McCORMICK & COMPANY  2008 ANNUAL REPORT

 

increased $516 million in 2008 to fund the acquisitions of businesses. Total shareholders' equity decreased $30 million, including a decrease of $240 million due to the effect of foreign currency translation adjustments. This foreign currency change alone increased our debt-to-total capital ratio 5.1%. During the year, the level of our short-term debt varies, and it is usually lower at the end of the year. The average short-term borrowings outstanding for the years ended November 30, 2008 and 2007 were $367.9 million and $370.7 million, respectively. The total average debt outstanding for the years ended November 30, 2008 and 2007 was $1,125.2 million and $940.8 million, respectively.       The reported values of our assets and liabilities held in our non-U.S. subsidiaries and affiliates have been significantly affected by fluctuations in foreign exchange rates between periods. At November 30, 2008, the exchange rates for the Euro, British pound sterling and Canadian dollar were substantially lower versus the U.S. dollar than in 2007. Exchange rate fluctuations resulted in decreases to accounts receivable of $50 million, inventory of $31 million, goodwill of $113 million and other comprehensive income of $240 million since November 30, 2007.       We entered into three separate forward treasury lock agreements totaling $100 million in July and August of 2008. These forward treasury lock agreements were executed to manage the interest rate risk associated with the forecasted issuance of $250 million of fixed rate medium-term notes issued in September 2008. We cash settled these treasury lock agreements, which were designated as cash flow hedges, for a loss of $1.5 million simultaneous with the issuance of the notes and effectively fixed the interest rate on the $250 million notes at a weighted average fixed rate of 5.54%. The loss on these agreements has been deferred in other comprehensive income and will be amortized over the five-year life of the medium-term notes as a component of interest expense. Hedge ineffectiveness of these agreements was not material.

In August 2007, we entered into $150 million of forward treasury lock agreements to manage the interest rate risk associated with the forecasted issuance of $250 million of fixed rate medium-term notes issued in December 2007. We cash settled these treasury lock agreements for a loss of $10.5 million simultaneous with the issuance of the medium-term notes and effectively fixed the interest rate on the $250 million notes at a weighted average fixed rate of 6.25%. We had designated these forward treasury lock agreements as cash flow hedges. The loss on these agreements was deferred in other comprehensive income and is being amortized over the 10-year life of the medium-term notes as a component of interest expense. Hedge ineffectiveness of these agreements was not material.        In March 2006, we entered into interest rate swap contracts for a total notional amount of $100 million to receive interest at 5.20% and pay a variable rate of interest based on three-month LIBOR minus .05%. We designated these swaps, which expire in December 2015, as fair value hedges of the changes in fair value of $100 million of the $200 million 5.20% medium-term notes due 2015 that we issued in December 2005. Any unrealized gain or loss on these swaps will be offset by a corresponding increase or decrease in value of the hedged debt. No hedge ineffectiveness was recognized as these interest rate swaps qualify for the "shortcut" treatment as defined under United States Generally Accepted Accounting Principles (U.S. GAAP).       Credit and Capital Markets — Credit market conditions deteriorated rapidly during our fourth quarter of 2008 and continue into our first quarter of 2009. Several major banks and financial institutions have failed or were forced to seek assistance through distressed sales or emergency government measures. During this time capital markets have seen sharp drops in values and both credit availability and cost have been very volatile. In addition, current market conditions have resulted in higher credit spreads on long-term borrowings and significantly reduced demand for new corporate debt issuances. While not all-inclusive, the following summarizes the more significant impacts we have seen on our business: