Financial Instruments

3 Months Ended

Feb. 28, 2023

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. 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, 2023, we had foreign currency exchange contracts to purchase or sell $509.6 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 February 28, 2023 have durations of less than 18 months, including $146.8 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 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 $362.5 million at February 28, 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 February 28, 2023
Interest rate contracts	Other current assets / Other long-term assets	$	—	$	—	Other long-term liabilities	$	600.0	$	54.3
Foreign exchange contracts	Other current assets	309.2		6.4		Other accrued liabilities	200.4		2.3
Cross currency contracts	Other current assets / Other long-term assets	457.2		43.0		Other long-term liabilities	467.4		14.9
Total				$	49.4				$	71.5
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, during 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 conjunction with the phase-out of LIBOR, during the first quarter of 2023, 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.

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, 2023 and 2022 (in millions):

 

Fair Value Hedges
Three months ended February 28,
Derivative	Income statement location	(Expense) income
		2023		2022
Interest rate contracts	Interest expense	$	(3.7)	$	2.2

	Income statement location	Gain (loss) recognized in income					Income statement location	Gain (loss) recognized in income
Derivative		2023		2022		Hedged item		2023		2022
Foreign exchange contracts	Other income, net	$	1.0	$	(0.4)	Intercompany loans	Other income, net	$	(0.1)	$	0.4

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, 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 February 28,
Interest rate contracts	$	—	$	—	Interest expense	$	0.1	$	0.1
Foreign exchange contracts	(1.1)		2.9		Cost of goods sold	1.2		(0.2)
Total	$	(1.1)	$	2.9		$	1.3	$	(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 $1.1 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
	2023		2022			2023		2022
Three months ended February 28,
Cross currency contracts	$	(5.8)	$	0.7	Interest expense	$	3.3	$	0.5

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.