Financial Instruments

6 Months Ended

May 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

FINANCIAL INSTRUMENTS

FINANCING ARRANGEMENTS AND FINANCIAL INSTRUMENTS

In July 2016, we entered into a 15-year lease for a headquarters building in Hunt Valley, Maryland. The lease, which is expected to commence upon completion of building construction and fit-out, currently scheduled for the second half of 2018, requires monthly lease payments of approximately $0.9 million beginning six months after lease commencement. The $0.9 million monthly lease payment is subject to adjustment after an initial 60-month period and thereafter on an annual basis as specified in the lease agreement. In addition, the initial $0.9 million monthly lease payment is subject to increase in the event of agreed-upon changes to specifications related to the headquarters building. We expect to consolidate our Corporate staff and certain non-manufacturing U.S. employees, currently housed in four locations in the Hunt Valley, Maryland area, to the new headquarters building.

During the second quarter of 2017, we entered into a 364-day $250 million revolving credit facility, which will support our commercial paper program and expire in March 2018. The pricing for the credit facility, on a fully drawn basis, is LIBOR plus 0.75%.

We use derivative financial instruments to enhance our ability to manage risk, including foreign currency and interest rate exposures, which exist as part of our ongoing business operations. We do not enter into contracts for trading purposes, nor are we a party to any leveraged derivative instruments. The use of derivative financial instruments is monitored through regular communication with senior management and the use of written guidelines.

From time to time, we enter into fair value foreign currency exchange contracts to manage exposure to currency fluctuations in certain intercompany loans between subsidiaries. At May 31, 2017, the notional value of these contracts was $113.5 million. During the three and six months ended May 31, 2017, we recognized gains of $5.0 million and $2.3 million, respectively, on the change in fair value of these contracts, which was offset by losses of $5.4 million and $2.9 million, respectively, on the change in the currency component of the underlying loans. Both the gains and the losses were recognized in our consolidated income statement as other income, net.

During the three and six months ended May 31, 2017, we entered into a total of $75 million and $150 million, respectively, of forward starting interest rate swap agreements to manage our interest rate risk associated with the anticipated issuance of at least $150 million of fixed rate notes by December 2017. The weighted average fixed rate of these agreements is 2.45% and is based upon the applicable U.S. LIBOR swap rate at the inception of each agreement. We intend to cash settle these agreements upon issuance of the notes. If the applicable U.S. LIBOR swap rate increases at the time of settlement of the agreements, we will receive a one-time cash payment from the counterparties. If the applicable U.S. LIBOR swap rate decreases at the time of settlement of the agreements, we will make a one-time cash payment to the counterparties. We have designated these forward starting interest rate swap agreements, which expire on December 15, 2017, as cash flow hedges. Amounts associated with these agreements, including the related mark-to-market prior to settlement, will be deferred in other comprehensive income; upon settlement, any gain or loss realized will be amortized over the life of the fixed rate notes as a component of interest expense.

As of May 31, 2017, the maximum time frame for our foreign exchange forward contracts is 6 months.

All derivatives are recognized at fair value in the balance sheet and recorded in either current or noncurrent other assets or other accrued liabilities or other long-term liabilities depending upon their nature and maturity.

The following table discloses the fair values of derivative instruments on our balance sheet (in millions):

As of May 31, 2017	Asset Derivatives					Liability Derivatives
	Balance sheet location	Notional amount		Fair value		Balance sheet location	Notional amount		Fair value
Interest rate contracts	Other current assets	$	—	$	—	Other accrued liabilities	$	250.0	$	3.7
Foreign exchange contracts	Other current assets	193.9		3.2		Other accrued liabilities	160.7		3.2
Total				$	3.2				$	6.9
As of May 31, 2016	Asset Derivatives					Liability Derivatives
	Balance sheet location	Notional amount		Fair value		Balance sheet location	Notional amount		Fair value
Interest rate contracts	Other current assets	$	100.0	$	3.0	Other accrued liabilities	$	—	$	—
Foreign exchange contracts	Other current assets	155.2		3.7		Other accrued liabilities	72.4		1.5
Total				$	6.7				$	1.5
As of November 30, 2016	Asset Derivatives					Liability Derivatives
	Balance sheet location	Notional amount		Fair value		Balance sheet location	Notional amount		Fair value
Interest rate contracts	Other current assets	$	—	$	—	Other accrued liabilities	$	100.0	$	1.2
Foreign exchange contracts	Other current assets	204.3		4.9		Other accrued liabilities	244.9		5.4
Total				$	4.9				$	6.6

The following tables disclose the impact of derivative instruments on our other comprehensive income (OCI), accumulated other comprehensive income (AOCI) and our income statement for the three and six month periods ended May 31, 2017 and 2016 (in millions):

Fair Value Hedges
Derivative	Income statement location	Income (expense)
		Three months ended May 31, 2017		Three months ended May 31, 2016		Six months ended May 31, 2017		Six months ended May 31, 2016
Interest rate contracts	Interest expense	$	0.2	$	0.3	$	0.5	$	0.9

Three months ended May 31,	Income statement location	Gain (loss) recognized in income					Income statement location	Gain (loss) recognized in income
Derivative		2017		2016		Hedged item		2017			2016
Foreign exchange contracts	Other income, net	$	5.0	$	—	Intercompany loans	Other income, net	$	(5.4	)	$	—

Six months ended May 31,	Income statement location	Gain (loss) recognized in income					Income statement location	Gain (loss) recognized in income
Derivative		2017		2016		Hedged item		2017			2016
Foreign exchange contracts	Other income, net	$	2.3	$	—	Intercompany loans	Other income, net	$	(2.9	)	$	—

Cash Flow Hedges
Three months ended May 31,
Derivative	Gain or (loss) recognized in OCI						Income statement location	Gain or (loss) reclassified from AOCI
	2017			2016				2017			2016
Interest rate contracts	$	(3.0	)	$	—		Interest expense	$	—		$	—
Foreign exchange contracts	(1.4		)	(2.2		)	Cost of goods sold	0.7			1.8
Total	$	(4.4	)	$	(2.2	)		$	0.7		$	1.8
Six months ended May 31,
Derivative	Gain or (Loss) recognized in OCI						Income statement location	Gain or (Loss) reclassified from AOCI
	2017			2016				2017			2016
Interest rate contracts	$	(3.2	)	$	—		Interest expense	$	(0.1	)	$	(0.1	)
Foreign exchange contracts	(1.8		)	(0.1		)	Cost of goods sold	1.8			3.1
Total	$	(5.0	)	$	(0.1	)		$	1.7		$	3.0

For all derivatives, the net amount of accumulated other comprehensive income expected to be reclassified in the next 12 months is $0.6 million as an increase to earnings. The amount of gain or loss recognized in income on the ineffective portion of derivative instruments is not material. The amounts noted in the tables above for OCI do not include any adjustments for the impact of deferred income taxes.