63%. As of August 31, 2014 and May 31, 2014, the Company’s effective weighted average interest rate on all outstanding debt, including the interest rate swaps, was 5.24% and 5.37%, respectively.

Derivatives Not Designated as Hedging Instruments

Foreign Currency Instruments—The Company faces transactional currency exposures that arise when it or its foreign subsidiaries enter into transactions, primarily on an intercompany basis, denominated in currencies other than their functional currency. The Company may enter into short-term forward currency exchange contracts in order to mitigate the currency exposure related to these intercompany payables and receivables arising from intercompany trade. The Company does not designate these contracts as hedges; therefore, all forward currency exchange contracts are recorded at their fair value each period, with the resulting gains and losses recorded in other (income) expense. Any foreign currency remeasurement gains or losses recognized in a period are generally offset with gains or losses on the forward currency exchange contracts. As of August 31, 2014, the fair value of the Company’s derivatives not designated as hedging instruments on a gross basis were assets of $3.0 million recorded in prepaid expenses and other, and liabilities of $3.4 million recorded in other accrued expenses. As of May 31, 2014, the fair value of the Company’s derivatives not designated as hedging instruments on a gross basis were assets of $1.1 million recorded in prepaid expenses and other, and liabilities of $1.3 million recorded in other accrued expenses.