Management's Discussion and Analysis
The following table summarizes the foreign currency exchange contracts held at November 30, 2006. All contracts are valued in U.S. dollars using year-end 2006 exchange rates and have been designated as hedges of foreign currency transactional exposures, firm commitments or anticipated transactions, all with a maturity period of less than one year.
Foreign Currency Exchange Contracts at November 30, 2006
| Currency sold | Currency received |
Notional value |
Average contractual exchange rate (USD/fc) |
Fair value |
||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Euro | USD | $ | 10.9 | $ | 1.30 | $ | (.2 | ) | ||
| British pound sterling | USD | 10.5 | 1.88 | (.4 | ) | |||||
| Canadian dollar | USD | 23.5 | .90 | .5 | ||||||
We have a number of smaller contracts with an aggregate notional value of $3.0 million to purchase or sell various other currencies, such as the Australian dollar and the Japanese yen as of November 30, 2006. The aggregate fair value of these contracts was $(0.1) million at November 30, 2006.
At November 30, 2005, we had foreign currency exchange contracts for the Euro, British pound sterling, Canadian dollar, Australian dollar, Japanese yen and Singapore dollar with a notional value of $24.0 million, all of which matured in 2006. The fair value of these contracts was $(0.6) million at November 30, 2005.
Contracts with durations which are less than 5 days and used for short-term cash flow funding are not included in the notes or table above.
Interest Rate Risk - Our policy is to manage interest rate risk by entering into both fixed and variable rate debt arrangements. We also use interest rate swaps to minimize worldwide financing costs and to achieve a desired mix of fixed and variable rate debt. The table that follows provides principal cash flows and related interest rates, excluding the effect of interest rate swaps and the amortization of any discounts or fees, by fiscal year of maturity at November 30, 2006 and 2005. For foreign currency-denominated debt, the information is presented in U.S. dollar equivalents. Variable interest rates are based on the weighted-average rates of the portfolio at the end of the year presented.
Year of Maturity at November 30, 2006
| 2007 | 2008 | 2009 | 2010 | Thereafter | Total | Fair value | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Debt Fixed rate |
$ | .5 | $ | 150.4 | $ | 50.4 | $ | .4 | $ | 355.0 | $ | 556.7 | $ | 572.9 | |||||||
| Average interest rate | 2.26 | % | 6.78 | % | 3.32 | % | 0.00 | % | 5.80 | % | |||||||||||
| Variable rate | $ | 80.9 | - | - | $ | 14.0 | - | $ | 94.9 | $ | 94.9 | ||||||||||
| Average interest rate | 5.51 | % | 5.77 | % | |||||||||||||||||
Year of Maturity at November 30, 2005
| 2006 | 2007 | 2008 | 2009 | Thereafter | Total | Fair value | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Debt Fixed rate |
$ | .6 | $ | .4 | $ | 150.3 | $ | 50.3 | $ | 252.3 | $ | 453.9 | $ | 474.3 | |||||||
| Average interest rate | 3.16 | % | 1.70 | % | 6.79 | % | 3.33 | % | 6.31 | % | |||||||||||
| Variable rate | $ | 105.5 | $ | .1 | - | - | $ | 14.0 | $ | 119.6 | $ | 119.6 | |||||||||
| Average interest rate | 4.01 | % | 6.74 | % | 4.83 | % | |||||||||||||||
The table above displays the debt by the terms of the original debt instrument without consideration of interest rate swaps and any loan discounts or origination fees. These swaps have the following effects. The variable interest rate on $75 million of commercial paper is hedged by interest rate swaps through 2011. Net interest payments on the $75 million will be fixed at 6.35% during this period. Interest rate swaps, settled upon the issuance of the medium-term notes maturing in 2006 and 2008, effectively fixed the interest rate on $294 million of the notes at a weighted-average fixed rate of 7.62%. The fixed interest rate on $100 million of the 6.4% medium-term notes due in 2006 was effectively converted to a variable rate by interest rate swaps through 2006. Net interest payments on these notes were based on LIBOR plus 3.595% during this period. The fixed interest rate on $50 million of 3.35% medium-term notes due in 2009 is effectively converted to a variable rate by interest rate swaps through 2009. Net interest payments are based on LIBOR minus 0.21% during this period. The fixed interest rate on $100 million of the 5.20% medium-term note due in 2015 is effectively converted to a variable rate by interest rate swaps through 2015. Net interest payments are based on LIBOR minus 0.05% during this period.