Financial Instruments

3 Months Ended

Feb. 28, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Financial Instruments

FINANCIAL INSTRUMENTS

We use derivative financial instruments to enhance our ability to manage risk, including foreign currency, net investment 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. For the three months ended February 28, 2022 and 2021, hedge ineffectiveness was not material. 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 exchange risk. We are potentially exposed to foreign currency fluctuations affecting net investments in subsidiaries, transactions (both third-party and intercompany) and earnings denominated in foreign currencies. We assess foreign currency risk based on transactional cash flows and translational volatility and may enter into forward contract and currency swaps with highly-rated financial institutions to reduce fluctuations in the long or short currency positions. Forward contracts are generally less than 18 months duration. Currency swap agreements are established in conjunction with the terms of the underlying debt issues.

At February 28, 2022, we had foreign currency exchange contracts to purchase or sell $636.5 million of foreign currencies as compared to $583.6 million at November 30, 2021. 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. All foreign currency exchange contracts outstanding at February 28, 2022 have durations of less than 18 months, including $242.1 million of notional contracts that have durations of less than one month and are used to hedge short-term cash flow funding.

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 loss until the hedged item is recognized in cost of goods sold, at which time the net amount deferred in accumulated other comprehensive loss 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 both exposure to currency fluctuations in certain intercompany loans between subsidiaries as well as currency exposure to third-party non-functional currency assets or liabilities. At February 28, 2022, the notional value of these contracts was $413.4 million. Any gains or losses recorded based on both the change in fair value of these contracts and the change in the currency component of the underlying loans are recognized in our consolidated income statement as Other income, net.

We also utilize cross currency interest rate swap contracts that are designated as net investment hedges. Any gains or losses on net investment hedges are included in foreign currency translation adjustments in accumulated other comprehensive loss.

Interest rate risk. 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 to achieve a desired mix of variable and fixed rate debt.

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

As of February 28, 2022	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 long-term assets	$	600.0	$	14.6	Other accrued liabilities	$	—	$	—
Foreign exchange contracts	Other current assets	444.5		7.7		Other accrued liabilities	192.0		2.8
Cross currency contracts	Other current assets / Other long-term assets	495.3		10.9		Other long-term liabilities	505.7		14.1
Total				$	33.2				$	16.9
As of November 30, 2021	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 long-term assets	$	350.0	$	23.1	Other accrued liabilities	$	—	$	—
Foreign exchange contracts	Other current assets	380.8		8.3		Other accrued liabilities	202.8		2.8
Cross currency contracts	Other current assets / Other long-term assets	251.0		4.4		Other long-term liabilities	257.5		8.0
Total				$	35.8				$	10.8

During the first quarter of 2022, we entered into $250 million notional value interest rate swap contracts where we receive interest at 2.50% and pay a variable rate of interest based on USD SOFR plus 0.745%, which expire in April 2030, and are designated as fair value hedges of the changes in fair value of $250 million of the $500 million 2.50% term notes due in 2030.The fair value of these interest rate swap contracts is offset by a corresponding increase or decrease in the value of the hedged debt. Also during the first quarter of 2022, we entered into cross currency interest rate swap contracts of (i) $250 million notional value to receive $250 million at USD SOFR plus 0.745% and pay £184.1 million at GBP SONIA plus 0.5740% and (ii) £184.1 million notional value to receive £184.1 million at GBP SONIA plus 0.574% and pay €219.2 million at Euro ESTR plus 0.667%, both of which expire in April 2030. In conjunction with the phase-out of LIBOR, during the first quarter of 2022 we amended our previously existing cross currency swaps which expire in August 2027 such that, effective February 15, 2022, we now pay and receive at GBP SONIA plus 0.859% (previously GBP LIBOR plus 0.740%).

The following tables disclose the impact of derivative instruments on our other comprehensive income (OCI), accumulated other comprehensive loss (AOCI) and our consolidated income statement for the three-months ended February 28, 2022 and 2021 (in millions):

 

Fair Value Hedges
Three months ended February 28,
Derivative	Income statement location	Income (expense)
		2022		2021
Interest rate contracts	Interest expense	$	2.2	$	2.0

	Income statement location	Gain (loss) recognized in income					Income statement location	Gain (loss) recognized in income
Derivative		2022		2021		Hedged item		2022		2021
Foreign exchange contracts	Other income, net	$	(0.4)	$	(2.1)	Intercompany loans	Other income, net	$	0.4	$	2.4

The gains (losses) recognized on fair value hedges relating to currency exposure on third-party non-functional currency assets or liabilities were not material during the three-months ended February 28, 2022 and 2021.

Cash Flow Hedges
Three months ended February 28,
Derivative	Gain (loss) recognized in OCI				Income statement location	Gain (loss) reclassified from AOCI
	2022		2021			2022		2021
Interest rate contracts	$	—	$	0.3	Interest expense	$	0.1	$	0.1
Foreign exchange contracts	2.9		(1.6)		Cost of goods sold	(0.2)		0.3
Total	$	2.9	$	(1.3)		$	(0.1)	$	0.4

For all cash flow and settled interest rate fair value hedge derivatives, the net amount of accumulated other comprehensive loss expected to be reclassified in the next 12 months is $2.8 million as an increase to earnings.

Net Investment Hedges
Three months ended February 28,
Derivative	Gain (loss) recognized in OCI				Income statement location	Gain (loss) excluded from the assessment of hedge effectiveness
	2022		2021			2022		2021
Cross currency contracts	$	0.7	$	(2.0)	Interest expense	$	0.5	$	0.4

For all net investment hedges, no amounts have been reclassified out of accumulated other comprehensive loss. The amounts noted in the tables above for OCI do not include any adjustments for the impact of deferred income taxes.