UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 29, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 001-14920

 McCORMICK & COMPANY, INCORPORATED

(Exact name of registrant as specified in its charter)

Maryland	52-0408290
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

24 Schilling Road, Suite 1,
Hunt Valley,	MD	21031
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code    (410) 771-7301

Securities registered pursuant to Section 12(b) of the Act:

	Trading
Title of each class	Symbol(s)	Name of each exchange on which registered
Common Stock	MKC-V	New York Stock Exchange
Common Stock Non-Voting	MKC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days.    Yes   ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

	Shares Outstanding
	February 29, 2020
Common Stock	9,263,314
Common Stock Non-Voting	123,640,577

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION			4
	ITEM 1	FINANCIAL STATEMENTS	4
	ITEM 2	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	24
	ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	38
	ITEM 4	CONTROLS AND PROCEDURES	38
PART II - OTHER INFORMATION			39
	ITEM 1	LEGAL PROCEEDINGS	39
	ITEM 1a	RISK FACTORS	39
	ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	40
	ITEM 3	DEFAULTS UPON SENIOR SECURITIES	40
	ITEM 4	MINE SAFETY DISCLOSURES	40
	ITEM 5	OTHER INFORMATION	41
	ITEM 6	EXHIBITS	41

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

McCORMICK & COMPANY, INCORPORATED

CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)

(in millions except per share amounts)

	Three months ended
	February 29, 2020		February 28, 2019
Net sales	$	1,212.0	$	1,231.5
Cost of goods sold	742.1		764.6
Gross profit	469.9		466.9
Selling, general and administrative expense	274.7		267.9
Special charges	1.0		2.1
Operating income	194.2		196.9
Interest expense	35.3		43.0
Other income, net	5.5		6.1
Income from consolidated operations before income taxes	164.4		160.0
Income tax expense	30.1		22.1
Net income from consolidated operations	134.3		137.9
Income from unconsolidated operations	10.4		10.1
Net income	$	144.7	$	148.0
Earnings per share – basic	$	1.09	$	1.12
Average shares outstanding – basic	133.0		132.2
Earnings per share – diluted	$	1.08	$	1.11
Average shares outstanding – diluted	134.3		133.8
Cash dividends paid per share – voting	$	0.62	$	0.57
Cash dividends paid per share – non-voting	$	0.62	$	0.57

See notes to condensed consolidated financial statements (unaudited).

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McCORMICK & COMPANY, INCORPORATED

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

(in millions)

	Three months ended
	February 29, 2020		February 28, 2019
Net income	$	144.7	$	148.0
Net income attributable to non-controlling interest	0.9		0.5
Other comprehensive income (loss):
Unrealized components of pension and postretirement plans	2.4		(2.4)
Currency translation adjustments	(20.0)		36.7
Change in derivative financial instruments	(0.7)		0.1
Deferred taxes	(1.7)		(2.0)
Total other comprehensive income (loss)	(20.0)		32.4
Comprehensive income	$	125.6	$	180.9

See notes to condensed consolidated financial statements (unaudited).

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McCORMICK & COMPANY, INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEET

(in millions)

	February 29, 2020		February 28, 2019		November 30, 2019
	(unaudited)		(unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	170.8	$	102.3	$	155.4
Trade accounts receivable, net	409.9		435.7		502.9
Inventories, net
Finished products	449.5		415.9		413.3
Raw materials and work-in-process	386.1		391.4		387.9
	835.6		807.3		801.2
Prepaid expenses and other current assets	108.1		82.7		90.7
Total current assets	1,524.4		1,428.0		1,550.2
Property, plant and equipment, net	936.0		934.6		952.6
Goodwill	4,496.9		4,538.5		4,505.2
Intangible assets, net	2,840.1		2,869.2		2,847.0
Other long-term assets	694.3		457.6		507.1
Total assets	$	10,491.7	$	10,227.9	$	10,362.1
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Short-term borrowings	$	725.0	$	603.4	$	600.7
Current portion of long-term debt	88.9		85.8		97.7
Trade accounts payable	789.4		673.8		846.9
Other accrued liabilities	469.1		466.1		609.1
Total current liabilities	2,072.4		1,829.1		2,154.4
Long-term debt	3,627.9		4,034.0		3,625.8
Deferred taxes	699.4		704.4		697.6
Other long-term liabilities	517.4		317.7		427.6
Total liabilities	6,917.1		6,885.2		6,905.4
Shareholders’ Equity
Common stock	450.8		404.4		447.6
Common stock non-voting	1,450.7		1,376.1		1,441.0
Retained earnings	2,179.9		1,877.9		2,055.8
Accumulated other comprehensive loss	(519.5)		(327.4)		(500.2)
Total McCormick shareholders' equity	3,561.9		3,331.0		3,444.2
Non-controlling interests	12.7		11.7		12.5
Total shareholders’ equity	3,574.6		3,342.7		3,456.7
Total liabilities and shareholders’ equity	$	10,491.7	$	10,227.9	$	10,362.1

See notes to condensed consolidated financial statements (unaudited).

6

McCORMICK & COMPANY, INCORPORATED

CONDENSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)

(in millions)

	Three months ended
	February 29, 2020		February 28, 2019
Operating activities
Net income	$	144.7	$	148.0
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation and amortization	41.9		40.3
Stock-based compensation	6.4		6.7
Income from unconsolidated operations	(10.4)		(10.1)
Changes in operating assets and liabilities	(148.9)		(92.7)
Dividends from unconsolidated affiliates	11.1		11.4
Net cash flow provided by operating activities	44.8		103.6
Investing activities
Capital expenditures (including software)	(38.5)		(25.4)
Other investing activities	0.2		0.1
Net cash flow used in investing activities	(38.3)		(25.3)
Financing activities
Short-term borrowings, net	125.2		44.3
Long-term debt repayments	(20.5)		(21.5)
Proceeds from exercised stock options	7.7		6.7
Taxes withheld and paid on employee stock awards	(3.0)		(3.1)
Common stock acquired by purchase	(19.9)		(30.5)
Dividends paid	(82.4)		(75.3)
Net cash flow provided by (used in) financing activities	7.1		(79.4)
Effect of exchange rate changes on cash and cash equivalents	1.8		6.8
Increase in cash and cash equivalents	15.4		5.7
Cash and cash equivalents at beginning of period	155.4		96.6
Cash and cash equivalents at end of period	$	170.8	$	102.3

See notes to condensed consolidated financial statements (unaudited).

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McCORMICK & COMPANY, INCORPORATED

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

(in millions)

(millions)	Common Stock Shares	Common Stock Non-Voting Shares	Common Stock Amount		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Non-controlling Interests		Total Shareholders’ Equity
Three months ended February 28, 2019
Balance, November 30, 2018	9.6	122.5	$	1,770.6	$	1,760.2	$	(359.9)	$	11.3	$	3,182.2
Net income			—		148.0		—		—		148.0
Net income attributable to non-controlling interest			—		—		—		0.5		0.5
Other comprehensive income (loss), net of tax			—		—		32.5		(0.1)		32.4
Stock-based compensation			6.7		—		—		—		6.7
Shares purchased and retired	—	(0.2)	(3.9)		(30.3)		—		—		(34.2)
Shares issued	0.1	—	7.1		—		—		—		7.1
Equal exchange	(0.1)	0.1	—		—		—		—		—
Balance, February 28, 2019	9.6	122.4	$	1,780.5	$	1,877.9	$	(327.4)	$	11.7	$	3,342.7
Three months ended February 29, 2020
Balance, November 30, 2019	9.3	123.6	$	1,888.6	$	2,055.8	$	(500.2)	$	12.5	$	3,456.7
Net income			—		144.7		—		—		144.7
Net income attributable to non-controlling interest			—		—		—		0.9		0.9
Other comprehensive loss, net of tax			—		—		(19.3)		(0.7)		(20.0)
Stock-based compensation			6.4		—		—		—		6.4
Shares purchased and retired	—	(0.1)	(2.7)		(20.6)		—		—		(23.3)
Shares issued	0.1	—	9.2		—		—		—		9.2
Equal exchange	(0.1)	0.1	—		—		—		—		—
Balance, February 29, 2020	9.3	123.6	$	1,901.5	$	2,179.9	$	(519.5)	$	12.7	$	3,574.6

See notes to condensed consolidated financial statements (unaudited).

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McCORMICK & COMPANY, INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and notes required by United States generally accepted accounting principles (U.S. GAAP) for complete financial statements. In our opinion, the accompanying condensed consolidated financial statements contain all adjustments, which are of a normal and recurring nature, necessary to present fairly the financial position and the results of operations for the interim periods presented. The consolidated balance sheet as of February 28, 2019 includes a reclassification of $41.9 million of capitalized software from property, plant and equipment, net, to other long-term assets to conform to our current presentation.

The results of consolidated operations for the three-month period ended February 29, 2020 are not necessarily indicative of the results to be expected for the full year. Historically, our net sales, net income and cash flow from operations are lower in the first half of the fiscal year and increase in the second half. The historical increase in net sales, net income and cash flow from operations in the second half of the year has largely been due to the consumer business cycle in the U.S., where customers typically purchase more products in the fourth quarter due to the Thanksgiving and Christmas holiday seasons.

For further information, refer to the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended November 30, 2019.

Accounting Pronouncements Adopted in 2020

As more fully described in note 1 of notes to consolidated financial statements included in our Form 10-K for the year ended November 30, 2019, we were required to adopt the new accounting standard for leases, Accounting Standards Codification Topic 842 Leases (ASC 842), as of December 1, 2019 and we elected to do so using a modified retrospective transition method. That modified retrospective transition method allowed us to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment to retained earnings in the opening balance sheet in the period of adoption without restating prior periods. ASC 842 revised prior practice related to accounting for leases under Accounting Standards Codification Topic 840 Leases (ASC 840) for both lessees and lessors and requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use ("ROU") assets. Under ASC 842, the lease liability is equal to the present value of lease payments, and the right-of-use asset is based on the lease liability, subject to adjustments, such as for deferred rent and initial direct costs. For income statement purposes, ASC 842 retains a dual model similar to ASC 840, requiring leases to be classified as either operating or finance. For lessees, operating leases will result in straight-line expense (similar to prior accounting by lessees for operating leases under ASC 840) while finance leases will result in a front-loaded expense pattern (similar to prior accounting by lessees for capital leases under ASC 840).

We elected the package of practical expedients permitted under the transition guidance, which, among other things, allows us to carryforward the historical lease classification. In addition, we made accounting policy elections to combine the lease and non-lease components for all asset categories other than real estate. We also made elections to exclude from balance sheet reporting those leases with initial terms of 12 months or less ("short-term leases").

Adoption of the new standard resulted in the recording of operating lease ROU assets and lease liabilities of $136.5 million and $140.0 million, respectively, with the difference due to prepaid and deferred rent that were reclassified to the ROU asset value. No cumulative-effect adjustment to opening retained earnings was required as of December 1, 2019. The standard did not materially affect our consolidated net income or cash flows for the three-month period ended February 29, 2020. See note 4 for further details.

Recently Issued Accounting Pronouncements — Pending Adoption

In January 2017, the FASB issued ASU No. 2017-04 Intangibles—Goodwill and Other Topics (Topic 350)—Simplifying the Test for Goodwill Impairment. This guidance eliminates the requirement to calculate the implied fair value of goodwill of a reporting unit to measure a goodwill impairment charge. Instead, a company will record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value. The new standard will be effective for the first quarter of our fiscal year ending November 30, 2021. Early adoption is permitted for all entities for annual and interim goodwill impairment

9

testing dates after January 1, 2017. While we are still evaluating the timing of adoption, we currently do not expect this guidance to have a material impact on our financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which institutes a new model for recognizing credit losses on financial instruments that are not measured at fair value. The ASU is effective for the first quarter of our fiscal year ending November 30, 2021, and we anticipate that it will primarily impact our credit losses recognized for trade accounts receivable. While we are currently evaluating the effect that ASU No. 2016-13 will have on our consolidated financial statements, we do not expect this guidance to have a material impact. 

2.   SPECIAL CHARGES

In our consolidated income statement, we include a separate line item captioned “Special charges” in arriving at our consolidated operating income. Special charges consist of expenses associated with certain actions undertaken by the Company to reduce fixed costs, simplify or improve processes, and improve our competitiveness and are of such significance in terms of both up-front costs and organizational/structural impact to require advance approval by our Management Committee, comprised of our senior management, including our Chairman, President and Chief Executive Officer. Upon presentation of any such proposed action (generally including details with respect to estimated costs, which typically consist principally of employee severance and related benefits, together with ancillary costs associated with the action that may include a non-cash component or a component which relates to inventory adjustments that are included in cost of goods sold; impacted employees or operations; expected timing; and expected savings) to the Management Committee and the Committee’s advance approval, expenses associated with the approved action are classified as special charges upon recognition and monitored on an on-going basis through completion.

The following is a summary of special charges recognized in the three months ended February 29, 2020 and February 28, 2019 (in millions):

	2020		2019
Employee severance and related benefits	$	0.3	$	0.6
Other costs	0.7		1.5
Total	$	1.0	$	2.1

We continue to evaluate changes to our organization structure to enable us to reduce fixed costs, simplify or improve processes, and improve our competitiveness.

In 2017, our Management Committee approved a multi-year initiative during which we expect to execute significant changes to our global processes, capabilities and operating model to provide a scalable platform for future growth. We expect this initiative to enable us to accelerate our ability to work globally and cross-functionally by aligning and simplifying processes throughout McCormick, in part building upon our current shared services foundation and expanding the end-to-end processes presently under that foundation. We expect this initiative, which we refer to as Global Enablement ("GE"), to enable this scalable platform for future growth while reducing costs, enabling faster decision making, increasing agility and creating capacity within our organization.

While we are continuing to fully develop the details of our GE operating model, we expect the cost of the GE initiative—to be recognized as “Special charges” in our consolidated income statement over its expected multi-year course—to range from approximately $60 million to $65 million. Of that $60 million to $65 million, we estimate that approximately sixty percent will be attributable to cash payments associated with the related costs of GE implementation and transition, including outside consulting and other costs, and approximately forty percent will be attributable to severance and related benefit payments, all directly related to the initiative. We incurred $1.0 million of special charges associated with our GE initiative during the three months ended February 29, 2020. Prior to this, through November 30, 2019, we have spent a cumulative total of $38.3 million on this initiative.

During the three months ended February 29, 2020, we recorded $1.0 million of special charges, all of which related to our GE initiative, including $0.5 million of third-party expenses, $0.3 million related to severance and related benefits, and $0.2 million related to other costs.

During the three months ended February 28, 2019, we recorded $2.1 million of special charges, consisting primarily of costs related to our GE initiative. Of the $2.1 million in special charges recognized in the first quarter of 2019 related to our GE

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initiative, $1.0 million related to third party expenses, $0.6 million related to employee severance and related benefits, and $0.5 million related to other costs.

As of February 29, 2020, reserves associated with special charges, which are expected to be paid during the remainder of fiscal year 2020, are included in accounts payable and other accrued liabilities in our consolidated balance sheet.

The following is a breakdown by business segments of special charges for the three months ended February 29, 2020 and February 28, 2019 (in millions):

	2020		2019
Consumer segment	$	0.6	$	1.5
Flavor solutions segment	0.4		0.6
Total special charges	$	1.0	$	2.1

3. FINANCING ARRANGEMENTS AND FINANCIAL INSTRUMENTS

During each of the three months ended February 29, 2020 and February 28, 2019, we repaid $18.8 million (representing the required quarterly principal payment) of the five-year term loan due August 17, 2022.

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. Management assesses foreign currency risk based on transactional cash flows and translational volatility and may enter into forward contract and currency swaps 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 29, 2020, we had foreign currency exchange contracts to purchase or sell $517.1 million of foreign currencies as compared to $489.2 million at November 30, 2019. 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 29, 2020 have durations of less than 12 months, including $194.6 million of notional contracts that have durations of less than seven days 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. 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 enter into fair value foreign currency exchange contracts to manage exposure to currency fluctuations in certain intercompany loans between subsidiaries. At February 29, 2020, the notional value of these contracts was $400.8 million. During the three months ended February 29, 2020 and February 28, 2019, we recognized (losses) gains of $(2.2) million and $1.7 million, respectively, on the change in fair value of these contracts and gains (losses) of $2.0 million and $(1.8) million, respectively, on the change in the currency component of the underlying loans. Both the gains and the losses were recognized in our consolidated income statement as other income, net.

We also utilize cross currency interest rate swap contracts that are considered net investment hedges. As of February 29, 2020, we had cross currency interest rate swap contracts of (i) $250 million notional value to receive $250 million at three-month U.S.

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LIBOR plus 0.685% and pay £194.1 million at three-month GBP LIBOR plus 0.740% and (ii) £194.1 million notional value to receive £194.1 million at three-month GBP LIBOR plus 0.740% and pay €221.8 million at three-month Euro EURIBOR plus 0.808%. These cross currency interest rate swap contracts expire in August 2027.

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 swap agreements to minimize worldwide financing costs and to achieve a desired mix of variable and fixed rate debt.

As of February 29, 2020, we have outstanding interest rate swap contracts for a notional amount of $350 million. Those interest rate swap contracts include a $100 million notional value of interest rate swap contracts, where we receive interest at 3.25% and pay a variable rate of interest based on three-month LIBOR plus 1.22%, which expire in November 2025, and are designated as fair value hedges of the changes in fair value of $100 million of the $250 million 3.25% medium-term notes due 2025. We also have $250 million notional interest rate swap contracts where we receive interest at 3.40% and pay a variable rate of interest based on three-month LIBOR plus 0.685%, which expire in August 2027, and are designated as fair value hedges of the changes in fair value of $250 million of the $750 million 3.40% term notes due 2027. Any realized gain or loss on these swap contracts was offset by a corresponding increase or decrease of the value of the hedged debt. Hedge ineffectiveness was not material.

All derivatives are recognized at fair value in the balance sheet and recorded in either other current assets, other long-term assets, other accrued liabilities or other long-term liabilities, depending upon their nature and maturity.

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The following table discloses the notional amount and fair values of derivative instruments on our balance sheet (in millions):

As of February 29, 2020	Asset Derivatives					Liability Derivatives
	Balance sheet location	Notional amount		Fair value		Balance sheet location	Notional amount		Fair value
Interest rate contracts	Other current assets / Other long-term assets	$	350.0	$	34.2	Other accrued liabilities	$	—	$	—
Foreign exchange contracts	Other current assets	244.1		5.6		Other accrued liabilities	273.0		7.6
Cross currency contracts	Other current assets / Other long-term assets	247.3		2.6		Other long-term liabilities	243.9		1.0
Total				$	42.4				$	8.6
As of February 28, 2019	Asset Derivatives					Liability Derivatives
	Balance sheet location	Notional amount		Fair value		Balance sheet location	Notional amount		Fair value
Interest rate contracts	Other current assets / Other long-term assets	$	250.0	$	0.1	Other accrued liabilities	$	100.0	$	4.0
Foreign exchange contracts	Other current assets	343.0		3.2		Other accrued liabilities	204.8		4.8
Cross currency contracts	Other current assets / Other long-term assets	—		—		Other long-term liabilities	509.8		9.2
Total				$	3.3				$	18.0
As of November 30, 2019	Asset Derivatives					Liability Derivatives
	Balance sheet location	Notional amount		Fair value		Balance sheet location	Notional amount		Fair value
Interest rate contracts	Other current assets / Other long-term assets	$	350.0	$	20.9	Other accrued liabilities	$	—	$	—
Foreign exchange contracts	Other current assets	293.1		3.3		Other accrued liabilities	196.1		3.6
Cross currency contracts	Other current assets / Other long-term assets	495.5		3.2		Other long-term liabilities	—		—
Total				$	27.4				$	3.6

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The following tables disclose the impact of derivative instruments on our other comprehensive income ("OCI"), accumulated other comprehensive income ("AOCI") and our consolidated income statement for the three-month periods ended February 29, 2020 and February 28, 2019 (in millions):

Fair Value Hedges
Derivative	Income statement location	Income (expense)
		Three months ended February 29, 2020		Three months ended February 28, 2019
Interest rate contracts	Interest expense	$	0.5	$	0.2

Three months ended	Income statement location	Gain (loss) recognized in income					Income statement location	Gain (loss) recognized in income
Derivative		February 29, 2020		February 28, 2019		Hedged item		February 29, 2020		February 28, 2019
Foreign exchange contracts	Other income, net	$	(2.2)	$	1.7	Intercompany loans	Other income, net	$	2.0	$	(1.8)

Cash Flow Hedges
Three months ended
Derivative	Gain or (loss) recognized in OCI				Income statement location	Gain or (loss) reclassified from AOCI
	February 29, 2020		February 28, 2019			February 29, 2020		February 28, 2019
Interest rate contracts	$	—	$	—	Interest expense	$	0.1	$	0.1
Foreign exchange contracts	0.6		(1.2)		Cost of goods sold	0.4		0.3
Total	$	0.6	$	(1.2)		$	0.5	$	0.4

For all cash flow and settled interest rate fair value hedge derivatives, the net amount of accumulated other comprehensive income (loss) expected to be reclassified in the next 12 months is $0.3 million as an increase to earnings.

Net Investment Hedges
Three months ended
Derivative	Gain or (loss) recognized in OCI				Income statement location	Gain or (loss) excluded from the assessment of hedge effectiveness
	February 29, 2020		February 28, 2019			February 29, 2020		February 28, 2019
Cross currency contracts	$	0.2	$	(9.5)	Interest expense	$	1.3	$	0.3

For all net investment hedges, no amounts have been reclassified out of accumulated other comprehensive income (loss). The amounts noted in the tables above for OCI do not include any adjustments for the impact of deferred income taxes.

4. LEASES

Our lease portfolio primarily consists of (i) certain real estate, including those related to a number of administrative, distribution and manufacturing locations; (ii) certain machinery and equipment, including forklifts; and (iii) automobiles, delivery trucks and other vehicles, including an airplane. When our real estate lease arrangements include lease and non-lease components (for example, common area maintenance), we account for each component separately, based on their relative standalone prices. For all other asset categories, we combine lease components and non-lease components into a single lease commitment. We determine if an agreement is a lease or contains a lease at inception. Leases with an initial term of 12 months or less (short-term leases) are not recorded on the balance sheet.

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ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are based on the estimated present value of lease payments over the lease term and are recognized at the lease commencement date.

As most of our leases do not provide an implicit borrowing rate, we use our estimated incremental borrowing rate in determining the present value of lease payments. The estimated incremental borrowing rate is derived from information available at the lease commencement date.

Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. A limited number of our lease agreements include rental payments that are adjusted periodically based on a market rate or index. Our lease agreements generally do not contain residual value guarantees or material restrictive covenants.

The components of lease expense for the three months ended February 29, 2020 were as follows (in millions):

Operating lease cost	$	10.1
Finance lease cost:
Amortization of ROU assets	2.2
Interest on lease liabilities	1.1
Net lease cost (1)	$	13.4
(1) Net lease cost does not include short-term leases, variable lease costs or sublease income, all of which are immaterial.

Supplemental balance sheet information related to leases as of February 29, 2020 were as follows (in millions):

Leases	Classification
Assets
Operating lease ROU assets	Other long-term assets	$	128.5
Finance lease ROU assets	Property, plant and equipment, net	127.5
Total leased assets		$	256.0
Liabilities
Current
Operating	Other accrued liabilities	$	34.2
Finance	Current portion of long-term debt	7.2
Non-current
Operating	Other long-term liabilities	97.8
Finance	Long-term debt	130.7
Total lease liabilities		$	269.9

Information regarding our lease terms and discount rates as of February 29, 2020 were as follows:

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	Weighted-average remaining lease term (years)	Weighted-average discount rate
Operating leases	5.8	2.2	%
Finance leases	14.7	3.3	%

The future maturity of our lease liabilities as of February 29, 2020 were as follows (in millions):

	Operating leases		Finance leases		Total
2020 (remainder of year)	$	28.4	$	8.5	$	36.9
2021	31.6		11.4		43.0
2022	23.2		11.4		34.6
2023	17.2		11.4		28.6
2024	10.9		11.5		22.4
Thereafter	33.8		125.9		159.7
Total lease payments	145.1		180.1		325.2
Less: Imputed interest	13.1		42.2		55.3
Total lease liabilities	$	132.0	$	137.9	$	269.9

Supplemental cash flow and other information related to leases for the three months ended February 29, 2020 were as follows (in million):

Cash paid for amounts included in the measurements of lease liabilities:
Operating cash flows used for operating leases	$	10.0
Operating cash flows used for finance leases	1.1
Financing cash flows used for finance leases	1.7
ROU assets obtained in exchange for lease liabilities
Operating leases	$	1.3

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5.FAIR VALUE MEASUREMENTS

Fair value can be measured using valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). Accounting standards utilize a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

•Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

•Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

At February 29, 2020, February 28, 2019 and November 30, 2019, we had no financial assets or liabilities that were subject to a level 3 fair value measurement. Our population of financial assets and liabilities subject to fair value measurements on a recurring basis are as follows (in millions):

			February 29, 2020
	Fair Value		Level 1		Level 2
Assets
Cash and cash equivalents	$	170.8	$	170.8	$	—
Insurance contracts	120.4		—		120.4
Bonds and other long-term investments	0.7		0.7		—
Interest rate derivatives	34.2		—		34.2
Foreign currency derivatives	5.6		—		5.6
Cross currency contracts	2.6		—		2.6
Total	$	334.3	$	171.5	$	162.8
Liabilities
Foreign currency derivatives	$	7.6	$	—	$	7.6
Cross currency contracts	1.0