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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 August 31, 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)

Maryland52-0408290
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
24 Schilling Road, Suite 1,
Hunt Valley, MD21031
(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 classSymbol(s)Name of each exchange on which registered
Common StockMKC-VNew York Stock Exchange
Common Stock Non-VotingMKCNew 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 such 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, a smaller reporting company, or an emerging growth 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 FilerSmaller 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
August 31, 2020
Common Stock9,063,590 
Common Stock Non-Voting124,347,973 




TABLE OF CONTENTS
 
PART I – FINANCIAL INFORMATION
ITEM 1
ITEM 2
ITEM 3
ITEM 4
ITEM 1
ITEM 1a
ITEM 2
ITEM 3DEFAULTS UPON SENIOR SECURITIES
ITEM 4
ITEM 5OTHER INFORMATION
ITEM 6

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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 August 31,Nine months ended August 31,
 2020201920202019
Net sales$1,430.3 $1,329.2 $4,043.4 $3,862.6 
Cost of goods sold840.0 789.3 2,403.7 2,347.3 
Gross profit590.3 539.9 1,639.7 1,515.3 
Selling, general and administrative expense317.2 278.7 911.1 839.9 
Special charges 0.1 7.7 4.0 16.9 
Operating income273.0 253.5 724.6 658.5 
Interest expense33.5 41.3 103.2 126.7 
Other income, net3.9 6.9 12.5 19.3 
Income from consolidated operations before income taxes243.4 219.1 633.9 551.1 
Income tax expense46.9 36.8 117.4 91.0 
Net income from consolidated operations196.5 182.3 516.5 460.1 
Income from unconsolidated operations9.6 9.6 30.2 29.2 
Net income$206.1 $191.9 $546.7 $489.3 
Earnings per share – basic$1.55 $1.45 $4.11 $3.69 
Average shares outstanding – basic133.3 132.8 133.1 132.5 
Earnings per share – diluted$1.53 $1.43 $4.06 $3.65 
Average shares outstanding – diluted134.8 134.2 134.5 134.0 
Cash dividends paid per share – voting and non-voting$0.62 $0.57 $1.86 $1.71 
Cash dividends declared per share – voting and non-voting$0.62 $0.57 $1.24 $1.14 
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 August 31,Nine months ended August 31,
 2020201920202019
Net income$206.1 $191.9 $546.7 $489.3 
Net income attributable to non-controlling interest1.6 0.3 3.1 1.5 
Other comprehensive income (loss):
Unrealized components of pension and postretirement plans(2.1)(0.7)3.6 (2.8)
Currency translation adjustments146.7 (44.9)65.8 (66.8)
Change in derivative financial instruments(0.7)(0.1)0.2 (0.1)
Deferred taxes3.2  (1.6)0.4 
Total other comprehensive income (loss)147.1 (45.7)68.0 (69.3)
Comprehensive income$354.8 $146.5 $617.8 $421.5 
See notes to condensed consolidated financial statements (unaudited).

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McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
 
August 31,
2020
August 31,
2019
November 30,
2019
 (unaudited)(unaudited) 
ASSETS
Current Assets
Cash and cash equivalents$221.0 $162.9 $155.4 
Trade accounts receivable, net496.5 494.6 502.9 
Inventories, net
Finished products437.5 442.5 413.3 
Raw materials and work-in-process504.6 404.4 387.9 
942.1 846.9 801.2 
Prepaid expenses and other current assets100.0 85.0 90.7 
Total current assets1,759.6 1,589.4 1,550.2 
Property, plant and equipment, net960.9 910.0 952.6 
Goodwill4,574.4 4,496.5 4,505.2 
Intangible assets, net2,843.0 2,850.3 2,847.0 
Other long-term assets722.8 519.8 507.1 
Total assets$10,860.7 $10,366.0 $10,362.1 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Short-term borrowings$167.8 $683.6 $600.7 
Current portion of long-term debt263.7 119.3 97.7 
Trade accounts payable902.8 783.1 846.9 
Other accrued liabilities619.2 444.4 609.1 
Total current liabilities1,953.5 2,030.4 2,154.4 
Long-term debt3,737.5 3,843.1 3,625.8 
Deferred taxes704.4 701.2 697.6 
Other long-term liabilities519.3 310.7 427.6 
Total liabilities6,914.7 6,885.4 6,905.4 
Shareholders’ Equity
Common stock480.5 441.3 447.6 
Common stock non-voting1,491.1 1,435.9 1,441.0 
Retained earnings2,391.0 2,019.8 2,055.8 
Accumulated other comprehensive loss(429.9)(428.3)(500.2)
Total McCormick shareholders' equity3,932.7 3,468.7 3,444.2 
Non-controlling interests13.3 11.9 12.5 
Total shareholders’ equity3,946.0 3,480.6 3,456.7 
Total liabilities and shareholders’ equity$10,860.7 $10,366.0 $10,362.1 
See notes to condensed consolidated financial statements (unaudited).

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McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
(in millions)
 
Nine months ended August 31,
 20202019
Operating activities
Net income$546.7 $489.3 
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation and amortization123.9 118.0 
Stock-based compensation37.8 30.6 
Income from unconsolidated operations(30.2)(29.2)
Changes in operating assets and liabilities(74.9)(139.8)
Dividends from unconsolidated affiliates23.4 25.7 
Net cash flow provided by operating activities626.7 494.6 
Investing activities
Capital expenditures (including software)(145.6)(107.1)
Other investing activities2.3 2.6 
Net cash flow used in investing activities(143.3)(104.5)
Financing activities
Short-term borrowings, net(432.0)124.4 
Long-term debt borrowings 506.4  
Payment of debt issuance costs(1.1) 
Long-term debt repayments(256.0)(214.6)
Proceeds from exercised stock options54.1 84.6 
Taxes withheld and paid on employee stock awards(10.7)(10.3)
Common stock acquired by purchase(46.0)(76.9)
Dividends paid(247.4)(226.4)
Net cash flow used in financing activities(432.7)(319.2)
Effect of exchange rate changes on cash and cash equivalents14.9 (4.6)
Increase in cash and cash equivalents65.6 66.3 
Cash and cash equivalents at beginning of period155.4 96.6 
Cash and cash equivalents at end of period$221.0 $162.9 
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 SharesCommon Stock
Non-Voting Shares
Common Stock AmountRetained EarningsAccumulated Other Comprehensive (Loss) IncomeNon-controlling InterestsTotal Shareholders’ Equity
Three months ended August 31, 2020
Balance, May 31, 20209.3 123.9 $1,938.9 $2,288.7 $(577.7)$12.4 $3,662.3 
Net income 206.1   206.1 
Net income attributable to non-controlling interest   1.6 1.6 
Other comprehensive loss, net of tax  147.8 (0.7)147.1 
Dividends (82.6)  (82.6)
Stock-based compensation10.7    10.7 
Shares purchased and retired(0.1) (7.4)(21.2)  (28.6)
Shares issued0.3  29.4    29.4 
Equal exchange(0.4)0.4      
Balance, August 31, 20209.1 124.3 $1,971.6 $2,391.0 $(429.9)$13.3 $3,946.0 
Nine months ended August 31, 2020
Balance, November 30, 20199.3 123.6 $1,888.6 $2,055.8 $(500.2)$12.5 $3,456.7 
Net income 546.7   546.7 
Net income attributable to non-controlling interest   3.1 3.1 
Other comprehensive loss, net of tax  70.3 (2.3)68.0 
Dividends (165.0)  (165.0)
Stock-based compensation37.8    37.8 
Shares purchased and retired(0.2)(0.1)(12.6)(46.5)  (59.1)
Shares issued0.8  57.8    57.8 
Equal exchange(0.8)0.8      
Balance, August 31, 20209.1 124.3 $1,971.6 $2,391.0 $(429.9)$13.3 $3,946.0 
Three months ended August 31, 2019
Balance, May 31, 20199.5 123.0 $1,835.0 $1,918.6 $(382.7)$11.7 $3,382.6 
Net income 191.9   191.9 
Net income attributable to non-controlling interest   0.3 0.3 
Other comprehensive loss, net of tax  (45.6)(0.1)(45.7)
Dividends (75.6)  (75.6)
Stock-based compensation7.8    7.8 
Shares purchased and retired(0.1) (3.2)(15.1)  (18.3)
Shares issued0.5  37.6    37.6 
Equal exchange(0.6)0.6      
Balance, August 31, 20199.3 123.6 $1,877.2 $2,019.8 $(428.3)$11.9 $3,480.6 
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Nine months ended August 31, 2019
Balance, November 30, 20189.6 122.5 $1,770.6 $1,760.2 $(359.9)$11.3 $3,182.2 
Net income 489.3   489.3 
Net income attributable to non-controlling interest   1.5 1.5 
Other comprehensive loss, net of tax  (68.4)(0.9)(69.3)
Dividends (151.1)  (151.1)
Stock-based compensation30.6    30.6 
Shares purchased and retired(0.2)(0.4)(13.3)(78.6)  (91.9)
Shares issued1.4  89.3    89.3 
Equal exchange(1.5)1.5      
Balance, August 31, 20199.3 123.6 $1,877.2 $2,019.8 $(428.3)$11.9 $3,480.6 
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 August 31, 2019 includes a reclassification of $59.8 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 nine-month period ended August 31, 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 have been lower in the first half of the fiscal year and higher 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.
Impact of COVID-19
On March 11, 2020, the World Health Organization designated a new coronavirus (“COVID-19”) as a global pandemic. Governments around the world mandated orders to slow the transmission of the virus that included shelter-in-place orders, quarantines, and significant restrictions on travel, as well as work restrictions that prohibited many employees from going to work. The extent and nature of government actions have varied during the nine months ended August 31, 2020 based upon the then-current extent and severity of the COVID-19 pandemic within their respective countries and localities. Uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets.
We are partnering with our customers to react to consumer demand changes associated with COVID-19. The effects of COVID-19 on consumer behavior have, on a net basis, favorably impacted the operating results of our consumer segment and unfavorably impacted the operating results of our flavor solutions segment in the three months and nine months ended August 31, 2020. The impact of COVID-19 on our consumer segment during those periods resulted in a significant increase in at-home consumption and related demand for our products. The unfavorable impact on our flavor solutions segment during the same periods was principally attributable to decreased demand from certain customers that were affected by government mandates related to COVID-19 in many of our markets. Those measures included closures of dine-in restaurants or restrictions on the operations of those restaurants to carry-out or delivery only as well as restrictions on the operations of quick service restaurants to drive-through pick-up or delivery. Those negative demand impacts in our flavor solutions segment were partially offset by increased at-home consumption from certain customers in our flavor solutions segment that use our products to flavor their own brands for at-home consumption.
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 ROU 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
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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 carry forward 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 rents 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- and nine-month periods ended August 31, 2020. See note 4 for further details.
Recently Issued Accounting Pronouncements — Pending Adoption
In January 2017, the Financial Accounting Standards Board ("FASB") issued ASU No. 2017-04 IntangiblesGoodwill 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 testing dates after January 1, 2017. We currently do not expect this guidance to have a material impact on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial InstrumentsCredit 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. We currently do not expect this guidance to have a material impact on our consolidated financial statements.  

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 and nine months ended August 31, 2020 and 2019 (in millions):
Three months ended August 31,Nine months ended August 31,
 2020201920202019
Employee severance and related benefits$ $1.1 $2.2 $5.1 
Other costs0.1 6.6 1.8 11.8 
Total$0.1 $7.7 $4.0 $16.9 

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
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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.

We expect the cost of the GE initiativeto be recognized as “Special charges” in our consolidated income statement over its expected multi-year courseto 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. During the nine months ended August 31, 2020, we incurred special charges associated with our GE initiative of $1.1 million. 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 August 31, 2020, we recorded $0.1 million of special charges consisting primarily of streamlining actions in our Europe, Middle East and Africa (EMEA) region.

During the nine months ended August 31, 2020, we recorded $4.0 million of special charges consisting of $2.9 million of streamlining actions in EMEA and $1.1 million related to our GE initiative, including $0.5 million of third-party expenses, $0.3 million related to severance and related benefits, and $0.3 million related to other costs.

During the three months ended August 31, 2019, we recorded $7.7 million of special charges, consisting primarily of (i) $6.0 million related to our GE initiative, including $5.5 million of third-party expenses, $0.3 million related to employee severance and related benefits, and $0.2 million related to other costs, and (ii) $1.3 million related to streamlining actions in our EMEA region.

During the nine months ended August 31, 2019, we recorded $16.9 million of special charges, consisting primarily of (i) $12.2 million related to our GE initiative, including $8.9 million of third-party expenses, $2.0 million related to employee severance and related benefits, and $1.3 million related to other costs, (ii) $2.3 million of employee severance and related benefits associated with streamlining actions in the Americas region, and (iii) $1.9 million related to streamlining actions in our EMEA region.

As of August 31, 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 and nine months ended August 31, 2020 and 2019 (in millions):
Three months ended August 31,Nine months ended August 31,
 2020201920202019
Consumer segment$ $4.6 $3.1 $11.0 
Flavor solutions segment0.1 3.1 0.9 5.9 
Total special charges$0.1 $7.7 $4.0 $16.9 





3.    FINANCING ARRANGEMENTS AND FINANCIAL INSTRUMENTS

In April 2020, we issued $500.0 million of 2.50% notes due April 15, 2030, with cash proceeds received of $495.0 million, net of discounts and underwriters' fees. Interest is payable semiannually in arrears in April and October of each year. The net proceeds from this issuance were used to pay down borrowings and for general corporate purposes.

During the nine months ended August 31, 2020 and 2019, we repaid $250.0 million and $106.3 million, respectively, of the five-year term loan due August 17, 2022, which included $56.3 million of aggregate quarterly principal payments required in each nine-month period. During the nine months ended August 31, 2019, we also repaid $100.0 million of the three-year term loan due August 17, 2020.
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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 August 31, 2020, we had foreign currency exchange contracts to purchase or sell $363.4 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. All foreign currency exchange contracts outstanding at August 31, 2020 have durations of less than 18 months, including $107.0 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 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. At August 31, 2020, the notional value of these contracts was $291.0 million. Any gains or losses recorded based on both the change in fair value of these contracts and the change in the currency component of the underlying loans are 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 August 31, 2020, we had cross currency interest rate swap contracts of (i) $250 million notional value to receive $250 million at three-month U.S. 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. 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 swap agreements to minimize worldwide financing costs and to achieve a desired mix of variable and fixed rate debt.

As of August 31, 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.

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. Hedge ineffectiveness was not material.
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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 August 31, 2020Asset DerivativesLiability Derivatives
 Balance sheet
location
Notional
amount
Fair
value
Balance sheet
location
Notional
amount
Fair
value
Interest rate contractsOther current
assets / Other long-term assets
$350.0 $45.6 Other accrued liabilities$ $ 
Foreign exchange contractsOther current
assets
156.5 18.1 Other accrued
liabilities
206.9 21.3 
Cross currency contractsOther current assets / Other long-term assets  Other long-term liabilities524.5 19.3 
Total$63.7 $40.6 
As of August 31, 2019Asset DerivativesLiability Derivatives
 Balance sheet
location
Notional
amount
Fair
value
Balance sheet
location
Notional
amount
Fair
value
Interest rate contractsOther current
assets / Other long-term assets
$350.0 $28.2 Other accrued liabilities$ $ 
Foreign exchange contractsOther current
assets
104.7 2.2 Other accrued
liabilities
350.6 4.6 
Cross currency contractsOther current
assets / Other long-term assets
236.4 14.0 Other long-term liabilities243.9 13.4 
Total$44.4 $18.0