Financial Instruments

6 Months Ended

May 31, 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 and six months ended May 31, 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 May 31, 2022, we had foreign currency exchange contracts to purchase or sell $482.0 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. Hedges of foreign currency denominated assets and liabilities include foreign currency exchange contracts with a notional value of $381.9 million at May 31, 2022. 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. All foreign exchange contracts outstanding at May 31, 2022 have durations of less than 18 months, including $140.0 million of notional contracts that have durations of less than one month and are used to hedge short-term cash flow funding.

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 and treasury locks, 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 May 31, 2022
Interest rate contracts	Other current assets / Other long-term assets	$	200.0	$	16.9	Other long-term liabilities	$	600.0	$	16.8
Foreign exchange contracts	Other current assets	308.6		7.1		Other accrued liabilities	173.4		4.7
Cross currency contracts	Other current assets / Other long-term assets	715.2		25.2		Other long-term liabilities	235.2		6.0
Total				$	49.2				$	27.5
As of November 30, 2021
Interest rate contracts	Other current assets / Other long-term assets	$	350.0	$	23.1	Other long-term 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

In 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 0.684%, 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 0.684% 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%).

During the three months ended May 31, 2022, we entered into a total of $200 million of treasury locks to manage our interest rate risk associated with the anticipated issuance of at least $200 million of fixed rate debt by August 2022. These treasury locks have a maturity date of August 12, 2022. The weighted average fixed rate of these agreements was 1.89%. We designated these treasury lock arrangements as cash flow hedges. Amounts associated with these agreements, which currently include the related estimated fair value, are deferred in accumulated other comprehensive income.

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 six-months ended May 31, 2022 and 2021 (in millions):

 

Fair Value Hedges
Derivative	Income statement location	Income (expense)
		Three months ended May 31, 2022		Three months ended May 31, 2021		Six months ended May 31, 2022		Six months ended May 31, 2021
Interest rate contracts	Interest expense	$	2.6	$	2.0	$	4.8	$	4.0

	Income statement location	Gain (loss) recognized in income					Income statement location	Gain (loss) recognized in income
Derivative		2022		2021		Hedged item		2022		2021
Three months ended May 31,
Foreign exchange contracts	Other income, net	$	3.7	$	(3.8)	Intercompany loans	Other income, net	$	(3.3)	$	4.0

Six months ended May 31,
Foreign exchange contracts	Other income, net	$	3.3	$	(5.9)	Intercompany loans	Other income, net	$	(2.9)	$	6.5

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 six-months ended May 31, 2022 and 2021.

Cash Flow Hedges
Derivative	Gain (loss) recognized in OCI				Income statement location	Gain (loss) reclassified from AOCI
	2022		2021			2022		2021
Three months ended May 31,
Interest rate contracts	$	16.9	$	—	Interest expense	$	0.2	$	0.1
Foreign exchange contracts	(0.5)		(0.8)		Cost of goods sold	0.2		(0.6)
Total	$	16.4	$	(0.8)		$	0.4	$	(0.5)
Six months ended May 31,
Interest rate contracts	$	16.9	$	0.3	Interest expense	$	0.3	$	0.2
Foreign exchange contracts	2.4		(2.4)		Cost of goods sold	—		(0.3)
Total	$	19.3	$	(2.1)		$	0.3	$	(0.1)

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 $2.2 million as an increase to earnings.

Net Investment Hedges
Derivative	Gain (loss) recognized in OCI				Income statement location	Gain (loss) excluded from the assessment of hedge effectiveness
	2022		2021			2022		2021
Three months ended May 31,
Cross currency contracts	$	21.4	$	(1.5)	Interest expense	$	1.2	$	0.3
Six months ended May 31,
Cross currency contracts	$	22.1	$	(3.5)	Interest expense	$	1.7	$	0.7

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.