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MCCORMICK & COMPANY
1999 ANNUAL REPORT
[GRAPHIC]
A YEAR OF ACCELERATED GROWTH
Contents
Financial Highlights 2
Letter to Shareholders 3
The Power of People 6
Report on Operations 7
Management's Discussion and Analysis 18
Consolidated Statement of Income 25
Consolidated Balance Sheet 26
Consolidated Statement of Cash Flows 27
Consolidated Statement of Shareholders' Equity 28
Notes to Consolidated Financial Statements 29
Report of Management 37
Report of Independent Auditors 37
Historical Financial Summary 38
McCormick Worldwide 39
Investor Information 40
Directors and Officers 41
Our Mission
The primary mission of McCormick & Company is to profitably expand its
worldwide leadership position in the spice, seasoning and flavoring
markets.
Company Description
McCormick is the global leader in the manufacture, marketing and
distribution of spices, seasonings and flavors to the entire food
industry -- to foodservice and food processing businesses as well as to
retail outlets. In addition, our packaging group manufactures and
markets specialty plastic bottles and tubes for food, personal care and
other industries. Founded in 1889, McCormick has 7,300 employees.
Annual Meeting
The annual meeting will be held at 10 A.M., Wednesday, March 15, 2000,
at Marriott's Hunt Valley Inn, 245 Shawan Road (exit 20A off I-83 north
of Baltimore), Hunt Valley, Maryland 21031.
The scent for this year's annual report is cinnamon.
A YEAR OF... RECORD SALES...
NEW PRODUCTS WITH BOLD FLAVORS...
GROSS PROFIT MARGIN IMPROVEMENT...
RECORD EARNINGS... WORKING CAPITAL MANAGEMENT...
EVA GROWTH... MEETING OUR GOALS
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Financial Highlights
FOR THE YEAR ENDED NOVEMBER 30 (MILLIONS EXCEPT PER SHARE DATA)
1999 1998 % CHANGE
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Net sales $ 2,006.9 $ 1,881.1 6.7
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As reported:
Gross profit margin 35.7% 34.5%
Operating income $ 176.9 $ 182.8 (3.2)
Net income 103.3 103.8 (0.5)
Earnings per share - assuming dilution 1.43 1.41 1.4
Excluding impact of special charges:
Gross profit margin 35.8% 34.5%
Operating income 195.9 185.1 5.8
Net income 121.7 105.3 15.6
Earnings per share - assuming dilution 1.69 1.43 18.2
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Dividends paid per share $ .68 $ .64 6.3
Market price per share - close 32.06 33.38 (4.0)
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Average shares outstanding - assuming dilution 72.0 73.8 (2.4)
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Economic value added (EVA)(1) $ 42.3 $ 33.1 27.8
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(1) AN "EVA" MARK IS OWNED BY STERN STEWART & CO. MCCORMICK DEFINES ECONOMIC
VALUE ADDED AS NET INCOME FROM OPERATIONS, EXCLUDING INTEREST, IN EXCESS OF
A CAPITAL CHARGE FOR AVERAGE CAPITAL EMPLOYED.
95 96 97 98 99
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Net Sales (Continuing Operations)
in billions 1.6911 1.7325 1.8010 1.8811 2.0069
Earnings Per Share--Assuming
Dilution
As Reported $1.20 $0.52 $1.30 $1.41 $1.43
Before Special charges/Disc
Ops/Extra $1.04 $1.03 $1.26 $1.43 $1.69
Economic Value Added in millions (3.7) (44.6) 23.4 33.1 42.3
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[PHOTO]
ROBERT J. LAWLESS, CHAIRMAN, PRESIDENT
& CHIEF EXECUTIVE OFFICER
LETTER TO
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SHAREHOLDERS
We are pleased to report that 1999 was an excellent year for McCormick. The
Company achieved record earnings and for the first time in our history, sales
exceeded $2 billion. We accomplished these results and established a platform
for continued growth in the future.
McCormick's management team is dedicated to providing superior returns to
our shareholders. Accordingly, we committed to aggressive financial objectives
for 1999. This year's results reflect the attainment of these goals: sales
growth reached 6.7%; gross profit margin before special charges improved from
34.5% to 35.8%; earnings per share before special charges grew by 18.2%; EVA
increased $9.2 million; and free cash flow totaled $131 million.
McCormick has paid dividends every year since 1925, and dividends have
increased by 300% during the past 10 years. In December 1999, the Board of
Directors raised the dividend by 12% as an indication of management's
confidence in our future. Additionally, a new $250 million stock repurchase
program was authorized by your Board in March 1999.
A major contributor to the past year's success was the outstanding
performance of our consumer business. Extensive advertising and promotional
programs helped drive this growth. These marketing efforts were directed
primarily at convenient value-added products, such as our GRILL MATES-Registered
Trademark- line of grilling seasonings and marinades. Recent research indicates
that 75% of families still eat dinner together at least four nights a week,
which supports our belief that dinner is an important family time.
We are committed to the development of tasty, easy-to-use new products to
satisfy consumer demand. To this end, we launched a line of zesty new products
designed to add excitement to meals while being user friendly. FLAVOR
MEDLEYS-TM- are four liquid sauces that can be used to bake, broil, grill or
saute. SPICE BLENDS-C-, a companion line of shake-on blends with zesty tastes
and lively names, includes "Sante Fe Style," which is featured on the cover of
this annual report. Since the introduction of these products last June, more
than 95% of our customers have placed all seven products in the spice section of
their stores. Significant television and print advertising is ongoing to build
consumer interest.
In Canada, expanded distribution, increased consumer advertising and
innovative new products drove sales growth. A line of convenient, flavorful
seasoning blends called ONE STEP SEASONINGS-TM- was expanded in 1999 and has
gained nearly 100% acceptance by our customers. In the United Kingdom, we
continued to build volume with the SCHWARTZ MAKE IT FRESH!-Registered Trademark-
line launched in 1998. The line gained more than five share points in its
category and has been one of our most successful product launches ever.
Twenty-five new products were introduced in
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Australia, including a line of barbecue and grilling items. Our plant in
Guangzhou, China expanded into consumer products such as ketchup, jams and ice
cream toppings.
Our industrial business also had an extremely strong year. McCormick's
product research and development expertise and ability to provide technically
advanced flavor solutions to our customers are key ingredients to our success.
We are the cinnamon in your cereal, the sauce on your lunchtime sandwich or the
seasoning on your dinner entree at a favorite restaurant. Every day, no matter
where you eat or what you eat, you are likely to taste something flavored by
McCormick.
Several very successful new products, using flavors developed by McCormick,
were launched by key industrial customers in 1999. Our focus on the value-added
compound flavor business in 1999 led to 20% growth in this area. In the
foodservice arena, we were successful in adding new distribution in the
warehouse club segment. And, as foodservice distributors consolidate, we benefit
from our reputation as a dependable supplier of high quality products for the
restaurant industry.
Our packaging business showed modest improvement this year after a
challenging 1998. While the plastic container market remains soft, we achieved
7% sales growth in 1999. We continue to focus on improving efficiencies and
controlling costs.
One of McCormick's key objectives for 1999 was to raise gross profit
margin. We met this objective through a better product mix and cost reduction
efforts. Our marketing and sales initiatives have been instrumental in returning
consumers to our branded products. The emphasis on compound flavors in our
industrial business is favorably impacting gross profit margin as well. Activity
based costing and global sourcing tools enhanced our supply chain management in
1999, and we believe that over time these initiatives and others will return
gross profit margin to historic highs.
Several actions were also taken to streamline operations, primarily in
Europe. The Company consolidated certain U.K. manufacturing units and realigned
operations between the U.K. and other European locations. These actions have
impacted and will continue to impact profit favorably.
Contribution from our joint ventures improved significantly in 1999. In
particular, our Mexican partnership benefited from stronger operations and a
stable currency. While the economic environment in Japan continues to recover,
we are working closely with our partners to achieve better results.
On May 25th, McCormick listed its stock on The New York Stock Exchange
(NYSE) with the ticker symbol MKC. This move provides increased liquidity and
trade efficiency and gives McCormick greater global visibility.
As our fiscal year came to a close, McCormick commenced "Beyond 2000," a
significant business improvement and technology blueprint project. This program
will redefine the future state of business processes and technology for each of
our operations and for the global enterprise as a whole. It will change the way
we meet and exceed the expectations of our world class customers. Critical
information will flow more efficiently to our employees, customers and suppliers
using current, yet ever-changing, e-business solutions. "Beyond 2000," spanning
the next three to five years, will encompass all systems including sales and
marketing, manufacturing, global sourcing and purchasing, distribution,
financial, human resources and research and development. We are confident that
the payback will more than justify the investment in this project. "Beyond 2000"
is a project we cannot afford to postpone.
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OUR CORE VALUES
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WE BELIEVE...
- - OUR PEOPLE ARE THE MOST IMPORTANT
INGREDIENT TO OUR SUCCESS.
- - IN CONTINUOUSLY ADDING VALUE
FOR OUR SHAREHOLDERS.
- - CUSTOMERS ARE THE REASON WE EXIST.
- - IN DOING BUSINESS HONESTLY
AND ETHICALLY.
- - IN FOCUSED ACHIEVEMENT OF GOALS AND
OBJECTIVES THROUGH TEAMWORK.
Last March, I was afforded the opportunity to succeed Buzz McCormick as
Chairman. We thank Buzz for his 50 years of dedication and leadership through
both challenging and rewarding periods in McCormick's history. During the year,
Chris Cruger, who had served the Food Service Group as VP & General Manager
since 1995, retired. We thank Chris for his vision and record-setting
achievements and congratulate Chuck Langmead who was named his successor. Bob
Schroeder was named President - U.S. Consumer Foods, Al Anderson was promoted to
Senior VP, and Karen Weatherholtz was promoted to Senior VP - Human Relations,
in recognition of their superior performance and many accomplishments. We
congratulate Ken Kelly who was promoted to VP&Controller. Additionally, Paul
Beard has been named VP & General Manager of our Global Restaurant Division,
Randy Hoff was promoted to VP & General Manager of McCormick Flavor Division,
and Andy Fetzek was promoted to VP&General Manager for Frito Worldwide Division.
Steve Donohue, formerly Director of Procurement for Kraft General Foods, has
joined McCormick as VP - Strategic Sourcing.
McCormick's performance in 1999 was among the best in the food industry.
The results we expect to achieve for fiscal 2000 will again place us among the
leaders in this group. Yet, as we begin our fiscal year, our stock valuation
languishes along with that of most other food companies. We are in a period in
which technology and other industries are attracting significant investment
dollars. Given this environment, it is particularly important that McCormick
continues to communicate our successes, build investors' confidence in our
business and set aggressive goals for the future. In this way, we expect to
build shareholder value and generate an improved return for our investors.
We are proud of McCormick's 110-year history of providing customers with
quality products and superior service. The Company is a respected leader in the
food industry. Our innovation provides a competitive edge matching consumer
needs with the right products at the right value. We are committed to the
training, education and development of our employees whose dedication, hard work
and winning spirit assure McCormick's future success.
As we begin a new century, we see a world of opportunity. We will set
challenging goals and strive to excel at everything we do every day. Through
determination and flawless execution, we will be quick to react to market
opportunities, flexible to adapt to constant change and mindful that
enhancing shareholder value is our utmost priority. Our employees worldwide
are energized by our future prospects, and I am confident McCormick will
flourish. As a result of 1999's accelerated growth, we are well positioned to
carry this momentum through 2000 and beyond.
/s/ Robert J. Lawless
ROBERT J. LAWLESS, CHAIRMAN, PRESIDENT & CEO
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"THE POWER
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OF PEOPLE"
For nearly 70 years this phrase has resonated throughout McCormick. It's short
and simple but speaks to the heart of the McCormick culture. In 1932, McCormick
initiated Multiple Management, an enlightened business philosophy and system of
participative management. Multiple Management encourages employee participation
at all levels and sharing the rewards of success. It has been the cultural
backbone of McCormick, providing a supportive environment to shape the careers
of employees and sharpen the Company's competitive advantage.
McCormick also promotes diversity. A natural partner with Multiple
Management, diversity fosters respect for the distinctive qualities each of us
possesses. Promoting diversity at McCormick is a critical element to the success
of our business. In a global organization such as McCormick, new perspectives
and skills brought by a diverse employee group hold great value. Additionally,
we gain the competitive advantage of a firsthand understanding of our customers
around the world.
Through Multiple Management and diversity, the power of people is felt
throughout McCormick. But the impact of our people also falls outside the walls
of our business and influences the communities in which we live. McCormick has a
long-standing commitment to be a benevolent and involved member of the
community. Through both financial contributions and the active participation of
employees, McCormick supports numerous causes that improve the quality of life
in communities around the world where we have facilities. The community activity
with the longest history for McCormick is our annual Charity Day, which began in
1941. Each year thousands of McCormick employees donate one day's pay to
charity, and that contribution is matched by the Company. Charity Day is the
most visible representation of our Company's history of community commitment.
And it is one more key example of McCormick's power of people.
6
1999 NET SALES
AMERICAS 72%
EUROPE 23%
ASIA 5%
REPORT ON
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OPERATIONS
CONSUMER BUSINESS
McCormick's consumer business manufactures and sells spices, herbs, extracts,
proprietary seasoning blends, sauces and marinades to grocery, mass merchandise,
drug and other retail outlets. We have consolidated operations in the U.S.,
Canada, El Salvador, United Kingdom, Switzerland, Finland, Australia and China.
The Company has consumer joint ventures located in the U.S., Mexico, Philippines
and Japan. Our consumer products are sold throughout the world. Worldwide net
sales for McCormick's consumer businesses grew 7% in 1999 over 1998.
As we invested more heavily in promotion and advertising, sales of our
branded products outpaced the category in many markets. Operating income for
worldwide consumer businesses grew 6% before special charges.
MARKET ENVIRONMENT
The market environment for McCormick's consumer products varies worldwide. In
the U.S., overall spice usage is up, and consumers are seeking new and bolder
tastes. Although many people use prepared foods and eat out, a PARADE MAGAZINE
survey published in November, 1999 reports that 75% of families polled eat
dinner together at least four nights a week. A study conducted by National Panel
Diary indicates that 70% of all meals are prepared at home, and a Canned Food
Association Survey reports that 51% of women 18 to 64 actually "scratch-cook"
meals six times a week.
Equally encouraging is the 1% increase in spice and seasoning sales volume
through U.S. grocery outlets in 1999. This reverses the downward trend of the
last five years in the U.S. In the Company's international markets for spices
and seasonings, 1999 volumes also increased in Canada, Australia and China. In
Europe this category was flat to slightly declining.
Worldwide, the retail grocery industry continues to consolidate, creating
larger customers. In many of our markets, the Company has multi-year contracts
with customers to secure the shelf space for our products. McCormick's
capabilities in category management and electronic data interchange, along with
our high quality products and service, also forge a link to our increasingly
larger customers. Our category management activity involves partnering with our
customers to optimize the store shelf space allocated to spices, seasonings and
our other product categories. In Canada, the retail grocery industry
consolidation has benefited our business as retailers streamline suppliers
through national procurement strategies.
KEY STRATEGIES
McCormick's strategies for our consumer businesses are aimed at growing branded
sales volume in markets around the world.
In the U.S., we continue to roll out the Quest program, a pricing and
promotional initiative between McCormick and the customer. Quest prices most of
our best-selling spice items and all of our dry seasoning mixes (DSM) to the
customer, net of discounts and allowances, with the
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BRANDS
---------------------------------------
[LOGO] McCormick-Registered Trademark-
[LOGO] McCormick-Registered Trademark-
[LOGO] Schilling-Registered Trademark-
[LOGO] Produce Partners-Registered Trademark-
[LOGO] Golden Dipt-Registered Trademark-
[LOGO] Old Bay-Registered Trademark-
[LOGO] Mojave-Registered Trademark-
[LOGO] Club House-Registered Trademark-
[LOGO] Schwartz-Registered Trademark-
[LOGO] Aeroplane-Registered Trademark-
[LOGO] Keen's-Registered Trademark-
objective to increase consumer sales. Using McCormick's category management
capabilities, we are working with our customers to provide a wide variety of
products at attractive pricing. This benefits our customers with higher volumes
sold and the consumer with a better price value. At year end, nearly 75% of
sales to our U.S. customers were invoiced under Quest. We are complementing
category management efforts with targeted advertising, sampling and consumer
promotions. This consumer support is aimed at those items for which we can build
awareness, encourage trial and increase usage.
Strong in-store promotion is a key element of growth in many markets. The
U.K. is growing the Schwartz brand through promotional programs and product
merchandising. In Canada, strong customer relationships allow us to obtain
supplementary product placement in the pasta aisle, near the meat case and in
other complementary store locations.
New products are meeting consumer interest in convenience, bold flavors and
variety. In mid-1999, a new line of zesty products was introduced in the U.S.
FLAVOR MEDLEYS is a line of four liquid seasoning blends with appealing,
restaurant quality flavors like "Sun-dried Tomato & Basil." SPICE BLENDS is a
line of three coarse ground, dry seasonings featuring flavors such as a
"Monterey Style" blend of roasted garlic and red bell peppers. All seven
varieties have gained shelf placement with more than 95% of our current
customers in the U.S. McCormick is providing strong consumer advertising to
encourage initial use of these products. Three dessert items, designed to add
interest as consumers eat more fruits and vegetables, have been added to our
Produce Partners line.
McCormick also launched products in our international markets in 1999.
Based on the success of "Italiano" and "Tex Mex" ONE STEP SEASONINGS in Canada,
we introduced eight new flavors including "Parmesan and Herbs" and "Garlic
Plus." Within five weeks of launching these items, we had achieved distribution
of all eight items in nearly 90% of the Canadian retail trade.
Our El Salvador operation launched "Delicia De Loroco," a mayonnaise
combined with a developed flavor from the Salvadoran loroco flower.
In Australia, McCormick is aligning product offerings and market support
with consumer needs and preferences. New product introductions are a vital part
of this strategy. New products, including a multiserve pack for the Aeroplane
gelatin line, new DSMs and a reformulation and new packaging for the Keen's wet
mustards, accounted for 7% of total 1999 consumer sales in Australia.
In China, our seasoning mixes and dry soup mixes continue to grow as that
market expands and as we develop and launch new flavors. Our liquid industrial
production facility in Guangzhou has added several consumer products, including
ketchup, jams and ice cream toppings.
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[PHOTO]
AN INCREASED FOCUS ON NEW PRODUCTS BUILDS A PLATFORM
FOR THE GROWTH OF OUR CONSUMER BUSINESS. (SHOWN L-R)
CHRIS DEPIETRO, VP - TECHNOLOGY; MARK TIMBIE, VP & GM
OF PERIMETER PRODUCTS AND CONSUMER MARKETING; AND
BOB SCHROEDER, PRESIDENT - U.S. CONSUMER FOODS
PERFORMANCE HIGHLIGHTS
- Promotions and advertising were directed to potential high growth items.
In the U.S. we GREW THE GRILL MATES PRODUCT LINE 45% in 1999, following 30%
growth the prior year. The LA GRILLE-Registered Trademark- line in Canada grew
35% in 1999 over 1998.
- Our U.S. grocery market share of branded spice and seasoning products
GREW NEARLY 2 PERCENTAGE POINTS IN 1999 due to the success of the Quest program,
consumer advertising and the addition of new customers.
- Through advertising and in-store display activity, Golden Dipt cocktail
sauce is now the NUMBER ONE SELLING COCKTAIL SAUCE IN THE U.S.
- We entered into a strategic alliance with a fresh herb company and are
licensing the McCormick name and providing our distribution strength in the U.S.
to support a line of fresh herbs. This alliance is a good point of entry for
McCormick into a FAST GROWING, NICHE MARKET.
- The success of the SCHWARTZ MAKE IT FRESH! line of fruit and vegetable
sauces and seasonings increased our share of the U.K. dry seasoning market by 5
percentage points in 1999. Launched in 1998, this new product accounted for 10%
of the Schwartz brand volume for 1999. Together with POTATO WEDGES-TM-, launched
nearly three years ago, these NEW PRODUCTS NOW ACCOUNT FOR 17% OF SCHWARTZ
VOLUME.
- In Switzerland, we have improved the profitability of the consumer
business by engaging one of the LEADING DISTRIBUTORS TO DEVELOP OUR BUSINESS.
- More than 25 NEW PRODUCTS WERE INTRODUCED IN AUSTRALIA in 1999. Market
share in the DSM category increased from 5% to 20% in less than two years as a
result of new products and improvements to existing items.
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[PHOTO]
IN THE UNITED KINGDOM, AUSTRALIA, CHINA AND CANADA,
NEW PRODUCTS FUELED IMPROVED SALES AND EARNINGS IN
1999. (SHOWN L-R) JOHN MOLAN, GROUP VP & MANAGING
DIRECTOR - EUROPE AND ASIA; AND ALAN WILSON, PRESIDENT -
MCCORMICK CANADA
OPPORTUNITIES
In markets around the world, McCormick's consumer businesses will achieve future
sales growth through new distribution, new products and increased sales of
existing products. We will grow current market share through value pricing,
promotion and advertising effectiveness and improved merchandising activity. In
addition to these sales initiatives, steps were taken in 1999 which will improve
the future returns from these businesses. Many of these actions occurred in our
European operations, including the transition to a retail distributor in
Switzerland and a workforce reduction in the U.K.
In the U.S., we will complete the rollout of Quest to our customers and make
further progress to improve the value of our product on the grocery shelf. The
high quality new products launched in 1999 are receiving a strong level of sales
and marketing support which increases our confidence that they will be
successful.
The U.K. is planning a relaunch of the Schwartz line of herbs and spices in
the first quarter of 2000 with new products and a new display format. Canada is
supporting its Club House brand with television, print, in-store and outdoor
media which will reach 95% of consumers, 50+ times between September 1999 and
November 2000. In Australia, a major new product initiative will be a grill and
barbecue line of six dry seasonings and six versatile, wet paste seasonings. And
in China, in addition to new products, our operation will expand its market
reach to western China.
10
1999 NET SALES
AMERICAS 78%
EUROPE 15%
ASIA 7%
INDUSTRIAL BUSINESS
McCormick's industrial business supplies products worldwide to a significant
majority of the top 100 food processors and to restaurant chains, distributors,
warehouse clubs, and institutional operations, such as schools and hospitals.
These products include spices, seasonings, condiments, coatings and compound
flavors. While the McCormick name may not be on the food package, our flavor is
in a wide range of snack foods, savory side dishes, desserts, beverages,
confectionery items, cereals, baked goods and more.
Net sales growth of 6% in 1999 was driven by new distribution gains with
warehouse clubs, new industrial products and growth with broadline distributors.
Excluding special charges, gross profit margin and operating income improved
substantially as a result of this increased volume and a positive shift in
product mix.
MARKET ENVIRONMENT
Consolidation is occurring in many areas of the industrial business with a
variety of implications. Mergers between consumer product companies are
resulting in actions to streamline suppliers. Those suppliers which offer a
range of flavor solutions will have an advantage. While competitors are now
beginning to move in this direction, McCormick already has a reputation for
providing a broad range of products to meet our customers' flavor needs. In the
U.S., the foodservice distributor channel is highly fragmented, but leaders such
as Sysco and U.S. Foodservice continue to grow through acquisition and market
initiatives. We have strong relationships with many of the leaders in this
industry.
Consumer interest in greater taste delivery, ethnic flavors and taste
excitement are favorable trends for this part of our business. Whether a
consumer is purchasing a meal from a quick service restaurant, a "white table
cloth" restaurant, or a grocery product such as a frozen dinner, meal kit or
other convenience item, McCormick is often part of the flavor. Customers are
looking to suppliers like McCormick for more of the research and development of
new products.
For many years, McCormick has provided ingredients, such as basic herbs and
whole and ground spices, to the food industry. Ingredients have become more of a
commodity item as demand for more value-added products grows. This demand for
value-added products stems from the consumer's insatiable appetite for new and
different flavors. The cost of ingredients in 1999 was affected by fluctuating
commodity markets, global political uncertainties and natural disasters. These
factors have caused the ingredient markets in the U.S., U.K. and other locations
to become more challenging. Proficiency in sourcing from locations around the
world is an important capability in this part of the industrial business.
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THE TECHNICAL INNOVATION CENTER IS MCCORMICK'S CENTRAL
DRIVER IN A GLOBAL NETWORK OF CREATIVITY AND PRODUCT
DEVELOPMENT. (SHOWN L-R) HAMED FARIDI, VP - RESEARCH &
DEVELOPMENT; AND SILVIA KING, SENIOR SCIENTIST
[PHOTO]
KEY STRATEGIES
An important part of 1999's gross profit margin improvement came from a more
profitable product mix. We are demonstrating our capabilities in the development
of higher margin compound flavors to our existing customers as well as
prospective customers. These compound flavors might be the fruit flavor in a
sports beverage, the savory flavor for a rice side dish, or a vanilla flavor for
a dessert. During 1999, McCormick developed compound flavors for a number of new
products for industrial customers. Our customers have commercialized these
products and are having success in marketing them to consumers.
In 1998, McCormick formed the Global Industrial Group to provide a
management structure which more closely aligns our organization with that of our
global customers. To serve our customers, we have production capabilities in
strategic markets worldwide. We will develop partnerships with local
manufacturers in regions where McCormick does not have production facilities.
The strength in our industrial business is due in large part to our focus on
technical innovation. We use technology to develop consumer preferred products
that meet the flavor needs of our customers. Through our advanced sensory
capabilities and with the help of our culinary expertise, we are able to provide
value-added products, services, technology and systems to help our customers
meet the needs of their customers. We are solidifying relationships with
customers while addressing the needs of the overall marketplace.
Our industrial business is seeking to improve processes and practices
worldwide to increase operating margins. Activity based costing has been
developed and systematized to assign more accurately the costs to produce and
deliver each of our products. Better costing leads to better pricing, allowing
us to streamline product lines, segment customers, improve margins and be more
competitive.
Global sourcing is another avenue to improve business practices, reduce
cost, and develop a better supply of products. Our global sourcing efforts
include building upon existing joint ventures and strategic alliances,
establishing new supply points for key commodities, direct purchase from source
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INDUSTRIAL PRODUCTS
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INGREDIENTS
- - Spices and herbs
- - Extracts, food colors
- - Oleo resins
COATING SYSTEMS
- - Batters
- - Breaders
- - Marinades, glazes and rubs
SEASONINGS
- - Seasoning blends
- - Salty snack seasonings
- - Side dish seasonings
(rice, pasta, potato)
- - Sauces, gravies
CONDIMENTS
- - Sandwich sauces
- - Seafood cocktail sauces
- - Salad dressings
- - Flavored oils
COMPOUND FLAVORS
- - Beverage flavors
- - Dairy flavors
- - Confectionery flavors
- - Culinary flavors (savory)
[PHOTO]
MCCORMICK HAS ENJOYED SUCCESS IN SUPPLYING FLAVORINGS AND INGREDIENTS TO OTHER
FOOD MANUFACTURERS AND RESTAURANT CHAINS. THE ODDS ARE GREAT THAT THE AVERAGE
CONSUMER ENJOYS THE TASTE OF MCCORMICK AT LEAST ONCE A DAY. (SHOWN L-R) RANDY
HOFF, VP & GM - MCCORMICK FLAVOR DIVISION; ANDY FETZEK, VP & GM - FRITO
WORLDWIDE DIVISION AND PAUL BEARD, VP & GM - GLOBAL RESTAURANT DIVISION
countries, and in some cases, transferring production to source locations.
In the U.K., the Company has consolidated three liquid production facilities
into two. These facilities are primarily in support of our industrial business
and will have a positive impact on our production costs and ability to price
competitively in the future. Announced in 1999, this portion of the streamlining
actions will be essentially complete as we begin 2000.
PERFORMANCE HIGHLIGHTS
- In the U.S., sales of our COMPOUND FLAVORS GREW MORE THAN 20% in 1999,
driven by successful new products for the beverage, dairy, confectionery and
savory side dish categories.
- In the U.S. and the U.K., we were successful in winning NEW SALES TO
QUICK-SERVICE RESTAURANTS, particularly in condiments.
- In addition to record sales and profits, McCormick was recognized as the
INTERNATIONAL FOODSERVICE DISTRIBUTOR ASSOCIATION'S SUPPLIER OF THE YEAR FOR
1998. We continue to excel in service to our customers and have become a
catalyst for their success in the marketplace.
- McCormick gained further new distribution in the U.S. warehouse club
channel with the ADDITION OF BJ'S WHOLESALE CLUB in 1999.
- The DALLAS, TEXAS PLANT WAS EXPANDED, enabling us to meet the increased
demand for dry seasoning products.
- Streamlining actions were initiated in the U.K. which will improve profit
margins and allow MORE COMPETITIVE PRICING in our industrial business.
- In China, additional sales volume produced MARGIN GAINS IN OUR GUANGZHOU
FACILITY which serves major fast food chains and also produces liquid consumer
products.
13
[PHOTO]
ONE SOURCE OF MCCORMICK'S GROWTH IN 1999 WAS IN THE
COMMERCIAL KITCHEN. WE SELL TO THE "AWAY FROM HOME" MARKET AT
ALL LEVELS FROM FAST FOOD TO "WHITE TABLE CLOTH." (SHOWN L-R)
CHUCK LANGMEAD, VP & GM - FOOD SERVICE GROUP; A.C. GEORGE,
VP - SALES; AND ARLENE MURPHY, VP - SALES
OPPORTUNITIES
McCormick's ability to outperform competition with unwavering service, to
deliver consumer preferred flavors and to closely align with industry leaders
will drive growth in the industrial business.
We continue to focus on growing our compound flavor business. We will
demonstrate the strategic advantage that we can provide our customers through
our breadth of products and technical expertise.
In the U.S., we plan to launch BIG `N BOLD SPICE BLENDS-C- to our
foodservice customers in 2000 and continue to explore the ethnic market with our
line of authentic Mexican and Asian products. In Canada, we will offer a
foodservice version of successful consumer products such as "Montreal Chicken"
and selected ONE STEP SEASONINGS. We have entered into a three-year agreement
with the prestigious Culinary Institute of America to provide ongoing culinary
training to our U.S. sales and marketing staff. This is part of the Company's
commitment to the development of our employees and will also benefit our
customers. There is tremendous opportunity for growth into 2000 as we help our
key distributor customers gain market share.
In the U.K., a number of cost reduction actions were initiated in 1999 which
will lower cost and improve our competitive position beginning in 2000.
In all geographic areas, attention to production processes, product costing
and pricing will continue to improve gross profit margins and customer service.
14
MCCORMICK'S PACKAGING BUSINESSES, SETCO AND TUBED PRODUCTS, SHOWED IMPROVED
PERFORMANCE IN 1999. (SHOWN L-R) DON PARODI, PRESIDENT - SETCO, INC.; AND HARVEY
CASEY, PRESIDENT - TPI.
[PHOTO]
PACKAGING BUSINESS
McCormick's packaging group manufactures and markets plastic bottles and tubes
for food, personal care and other industries. Our packaging business improved in
1999, with net sales growth of 7% and an operating income increase of 6%,
excluding special charges.
MARKET ENVIRONMENT
In 1998, our packaging business was adversely affected by decreased sales to our
customers who market into Asia. A milder winter in the U.S. also created
softness in demand for skin care products, a major use of our packaging. Today,
the market is recovering from the economic crisis in Asia, and sales of our
packaging products have improved. However, the outlook for demand is relatively
level and excess capacity in the bottle and tube industry creates a very
competitive environment.
KEY STRATEGIES
McCormick's strategy in 1998 was to defend market share in spite of margin
pressure, thereby preserving a base for future growth in 1999. Growth in 1999
was achieved as the Asian economy recovered and as new products gained customer
acceptance.
We will continue to seek new packaging opportunities. A line for vitamin and
generic drug applications has been developed which is superior to what our
competitors currently offer in design and functionality. We are working with
another manufacturer to support their newly patented "senior friendly" closure
system.
A primary focus of McCormick's tube business is cost reduction. The Oxnard,
California facility constructed in 1998 is operating efficiently and developing
plans to automate the packing of finished goods.
PERFORMANCE HIGHLIGHTS
- Higher plant throughput, the new tube production facility in Oxnard,
California and a concerted cost reduction effort in all packaging plants
significantly INCREASED GROSS PROFIT MARGIN AND INCREASED OPERATING INCOME BY
6%, excluding special charges.
- McCormick's bottle manufacturing operation AVOIDED A $3,000,000
INVESTMENT IN NEW CAPITAL by reconfiguring existing equipment to produce new,
higher quality plastic vitamin packs.
OPPORTUNITIES
McCormick's track record in innovation, superior quality and service reinforces
our leadership position in the manufacture of highly decorated tubes and
bottles. Our ability to innovate will open up opportunities for new uses and new
markets for our products.
We made significant strides in operating income improvement in 1999. Higher
plant volumes, additional automation and process improvement will continue to
increase returns from our packaging business.
15
GOAL ACHIEVED
- ------------------------------------------------------------------
NET SALES GROWTH 5-7% 6.7%
GROSS PROFIT MARGIN 35.5% 35.8%(1)
(1998 GROSS PROFIT MARGIN was 34.5%)
EARNINGS PER SHARE GROWTH 12-15% 18.2%(1)
(1) EXCLUDES SPECIAL CHARGES. SEE FINANCIAL HIGHLIGHTS ON PAGE 2.
SUMMARY OF PERFORMANCE
Early in 1999, McCormick set specific financial goals for sales, gross profit
margin and earnings per share. Each of these goals was met for fiscal year 1999.
The net sales growth and gross profit margin improvement goals were
achieved by success in each of our three business segments: consumer, industrial
and packaging. A portion of this increased gross profit was reinvested in
marketing and cost reduction programs. Interest expense was reduced by $4.5
million through a combination of lower debt levels and lower interest rates.
The Company also had improved results in our joint venture operations,
particularly in Mexico and Japan. These two operations were areas of particular
focus as we began our year and we dedicated specific management resources to
their improvement. Our Signature Brands joint venture concluded a year of strong
performance and recently acquired the PAAS-Registered Trademark- brand of egg
decorating products. This line of specialized holiday items fits well with
Signature's cake decorating business. In total, income from unconsolidated
operations more than doubled from $6.2 million in 1998 to $13.4 million in 1999.
In March 1999, the Company completed a share repurchase authorization
totaling 10 million shares. Based on the strong cash flow generated from
operations, the Board of Directors authorized a new share repurchase of $250
million. At November 30, 1999, 1.5 million shares had been repurchased under
this new program and $204 million remains available for future repurchase. We
expect this current authorization to continue into 2002.
Excluding the impact of special charges, 1999 net income increased $16.4
million, which was 15.6% over 1998. This result, together with the reduction in
shares outstanding, led to earnings per share growth of 18.2%, excluding special
charges.
A goal was set for each operating unit early in 1999 to reduce working
capital, specifically inventory and receivables. The goals were based on
benchmarking each business against industry peers and were incentive driven.
Through supply chain initiatives, more effective receivables collection and
other process improvements, many operating units are reducing working capital.
McCormick's average inventory balance over the last 12 months dropped from $270
million in 1998 to $257 million in 1999 and inventory turnover increased 9.6%.
Average days to collect accounts receivable decreased by one day.
16
[PHOTO]
GORDON STETZ (FOREGROUND), VP - ACQUISITIONS & FINANCIAL PLANNING, MEETS
WITH THE EXECUTIVE COMMITTEE THROUGHOUT THE YEAR TO DISCUSS LONG-TERM
STRATEGIES. MCCORMICK'S EXECUTIVE COMMITTEE: (SHOWN L-R) BOB LAWLESS,
CHAIRMAN, PRESIDENT & CEO; FRAN CONTINO, EXECUTIVE VP & CFO; BOB DAVEY,
PRESIDENT - GLOBAL INDUSTRIAL GROUP, AND CARROLL NORDHOFF, EXECUTIVE VP.
Working capital management and other balance sheet controls, together with
the net income generated, grew economic value added (EVA) in 1999. EVA is a
comprehensive measure of shareholder value which McCormick defines as net income
from operations, excluding interest, in excess of a capital charge for average
capital employed. EVA rose by $9.2 million, from $33.1 million at the end of
1998 to $42.3 million for 1999.
The Company is pleased with the superior results of 1999, and actions are
underway to further improve gross profit margins and working capital. In all
segments of our business, top line sales growth will be achieved through new
products and new distribution in the U.S. and growth in our international
markets. We are seeking acquisition opportunities to build profitably on our
core food businesses. McCormick has excellent opportunities for growth and the
creation of shareholder value into 2000 and beyond.
17
(millions) 1999 1998 1997
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
NET SALES
Consumer $ 896.2 $ 836.4 $ 804.8
Industrial 941.0 885.9 816.3
Packaging 169.7 158.8 179.9
- ------------------------------------------------------------------------
$ 2,006.9 $ 1,881.1 $ 1,801.0
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION
- -----------------------
AND ANALYSIS
OVERVIEW
For 1999, the Company reported net income of $103.3 million or $1.43 of diluted
earnings per share compared to $103.8 million or $1.41 of diluted earnings per
share in 1998. During 1999, the Company recorded special charges related to
streamlining operations and an actuarial change. Excluding the impact of special
charges, net income on a comparable basis was $121.7 million or $1.69 of diluted
earnings per share in 1999 compared to $105.3 million or $1.43 of diluted
earnings per share last year.
The Company realized improved financial performance throughout its global
operations. In 1999, sales and operating income, excluding special charges, in
each business segment improved versus the prior year. New distribution and new
products favorably impacted sales growth in the consumer and industrial
segments, while the packaging segment benefited from improved market conditions.
Each segment also experienced improvements in gross profit margin and operating
income, excluding special charges. In addition, improved working capital
management reduced interest expense, while the Company's unconsolidated
operations achieved a record financial performance in 1999.
RESULTS OF OPERATIONS - 1999 COMPARED TO 1998
Sales from consolidated operations increased 6.7% to $2.0 billion in 1999.
Excluding the unfavorable effect of foreign currency exchange rates, primarily
in the U.K., sales grew nearly 8%. Sales improvements, which were realized in
all business segments, were primarily volume-related. Unit volume increased
nearly 8%, while the combined effects of price and product mix were slightly
unfavorable compared to 1998. The net impact of business disposals and
acquisitions decreased sales by .4%. Sales growth in the consumer segment was
primarily due to volume growth in the U.S. Promotional and marketing programs,
distribution gains and new product launches increased volumes in this market.
The Company's industrial segment was also favorably impacted by volume growth.
New distribution gains with warehouse clubs, new products and broadline
distributor growth increased U.S. sales. Increased industrial sales throughout
Asia were partially offset by reduced volumes in the U.K. In the packaging
segment, volume growth due to improved market conditions was partially offset by
the combined effect of price and product mix.
Sales from unconsolidated operations in 1999 were up 10.0% versus 1998,
primarily due to increases in our McCormick de Mexico and Signature Brands joint
ventures.
Gross profit margin, excluding special charges, increased to 35.8% in 1999
from 34.5% in 1998. Each segment experienced improvement over the previous year.
Gross profits were favorably impacted by volume growth in the higher margin
consumer segment, primarily in the U.S. Promotional and marketing programs and
new product launches in the consumer segment grew sales of branded products
throughout the world. Our industrial business in the U.S. experienced increased
sales of higher margin compound flavor products and new distribution gains,
which were partially offset by margin decreases in ingredient sales. Improved
operating efficiencies and product mix improved margins in the U.K. industrial
business, while increased volumes benefited our industrial businesses in Asia.
In the packaging segment, increased volumes and improved operating efficiencies
increased gross profit margin over 1998.
Selling, general and administrative expenses were higher in 1999 than 1998
on both a dollar basis and as a percentage of sales. The dollar increase is
primarily due to expenditures in support of higher sales and income levels,
including promotional spending, incentive-based employee compensation and
research and
18
(millions) 1999 1998 1997
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
OPERATING INCOME
Consumer $125.3 $126.5 $103.8
Industrial 63.0 62.7 71.6
Packaging 22.2 17.5 18.2
- ------------------------------------------------------------------------
Combined segments(1) $210.5 $206.7 $193.6
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
OPERATING INCOME, EXCLUDING SPECIAL CHARGES (CREDITS)
Consumer $136.5 $129.0 $108.7
Industrial 73.8 61.3 59.0
Packaging 19.8 18.7 22.8
- ------------------------------------------------------------------------
Combined segments(1) $230.1 $209.0 $190.5
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
(1) Excludes impact of general corporate expenses included as Corporate &
Eliminations in Note 12 in the Notes to Consolidated Financial Statements.
95 96 97 98 99
---- ---- ---- ---- ----
GROSS PROFIT MARGIN 34.5% 34.9% 34.9% 34.5% 35.7%
development. Professional service expenses in support of the Company's process
reengineering effort also increased in 1999.
Operating income margin, excluding special charges, was 9.8% in 1999 and
1998.
Interest expense decreased in 1999 versus 1998 due to a combination of
lower average debt levels and lower interest rates.
Other income decreased in 1999 as compared to 1998. Income from the
three-year non-compete agreement with Calpine Corporation, entered into as a
part of the 1996 sale of Gilroy Energy Company, Inc., decreased from $7.0
million in 1998 to $4.6 million in 1999, the last year of the agreement.
Due to the impact of certain nondeductible expenses related to the special
charges, the effective tax rate was 40.1% for 1999, compared to 36.0% in 1998.
Excluding the impact of the special charges, the effective tax rate for 1999 was
35.9%.
Income from unconsolidated operations increased in 1999 versus 1998,
primarily due to improved operating performance at our Mexican and Japanese
joint ventures. In addition, the Company was negatively impacted in 1998 by
translation losses from the devaluation of the Mexican peso in accordance with
hyper-inflationary accounting rules. As of January 1, 1999, Mexico was no longer
considered a hyper-inflationary economy.
RESULTS OF OPERATIONS - 1998 COMPARED TO 1997
Sales from consolidated operations increased 4.4% to $1.9 billion in 1998. The
combined effects of price and product mix increased sales by 3.4% as compared to
1997, while unit volume increased 1.8%. The effect of foreign currency exchange
rate changes, primarily in our Australian and Canadian operations, decreased
sales by .9% when compared to 1997. Sales improvements, which were realized in
all major operating groups except the packaging segment, were primarily due to a
combination of price and mix changes and volume increases in the consumer and
industrial segments, primarily in the U.S. Sales increases in the consumer
business in the U.S. were primarily product mix related and were favorably
impacted by improved performance in the branded DSM and spice and herb
businesses. Growth initiatives, including the relaunch of the DSM line and the
Quest marketing program, contributed to this success. Although volumes for the
consumer business in the U.S. were up only slightly for the year, distribution
gains announced during the first half of 1998, combined with these growth
initiatives, resulted in higher volume growth during the last six months of the
year. Within the industrial segment, food service sales in the U.S. were
favorably impacted by volume growth, principally due to new distribution.
Product price changes, primarily to cover raw material cost increases, increased
net sales in the industrial business in the U.S. Sales increases within Europe
were the result of a combination of favorable price and product mix changes and
currency exchange translations. Weak demand for customers' products in Asian
countries as well as general market softness, principally for plastic tubes,
contributed to volume declines in the packaging segment.
19
95 96 97 98 99
---- ----- ----- ----- -----
CASH FLOWS FROM
OPERATIONS
IN MILLIONS 59.4 201.7 181.2 144.0 229.3
Sales from unconsolidated operations in 1998 were down slightly versus
1997. Increases in sales from Signature Brands and our Mexican joint venture
were offset by decreases due to foreign currency translation, primarily at the
Company's Japanese affiliates.
Gross profit margin decreased to 34.5% in 1998 from 34.9% in 1997. Raw
material pricing pressures, primarily for black pepper, were felt throughout the
Company. Product and customer mix issues negatively impacted margins within the
industrial business in the U.S., while decreased volume in the packaging segment
reduced efficiencies. Margins were also negatively impacted, primarily in
Australia and Canada, by adverse foreign exchange effects on raw material costs.
These were partially offset by continued gross profit improvements in the
consumer business in the U.S. due to a favorable product mix.
Selling, general and administrative expenses were higher in 1998 than 1997
on a dollar basis, but were down slightly as a percentage of sales. The dollar
increase was mainly due to increased promotional and advertising spending within
the consumer business in the U.S., partially offset by lower incentive-based
employee compensation costs.
Operating income margin, excluding special charges (credits), increased to
9.8% in 1998 from 9.3% in 1997.
Interest expense was up slightly in 1998 versus 1997 as higher average debt
levels were partially offset by lower interest rates.
Other income decreased in 1998 as compared to 1997. Income from the
three-year non-compete agreement with Calpine Corporation decreased to $7.0
million in 1998 from $8.0 million in 1997.
The Company's effective tax rate was 36.0% in 1998 compared to 37.0% in
1997. This decrease was primarily due to various U.S. and international tax
initiatives.
Income from unconsolidated operations decreased in 1998 versus 1997 mainly
due to our Mexican joint venture, which realized translation losses from the
devaluation of the Mexican peso in accordance with hyper-inflationary accounting
rules. The Company also experienced earnings declines in its Japanese joint
ventures.
FINANCIAL CONDITION
Continued strong cash flows from operations enabled the Company to fund
operating projects and investments designed to meet our growth objectives,
continue share repurchase programs and reduce debt levels.
In the Consolidated Statement of Cash Flows, cash provided by operating
activities increased from $144.0 million in 1998 to $229.3 million in 1999. The
increase is primarily due to changes in working capital components. Inventory
levels were favorably impacted by increased net sales and additional focus on
supply chain management. Cash outflows related to prepaid allowances were
favorably impacted by the timing of customer contract renewals and distribution
gains which occurred primarily in the first half of 1998.
Investing activities used cash of $45.9 million in 1999 versus $62.6
million in 1998. Capital expenditures decreased versus last year primarily
because 1998 included a project to consolidate facilities in our packaging
segment. Acquisitions of businesses in 1998 included the purchase of a line of
wet and dry mustards, curry powders and various meal lines in Australia and
Canada marketed under the Keen's and Rice-a-Riso-Registered Trademark- brand
names.
Financing activities used cash of $188.5 million in 1999 versus $77.0
million in 1998. In early 1999, the Company purchased 1.1 million shares,
completing its 1996 share repurchase program. In March 1999, the Company
announced a new repurchase program to buy back up to $250 million of the
Company's outstanding stock from time to time in the open market. The Company
purchased an additional 1.5 million shares under this program in 1999. In total,
the Company purchased 2.6 million shares in 1999 and 2.0 million shares in 1998.
20
95 96 97 98 99
---- ---- ---- ---- ----
Debt to Total Capital 55.5% 47.1% 50.3% 51.6% 47.2%
Dividend payments increased to $48.7 million in 1999, up 4% compared to
$46.9 million in 1998. Dividends paid in 1999 totaled $.68 per share, up from
$.64 per share in 1998. In December 1999, the Board of Directors approved a 12%
increase in the quarterly dividend from $.17 to $.19 per share. Over the last 10
years, dividends have increased 12 times and have risen at a compounded annual
rate of 15%.
The Company's ratio of debt to total capital was 47.2% as of November 30,
1999, a decrease from 51.6% at November 30, 1998. The decrease was due primarily
to improved cash provided by operating activities, partially offset by the
effect of the share repurchase program.
Management believes that internally generated funds and existing sources of
liquidity are sufficient to meet current and anticipated financing requirements
over the next 12 months.
SPECIAL CHARGES
During 1999, the Company announced plans to streamline operations. The
streamlining actions, primarily focused on our European operations, are
consistent with the Company's strategies to improve gross profit margins,
simplify operations, improve underperforming units and achieve growth through
new products, new distribution and acquisitions. In addition, the Company
announced a change in the actuarial method used to estimate pension expense. As
a result, the Company recorded special charges of $19.0 million ($18.4 million
after-tax or $0.26 per share) in 1999. Of this amount, $18.0 million was
classified as special charges and $1.0 million as cost of goods sold in the
Consolidated Statement of Income.
The Company recorded special charges of $26.7 million ($23.2 million
after-tax or $0.32 per share) associated with the plan to streamline operations.
The Company announced actions to consolidate certain U.K. facilities, improve
efficiencies within previously consolidated European operations and realign
operations between the U.K. and other European locations. Specific actions under
this plan include: the closure of the Oswaldtwistle facility, one of three
liquid manufacturing operations in the U.K.; streamlining manufacturing and
administrative functions at the recently consolidated European operations;
realignment of operations between the U.K. and other European locations; and
system and process improvements throughout the Company's global operations.
The major components of the special charges include workforce reductions,
building and equipment disposals, write-downs of intangible assets and other
related exit costs. In total, the streamlining actions will result in the
elimination of approximately 300 positions, primarily outside the U.S. Asset
write-downs were recorded as a direct result of the Company's decision to exit
facilities, businesses or operating activities. Other exit costs consist
primarily of employee and equipment relocation costs, lease exit costs and
consulting fees, some of which will be recognized as incurred.
In its entirety, expenses associated with the streamlining actions are
expected to total $29.3 million. This includes amounts recognized in 1999 and
future expenses which could not be accrued, but will be expensed as the actions
are implemented. It is expected that $1.5 million of the future expenses will be
classified as cost of goods sold or selling, general and administrative expense.
The Company expects these actions will be completed in 2000 and will
require net cash outflows of $7.9 million in total, of which $4.6 million was
incurred in 1999. Beginning in 2000, these actions are expected to generate $6
million in annual after-tax savings. A portion of these savings will be
reinvested in programs to generate growth opportunities.
In addition, the Company changed its actuarial method of calculating the
market-related value of plan assets used in determining the expected
return-on-asset component of annual pension expense. This modification resulted
in a one-time special credit of $7.7 million ($4.8 million after-tax or $0.07
per share) recorded
21
95 96 97 98 99
---- ---- ---- ---- ----
Capital Expenditures (in millions)
Capital Expenditures 82.1 74.7 43.9 54.8 49.3
Depreciation 56.3 57.9 43.9 49.9 52.5
in the second quarter of 1999. While this change better represents the amount of
ongoing pension expense, the new method will not have a material impact on the
Company's results of operations and financial condition.
During previous years, management reassessed the global strategic direction
of the Company and conducted a portfolio review of its business to increase
focus on core businesses and improve its cost structure. During 1998 and 1997,
the Company completed special projects related to the consolidation of
manufacturing facilities, reduction of administrative staff and divestiture of
non-core businesses undertaken in these initiatives. Due to the net impact of
estimate changes, project modifications and the recognition of project expenses
not accruable in previous years, the Company recorded special charges (credits)
of $2.3 million and $(3.2) million in 1998 and 1997, respectively. In 1998, the
realignment of several overseas operations resulted in losses less than
originally anticipated, and the Company discontinued its manufacturing
operations in Venezuela. In 1997, the agreement in principle to dispose of an
overseas food brokerage and distribution business was not consummated, and the
Company streamlined the food brokerage and distribution business and closed a
U.S. packaging plant.
Refer to Note 2 in the Notes to Consolidated Financial Statements for further
information.
DISCONTINUED OPERATIONS
In 1996, the Company sold substantially all the assets of Gilroy Foods,
Incorporated and Gilroy Energy Company, Inc. Based on the settlement of the
contract terms, the Company recognized income from discontinued operations, net
of income taxes, of $1.0 million in 1997.
MARKET RISK SENSITIVITY
The Company utilizes derivative financial instruments to enhance its ability to
manage risk, including foreign exchange and interest rate exposures which exist
as part of its ongoing business operations. The Company does not enter into
contracts for trading purposes, nor is it a party to any leveraged derivative
instrument. The use of derivative financial instruments is monitored through
regular communication with senior management and the utilization of written
guidelines. The information presented below should be read in conjunction with
Notes 4 and 5 to the Consolidated Financial Statements.
FOREIGN EXCHANGE RISK -- The Company is exposed to fluctuations in foreign
currency cash flows primarily related to raw material purchases. The Company is
also exposed to fluctuations in the value of foreign currency investments in
subsidiaries and unconsolidated affiliates and cash flows related to
repatriation of these investments. Additionally, the Company is exposed to
volatility in the translation of foreign currency earnings to U.S. dollars.
Primary exposures include the U.S. dollar versus functional currencies of the
Company's major markets (British pound, Australian dollar, Canadian dollar,
Mexican peso, Japanese yen and Chinese RMB). The Company enters into forward and
option contracts to manage foreign currency risk.
The adjacent table summarizes the foreign currency exchange contracts held
at November 30, 1999. All contracts are valued in U.S. dollars using year-end
1999 exchange rates and have been designated as hedges of firm commitments or
anticipated transactions with a maturity period of less than one year.
AVERAGE
NOTIONAL CONTRACTUAL FAIR
CURRENCY CURRENCY VALUE EXCHANGE RATE VALUE
SOLD RECEIVED (millions) (fc/USD) (millions)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXCHANGE CONTRACTS
GBP USD $22.9 .61 $ .3
CAN USD 13.0 1.47 -
USD CHF 0.5 1.47 -
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note: At November 30, 1998, the Company had foreign currency exchange contracts
for GBP, AUD, CAN and MXP with a notional value of $40.7 million, all of which
matured in 1999.
22
95 96 97 98 99
---- ---- ---- ---- ----
DIVIDENDS PAID PER SHARE 0.52 0.56 0.60 0.64 0.68
DIVIDENDS HAVE BEEN PAID
EVERY YEAR SINCE 1925
INTEREST RATE RISK -- The Company's policy is to manage interest cost using a
mix of fixed and variable debt. The Company uses interest rate swaps to achieve
a desired proportion. The table that follows provides principal cash flows and
related interest rates by fiscal year of maturity at November 30,1999. The
principal cash flows and related interest rates at November 30, 1998 were
similar to those presented below. For foreign currency-denominated debt, the
information is presented in U.S. dollar equivalents. Variable interest rates are
based on the weighted-average rates of the portfolio at November 30, 1999.
YEAR OF MATURITY
(millions) 2000 2001 2002 2003 THEREAFTER TOTAL FAIR VALUE
- -----------------------------------------------------------------------------------------------
DEBT
Fixed rate $7.7 $85.2 $.5 $.4 $155.3 $249.1 $254.7
Average interest rate 9.00% 8.81% 3.01% .99% 7.93%
- -----------------------------------------------------------------------------------------------
Variable rate $92.9 - - - - $92.9 $92.9
Average interest rate 5.99% - - - - 5.99%
- -----------------------------------------------------------------------------------------------
Note: The variable interest on commercial paper which will be used to retire the
$74.8 million, 8.95% note due 2001 is hedged by forward starting interest rate
swaps for the period 2001 through 2011. Net interest payments will be fixed at
6.35% during the period.
COMMODITY RISK -- The Company purchases certain raw materials which are subject
to price volatility caused by weather and other unpredictable factors. While
future movements of raw material costs are uncertain, a variety of programs,
including periodic raw material purchases and customer price adjustments help
the Company address this risk. Generally, the Company does not use derivatives
to manage the volatility related to this risk.
YEAR 2000
The Year 2000 (Y2K) issue is the result of computer programs written using two
digits (rather than four) to define the applicable year. Without corrective
actions, programs with date-sensitive logic may recognize "00" as 1900 rather
than 2000. This could result in miscalculations or system failures,
significantly impacting our business operations.
The Company's work on the Y2K compliance program officially began in 1996. A
Corporate project team, working with outside consultants, developed a process to
identify and correct Y2K issues on all information technology (IT) platforms and
non-IT systems. In addition, all operating units have undertaken Y2K initiatives
with direction from the Corporate project team. As a result of this process, the
Company inventoried and assessed all systems and developed remediation programs
where necessary for all business-critical information technology applications. A
similar program was also developed for non-IT systems. The Company completed its
remediation and testing work in 1999.
In order to mitigate the risk of internal business-critical computer systems
failure, the Company conducted extensive testing, verification and validation
efforts. These efforts, which included program and systems testing, simulated
operations in the year 2000. In addition, a review of the remediation process
and program code by independent third parties was completed, and contingency
plans, including system continuity plans, were developed in 1999.
23
McC SP FOOD SP 500
------- --------- ------
Total Shareholder Return
(includes dividends)
One year (1.9)% (19.0)% 20.9%
Three years 11.6% 7.0% 24.3%
Ten years 12.2% 12.4% 17.8%
In order to mitigate the risk of noncompliant external system failure, the
Company identified and contacted critical suppliers, customers and other third
parties to determine their stage of Y2K readiness. For certain third parties
with key system connections, interface testing was performed. The Company
developed contingency plans to mitigate potential disruptions to the Company's
operations. These included action plans to address system failures by third
parties, such as securing alternate sources of materials and developing backup
systems to ensure internal communications were not impacted by external
disruptions affecting voice and data transmission. The Company completed its
contingency plans in the fourth quarter of 1999.
A Company-wide Y2K readiness program was developed to educate all employees
on the risks associated with the Y2K changes. These include risks associated
with third-party transactions or the Company's internal processes. The Y2K
readiness program was in place throughout the Company at the end of 1999.
Since the compliance program began, the Company has incurred approximately
$12.0 million in expenses, including consulting fees, internal staff costs and
other expenses. The Company has also procured replacement systems that, in
addition to being Y2K compliant, provide enhanced capability to benefit future
operations.
The Company has not experienced significant Y2K issues subsequent to 1999's
fiscal year end. Although the Company believes it has taken the appropriate
steps to address Y2K readiness, there is no guarantee that the Company's efforts
will prevent a material adverse impact on the results of operations and
financial condition.
FORWARD-LOOKING INFORMATION
Certain statements contained in this report, including those related to future
operating results, position eliminations, cash requirements and savings related
to the special charges, expected Y2K readiness and cost, the impact of
accounting and disclosure changes, capital spending, the share repurchase
program, the holding period and market risks associated with financial
instruments, the impact of foreign exchange fluctuations and the adequacy of
internally generated funds and existing sources of liquidity are
"forward-looking statements" within the meaning of Section 21E of the Securities
and Exchange Act of 1934. Forward-looking statements are based on management's
current views and assumptions and involve risks and uncertainties that could
significantly affect expected results. Operating results could be materially
affected by external factors such as: actions of competitors, customer
relationships, market acceptance of new products, actual amounts and timing of
special charge items, including severance payments, removal and disposal costs
and final negotiation of third-party contracts, third party Y2K readiness, the
impact of stock market conditions on the share repurchase program, fluctuations
in the cost and availability of supply-chain resources and global economic
conditions, including interest and currency rate fluctuations and inflation
rates.
24
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED NOVEMBER 30 (MILLIONS EXCEPT PER SHARE DATA) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Net sales $ 2,006.9 $ 1,881.1 $ 1,801.0
Cost of goods sold 1,289.7 1,232.2 1,172.4
- ---------------------------------------------------------------------------------------------------------------------------
Gross profit 717.2 648.9 628.6
Selling, general and administrative expense 522.3 463.8 461.0
Special charges (credits) 18.0 2.3 (3.2)
- ---------------------------------------------------------------------------------------------------------------------------
Operating income 176.9 182.8 170.8
Interest expense 32.4 36.9 36.3
Other (income) expense, net (5.5) (6.6) (7.8)
- ---------------------------------------------------------------------------------------------------------------------------
Income from consolidated continuing operations
before income taxes 150.0 152.5 142.3
Income taxes 60.1 54.9 52.6
- ---------------------------------------------------------------------------------------------------------------------------
Net income from consolidated continuing operations 89.9 97.6 89.7
Income from unconsolidated operations 13.4 6.2 7.7
- ---------------------------------------------------------------------------------------------------------------------------
Net income from continuing operations 103.3 103.8 97.4
Income from discontinued operations, net of
income taxes - - 1.0
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 103.3 $ 103.8 $ 98.4
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE - BASIC
Continuing operations $ 1.45 $ 1.42 $ 1.29
Discontinued operations - - .01
- ---------------------------------------------------------------------------------------------------------------------------
Total earnings per share - basic $ 1.45 $ 1.42 $ 1.30
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE - ASSUMING DILUTION
Continuing operations $ 1.43 $ 1.41 $ 1.29
Discontinued operations - - .01
- ---------------------------------------------------------------------------------------------------------------------------
Total earnings per share - assuming dilution $ 1.43 $ 1.41 $ 1.30
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES 29 - 36.
25
CONSOLIDATED BALANCE SHEET
AT NOVEMBER 30 (MILLIONS) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 12.0 $ 17.7
Receivables, less allowances of $3.8 for 1999
and $4.0 for 1998 213.9 212.8
Inventories 234.2 250.9
Prepaid expenses and other current assets 26.1 7.2
Deferred income taxes 4.4 15.2
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 490.6 503.8
- ---------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 363.3 377.0
Intangible assets, net 142.8 160.9
Prepaid allowances 109.3 143.7
Investments and other assets 82.8 73.7
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,188.8 $1,259.1
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Short-term borrowings $ 92.9 $ 139.1
Current portion of long-term debt 7.7 24.5
Trade accounts payable 148.8 145.9
Other accrued liabilities 221.2 208.5
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 470.6 518.0
- ---------------------------------------------------------------------------------------------------------------------------
Long-term debt 241.4 250.4
Deferred income taxes 3.8 4.2
Other long-term liabilities 90.6 98.4
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 806.4 871.0
- ---------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, no par value; authorized 160.0
shares; issued and outstanding: 1999 - 8.9 shares,
1998 - 9.7 shares 49.8 49.0
Common stock non-voting, no par value; authorized
160.0 shares; issued and outstanding: 1999 - 61.5
shares, 1998 - 62.8 shares 124.0 120.0
Retained earnings 242.8 262.3
Accumulated other comprehensive income (34.2) (43.2)
- ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 382.4 388.1
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,188.8 $1,259.1
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES 29 - 36.
26
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED NOVEMBER 30 (MILLIONS) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 103.3 $ 103.8 $ 98.4
Adjustments to reconcile net income to net cash provided by
operating activities
Special charges (credits) 19.0 2.3 (3.2)
Depreciation and amortization 57.4 54.8 49.3
Deferred income taxes 9.3 2.0 18.9
Other 1.6 (.3) 2.9
Income from unconsolidated operations (13.4) (6.2) (7.7)
Changes in operating assets and liabilities
Receivables (2.1) 1.6 (4.2)
Inventories 16.0 (1.7) (13.7)
Prepaid allowances 34.6 (13.1) 18.1
Trade accounts payable 3.2 (2.4) (.6)
Other assets and liabilities (7.6) (6.6) 13.5
Dividends received from unconsolidated affiliates 8.0 9.8 9.5
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 229.3 144.0 181.2
- ---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisitions of businesses - (8.9) (3.3)
Capital expenditures (49.3) (54.8) (43.9)
Proceeds from sale of assets 3.0 3.0 3.8
Other .4 (1.9) (3.3)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (45.9) (62.6) (46.7)
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Short-term borrowings, net (46.4) 27.5 16.1
Long-term debt borrowings .3 9.0 .6
Long-term debt repayments (24.3) (17.7) (12.2)
Common stock issued 11.6 14.1 7.0
Common stock acquired by purchase (81.0) (63.0) (111.2)
Dividends paid (48.7) (46.9) (45.5)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (188.5) (77.0) (145.2)
- ---------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (.6) (.2) 1.8
- ---------------------------------------------------------------------------------------------------------------------------
(Decrease)/increase in cash and cash equivalents (5.7) 4.2 (8.9)
Cash and cash equivalents at beginning of year 17.7 13.5 22.4
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 12.0 $ 17.7 $ 13.5
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES 29 - 36.
27
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Common Accumulated
Common Stock Common Other Total
Stock Non-Voting Stock Retained Comprehensive Shareholders'
(MILLIONS EXCEPT PER SHARE DATA) Shares Shares Amount Earnings Income Equity
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Balance, November 30, 1996 11.5 66.7 $ 161.0 $ 313.8 $ (24.8) $ 450.0
Comprehensive income:
Net income 98.4 98.4
Currency translation adjustments (5.8) (5.8)
--------------
Comprehensive income 92.6
--------------
Dividends paid ($.60/share) (45.5) (45.5)
Shares purchased and retired (.3) (4.2) (8.6) (102.6) (111.2)
Shares issued .1 .2 7.0 7.0
Other .2 .2
Equal exchange (1.1) 1.1 -
- ---------------------------------------------------------------------------------------------------------------------------
Balance, November 30, 1997 10.2 63.8 $ 159.4 $ 264.3 $ (30.6) $ 393.1
Comprehensive income:
Net income 103.8 103.8
Currency translation adjustments (6.0) (6.0)
Minimum pension liability
adjustment, net of tax (6.6) (6.6)
--------------
Comprehensive income 91.2
--------------
Dividends paid ($.64/share) (46.9) (46.9)
Shares purchased and retired (.2) (1.8) (4.5) (58.5) (63.0)
Shares issued .3 .2 14.1 14.1
Other (.4) (.4)
Equal exchange (.6) .6 -
- ---------------------------------------------------------------------------------------------------------------------------
Balance, November 30, 1998 9.7 62.8 $ 169.0 $ 262.3 $ (43.2) $ 388.1
COMPREHENSIVE INCOME:
NET INCOME 103.3 103.3
CURRENCY TRANSLATION ADJUSTMENTS - -
MINIMUM PENSION LIABILITY
ADJUSTMENT, NET OF TAX 6.6 6.6
CHANGE IN REALIZED AND UNREALIZED GAINS ON
DERIVATIVE FINANCIAL INSTRUMENTS, NET OF TAX 2.4 2.4
--------------
COMPREHENSIVE INCOME 112.3
--------------
DIVIDENDS PAID ($.68/SHARE) (48.7) (48.7)
SHARES PURCHASED AND RETIRED (.5) (2.1) (6.8) (74.2) (81.0)
SHARES ISSUED .3 .2 11.6 11.6
OTHER .1 .1
EQUAL EXCHANGE (.6) .6 -
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1999 8.9 61.5 $ 173.8 $ 242.8 $ (34.2) $ 382.4
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES 29 - 36.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all majority-owned subsidiaries. Investments in 20% to 50% owned affiliates are
accounted for under the equity method. Significant intercompany transactions
have been eliminated.
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 consolidated financial statements and
accompanying notes. Actual amounts could differ from these estimates.
CASH AND CASH EQUIVALENTS
All highly liquid investments purchased with an original maturity date of three
months or less are classified as 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 the straight-line method for financial reporting and
both accelerated and straight-line methods for tax reporting.
INTANGIBLE ASSETS
Intangible assets resulting from acquisitions are amortized using the
straight-line method over periods up to 40 years. The recoverability of
intangible assets is evaluated periodically when events or circumstances
indicate a possible inability to recover the carrying amount. When factors
indicate that an intangible asset should be evaluated for impairment, the
Company uses various analyses, including projections of cash flows and other
profitability measures, to evaluate recoverability. An impaired intangible asset
is written down to fair value, which is generally the discounted value of
estimated future cash flows.
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.
STOCK-BASED EMPLOYEE COMPENSATION
Stock-based compensation is accounted for by using the intrinsic value-based
method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's foreign subsidiaries, other than those
located in highly inflationary countries, are translated at current exchange
rates, while income and expenses are translated at average rates for the period.
Translation gains and losses are reported in other comprehensive income in
shareholders' equity. For entities in highly inflationary countries, a
combination of current and historical rates is used to determine translation
gains and losses, which are reported in the Consolidated Statement of Income.
ACCOUNTING AND DISCLOSURE CHANGES
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income in financial statements. Comprehensive income
includes all changes in equity during a period except those resulting from
investments by or distributions to shareholders. The adoption of this statement
had no impact on the Company's net income or shareholders' equity. Amounts in
prior year financial statements have been reclassified to conform to the
requirements of SFAS No. 130.
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for a company's operating segments and related disclosures
about its products, services, geographic areas and major customers. Adoption of
this standard did not impact the Company's results of operations and financial
position and was limited to the presentation of its disclosures.
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" in 1999. This statement requires the Company to
recognize all derivatives on the balance sheet at fair value. Adoption of SFAS
No. 133 did not have a material impact on the Company's results of operations
and financial position.
The Company adopted Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities" in 1999. This statement requires the costs of start-up
activities, including organization costs, to be expensed as incurred. Adoption
of this standard did not have a material impact on the Company's results of
operations and financial position.
RECLASSIFICATIONS
Certain amounts in prior years have been reclassified to conform to the 1999
presentation.
2. SPECIAL CHARGES AND DISCONTINUED OPERATIONS
SPECIAL CHARGES
During 1999, the Company recorded special charges of $19.0 million ($18.4
million after-tax or $0.26 per share) associated with a plan to streamline
operations and an actuarial change approved by the Company's Board of Directors
in May 1999. Of this amount, $18.0 million was classified as special charges and
$1.0 million as cost of goods sold in the Consolidated Statement of Income.
The Company recorded special charges of $26.7 million ($23.2 million
after-tax or $0.32 per share) associated with the plan to streamline operations.
In Europe, the Company
29
announced actions to consolidate certain U.K. facilities, improve efficiencies
within previously consolidated European operations and realign operations
between the U.K. and other European locations. Specific actions under this plan
include: the closure of the Oswaldtwistle facility, one of three liquid
manufacturing operations in the U.K.; streamlining manufacturing and
administrative functions at the recently consolidated European operations;
realignment of operations between the U.K. and other European locations; and
system and process improvements throughout the Company's global operations.
The major components of the special charges include workforce reductions,
building and equipment disposals, write-downs of intangible assets and other
related exit costs. In total, the streamlining actions will result in the
elimination of approximately 300 positions, primarily outside the U.S. As of
November 30, 1999, approximately 220 positions were eliminated. These were
primarily related to European initiatives, including the closure of the
Oswaldtwistle facility. In addition, the Company transitioned its selling,
administration and distribution operations in Switzerland to a third party
distributor based in that country. Asset write-downs, including $5.7 million of
property, plant and equipment, $9.1 million of intangible assets and $1.0
million in inventory, were recorded as a direct result of the Company's decision
to exit facilities, businesses or operating activities. The fair value of the
intangible assets, primarily related to goodwill from prior acquisitions in
Finland and Switzerland, was based on a discounted value of estimated future
cash flows. Other exit costs consist primarily of employee and equipment
relocation costs, lease exit costs and consulting fees, some of which will be
recognized as incurred.
In its entirety, expenses associated with the streamlining actions are
expected to total $29.3 million. This includes amounts recognized in 1999 and
future expenses which could not be accrued, but will be expensed as the actions
are implemented. It is expected that $1.5 million of the future expenses will be
classified as cost of goods sold or selling, general and administrative expense.
The Company expects these actions to be completed in 2000.
In addition, the Company changed its actuarial method of calculating the
market-related value of plan assets used in determining the expected
return-on-asset component of annual pension expense. This modification resulted
in a one-time special credit of $7.7 million ($4.8 million after-tax or $0.07
per share) recorded in the second quarter of 1999. Under the previous method,
all realized and unrealized gains and losses were gradually included in the
calculated market-related value of plan assets over a five-year period. Under
the new method, the total expected investment return, which anticipates realized
and unrealized gains and losses on plan assets, is included in the calculated
market-related value of plan assets each year. Only the difference between total
actual investment return, including realized and unrealized gains and losses,
and the expected investment return is gradually included in the calculated
market-related value of plan assets over a five-year period.
Under the new actuarial method, the calculated market-related value of plan
assets more closely approximates fair value, while still mitigating the effect
of annual market value fluctuations. It also reduces the growing difference
between the fair value and calculated market-related value of plan assets that
has resulted from the recent accumulation of unrecognized gains and losses.
While this change better represents the amount of ongoing pension expense, the
new method will not have a material impact on the Company's results of
operations and financial condition.
The major components of the special charges (credits) and the remaining
accrual balance as of November 30, 1999 follow:
Severance Actuarial
and personnel Asset Other method
costs write-downs exit costs change Total
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
1999
SPECIAL CHARGES (CREDITS) $ 7.9 $ 15.8 $ 3.0 $ (7.7) $ 19.0
AMOUNTS UTILIZED (4.0) (15.8) (1.2) 7.7 (13.3)
- -----------------------------------------------------------------------------------------------------------
$ 3.9 $ - $ 1.8 $ - $ 5.7
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
During 1998 and 1997, the Company completed special projects related to the
consolidation of manufacturing facilities, reduction of administrative staff and
divestiture of non-core businesses undertaken in previous years. Due to the net
impact of estimate changes, project modifications and the recognition of project
expenses not accruable in previous years, the Company recorded special charges
(credits) of $2.3 million and $(3.2) million in 1998 and 1997, respectively. In
1998, the realignment of several overseas operations resulted in losses less
than originally anticipated and the Company discontinued its manufacturing
operations in Venezuela. In 1997, the agreement in principle to dispose of an
overseas food brokerage and distribution business was not consummated and the
Company streamlined the food brokerage and distribution business and closed a
U.S. packaging plant.
DISCONTINUED OPERATIONS
In 1996, the Company sold substantially all the assets of Gilroy Foods,
Incorporated and Gilroy Energy Company, Inc. Based on the settlement of contract
terms, the Company recognized income from discontinued operations, net of income
taxes, of $1.0 million in 1997.
Under a non-compete agreement signed with Calpine Corporation, McCormick
received payments of $4.6 million, $7.0 million and $8.0 million in 1999, 1998
and 1997, respectively, which were included in other income in the Consolidated
Statement of Income. As of the end of 1999, this non-compete agreement was
complete.
3. INVESTMENTS
The Company owns from 20% 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 $38.5 million at
November 30, 1999.
30
Summarized year-end information from the financial statements of these
companies representing 100% of the businesses follows:
(MILLIONS) 1999 1998 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Net sales $ 378.3 $ 344.4 $ 345.4
Gross profit 158.7 131.1 131.7
Net income 26.7 11.9 15.7
- -------------------------------------------------------------------------------
Current assets $ 168.0 $ 161.2 $ 154.0
Noncurrent assets 82.6 71.7 73.2
Current liabilities 97.1 106.1 90.8
Noncurrent liabilities 46.1 39.5 46.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4. FINANCING ARRANGEMENTS
The Company's outstanding debt is as follows:
(MILLIONS) 1999 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Short-term borrowings
Commercial paper (1) $ 59.6 $ 94.4
Other 33.3 44.7
- --------------------------------------------------------------------------------
$ 92.9 $ 139.1
- --------------------------------------------------------------------------------
Weighted-average interest rate
of short-term borrowings at year end 5.99% 6.57%
- --------------------------------------------------------------------------------
Long-term debt
8.95% note due 2001(1) $ 74.8 $ 74.7
9.75% installment notes
due through 2001 5.2 8.8
9.00% installment notes due 1999 -- 1.6
5.78% - 7.77% medium-term notes
due 2004 to 2006 95.0 95.0
7.63% - 8.12% medium-term notes
due 2024 (2) 55.0 55.0
9.34% pound sterling installment
note due through 2001 7.1 11.3
10.00% Canadian dollar bond due 1999 -- 6.5
3.13% yen note due 1999 -- .9
9.74% Australian dollar note due 1999 -- 7.5
Other 12.0 13.6
- --------------------------------------------------------------------------------
Total long-term debt 249.1 274.9
Less current portion 7.7 24.5
- --------------------------------------------------------------------------------
$ 241.4 $ 250.4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The variable interest on commercial paper which will be used to retire the
8.95% note due 2001 is hedged by forward starting interest rate swaps for
the period 2001 through 2011. Net interest payments will be fixed at 6.35%
during the period.
(2) The holders have a one-time option to require retirement of these notes
during 2004.
The fair value of the Company's short-term borrowings approximated the
recorded value. The fair value of long-term debt including the current portion
of long-term debt was $254.7 million and $298.8 million at November 30, 1999 and
1998, respectively.
The Company's long-term debt agreements contain various restrictive
covenants, including limitations on the payment of cash dividends. Under the
most restrictive covenants, $156.0 million of retained earnings was available
for dividends at November 30, 1999.
Maturities of long-term debt during the four years subsequent to November
30, 2000 are as follows (in millions):
2001 - $85.2 2003 - $ .4
2002 - $ .5 2004 - $16.3
The Company has available credit facilities with domestic and foreign banks
for various purposes. The amount of unused credit facilities at November 30,
1999 was $376.6 million, of which $300.0 million supports a commercial paper
borrowing arrangement. Credit facilities in support of commercial paper issuance
require a commitment fee of $.2 million. All other credit facilities require no
commitment fee and are subject to the availability of funds.
Rental expense under operating leases was $17.4 million in 1999, $14.1
million in 1998 and $13.6 million in 1997. Future annual fixed rental payments
for the years ending November 30 are as follows (in millions):
2000 - $12.8 2003 - $4.3
2001 - $10.7 2004 - $2.9
2002 - $ 8.0 Thereafter - $6.2
At November 30, 1999, the Company had unconditionally guaranteed $5.3
million of the debt of unconsolidated affiliates. The Company has guaranteed the
residual value of a leased distribution center at 85% of its original cost.
5. FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments to enhance its ability to
manage risk, including foreign currency and interest rate exposures which exist
as part of its ongoing business operations. The Company does not enter into
contracts for trading purposes, nor is it a party to any leveraged derivative
instrument. The use of derivative financial instruments is monitored through
regular communication with senior management and the utilization of written
guidelines.
The Company's derivatives are accounted for under the requirements of SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." All
derivatives are recognized at fair value in the Consolidated Balance Sheet. In
evaluating the fair value of financial instruments, including derivatives, the
Company generally uses third-party market quotes or calculates an estimated fair
value on a discounted cash flow basis using the rates available for instruments
with the same remaining maturities.
FOREIGN CURRENCY
The Company is potentially exposed to foreign currency fluctuations affecting
net investments and earnings denominated in foreign currencies. The Company
selectively hedges the potential effect of these foreign currency fluctuations
by entering into foreign currency exchange contracts with highly-rated financial
institutions.
Gains and losses from hedges of assets, liabilities or firm commitments are
recognized through income, offsetting the change in fair value of the hedged
item. The gains or losses on contracts which are designated as a hedge of
anticipated purchases are deferred in other comprehensive income in
shareholders' equity until the hedged item is recognized in income. Realized and
unrealized gains and losses on contracts that hedge net investments are also
recognized in other comprehensive income.
At November 30, 1999, the Company had foreign currency exchange contracts
maturing in 2000 to purchase or sell $36.4 million of foreign currencies versus
$40.7 million at November 30, 1998. The fair value of these contracts was $0.3
million and $1.1 million at November 30, 1999 and 1998, respectively.
31
INTEREST RATES
The Company finances a portion of its operations through debt instruments,
primarily commercial paper, notes and bank loans whose fair values are indicated
in Note 4. The Company utilizes interest rate swap agreements to achieve a
desired proportion of variable versus fixed rate debt. The reflected gains or
losses on these contracts are deferred in other comprehensive income until the
contracts' effective date in 2001, after which the amounts paid or received on
the contracts will be recorded as an adjustment to interest expense.
The variable interest on commercial paper which will be used to retire the
8.95% note due 2001 is hedged by forward starting interest rate swaps for the
period 2001 through 2011. Net interest payments will be fixed at 6.35% during
the period.
The notional amount of interest rate swaps was $75.0 million at November
30, 1999. The fair value of the swaps was $3.9 million and $(2.0) million at
November 30, 1999 and 1998, respectively. The Company intends to hold the
forward starting interest rate swaps until maturity.
OTHER FINANCIAL INSTRUMENTS
The Company's other financial instruments include cash and cash equivalents,
receivables and accounts payable. As of November 30, 1999 and 1998, the fair
value of other financial instruments held by the Company approximated the
recorded value.
Investments, consisting principally of investments in unconsolidated
affiliates, are not readily marketable. Therefore, it is not practicable to
estimate their fair value.
CONCENTRATIONS OF CREDIT RISK
The Company is potentially exposed to concentrations of credit risk with trade
accounts receivable, prepaid allowances and financial instruments. Because the
Company has a large and diverse customer base with no single customer 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, 1999. The Company evaluates the credit worthiness of the
counterparties to financial instruments and considers nonperformance credit risk
to be remote.
6. PENSION AND PROFIT SHARING PLANS
PENSION PLAN
The Company's pension expense follows:
United States International
(MILLIONS) 1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------
Defined benefit plans
Service cost $ 7.4 $ 6.2 $ 5.5 $ 2.8 $ 2.7 $ 1.8
Interest cost 12.7 11.4 10.7 3.2 3.2 2.9
Expected return
on plan assets (13.2) (11.2) (10.2) (5.2) (4.9) (3.9)
Amortization of
prior service cost .1 .1 -- .1 .1 .1
Amortization of
transition asset (.6) (.5) (.5) (.1) (.1) (.1)
Curtailment loss -- -- -- .2 -- --
Recognized net
actuarial loss (gain) 3.3 1.6 1.6 (.1) (.3) (.3)
Other retirement plans .1 .2 -- .7 .8 1.2
- -------------------------------------------------------------------------------------------
$ 9.8 $ 7.8 $ 7.1 $ 1.6 $ 1.5 $ 1.7
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
The Company's U.S. plans held .5 million shares, with a fair value of $15.0
million, of the Company's stock at November 30, 1999. Dividends paid on these
shares in 1999 were $.3 million.
Rollforwards of the benefit obligation, fair value of plan assets and a
reconciliation of the plans' funded status at September 30, the measurement
date, follow:
United States International
(MILLIONS) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Change in benefit obligation
Beginning of the year $ 185.5 $ 156.2 $ 49.8 $ 43.8
Service cost 7.4 6.2 2.8 2.7
Interest cost 12.7 11.4 3.2 3.2
Employee contributions -- -- 1.1 1.1
Plan changes .3 -- -- --
Curtailment -- -- .4 --
Actuarial (gain) loss (17.7) 21.3 4.2 2.4
Benefits paid (11.7) (9.6) (2.2) (1.8)
Foreign currency impact -- -- (.4) (1.6)
- -------------------------------------------------------------------------------------------------
End of year $ 176.5 $ 185.5 $ 58.9 $ 49.8
- -------------------------------------------------------------------------------------------------
Change in fair value of plan assets
Beginning of the year $ 141.2 $ 134.2 $ 57.9 $ 55.2
Actual return on plan assets 16.9 5.4 4.4 5.4
Transfer .4 -- -- --
Employer contributions 22.2 11.2 -- --
Employee contributions -- -- 1.1 1.1
Benefits paid (11.7) (9.6) (2.2) (1.8)
Foreign currency impact -- -- (.5) (2.0)
- -------------------------------------------------------------------------------------------------
End of year $ 169.0 $ 141.2 $ 60.7 $ 57.9
- -------------------------------------------------------------------------------------------------
Reconciliation of funded status
Funded status $ (7.5) $ (44.3) $ 1.8 $ 8.1
Unrecognized net actuarial loss (gain) 26.2 43.4 (2.9) (8.5)
Unrecognized prior service cost .3 .4 .7 1.0
Unrecognized transition asset (liability) .6 -- (.4) (.5)
- -------------------------------------------------------------------------------------------------
Net pension asset (liability) $ 19.6 $ (.5) $ (.8) $ .1
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Amounts recognized in the Consolidated Balance Sheet consist of the
following:
United States International
(MILLIONS) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Prepaid pension cost $ 19.6 $ 5.1 $ .4 $ .8
Accrued pension liability -- (17.9) (1.2) (.7)
Intangible asset -- 2.0 -- --
Deferred income taxes -- 3.7 -- --
Minimum pension liability -- 6.6 -- --
- ---------------------------------------------------------------------------------------
$ 19.6 $ (.5) $ (.8) $ .1
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
The accumulated benefit obligation for the U.S. plans was $144.5 million
and $153.9 million as of September 30, 1999 and 1998, respectively.
United States International
1999 1998 1999 1998
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Significant assumptions
Discount rate 8.0% 7.0% 6.0-6.5% 6.5%
Salary scale 4.5% 4.0% 3.5-4.0% 3.5-4.0%
Expected return on plan assets 10.0% 10.0% 8.5% 8.5-9.5%
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
32
PROFIT SHARING PLAN
Profit sharing plan expense was $6.0 million, $4.2 million and $4.4 million in
1999, 1998 and 1997, respectively.
The Profit Sharing Plan held 2.4 million shares, with a fair value of $78.3
million, of the Company's stock at November 30, 1999. Dividends paid on these
shares in 1999 were $1.6 million.
7. OTHER POSTRETIREMENT BENEFITS
The Company's other postretirement benefit expense follows:
(MILLIONS) 1999 1998 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other postretirement benefits
Service cost $ 2.6 $ 2.1 $ 1.9
Interest cost 4.9 4.4 4.3
Amortization of prior service cost (.1) (.1) (.1)
- --------------------------------------------------------------------------------
$ 7.4 $ 6.4 $ 6.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Rollforwards of the benefit obligation, fair value of plan assets and a
reconciliation of the plan's funded status at November 30, the measurement date,
follow:
(MILLIONS) 1999 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Change in benefit obligation
Beginning of the year $ 69.8 $ 61.5
Service cost 2.6 2.1
Interest cost 4.9 4.4
Employee contributions 1.6 1.5
Plan changes (6.1) (.5)
Actuarial (gain) loss (2.7) 5.9
Benefits paid (5.0) (5.1)
- --------------------------------------------------------------------------------
End of the year $ 65.1 $ 69.8
- --------------------------------------------------------------------------------
Change in fair value of plan assets
Beginning of the year $ -- $ --
Employer contributions 3.4 3.6
Employee contributions 1.6 1.5
Benefits paid (5.0) (5.1)
- --------------------------------------------------------------------------------
End of the year $ -- $ --
- --------------------------------------------------------------------------------
Reconciliation of funded status
Funded status $ (65.1) $ (69.8)
Unrecognized net actuarial (gain) loss (.2) 2.5
Unrecognized prior service cost (7.3) (1.3)
- --------------------------------------------------------------------------------
Other postretirement benefit liability $ (72.6) $ (68.6)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The assumed weighted-average discount rates were 8.0% and 7.0% for 1999 and
1998, respectively.
The assumed annual rate of increase in the cost of covered health care
benefits is 7.9% for 2000. It is assumed to decrease gradually to 4.5% in the
year 2007 and remain at that level thereafter. Changing the assumed health care
cost trend would have the following effect:
1-Percentage- 1-Percentage-
(MILLIONS) Point Increase Point Decrease
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Effect on benefit obligation as of
November 30, 1999 $ 6.5 $ (5.8)
Effect on total of service and interest
cost components in 1999 $ 1.0 $ (.8)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
8. INCOME TAXES
The provision for income taxes consists of the following:
(MILLIONS) 1999 1998 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Income taxes
Current
Federal $ 35.6 $ 37.6 $ 24.4
State 2.7 6.7 5.5
International 12.5 8.6 3.8
- -------------------------------------------------------------------------------
50.8 52.9 33.7
- -------------------------------------------------------------------------------
Deferred
Federal 7.5 .1 10.7
State 1.5 (.6) 2.3
International .3 2.5 5.9
- -------------------------------------------------------------------------------
9.3 2.0 18.9
- -------------------------------------------------------------------------------
Total income taxes $ 60.1 $ 54.9 $ 52.6
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The components of income from consolidated continuing operations before
income taxes follow:
(MILLIONS) 1999 1998 1997
- -----------------------------------------------------------
- -----------------------------------------------------------
Pretax income
United States $ 127.0 $ 126.9 $ 115.6
International 23.0 25.6 26.7
- -----------------------------------------------------------
$ 150.0 $ 152.5 $ 142.3
- -----------------------------------------------------------
- -----------------------------------------------------------
A reconciliation of the U.S. federal statutory rate with the effective tax
rate follows:
1999 1998 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Federal statutory tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal benefits 1.8 2.6 4.3
Tax effect of international operations .5 .6 .1
Tax credits (1.6) (2.2) (2.6)
Nondeductible special charges 4.2 -- --
Other, net .2 -- .2
- -------------------------------------------------------------------------------
Effective tax rate 40.1% 36.0% 37.0%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Deferred tax liabilities and assets are comprised of the following:
(MILLIONS) 1999 1998
- ------------------------------------------------------------
- ------------------------------------------------------------
Deferred tax assets
Postretirement benefit obligations $ 36.7 $ 35.7
Accrued expenses and other reserves 12.0 15.3
Inventory 3.8 3.8
Net operating losses and tax credits 7.2 7.2
Other 19.1 16.0
Valuation allowance (7.2) (6.2)
- ------------------------------------------------------------
71.6 71.8
- ------------------------------------------------------------
Deferred tax liabilities
Depreciation 44.7 41.9
Other 22.2 16.0
- ------------------------------------------------------------
66.9 57.9
- ------------------------------------------------------------
Net deferred tax asset $ 4.7 $ 13.9
- ------------------------------------------------------------
- ------------------------------------------------------------
33
Deferred tax assets are primarily in the U.S. The Company has a history of
having taxable income and anticipates future taxable income to realize these
assets.
U.S. 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 U.S. tax on repatriated
earnings would be substantially offset by U.S. foreign tax credits. Unremitted
earnings of such entities were $104.3 million at November 30, 1999.
9. STOCK PURCHASE AND OPTION PLANS
The Company has an Employee Stock Purchase Plan (ESPP) enabling substantially
all U.S. employees to purchase the Company's common stock at the lower of the
stock price on the grant date or the exercise date. Similarly, options were
granted for certain foreign-based employees in lieu of their participation in
the ESPP. Options granted under both plans have two-year terms and are fully
exercisable on the grant date.
Under the Company's 1990 and 1997 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. Options
have five and ten year terms and generally become fully exercisable between two
and five years of continued employment.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation expense
has been recognized for the Company's stock option plans. If the Company had
elected to recognize compensation based on the fair value of the options granted
at grant date as prescribed by SFAS No. 123, net income and earnings per share
would have been as follows:
(MILLIONS EXCEPT PER SHARE DATA) 1999 1998 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Pro forma net income $ 98.2 $ 100.1 $ 94.5
Pro forma earnings per share
Assuming dilution 1.36 1.36 1.25
Basic 1.38 1.37 1.25
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The effects of applying SFAS No. 123 on pro forma net income are not
indicative of future amounts until the new rules are applied to all outstanding
non-vested awards.
The per share weighted-average fair value of options granted during the
year was $6.02, $7.20 and $4.63 in 1999, 1998 and 1997, respectively. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following range of assumptions for the Stock
Option Plans, McCormick (U.K.) Share Option Schemes and the ESPP (including
options to foreign employees):
1999 1998 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Risk-free interest rates 4.9%-5.4% 5.5%-5.7% 5.9%-6.7%
Dividend yields 2.0% 2.0% 2.0%
Expected volatility 24.2% 23.6% 23.0%
Expected lives 1.6-6.0 years 1.3-5.3 years 1.6-4.6 years
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
A summary of the Company's stock option plans for the years ended November
30 follows:
(OPTIONS IN MILLIONS) 1999 1998 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
WEIGHTED- Weighted- Weighted-
AVERAGE average average
EXERCISE exercise exercise
SHARES PRICE Shares price Shares price
- -------------------------------------------------------------------------------
Beginning of year 3.7 $ 26.50 3.2 $ 23.11 2.7 $ 22.71
Granted 1.6 $ 29.06 1.2 $ 33.15 1.3 $ 24.25
Exercised (.6) $ 23.54 (.6) $ 22.57 (.3) $ 21.94
Forfeited (.2) $ 25.91 (.1) $ 22.27 (.5) $ 24.91
- -------------------------------------------------------------------------------
End of year 4.5 $ 27.86 3.7 $ 26.50 3.2 $ 23.11
- -------------------------------------------------------------------------------
Exercisable -
end of year 2.3 $ 25.54 1.9 $ 23.06 1.8 $ 22.73
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(OPTIONS IN MILLIONS) Options outstanding Options exercisable
- -----------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Range of average average average
exercise remaining exercise exercise
price Shares life in years price Shares price
- -----------------------------------------------------------------------------
$11.06 to $24.25 1.7 1.8 $23.17 1.6 $23.12
$24.50 to $33.13 1.7 7.5 $29.07 .4 $28.90
$33.25 1.1 8.2 $33.25 .3 $33.25
- -----------------------------------------------------------------------------
4.5 5.5 $27.86 2.3 $25.54
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Under all stock purchase and option plans, there were 3.6 million and 4.8
million shares reserved for future grants at November 30, 1999 and 1998,
respectively.
10. EARNINGS PER SHARE
The reconciliation of shares outstanding used in the calculation of the required
earnings per share measures, basic and assuming dilution, for the years ended
November 30 follows:
(millions) 1999 1998 1997
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Average shares outstanding - basic 71.4 73.3 75.7
Effect of dilutive securities
Stock options and ESPP .6 .5 .2
- ------------------------------------------------------------------
Average shares outstanding -
assuming dilution 72.0 73.8 75.9
- ------------------------------------------------------------------
- ------------------------------------------------------------------
11. 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.
34
Holders of Common Stock Non-Voting will vote as a separate class on all
matters on which they are entitled to vote. 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.
12. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
BUSINESS SEGMENTS
In the fourth quarter of 1999, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131
establishes reporting standards for a company's operating segments and related
disclosures about its products, services, geographic areas and major customers.
The previously reported segment information has been restated to conform to the
requirements of SFAS No. 131.
The Company operates in three business segments: consumer, industrial and
packaging. The consumer and industrial segments manufacture, market and
distribute spices, seasonings, flavorings and other specialty food products
throughout the world. The consumer segment sells consumer spices, herbs,
extracts, proprietary seasoning blends, sauces and marinades to the consumer
food market under a variety of brands, including the McCormick and Schilling
brands in the U.S., Club House in Canada, and Schwartz in the U.K. The
industrial segment sells to food processors, restaurant chains, distributors,
warehouse clubs and institutional operations. The packaging segment manufactures
and markets plastic packaging products for food, personal care and other
industries, predominantly in the U.S. Tubes and bottles are also produced for
the Company's food segments.
The Company measures segment performance based on operating income.
Although the segments are managed separately due to their distinct distribution
channels and marketing strategies, manufacturing and warehousing is often
integrated across the food segments to maximize cost efficiencies. Management
does not segregate jointly utilized assets by individual food segment for
internal reporting, evaluating performance or allocating capital. Asset-related
information has been disclosed in aggregate for the food segments.
Accounting policies for measuring segment operating income and assets are
substantially consistent with those described in Note 1, "Summary of Significant
Accounting Policies." Intersegment sales are generally accounted for at current
market value or cost plus markup. Because of manufacturing integration for
certain products within the food segments, inventory cost, including the
producing segment's overhead and depreciation, is transferred and recognized in
the operating income of the receiving segment. Corporate and eliminations
includes general corporate expenses, intercompany eliminations and other charges
not directly attributable to the segments. Corporate assets include cash,
deferred taxes and certain investments and fixed assets.
Total Corporate &
(MILLIONS) Consumer Industrial Food Packaging Eliminations Total
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
1999
NET SALES $ 896.2 $ 941.0 $ 1,837.2 $ 169.7 $ - $ 2,006.9
INTERSEGMENT SALES - 11.5 11.5 34.3 (45.8) -
OPERATING INCOME 125.3 63.0 188.3 22.2 (33.6) 176.9
OPERATING INCOME EXCLUDING SPECIAL CHARGES 136.5 73.8 210.3 19.8 (34.2) 195.9
INCOME FROM UNCONSOLIDATED OPERATIONS 13.4 - 13.4 - - 13.4
ASSETS - - 983.2 117.5 88.1 1,188.8
CAPITAL EXPENDITURES - - 39.7 8.3 1.3 49.3
DEPRECIATION AND AMORTIZATION - - 44.5 11.5 1.4 57.4
- ----------------------------------------------------------------------------------------------------------------------
1998
Net sales $ 836.4 $ 885.9 $ 1,722.3 $ 158.8 $ - $ 1,881.1
Intersegment sales - 5.0 5.0 30.0 (35.0) -
Operating income 126.5 62.7 189.2 17.5 (23.9) 182.8
Operating income excluding special charges 129.0 61.3 190.3 18.7 (23.9) 185.1
Income from unconsolidated operations 6.2 - 6.2 - - 6.2
Assets - - 1,045.9 124.7 88.5 1,259.1
Capital expenditures - - 36.7 16.9 1.2 54.8
Depreciation and amortization - - 42.2 11.2 1.4 54.8
- ----------------------------------------------------------------------------------------------------------------------
1997
Net sales $ 804.8 $ 816.3 $ 1,621.1 $ 179.9 $ - $ 1,801.0
Intersegment sales - 4.5 4.5 25.9 (30.4) -
Operating income 103.8 71.6 175.4 18.2 (22.8) 170.8
Operating income excluding special charges 108.7 59.0 167.7 22.8 (22.9) 167.6
Income from unconsolidated operations 8.2 (.5) 7.7 - - 7.7
Assets - - 1,047.2 123.6 85.4 1,256.2
Capital expenditures - - 33.2 10.0 .7 43.9
Depreciation and amortization - - 36.4 11.0 1.9 49.3
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
35
GEOGRAPHIC AREAS
The Company has significant net sales and long-lived assets in the following
geographic areas:
United United Other
(MILLIONS) States Kingdom Countries Total
- -------------------------------------------------------------------------------
1999
NET SALES $ 1,393.9 $ 322.8 $ 290.2 $ 2,006.9
LONG-LIVED ASSETS (1) 319.0 113.7 73.4 506.1
- -------------------------------------------------------------------------------
1998
Net sales $ 1,291.2 $ 322.2 $ 267.7 $ 1,881.1
Long-lived assets (1) 331.7 126.7 79.5 537.9
- -------------------------------------------------------------------------------
1997
Net sales $ 1,222.6 $ 308.3 $ 270.1 $ 1,801.0
Long-lived assets (1) 330.3 131.5 76.2 538.0
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Long-lived assets include property, plant and equipment and intangible
assets, net of accumulated depreciation and amortization, respectively.
13. SUPPLEMENTAL FINANCIAL STATEMENT DATA
(MILLIONS) 1999 1998
- --------------------------------------------------------------------------------
Inventories
Finished products and work-in-process $ 132.6 $ 138.6
Raw materials 101.6 112.3
- --------------------------------------------------------------------------------
$ 234.2 $ 250.9
- --------------------------------------------------------------------------------
Property, plant and equipment
Land and improvements $ 25.0 $ 26.2
Buildings 192.7 187.6
Machinery and equipment 488.4 477.4
Construction in progress 28.9 32.1
Accumulated depreciation (371.7) (346.3)
- --------------------------------------------------------------------------------
$ 363.3 $ 377.0
- --------------------------------------------------------------------------------
Intangible assets
Cost $ 196.8 $ 212.9
Accumulated amortization (54.0) (52.0)
- --------------------------------------------------------------------------------
$ 142.8 $ 160.9
- --------------------------------------------------------------------------------
Investments and other assets
Investments $ 61.2 $ 52.1
Other assets 21.6 21.6
- --------------------------------------------------------------------------------
$ 82.8 $ 73.7
- --------------------------------------------------------------------------------
Other accrued liabilities
Payroll and employee benefits $ 66.9 $ 47.1
Sales allowances 40.6 54.1
Income taxes 27.1 19.7
Other 86.6 87.6
- --------------------------------------------------------------------------------
$ 221.2 $ 208.5
- --------------------------------------------------------------------------------
Other long-term liabilities
Other postretirement benefits $ 72.6 $ 68.6
Other 18.0 29.8
- --------------------------------------------------------------------------------
$ 90.6 $ 98.4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(MILLIONS) 1999 1998 1997
- -----------------------------------------------------------
- -----------------------------------------------------------
Depreciation $ 52.5 $ 49.9 $ 43.9
Research and development 21.4 16.9 16.1
Interest paid 33.0 37.3 38.1
Income taxes paid 55.3 49.0 25.8
- -----------------------------------------------------------
- -----------------------------------------------------------
14. SELECTED QUARTERLY DATA (UNAUDITED)
(MILLIONS EXCEPT PER SHARE DATA) First Second Third Fourth
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
1999
NET SALES $ 441.5 $ 468.2 $ 476.8 $ 620.4
GROSS PROFIT 145.3 157.7 164.2 250.0
OPERATING INCOME 32.7 21.0 40.9 82.3
NET INCOME 18.2 5.8 25.4 53.9
EARNINGS PER SHARE
BASIC .25 .08 .36 .76
ASSUMING DILUTION .25 .08 .35 .76
DIVIDENDS PAID PER SHARE .17 .17 .17 .17
MARKET PRICE
HIGH 34.25 31.88 34.44 34.50
LOW 28.00 26.75 29.94 31.31
- ------------------------------------------------------------------------------------------
1998
Net sales $ 415.2 $ 435.5 $ 444.8 $ 585.6
Gross profit 133.2 141.3 146.3 228.1
Operating income 30.0 30.4 38.9 83.5
Net income 16.2 16.1 21.5 50.0
Earnings per share
Basic .22 .22 .29 .69
Assuming dilution .22 .22 .29 .68
Dividends paid per share .16 .16 .16 .16
Market price
High 30.19 34.38 36.06 33.94
Low 26.38 28.81 29.06 27.13
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
The quarterly results of 1999 and 1998 include the impact of special
charges as follows:
(MILLIONS EXCEPT PER SHARE DATA) First Second Third Fourth
- --------------------------------------------------------------------
- --------------------------------------------------------------------
1999
GROSS PROFIT $ -- $ -- $ -- $ 1.0
OPERATING INCOME -- 14.7 3.0 1.3
NET INCOME -- 14.7 2.8 .9
EARNINGS PER SHARE
ASSUMING DILUTION -- .20 .04 .01
- ---------------------------------------------------------------------
1998
Gross profit $ -- $ -- $ -- $ --
Operating income .1 .6 .1 1.5
Net income -- .4 .1 1.0
Earnings per share
Assuming dilution -- -- -- .02
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
36
REPORT OF MANAGEMENT
We are responsible for the preparation and integrity of the consolidated
financial statements appearing in our Annual Report. The consolidated financial
statements were prepared in conformity with accounting principles generally
accepted in the United States and include amounts based on management's
estimates and judgments. All other financial data in this report has been
presented on a basis consistent with the information included in the financial
statements.
The Company maintains a system of internal controls that is designed to
provide reasonable assurance as to the fair and reliable preparation and
presentation of the consolidated financial statements, as well as to safeguard
assets from unauthorized use or disposition. The internal control system is
supported by formal policies and procedures which are reviewed, modified and
improved as changes occur in business conditions and operations. The Company's
commitment to proper selection, training and development of personnel also
contributes to the effectiveness of the internal control system.
The Audit Committee of the Board of Directors, which is composed solely of
outside directors, meets periodically with members of management, the internal
auditors and the independent auditors to review and discuss internal accounting
controls and accounting and financial reporting matters. The independent
auditors and internal auditors have full and free access to the Audit Committee
at any time.
The independent auditors review and evaluate the internal control systems
and perform such tests on those systems as they consider necessary to reach
their opinion on the Company's consolidated financial statements taken as a
whole. In addition, McCormick's internal auditors perform audits of accounting
records, review accounting systems and internal controls and recommend
improvements when appropriate.
Although there are inherent limitations in the effectiveness of any system
of internal controls, we believe our controls as of November 30, 1999 provide
reasonable assurance that the financial statements are reliable and that our
assets are reasonably safeguarded.
/s/ Robert J. Lawless
ROBERT J. LAWLESS
CHAIRMAN, PRESIDENT & CHIEF EXECUTIVE OFFICER
/s/ Francis A. Contino
FRANCIS A. CONTINO
EXECUTIVE VICE PRESIDENT & CHIEF FINANCIAL OFFICER
/s/ J. Allan Anderson
J. ALLAN ANDERSON
SENIOR VICE PRESIDENT
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, 1999 and 1998 and the
related consolidated statements of income, cash flows and shareholders' equity
for each of the three years in the period ended November 30, 1999. 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 auditing standards
generally accepted in the United States. 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, 1999 and 1998 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended November 30, 1999 in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Baltimore, Maryland
January 19, 2000
37
HISTORICAL FINANCIAL SUMMARY
- --------------------------------------------------------------------------------
(MILLIONS EXCEPT PER SHARE DATA) 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR
Net sales $ 2,006.9 $ 1,881.1 $ 1,801.0 $ 1,732.5 $ 1,691.1 $ 1,529.4
Percent increase 6.7% 4.4% 4.0% 2.4% 10.6% 9.2%
Operating income 176.9 182.8 170.8 93.3 172.6 86.0
Operating income
excluding special charges 195.9 185.1 167.6 151.4 168.7 156.5
Income from unconsolidated
operations 13.4 6.2 7.7 5.6 2.1 7.9
Net income - continuing operations 103.3 103.8 97.4 43.5 86.8 42.5
Net income (1) 103.3 103.8 98.4 41.9 97.5 61.2
- -----------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE (2)
Earnings per share - assuming dilution (6)
Continuing operations $ 1.43 $ 1.41 $ 1.29 $ .54 $ 1.07 $ .52
Discontinued operations (1) -- -- .01 .08 .13 .23
Extraordinary item -- -- -- (.10) -- --
Accounting change (3) -- -- -- -- -- --
Net earnings 1.43 1.41 1.30 .52 1.20 .75
Earnings per share - basic (1)(3)(6) 1.45 1.42 1.30 .52 1.20 .75
Common dividends declared (4) .70 .65 .61 .57 .53 .49
Market closing price - end of year 32.06 33.38 26.50 24.63 23.63 19.00
Book value per share 5.43 5.35 5.31 5.75 6.39 6.03
- -----------------------------------------------------------------------------------------------------------------------------
AT YEAR END
Total assets $ 1,188.8 $ 1,259.1 $ 1,256.2 $ 1,326.6 $ 1,614.3 $ 1,555.7
Current debt 100.6 163.6 121.3 108.9 297.3 214.0
Long-term debt 241.4 250.4 276.5 291.2 349.1 374.3
Shareholders' equity 382.4 388.1 393.1 450.0 519.3 490.0
Total capital 724.4 802.1 790.9 850.1 1,165.7 1,078.3
- -----------------------------------------------------------------------------------------------------------------------------
STATISTICS & RATIOS
Percentage of net sales
Gross profit margin 35.7% 34.5% 34.9% 34.9% 34.5% 36.5%
Operating income 8.8% 9.7% 9.5% 5.4% 10.2% 5.6%
Net income - continuing operations 5.1% 5.5% 5.4% 2.5% 5.1% 2.8%
Effective tax rate 40.1% 36.0% 37.0% 38.7% 36.1% 40.5%
Depreciation and amortization $ 57.4 $ 54.8 $ 49.3 $ 63.8 $ 63.7 $ 62.5
Capital expenditures $ 49.3 $ 54.8 $ 43.9 $ 74.7 $ 82.1 $ 87.7
Return on equity 28.4% 27.7% 25.2% 8.6% 20.3% 12.8%
Debt to total capital 47.2% 51.6% 50.3% 47.1% 55.5% 54.6%
Dividend payout ratio (5) 40.2% 44.8% 47.6% 50.5% 44.4% 36.4%
Average shares outstanding (6)
Basic 71.4 73.3 75.7 80.6 81.2 81.2
Assuming dilution 72.0 73.8 75.9 80.7 81.3 81.6
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
(MILLIONS EXCEPT PER SHARE DATA) 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
FOR THE YEAR
Net sales $ 1,400.9 $ 1,323.9 $ 1,276.3 $ 1,166.2
Percent increase 5.8% 3.7% 9.4% 5.0%
Operating income 142.1 121.4 100.6 86.9
Operating income
excluding special charges 142.1 121.4 100.6 86.9
Income from unconsolidated
operations 10.3 9.9 8.8 3.7
Net income - continuing operations 82.9 73.6 60.4 51.8
Net income (1) 73.1 95.2 80.9 69.4
- --------------------------------------------------------------------------------------------------
PER COMMON SHARE (2)
Earnings per share - assuming dilution (6)
Continuing operations $ 1.01 $ .90 $ .73 $ .62
Discontinued operations (1) .21 .26 .25 .21
Extraordinary item -- -- -- --
Accounting change (3) (.33) -- -- --
Net earnings .89 1.16 .98 .83
Earnings per share - basic (1)(3)(6) .90 1.19 1.01 .86
Common dividends declared (4) .45 .40 .31 .24
Market closing price - end of year 23.25 28.50 20.63 11.50
Book value per share 5.70 5.45 4.88 4.56
- --------------------------------------------------------------------------------------------------
AT YEAR END
Total assets $ 1,313.2 $ 1,130.9 $ 1,037.4 $ 946.9
Current debt 84.7 122.6 78.2 30.4
Long-term debt 346.4 201.0 207.6 211.5
Shareholders' equity 466.8 437.9 389.2 364.4
Total capital 897.9 761.5 675.0 606.3
- --------------------------------------------------------------------------------------------------
STATISTICS & RATIOS
Percentage of net sales
Gross profit margin 38.5% 38.9% 36.9% 36.0%
Operating income 10.1% 9.2% 7.9% 7.5%
Net income - continuing operations 5.9% 5.6% 4.7% 4.4%
Effective tax rate 41.4% 39.4% 38.4% 38.0%
Depreciation and amortization $ 50.5 $ 43.8 $ 40.5 $ 36.6
Capital expenditures $ 76.1 $ 79.3 $ 73.0 $ 58.4
Return on equity 17.0% 23.3% 21.8% 20.4%
Debt to total capital 48.0% 42.5% 42.3% 39.9%
Dividend payout ratio (5) 36.1% 32.8% 28.6% 28.9%
Average shares outstanding (6)
Basic 80.8 80.1 80.0 80.9
Assuming dilution 81.8 81.9 82.4 83.7
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
(1) THE COMPANY DISPOSED OF BOTH GILROY FOODS, INCORPORATED AND GILROY ENERGY
COMPANY, INC. IN 1996.
(2) ALL SHARE DATA ADJUSTED FOR 2-FOR-1 STOCK SPLITS IN JANUARY 1992 AND JANUARY
1990.
(3) IN 1993, THE COMPANY ADOPTED SFAS NO. 106, "EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS."
(4) INCLUDES FOURTH QUARTER DIVIDENDS WHICH WERE DECLARED IN DECEMBER FOLLOWING
THE CLOSE OF EACH FISCAL YEAR.
(5) DOES NOT INCLUDE GAINS OR LOSSES ON SALES OF DISCONTINUED OPERATIONS,
CUMULATIVE EFFECTS OF ACCOUNTING CHANGES, SPECIAL CHARGES (CREDITS) AND
EXTRAORDINARY ITEMS.
(6) IN 1998, THE COMPANY ADOPTED SFAS NO. 128, "EARNINGS PER SHARE" AND PRIOR
YEARS' EARNINGS PER SHARE HAVE BEEN RESTATED.
38
MCCORMICK WORLDWIDE
- --------------------------------------------------------------------------------
U.S.
CONSOLIDATED OPERATING UNITS
FOOD SERVICE GROUP
Hunt Valley, Maryland
Charles T. Langmead
VICE PRESIDENT & GENERAL MANAGER
FRITO WORLDWIDE DIVISION
Hunt Valley, Maryland
Andrew Fetzek, Jr.
VICE PRESIDENT & GENERAL MANAGER
GLOBAL RESTAURANT DIVISION
Hunt Valley, Maryland
Paul C. Beard
VICE PRESIDENT & GENERAL MANAGER
MCCORMICK FLAVOR DIVISION
Hunt Valley, Maryland
Randal M. Hoff
VICE PRESIDENT & GENERAL MANAGER
MCCORMICK/SCHILLING DIVISION
Hunt Valley, Maryland
Robert W. Schroeder
PRESIDENT - U.S. CONSUMER FOODS
SETCO, INC.
Anaheim, California
Donald E. Parodi
PRESIDENT
TUBED PRODUCTS, INC.
Easthampton, Massachusetts
Harvey W. Casey
PRESIDENT
AFFILIATES
SIGNATURE BRANDS, L.L.C. (50%)
Ocala, Florida
SUPHERB FARMS (50%)
Turlock, California
OUTSIDE U.S.
CONSOLIDATED OPERATING UNITS
MCCORMICK CANADA, INC.
London, Ontario, Canada
Alan D. Wilson
PRESIDENT
MCCORMICK DE CENTRO AMERICA,
S.A. DE C.V.
San Salvador, El Salvador
Arduino Bianchi
MANAGING DIRECTOR
MCCORMICK FLAVOUR GROUP
Haddenham, England
John C. Molan
MANAGING DIRECTOR
MCCORMICK GLENTHAM (PTY)
LIMITED
Midrand, South Africa
Jonathan P. Eales
MANAGING DIRECTOR
MCCORMICK FOODS AUSTRALIA
PTY. LTD.
Clayton, Victoria, Australia
Timothy J. Large
MANAGING DIRECTOR
MCCORMICK (GUANGZHOU) FOOD
COMPANY, LTD.
Guangzhou, People's Republic of China
Victor K. Sy
MANAGING DIRECTOR
MCCORMICK INGREDIENTS
SOUTHEAST ASIA PRIVATE
LIMITED
Jurong, Republic of Singapore
Hector Veloso
MANAGING DIRECTOR
MCCORMICK PESA, S.A. DE C.V.
Mexico City, Mexico
Lazaro Gonzalez
MANAGING DIRECTOR
MCCORMICK S.A.
Regensdorf Z.H., Switzerland
Michael R. Smith
MANAGING DIRECTOR
MCCORMICK U.K. PLC
Haddenham, England
John C. Molan
MANAGING DIRECTOR
MCCORMICK FOODSERVICE
LIMITED
Haddenham, England
John C. Molan
MANAGING DIRECTOR
OY MCCORMICK AB
Helsinki, Finland
Risto J. Maila
MANAGING DIRECTOR
SHANGHAI MCCORMICK FOODS
COMPANY, LIMITED (90%)
Shanghai, People's Republic of China
Victor K. Sy
PRESIDENT
AFFILIATES
AVT-MCCORMICK INGREDIENTS
LIMITED (50%)
Cochin, India
MCCORMICK DE MEXICO,
S.A. DE C.V. (50%)
Mexico City, Mexico
MCCORMICK KUTAS FOOD SERVICE
LTD. (50%)
Haddenham, England
MCCORMICK-LION LIMITED (49%)
Tokyo, Japan
MCCORMICK PHILIPPINES, INC. (50%)
Manila, Philippines
P. T. SUMATERA TROPICAL SPICES (30%)
Padang, Sumatera, Indonesia
STANGE (JAPAN) K.K. (50%)
Tokyo, Japan
VAESSEN SCHOEMAKER DE MEXICO,
S.A. DE C.V. (50%)
Mexico City, Mexico
39
INVESTOR INFORMATION
- -------------------------------------------------------------------------------
CORPORATE ADDRESS
McCormick & Company, Incorporated
18 Loveton Circle
Sparks, MD 21152-6000
U.S.A.
(410) 771-7301
STOCK INFORMATION
New York Stock Exchange
Symbol: MKC
STOCK DIVIDEND DATES - 2000
RECORD DATE PAYMENT DATE
03/31/00 04/13/00
07/02/00 07/15/00
10/01/00 10/13/00
12/31/00 01/24/01
There were more than 12,000 shareholders of record, approximately 4,000
holders in McCormick's 401(K) plan for employees, and an estimated 25,000
"street-name" beneficial holders whose shares are held in names other than their
own, for example, in brokerage accounts.
INVESTOR SERVICES
The Company offers an Investor Services Plan which provides shareholders of
record the opportunity to automatically reinvest dividends, make optional cash
purchases of stock through the Company, place stock certificates into book-entry
safekeeping and sell book-entry shares through the Company. Individuals who are
not current shareholders may purchase their initial shares directly from the
Company. All transactions are subject to limitations set forth in the Plan
prospectus, which may be obtained by contacting Investor Services at:
(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 certificates or dividend checks are missing or destroyed
should notify Investor Services 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 Investor Services 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 Investor Services 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 Investor Services 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 Investor
Services.
TRADEMARKS
Use of -Registered Trademark- or -TM- in this annual report indicates trademarks
owned or used by McCormick & Company, Incorporated and its subsidiaries and
affiliates.
THIS REPORT IS PRINTED ON RECYCLABLE PAPER.
40
[PHOTO] (SHOWN L-R, FRONT)
CONTINO, STEVENS,
WEATHERHOLTZ, LAWLESS,
DAVEY; (BACK) HRABOWSKI,
NORDHOFF, DUNN,
SCHROEDER, BRADY
DIRECTORS AND OFFICERS
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
Executive Committee
Robert J. Lawless
Francis A. Contino
Robert G. Davey
Carroll D. Nordhoff
James T. Brady+
FORMER SECRETARY
MARYLAND DEPARTMENT OF BUSINESS &
ECONOMIC DEVELOPMENT
Edward S. Dunn, Jr.*
C. J. MCNUTT CHAIR
ERIVAN K. HAUB SCHOOL OF BUSINESS
SAINT JOSEPH'S UNIVERSITY
Dr. Freeman A. Hrabowski, III +*
PRESIDENT
UNIVERSITY OF MARYLAND
BALTIMORE COUNTY
Robert W. Schroeder
PRESIDENT - U.S. CONSUMER FOODS
William E. Stevens+*
CHAIRMAN & CHIEF EXECUTIVE OFFICER
WESMARK GROUP
Karen D. Weatherholtz
SENIOR VICE PRESIDENT -
HUMAN RELATIONS
CORPORATE OFFICERS
Robert J. Lawless
CHAIRMAN, PRESIDENT &
CHIEF EXECUTIVE OFFICER
Susan L. Abbott
VICE PRESIDENT -
REGULATORY & ENVIRONMENTAL AFFAIRS
J. Allan Anderson
SENIOR VICE PRESIDENT
Allen M. Barrett, Jr.
VICE PRESIDENT -
CORPORATE COMMUNICATIONS
Francis A. Contino
EXECUTIVE VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
Robert G. Davey
PRESIDENT -
GLOBAL INDUSTRIAL GROUP
Stephen J. Donohue
VICE PRESIDENT -
STRATEGIC SOURCING
Dr. Hamed Faridi
VICE PRESIDENT -
RESEARCH & DEVELOPMENT
Randall B. Jensen
VICE PRESIDENT -
OPERATIONS RESOURCES
Kenneth A. Kelly, Jr.
VICE PRESIDENT &CONTROLLER
Christopher J. Kurtzman
VICE PRESIDENT & TREASURER
Roger T. Lawrence
VICE PRESIDENT - QUALITY ASSURANCE
C. Robert Miller, II
VICE PRESIDENT -
MANAGEMENT INFORMATION SYSTEMS
Carroll D. Nordhoff
EXECUTIVE VICE PRESIDENT
Robert W. Skelton
VICE PRESIDENT, GENERAL COUNSEL
& SECRETARY
Gordon M. Stetz, Jr.
VICE PRESIDENT -
ACQUISITIONS & FINANCIAL PLANNING
Karen D. Weatherholtz
SENIOR VICE PRESIDENT -
HUMAN RELATIONS
Joyce L. Brooks
ASSISTANT TREASURER - FINANCIAL SERVICES
W. Geoffrey Carpenter
ASSOCIATE GENERAL COUNSEL &
ASSISTANT SECRETARY
David P. Smith
ASSISTANT TREASURER
J. Gregory Yawman
ASSOCIATE COUNSEL &
ASSISTANT SECRETARY
+AUDIT COMMITTEE MEMBER
*COMPENSATION COMMITTEE MEMBER
41
[LOGO]
MCCORMICK & COMPANY, INCORPORATED
18 Loveton Circle Sparks, Maryland 21152-6000 U.S.A 410-771-7301