MCCORMICK & COMPANY 2004 ANNUAL REPORT which $350.0 million supports a commercial paper borrowing arrangement. Of these unused facilities, $241.1 million expire in 2005 and $225.0 million expire in 2006. Some credit facil- ities in support of commercial paper issuance require a commitment fee. Annualized commitment fees at November 30, 2004 and 2003 were $0.3 million. Rental expense under operating leases was $23.5 million in 2004, $23.0 million in 2003 and $18.1 million in 2002. Future annual fixed rental payments for the years ending November 30 are as follows (in millions): At November 30, 2004, the Company had guarantees of $6.6 million with terms ranging from 1 to 5 years. At November 30, 2004 and 2003, the Company had outstanding letters of credit of $12.3 million and $24.3 million, respectively. These letters of credit typically act as a guarantee of payment to certain third parties in accordance with specified terms and conditions. The unused portion of the Company’s letter of credit facility was $33.7 million at November 30, 2004. 8. FINANCIAL INSTRUMENTS Foreign Currency  Interest Rates  The Company utilizes derivative financial instruments to enhance its ability to manage risk, including foreign currency and interest rate exposures, which exist as part of its ongoing business operations. The Company does not enter into contracts for trading purposes, nor is it a party to any leveraged derivative instrument. The use of derivative financial instruments is monitored through regular communication with senior management and the utilization of written guidelines.  All derivatives are recognized at fair value in the consoli- dated balance sheet. In evaluating the fair value of financial instruments, including derivatives, the Company uses third- party market quotes or calculates an estimated fair value on a discounted cash flow basis using the rates available for instruments with the same remaining maturities.  The Company is potentially exposed to foreign currency fluc- tuations affecting net investments, transactions and earnings denominated in foreign currencies. The Company selectively hedges the potential effect of these foreign currency fluctu- ations by entering into foreign currency exchange contracts with highly-rated financial institutions. 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 other compre- hensive income until the hedged item is recognized in cost of goods sold, at which time the net amount deferred in other comprehensive income is also recognized in cost of goods sold. Gains and losses from hedges of assets, liabili- ties or firm commitments are recognized through income, offsetting the change in fair value of the hedged item. At November 30, 2004, the Company had foreign currency exchange contracts maturing within one year to purchase or sell $51.1 million of foreign currencies versus $58.9 million at November 30, 2003. All of these contracts were designated as hedges of anticipated purchases denominated in a foreign currency to be completed within one year or hedges of foreign currency denominated assets or liabilities. Hedge ineffec- tiveness was not material. The Company finances a portion of its operations with both fixed and variable rate debt instruments, primarily commer- cial paper, notes and bank loans. The Company utilizes interest rate swap agreements to minimize worldwide financing costs and to achieve a desired mix of its variable and fixed rate debt.  In 2004, the Company entered into an interest rate swap contract with a total notional amount of $50 million to receive interest at 3.356% and pay a variable rate of interest based on six-month LIBOR minus .21%. The Company designated this swap, which expires on April 15, 2009, as a fair value hedge of the changes in fair value of the $50 million of medium-term notes maturing on April 15, 2009. No hedge ineffectiveness is recognized as the interest rate swap’s provisions match the applicable provisions of the debt. In 2003, the Company entered into interest rate swap contracts for a total notional amount of $100 million to receive interest at 6.4% and pay a variable rate of interest based on six-month LIBOR plus 3.595%. The Company designated these swaps, which expire on February 1, 2006, as fair value hedges of the changes in fair value of $100 million of the $150 million 6.40% fixed rate medium-term notes maturing on February 1, 2006. No hedge ineffectiveness is recognized as the interest rate swaps’ provisions match the applicable provi- sions of the debt.  The variable interest on $75 million of commercial paper was hedged by forward starting interest rate swaps for the period through 2011. Net interest payments on this commer- cial paper will be effectively fixed at 6.35% during the period. The unrealized gain or loss on these swaps is recorded in other comprehensive income, as the Company intends to hold these interest rate swaps until maturity. Hedge ineffective- ness was not material.  Subsequent to the starting date of these swaps, the net cash settlements are reflected in interest expense in the applicable period. 47 2005 – $13.9 2008 – $6.3 2006 – $10.9 2009 – $4.8 2007 – $8.3 Thereafter – $14.6