MCCORMICK & COMPANY
2000 ANNUAL REPORT
[LOGO]
[Photo of woman on bicycle with
Ducros products in basket and
caption "Investing for growth"]
CONTENTS
1 Financial Highlights
2 Letter to Shareholders
6 Making a Difference
8 Introduction to Ducros
10 Report on Operations
20 Fuel for Growth
22 Management's Discussion and Analysis
29 Consolidated Statement of Income
30 Consolidated Balance Sheet
31 Consolidated Statement of Cash Flows
32 Consolidated Statement of Shareholder's Equity
33 Notes to Consolidated Financial Statements
41 Report of Management
41 Report of Independent Auditors
42 Historical Financial Summary
43 McCormick Worldwide
44 Investor Information
45 Directors and Officers
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. CUSTOMERS
RANGE FROM RETAIL OUTLETS AND FOOD SERVICE PROVIDERS TO FOOD PROCESSING
BUSINESSES. IN ADDITION, OUR PACKAGING GROUP MANUFACTURES AND MARKETS PLASTIC
BOTTLES AND TUBES FOR THE FOOD, PERSONAL CARE AND OTHER INDUSTRIES. FOUNDED
IN 1889, McCORMICK HAS APPROXIMATELY 8,100 EMPLOYEES.
ANNUAL MEETING
THE ANNUAL MEETING WILL BE HELD AT 10 A.M., WEDNESDAY, MARCH 21, 2001, 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 CLOVES.
[caption for photo at bottom of page]
CLOVES Cloves are the strongest of all the aromatic spices. In China during
the Han dynasty (206 B.C. - 220 A.D.), it was required that all court
officials hold some whole cloves in their mouths when addressing the Emporer
just to make sure their breath was clean.
FINANCIAL HIGHLIGHTS 1
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FOR THE YEAR ENDED NOVEMBER 30 (MILLIONS EXCEPT PER SHARE DATA)
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2000 1999 % Change
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AS REPORTED:
Net Sales $ 2,123.5 $ 2,006.9 5.8%
Gross profit margin 37.9% 35.7%
Operating income $ 225.0 $ 170.1 32.3%
Net income 137.5 103.3 33.1%
Earnings per share - assuming dilution 1.98 1.43 38.5%
Dividends paid per share 0.76 0.68 11.8%
Market price per share - close 37.25 32.06 16.2%
Average shares outstanding - assuming dilution 69.6 72.0 (3.3)%
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OTHER PERFORMANCE MEASURES:
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Excluding special charges and accounting change:
Operating income $ 226.1 $ 196.8 14.9%
Net income 138.3 121.7 13.6%
Economic value added (EVA) 68.2 42.3 61.2%
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NET SALES
(CONTINUING OPERATIONS)
IN BILLIONS
1996 1997 1998 1999 2000
1.7325 1.801 1.8811 2.0069 2.1235
EARNINGS PER SHARE -
ASSUMING DILUTION
INCLUDING ACCOUNTING 1996 1997 1998 1999 2000
CHANGE $0.52 $1.30 $1.41 $1.43 $1.98
ECONOMIC VALUE ADDED
IN MILLIONS
1996 1997 1998 1999 2000
(44.64) 23.42 33.15 42.30 68.20
OTHER PERFORMANCE MEASURES
The other performance measures described below are used throughout this report
to present alternative views of the Company's performance. Management believes
that these other performance measures are used by industry analysts and
investors to evaluate the Company's performance relative to its peers and,
therefore, when read in conjunction with the financial statements are
informative. These measures are not defined by accounting principles generally
accepted in the United States and may be calculated differently from similar
measures used by other companies.
"ECONOMIC VALUE ADDED" ("EVA") - McCormick defines economic value added as net
income from operations, excluding interest, in excess of a capital charge for
average capital employed. An "EVA" mark is owned by Stern Stewart & Co.
"EXCLUDING IMPACT OF SPECIAL CHARGES AND ACCOUNTING CHANGES" - Gross profit
margin, operating income and net income excluding the impact of special charges
and accounting changes presents the applicable measure excluding the impact of
items identified in the consolidated financial statements as special charges and
cumulative effect of accounting changes.
"EXCLUDING DUCROS" - Certain measures are presented excluding the results from
the Ducros business, which was acquired on August 31, 2000, on the applicable
measure for the year ended November 30, 2000.
"FREE CASH FLOW" - McCormick defines free cash flow as net cash provided by
operating activities less capital expenditures and dividends paid.
2 LETTER TO SHAREHOLDERS
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[Photo of Robert J. Lawless, Chairman President & CEO]
"Ducros... extends our presence in Europe, complements our strong base in the
United Kingdom and expands our platform for growth."
Fiscal 2000 was another excellent year for McCormick. The Company achieved
record sales and record earnings, and also made an important strategic
investment by acquiring Ducros S.A., the leading spice business in Europe. This
acquisition, the largest in the Company's history, significantly advances the
development of our international business.
McCormick's management team is dedicated to providing superior returns to
the Company's shareholders. Toward that end, we set aggressive financial goals
for 2000 to grow sales, improve gross profit margin and increase earnings per
share. For sales, our target was a 4-6% increase. Sales growth in 2000 was 5.8%.
Excluding Ducros and foreign currency, sales grew 3.9%. In our consumer
business, branded products continued to benefit from well-executed strategies in
markets worldwide, and sales grew 5.7% excluding foreign exchange and Ducros.
Sales rose 2.0% in our industrial business, excluding foreign exchange. Here,
strong sales of snack food seasonings and sales to food service distributors and
warehouse clubs were partly offset by weaker sales to restaurant customers and
lower sales of ingredient products resulting from reduced raw material costs.
Packaging segment sales were up 5.1%. Overall, our diverse portfolio of
businesses provided some balance in our 2000 sales results.
The goal for gross profit margin improvement in 2000 was .7-1.0 percentage
points. Gross profit margin before special charges rose to 37.9% from 35.8%, an
increase of 2.1 percentage points. This increase resulted from cost reductions
and a more favorable product mix. In addition, Ducros results in the fourth
quarter contributed to this improvement. Earnings per share before special
charges and accounting change rose 18% to $1.99, including $.03 of dilution from
the acquisition of Ducros. This exceeded our EPS growth target of 11-14%. Free
cash flow for 2000, which totaled $96 million, was within our target range of
$75-100 million. Economic value added increased to $68 million from $42 million
in 1999, exceeding our annual objective of $5-10 million growth. The Company has
now reported improved year-to-year financial results for each of the last eight
consecutive quarters.
McCormick has paid dividends every year since 1925. In December 2000, the
Board of Directors raised the dividend by 5% as an indication of management's
confidence in our future. Including this latest increase, dividends have risen
by 230% during the past 10 years.
STRATEGIES FOR GROWTH
ACQUISITIONS
The acquisition of Ducros on August 31 was a significant investment in our
Company's growth. McCormick paid $379 million for this business, which is based
in France. With Ducros, we have added a business that extends our presence in
Europe, complements our strong base in the United Kingdom and expands our
platform for growth. Ducros is a premier brand with strong consumer recognition,
and the company has an excellent management team and modern facilities. Ducros
sales have grown 5-7% annually over the past four years through broader
distribution, effective promotion and advertising, pricing actions and the
introduction of new products.
Investing in acquisitions will continue to be an important growth strategy.
We will target leading brands of
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domestic and international products which provide flavor. We will also consider
industrial businesses with capabilities in higher-margin products, such as
compound flavors.
DELIVER PREFERRED FLAVORS
People around the world are seeking bolder flavors, ethnic flavors, exciting
flavors. Delivering preferred flavors is what McCormick's business is all about.
The Company's success depends on understanding the trends in what people eat,
how they eat, even where they eat.
In our consumer business, this focus on trends guides our investment in
new products. Overall, new products launched in the last three years
accounted for 7% of the sales in our consumer business during 2000. The focus
on trends also guides our investment in product promotion and advertising. We
direct these expenditures at products that have the potential for further
growth. An outstanding example of a product which is responding to promotion
and advertising is the Grill Mates-Registered Trademark- line, which
continues to be a winner in the U.S. market as consumer interest in grilling
increases. Sales of these products grew 22%, following growth of 45% in 1999
and 30% in 1998. Sales of the Canadian version of the line grew 29% in 2000.
Similarly, last year we completed the reformulation and repackaging of our
Country Gravy products here in the U.S. With focused advertising, sales of
these products in 2000 more than doubled the level of sales in 1999.
In our industrial business, our customers are constantly seeking new
flavors for their products. In this environment, the ability to identify,
develop and market winning flavors is essential. We flavor all kinds of
products -- spaghetti sauce, snack chips, frozen entrees, yogurt, a pack of
chewing gum. In restaurants, we provide seasonings for a gourmet meal, salad
dressing at a casual dining chain, and coating and sauce for a quick-service
chicken sandwich. To anticipate and respond to changing tastes in markets
worldwide, we are investing in research and development staff, equipment,
instrumentation and facilities. These investments enable us not only to
create innovative products but also to use sensory skills to make sure that
the flavors we deliver are winners in the marketplace. New products
introduced over the last three years accounted for 15% of sales in the
industrial segment during 2000.
Clearly, McCormick delivers more than spices and herbs. We focus in
particular on items where we can add value through creative technology and
processing. Excluding our packaging business, sales of blended, value-added
products now exceed 60% of total sales. Our investment in the development of
these products is paying off. The ability to develop value-added flavor
solutions, coupled with the wide variety of flavor solutions we can supply,
gives us a strong competitive advantage.
[Photo of Robert J. Lawless]
"We focus in particular on items where we can add value through creative
technology and processing."
PARTNER WITH CUSTOMERS TO GROW BOTH SALES AND PROFITS
McCormick is positioned to partner with customers in the grocery channel and
other retail outlets. In several key markets, we have multi-year, sales-based
supply contracts with our customers that span both branded and private-label
products. These contracts have a sales objective which we and the customer work
together to achieve. As category leader, we lead the effort to optimize product
placement and merchandising activity in our customers' stores. We also draw
consumers to the spice and seasoning sections by advertising our branded
products. In February 2000, we worked with our customers to relaunch the
complete spice and seasoning line in the U.K. This relaunch included enticing
new products, attractive new packaging and a more compelling store display. We
not only succeeded in raising our branded sales of spices and seasonings by 7%
in 2000, but also increased sales for the entire U.K. spice and seasoning
category by 5%. Initiatives
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such as this distinguish McCormick in a competitive market.
Our industrial customers also consider us a partner in developing and
supplying new products. These customers look to McCormick as a leader in
innovation, quality, consistency and service. These attributes become more
important as distributors, restaurant chains, food caterers and food processors
grow more sophisticated, adopting world-class systems and expanding globally. In
this demanding environment, McCormick has been recognized as a top supplier by
customers such as Sysco, McDonald's and Frito-Lay.
IMPROVE MARGINS IN EVERY SEGMENT
After approaching 40% in the early 1990s, the Company's gross profit margin
declined to 34.5% in 1998. It is one of our primary financial goals to exceed
40% and with the 37.9% margin reported for 2000, we are well on our way. With
the addition of the higher margin Ducros business, we expect to reach a gross
profit margin of 42% in 2003.
We are improving gross profit margin by moving to a more profitable product
mix and by reducing costs. Individual products can have margins which vary
widely depending on the level of resources applied during development and
marketing. Our margins improve as we sell more branded products and more
value-added products. This shift in mix contributed significantly to the gross
profit margin improvement we achieved in 2000.
Our cost reduction initiatives focus on supply chain management, from
procurement of materials through distribution of the manufactured product. In
2000, we created a platform to consolidate our worldwide sourcing of spices,
herbs and certain other agricultural products to be used by our operations
around the world. We have also improved plant efficiencies and reduced working
capital in our U.S. spice processing facility by significantly reducing the
number of distinct items carried in inventory and working with customers to
accept alternative product or pack size. In distribution, we are partnering with
other food processors to gain freight efficiencies. We have invested in people
and processes to accomplish these cost reduction objectives and believe that the
potential for future savings is great.
In order to maximize this potential, we have embarked upon a global
initiative called Beyond 2000 (B2K), which is designed to improve our business
processes and support those processes with state-of-the-art information
technology. This strategic investment will enhance our relationships with
trading partners and take us to a new level of business optimization on a global
scale.
[Photo of Robert J. Lawless]
"Achievement of our goals will gain us recognition among investors and over
time will generate an improved return for our shareholders."
LEVERAGE THE POWER OF PEOPLE
We are fortunate to have experienced and knowledgeable employees, and we
continue to invest in their development. Last year, for example, we began a new
leadership training program to prepare key managers for increased responsibility
in the organization. Employee participation at all levels of the Company has
long been a hallmark of McCormick culture, and teamwork has been vital to our
success. We promote participation and teamwork through our Multiple Management
Boards and other opportunities to work together. With B2K, we are developing
processes and systems to optimize our employees' performance. We have also
complemented existing skills and expertise by recruiting experts from outside
the Company. This added talent has broadened our capabilities and been a
catalyst for new ideas.
Our employees are enthusiastic about the direction and momentum of the
Company. They are eager to contribute and committed to McCormick's success. We
believe that we have the strategies in place for continued growth and the right
group of people to make it happen.
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OUR CORE VALUES
We believe...
our people are the most important ingredient of our success,
our top priority is to continuously add value for our shareholders,
customers are the reason we exist,
our business must be conducted honestly and ethically,
the best way to achieve our goals is through teamwork.
MANAGEMENT CHANGES
During the past year, we elected two new members to McCormick's Board of
Directors: Barry Beracha, Chairman of the Board of Directors and Chief
Executive Officer of The Earthgrains Company and John Molan, McCormick's
President - Europe, Middle East and Africa. In December, Harvey Casey,
President of Tubed Products, Inc., retired. We thank Harvey for his years of
service and recent success in growing sales and profits in the Tubed Products
business, and congratulate Steve Rafter, who was named his successor. Don
Parodi was named Vice President -Packaging Group. Two of our managers moved
into new positions last year: Mark Timbie was named President of McCormick
Canada and Alan Wilson was named Vice President and General Manager-Sales &
Marketing for the U.S. Consumer Products Division. Jerry Wolfe joined
McCormick as Vice President-Global Business Solutions. Grey Goode was
promoted to Vice President-Tax.
During 2000, we were saddened by the death of our friend of many years,
Enrique Hernandez Pons, who was chairman of our joint venture partner in Mexico.
He has been ably succeeded by his son, Enrique Hernandez Pons Torres.
OUTLOOK
Our financial performance over the last two years has been among the best in the
food industry. However, we do not believe that the stock market has fully
rewarded our shareholders with a better stock price. We do not think our stock
price fully reflects either our current performance or our favorable prospects
for the future.
We are confident that we will grow sales in each of our segments and in all
of our key markets in the Americas, Europe and Asia. We have the ability to
develop and deliver flavors that consumers prefer. We also plan to acquire
businesses that expand our geographic presence or extend our product offerings.
We believe that tactical supply chain management initiatives, sustained and
extended by B2K, will lead to attainment of a 42% gross profit margin and the
potential for continued future improvement. We also believe that long-term, we
can grow annual sales 4-6% and increase earnings per share 10-12%. We expect
that achievement of our goals will gain us recognition among investors and over
time will generate an improved return for our shareholders.
Earnings per share in 2001 will include a full year of results from the
Ducros business and the related interest expense and goodwill amortization.
Given this impact, we have set the following specific objectives for fiscal year
2001: sales growth of 12-14%, a gross profit margin of 40%, and earnings per
share growth of 8-10%.
Fiscal 2000 was truly a year of "Investing for Growth." The acquisition of
Ducros has elevated us to a leadership position in Europe and has established a
platform for further growth beginning in 2001. We are setting aggressive
financial goals and will meet them with contributions from each of our
businesses. Our accomplishments in growing branded sales, developing innovative
new products, strengthening customer relationships and improving margins are
evidence that we are making the right investments and that our strategies will
be effective in today's challenging marketplace. We are confident in our ability
to sustain growth and build the value of your investment in McCormick.
/s/ Robert J. Lawless
ROBERT J. LAWLESS, Chairman, President & CEO
6 MAKING A DIFFERENCE
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Our Company's founder, Willoughby McCormick, was one of a small group of
businessmen who came together a century ago to create what ultimately became the
United Way of Central Maryland. He knew the valuable role a business can have in
the well-being of a community. Serving the community has been part of our
experience and culture since our origin. And today, McCormick is even more
active in meaningful ways in communities around the world.
Our involvement comes in many forms and impacts a wide range of people in
communities where we have plants and offices. Our commitment starts at the
highest levels of management and extends throughout the entire employee
population. The Company has a formalized program of charitable giving that
grants funds to worthwhile causes. Civic, health, welfare, education and art
projects receive the greatest attention. At times, community initiatives involve
large groups of employees. One example is our Charity Day program, begun in
1941, which results in substantial funding for hundreds of charitable and civic
groups. More often, McCormick makes an impact through the efforts of individual
employees or small groups who join together to support a cause, help someone in
need or lend expertise for the betterment of the community.
Helping the disadvantaged, through programs like Habitat for Humanity and
Adopt-a-Family, is a primary focus of our community efforts. Employee groups
around the world play a large role in such efforts. The Company also works in
cooperation with other major food companies to donate food to food banks and
other charities. Many of our employees volunteer at food banks and soup
kitchens, such as the Greater Chicago Food Depository, restocking food inventory
or serving meals to the less fortunate.
McCormick supports hospitals, police and fire departments and other
community resources through its employees who serve on governance boards or
volunteer in a wide variety of ways.
[PHOTO]
McCormick's culture has fostered a desire by employees to lend aid to those in
need. (above) Susan Murk of Corporate Headquarters volunteers as part of Junior
Achievement to teach eighth graders about the world of business. (right) Denise
Weaber, of McCormick's Food Service Division, traveled to Guatemala as part of a
medical mission.
[PHOTO]
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[PHOTO]
Carroll Nordhoff, Executive Vice President, and Karen Weatherholtz, Senior Vice
President - Human Relations, with more than 50 years combined service to
McCormick, take active roles in the Company's community initiatives. Both hold a
number of key positions on civic boards.
Additionally, employees hold numerous fundraisers to contribute equipment to
community agencies; one such effort raised funds to purchase defibrillators for
the Oxfordshire (U.K.) Ambulance Service.
McCormick is also involved in efforts to aid young people. The Company
supports a number of scholarship programs, including the Unsung Heroes program,
which began in 1940 to honor high school senior student/athletes who otherwise
receive no acclaim for their contributions. Numerous employees are involved in
classroom teaching programs such as Junior Achievement and career mentoring.
Others serve as role models for young people through their participation in
scouting and neighborhood sports recreation leagues.
"McCormick's tradition of community involvement is a component of our
culture that we take seriously," says Karen Weatherholtz, Senior Vice President
of Human Relations. "Former Company President C.P. McCormick believed that those
who worked for the business brought great value to McCormick and their efforts
made a difference. He knew that the same qualities could be channeled to benefit
the community as well, and he fostered a will to serve those in need."
Adds Executive Vice President Carroll Nordhoff, "To have a prospering
business in a thriving community is the ideal we seek. Our track record of
success really motivates us to do more and do it better. The programs, the
funding, the employee participation -- for all of it, the primary driver is
fundamental. It's the right thing to do."
[PHOTO]
Often the teamwork that personifies McCormick's business success translates into
success for community service efforts. (left) Several employees from the United
States Consumer Products Division work together to refurbish a disadvantaged
family's home as part of the Habitat for Humanity program.
8 INTRODUCTION TO DUCROS
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[NEED PHOTO DESCRIPTION]
McCormick and Ducros leadership visited major Ducros locations soon after the
acquisition. (l-r) Xavier Guesdon, Ducros Industrial & Quality Director; John
Molan, McCormick President - Europe, Middle East & Africa; Bob Lawless,
McCormick Chairman, President & CEO; Thierry Henault, Ducros CEO; and Loic
Corbille, COO of Dessert Products International and Ducros.
On August 31, 2000, McCormick acquired Ducros S.A., the number one consumer
spice and herb company in Europe and the second largest spice company worldwide.
This acquisition, McCormick's largest to date, strategically advances the
Company's position in the European market. In Europe, the combined Ducros and
McCormick share of the consumer spice and herb market exceeds 20%. The nearest
competitor has a market share of approximately 10%.
Headquartered in France, Ducros sells its products under the
Ducros-Registered Trademark- , Margao-Registered Trademark- ,
Vahine-Registered Trademark- and Malile-Registered Trademark- brand names
in France and other European countries. The product range for Ducros and
Margao includes peppers, herbs, spices and other, primarily dry, cooking
aids. These products are the market leaders in France, Spain, Portugal and
Belgium and are sold in a number of other countries where McCormick products
had minimal distribution. The Vahine and Malile product lines include pastry
aids, sugar and yeast. These dessert aids are manufactured and marketed
through a joint venture with Hero Group, which is also the partner for
McCormick's cake decorating business in the U.S.
The reputation of the Ducros brand is well established with the consumer.
In France, it has 93% household penetration and 96% brand recognition. The
Vahine and Malile brands have 80% brand recognition and a leading share of the
dessert aid market. Ducros ranks among the top 10 consumer brand names in
France. Like McCormick, Ducros has
[Photo of Ducros products]
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intensified its focus on new products, and these are meeting with success. The
77 new Ducros products and 50 new Vahine products added during the past three
years accounted for 14% of Ducros sales volume for 2000. These new products
include seasoning blends and other value-added items which are appealing and
convenient.
During 2000 and the previous three years, Ducros achieved annual sales
growth of 5-7%. The company has current annual sales of approximately $250
million (US). Consumer products comprise 88% of sales, while products sold to
the food service industry and other food processors make up the other 12%. The
addition of Ducros to McCormick's portfolio of brands is expected to increase
McCormick sales by approximately 12%.
Ducros' primary production facilities are located in the Provence region of
France. In the 1990s, the company consolidated its facilities in France,
reducing the number of production plants and warehouses. Production and
warehousing of the product are well automated and cost-efficient. From the
warehouses, 80% of products sold are delivered to the customer using a direct
distribution system. Products are merchandised in a unique "boutique" system of
displays.
"The Ducros acquisition is a major milestone in the development of
McCormick's business internationally," notes John Molan, President - Europe,
Middle East and Africa. "With the Ducros products, McCormick now has strong
market positions in 12 countries across the European region and a secure base
from which to grow and develop.
"We welcome all our new colleagues at Ducros into the McCormick family and
look forward to working together to build our market share in Europe."
Ducros Sales by Country
France 71%
Portugal 3%
Spain 5%
Belgium 8%
Italy 5%
Other 8%
[PHOTO]
Bob Lawless made a number of welcoming presentations to groups of receptive
Ducros employees (above) and also met many in face-to-face encounters (below).
[PHOTO]
10 REPORT ON OPERATIONS
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2000 NET SALES
Americas 69.0%
Europe 26.2%
Asia 4.8%
OPERATING PROFIT
(excluding special charges)
In Millions
1998 $128.4
1999 137.0
2000 157.7
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 operations in the United States, United
Kingdom, France, Canada, Australia, China, El Salvador, Finland, Switzerland,
Spain and Portugal. We also have consumer joint ventures located in the U.S.,
Mexico, France, the Philippines and Japan. Our consumer products are sold
throughout the world.
Net sales for the consumer business in 2000 grew 11.0% over 1999. Excluding
Ducros and the impact of foreign exchange, net sales grew 5.7%. Continued
investment in new products and in promotion and advertising led to an increase
in sales of our branded products. Operating income for our worldwide consumer
business grew 27.9% in 2000 and operating income as a percent of net sales
increased to 15.8% from 13.7% in 1999. Excluding special charges, operating
income grew 15.1%, and as a percent of net sales, improved to 15.8% from 15.2%.
PERFORMANCE HIGHLIGHTS
- - NEW PRODUCTS FUEL GROWTH. New products launched in the last three years
accounted for 7% of the Company's 2000 consumer business sales.
- - STRONG SALES GAINS FOR ITEMS WITH HIGH GROWTH POTENTIAL. Through the use of
promotions and advertising, we increased U.S. sales of the Grill Mates product
line by 22% in 2000, following 45% growth in 1999. Our promotion of improved
Country Gravy dry seasoning mixes drove sales of these products to more than two
times the level of sales in 1999. Sales of Salad Toppins-TM- were up 34% due to
an advertising program during the summer season.
- - U.S. MARKET SHARE GAINS FOR BRANDED PRODUCTS. In 2000, our branded spice and
seasoning products continued to gain share in the U.S. market due to effective
promotion and advertising, the introduction of new products, and the success of
our Quest pricing and promotional program.
- - BRANDED SALES INCREASE IN U.K. A comprehensive relaunch of the entire
Schwartz-Registered Trademark- spice and herb line in February 2000 grew sales
in the U.K. market 4%
[Caption for photo at bottom of page]
Photo of John Molan, President - Europe, Middle East and Africa "With the
Ducros business we have multiple opportunities for growth."
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[Caption for photo at top of page]
Photo of Bob Schroeder, President - U.S. Consumer Foods "New products will be
designed to capitalize on consumer interest in new flavors and convenient,
foolproof meal preparation."
over 1999, in local currency. Key elements were new packaging, 21 new products
and a new merchandising display.
- - STRONG SALES GROWTH IN ASIA. Sales rose 15% in the region, with 8% growth in
Australia and 34% growth in China, in local currency. New products and
geographic expansion drove these increases. Broader distribution in China
expanded the number of cities in which McCormick has a major market share.
- - STRONG GAINS IN CANADA. In local currency, sales grew 10% as the result of a
healthy base business, increased consumer advertising and the success of the
One-Step Seasoning-TM- product line which was introduced in 1999. Sales of the
La Grille-Registered Trademark- line rose 29% in 2000 due to effective
advertising and line extensions. This line is almost 10 years old, yet has
excellent growth potential, since it is found in less than 10% of households.
- - INTERNET INITIATIVE TO REDUCE FREIGHT COSTS. McCormick entered into an
agreement with Nistevo Corporation, a leading provider of web-based logistics
exchange services. Using these services, we will reduce freight costs through
collaboration with other U.S. consumer product manufacturers.
MARKET ENVIRONMENT
In the U.S., overall usage of spices and seasonings is up, and consumers
continue to seek new and bolder flavors. A 2000 study conducted by The NPD
Group, a leading provider of marketing information, indicates that 66% of
consumers agree that "the most important thing about food is that it looks good,
tastes good and smells good." This is up from 53% in 1991. The same report also
notes that 48% of consumers agree that "food taste is more important than how
nutritious it is," up from 36% in 1991.
During 2000, the total volume of spices and seasonings sold to consumers
through U.S. retail outlets increased more than 2%. This compares to a period in
the mid-1990s when this category in the U.S. was flat to declining. In the
Company's international markets, spice and seasoning volumes also increased in
several key countries, including the U.K., France, Canada, Australia and China.
In several key markets, we have multi-year supply contracts with customers.
McCormick's strong customer relationships are the result of its category
management experience, product development skills and promotional capabilities.
These skills are essential as the retail grocery industry continues to
consolidate across markets worldwide, creating larger customers.
[LOGOS]
OUR BRANDS AROUND THE WORLD
12
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[Photo of family preparing a meal.]
McCormick monitors flavor trends, cooking styles and consumer habits to
create new products focused on changing consumer tastes and the desire for
convenient, simple meal preparation.
KEY STRATEGIES
McCormick's goal for its consumer business is to grow branded sales volume in
markets around the world. Our primary strategies are value pricing; effective
use of promotions, advertising and merchandising; new product development;
business process improvements; and strategic acquisitions.
In the U.S., the Company has achieved volume gains through the Quest
program, a pricing and promotional initiative between McCormick and our
customer. The Quest program prices most of our best-selling spice items and all
of our dry seasoning mixes to our retail customers, net of certain discounts and
allowances. The objective of the program is for our customers to benefit through
higher volumes and the consumer through better price value. Using our category
management capabilities, we support our customers with a wide variety of
products at attractive pricing. At year-end, 80% of sales to our U.S. customers
were being invoiced under Quest, and we expect to add the other 20% of sales in
2001. The second step in the program is progressing well, with 30% of consumer
shelf prices for the McCormick brand already at a more competitive level.
We are complementing category management efforts with targeted advertising
and promotional support. These funds are especially aimed at products with
potential for growth. Marketing activity is designed to build awareness of the
products, encourage trial usage and increase repeat purchases. Such activity may
take the form of a targeted promotional program, a reformulation to a superior
flavor, or the introduction of additional flavors to draw interest and extend
consumer appeal. We believe the early success of the Schwartz full-line relaunch
in the U.K. and our momentum in Canada and Australia have further to go. In all
markets, superior execution and creative programs will enable us to win at the
store level. To increase our product usage among consumers, we will launch a
redesigned recipe section of our web site in March 2001. Visit our website
www.mccormick.com.
The development, launch and support of new products are critical to
sustained sales growth. Resources invested in product development and product
marketing turn promising ideas into marketplace successes. McCormick vigorously
monitors flavor trends, cooking styles and consumer habits in order to design
new products that respond to evolving consumer tastes and consumers' desire for
convenient, simple meal preparation.
13
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[Caption for photo at top of page]
ROSEMARY
Rosemary grows in harsh mountainous conditions. In ancient Greece, rosemary
was recognized for its alleged ability to strengthen the brain and memory,
Greek students would braid rosemary into their hair to help them with their
exams.
We are improving our operational and business processes to provide value to
our consumers and excellent service to our retail customers. We also are making
increased usage of eBusiness capabilities. Many new capabilities have been
deployed in support of our brokers to enhance service to the trade. We have
simplified ordering using web-based technology and are increasingly deploying
this technology to help manage our supply chain.
We continue to pursue cost reduction and working capital improvements. Most
notable among these efforts are several supply chain management projects,
including consolidated sourcing to reduce the cost of spices, herbs and other
products, advanced planning and scheduling to optimize inventory levels and
enhanced transportation management to reduce logistics expense.
These projects are components of a broader program called Beyond 2000
(B2K). As the category leader, we must be responsive to the needs of our
world-class retail customers. These customers are seeking much higher levels of
integration and collaboration through eBusiness technology. B2K will enable us
to extend and strengthen our process capabilities to the mutual benefit of
ourselves and our trading partners. In addition, this strategic investment will
effectively position our business to take full advantage of eBusiness and
proactively tap into the potential of marketplaces and exchanges within the
industry. More information about B2K can be found on pages 20 and 21, "Fuel for
Growth."
Through strategic acquisitions, we may extend our presence geographically
or increase our market penetration with additional products which deliver flavor
to customers. For example, the Ducros business brings us both new regions in
Europe and a number of products which we did not previously market. We are now
identifying Ducros products that have international appeal, as well as McCormick
products with the potential for distribution in France. Better penetration in
markets where Ducros is not the leading brand, such as Italy, will also provide
a channel for growth. McCormick will be more geographically aligned with global
retail customers. Another benefit of the Ducros purchase is that it gives us a
strong base for the acquisition of regional product lines in Europe.
[Photo of two people preparing a meal.]
Our consumer products make it easy to create flavorful meals at nearly every
eating occasion. Consumers surveyed say that taste is of great importance.
14
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2000 NET SALES
AMERICAS 79.2%
EUROPE 13.9%
ASIA 6.9%
OPERATING PROFIT
Excluding Special Charges
In Millions
1998 $61.4
1999 74.3
2000 79.0
INDUSTRIAL BUSINESS
McCormick's industrial business supplies products from the Americas, Europe and
Asia to markets worldwide. Our customers include food processors, restaurant
chains, distributors, warehouse clubs and institutional operations, such as
schools and hospitals. Products provided include spices, blended seasonings,
condiments, coatings and compound flavors. While the McCormick name may not be
on the food package, our products are in a wide range of snack foods, savory
side dishes, desserts, beverages, confectionery items, cereals, baked goods and
more.
Net sales growth was 1.0% in 2000. Excluding the impact of foreign
exchange, sales grew 2.0%. Sales of blended seasonings to food processors grew
at a good rate, as did sales of our entire food service product line to
distributors and warehouse clubs. Direct sales to restaurant customers were soft
last year during a competitive environment among chain restaurants. These
customers did not aggressively promote those menu items flavored with McCormick
products in 2000. Sales of our ingredient products were affected by lower
pricing related to reduced raw material costs. Operating margin improved as a
result of cost reductions, favorable prices for raw materials and a shift in
sales to higher-margin, more value-added products. Operating income increased
26.8% in 2000 and operating income as a percent of net sales increased to 8.2%
from 6.6% in 1999. Excluding special charges, operating income increased 6.3%
over 1999 despite a $3.8 million first quarter charge for the bankruptcy of a
major customer. When the impact of this charge is also excluded, operating
income grew 11.4% and as a percent of net sales increased to 8.7% from 7.9%.
PERFORMANCE HIGHLIGHTS
- - NEW PRODUCTS SPUR GROWTH. New products launched in the last three years
accounted for 15% of 2000 sales in the industrial business.
- - GAINS FOR SNACK SEASONING PRODUCTS. Sales of these products grew by 10%. We
accomplished this growth via
[Photo of two teens at a soccer field.]
Did you know that we supply a wide range of ingredients to other food companies
who create food products that you eat? The odds are great that you consume a
McCormick product every day. Though our name isn't on the package, McCormick is
in the great taste.
15
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[Photos of McCormick's culinary chefs at new Culinary Center.]
Our new Culinary Center, with its expert staff, is the hub of innovative food
and beverage concept development and reflects the Company's commitment to our
industrial customers.
successful new product introductions and international expansion.
- - RECOGNITION FROM CUSTOMERS. We were again recognized for our ability to
deliver winning products and excel in service. Among the largest customers from
whom we received recognition was Sysco, which named us one of its top 10
suppliers for the fifth year in a row. In 2000, we also were awarded the 1999
Supplier of the Year award for North America from Frito-Lay. McDonald's ranked
our U.K. operation as a Top Performer.
- - STRONG SALES TO FOOD SERVICE SECTOR. Sales to food service customers grew by
8% in the U.S. and by 14% in Canada (in local currency). Blended, value-added
products were behind this success. In 2000, we introduced our most successful
line of new food service products to U.S. distributors, Big `n Bold Spice
Blends-TM-.
- - REPACKAGING INITIATIVE. In the U.K., we repackaged our entire line of herbs
and spices for food service customers, introducing new bottle designs and new
labels. We also added new products to the line.
- - IMPROVED EFFICIENCY. In the U.S., we improved efficiency and reduced inventory
by cutting nearly half of the number of SKU's produced by our spice milling
operation.
MARKET ENVIRONMENT
Consumers today are seeking new and different flavors. Food is being consumed in
new locations and in new forms. Portable items such as wraps, microwaveable
meals, breakfast bars and new yogurt packs appeal to people on the move. Our
customers, both restaurants and food processors, are responding with new
products, new packaging and expanded distribution.
We have many competitors eager to provide flavors to these customers.
However, we are in an advantageous position because we have the ability to offer
a range of flavor solutions, anything from a spice ingredient to a compound
flavor. In addition, our development and sensory capabilities enable us to
provide our customers with consumer-preferred flavors. These advantages are
strengthened by our reputation for innovation, quality and service.
"Food and Beverage Additives," a study conducted by the Freedonia Group (a
leading industrial research company), reports that sales of flavors and flavor
enhancers are expected to increase nearly 6% per year through 2004. This is a
positive trend for our higher-margin compound flavors. Another encouraging sign
is that sales by foodservice distributors and club stores are projected to grow
between 4% and 6% each year.
KEY STRATEGIES
In our industrial business, our primary strategies are to develop
consumer-preferred new products; increase gross profit margin; enhance customer
service; and make strategic acquisitions.
New products are vital in this segment of our business, where product
turnover is rapid. We begin by identifying trends in how and what people are
eating in markets worldwide. Product development is a cooperative effort between
our customers and our talented food technologists. But we don't stop there. We
test the products to make sure they can be re-created in a production
environment and in our customer's kitchen or facility. The final step is to
perform sensory testing. We are increasing our resources and capabilities in
this area to maintain our superior
16
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[Photo of Bob Davey, President - Global Industrial Group, "McCormick's consumer-
preferred products afford our customers the best chance for success in the
marketplace."]
edge. When we deliver the final product to our customer, we know that it is
preferred by the consumer and, from a flavor standpoint, has the best chance of
succeeding in the marketplace. Our ability to track consumer eating trends,
create innovative products and apply superior sensory testing is building our
competitive edge. These skills will distinguish McCormick in an environment of
larger customers and competitors. In developing new products, we will continue
to focus on higher-margin, value-added products.
[Photo]
[List of Industrial Products by product group.]
INDUSTRIAL PRODUCTS
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)
To improve gross profit margin, we are concentrating on product mix and
cost reductions. Although progress has been made in the last two years, the
potential for further margin improvement is significant. We will continue to
grow sales of our value-added, higher-margin products at a faster rate than the
more commodity-like spice and herb ingredients. In the area of cost reduction, a
number of activities are under way. We are employing knowledge-building tools to
better segment our products and customers. We are applying tools such as
activity-based costing to implement better pricing and identify steps to lower
costs. And we are lowering costs by reducing the number of vendors used and the
variety of products sold. With a consolidated sourcing platform, we are pooling
ingredient requirements for all our operations to gain better leverage with our
suppliers.
McCormick's global, world-class customers are demanding that their vendors
have more collaborative processes that require sophisticated information
technology and communication capabilities. We are responding to this requirement
with our B2K program. The system and process capabilities provided by B2K will
enable us to better serve these customers. B2K will also enable us to integrate
our global product development systems, improve our customer responsiveness and
create a platform for eBusiness. More information on B2K can be found on pages
20 and 21, "Fuel for Growth."
Acquisitions in our industrial business can improve our ability to develop
business with new customers, extend our capabilities to new flavor solutions, or
supply our customers from additional locations around the world. We have not
made any major industrial acquisitions recently but are active in reviewing
opportunities. We are seeking expansion both domestically and internationally,
particularly with higher-margin, more value-added flavors and seasonings.
[Photo of three people with trays of quick service food]
From fast food to "white table cloth" restaurants, our industrial and
food-service customers use the finest McCormick products to satisfy consumers
around the world.
17
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OPERATING PROFIT
(Excluding Special Charges)
In Millions
1998 $18.5
1999 19.6
2000 21.5
PACKAGING
McCormick's packaging businesses, Setco and Tubed Products, manufacture and
market plastic bottles and tubes for the food, personal care and other
industries. Third party net sales in the packaging business increased 5.1% in
2000 and operating income (including intersegment business) reached $21.5
million. As a percent of net sales, operating income rose to 9.9% from 9.6%
despite an increase in resin costs.
PERFORMANCE HIGHLIGHTS
- - GROWTH FROM NEW PRODUCTS. New products launched in the last three years
accounted for 17% of 2000 sales.
- - RECORD-BREAKING PERFORMANCE. Our plastic tube facilities in Massachusetts and
California achieved record sales, record production and record efficiencies in
2000.
- - LONG-TERM SUPPLY CONTRACT SIGNED. In 2000, McCormick signed a three-year
agreement to supply a low-cost, senior-friendly, child-resistant packaging
system to a drug manufacturer.
MARKET ENVIRONMENT
In 2000, the tube industry experienced a surge in demand for plastic squeeze
tubes. Tubes became the preferred packaging in the cosmetics industry because
they provide sanitary dispensing and feature lightweight design. In the vitamin
and herbal market, demand for our customers' products was interrupted by adverse
media reports regarding label claims. McCormick is pursuing business with the
major manufacturers in this industry, who are working to regain consumer
confidence. Also in 2000, the cost of plastic resin increased substantially.
Some recovery through pricing actions has occurred but has been limited in part
by overcapacity in the blow molding industry.
[Photo of tube packaging.]
KEY STRATEGIES
McCormick will maintain a leadership position in the specialty packaging
industry through the creation of new products and designs. At the same time, the
Company will use new forecasting technology to better anticipate and meet
marketplace demand and specific customer requirements.
Cost reductions will improve our ability to compete. Production robotics
and automated quality control inspection will reduce labor costs and scrap. New,
larger machines and tooling will improve downtime and maintenance. In 2000, we
were able to offset a large portion of the increase in plastic resin prices
through our cost reduction efforts.
In recent years, the cosmetics industry has generated higher sales through
the launch of new products. McCormick will continue to benefit from the growth
in this industry by means of innovation, superior quality and service. Our
reputation as a leader in the industry and our ability to innovate will be the
keys to expanding our sales to current customers and breaking into new
industries.
[caption for photo on bottom right side of page]
BLACK PEPPER
Black pepper is one of the most important of the tropical spice crops. It was
so precious in ancient times that it was used to pay taxes, tributes and
ransoms. In medieval times, it was weighed out like gold and used to pay rent
and dowries.
New products and strong customer service have driven the Company's leadership in
the production of highly decorated and specialized tubes and bottles.
18
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SUMMARY OF PERFORMANCE
In 2000, McCormick set specific financial goals for sales, gross profit margin
and earnings per share. Net sales growth was 5.8%. Excluding the impact of
Ducros and foreign exchange, the increase was 3.9%. In 2000, foreign exchange
was particularly unfavorable in the U.K. and Australia. Sales gains were
strongest in our consumer and packaging businesses. In our industrial business,
we had good growth with snack seasonings and broadline distributors and
warehouse clubs. A portion of this growth was offset by weak sales to our
restaurant customers and reduced prices of our ingredient products as a result
of lower raw material costs. Gross profit margin increased with the addition of
the Ducros business and as a result of sales gains in the higher-margin consumer
business which outpaced gains in the industrial and packaging businesses. We
also improved gross profit margin with stronger growth in higher-margin,
value-added industrial products and with cost reductions across all three
business segments.
Because of the improvement in sales and margins, we were able to increase
our investments in product advertising and product development, fueling growth
across all segments of our business. As expected, interest expense increased in
the fourth quarter as a result of our obtaining financing for the August 31,
2000, acquisition of Ducros. Joint venture performance continued to improve in
2000, particularly in Mexico, contributing strongly to our net income results.
Income from all unconsolidated operations increased to $18.1 million in 2000
from $13.4 million in 1999. In total, joint venture sales grew 15.3% in 2000.
In March 1999, McCormick's Board of Directors authorized a $250 million
share repurchase. Early in fiscal 2000, our stock traded at a depressed price
along with the stock of many other food companies. During this period, the
Company began repurchasing aggressively and bought 2.5 million shares through
May 31, 2000. At that time, the repurchase of shares was ceased in anticipation
of the Ducros acquisition. A total of $140 million remains under the current
authorization, and we expect to resume our repurchasing activity by 2003.
In 2000, net income increased by $34.2 million to $137.5 million and earnings
per share grew 38.5%. Excluding the impact of special charges and an accounting
change, net income increased by $16.6 million, or 13.6%, from 1999. This strong
performance, together with the reduction in shares outstanding, led to earnings
per share
GOAL ACHIEVED
Net Sales Growth 4 - 6% 5.8%(1)
Gross Profit Margin .7 - 1.0 2.1(2)
percentage point improvement
Earnings Per Share Growth 11 - 14% 17.8%(2)
(1) Net sales growth was 3.9% excluding sales of Ducros and the impact of
foreign exchange.
(2) Goals for 2000 excluded the impact of special charges and an accounting
change. Results for 2000 are likewise shown here excluding special charges
and an accounting change. See Financial Highlights on page 1.
19
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[Photo showing array of McCormick brands.]
growth of 17.8%, excluding special charges and an accounting change. This 17.8%
growth includes $.03 of dilution from the Ducros acquisition.
The Company continues to focus attention on the balance sheet and asset
management. Capital expenditures for the year were $53.6 million versus
depreciation expense of $54.2 million. Our long-term goal is to generate free
cash flow in the $75 to $100 million range. Free cash flow for the 12 months
ended November 30, 2000, was $96.1 million.
The acquisition of Ducros increased debt by $370 million. This debt will be
reduced by the Company's future cash flows. We expect to return to our target
range of 45-55% for the debt-to-total-capital ratio by the end of fiscal 2002.
Since fiscal year 1997, economic value added (EVA) has grown dramatically
from $23.4 million to $68.2 million for the most recent 12 months. Working
capital management and balance sheet controls, together with the net income for
2000, grew EVA by $25.9 million.
The Company's excellent financial results in 2000 were among the best in
the food industry. During the year we also accomplished the acquisition of a
strategic business in Europe and positioned our businesses for further sales
growth and margin improvement. We are pleased with the events and
accomplishments of 2000 and excited about our prospects going forward. Consumers
are demanding more flavors, new flavors, bold flavors. Our unique capability to
deliver flavor is the key to our success today and will be the key in the
future. McCormick has excellent opportunities for growth and the creation of
shareholder value well into the 21st century.
[PHOTO]
GINGER
China and India are the principal sources of ginger. In the 1800s, ginger was
commonly sprinkled on top of beer or ale, then stirred into the drink with a
hot poker - thus the invention of gingerale.
20 FUEL FOR GROWTH
- -----------------------------
Over the past several years, we have been successful in growing both our
revenues and our profitability, achieving record results in each of the last
eight consecutive quarters. In our consumer business, we have used promotional
and pricing programs to grow sales of our branded products at a faster rate than
sales of our private label and economy products. In our industrial business, we
have focused on selling flavors and seasonings more than ingredients. And in
both businesses, we have successfully executed initiatives to improve management
of our supply chain and hence our cost structure; part of the savings realized
has been applied to the bottom line, and part has been reinvested in
revenue-enhancing projects. Overall, by emphasizing supply chain management and
product mix, we have improved our gross margin by more than 100 basis points per
year in each of the past two years. The challenge we face is to continue this
record of success in 2001 and beyond.
This challenge must be understood in the context of the changes affecting
our industry. We believe several important trends will be at work in the coming
years. Our world-class customers, who drive our business, will require
integrated, fast and collaborative business processes and information flows with
preferred suppliers like McCormick. This requirement will be further challenged
by the globalization of these relationships. Electronic marketplaces will be
pervasive and eBusiness in general will be a significant feature in the
industry. Acquisitions will need to be assimilated rapidly to deliver planned
synergies.
While our business processes and information infrastructure have served us
well historically, they will not be able to keep pace with the challenges and
opportunities in the years ahead. Therefore, in late 1999, we initiated a
proactive, strategic response known as Beyond 2000 (B2K). This is a global
initiative of business process improvement enabled by state-of-the-art
information technology. B2K is designed to optimize our supply chain, reengineer
our back office processes, strengthen our product development processes, extend
collaborative processes with our trading partners and generally enhance our
capabilities for delivering profitable growth.
All the strategies that comprise B2K call for the development and
application of eBusiness capabilities, which will be fully embedded in the
organization's business processes. Over the next three to five years, we plan to
expand and utilize these capabilities in dealing with consumers, customers,
suppliers and employees. As the starting point, we are examining virtually every
business process for the potential application of eBusiness technology. We will
implement an enterprise resource planning (ERP) platform as the foundation for
the strategic eBusiness capabilities
GROSS PROFIT MARGIN
1996 34.9%
1997 34.9%
1998 34.5%
1999 35.7%
2000 37.9%
By emphasizing supply chain management and product mix, we have improved our
gross margin by more than 100 basis points per year in each of the past two
years.
21
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[Photo of Fran Contino]
"The challenge we face is to continue this record of success in 2001 and
beyond."
FRAN CONTINO, EXECUTIVE VP AND CFO
that will be created. The implementation will enable us to achieve the highest
level of alignment between our business processes and our customers' needs, so
that we can continue to grow with our customers. It will also provide a
mechanism to support continual process improvement in the years ahead. Our
investment will be especially critical to our success in serving our largest
global customers in a consistent, effective and profitable manner.
During 2000, we participated in the formation of an electronic trading
exchange for the consumer products industry called Transora. We believe that
involvement in this exchange will be an important element of our overall
eBusiness strategy. We have also joined with a consortium of other companies in
a logistics exchange called Nistevo to continue to reduce our logistics expense.
In addition, we have been active in using the internet to connect with our
brokers, customers and the consumer. We will continue to expand and intensify
these efforts through B2K.
With B2K, our goal is not only to deliver real value to the business now
but also to lay the foundation for continuous improvement in the future. We have
already made significant progress in improving gross margin and inventory turns.
We have used activity-based costing to understand and better manage the cost
drivers in many of our manufacturing facilities. In the area of supply chain
management, we have introduced advancements in planning and scheduling, and we
are moving ahead with the implementation of a strategic sourcing program. B2K
will continue to build upon these accomplishments.
B2K will jump-start an ongoing, integrated process of improvement that will
span many years. We plan to increase our overall levels of capital spending from
historical levels to support this effort. State-of-the-art information
technology will be a critical element of B2K. In the past, we have dedicated
20%-25% of our capital expenditures to information technology projects. This
percentage will increase over the next few years in support of B2K.
B2K is a strategic investment in our business and our customer
relationships. We choose to make this investment now in order to continue the
growth momentum that has been established during the past several years. The
return on this investment will be considerable: B2K will deliver significant
improvements in profitability and will also be a potent source of funds that can
be reinvested to grow sales and margins further. Margin improvement will be
McCormick's primary fuel for growth, and B2K will be a major source of that
fuel.
[PHOTO]
CORIANDER
Ground coriander is an important ingredient in the all-American hot dog. The
Leaves of the coriander plant, known as cilantro, are used as a popular
flavoring in many Latin American dishes.
22 MANAGEMENT'S DISCUSSION AND ANALYSIS
- -----------------------------------------------
Certain performance measures used in this section are not defined by accounting
principles generally accepted in the United States. Refer to page 1 of this
annual report for a discussion of the definitions and use of these terms.
OVERVIEW
For 2000, the Company reported net income of $137.5 million or $1.98 of diluted
earnings per share compared to $103.3 million or $1.43 of diluted earnings per
share in 1999. Excluding the impact of special charges and the cumulative effect
of an accounting change, net income on a comparable basis was $138.3 million in
2000 compared to $121.7 million last year.
The Company continues to see improved financial performance throughout its
global operations. In 2000, the Company grew sales, improved gross margin and
improved operating income margin. Improvements were not concentrated in one area
as sales and operating margins improved in each business segment versus the
prior year. Additionally, the Company's unconsolidated operations had another
year of record financial performance.
On August 31, 2000, the Company acquired, through its subsidiary, McCormick
France, S.A.S., one hundred percent of the share capital of Ducros, S.A. and
Sodis, S.A.S. from Eridania Beghin-Say, S.A. Ducros is a manufacturer and
marketer of consumer spices and herbs and dessert aid products in France and
other European countries; Sodis manages the racking and merchandising of the
Ducros products in supermarkets and hypermarkets, and manages a warehouse
located in Gennevilliers, France. The purchase price for the stock of Ducros and
Sodis was 2.75 billion French francs (equivalent to $379 million). Collectively,
these two operations are referred to as "Ducros" in this report.
The Ducros business was founded in 1963 and is headquartered in France.
Ducros is the number one consumer spice and herb company in Europe and a leading
manufacturer and distributor of dessert aid products. Ducros sells its products
primarily under the Ducros, Vahine, Malile and Margao brand names in France
and/or other European countries.
In France, Ducros has facilities for the manufacture, packaging and storage
of spices, herbs and dessert aid products, as well as headquarters, sales and
marketing and research and development facilities. Ducros also has sales,
marketing and some limited production facilities in Belgium, Italy, Portugal,
and Spain.
The Company financed $370 million of the purchase price through its
issuance of commercial paper on August 29, 2000. Commercial paper was issued at
the time with an interest rate of approximately 6.7%. The Company funded the
balance of the purchase price from internally generated funds. The Company
intends to replace the commercial paper with medium-term, senior notes in 2001.
Because this acquisition took place on August 31, 2000, the Ducros
financial results are included with the Company's results for the fourth quarter
of 2000. This acquisition had a dilutive effect of $.03 on earnings per share,
as the effects of increased interest and goodwill amortization were not
completely offset by the earnings of Ducros. The dilutive effect in 2001 is
expected to be approximately $.10 on earnings per share, primarily in the first
half of the year, with no significant dilution in years thereafter.
In 1999 the Company changed its actuarial method of calculating the
TOTAL SHAREHOLDER RETURN
Includes Dividends
McC SP Food SP 500
One year 24.2% 14.7% 20.9%
Three years 12.9% 1.0% 11.7%
Ten years 14.8% 13.1% 17.7%
23
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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, pre-tax credit of $7.7 million which was previously classified in
the consolidated statement of income on the line entitled special charges. This
item has been reclassified in these financial statements as a $4.8 million
cumulative effect of an accounting change, net of income taxes.
Amortization of goodwill and royalty income had previously been included in
other income and have been reclassified into selling, general and administrative
expense. The impact of these reclassifications are included in note 1 and note
15 of the notes to consolidated financial statements. All prior periods
presented have been reclassified to conform to the current presentation.
RESULTS OF OPERATIONS-- 2000 COMPARED TO 1999
Consolidated net sales increased 5.8% to $2.1 billion in 2000. Excluding
the unfavorable effect of foreign currency exchange rates and excluding the
acquisition of Ducros, sales grew 3.9%. Sales improvements, which were realized
in all business segments, were primarily volume-related. Higher unit volume
increased sales by 4.5%, the acquisition of Ducros increased sales by 3.1%,
while the effect of foreign currency exchange rates decreased sales by 1.2%, and
the combined effects of price and product mix decreased sales 0.6%. In the
consumer segment sales increased 11.0% over the prior year. Ducros added 7.0% to
this growth while the unfavorable effects of foreign currency exchange rates
decreased sales by 1.7%. Excluding these effects sales increased 5.7%, which was
driven by volume growth in all major markets. This growth was mainly due to
promotional and marketing programs and new product launches. The Company's
industrial segment sales grew 1.0% in 2000 over 1999. Excluding the unfavorable
effect of foreign currency exchange rates, industrial segment sales grew 2.0%.
There was good sales growth of blended seasonings to food processors and the
food service product line to distributors and warehouse club stores in the
United States. However, this was partially offset by weak sales to restaurant
customers due to lack of customer promotion on key products and the competitive
environment among chain restaurants. Sales of our ingredient products declined
due to lower pricing caused by reduced raw material costs. In the packaging
segment, sales increased 5.1% in 2000 as compared to 1999. The increase in sales
was all due to volume gains in our tube products business.
The Company's share of sales from unconsolidated operations in 2000 was
$216.6 million, up 15.3% versus 1999, primarily due to sales growth in our
McCormick de Mexico and Signature Brands joint ventures.
Gross profit margin increased to 37.9% in 2000 from 35.7% in 1999. The
acquired Ducros business has a higher gross profit margin than the existing
McCormick business segments. This business also has a higher level of sales and
marketing expenses. Gross profit margins for the Company were favorably impacted
by the effect of Ducros and by global growth in the higher margin consumer
segment. Within the industrial segment, increased sales of higher margin
products, new products, operating efficiencies and increased sales to
foodservice customers improved margins. Raw material price pressures, primarily
in resins, decreased margins in our packaging business.
Selling, general and administrative expenses were higher in 2000 than 1999
on both a dollar basis and as a percentage of sales. The higher level of expense
is primarily due to the effect of Ducros, a $3.8 million charge for the
bankruptcy of AmeriServe - an industrial customer, increased spending in product
development and advertising, and increased spending on the Company's Beyond 2000
(B2K) initiative. These increases are partially offset by increases in royalty
income. During 2000, the Company reclassified amortization of goodwill and
royalty income from other income to selling, general, and administrative
expenses. The net effect of the reclassification of these two items on selling,
general and administrative expenses is a decrease of $2.4 million in 2000, $1.0
million in 1999, and an
24
- ---------
increase of $.7 million in 1998.
Operating income margin was 10.6% in 2000 compared to 8.5% in 1999.
Excluding special charges, operating income margin improved to 10.6% in 2000
compared to 9.8% in 1999.
Interest expense increased in 2000 versus 1999 due to a combination of
higher average debt levels, mainly caused by the acquisition of Ducros, and
higher average interest rates.
Other income decreased in 2000 as compared to 1999. 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., was $4.6 million in 1999.
As 1999 was the last year of the agreement there is no comparable amount in
2000.
The effective tax rate for 2000 was 35.8%, down from 40.2% in 1999. The
1999 rate was higher as it included the impact of certain non-deductible
expenses related to the 1999 special charges. Excluding this impact, the
effective tax rate for 1999 was 35.9%.
Income from unconsolidated operations increased to $18.1 million in 2000
versus $13.4 million in 1999, primarily due to continued strong performance from
our McCormick de Mexico joint venture.
RESULTS OF OPERATIONS -- 1999 COMPARED TO 1998
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. Excluding the impact of special charges, net income on
a comparable basis was $121.7 million in 1999 compared to $105.3 million in
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 increased to 35.7% 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,
25
------
DIVIDENDS PAID PER SHARE
1996 1997 1998 1999 2000
0.56 0.60 0.64 0.68 0.76
including promotional spending, incentive-based employee compensation and
research and development. Professional service expenses in support of the
Company's process reengineering effort also increased in 1999.
Operating income margin was 8.5% in 1999 compared to 9.7% in 1998.
Excluding special charges, operating income margin 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 40.2% 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.
FINANCIAL CONDITION
Continued strong cash flows from operations enabled the Company to fund
operating projects and investments designed to meet our growth objectives.
In the consolidated statement of cash flows, cash provided by operating
activities was $202.0 million in 2000 as compared to $229.3 million in 1999 and
$144.0 million in 1998. The increased cash flow in 1999 was mainly due to
reductions in working capital items even as sales and operations grew. This
result can be seen as the items titled "Changes in operating assets and
liabilities" in the consolidated statement of cash flows, which accounted for
cash flow increases of $44.1 million in 1999. These same working capital items
also showed improvements in 2000 even as operations continued to grow by
contributing an additional $15.2 million to operating cash flow. The benefits in
both years are due to continued focus on working capital management by the
Company even as it pursues and achieves its growth targets.
Investing activities used cash of $442.6 million in 2000 versus $45.9
million in 1999 and $62.6 million in 1998. The major use of cash for investing
activities in 2000 was the acquisition of businesses. At the end of the third
quarter, the Company acquired Ducros. See note 3 of the notes to consolidated
financial statements and the description above for more detail on the Ducros
acquisition. During 2000 the Company continued to maintain its capital
expenditures at approximately the level of depreciation expense. In the next two
years the Company expects that capital expenditures will be in excess of
depreciation expense primarily due to increased spending related to the B2K
program.
Financing activities provided cash of $254.6 million in 2000 versus $188.5
million used in 1999 and $77.0 million used in 1998. Cash flows from financing
activities in 2000 include the use of cash for the purchase of 2.5 million
shares of common stock for $72.3 million under the Company's previously
announced $250 million share
26
- --------
repurchase program. Due to the acquisition of Ducros, the Company ceased the
share repurchase program in May of 2000. The Company expects to resume the
repurchasing activity by 2003. The Ducros acquisition has increased short-term
borrowings, which the Company intends to refinance as long-term debt. Dividend
payments increased to $52.3 million in 2000, up 7.4% compared to $48.7 million
in 1999.
Dividends paid in 2000 totaled $.76 per share, up from $.68 per share in
1999. In December 2000, the Board of Directors approved a 5.3% increase in the
quarterly dividend from $.19 to $.20 per share. Over the last 10 years,
dividends have increased 11 times and have risen at a compounded annual rate of
13%.
The Company's ratio of debt-to-total-capital was 66.5% as of November 30,
2000, an increase from 47.2% at November 30, 1999. The increase was due
primarily to additional borrowings used to fund the acquisition of Ducros. We
expect to return to our target range of 45-55% for the debt-to-total-capital
ratio by the end of fiscal year 2002.
Management believes that internally generated funds and existing sources of
liquidity are sufficient to meet current and anticipated financing requirements
during the next 12 months. It is the intention of the Company to replace
commercial paper used for the Ducros acquisition with medium-term notes.
SPECIAL CHARGES
During 1999, the Company recorded special charges of $26.7 million ($23.2
million after-tax) associated with a plan to streamline operations approved by
the Company's Board of Directors in May 1999. Of this amount, $25.7 million was
classified as special charges and $1.0 million as cost of goods sold in the
consolidated statement of income in 1999.
In Europe, the Company consolidated certain U.K. facilities, improved
efficiencies within previously consolidated European operations and realigned
operations between the U.K. and other European locations. Specific actions under
this plan included: 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 included workforce reductions,
building and equipment disposals, write-downs of intangible assets and other
related exit costs. In total, the streamlining actions resulted in the
elimination of approximately 300 positions, primarily outside the U.S. 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.
During 2000, the Company recorded $1.1 million of additional special
charges associated with the 1999 restructuring, which could not be accrued in
1999. $5.7 million was utilized in 2000, leaving $1.1 million accrued and
unspent at the end of the year. The restructuring is complete as anticipated and
the remaining $1.1 million will be expended in 2001.
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, the
Company completed special projects related to the consolidation of manufacturing
facilities, reduction of
27
------
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 of $2.3 million in 1998. The charges included
the realignment of several overseas operations which resulted in losses less
than originally anticipated, and the Company discontinued its manufacturing
operations in Venezuela.
Refer to note 2 of the notes to consolidated financial statements for
further information.
BEYOND 2000
The Company initiated the Beyond 2000 (B2K) program as a global initiative of
business process improvement. B2K is designed to optimize our supply chain,
reengineer our back office processes, strengthen our product development
process, extend collaborative processes with our trading partners and generally
enhance our capabilities for delivering profit. We plan to increase our overall
levels of capital spending from historical levels to support this effort.
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 5 and 6 of the notes to 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 sterling, Euro, Australian dollar,
Canadian dollar, Mexican peso, Japanese yen and Chinese RMB). The Company may
enter into forward and option contracts to manage foreign currency risk. During
2000, the foreign currency translation component in other comprehensive income
is principally related to the impact of exchange rate fluctuations on the
Company's net investments in the United Kingdom and Australia. The Company did
not hedge its net investments in subsidiaries and unconsolidated affiliates in
2000, 1999, and 1998.
At November 30, 2000, the Company had foreign exchange contracts maturing
in 2001 to purchase or sell $.8 million of foreign currencies versus $36.4
million at November 30, 1999. These contracts are principally used to hedge the
anticipated purchase of raw materials. The fair value of these contracts was
$0.0 and $.3 million at November 30, 2000 and 1999, respectively.
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,
2000. The principal
CAPITAL EXPENDITURES
(IN MILLIONS)
1996 1997 1998 1999 2000
CAPITAL EXPENDITURES 74.7 43.9 54.8 49.3 53.6
DEPRECIATION 57.9 43.9 49.9 52.5 54.2
28
- --------
cash flows and related interest rates by fiscal year of maturity at November 30,
1999 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,
2000.
[PICTURE OF TABLE - YEAR OF MATURITY]
YEAR OF MATURITY
(millions) 2001 2002 2003 2004 Thereafter Total Fair Value
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
DEBT
Fixed rate $78.5 $4.1 $0.1 $16.0 $134.0 $232.7 $235.4
Average interest rate 8.96% 6.28% 8.20% 7.17% 7.17%
- ------------------------------------------------------------------------------------------------
Variable rate $473.4 $0.3 $0.3 $0.3 $5.1 $479.4 $479.4
Average interest rate 6.66% 6.61% 6.61% 6.61% 5.69%
Note: The variable interest on commercial paper which will be used to retire
the $74.9 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. In September of 2000, the Company entered
into forward starting interest rate swaps to manage the interest rate risk
associated with the anticipated issuance of $294 million fixed rate
medium-term notes expected to be issued in early 2001. The Company's
intention is to cash settle these swaps upon issuance of the medium-term
notes thereby effectively locking in the fixed interest rate in effect at the
time the swaps were initiated.
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.
FORWARD-LOOKING INFORMATION
Certain information contained in this report includes "forward-looking
statements" within the meaning of section 21(E) of the Securities and Exchange
Act. The Company intends the forward-looking statements to be covered by the
safe harbor provisions for forward-looking statements in this section. All
statements regarding the Company's expected financial plans, future capital
requirements, forecasted, demographic and economic trends relating to its
industry, ability to complete acquisitions, to realize anticipated cost savings,
and other benefits from acquisitions, and to recover acquisition-related costs,
and similar matters are forward-looking statements. In some cases, these
statements can be identified by the Company's use of forward-looking words such
as "may," "will," "should," "anticipate," "estimate," "expect," "plan,"
"believe," "predict," "potential," or "intend." The forward-looking information
is based on various factors and was derived using numerous assumptions. However,
these statements only reflect the Company's predictions. These statements are
subject to known and unknown risks, uncertainties and other factors that could
cause the Company's actual results to differ materially from the statements.
Important factors that could cause the Company's actual results to be materially
different from its expectations include actions of competitors, customer
relationships, market acceptance of new products, actual amounts and timing of
special charge items, removal and disposal costs, final negotiations of
third-party contracts, the impact of stock market conditions on its 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. The Company undertakes no obligation to
update or revise publicly any forward-looking statements, whether as a result of
new information, future events or otherwise.
CONSOLIDATED STATEMENT OF INCOME 29
-----------------------------------------
FOR THE YEAR ENDED NOVEMBER 30 (MILLIONS EXCEPT PER SHARE DATA) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Net sales $ 2,123.5 $ 2,006.9 $ 1,881.1
Cost of goods sold 1,318.7 1,289.7 1,232.2
- -----------------------------------------------------------------------------------------------------------
Gross profit 804.8 717.2 648.9
Selling, general and administrative expense 578.7 521.4 464.5
Special charges 1.1 25.7 2.3
- -----------------------------------------------------------------------------------------------------------
Operating income 225.0 170.1 182.1
Interest expense 39.7 32.4 36.9
Other income, net .7 4.6 7.3
- -----------------------------------------------------------------------------------------------------------
Income from consolidated operations
before income taxes 186.0 142.3 152.5
Income taxes 66.6 57.2 54.9
- -----------------------------------------------------------------------------------------------------------
Net income from consolidated operations 119.4 85.1 97.6
Income from unconsolidated operations 18.1 13.4 6.2
- -----------------------------------------------------------------------------------------------------------
Net income before cumulative effect
of an accounting change 137.5 98.5 103.8
Cumulative effect of an accounting change,
net of income taxes - 4.8 -
- -----------------------------------------------------------------------------------------------------------
Net income $ 137.5 $ 103.3 $ 103.8
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE - BASIC
Continuing operations $ 2.00 $ 1.38 $ 1.42
Cumulative effect of an accounting change - .07 -
- -----------------------------------------------------------------------------------------------------------
Total earnings per share - basic $ 2.00 $ 1.45 $ 1.42
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE - ASSUMING DILUTION
Continuing operations $ 1.98 $ 1.36 $ 1.41
Cumulative effect of an accounting change - .07 -
- -----------------------------------------------------------------------------------------------------------
Total earnings per share - assuming dilution $ 1.98 $ 1.43 $ 1.41
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES 33-40.
30 CONSOLIDATED BALANCE SHEET
- --------------------------------------
AT NOVEMBER 30 (MILLIONS) 2000 1999
- -----------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 23.9 $ 12.0
Receivables, less allowances of $6.6 for 2000
and $3.8 for 1999 303.3 213.9
Inventories 274.0 234.2
Prepaid expenses and other current assets 18.8 30.5
- -----------------------------------------------------------------------------------
Total current assets 620.0 490.6
- -----------------------------------------------------------------------------------
Property, plant and equipment, net 373.0 363.3
Intangible assets, net 453.0 142.8
Prepaid allowances 96.1 109.3
Investments and other assets 117.8 82.8
- -----------------------------------------------------------------------------------
Total assets $ 1,659.9 $ 1,188.8
- -----------------------------------------------------------------------------------
===================================================================================
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
CURRENT LIABILITIES
Short-term borrowings $ 473.1 $ 92.9
Current portion of long-term debt 78.8 7.7
Trade accounts payable 185.3 148.8
Other accrued liabilities 290.0 221.2
- -----------------------------------------------------------------------------------
Total current liabilities 1,027.2 470.6
- -----------------------------------------------------------------------------------
Long-term debt 160.2 241.4
Deferred taxes 3.2 3.8
Other long-term liabilities 110.0 90.6
- -----------------------------------------------------------------------------------
Total liabilities 1,300.6 806.4
- -----------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, no par value; authorized 160.0
shares; issued and outstanding: 2000 - 8.3 shares,
1999 - 8.9 shares 49.8 49.8
Common stock non-voting, no par value; authorized
160.0 shares; issued and outstanding: 2000 - 60.0
shares, 1999 - 61.5 shares 125.5 124.0
Retained earnings 263.3 242.8
Accumulated other comprehensive income (79.3) (34.2)
- -----------------------------------------------------------------------------------
Total shareholders' equity 359.3 382.4
- -----------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,659.9 $ 1,188.8
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES 33-40.
CONSOLIDATED STATEMENT OF CASH FLOWS 31
---------------------------------------------
FOR THE YEAR ENDED NOVEMBER 30 (MILLIONS) 2000 1999 1998
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 137.5 $ 103.3 $ 103.8
Adjustments to reconcile net income to net cash provided by
operating activities
Special charges and accounting change - 21.9 2.3
Depreciation and amortization 61.3 57.4 54.8
Deferred income taxes (5.1) 6.4 2.0
Other .5 1.6 (.3)
Income from unconsolidated operations (18.1) (13.4) (6.2)
Changes in operating assets and liabilities
Receivables (24.5) (2.1) 1.6
Inventories (9.8) 16.0 (1.7)
Prepaid allowances 13.0 34.6 (13.1)
Trade accounts payable .6 3.2 (2.4)
Other assets and liabilities 35.9 (7.6) (6.6)
Dividends received from unconsolidated affiliates 10.7 8.0 9.8
- -------------------------------------------------------------------------------------------------
Net cash provided by operating activities 202.0 229.3 144.0
- -------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisitions of businesses (386.6) - (8.9)
Capital expenditures (53.6) (49.3) (54.8)
Proceeds from sale of assets 1.6 3.0 3.0
Other (4.0) .4 (1.9)
- -------------------------------------------------------------------------------------------------
Net cash used in investing activities (442.6) (45.9) (62.6)
- -------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Short-term borrowings, net 380.2 (46.4) 27.5
Long-term debt borrowings - .3 9.0
Long-term debt repayments (10.0) (24.3) (17.7)
Common stock issued 9.0 11.6 14.1
Common stock acquired by purchase (72.3) (81.0) (63.0)
Dividends paid (52.3) (48.7) (46.9)
- -------------------------------------------------------------------------------------------------
Net cash used in financing activities 254.6 (188.5) (77.0)
- -------------------------------------------------------------------------------------------------
Effect of exchange rate changes
on cash and cash equivalents (2.1) (.6) (.2)
- -------------------------------------------------------------------------------------------------
(Decrease)/increase in cash and cash equivalents 11.9 (5.7) 4.2
Cash and cash equivalents at beginning of year 12.0 17.7 13.5
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 23.9 $ 12.0 $ 17.7
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES 33-40.
32 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, 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 ($3.6 million) (6.6) (6.6)
---------
Comprehensive income 91.2
---------
Dividends paid ($.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 ($3.6 million) 6.6 6.6
Change in realized and unrealized gains on
derivative financial instruments, net of tax
($1.3 million) 2.4 2.4
---------
Comprehensive income 112.3
---------
Dividends paid ($.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
COMPREHENSIVE INCOME:
NET INCOME 137.5 137.5
CURRENCY TRANSLATION ADJUSTMENTS (40.1) (40.1)
CHANGE IN REALIZED AND UNREALIZED GAINS ON
DERIVATIVE FINANCIAL INSTRUMENTS, NET OF TAX
($2.8 MILLION) (5.0) (5.0)
---------
COMPREHENSIVE INCOME 92.4
---------
DIVIDENDS PAID ($.76/SHARE) (52.3) (52.3)
SHARES PURCHASED AND RETIRED (.8) (1.7) (7.5) (64.8) (72.3)
SHARES ISSUED .3 .1 9.0 9.0
OTHER .1 .1
EQUAL EXCHANGE (.1) .1 -
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 2000 8.3 60.0 $ 175.3 $ 263.3 $ (79.3) $ 359.3
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES 33-40.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 33
------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all majority-owned subsidiaries. Investments in unconsolidated affiliates, over
which we exercise significant influence, but not control, are accounted for by
the equity method. Accordingly, our share of the net income or loss of such
unconsolidated affiliates is included in consolidated net income. 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.
SHIPPING AND HANDLING
Shipping and handling costs are included in selling, general and administrative
expenses.
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 (APB) No. 25,
"Accounting for Stock Issued to Employees." Under APB No. 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of the grant, no compensation expense is
recognized. As permitted, the Company has elected to adopt the disclosure
provisions only of Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation." Refer to Note 10 for further
information.
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
In December 1999, the Securities and Exchange Commission (the SEC) issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements." The
effective date of this bulletin has been deferred by the SEC until the fourth
quarter of fiscal years beginning after December 15, 1999, and accordingly will
be adopted by the Company in the fiscal year ending November 30, 2001. The
Company is still researching this issue and does not have a firm conclusion or
quantification at this time. If there is an effect of adopting this bulletin, it
will be recorded as a cumulative effect of an accounting change.
In addition, the Company will be required to reclassify certain shipping
and handling costs billed to customers as sales in accordance with EITF 00-10
and to reclassify certain marketing expenses as a reduction of sales in
accordance with EITF 00-14. These reclassifications will not impact net income.
RECLASSIFICATIONS
In 1999 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, pre-tax credit of $7.7 million which was previously classified in
the consolidated statement of income on the line entitled special charges. This
item has been reclassified in these financial statements as a $4.8 million
cumulative effect of an accounting change, net of income taxes.
Amortization of goodwill and royalty income had previously been included in
other income, and have been reclassified into selling, general and
administrative expense. The net effect of the reclassification of these two
items on selling, general and administrative expense is a decrease of $2.4
million in 2000, $1.0 million in 1999, and an increase of $.7 million in 1998.
All prior periods presented have been reclassified to conform to the current
presentation.
34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------
2. SPECIAL CHARGES
During 1999, the Company recorded special charges of $26.7 million ($23.2
million after-tax) associated with a plan to streamline operations approved by
the Company's Board of Directors in May 1999. Of this amount, $25.7 million was
classified as special charges and $1.0 million as cost of goods sold in the
consolidated statement of income in 1999.
In Europe, the Company consolidated certain U.K. facilities, improved
efficiencies within previously consolidated European operations and realigned
operations between the U.K. and other European locations. Specific actions under
this plan included: 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 included workforce reductions,
building and equipment disposals, write-downs of intangible assets and other
related exit costs. In total, the streamlining actions resulted in the
elimination of approximately 300 positions, primarily outside the U.S. 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.
During 2000, the Company recorded $1.1 million of additional special
charges associated with the 1999 restructuring, which could not be accrued in
1999. $5.7 million was utilized in 2000, leaving $1.1 million accrued and
unspent at the end of the year. The restructuring is complete as anticipated and
the remaining $1.1 million will be expended in 2001.
The major components of the special charges and the remaining accrual balance as
of November 30, 2000 follow:
Severance
and personnel Asset Other
(millions) costs write-downs exit costs Total
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
1999
Special charges (credits) $ 7.9 $ 15.8 $ 3.0 $ 26.7
Amounts utilized (4.0) (15.8) (1.2) (21.0)
- --------------------------------------------------------------------------------------
$ 3.9 $ - $ 1.8 $ 5.7
2000
SPECIAL CHARGES (CREDITS) .8 (.3) .6 1.1
AMOUNTS UTILIZED (3.7) .3 (2.3) (5.7)
- --------------------------------------------------------------------------------------
$ 1.0 $ - $ .1 $ 1.1
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
3. ACQUISITIONS
On August 31, 2000, the Company acquired Ducros, S.A. and Sodis, S.A.S. from
Eridania Beghin-Say, for 2.75 billion French francs (equivalent to $379
million). Ducros, headquartered in France, manufactures and markets spices and
herbs, and dessert aid products. Key brands include Ducros, Vahine, Malile, and
Margao which are produced mainly in France. Sodis manages the racking and
merchandising of Ducros products in supermarkets and hypermarkets, and manages a
warehouse in France.
$370 million of the purchase was financed through 6.7% commercial paper
with the remainder funded by internally generated funds. It is the intention of
the Company to replace the commercial paper with medium-term notes. The
acquisition was accounted for under the purchase method, and the results of
Ducros and Sodis have been included in the Company's consolidated results from
the date of acquistion.
The Company has not finalized the allocation of the purchase price as of
November 30, 2000. An estimation of this allocation was prepared and included as
part of these financial statements. The purchase price has been allocated as
follows: $17 million to property plant and equipment, $26 million to working
capital, and $336 million to goodwill. Goodwill is being amortized over 40
years.
The unaudited proforma combined historical results, as if Ducros and Sodis
had been acquired at the beginning of fiscal 2000 and 1999, respectively, are
estimated to be:
(millions, except per share data) 2000 1999
- --------------------------------------------------------------------
Net sales $ 2,322.7 $ 2,270.3
Net income $ 126.1 $ 88.6
Earnings per share - assuming dilution $ 1.81 $ 1.23
- --------------------------------------------------------------------
The proforma results include amortization of the intangibles presented
above and interest expense on debt assumed to finance the purchase. The proforma
results are not necessarily indicative of what actually would have occurred if
the acquisition had been completed as of the beginning of each fiscal period
presented, nor are they necessarily indicative of future consolidated results.
4. INVESTMENTS
Although the Company reports its share of net income from affiliates, their
financial statements are not consolidated with those of the Company. The
Company's share of undistributed earnings of the affiliates was $48.8 million at
November 30, 2000.
Summarized year-end information from the financial statements of these
companies representing 100% of the businesses follows:
(millions) 2000 1999 1998
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Net sales $ 437.7 $ 378.3 $ 344.4
Gross profit 200.7 158.7 131.1
Net income 36.1 26.7 11.9
- --------------------------------------------------------------------
Current assets $ 177.1 $ 168.0 $ 161.2
Noncurrent assets 106.4 82.6 71.7
Current liabilities 92.5 97.1 106.1
Noncurrent liabilities 62.7 46.1 39.5
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Royalty income from unconsolidated affiliates was $9.0 million, $5.1 million and
$4.4 million for 2000, 1999, and 1998, respectively.
35
----
5. FINANCING ARRANGEMENTS
The Company's outstanding debt is as follows:
(millions) 2000 1999
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Short-term borrowings
Commercial paper (1) $ 443.0 $ 59.6
Other 30.1 33.3
- ------------------------------------------------------------------------
$ 473.1 $ 92.9
- ------------------------------------------------------------------------
Weighted-average interest rate
of short-term borrowings
at year end 6.65% 5.99%
- ------------------------------------------------------------------------
Long-term debt
8.95% note due 2001(1) $ 74.9 $ 74.8
9.75% installment notes
due through 2001 - 5.2
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 3.1 7.1
Other 11.0 12.0
- ------------------------------------------------------------------------
239.0 249.1
Less current portion 78.8 7.7
- ------------------------------------------------------------------------
$ 160.2 $ 241.4
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
(1) The variable interest on commercial paper that 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) Holders have a one-time option to require retirement of these notes in
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 $241.7 million and $254.7 million at November 30, 2000 and
1999, respectively.
Maturities of long-term debt during the four years subsequent to November
30, 2001 are as follows (in millions):
2002 - $ 4.4 2004 - $ 16.3
2003 - $ .4 2005 - $ 32.3
The Company has available credit facilities with domestic and foreign banks
for various purposes. The amount of unused credit facilities at November 30,
2000 was $795.8 million, of which $700.0 million supports a commercial paper
borrowing arrangement. Some credit facilities in support of commercial paper
issuance require a commitment fee. Annualized commitment fees at November 30,
2000 were $.2 million, exclusive of the temporary facility which will be
terminated upon issuance of medium-term notes referred to in note 3.
Rental expense under operating leases was $17.9 million in 2000, $17.4
million in 1999 and $14.1 million in 1998. Future annual fixed rental payments
for the years ending November 30 are as follows (in millions):
2001 - $ 10.0 2004 - $ 2.1
2002 - $ 7.7 2005 - $ 1.4
2003 - $ 4.2 Thereafter - $ 1.5
At November 30, 2000, the Company had unconditionally guaranteed $1.1
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.
6. 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, transactions, 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.
Contracts which are designated as hedges of anticipated purchases of raw
materials are considered cash flow hedges. The gains and losses on these
contracts are deferred in other comprehensive income until the hedged item is
recognized in income at which time, the net amount deferred in other
comprehensive income is also recognized in income. Realized and unrealized gains
and losses on contracts that hedge net investments are also recognized in other
comprehensive income. 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.
At November 30, 2000, the Company had foreign currency exchange contracts
maturing within one year to purchase or sell $.8 million of foreign currencies
versus $36.4 million at November 30, 1999. The fair value of these contracts was
$0.0 million and $.3 million at November 30, 2000 and 1999, respectively. All of
these contracts were designated as hedges of anticipated purchases to be
completed within one year and therefore are considered cash flow hedges. Hedge
ineffectiveness was not material.
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 5. The Company utilizes interest rate swap agreements as cash flow
hedges to lock in the interest rate on anticipated borrowings and therefore
achieve a desired proportion of variable versus fixed rate debt.
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 effectively fixed at
6.35% during the period. The gain or loss prior to the 2001 starting date on
this swap is deferred in other comprehensive income and will be amortized over
the ten-year period that the Company anticipates having the commercial paper
outstanding. The Company intends to hold this forward starting interest rate
swap until maturity. Any gain or loss
36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------------------------------
subsequent to the starting date will be reflected in interest expense in the
applicable period.
In September of 2000, the Company entered into forward starting interest
rate swaps to manage the interest rate risk associated with the anticipated
issuance of $294 million fixed rate medium-term notes expected to be issued in
early 2001. The Company's intention is to cash settle these swaps upon issuance
of the medium-term notes thereby effectively locking in the fixed interest rate
in effect at the time the swaps were initiated. The gain or loss on these swaps
is deferred in other comprehensive income and will be amortized over the five to
seven year life of the medium-term notes as a component of interest expense.
The notional amount of all interest rate swaps was $369 million and $75
million at November 30, 2000 and 1999, respectively. The fair market value of
all the swaps was $(3.8) and $3.9 million at November 30, 2000 and 1999,
respectively. Hedge ineffectiveness was not material. Based on the unrealized
loss at November 30, 2000 and the anticipated issuance dates and terms of the
related debt, the Company estimates that $.5 million of the deferred loss would
be recognized in 2001.
OTHER FINANCIAL INSTRUMENTS
The Company's other financial instruments include cash and cash
equivalents, receivables and accounts payable. As of November 30, 2000 and 1999,
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, 2000. The Company evaluates the credit worthiness of the
counterparties to financial instruments and considers nonperformance credit risk
to be remote.
7. PENSION AND PROFIT SHARING PLANS
The Company's pension expense is as follows:
United States International
(millions) 2000 1999 1998 2000 1999 1998
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Defined benefit plans
Service cost $ 7.1 $ 7.4 $ 6.2 $ 2.7 $ 2.8 $ 2.7
Interest costs 13.8 12.7 11.4 3.3 3.2 3.2
Expected return on
plan assets (15.5) (13.2) (11.2) (4.7) (5.2) (4.9)
Amortization of prior
service costs .1 .1 .1 .1 .1 .1
Amortization of
transition assets .2 (.6) (.5) (.1) (.1) (.1)
Curtailment loss - - - - .2 -
Recognized net
actuarial loss (gain) 1.3 3.3 1.6 - (.1) (.3)
Other retirement plans - .1 .2 .5 .7 .8
- ----------------------------------------------------------------------------------------------------
$ 7.0 $ 9.8 $ 7.8 $ 1.8 $ 1.6 $ 1.5
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
The Company's U.S. pension plans held .5 million shares, with a fair value of
$17.9 million, of the Company's stock at November 30, 2000. Dividends paid on
these shares in 2000 were $.4 million.
Rollforwards of the benefit obligation, fair value of plan assets and a
reconciliation of the pension plans' funded status at September 30, the
measurement date, follow:
United States International
(millions) 2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Change in benefit obligation
Beginning of the year $ 176.5 $ 185.5 $ 58.9 $ 49.8
Service cost 7.1 7.4 2.7 2.8
Interest costs 13.8 12.7 3.3 3.2
Employee contributions - - 1.2 1.1
Plan changes and other .6 .3 - -
Curtailment - - - .4
Actuarial loss (gain) .6 (17.7) .6 4.2
Benefits paid (11.7) (11.7) (2.1) (2.2)
Foreign currency impact - - (5.6) (.4)
- ---------------------------------------------------------------------------------------------
End of the year $ 186.9 $ 176.5 $ 59.0 $ 58.9
- ---------------------------------------------------------------------------------------------
Change in fair value of plan assets
Beginning of the year $ 169.0 $ 141.2 $ 60.7 $ 57.9
Actual return on plan assets 16.6 16.9 10.5 4.4
Transfer - .4 - -
Employer contributions 9.2 22.2 1.1 -
Employee contributions - - 1.2 1.1
Benefits paid (11.7) (11.7) (2.1) (2.2)
Foreign currency impact - - (5.8) (.5)
- ---------------------------------------------------------------------------------------------
End of the year $ 183.1 $ 169.0 $ 65.6 $ 60.7
- ---------------------------------------------------------------------------------------------
Reconciliation of funded status
Funded status $ (3.9) $ (7.5) $ 6.6 $ 1.8
Unrecognized net actuarial
loss (gain) 24.6 26.2 (7.6) (2.9)
Unrecognized prior
service cost .2 .3 .5 .7
Unrecognized transition
asset (liability) .5 .6 (.3) (.4)
Employer contribution - - .3 -
- ---------------------------------------------------------------------------------------------
$ 21.4 $ 19.6 $ (.5) $ (.8)
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Amounts recognized in the Consolidated Balance Sheet consist of the following:
United States International
(millions) 2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Prepaid pension cost $ 21.4 $ 19.6 $ .5 $ .4
Accrued pension liability - - (1.0) (1.2)
- ---------------------------------------------------------------------------------------------
$ 21.4 $ 19.6 $ (.5) $ (.8)
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
The accumulated benefit obligation for the U.S. pension plans was
$152.4 million and $144.5 million as of September 30, 2000 and 1999,
respectively.
United States International
(millions) 2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Significant assumptions
Discount rate 8.0% 8.0% 6.0 - 6.5% 6.0 - 6.5%
Salary scale 4.5% 4.5% 3.5 - 4.0% 3.5 - 4.0%
Expected return on plan assets 10.0% 10.0% 8.5% 8.5%
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE
In 1999, 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 cumulative effect of accounting change credit of $4.8 million after-tax or
$.07 per share ($7.7 million before tax) recorded in the first 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
37
------
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 did not have a material impact on the Company's results of operations
in 2000 or 1999 and is not expected to have a material impact in future years.
The pro-forma impact of applying the change to 1998 was not material.
PROFIT SHARING PLAN
Profit sharing plan expense was $5.8 million, $6.0 million and $4.2 million in
2000, 1999 and 1998, respectively.
The Profit Sharing Plan held 2.2 million shares, with a fair value of $83.1
million, of the Company's stock at November 30, 2000. Dividends paid on these
shares in 2000 were $1.7 million.
8. OTHER POSTRETIREMENT BENEFITS
The Company's other postretirement benefit expense follows:
(millions) 2000 1999 1998
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Other postretirement benefits
Service cost $ 2.4 $ 2.6 $ 2.1
Interest cost 5.3 4.9 4.4
Amortization of prior service cost (.7) (.1) (.1)
Accelerated recognition of prior
unrecognized service cost (.6) - -
- ---------------------------------------------------------------------------
$ 6.4 $ 7.4 $ 6.4
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
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) 2000 1999
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Change in benefit obligation
Beginning of the year $ 65.1 $ 69.8
Service cost 2.4 2.6
Interest cost 5.3 4.9
Employee contributions 1.7 1.6
Plan changes - (6.1)
Actuarial loss (gain) 2.0 (2.7)
Benefits paid (5.2) (5.0)
- ---------------------------------------------------------------------
End of the year $ 71.3 $ 65.1
- ---------------------------------------------------------------------
Change in fair value of plan assets
Beginning of the year $ - $ -
Employer contributions 3.5 3.4
Employee contributions 1.7 1.6
Benefits paid (5.2) (5.0)
- ---------------------------------------------------------------------
End of the year $ - $ -
- ---------------------------------------------------------------------
Reconciliation of funded status
Funded status $ (71.3) $ (65.1)
Unrecognized net actuarial loss (gain) 1.8 (.2)
Unrecognized prior service cost (6.0) (7.3)
- ---------------------------------------------------------------------
Other postretirement benefit liability $ (75.5) $ (72.6)
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
The assumed weighted-average discount rates were 8.0% for 2000 and 1999,
respectively.
The assumed annual rate of increase in the cost of covered health care
benefits is 7.65% for 2000. It is assumed to decrease gradually to 5.25% 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, 2000 $ 8.0 $ (7.0)
Effect on total of service and interest
cost components in 2000 $ 1.0 $ (.8)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
9. INCOME TAXES
The provision for income taxes consists of the following:
(millions) 2000 1999 1998
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Income taxes
Current
Federal $ 51.4 $ 35.6 $ 37.6
State 5.2 2.7 6.7
International 15.1 12.5 8.6
- ----------------------------------------------------------------------------
71.7 50.8 52.9
- ----------------------------------------------------------------------------
Deferred
Federal (5.2) 4.8 .1
State (.7) 1.3 (.6)
International .8 .3 2.5
- ----------------------------------------------------------------------------
(5.1) 6.4 2.0
- ----------------------------------------------------------------------------
Total income taxes $ 66.6 $ 57.2 $ 54.9
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
The components of income from consolidated continuing operations before income
taxes follow:
(millions) 2000 1999 1998
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Pretax income
United States $ 133.7 $ 119.3 $ 126.9
International 52.3 23.0 25.6
- ----------------------------------------------------------------------------
$ 186.0 $ 142.3 $ 152.5
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
A reconciliation of the U.S. federal statutory rate with the effective tax
rate follows:
2000 1999 1998
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Federal statutory tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal benefits 1.6 1.9 2.6
Tax effect of international operations (.4) .5 .6
Tax credits (1.8) (1.6) (2.2)
Nondeductible special charges - 4.2 -
Other, net 1.4 .2 -
- ----------------------------------------------------------------------------
Effective tax rate 35.8% 40.2% 36.0%
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------
Deferred tax liabilities and assets are comprised of the following:
(millions) 2000 1999
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Deferred tax assets
Postretirement benefit obligations $ 37.6 $ 36.7
Accrued expenses and other reserves 14.2 12.0
Inventory 4.0 3.8
Net operating losses and tax credits 7.3 7.2
Other 22.3 19.1
Valuation allowance (7.3) (7.2)
- -------------------------------------------------------------------
78.1 71.6
- -------------------------------------------------------------------
Deferred tax liabilities
Depreciation 36.9 44.7
Other 31.5 22.2
- -------------------------------------------------------------------
68.4 66.9
- -------------------------------------------------------------------
Net deferred tax asset $ 9.7 $ 4.7
- -------------------------------------------------------------------
- -------------------------------------------------------------------
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 $94.6 million at November 30, 2000.
10. 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) 2000 1999 1998
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Pro forma net income $ 131.1 $ 98.2 $ 100.1
Pro forma earnings per share
Assuming dilution 1.88 1.36 1.36
Basic 1.91 1.38 1.37
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
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 $6.65, $6.02 and $7.20 in 2000, 1999 and 1998, 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):
2000 1999 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Risk-free interest rates 5.6% 4.9%-5.4% 5.5%-5.7%
Dividend yields 2.0% 2.0% 2.0%
Expected volatility 24.5% 24.2% 23.6%
Expected lives 1.6-4.8 years 1.6-6.0 years 1.3-5.3 years
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
A summary of the Company's stock option plans for the years ended November
30 follows:
(options in millions) 2000 1999 1998
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
WEIGHTED- Weighted- Weighted-
AVERAGE average average
EXERCISE exercise exercise
SHARES PRICE Shares price Shares price
- ---------------------------------------------------------------------------------------------
Beginning of year 4.5 $27.86 3.7 $26.50 3.2 $23.11
Granted 1.5 $25.65 1.6 $29.06 1.2 $33.15
Exercised (.4) $22.68 (.6) $23.54 (.6) $22.57
Forfeited (.1) $27.65 (.2) $25.91 (.1) $22.27
- ---------------------------------------------------------------------------------------------
End of year 5.5 $27.62 4.5 $27.86 3.7 $26.50
- ---------------------------------------------------------------------------------------------
Exercisable -
end of year 2.5 $27.33 2.3 $25.54 1.9 $23.06
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
(option shares in millions) Options outstanding Options exercisable
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Range of average average average
exercise remaining exercise exercise
price Shares life (yrs) price Shares price
- ---------------------------------------------------------------------------------------------
$20.44 - $23.84 .5 1.0 $22.33 .5 $22.33
$23.84 - $27.25 2.3 6.5 $25.04 .7 $24.27
$27.25 - $30.66 1.5 6.8 $29.06 .7 $29.03
$30.66 - $34.06 1.1 7.1 $33.23 .6 $33.21
- ---------------------------------------------------------------------------------------------
5.4 6.2 $27.62 2.5 $27.33
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Under all stock purchase and option plans, there were 1.2 million and 3.6
million shares reserved for future grants at November 30, 2000 and 1999,
respectively.
11. 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) 2000 1999 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Average shares outstanding - basic 68.8 71.4 73.3
Effect of dilutive securities
Stock options and ESPP .8 .6 .5
- -------------------------------------------------------------------------------
Average shares outstanding -
assuming dilution 69.6 72.0 73.8
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
12. 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
39
------
Common Stock are limited to 10% of the votes entitled to be cast by all holders
of shares of Common Stock regardless of how many shares in excess of 10% are
held by such person; (2) the Company has the right to redeem any or all shares
of stock owned by such person unless such person acquires more than 90% of the
outstanding shares of each class of the Company's common stock; and (3) at such
time as such person controls more than 50% of the vote entitled to be cast by
the holders of outstanding shares of voting Common Stock, automatically, on a
share-for-share basis, all shares of Common Stock Non-Voting will convert into
shares of Common Stock.
Holders of Common Stock Non-Voting 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.
13. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
BUSINESS SEGMENTS
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 brand in the
U.S., Ducros in continental Europe, 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.
In each of its segments, the Company produces and sells many individual
products which are similar in composition and nature. It is impractical to
segregate and identify profits for each of these individual product lines.
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
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
2000
NET SALES $ 996.9 $ 948.2 $ 1,945.1 $ 178.4 $ - $ 2,123.5
INTERSEGMENT SALES - 9.9 9.9 39.7 (49.6) -
OPERATING INCOME 157.6 78.0 235.6 21.5 (32.1) 225.0
OPERATING INCOME EXCLUDING SPECIAL CHARGES 157.7 79.0 236.7 21.5 (32.1) 226.1
INCOME FROM UNCONSOLIDATED OPERATIONS 16.0 2.1 18.1 - - 18.1
ASSETS - - 1,400.3 137.7 121.9 1,659.9
CAPITAL EXPENDITURES - - 36.5 11.6 5.5 53.6
DEPRECIATION AND AMORTIZATION - - 47.3 11.8 2.2 61.3
- ---------------------------------------------------------------------------------------------------------------------------------
1999
Net sales $ 898.5 $ 938.7 $ 1,837.2 $ 169.7 $ - $ 2,006.9
Intersegment sales - 11.5 11.5 34.3 (45.8) -
Operating income 123.2 61.5 184.7 19.5 (34.1) 170.1
Operating income excluding special charges 137.0 74.3 211.3 19.6 (34.1) 196.8
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 125.8 62.8 188.6 17.4 (23.9) 182.1
Operating income excluding special charges 128.4 61.4 189.8 18.5 (23.9) 184.4
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
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Amounts in the above table have been reclassified in conformance with note 1 of
the notes to consolidated financial statements.
40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- -------------------------------------------------------
GEOGRAPHIC AREAS
The Company has significant net sales and long-lived assets in the following
geographic areas:
United Other
(millions) States Europe Countries Total
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
2000
NET SALES $1,437.4 $393.6 $292.5 $2,123.5
LONG-LIVED ASSETS (1) 322.0 440.0 64.0 826.0
- ----------------------------------------------------------------------------------
1999
Net sales $1,393.9 $349.8 $263.2 $2,006.9
Long-lived assets (1) 319.0 114.2 72.9 506.1
- ----------------------------------------------------------------------------------
1998
Net sales $1,291.2 $348.5 $241.4 $1,881.1
Long-lived assets (1) 345.3 102.6 90.0 537.9
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
(1) Long-lived assets include property, plant and equipment and intangible
assets, net of accumulated depreciation and amortization, respectively.
14. SUPPLEMENTAL FINANCIAL STATEMENT DATA
(millions) 2000 1999
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Inventories
Finished products
and work-in-process $ 153.5 $ 132.6
Raw materials 120.5 101.6
- ----------------------------------------------------------------------------------
$ 274.0 $ 234.2
- ----------------------------------------------------------------------------------
Property, plant and equipment
Land and improvements $ 25.2 $ 25.0
Buildings 200.3 192.7
Machinery and equipment 521.9 488.4
Construction in progress 32.6 28.9
Accumulated depreciation (407.0) (371.7)
- ----------------------------------------------------------------------------------
$ 373.0 $ 363.3
- ----------------------------------------------------------------------------------
Intangible assets
Cost $ 510.2 $ 196.8
Accumulated amortization (57.2) (54.0)
- ----------------------------------------------------------------------------------
$ 453.0 $ 142.8
- ----------------------------------------------------------------------------------
Investments and other assets
Investments $ 75.2 $ 61.2
Other assets 42.6 21.6
- ----------------------------------------------------------------------------------
$ 117.8 $ 82.8
- ----------------------------------------------------------------------------------
Other accrued liabilities
Payroll and employee benefits $ 78.2 $ 66.9
Sales allowances 69.1 40.6
Income taxes 28.7 27.1
Other 114.0 86.6
- ----------------------------------------------------------------------------------
$ 290.0 $ 221.2
- ----------------------------------------------------------------------------------
Other long-term liabilities
Other postretirement benefits $ 75.5 $ 72.6
Other 34.5 18.0
- ----------------------------------------------------------------------------------
$ 110.0 $ 90.6
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
(millions) 2000 1999 1998
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Depreciation $54.2 $52.5 $49.9
Research and development 24.9 21.4 16.9
Interest paid 39.7 33.0 37.3
Income taxes paid 69.8 55.3 49.0
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
15. SELECTED QUARTERLY DATA (UNAUDITED)
(millions except per share data) First Second Third Fourth
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
2000
NET SALES $462.4 $485.7 $495.9 $679.5
GROSS PROFIT 163.8 170.5 172.9 297.6
OPERATING INCOME 36.1 40.9 51.1 96.9
NET INCOME 24.4 24.2 31.3 57.6
EARNINGS PER SHARE
BASIC .35 .35 .46 .84
ASSUMING DILUTION .35 .35 .45 .84
DIVIDENDS PAID PER SHARE .19 .19 .19 .19
MARKET PRICE
HIGH 32.88 36.56 36.50 37.69
LOW 23.75 24.88 28.56 27.63
- ----------------------------------------------------------------------------------
1999
Net sales $441.5 $468.2 $476.8 $620.4
Gross profit 145.3 157.7 164.2 250.0
Operating income 32.6 13.2 41.2 83.1
Net income before
accounting change 18.2 1.0 25.4 53.9
Net Income 23.0 1.0 25.4 53.9
Earnings per share - basic
Net income before
accounting change .25 .01 .36 .76
Net income .32 .01 .36 .76
Earnings per share -
assuming dilution
Net income before
accounting change .25 .01 .35 .76
Net income .32 .01 .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
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
The following reclassifications have been made in the above presentation to the
quarterly results previously reported:
1. The cumulative impact from changing the method of determining the
market-related value of pension plan assets of $7.7 million ($4.8 million
after tax) has been reclassified from a special charge in the second
quarter of 1999 to a cumulative effect of accounting change in the first
quarter of 1999.
2. Royalty income, which was previously included in other income in 1999, has
been reclassified to be included in selling, general and administrative
expense. Amounts reclassified for the four quarters in 1999 were $1.4
million, $1.4 million, $1.6 million, and $2.0 million, respectively.
3. Amortization of goodwill, which was previously included in other income in
2000 and 1999, has been reclassified to be included in selling, general and
administrative expense. Amounts reclassified for the four quarters in 2000
were $1.3 million, $1.3 million, $1.3 million, and $3.3 million,
respectively. Amounts reclassified for the four quarters in 1999 were $1.4
million, $1.5 million, $1.3 million, and $1.2 million, respectively.
REPORT OF MANAGEMENT REPORT OF INDEPENDENT AUDITORS TO THE SHAREHOLDERS 41
- --------------------------------------------------------------------------------
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 generally accepted accounting
principles and include amounts based on management's estimates and judgments.
All other financial data in this report have 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, 2000 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/ Kenneth A. Kelly, Jr.
KENNETH A. KELLY, JR.
VICE PRESIDENT & CONTROLLER, CHIEF ACCOUNTING OFFICER
McCormick & Company, Incorporated
We have audited the accompanying consolidated balance sheets of McCormick &
Company, Incorporated and subsidiaries as of November 30, 2000 and 1999 and the
related consolidated statements of income, cash flows and shareholders' equity
for each of the three years in the period ended November 30, 2000. 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, 2000 and 1999 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended November 30, 2000 in conformity with accounting
principles generally accepted in the United States.
As discussed in Note 7 to the financial statements, the Company changed its
accounting method for calculating the market-related value of plan assets used
in determining the expected return-on-asset component of annual pension expense
in 1999.
/s/ Ernst & Young LLP
Baltimore, Maryland
January 23, 2001
42 HISTORICAL FINANCIAL SUMMARY
- -------------------------------------------
(millions except per share data) 2000 1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
For the year
Net Sales $2,123.5 $2,006.9 $1,881.1 $1,801.0 $1,732.5 $1,691.1 $1,529.4
Percent increase 5.8% 6.7% 4.4% 4.0% 2.4% 10.6% 9.2%
Operating income 225.0 170.1 182.1 170.5 92.6 171.7 86.7
Operating income
excluding special charges 226.1 196.8 184.4 167.3 150.7 167.8 157.2
Income from unconsolidated
operations 18.1 13.4 6.2 7.7 5.6 2.1 7.9
Net income - continuing
operations 137.5 98.5 103.8 97.4 43.5 86.8 42.5
Net income (1) (7) 137.5 103.3 103.8 98.4 41.9 97.5 61.2
- ------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE (2)
Earnings per share
- assuming dilution (6)
Continuing operations $1.98 $1.36 $1.41 $1.29 $0.54 $1.07 $0.52
Discontinued operations (1) - - - 0.01 0.08 0.13 0.23
Extraordinary item - - - - (0.10) - -
Accounting change (3) (7) - 0.07 - - - - -
Net earnings $1.98 $1.43 $1.41 $1.30 $0.52 $1.20 $0.75
Earnings per share
- basic (1) (3) (6) $2.00 $1.45 $1.42 $1.30 $0.52 $1.20 $0.75
Common dividends declared (4) $0.77 $0.70 $0.65 $0.61 $0.57 $0.53 $0.49
Market closing price - end
of year $37.25 $32.06 $33.38 $26.50 $24.63 $23.63 $19.00
Book value per share $5.25 $5.43 $5.35 $5.31 $5.75 $6.39 $6.03
- ------------------------------------------------------------------------------------------------------------------------
AT YEAR END
Total assets $1,659.9 $1,188.8 $1,259.1 $1,256.2 $1,326.6 $1,614.3 $1,555.7
Current debt 551.9 100.6 163.6 121.3 108.9 297.3 214.0
Long-term debt 160.2 241.4 250.4 276.5 291.2 349.1 374.3
Shareholders' equity 359.3 382.4 388.1 393.1 450.0 519.3 490.0
Total capital 1,071.4 724.4 802.1 790.9 850.1 1,165.7 1,078.3
- ------------------------------------------------------------------------------------------------------------------------
STATISTICS & RATIOS
Percentage of net sales
Gross profit margin 37.9% 35.7% 34.5% 34.9% 34.9% 34.5% 36.5%
Operating income 10.6% 8.5% 9.7% 9.5% 5.3% 10.2% 5.7%
Net income - continuing
operations 6.5% 4.9% 5.5% 5.4% 2.5% 5.1% 2.8%
Effective tax rate 35.8% 40.2% 36.0% 37.0% 38.7% 36.1% 40.5%
Depreciation and amortization $61.3 $57.4 $54.8 $49.3 $63.8 $63.7 $62.5
Capital expenditures $53.6 $49.3 $54.8 $43.9 $74.7 $82.1 $87.7
Economic Value Added (EVA) (8) $68.2 $42.3 $33.1 $23.4 $(44.6) - -
Return on equity 39.4% 28.4% 27.7% 25.2% 8.6% 20.3% 12.8%
Debt-to-total-capital 66.5% 47.2% 51.6% 50.3% 47.1% 55.5% 54.6%
Dividend payout ratio (5) 38.2% 38.0% 44.8% 47.6% 50.5% 44.4% 36.4%
Average shares outstanding
Basic 68.8 71.4 73.3 75.7 80.6 81.2 81.2
Assuming dilution 69.6 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 143.2 122.9 100.1 87.2
Operating income
excluding special charges 143.2 122.9 100.1 87.2
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) (7) 73.1 95.2 80.9 69.4
- ---------------------------------------------------------------------------------------
PER COMMON SHARE (2)
Earnings per share
- assuming dilution (6)
Continuing operations $1.01 $0.90 $0.73 $0.62
Discontinued operations (1) 0.21 0.26 0.25 0.21
Extraordinary item - - - -
Accounting change (3) (7) (0.33) - - -
Net earnings $0.89 $1.16 $0.98 $0.83
Earnings per share
- basic (1) (3) (6) $0.90 $1.19 $1.01 $0.86
Common dividends declared (4) $0.45 $0.40 $0.31 $0.24
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 761.5 897.9 675.0 606.3
- ---------------------------------------------------------------------------------------
STATISTICS & RATIOS
Percentage of net sales
Gross profit margin 38.5% 38.9% 36.9% 36.0%
Operating income 10.2% 9.3% 7.8% 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
Economic Value Added (EVA) (8) - - - -
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
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.
(7) IN 1999, THE COMPANY CHANGED ITS ACTUARIAL METHOD FOR COMPUTING PENSION
EXPENSE. THE ACCOUNTING CHANGE RESULTED IN A $4.8 AFTER-TAX ADJUSTMENT.
(8) THE COMPANY BEGAN REPORTING EVA IN THE 1996 ANNUAL REPORT.
McCORMICK WORLDWIDE 43
---------------------------
U.S.A. OUTSIDE U.S.A.
CONSOLIDATED OPERATING UNITS CONSOLIDATED OPERATING UNITS McCORMICK PESA, S.A. DE C.V.
Mexico City, Mexico
FOOD SERVICE DIVISION DESSERT PRODUCTS INTERNATIONAL, S.A.S. (51%) Lazaro Gonzalez
Hunt Valley, Maryland Carpentras, France MANAGING DIRECTOR
Charles T. Langmead Thierry Henault
VICE PRESIDENT & GENERAL MANAGER PRESIDENT DIRECTEUR GENERAL McCORMICK S.A.
Regensdorf Z.H., Switzerland
FRITO WORLDWIDE DIVISION DUCROS, S.A.S. Michael R. Smith
Hunt Valley, Maryland Carpentras, France MANAGING DIRECTOR
Andrew Fetzek, Jr. Thierry Henault
VICE PRESIDENT & GENERAL MANAGER PRESIDENT DIRECTEUR GENERAL McCORMICK (U.K.) LIMITED
Haddenham, England
GLOBAL RESTAURANT DIVISION LA CIE McCORMICK CANADA CO. John C. Molan
Hunt Valley, Maryland London, Ontario, Canada MANAGING DIRECTOR
Paul C. Beard Mark T. Timbie
VICE PRESIDENT & GENERAL MANAGER PRESIDENT McCORMICK FOODSERVICE
LIMITED
McCORMICK FLAVOR DIVISION McCORMICK DE CENTRO AMERICA, Haddenham, England
Hunt Valley, Maryland S.A. DE C.V. Michael R. Smith
Randal M. Hoff San Salvador, El Salvador MANAGING DIRECTOR
VICE PRESIDENT & GENERAL MANAGER Arduino Bianchi
MANAGING DIRECTOR OY McCORMICK AB
U.S. CONSUMER PRODUCTS DIVISION Helsinki, Finland
Hunt Valley, Maryland McCORMICK FLAVOUR GROUP Risto J. Maila
Robert W. Schroeder Haddenham, England MANAGING DIRECTOR
PRESIDENT, U.S. CONSUMER FOODS James M. Morrisroe
MANAGING DIRECTOR SHANGHAI McCORMICK FOODS
McCORMICK PACKAGING GROUP COMPANY, LIMITED (90%)
Donald E. Parodi McCORMICK GLENTHAM (PTY) Shanghai, People's Republic of China
VICE PRESIDENT LIMITED Victor K. Sy
Midrand, South Africa PRESIDENT
SETCO, INC. Jonathan P. Eales
Anaheim, California MANAGING DIRECTOR AFFILIATES OUTSIDE THE U.S.A.
Donald E. Parodi
PRESIDENT McCORMICK FOODS AUSTRALIA AVT-McCORMICK INGREDIENTS
PTY. LTD. LIMITED (50%)
TUBED PRODUCTS, INC. Clayton, Victoria, Australia Cochin, India
Easthampton, Massachusetts Timothy J. Large
Stephen J. Rafter MANAGING DIRECTOR McCORMICK DE MEXICO,
PRESIDENT S.A. DE C.V. (50%)
McCORMICK GLOBAL INGREDIENTS Mexico City, Mexico
U.S.A. AFFILIATES LIMITED
Grand Cayman, Cayman Islands McCORMICK KUTAS FOOD SERVICE
McCORMICK FRESH HERBS, L.L.C (50%) Albert F. Goetze, III LTD. (50%)
Commerce, California MANAGING DIRECTOR Haddenham, England
SIGNATURE BRANDS, L.L.C. (50%) McCORMICK (GUANGZHOU) FOOD McCORMICK-LION LIMITED (49%)
Ocala, Florida COMPANY, LIMITED. Tokyo, Japan
Guangzhou, People's Republic of China
SUPHERB FARMS (50%) Victor K. Sy McCORMICK PHILIPPINES, INC. (50%)
Turlock, California MANAGING DIRECTOR Manila, Philippines
McCORMICK INGREDIENTS P.T. SUMATERA TROPICAL SPICES (30%)
SOUTHEAST ASIA PRIVATE LIMITED Padang, Sumatera, Indonesia
Jurong, Republic of Singapore
Russell Eves STANGE (JAPAN) K.K. (50%)
MANAGING DIRECTOR Tokyo, Japan
44 INVESTOR INFORMATION
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McCormick & Company, Incorporated
18 Loveton Circle
Sparks, MD 21152-6000
U.S.A.
(410) 771-7301
www.mccormick.com
STOCK INFORMATION
New York Stock Exchange
Symbol: MKC
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STOCK DIVIDEND DATES - 2001
RECORD DATE PAYMENT DATE
04/02/01 04/12/01
06/29/01 07/12/01
09/28/01 10/11/01
12/31/01 01/22/02
There were approximately 11,000 shareholders of record, approximately 4,000
holders in McCormick's 401(k) plan for employees, and an estimated 15,000
"street-name" beneficial holders whose shares are held in names other than their
own, for example, in brokerage accounts.
INVESTOR INQUIRIES
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:
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 www.mccormick.com
TRANSFER AGENT AND REGISTRAR
Wells Fargo Bank Minnesota, N.A., Shareowner Services,
161 North Concord Exchange Street,
South St. Paul, MN 55075-1139
(800) 468-9716, or
www.wellsfargo.com/com/shareowner_services
INVESTOR SERVICES PLAN
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 Wells Fargo Shareowner Services
at:
(800) 468-9716
MISSING OR DESTROYED CERTIFICATES OR CHECKS
Shareholders whose certificates or dividend checks are missing or destroyed
should notify Wells Fargo Shareowner Services immediately so that a "stop" may
be placed on the old certificate or check and a new certificate or check may be
issued.
ADDRESS CHANGE
Shareholders should advise Wells Fargo Shareowner
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.
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 Wells Fargo Shareowner 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 Wells Fargo
Shareowner 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.
The people in this report's photographs are employees and their families.
Adler Design Group designed this year's report.
DIRECTORS AND OFFICERS 45
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BOARD OF DIRECTORS CORPORATE OFFICERS
Executive Committee of the Board Robert J. Lawless Christopher J. Kurtzman
Robert J. Lawless CHAIRMAN, PRESIDENT & VICE PRESIDENT & TREASURER
Francis A. Contino CHIEF EXECUTIVE OFFICER
Robert G. Davey Roger T. Lawrence
Carroll D. Nordhoff Susan L. Abbott VICE PRESIDENT - QUALITY
VICE PRESIDENT - REGULATORY & ASSURANCE
Barry H. Beracha * ENVIRONMENTAL AFFAIRS
CHAIRMAN OF THE BOARD & C. Robert Miller, II
CHIEF EXECUTIVE OFFICER J. Allan Anderson VICE PRESIDENT - MANAGEMENT
THE EARTHGRAINS COMPANY SENIOR VICE PRESIDENT INFORMATION SYSTEMS
James T. Brady + Allen M. Barrett, Jr. Carroll D. Nordhoff
MANAGING DIRECTOR, MID-ATLANTIC VICE PRESIDENT - CORPORATE EXECUTIVE VICE PRESIDENT
BALLANTRAE INTERNATIONAL, LTD. COMMUNICATIONS
Robert W. Skelton
Edward S. Dunn, Jr. * Francis A. Contino VICE PRESIDENT, GENERAL
C.J. MCNUTT, CHAIR EXECUTIVE VICE PRESIDENT & COUNSEL & SECRETARY
ERIVAN K. HAUB SCHOOL OF BUSINESS CHIEF FINANCIAL OFFICER
SAINT JOSEPH'S UNIVERSITY Gordon M. Stetz, Jr.
Robert G. Davey VICE PRESIDENT - ACQUISITIONS
Dr. Freeman A. Hrabowski, III + * PRESIDENT - GLOBAL INDUSTRIAL GROUP & FINANCIAL PLANNING
PRESIDENT
UNIVERSITY OF MARYLAND Stephen J. Donohue Karen D. Weatherholtz
BALTIMORE COUNTY VICE PRESIDENT - STRATEGIC SOURCING SENIOR VICE PRESIDENT -
HUMAN RELATIONS
John C. Molan Dr. Hamed Faridi
PRESIDENT, EUROPE, MIDDLE EAST & AFRICA VICE PRESIDENT - Jeryl Wolfe
RESEARCH & DEVELOPMENT VICE PRESIDENT -
Robert W. Schroeder GLOBAL BUSINESS SOLUTIONS
PRESIDENT, U.S. CONSUMER FOODS H. Grey Goode, Jr.
VICE PRESIDENT - TAXES Joyce L. Brooks
William E. Stevens + * ASSISTANT TREASURER -
CHAIRMAN AND CHIEF EXECUTIVE OFFICER Randall B. Jensen FINANCIAL SERVICES
WESMARK GROUP VICE PRESIDENT - OPERATIONS RESOURCES
W. Geoffrey Carpenter
Karen D. Weatherholtz Kenneth A. Kelly, Jr. ASSOCIATE GENERAL COUNSEL &
SENIOR VICE PRESIDENT - HUMAN RELATIONS VICE PRESIDENT & CONTROLLER ASSISTANT SECRETARY
David P. Smith
ASSISTANT TREASURER
J. Gregory Yawman
ASSOCIATE COUNSEL &
ASSISTANT SECRETARY
+ AUDIT COMMITTEE MEMBER
* COMPENSATION COMMITTEE MEMBER
[PHOTO] (shown l/r front)
Hrabowski, Dunn, Weatherholtz,
Contino; (middle) Lawless,
Molan, Stevens, Beracha;
(back) Nordhoff, Davey,
Schroeder, Brady
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