SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 2004 |
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Commission file number 001-14920 |
McCORMICK & COMPANY, INCORPORATED
Maryland |
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52-0408290 |
(State of incorporation) |
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(IRS Employer Identification No.) |
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18
Loveton Circle |
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21152 |
(Address of principal executive offices) |
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(Zip Code) |
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Registrants telephone number, including area code: |
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(410) 771-7301 |
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Securities registered pursuant to Section 12(b) of the Act: |
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Title of Each Class |
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Name of each exchange on which registered |
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Common Stock, No Par Value |
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New York Stock Exchange |
Common Stock Non-Voting, No Par Value |
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: Not applicable.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý No o
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrants most recently completed second fiscal quarter.
The aggregate market value of the voting common equity held by non-affiliates at May 31, 2004: $358,238,728.
The aggregate market value of the non-voting common equity held by non-affiliates at May 31, 2004: $4,297,375,756.
Indicate the number of shares outstanding of each of the registrants classes of common stock, as of the latest practicable date.
Class |
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Number of Shares Outstanding |
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Date |
Common Stock |
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14,985,822 |
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December 31, 2004 |
Common Stock Non-Voting |
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120,800,750 |
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December 31, 2004 |
DOCUMENTS INCORPORATED BY REFERENCE
Document |
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Part of 10-K into which incorporated |
Annual
Report to Stockholders |
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Part I, Part II |
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Registrants
Proxy Statement |
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Part III |
PART I
As used herein, the Registrant means McCormick & Company, Incorporated and its subsidiaries, unless the context otherwise requires.
Item 1. Business
The Registrant, a diversified specialty food company, is a global leader in the manufacture, marketing and distribution of spices, herbs, seasonings and other flavors to the entire food industry. The Registrant was formed in 1915 under Maryland law as the successor to a business established in 1889.
The Registrant operates in two business segments: consumer and industrial. The Registrant sold its packaging segment during the third quarter of 2003. The consumer segment sells seasoning blends, spices, herbs, extracts, sauces, marinades and specialty foods to the consumer food market under a variety of brands, including McCormick and Zatarains in the US, Ducros and Silvo in continental Europe, Club House in Canada and Schwartz in the U.K. The industrial segment sells blended seasonings, spices and herbs, condiments, compound flavors and extracts, and coating systems to food processors, restaurants, distributors, warehouse clubs and institutional operations.
Please refer to pages 8 through 11, Consumer Business, pages 12 through 15 Industrial Business, and pages 16 and 17, Q&A with Bob Lawless, of the Registrants Annual Report to Stockholders for 2004 for a description of the business. Such pages of the Registrants Annual Report to Stockholders for 2004 are incorporated herein by reference.
For financial information about the Registrants business segments, please refer to pages 21 through 34, Managements Discussion and Analysis, and Note 16, Business Segments and
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Geographic Areas of the Notes to Consolidated Financial Statements on pages 53 and 54 of the Annual Report to Stockholders for 2004, which pages are incorporated herein by reference.
Raw Materials
The most significant raw materials to the Registrant are vanilla, cheese, pepper, packaging supplies, garlic, onion and capsicums. Black pepper, vanilla beans and other spices and herbs are generally sourced from countries other than the United States. The Registrant is not aware of any government restrictions or other factors that would have a material adverse effect on the availability of these raw materials. Because the raw materials are agricultural products, they may be subject to price volatility caused by weather and other unpredictable factors. The Registrant responds to this volatility in a number of ways including strategic raw material purchases, purchases of raw material for future delivery and customer price adjustments.
Customers
The Registrants products are sold directly and through brokers, wholesalers and distributors. In the consumer segment, products are generally resold to consumers through grocery, drug, dollar and mass merchandise stores. These customers are serviced either through direct shipments, through the food wholesale channel, or by direct store delivery. In the industrial segment, products are used by food and beverage manufacturers as ingredients for their finished goods and by food service customers to enhance the flavor of their foods. Customers for the industrial segment include food processors and the restaurant industry, supplied both directly and through distributors and warehouse clubs.
The Registrant has a large number of customers for its products. No single customer accounted for as much as 10% of consolidated net sales in 2004. Sales to the Registrants five largest customers represented approximately 32% of consolidated net sales.
The dollar amount of backlog orders of the Registrants business is not material to an understanding of the Registrants business, taken as a whole. No material portion of the Registrants business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the U.S. Government.
Trademarks, Licenses and Patents
The Registrant owns a number of trademark registrations. Although in the aggregate these trademarks may be material to the Registrants business, the loss of any one of those trademarks, with the exception of the Registrants McCormick, Zatarains, Schwartz, Club House and Ducros trademarks, would not have a material adverse effect on the Registrants business. The McCormick trademark is extensively used by the Registrant in connection with the sale of virtually all of the Registrants food products worldwide. The terms of the trademark registrations are as prescribed by law and the registrations will be renewed for as long as the Registrant deems them to be useful.
The Registrant has entered into a number of license agreements authorizing the use of its trademarks by affiliated and non-affiliated entities. The loss of these license agreements would not have a material adverse effect on the Registrants business. The term of the license agreements is generally 3 to 5 years or until such time as either party terminates the agreement. Those agreements with specific terms are renewable upon agreement of the parties.
The Registrant owns various patents, but they are not viewed as material to the Registrants business.
3
Seasonal Nature of Business
Due to seasonal factors inherent in the business, the Registrants sales and income are lower in the first two quarters of the fiscal year and increase in the third and fourth quarters. The seasonality reflects customer and consumer buying patterns, primarily in the consumer segment.
Working Capital
In order to meet increased demand for its consumer products during its fourth quarter, the Registrant usually builds its inventories during the third quarter. The Registrant generally finances working capital items (inventory and receivables) through short-term borrowings, which include the use of lines of credit and the issuance of commercial paper. For a description of the Registrants liquidity and capital resources, see Note 7 Financing Arrangements of the Notes to Consolidated Financial Statements on pages 46 and 47 of the Registrants Annual Report to Stockholders for 2004, which pages are incorporated by reference, and the Financial Condition section of Managements Discussion and Analysis on pages 26 through 28 of the Registrants Annual Report to Stockholders for 2004, which pages are incorporated by reference.
Competition
The Registrant is a global leader in the manufacture and sale of spices, herbs, extracts, seasonings and flavorings and competes in a geographic market that is international and highly competitive. For further discussion, see page 21 of the Registrants Annual Report to Stockholders for 2004, which page is incorporated by reference.
Research and Development
Many of the Registrants products are prepared from confidential formulae developed by its research laboratories and product development teams. Expenditures for research and development amounted to $39.3 million in 2004, $33.2 million in 2003 and $31.4 million in 2002. The amount spent on customer-sponsored research activities is not material.
Environmental Regulations
Compliance with Federal, State and local provisions related to protection of the environment has had no material effect on the Registrants business. There were no material capital expenditures for environmental control facilities in 2004 and there are no material expenditures planned for such purposes in 2005.
Employees
The Registrant had approximately 8,000 employees worldwide as of December 31, 2004. The Registrant believes its relationship with employees to be good. The Registrant has no collective bargaining contracts in the United States. At the Registrants foreign subsidiaries, approximately 1,200 employees are covered by collective bargaining agreements or similar arrangements.
4
Financial Information About Geographic Locations
For information on the net sales and long-lived assets of the Registrant, see Geographic Areas within Note 16 of the Notes to Consolidated Financial Statements on page 54 of the Registrants Annual Report to Stockholders for 2004, which page is incorporated by reference, and the Market Risk Sensitivity section of Managements Discussion and Analysis on page 30 of the Registrants Annual Report to Stockholders for 2004, which page is incorporated by reference.
Foreign Operations
The Registrant is subject in varying degrees to certain risks typically associated with a global business, such as local economic and market conditions, restrictions on investments, royalties and dividends and exchange rate fluctuations. Approximately 38% of net sales in 2004 were from international operations.
Forward-Looking Information
For a discussion of forward-looking information, see the Forward-Looking Information section of Managements Discussion and Analysis on page 34 of the Registrants Annual Report to Stockholders for 2004, which page is incorporated by reference.
Available Information
The Registrants Internet website address is: www.mccormick.com. The Registrant makes available free of charge through its website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the SEC. The Registrants website also includes the Registrants Corporate Governance Guidelines, Business Ethics Policy and charters of its Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee. These documents are also available in print to any shareholder upon request.
Item 2. Properties
The Registrants principal executive offices and primary research facilities are owned and are located in suburban Baltimore, Maryland.
The following is a list of the Registrants principal manufacturing properties, all of which are owned except for the facilities in Commerce, California and Sydney, Australia, which are leased:
United States |
Hunt Valley, Maryland consumer and industrial |
(4 principal plants) |
Salinas, California consumer and industrial |
Commerce, California consumer |
Dallas, Texas industrial |
Atlanta, Georgia industrial |
South Bend, Indiana industrial |
Gretna, Louisiana consumer |
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Canada |
London, Ontario consumer and industrial |
5
Mexico |
Cuautitlan de Romero Rubio, Mexico industrial |
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United Kingdom |
Haddenham, England consumer and industrial |
Paisley, Scotland industrial |
Littleborough, England consumer and industrial |
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France |
Carpentras consumer and industrial |
Monteux - consumer (2 principal plants) |
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The Netherlands |
Papendrecht - consumer |
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Australia |
Melbourne consumer and industrial |
Sydney consumer and industrial |
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China |
Shanghai consumer and industrial |
Guangzhou consumer and industrial |
In addition to distribution facilities and warehouse space available at its manufacturing facilities, the Registrant leases regional distribution facilities in Belcamp, Maryland, Salinas, California and Dallas, Texas and owns a distribution facility in Monteux, France. The Registrant also owns or leases several other properties used for manufacturing consumer and industrial products and for sales, distribution and administrative functions.
The Registrant believes its plants are well maintained and suitable for their intended use. The Registrant further believes that these plants generally have adequate capacity and can accommodate seasonal demands, changing product mixes and certain additional growth. Many additions and improvements have been made to these facilities over the years and the plants manufacturing equipment includes equipment of the latest type and technology.
Item 3. Legal Proceedings
There are no material pending legal proceedings in which the Registrant or any of its subsidiaries is a party or in which any of their property is the subject.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of Registrants fiscal year 2004 to a vote of security holders.
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Executive Officers of the Registrant
In addition to the executive officers described in the Registrants Proxy Statement for 2004 incorporated by reference in Item 10 of this Report, the following individuals are also executive officers of the Registrant: Paul C. Beard, H. Grey Goode, Jr., Kenneth A. Kelly, Jr., Robert W. Skelton, Mark T. Timbie, Alan D. Wilson and Jeryl Wolfe.
Mr. Beard is 50 years old and has had the following work experience during the last five years: 3/02 to present Vice President, Finance & Treasurer; 1/00 to 3/02 Vice President & General Manager, Global Restaurant Division; 12/98 to 1/00 Vice President & General Manager, McCormick Flavor Division.
Mr. Goode is 56 years old and has had the following work experience during the last five years: 1/01 to present Vice President, Tax; 9/96 to 1/01 Director of Tax.
Mr. Kelly is 50 years old and has had the following work experience during the last five years: 2/00 to present Vice President and Controller; 7/97 to 2/00 Vice President, Finance & Administration/McCormick Schilling Division.
Mr. Skelton is 57 years old and has had the following work experience during the last five years: 11/02 to present Senior Vice President, General Counsel & Secretary; 6/97 to 11/02 - Vice President, General Counsel & Secretary.
Mr. Timbie is 50 years old and has had the following work experience during the last five years: 1/04 to present President, International Consumer Products Group; 3/01 to 12/03 President, McCormick Canada; 10/99 to 2/01 Vice President & General Manager, Perimeter Group/Consumer Markets; 6/96 to 9/99 Vice President, Sales & Marketing/Consumer Products Division.
Mr. Wilson is 47 years old and has had the following work experience during the last five years: 1/03 to present President, U.S. Consumer Products Division; 3/01 to 12/02 Vice President & General Manager, Sales & Marketing; 12/98 to 2/01 President, McCormick Canada.
Mr. Wolfe is 44 years old and has had the following work experience during the last five years: 10/04 to present Vice President Supply Chain & Chief Information Officer; 4/04 to 10/04 Vice President Global Business Solutions & Chief Information Officer; 4/00 to 4/04 Vice President Global Business Solutions.
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Registrant has disclosed in Note 18, Selected Quarterly Data (Unaudited) of the Notes to Consolidated Financial Statements on page 55 of the Registrants Annual Report to Stockholders for 2004, which page is incorporated by reference, the information relating to the market price and dividends paid on the Registrants common stocks. The market price of the Registrants Common Stock at the close of business on December 31, 2004 was $38.75 for the Common Stock and $38.60 for the Common Stock Non-Voting.
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The Registrants Common Stock Non-Voting and voting Common Stock are listed and traded on the New York Stock Exchange. The approximate number of holders of Common Stock of the Registrant based on record ownership as of December 31, 2004 was as follows:
Title of Class |
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Approximate Number |
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Common Stock, no par value |
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2,200 |
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Common Stock Non-Voting, no par value |
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10,600 |
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The following table summarizes the Companys purchases of Common Stock (CS) and Common Stock Non-Voting (CSNV) during the fourth quarter of 2004:
ISSUER PURCHASES OF EQUITY SECURITIES
Period |
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Total Number of Shares |
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Average |
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Total Number |
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Approximate Dollar |
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September 1, 2004 to September 30, 2004 |
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CS 0 |
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$201.9 million |
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CSNV 350,000 |
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$34.22 |
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350,000 |
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October 1, 2004 to October 31, 2004 |
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CS 0 |
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$170.5 million |
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CSNV 900,000 |
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$34.89 |
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900,000 |
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November 1, 2004 to November 30, 2004 |
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CS 101,984 |
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$36.59 |
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101,984 |
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$147.7 million |
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CSNV 526,016 |
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$36.23 |
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526,016 |
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CS 101,984 |
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$36.59 |
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101,984 |
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Total |
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$147.7 million |
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CSNV 1,776,016 |
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$35.16 |
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1,776,016 |
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Note: During the quarter, the Company continued to purchase against its $300 million authorization approved by the Board of Directors in the fourth quarter of 2003. As of November 30, 2004, $147.7 million remained of the $300 million authorization. Without significant acquisition activity, the Company expects this program to extend into 2006.
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Item 6. Selected Financial Data
This information is set forth on the line items titled Net sales-under EITF 01-09, Net sales prior to EITF 01-09, Net income from continuing operations, Earnings per share Diluted - Continuing operations, Common Stock dividends declared, Long-term debt and Total assets for the years 2000 through 2004 in the Historical Financial Summary on page 56 of the Registrants Annual Report to Stockholders for 2004, which line items are incorporated by reference. See also Note 1 Summary of Significant Accounting Policies on pages 41 through 43 of the Registrants Annual Report to Stockholders for 2004 and Note 3 Discontinued Operations on page 44 of the Registrants Annual Report to Stockholders for 2004, which pages are incorporated by reference.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
This information is set forth in Managements Discussion and Analysis on pages 21 through 34 of the Registrants Annual Report to Stockholders for 2004, which pages are incorporated by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
This information is set forth in the Market Risk Sensitivity section of Managements Discussion and Analysis on pages 30 through 32 of the Registrants Annual Report to Stockholders for 2004, which pages are incorporated by reference, and in Note 8 Financial Instruments on pages 47 and 48 of the Registrants Annual Report to Stockholders for 2004, which pages are incorporated by reference.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are included on pages 37 through 56 of the Registrants Annual Report to Stockholders for 2004, which pages are incorporated by reference. The Report of Ernst & Young LLP, Independent Registered Public Accounting Firm, on such financial statements is included on page 36 of the Registrants Annual Report to Stockholders for 2004, which page is incorporated by reference. The supplemental schedule for 2002, 2003 and 2004 is included on page 14 of this Report on Form 10-K.
The unaudited quarterly data is included in Note 18, Selected Quarterly Data (Unaudited) of the Notes to Consolidated Financial Statements on page 55 of the Registrants Annual Report to Stockholders for 2004, which page is incorporated by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
The Registrant maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed, is accumulated and communicated to management in a timely manner. The Registrants principal executive officer and principal financial officer evaluated as of November 30, 2004 the effectiveness of this system of disclosure
9
controls and procedures, and have concluded that such disclosure controls and procedures were effective as of such date.
Internal Control over Financial Reporting
Managements report on the Registrants internal controls over financial reporting is included on page 35 of the Registrants Annual Report to Stockholders for 2004, which page is incorporated by reference. The Independent Registered Public Accounting Firms report with respect to Managements assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting is included on pages 35 and 36 of the Registrants Annual Report to Stockholders for 2004, which pages are incorporated by reference.
Item 9B. Other Information
On January 25, 2005, the Registrant entered into a $400,000,000 five year credit agreement with Bank of America, N.A., as administrative agent, and the other financial institutions party thereto (the Credit Agreement). The Credit Agreement replaced two existing credit agreements which were terminated on January 25, 2005: (i) a $225,000,000 five year credit agreement among the Registrant, Wachovia Bank, National Association, as administrative agent, and the other financial institutions party thereto, dated as of June 19, 2001 (as amended and modified from time to time), and (ii) a $125,000,000 364-day credit agreement among the Registrant, Wachovia Bank, National Association, as administrative agent, and the other financial institutions party thereto, dated as of June 19, 2001 (as amended and modified from time to time).
Loans under the Credit Agreement are to be repaid not later than the maturity date, and may be prepaid under certain circumstances as stated in the Credit Agreement. The unpaid principal amount of any loans outstanding, accrued and unpaid interest, and other amounts owing under the Credit Agreement may be declared to be immediately due and payable if any event of default occurs and is continuing. Upon notice to the administrative agent, the Registrant may request an increase in the aggregate commitments under the Credit Agreement by an amount not exceeding $100,000,000, provided that the aggregate commitments may not exceed $500,000,000. The Registrant has limited rights of recourse against third parties under the Credit Agreement. A copy of the Credit Agreement, without schedules and exhibits, is attached hereto as Exhibit 10(xv).
PART III
Item 10. Directors and Executive Officers of the Registrant
Information responsive to this item is set forth in Part I of this Report in the section titled Executive Officers of the Registrant and in the sections titled Election of Directors and Section 16(a) Beneficial Ownership Reporting Compliance in the Registrants definitive proxy statement for 2005, incorporated by reference herein, to be filed within 120 days after the end of the Registrants fiscal year (the 2005 Proxy Statement).
The Registrant has adopted a code of ethics that applies to all employees, including its principal executive officer, principal financial officer, principal accounting officer and its Board of Directors. A copy of the code of ethics is available on the Registrants Internet website at www.mccormick.com and is available in print to any shareholder upon request. The Registrant intends to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or a waiver from, a provision of its code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or persons performing similar functions, by posting such information on its website at the Internet website address set forth above.
Item 11. Executive Compensation
Information responsive to this item is incorporated herein by reference to the sections titled Report on Executive Compensation, Summary Compensation Table, Compensation of Directors, Pension Plan Table, Stock Options - Option Grants in Last Fiscal Year, Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values, Equity Compensation Plan Information, Mid-Term Incentive Plan and Performance Graph Shareholder Return in the Registrants 2005 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Transactions
Information responsive to this item is incorporated herein by reference to the sections titled Principal Stockholders, Election of Directors and Equity Compensation Plan Information in the Registrants 2005 Proxy Statement.
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Item 13. Certain Relationships and Related Transactions
Information responsive to this Item is incorporated herein by reference to the section entitled Independence of Directors in the Registrants 2005 Proxy Statement.
Item 14. Principal Accountant Fees and Services
Information responsive to this item is incorporated herein by reference to the section titled Report of Audit Committee and Fees of Independent Registered Public Accounting Firm in the Registrants 2005 Proxy Statement.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as a part of this report:
1. The consolidated financial statements for McCormick & Company, Incorporated and subsidiaries which are listed in the Table of Contents appearing on page 13 of this Report.
2. The financial statement schedule required by Item 8 of this Form 10-K is listed in the Table of Contents appearing on page 13 of this Report.
3. The exhibits that are filed as a part of this Form 10-K and required by Item 601 of Regulation S-K and Item 15(c) of this Form 10-K are listed on the accompanying Exhibit Index at pages 15 through 19 of this Report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
McCORMICK & COMPANY, INCORPORATED
By: |
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/s/ |
Robert J. Lawless |
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Chairman, President & |
January 27, 2005 |
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Robert J. Lawless |
Chief Executive Officer |
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Principal Executive Officer:
By: |
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/s/ |
Robert J. Lawless |
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Chairman, President & |
January 27, 2005 |
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Robert J. Lawless |
Chief Executive Officer |
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Principal Financial Officer: |
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||||||
By: |
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/s/ |
Francis A. Contino |
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Executive Vice |
January 27, 2005 |
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Francis A. Contino |
President - Strategic |
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|||||
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Planning & Chief Financial |
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Officer |
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Principal Accounting Officer: |
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||||||
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||||||
By: |
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/s/ |
Kenneth A. Kelly, Jr. |
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Vice President & |
January 27, 2005 |
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Kenneth A. Kelly, Jr. |
Controller |
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|||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, being a majority of the Board of Directors of McCormick & Company, Incorporated, on the date indicated:
THE BOARD OF DIRECTORS: |
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DATE: |
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|
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/s/ Barry H. Beracha |
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January 27, 2005 |
Barry H. Beracha |
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/s/ James T. Brady |
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January 27, 2005 |
James T. Brady |
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/s/ Francis A. Contino |
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January 27, 2005 |
Francis A. Contino |
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January 27, 2005 |
Robert G. Davey |
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/s/ Edward S. Dunn, Jr. |
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January 27, 2005 |
Edward S. Dunn, Jr. |
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/s/ J. Michael Fitzpatrick |
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January 27, 2005 |
J. Michael Fitzpatrick |
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/s/ Freeman A. Hrabowski, III |
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January 27, 2005 |
Freeman A. Hrabowski, III |
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/s/ Robert J. Lawless |
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January 27, 2005 |
Robert J. Lawless |
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/s/ Margaret M. V. Preston |
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January 27, 2005 |
Margaret M. V. Preston |
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/s/ William E. Stevens |
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January 27, 2005 |
William E. Stevens |
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/s/ Karen D. Weatherholtz |
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January 27, 2005 |
Karen D. Weatherholtz |
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13
TABLE OF CONTENTS AND RELATED INFORMATION
Included in the Registrants 2004 Annual Report to Stockholders, the following consolidated financial statements are incorporated by reference in Item 8*:
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Consolidated Statement of Income for the years ended November 30, 2004, 2003 & 2002 |
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Consolidated Balance Sheet, November 30, 2004 & 2003 |
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Consolidated Statement of Cash Flows for the years ended November 30, 2004, 2003 & 2002 |
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Consolidated Statement of Shareholders Equity for the years ended November 30, 2004, 2003 & 2002 |
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Notes to Consolidated Financial Statements |
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Report of Independent Registered Public Accounting Firm |
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Included in Part IV of this Annual Report: |
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Supplemental Financial Schedule: |
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II - Valuation and Qualifying Accounts |
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Schedules other than those listed above are omitted because of the absence of the conditions under which they are required or because the information called for is included in the consolidated financial statements or notes thereto.
*Pursuant to Rule 12b-23 issued by the Commission under the Securities Exchange Act of 1934, as amended, a copy of the 2004 Annual Report to Stockholders of the Registrant for its fiscal year ended November 30, 2004 is being furnished with this Annual Report on Form 10-K.
14
Supplemental Financial Schedule II Consolidated
McCORMICK & COMPANY, INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS) (1)
Column A |
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Column B |
|
Column C |
|
Column D |
|
Column E |
|
Description |
|
Balance |
|
Additions |
|
Deductions |
|
Balance |
|
|
|
|
|
|
|
|
|
|
|
Year ended November 30, 2004 Allowance for doubtful receivables |
|
$6.3 |
|
$1.2 |
|
$0.8 |
|
$ 6.7 |
|
|
|
|
|
|
|
|
|
|
|
Year ended November 30, 2003 Allowance for doubtful receivables |
|
$5.4 |
|
$ 1.9 |
|
$1.0 |
|
$ 6.3 |
|
|
|
|
|
|
|
|
|
|
|
Year ended November 30, 2002 Allowance for doubtful receivables |
|
$5.0 |
|
$ 1.0 |
|
$0.6 |
|
$ 5.4 |
|
Notes:
(1) The table excludes discontinued operations.
15
EXHIBIT INDEX
ITEM 601 |
|
REFERENCE OR PAGE |
|
|
|
|
|
(2) |
Plan of acquisition, reorganization, arrangement, liquidation or succession |
|
Not applicable. |
|
|
|
|
(3) |
Articles of Incorporation and By-Laws |
|
|
|
|
|
|
|
Restatement of Charter of McCormick & Company, Incorporated dated April 16, 1990 |
|
Incorporated by reference from Exhibit 4 of Registration Form S-8, Registration No. 33-39582 as filed with the Securities and Exchange Commission on March 25, 1991. |
|
|
|
|
|
Articles of Amendment to Charter of McCormick & Company, Incorporated dated April 1, 1992 |
|
Incorporated by reference from Exhibit 4 of Registration Form S-8, Registration Statement No. 33-59842 as filed with the Securities and Exchange Commission on March 19, 1993. |
|
|
|
|
|
Articles of Amendment to Charter of McCormick & Company, Incorporated dated March 27, 2003 |
|
Incorporated by reference from Exhibit 4 of Registration Form S-8, Registration Statement No. 333-104084 as filed with the Securities and Exchange Commission on March 28, 2003. |
|
|
|
|
|
By-Laws of McCormick & Company, Incorporated Restated and Amended on September 17, 2002 |
|
Incorporated by reference from Exhibit 3.1 of the Registrants Form 10-Q for the quarter ended August 31, 2002 as filed with the Securities and Exchange Commission on October 11, 2002. |
|
|
|
|
|
Amendment to the By-Laws of McCormick & Company, Incorporated dated January 27, 2004 |
|
Incorporated by reference from Exhibit 3(i) of the Registrants Form 10-K for the period ended November 30, 2003 as filed with the Securities and Exchange Commission on January 27, 2004. |
16
(4) |
Instruments defining the rights of security holders, including indentures |
|
i) See Exhibit 3 (Restatement of Charter) ii) Summary of Certain Exchange Rights, incorporated by reference from Exhibit 4.1 of the Registrants Form 10-Q for the quarter ended August 31, 2001 as filed with the Securities and Exchange Commission on October 12, 2001. iii) Indenture dated December 5, 2000 between Registrant and SunTrust Bank, incorporated by reference from Exhibit 4(iii) of Registrants Form 10-Q for the quarter ended August 31, 2003, as filed with the Securities and Exchange Commission on October 14, 2003. Registrant hereby undertakes to furnish to the Securities and Exchange Commission, upon its request, copies of additional instruments of Registrant with respect to long-term debt that involve an amount of securities that do not exceed 10 percent of the total assets of the Registrant and its subsidiaries on a consolidated basis, pursuant to Regulation S-K, Item 601b(4)(iii)(A). |
|
|
|
|
(9) |
Voting Trust Agreement |
|
Not applicable. |
(10) Material contracts
(i) Asset Purchase Agreement dated June 26, 2003 among Kerr Group, Inc., Kerr Acquisition Sub I, LLC and Setco, Inc., a former wholly-owned subsidiary of Registrant, which agreement is incorporated by reference from Exhibit 10(i) of Registrants Form 10-Q for the quarter ended August 31, 2003, as filed with the Securities and Exchange Commission on October 14, 2003.*
(ii) Asset Purchase Agreement dated June 26, 2003 among Kerr Group, Inc., Kerr Acquisition Sub II, LLC and Tubed Products, Inc., a former wholly-owned subsidiary of Registrant, which agreement is incorporated by reference from Exhibit 10(ii) of Registrants Form 10-Q for the quarter ended August 31, 2003, as filed with the Securities and Exchange Commission on October 14, 2003.*
(iii) Asset Purchase Agreement dated June 26, 2003 among Kerr Group, Inc., Kerr Acquisition Sub II, LLC and O.G. Dehydrated, Inc., a former wholly-owned subsidiary of Tubed Products, Inc., which agreement is incorporated by reference from Exhibit 10(iii) of Registrants Form 10-Q for the quarter ended August 31, 2003, as filed with the Securities and Exchange Commission on October 14, 2003.*
(iv) Registrants supplemental pension plan for certain senior officers, as amended and restated effective June 19, 2001, is contained in the McCormick Supplemental Executive Retirement Plan, a copy of which was attached as Exhibit 10.1 to the Registrants Form 10-Q for the quarter ended August 31, 2001, as filed with the Securities and Exchange Commission on October 12, 2001, and incorporated by
17
reference herein.** Amendment Number 1 to the Supplemental Executive Retirement Plan, effective January 1, 2005, is attached hereto as Exhibit 10(iv).
(v) The 2001 Stock Option Plan, in which officers and certain other management employees participate, is set forth on pages 33 through 36 of the Registrants definitive Proxy Statement dated February 15, 2001, as filed with the Securities and Exchange Commission on February 14, 2001, and incorporated by reference herein.**
(vi) The 1997 Stock Option Plan, in which officers and certain other management employees participate, is set forth in Exhibit B of the Registrants definitive Proxy Statement dated February 19, 1997, as filed with the Securities and Exchange Commission on February 18, 1997, and incorporated by reference herein.**
(vii) The 2002 McCormick Mid-Term Incentive Plan, which is provided to a limited number of senior executives, is set forth on pages 23 through 31 of the Registrants definitive Proxy Statement dated February 15, 2002, as filed with the Commission on February 15, 2002, and incorporated by reference herein.**
(viii) 2004 Long-Term Incentive Plan, in which officers and certain other management employees participate, is set forth in Exhibit A of the Registrants definitive Proxy Statement dated February 17, 2004, as filed with the Securities and Exchange Commission on February 17, 2004, and incorporated by reference herein.**
(ix) 2004 Directors Non-Qualified Stock Option Plan, provided to members of the Registrants Board of Directors who are not also employees of the Registrant, is set forth in Exhibit B of the Registrants definitive Proxy Statement dated February 17, 2004 as filed with the Securities and Exchange Commission on February 17, 2004, and incorporated by reference herein.**
(x) Directors Share Ownership Program, provided to members of the Registrants Board of Directors who are not also employees of the Registrant, is set forth on page 28 of the Registrants definitive Proxy Statement dated February 17, 2004 as filed with the Securities and Exchange Commission on February 17, 2004, and incorporated by reference herein.**
(xi) Deferred Compensation Plan, as restated on January 1, 2000, and amended on August 29, 2000, September 5, 2000 and May 16, 2003, in which directors, officers and certain other management employees participate, a copy of which Plan document and amendments was attached as Exhibit 10(viii) of the Registrants Form 10-Q for the quarter ended August 31, 2003 as filed with the Securities and Exchange Commission on October 14, 2003, and incorporated by reference herein.**
(xii) Deferred Compensation Plan, effective January 1, 2005, in which directors, officers and certain other management employees participate, and attached hereto as Exhibit 10(xii).
(xiii) Stock Purchase Agreement among the Registrant, Eridania Beghin-Say and Compagnie Francaise de Sucrerie CFS, dated July 12, 2000, which agreement is
18
incorporated by reference from Exhibit 2 of Registrants Report on Form 8-K, as filed with the Securities and Exchange Commission on September 15, 2000.
(xiv) Stock Purchase Agreement dated May 7, 2003 among the Registrant, Zatarains Brands, Inc., and the stockholders set forth on the stockholder signature pages of the Agreement, which agreement is incorporated by reference from Exhibit 10(vii) of Registrants Form 10-Q for the quarter ended May 31, 2003, as filed with the Securities and Exchange Commission on July 11, 2003.
(xv) Credit Agreement dated January 25, 2005 among the Registrant and Certain Financial Institutions.
(xvi) 364-Day Credit Agreement, dated June 19, 2001 among Registrant and Certain Financial Institutions (terminated on January 25, 2005), which agreement is incorporated by reference from Exhibit 10 (xii) of Registrants 10-Q for the quarter ended August 31, 2003, as filed with the Securities and Exchange Commission on October 14, 2003.
(xvii) Revolving Credit Agreement, dated as of June 19, 2001 among Registrant and Certain Financial Institutions (terminated on January 25, 2005), which agreement is incorporated by reference from Exhibit 10 (xiii) of Registrants 10-Q for the quarter ended August 31, 2003, as filed with the Securities and Exchange Commission on October 14, 2003.
(xviii) Consulting agreement between Registrant and Robert W. Schroeder dated January 1, 2004, which agreement is incorporated by reference from Exhibit 10(xv) of Registrants Form 10-K for the fiscal year ended November 30, 2003, as filed with the Securities and Exchange Commission on January 29, 2004.**
(xix) Retirement Agreement between Registrant and John C. Molan dated January 27, 2004, which agreement is incorporated by reference from Exhibit 10(xvi) of the Registrants 10-Q for the quarter ended August 31, 2004, as filed with the Securities and Exchange Commission on October 8, 2004.**
(11) |
|
Statement re computation of per share earnings |
|
Not applicable. |
|
|
|
|
|
(12) |
|
Statement re computation of ratios |
|
Not applicable. |
|
|
|
|
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(13) |
|
Annual report to security holders, Form 10-Q and 10-QSB, or quarterly report to security holders |
|
The Registrants Annual Report to Stockholders for 2004 is attached as Exhibit 13. |
|
|
|
|
|
(14) |
|
Code of Ethics |
|
Not applicable. |
|
|
|
|
|
(16) |
|
Letter re change in certifying accountant |
|
Not applicable. |
|
|
|
|
|
(18) |
|
Letter re change in accounting principles |
|
Not applicable. |
|
|
|
|
|
(21) |
|
Subsidiaries of the registrant |
|
Attached as Exhibit 21. |
|
|
|
|
|
(22) |
|
Published report regarding matters submitted to vote of securities holders |
|
Not applicable. |
|
|
|
|
|
(23) |
|
Consents of experts and counsel |
|
Attached as Exhibit 23. |
|
|
|
|
|
(24) |
|
Power of attorney |
|
Not applicable. |
|
|
|
|
|
(31) |
|
Rule 13a-14(a)/15d-14(a) Certifications |
|
Attached. |
|
|
|
|
|
(32) |
|
Section 1350 Certifications |
|
Attached. |
19
(99) |
|
Additional Exhibits |
|
None. |
* Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
** Management contract or compensatory plan or arrangement.
20
EXHIBIT 10(iv)
AMENDMENT
NO. 1
TO THE
McCORMICK & COMPANY, INCORPORATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
WHEREAS, McCormick & Company, Incorporated (the Company) has adopted a Supplemental Executive Retirement Plan, which was amended and restated as of June 19, 2001 (the Plan);
WHEREAS, section 885 of the American Jobs Creation Act of 2004 (the AJCA) changed the federal income tax rules governing nonqualified deferred compensation plans by adding section 409A to the Internal Revenue Code of 1986 (the Code), generally effective as of January 1, 2005;
WHEREAS, the Department of the Treasury has not issued guidance of general applicability under Code section 409A or under AJCA section 885; and
WHEREAS, in the absence of such guidance, the Company considers it necessary to amend and administer the Plan based on a reasonable interpretation of Code section 409A and AJCA section 885,
NOW, THEREFORE, the Plan is amended as follows:
1.1 All provisions of the Plan shall be deemed amended as necessary to comply with the applicable requirements of Code section 409A and AJCA section 885. In the event of any inconsistency between the terms of the Plan and the applicable requirements of such sections, the requirements of such sections shall govern.
1.2 The Plan shall be administered in accordance with a reasonable interpretation of the applicable requirements of Code section 409A and AJCA section 885, notwithstanding any inconsistency between those requirements and the text of the Plan.
1.3 This Amendment No. 1 shall be effective January 1, 2005, except as otherwise required by Code section 409A or AJCA section 885.
IN WITNESS WHEREOF, this Amendment No. 1 to the Plan has been executed on behalf of the Company this 23rd day of December, 2004.
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McCORMICK & COMPANY, INCORPORATED |
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By: |
/s/ Karen D. Weatherholtz |
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Karen D. Weatherholtz |
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Senior Vice President Human Relations |
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EXHIBIT 10(xii)
McCORMICK & COMPANY, INCORPORATED
2005 DEFERRED COMPENSATION PLAN
Effective January 1, 2005
This Plan is intended to be an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of Title I of the Employee Income Retirement Security Act of 1974, as amended.
WHEREAS, McCormick & Company, Incorporated (the Company) adopted a Deferred Compensation Plan effective January 1, 2000 (the 2000 Plan) that is an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of Title I of the Employee Income Retirement Security Act of 1974, as amended;
WHEREAS, section 885 of the American Jobs Creation Act of 2004 (the AJCA) changed the federal income tax rules governing nonqualified deferred compensation plans by adding section 409A to the Internal Revenue Code of 1986 (the Code), generally effective as of January 1, 2005;
WHEREAS, the Department of the Treasury has not issued guidance of general applicability under Code section 409A or under AJCA section 885;
WHEREAS, the Company has determined that, in the absence of such guidance, it is desirable to adopt a new plan that replaces the 2000 Plan with respect to deferrals on and after January 1, 2005, for purposes of complying with Code section 409A and AJCA section 885, and to administer the new plan based on a reasonable interpretation of Code section 409A and AJCA section 885; and
WHEREAS, the 2000 Plan shall continue to apply to deferred compensation earned and vested thereunder as of December 31, 2004,
NOW, THEREFORE, the Company hereby adopts the following 2005 Deferred Compensation Plan:
1.4 The provisions of the 2000 Plan, attached hereto as Attachment A (and excluding the amendment to the 2000 Plan made by paragraph 1.6, below), are hereby incorporated herein by reference.
1.5 For purposes of this Plan, all provisions of the 2000 Plan shall be deemed amended as necessary to comply with the applicable requirements of Code section 409A and AJCA section 885.
1.6 For purposes of this Plan, in the event of any inconsistency between the terms of the 2000 Plan and the applicable requirements of Code section 409A or AJCA section 885, the applicable requirements of section 409A or section 885, as the case may be, shall govern.
1.7 The Plan shall be administered in accordance with a reasonable interpretation of the applicable requirements of Code section 409A and AJCA section 885, notwithstanding any inconsistency between those requirements and the text of the Plan.
1.8 This Plan shall be effective January 1, 2005, except as otherwise required by Code section 409A and AJCA section 885.
1.9 No deferrals shall be made under the 2000 Plan after December 31, 2004.
1.10 Prior to December 31, 2005, a participant in the Plan may terminate participation in the Plan or cancel a deferral election with regard to amounts deferred after December 31, 2004 by giving written notice of such termination or cancellation to the Plan Administrator.
IN WITNESS WHEREOF, this Plan document has been executed on behalf of the Company this 23rd day of December, 2004.
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McCORMICK & COMPANY, INCORPORATED |
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By: |
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/s/ |
Karen D. Weatherholtz |
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Karen D. Weatherholtz |
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Senior Vice President Human Relations |
2
Exhibit 10(xv)
EXECUTION COPY
Published CUSIP Number:
$400,000,000
CREDIT AGREEMENT
Dated as of January 25, 2005
among
MCCORMICK
& COMPANY, INCORPORATED
as the Borrower,
BANK OF
AMERICA, N.A.,
as Administrative Agent, Swing Line Lender and
L/C Issuer,
and
SUNTRUST
BANK
and
WACHOVIA BANK, NATIONAL ASSOCIATION,
as Co-Syndication Agents,
and
WELLS
FARGO BANK, N.A.,
and
BNP PARIBAS
as Co-Documentation Agents
and
The Other Lenders Party Hereto
BANC OF
AMERICA SECURITIES LLC,
as Joint Lead
Arranger and Sole Book Manager,
and
SUNTRUST ROBINSON HUMPHREY
and
WACHOVIA CAPITAL MARKETS LLC,
as Joint Lead Arrangers
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ii
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iii
SCHEDULES |
|
|
|
Schedule 1.01 |
Mandatory Cost Formulae |
Schedule 2.01 |
Commitments and Applicable Percentages |
Schedule 5.07 |
Litigation |
Schedule 5.08 |
Subsidiaries |
Schedule 5.11 |
ERISA Matters |
Schedule 5.12 |
Environmental Matters |
Schedule 7.03 |
Permitted Liens |
Schedule 10.02 |
Lending Offices; Addresses for Notices |
Schedule 10.06 |
Processing and Recordation Fees |
|
|
EXHIBITS |
|
|
|
Exhibit A |
Form of Committed Loan Notice |
Exhibit B-1 |
Form of Bid Request |
Exhibit B-2 |
Form of Competitive Bid |
Exhibit C |
Form of Swing Line Loan Notice |
Exhibit D |
Form of Note |
Exhibit E |
Form of Compliance Certificate |
Exhibit F |
Form of Assignment and Assumption |
iv
CREDIT AGREEMENT
This CREDIT AGREEMENT is entered into as of January 25, 2005 among MCCORMICK & COMPANY, INCORPORATED, a Maryland corporation (the Borrower), each lender from time to time party hereto (collectively, the Lenders and individually, a Lender), and BANK OF AMERICA, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer.
The Borrower has requested that the Lenders provide a revolving credit facility and the Lenders are willing to do so on the terms and conditions set forth herein.
In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:
Absolute Rate means a fixed rate of interest expressed in multiples of 1/100th of one basis point.
Absolute Rate Loan means a Bid Loan that bears interest at a rate determined with reference to an Absolute Rate.
Administrative Agent means Bank of America in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.
Administrative Agents Office means, with respect to any currency, the Administrative Agents address and, as appropriate, account as set forth on Schedule 10.02 with respect to such currency, or such other address or account with respect to such currency as the Administrative Agent may from time to time notify to the Borrower and the Lenders.
Administrative Questionnaire means an Administrative Questionnaire in a form supplied by the Administrative Agent.
Affiliate of any Person means any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person (excluding any trustee under, or any committee with responsibility for administering, any Plan). A Person shall be deemed to be controlled by any other Person if such other Person possesses, directly or indirectly, power
(a) to vote 25% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or
(b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise;
provided, however, that notwithstanding the foregoing, for purposes of Section 10.06(b), an Affiliate shall be a Person engaged in the business of banking who is controlled by, or under common control with, a Lender.
Aggregate Commitments means the Commitments of all the Lenders.
Agreement means this Credit Agreement as the same may be amended, supplemented, amended and restated or otherwise modified from time to time.
Alternative Currency means each of Euro, Sterling and Yen and each other currency (other than Dollars) that is approved in accordance with Section 1.05.
Alternative Currency Equivalent means, at any time, with respect to any amount denominated in Dollars, the equivalent amount thereof in the applicable Alternative Currency as determined by the Administrative Agent, at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date) for the purchase of such Alternative Currency with Dollars.
Applicable Law shall mean, in respect of any Person, all provisions of constitutions, statutes, rules, regulations and orders of governmental bodies or regulatory agencies applicable to such Person, and all orders and decrees of all courts and arbitrators in proceedings or actions to which the Person in question is a party or by which it is bound.
Applicable Percentage means with respect to any Lender at any time, the percentage (carried out to the ninth decimal place) of the Aggregate Commitments represented by such Lenders Commitment at such time. If the commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02 or if the Aggregate Commitments have expired, then the Applicable Percentage of each Lender shall be determined based on the Applicable Percentage of such Lender most recently in effect, giving effect to any subsequent assignments. The initial Applicable Percentage of each Lender is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.
Applicable Rate means, from time to time, the following basis points (b.p.) per annum, based upon the Debt Rating as set forth below:
Applicable Rate (b.p.)
Pricing |
|
Debt Ratings |
|
Applicable |
|
Utilization |
|
Facility |
|
Base Rate + |
|
1 |
|
> AA- / Aa3 |
|
14.0 |
|
5.0 |
|
6.0 |
|
0 |
|
2 |
|
A+ / A1 |
|
15.5 |
|
5.0 |
|
7.0 |
|
0 |
|
3 |
|
A / A2 |
|
17.0 |
|
5.0 |
|
8.0 |
|
0 |
|
4 |
|
A- / A3 |
|
26.0 |
|
10.0 |
|
9.0 |
|
0 |
|
5 |
|
< BBB+ / Baa1 |
|
37.5 |
|
12.5 |
|
12.5 |
|
0 |
|
Debt Rating means, as of any date of determination, the rating as determined by S&P and Moodys (collectively, the Debt Ratings) of the Borrowers non-credit-enhanced, senior unsecured long-term debt; provided that if a Debt Rating is issued by each of the foregoing rating agencies, then the higher of such Debt Ratings shall apply (with the Debt Rating for Pricing Level 1 being the highest and the Debt Rating for Pricing Level 5 being the lowest), unless there is a split in Debt Ratings of more than one level, in which case the Pricing Level that is one Pricing Level lower than the higher Debt Rating shall apply.
Initially, the Applicable Rate shall be determined based upon the Debt Rating specified in the certificate delivered pursuant to Section 4.01(f)(iv). Thereafter, each change in the Applicable Rate resulting from a publicly announced change in the Debt Rating shall be effective, in the case of an upgrade, during the period commencing on the date of the public announcement thereof and ending on the date immediately preceding the effective date of the next such change and, in the case of a downgrade, during the period commencing on the date of the public announcement thereof and ending on the date immediately preceding the effective date of the next such change.
Applicable Time means, with respect to any borrowings and payments in any Alternative Currency, the local time in the place of settlement for such Alternative Currency as may be determined by the Administrative Agent to be necessary for timely settlement on the relevant date in accordance with normal banking procedures in the place of payment.
Approved Fund means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
Assignee Group means two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor.
Assignment and Assumption means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.06(b)), and accepted by the Administrative Agent, in substantially the form of Exhibit F or any other form approved by the Administrative Agent.
Attributable Value means, as to any particular Sale-Leaseback Transaction under which any Person is at the time liable, at any date as of which the amount thereof is to be determined (a) in the case of any such transaction involving a Capitalized Lease, the amount on such date of
the Capitalized Lease Obligation thereunder, or (b) in the case of any other such transaction, the then present value of the minimum rental obligation under such transaction during the remaining term thereof (after giving effect to any extensions at the option of the lessor), computed by discounting the respective rental or other payments at the actual interest factor included in such payment or, if such interest factor cannot be readily determined, at the rate of 9.75% per annum, compounded annually, or calculated in such other manner as may be required by GAAP in effect at the time. The amount of any rental or other payment required to be made under any such transaction not involving a Capitalized Lease may exclude amounts required to be paid by the lessee (or equivalent party) on account of maintenance, repairs, insurance, Taxes, assessments, utilities, operating and labor costs and similar charges. In the case of any such transaction not involving a Capitalized Lease which is terminable by the lessee (or equivalent party) upon payment of a penalty, such rental or other payment may include the amount of such penalty, in which case no rental or other payment shall be considered as required to be paid under such transaction subsequent to the first date on which it may be so terminated.
Authorized Officer means, relative to the Borrower, those of its officers whose signatures and incumbency shall have been certified to the Administrative Agent and the Lenders pursuant to Section 4.01(b) or any successor thereto.
Availability Period means the period from and including the Closing Date to the earliest of (a) the Maturity Date, (b) the date of termination of the Aggregate Commitments pursuant to Section 2.07, and (c) the date of termination of the commitment of each Lender to make Loans and of the obligation of the L/C Issuer to make L/C Credit Extensions pursuant to Section 8.02.
Bank of America means Bank of America, N.A. and its successors.
Bank of America Fee Letter means the letter agreement, dated as of December 10, 2004, among the Borrower, the Administrative Agent and Banc of America Securities LLC.
Base Rate means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its prime rate. The prime rate is a rate set by Bank of America based upon various factors including Bank of Americas costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change.
Base Rate Committed Loan means a Committed Loan that is a Base Rate Loan.
Base Rate Loan means a Loan that bears interest based on the Base Rate. All Base Rate Loans shall be denominated in Dollars.
Bid Borrowing means a borrowing consisting of simultaneous Bid Loans of the same Type from each of the Lenders whose offer to make one or more Bid Loans as part of such borrowing has been accepted under the auction bidding procedures described in Section 2.03.
Bid Loan has the meaning specified in Section 2.03(a).
Bid Loan Lender means, in respect of any Bid Loan, the Lender making such Bid Loan to the Borrower.
Bid Request means a written request for one or more Bid Loans substantially in the form of Exhibit B-1.
Borrower has the meaning specified in the introductory paragraph hereto.
Borrowing means a Committed Borrowing, a Bid Borrowing or a Swing Line Borrowing, as the context may require.
Business Day means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agents Office with respect to Obligations denominated in Dollars is located and:
(a) if such day relates to any interest rate settings as to a Eurocurrency Rate Committed Loan denominated in Dollars, any fundings, disbursements, settlements and payments in Dollars in respect of any such Eurocurrency Rate Committed Loan, or any other dealings in Dollars to be carried out pursuant to this Agreement in respect of any such Eurocurrency Rate Committed Loan, means any such day on which dealings in deposits in Dollars are conducted by and between banks in the London interbank eurodollar market;
(b) if such day relates to any interest rate settings as to a Eurocurrency Rate Committed Loan denominated in Euro, any fundings, disbursements, settlements and payments in Euro in respect of any such Eurocurrency Rate Committed Loan, or any other dealings in Euro to be carried out pursuant to this Agreement in respect of any such Eurocurrency Rate Committed Loan, means a TARGET Day;
(c) if such day relates to any interest rate settings as to a Eurocurrency Rate Committed Loan denominated in a currency other than Dollars or Euro, means any such day on which dealings in deposits in the relevant currency are conducted by and between banks in the London or other applicable offshore interbank market for such currency; and;
(d) if such day relates to any fundings, disbursements, settlements and payments in a currency other than Dollars or Euro in respect of a Eurocurrency Rate Committed Loan denominated in a currency other than Dollars or Euro, or any other dealings in any currency other than Dollars or Euro to be carried out pursuant to this Agreement in respect of any such Eurocurrency Rate Committed Loan (other than any interest rate settings), means any such day on which banks are open for foreign exchange business in the principal financial center of the country of such currency.
Capitalized Leases means all monetary obligations of the Borrower or any of its Subsidiaries under any leasing or similar arrangements which, in accordance with GAAP, would be classified as capitalized leases.
Capitalized Lease Obligation means, at any time, the present value of the minimum net lease payments during the term of a Capitalized Lease, computed as provided in the Statement of Financial Accounting Standards No. 13, as amended from time to time.
Cash Collateralize has the meaning specified in Section 2.04(g).
CERCLA means the Comprehensive Environmental Response, Compensation and Liability Act of 1990, as amended.
CERCLIS means the Comprehensive Environmental Response Compensation Liability Information System List.
Change in Control means (a) the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 51% or more of the outstanding shares of voting stock of the Borrower after giving effect to certain provisions of the Borrowers Certificate of Incorporation with respect to the conversion of non-voting stock to voting stock; provided, however, that acquisition by the Borrowers pension plan or profit sharing plan of 51% or more of the outstanding shares of the Borrowers voting stock shall not constitute a Change in Control; or (b) during any period of 12 consecutive months, a majority of the members of the board of directors of the Borrower cease to be composed of individuals (i) who were members of the board of directors on the first day of such period, (ii) whose election or nomination to the board of directors was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of the board of directors or (iii) whose election or nomination to the board of directors was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of the board of directors.
Change in Law means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority.
Closing Date means the first date all the conditions precedent in Section 4.01 are satisfied or waived in accordance with Section 10.01.
Code means the Internal Revenue Code of 1986, and all rules and regulations promulgated thereunder.
Commitment means, as to each Lender, its obligation to (a) make Committed Loans to the Borrower pursuant to Section 2.01, (b) purchase participations in L/C Obligations, and (c) purchase participations in Swing Line Loans, in an aggregate principal amount at any one time outstanding not to exceed the Dollar amount set forth opposite such Lenders name on Schedule
2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement.
Committed Borrowing means a borrowing consisting of simultaneous Committed Loans of the same Type, in the same currency and, in the case of Eurocurrency Rate Committed Loans, having the same Interest Period made by each of the Lenders pursuant to Section 2.01.
Committed Loan has the meaning specified in Section 2.01.
Committed Loan Notice means a notice of (a) a Committed Borrowing, (b) a conversion of Committed Loans from one Type to the other, or (c) a continuation of Eurocurrency Rate Committed Loans, pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit A.
Competitive Bid means a written offer by a Lender to make one or more Bid Loans, substantially in the form of Exhibit B-2, duly completed and signed by a Lender.
Compliance Certificate means a certificate substantially in the form of Exhibit E.
Consolidated Net Tangible Assets means all assets of the Borrower and its Subsidiaries appearing on a consolidated balance sheet of the Borrower and its Subsidiaries prepared in accordance with GAAP minus goodwill and other intangible assets other than prepaid allowances.
Contingent Liability means any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, obligation or any other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of any Persons obligation under any Contingent Liability shall (subject to any limitation set forth therein) be deemed to be the outstanding principal amount (or maximum amount, if larger) of the debt, obligation or other liability guaranteed thereby.
Controlled Group means all members of a controlled group of corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA.
Credit Extension means each of the following: (a) a Borrowing and (b) an L/C Credit Extension.
Debt Rating has the meaning set forth in the definition of Applicable Rate.
Debtor Relief Laws means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium,
rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
Default means any Event of Default or condition, occurrence or event which, after notice, lapse of time or both, would constitute an Event of Default.
Default Rate means (a) when used with respect to Obligations other than Letter of Credit Fees, an interest rate equal to (i) the Base Rate plus (ii) the Applicable Rate, if any, applicable to Base Rate Loans plus (iii) 2% per annum; provided, however, that with respect to a Eurocurrency Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Rate and any Mandatory Cost) otherwise applicable to such Loan plus 2% per annum, and (b) when used with respect to Letter of Credit Fees, a rate equal to the Applicable Rate plus 2% per annum.
Defaulting Lender means any Lender that (a) has failed to fund any portion of the Committed Loans, participations in L/C Obligations or participations in Swing Line Loans required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, unless the subject of a good faith dispute, or (c) has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding.
Dollar and $ mean lawful currency of the United States.
Dollar Equivalent means, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in any Alternative Currency, the equivalent amount thereof in Dollars as determined by the Administrative Agent at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date) for the purchase of Dollars with such Alternative Currency.
EBIT means, for any period, the sum of the amounts for such period of (a) Net Income (excluding any one-time non-recurring charges), (b) Interest Expense and (c) charges for federal, state, local and foreign income taxes, all determined in accordance with GAAP.
Eligible Assignee means (a) a Lender; (b) an Affiliate of a Lender; (c) an Approved Fund, and (d) any other Person (other than a natural person) approved by (i) the Administrative Agent, the L/C Issuer and the Swing Line Lender, and (ii) unless an Event of Default has occurred and is continuing, the Borrower (each such approval not to be unreasonably withheld or delayed); provided that notwithstanding the foregoing, Eligible Assignee shall not include the Borrower or any of the Borrowers Affiliates or Subsidiaries; and provided further, however, that an Eligible Assignee shall include only a Lender, an Affiliate of a Lender or another Person, which, through its Lending Offices, is capable of lending the applicable Alternative Currencies to the Borrower without the imposition of any Taxes or additional Taxes, as the case may be.
EMU means the economic and monetary union in accordance with the Treaty of Rome 1957, as amended by the Single European Act 1986, the Maastricht Treaty of 1992 and the Amsterdam Treaty of 1998.
EMU Legislation means the legislative measures of the European Council for the introduction of, changeover to or operation of a single or unified European currency.
Environmental Claims means all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law or for release or injury to the environment.
Environmental Laws means all applicable federal, state or local statutes, laws, ordinances, codes, rules and regulations (including consent decrees and administrative orders issued to the Borrower or any Subsidiary) relating to the protection of public health and safety from adverse impacts of Hazardous Materials in the environment.
ERISA means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections.
Euro and EUR means the lawful currency of the Participating Member States introduced in accordance with EMU legislation.
Eurocurrency Base Rate has the meaning specified in the definition of Eurocurrency Rate.
Eurocurrency Bid Margin means the margin above or below the Eurocurrency Base Rate to be added to or subtracted from the Eurocurrency Base Rate, which margin shall be expressed in multiples of 1/100th of one basis point.
Eurocurrency Margin Bid Loan means a Bid Loan that bears interest at a rate based upon the Eurocurrency Base Rate. All Eurocurrency Margin Bid Loans must be denominated in Dollars.
Eurocurrency Rate means for any Interest Period with respect to a Eurocurrency Rate Loan, a rate per annum determined by the Administrative Agent pursuant to the following formula:
Eurocurrency Rate = |
|
Eurocurrency Base Rate |
|
1.00 Eurocurrency Reserve Percentage |
Where,
Eurocurrency Base Rate means, for such Interest Period:
(a) the rate per annum equal to the British Bankers Association LIBOR Rate (BBA LIBOR), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, for deposits in the relevant currency (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period; or
(b) if such rate is not available at such time for any reason, then the Eurocurrency Base Rate for such Interest Period shall be the rate per annum determined by the Administrative Agent to be the rate at which deposits in the relevant currency for delivery on the first day of such Interest Period in Same Day Funds in the approximate amount of the Eurocurrency Rate Loan being made, continued or converted by Bank of America (or, in the case of a Bid Loan, the applicable Bid Loan Lender) and with a term equivalent to such Interest Period would be offered by Bank of Americas (or such Bid Loan Lenders) London Branch (or other Bank of America branch or Affiliate) to major banks in the London or other offshore interbank market for such currency at their request at approximately 11:00 a.m. (London time) two Business Days prior to (or, in the case of Eurocurrency Rate Loans denominated in Sterling, the same Business Day as) the commencement of such Interest Period; or
(c) for any Interest Period with respect to any Eurocurrency Rate Loan advanced by a Lender required to comply with the relevant requirements of the Bank of England and the Financial Services Authority of the United Kingdom, the sum of (i) the rate determined in accordance with clauses (a) or (b) of this definition and (ii) the Mandatory Cost for such Interest Period.
Eurocurrency Reserve Percentage means, for any day during any Interest Period, the reserve percentage (expressed as a decimal, carried out to five decimal places) in effect on such day, whether or not applicable to any Lender, under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as Eurocurrency liabilities). The Eurocurrency Rate for each outstanding Eurocurrency Rate Loan shall be adjusted automatically as of the effective date of any change in the Eurocurrency Reserve Percentage.
Eurocurrency Rate Committed Loan means a Committed Loan that bears interest at a rate based on the Eurocurrency Rate. Eurocurrency Rate Committed Loans may be denominated in Dollars or in an Alternative Currency. All Committed Loans denominated in an Alternative Currency must be Eurocurrency Rate Committed Loans.
Eurocurrency Rate Loan means a Eurocurrency Rate Committed Loan or a Eurocurrency Margin Bid Loan.
Event of Default has the meaning specified in Section 8.01.
Excluded Taxes means, with respect to the Administrative Agent, any Lender, the L/C Issuer or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable Lending Office is located, (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a
Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 10.13), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new Lending Office) or is attributable to such Foreign Lenders failure or inability (other than as a result of a Change in Law) to comply with Section 3.01(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new Lending Office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 3.01(a).
Existing Credit Agreements means (a) that certain $225,000,000 5 Year Credit Agreement among the Borrower, Wachovia Bank, National Association, as administrative agent, and the other financial institutions party thereto, dated as of June 19, 2001 (as amended and modified from time to time) and (b) that certain $125,000,000 364 Day Credit Agreement among the Borrower, Wachovia Bank, National Association, as administrative agent, and the other financial institutions party thereto, dated as of June 19, 2001 (as amended and modified from time to time).
Federal Funds Rate means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Bank of America on such day on such transactions as determined by the Administrative Agent.
Fee Letter means the Bank of America Fee Letter dated December 10, 2004.
Fiscal Quarter means any quarter of a Fiscal Year.
Fiscal Year means any period of twelve consecutive calendar months ending on November 30; references to a Fiscal Year with a number corresponding to any calendar year (e.g., the 2000 Fiscal Year) refer to the Fiscal Year ending on the November 30 occurring during such calendar year.
Foreign Lender means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.
FRB means the Board of Governors of the Federal Reserve System of the United States, and any Governmental Authority succeeding to any of its principal functions.
Fund means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.
GAAP is defined in Section 1.03.
Governmental Authority means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
Granting Lender has the meaning specified in Section 10.06(h).
Hazardous Material means
(a) any hazardous substance, as defined by CERCLA;
(b) any hazardous waste, as defined by the Resource Conservation and Recovery Act, as amended;
(c) any petroleum product; or
(d) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material or substance within the meaning of any other applicable federal, state or local law, regulation, ordinance or requirement (including consent decrees and administrative orders issued to the Borrower or any Subsidiary) relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or material, all as amended or hereafter amended.
Impermissible Qualification means, relative to the opinion or certification of any independent public accountant as to any financial statement of the Borrower, any qualification or exception to such opinion or certification
(a) which is of a going concern or similar nature;
(b) which relates to the limited scope of examination of matters relevant to such financial statement; or
(c) which relates to the treatment or classification of any item in such financial statement and which, as a condition to its removal, would require an adjustment to such item the effect of which would be to cause the Borrower to be in default of any of its obligations under Section 7.05.
Indebtedness of any Person means, without duplication, any obligation (whether present or future, actual or contingent, secured or unsecured, as principal or surety or otherwise) for the payment or repayment of money which would be regarded as indebtedness in accordance with GAAP, including all Contingent Liabilities of such Person in respect of any such obligations.
For all purposes of this Agreement, the Indebtedness of any Person shall include the Indebtedness of any partnership in which such Person is a general partner; provided, however, that the Indebtedness of any Person shall not include any obligation of a partnership in which such Person is a general partner to the extent that such obligation (including any Contingent Liability) is limited by its terms.
Indemnified Taxes means Taxes other than Excluded Taxes.
Indemnitees has the meaning specified in Section 10.04(b).
Interest Expense means, for any period, all as determined in accordance with GAAP, total interest expense, whether paid or accrued (without duplication) (including the interest component of Capitalized Lease Obligations), of the Borrower and its Subsidiaries on a consolidated basis, including, without limitation, all bank fees, commissions, discounts and other fees and charges owed with respect to letters of credit, but excluding, however, amortization of discount, interest paid in property other than cash or any other interest expense not payable in cash.
Interest Payment Date means, (a) as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date; provided, however, that if any Interest Period for a Eurocurrency Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan (including a Swing Line Loan), the last Business Day of each March, June, September and December and the Maturity Date.
Interest Period means (a) as to each Eurocurrency Rate Loan, the period commencing on the date such Eurocurrency Rate Loan is disbursed or (in the case of any Eurocurrency Rate Committed Loan) converted to or continued as a Eurocurrency Rate Loan and ending on the date one, two, three or six months thereafter, as selected by the Borrower in its Committed Loan Notice or Bid Request, as the case may be, or, in the case of Eurocurrency Rate Committed Loans, nine or twelve months if requested by the Borrower and consented to by all the Lenders; and (b) as to each Absolute Rate Loan, a period of not less than 14 days and not more than 180 days as selected by the Borrower in its Bid Request; provided that:
(i) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and
(iii) no Interest Period shall extend beyond the Maturity Date.
IRS means the Internal Revenue Service, and any Governmental Authority succeeding to any of its principal functions under the Code.
ISP means, with respect to any Letter of Credit, the International Standby Practices 1998 published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance).
Issuer Documents means with respect to any Letter of Credit, the Letter Credit Application, and any other document, agreement and instrument entered into by the L/C Issuer and the Borrower (or any Subsidiary) or in favor the L/C Issuer and relating to any such Letter of Credit.
L/C Advance means, with respect to each Lender, such Lenders funding of its participation in any L/C Borrowing in accordance with its Applicable Percentage. All L/C Advances shall be denominated in Dollars.
L/C Borrowing means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as a Committed Borrowing. All L/C Borrowings shall be denominated in Dollars.
L/C Credit Extension means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the increase of the amount thereof.
L/C Issuer means Bank of America in its capacity as issuer of Letters of Credit hereunder, or any successor issuer of Letters of Credit hereunder.
L/C Obligations means, as at any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all L/C Borrowings. For purposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.09. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be outstanding in the amount so remaining available to be drawn.
Laws means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and publicly available administrative or judicial precedents or authorities, and all applicable administrative orders, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.
Lender has the meaning specified in the introductory paragraph hereto and, as the context requires, includes the Swing Line Lender.
Lending Office means, as to any Lender, the office or offices of such Lender described as such in such Lenders Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.
Letter of Credit means any letter of credit issued hereunder. A Letter of Credit may only be issued in Dollars.
Letter of Credit Application means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer.
Letter of Credit Expiration Date means the day that is seven days prior to the Maturity Date then in effect (or, if such day is not a Business Day, the next preceding Business Day).
Letter of Credit Fee has the meaning specified in Section 2.04(i).
Letter of Credit Sublimit means an amount equal to lesser of (a) $25,000,000 and (b) the Aggregate Commitments. The Letter of Credit Sublimit is part of, and not in addition to, the Aggregate Commitments.
Lien means any security interest, mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property to secure payment of a debt or performance of an obligation or other priority or preferential arrangement of any kind or nature whatsoever.
Loan means an extension of credit by a Lender to the Borrower under Article II in the form of a Committed Loan, a Bid Loan or a Swing Line Loan.
Loan Documents means this Agreement, each Note, each Issuer Document and the Fee Letters.
Mandatory Cost means, with respect to any period, the percentage rate per annum determined in accordance with Schedule 1.01.
Material Adverse Effect means any event which will, or is reasonably likely to, have a material adverse effect on (a) the financial condition, assets, liabilities, operations or business of the Borrower and its Subsidiaries taken as a whole or (b) the Borrowers ability to perform and comply with its monetary obligations under this Agreement, the Notes and each other Loan Document.
Maturity Date means January 25, 2010.
Moodys means Moodys Investors Service, Inc. and any successor thereto.
Net Income means, for any period, with respect to the Borrower and its Subsidiaries, income from continuing operations of the Borrower and its Subsidiaries during such period, determined in accordance with GAAP.
Note means a promissory note made by the Borrower in favor of a Lender evidencing Loans made by such Lender, substantially in the form of Exhibit D.
Obligations means all advances to, and debts, liabilities, obligations, covenants and duties of, the Borrower arising under or in connection with any Loan Document, Loan or Letter of Credit, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against the Borrower or any Affiliate thereof of
any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.
OFAC means the U.S. Department of the Treasurys Office of Foreign Assets Control.
Organic Document means, (a) relative to the Borrower, its certificate of incorporation, its by-laws and all shareholder agreements, voting trusts and similar arrangements applicable to any of its authorized shares of capital stock and (b) relative to any Subsidiary, its applicable corporate, partnership, joint venture or limited liability company organizational and governing documents and all arrangements applicable to any of its equity, ownership or membership interests.
Organization Documents means, for any corporation, the certificate or articles of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation, any shareholder rights agreement, and all applicable resolutions of the board of directors (or any committee thereof) of such corporation.
Other Taxes means any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, this Agreement or any other Loan Documents.
Outstanding Amount means (a) with respect to Committed Loans on any date, the Dollar Equivalent amount of the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of such Committed Loans occurring on such date; (b) with respect to Swing Line Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of such Swing Line Loans occurring on such date; and (c) with respect to any L/C Obligations on any date, the Dollar Equivalent amount of the aggregate outstanding amount of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements by the Borrower of Unreimbursed Amounts.
Overnight Rate means, for any day, (a) with respect to any amount denominated in Dollars, the greater of (i) the Federal Funds Rate and (ii) an overnight rate determined by the Administrative Agent, the L/C Issuer, or the Swing Line Lender, as the case may be, in accordance with banking industry rules on interbank compensation, and (b) with respect to any amount denominated in an Alternative Currency, the rate of interest per annum at which overnight deposits in the applicable Alternative Currency, in an amount approximately equal to the amount with respect to which such rate is being determined, would be offered for such day by a branch or Affiliate of Bank of America in the applicable offshore interbank market for such currency to major banks in such interbank market.
Participant has the meaning specified in Section 10.06(d).
Participating Member State means each state so described in any EMU Legislation.
PBGC means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA.
Pension Plan means a pension plan, as such term is defined in Section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in Section 4001(a)(3) of ERISA), and to which the Borrower or any corporation, trade or business that is, along with the Borrower, a member of a Controlled Group, may have liability, including any liability by reason of having been a substantial employer under Section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA.
Person means any individual, trustee, corporation, general partnership, limited partnership, limited liability company, joint stock company, firm, business association, trust, unincorporated organization, bank, joint venture, government, governmental authority or any other entity, whether acting in an individual, fiduciary or other capacity.
Plan means any Pension Plan or Welfare Plan.
Principal Subsidiary means a Subsidiary (a) whose total assets or net sales (each such amount expressed on a consolidated basis in the case of a Subsidiary which itself has Subsidiaries) represent, respectively, not less than 15% of either the consolidated total assets or consolidated net sales of the Borrower and its Subsidiaries, all as calculated annually by reference to the immediately preceding Fiscal Year-end financial data (consolidated or unconsolidated, as the case may be) of such Subsidiary and the then latest Fiscal Year-end audited consolidated financial statements of the Borrower, or (b) to which is transferred all or substantially all of the assets or undertakings of a Principal Subsidiary. A certificate by an Authorized Officer of the Borrower as to whether a Subsidiary is or is not or was or was not a Principal Subsidiary at a specified date shall, in the absence of manifest error, be conclusive and binding.
Related Parties means, with respect to any Person, such Persons Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Persons Affiliates.
Release means a release, as such term is defined in CERCLA.
Resource Conservation and Recovery Act means the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as in effect from time to time.
Request for Credit Extension means (a) with respect to a Borrowing, conversion or continuation of Committed Loans, a Committed Loan Notice, (b) with respect to a Bid Loan, a Bid Request, (c) with respect to an L/C Credit Extension, a Letter of Credit Application, and (d) with respect to a Swing Line Loan, a Swing Line Loan Notice.
Required Lenders means, as of any date of determination, Lenders having at least 51% of the Aggregate Commitments or, if the commitment of each Lender to make Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02, Lenders holding in the aggregate at least 51% of the Total Outstandings (with the
aggregate amount of each Lenders risk participation and funded participation in L/C Obligations and Swing Line Loans being deemed held by such Lender for purposes of this definition); provided that the Commitment of, and the portion of the Total Outstandings held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.
Responsible Officer means the chief executive officer, the chief operating officer, the president, the chief financial officer, the controller or the treasurer of the Borrower, or any other officer having substantially the same authority and responsibility.
Revaluation Date means with respect to any Loan, each of the following: (a) each date of a Borrowing of a Eurocurrency Rate Loan denominated in an Alternative Currency, (b) each date of a continuation of a Eurocurrency Rate Loan denominated in an Alternative Currency pursuant to Section 2.02, and (c) such additional dates as the Administrative Agent shall determine or the Required Lenders shall require.
Sale-Leaseback Transaction means any arrangement, directly or indirectly, with any Person whereby a seller or transferor shall sell or otherwise transfer any real or personal property if, as part of the same transaction or series of transactions, the seller or transferor shall then or thereafter lease as lessee, or similarly acquire the right to possession or use of, such sold or transferred property, or property which it intends to use substantially to the same extent or for the same purpose as such sold or transferred property, in any such case under any lease, agreement or other arrangement, whether or not involving a Capitalized Lease, with the Person to whom such property was sold or transferred (other than any such lease, agreement or arrangement having a term, including renewals, not exceeding three years) which obligates the seller or transferor to pay rent as lessee or make any other payment to such Person for such possession or use.
S&P means Standard & Poors Ratings Services, a division of The McGraw-Hill Companies, Inc. and any successor thereto.
Same Day Funds means (a) with respect to disbursements and payments in Dollars, immediately available funds, and (b) with respect to disbursements and payments in an Alternative Currency, same day or other funds as may be determined by the Administrative Agent to be customary in the place of disbursement or payment for the settlement of international banking transactions in the relevant Alternative Currency.
SPC has the meaning specified in Section 10.06(h).
Special Notice Currency means at any time an Alternative Currency, other than the currency of a country that is a member of the Organization for Economic Cooperation and Development at such time located in North America or Europe.
Spot Rate for a currency means the rate determined by the Administrative Agent to be the rate quoted by the Person acting in such capacity as the spot rate for the purchase by such Person of such currency with another currency through its principal foreign exchange trading office at approximately 10:00 a.m. on the date two Business Days prior to the date as of which the foreign exchange computation is made; provided that the Administrative Agent may obtain
such spot rate from another financial institution designated by the Administrative Agent if the Person acting in such capacity does not have as of the date of determination a spot buying rate for any such currency.
Sterling and £ mean the lawful currency of the United Kingdom.
Subsidiary means, with respect to any Person, any corporation, partnership, joint venture, limited liability company or other business entity of which more than 50% of the outstanding capital stock or other interests having ordinary voting power to elect a majority of the board of directors or other governing body of such entity (irrespective of whether at the time securities or interests of any other class or classes of such entity shall or might have voting power upon the occurrence of any contingency) is at the time, directly or indirectly, beneficially owned by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person. Unless otherwise indicated, when used in this Agreement, the term Subsidiary shall refer to a Subsidiary of the Borrower.
Swing Line means the revolving credit facility made available by the Swing Line Lender pursuant to Section 2.05.
Swing Line Borrowing means a borrowing of a Swing Line Loan pursuant to Section 2.05.
Swing Line Lender means Bank of America in its capacity as provider of Swing Line Loans, or any successor swing line lender hereunder.
Swing Line Loan has the meaning specified in Section 2.05(a).
Swing Line Loan Notice means a notice of a Swing Line Borrowing pursuant to Section 2.05(b), which, if in writing, shall be substantially in the form of Exhibit C.
Swing Line Sublimit means an amount equal to the lesser of (a) $25,000,000 and (b) the Aggregate Commitments. The Swing Line Sublimit is part of, and not in addition to, the Aggregate Commitments.
TARGET Day means any day on which the Trans-European Automated Real-time Gross Settlement Express Transfer (TARGET) payment system (or, if such payment system ceases to be operative, such other payment system (if any) determined by the Administrative Agent to be a suitable replacement) is open for the settlement of payments in Euro.
Taxes means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
Total Outstandings means the aggregate Outstanding Amount of all Loans and all L/C Obligations.
Type means (a) with respect to a Committed Loan, its character as a Base Rate Loan or a Eurocurrency Rate Loan, and (b) with respect to a Bid Loan, its character as an Absolute Rate Loan or a Eurocurrency Margin Bid Loan.
United States and U.S. each means the United States of America.
Unreimbursed Amount has the meaning specified in Section 2.04(c)(i).
Welfare Plan means a welfare plan, as such term is defined in Section 3(l) of ERISA.
Yen and ¥ mean the lawful currency of Japan.
(a) Each Committed Borrowing, each conversion of Committed Loans from one Type to the other, and each continuation of Eurocurrency Rate Committed Loans shall be made upon the Borrowers irrevocable notice to the Administrative Agent, which may be given by telephone. Each such notice must be received by the Administrative Agent not later than 10:00 a.m. (i) three Business Days prior to the requested date of any Borrowing of, conversion to or continuation of Eurocurrency Rate Committed Loans denominated in Dollars or of any conversion of Eurocurrency Rate Committed Loans denominated in Dollars to Base Rate Committed Loans, (ii) four Business Days (or five Business Days in the case of a Special Notice Currency) prior to the requested date of any Borrowing or continuation of Eurocurrency Rate Committed Loans denominated in Alternative Currencies, and (iii) on the requested date of any Borrowing of Base Rate Committed Loans; provided, however, that if the Borrower wishes to request Eurocurrency Rate Committed Loans having an Interest Period other than one, two, three or six months in duration as provided in the definition of Interest Period, the applicable notice must be received by the Administrative Agent not later than 10:00 a.m. (i) four Business Days prior to the requested date of such Borrowing, conversion or continuation of Eurocurrency Rate Committed Loans denominated in Dollars, or (ii) five Business Days (or six Business Days in the case of a Special Notice Currency) prior to the requested date of such Borrowing, conversion or continuation of Eurocurrency Rate Committed Loans denominated in Alternative Currencies, whereupon the Administrative Agent shall give prompt notice to the Lenders of such request and determine whether the requested Interest Period is acceptable to all of them. Not later than 10:00 a.m., (i) three Business Days before the requested date of such Borrowing, conversion or continuation of Eurocurrency Rate Committed Loans denominated in Dollars, or (ii) four Business Days (or five Business Days in the case of a Special Notice Currency) prior to the requested date of such Borrowing, conversion or continuation of Eurocurrency Rate Committed Loans denominated in Alternative Currencies, the Administrative Agent shall notify the Borrower (which notice may be by telephone) whether or not the requested Interest Period has been consented to by all the Lenders. Each telephonic notice by the Borrower pursuant to this Section 2.02(a) must be confirmed promptly by delivery to the Administrative Agent of a written
The Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with the Borrowers instructions or other irregularity, the Borrower will immediately notify the L/C Issuer. The Borrower shall be conclusively deemed to have waived any such claim against the L/C Issuer and its correspondents unless such notice is given as aforesaid.
A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this subsection (b) shall be conclusive, absent manifest error.
The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.
Without limiting the generality of the foregoing, in the event that the Borrower is resident for tax purposes in the United States, any Foreign Lender shall deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of the Borrower or the Administrative Agent, but only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable:
Without limiting the obligations of the Lenders set forth above regarding delivery of certain forms and documents to establish each Lenders status for U.S. withholding tax purposes, each Lender agrees promptly to deliver to the Administrative Agent or the Borrower, as the Administrative Agent or the Borrower shall reasonably request, on or prior to the Closing Date, and in a timely fashion thereafter, such other documents and forms required by any relevant taxing authorities under the Laws of any other jurisdiction, duly executed and completed by such Lender, as are required under such Laws to confirm such Lenders entitlement to any available exemption from, or reduction of, applicable withholding taxes in respect of all payments to be made to such Lender outside of the U.S. by the Borrower pursuant to this Agreement or otherwise to establish such Lenders status for withholding tax purposes in such other jurisdiction. Each Lender shall promptly (i) notify the Administrative Agent of any change in circumstances which would modify or render invalid any such claimed exemption or reduction, and (ii) take such steps as shall not be materially disadvantageous to it, in the reasonable
judgment of such Lender, and as may be reasonably necessary (including the re-designation of its Lending Office) to avoid any requirement of applicable Laws of any such jurisdiction that the Borrower make any deduction or withholding for taxes from amounts payable to such Lender. Additionally, the Borrower shall promptly deliver to the Administrative Agent or any Lender, as the Administrative Agent or such Lender shall reasonably request, on or prior to the Closing Date, and in a timely fashion thereafter, such documents and forms required by any relevant taxing authorities under the Laws of any jurisdiction, duly executed and completed by the Borrower, as are required to be furnished by such Lender or the Administrative Agent under such Laws in connection with any payment by the Administrative Agent or any Lender of Taxes or Other Taxes, or otherwise in connection with the Loan Documents, with respect to such jurisdiction.
and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurocurrency Loan (or of maintaining its obligation to make any such Loan), or to increase the cost to such Lender or the L/C Issuer of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender or the L/C Issuer hereunder (whether of principal, interest or any other amount) then, upon request of such Lender or the L/C Issuer, the Borrower will pay on demand to such Lender or the L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer, as the case may be, for such additional costs incurred or reduction suffered.
including any loss of anticipated profits, any foreign exchange losses, and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained or from the performance of any foreign exchange contract. The Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing.
For purposes of calculating amounts payable by the Borrower to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each Eurocurrency Rate Committed Loan made by it at the Eurocurrency Base Rate used in determining the Eurocurrency Rate for such Loan by a matching deposit or other borrowing in the offshore interbank market for such currency for a comparable amount and for a comparable period, whether or not such Eurocurrency Rate Committed Loan was in fact so funded.
Without limiting the generality of the provisions of Section 9.04, for purposes of determining compliance with the conditions specified in this Section 4.01, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.
Each Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Committed Loans to the other Type or a continuation of Eurocurrency Rate Committed Loans) submitted by the Borrower shall be deemed to be a representation and warranty that the conditions specified in Sections 4.02(a) and (b) have been satisfied on and as of the date of the applicable Credit Extension.
The Borrower represents and warrants to the Administrative Agent and each Lender that:
which violation or potential liability singly or in the aggregate will have a Material Adverse Effect;
So long as any Lender shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid, unless the Required Lenders waive compliance in writing:
6.07 Use of Proceeds. The Borrower shall use the proceeds of the Credit Extensions for working capital, capital expenditures, share repurchases, refinancing of existing Indebtedness and other lawful corporate purposes.
So long as any Lender shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid, unless the Required Lenders waive compliance in writing:
(a) Non-Payment of Obligations. The Borrower shall default in the payment when due of any principal of any Loan, or the Borrower shall default (and such default shall continue unremedied for a period of three Business Days) in the payment when due of any interest on any Loan, or the Borrower shall default after notice (including, without limitation, notice delivered by way of submission of a detailed invoice) (and such default shall continue unremedied for a period of five days) in the payment when due of any fee described in Section 2.10 or of any other Obligation, including, without limitation, fees described in the Fee Letter.
(b) Breach of Warranty. Any representation or warranty of the Borrower made or deemed to be made hereunder or in any other Loan Document or any other writing or certificate furnished by or on behalf of the Borrower to the Administrative Agent or any Lender for the purposes of or in connection with this Agreement or any such other Loan Document (including any certificates delivered pursuant to Article IV) is or shall be incorrect when made in any material respect.
(c) Non-Performance of Certain Covenants and Obligations. The Borrower shall default in the due performance and observance of any of its obligations under clause (a) of Section 6.02 (with respect to the maintenance and preservation of the Borrowers corporate existence) or under Section 6.06, or the Borrower shall default in the due performance and observance of its obligations under Article VII, and such default (if capable of being remedied within such period) shall not be remedied within five Business Days after any officer of the Borrower obtains actual knowledge thereof.
(d) Non-Performance of Other Covenants and Obligations. The Borrower shall default in the due performance and observance of any other agreement contained herein or in any other Loan Document, and such default shall continue unremedied for a period of 30 days after notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender.
(e) Default on Other Indebtedness. A default shall occur in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Indebtedness (other than Indebtedness described in Section 8.01(a)) of the Borrower or any of its Subsidiaries having a principal amount, individually or in the aggregate, in excess of $25,000,000, or a default shall occur in the performance or observance of any obligation or condition with respect to such Indebtedness (whether or not waived) if the effect of such default is to accelerate the maturity of any such Indebtedness or such default (whether or not waived) shall continue unremedied for any applicable period of time sufficient to permit the holder or holders of such Indebtedness, or any trustee or agent for such holders, to cause such Indebtedness to become due and payable prior to its expressed maturity.
(f) Judgments. Any judgment or order for the payment of money in excess of $25,000,000 shall be rendered against the Borrower or any of its Subsidiaries and either
(i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order; or
(ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect.
(g) Pension Plans. Any of the following events shall occur with respect to any Pension Plan
(i) the institution of any steps by the Borrower, any member of its Controlled Group or any other Person to terminate a Pension Plan if, as a result of such termination, the Borrower or any such member could reasonably be required to make a contribution to such Pension Plan, or could reasonably expect to incur a liability or obligation to such Pension Plan, in excess of $10,000,000; or
(ii) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA which is not cured within 20 days from the date such contribution was due.
(h) Control of the Borrower. Any Change in Control shall occur.
(i) Bankruptcy, Insolvency, etc. The Borrower or any of its Subsidiaries that are Principal Subsidiaries shall
(i) become insolvent or generally fail to pay, or admit in writing its inability to pay, debts as they become due;
(ii) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower or any of such Subsidiaries or a substantial part of any property of any thereof, or make a general assignment for the benefit of creditors;
(iii) in the absence of such application, consent or acquiescence, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower or any of such Subsidiaries or for a substantial part of the property of any thereof, and such trustee, receiver, sequestrator or other custodian shall not be discharged within 60 days, provided that the Borrower and each such Subsidiary hereby expressly authorizes the Administrative Agent and each Lender to appear in any court conducting any relevant proceeding during such 60-day period to preserve, protect and defend their rights under the Loan Documents;
(iv) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Borrower or any of such Subsidiaries, and, if any such case or proceeding is not
commenced by the Borrower or such Subsidiary, such case or proceeding shall be consented to or acquiesced in by the Borrower or such Subsidiary or shall result in the entry of an order for relief or shall remain for 60 days undismissed, provided that the Borrower and each such Subsidiary hereby expressly authorizes the Administrative Agent and each Lender to appear in any court conducting any such case or proceeding during such 60-day period to preserve, protect and defend their rights under the Loan Documents; or
(v) take any corporate action authorizing, or in furtherance of, any of the foregoing.
provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States, the obligation of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, and the obligation of the Borrower to Cash Collateralize the L/C Obligations as aforesaid shall automatically become effective, in each case without further act of the Administrative Agent or any Lender.
First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the
Administrative Agent and amounts payable under Article III) payable to the Administrative Agent in its capacity as such;
Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal and interest) payable to the Lenders and the L/C Issuer (including fees, charges and disbursements of counsel to the respective Lenders and the L/C Issuer (including fees and time charges for attorneys who may be employees of any Lender or the L/C Issuer) and amounts payable under Article III), ratably among them in proportion to the amounts described in this clause Second payable to them;
Third, to payment of that portion of the Obligations constituting accrued and unpaid interest on the Loans, L/C Borrowings and other Obligations, ratably among the Lenders and the L/C Issuer in proportion to the respective amounts described in this clause Third payable to them;
Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Loans and L/C Borrowings, ratably among the Lenders and the L/C Issuer in proportion to the respective amounts described in this clause Fourth held by them;
Fifth, to the Administrative Agent for the account of the L/C Issuer, to Cash Collateralize that portion of L/C Obligations comprised of the aggregate undrawn amount of Letters of Credit; and
Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by Law.
Subject to Section 2.04(c), amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Fifth above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above.
The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 10.01 and 8.02) or (ii) in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to the Administrative Agent by the Borrower, a Lender or the L/C Issuer.
The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.
Any resignation by Bank of America as Administrative Agent pursuant to this Section shall also constitute its resignation as L/C Issuer and Swing Line Lender. Upon the acceptance of a successors appointment as Administrative Agent hereunder, (a) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring L/C Issuer and Swing Line Lender, (b) the retiring L/C Issuer and Swing Line Lender shall be discharged from all of their respective duties and obligations hereunder or under the other Loan Documents, and (c) the successor L/C Issuer shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangement satisfactory to the retiring L/C Issuer to effectively assume the obligations of the retiring L/C Issuer with respect to such Letters of Credit.
and, provided further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the L/C Issuer in addition to the Lenders required above, affect the rights or duties of the L/C Issuer under this Agreement or any Issuer Document relating to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver or consent shall, unless in writing and signed by the Swing Line Lender in addition to the Lenders required above, affect the rights or duties of the Swing Line Lender under this Agreement; (iii) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document; (iv) Section 10.06(h) may not be amended, waived or otherwise modified without the consent of each Granting Lender all or any part of whose Loans are being funded by an SPC at the time of such amendment, waiver or other modification; and (v) each Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of such Lender may not be increased or extended without the consent of such Lender.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b).
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the senders receipt of an acknowledgement from the intended recipient (such as by the return receipt requested function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.
Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the Eligible Assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lenders rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 3.01, 3.04, 3.05, and 10.04 with respect to facts and circumstances occurring prior to the effective date of such assignment. Upon request, the Borrower (at its expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section.
Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such
agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to Section 10.01 that affects such Participant. Subject to subsection (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.14 as though it were a Lender.
For purposes of this Section, Information means all information received from the Borrower or any Subsidiary relating to the Borrower or any Subsidiary or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Lender or the L/C Issuer on a nonconfidential basis prior to disclosure by the Borrower or any Subsidiary, provided that, in the case of information received from the Borrower or any Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
The Borrower acknowledges that (a) the Administrative Agent will make available to the L/C Issuer and the Lenders materials and/or information provided by or on behalf of the Borrower hereunder (collectively, Borrower Materials) by posting the Borrower Materials on IntraLinks or another similar electronic system (the Platform) and (b) certain of the Lenders or the L/C Issuer may be public-side Lenders (i.e., Lenders or L/C Issuers that do not wish to receive material non-public information with respect to the Borrower and its Subsidiaries and their respective securities) (each, a Public Lender). The Borrower hereby agrees that (w) all Borrower Materials that are to be made available to Public Lenders shall be clearly and conspicuously marked PUBLIC by or at the direction of the Borrower, which, at a minimum, shall mean that the word PUBLIC shall appear prominently on the first page thereof; (x) by the Borrower marking, or directing to be marked, the Borrower Materials PUBLIC, the Borrower shall be deemed to have authorized the Administrative Agent, the L/C Issuer and the Lenders to treat such Borrower Materials as either publicly available information or not material information (although it may be sensitive and proprietary) with respect to the Borrower and its Subsidiaries and their respective securities for purposes of United States federal and state
securities laws; (y) all Borrower Materials marked PUBLIC are permitted to be made available through a portion of the Platform designated as Public; and (z) the Administrative Agent shall be entitled to treat any Borrower Materials that are not marked PUBLIC as being suitable only for posting on a portion of the Platform not marked as Public.
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
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/s/ Paul C. Beard |
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Title: Vice President Finance & Treasurer |
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BANK OF AMERICA, N.A.,
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By: |
/s/ William Sweeney |
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Title: |
Senior Vice President |
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BANK OF AMERICA, N.A., as a Lender, L/C |
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By: |
/s/ William Sweeney |
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Title: |
Senior Vice President |
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SUNTRUST BANK |
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/s/ Duncan Owen |
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Director |
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WACHOVIA BANK, NATIONAL |
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/s/ Mark S. Supple |
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Vice President |
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WELLS FARGO BANK,
NATIONAL |
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/s/ Lori Ross |
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Vice President |
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BNP PARIBAS |
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/s/ Nanette Saudon |
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Vice President |
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Vice President |
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THE BANK OF NEW YORK |
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Steven Cavaluzzo |
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Vice President |
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THE BANK OF NOVA SCOTIA |
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/s/ Todd Meller |
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Managing Director |
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CITIBANK, N.A. |
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/s/ Michael R.R. Pindell |
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Managing Director |
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CITIZENS BANK OF PENNSYLVANIA |
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/s/ Peter Heller |
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Vice President |
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MANUFACTURERS & TRADERS TRUST CO. |
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By: |
/s/ Frank Lago |
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Vice President |
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MIZUHO CORPORATE BANK, LTD. |
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/s/ Robert Haviken |
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Senior Vice President |
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US BANK, NATIONAL ASSOCIATION |
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By: |
/s/ Michael P. Dickman |
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Assistant Vice President |
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Exhibit 13
MCCORMICK & COMPANY 2004 ANNUAL REPORT |
Were turning up the heat!
2005 Flavor Forecast
McCormick keeps its finger on the pulse of flavor and food trends. We published the McCormick 2005 Flavor Forecast to showcase the tastes and trends that will shape the way people eat in coming years for our customers and the media.
Throughout this years annual report, discover new uses for these products from some of our flavor experts.
10 flavors to watch
Allspice |
|
Ginger |
Annatto |
|
Mint |
Cardamom |
|
Pickling Spice |
Cinnamon |
|
Sage |
Curry |
|
Vanilla |
5 trends to watch
Satisfying the senses A true multisensory experience delivered by the effortless combination of flavors, colors, aromas and textures.
Location, location, location Ingredients from specific locations known for their premium flavors and freshness.
Worldly tastes Mini-flavor adventures that combine one or two global tastes with familiar foods.
Health measures Flavor is the key to making food enjoyable for all types of eating plans.
Elevating the basics Classic favorites reinvented to reach new heights in flavor.
Ginger
This years annual report carries the scent of ginger. Often the secret ingredient in flavorful dishes, this pungent spice provides heat but not the fire. Its very popular in Asian, Caribbean and North African cuisines. On page 15 you can discover how one of McCormicks product developers likes to use ginger.
Around the world, 8,000 McCormick employees are working together to deliver great results to our customers, our consumers and our shareholders. |
|
|
No matter where you look, youll discover that we are turning up the heat at McCormick.
Sales are sizzling, margins are rising, and weve spiced up our new product efforts. Weve uncovered the hottest eating trends in our 2005 Flavor Forecast.
At McCormick, we are fired up about our opportunities for growth.
In 2004, we increased productivity in developing new products more than 25%. |
1
financial highlights
for the year ended November 30 (millions except per share data) |
|
2004 |
|
2003 |
|
% change |
|
||||
Net sales |
|
$ |
2,526.2 |
|
$ |
2,269.6 |
|
11.3 |
% |
||
Gross profit |
|
1,007.9 |
|
898.6 |
|
12.2 |
% |
||||
Gross profit margin |
|
39.9 |
% |
39.6 |
% |
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|
||||
|
|
|
|
|
|
|
|
||||
Operating income |
|
332.7 |
|
295.5 |
|
12.6 |
% |
||||
Operating income margin |
|
13.2 |
% |
13.0 |
% |
|
|
||||
|
|
|
|
|
|
|
|
||||
Net income from continuing operations |
|
214.5 |
|
199.2 |
|
7.7 |
% |
||||
Percent to sales |
|
8.5 |
% |
8.8 |
% |
|
|
||||
|
|
|
|
|
|
|
|
||||
Earnings per share from continuing operations diluted |
|
1.52 |
|
1.40 |
|
8.6 |
% |
||||
Average shares outstanding diluted |
|
141.3 |
|
142.6 |
|
(.9 |
)% |
||||
|
|
|
|
|
|
|
|
||||
Dividends paid |
|
$ |
76.9 |
|
$ |
64.1 |
|
20.0 |
% |
||
Dividends paid per share |
|
.56 |
|
.46 |
|
21.7 |
% |
||||
Cash flow from operations |
|
349.5 |
|
201.8 |
|
73.2 |
% |
||||
Debt-to-total-capital |
|
40.9 |
% |
44.4 |
% |
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|
||||
|
|
|
|
|
|
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|
||||
Closing stock price |
|
$ |
36.45 |
|
$ |
28.69 |
|
27.0 |
% |
||
table of contents
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business description
McCormick is a global leader in the manufacture, marketing and distribution of spices, herbs, seasonings and other flavors to the entire food industry. Customers range from retail outlets and food service providers to food processing businesses. Founded in 1889 and built on a culture of Multiple Management, McCormick has approximately 8,000 employees.
vision statement
McCormick will be the leading global supplier of high valueadded flavor solutions.
Building on strong brands and innovative products, we will provide superior quality and service to customers and consumers around the world.
2
net sales in millions
|
earnings per share from continuing operations diluted
|
cash flow from operations in millions
|
dividends paid per share
|
For the five years ended 11/30/04, McCormicks total annual shareholder return has exceeded the S&P 500 Stock Index and S&P 500 Food Products Index.
McCormick & Company 20% S&P 500 Stock Index -2% S&P 500 Food Products Index 0%
|
3
fellow shareholders,
2004 was a terrific year at McCormick. Sales reached a record $2.5 billion. We completed the implementation of our B2K program in the U.S. The goal for the first year of our $70 million cost reduction program was exceeded. We reached $1.0 billion in gross profit and increased gross profit margin 0.3 percentage points. With $350 million in cash from operations we paid $77 million in dividends, repurchased $175 million of shares and acquired Silvo, the leading brand of spices and herbs in the Netherlands, for $75 million.
Robert J.
Lawless
Now in our 115th year, we continue to build shareholder value. In fact, total annual return for our shareholders has been 20% during the past five years, twice that of our peer companies. Everywhere you look, youll discover that McCormick is turning up the heat.
record results for 2004
At the beginning of 2004, with confidence in our business and ability to perform, we set several financial goals.
Our first objective was to grow sales 7-9%. We achieved sales growth of 11%. This was the result of launching successful new products, introducing effective promotions and acquiring Zatarains mid-year in 2003. We also benefited from higher pricing for vanilla and favorable foreign currency. Sales for our consumer business rose 15%, following a 17% increase in 2003. Our industrial business picked up steam with a 7% sales increase following a 5% increase in 2003.
Second, we set a range for earnings per share of $1.51 to $1.54. We ended the year with earnings per share of $1.52. With higher sales, improved gross profit margins, cost reduction savings and the proceeds from the settlement of a lawsuit claim, we were able to offset some cost increases in areas including employee benefits and fuel. More importantly, we were able to invest in the business for future growth, increasing advertising and product development expense during 2004.
Our third target was to generate $350- $400 million from 2004 to 2006 in cash flow from operations, after net capital expenditures and dividends. Our 2004 result of $206 million has us well on our way toward meeting this target. We generated higher cash from a number of sources including higher net income, reduced inventory and lower prepaid allowances. During 2004, we increased dividends paid by 20% to $77 million from $64 million in 2003.
turning up the heat
For each step of our strategy: improve margins, invest in the business and increase sales and profits...we are turning up the heat!
A key to margin improvement is our B2K program, a global initiative that is significantly improving our business processes through state-of-the-art technology. With the implementation for the U.S. complete, our plan is to move international businesses onto this platform by 2006. Utilizing the power of B2K, employees are improving the supply chain throughout the Company. As a result, we significantly reduced costs in 2004, exceeding our $15 million objective. In 2005 we expect to reduce costs an additional $25 million and in 2006 an additional $30 million.
Margin improvement fuels our growth. We will use a portion
4
of this fuel to invest in the business. We are accelerating the marketing support behind our powerful brands. We have more than doubled advertising expense since 1999. We invested in a promotional analysis process that in its first year significantly increased the effectiveness of our 2004 U.S. trade promotion dollars. Product development expense increased another 18% in 2004 and 84% since 1999. In addition to increasing our resources behind product development, weve increased productivity. New product sales as measured per each R&D professional have doubled in the past five years. A formula management system will be available in 2005 that will give our teams a running start on new products and further reduce the development cycle time for our customers.
Improved margins provide the fuel for business investments... investments designed to increase sales and profits. Throughout the Company we are seeing signs of success in a great number of new products. One product line is grinders. A functional, consumer-oriented package that originated under the Ducros brand in France is being taken to other markets. Worldwide sales of grinders were up 36% in 2004, and new blends and an improved package are in the pipeline for 2005. For several years now, sales to restaurant chains have been strong. Most recently, we have significantly increased sales of coating systems. We have also increased sales and profits with strategic acquisitions. Since its addition to the McCormick family in June 2003, the performance of Zatarains has exceeded our expectations. At the end of 2004, we completed the acquisition of another excellent brand, Silvo. This leading brand extends our European reach into the Netherlands and will add nearly $50 million of sales in 2005.
We continue to reaffirm the long-term goals that we set in 2002: to grow sales 5% annually with a range of 3-7% and to increase earnings per share 10-12%. In a tough environment, these are aggressive goals for McCormick and, for that matter, any packaged food company. But we like a challenge at McCormick and have established a strong track record in meeting our goals. In the coming years, we intend to continue our record of superior financial results and increased shareholder value.
leadership at McCormick
Early in 2004, a Management Committee was formed that expanded the former Executive Committee to include leaders of our consumer business. The Management Committee has responsibility for setting strategy, executing growth initiatives, allocating Company resources and for developing and advancing our employees. I believe that our Board of Directors, Management Committee and leadership throughout McCormick are among the best in the food industry.
Toward the end of 2004, Jerry Wolfe was promoted to Vice President Supply Chain and Chief Information Officer. Fran Contino was named Executive Vice PresidentStrategic Planning and CFO. Throughout the Company, we continue to challenge and develop our people while tapping into their experience, knowledge and enthusiasm.
We like our business: flavor. Demand for great taste has few boundaries. Kid-friendly flavors, bold and zesty flavors, ethnic flavors and flavors for those on a reduced calorie, low-carb, lowfat, or low-salt diet. From molecule to menu, McCormick has the broadest range of flavor solutions in the industry.
I believe we have a great team at McCormick and a winning strategy that continues to deliver record financial performance year after year. Our core values define the way we work with one another, how we value and serve our customers, and our ultimate responsibility to McCormick shareholders. These values are fundamental to our success.
Thank you to our employees for making our goals a reality. All of us at McCormick are committed to building shareholder value. I am confident of our future success.
|
|
|
Robert J. Lawless, Chairman, President and CEO |
our core values
We believe
our people are the most important ingredient of our success.
our top priority is to continuously add value for our shareholders.
customers are the reason we exist.
our business must be conducted honestly and ethically.
the best way to achieve our goals is through teamwork.
5
board of directors
Barry H. Beracha 62 Executive Vice President Sara Lee Corporation (retired) Chief Executive Officer Sara Lee Bakery Group (retired) Chicago, Illinois Food, household and body care products and apparel Director since 2000 Compensation Committee member
James T. Brady 64 Managing Director, Mid-Atlantic Ballantrae International, Ltd. Ijamsville, Maryland International management consultants Director since 1998 Audit Committee member
Francis A. Contino 59 Executive Vice President Strategic Planning and Chief Financial Officer McCormick & Company, Inc. Director since 1998
Robert G. Davey 55 President Global Industrial Group McCormick & Company, Inc. Director since 1994
Edward S. Dunn, Jr. 61 President, Dunn Consulting Retail grocery and related industries, business strategy and marketing consultant Williamsburg, Virginia Director since 1998 Compensation Committee member
J. Michael Fitzpatrick 58 President & Chief Operating Officer Rohm and Haas Company (retired) Philadelphia, Pennsylvania Paints and coatings, electronic devices and personal computers, packaging and construction materials, household and personal care products, grocery items Director since 2001 Compensation Committee member Nominating / Corporate Governance Committee member
|
Freeman A. Hrabowski, III 54 President University of Maryland Baltimore County Baltimore, Maryland Director since 1997 Nominating / Corporate Governance Committee member
Robert J. Lawless 58 Chairman of the Board, President and Chief Executive Officer McCormick & Company, Inc. Director since 1994
Margaret M.V. Preston 47 Executive Vice President Mercantile Private Wealth Management Mercantile Safe Deposit & Trust Company Baltimore, Maryland Director since 2003 Audit Committee member
William E. Stevens 62 Chairman, BBI Group St Louis, Missouri Mergers and acquisitions Director since 1988 Audit Committee member
Karen D.Weatherholtz 54 Senior Vice President Human Relations McCormick & Company, Inc. Director since 1992
|
Corporate Governance
McCormicks mission is to enhance shareholder value. McCormick employees conduct business under the leadership of the chief executive officer subject to the oversight and direction of the Board of Directors. Both management and the Board of Directors believe that the creation of long-term shareholder value requires us to conduct our business honestly and ethically and in accordance with applicable laws. We also believe that shareholder value is well served if the interests of our employees, customers, suppliers, consumers, and the communities in which we live, are appropriately addressed.
McCormicks success is grounded in its value system as evidenced by our core values.
We are open and honest in business dealings inside and outside the Company. We are dependable and truthful and keep our promises.
Our employees and our Board of Directors are committed to growing our business in accordance with our governance structure and principles and code of ethics.
7
financial results
(in millions)
|
|
2004 |
|
2003 |
|
||
net sales |
|
$ |
1,339.8 |
|
$ |
1,162.3 |
|
operating income |
|
$ |
269.7 |
|
$ |
230.9 |
|
Interest in flavors continues to grow as consumers all over the world are exposed to different cuisines than their own. But food preparation must be quick and easy. McCormick is satisfying this appetite for outstanding flavor and simple preparation with leading brands in key markets around the world.
8
McCormicks consumer business markets seasoning blends, spices, herbs, extracts, sauces, marinades and specialty foods. Our customers span a broad range of retail outlets and include grocery, drug, mass merchandise and dollar stores.
2004 financial results
Net sales rose 15% in 2004. Volume, price and product mix increased 11%. The 2003 acquisition of Zatarains was incremental to the first six months of the year and added 4% of the 11% growth rate. Favorable foreign exchange added another 4%. In the Americas, sales were particularly strong as a result of new products, effective marketing, pricing actions and distribution expansion. In Europe, sales success with new products was tempered by a more competitive situation.
Operating income rose 17%. The sales increase and initiatives to improve margins helped to offset cost pressures that included vanilla, fuel and employee benefits. The higher cost of vanilla was also offset by higher pricing. During 2004, we increased advertising 43%. As a percent of net sales, operating income reached 20.1%, as compared to 19.9% in 2003.
market position
Consumers want to add flavor to their foods bold and zesty, kid-friendly and fun, ethnic and exotic. But preparation must be easy. A recent Food Market Institute report stated, Consumers continue to be time-pressed and are looking for solutions to cut the time spent in meal preparation.
As category leader, McCormick is meeting these needs through initiatives such as new products, better
This magazine advertisement features Joe Montana, McCormicks first major celebrity spokesperson. Joe promotes the GrillMates line of products. Worldwide, we increased 2004 sales of grilling seasonings, marinades, sauces and rubs 8%. |
9
Jeff Carter Product Development Manager, U.S. Consumer Products Division
Its not your old-fashioned pickling ingredient. McCormick pickling spice is a versatile blend of spices and herbs that has many comfort food applications. Slow cookers are coming back. Try pickling spice with popular slow cooker recipes such as corned beef & cabbage, sauerbraten beef or german style pot roast. An old favorite, McCormick pickling spice, can be a great addition to todays meals.
|
merchandising, effective marketing and a dynamic website.
Our actions are driving category growth in many key markets. In 2004, the spice and seasoning category rose 2% in the U.S., 5% in Canada and 1% in the U.K. A tough competitive situation in France, however, led to a 1% category decline in 2004.
With both brand and private label products, we enjoy a leading share in our largest markets. In the U.S. and the U.K. our share has increased to nearly 50%, and in France and Canada our share exceeds 50%. We also have a leading share in China and a strong presence in additional markets in Europe and Asia.
As a result of marketing initiatives and expanded distribution we continue to gain market share. In 2004, we added 1.4 percentage points to our U.S. market share of branded spices and seasonings.
Following the acquisition of Zatarains in 2003, we increased 2004 sales of this brand 20%. The increase was due in part to the successful introduction of a new Ready-to-Serve line of rice mixes.
Our unique grinder top adds fresh taste right at the table. With the introduction of new flavors and the addition of new markets, worldwide sales of grinders grew by 36% in 2004. |
2004 highlights
In the Netherlands, acquired the Silvo business, gaining entry into the Dutch market with a 63% market share.
Launched new products in the last 3 years that accounted for 6% of 2004 sales.
In the U.S., increased sales of the Zatarains brand 20% with expanded product penetration and new items.
In the U.S., significantly increased the effectiveness of trade promotions. This was one of the key factors in a 17% sales increase in the Americas.
In China, substantially improved our distributor network and streamlined our business to 75 well-qualified distributors. This was a reduction from 250 distributors in the network in 2003.
Worldwide, grew sales of grinders by 36%. This innovative package originated in France, under the Ducros label.
Increased sales of our grilling products, including seasonings, marinade blends and sauces, 8% worldwide. Rubs are featured in the new product line up for 2005.
In the U.S., strengthened a leading position with Hispanic consumers with new products and a focused expansion into Texas and Chicago markets. In 2005, for the first time, McCormick will advertise on Hispanic networks.
In the U.K., converted more than 5,000 stores to new packaging and merchandising of the Schwartz brand spices and herbs in only two months. With this change, we have significantly reduced the variety of packaging formats in Europe.
Throughout Europe, achieved 8% growth of dessert aids with new products and new distribution.
10
growth initiatives
We are growing the consumer business by:
Developing innovative products. As category leader it is our responsibility to bring news and excitement to the category. Consumers are seeking new products that offer convenience and great flavor.
Increasing marketing effectiveness. Approximately 10% of each sales dollar is spent on trade promotions. We are measuring the effectiveness of our promotions to optimize sales. Through advertising we are driving consumer demand and have more than doubled our advertising since 1999. We are working to improve the appearance of our products in their home department and gain additional store placements to build consumer awareness.
With the acquisition of Silvo at the end of 2004, we gained entry into the Dutch market with a 63% market share. |
Expanding distribution. We are adding customers in new geographic regions in Europe and the Asia/Pacific region. In more established markets we are achieving better penetration of products including our seafood complements, the Zatarains brand and dessert aids.
Expanding through acquisitions. We will continue to acquire leading brands that take us into new markets, particularly in Europe. We will seek niche brands that fit well with our existing product lines. To be successful, acquisitions must pass financial hurdles and include a well-constructed integration plan.
With television advertising and a number of new products, sales for our Vahine dessert aids brand in Europe grew 8% in 2004. |
outlook
Our growth initiatives are expected to drive 5% annual sales increases. The pace of growth may vary year to year due to acquisitions, foreign exchange and other factors.
For 2005, new products in the pipeline include both wet and dry flavors for grilling, seafood and salads. A relaunch for dry seasoning mixes with new packaging and merchandising is planned in the U.S. Advertising will be focused on value-added products that meet consumers demand for convenience and great taste. We will continue to expand our leadership position into new geographies. Sales growth and further progress with margin improvement initiatives will continue to improve operating income margin for the consumer business.
Interest in flavors continues to grow as consumers all over the world are exposed to different cuisines than their own. But food preparation must be quick and easy. McCormick is satisfying this appetite for outstanding flavor and simple preparation with leading brands in key markets around the world.
|
|
|
|
|
In the U.K., new packaging and merchandising of our Schwartz brand improves the appearance of the products and shopping experience for the consumer. During 2004, our team converted over 5,000 stores in only two months. |
McCormick is the #1 spice and seasoning brand among Hispanic consumers in the U.S. In 2004, we strengthened this leading position with new products, and in 2005, for the first time, will advertise on a major Hispanic television network.
11
financial results
(in millions)
|
|
2004 |
|
2003 |
|
|||
net sales |
|
$ |
1,186.4 |
|
$ |
1,107.3 |
|
|
operating income |
|
$ |
113.6 |
|
$ |
108.9 |
|
|
We are building our leadership position in flavors. With our wide range of flavor solutions and ability to create consumer-preferred products, customers increasingly turn to McCormick for new product ideas and as a preferred supplier of great flavor solutions.
12
McCormicks industrial business markets blended seasonings, spices and herbs, condiments, compound flavors and extracts, and coating systems to other food processors and to the away-from-home channel, both directly and through distributors and warehouse clubs.
For restaurant customers and other food processors, we develop and deliver consumer-preferred flavors. In fact, new products launched over the last three years accounted for 22% of 2004 sales. |
|
|
COMPOUND FLAVORS Beverage flavors Dairy flavors Confectionery flavors
PROCESSED FLAVORS Meat flavors Savory flavors
SEASONINGS Seasoning blends Salty snack seasonings Side dish seasonings (rice, pasta, potato) Sauces and gravies
COATING SYSTEMS Batters Breaders Marinades Glazes Rubs
CONDIMENTS Sandwich sauces Ketchup Mustards Jams and jellies Seafood cocktail sauces Salad dressings Flavored oils
INGREDIENTS Spices and herbs Extracts Essential oils and oleoresins Fruit and vegetable powders Tomato powder
|
2004 financial results
Net sales rose 7% in 2004. Volume, price and product mix increased 4%. Favorable foreign exchange added another 3%. Sales growth in the Americas resulted from new product successes, particularly with restaurant customers, as well as higher pricing for higher cost vanilla, dairy products and other raw materials. In Europe, growth in more value-added products was offset by reduced sales of ingredients. This shift in mix was driven by our decision to exit certain lower margin products and regions.
Operating income rose 4%. Higher sales, an improved product mix, and initiatives to reduce costs provided an offset to cost pressure from other areas including fuel and employee benefits. During 2004, we increased product development expense 18%.
market position
Interest in flavors continues to grow. A report published by The Freedonia Group states that flavors and flavor enhancers will continue to account for the largest share of overall food additives, due to their extensive use in many processed foods, dairy products, baked goods and candy...opportunities are constantly being created by consumer demand for new flavors based on ethnic cuisines and more intense flavor preparations.
With blended seasonings, spices and herbs, condiments, compound flavors and extracts, and coating systems,
To further improve our productivity, a new formula management system introduced in 2004 will provide a running start on new projects and reduce the new product cycle time for delivery to our customers beginning in 2005. |
13
Chefs in China are adding flavor with our McCormick brand line of spices and seasonings. We grew sales of these food service products 8% in 2004.
|
McCormick has the broadest range of flavor solutions in the industry. While there are many industrial competitors, most market only one or two of these five categories. And as a leading supplier to food service distributors and warehouse clubs, McCormick is well-positioned to grow with these customers.
For all customers, new products are an essential element of growth. Our multifunctional sales teams work with customers to develop leading products that become marketplace winners.
Spending for research and development has more than doubled since 1998. Our focus has been on value-added, higher margin products. Together, our development, application, culinary and sensory areas enable us to deliver consumer-preferred flavors.
We develop flavorful coating systems for quick service restaurants. In 2004, U.S. sales of coating systems grew by more than 30%.
|
2004 highlights
Launched new products during the last 3 years that accounted for 22% of 2004 sales.
In the U.S., increased sales of coating systems by more than 30%. Directed primarily to the quick service restaurant industry, our flavorful products drove sales for key customers.
Doubled the sales of new products measured per each research and development professional in the past 5 years. Tripled cost savings per research and development professional in the past 3 years.
By focusing on more profitable items, reduced SKUs (number of items sold) in the European market from more than 3,250 in 2003 to less than 2,750 in 2004. In 2005, we will streamline our business to fewer than 2,000 individual products in Europe.
Our customers have recognized McCormick for delivering innovation, quality products and reliable service. |
Grew sales of food service herbs and spices 8% in China, establishing the brand as the product of choice among high-end restaurants and catering outlets.
Recognized by our customers for innovation, quality products and reliable service. For the tenth consecutive year, Sysco ranked McCormick among its top 100 suppliers. Fewer than 10 other suppliers to Sysco share this honor. Frito-Lay named McCormick its 2003 seasoning and ingredient supplier of the year.
Completed a formula management system that will provide a running start on new projects and reduce new product cycle time delivery to our customers beginning in 2005.
In the U.S., we are improving the quality of incoming materials through a rigorous vendor management program. This program led to a 36% reduction in incoming material defects during 2004.
14
With blended seasonings, spices and herbs, condiments, compound flavors and extracts, and coating systems, McCormick has the broadest range of flavor solutions in the industry. |
growth initiatives
We are growing the industrial business by:
Supporting the global expansion of our industry-leading customers. Our customers are growing globally, and we are growing with them. Additional restaurant locations in China, product distribution into India, a new brand launched in Europe . . . each of these offers McCormick an opportunity for growth. We can supply much of this growth from existing facilities. We are also seeking to extend our global flavor capabilities into new regions through acquisitions.
Building current and new strategic partnerships. At the end of 2004, our top 15 customers accounted for approximately 70% of sales. They rely on us for consistent, high quality products and flawless service. We will increase our business with existing customers by working collaboratively to pursue growth opportunities. We also have in place a team devoted to identifying and developing new strategic partners. These opportunities include large companies that we do not currently supply, as well as emerging businesses, such as restaurant chains, that are experiencing rapid growth.
Providing consumer-preferred value-added products. Innovative new products are in demand. With our breadth of flavor solutions, we can participate in the latest high growth area, whether it is dairy, confection, high fiber or low carb. Our culinary and flavor experts add value by including sophisticated flavors in coating systems, seasoning blends, condiments and other products. And our sensory teams conduct careful testing to measure consumer preferences. As our business shifts to more consumer-preferred value-added products, we are growing sales and improving profit margins.
outlook
Our growth initiatives are expected to drive 5% annual sales increases. The pace of growth may vary year to year due to acquisitions, foreign exchange and other factors. Our ongoing focus on value-added products will continue to boost profit margins.
For 2005, new products in the pipeline include flavored beverages, salty snack seasonings, and coating and grilling systems. With cost reduction activities helping the bottom line, profit margins for the industrial business will continue to improve.
We are building our leadership position in flavors. With our wide range of flavor solutions and ability to create consumerpreferred products, customers increasingly turn to McCormick for new product ideas and as a preferred supplier of great flavor solutions.
Claudio Rattes Senior Food Technologist, Research & Development
Ginger is commonly used in baking but my favorite use is to give a recipe some Asian character, especially with poultry and seafood. I like to add a spoonful of McCormick ground ginger per pound of fish along with some toasted sesame seeds in the breading. It will provide a very fresh taste, which may be complemented with lime juice (at the moment of serving) and will reduce anyfishy aroma.
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15
Q&A with Bob Lawless
What are your most significant opportunities to grow sales?
On average, we expect to grow sales 5% annually, within a 3-7% range. We do this through innovation, acquisitions and extending our geographic reach. New products will continue to be a vital part of our sales growth. In recent years, at least 10% of annual sales came from new products launched in the prior three years. We continue to pursue acquisitions as an important avenue of growth. Geographically, we are excited about opportunities to further expand our branded products in China and to countries in Europe where we do not yet have a leading share.
In summary, sales growth will vary year to year based on acquisition activity, foreign currency exchange rates and other factors. However, over time we expect annual sales growth from the following sources: 2-3% fro m the base business, 1-2% from new products, 1-2% from acquisitions, 0-1% from distribution expansion and 0-1% from pricing actions.
How does concern about health and wellness impact your business?
Consumers are invited to visit www.mccormick.com where they will find healthy recipe and meal ideas in our new Taste for Health section. As a supplier of a broad range of flavors, McCormick can add taste to a variety of diets. For consumers on a low-carb diet who are eating more meat, poultry and seafood, we provide coatings, marinades and grilling seasonings. If ones interest is in whole grains, we offer products that flavor bread, cereal and wholesome snack foods. All too often, diets that call for low-fat, low-salt or low-calorie are often low in flavor. And thats where McCormick steps in to add great taste.
Ive read that Americans are eating out more. Are they cooking less?
In October 2004, USA Today reported that 77% of meals are made at home based on research conducted by NPD. And the Food Marketing Institute has indicated that 84% of consumers ate a home-cooked meal at least three times a week compared to 74% in 2001. At the same time, Americans would like preparation time to be less than thirty minutes according to Parade Magazines What America Eats issue. McCormick makes cooking quick and easy with products like GrillMates, seafood sauces, and new seasoning mixes that offer both convenience and great flavor. Were delivering flavor in new ways too, with grinders, salad products and dessert toppings that add taste at the table.
For many of those occasions when people prefer to eat out, grab a snack or heat up a prepared meal, McCormick continues to deliver the flavor! Through our industrial business, we add taste to the products offered in leading restaurants, food service distributors and food processors. In fact, whether you are at home or eating out you can enjoy something flavored by McCormick.
Costs for many basic food ingredients such as soy oil and dairy products can fluctuate year to year.
How does this affect your business?
We strive to maintain stability in costs and pricing. In our industrial business, many customers accept price adjustments that pass through commodity cost changes. In our consumer business, increases and decreases in the costs of spices, herbs and
16
other ingredients tend to offset one another during any particular year. In certain situations we increase prices to offset rapidly escalating costs. An example occurred in 2003 when vanilla bean costs rose steeply due to a crop shortage, and we responded by increasing prices. We went even one step further. With our global sourcing capabilities, we were able to secure a strategic inventory of vanilla beans to guarantee a supply of vanilla extract for our customers.
You have made several acquisitions in recent years. Are you looking for more?
Yes. Acquisitions which expand our flavor offerings or our geographic penetration are key components of growth.
For our consumer business, we are seeking leading brands of spices and seasonings in those markets where we do not have a strong presence, particularly in Europe. Silvo was an excellent example of acquiring a leading European brand. With a 63% market share, it was a great way to expand our business into the Netherlands with a highly regarded brand of spices and herbs. In established markets, we search for products that deliver distinct flavors. Here in the U.S., our 2003 acquisition of Zatarains is a great example of this; Zatarains unique New Orleans flavors appeal to consumers.
As for our industrial business, we have a broad range of flavor solutions for our U.S. customers and plan to expand our current capabilities in international markets through acquisitions. Regardless of the type of acquisition, a disciplined business plan, a detailed integration plan and a rigorous financial review are the keys to success.
What do you consider to be the key ingredient to McCormicks success?
Our key ingredient is without question the people of McCormick. Their enthusiasm, values and drive to win are unmatched. Our employees possess a deep knowledge of the business and excellent relationships with suppliers and customers. Careers are advanced through training and challenging on-the-job experiences. Each of us has measurable goals, and our achievements are rewarded. Employee values are the foundation of our success.
Our leadership team is focused on growing this business. And throughout the Company, our high performance employees are delivering great results to our customers, our consumers and our shareholders.
How did you develop the flavor forecast at the front of this report?
This is our third edition of the flavor forecast. It is published for the benefit of our many customers and is shared with the food industry media throughout the U.S. The forecasters include chefs, culinary television personalities, cookbook authors and our own trend experts.
Our business at McCormick is all about flavor. We have the broadest range of flavor solutions in the industry and believe that no matter what you eat each day, you are likely to enjoy the taste of McCormick. Throughout this report, our development team shares some ways to bring the latest trends into your home.
Bon appetit!
Our key ingredient is without question the people of McCormick...
Ethical Behavior Teamwork High Performance Innovation Concern for one another = Success
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17
executive officers
Robert J. Lawless Chairman of the Board, President & Chief Executive Officer
Paul C. Beard Vice President Finance & Treasurer
Francis A. Contino Executive Vice President Strategic Planning & Chief Financial Officer
Robert G. Davey President Global Industrial Group
H. Grey Goode, Jr. Vice President Tax
Kenneth A. Kelly, Jr. Vice President & Controller |
Robert W. Skelton Senior Vice President, General Counsel & Secretary
Mark T. Timbie President International Consumer Products Group
Karen D. Weatherholtz Senior Vice President Human Relations
Alan D. Wilson President U.S. Consumer Foods
Jeryl Wolfe Vice President Supply Chain & Chief Information Officer |
18
In McCormicks 115-year history, the record of community service is long and proud. Communities around the world where the Company has facilities have benefited from a variety of philanthropic activities. Through financial contributions and the active participation of employees, McCormick supports numerous causes that improve the quality of life.
The Company has a formal program of charitable giving that grants funds to worthwhile causes with civic, health, welfare, education and the arts receiving the most attention. Programs like the Unsung Heroes Awards, student scholarships, and Charity Day, which fosters employee giving to a wide range of civic causes, have existed for more than 60 years.
McCormick employees are the backbone of the Companys civic efforts. Around the world, our employees devote time and talent to civic causes. Their spirit of volunteerism carries on a legacy that speaks to the very culture of McCormick. The newest chapter to that proud history was realized with the creation of the annual McCormick Community Service Award in the spring of 2004. The program recognizes those employees who best exemplify McCormicks commitment to improve our communities. The five employee finalists receive $5,000 for the charity of their choice. The 2004 finalists were Maria Teresa Avila Meneses, of Mexico, Rick Ayers, of Canada and Ted Eschmann, Nancy Lawn and Dennis Bayne of Maryland. The grand-prize winner receives $25,000 to donate to similar charities. The 2004 winner was Steve Sausnock of Maryland. As a member of the local Optimist Club, Steve distributed the funds to numerous causes including The Childrens Cancer Campaign, soup kitchens like Our Daily Bread, schools, churches and to support firefighters and police.
Steve said, My job is to see the money go where it is needed. Steves attitude reflects a commitment to community that runs throughout the entire Company.
1
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4
The McCormick Community Service Award was initiated in 2004 to honor employees who devote time and energy to better their communities. The grand prize-winner was employee Steve Sausnock, seen receiving the award from Chairman Bob Lawless (1). On behalf of the Optimist Club, Steve distributed the $25,000 grant to numerous charities and organizations such as the Providence (Md.) Volunteer Fire Company (2), Shop with a Cop which pairs needy children with police officers for mentoring (3), and Our Daily Bread soup kitchen (4). The Community Service Award is the latest chapter in McCormicks long history of philanthropy.
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managements discussion and analysis
Executive Summary
Business Overview
McCormick & Co. is a global leader in the manufacture, marketing and distribution of spices, herbs, seasonings and other flavors to the entire food industry. The Companys major sales, distribution and production facilities are located in North America and Europe and its products reach nearly 100 countries around the world. Additional facilities are based in Mexico, Central America, Australia, China, Singapore, Thailand and South Africa. In 2004, approximately 38% of sales were outside the U.S.
The Company operates in two business segments, consumer and industrial. In 2004, the consumer business accounted for 53% of sales and the industrial business accounted for 47% of sales. Consistent with market conditions in each segment, the consumer business has a higher overall profit margin than the industrial business.
The consumer business supplies a variety of retail outlets that include grocery, drug, dollar and mass merchandise stores. In the U.S., these customers are serviced both directly and indirectly through food wholesalers. In international markets customers are serviced either directly or indirectly through distributors. Products for the consumer segment include spices, herbs, extracts, seasoning blends, sauces, marinades and specialty foods. In 2004, 67% of net sales were in the Americas, 29% in Europe and 4% in the Asia/Pacific region. In its primary markets, the Company supplies both branded and private label products and has a leading share that is more than twice the size of the next largest competitor. The Company is growing the consumer business by developing innovative products, increasing marketing effectiveness, expanding distribution and acquiring leading brands and niche products.
The industrial business supplies both food processors and the restaurant industry. Restaurant customers are supplied both directly and indirectly through distributors and warehouse club stores. Products for the industrial segment include blended seasonings, spices, herbs, condiments, compound flavors and extracts, and coating systems. In 2004, 73% of net sales were in the Americas, 19% in Europe and 8% in the Asia/Pacific region. The Company has many competitors who also supply products to food processors, as well as restaurants, food service distributors and warehouse clubs. The Company is driving sales for the industrial business by supporting the global expansion of its customers, building current and new strategic partnerships, and developing consumer-preferred value-added products. Through acquisitions, the Company seeks to expand its flavor solutions globally.
With its consumer and industrial segments, the Company has the customer base and product development skills to provide flavor solutions for all types of eating occasions, whether it is cooking at home, dining out, purchasing a quick service meal or enjoying a snack.
The Company purchases a significant amount of raw materials from areas throughout the world. The most significant raw materials are vanilla, cheese, pepper, packaging supplies, garlic, onion and capsicums. Some of these are subject to price volatility caused by weather, market conditions, growing and harvesting conditions, governmental actions and other unpredictable factors. While future movements of raw material costs are uncertain, the Company responds to this volatility in a number of ways including strategic raw material purchases, purchases of raw material for future delivery and customer price adjustments.
Strategy for Growth
The Companys strategy is to improve margins, invest in the business and increase sales and profits.
Margins are being improved with new capabilities and processes introduced through McCormicks B2K program, a global initiative that is significantly improving business processes through state-of-the-art technology. Utilizing B2K, employees are improving the supply chain throughout the Company. A goal to reduce costs by $70 million through 2006 was set early in 2004. In 2004, $24 million in cost savings were realized, comprised of $15 million of cost of goods sold and $9 million of selling, general and administrative expense savings. Margins are also improving as higher-margin more value-added products are introduced. Since 2001, gross profit margin has increased a total of 1.9 percentage points.
The Company is investing in areas such as product development and marketing support to drive sales. Research and development expense and advertising behind McCormicks brands have increased significantly and consistently since 1999. In 2004, research and development expense increased 18% and advertising expense increased 43%.
The Companys long-term financial objectives, first set in 2002, are to increase annual sales 3-7% and earnings per share 10-12%. With the opportunities to increase margins and the sales initiatives for the consumer and industrial businesses, the Company expects to continue to achieve these objectives. Early in 2004, an additional goal was set to generate $350-$400 million of cash flow from operations after dividends and net capital expenditures for the three-year period 2004-2006. In 2004, the first $206 million of this goal was achieved. With this cash the Company is seeking to acquire businesses and to repurchase shares.
21
Results of Operations 2004 compared to 2003
for the year ended November 30 (millions except per share data) |
|
2004 |
|
2003 |
|
||
Net sales |
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$ |
2,526.2 |
|
$ |
2,269.6 |
|
Gross profit |
|
1,007.9 |
|
898.6 |
|
||
Gross profit margin |
|
39.9 |
% |
39.6 |
% |
||
|
|
|
|
|
|
||
Selling, general and administrative expense |
|
677.7 |
|
597.6 |
|
||
Percentage of sales |
|
26.8 |
% |
26.3 |
% |
||
|
|
|
|
|
|
||
Operating income |
|
332.7 |
|
295.5 |
|
||
Operating income margin |
|
13.2 |
% |
13.0 |
% |
||
|
|
|
|
|
|
||
Earnings per share from continuing operations diluted |
|
1.52 |
|
1.40 |
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||
During 2004 and 2003, there were several acquisitions and divestitures that affected comparability of operating results. In November of 2004, the Company acquired Silvo, the market leader in the Dutch spices and herbs consumer market. Silvo is expected to generate approximately $50 million in sales in 2005. In June of 2003, the Company acquired Zatarains, the leading U.S. brand of authentic New Orleans-style food. In January of 2003, Uniqsauces was acquired, which expanded condiment flavors and packaging formats for the Company.
During the third quarter of 2003, the Company sold its packaging business and the U.K. Jenks brokerage operation. As a result, prior period sales and related expenses for these discontinued operations were reclassified and reported as Net income from discontinued operations in the consolidated statement of income. The consolidated balance sheet and consolidated statement of cash flows were also reclassified to present separately the assets, liabilities and cash flows of the discontinued operations.
For the year ended November 30, 2004, McCormick reported sales from continuing operations of $2.5 billion, an increase of 11.3% above 2003. Sales growth was the result of a 4.2% volume increase, 3.7% from favorable foreign exchange rates, 2.2% in the first half of the year from the acquisition of Zatarains, and a 1.2% increase in pricing and product mix. The acquisition of Silvo on November 1, 2004 added $4.5 million in sales in 2004. During 2004, the Company achieved higher volume with new products, expanded distribution and more effective marketing.
Gross profit margin increased to 39.9% in 2004 from 39.6% in 2003. The gross profit margin increase was due to cost reductions achieved in the first year of a three-year $70 million cost reduction program began in 2004. Sale of more value-added products and pricing actions in our consumer business also improved gross profit margin. Higher costs of employee benefits, fuel and a competitive operating environment in Europe during 2004 partly offset the gross profit margin increase.
Selling, general and administrative expenses were higher in 2004 than 2003 on both a dollar basis and as a percentage of net sales. These increases were primarily due to increased distribution expenses, higher advertising expenses and increased employee benefit costs. The increase in distribution expenses was primarily due to higher fuel costs, as well as freight and warehousing costs associated with new product introductions, and incremental distribution costs related to the acquired Zatarains business. The increase in employee benefit costs was mainly the result of higher pension costs in 2004 compared to 2003. In the consumer business, advertising expenses increased in order to launch several new products and to support the brand name.
Special charges were a credit of $2.5 million in 2004 compared to a charge of $5.5 million in 2003. This change was primarily due to a net gain of $8.7 million recorded in 2004 for funds received from a class action lawsuit that was settled in the Companys favor.
Pension expense was $30.0 million and $22.1 million for the years ended November 30, 2004 and 2003, respectively. In connection with the valuation performed at the end of 2003, the discount rate was reduced from 7.0% to 6.0% and the expected long-term rate of return on assets was reduced from 9.0% to 8.5%. These changes along with the increased amortization of prior actuarial losses increased pension expense in 2004. Pension expense in 2005 is expected to increase approximately 6%.
Interest expense from continuing operations increased by $2.4 million. Higher average debt levels during 2004 contributed to this increase, partially offset by repayment of higher rate long-term debt.
Other income decreased to $2.1 million in 2004 compared to $13.1 million in 2003 due to two significant transactions recorded in 2003. In 2003, the Company benefited from $5.4 million of interest income received on the Ducros purchase price refund and a one-time gain of $5.2 million from the sale of an interest in non-strategic royalty agreements. The Company entered into the non-strategic royalty agreements in 1995 and since then had benefited modestly from tax credits and royalty income.
The effective tax rate was 30.3% in 2004 down from 30.9% in 2003. The decrease in the effective tax rate is due to mix of earnings among the different taxing jurisdictions in which the Company operates and the settlement of tax audits for less than amounts previously accrued. Due to the anticipated change in available net operating loss carryforwards in various jurisdictions and earnings mix, the Company anticipates the tax rate to increase by 1-2% in 2005.
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Income from unconsolidated operations decreased 11.0% in 2004 when compared to 2003. This decline is mainly attributable to lower income from the Companys Signature Brands and Japan joint ventures. The Signature Brands business, a cake decorating business in the U.S., was impacted by a decline in the overall U.S. cake mix category. The Companys retail joint venture in Japan moved its business to a new distributor in 2004 with the objective of building sales in this market over time. The joint venture in Japan is currently working through a period of start-up costs associated with the transition to this new distributor until a higher level of sales is achieved. Income from the companys joint venture in Mexico was equal to last year.
Income from continuing operations was $214.5 million in 2004 compared to $199.2 million in 2003. Diluted earnings per share from continuing operations increased $0.12, comprised of $0.18 from higher sales and operating margin and a $0.02 benefit from fewer shares outstanding and lower tax rate, offset by a $0.05 decline in other income, a $0.02 increase in interest expense and minority interest, and a $0.01 decline in income from unconsolidated operations.
Consumer Business
for the year ended November 30 (millions) |
|
2004 |
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2003 |
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Net sales |
|
$ |
1,339.8 |
|
$ |
1,162.3 |
|
Operating income |
|
269.7 |
|
230.9 |
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Operating income margin |
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20.1 |
% |
19.9 |
% |
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In 2004, sales for the consumer business increased 15.3% compared to 2003. Higher volumes added 10.0% to sales, with 4.3% of the volume increase due to the impact, in the first half of the year, of the Zatarains business. Favorable foreign exchange added 4.3% and positive price and product mix added 1.0%. Sales rose 16.1% in the Americas, with 14.6% of the sales increase from higher volume, 0.8% from price and product mix, and 0.7% from foreign exchange. New products, more effective marketing and distribution gains drove an 8.1% volume increase, with the remaining 6.5% attributable to the Zatarains acquisition. Price increases on certain products were partially offset by the change in mix of products sold. Sales in Europe rose 14.1%, with favorable foreign exchange contributing 11.7%, the Silvo acquisition in November 2004 adding 1.3%, and price and product mix adding 1.1%. Excluding the foreign exchange and Silvo sales benefits, sales in Europe remained relatively flat. New product and distribution gains were offset by more intense competitive conditions, particularly in France. The spice and seasoning category in France was affected by private label and economy products, particularly with the expansion of discount retail chains into this market. Sales in the Asia/Pacific region increased 11.2%, with favorable foreign exchange contributing 10.4% and higher volume adding 2.7%, partially offset by a 1.9% decline due to unfavorable price and product mix. Volume was affected by an initiative in China to de-emphasize lower margin products. New private label business in Australia contributed to an unfavorable price and product mix.
Operating income for the consumer business increased 16.8% to $269.7 million, despite a $14.7 million increase in advertising expense. The operating income increase was driven by strong sales performance, cost reduction efforts and pricing actions. Operating income margin (operating income as a percentage of sales) increased from 19.9% in 2003 to 20.1% in 2004. Cost savings on supply chain initiatives more than offset increases in fuel, employee benefit, advertising costs, international reorganization costs, as well as the difficult competitive environment in Europe. Special charges in the consumer business decreased to $1.0 million in 2004 from $1.8 million in 2003. Special charges in the consumer business for 2004 consisted of additional costs associated with the finalization of the production facilities consolidation in Canada. Special charges in the consumer business for 2003 consisted of costs associated with the production facilities consolidation in Canada and the realignment of consumer sales operations in Australia.
As discussed previously, the Company sold its Jenks brokerage business in the U.K. on July 1, 2003 and accordingly, results of this business were classified as discontinued operations.
Industrial Business
for the year ended November 30 (millions) |
|
2004 |
|
2003 |
|
||
Net sales |
|
$ |
1,186.4 |
|
$ |
1,107.3 |
|
Operating income |
|
113.6 |
|
108.9 |
|
||
Operating income margin |
|
9.6 |
% |
9.8 |
% |
||
For 2004, sales from the industrial business rose 7.1% as compared to 2003. Higher volumes added 2.7%, favorable foreign exchange added 3.0% and price and product mix added 1.4%. Sales in the Americas rose 5.7% due to a 4.2% volume increase that was largely driven by sales of new products such as coating systems and sales of snack seasonings. Favorable price and product mix contributed 1.0% and foreign exchange added another 0.5%. Strength in warehouse club sales also contributed to sales growth and more than offset continued weakness in the
23
food service distributor channel. Higher costs for certain raw materials including vanilla, cheese and soy oil were passed through in higher pricing. In Europe, sales rose 12.3% with foreign exchange contributing 12.0% of increase. A favorable price and product mix increase of 4.2% offset a 3.9% volume decline. A shift in emphasis from lower to higher margin products resulted in reduced sales of certain lower margin products. In the Asia/Pacific region, sales increased 8.8%, with 5.5% of increase from foreign exchange and 4.3% from higher volume, partially offset by a 1.0% unfavorable price and product mix. The volume increase related to higher sales to quick service restaurants and of snack seasonings.
Operating income for the industrial business rose 4.3% to $113.6 million, despite a $6.1 million increase in research and development costs. Operating income margin was 9.6% in 2004 down from 9.8% in 2003. Increases in operating margin due to emphasis on more value-added, higher margin products and cost reduction efforts were more than offset by certain cost increases. In the fourth quarter of 2004, a $6.2 million adjustment, which arose in prior quarters, was recorded after the Company identified and corrected the operational accounting at an industrial plant in Scotland. Higher fuel, employee benefit costs and special charges as well as international reorganization costs also contributed to the decline. Special charges in the industrial business increased to $3.0 million in 2004 from $2.3 million in 2003. Special charges in the industrial business for 2004 consisted of additional costs associated with the consolidation of production facilities in Canada and additional costs related to the consolidation of manufacturing facilities in the U.K. Special charges in the industrial business for 2003 consisted of costs associated with the consolidation of production facilities in Canada and severance and other costs related to the consolidation of industrial manufacturing in the U.K.
Results of Operations 2003 compared to 2002
for the year ended November 30 (millions except per share data) |
|
2003 |
|
2002 |
|
||
Net sales |
|
$ |
2,269.6 |
|
$ |
2,044.9 |
|
Gross profit |
|
898.6 |
|
799.5 |
|
||
Gross profit margin |
|
39.6 |
% |
39.1 |
% |
||
|
|
|
|
|
|
||
Selling, general and administrative expense |
|
597.6 |
|
529.6 |
|
||
Percentage of sales |
|
26.3 |
% |
25.9 |
% |
||
|
|
|
|
|
|
||
Operating income |
|
295.5 |
|
262.4 |
|
||
Operating income margin |
|
13.0 |
% |
12.8 |
% |
||
|
|
|
|
|
|
||
Earnings per share from continuing operations diluted |
|
1.40 |
|
1.22 |
|
||
In June of 2003, the Company acquired Zatarains, the leading U.S. brand of authentic New Orleans-style food. In January of 2003, Uniqsauces was acquired, which expanded condiment flavors and packaging formats for the Company.
During the third quarter of 2003, the Company sold its packaging business and the U.K. brokerage operation. As a result, prior period sales and related expenses for these discontinued operations have been reclassified and reported as Net income from discontinued operations in the consolidated statement of income. The consolidated balance sheet and consolidated statement of cash flows were also reclassified to present separately the assets, liabilities and cash flows of the discontinued operations.
For the year ended November 30, 2003, McCormick reported sales from continuing operations of $2.3 billion, an increase of 11.0% above 2002. Sales benefited from the acquisition of the Zatarains and Uniqsauces businesses, which accounted for 4.4% of the increase. Favorable foreign exchange rates added another 4.2%, and higher sales, particularly in the U.S. consumer business, contributed an additional 2.4% to sales.
Gross profit margin increased to 39.6% in 2003 from 39.1% in 2002. Gross profit margin was favorably impacted by global procurement efficiencies, cost reduction initiatives and a mix of more consumer sales, which generally have a higher gross profit margin, compared to industrial sales. Increases in commodity costs such as vanilla were offset by price increases, and higher margins from the Zatarains business were offset by a lower gross profit margin from Uniqsauces.
Selling, general and administrative expenses were higher in 2003 than 2002 on both a dollar basis and as a percentage of net sales. These increases were primarily due to increased distribution expenses, decreased royalty income, increased employee benefit costs and higher advertising and promotional expenses. The increase in distribution expenses was primarily due to the addition of higher distribution costs associated with the Zatarains business, higher fuel costs and higher costs necessary to service customers during the consolidation of facilities in Canada. The decrease in royalty income is due to lower sales in the McCormick de Mexico joint venture. The increase in employee benefit costs was mainly the result of higher pension costs in 2003 compared to 2002. In the consumer business, advertising and promotional expenses increased in support of the launch of several new products.
Pension expense was $22.1 million and $13.0 million for the years ended November 30, 2003 and 2002, respectively. In connection with the valuation performed at the
24
end of 2003, the discount rate was reduced from 7.0% to 6.0% and the expected long-term rate of return on assets was reduced from 9.0% to 8.5%. These changes were reflective of poor market returns in recent years and a continued low interest rate environment. The changes in assumptions along with investment returns below the assumed rate resulted in the increased pension expense in 2003 and will continue to impact expense going forward.
Interest expense from continuing operations decreased in 2003 versus 2002 due to favorable interest rates.
Other income increased to $13.1 million in 2003 compared to $0.7 million in 2002. In the second quarter of 2003, the Company received $5.4 million of interest income on the Ducros purchase price refund. Also, in the fourth quarter of 2003, the Company recorded a one-time gain of $5.2 million from the sale of an interest in nonstrategic royalty agreements. The Company entered into these agreements in 1995 and since then had benefited modestly from tax credits and royalty income.
The effective tax rate for 2003 was 30.9%, down from 31.0% in 2002.
Income from unconsolidated operations decreased 26.8% in 2003 when compared to 2002. This decline is mainly attributable to lower income from the McCormick de Mexico joint venture during the first half of 2003 and to a lesser extent, the Signature Brands joint venture in the fourth quarter of 2003. The McCormick de Mexico business, which markets the leading brand of mayonnaise in Mexico, experienced profit pressure from aggressive competition, higher raw material costs and a weak peso versus the prior year. The Signature Brands business, a cake decorating business in the U.S., was impacted in part by the timing of customers purchases of holiday products. Income from continuing operations was $199.2 million in 2003 compared to $173.8 million in 2002. Diluted earnings per share from continuing operations increased $0.18, comprised of $0.12 from higher sales and operating margin, $0.04 from acquisitions and $0.06 from other income, offset by a $0.04 decline in income from unconsolidated operations.
Income from discontinued operations was $4.7 million in 2003 compared to $6.0 million in 2002. Income from discontinued operations for 2003 included 7 months of the operating results of Jenks and 8 1/2 months of the operating results of Packaging. Also included in discontinued operations in 2003 was a net gain on the sale of discontinued operations of $9.0 million. This consisted of the gain on the sale of Packaging of $11.6 million partially offset by the loss on the sale of Jenks of $2.6 million. All amounts included in discontinued operations were net of income taxes.
In the fourth quarter of 2003, the Company recorded a cumulative effect of an accounting change that reduced net income by $2.1 million, net of tax. This charge was recorded in accordance with the adoption of certain provisions of a new accounting interpretation that required the consolidation of the lessor of a leased distribution center. Previously, this entity was not consolidated and the distribution center was accounted for as an operating lease. Consolidation of this entity increased fixed assets by $11.2 million, long-term debt by $14.0 million and minority interest by $0.5 million. The effect of consolidation of this entity in prior years would have reduced net income in 2002 and 2001 by $0.3 million.
Consumer Business
for the year ended November 30 (millions) |
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2003 |
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2002 |
|
||
Net sales |
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$ |
1,162.3 |
|
$ |
993.9 |
|
Operating income |
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230.9 |
|
191.9 |
|
||
Operating income margin |
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19.9 |
% |
19.3 |
% |
||
In 2003, sales from continuing operations for the consumer business increased 16.9% compared to 2002. The acquisitions of Zatarains and Uniqsauces contributed 6.3% of the sales increase, and the impact of foreign exchange added another 5.8%. Sales rose 15.3% in the Americas, with Zatarains contributing 7.1% of sales increase and foreign exchange contributing 0.9% of increase. The remaining 7.3% of sales increase was due primarily to higher volumes in the U.S. and Canada. In 2003, the Company achieved new distribution in the dollar store channel and with a major grocery retailer in the U.S. Sales in Europe rose 21.7%, with foreign exchange contributing 16.9% of increase, and the remaining increase due to the acquisition of Uniqsauces. Sales in the Asia/Pacific region increased 12.3%, with foreign exchange contributing 11.7% of the increase. Sales in this region were adversely affected by competitive conditions in Australia and an initiative to discontinue certain lower margin products in China.
Operating income from continuing operations for the consumer business reached $230.9 million, an increase of 20.3%. Operating income margin (operating income as a percentage of sales) went up from 19.3% in 2002 to 19.9% in 2003. Pricing actions and cost savings on supply chain initiatives more than offset higher expenses of pension, promotion and advertising, distribution and certain commodities. Special charges in the consumer business
25
decreased to $1.8 million in 2003 from $2.7 million in 2002. Special charges in the consumer business for 2003 consisted of additional costs associated with the consolidation of production facilities in Canada and the realignment of consumer sales operations in Australia. Special charges in the consumer business for 2002 primarily consisted of severance, lease exit and relocation costs related to the workforce reduction and realignment of consumer sales operations in the U.S.
The Company sold its Jenks brokerage business in the U.K. on July 1, 2003 and accordingly, results of this business were reclassified from the consumer segment to discontinued operations.
Industrial Business
for the year ended November 30 (millions) |
|
2003 |
|
2002 |
|
||
Net sales |
|
$ |
1,107.3 |
|
$ |
1,051.0 |
|
Operating income |
|
108.9 |
|
107.3 |
|
||
Operating income margin |
|
9.8 |
% |
10.2 |
% |
||
For the fiscal year 2003, sales from the industrial business rose 5.4% as compared to 2002. The acquisition of Uniqsauces contributed 2.7% of sales increase and foreign exchange added another 2.6%. Sales rose 0.4% in the Americas, with foreign exchange contributing 0.5% of the increase. In the Americas, the restaurant industry was affected by a slowdown in consumer traffic in 2003. While this adversely affected the Companys sales to food service distributors, direct sales to restaurant chains had strong growth resulting from successful new products and customer promotions of existing products. Sales to food processors were largely affected by lower pricing in response to a decrease in raw material costs, particularly for snack food seasonings. In Europe, sales rose 27.9% with Uniqsauces contributing 17.7% of increase and foreign exchange contributing 12.0% of increase. The remaining decrease of 0.5% was due to lower demand for seasoning products, which more than offset strong condiment sales. In the Asia/Pacific region, sales increased 11.9%, with 5.9% of increase from foreign exchange and 6.0% from higher volume.
Operating income from continuing operations for the industrial business rose 1.5% to $108.9 million. Operating income margin was 9.8% in 2003 compared to 10.2% in 2002. The operating income increase was generally in line with the sales increase, excluding the Uniqsauces acquisition. This acquisition was strategically made for its condiment production facility and certain of its customer relationships. In the industrial segment, commodity cost increases and decreases are generally offset by pricing actions. However, in 2003 vanilla had a negative effect on operating income due to significant volatility in this commodity. The savings on supply chain initiatives were offset by cost increases in pension and other benefit costs. Special charges in the industrial business increased to $2.3 million in 2003 from $1.8 million in 2002. Special charges in the industrial business for 2003 consisted of additional costs associated with the consolidation of production facilities in Canada and severance and other costs related to the consolidation of industrial manufacturing in the U.K. Special charges in the industrial business for 2002 primarily consisted of further severance and other costs related to the workforce reduction initiated in 2001 and further costs related to the closure of a U.S. distribution center.
Financial Condition
Strong cash flows from operations enabled the Company to fund operating projects and investments that are designed to meet the Companys growth objectives, to make strategic acquisitions and to repurchase stock.
In the consolidated statement of cash flows, the changes in operating assets and liabilities are presented excluding the effects of changes in foreign currency exchange rates, as these do not reflect actual cash flows. Accordingly, the amounts in the consolidated statement of cash flows do not agree with changes in the operating assets and liabilities that are presented in the consolidated balance sheet. In addition, the net cash flows from operating, investing and financing activities are presented excluding the effects of discontinued operations.
In the consolidated statement of cash flows, net cash provided by continuing operating activities was $349.5 million in 2004 compared to $201.8 million in 2003 and $208.6 million in 2002. The significant increase in operating cash flow in 2004 is primarily the result of a reduction in inventory in 2004 as compared to 2003 when inventory increased, an increase in other liabilities in 2004 compared to a decrease in 2003 and the benefit of higher net income from continuing operations. These favorable cash flows were partially offset by increases in accounts receivable which are in line with increases in sales. The higher inventory in 2003 was due to the Companys strategic decision to purchase vanilla beans in order to ensure an ongoing supply and manage the cost for this raw material. The Company decreased its vanilla bean inventory by $28 million in 2004 in anticipation of lower cost beans in 2005. The increase in other assets and liabilities in 2004 compared to a decrease in 2003 was due to the timing of liability payments and a higher tax benefit on the exercise of stock options in 2004 compared to 2003. The Company generally receives a tax deduction on the exercise of stock
26
options. These deductions increased in 2004, due to the increase in both stock price and the exercise of stock options. When 2003 is compared with 2002, the major use of funds was the increase in inventory due to the purchase of vanilla beans. The timing of liability payments contributed to the decrease in other liabilities in 2003.
Net cash used in continuing investing activities was $141.5 million in 2004 versus $100.7 million in 2003 and $95.3 million in 2002. Net capital expenditures (capital expenditures less proceeds from the sale of fixed assets) were $67.0 million in 2004, $81.7 million in 2003 and $93.9 million in 2002. The decrease over the three year period is mainly due to lower B2K spending as 2002 was the peak year of software development expenditures. Net capital expenditures in 2005 are expected to be higher than in 2004 as the Company prepares for the B2K launch in Europe. Cash paid to acquire Silvo during 2004 was $74.5 million. Cash paid for the acquisitions of the Zatarains and Uniqsauces businesses during 2003 was $202.9 million. Cash received from the sale of the Packaging and Jenks businesses during 2003 was $133.9 million. The Company also received $55.4 million during 2003 from the Ducros purchase price adjustment, of which, $5.4 million represented interest and was included in net cash flows from continuing operating activities.
Net cash used in continuing financing activities was $178.4 million in 2004, $137.7 million in 2003 and $114.9 million in 2002. The Companys total borrowings increased $19.3 million in 2004, compared to an increase of $16.4 million in 2003 and a decrease of $74.4 million in 2002. In the second quarter of 2004, the Company issued a total of $50 million in medium-term notes under its existing $375 million shelf registration. The $50 million of medium-term notes mature on April 15, 2009 and pay interest semiannually at a rate of 3.35%. The proceeds of this issuance were used to pay down short-term debt. In 2004, the Company purchased 5.1 million shares of common stock for $173.8 million under its share repurchase programs versus 4.5 million shares of common stock for $119.5 million in 2003. In the second quarter of 2004, the Company completed its $250 million share repurchase authorization and began to buy against its $300 million authorization approved by the Board of Directors in September 2003. As of November 30, 2004, $147.7 million remained under the $300 million share repurchase program. Without significant acquisition activity, the Company expects this program to extend into 2006. The common stock issued in 2004, 2003 and 2002 relates to the Companys stock compensation plans.
Dividend payments increased to $76.9 million in 2004, up 20.0% compared to $64.1 million in 2003. Dividends paid in 2004 totaled $0.56 per share, up from $0.46 per share in 2003. In November 2004, the Board of Directors approved a 14.3% increase in the quarterly dividend from $0.14 to $0.16 per share. Over the last 5 years, dividends per share have risen at a compounded annual rate of 9.9%.
The Companys pension plans had a shortfall of plan assets over accumulated benefit obligations at their 2004 and 2003 measurement dates of $162.8 million and $166.6 million, respectively. These shortfalls were due to the continued low interest rate environment and lower than assumed asset returns in 2001 and 2002. However, the shortfall decreased in 2004. As a result, the Company recorded a reduction in the minimum pension liability through a credit of $7.2 million ($4.4 million net of tax) to other comprehensive income in 2004. This compares to an increase in minimum pension liability recorded through a charge of $20.6 million ($14.4 million net of tax) to other comprehensive income in 2003. Cash payments to pension plans were $30.6 million in 2004, $27.2 million in 2003 and $25.2 million in 2002. The Company plans to make 2005 pension plan contributions similar to those made in 2004. Future increases or decreases in pension liabilities and required cash contributions are highly dependent on changes in interest rates and the actual return on plan assets. The Company bases its investment of plan assets, in part, on the duration of each plans liabilities. Across all plans, 68% of assets are invested in equities and 32% in fixed income investments.
The Companys ratio of debt-to-total-capital (total capital includes debt, minority interest and shareholders equity) was 40.9% as of November 30, 2004, a decrease from 44.4% at November 30, 2003 and below the Companys target range of 45-55%. The decrease was primarily the result of an increase in shareholders equity. Foreign currency had the effect of increasing shareholders equity and accordingly, decreased the ratio of debt-to-total-capital by 2.6% in 2004. In June 2004, S&P raised the Companys short-term corporate credit and commercial paper ratings toA-1 from A-2 and long-term corporate credit and senior unsecured debt ratings toA from A-. During the year, the level of the Companys short-term debt varies. However, it is usually lower at the end of the year. The average short-term borrowings outstanding for the year ended November 30, 2004 and 2003 were $295.2 million and $287.6 million, respectively.
The reported values of the Companys assets and liabilities held in its non-U.S. subsidiaries and affiliates have been significantly affected by fluctuations in foreign exchange rates between periods. During the year ended November 30, 2004, the exchange rates for the Euro,
27
British pound sterling, Canadian dollar and Australian dollar were substantially higher versus the U.S. dollar than in 2003. Exchange rate fluctuations resulted in an increase in accounts receivable of $21 million, inventory of $14 million, goodwill of $51 million and other comprehensive income of approximately $93 million since November 30, 2003.
The Company has available credit facilities with domestic and foreign banks for various purposes. The amount of unused credit facilities at November 30, 2004 was $466.1 million. Management believes that internally generated funds and the Companys existing sources of liquidity under its credit facilities are sufficient to meet current liquidity needs and longer-term financing requirements. If the Company were to undertake an acquisition that requires funds in excess of its existing sources of liquidity, it would look to sources of funding from additional credit facilities or equity issuances.
Acquisitions
On November 1, 2004, the Company purchased C.M. van Sillevoldt B.V. (Silvo), the market leader in the Dutch spices and herbs consumer market, for 58 million in cash (equivalent to $74.5 million) funded with cash from operations and current credit facilities. Silvo sells spices, herbs and seasonings under the Silvo brand in the Netherlands and the India brand as well as private label store brands in Belgium. The brand has a strong heritage and high recognition among consumers in the Netherlands. The acquisition is consistent with the Companys strategy to acquire established brands to complement the Companys leadership position in the development and marketing of flavors for food. The business is achieving growth through innovative products and packaging with a focus on convenience, quality, and ethnic flavors. The acquisition was accounted for under the purchase method, and the results of operations have been included in the Companys consolidated results from the date of acquisition. The excess of the purchase price over the estimated fair value of the tangible net assets purchased was $59.4 million and is classified as goodwill in the consumer segment. The allocation of the purchase price is based on preliminary estimates, subject to revision, after asset values have been finalized. Revisions to the allocation, which may be significant, will be reported as changes to various assets and liabilities. The Company does not anticipate significant amounts to be allocated to amortizable intangible assets and, therefore, the amount of intangible asset amortization is not expected to be material to the results of operations in future periods.
In the second quarter of 2004, the Company completed the purchase price allocation for the Zatarains acquisition. The excess of the purchase price over the estimated fair value of the net assets purchased was $176.2 million, which includes $3.4 million of fees directly related to the acquisition. An analysis of the various types of intangible assets resulted in a determination that the excess purchase price should be classified as the value of the acquired brand name and goodwill. No other intangible assets were identified as a result of this analysis. The Company has concluded that a substantial portion of the value of the excess purchase price resides in consumer trust and recognition of the Zatarains brand name as authentic New Orleans-style cuisine. As a result, the Company has assigned $106.4 million of the excess purchase price to this unamortizable brand based on an analysis of the premium value that is derived from consumer loyalty and trust in the brands quality. Zatarains brand name has been used since 1889, and the Company intends to use and support the brand name indefinitely. The Company will review this intangible asset for impairment annually using the discounted cash flow method. The remaining $69.8 million of intangible assets were allocated to goodwill in the consumer segment.
Beyond 2000
Late in 1999, the Company initiated the B2K program as a global program of business process improvement. B2K is designed to re-engineer transactional processes, strengthen the product development process, extend collaborative processes with trading partners, optimize the supply chain and generally enhance the Companys capabilities to increase sales and profit. An integral part of B2K is the design and implementation of an enterprise wide state-of-the-art technology and information system platform.
In 2002, the Company implemented the initial phase of its B2K program and began using the new state-of-the-art technology and processes in a significant portion of U.S. operations, including its largest consumer operating unit. The rollout of B2K to the U.S. industrial operations was completed in 2004. The Company plans to rollout B2K to its international operations by 2006. The Company will continue to integrate and optimize all of its businesses through broader access to information and increased collaboration with its trading partners. Through B2K, employee time devoted to transaction execution will be reduced and more time will be devoted to the growth and effectiveness of the business.
Overall levels of capital spending and expense have increased from historical levels to support the B2K effort. To date, $120 million of costs associated with B2K have been capitalized and $33 million has been expensed.
28
Additional capital spending of approximately $25 million and an additional expense of approximately $15 million is anticipated under this program. Capital costs under the B2K program are for computer hardware, software and software development and are reflected in property, plant and equipment in the consolidated balance sheet. Costs expensed under the B2K program include costs of business re-engineering, data conversion and training and are reflected in both cost of sales and selling, general and administrative expense in the consolidated statement of income.
Special Charges
In 2001, McCormick adopted a plan to further streamline its operations. This plan, adopted during the fourth quarter of 2001, included the consolidation of several distribution and manufacturing locations, the reduction of administrative and manufacturing positions, and the reorganization of several joint ventures. The estimated cost of the total plan is approximately $32.6 million ($25.6 million after-tax). Total cash expenditures in connection with these costs approximates $16.7 million, which is funded through internally generated funds. The remaining $15.9 million of costs associated with the plan consist of write-offs of assets. The total cost of the plan includes $1.8 million of special charges related to Packaging and Jenks that have been classified as income from discontinued operations in the consolidated statement of income. Annualized cash savings from the plan are expected to be approximately $8.0 million ($5.3 million after-tax), most of which have been realized to date. Savings under the plan are being used for spending on initiatives such as brand support and supply chain management. These savings are included within the cost of goods sold and selling, general and administrative expenses in the consolidated statement of income.
In 2001, the Company recorded $11.2 million ($7.4 million after-tax) of charges from continuing operations associated with the 2001 restructuring plan. Of this amount, $10.3 million was classified as special charges and $0.9 million as cost of goods sold in the consolidated statement of income. These charges related to the consolidation of manufacturing in Canada, a distribution center consolidation in the U.S., a product line elimination and a realignment of the Companys sales operations in the U.K., and a workforce reduction which encompasses plans in all segments and across all geographic areas.
During the year ended November 30, 2002, the Company recorded $7.5 million ($5.5 million after-tax) of special charges associated with the 2001 restructuring plan, which could not be accrued at the time of the original announcement in 2001. These charges included the write-off of an investment in an industry purchasing consortium, further costs of lease exit and relocation costs related to the workforce reduction and realignment of consumer sales operations in the U.S. and further severance and other costs related to the previously discussed workforce reduction. Also included in the 2002 charges were further costs related to the closure of a U.S. distribution center and further costs of the consolidation of manufacturing in Canada which included the disposition of a manufacturing facility. During 2002, total cash expenditures in connection with the plan were $6.3 million. The major components of the 2002 special charges include charges for employee termination benefits of $3.3 million, asset write-downs of $3.3 million, and other related exit costs of $0.9 million.
During the year ended November 30, 2003, the Company recorded special charges related to continuing operations of $5.5 million ($3.6 million after-tax). The costs recorded in 2003 included additional costs associated with the consolidation of production facilities in Canada, net of a gain on the sale of a manufacturing facility, severance and other costs related to the consolidation of industrial manufacturing in the U.K. and the realignment of the Companys consumer sales operations in Australia. During 2003, total cash expenditures in connection with the plan were $4.7 million. The major components of the 2003 special charges include charges for employee termination benefits of $4.7 million, gain on the sale of assets of $(0.6) million, and other related exit costs of $1.4 million.
During the year ended November 30, 2004, the Company recorded special charges related to continuing operations of $6.2 million ($4.3 million after-tax). The costs recorded in 2004 primarily include costs related to the consolidation of industrial manufacturing facilities in the U.K. and Canada, the reorganization of a consumer joint venture and additional severance costs for position eliminations. During 2004, total cash expenditures in connection with the plan were $4.7 million. Also included in special charges/(credits) is a net gain of $8.7 million ($5.5 million after-tax) related to funds received from a class action lawsuit that was settled in the Companys favor in the second quarter of 2004. This matter dated back to 1999 when a number of class action lawsuits were filed against manufacturers and sellers of various flavor enhancers for their violation of antitrust laws. The Company, as a purchaser of such products, participated as a member of the plaintiff class. In the second quarter of 2004, the Company received $11.1 million as a settlement of this claim and as a result of the settlement, was required to settle claims against the Company for a portion of this gross amount. The net gain recorded was $8.7 million. This amount was recorded as a special credit and was not allocated to the business segments.
29
Costs yet to be incurred from the 2001 restructuring plan include the possible reorganization of a joint venture and completion of the reorganization of certain industrial manufacturing facilities in the U.K. These actions are expected to be completed in 2005. The total 2001 restructuring plan includes severance charges for 392 position reductions. As of November 30, 2004, 389 of the 392 planned position reductions had taken place.
Refer to note 4 of the notes to consolidated financial statements for further information.
Discontinued Operations
On August 12, 2003, the Company completed the sale of substantially all the operating assets of its packaging segment (Packaging) to the Kerr Group, Inc. Packaging manufactured certain products used for packaging the Companys spices and seasonings as well as packaging products used by manufacturers in the vitamin, drug and personal care industries. Under the terms of the sale agreement, Packaging was sold for $132.5 million in cash and possible additional future payments over five years contingent on the buyer meeting certain performance objectives. At the end of the first year of such possible contingent payment periods, no additional payment was due from the buyer for that year. The proceeds were used to pay off a substantial portion of the commercial paper borrowing related to the Zatarains acquisition in 2003.The final purchase price is also subject to other contingencies related to the performance of certain customer contracts which could result in a decrease in the sale price. The Company recorded a net gain on the sale of Packaging of $11.6 million (net of income taxes of $7.9 million) in the third quarter of 2003. Included in this gain was a net pension and postretirement curtailment gain of $3.3 million and the write-off of goodwill of $0.7 million. The contingent consideration, if any, associated with the sale of Packaging will be recognized in the future as an adjustment to the gain based on the performance criteria established. The Company also entered into a multi-year, market priced agreement with the acquirer to purchase certain packaging products.
On July 1, 2003 the Company sold the assets of Jenks Sales Brokers (Jenks), a division of the Companys wholly-owned U.K. subsidiary, to Jenks senior management for $5.8 million in cash. Jenks provided sales and distribution services for other consumer product companies and was previously reported as a part of the Companys consumer segment. The Company recorded a net loss on the sale of Jenks of $2.6 million (net of an income tax benefit of $0.6 million) in the third quarter of 2003. Included in this loss is a write-off of goodwill of $0.4 million.
The operating results of Packaging and Jenks were classified as Income from discontinued operations, net in the consolidated statement of income. Jenks was previously included in the Companys consumer segment, and Packaging was previously reported as a separate segment. Certain fixed overhead charges previously allocated to Packaging have been reallocated to the other business segments. The cash flows of Packaging and Jenks were reported as Net cash (used in)/provided by discontinued operations in the consolidated statement of cash flows.
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 7 and 8 of the notes to consolidated financial statements.
Foreign Exchange Risk The Company is exposed to fluctuations in foreign currency in the following main areas: cash flows related to raw material purchases; the translation of foreign currency earnings to U.S. dollars; the value of foreign currency investments in subsidiaries and unconsolidated affiliates and cash flows related to repatriation of these investments. Primary exposures include the U.S. dollar versus functional currencies of the Companys major markets (Euro, British pound sterling, Australian dollar, Canadian dollar, Mexican peso, Japanese yen, and Chinese renminbi). The Company enters into foreign currency exchange contracts to facilitate managing foreign currency risk.
The following table summarizes the foreign currency exchange contracts held at November 30, 2004. All contracts are valued in U.S. dollars using year-end 2004 exchange rates and have been designated as hedges of foreign currency transactional exposures, firm commitments or anticipated transactions, all with a maturity period of less than one year.
30
Foreign Currency Exchange Contracts
|
|
Currency |
|
|
|
Average contractual |
|
|
|
||
Currency sold |
|
received |
|
Notional value |
|
exchange rate |
|
Fair value |
|
||
|
|
|
|
(millions) |
|
(USD/fc) |
|
(millions) |
|
||
Euro |
|
USD |
|
$ |
10.9 |
|
1.23 |
|
$ |
(.8 |
) |
British pound sterling |
|
USD |
|
7.8 |
|
1.80 |
|
(.4 |
) |
||
Canadian dollar |
|
USD |
|
29.9 |
|
.78 |
|
(2.5 |
) |
||
The Company has a number of smaller contracts with an aggregate notional value of $2.5 million to purchase or sell various other currencies, such as the Australian dollar, Japanese yen, and South African rand as of November 30, 2004. The aggregate fair value of these contracts was $(0.2) million at November 30, 2004.
At November 30, 2003, the Company had foreign currency exchange contracts for the Euro, British pound sterling, Canadian dollar, Australian dollar, Japanese yen and South African rand with a notional value of $58.9 million, all of which matured in 2004. The fair value of these contracts was $(1.7) million at November 30, 2003.
Contracts with durations which are less than 5 days and used for short-term cash flow funding within the Company are not included in the notes or table above.
During 2004, the foreign currency translation component in other comprehensive income was principally related to the impact of exchange rate fluctuations on the Companys net investments in France, the U.K., Canada, and Australia. The Company did not hedge its net investments in subsidiaries and unconsolidated affiliates in 2004, 2003, or 2002.
Interest Rate Risk The Companys policy is to manage interest rate risk by entering into both fixed and variable rate debt. The Company also uses interest rate swaps to minimize worldwide financing costs and to achieve a desired mix of its fixed and variable rate debt. The table that follows provides principal cash flows and related interest rates, excluding the effect of interest rate swaps, by fiscal year of maturity at November 30, 2004 and 2003. 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 the end of the year presented.
Year of Maturity at November 30, 2004
(millions) |
|
2005 |
|
2006 |
|
2007 |
|
2008 |
|
Thereafter |
|
Total |
|
Fair value |
|
||||||||
Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Fixed rate |
|
$ |
32.5 |
|
$ |
196.1 |
|
$ |
.3 |
|
$ |
149.9 |
|
$ |
104.4 |
|
$ |
483.2 |
|
$ |
523.5 |
|
|
Average interest rate |
|
5.95 |
% |
7.33 |
% |
|
|
7.69 |
% |
4.2 |
% |
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Variable rate |
|
$ |
140.7 |
|
|
|
|
|
|
|
$ |
14.3 |
|
$ |
155.0 |
|
$ |
155.0 |
|
||||
Average interest rate |
|
2.13 |
% |
|
|
|
|
|
|
2.43 |
% |
|
|
|
|
||||||||
Year of Maturity at November 30, 2003
(millions) |
|
2004 |
|
2005 |
|
2006 |
|
2007 |
|
Thereafter |
|
Total |
|
Fair value |
|
|||||||||
Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Fixed rate |
|
$ |
16.3 |
|
$ |
32.3 |
|
$ |
196.4 |
|
$ |
.3 |
|
$ |
205.4 |
|
$ |
450.7 |
|
$ |
508.5 |
|
||
Average interest rate |
|
7.00 |
% |
7.10 |
% |
7.42 |
% |
|
|
7.53 |
% |
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Variable rate |
|
$ |
154.7 |
|
$ |
14.2 |
|
|
|
|
|
|
|
$ |
168.9 |
|
$ |
168.9 |
|
|||||
Average interest rate |
|
1.52 |
% |
1.59 |
% |
|
|
|
|
|
|
|
|
|
|
|||||||||
Note: The table above displays the debt by the terms of the original debt instrument without consideration of interest rate swaps. These swaps have the following effects. The variable interest rate on $75 million of commercial paper is hedged by interest rate swaps through 2011. Net interest payments on the $75 million will be fixed at 6.35% during this period. Interest rate swaps, settled upon the issuance of the medium-term notes maturing in 2006 and 2008, effectively fixed the interest rate on $294 million of the notes at a weighted-average fixed rate of 7.62%. The fixed interest rate on $100 million of the 6.4% medium-term notes due in 2006 is effectively converted to a variable rate by interest rate swaps through 2006. Net interest payments on these notes are based on LIBOR plus 3.595% during this period. The fixed interest rate on $50 million of 3.35% medium-term notes due in 2009 is effectively converted to a variable rate by interest rate swaps through 2009. Net interest payments are based on LIBOR minus .21% during this period.
31
Commodity Risk The Company purchases certain raw materials which are subject to price volatility caused by weather, market conditions, growing and harvesting conditions, governmental actions and other unpredictable factors. While future movements of raw material costs are uncertain, the Company responds to this volatility in a number of ways, including strategic raw material purchases, purchases of raw material for future delivery and customer price adjustments. Generally, the Company does not use derivatives to manage the volatility related to this risk.
Credit Risk The customers of the consumer business are predominantly food retailers and food wholesalers. Recently, consolidations in these industries have created larger customers, some of which are highly leveraged. This has increased the Companys exposure to credit risk. Several customers over the past two years have filed for bankruptcy protection; however, these bankruptcies have not had a material effect on the Companys results. The Company feels that the risks have been adequately provided for in its bad debt allowance.
Contractual Obligations and
Commercial Commitments
The following table reflects a summary of the Companys contractual obligations and commercial commitments as of November 30, 2004:
Contractual Cash Obligations Due by Year
|
|
|
|
Less |
|
|
|
|
|
More |
|
|||||
|
|
|
|
than 1 |
|
1-3 |
|
3-5 |
|
than 5 |
|
|||||
(millions) |
|
Total |
|
year |
|
years |
|
years |
|
years |
|
|||||
Notes payable |
|
$ |
140.2 |
|
$ |
140.2 |
|
|
|
|
|
|
|
|||
Long-term debt |
|
498.0 |
|
33.0 |
|
$ |
196.4 |
|
$ |
198.9 |
|
$ |
69.7 |
|
||
Operating leases |
|
58.8 |
|
13.9 |
|
19.2 |
|
11.1 |
|
14.6 |
|
|||||
Interest payments |
|
166.2 |
|
35.4 |
|
42.8 |
|
19.0 |
|
69.0 |
|
|||||
Raw material purchase obligations (a) |
|
91.6 |
|
91.6 |
|
|
|
|
|
|
|
|||||
Other purchase obligations (b) |
|
7.4 |
|
7.4 |
|
|
|
|
|
|
|
|||||
Total contractual cash obligations |
|
$ |
962.2 |
|
$ |
321.5 |
|
$ |
258.4 |
|
$ |
229.0 |
|
$ |
153.3 |
|
(a) Raw material purchase obligations outstanding as of year-end may not be indicative of outstanding obligations throughout the year due to the Companys response to varying raw material cycles.
(b) Other purchase obligations primarily consist of advertising media commitments.
Note: In 2005, the Companys pension and postretirement funding is expected to be approximately $43 million. Pension and postretirement funding can vary significantly each year due to changes in legislation and the Companys significant assumptions. As a result, the Company has not presented pension and postretirement funding in the table above.
Commercial Commitments Expiration by Year
|
|
|
|
Less |
|
|
|
|
|
More |
|
|||||||
|
|
|
|
than 1 |
|
1-3 |
|
3-5 |
|
than 5 |
|
|||||||
(millions) |
|
Total |
|
year |
|
years |
|
years |
|
years |
|
|||||||
Guarantees |
|
$ |
6.6 |
|
$ |
2.2 |
|
$ |
4.2 |
|
$ |
.2 |
|
|
|
|||
Standby and trade letters of credit |
|
12.3 |
|
12.3 |
|
|
|
|
|
|
|
|||||||
Lines of credit |
|
466.1 |
|
241.1 |
|
225.0 |
|
|
|
|
|
|||||||
Total commercial commitments |
|
$ |
485.0 |
|
$ |
255.6 |
|
$ |
229.2 |
|
$ |
.2 |
|
|
|
|||
Note: In January 2005, the Company entered into a new five-year, $400 million credit facility, which expires in January 2010. This facility replaces the line of credit of $350 million existing at year end of which $125 million would have expired in June 2005 and $225 million would have expired in June 2006.
32
Off-Balance Sheet Arrangements
The Company had no off-balance sheet arrangements as of November 30, 2004. In 2003, the Company consolidated the lessor of a leased distribution center and, as a result, the entity is reflected in the consolidated balance sheet.
Recently Issued Accounting Pronouncements
In January 2003, the FASB issued and subsequently revised Interpretation No. 46, Consolidation of Variable Interest Entities. The Company adopted Interpretation No. 46 as it relates to special purpose entities in the fourth quarter of 2003. The Company consolidated the lessor of a leased distribution center used by the Company and recorded a cumulative effect of an accounting change of $2.1 million (net of income tax benefit of $1.2 million). Consolidation of this entity increased assets by $11.2 million, long-term debt by $14.0 million and minority interest by $0.5 million. The effect of consolidation of this entity in prior years would have reduced net income in 2002 by $0.3 million. In the third quarter of 2004, the Company adopted the remaining provisions of Interpretation No. 46 and there was no material effect upon adoption of this statement.
In May 2004, the FASB issued Staff Position 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug Improvement and Modernization Act of 2003 which provides guidance on the accounting for the effects of the Act. FASB Staff Position 106-2 is effective for the first interim or annual period beginning after June 15, 2004. The Company adopted FASB Staff Position 106-2 in the third quarter of 2004. See Note 10 for impact of adoption.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment to ARB No. 43, Chapter 4, Inventory Pricing. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company believes there will be no material effect upon adoption of this statement.
In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment, a revision of SFAS No. 123, Accounting for Stock-Based Compensation and superseding APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R requires the Company to expense grants made under the stock option and employee stock purchase plan programs. That cost will be recognized over the vesting period of the plans. SFAS No. 123R is effective for the first interim or annual period beginning after June 15, 2005. Upon adoption of SFAS No. 123R, amounts previously disclosed under SFAS No.123 will be recorded in the consolidated income statement. The Company is evaluating the alternatives allowed under the standard, which the Company is required to adopt beginning in the fourth quarter of 2005.
Critical Accounting Estimates and Assumptions
In preparing the financial statements in accordance with United States generally accepted accounting principles (GAAP), management is required to make estimates and assumptions that have an impact on the assets, liabilities, revenue, and expense amounts reported. These estimates can also affect supplemental information disclosed by the Company, including information about contingencies, risk, and financial condition. The Company believes, given current facts and circumstances, its estimates and assumptions are reasonable, adhere to GAAP, and are consistently applied. Inherent in the nature of an estimate or assumption is the fact that actual results may differ from estimates and estimates may vary as new facts and circumstances arise. In preparing the financial statements, the Company makes routine estimates and judgments in determining the net realizable value of accounts receivable, inventory, fixed assets, and prepaid allowances. Management believes the Companys most critical accounting estimates and assumptions are in the following areas:
Customer Contracts
In several of its major markets, the consumer business sells its products by entering into annual or multi-year contracts with its customers. These contracts include provisions for items such as sales discounts, marketing allowances and performance incentives. The discounts, allowances, and incentives are expensed based on certain estimated criteria such as sales volume of indirect customers, customers reaching anticipated volume thresholds, and marketing spending. The Company routinely reviews these criteria and makes adjustments as facts and circumstances change.
Goodwill and Brand Name Asset Valuation
The Company reviews the carrying value of goodwill and brand name assets annually utilizing discounted cash flow models. Changes in estimates of future cash flows caused by items such as unforeseen events or changes in market
33
conditions could negatively affect the reporting units brand name assets fair value and result in an impairment charge. The Company cannot predict the occurrence of events that might adversely affect the reported value of goodwill and brand name assets that totaled $819.3 million at November 30, 2004. However, the current fair values of the Companys reporting units and brand name are significantly in excess of carrying values, and accordingly management believes that only significant changes in the cash flow assumptions would result in impairment.
Income Taxes
The Company files income tax returns and estimates income taxes in each of the taxing jurisdictions in which it operates. The Company is subject to tax audits in each of these jurisdictions, which could result in changes to the estimated taxes. The amount of these changes would vary by jurisdiction and would be recorded when known. Management has recorded valuation allowances to reduce its deferred tax assets to the amount that is more likely than not to be realized. In doing so, management has considered future taxable income and ongoing tax planning strategies in assessing the need for a valuation allowance.
Pension and Postretirement Benefits
Pension and other postretirement plans costs require the use of assumptions for discount rates, investment returns, projected salary increases, mortality rates, and health care cost trend rates. The actuarial assumptions used in the Companys pension and postretirement benefit reporting are reviewed annually and compared with external benchmarks to ensure that they appropriately account for the Companys future pension and postretirement benefit obligations. While the Company believes that the assumptions used are appropriate, differences between assumed and actual experience may affect the Companys operating results. A 1% change in the actuarial assumption for discount rate would impact pension and postretirement benefit expense by approximately $12 million. A 1% change in the expected return on plan assets would impact pension expense by approximately $4 million. In addition, see the preceding sections of the MD&A and notes 9 and 10 of notes to consolidated financial statements for a discussion of these assumptions and the effects on the financial statements.
Forward-Looking Information
Certain information contained in this report includes forward-looking statements within the meaning of section 21(E) of the Securities 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 Companys expected financial plans, future capital requirements, forecasted, demographic and economic trends relating to its industry, ability to complete internal restructuring programs and to realize anticipated cost savings from such programs, ability to complete acquisitions, to realize anticipated cost savings and other benefits from acquisitions, to recover acquisition-related costs, and similar matters are forward-looking statements. In some cases, these statements can be identified by the Companys 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 Companys predictions. These statements are subject to known and unknown risks, uncertainties, and other factors that could cause the Companys actual results to differ materially from the statements. Important factors that could cause the Companys 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, 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.
34
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 United States generally accepted accounting principles and include amounts based on managements estimates and judgments. All other financial information in this report has been presented on a basis consistent with the information included in the financial statements.
We are also responsible for establishing and maintaining adequate internal controls over financial reporting. We maintain 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.
Our control environment is the foundation for our system of internal controls over financial reporting and is embodied in our Business Ethics Policy. It sets the tone of our organization and includes factors such as integrity and ethical values. Our internal controls over financial reporting are supported by formal policies and procedures which are reviewed, modified and improved as changes occur in business conditions and operations.
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 controls over financial reporting and accounting and financial reporting matters. The independent auditors and internal auditors report to the Audit Committee and accordingly have full and free access to the Audit Committee at any time.
We conducted an evaluation of the effectiveness of our internal controls over financial reporting based on the framework in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Although there are inherent limitations in the effectiveness of any system of internal controls over financial reporting, based on our evaluation, we have concluded that our internal controls over financial reporting were effective as of November 30, 2004.
Ernst & Young LLP, an independent registered public accounting firm, has issued an attestation report on managements assessment of internal control over financial reporting, which is included herein.
Robert J. Lawless Chairman, President & Chief Executive Officer
Francis A. Contino Executive Vice President, Strategic Planning & Chief Financial Officer
Kenneth A. Kelly, Jr. Vice President & Controller, Chief Accounting Officer
report of independent registered
public accounting firm
internal control over financial reporting
The Board of Directors and Shareholders of
McCormick & Company, Incorporated
We have audited managements assessment, included in the accompanying Report of Management, that McCormick & Company, Incorporated and subsidiaries maintained effective internal control over financial reporting as of November 30, 2004, based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on managements assessment and an opinion on the effectiveness of the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
35
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that McCormick & Company, Incorporated and subsidiaries maintained effective internal control over financial reporting as of November 30, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also in our opinion, McCormick & Company, Incorporated and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of November 30, 2004, based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of McCormick & Company, Incorporated and subsidiaries as of November 30, 2004 and 2003 and the related statements of income, shareholders equity and cash flows for each of the years in the three-year period ended November 30, 2004, and our report dated January 25, 2005 expresses an unqualified opinion on these statements.
Baltimore, Maryland
January 25, 2005
report of independent registered
public accounting firm
consolidated financial statements
The Board of Directors and Shareholders of
McCormick & Company, Incorporated
We have audited the accompanying consolidated balance sheets of McCormick & Company, Incorporated and subsidiaries as of November 30, 2004 and 2003, and the related consolidated statements of income, shareholders equity and cash flows for each of the three years in the period ended November 30, 2004. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended November 30, 2004, in conformity with United States generally accepted accounting principles.
As discussed in note 1 of the notes to consolidated financial statements, the Company changed the manner in which it accounts for a variable interest entity upon adoption of certain provisions of Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46) on September 1, 2003. The Company adopted the remaining provisions of FIN 46 effective May 31, 2004.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of McCormick & Company and subsidiaries internal control over financial reporting as of November 30, 2004, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated January 25, 2005 expressed an unqualified opinion thereon.
Baltimore, Maryland
January 25, 2005
36
consolidated statement of income
for the year ended November 30 (millions except per share data) |
|
2004 |
|
2003 |
|
2002 |
|
|||
Net sales |
|
$ |
2,526.2 |
|
$ |
2,269.6 |
|
$ |
2,044.9 |
|
Cost of goods sold |
|
1,518.3 |
|
1,371.0 |
|
1,245.4 |
|
|||
Gross profit |
|
1,007.9 |
|
898.6 |
|
799.5 |
|
|||
Selling, general and administrative expense |
|
677.7 |
|
597.6 |
|
529.6 |
|
|||
Special charges (credits) |
|
(2.5 |
) |
5.5 |
|
7.5 |
|
|||
Operating income |
|
332.7 |
|
295.5 |
|
262.4 |
|
|||
Interest expense |
|
41.0 |
|
38.6 |
|
39.2 |
|
|||
Other income, net |
|
2.1 |
|
13.1 |
|
.7 |
|
|||
Income from consolidated operations before income taxes |
|
293.8 |
|
270.0 |
|
223.9 |
|
|||
Income taxes |
|
89.0 |
|
83.4 |
|
69.4 |
|
|||
Net income from consolidated operations |
|
204.8 |
|
186.6 |
|
154.5 |
|
|||
Income from unconsolidated operations |
|
14.6 |
|
16.4 |
|
22.4 |
|
|||
Minority interest |
|
4.9 |
|
3.8 |
|
3.1 |
|
|||
Net income from continuing operations |
|
214.5 |
|
199.2 |
|
173.8 |
|
|||
Discontinued operations, net of tax: |
|
|
|
|
|
|
|
|||
Net income |
|
|
|
4.7 |
|
6.0 |
|
|||
Gain on sale |
|
|
|
9.0 |
|
|
|
|||
Net income before cumulative effect of accounting change |
|
214.5 |
|
212.9 |
|
179.8 |
|
|||
Cumulative effect of accounting change, net of tax |
|
|
|
(2.1 |
) |
|
|
|||
Net income |
|
$ |
214.5 |
|
$ |
210.8 |
|
$ |
179.8 |
|
Earnings per share basic: |
|
|
|
|
|
|
|
|||
Net income from continuing operations |
|
$ |
1.57 |
|
$ |
1.43 |
|
$ |
1.25 |
|
Net income from discontinued operations |
|
|
|
.03 |
|
.04 |
|
|||
Gain on sale of discontinued operations |
|
|
|
.06 |
|
|
|
|||
Cumulative effect of accounting change |
|
|
|
(.02 |
) |
|
|
|||
Net income |
|
1.57 |
|
1.51 |
|
1.29 |
|
|||
Earnings per share diluted: |
|
|
|
|
|
|
|
|||
Net income from continuing operations |
|
$ |
1.52 |
|
$ |
1.40 |
|
$ |
1.22 |
|
Net income from discontinued operations |
|
|
|
.03 |
|
.04 |
|
|||
Gain on sale of discontinued operations |
|
|
|
.06 |
|
|
|
|||
Cumulative effect of accounting change |
|
|
|
(.01 |
) |
|
|
|||
Net income |
|
1.52 |
|
1.48 |
|
1.26 |
|
See Notes to Consolidated Financial Statements, pages 41-55.
37
at November 30 (millions) |
|
2004 |
|
2003 |
|
||
Current assets |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
70.3 |
|
$ |
25.1 |
|
Receivables, less allowances of $6.7 for 2004 and $6.3 for 2003 |
|
407.6 |
|
344.7 |
|
||
Inventories |
|
350.2 |
|
362.8 |
|
||
Prepaid expenses and other current assets |
|
35.9 |
|
26.8 |
|
||
Total current assets |
|
864.0 |
|
759.4 |
|
||
Property, plant and equipment, net |
|
486.6 |
|
458.3 |
|
||
Goodwill, net |
|
712.9 |
|
708.7 |
|
||
Intangible assets, net |
|
115.2 |
|
8.2 |
|
||
Prepaid allowances |
|
56.8 |
|
83.8 |
|
||
Investments and other assets |
|
134.1 |
|
127.1 |
|
||
Total assets |
|
$ |
2,369.6 |
|
$ |
2,145.5 |
|
|
|
|
|
|
|
||
Current liabilities |
|
|
|
|
|
||
Short-term borrowings |
|
$ |
140.2 |
|
$ |
154.3 |
|
Current portion of long-term debt |
|
33.0 |
|
16.7 |
|
||
Trade accounts payable |
|
195.1 |
|
178.8 |
|
||
Other accrued liabilities |
|
404.4 |
|
360.2 |
|
||
Total current liabilities |
|
772.7 |
|
710.0 |
|
||
Long-term debt |
|
465.0 |
|
448.6 |
|
||
Other long-term liabilities |
|
211.2 |
|
209.5 |
|
||
Total liabilities |
|
1,448.9 |
|
1,368.1 |
|
||
|
|
|
|
|
|
||
Minority interest |
|
31.0 |
|
22.2 |
|
||
|
|
|
|
|
|
||
Shareholders equity |
|
|
|
|
|
||
Common stock, no par value; authorized 320.0 shares; issued and outstanding: 2004 14.6 shares, 2003 15.3 shares |
|
130.0 |
|
91.1 |
|
||
Common stock non-voting, no par value; authorized 320.0 shares; issued and outstanding: 2004 120.9 shares, 2003 121.9 shares |
|
206.0 |
|
171.5 |
|
||
Retained earnings |
|
434.1 |
|
472.6 |
|
||
Accumulated other comprehensive income |
|
119.6 |
|
20.0 |
|
||
Total shareholders equity |
|
889.7 |
|
755.2 |
|
||
Total liabilities and shareholders equity |
|
$ |
2,369.6 |
|
$ |
2,145.5 |
|
See Notes to Consolidated Financial Statements, pages 41-55.
38
consolidated statement of cash flows
for the year ended November 30 (millions) |
|
2004 |
|
2003 |
|
2002 |
|
|||
Operating activities |
|
|
|
|
|
|
|
|||
Net income |
|
$ |
214.5 |
|
$ |
210.8 |
|
$ |
179.8 |
|
Net income from discontinued operations |
|
|
|
(4.7 |
) |
(6.0 |
) |
|||
Gain on sale of discontinued operations |
|
|
|
(9.0 |
) |
|
|
|||
Cumulative effect of accounting change |
|
|
|
2.1 |
|
|
|
|||
Net income from continuing operations |
|
214.5 |
|
199.2 |
|
173.8 |
|
|||
Adjustments to reconcile net income from continuing operations to net cash provided by continuing operating activities: |
|
|
|
|
|
|
|
|||
Depreciation and amortization |
|
72.0 |
|
65.3 |
|
53.4 |
|
|||
Deferred income taxes |
|
(1.7 |
) |
15.6 |
|
21.1 |
|
|||
Income from unconsolidated operations |
|
(14.6 |
) |
(16.4 |
) |
(22.4 |
) |
|||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|||
Receivables |
|
(35.5 |
) |
9.8 |
|
(35.0 |
) |
|||
Inventories |
|
33.8 |
|
(50.0 |
) |
(18.7 |
) |
|||
Prepaid allowances |
|
27.2 |
|
13.5 |
|
2.7 |
|
|||
Trade accounts payable |
|
5.7 |
|
(17.1 |
) |
13.3 |
|
|||
Other assets and liabilities |
|
38.5 |
|
(38.7 |
) |
1.3 |
|
|||
Dividends received from unconsolidated affiliates |
|
9.6 |
|
20.6 |
|
19.1 |
|
|||
Net cash provided by continuing operating activities |
|
349.5 |
|
201.8 |
|
208.6 |
|
|||
|
|
|
|
|
|
|
|
|||
Investing activities |
|
|
|
|
|
|
|
|||
Acquisitions of businesses |
|
(74.5 |
) |
(202.9 |
) |
(1.4 |
) |
|||
Purchase price adjustment |
|
|
|
50.0 |
|
|
|
|||
Capital expenditures |
|
(69.8 |
) |
(91.6 |
) |
(100.4 |
) |
|||
Proceeds from sale of discontinued operations |
|
|
|
133.9 |
|
|
|
|||
Proceeds from sale of property, plant and equipment |
|
2.8 |
|
9.9 |
|
6.5 |
|
|||
Net cash used in continuing investing activities |
|
(141.5 |
) |
(100.7 |
) |
(95.3 |
) |
|||
|
|
|
|
|
|
|
|
|||
Financing activities |
|
|
|
|
|
|
|
|||
Short-term borrowings, net |
|
(14.3 |
) |
17.2 |
|
(73.8 |
) |
|||
Long-term debt borrowings |
|
50.1 |
|
|
|
|
|
|||
Long-term debt repayments |
|
(16.5 |
) |
(.8 |
) |
(.6 |
) |
|||
Proceeds from exercised stock options |
|
53.0 |
|
29.5 |
|
23.2 |
|
|||
Common stock acquired by purchase |
|
(173.8 |
) |
(119.5 |
) |
(5.1 |
) |
|||
Dividends paid |
|
(76.9 |
) |
(64.1 |
) |
(58.6 |
) |
|||
Net cash used in continuing financing activities |
|
(178.4 |
) |
(137.7 |
) |
(114.9 |
) |
|||
Effect of exchange rate changes on cash and cash equivalents |
|
15.6 |
|
19.0 |
|
9.5 |
|
|||
Net cash (used in)/provided by discontinued operations |
|
|
|
(4.6 |
) |
8.1 |
|
|||
Increase /(decrease) in cash and cash equivalents |
|
45.2 |
|
(22.2 |
) |
16.0 |
|
|||
Cash and cash equivalents at beginning of year |
|
25.1 |
|
47.3 |
|
31.3 |
|
|||
Cash and cash equivalents at end of year |
|
$ |
70.3 |
|
$ |
25.1 |
|
$ |
47.3 |
|
See Notes to Consolidated Financial Statements, pages 41-55.
39
consolidated statement of shareholders equity
(millions) |
|
Common Stock Shares |
|
Common Stock Non-Voting Shares |
|
Common Stock Amount |
|
Retained Earnings |
|
Accumulated Other Comprehensive Income (Loss) |
|
Total Shareholders Equity |
|
||||
Balance, November 30, 2001 |
|
15.8 |
|
122.7 |
|
$ |
202.9 |
|
$ |
344.1 |
|
$ |
(83.9 |
) |
$ |
463.1 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
|
|
|
|
|
|
179.8 |
|
|
|
179.8 |
|
||||
Currency translation adjustments |
|
|
|
|
|
|
|
|
|
56.9 |
|
56.9 |
|
||||
Change in realized and unrealized gains on derivative financial instruments, net of tax of $1.0 |
|
|
|
|
|
|
|
|
|
(1.5 |
) |
(1.5 |
) |
||||
Minimum pension liability adjustment, net of tax of $40.1 |
|
|
|
|
|
|
|
|
|
(69.1 |
) |
(69.1 |
) |
||||
Net change in unrealized gain on pension assets, net of tax of $0.2 |
|
|
|
|
|
|
|
|
|
.3 |
|
.3 |
|
||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
166.4 |
|
||||
Dividends |
|
|
|
|
|
|
|
(58.6 |
) |
|
|
(58.6 |
) |
||||
Shares purchased and retired |
|
(.3 |
) |
(.1 |
) |
(1.2 |
) |
(5.6 |
) |
|
|
(6.8 |
) |
||||
Shares issued, including tax benefit of $3.3 |
|
1.4 |
|
.5 |
|
29.0 |
|
(.8 |
) |
|
|
28.2 |
|
||||
Equal exchange |
|
(1.3 |
) |
1.3 |
|
|
|
|
|
|
|
|
|
||||
Balance, November 30, 2002 |
|
15.6 |
|
124.4 |
|
$ |
230.7 |
|
$ |
458.9 |
|
$ |
(97.3 |
) |
$ |
592.3 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
|
|
|
|
|
|
210.8 |
|
|
|
210.8 |
|
||||
Currency translation adjustments, net of tax of $1.1 |
|
|
|
|
|
|
|
|
|
130.7 |
|
130.7 |
|
||||
Change in realized and unrealized gains on derivative financial instruments, net of tax of $0.5 |
|
|
|
|
|
|
|
|
|
.2 |
|
.2 |
|
||||
Minimum pension liability adjustment, net of tax of $6.4 |
|
|
|
|
|
|
|
|
|
(14.4 |
) |
(14.4 |
) |
||||
Net change in unrealized gain on pension assets, net of tax of $0.5 |
|
|
|
|
|
|
|
|
|
.8 |
|
.8 |
|
||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
328.1 |
|
||||
Dividends |
|
|
|
|
|
|
|
(83.3 |
) |
|
|
(83.3 |
) |
||||
Shares purchased and retired |
|
(.1 |
) |
(4.4 |
) |
(6.8 |
) |
(113.8 |
) |
|
|
(120.6 |
) |
||||
Shares issued, including tax benefit of $6.4 |
|
1.1 |
|
.6 |
|
37.0 |
|
|
|
|
|
37.0 |
|
||||
Stock based compensation |
|
|
|
|
|
1.7 |
|
|
|
|
|
1.7 |
|
||||
Equal exchange |
|
(1.3 |
) |
1.3 |
|
|
|
|
|
|
|
|
|
||||
Balance, November 30, 2003 |
|
15.3 |
|
121.9 |
|
$ |
262.6 |
|
$ |
472.6 |
|
$ |
20.0 |
|
$ |
755.2 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
|
|
|
|
|
|
214.5 |
|
|
|
214.5 |
|
||||
Currency translation adjustments |
|
|
|
|
|
|
|
|
|
92.9 |
|
92.9 |
|
||||
Change in realized and unrealized gains on derivative financial instruments, net of tax of $0.8 |
|
|
|
|
|
|
|
|
|
1.5 |
|
1.5 |
|
||||
Minimum pension liability adjustment, net of tax of $2.8 |
|
|
|
|
|
|
|
|
|
4.4 |
|
4.4 |
|
||||
Net change in unrealized gain on pension assets, net of tax of $0.5 |
|
|
|
|
|
|
|
|
|
.8 |
|
.8 |
|
||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
314.1 |
|
||||
Dividends |
|
|
|
|
|
|
|
(79.2 |
) |
|
|
(79.2 |
) |
||||
Shares purchased and retired |
|
(.8 |
) |
(4.7 |
) |
(13.0 |
) |
(173.8 |
) |
|
|
(186.8 |
) |
||||
Shares issued, including tax benefit of $20.6 |
|
2.8 |
|
1.0 |
|
86.4 |
|
|
|
|
|
86.4 |
|
||||
Equal exchange |
|
(2.7 |
) |
2.7 |
|
|
|
|
|
|
|
|
|
||||
Balance, November 30, 2004 |
|
14.6 |
|
120.9 |
|
$ |
336.0 |
|
$ |
434.1 |
|
$ |
119.6 |
|
$ |
889.7 |
|
See Notes to Consolidated Financial Statements, pages 41-55.
40
notes to consolidated financial statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company and its majority-owned or controlled subsidiaries. Significant intercompany transactions have been eliminated. Investments in unconsolidated affiliates, over which the Company exercises significant influence, but not control, are accounted for by the equity method. Accordingly, the share of net income or loss of such unconsolidated affiliates is included in consolidated net income. The implications of the Financial Accounting Standards Board (FASB) Interpretation No. 46, Consolidation of Variable Interest Entities on the Companys consolidation policy are discussed later in this note.
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 3 months or less are classified as cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using standard or average costs which approximate the first-in, first-out costing method.
Property, Plant and Equipment
Property, plant and equipment is stated at historical 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. The estimated useful lives range from 20 to 40 years for buildings and 3 to 12 years for the Companys machinery, equipment and computer software.
Repair and maintenance costs incurred to restore or keep capital assets at an acceptable level of operating condition, but without an increase in the previously estimated useful life or capacity of the asset are expensed as incurred.
Software Development Costs
The Company capitalizes costs associated with software developed or obtained for internal use in accordance with American Institute of Certified Public Accountants Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Capitalized internal use software development costs include only (1) external direct costs of materials and services consumed in developing or obtaining the software, (2) payroll and payrollrelated costs for employees who are directly associated with and who devote time to the project, and (3) interest costs incurred, when material, while developing the software. Capitalization of these costs ceases when the project is substantially complete and ready for its intended purpose. Capitalized internal use software development costs are amortized using the straight-line method over a range of 3 to 8 years, but not exceeding the expected life of the product. The Company capitalized $14.1 million of software and software development costs during the year ended November 30, 2004 and $25.1 million during the year ended November 30, 2003.
In the fourth quarter of 2004, the Company changed its estimated useful life of certain software costs from 5 to 8 years. This change was due to the vendor stating their support for the software for a period longer than originally anticipated. In accordance with APB 20, Accounting Changes, this change was made beginning in the fourth quarter of 2004. The 2004 favorable impact to depreciation expense as a result of this change is $1.1 million ($0.8 million after-tax) and is reflected in the consolidated statement of income.
Goodwill and Other Intangible Assets
In accordance with Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets, goodwill and indefinite-lived intangible assets are reviewed at least annually for impairment using the discounted cash flow method. Separable intangible assets that have finite useful lives are amortized over their useful lives. An impaired intangible asset would be written down to fair value, using the discounted cash flow method.
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 against net sales. The majority of the Companys contracts are for a specific committed customer sales volume while others are for a specific time duration. Prepaid allowances on volume based contracts are amortized based on the actual volume of customer purchases, while prepaid allowances on time based contracts are amortized on a straight-line basis over the life of the contract. The amounts reported in the consolidated balance sheet are stated at the lower of unamortized cost or managements estimate of the net realizable value of these allowances.
Revenue Recognition
Revenue is recognized when it is realized or realizable and has been earned. The Company recognizes revenue when it has persuasive evidence of an arrangement, the product has been delivered to the customer, the sales price is fixed or determinable and collectibility is reasonably assured. The Company
41
reduces revenue for estimated product returns, allowances and price discounts based on historical experience.
Trade allowances, consisting primarily of customer pricing allowances, merchandising funds and consumer coupons, are offered through various programs to customers and consumers. Revenue is recorded net of trade allowances.
Receivables consist of amounts billed and currently due from customers. The Company has an allowance for doubtful accounts to reduce its receivables to their net realizable value. Management estimates the allowance for doubtful accounts based on factors including aging of receivables and historical collection experience.
Shipping and Handling
Shipping and handling costs are included in the selling, general and administrative expense caption in the consolidated statement of income. Shipping and handling expense was $75.3 million, $60.9 million, and $52.4 million for the years ended November 30, 2004, 2003 and 2002, respectively.
Research and Development
Research and development costs are expensed as incurred and are included in the selling, general and administrative expense caption in the consolidated statement of income. Research and development expense was $39.3 million, $33.2 million, and $31.4 million for the years ended November 30, 2004, 2003 and 2002, respectively.
Advertising
Advertising costs, which include the development and production of advertising materials and the communication of this material through various forms of media, are expensed in the period the advertising first takes place. Advertising expense is included in the selling, general and administrative expense caption in the consolidated statement of income. Advertising expense was $49.2 million, $34.5 million, and $27.4 million for the years ended November 30, 2004, 2003 and 2002, respectively.
Stock-Based Compensation
The Company uses the intrinsic value method as defined in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, to account for stock options issued to employees and directors. Accordingly, no compensation expense is recognized for these stock options since all options granted have an exercise price equal to the market value of the underlying stock on the grant date. During 2003, the Company recorded $1.2 million (net of income taxes of $0.5 million) of stock compensation expense in discontinued operations as a result of accelerated vesting of certain options related to the employees of the discontinued operations. The following table illustrates the effect on net income and earnings per common share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.
(millions except per share data) |
|
2004 |
|
2003 |
|
2002 |
|
|||
Net income as reported |
|
$ |
214.5 |
|
$ |
210.8 |
|
$ |
179.8 |
|
Add: stock-based employee compensation recorded, net of tax |
|
.3 |
|
1.2 |
|
|
|
|||
Deduct: stock-based employee compensation expense, net of tax |
|
(15.5 |
) |
(12.7 |
) |
(9.2 |
) |
|||
Pro forma net income |
|
$ |
199.3 |
|
$ |
199.3 |
|
$ |
170.6 |
|
Earnings per common share: |
|
|
|
|
|
|
|
|||
Basic as reported |
|
$ |
1.57 |
|
$ |
1.51 |
|
$ |
1.29 |
|
Basic pro forma |
|
1.45 |
|
1.43 |
|
1.22 |
|
|||
Diluted as reported |
|
1.52 |
|
1.48 |
|
1.26 |
|
|||
Diluted pro forma |
|
1.41 |
|
1.40 |
|
1.20 |
|
The per share weighted-average fair value of options granted was $6.79, $4.70, and $4.99 in 2004, 2003 and 2002, 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 Companys various stock option plans and Employee Stock Purchase Plans:
|
|
2004 |
|
2003 |
|
2002 |
|
Risk-free interest rates |
|
3.3 - 3.8% |
|
1.7 - 3.3% |
|
4.5% |
|
Dividend yield |
|
1.8% |
|
2.0% |
|
2.0% |
|
Expected volatility |
|
21.75% |
|
19.1 - 22.3% |
|
21.6% |
|
Expected lives |
|
5.0 - 6.0 years |
|
1.6 - 6.0 years |
|
6.0 years |
|
Recently Issued Accounting Pronouncements
In January 2003, the FASB issued and subsequently revised Interpretation No. 46, Consolidation of Variable Interest Entities. The Company adopted Interpretation No. 46 as it relates to special purpose entities in the fourth quarter of 2003. As a result, the Company consolidated the lessor of a leased distribution center used by the Company and recorded a cumulative effect of an accounting change of $2.1 million (net of income tax benefit of $1.2 million). Consolidation of this entity increased assets by $11.2 million, long-term debt by $14.0 million and minority interest by $0.5 million. The effect of consolidation of this entity in prior years would have reduced net income in 2002 by $0.3 million. In 2004, the Company adopted the remaining provisions of Interpretation No. 46 and there was no material effect on the consolidated financial statements.
In May 2004, the FASB issued Staff Position 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug Improvement and Modernization Act of 2003 which provides guidance on the accounting for the effects of the Act. FASB Staff Position 106-2 is effective for the first interim or annual period beginning after June 15, 2004. The Company adopted FASB Staff Position 106-2 in the third quarter of 2004. See Note 10 for impact of adoption.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment to ARB No. 43, Chapter 4,Inventory Pricing. FAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company believes there will be no material effect upon adoption of this statement.
42
In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment, a revision of SFAS No. 123, Accounting for Stock-Based Compensation and superseding APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R requires the Company to expense grants made under the stock option and employee stock purchase plan programs. That cost will be recognized over the vesting period of the plans. SFAS No. 123R is effective for the first interim or annual period beginning after June 15, 2005. Upon adoption of SFAS No. 123R, amounts previously disclosed under SFAS No. 123 will be recorded in the consolidated income statement. The Company is evaluating the alternatives allowed under the standard, which the Company is required to adopt beginning in the fourth quarter of 2005.
Reclassifications
Certain amounts in prior years have been reclassified to conform to the current year presentation. The effect of these reclassifications is not material to the consolidated financial statements.
2. ACQUISITIONS
On November 1, 2004, the Company purchased C.M. van Sillevoldt B.V. (Silvo), the market leader in the Dutch spices and herbs consumer market, for 58 million in cash (equivalent to $74.5 million) funded with cash from operations and current credit facilities. Silvo sells spices, herbs and seasonings under the Silvo brand in the Netherlands and the India brand as well as private label store brands in Belgium. The brand has a strong heritage and high recognition among consumers in the Netherlands. The acquisition is consistent with the Companys strategy to acquire established brands to complement the Companys leadership position in the development and marketing of flavors for food. The acquisition was accounted for under the purchase method, and the results of operations have been included in the Companys consolidated results from the date of acquisition. The excess of the purchase price over the estimated fair value of the net tangible assets purchased was $59.4 million and is classified as goodwill in the consumer segment. The allocation of the purchase price is based on preliminary estimates, subject to revision, after asset values have been finalized. Revisions to the allocation, which may be significant, will be reported as changes to various assets and liabilities. The Company does not anticipate significant amounts to be allocated to amortizable intangible assets and, therefore, the amount of intangible asset amortization is not expected to be material to the results of operations in future periods.
On June 4, 2003, the Company purchased Zatarains, the leading New Orleans-style food brand in the United States, for $180.0 million in cash funded with commercial paper borrowings. Zatarains manufactures and markets flavored rice and dinner mixes, seafood seasonings and many other products that add flavor to food. The acquisition was accounted for under the purchase method, and the results of operations have been included in the Companys consolidated results from the date of acquisition. The excess of the purchase price over the estimated fair value of the net assets purchased was $176.2 million, which includes $3.4 million of fees directly related to the acquisition. In the second quarter of 2004, the Company completed the purchase price allocation for the Zatarains acquisition. An analysis of the various types of intangible assets resulted in the determination that the excess purchase price should be classified as the value of the acquired brand name and goodwill. No other intangible assets were identified as a result of this analysis. The Company has concluded that a substantial portion of the value of the excess purchase price resides in consumer trust and recognition of the Zatarains brand name as authentic New Orleans-style cuisine. As a result, the Company has assigned $106.4 million of the excess purchase price to this unamortizable brand based on an analysis of the premium value that is derived from consumer loyalty and trust in the brand quality. Zatarains brand name has been used since 1889, and the Company intends to use and support the brand name indefinitely. The Company will review this intangible asset for impairment annually using the discounted cash flow method. The remaining $69.8 million of intangible assets was allocated to goodwill in the consumer segment.
On January 9, 2003, the Company acquired the Uniqsauces business, a condiment business based in Europe, for $19.5 million in cash. Uniqsauces manufactures and markets condiments to retail grocery and food service customers, including quick service restaurants. The acquisition was accounted for under the purchase method, and the results of operations have been included in the Companys consolidated results from the date of acquisition. The purchase price of this acquisition was allocated entirely to fixed assets and working capital. No goodwill was recorded as a result of this acquisition.
On August 31, 2000, the Company acquired Ducros, S.A. and Sodis, S.A.S. (Ducros) from Eridania Beghin-Say, for 2.75 billion French francs (equivalent to $379 million). In conjunction with this acquisition, the Company recorded $11.4 million of liabilities for the reorganization of resources in the Ducros organization in Europe. Actions under this plan, which included the consolidation of sales areas and offices and the exit from certain smaller markets, were completed during 2003.
The Ducros purchase contract provided for a potential adjustment to the purchase price with interest from the date of purchase. On April 29, 2003, the Company settled the purchase price adjustment with the prior owners of Ducros.
43
The Company received payment of 49.6 million (equivalent to $55.4 million). Of the $55.4 million received, $5.4 million represented interest earned on the settlement amount from the date of acquisition in accordance with the terms of the original purchase agreement. The interest income was included in Other income, net in the consolidated statement of income for the year ended November 30, 2003. The remaining $50.0 million of the settlement amount was recorded as a reduction to goodwill related to the acquisition.
3. DISCONTINUED OPERATIONS
Following a review in 2002, the packaging business and the U.K. Jenks brokerage operation were determined to be noncore to the Company. On August 12, 2003, the Company completed the sale of substantially all the operating assets of its packaging segment (Packaging) to the Kerr Group, Inc. Packaging manufactured certain products used for packaging the Companys spices and seasonings as well as packaging products used by manufacturers in the vitamin, drug and personal care industries. Under the terms of the sale agreement, Packaging was sold for $132.5 million in cash and possible additional future payments over five years contingent on the buyer meeting certain performance objectives. At the end of the first year of such possible contingent payment periods, no additional payment was due from the buyer for that year. The proceeds were used to pay off a substantial portion of the commercial paper borrowing related to the Zatarains acquisition. The final purchase price is also subject to other contingencies related to the performance of certain customer contracts which could result in a decrease in the sale price. The Company recorded a net gain on the sale of Packaging of $11.6 million (net of income taxes of $7.9 million). Included in this gain was a net pension and postretirement curtailment gain of $3.3 million and the write-off of goodwill of $0.7 million. The contingent consideration, if any, associated with the sale of Packaging will be recognized in the future as an adjustment to the gain based on the performance criteria established. The Company also entered into a multi-year, market priced, agreement with the acquirer to purchase certain packaging products.
On July 1, 2003, the Company sold the assets of Jenks Sales Brokers (Jenks), a division of the Companys whollyowned U.K. subsidiary, to Jenks senior management for $5.8 million in cash. Jenks provided sales and distribution services for consumer product companies, including the Company, and was previously reported as a part of the Companys consumer segment. The Company recorded a net loss on the sale of Jenks of $2.6 million (net of an income tax benefit of $0.6 million) in 2003. Included in this loss is a write-off of goodwill of $0.4 million.
The operations of Packaging and Jenks were reported as Income from discontinued operations, net in the consolidated statement of income in accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Interest expense was allocated to discontinued operations based on the ratio of the net assets of the discontinued operations to the total net assets of the Company. The cash flows of Packaging and Jenks were reported as Net cash (used in)/provided by discontinued operations in the consolidated statement of cash flows. The disclosures in the notes to consolidated financial statements exclude discontinued operations.
Summary operating results for the discontinued businesses were as follows:
(millions) |
|
2003 |
|
2002 |
|
||
Net sales Packaging |
|
$ |
120.3 |
|
$ |
170.6 |
|
Net sales Jenks |
|
59.6 |
|
104.5 |
|
||
Net sales discontinued operations |
|
$ |
179.9 |
|
$ |
275.1 |
|
Pre-tax income Packaging |
|
$ |
12.4 |
|
$ |
21.7 |
|
Interest expense allocation |
|
(2.5 |
) |
(4.0 |
) |
||
Income taxes |
|
(3.9 |
) |
(6.9 |
) |
||
Net income Packaging |
|
6.0 |
|
10.8 |
|
||
Pre-tax (loss) Jenks |
|
(1.8 |
) |
(6.6 |
) |
||
Interest expense allocation |
|
(.1 |
) |
(.2 |
) |
||
Income taxes |
|
.6 |
|
2.0 |
|
||
Net (loss) Jenks |
|
(1.3 |
) |
(4.8 |
) |
||
Net income discontinued operations |
|
$ |
4.7 |
|
$ |
6.0 |
|
The following table presents summarized cash flow information of the discontinued operations for the years ended November 30, 2003, and 2002:
(millions) |
|
2003 |
|
2002 |
|
||
Operating activities |
|
$ |
3.7 |
|
$ |
18.4 |
|
Investing activities |
|
(5.2 |
) |
(10.3 |
) |
||
Financing activities |
|
(3.1 |
) |
|
|
||
Net cash (used in)/provided by discontinued operations |
|
$ |
(4.6 |
) |
$ |
8.1 |
|
4. SPECIAL CHARGES
During the fourth quarter of 2001, the Company adopted a plan to further streamline its operations. This plan included the consolidation of several distribution and manufacturing locations, the reduction of administrative and manufacturing positions, and the reorganization of several joint ventures. The estimated cost of the total plan is approximately $32.6 million ($25.6 million after-tax). Total cash expenditures in connection with these costs approximate $16.7 million, which are funded through internally generated funds. The remaining $15.9 million of costs associated with the plan consist of write-offs of assets. The total cost of the plan includes $1.8 million of costs related to Packaging and Jenks that have been classified as income from discontinued operations in the consolidated statement of income. Annualized cash savings are expected to be approximately $8.0 million ($5.3 million after-tax), most of which have been realized to date. Savings
44
under the plan are being used for spending on initiatives such as brand support and supply chain management. These savings are included within the cost of goods sold and selling, general and administrative expenses in the consolidated statement of income.
In 2001, the Company recorded $11.2 million ($7.4 million after-tax) of charges from continuing operations associated with the 2001 restructuring plan. Of this amount, $10.3 million was classified as special charges and $0.9 million as cost of goods sold in the consolidated statement of income. These charges related to the consolidation of manufacturing in Canada, a distribution center consolidation in the U.S., a product line elimination and a realignment of the Companys sales operations in the U.K., and a workforce reduction which encompasses plans in all segments and across all geographic areas.
During the year ended November 30, 2002, the Company recorded $7.5 million ($5.5 million after-tax) of special charges from continuing operations associated with the 2001 restructuring plan, which could not be accrued at the time of the original announcement in 2001. These charges included the write-off of an investment in an industry purchasing consortium, further lease exit and relocation costs related to the workforce reduction and realignment of the Companys consumer sales operations in the U.S. and further severance and other costs related to the previously discussed workforce reduction. Also included in the 2002 charges were further costs related to the closure of a U.S. distribution center and further costs of the consolidation of manufacturing in Canada, which included the disposition of a manufacturing facility. During 2002, total cash expenditures in connection with the plan were $6.3 million.
During the year ended November 30, 2003, the Company recorded special charges related to continuing operations of $5.5 million ($3.6 million after-tax). The costs recorded in 2003 included additional costs associated with the consolidation of production facilities in Canada, net of a gain on the sale of a manufacturing facility, severance and other costs related to the consolidation of industrial manufacturing in the U.K. and the realignment of the Companys consumer sales operations in Australia. During 2003, total cash expenditures in connection with the plan were $4.7 million.
During the year ended November 30, 2004, the Company recorded special charges related to continuing operations of $6.2 million ($4.3 million after-tax). The costs recorded in 2004 primarily include costs related to the consolidation of industrial manufacturing facilities in the U.K. and Canada, the reorganization of a consumer joint venture and additional severance costs for position eliminations. During 2004, total cash expenditures in connection with the plan were $4.7 million. Also included in special charges/(credits) is a net gain of $8.7 million ($5.5 million after-tax) related to funds received from a class action lawsuit that was settled in the Companys favor in the second quarter of 2004. This matter dated back to 1999 when a number of class action lawsuits were filed against manufacturers and sellers of various flavor enhancers for their violation of antitrust laws. The Company, as a purchaser of such products, participated as a member of the plaintiff class. In the second quarter of 2004, the Company received $11.1 million as a settlement of this claim and as a result of the settlement, was required to settle claims against the Company for a portion of this gross amount. The net gain recorded was $8.7 million. This amount was recorded as a special credit and was not allocated to the business segments.
Costs yet to be incurred from the 2001 restructuring plan include the possible reorganization of a joint venture and additional costs related to completion of the reorganization of certain industrial manufacturing facilities in the U.K. These actions are expected to be completed in 2005. The total 2001 restructuring plan, includes severance charges for 392 position reductions. As of November 30, 2004, 389 of the 392 planned position reductions had taken place.
The major components of the special charges and the remaining accrual balance relating to the 2001 restructuring plan as of November 30, 2002, 2003 and 2004 follow:
(millions) |
|
Severance and personnel costs |
|
Asset write-downs |
|
Other exit costs |
|
Total |
|
||||
2001 |
|
|
|
|
|
|
|
|
|
||||
Special charges |
|
$ |
5.8 |
|
$ |
1.6 |
|
$ |
3.8 |
|
$ |
11.2 |
|
Amounts utilized |
|
|
|
(1.6 |
) |
|
|
(1.6 |
) |
||||
|
|
$ |
5.8 |
|
$ |
|
|
$ |
3.8 |
|
$ |
9.6 |
|
2002 |
|
|
|
|
|
|
|
|
|
||||
Special charges |
|
$ |
3.3 |
|
$ |
3.3 |
|
$ |
.9 |
|
$ |
7.5 |
|
Amounts utilized |
|
(4.9 |
) |
(3.3 |
) |
(3.0 |
) |
(11.2 |
) |
||||
|
|
$ |
4.2 |
|
$ |
|
|
$ |
1.7 |
|
$ |
5.9 |
|
2003 |
|
|
|
|
|
|
|
|
|
||||
Special charges |
|
$ |
4.7 |
|
$ |
(.6 |
) |
$ |
1.4 |
|
$ |
5.5 |
|
Amounts utilized |
|
(4.2 |
) |
.6 |
|
(3.0 |
) |
(6.6 |
) |
||||
|
|
$ |
4.7 |
|
$ |
|
|
$ |
.1 |
|
$ |
4.8 |
|
2004 |
|
|
|
|
|
|
|
|
|
||||
Special charges |
|
$ |
2.2 |
|
$ |
.8 |
|
$ |
3.2 |
|
$ |
6.2 |
|
Amounts utilized |
|
(2.9 |
) |
(.8 |
) |
(2.9 |
) |
(6.6 |
) |
||||
|
|
$ |
4.0 |
|
$ |
|
|
$ |
.4 |
|
$ |
4.4 |
|
5. GOODWILL AND INTANGIBLE ASSETS
Effective December 1, 2001, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, which established financial accounting and reporting for acquired goodwill and other intangible assets. Under SFAS No. 142, goodwill and indefinite-lived intangible assets are no longer amortized but are reviewed at least annually for impairment. Separable intangible assets that have finite useful lives continue to be amortized over their useful lives.
45
As of November 30, 2004 and 2003, the Company tested for impairment of goodwill and non-amortizable intangibles using discounted cash flow models. As a result of these tests, the Company was not required to recognize any impairment.
The following table displays the intangible assets that continue to be subject to amortization and intangible assets not subject to amortization as of November 30, 2004 and 2003:
|
|
2004 |
|
2003 |
|
||||||||
(millions) |
|
Gross carrying amount |
|
Accumulated amortization |
|
Gross carrying amount |
|
Accumulated amortization |
|
||||
Amortizable intangible assets |
|
$ |
.6 |
|
$ |
.3 |
|
$ |
.4 |
|
$ |
.2 |
|
Unamortizable intangible assets: |
|
|
|
|
|
|
|
|
|
||||
Brand name |
|
106.4 |
|
|
|
|
|
|
|
||||
Goodwill |
|
793.7 |
|
80.8 |
|
784.0 |
|
75.3 |
|
||||
Trademark |
|
9.7 |
|
1.2 |
|
9.1 |
|
1.1 |
|
||||
|
|
909.8 |
|
82.0 |
|
793.1 |
|
76.4 |
|
||||
Total goodwill and intangible assets |
|
$ |
910.4 |
|
$ |
82.3 |
|
$ |
793.5 |
|
$ |
76.6 |
|
The changes in the carrying amount of goodwill by segment for the years ended November 30, 2004 and 2003 are as follows:
|
|
2004 |
|
2003 |
|
||||||||
(millions) |
|
Consumer |
|
Industrial |
|
Consumer |
|
Industrial |
|
||||
Beginning of year |
|
$ |
664.9 |
|
$ |
43.8 |
|
$ |
458.2 |
|
$ |
40.5 |
|
Goodwill acquired |
|
59.4 |
|
|
|
176.2 |
|
|
|
||||
Goodwill disposed |
|
|
|
|
|
(.4 |
) |
|
|
||||
Goodwill transferred |
|
(106.4 |
) |
|
|
|
|
|
|
||||
Purchase price adjustment |
|
|
|
|
|
(50.0 |
) |
|
|
||||
Foreign currency fluctuations |
|
47.0 |
|
4.2 |
|
80.9 |
|
3.3 |
|
||||
End of year |
|
$ |
664.9 |
|
$ |
48.0 |
|
$ |
664.9 |
|
$ |
43.8 |
|
The Zatarains brand was transferred from goodwill to other intangibles in 2004 when the purchase price allocation was completed. The excess of the purchase price over net tangible assets recorded as part of the Silvo acquisition in 2004 above is still subject to finalization of purchase price allocation. The table above excludes $0.7 million of goodwill that was disposed of in connection with the sale of Packaging in 2003.
6. INVESTMENTS IN AFFILIATES
Summarized year-end information from the financial statements of unconsolidated affiliates representing 100% of the businesses follows:
(millions) |
|
2004 |
|
2003 |
|
2002 |
|
|||
Net sales |
|
$ |
428.3 |
|
$ |
403.0 |
|
$ |
422.1 |
|
Gross profit |
|
157.3 |
|
159.6 |
|
187.2 |
|
|||
Net income |
|
28.8 |
|
32.6 |
|
44.9 |
|
|||
Current assets |
|
$ |
189.2 |
|
$ |
168.2 |
|
$ |
165.4 |
|
Noncurrent assets |
|
94.1 |
|
101.7 |
|
106.5 |
|
|||
Current liabilities |
|
97.4 |
|
100.7 |
|
83.0 |
|
|||
Noncurrent liabilities |
|
23.4 |
|
25.5 |
|
39.4 |
|
The Companys share of undistributed earnings of the affiliates was $50.3 million at November 30, 2004. Royalty income from unconsolidated affiliates was $9.7 million, $9.3 million and $10.0 million for 2004, 2003, and 2002, respectively.
7. FINANCING ARRANGEMENTS
The Companys outstanding debt is as follows:
(millions) |
|
2004 |
|
2003 |
|
||||
Short-term borrowings |
|
|
|
|
|
||||
Commercial paper(1) |
|
$ |
134.4 |
|
$ |
139.6 |
|
||
Other |
|
5.8 |
|
14.7 |
|
||||
|
|
$ |
140.2 |
|
$ |
154.3 |
|
||
Weighted-average interest rate of short-term borrowings at year-end |
|
2.12 |
% |
1.51 |
% |
||||
Long-term debt |
|
|
|
|
|
||||
5.78% - 7.77% medium-term notes due 2004 to 2006 |
|
$ |
79.0 |
|
$ |
95.0 |
|
||
6.40% - 6.80% medium-term notes due 2006 to 2008(2)(3) |
|
298.4 |
|
298.5 |
|
||||
3.35% medium-term notes due 2009(4) |
|
48.6 |
|
|
|
||||
7.63% - 8.12% medium-term notes due 2024 |
|
55.0 |
|
55.0 |
|
||||
Other |
|
17.0 |
|
16.8 |
|
||||
|
|
498.0 |
|
465.3 |
|
||||
|
|
|
|
|
|
||||
Less current portion |
|
33.0 |
|
16.7 |
|
||||
|
|
$ |
465.0 |
|
$ |
448.6 |
|
||
(1) The variable interest rate on $75 million of commercial paper is hedged by interest rate swaps through 2011. Net interest payments are fixed at 6.35% during this period.
(2) 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%.
(3) The fixed interest rate on $100 million of 6.40% medium-term notes due in 2006 is effectively converted to a variable rate by interest rate swaps through 2006. Net interest payments are based on LIBOR plus 3.595% during this period.
(4) The fixed interest rate on $50 million of 3.35% medium-term notes due in 2009 is effectively converted to a variable rate by interest rate swaps through 2009. Net interest payments are based on LIBOR minus .21% during this period.
Maturities of long-term debt during the years subsequent to November 30, 2005 are as follows (in millions):
2006 - $196.1 |
2008 - $149.9 |
2007 - $0.3 |
2009 - $49.0 |
|
Thereafter - $69.7 |
On April 1, 2004, the Company issued $50 million of medium-term notes under its existing $375 million shelf registration statement filed with the Securities and Exchange Commission in January 2001. The $50 million of medium-term notes mature on April 15, 2009 and pay interest semi-annually at a rate of 3.35%. The proceeds from the new issuance were used to pay off commercial paper debt.
The Company has available credit facilities with domestic and foreign banks for various purposes. The amount of unused credit facilities at November 30, 2004 was $466.1 million, of
46
which $350.0 million supports a commercial paper borrowing arrangement. Of these unused facilities, $241.1 million expire in 2005 and $225.0 million expire in 2006. Some credit facilities in support of commercial paper issuance require a commitment fee. Annualized commitment fees at November 30, 2004 and 2003 were $0.3 million.
Rental expense under operating leases was $23.5 million in 2004, $23.0 million in 2003 and $18.1 million in 2002. Future annual fixed rental payments for the years ending November 30 are as follows (in millions):
2005 - $13.9 |
2008 - $6.3 |
2006 - $10.9 |
2009 - $4.8 |
2007 - $8.3 |
Thereafter - $14.6 |
At November 30, 2004, the Company had guarantees of $6.6 million with terms ranging from 1 to 5 years. At November 30, 2004 and 2003, the Company had outstanding letters of credit of $12.3 million and $24.3 million, respectively. These letters of credit typically act as a guarantee of payment to certain third parties in accordance with specified terms and conditions. The unused portion of the Companys letter of credit facility was $33.7 million at November 30, 2004.
8. 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.
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 thirdparty 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 cost of goods sold, at which time the net amount deferred in other comprehensive income is also recognized in cost of goods sold. 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, 2004, the Company had foreign currency exchange contracts maturing within one year to purchase or sell $51.1 million of foreign currencies versus $58.9 million at November 30, 2003. All of these contracts were designated as hedges of anticipated purchases denominated in a foreign currency to be completed within one year or hedges of foreign currency denominated assets or liabilities. Hedge ineffectiveness was not material.
Interest Rates
The Company finances a portion of its operations with both fixed and variable rate debt instruments, primarily commercial paper, notes and bank loans. The Company utilizes interest rate swap agreements to minimize worldwide financing costs and to achieve a desired mix of its variable and fixed rate debt.
In 2004, the Company entered into an interest rate swap contract with a total notional amount of $50 million to receive interest at 3.356% and pay a variable rate of interest based on six-month LIBOR minus ..21%. The Company designated this swap, which expires on April 15, 2009, as a fair value hedge of the changes in fair value of the $50 million of medium-term notes maturing on April 15, 2009. No hedge ineffectiveness is recognized as the interest rate swaps provisions match the applicable provisions of the debt.
In 2003, the Company entered into interest rate swap contracts for a total notional amount of $100 million to receive interest at 6.4% and pay a variable rate of interest based on six-month LIBOR plus 3.595%. The Company designated these swaps, which expire on February 1, 2006, as fair value hedges of the changes in fair value of $100 million of the $150 million 6.40% fixed rate medium-term notes maturing on February 1, 2006. No hedge ineffectiveness is recognized as the interest rate swaps provisions match the applicable provisions of the debt.
The variable interest on $75 million of commercial paper was hedged by forward starting interest rate swaps for the period through 2011. Net interest payments on this 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 interest rate swaps until maturity. Hedge ineffectiveness was not material.
Subsequent to the starting date of these swaps, the net cash settlements are reflected in interest expense in the applicable period.
47
The Company incurred a $14.7 million loss on the settlement of swaps used to hedge the 2001 issuance of $294 million of medium-term notes. The loss on these swaps was deferred in other comprehensive income and is being amortized over the five to seven year life of the medium-term notes as a component of interest expense. Amounts reclassified from other comprehensive income to interest expense for settled interest rate swaps were $2.5 million in 2004 and 2003 and are included in the net change in unrealized gain or loss on derivative financial instruments in the statement of shareholders equity.
Fair Value of Financial Instruments
The carrying amount and fair value of the Companys financial instruments at November 30, 2004 and 2003 are as follows:
|
|
2004 |
|
2003 |
|
||||||||
(millions) |
|
Carrying amount |
|
Fair value |
|
Carrying amount |
|
Fair value |
|
||||
Other investments |
|
$ |
27.2 |
|
$ |
27.2 |
|
$ |
21.3 |
|
$ |
21.3 |
|
Long-term debt |
|
498.0 |
|
538.2 |
|
465.3 |
|
523.1 |
|
||||
Derivative related to: |
|
|
|
|
|
|
|
|
|
||||
Interest rates |
|
(11.8 |
) |
(11.8 |
) |
(11.3 |
) |
(11.3 |
) |
||||
Foreign currencies |
|
(3.9 |
) |
(3.9 |
) |
(1.7 |
) |
(1.7 |
) |
||||
Because of their short-term nature, the amounts reported in the consolidated balance sheet for cash and cash equivalents, receivables, short-term borrowings and trade accounts payable approximate fair value. The fair value of long-term debt and derivative financial instruments are based on quoted market prices.
Investments in affiliates are not readily marketable, and it is not practicable to estimate their fair value. Other investments are comprised of fixed income and equity securities held on behalf of employees in certain employee benefit plans and are stated at fair value. The cost of these investments was $28.6 million and $24.0 million at November 30, 2004 and 2003, respectively.
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, 2004. The Company evaluates the credit worthiness of the counterparties to financial instruments and considers nonperformance credit risk to be remote.
9. PENSION AND 401(k) RETIREMENT PLANS
The Company sponsors defined benefit pension plans in the U.S. and certain foreign locations. In addition, it sponsors 401(k) retirement plans in the U.S. and contributes to government- sponsored retirement plans in locations outside the U.S.
Defined Benefit Pension Plans
A September 30th measurement date is utilized to value plan assets and obligations for all of the Companys defined benefit pension plans.
The significant assumptions used to determine benefit obligations are as follows:
|
|
United States |
|
International |
|
||||
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
Discount rate |
|
6.0% |
|
6.0% |
|
5.3 - 5.8% |
|
5.5 - 6.5% |
|
Salary scale |
|
4.0% |
|
4.0% |
|
3.5 - 4.2% |
|
3.5 - 4.0% |
|
Expected return on plan assets |
|
8.5% |
|
9.0% |
|
6.5 - 8.5% |
|
7.0 - 8.5% |
|
The expected long-term rate of return on assets assumption is based on weighted-average expected returns for each asset class. Expected returns reflect a combination of historical performance analysis and the forward-looking views of the financial markets, and include input from actuaries, investment service firms and investment managers.
The Companys pension expense is as follows:
|
|
United States |
|
International |
|
||||||||||||||
(millions) |
|
2004 |
|
2003 |
|
2002 |
|
2004 |
|
2003 |
|
2002 |
|
||||||
Service cost |
|
$ |
11.6 |
|
$ |
11.0 |
|
$ |
9.6 |
|
$ |
5.4 |
|
$ |
4.6 |
|
$ |
3.5 |
|
Interest costs |
|
19.8 |
|
19.3 |
|
16.3 |
|
6.7 |
|
5.4 |
|
4.2 |
|
||||||
Expected return on plan assets |
|
(18.6 |
) |
(17.0 |
) |
(17.8 |
) |
(7.0 |
) |
(6.7 |
) |
(5.9 |
) |
||||||
Amortization of prior service costs |
|
|
|
|
|
|
|
.1 |
|
.1 |
|
.1 |
|
||||||
Amortization of transition assets |
|
|
|
|
|
.2 |
|
(.1 |
) |
(.1 |
) |
|
|
||||||
Curtailment loss |
|
|
|
|
|
|
|
|
|
.1 |
|
|
|
||||||
Recognized net actuarial loss |
|
11.5 |
|
7.4 |
|
3.5 |
|
.6 |
|
|
|
|
|
||||||
Other retirement plans |
|
|
|
|
|
|
|
|
|
|
|
1.5 |
|
||||||
Less: discontinued operations |
|
|
|
(2.0 |
) |
(2.2 |
) |
|
|
|
|
|
|
||||||
|
|
$ |
24.3 |
|
$ |
18.7 |
|
$ |
9.6 |
|
$ |
5.7 |
|
$ |
3.4 |
|
$ |
3.4 |
|
Rollforwards of the benefit obligation, fair value of plan assets and a reconciliation of the pension plans funded status at the measurement date, September 30, follow:
48
|
|
United States |
|
International |
|
|||||||||
(millions) |
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
|||||
Change in benefit obligation |
|
|
|
|
|
|
|
|
|
|||||
Benefit obligation at beginning of year |
|
$ |
334.4 |
|
$ |
280.4 |
|
$ |
110.6 |
|
$ |
82.5 |
|
|
Service cost |
|
11.6 |
|
11.0 |
|
5.4 |
|
4.6 |
|
|||||
Interest costs |
|
19.8 |
|
19.3 |
|
6.7 |
|
5.4 |
|
|||||
Employee contributions |
|
|
|
|
|
1.8 |
|
2.0 |
|
|||||
Plan changes and other |
|
|
|
|
|
(.9 |
) |
.8 |
|
|||||
Curtailment gain |
|
|
|
(11.6 |
) |
|
|
(1.3 |
) |
|||||
Settlement payments |
|
|
|
|
|
|
|
(.5 |
) |
|||||
Actuarial loss |
|
2.5 |
|
45.7 |
|
11.3 |
|
9.8 |
|
|||||
Benefits paid |
|
(18.7 |
) |
(10.4 |
) |
(4.9 |
) |
(4.7 |
) |
|||||
Foreign currency impact |
|
|
|
|
|
11.8 |
|
12.0 |
|
|||||
Benefit obligation at end of year |
|
$ |
349.6 |
|
$ |
334.4 |
|
$ |
141.8 |
|
$ |
110.6 |
|
|
Change in fair value of plan assets |
|
|
|
|
|
|
|
|
|
|||||
Fair value of plan assets at beginning of year |
|
$ |
205.4 |
|
$ |
161.8 |
|
$ |
73.0 |
|
$ |
56.7 |
|
|
Actual return on plan assets |
|
27.1 |
|
30.4 |
|
7.5 |
|
7.5 |
|
|||||
Employer contributions |
|
22.0 |
|
22.0 |
|
6.7 |
|
3.6 |
|
|||||
Employee contributions |
|
|
|
|
|
1.8 |
|
2.0 |
|
|||||
Settlement payments |
|
|
|
|
|
|
|
(.5 |
) |
|||||
Benefits paid |
|
(16.8 |
) |
(8.8 |
) |
(4.9 |
) |
(4.7 |
) |
|||||
Net transfer in (out) |
|
|
|
|
|
(.9 |
) |
|
|
|||||
Foreign currency impact |
|
|
|
|
|
7.7 |
|
8.4 |
|
|||||
Fair value of plan assets at end of year |
|
$ |
237.7 |
|
$ |
205.4 |
|
$ |
90.9 |
|
$ |
73.0 |
|
|
Funded status |
|
$ |
(111.9 |
) |
$ |
(129.0 |
) |
$ |
(50.9 |
) |
$ |
(37.6 |
) |
|
Unrecognized net actuarial loss |
|
139.6 |
|
157.0 |
|
50.7 |
|
36.5 |
|
|||||
Unrecognized prior service cost |
|
.4 |
|
.5 |
|
.4 |
|
.4 |
|
|||||
Unrecognized transition liability |
|
|
|
|
|
(.1 |
) |
(.2 |
) |
|||||
Employer contributions |
|
|
|
|
|
1.0 |
|
.7 |
|
|||||
Net amount recognized |
|
$ |
28.1 |
|
$ |
28.5 |
|
$ |
1.1 |
|
$ |
(.2 |
) |
|
Included in the United States in the preceding table is a benefit obligation of $36.0 million and $32.4 million for 2004 and 2003, respectively, related to an unfunded pension plan. The accrued liability related to this plan was $31.7 million and $27.6 million as of November 30, 2004 and 2003, respectively. The assets related to this plan are held in a Rabbi Trust and accordingly have not been included in the preceding table. These assets were $19.0 million and $14.4 million as of November 30, 2004 and 2003, respectively.
Amounts recognized in the consolidated balance sheet consist of the following:
|
|
United States |
|
International |
|
||||||||
(millions) |
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
||||
Prepaid pension cost |
|
|
|
|
|
$ |
1.3 |
|
|
|
|||
Accrued pension liability |
|
$ |
(61.3 |
) |
$ |
(75.8 |
) |
(34.3 |
) |
$ |
(26.7 |
) |
|
Intangible assets |
|
.4 |
|
.5 |
|
.3 |
|
.3 |
|
||||
Deferred income taxes |
|
33.5 |
|
38.6 |
|
10.2 |
|
7.9 |
|
||||
Accumulated other comprehensive income |
|
55.5 |
|
65.2 |
|
23.6 |
|
18.3 |
|
||||
Net amount recognized |
|
$ |
28.1 |
|
$ |
28.5 |
|
$ |
1.1 |
|
$ |
(.2 |
) |
The accumulated benefit obligation is the present value of pension benefits (whether vested or unvested) attributed to employee service rendered before the measurement date and based on employee service and compensation prior to that date. The accumulated benefit obligation differs from the projected benefit obligation in that it includes no assumption about future compensation levels. The accumulated benefit obligation for the U.S. pension plans was $299.1 million and $281.2 million as of September 30, 2004 and 2003, respectively. The accumulated benefit obligation for the international pension plans was $124.9 million and $98.9 million as of November 30, 2004 and 2003, respectively.
Minimum pension liability adjustments result when the accumulated benefit obligation exceeds the fair value of plan assets and are recorded so that the recorded pension liability is at a minimum equal to the accumulated benefit obligation. Minimum pension liability adjustments are noncash adjustments that are reflected as an increase (or decrease) in the pension liability and an offsetting charge to shareholders equity, net of tax, through comprehensive income rather than net income.
At the September 30, 2004 measurement date, the deficiency of the pension plans assets compared to the accumulated benefit obligations decreased resulting in a decrease in the minimum pension liability of $7.3 million. This amount was recorded as a decrease in accrued pension liability, a $4.4 million increase in other comprehensive income, a $2.8 million decrease in deferred taxes, and $0.1 million decrease in intangible assets. At the September 30, 2003 measurement date, the deficiency of the pension plans assets compared to the accumulated benefit obligations increased resulting in an increase in the minimum pension liability of $20.6 million. This amount was recorded as an increase in accrued pension liability, a $14.4 million decrease in other comprehensive income, a $6.4 million increase in deferred taxes and a $0.2 million decrease in intangible assets.
The Companys actual and target weighted-average asset allocations of U.S. pension plan assets as of September 30, 2004 and 2003, by asset category, are as follows:
|
|
September 30, |
|
|
|
||
Asset Category |
|
2004 |
|
2003 |
|
Target |
|
Equity securities |
|
68.0 |
% |
67.8 |
% |
70.0 |
% |
Debt securities |
|
30.3 |
% |
30.4 |
% |
30.0 |
% |
Other |
|
1.7 |
% |
1.8 |
% |
|
|
Total |
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
The average actual and target asset allocations of the international pension plans assets as of November 30, 2004 and 2003, by asset category, are as follows:
|
|
November 30, |
|
|
|
||
Asset Category |
|
2004 |
|
2003 |
|
Target |
|
Equity securities |
|
64.7 |
% |
63.9 |
% |
64.9 |
% |
Debt securities |
|
32.5 |
% |
35.3 |
% |
34.4 |
% |
Real estate |
|
.2 |
% |
.4 |
% |
.3 |
% |
Other |
|
2.6 |
% |
.4 |
% |
.4 |
% |
Total |
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
49
The investment objectives of the pension benefit plans are to secure the benefit obligations to participants at a reasonable cost to the Company. The goal is to optimize the long-term return on plan assets at a moderate level of risk, by balancing higher-returning assets such as equity securities, with less volatile assets, such as fixed income securities. The assets are managed by professional investment firms and performance is evaluated quarterly against specific benchmarks.
Equity securities in the U.S. plan included the Companys stock with a fair value of $33.6 million (0.9 million shares and 13.5% of total U.S. pension plan assets) and $26.4 million (0.9 million shares and 12.4% of total U.S. pension plan assets) at November 30, 2004 and 2003, respectively. Dividends paid on these shares were $0.5 million in 2004 and $0.4 million in 2003.
Pension benefit payments are made from assets of the pension plans. It is anticipated that future benefit payments for the U.S. plans will be as follows:
Fiscal year |
|
United States Expected payments (millions) |
|
|
2005 |
|
$ |
13.0 |
|
2006 |
|
13.8 |
|
|
2007 |
|
15.0 |
|
|
2008 |
|
17.3 |
|
|
2009 |
|
18.1 |
|
|
2010 - 2014 |
|
117.7 |
|
|
It is anticipated that future benefit payments for the international plans will be as follows:
Fiscal year |
|
International Expected payments (millions) |
|
|
2005 |
|
$ |
6.5 |
|
2006 |
|
4.2 |
|
|
2007 |
|
4.5 |
|
|
2008 |
|
5.7 |
|
|
2009 |
|
6.0 |
|
|
2010 - 2014 |
|
36.3 |
|
|
The Company expects to contribute approximately $28 million to its U.S. pension plans and $9 million to its international pension plans in 2005.
401(k) Retirement Plans
Effective March 22, 2002, the U.S. McCormick 401(k) Retirement Plan was amended to provide that the McCormick Stock Fund investment option be designated an employee stock ownership plan (ESOP). This designation allows participants investing in McCormick stock to elect to receive, in cash, dividends that are paid on McCormick stock held in their 401(k) Retirement Plan accounts. Dividends may also continue to be reinvested.
For the U.S. McCormick 401(k) Retirement Plan, the Company matches 100% of the participants contribution up to the first 3% of the participants salary, and 50% of the next 2% of a participants salary. Certain U.S. subsidiaries sponsor separate 401(k) retirement plans. Company contributions charged to expense under all 401(k) Retirement Plans were $5.7 million, $5.4 million and $5.5 million in 2004, 2003 and 2002, respectively.
At the participants election, all 401(k) Retirement Plans held 4.0 million shares, with a fair value of $144.2 million, of the Companys stock at November 30, 2004. Dividends paid on these shares in 2004 were $2.3 million.
10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
During 2002, the Company changed certain postretirement benefits for employees who retire on or after January 1, 2004. Life insurance benefits changed to a fixed amount, Medicare eligible retirees have a fixed amount for medical plan coverage and the medical cost sharing for dependents increased.
The Company currently provides postretirement medical and life insurance benefits to certain U.S. employees who were covered under the active employees plan and retire after age 55 with at least 10 years of service (earned after age 45). The benefits provided under these plans are based primarily on age at date of retirement.
The Companys other postretirement benefit expense follows:
(millions) |
|
2004 |
|
2003 |
|
2002 |
|
|||
Service cost |
|
$ |
2.7 |
|
$ |
2.9 |
|
$ |
3.1 |
|
Interest costs |
|
5.3 |
|
5.7 |
|
5.7 |
|
|||
Amortization of prior service cost |
|
(1.1 |
) |
(1.4 |
) |
(.6 |
) |
|||
Amortization of (gains)/losses |
|
1.1 |
|
.9 |
|
|
|
|||
One time recognition of curtailment gain |
|
|
|
(3.5 |
) |
|
|
|||
Discontinued operations |
|
|
|
1.4 |
|
(2.4 |
) |
|||
Postretirement benefit expense |
|
$ |
8.0 |
|
$ |
6.0 |
|
$ |
5.8 |
|
Rollforwards of the benefit obligation, fair value of plan assets and a reconciliation of the plans funded status at November 30, the measurement date, follow:
(millions) |
|
2004 |
|
2003 |
|
||
Change in benefit obligation |
|
|
|
|
|
||
Benefit obligation at beginning of year |
|
$ |
95.9 |
|
$ |
83.8 |
|
Service cost |
|
2.7 |
|
2.9 |
|
||
Interest costs |
|
5.3 |
|
5.7 |
|
||
Employee contributions |
|
2.6 |
|
2.4 |
|
||
Plan changes |
|
|
|
|
|
||
Actuarial (gain)/loss |
|
(6.7 |
) |
8.1 |
|
||
Benefits paid |
|
(7.4 |
) |
(7.0 |
) |
||
Benefit obligation at end of year |
|
$ |
92.4 |
|
$ |
95.9 |
|
Change in fair value of plan assets |
|
|
|
|
|
||
Fair value of plan assets at beginning of year |
|
|
|
|
|
||
Employer contributions |
|
$ |
4.8 |
|
$ |
4.6 |
|
Employee contributions |
|
2.6 |
|
2.4 |
|
||
Benefits paid |
|
(7.4 |
) |
(7.0 |
) |
||
Fair value of plan assets at end of year |
|
$ |
|
|
$ |
|
|
Funded status |
|
$ |
(92.4 |
) |
$ |
(95.9 |
) |
Unrecognized net actuarial loss |
|
14.6 |
|
22.5 |
|
||
Unrecognized prior service cost |
|
(7.7 |
) |
(8.8 |
) |
||
Other postretirement benefit liability |
|
$ |
(85.5 |
) |
$ |
(82.2 |
) |
50
Estimated future benefit payments for the next 10 years are as follows:
Fiscal Year |
|
Retiree Medical |
|
Retiree Life Insurance |
|
Total (millions) |
|
|||
2005 |
|
$ |
5.4 |
|
$ |
.7 |
|
$ |
6.1 |
|
2006 |
|
5.5 |
|
.7 |
|
6.2 |
|
|||
2007 |
|
5.8 |
|
.8 |
|
6.6 |
|
|||
2008 |
|
6.0 |
|
.8 |
|
6.8 |
|
|||
2009 |
|
6.3 |
|
.9 |
|
7.2 |
|
|||
2010 - 2014 |
|
36.7 |
|
5.0 |
|
$ |
41.7 |
|
||
The assumed discount rate was 6.0% for 2004 and 2003, respectively.
The assumed annual rate of increase in the cost of covered health care benefits is 8.0% for 2005. It is assumed to decrease gradually to 4.5% in the year 2011 and remain at that level thereafter. Changing the assumed health care cost trend would have the following effect:
(millions) |
|
1-Percentage- point increase |
|
1-Percentage- point decrease |
|
||
Effect on total of service and interest cost components in 2004 |
|
$ |
.9 |
|
$ |
(.8 |
) |
Effect on benefit obligation as of November 30, 2004 |
|
9.2 |
|
(7.7 |
) |
||
In December of 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the Act) was enacted in the U.S. The Act introduced a prescription drug benefit under Medicare as well as a federal subsidy of 28% of drug costs between $250 and $5,000, tax-free (the Subsidy), to sponsors of retiree health benefit plans that provide a benefit that meets certain criteria. The Companys other postretirement plans covering U.S. retirees currently provide certain prescription benefits to eligible participants. The Companys actuaries have determined that one of the Companys prescription drug plans for retirees and their dependents retired prior to January 1, 2004 provides a benefit that is at least actuarially equivalent to Medicare Part D under the Act.
In connection with the adoption of FASB Staff Position 106-2, the Act had the effect of reducing the accumulated postretirement benefit obligation by $3.0 million. This resulted in an unrecognized net gain to the plan, which is currently being amortized. The annual reduction in the Companys other postretirement benefits expense due to the Subsidy is expected to be approximately $0.4 million, which includes the amortization of the unrecognized net gain. The provisions of the Act do not have a material effect on the consolidated financial statements.
11. INCOME TAXES
The provision for income taxes consists of the following:
(millions) |
|
2004 |
|
2003 |
|
2002 |
|
|||
Income taxes |
|
|
|
|
|
|
|
|||
Current |
|
|
|
|
|
|
|
|||
Federal |
|
$ |
67.4 |
|
$ |
48.2 |
|
$ |
29.3 |
|
State |
|
7.7 |
|
4.1 |
|
1.4 |
|
|||
International |
|
15.6 |
|
15.5 |
|
17.6 |
|
|||
|
|
90.7 |
|
67.8 |
|
48.3 |
|
|||
Deferred |
|
|
|
|
|
|
|
|||
Federal |
|
1.5 |
|
15.3 |
|
19.6 |
|
|||
State |
|
|
|
1.4 |
|
1.9 |
|
|||
International |
|
(3.2 |
) |
(1.1 |
) |
(.4 |
) |
|||
|
|
(1.7 |
) |
15.6 |
|
21.1 |
|
|||
Total income taxes |
|
$ |
89.0 |
|
$ |
83.4 |
|
$ |
69.4 |
|
The components of income from consolidated continuing operations before income taxes follow:
(millions) |
|
2004 |
|
2003 |
|
2002 |
|
|||
Pretax income |
|
|
|
|
|
|
|
|||
United States |
|
$ |
204.5 |
|
$ |
175.6 |
|
$ |
140.7 |
|
International |
|
89.3 |
|
94.4 |
|
83.2 |
|
|||
|
|
$ |
293.8 |
|
$ |
270.0 |
|
$ |
223.9 |
|
A reconciliation of the U.S. federal statutory rate with the effective tax rate follows:
|
|
2004 |
|
2003 |
|
2002 |
|
Federal statutory tax rate |
|
35.0 |
% |
35.0 |
% |
35.0 |
% |
State income taxes, net of federal benefits |
|
1.7 |
|
1.3 |
|
1.0 |
|
Tax effect of international operations |
|
(5.8 |
) |
(5.3 |
) |
(4.4 |
) |
Tax credits |
|
(.5 |
) |
(.8 |
) |
(1.2 |
) |
Other, net |
|
(.1 |
) |
.7 |
|
.6 |
|
Effective tax rate |
|
30.3 |
% |
30.9 |
% |
31.0 |
% |
Deferred tax assets and liabilities are comprised of the following:
(millions) |
|
2004 |
|
2003 |
|
||
Deferred tax assets |
|
|
|
|
|
||
Employee benefit liabilities |
|
$ |
58.0 |
|
$ |
56.6 |
|
Accrued expenses and other reserves |
|
19.8 |
|
18.1 |
|
||
Inventory |
|
3.7 |
|
4.9 |
|
||
Net operating and capital loss carryforwards |
|
11.5 |
|
7.9 |
|
||
Other |
|
38.5 |
|
30.7 |
|
||
Valuation allowance |
|
(13.3 |
) |
(7.0 |
) |
||
|
|
118.2 |
|
111.2 |
|
||
Deferred tax liabilities |
|
|
|
|
|
||
Depreciation |
|
54.7 |
|
49.4 |
|
||
Other |
|
38.4 |
|
36.1 |
|
||
|
|
93.1 |
|
85.5 |
|
||
Net deferred tax asset |
|
$ |
25.1 |
|
$ |
25.7 |
|
51
At November 30, 2004, non-U.S. subsidiaries of the Company have tax loss carryforwards of $22.0 million. Of these carryforwards, $11.6 million expire through 2014 and $10.4 million may be carried forward indefinitely. The current statutory rates in these countries range from 19% to 35%.
At November 30, 2004, non-U.S. subsidiaries of the Company have capital loss carryforwards of $15.8 million. Of these carryforwards, $2.9 million expire in 2009 and $12.9 million may be carried forward indefinitely. The current statutory rates in these countries range from 30% to 35%.
A valuation allowance has been provided to record deferred tax assets at their net realizable value. The 2004 net change in valuation allowance for deferred tax assets was an increase of $6.3 million. During 2004, the Company utilized $2.5 million of non-U.S. subsidiary tax loss carryforwards which previously had valuation allowances. This was offset by $8.8 million of additions to the valuation allowance for tax assets added in 2004 which may not be realized in future periods.
U.S. income taxes are not provided for unremitted earnings of international subsidiaries and affiliates where the Companys intention is to reinvest these earnings permanently or to repatriate the earnings 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 $230.5 million at November 30, 2004.
12. EMPLOYEE STOCK OPTION AND PURCHASE PLANS
Under the Companys various stock option plans, options to purchase shares of the Companys common stock were granted to employees and directors. The option price for shares granted under these plans is the fair market value on the grant date and the grants have ten-year terms.
The Company has Employee Stock Purchase Plans (ESPP) enabling employees in the U.S. and certain other countries to purchase the Companys Common Stock Non-Voting at the lower of the stock price on the grant date or the exercise date. Similarly, options are granted for certain foreign-based employees in lieu of their participation in the ESPP. Options granted under these plans have two- or three-year terms.
A summary of the Companys stock option activity for the years ended November 30, 2004, 2003 and 2002 follows:
|
|
2004 |
|
2003 |
|
2002 |
|
||||||||||||||
(shares in millions) |
|
Shares |
|
Weighted- average exercise price |
|
Shares |
|
Weighted- average exercise price |
|
Shares |
|
Weighted- average exercise price |
|
||||||||
Beginning of year |
|
17.4 |
|
$ |
18.60 |
|
14.6 |
|
$ |
17.25 |
|
13.0 |
|
$ |
15.46 |
|
|||||
Granted |
|
4.1 |
|
$ |
30.71 |
|
4.6 |
|
$ |
22.57 |
|
3.8 |
|
$ |
21.39 |
|
|||||
Exercised |
|
(3.9 |
) |
$ |
16.75 |
|
(1.6 |
) |
$ |
17.43 |
|
(1.9 |
) |
$ |
13.36 |
|
|||||
Forfeited |
|
(.2 |
) |
$ |
24.16 |
|
(.2 |
) |
$ |
20.58 |
|
(.3 |
) |
$ |
17.09 |
|
|||||
End of year |
|
17.4 |
|
$ |
21.81 |
|
17.4 |
|
$ |
18.60 |
|
14.6 |
|
$ |
17.25 |
|
|||||
Exercisable end of year |
|
8.7 |
|
$ |
18.24 |
|
8.8 |
|
$ |
16.69 |
|
6.4 |
|
$ |
15.67 |
|
|||||
A summary of the Companys stock options outstanding at November 30, 2004 follows:
(shares in millions) |
|
|
|
Options outstanding |
|
Options exercisable |
|
||||||
Range of exercise price |
|
Shares |
|
Weighted- average remaining life (yrs) |
|
Weighted- average exercise price |
|
Shares |
|
Weighted- average exercise price |
|
||
$9.29 - $16.26 |
|
2.7 |
|
4.8 |
|
$ |
13.38 |
|
2.7 |
|
$ |
13.38 |
|
$16.26 - $23.23 |
|
10.4 |
|
6.7 |
|
$ |
20.43 |
|
5.5 |
|
$ |
19.64 |
|
$23.23 - $30.19 |
|
.3 |
|
1.6 |
|
$ |
24.71 |
|
.3 |
|
$ |
24.49 |
|
$30.19 - $37.16 |
|
4.0 |
|
8.9 |
|
$ |
30.71 |
|
.2 |
|
$ |
32.16 |
|
|
|
17.4 |
|
6.8 |
|
$ |
21.81 |
|
8.7 |
|
$ |
18.24 |
|
Under all stock purchase and option plans, there were 12.6 million and 9.8 million shares reserved for future grants at November 30, 2004 and 2003, respectively.
Included in stock options exercised are non-cash option swaps and taxes paid with shares of $12.8 million, $1.1 million and $1.7 million for November 30, 2004, 2003 and 2002, respectively. These amounts have been excluded from common stock issued and acquired by purchase in the consolidated cash flow statement as these are non-cash transactions.
13. EARNINGS PER SHARE
The reconciliation of shares outstanding used in the calculation of basic and diluted earnings per share for the years ended November 30, 2004, 2003 and 2002 follows:
(millions) |
|
2004 |
|
2003 |
|
2002 |
|
Average shares outstanding basic |
|
137.0 |
|
139.2 |
|
139.5 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
Stock options and ESPP |
|
4.3 |
|
3.4 |
|
2.8 |
|
Average shares outstanding diluted |
|
141.3 |
|
142.6 |
|
142.3 |
|
14. 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 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 Companys 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 Common Stock, automatically, on a share-for-share basis, all shares of Common Stock Non-Voting will convert into shares of Common Stock.
Holders of Common Stock Non-Voting will vote as a separate class on all matters on which they are entitled to vote. Holders of Common Stock Non-Voting are entitled to vote on reverse mergers and statutory share exchanges where the capital stock of the Company is converted into other securities or property, dissolution of the Company and the sale of substantially all of the assets of the Company, as well as forward mergers and consolidation of the Company.
52
15. COMMITMENTS AND CONTINGENCIES
The Company is a party to various pending legal proceedings and claims, tax issues and other matters arising out of the normal course of business. Although the results of pending claims and litigation cannot be predicted with certainty, in managements opinion, the final outcome of these proceedings and claims, tax issues and other matters will not have a material effect on the consolidated results of operations, financial position or cash flows of the Company.
16. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
Business Segments
The Company operates in two business segments: consumer and industrial. The Company sold its packaging segment during the third quarter of 2003 (see Note 3). The consumer and industrial segments manufacture, market and distribute spices, herbs, seasonings, condiments and other flavors throughout the world. The consumer segment sells to retail outlets, including grocery, drug, dollar and mass merchandise stores under a variety of brands, including McCormick and Zatarains in the U.S., Ducros, Vahine and Silvo in continental Europe, Club House in Canada, and Schwartz in the U.K. The industrial segment sells to other food processors and the restaurant industry both directly and through distributors and warehouse clubs.
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 are often integrated to maximize cost efficiencies. Management does not segregate jointly utilized assets by individual segment for internal reporting, evaluating performance or allocating capital. Asset-related information has been disclosed in aggregate.
Accounting policies for measuring segment operating income and assets are substantially consistent with those described in Note 1, Summary of Significant Accounting Policies. Because of manufacturing integration for certain products within the segments, products are not sold from one segment to another but rather inventory is transferred at cost. Intersegment sales are not material. Corporate and other includes general corporate expenses and charges not directly attributable to the segments. Corporate assets include cash, deferred taxes, certain investments and fixed assets.
Segment information for the years ended November 30, 2003 and November 30, 2002 has been restated to exclude discontinued operations. Certain fixed overhead charges previously allocated to Packaging were reallocated to other segments.
(millions) |
|
Consumer |
|
Industrial |
|
Total Food |
|
Corporate |
|
Total |
|
|||||
2004 |
|
|
|
|
|
|
|
|
|
|
|
|||||
Net sales |
|
$ |
1,339.8 |
|
$ |
1,186.4 |
|
$ |
2,526.2 |
|
|
|
$ |
2,526.2 |
|
|
Special charges (credits) |
|
1.0 |
|
3.0 |
|
4.0 |
|
$ |
(6.5 |
) |
(2.5 |
) |
||||
Operating income |
|
269.7 |
|
113.6 |
|
383.3 |
|
(50.6 |
) |
332.7 |
|
|||||
Income from unconsolidated operations |
|
12.3 |
|
2.3 |
|
14.6 |
|
|
|
14.6 |
|
|||||
Goodwill, net |
|
664.9 |
|
48.0 |
|
712.9 |
|
|
|
712.9 |
|
|||||
Assets |
|
|
|
|
|
2,179.1 |
|
190.5 |
|
2,369.6 |
|
|||||
Capital expenditures |
|
|
|
|
|
65.6 |
|
4.2 |
|
69.8 |
|
|||||
Depreciation and amortization |
|
|
|
|
|
61.1 |
|
10.9 |
|
72.0 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
2003 |
|
|
|
|
|
|
|
|
|
|
|
|||||
Net sales |
|
$ |
1,162.3 |
|
$ |
1,107.3 |
|
$ |
2,269.6 |
|
|
|
$ |
2,269.6 |
|
|
Special charges |
|
1.8 |
|
2.3 |
|
4.1 |
|
$ |
1.4 |
|
5.5 |
|
||||
Operating income |
|
230.9 |
|
108.9 |
|
339.8 |
|
(44.3 |
) |
295.5 |
|
|||||
Income from unconsolidated operations |
|
14.8 |
|
1.6 |
|
16.4 |
|
|
|
16.4 |
|
|||||
Goodwill, net |
|
664.9 |
|
43.8 |
|
708.7 |
|
|
|
708.7 |
|
|||||
Assets |
|
|
|
|
|
2,003.9 |
|
141.6 |
|
2,145.5 |
|
|||||
Capital expenditures |
|
|
|
|
|
74.9 |
|
16.7 |
|
91.6 |
|
|||||
Depreciation and amortization |
|
|
|
|
|
56.1 |
|
9.2 |
|
65.3 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
2002 |
|
|
|
|
|
|
|
|
|
|
|
|||||
Net sales |
|
$ |
993.9 |
|
$ |
1,051.0 |
|
$ |
2,044.9 |
|
|
|
$ |
2,044.9 |
|
|
Special charges |
|
2.7 |
|
1.8 |
|
4.5 |
|
$ |
3.0 |
|
7.5 |
|
||||
Operating income |
|
191.9 |
|
107.3 |
|
299.2 |
|
(36.8 |
) |
262.4 |
|
|||||
Income from unconsolidated operations |
|
21.2 |
|
1.2 |
|
22.4 |
|
|
|
22.4 |
|
|||||
Goodwill, net |
|
458.2 |
|
40.5 |
|
498.7 |
|
|
|
498.7 |
|
|||||
Assets (a) |
|
|
|
|
|
1,636.7 |
|
153.4 |
|
1,790.1 |
|
|||||
Capital expenditures |
|
|
|
|
|
86.8 |
|
13.6 |
|
100.4 |
|
|||||
Depreciation and amortization |
|
|
|
|
|
46.8 |
|
6.6 |
|
53.4 |
|
(a) 2002 amount does not include $140.7 million of assets related to discontinued operations.
53
notes to consolidated financial statements
Geographic Areas
The Company has net sales and long-lived assets in the following geographic areas:
(millions) |
|
United States |
|
Europe |
|
Other countries |
|
Total |
|
|||||
2004 |
|
|
|
|
|
|
|
|
|
|||||
Net sales |
|
$ |
1,558.9 |
|
$ |
610.5 |
|
$ |
356.8 |
|
$ |
2,526.2 |
|
|
Long-lived assets (1) |
|
511.5 |
|
709.1 |
|
94.1 |
|
1,314.7 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|||||
2003 |
|
|
|
|
|
|
|
|
|
|||||
Net sales |
|
$ |
1,401.4 |
|
$ |
538.2 |
|
$ |
330.0 |
|
$ |
2,269.6 |
|
|
Long-lived assets (1) |
|
519.7 |
|
569.3 |
|
86.2 |
|
1,175.2 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|||||
2002 |
|
|
|
|
|
|
|
|
|
|||||
Net sales |
|
$ |
1,312.2 |
|
$ |
434.2 |
|
$ |
298.5 |
|
$ |
2,044.9 |
|
|
Long-lived assets (1) |
|
312.1 |
|
510.5 |
|
72.7 |
|
895.3 |
|
|||||
(1) Long-lived assets include property, plant and equipment, goodwill and intangible assets, net of accumulated depreciation and amortization.
17. SUPPLEMENTAL FINANCIAL STATEMENT DATA
In 2003, the Company sold its interest in non-strategic royalty agreements for $5.2 million in cash. This sale resulted in a onetime gain of $5.2 million which is included in Other income, net in the consolidated statement of income for 2003.
Supplemental income statement, balance sheet and cash flow information is as follows:
(millions) |
|
2004 |
|
2003 |
|
||
Inventories |
|
|
|
|
|
||
Finished products and work-in-process |
|
$ |
196.7 |
|
$ |
190.6 |
|
Raw materials |
|
153.5 |
|
172.2 |
|
||
|
|
$ |
350.2 |
|
$ |
362.8 |
|
Property, plant and equipment |
|
|
|
|
|
||
Land and improvements |
|
$ |
28.0 |
|
$ |
22.1 |
|
Buildings |
|
258.1 |
|
227.8 |
|
||
Machinery and equipment |
|
631.2 |
|
569.7 |
|
||
Construction in progress |
|
71.7 |
|
92.8 |
|
||
Accumulated depreciation |
|
(502.4 |
) |
(454.1 |
) |
||
|
|
$ |
486.6 |
|
$ |
458.3 |
|
Investments and other assets |
|
|
|
|
|
||
Investments in affiliates |
|
$ |
76.2 |
|
$ |
70.8 |
|
Other investments |
|
27.2 |
|
21.3 |
|
||
Other assets |
|
30.7 |
|
35.0 |
|
||
|
|
$ |
134.1 |
|
$ |
127.1 |
|
Other accrued liabilities |
|
|
|
|
|
||
Payroll and employee benefits |
|
$ |
86.5 |
|
$ |
83.2 |
|
Sales allowances |
|
121.3 |
|
98.4 |
|
||
Income taxes |
|
21.0 |
|
26.4 |
|
||
Other |
|
175.6 |
|
152.2 |
|
||
|
|
$ |
404.4 |
|
$ |
360.2 |
|
Other long-term liabilities |
|
|
|
|
|
||
Pension |
|
$ |
99.1 |
|
$ |
105.5 |
|
Postretirement benefits |
|
85.5 |
|
82.2 |
|
||
Other |
|
26.6 |
|
21.8 |
|
||
|
|
$ |
211.2 |
|
$ |
209.5 |
|
(millions) |
|
2004 |
|
2003 |
|
2002 |
|
|||
Depreciation |
|
$ |
71.5 |
|
$ |
64.8 |
|
$ |
53.0 |
|
Interest paid |
|
41.0 |
|
39.0 |
|
43.1 |
|
|||
Income taxes paid |
|
77.6 |
|
80.7 |
|
57.9 |
|
|||
Interest capitalized |
|
2.7 |
|
2.7 |
|
3.3 |
|
|||
(millions) |
|
2004 |
|
2003 |
|
|||
Accumulated other comprehensive income, net of tax where applicable |
|
|
|
|
|
|||
Foreign currency translation adjustment |
|
$ |
210.8 |
|
$ |
117.9 |
|
|
Unrealized loss on foreign currency |
|
|
|
|
|
|||
exchange contracts |
|
(2.8 |
) |
(1.8 |
) |
|||
Fair value of open interest rate swaps |
|
(6.0 |
) |
(6.9 |
) |
|||
Unamortized value of settled interest rate swaps |
|
(3.3 |
) |
(4.9 |
) |
|||
Net unrealized loss on pension assets |
|
|
|
(.8 |
) |
|||
Minimum pension liability adjustment |
|
(79.1 |
) |
(83.5 |
) |
|||
|
|
|
$ |
119.6 |
|
$ |
20.0 |
|
Dividends paid per share were $0.56 in 2004, $0.46 in 2003 and $0.42 in 2002.
54
18. SELECTED QUARTERLY DATA (UNAUDITED)
(millions except per share data) |
|
First |
|
Second |
|
Third |
|
Fourth |
|
||||
2004 |
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
572.4 |
|
$ |
596.2 |
|
$ |
613.5 |
|
$ |
744.1 |
|
Gross profit |
|
221.7 |
|
231.9 |
|
239.2 |
|
315.1 |
|
||||
Operating income |
|
61.4 |
|
69.7 |
|
74.0 |
|
127.6 |
|
||||
Net income |
|
38.1 |
|
42.9 |
|
46.2 |
|
87.3 |
|
||||
Basic earnings per share |
|
.28 |
|
.31 |
|
.34 |
|
.64 |
|
||||
Diluted earnings per share |
|
.27 |
|
.30 |
|
.33 |
|
.62 |
|
||||
Dividends paid per share |
|
.14 |
|
.14 |
|
.14 |
|
.14 |
|
||||
Market Price Common Stock |
|
|
|
|
|
|
|
|
|
||||
High |
|
31.25 |
|
35.45 |
|
35.97 |
|
37.50 |
|
||||
Low |
|
28.86 |
|
31.22 |
|
32.40 |
|
33.10 |
|
||||
Market price Common Stock |
|
|
|
|
|
|
|
|
|
||||
High |
|
31.27 |
|
35.56 |
|
36.07 |
|
37.41 |
|
||||
Low |
|
28.84 |
|
31.00 |
|
32.25 |
|
33.14 |
|
||||
2003 |
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
485.4 |
|
$ |
527.9 |
|
$ |
557.6 |
|
$ |
698.7 |
|
Gross profit |
|
186.1 |
|
197.8 |
|
212.5 |
|
302.2 |
|
||||
Operating income |
|
55.0 |
|
56.4 |
|
62.7 |
|
121.4 |
|
||||
Net income from continuing operations |
|
33.4 |
|
38.5 |
|
40.1 |
|
87.2 |
|
||||
Net income |
|
35.1 |
|
40.0 |
|
51.3 |
|
84.4 |
|
||||
Basic earnings per share |
|
|
|
|
|
|
|
|
|
||||
Continuing operations |
|
.24 |
|
.28 |
|
.29 |
|
.63 |
|
||||
Discontinued operations |
|
.01 |
|
.01 |
|
.01 |
|
|
|
||||
Gain on sale of discontinued operations |
|
|
|
|
|
.07 |
|
|
|
||||
Cumulative effect |
|
|
|
|
|
|
|
(.02 |
) |
||||
Net income |
|
.25 |
|
.29 |
|
.37 |
|
.61 |
|
||||
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
||||
Continuing operations |
|
.23 |
|
.27 |
|
.28 |
|
.61 |
|
||||
Discontinued operations |
|
.01 |
|
.01 |
|
.01 |
|
|
|
||||
Gain on sale of discontinued operations |
|
|
|
|
|
.07 |
|
|
|
||||
Cumulative effect |
|
|
|
|
|
|
|
(.01 |
) |
||||
Net income |
|
.25 |
|
.28 |
|
.36 |
|
.59 |
|
||||
Dividends paid per share |
|
.11 |
|
.11 |
|
.12 |
|
.12 |
|
||||
Market Price Common Stock |
|
|
|
|
|
|
|
|
|
||||
High |
|
24.00 |
|
26.50 |
|
26.80 |
|
30.15 |
|
||||
Low |
|
22.05 |
|
23.00 |
|
25.35 |
|
26.26 |
|
||||
Market price Common Stock |
|
|
|
|
|
|
|
|
|
||||
High |
|
24.04 |
|
26.90 |
|
27.40 |
|
30.21 |
|
||||
Low |
|
22.10 |
|
23.11 |
|
25.30 |
|
26.43 |
|
In the second quarter of 2004, the Company settled a class action lawsuit in the Companys favor, resulting in a net onetime gain of $8.7 million, included in special charges/(credits). See Note 4 for further information.
In the fourth quarter of 2003, the Company consolidated the lessor of a leased distribution center in accordance with the provisions of FASB Interpretation No. 46, resulting in a cumulative effect of an accounting change of $(2.1) million, net of tax. See Note 1 for further information. Also in the fourth quarter of 2003, the Company sold its interest in non-strategic royalty agreements, which resulted in a one-time gain of $5.2 million.
In the third quarter of 2003, the Company disposed of its U.K. brokerage business and its packaging segment, resulting in a net gain of $9.0 million. Financial information for previous quarters was reclassified to present the results of these discontinued operations separately from continuing operations. Refer to Note 3 for further information.
55
(millions except per share data) |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
1995 |
|
1994 |
|
|||||||||||
For the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net sales under EITF 01-09 (1) |
|
$ |
2,526.2 |
|
$ |
2,269.6 |
|
$ |
2,044.9 |
|
$ |
1,939.1 |
|
$ |
1,863.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net sales prior to EITF 01-09 (1) |
|
|
|
|
|
|
|
2,092.9 |
|
1,945.1 |
|
$ |
1,837.2 |
|
$ |
1,722.3 |
|
$ |
1,621.1 |
|
$ |
1,571.1 |
|
$ |
1,543.3 |
|
$ |
1,389.1 |
|
|||||
Percent increase |
|
11.3 |
% |
11.0 |
% |
5.5 |
% |
4.1 |
% |
5.9 |
% |
6.7 |
% |
6.2 |
% |
3.2 |
% |
1.8 |
% |
11.1 |
% |
8.9 |
% |
|||||||||||
Operating income |
|
332.7 |
|
295.5 |
|
262.4 |
|
219.6 |
|
200.5 |
|
149.2 |
|
163.9 |
|
153.9 |
|
92.3 |
|
152.2 |
|
66.3 |
|
|||||||||||
Income from unconsolidated operations |
|
14.6 |
|
16.4 |
|
22.4 |
|
21.5 |
|
18.6 |
|
13.4 |
|
6.2 |
|
7.7 |
|
5.6 |
|
2.1 |
|
7.9 |
|
|||||||||||
Net income from continuing operations |
|
214.5 |
|
199.2 |
|
173.8 |
|
137.1 |
|
124.5 |
|
88.1 |
|
95.3 |
|
89.4 |
|
45.4 |
|
77.8 |
|
32.1 |
|
|||||||||||
Net income (2) (3) (4) (5) (6) |
|
214.5 |
|
210.8 |
|
179.8 |
|
146.6 |
|
137.5 |
|
103.3 |
|
103.8 |
|
98.4 |
|
41.9 |
|
97.5 |
|
61.2 |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Per common share (7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Earnings per share diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Continuing operations |
|
$ |
1.52 |
|
$ |
1.40 |
|
$ |
1.22 |
|
$ |
.98 |
|
$ |
.89 |
|
$ |
.61 |
|
$ |
.65 |
|
$ |
.59 |
|
$ |
.28 |
|
$ |
.48 |
|
$ |
.20 |
|
Discontinued operations (2) (5) |
|
|
|
.09 |
|
.04 |
|
.07 |
|
.09 |
|
.07 |
|
.06 |
|
.06 |
|
.03 |
|
.12 |
|
.18 |
|
|||||||||||
Extraordinary item |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(.05 |
) |
|
|
|
|
|||||||||||
Accounting change (3) (6) |
|
|
|
(.01 |
) |
|
|
|
|
|
|
.04 |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
|
1.52 |
|
1.48 |
|
1.26 |
|
1.05 |
|
.99 |
|
.72 |
|
.71 |
|
.65 |
|
.26 |
|
.60 |
|
.38 |
|
|||||||||||
Earnings per share basic (2) (3) (5) (6) |
|
1.57 |
|
1.51 |
|
1.29 |
|
1.06 |
|
1.00 |
|
.72 |
|
.70 |
|
.65 |
|
.26 |
|
.60 |
|
.38 |
|
|||||||||||
Common dividends declared (8) |
|
.58 |
|
.49 |
|
.425 |
|
.405 |
|
.385 |
|
.350 |
|
.325 |
|
.305 |
|
.285 |
|
.265 |
|
.245 |
|
|||||||||||
Market closing price end of year |
|
36.45 |
|
28.69 |
|
23.79 |
|
21.50 |
|
18.63 |
|
16.03 |
|
16.69 |
|
13.25 |
|
12.32 |
|
11.82 |
|
9.50 |
|
|||||||||||
Book value per share |
|
6.57 |
|
5.50 |
|
4.23 |
|
3.36 |
|
2.63 |
|
2.72 |
|
2.68 |
|
2.66 |
|
2.88 |
|
3.20 |
|
3.02 |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
At Year-End (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
|
$ |
2,369.6 |
|
$ |
2,145.5 |
|
$ |
1,930.8 |
|
$ |
1,772.0 |
|
$ |
1,659.9 |
|
$ |
1,188.8 |
|
$ |
1,259.1 |
|
$ |
1,256.2 |
|
$ |
1,326.6 |
|
$ |
1,614.3 |
|
$ |
1,555.7 |
|
Current debt |
|
173.2 |
|
171.0 |
|
137.3 |
|
210.8 |
|
551.9 |
|
100.6 |
|
163.6 |
|
121.3 |
|
108.9 |
|
297.3 |
|
214.0 |
|
|||||||||||
Long-term debt |
|
465.0 |
|
448.6 |
|
450.9 |
|
451.1 |
|
157.2 |
|
238.4 |
|
247.4 |
|
276.5 |
|
291.2 |
|
349.1 |
|
374.3 |
|
|||||||||||
Shareholders equity |
|
889.7 |
|
755.2 |
|
592.3 |
|
463.1 |
|
359.3 |
|
382.4 |
|
388.1 |
|
393.1 |
|
450.0 |
|
519.3 |
|
490.0 |
|
|||||||||||
Total capital (9) |
|
1,558.9 |
|
1,397.0 |
|
1,199.4 |
|
1,138.0 |
|
1,079.8 |
|
721.4 |
|
799.1 |
|
790.9 |
|
850.1 |
|
1,165.7 |
|
1,078.3 |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Statistics & Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Percentage of net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit under EITF 01-09 (1) |
|
39.9 |
% |
39.6 |
% |
39.1 |
% |
38.0 |
% |
35.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit prior to EITF 01-09 (1) |
|
|
|
|
|
|
|
43.5 |
% |
38.5 |
% |
36.2 |
% |
35.0 |
% |
35.5 |
% |
36.0 |
% |
34.9 |
% |
36.8 |
% |
|||||||||||
Operating income under EITF 01-09 (1) |
|
13.2 |
% |
13.0 |
% |
12.8 |
% |
11.3 |
% |
10.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income prior to EITF 01-09 (1) |
|
|
|
|
|
|
|
10.5 |
% |
10.3 |
% |
8.1 |
% |
9.5 |
% |
9.5 |
% |
5.9 |
% |
9.9 |
% |
4.8 |
% |
|||||||||||
Net income from continuing operations |
|
8.5 |
% |
8.8 |
% |
8.5 |
% |
7.1 |
% |
6.7 |
% |
4.8 |
% |
5.5 |
% |
5.5 |
% |
2.9 |
% |
5.0 |
% |
2.3 |
% |
|||||||||||
Effective tax rate |
|
30.3 |
% |
30.9 |
% |
31.0 |
% |
32.6 |
% |
35.5 |
% |
40.4 |
% |
35.7 |
% |
36.8 |
% |
38.6 |
% |
35.7 |
% |
40.5 |
% |
|||||||||||
Depreciation and amortization (4) |
|
$ |
72.0 |
|
$ |
65.3 |
|
$ |
53.4 |
|
$ |
60.7 |
|
$ |
49.7 |
|
$ |
46.1 |
|
$ |
43.7 |
|
$ |
38.6 |
|
$ |
52.6 |
|
$ |
52.2 |
|
$ |
52.0 |
|
Capital expenditures |
|
$ |
69.8 |
|
$ |
91.6 |
|
$ |
100.4 |
|
$ |
96.8 |
|
$ |
42.0 |
|
$ |
41.0 |
|
$ |
37.8 |
|
$ |
34.2 |
|
$ |
63.8 |
|
$ |
71.3 |
|
$ |
71.0 |
|
Debt-to-total-capital |
|
40.9 |
% |
44.4 |
% |
49.0 |
% |
58.2 |
% |
65.7 |
% |
47.0 |
% |
51.4 |
% |
50.3 |
% |
47.1 |
% |
55.5 |
% |
54.6 |
% |
|||||||||||
Average shares outstanding (7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Basic |
|
137.0 |
|
139.2 |
|
139.5 |
|
137.8 |
|
137.6 |
|
142.8 |
|
146.6 |
|
151.4 |
|
161.2 |
|
162.4 |
|
162.4 |
|
|||||||||||
Diluted |
|
141.3 |
|
142.6 |
|
142.3 |
|
140.2 |
|
139.2 |
|
144.0 |
|
147.6 |
|
151.8 |
|
161.4 |
|
162.6 |
|
163.2 |
|
(1) In 2002, the Company implemented EITF 01-09. Results have been reclassified for 2001 and 2000.
(2) The Company sold both Gilroy Foods, Incorporated and Gilroy Energy Company, Inc. in 1996.
(3) In 1999, the Company changed its actuarial method for computing pension expense.
(4) In 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. Prior year results have not been adjusted.
(5) In 2003, the Company sold its packaging segment and Jenks Sales Brokers in the U.K. All years have been restated for the sale of the packaging segment. Only 2002 and 2001 have been restated for the sale of Jenks.
(6) In 2003, the Company consolidated the lessor of a leased distribution center in accordance with FASB Interpretation No. 46, Consolidation of Variable Interest Entities, as revised.
(7) All share data adjusted for 2-for-1 stock split effective April 2002.
(8) Includes fourth quarter dividends which, in some years, were declared in December following the close of each fiscal year.
(9) Total capital includes debt, minority interest and shareholders equity.
56
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
Anticipated Dividend Dates 2005
Record Date |
|
Payment Date |
04/04/05 |
|
04/15/05 |
07/08/05 |
|
07/22/05 |
10/07/05 |
|
10/21/05 |
12/30/05 |
|
01/20/06 |
McCormick has paid dividends for 80 consecutive years.
Independent Auditors
Ernst & Young LLP
621 East Pratt Street
Baltimore, MD 21202
Certifications
The Company has filed the Chief Executive Officer and Chief Financial Officer certifications required by Section 302 of the Sarbanes-Oxley Act in its Form 10-K. Additionally, the Chief Executive Officer has provided the required annual certifications to the New York Stock Exchange.
Investor Inquiries
Our website www.mccormick.com has our corporate governance principles, as well as annual reports, SEC filings, press releases, webcasts and other useful Company information.
To obtain without cost a copy of the annual report filed with the Securities & Exchange Commission (SEC) on Form 10-K or for general questions about McCormick or information in our annual or quarterly reports, contact Investor Relations at the world headquarters address, website or telephone:
Report ordering:
(800) 424-5855 or (410) 771-7537
Investor and securities analysts inquiries:
(410) 771-7244
Registered Shareholder Inquiries
For questions on your account, statements, dividend payments, reinvestment and direct deposit, and for address changes, lost certificates, stock transfers, ownership changes or other administrative matters, contact our transfer agent.
Transfer Agent and Registrar
Wells Fargo Bank, N.A.
Shareowner Services
161 North Concord Exchange Street,
South St. Paul, MN 55075-1139
(877) 778-6784, or (651) 450-4064
www.wellsfargo.com/shareownerservices
You may access your account information via the Internet at www.shareowneronline.com
Investor Services Plan (Dividend Reinvestment and Direct Purchase Plan)
The Company offers an Investor Services Plan which provides shareholders of record the opportunity to automatically reinvest dividends, make optional cash purchases of stock through the Company, place stock certificates into safekeeping and sell shares through the Plan. Individuals who are not current shareholders may purchase their initial shares directly through the Plan. All transactions are subject to the limitations set forth in the Plan prospectus, which may be obtained by contacting Wells Fargo Shareowner Services at:
(877) 778-6784 or (651) 450-4064
www.wellsfargo.com/shareownerservices
Stock Price History
3 months ended |
|
High |
|
Low |
|
Close |
|
|||
11/30/04 |
|
$ |
37.41 |
|
$ |
33.14 |
|
$ |
36.45 |
|
08/31/04 |
|
36.07 |
|
32.25 |
|
33.55 |
|
|||
05/28/04 |
|
35.56 |
|
31.00 |
|
35.45 |
|
|||
02/27/04 |
|
31.27 |
|
28.84 |
|
31.27 |
|
|||
11/28/03 |
|
30.21 |
|
26.43 |
|
28.69 |
|
|||
Annual Meeting
The annual meeting of shareholders will be held at 10 a.m., Wednesday, March 23, 2005, at Marriotts Hunt Valley Inn, 245 Shawan Road (Exit 20A off I-83 north of Baltimore), Hunt Valley, Maryland 21031.
Online Receipt of Annual Report and Proxy Statement
If you are a registered shareholder and would like to access next years proxy statement and annual report over the Internet, go to www.econsent.com/mkcv/ to enroll for this service.
Trademarks
Use of ® or TM in this annual report indicates trademarks owned or used by McCormick & Company, Incorporated and its subsidiaries and affiliates.
This report is printed on recyclable paper. Adler Design Group designed this years report.
57
58
EXHIBIT 21
Subsidiaries of The Registrant
The following is a listing of Subsidiaries of the Registrant including the name under which they do business and their jurisdictions of incorporation. Certain subsidiaries are not listed since, considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary as of December 31, 2004.
Company Name |
|
Jurisdiction of Incorporation |
|
|
|
Mojave Foods Corporation |
|
Maryland |
McCormick de Centro America, S.A. de C.V. |
|
El Salvador |
McCormick Europe, Ltd. |
|
United Kingdom |
McCormick International Holdings Ltd. |
|
United Kingdom |
McCormick France Holdings S.A.S. |
|
France |
McCormick France, S.A.S. |
|
France |
Dessert Products International S.A.S. |
|
France |
McCormick (U.K.) Ltd. |
|
Scotland |
McCormick Glentham (Proprietary) Limited |
|
South Africa |
McCormick Foods Australia Pty. Ltd. |
|
Australia |
McCormick (Guangzhou) Food Company Limited |
|
Peoples Republic of China |
Shanghai McCormick Foods Company Limited |
|
Peoples Republic of China |
McCormick Ingredients Southeast Asia Private Limited |
|
Republic of Singapore |
McCormick Pesa, S.A. de C.V. |
|
Mexico |
La Cie McCormick Canada Co. |
|
Province of Nova Scotia, Canada |
McCormick Global Ingredients Limited |
|
Cayman |
McCormick Cyprus Limited |
|
Cyprus |
McCormick Hungary Group Financing Limited |
|
Hungary |
Zatarains Brands, Inc. |
|
Louisiana |
Uniqsauces |
|
United Kingdom |
McCormick Netherlands Holdings B.V. |
|
The Netherlands |
Exhibit 23
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in this Annual Report (Form 10-K) of McCormick & Company, Incorporated and subsidiaries of our reports dated January 25, 2005, with respect to the consolidated financial statements of McCormick & Company, Incorporated and subsidiaries, managements assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting, included in the 2004 Annual Report to Shareholders of McCormick & Company, Incorporated.
Our audits also included the financial statement schedule of McCormick & Company, Incorporated and subsidiaries listed in Item 15(a). This schedule is the responsibility of the Companys management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the following Registration Statements of McCormick & Company, Incorporated and in the related Prospectuses (if applicable):
Form |
|
Registration Number |
|
Date Filed |
S-8 |
|
333-114094 |
|
3/31/2004 |
S-8 |
|
333-104084 |
|
3/28/2003 |
S-3/A |
|
333-46490 |
|
1/23/2001 |
S-8 |
|
333-93231 |
|
12/21/99 |
S-8 |
|
333-74963 |
|
3/24/99 |
S-3 |
|
333-47611 |
|
3/9/98 |
S-8 |
|
333-23727 |
|
3/21/97 |
S-3 |
|
33-66614 |
|
7/27/93 |
S-3 |
|
33-40920 |
|
5/29/91 |
S-8 |
|
33-33724 |
|
3/2/90 |
S-3 |
|
33-32712 |
|
12/21/89 |
S-3 |
|
33-24660 |
|
3/16/89 |
S-3 |
|
33-24659 |
|
9/15/88 |
S-8 |
|
33-24658 |
|
9/15/88 |
of our report dated January 25, 2005, with respect to the consolidated financial statements incorporated herein by reference, our report dated January 25, 2005, with respect to managements assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting, incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of McCormick & Company, Incorporated.
|
/s/ Ernst & Young LLP |
|
|
|
|
Baltimore, Maryland |
|
|
January 25, 2005 |
|
EXHIBIT 31.1
I, Robert J. Lawless, Chairman, President and Chief Executive Officer of McCormick & Company, Incorporated, certify that:
1. I have reviewed this report on Form 10-K of McCormick & Company, Incorporated (the registrant);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.
Date: |
January 27, 2005 |
|
/s/ Robert J. Lawless |
|
|
Robert J. Lawless |
|||
|
Chairman,
President & Chief |
2
EXHIBIT 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)
I, Francis A. Contino, Executive Vice President Strategic Planning & Chief Financial Officer of McCormick & Company, Incorporated, certify that:
1. I have reviewed this report on Form 10-K of McCormick & Company, Incorporated (the registrant);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls over financial reporting.
Date: |
January 27, 2005 |
|
/s/ Francis A. Contino |
|
|
Francis A. Contino |
|||
|
Executive Vice President Strategic |
|||
|
Planning & Chief Financial Officer |
2
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of McCormick & Company, Incorporated (the Company) on Form 10-K for the period ending November 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Robert J. Lawless, Chairman, President & Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ Robert J. Lawless |
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Robert J. Lawless |
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Chairman, President & Chief |
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Executive Officer |
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Date: |
January 27, 2005 |
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EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of McCormick & Company, Incorporated (the Company) on Form 10-K for the period ending November 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Francis A. Contino, Executive Vice President, Chief Financial Officer & Supply Chain of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ Francis A. Contino |
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Francis A. Contino |
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Executive Vice President Strategic |
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Planning & Chief Financial Officer |
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Date: |
January 27, 2005 |
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