FINANCIAL INSTRUMENTS

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 instrument and all derivatives are designated as hedges. We are not a party to master netting arrangements, and we do not offset the fair value of derivative contracts with the same counterparty in our financial statement disclosures. The use of derivative financial instruments is monitored through regular communication with senior management and the use of written guidelines.

Foreign Currency

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 with highly-rated financial institutions. At November 30, 2018, we had foreign currency exchange contracts to purchase or sell $494.9 million of foreign currencies as compared to $405.9 million at November 30, 2017. All of these contracts were designated as hedges of anticipated purchases denominated in a foreign currency or hedges of foreign currency denominated assets or liabilities. Hedge ineffectiveness was not material.

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. The gains and losses on these contracts are deferred in accumulated other comprehensive income until the hedged item is recognized in cost of goods sold, at which time the net amount deferred in accumulated other comprehensive income is also recognized in cost of goods sold. Gains and losses from contracts that are designated as hedges of assets, liabilities or firm commitments are recognized through income, offsetting the change in fair value of the hedged item.

We also enter into fair value foreign currency exchange contracts to manage exposure to currency fluctuations in certain intercompany loans between subsidiaries. The notional value of these contracts was $402.0 million and $281.9 million at November 30, 2018 and 2017, respectively. During fiscal years 2018, 2017 and 2016, we recognized a $2.9 million loss, a $12.8 million gain and a $3.5 million loss, respectively, on the change in fair value of these contracts, which was offset by a $2.7 million gain, a $14.1 million loss and a $3.1 million gain, respectively, on the change in the currency component of the underlying loans. All of the losses and the gains for both fiscal years were recognized in our consolidated income statement as other income, net.

At November 30, 2018, we had $160.6 million of notional contracts that have durations of less than seven days that are used to hedge short-term cash flow funding. At November 30, 2018, the remaining contracts have durations of one to twelve months.

Interest Rates

We finance a portion of our operations with both fixed and variable rate debt instruments, primarily commercial paper, notes and bank loans. We utilize interest rate swap agreements to minimize worldwide financing costs and to achieve a desired mix of variable and fixed rate debt.

We have outstanding interest rate swap contracts for a notional amount of $100 million to receive interest at 3.25% and pay a variable rate of interest based on three-month LIBOR plus 1.22%. These swaps, which expire in November 2025, 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 that we issued in November 2015. Any unrealized gain or loss on these swaps was offset by a corresponding increase or decrease in the value of the hedged debt. Hedge ineffectiveness was not material.

The following tables disclose the derivative instruments on our balance sheet, all of which are all recorded at fair value:



As of November 30, 2018:
(millions)	Asset Derivatives					Liability Derivatives
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	$	6.4
Foreign exchange contracts	Other current assets	199.5		4.4		Other accrued liabilities	295.4		6.4
Total				$	4.4				$	12.8
As of November 30, 2017:
(millions)	Asset Derivatives					Liability Derivatives
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 other comprehensive income (OCI), accumulated other comprehensive income (AOCI) and our income statement for the years ended November 30, 2018, 2017 and 2016:



Fair value hedges (millions)
	Income statement location	Income (expense)
Derivative	Income statement location	2018			2017		2016
Interest rate contracts	Interest expense	$	(0.1	)	$	0.9	$	1.6



	Income statement location	Gain (loss) recognized in income									Income statement location	Gain (loss) recognized in income
Derivative	Income statement location	2018			2017		2016			Hedged Item	Income statement location	2018		2017			2016
Foreign exchange contracts	Other income, net	$	(2.9	)	$	12.8	$	(3.5	)	Intercompany loans	Other income, net	$	2.7	$	(14.1	)	$	3.1



Cash flow hedges (millions)
	Gain (loss) recognized in OCI							Income statement location	Gain (loss) reclassified from AOCI
Derivative	2018		2017			2016		Income statement location	2018			2017			2016
Interest rate contracts	$	—	$	(2.9	)	$	—	Interest expense	$	0.5		$	(0.4	)	$	(0.3	)
Foreign exchange contracts	2.6		(7.3		)	4.4		Cost of goods sold	(3.3		)	1.2			3.7
Total	$	2.6	$	(10.2	)	$	4.4		$	(2.8	)	$	0.8		$	3.4

The amount of gain or loss recognized in income on the ineffective portion of derivative instruments is not material. The net amount of accumulated other comprehensive income expected to be reclassified into income related to these contracts in the next twelve months is a $1.8 million increase to earnings.

Fair Value of Financial Instruments

The carrying amount and fair value of financial instruments as of November 30 were as follows:



	2018				2017
(millions)	Carrying amount		Fair value		Carrying amount		Fair value
Long-term investments	$	120.8	$	120.8	$	127.0	$	127.0
Long-term debt (including current portion)	4,136.4		4,039.4		4,769.5		4,858.5
Derivatives related to:
Interest rates (liabilities)	6.4		6.4		2.5		2.5
Foreign currency (assets)	4.4		4.4		12.7		12.7
Foreign currency (liabilities)	6.4		6.4		4.7		4.7

Because of their short-term nature, the amounts reported in the balance sheet for cash and cash equivalents, receivables, short-term borrowings and trade accounts payable approximate fair value.

At November 30, 2018, the fair value of long-term debt includes $3,172.7 million and $866.7 million determined using Level 1 and Level 2 valuation techniques, respectively. At November 30, 2017, the fair value of long-term debt includes $3,615.2 million and $1,243.3 million determined using Level 1 and Level 2 valuation techniques, respectively. The fair value for Level 2 long-term debt is determined by using quoted prices for similar debt instruments.

Investments in affiliates are not readily marketable, and it is not practicable to estimate their fair value. Long-term investments are comprised of fixed income and equity securities held on behalf of employees in certain employee benefit plans and are stated at fair value on the balance sheet. The cost of these investments was $73.7 million and $78.4 million at November 30, 2018 and 2017, respectively.

Concentrations of Credit Risk

We are potentially exposed to concentrations of credit risk with trade accounts receivable and financial instruments. The customers of our consumer segment are predominantly food retailers and food wholesalers. Consolidations in these industries have created larger customers. In addition, competition has increased with the growth in alternative channels including mass merchandisers, dollar stores, warehouse clubs, discount chains and e-commerce. This has caused some customers to be less profitable and increased our exposure to credit risk. We generally have a large and diverse customer base which limits our concentration of credit risk. At November 30, 2018, we did not have amounts due from any single customer that exceed 10% of consolidated trade accounts receivable. Current credit markets are highly volatile and some of our customers and counterparties are highly leveraged. We continue to closely monitor the credit worthiness of our customers and counterparties and generally do not require collateral. We believe that the allowance for doubtful accounts properly recognized trade receivables at realizable value. We consider nonperformance credit risk for other financial instruments to be insignificant.