Note 10 - Derivative Financial Instruments

9 Months Ended

Feb. 28, 2017

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

10. DER IV ATIVE FINANCIAL INSTRUMENTS

As of

February

28,

2017,

the Company does not currently have any outstanding interest rate swap agreements. Prior to

October

1,

2016,

the Company had entered into floating-to-fixed interest rate swap agreements for an aggregate notional amount of

$70.0

million related to a portion of the Company’s floating rate indebtedness. The purpose of the interest rate swap was to hedge the Company’s future interest commitments resulting from the Term Loan Facility, and to protect the Company from variability in cash flows attributable to changes in LIBOR interest rates. The Company had entered into a swap agreement to match the LIBOR floor in the swaps with the terms of the Term Loan Facility. Consistent with the terms of the Company’s Term Loan Facility, the swap included a LIBOR floor of

1.25%.

The swap agreement hedged a portion of contractual floating rate interest commitments through the expiration of the swap agreement in

September

2016.

Effective

October

1,

2014

through

September

30,

2015,

the Company had swap agreements that hedged

$155.0

million of the Company

’s floating rate interest commitments at a weighted average fixed LIBOR rate of

1.77%.

  Effective

October

1,

2015

through

September

30,

2016,

the Company has swap agreements to hedge

$70.0

million of the Company’s floating rate interest commitments at a fixed LIBOR rate of

1.91%.

The Company designated these interest rate swap agreements as cash flow hedges. As cash flow hedges, unrealized gains are recognized as assets while unrealized losses are recognized as liabilities. The interest rate swap agreements are highly correlated to the changes in interest rates to which the Company is exposed. Unrealized gains and losses on these swaps are designated as effective or ineffective. The effective portion of such gains or losses is recorded as a component of accumulated other comprehensive income or loss, while the ineffective portion of such gains or losses

is recorded as a component of interest expense. Future realized gains and losses in connection with each required interest payment will be reclassified from accumulated other comprehensive income or loss to interest expense.

The changes in fair values of derivatives that have been designated and qualify as cash flow hedges are recorded in accumulated other comprehensive income or loss and are reclassified into interest expense in the same period the hedged item affects earnings. Due to the high degree of effectiveness between the hedging instruments and the underlying exposures being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the fair values or cash flows of the underlying exposures being hedged. The changes in the fair values of derivatives that do not qualify as effective are immediately recognized in earnings.

The gains and losses on derivative contracts that are reclassified from accumulated other comprehensive income or loss to current period earnings are included in the line item in which the hedged item is recorded in the same period the forecasted transaction affects earnings.

The fair values of the interest rate swap agreements are estimated using industry standard valuation models using market-based observable inputs, including interest rate curves (

Level

2).

A summary of the recorded liabilities included in the consolidated balance sheets is as follows (in thousands):

	As of
	February 28, 2017		May 31, 2016
Interest rate swaps (included in other liabilities)	$	-		(155	)

The loss

es from accumulated other comprehensive loss (“AOCI”) was reclassified to the consolidated statement of operations and appears as follows (in thousands):

	Three Months Ended					Nine Months Ended
	February 28		February 29			February 28			February 29
Location of loss reclassified from AOCI into income	2017		2016			2017			2016
Loss on cash flow hedges:
Interest expense (effective portion)	$	-		(121	)		(167	)		(489	)
Interest expense (ineffective portion)	$	-		-			-			(1	)