McCormick & Company, Incorporated Annual Report 1996
Company Description
McCormick & Company, Incorporated is the largest spice
company in the world. The Company is the leader in the manufacture,
marketing and distribution of spices, seasonings, flavors and other
food products to the food industry - retail, foodservice and food
processors. A packaging group manufactures and markets plastic
bottles and tubes for food, personal care and other products.
McCormick products are processed and sold throughout the world.
Founded in 1889, McCormick pioneered with products and people, and
in 1932 started participative management. For more than 60 years,
McCormick has thrived with Multiple Management - a philosophy and
system of management development - which, along with enlightened
leadership, helps shape our corporate culture. Multiple Management
encourages a belief in the power of people, recognizes the dignity
of the individual, the dynamics of human relationships, the need
for participation at all levels of employment and the importance of
sharing the rewards of success. Headquartered in Sparks,
Maryland, McCormick has sales of $1.7 billion. Worldwide, McCormick
has 7,300 employees - people loyal to a heritage of product quality
and customer service which has made McCormick a success over the
years. Publicly held and traded on NASDAQ, the Company has more
than 25,000 shareholders - many are employees. McCormick has
paid dividends every year since 1925.
Contents
Mission and Core Values 2
Financial Highlights 3
Letter to Shareholders 4
Report on Operations 7
Historical Financial Summary 14
Consolidated Income Statement 17
Consolidated Balance Sheet 18
Consolidated Statement of Cash Flows 19
Consolidated Statement of Shareholders' Equity 20
Notes to Consolidated Financial Statements 21
Management's Responsibility for Financial
Statements 36
Report of Independent Auditors 36
Management's Discussion and Analysis 37
Directors and Officers 43
McCormick Worldwide 44
Investor Information Inside back cover
[picture of Grill Mates Spicy Montreal Steak Seasoning
with steak on a plate]
The paper that the financials are printed on contains McCormick
Pure Ground Black Pepper. The 1997 Annual Meeting will be held
at 10:00 a.m., Wednesday, March 19, 1997, at Marriott's Hunt
Valley Inn, 245 Shawan Road (exit 20A off I-83 north of Baltimore),
Hunt Valley, Maryland 21031.
MISSION The primary mission of McCormick & Company, Incorporated is
to profitably expand its worldwide leadership position in the spice,
seasoning and flavoring markets.
CORE VALUES We believe that our people are the most important
ingredient to our success. We believe in continuously adding
value for our shareholders. We believe customers are the reason
we exist. We believe in doing business honestly and ethically.
We believe in focused achievement of goals and objectives
through teamwork.
[photo: Cinnamon flavors many dishes around the
world and is the scent for this year's annual report.]
FINANCIAL HIGHLIGHTS
(dollars in millions except per-share data)
Year ended November 30
1996 1995 1994 1993 1992
Net sales $1,732.5 $1,691.1 $1,529.4 $1,400.9 $1,323.9
Before restructuring charges
Net income from continuing
operations $83.1 $84.5 $88.8 $82.9 $73.6
Net income 81.5 95.2 107.5 73.1 95.2
Earnings per share -
continuing operations 1.03 1.04 1.09 1.01 .90
Earnings per share - total 1.01 1.17 1.32 .89 1.16
Return on shareholders' equity 16.2% 19.7% 22.1% 17.0% 23.3%
After restructuring charges
Net income from continuing
operations $43.5 $86.8 $42.5 $82.9 $73.6
Net income 41.9 97.5 61.2 73.1 95.2
Earnings per share - continuing
operations .54 1.07 .52 1.01 .90
Earnings per share - total .52 1.20 .75 .89 1.16
Return on shareholders' equity 8.6% 20.3% 12.8% 17.0% 23.3%
Dividends paid per share $ .56 $ .52 $ .48 $ .44 $.38
Margins
Gross profit 34.9% 34.5% 36.5% 38.5% 38.9%
Operating income 5.4% 10.2% 5.6% 10.1% 9.2%
Net income from continuing
operations 2.5% 5.1% 2.8% 5.9% 5.6%
Cash flow from operating
activity $201.7 $ 59.4 $ 72.5 $ 80.6 $117.3
Cash flow from investing
activity 187.9 (78.5) (184.0) (145.0) (121.3)
Cash flow from financing
activity (380.8) 17.7 113.9 79.1 4.2
Debt to total capital 47.1% 55.5% 54.6% 48.0% 42.5%
Shareholders' equity $450.0 $519.3 $490.0 $466.8 $437.9
Average shares outstanding and
equivalents (000's) 80,641 81,181 81,240 81,766 81,918
Ending shares outstanding
and equivalents (000's) 78,205 81,218 81,206 81,916 81,978
[Bar graph showing Ten-Year Growth of One Dollar Invested in McCormick Stock
for the period of 1986 at $1.00 to 1996 at $5.65. Ten-year compound growth
rate of 19% (includes dividend reinvestment)]
[Bar graph showing Market Capitalization - Dollars in Millions. The graph
depicts in 1986 an amount of $514 and in 1996 an amount of $1,926.]
Letter to Shareholders
1996 was approached as a turnaround year and turnaround it was. Our
first-half performance, as expected, was sub-par. The second half
returned to growth, and we are again pointed in the right
direction.
Confidence in the future of the business led to our
announcement in August that we would, over time, buy back 10
million shares of the Company's outstanding stock on the open
market. Confidence also led us to approve a 7 percent increase in
the regular quarterly cash dividend. This is the 14th dividend
increase that we have declared over the last 10 years. McCormick
has paid dividends every year since 1925. We are pleased to reward
long-term shareholders and look forward to taking future actions
that will improve total return to them.
A year ago, we reported that we would measure ourselves in a new way,
creating shareholder value with a focus on generating both positive
and growing economic value added (EVA). We have been focused on
increasing our worldwide market share, more effectively managing
our assets and, of course, growing earnings per share. We firmly
believe that EVA is an excellent tool to measure shareholder value,
and increasing shareholder value results in a higher stock price. Proper
measurement gives incentive to our managers to perform like owners
of the business.
Of the year's actions, most significant was the sale of our garlic
and onion dehydration business, Gilroy Foods, Incorporated, to
ConAgra, Inc. Simultaneously, we sold Gilroy Energy Company, Inc.
to Calpine Corporation. As a result of both transactions, we are a
much stronger company. The sale of those businesses may be as
important to our future health as was our real estate divestiture
in 1989. These sales have helped to lessen our debt burden and will
provide the resources to take advantage of growth opportunities.
Our year was shaped by a comprehensive portfolio review. In addition
to the Gilroy sales, the Brooklyn, New York plant of our packaging
subsidiary, Setco, Inc., was closed. After year end, we entered
into agreements to sell Giza National Dehydration Company of Egypt
and Minipack Systems Limited of England. We are also divesting other
small, non-core businesses, and we are exiting certain minor,
non-core product lines.
In other developments, certain international manufacturing facilities
are being realigned to maximize efficiencies, most notably our new
operation at Haddenham in the United Kingdom. In Maryland, we
opened our new distribution center, which consolidated distribution
activities that occurred at nine other facilities. We merged our
Cake Mate brand with Pioneer Products to form Signature Brands. We
are happy to report that this new joint venture is doing extremely
well.
These are positive steps that improve our cash flow and asset
management and will help drive our business forward again.
The "Flavor Up!" advertising campaign which began in 1995 has
helped us market the McCormick brand more aggressively than ever
before. Highlighted by a series of radio and television ads, the
campaign has created results and strengthened brand loyalty versus
the competition. Our efforts are working, whether to promote Bag'n
Season, specialty blends like Grill Mates or our gravy line. We
are committed to the campaign because it is just one more way we
separate ourselves from the competition. The McCormick and
Schilling brand names are very powerful, and our vision is to
leverage the power of those brands.
An even greater avenue for growth for the Company is international.
Sales outside the United States, including joint ventures, are now
approximately 39 percent. Our goal is to increase this to at least
50 percent of our sales over time. One key area is China, which has
the availability of key raw materials so that we can process
in-country to our standard of quality. We currently operate facilities
in Guangzhou and Shanghai and are opening sales offices elsewhere.
There are no national spice brands, and we are creating the platform
to be that brand.
We continue to broaden our horizon within our industrial business by
introducing new products such as SavorySelect, ChileMex,
ColorBits and TastyBits. Industry reaction has been favorable.
Our Research & Technical Development team creates innovative,
value-added products that give McCormick customers the edge.
Whether the focus is retail, international or industrial, we have
growth opportunities for years to come.
Recent spice consumption data in the United States show that
per capita use is up to more than three pounds per year. The
popularity of ethnic foods continues to rise, and people are
increasingly conscious of the need to eat healthier foods. Spices
and seasonings not only make ethnic dishes stand out, they bring
added flavor to healthier foods that have reduced salt or fat.
Our business is benefiting from these major eating trends.
[photograph of Robert J. Lawless, President and CEO, (left) and
Charles P. McCormick, Jr., Chairman]
Effective January 1, 1997, Robert J. Lawless became Chief Executive
Officer in addition to President & Chief Operating Officer.
Charles P. McCormick, Jr., who had been serving as Chairman of
the Board & CEO since January 1, 1996, will continue as Chairman
and devote approximately 40 percent of his time to Company business.
Robert G. Davey was promoted to Executive Vice President & Chief
Financial Officer. Robert W. Schroeder, Vice President & General
Manager of the McCormick/Schilling Division, was elected to the
Board of Directors. Dr. Freeman A. Hrabowski, III, President of
the University of Maryland Baltimore County, has also been elected
to the Board.
During the year, there were additional executive appointments.
Richard W. Single, Sr. became Vice President-Government Affairs
and Secretary/Counsel to the Board of Directors. Robert W. Skelton
was promoted to Vice President & General Counsel, and W. Geoffrey
Carpenter was promoted to Assistant Secretary & Associate General
Counsel. Christopher J. Kurtzman was named Vice President & Treasurer.
He succeeds Donald A. Palumbo who retired. Robert C. Singer was
appointed Vice President-Acquisitions & Financial Planning.
He succeeds Samuel E. Banks who retired.
Dr. James J. Albrecht, Group Vice President-Asia/Pacific since 1993,
has been appointed Vice President-Science & Technology. Gary W. Zimmerman,
Vice President & General Manager of the McCormick Flavor Group
since 1992, became Group Vice President-Asia/Pacific. In addition,
Dorsey N. Baldwin, Vice President-Packaging Group and President of
Tubed Products, Inc., retired from the Company. He was succeeded by
Alan D. Wilson, as President and General Manager of Tubed Products.
We wish to thank our employees for their outstanding performance
under very competitive circumstances. They have demonstrated once
again that participative management remains a hallmark of our business.
Teamwork, so vital to our success, has led us to focus on our core
businesses, manage our assets more effectively, drive our brands,
return to profit growth and increase shareholder value.
[photograph of the Executive Committee: left to right, seated: Nordhoff,
Davey; standing: Lawless, McCormick.]
We believe the steps we are taking will produce the desired results
and ensure a bright future. The officers and the Board of Directors
join in thanking our shareholders, customers, suppliers and
employees for your continuing support of McCormick & Company,
Incorporated.
/s/Charles P. McCormick, Jr.
Charles P. McCormick, Jr.
Chairman of the Board
/s/Robert J. Lawless
President & Chief Executive Officer
Report on Operations
Much was accomplished during 1996. One year ago, the Company
identified several areas of focus if we were to return to the
type of successful performance our investors have enjoyed over
time. Concurrent with addressing increased competitive pressures,
our objective was to establish the platform for growth. As we
promised a year ago, we aggressively drove our brands. Our marketing
efforts were refocused on the consumer. This included significantly
increased advertising and other promotions to attract consumers to
our products. And finally, the Company worked to lower costs and
intensified asset management.
To get our house in order, we determined what had to be done - and with
determination, we did it. Taken as a whole, 1996 was a substandard
year. But looking deeper than the year-end numbers, you'll see that
the turnaround has happened. A poor first half of the year was
followed by a strong second half. Our successful return to growth
in the second half is our springboard to future increased earnings
and increased shareholder value.
Any telling of a turnaround story is a good news/bad news tale.
The bad news: We were in a situation where we needed to reverse
our course and return to growth. The good news: We did it. But
equally as important, our plan unfolded as described late last
year. This report will elaborate on how it happened, and why
we confidently say, "We're back." But first...
A Brief Look at Who We Are
McCormick's consumer, foodservice and some industrial businesses
are aligned globally into three zones: the Americas market,
the European market and the Asia/Pacific market.
McCormick's oldest and largest business is dedicated to the manufacture
and sale of consumer spices, herbs, extracts, proprietary seasoning
blends, sauces and marinades. These consumer products are sold in
the United States, primarily under the McCormick brand in the East,
the Schilling brand in the West, in Canada under the Club House
brand and in the United Kingdom under the Schwartz brand. In other
market zones, the McCormick brand name is primarily used.
The Food Service Division serves broadline foodservice distributors
and membership warehouse clubs.
The McCormick Flavor Group includes our U.S. industrial and fast food
spice, seasoning and flavor businesses. It sells to food processors
and major restaurant chains worldwide.
McCormick's Packaging Group, comprised of Setco, Inc. and Tubed
Products, Inc., is a U.S.-focused business that manufactures and
markets plastic bottles and tubes for food, personal care and other
products.
Our Portfolio Review
The cornerstone of our turnaround was an EVA-driven portfolio review
we performed on every part of our business. We determined which parts
would create long-term shareholder value and which would not. As a result,
the Company took a number of steps.
Last August, the Company sold Gilroy Foods, Incorporated, our
agricultural business located in Gilroy, California, to ConAgra, Inc.
It was an EVA-positive move to sell the business. As Gilroy grew,
it became very capital intensive, consuming too much of our resources
with inadequate returns in recent years. It was the right move for
the future growth of the Company.
At the same time, the Company sold Gilroy Energy Company, Inc. to Calpine
Corporation. Both transactions, in total, improved our cash flow and will
improve EVA. The proceeds from the sales allow us to pay down debt,
reinvest in our brands, commence a 10 million share stock repurchase
program and position ourselves to take advantage of numerous growth
opportunities.
The Brooklyn, New York plant of McCormick's packaging subsidiary,
Setco, was closed. We are realigning certain manufacturing operations
in Europe. After year end, we entered into agreements to sell Giza
National Dehydration Company of Egypt and Minipack Systems Limited of
England. Certain other small non-core businesses were also put up for sale.
Certain regions of our United States consumer business changed from a
direct sales force to a broker sales force, so we now have a broker
network across the entire U.S. This provides increased coverage of
individual retail stores and allows for more effective implementation
of our sales and marketing programs. Also, the Company is exiting certain
non-core product lines.
All of the actions mentioned above helped to make the Company stronger,
more competitive and enhanced our potential to grow the business in a
very focused way.
Our Return to Growth
After a series of down quarters, the second half of 1996 saw the Company
return to earnings growth. To continue the rebound, we will capitalize on
certain trends in the industry and execute a number of strategies, some
old and reliable, others new and innovative. Combined, they will help
McCormick maintain its position as the premier spice, flavor and extract
company in the world.
[picture of two Produce Partners sauce mixes and a plate of food]
One strategy that we mentioned in last year's report is our aggressive
effort to drive our brands with the "Flavor Up!" promotional campaign.
That effort continued in earnest in 1996. Highlighted by a series of radio
and television ads, the campaign has done more than just create excitement
in our retail business: It has created results.
Our Bag'n Season products are a perfect example. Bag'n Season helps
provide an excellent meal, quick and easy, with hardly any clean up.
It is a great product and has been for more than 20 years. Our only
problem was that few people knew about it. So we updated the
packaging and increased our promotional efforts. As a result, one
of our "old" products was accepted by consumers like a new product.
For the year, sales were up nearly 40 percent.
Grill Mates meat and poultry seasoning blends, developed for
outdoor barbecue cooking, experienced similar success. Sales for
the year were up approximately 40 percent. Likewise, after
increased advertising, we saw sales growth for our line of
low-fat gravies.
Our promotional efforts are working, and we see the direct
link to the "Flavor Up!" ad campaign. We're committed to them, and
they are just one more major way we separate ourselves from the
competition.
All three products are also excellent examples of McCormick's
extensive portfolio of value-added products, a list that will
continue to grow in 1997.
Another tactic in our effort to grow the business is in the
evolution of our relations with the grocery trade. For many years,
our consumer business has been trade driven, with most efforts
directed at obtaining premium shelf space in the stores. What we
are working for is a better blend, directing efforts at the
consumer as well as the trade. The "Flavor Up!" campaign is a good
example of consumer focus. An example of trade focus is our effort
in category management. With category management, McCormick acts as
the marketing consultant to the grocer, sharing data relative to
McCormick brand strength versus the competition and data relative
to volume movement. We help measure the success of the grocer's
merchandising strategies. The goal of this enhanced partnership is
to sell more consumer branded products, benefiting both the grocer
and McCormick.
[picture of a Bag'n Season]
The grocery trade is concerned about a trend of an
increasing percentage of product being sold through non-traditional
outlets such as warehouse stores, drug stores and club stores.
While we participate within all distribution channels, consumer
testing indicates that consumers prefer to buy spices from grocery
stores. Because of our category management practices, we believe
consumers will get a better value, and we will see more
profitability by greater sales of our branded products.
We are using both the tried-and-true methods and some new techniques
to help drive our brands. In the past few annual reports, we have
informed you about our perimeter strategy, where we have focused on
the perimeter area of the grocery store (the produce, seafood and
meat sections) as those parts of the store with the highest
shopping activity. As a result, we have focused aggressive
marketing techniques that have met with success. Our Old Bay and
Golden Dipt seafood lines have been very successful. Our Produce
Partners line was repackaged and reformulated resulting in
increased sales for the year.
A newer strategy has been our further exploration of cyberspace.
McCormick has had a web site (http://www.mccormick.com) for more
than a year, and in 1996, we added a recipe data base with
hundreds of recipes. So, as you "surf the net," you can plan
your next meal.
Our efforts to grow go beyond our well-known retail business.
Our industrial business continues to grow thanks to innovation,
a growing stable of value-added products and global expansion
among major customers.
In last year's report, we noted the introduction of FlavorCell,
our technology to encapsulate a wide range of liquid and
solid flavors. This innovative product answered a need for
food processors, and sales projections for the first year
were exceeded. The success of FlavorCell has been expanded by
other value-added products that give McCormick customers the
technical edge.
One new product is SavorySelect, a collection of natural
meat flavors. They all deliver the just-cooked tastes of beef,
chicken or pork for rich flavor in soups, marinades, gravies,
meats and other applications. Another creative product from our
Flavor Division is ChileMex, which captures the signature flavors
of popular chili-based Mexican cuisine. Chilies do more than add
heat to Mexican dishes: They add flavor. And, ChileMex answers a
need for restaurants capitalizing on this popular food trend.
One of the exciting industrial products to come out of the Flavor
Group's Ingredient Division is ColorBits. ColorBits is a line of
small, colorful food ingredients used primarily to enhance the
appearance of food. They have been very successful in snack seasonings,
confectionery, cheese and cereal applications. Food processors are
just scratching the surface for the potential applications for
this new product, and a similar product called TastyBits has been
introduced as well.
These products are attracting new customers, and it is also our
commitment to service that helps the Company maintain long-standing
relations with numerous food businesses. The list of multi-national
companies served by our industrial business reads like a "Who's
Who" of the food industry. Many of these businesses are restricting
their list of suppliers. Often we are selected as a supplier of
choice. In 1996, a Fortune 50 company named McCormick "Supplier of
the Year." For McCormick, it was the seventh time the Company has
won the honor in the nine years it has been awarded.
As these multi-national companies continue to expand globally, we, as a
trusted partner, continue the relationship around the world. To
strengthen the level of customer support in far-off lands,
McCormick has technical centers around the world poised to answer
any customer's needs. The combination of our extensive product
line, our innovative R&D staff and our respected reputation in the
food industry make McCormick a consistent winner in the flavoring
business.
The Food Service Division saw sales growth in 1996. One
of the major U.S. foodservice distributors named McCormick a
"Gold-Level Supplier," a distinction earned by only 10 of the
distributor's 1,500 suppliers.
In an effort to differentiate itself from the competition, the
Food Service Division launched a new packaging concept with an
"operator friendly" labeling system designed as a result of direct
input of hundreds of foodservice operators.
[picture of Schwartz One Pan Recipes mix with a plate of food
prepared using this product]
We also see potential for growth in the foodservice business due
to the trend in supermarket prepared foods. Grocery stores are
providing the prepared "meal-to-go" offerings that have become
popular among consumers with a taste for good food, but not enough
time to prepare a meal from scratch.
The Company will also look to its Packaging Group to contribute to
future growth. A major ingredient to the success of our Setco
operation is the expanding vitamin industry. Setco has developed
new packaging products and attracted new customers in the vitamin
industry and also continues to serve a number of cosmetic
and food companies, including McCormick. Tubed Products, Inc.,
(TPI), had a poor year in 1996 due to market pressures and
operational inefficiencies. TPI will look to rebound in 1997, its
50th year of operation.
Most of the efforts mentioned so far have been focused on U.S.
activities. A majority of our sales are in the United States,
but the Company has set a goal to increase sales outside the U.S.
to become half of McCormick's total sales in the future. There are
several countries where McCormick has long been a well-known name,
and there are others where McCormick is newer to the scene.
First, let's look at the Americas Zone.
Our Canadian operation saw record sales and profits in 1996.
Sales grew in all Canadian divisions but were particularly strong
in sales to food processors and foodservice operators. New business
from major customers and growth from snack, fast food and meat
segments fueled the record industrial growth. The club stores and
distributors provided new sales highs for McCormick Canada's
foodservice business.
McCormick de Mexico, our consumer joint venture, is still feeling
the effects of a weak economy. Although consumer confidence in
Mexico is still low, our unit sales grew modestly in 1996, and
a number of initiatives completed in 1996 should bear fruit in 1997
if economic activity picks up. Our first international alliance,
McCormick de Mexico, celebrates its 50th anniversary in 1997.
McCormick de Centro America, located in El Salvador, had an
excellent year, setting an all-time record in profits. It was their
sixth consecutive record-setting year.
[picture of McCormick Low Fat Bouillon products]
Despite a tough economic environment, McCormick de Venezuela
had a very strong year. Newly introduced products have been
quite successful, and we continue to look for additional growth
in this market.
A great amount of activity took place in the European Zone in
1996. Three of our operations in the United Kingdom are being
consolidated into one new facility in Haddenham. McCormick's
business in Europe is strongly U.K.-based in consumer,
industrial and foodservice, and the new facility acts as
McCormick's European headquarters.
The European Zone enjoyed another record year. The consumer business
continued to grow in the U.K., and steady sales of the core spice
line have been boosted by a very strong response to the authentic
mix and dry pour-over sauce line. Our relatively recent expansion
into the Baltic States and former Soviet Union has seen encouraging
results. These are emerging markets where we are pursuing
growth.
McCormick's industrial business in the European Zone also
enjoyed a successful 1996, with the Glentham flavor operations
posting substantial sales increases from both its U.K. and South
African facilities. Increased business was also the result of major
fast food companies continuing their global expansion.
Perhaps no area offers greater potential for international
expansion than the Asia/Pacific Zone. By the end of the decade,
60 percent of the world's population will be in Asia. Of the 100
largest cities in the world, 14 are in China. These numbers are
hard to ignore and represent tremendous opportunity for McCormick.
The Company has historically done well in major urban environments.
These consumers are attracted to our packaging and our high quality
standards. Their purchasing power is growing, and they have
expressed interest in buying Western goods.
Presently, there are few established brands in Asia, so McCormick
is creating the platform to become the national spice brand. To our
advantage, China has the availability of key raw materials, so we
can process in-country to our standard of quality. We have a plant
in Shanghai in northern China, and in 1996, we started production
at our new facility in Guangzhou in the south. In other parts of
the country, we are also opening sales offices.
The Company is aggressively expanding our consumer business in
several major cities in China and starting to penetrate others.
Consumers are responding favorably to our line of Szechuan seasonings
and fried rice seasonings as well as newer additions to
the Season'n Fry line and a collection of jelly dessert products
for children. Countries in this zone have great long-range
potential for consumer as well as industrial and foodservice
business. We look to this part of the world for growth as we seek
to balance our sales more evenly between United States and
international markets.
While 1996 was a sluggish year in Japan, our businesses in Australia
and the Philippines had good years with the Philippines achieving
records in sales and profits.
As previously stated, a great deal of McCormick's growth in the future
will come outside the United States. In each of these regions of
the world, there are diverse circumstances that confront any
enterprise hoping for expansion. In an effort to strengthen our
business strategies and review our business globally, the Company
has created four Global Business Councils (consumer, industrial,
foodservice, operations/procurement). Implemented along our
worldwide lines of business, the Councils will be the link between
the Corporate Mission and Operating Unit priorities. They will
create global strategies that will accelerate growth in ways that
no single division or zone can do independently. The Councils are
key vehicles to analyze and prioritize growth options around the
world.
Asset Management and Enhanced Efficiencies
The Company has made a significant effort to improve asset management.
We committed to reduce debt levels through aggressive balance sheet
management and have programs in place that are working. The past
year saw us focus on improving the management of working capital
using a dedicated inventory champion. A management incentive plan
linked to efficient use of working capital has resulted in an
improvement in inventory turnover.
At a number of our locations, we have taken steps to increase
efficiencies and facility utilization. One of the largest efforts
is the new facility at Haddenham, U.K. Another activity in our
effort to improve efficiencies was the opening of the new McCormick
Distribution Center in Maryland, which consolidated numerous
distribution facilities.
These actions were taken to improve the Company's overall
efficiencies and asset management and are key to keeping McCormick
the industry leader in a highly competitive environment.
[picture of McCormick Guangzhou products]
Performance
It all gets down to performance. The past 12 months have been
difficult and challenging. We don't, however, look at any one
year in a vacuum. The first two quarters were unacceptable.
We anticipated they would be down due, in part, to a significant
increase in funding for promotional activities and other
competitive pressures. Our second half resulted in a turnaround
that gives us the momentum to grow - in 1997 and beyond. The sale
of our Gilroy operations, the portfolio review and a dedication to
asset management resulted in a much improved balance sheet.
Debt reduction of $246 million resulted in a year-end debt to
total capital ratio of 47.1 percent, down from 55.5 percent in 1995.
And finally, excluding restructuring charges, earnings per share
from continuing operations increased 25 percent in the second half
of 1996 as compared to last year.
Our primary financial objective is to increase shareholder value.
To support that objective, the Company has adopted economic value
added (EVA) as a primary indicator to measure the performance of the
business. This value-based management tool combines into one measure
the profitability of our business after considering the associated
capital costs. Positive EVA is generated when the Company's net
operating profit after tax exceeds the cost to finance its capital.
We believe that consistent growth in EVA will directly translate
into superior returns for our shareholders over time.
The Company also believes that linking EVA to compensation and
properly educating the work force in its use are critical components
in the successful implementation of a value-based management program.
As a result, EVA is being incorporated into the incentive
compensation system. Significant time and energy were dedicated in
1996 to programs that resulted in extensive EVA training.
This training will continue in 1997. As all employees are trained
and learn of the opportunities they have to impact EVA, we believe
the Company, our employees and our shareholders will all benefit.
Over the long run, McCormick shareholders have been rewarded well.
The Company concluded 1996 with a total market capitalization of
$1.9 billion, approximately four times larger than in 1986. Over a
10-year period, the value of McCormick stock has grown at a compound
annual rate of 19 percent, including dividend reinvestment.
[photograph of two girls using the jelly dessert product made
at the McCormick Shanghai plant]
The Company is well positioned to grow the business and increase
shareholder value. The actions taken during the past year have made
us stronger, more focused and more aggressive. We successfully defended
against our main competitor's attempts to erode our market lead. Challenges
that have hampered our performance for a number of quarters were
addressed. We completed our portfolio review and strengthened our
balance sheet. And, our focus on increasing shareholder value and
a return to profit growth was intensified.
Growth...asset management...and performance: The three will be our
driving force in 1997. The year 1996 will be remembered as an important
chapter in the 107-year history of McCormick & Company. The year of the
turnaround. Now, watch us grow.
Historical Financial Summary
(dollars in millions except per-share data)
For the Year 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Net sales 1,732.5 1,691.1 1,529.4 1,400.9 1,323.9 1,276.3 1,166.2 1,110.2 1,099.1 1,011.1
Percent change over
prior year 2.4% 10.6% 9.2% 5.8% 3.7% 9.4% 5.0% 1.0% 8.7% 10.3%
Operating profit 93.3 172.6 86.0 142.1 121.4 100.6 86.9 74.5 65.4 53.7
Operating profit excluding
restructuring 151.4 168.7 156.5 142.1 121.4 100.6 86.9 74.5 65.4 53.7
Net income - continuing
operations 43.5 86.8 42.5 82.9 73.6 60.4 51.8 47.1 24.8 21.5
Net income(F1) 41.9 97.5 61.2 73.1 95.2 80.9 69.4 135.5 42.7 30.6
Earnings per share:(F2)
Continuing operations .54 1.07 .52 1.01 .90 .73 .62 .54 .27 .23
Discontinued operations .08 .13 .23 .21 .26 .25 .21 1.00 .12 .09
Extraordinary item (.10) - - - - - - - - -
Accounting changes(F3) - - - (.33) - - - - .07 -
Net earnings .52 1.20 .75 .89 1.16 .98 .83 1.54 .46 .32
Percentage of net sales:
Gross profit 34.9% 34.5% 36.5% 38.5% 38.9% 36.9% 36.0% 35.2% 32.6% 33.7%
Operating profit 5.4% 10.2% 5.6% 10.1% 9.2% 7.9% 7.5% 6.7% 6.0% 5.3%
Income - continuing
operations 2.5% 5.1% 2.8% 5.9% 5.6% 4.7% 4.4% 4.2% 2.3% 2.1%
Effective tax rate 38.7% 36.1% 40.5% 41.4% 39.4% 38.4% 38.0% 38.1% 46.6% 41.1%
Depreciation and
amortization 63.8 63.7 62.5 50.5 43.8 40.5 36.6 34.8 29.8 30.4
Capital expenditures 74.7 82.1 87.7 76.1 79.3 73.0 58.4 53.4 50.4 81.7
Common dividends
declared(F4) .57 .53 .49 .45 .40 .31 .24 .19 .14 .13
Market closing price:
High 25.00 26.50 24.75 30.25 28.75 22.88 13.38 12.50 7.25 6.44
Low 19.25 18.13 17.75 20.40 20.63 11.88 9.13 6.31 3.85 4.10
Dividend payout
ratio(F5) 50.5% 44.4% 36.4% 36.1% 32.8% 28.6% 28.9% 30.8% 36.5% 38.5%
Average shares outstanding
and equivalents
(000's) 80,641 81,181 81,240 81,766 81,918 82,396 83,720 87,772 93,068 94,408
At Year End
Current debt 108.9 297.3 214.0 84.7 122.6 78.2 30.4 20.3 49.5 76.7
Long-term debt 291.2 349.1 374.3 346.4 201.0 207.6 211.5 210.5 229.4 198.1
Total debt 400.1 646.4 588.3 431.1 323.6 285.8 241.9 230.8 278.9 274.8
Shareholders' equity 450.0 519.3 490.0 466.8 437.9 389.2 364.4 346.2 294.3 280.6
Total capital 850.1 1,165.7 1,078.3 897.9 761.5 675.0 606.3 577.0 573.2 555.4
Total assets 1,326.6 1,614.3 1,555.7 1,313.2 1,130.9 1,037.4 946.9 864.5 846.4 776.5
Return on equity 8.6% 20.3% 12.8% 17.0% 23.3% 21.8% 20.4% 40.0% 14.6% 11.3%
Percent debt to total
capital 47.1% 55.5% 54.6% 48.0% 42.5% 42.3% 39.9% 40.0% 48.7% 49.5%
Book value per
common share(F3) 5.75 6.39 6.03 5.70 5.45 4.88 4.56 4.18 3.27 3.00
<FN>
<F1>The Company disposed of its wholly-owned real estate subsidiary in 1989, and both Gilroy Foods, Inc.
and Gilroy Energy, Inc. in 1996.
<F2>All share data adjusted for 2-for-1 stock splits in January 1992, January 1990 and April 1988.
<F3>In 1993, the Company adopted SFAS No. 106 "Employers's Accounting for Postretirement
Benefits Other than Pensions," and in 1988, it adopted SFAS No.96, "Accounting for Income
Taxes."
<F4>Includes fourth quarter dividends for the years 1988-1996, which were declared in
December of each of those years.
<F5>Dividend payout ratio does not include gains or losses on sale of discontinued
operations, cumulative effect of accounting changes, restructuring charge or credit,
and extraordinary items.
</FN>
[Bottom of page has two McCormick/Schilling coupons. One for an Extract/
Spice and the other for Dry Seasoning Mix or Bag'n Season Blend.]
[Next page has a picture of various international McCormick products and brands]
Consolidated Income Statement
(in thousands except per-share data)
Year ended November 30
Consolidated results 1996 1995 1994
Net sales $1,732,506 $1,691,086 $1,529,414
Cost of goods sold 1,128,032 1,106,935 970,564
Gross profit 604,474 584,151 558,850
Selling, general and
administrative expense 453,088 415,459 402,363
Restructuring charge (credit) 58,095 (3,904) 70,445
Operating income 93,291 172,596 86,042
Interest expense 33,811 39,298 25,585
Other (income) expense - net (2,254) 692 2,414
Income from consolidated continuing
operations before income taxes 61,734 132,606 58,043
Income taxes 23,871 47,866 23,515
Net income from consolidated continuing
operations 37,863 84,740 34,528
Income from unconsolidated operations 5,612 2,068 7,929
Net income from continuing operations 43,475 86,808 42,457
Income from discontinued operations,
net of income taxes 6,249 10,713 18,700
Net income before extraordinary item 49,724 97,521 61,157
Extraordinary loss from early
extinguishment of debt, net of
income tax benefit (7,806) - -
Net income $ 41,918 $ 97,521 $ 61,157
Earnings per share
Continuing operations $.54 $1.07 $.52
Discontinued operations .08 .13 .23
Extraordinary loss from early
extinguishment of debt (.10) - -
Total earnings per share $.52 $1.20 $.75
See Notes to Consolidated Financial Statements, pages 21 - 35.
Consolidated Balance Sheet
(in thousands)
Assets
November 30
1996 1995
Current assets
Cash and cash equivalents $ 22,418 $ 12,465
Receivables, less allowances of
$3,527 for 1996 and $2,545 for 1995 217,495 223,958
Inventories 245,089 383,222
Prepaid expenses 15,648 17,093
Deferred income taxes 33,762 33,980
Total current assets 534,412 670,718
Property, plant and equipment - net 400,394 524,807
Goodwill - net 165,066 180,751
Prepaid allowances 149,200 183,357
Investments and other assets 77,535 54,706
Trademarks, formulae, etc. 1 1
Human relations 1 1
$1,326,609 $1,614,341
Liabilities and Shareholders' Equity
November 30
1996 1995
Current liabilities
Short-term borrowings $ 98,450 $ 284,961
Current portion of long-term debt 10,477 12,352
Trade accounts payable 153,584 146,674
Other accrued liabilities 236,791 202,880
Total current liabilities 499,302 646,867
Long-term debt 291,194 349,111
Deferred income taxes 4,937 25,436
Other long-term liabilities 81,133 73,674
Total liabilities 876,566 1,095,088
Shareholders' equity
Common Stock, no par value;
authorized 160,000 shares;
issued and outstanding: 1996 -
11,533 shares, 1995 - 12,089 shares 48,541 48,133
Common Stock Non-Voting, no par value;
authorized 160,000 shares; issued
and outstanding: 1996 - 66,672 shares,
1995 - 69,129 shares 112,489 112,522
Retained earnings 313,847 387,657
Foreign currency translation adjustments (24,834) (29,059)
Total shareholders' equity 450,043 519,253
$1,326,609 $1,614,341
See Notes to Consolidated Financial Statements, pages 21- 35.
Consolidated Statement of Cash Flows
(in thousands)
Cash flows from operating activitiess Year ended November 30
1996 1995 1994
Net income $ 41,918 $ 97,521 $ 61,157
Adjustments to reconcile net income
to net cash provided by operating activities
Restructuring charge (credit) 58,095 (3,904) 70,445
Depreciation and amortization 63,788 63,698 62,540
Deferred income taxes (26,368) 15,697 (27,095)
Other 2,402 483 1,305
Income from unconsolidated operations (5,612) (2,068) (7,929)
Extraordinary item 7,806 - -
Changes in selected working capital items
Receivables (5,363) (21,560) (24,895)
Inventories 21,811 (13,751) (41,011)
Prepaid allowances 23,689 (40,133) (16,914)
Accounts payable 24,443 3,973 14,005
Other assets and liabilities (4,931) (40,549) (22,476)
Dividend received from unconsolidated affiliate - - 3,345
Net cash provided by operating activities 201,678 59,407 72,477
Cash flows from investing activities
Acquisitions of businesses - - (82,573)
Capital expenditures (74,654) (82,140) (87,676)
Proceeds from sale of discontinued
operations 248,766 - -
Proceeds from sale of assets 15,283 1,910 152
Other (1,497) 1,703 (13,929)
Net cash provided by (used in)
investing activities 187,898 (78,527) (184,026)
Cash flows from financing activities
Short-term borrowings - net (186,541) 85,148 7,023
Long-term debt borrowings 4,454 - 165,692
Long-term debt repayments (83,178) (20,186) (15,012)
Common stock issued 4,524 11,314 6,106
Common stock acquired by purchase (74,709) (16,330) (10,961)
Dividends paid (45,322) (42,202) (38,997)
Net cash provided by (used in)
financing activities (380,772) 17,744 113,851
Effect of exchange rate changes on cash
and cash equivalents 1,149 (1,725) 426
Increase/(decrease) in cash and
cash equivalents 9,953 (3,101) 2,728
Cash and cash equivalents at beginning of year 12,465 15,566 12,838
Cash and cash equivalents at end of year $ 22,418 $ 12,465 $ 15,566
See Notes to Consolidated Financial Statements, pages 21 -35.
Consolidated Statement of Shareholders' Equity
(dollars in thousands except per-share data)
Common Stock Common Currency Total
Common Non-Voting Stock Retained Translation Shareholders'
Shares Shares Amount Earnings Adjustments Equity
Balance, December 1,
1993 14,562 66,437 $146,517 $330,327 $ (10,023) $466,821
Net income 61,157 61,157
Dividends declared
($.48/share) (39,000) (39,000)
Currency translation
adjustments 4,999 4,999
Other adjustments 842 842
Shares purchased and
retired (111) (300) (920) (10,041) (10,961)
Shares issued 281 337 6,106 6,106
Equal exchange (1,453) 1,453
Balance,
November 30, 1994 13,279 67,927 151,703 343,285 (5,024) 489,964
Net income 97,521 97,521
Dividends declared
($.52/share) (42,205) (42,205)
Currency translation
adjustments (24,035) (24,035)
Other adjustments 3,024 3,024
Shares purchased and
retired (435) (336) (2,362) (13,968) (16,330)
Shares issued 298 485 11,314 11,314
Equal exchange (1,053) 1,053
Balance,
November 30, 1995 12,089 69,129 160,655 387,657 (29,059) 519,253
Net income 41,918 41,918
Dividends declared
($.56/share) (45,326) (45,326)
Currency translation
adjustments 4,225 4,225
Other adjustments 158 158
Shares purchased and
retired (264) (3,111) (4,149) (70,560) (74,709)
Shares issued 189 173 4,524 4,524
Equal exchange (481) 481
Balance,-
November 30, 1996 11,533 66,672 $161,030 $313,847 $ (24,834) $450,043
See Notes to Consolidated Financial Statements, pages 21 - 35.
Notes to Consolidated Financial Statements
(dollars in thousands except per-share data)
1. Summary of Accounting Policies:
Consolidation
The consolidated financial statements include the accounts of
the Company and all majority-owned subsidiaries. In the
first quarter of fiscal 1995, the Company changed the end of the
reporting period for foreign subsidiaries from October 31 to
November 30 to provide uniform reporting on a worldwide basis.
Accordingly, an additional month of operating results for those
subsidiaries is included in the 1995 financial statements.
Investments in 20% to 50% owned affiliates are accounted for under
the equity method. Intercompany transactions have been eliminated.
Certain prior year amounts have been reclassified to conform to the
presentation in 1996.
Use of Estimates
Preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual amounts
could differ from these estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with
an original maturity date of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out)
or market.
Property, Plant and Equipment
Property, plant and equipment is stated at cost and depreciated over
its estimated useful life using straight-line methods for financial
reporting and both accelerated and straight-line methods for tax reporting.
Goodwill
Goodwill is amortized using the straight-line method over periods
up to 40 years.
On a periodic basis, the Company estimates the future undiscounted
cash flows of the businesses to which goodwill relates in order to
ensure that the carrying value of such goodwill has not been impaired.
Prepaid Allowances
Prepaid allowances arise when the Company prepays sales discounts and
marketing allowances to certain customers in connection with multi-year
sales contracts. These costs are capitalized and amortized over the
lives of the contracts, generally ranging from three to five years.
The amounts reported in the Consolidated Balance Sheet are stated at
the lower of unamortized cost or management's estimate of the net
realizable value of these costs.
Research and Development
Research and development costs are expensed as incurred.
Earnings Per Share
Earnings per share have been computed by dividing net income by the
weighted average number of common shares outstanding during
the period.
Foreign Currency
The functional currency for the majority of the Company's operations
outside of the United States is the applicable local currency. The
translation from the applicable foreign currencies to the United States
dollar is performed for balance sheet accounts using the current exchange
rates in effect at the balance sheet date and for revenue and
expense accounts using the weighted average exchange rate during
the period. The resulting gains or losses are included in the
foreign currency translation adjustments account within
shareholders' equity.
Gains or losses resulting from foreign currency transactions and the
translation of the financial statements for those operations in a
hyperinflationary environment are included in the income statement.
The Company periodically enters into foreign exchange contracts to hedge
the impact of foreign currency fluctuations on its investments in certain
foreign subsidiaries, the impact of foreign currency transactions and the
impact of firm foreign currency commitments. The gains and losses
on foreign investment hedges, net of income taxes, are included in
the foreign currency translation adjustments account within
shareholders' equity. The gains and losses on foreign currency
transaction hedges are recognized in income and offset the foreign
exchange gains and losses on the underlying transactions. Gains and
losses of foreign currency firm commitment hedges are deferred and
included in the basis of the transactions underlying the
commitments.
Credit Risk
The Company is potentially subjected to concentrations of credit
risk with trade accounts receivable, prepaid allowances and forward
exchange contracts for foreign currency. Because the Company has a
large and diverse customer base with no single customer accounting
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, 1996. The Company evaluates the credit
worthiness of the counterparties to forward exchange contracts for
foreign currency and considers nonperformance credit risk to be
remote.
Accounting and Disclosure Changes
In March 1995, the Financial Accounting Standards Board (FASB)
issued Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." The Statement
requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount
of the asset in question may not be recoverable. The Company must adopt
this Standard in its fiscal year beginning December 1, 1996. The
effect of this accounting change on the Company's consolidated
financial statements is not expected to be material.
In October 1995, FASB issued Statement No. 123, "Accounting for Stock-Based
Compensation." This new standard encourages, but does not require,
a fair-value- based method of accounting for stock-based
compensation plans. Alternatively, the Company can continue the
current method of accounting for stock compensation plans under the
existing rules of Accounting Principles Board No. 25, and disclose
the compensation expense that would be recorded under the new rules
in the Notes to the Financial Statements. The Company has decided
to adopt the disclosure provisions of the new standard in 1997.
Therefore, there will be no impact on the Company's consolidated
income statement.
2. Business Restructuring:
In the third quarter of 1996, the Company began implementation of a
restructuring plan and recorded a restructuring charge of $58,095
in 1996. This charge reduced net income by $39,582 or $.49 per
share. In addition, there are approximately $1,915 of additional
charges ($.02 per share) directly related to the restructuring plan
which could not be accrued but will be expensed as the plan is
implemented.
Specific actions under this plan include: the divestiture of certain
small non-core businesses; the divestiture of Giza National Dehydration
Company (Giza) of Egypt, which is consistent with the Company's sale of
Gilroy Foods, Giza's parent company; closing the Brooklyn, New York
packaging plant; the exit from certain minor, non-core product lines;
the rationalization of certain overseas manufacturing facilities; and in
our consumer business, the conversion from a direct sales force to a broker
sales force for certain regions in the U.S. Major components of
the restructuring charge include: severance and personnel costs of
$9,983; a $44,562 write-down to net realizable value of assets and
businesses identified for disposal; and other exit costs of $3,550.
The $1,915 of additional charges which will be expensed during the
implementation are principally costs to move equipment and
personnel.
These actions are expected to be completed in 1997 and will require
net cash outflows of approximately $12,000. Net sales of the small
non-core businesses and Giza, which are being divested by these actions,
were approximately 7% of consolidated net sales.
As of November 30, 1996, the Brooklyn, New York packaging plant has
been closed with production being transferred to another U.S. plant.
Also, the conversion to a broker sales force and exit from certain minor
non-core product lines is complete. In December 1996, the Company entered
into agreements to sell the Minipack business in the United Kingdom and
Giza in Egypt.
The components of the restructuring charge and remaining liability
are as follows:
11/30/96
Restructuring Remaining
Charge Amount
Severance and personnel costs $ 9,983 $ 2,628
Write-down of assets and businesses 44,562 23,378
Other exit costs 3,550 1,415
$58,095 $27,421
Additional costs to be expensed $ 1,915
In the fourth quarter of 1994, the Company recorded a charge of $70,445
for restructuring its business operations. At November 30, 1996,
the remaining restructuring liability is $14,911, principally for
realignment of some of our operations in the United Kingdom which
will be completed in early 1997. The Company has reduced its work
force by approximately 540 positions, an industrial products plant
has been closed, a frozen food business has been sold and a number
of administrative activities have been consolidated. A foodservice
products plant was closed in the second quarter of 1996, and
production was transferred to another facility. A consolidated
distribution facility was also completed in the second quarter of
1996.
3. Discontinued Operations:
On August 29, 1996, the Company sold substantially all assets of Gilroy
Foods, Incorporated (GFI) and Gilroy Energy Company, Inc. (GEC) to ConAgra,
Inc. and Calpine Corporation, respectively, for $263.3 million in total. GFI
manufactures and sells dehydrated onion, garlic, capsicum and vegetable
products. GEC operates an energy cogeneration facility.
The sale of GFI and GEC resulted in a $478 loss ($291 after tax) and
has been included in the caption, "Income from discontinued operations,
net of income taxes" in the Consolidated Income Statement. The operating
results of GFI and GEC have been reclassified for all periods presented
on the Consolidated Income Statement to the caption, "Income from
discontinued operations, net of income taxes." This caption includes
interest expense based on the debt specifically associated with GEC and
an allocation of interest to GFI assuming a debt to capital ratio similar
to the Company's. Income taxes have also been allocated based on the
statutory tax rates applicable to GFI and GEC. The income and
expense disclosures in Notes to Consolidated Financial Statements
exclude discontinued operations. Sales, interest expense and income
taxes applicable to discontinued operations are as follows:
1996 1995 1994
Net sales $129,373 $167,608 $165,358
Interest expense 11,173 15,972 13,074
Income taxes 3,841 5,834 10,235
The Company signed a three-year non-compete agreement with Calpine
Corporation. Under this agreement, McCormick received a 1996 payment
of $4,500, which is included in "Other (income) expense - net" in the
Consolidated Income Statement.
4. Investments:
The Company owns from 30% to 50% of its unconsolidated food products
affiliates. Although the Company reports its share of net income from
the affiliates, their financial statements are not consolidated with
those of the Company. The Company's share of undistributed earnings of
the affiliates was $30,845 at November 30, 1996.
Summarized year-end information from the financial statements of these
companies representing 100% of the businesses follows:
Unconsolidated Affiliates
1996 1995 1994
Current assets $149,860 $113,486 $144,781
Noncurrent assets 79,566 70,670 80,087
Current liabilities 96,085 77,229 94,847
Noncurrent liabilities 45,988 42,362 43,157
Net sales 327,967 297,823 342,163
Gross profit 121,469 107,257 130,132
Net income 12,907 3,730 16,777
5. Financing Arrangements:
The Company's outstanding debt is as follows:
1996 1995
Short-term borrowings
Commercial paper $ 59,282 $261,705
Other 39,168 23,256
$ 98,450 $284,961
Weighted average interest rate at year end 6.54% 6.84%
Long-term debt
8.95% note due 2001 $ 74,504 $ 74,420
9.00% and 9.75% installment notes
due through 1999 and 2001 16,114 24,318
5.78% - 7.77% medium-term notes due
2004 to 2006 95,000 95,000
7.63% - 8.12% medium-term notes due 2024
with put option in 2004 55,000 55,000
9.34% pound sterling installment note due
through 2001 17,252 16,447
10.00% Canadian dollar bond due 1999 7,400 7,352
3.13% yen note due 1999 2,953 4,993
9.74% Australian dollar note due 1999 9,792 8,918
Other 13,179 9,695
Total excluding non-recourse debt 291,194 296,143
11.68% non-recourse installment note due 2006 - 52,968
$291,194 $349,111
The sale of GEC in 1996 necessitated prepayment of the 11.68% non-recourse
installment note due 2006. The prepayment resulted in an extraordinary loss
of $7,806, net of income tax benefits of $4,990.
The Company has available credit facilities with domestic and foreign
banks for various purposes. The available credit facilities and the amounts
outstanding under each category of facility (and included in debt above)
are as follows:
1996 1996 1995 1995
Total Amount Total Amount
Facility Borrowed Facility Borrowed
Available credit
facilities In support
of commercial paper
issuance $300,000 $ - $380,000 $ -
For the benefit of foreign
subsidiaries 90,577 39,168 83,185 23,109
Other 245,000 - 250,000 -
$635,577 $ 39,168 $713,185 $ 23,109
The Company's long-term debt agreements contain various restrictive
covenants, including limitations on the payment of cash dividends.
Under the most restrictive covenants, $215,783 of retained earnings
was available for dividends at November 30, 1996.
The holders of the medium-term notes due 2024 have a one-time option
to require retirement of these notes during 2004. Maturities of long-term
debt during the four years subsequent to November 30, 1997 are as
follows:
1998 - $15,524 2000 - $ 7,566
1999 - $28,173 2001 - $87,179
Credit facilities in support of commercial paper issuance require a
commitment fee of $225. All other credit facilities require no commitment
fee. Credit facilities for other purposes are subject to the availability
of funds.
At November 30, 1996, the Company had unconditionally guaranteed $17,035
of the debt of non-consolidated affiliates.
Interest paid in 1996, 1995 and 1994 was $47,330; $51,641 and $35,576
respectively.
Rental expense under operating leases was $12,428 in 1996; $11,616 in 1995
and $11,333 in 1994. Future annual fixed rental payments for the years
ending November 30, are as follows:
1997 - $10,163 2000 - $ 6,036
1998 - $ 7,447 2001 - $ 5,399
1999 - $ 6,244 Thereafter - $12,744
The Company has guaranteed the residual value of a leased distribution
center at 85% of its original cost.
6. Employee Benefit Plans
The net periodic cost of the Company's employee benefit plans follows:
1996 1995 1994
Pension plans
Defined benefit plans
Service cost $ 5,741 $ 5,509 $ 7,124
Interest cost on
projected benefit
obligations 10,380 9,972 9,909
Actual return on plan
assets (10,284) (14,067) 116
Net amortization and
deferral 1,425 6,904 (6,808)
Net pension cost 7,262 8,318 10,341
Foreign and other retirement
plans 3,072 2,957 2,013
Total pension expense $10,334 $11,275 $12,354
Profit sharing plan expense $ 3,175 $ 3,150 $ 6,250
Other postretirement benefits
Service cost $ 2,026 $ 1,829 $ 2,368
Interest cost 4,603 4,614 3,775
Amortization of prior
service cost (75) (111) -
Total other postretirement
benefit expense $ 6,554 $ 6,332 $ 6,143
Pension Plans
The Company has a non-contributory defined benefit plan (the principal
plan) covering substantially all United States employees other than
those covered under union-sponsored plans, and a non-contributory
defined benefit plan (the supplemental plan) providing supplemental
retirement benefits to certain officers. The benefits provided by both
plans are generally based on the employee's years of service and
compensation during the last five years of employment. The Company's
funding policy is to comply with federal laws and regulations and to
provide the principal plan with assets sufficient to meet future
benefit payments. The plan assets for both plans consist
principally of equity securities, fixed income securities and
short-term money market investments. The principal plan and
supplemental plan hold 426,894 and 44,877 shares, respectively, of
the Company's stock at November 30, 1996.
The Company also contributed to union-sponsored, multi-employer
pension plans and certain retirement plans of its foreign subsidiaries.
The following table sets forth the principal and supplemental plans'
funded status at September 30, the measurement date:
1996 1995
Actuarial present value
of benefit obligations:
Vested benefit obligation $117,077 $103,788
Accumulated benefit obligation 123,024 108,449
Projected benefit obligations for
service rendered to date $146,336 $132,063
Plan assets at fair value 117,448 101,331
Projected benefit obligations in
excess of plan assets 28,888 30,732
Unrecognized net loss (24,074) (18,330)
Unrecognized transition asset
and prior service cost 1,352 1,894
Pension liability included in the
Consolidated Balance Sheet $ 6,166 $14,296
1996 1995
Significant assumptions:
Discount rate 7.5% 8.0%
Salary scale 4.5% 5.0%
Expected return on plan assets 10.5% 10.5%
The conversion from a direct sales force to a broker sales force for
certain regions in the United States, which was a component of the
business restructuring in 1996, resulted in a curtailment in the
principal plan. The curtailment increased pension liability by $2,520.
Profit Sharing Plan
The Company makes contributions to the McCormick Profit Sharing Plan
in accordance with the Plan's provisions. The Profit Sharing Plan is
available to substantially all United States employees other than those
covered by union-sponsored benefit plans. The Profit Sharing Plan assets
consist principally of equity securities, short-term money market
investments and fixed income securities. The Profit Sharing Plan holds
3,059,420 shares of the Company's voting stock at November 30, 1996.
Other Postretirement Benefits
The Company provides health care and life insurance benefits to eligible
retirees having at least 10 years of service. Health care benefits are
also extended to eligible dependents of retirees as long as the retiree
remains covered. Health care benefits are based on the retiree's age and
service at retirement and require other cost-sharing features, such as
deductibles and co-insurance. Life insurance protection is non-contributory.
Other postretirement benefit plans are generally not funded.
The following table sets forth the amounts recognized in the Company's
Consolidated Balance Sheet as of November 30, the measurement date:
1996 1995
Accumulated other postretirement
benefit obligation
Retirees $38,006 $34,961
Fully eligible active participants 3,150 5,887
Other active participants 21,138 18,519
62,294 59,367
Unrecognized net (gain)/loss (496) (1,473)
Unrecognized prior service cost 967 1,616
Accrued other postretirement benefit
liability included in the Consolidated
Balance Sheet $62,765 $59,510
The assumed annual rate of increase in the cost of covered health
care benefits is 10.0% for 1997. It is assumed to decrease gradually
to 4.5% in the year 2007 and remain at that level thereafter. Increasing
this assumed health care cost trend rate by one percentage point in each
year would increase the accumulated postretirement benefit obligation
at November 30, 1996 by $6,711 and the aggregate of the service and
interest cost components of net periodic other postretirement benefit
cost for 1996 by $822.
The assumed weighted average discount rates were 7.5% for 1996 and 8.0%
for 1995.
Stock Purchase and Option Plans
The Company has an Employee Stock Purchase Plan enabling substantially
all United States employees to purchase the Company's common stock at the
lower of the stock price on the grant date or the exercise date. Under
this plan, a total of 2,507 employees had outstanding subscriptions for
a total of 240,468 shares with a grant price of $22.00 per share at
November 30, 1996. The last date for exercise of the outstanding
subscriptions is May 31, 1997.
Under the Company's 1984 and 1990 Stock Option Plans and the McCormick
(U.K.) Share Option Schemes, options to purchase shares of the Company's
common stock have been or may be granted to employees. The option
price for shares granted under these plans is the fair market value
on the grant date. At November 30, 1996, the average exercise price
of outstanding options was $22.79 per share, and the expiration
dates range from March 17, 1997 to March 19, 2006. The changes in
outstanding stock options and stock subscriptions during the past
three years were:
Common Price
Common Non-Voting Range Per Share
(shares in thousands)
Outstanding December 1, 1993 1,208 1,816 $ 4.41 - $26.00
Granted to 415 employees under
Stock Option Plans 384 130 $18.50 - $23.00
Exercised (340) (408) $ 4.56 - $22.63
Cancelled or expired (4) (137) $ 4.56 - $26.00
Outstanding November 30, 1994 1,248 1,401 $ 4.41 - $26.00
Granted to 412 employees under
the Stock Option Plans and
3,146 employees in the Employee
Stock Purchase Plan 376 604 $22.00
Exercised (293) (494) $ 4.41 - $23.00
Cancelled or expired (30) (253) $11.06 - $26.00
Outstanding November 30, 1995 1,301 1,258 $ 4.41 - $26.00
Granted to 372 employees under
Stock Option Plans 534 179 $20.75 - $22.38
Exercised (189) (193) $11.06 - $23.00
Cancelled or expired (9) (144) $ 4.41 - $23.00
Outstanding November 30, 1996 1,637 1,100 $ 4.66 - $26.00
Under all stock purchase and option plans, there were 1,927,751
shares reserved for future grants and 1,779,837 exercisable at
November 30, 1996 and 2,270,228 shares reserved for future grants
and 1,784,544 exercisable at November 30, 1995.
7. Income Taxes:
For financial reporting purposes, sources of income from consolidated
continuing operations before income taxes were:
1996 1995 1994
Pretax income
United States $ 59,309 $104,270 $ 55,416
International 2,425 28,336 2,627
$ 61,734 $132,606 $ 58,043
Significant components of income taxes were:
Current
United States $ 33,503 $ 17,793 $ 31,818
State 8,448 5,177 6,683
International 8,288 8,212 8,391
Total current 50,239 31,182 46,892
Deferred
United States (20,036) 13,891 (16,107)
State (2,822) 2,183 (3,262)
International (3,510) 610 (4,008)
Total deferred (26,368) 16,684 (23,377)
$ 23,871 $ 47,866 $ 23,515
Tax expense (benefits) allocated directly to equity components was as follows:
Relating to employee stock options $(118) $(439) $(608)
Relating to foreign currency
translation adjustment - - (540)
Differences between income taxes computed at the United States federal
statutory rate and actual income taxes are as follows:
1996 1995 1994
Amount Percent Amount Percent Amount Percent
Tax at United States
statutory rate $21,607 35.0% $46,412 35.0% $20,315 35.0%
State income taxes, net of
United States benefits 2,648 4.3 5,689 4.3 2,490 4.3
(Lower)/higher effective
income taxes on earnings
in other countries 3,929 6.4 (423) (.3) 1,940 3.3
Rehabilitation investment and
other tax credits (2,674) (4.3) (3,553) (2.7) (1,156) (2.0)
Amended prior year
tax return (3,938) (6.4)
Other items 2,299 3.7 (259) (.2) (74) (.1)
Income tax expense $23,871 38.7% $47,866 36.1% $23,515 40.5%
[photo: Our new distribution center consolidates activities from numerous
facilities.]
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities consist of the following:
1996 1995
Current deferred income tax assets
Restructuring liability $ 13,183 $ 9,207
Employee benefits 7,839 8,229
State income tax 5,677 4,987
Accrued liabilities 3,807 4,132
Inventory 2,951 6,535
Bad debt reserve 2,320 807
Prepaid and other assets (2,214) (816)
Other 199 899
Total current deferred income
tax assets $ 33,762 $ 33,980
Noncurrent deferred income tax assets
Employee benefits $ 27,744 $ -
Property, plant and equipment (26,699) -
Accrued liabilities 5,516 -
Intangible assets (2,473) -
Prepaid allowances 1,649 -
Other 350 -
Total noncurrent deferred income
tax assets $ 6,087 $ -
Noncurrent deferred income tax
(liabilities)
Property, plant and equipment $ (4,937) $(51,555)
Employee benefits - 29,376
Accrued liabilities - 3,291
Prepaid allowances - 1,938
Intangible assets - (1,231)
Other - (7,255)
Total noncurrent deferred income
tax (liabilities) $ (4,937) $(25,436)
In addition to the deferred tax assets shown in the table, the Company
also has certain tax credit carryforwards of $4,888 in 1996 and $3,888
in 1995. These tax credit carryforwards have been fully reserved due
to the restrictive provisions for their use in offsetting future taxes.
Deferred tax liabilities decreased significantly in 1996 primarily
due to deferred tax liabilities of GEC, which was sold, causing
these taxes to become currently payable. The remaining deferred tax
assets are primarily in the United States. The Company has a
history of having United States taxable income and anticipates
future taxable income to realize these assets.
United States income taxes are not provided for unremitted earnings of
international subsidiaries and affiliates. The Company's intention
is to reinvest these earnings permanently or to repatriate the
earnings only when it is tax effective to do so. Accordingly, the
Company believes that any United States tax on repatriated earnings
would be substantially offset by United States foreign tax credits.
Unremitted earnings of such entities were $86,679 at November 30,
1996.
Income taxes paid in 1996, 1995 and 1994 were $44,875;
$38,214 and $84,384 respectively.
8. Capital Stocks:
Holders of Common Stock have full voting rights except that (1) the
voting rights of persons who are deemed to own beneficially 10% or
more of the outstanding shares of voting Common Stock are limited to
10% of the votes entitled to be cast by all holders of shares of Common
Stock regardless of how many shares in excess of 10% are held by
such person; (2) the Company has the right to redeem any or all
shares of stock owned by such person unless such person acquires
more than 90% of the outstanding shares of each class of the
Company's Common Stock; and (3) at such time as such person
controls more than 50% of the vote entitled to be cast by the
holders of outstanding shares of voting Common Stock,
automatically, on a share-for-share basis, all shares of Common
Stock Non-Voting will convert into shares of Common Stock.
Holders of Common Stock Non-Voting are entitled to vote on reverse
mergers and statutory share exchanges where the capital stock of the
Company is converted into other securities or property, dissolution
of the Company and the sale of substantially all of the assets of
the Company, as well as forward mergers and consolidation of the
Company.
Holders of Common Stock Non-Voting will vote as a
separate class on all matters on which the holders of Common Stock
Non-Voting are entitled to vote.
9. Fair Value and Financial Instruments:
Cash and cash equivalents, trade receivables, short-term borrowings,
accounts payable and accrued liabilities: The amounts reported in the
Consolidated Balance Sheet approximate fair value.
Long-term debt: The fair value of long-term debt, based on a discounted
cash flow analysis using the Company's current incremental borrowing rate
for debt of similar maturities is as follows:
1996 1995
Fair Carrying Fair Carrying
Value Value Value Value
Long-term debt
(including current portion) $312,697 $301,671 $405,702 $361,463
Investments: Investments, consisting principally of investments in
unconsolidated affiliates, are not readily marketable. Therefore,
it is not practicable to estimate their fair value.
Forward exchange contracts for foreign currency: Forward exchange
contracts at November 30, 1996 are summarized as follows:
Nominal Value Fair Value
Currency sold
UK pound sterling $ 7,255 $(398)
Canadian dollar 8,000 97
Other currencies 10,337 (219)
All contracts outstanding hedge foreign currency commitments and,
accordingly, have no carrying amount on the balance sheet. The loss
explicitly deferred is $581 and is expected to be realized in 1997
as these transactions are realized. Other currencies in the table above
include the Swiss franc, South African rand, Australian dollar and
Japanese yen.
The fair value of forward exchange contracts is estimated using quoted
market prices for comparable instruments.
10. Business Segments and Geographic Areas:
Business Segments
The Company operates in two business segments, Food Products and
Packaging Products. The Food Products segment manufactures, markets
and distributes spices, seasonings, flavorings and other specialty
food products and sells these products to the retail food market,
the foodservice market and to industrial food processors throughout
the world. The Food Products segment represents the majority of the
Company and, accordingly, all Corporate items and eliminations have
been included in this segment. The Packaging Products segment
manufactures and markets plastic packaging products for the food,
cosmetic and health care industry, predominantly in the United States.
Food Packaging
Products Products Consolidated
1996
Net sales $1,532,296 $200,210 $1,732,506
Operating income (loss)(F1) 99,169 (5,878) 93,291
Identifiable assets 1,196,514 130,095 1,326,609
Capital expenditures 63,526 11,128 74,654
Depreciation and amortization 51,758 12,030 63,788
1995
Net sales $1,501,763 $189,323 $1,691,086
Operating income 153,287 19,309 172,596
Identifiable assets 1,473,006 141,335 1,614,341
Capital expenditures 70,357 11,783 82,140
Depreciation and amortization 51,083 12,615 63,698
1994
Net sales $1,355,180 $174,234 $1,529,414
Operating income(F2) 64,216 21,826 86,042
Identifiable assets 1,434,251 134,450 1,568,701
Capital expenditures 67,986 19,690 87,676
Depreciation and amortization 49,122 13,418 62,540
<FN>
(F1) Includes restructuring charges of $41,085 for Food Products and
$17,010 for Packaging Products.
(F2) Includes restructuring charges of $70,445 for Food Products and $0
for Packaging Products.
</FN>
Packaging net sales include sales to the Food Products segment of
$30,186 in 1996; $34,527 in 1995 and $32,542 in 1994.
Geographic Areas
North Other
America Europe Countries Total
1996
Net sales $1,311,292 $325,683 $95,531 $1,732,506
Net income (loss) - continuing
operations(F1) 52,197 84 (8,806) 43,475
Assets 984,676 254,576 87,357 1,326,609
1995
Net sales $1,276,066 $325,019 $90,001 $1,691,086
Net income - continuing operations 74,090 10,016 2,702 86,808
Assets 1,332,342 223,718 58,281 1,614,341
1994
Net sales $1,236,179 $239,353 $53,882 $1,529,414
Net income (loss) - continuing
operations(F2) 50,486 (6,286) (1,743) 42,457
Assets 1,324,474 202,612 41,615 1,568,701
<FN>
(F1) Includes net restructuring charges of $19,614 for North America,
$10,195 for Europe and $9,773 for Other Countries.
(F2) Includes net restructuring charges of $34,162 for North America and
$12,133 for Europe.
</FN>
Prior year amounts have been restated to conform to the restated
Consolidated Income Statement.
11. Supplemental Financial Statement Data:
1996 1995
Inventories:
Finished products and
work-in-process $125,849 $250,865
Raw materials and supplies 119,240 132,357
Inventories $245,089 $383,222
Property, plant and equipment:
Land and improvements $ 27,260 $ 30,645
Buildings 179,599 211,859
Machinery and equipment 432,525 595,682
Construction in progress 54,410 59,207
Accumulated depreciation (293,400) (372,586)
Property, plant and
equipment - net $400,394 $524,807
Other accrued liabilities:
Payroll and employee benefits $ 42,031 $ 41,935
Restructuring 42,332 18,918
Sales allowances 37,036 36,516
Income taxes 8,734 11,025
Other 106,658 94,486
Other accrued liabilities $236,791 $202,880
Goodwill:
Cost $211,035 $216,140
Accumulated amortization (45,969) (35,389)
Goodwill - net $165,066 $180,751
1996 1995 1994
Income statement:
Depreciation $49,222 $45,064 $46,329
Research and development 12,216 12,015 11,162
Average shares outstanding 80,641 81,181 81,240
[photo: Our Guangzhou facility opened with a Chinese celebration.]
12. Quarterly Data (Unaudited):
1996 Quarters
1st 2nd 3rd 4th Year
Net sales $ 395,799 $ 393,828 $ 405,451 $ 537,428 $1,732,506
Cost of goods sold 262,507 273,333 269,115 323,077 1,128,032
Gross profit 133,292 120,495 136,336 214,351 604,474
Selling, general and administrative
expense 110,828 98,563 103,184 140,513 453,088
Restructuring charge - - 57,538 557 58,095
Operating income 22,464 21,932 (24,386) 73,281 93,291
Interest expense 8,773 7,952 8,082 9,004 33,811
Other (income) expense - net (1,186) 818 524 (2,410) (2,254)
Income from consolidated continuing
operations before income taxes 14,877 13,162 (32,992) 66,687 61,734
Income taxes 5,361 4,695 (9,871) 23,686 23,871
Net income from consolidated
continuing operations 9,516 8,467 (23,121) 43,001 37,863
Income from unconsolidated operations 296 929 1,557 2,830 5,612
Net income from continuing operations 9,812 9,396 (21,564) 45,831 43,475
Income from discontinued operations,
net of income taxes (462) 1,599 5,112 - 6,249
Net income before extraordinary item 9,350 10,995 (16,452) 45,831 49,724
Extraordinary loss from early
extinguishment of debt, net of
income tax benefit - - (7,806) - (7,806)
Net income $ 9,350 $ 10,995 $(24,258) $ 45,831 $ 41,918
Earnings per share
Continuing operations $.12 $.12 $(.26) $.58 $.54
Discontinued operations - .02 .06 - .08
Extraordinary loss from early
extinguishment of debt - - (.10) - (.10)
Earnings per share $.12 $.14 $(.30) $.58 $.52
1995 Quarters
1st 2nd 3rd 4th Year
Net sales $392,233 $408,504 $384,008 $506,341 $1,691,086
Cost of goods sold 261,850 270,940 260,621 313,524 1,106,935
Gross profit 130,383 137,564 123,387 192,817 584,151
Selling, general and administrative
expense 94,751 103,839 92,246 124,623 415,459
Restructuring charge (credit) (3,904) - - - (3,904)
Operating income 39,536 33,725 31,141 68,194 172,596
Interest expense 9,692 9,471 9,655 10,480 39,298
Other (income) expense - net (1,831) 1,270 459 794 692
Income from consolidated continuing
operations before income taxes 31,675 22,984 21,027 56,920 132,606
Income taxes 11,910 8,342 7,109 20,505 47,866
Net income from consolidated continuing
operations 19,765 14,642 13,918 36,415 84,740
Income from unconsolidated operations (796) 466 706 1,692 2,068
Net income from continuing operations 18,969 15,108 14,624 38,107 86,808
Income from discontinued operations,
net of income taxes 377 934 5,291 4,111 10,713
Net income $ 19,346 $ 16,042 $ 19,915 $ 42,218 $ 97,521
Earnings per share
Continuing operations $.24 $.19 $.18 $.47 $1.07
Discontinued operations - .01 .07 .05 .13
Earnings per share $.24 $.20 $.25 $.52 $1.20
During the third quarter of 1996, the Company sold Gilroy Foods, Inc. and
Gilroy Energy Company and reported these businesses as discontinued
operations.
Changes in previously reported quarterly results are due to the
reclassification of discontinued operations using the accounting
methods described in Note 3.
Management's Responsibility for Financial Statements
The consolidated financial statements of McCormick & Company, Incorporated
and subsidiaries have been prepared by the Company in accordance with
generally accepted accounting principles. Management has primary
responsibility for the financial information presented and has applied
judgment to the information available, made estimates and given due
consideration to materiality in preparing the financial information in this
annual report.
The financial statements, in the opinion of management, present fairly
the consolidated financial position, results of operations and cash flows
of the Company and subsidiaries for the stated dates and periods in
conformity with generally accepted accounting principles. The financial
statements in this report have been audited by the Company's independent
auditors, Ernst & Young LLP. The independent auditors review and
evaluate control systems and perform such tests of the accounting
information and records as they consider necessary to reach their
opinion on the Company's consolidated financial statements. In
addition, McCormick's Internal Audit function performs audits of
accounting records, reviews accounting systems and internal
controls, and recommends improvements when appropriate.
The Audit Committee of the Board of Directors is composed of outside
directors. The committee meets periodically with the Internal Audit
staff, with members of management and with the independent auditors
in order to review annual audit plans, financial information and
the Company's internal accounting and management controls.
The Company believes that it maintains accounting systems and related
controls, and communicates policies and procedures, which provide
reasonable assurance that the financial records are reliable, while
providing appropriate information for management of the business
and maintaining accountability for assets.
/s/Robert J. Lawless
Robert J. Lawless
President & Chief Executive Officer
/s/Robert G. Davey
Robert G. Davey
Executive Vice President & Chief Financial Officer
/s/J. Allan Anderson
J. Allan Anderson Vice President & Controller, Chief Accounting
Officer
Report of Independent Auditors
To the Shareholders
McCormick & Company, Incorporated
We have audited the accompanying consolidated balance sheets of
McCormick & Company, Incorporated and subsidiaries as of November 30, 1996
and 1995 and the related consolidated statements of income, cash flows
and shareholders' equity for each of the three years in the period ended
November 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of McCormick &
Company, Incorporated and subsidiaries at November 30, 1996 and 1995 and
the consolidated results of their operations and their cash flows for each
of the three years in the period ended November 30, 1996 in conformity
with generally accepted accounting principles.
/s/Ernst & Young LLP
Baltimore, Maryland
January 16, 1997
Management's Discussion and Analysis
Overview
For 1996, the Company reported net income of $41.9 million or $.52 per
share compared to $97.5 million or $1.20 per share last year. During
1996, the Company recorded a business restructuring charge,
reported discontinued operations for the sale of both Gilroy Foods,
Incorporated and Gilroy Energy Company, Inc. and recorded an
extraordinary loss on prepayment of debt associated with Gilroy
Energy. Excluding these transactions, net income on a comparable
basis was $83.1 million or $1.03 per share compared to $84.5
million or $1.04 per share last year.
Comparable earnings (excluding restructuring, discontinued operations
and the extraordinary item) for the first half of the year were less than
the same period in 1995. However, the second half of 1996 showed
improved comparable earnings over the same period in 1995.
[Graph]
Net Sales
(Continuing Operations)
1992 1993 1994 1995 1996
(dollars in millions)
$1,324 $1,401 $1,529 $1,691 $1,733
Business Restructuring
Over the past several years, the Company has experienced a significantly
increased global competitive environment. Additionally, there have been
several changes in management of the Company. These two factors have
been the primary drivers in a reassessment of the global strategic
direction and focus of the Company. As a result, the Company conducted a
portfolio review of its businesses with the intent of increasing
focus on core businesses. Additionally, the Company is continually
evaluating methods of improving its cost structure as it responds
to the competitive environment.
As a result of both the portfolio review and the cost structure
improvement process, the Company began implementation of a restructuring
plan and recorded a restructuring charge of $58.1 million in 1996.
This charge reduced net income by $39.6 million or $.49 per share.
In addition, there are approximately $1.9 million of additional charges
($.02 per share) directly related to the restructuring plan which could
not be accrued but will be expensed as the plan is implemented.
Specific actions under this plan include: the divestiture of
certain small non-core businesses; the divestiture of Giza National
Dehydration Company (Giza) of Egypt, which is consistent with the
Company's sale of Gilroy Foods, Giza's parent company; closing the
Brooklyn, New York packaging plant; the exit from certain minor,
non-core product lines; the rationalization of certain overseas
manufacturing facilities; and in our consumer business, the
conversion from a direct sales force to a broker sales force for
certain regions in the U.S.
Major components of the restructuring charge include: severance and
personnel costs of $10.0 million; a $44.6 million write-down to net
realizable value of assets and businesses identified for disposal,
and other exit costs of $3.6 million. The $1.9 million of additional
charges which will be expensed during the implementation are
principally costs to move equipment and personnel.
These actions are expected to be completed in 1997 and will require
net cash outflows of approximately $12.0 million. Net sales of the
small non-core businesses and Giza, which are being divested by these
actions, were approximately 7% of consolidated net sales.
The Company believes that the benefits from these actions will be
twofold. First, the Company will be strategically aligned to concentrate
on its core businesses. Second, the Company anticipates savings as
a result of these actions. These savings will be used to invest in
the Company's brands through product development and consumer promotional
activity, to maintain low-cost producer status in our core
businesses and to support our global expansion strategy.
The Company believes that this restructuring will enhance its ability
to achieve its financial objectives. Realization of the savings
from these actions, however, is dependent on the timing and
effectiveness of the execution of these actions and the response of
our competitors and customers.
As of November 30, 1996, the Brooklyn, New York packaging plant has
been closed with production transferred to another U.S. plant. Also,
the conversion to a broker sales force and exit from certain minor
non-core product lines is complete. In December 1996, the Company
entered into agreements to sell the Minipack business in the United
Kingdom and Giza in Egypt.
Discontinued Operations
On August 29, 1996, the Company sold substantially all of the assets of
Gilroy Foods, Incorporated (GFI) and Gilroy Energy Company, Inc. (GEC) to
ConAgra, Inc. and Calpine Corporation, respectively, for $263.3
million. GFI manufactures and sells dehydrated onion, garlic,
capsicum and vegetable products. GEC operates an energy
cogeneration facility.
The sale of GFI and GEC resulted in a $.5 million loss ($.3 million after
tax) and has been included in the caption, "Income from discontinued
operations, net of income taxes" in the Consolidated Income Statement.
The operating results of GFI and GEC have been reclassified on the
Consolidated Income Statement to the caption, "Income from discontinued
operations, net of income taxes," for all periods presented.
The sale of Gilroy Energy Company necessitated prepayment of the 11.68%
non-recourse installment note. The prepayment resulted in an
extraordinary net loss of $7.8 million. The Company used the
proceeds of the business sales net of the debt prepayment to pay
down short-term borrowings.
Results of Operations
1996 compared to 1995
The charts that follow set forth the changes in net sales from
continuing operations when compared to the prior years. Sales from
continuing operations increased 2.4% to $1.7 billion. The sales comparison
is impacted by a number of non-recurring factors. First, in 1995,
the Company changed the year-end reporting period for foreign
subsidiaries from October 31 to November 30 to provide uniform reporting
worldwide, which had the effect of an additional month of sales for
the foreign units in 1995. Also in 1995, the Company sold its frozen
food business at the end of the first quarter. Thus, one quarter's sales
for this divested business is included in 1995 sales. In 1996, the Cake Mate
brand was transferred to a joint venture to form Signature Brands,
the sales of which are no longer accounted for in the Company's
consolidated results. These changes had the effect of reducing
sales by 4.2% versus 1995. On a comparable basis, after adjusting
for these factors, sales increased 6.6%.
Sales were up due to both volume and price increases, partially offset
by unfavorable foreign exchange translations. Retail growth in the
Americas Zone was due to price increases and volume gains in a number of
heavily promoted product lines. Sales increases for the European Zone were
masked by the change in fiscal year mentioned above and unfavorable
currency exchange translations. Sales continue to grow strongly in
the Asia/Pacific Zone as we expand into new markets and introduce
new products.
Sales of unconsolidated operations increased 10.1% in 1996 due principally
to the sales of Signature Brands, a new joint venture in 1996. Foreign
exchange translations, primarily due to a weaker Japanese yen and Mexican
peso, had a negative effect on unconsolidated sales.
Operating income, excluding restructuring, as a percentage of net sales
decreased from 10.0% in 1995 to 8.7% in 1996.
Gross profit as a percentage of sales increased from 34.5% in 1995 to
34.9% in 1996. Gross margin percentages increased in both our U.S. retail
and industrial businesses as compared to last year. These were partially
offset by a slightly reduced gross margin percentage in our European
business and a more significant reduction in our U.S. packaging business.
In the U.S. retail business, gross margins improved during the year
due to stronger sales in our higher margin core businesses,
particularly in the second half of the year. The decreased gross
margin percentage in packaging products is due to competitive
pricing pressures, a write-off of inventory for products that have
been discontinued and manufacturing inefficiencies.
Selling, general and administrative expenses were higher than last
year on both a dollar basis and as a percentage of sales. The increase is
mainly due to additional advertising and promotion spending as the
Company continues to market the McCormick brand name more aggressively,
the adjustment of certain employee benefit accruals in both years and
increased information systems spending to allow the Company's systems
to cope with the change to the year 2000.
Interest expense decreased $5.5 million in 1996 as compared to
1995. This decrease is due to both declines in borrowing levels and
lower borrowing rates. In reclassifying the Statement of Income for
discontinued operations, interest expense was allocated to
discontinued operations. See Notes to Consolidated Financial
Statements for the amounts and methods of allocation used.
Other (income) expense - net includes $4.5 million of income from the
non-compete agreement relating to the GEC sale.
The Company recorded income tax expense on Income from Continuing
Operations at an effective rate of 38.7% in 1996 as compared to a
rate of 36.1% in 1995. The increased rate is due to certain
restructuring charges which are not tax deductible and the mix of
tax rates from differing tax jurisdictions. Excluding the effects of the
restructuring, the Company's effective tax rate is approximately
35.5% for 1996. This tax rate is lower in 1996 than what can be
expected in the future due to the favorable effect of refunds of
certain U.S. tax credits from prior years. In reclassifying the
Statement of Income for discontinued operations, income taxes were
allocated to discontinued operations. See Notes to Consolidated
Financial Statements for the amounts and methods of allocation
used.
Deferred tax liabilities decreased significantly in 1996
primarily due to deferred tax liabilities of GEC which was sold,
causing these taxes to become currently payable. The remaining
deferred tax assets are primarily in the United States. The Company
has a history of having United States taxable income and
anticipates future taxable income to realize these assets.
Income from unconsolidated operations improved in 1996 as compared
to 1995 mainly due to improved results of our Mexican joint venture
and the results of the Company's new joint venture, Signature Brands.
In the first quarter of fiscal 1995, the Company changed the end of
the reporting period for foreign subsidiaries from October 31 to
November 30 to provide uniform reporting on a worldwide basis.
Accordingly, an additional month of operation results for those
subsidiaries is included in the first quarter 1995 results, which
increased net income by $1.4 million.
Results of Operations
1995 compared to 1994
Sales from continuing operations grew 10.6% in 1995 to $1.7 billion.
The substantial growth in sales was primarily the result of volume gains
across all operating units with particularly strong performance from the
industrial, European and Asia/Pacific operations.
Sales from businesses acquired in 1994 contributed to the increase
over prior year sales. Additionally, in the first quarter of fiscal 1995,
the Company changed the end of the reporting period for foreign
subsidiaries from October 31 to November 30 to provide uniform
reporting on a worldwide basis. Net sales before acquisitions,
divestitures and the change for foreign susidiaries grew 8.1% over
1994.
Sales of unconsolidated operations in 1995 were $297.8 million, a
decrease of 13.0% versus the prior year. The decrease was primarily
due to the devaluation of the peso and resulting economic problems
in Mexico. The Mexican peso was devalued approximately 52% in 1995.
While we maintained a high market share for our Mexican mayonnaise
products, unit volumes declined 10% as a result of the economic conditions
that weakened consumer purchasing power.
Sales from Continuing Operations
1996 1995 1994
(in millions)
Americas
Retail $615,719 $ 600,606 $ 582,751
Industrial & foodservice 549,739 547,415 523,885
Europe
Retail 223,327 228,097 186,074
Industrial 97,698 94,262 55,567
Asia/Pacific
Retail 41,944 34,166 18,258
Industrial & foodservice 34,055 31,744 21,187
Packaging 170,024 154,796 141,692
Total $1,732,506 $1,691,086 $1,529,414
Sales from Continuing Operations
1996 1995 1994
(percentage increase)
Americas
Retail 2.5% 3.1% 2.2%
Industrial & foodservice 0.4 4.5 10.7
Europe
Retail (2.1) 22.6 13.3
Industrial & foodservice 3.6 69.6 45.1
Asia/Pacific
Retail 22.8 87.1 20.5
Industrial & foodservice 7.3 49.8 42.8
Packaging 9.8 9.2 13.4
Total 2.4% 10.6% 9.2%
Sales Increase Analysis
1996 1995 1995
Volume change 2.6% 4.6% 5.1%
Price and mix change 4.8 3.2 1.4
Foreign currency change (0.8) 0.3 (0.0)
Other Changes (F1) (4.2) 2.5 2.7
Total change from continuing
operations 2.4% 10.6% 9.2%
<FN>Other changes include the disposal of businesses which are not accounted for as
discounted operations, business acquisitions and the effect of the change in
reporting period for foreign subsidiaries.
</FN>
The Company's gross profit margin decreased to 34.5% versus 36.5% for the
same period last year. The overall decline was a result of higher raw
material costs and higher mix of lower margin industrial sales. Multiple
cost increases in plastic resins and corrugated packaging negatively
impacted margins in our food and plastics businesses. Additionally,
increases in pepper costs had an adverse impact on all of our food
businesses. Gross margins improved as expected in our industrial flavor
and seasoning business. Competitive intensity in most of the markets in which we
do business increased in 1995.
Operating income increased to 10.2% of sales from 5.6% in 1994. Excluding
the restructuring charge and credit, operating profit margins declined
in 1995 to 10.0% from 10.2% in the prior year. Cost savings, mainly in the
administrative functions, partially offset weakened gross profit
margins. These savings are the result of the Company's restructuring
program.
Interest expense increased to $39.3 million in 1995 versus $25.6 million
in 1994. The higher financing costs were caused by higher debt levels.
Debt was used to finance acquisitions made in the previous year, higher
levels of prepaid allowances and higher working capital levels. Increases
in working capital were partially caused by temporary inventory buildup as
we consolidated plants identified for closing in our restructuring
program. We also made strategic purchases of certain commodities which
were expected to rise in cost and/or be in short supply.
Unconsolidated income from joint ventures decreased to $2.1 million
in 1995, down from $7.9 million in 1994. As mentioned previously,
the decline was primarily the result of weakness in our Mexican
operations brought on by the devaluation of the Mexican peso.
The Company's effective income tax rate for the year was 36.1%, 4.4
percentage points lower than the comparable rate for 1994. Factors
contributing to the favorable rate were lower effective
international income tax rates and higher United States income tax
credits.
Earnings per share for 1995 were $1.20, up 60% over $.75
in 1994. Excluding the restructuring charge in 1994 of $.57 and the
restructuring credit of $.03 in 1995, earnings per share in 1995
were down 11% versus the prior year. Net income was $97.5 million
in 1995, up 59% over 1994. Excluding the restructuring charge and
credit in 1994 and 1995 respectively, net income was down 11%.
Income from discontinued operations decreased mainly due to lower
crop yields for Gilroy Foods garlic.
Restructuring - 1994
In the fourth quarter of 1994, the Company recorded a charge of $70.4
million for restructuring its business operations. At November 30,
1996, the remaining restructuring liability is $14.9 million
principally for realignment of some of our operations in the United
Kingdom which will be completed in early 1997. The Company has
reduced its work force by approximately 540 positions, an
industrial products plant has been closed, a frozen food business
has been sold and a number of administrative activities have been
consolidated. A foodservice products plant was closed in the second
quarter of 1996, and production was transferred to another
facility. A consolidated distribution facility was also completed
in the second quarter of 1996.
Foreign Currency Management
The Company is subject to foreign currency translation risks at all of
its subsidiaries and affiliates located outside the United States,
principally in the United Kingdom, Canada, Australia and Mexico.
Increases or decreases in the value of the applicable foreign currency
relative to the U.S. dollar can increase or decrease the reported net
assets of foreign subsidiaries and reported net investments in foreign
affiliates. During 1995, the Mexican peso devaluation reduced the
Company's equity by $17.9 million. Generally, the Company's foreign
subsidiaries utilize local borrowings to limit their net asset exposure.
Additionally, management periodically enters into hedge contracts to further
reduce translation exposure. At year end, the Company did not have
any hedges in place to cover net asset exposures.
The Mexican economy has experienced increased inflation over the past three
years. This situation will cause the Company to consider Mexico as
highly inflationary for accounting purposes. Starting January 1,
1997, all translation gains or losses for our Mexican operations
will be recorded in the income statement rather than the
translation component of equity.
The Company is also exposed to foreign exchange risk for transactions
that are denominated in other than the applicable local currency. The
Company assesses its risk to foreign currency fluctuation along with other
business risks and opportunities that are caused by fluctuations in foreign
currencies. To reduce these risks, the Company may, from time to
time, enter into hedging contracts. The amount of hedge contracts
outstanding and their fair market value are summarized in the Notes
to Consolidated Financial Statements.
Financial Condition
In the Consolidated Statement of Cash Flows, cash flow from operating
activities increased from $59.4 million in 1995 to $201.7 million
in 1996.
Net income for 1996 was significantly below 1995.However, after adding
back the non-cash charges and credits for restructuring, 1996 was slightly
improved as compared to last year. The principal reason for the increased
operating cash flow is the Company's focus on asset management. All
working capital accounts showed improvement to last year and, in total,
contributed significantly to the increased cash flow. The decline in
prepaid allowances also contributed to increased operating cash flow.
Investing activities generated cash of $187.9 million in 1996 as
compared to a cash outflow of $78.5 million last year. The
significant change is mainly due to cash proceeds received on the
sale of GFI and GEC. An additional $12 million is still due in the
form of a note receivable on these sales. Capital expenditures are
lower than last year as the Company focuses its efforts on more
effective capital spending. The proceeds from the sale of assets
include the sale of certain assets to a joint venture which is now
operating the Cake Mate business and the sale of property no longer
used in the business.
[Graph in chart form]
Capital Expenditures
1992 1993 1994 1995 1996
(dollars in millions)
Capital Expenditures $79.3 $76.1 $87.7 $82.1 $74.7
Depreciation 40.0 47.0 56.8 56.3 57.9
Cash flow from financing activities was a significant use of funds in
1996 as the proceeds from the sale of GFI and GEC were used to reduce
both short-term and long-term debt.
[Graph in chart form]
Cash Flows
From Operations
1992 1993 1994 1995 1996
(dollars in millions)
$117.3 $80.6 $72.5 $59.4 $201.7
In August 1996, the Company announced a new repurchase program to buy back
up to 10 million shares of the Company's outstanding stock from time to time
in the open market. The Company's prior repurchase program (2 million shares) is
complete.
The Company's ratio of debt to total capital was 47.1% as of November 30,
1996, down significantly from 55.5% at November 30, 1995. The improvement
in the debt to capital ratio was the result of the sale of GFI and GEC and
working capital improvement programs.
Management believes that internally generated funds and its existing
sources of liquidity are sufficient to meet current and anticipated
financing requirements over the next 12 months.
Over the last 10 years, dividends have increased 14 times and have
risen at a compounded annual rate of 17% since 1987. Total
dividends paid during fiscal 1996 were $45.3 million versus $42.2
million in 1995 and $39.0 million in 1994. The quarterly dividends
paid during the past three years are summarized below:
1996 1995 1994
First Quarter $ .14 $ .13 $ .12
Second Quarter .14 .13 .12
Third Quarter .14 .13 .12
Fourth Quarter .14 .13 .12
Total $ .56 $ .52 $ .48
In December 1996, the Board of Directors approved a 7% increase in the
quarterly dividend from $.14 to $.15 per share.
The high and low closing prices of common stock during fiscal quarters as
reported on the NASDAQ national market follow:
1996 1995
Quarter ended High Low High Low
February 28 $24.25 $21.25 $22.63 $18.13
May 31 23.13 21.88 23.25 20.44
August 31 22.38 19.25 23.25 20.75
November 30 25.00 20.75 26.50 21.50
[Bar graph]
Debt to Total Capital
1992 1993 1994 1995 1996
42.5% 48.0% 54.6% 55.5% 47.1%
[Bar graph]
Dividends Paid Per Share
1992 - $.38
1993 - $.44
1994 - $.48
1995 - $.52
1996 - $.56
Directors and Officers
Board of Directors
Executive Committee
Charles P. McCormick, Jr.
Robert J. Lawless
Robert G. Davey
Carroll D. Nordhoff
James J. Albrecht
James S. Cook +/
Executive in Residence
College of Business Administration
Northeastern University
Dr. Freeman A. Hrabowski, III
President
University of Maryland Baltimore County
George W. Koch +/
Of Counsel
Kirkpatrick & Lockhart
George V. McGowan /
Chairman of the Executive Committee
Baltimore Gas and Electric Company
Robert W. Schroeder
Vice President & General Manager
McCormick/Schilling Division
Richard W. Single, Sr.
William E. Stevens +/
Senior Vice President
Mills & Partners
Karen D. Weatherholtz
+ Audit Committee Member
/ Compensation Committee Member
Corporate Officers
Charles P. McCormick, Jr.
Chairman of the Board
Robert J. Lawless
President, Chief Executive Officer
Susan L. Abbott
Vice President - Quality Assurance
James J. Albrecht
Vice President -
Science & Technology
J. Allan Anderson
Vice President & Controller
Allen M. Barrett, Jr.
Vice President - Corporate
Communications
Robert G. Davey
Executive Vice President &
Chief Financial Officer
Randall B. Jensen
Vice President -
Operations Resources
Christopher J. Kurtzman
Vice President & Treasurer
C. Robert Miller, II
Vice President - Management
Information Systems
Marshall J. Myers
Vice President - Research &
Technical Development
Carroll D. Nordhoff
Executive Vice President
Robert C. Singer
Vice President -
Acquisitions &
Financial Planning
Richard W. Single, Sr.
Vice President - Government Affairs
& Secretary
Robert W. Skelton
Vice President, General Counsel &
Assistant Secretary
Karen D. Weatherholtz
Vice President -
Human Relations
W. Geoffrey Carpenter
Assistant Secretary &
Associate General Counsel
David P. Smith
Assistant Treasurer
Gordon M. Stetz, Jr.
Assistant Treasurer -
Financial Services
[photo: The Board of Directors: left to right, seated: Koch, McGowan,
Weatherholtz, Single, Nordhoff, Lawless, McCormick; standing: Stevens,
Cook, Albrecht, Hrabowski, Schroeder, Davey.]
McCormick Worldwide
The Americas Market Zone
Consolidated Operating Units
McCormick/Schilling Division
Hunt Valley, Maryland
Robert W. Schroeder
Vice President & General Manager
Food Service Division
Hunt Valley, Maryland
F. Christopher Cruger
Vice President & General Manager
McCormick Canada, Inc.
London, Ontario, Canada
Gerald W. Snowden
President
McCormick de Centro America, S.A.
de C.V.
San Salvador, El Salvador
Arduino Bianchi
Managing Director
McCormick de Venezuela, C.A.
Caracas, Venezuela
Alberto Diaz
Managing Director
Affiliates
McCormick de Mexico, S.A. de C.V. (50%)
Mexico City, Mexico
Signature Brands, L.L.C. (50%)
Ocala, Florida
European Market Zone
John C. Molan
Group Vice President - Europe
Consolidated Operating Units
Global Food Ingredients Europe
Buckinghamshire, England
Cameron D. F. Savage
Managing Director
McCormick U.K. plc
Buckinghamshire, England
John C. Molan
Managing Director
McCormick Glentham (Pty) Limited
Midrand, South Africa
John C. Eales
Managing Director
McCormick S.A.
Regensdorf Z.H., Switzerland
Ernest Abouchar
Managing Director
Oy McCormick Ab
Helsinki, Finland
Risto T. Heiskanen
Managing Director
Asia/Pacific Market Zone
Gary W. Zimmerman
Group Vice President - Asia/Pacific
Consolidated Operating Units
Bruce S. Galanter
Vice President & Managing Director -
Australia/Indonesia
McCormick Foods Australia Pty. Ltd.
Clayton, Victoria, Australia
McCormick (Guangzhou) Food Company, Ltd.
Guangzhou, China
Hector Veloso
General Manager
McCormick Ingredients Southeast Asia Private Limited
Jurong, Republic of Singapore
K. K. Foo
Operations Director
Shanghai McCormick Seasoning & Foodstuffs Co., Ltd. (90%)
Shanghai, People's Republic of China
Victor K. Sy
President
Affiliates
McCormick-Lion Limited (49%)
Tokyo, Japan
McCormick Philippines, Inc. (50%)
Manila, Philippines
P.T. Kimballmas Sejati (50%)
Jakarta, Indonesia
P.T. McCormick Indonesia (50%)
Jakarta, Indonesia
Stange (Japan) K.K. (50%)
Tokyo, Japan
McCormick Flavor Group
Consolidated Operating Units
McCormick Flavor Division-U.S.A.
Hunt Valley, Maryland
Howard W. Kympton, III
Vice President & General Manager
McCormick Ingredients
Hunt Valley, Maryland
Thomas A. Barry
Vice President & General Manager
McCormick Pesa, S.A. de C.V.
Mexico City, Mexico
Robert E. HornPresident
Affiliates
AVT-McCormick Ingredients Limited (50%)
Cochin, India
P.T. Sumatera Tropical Spices (30%)
Padang, Sumatera, Indonesia
Supherb Farms (50%)
Turlock, California
Vaessen Shoemaker de Mexico, S.A. de C.V. (50%)
Mexico City, Mexico
Packaging Group
Consolidated Operating Units
Setco, Inc.
Anaheim, California
Donald E. Parodi
President
Tubed Products, Inc.
Easthampton, Massachusetts
Alan D. Wilson, President
[Inside back cover]
Corporate Address
McCormick & Company, Incorporated
18 Loveton Circle
Sparks, MD 21152-6000
USA
(410) 771-7301
Common Stock
Traded Over-the-Counter,
NASDAQ National Market List
Symbol: MCCRK
Common Stock Dividend
Dates - 1997
Record Date Payment Date
3/31/97 4/10/97
6/30/97 7/11/97
10/2/97 10/13/97
12/31/97 1/23/98
Shareholder/Investor Relations
For inquiries concerning shareholder records, stock certificates,
dividends or dividend reinvestment, please contact Shareholder Relations
at the Corporate address or telephone:
(800) 424-5855 or
(410) 771-7537
To obtain without cost a copy of the annual report filed with the
Securities & Exchange Commission (SEC) on Form 10-K, contact the
Treasurer's Office at the Corporate address or contact the SEC web
site:
http://www.sec.gov
For general questions about McCormick or information in the annual or
quarterly reports, contact the Treasurer's Office at the Corporate address
or telephone:
Report Ordering: (800) 424-5855 or
(410) 771-7537
Analysts' Inquiries: (410) 771-7244
Another source of McCormick information is located on the Internet.
Our web site is:
http://www.mccormick.com
Missing or Destroyed Certificates or Checks
Shareholders whose stock certificates or dividend checks are missing or
destroyed should notify Shareholder Relations immediately so that a "stop"
can be placed on the old certificate or check, and a new certificate or
check can be issued.
Address Change
Shareholders should advise Shareholder Relations immediately of any change
in address. Please include the old address and the new address. All changes
of address must be submitted in writing.
Transfer Agent and Registrar
Contact Shareholder Relations at the Corporate address or telephone:
(800) 424-5855 or
(410) 771-7786
Multiple Dividend Checks and Duplicate Mailings
Some shareholders hold their stock in different but similar names
(for example, as John Q. Doe and J.Q. Doe). When this occurs, it is
necessary to create a separate account for each name. Even though the
mailing addresses are the same, we are required to mail separate dividend
checks and annual and quarterly reports for each account.
We encourage shareholders to eliminate multiple dividend checks and
mailings by contacting Shareholder Relations and requesting an account
consolidation.
Shareholders who want to eliminate duplicate mailings but still
receive multiple dividend checks and proxy material may do so by
contacting Shareholder Relations.
Dividend Reinvestment Plan
Shareholders may automatically reinvest their dividends and make optional
cash purchases of stock through the Company's Dividend Reinvestment Plan,
subject to limitations set forth in the Plan prospectus. A Plan prospectus
and enrollment form may be obtained by contacting Shareholder Relations at:
(800) 424-5855 or
(410) 771-7537
Trademarks
Use of the (r within a circle) or "tm" in this annual report indicates
owned or used by McCormick & Conpany, Inc. and its subsidiaries.
This report is printed on recycled paper.