MCCORMICK & COMPANY 2004 ANNUAL REPORT options. These deductions increased in 2004, due to the increase in both stock price and the exercise of stock options. When 2003 is compared with 2002, the major use of funds was the increase in inventory due to the purchase of vanilla beans. The timing of liability payments con- tributed to the decrease in other liabilities in 2003. Net cash used in continuing investing activities was $141.5 million in 2004 versus $100.7 million in 2003 and $95.3 million in 2002. Net capital expenditures (capital expenditures less proceeds from the sale of fixed assets) were $67.0 million in 2004, $81.7 million in 2003 and $93.9 million in 2002. The decrease over the three year period is mainly due to lower B2K spending as 2002 was the peak year of software development expenditures. Net capital expenditures in 2005 are expected to be higher than in 2004 as the Company prepares for the B2K launch in Europe. Cash paid to acquire Silvo during 2004 was $74.5 million. Cash paid for the acquisitions of the Zatarain’s and Uniqsauces businesses during 2003 was $202.9 million. Cash received from the sale of the Packaging and Jenks businesses during 2003 was $133.9 million. The Company also received $55.4 million during 2003 from the Ducros purchase price adjustment, of which, $5.4 million represented interest and was included in net cash flows from continuing operating activities.  Net cash used in continuing financing activities was $178.4 million in 2004, $137.7 million in 2003 and $114.9 million in 2002. The Company’s total borrowings increased $19.3 million in 2004, compared to an increase of $16.4 million in 2003 and a decrease of $74.4 million in 2002. In the second quarter of 2004, the Company issued a total of $50 million in medium-term notes under its existing $375 million shelf registration. The $50 million of medium-term notes mature on April 15, 2009 and pay interest semi- annually at a rate of 3.35%. The proceeds of this issuance were used to pay down short-term debt. In 2004, the Company purchased 5.1 million shares of common stock for $173.8 million under its share repurchase programs versus 4.5 million shares of common stock for $119.5 mil- lion in 2003. In the second quarter of 2004, the Company completed its $250 million share repurchase authorization and began to buy against its $300 million authorization approved by the Board of Directors in September 2003. As of November 30, 2004, $147.7 million remained under the $300 million share repurchase program. Without sig- nificant acquisition activity, the Company expects this pro- gram to extend into 2006. The common stock issued in 2004, 2003 and 2002 relates to the Company’s stock com- pensation plans.  Dividend payments increased to $76.9 million in 2004, up 20.0% compared to $64.1 million in 2003. Dividends The reported values of the Company’s assets and liabili- ties held in its non-U.S. subsidiaries and affiliates have been significantly affected by fluctuations in foreign exchange rates between periods. During the year ended November 30, 2004, the exchange rates for the Euro, The Company’s ratio of debt-to-total-capital (total capital includes debt, minority interest and shareholders’ equity) was 40.9% as of November 30, 2004, a decrease from 44.4% at November 30, 2003 and below the Company’s target range of 45-55%. The decrease was primarily the result of an increase in shareholders’ equity. Foreign cur- rency had the effect of increasing shareholders’ equity and accordingly, decreased the ratio of debt-to-total-capi- tal by 2.6% in 2004. In June 2004, S&P raised the Company’s short-term corporate credit and commercial paper ratings to”A-1” from “A-2” and long-term corporate credit and senior unsecured debt ratings to“A” from “A-”. During the year, the level of the Company’s short-term debt varies. However, it is usually lower at the end of the year. The average short-term borrowings outstanding for the year ended November 30, 2004 and 2003 were $295.2 million and $287.6 million, respectively. The Company’s pension plans had a shortfall of plan assets over accumulated benefit obligations at their 2004 and 2003 measurement dates of $162.8 million and $166.6 million, respectively. These shortfalls were due to the continued low interest rate environment and lower than assumed asset returns in 2001 and 2002. However, the shortfall decreased in 2004. As a result, the Company recorded a reduction in the minimum pension liability through a credit of $7.2 million ($4.4 million net of tax) to other comprehensive income in 2004. This compares to an increase in minimum pension liability recorded through a charge of $20.6 million ($14.4 million net of tax) to other comprehensive income in 2003. Cash payments to pen- sion plans were $30.6 million in 2004, $27.2 million in 2003 and $25.2 million in 2002. The Company plans to make 2005 pension plan contributions similar to those made in 2004. 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. The Company bases its investment of plan assets, in part, on the duration of each plan’s liabili- ties. Across all plans, 68% of assets are invested in equi- ties and 32% in fixed income investments.  paid in 2004 totaled $0.56 per share, up from $0.46 per share in 2003. In November 2004, the Board of Directors approved a 14.3% increase in the quarterly dividend from $0.14 to $0.16 per share. Over the last 5 years, dividends per share have risen at a compounded annual rate of 9.9%. 27