McCORMICK & COMPANY  2008 ANNUAL REPORT

 

CREDIT FACILITIES — Cash flows from operating activities are our primary source of liquidity for funding growth, dividends, and capital expenditures. In the past we have also used this cash to make share repurchases, however we are currently using operating cash flow to pay down debt incurred in the Lawry's acquisition before we consider resumption of our share repurchase program. We also rely on our revolving credit facilities, or borrowings backed by these facilities, to fund seasonal working capital needs and other general corporate requirements. Our major revolving credit facilities have total committed capacity of $750 million, of which $50 million was drawn upon and remained outstanding at November 30, 2008, leaving a total of $700 million available for borrowing under these two facilities. Subsequent to year-end, the $50 million was repaid. Of these facilities, $250 million expire in 2009 and $500 million expire in 2012. We generally use these facilities to support our issuance of commercial paper. If the commercial paper market is not available or viable we could borrow directly under our revolving credit facilities. The facilities are made available by syndicates of banks, with various commitments per bank. If any of the banks in these syndicates are unable to perform on their commitments, our liquidity could be impacted, which could reduce our ability to grow through funding of seasonal working capital. We believe that our internally generated funds and the existing sources of liquidity under our credit facilities are sufficient to fund ongoing operations.       PENSION ASSETS — We hold investments in equity and debt securities in both our qualified defined benefit pension plans and through a rabbi trust for our nonqualified defined benefit pension plan. Cash payments to

pension plans, including unfunded plans, were $19.2 million in 2008, $41.6 million in 2007 and $41.2 million in 2006. During 2008, our primary U.S. defined benefit pension plan moved from overfunded to underfunded status driven by a decrease in the value of plan assets. Because of this situation, it is likely that the 2009 total pension plan contributions will be in a range from $50 to $70 million, which compares to $15.6 million of contributions in 2008. We are currently working with our pension advisors to refine these estimates and determine the appropriate funding levels given recent poor investment returns and new U.S. pension legislation. Future increases or decreases in pension liabilities and required cash contributions are highly dependent on changes in interest rates and the actual return on plan assets. We base our investment of plan assets, in part, on the duration of each plan's liabilities. Across all plans, approximately 59% of assets are invested in equities, 34% in fixed income investments and 7% in other investments. See also note 10 to the financial statements which details more of our funding strategies.       CUSTOMERS AND COUNTERPARTIES — See the subsequent section of this MD&A under Market Risk Sensitivity - Credit Risk. ACQUISITIONS Acquisitions of new brands are part of our strategy to improve margins and increase sales and profits.       In July 2008, we completed the purchase of the assets of the Lawry's business from Conopco, Inc. an indirect subsidiary of Unilever N.V. ("Unilever"). Lawry's sells a variety of marinades and seasoning blends under the well-known "Lawry's" and "Adolph's®" brands in North America. The acquisition included the rights to the brands as well as related inventory and a small number of dedicated production lines. It did not include any manufacturing facilities or employees. The annual sales of this business are approximately $150 million. The allocation