<PAGE>
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.
<TABLE>
<CAPTION>
Class NUMBER OF SHARES OUTSTANDING Date
<S> <C> <C>
Common Stock 10,063,999 1/30/98
Common Stock Non-Voting 63,594,106 1/30/98
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Document Part of 10-K into which incorporated
<S> <C>
Registrant's 1997 Annual Report to Stockholders . . . . . . . . . . . Part I, Part II, Part IV
Registrant's Proxy Statement dated 2/18/98 . . . . . . . . . . . . . Part III, Part IV
</TABLE>
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
The approximate number of holders of common stock of the Registrant based
on record ownership as of January 30, 1998 was as follows:
<TABLE>
<CAPTION>
Title of Class Approximate Number
of Record Holders
<C> <S>
Common Stock, no par value 2,000
Common Stock Non-Voting, no par value 9,500
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE>
<S> <C>
By:
/s/ Robert J. Lawless President & Chief Executive Officer February 16, 1998
Robert J. Lawless
</TABLE>
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:
<TABLE>
<S> <C> <C>
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
</TABLE>
11
<PAGE>
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
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
PART ITEM REFERENCED MATERIAL/PAGE(S)
<S> <C> <C>
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
<PAGE>
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.
</TABLE>
14
<PAGE>
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
<PAGE>
Supplemental Financial Schedules
SUPPLEMENTAL FINANCIAL SCHEDULE II
CONSOLIDATED
McCORMICK & COMPANY, INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C>
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
</TABLE>
- -------------------
Note:
(1) Accounts written off net of recoveries.
16
<PAGE>
Exhibit Index
Item 601
<TABLE>
<CAPTION>
Exhibit
Number Reference or Page
<S> <C> <C>
(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.
</TABLE>
(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
<PAGE>
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
<PAGE>
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*
<TABLE>
<CAPTION>
Year Ended November 30
------------------------------
Computation for Statement of Income 1997 1996 1995
<S> <C> <C> <C>
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
</TABLE>
- -----------------------
*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
<PAGE>
Exhibit 13
[Bottle of Whole Black Peppercorns]
McCormick & Company, Incorporated
1997 Annual Report
We Flavor the World -TM-
<PAGE>
[Close-up of portion Whole Black Peppercorn bottle]
<PAGE>
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
<TABLE>
<S> <C>
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
</TABLE>
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.
<PAGE>
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]
<PAGE>
[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.
<PAGE>
We Flavor Your World-TM-
Financial Highlights
(dollars in millions except per-share data)
<TABLE>
<CAPTION>
Year ended November 30
-------------------------------
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
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
</TABLE>
* An "EVA" mark is owned by Stern Stewart & Co.
Market Capitalization in Billions
<TABLE>
<S> <C>
1987 $0.4
1997 $1.9
</TABLE>
Ten-Year Growth of a Dollar Investment 11/30/87 to 11/30/97
(Includes dividend reinvestment)
<TABLE>
<S> <C>
S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . $5.56
S&P Food. . . . . . . . . . . . . . . . . . . . . . . . $6.68
McCormick Stock . . . . . . . . . . . . . . . . . . . . $7.63
</TABLE>
Ten-year average annual compound growth rate for McCormick Stock is 22.5%.
<PAGE>
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.
<PAGE>
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
<PAGE>
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"]
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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]
<PAGE>
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
<PAGE>
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
--------------------------------
<TABLE>
<S> <C>
1995 ($ 4)
1996 ($45)
1997 $23
</TABLE>
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.
<PAGE>
McCormick & Company, Incorporated
<TABLE>
<CAPTION>
Historical Financial Summary
(dollars in millions except per-share data)
- ----------------------------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
For the Year 1997 1996 1995 1994 1993 1992 1991 1990 1989
- ----------------------------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
- ----------------------------------- --------
<S> <C>
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
</TABLE>
- ---------------
(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.
<PAGE>
We Flavor The World
<TABLE>
<CAPTION>
Consolidated Income Statement
(in thousands except per-share data)
Year ended November 30
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
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
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ---------------------
See Notes to Consolidated Financial Statements, pages 18-33.
<PAGE>
McCormick & Company, Incorporated
<TABLE>
<CAPTION>
Consolidated Balance Sheet
(in thousands)
Assets
November 30
----------------------
1997 1996
---------- ----------
<S> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>
- -----------------------
See Notes to Consolidated Financial Statements, pages 18-33.
<PAGE>
We Flavor Your World
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity
November 30
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
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
----------- -----------
----------- -----------
</TABLE>
- ---------------------
See Notes to Consolidated Financial Statements, pages 18-33.
<PAGE>
McCormick & Company, Incorporated
<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows
(in thousands)
Year ended November 30
--------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
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
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
- ---------------------
See Notes to Consolidated Financial Statements, pages 18-33.
<PAGE>
We Flavor The World
<TABLE>
<CAPTION>
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
------- ---------- -------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
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
-------- ----------- --------- ---------- ----------- -----------
-------- ----------- --------- ---------- ----------- -----------
</TABLE>
- -------------------
See Notes to Consolidated Financial Statements, pages 18-33.
<PAGE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
Unconsolidated Affiliates
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
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
</TABLE>
<PAGE>
McCormick & Company, Incorporated
3. Financing Arrangements:
The Company's outstanding debt is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
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
========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
Total Amount Total Amount
Facility Borrowed Facility Borrowed
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
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
========= ========= ========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C>
1999 - $28,446 2001 - $ 87,054
2000 - $ 7,959 2002 - $ 362
</TABLE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
<S> <C>
1998 - $9,872
1999 - $8,449
2000 - $7,572
2001 - $5,774
2002 - $3,655
Thereafter - $8,255
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
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.
<PAGE>
McCormick & Company, Incorporated
The following table sets forth the principal and supplemental plans'
funded status at September 30, the measurement date:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
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%
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
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
======= ========
</TABLE>
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):
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Pro forma net income . . . . $94,541 $40,558
Pro forma earnings per share $ 1.25 $ .50
</TABLE>
The effects of applying SFAS No. 123 on pro forma net income are not
indicative of future amounts until the new rules are applied to all
outstanding non-vested awards.
<PAGE>
McCormick & Company, Incorporated
A summary of the Company's stock option activity and related information for
the years ended November 30 follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------ -----------------------------------
Shares Weighted-average Shares Weighted-average
(000s) exercise price (000s) exercise price
--------------- ------------------ -------------- ------------------
<S> <C> <C> <C> <C>
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
-------------- -----------------
<S> <C> <C>
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
<FN>
N/A: Information not applicable as the date of issue for the 1995 option grants precedes the effective date of SFAS No. 123
requirements.
</TABLE>
Stock options outstanding at November 30, 1997 were as follows:
<TABLE>
<CAPTION>
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
------ ----------------------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$ 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
======= ======
<FN>
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.
</FN>
</TABLE>
<PAGE>
We Flavor The World
7. Income Taxes:
For financial reporting purposes, sources of income from consolidated
continuing operations before income taxes were:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
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)
</TABLE>
Differences between income taxes computed at the United States federal
statutory rate and actual income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
Amount Percent Amount Percent Amount Percent
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
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%
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
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:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
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)
========= =========
</TABLE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
Fair Carrying Fair Carrying
Value Value Value Value
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Long-term debt $308,277 $ 285,478 $312,697 $ 301,671
</TABLE>
Forward exchange contracts for foreign currency: Forward exchange
contracts at November 30, 1997 are summarized as follows:
<TABLE>
<CAPTION>
Nominal Fair
Value Value
-------- -------
<S> <C> <C>
Currency sold
Pound sterling $ 1,849 $ (26)
Deutsche mark. 1,425 (71)
Italian lira . 234 4
</TABLE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Net sales ............. $129,373 $167,608
Interest expense....... 11,173 15,972
Income taxes........... 3,841 5,834
</TABLE>
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.
<PAGE>
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.
<TABLE>
<CAPTION>
Food Packaging
Products Products Consolidated
---------- --------- ------------
<S> <C> <C> <C>
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
<FN>
(1) Includes restructuring charges of $41,085 for Food Products and $17,010
for Packaging Products.
</FN>
</TABLE>
Packaging net sales include sales to the Food Products segment of $25,960
in 1997; $30,186 in 1996 and $34,527 in 1995.
<PAGE>
McCormick & Company, Incorporated
<TABLE>
<CAPTION>
Geographic Areas
North Other
America Europe Countries Total
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
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
<FN>
(1) Includes net restructuring charges of $19,614 for North America, $10,195
for Europe and $9,773 for Other Countries.
</FN>
</TABLE>
<PAGE>
We Flavor Your World
12. Supplemental Financial Statement Data:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
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
</TABLE>
<PAGE>
McCormick & Company, Incorporated
13. Quarterly Data (Unaudited):
<TABLE>
<CAPTION>
1997 Quarters
------------------------------------------------------
1st 2nd 3rd 4th Year
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
We Flavor The World
<TABLE>
<CAPTION>
1996 Quarters
------------------------------------------------------
1st 2nd 3rd 4th Year
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
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
========= ======== ========= ========= ===========
</TABLE>
<PAGE>
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
<PAGE>
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
<PAGE>
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)
-----------------------
<TABLE>
<S> <C>
1993. . . . . . . . . . . . . $1.4
1994. . . . . . . . . . . . . $1.53
1995. . . . . . . . . . . . . $1.70
1996. . . . . . . . . . . . . $1.73
1997. . . . . . . . . . . . . $1.80
</TABLE>
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.
<PAGE>
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.
<TABLE>
<CAPTION>
Sales
-------------------------------------------------------
1997 1996 1995 1997 1996 1995
----------------------------- ------------------------
(in millions) (percentage increase)
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
Sales Increase Analysis
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
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%
<FN>
(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.
</FN>
</TABLE>
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.
<PAGE>
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.
<PAGE>
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
<TABLE>
<CAPTION>
Earnings Per Share -- Continuing Operations (after restructuring)
<S> <C>
1993 $1.01
1994 $0.52
1995 $1.07
1996 $0.54
1997 $1.29
</TABLE>
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.
<PAGE>
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.
<PAGE>
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.
<TABLE>
<CAPTION>
Cash Flows From Operations In Millions
<S> <C>
1993 $ 81
1994 $ 73
1995 $ 59
1996 $202
1997 $181
</TABLE>
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
<TABLE>
<CAPTION>
Capital Expenditures Depreciation
<S> <C> <C>
1993 $76 $47
1994 $88 $57
1995 $82 $56
1996 $75 $58
1997 $44 $44
</TABLE>
<PAGE>
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.
<TABLE>
<CAPTION>
Debt to Capital
<S> <C>
1993 48%
1994 55%
1995 56%
1996 47%
1997 50%
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
First Quarter. $ .15 $ .14 $ .13
Second Quarter .15 .14 .13
Third Quarter. .15 .14 .13
Fourth Quarter .15 .14 .13
Total. . . . . $ .60 $ .56 $ .52
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996
--------------- --------------
Quarter ended High Low High Low
- ---------------------------------- ------- ------ ----- ------
<S> <C> <C> <C> <C>
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
</TABLE>
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
<TABLE>
<CAPTION>
Total Total Block Block Non-Block Non-Block
High Low Close Trades Volume Trades Volume Trades Volume
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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
<TABLE>
<CAPTION>
Total Total Block Block Non-Block Non-Block
High Low Close Trades Volume Trades Volume Trades Volume
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
Copyright 1997 The Nasdaq Stock Market, Inc. All rights reserved. 3
12/17/97 2:07:43 PM
<TABLE>
<CAPTION>
Dividends Paid Per Share
<S> <C>
1993 $.44
1994 $.48
1995 $.52
1996 $.56
1997 $.60
</TABLE>
<PAGE>
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
<PAGE>
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
<PAGE>
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
---------------------------
<TABLE>
<S> <C>
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
</TABLE>
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.
<PAGE>
[McCormick/Schilling product coupons valued at $3.00 and $1.50]
<PAGE>
[World illustration from page 6, screened to produce subtle graphic]
<PAGE>
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<CASH> 13,500
<SECURITIES> 0
<RECEIVABLES> 220,932
<ALLOWANCES> 3,734
<INVENTORY> 252,084
<CURRENT-ASSETS> 506,518
<PP&E> 693,516
<DEPRECIATION> 313,501
<TOTAL-ASSETS> 1,256,232
<CURRENT-LIABILITIES> 498,249
<BONDS> 276,489
0
0
<COMMON> 159,450
<OTHER-SE> 233,660
<TOTAL-LIABILITY-AND-EQUITY> 1,256,232
<SALES> 1,800,966
<TOTAL-REVENUES> 1,800,966
<CGS> 1,172,328
<TOTAL-COSTS> 457,795
<OTHER-EXPENSES> (7,795)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,332
<INCOME-PRETAX> 142,306
<INCOME-TAX> 52,653
<INCOME-CONTINUING> 97,415
<DISCONTINUED> 1,013
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98,428
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.30
</TABLE>
<PAGE>
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.:
---------------------------------------------------------------
<PAGE>
3) Filing Party:
---------------------------------------------------------------
4) Date Filed:
---------------------------------------------------------------
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE
NOMINEES LISTED BELOW.
<TABLE>
<CAPTION>
AMOUNT AND NATURE* OF
BENEFICIAL OWNERSHIP
-----------------------
YEAR FIRST COMMON
PRINCIPAL OCCUPATION & ELECTED NON-
NAME AGE BUSINESS EXPERIENCE DIRECTOR COMMON VOTING
- ------------------------------ --- ---------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE* OF
BENEFICIAL OWNERSHIP
-----------------------
YEAR FIRST COMMON
PRINCIPAL OCCUPATION & ELECTED NON-
NAME AGE BUSINESS EXPERIENCE DIRECTOR COMMON VOTING
- ------------------------------ --- ---------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
<TABLE>
<S> <C> <C>
Directors and Executive Officers as a Group
(14 persons)........................................ 528,716 136,379
(5.2%)
</TABLE>
Footnotes continued on next page
5
<PAGE>
* 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
<PAGE>
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
<PAGE>
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
<PAGE>
- 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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
COMPENSATION COMMITTEE EXECUTIVE COMMITTEE
- -------------------------------- ----------------------------
<S> <C>
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
</TABLE>
11
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
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)
- ---------------------------------------- ------ ---------- --------- ---------------- --------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
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
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
(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
<PAGE>
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:
<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE ----------------------------------------------------------------------------
COMPENSATION 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 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
- ------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
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 $289,110, respectively. The years of credited service for
Dr. Albrecht and Messrs. Davey, Lawless, Nordhoff and Schroeder as of the same
date were 15, 4, 7, 27 and 12 years, respectively.
Mr. Lawless and Mr. Davey are also entitled to receive pension benefits
under the registered pension plan ("RPP") offered to employees of McCormick
Canada, Inc. Benefits under the RPP are based on the average of the
participant's highest three consecutive years of earnings. Upon retirement the
Company has agreed to pay Mr. Lawless and Mr. Davey a supplemental benefit equal
to the excess, if any, of the benefit calculated under the RPP (assuming all
their service at McCormick Canada and the Company had been under the RPP) over
(i) the pension benefit accrued under RPP (based on years of service with
McCormick Canada) plus (ii) the benefit accrued under the Company's Pension Plan
(based on years of service with the Company).
15
<PAGE>
STOCK OPTIONS
During the last fiscal year, the Company has granted stock options to
certain employees, including executive officers, pursuant to stock option plans
approved by the Company's stockholders.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS* AT ASSUMED
- ------------------------------------------------------------------------------------------------ ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR BASE OPTION TERM ($)**
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARES) DATE 0% 5% 10%
- ----------------------------------- ------------ ------------ ---------------- ---------- --- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
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
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
* 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
<PAGE>
outstanding as of December 31, 1997 of approximately $494 million and $1.09
billion, over the same period.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SHARES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS
SHARES ACQUIRED VALUE OPTIONS/SARS AT FY-END (#) AT FY-END($)
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISALE/UNEXERCISABLE
- ---------------------------------------- --------------- ------------ -------------------------- -------------------------
<S> <C> <C> <C> <C>
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
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
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**
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
11/92 11/93 11/94 11/95 11/96 11/97
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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:
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
APPENDIX
MID-TERM INCENTIVE PROGRAM
PLAN DOCUMENT
<PAGE>
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>
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>
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.).
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------
1998 1999 2000 2001 2002 2003 2004 2005
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
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>
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>
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>
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>
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
<TABLE>
<S> <C> <C>
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
</TABLE>
<PAGE>
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>
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>
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
