Financial Instruments

9 Months Ended

Aug. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Financial Instruments

FINANCIAL INSTRUMENTS

On April 6, 2023, we issued $500 million aggregate principal amount of 4.950% unsecured senior notes due 2033. Interest is payable semi-annually in April and October of each year, beginning on October 15, 2023. The net proceeds received from the issuance of these notes of $496.4 million were used to repay a portion of the Company's outstanding commercial paper borrowings. As part of the issuance of new debt, we entered and settled treasury locks in a notional amount of $250.0 million to manage our interest rate risk associated with the issuance of the unsecured senior notes. We designated the treasury lock arrangements as cash flow hedges with the realized loss of $2.6 million to be amortized to interest expense over the life of the underlying debt.

In June 2023, we entered into a 364-day $500 million revolving credit facility which will expire in June 2024 and simultaneously cancelled the 364-day $500 million revolving credit facility which was set to expire in July 2023. The current pricing for that credit facility, on a fully drawn basis, is SOFR + 1.23%. The pricing of the credit facility is based on a credit rating grid that contains a fully drawn maximum pricing of the credit facility equal to SOFR + 1.60%. The provisions of this revolving credit facility restrict subsidiary indebtedness and require us to maintain a minimum interest coverage ratio, consistent with our $1.5 billion five-year revolving credit facility. We do not expect that this covenant would limit our access to this revolving credit facility for the foreseeable future.

On September 1, 2023, we repaid our $250 million, 3.50% notes due in September 2023.

In the third quarter 2023, we executed a nonrecourse accounts receivable sale program whereby certain eligible U.S. receivables are sold to third party financial institution in exchange for cash. The program provides us with an additional means for managing liquidity. Under the terms of the arrangement, we act as the collecting agent on behalf of the financial institution. We account for the transfer of receivables as a sale at the point control is transferred through derecognition of the receivable on our condensed consolidated balance sheet. Receivables sold under this program were approximately $26.1 million during the three and nine months ended August 31, 2023. Of that amount, we collected $11.3 million on behalf of the financial institution during the three and nine months ended August 31, 2023. The incremental costs of selling receivables under this arrangement were insignificant for the three and nine months ended August 31, 2023.

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. 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. Currency swap agreements are established in conjunction with the terms of the underlying debt issues.

At August 31, 2023, we had foreign currency exchange contracts to purchase or sell $966.5 million of foreign currencies as compared to $560.5 million at November 30, 2022. 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. All foreign currency exchange contracts outstanding at August 31, 2023 have durations of less than 18 months, including $178.6 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 inventory 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. Hedges of foreign currency denominated assets and liabilities include foreign currency exchange contracts with a notional value of $757.3 million at August 31, 2023. These foreign currency exchange contracts 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. 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 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 derivative contracts, including 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):

	Asset Derivatives					Liability Derivatives
	Balance sheet location	Notional amount		Fair value		Balance sheet location	Notional amount		Fair value
As of August 31, 2023
Interest rate contracts	Other current assets / Other long-term assets	$	—	$	—	Other long-term liabilities	$	600.0	$	56.3
Foreign exchange contracts	Other current assets	275.9		3.6		Other accrued liabilities	690.6		18.9
Cross currency contracts	Other current assets / Other long-term assets	719.4		23.4		Other long-term liabilities	237.6		5.2
Total				$	27.0				$	80.4
As of November 30, 2022
Interest rate contracts	Other current assets / Other long-term assets	$	—	$	—	Other long-term liabilities	$	600.0	$	42.4
Foreign exchange contracts	Other current assets	344.9		11.0		Other accrued liabilities	215.6		1.5
Cross currency contracts	Other current assets / Other long-term assets	680.0		44.5		Other long-term liabilities	226.1		8.3
Total				$	55.5				$	52.2

In conjunction with the phase out of LIBOR, in the first quarter of 2023 we amended our previously existing cross currency swaps which expire in August 2027 such that, effective February 15, 2023, we now pay and receive at USD Secured Overnight Financing Rate (SOFR) plus 0.907% (previously three-month U.S. LIBOR plus 0.685%). In addition, we amended our

$100 million interest rate swaps which expire in November 2025 and our $250 million interest rate swaps that expire in August 2027, such that, effective February 15, 2023, we now pay and receive at USD SOFR plus 1.487% (previously U.S. three-month LIBOR plus 1.22%) and USD SOFR plus 0.907% (previously U.S. three-month LIBOR plus 0.685%), respectively.

In the second quarter of 2023, we amended our five-year revolving credit facility expiring in July 2026 to no longer use LIBOR. The current pricing for the five-year credit facility, on a fully drawn basis, is SOFR plus 1.25%.

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 and nine months ended August 31, 2023 and 2022 (in millions):

 

Fair Value Hedges
Derivative	Income statement location	(Expense) income
		Three months ended August 31, 2023		Three months ended August 31, 2022		Nine months ended August 31, 2023		Nine months ended August 31, 2022
Interest rate contracts	Interest expense	$	(4.9)	$	0.6	$	(12.6)	$	5.4

	Income statement location	Gain (loss) recognized in income					Income statement location	Gain (loss) recognized in income
Derivative		2023		2022		Hedged item		2023		2022
Three months ended August 31,
Foreign exchange contracts	Other income, net	$	(12.4)	$	3.6	Intercompany loans	Other income, net	$	10.0	$	(3.2)
Nine months ended August 31,
Foreign exchange contracts	Other income, net	$	(18.1)	$	6.9	Intercompany loans	Other income, net	$	17.1	$	(6.1)

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 and nine months ended August 31, 2023 and 2022.

Cash Flow Hedges
Derivative	Gain (loss) recognized in OCI				Income statement location	Gain (loss) reclassified from AOCI
	2023		2022			2023		2022
Three months ended August 31,
Interest rate contracts	$	—	$	1.8	Interest expense	$	—	$	18.8
Foreign exchange contracts	0.7		2.8		Cost of goods sold	(0.4)		0.7
Total	$	0.7	$	4.6		$	(0.4)	$	19.5
Nine months ended August 31,
Interest rate contracts	$	(2.6)	$	18.7	Interest expense/ Other income, net	$	0.2	$	19.1
Foreign exchange contracts	(1.7)		5.2		Cost of goods sold	0.9		0.7
Total	$	(4.3)	$	23.9		$	1.1	$	19.8

As of August 31, 2023, the net amount of accumulated other comprehensive loss associated with all cash flow and settled interest rate fair value hedge derivatives expected to be reclassified in the next 12 months is $0.5 million as a decrease to earnings.

Net Investment Hedges
Derivative	Gain (loss) recognized in OCI				Income statement location	Gain (loss) excluded from the assessment of hedge effectiveness
	2023		2022			2023		2022
Three months ended August 31,
Cross currency contracts	$	(8.0)	$	29.7	Interest expense	$	2.7	$	2.4
Nine months ended August 31,
Cross currency contracts	$	(17.6)	$	51.8	Interest expense	$	8.9	$	4.1

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.