| DERIVATIVE INSTRUMENTS |
DERIVATIVE INSTRUMENTS Overview Our risk management and derivative accounting policies are presented in Notes 1 and 7 of our consolidated financial statements included in our 2026 Annual Report and have not changed significantly for the six months and three months ended August 31, 2026.
The aggregate notional value of outstanding derivative instruments is as follows: | | | | | | | | | | | | | August 31,
2026 | | February 28,
2026 | | (in millions) | | | | | Derivative instruments designated as hedging instruments | | | | | Foreign currency contracts | $ | 2,651.5 | | | $ | 2,080.9 | | | Net investment hedge contracts | $ | 145.5 | | | $ | 145.5 | | | | | | | | | | | Pre-issuance hedge contracts | $ | — | | | $ | 50.0 | | | | | | | Derivative instruments not designated as hedging instruments | | | | | Foreign currency contracts | $ | 533.2 | | | $ | 522.2 | | | Commodity derivative contracts | $ | 358.9 | | | $ | 335.5 | | | | | |
Net investment hedge contracts In April 2025, we entered into cross-currency swaps to hedge portions of our net investment in certain of our non-U.S. operations against fluctuations in foreign currency exchange rates. These cross-currency swaps are designated as net investment hedges and mature between April 2028 and April 2029. The changes in the fair value of these swaps are recognized as a component of other comprehensive income (loss) and reported in accumulated other comprehensive income (loss) in our consolidated balance sheets. The gain or loss will be subsequently reclassified into net earnings when the hedged net investment is either sold, liquidated, or substantially liquidated. We assess the effectiveness of our cross-currency swaps using the spot method. Under this method, the periodic interest settlements are recorded directly in earnings through interest expense, net. Accordingly, interest income recognized in interest expense, net related to these cross-currency swaps was as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Six Months
Ended August 31, | | For the Three Months
Ended August 31, | | | 2026 | | 2025 | | 2026 | | 2025 | | (in millions) | | | | | | | | | | Interest income | | $ | 1.1 | | | $ | 0.8 | | | $ | 0.5 | | | $ | 0.5 | |
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 August 31, 2026, there were no derivative instruments in a net liability position due to counterparties.
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 | | August 31,
2026 | | February 28,
2026 | | | August 31,
2026 | | February 28,
2026 | | (in millions) | | | | | | | | | | Derivative instruments designated as hedging instruments | | Foreign currency contracts: | | Prepaid expenses and other | $ | 140.9 | | $ | 156.7 | | Other accrued expenses and liabilities | $ | 0.5 | | $ | 0.1 | | Other assets | $ | 202.4 | | $ | 177.6 | | Deferred income taxes and other liabilities | $ | 0.3 | | $ | 0.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net investment hedge contracts: | | | | | | | | | | | Other assets | $ | — | | $ | — | | Deferred income taxes and other liabilities | $ | 4.8 | | $ | 6.7 | | Derivative instruments not designated as hedging instruments | | Foreign currency contracts: | | Prepaid expenses and other | $ | 1.0 | | $ | 0.4 | | Other accrued expenses and liabilities | $ | 1.8 | | $ | 0.9 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Assets | | Liabilities | | August 31,
2026 | | February 28,
2026 | | | August 31,
2026 | | February 28,
2026 | | (in millions) | | | | | | | | | | Commodity derivative contracts: | | Prepaid expenses and other | $ | 45.1 | | $ | 22.4 | | Other accrued expenses and liabilities | $ | 7.8 | | $ | 5.3 | | Other assets | $ | 15.3 | | $ | 8.8 | | Deferred income taxes and other liabilities | $ | 2.0 | | $ | 2.1 | | | | | | | | | | |
The principal effect of our derivative instruments designated in cash flow hedging relationships on our results of operations, as well as 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 (Loss) | | Net
Gain (Loss)
Reclassified
from AOCI
to Income (Loss) | | (in millions) | | | | | | | | For the Six Months Ended August 31, 2026 | | | | | | | | Foreign currency contracts | | $ | 81.0 | | | Sales | | $ | 0.2 | | | | | | Cost of product sold | | 72.6 | | | | | | | | | | Pre-issuance hedge contracts | | 1.8 | | | Interest expense, net | | (0.2) | | | | $ | 82.8 | | | | | $ | 72.6 | | | For the Six Months Ended August 31, 2025 | | | | | | | | Foreign currency contracts | | $ | 202.7 | | | Sales | | $ | 0.6 | | | | | | Cost of product sold | | 23.0 | | | | | | Selling, general, and administrative expenses | | 0.2 | | | Pre-issuance hedge contracts | | (3.4) | | | Interest expense, net | | (0.1) | | | | $ | 199.3 | | | | | $ | 23.7 | | | For the Three Months Ended August 31, 2026 | | | | | | | | Foreign currency contracts | | $ | 72.6 | | | Sales | | $ | 0.1 | | | | | | Cost of product sold | | 38.4 | | | | | | | | | | Pre-issuance hedge contracts | | — | | | Interest expense, net | | (0.1) | | | | $ | 72.6 | | | | | $ | 38.4 | | | For the Three Months Ended August 31, 2025 | | | | | | | | Foreign currency contracts | | $ | 79.1 | | | Sales | | $ | 0.3 | | | | | | Cost of product sold | | 17.8 | | | | | | | | | | Pre-issuance hedge contracts | | — | | | Interest expense, net | | (0.1) | | | | $ | 79.1 | | | | | $ | 18.0 | |
We expect $128.7 million of net gains, net of income tax effect, to be reclassified from 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 (Loss) | | Net
Gain (Loss)
Recognized
in Income (Loss) | | (in millions) | | | | | | For the Six Months Ended August 31, 2026 | | | | | | Commodity derivative contracts | | Cost of product sold | | $ | 52.7 | | | Foreign currency contracts | | Selling, general, and administrative expenses | | (7.8) | | | | | | | | | | | $ | 44.9 | | | | | | | | For the Six Months Ended August 31, 2025 | | | | | | Commodity derivative contracts | | Cost of product sold | | $ | (4.7) | | | Foreign currency contracts | | Selling, general, and administrative expenses | | 7.3 | | | | | | $ | 2.6 | | | For the Three Months Ended August 31, 2026 | | | | | | Commodity derivative contracts | | Cost of product sold | | $ | 3.4 | | | Foreign currency contracts | | Selling, general, and administrative expenses | | (4.9) | | | | | | | | | | | $ | (1.5) | | | For the Three Months Ended August 31, 2025 | | | | | | Commodity derivative contracts | | Cost of product sold | | $ | 13.0 | | | Foreign currency contracts | | Selling, general, and administrative expenses | | 2.3 | | | | | | $ | 15.3 | |
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