FINANCING ARRANGEMENTS AND FINANCIAL INSTRUMENTS

In December 2017, we repaid our $250 million, 5.75% notes that matured on December 15, 2017. During the six months ended May 31, 2018, we repaid $100 million of the three-year term loan due August 17, 2020 and we repaid $37.5 million of the five-year term loan due August 17, 2022, which has required quarterly principal installments.

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 later this year. In July 2016, we entered into a 15-year lease for that headquarters building. The lease requires monthly lease payments of approximately $0.9 million beginning in the first quarter of 2019. 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. Upon commencement of fit-out in the second quarter of 2018 we obtained access to the building, which resulted in the lease commencement date for accounting purposes. We have recognized this lease as a capital lease, with the leased asset of $137.9 million included in property, plant and equipment, net, and the lease obligation in the amount of $138.8 million included in long-term debt as of May 31, 2018. During the three months ended May 31, 2018, we recognized amortization expense of $0.9 million related to the leased asset.

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.

We are potentially exposed to foreign currency fluctuations affecting net investments, transactions and earnings denominated in foreign currencies. We selectively hedge the potential effect of these foreign currency fluctuations by entering into foreign currency exchange contracts. As of May 31, 2018, the maximum time frame for our foreign exchange forward contracts is 12 months.

Contracts which are designated as hedges of anticipated purchases denominated in a foreign currency (generally purchases of raw materials in U.S. dollars by operating units outside the U.S.) are considered cash flow hedges. 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, 2018, the notional value of these contracts was $361.7 million. During the three months ended May 31, 2018 and 2017, we recognized (losses) gains of $(0.4) million and $5.0 million, respectively, on the change in fair value of these contracts and gains (losses) of $0.2 million and $(5.4) million, respectively, on the change in the currency component of the underlying loans. During the six months ended May 31, 2018 and 2017, we recognized (losses) gains of $(2.6) million and $2.3 million, respectively, on the change in fair value of these contracts and gains (losses) of $2.2 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.

We finance a portion of our operations with both fixed and variable rate debt instruments, principally commercial paper, notes and bank loans. We utilize interest rate swap agreements to minimize worldwide financing costs and achieve a desired mix of variable and fixed rate debt. As of May 31, 2018, we have $100 million notional value of interest rate swap contracts outstanding which expire in November 2025. We receive interest at 3.25% and pay a variable rate of interest based on three-month LIBOR plus 1.22%. These swaps are designated as fair value hedges of the changes in fair value of $100 million of the $250 million 3.25% medium-term notes due 2025. Any realized gain or loss on these swaps was offset by a corresponding increase or decrease of the value of the hedged debt. Hedge ineffectiveness was not material.

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, 2018	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	$	5.8
Foreign exchange contracts	Other current assets	297.7		5.8		Other accrued liabilities	155.2		5.2
Total				$	5.8				$	11.0

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 November 30, 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	$	100.0	$	2.5
Foreign exchange contracts	Other current assets	326.3		12.7		Other accrued liabilities	79.6		4.7
Total				$	12.7				$	7.2

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, 2018 and 2017 (in millions):



Fair Value Hedges
Derivative	Income statement location	Income (expense)
		Three months ended May 31, 2018		Three months ended May 31, 2017		Six months ended May 31, 2018		Six months ended May 31, 2017
Interest rate contracts	Interest expense	$	0.1	$	0.2	$	0.2	$	0.5



Three months ended May 31,	Income statement location	Gain (loss) recognized in income						Income statement location	Gain (loss) recognized in income
Derivative		2018			2017		Hedged item		2018		2017
Foreign exchange contracts	Other income, net	$	(0.4	)	$	5.0	Intercompany loans	Other income, net	$	0.2	$	(5.4	)



Six months ended May 31,	Income statement location	Gain (loss) recognized in income						Income statement location	Gain (loss) recognized in income
Derivative		2018			2017		Hedged item		2018		2017
Foreign exchange contracts	Other income, net	$	(2.6	)	$	2.3	Intercompany loans	Other income, net	$	2.2	$	(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
	2018		2017				2018			2017
Interest rate contracts	$	—	$	(3.0	)	Interest expense	$	0.1		$	—
Foreign exchange contracts	2.0		(1.4		)	Cost of goods sold	(1.6		)	0.7
Total	$	2.0	$	(4.4	)		$	(1.5	)	$	0.7

Six months ended May 31,
Derivative	Gain or (Loss) recognized in OCI					Income statement location	Gain or (Loss) reclassified from AOCI
	2018		2017				2018			2017
Interest rate contracts	$	—	$	(3.2	)	Interest expense	$	0.2		$	(0.1	)
Foreign exchange contracts	0.8		(1.8		)	Cost of goods sold	(2.7		)	1.8
Total	$	0.8	$	(5.0	)		$	(2.5	)	$	1.7

For all derivatives, the net amount of accumulated other comprehensive income (loss) expected to be reclassified in the next 12 months is $0.5 million as a decrease 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.