Quarterly report pursuant to Section 13 or 15(d)

Derivative Instruments

v3.8.0.1
Derivative Instruments
 3 Months Ended
May 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE INSTRUMENTS
DERIVATIVE INSTRUMENTS:

Overview –
Our risk management and derivative accounting policies are presented in Notes 1 and 6 of our consolidated financial statements included in our 2018 Annual Report and have not changed significantly for the three months ended May 31, 2018.

The aggregate notional value of outstanding derivative instruments is as follows:
 
May 31,
2018
 
February 28,
2018
(in millions)
 
 
 
Derivative instruments designated as hedging instruments
 
 
 
Foreign currency contracts
$
1,644.2

 
$
1,465.4

 
 
 
 
Derivative instruments not designated as hedging instruments
 
 
 
Foreign currency contracts
$
428.9

 
$
440.6

Commodity derivative contracts
$
215.1

 
$
177.5



Credit risk –
We are exposed to credit-related losses if the counterparties to our derivative contracts default. This credit risk is limited to the fair value of the derivative contracts. To manage this risk, we contract only with major financial institutions that have earned investment-grade credit ratings and with whom we have standard International Swaps and Derivatives Association agreements which allow for net settlement of the derivative contracts. We have also established counterparty credit guidelines that are regularly monitored. Because of these safeguards, we believe the risk of loss from counterparty default to be immaterial.

In addition, our derivative instruments are not subject to credit rating contingencies or collateral requirements. As of May 31, 2018, the estimated fair value of derivative instruments in a net liability position due to counterparties was $42.5 million. If we were required to settle the net liability position under these derivative instruments on May 31, 2018, we would have had sufficient available liquidity on hand to satisfy this obligation.

Results of period derivative activity –
The estimated fair value and location of our derivative instruments on our balance sheets are as follows (see Note 5):
Assets
 
Liabilities
 
May 31,
2018
 
February 28,
2018
 
 
May 31,
2018
 
February 28,
2018
(in millions)
 
 
 
 
 
 
 
 
Derivative instruments designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and other
$
8.2

 
$
21.2

 
Other accrued expenses and liabilities
$
26.9

 
$
7.8

Other assets
$
4.1

 
$
17.0

 
Other liabilities
$
34.7

 
$
9.9

 
 
 
 
 
 
 
 
 
Derivative instruments not designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and other
$
1.1

 
$
2.1

 
Other accrued expenses and liabilities
$
3.1

 
$
2.2

Commodity derivative contracts:
Prepaid expenses and other
$
14.1

 
$
6.3

 
Other accrued expenses and liabilities
$
0.7

 
$
3.0

Other assets
$
6.1

 
$
2.8

 
Other liabilities
$
2.1

 
$
2.6


The principal effect of our derivative instruments designated in cash flow hedging relationships on our results of operations, as well as Other Comprehensive Income (“OCI”), net of income tax effect, is as follows:
Derivative Instruments in
Designated Cash Flow
Hedging Relationships
 
Net
Gain (Loss)
Recognized
in OCI
 
Location of Net Gain (Loss)
Reclassified from
AOCI to Income
 
Net
Gain (Loss)
Reclassified
from AOCI
to Income
(in millions)
 
 
 
 
 
 
For the Three Months Ended May 31, 2018
 
 
 
 
 
 
Foreign currency contracts
 
$
(41.9
)
 
Sales
 
$
0.1

 
 
 
 
Cost of product sold
 
4.1

 
 
$
(41.9
)
 
 
 
$
4.2

 
 
 
 
 
 
 
For the Three Months Ended May 31, 2017
 
 
 
 
 
 
Foreign currency contracts
 
$
38.6

 
Sales
 
$
0.3

 
 
 
 
Cost of product sold
 
(2.7
)
Interest rate swap contracts
 
(2.0
)
 
Interest expense
 
(0.1
)
 
 
$
36.6

 
 
 
$
(2.5
)

We expect $13.0 million of net losses, net of income tax effect, to be reclassified from accumulated other comprehensive income (loss) (“AOCI”) to our results of operations within the next 12 months.

The effect of our undesignated derivative instruments on our results of operations is as follows:
Derivative Instruments Not
Designated as Hedging Instruments
 
 
 
Location of Net Gain (Loss)
Recognized in Income
 
Net
Gain (Loss)
Recognized
in Income
(in millions)
 
 
 
 
 
 
For the Three Months Ended May 31, 2018
 
 
 
 
 
 
Commodity derivative contracts
 
 
 
Cost of product sold
 
$
15.4

Foreign currency contracts
 
 
 
Selling, general and administrative expenses
 
(1.9
)
 
 
 
 
 
 
$
13.5

 
 
 
 
 
 
 
For the Three Months Ended May 31, 2017
 
 
 
 
 
 
Commodity derivative contracts
 
 
 
Cost of product sold
 
$
(3.1
)
Foreign currency contracts
 
 
 
Selling, general and administrative expenses
 
4.7

 
 
 
 
 
 
$
1.6