<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, 1998 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 /_/
The aggregate market value of the voting stock held by non-affiliates of the
registrant . . . . . . . . $190,014,220
The aggregate market value of the non-voting stock held by non-affiliates of the
registrant . . . . . . .$1,848,713,670
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 29, 1999 was 6,441,160 and 62,668,260
respectively. This number excludes shares held by the McCormick Profit Sharing
Plan 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 29, 1999, $29.50.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
CLASS NUMBER OF SHARES OUTSTANDING DATE
Common Stock 9,486,643 1/29/99
Common Stock Non-Voting 62,931,803 1/29/99
DOCUMENTS INCORPORATED BY REFERENCE
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<CAPTION>
DOCUMENT PART OF 10-K INTO WHICH INCORPORATED
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Registrant's 1998 Annual Report to Stockholders............................ Part I, Part II, Part IV
Registrant's Proxy Statement dated 2/17/99................................. Part III, Part IV
Registrant's Proxy Statement dated 2/18/98................................. 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 1998, 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 5 through 18 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 1998 are amounts from continuing
operations. The Registrant's net sales increased 4.4% in 1998 to $1.9 billion.
The Registrant operates in two business segments, Food Products and
Packaging Products, and has disclosed in Note 12 of the Notes to Consolidated
Financial Statements on pages 29 and 30 of its Annual Report to Stockholders for
1998, 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 1998 sets forth a
description of the business conducted by the Registrant on pages 8 through 18.
Those pages of the Registrant's Annual Report are incorporated by reference.
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 12 of the Notes to Consolidated Financial
Statements on pages 29 and 30 of the Registrant's Annual Report to Stockholders
for 1998, 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.
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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 U.S. 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
United States. 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.
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.
3
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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 24 and 25 of the
Registrant's Annual Report to Stockholders for 1998 and pages 14 and 15 of the
Registrant's Annual Report to Stockholders for 1998, 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 1998.
In the same year, sales to the five largest customers represented approximately
22% of consolidated net sales.
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 8 through 18 of the
Registrant's Annual Report to Stockholders for 1998, 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 1998,
1997 and 1996 were approximately $38.9 million, $37.7 million and $35.7 million,
respectively. Of these amounts, expenditures for research and development
amounted to $16.9 million in 1998, $16.1 million in 1997 and $12.2 million in
1996. The amount spent on customer-sponsored research activities is not
material.
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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 7,600 employees during
fiscal year 1998.
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.
Note 12 of the Notes to Consolidated Financial Statements on pages 29
and 30 of the Registrant's Annual Report to Stockholders for 1998, and pages 12
through 18 of the Registrant's Annual Report to Stockholders for 1998 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 18 of the
Registrant's Annual Report to Stockholders for 1998, 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
107,000 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.
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(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.
(d) Packaging Products
The Registrant has three principal plants which are devoted to the
production of plastic products. A plant of approximately 273,000 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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of Registrant's
fiscal year 1998 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 14 and 15 of its Annual Report to
Stockholders for 1998, 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.
The approximate number of holders of common stock of the Registrant
based on record ownership as of January 29, 1999 was as follows:
<TABLE>
<CAPTION>
Approximate Number
Title of Class of Record Holders
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<S> <C>
Common Stock, no par value 2,000
Common Stock Non-Voting, no par value 10,000
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The Registrant has disclosed the information required by this Item in the line
items for 1994 through 1998 entitled "Net sales," "Net income - continuing
operations," "Earnings per share - diluted - continuing operations," "Common
dividends declared," "Long-term debt" and "Total assets" on page 32 of its
Annual Report to Stockholders for 1998, 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 1998 at pages 12
through 18 contains a discussion and analysis of the Registrant's financial
condition and results of operations for the three fiscal years ended November
30, 1998. Said pages are incorporated by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MATERIAL RISK
The Registrant's Annual Report to Stockholders for 1998 at pages 16 and
17 contains the quantitative and qualitative disclosures about market risk. Said
pages are incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data for McCormick & Company,
Incorporated are included on pages 19 through 30 of the Registrant's Annual
Report to Stockholders for 1998, which pages are incorporated by reference. The
report of independent auditors from Ernst & Young LLP on such financial
statements is included on page 31 of the Registrant's Annual Report to
Stockholders for 1998, which page is
7
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incorporated by reference. The supplemental schedule for 1996, 1997 and 1998 is
included on page 15 of this Report on Form 10-K.
The unaudited quarterly data required by Item 302 of Regulation S-K is
included in Note 14 of the Notes to Consolidated Financial Statements at page 30
of the Registrant's Annual Report to Stockholders for 1998, 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.
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 17, 1999, 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,
Robert W. Skelton and Gordon M. Stetz, Jr. are also executive officers of the
Registrant.
Mr. Anderson is 52 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 46 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 43 years old and has had the following work experience
during the last five years: 6/98 to present - Vice President and Chief Financial
Officer - Global Industrial Group; 3/96 to 6/98 - Vice President - Acquisitions
and Financial Planning; 5/94 to 3/96 - Vice President of Finance - McCormick
Flavor Division; 12/91 to 5/94 - Vice President of Finance - International
Group.
Mr. Skelton is 51 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.
Mr. Stetz is 38 years old and has had the following work experience
during the last five years: 6/98 to present - Vice President, Acquisitions and
Financial Planning; 2/95 to 6/98 - Assistant Treasurer, Investor
Relations/Financial Services; 1/93 to 2/95 - Manager, Acquisitions and Financial
Planning.
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ITEM 11. EXECUTIVE COMPENSATION
The Registrant has filed with the Commission a definitive copy of its
Proxy Statement dated February 17, 1999, which sets forth the information
required by this Item at pages 7 through 18, 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 17, 1999, 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 17, 1999, which sets forth the information
required by this Item at page 7, which page is incorporated by reference.
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 14
below.
2. The financial statement schedules required by Item 8
of this Form which are listed in the Table of
Contents appearing on page 14 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 16 and 17
of this Report.
(b) The Registrant filed no reports during the last quarter of its
fiscal year 1998 on Form 8-K.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized.
MCCORMICK & COMPANY, INCORPORATED
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<S> <C> <C>
By:
/s/ Robert J. Lawless President & Chief Executive Officer February 15, 1999
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:
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<S> <C> <C>
/s/ Robert J. Lawless President & Chief Executive Officer February 15, 1999
Robert J. Lawless
</TABLE>
Principal Financial Officer:
<TABLE>
<S> <C> <C>
/s/ Francis A. Contino Executive Vice President & February 15 , 1999
Francis A. Contino Chief Financial Officer
Principal Accounting Officer:
/s/ J. Allan Anderson Vice President & Controller February 15, 1999
J. Allan Anderson
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons, being a majority of
the Board of Directors of McCormick & Company, Incorporated, on the date
indicated:
<TABLE>
<S> <C>
THE BOARD OF DIRECTORS: DATE:
/s/ James T. Brady February 15, 1999
James T. Brady
/s/ Francis A. Contino February 15, 1999
Francis A. Contino
/s/ James S. Cook February 15, 1999
James S. Cook
/s/ Robert G. Davey February 15, 1999
Robert G. Davey
/s/ Edward S. Dunn, Jr. February 15, 1999
Edward S. Dunn, Jr.
/s/ Freeman A. Hrabowski, III February 15, 1999
Freeman A. Hrabowski, III
/s/ Robert J. Lawless February 15, 1999
Robert J. Lawless
/s/ Charles P. McCormick, Jr. February 15, 1999
Charles P. McCormick, Jr.
/s/ George V. McGowan February 15, 1999
George V. McGowan
/s/ Carroll D. Nordhoff February 15, 1999
Carroll D. Nordhoff
/s/ February 15, 1999
Robert W. Schroeder
/s/ William E. Stevens February 15, 1999
William E. Stevens
/s/ Karen D. Weatherholtz February 15, 1999
Karen D. Weatherholtz
</TABLE>
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CROSS REFERENCE SHEET
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<CAPTION>
PART ITEM REFERENCED MATERIAL/PAGE(S)
<S> <C> <C>
PART I
Item 1. Business Registrant's 1998 Annual Report to
Stockholders/Pages 5-18, 24- 25 and 29-30.
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 1998 Annual Report to
Registrant's Common Stockholders/Pages 14-15.
Equity and Related
Stockholder Matters.
Item 6. Selected Financial Registrant's 1998 Annual Report
Data. to Stockholders/Page 32.
Item 7. Management's Registrant's 1998 Annual Report to Stockholders/Pages 12-18.
Discussion and
Analysis of Financial
Condition and Results
of Operations.
Item 7A. Quantitative and Registrant's 1998 Annual Report to Stockholders/Pages 16-17.
Qualitative
Disclosures About
Material Risk.
Item 8. Financial Registrant's 1998 Annual Report to Stockholders/Pages 19-31 and
Statements and Page 15 of this Report.
Supplementary Data.
Item 9. Changes in and None.
Disagreements with
Accountants on
Accounting and
Financial Disclosure.
</TABLE>
12
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<TABLE>
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PART III
Item 10. Directors and Registrant's Proxy Statement dated February 17, 1999/Pages
Executive Officers 3-7.
of the Registrant.
Item 11. Executive Registrant's Proxy Statement dated February 17, 1999/Pages
Compensation. 7-18.
Item 12. Security Ownership Registrant's Proxy Statement dated February 17, 1999/Pages
of Certain Beneficial 2-6.
Owners and
Management.
Item 13. Certain Registrant's Proxy Statement dated February 17, 1999/Page 17.
Relationships and
Related Transactions.
PART IV
Item 14. Exhibits, Financial See Exhibit Index pages 16 and 17 and the Table of
Statement Schedules Contents at page 14 of this Report.
and Reports on Form
8-K.
</TABLE>
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MCCORMICK & COMPANY, INCORPORATED
TABLE OF CONTENTS AND RELATED INFORMATION
Included in the Registrant's 1998 Annual Report to Stockholders, the following
consolidated financial statements are incorporated by reference in Item 8*:
Consolidated Balance Sheet, November 30, 1998 and 1997
Consolidated Income Statement for the Years Ended November 30, 1998,
1997 and 1996.
Consolidated Statement of Shareholders' Equity for the Years Ended
November 30, 1998, 1997 and 1996.
Consolidated Statement of Cash Flows for the Years Ended November 30,
1998, 1997 and 1996.
Notes to Consolidated Financial Statements, November 30, 1998
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
1998 ANNUAL REPORT TO STOCKHOLDERS OF THE REGISTRANT FOR ITS
FISCAL YEAR ENDED NOVEMBER 30, 1998 ACCOMPANIES THIS ANNUAL
REPORT ON FORM 10-K.
14
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Supplemental Financial Schedule II
Consolidated
McCORMICK & COMPANY, INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Balance Additions Balance
Beginning Costs and Deductions at End
Description of Year Expenses of Year
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended November 30, 1998
Allowance for doubtful receivables $3.7 $1.3 $1.0 (1) $4.0
Year ended November 30, 1997
Allowance for doubtful receivables $3.5 $1.0 $0.8 (1) $3.7
Year ended November 30, 1996
Allowance for doubtful receivables $2.5 $1.7 $0.7 (1) $3.5
</TABLE>
Note:
(1) Accounts written off net of recoveries.
15
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EXHIBIT INDEX
<TABLE>
<CAPTION>
ITEM 601
EXHIBIT
NUMBER REFERENCE OR PAGE
<S> <C>
(2) Plan of acquisition, reorganization,
arrangement, liquidation or
succession Not applicable.
(3) Articles of Incorporation and By-Laws Incorporated by reference from
Restatement of Charter of McCormick Registration Form S-8, Registration No.
& Company, Incorporated dated 33-39582 as filed with the Securities
April 16, 1990 and Exchange Commission on March 25,
1991.
Articles of Amendment to Charter of Incorporated by reference from
McCormick & Company, Incorporated Registration Form S-8 Registration
dated April 1, 1992 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
- Restated and Amended Registrant's Form 10-Q Incorporated for
as of June 17, 1996 the quarter ended May 31, 1996 as filed
with the Securities and Exchange
Commission on July 12, 1996.
(4) Instruments defining the rights of With respect to rights of securities,
security holders, including indentures see Exhibit 3 (Restatement of Charter).
No instrument of Registrant with
respect to long-term debt involves an
amount of authorized securities which
exceeds 10 percent of the total assets
of the Registrant and its subsidiaries
on a consolidated basis. Registrant
agrees to furnish a copy of any such
instrument upon request of the
Commission.
(9) Voting Trust Agreement Not applicable.
(10) Material Contracts
</TABLE>
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.
16
<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) Mid-Term Incentive Program provided to a limited number of
senior executives, a description of which is incorporated by
reference from pages 19 and 20 of the Registrant's definitive
Proxy Statement dated February 18, 1998, as filed with the
Commission on February 17, 1998, which pages are incorporated
by reference.
vi) Amendment to the Letter Agreement between Registrant and
Charles P. McCormick, Jr. effective December 1, 1998, which
letter is attached as Exhibit 10.1 of this Report on
Form 10-K.
<TABLE>
<S> <C>
(11) Statement re computation of per-share earnings. Not applicable.
(12) Statements re computation of ratios. Pages 14 and 15 of Exhibit 13.
(13) Annual Report to Security Holders
McCormick & Company, Incorporated Submitted in electronic format.
Annual Report to Stockholders for 1998
(16) Letter re change in certifying Not applicable.
accountant
(18) Letter re change in accounting principles Not applicable.
(21) Subsidiaries of the Registrant Page 34 of Exhibit 13.
(22) Published report regarding matters Not applicable.
submitted to vote of securities holders
(23) Consent of independent auditors Attached to 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 17, 1999
</TABLE>
17
<PAGE>
Exhibit 10.1--Letter Agreement between McCormick and Charles P. McCormick, Jr.
February 2, 1999
Mr. Charles P. McCormick, Jr.
6761 S.E. North Marina Way
Stuart, Florida 34996
Dear Buzz:
This letter will amend the letter agreement between you and the Company
dated January 2, 1997 (the "Letter Agreement").
Effective December 1998, your monthly stipend will increase from Seven
Thousand Eight-Three Dollars and Thirty-Three Cents ($7,083.33) to Seven
Thousand Two Hundred Seventy-Eight Dollars and Eight-Three Cents ($7,278.83).
Said monthly payments will be made for the months of December 1998, January
1999, February 1999 and March 1999. In addition, based on Company
performance in 1999, you will receive a payment of $20,000 multiplied by the
same performance factor used for corporate executives in the Management
Incentive Bonus Plan.
In all respects not inconsistent herewith, the provisions of the Letter
Agreement remain in full force and effect until March 31, 1999.
If the foregoing correctly expresses our understanding, please sign a
copy of this letter in the space provided below and return it to me.
Very truly yours,
McCORMICK & COMPANY, INCORPORATED
By: /s/ Karen D. Weatherholtz
--------------------------
Karen D. Weatherholtz
Vice President - Human Relations
AGREED AND ACCEPTED THIS
5th day of February, 1999.
By: /s/ Charles P. McCormick, Jr.
------------------------------
Charles P. McCormick, Jr.
<PAGE>
Exhibit 13
[LOGO]
McCormick
& Company
COMMITTED TO GROWTH
1998 Annual Report
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Financial Highlights ...................................................... 3
Letter to Shareholders .................................................... 5
Core Values ............................................................... 7
Report on Operations ...................................................... 8
Management's Discussion and Analysis ...................................... 12
Consolidated Statement of Income .......................................... 19
Consolidated Balance Sheet ................................................ 20
Consolidated Statement of Cash Flows ...................................... 21
Consolidated Statement of Shareholders' Equity ............................ 22
Notes to Consolidated Financial Statements ................................ 23
Report of Management ...................................................... 31
Report of Independent Auditors ............................................ 31
Historical Financial Summary .............................................. 32
Directors and Officers .................................................... 33
McCormick Worldwide ....................................................... 34
Investor Information ...................................................... Inside back cover
</TABLE>
[LOGO]
OUR MISSION
The primary mission of McCormick & Company is to profitably expand its worldwide
leadership position in the spice, seasoning and flavoring markets.
THE ANNUAL MEETING WILL BE HELD AT 10 A.M., WEDNESDAY, MARCH 17, 1999, AT
MARRIOTT'S HUNT VALLEY INN, 245 SHAWAN ROAD (EXIT 20A OFF I-83 NORTH OF
BALTIMORE), HUNT VALLEY, MARYLAND 21031.
<PAGE>
THE COMPANY
[PHOTO]
McCormick brand vanilla bottle and vanilla beans
CAPTION READS: THE SCENT FOR THIS YEAR'S ANNUAL REPORT IS VANILLA.
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 and flavors 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 are sold in about 100
countries. How do we oversee this complex business from the growing fields to
the consumer purchase? It all starts with Multiple Management, an enlightened
business philosophy and system of participative management begun in 1932.
Multiple Management fosters the 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. Combined with EVA, a
primary indicator to measure performance, Multiple Management enhances our
strengths and helps us better use resources to create greater shareholder value.
Founded in 1889, McCormick has 7,600 employees. Many are shareholders. They are
the ones who flavor your world.
<PAGE>
A TASTE FOR GROWTH
THE ODDS ARE GREAT THAT
AT NEARLY EVERY EATING OCCASION YOU WILL
CONSUME A McCORMICK
PRODUCT, WHETHER
IN YOUR KITCHEN, AT
RESTAURANTS OR AS
INGREDIENTS IN
NUMEROUS PACKAGED
FOODS.
[Photo]
four prepared food shots with the following products: Golden Dipt Cocktail
Sauce and Shrimp & Crab Boil, Gourmet Chili Powder and core line Hot Mexican
Style Chili Powder
Caption: A TASTE FOR GROWTH THE ODDS ARE GREAT THAT AT NEARLY EVERY EATING
OCCASION YOU WILL CONSUME A MCCORMICK PRODUCT, WHETHER IN YOUR
KITCHEN, AT RESTAURANTS OR AS INGREDIENTS IN NUMEROUS PACKAGED FOODS.
<PAGE>
FINANCIAL HIGHLIGHTS
for the year ended November 30 (MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 % Change
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 1,881.1 $ 1,801.0 4.4
Operating income (1) 182.8 170.8 7.0
Net income (2) 103.8 98.4 5.5
- ---------------------------------------------------------------------------------
Earnings per share - diluted $ 1.41 $ 1.30 8.5
Dividends paid per share .64 .60 6.7
Market price per share - close 33.38 26.50 26.0
Average shares outstanding - diluted 73.8 75.9 (2.8)
- ---------------------------------------------------------------------------------
Economic value added (EVA) (3) $ 33.1 $ 23.4 41.5
</TABLE>
(1) Includes restructuring charges (credits) of $2.3 in 1998 and $(3.2) in
1997.
(2) Includes after-tax restructuring charges (credits) of $1.5 in 1998 and
$(2.0) in 1997 and income from discontinued operations, net of taxes of
$1.0 in 1997.
(3) An "EVA" mark is owned by Stern Stewart & Co. McCormick defines
economic value added as net income from operations, excluding interest,
in excess of a capital charge for average capital employed.
Financial Highlights
NET SALES (CONTINUING OPERATIONS)
IN BILLIONS
[GRAPH]
<TABLE>
<CAPTION>
Net Sales (CONTINUING OPERATIONS)
<S> <C>
1998 1,881.1
1997 1,801.0
1996 1,732.5
1995 1,691.1
1994 1,529.4
</TABLE>
NET INCOME
- - AS REPORTED
- - EXCLUDING RESTRUCTURING, DISCONTINUED
OPERATIONS AND EXTRAORDINARY ITEMS
IN MILLIONS
[GRAPH]
<TABLE>
<CAPTION>
Before impact of
restructuring, discontinued
As reported operations & extraordinary items
----------- --------------------------------
<S> <C> <C>
1998 103.8 105.3
1997 98.4 95.4
1996 41.9 83.1
1995 97.5 84.5
1994 61.2 88.8
</TABLE>
EARNINGS PER SHARE - DILUTED
- - AS REPORTED
- - EXCLUDING RESTRUCTURING, DISCONTINUED
OPERATIONS AND EXTRAORDINARY ITEMS
[GRAPH]
<TABLE>
<CAPTION>
BEFORE IMPACT OF
RESTRUCTURING, DISCONTINUED
AS REPORTED OPERATIONS & EXTRAORDINARY ITEMS
----------- --------------------------------
<S> <C> <C>
1998 $1.41 1.43
1997 $1.30 1.26
1996 $0.52 1.03
1995 $1.20 1.04
1994 $0.75 1.09
</TABLE>
DIVIDENDS PAID PER SHARE
DIVIDENDS HAVE BEEN PAID EVERY YEAR
SINCE 1925.
[GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS PAID PER SHARE
<S> <C>
1998 $0.64
1997 $0.60
1996 $0.56
1995 $0.52
1994 $0.48
</TABLE>
ECONOMIC VALUE ADDED
IN MILLIONS
[GRAPH]
<TABLE>
<CAPTION>
EVA
<S> <C>
1998 33,147
1997 23,421
1996 (44,641)
1995 (3,700)
</TABLE>
MARKET CAPITALIZATION
IN BILLIONS
[GRAPH]
<TABLE>
<CAPTION>
Market Capitalization (BILLIONS)
<S> <C>
1998 2.42
1997 1.96
1996 1.93
1995 1.92
1994 1.54
</TABLE>
3
<PAGE>
DIVERSITY AND
TEAMWORK ARE ESSENTIAL PARTS OF A COMPANY
CULTURE DRIVEN TO
QUALITY, PERFORMANCE
AND SERVICE.
[Photo]
four people in front of Meal Idea Center
Caption: Diversity and teamwork are essential parts of a company culture
driven to quality, performance and service.
<PAGE>
LETTER TO SHAREHOLDERS
[PHOTO]
photo of two people
Caption: CHARLES P. MCCORMICK, JR., CHAIRMAN OF THE BOARD (LEFT) AND ROBERT J.
LAWLESS, PRESIDENT & CEO.
We are pleased to report another year of improved financial results.
Earnings per share were up 8.5 percent, and sales increased 4.4 percent over
1997. Despite global economic uncertainties, our Consumer and Food Service
businesses had excellent results, with significant distribution gains in key
markets. Like most multinational corporations, McCormick experienced the sharp
downturn in Asian and Latin American economies. But our business is strong, and
we are weathering these storms and building for the future with confidence.
As a continuing indication of this confidence, your Board of Directors
approved a 6 percent increase in the regular quarterly cash dividend. McCormick
has paid dividends every year since l925 and has increased dividends 380 percent
over the past 10 years. In addition, 9 million shares have been repurchased
under the 10 million share authorization. This program is expected to be
completed by mid-1999.
MCCORMICK FLAVOR DIVISION EMPLOYEES:
(FRONT) FRIEDA THOMAS, (LEFT TO RIGHT)
BOB TRAMONTANA, TINA YAU, TIM SHAFFREY.
Our U.S. Consumer business enjoyed a superior year, strengthening our
leadership position in the spice and seasoning areas. We are encouraged by the
success of Quest, a program initiated in 1997 to improve branded product sales
by lowering shelf prices and developing more efficient marketing and advertising
programs. It is our belief that Quest will create an enhanced price/value
relationship for the consumer. As prices come down, consumers have increased
their purchases of branded spices and seasonings. We benefit, our customers
benefit and consumers benefit by receiving better value. It is anticipated that
Quest will further enhance sales growth in our core spice category which some
have written off as flat.
During the year, we gained significant new distribution in the traditional
grocery store channel. Additionally, the consumer response from our relaunch of
the dry seasoning mix line achieved solid double-digit sales gains.
The Food Service Group in the U.S., serving foodservice distributors,
national restaurant accounts and membership warehouse clubs, had its best
performance to date and continues as the market
5
<PAGE>
[PHOTO]
Montreal Chicken Seasoning
Caption: CLUB HOUSE-Registered Trademark- IS THE BRAND OF CHOICE IN CANADA.
leader. We were successful in gaining significant new share in the warehouse
club and broadline foodservice distributor markets.
Our Industrial business, supplier of ingredients to major food processors,
had disappointing results in 1998. We incurred a number of raw material cost
increases which, together with competitive pricing, reduced margins. As these
cost pressures moderate, better results are expected for 1999. Last spring, we
created a Global Industrial Group to better serve current multinational
customers and improve our focus on emerging areas for growth. Headed by Robert
G. Davey, former Chief Financial Officer and past head of our Canadian
operation, this Group has created a new Global Restaurant Division to serve
large national and international restaurant chains. Also reporting to Mr. Davey
are Frito Worldwide and the McCormick Flavor Division in the U.S. This
reorganization is designed to keep pace with worldwide growth opportunities.
The economic downturn in the Asian marketplace contributed to a difficult
year for our Packaging business, which manufactures tubes and bottles for food,
personal care and other industries. Lower demand by customers who sell cosmetics
and other products caused notable sales shortfalls. We anticipate a modest
improvement in 1999.
International operations experienced inconsistent performance in 1998.
On the upside, consumer business in the U.K., Canada and Australia benefited
from strong sales. A new product launch in the U.K., Make It Fresh-TM-,
received extraordinary consumer acceptance. In Australia, we acquired the
Keen's-Registered Trademark- brand of mustards and seasonings and gained
market share with our Aeroplane-Registered Trademark- and Produce
Partners-Registered Trademark- brands. In Canada, expanded distribution and
new product launches were instrumental in achieving solid results. On the
downside, in Mexico, where we enjoy a strong market presence in several
categories, we experienced a less than satisfactory performance due to
economic softness and a weakened peso. Likewise, our Venezuelan operation
suffered from severe economic recession. Expecting the conditions in
Venezuela to continue into 1999 and beyond, we ceased production operations
there and initiated a licensing agreement with a Venezuelan-based food
company to market under our McCormick name.
Japanese joint ventures also suffered from the economic woes in the Asian
region. Sales shortfalls in both consumer and industrial ventures were due to
lower discretionary income in Japan. We are working hard to find avenues of
opportunity to improve our position in the current economic environment.
McCormick was not immune to the extreme volatility that many U.S. companies
faced in the foreign currency markets. While negatively impacting earnings in
1998, these fluctuations are a temporary issue that will balance out over time.
For more than a century, the Company has provided the taste you trust based
on high quality, consistency
[GRAPH]
TOTAL SHAREHOLDER RETURN
REPRESENTS SHARE PRICE APPRECIATION PLUS REINVESTED DIVIDENDS
- McCormick
O S&PFood Products Index
X S&P500 Stock Index
<TABLE>
<CAPTION>
DATE MCCORMICK S&P FOODS S&P 500 INDEX
<S> <C> <C> <C>
11/30/88 100.0 100.0 100.0
11/30/89 185.57 131.59 130.77
11/30/90 174.11 139.85 126.26
11/29/91 317.27 179.37 151.87
11/30/92 445.11 203.21 179.87
11/30/93 369.65 183.39 197.96
11/30/94 308.89 188.02 200.03
11/30/95 393.41 235.84 273.91
11/29/96 420.20 291.90 350.18
11/28/97 463.45 384.83 450.01
11/30/98 595.83 425.30 556.49
</TABLE>
ASSUMES $100 INVESTED ON DECEMBER 1, 1988 IN MCCORMICK COMMON STOCK, S&P
500 STOCK INDEX AND S&PFOOD PRODUCTS INDEX.
6
<PAGE>
and outstanding service. Our past success and future potential are rooted in the
strength of the McCormick name, and we now experience a 95 percent brand
awareness rating in the U.S. Our leadership role in the food industry ensures
that you will enjoy a McCormick product at nearly every eating occasion. Grocery
store aisles present more than 700 well-known products from major processors
that rely on McCormick for seasoning or flavor.
Key strategies include streamlining and simplifying Company operations,
improving underperforming units, increasing margins, and growth through new
customers, products and acquisitions in the U.S. and selected international
markets. We will maximize research and development (R&D) capabilities and build
world-class information systems. We continue to manage with an economic value
added (EVA) focus not only in daily operations but also in the acquisition and
capital expenditure decision process. With well-known brands, prioritized
strategies, innovation and a strong desire to succeed, McCormick will
outdistance the competition, resulting in our accelerated growth and increased
shareholder value.
During the year, our management team was strengthened when Francis A.
Contino, former Managing Partner, Ernst & Young LLP Baltimore office, was named
Executive Vice President, Chief Financial Officer and member of the Board and
Executive Committee. Additionally, Paul C. Beard was appointed Vice President &
General Manager of the McCormick Flavor Division in the U.S. Alan D. Wilson
became President of McCormick Canada, Inc., and Harvey W. Casey succeeded Mr.
Wilson as President of Tubed Products, Inc. Robert C. Singer was named Vice
President & Chief Financial Officer of the Global Industrial Group, and Gordon
M. Stetz, Jr. was elected Vice President-Acquisitions and Financial Planning.
In November, James T. Brady, former Secretary of the Maryland Department of
Business and Economic Development, and Edward S. Dunn, Jr., former President of
Harris Teeter, Inc., were elected to the Board of Directors to replace James S.
Cook and George V. McGowan, who will be retiring. We thank them for their many
years of outstanding service to our Company.
Management is extremely excited and motivated about McCormick's prospects
and opportunities. Together with a winning attitude, a sense of accountability
and the dedication of each and every employee, we are confident of future
success that will create increased shareholder value and strengthen our position
among the top performers in the food industry. We will accept nothing less.
/s/ Charles P. McCormick, Jr.
Charles P. McCormick, Jr.
CHAIRMAN OF THE BOARD
/s/ Robert J. Lawless
Robert J. Lawless
PRESIDENT & CHIEF EXECUTIVE OFFICER
OUR CORE
VALUES
WE BELIEVE:
- 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.
WE WILL FOREVER BE INDEBTED TO CHAIRMAN CHARLES P. (BUZZ) MCCORMICK, JR. FOR
RETURNING IN 1995 TO PROVIDE LEADERSHIP DURING OUR TURNAROUND. HIS PRAGMATIC
APPROACH AND ABILITY TO FOCUS ON KEY PRIORITIES ENABLED OUR RETURN TO GROWTH.
BUZZ JOINED THE COMPANY FULL TIME IN 1949 AND WAS ELECTED TO THE BOARD IN 1955.
HE RETIRES THIS SPRING HAVING LED MCCORMICK THROUGH SOME OF ITS MOST IMPORTANT
AND SUCCESSFUL YEARS. WE ARE GRATEFUL FOR HIS TIME, ENERGY AND DEVOTION. ON
BEHALF OF OUR CUSTOMERS, SHAREHOLDERS AND THOUSANDS OF FELLOW EMPLOYEES, WE SAY,
"THANK YOU, BUZZ!"
7
<PAGE>
REPORT ON OPERATIONS
1998 FINANCIAL HIGHLIGHTS
McCormick maintained a course for accelerated growth in 1998 despite difficult
global economic conditions. Net sales for the year reached $1.9 billion, an
increase of 4.4 percent over 1997. Increased net income combined with our share
repurchase program raised diluted earnings per share 8.5 percent to $1.41. EVA,
our measure of shareholder value, was $33.1 million in 1998.
CONSUMER BUSINESS WORLDWIDE
McCormick's consumer business has consolidated operations in the U.S., Canada,
El Salvador, United Kingdom, Switzerland, Finland, Australia and China. The
Company has consumer joint ventures located in the U.S., Mexico, Philippines and
Japan. Consolidated net sales for McCormick's consumer businesses worldwide grew
3.8 percent in 1998 over 1997. Consumer joint venture sales increased 2 percent.
[PHOTO]
three foil packs
Caption: A BROAD LINE OF NEW SEASONING MIXES IN THE UNITED KINGDOM HAS MET
WITH GREAT SUCCESS IN THE MARKETPLACE.
U.S. CONSUMER
McCormick's U.S. Consumer business, our oldest and largest, is dedicated to
the manufacture and sale of consumer spices, herbs, extracts, proprietary
seasoning blends, sauces and marinades, selling under the brand names
McCormick-Registered Trademark-, Schilling-Registered Trademark-, Produce
Partners, Golden Dipt-Registered Trademark-, Old Bay-Registered Trademark-
and Mojave-Registered Trademark-.
In 1997, we launched the Quest program, a pricing and promotional initiative
between McCormick and the customer with the aim of growing sales. Quest
involves pricing most of our best-selling spice items and all of our dry
seasoning mixes (DSM) to the customer net of discounts and allowances with
the objective of increasing consumer sales. Using McCormick's category
management capabilities, we are working with our customers to reach a
competitive consumer price point delivering enhanced value for our branded
products and benefiting both our customers and consumers. At year end, nearly
50 percent of sales to our U.S. customers were invoiced under Quest, with
another 25 percent targeted for conversion in 1999. This effort was
complemented by promotions and advertising targeted at potential high growth
items, such as Grill Mates-Registered Trademark-, through a combination of
couponing, sampling and media advertising during key selling periods.
Resulting sales for the last three quarters of 1998 show unit growth in
McCormick and Schilling branded products significantly outperforming the
category growth as measured by store scanner data. Encouraged by these
initial results, we continue to actively roll out the Quest program in 1999.
Growth was likewise achieved in the U.S. with our DSM relaunch. Rolled out in
1998, this program's key elements include package redesign, new product flavors,
formula improvements, in-store merchandising and promotion and advertising
support. The merchandising of these products includes a section header, "Meal
Idea Center," color-coded sections for pasta, beef, chicken and other products,
along with point-of-sale materials. In the first half of 1998,
8
<PAGE>
new products and packaging began to gain placement. Promotion and advertising
support moved into full gear during the fourth quarter by combining magazine,
television, radio, couponing and sampling to reach 95 percent of our target
audience an average of more than 18 times. By fiscal year end, about one-third
of our customers had implemented key elements of the Meal Idea Center, and store
scanner data showed that McCormick and Schilling brand products are now
outperforming the category in this product line.
Our quality products, high service level and strong brand recognition
together with these new marketing initiatives were instrumental in gaining new
distribution such as Ahold USA, a major food retailer, early in 1998. Our
leadership position is evident since we are the primary spice supplier to 16 of
the top 20 retail and wholesale customers.
INTERNATIONAL CONSUMER
[PHOTO]
Pepper Supreme-TM-
Caption: THIS NEW FOOD SERVICE BLEND IS CAPITALIZING ON THE CURRENT HOT AND
SPICY FOOD TRENDS.
In the United Kingdom, we continue to be the market leader with sales of
our Schwartz(R) brand reaching an all-time high. Consumers reacted favorably to
"Make It Fresh," a new line of 11 different seasonings and flavorings for
vegetables and fruit dishes. The line has exceeded sales expectations and is the
most successful product launch in recent McCormick history. Potato Wedges,
1997's highly successful new product, maintained its position as the unit brand
leader in the growing potato seasoning market.
[PHOTO]
two people in front of computer bank
Caption: SENSORY ANALYSIS IS ONE OF MANY CREATIVE AND TECHNICAL SUPPORT
SERVICES PROVIDED BY EMPLOYEES AT OUR R&D FACILITIES AROUND THE WORLD.
SHOWN: (SEATED) REBECCA NORWAT, (STANDING) JULIE ADAMS.
In Canada, new distribution gains in 1998 now make our Club House spice
line available in most retail food locations. A successful product launch of Bag
'n Season(R) in western Canada helped fuel growth, and this popular product line
was introduced into Ontario in late 1998. A comprehensive ad campaign, begun in
late 1998 and continuing through mid-1999, will build brand awareness in
Ontario, one of McCormick Canada's most significant markets.
In Australia, sales were accelerated with increased distribution, new
product launches and marketing support. The U.S. Produce Partners line has met
with success in Australia, and the well-known Aeroplane brand gained additional
market share.
GLOBAL INDUSTRIAL
Net sales for McCormick's Industrial and Food Service businesses grew 8.8
percent in 1998. Our Industrial flavor and seasoning business supplies
ingredients to a significant majority of the top 100 food processors and
restaurant chains worldwide. While the McCormick name may not be on the food
package, our flavor is in a wide range of snack foods, desserts, beverages,
confectionery items, cereals, baked goods and more. Our Food Service business
supplies spices, seasonings and other food
9
<PAGE>
ingredients, both direct and through distributor networks, to restaurants,
warehouse clubs and institutions worldwide. During 1998, a number of our major
customers designated McCormick as a select supplier and/or awarded us with
supplier excellence recognition.
[PHOTO]
Oriental Vegetable Stir Fry
Caption: THE PRODUCE PARTNERS LINE HAS MET WITH SUCCESS IN BOTH AUSTRALIAN AND
U.S. MARKETS.
In May 1998, we formed the Global Industrial Group. This organizational
change to the Industrial business on a worldwide basis provides a management
structure designed to meet several critical objectives. First, it more closely
aligns our organization with that of our global customers, facilitating
worldwide product development and coordinating marketing and product
consistency. Second, our purchasing, production and distribution can be
optimized across McCormick's regional operations. Finally, we can better focus
attention and resources on emerging areas for growth. As a further refinement to
this structure, a Global Restaurant Division has been formed to provide specific
focus on this important part of our business.
The Industrial flavor and ingredient businesses achieved sales growth in
1998. We were particularly pleased with our success in the higher margin flavor
ingredients and increased acceptance of newly developed flavors for beverage and
dairy use. In the U.K., a new range of products was developed for a major global
restaurant chain. We began to expand our Australian plant to accommodate new
business and support key global customers. In China, we had improved results
from our Guangzhou industrial facility which serves major fast food chains.
Our Industrial business was unfavorably impacted by higher raw material
prices, particularly pepper. Margins were reduced in 1998 as competitive pricing
pressure limited our ability to recover cost increases through pricing actions.
As we enter 1999, selected price adjustments are in place, and we expect raw
material cost increases to moderate.
The Food Service business had a strong year in the U.S. and Canada, with
accelerated growth through existing and new channels of distribution. Increased
demand for our branded products and culinary support services in restaurant and
non-commercial foodservice operations continues to fuel growth. The year was
highlighted by significant new business gains in the distributor and membership
warehouse club segments of foodservice. During 1998, Costco, a leading
U.S.-based membership warehouse club, awarded McCormick its total spice and
seasoning volume for the U.S., Canada and Mexico.
With the new organization, focused R&D capabilities, broad customer base
and improving raw material situation, the Industrial Group is well positioned
for growth in 1999.
PACKAGING
The Packaging business reported a net sales decline of 11.7 percent.
McCormick's Packaging Group manufactures and markets plastic bottles and tubes
for food, personal care and other industries. Declining sales by our customers
who market in Asia impacted our sales of plastic tubes and bottles. There was
also softness in demand for skin-care
[PHOTO]
two bouillon packets
Caption: BOUILLON HAS BEEN ADDED RECENTLY TO EL SALVADOR'S PRODUCT OFFERINGS.
10
<PAGE>
[PHOTO]
two foil packs
Caption: AN EXTENSIVE ARRAY OF COLOR-CODED PACKAGES MAKES IT EASY FOR CONSUMERS
TO PREPARE A WIDE VARIETY OF FLAVORFUL FOODS.
products, a major use of our packaging. A modest improvement in sales is
expected in 1999.
We closed our Tubed Products plant in New Jersey and consolidated all
plastic tube manufacturing in our Massachusetts plant and the newly constructed
facility in Oxnard, California, which will result in lower manufacturing and
distribution costs.
COMMITTED TO GROWTH
McCormick has created a platform for growth in 1999 and beyond. We are
making fundamental changes in the U.S. Consumer business to reach an improved
price/value relationship for the consumer in the grocery channel. Globally, our
promotion, advertising and new products programs are resulting in market share
gains and, in some areas, product category growth. The newly organized Global
Industrial Group is poised for improved sales growth and improved margins.
We have several key strategies for the future. McCormick has an active
program to improve margins in each of our operations worldwide. Our inventory
process from procurement to distribution is undergoing a comprehensive review,
with the objective of improvements at each step. We continue to search for
innovative means to manage cost, reduce volatility and offset raw material
fluctuations. Streamlining and simplifying operations is also a priority. While
McCormick's systems are well positioned for the year 2000, opportunities exist
beyond these compliance steps that will yield operational benefits. World-class
information systems development is one area targeted. There are additional
opportunities to improve efficiencies in our supply chain and in our R&D
capabilities worldwide.
We also plan to improve underperforming units. In the fourth quarter, in
response to economic uncertainty and poor performance in Venezuela, we
discontinued our manufacturing operations and signed a new licensing agreement
with a Venezuelan firm, Alfonzo Rivas & Cia, to market McCormick products in
that country. We will continue to evaluate our business portfolio and act
decisively when operations do not meet our financial objectives.
Finally, growth through new customers, new products and acquisitions in the
U.S. and selected international markets is fundamental to continued improvement
in shareholder value. Our Consumer and Industrial businesses continue to gain
distribution and develop new products. We are also reviewing acquisition
opportunities to profitably build on our core food businesses. Together, these
strategies will provide McCormick with a competitive advantage and deliver
superior results.
[PHOTO]
Bag 'n Season advertisement
Caption: PRINT AND BROADCAST ADVERTISING INFORM CONSUMERS THAT OUR CONVENIENT
AND FLAVORFUL PRODUCTS FIT THE FAST-PACED LIFESTYLES OF TODAY.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
For 1998, the Company reported net income of $103.8 million or $1.41 of
diluted earnings per share compared to $98.4 million or $1.30 of diluted
earnings per share in 1997. Excluding the impact of adjustments to restructuring
reserves, discontinued operations and the discontinuance of manufacturing
operations in Venezuela, net income on a comparable basis was $105.3 million or
$1.43 of diluted earnings per share in 1998 compared to $98.4 million or $1.30
of diluted earnings per share last year.
The increase in income as compared to 1997 was primarily due to increased
sales and income in the U.S. food business. In 1998, the U.S. food business
recorded an 8.5% sales increase and a comparable operating income increase due
to improved performance in the branded dry seasoning mix (DSM) and spice and
herb businesses and distribution gains announced earlier this year. Unfavorable
currency exchange rates in a number of foreign markets, weakness in the
Packaging business and raw material pricing pressures negatively impacted 1998.
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
Sales from consolidated operations increased 4.4% to $1.9 billion in 1998.
The combined effects of price and product mix increased sales by 3.4% as
compared to 1997, while unit volume increased 1.8%. The effect of foreign
currency exchange rate changes, primarily in our Australian and Canadian
operations, decreased sales by .9% when compared to 1997. Net sales
improvements, which were realized in all major operating groups except the
Packaging business, were primarily due to a combination of price and mix changes
and volume increases in the U.S. food business. Net sales increases in our U.S.
Consumer business were primarily product mix related and were favorably impacted
by improved performance in the branded DSM and spice and herb businesses. Growth
initiatives, including the relaunch of the DSM line and the Quest marketing
program, contributed to this success. Although volumes for the U.S. Consumer
business were up only slightly for the year, distribution gains announced during
the first half of 1998, combined with these growth initiatives, resulted in
higher volume growth during the last six months of the year. The Food Service
business in the U.S. was favorably impacted by volume growth, principally due to
new distribution. Product price changes, primarily to cover raw material cost
increases, increased net sales in the U.S. Industrial business. Weak demand for
customers' products in Asian countries as well as general market softness,
principally for plastic tubes, contributed to volume declines in the Packaging
business. Sales increases within Europe were the result of a combination of
favorable price and product mix changes and currency exchange translations.
Sales from unconsolidated operations in 1998 were down slightly versus 1997.
Increases in sales from Signature Brands and our Mexican joint venture were
offset by decreases due to foreign currency translation, primarily at the
Company's Japanese affiliates.
[PHOTO]
montage of three products
Caption: MCCORMICK PRODUCTS, LIKE OLD BAY, AEROPLANE JELLY AND SALAD SUPREME,
ARE ESSENTIAL INGREDIENTS IN KITCHENS AROUND THE WORLD
12
<PAGE>
<TABLE>
<CAPTION>
(MILLIONS) SALES
- --------------------------------------------------------------------------------
1998 1997 1996 1998 1997
<S> <C> <C> <C> <C> <C>
Americas
Consumer $ 623.7 $ 596.4 $ 621.5 4.6% (4.0)%
Industrial & foodservice 662.1 601.2 549.7 10.1 9.4
Europe
Consumer 203.9 200.3 197.0 1.8 1.7
Industrial & foodservice 144.6 138.7 124.0 4.3 11.9
Asia/Pacific
Consumer 44.5 43.2 36.2 3.0 19.3
Industrial & foodservice 43.5 41.3 34.1 5.3 21.1
Packaging 158.8 179.9 170.0 (11.7) 5.8
- --------------------------------------------------------------------------------
$ 1,881.1 $ 1,801.0 $ 1,732.5 4.4% 4.0%
- --------------------------------------------------------------------------------
SALES INCREASE ANALYSIS
1998 1997
- --------------------------------------------------------------------------------
Volume change 1.8% 2.6%
Price and mix change 3.4 1.4
Foreign currency change (.9) .4
Other changes (1) .1 (.4)
- --------------------------------------------------------------------------------
4.4% 4.0%
- --------------------------------------------------------------------------------
</TABLE>
(1) Includes business acquisitions and the disposal of businesses which are not
accounted for as discontinued operations.
Operating income as a percentage of net sales, excluding restructuring,
increased to 9.8% in 1998 from 9.3% in 1997.
Gross profit as a percentage of net sales decreased to 34.5% in 1998 from
34.9% in 1997. Raw material pricing pressures, primarily for black pepper, were
felt throughout the Company. Product and customer mix issues negatively impacted
margins within the U.S. Industrial and Food Service businesses, while decreased
volume in the Packaging business reduced efficiencies. Margins were also
negatively impacted, primarily in Australia and Canada, by adverse foreign
exchange effects on raw material costs. These were partially offset by continued
gross profit improvements in the U.S. Consumer business due to a favorable
product mix.
Selling, general and administrative expenses were higher in 1998 than 1997
on a dollar basis, but were down slightly as a percentage of sales. The dollar
increase is mainly due to increased promotional and advertising spending within
the U.S. Consumer business, partially offset by lower earnings-based employee
compensation costs.
Interest expense was up slightly in 1998 versus 1997 as higher average debt
levels were partially offset by lower interest rates.
Other (income) expense decreased in 1998 as compared to 1997. Income from
the three-year non-compete agreement with Calpine Corporation, entered into as a
part of the 1996 sale of Gilroy Energy Company, Inc., decreased to $7.0 million
in 1998 from $8.0 million in 1997. This income will decrease to $4.6 million in
1999, the final year of the agreement.
The Company's effective tax rate was 36.0% in 1998 compared to 37.0% in
1997. This decrease was primarily due to various U.S. and international tax
initiatives.
Income from unconsolidated operations decreased in 1998 versus 1997 mainly
due to our Mexican joint venture, which realized translation losses from the
devaluation of the Mexican peso in accordance with hyper-inflationary accounting
rules. It is anticipated that Mexico will no longer be considered a
hyper-inflationary economy in 1999. The Company also experienced earnings
declines in its Japanese joint ventures.
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Sales from consolidated 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
U.S. Consumer business. While underlying sales patterns in the grocery store
showed some improvement in late 1997, the U.S. Consumer business experienced
volume decreases, partially offset by the combined favorable effect of price and
mix changes. Our Industrial and Food Service businesses within the U.S.
experienced strong sales growth, mainly due to volume increases. Sales increases
in Europe were the result of volume gains and favorable currency exchange
translations. Volume and price increases fueled sales growth in the Asia/Pacific
region. The Packaging business experienced increased sales, primarily due to a
favorable combination of price and mix changes.
13
<PAGE>
Sales from unconsolidated operations increased 5.3% in 1997, due
principally to sales from our Mexican joint venture and Signature Brands.
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 increase
was 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. This
increase was partially offset by decreases in promotional and advertising
spending. Promotional spending was 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 because of timing issues, was still higher than
historical levels as the Company continued its focus on brand recognition.
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 Statement of Income. Total
interest expense decreased $8.7 million in 1997 compared to 1996. The
significant decrease in total interest was primarily due to reduced borrowing
levels as a result of the sales of Gilroy Foods, Incorporated (GFI) and Gilroy
Energy Company, Inc. (GEC) in 1996. See Notes to Consolidated Financial
Statements for amounts and methods of allocations used.
Other (income) expense increased $5.6 million in 1997 as compared to 1996.
This increase was primarily due to income from a non-compete agreement relating
to the sale of GEC, which totaled $8.0 million in 1997 versus $4.5 million in
1996.
The Company recorded income tax expense on net income from continuing
operations at an effective rate of 37.0% in 1997 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 Statement of Income for
discontinued operations, income taxes were allocated to discontinued operations.
See Notes to Consolidated Financial Statements for the amounts and methods of
allocation used.
Income from unconsolidated operations improved in 1997 compared to 1996
mainly due to improved results from our Mexican joint venture.
FINANCIAL CONDITION
Continued strong cash flows from operations enabled the Company to fund
operating projects and investments designed to meet our growth objectives,
support the ongoing share repurchase program and maintain a manageable debt
level.
In the Consolidated Statement of Cash Flows, cash flows from operating
activities decreased from $181.2 million in 1997 to $144.0 million in 1998.
14
<PAGE>
Prepaid allowances increased as the Company added new distribution and completed
numerous customer contract renewals in the first half of 1998. In addition,
other accrued liabilities were negatively impacted by increased tax payments and
lower earnings-based employee compensation costs.
Investing activities used cash of $62.6 million in 1998 versus $46.7
million in 1997. Capital expenditures were greater than last year primarily
due to the implementation of certain projects to support new distribution in
the Consumer and Food Service businesses, growth from existing customers in
the Industrial business and consolidation of facilities in our Packaging
business. Acquisitions of businesses in 1998 included the purchase of a line
of wet and dry mustards, curry powders and various meal lines in Australia
and Canada which will be marketed under the Keen's and Rice-a-Riso-Registered
Trademark- brand names.
Financing activities used cash of $77.0 million in 1998 versus $145.2
million in 1997. In 1996, the Company began a repurchase program to buy back up
to 10.0 million shares of the Company's outstanding stock from time to time in
the open market. To date, 9.0 million shares have been repurchased under this
program, of which 2.0 million were repurchased in 1998 and 4.5 million in 1997.
Dividend payments increased to $46.9 million in 1998, up 3% compared to
$45.5 million in 1997. Dividends paid in 1998 totaled $.64 per share, up from
$.60 per share in 1997. In December 1998, the Board of Directors approved a 6%
increase in the quarterly dividend from $.16 to $.17 per share. Over the last 10
years, dividends have increased 13 times and have risen at a compounded annual
rate of 17%.
The Company's ratio of debt to total capital was 51.6% as of November 30,
1998, up from 50.3% at November 30, 1997. The increase was due primarily to the
effect of the stock buyback program.
Management believes that internally generated funds and existing sources of
liquidity are sufficient to meet current and anticipated financing requirements
over the next 12 months.
<TABLE>
<CAPTION>
DEBT TO CAPITAL
<S> <C>
1998 51.6%
1997 50.3%
1996 47.1%
1995 55.5%
1994 54.6%
</TABLE>
[GRAPH]
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATIONS
IN MILLIONS
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Operating 144.0 181.2 201.7 59.4 72.5
</TABLE>
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES DEPRECIATION EXPENSE
In Millions In Millions
<S> <C> <C> <C>
1998 54.8 1998 49.9
1997 43.9 1997 43.9
1996 74.7 1996 57.9
1995 82.1 1995 56.3
1994 87.7 1994 56.8
</TABLE>
15
<PAGE>
BUSINESS RESTRUCTURING
During the past several years, management has reassessed the global
strategic direction of the Company and conducted a portfolio review of its
business to increase focus on core businesses and improve its cost structure. As
a result, the Company implemented restructuring plans to consolidate
manufacturing facilities, reduce administrative staff and divest non-core
businesses. The Company recorded restructuring charges of $70.4 million ($46.3
million after-tax or $.57 per share) and $58.1 million ($39.6 million after-tax
or $.49 per share) in 1994 and 1996, respectively. In addition, there were
charges directly related to the 1996 restructuring plan which could not be
accrued at that time.
In the fourth quarter of 1998, the Company completed these restructuring
plans. Because the realignment of several overseas operations resulted in losses
less than originally anticipated, the Company recorded a restructuring credit of
$3.1 million in 1998. In addition, the Company incurred $1.9 million of
restructuring charges in 1998 which could not be accrued in 1996, primarily
related to costs to move equipment and personnel from a closed U.S. packaging
plant. Concurrent with these activities, the Company discontinued its
manufacturing operations in Venezuela, resulting in a restructuring charge of
$3.5 million. Charges related to this initiative, which was completed in 1998,
included $1.1 million for severance and personnel costs, $1.8 million for the
writedown of assets to net realizable value and $.6 million for other exit
costs. The credit for the completion of the restructuring plan, charges directly
related to the restructuring plans which could not be previously accrued and the
new initiative in Venezuela resulted in a net restructuring charge of $2.3
million($1.5 million after-tax or $.02 per share) in 1998.
In the third quarter of 1997, the Company reevaluated its restructuring
plans and recorded a restructuring credit of $9.5 million because the agreement
in principle to dispose of an overseas food brokerage and distribution business
was not consummated and several projects were completed with losses less than
originally anticipated. The Company also recorded a restructuring charge of $5.7
million to streamline the food brokerage and distribution business and close a
U.S. packaging plant. Including this additional restructuring charge, the credit
for the restructuring plan reevaluation and charges directly related to the
restructuring plans which could not be previously accrued, the Company recorded
a net restructuring credit of $3.2 million ($2.0 million after-tax or $.03 per
share) in 1997.
DISCONTINUED OPERATIONS
On August 29, 1996, the Company sold substantially all the assets of Gilroy
Foods, Incorporated (GFI) and Gilroy Energy Company, Inc. (GEC) for $263.3
million. Based on the settlement of contract terms, the Company recognized
income from discontinued operations, net of income taxes of $1.0 million in
1997.
The operating results of GFI and GEC for 1996 have been reclassified to
discontinued operations. The sale of GEC also necessitated prepayment of an
11.68% non-recourse installment note, resulting in an extraordinary net loss of
$7.8 million in 1996.
MARKET RISK SENSITIVITY
The Company utilizes derivative financial instruments to enhance its
ability to manage risk, including foreign exchange and interest rate exposures
which exist as part of its ongoing business operations. The Company does not
enter into contracts for speculative or trading purposes, nor is it a party to
any leveraged derivative instrument. The use of derivative financial instruments
is monitored through regular communication with senior management and the
utilization of written guidelines. The information presented below should be
read in conjunction with Notes 3 and 4 to the Consolidated Financial Statements.
16
<PAGE>
FOREIGN EXCHANGE RISK - The Company is exposed to fluctuations in foreign
currency cash flows primarily related to raw material purchases. The Company is
also exposed to fluctuations in the value of foreign currency investments in
subsidiaries and unconsolidated affiliates and cash flows related to
repatriation of these investments. Additionally, the Company is exposed to
volatility in the translation of foreign currency earnings to U.S. dollars.
Primary exposures include the U.S. dollar versus functional currencies of the
Company's major markets (British pound, Australian dollar, Canadian dollar,
Mexican peso, Japanese yen and Chinese RMB). The Company assesses foreign
currency risk based on transactional cash flows and enters into forward and
option contracts to reduce fluctuations in currency positions.
The table below summarizes the foreign currency exchange contracts held at
November 30, 1998. All contracts are valued in U.S. dollars using year-end 1998
exchange rates and are hedges of firm commitments with a maturity period of less
than one year (unless indicated otherwise).
<TABLE>
<CAPTION>
Average
Notional contractual Fair
Currency Currency value exchange rate value
sold received (MILLIONS) (fc/USD) (MILLIONS)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GBP DEM .4 .60 --
GBP USD 2.7 .60 .1
USD AUD 8.2 1.61 .1
MXP (1) USD 9.0 9.21 .7
AUD (1) USD 1.5 1.77 --
CAN (1) USD 11.3 1.56 --
CHF (1) GBP 7.6 1.37 .2
- -------------------------------------------------------------------------------------
</TABLE>
(1) Option contract
INTEREST RATE RISK - The Company's policy is to manage interest cost using
a mix of fixed and variable debt. The Company uses interest rate swaps to
achieve a desired proportion. The table that follows provides principal cash
flows and related interest rates by fiscal year of maturity. For foreign
currency-denominated debt, the information is presented in U.S. dollar
equivalents. Variable interest rates are based on the weighted average rates of
the portfolio at November 30, 1998.
<TABLE>
<CAPTION>
Year of Maturity
There- Fair
(MILLIONS) 1999 2000 2001 2002 after Total value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed rate $ 24.5 $7.6 $86.7 $.4 $155.7 $274.9 $298.8
Average
interest rate 9.24% 9.17% 8.81% 1.39% 7.91%
Variable rate $139.1 - - - - $139.1 $139.1
Average
interest rate 6.57% - - - - 6.57%
</TABLE>
Note: Variable rate commercial paper which will be used to retire the $74.7
million, 8.95% note due 2001 is hedged by a forward starting interest rate
swap for the period 2001 through 2011. Interest rate payments will be
fixed at 6.35% during the period.
COMMODITY RISK - The Company purchases certain raw materials which are subject
to price volatility caused by weather and other unpredictable factors. While
future movements of raw material costs are uncertain, a variety of programs,
including periodic raw material purchases and customer price adjustments, help
the Company address this risk. Generally, the Company does not use derivatives
to manage the volatility related to this risk.
YEAR 2000
The Year 2000 (Y2K) issue is the result of computer programs written using two
digits (rather than four) to define the applicable year. Without corrective
actions, programs with date-sensitive logic may recognize "00" as 1900 rather
than 2000. This could result in miscalculations or system failures,
significantly impacting our business operations.
The Company's work on the Y2K compliance program officially began in 1996.
A Corporate project team, working with outside consultants, developed a process
to identify and correct Y2K issues on all information technology (IT) platforms
and non-IT systems. In addition, all operating units have undertaken Y2K
initiatives with direction from the Corporate project team. As a result of this
process, the Company has inventoried and assessed all systems and developed
remediation programs where necessary for all business-critical information
technology applications. The Company is on target with its
17
<PAGE>
remediation and testing work. A similar program is also in place for non-IT
systems. Final completion and implementation will extend into the third quarter
of 1999.
The risk of internal business-critical computer systems failure is
mitigated by extensive testing, verification and validation efforts. These
efforts, which include program and systems testing, simulate operations in the
year 2000. Review of the remediation process and program code by independent
third parties is underway. Contingency plans are being developed to mitigate
this risk.
Because noncompliant external systems could cause disruptions to various
business activities and significant additional costs, the Company has identified
and contacted critical suppliers, customers and other third parties to determine
their stage of Y2K readiness. For certain third parties with key system
connections, interface testing will be performed. Although the Company believes
it is taking the appropriate steps to assess Y2K readiness, there is no
guarantee that the Company's efforts will prevent a material adverse impact on
the results of operations and financial condition. The Company believes its Y2K
program, including the contingency plans and readiness program discussed below,
should significantly reduce this risk.
The Company is developing contingency plans to mitigate potential
disruptions to the Company's operations. These include action plans to address
system failures by third parties, including identifying and securing alternate
sources of materials. Plans are being developed to address individual location
failures since the most likely impact will occur within individual systems or at
specific locations. The Company expects to complete its contingency plans in
late 1999.
A Company-wide Y2K readiness program is being developed to ensure that all
employees are aware of the risks associated with the Y2K changes. These include
risks associated with third party transactions or the Company's internal
processes. The Y2K readiness program is expected to be in place by the second
quarter of 1999.
Since the compliance program began, the Company has incurred approximately
$9.8 million in expenses, including consulting fees, internal staff costs and
other expenses. The Company expects to incur additional expenses of
approximately $3.4 million through 2000. The Company has also procured
replacement systems that, in addition to being Y2K compliant, provide enhanced
capability to benefit future operations. Management believes that internally
generated funds and existing sources of liquidity are sufficient to meet the
expected funding requirements.
FORWARD-LOOKING INFORMATION
Certain statements contained in this report, including those related to raw
material price fluctuations, cost recovery program results, expected Y2K
readiness and cost, the impact of accounting and disclosure changes, the market
risks associated with financial instruments, the impact of foreign exchange
fluctuations and the adequacy of internally generated funds and existing sources
of liquidity are "forward-looking statements" within the meaning of Section 21E
of the Securities and Exchange Act of 1934. 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, third party Y2K readiness, fluctuations in
the cost and availability of supply-chain resources and global economic
conditions, including interest and currency rate fluctuations and inflation
rates.
18
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED NOVEMBER 30 (MILLIONS EXCEPT PER SHARE DATA) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 1,881.1 $ 1,801.0 $ 1,732.5
Cost of goods sold 1,232.2 1,172.4 1,128.0
- --------------------------------------------------------------------------------------------------------
Gross profit 648.9 628.6 604.5
Selling, general and administrative expense 463.8 461.0 453.1
Restructuring charge (credit) 2.3 (3.2) 58.1
- --------------------------------------------------------------------------------------------------------
Operating income 182.8 170.8 93.3
Interest expense 36.9 36.3 33.8
Other (income) expense, net (6.6) (7.8) (2.2)
- --------------------------------------------------------------------------------------------------------
Income from consolidated continuing operations
before income taxes 152.5 142.3 61.7
Income taxes 54.9 52.6 23.8
- --------------------------------------------------------------------------------------------------------
Net income from consolidated continuing operations 97.6 89.7 37.9
Income from unconsolidated operations 6.2 7.7 5.6
- --------------------------------------------------------------------------------------------------------
Net income from continuing operations 103.8 97.4 43.5
Income from discontinued operations, net of
income taxes -- 1.0 6.2
- --------------------------------------------------------------------------------------------------------
Net income before extraordinary item 103.8 98.4 49.7
Extraordinary loss from early extinguishment of debt,
net of income tax benefit -- -- (7.8)
- --------------------------------------------------------------------------------------------------------
Net income $ 103.8 $ 98.4 $ 41.9
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE - BASIC
Continuing operations $ 1.42 $ 1.29 $ .54
Discontinued operations -- .01 .08
Extraordinary loss from early extinguishment of debt -- -- (.10)
- --------------------------------------------------------------------------------------------------------
Total earnings per share - basic $ 1.42 $ 1.30 $ .52
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE - DILUTED
Continuing operations $ 1.41 $ 1.29 $ .54
Discontinued operations -- .01 .08
Extraordinary loss from early extinguishment of debt -- -- (.10)
- --------------------------------------------------------------------------------------------------------
Total earnings per share - diluted $ 1.41 $ 1.30 $ .52
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES 23 - 30.
19
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AT NOVEMBER 30 (MILLIONS) 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 17.7 $ 13.5
Receivables, less allowances of $4.0 for 1998
and $3.7 for 1997 212.8 217.2
Inventories 250.9 252.1
Prepaid expenses 7.2 9.8
Deferred income taxes 15.2 13.9
- -----------------------------------------------------------------------------------------------
Total current assets 503.8 506.5
- -----------------------------------------------------------------------------------------------
Property, plant and equipment, net 377.0 380.0
Intangible assets, net 160.9 158.0
Prepaid allowances 143.7 130.9
Investments and other assets 73.7 80.8
- -----------------------------------------------------------------------------------------------
Total assets $ 1,259.1 $ 1,256.2
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Short-term borrowings $ 139.1 $ 112.3
Current portion of long-term debt 24.5 9.0
Trade accounts payable 145.9 150.4
Other accrued liabilities 208.5 226.6
- -----------------------------------------------------------------------------------------------
Total current liabilities 518.0 498.3
- -----------------------------------------------------------------------------------------------
Long-term debt 250.4 276.5
Deferred income taxes 4.2 2.0
Other long-term liabilities 98.4 86.3
- -----------------------------------------------------------------------------------------------
Total liabilities 871.0 863.1
- -----------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, no par value; authorized 160.0
shares; issued and outstanding: 1998 - 9.7 shares,
1997 - 10.2 shares 49.0 44.4
Common stock non-voting, no par value; authorized
160.0 shares; issued and outstanding: 1998 - 62.8
shares, 1997 - 63.8 shares 120.0 115.0
Retained earnings 262.3 264.3
Foreign currency translation adjustments (36.6) (30.6)
Additional minimum pension liability (6.6) --
- -----------------------------------------------------------------------------------------------
Total shareholders' equity 388.1 393.1
- -----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,259.1 $ 1,256.2
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES 23 - 30.
20
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED NOVEMBER 30 (MILLIONS) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 103.8 $ 98.4 $ 41.9
Adjustments to reconcile net income to net cash provided by
operating activities
Restructuring charge (credit) 2.3 (3.2) 58.1
Depreciation and amortization 54.8 49.3 63.8
Deferred income taxes 2.0 18.9 (26.4)
Other (.3) 2.9 2.4
Income from unconsolidated operations (6.2) (7.7) (5.6)
Extraordinary item -- -- 7.8
Changes in operating assets and liabilities
Receivables 1.6 (4.2) (5.4)
Inventories (1.7) (13.7) 21.8
Prepaid allowances (13.1) 18.1 23.7
Trade accounts payable (2.4) (.6) 24.5
Other assets and liabilities (6.6) 13.5 (4.9)
Dividends received from unconsolidated affiliates 9.8 9.5 --
- ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 144.0 181.2 201.7
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses (8.9) (3.3) --
Capital expenditures (54.8) (43.9) (74.7)
Proceeds from sale of discontinued operations -- -- 248.8
Proceeds from sale of assets 3.0 3.8 15.3
Other (1.9) (3.3) (1.5)
- ------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (62.6) (46.7) 187.9
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net 27.5 16.1 (186.5)
Long-term debt borrowings 9.0 .6 4.4
Long-term debt repayments (17.7) (12.2) (83.2)
Common stock issued 14.1 7.0 4.5
Common stock acquired by purchase (63.0) (111.2) (74.7)
Dividends paid (46.9) (45.5) (45.3)
- ------------------------------------------------------------------------------------------------------
Net cash used in financing activities (77.0) (145.2) (380.8)
- ------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (.2) 1.8 1.1
- ------------------------------------------------------------------------------------------------------
Increase/(decrease) in cash and cash equivalents 4.2 (8.9) 9.9
Cash and cash equivalents at beginning of year 13.5 22.4 12.5
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 17.7 $ 13.5 $ 22.4
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES 23 - 30.
21
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Foreign Additional
Common Stock Common Currency Minimum Total
Stock Non-Voting Stock Retained Translation Pension Shareholders'
(MILLIONS EXCEPT PER SHARE DATA) Shares Shares Amount Earnings Adjustments Liability Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 1, 1995 12.1 69.1 $ 160.6 $ 387.7 $(29.0) $ -- $ 519.3
Net income 41.9 41.9
Dividends paid ($.56/share) (45.3) (45.3)
Currency translation adjustments 4.2 4.2
Shares purchased and retired (.3) (3.1) (4.1) (70.6) (74.7)
Shares issued .2 .2 4.5 4.5
Other .1 .1
Equal exchange (.5) .5 --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, November 30, 1996 11.5 66.7 161.0 313.8 (24.8) -- 450.0
Net income 98.4 98.4
Dividends paid ($.60/share) (45.5) (45.5)
Currency translation adjustments (5.8) (5.8)
Shares purchased and retired (.3) (4.2) (8.6) (102.6) (111.2)
Shares issued .1 .2 7.0 7.0
Other .2 .2
Equal exchange (1.1) 1.1 --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, November 30, 1997 10.2 63.8 159.4 264.3 (30.6) -- 393.1
NET INCOME 103.8 103.8
DIVIDENDS PAID ($.64/SHARE) (46.9) (46.9)
CURRENCY TRANSLATION ADJUSTMENTS (6.0) (6.0)
ADDITIONAL MINIMUM PENSION LIABILITY (6.6) (6.6)
SHARES PURCHASED AND RETIRED (.2) (1.8) (4.5) (58.5) (63.0)
SHARES ISSUED .3 .2 14.1 14.1
OTHER (.4) (.4)
EQUAL EXCHANGE (.6) .6 --
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1998 9.7 62.8 $ 169.0 $ 262.3 $(36.6) $ (6.6) $ 388.1
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, PAGES 23 - 30.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all majority-owned subsidiaries. Investments in 20% to 50% owned affiliates are
accounted for under the equity method. Significant intercompany transactions
have been eliminated.
USE OF ESTIMATES
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual amounts could differ from these estimates.
CASH AND CASH EQUIVALENTS
All highly liquid investments purchased with an original maturity date of three
months or less are classified as cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and depreciated over its
estimated useful life using the straight-line method for financial reporting and
both accelerated and straight-line methods for tax reporting.
INTANGIBLE ASSETS
Intangible assets resulting from acquisitions are amortized using the
straight-line method over periods up to 40 years. On a periodic basis, the
Company estimates the future undiscounted cash flows of the businesses to which
intangible assets relate in order to ensure that the carrying values of such
intangible assets have 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.
STOCK-BASED EMPLOYEE COMPENSATION
Stock-based compensation is accounted for by using the intrinsic value-based
method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's foreign subsidiaries, other than those
located in highly inflationary countries, are translated at current exchange
rates, while income and expenses are translated at average rates for the period.
Translation gains and losses are reported as a component of shareholders'
equity. For entities in highly inflationary countries, a combination of current
and historical rates is used to determine translation gains and losses, which
are reported directly in the Consolidated Statement of Income.
ACCOUNTING AND DISCLOSURE CHANGES
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share." This statement
revised the standards for computation and presentation of earnings per share
(EPS), requiring the presentation of basic and diluted EPS on the income
statement. Basic EPS is based on the weighted-average shares outstanding during
the applicable period. Diluted EPS reflects the potential dilution which could
occur if all dilutive securities (such as outstanding stock options) were
converted to common shares. The EPS amounts for all periods have been presented
in compliance with SFAS No. 128.
In the fourth quarter of 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This statement
does not change the recognition or measurement of pension or postretirement
benefit plans, but revises and standardizes disclosure requirements.
In the fourth quarter of 1998, the Company adopted the American Institute of
Certified Public Accountants' (AICPA) Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed for or Obtained for
Internal Use." This statement requires the capitalization of certain costs
incurred in connection with developing or obtaining software for internal use.
Adoption of SOP 98-1 did not have a material impact on the Company's financial
statements.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income," which requires that an enterprise report,
by major components and as a single total, the change in its net assets 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. The Company will adopt these statements in 1999. Adoption
of these standards will not impact the Company's results of operations and
financial position and will be limited to the presentation of its disclosures.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up
Activities." This statement, which is effective for fiscal years beginning after
December 15, 1998, requires that costs of start-up activities, including
organization costs, be expensed as incurred. The Company does not anticipate a
material impact on its results of operations and financial position.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement, which is effective for
fiscal years beginning after June 15, 1999, will require the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
do not qualify as hedges under the new standard must be adjusted to fair value
through income. If a derivative qualifies as a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in value will be immediately recognized in earnings. The
Company adopted SFAS No. 133 in the first quarter of 1999 and does not
anticipate a material impact on its results of operations and financial
position.
RECLASSIFICATIONS
Certain amounts in prior years have been reclassified to the 1998 presentation.
2. INVESTMENTS
The Company owns from 20% 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
$30.5 million at November 30, 1998. Summarized year-end information from the
financial statements of these companies representing 100% of the businesses
follows:
<TABLE>
<CAPTION>
(MILLIONS) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 344.4 $ 345.4 $ 328.0
Gross profit 131.1 131.7 121.5
Net income 11.9 15.7 12.9
- --------------------------------------------------------------------------------
Current assets $ 161.2 $ 154.0 $ 149.9
Noncurrent assets 71.7 73.2 79.6
Current liabilities 106.1 90.8 96.1
Noncurrent liabilities 39.5 46.5 46.0
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
3. FINANCING ARRANGEMENTS
The Company's outstanding debt is as follows:
<TABLE>
<CAPTION>
(MILLIONS) 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Short-term borrowings
Commercial paper (1) $ 94.4 $ 79.5
Other 44.7 32.8
- -------------------------------------------------------------------------------
$ 139.1 $ 112.3
Weighted-average interest rate
of short-term borrowings at year end 6.57% 6.92%
- --------------------------------------------------------------------------
Long-term debt
8.95% note due 2001 (1) $ 74.7 $ 74.6
9.75% installment notes
due through 1999 and 2001 8.8 12.3
9.00% installment notes due 1999 1.6 3.9
5.78% - 7.77% medium-term notes
due 2004 to 2006 95.0 95.0
7.63% - 8.12% medium-term notes due 2024 (2) 55.0 55.0
9.34% pound sterling installment
note due through 2001 11.3 14.8
10.00% Canadian dollar bond due 1999 6.5 7.0
3.13% yen note due 1999 .9 2.6
9.74% Australian dollar note due 1999 7.5 8.2
Other 13.6 12.1
- --------------------------------------------------------------------------
Total long-term debt 274.9 285.5
Less current portion 24.5 9.0
- --------------------------------------------------------------------------
$ 250.4 $ 276.5
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
</TABLE>
(1) Commercial paper which will be used to retire the 8.95% note due 2001 is
hedged by a forward starting interest rate swap for the period 2001 through
2011. Interest rate payments will be fixed at 6.35% during the period.
(2) The holders have a one-time option to require retirement of these notes
during 2004.
The fair value of the Company's short-term borrowings approximated the
recorded value. The fair value of long-term debt including the current
portion of long-term debt was $298.8 million and $308.3 million at November
30, 1998 and 1997, respectively. The Company's long-term debt agreements
contain various restrictive covenants, including limitations on the payment
of cash dividends. Under the most restrictive covenants, $152.0 million of
retained earnings was available for dividends at November 30, 1998.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maturities of long-term debt during the four years subsequent to November 30,
1999 are as follows
(in millions):
2000 - $ 7.6 2002 - $.4
2001 - $86.7 2003 - $.3
The Company has available credit facilities with domestic and foreign banks
for various purposes. The amount of unused credit facilities at November 30,
1998 was $388.7 million, of which $300.0 million supports a commercial paper
borrowing arrangement. Credit facilities in support of commercial paper issuance
require a commitment fee of $.2 million. All other credit facilities require no
commitment fee and are subject to the availability of funds.
Rental expense under operating leases was $14.1 million in 1998, $13.6
million in 1997 and $12.4 million in 1996. Future annual fixed rental payments
for the years ending November 30 are as follows (in millions):
1999 - $10.4 2002 - $5.0
2000 - $ 9.1 2003 - $2.5
2001 - $ 6.7 Thereafter - $8.3
At November 30, 1998, the Company had unconditionally guaranteed $12.0
million of the debt of unconsolidated affiliates. The Company has guaranteed the
residual value of a leased distribution center at 85% of its original cost.
4. FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments to enhance its ability to
manage risk, including foreign currency and interest rate exposures which exist
as part of its ongoing business operations. The Company does not enter into
contracts for speculative or trading purposes, nor is it a party to any
leveraged derivative instrument. The use of derivative financial instruments is
monitored through regular communication with senior management and the
utilization of written guidelines.
In evaluating the fair value of financial instruments, the Company
generally uses third-party market quotes or calculates an estimated fair
value on a discounted cash flow basis using the rates available for
instruments with the same remaining maturities.
FOREIGN CURRENCY
The Company is exposed to potential losses from foreign currency fluctuations
affecting net investments and earnings denominated in foreign currencies. The
Company selectively hedges the potential effect of these foreign currency
fluctuations related to operating activities and net investments in foreign
operations by entering into foreign currency exchange contracts with
highly-rated financial institutions. Realized and unrealized gains and losses on
hedges of firm commitments are included in the cost basis of the asset being
hedged and are recognized as the asset is expensed through cost of goods sold.
Realized and unrealized gains and losses on contracts that hedge anticipated
transactions are recognized currently in net earnings. Realized and unrealized
gains and losses on contracts that hedge net investments are recognized in the
foreign currency translation adjustment in shareholders' equity.
At November 30, 1998, the Company had forward and option contracts maturing in
1999 to purchase or sell $40.7 million of foreign currencies versus $3.5 million
at November 30, 1997. The fair value of these contracts was $1.1 million and
$(.1) million at November 30, 1998 and 1997, respectively.
INTEREST RATES
The Company finances a portion of its operations through debt instruments,
primarily commercial paper, notes and bank loans whose fair values are indicated
in Note 3. The Company utilizes interest rate swap agreements to achieve a
desired proportion of variable versus fixed rate debt. The amounts paid or
received on hedges related to debt are recognized as an adjustment to interest
expense. The notional amount of interest rate swaps was $75.0 million at
November 30, 1998. The cost to settle the swaps was $2.0 million at November 30,
1998. The Company intends to hold the forward starting interest rate swaps until
maturity.
OTHER FINANCIAL INSTRUMENTS
The Company's other significant financial instruments include cash and cash
equivalents, receivables and accounts payable. As of November 30, 1998 and 1997,
the fair value of other financial instruments held by the Company approximated
the recorded value.
Investments, consisting principally of investments in unconsolidated affiliates,
are not readily marketable. Therefore, it is not practicable to estimate their
fair value.
CONCENTRATIONS OF CREDIT RISK
The Company is exposed to concentrations of credit risk with trade accounts
receivable, prepaid allowances and financial instruments. Because the Company
has a large and diverse customer base with no single customer accounting for a
significant percentage of trade accounts receivable and prepaid allowances,
there was no material concentration of credit risk in these accounts at November
30, 1998. The Company evaluates the credit worthiness of the counterparties to
financial instruments and considers nonperformance credit risk to be remote.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PENSION AND PROFIT SHARING PLANS
PENSION PLAN
The Company's pension expense follows:
<TABLE>
<CAPTION>
United States International
---------------------------- --------------------------------
(MILLIONS) 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Defined benefit plans
Service cost $ 6.2 $ 5.5 $ 5.7 $ 2.7 $ 1.8 $ 2.1
Interest cost 11.4 10.7 10.4 3.2 2.9 2.6
Expected return
on plan assets (11.2) (10.2) (9.3) (4.9) (3.9) (3.3)
Amortization of
prior service cost .1 -- -- .1 .1 .1
Amortization of
transition asset (.5) (.5) (.5) (.1) (.1) (.1)
Recognized net
actuarial loss (gain) 1.6 1.6 1.0 (.3) (.3) (.3)
Other retirement plans .2 -- -- .8 1.2 1.1
- ---------------------------------------------------------------------------------------------
$ 7.8 $ 7.1 $ 7.3 $ 1.5 $ 1.7 $ 2.2
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
The Company's U.S. plans held .5 million shares, with a fair value of $15.1
million, of the Company's stock at November 30, 1998. Dividends paid on these
shares in 1998 were $.3 million.
Rollforwards of the benefit obligation, fair value of plan assets and a
reconciliation of the plans funded status at September 30, the measurement
date, follow:
<TABLE>
<CAPTION>
United States International
-------------------------- --------------------------
(MILLIONS) 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation
Beginning of the year $ 156.2 $ 146.3 $ 43.8 $ 38.1
Service cost 6.2 5.5 2.7 1.8
Interest cost 11.4 10.7 3.2 2.9
Employee contributions -- -- 1.1 1.1
Plan changes -- .8 -- --
Actuarial loss 21.3 4.2 2.4 1.6
Benefits paid (9.6) (11.3) (1.8) (1.2)
Foreign currency impact -- -- (1.6) (.5)
- -----------------------------------------------------------------------------------------------------------
End of year $ 185.5 $ 156.2 $ 49.8 $ 43.8
- -----------------------------------------------------------------------------------------------------------
Change in fair value of plan assets
Beginning of the year $ 134.2 $ 117.4 $ 55.2 $ 47.0
Actual return on plan assets 5.4 18.9 5.4 8.5
Employer contributions 11.2 9.2 -- .5
Employee contributions -- -- 1.1 1.1
Benefits paid (9.6) (11.3) (1.8) (1.2)
Foreign currency impact -- -- (2.0) (.7)
- -----------------------------------------------------------------------------------------------------------
End of year $ 141.2 $ 134.2 $ 57.9 $ 55.2
- -----------------------------------------------------------------------------------------------------------
Reconciliation of funded status
Funded status $ (44.3) $ (22.0) $ 8.1 $ 11.4
Unrecognized net actuarial loss (gain) 43.4 17.9 (8.5) (11.0)
Unrecognized prior service cost .4 .5 1.0 1.1
Unrecognized transition asset -- (.5) (.5) (.7)
- -----------------------------------------------------------------------------------------------------------
Accrued pension liability $ (.5) $ (4.1) $ .1 $ .8
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Amounts recognized in the consolidated balance sheet consist of the following:
<TABLE>
<CAPTION>
United States International
(MILLIONS) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prepaid pension cost $ 5.1 $ 5.4 $ .8 $ .9
Accrued pension liability (17.9) (9.5) (.7) (.1)
Intangible asset 2.0 -- -- --
Deferred income taxes 3.7 -- -- --
Additional minimum pension liability 6.6 -- -- --
- ----------------------------------------------------------------------------------
$ (.5) $ (4.1) $ .1 $ .8
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
</TABLE>
The accumulated benefit obligation for the U.S. plans was $153.9 million
and $129.1 million as of September 30, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
United States International
1998 1997 1998 1997
- -------------------------------------------------------------------------------
Significant assumptions
<S> <C> <C> <C> <C>
Discount rate 7.0% 7.5% 6.5% 7.5%
Salary scale 4.0% 4.5% 3.5-4.0% 4.5-5.0%
Expected return on plan assets 10.0% 10.0% 8.5-9.5% 8.5-9.5%
- -------------------------------------------------------------------------------
</TABLE>
Profit Sharing Plan
Profit sharing plan expense was $4.2 million, $4.4 million and $3.4 million in
1998, 1997 and 1996, respectively.
The Profit Sharing Plan held 2.5 million shares, with a fair value of $83.3
million, of the Company's stock at November 30, 1998. Dividends paid on these
shares in 1998 were $1.6 million.
6. OTHER POSTRETIREMENT BENEFITS
The Company's other postretirement benefit expense follows:
<TABLE>
<CAPTION>
(MILLIONS) 1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Other postretirement benefits
Service cost $ 2.1 $ 1.9 $ 2.0
Interest cost 4.4 4.3 4.6
Amortization of prior service cost (.1) (.1) (.1)
- ----------------------------------------------------------------------------
$ 6.4 $ 6.1 $ 6.5
- ----------------------------------------------------------------------------
</TABLE>
Rollforwards of the benefit obligation, fair value of plan assets and a
reconciliation of the plan's funded status at November 30, the measurement date,
follow:
<TABLE>
<CAPTION>
(MILLIONS) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation
Beginning of the year $ 61.5 $ 62.3
Service cost 2.1 1.9
Interest cost 4.4 4.3
Employee contributions 1.5 1.5
Plan changes (.5) --
Actuarial loss (gain) 5.9 (4.0)
Benefits paid (5.1) (4.5)
- -------------------------------------------------------------------------------
End of the year $ 69.8 $ 61.5
- -------------------------------------------------------------------------------
Change in fair value of plan assets
Beginning of the year $ -- $ --
Employer contributions 3.6 3.0
Employee contributions 1.5 1.5
Benefits paid (5.1) (4.5)
- --------------------------------------------------------------------------------
End of the year $ -- $ --
- --------------------------------------------------------------------------------
Reconciliation of funded status
Funded status $ (69.8) $ (61.5)
Unrecognized net actuarial loss (gain) 2.5 (3.5)
Unrecognized prior service cost (1.3) (.9)
- --------------------------------------------------------------------------------
Other postretirement benefit liability $(68.6) $ (65.9)
- --------------------------------------------------------------------------------
</TABLE>
The assumed weighted-average discount rates were 7.0% and 7.5% for 1998 and
1997, respectively.
The assumed annual rate of increase in the cost of covered health care benefits
is 8.5% for 1999. It is assumed to decrease gradually to 4.5% in the year 2007
and remain at that level thereafter. Changing the
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
assumed health care cost trend would have the following effect:
<TABLE>
<CAPTION>
1-Percentage- 1-Percentage-
(MILLIONS) Point Increase Point Decrease
- ---------------------------------------------------------------------------
<S> <C> <C>
Effect on benefit obligation as of
November 30, 1998 $ 6.5 $ (5.8)
Effect on total of service and interest
cost components in 1998 $ .8 $ (.7)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(MILLIONS) 1998 1997 1996
- -------------------------------------------------------
<S> <C> <C> <C>
Income taxes
Current
Federal $ 37.6 $ 24.4 $ 33.5
State 6.7 5.5 8.4
International 8.6 3.8 8.3
- -------------------------------------------------------
52.9 33.7 50.2
- -------------------------------------------------------
Deferred
Federal .1 10.7 (20.0)
State (.6) 2.3 (2.8)
International 2.5 5.9 (3.6)
- -------------------------------------------------------
2.0 18.9 (26.4)
- -------------------------------------------------------
Total income taxes $ 54.9 $ 52.6 $ 23.8
- -------------------------------------------------------
</TABLE>
The components of income from consolidated continuing operations before income
taxes follow:
<TABLE>
<CAPTION>
(MILLIONS) 1998 1997 1996
- ----------------------------------------------------
<S> <C> <C> <C>
Pretax income
United States $ 126.9 $ 115.6 $ 59.3
International 25.6 26.7 2.4
- ----------------------------------------------------
$ 152.5 $ 142.3 $ 61.7
- ----------------------------------------------------
</TABLE>
A reconciliation of the U.S. federal statutory rate with the effective tax rate
follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal benefits 2.6 4.3 4.3
Tax effect on international operations .6 .1 6.4
Tax credits (2.2) (2.6) (4.3)
Amended prior year tax return -- -- (6.4)
Other, net -- .2 3.7
- -------------------------------------------------------------------
Effective tax rate 36.0% 37.0% 38.7%
- -------------------------------------------------------------------
</TABLE>
Deferred tax liabilities and assets are comprised of the following:
<TABLE>
<CAPTION>
(MILLIONS) 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Postretirement benefit obligations $ 35.7 $ 33.5
Accrued expenses and other reserves 15.3 16.9
Inventory 3.8 4.1
Net operating losses and tax credits 7.2 7.3
Other 16.0 12.8
Valuation allowance (6.2) (6.4)
- ---------------------------------------------------------------------
Deferred tax assets 71.8 68.2
- ---------------------------------------------------------------------
Deferred tax liabilities
Depreciation 41.9 38.3
Other 16.0 13.9
- ---------------------------------------------------------------------
Deferred tax liabilities 57.9 52.2
- ---------------------------------------------------------------------
Net deferred tax asset $ 13.9 $ 16.0
- ---------------------------------------------------------------------
</TABLE>
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.
U.S. income taxes are not provided for unremitted earnings of international
subsidiaries and affiliates. The Company's intention is to reinvest these
earnings permanently or to repatriate the earnings only when it is tax effective
to do so. Accordingly, the Company believes that any U.S. tax on repatriated
earnings would be substantially offset by U.S. foreign tax credits. Unremitted
earnings of such entities were $94.7 million at November 30, 1998.
8. STOCK PURCHASE AND OPTION PLANS
The Company has an Employee Stock Purchase Plan (ESPP) enabling substantially
all U.S. employees to purchase the Company's common stock at the lower of the
stock price on the grant date or the exercise date. Similarly, options were
granted for certain foreign-based employees in lieu of their participation in
the ESPP. Options granted under both plans have two-year terms and are fully
exercisable on the grant date.
Under the Company's 1990 and 1997 Stock Option Plans and the McCormick
(U.K.) Share Option Schemes, options to purchase shares of the Company's common
stock have been or may be granted to employees. The option price for shares
granted under these plans is the fair market value on the grant date. Options
have five- and ten-year terms and generally become fully exercisable between two
and five years of continued employment.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation expense
has been recognized for the Company's stock option plans. If the Company had
elected to recognize compensation based on the fair value of the options granted
at grant date as prescribed by SFAS No. 123, net income and earnings per share
would have been as follows:
<TABLE>
<CAPTION>
(MILLIONS EXCEPT PER SHARE DATA) 1998 1997 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Pro forma net income $ 100.1 $ 94.5 $ 40.6
Pro forma earnings per share
Diluted 1.36 1.25 .50
Basic 1.37 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.
The per share weighted-average fair value of options granted during the
year was $7.20, $4.63 and $4.56 in 1998, 1997 and 1996, respectively. The fair
value for these options was estimated at the date of grant using a
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
1998 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rates 5.5% - 5.7% 5.9% - 6.7% 5.4% - 6.4%
Dividend yields 2.0% 2.0% 2.0%
Expected volatility 23.6% 23.0% 23.0%
Expected lives 1.3 - 5.3 years 1.6 - 4.6 years 1.6 - 4.6 years
- -------------------------------------------------------------------------------------------
</TABLE>
A summary of the Company's stock option plans for the years ended November
30 follows:
<TABLE>
<CAPTION>
(OPTIONS IN MILLIONS) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 3.2 $23.11 2.7 $22.71 2.6 $22.11
Granted 1.2 $33.15 1.3 $24.25 .7 $22.35
Exercised (.6) $22.57 (.3) $21.94 (.4) $18.38
Forfeited (.1) $22.27 (.5) $24.91 (.2) $22.09
- ---------------------------------------------------------------------------------------------------
End of year 3.7 $26.50 3.2 $23.11 2.7 $22.71
- ---------------------------------------------------------------------------------------------------
Exercisable -
end of year 1.9 $23.06 1.8 $22.73 1.8 $22.95
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(OPTIONS IN MILLIONS) Options outstanding Options exercisable
- ------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Range of average average average
exercise remaining exercise exercise
price Shares life in years price Shares price
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$6.75 to $23.00 1.3 1.8 $22.36 1.2 $22.36
$23.13 to $33.13 1.2 2.9 $24.54 .7 $24.28
$33.25 1.2 9.3 $33.25 -- $33.25
- ------------------------------------------------------------------------------
3.7 4.5 $26.50 1.9 $23.06
- ------------------------------------------------------------------------------
</TABLE>
Under all stock purchase and option plans, there were 4.8 million and 6.1
million shares reserved for future grants at November 30, 1998 and 1997,
respectively.
9. EARNINGS PER SHARE
The Company adopted the provisions of SFAS No. 128 "Earnings Per Share" in 1998.
Application of its provisions results in disclosure of two earnings per share
measures, basic and diluted, on the face of the Consolidated Statement of
Income.
The reconciliation of shares outstanding for the years ended November 30
follows:
<TABLE>
<CAPTION>
(MILLIONS) 1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Average shares outstanding - basic 73.3 75.7 80.6
Effect of dilutive securities
Stock options and ESPP .5 .2 .1
- ------------------------------------------------------------------------
Average shares outstanding -
diluted 73.8 75.9 80.7
- ------------------------------------------------------------------------
</TABLE>
10. 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.
11. BUSINESS RESTRUCTURING AND DISCONTINUED OPERATIONS
Business Restructuring
The Company recorded restructuring charges of $70.4 million ($46.3 million
after-tax or $.57 per share) and $58.1 million ($39.6 million after-tax or $.49
per share) in 1994 and 1996, respectively. These charges related to the
consolidation of manufacturing facilities, reduction of administrative staff and
divestiture of non-core businesses. In addition, there were charges directly
related to the 1996 restructuring plan which could not be accrued at that time.
In the fourth quarter of 1998, the Company completed these restructuring
plans. Because the realignment of several overseas operations resulted in losses
less than originally anticipated, the Company recorded a restructuring credit of
$3.1 million in 1998. In addition, the Company incurred $1.9 million of
restructuring charges which could not be accrued in 1996, primarily related to
costs to move equipment and personnel from a closed U.S. packaging plant.
Concurrent with these activities, the Company discontinued its manufacturing
operations in Venezuela, resulting in a restructuring charge of
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$3.5 million. Charges related to this initiative, which was completed in 1998,
included $1.1 million for severance and personnel costs, $1.8 million for the
writedown of assets to net realizable value and $.6 million for other exit
costs. The credit for the completion of the restructuring plan, charges directly
related to the restructuring plans which could not be previously accrued and the
new initiative in Venezuela resulted in a net restructuring charge of $2.3
million ($1.5 million after-tax or $.02 per share) in 1998.
In the third quarter of 1997, the Company reevaluated its restructuring
plans and recorded a restructuring credit of $9.5 million because the agreement
in principle to dispose of an overseas food brokerage and distribution business
was not consummated and several projects were completed with losses less than
originally anticipated. The Company also recorded a restructuring charge of $5.7
million to streamline the food brokerage and distribution business and close a
U.S. packaging plant. Including this additional restructuring charge, the credit
for the restructuring plan reevaluation and charges directly related to the
restructuring plans which could not be previously accrued, the Company recorded
a net restructuring credit of $3.2 million ($2.0 million after-tax or $.03 per
share) in 1997.
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 contract terms, the Company recognized income from discontinued
operations, net of income taxes of $1.0 million in 1997. An after-tax charge of
$.3 million was previously recognized in 1996.
The operating results of GFI and GEC for 1996 have been reclassified to
discontinued operations. The Company allocated interest expense to discontinued
operations 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 were allocated based on the statutory tax rates applicable to the
discontinued operations. Sales, interest expense and income taxes applicable to
discontinued operations in 1996 were $129.4 million, $11.2 million and $3.8
million, respectively.
The sale of GEC necessitated prepayment of a 11.68% non-recourse
installment note, resulting in an extraordinary net loss of $7.8 million in
1996.
The Company signed a three-year non-compete agreement with Calpine
Corporation. Under this agreement, McCormick received payments of $7.0 million,
$8.0 million and $4.5 million in 1998, 1997 and 1996, respectively, which were
included in the "Other (income) expense, net" caption in the Consolidated
Statement of Income.
12. 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. Because the Food Products segment
represents the majority of the Company, 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, predominantly in the United States.
<TABLE>
<CAPTION>
Food Packaging
(MILLIONS) Products Products Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
NET SALES $1,692.3 $188.8 $1,881.1
OPERATING INCOME (1) 163.4 19.4 182.8
ASSETS 1,115.9 143.2 1,259.1
CAPITAL EXPENDITURES 37.8 17.0 54.8
DEPRECIATION AND AMORTIZATION 43.6 11.2 54.8
- -------------------------------------------------------------------------------
1997
Net sales $1,595.2 $205.8 $1,801.0
Operating income (2) 150.4 20.4 170.8
Assets 1,133.1 123.1 1,256.2
Capital expenditures 34.1 9.8 43.9
Depreciation and amortization 38.6 10.7 49.3
- -------------------------------------------------------------------------------
1996
Net sales $1,532.3 $200.2 $1,732.5
Operating income (loss) (3) 99.2 (5.9) 93.3
Assets 1,196.5 130.1 1,326.6
Capital expenditures 63.6 11.1 74.7
Depreciation and amortization 51.8 12.0 63.8
- -------------------------------------------------------------------------------
</TABLE>
(1) Includes restructuring charges of $1.1 for Food Products and $1.2 for
Packaging Products.
(2) Includes restructuring (credits) charges of $(7.1) for Food Products and
$3.9 for Packaging Products.
(3) Includes restructuring charges of $41.1 for Food Products and $17.0 for
Packaging Products.
Packaging net sales include sales to the Food Products segment of $30.0
million, $25.9 million and $30.2 million in 1998, 1997 and 1996, respectively.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Geographic Areas
<TABLE>
<CAPTION>
Asia/
(MILLIONS) Americas Europe Pacific Total
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Net sales $1,444.6 $348.5 $88.0 $1,881.1
Net income -
continuing operations (1) 86.8 16.5 .5 103.8
Assets 933.2 236.0 89.9 1,259.1
- --------------------------------------------------------------------------------------------
1997
Net sales $1,377.5 $339.0 $84.5 $1,801.0
Net income -
continuing operations (2) 77.5 17.5 2.4 97.4
Assets 920.3 256.4 79.5 1,256.2
- --------------------------------------------------------------------------------------------
1996
Net sales $1,332.9 $329.3 $70.3 $1,732.5
Net income (loss) -
continuing operations (3) 48.2 (6.3) 1.6 43.5
Assets 980.0 264.3 82.3 1,326.6
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Includes after-tax restructuring charges (credits) of $4.2 for Americas and
$(2.7) for Europe.
(2) Includes after-tax restructuring charges (credits) of $1.4 for Americas,
$(1.6) for Europe and $(1.8) for Asia/Pacific.
(3) Includes after-tax restructuring charges of $19.6 for Americas, $18.6 for
Europe and $1.4 for Asia/Pacific.
Note: Certain countries have been reclassified from the prior years'
presentations to more appropriately reflect the Company's operations.
13. SUPPLEMENTAL FINANCIAL STATEMENT DATA
<TABLE>
<CAPTION>
(MILLIONS) 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C>
Inventories
Finished products and work-in-process $ 138.6 $ 136.7
Raw materials 112.3 115.4
- ----------------------------------------------------------------------
$ 250.9 $ 252.1
- ----------------------------------------------------------------------
Property, plant and equipment
Land and improvements $ 26.2 $ 29.3
Buildings 187.6 192.8
Machinery and equipment 477.4 445.9
Construction in progress 32.1 25.5
Accumulated depreciation (346.3) (313.5)
- ----------------------------------------------------------------------
$ 377.0 $ 380.0
- ----------------------------------------------------------------------
Intangible assets
Cost $ 212.9 $ 205.5
Accumulated amortization (52.0) (47.5)
- ----------------------------------------------------------------------
$ 160.9 $ 158.0
- ----------------------------------------------------------------------
Other accrued liabilities
Payroll and employee benefits $ 43.6 $ 48.5
Sales allowances 40.5 46.0
Income taxes 19.7 22.1
Other 104.7 110.0
- ----------------------------------------------------------------------
$ 208.5 $ 226.6
- ----------------------------------------------------------------------
Other long-term liabilities
Other postretirement benefits $ 68.6 $ 65.9
Other 29.8 20.4
- ----------------------------------------------------------------------
$ 98.4 $ 86.3
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(MILLIONS) 1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation $ 49.9 $ 43.9 $ 49.2
Research and development 16.9 16.1 12.2
Interest paid 37.3 38.1 47.3
Income taxes paid 49.0 25.8 44.9
- ----------------------------------------------------------------------
</TABLE>
14. SELECTED QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
(MILLIONS EXCEPT PER SHARE DATA) First Second Third Fourth
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
NET SALES $415.2 $435.5 $444.8 $585.6
GROSS PROFIT 133.2 141.3 146.3 228.1
OPERATING INCOME 30.0 30.4 38.9 83.5
NET INCOME 16.2 16.1 21.5 50.0
EARNINGS PER SHARE
BASIC .22 .22 .29 .69
DILUTED .22 .22 .29 .68
DIVIDENDS PAID PER SHARE .16 .16 .16 .16
MARKET PRICE
HIGH 30.19 34.38 36.06 33.94
LOW 26.38 28.81 29.06 27.13
- ----------------------------------------------------------------------------------------
1997
Net sales $407.4 $413.7 $422.9 $557.0
Gross profit 136.7 134.5 138.5 218.9
Operating income 28.4 28.6 36.1 77.7
Net income (1) 15.2 14.8 20.2 48.2
Earnings per share (1)
Basic .20 .20 .27 .65
Diluted .20 .20 .27 .65
Dividends paid per share .15 .15 .15 .15
Market price
High 25.38 26.88 26.88 27.06
Low 22.63 22.81 23.31 23.50
- ----------------------------------------------------------------------------------------
</TABLE>
(1) During the third quarter of 1997, the Company recognized $1.0 of income
from discontinued operations, net of income taxes. The impact of this
income on basic and diluted earnings per share was $.01.
30
<PAGE>
REPORT OF MANAGEMENT
We are responsible for the preparation and integrity of the consolidated
financial statements appearing in our Annual Report. The consolidated financial
statements were prepared in conformity with generally accepted accounting
principles and include amounts based on management's estimates and judgments.
All other financial data in this report have been presented on a basis
consistent with the information included in the financial statements.
The Company maintains a system of internal controls that is designed to
provide reasonable assurance as to the fair and reliable preparation and
presentation of the consolidated financial statements, as well as to safeguard
assets from unauthorized use or disposition. The internal control system is
supported by formal policies and procedures which are reviewed, modified and
improved as changes occur in business conditions and operations. The Company's
commitment to proper selection, training and development of personnel also
contributes to the effectiveness of the internal control system.
The Audit Committee of the Board of Directors, which is composed solely of
outside directors, meets periodically with members of management, the internal
auditors and the independent auditors to review and discuss internal accounting
controls and accounting and financial reporting matters. The independent
auditors and internal auditors have full and free access to the Audit Committee
at any time.
The independent auditors review and evaluate the internal control systems
and perform such tests on those systems as they consider necessary to reach
their opinion on the Company's consolidated financial statements taken as a
whole. In addition, McCormick's internal auditors perform audits of accounting
records, review accounting systems and internal controls and recommend
improvements when appropriate.
Although there are inherent limitations in the effectiveness of any system
of internal controls, we believe our controls as of November 30, 1998 provide
reasonable assurance that the financial statements are reliable and that our
assets are reasonably safeguarded.
/s/ Robert J. Lawless
Robert J. Lawless
PRESIDENT & CHIEF EXECUTIVE OFFICER
/s/ Francis A. Contino
Francis A. Contino
EXECUTIVE VICE PRESIDENT & CHIEF FINANCIAL OFFICER
/s/ J. Allan Anderson
J. Allan Anderson
VICE PRESIDENT & CONTROLLER,
CHIEF ACCOUNTING OFFICER
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS
McCormick & Company, Incorporated
We have audited the accompanying consolidated balance sheets of McCormick &
Company, Incorporated and subsidiaries as of November 30, 1998 and 1997 and the
related consolidated statements of income, cash flows and shareholders' equity
for each of the three years in the period ended November 30, 1998. 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, 1998 and 1997 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended November 30, 1998 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Baltimore, Maryland
January 18, 1999
31
<PAGE>
HISTORICAL FINANCIAL SUMMARY
<TABLE>
<CAPTION>
(MILLIONS EXCEPT PER SHARE DATA) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Net sales $1,881.1 $1,801.0 $1,732.5 $1,691.1 $1,529.4
Percent increase 4.4% 4.0% 2.4% 10.6% 9.2%
Operating income 182.8 170.8 93.3 172.6 86.0
Operating income
excluding restructuring 185.1 167.6 151.4 168.7 156.5
Income from unconsolidated
operations 6.2 7.7 5.6 2.1 7.9
Net income - continuing operations 103.8 97.4 43.5 86.8 42.5
Net income (1) 103.8 98.4 41.9 97.5 61.2
- -----------------------------------------------------------------------------------------------------------
PER COMMON SHARE (2)
Earnings per share - diluted (6)
Continuing operations $1.41 $1.29 $.54 $1.07 $.52
Discontinued operations (1) -- .01 .08 .13 .23
Extraordinary item -- -- (.10) -- --
Accounting change (3) -- -- -- -- --
Net earnings 1.41 1.30 .52 1.20 .75
Earnings per share - basic (1)(3)(6) 1.42 1.30 .52 1.20 .75
Common dividends declared (4) .65 .61 .57 .53 .49
Market closing price - end of year 33.38 26.50 24.63 23.63 19.00
Book value per share 5.35 5.31 5.75 6.39 6.03
- -----------------------------------------------------------------------------------------------------------
AT YEAR END
Total assets $1,259.1 $1,256.2 $1,326.6 $1,614.3 $1,555.7
Current debt 163.6 121.3 108.9 297.3 214.0
Long-term debt 250.4 276.5 291.2 349.1 374.3
Shareholders' equity 388.1 393.1 450.0 519.3 490.0
Total capital 802.1 790.9 850.1 1,165.7 1,078.3
- -----------------------------------------------------------------------------------------------------------
STATISTICS & RATIOS
Percentage of net sales
Gross profit 34.5% 34.9% 34.9% 34.5% 36.5%
Operating income 9.7% 9.5% 5.4% 10.2% 5.6%
Net income - continuing operations 5.5% 5.4% 2.5% 5.1% 2.8%
Effective tax rate 36.0% 37.0% 38.7% 36.1% 40.5%
Depreciation and amortization $54.8 $49.3 $63.8 $63.7 $62.5
Capital expenditures $54.8 $43.9 $74.7 $82.1 $87.7
Return on equity 27.7% 25.2% 8.6% 20.3% 12.8%
Debt to capital 51.6% 50.3% 47.1% 55.5% 54.6%
Dividend payout ratio (5) 44.8% 47.6% 50.5% 44.4% 36.4%
Average shares outstanding (6)
Basic 73.3 75.7 80.6 81.2 81.2
Diluted 73.8 75.9 80.7 81.3 81.6
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(millions except per share data) 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year
Net sales $1,400.9 $1,323.9 $1,276.3 $1,166.2 $1,110.2
Percent increase 5.8% 3.7% 9.4% 5.0% 1.0%
Operating income 142.1 121.4 100.6 86.9 74.5
Operating income
excluding restructuring 142.1 121.4 100.6 86.9 74.5
Income from unconsolidated
operations 10.3 9.9 8.8 3.7 3.5
Net income - continuing operations 82.9 73.6 60.4 51.8 47.1
Net income (1) 73.1 95.2 80.9 69.4 135.5
- -----------------------------------------------------------------------------------------------------------
Per Common Share (2)
Earnings per share - diluted (6)
Continuing operations $1.01 $.90 $.73 $.62 $.54
Discontinued operations (1) .21 .26 .25 .21 1.00
Extraordinary item -- -- -- -- --
Accounting change (3) (.33) -- -- -- --
Net earnings .89 1.16 .98 .83 1.54
Earnings per share - basic (1)(3)(6) .90 1.19 1.01 .86 1.59
Common dividends declared (4) .45 .40 .31 .24 .19
Market closing price - end of year 23.25 28.50 20.63 11.50 12.50
Book value per share 5.70 5.45 4.88 4.56 4.18
- -----------------------------------------------------------------------------------------------------------
At Year End
Total assets $1,313.2 $1,130.9 $1,037.4 $946.9 $864.5
Current debt 84.7 122.6 78.2 30.4 20.3
Long-term debt 346.4 201.0 207.6 211.5 210.5
Shareholders' equity 466.8 437.9 389.2 364.4 346.2
Total capital 897.9 761.5 675.0 606.3 577.0
- -----------------------------------------------------------------------------------------------------------
Statistics & Ratios
Percentage of net sales
Gross profit 38.5% 38.9% 36.9% 36.0% 35.2%
Operating income 10.1% 9.2% 7.9% 7.5% 6.7%
Net income - continuing operations 5.9% 5.6% 4.7% 4.4% 4.2%
Effective tax rate 41.4% 39.4% 38.4% 38.0% 38.1%
Depreciation and amortization $50.5 $43.8 $40.5 $36.6 $34.8
Capital expenditures $76.1 $79.3 $73.0 $58.4 $53.4
Return on equity 17.0% 23.3% 21.8% 20.4% 40.0%
Debt to capital 48.0% 42.5% 42.3% 39.9% 40.0%
Dividend payout ratio (5) 36.1% 32.8% 28.6% 28.9% 30.8%
Average shares outstanding (6)
Basic 80.8 80.1 80.0 80.9 85.3
Diluted 81.8 81.9 82.4 83.7 87.8
- -----------------------------------------------------------------------------------------------------------
</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 AND
JANUARY 1990.
(3) IN 1993, THE COMPANY ADOPTED SFAS NO. 106, "EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS."
(4) INCLUDES FOURTH QUARTER DIVIDENDS WHICH WERE DECLARED IN DECEMBER FOLLOWING
THE CLOSE OF EACH FISCAL YEAR.
(5) DOES NOT INCLUDE GAINS OR LOSSES ON SALES OF DISCONTINUED OPERATIONS,
CUMULATIVE EFFECTS OF ACCOUNTING CHANGES, RESTRUCTURING CHARGES (CREDITS)
AND EXTRAORDINARY ITEMS.
(6) RESTATED BASED ON SFAS NO. 128, "EARNINGS PER SHARE."
32
<PAGE>
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
Executive Committee
Charles P. McCormick, Jr.*
Robert J. Lawless
Francis A. Contino
Robert G. Davey
Carroll D. Nordhoff
James T. Brady +
FORMER SECRETARY
MARYLAND DEPARTMENT OF BUSINESS &
ECONOMIC DEVELOPMENT
James S. Cook +?*
FORMER EXECUTIVE IN RESIDENCE
COLLEGE OF BUSINESS ADMINISTRATION
NORTHEASTERN UNIVERSITY
Edward S. Dunn, Jr. ?
C. J. MCNUTT CHAIR
ERIVAN K. HAUB SCHOOL OF BUSINESS
SAINT JOSEPH'S UNIVERSITY
Dr. Freeman A. Hrabowski, III +?
PRESIDENT
UNIVERSITY OF MARYLAND BALTIMORE
COUNTY
George V. McGowan ?*
CHAIRMAN OF THE EXECUTIVE COMMITTEE
BALTIMORE GAS AND ELECTRIC COMPANY
Robert W. Schroeder
VICE PRESIDENT & GENERAL MANAGER
MCCORMICK/SCHILLING DIVISION
William E. Stevens +?
EXECUTIVE VICE PRESIDENT
MILLS & PARTNERS
Karen D. Weatherholtz
VICE PRESIDENT - HUMAN RELATIONS
+ AUDIT COMMITTEE MEMBER
? COMPENSATION COMMITTEE MEMBER
* SCHEDULED TO RETIRE MARCH 17, 1999
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
Francis A. Contino
EXECUTIVE VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
Robert G. Davey
PRESIDENT -
GLOBAL INDUSTRIAL GROUP
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 W. Skelton
VICE PRESIDENT, GENERAL COUNSEL
& SECRETARY
Gordon M. Stetz, Jr.
VICE PRESIDENT - ACQUISITIONS &
FINANCIAL PLANNING
Karen D. Weatherholtz
VICE PRESIDENT - HUMAN RELATIONS
Joyce L. Brooks
ASSISTANT TREASURER - FINANCIAL SERVICES
W. Geoffrey Carpenter
ASSOCIATE GENERAL COUNSEL &
ASSISTANT SECRETARY
David P. Smith
ASSISTANT TREASURER
J. Gregory Yawman
ASSOCIATE COUNSEL & ASSISTANT SECRETARY
THE BOARD OF DIRECTORS
[BOARD OF DIRECTORS PICTURE]
FROM LEFT TO RIGHT, SEATED:
DAVEY, NORDHOFF, CONTINO,
LAWLESS, MCCORMICK;
STANDING: DUNN, STEVENS, HRABOWSKI, SCHROEDER,
MCGOWAN, COOK, BRADY, WEATHERHOLTZ.
33
<PAGE>
MCCORMICK WORLDWIDE
U.S.A.
CONSOLIDATED OPERATING UNITS
FOOD SERVICE GROUP
Hunt Valley, Maryland
F. Christopher Cruger
VICE PRESIDENT & GENERAL MANAGER
GLOBAL RESTAURANT DIVISION
Hunt Valley, Maryland
Howard W. Kympton, III
VICE PRESIDENT & GENERAL MANAGER
MCCORMICK FLAVOR DIVISION
Hunt Valley, Maryland
Paul C. Beard
VICE PRESIDENT & GENERAL MANAGER
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
Harvey W. Casey
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
Michael A. C. Beard
MANAGING DIRECTOR
MCCORMICK GLENTHAM (PTY)
LIMITED
Midrand, South Africa
Jonathan P. Eales
MANAGING DIRECTOR
MCCORMICK CANADA, INC.
London, Ontario, Canada
Alan D. Wilson
PRESIDENT
MCCORMICK DE CENTRO AMERICA,
S.A. DE C.V.
San Salvador, El Salvador
Arduino Bianchi
MANAGING DIRECTOR
MCCORMICK FOODS AUSTRALIA
PTY. LTD.
Clayton, Victoria, Australia
Timothy J. Large
MANAGING DIRECTOR
MCCORMICK (GUANGZHOU) FOOD
COMPANY, LTD.
Guangzhou,
People's Republic of 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
Lazaro Gonzalez
MANAGING DIRECTOR
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
OY MCCORMICK AB
Helsinki, Finland
Risto J. Maila
MANAGING DIRECTOR
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. 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
34
<PAGE>
INVESTOR INFORMATION
CORPORATE ADDRESS
McCormick & Company, Incorporated
18 Loveton Circle
Sparks, MD 21152-6000
U.S.A.
(410) 771-7301
STOCK INFORMATION
NASDAQ National Market List
Symbol: MCCRK
STOCK DIVIDEND DATES - 1999
Record Date Payment Date
03/31/99 04/13/99
07/02/99 07/15/99
10/01/99 10/13/99
12/31/99 01/24/2000
There were more than 12,000 shareholders of record, approximately 4,000
holders in McCormick's 401(K) plan for employees, and an estimated 25,000
"street-name" beneficial holders whose shares are held in names other than
their own, for example, in brokerage accounts.
INVESTOR SERVICES
The Company offers an Investor Services Plan which provides shareholders of
record the opportunity to automatically reinvest dividends, make optional cash
purchases of stock through the Company, place stock certificates into book-entry
safekeeping and sell book-entry shares through the Company. Individuals who are
not current shareholders may purchase their initial shares directly from the
Company. All transactions are subject to limitations set forth in the Plan
prospectus, which may be obtained by contacting Investor Services at:
(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.
TRADEMARKS
Use of -Registered Trademark- or -TM- in this annual report indicates
trademarks owned or used by McCormick & Company, Incorporated and its
subsidiaries and affiliates.
THIS REPORT IS PRINTED ON
RECYCLABLE PAPER.
35
<PAGE>
[LOGO]
MCCORMICK & COMPANY, INCORPORATED
18 LOVETON CIRCLE
SPARKS, MARYLAND 21152-6000
U.S.A.
410-771-7301
<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 18, 1999, included in the 1998 Annual Report to Shareholders of
McCormick & Company, Incorporated.
Our audits also included the financial statement schedule of McCormick &
Company, Incorporated and subsidiaries listed in Item 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, presents fairly in all material
respects the information set forth therein.
We also consent to the incorporation by reference in the following
Registration Statements of McCormick & Company, Incorporated and subsidiaries
and in the related Prospectuses (if applicable) of our report dated January
18, 1999, with respect to the consolidated financial statements of McCormick
& Company, Incorporated and subsidiaries included in the 1998 Annual Report
to Shareholders and incorporated by reference in this Annual Report (Form
10-K), and our report included in the preceding paragraph with respect to the
financial statement schedule included in this Annual Report (Form 10-K) of
the McCormick & Company, Incorporated.
<TABLE>
<CAPTION>
Registration
Form Number Date Filed
---- ------ ----------
<S> <C> <C>
S-3 333-47611 3/9/98
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 12/12/89
S-8 33-24660 3/16/89
S-8 33-24658 9/15/88
S-3 33-24659 9/15/88
</TABLE>
/s/ Ernst & Young LLP
Baltimore, Maryland
February 16, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
<CASH> 17,711
<SECURITIES> 0
<RECEIVABLES> 216,788
<ALLOWANCES> 3,984
<INVENTORY> 250,893
<CURRENT-ASSETS> 503,733
<PP&E> 723,323
<DEPRECIATION> 346,291
<TOTAL-ASSETS> 1,259,053
<CURRENT-LIABILITIES> 517,934
<BONDS> 250,363
0
0
<COMMON> 169,010
<OTHER-SE> 219,161
<TOTAL-LIABILITY-AND-EQUITY> 1,259,053
<SALES> 1,881,146
<TOTAL-REVENUES> 1,881,146
<CGS> 1,232,222
<TOTAL-COSTS> 466,094
<OTHER-EXPENSES> (6,604)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,935
<INCOME-PRETAX> 152,499
<INCOME-TAX> 54,900
<INCOME-CONTINUING> 103,828
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103,828
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.41
</TABLE>
<PAGE>
Exhibit 99
MCCORMICK & COMPANY, INCORPORATED
18 LOVETON CIRCLE
SPARKS, MARYLAND 21152
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MARCH 17, 1999
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
17, 1999, 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 1999 Directors' Non-Qualified Stock Option Plan,
which Plan, as set forth in Exhibit A to the Proxy Statement, has been adopted
by the Board of Directors subject to the approval of the stockholders;
(c) the approval of the 1999 Employees Stock Purchase Plan, which Plan, as
set forth in Exhibit B to the Proxy Statement, has been adopted by the Board of
Directors subject to the approval of the stockholders;
(d) the ratification of the appointment of Ernst & Young LLP as independent
auditors of the Company to serve for the 1999 fiscal year; and
(e) 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, 1998
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 17, 1999 Robert W. Skelton
Secretary
<PAGE>
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished on or about February 17, 1999 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, 1998, there were outstanding
9,520,741 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, 1998
will be entitled to vote at the meeting or any adjournments thereof.
PRINCIPAL STOCKHOLDERS
On December 31, 1998, the assets of The McCormick Profit Sharing Plan (the
"Plan") included 2,437,821 shares of the Company's Common Stock, which
represented 25.6% 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 four directors, Francis A. Contino, 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.
Harry K. Wells and his wife Lois L. Wells, whose address is P. O. Box 409,
Riderwood, Maryland 21139, held in two trusts 576,623 shares of Common Stock as
of December 31, 1998, representing 6% of the outstanding shares of Common Stock.
2
<PAGE>
ELECTION OF DIRECTORS
Effective March 17, 1999, Messrs. Charles P. McCormick, Jr., James S. Cook
and George V. McGowan will retire from the Board of Directors. Mr. McCormick has
served as a member of the Board of Directors since 1955 and, with the exception
of a period of approximately one year when he served as Chairman Emeritus, Mr.
McCormick has served as Chairman of the Board since 1988. Mr. McCormick's
leadership, dedication and commitment have been an invaluable resource to the
Company and its stockholders. Messrs. Cook and McGowan have served with
distinction as members of the Board for nearly 20 years and as chairs of the
Audit and Compensation Committees. The Company is grateful for the contributions
of these gentlemen during their many years of service.
Mr. Francis A. Contino was elected as a member of the Board of Directors
effective June 15, 1998. On December 21, 1998, Messrs. James T. Brady and Edward
S. Dunn, Jr. were elected as members of the Board of Directors. None has
previously stood for election to the Board at an Annual Meeting of Stockholders.
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, 1998, 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. 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>
Year First
Principal Occupation & Elected Amount and Nature*of
Name Age Business Experience Director Beneficial Ownership
- ---- --- ------------------------ ------------ ---------------------
Common
Non-
Common Voting
------- ---------
<S> <C> <C> <C> <C> <C>
James T. Brady 58 Consultant, (April 1998 to 1998 0 0
present); Secretary, Maryland
Department of Business and
Economic Development, (1995
to April 1998); Managing Partner,
Arthur Anderson LLP (1978-1995)
Francis A. Contino 53 Executive Vice President & 1998 0 1,307
Chief Financial Officer (June 1998
to present); Managing Partner
(Baltimore Office), Ernst &Young
LLP (1995 to June 1998); Director of Audit
Practice, Ernst & Young LLP (1990 to 1995)
Robert G. Davey 49 President - Global Industrial Group 1994 39,420 9,533
(June 1998 to present);
Executive Vice President &
Chief Financial Officer (1996 to
June 1998); Vice President & Chief
Financial Officer (1994 to 1996)
Edward S. Dunn, Jr. 55 C.J. McNutt Chair in Food Marketing, 1998 0 1,000
Erivan Haub School of Business, St.
Joseph's University (1998 to present);
President, Dunn Consulting (1997 to 1998);
President, Harris Teeter, Inc.
(1989 to 1997)
Freeman A. Hrabowski, III 48 President, University of 1997 647 500
Maryland Baltimore County
(1992 to Present)
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Year First
Principal Occupation & Elected Amount and Nature*of
Name Age Business Experience Director Beneficial Ownership
- ---- --- ------------------------ ------------ ---------------------
Common
Non-
Common Voting
------- ---------
<S> <C> <C> <C> <C> <C>
Robert J. Lawless 52 President (1996 to Present), 1994 69,422 20,961
Chief 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);
Carroll D. Nordhoff 53 Executive Vice President 1991 70,906 20,854
(1994 to Present)
Robert W. Schroeder 53 Vice President & General 1996 20,469 9,445
Manager, McCormick/Schilling
Division (1995 to Present); Vice
President - Sales & Marketing,
McCormick/Schilling Division
(1994 to 1995)
William E. Stevens 56 Executive Vice President, 1988 3,644 8,700
Mills & Partners, (1996 to
Present); President and
Chief Executive Officer,
United Industries Corp.
(1989 to 1996)
Karen D. Weatherholtz 48 Vice President - Human 1992 24,828 6,324
Relations (1988 to Present)
Directors and Executive Officers as a Group
(15 persons).................................................................................. 340,326 125,660
(3.6%)
</TABLE>
* 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
5
<PAGE>
shares which could be acquired within 60 days of December 31, 1998 pursuant to
the exercise of stock options: Mr. Davey - 24,099 shares of Common Stock, 8,033
shares of Common Stock Non-Voting; Dr. Hrabowski - 400 shares of Common Stock,
500 shares of Common Stock Non-Voting; Mr. Lawless - 39,798 shares of Common
Stock, 13,265 shares of Common Stock Non-Voting; Mr. Nordhoff - 34,783 shares of
Common Stock, 11,595 of Common Stock Non-Voting; Mr. Schroeder - 16,337 shares
of Common Stock, 4,446 of Common Stock Non-Voting; Mr. Stevens - 2,000 shares of
Common Stock, 2,000 shares of Common Stock Non-Voting; Ms. Weatherholtz - 10,114
shares of Common Stock, 3,372 shares of Common Stock Non-Voting; and directors
and executive officers as a group - 167,749 shares of Common Stock, 56,618
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: Mr. Davey - 2,606 shares;
Mr. Lawless - 1,563 shares; Mr. Nordhoff - 7,853 shares; Ms. Weatherholtz -
8,648 shares; and directors and executive officers as a group - 35,334 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 17, 1999 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. Brady, Cook,
Hrabowski and Stevens. The Audit Committee held six 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 and serve at the
pleasure of the Board of Directors: Messrs. Cook, Dunn, Hrabowski, McGowan and
Stevens. None of the Committee members are employees of the Company or are
eligible to participate in any Company stock option program which is
administered by the Committee. The Compensation Committee held four 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
6
<PAGE>
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.
Contino, Davey, Lawless, McCormick and Nordhoff. The Executive Committee held 22
meetings during the last fiscal year.
ATTENDANCE AT MEETINGS
During the last fiscal year, there were eight meetings of the Board of
Directors. With the exception of Mr. McCormick, 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. Mr. McCormick attended seven of eight
Board meetings, but the total number of Board and Board Committee meetings was
less than 75%.
OTHER DIRECTORSHIPS
Certain individuals nominated for election to the Board of Directors hold
directorships in other companies. Mr. Brady is a director of Constellation
Enterprises, Inc. and First Maryland Bancorp. Dr. Hrabowski is a director of
Baltimore Gas and Electric Company, the Baltimore Equitable Society, and
Mercantile Shareholders Corporation. Mr. Lawless is a director of Carpenter
Technology Corporation. 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 bas salary, an annual incentive program, a
mid-term incentive program, and a long-term 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. The most recent study was conducted during
1997, when the Compensation Committee engaged Towers Perrin to review the
Company's compensation policies and practices. Implementation of the
consultant's recommendations have resulted in total compensation levels that are
competitive with peer companies.
7
<PAGE>
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 1998.
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.
8
<PAGE>
MID-TERM INCENTIVE PROGRAM
In 1998, the Compensation Committee, the Board of Directors and
shareholders approved a Mid-Term Incentive Program for the three-year period
beginning December 1, 1997 and ending November 30, 2000. Any payout, if earned,
will occur at the end of the three-year period. 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. This Program facilitates clear focus on the
strategic objectives that will drive the Company's success; specifically, sales
growth and total shareholder return. It is targeted to eight executives who are
in positions which have a significant impact on the achievement of the
objectives of the Company as a whole, and who must provide strategic focus to a
time horizon that extends beyond any one fiscal year. 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. It enhances our overall
incentive program when combined with stock options to achieve McCormick's longer
term strategies, and it 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 approximately 440 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.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Lawless' base compensation is shown in the salary column of the Summary
Compensation Table on page 11. During 1998, Mr. Lawless received a merit
increase determined according to the same criteria as other executives.
In March 1998, Mr. Lawless was awarded a stock option in the amount of
83,800 shares. Mr. Lawless' annual incentive award for fiscal year 1998 was
$247,800 and was determined by the criteria and calculations applied to other
executives and described on page 8.
9
<PAGE>
1998 COMPENSATION ACTIONS - OTHER EXECUTIVE OFFICERS
Salary increases, annual incentive awards and long-term incentive grants
for executive officers were granted in a manner consistent with those granted to
other Company managers.
Submitted By:
COMPENSATION COMMITTEE EXECUTIVE COMMITTEE
George V. McGowan, Chairman Robert J. Lawless, Chairman
James S. Cook Francis A. Contino
Edward S. Dunn, Jr. Robert G. Davey
Freeman A. Hrabowski, III Charles P. McCormick, Jr.
William E. Stevens Carroll D. Nordhoff
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the period from December 1, 1997 until March 18, 1998, the
Compensation Committee was comprised of three independent outside directors.
Members are James S. Cook, George V. McGowan (Chairman) and William E. Stevens.
Freeman A. Hrabowski, III was added as a member of the Compensation Committee on
March 18, 1998, and Edward S. Dunn, Jr. became a member on January 18, 1999. 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 1998, members of the Executive Committee were
Francis A. Contino, 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.
10
<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, 1998, 1997 and 1996 to the Chief Executive Officer of the Company
and each of the four most highly compensated executive officers who were
executive officers on the last day of the 1998 fiscal year, determined by
reference to total salary and bonus paid to such individuals for the 1998 fiscal
year.
<TABLE>
<CAPTION>
Long Term
Compensation
- ------------------------------------------------------------------------------ ---------------- -------------
Annual Compensation
Awards All Other
----------------
Securities
Name and Fiscal (1) Other Annual Underlying Compensation
Principal Position Year Salary ($) Bonus ($) Compensation ($) Options/SARs (#) ($) (2)
- ------------------------- ---------- ----------- ----------- --------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ROBERT J. LAWLESS 1998 534,700 247,800 83,800 9,405
President & Chief 1997 479,567 385,000 (4) 53,000 6,117
Executive Officer 1996 359,567 123,540 25,000 4,005
ROBERT G. DAVEY 1998 344,700 144,000 38,800 6,505
President - Global 1997 284,567 195,240 (4) 28,600 4,991
Industrial Group 1996 227,483 66,500 17,800 3,389
ROBERT W. SCHROEDER 1998 271,550 146,425 26,400 5,702
Vice President & General 1997 250,400 142,000 (4) 22,100 4,908
Manager- 1996 219,167 47,000 14,800 3,475
McCormick/Schilling Division
CARROLL D. NORDHOFF 1998 281,200 110,000 31,800 6,044
Executive Vice President 1997 267,400 170,160 (4) 28,600 5,245
1996 255,594 63,300 21,000 3,722
FRANCIS A. CONTINO 1998 146,283 (3) 55,000 (3) (4) 33,000 0
Executive Vice President &
Chief Financial Officer
</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 1998 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 1998 for Messrs. Davey, Lawless, Nordhoff and Schroeder in
the amounts of $2,239, $5,139, $1,778, and $1,436, respectively; (ii) for
1997 for Messrs. Davey,
11
<PAGE>
Lawless, Nordhoff and Schroeder payments in the amounts of $725, $1,858, $979
and $642, respectively; (iii) for 1996 for Messrs. Davey, Lawless, Nordhoff and
Schroeder payments in the amounts of $319, $935, $652 and $406, respectively.
(3) Mr. Contino became employed by the Company on June 15, 1998. The salary and
bonus numbers are amounts paid since June 15, 1998 based on an annual
salary of $310,000 and a full year bonus of $110,000.
(4) 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 $7,200 per year
for each director who was an employee of the Company during the fiscal year
ended November 30, 1998. 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.
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>
$350,000 $60,694 $91,041 $121,388 $151,735 $182,082 $212,429
400,000 69,394 104,091 138,788 173,485 208,182 242,879
450,000 78,094 117,141 156,188 195,235 234,282 273,329
500,000 86,794 130,191 173,588 216,985 260,382 303,779
550,000 95,494 143,241 190,988 238,735 286,482 334,229
600,000 104,194 156,291 208,388 260,485 312,582 364,679
650,000 112,894 169,341 225,788 282,235 338,682 395,129
700,000 121,594 182,391 243,188 303,985 364,782 425,579
</TABLE>
12
<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 11.
For purposes of calculating the pension benefit, the average of the highest
consecutive 60 months of compensation for Messrs. Contino, Davey, Lawless,
Nordhoff and Schroeder as of November 30, 1998 was $197,083, $352,381, $581,133,
$359,191 and $313,163, respectively. The years of credited service for Messrs.
Contino, Davey, Lawless, Nordhoff and Schroeder as of the same date were 1/2, 5,
8, 28 and 13 years, respectively.
Mr. Lawless and Mr. Davey are also entitled to receive pension benefits
under the registered pension plan ("RPP") offered to employees of McCormick
Canada, Inc. Benefits under the RPP are based on the average of the
participant's highest three consecutive years of earnings. Upon retirement the
Company has agreed to pay Mr. Lawless and Mr. Davey a supplemental benefit equal
to the excess, if any, of the benefit calculated under the RPP (assuming all
their service at McCormick Canada and the Company had been under the RPP) over
(i) the pension benefit accrued under RPP (based on years of service with
McCormick Canada) plus (ii) the benefit accrued under the Company's Pension Plan
(based on years of service with the Company).
13
<PAGE>
STOCK OPTIONS
During the last fiscal year, the Company has granted stock options to
certain employees, including executive officers, pursuant to stock option plans
approved by the Company's stockholders.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Individual Grants* Realizable Value
- -------------------------------------------------------------------------------- At Assumed
Number of % of Total Exercise or Annual Rates of
Securities Options/SARs Base Stock Price
Underlying Granted To Price Expiration Appreciation For
Name Options/SARs Employees in ($/Shares) Date Option Term ($)**
Granted (#) Fiscal Year 0% 5% 10%
- ---------------------- ------------- ------------- -------------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert J. Lawless 83,800 7.00 $33.25 03/17/08 $0 $1,752,258 $4,440,562
Robert G. Davey 38,800 3.20 $33.25 03/17/08 $0 $811,308 $2,056,012
Carroll D. Nordhoff 31,800 2.60 $33.25 03/17/08 $0 $664,938 $1,658,082
Robert W. Schroeder 26,400 2.20 $33.25 03/17/08 $0 $552,024 $1,398,936
Francis A. Contino 33,000 2.70 $31.72 06/14/08 $0 $658,350 $1,668,150
</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
25% of the shares granted during the second year of the option; not more
than 50% of the shares granted during the third year of the option, less
any shares for which the option has been previously exercised; not more
than 75% of the shares granted during the fourth year of the option, less
any shares for which the option has been previously exercised; 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 fourth year of the
option and the expiration date. Approximately 440 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
$20.91 and $52.99 per share, respectively, over the 10-year term of
14
<PAGE>
the options. If the named executives realize these values, the Company's
stockholders will realize aggregate appreciation in the price of the
approximately 72 million shares of the Company's common stock outstanding as of
December 31, 1998 of approximately $1.52 billion and $3.84 billion, over the
same period.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Shares In-the-Money
Underlying Unexercised Options/SARs
Shares Acquired Value Options/SARs at FY-End (#) at FY-End ($)
Name on Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------ ---------------- ---------------- ------------------------ ----------------------
<S> <C> <C> <C> <C>
Robert J. Lawless 3,000 $20,250 53,063/125,787 $539,042/$419,202
Robert G. Davey 3,000 $19,593 32,132/68,568 $332,316/$301,621
Carroll D. Nordhoff 8,000 $58,500 46,378/61,522 $484,910/$299,228
Robert W. Schroeder 4,800 $42,619 20,783/50,317 $215,857/$237,630
Francis A. Contino 0.00 $0 0/33,000 $0/$55,852
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Mr. McCormick and Mr. Cook, directors of the Company, filed Form 4 Reports with
the Securities and Exchange Commission for the month of March 1998, which
reported, on a timely basis, the exercise of an option for 500 shares each of
Common Stock and Common Stock Non-Voting. The options were exercised by Mr. Cook
on March 9, 1998, and by Mr. McCormick on March 16, 1998. These Reports were
amended on May 7, 1998, to report the sale of the acquired shares on the date of
exercise.
15
<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**
[Graph]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
McCormick 100 82 105 111 122 157
S&P 500 100 101 140 178 229 186
S&P Food 100 103 132 166 225 254
</TABLE>
Assumes $100 invested on December 1, 1993 in McCormick & Company, Incorporated
common stock; S&P 500 Stock Index and S&P Food Products Index
* Total Return Assumes Reinvestment of Dividends
** Fiscal Year ending November 30
16
<PAGE>
DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN
In 1991, the Board of Directors adopted a Non-Qualified Stock Option Plan
for members of the Board of Directors who are not employees of the Company. The
Plan is designed to enhance the identity of these directors' interests with the
interests of the Company's stockholders and to give them a greater stake in the
future growth of the Company.
The stockholders approved the issuance of up to 30,000 shares of Common
Stock and 30,000 shares of Common Stock Non-Voting under the Plan (share numbers
have been adjusted for a 2-for-1 stock split in 1992). Options for nearly all of
these shares have been granted, and the Board of Directors has adopted the 1999
Directors' Non-Qualified Stock Option Plan in order to continue to grant options
to these directors. Messrs. Brady, Dunn, Hrabowski and Stevens will be eligible
to receive options in March 1999. The Board of Directors believes that stock
option plans have been successful in achieving their purposes, and the Plan is
being submitted to stockholders at this time. The full text of the Plan is set
forth in Exhibit A to this Proxy Statement. The Company intends to file a
registration statement under the Securities Act of 1933 to register the shares
subject to the Plan prior to the issuance of any securities under the Plan.
Under the 1999 Plan, 30,000 shares of Common Stock and 30,000 shares of
Common Stock Non-Voting may be issued. The Plan provides that an option shall be
granted each year on the third Wednesday of March to each member of the Board of
Directors who is not an employee of the Company for 1,000 shares of Common Stock
and 1,000 shares of Common Stock Non-Voting at a price per share equal to the
NASDAQ National Market closing price of McCormick common stock as reported in
THE WALL STREET JOURNAL for the date of the grant. Members of the Board of
Directors eligible to participate in this program may, in their discretion,
elect not to receive an option. The number of shares issuable upon the exercise
of an option is subject to adjustment in the event of certain changes in the
Company's capital structure.
The Board of Directors has the authority to administer the Plan and may
delegate its powers and functions in these respects to a committee of directors
not eligible to participate in the Plan.
Payment of the option price may be in cash or shares of the Company's
common stock. No option shall be granted for a period in excess of ten years. In
the event the optionee ceases to be a director as a result of disability, death
or retirement, the options are exercisable at any time prior to the expiration
date. In the event the optionee ceases to be a director for reasons other than
disability, death or retirement, the options expire unless they are exercised
within thirty days after the optionee ceases to be a director. Options are not
transferable otherwise than by will or under the laws of descent and
distribution. Optionees are required to agree to remain a member of the Board of
Directors of the Company for a certain period of time, as specified in the Plan
and the option agreements.
17
<PAGE>
The Company has been advised by counsel that, in general, upon exercise of
a non-qualified stock option, the option holder is treated for Federal income
tax purposes as receiving compensation income at that time equal to the excess
value of the stock on that date over the option price. Generally, a deduction
equivalent to the compensation realized by the option holder will be allowed to
the Company at the same time. The optionee's basis in such stock will include
his option price plus the amount of compensation income realized as a result of
exercise. When the optionee sells the stock, he will recognize a long-term
capital gain or loss if, at the time of the sale, he has held the stock for more
than one year from the date of compensation recognition. If the optionee has
held such stock for one year or less, his capital gain will be short-term.
The Board of Directors may terminate, suspend or amend the Plan in whole or
in part from time to time, subject to the limitations contained in Section 13 of
the Plan, which is set forth in A.
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 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL
OF THE PLAN.
1999 EMPLOYEES STOCK PURCHASE PLAN
Since 1966 it has been the policy of the Company to make available to
virtually all of its employees the opportunity to purchase shares of the
Company's stock through employees stock purchase plans. Since the Board of
Directors believes that these plans have been successful in achieving their
purposes, a new employees stock purchase plan is being submitted to the
stockholders at this time.
On January 18, 1999, the Board of Directors adopted the "1999 Employees
Stock Purchase Plan," which is designed to meet the requirements of the Internal
Revenue Code for employee stock purchase plans. The full text of the Plan is set
forth in Exhibit B to this Proxy Statement and reference is made thereto for a
complete statement of its terms and provisions. If the Plan is not approved by
the required vote of stockholders, it will terminate. The Company intends to
file a registration statement under the Securities Act of 1933 to register the
shares subject to the Plan prior to the issuance of any securities subject to
issuance under the Plan.
Participation in the Plan is limited to persons who on March 17, 1999 are
employees of the Company and designated subsidiaries and, with stated
exceptions, all such employees are eligible to
18
<PAGE>
participate. It is estimated that approximately 5,200 employees will be eligible
to participate in the Plan.
Under the Plan, options are to be granted on March 17, 1999 to each
eligible employee to purchase the maximum number of shares of Common Stock
Non-Voting of the Company which, at the March 17, 1999 price can be purchased
with approximately 10% of said employee's compensation for one year, as defined
in the Plan. Payment for all shares purchased will be made through payroll
deductions over a 24-month period, beginning June 1, 1999. After payroll
deductions have begun, prepayment for the total shares purchasable is permitted
at any time before May 31, 2001. Interest on all such amounts will accrue at the
rate of 5% per year, and will be paid to the employees after completion of
payment for their shares or upon prior withdrawal from the Plan. The purchase
price per share is the NASDAQ National Market closing price of the Company's
Common Stock Non-Voting in the over-the-counter market as reported in THE WALL
STREET JOURNAL for either March 17, 1999 or for the date of exercise, whichever
price is lower. The closing price of the Common Stock Non-Voting as reported in
THE WALL STREET JOURNAL for February 1, 1999 was $29.1875.
Subject to certain limitations set forth in the Plan, employees are
permitted, at any time prior to May 31, 2001, to terminate or reduce their
payroll deductions, to reduce their options to purchase, to exercise their
options in whole or in part, or to withdraw all or part of the balance in their
accounts, with interest.
The Plan also contains provisions governing the rights and privileges of
employees or their representatives in the event of termination of employment,
retirement, severance, lay-off, disability, death or other events.
Certificates for all shares of stock purchased under the Plan will be
delivered as soon as practicable after May 31, 2001, or on such earlier date as
full payment is made for all shares which the employee has elected to purchase.
No employee or his or her legal representative will have any rights as a
stockholder with respect to any shares to be purchased until completion of
payments for all the shares and the issuance of the stock certificate.
The Plan contemplates that all funds contributed by employees will be under
the control of the Company and may be used for any corporate purpose.
FEDERAL INCOME TAX CONSEQUENCES: The Company has been advised by counsel
that if a participant acquires stock upon the exercise of an option under the
Plan, the participant will not recognize income, and the Company will not be
allowed a deduction as a result of such exercise, if the following conditions
are met: (i) the Plan is approved by the stockholders of the Company on or
before January 17, 2000; (ii) at all times during the period beginning with the
grant of the option and ending on the day three months before the date of such
exercise, the participant was an employee of the Company or a subsidiary of the
Company; and (iii) the participant makes no disposition of the stock within two
years after the grant of the option or within one year after the transfer of the
stock to the
19
<PAGE>
participant. In the event of a sale or other disposition of such stock by the
participant after compliance with the applicable conditions set forth above, any
gain realized over the price paid for the stock will be treated as long-term
capital gain, and any loss will be treated as long-term capital loss, in the
year of the sale. If the conditions stated in clauses (i) and (ii) are not met,
the participant will recognize compensation income upon the exercise of the
option. If the conditions in clauses (i) and (ii) are met, but the condition in
clause (iii) is not met, the participant will recognize compensation income and,
if applicable, capital gains, upon the early disposition of the stock. In either
case the amount of compensation will be equal to the excess of the value of the
stock on the date of exercise over the purchase price, except that in the case
of a person subject to Section 16(b) of the Securities Exchange Act of 1934, the
amount of compensation income will be determined based on the value of the stock
on the date on which the Section 16(b) restriction lapses (and the inclusion in
income of the compensation will be delayed until that time). In general,
compensation income will be subject to income tax at regular income tax rates.
If the participant is treated as having received compensation income, an
equivalent deduction generally will be allowed to the Company. For the purpose
of the foregoing, an option is exercised on May 31, 2001 or such earlier date as
the employee makes an irrevocable election to purchase stock. No income will
result to participants upon the issuance of the options.
The Company has been further advised by counsel that the interest accrued
on an employee's stock purchase account will be taxable income to such employee
and a deduction will be allowed to the Company or a subsidiary of the Company.
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 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL
OF THE PLAN.
20
<PAGE>
The following table shows the estimated maximum number of shares of Common Stock
Non-Voting that each listed person, and each listed group, will be entitled to
acquire in accordance with the provisions of the 1999 Employees Stock Purchase
Plan (based on the stock price in effect on February 1, 1999). The Dollar Value
equals the number of shares that can be acquired by each person or group
multiplied by the February 1, 1999 stock price.
<TABLE>
<CAPTION>
NEW PLAN BENEFITS
1999 EMPLOYEES STOCK PURCHASE PLAN *
- ----------------------------------------------------------------------------------------------------------
NAME AND POSITION DOLLAR VALUE NUMBER OF SHARES
- ---------------------------------------------------- ------------------------- --------------------------
<S> <C> <C>
ROBERT J. LAWLESS
President, Chief Executive Officer $50,000** 1,713**
& Chief Operating Officer
ROBERT G. DAVEY
President - Global $37,500 1,284
Industrial Group
FRANCIS A. CONTINO
Executive Vice President & $32,000 1,096
Chief Financial Officer
CARROLL D. NORDHOFF $28,600 979.00
Executive Vice President
ROBERT W. SCHROEDER
Vice President & General Manager, $28,000 959
McCormick/Schilling Division
EXECUTIVE OFFICER GROUP (11 PERSONS) $290,511 9,953
OUTSIDE DIRECTOR GROUP (4 PERSONS) N/A N/A
NON-EXECUTIVE OFFICER/EMPLOYEE
GROUP (APPROXIMATELY 5,200 PERSONS) $18,734,745 641,875
</TABLE>
FOOTNOTES
* Ms. Weatherholtz, who is a nominee to the Board of Directors in addition to
the persons listed in the New Plan Benefits table, will receive an option under
the Plan to purchase 656 shares of Common Stock
21
<PAGE>
Non-Voting. Director nominees who are not employees of the Company are not
eligible to participate in the Plan. No person will receive options for as much
as 5% of the shares subject to the Plan.
** The maximum amount allowed under the Plan is $50,000.
The Plan contemplates that the Company will make available sufficient
shares of its Common Stock Non-Voting to allow each eligible employee to elect
to purchase the full number of shares covered by the options granted. On the
basis of the closing price of the shares of the Company's Common Stock
Non-Voting on February 1, 1999, it is estimated that a maximum of 651,828 shares
will be required if each eligible employee elects to participate to the full
extent of his or her option. The Plan provides for adjustments in the case of
certain changes in the Company's capital structure.
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 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL
OF THE PLAN.
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.
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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.
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 2000 ANNUAL MEETING
Proposals of stockholders to be presented at the 2000 Annual Meeting must
be received by the Secretary of the Company prior to October 16, 1999 to be
considered for inclusion in the 2000 proxy material.
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EXHIBIT A
MCCORMICK & COMPANY, INCORPORATED
DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN
SECTION 1 - ADMINISTRATION
This Plan shall be administered by the Board of Directors at the principal
office of the Company; provided that the Board of Directors may delegate to any
committee of the Board of Directors, comprised of members not eligible to
receive options hereunder, any or all of the powers conferred upon the Board of
Directors under this Plan, except any powers which under applicable Maryland law
may not be delegated by the Board of Directors. The Board of Directors and/or
its designee is authorized to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to it, and to make all other
determinations necessary or advisable for its administration.
SECTION 2 - SHARES SUBJECT TO THE PLAN
Up to thirty thousand (30,000) shares of Common Stock and thirty thousand
(30,000) shares of Common Stock Non-Voting of this Company shall be reserved for
issuance by this Company pursuant to the exercise of the options to be granted
hereunder. If an option ceases to be exercisable in whole or in part by reason
of expiration of the term of the option or upon or following the date on which
the optionee ceases to be a director, the shares which are subject to such
option but as to which the option has not been exercised shall continue to be
available under the Plan. Shares shall be made available from authorized and
unissued stock.
SECTION 3 - PARTICIPANTS
Any member of the Board of Directors of the Company who is not also an
employee of the Company shall be eligible to participate in this Plan.
SECTION 4 - ALLOTMENT OF SHARES
On the third Wednesday of March of each year, the Company shall grant an
option to each participant in this Plan, unless such participant elects not to
receive such option, to purchase one thousand (1,000) shares of Common Stock and
one thousand (1,000) shares of Common Stock Non-Voting of this Company.
SECTION 5 - OPTION PRICE
The option price per share for options granted hereunder shall be NASDAQ
National Market closing price as reported in THE WALL STREET JOURNAL for the
date on which the options are granted.
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SECTION 6 - OPTION PERIOD AND LIMITATIONS UPON EXERCISE OF OPTIONS
The period during which an option may be exercised shall be determined by
the Board, except that no option shall be exercisable after the expiration of
ten (10) years from the date of the granting thereof. Each participant must
agree to remain a director of the Company until the next Annual Meeting of
Stockholders or until his successor is duly elected and qualified. An option may
be exercised in full at any time, or from time to time in part, during the
option period subject to such limitations and restrictions as may be included in
the option agreement, including provisions insuring compliance with all
applicable laws and regulations pertaining to the sale of these securities.
SECTION 7 - EXERCISE OF OPTIONS AND PAYMENT FOR STOCK
The option may be exercised by sending a written notice to the Company to
the attention of the Secretary together with payment in full for the stock.
Payment for the stock may be in the form of cash or shares of the Company's
common stock. Upon receipt of notice and payment, the Company shall be obligated
to have the stock issued to the optionee. A participant shall have none of the
rights of a shareholder until shares are issued to him.
SECTION 8 - RESIGNATION/REMOVAL
Subject to Sections 9 and 10, the right to exercise an option shall
terminate thirty (30) days after a participant ceases to be a director.
SECTION 9 - RIGHTS IN THE EVENT OF RETIREMENT OR DISABILITY
If a participant ceases to be director on account of his retirement from
the Board of Directors or total and permanent disability without having fully
exercised his options, he shall have the right to exercise his options at any
time up until their expiration date.
SECTION 10 - RIGHTS IN THE EVENT OF DEATH
If a participant dies prior to termination of the right to exercise his
option without having fully exercised his option, the executors, administrators
or personal representatives or legatees or distributees of his estate shall have
the right, at any time prior to the expiration of the term of the option, to
exercise such option in full or in part.
SECTION 11 - EFFECT OF CHANGE IN STOCK SUBJECT TO THE PLAN
In the event there is any change in the Common Stock or Common Stock
Non-Voting of the Company through the declaration of stock dividends, or through
recapitalization resulting in stock splits, or combinations or exchanges of
shares, or otherwise, the number of shares available for option and the shares
subject to any option previously granted and the option price shall be
appropriately adjusted; provided, however, in such cases, fractional parts of
shares will be disregarded.
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SECTION 12 - NON-ASSIGNABILITY
Options shall not be transferable other than by will or by the laws of
descent and distribution and during a participant's lifetime are exercisable
only by him.
SECTION 13 - AMENDMENT
The Board may terminate, suspend, or amend the Plan in whole or in part
from time to time, as may be required by the Internal Revenue Code or by the
Securities Exchange Act of 1934, without the approval of the stockholders of the
Company. The Board may amend or modify the Plan for such other reasons as it may
deem appropriate; provided that no such amendments or modifications may be made
within a period of less than six months of adoption of the Plan or any
subsequent amendment thereto; and provided further, that no action shall be
taken without the approval of the stockholders of the Company to increase the
maximum number of shares subject to the Plan (except in accordance with the
provisions of Section 11 hereof), to change the option price, to change the
class of participants eligible to receive such options under the Plan, or to
extend the term of the Plan. No amendment or termination or modification of the
Plan shall in any manner affect any option theretofore granted without the
consent of the optionee, except that the Board may amend or modify the Plan in a
manner that does affect options theretofore granted upon a finding by the Board
that such amendment or modification is in the best interest of the holder of
outstanding options affected thereby.
SECTION 14 - EFFECTIVE DATE
This Plan shall become effective as of March 17, 1999.
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EXHIBIT B
MCCORMICK & COMPANY, INCORPORATED
1999 EMPLOYEES STOCK PURCHASE PLAN
SECTION 1 - PURPOSE
The purpose of this Plan is to afford to employees of McCormick & Company,
Incorporated and designated subsidiaries (namely, McCormick Canada, Inc., Mojave
Foods Corporation, Setco, Inc., and Tubed Products, Inc.) (the "Corporations")
an opportunity to acquire shares of Common Stock Non-Voting of McCormick &
Company, Incorporated (the "Company") pursuant to options to purchase granted by
this Plan to them.
SECTION 2 - NUMBER OF SHARES OFFERED
The offering pursuant to this Plan is for a number of shares of the
Company's Common Stock Non-Voting sufficient to allow each employee to elect to
purchase the full number of shares purchasable pursuant to the terms of Section
6 of this Plan.
SECTION 3 - ELIGIBLE EMPLOYEES
All persons who on March 17, 1999, are employees of the Corporations will
be eligible to participate in this Plan, except for the following who shall not
be eligible:
(a) Any employee whose customary employment as of March 17, 1999, was 19
hours or less per week or for not more than 5 months during the
calendar year;
(b) Any employee who, immediately after March 17, 1999, would own (as
defined in the Internal Revenue Code, Sections 423 and 424(d)) stock,
and/or hold outstanding options to purchase stock, possessing 5% or
more of the total combined voting power or value of all classes of
stock of the Company or of any subsidiary;
(c) Any employee whose grant of an option hereunder would permit his rights
to purchase stock under this Plan and under all other employee stock
purchase plans, if any, of the Company or its subsidiaries to accrue at
a rate which exceeds $25,000 of the fair market value of such stock
(determined at the time such option is granted) for each calendar year
in which such option is outstanding at any time; and
(d) Any employee residing in a state where the offer or sale of the shares
provided by this Plan is not authorized or permitted by applicable
state law.
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SECTION 4 - EFFECTIVE DATE
The options under this Plan are granted as of March 17, 1999, subject to
approval of this Plan by the stockholders of the Company within 12 months of its
adoption by the Board of Directors.
SECTION 5 - PURCHASE PRICE
The purchase price for all shares shall be the NASDAQ National Market
closing price of the Company's Common Stock Non-Voting on the over-the-counter
market as reported in THE WALL STREET JOURNAL either:
(a) For March 17, 1999 (which is the date of the grant), or (b) For the
date such option is exercised, whichever price is lower.
SECTION 6 - NUMBER OF SHARES PURCHASABLE
Each eligible employee is, by the terms of this Plan, granted an option to
purchase a maximum number of shares of Common Stock Non-Voting of the Company
(increased by any fractional amount required to make a whole share) which, at
the purchase price, as determined in accordance with Section 5(a), will most
closely approximate 10% of his compensation for one year, as below defined.
Notwithstanding any other provision of this Plan, no employee may elect to
purchase less than five shares nor may any options be exercised for less than
five shares.
Such compensation for one year shall be deemed to be the base wage paid to
such employee by the Corporations. The base wage for such employee shall be
computed as follows:
(a) The straight-line hourly base wage rate of such employee in effect on
March 17, 1999, multiplied by 2080 hours (40 hours per week multiplied
by 52 weeks), or by such number as the Company deems to constitute the
number of hours in a normal work year for such employee; or
(b) The salary of such employee in effect on March 17, 1999, annualized.
SECTION 7 - ELECTION TO PURCHASE AND PAYROLL DEDUCTION
No later than April 30, 1999, an eligible employee may elect to purchase
all or part of the shares which he is entitled to purchase under Section 6. Such
election shall be made by the execution and delivery to the Corporations of an
approved written form authorizing uniform periodic payroll deductions over a
two-year period beginning June 1, 1999, in such amounts as will in the aggregate
(exclusive of interest which, it is contemplated, will be paid to the employee
at the end of such period) equal the total option price for all of the shares
covered by this election to purchase. If an employee
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fails to make such election by April 30, 1999, the option provided by this Plan
shall terminate on that date. Except as otherwise provided in the Plan, after
payroll deductions have begun, prepayment for the total shares purchasable will
be permitted at any time prior to May 31, 2001. In the event an employee makes
such prepayment, there shall be no payroll deductions under the Plan on behalf
of said employee after such prepayment.
SECTION 8 - INTEREST ON PAYROLL DEDUCTIONS
The Company and participating subsidiaries will maintain a record of
amounts credited to each employee authorizing a payroll deduction pursuant to
Section 7. Interest will accrue on payroll deductions beginning June 1, 1999, on
the average balance of such deductions during the period of this Plan at the
rate of 5% per year. Such interest shall be payable to the employee on or about
May 31, 2001, or at such time as said employee may for any reason terminate his
election to purchase shares under this Plan, or at such time as said employee
exercises his option to purchase stock under the Plan and provides or pays in
full the sum necessary to purchase such shares.
SECTION 9 - CHANGES IN ELECTIONS TO PURCHASE
An employee may, at any time prior to May 31, 2001, by written notice to
the Corporations, direct the Corporations to reduce or cease payroll deductions
(or, if the payment for shares is being made through periodic cash payments,
notify the Corporations that such payments will be reduced or terminated) or
withdraw part or all of the money in his account and continue payroll
deductions, in accordance with the following alternatives:
(a) Exercise his option to purchase the number of shares which may be
purchased at the purchase price with all or any specified part of the
amount (including interest) then credited to his account, and withdraw
any amount (including interest) remaining in such account; or
(b) Reduce the amount of his subsequent payroll deductions (or periodic
cash payments) and/or withdraw all or any specified part of the amount
then credited to his account, in which event his option to purchase
shall be reduced to the number of shares which may be purchased, at the
March 17, 1999 price, with the amount, if any, remaining in his account
(exclusive of interest) plus the aggregate amount of the authorized
payroll deductions (or periodic cash payments) to be made thereafter;
or
(c) Withdraw the amount (including interest) in his account and terminate
his option to purchase
An employee may make only one withdrawal of all or part of his account and
continue his payroll deductions. If the employee thereafter wishes to withdraw
any funds from his account, he must withdraw the entire amount (including
interest) in his account and terminate his option to purchase.
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Any reduction made in the number of shares subject to an option to purchase
is subject to the provisions of Section 6 and shall be permanent.
SECTION 10 - VOLUNTARY TERMINATION OF EMPLOYMENT OR DISCHARGE
In the event an employee voluntarily leaves the employ of the Corporations,
otherwise than by retirement under a plan of the Corporations, or is discharged
for cause prior to May 31, 2001, he can elect within 10 days after termination
of his employment to:
(a) Exercise his option to purchase the number of shares which may be
purchased at the purchase price with all or any specified part of the
amount (including interest) then credited to his account, and withdraw
any amount (including interest) remaining in such account; or
(b) Withdraw the amount (including interest) in his account and terminate
his option to purchase; or
(c) Exercise his option up to the number of shares purchasable under this
Plan (Section 6) with full payment for such shares.
If the employee fails to make an election within 10 days after termination
of employment, he shall be deemed to have elected subsection 10(b) above.
SECTION 11 - RETIREMENT OR SEVERANCE
In the event an employee who has an option to purchase shares leaves the
employ of the Corporations on or after March 17, 1999, because of retirement
under a plan of the Corporations, or because of termination of his employment by
the Corporations for any reason except discharge for cause, he may elect, within
10 days after the date of such retirement or termination, to:
(a) In the event of retirement only, continue his option to purchase shares
by making periodic cash payments to the Corporations in amounts equal
to the payroll deductions previously authorized; or
(b) Exercise his option for the number of shares which may be purchased at
the purchase price with all or any specified part of the amount
(including interest) then credited to his account, and withdraw any
amount (including interest) remaining in such account; or
(c) Exercise his option up to the number of shares purchasable under this
Plan (Section 6) with full payment for such shares within said 10 day
period; or
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(d) Withdraw the amount (including interest) in his account and terminate
his option to purchase.
In the event the employee does not make an election within the aforesaid 10 day
period, he will be deemed to have elected subsection 11(d) above.
SECTION 12 - LAY-OFF, AUTHORIZED LEAVE OF ABSENCE OR DISABILITY
Payroll deductions for shares for which an employee has an option to
purchase may be suspended during any period of absence of the employee from work
due to lay-off, authorized leave of absence or disability or, if the employee so
elects, periodic payments for such shares may continue to be made in cash.
If such employee returns to active service prior to May 31, 2001, his
payroll deductions will be resumed and if said employee did not make periodic
cash payments during his period of absence, he shall, by written notice to his
employing Corporation within 10 days after his return to active service, but not
later than May 31, 2001, elect:
(a) To make up any deficiency in his account resulting from a suspension of
payroll deductions by an immediate cash payment; or
(b) Not to make up such deficiency, in which event the number of shares to
be purchased by him shall be reduced to the number of whole shares
which may be purchased at the March 17, 1999 price, with the amount, if
any, then credited to his account (including interest) plus the
aggregate amount, if any, of all payroll deductions to be made
thereafter; or
(c) Withdraw the amount (including interest) in his account and terminate
his option to purchase.
An employee on lay-off, authorized leave of absence or disability on May
31, 2001, shall deliver written notice to his employing Corporation on or before
May 31, 2001, electing one of the alternatives provided in the foregoing clauses
(a), (b) and (c) of this Section 12. If any employee fails to deliver such
written notice within 10 days after his return to active service or by May 31,
2001, whichever is earlier, he shall be deemed to have elected subsection 12(c)
above.
If the period of an employee's lay-off, authorized leave of absence or
disability shall terminate on or before May 31, 2001, and the employee shall not
resume active employment with the Corporations, he shall make an election in
accordance with the provisions of Section 10 of this Plan.
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SECTION 13 - DEATH
In the event of the death of an employee while his option to purchase
shares is in effect, the legal representatives of such employee may, within 90
days after his death (but not later than May 31, 2001) by written notice to the
employing Corporation, elect to:
(a) Make up any deficiency in such employee's account occurring after his
death or by reason of his prior illness and to continue to make
periodic cash payments for the remainder of the period ending May
31,2001; or
(b) Withdraw the amount (including interest) in his account and terminate
his option to purchase; or
(c) Exercise the employee's option for the number of shares which may be
purchased at the purchase price with all or any specified part of the
amount (including interest) then credited to his account, and withdraw
any amount (including interest) remaining in such account; or
(d) Exercise his option up to the number of shares purchasable under this
Plan (Section 6) with full payment for such shares.
In the event the legal representatives of such employee fail to deliver
such written notice to the employing Corporation within the prescribed period,
the election to purchase shares shall terminate and the amount, including
interest, then credited to the employee's account shall be paid to such legal
representatives.
SECTION 14 - FAILURE TO MAKE PERIODIC CASH PAYMENTS
Under any of the circumstances contemplated by this Plan, where the
purchase of shares is to be made through periodic cash payments in lieu of
payroll deductions, the failure to make any such payments shall reduce, to the
extent of the deficiency in such payments, the number of shares purchasable
under this Plan.
SECTION 15 - FUNDS IN STOCK OPTION ACCOUNTS
Amounts credited to the employee's account shall be under the control of
the Company and may be used for any corporate purpose. Amounts credited to the
accounts of employees of subsidiaries of the Company named in Section 1 of this
Plan shall be remitted to the Company from time to time. The amount, exclusive
of interest, credited to the account of each employee shall be applied to pay
for shares purchased by such employee and any amount not used for this purpose
shall be repaid to the employee by the Company.
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SECTION 16 - RIGHTS AS STOCKHOLDER
No employee, former employee, or his representatives shall have any rights
as a stockholder with respect to any shares of stock which any employee has
elected to purchase under this Plan until full payment for all shares has been
made and a certificate for such shares has been issued. Certificates for shares
will be issued as soon as practicable after full payment for such shares has
been made. However, certificates for shares will not be issued prior to approval
of the Plan by the stockholders of th Company.
SECTION 17 - NON-ASSIGNABILITY
No assignment or transfer by any employee, former employee or his legal
representatives of any option, election to purchase shares or any other interest
under this Plan will be recognized; any purported assignment or transfer,
whether voluntary or by operation of law (except by will or the laws of descent
and distribution), shall have the effect of terminating such option, election to
purchase or other interest. An employee's option and election to purchase shall
be exercisable only by him during his lifetime and upon his death, by his legal
representative in accordance with Section 13. If an election to purchase is
terminated by reason of the provisions of this Section 17, the only right
thereafter continuing shall be the right to have the amount then credited to the
employee's account, including interest, paid to the employee or other person
entitled thereto, as the case may be.
SECTION 18 - EFFECT OF CHANGES IN SHARES
In the event of any change in the capital stock of the Company through
merger, consolidation or reorganization, or in the event of any dividend to
holders of shares of the Common Stock Non-Voting of the Company payable in stock
of the same class in an amount in excess of 2% in any year, or in the event of a
stock split, or in the event of any other change in the capital structure of the
Company, the Company will make such adjustments with respect to the shares of
stock subject to this offering as it deems equitable to prevent dilution or
enlargement of the rights of participating employees.
SECTION 19 - ADMINISTRATION; MISCELLANEOUS
(a) The Compensation Committee of the Company (the "Committee") or such
employee or employees as they may designate, shall be responsible for
the administration of this Plan, including the interpretation of its
provisions, and the decision of the Committee or of such other employee
or employees with respect to any question arising under the Plan shall
be final and binding for all purposes.
(b) Uniform policies shall be pursued in the administration of this Plan
and there shall be no discrimination between particular employees or
groups of employees. The Committee, or such employee or employees as
they may designate to administer this Plan, shall have the authority,
which shall be exercised without discrimination, to
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make exceptions to the provisions of this Plan under unusual circumstances
where strict adherence to such provision would work undue hardship.
(c) The Company may allow a reasonable extension of the time within which
an election to purchase shares under this Plan shall be made, if it
shall determine there are circumstances warranting such action, in
which event such extension shall be made available on a uniform basis
to all employees similarly situated; provided that in no event shall
the period for payroll deductions be extended beyond May 31, 2001.
SECTION 20 - AMENDMENT AND DISCONTINUANCE
The Board of Directors of the Company may alter, suspend or terminate the
Plan; provided, however, that, except to conform the Plan from time to time to
the requirements of the Internal Revenue Code with respect to employee stock
purchase plans, no action of the Board shall increase the period during which
this Plan shall remain in effect, or further limit the employees of the
Corporations who are eligible to participate in the Plan, or increase the
maximum period during which any option granted under the Plan may remain
unexercised, or (other then as set forth in Section 18 above) increase the
number of shares of stock to be optioned under the Plan or reduce the purchase
price per share, with respect to the shares optioned or to be optioned under the
Plan, or without the consent of the holder of the option, otherwise alter or
impair any option granted under the Plan.
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