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People Products Growth
[McCORMICK LOGO] McCORMICK & COMPANY 2001 ANNUAL REPORT
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CONTENTS
1 Letter to Shareholders
5 Financial Highlights
6 Report on Operations
20 A Spirit of Community
22 Management's Discussion and Analysis
31 Historical Financial Summary
32 Report of Management
32 Report of Independent Auditors
33 Consolidated Statement of Income
34 Consolidated Balance Sheet
35 Consolidated Statement of Cash Flows
36 Consolidated Statement of Shareholders' Equity
37 Notes to Consolidated Financial Statements
46 McCormick Worldwide
47 Investor Information
48 Corporate Officers
49 Board of Directors
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 and built on a
culture of Multiple Management, McCormick has approximately 8,400 employees.
ANNUAL MEETING
The annual meeting will be held at 10 a.m., Wednesday, March 20, 2002, at
Marriott's Hunt Valley Inn, 245 Shawan Road (EXIT 20A OFF I-83 NORTH OF
BALTIMORE), Hunt Valley, Maryland 21031.
CHINESE FIVE-SPICE
Centuries ago in China, it was believed that the universe was composed of a fine
balance of five elements: water, metal, wood, fire and earth. This notion of
balance resonated throughout many aspects of Chinese life, including cooking.
Chinese Five-Spice embodies this philosophy as it balances equal parts anise,
Szechuan peppercorn, cinnamon, cloves and fennel seed into a blend that is
pungent, fragrant, hot and slightly sweet - all at once. This year's annual
report is scented with Chinese Five-Spice.
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LETTER TO SHAREHOLDERS
TOTAL SHAREHOLDER RETURN
Includes Dividends
[GRAPH]
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<Caption>
MKC S&P FOOD S&P 500
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1 year 18.29% 3.13% -12.24%
3 year 11.30% -0.69% 0.16%
10 year 9.94% 10.43% 14.04%
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Fiscal 2001 was a year of success and achievement for McCormick. We continued
our solid financial performance, with four more quarters of strong sales and
outstanding earnings growth. We successfully integrated Ducros, our largest
acquisition ever. Our strategies for growth generated strong momentum. And, most
importantly, we provided our shareholders with a solid return on their
investment.
During 2001, in the midst of a softening global economy, the world was
struck by the tragic events of September 11th. All of us at McCormick are
saddened at the loss of so many lives and extend our sympathy to the many
families affected by the attacks. These events resulted in severe financial
problems in many industries, and a marked downturn in worldwide economic growth
and stability. While our financial results were not significantly impacted, we
operate today in a less certain environment.
Despite the uncertainty, we have no doubt that we will continue to move
forward. Many factors have combined to give us a strong foundation for growth,
but three in particular stand out: the talents and dedication of our employees;
the loyalty and confidence of our many customers around the world; and the
support of shareholders who believe in the Company.
SOLID FINANCIAL PERFORMANCE
As shown on page 5, net sales in 2001 rose 12%, gross profit margin reached 41%,
and earnings per share, excluding special charges, increased 11%. This financial
performance was among the best in the food industry. We also improved our
debt-to-total-capital from a year earlier and raised our quarterly dividend by
5%. Our dividend, combined with our higher stock price at year-end, provided a
total return to shareholders of 18% for the year.
Including fiscal 2001, McCormick has now achieved:
o 12 consecutive quarters of meeting or exceeding Wall Street earnings
estimates
o Five consecutive years of increased economic value added
o 15 consecutive years of dividend increases (and 77 consecutive years of
dividend payments)
While the year 2001 was another record year for McCormick, the U.S. and
global economies did not fare as well. Recognizing that we are not immune to the
impact of these difficult financial times on our customers and consumers, the
Company formalized a plan to more rapidly streamline its operations to meet the
challenges that we and all companies will face in 2002 and beyond. A more
complete description can be found on pages 27 and 28.
SEGMENT RESULTS
The consumer business achieved continued growth in sales volume and
profitability. We increased sales of our branded products through effective
promotion, advertising and merchandising and through the introduction of new
products. In the U.S., we relaunched our gourmet product line to improve our
competitive position. In France, we strengthened same-store sales by
implementing a new merchandising system. And in China, we continued to penetrate
new cities to expand the availability of the McCormick brand.
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Our industrial business had an excellent year. We developed the flavors for
several successful new product launches for our restaurant and snack food
customers. Sales of U.S. snack seasonings grew 12%. With a 21% increase in 2001
sales, China now accounts for 4% of sales for this segment. Once again, our
profit margins improved as we sold more value-added, technically superior
products.
In 2001, our packaging business was impacted by the softening economy which
caused a dramatic decline in demand for many of our customers' products,
particularly in the personal care industry. We have taken appropriate actions to
adjust our cost structure to the lower demand. We are also vigorously pursuing
new business with targeted accounts.
KEY AREAS OF FOCUS IN 2001
We focused our resources on three primary initiatives in 2001: Ducros, Beyond
2000 (B2K) and new product innovation.
In August 2000, we acquired Ducros S.A., the leading spice business in
Europe. Ducros was the largest acquisition in the history of the Company, and a
successful integration was essential. At the time of the acquisition, we
determined that a realignment of our manufacturing facilities in France and the
U.K. would provide greater efficiency and reduce costs. Today, consumer products
for the European market are manufactured primarily in our facilities in France,
while industrial production is located in the U.K. Projects to improve
procurement and other functions are under way and will yield further cost
reductions. We are pleased with the progress of the integration and the
financial results for Ducros in 2001. As we move forward, we are approaching
Europe as an integrated market. Our prospects for future growth in this market
are excellent.
B2K is a global initiative designed to improve our business processes and
support those processes with state-of-the-art information technology. Through
B2K we will link different parts of our business with an integrated system,
provide broader access to information, standardize processes and empower our
employees. We have put together a team of more than 200 employees and
consultants who are working full-time to ensure a successful outcome. Following
extensive training of employees, two of our operating units will begin to use
the new technology and processes in mid-year 2002. Other major operating units
will adopt B2K
BOB LAWLESS WITH ROD GORDON, PLANT MANAGER OF McCORMICK'S HUNT VALLEY PLANT
[photo]
2
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processes over the following two years. We are excited about the increased
efficiencies and deeper business knowledge that will result from this effort.
B2K creates a platform for future profit improvement, better working capital
management and enhanced relationships with our trading partners on a global
scale.
Product innovation at McCormick begins with the identification of consumer
trends and interests. We track the latest flavors and most popular dishes. We
even examine food preparation and cooking methods. Taste is paramount. A PARADE
MAGAZINE survey, published in November 2001, reported that 82% of consumers say
that taste - not cost - determines which foods they purchase and prepare. Our
ability to identify flavors that consumers prefer benefits both our consumer and
industrial businesses. In 2001, 11% of our net sales came from new products
developed in the last three years.
CREATING MOMENTUM
An important source of our success is our growth strategy, which creates the
momentum needed to continue moving McCormick forward. This strategy focuses on
four objectives:
o improve margins in every segment
o deliver preferred flavors
o partner with customers to grow both sales and profits
o invest in acquisitions
Margin improvement is a key driver of our success. After falling to a low of
34.5% in 1998, gross profit margin has risen steadily, reaching a record 40.9%
in 2001. We have accomplished this improvement by increasing sales of
higher-margin, value-added products. We also have reduced costs - through
customer and product segmentation; lower-cost procurement of materials and
services on a more global basis; use of trading exchanges in areas such as
logistics; and vigilance in expense containment. B2K will enable us to further
increase gross profit and operating profit margins over the next several years.
Besides leading to higher earnings, margin improvement through B2K and other
initiatives will provide the funds for future investment in new product
development, brand marketing and acquisitions.
We recently coined the phrase "consumer-preferred flavors." The phrase sums
up our ability to identify and deliver flavors that consumers like best, and it
applies to both our consumer and industrial businesses. In our consumer
business, this ability guides our investment in new products and in existing
products that have the potential for future growth. In our industrial business,
we expand our flavor ability through our Technical Innovation Center. While our
sensory capabilities are already well recognized and among the best in the
industry, we have been investing in staff, equipment and facilities at the
Center to make them even better.
In our consumer business, we form sales-based supply contracts with our
customers in several key markets. These agreements reinforce our position as
category leader and make higher sales a shared objective. In our industrial
business, we have built many long-term relationships in which we play an
increasingly important role in developing the next blockbuster snack seasoning,
sandwich sauce or beverage flavor. Across all of our businesses, we have the
skills, determination, market knowledge and resources to create partnerships in
which McCormick and its customers can enjoy success.
OUR CORE VALUES
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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.
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Acquisitions remain an important component of our growth strategy. We
currently see many opportunities to acquire a brand or product or add a
technical capability that will build our leadership position in our categories.
We are actively reviewing such opportunities.
In all aspects of our growth strategy, effective execution is key. We
recognize this reality and are supporting our strategy with sound programs that
are well-defined and measurable.
MANAGEMENT CHANGES
During the past year, we elected a new Board member: Dr. Michael Fitzpatrick,
President and Chief Operating Officer of Rohm and Haas Company. Two corporate
officers retired: Al Anderson, Senior Vice President, in April 2001; and Randy
Jensen, Vice President - Operations Resources, in January 2002. We thank Al and
Randy for their years of service and their contributions to the prosperity of
our Company. Mike Navarre was named Vice President - Operations.
A POSITIVE OUTLOOK
Interest in flavors continues to expand, and flavors are the essence of what
McCormick delivers. Our portfolio of strong brands and industrial products has
created a platform for continuous growth through internal product development
and acquisitions. As we optimize our supply chain, we are generating higher
earnings and providing funds for future investment. Our employees contribute to
the favorable outlook as well. They are among the most talented in the industry,
and our emphasis on continued professional development helps them maintain that
edge.
We believe it is important to communicate to our shareholders our specific
financial objectives for the coming year. Our goals for 2002 include sales
growth of 4-6%, consistent with our long-term objective for annual sales growth.
We also expect to increase earnings per share 9-11%, slightly below our
long-term objective of 10-12% per year. We have moderated our expectations for
the current year as a result of a less certain economic outlook, the
anticipation of higher expenses including benefit costs, and our commitment to
continue our investment in B2K, brand marketing and other growth initiatives.
We all know that competition is fierce, but we wouldn't have it any other
way. Tough competition requires ongoing improvement - higher levels of research
and development, better systems and processes and investment in continuous
training. We have responded in all these areas. We have also worked hard to
build long-term relationships with prominent customers. We believe we have the
right strategy for growth and the ability to achieve superior financial
performance.
I am proud of our Company and have the utmost confidence in our ability to
deliver increased value to McCormick shareholders.
/S/ ROBERT J. LAWLESS
ROBERT J. LAWLESS, CHAIRMAN, PRESIDENT & CEO
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FINANCIAL HIGHLIGHTS
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FOR THE YEAR ENDED NOVEMBER 30 (MILLIONS EXCEPT PER SHARE DATA)
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2001 2000 % change
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AS REPORTED:
Net sales $ 2,372.3 $ 2,123.5 11.7%
Gross profit margin 40.9 % 37.9 %
Operating income $ 240.6 $ 225.0 6.9%
Net income 146.6 137.5 6.6%
Earnings per share - assuming dilution 2.09 1.98 5.6%
Dividends paid per share $ .80 $ .76 5.3%
Market price per share - close 43.00 37.25 15.4%
Average shares outstanding - assuming dilution 70.1 69.6 .7%
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OTHER PERFORMANCE MEASURES:
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Excluding special charges:
Gross profit margin 41.0 % 37.9%
Operating income $ 252.3 $ 226.1 11.6%
Net income 154.3 138.3 11.6%
Earnings per share - assuming dilution 2.20 1.99 10.6%
Economic value added (EVA) 78.7 68.2 15.4%
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See page 22 for definition of "Other Performance Measures."
NET SALES
IN BILLIONS
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1997 1998 1999 2000 2001
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1,801.0 1,881.1 2,006.9 2,123.5 2,372.3
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EARNINGS PER SHARE -
ASSUMING DILUTION
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1997 1998 1999 2000 2001
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$1.30 $1.41 $1.43 $1.98 $2.09
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ECONOMIC VALUE ADDED
IN MILLIONS
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1997 1998 1999 2000 2001
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23.4 33.1 42.3 68.2 78.7
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REPORT ON OPERATIONS
RECORD SALES & PROFITS
As in previous years, the Company in 2001, set specific financial goals for net
sales, gross profit margin and earnings per share. The goals are shown in the
table below.
Net sales growth was 11.7%. Excluding the impact of foreign exchange, sales
increased 13.2%. When the incremental sales from Ducros in the first three
quarters is also excluded, the increase achieved was 3.8%. Foreign exchange in
2001 was primarily impacted by currencies in the U.K., France, Australia and
Canada. Higher volumes were the primary driver of sales growth, with a lower
contribution from product mix and pricing.
Sales rose 20.3% in our consumer business due to the addition of Ducros and
growth in many primary markets. In the industrial business, sales increased 4.8%
with gains from Ducros and key customer groups - restaurants, warehouse clubs
and food processors. Our packaging business experienced softness in the second
half of 2001, when its cosmetic and personal care customers experienced
reduced demand for their products. Packaging sales for the year increased 0.9%.
Gross profit margin has exceeded our targets for three years in a row. The
2001 gross profit margin was 40.9%, an increase of 300 basis points over the
37.9% gross profit margin achieved in 2000. Approximately two-thirds of this
improvement was due to the acquisition of Ducros, which has a higher gross
profit margin (offset in part by higher operating expenses). Since 1998, we have
increased gross profit margin by 640 basis points. We have achieved the bulk of
this increase through cost reduction initiatives and a shift in product mix to
more value-added, higher-margin products. Cost reduction initiatives under way
include procurement on a more global basis, supplier rationalization, effective
customer and product segmentation, capital expenditures to improve efficiencies,
and careful control of expenses. The shift to more value-added, higher-margin
products has been aided by the acquisition of Ducros and the introduction of
successful new products in our industrial business.
At the end of 2001, we identified several actions that would streamline
operations and improve profitability. Accordingly, we recorded special charges
of $11.7 million in the fourth quarter. We expect to
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GOAL ACHIEVED
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Net Sales Growth 12-14% 13.2% (1)
Gross Profit Margin 40% 41.0% (2)
Earnings Per Share Growth 8-10% 10.6% (2)
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(1) EXCLUDES THE EFFECT OF FOREIGN CURRENCY EXCHANGE.
(2) EXCLUDES SPECIAL CHARGES. SEE FINANCIAL HIGHLIGHTS ON PAGE 5.
GROSS PROFIT MARGIN
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<Caption>
1997 1998 1999 2000 2001
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Goals 35.5% 36.7% 40.0%
Actual 34.9% 34.5% 35.7% 37.9% 40.9%
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McCORMICK HAS EXCEEDED ITS GOAL FOR GROSS PROFIT MARGIN IMPROVEMENT IN EACH
OF THE LAST THREE YEARS
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BEYOND 2000:
FUEL FOR GROWTH
Beyond 2000 (B2K) is a global initiative designed to improve our business
processes and support those processes with state-of-the-art information
technology.
B2K will improve profitability and allow us to invest in programs to grow sales
and margins. It is our "fuel for growth."
To ensure a successful outcome, McCormick has more than 200 key employees and
consultants dedicated to this effort. The Company is providing the necessary
capital for the project and also ample time, spreading the implementation of
B2K over several years.
Employees like Denise Layfield are full-time members of the B2K team. Denise has
built an expertise in production and logistics during her 25-year career at
McCormick.
"The change in processes and technology from B2K will provide the infrastructure
and tools to optimize our supply chain, reducing cost and improving inventory
efficiency."
DENISE LAYFIELD, DIRECTOR - SUPPLY CHAIN STRATEGY [PHOTO]
DENISE IS WORKING WITH BOTH McCORMICK EMPLOYEES AND CONSULTANTS ON B2K TO
IMPROVE PROCESSES AND INCREASE PROFITABILITY.
7
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record an additional $20.9 million of charges in 2002. These charges relate to
costs associated with the streamlining actions, which include facility
consolidations, other workforce reductions and reorganization of several joint
ventures.
The fourth quarter of 2001 was our 12th consecutive quarter of meeting or
exceeding Wall Street estimates for earnings per share. As projected early in
2001, the Ducros acquisition resulted in 10(cent) dilution per share. Excluding
the impact of special charges, earnings per share increased 10.6% for the year.
The strong gain in earnings was due to the increases in sales and gross profit
margin as well as a lower tax rate, lower interest rates and outstanding results
from our unconsolidated operations. These improvements also enabled us to fund
initiatives such as B2K.
We achieved improvements in other key financial measures as well. We reduced
our debt-to-total-capital ratio to 58.3% at November 30, 2001, from 65.8% a year
earlier. We expect to reach a 45-55% level early in 2003, although future
acquisitions could alter this projection. Economic value added (EVA) for 2001
rose to $78.7 million from $68.2 million in 2000.
PROMISING GROWTH PROSPECTS
The Company's strategies for growing sales include promoting existing brands and
introducing new products. We focus our marketing resources on those branded
products that offer convenience and taste. This approach has resulted in sales
gains of over 20% on certain product lines. We also apply our superior sensory
capabilities to develop and deliver consumer-preferred flavors. This is
WE RELAUNCHED OUR CONSUMER WEB SITE AT WWW.MCCORMICK.COM IN 2001. IN ADDITION
TO OUR LARGE RECIPE DATABASE AND EXTENSIVE PRODUCT INFORMATION, OUR WEB SITE
OFFERS INTERACTIVE FEATURES SUCH AS E-MAIL NEWSLETTERS, PERSONALIZED RECIPE
RECOMMENDATIONS, SWEEPSTAKES AND BULLETIN BOARDS ON SEASONAL TOPICS. CONSUMER
REACTION HAS BEEN VERY FAVORABLE. WITH THE DRAMATIC GROWTH IN OUR SITE
TRAFFIC AND EXPANDED CONSUMER DATABASE, WE HAVE IMPROVED OUR ABILITY TO
COMMUNICATE WITH CONSUMERS IN A TARGETED, PERSONALIZED WAY.
[graphic]
2001 NET SALES
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Spices & Herbs 37%
Value-Added 63%
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MORE THAN 60% OF SALES IN 2001 WERE VALUE-ADDED PRODUCTS.
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DUCROS:
A PLATFORM FOR GROWTH
In August 2000, McCormick acquired Ducros S.A., the number one consumer spice
and herb company in Europe and the second largest spice company worldwide.
This was the largest acquisition in the history of the Company. The objective
was to create a platform for growth in Europe, and a successful integration was
a top priority in 2001.
Through five quarters, the financial results of Ducros have met expectations and
the integration has proceeded well. Manufacturing facilities have been
realigned, with production centered in France for consumer products and in the
U.K. for industrial products.
Vital to this particular effort was Hubert Lacote, a Ducros employee responsible
for the packaging engineering during the realignment of plants.
"We at Ducros are pleased to be fully participating in projects such as the
plant realignment, as well as the ongoing, daily operation of the
business."
HUBERT LACOTE, ENGINEERING MANAGER
HUBERT WORKED WITH OTHER EMPLOYEES IN FRANCE AND THE U.K. TO REALIGN OUR
EUROPEAN PRODUCTION FACILITIES IN 2001. AS A RESULT OF THEIR EFFORTS, WE HAVE
INCREASED EFFICIENCY AND ARE WELL-POSITIONED TO SUPPLY OUR CUSTOMERS.
[photo]
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particularly important in our industrial business, where our customers are
actively seeking new flavors for their products. In Europe, the addition of
Ducros has created a platform for sales growth. And in China, we are growing
with our industrial customers and moving into additional regions to supply our
branded products to consumers. With these varied opportunities for growth, we
expect to achieve long-term annual sales increases of 4-6% with increased volume
of current products, the addition of new products, success in new distribution
and pricing actions.
Gross profit margin will continue to rise as we introduce more value-added,
higher-margin products into our product mix. In the supply chain area, we have
accelerated our global approach to procurement across our worldwide businesses,
and have begun other initiatives to improve our efficiency internally and also
externally with customers and suppliers. Across all of our operations, we will
continue to be vigilant in controlling expenses.
One of our greatest opportunities for margin gains lies in a strategic
initiative we call Beyond 2000 (B2K). Begun in late 1999, B2K is a global
program of business process improvement enabled by state-of-the-art information
technology. This program will optimize our supply chain, reengineer our back
office processes, strengthen our product development and extend collaboration
with our trading partners. Two of our operating units will begin to use the new
technology and processes in mid-year 2002. Other major operating units will
convert over the following two years. B2K will not only enhance our ability to
deliver profitable growth and optimize working capital, but will also create the
eBusiness capabilities that our world-class customers will require.
We are confident that these initiatives will enable us to increase gross
profit and operating profit margins further. For 2002, our objective is to
increase gross profit margin by 50-75 basis points.
Long-term, we expect the increases in sales and profit margin to grow annual
earnings per share by 10-12%. Our goal in 2002 is to increase earnings per share
(excluding special charges) by 9-11%. We have lowered the objective for 2002, in
anticipation of incremental costs associated with the implementation of B2K and
due to the state of the economy. Acquisitions will continue to be part of our
growth plan; they will extend our product range and geographic reach by adding
leading brands and strategic industrial businesses.
We believe that our strategies for growth are effective and sustainable, and
that we have talented people who are well placed and highly motivated. We foster
their talents and motivation through career development opportunities, focused
training and appropriate incentives. Team structure, open dialogue and employee
participation through our Multiple Management program encourage the exchange of
ideas and promote excellence in performance.
Our financial results in recent years have been among the best in the food
industry. We believe that the outlook for the Company continues to be favorable.
Our products and people have us well positioned for future growth; we have the
right growth strategies in place; and we are committed to the creation of
shareholder value.
[photo]
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REPORT ON OPERATIONS
CONSUMER BUSINESS
McCormick's consumer business provides spices, herbs, extracts, proprietary
seasoning blends, sauces and marinades to retail outlets such as grocery, drug
and mass merchandise stores. We have operations in North America, Central
America, Europe, Australia and China. Joint ventures are located in the U.S.,
Mexico, France, the Philippines and Japan. From these operations, our consumer
products are sold throughout the world.
In 2001, net sales for the consumer business grew 20.3% over 2000. Excluding
the impact of foreign exchange, sales increased 22.0%. When the incremental
impact of Ducros for the first three quarters is also excluded, net sales grew
4.1%. Excluding only special charges, operating income grew 5.9%. Primarily due
to the lower operating margin of the Ducros business, operating income,
excluding special charges, as a percent of net sales decreased to 14.0% from
15.9% in 2000.
MARKET OVERVIEW
Interest in bold flavors and exotic varieties is increasing. One indication is
that consumers are purchasing more spices and herbs. In all of our primary
markets, spices and herbs sold through retail outlets increased in 2001. The
most significant increases were in the U.K. and France (+6%), Canada (+8%) and
Australia (+7%).
We are increasing sales by introducing exciting new products and by
improving the promotion, advertising and merchandising of our branded products.
McCormick offers a full line of branded products which competes with other
national brands, regional brands and private label products. Due to customer
preference, McCormick is often the only national brand in a store. Additionally,
McCormick is often the supplier of choice for the private label products.
McCormick has the leading retail branded share in many geographic markets,
including the U.S., Canada, U.K., France, Belgium, Spain, Portugal, China and
other smaller markets. McCormick's branded share in the U.S. and Canada exceeds
40% and 50%, respectively, and in the U.K. and France, it exceeds 35% and 55%,
respectively.
The retail industry has consolidated in markets around the world, creating
larger customers. Efforts by these retailers to reduce inventory in the
distribution system had a modest impact on our sales in 2001. Such efforts are
still under way. Nevertheless, we continue to benefit from strong relationships
with our customers. We have built those relationships by applying our category
management, product development and promotional capabilities. We also benefit
from multi-year,
[Photograph]
2001 NET SALES
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Americas 59%
Europe 37%
Asia/Pacific 4%
</Table>
OPERATING PROFIT
(Excluding special charges)
IN MILLIONS
<Table>
<Caption>
1999 2000 2001
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137.0 157.7 167.0
</Table>
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sales-based customer supply contracts in several key markets. These contracts,
which often include the supply of private label products, make growing sales a
shared objective.
2001 PERFORMANCE HIGHLIGHTS
o NEW PRODUCTS BUILD SALES. New products launched in the last three years
accounted for 7% of McCormick's 2001 consumer business sales.
o GOURMET LINE REVITALIZED IN U.S. Cooking programs on cable networks
have helped to drive the demand for exotic new spices and blends. To
meet that demand, in 2001 we relaunched our gourmet line with new
products, attractive labels and recipe ideas.
o BETTER MERCHANDISING IN FRANCE. We rolled out a new in-store display
system and introduced 26 new items in France last year. The system,
which features a more consumer-focused layout, is now being used by the
majority of our key accounts. Initial consumer reaction has been very
positive.
o DISTRIBUTION GAINS IN CANADA. As of June 2001, our products became
available in all major Canadian food chains, bringing our market share
above 50%.
o RAPID GROWTH IN CHINA. The number of cities where McCormick product is
available increased 30% in 2001. This broader distribution, together
with product promotion and new items, increased sales in our consumer
business in China by 16%.
STRATEGY AND OUTLOOK
McCormick's goal for its consumer business is to profitably grow branded sales
volume in markets around the world. The Company will accomplish this through
VALUE PRICING; EFFECTIVE USE OF PROMOTIONS, ADVERTISING AND MERCHANDISING; NEW
PRODUCT DEVELOPMENT; AND STRATEGIC ACQUISITIONS.
In the U.S., the Company continues to achieve volume gains through the Quest
program, a pricing and promotional initiative between McCormick and its
customers. The program, which has been rolled out to most of McCormick's retail
customers, provides pricing for key items that is net of certain discounts and
allowances. The goal of the program is to enable customers to benefit through
higher volumes and consumers to benefit through better price value.
In markets around the world, we are focusing our promotional, advertising
and merchandising efforts on products with the highest growth potential. We can
achieve excellent growth
[Photograph]
2001 NET SALES
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New Products 7%
(untitled) 93%
</Table>
NEW PRODUCTS LAUNCHED IN
THE LAST THREE YEARS ACCOUNTED
FOR 7% OF 2001 CONSUMER BUSINESS
SALES.
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CHINA:
RAPID SALES GROWTH
Sales in China, while still a small part of McCormick's consumer business, have
grown at a compound annual rate of 11% in the last five years.
The McCormick brand in China includes spices and herbs, seasoning mixes,
ketchup, soy sauce, gelatin, ice cream toppings and jams.
In China, more than 30 cities have a population exceeding one million. In 2001,
the number of cities where our products are distributed increased by 30%.
Zhuang Hong is pictured here in a local grocery store. A regional sales manager
based in Beijing, Zhuang was instrumental in achieving this rapid expansion.
"Our products are popular with consumers and the opportunity for growth in
China is enormous. The government-sponsored National Seasoning Association of
China selected McCormick from among 2,000 companies operating in the country,
as one of the top 20 seasoning providers."
[Photograph] ZHUANG HONG, REGIONAL SALES MANAGER FOR NORTHERN CHINA
THROUGH THE EFFORTS OF ZHUANG AND McCORMICK'S ENTIRE SALES FORCE IN CHINA, WE
INCREASED BY 30% THE NUMBER OF CITIES WHERE OUR PRODUCTS ARE DISTRIBUTED IN THAT
COUNTRY.
[Photograph]
13
<Page>
by increasing consumer awareness of products that offer great flavor and
convenience. Examples of such growth in 2001 included sales increases of
nearly 20% for GRILL MATES(R) in the U.S.; of 153% for SIMPLY SEAFOOD(R) in
Australia; and of 26% for ONE-STEP SEASONING(TM) in Canada. Over the last
five years we have increased the level of brand marketing spending and
improved our market knowledge to better leverage this spending to drive sales.
New products add vitality and excitement to our product lines. Resources
invested in product development, launches and support 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
consumers' desire for delicious flavor and convenient, simple meal preparation.
We will also grow our consumer business by acquiring leading brands that
bring us new types of flavors or that extend our reach into new geographic
markets. Examples of new flavors might include a hot sauce, unique seasoning or
zesty spread. The acquisition of leading brands in new markets will enable us to
become a global supplier for our global retail customers.
The outlook for our consumer business is promising. We have strong retail
customer relationships, a leading share in key markets and brands that are well
recognized by both customers and consumers. Our strategies to grow sales are
effective. We are confident that we will achieve sales growth and higher profits
for our consumer business in 2002 and beyond.
CONSUMER BRANDS
McCormick
Golden Dipt
Produce Partners
Old Bay
Mojave
Club House
Schwartz
Ducros
Vahine
Aeroplane
Keen's
Cake Mate
14
<Page>
REPORT ON OPERATIONS
INDUSTRIAL BUSINESS
McCormick's industrial business supplies products from North America, Europe and
the Asia/Pacific region to markets worldwide. Our customers include food
processors, restaurant chains, distributors and warehouse clubs. Products
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 4.8% in 2001. Excluding the impact of foreign exchange,
sales increased 6.3%. When the incremental impact of Ducros for the first three
quarters is also excluded, sales grew 4.1%. Volume growth was achieved in key
areas of the business, including blended seasonings sold to food processors and
food service products sold to warehouse clubs. Direct sales to restaurants also
grew, recovering from a difficult year in 2000; the sales increase was spurred
by several new products that were popular menu items for our customers.
Excluding special charges, operating income increased 21.0%, and operating
income as a percent of net sales increased to 9.6% from 8.3% in 2000. This
outstanding improvement was a result of sales growth as well as a gain in gross
profit margin. Contributing to the margin gain were cost reductions, favorable
prices for raw materials and a shift in sales to higher-margin, more value-added
products.
MARKET OVERVIEW
Consumer interest in new and exciting flavors continues to grow. Whether people
are ordering a meal at a casual restaurant, buying a frozen dinner to microwave
at home, or choosing a snack from a vending machine, flavor drives their
purchase decision. Trends driving an increase in demand for flavor include the
use of more fortified and functional foods (which require higher flavor
"loading" to enhance palatability) and a continuing move to convenience foods
(which require flavor to replace taste lost during processing).
The primary customers for industrial flavors are prominent food companies,
growing through global expansion and mergers and acquisitions. These companies
actively manage their supply chain and carefully manage price and inventory with
suppliers. A trend among these customers toward outsourcing a portion of their
product development creates a need for suppliers with superior development,
culinary and sensory skills, and dependable product delivery. We believe that we
are one of the best in the industry at meeting these needs.
McCormick is the leading supplier of blended seasonings and spices to U.S.
food processors, with a market share of
2001 NET SALES
<Table>
Americas 78%
Europe 15%
Asia/Pacific 7%
</Table>
OPERATING PROFIT
(Excluding special charges)
IN MILLIONS
<Table>
<Caption>
1999 2000 2001
----------------------------------
74.3 79.0 95.6
</Table>
15
<Page>
TECHNICAL INNOVATION CENTER:
VALUE-ADDED PRODUCT DEVELOPMENT
A major requirement of our industrial customers is product innovation. New
flavor systems are vital to our success - flavors for everything from snack
chips to beverages, salad dressings to chicken.
We begin with our knowledge of emerging eating trends, work through product
development and conclude by applying our superior sensory capabilities. As a
result, we deliver to our customers integrated products that are winners with
consumers. To sum up this capability, McCormick coined the term
"consumer-preferred flavors."
In the photograph below, Anna Kanno is evaluating a coatings product developed
for one of the restaurant chains that McCormick supplies.
"We have the resources in the U.S. and around the
world, committed to world-class research and development capabilities. These
capabilities make us and our customers successful."
ANNA KANNO, FOOD TECHNOLOGIST [PHOTO]
ANNA DEVELOPS PRODUCTS FOR RESTAURANTS. OUR INDUSTRIAL CUSTOMERS LOOK TO
MCCORMICK FOR INNOVATIVE FLAVORS THAT WILL BE "WINNERS" WITH CONSUMERS.
16
<Page>
almost 50%. We also have the leading share of spice and seasoning sales to
distributors and to warehouse clubs. In compound and processed flavors, we are
currently small in size when compared to the largest suppliers, but have
achieved a rapid increase in our share.
While competition in the industrial business is strong, we enjoy an
advantage because of our ability to provide a wide range of customized flavor
solutions to our customers.
2001 PERFORMANCE HIGHLIGHTS
o SUCCESS WITH NEW PRODUCTS. New products launched in the last three years
accounted for 15% of 2001 sales in the industrial business.
o CONTINUED WINS IN SNACK SEASONING PRODUCTS. U.S. sales of these products grew
12%, following 10% growth in 2000. This was accomplished through new products
and partnerships with strategic customers.
o REBOUND IN SALES TO RESTAURANTS. Direct sales to restaurant chains were up 8%
in the U.S., despite a difficult market environment.
o RECOGNITION AS PREMIER SUPPLIER. In 2001, we were recognized by a major
broadline distributor and a leading casual dining chain for our ability to
deliver winning products and to excel in service.
o ACTIONS TO INCREASE MARGIN. Excluding special charges, operating profit
margin improved to 9.6% from 8.3%. A key factor in this increase was our
shift to more higher-margin, value-added products.
STRATEGY AND OUTLOOK
In our industrial business, we are developing and delivering the flavors that
consumers prefer. Our primary strategies are to grow by DEVELOPING NEW PRODUCTS;
STRENGTHENING CUSTOMER RELATIONSHIPS; AND MAKING STRATEGIC ACQUISITIONS.
New product success is essential in this business, where product turnover is
rapid. Our involvement in every step of product development - from thorough
trend analysis to superior sensory testing - is increasing our ability to create
winning products for our customers. As customer reliance on McCormick for
product development has increased, we have increased our resources and
capabilities. We have a number of promising new products in the pipeline for
2002.
McCormick is committed to building upon its reputation as a premier
supplier. Whether the customer is a restaurant chain, food processor,
distributor or warehouse club, the ability to consistently deliver a cost
effective, high-quality product on time is essential. We will reach a higher
level of
2001 NET SALES
<Table>
New Products 15%
(untitled) 85%
</Table>
New products launched in the last three
years accounted for 15% of 2001 sales in
the industrial business.
17
<Page>
technological sophistication with the upcoming implementation of our B2K
program.
In August 2000, the Ducros acquisition created a broader European platform
that enables us to better serve our global customers. Our customers are also
growing through acquisitions, extending their products and market areas. In
anticipation of increased opportunities to supply our customers, we will
continue to expand our product capabilities and geographic reach. We look to
future strategic acquisitions as a way to meet this objective.
The economic softness in the U.S. and international markets creates a
challenging environment for our industrial business. The restaurant industry is
under pressure to maintain customer traffic and has pressured suppliers to
reduce product cost. Food processors with recent acquisitions are expected to
report synergies - typically, the kind that involve cost reductions - to their
shareholders. At the same time, the desire for flavors continues to grow. In
this environment, McCormick must have a dual focus. While maintaining our
superiority in product development and customer service, we must also keep an
eye on our entire supply chain. We are confident that our leadership position,
strategic customers and ability to deliver consumer-preferred flavors will
ensure future sales growth and profitability.
Industrial Products
INGREDIENTS SEASONINGS
Spices and Herbs Seasoning blends
Extracts Salty snack seasonings
Essential oils and Side dish seasonings
Oleoresins (rice, pasta, potato)
Sauces and Gravies
COATING SYSTEMS
Batters CONDIMENTS
Breaders Sandwich sauces
Marinades Ketchup
Glazes Mustards
Rubs Jams and Jellies
Seafood cocktail sauces
Salad dressings
Flavored oils
COMPOUND FLAVORS
Beverage flavors
Dairy flavors
Confectionery flavors
PROCESSED FLAVORS
Meat flavors
Savory flavors
18
<Page>
REPORT ON OPERATIONS
PACKAGING BUSINESS
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 increased 0.9% in 2001. Excluding special
charges, operating income (including intersegment business) declined 9.8%. As a
percent of net sales, operating income, excluding special charges, decreased to
8.8% from 9.9% as a result of lower volumes and unfavorable product mix.
MARKET OVERVIEW
Tubes continue to be the preferred packaging in the cosmetic industry because
they provide sanitary dispensing and feature lightweight design. Competition for
this business is aggressive and has intensified pricing pressure. In the vitamin
and herbal market, adverse media reports regarding label claims began in 2000
and continued into 2001, affecting our sales of bottles to this industry.
Through the first half of 2001, sales of our packaging products were strong
and resin supplies and costs were beginning to stabilize. However, the softening
of the U.S. economy in the second half caused a decline in consumer demand for
many of our customers' products, particularly tubes for personal care items and
cosmetics.
2001 PERFORMANCE HIGHLIGHTS
o NEW PRODUCTS IN HIGH DEMAND. New designs, new closures and other new features
are in high demand by our customers. In 2001, 13% of sales were from products
developed in the last three years.
o ACTIONS TAKEN TO REDUCE COSTS. The profit impact of lower volume was offset in
part by actions to lower costs, including a workforce reduction, negotiation of
lower resin costs and the addition of more automated equipment and processes.
STRATEGY AND OUTLOOK
The lower demand for some of our products is expected to continue at least into
the first quarter of 2002. Our focus will continue to be on cost reduction to
maintain profit levels in our production facilities.
Simultaneously, we are directing our efforts at those customers who are
major purchasers in their market, whether it is the drug and vitamin sector,
personal care area or other sector. We are expanding our product decorating
capabilities to meet customer needs and are vigorously pursuing new business
with targeted accounts.
McCormick is a leading supplier of specialized packaging. The current
environment demands flexibility to rapidly address fluctuations in demand, and
creativity to develop innovative features. We will maintain our position by
strengthening these capabilities. We will improve sales and profitability by
leveraging relationships with existing customers and forging new customer
relationships.
OPERATING PROFIT
(Excluding special charges)
IN MILLIONS
<Table>
<Caption>
1999 2000 2001
----------------------------------
19.6 21.5 19.4
</Table>
19
<Page>
A SPIRIT OF COMMUNITY
In freedom-loving countries around the world, the year 2001 will be remembered
as a period of great sadness - and great resolve. The terrorists' attacks in the
United States demonstrated the vulnerability of the way of life we cherish. Yet
the attacks also raised among us a determination to protect that lifestyle.
Citizens have a renewed interest in community service.
McCormick employees around the world have, for many years, been active
members of their communities using spare hours to make life better for families
and neighbors - and, often, people they do not even know. These profiles briefly
tell the stories of a few of our employees who carry on the McCormick tradition
of making a difference.
McCormick's tradition of community service dates back to our founder. It is
important to our employees - from the plant floor to executive offices. And the
impact is felt from Maryland to Shanghai. The employees profiled on these pages
are representative of hundreds of employees who spend spare time serving their
communities.
A TRAGIC CAR ACCIDENT LED JEFF ADAMS TO JOIN A LOCAL VOLUNTEER FIRE COMPANY.
[PHOTOGRAPH]
JEFF ADAMS
It's been 10 years since the accident. Jeff was driving home one evening on a
two-lane road in rural Maryland. Another driver wanted to share the lane with
Jeff, but that driver was heading in the opposite direction. Jeff and the
other driver learned this at the crest of a hill where they had a devastating
head-on collision that killed the other driver. Responding to the accident
were the men of the Hereford (Maryland) Volunteer Fire Company. They sent
Jeff to the University of Maryland Hospital Shock Trauma Unit where, as Jeff,
says, he "spent two weeks having the pieces put back together."
The Manager of Packaging Systems in McCormick's U.S. Consumer Products
Division, Jeff thought the least he could do upon recovery was visit the
firehouse and thank those who saved him.
"The first thing they did at the firehouse was hand me an application. I've
been there nine years now, and the other volunteer fire fighters use my story
when they try to recruit new volunteers," Jeff said. Jeff has trained for more
than 2,500 hours and, at his peak, was working 30 hours a week out of the fire
station - after his working hours at McCormick. "This is my payback for what
they did for me. My true reward is helping people. When you come across people
in trouble, and you can help them - that's reward enough."
Jeff is also the treasurer of the fire company and oversaw fundraising that
led to a $2.5 million building renovation.
20
<Page>
RICK AYERS
Rick was honored with the 2000-2001 Volunteer of the Year Award from Victim
Services of Middlesex County near London, Ontario. "If I die tomorrow, I'll know
that I put something back into my community," he said.
And what Rick does for Middlesex and the Stratethroy-Caradoc Township is a
wrenching chore that would challenge even those most committed to community
service. Rick accompanies police and provides immediate emotional and practical
support for victims of crimes and families faced with tragic situations like
robbery, suicide and death. Rick and his team help lessen the trauma of being
victimized and help others cope with life-changing tragic circumstances.
"You never truly get comfortable with it," said Rick, head custodian at
McCormick's facility in London, Ontario. "These are tough times - notifying
next of kin about a death or helping someone who has been robbed. In my role,
I do what I have to do. There aren't many positive things at a moment like
that, but I realize that I am offering help at a very trying time."
During the year, Rick responded to 45 different crisis calls. If not at
McCormick or volunteering for Victim Services, Rick can be found volunteering at
the Hospice of London (Ontario) helping bring some joy to the lives of
terminally ill patients.
[PHOTOGRAPH]
IN TIMES OF EXTREME TRAUMA, VICTIMS RECEIVE MUCH-NEEDED SUPPORT FROM RICK AYERS.
[PHOTOGRAPH]
WHEN OSCAR RIVAS' HOMELAND OF EL SALVADOR WAS DEVASTATED, HE LED A CAMPAIGN WITH
THE HELP OF OTHER EMPLOYEES TO RAISE FUNDS TO REBUILD A SCHOOL.
OSCAR RIVAS
The images he saw on the television were horrific. Oscar knew he had to do
something to help. He could not stand by, watch the tragedy unfold - and do
nothing. It was January of 2001, and he was watching news coverage of
devastating earthquakes in his native El Salvador.
More than two decades earlier, Oscar came to California from El Salvador. He
began working for McCormick's packaging business, Setco, in Anaheim. Now a
Quality Control Inspector, Oscar spearheaded a fundraising effort to assist
those victimized by the earthquakes back home.
"I met with some other employees to discuss raising some money," Oscar said.
"The first week, the group of volunteers had a simple cash drive to raise money.
Later we used pot luck meals and other food sales to collect even more money for
the cause.
"My relatives don't live in El Salvador any more, but I still felt such
sadness when I saw what had happened because of the earthquakes. I was touched
in the same way people were touched by what happened in New York City and
Washington D.C."
The money raised by Oscar and his co-workers at Setco went to rebuild a
school in El Salvador destroyed by one of the earthquakes.
A SPIRIT OF McCORMICK
<Page>
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 the bottom of this
page for a discussion of the definitions and use of these terms.
OVERVIEW
For 2001, the Company reported net income of $146.6 million or $2.09 of diluted
earnings per share compared to $137.5 million or $1.98 of diluted earnings per
share in 2000. During 2001, the Company recorded special charges related to
streamlining operations. Excluding the impact of these special charges, net
income on a comparable basis was $154.3 million or $2.20 of diluted earnings per
share in 2001 compared to $138.3 million or $1.99 of diluted earnings per share
last year.
The Company continued to grow sales and profits in both its consumer and
industrial business segments. This improvement included continued increases in
gross profit margin. The packaging segment experienced softness in 2001,
especially in the second half of the year when our cosmetic and personal care
customers began to anticipate reduced demand for their products.
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 the leading consumer
spice and herb business in Europe as well as the leading manufacturer and
distributor of dessert aid products. Sodis manages the racking and merchandising
of the Ducros products in supermar-
OTHER PERFORMANCE MEASURES
The other performance measures described below are used throughout this annual
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 and amortization expense, 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 and interest on the debt used to finance the acquisition,
which was acquired on August 31, 2000. For the year ended November 30, 2000,
this means excluding the results of Ducros for the fourth quarter ended November
30, 2000. For the year ended November 30, 2001, this means excluding the results
of Ducros for the nine months ended August 31, 2001.
"RETURN ON INVESTED CAPITAL" (ROIC) - McCormick defines return on invested
capital as net income from operations, excluding interest and amortization
expense, divided by the sum of interest-bearing debt and equity (including
minority interest).
22
<Page>
kets and hypermarkets. Collectively, these two operations are referred to as
"Ducros" in this report.
The purchase price for the stock of Ducros was 2.75 billion French francs
(equivalent to $379 million). The purchase price allocation to assets and
liabilities acquired, which was estimated at November 31, 2000, was finalized in
2001. This resulted in an increase in goodwill of $14.5 million. The purchase
contract allows for a potential adjustment to the purchase price. This
adjustment procedure has not been concluded, however the potential adjustment
under the contract can only decrease the purchase price. Any reduction in the
purchase price would be recorded as a decrease to goodwill.
Because this acquisition took place on August 31, 2000, the Ducros financial
results were included with the Company's results from the fourth quarter of 2000
onward. This acquisition had a dilutive effect of $.03 when comparing 2000 to
1999 and a $.10 dilutive effect when comparing 2001 to 2000. Starting in the
fourth quarter of 2001, results of the Company were comparable as Ducros was
included in both periods. When future reference is made to "excluding Ducros,"
it refers to the Company's financial results for 2001 excluding Ducros for the
nine months ended August 31, 2001.
In summary, diluted earnings per share for 2001 increased by $.11 over 2000.
Major items decreasing earnings per share in 2001 were Ducros by $.10 and
special charges by $.11. Excluding these two items, earnings per share increased
$.32. On a per share basis, this was achieved through higher operating income of
$.16, a lower tax rate of $.07, reduced interest expense (excluding Ducros) of
$.06 and increased income from unconsolidated operations of approximately $.03.
BEYOND 2000
Late in 1999, 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 to deliver profit. We have increased our
overall levels of capital spending and expense from historical levels to support
this effort.
RESULTS OF OPERATIONS-- 2001 COMPARED TO 2000
Sales from consolidated operations increased 11.7% to $2.4 billion in 2001.
Excluding the unfavorable effect of foreign currency exchange rates and the
acquisition of Ducros, sales grew 3.8%.
In 2001, net sales for the consumer business increased 20.3% compared to
2000. Excluding the impact of Ducros and the impact of foreign currency exchange
rates, net sales grew 4.1%. In local currency, consumer sales in the Americas
were up 3.3% due to favorable sales volume and pricing. We increased sales of
our branded products through effective promotion, advertising and merchandising
and through the introduction of new products. In Europe, sales in local currency
grew 6.1% excluding Ducros. This increase was attributable to favorable sales
volume particularly in the U.K. In the Asia/Pacific region, sales in local
currency increased 5.7% due to higher volume in China as we continued to
penetrate new regions and expand the availability of the McCormick brand.
Our industrial business also had a successful year in 2001, as net sales
increased 4.8% versus 2000. Excluding the impact of Ducros and foreign exchange,
sales grew 4.1%. In local currency, industrial sales in the Americas were up
3.8% due to higher restaurant sales, sales of new flavor and seasoning products
to our snack seasoning customers, and increased sales to warehouse clubs. In
Europe, sales in local currency grew 4.0% excluding Ducros due largely to
favorable sales volume in the U.K. In the Asia/Pacific region, sales in local
currency increased 8.5% due to sales growth with global restaurant customers in
China.
In 2001, net sales for the packaging business increased 0.9% versus 2000. In
the first half of 2001, tube and bottle sales were strong and resin costs were
stabilizing. However, the second half of 2001 saw softening in the U.S. economy
which caused a decline in consumer demand for our customers' products,
particularly tubes for personal care and cosmetics.
23
<Page>
DEBT TO TOTAL CAPITAL
<Table>
<Caption>
1997 1998 1999 2000 2001
-------------------------------------------------------------
50.3% 51.6% 47.2% 65.8% 58.3%
</Table>
The Company's share of sales from unconsolidated operations in 2001 was
$215.7 million, down 0.4% versus 2000. Sales growth of 6.4% in our North
American joint ventures, including McCormick de Mexico and Signature Brands, was
offset by unfavorable foreign currency translation at our Japanese affiliates.
Gross profit margin increased to 40.9% in 2001 from 37.9% in 2000, a 300
basis point improvement. Approximately two-thirds of this improvement was
attributable to the Ducros business which has a higher gross profit margin than
the Company's other businesses. This business also has a higher level of sales
and marketing expense. In the consumer business, gross profit margin improvement
was due to a combination of the addition of the Ducros business, price increases
in the U.S. business, lower costs of certain raw materials, and cost reduction
initiatives. In the industrial business, gross profit margin improvement was
mainly due to a shift in product mix to higher-margin, more value-added products
as well as cost reduction initiatives and reduced costs of certain raw
materials. Lower volumes and product mix in our packaging business resulted in
lower margins in 2001.
Selling, general and administrative expenses were higher in 2001 than 2000
on both a dollar basis and as a percentage of net sales. These increases were
primarily due to the new Ducros business, including $8.2 million in related
goodwill amortization, increased distribution expenses due to higher energy
costs, and higher investment for the B2K program. The 2000 results included a
$3.8 million charge for the bankruptcy of an industrial customer.
Operating income margin was 10.1% in 2001 compared to 10.6% in 2000.
Excluding special charges, operating income margin was 10.6% in 2001.
In the consumer business, operating income margin was 13.6% in 2001 compared
to 15.9% in 2000. Excluding special charges, operating income margin was 14.0%
in 2001. The decrease in operating income margin versus prior year was due
primarily to the lower operating income margin of the Ducros business. Increases
in operating profit due to price increases and reduced raw material costs were
offset by increased investment spending in programs such as B2K.
In the industrial business, operating income margin was 9.0% in 2001
compared to 8.2% in 2000. Excluding special charges, operating income margin was
9.6% in 2001 and 8.3% in 2000. The increase in operating income margin versus
prior year is due to cost reduction initiatives and a shift in sales to
higher-margin, more value-added products. In addition, there were favorable
effects of reduced raw material costs.
In the packaging business, operating income margin was 8.5% in 2001 compared
to 9.9% in 2000. Excluding special charges, operating income margin was 8.8% in
2001. The decrease in operating margin versus prior year is due to competitive
pricing pressure and product mix impacting our gross margins.
Pension expense was $8.1 million, $8.4 million and $11.1 million for the
years ended November 30, 2001, 2000 and 1999, respectively. In 2001, the return
on plan assets was negative and the discount rate decreased from 8.0% to 7.25%.
Given these factors, additional funding of the U.S. pension plan was necessary
in 2001 and the expense for 2002 is expected to increase to be at or above the
expense for 1999.
Interest expense increased in 2001 versus 2000 due to higher average debt
levels in 2001 as a result of the Ducros acquisition. Excluding Ducros, interest
expense in 2001 decreased compared to 2000 due to favorable interest rates and
lower average debt levels.
Other income increased in 2001 compared to 2000. This increase is
attributable to interest income
24
<Page>
and exchange gains on foreign currency transactions.
The effective tax rate for 2001 was 33.0%, down from 35.8% in 2000.
Excluding special charges, the effective tax rate for 2001 was 33.1%. The
Company transacts business in many different taxing jurisdictions around the
world, all of which assess different tax rates. The mix of earnings among these
jurisdictions is what caused a lower tax rate in 2001 versus 2000.
Income from unconsolidated operations increased to $21.5 million in 2001
versus $18.6 million in 2000, primarily due to continued strong performance from
our McCormick de Mexico and Signature Brands joint ventures. The Ducros
acquisition included an investment in a joint venture with a minority interest.
This minority interest was $2.4 million in 2001 versus $0.5 million in 2000, as
2000 results include only the fourth quarter of Ducros.
RESULTS OF OPERATIONS-- 2000 COMPARED TO 1999
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 to streamline operations
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 in 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 effect of price and product mix decreased sales 0.6%. In the
consumer segment, sales increased 10.2% over the prior year. Ducros added 6.3%
to this growth while the unfavorable effects of foreign currency exchange rates
decreased sales by 1.7%. Excluding these effects, sales increased 5.6%, 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 grew sales 1.7% 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 tubed 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 businesses. 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 B2K
initiative. These increases are partially offset by increases in royalty income.
25
<Page>
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 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. Because 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 $18.6 million in 2000
versus $13.4 million in 1999, primarily due to continued strong performance from
our McCormick de Mexico joint venture.
FINANCIAL CONDITION
Continued strong cash flows from operations enabled the Company to fund
operating projects and investments designed to meet our growth objectives and
reduce debt levels.
In the consolidated statement of cash flows, cash provided by operating
activities was $204.5 million in 2001 compared to $202.0 million in 2000 and
$229.3 million in 1999. Over the past three years, there has been an annual
increase in cash flow from profits, excluding depreciation and amortization, and
from dividends received from our unconsolidated affiliates. In 1999 and 2000,
cash flow also increased due to reductions in working capital items. In 2001,
working capital items decreased cash flow. There were favorable trends in both
receivables and inventories when 2001 is compared to 2000. These were offset by
a $14.7 million interest rate swap settlement in the first quarter of 2001 used
to fix the interest rate of the Ducros acquisition financing. Additional offsets
include $12.2 million of additional retirement plan funding caused by reduced
investment performance and a leveling off of prepaid allowances in 2001, which
had been significantly decreasing over the past several years.
Investing activities used cash of $111.9 million in 2001 versus $442.6
million in 2000 and $45.9 million in 1999. The major use of cash for investing
activities in 2000 was the acquisition of businesses, including the acquisition
of Ducros in the third quarter. Capital expenditures in 2001 of $112.1 million
exceeded prior year amounts which approximated depreciation. The increment over
prior years included planned spending on B2K.
Financing activities used cash of $85.4 million in 2001 versus providing
cash of $254.6 million in 2000 and using cash of $188.5 million in 1999. The
Company financed $370.0 million of the Ducros acquisition through its issuance
of commercial paper in August 2000, thereby increasing cash flows from
short-term borrowings. The Company funded the balance of the purchase price from
internally generated funds. In the first quarter of 2001, the Company finalized
its medium-term note program for the Ducros acquisition and issued $300.0
million of notes, which replaced the existing commercial paper notes used to
finance the transaction. In addition, during the third quarter of 2001, the
Company retired $75.0 million of 8.95% fixed rate notes by issuing commercial
paper. The variable rate on the $75.0 million of commercial paper is being fixed
at 6.35% by interest rate swaps from 2001 through 2011. The common stock issued
and common stock acquired by purchase in 2001 generally relates to the Company's
stock compensation plans. In 2000, however, the Company purchased 2.5 million
shares of common stock for $72.3 million under the Company's $250 million share
repurchase program. Due to the acquisition of Ducros, the Company suspended the
repurchase of shares in May 2000.
Dividend payments increased to $55.1 million in 2001, up 5.4% compared to
$52.3 million in 2000. Dividends paid in 2001 totaled $.80 per share, up from
26
<Page>
$.76 per share in 2000. In November 2001, the Board of Directors approved a 5.0%
increase in the quarterly dividend from $.20 to $.21 per share. Over the last 10
years, dividends have increased 10 times and have risen at a compounded annual
rate of 11.1%.
The Company's ratio of debt-to-total-capital was 58.3% as of November 30,
2001, a decrease from 65.8% at November 30, 2000. The decrease was due to a
$47.2 million reduction in debt based on positive cash flow generated from
operations and increased shareholders' equity. 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, although future acquisitions could alter this projection.
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.
SPECIAL CHARGES
Over the last three years, the Company made significant progress in streamlining
its operations in a manner consistent with its strategic plan. Gross profit
margins improved dramatically during this period by 640 basis points. All of
this served as our primary fuel for revenue growth and improved profits. With
our investment in B2K, we are well positioned to continue this record of
improving margins into the future.
While the year 2001 was another record year for McCormick, the U.S. and
global economies did not fare as well, and by the fall, the U.S. was in a
recession. Recognizing that we are not immune to the impact of these difficult
financial times on our customers and consumers, the Company formalized a plan to
more rapidly streamline its operations to meet the challenges that we and all
companies will face in 2002 and beyond.
During the fourth quarter of 2001, the Company adopted a plan to further
streamline its operations. This plan includes the consolidation of several
distribution and manufacturing locations, the reduction of administrative and
manufacturing positions, and the reorganization of several joint ventures. The
total plan will cost approximately $32.6 million ($25.6 million after tax) and
will be implemented over the next 18 months. Total cash expenditures in
connection with these costs will approximate $13.7 million, which will be funded
through internally generated funds. Once fully implemented, annualized savings
are expected to be approximately $8.0 million ($5.3 million after tax). These
savings will be used for investment spending on initiatives such as brand
support and supply chain management. The aforementioned savings and
administrative expenses are expected to be included within the cost of goods
sold and selling, general and administrative expenses in the consolidated
statement of income.
In the fourth quarter of 2001, the Company recorded charges of $11.7 million
($7.7 million after tax) under this plan. Of this amount, $10.8 million was
classified as special charges and $0.9 million as cost of goods sold in the
consolidated statement of income. Additional amounts under the plan were not
recorded since they are either incremental costs directly related to the
implementation of the plan and will be expensed as incurred, or the plans were
not sufficiently detailed to allow for accounting accrual. The Company expects
to record these additional costs in 2002.
The costs recorded in the fourth quarter of 2001 related to the
consolidation of manufacturing in Canada, a distribution center consolidation in
the U.S., a product line elimination and a realignment of our sales operations
in the U.K., and a workforce reduction of 275 positions which encompasses plans
in all segments and across all geographic areas. As of November 30, 2001, 135 of
the 275 position reductions had been realized.
The major components of the special charges include charges for employee
termination benefits of $6.3 million, impairment charges of $1.6 million, and
other related exit costs of $3.8 million. Asset impairments consist of $0.7
million of property, plant and equipment and $0.9 million of inventory, which
were recorded as a direct result of the Company's decision to exit facilities or
product lines. Other exit costs consist primarily of lease terminations.
During 1999, the Company recorded special charges of $26.7 million ($23.2
million after-tax) associ-
27
<Page>
ated 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.
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. 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.
Refer to note 2 of the notes to consolidated financial statements for
further information.
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 (Euro, British pound sterling, Australian dollar,
Canadian dollar, Mexican peso, Japanese yen, Swiss franc and Chinese RMB). The
Company may enter into forward and option contracts to manage foreign currency
risk. During 2001, 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 U.K., France, Australia and
Canada. The Company did not hedge its net investments in subsidiaries and
unconsolidated affiliates in 2001, 2000, and 1999.
At November 30, 2001, the Company had foreign exchange contracts maturing in
2002 to purchase or sell $41.2 million of foreign currencies versus $0.8 million
at November 30, 2000. These contracts are primarily denominated in Euro, British
pound sterling and Canadian dollar and are principally used to hedge the
anticipated purchase of raw materials. The fair value of these contracts was
$0.7 million and $0.0 million at November 30, 2001 and 2000, respectively.
INTEREST RATE RISK - The Company's policy is to manage interest cost using a
mix of fixed and variable rate debt. The Company uses interest rate swaps to
achieve a desired proportion. The table that follows provides principal cash
flows and related interest rates excluding the effect of interest rate hedges by
fiscal year of maturity at November 30, 2001 and 2000. 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, 2001.
28
<Page>
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.
CONTRACTUAL OBLIGATIONS AND
COMMERCIAL COMMITMENTS
The Company's significant contractual obligations as of November 30, 2001 are
for debt, operating leases and purchase obligations. Debt by year of maturity is
provided in the table below. Future rental payments under operating leases are
provided in note 5 of notes to consolidated financial statements. Purchase
obligations are $67.4 million, for purchases of raw materials in the normal
course of business and do not go beyond one year. The Company's significant
commercial commitments are lines of credit and standby letters of credit. Lines
of credit are disclosed in note 5 of notes to consolidated financial statements
and standby letters of credit are $7.9 million, for insurance related matters.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission (SEC) released Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." The Emerging Issues Task Force (EITF) issued EITF 00-10,
"Accounting for Shipping and
<Table>
<Caption>
YEAR OF MATURITY AT NOVEMBER 30, 2001
(MILLIONS) 2002 2003 2004 2005 Thereafter Total Fair Value
- -------------------------------------------------------------------------------------------------------------------
DEBT
Fixed rate $.7 $.2 $16.0 $32.0 $400.2 $449.1 $461.8
Average interest rate 5.65% 3.74% 7.17% 7.17% 7.50%
- -------------------------------------------------------------------------------------------------------------------
Variable rate $210.1 $.3 $.3 $.3 $4.8 $215.8 $215.8
Average interest rate 3.17% 2.43% 2.43% 2.43% 3.00%
- -------------------------------------------------------------------------------------------------------------------
</Table>
Note: The variable interest on commercial paper which was used to retire the $75
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. Forward starting interest rate swaps, settled upon the
issuance of the medium-term notes, effectively fixed the interest rate on $294
million of the notes at a weighted average fixed rate of 7.62%.
<Table>
<Caption>
YEAR OF MATURITY AT NOVEMBER 30, 2000
(MILLIONS) 2001 2002 2003 2004 Thereafter Total Fair Value
- -------------------------------------------------------------------------------------------------------------------
DEBT
Fixed rate $78.5 $4.1 $.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 $.3 $.3 $.3 $5.1 $479.4 $479.4
Average interest rate 6.66% 6.61% 6.61% 6.61% 5.69%
- -------------------------------------------------------------------------------------------------------------------
</Table>
Note: The variable interest on commercial paper which will be used to retire the
$75 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.
29
<Page>
Handling Fees and Costs," which required the Company to reclassify certain
shipping and handling costs billed to customers as sales. These pronouncements,
which were adopted in 2001, had no material impact on the Company's financial
statements.
In November 2001, the EITF issued EITF 01-09, "Accounting for Consideration
Given by a Vendor to a Customer or a Reseller of the Vendor's Products," which
is a codification of EITF's 00-14, 00-22 and 00-25. This will require the
Company to reclassify certain marketing expenses as a reduction of sales.
Concurrent with the adoption of EITF 01-09, the Company will also reclassify
certain expenses from selling, general and administrative expense to cost of
goods sold. These reclassifications will take place in the first quarter of
2002, and prior periods will be reclassified. The effect of these
reclassifications on 2001 will be a decrease to sales of $153.9 million, an
increase in cost of goods sold of $20.0 million, and a decrease in selling,
general and administrative expenses of $173.9 million. These reclassifications
will decrease gross profit margin as a percentage of sales from 40.9% to 35.9%
and increase operating income as a percentage of sales from 10.1% to 10.8% in
2001. These reclassifications will not impact net income.
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," and No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141
applies to all business combinations with a closing date after June 30, 2001.
This statement eliminates the pooling-of-interest method of accounting and
further clarifies the criteria for recognition of intangible assets separately
from goodwill. Under SFAS No. 142, goodwill and indefinite lived intangible
assets will no longer be amortized but will be subject to annual impairment
tests in accordance with the new standard. Separable intangible assets that have
finite lives will continue to be amortized over their useful lives. The Company
will adopt SFAS No. 142 on December 1, 2001. No goodwill impairment will result
upon adoption. The Company recorded $13.0 million ($12.2 million after tax) of
goodwill amortization expense for the year ended November 30, 2001.
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.
30
<Page>
HISTORICAL FINANCIAL SUMMARY
<Table>
<Caption>
(MILLIONS EXCEPT
PER SHARE DATA) 2001 2000 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
For the year
Net Sales $2,372.3 $2,123.5 $2,006.9 $1,881.1 $1,801.0 $1,732.5 $1,691.1
Percent increase 11.7 % 5.8 % 6.7 % 4.4 % 4.0 % 2.4 % 10.6 %
Operating income 240.6 225.0 170.1 182.1 170.5 92.6 171.7
Operating income
excluding special charges 252.3 226.1 196.8 184.4 167.3 150.7 167.8
Income from unconsolidated
operations 21.5 18.6 13.4 6.2 7.7 5.6 2.1
Net income - continuing
operations 146.6 137.5 98.5 103.8 97.4 43.5 86.8
Net income (1) (7) (3) 146.6 137.5 103.3 103.8 98.4 41.9 97.5
- --------------------------------------------------------------------------------------------------------
PER COMMON SHARE (2)
Earnings per share
- assuming dilution (6)
Continuing operations $2.09 $1.98 $1.36 $1.41 $1.29 $0.54 $1.07
Discontinued operations (1) - - - - 0.01 0.08 0.13
Extraordinary item - - - - - (0.10) -
Accounting change (3) (7) - - 0.07 - - - -
Net earnings $2.09 $1.98 $1.43 $1.41 $1.30 $0.52 $1.20
Earnings per share
- basic (1) (3) (6) (7) $2.13 $2.00 $1.45 $1.42 $1.30 $0.52 $1.20
Common dividends declared (4) $0.81 $0.77 $0.70 $0.65 $0.61 $0.57 $0.53
Market closing price - end
of year $43.00 $37.25 $32.06 $33.38 $26.50 $24.63 $23.63
Book value per share $6.72 $5.25 $5.43 $5.35 $5.31 $5.75 $6.39
- --------------------------------------------------------------------------------------------------------
AT YEAR END
Total assets $1,772.0 $1,659.9 $1,188.8 $1,259.1 $1,256.2 $1,326.6 $1,614.3
Current debt 210.8 551.9 100.6 163.6 121.3 108.9 297.3
Long-term debt 454.1 160.2 241.4 250.4 276.5 291.2 349.1
Shareholders' equity 463.1 359.3 382.4 388.1 393.1 450.0 519.3
Total capital (9) 1,141.0 1,082.8 724.4 802.1 790.9 850.1 1,165.7
- --------------------------------------------------------------------------------------------------------
STATISTICS & RATIOS
Percentage of net sales
Gross profit margin 40.9 % 37.9 % 35.7 % 34.5 % 34.9 % 34.9 % 34.5 %
Operating income 10.1 % 10.6 % 8.5 % 9.7 % 9.5 % 5.3 % 10.2 %
Net income - continuing
operations 6.2 % 6.5 % 4.9 % 5.5 % 5.4 % 2.5 % 5.1 %
Effective tax rate 33.0 % 35.8 % 40.2 % 36.0 % 37.0 % 38.7 % 36.1 %
Depreciation and amortization $73.0 $61.3 $57.4 $54.8 $49.3 $63.8 $63.7
Capital expenditures $112.1 $53.6 $49.3 $54.8 $43.9 $74.7 $82.1
Economic Value Added (EVA) (8) $78.7 $68.2 $42.3 $33.1 $23.4 $(44.6) -
Return on equity 35.7 % 39.4 % 28.4 % 27.7 % 25.2 % 8.6 % 20.3 %
Return on invested capital (8) 15.4 % 17.3 % 15.1 % 14.8 % 14.2 % 7.4 % -
Debt-to-total-capital 58.3 % 65.8 % 47.2 % 51.6 % 50.3 % 47.1 % 55.5 %
Dividend payout ratio (5) 36.3 % 38.3 % 40.2 % 44.9 % 45.8 % 54.4 % 44.9 %
Average shares outstanding
Basic 68.9 68.8 71.4 73.3 75.7 80.6 81.2
Assuming dilution 70.1 69.6 72.0 73.8 75.9 80.7 81.3
- --------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
(MILLIONS EXCEPT
PER SHARE DATA) 1994 1993 1992 1991
- ----------------------------------------------------------------------------
For the year
Net Sales $1,529.4 $1,400.9 $1,323.9 $1,276.3
Percent increase 9.2 % 5.8 % 3.7 % 9.4 %
Operating income 86.7 143.2 122.9 100.1
Operating income
excluding special charges 157.2 143.2 122.9 100.1
Income from unconsolidated
operations 7.9 10.3 9.9 8.8
Net income - continuing
operations 42.5 82.9 73.6 60.4
Net income (1) (7) (3) 61.2 73.1 95.2 80.9
- -------------------------------------------------------------------------
PER COMMON SHARE (2)
Earnings per share
- assuming dilution (6)
Continuing operations $0.52 $1.01 $0.90 $0.73
Discontinued operations (1) 0.23 0.21 0.26 0.25
Extraordinary item - - - -
Accounting change (3) (7) - (0.33) - -
Net earnings $0.75 $0.89 $1.16 $0.98
Earnings per share
- basic (1) (3) (6) (7) $0.75 $0.90 $1.19 $1.01
Common dividends declared (4) $0.49 $0.45 $0.40 $0.31
Market closing price - end
of year $19.00 $23.25 $28.50 $20.63
Book value per share $6.03 $5.70 $5.45 $4.88
- -------------------------------------------------------------------------
AT YEAR END
Total assets $1,555.7 $1,313.2 $1,130.9 $1,037.4
Current debt 214.0 84.7 122.6 78.2
Long-term debt 374.3 346.4 201.0 207.6
Shareholders' equity 490.0 466.8 437.9 389.2
Total capital (9) 1,078.3 897.9 761.5 675.0
- --------------------------------------------------------------------------
STATISTICS & RATIOS
Percentage of net sales
Gross profit margin 36.5 % 38.5 % 38.9 % 36.9 %
Operating income 5.7 % 10.2 % 9.3 % 7.8 %
Net income - continuing
operations 2.8 % 5.9 % 5.6 % 4.7 %
Effective tax rate 40.5 % 41.4 % 39.4 % 38.40 %
Depreciation and amortization $62.5 $50.5 $43.8 $40.5
Capital expenditures $87.7 $76.1 $79.3 $73.0
Economic Value Added (EVA) (8) - - - -
Return on equity 12.8 % 17.0 % 23.3 % 21.8 %
Return on invested capital (8) - - - -
Debt-to-total-capital 54.6 % 48.0 % 42.5 % 42.3 %
Dividend payout ratio (5) 36.1 % 36.1 % 32.8 % 28.6 %
Average shares outstanding
Basic 81.2 80.8 80.1 80.0
Assuming dilution 81.6 81.8 81.9 82.4
- --------------------------------------------------------------------------
</Table>
(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.
(3) In 1993, the Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions."
(4) Includes fourth quarter dividends which, in some years, 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 million after-tax
adjustment.
(8) The Company began calculating EVA and ROIC in 1996.
(9) Total capital includes interest bearing debt, minority interest and
shareholders' equity.
31
<Page>
REPORT OF MANAGEMENT
We are responsible for the preparation and integrity of the consolidated
financial statements appearing in our Annual Report. The consolidated financial
statements were prepared in conformity with accounting principles generally
accepted in the United States and include amounts based on management's
estimates and judgments. All other financial data in this report 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, 2001 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
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS
McCormick & Company, Incorporated
We have audited the accompanying consolidated balance sheets of McCormick &
Company, Incorporated and subsidiaries as of November 30, 2001 and 2000 and the
related consolidated statements of income, cash flows and shareholders' equity
for each of the three years in the period ended November 30, 2001. 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, 2001 and 2000 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended November 30, 2001 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 22, 2002
32
<Page>
CONSOLIDATED STATEMENT OF INCOME
<Table>
<Caption>
FOR THE YEAR ENDED NOVEMBER 30 (MILLIONS EXCEPT PER SHARE DATA) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
Net sales $ 2,372.3 $ 2,123.5 $ 2,006.9
Cost of goods sold 1,401.0 1,318.7 1,289.7
- -------------------------------------------------------------------------------------------------------------------------
Gross profit 971.3 804.8 717.2
Selling, general and administrative expense 719.9 578.7 521.4
Special charges 10.8 1.1 25.7
- -------------------------------------------------------------------------------------------------------------------------
Operating income 240.6 225.0 170.1
Interest expense 52.9 39.7 32.4
Other income, net 2.7 .7 4.6
- -------------------------------------------------------------------------------------------------------------------------
Income from consolidated operations before income taxes 190.4 186.0 142.3
Income taxes 62.9 66.6 57.2
- -------------------------------------------------------------------------------------------------------------------------
Net income from consolidated operations 127.5 119.4 85.1
Income from unconsolidated operations 21.5 18.6 13.4
Minority interest 2.4 .5 -
- -------------------------------------------------------------------------------------------------------------------------
Net income before cumulative effect of an accounting change 146.6 137.5 98.5
Cumulative effect of an accounting change, net of income taxes - - 4.8
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 146.6 $ 137.5 $ 103.3
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE - BASIC
Continuing operations $ 2.13 $ 2.00 $ 1.38
Cumulative effect of an accounting change - - .07
- -------------------------------------------------------------------------------------------------------------------------
Total earnings per share - basic $ 2.13 $ 2.00 $ 1.45
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE - ASSUMING DILUTION
Continuing operations $ 2.09 $ 1.98 $ 1.36
Cumulative effect of an accounting change - - .07
- -------------------------------------------------------------------------------------------------------------------------
Total earnings per share - assuming dilution $ 2.09 $ 1.98 $ 1.43
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES 37-45.
33
<Page>
CONSOLIDATED BALANCE SHEET
<Table>
<Caption>
AT NOVEMBER 30 (MILLIONS) 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 31.3 $ 23.9
Receivables, less allowances of $7.5 for 2001 and $6.6 for 2000 295.5 303.3
Inventories 278.1 274.0
Prepaid expenses and other current assets 30.9 18.8
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 635.8 620.0
- -----------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 424.5 373.0
Intangible assets, net 464.6 453.0
Prepaid allowances 99.3 96.1
Investments and other assets 147.8 117.8
- -----------------------------------------------------------------------------------------------------------------------
Total assets $ 1,772.0 $ 1,659.9
- -----------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Short-term borrowings $ 209.8 $ 473.1
Current portion of long-term debt 1.0 78.8
Trade accounts payable 184.0 185.3
Other accrued liabilities 318.9 290.0
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 713.7 1,027.2
- -----------------------------------------------------------------------------------------------------------------------
Long-term debt 454.1 160.2
Deferred taxes 25.8 3.2
Other long-term liabilities 115.3 110.0
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 1,308.9 1,300.6
- -----------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, no par value; authorized 160.0 shares; issued and
outstanding: 2001- 7.9 shares, 2000 - 8.3 shares 60.4 49.8
Common stock non-voting, no par value; authorized 160.0 shares;
issued and outstanding: 2001 - 61.3 shares, 2000 - 60.0 shares 142.5 125.5
Retained earnings 344.1 263.3
Accumulated other comprehensive income (83.9) (79.3)
- -----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 463.1 359.3
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,772.0 $ 1,659.9
- -----------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES 37-45.
34
<Page>
CONSOLIDATED STATEMENT OF CASH FLOWS
<Table>
<Caption>
FOR THE YEAR ENDED NOVEMBER 30 (MILLIONS) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 146.6 $ 137.5 $ 103.3
Adjustments to reconcile net income to net cash provided by
operating activities
Special charges and accounting change 11.7 - 21.9
Depreciation and amortization 73.0 61.3 57.4
Deferred income taxes 2.2 (5.1) 6.4
Other .5 .5 1.6
Income from unconsolidated operations (21.5) (18.6) (13.4)
Changes in operating assets and liabilities
Receivables 9.5 (24.5) (2.1)
Inventories (3.3) (9.8) 16.0
Prepaid allowances (3.3) 13.0 34.6
Trade accounts payable (1.6) (4.8) 3.2
Other assets and liabilities (27.7) 41.8 (7.6)
Dividends received from unconsolidated affiliates 18.4 10.7 8.0
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 204.5 202.0 229.3
- -------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisitions of businesses - (386.6) -
Capital expenditures (112.1) (53.6) (49.3)
Proceeds from sale of assets .7 1.6 3.0
Other (.5) (4.0) .4
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (111.9) (442.6) (45.9)
- -------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Short-term borrowings, net (263.3) 380.2 (46.4)
Long-term debt borrowings 297.8 - .3
Long-term debt repayments (82.1) (10.0) (24.3)
Common stock issued 29.2 9.0 11.6
Common stock acquired by purchase (11.9) (72.3) (81.0)
Dividends paid (55.1) (52.3) (48.7)
- -------------------------------------------------------------------------------------------------------------------------
Net cash (used in)/provided by financing activities (85.4) 254.6 (188.5)
- -------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents .2 (2.1) (.6)
- -------------------------------------------------------------------------------------------------------------------------
Increase/(decrease) in cash and cash equivalents 7.4 11.9 (5.7)
Cash and cash equivalents at beginning of year 23.9 12.0 17.7
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 31.3 $ 23.9 $ 12.0
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES 37-45.
35
<Page>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<Table>
<Caption>
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, 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
COMPREHENSIVE INCOME:
NET INCOME 146.6 146.6
CURRENCY TRANSLATION ADJUSTMENTS 7.2 7.2
CHANGE IN REALIZED AND UNREALIZED GAINS ON
DERIVATIVE FINANCIAL INSTRUMENTS, NET OF TAX
($4.8 MILLION) (9.9) (9.9)
PENSION ADJUSTMENT (1.9) (1.9)
-----------
COMPREHENSIVE INCOME 142.0
-----------
DIVIDENDS PAID ($.80/SHARE) (55.1) (55.1)
SHARES PURCHASED AND RETIRED (.2) (.1) (1.6) (10.3) (11.9)
SHARES ISSUED .6 .6 29.2 29.2
OTHER (.4) (.4)
EQUAL EXCHANGE (.8) .8 -
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 2001 7.9 61.3 $202.9 $ 344.1 $ (83.9) $ 463.1
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES 37-45.
36
<Page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all majority-owned subsidiaries. Investments in 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 accounting principles
generally accepted in the U.S. 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.
REVENUE RECOGNITION
Sales are recognized when revenue is realized or realizable and earned. In
general, revenue is recognized when risk and title to the product transfer to
the customer, which usually occurs at the time the company ships the goods to
the customer.
SHIPPING AND HANDLING
Shipping and handling costs are included in selling, general and administrative
expenses. The total amount of shipping and handling costs was $55.5 million,
$42.6 million, and $39.0 million for 2001, 2000, and 1999, respectively.
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 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.
ACCOUNTING AND DISCLOSURE CHANGES
In December 1999, the Securities and Exchange Commission (SEC) released Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." The Emerging Issues Task Force (EITF) issued EITF 00-10,
"Accounting for Shipping and Handling Fees and Costs," which required the
Company to reclassify certain shipping and handling costs billed to customers as
sales. These pronouncements, which were adopted in 2001, had no material impact
on the Company's financial statements.
In November 2001, the EITF issued EITF 01-09, "Accounting for Consideration
Given by a Vendor to a Customer or a Reseller of the Vendor's Products," which
is a codification of EITF's 00-14, 00-22, and 00-25. This will require the
Company to reclassify certain marketing expenses as a reduction of sales.
Concurrent with the adoption of EITF 01-09, the Company is also reclassifying
certain expenses from selling, general and administrative expense to cost of
goods sold. These reclassifications will take place in the first quarter of 2002
and prior periods will be reclassified. The effect of these reclassifications on
2001 will be a decrease to sales of $153.9 million, an increase in cost of goods
sold of $20.0 million, and a decrease in selling, general and administrative
expenses of $173.9 million. These reclassifications will decrease gross profit
margin as a percentage of sales from 40.9% to 35.9% and increase operating
income as a percentage of sales from 10.1% to 10.8% in 2001. These
reclassifications will not impact net income.
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations," and No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 applies to all business combinations with a closing date
after June 30, 2001. This statement eliminates the pooling-of-interest method of
accounting, and further clarifies the criteria for recognition of intangible
assets separately from goodwill. Under SFAS No. 142, goodwill and indefinite
lived intangible assets will no longer be amortized but will be subject to
annual impairment tests in accordance with the new standard. Separable
intangible assets that have finite lives will continue to be amortized over
their useful lives. The Company will adopt
37
<Page>
SFAS No. 142 on December 1, 2001. No goodwill impairment will result upon
adoption. The Company recorded $13.0 million of goodwill amortization expense
($12.2 million after tax) for the year ended November 30, 2001.
RECLASSIFICATIONS
Certain amounts in prior years have been reclassified to conform to the 2001
presentation.
2. SPECIAL CHARGES
During the fourth quarter of 2001, the Company adopted a plan to further
streamline its operations. This plan includes the consolidation of several
distribution and manufacturing locations, the reduction of administrative and
manufacturing positions, and the reorganization of several joint ventures. The
total plan will cost approximately $32.6 million ($25.6 million after tax) and
will be implemented over the next 18 months. Total cash expenditures in
connection with these costs will approximate $13.7 million, which will be funded
through internally generated funds. Once fully implemented, annualized savings
are expected to be approximately $8.0 million ($5.3 million after tax). These
savings will be used for investment spending on initiatives such as brand
support and supply chain management. The aforementioned savings and
administrative expenses are expected to be included within the cost of goods
sold and selling, general and administrative expenses in the consolidated
statement of income.
In the fourth quarter of 2001, the Company recorded charges of $11.7 million
($7.7 million after-tax) under this plan. Of this amount $10.8 million was
classified as special charges and $0.9 million as cost of goods sold in the
consolidated statement of income. Additional amounts under the plan were not
recorded since they are either incremental costs directly related to the
implementation of the plan and will be expensed as incurred, or the plans were
not sufficiently detailed to allow for accounting accrual. The Company expects
to record these additional costs in 2002.
The costs recorded in the fourth quarter of 2001 relate to the consolidation
of manufacturing in Canada, a distribution center consolidation in the U.S., a
product line elimination and a realignment of our sales operations in the U.K.,
and a workforce reduction of 275 positions which encompasses plans in all
segments and across all geographic areas. As of November 30, 2001, 135 of the
275 position reductions had been realized.
The major components of the special charges include charges for employee
termination benefits of $6.3 million, impairment charges of $1.6 million, and
other related exit costs of $3.8 million. Asset impairments consist of $0.7
million of property, plant and equipment and $0.9 million of inventory which
were recorded as a direct result of the Company's decision to exit facilities or
product lines. Other exit costs consist primarily of lease terminations.
The major components of the special charges and the remaining accrual balance
as of November 30, 2001 follow:
<Table>
<Caption>
Severance
and personnel Asset Other
(MILLIONS) costs write-downs exit costs Total
- -------------------------------------------------------------------------------
2001
SPECIAL CHARGES $ 6.3 $1.6 $3.8 $11.7
AMOUNTS UTILIZED (.5) (1.6) - (2.1)
- -------------------------------------------------------------------------------
$ 5.8 $ - $3.8 $ 9.6
- -------------------------------------------------------------------------------
</Table>
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.
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. 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 consisted
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.
The major components of the special charges and the remaining accrual balance
as of November 30, 2001 follow:
<Table>
<Caption>
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
2001
AMOUNTS UTILIZED (1.0) - (.1) (1.1)
- --------------------------------------------------------------------------------
$ - $ - $ - $ -
- --------------------------------------------------------------------------------
</Table>
38
<Page>
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). The purchase contract allows for a potential adjustment to the
purchase price. This adjustment procedure has not been concluded, however the
potential adjustment under the contract can only decrease the purchase price.
Any reduction in the purchase price would be recorded as a decrease to goodwill.
Ducros, headquartered in France, manufactures and markets spices and herbs, and
dessert aid products. Key brands include Ducros, Vahine, and Margao which are
produced mainly in France. Sodis manages the racking and merchandising of Ducros
products in supermarkets and hypermarkets.
$370 million of the purchase was financed through 6.7% commercial paper with
the remainder funded by internally generated funds. The Company replaced $300
million of commercial paper with 6.4% and 6.8% medium-term notes in January
2001. The effective interest rate on the medium-term notes is 7.62% due to the
amortization of the discount ($2.2 million), origination fees ($1.1 million),
and swap settlement costs ($14.7 million). (See footnote 6) 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
acquisition.
During 2001, the purchase price allocation was finalized. The purchase price
has been allocated to the assets ($193.6 million), liabilities ($157.6 million),
and minority interest ($10.6 million), based upon their fair market values.
Included in liabilities is $11.4 million of accruals for the reorganization of
resources in the Ducros organization in Europe. Actions under this plan, which
was formulated in conjunction with the acquisition, include the consolidation of
sales areas and offices and the exit from certain smaller markets. The major
components of the accrual include charges for employee termination benefits of
$8.9 million and other exit costs of $2.5 million. $2.0 million of these
accruals were utilized in 2001, and the remaining accrual is $9.4 million.
Goodwill ($353.6 million) is being amortized over 40 years.
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 $53.7 million at
November 30, 2001.
Summarized year-end information from the financial statements of these
companies representing 100% of the businesses follows:
<Table>
<Caption>
(MILLIONS) 2001 2000 1999
- -----------------------------------------------------------
Net sales $ 436.3 $ 437.7 $ 378.3
Gross profit 209.1 200.7 158.7
Net income 43.0 36.1 26.7
- -----------------------------------------------------------
Current assets $ 161.0 $ 177.1 $ 168.0
Noncurrent assets 110.7 106.4 82.6
Current liabilities 83.3 92.5 97.1
Noncurrent liabilities 46.2 62.7 46.1
- -----------------------------------------------------------
</Table>
Royalty income from unconsolidated affiliates was $9.4 million, $9.0 million
and $5.1 million for 2001, 2000, and 1999, respectively.
5. FINANCING ARRANGEMENTS
The Company's outstanding debt is as follows:
<Table>
<Caption>
(MILLIONS) 2001 2000
- -------------------------------------------------------------
Short-term borrowings
Commercial paper (1) $ 173.5 $ 443.0
Other 36.3 30.1
- -------------------------------------------------------------
$ 209.8 $ 473.1
- -------------------------------------------------------------
Weighted-average interest rate
of short-term borrowings at year end 3.17% 6.65%
- -------------------------------------------------------------
Long-term debt
8.95% note due 2001(1) $ - $ 74.9
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
6.40% - 6.80% medium-term notes
due 2006 to 2008(3) 298.2 -
9.34% pound sterling installment
note due through 2001 - 3.1
Other 6.9 11.0
- -------------------------------------------------------------
455.1 239.0
Less current portion 1.0 78.8
- -------------------------------------------------------------
$ 454.1 $ 160.2
- -------------------------------------------------------------
</Table>
(1) The variable interest rate on $75 million commercial paper that was used to
retire the 8.95% note in 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 this period.
(2) Holders have a one-time option to require retirement of these notes in 2004.
(3) Forward starting interest rate swaps, settled upon the issuance of the
medium-term notes, effectively fixed the interest rate on $294 million of
the notes at a weighted average fixed rate of 7.62%.
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 $467.8 million and $241.7 million at November 30, 2001 and
2000, respectively.
Maturities of long-term debt during the four years subsequent to
November 30, 2002 are as follows (in millions):
<Table>
<Caption>
2003 - $ .5 2005 - $ 32.3
2004 - $16.3 2006 - $196.4
</Table>
The Company has available credit facilities with domestic and foreign banks
for various purposes. The amount of unused credit facilities at November 30,
2001 was $392.7 million, of which $350.0 million supports a commercial paper
borrowing arrangement. Of these unused facilities, $225.0 million expire in 2006
and the remainder expire in 2002. Some credit facilities in support of
commercial paper issuance require a commitment fee. Annualized commitment fees
at November 30, 2001 were $0.3 million.
Rental expense under operating leases was $17.0 million in 2001, $17.9
million in 2000 and $17.4 million in 1999. Future annual fixed rental payments
for the years ending November 30 are as follows (in millions):
<Table>
<Caption>
2002 - $ 11.9 2005 - $ 2.4
2003 - $ 7.3 2006 - $ 1.3
2004 - $ 4.8 Thereafter - $ .7
</Table>
At November 30, 2001, the Company had unconditionally guaranteed $0.7 million
of the debt of unconsolidated affiliates. The Company has guaranteed 85% of the
residual value of a
39
<Page>
leased distribution center and the debt of the lessor from which this facility
is leased. The lease, which expires in 2005 and has two subsequent five-year
renewal options, is treated as an operating lease. Rent expense under the lease
is determined as LIBOR plus 0.375% applied to the initial cost of the facility.
At November 30, 2001, the debt under this guarantee was $14 million. A third
party maintains a substantial residual equity investment in the lessor, and
therefore, this entity is not consolidated with the Company.
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 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 denominated
in a foreign currency (generally purchases of raw materials in U.S. dollars by
operating units outside the U.S.) 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. 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, 2001, the Company had foreign currency exchange contracts
maturing within one year to purchase or sell $41.2 million of foreign currencies
versus $0.8 million at November 30, 2000. The fair value of these contracts was
$0.7 million and $0.0 million at November 30, 2001 and 2000, respectively. All
of these contracts were designated as hedges of anticipated purchases
denominated in a foreign currency 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 borrowings or anticipated borrowings and
therefore achieve a desired proportion of variable versus fixed rate debt.
The variable interest on commercial paper which was 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 on $75 million of commercial paper will
be effectively fixed at 6.35% during the period. The unrealized gain or loss on
these swaps is recorded in other comprehensive income, as the Company intends to
hold these forward starting interest rate swaps until maturity. Subsequent to
the starting date of these swaps, the net cash settlements are 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, which were issued in January 2001.
The Company settled these swaps for a cash payment of $14.7 million upon
issuance of the medium-term notes. The loss on these swaps was deferred in other
comprehensive income and is being amortized over the five to seven year life of
the medium-term notes as a component of interest expense.
The notional amount of all open interest rate swaps was $75 million and $369
million at November 30, 2001 and 2000, respectively. The fair market value of
all the swaps was $(6.0) and $(3.8) million at November 30, 2001 and 2000,
respectively. Hedge ineffectiveness was not material.
OTHER FINANCIAL INSTRUMENTS
The Company's other financial instruments include cash and cash equivalents,
receivables and accounts payable. As of November 30, 2001 and 2000, 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, 2001. The Company evaluates the credit worthiness of the
counterparties to financial instruments and considers nonperformance credit risk
to be remote.
40
<Page>
7. PENSION AND 401(K)/PROFIT SHARING PLANS
The Company's pension expense is as follows:
<Table>
<Caption>
United States International
(MILLIONS) 2001 2000 1999 2001 2000 1999
- --------------------------------------------------------------------------------
Defined benefit plans
Service cost $ 7.7 $ 7.1 $ 7.4 $ 3.5 $ 2.7 $ 2.8
Interest costs 14.6 13.8 12.7 3.6 3.3 3.2
Expected return on
plan assets (15.5) (14.1) (11.9) (5.3) (4.7) (5.2)
Amortization of prior
service costs .1 .1 .1 .1 .1 .1
Amortization of
transition assets .2 .2 (.6) - (.1) (.1)
Curtailment loss - - - (.4) - .2
Recognized net
actuarial loss (gain) 1.0 1.3 3.3 (.1) - (.1)
Other retirement plans - - .1 .9 .5 .7
- --------------------------------------------------------------------------------
$ 8.1 $ 8.4 $ 11.1 $ 2.3 $ 1.8 $ 1.6
- --------------------------------------------------------------------------------
</Table>
The Company's U.S. pension plans held .5 million shares, with a fair value of
$19.8 million, of the Company's stock at November 30, 2001. Dividends paid on
these shares in 2001 were $0.4 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:
<Table>
<Caption>
United States International
(MILLIONS) 2001 2000 2001 2000
- -------------------------------------------------------------------------------
Change in benefit obligation
Beginning of the year $ 186.9 $ 176.5 $ 59.0 $ 58.9
Service cost 7.7 7.1 3.5 2.7
Interest costs 14.6 13.8 3.6 3.3
Employee contributions - - 1.2 1.2
Plan changes and other (.1) .6 .8 -
Curtailment - - (.5) -
Actuarial loss 28.5 .6 2.0 .6
Benefits paid (8.8) (11.7) (2.1) (2.1)
Foreign currency impact - - (.7) (5.6)
- -------------------------------------------------------------------------------
End of the year $ 228.8 $ 186.9 $ 66.8 $ 59.0
- -------------------------------------------------------------------------------
Change in fair value of plan assets
Beginning of the year $ 167.4 $ 154.7 $ 65.6 $ 60.7
Actual return on plan assets (9.6) 15.4 (11.4) 10.5
Employer contributions 16.2 7.6 2.3 1.1
Employee contributions - - 1.2 1.2
Benefits paid (7.2) (10.3) (2.1) (2.1)
Foreign currency impact - - (.5) (5.8)
- -------------------------------------------------------------------------------
End of the year $ 166.8 $ 167.4 $ 55.1 $ 65.6
- -------------------------------------------------------------------------------
Reconciliation of funded status
(Under)/over funded status $ (62.0) $ (19.5) $(11.7) $ 6.6
Unrecognized net actuarial
loss (gain) 79.9 24.5 10.8 (7.6)
Unrecognized prior
service cost .7 .2 .5 .5
Unrecognized transition
asset (liability) .2 .5 (.2) (.3)
Employer contributions - - .3 .3
- -------------------------------------------------------------------------------
$ 18.8 $ 5.7 $ (.3) $ (.5)
- -------------------------------------------------------------------------------
</Table>
Included in the United States in the table above is a benefit obligation of
$20.0 million and $17.0 million for 2001 and 2000, respectively, related to an
unfunded pension plan. The accrued liability related to this plan was $12.3
million and $10.5 million as of November 30, 2001 and 2000, respectively.
Amounts recognized in the consolidated balance sheet consist of the
following:
<Table>
<Caption>
United States International
(MILLIONS) 2001 2000 2001 2000
- -------------------------------------------------------------------------------
Prepaid pension cost $ 18.8 $ 5.7 $ .9 $ .5
Accrued pension liability - - (1.2) (1.0)
- -------------------------------------------------------------------------------
$ 18.8 $ 5.7 $ (.3) $ (.5)
- -------------------------------------------------------------------------------
</Table>
The accumulated benefit obligation for the U.S. pension plans was $184.9
million and $152.4 million as of September 30, 2001 and 2000, respectively.
<Table>
<Caption>
United States International
(MILLIONS) 2001 2000 2001 2000
- -------------------------------------------------------------------------------
Significant assumptions
Discount rate 7.25% 8.0% 5.75-6.5% 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%
- -------------------------------------------------------------------------------
</Table>
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 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 2001, 2000 or 1999 and is not expected to have a material impact in future
years.
401(k) PLAN/PROFIT SHARING PLAN
Effective December 1, 2000, the Board of Directors approved an amendment to
eliminate the "Profit Sharing Feature" of the McCormick Profit Sharing Plan. At
the same time, the Company match in the "401(k) feature" was enhanced such that
the Company matches 100% of the participant's contribution up to the first 3% of
the participant's salary, and 50% of the next 2% of a participant's salary. In
conjunction with these amendments, the plan was also renamed the McCormick
401(k) Retirement Plan.
41
<Page>
Company contributions charged to expense under the McCormick 401(k)
Retirement Plan and the McCormick Profit Sharing Plan were $6.6 million, $5.8
million and $6.0 million in 2001, 2000 and 1999, respectively.
The McCormick 401(k) Retirement Plan held 2.3 million shares, with a fair
value of $99.1 million, of the Company's stock at November 30, 2001. Dividends
paid on these shares in 2001 were $1.8 million.
8. OTHER POSTRETIREMENT BENEFITS
The Company's other postretirement benefit expense follows:
<Table>
<Caption>
(MILLIONS) 2001 2000 1999
- ----------------------------------------------------------------------
Other postretirement benefits
Service cost $ 2.6 $ 2.4 $ 2.6
Interest cost 5.5 5.3 4.9
Amortization of prior service cost (.7) (.7) (.1)
Accelerated recognition of prior
unrecognized service cost - (.6) -
- ----------------------------------------------------------------------
$ 7.4 $ 6.4 $ 7.4
- ----------------------------------------------------------------------
</Table>
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:
<Table>
<Caption>
(MILLIONS) 2001 2000
- ---------------------------------------------------------------
Change in benefit obligation
Beginning of the year $ 71.3 $ 65.1
Service cost 2.6 2.4
Interest cost 5.5 5.3
Employee contributions 2.0 1.7
Actuarial loss 5.6 2.0
Benefits paid (5.2) (5.2)
- ---------------------------------------------------------------
End of the year $ 81.8 $ 71.3
- ---------------------------------------------------------------
Change in fair value of plan assets
Beginning of the year $ - $ -
Employer contributions 3.2 3.5
Employee contributions 2.0 1.7
Benefits paid (5.2) (5.2)
- ---------------------------------------------------------------
End of the year $ - $ -
- ---------------------------------------------------------------
Reconciliation of funded status
Funded status $(81.8) $ (71.3)
Unrecognized net actuarial loss (gain) 7.3 1.8
Unrecognized prior service cost (5.3) (6.0)
- ---------------------------------------------------------------
Other postretirement benefit liability $(79.8) $ (75.5)
- ---------------------------------------------------------------
</Table>
The assumed weighted-average discount rates were 7.25% and 8.00% for 2001 and
2000, respectively.
The assumed annual rate of increase in the cost of covered health care
benefits is 7.20% for 2001. 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:
<Table>
<Caption>
1-Percentage- 1-Percentage-
(MILLIONS) Point Increase Point Decrease
- --------------------------------------------------------------------------
Effect on benefit obligation as of
November 30, 2001 $ 6.8 $ (6.1)
Effect on total of service and interest
cost components in 2001 $ 1.0 $ (.8)
- --------------------------------------------------------------------------
</Table>
9. INCOME TAXES
The provision for income taxes consists of the following:
<Table>
<Caption>
(MILLIONS) 2001 2000 1999
- ---------------------------------------------------------------
Income taxes
Current
Federal $ 43.6 $ 51.4 $ 35.6
State 3.4 5.2 2.7
International 13.7 15.1 12.5
- ---------------------------------------------------------------
60.7 71.7 50.8
- ---------------------------------------------------------------
Deferred
Federal 3.5 (5.2) 4.8
State .6 (.7) 1.3
International (1.9) .8 .3
- ---------------------------------------------------------------
2.2 (5.1) 6.4
- ---------------------------------------------------------------
Total income taxes $ 62.9 $ 66.6 $ 57.2
- ---------------------------------------------------------------
</Table>
The components of income from consolidated continuing operations before
income taxes follow:
<Table>
<Caption>
(MILLIONS) 2001 2000 1999
- ---------------------------------------------------------------
Pretax income
United States $ 125.6 $ 133.7 $ 119.3
International 64.8 52.3 23.0
- ---------------------------------------------------------------
$ 190.4 $ 186.0 $ 142.3
- ---------------------------------------------------------------
</Table>
A reconciliation of the U.S. federal statutory rate with the effective tax
rate follows:
<Table>
<Caption>
2001 2000 1999
- -------------------------------------------------------------------------
Federal statutory tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal benefits 1.3 1.6 1.9
Tax effect of international operations (2.3) (.4) .5
Tax credits (1.6) (1.8) (1.6)
Nondeductible special charges - - 4.2
Other, net .6 1.4 .2
- -------------------------------------------------------------------------
Effective tax rate 33.0% 35.8% 40.2%
- -------------------------------------------------------------------------
</Table>
Deferred tax assets and liabilities are comprised of the following:
<Table>
<Caption>
(MILLIONS) 2001 2000
- ----------------------------------------------------------------
Deferred tax assets
Postretirement benefit obligations $ 42.7 $ 37.6
Accrued expenses and other reserves 15.9 14.2
Inventory 3.4 4.0
Net operating losses and tax credits 12.3 7.3
Other 29.8 22.3
Valuation allowance (11.5) (7.3)
- ----------------------------------------------------------------
92.6 78.1
- ----------------------------------------------------------------
Deferred tax liabilities
Depreciation 39.5 36.9
Other 45.6 31.5
- ----------------------------------------------------------------
85.1 68.4
- ----------------------------------------------------------------
Net deferred tax asset $ 7.5 $ 9.7
- ----------------------------------------------------------------
</Table>
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.
42
<Page>
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 $106.3 million at November 30, 2001.
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 the plans have two or three year terms.
Under the Company's 1997 and 2001 Stock Option Plans, the McCormick (U.K.)
Share Option Schemes, and the McCormick France Share Option Plan, 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 granted under these plans have five or
ten year terms.
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:
<Table>
<Caption>
(MILLIONS EXCEPT PER SHARE DATA) 2001 2000 1999
- ------------------------------------------------------------------
Pro forma net income $ 131.7 $ 131.1 $ 98.2
Pro forma earnings per share
Assuming dilution 1.88 1.88 1.36
Basic 1.91 1.91 1.38
- ------------------------------------------------------------------
</Table>
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 $10.81, $6.65, and $6.02 in 2001, 2000 and 1999, 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, McCormick France Share
Option Plan, and the ESPP (including options to foreign employees):
<Table>
<Caption>
2001 2000 1999
- ---------------------------------------------------------------------------
Risk-free interest rates 5.0% 5.6% 4.9%-5.4%
Dividend yields 2.0% 2.0% 2.0%
Expected volatility 26.0% 24.5% 24.2%
Expected lives 1.6-7.2 years 1.6-4.8 years 1.6-6.0 years
- ---------------------------------------------------------------------------
</Table>
A summary of the Company's stock option plans for the years ended November 30
follows:
<Table>
<Caption>
(OPTIONS IN MILLIONS) 2001 2000 1999
- ----------------------------------------------------------------------------------------
WEIGHTED- Weighted- Weighted-
AVERAGE average average
EXERCISE exercise exercise
SHARES PRICE Shares price Shares price
- ----------------------------------------------------------------------------------------
Beginning of year 5.5 $27.62 4.5 $27.86 3.7 $26.50
Granted 2.2 $36.41 1.5 $25.65 1.6 $29.06
Exercised (1.1) $24.84 (.4) $22.68 (.6) $23.54
Forfeited (.1) $27.72 (.1) $27.65 (.2) $25.91
- ----------------------------------------------------------------------------------------
End of year 6.5 $30.91 5.5 $27.62 4.5 $27.86
- ----------------------------------------------------------------------------------------
Exercisable --
end of year 2.6 $29.63 2.5 $27.33 2.3 $25.54
- ----------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
(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
- --------------------------------------------------------------------------
$18.76 - $23.03 0.1 3.9 $22.16 0.1 $22.16
$23.03 - $27.30 2.0 5.8 $25.10 0.9 $24.71
$27.30 - $31.57 1.2 7.1 $29.05 0.6 $29.04
$31.57 - $35.84 2.9 8.1 $34.80 0.8 $33.21
$35.84 - $40.11 0.2 2.0 $39.98 0.2 $40.02
$40.11 - $44.38 0.1 8.1 $42.94 0.0 $44.38
- --------------------------------------------------------------------------
6.5 6.9 $30.91 2.6 $29.63
- --------------------------------------------------------------------------
</Table>
Under all stock purchase and option plans, there were 8.7 million and 1.2
million shares reserved for future grants at November 30, 2001 and 2000,
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:
<Table>
<Caption>
(millions) 2001 2000 1999
- --------------------------------------------------------------------
Average shares outstanding -- basic 68.9 68.8 71.4
Effect of dilutive securities
Stock options and ESPP 1.2 .8 .6
- --------------------------------------------------------------------
Average shares outstanding --
assuming dilution 70.1 69.6 72.0
- --------------------------------------------------------------------
</Table>
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 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.
43
<Page>
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 mark up. 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.
<Table>
<Caption>
Total Corporate &
(MILLIONS) Consumer Industrial Food Packaging Eliminations Total
- --------------------------------------------------------------------------------------------------------------------------
2001
NET SALES $1,191.9 $ 1,000.4 $ 2,192.3 $ 180.0 $ - $ 2,372.3
INTERSEGMENT SALES - 9.6 9.6 41.3 (50.9) -
OPERATING INCOME 161.9 89.7 251.6 18.7 (29.7) 240.6
OPERATING INCOME EXCLUDING SPECIAL CHARGES 167.0 95.6 262.6 19.4 (29.7) 252.3
INCOME FROM UNCONSOLIDATED OPERATIONS 19.5 2.0 21.5 - - 21.5
ASSETS - - 1,451.7 141.2 179.1 1,772.0
CAPITAL EXPENDITURES - - 87.0 15.3 9.8 112.1
DEPRECIATION AND AMORTIZATION - - 58.5 12.4 2.1 73.0
- --------------------------------------------------------------------------------------------------------------------------
2000
Net Sales $ 990.5 $ 954.6 $ 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 16.5 2.1 18.6 - - 18.6
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
- --------------------------------------------------------------------------------------------------------------------------
</Table>
44
<Page>
GEOGRAPHIC AREAS
The Company has net sales and long-lived assets in the following geographic
areas:
<Table>
<Caption>
United Other
(MILLIONS) States Europe Countries Total
- --------------------------------------------------------------------------
2001
NET SALES $1,485.9 $593.7 $292.7 $2,372.3
LONG-LIVED ASSETS (1) 367.2 459.4 62.5 889.1
- --------------------------------------------------------------------------
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
- --------------------------------------------------------------------------
</Table>
(1) Long-lived assets include property, plant and equipment and intangible
assets, net of accumulated depreciation and amortization, respectively.
14. SUPPLEMENTAL FINANCIAL STATEMENT DATA
<Table>
<Caption>
(MILLIONS) 2001 2000
- ---------------------------------------------------------------
Inventories
Finished products
and work-in-process $ 160.1 $ 153.5
Raw materials 118.0 120.5
- ---------------------------------------------------------------
$ 278.1 $ 274.0
- ---------------------------------------------------------------
Property, plant and equipment
Land and improvements $ 21.6 $ 25.2
Buildings 207.1 200.3
Machinery and equipment 582.0 521.9
Construction in progress 76.6 32.6
Accumulated depreciation (462.8) (407.0)
- ---------------------------------------------------------------
$ 424.5 $ 373.0
- ---------------------------------------------------------------
Intangible assets
Cost $ 534.4 $ 510.2
Accumulated amortization (69.8 ) (57.2)
- ---------------------------------------------------------------
$ 464.6 $ 453.0
- ---------------------------------------------------------------
Investments and other assets
Investments $ 83.2 $ 75.2
Other assets 64.6 42.6
- ---------------------------------------------------------------
$ 147.8 $ 117.8
- ---------------------------------------------------------------
Other accrued liabilities
Payroll and employee benefits $ 83.6 $ 78.2
Sales allowances 69.3 69.1
Income taxes 26.0 28.7
Other 140.0 114.0
- ---------------------------------------------------------------
$ 318.9 $ 290.0
- ---------------------------------------------------------------
Other long-term liabilities
Other postretirement benefits $ 79.8 $ 75.5
Other 35.5 34.5
- ---------------------------------------------------------------
$ 115.3 $ 110.0
- ---------------------------------------------------------------
</Table>
<Table>
<Caption>
(MILLIONS) 2001 2000 1999
- ------------------------------------------------------------
Depreciation $ 59.6 $ 54.2 $ 52.5
Research and development 27.1 24.9 21.4
Interest paid 48.5 39.7 33.0
Income taxes paid 46.9 69.8 55.3
- ------------------------------------------------------------
</Table>
<Table>
<Caption>
(MILLIONS) 2001 2000
- ------------------------------------------------------------------------
Accumulated other comprehensive income
Foreign currency translation adjustment $(69.7) $(76.8)
Fair value of open interest rate swaps (4.0) (2.5)
Unamortized value of settled interest rate swaps (8.5) -
Pension adjustment (1.9) -
Unrealized gain on foreign currency
exchange contracts .2 -
- ------------------------------------------------------------------------
$(83.9) $(79.3)
- ------------------------------------------------------------------------
</Table>
15. SELECTED QUARTERLY DATA (UNAUDITED)
<Table>
<Caption>
(MILLIONS EXCEPT PER SHARE DATA First Second Third Fourth
- --------------------------------------------------------------------------------
2001
NET SALES $ 533.5 $ 567.1 $ 570.7 $ 701.0
GROSS PROFIT 208.5 221.5 228.9 312.4
OPERATING INCOME 44.9 49.6 56.4 89.7
NET INCOME 26.6 26.6 34.3 59.1
EARNINGS PER SHARE
BASIC .39 .39 .50 .85
ASSUMING DILUTION .38 .38 .49 .84
DIVIDENDS PAID PER SHARE .20 .20 .20 .20
MARKET PRICE
HIGH 40.21 42.94 45.67 46.54
LOW 34.00 36.50 39.00 39.30
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
</Table>
45
<Page>
McCORMICK WORLDWIDE
<Table>
<Caption>
U.S.A. OUTSIDE U.S.A.
CONSOLIDATED OPERATING UNITS CONSOLIDATED OPERATING UNITS McCORMICK (U.K.) LIMITED
Haddenham, England
FOOD SERVICE DIVISION DESSERT PRODUCTS INTERNATIONAL, John C. Molan
Hunt Valley, Maryland S.A.S.(51%) MANAGING DIRECTOR
Charles T. Langmead Carpentras, France
VICE PRESIDENT & GENERAL MANAGER John C. Molan McCORMICK FLAVOUR GROUP -
PRESIDENT DIRECTOR GENERAL EUROPE
FRITO WORLDWIDE DIVISION Haddenham, England
Hunt Valley, Maryland DUCROS, S.A.S. James M. Morrisroe
Andrew Fetzek, Jr. Carpentras, France VICE PRESIDENT
VICE PRESIDENT & GENERAL MANAGER John C. Molan
PRESIDENT DIRECTOR GENERAL MCCORMICK SOUTH AFRICA
GLOBAL RESTAURANT DIVISION PROPRIETARY LIMITED
Hunt Valley, Maryland LA CIE McCORMICK CANADA CO. Midrand, South Africa
Paul C. Beard London, Ontario, Canada Gavin Jacobs
VICE PRESIDENT & GENERAL MANAGER Mark T. Timbie MANAGING DIRECTOR
PRESIDENT
McCORMICK FLAVOR DIVISION OY McCORMICK AB
Hunt Valley, Maryland McCORMICK DE CENTRO AMERICA, Helsinki, Finland
Randal M. Hoff S.A. DE C.V. John C. Molan
VICE PRESIDENT & GENERAL MANAGER San Salvador, El Salvador MANAGING DIRECTOR
Arduino Bianchi
U.S. CONSUMER PRODUCTS DIVISION MANAGING DIRECTOR SHANGHAI McCORMICK FOODS
Hunt Valley, Maryland COMPANY, LIMITED (90%)
Robert W. Schroeder McCORMICK FOODS AUSTRALIA Shanghai, People's Republic of China
PRESIDENT, U.S. CONSUMER FOODS PTY. LTD. Victor K. Sy
Clayton, Victoria, Australia CHAIRMAN
McCORMICK PACKAGING GROUP Timothy J. Large
Donald E. Parodi MANAGING DIRECTOR AFFILIATES OUTSIDE THE U.S.A.
VICE PRESIDENT
McCORMICK (GUANGZHOU) FOOD McCORMICK DE MEXICO,
SETCO, INC. COMPANY LIMITED S.A. DE C.V. (50%)
Anaheim, California Guangzhou, People's Republic of China Mexico City, Mexico
Donald E. Parodi Victor K. Sy
PRESIDENT GENERAL MANAGER McCORMICK KUTAS FOOD SERVICE
LTD. (50%)
TUBED PRODUCTS, INC. McCORMICK INGREDIENTS Haddenham, England
Easthampton, Massachusetts SOUTHEAST ASIA PRIVATE LIMITED
Stephen J. Rafter Jurong, Republic of Singapore McCORMICK-LION LIMITED (49%)
PRESIDENT Russell Eves Tokyo, Japan
MANAGING DIRECTOR
U.S.A. AFFILIATES MCCORMICK PHILIPPINES, INC. (50%)
McCORMICK PESA, S.A. DE C.V. Manila, Philippines
McCORMICK FRESH HERBS, LLC (50%) Mexico City, Mexico
Commerce, California Lazaro Gonzalez STANGE (JAPAN) K.K. (50%)
MANAGING DIRECTOR Tokyo, Japan
SIGNATURE BRANDS, LLC (50%)
Ocala, Florida McCORMICK S.A.
Regansdorf Z.H., Switzerland
SUPHERB FARMS (50%) John C. Molan
Turlock, California MANAGING DIRECTOR
</Table>
46
<Page>
INVESTOR INFORMATION
World Headquarters
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
[MKC Listed NYSE logo]
DIVIDEND DATES - 2002
<Table>
<Caption>
RECORD DATE PAYMENT DATE
04/01/02 04/12/02
06/28/02 07/12/02
09/30/02 10/11/02
12/31/02 01/22/03
</Table>
McCORMICK & COMPANY HAS PAID DIVIDENDS FOR 77 CONSECUTIVE YEARS.
There are approximately 12,000 shareholders of record, approximately 4,000
holders in McCormick's 401(k) plan for employees and an estimated 25,000
"street-name" beneficial holders whose shares are held in names other than their
own, for example, in brokerage accounts.
INVESTOR 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 web site.
For general questions about McCormick or information in the annual or quarterly
reports, contact the Treasurer's Office at the Corporate address or by
telephone:
Report ordering:
(800) 424-5855 or (410) 771-7537
Analysts' inquiries:
(410) 771-7244
Our web site, www.mccormick.com, has annual reports, SEC filings, press
releases, webcasts and other information.
SHAREHOLDER INQUIRIES
For questions about your account, statements, dividend payments, reinvestment
and direct deposit, address changes, lost certificates, stock transfers,
ownership changes or other administrative matters, contact Wells Fargo
Shareowner Services.
TRANSFER AGENT AND REGISTRAR
Wells Fargo Bank Minnesota, N.A.,
Shareowner Services
161 North Concord Exchange
South St. Paul, MN 55075
(800) 468-9716 or 651-450-4064
www.wellsfargo.com/shareownerservices
Account access via web site
www.shareowneronline.com
INVESTOR SERVICES PLAN (DIVIDEND REINVESTMENT PLAN)
The Company offers an Investor Services Plan which provides plan participants
the opportunity to automatically reinvest dividends, purchase shares directly,
place stock certificates into safekeeping and sell shares. Individuals who are
not current shareholders may purchase their initial plan shares directly. All
transactions are subject to the limitations set forth in the Investor Services
Plan prospectus, which may be obtained by contacting Wells Fargo Shareowner
Services at:
(800) 468-9716 or 651-450-4064
www.wellsfargo.com/shareownerservices
STOCK PRICE HISTORY
<Table>
<Caption>
3 MONTHS ENDED HIGH LOW CLOSE
11/30/01 $46.54 $39.30 $43.00
08/31/01 45.67 39.00 45.20
05/31/01 42.94 36.50 40.40
02/28/01 40.21 34.00 39.30
</Table>
TRADEMARKS
Use of (R) or (TM) in this annual report indicates trademarks owned or used by
McCormick & Company, Incorporated and its subsidiaries and affiliates.
ON THE COVER: LAURIE HARRSEN
- DIRECTOR OF PUBLIC RELATIONS, CONSUMER PRODUCTS DIVISION
ADLER DESIGN GROUP DESIGNED THIS YEAR'S REPORT.
THIS REPORT IS PRINTED ON RECYCLED PAPER.
47
<Page>
CORPORATE OFFICERS
<Table>
Robert J. Lawless H. Grey Goode, Jr. Karen D. Weatherholtz
CHAIRMAN, PRESIDENT & VICE PRESIDENT - TAX SENIOR VICE PRESIDENT -
CHIEF EXECUTIVE OFFICER HUMAN RELATIONS
Kenneth A. Kelly, Jr.
Susan L. Abbott VICE PRESIDENT & CONTROLLER Jeryl Wolfe
VICE PRESIDENT - REGULATORY & VICE PRESIDENT -
ENVIRONMENTAL AFFAIRS Christopher J. Kurtzman GLOBAL BUSINESS SOLUTIONS
VICE PRESIDENT & TREASURER
Allen M. Barrett, Jr. Joyce L. Brooks
VICE PRESIDENT - CORPORATE Roger T. Lawrence ASSISTANT TREASURER -
COMMUNICATIONS VICE PRESIDENT - QUALITY ASSURANCE FINANCIAL SERVICES
Francis A. Contino C. Robert Miller, II W. Geoffrey Carpenter
EXECUTIVE VICE PRESIDENT & VICE PRESIDENT - MANAGEMENT ASSOCIATE GENERAL COUNSEL &
CHIEF FINANCIAL OFFICER INFORMATION SYSTEMS ASSISTANT SECRETARY
Robert G. Davey Michael J. Navarre J. Gregory Yawman
PRESIDENT - GLOBAL INDUSTRIAL GROUP VICE PRESIDENT - OPERATIONS ASSOCIATE COUNSEL &
ASSISTANT SECRETARY
Stephen J. Donohue Carroll D. Nordhoff
VICE PRESIDENT - STRATEGIC SOURCING EXECUTIVE VICE PRESIDENT
Dr. Hamed Faridi Robert W. Skelton
VICE PRESIDENT - VICE PRESIDENT, GENERAL
RESEARCH & DEVELOPMENT COUNSEL & SECRETARY
Gordon M. Stetz, Jr.
VICE PRESIDENT - ACQUISITIONS
& FINANCIAL PLANNING
</Table>
48
<Page>
BOARD OF DIRECTORS
Executive Committee of the Board
Robert J. Lawless
Francis A. Contino
Robert G. Davey
Carroll D. Nordhoff
Barry H. Beracha*
CHIEF EXECUTIVE OFFICER
SARA LEE BAKERY GROUP
James T. Brady +
MANAGING DIRECTOR, MID-ATLANTIC
BALLANTRAE INTERNATIONAL, LTD.
Edward S. Dunn, Jr.*
PRESIDENT & CEO
COLONIAL WILLIAMSBURG COMPANY
Dr. J. Michael Fitzpatrick*
PRESIDENT & CHIEF OPERATING OFFICER
ROHM AND HAAS COMPANY
Dr. Freeman A. Hrabowski, III +*
PRESIDENT
UNIVERSITY OF MARYLAND
BALTIMORE COUNTY
John C. Molan
PRESIDENT, EUROPE, MIDDLE EAST
& AFRICA
Robert W. Schroeder
PRESIDENT, U.S. CONSUMER FOODS
William E. Stevens +*
CHAIRMAN, BBI GROUP, INC.
Karen D. Weatherholtz
SENIOR VICE PRESIDENT -
HUMAN RELATIONS
+AUDIT COMMITTEE MEMBER
*COMPENSATION COMMITTEE MEMBER
(shown l-r, seated front) Brady, Weatherholtz, Molan, Fitzpatrick, Dunn,
Hrabowski; (standing back) Stevens, Lawless, Davey, Nordhoff, Beracha,
Schroeder, Contino
[PHOTOGRAPH]
49
<Page>
[McCormick logo]
McCORMICK & COMPANY, INCORPORATED
18 Loveton Circle Sparks, Maryland 21152-6000 U.S.A. 410-771-7301