MCCORMICK & COMPANY 2004 ANNUAL REPORT notes to consolidated financial statements 9. PENSION AND 401(k) RETIREMENT PLANS Defined Benefit Pension Plans Fair Value of Financial Instruments  Concentrations of Credit Risk 48 The Company is potentially exposed to concentrations of credit risk with trade accounts receivable, prepaid allowances and financial instruments. Because the Company has a large and diverse customer base with no single customer account- ing for a significant percentage of trade accounts receivable and prepaid allowances, there was no material concentration of credit risk in these accounts at November 30, 2004. The Company evaluates the credit worthiness of the counterpar- ties to financial instruments and considers nonperformance credit risk to be remote. Rollforwards of the benefit obligation, fair value of plan assets and a reconciliation of the pension plans’ funded status at the measurement date, September 30, follow: Investments in affiliates are not readily marketable, and it is not practicable to estimate their fair value. Other invest- ments are comprised of fixed income and equity securities held on behalf of employees in certain employee benefit plans and are stated at fair value. The cost of these invest- ments was $28.6 million and $24.0 million at November 30, 2004 and 2003, respectively. Because of their short-term nature, the amounts reported in the consolidated balance sheet for cash and cash equiva- lents, receivables, short-term borrowings and trade accounts payable approximate fair value. The fair value of long-term debt and derivative financial instruments are based on quoted market prices. The Company’s pension expense is as follows: The expected long-term rate of return on assets assump- tion is based on weighted-average expected returns for each asset class. Expected returns reflect a combination of histor- ical performance analysis and the forward-looking views of the financial markets, and include input from actuaries, investment service firms and investment managers. The carrying amount and fair value of the Company’s financial instruments at November 30, 2004 and 2003 are as follows: The significant assumptions used to determine benefit obligations are as follows: A September 30th measurement date is utilized to value plan assets and obligations for all of the Company’s defined benefit pension plans.  The Company sponsors defined benefit pension plans in the U.S. and certain foreign locations. In addition, it sponsors 401(k) retirement plans in the U.S. and contributes to govern- ment-sponsored retirement plans in locations outside the U.S. The Company incurred a $14.7 million loss on the settlement of swaps used to hedge the 2001 issuance of $294 million of medium-term notes. The loss on these swaps was deferred in other comprehensive income and is being amortized over the five to seven year life of the medium-term notes as a component of interest expense. Amounts reclassified from other comprehensive income to interest expense for settled interest rate swaps were $2.5 million in 2004 and 2003 and are included in the net change in unrealized gain or loss on derivative financial instruments in the statement of share- holders’ equity. United States International  (millions) 2004 2003 2002 2004 2003 2002 Service cost $11.6 $11.0 $ 9.6 $ 5.4 $ 4.6 $ 3.5 Interest costs 19.8 19.3 16.3 6.7 5.4 4.2 Expected return on plan assets (18.6) (17.0) (17.8) (7.0) (6.7) (5.9) Amortization of prior service costs – – – .1 .1 .1 Amortization of transition assets – – .2 (.1) (.1) –  Curtailment loss – – – – .1 – Recognized net actuarial loss 11.5 7.4 3.5 .6 – –  Other retirement plans  – – – – – 1.5 Less: discontinued  operations – (2.0) (2.2) – – – $24.3 $18.7 $ 9.6 $ 5.7 $ 3.4 $ 3.4  United States International  2004 2003 2004 2003  Discount rate  6.0% 6.0% 5.3 - 5.8% 5.5 - 6.5% Salary scale  4.0% 4.0% 3.5 - 4.2% 3.5 - 4.0% Expected return on plan assets  8.5% 9.0% 6.5 - 8.5% 7.0 - 8.5% 2004 2003 Carrying Fair Carrying Fair (millions) amount value amount value Other investments $ 27.2 $ 27.2 $ 21.3 $ 21.3 Long-term debt 498.0 538.2 465.3 523.1 Derivative related to: Interest rates (11.8) (11.8) (11.3) (11.3) Foreign currencies (3.9) (3.9) (1.7) (1.7)