SEC Filing | McCormick & Company, Inc.

UNITED STATES 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, 1997 Commission file number 0-748 McCORMICK & COMPANY, INCORPORATED (Exact name of registrant as specified in its charter) Maryland 52-0408290 (State of incorporation) (I.R.S. Employer Identification No.) 18 Loveton Circle Sparks, Maryland 21152 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (410) 771-7301 Securities registered pursuant to Section 12(b) of the Act: Not applicable Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value Common Stock Non-Voting, No Par Value (Title of Class) (Title of Class) 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 /X/ No / / 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 registrant's 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 /X/ The aggregate market value of the voting stock held by non-affiliates of the registrant . . . . . . . . . .$204,420,144 The aggregate market value of the non-voting stock held by non-affiliates of the registrant . . . . . . . . .$1,847,529,347 The aggregate market value indicated above was calculated as follows: The number of shares of voting stock and non-voting stock held by non-affiliates of the registrant as of January 30, 1998 was 7,003,688 and 63,298,650 respectively. This number excludes shares held by the McCormick Profit Sharing Plan and PAYSOP and its Trustees, the McCormick Pension Plan and its Trustees, and the directors and officers of the registrant, who may or may not be affiliates. This number was then multiplied by the closing price of the stock as of January 30, 1998, $29.1875. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.

DOCUMENTS INCORPORATED BY REFERENCE

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 principally engaged in the manufacture of spices, seasonings, flavors and other specialty food products and sells such products to the consumer food market, the foodservice market and to industrial food processors throughout the world. The Registrant also, through subsidiary corporations, manufactures and markets plastic packaging products for food, personal care and other industries. The Registrant's Annual Report to Stockholders for 1997, which is enclosed as Exhibit 13, contains a description of the general development, during the last fiscal year, of the business of the Registrant, which was formed in 1915 under Maryland law as the successor to a business established in 1889. Pages 6 through 11 and 35 through 41 of that Report are incorporated by reference. Unless otherwise indicated, all references to amounts in this Report or in the Registrant's Annual Report to Stockholders for 1997 are amounts from continuing operations. The Registrant's net sales increased 4.0% in 1997 to $1,800,966,000. The Registrant operates in two business segments, Food Products and Packaging Products, and has disclosed in Note 11 of the Notes to Consolidated Financial Statements on pages 29 and 30 of its Annual Report to Stockholders for 1997, which Note is incorporated by reference, the financial information about the business segments required by this Item. The Registrant's Annual Report to Stockholders for 1997 sets forth a description of the business conducted by the Registrant on pages 6 through 11. Those pages of the Registrant's Annual Report are incorporated by reference. The Registrant implemented restructuring plans in 1994 and 1996 which were intended to increase focus on core businesses and improve its cost structure. A description of the actions taken under these plans is set forth in the Registrant's Annual Report to Stockholders for 1997 in Note 10 of the Notes to Consolidated Financial Statements on page 28, which Note is incorporated by reference. In the third quarter of 1997, the Registrant reevaluated its restructuring plans. Most of the actions required by these plans have been completed or are near completion and have resulted in losses less than originally anticipated. In addition, an agreement in principal to dispose of an overseas food brokerage and distribution business was not consummated. As a result of these developments, the Registrant recognized a restructuring credit of $9,493,000. Concurrent with the reevaluation of restructuring plans, the Registrant initiated plans to streamline the overseas food brokerage and distribution business and to close the Freehold, New Jersey packaging plant. These actions resulted in a $5,734,000 restructuring charge. The credit for the restructuring reevaluation, the charge for the new initiatives and charges directly related to the restructuring plan which could not be accrued in 1996 resulted in a net restructuring credit of $3,227,000 ($2,033,000 after tax) in 1997. 2 In August 1996, the Registrant sold substantially all of the assets of Gilroy Foods, Incorporated to ConAgra, Inc. and the assets of Gilroy Energy Company, Inc. to an affiliate of Calpine Corporation. The Registrant's Annual Report to Stockholders for 1997 sets forth a description of the sale of Gilroy Foods and Gilroy Energy in Note 10 of the Notes to Consolidated Financial Statements on page 28, which Note is incorporated by reference. Based on the settlement of terms related to assumptions used to estimate the gain or loss from these transactions, the Registrant recognized income from discontinued operations, net of income taxes of $1,013,000 in 1997. Principal Products/Marketing Spices, seasonings, flavorings, and other specialty food products are the Registrant's principal products. The Registrant also manufactures and markets plastic bottles and tubes for food, personal care and other products, primarily in the United States. The net sales value of each of these product segments is set forth in Note 11 of the Notes to Consolidated Financial Statements on pages 29 and 30 of the Registrant's Annual Report to Stockholders for 1997, which Note is incorporated by reference. No other products or classes of similar products or services contributed as much as 10% to consolidated net sales during the last three fiscal years. The Registrant markets its consumer products and foodservice products through its own sales organization, food brokers and distributors. In the industrial market, sales are made mostly through the Registrant's own sales force. The Registrant markets its packaging products through its own sales force and distributors. Raw Materials Many of the spices and herbs purchased by the Registrant are imported into the United States from the country of origin, although significant quantities of some materials, such as paprika, dehydrated vegetables, onion and garlic, and food ingredients other than spices and herbs, originate in the United States. The Registrant is a direct importer of certain raw materials, mainly black pepper, vanilla beans, cinnamon, herbs and seeds from the countries of origin. Some of the imported materials are purchased from dealers in the United States. The principal purpose of such purchases is to satisfy the Registrant's own needs. In addition, the Registrant also purchases cheese and dairy powders from US sources for use in many industrial products. The raw materials most important to the Registrant are onion, garlic and capsicums (paprika and chili peppers), most of which originate in the United States, black pepper, most of which originates in India, Indonesia, Malaysia and Brazil, vanilla beans, which the Registrant obtains from the Malagasy Republic and Indonesia and cheese and dairy powders, most of which originate in the US. The Registrant does not anticipate any material restrictions or shortages on the availability of raw materials which would have a significant impact on the Registrant's business in the foreseeable future. Substantially all of the raw materials used in the packaging business originate in the United States. 3 Trademarks, Licenses and Patents The Registrant owns a number of registered trademarks, which in the aggregate may be material to the Registrant's business. However, the loss of any one of those trademarks, with the exception of the Registrant's "McCormick," "Schilling," "Schwartz" and "Club House" trademarks, would not have a material adverse effect on the Registrant's business. The "McCormick" and "Schilling" trademarks are extensively used by the Registrant in connection with the sale of a substantial number of the Registrant's products in the United States. The "McCormick" and "Schilling" trademarks are registered and used in various foreign countries as well. The "Schwartz" trademark is used by the Registrant in connection with the sale of the Registrant's products in Europe and the "Club House" trademark is used in connection with the sale of the Registrant's products in Canada. 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 in foreign countries. In the aggregate, the loss of license agreements with non-affiliated entities would not have a material adverse effect on the Registrant's business. The terms of the license agreements are 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 Registrant's business. Seasonal Nature of Business Historically, the Registrant's sales and profits are lower in the first two quarters of the fiscal year and increase in the third and fourth quarters. Working Capital In order to meet increased demand for its products during its fourth quarter, the Registrant usually builds its inventories during the third quarter. In common with other companies, 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. Note 3 of the Notes to Consolidated Financial Statements on pages 20 and 21 of the Registrant's Annual Report to Stockholders for 1997 and page 40 of the Registrant's Annual Report to Stockholders for 1997, which pages are incorporated by reference, set forth a description of the Registrant's liquidity and capital resources. Customers 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 1997. In the same year, sales to the five largest customers represented approximately 20% of consolidated net sales. 4 Backlog Orders The dollar amount of backlog orders of the Registrant's business is not material to an understanding of the Registrant's business, taken as a whole. Government Contracts No material portion of the Registrant's business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the Government. Competition The Registrant is a leader in the manufacture and sale of spices, seasonings and flavorings and competes in a geographic market which is global and highly competitive. For further discussion, see pages 6 through 11, 35 and 37 of the Registrant's Annual Report to Stockholders for 1997, which pages are incorporated by reference. Research and Quality Control The Registrant has emphasized quality and innovation in the development, production and packaging of its products. Many of the Registrant's products are prepared from confidential formulae developed by its research laboratories and product development departments. The long experience of the Registrant in its field contributes substantially to the quality of the products offered for sale. Quality specifications exist for the Registrant's products, and continuing quality control inspections and testing are performed. Total expenditures for these and other related activities during fiscal years 1997, 1996 and 1995 were approximately $37,709,000, $35,705,000 and $33,825,000 respectively. Of these amounts, expenditures for research and development amounted to $16,077,000 in 1997, $12,216,000 in 1996 and $12,015,000 in 1995. 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 Registrant's business. No material capital expenditures for environmental control facilities are expected to be made during this fiscal year or the next. Employees The Registrant had on average approximately 7,500 employees during fiscal year 1997. Foreign Operations International businesses have made significant contributions to the Registrant's growth and profits. In common with other companies with foreign operations, the Registrant is subject in varying degrees to certain risks typically associated with doing business abroad, such as local economic and market conditions, exchange and price controls, restrictions on investment, royalties and dividends and exchange rate fluctuations. 5 Note 11 of the Notes to Consolidated Financial Statements on pages 29 and 30 of the Registrant's Annual Report to Stockholders for 1997, and pages 35 through 39 of the Registrant's Annual Report to Stockholders for 1997 contain the information required by subsection (d) of Item 101 of Regulation S-K, which pages are incorporated by reference. Forward-Looking Information For a discussion of forward-looking information, see page 41 of the Registrant's Annual Report to Stockholders for 1997, which page is incorporated be reference. Item 2. Properties The location and general character of the Registrant's principal plants and other materially important physical properties are as follows: (a) Consumer Products A plant is located in Hunt Valley, Maryland on approximately 52 acres in the Hunt Valley Business Community. This plant, which contains approximately 540,000 square feet, is used for processing spices and other food products. There is an approximately 110,000 square foot office building located in Hunt Valley, Maryland which is the headquarters for the Registrant's consumer products division. Also in Hunt Valley, Maryland is a facility of approximately 100,000 square feet which contains the Registrant's printing operations and a warehouse. All of these facilities are owned in fee. A plant of approximately 370,000 square feet and a distribution center of approximately 325,000 square feet are located in Salinas, California and a plant of approximately 108,000 square feet is located in Commerce, California. Both of the plants are owned in fee; the distribution center is leased. These facilities are used for milling, processing, packaging, and distributing spices and other food products. (b) Industrial Products The Registrant has two principal plants devoted to industrial flavoring products in the United States. A plant of 105,000 square feet is located in Hunt Valley, Maryland and is owned in fee. A plant of 102,000 square feet is located in Irving, Texas and is owned in fee. (c) Spice Milling Located adjacent to the consumer products plant in Hunt Valley is a spice milling and cleaning plant which is owned in fee by the Registrant and contains approximately 185,000 square feet. This plant services all food product groups of the Registrant. Much of the milling and grinding of raw materials for the Registrant's seasoning products is done in this facility. 6 (d) Packaging Products The Registrant has three principal plants which are devoted to the production of plastic products. A plant of approximately 275,000 square feet is located in Anaheim, California and a plant of approximately 221,000 square feet is located in Easthampton, Massachusetts. Both of these facilities are owned in fee. A plant of approximately 203,000 square feet is located in Cranbury, New Jersey and is leased. (e) International The Registrant has a plant in London, Ontario which is devoted to the processing, packaging and distribution of food products. This facility is approximately 140,000 square feet and is owned in fee. The Registrant has a 251,000 square foot facility in Buckinghamshire, England which contains the Registrant's European headquarters and manufacturing plant for dry products. (f) Research and Development The Registrant has a facility in Hunt Valley, Maryland which houses the research and development laboratories and the technical capabilities of the Registrant. The facility is approximately 110,000 square feet and is owned in fee. (g) Distribution The Registrant has a distribution center in Belcamp, Maryland. The leased 369,000 square foot facility handles the distribution of consumer, foodservice and industrial products in the eastern United States. Item 3. Legal Proceedings There are no material pending legal proceedings to which the Registrant or any of its subsidiaries is a party or to which any of their property is subject. Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted during the fourth quarter of Registrant's fiscal year 1997 to a vote of security holders. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The Registrant has disclosed at pages 40 and 41 of its Annual Report to Stockholders for 1997, which pages are incorporated by reference, the information relating to the market, market quotations, and dividends paid on Registrant's common stocks required by this Item. 7 The approximate number of holders of common stock of the Registrant based on record ownership as of January 30, 1998 was as follows:

Item 6. Selected Financial Data The Registrant has disclosed the information required by this Item in the line items for 1993 through 1997 entitled "Net sales," "Net income-continuing operations," "Earnings per share - continuing operations," "Common dividends declared," "Long-term debt" and "Total assets" on page 12 of its Annual Report to Stockholders for 1997, which page is incorporated by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The Registrant's Annual Report to Stockholders for 1997 at pages 35 through 41 contains a discussion and analysis of the Registrant's financial condition and results of operations for the three fiscal years ended November 30, 1997. Said pages are incorporated by reference. Item 7A. Quantitative and Qualitative Disclosure About Material Risk As the Registrant's market capitalization was less than $2.5 billion at January 28, 1997, the Registrant is not required to comply with the disclosure provisions of Item 305 of Regulation S-K. Note 1 of the Notes to Consolidated Financial Statements at pages 18 and 19 of the Registrant's Annual Report to Stockholders for 1997 contains the accounting policy information required by Rule 4-08(n) of Regulation S-X. Said Note is incorporated by reference. Item 8. Financial Statements and Supplementary Data The financial statements and supplementary data for McCormick & Company, Incorporated are included on pages 13 through 33 of the Registrant's Annual Report to Stockholders for 1997, which pages are incorporated by reference. The report of independent auditors from Ernst & Young LLP on such financial statements is included on page 34 of the Registrant's Annual Report to Stockholders for 1997, which page is incorporated by reference. The supplemental schedule for 1995, 1996 and 1997 is included on page 16 of this Report on Form 10-K. The unaudited quarterly data required by Item 302 of Regulation S-K is included in Note 13 of the Notes to Consolidated Financial Statements at pages 32 and 33 of the Registrant's Annual Report to Stockholders for 1997, which Note is incorporated by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure No response is required to this item. 8 PART III Item 10. Directors and Executive Officers of the Registrant The Registrant has filed with the Commission a definitive copy of its Proxy Statement dated February 18, 1998, which sets forth the information required by this Item at pages 3 through 7 which pages are incorporated by reference. In addition to the executive officers and directors discussed in the Proxy Statement, J. Allan Anderson, Christopher J. Kurtzman, Robert C. Singer and Robert W. Skelton are also executive officers of the Registrant. Mr. Anderson is 51 years old and has had the following work experience during the last five years: 1/92 to present - Vice President and Controller. Mr. Kurtzman is 45 years old and has had the following work experience during the last five years: 2/96 to present - Vice President and Treasurer; 5/94 to 2/96 - Assistant Treasurer-Domestic; 9/90 to 5/94 - Assistant Treasurer-Investor Relations & Financial Services. Mr. Singer is 42 years old and has had the following work experience during the last five years: 3/96 to present - Vice President - Acquisitions and Financial Planning; 5/94 to 3/96 - Vice President of Finance - McCormick Flavor Division; 12/91 to 5/95 - Vice President of Finance - International Group. Mr. Skelton is 50 years old and has had the following work experience during the last five years: 6/97 to present - Vice President, General Counsel and Secretary; 4/96 to 6/97 - Vice President and General Counsel; 1/84 to 4/96 -Assistant Secretary and Associate General Counsel. Item 11. Executive Compensation The Registrant has filed with the Commission a definitive copy of its Proxy Statement dated February 18, 1998, which sets forth the information required by this Item at pages 7 through 17 which pages are incorporated by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The Registrant has filed with the Commission a definitive copy of its Proxy Statement dated February 18, 1998, which sets forth the information required by this Item at pages 2 through 6 which pages are incorporated by reference. Item 13. Certain Relationships and Related Transactions The Registrant has filed with the Commission a definitive copy of its Proxy Statement dated February 18, 1998, which sets forth the information required by this Item at page 7, which page is incorporated by reference. 9 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The following documents are filed as a part of this Form: 1. The consolidated financial statements for McCormick & Company, Incorporated and subsidiaries which are listed in the Table of Contents appearing on page 15 below. 2. The financial statement schedules required by Item 8 of this Form which are listed in the Table of Contents appearing on page 15 below. 3. The exhibits which are filed as a part of this Form and required by Item 601 of Regulation S-K are listed on the accompanying Exhibit Index at pages 17 and 18 of this Report. (b) The Registrant filed no reports during the last quarter of its fiscal year 1997 on Form 8-K. 10 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: /s/ Robert J. Lawless President & Chief Executive Officer February 16, 1998 Robert J. Lawless~~

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: /s/ Robert J. Lawless President & Chief Executive Officer February 16, 1998 Robert J. Lawless Principal Financial Officer: /s/ Robert G. Davey Executive Vice President & February 16 , 1998 Robert G. Davey Chief Financial Officer Principal Accounting Officer: /s/ J. Allan Anderson Vice President & Controller February 16, 1998 J. Allan Anderson

11 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: DATE: /s/ James S. Cook February 16, 1998 James S. Cook /s/ Robert G. Davey February 16, 1998 Robert G. Davey /s/ Freeman A. Hrabowski, III February 16, 1998 Freeman A. Hrabowski, III /s/ Robert J. Lawless February 16, 1998 Robert J. Lawless /s/ Charles P. McCormick, Jr. February 16, 1998 Charles P. McCormick, Jr. /s/ George V. McGowan February 16, 1998 George V. McGowan /s/ Carroll D. Nordhoff February 16, 1998 Carroll D. Nordhoff /s/ Robert W. Schroeder February 16, 1998 Robert W. Schroeder /s/ William E. Stevens February 16, 1998 William E. Stevens /s/ Karen D. Weatherholtz February 16, 1998 Karen D. Weatherholtz 12 CROSS REFERENCE SHEET
PART ITEM REFERENCED MATERIAL/PAGE(S) PART I Item 1. Business Registrant's 1997 Annual Report to Stockholders/Pages 6-11, 20-21, 28-30 and 35-41. Item 2. Properties None. Item 3. Legal Proceedings None. Item 4. Submission of None. Matters to a Vote of Security Holders. PART II Item 5. Market for the Registrant's 1997 Annual Report to Stockholders/Pages Registrant's Common 40-41. Equity and Related Stockholder Matters. Item 6. Selected Financial Data Registrant's 1997 Annual Report to Stockholders/Page 12. Item 7. Management's Registrant's 1997 Annual Report to Discussion and Stockholders/Pages 35-41. Analysis of Financial Condition and Results of Operations. Item 7A. Quantitative and Registrant's 1997 Annual Report to Qualitative Stockholders/Pages 18-19. Disclosures About Material Risk. Item 8. Financial Registrant's 1997 Annual Report to Statements and Stockholders/Pages 13-34 and Supplementary Data. Page 16 of this Report. Item 9. Changes in and None. Disagreements with Accountants on Accounting and Financial Disclosure. 13 PART III Item 10. Directors and Registrant's Proxy Statement dated Executive Officers February 18, 1998/Pages 3-7. of the Registrant. Item 11. Executive Registrant's Proxy Statement dated Compensation. February 18, 1998/Pages 7-17. Item 12. Security Ownership Registrant's Proxy Statement dated of Certain Beneficial February 18, 1998/Pages Owners and Management. 2-6. Item 13. Certain Registrant's Proxy Statement dated Relationships and February 18, 1998/Page 7. Related Transactions. PART IV Item 14. Exhibits, Financial See Exhibit Index pages 17 and 18 and Statement Schedules the Table of Contents at page 15 of this and Reports on Form Report. 8-K.
14 McCORMICK & COMPANY, INCORPORATED TABLE OF CONTENTS AND RELATED INFORMATION Included in the Registrant's 1997 Annual Report to Stockholders, the following consolidated financial statements are incorporated by reference in Item 8*: Consolidated Balance Sheet, November 30, 1997 and 1996 Consolidated Income Statement for the Years Ended November 30, 1997, 1996 and 1995 Consolidated Statement of Shareholders' Equity for the Years Ended November 30, 1997, 1996 and 1995 Consolidated Statement of Cash Flows for the Years Ended November 30, 1997, 1996 and 1995 Notes to Consolidated Financial Statements, November 30, 1997 Report of Independent Auditors Included in Part IV of This Annual Report: Supplemental Financial Schedules: II - Valuation and Qualifying Accounts 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 1997 Annual Report to Stockholders of the Registrant for its fiscal year ended November 30, 1997 accompanies this Annual Report on Form 10-K. 15 Supplemental Financial Schedules SUPPLEMENTAL FINANCIAL SCHEDULE II CONSOLIDATED McCORMICK & COMPANY, INCORPORATED VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E BALANCE ADDITIONS AT CHARGED TO BALANCE BEGINNING COSTS AND AT END DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OF YEAR YEAR ENDED NOVEMBER 30, 1997 Allowance for doubtful receivables....... $3,527,000 $1,002,000 $795,000(1) $3,734,000 YEAR ENDED NOVEMBER 30, 1996 Allowance for doubtful receivables...... $2,545,000 $1,713,000 $731,000 (1) $3,527,000 YEAR ENDED NOVEMBER 30, 1995 Allowance for doubtful receivables....... $2,520,000 $654,000 $629,000 (1) $2,545,000
- ------------------- Note: (1) Accounts written off net of recoveries. 16 Exhibit Index Item 601
Exhibit Number 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 Incorporated by reference from & Company, Incorporated dated Registration Form S-8, April 16, 1990. Registration No. 33-39582 as filed with the Securities and Exchange Commission on March 25, 1991. Articles of Amendment to Charter of Incorporated by reference from McCormick & Company, Incorporated Registration Form S-8 dated April 1, 1992. Registration Statement No. 33-59842 as filed with the Securities and Exchange Commission on March 19, 1993. By-laws of McCormick & Company, Incorporated by reference from Incorporated - Restated and Amended Registrant's Form 10-Q as of June 17, 1996 for the quarter ended May 31, 1996 as filed with the Securities and Exchange Commission on July 12, 1996. (4) Instruments defining the rights With respect to rights of of security holders, including securities, see Exhibit 3 indentures. (Restatement of Charter). No instrument of Registrant with respect to long-term debt involves an amount of authorized securities which exceeds 10 percent of the total assets of the Registrant and its subsidiaries on a consolidated basis. Registrant agrees to furnish a copy of any such instrument upon request of the Commission. (9) Voting Trust Agreement. Not applicable.
(10) Material Contracts. i) Registrant's supplemental pension plan for certain senior officers is described in the McCormick Supplemental Executive Retirement Plan, a copy of which was attached as Exhibit 10.1 to the Registrant's Report on Form 10-K for the fiscal year 1992 as filed with the Securities and Exchange Commission on February 17, 1993, which report is incorporated by reference. ii) Stock option plans, in which directors, officers and certain other management employees participate, are described in Registrant's S-8 Registration Statements Nos. 33-33725 and 33-23727 as filed with the Securities and Exchange Commission on March 2, 1990 and March 23, 1997 respectively, which statements are incorporated by reference. 17 iii) Asset Purchase Agreement among the Registrant, Gilroy Foods, Inc. and ConAgra, Inc. dated August 28, 1996 which agreement is incorporated by reference from Registrant's Report on Form 8-K as filed with the Securities and Exchange Commission on September 13, 1996. iv) Asset Purchase Agreement among the Registrant, Gilroy Energy Company, Inc. and Calpine Gilroy Cogen, L.P., dated August 28, 1996 which agreement is incorporated by reference from Registrant's Report on Form 8-K as filed with the Securities and Exchange Commission on September 13, 1996. v) Consulting letter agreement between Registrant and Charles P. McCormick, Jr. dated January 2, 1997, which letter is incorporated by reference from Registrant's Form 10-Q as filed with the Securities and Exchange Commission on April 11, 1997. (11) Statement re computation of per- Page 19 of this Report on share earnings. Form 10-K. (12) Statements re computation of ratios. Pages 40-41 of Exhibit 13. (13) Annual Report to Security Holders McCormick & Company, Incorporated Submitted in electronic format. Annual Report to Stockholders for 1997. (16) Letter re change in certifying Not applicable. accountant. (18) Letter re change in accounting Not applicable. principles. (21) Subsidiaries of the Registrant Page 43 of Exhibit 13. (22) Published report regarding matters Not applicable. submitted to vote of securities holders. (23) Consent of independent auditors Page 20 of this Report on Form 10-K. (24) Power of attorney Not applicable. (27) Financial Data Schedule Submitted in electronic format only. (99) Additional exhibits Registrant's definitive Proxy Statement dated February 18, 1998. 18

Exhibit 11 Statement Re Computation of Per Share Earnings McCormick and Company, Inc. Part I - - Exhibit 11 (In Thousands Except Per Share Amounts) Statement re Computation of Per-Share Earnings*
Year Ended November 30 ------------------------------ Computation for Statement of Income 1997 1996 1995 Net Income........................................... $98,428 $41,918 $97,521 Reconciliation of Weighted Average Number of Shares Outstanding to Amount used in Primary Earnings Per Share Computation Weighted Average Number of Shares Outstanding.... 75,658 80,641 81,181 Add - Dilutive Effect of Outstanding Options (as Determined by the Application of the Treasury Stock Method) (1)........................... 194 61 138 Weighted Average Number of Shares Outstanding As Adjusted for Equivalent Shares................ 75,852 80,702 81,319 PRIMARY EARNINGS PER SHARE..................... $1.30 $0.52 $1.20 Year Ended November 30 ------------------------------- Computation for Statement of Income 1997 1996 1995 Reconciliation of Weighted Average Number of Shares Outstanding to Amount used in Fully Diluted Earnings Per Share Computation Weighted Average Number of Shares Outstanding.... 75,658 80,641 81,181 Add - Dilutive Effect of Outstanding Options (As Determined by the Application of the Treasury Stock Method) (1)..................... 251 98 159 Weighted Average Number of Shares Outstanding As Adjusted for Equivalent Shares................ 75,909 80,739 81,340 FULLY DILUTED EARNINGS PER SHARE................. $1.30 $0.52 $1.20
- ----------------------- *See 1997 Annual Report, Note (1) of the Notes to Financial Statements. (1)"This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%." 19

Exhibit 13 [Bottle of Whole Black Peppercorns] McCormick & Company, Incorporated 1997 Annual Report We Flavor the World -TM- [Close-up of portion Whole Black Peppercorn bottle] The primary mission of McCormick & Company,Incorporated is to profitably expand its worldwide leadership position in the spice, seasoning and flavoring markets. McCormick & Company, Incorporated 1997 Annual Report Contents . . . . . . . . . . . . . . . . . . . . . . 3 Financial Highlights . . . . . . . . . . . . . . . . 4 Letter to Shareholders . . . . . . . . . . . . . . . 5 Core Values. . . . . . . . . . . . . . . . . . . . . 6 Report on Operations . . . . . . . . . . . . . . . . 12 Historical Financial Summary . . . . . . . . . . . . 13 Consolidated Income Statement. . . . . . . . . . . . 14 Consolidated Balance Sheet . . . . . . . . . . . . . 16 Consolidated Statement of Cash Flows . . . . . . . . 17 Consolidated Statement of Shareholders' Equity . . . 18 Notes to Consolidated Financial Statements . . . . . 34 Management's Responsibilityfor Financial Statements. 34 Report of Independent Auditors . . . . . . . . . . . 35 Management's Discussion and Analysis . . . . . . . . 42 Directors and Officers . . . . . . . . . . . . . . . 43 McCormick WorldwideInvestor information. . . . . . . 44

Dividends have been paid every year since 1925. The Annual Meeting will be held at 10 a.m., Wednesday, March 18, 1998, at Marriott's Hunt Valley Inn, 245 Shawan Road (exit 20A off I-83 north of Baltimore), Hunt Valley, Maryland 21031. [Bottle of Peppermint Extract] The scent for this year's annual report is peppermint. When people hear the name McCormick, they think of the spices they use every day. Indeed, we are the world's largest spice company. Yet, the Company is also the leader in the manufacture, marketing and distribution of not only spices, but seasonings, flavors and other food products to the entire food industry - to foodservice and food processing businesses as well as to retail outlets. In addition,our packaging group manufactures and markets specialty plastic bottles and tubes for food, personal care and other industries. McCormick products a are sold in more than 100 countries. How do we manage this complex business from the growing fields to the consumer purchase? It all starts with Multiple Management, an enlightened corporate philosophy and system of participative management begun in 1932. Multiple Management fosters the importance and power of people by encouraging participation at all levels of employment and sharing the rewards of success. This interaction of people is instrumental in shaping our Corporate culture and enhancing strengths throughout McCormick. Founded in 1889, McCormick has 7,600 employees. Many are shareholders. They are the ones who flavor your world. [line of 8 Gourmet spices] [chicken sandwich] [world globe] [tube of red Cake Mate decorating icing] [spice drawing] [Multiple Management Board committee meeting with four people] [chef holding a can of Old Bay] [3 foil pack products from Australia] [spice drawing] [Photo of two people looking at U.S. Beef Stew foil pack in grocery store by display] Packages purchased from our Meal Idea Center provide shopping lists for other ingredients needed to make quick, easy and flavorful meals. We Flavor Your World-TM- Financial Highlights (dollars in millions except per-share data)
Year ended November 30 ------------------------------- 1997 1996 1995 -------- -------- --------- Net sales . . . . . . . . . . . . . . . . . . $1,801.0 $1,732.5 $1,691.1 Before restructuring (credits) charges Net income from continuing operations . . . $ 95.4 $ 83.1 $ 84.5 Net income. . . . . . . . . . . . . . . . . 96.4 81.5 95.2 Earnings per share - continuing operations. 1.26 1.03 1.04 Earnings per share - total. . . . . . . . . 1.27 1.01 1.17 Return on shareholders' equity. . . . . . . 22.4% 16.2% 19.7% After restructuring (credits) charges Net income from continuing operations . . . $ 97.4 $ 43.5 $ 86.8 Net income. . . . . . . . . . . . . . . . . 98.4 41.9 97.5 Earnings per share - continuing operations. 1.29 .54 1.07 Earnings per share - total. . . . . . . . . 1.30 .52 1.20 Return on shareholders' equity. . . . . . . 25.2% 8.6% 20.3% Dividends paid per share. . . . . . . . . . . $ .60 $ .56 $ .52 Margins Gross profit. . . . . . . . . . . . . . . . 34.9% 34.9% 34.5% Operating income. . . . . . . . . . . . . . 9.5% 5.4% 10.2% Net income from continuing operations . . . 5.4% 2.5% 5.1% Cash flows from operating activities. . . . . $ 181.2 $ 201.7 $ 59.4 Cash flows from investing activities. . . . . (46.7) 187.9 (78.5) Cash flows from financing activities. . . . . (145.2) (380.8) 17.7 Economic value added or EVA*. . . . . . . . . $ 23.4 $ (44.6) $ (3.7) Debt to total capital . . . . . . . . . . . . 50.3% 47.1% 55.5% Shareholders' equity. . . . . . . . . . . . . $ 393.1 $ 450.0 $ 519.3 Average shares outstanding (000s) . . . . . . 75,658 80,641 81,181 Ending shares outstanding (000s). . . . . . . 74,024 78,205 81,218
* An "EVA" mark is owned by Stern Stewart & Co. Market Capitalization in Billions ~~1987 $0.4 1997 $1.9~~

Ten-Year Growth of a Dollar Investment 11/30/87 to 11/30/97 (Includes dividend reinvestment) ~~S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . $5.56 S&P Food. . . . . . . . . . . . . . . . . . . . . . . . $6.68 McCormick Stock . . . . . . . . . . . . . . . . . . . . $7.63~~

Ten-year average annual compound growth rate for McCormick Stock is 22.5%. McCormick & Company, Incorporated Letter To Shareholders Last year, the theme of our Annual Report was "Turning Up the Heat!" We viewed 1996 as a turnaround year for the Company. As we entered 1997, our top priorities were to win the battle against our largest consumer competitor and complete the turnaround so that we would begin new earnings and sales growth from a stronger base. As the year closed, the competitor had announced large losses and a decision to withdraw from the spice business. That is about as big a win as we could hope for. Despite the intense competition that has existed in the marketplace, McCormick earnings and EVA performance improved dramatically, and we approved a 7 percent increase in the regular quarterly cash dividend. McCormick has paid dividends every year since 1925, and during the last 10 years our dividend has increased 380 percent. We have also repurchased seven million of the 10 million shares authorized under the Company's current buyback program. In summary, 1997 was a good year - and firmly established our new base for future growth. Our confidence in the future is a result of the foundation that has been established in recent years. By focusing on a few key strategies building global brands, leveraging our product development technologies and growing our global consumer and industrial businesses we are creating shareholder value. Margin gains will continue through improved productivity and operations efficiency. By being more responsive, more flexible and using available information systems technology, we expect to earn a greater competitive advantage. We are positioned to grow globally with very focused initiatives. [Photo of CEO Lawless and Chairman McCormick] Picture of Robert J. Lawless, President & CEO, (left) and Charles P. McCormick, Jr., Chairman We continue our commitment to increase our industry leadership. A recent initiative by our McCormick/Schilling Division is capitalizing on those factors that are at the heart of consumer decisions: choice, convenience and value. We have repositioned and relaunched our Dry Seasoning Mix (DSM) product line. Packaging changes include stronger brand identification, updated food graphics, a menu shopping list and easier-to-read instructions for preparation. New items have been added, and the products have been grouped into a newly created McCormick Meal Idea Center. It will be much more apparent to the consumer that McCormick makes the product and is demonstrating leadership in the category. Despite all the talk about home meal replacements, the average consumer still prepares nearly 70 percent of meals at home. On any given day, many meal preparers do not know what they will have for dinner as late as two hours ahead of time. The combination of the Meal Idea Center with substantial advertising and increased promotional activity should generate unit growth for McCormick and our trade partners in 1998 and beyond. As we reinvigorate the spice business, another major initiative involves our business relationship with the trade. In this program, the grocer takes a more active role in selling the product. Relying on us for category management expertise, the grocer takes steps necessary to sell the product like never before. Sales have been lost at grocery stores because shelf prices have been too high. In some cases, the consumer is driven to purchase spices elsewhere. We Flavor The World We are now working with a number of accounts who are using "everyday low prices" on selected items. For those accounts, retail shelf prices have been reduced significantly. With lower prices, they will watch their spice sales grow and benefit with additional sales elsewhere in the store. The momentum of the program is taking hold, and more major retailers will begin this innovative strategy in 1998. Establishing a better price/value relationship for the consumer is another important way to grow our business. This program emphasizes our brands and allows us to leverage advertising. Our breadth of experience and expertise in the food business rivals any of the other premier food companies. That is why the grocery trade views McCormick as far more than a supplier. We are a partner. Our foodservice business, which serves broad-line distributors, national restaurant accounts and warehouse clubs, was a valuable contributor to 1997's performance. Since the early 1990s when we lost much of the warehouse club business, sales have rebounded. For the past three years, the United States' largest food distributor has ranked McCormick among its very best suppliers. Our industrial flavor and seasoning business, which sells to food processors and major restaurant chains, experienced strong sales growth in 1997. Combined with the Food Service Group, it represented 42 percent of our consolidated sales worldwide. We add flavor to a broad array of products that you eat every day. We can be found in just about every item on the plate and around it as well. In addition, our Packaging Group, which represents approximately 10 percent of consolidated sales, had a strong year. This business, with a U.S. focus, manufactures and markets plastic bottles and tubes for food, personal care and other products. Our Packaging Group has been innovative with high-end packaging that wins industry awards on a consistent basis and is considered a high growth performer. As we proceed through 1998, we will continue to take the right steps to build for the future. We are committed to growing sales, being a low-cost producer and utilizing assets better, thereby increasing shareholder value. Factors that will make a difference in creating success are accountability by our people, unparalleled customer service, innovation, increased efficiency and leveraging our core competencies. During the year, Dr. Hamed Faridi was appointed Vice President-Research & Development. He succeeds Dr. Marshall J. Myers who retired. Robert W. Skelton, Vice President & General Counsel, was elected Secretary of the Corporation. Susan L. Abbott was named Vice President-Regulatory & Environmental Affairs, and Roger T. Lawrence succeeded her as Vice President-Quality Assurance. Paul C. Beard was named President of McCormick Canada, Inc. In addition, Richard W. Single, Sr., Vice President-Government Affairs, Secretary and Counsel to the Board of Directors; Dr. James J. Albrecht, Vice President-Science & Technology and George W. Koch, Of Counsel, Kirkpatrick & Lockhart, retired from the Board. We thank them for their many years of outstanding service to the Company. We also wish to thank our loyal employees who have supported the organization during the challenges of recent years. People are our greatest asset. They helped us achieve much in 1997 including recognition by FORTUNE magazine as one of the 100 best companies to work for in America. We have raised the bar and have a management team capable of achieving goals previously unattainable. Our Core Values We Believe: -- That our people are the most important ingredient to our success. -- In continuously adding value for our shareholders. -- Customers are the reason we exist. -- In doing business honestly and ethically. -- In focused achievement of goals and objectives through teamwork. /s/ Charles P. McCormick ----------------------------------------------------- Charles P. McCormick, Jr. Chairman of the Board /s/ Robert J. Lawless ------------------------------------------------------ Robert J. Lawless President & Chief Executive Officer McCormick & Company, Incorporated Report on Operations 1997 Leveraging Our Leadership It's been said, "The proof is in the numbers." Here are some to consider. In more than 100 countries around the world, you can purchase McCormick products. You would be able to make that selection from potentially 500 items carrying McCormick brands. In more than 700 packaged foods in grocery stores and other outlets, you can enjoy McCormick ingredients used by the world's premier food manufacturers. Impressive numbers. When added together they equal "Number One"- industry leadership. McCormick is the leader in the manufacture, marketing and distribution of spices, seasonings and flavors throughout the food industry. The activities of the past year solidified that leadership position and propelled the Company on a course for growth. In last year's annual report, three areas of focus for 1997 were identified: growth, asset management and performance. The three combined to be McCormick's driving force during the year. The formula worked. We built on the foundation of a good second half in 1996 to record a good year in 1997. Several key initiatives were inaugurated in 1997 to fuel that pursuit of growth. There is now a momentum within McCormick, and this report will detail the focused initiatives and the other powerful strengths that have the Company performing more like an industry leader than ever before. A Brief Look at Who We Are McCormick's consumer, foodservice and some industrial businesses are aligned globally into three zones: the Americas market, the European market and the Asia/Pacific market. McCormick's oldest and largest business is dedicated to the manufacture and consumer sale of spices, herbs, extracts, proprietary seasoning blends, sauces and marinades. These consumer products are sold in the United States, primarily under the McCormick brand in the East, the Schilling brand in the West, in Canada under the Club House brand and in the United Kingdom under the Schwartz brand. In other market zones, the McCormick brand name is primarily used. Our foodservice business serves foodservice distributors, national restaurant accounts and membership warehouse clubs. McCormick's industrial flavor and seasoning business supplies major food processors and restaurant chains worldwide. McCormick's Packaging Group, comprised of Setco, Inc. and Tubed Products, Inc., is a U.S.-focused business that manufactures and markets plastic bottles and tubes for food, personal care and other industries. [illustration of world with ribbon graphic bearing the words "We Flavor Your World"] Brand Power In recent years, the Company rediscovered the value and power of its brand. The McCormick name, according to our extensive research, carries substantial weight with the consumer. In 1995, the Company started in earnest to drive the brand through advertising. The first noteworthy example was the start of the "Flavor Up!" campaign that has continued as a tag line with our advertising. The "all-star" of that first major brand push was Bag'n Season. In last year's report, we chronicled the surge in sales for Bag 'n Season that was driven by heavy advertising and a new-look foil package with a more pronounced McCormick identification. The effort to make the McCormick name stand out continued in 1997 with redesigned packages for our entire Dry Seasoning Mix (DSM) line. It's very clear to the consumer that this new DSM package is from McCormick. The familiar Corporate logo is "up front" and positioned over a flowing red ribbon. It's a bold graphic that received great reaction during initial testing. To the consumer, the McCormick name means quality meals. We plan to use the McCormick logo on the packaging of our smaller and lesser known brands, such as Golden Dipt and Produce Partners. The combined approach will provide additional consumer recognition and credibility to those brands while maintaining their own individual character. Along with our brand-building consumer advertising program, maximizing the power of the McCormick trademark will strengthen our leadership position and help drive growth. And we're also focused on stretching our brand power into other areas of the flavoring market. We Flavor Your World Brand recognition goes far beyond the U.S. domestic market. The names Club House in Canada, Schwartz and Noel's in the United Kingdom and McCormick in various global locations are all part of the Company's efforts to drive our brands. One key spot in this initiative is China where there are few established brands. We're building a solid platform to become the national brand Chinese consumers think of when they buy spices and seasonings. [photo of Montreal Steak Seasoning product from Club House Foods (Canada)] Innovation Innovation has been called the fuel of corporate longevity, and an innovative mind-set has become more important to the success of McCormick than at any time during our 108-year history. The lifestyles, tastes and purchasing habits of consumers have changed so much and so quickly that those businesses married to what may have worked in the past may face failure. An exciting initiative begun in 1997 demonstrates McCormick's leadership in the industry as well as our innovative approach to consumer trends. For many years, the grocery aisle containing dry seasoning mixes was unorganized, at times cluttered and often confusing for the consumer. Put simply, it was one of the more difficult areas of the store to shop. Usually, the consumer would stop by the DSM aisle, pick up his or her regular purchase and move on. There was little time spent browsing. Data showed that each consumer made fewer than 10 purchases from this department on average each year. The potential for the DSM section is great, and McCormick has responded to that potential by developing a section that answers a consumer need. Research indicates that consumers are pressed for time, have limited cooking experience and often have no idea what they'll be having for dinner within a few hours of the meal. For some, the answer is the home meal replacement (HMR). With the HMR, a consumer buys a meal prepared away from the home, perhaps by the chef in the grocery store kitchen. Once home, the meal is heated in the oven and then eaten. Although the HMR has received much attention, it is a costly alternative that carries a price tag too high to become a regular habit for many households. Research indicates that 70 percent of consumers still prepare their meals in the home. And they want meals that are fresh and convenient. They are in a "recipe rut," and they are looking for help. McCormick & Company, Incorporated [photo of Light Mayonesa (mayonnaise) from Mexico] The answer to their predicament is the McCormick Meal Idea Center. When consumers see the Meal Idea Center, they will find a wide variety of "meal solutions" in well-displayed sections. The McCormick DSMs have been organized in eight color-coded product categories instead of the random jumble of packages by various manufacturers too often seen in a DSM aisle. This innovative arrangement will foster browsing. Just a few more purchases per consumer per year should create growth in this under-performing category. The consumer benefits, McCormick benefits - and so, too, will the grocery store. A key part of the Meal Idea Center initiative calls for the retailer to advertise and promote the center. Rather than a standard "commodity" promotion like two packages for the price of one, the retailer would, for example, promote the chili seasoning mix along with a sale on the price of the related ingredients. The back of the new DSM package shows all the meal ingredients necessary, so the consumer uses it as a shopping list for other areas of the store. The combination of the Meal Idea Center with fresh new packaging, substantial advertising and increased promotional activity should generate significant unit growth for McCormick and our trade partners. It is an innovative effort that clearly reflects industry leadership and the quest to drive McCormick brands. A commitment to the McCormick Meal Idea Center is reflected in our continued advertising on television, radio and in print. We want the consumer to know we have the brand to trust, and we have the answers to their cooking needs.The message is being heard. The source of so much innovation in the food industry is research and development (R&D). And McCormick's R&D is yet another way that we differentiate ourselves from the competition and demonstrate our industry leadership. Our annual budget for R&D is on a par with the upper echelon of the food industry. Out of a superb R&D facility in Maryland and with satellite locations around the world, a team of scientists, sensory analysts and food specialists creates flavor systems for the premier global food manufacturers as well as McCormick. In the past, the efforts of our R&D team have been largely focused on our food processing and fast-food customers. With our commitment to consumer-oriented marketing, we see the need for an intensified focus on new product development for our consumer business. We have also added key personnel who have extensive experience in new consumer product development. R&D will play a critical role in our push for exciting, new products to anticipate and respond to the needs and eating trends of the consuming public. McCormick's R&D efforts have evolved. Historically, they were tactical and project-oriented. In keeping with our quest to perform like the industry leader we are, our R&D activities have become more strategic. Beyond the pursuit of new products is our challenge and ultimate goal to create new technologies that can then be used to serve various customers - industrial, consumer or foodservice. With a new technology, we can create a "family" of new products. An example is the FlavorCell technology developed in McCormick's R&D labs a few years ago. Such technologies may have a longer payback horizon. McCormick, however, considers it a wise investment, ultimately benefiting our business, customers (both trade and consumer) and shareholders. Our food enhancement capabilities are some of the best in the industry - another example of how McCormick remains the leader. We will continue to leverage these and other technologies throughout all of our businesses in all regions of the world. One of our packaging businesses, Tubed Products, Inc. (TPI), enjoyed a resounding turnaround year. After a poor 1996, they grew sales through a combination of new technological innovations, improved customer service and significant productivity improvements. The tube market is now focused on more up-scale packaging, and TPI has the latest technologies to meet those demands. The "soft-touch" tube introduced in 1997 for a hair-care line was named "Best of Show" by the National Association of Container Distributors. Other examples of TPI's technological leadership include three-color silk screening, advancements with the click-top Dispens-R-Tube and the introduction of oval tubes. TPI, which celebrated its 50th anniversary in 1997, is the market leader in plastic squeeze tubes. Setco, Inc., another part of our Packaging Group, also relies on technological innovation in producing bottles for numerous businesses, including many McCormick products and the fast-growing nutritional supplement and herb markets. Expertise What does the McCormick name mean to consumers? "It stands for quality." That was the majority response offered during consumer testing. Those responses reaffirm how we work every day. After 108 years of "flavoring the world," we state with pride and conviction - we know food! Few food companies can match our breadth of experience. We Flavor The World That experience is evident in meals you eat, snacks you munch and drinks you consume. The odds are strong that during one of the three main daily meals, you will consume a McCormick product. Salad seasonings, soup ingredients, blends for entree meals, ingredients for baked goods, flavorings for drinks and the dessert that follows - McCormick is there. And that's just a small sampling. Walk down the aisles of your grocery store, and you will see the well-known McCormick brands on some shelves. In nearly every aisle where there is food, even though you may not see our name on the package, but our flavor or ingredient will be there. We supply the vast majority of the top 100 food processors and restaurant companies, and they produce hundreds of packaged foods and countless prepared meals flavored by - McCormick. At many of the restaurants, McCormick seasons the sandwich or flavors the drink. Our expertise, borne of a century of experience, leads us to be not only the supplier of choice for the world's largest food businesses - but the partner of choice. A small amount of the ingredients of many processed food items accounts for a large amount of the flavor. That's where we come in. We are that powerful, vital ingredient. But we bring much more. With our extensive experience and breadth of knowledge in the food industry and the fact that few ingredient companies have consumer experience, we act as consultants to food manufacturers and the restaurant trade. To increase the chance for the success of new products, food manufacturers and the restaurant trade bring McCormick into the equation very early. Our R&D and sensory evaluation services are used well "upstream" during the concept development. Far more than a supplier, we are a partner benefiting our customers with consultation and expertise. Our expertise actually starts from "square one" with our comprehensive, global sourcing program that we have detailed in earlier reports. Our control over raw materials allows us to provide customers with a consistent, dependable supply of the highest quality spices and herbs. McCormick's global sourcing program is unmatched in the industry. We have the broadest line of flavor systems, know the food business from commodity to "center of the plate" entrees and have experience in nearly every aisle of the grocery store. What we bring to the consumer and our trade customers is more than an ingredient. We bring unmatched expertise. [photo of Jalisco (hot) Sauce from El Salvador] Leadership Over the years, McCormick has gained its leadership position for many reasons. One is the Company's role in finding a better way. This broad statement can be demonstrated by the Company's category manage- ment initiative with the grocery trade. By again acting as the consultant, we offer marketing guidance that will result in increased sales of our branded products, benefiting the grocer and McCormick. The latest initiative that we believe will play a key role in growing our consumer business involves pricing. As stated in the Letter to Shareholders, we are working with our grocery trade partners to price our products more favorably. Our Food Service Group demonstrated leadership as it provided flavor systems and training for HMR programs for meat, deli and seafood departments in supermarkets. McCormick developed a "turn-key" supermarket foodservice program to facilitate the grocers' expansion into this explosive trend. Our foodservice HMR business nearly doubled in 1997 compared to the previous year. In 1997, the Food Service Group again received recognition from its key customers for service excellence. McCormick & Company, Incorporated Global Reach -- Global Growth These are all pieces of a powerful equation with the result being market leadership. Of the top 20 retailers/ wholesalers in the United States, 15 have McCormick as the primary core spice line. In gourmet spices, McCormick is the primary line for 11 and shares in seven others. In seasoning mixes, McCormick is the primary line in 16 and shares one. In the U.S., we are the leader in dollar share of the spice and seasoning market. Led by our Club House brand, we also hold a leading market position in Canada. Driven by strong performances in the consumer and industrial businesses, McCormick Canada had record sales and profits in 1997. McCormick Flavor Division achieved double-digit sales growth, despite lackluster overall food industry growth. Growth has been particularly strong with key partners in snacks, restaurants and prepared foods. As the multinational companies that we supply grow globally, we go with them. An emerging global market trend that holds great opportunity for our industrial business is the so-called "wellness foods" (nutraceuticals, functional foods and health foods). These foods pose special flavoring challenges as they often require flavor "masking" or enhancement. [photo of American Frites (French fries) with Tomatoes foil pack] We are developing new, specialized flavor systems to answer the demand. In the United States foodservice business, we are again the leader supplying spices, seasonings and other flavor systems for foodservice distributors. The Food Service Group had an excellent year in both sales and profits. In other parts of the Americas Zone, we have the leading market share in consumer spices and herbs in Central America and Venezuela. McCormick de Centro America set a profit record for the seventh consecutive year. Overseas, we also enjoy a leading market share in the United Kingdom. The Schwartz brand enjoyed more success with sales growing for the fourth consecutive year to a new record level. The introduction of Potato Wedges seasoning mix was the most successful new consumer product introduction in our U.K. history. We were also presented a prestigious "Supplier of the Year" award from a major global fast-food restaurant chain. It recognized five years of our quality service in Europe. Our employees, shareholders and others who follow McCormick are well aware of the excitement we feel about growth potential in the Asia/ Pacific Zone. We have identified China as a region for accelerated growth, and much activity took place in 1997 in pursuit of that goal. Shanghai McCormick Foods Company, Limited has established a distribution network within China that now reaches more than 80 cities. Our product line in China has expanded to include: bottled spices, chicken batters, authentic Chinese recipe mixes, rice seasonings, soups, ketchup, puddings and gelatins. Our plan is to add two new product lines each year for the foreseeable future. Managing Our Business Playing crucial roles in the revitalization of McCormick have been our aggressive approach to managing our business and our steps to strengthen the balance sheet. In support of our objective to create shareholder value, the Company adopted economic value added (EVA) in 1996 as a primary indicator to measure the performance of the businesses. This value-based management tool combines into one measure the profitability of our businesses after considering the associated capital costs. Positive EVA is generated when the Company's net operating profit after tax exceeds the cost to finance its capital. We believe that consistent growth in EVA will directly translate into superior returns for our shareholders over time. In order to grow EVA, we will focus on the following: increasing our worldwide market share, effectively managing our assets and growing earnings per share. Our strategies will concentrate on global sales and profit growth, while concurrently improving asset utilization. Economic Value Added In Millions -------------------------------- ~~1995 ($ 4) 1996 ($45) 1997 $23~~

The Company also believes that linking EVA to compensation and properly educating the work force in its use are critical components in the successful implementation of a value-based management program. As a result, EVA has been incorporated into the incentive compensation system. During the past two years, many managerial personnel have been trained in the utilization of EVA and are using it in daily business decisions. All major investment decisions, including capital asset acquisitions, business acquisitions and working capital decisions go through an EVA screen. The education of the work force is a continual process. As the work force learns of the opportunities they have to improve EVA, we believe the Company, our employees and ultimately our shareholders will all benefit. In 1997, the Company experienced significant improvement in the economic value created for our shareholders. After a period of several years during which the Company experienced declining EVA, we took action in 1996 to improve the return performance of our businesses. A comprehensive portfolio review of our operating businesses was completed in 1996, actions were taken and a restructuring charge resulted in the third quarter of that year. Additionally, as discussed in last year's report, Gilroy Foods and Gilroy Energy Company were divested in August 1996, resulting in proceeds of $263 million. At the same time, a 10 million share buyback program was announced, an indication of the Company's confidence in the future. These actions laid the foundation for the substantial value growth that occurred during 1997. With a streamlined and focused capital base, the Company was able to increase the EVA of its businesses through sales growth, production efficiencies and effective asset management. Our shareholders have been rewarded by these initiatives. As of November 30, McCormick stock had appreciated nearly 40 percent since the announcement and implementation of these actions in August 1996. Our work is far from over. We are committed to achieving even greater value creation for our shareholders in the coming years. We are continuing our initiative to pay down debt. Our capital expenditures were at their lowest level in recent history as a result of efforts to leverage our existing fixed assets. We are also focusing attention on improving the collection of accounts receivable. In 1997, our inventory turnover improved as we continued to achieve efficiencies in the management of our supply chain. With improved working capital management and through judicious use of our fixed capital, we experienced improved return performance in most of our businesses. These initiatives reflect an aggressively managed business committed to bringing value to our shareholders. We will also use a disciplined approach regarding acquisitions. Any potential acquisition must have a correct "fit" with McCormick, resulting in substantial benefit for our shareholders. It must be in line with our Corporate objectives and offer a strong management team already in place. [Photo of Aeroplane Dessert Whip product from McCormick Australia] To Summarize McCormick has undergone a transformation. Some of it was driven by the competition, but much of it was driven from within. The past year saw us continue initiatives to drive our brands, grow globally and reassert our industry leadership. The coming year will see us demonstrate our commitment to return to a premier position among our food industry peer group. With continued growth, we will achieve that goal. McCormick & Company, Incorporated
Historical Financial Summary (dollars in millions except per-share data) - ----------------------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- For the Year 1997 1996 1995 1994 1993 1992 1991 1990 1989 - ----------------------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Net sales........................ 1,801.0 1,732.5 1,691.1 1,529.4 1,400.9 1,323.9 1,276.3 1,166.2 1,110.2 Percent change over prior year... 4.0% 2.4% 10.6% 9.2% 5.8% 3.7% 9.4% 5.0% 1.0% Operating profit................. 170.8 93.3 172.6 86.0 142.1 121.4 100.6 86.9 74.5 Operating profit excluding restructuring.................. 167.6 151.4 168.7 156.5 142.1 121.4 100.6 86.9 74.5 Income (loss) from unconsolidated operations..................... 7.8 5.6 2.1 7.9 10.3 9.9 8.8 3.7 3.5 Net income - continuing operations..................... 97.4 43.5 86.8 42.5 82.9 73.6 60.4 51.8 47.1 Net income(1).................... 98.4 41.9 97.5 61.2 73.1 95.2 80.9 69.4 135.5 Earnings per share:(2) Continuing operations.......... 1.29 .54 1.07 .52 1.01 .90 .73 .62 .54 Discontinued operations........ .01 .08 .13 .23 .21 .26 .25 .21 1.00 Extraordinary item............. - (.10) - - - - - - - Accounting changes(3).......... - - - - (.33) - - - - -------- -------- -------- -------- -------- -------- -------- -------- -------- Net earnings................... 1.30 .52 1.20 .75 .89 1.16 .98 .83 1.54 Percentage of net sales: Gross profit................... 34.9% 34.9% 34.5% 36.5% 38.5% 38.9% 36.9% 36.0% 35.2% Operating profit............... 9.5% 5.4% 10.2% 5.6% 10.1% 9.2% 7.9% 7.5% 6.7% Income - continuing operations................... 5.4% 2.5% 5.1% 2.8% 5.9% 5.6% 4.7% 4.4% 4.2% Effective tax rate............... 37.0% 38.7% 36.1% 40.5% 41.4% 39.4% 38.4% 38.0% 38.1% Depreciation and amortization.... 49.3 63.8 63.7 62.5 50.5 43.8 40.5 36.6 34.8 Capital expenditures............. 43.9 74.7 82.1 87.7 76.1 79.3 73.0 58.4 53.4 Common dividends declared(4)..... .61 .57 .53 .49 .45 .40 .31 .24 .19 Market closing price: High......................... 27.06 25.00 26.50 24.63 30.25 28.75 22.88 13.38 12.50 Low.......................... 22.63 19.25 18.13 18.00 20.40 20.63 11.88 9.13 6.31 Dividend payout ratio(5)......... 47.6% 50.5% 44.4% 36.4% 36.1% 32.8% 28.6% 28.9% 30.8% Average shares outstanding (000s) 75,658 80,641 81,181 81,240 81,766 81,918 82,396 83,720 87,772 - ----------------------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- At Year End - ----------------------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Current debt..................... 121.3 108.9 297.3 214.0 84.7 122.6 78.2 30.4 20.3 Long-term debt................... 276.5 291.2 349.1 374.3 346.4 201.0 207.6 211.5 210.5 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total debt....................... 397.8 400.1 646.4 588.3 431.1 323.6 285.8 241.9 230.8 Shareholders' equity............. 393.1 450.0 519.3 490.0 466.8 437.9 389.2 364.4 346.2 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total capital.................... 790.9 850.1 1,165.7 1,078.3 897.9 761.5 675.0 606.3 577.0 Total assets..................... 1,256.2 1,326.6 1,614.3 1,555.7 1,313.2 1,130.9 1,037.4 946.9 864.5 Return on equity................. 25.2% 8.6% 20.3% 12.8% 17.0% 23.3% 21.8% 20.4% 40.0% Debt to total capital............ 50.3% 47.1% 55.5% 54.6% 48.0% 42.5% 42.3% 39.9% 40.0% Book value per common share(2)... 5.31 5.75 6.39 6.03 5.70 5.45 4.88 4.56 4.18 Market closing price............. 26.50 24.63 23.63 19.00 23.25 28.50 20.63 11.50 12.50 - ----------------------------------- -------- For the Year 1988 - ----------------------------------- -------- Net sales.......................... 1,099.1 Percent change over prior year... 8.7% Operating profit................... 65.4 Operating profit excluding restructuring.................... 65.4 Income (loss) from unconsolidated operations....................... (0.4) Net income - continuing operations....................... 24.8 Net income(1)...................... 42.7 Earnings per share:(2) Continuing operations............ .27 Discontinued operations.......... .12 Extraordinary item............... - Accounting changes(3)............ .07 -------- Net earnings..................... .46 Percentage of net sales: Gross profit..................... 32.6% Operating profit................. 6.0% Income - continuing operations..................... 2.3% Effective tax rate................. 46.6% Depreciation and amortization...... 29.8 Capital expenditures............... 50.4 Common dividends declared(4)....... .14 Market closing price: High.......................... 7.25 Low........................... 3.85 Dividend payout ratio(5)........... 36.5% Average shares outstanding (000s).. 93,068 - ----------------------------------- -------- At Year End - ----------------------------------- -------- Current debt....................... 49.5 Long-term debt..................... 229.4 -------- Total debt......................... 278.9 Shareholders' equity............... 294.3 Total capital...................... 573.2 -------- Total assets....................... 846.4 Return on equity................... 14.6% Debt to total capital.............. 48.7% Book value per common share(2)..... 3.27 Market closing price............... 6.88
- --------------- (1) The Company disposed of its wholly-owned real estate subsidiary in 1989, and both Gilroy Foods, Incorporated and Gilroy Energy Company, Inc. in 1996. (2) All share data adjusted for 2-for-1 stock splits in January 1992, January 1990 and April 1988. (3) In 1993, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," and in 1988, it adopted SFAS No. 96, "Accounting for Income Taxes." (4) Includes fourth quarter dividends for the years 1988-1997, which were declared in December of each of those years. (5) Dividend payout ratio does not include gain or losses on sale of discontinued operations, cumulative effect of accounting changes and restructuring charge or credit, and extraordinary items. We Flavor The World
Consolidated Income Statement (in thousands except per-share data) Year ended November 30 ------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Net sales......................................... $1,800,966 $1,732,506 $1,691,086 Cost of goods sold................................ 1,172,328 1,128,032 1,106,935 ----------- ----------- ----------- Gross profit...................................... 628,638 604,474 584,151 Selling, general and administrative expense....... 461,022 453,088 415,459 Restructuring (credit) charge..................... (3,227) 58,095 (3,904) ----------- ----------- ----------- Operating income.................................. 170,843 93,291 172,596 Interest expense.................................. 36,332 33,811 39,298 Other (income) expense - net. .................... (7,795) (2,254) 692 ----------- ----------- ----------- Income from consolidated continuing operations before income taxes............................. 142,306 61,734 132,606 Income taxes...................................... 52,653 23,871 47,866 ----------- ----------- ----------- Net income from consolidated continuing operations...................................... 89,653 37,863 84,740 Income from unconsolidated operations............. 7,762 5,612 2,068 ----------- ----------- ----------- Net income from continuing operations............. 97,415 43,475 86,808 Income from discontinued operations, net of income taxes.................................... 1,013 6,249 10,713 ----------- ----------- ----------- Net income before extraordinary item.............. 98,428 49,724 97,521 Extraordinary loss from early extinguishment of debt, net of income tax benefit....................... - (7,806) - ----------- ----------- ----------- Net income........................................ $ 98,428 $ 41,918 $ 97,521 ----------- ----------- ----------- ----------- ----------- ----------- Earnings per shareContinuing operations........... $ 1.29 $ .54 $ 1.07 Discontinued operations........................... .01 .08 .13 Extraordinary loss from early extinguishment of debt. ....................................... - (.10) - ----------- ----------- ----------- Total earnings per share.......................... $ 1.30 $ .52 $ 1.20 ----------- ----------- ----------- ----------- ----------- -----------
- --------------------- See Notes to Consolidated Financial Statements, pages 18-33. McCormick & Company, Incorporated
Consolidated Balance Sheet (in thousands) Assets November 30 ---------------------- 1997 1996 ---------- ---------- Current assets Cash and cash equivalents.................... $ 13,500 $ 22,418 Receivables, less allowances of $3,734 for 1997 and $3,527 for 1996............... 217,198 217,495 Inventories.................................. 252,084 245,089 Prepaid expenses............................. 9,790 15,648 Deferred income taxes........................ 13,946 33,762 ---------- ---------- Total current assets....................... 506,518 534,412 Property, plant and equipment - net............ 380,015 400,394 Goodwill - net................................. 157,962 165,066 Prepaid allowances............................. 130,943 149,200 Investments and other assets................... 80,794 77,537 ---------- ---------- $1,256,232 $1,326,609 ---------- ---------- ---------- ----------
- ----------------------- See Notes to Consolidated Financial Statements, pages 18-33. We Flavor Your World
Liabilities and Shareholders' Equity November 30 ----------------------- 1997 1996 ----------- ----------- Current liabilities Short-term borrowings.................................. $ 112,313 $ 98,450 Current portion of long-term debt...................... 8,989 10,477 Trade accounts payable................................. 150,330 153,584 Other accrued liabilities.............................. 226,617 236,791 ----------- ----------- Total current liabilities............................ 498,249 499,302 Long-term debt........................................... 276,489 291,194 Deferred income taxes.................................... 2,038 4,937 Other long-term liabilities.............................. 86,346 81,133 ----------- ----------- Total liabilities.................................... 863,122 876,566 Shareholders' equity Common Stock, no par value; authorized 160,000 shares; issued and outstanding: 1997 - 10,182 shares, 1996 - 11,533 shares................................. 44,408 48,541 Common Stock Non-Voting, no par value; authorized 160,000 shares; issued and outstanding: 1997 - 63,842 shares, 1996 - 66,672 shares................. 115,042 112,489 Retained earnings...................................... 264,309 313,847 Foreign currency translation adjustments............... (30,649) (24,834) ----------- ----------- Total shareholders' equity........................... 393,110 450,043 ----------- ----------- $1,256,232 $1,326,609 ----------- ----------- ----------- -----------
- --------------------- See Notes to Consolidated Financial Statements, pages 18-33. McCormick & Company, Incorporated
Consolidated Statement of Cash Flows (in thousands) Year ended November 30 -------------------------------- 1997 1996 1995 --------- --------- -------- Cash flows from operating activities Net income.................................................. $ 98,428 $ 41,918 $ 97,521 Adjustments to reconcile net income to net cash provided by operating activities Restructuring (credit) charge............................. (3,227) 58,095 (3,904) Depreciation and amortization............................. 49,344 63,788 63,698 Deferred income taxes..................................... 18,921 (26,368) 15,697 Other..................................................... 2,868 2,402 483 Income from unconsolidated operations..................... (7,762) (5,612) (2,068) Extraordinary item........................................ - 7,806 - Changes in operating assets and liabilities Receivables............................................. (4,221) (5,363) (21,560) Inventories............................................. (13,667) 21,811 (13,751) Prepaid allowances...................................... 18,128 23,689 (40,133) Accounts payable........................................ (634) 24,443 3,973 Other assets and liabilities............................ 13,492 (4,931) (40,549) Dividends received from unconsolidated affiliates......... 9,501 - - ---------- ---------- --------- Net cash provided by operating activities............ 181,171 201,678 59,407 Cash flows from investing activities Acquisitions of businesses.................................. (3,315) - - Capital expenditures........................................ (43,856) (74,654) (82,140) Proceeds from sale of discontinued operations............... - 248,766 - Proceeds from sale of assets................................ 3,792 15,283 1,910 Other....................................................... (3,341) (1,497) 1,703 ---------- ---------- --------- Net cash (used in) provided by investing activities........................................ (46,720) 187,898 (78,527) Cash flows from financing activities Short-term borrowings - net................................. 16,125 (186,541) 85,148 Long-term debt borrowings................................... 573 4,454 - Long-term debt repayments................................... (12,204) (83,178) (20,186) Common stock issued......................................... 6,952 4,524 11,314 Common stock acquired by purchase........................... (111,167) (74,709) (16,330) Dividends paid.............................................. (45,525) (45,322) (42,202) ---------- ---------- --------- Net cash (used in) provided by financing activities..................................... (145,246) (380,772) 17,744 Effect of exchange rate changes on cash and cash equivalents 1,877 1,149 (1,725) (Decrease)/increase in cash and cash equivalents............ (8,918) 9,953 (3,101) ---------- ---------- --------- Cash and cash equivalents at beginning of year.............. 22,418 12,465 15,566 ---------- ---------- --------- Cash and cash equivalents at end of year.................... $ 13,500 $ 22,418 $ 12,465 ---------- ---------- --------- ---------- ---------- ---------
- --------------------- See Notes to Consolidated Financial Statements, pages 18-33. We Flavor The World
Consolidated Statement of Shareholders' Equity (in thousands except per-share data) Common Foreign Common Stock Common Currency Total Stock Non-Voting Stock Retained Translation Shareholders' Shares Shares Amount Earnings Adjustments Equity ------- ---------- -------- --------- ------------ ------------- Balance, December 1, 1994........ 13,279 67,927 $151,703 $ 343,285 $ (5,024) $ 489,964 Net income....................... 97,521 97,521 Dividends declared ($.52/share).. (42,202) (42,202) Currency translation adjustments................. (24,035) (24,035) Other adjustments................ 3,021 3,021 Shares purchased and retired..... (435) (336) (2,362) (13,968) (16,330) Shares issued.................... 298 485 11,314 11,314 Equal exchange................... (1,053) 1,053 -------- ----------- --------- ---------- ----------- ----------- Balance, November 30, 1995....... 12,089 69,129 160,655 387,657 (29,059) 519,253 Net income....................... 41,918 41,918 Dividends declared ($.56/share).. (45,322) (45,322) Currency translation adjustments................. 4,225 4,225 Other adjustments................ 154 154 Shares purchased and retired..... (264) (3,111) (4,149) (70,560) (74,709) Shares issued.................... 189 173 4,524 4,524 Equal exchange................... (481) 481 -------- ----------- --------- ---------- ----------- ----------- Balance, November 30, 1996....... 11,533 66,672 161,030 313,847 (24,834) 450,043 Net income....................... 98,428 98,428 Dividends declared ($.60/share).. (45,525) (45,525) Currency translation a djustments................ (5,815) (5,815) Other adjustments................ 194 194 Shares purchased and retired..... (353) (4,152) (8,532) (102,635) (111,167) Shares issued.................... 90 234 6,952 6,952 Equal exchange................... (1,088) 1,088 -------- ----------- --------- ---------- ----------- ----------- Balance, November 30, 1997....... 10,182 63,842 $159,450 $ 264,309 $ (30,649) $ 393,110 -------- ----------- --------- ---------- ----------- ----------- -------- ----------- --------- ---------- ----------- -----------
- ------------------- See Notes to Consolidated Financial Statements, pages 18-33. McCormick & Company, Incorporated Notes to Consolidated Financial Statements (dollars in thousands except per-share data) 1. Summary of Accounting Policies: Consolidation The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. In the first quarter of fiscal 1995, the Company changed the end of the reporting period for foreign subsidiaries from October 31 to November 30 to provide uniform reporting on a worldwide basis. Accordingly, an additional month of operating results for those subsidiaries is included in the 1995 financial statements. Investments in 20% to 50% owned affiliates are accounted for under the equity method. Intercompany transactions have been eliminated. Certain prior year amounts have been reclassified to conform to the presentation in 1997. Use of Estimates Preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual amounts could differ from these estimates. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity date of three months or less to be cash equivalents. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. Property, Plant and Equipment Property, plant and equipment is stated at cost and depreciated over its estimated useful life using straight-line methods for financial reporting and both accelerated and straight-line methods for tax reporting. Goodwill Goodwill is amortized using the straight-line method over periods up to 40 years. On a periodic basis, the Company estimates the future undiscounted cash flows of the businesses to which goodwill relates in order to ensure that the carrying value of such goodwill has not been impaired. Prepaid Allowances Prepaid allowances arise when the Company prepays sales discounts and marketing allowances to certain customers in connection with multi-year sales contracts. These costs are capitalized and amortized over the lives of the contracts, generally ranging from three to five years. The amounts reported in the Consolidated Balance Sheet are stated at the lower of unamortized cost or management's estimate of the net realizable value of these costs. Research and Development Research and development costs are expensed as incurred. Earnings Per Share Earnings per share have been computed by dividing net income by the weighted average number of common shares outstanding during the period. Stock Compensation The Company follows Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," in accounting for its employee stock options and other stock-based compensation. Under APB No. 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized. The Company has elected to adopt the disclosure provisions only of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." Foreign Currency The functional currency for the majority of the Company's operations outside of the United States is the applicable local currency. The translation from the applicable foreign currencies to the United States dollar is performed for balance sheet accounts using the current exchange rates in effect at the balance sheet date and for revenue and expense accounts using the weighted average exchange rate during the period. The resulting gains or losses are included in the foreign currency translation adjustments account within shareholders' equity. We Flavor Your World Gains or losses resulting from foreign currency transactions and the translation of the financial statements for those operations in a hyperinflationary environment are included in the income statement. The Company periodically enters into foreign exchange contracts to hedge the impact of foreign currency fluctuations on its investments in certain foreign subsidiaries, the impact of foreign currency transactions and the impact of firm foreign currency commitments. The gains and losses on foreign investment hedges, net of income taxes, are included in the foreign currency translation adjustments account within shareholders' equity. The gains and losses on foreign currency transaction hedges are recognized in income and offset the foreign exchange gains and losses on the underlying transactions. Gains and losses of foreign currency firm commitment hedges are deferred and included in the basis of the transactions underlying the commitments. Credit Risk The Company is potentially subjected to concentrations of credit risk with trade accounts receivable, prepaid allowances and forward exchange contracts for foreign currency. Because the Company has a large and diverse customer base with no single customer accounting for a significant percentage of trade accounts receivable and prepaid allowances, there was no material concentration of credit risk in these accounts at November 30, 1997. The Company evaluates the credit worthiness of the counterparties to forward exchange contracts for foreign currency and considers nonperformance credit risk to be remote. Accounting and Disclosure Changes In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 128, "Earnings per Share." This Statement is effective for financial statements issued for periods ending after December 15, 1997. The Statement will have no significant effect on the reported earnings per share for the Company. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which requires that an enterprise report the change in its net assets, by major components and as a single total, during the period from non-owner sources. The FASB also issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products, services, geographic areas and major customers. Both Statements are effective for fiscal years beginning after December 15, 1997. Adoption of these standards will not impact the Company's consolidated financial position, results of operations or cash flows, and any effect, while not yet determined by the Company, will be limited to the presentation of its disclosures. 2. Investments: The Company owns from 30% to 50% of its unconsolidated food products affiliates. Although the Company reports its share of net income from the affiliates, their financial statements are not consolidated with those of the Company. The Company's share of undistributed earnings of the affiliates was $31,379 at November 30, 1997. Summarized year-end information from the financial statements of these companies representing 100% of the businesses follows:
Unconsolidated Affiliates ---------------------------- 1997 1996 1995 -------- -------- -------- Current assets . . . . $154,000 $149,860 $113,486 Noncurrent assets. . . 73,185 79,566 70,670 Current liabilities. . 90,755 96,085 77,229 Noncurrent liabilities 46,503 45,988 42,362 Net sales. . . . . . . 345,429 327,967 297,823 Gross profit . . . . . 131,727 121,469 107,257 Net income . . . . . . 15,720 12,907 3,730
McCormick & Company, Incorporated 3. Financing Arrangements: The Company's outstanding debt is as follows:
1997 1996 -------- -------- Short-term borrowings Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . $ 79,508 $ 59,282 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,805 39,168 --------- --------- $112,313 $ 98,450 ========= ========= Weighted-average interest rate at year end . . . . . . . . . . . 6.92% 6.54% Long-term debt 8.95% note due 2001. . . . . . . . . . . . . . . . . . . . . . . $ 74,596 $ 74,504 9.00% and 9.75% installment notes due through 1999 and 2001. . . 10,341 16,114 5.78% - 7.77% medium-term notes due 2004 to 2006 . . . . . . . . 95,000 95,000 7.63% - 8.12% medium-term notes due 2024 with put option in 2004 55,000 55,000 9.34% pound sterling installment note due through 2001 . . . . . 14,807 17,252 10.00% Canadian dollar bond due 1999 . . . . . . . . . . . . . . 7,023 7,400 3.13% yen note due 1999. . . . . . . . . . . . . . . . . . . . . 902 2,953 9.74% Australian dollar note due 1999. . . . . . . . . . . . . . 8,167 9,792 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,653 13,179 --------- --------- $276,489 $291,194 ========= =========
The Company has available credit facilities with domestic and foreign banks for various purposes. The available credit facilities and the amounts outstanding under each category of facility (and included in debt above) are as follows:
1997 1996 -------------------- -------------------- Total Amount Total Amount Facility Borrowed Facility Borrowed --------- --------- --------- --------- Available credit facilities In support of commercial paper issuance $ 300,000 $ - $ 300,000 $ - For the benefit of foreign subsidiaries 109,935 32,711 90,577 39,168 Other . . . . . . . . . . . . . . . . . 100,000 94 245,000 - --------- --------- --------- --------- $ 509,935 $ 32,805 $ 635,577 $ 39,168 ========= ========= ========= =========
The Company's long-term debt agreements contain various restrictive covenants, including limitations on the payment of cash dividends. Under the most restrictive covenants, $163,729 of retained earnings was available for dividends at November 30, 1997. The holders of the medium-term notes due 2024 have a one-time option to require retirement of these notes during 2004. Maturities of long-term debt during the four years subsequent to November 30, 1998 are as follows:
~~1999 - $28,446 2001 - $ 87,054 2000 - $ 7,959 2002 - $ 362~~
Credit facilities in support of commercial paper issuance require a commitment fee of $225. All other credit facilities require no commitment fee. Credit facilities for other purposes are subject to the availability of funds. At November 30, 1997, the Company had unconditionally guaranteed $12,035 of the debt of unconsolidated affiliates. Interest paid in 1997, 1996 and 1995 was $38,075; $47,330 and $51,641 respectively. We Flavor The World Rental expense under operating leases was $13,630 in 1997; $12,428 in 1996 and $11,616 in 1995. Future annual fixed rental payments for the years ending November 30, are as follows:
~~1998 - $9,872 1999 - $8,449 2000 - $7,572 2001 - $5,774 2002 - $3,655 Thereafter - $8,255~~
The Company has guaranteed the residual value of a leased distribution center at 85% of its original cost. 4. Pension and Profit Sharing Plans: The net periodic cost of the Company's pension and profit sharing plans follows:
1997 1996 1995 --------- --------- --------- Pension plans Defined benefit plans Service cost . . . . . . . . . . . . . . . . . $ 5,473 $ 5,741 $ 5,509 Interest cost on projected benefit obligations 10,700 10,380 9,972 Actual return on plan assets . . . . . . . . . (18,920) (10,284) (14,067) Net amortization and deferral. . . . . . . . . 9,830 1,425 6,904 --------- --------- --------- Net pension cost . . . . . . . . . . . . . . . . 7,083 7,262 8,318 Foreign and other retirement plans . . . . . . . 3,384 3,072 2,957 --------- --------- --------- Total pension expense. . . . . . . . . . . . . . . $ 10,467 $ 10,334 $ 11,275 ========= ========= ========= Profit sharing plan expense. . . . . . . . . . . . $ 4,380 $ 3,350 $ 3,150 ========= ========= =========
Pension Plans The Company has a non-contributory defined benefit plan (the principal plan) covering substantially all United States employees and a non-contributory defined benefit plan (the supplemental plan) providing supplemental retirement benefits to certain officers. The benefits provided by both plans are generally based on the employee's years of service and compensation during the last five years of employment. The Company's funding policy is to comply with federal laws and regulations and to provide the principal plan with assets sufficient to meet future benefit payments. The plan assets for both plans consist principally of equity securities, fixed income securities and short-term money market investments. The principal plan and supplemental plan hold 427,000 and 46,000 shares, respectively, of the Company's common stock at November 30, 1997. The Company also contributed to certain retirement plans of its foreign subsidiaries. McCormick & Company, Incorporated The following table sets forth the principal and supplemental plans' funded status at September 30, the measurement date:
1997 1996 --------- --------- Actuarial present value of vested benefit obligation . . . . $122,872 $117,077 --------- --------- Accumulated benefit obligation . . . . . . . . . . . . . . . $129,083 $123,024 --------- --------- Projected benefit obligations for service rendered to date . $156,169 $146,336 Plan assets at fair value. . . . . . . . . . . . . . . . . . 134,211 117,448 Projected benefit obligations in excess of plan assets . . . 21,958 28,888 Unrecognized net loss .. . . . . . . . . . . . . . . . . . (17,917) (24,074) Unrecognized transition asset and prior service cost . . . . 46 1,352 --------- --------- Pension liability included in the Consolidated Balance Sheet $ 4,087 $ 6,166 ========= ========= 1997 1996 Significant assumptions: Discount rate. . . . . . . . . . . . . . . . . . . . . . . . 7.5% 7.5% Salary scale . . . . . . . . . . . . . . . . . . . . . . . . 4.5% 4.5% Expected return on plan assets . . . . . . . . . . . . . . . 10.0% 10.5%
Profit Sharing Plan The Company makes contributions to the McCormick Profit Sharing Plan in accordance with the Plan's provisions. The Profit Sharing Plan is available to substantially all United States employees. The Profit Sharing Plan assets consist principally of equity securities, fixed income securities and short-term money market investments. The Profit Sharing Plan holds 2,571,000 shares of the Company's stock at November 30, 1997. 5. Other Postretirement Benefits: The net periodic cost of the Company's other postretirement benefits follows:
1997 1996 1995 ------- ------- ------- Other postretirement benefits Service cost . . . . . . . . . . . . . . $1,894 $2,026 $1,829 Interest cost. . . . . . . . . . . . . . 4,294 4,603 4,614 Amortization of prior service cost . . . (75) (75) (111) ------- ------- ------- Total other postretirement benefit expense $6,113 $6,554 $6,332 ======= ======= =======
The Company provides health care and life insurance benefits to eligible retirees having at least 10 years of service. Health care benefits are also extended to eligible dependents of retirees as long as the retiree remains covered. Health care benefits are based on the retiree's age and service at retirement and require other cost-sharing features, such as deductibles and co-insurance. Life insurance protection is non-contributory. Other postretirement benefit plans are generally not funded. We Flavor Your World The following table sets forth the amounts recognized in the Company's Consolidated Balance Sheet as of November 30, the measurement date:
1997 1996 ------- -------- Accumulated other postretirement benefit obligation Retirees. . . . . . . . . . . . . . . . . . . . . . . . . $38,552 $38,006 Fully eligible active participants. . . . . . . . . . . . 2,378 3,150 Other active participants . . . . . . . . . . . . . . . . 20,585 21,138 61,515 62,294 Unrecognized net gain/(loss). . . . . . . . . . . . . . . . 3,456 (496) Unrecognized prior service cost . . . . . . . . . . . . . . 892 967 ------- -------- Accrued other postretirement benefit liability included in the Consolidated Balance Sheet. . . . . . . . . . . . . . $65,863 $62,765 ======= ========
The assumed annual rate of increase in the cost of covered health care benefits is 9.2% for 1998. It is assumed to decrease gradually to 4.5% in the year 2007 and remain at that level thereafter. Increasing this assumed health care cost trend rate by one percentage point in each year would increase the accumulated postretirement benefit obligation at November 30, 1997 by $5,933 and the aggregate of the service and interest cost components of net periodic other postretirement benefit cost for 1997 by $755. The assumed weighted average discount rates were 7.5% for 1997 and 1996. 6. Stock Purchase and Option Plans: The Company has an Employee Stock Purchase Plan (ESPP) enabling substantially all United States employees to purchase the Company's Common Stock Non-Voting at the lower of the stock price on the grant date or the exercise date. Similarly, options were granted for certain foreign-based employees in lieu of their participation in the ESPP. Options granted under both plans have two-year terms and are fully exercisable on the grant date. Under the Company's 1990 and 1997 Stock Option Plans and the McCormick (U.K.) Share Option Schemes, options to purchase shares of the Company's common stock have been or may be granted to employees. The option price for shares granted under these plans is the fair market value on the grant date. Options have five- and ten-year terms and generally become fully exercisable at the end of two and three years of continued employment for the U.S. and U.K. plans, respectively. Pro forma information regarding net income and earnings per share is required by SFAS No. 123 and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following range of assumptions for the Stock Option Plans, McCormick (U.K.) Share Option Schemes and the ESPP (including options to foreign employees):
1997 1996 ---------------- ---------------- Risk-free interest rates 5.9% - 6.7% 5.4% - 6.4% Dividend yields. . . . . 2.0% 2.0% Expected volatility. . . 23.0% 23.0% Expected lives . . . . . 1.6 - 4.6 years 1.6 - 4.6 years
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
1997 1996 ------- ------- ~~Pro forma net income . . . . $94,541 $40,558 Pro forma earnings per share $ 1.25 $ .50~~
The effects of applying SFAS No. 123 on pro forma net income are not indicative of future amounts until the new rules are applied to all outstanding non-vested awards. McCormick & Company, Incorporated A summary of the Company's stock option activity and related information for the years ended November 30 follows:
1997 1996 ------------------------------------ ----------------------------------- Shares Weighted-average Shares Weighted-average (000s) exercise price (000s) exercise price --------------- ------------------ -------------- ------------------ Options outstanding - beginning of year. . . . . . . 2,737 $ 22.71 2,559 $ 22.11 Granted. . . . . . . . . . . . . 1,311 $ 24.25 713 $ 22.35 Exercised. . . . . . . . . . . . (358) $ 21.94 (382) $ 18.38 Forfeited. . . . . . . . . . . . (477) $ 24.91 (153) $ 22.09 ---------------- --------------- Options outstanding - end of year. . . . . . . . . . 3,213 $ 23.11 2,737 $ 22.71 ================ =============== Exercisable - end of year. . . . 1,833 $ 22.73 1,780 $ 22.95 Weighted-average fair value of options granted during the year. $ 4.63 $ 4.56 N/A 1995 ---------------------------------- Shares Weighted-average (000s) exercise price -------------- ----------------- Options outstanding - beginning of year. . . . . . . 2,649 $ 19.92 Granted. . . . . . . . . . . . . 980 $ 22.00 Exercised. . . . . . . . . . . . (787) $ 14.46 Forfeited. . . . . . . . . . . . (283) $ 22.20 --------------- Options outstanding - end of year. . . . . . . . . . 2,559 $ 22.11 =============== Exercisable - end of year. . . . 1,785 $ 22.03 Weighted-average fair value of options granted during the year N/A: Information not applicable as the date of issue for the 1995 option grants precedes the effective date of SFAS No. 123 requirements.
Stock options outstanding at November 30, 1997 were as follows:
Options Outstanding Options Exercisable --------------------------------------------------- -------------------------- Range of Shares Weighted-average Weighted-average Shares Weighted-average exercise price (000s) remaining life in years exercise price (000s) exercise price ------ ----------------------- ---------------- ------- ---------------- $ 4.66 to $22.38 1,183 3.2 $ 21.99 732 $ 21.79 $22.63 to $24.25 2,003 2.5 $ 23.74 1,086 $ 23.32 $24.50 to $26.00 27 4.5 $ 25.31 15 $ 26.00 ------- ------ 3,213 2.8 $ 23.11 1,833 $ 22.73 ======= ====== Under all stock purchase and option plans, there were 6,126,000 and 1,928,000 shares reserved for future grants at November 30, 1997 and 1996, respectively.
We Flavor The World 7. Income Taxes: For financial reporting purposes, sources of income from consolidated continuing operations before income taxes were:
1997 1996 1995 --------- --------- --------- Pretax income United States. . . . . . . . . . . . . . . . . . . . $115,600 $ 59,309 $104,270 International. . . . . . . . . . . . . . . . . . . . 26,706 2,425 28,336 --------- --------- --------- $142,306 $ 61,734 $132,606 ========= ========= ========= Components of income taxes were: Current United States. . . . . . . . . . . . . . . . . . . . $ 24,443 $ 33,503 $ 17,793 State. . . . . . . . . . . . . . . . . . . . . . . . 5,447 8,448 5,177 International. . . . . . . . . . . . . . . . . . . . 3,842 8,288 8,212 --------- --------- --------- Total current. . . . . . . . . . . . . . . . . . . 33,732 50,239 31,182 Deferred United States. . . . . . . . . . . . . . . . . . . . 10,709 (20,036) 13,891 State. . . . . . . . . . . . . . . . . . . . . . . . 2,325 (2,822) 2,183 International. . . . . . . . . . . . . . . . . . . . 5,887 (3,510) 610 --------- --------- --------- Total deferred . . . . . . . . . . . . . . . . . . 18,921 (26,368) 16,684 --------- --------- --------- $ 52,653 $ 23,871 $ 47,866 ========= ========= ========= Tax benefits allocated directly to equity components are as follows: Relating to employee stock options . . . . . . . . . . $ (123) $ (118) $ (439)
Differences between income taxes computed at the United States federal statutory rate and actual income taxes are as follows:
1997 1996 1995 ------------------ ------------------ ------------------ Amount Percent Amount Percent Amount Percent -------- -------- -------- -------- -------- -------- Tax at United States statutory rate . $49,807 35.0% $21,607 35.0% $46,412 35.0% State income taxes, net of United States benefits . . . . . 6,105 4.3 2,648 4.3 5,689 4.3 Higher/(lower) effective income taxes on earnings in other countries . 382 .3 3,929 6.4 (423) (.3) General business and other tax credits. . . . . . . . (3,663) (2.6) (2,674) (4.3) (3,553) (2.7) Amended prior year tax return . . . . - - (3,938) (6.4) - - Other items . . . . . . . . . . . . . 22 - 2,299 3.7 (259) (.2) -------- -------- -------- -------- -------- -------- Income tax expense. . . . . . . . . . $52,653 37.0% $23,871 38.7% $47,866 36.1% ======== ======== ======== ======== ======== ========
McCormick & Company, Incorporated The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities consist of the following:
1997 1996 --------- --------- Current deferred income tax assets Restructuring liability. . . . . . . . . . . . . $ 1,718 $ 13,183 Employee benefits. . . . . . . . . . . . . . . . 6,629 7,839 State income tax . . . . . . . . . . . . . . . . 3,392 5,677 Accrued liabilities. . . . . . . . . . . . . . . 2,900 3,807 Inventory. . . . . . . . . . . . . . . . . . . . 3,116 2,951 Bad debt reserve . . . . . . . . . . . . . . . . 1,078 2,320 Prepaid and other assets . . . . . . . . . . . . (2,590) (2,214) Other. . . . . . . . . . . . . . . . . . . . . . (2,297) 199 --------- --------- Total current deferred income tax assets . . . . . $ 13,946 $ 33,762 ========= ========= Noncurrent deferred income tax assets Employee benefits. . . . . . . . . . . . . . . . $ 24,884 $ 27,744 Property, plant and equipment. . . . . . . . . . (27,213) (26,699) Accrued liabilities. . . . . . . . . . . . . . . 7,875 5,516 Intangible assets. . . . . . . . . . . . . . . . (3,376) (2,473) Prepaid allowances . . . . . . . . . . . . . . . 1,601 1,649 Other. . . . . . . . . . . . . . . . . . . . . . 312 350 --------- --------- Total noncurrent deferred income tax assets. . . . $ 4,083 $ 6,087 ========= ========= Noncurrent deferred income tax (liabilities) Property, plant and equipment. . . . . . . . . . $ (2,038) $ (4,937) --------- --------- Total noncurrent deferred income tax (liabilities) $ (2,038) $ (4,937) ========= =========
In addition to the deferred tax assets shown in the table, the Company also has certain tax credit carryforwards of $2,830 in 1997 and $4,888 in 1996. These tax credit carryforwards have been fully reserved due to the restrictive provisions for their use in offsetting future taxes. Deferred tax assets are primarily in the United States. The Company has a history of having taxable income and anticipates future taxable income to realize these assets. United States income taxes are not provided for unremitted earnings of international subsidiaries and affiliates. The Company's intention is to reinvest these earnings permanently or to repatriate the earnings only when it is tax effective to do so. Accordingly, the Company believes that any United States tax on repatriated earnings would be substantially offset by United States foreign tax credits. Unremitted earnings of such entities were $107,992 at November 30, 1997. Income taxes paid in 1997, 1996 and 1995 were $25,800; $44,875 and $38,214 respectively. We Flavor Your World 8. Capital Stocks: Holders of Common Stock have full voting rights except that (1) the voting rights of persons who are deemed to own beneficially 10% or more of the outstanding shares of voting Common Stock are limited to 10% of the votes entitled to be cast by all holders of shares of Common Stock regardless of how many shares in excess of 10% are held by such person; (2) the Company has the right to redeem any or all shares of stock owned by such person unless such person acquires more than 90% of the outstanding shares of each class of the Company's common stock; and (3) at such time as such person controls more than 50% of the vote entitled to be cast by the holders of outstanding shares of voting Common Stock, automatically, on a share-for-share basis, all shares of Common Stock Non-Voting will convert into shares of Common Stock. Holders of Common Stock Non-Voting 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. 9. Fair Value and Financial Instruments: Cash and cash equivalents, trade receivables, short-term borrowings, accounts payable and accrued liabilities: The amounts reported in the Consolidated Balance Sheet approximate fair value. Investments: Investments, consisting principally of investments in unconsolidated affiliates, are not readily marketable. Therefore, it is not practicable to estimate their fair value. Long-term debt: The fair value of long-term debt, including current portion, based on a discounted cash flow analysis using the Company's current incremental borrowing rate for debt of similar maturities is as follows:
1997 1996 ------------------- ------------------- Fair Carrying Fair Carrying Value Value Value Value -------- --------- -------- --------- ~~Long-term debt $308,277 $ 285,478 $312,697 $ 301,671~~
Forward exchange contracts for foreign currency: Forward exchange contracts at November 30, 1997 are summarized as follows:
Nominal Fair Value Value -------- ------- ~~Currency sold Pound sterling $ 1,849 $ (26) Deutsche mark. 1,425 (71) Italian lira . 234 4~~
All contracts outstanding hedge foreign currency commitments and, accordingly, have no carrying amount on the balance sheet. The loss explicitly deferred is $119 and is expected to be realized in 1998 as these transactions are realized. The fair value of forward exchange contracts is estimated using quoted market prices for comparable instruments. McCormick & Company, Incorporated 10. Business Restructuring and Discontinued Operations: Business Restructuring In the third quarter of 1996, the Company began implementation of a restructuring plan and recorded a restructuring charge of $58,095. This charge reduced net income by $39,582 or $.49 per share. In addition, there were additional charges directly related to the restructuring plan which could not be accrued in 1996 but will be expensed as the plan is implemented. Under the restructuring plan, the Company has closed the Brooklyn, New York packaging plant, converted from a direct sales force to a broker sales force for certain regions in the U.S., exited from certain minor non-core product lines, closed its manufacturing facility in Switzerland and moved that production to its U.K. facility, sold the Minipack business and sold Giza National Dehydration Company of Egypt. In the fourth quarter of 1994, the Company recorded a charge of $70,445 for restructuring its business operations. Except for the realignment of some of our overseas operations, this restructuring plan is complete. In the third quarter of 1997, the Company reevaluated its restructuring plans. Most of the actions under these plans are completed or near completion and have resulted in losses being less than originally anticipated. In addition, an agreement in principle to dispose of an overseas food brokerage and distribution business with 6% of consolidated net sales was not consummated. As a result of these developments, the Company recognized a restructuring credit of $9,493. Concurrent with the reevaluation of restructuring plans, the Company initiated plans to streamline the food brokerage and distribution business and close the Freehold, New Jersey packaging plant, resulting in a $5,734 restructuring charge. Charges related to these initiatives include severance and personnel costs of $2,516 and a $3,218 writedown of assets to net realizable value and will require net cash outflows of approximately $3,365. The credit for the restructuring reevaluation, the charge for the new initiatives and charges directly related to the restructuring plan which could not be accrued in 1996 resulted in a net restructuring credit of $3,227 ($2,033 after tax) in 1997. As of November 30, 1997, the restructuring liabilities are as follows: $4,274 for severance and personnel costs and $1,287 for other exit costs. In addition, approximately $1,711 of additional charges remain to be expensed during the implementation, primarily costs to move equipment and personnel. The Company expects to have all restructuring programs completed in 1998. Discontinued Operations On August 29, 1996, the Company sold substantially all the assets of Gilroy Foods, Incorporated (GFI) and Gilroy Energy Company, Inc. (GEC) to ConAgra, Inc. and Calpine Corporation, respectively, for $263.3 million in total. Based on the settlement of terms related to assumptions used to estimate the gain or loss from the disposals of GFI and GEC, the Company recognized income from discontinued operations, net of income taxes of $1,013 in 1997. In 1996, an after tax loss of $291 was included in the caption, "Income from discontinued operations, net of income taxes" in the Consolidated Income Statement. The operating results of GFI and GEC have been reclassified for all required periods on the Consolidated Income Statement to the caption "Income from discontinued operations, net of income taxes." This caption includes interest expense based on the debt specifically associated with GEC and an allocation of interest to GFI assuming a debt to capital ratio similar to the Company's. Income taxes have also been allocated based on the statutory tax rates applicable to GFI and GEC. The income and expense disclosures in Notes to Consolidated Financial Statements exclude discontinued operations. Sales, interest expense and income taxes applicable to discontinued operations are as follows:
1996 1995 ---------- ----------- ~~Net sales ............. $129,373 $167,608 Interest expense....... 11,173 15,972 Income taxes........... 3,841 5,834~~
The Company signed a three year non-compete agreement with Calpine Corporation. Under this agreement, McCormick received payments of $8,000 in 1997 and $4,500 in 1996, which are included in "Other (income) expense - net" in the Consolidated Income Statement. We Flavor The World 11. Business Segments and Geographic Areas: Business Segments The Company operates in two business segments, Food Products and Packaging Products. The Food Products segment manufactures, markets and distributes spices, seasonings, flavorings and other specialty food products and sells these products to the consumer food market, the foodservice market and to industrial food processors throughout the world. The Food Products segment represents the majority of the Company and, accordingly, all corporate items and eliminations have been included in this segment. The Packaging Products segment manufactures and markets plastic packaging products for the food, cosmetic and health care industry, predominately in the United States.
Food Packaging Products Products Consolidated ---------- --------- ------------ 1997: Net sales. . . . . . . . . . . $1,595,142 $ 205,824 $ 1,800,966 Operating income . . . . . . . 150,415 20,428 170,843 Identifiable assets. . . . . . 1,133,094 123,138 1,256,232 Capital expenditures . . . . . 34,121 9,735 43,856 Depreciation and amortization. 38,587 10,757 49,344 1996: Net sales. . . . . . . . . . . $1,532,296 $ 200,210 $ 1,732,506 Operating income (loss)(1) . . 99,169 (5,878) 93,291 Identifiable assets. . . . . . 1,196,514 130,095 1,326,609 Capital expenditures . . . . . 63,526 11,128 74,654 Depreciation and amortization. 51,758 12,030 63,788 1995: Net sales. . . . . . . . . . . $1,501,763 $ 189,323 $ 1,691,086 Operating income . . . . . . . 153,287 19,309 172,596 Identifiable assets. . . . . . 1,473,006 141,335 1,614,341 Capital expenditures . . . . . 70,357 11,783 82,140 Depreciation and amortization. 51,083 12,615 63,698 (1) Includes restructuring charges of $41,085 for Food Products and $17,010 for Packaging Products.
Packaging net sales include sales to the Food Products segment of $25,960 in 1997; $30,186 in 1996 and $34,527 in 1995. McCormick & Company, Incorporated
Geographic Areas North Other America Europe Countries Total ---------- --------- ----------- ---------- 1997: Net sales. . . . . . . . . . . . . . . . . . $1,346,905 $336,865 $ 117,196 $1,800,966 Net income -- continuing operations. . . . . 79,521 12,325 5,569 97,415 Assets . . . . . . . . . . . . . . . . . . . 941,980 237,759 76,493 1,256,232 1996: Net sales. . . . . . . . . . . . . . . . . . $1,311,292 $325,683 $ 95,531 $1,732,506 Net income (loss) -- continuing operations(1). . . . . . . . . . . . . . . 52,197 84 (8,806) 43,475 Assets . . . . . . . . . . . . . . . . . . . 984,676 254,576 87,357 1,326,609 1995: Net sales. . . . . . . . . . . . . . . . . . $1,276,066 $325,019 $ 90,001 $1,691,086 Net income -- continuing operations. . . . . 74,090 10,016 2,702 86,808 Assets . . . . . . . . . . . . . . . . . . . 1,332,342 223,718 58,281 1,614,341 (1) Includes net restructuring charges of $19,614 for North America, $10,195 for Europe and $9,773 for Other Countries.
We Flavor Your World 12. Supplemental Financial Statement Data:
1997 1996 --------- --------- Inventories: Finished products and work-in-process. $ 136,650 $ 125,849 Raw materials and supplies . . . . . . 115,434 119,240 ---------- ---------- Inventories. . . . . . . . . . . . . $ 252,084 $ 245,089 ========== ========== Property, plant and equipment: Land and improvements. . . . . . . . . $ 29,288 $ 27,260 Buildings. . . . . . . . . . . . . . . 192,777 179,599 Machinery and equipment. . . . . . . . 445,938 432,525 Construction in progress . . . . . . . 25,513 54,410 Accumulated depreciation . . . . . . . (313,501) (293,400) ---------- ---------- Property, plant and equipment -- net. . . . . . . . . . . . . . . . $ 380,015 $ 400,394 ========== ========== Goodwill: Cost . . . . . . . . . . . . . . . . . $ 205,526 $ 211,035 Accumulated amortization . . . . . . . (47,564) (45,969) ---------- ---------- Goodwill -- net. . . . . . . . . . . $ 157,962 $ 165,066 ========== ========== Other accrued liabilities: Payroll and employee benefits. . . . . $ 48,544 $ 42,031 Restructuring. . . . . . . . . . . . . 5,561 42,332 Sales allowances . . . . . . . . . . . 46,029 37,036 Income taxes . . . . . . . . . . . . . 22,092 8,734 Other. . . . . . . . . . . . . . . . . 104,391 106,658 ---------- ---------- Other accrued liabilities. . . . . . $ 226,617 $ 236,791 ========== ========== 1997 1996 1995 --------- --------- -------- Income statement: Depreciation . . . . . . . . . . . . . $ 43,856 $ 49,222 $45,064 Research and development . . . . . . . 16,077 12,216 12,015 Average shares outstanding (000s). . . . 75,658 80,641 81,181
McCormick & Company, Incorporated 13. Quarterly Data (Unaudited):
1997 Quarters ------------------------------------------------------ 1st 2nd 3rd 4th Year -------- -------- -------- -------- ---------- Net sales. . . . . . . . . . . . . . . . . . $407,402 $413,720 $422,870 $556,974 $1,800,966 Cost of goods sold . . . . . . . . . . . . . 270,685 279,257 284,326 338,060 1,172,328 --------- --------- --------- --------- ----------- Gross profit . . . . . . . . . . . . . . . . 136,717 134,463 138,544 218,914 628,638 Selling, general and administrative expense. 108,005 105,690 106,181 141,146 461,022 Restructuring charge (credit). . . . . . . . 259 127 (3,726) 113 (3,227) --------- --------- --------- --------- ----------- Operating income . . . . . . . . . . . . . . 28,453 28,646 36,089 77,655 170,843 Interest expense . . . . . . . . . . . . . . 8,501 9,183 9,367 9,281 36,332 Other (income) expense -- net. . . . . . . . (1,528) (1,782) (1,090) (3,395) (7,795) --------- --------- --------- --------- ----------- Income from consolidated continuing operations before income taxes . . . . . . 21,480 21,245 27,812 71,769 142,306 Income taxes . . . . . . . . . . . . . . . . 7,948 7,860 10,930 25,915 52,653 --------- --------- --------- --------- ----------- Net income from consolidated continuing operations . . . . . . . . . . . . . . . . 13,532 13,385 16,882 45,854 89,653 Income from unconsolidated operations. . . . 1,683 1,426 2,317 2,336 7,762 --------- --------- --------- --------- ----------- Net income from continuing operations. . . . 15,215 14,811 19,199 48,190 97,415 Income from discontinued operations, net of income taxes . . . . . . . . . . . . . . . -- -- 1,013 -- 1,013 --------- --------- --------- --------- ----------- Net income . . . . . . . . . . . . . . . . . $ 15,215 $ 14,811 $ 20,212 $ 48,190 $ 98,428 ========= ========= ========= ========= =========== Earnings per share Continuing operations. . . . . . . . . . . . $ .20 $ .20 $ .26 $ .65 $ 1.29 Discontinued operations. . . . . . . . . . . -- -- .01 -- .01 --------- --------- --------- --------- ----------- Total earnings per share . . . . . . . . . . $ .20 $ .20 $ .27 $ .65 $ 1.30 ========= ========= ========= ========= =========== Average shares outstanding (000s). . . . . . 77,239 75,761 75,117 74,397 75,658
We Flavor The World
1996 Quarters ------------------------------------------------------ 1st 2nd 3rd 4th Year -------- -------- -------- -------- ---------- Net sales . . . . . . . . . . . . . . . . . . . $395,799 $393,828 $405,451 $537,428 $1,732,506 Cost of goods sold. . . . . . . . . . . . . . . 262,507 273,333 269,115 323,077 1,128,032 --------- -------- --------- --------- ----------- Gross profit. . . . . . . . . . . . . . . . . . 133,292 120,495 136,336 214,351 604,474 Selling, general and administrative expense . . 110,828 98,563 103,184 140,513 453,088 Restructuring charge. . . . . . . . . . . . . . -- -- 57,538 557 58,095 --------- -------- --------- --------- ----------- Operating income (loss) . . . . . . . . . . . . 22,464 21,932 (24,386) 73,281 93,291 Interest expense. . . . . . . . . . . . . . . . 8,773 7,952 8,082 9,004 33,811 Other (income) expense -- net . . . . . . . . . (1,186) 818 524 (2,410) (2,254) --------- -------- --------- --------- ----------- Income (loss) from consolidated continuing operations before income taxes. . . . . . . . 14,877 13,162 (32,992) 66,687 61,734 Income taxes. . . . . . . . . . . . . . . . . . 5,361 4,695 (9,871) 23,686 23,871 --------- -------- --------- --------- ----------- Net income (loss) from consolidated continuing operations. . . . . . . . . . . . . . . . . . 9,516 8,467 (23,121) 43,001 37,863 Income from unconsolidated operations . . . . . 296 929 1,557 2,830 5,612 --------- -------- --------- --------- ----------- Net income (loss) from continuing operations. . 9,812 9,396 (21,564) 45,831 43,475 Income from discontinued operations, net of income taxes. . . . . . . . . . . . . . . . . (462) 1,599 5,112 -- 6,249 --------- -------- --------- --------- ----------- Net income (loss) before extraordinary item . . 9,350 10,995 (16,452) 45,831 49,724 Extraordinary loss from early extinguishment of debt, net of income tax benefit. . . . . . -- -- (7,806) -- (7,806) --------- -------- --------- --------- ----------- Net income (loss) . . . . . . . . . . . . . . . $ 9,350 $ 10,995 $(24,258) $ 45,831 $ 41,918 ========= ======== ========= ========= =========== Earnings (loss) per share Continuing operations . . . . . . . . . . . . . $ .12 $ .12 $ (.26) $ .58 $ .54 Discontinued operations . . . . . . . . . . . . -- .02 .06 -- .08 Extraordinary loss from early extinguishment of debt . . . . . . . . . . . . . . . . . . . -- -- (.10) -- (.10) Total earnings (loss) per share . . . . . . . . $ .12 $ .14 $ (.30) $ .58 $ .52 --------- -------- --------- --------- ----------- Average shares outstanding (000s) . . . . . . . 81,255 81,305 80,982 79,339 80,641 ========= ======== ========= ========= ===========
McCormick & Company, Incorporated Management's Responsibility for Financial Statements The consolidated financial statements of McCormick & Company, Incorporated and subsidiaries have been prepared by the Company in accordance with generally accepted accounting principles. Management has primary responsibility for the financial information presented and has applied judgment to the information available, made estimates and given due consideration to materiality in preparing the financial information in this annual report. The financial statements, in the opinion of management, present fairly the consolidated financial position, results of operations and cash flows of the Company and subsidiaries for the stated dates and periods in conformity with generally accepted accounting principles. The financial statements in this report have been audited by the Company's independent auditors, Ernst & Young LLP. The independent auditors review and evaluate control systems and perform such tests of the accounting information and records as they consider necessary to reach their opinion on the Company's consolidated financial statements. In addition, McCormick's internal audit resources perform audits of accounting records, review accounting systems and internal controls, and recommend improvements when appropriate. The Audit Committee of the Board of Directors is composed of outside directors. The committee meets periodically with the internal auditors, with members of management and with the independent auditors in order to review annual audit plans, financial information and the Company's internal accounting and management controls. The Company believes that it maintains accounting systems and related controls, and communicates policies and procedures, which provide reasonable assurance that the financial records are reliable, while providing appropriate information for management of the business and maintaining accountability for assets. /s/ Robert G. Davey ---------------------- Robert G. Davey President & Chief Executive Officer /s/ Robert G. Davey ---------------------- Robert G. Davey Executive Vice President & Chief Financial Officer /s/ J. Allan Anderson ------------------------ J. Allan Anderson Vice President & Controller, Chief Accounting Officer Report of Independent Auditors To the Shareholders McCormick & Company, Incorporated We have audited the accompanying consolidated balance sheets of McCormick & Company, Incorporated and subsidiaries as of November 30, 1997 and 1996 and the related consolidated statements of income, cash flows and shareholders' equity for each of the three years in the period ended November 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We have conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of McCormick & Company, Incorporated and subsidiaries at November 30, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended November 30, 1997 in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP - ------------------------- Ernst & Young LLP Baltimore, Maryland January 15, 1998 We Flavor Your World Management's Discussion and Analysis For 1997, the Company reported net income of $98.4 million or $1.30 per share compared to $41.9 million or $.52 per share last year. During 1997, the Company recorded adjustments relating to a favorable revaluation of reserves for restructuring programs and discontinued operations and unfavorable adjustments at its Venezuelan operation, principally related to the correction of a prior period currency translation error. During 1996, the Company recorded a business restructuring, completed the sale of both Gilroy Foods, Incorporated (GFI) and Gilroy Energy Company, Inc. (GEC) and recorded a loss on prepayment of debt associated with GEC. Excluding these transactions, net income on a comparable basis was $98.4 million or $1.30 per share compared to $83.1 million or $1.03 per share last year. Net Sales (In Billions) ----------------------- 1993. . . . . . . . . . . . . $1.4 1994. . . . . . . . . . . . . $1.53 1995. . . . . . . . . . . . . $1.70 1996. . . . . . . . . . . . . $1.73 1997. . . . . . . . . . . . . $1.80

Results of Operations 1997 compared to 1996 Sales from operations increased 4.0% to $1.8 billion, principally due to a combination of price and mix changes and unit volume increases. Sales improvement was experienced in all operating groups except the consumer businesses within the Americas and European Zones. While underlying sales patterns in the grocery store have recently shown some improvement, the U.S. consumer business experienced volume decreases, partially offset by the combined favorable effect of price and mix changes. Our industrial and foodservice businesses within the U.S. experienced strong sales growth, mainly due to volume increases. Sales increases for the European Zone were the result of volume gains and favorable currency exchange translations primarily within the industrial and foodservice businesses. Volume and price increases continued to fuel sales growth in the Asia/Pacific Zone. The Packaging Group experienced increased sales, primarily due to a favorable combination of price and mix changes. Sales of unconsolidated operations increased 5.3% in 1997, due principally to the sales from our Mexican joint venture and Signature Brands, which is now operating the Cake Mate business. Foreign exchange translations, primarily due to a weaker Japanese yen, had a negative effect on unconsolidated sales. Operating income as a percentage of net sales, excluding restructuring, increased to 9.3% in 1997 from 8.7% in 1996. Gross profit as a percentage of net sales remained at the same level in 1997 as 1996. Excluding the impact of adjustments at the Company's Venezuelan operation, gross profit as a percentage of net sales increased to 35.1% in 1997 from 34.9% in 1996. Gross margin percentages increased in 1997 in our U.S. consumer, industrial and packaging businesses as compared to 1996. These were partially offset by slightly reduced gross margin percentages in our European and Asia/Pacific businesses. Gross margin improvements in the U.S. consumer business were driven by continuing product rationalization efforts and a change in mix to higher margin products. In the U.S. industrial and packaging businesses, gross margins improved during 1997 due to stronger sales of our higher margin, value-added products. Improvement in the packaging business was also partially due to improved operating efficiencies in 1997 and a write-off of packaging inventory for obsolete products in 1996. Selling, general and administrative expenses were higher in 1997 than 1996 on a dollar basis, but were down slightly as a percentage of sales. The dollar increase is mainly due to earnings-based employee compensation costs, additional resources to support our R&D program and increased information systems spending to allow the Company's systems to cope with the change to the year 2000. These increases were partially offset by decreases in promotional and advertising spending. Promotional spending is down due to the effect of lower U.S. consumer sales on volume-based promotions combined with a shift to promotional programs which encourage more efficient spending activities. Advertising spending, while lower in 1997 than 1996 primarily because of timing issues, is still higher than historical levels as the Company continues its focus on brand recognition. McCormick & Company, Incorporated Interest expense increased $2.5 million in 1997 as compared to 1996, primarily as a result of increased borrowing to fund the Company's stock buyback program. Interest expense in 1996 excluded $11.2 million, which was reclassified to discontinued operations on the Consolidated Income Statement. Total interest expense decreased $8.7 million in 1997 compared to 1996. The significant decrease in total interest is primarily due to reduced borrowing levels as a result of the sales of GFI and GEC in 1996. See Notes to Consolidated Financial Statements for amounts and methods of allocations used. Other (income) expense -- net increased $5.5 million in 1997 as compared to 1996. This increase is primarily due to income from a non-compete agreement relating to the sale of GEC, which totalled $8.0 million in 1997 versus a total of $4.5 million in 1996.
Sales ------------------------------------------------------- 1997 1996 1995 1997 1996 1995 ----------------------------- ------------------------ (in millions) (percentage increase) Americas Consumer . . . . . . . . . . . . $ 596.4 $ 621.5 $ 605.4 | (4.0)% 2.7% 3.0% Industrial & foodservice . . . . 601.2 549.7 547.4 | 9.4 0.4 4.7 Europe | Consumer . . . . . . . . . . . . 221.2 223.3 228.1 | (1.0) (2.1) 22.6 Industrial & foodservice . . . . 117.8 97.7 94.3 | 20.5 3.6 69.6 Asia/Pacific | Consumer . . . . . . . . . . . . 43.2 36.2 29.4 | 19.6 22.9 119.0 Industrial & foodservice . . . . 41.3 34.1 31.7 | 21.3 7.3 42.5 Packaging. . . . . . . . . . . . . 179.9 170.0 154.8 | 5.8 9.8 9.2 | Total. . . . . . . . . . . . . . $1,801.0 $1,732.5 $1,691.1 | 4.0% 2.4% 10.6%

Sales Increase Analysis 1997 1996 1995 ---- ---- ---- Volume change . . . . . . . 2.6% 2.6% 4.6% Price and mix change. . . . 1.4 4.8 3.2 Foreign currency change . . 0.4 (0.8) 0.3 Other changes(1). . . . . . (0.4) (4.2) 2.5 Total change from continuing operations. 4.0% 2.4% 10.6% (1) Other changes include the disposal of businesses which are not accounted for as discontinued operations, business acquisitions and the effect of the 1995 change in reporting period for foreign subsidiaries.
The Company recorded income tax expense on net income from continuing operations at an effective rate of 37.0% in 1997 as compared to a rate of 38.7% in 1996. Excluding the effects of the restructuring, the Company's effective tax rate was approximately 35.5% for 1996. The effective tax rate increased in 1997 due to the favorable effect in 1996 of refunds of certain U.S. tax credits from prior years. In reclassifying the Consolidated Income Statement for discontinued operations, income taxes were allocated to discontinued operations. See Notes to Consolidated Financial Statements for the amounts and methods of allocation used. Income from unconsolidated operations improved in 1997 as compared to 1996 mainly due to improved results of our Mexican joint venture. We Flavor The World The raw materials most important to the Company are onion, garlic and capsicums, which generally originate in the United States, and black pepper, cinnamon and vanilla beans, from overseas sources. Although the price of black pepper rose significantly in 1997 due to cyclical events in the worldwide commodity markets, the Company did not experience a materially adverse impact on earnings. While future movements of commodity costs are uncertain, a variety of programs, including periodic commodity purchases and customer price adjustments, help the Company address commodity cost fluctuations. Results of Operations 1996 compared to 1995 Sales from continuing operations increased 2.4% to $1.7 billion. The sales comparison is impacted by a number of non-recurring factors. First, in 1995, the Company changed the year-end reporting period for foreign subsidiaries from October 31 to November 30 to provide uniform reporting worldwide, which had the effect of an additional month of sales for the foreign units in 1995. Also in 1995, the Company sold its frozen food business in the third quarter. Thus, seven months' sales for this divested business are included in 1995 sales. In 1996, the Cake Mate brand was transferred to a joint venture to form Signature Brands, the sales of which are no longer accounted for in the Company's consolidated results. These changes had the effect of reducing sales by 4.2% versus 1995. On a comparable basis, after adjusting for these factors, sales increased 6.6%. Sales were up due to both volume and price increases, partially offset by unfavorable foreign exchange translations. Consumer growth in the Americas Zone was due to price increases and volume gains in a number of heavily promoted product lines. Sales increases for the European Zone were masked by the change in fiscal year mentioned above and unfavorable currency exchange translations. Sales continue to grow strongly in the Asia/Pacific Zone as we expand into new markets and introduce new products. Sales of unconsolidated operations increased 10.1% in 1996 due principally to the sales from Signature Brands, a new joint venture formed in 1996. Foreign exchange translations, primarily due to a weaker Japanese yen and Mexican peso, had a negative effect on unconsolidated sales. Operating income, excluding restructuring, as a percentage of net sales decreased from 10.0% in 1995 to 8.7% in 1996. Gross profit as a percentage of sales increased from 34.5% in 1995 to 34.9% in 1996. Gross margin percentages increased in 1996 in both our U.S. consumer and industrial businesses as compared to 1995. These were partially offset by a slightly reduced gross margin percentage in our European business and a more significant reduction in our U.S. packaging business. In the U.S. consumer business, gross margins improved in 1996 due to stronger sales in our higher margin core businesses, particularly in the second half of the year. The decreased gross margin percentage in packaging products was due to competitive pricing pressures, a write-off of inventory for products that had been discontinued and manufacturing inefficiencies. Selling, general and administrative expenses were higher in 1996 than 1995 on both a dollar basis and as a percentage of sales. The increase was mainly due to additional advertising and promotion spending as the Company continued to market the McCormick brand name more aggressively, the adjustment of certain employee benefit accruals in both years and increased information systems spending to allow the Company's systems to cope with the change to the year 2000. Interest expense decreased $5.5 million in 1996 as compared to 1995. This decrease was due to both declines in borrowing levels and lower borrowing rates. In reclassifying the Consolidated Income Statement for discontinued operations, interest expense was allocated to discontinued operations. See Notes to Consolidated Financial Statements for the amounts and methods of allocation used. Other (income) expense -- net includes $4.5 million of income from the non-compete agreement relating to the GEC sale. McCormick & Company, Incorporated
Earnings Per Share -- Continuing Operations (after restructuring) ~~1993 $1.01 1994 $0.52 1995 $1.07 1996 $0.54 1997 $1.29~~
The Company recorded income tax expense on net income from continuing operations at an effective rate of 38.7% in 1996 as compared to a rate of 36.1% in 1995. The increased rate was due to certain restructuring charges which were not tax deductible and the mix of tax rates from differing tax jurisdictions. Excluding the effects of the restructuring, the Company's effective tax rate is approximately 35.5% for 1996. This tax rate was lower in 1996 than what can be expected in the future due to the favorable effect of refunds of certain U.S. tax credits from prior years. In reclassifying the Consolidated Income Statement for discontinued operations, income taxes were allocated to discontinued operations. See Notes to Consolidated Financial Statements for the amounts and methods of allocation used. Deferred tax liabilities decreased significantly in 1996 primarily due to deferred tax liabilities of GEC which was sold, causing these taxes to become payable in 1996. The remaining deferred tax assets were primarily in the United States. The Company has a history of having United States taxable income and anticipates future taxable income to realize these assets. Income from unconsolidated operations improved in 1996 as compared to 1995 mainly due to improved results of our Mexican joint venture and the results of the Company's new joint venture, Signature Brands. In the first quarter of fiscal 1995, the Company changed the end of the reporting period for foreign subsidiaries from October 31 to November 30 to provide uniform reporting on a worldwide basis. Accordingly, an additional month of operating results for those subsidiaries was included in the first quarter 1995 results, which increased net income by $1.4 million. Business Restructuring During the past several years, management has reassessed the global strategic direction and focus of the Company. It conducted a portfolio review of its businesses with the intent to increase focus on core businesses and improve its cost structure. As a result of this review, the Company began implementation of a restructuring plan and recorded a restructuring charge of $58.1 million in 1996. This charge reduced net income by $39.6 million or $.49 per share. In addition, there were additional charges directly related to the restructuring plan which could not be accrued in 1996, but will be expensed as the plan is implemented. Under the restructuring plan, the Company closed the Brooklyn, New York packaging plant, converted from a direct sales force to a broker sales force for certain regions in the U.S., exited from certain minor non-core product lines, closed its manufacturing facility in Switzerland and moved that production to its U.K. facility, sold the Minipack business, and sold Giza National Dehydration Company of Egypt. In the fourth quarter of 1994, the Company recorded a charge of $70.4 million for restructuring its business operations. Except for the realignment of some of our overseas operations, this restructuring plan is complete. In the third quarter of 1997, the Company reevaluated its restructuring plans. Most of the actions under these plans have been completed or are near completion and have resulted in losses being less than originally anticipated. In addition, an agreement in principle to dispose of an overseas food brokerage and distribution business with 6% of consolidated net sales was not consummated. As a result of these developments, the Company recognized a restructuring credit of $9.5 million. Concurrent with the reevaluation of restructuring plans, the Company initiated plans to streamline the food brokerage and distribution business and close the Freehold, New Jersey packaging plant. These actions resulted in a $5.7 million restructuring charge. Charges related to these initiatives include severance and personnel costs of $2.5 million and a $3.2 million writedown of assets to net realizable value and will require net cash outflows of approximately $3.4 million. The credit for the restructuring reevaluation, the charge for the new initiatives and charges directly related to the restructuring plan which could not be accrued in 1996 resulted in a net restructuring credit of $3.2 million ($2.0 million after tax) in 1997. We Flavor Your World The restructuring liability remaining at November 30, 1997 was $4.3 million for severance and personnel costs and $1.3 million for other exit costs. In addition, approximately $1.7 million of additional charges remain to be expensed during the implementation, primarily costs to move equipment and personnel. The Company expects to have all restructuring programs completed in 1998. Discontinued Operations On August 29, 1996, the Company sold substantially all the assets of GFI and GEC for $263.3 million. Based on the settlement of terms related to assumptions used to estimate the gain or loss from the disposals of GFI and GEC, the Company recognized income from discontinued operations, net of income taxes of $1.0 million in 1997. In 1996, a $0.3 million after tax loss was included in the caption, "Income from discontinued operations, net of income taxes" in the Consolidated Income Statement. The operating results of GFI and GEC have been reclassified on the Consolidated Income Statement to the caption, "Income from discontinued operations, net of income taxes," for all required periods. The sale of GEC necessitated prepayment of the 11.68% non-recourse installment note. The prepayment resulted in an extraordinary net loss of $7.8 million in 1996. Foreign Currency Management The Company is subject to foreign currency translation risks at all of its subsidiaries and affiliates located outside the United States, principally in the United Kingdom, Canada, Australia, Mexico and China. Increases or decreases in the value of the applicable foreign currency relative to the U.S. dollar can increase or decrease the reported net assets of foreign subsidiaries and reported net investments in foreign affiliates. Management periodically enters into hedge contracts to further reduce translation exposure. At year end, the Company did not have any hedges in place to cover net asset exposures. Due to the economic situation in Mexico, the Company considers Mexico highly inflationary for accounting purposes. Beginning in 1997, all translation gains or losses for our Mexican operations are recorded in the income statement rather than the translation component of equity. The Company is also exposed to foreign exchange risk for transactions that are denominated in other than the applicable local currency. The Company assesses its risk to foreign currency fluctuation along with other business risks and opportunities that are caused by fluctuations in foreign currencies. To reduce these risks, the Company may, from time to time, enter into hedging contracts. The amount of hedge contracts outstanding and their fair market value are summarized in the Notes to Consolidated Financial Statements.
Cash Flows From Operations In Millions ~~1993 $ 81 1994 $ 73 1995 $ 59 1996 $202 1997 $181~~
Year 2000 Recognizing the need to ensure operations will not be adversely impacted by year 2000 software failures, the Company has developed plans to address this possible exposure. Key financial information and operational systems are being assessed, detailed plans have been developed and initial conversion efforts are underway. Management believes that the necessary conversion efforts will be completed by December 31, 1999. The Company is also communicating with suppliers, dealers, financial institutions and others with which it does business to coordinate year 2000 conversions. The annual financial impact of making the required systems changes is not expected to be materially greater than levels incurred by the Company in 1997. Financial Condition Strong cash flows from operating activities continued to provide the Company with substantial financial resources to fund operating and investing objectives and support the ongoing share repurchase program, while maintaining a manageable debt level. In the Consolidated Statement of Cash Flows, cash flows from operating activities decreased from $201.7 million in 1996 to $181.2 million in 1997, remaining significantly higher than historical levels. This decrease is partially due to a change in working capital levels, especially inventory. However, cash flows from operating activities in 1996 include the positive effect of a $30.6 million decrease in working capital in the GFI and GEC businesses prior to their sale. This was due to a thorough inventory review performed in 1996, as well as the seasonality of the GFI business. After removing the impact of the GFI and GEC improvement in 1996, cash flows from operating activities improved $10.1 million on a comparable basis in 1997. In addition, favorable business trends continued to reduce prepaid allowance levels, positively impacting operating cash flows. Capital Expenditures In Millions
Capital Expenditures Depreciation ~~1993 $76 $47 1994 $88 $57 1995 $82 $56 1996 $75 $58 1997 $44 $44~~
Investing activities used cash of $46.7 million in 1997 versus cash generation of $187.9 million in 1996. The significant change is principally due to cash proceeds received on the sale of GFI and GEC in 1996. Capital expenditures continue to trend lower as the Company focuses its efforts on projects where returns exceed the associated cost of capital, consistent with the Company's commitment to creating shareholder value. The Company was able to maintain capital expenditures at the same level as depreciation in 1997. Proceeds from sale of assets in 1997 include the sale of Giza National Dehydration and the proceeds received from the dissolution of the McCormick & Wild joint venture. Our only acquisition in 1997 was the purchase of a line of dry seasoning mixes in Canada which are marketed under the French's brand name.
Debt to Capital ~~1993 48% 1994 55% 1995 56% 1996 47% 1997 50%~~
Cash flows from financing activities were a significant use of funds in 1996 and 1997. Proceeds from the sale of GFI and GEC were used to reduce both short-term and long-term debt in 1996. In addition, the Company began a repurchase program in 1996 to buy back up to 10 million shares of the Company's outstanding stock from time to time in the open market. To date, 7.0 million shares have been repurchased under this program, of which 4.5 million were repurchased in 1997. The Company's ratio of debt to total capital was 50.3% as of November 30, 1997, up slightly from 47.1% at November 30, 1996. The Company was able to maintain this manageable debt level while continuing to fund its stock repurchase program. Management believes that internally generated funds and its existing sources of liquidity are sufficient to meet current and anticipated financing requirements over the next 12 months. Over the last 10 years, dividends have increased 14 times and have risen at a compounded annual rate of 17% since 1987. Total dividends paid during fiscal 1997 were $45.5 million versus $45.3 million in 1996 and $42.2 million in 1995. We Flavor The World The quarterly dividends paid during the past three years are summarized below:
1997 1996 1995 ~~First Quarter. $ .15 $ .14 $ .13 Second Quarter .15 .14 .13 Third Quarter. .15 .14 .13 Fourth Quarter .15 .14 .13 Total. . . . . $ .60 $ .56 $ .52~~
In December 1997, the Board of Directors approved a 7% increase in the quarterly dividend from $.15 to $.16 per share. The high and low closing prices of common stock during fiscal quarters as reported on the NASDAQ national market follow:
1997 1996 --------------- -------------- Quarter ended High Low High Low - ---------------------------------- ------- ------ ----- ------ February 28........................ $25.38 $22.63 $24.25 $21.25 May 31............................. 26.88 22.81 23.13 21.88 August 31.......................... 26.88 23.31 22.38 19.25 November 30........................ 27.06 23.50 25.00 20.75
Forward-Looking Information Certain statements contained in this report, including those related to commodity price fluctuations, cost recovery program results, expected year 2000 and restructuring expenditure levels and the market risks associated with financial instruments, are "forward-looking statements" within the meaning of Section 21E of the Securities and Exchange Act of 1934. Because forward-looking statements are based on management's current views and assumptions, and involve risks and uncertainties that could significantly affect expected results, operating results could be materially affected by external factors such as: actions of competitors, customer relationships, fluctuations in the cost and availability of supply chain resources and foreign economic conditions, including currency rate fluctuations and inflation rates. McCormick Stock Price Performance Table TRADE HISTORY - MONTHLY Nasdaq Online-TM- Sources: Nasdaq, IDC MCCRK - McCORMICK & COMPANY INC - COMMON STOCK START DATE: 11/1/94 END DATE: 11/1/97
Total Total Block Block Non-Block Non-Block High Low Close Trades Volume Trades Volume Trades Volume Summary 27.375 17.750 26.500 107,842 224,948,693 4,754 103,955,285 103,088 110,844,446 Average -- -- -- 3,081 6,079,694 136 2,970,151 2,945 3,182,943 11/94 20.000 17.750 19.000 -- 3,512,455 -- -- -- -- 12/94 19.250 18.031 18.250 -- 6,077,954 -- -- -- -- 1/95 21.875 18.125 21.875 3,942 7,051,304 192 2,959,574 3,750 4,091,730 2/95 22.750 21.125 22.125 4,362 8,142,350 201 3,599,887 4,161 4,542,463 3/95 23.375 21.875 22.625 3,302 6,854,893 199 3,339,413 3,103 3,515,480 4/95 23.125 21.750 22.000 2,322 5,258,647 123 2,598,910 2,199 2,659,737 5/95 22.625 20.125 21.000 3,580 13,036,040 287 8,731,751 3,293 4,304,289 6/95 22.250 20.250 21.500 2,772 5,325,825 118 2,418,179 2,654 2,907,646 7/95 23.250 21.375 22.500 2,455 4,278,876 88 1,694,705 2,367 2,584,171 8/95 23.500 21.500 22.125 2,678 4,882,361 95 2,248,075 2,583 2,634,286 9/95 24.250 21.375 23.875 2,846 4,502,254 72 1,393,721 2,774 3,108,533 10/95 26.625 23.125 24.750 4,063 7,377,280 157 2,897,903 3,906 4,479,377 11/95 26.000 22.625 23.625 3,058 6,006,397 135 2,571,130 2,923 3,435,267 12/95 24.500 22.875 24.125 2,545 5,326,179 114 2,512,682 2,431 2,813,497 1/96 24.500 20.375 22.875 3,484 7,459,806 171 3,492,483 3,313 3,967,323 2/96 23.750 21.750 22.875 3,447 8,876,180 201 5,300,713 3,246 3,575,467 3/96 23.375 21.875 22.000 3,066 6,329,236 154 3,115,581 2,912 3,213,655 4/96 24.625 22.000 22.250 2,375 5,145,074 129 2,846,308 2,246 2,298,766 5/96 23.000 21.750 22.750 2,985 6,943,196 132 3,855,695 2,853 3,087,501 6/96 22.750 21.500 22.125 3,115 5,008,734 108 1,986,890 3,007 3,021,844 7/96 22.375 19.875 19.875 2,691 3,838,137 68 1,225,900 2,623 2,612,237 8/96 20.750 18.875 20.500 3,557 9,258,756 179 5,602,800 3,378 3,655,956 9/96 24.250 20.250 23.375 3,869 7,469,007 179 3,595,384 3,690 3,873,623 10/96 24.625 23.375 24.125 2,726 4,698,291 94 2,065,895 2,632 2,632,396 11/96 25.375 22.500 24.625 2,882 6,236,970 121 3,277,532 2,761 2,959,438 12/96 25.125 22.625 23.563 2,882 5,278,459 89 2,208,235 2,793 3,070,224 1/97 25.125 23.500 24.750 2,945 5,471,173 115 2,606,600 2,830 2,433,415
Copyright 1997 The Nasdaq Stock Market, Inc. All rights reserved. 2 12/17/97 2:07:43 PM TRADE HISTORY - MONTHLY Nasdaq Online-TM- Sources: Nasdaq, IDC MCCRK - McCORMICK & COMPANY INC - COMMON STOCK START DATE: 11/1/94 END DATE: 11/1/97
Total Total Block Block Non-Block Non-Block High Low Close Trades Volume Trades Volume Trades Volume Summary 27.375 17.750 26.500 107,842 224,948,693 4,754 103,955,285 103,088 110,844,446 Average -- -- -- 3,081 6,079,694 136 2,970,151 2,945 3,182,943 2/97 25.375 23.250 23.625 2,340 4,653,773 113 2,519,350 2,227 2,062,494 3/97 25.250 22.625 24.500 2,964 5,210,684 118 2,163,260 2,846 3,047,424 4/97 24.625 23.250 23.625 2,109 4,105,302 106 2,000,401 2,003 2,049,435 5/97 26.875 23.625 26.125 3,418 5,516,126 127 2,497,352 3,291 3,018,774 6/97 27.000 24.625 25.250 3,422 7,804,402 180 4,133,229 3,242 3,671,173 7/97 26.250 24.250 26.000 3,002 4,562,200 93 1,609,550 2,909 2,952,650 8/97 26.500 23.250 23.625 2,783 4,635,782 107 1,940,115 2,676 2,695,667 9/97 25.000 23.500 24.063 3,209 8,730,541 188 5,284,972 3,021 3,445,569 10/97 25.750 22.750 25.000 3,775 5,083,916 88 1,266,150 3,687 3,817,766 11/97 27.375 24.500 26.500 2,871 5,000,133 113 2,394,960 2,758 2,605,173
Copyright 1997 The Nasdaq Stock Market, Inc. All rights reserved. 3 12/17/97 2:07:43 PM
Dividends Paid Per Share ~~1993 $.44 1994 $.48 1995 $.52 1996 $.56 1997 $.60~~
McCormick & Company, Incorporated Directors and Officers [photo of Board of Directors] Board of Directors Executive Committee Charles P. McCormick, Jr. Robert J. Lawless Robert G. Davey Carroll D. Nordhoff Dr. James J. Albrecht* James S. Cook+D Former Executive in Residence College of Business Administration Northeastern University Dr. Freeman A. Hrabowski, III+ President University of Maryland Baltimore County George V. McGowanD Chairman of the Executive Committee Baltimore Gas and Electric Company Robert W. Schroeder Vice President & General Manager McCormick/Schilling Division William E. Stevens+D Executive Vice President Mills & Partners Karen D. Weatherholtz Corporate Officers Charles P. McCormick, Jr. Chairman of the Board Robert J. Lawless President & Chief Executive Officer Susan L. Abbott Vice President - Regulatory & Environmental Affairs J. Allan Anderson Vice President & Controller Allen M. Barrett, Jr. Vice President - Corporate Communications Robert G. Davey Executive Vice President & Chief Financial Officer Dr. Hamed Faridi Vice President - Research & Development Randall B. Jensen Vice President - Operations Resources Christopher J. Kurtzman Vice President & Treasurer Roger T. Lawrence Vice President - Quality Assurance C. Robert Miller, II Vice President - Management Information Systems Carroll D. Nordhoff Executive Vice President Robert C. Singer Vice President - Acquisitions & Financial Planning Robert W. Skelton Vice President, General Counsel & Secretary Karen D. Weatherholtz Vice President - Human Relations W. Geoffrey Carpenter Assistant Secretary & Associate General Counsel David P. Smith Assistant Treasurer Gordon M. Stetz, Jr. Assistant Treasurer - Financial Services +Audit Committee Member D Compensation Committee Member *Retired January 1, 1998 We Flavor Your World McCormick Worldwide U.S.A. Consolidated Operating Units Food Service Group Hunt Valley, Maryland F. Christopher Cruger Vice President & General Manager McCormick Flavor Division Hunt Valley, Maryland Howard W. Kympton, III Vice President & General Manager McCormick Ingredients Hunt Valley, Maryland McCormick/Schilling Division Hunt Valley, Maryland Robert W. Schroeder Vice President & General Manager Setco, Inc. Anaheim, California Donald E. Parodi President Tubed Products, Inc. Easthampton, Massachusetts Alan D. Wilson President Affiliates Signature Brands, L.L.C. (50%) Ocala, Florida SupHerb Farms (50%) Turlock, California Outside U.S.A. Consolidated Operating Units Global Food Ingredients Europe Haddenham, England Timothy J. Casey Managing Director McCormick Canada, Inc. London, Ontario, Canada Paul C. Beard President McCormick de Centro America, S.A. de C.V. San Salvador, El Salvador Arduino Bianchi Managing Director McCormick de Venezuela, C.A. Caracas, Venezuela Alberto Diaz Managing Director McCormick Foods Australia Pty. Ltd. Clayton, Victoria, Australia Bruce S. Galanter Managing Director McCormick (Guangzhou) Food Company, Ltd. Guangzhou, China Victor K. Sy Managing Director McCormick Ingredients Southeast Asia Private Limited Jurong, Republic of Singapore Hector Veloso Managing Director McCormick Pesa, S.A. de C.V. Mexico City, Mexico Robert E. Horn President McCormick S.A. Regensdorf Z.H., Switzerland Ernest Abouchar Managing Director McCormick U.K. plc Haddenham, England John C. Molan Managing Director McCormick Foodservice Limited Haddenham, England Neville Beal Managing Director McCormick Glentham (Pty) Limited Midrand, South Africa John C. Eales Managing Director Oy McCormick Ab Helsinki, Finland John C. Molan Chairman Shanghai McCormick Foods Company, Limited (90%) Shanghai, People's Republic of China Victor K. Sy President Affiliates AVT-McCormick Ingredients Limited (50%) Cochin, India McCormick de Mexico, S.A. de C.V. (50%) Mexico City, Mexico McCormick Kutas Food Service Ltd. (50%) Haddenham, England McCormick-Lion Limited (49%) Tokyo, Japan McCormick Philippines, Inc. (50%) Manila, Philippines P.T. Kimballmas Sejati (50%) Jakarta, Indonesia P.T. McCormick Indonesia (50%) Jakarta, Indonesia P.T. Sumatera Tropical Spices (30%) Padang, Sumatera, Indonesia Stange (Japan) K.K. (50%) Tokyo, Japan Vaessen Schoemaker de Mexico, S.A. de C.V. (50%) Mexico City, Mexico McCormick & Company, Incorporated Investor Information Corporate Address and Telephone Number McCormick & Company, Incorporated 18 Loveton Circle Sparks, MD 21152-6000 U.S.A. (410) 771-7301 Stock Information Traded Over-the-Counter, NASDAQ National Market List Symbol: MCCRK Stock Dividend Dates - 1998 --------------------------- Record Date Payment Date ----------- ------------- 3/31/98 4/13/98 7/2/98 7/14/98 10/1/98 10/13/98 12/31/98 1/22/99

There were more than 12,000 shareholders of record, 4,100 holders in McCormick's 401(K) plan for employees and an estimated more than 25,000 "street-name" beneficial holders whose shares are held in names other than their own, for example, in brokerage accounts. Investor Services For inquiries concerning shareholder records, stock certificates, dividends or dividend reinvestment, please contact Investor Services at the Corporate address or telephone: (800) 424-5855 or (410) 771-7537 To obtain without cost a copy of the annual report filed with the Securities & Exchange Commission (SEC) on Form 10-K, contact the Treasurer's Office at the Corporate address or contact the SEC web site: http://www.sec.gov For general questions about McCormick or information in the annual or quarterly reports, contact the Treasurer's Office at the Corporate address or telephone: Report Ordering: (800) 424-5855 or (410) 771-7537 Analysts' Inquiries: (410) 771-7244 Another source of McCormick information is located on the Internet. Our web site is: http://www.mccormick.com Missing or Destroyed Certificates or Checks Shareholders whose certificates or dividend checks are missing or destroyed should notify Investor Services immediately so that a "stop" can be placed on the old certificate or check, and a new certificate or check can be issued. Address Change Shareholders should advise Investor Services immediately of any change in address. Please include the old address and the new address. All changes of address must be submitted in writing. Transfer Agent and Registrar Contact Investor Services at the Corporate address or telephone: (800) 424-5855 or (410) 771-7786 Multiple Dividend Checks and Duplicate Mailings Some shareholders hold their stock in different but similar names (for example, as John Q. Doe and J. Q. Doe). When this occurs, it is necessary to create a separate account for each name. Even though the mailing addresses are the same, we are required to mail separate dividend checks and annual and quarterly reports for each account. We encourage shareholders to eliminate multiple dividend checks and mailings by contacting Investor Services and requesting an account consolidation. Shareholders who want to eliminate duplicate mailings but still receive multiple dividend checks and proxy material may do so by contacting Investor Services. Dividend Reinvestment Plan Shareholders may automatically reinvest their dividends and make optional cash purchases of stock through the Company's Dividend Reinvestment Plan, subject to limitations set forth in the Plan prospectus. A Plan prospectus and enrollment form may be obtained by contacting Investor Services at: (800) 424-5855 or (410) 771-7537 Trademarks Use of -Registered Trademark- or -TM- in this annual report indicates trademarks owned or used by McCormick & Company, Incorporated and its subsidiaries and affiliates. This Report is printed on recycled paper. [McCormick/Schilling product coupons valued at $3.00 and $1.50] [World illustration from page 6, screened to produce subtle graphic]

Exhibit 23 -- Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of McCormick & Company, Incorporated and subsidiaries of our report dated January 15, 1998, included in the 1997 Annual Report to Stockholders of McCormick & Company, Incorporated. Our audits also included the financial statement schedule of McCormick & Company, Incorporated and subsidiaries listed in Item 14(a). This schedule is the responsibility of the Company's 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, present 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 subsidiaries and in the related Prospectuses (if applicable) of our report dated January 15, 1998, with respect to the consolidated financial statements and schedule of McCormick & Company, Incorporated and subsidiaries included in the 1997 Annual Report to Stockholders and incorporated by reference in this Annual Report (Form 10-K) for the year ended November 30, 1997. Form Registration Number Date Filed - ---- ------------------- ---------- S-8 33-23727 3/21/97 S-8 33-58197 3/23/95 S-3 33-66614 7/27/93 S-3 33-40920 5/29/91 S-8 33-33724 3/2/90 S-8 33-33725 3/2/90 S-3 33-32712 12/21/89 S-8 33-24660 3/16/89 S-8 33-24658 9/15/88 S-3 33-24659 9/15/88 Ernst & Young LLP Baltimore, Maryland February 16, 1998 20

5 1,000 12-MOS NOV-30-1997 NOV-30-1997 13,500 0 220,932 3,734 252,084 506,518 693,516 313,501 1,256,232 498,249 276,489 0 0 159,450 233,660 1,256,232 1,800,966 1,800,966 1,172,328 457,795 (7,795) 0 36,332 142,306 52,653 97,415 1,013 0 0 98,428 1.30 1.30

Exhibit 99 PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Filed by the Registrant [ x ] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ x ] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Section 240.14a-11 (c) or Section 240.14a-12 MCCORMICK & COMPANY, INCORPORATED ------------------------------------------------ (Name of Registrant as specified in its Charter) The Board of Directors of McCormick & Company, Incorporated ----------------------------------------------------------- (Name of Person(s) Filing Proxy Statement) Payment of Filing Fee (Check the appropriate box): [ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2) [ ] $500 per each party to the controversy pursuant to Exchange Act Rule14a-6(i)(3) [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: --------------------------------------------------------------- 2) Aggregate number of securities to which transaction applies: --------------------------------------------------------------- 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11: --------------------------------------------------------------- 4) Proposed maximum aggregate value of transaction: --------------------------------------------------------------- [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form of Schedule and the date of its filing. 1) Amount Previously Paid: --------------------------------------------------------------- 2) Form, Schedule of Registration Statement No.: --------------------------------------------------------------- 3) Filing Party: --------------------------------------------------------------- 4) Date Filed: --------------------------------------------------------------- MCCORMICK & COMPANY, INCORPORATED 18 LOVETON CIRCLE SPARKS, MARYLAND 21152 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MARCH 18, 1998 The Annual Meeting of the Stockholders of McCormick & Company, Incorporated will be held at the Hunt Valley Inn, Hunt Valley, Maryland at 10:00 a.m., March 18, 1998, for the purpose of considering and acting upon: (a) the election of directors to act until the next Annual Meeting of Stockholders or until their respective successors are duly elected and qualified; (b) the approval of the Mid-Term Incentive Program, which has been adopted by the Board of Directors subject to the approval of the stockholders; (c) the ratification of the appointment of Ernst & Young LLP as independent auditors of the Company to serve for the 1998 fiscal year; and (d) any other matters that may properly come before such meeting or any adjournments thereof. The Board of Directors has fixed the close of business on December 31, 1997 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Meeting or any adjournments thereof. Only holders of Common Stock shall be entitled to vote. Holders of Common Stock Non-Voting are welcome to attend and participate in this meeting. - -------------------------------------------------------------------------------- IF YOU ARE A HOLDER OF COMMON STOCK, A PROXY CARD IS ENCLOSED. PLEASE SIGN THE PROXY CARD PROMPTLY AND RETURN IT IN THE ENCLOSED SELF-ADDRESSED ENVELOPE IN ORDER THAT YOUR STOCK MAY BE VOTED AT THIS MEETING. THE PROXY MAY BE REVOKED BY YOU AT ANY TIME BEFORE IT IS VOTED. - -------------------------------------------------------------------------------- February 18, 1998 Robert W. Skelton Secretary PROXY STATEMENT GENERAL INFORMATION This Proxy Statement is furnished on or about February 18, 1998 to the holders of Common Stock in connection with the solicitation by the Board of Directors of the Company of proxies to be voted at the Annual Meeting of Stockholders or any adjournments thereof. Any proxy given may be revoked at any time insofar as it has not been exercised. Such right of revocation is not limited or subject to compliance with any formal procedure. The shares represented by all proxies received will be voted in accordance with the instructions contained in the respective proxies. The cost of the solicitation of proxies will be borne by the Company. In addition to the solicitation of proxies by use of the mails, officers and regular employees of the Company may solicit proxies by telephone, telegraph, or personal interview. The Company also may request brokers and other custodians, nominees, and fiduciaries to forward proxy soliciting material to the beneficial owners of shares held of record by such persons, and the Company may reimburse them for their expenses in so doing. At the close of business on December 31, 1997, there were outstanding 10,203,697 shares of Common Stock which represent all of the outstanding voting securities of the Company. Except for certain voting limitations imposed by the Company's Charter on beneficial owners of ten percent or more of the outstanding Common Stock, each of said shares of Common Stock is entitled to one vote. Only holders of record of Common Stock at the close of business on December 31, 1997 will be entitled to vote at the meeting or any adjournments thereof. PRINCIPAL STOCKHOLDERS On December 31, 1997, the assets of The McCormick Profit Sharing Plan and PAYSOP (the "Plan") included 2,545,946 shares of the Company's Common Stock, which represented 24.95% of the outstanding shares of Common Stock. The address for the Plan is 18 Loveton Circle, Sparks, Maryland 21152. The Plan is not the beneficial owner of the Common Stock for purposes of the voting limitations described in the Company's Charter. Each Plan participant has the right to vote all shares of Common Stock allocated to such participant's Plan account. The Plan's Investment Committee possesses investment discretion over the shares, except that, in the event of a tender offer, each participant of the Plan is entitled to instruct the Investment Committee as to whether to tender Common Stock allocated to such participant's account. Membership on the Investment Committee consists of three directors, Robert G. Davey, Carroll D. Nordhoff, and Karen D. Weatherholtz, and the Company's Vice President & Controller, J. Allan Anderson, the Company's Vice President & Treasurer, Christopher J. Kurtzman and the Company's Vice President, General Counsel & Secretary, Robert W. Skelton. Mary D. McCormick, whose address is 830 West 40th Street, Baltimore, Maryland 21211, held 609,012 shares of Common Stock as of December 31, 1997, representing 5.97% of the outstanding shares of Common Stock. Harry K. Wells and his wife Lois L.Wells, whose address is P. O. Box 409, Riderwood, Maryland 21139, held in two trusts 586,623 shares of Common Stock as of December 31, 1997, representing 5.75% of the outstanding shares of Common Stock. 2 ELECTION OF DIRECTORS On June 1, 1997, Richard W. Single, Sr. retired as a member of the Board of Directors and as Vice President--Government Affairs & Secretary/Counsel to the Board of Directors. On January 1, 1998, Dr. James J. Albrecht retired as a member of the Board of Directors and as Vice President--Science & Technology. The Company is grateful to Mr. Single and Dr. Albrecht for their contributions during their many years of service. The persons listed in the following table have been nominated for election as directors to serve until the next Annual Meeting of Stockholders or until their respective successors are duly elected and qualified. Management has no reason to believe that any of the nominees will be unavailable for election. In the event a vacancy should occur, the proxy holders reserve the right to reduce the total number of nominations for election. There is no family relationship between any of the nominees. No nominee has a substantial interest in any matter to be acted upon at the Annual Meeting. The following table shows, as of December 31, 1997, the names and ages of all nominees, the principal occupation and business experience of each nominee during the last five years, the year in which each nominee was first elected to the Board of Directors, the amount of securities beneficially owned by each nominee, and directors and executive officers as a group, and the nature of such ownership. Except as otherwise noted, no nominee owns more than one percent of either class of the Company's common stock. REQUIRED VOTE OF STOCKHOLDERS. The favorable vote of at least a majority of the shares of Common Stock of the Company present in person or by proxy at a meeting at which a quorum is present is required for the election of each nominee. 3 THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE NOMINEES LISTED BELOW.
AMOUNT AND NATURE* OF BENEFICIAL OWNERSHIP ----------------------- YEAR FIRST COMMON PRINCIPAL OCCUPATION & ELECTED NON- NAME AGE BUSINESS EXPERIENCE DIRECTOR COMMON VOTING - ------------------------------ --- ---------------------------------------- ---------- ---------- ---------- James S. Cook................. 69 Former Executive in Residence, 1982 1,833 3,675 Northeastern University (1986 to 1997) Robert G. Davey............... 48 Executive Vice President & Chief 1994 27,057 4,799 Financial Officer (1996 to Present); Vice President & Chief Financial Officer (1994 to 1996); President, McCormick Canada, Inc., a subsidiary of the Company (1991 to 1994) Freeman A. Hrabowski, III..... 47 President, University of Maryland 1997 83 0 Baltimore County (1992 to Present) Robert J. Lawless............. 51 President (1996 to Present), Chief 1994 30,498 24,991 Executive Officer (1997 to Present) & Chief Operating Officer (1995 to Present), Executive Vice President (1995 to 1996); Senior Vice President--The Americas (1994 to 1995); Group Vice President--Europe (1993 to 1994); Vice President & Deputy Managing Director, International Group (1991 to 1993) Charles P. McCormick, Jr...... 69 Chairman of the Board (1994 to Present), 1955 264,986** 16,917 Chief Executive Officer (1996 to 1997); (2.6%) Chairman Emeritus (1993 to 1994); Chairman of the Board (1988 to 1993), Chief Executive Officer (1987 to 1992)
4
AMOUNT AND NATURE* OF BENEFICIAL OWNERSHIP ----------------------- YEAR FIRST COMMON PRINCIPAL OCCUPATION & ELECTED NON- NAME AGE BUSINESS EXPERIENCE DIRECTOR COMMON VOTING - ------------------------------ --- ---------------------------------------- ---------- ---------- ---------- George V. McGowan............. 69 Chairman of the Executive Committee, 1983 2,349 2,808 Baltimore Gas and Electric Company (1993 to Present); Chairman of the Board & Chief Executive Officer, Baltimore Gas and Electric Company (1988 to 1992) Carroll D. Nordhoff........... 52 Executive Vice President (1994 to 1991 55,096 17,663 Present); Executive Vice President -The Americas (1993 to 1994); Executive Vice President--Corporate Operations Staff (1992 to 1993) Robert W. Schroeder........... 52 Vice President & General Manager, 1996 13,347 8,425 McCormick/Schilling Division (1995 - Present); Vice President-- Sales & Marketing, McCormick/Schilling Division (1994 - 1995); Vice President -Packaging Group (1991 - 1994) William E. Stevens............ 55 Executive Vice President, Mills & 1988 2,833 7,950 Partners, (1996 to Present); President and Chief Executive Officer, United Industries Corp. (1989 to 1996) Karen D. Weatherholtz......... 47 Vice President--Human Relations 1992 21,885 7,667 (1988 to Present)
Directors and Executive Officers as a Group (14 persons)........................................ 528,716 136,379 (5.2%)

Footnotes continued on next page 5 * Includes shares of Common Stock and Common Stock Non-Voting known to be beneficially owned by directors and executive officers alone or jointly with spouses, minor children and relatives (if any) who have the same home as the director or executive officer. Also includes the following numbers of shares which could be acquired within 60 days of December 31, 1997 pursuant to the exercise of stock options: Mr. Cook--1,750 shares of Common Stock, 1,750 shares of Common Stock Non-Voting; Mr. Davey--11,397 shares of Common Stock, 4,799 shares of Common Stock Non-Voting; Mr. Hrabowski--0 shares of Common Stock, 0 shares of Common Stock Non-Voting; Mr. Lawless--14,798 shares of Common Stock, 5,932 shares of Common Stock Non-Voting; Mr. McCormick--14,875 shares of Common Stock, 6,125 shares of Common Stock Non-Voting; Mr. McGowan - 1,750 shares of Common Stock, 1,750 shares of Common Stock Non-Voting; Mr. Nordhoff--20,145 shares of Common Stock, 9,382 of Common Stock Non-Voting; Mr. Schroeder--10,013 shares of Common Stock, 4,338 of Common Stock Non-Voting; Mr. Stevens--1,750 shares of Common Stock, 1,750 shares of Common Stock Non-Voting; Ms. Weatherholtz--6,750 shares of Common Stock, 2,250 shares of Common Stock Non-Voting; and directors and executive officers as a group -109,550 shares of Common Stock, 49,151 shares of Common Stock Non-Voting. Also includes shares of Common Stock which are beneficially owned by certain directors and officers by virtue of their participation in the McCormick Profit Sharing Plan and PAYSOP: Mr. Davey--2,119 shares; Mr. Lawless--1,542 shares; Mr. Nordhoff--7,659 shares; Ms. Weatherholtz--8,534 shares; and directors and executive officers as a group--40,502 shares. ** Includes 2,768 shares of Common Stock owned by Mr. McCormick's wife. Mr. McCormick disclaims beneficial ownership of said shares. BOARD COMMITTEES The Board of Directors has established the following committees to perform certain specific functions. There is no Nominating Committee of the Board of Directors. Board Committee membership as of February 18, 1998 is listed below. AUDIT COMMITTEE. This Committee reviews the plan for and the results of the independent audit and internal audit, reviews the Company's financial information and internal accounting and management controls, and performs other related duties. The following directors are currently members of the Committee and serve at the pleasure of the Board of Directors: Messrs. Cook, Hrabowski and Stevens. The Audit Committee held five meetings during the last fiscal year. COMPENSATION COMMITTEE. This Committee establishes and oversees executive compensation policy; makes decisions about base pay, incentive pay and any supplemental benefits for the Chief Executive Officer, other members of the Executive Committee, and any other executives listed in the proxy statement as one of the five highest paid executives; and approves the grant of stock options, the timing of the grants, the price at which the options are to be offered, and the amount of the options to be granted to employee directors and officers. The following directors are members of the Committee 6 and serve at the pleasure of the Board of Directors: Messrs. Cook, McGowan and Stevens. None of the Committee members are employees of the Company or are eligible to participate in the Company's stock option programs which are administered by the Committee. The Compensation Committee held six meetings during the last fiscal year. EXECUTIVE COMMITTEE. This Committee possesses authority to exercise all of the powers of the Board of Directors in the management and direction of the affairs of the Company between meetings of the Board of Directors, subject to specific limitations and directions of the Board of Directors and subject to limitations of Maryland law. This Committee also reviews and approves all benefits and salaries of a limited group of senior executives and reviews and approves individual awards under approved stock option plans for all persons except directors and officers (see Compensation Committee). The following directors are currently members of the Committee and serve at the pleasure of the Board of Directors: Messrs. Davey, Lawless, McCormick, and Nordhoff. The Executive Committee held 18 meetings during the last fiscal year. ATTENDANCE AT MEETINGS During the last fiscal year, there were 9 meetings of the Board of Directors. All of the Directors were able to attend at least 75% of the total number of meetings of the Board and the Board Committees on which they served. OTHER DIRECTORSHIPS Certain individuals nominated for election to the Board of Directors hold directorships in other companies. Dr. Hrabowski is a director of Baltimore Gas and Electric Company, the Baltimore Equitable Society, Mercantile Shareholders Corporation and UNC, Incorporated. Mr. Lawless is a director of Carpenter Technology Corporation. Mr. McGowan is a director of Baltimore Gas and Electric Company, Baltimore Life Insurance Company, GTS Duratek Inc., Life of Maryland, Inc., NationsBank, N.A., Organization Resources Counselors, Inc., Scientech, Inc., and UNC, Incorporated. Mr. Stevens is a director of The Earthgrains Company. REPORT ON EXECUTIVE COMPENSATION COMPENSATION PHILOSOPHY AND OBJECTIVES The Company has at the core of its compensation philosophy to attract, motivate and retain top quality executives who will think and act like owners and who will make decisions in the best interests of our shareholders. This is accomplished by offering a total compensation package that reflects the stated financial goals of the Company, provides support and direction for our corporate strategy, and compensates competitively for each executive's responsibilities and performance. Through a mix of base salary, an annual incentive program, a proposed mid-term incentive program, and a long-term 7 incentive program, the Company is able to achieve focus on individual, operating unit, and corporate success. To assist the Company in determining the relevance and competitiveness of its executive compensation, periodic special studies are conducted by independent compensation consultants. During 1997, the Compensation Committee engaged Towers Perrin to review the Company's compensation policies and practices. The independent consultant reported the following findings: - The Company's annual incentive plan design provides strong linkage between an executive's pay and the achievement of objective performance targets. - The annual incentive measures of profit growth, economic value added, and earnings per share growth reflect the Company's stated objectives. - Use of peer company comparison to set performance targets provides an objective basis for measuring corporate success. - The Company's use of stock options as its long-term incentive program aligns the interests of senior executives with shareholder performance. - Shareholdings of the majority of the Company's executives exceed typical guidelines as a multiple of annual salary. - Base salaries are consistent overall with median levels paid to senior executives having similar roles and responsibilities at food and manufacturing companies of comparable size. - Annual incentive target awards and long-term incentive target awards are below market competitive levels. The consultant also made the following recommendations, which were approved by the Compensation Committee and the Board of Directors: - Raise annual incentive targets to a level that is comparable to annual targets for other peer companies. This action not only provides a level of annual incentive target that is competitive, but also increases the portion of executive pay that is at risk based on company performance. - Under the Company's long-term incentive plan, grant ten (10) year options starting in 1998, rather than five (5) year options granted in recent years. This action will, for most executives, result in competitive levels of long-term incentives relative to peer companies. For a few of the most senior executives, an increase in the number of shares granted is necessary to provide a competitive total compensation package. This was recommended by the consultant to provide maximum alignment of executive compensation with shareholder interests. 8 - Introduce a Mid-Term Incentive Program for a limited group of key senior executives in order to support key strategies of the Company. BASE SALARIES Salary levels of the Company's senior executives are reviewed annually and, where appropriate, are adjusted to reflect individual responsibilities and performance as well as the Company's competitive position within the food industry. The Compensation Committee sets base salaries by targeting midpoints of the marketplace median and adjusting each executive officer's salary to reflect individual performance, experience, and contribution. The Compensation Committee considers salaries paid to senior executives at companies which are comparable to the Company (based on line of business or sales volume) in establishing base salaries for senior executives of the Company. Those companies included most of the fifteen companies in the S&P Food Products Index and other manufacturing companies which are not included in that index but which had similar sales volumes. ANNUAL INCENTIVE PROGRAM The following methodology was used to determine bonus payouts for fiscal year 1997: ACTIONS AT THE START OF THE FISCAL YEAR: - A target bonus was set for each participating executive based upon a percentage of the midpoint of the salary range for the executive's job and was calculated to provide median compensation for growth that is comparable to peer companies in the food industry. - The Compensation Committee approved the level of payment to be made for superior performance relative to peer companies. In no case does the maximum payment to an individual exceed two times the target bonus. No bonus is paid to a participating executive if there is no growth in earnings per share. - The amount of target bonus payable to operating unit executives was based on a formula, weighted two-thirds on achievement of the operating profit and economic value added objectives of the executive's operating unit and one-third on growth in the Company's earnings per share. ACTIONS AT FISCAL YEAR END: - Financial statements were prepared for the Company and each operating unit. - Calculations were made according to the formula for each operating unit and for the Company. Extraordinary events such as major restructuring were excluded. 9 MID-TERM INCENTIVE PROGRAM Subject to shareholder approval, the Compensation Committee and the Board of Directors have approved a Mid-Term Incentive Program for the three year period beginning December 1, 1997 and ending November 30, 2000. The Program is described in detail on page 19. The Compensation Committee believes that this new Program will play an important role in aligning the compensation of top executives with the key strategic needs of the Company during the next three years. The Committee recommends implementation of this Program for the following reasons: 1) It facilitates clear focus on the strategic objectives that will drive the Company's success; specifically, sales growth and total shareholder return. 2) The Program is targeted to executives who are in positions which have a significant impact on the achievement of objectives of the Company as a whole, and who must provide strategic focus to a time horizon that extends beyond any one fiscal year. 3) The Program is designed such that award amounts are tightly linked to the level of achievement of the Program's objectives, and the rewards are highly leveraged, so that superior payouts are made only for superior performance. 4) It enhances our overall incentive program when combined with stock options to achieve McCormick's longer term strategies. 5) The Program provides a means to motivate and retain top talent at the most senior levels. LONG-TERM INCENTIVE PROGRAM Under the Long-Term Incentive Program, stock options are granted by the Compensation Committee to key management employees of the Company, including executive officers. The purpose of stock option grants is to aid the Company in securing and retaining capable employees by offering them an incentive, in the form of a proprietary interest in the Company, to join or continue in the service of the Company and to maximize their efforts to promote its economic performance. This incentive is created by granting options that have an exercise price of not less than 100% of the fair market value of the underlying stock on the date of grant, so that the employee may not profit from the option unless the Company's stock price increases. Options granted are designed to help the Company retain employees in that they are not fully exercisable in the early years and "vest" only if the employee remains with the Company. Accordingly, an employee must remain with the Company for a period of years in order to enjoy the full economic benefit of the option. The number of options granted is a function of the recipient's salary grade level. 10 McCormick has not found it necessary to establish share ownership guidelines for its executives, since the majority of executives EXCEED the typical ownership guidelines. CHIEF EXECUTIVE OFFICER COMPENSATION Mr. Lawless served as the Company's chief executive officer for 11 months of fiscal year 1997, succeeding Mr. McCormick who served as CEO for the first month of the fiscal year. As a non-employee CEO, Mr. McCormick received a monthly consulting fee for services rendered to the Company. His fee for December 1996, while he was CEO, was $47,583.33. In January 1997, Mr. McCormick relinquished the title of CEO, while retaining the title of Chairman of the Board. His monthly fee for the remainder of fiscal year 1997 was $13,725. In March 1997, Mr. McCormick was awarded a stock option in the amount of 12,000 shares. Mr. McCormick's annual incentive award for fiscal 1997 was $124,500, and was determined by the criteria and calculations applied to other executives and described on page 9. Mr. Lawless' base compensation in the salary column of the Summary Compensation Table on page 13 consists of $443,334 for the period he has been CEO and $30,833 for the one month prior to his promotion to CEO. Mr. Lawless' salary changes during 1997 include a promotional increase when he assumed the position and responsibilities of CEO, a merit increase determined according to the same criteria as other executives, and a competitive pay adjustment as a result of the compensation review conducted by the independent consultant. In March 1997, Mr. Lawless was awarded a stock option in the amount of 53,000 shares. Mr. Lawless' annual incentive award for fiscal year 1997 was $385,000, and was determined by the criteria and calculations applied to other executives and described on page 9. 1997 COMPENSATION ACTIONS--OTHER EXECUTIVE OFFICERS Salary increases, annual incentive awards and long-term incentive grants for executive officers were granted in a manner consistent with those granted to other Company managers. Submitted By:
COMPENSATION COMMITTEE EXECUTIVE COMMITTEE - -------------------------------- ---------------------------- George V. McGowan, Chairman Robert J. Lawless, Chairman James S. Cook Robert G. Davey George W. Koch (retired 3/97) Charles P. McCormick, Jr. William E. Stevens Carroll D. Nordhoff
11 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION After the retirement of Mr. Koch in March 1997, during fiscal year 1997 the Compensation Committee was comprised of three independent outside directors. Members are James S. Cook, George V. McGowan (Chairman) and William E. Stevens. No member of the Committee has any interlocking or insider relationship with the Company which is required to be reported under the applicable rules and regulations of the Securities and Exchange Commission. At the close of fiscal year 1997, members of the Executive Committee were Robert G. Davey, Robert J. Lawless (Chairman), Charles P. McCormick, Jr. and Carroll D. Nordhoff. All except Mr. McCormick are employees and executive officers of the Company. Mr. McCormick is a retired employee of the Company. The table beginning on page 4 of this Proxy Statement sets forth the business experience of each of the members. 12 SUMMARY COMPENSATION TABLE The following table sets forth the compensation paid by the Company and its subsidiaries for services rendered during each of the fiscal years ended November 30, 1997, 1996 and 1995 to the two individuals who served as Chief Executive Officer of the Company during the 1997 fiscal year and each of the four most highly compensated executive officers who were executive officers on the last day of the 1997 fiscal year, determined by reference to total annual salary and bonus for the 1997 fiscal year.
LONG TERM COMPENSATION --------------------- ANNUAL COMPENSATION AWARDS - -------------------------------------------------------------------------------------------- --------------------- ALL OTHER FISCAL (1) OTHER ANNUAL SECURITIES UNDERLYING COMPENSATION NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS/SARS (#) ($) (2) - ---------------------------------------- ------ ---------- --------- ---------------- --------------------- ------------ CHARLES P. MCCORMICK, JR.(3)............ 1997 -- 124,500 226,858(4) 12,000 0 Chairman of the Board 1996 -- 195,300 600,000(4) 26,000 0 & Chief Executive Officer 1995 -- 6,690 226,800(4) 6,000 0 ROBERT J. LAWLESS(3).................... 1997 479,567 385,000 (4) 53,000 5,217 President & Chief 1996 359,567 123,540 25,000 4,005 Executive Officer 1995 239,567 40,031 12,250 2,736 ROBERT G. DAVEY......................... 1997 284,567 195,240 (4) 28,600 4,091 Executive Vice President & 1996 227,483 66,500 17,800 3,389 Chief Financial Officer 1995 194,350 6,825 11,500 2,735 CARROLL D. NORDHOFF..................... 1997 267,400 170,160 (4) 28,600 4,345 Executive Vice President 1996 255,594 63,300 21,000 3,722 1995 242,629 8,447 13,250 3,026 ROBERT W. SCHROEDER..................... 1997 250,400 142,000 (4) 22,100 4,008 Vice President & General Manager - 1996 219,167 47,000 14,800 3,475 McCormick/Schilling Divsion 1995 185,892 25,080 4,800 2,736 JAMES J. ALBRECHT....................... 1997 266,775 111,480 (4) 18,700 4,247 Vice President - 1996 259,103 34,000 13,200 3,651 Science & Technology 1995 246,171 30,968 7,750 2,880 - -------------------------------------------------------------------------------------------------------------------------------
- -------------------- (1) Includes Corporate Board of Directors fees and service awards. (2) Amounts paid or accrued under the Company's Profit Sharing Plan for the accounts of such individuals. Figures for 1997 are estimates. The stated figure includes payments persons would have received under the Company's Profit Sharing Plan but for certain limits imposed by the Internal Revenue Code: (i) for 1997 for Dr. Albrecht and Messrs. Davey, Lawless, Nordhoff and Schroeder in the amounts of $881, $725, $1,858, $979 and $642, respectively; (ii) for 1996 for 13 Dr. Albrecht and Messrs. Davey, Lawless, Nordhoff and Schroeder payments in the amounts of $581, $319, $935, $652 and $405, respectively; (iii) for 1995 for Dr. Albrecht and Mr. Nordhoff in the amounts of $144 and $290, respectively. (3) Mr. McCormick served as Chief Executive Officer from January 1, 1996 to January 1, 1997; Mr. Lawless became Chief Executive Officer on January 1, 1997. (4) Mr. McCormick is paid a consulting fee for services rendered to the Company. There is no amount of other annual compensation that is required to be reported. COMPENSATION OF DIRECTORS Corporate Board of Directors fees were paid at the rate of $5,400 per year for each director who was an employee of the Company during the fiscal year ended November 30, 1997. Fees paid to each director who was not an employee of the Company consist of an annual retainer fee of $20,000 in cash, $2,000 in Common Stock of the Company, and $1,100 for each Board meeting attended. Non-employee directors serving on Board Committees receive $1,000 for each Committee meeting attended, with Committee chairs receiving an additional $250 for each Committee meeting attended. On July 18, 1994, Mr. McCormick was elected as Chairman of the Board. Mr. McCormick's services in such capacity are consultative in nature. His compensation arrangements are discussed at page 11. PENSION PLAN TABLE The following table shows the estimated annual benefits (on a single-life basis), including supplemental benefits, payable upon retirement (assuming retirement at age 65) to participants in the designated average compensation and years of service classifications:
YEARS OF SERVICE AVERAGE ---------------------------------------------------------------------------- COMPENSATION 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS - ------------- ----------- ----------- ----------- ----------- ----------- ----------- $ 300,000 51,997 77,997 103,996 129,995 155,994 181,994 350,000 60,697 91,047 121,396 151,745 182,094 212,444 400,000 69,397 104,097 138,796 173,495 208,194 242,894 450,000 78,097 117,147 156,196 195,245 234,294 273,344 500,000 86,797 130,197 173,596 216,995 260,394 303,794 550,000 95,497 143,247 190,996 238,745 286,494 334,244 600,000 104,197 156,297 208,396 260,495 312,594 364,694 - ------------------------------------------------------------------------------------------
14 The Company's Pension Plan is non-contributory. A majority of the employees of the Company and participating subsidiaries are eligible to participate in the Plan upon completing one year of service and attaining age 21. The Plan provides benefits (which are reduced by an amount equal to 50% of the participant's Social Security benefit) based on an average of the participant's highest consecutive 60 months of compensation, excluding any cash bonuses, and length of service. In 1979, the Company adopted a supplement to its Pension Plan to provide a limited group of its senior executives with an inducement to retire before age 65. That group of senior executives will receive credit for additional service for employment after age 55. In 1983, the supplement was expanded to include a significant portion of the senior executives' bonuses in the calculation of pension benefits. The supplement was amended in 1996 to provide that if a senior executive with Company service outside the U.S. retires after serving at least his or her last three years in the U.S., all of the executive's years of Company service, including years of service with foreign subsidiaries of the Company, will be counted in calculating pension benefits. The group of senior executives includes those listed in the table on page 13. For purposes of calculating the pension benefit, the average of the highest consecutive 60 months of compensation for Dr. Albrecht and Messrs. Davey, Lawless, Nordhoff and Schroeder as of November 30, 1997 was $343,831, $315,490, $475,989, $349,987 and $289,110, respectively. The years of credited service for Dr. Albrecht and Messrs. Davey, Lawless, Nordhoff and Schroeder as of the same date were 15, 4, 7, 27 and 12 years, respectively. Mr. Lawless and Mr. Davey are also entitled to receive pension benefits under the registered pension plan ("RPP") offered to employees of McCormick Canada, Inc. Benefits under the RPP are based on the average of the participant's highest three consecutive years of earnings. Upon retirement the Company has agreed to pay Mr. Lawless and Mr. Davey a supplemental benefit equal to the excess, if any, of the benefit calculated under the RPP (assuming all their service at McCormick Canada and the Company had been under the RPP) over (i) the pension benefit accrued under RPP (based on years of service with McCormick Canada) plus (ii) the benefit accrued under the Company's Pension Plan (based on years of service with the Company). 15 STOCK OPTIONS During the last fiscal year, the Company has granted stock options to certain employees, including executive officers, pursuant to stock option plans approved by the Company's stockholders. OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE INDIVIDUAL GRANTS* AT ASSUMED - ------------------------------------------------------------------------------------------------ ANNUAL RATES OF NUMBER OF % OF TOTAL STOCK PRICE SECURITIES OPTIONS/SARS APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OR BASE OPTION TERM ($)** OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION ----------------------- NAME GRANTED (#) FISCAL YEAR ($/SHARES) DATE 0% 5% 10% - ----------------------------------- ------------ ------------ ---------------- ---------- --- -------- -------- Charles P. McCormick, Jr........... 12,000 1.3% $24.25 03/18/02 $0 $ 80,400 $177,600 Robert J. Lawless.................. 53,000 5.7% $24.25 03/18/02 $0 $355,100 $784,400 Robert G. Davey.................... 28,600 3.1% $24.25 03/18/02 $0 $191,620 $423,280 Carroll D. Nordhoff................ 28,600 3.1% $24.25 03/18/02 $0 $191,620 $423,280 Robert W. Schroeder................ 22,100 2.4% $24.25 03/18/02 $0 $148,070 $327,080 James J. Albrecht.................. 18,700 2.0% $24.25 03/18/02 $0 $125,290 $276,760 - --------------------------------------------------------------------------------------------------------------------------
- -------------------- * In general, the stock options are exercisable cumulatively as follows: none of the shares granted during the first year of the option; not more than 50% of the shares granted during the second year of the option; and 100% of the shares granted, less any portion of such option previously exercised, at any time during the period between the end of the second year of the option and the expiration date. Approximately 385 employees of the Company were granted options under the Company's option plans during the last fiscal year. ** The dollar amounts under these columns are the result of calculations at 0%, and at the 5% and 10% compounded annual rates set by the Securities and Exchange Commission, and therefore are not intended to forecast future appreciation, if any, in the price of the Company's Common Stock. The potential realizable values illustrated at 5% and 10% compound annual appreciation assume that the price of the Company's Common Stock increases $6.70 and $14.80 per share, respectively, over the 5-year term of the options. If the named executives realize these values, the Company's stockholders will realize aggregate appreciation in the price of the approximately 74 million shares of the Company's Common Stock 16 outstanding as of December 31, 1997 of approximately $494 million and $1.09 billion, over the same period. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
VALUE OF UNEXERCISED NUMBER OF SHARES IN-THE-MONEY UNDERLYING UNEXERCISED OPTIONS/SARS SHARES ACQUIRED VALUE OPTIONS/SARS AT FY-END (#) AT FY-END($) NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISALE/UNEXERCISABLE - ---------------------------------------- --------------- ------------ -------------------------- ------------------------- Charles P. McCormick, Jr................ 0 $0 21,000/25,000 $ 88,000/$80,625 Robert J. Lawless....................... 0 $0 20,730/77,320 $ 84,229/$221,696 Robert G. Davey......................... 0 $0 16,196/48,704 $ 66,183/$148,967 Carroll D. Nordhoff..................... 0 $0 29,527/54,573 $120,216/$167,759 Robert W. Schroeder..................... 0 $0 14,351/35,149 $ 57,248/$103,552 James J. Albrecht....................... 0 $0 12,483/39,917 $ 47,636/$130,265 - -----------------------------------------------------------------------------------------------------------------------------
17 Set forth below is a line graph comparing the yearly percent change in the Company's cumulative total shareholder return (stock price appreciation plus reinvestment of dividends) on the Company's Common Stock with (i) the cumulative total return of the Standard & Poor's 500 Stock Index, assuming reinvestment of dividends, and (ii) the cumulative total return of the Standard & Poor's Food Products Index, assuming reinvestment of dividends. COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* AMONG MCCORMICK & COMPANY, INCORPORATED, S&P 500 STOCK INDEX & S&P FOOD PRODUCTS INDEX**
- -------------------------------------------------------------------------------------------------------------------------------- 11/92 11/93 11/94 11/95 11/96 11/97 - -------------------------------------------------------------------------------------------------------------------------------- McCormick 100 83 69 88 95 104 & Company, Inc. - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- S&P 500 100 110 111 152 195 250 Index: - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- S&P Foods 100 92 97 125 158 213 Index: - --------------------------------------------------------------------------------------------------------------------------------
Assumes $100 invested on December 1, 1992 in McCormick & Company Common Stock, S&P 500 Stock Index and S&P Food Products Index * Total Return Assumes Reinvestment of Dividends ** Fiscal Year ending November 30 18 MID-TERM INCENTIVE PROGRAM On January 26, 1998, the Board of Directors, upon recommendation of the Compensation Committee, adopted the "Mid-Term Incentive Program," subject to approval of the Company's stockholders. If the Program is not approved by the required vote of stockholders, it will terminate. The Mid-Term Incentive Program is designed to provide an incentive to a limited number of the Company's most senior executives to take actions to cause the Company to achieve targeted objectives for sales growth and total shareholder return. The Program would be comprised of several three-year cycles, the first three-year cycle to start on December 1, 1997, the second to start on December 1, 1999, and the remaining cycles to start every two years thereafter. Prior to the commencement of each cycle, the Company will establish, with the approval of the Compensation Committee, a goal for sales growth and total shareholder return. Total shareholder return for the Company during a cycle will be compared to the total shareholder return of other companies in the S&P Food Products Index. The amount of the benefit to be paid under the Program to participants depends on the extent to which the sales growth target is achieved and also on the relative position of the Company, based on its total shareholder return for the three-year cycle, as compared to other companies on the S&P Food Products Index. Payments will be adjusted if actual performance over the three-year cycle is greater than or less than the goals. Payment will be in the form of shares of McCormick Common Stock based on the value of such shares at the time that the payment is due. The Program provides that the maximum benefit that may be paid to the highest level participant at the end of any three-year cycle is $2,000,000. However, the maximum benefit that can be paid at the end of the first cycle is $1,570,000, which is payable only if cumulative sales growth exceeds 50% and total shareholder returns place the Company in at least the 80th percentile of the S&P Food Products Index. The Compensation Committee will administer the Program and will designate as participants in the Program certain key executives of the Company who are likely to have a significant impact on the Company's sales growth and shareholder return. For the first cycle beginning December 1, 1997, the Compensation Committee has named seven key executives as participants, including Messrs. Lawless, Davey, Nordhoff and Schroeder. Participants will become vested in Program benefits upon completion of each three-year cycle, except for special circumstances such as retirement, death or disability. If a participant's employment terminates prior to completion of a Program cycle as a result of retirement, death or disability, a pro rata benefit is paid based on the participant's length of service in the cycle. If a participant terminates employment voluntarily or is terminated involuntarily for cause during a Program cycle, all benefits under the current cycle are forfeited. In addition, if a participant becomes an employee of, or provides services to, a competitor of the Company within two years after termination of employment with the Company, the participant must reimburse the Company for all Program payments made during the two years immediately preceding his termination of employment. 19 In general, upon receipt of shares of stock pursuant to the Program, it is expected that recipients will recognize ordinary income for U.S. income tax purposes and the Company will receive a tax deduction in the same amount. Shares of stock will not be registered under the Securities Act of 1933, and will, therefore, be "restricted" securities upon issuance. Recipients will be required to make a Section 83(b) election under the Internal Revenue Code of 1986, as amended. If the Program had been in effect for the three-year cycle ending November 30, 1997, and assuming Program targets had been equal to those of the cycle beginning December 1, 1997, no benefits would have been payable to any participants, including those executive officers of the Company listed in the Compensation Table on page 13. REQUIRED VOTE OF STOCKHOLDERS. The favorable vote of at least a majority of the shares of Common Stock of the Company present in person or by proxy at a meeting at which a quorum is present is required for the approval of the Program. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF THE PROGRAM. RATIFICATION OF APPOINTMENT OF AUDITORS The Board of Directors, upon recommendation of the Audit Committee, has appointed the accounting firm of Ernst & Young LLP to serve as the independent auditors of the Company for the current fiscal year subject to ratification by the stockholders of the Company. Ernst & Young LLP were first appointed to serve as independent auditors of the Company in 1982 and are considered by management of the Company to be well qualified. Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting. They will have an opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions. REQUIRED VOTE OF STOCKHOLDERS. The favorable vote of at least a majority of the shares of Common Stock of the Company present in person or by proxy at a meeting at which a quorum is present is required for ratification of the appointment of independent auditors. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR RATIFICATION. OTHER MATTERS Management knows of no other matters which may be presented for consideration at the meeting. However, if any other matters properly come before the meeting, it is the intention of the persons named in the proxy to vote such proxy in accordance with their judgment on such matters. 20 VOTING PROCEDURES Each matter submitted to the stockholders for a vote is deemed approved if a majority of the shares of Common Stock of the Company present in person or by proxy at a meeting at which a quorum is present votes in favor of the matter. The presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at the meeting constitutes a quorum. Stockholder votes are tabulated manually by the Company's Shareholder Relations Office. Broker non-votes are neither counted in establishing a quorum nor voted for or against matters presented for stockholder consideration; proxy cards which are executed and returned without any designated voting direction are voted in the manner stated on the proxy card. Abstentions and broker non-votes with respect to a proposal are not counted as favorable votes, and therefore have the same effect as a vote against the proposal. STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING Proposals of stockholders to be presented at the 1999 Annual Meeting must be received by the Secretary of the Company prior to October 17, 1998 to be considered for inclusion in the 1999 proxy material. 21 APPENDIX MID-TERM INCENTIVE PROGRAM PLAN DOCUMENT Page 1 MCCORMICK MID-TERM INCENTIVE PROGRAM BACKGROUND / / Stock options, McCormick's only longer-term incentive, reward growth in stock price, but do not provide guidance as to how to create shareholder value. Based on a study done by compensation consultants with the Compensation Committee, McCormick has a unique opportunity to introduce a special Mid-Term Incentive Program that would focus participants' performance and support key strategies, including: _____ Focus on shareholder value _____ Support and direct strategic growth _____ Retention of an aggressive executive management team. This new program should allow the executive management team and the Compensation Committee to establish and communicate their own goals for success and the rewards for achieving those goals. A Mid-Term Incentive Program coupled with the existing stock option program should provide a very direct incentive to executive management to achieve agreed upon goals. Page 2 MCCORMICK MID-TERM INCENTIVE PROGRAM OBJECTIVE / / Motivate participants to achieve cumulative corporate sales growth* and cumulative total shareholder return (TSR**) objectives for a three-year performance period. Provide appropriate rewards to participants for accomplishing the performance objectives. * Corporate sales growth--Net dollar sales growth for the corporation, adjusting for the impact of acquisitions and divestitures. ** (TSR) Total Shareholder Return--The total accumulation of stock appreciation plus dividends (assumed to be reinvested) over a period of time. PARTICIPANT SELECTION CRITERIA Those executives who have significant impact on Sales Growth and Total Shareholder Return as determined by the Compensation Committee. Page 3 PROGRAM TERM AND PARTICIPANT VESTING Overlapping three-year performance cycles, with a new Program Cycle starting every two fiscal years, as shown below. Participants become vested in the program upon the completion of each three-year performance cycle, except for special terminations (e.g. retirement, death, disability, etc.).
FISCAL YEAR ---------------------------------- 1998 1999 2000 2001 2002 2003 2004 2005 1 Start -------------------- End Program (12/1/97 - 11/30/00) Cycle 2 Start --------------------- End (12/1/99 - 11/30/02) 3 Start ------------------- End (12/1/01 - 11/30/04) etc.
THREE-YEAR PERFORMANCE MEASURES Two performance measures, equally weighted: (i) Cumulative corporate sales growth compared to Program Cycle objectives and (ii) Cumulative McCormick Total Shareholder Return (TSR) Index compared to S&P Food Products Index (same companies as McCormick's proxy comparator group) Page 4 _____ Cumulative Corporate Sales Growth--Threshold, target and maximum sales growth percentages are established at the beginning of the Program Cycle. _____ Cumulative TSR Index--Threshold, target and maximum relative TSR percentile rankings are established at the beginning of the Program Cycle. Page 5 PROGRAM MECHANICS / / A juxtaposition of rewards and degrees of performance achievement on selected financial goals is created and approved at the beginning of each Program Cycle. Awards are received in unregistered restricted shares of McCormick common stock at the end of the three-year performance period, depending upon actual achievement of the three-year performance objectives, as determined by a Performance matrix. / / The number of shares earned by the participant will depend on the incentive amount earned and McCormick's stock price at the end date. / / The Program design allows McCormick to expense the award at the end date and to receive "favorable" accounting treatment (i.e., fixed accounting charge independent of stock price fluctuations). / / Each participant will recognize ordinary income for tax purposes upon receipt of stock; McCormick will receive a tax deduction equal to the ordinary income recognized by participants. Page 6 / / Each participant will be responsible for the payment of any tax liability which may arise as a result of his participation in this program and will also be required to submit and timely file an election under Section 83(b) of the Internal Revenue Code, as amended, to evidence his election to be taxed at the time the stock is awarded rather than upon expiration of the restriction on the stock. / / Each participant will pay the Company such amount of money as may be necessary to satisfy the Company's obligation to withhold any federal, state or local taxes from payments to be made under the Program. The participant may satisfy this obligation either by authorizing the Company to withhold shares of stock otherwise deliverable under the Program or by delivering cash or other shares of Company stock already owned by him to the Company. The shares of stock withheld or delivered shall have a fair market value equal to the withholding obligations. / / The Program provides that the maximum benefit that may be paid to the highest level participant at the end of any three-year cycle is $2,000,000. Page 7 TARGET AWARDS / / Mid-Term Incentive Program target incentives are set so that McCormick's annualized total long-term incentive values (McCormick stock options plus Mid-Term Incentive Program target incentives) are between the 50th and 75th market percentile levels for each salary grade. These above median competitive levels are earned only to the degree that mid-term performance is achieved. AWARD CALCULATION FORMULA -- TWO STEP PROCESS 1. Salary Grade Target Sales Growth and TSR Total Incentive $ Performance $ X Performance Award Modifier = Amount Amount Matrix 2. Total Incentive $ Amount = Number of McCormick ------------------------ Shares Awarded to Price Per Share on Date Participant of Award

Page 8 ADMINISTRATIVE GUIDELINES The following are guidelines for the Program's administration: / / Business Acquisitions/Divestitures ____ Recalibrate the Cumulative Sales Growth threshold, target and maximum objectives ____ No change to TSR measures / / New Participants ____ Approved by the Compensation Committee for inclusion at the beginning of each program cycle / / Transfer to an Ineligible Position ____ Award paid based on pro rata target amount and adjusted for actual performance Page 9 / / Terminations ____ Voluntary ___ Forfeit all benefits under the current cycle ___ And if the participant terminates his employment with McCormick and, within two years after termination, becomes an employee of, or otherwise provides services to, a competitor of McCormick, the participant shall forfeit any benefits received under the Program within two years prior to his termination. The forfeiture shall require the participant to deliver to the Company the shares of stock received under the Program within two years prior to his termination, or if the restriction on such shares has lapsed and the shares have been sold by the participant, the participant shall deliver to the Company the cash equivalent of such shares based on the NASDAQ National Market List closing price of McCormick's Common Stock Non-Voting on the date on which the participant begins providing services to the competitor. The shares or the cash shall be delivered to the Company within thirty days after the participant begins providing services to the competitor. ____ Involuntary (except "for cause") ____ Award paid based on pro rata target amount and adjusted for actual performance ____ Retirement ____ Award paid based on pro rata target amount and adjusted for actual performance Page 10 ___ For Cause ____ Forfeit all benefits under the current cycle / / Death or Disability ____ Award paid based on pro rata target amount and adjusted for actual performance