The Flavor of Together
2013 AnnuAl RepoRt
Scent
In 1889, a new chapter in flavor began when Willoughby McCormick knocked on
doors selling his products from his fledgling business in Baltimore, Maryland.
One of those first products was root beer extract. From that modest start grew
a global leader in flavor. The same year, one thousand miles to the south in
New Orleans, Emile Zatarain started his own flavorful enterprise—also selling
root beer extract. Fittingly, this year’s annual report has the sweet scent of
root beer.
Contents:
2
Letter to Shareholders
16 Form 10-K Index
7 2013 Highlights
17 Form 10-K
8
People, Growth, Performance
72
Investor Information
14
Pillars of Success,
Directors and Officers
73
Corporate Social
Responsibility
Since 1889, McCormick’s Passion For
Flavor™ has been part of bringing
friends and family together around
food. Flavor both unites us and
defines our uniqueness. Flavor creates
memories and new experiences. And,
in 2013, more people than ever expe-
rienced the flavor of together through
McCormick products—from Aeroplane®
to Zatarain’s®—as we expanded our
portfolio of brands, increased sales,
achieved record cash flow, and created
momentum for future growth.
McCormick
employees
around the world are coming
together in 2014 to celebrate the
company’s 125th anniversary.
As you read this year’s annual
report, we invite you to discover
some of our history of flavor
innovation and see how we have
positioned our growing business
for continued success.
>10,000 employees
In 2013, we employed more than 10,000 people globally.
Company sales generated per employee rose to approximately
$400,000 from $150,000 25 years ago.
10%/90%
While our products might be just 10% of the cost of your meal,
they often deliver 90% of the flavor.
>125 countries &
territories
Through a robust distribution network, our brands reach more
than 125 countries and territories worldwide.
9 of top 10
Globally, our industrial business serves 9 of the top 10 food
and beverage companies and 9 of the top 10 foodservice
restaurant chains.
1.25 million stories
To mark our 125th anniversary, we set a goal to collect
1.25 million stories about how flavor unifies and defines
us from people all over the world. Share yours and we will
donate $1 up to $1.25 million to the United Way.
Many of our top brands have a strong heritage.
131 years
125 years
56 years
51 years
42 years
97 years
Bertie
76 years
173 years
75 years
We have grown sales more than 80% in the past decade.
For the past five years, we have achieved 5% compound
annual sales growth.
Sales
(dollars in billions)
$2.92
$2.72
$2.53
$2.59
$4.12
$4.01
$3.70
$3.34
$3.18
$3.19
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
We have increased our dividend in each of the past
28 years and paid dividends every year since 1925.
Dividends Paid
Per Share
1986–2013
$1.36
$0.01
Globally, packaged herbs and spices are a $10 billion
retail category. McCormick’s 21% share is four times
that of the next largest competitor.
2013
Global Category
Share
McCormick Competitor A Competitor B
Competitor C All Others
Source: Euromonitor International
Fellow Shareholders,
Alan D. Wilson, Chairman, President
& Chief Executive Officer (r), meets
with Dr. Hamed Faridi, Chief Science
Officer (l) in one of McCormick’s
state-of-the-art flavor innovation
centers.
McCormick celebrates our 125th anniversary in 2014. This is a great
time to reflect on what elements have contributed to our success, as
well as look ahead to future growth opportunities. Our theme for this
anniversary year is the Flavor of Together. As people around the world
explore new tastes, new dining experiences and new ways to make
healthy choices, we see the important role flavor—and McCormick as
a global flavor leader—plays in bringing people together around food.
We are honored to be part of these moments. And, we are proud of
our people throughout the company who are committed to continuing
our great heritage of innovation, collaboration and trust as we forge
ahead for the next 125 years of success…together.
In 2013, McCormick people around the world made significant progress with our initiatives to
grow sales and to improve productivity through our Comprehensive Continuous Improvement
program—CCI. This progress was made despite a slow recovery from the recession in most of our
developed markets and a slowdown in economic growth in many emerging markets. McCormick
is succeeding in this environment through our increased connectedness to our consumers, which
allows us to better align our innovation pipeline and marketing efforts with what consumers want
today and beyond. In addition, through these insights, we are pursuing the most promising growth
opportunities across our broad range of products, customers and geographic regions.
Performance. In 2013, McCormick delivered higher sales and record
cash flow, demonstrating the resiliency of our business. Additionally, we managed through a
period of weaker demand for industrial products in certain markets and effectively navigated
some significant headwinds.
We grew net sales 3%. This result was led by a 5% increase in sales of our consumer business.
We grew sales of our leading brands through pricing actions, the development and introduction
of new products and effective brand marketing. In addition, we significantly expanded our con-
sumer business in China with an acquisition. Sales declined 1% for our industrial business. While
we had strong results in several developed markets and expanded our business in emerging
markets, our growth was limited by lower demand this period from quick-service restaurants in
the United States and China.
We reported operating income of $551 million, which included 2013 charges related to reorganization
activities in our Europe, Middle East and Africa region (EMEA) and a voluntary pension settle-
ment. Excluding these items, adjusted operating income rose to $591 million with higher sales
and $63 million of CCI cost savings, well ahead of our initial goal of at least $45 million for 2013.
As a result of these savings, we were able to increase our investment in brand marketing support
by $10 million and more than offset headwinds from higher material costs and a $20 million
increase in retirement benefit expenses.
McCormick & Company 2013 Annual Report 3
Shareholder
Return
McCormick
S&P food group
S&P 500
12%
11%
8%
In 2013, our earnings per share was $2.91. Excluding the 2013 charges, adjusted earnings per
share rose to $3.13 from $3.04 in 2012, despite the significant increase in retirement benefit
expense. We generated $465 million of cash flow and returned a record $357 million of cash
to our shareholders through dividends and share repurchases. We also funded the $142 million
Sales
(dollars in billions)
acquisition of Wuhan Asia Pacific Condiments and other strategic capital expenditures, such as
the expansion of our manufacturing capacity in Eastern Europe and China.
$4.4
$4.0
Growth. McCormick is uniquely positioned to meet the growing demand for more
$3.7
$3.3
flavorful foods in markets around the world.
$3.2
Globally, sales of packaged herbs and spices are a $10 billion retail category and are projected
to increase another $1 billion by 2017. In a recent U.S. survey, more than half the consumers said
that cooking with spices is quick and easy. Another survey underscored the importance of taste,
as taste continues to be the top reason why people choose a particular food, ranking ahead of
convenience and price.
Across our consumer and industrial businesses, McCormick provides the flavor for meals prepared
at home, served in restaurants or intended as a satisfying quick snack. Within our product port-
folio, we provide everything from value-priced store brands to gourmet items, such as the line of
’11
23 new premium spices and seasonings launched this year in France under our market-leading
’13
’09
’12
’10
McCormick’s 10-year total
shareholder return has
increased at a double-digit
rate, outpacing the S&P
500 Stock Index and S&P
500 food group.
Ducros brand. Given the breadth of our company’s products and innovations, we believe that each
day you are likely to enjoy food flavored by McCormick.
At McCormick, we are at the leading edge of food trends and are investing in product development
capabilities connected to our flavor, sensory and culinary knowledge leadership. In addition, we
share our expertise with our customers and consumers around the world through our Flavor
Forecast, which highlights food trends we expect to see in the near future.
With the growing demand for flavor throughout the world, McCormick is well positioned for growth,
especially given our breadth of products and category leadership. In the past five years, we have
increased sales at a 5% compound annual growth rate, which is in line with our long-term goal
to achieve 4% to 6% annual sales growth. We expect to achieve this long-term goal through a
continued focus on our base business, innovation and acquisitions.
McCormick will drive growth and win category share in our base business through our role as the
category leader in spices, herbs and seasonings. As a category leader, we are working with our
retail customers to optimize the product assortment, placement, pricing and profitability of spices,
herbs and seasonings, while at the same time reducing the emphasis on some lower margin products.
Our investment in brand marketing exceeded $200 million in 2013, and, based on recent data, we
are achieving returns on this spending in the United States that are above food industry averages.
Our latest efforts in the United States include themed mega-events that bring multiple brands
together around key celebrations, such as the successful “Big Game” football campaign featuring
McCormick®, Lawry’s® and Zatarain’s®. Across our developed markets, we are directing a greater
portion of brand support to digital marketing. In 2013, our digital marketing was more than
double the amount spent two years ago in 2011. Among our achievements this year were a 94%
increase in recipe views on our U.S. website and a 24% increase in website traffic in Europe. In
4
addition to category growth, improved merchandising and increased brand marketing investment,
we are making steady progress with new distribution gains, which led to higher 2013 sales in
both China and Russia.
McCormick innovation gives shoppers a reason to walk down not only the seasoning aisle, but
just about every grocery store aisle, to see what new, flavorful products are available from our
industrial customers. Our industrial customers also include restaurants, and innovation creates
traffic for these customers too as people explore new tastes and seek healthier, flavorful options.
We are pleased to share that sales from new products launched in the past three years accounted
for 9% of total company sales in 2013. In our consumer business, new product introductions for the
Americas region included new varieties of Grill Mates®, Perfect Pinch® and Recipe Inspirations™.
Premium recipe mixes in the United States brought in new users, a third of whom were new to
the category. In Canada, we developed gluten-free gravy mixes and introduced Philippine and
Chinese recipe mixes. In EMEA, in addition to the premium range of spices and seasonings in
France, we launched grilling seasonings and entered the recipe mix category in Poland and
France. Toward the end of 2013, we introduced Flavour Shots in the United Kingdom, a unique
and convenient blend of cooking oil and seasonings. In the Asia/Pacific region, our teams in
China, India and Australia drove sales with the launch of approximately 50 new products. For
our industrial customers, we had particular success with innovation to snack seasonings in the
United States and Mexico, and with quick-service restaurant items supplied from our facilities
in Australia, United Kingdom, Turkey and South Africa. In 2013, we also supported industrial
customers with new products as they expanded into India and Brazil.
In 2013, we acquired WAPC, which increases
our sales in China by more than 60%.
>60%
Acquisitions is our third area of focus for growth and in 2013 we acquired Wuhan Asia-Pacific
Condiments (WAPC), a business that increases our sales in China by more than 60%. WAPC has a
leading position with bouillon products in central China, and the business complements our other
flavor products that have strong category share in China’s coastal region. In addition to a smooth
integration process, early financial results for this business have exceeded our expectations.
We are fueling our company’s growth with savings from CCI, McCormick’s ongoing program to
improve productivity across the organization. This program includes environmental projects, and
we are making impressive progress such as our reduction of solid waste by nearly 40% since
2009 on a per unit basis. Across all CCI projects, cost savings are expected to exceed $45 million
annually. We will continue to invest CCI funds for additional brand marketing support and product
development activity to grow sales and profit.
McCormick & Company 2013 Annual Report 5
Our spirit of “together”
has its foundation in
McCormick’s Multiple
Management, a
philosophy that dates
back to 1932.
People. Our success starts with the people of McCormick. McCormick people from all over
the world working together with a focus on growth and efficiency, truly is the key ingredient of our success.
We thank them for their efforts and contributions to the long-term success of our company.
As I shared earlier, the theme for our 125th anniversary year is the Flavor of Together. At our
company, this spirit of “together” has its foundation in McCormick’s Multiple Management, a
philosophy that dates back to 1932, which is based on participation and inclusion. We are proud
of our pioneering Multiple Management philosophy and that it continues to be a driving force in
our global industry leadership, solving business challenges and creating growth opportunities.
The McCormick spirit of “together” can be found in everything we do: from working together to
contribute to the communities in which we live and work, to ensuring a responsible supply chain,
to sharing advancements in health and wellness through the McCormick Science Institute. And,
together, this year we published a corporate social responsibility review, which covers these
topics in a more in-depth manner and shares some ambitious goals we set to mark our further
improvements.
McCormick’s Board of Directors and company leaders are shaping our strategy and direction
toward continued growth. Departing from the Board is George Roche, who has served as a director
and Compensation Committee member since 2007. We sincerely appreciate his contributions
and service. Retiring from the company after a distinguished career and strong leadership are
Mark Timbie, President—Consumer Foods Americas & Chief Administrative Officer and Ken Kelly,
Senior Vice President & Controller. As part of our move toward a more global organization,
Lawrence Kurzius was named President Global Consumer Business & Chief Administrative Officer
and Chuck Langmead President Global Industrial Business. Also, Paul Beard was named Senior
Vice President, Finance.
In closing, we want to thank our shareholders. We are proud of our 125 years of bringing flavor
to people around the world and, more importantly, we are glad you have joined us as we head into
the next 125 years at McCormick. We appreciate your support and are committed to increasing
the value of your investment in our business.
Alan D. Wilson
Chairman, President & CEO
6
We supply our
customers from
50 locations in
24 countries.
2013 HIgHlIgHtS
Financial Highlights
For the year ended November 30 (millions except per share data)
Passion Points
Net sales
Gross profit
Gross profit margin
Operating income
Operating income margin
Net income
Earnings per share—diluted
Dividends paid
Dividends paid per share
2013
$4,123.4
1,665.8
40.4%
550.5
13.4%
389.0
2.91
179.9
1.36
2012
% Change
$4,014.2
1,617.8
40.3%
578.3
14.4%
407.8
3.04
164.7
1.24
2.7%
3.0%
(4.8%)
(4.6%)
(4.3%)
9.2%
9.7%
We are providing below certain non-GAAP financial results excluding items affecting com-
parability. The details of these adjustments are provided in the Non-GAAP Financial
Measures of the Management’s Discussion & Analysis on pages 32 and 33.
2013
2012
% Change
Adjusted operating income
Adjusted operating income margin
Adjusted net income
Adjusted earnings per share—diluted
$590.8
$578.3
2.2%
14.3%
14.4%
418.2
3.13
407.8
3.04
2.6%
3.0%
2013
Net Sales by
Segment
and Region
CONSUMER
BUSINESS
41.3%
Americas
14.0%
Europe,
Middle East
and Africa
6.3%
Asia/Pacific
INDUSTRIAL
BUSINESS
26.3%
Americas
7.4%
Europe,
Middle East
and Africa
4.7%
Asia/Pacific
15%
Sales in emerging markets accounted for
15% of total company sales in 2013, up from
10% of sales just two years ago.
9%
Innovation is a key growth initiative and
new products launched in the past three
years accounted for 9% of 2013 sales.
30%
We are proud of our safety record, which
has improved by 30% since 2010 and
is ahead of industry averages.
>2x
Digital marketing is one of our most effec-
tive ways to drive sales of our brands. In
2013, our digital marketing spending rose
to $30 million, more than double the amount
spent in 2011.
1/3
As evidence of the increasing interest in
health and wellness, one-third of industrial
new product projects included a wellness
attribute this year.
McCormick & Company 2013 Annual Report 7
73 years
Since 1941, employees at
McCormick have participated
in Charity Day, volunteering
time or donating funds, with
the company matching their
contributions dollar-for-dollar.
Our Shared Values
The people of McCormick are
“key ingredients” in our success.
Ethical behavior
Teamwork
High performance
Innovation
Concern for one another
= Success
Our Multiple Management
philosophy is the cornerstone
of our culture and a driving
force in our growth as an
industry leader.
A Global Workforce
We employ more than 10,000 people
in locations around the world.
Asia/Pacific
Europe,
Middle East
and Africa
Americas
People: Ready Talent, Fully Engaged
Aligning careers with business objectives
We have a clear path for our business that is ambitious and global. We are committed to strength-
ening and aligning our workforce to meet our growth objectives. Throughout the company, we
are implementing McCormick’s High Performance Organization, which creates a culture that lever-
ages the power of our people by recognizing the importance of teamwork and empowerment.
Additionally, we have established Learning and Development Centers in each geographic region
where we provide opportunities for our people to further develop their professional skills. And,
we have a robust talent review process driving advancement and succession for key roles across
the organization.
Engaging employees throughout the organization
More than 75 years ago, former CEO C.P. McCormick said to employees, “Think once for yourself
and twice for the company, and the company will think twice for you and once for the business.”
This “2 for 1” spirit inspires employee commitment and engagement. One measure of engagement
is the 92% global participation rate for our latest Voice of the Employee survey. Another sign that
the people of McCormick are fully committed and engaged in the company’s business is a lower-
than-average employee turnover rate based on analysis in each of our major markets. We also
are proud of the voluntary participation each year of hundreds of future business leaders on
McCormick’s 17 Multiple Management Boards in locations around the world. These Boards offer
a way to develop core skills including project management, communication, research, critical
analysis and leadership, while working on projects that con tribute to the company’s success.
Pictured here are leaders of our
America’s Regional Diversity
& Inclusion Council and four
Employee Ambassador Groups:
• Women’s International Network
• Sabor Latino
• African American Ambassador
Network
• Asian Diversity Group
In collaboration with company
leaders, these groups are driving
programs that advance a spirit
of inclusion at McCormick. We
believe that a global focus on
inclusion allows us to leverage
the unique attributes, knowledge,
skills and talents of our diverse
workforce.
Then A room and a cellar in
Baltimore. McCormick founded by
25-year-old Willoughby McCormick with
three employees. Products included root
beer, flavoring extracts and fruit syrups.
Now Brands in more than 125 countries and territories. We have 50
locations in 24 countries. Product range includes spices, seasonings and
flavors. And customers range from retail outlets and foodservice pro viders to
food processing businesses.
McCormick & Company 2013 Annual Report 9
Growth: Win Share with Global Focus
We are a global leader in flavor. In our consumer business, spices, herbs and seasonings generate
approximately half of our sales. Globally, we have a 21% retail category share of packaged herbs
and spices, which is more than four times that of the next largest competitor. Recipe mixes account
for approximately 15% of sales for this business, followed by what we refer to as “regional leaders”—
brands with a leading share in a specific market, such as Zatarain’s in the United States or
Vahiné® dessert items in France. In our industrial business, we are a leading supplier of snack
seasonings, branded foodservice spices and seasonings, and condiments and coatings for quick-
service restaurants. Our multi-national industrial customers include nine of the top 10 food and
beverage companies and nine of the top 10 foodservice restaurants.
Across both businesses, innovation is a key element of our growth. We are investing in product
technology and in the past two years expanded our development capabilities in the United States,
Mexico, the United Kingdom, South Africa and China. Every year, for the past 10 years, we have
increased brand marketing support to drive trial and usage of both new and existing products.
“Customer intimacy” is another growth driver. For food retailers, we have proven analytical tools
and consumer insights to optimize product assortment, product placement and pricing. For our
industrial customers, we align our resources with their business objectives to create winning
consumer-preferred products.
Building upon our strength in developed markets, McCormick is expanding its global presence
in emerging markets. Due in part to acquisitions, we have increased our percentage of sales in
emerging markets to 15% in 2013 from 10% in 2011.
Canada
1
4
UK
5
France
2
USA
Global Innovation:
Grilling Products
Our delicious grilling seasonings,
sauces, marinades and rubs illus-
trate how we take a great idea from
one market to another. From its
roots in Canada to a 2013 launch
in Europe, annual sales of these
products exceed $100 million.
3
Australia
Then Flavor was finite. Around 2000,
the average U.S. pantry had 10 spices and
seasonings in it. In the past, “Ethnic” food
typically meant Italian or Mexican. Butter,
pepper and salt were ubiquitous.
Now There is an explosion of flavor underway. The average pantry now has
40 spices and seasonings. Fusion cuisine not only draws on various ethnic foods,
but combines them in unique ways. Consumers want personalized flavor.
Recipe mixes offer con-
sumers a convenient way
to make great-tasting
meals. In 2013, we intro-
duced a range of these
products in Poland and
France—where we already
have gained more than a
5% category share. In
China, broad consumer
support and innovation
delivered a 6% share
gain in the recipe mixes
category.
McCormick & Company 2013 Annual Report 11
Plant employees in Canada improved manu-
facturing productivity and reduced material
losses contributing to $63 million of CCI-
related cost savings realized in 2013.
Performance: Superior Results,
Consistently Delivered
Compared to the S&P 500 stock index and peer food companies, McCormick has delivered superior shareholder
returns looking back at the 5-year, 10-year and 20-year periods. We have grown sales each year for the past
10 years, with an average annual increase of 6%. During this same period, we have nearly doubled our earnings
per share.
While we have navigated challenges during the past decade and throughout our 125 years, we are investing
in our growth and fueling this investment with our Comprehensive Continuous Improvement (CCI) program.
This program is designed to improve productivity throughout the organization to achieve at least $45 million
in annual cost savings.
Our business generates significant cash flow, and we are working to strengthen this even further. We are
focused on the effective management of working capital and efficient utilization of all of our assets as we
build scale globally.
Cash Flow
(dollars in millions)
CCI
(dollars in millions)
Use of
Cash Flow
$465
$455
$416
$388
$65
$63
$56
$54
$342
$332
$311
$315
$340
$225
$42
2004–2013
CCI 2009 – 2013 Here are data points:
2009 $37, 2010 $54, 2011 $65, 2012
$54, 2013 $55
cash flow last 10 years Here are data
points: 2003 $202, 2004 $349, 2005
’04
’05
’06
’07
’08
’09
’10
’11
’12
’13
’09
’10
’11
’12
’13
$339, 2006 $311, 2007 $225, 2008 $315,
2009 $416, 2010 $388, 2011 $340, 2012
$455, 2013 $440
Strong Cash Flow from Business
We manage our business to generate
strong cash flow.
Ongoing Productivity Improvement
from CCI Program
Since its inception in 2009, we have
achieved $280 million in CCI-related
cost savings.
Dividends
Capital Expenditures
Acquisitions
Net Share Repurchases
Balanced Use of Cash
For the past decade, we have had a
balanced use of cash, returning 46%
to shareholders through dividends
and share repurchases, net of option
exercise proceeds.
Then Spices and seasonings make
your food taste good. Consumers around
the world knew that they could bring
out the best in food by adding spices
and seasonings.
Now Increasingly, consumers recognize that spices and herbs are effective
in improving the healthfulness of food, including as a replacement for sugar, salt
and fat.
McCormick & Company 2013 Annual Report 13
These five pillars are the
foundation to our success.
Our mission at McCormick is simple: to save your world from boring food! Our ability to accomplish this mission is
underpinned by these five pillars, which form the foundation of our success.
Delivering High Performance
We are committed to achieving a superior level of
performance in everything we do. this is especially
true in the financial realm where we have nearly
doubled earnings per share and achieved an average
annual growth rate of 12% for cash flow from opera-
tions during the past decade.
taste You Trust ™
Our unrivaled focus on quality sets us apart. We are
leaders in global sourcing and have years of experi-
ence impacting local growing practices to procure
high quality spices, herbs and other crops. these
world-class standards extend throughout our global
supply chain and across all of our internal processes.
Power of People ™
there is something inspiring about working at
McCormick. Employee engagement and a high per-
formance culture are rooted in an environment of
respect, recognition, inclusion and collaboration.
In addition, since the founding of the company, we
have had a commitment to give back to the commu-
nities in which we operate.
Passion for Flavor™
We are committed to making food taste great. Around
the globe, home cooks and professional chefs alike
turn to McCormick for flavor and culinary inspiration.
We have substantial and sustained investment in the
science and art of flavor.
Inspiring Healthy Choices
Our high quality products not only make food taste
better, they often make food better for you. Whether
funding research on the potential health benefits of
herbs and spices or developing reduced-sodium and
gluten-free products, we continue to explore new
ways to provide healthy eating choices.
Executive Officers
Alan D. Wilson
Chairman, President & Chief Executive Officer
gordon M. Stetz, Jr.
Executive Vice President & Chief Financial Officer
Paul C. Beard
Senior Vice President, Finance
W. geoffrey Carpenter
Vice President, General Counsel & Secretary
lawrence E. Kurzius
President—Global Consumer Business &
Chief Administrative Officer
Charles t. langmead
President—Global Industrial Business
Cecile K. Perich
Senior Vice President—Human Relations
OUR MISSION:
To save your world
from boring food!
OUR VISION:
McCormick brings
the joy of flavor to
every day.
Board of
Directors
* Indicates Chair Position
on the Committee
** Lead Director
*** Retiring from Eli Lilly
and Company, effective
January 31, 2014
John P. Bilbrey 57
President and
Chief Executive Officer
The Hershey Company
Hershey, Pennsylvania
Director since 2005
Compensation Committee
J. Michael Fitzpatrick 67
Former Chairman and
Chief Executive Officer
Citadel Plastics
Holdings, Inc.
Radnor, Pennsylvania
Director since 2001
Audit Committee
Freeman A. Hrabowski, III 63
President
University of Maryland
Baltimore County
Baltimore, Maryland
Director since 1997
Nominating/Corporate
Governance Committee*
Patricia little 53
Executive Vice President and
Chief Financial Officer
Kelly Services, Inc.
Troy, Michigan
Director since 2010
Audit Committee*
Michael D. Mangan 57
Former President, Worldwide
Power Tools & Accessories
The Black & Decker
Corporation
Towson, Maryland
Director since 2007**
Compensation Committee
Nominating/Corporate
Governance Committee
Margaret M.V. Preston 56
Managing Director &
Regional Executive
U.S. Trust,
Bank of America
Private Wealth
Management
Greenwich, Connecticut
Director since 2003
Nominating/Corporate
Governance Committee
george A. Roche 72
Retired Chairman & President
T. Rowe Price Group, Inc.
Baltimore, Maryland
Director since 2007
Compensation Committee
gordon M. Stetz, Jr. 53
Executive Vice President &
Chief Financial Officer
McCormick & Company, Inc.
Director since 2011
William E. Stevens 71
Chairman
BBI Group, Inc.
St. Louis, Missouri
Director since 1988
Compensation Committee*
Jacques tapiero 55
Senior Vice President and
President, Emerging Markets***
Eli Lilly and Company
Indianapolis, Indiana
Director since 2012
Audit Committee
Alan D. Wilson 56
Chairman, President &
Chief Executive Officer
McCormick & Company, Inc.
Director since 2007
McCormick & Company 2013 Annual Report 15
Table of Contents to Form 10-K
Part I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Part II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Part III
Item 10
Item 11
Item 12
Item 13
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Report of Management and Auditor’s Reports
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Cash Flow Statement
Consolidated Statement of Shareholders’ Equity
Notes to Consolidated Financial Statements
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and
Director Independence
Item 14
Principal Accountant Fees and Services
Part IV
Item 15
Exhibits, Financial Statement Schedules
Page
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16
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
S ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended November 30, 2013
OR
£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number 001-14920
McCORMICK & COMPANY, INCORPORATED
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
18 Loveton Circle, Sparks, Maryland
(Address of principal executive offices)
52-0408290
(IRS Employer
Identification No.)
21152
(Zip Code)
Registrant’s telephone number, including area code: (410) 771-7301
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, No Par Value
Common Stock Non-Voting, No Par Value
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: Not applicable.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes S No £
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes £ No S
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 S No £
McCormick & Company 2013 Annual Report 17
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes S 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. S
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. Check one:
Large accelerated filer S
Accelerated filer
£
Non-accelerated filer £ (Do not check if a smaller reporting company)
Smaller reporting company £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No S
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the
price at which the common equity was last sold, or the average bid and asked prices of such common equity, as of the last business
day of the registrant’s most recently completed second fiscal quarter.
The aggregate market value of the Voting Common Stock held by non-affiliates at May 31, 2013: $525,850,995
The aggregate market value of the Non-Voting Common Stock held by non-affiliates at May 31, 2013: $8,255,994,805
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
Common Stock Non-Voting
12,162,320
119,002,068
December 31, 2013
December 31, 2013
DOCUMENTS INCORPORATED BY REFERENCE
Document
Part of 10-K into Which Incorporated
Proxy Statement for
McCormick’s March 26, 2014
Annual Meeting of Stockholders
(the “2014 Proxy Statement”)
Part III
18
PART I.
As used herein, references to “McCormick,” “we,” “us” and “our”
are to McCormick & Company, Incorporated and its consolidated
subsidiaries or, as the context may require, McCormick & Company,
Incorporated only.
ITEM 1. BUSINESS
McCormick is a global leader in flavor. The company manufactures,
markets and distributes spices, seasoning mixes, condiments and
other flavorful products to the entire food industry—retail outlets,
food manufacturers and foodservice businesses. Our major sales,
distribution and production facilities are located in North America,
Europe and China. Additional facilities are based in Australia, Mexico,
India, Singapore, Central America, Thailand and South Africa.
McCormick & Company, Incorporated was formed in 1915 under
Maryland law as the successor to a business established in 1889.
Business Segments
We operate in two business segments, consumer and industrial.
Consistent with market conditions in each segment, our consumer
business has a higher overall profit margin than our industrial business.
Historically, the consumer business contributes approximately 60%
of sales and 80% of operating income and the industrial business
contributes approximately 40% of sales and 20% of operating
income.
Across both segments, we have the customer base and product
breadth to participate in all types of eating occasions, whether it
is cooking at home, dining out, purchasing a quick service meal or
enjoying a snack. We offer our customers and consumers a range
of products from premium to value-priced.
Consumer Business. From locations around the world, our brands
reach consumers in more than 125 countries and territories. Our
leading brands in the Americas include McCormick®, Lawry’s® and
Club House®. We also market authentic ethnic brands such as
Zatarain’s®, Thai Kitchen® and Simply Asia®. In Europe, the Middle
East and Africa (EMEA) our major brands include the Ducros®,
Schwartz® and Kamis® brands of spices, herbs and seasonings and
an extensive line of Vahiné® brand dessert items. In the Asia/Pacific
region, we market products under the McCormick and DaQiao®
brands in China. In Australia, our primary brand is McCormick, and
in India our majority-owned joint venture owns and trades under the
Kohinoor® brand.
Our customers span a variety of retail outlets that include grocery,
mass merchandise, warehouse clubs, discount and drug stores,
served directly and indirectly through distributors or wholesalers.
In addition to marketing our branded products to these customers,
we are also a leading supplier of private label items, also known
as store brands.
Approximately half of our consumer business is spices, herbs and
seasonings. For these products, we are a category leader in our
primary markets with a 40% to 60% share of sales. There are a
number of competitors in the spices, herbs and seasoning category.
More than 250 other brands of spices, herbs and seasonings are
sold in the U.S. with additional brands in international markets.
Some are owned by large food manufacturers, while others are
supplied by small privately owned companies. Our leadership
position allows us to efficiently innovate, merchandise and market
our brands.
Industrial Business. In our industrial business, we provide a wide
range of products to multinational food manufacturers and food-
service customers. The foodservice customers are supplied both
directly and indirectly through distributors. Among food manufactur-
ers and foodservice customers, many of our relationships have been
active for decades. We focus our resources on our strategic partners
that we believe offer the greatest prospects for growth. Our range
of products remains one of the broadest in the industry and includes
seasoning blends, spices and herbs, condiments, coating systems
and compound flavors. In addition to a broad range of flavor solu-
tions, we strive to achieve customer intimacy. Our customers benefit
from our expertise in many areas, including sensory testing, culinary
research, food safety and flavor application.
Our industrial business has a number of competitors. Some tend to
specialize in a particular range of products and have a limited geo-
graphic reach. Other competitors include larger publicly held flavor
companies that are more global in nature, but which also tend to
specialize in a limited range of flavor solutions.
For financial information about our business segments, please refer
to “Management’s Discussion and Analysis—Results of Operations”
and note 15 of the financial statements.
For a discussion of our recent acquisition activity, please refer to
“Management’s Discussion and Analysis—Acquisitions” and note 2
of the financial statements.
Raw Materials
The most significant raw materials used in our business are pepper,
dairy products, rice, capsicums (red peppers and paprika), onion,
garlic and soybean oil. Pepper and other spices and herbs are gener-
ally sourced from countries other than the United States. Other raw
materials, like dairy products and onion, are primarily sourced from
within the U.S. and locally, for many of our international locations.
Because the raw materials are agricultural products, they are subject
to fluctuations in market price and availability caused by weather,
growing and harvesting conditions, market conditions, and other
factors beyond our control.
We respond to this volatility in a number of ways, including strategic
raw material purchases, purchases of raw material for future delivery
and customer price adjustments.
Customers
McCormick’s products are sold directly to customers and also
through brokers, wholesalers and distributors. In the consumer
segment, products are then sold to consumers through a variety
McCormick & Company 2013 Annual Report 19
of retail outlets, including grocery, mass merchandise, warehouse
clubs, discount and drug stores under a variety of brands. In the
industrial segment, products are used by food and beverage manu-
facturers as ingredients for their finished goods and by foodservice
customers as ingredients for menu items to enhance the flavor of
their foods. Customers for the industrial segment include food man-
ufacturers and the foodservice industry supplied both directly and
indirectly through distributors.
We have a large number of customers for our products. Sales to
one of our consumer business customers, Wal-Mart Stores, Inc.,
accounted for 12% of consolidated sales in 2013 and 11% of consol-
idated sales in 2012 and 2011. Sales to one of our industrial busi-
ness customers, PepsiCo, Inc., accounted for 11% of consolidated
sales in 2013, 2012 and 2011. In 2013, 2012 and 2011 the top three
customers in our industrial business represented between 52%
and 54% of our global industrial sales.
The dollar amount of backlog orders for our business is not material
to an understanding of our business, taken as a whole. No material
portion of our business is subject to renegotiation of profits or
termination of contracts or subcontracts at the election of the
U.S. government.
Trademarks, Licenses and Patents
McCormick owns a number of trademark registrations. Although in
the aggregate these trademarks are material to our business, the
loss of any one of those trademarks, with the exception of our
“McCormick,” “Lawry’s,” “Zatarain’s,” “Club House,” “Ducros,”
“Schwartz,” “Vahiné,” “Kamis,” “DaQiao” and “Kohinoor” trade-
marks, would not have a materially adverse effect on our business.
The “Mc – McCormick” trademark is extensively used by us in con-
nection with the sale of our food products in the U.S. and certain
non-U.S. markets. The terms of the trademark registrations are as
prescribed by law and the registrations will be renewed for as long
as we deem them to be useful.
We have entered into a number of license agreements authorizing
the use of our trademarks by affiliated and non-affiliated entities.
The loss of these license agreements would not have a materially
adverse effect on our business. The term of the license agreements
is generally three to five years or until such time as either party
terminates the agreement. Those agreements with specific terms
are renewable upon agreement of the parties.
We also own various patents, none of which individually are
material to our business.
Seasonality
Due to seasonal factors inherent in McCormick’s business, our
sales, income and cash from operations generally are lower in the
first two quarters of the fiscal year, increase in the third quarter
and are significantly higher in the fourth quarter due to the holiday
season. This seasonality reflects customer and consumer buying
patterns, primarily in the consumer segment.
commercial paper. For a description of our liquidity and capital
resources, see note 6 of the financial statements and the “Liquidity
and Financial Condition” section of “Management’s Discussion
and Analysis.”
Competition
McCormick competes in a marketplace that is global and highly
competitive. Our strategies for competing in each of our segments
include a focus on product innovation, price and value, product
quality and customer intimacy. Additionally, in the consumer seg-
ment we focus on brand recognition and loyalty, effective advertis-
ing, promotional programs and the identification and satisfaction
of consumer preferences.
Research and Development
Many of McCormick’s products are prepared from confidential for-
mulas developed by our research laboratories and product develop-
ment teams, and, in some cases, customer proprietary formulas.
Expenditures for research and development were $61.3 million in
2013, $57.8 million in 2012, and $58.1 million in 2011. The amount
spent on customer-sponsored research activities is not material.
Governmental Regulation
McCormick is subject to numerous laws and regulations around
the world that apply to our global businesses. In the United States,
the safety, production, transportation, distribution, advertising,
labeling and sale of many of our products and their ingredients
are subject to the Federal Food, Drug, and Cosmetic Act, the Food
Safety Modernization Act, the Federal Trade Commission Act, state
consumer protection laws, competition laws, anti-corruption laws,
customs and trade laws, federal, state and local workplace health
and safety laws, various federal, state and local environmental pro-
tection laws, and various other federal, state and local statutes and
regulations. Outside the United States, our business is subject to
numerous similar statutes, laws and regulatory requirements.
Environmental Regulations
The cost of compliance with federal, state and local provisions
related to protection of the environment has had no material effect
on McCormick’s business. There were no material capital expendi-
tures for environmental control facilities in fiscal year 2013, and
there are no material expenditures planned for such purposes in
fiscal year 2014.
Employees
McCormick had approximately 10,000 full-time employees world-
wide as of November 30, 2013. We believe our relationship with
employees to be good. We have no collective bargaining contracts in
the United States. At our foreign subsidiaries, approximately 1,350
employees are covered by collective bargaining agreements or
similar arrangements.
Financial Information about Geographic Locations
For information on the net sales and long-lived assets of McCormick
by geographic area, see note 15 of the financial statements.
Working Capital
In order to meet increased demand for our consumer products during
our fourth quarter, McCormick usually builds its inventories during
the third quarter of the fiscal year. We generally finance working
capital items (inventory and receivables) through short-term borrow-
ings, which include the use of lines of credit and the issuance of
Foreign Operations
McCormick is subject in varying degrees to certain risks typically
associated with a global business, such as local economic and mar-
ket conditions, restrictions on investments, royalties, dividends and
exchange rate fluctuations. Approximately 40% of sales in fiscal
year 2013 were from non-U.S. operations. For information on how
20
McCormick manages some of these risks, see the “Market Risk
Sensitivity” section of “Management’s Discussion and Analysis.”
Forward-Looking Information
Certain statements contained in this report, including statements
concerning expected performance such as those relating to net
sales, earnings, cost savings, acquisitions and brand marketing
support, are “forward-looking statements” within the meaning of
Section 21E of the Securities Exchange Act of 1934. These state-
ments may be identified by the use of words such as “may,” “will,”
“expect,” “should,” “anticipate,” “intend,” “believe” and “plan.”
These statements may relate to: the expected results of operations
of businesses acquired by us, the expected impact of raw material
costs and our pricing actions on our results of operations and gross
margins, the expected productivity and working capital improve-
ments, expected trends in net sales and earnings performance and
other financial measures, the expectations of pension and postre-
tirement plan contributions, the holding period and market risks
associated with financial instruments, the impact of foreign
exchange fluctuations, the adequacy of internally generated funds
and existing sources of liquidity, such as the availability of bank
financing, our ability to issue additional debt or equity securities and
our expectations regarding purchasing shares of our common stock
under the existing authorizations.
These and other forward-looking statements are based on manage-
ment’s current views and assumptions and involve risks and uncer-
tainties that could significantly affect expected results. Results may
be materially affected by factors such as: damage to our reputation
or brand name; loss of brand relevance; increased private label use;
product quality, labeling, or safety concerns; negative publicity about
our products; business interruptions due to natural disasters or
unexpected events; actions by, and the financial condition of, com-
petitors and customers; our ability to achieve expected and/or needed
cost savings or margin improvements; the successful acquisition and
integration of new businesses; issues affecting our supply chain and
raw materials, including fluctuations in the cost and availability of
raw and packaging materials; government regulation, and changes in
legal and regulatory requirements and enforcement practices; global
economic and financial conditions generally, including the availability
of financing, and interest and inflation rates; the investment return
on retirement plan assets, and the costs associated with pension
obligations; foreign currency fluctuations; the stability of credit and
capital markets; risks associated with our information technology
systems, the threat of data breaches and cyber attacks; volatility in
our effective tax rate; climate change; infringement of our intellec-
tual property rights, and those of customers; litigation, legal and
administrative proceedings; and other risks described herein under
Part I, Item 1A “Risk Factors.”
Actual results could differ materially from those projected in the
forward-looking statements. We undertake no obligation to update
or revise publicly any forward-looking statements, whether as a
result of new information, future events or otherwise, except as
may be required by law.
Available Information
Our principal corporate internet website address is:
www.mccormickcorporation.com. We make available free of
charge through our website our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the
“Exchange Act”) as soon as reasonably practicable after such docu-
ments are electronically filed with, or furnished to, the United States
Securities and Exchange Commission (the “SEC”). The SEC maintains
an Internet website at www.sec.gov that contains reports, proxy
and information statements, and other information regarding
McCormick. Our website also includes our Corporate Governance
Guidelines, Business Ethics Policy and charters of the Audit
Committee, Compensation Committee, and Nominating/Corporate
Governance Committee of our Board of Directors.
ITEM 1A. RISK FACTORS
The following are certain risk factors that could affect our business,
financial condition and results of operations. These risk factors
should be considered in connection with evaluating the forward-
looking statements contained in this Annual Report on Form 10-K
because these factors could cause the actual results and conditions
to differ materially from those projected in forward-looking state-
ments. Before you buy our Common Stock or Common Stock Non-
Voting, you should know that making such an investment involves
risks, including the risks described below. Additional risks and uncer-
tainties that are not presently known to the company or are currently
deemed to be immaterial also may materially adversely affect our
business, financial condition or results of operations in the future.
If any of the risks actually occur, our business, financial condition,
or results of operations could be negatively affected. In that case,
the trading price of our securities could decline, and you may lose
part or all of your investment.
Damage to our reputation or brand name, loss of brand rele
vance, increase in private label use by customers or consumers,
or product quality or safety concerns could negatively impact
our business, financial condition or results of operations.
We have many iconic brands with long-standing consumer recogni-
tion. Our success depends on our ability to maintain our brand image
for our existing products, extend our brands to new platforms, and
expand our brand image with new product offerings.
We continually make efforts to maintain and improve relationships
with our customers and consumers and to increase awareness and
relevance of our brands through effective marketing and other
measures. From time to time, our customers evaluate their mix of
branded and private label product offerings, and consumers have
the option to purchase private label products instead of branded
products. If a significant portion of our branded business was
switched to private label, it could have a material negative impact
on our consumer business.
Our reputation for manufacturing high-quality products is widely
recognized. In order to safeguard that reputation, we have adopted
rigorous quality assurance and quality control procedures which are
designed to ensure the safety of our products. A serious breach of
our quality assurance or quality control procedures, deterioration of
our quality image, impairment of our customer or consumer relation-
ships or failure to adequately protect the relevance of our brands
may lead to litigation, customers purchasing from our competitors
or consumers purchasing other brands or private label items that
may or may not be manufactured by us, any of which could have
a material negative impact on our business, financial condition or
results of operations.
McCormick & Company 2013 Annual Report 21
The food industry generally is subject to risks posed by food spoilage
and contamination, product tampering, product recall, import alerts
and consumer product liability claims. For instance, we may be
required to recall certain of our products should they be mislabeled,
contaminated or damaged, and certain of our raw materials could be
blocked from entering the country if they were subject to import
alerts. We also may become involved in lawsuits and legal proceed-
ings if it is alleged that the consumption of any of our products could
cause injury or illness, are mislabeled or fail to meet applicable legal
requirements (even if the allegation is untrue). A product recall,
import alert or an adverse result in any such litigation, or negative
perceptions regarding food products and ingredients, could result in
our having to pay fines or damages, incur additional costs or cause
customers and consumers in our principal markets to lose confidence
in the safety and quality of certain products or ingredients, any of
which could have a negative effect on our business and financial
results. Negative publicity about these concerns, whether or not
valid, may discourage customers and consumers from buying our
products or cause disruptions in production or distribution of our
products and adversely affect our business, financial condition or
results of operations.
The rising popularity of social networking and other consumer-oriented
technologies has increased the speed and accessibility of information
dissemination (whether or not accurate), and, as a result, negative,
inaccurate, or misleading posts or comments on websites may
generate adverse publicity that could damage our reputation
or brands.
Customer consolidation, and competitive, economic and other
pressures facing our customers, may put pressure on our
operating margins and profitability.
A number of our customers, such as supermarkets, warehouse clubs
and food distributors, have consolidated in recent years and consoli-
dation could continue. Such consolidation could present a challenge
to margin growth and profitability in that it has produced large,
sophisticated customers with increased buying power who are
more capable of operating with reduced inventories, resisting price
increases, demanding lower pricing, increased promotional programs
and specifically tailored products, and shifting shelf space currently
used for our products to private label products. The economic and
competitive landscape for our customers is constantly changing, and
their response to those changes could impact our business. Our
industrial business may be impacted if the reputation or perception
of the customers of our industrial business declines. These factors
and others could have an adverse impact on our business, financial
condition or results of operations.
Disruption of our supply chain and issues regarding
procurement of raw materials may negatively impact us.
Our purchases of raw materials are subject to fluctuations in market
price and availability caused by weather, growing and harvesting
conditions, market conditions, governmental actions and other factors
beyond our control. The most significant raw materials used by us in
our business are pepper, dairy products, rice, capsicums (red pepper
and paprika), onion, garlic and soybean oil. While future price move-
ments of raw material costs are uncertain, we seek to mitigate the
market price risk in a number of ways, including strategic raw mate-
rial purchases, purchases of raw material for future delivery and
22
customer price adjustments. We generally have not used derivatives
to manage the volatility related to this risk. To the extent that we
have used derivatives for this purpose, it has not been material to
our business. Any actions we take in response to market price fluctu-
ations may not effectively limit or eliminate our exposure to changes
in raw material prices. Therefore, we cannot provide assurance that
future raw material price fluctuations will not have a negative
impact on our business, financial condition or operating results.
In addition, we may have very little opportunity to mitigate the risk
of availability of certain raw materials due to the effect of weather
on crop yield, government actions, political unrest in producing coun-
tries, action or inaction by suppliers in response to laws and regula-
tions, changes in agricultural programs and other factors beyond our
control. Therefore, we cannot provide assurance that future raw
material availability will not have a negative impact on our business,
financial condition or operating results.
Political, socio-economic and cultural conditions, as well as disrup-
tions caused by terrorist activities or otherwise, could also create
additional risks for regulatory compliance. Although we have adopted
rigorous quality assurance and quality control procedures which are
designed to ensure the safety of our imported products, we cannot
provide assurance that such events will not have a negative impact
on our business, financial condition or operating results.
Our profitability may suffer as a result of competition in
our markets.
The food industry is intensely competitive. Competition in our prod-
uct categories is based on price, product innovation, product quality,
brand recognition and loyalty, effectiveness of marketing and promo-
tional activity, and the ability to identify and satisfy consumer pref-
erences. From time to time, we may need to reduce the prices for
some of our products to respond to competitive and customer pres-
sures, which may adversely affect our profitability. Such pressures
could reduce our ability to take appropriate remedial action to
address commodity and other cost increases.
Laws and regulations could adversely affect our business.
Food products are extensively regulated in most of the countries in
which we sell our products. We are subject to numerous laws and
regulations relating to the growing, sourcing, manufacture, storage,
labeling, marketing, advertising and distribution of food products,
as well as laws and regulations relating to financial reporting
requirements, the environment, competition, anti-corruption, privacy,
relations with distributors and retailers, foreign supplier verification,
the import and export of products and product ingredients, employ-
ment, health and safety, and trade practices. Enforcement of existing
laws and regulations, changes in legal requirements, and/or evolving
interpretations of existing regulatory requirements, may result in
increased compliance costs and create other obligations, financial or
otherwise, that could adversely affect our business, financial condi-
tion or operating results. Increased regulatory scrutiny of, and
increased litigation involving, product claims and concerns regarding
the attributes of food products and ingredients may increase compli-
ance costs and create other obligations that could adversely affect
our business, financial condition or operating results. Governments
may also impose requirements and restrictions that impact our busi-
ness, such as labeling disclosures pertaining to ingredients. For exam-
ple, “Proposition 65, the Safe Drinking Water and Toxic Enforcement
Act of 1986,” in California exposes all food companies to the possibil-
ity of having to provide warnings on their products in that state. If
we were required to add warning labels to any of our products or
place warnings in locations where our products are sold in order to
comply with Proposition 65, the sales of those products and other
products of our company could suffer, not only in those locations but
elsewhere. These factors and others could have an adverse impact
on our business, financial condition or results of operations.
Our operations may be impaired as a result of disasters,
business interruptions or similar events.
We could have an interruption in our business, loss of inventory or
data, be rendered unable to accept and fulfill customer orders as a
result of a natural disaster, catastrophic event, epidemic or computer
system failure. Natural disasters could include an earthquake, fire,
flood, tornado or severe storm. A catastrophic event could include a
terrorist attack. An epidemic could affect our operations, major facil-
ities or employees’ and customers’ health. In addition, some of our
inventory and production facilities are located in areas that are sus-
ceptible to harsh weather; a major storm, heavy snowfall or other
similar event could prevent us from delivering products in a timely
manner. Production of certain of our products is concentrated in a
single manufacturing site.
We cannot provide assurance that our disaster recovery plan will
address all of the issues we may encounter in the event of a disaster
or other unanticipated issue, and our business interruption insurance
may not adequately compensate us for losses that may occur from
any of the foregoing. In the event that a natural disaster, terrorist
attack or other catastrophic event were to destroy any part of our
facilities or interrupt our operations for any extended period of time,
or if harsh weather or health conditions prevent us from delivering
products in a timely manner, our business, financial condition and
operating results could be adversely affected.
We may not be able to successfully consummate and manage
ongoing acquisition, joint venture and divestiture activities
which could have an impact on our results.
From time to time, we may acquire other businesses and, based on
an evaluation of our business portfolio, divest existing businesses.
These acquisitions, joint ventures and divestitures may present
financial, managerial and operational challenges, including diversion
of management attention from existing businesses, difficulty with
integrating or separating personnel and financial and other systems,
increased expenses, assumption of unknown liabilities and indemni-
ties, and potential disputes with the buyers or sellers. In addition,
we may be required to incur asset impairment charges (including
charges related to goodwill and other intangible assets) in connec-
tion with acquired businesses which may reduce our profitability.
If we are unable to consummate such transactions, or successfully
integrate and grow acquisitions and achieve contemplated revenue
synergies and cost savings, our financial results could be adversely
affected. Additionally, joint ventures inherently involve a lesser
degree of control over business operations, thereby potentially
increasing the financial, legal, operational and/or compliance risks.
Our foreign operations are subject to additional risks.
We operate our business and market our products internationally.
In fiscal year 2013, approximately 40% of our sales were generated
in foreign countries. Our foreign operations are subject to additional
risks, including fluctuations in currency values, foreign currency
exchange controls, discriminatory fiscal policies, compliance with
U.S. and foreign laws, enforcement of remedies in foreign jurisdic-
tions and other economic or political uncertainties. Beginning in 2011,
several countries within the European Union experienced sovereign
debt and credit issues. This has caused more volatility in the eco-
nomic environment throughout the European Union. Additionally,
international sales are subject to risks related to imposition of tariffs,
quotas, trade barriers and other similar restrictions. All of these risks
could result in increased costs or decreased revenues, which could
adversely affect our profitability.
Fluctuations in foreign currency markets may negatively
impact us.
We are exposed to fluctuations in foreign currency in the following
main areas: cash flows related to raw material purchases; the trans-
lation of foreign currency earnings to U.S. dollars; the value of for-
eign currency investments in subsidiaries and unconsolidated
affiliates and cash flows related to repatriation of these invest-
ments. Primary exposures include the British pound sterling versus
the Euro, and the U.S. dollar versus the Euro, British pound sterling,
Canadian dollar, Polish zloty, Australian dollar, Mexican peso,
Chinese renminbi, Indian rupee and Thai baht. We routinely enter
into foreign currency exchange contracts to facilitate managing cer-
tain of these foreign currency risks. However, these contracts may
not effectively limit or eliminate our exposure to a decline in operat-
ing results due to foreign currency exchange changes. Therefore, we
cannot provide assurance that future exchange rate fluctuations will
not have a negative impact on our business, financial position or
operating results.
Increases in interest rates may negatively impact us.
We had total outstanding short-term borrowings of $212 million at
an average interest rate of approximately 0.7% on November 30,
2013. Our policy is to manage our interest rate risk by entering into
both fixed and variable rate debt arrangements. We also use inter-
est rate swaps to minimize worldwide financing cost and to achieve
a desired mix of fixed and variable rate debt. We utilize derivative
financial instruments to enhance our ability to manage risk, including
interest rate exposures that exist as part of our ongoing business
operations. We do not enter into contracts for trading purposes, nor
are we a party to any leveraged derivative instruments. Our use of
derivative financial instruments is monitored through regular com-
munication with senior management and the utilization of written
guidelines. However, our use of these instruments may not effec-
tively limit or eliminate our exposure to changes in interest rates.
Therefore, we cannot provide assurance that future interest rate
increases will not have a material negative impact on our business,
financial position or operating results.
The deterioration of credit and capital markets may adversely
affect our access to sources of funding.
We rely on our revolving credit facilities, or borrowings backed by
these facilities, to fund a portion of our seasonal working capital
needs and other general corporate purposes. If any of the banks in
McCormick & Company 2013 Annual Report 23
the syndicates backing these facilities were unable to perform on its
commitments, our liquidity could be impacted, which could adversely
affect funding of seasonal working capital requirements. We engage
in regular communication with all of the banks participating in our
revolving credit facilities. During these communications none of the
banks have indicated that they may be unable to perform on their
commitments. In addition, we periodically review our banking and
financing relationships, considering the stability of the institutions,
pricing we receive on services and other aspects of the relation-
ships. Based on these communications and our monitoring activities,
we believe the likelihood of one of our banks not performing on its
commitment is remote.
In addition, global capital markets have experienced volatility that
has tightened access to capital markets and other sources of funding.
In the event we need to access the capital markets or other sources
of financing, there can be no assurance that we will be able to
obtain financing on acceptable terms or within an acceptable time.
Our inability to obtain financing on acceptable terms or within an
acceptable time period could have an adverse impact on our
operations, financial condition and liquidity.
We face risks associated with certain pension assets
and obligations.
We hold investments in equity and debt securities in our qualified
defined benefit pension plans and in a rabbi trust for our U.S. non-
qualified pension plan. Deterioration in the value of plan assets
resulting from a general financial downturn or otherwise, or an
increase in the actuarial valuation of the plans’ liability due to a low
interest rate environment, could cause (or increase) an underfunded
status of our defined benefit pension plans, thereby increasing our
obligation to make contributions to the plans. An obligation to make
contributions to pension plans could reduce the cash available for
working capital and other corporate uses, and may have an adverse
impact on our operations, financial condition and liquidity.
The global financial downturn exposes us to credit risks from
customers and counterparties.
Consolidations in some of the industries in which our customers
operate have created larger customers, some of which are highly
leveraged. In addition, competition has increased with the growth
in alternative channels through our customer base. These factors
have caused some customers to be less profitable and increased our
exposure to credit risk. Current credit markets are volatile, and some
of our customers and counterparties are highly leveraged. A signifi-
cant adverse change in the financial and/or credit position of a cus-
tomer or counterparty could require us to assume greater credit risk
relating to that customer or counterparty and could limit our ability
to collect receivables. This could have an adverse impact on our
financial condition and liquidity.
Our operations may be impaired if our information technology
systems fail to perform adequately or if we are the subject of
a data breach or cyber attack.
Our information technology systems are critically important to operat-
ing our business efficiently. We rely on our information technology
systems to manage our business data, communications, supply chain,
order entry and fulfillment, and other business processes. The failure
of our information technology systems to perform as we anticipate
24
could disrupt our business and could result in transaction errors,
processing inefficiencies and the loss of sales and customers,
causing our business and results of operations to suffer.
Furthermore, our information technology systems may be vulnera-
ble to security breaches beyond our control. We invest in security
technology to protect our data and business processes against risk
of data security breaches and cyber attacks. While we believe
these measures are adequate in preventing security breaches and
in reducing cybersecurity risks and we have yet to experience any
breach, a breach or successful attack could have a negative impact
on our operations or business reputation.
The global nature of our business and the resolution of tax
disputes create volatility in our effective tax rate.
As a global business, our tax rate from period to period can be
affected by many factors, including changes in tax legislation, our
global mix of earnings, the tax characteristics of our income, the
timing and recognition of goodwill impairments, acquisitions and
dispositions, adjustments to our reserves related to uncertain tax
positions, changes in valuation allowances and the portion of the
income of foreign subsidiaries that we expect to remit to the U.S.
and that will be taxable.
In addition, significant judgment is required in determining our effec-
tive tax rate and in evaluating our tax positions. We establish accru-
als for certain tax contingencies when, despite the belief that our
tax return positions are fully supported, the positions are uncertain.
The tax contingency accruals are adjusted in light of changing facts
and circumstances, such as the progress of tax audits, case law and
emerging legislation. Our effective tax rate includes the impact of
tax contingency accruals and changes to the accruals, including
related interest and penalties, as considered appropriate by manage-
ment. When particular matters arise, a number of years may elapse
before such matters are audited and finally resolved. Favorable reso-
lution of such matters could be recognized as a reduction to our
effective tax rate in the year of resolution. Unfavorable resolution
of any particular issue could increase the effective tax rate and may
require the use of cash in the year of resolution.
Climate change may negatively affect our business, financial
condition and results of operations.
Unseasonable or unusual weather or long-term climate changes may
negatively impact the price or availability of spices, herbs and other
raw materials. There is concern that greenhouse gases in the
atmosphere may have an adverse impact on global temperatures,
weather patterns and the frequency and severity of extreme
weather and natural disasters. In the event that such climate
change has a negative effect on agricultural productivity, we may
be subject to decreased availability or less favorable pricing for
certain commodities that are necessary for our products.
Our intellectual property rights, and those of our customers,
could be infringed, challenged or impaired, and reduce the value
of our products and brands or our business with customers.
We possess intellectual property rights that are important to our
business, and we are provided access by certain customers to
particular intellectual property rights belonging to such customers.
These intellectual property rights include ingredient formulas,
trademarks, copyrights, patents, business processes and other trade
secrets which are important to our business and relate to some of
our products, our packaging, the processes for their production,
and the design and operation of equipment used in our businesses.
We protect our intellectual property rights, and those of certain cus-
tomers, globally through a variety of means, including trademarks,
copyrights, patents and trade secrets, third-party assignments and
nondisclosure agreements, and monitoring of third-party misuses of
intellectual property. If we fail to obtain or adequately protect our
intellectual property (and the intellectual property of customers to
which we have been given access), the value of our products and
brands could be reduced and there could be an adverse impact on
our business, financial condition and results of operations.
Litigation, legal or administrative proceedings could have
an adverse impact on our business, financial condition and
results of operations, and damage our reputation.
We are party to a variety of legal claims and proceedings in the
ordinary course of business. Since litigation is inherently uncertain,
there is no guarantee that we will be successful in defending our-
selves against such claims or proceedings, or that management’s
assessment of the materiality or immateriality of these matters,
including any reserves taken in connection with such matters, will
be consistent with the ultimate outcome of such claims or proceed-
ings. In the event that management’s assessment of the materiality
or immateriality of current claims and proceedings proves inaccurate,
or litigation that is material arises in the future, there may be a
material adverse effect on our financial condition. Any adverse pub-
licity resulting from allegations made in litigation claims or legal or
administrative proceedings (even if untrue) may also adversely affect
our reputation. These factors and others could have an adverse
impact on our business, financial condition or results of operations.
If we are unable to fully realize the benefits from our Compre
hen sive Continuous Improvement (CCI) program, our financial
results could be negatively affected.
Our future success depends in part on our ability to be an efficient
producer in a highly competitive industry. Any failure by us to achieve
our planned cost savings and efficiencies under our CCI program, or
other similar programs, could have an adverse effect on our business,
results of operations and financial position.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our principal executive offices and primary research facilities are
owned and are located in suburban Baltimore, Maryland.
The following is a list of our principal manufacturing properties, all
of which are owned except for the facilities in Commerce, California
and Melbourne, Australia, and a portion of the facility in Littleborough,
England, which are leased:
United States:
Hunt Valley, Maryland—consumer and industrial
(3 principal plants)
Gretna, Louisiana—consumer and industrial
South Bend, Indiana—industrial and consumer
Atlanta, Georgia—industrial
Commerce, California—consumer
Irving, Texas—industrial
Canada:
London, Ontario—consumer and industrial
Mexico:
Cuautitlan de Romero Rubio—industrial
United Kingdom:
Haddenham, England—consumer and industrial
Littleborough, England—industrial
France:
Carpentras—consumer and industrial
Monteux—consumer and industrial
Poland:
Stefanowo—consumer
India:
New Delhi—consumer
Australia:
Melbourne—consumer and industrial
China:
Guangzhou—consumer and industrial
Shanghai—consumer and industrial
Wuhan—consumer
In addition to distribution facilities and warehouse space available
at our manufacturing facilities, we lease regional distribution
facilities in Belcamp, Maryland; Salinas, California; Irving, Texas;
Mississauga and London, Ontario, Canada; and Genvilliers, France;
and own distribution facilities in Monteux, France. We also own,
lease or contract other properties used for manufacturing consumer
and industrial products and for sales, warehousing, distribution and
administrative functions.
We believe our plants are well maintained and suitable for their
intended use. We further believe that these plants generally have
adequate capacity or the ability to expand, and can accommodate
seasonal demands, changing product mixes and additional growth.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings in which we or
any of our subsidiaries are a party or to which any of our or their
property is the subject.
ITEM 4. MINE SAFETY DISCLOSURES
None.
McCormick & Company 2013 Annual Report 25
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
We have disclosed in note 17 of the financial statements the information relating to the market price and dividends paid on our classes of common
stock. The market price of our common stock at the close of business on December 31, 2013 was $68.76 per share for the Common Stock and
$68.92 per share for the Common Stock Non-Voting.
Our Common Stock and Common Stock Non-Voting are listed and traded on the New York Stock Exchange (“NYSE”). The approximate number of
holders of our Common Stock based on record ownership as of December 31, 2013 was as follows:
Title of Class
Common Stock, no par value
Common Stock Non-Voting, no par value
Approximate Number
of Record Holders
2,100
10,100
The following table summarizes our purchases of Common Stock (CS) and Common Stock Non-Voting (CSNV) during the fourth quarter of 2013:
ISSUER PURCHASES OF EQUITY SECURITIES
Period
September 1, 2013 to
September 30, 2013
October 1, 2013 to
October 31, 2013
November 1, 2013 to
November 30, 2013
Total
Total Number
of Shares
Purchased
CS-9,900
CSNV-0
CS-11,245
CSNV-630,000
CS-23,434
CSNV-582,300
CS-44,579
CSNV-1,212,300
Average
Price
Paid per
Share
$ 70.19
—
$ 65.03
$ 66.45
$ 68.67
$ 69.36
$ 68.09
$ 67.85
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
9,900
—
11,245
630,000
23,434
582,300
44,579
1,212,300
Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs
$444 million
$402 million
$360 million
$360 million
As of November 30, 2013, approximately $360 million remained of a $400 million share repurchase authorization approved by the Board of Directors
in April 2013. There is no expiration date for our repurchase program. During the fourth quarter of 2013, we completed the previous $400 million
share repurchase authorization approved by the Board of Directors in June 2010. The timing and amount of any shares repurchased is determined
by our management based on its evaluation of market conditions and other factors. The repurchase program may be suspended or discontinued at
any time.
In certain circumstances, we issue shares of CS in exchange for shares of CSNV, or issue shares of CSNV in exchange for shares of CS, in either case
pursuant to the exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended. Typically, these exchanges are
made in connection with the administration of our employee benefit plans, executive compensation programs and dividend reinvestment/direct
purchase plans. The number of shares issued in an exchange is generally equal to the number of shares received in the exchange, although the
number may differ slightly to the extent necessary to comply with the requirements of the Employee Retirement Income Security Act of 1974.
During fiscal 2013, we issued 1,176,255 shares of CSNV in exchange for shares of CS and issued 73,716 shares of CS in exchange for shares
of CSNV.
26
ITEM 6. SELECTED FINANCIAL DATA
HISTORICAL FINANCIAL SUMMARY
(millions except per share and ratio data)
2013
2012
2011
2010
2009
For the Year
Net sales
Percent increase
Operating income
Income from unconsolidated operations
Net income
Per Common Share
Earnings per share—diluted
Earnings per share—basic
Common dividends declared
Closing price, non-voting shares—end of year
Book value per share
At Year-End
Total assets
Current debt
Long-term debt
Shareholders’ equity
Other Financial Measures
Percentage of net sales
Gross profit
Operating income
Capital expenditures
Depreciation and amortization
Common share repurchases
Average shares outstanding
Basic
Diluted
$ 4,123.4
$ 4,014.2
$ 3,697.6
$ 3,336.8
$ 3,192.1
2.7%
8.6%
550.5
23.2
389.0
2.91
2.94
1.39
69.00
14.85
$
$ 4,449.7
214.1
1,019.0
1,947.7
578.3
21.5
407.8
3.04
3.07
1.27
64.56
12.83
$
$ 4,165.4
392.6
779.2
1,700.2
$
40.4%
13.4%
99.9
106.0
177.4
132.1
133.6
40.3%
14.4%
$ 110.3
102.8
132.2
132.7
134.3
10.8%
540.3
25.4
374.2
$
2.79
2.82
1.15
48.70
12.17
$ 4,087.8
222.4
1,029.7
1,618.5
$
41.2%
14.6%
96.7
98.3
89.3
132.7
134.3
4.5%
0.5%
509.8
25.5
370.2
2.75
2.79
1.06
44.01
11.00
$
$ 3,419.7
100.4
779.9
1,462.7
466.9
16.3
299.8
2.27
2.29
0.98
35.68
10.19
$
$ 3,387.8
116.1
875.0
1,343.5
$
42.5%
15.3%
89.0
95.1
82.5
132.9
134.7
$
41.6%
14.6%
82.4
94.3
—
130.8
132.8
The historical financial summary includes the impact of certain items that affect the comparability of financial results year to year. In 2013, we
recorded special charges for EMEA reorganization activities and the loss on a voluntary pension settlement. In 2010, we had the benefit of the rever-
sal of a significant tax accrual and, in 2009, restructuring charges were recorded. The net impact of these items is reflected in the following table:
(millions except per share data)
Operating income
Net income
Earnings per share—diluted
$
2013
(40.3)
(29.2)
(0.22)
2012
2011
—
—
—
—
—
—
2010
—
13.9
0.10
$
$
2009
(16.2)
(10.9)
(0.08)
McCormick & Company 2013 Annual Report 27
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The following Management’s Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) is intended to help the
reader understand McCormick & Company, Incorporated, our opera-
tions and our present business environment. MD&A is provided
as a supplement to, and should be read in conjunction with, our
Consolidated Financial Statements and the accompanying notes
thereto contained in Item 8 of this report. The dollar and share infor-
mation in the charts and tables in the MD&A are in millions, except
per share data.
McCormick is a global leader in flavor. The company manufactures,
markets and distributes spices, seasoning mixes, condiments and
other flavorful products to the entire food industry—retail outlets,
food manufacturers and foodservice businesses. We manage our
business in two operating segments, consumer and industrial, as
described in Item 1 of this report.
Our long-term annual growth objectives are to increase sales 4% to
6%, increase operating income 7% to 9% and increase earnings per
share 9% to 11%. Over time, we expect to grow sales with similar
contributions from: 1) our base business—driven by brand marketing
support, expanded distribution and category growth; 2) product inno-
vation; and 3) acquisitions. We are fueling our investment in growth
with cost savings from our Comprehensive Continuous Improvement
(CCI) program, an ongoing initiative to improve productivity and
reduce costs throughout the organization. In addition to funding
brand marketing support, product innovation and other growth initia-
tives, our CCI program is contributing to higher operating income and
earnings per share.
Our business generates strong cash flow and we have a balanced
use of cash. We are using our cash to fund shareholder dividends,
with annual increases in each of the past 28 years, and to fund capi-
tal expenditures, acquisitions and share repurchases. Each year, we
expect a combination of acquisitions and share repurchases to add
about 2% to earnings per share growth.
We grew net sales 3% in 2013, which was below our long-term
objective of 4% to 6%. While consumer business sales rose 5% as a
result of an acquisition in China, pricing actions, product innovation
and effective brand marketing, sales declined 1% for our industrial
business. Lower demand from quick service restaurants in the U.S.
and China more than offset higher sales in several developed mar-
kets and expansion in emerging markets. Operating income was
$550.5 million in 2013. Excluding special charges of $25.0 million
related to reorganization activities in the Europe, Middle East and
Africa region (EMEA) and a $15.3 million loss on a voluntary pension
settlement, both of which were recorded in the fourth quarter of
2013, adjusted operating income rose to $590.8 million from $578.3
million in 2012. This was an increase of 2% and below our long-term
objective due in part to the lower rate of sales growth and a signifi-
cant increase in retirement benefit expense. These factors also
impacted 2013 diluted earnings per share, which was $2.91. Excluding
the effect of the aforementioned special charges and loss on vol-
untary pension settlement, adjusted diluted earnings per share for
2013 was $3.13, an increase of 3% from $3.04 diluted earnings per
share in 2012.
28
McCormick continues to generate strong cash flow. Net cash pro-
vided by operating activities reached $465.2 million in 2013, an
increase from $455.0 million in 2012. A lower contribution to pen-
sion plans in 2013 was offset in part by an increase in inventory,
largely as a result of strategic purchases and higher material costs.
We continued to have a balanced use of cash for capital expenditures,
acquisitions and the return of cash to shareholders through dividends
and share repurchases. In 2013, that return of cash to our sharehold-
ers was a record $357.3 million.
RESULTS OF OPERATIONS—2013 COMPARED TO 2012
Net sales
Percent growth
2013
2012
$4,123.4
$4,014.2
2.7%
8.6%
Sales for the fiscal year 2013 rose 2.7% from 2012, with growth in
the consumer segment partially offset by a decline in the industrial
segment. Pricing actions, taken in response to increased raw mate-
rial and packaging costs, added 1.5% to sales. The incremental
impact of the WAPC acquisition, completed in mid-2013, accounted
for a 1.5% increase to sales, and increased volume and product mix
in the base business added 0.1% to sales. The impact of foreign
exchange rates was unfavorable in 2013, reducing sales by 0.4%.
In 2014, we expect to grow sales in a 3% to 5% range from 2013
driven by higher volume, pricing and the incremental impact in the
first half of 2014 of the WAPC acquisition.
Gross profit
Gross profit margin
2013
2012
$1,665.8
$1,617.8
40.4%
40.3%
In 2013, gross profit increased 3.0% while gross profit margin rose
10 basis points. We were able to offset the dollar impact of 3% infla-
tion in raw material and packaging costs with our pricing actions and
CCI cost savings. In 2013, CCI cost savings totaled $63 million of
which $48 million lowered cost of goods sold. In 2014, we expect to
improve our gross profit margin by 50 to 100 basis points from 2013
due to CCI cost savings, together with a more favorable business mix.
Selling, general & administrative
expense (SG&A)
Percent of net sales
2013
2012
$1,075.0
26.1%
$1,039.5
25.9%
Selling, general and administrative expenses were $1,075.0 million in
2013 compared to $1,039.5 million in 2012, an increase of $35.5 mil-
lion or 20 basis points as a percentage of net sales. Retirement benefit
expense increased $20.0 million in 2013 largely as a result of a lower
interest rate environment at the November 30, 2012 pension measure-
ment date which negatively impacted 2013 expense. Of the increase
in retirement benefit expense, approximately 60% impacted selling,
general and administrative expenses. In addition, we increased our
brand marketing support by $9.6 million to $207.8 million in 2013, with
about half of the increase in digital marketing, which is one of our
highest return investments in brand marketing support.
Special charges
Loss on voluntary pension settlement
2013
$25.0
15.3
In 2013, we announced several reorganization activities in the EMEA
region. We expect to record approximately $27 million of cash and
non-cash charges related to the plan. For 2013, we recorded $25.0
million of special charges, with $15.9 million related to employee
severance, $6.4 million for asset write-downs and $2.7 million for
other exit costs. We expect to record approximately $2 million of
additional special charges related to this plan in 2014. Total cash
expenditures to implement the plan are expected to occur in 2014
and are estimated to be approximately $18 million. We expect to
complete the implementation of this plan by 2015. See note 3 of
the financial statements for additional information.
In addition to the $25.0 million in special charges outlined above,
we recorded a loss on voluntary pension settlement of $15.3 million
in 2013 for a settlement of a portion of our U.S. defined benefit obli-
gation, which reduced the size of our pension obligation and should
reduce potential pension volatility in the future. The settlement
charge relates to a lump sum distribution elected by certain former
U.S. employees in exchange for their deferred vested pension plan
benefits. This lump sum payout program was completed in 2013.
See note 9 of the financial statements for additional information.
Interest expense
Other income, net
2013
$53.3
2.2
2012
$54.6
2.4
Interest expense for 2013 was lower than the prior year. Most of this
decrease is due to the impact of lower average debt balances for
2013 compared to 2012, and was partially aided by slightly lower
average interest rates in 2013. The higher average debt balances in
2012 were due to the acquisitions completed late in 2011.
Income from consolidated operations
before income taxes
Income taxes
Effective tax rate
2013
2012
$499.4
133.6
26.8%
$526.1
139.8
26.6%
Discrete tax benefits in 2013 were $3.9 million compared to $2.0 mil-
lion in 2012. The increase in 2013 is due to the 2013 recognition of a
2012 U.S. research tax credit and reversal of valuation allowances for
two subsidiaries originally established against net operating losses.
A new law was enacted in 2013 that retroactively granted the
research tax credit in 2012.
Tax expense for 2012 benefited from U.S. foreign tax credits that
reduced tax expense by $9.7 million due to the repatriation of $70
million of cash from foreign subsidiaries. While no such benefit or
repatriation occurred in 2013, tax expense in 2013 as a percentage
of pre-tax income approximated the 2012 level due primarily to
certain favorable items in 2013, which included the utilization of
non-U.S. operating losses, lower state and local income taxes, and
the inclusion of the U.S. research tax credit for 2013, as well as the
increase in discrete tax benefits described above.
In 2010, the Internal Revenue Service (IRS) commenced an examina-
tion of our U.S. federal income tax return for the 2007 and 2008
tax years. During the course of the examination, we have held discus-
sions with the IRS on certain issues and, in October 2012, we received
proposed adjustments for these tax years. In November 2012, we
deposited $18.8 million with the IRS to stop any potential interest
on these proposed adjustments. We disagree with certain of the
proposed adjustments and in December 2012, we filed a protest to
initiate the IRS administrative appeals process. No further significant
events occurred in 2013. We believe we have established appropriate
tax accruals under US GAAP for these issues.
In addition, see note 11 of the financial statements for a reconciliation
of the U.S. federal statutory tax rate with the effective tax rate.
We expect the tax rate in 2014 to increase from 2013 as a result
of the discontinuation of the R&D tax credit, a tax law change in
France and the expected mix of business across tax jurisdictions. In
addition, we are comparing to the 2013 rate that included $3.9 mil-
lion of discrete tax items.
Income from unconsolidated operations
2013
$23.2
2012
$21.5
Income from unconsolidated operations increased $1.7 million in 2013
compared to 2012. Most of this increase is attributable to our largest
joint venture, McCormick de Mexico, through strong sales growth,
along with improved performance by our Eastern Condiments joint
venture in India.
In 2013, our McCormick de Mexico joint venture represented 63% of
the sales and 78% of the net income of our unconsolidated joint ven-
tures. We own 50% of our unconsolidated joint ventures, except for a
26% share in our Eastern Condiments joint venture.
We reported diluted earnings per share of $2.91 in 2013, compared to
$3.04 in 2012. The following table outlines the major components of
the change in diluted earnings per share from 2012 to 2013:
2012 Earnings per share—diluted
Impact of special charges and loss on voluntary
pension settlement
Increase in adjusted operating income
Impact of lower shares outstanding
Increase in income from unconsolidated operations
Increase in effective income tax rate
Lower interest expense
2013 Earnings per share—diluted
$ 3.04
(0.22)
0.06
0.02
0.01
(0.01)
0.01
$ 2.91
We measure segment performance based on operating income
excluding special charges and the loss on a voluntary pension
settlement as these activities are managed separately from the
business segments.
Consumer Business
Net sales
Percent growth
Operating income, excluding special charges
and loss on voluntary pension settlement
Operating income margin, excluding
special charges and loss on voluntary
pension settlement
2013
2012
$2,538.0
$2,415.3
5.1%
9.8%
472.3
456.1
18.6%
18.9%
We grew sales in the consumer business 5.1% in 2013 from 2012,
which included a 2.5% increase due to the mid-2013 acquisition
of WAPC, a 1.7% increase due to higher price, and a 1.0% increase
from higher volumes and improved product mix. The effect of foreign
exchange rates in 2013 from 2012 was slightly unfavorable, reducing
sales by 0.1%.
McCormick & Company 2013 Annual Report 29
Industrial Business
Net sales
Percent (decrease) growth
Operating income, excluding special charges
and loss on voluntary pension settlement
Operating income margin, excluding
special charges and loss on voluntary
pension settlement
2013
2012
$1,585.4
$1,598.9
(0.8)%
6.8%
118.5
122.2
7.5%
7.6%
Sales for the industrial business declined 0.8% in 2013. Pricing
actions taken to offset the impact of higher material costs added
1.2%, while volume and product mix lowered sales by 1.2% and
unfavorable foreign exchange rates decreased sales 0.8%. The
decline in volume and product mix was largely attributable to weak
demand from quick service restaurants in the U.S. and China. In
the U.S., sales to quick service restaurants were impacted by lower
restaurant traffic and customer emphasis on menu items for which
McCormick is not a leading supplier. In China, consumer concerns,
including avian flu, led to reduced demand for poultry throughout
most of 2013. As a leading supplier of coatings and seasonings for
chicken, this adversely impacted our sales in 2013.
In the Americas, industrial business sales declined 1.7%. While pric-
ing added 1.2% to sales and favorable foreign currency exchange
rates added 0.1%, lower volume and product mix reduced sales
3.0%. Innovation and category growth drove increased sales of sea-
sonings for snack products and sales of branded foodservice items
were steady in 2013. However, as indicated, demand from quick ser-
vice restaurants was weak in the U.S. this period. This weakness is
expected to extend into the first part of 2014.
In EMEA, industrial business sales rose 1.4%, with a 3.9% increase
in volume and product mix as well as a 2.0% increase from pricing
actions. These increases were partially offset by unfavorable foreign
exchange rates that reduced sales by 4.5%. Demand from quick
service restaurants remained robust, and we met this demand with
products that we supply from our facilities in the U.K., Turkey and
South Africa.
Industrial business sales in the Asia/Pacific region rose slightly,
increasing by 0.2%. Higher volume and product mix added 0.6% and
was largely offset by lower pricing of 0.1% and unfavorable foreign
exchange rates of 0.3%. Product innovation in other parts of the
region largely offset the weaker demand from quick service restau-
rants in China that was described above. By year-end, the situation
in China had improved and further improvement is expected in 2014.
Industrial business operating income, excluding special charges and
loss on voluntary pension settlement, was $118.5 million compared
to $122.2 million in 2012. The benefit of CCI cost savings was more
than offset by higher retirement benefit expense, increased material
costs and a $2.7 million increase in marketing support for branded
foodservice items. Industrial business operating income margin,
excluding the impact of special charges and loss on voluntary pension
settlement, was 7.5% in 2013 compared to 7.6% in 2012.
In the Americas, consumer business sales rose 2.4%, with volume
and product mix adding 1.7%, higher pricing adding 0.9% and unfa-
vorable foreign exchange rates lowering sales by 0.2%. Higher vol-
ume and product mix was the result of new product introductions
and increased brand marketing. In 2013, our new product launches
included grilling items, premium recipe mixes, authentic Hispanic
rice mixes and new varieties of Lawry’s, Zatarain’s and Simply Asia
brand products in the U.S. In Canada, we had particular success with
gluten-free gravy mixes, introduced new grilling items and imported
products from our business in China and affiliate in the Philippines.
Across the Americas region, a portion of our incremental brand mar-
keting support was in support of our new products and seasonal
events. We also increased our digital marketing activity, which
offers a more personalized way to interact with consumers. While
we made good progress with these growth initiatives, which con-
tributed to strong consumer demand for spices and seasonings
throughout 2013, our U.S. sales slowed in the second half of the
year. During this period, private label and smaller competitors gained
category share. In 2014, we have actions underway to regain
momentum with this part of our business that include a significant
increase in brand marketing support, accelerated innovation and
improved agility in the marketplace.
In EMEA, consumer business sales increased 3.3%, with pricing and
favorable foreign currency exchange rates each adding 1.3%, and
higher volume and product mix adding 0.7%. While we had success
with new product introductions, increased brand marketing and dis-
tribution gains, economic conditions across the region remained
challenging. Our innovation in 2013 included the development and
introduction of recipe mixes in France and Poland, the launch of grill-
ing items in a number of markets, and new varieties of Vahiné brand
dessert items. As in the Americas, higher brand marketing support
was devoted to building awareness and trial of new products and
towards digital marketing.
In the Asia/Pacific region, sales rose 32.6%. The impact of our 2013
acquisition of WAPC added 30.6% to net sales, pricing added 10.0%,
base business volume and product mix declined 4.7% and unfavor-
able foreign currency exchange rates lowered sales by 3.3%. We
achieved a double-digit increase in our base business volume and
product mix in China. However, crop shortages of basmati rice led
to a steep increase in cost and pricing of basmati rice in India during
2013, and a subsequent decline in our sales volume as consumers
turned toward lower cost rice varieties.
Consumer business operating income, excluding special charges and
loss on voluntary pension settlement, rose to $472.3 million from
$456.1 million in 2012, a 3.6% increase. The growth in operating
income was the result of higher sales and CCI savings, offset, in
part, by higher retirement benefit expense, a $6.9 million increase
in brand marketing support, $4.3 million of transaction costs related
to the acquisition of WAPC and higher material costs. Operating
income margin, excluding the impact of special charges and loss
on voluntary pension settlement, was 18.6% in 2013 compared to
18.9% in 2012. This reduction was due, in part, to the mix of busi-
ness across regions, as sales in international markets grew at a
faster rate than in the U.S., where our profit margin is higher due
to larger scale and less complexity.
30
RESULTS OF OPERATIONS—2012 COMPARED TO 2011
Net sales
Percent growth
2012
2011
$4,014.2
$3,697.6
8.6%
10.8%
Income from consolidated operations
before income taxes
Income taxes
Effective tax rate
2012
2011
$526.1
139.8
26.6%
$491.4
142.6
29.0%
Sales for the fiscal year rose 8.6% from 2011 with strong growth
in both of our consumer and industrial businesses. Pricing actions,
taken in response to increased raw material and packaging costs,
added 4.4% to sales. The incremental impact of acquisitions com-
pleted in 2011 accounted for a 4.3% increase to sales, and increased
volume and product mix in the base business added 1.4% to sales.
The impact of foreign exchange rates was unfavorable in 2012,
reducing sales 1.5%.
Gross profit
Gross profit margin
2012
2011
$1,617.8
$1,522.5
40.3%
41.2%
In 2012, gross profit increased 6.3%, however, our gross profit
margin declined 90 basis points. In 2012, we were able to offset
the dollar impact of a high single digit increase in raw material and
packaging costs with our pricing actions and CCI cost savings. In
2012, CCI cost savings totaled $56 million of which $39 million low-
ered cost of goods sold. While pricing and CCI cost savings offset
the dollar impact of increased material costs, the net impact of
these factors caused downward pressure on gross profit as a per-
centage of net sales. Margins were further pressured by our mix of
sales in 2012, as sales in international markets grew at a faster rate
than in the U.S., where our gross profit margin is higher due to larger
scale and less complexity.
Selling, general & administrative
expense (SG&A)
Percent of net sales
2012
2011
$1,039.5
25.9%
$982.2
26.6%
Selling, general and administrative expenses increased 5.8% in 2012
from 2011, but decreased as a percentage of net sales for those same
time periods. The decrease in SG&A as a percent of net sales was
primarily driven by a leveraging effect of our higher sales on these
costs. We had a benefit from CCI cost savings that lowered SG&A
$17 million in 2012 and a favorable comparison to 2011 when SG&A
included $10.9 million of transaction costs related to completed
acquisitions, while 2012 had only $1.7 million of such costs.
During 2012, we increased brand marketing support by $11.0
million from 2011 levels to $198.3 million. A large portion of this
increase was in digital marketing, which is one of our highest return
investments in brand marketing support.
Interest expense
Other income, net
2012
$54.6
2.4
2011
$51.2
2.3
Interest expense for 2012 was higher than the prior year. The impact
of higher average debt balances in 2012 compared to 2011 was par-
tially offset by the impact of lower interest rates for 2012 compared
to 2011. The higher average debt balances in 2012 were due to the
acquisitions completed late in 2011.
In 2012, we repatriated $70.0 million of cash from foreign subsidiaries.
This transaction generated U.S. foreign tax credits due to the mix
of foreign earnings that related to this cash. These U.S. foreign tax
credits reduced 2012 tax expense by $9.7 million and were the major
driving factor in a reduction in the tax rate for 2012 as compared to
the prior year.
Discrete tax benefits in 2012 were $2.0 million compared to $0.8
million in 2011. The increase in 2012 is mainly due to the reversal
of a portion of a valuation allowance originally established against
a subsidiary’s net operating losses. This subsidiary has established a
pattern of profitability which resulted in us concluding that a portion
of the valuation allowance should be reversed.
In addition, see note 11 of the financial statements for a reconciliation
of the U.S. federal statutory tax rate with the effective tax rate.
Income from unconsolidated operations
2012
$21.5
2011
$25.4
Income from unconsolidated operations decreased $3.9 million in
2012 compared to 2011. Most of this decrease is attributable to our
largest joint venture, McCormick de Mexico, which was negatively
impacted by an unfavorable foreign exchange rate between the
Mexican peso and the U.S. dollar for most of 2012. While this busi-
ness grew sales 6%, profits were also pressured by higher soybean
oil cost (a main ingredient for mayonnaise which is the leading prod-
uct for this joint venture). This situation began in the fourth quarter
of 2011, and by the fourth quarter of 2012 the year-on-year impact
had eased.
In 2012, our McCormick de Mexico joint venture represented 59% of
the sales and 82% of the net income of our unconsolidated joint ven-
tures. We own a 26% share in our Eastern Condiments joint venture
and on average own 50% of our other unconsolidated joint ventures.
We reported diluted earnings per share of $3.04 in 2012, compared
to $2.79 in 2011. The following table outlines the major components
of the change in diluted earnings per share from 2011 to 2012:
2011 Earnings per share—diluted
Increased operating income
Decrease in effective income tax rate
Decrease in income from unconsolidated operations
Higher interest expense
2012 Earnings per share—diluted
$ 2.79
0.20
0.10
(0.03)
(0.02)
$ 3.04
Consumer Business
Net sales
Percent growth
Operating income
Operating income margin
2012
2011
$2,415.3
$2,199.9
9.8%
456.1
18.9%
10.0%
428.4
19.5%
McCormick & Company 2013 Annual Report 31
We grew consumer business sales 9.8% in 2012 when compared to
2011, which included a 7.2% increase from acquisitions completed
in 2011. The remaining increase was driven by higher pricing which
added 3.7% and volume and product mix which added 0.3%.
Unfavorable foreign exchange rates reduced sales by 1.4%.
In the Americas, consumer business sales rose 4.0%, primarily as a
result of pricing actions which added 4.5%. These pricing actions,
taken in response to an increase in material costs, went into effect
late in fiscal year 2011. Our 2011 acquisition of Kitchen Basics®
added 0.8% to sales, volume and product mix reduced sales by 1.1%
and foreign exchange rates reduced sales by 0.2%. While higher
prices had an unfavorable impact on volume and product mix, we
offset this in part with our initiatives to drive growth through new
product introductions and brand marketing. In 2012, our new product
launches included a line of gourmet recipe mixes, authentic Hispanic
recipe mixes, Zatarain’s frozen Dinners for Two, new varieties of Grill
Mates®, and in Canada, Club House brand grinders. A portion of our
incremental brand marketing support was in support of our new
products. We also increased our digital marketing activity, which
offers a more personal way to interact with consumers. Recipe
views at www.mccormick.com rose 30% in 2012 and our Facebook
fan base grew to 1.5 million. In 2011, we reported that an estimated
$10 million in sales shifted from the first quarter of 2011 into the
fourth quarter of 2010, as a result of customer purchases in advance
of a late 2010 price increase.
In EMEA, consumer business sales increased 15.3%, with our 2011
acquisition of Kamis adding 16.9% to sales. Unfavorable foreign cur-
rency decreased sales 5.7%. In local currency and excluding the
impact of acquisitions, we grew sales 4.1% with 2.9% from volume
and product mix and 1.2% from pricing actions. During 2012, we suc-
cessfully completed the integration of Kamis and sales from this
Poland-based business benefited from particular strength in its sub-
sidiary in Russia. For the base business in EMEA, strong execution
behind product innovation, brand marketing and new distribution
enabled us to achieve growth in a difficult economic environment.
We have moved to a masterbrand approach to gain synergies and
efficiencies in product development and brand marketing support
across our country-specific brands. New products introduced in
2012 included Bag ‘n Season®, Grill Mates, Recipe Inspirations®
and a number of Vahiné brand dessert items.
In the Asia/Pacific region, sales rose 65.3%. The impact of our 2011
Kohinoor joint venture added 53.8% to sales and favorable foreign
exchange rates added 0.4%. We grew sales in local currency,
excluding the impact of Kohinoor, 11.1% with 7.7% from volume and
product mix and 3.4% from pricing. This increase was driven by
China where we achieved rapid sales growth of 23.1% based largely
on increased consumer demand. In our other market, Australia, we
grew sales 2.9% despite a difficult competitive environment, due in
part to new product activity.
Consumer business operating income rose to $456.1 million from
$428.4 million in 2011, a 6.4% increase. The growth in operating
income was the result of higher sales and CCI savings. Also, operat-
ing income in 2011 included the impact of $10.9 million of transac-
tion costs related to the completion of acquisitions that year. In
2012, we invested $13.2 million in additional brand marketing sup-
port. Operating income margin was 18.9% in 2012 compared to
19.5% in 2011. This reduction is due in part to the mix of business
across regions, as sales in international markets grew at a faster
32
rate than in the U.S., where our profit margin is higher due to larger
scale and less complexity.
Industrial Business
Net sales
Percent growth
Operating income
Operating income margin
2012
2011
$1,598.9
$1,497.7
6.8%
122.2
7.6%
11.9%
111.9
7.5%
Sales for the industrial business grew 6.8% from 2011. Pricing actions
taken to offset the impact of higher material costs added 5.3%, while
volume and product mix added 3.1% and unfavorable foreign exchange
rates decreased sales 1.6%. Both food manufacturers and foodser-
vice customers continue to have an interest in products that feature
all natural ingredients, reduced sodium and other healthy attributes.
These types of projects accounted for more than 30% of our product
development activity during 2012.
In the Americas, we grew industrial business sales 8.2%, with 6.4%
from pricing actions and a 2.8% increase from favorable volume and
product mix, partially offset by a decrease of 1.0% from unfavorable
foreign exchange rates. We grew sales of seasonings and flavors to
a number of food manufacturers and also increased sales of branded
items to foodservice distributors. However, for the quick service
restaurant industry, we saw lower demand for our products and
less customer-driven innovation during this period.
In EMEA, industrial business sales rose 5.5%, with a 7.7% increase
in volume and product mix, as well as a 3.6% increase from pricing
actions, partially offset by unfavorable foreign exchange rates that
reduced sales by 5.8%. Demand from quick service restaurants
remained strong, and we met this demand with products that we
supply from our facilities in the U.K., Turkey and South Africa.
Industrial business sales in the Asia/Pacific region rose 1.1%.
Higher pricing added 2.4% and favorable foreign exchange rates
added 1.2%, while volume and product mix declined 2.5%. By com-
parison, volume and product mix for our industrial business in the
Asia/Pacific region rose 10.7% in 2011 and included a significant
impact from new product introductions and regional expansion by
quick service restaurants.
Industrial business operating income increased to $122.2 million in
2012 from $111.9 million in 2011, a 9.2% increase. The growth in
operating income was driven largely by higher sales and cost sav-
ings from CCI. Our industrial business operating income margin in
2012 was 7.6% compared to 7.5% in 2011.
NON-GAAP FINANCIAL MEASURES
The tables below include financial measures of adjusted operating
income, adjusted net income and adjusted diluted earnings per
share, each excluding the impact of special charges and loss on vol-
untary pension settlement in 2013. There were no adjustments to
2012 or 2011 financial results. These represent non-GAAP financial
measures, which are prepared as a complement to our financial
results prepared in accordance with United States generally
accepted accounting principles. We believe this non-GAAP informa-
tion is important for purposes of comparison to prior periods and
development of future projections and earnings growth prospects.
This information is also used by management to measure the
profitability of our ongoing operations and analyze our business
performance and trends.
In 2013 we recorded $25.0 million of special charges related to
reorganization activities in the EMEA region and a $15.3 million loss
on voluntary pension settlement related to a U.S. pension plan set-
tlement charge for a lump sum distribution to former employees in
exchange for their deferred vested pension plan benefits. We are
treating these special charges and loss on voluntary pension settle-
ment as adjustments to our operating income, net income and
diluted earnings per share. We are providing non-GAAP results that
exclude the impact of these special charges and loss on voluntary
pension settlement as it allows for a better comparison of 2013
financial results to 2012 and 2011. See notes 3 and 9 of the finan-
cial statements for additional information on the special charges
and the loss on voluntary pension settlement, respectively.
These non-GAAP measures may be considered in addition to results
prepared in accordance with GAAP, but they should not be consid-
ered a substitute for, or superior to, GAAP results. We intend to
continue to provide these non-GAAP financial measures as part of
our future earnings discussions and, therefore, the inclusion of these
non-GAAP financial measures will provide consistency in our finan-
cial reporting. A reconciliation of these non-GAAP measures to
GAAP financial results is provided below.
Operating income
Impact of special charges and loss
on voluntary pension settlement
2013
2012
2011
$ 550.5
$578.3
$540.3
40.3
—
—
Adjusted operating income
$ 590.8
$578.3
$540.3
% increase versus prior year
2.2%
7.0%
6.0%
Net income
Impact of special charges and loss
on voluntary pension settlement
Adjusted net income
$389.0
$407.8
$374.2
29.2
$418.2
—
—
$407.8
$374.2
% increase versus prior year
2.6%
9.0%
5.0%
Earnings per share—diluted
Impact of special charges and loss
on voluntary pension settlement
$ 2.91
$ 3.04
$ 2.79
0.22
—
—
Adjusted earnings
per share—diluted
$ 3.13
$ 3.04
$ 2.79
% increase versus prior year
3.0%
9.0%
5.3%
In addition to the above non-GAAP measures, we use total debt to
earnings before interest, tax, depreciation and amortization (EBITDA)
as a measure of leverage. EBITDA and the ratio of total debt to
EBITDA are both non-GAAP financial measures. This ratio measures
our ability to repay outstanding debt obligations. Our target for total
debt to EBITDA, excluding the temporary impact from acquisition
activity, is 1.5 to 1.7. We believe that total debt to EBITDA is a mean-
ingful metric to investors in evaluating our financial leverage and may
be different than the method used by other companies to calculate
total debt to EBITDA.
We define adjusted EBITDA as net income plus expenses of interest,
income taxes, depreciation and amortization, special charges and
loss on voluntary pension settlement. The following table reconciles
our adjusted EBITDA to our net income:
Net income
Special charges and loss on
voluntary pension settlement
Depreciation and amortization
Interest expense
Income tax expense
Adjusted EBITDA
Total debt
2013
2012
2011
$ 389.0
$ 407.8
$ 374.2
40.3
106.0
53.3
133.6
—
102.8
54.6
139.8
—
98.3
51.2
142.6
$ 722.2
$ 705.0
$ 666.3
$ 1,233.1
$ 1,171.8
$ 1,252.1
Total debt/Adjusted EBITDA
1.71
1.66
1.88
LIQUIDITY AND FINANCIAL CONDITION
Net cash provided by
operating activities
Net cash used in investing activities
Net cash provided by (used in)
financing activities
2013
2012
2011
$ 465.2
(239.7)
$ 455.0
(109.0)
$ 340.0
(537.5)
(245.9)
(324.3)
187.8
We generate strong cash flow from operations which enables us to
fund operating projects and investments that are designed to meet
our growth objectives, increase our dividend, fund capital projects
and make share repurchases when appropriate. In 2014, we expect
to continue our share repurchase activity and fund all or a portion of
possible future acquisitions.
In the cash flow statement, the changes in operating assets and
liabilities are presented excluding the effects of changes in foreign
currency exchange rates, as these do not reflect actual cash flows.
Accordingly, the amounts in the cash flow statement do not agree
with changes in the operating assets and liabilities that are
presented in the balance sheet.
The reported values of our assets and liabilities held in our non-U.S.
subsidiaries and affiliates can be significantly affected by fluctua-
tions in foreign exchange rates between periods. At November 30,
2013, the exchange rates for the Euro, Polish zloty and British pound
sterling were higher versus the U.S. dollar compared to 2012.
At November 30, 2013, the exchange rate for the Canadian dollar,
Australian dollar and Indian rupee versus the U.S. dollar were lower
than at November 30, 2012.
Operating Cash Flow—Operating cash flow was $465.2 million in
2013, $455.0 million in 2012 and $340.0 million in 2011. The variabil-
ity between years is due in part to changes in pension contributions
which were $42.7 million in 2013, $104.3 million in 2012 and $42.7
million in 2011. The change in inventory also had an impact on the
variability in cash flow from operations, as it was a use of cash in
2013 and 2011 and a source of cash in 2012. Higher net income in
2012 compared to 2011 was also a factor in the increased cash flow
in 2012.
In addition to operating cash flow, we also use cash conversion cycle
(CCC) to measure our working capital management. This metric is
different than operating cash flow in that it uses average balances
instead of specific point in time measures. CCC is a calculation of
McCormick & Company 2013 Annual Report 33
the number of days, on average, that it takes us to convert a cash
outlay for resources, such as raw materials, to a cash inflow from
collection of accounts receivable. Our goal is to lower our CCC
over time. We calculate CCC as follows:
Days sales outstanding (average trade accounts receivable divided
by average daily net sales) plus days in inventory (average inventory
divided by average daily cost of goods sold) less days payable out-
standing (average trade accounts payable divided by average daily
cost of goods sold plus the average daily change in inventory).
The following table outlines our cash conversion cycle (in days) over
the last three years:
Cash Conversion Cycle
2013
2012
2011
84.8
82.1
86.2
The increase in CCC from 2012 to 2013 is due to an increase in our
days sales outstanding and a decrease in our days payable outstand-
ing. The increase in days sales outstanding was due in part to a
greater customer response in 2013 to our U.S. holiday display program,
which includes extended terms. The decrease in CCC from 2011 to
2012 is mainly due to a decrease in our days in inventory as a result
of decreased strategic raw material inventory. In the future we
expect to continue to reduce CCC by decreasing our days in inventory.
Investing Cash Flow—Net cash used in investing activities was
$239.7 million in 2013, $109.0 million in 2012 and $537.5 million in
2011. The variability between years is principally a result of cash
usage related to our acquisitions of businesses and joint venture
interests, which amounted to $142.3 million in 2013 and $441.4
million in 2011. We did not make any acquisitions in 2012. See
note 2 of the financial statements for further details related to
these acquisitions. Capital expenditures were $99.9 million in 2013,
$110.3 million in 2012 and $96.7 million in 2011. We expect 2014
capital expenditures to range between $120 million and $130 million.
Financing Cash Flow—Net cash used in financing activities was
$245.9 million in 2013 and $324.3 million in 2012. In 2011, net cash
provided from financing activities was $187.8 million. The variability
between years is principally a result of share repurchase and dividend
activity, described below, and of changes in our net borrowing activ-
ity. In 2013, our net borrowing activity provided cash of $66.7 million.
We received net cash proceeds of $246.2 million from our issuance of
$250 million of 3.50% notes due 2023. We used these net proceeds,
together with cash on hand, to repay $250 million of maturing 5.25%
notes and $1.4 million of other long-term debt, and we increased our
net short-term borrowings by $71.9 million in 2013. In 2012, our net
borrowing activity used cash of $80.5 million, due principally to a $76.6
million net reduction in short-term borrowings. In 2011, our net bor-
rowing activity provided cash of $367.6 million. In 2011, we received
$247.5 million from our issuance of $250 million of 3.90% notes due
2021. These proceeds were used to partially fund our acquisition of
Kamis. In 2011, we also repaid $101.1 million of long-term debt and
increased our net short-term borrowings by $216.7 million.
The following table outlines the activity in our share repurchase
programs (in millions):
Number of shares of common stock
Dollar amount
2013
2012
2011
2.7
$177.4
2.4
$132.2
1.9
$89.3
34
As of November 30, 2013, $360 million remained of a $400 million
share repurchase program that was authorized by our Board of
Directors in April 2013. During the fourth quarter of 2013, we com-
pleted a previous $400 million share repurchase program that had
been authorized in June 2010.
The common stock issued in 2013, 2012 and 2011 relates to our
stock compensation plans.
Our dividend history over the past three years is as follows:
Total dividends paid
Dividends paid per share
Percentage increase per share
2013
2012
2011
$179.9
1.36
9.7%
$164.7
1.24
10.7%
$148.5
1.12
7.7%
In November 2013, the Board of Directors approved an 8.8%
increase in the quarterly dividend from $0.34 to $0.37 per share.
During the past five years, dividends per share have risen at a com-
pound annual rate of 9.0%.
Total debt/adjusted EBITDA
2013
1.71
2012
1.66
2011
1.88
The changes in our total debt to adjusted EBITDA from 2011 to 2013
are mainly due to changes in our debt in conjunction with acquisi-
tion activity and the subsequent reduction of that debt. In 2011,
we increased our debt levels to help fund our Kohinoor, Kamis and
Kitchen Basics acquisitions. During 2012, the debt associated with
these acquisitions was reduced to bring our total debt to EBITDA
within our target range of 1.5 to 1.7. For 2013, our EBITDA is lower
due to the impact of the special charges and loss on voluntary
pension settlement. Excluding these items, adjusted EBITDA for
2013 was $722.2 million and the ratio of total debt to adjusted
EBITDA was 1.71.
Most of our cash is in our foreign subsidiaries. We manage our
worldwide cash requirements by considering available funds among
the many subsidiaries through which we conduct our business and
the cost effectiveness with which those funds can be accessed. The
permanent repatriation of cash balances from certain of our subsid-
iaries could have adverse tax consequences; however, those bal-
ances are generally available without legal restrictions to fund
ordinary business operations, capital projects and future acquisi-
tions. At year end, we temporarily used $102.3 million of cash from
our foreign subsidiaries to pay down short-term debt in the U.S.
The average short-term borrowings outstanding for the years ended
November 30, 2013 and 2012 were $390.7 million and $417.6 million,
respectively. The total average debt outstanding for the years ended
November 30, 2013 and 2012 was $1,395.7 million and $1,422.6
million, respectively.
In November 2012 and in April and August 2013, we entered into
a total of $175 million of forward-starting interest rate swap and
Treasury rate lock agreements to manage our interest rate risk asso-
ciated with the anticipated issuance of fixed rate notes in August
2013. We cash settled all of these agreements, which were desig-
nated as cash flow hedges, for a gain of $9.0 million simultaneous
with the issuance of the notes at an all-in effective fixed rate of
3.30% on the full $250 million of debt. The gain on these agreements
is deferred in accumulated other comprehensive income and will be
amortized to reduce interest expense over the life of the notes.
Hedge ineffectiveness of these agreements was not material.
See notes 6 and 7 of the financial statements for further details of
these transactions.
Credit and Capital Markets—Global credit and capital markets
continued to improve in 2013. The following summarizes the more
significant impacts of credit and capital markets on our business:
CREDIT FACILITIES—Cash flows from operating activities are our
primary source of liquidity for funding growth, dividends and capital
expenditures. For 2013, 2012 and the first half of 2011, we also used
this cash to make share repurchases. In the second half of 2011, we
used operating cash flow to help fund our 2011 acquisitions of
Kamis, Kohinoor and Kitchen Basics. We also rely on our revolving
credit facility, or borrowings backed by this facility, to fund seasonal
working capital needs and other general corporate requirements.
Our major revolving credit facility has a total committed capacity of
$600 million, which expires in 2016. We generally use this facility to
support our issuance of commercial paper. If the commercial paper
market is not available or viable, we could borrow directly under our
revolving credit facility. The facility is made available by a syndicate
of banks, with various commitments per bank. If any of the banks in
this syndicate are unable to perform on their commitments, our
liquidity could be impacted, which could reduce our ability to grow
through funding of seasonal working capital. In addition to our com-
mitted revolving credit facility, we have uncommitted credit facilities
for $125.4 million as of November 30, 2013. We engage in regular
communication with all of the banks participating in our credit facili-
ties. During these communications, none of the banks have indicated
that they may be unable to perform on their commitments. In addi-
tion, we periodically review our banking and financing relationships,
considering the stability of the institutions and other aspects of the
relationships. Based on these communications and our monitoring
activities, we believe our banks will perform on their commitments.
See also note 6 of the financial statements for more details on our
financing arrangements. We believe that our internally generated
funds and the existing sources of liquidity under our credit facilities
are sufficient to fund ongoing operations.
PENSION ASSETS—We hold investments in equity and debt secu-
280
rities in both our qualified defined benefit pension plans and through
260
a rabbi trust for our nonqualified defined benefit pension plan.
240
Cash payments to pension plans, including unfunded plans, were
220
$42.7 million in 2013, $104.3 million in 2012 and $42.7 million in
200
2011. Our cash contributions in 2012 include a $35 million contribu-
180
tion made late in the fiscal year to bring the pension plan’s funding
160
status within company guidelines. It is expected that the 2014 total
140
pension plan contributions will be approximately $16 million, primar-
120
ily for international plans. Future increases or decreases in pension
100
liabilities and required cash contributions are highly dependent on
80
changes in interest rates and the actual return on plan assets. We
60
base our investment of plan assets, in part, on the duration of each
40
plan’s liabilities. Across all plans, approximately 66% of assets are
invested in equities, 29% in fixed income investments and 5% in
20
other investments. See also note 9 of the financial statements which
0
provides details on our pension funding.
CUSTOMERS AND COUNTERPARTIES—See the subsequent
section of this discussion under Market Risk Sensitivity—Credit Risk.
ACQUISITIONS
Acquisitions are part of our strategy to increase sales and profits.
We have a particular interest in emerging markets.
In 2013, we purchased the assets of Wuhan Asia-Pacific Condiments
Co. Ltd. (WAPC), a privately held company based in China, for $144.8
million, which included $142.3 million of cash paid, net of closing
adjustments, and the assumption of $2.5 million of liabilities. The
acquisition was financed with a combination of cash and debt.
WAPC, included in our consumer business segment, manufactures
and markets DaQiao and ChuShiLe® brand bouillon products, which
have a leading position in the central region of China.
In 2011, we purchased the assets of Kitchen Basics, Inc., based
in the U.S., for $40 million and the shares of Kamis S.A., based in
Poland, for $287 million. Both acquisitions are consumer businesses
and were financed with a combination of cash and debt. We also
completed a joint venture with Kohinoor Foods Ltd. in India, invest-
ing $113 million for an 85% interest in Kohinoor Speciality Foods
India Private Limited. This was financed with a combination of cash
and debt. This joint venture is consolidated and included in our
consumer business segment.
See note 2 of the financial statements for further details of
these acquisitions.
PERFORMANCE GRAPH—SHAREHOLDER RETURN
Below is a line graph comparing the yearly change in McCormick’s
cumulative total shareholder return (stock price appreciation plus
reinvestment of dividends) on McCormick’s Non-Voting Common
Stock with (1) the cumulative total return of the Standard & Poor’s
500 Stock Price Index, assuming reinvestment of dividends, and (2)
the cumulative total return of the Standard & Poor’s Packaged Foods
& Meats Index, assuming reinvestment of dividends.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among McCormick & Co., Inc., the S&P 500 Stock Price Index and
the S&P Packaged Foods & Meats Index
McCormick & Co., Inc.
S&P 500
S&P Packaged Foods & Meats
$280
260
240
220
200
180
160
140
120
100
80
60
40
20
0
11/08
11/09
11/10
11/11
11/12
11/13
*$100 invested on 11/30/08 in stock or index, including reinvestment of dividends.
*$100 invested on 11/30/08 in stock or index, including reinvestment of dividends.
Fiscal year ending November 30.
Fiscal year ending November 30.
Copyright © 2013 S&P, a division of The McGraw-Hill Companies, Inc. All right reserved.
The graph assumes that $100 was invested on November 30, 2007 in McCormick Non-Voting Common Stock,
McCormick & Company 2013 Annual Report 35
the Standard & Poor’s 500 Stock Price Index and the Standard & Poor’s Packaged Foods & Meats Index, and
that all dividends were reinvested through November 30, 2012.
MARKET RISK SENSITIVITY
We utilize derivative financial instruments to enhance our ability to
manage risk, including foreign exchange and interest rate exposures,
which exist as part of our ongoing business operations. We do not
enter into contracts for trading purposes, nor are we 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 informa-
tion presented below should be read in conjunction with notes 6
and 7 of the financial statements.
Foreign Exchange Risk—We are exposed to fluctuations in foreign
currency in the following main areas: cash flows related to raw
material purchases; the translation of foreign currency earnings to
U.S. dollars; the value of foreign currency investments in subsidiar-
ies and unconsolidated affiliates and cash flows related to repatria-
tion of these investments. Primary exposures include the U.S. dollar
versus the Euro, British pound sterling, Canadian dollar, Polish zloty,
Australian dollar, Mexican peso, Chinese renminbi, Indian rupee,
Thai baht, Swiss franc and the British pound sterling versus the
Euro. We routinely enter into foreign currency exchange contracts
to manage certain of these foreign currency risks.
During 2013, the foreign currency translation component in other
comprehensive income was principally related to the impact of
exchange rate fluctuations on our net investments in France, the
U.K., Poland, Canada, Australia and India. We did not hedge our
net investments in subsidiaries and unconsolidated affiliates.
The following table summarizes the foreign currency exchange
contracts held at November 30, 2013. All contracts are valued in
U.S. dollars using year-end 2013 exchange rates and have been
designated as hedges of foreign currency transactional exposures,
firm commitments or anticipated transactions.
FOREIGN CURRENCY EXCHANGE CONTRACTS AT
NOVEMBER 30, 2013
Currency sold
Currency received
U.S. dollar
Euro
British pound sterling U.S. dollar
U.S. dollar
Canadian dollar
U.S. dollar
Australian dollar
U.S. dollar
Polish zloty
Canadian dollar
U.S. dollar
U.S. dollar
Euro
British pound sterling Euro
Notional
value
Average
contractual
exchange rate
$19.8
10.4
31.6
4.3
9.6
62.2
33.9
24.6
1.34
1.58
0.96
0.93
3.23
0.94
1.36
0.85
Fair
value
$(0.3)
(0.3)
0.7
0.1
(0.3)
(0.1)
0.1
(0.5)
We have a number of smaller contracts with an aggregate notional value of $8.5 mil-
lion to purchase or sell other currencies, such as the Swiss franc and the Singapore
dollar, as of November 30, 2013. The aggregate fair value of these contracts was $0.1
million at November 30, 2013.
Included in the table above are $96.1 million notional value of contracts that have
durations of less than seven days that are used to hedge short-term cash flow funding.
Remaining contracts have durations of one to 12 months.
At November 30, 2012, we had foreign currency exchange contracts for the Euro,
British pound sterling, Canadian dollar, Australian dollar and Thai baht with a notional
value of $188.8 million, all of which matured in 2013. The aggregate fair value of these
contracts was $(1.0) million at November 30, 2012.
Interest Rate Risk—Our policy is to manage interest rate risk by entering into both fixed and variable rate debt arrangements. We also use interest
rate swaps to minimize worldwide financing costs and to achieve a desired mix of fixed and variable rate debt. The table that follows provides
principal cash flows and related interest rates, excluding the effect of interest rate swaps and the amortization of any discounts or fees, by fiscal
year of maturity at November 30, 2013 and 2012. For foreign currency-denominated debt, the information is presented in U.S. dollar equivalents.
Variable interest rates are based on the weighted-average rates of the portfolio at the end of the year presented.
YEAR OF MATURITY AT NOVEMBER 30, 2013
Debt
Fixed rate
Average interest rate
Variable rate
Average interest rate
2014
2015
2016
2017
Thereafter
Total
Fair value
$ 1.9
5.59%
$ 212.2
0.73%
$ 200.9
5.21%
$ 0.6
7.90%
$ 0.2
11.94%
$ 0.6
7.90%
$ 250.2
5.76%
$ 0.7
7.90%
$556.3
4.14%
$ 3.8
7.90%
$1,009.5
—
$ 217.9
—
$1,096.2
—
$ 217.9
—
The table above displays the debt by the terms of the original debt instrument without consideration of fair value, interest rate swaps and any loan discounts or origination fees. Interest
rate swaps have the following effects. The fixed interest rate on $100 million of the 5.20% notes due in 2015 is effectively converted to a variable rate by interest rate swaps through
2015. Net interest payments are based on 3 month LIBOR minus 0.05% during this period. We issued $250 million of 5.75% notes due in 2017 in December 2007. Forward treasury lock
agreements of $150 million were settled upon the issuance of these notes and effectively fixed the interest rate on the full $250 million of notes at a weighted-average fixed rate of 6.25%.
We issued $250 million of 3.90% notes due in 2021 in July 2011. Forward treasury lock agreements of $200 million were settled upon the issuance of these notes and effectively fixed
the interest rate on the full $250 million of notes at a weighted-average fixed rate of 4.01%. We issued $250 million of 3.50% notes due in 2023 in August 2013. Forward treasury lock
agreements of $175 million were settled upon the issuance of these notes and effectively fixed the interest rate on the full $250 million of notes at a weighted-average fixed rate of 3.30%.
Commodity Risk—We purchase certain raw materials which are subject to price volatility caused by weather, market conditions, growing and
harvesting conditions, governmental actions and other factors beyond our control. In 2013, our most significant raw materials were pepper, dairy
products, rice, capsicums (red peppers and paprika), onion, garlic and soybean oil. While future movements of raw material costs are uncertain,
we respond to this volatility in a number of ways, including strategic raw material purchases, purchases of raw material for future delivery and
customer price adjustments. We generally have not used derivatives to manage the volatility related to this risk. To the extent that we have used
derivatives for this purpose, it has not been material to our business.
36
Credit Risk—The customers of our consumer business are predominantly food retailers and food wholesalers. Consolidations in these industries
have created larger customers. In addition, competition has increased with the growth in alternative channels including mass merchandisers, dollar
stores, warehouse clubs and discount chains. This has caused some customers to be less profitable and increased our exposure to credit risk. Some
of our customers and counterparties are highly leveraged. We continue to closely monitor the credit worthiness of our customers and counterparties.
We feel that the allowance for doubtful accounts properly recognizes trade receivables at realizable value. We consider nonperformance credit
risk for other financial instruments to be insignificant.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table reflects a summary of our contractual obligations and commercial commitments as of November 30, 2013:
CONTRACTUAL CASH OBLIGATIONS DUE BY YEAR
Short-term borrowings
Long-term debt
Operating leases
Interest payments
Raw material purchase obligations (a)
Other purchase obligations (b)
Total contractual cash obligations
Total
$ 211.6
1,015.8
86.2
295.9
343.6
19.8
$1,972.9
Less than
1 year
$211.6
2.5
23.6
43.8
343.6
16.7
$641.8
1–3
years
—
$202.3
34.2
83.5
—
3.1
$323.1
3–5
years
—
$251.9
19.5
67.9
—
—
$339.3
More than
5 years
—
$559.1
8.9
100.7
—
—
$668.7
(a) Raw material purchase obligations outstanding as of year-end may not be indicative of outstanding obligations throughout the year due to our response to varying raw
material cycles.
(b) Other purchase obligations primarily consist of advertising media commitments and electricity contracts.
Pension and postretirement funding can vary significantly each year due to changes in legislation, our significant assumptions and investment
return on plan assets. As a result, we have not presented pension and postretirement funding in the table above.
COMMERCIAL COMMITMENTS EXPIRATION BY YEAR
Guarantees
Standby and trade letters of credit
Total commercial commitments
Total
$ 0.6
61.9
$ 62.5
Less than
1 year
$ 0.6
61.9
$62.5
1–3
years
—
—
—
3–5
years
—
—
—
More than
5 years
—
—
—
OFF-BALANCE SHEET ARRANGEMENTS
We had no off-balance sheet arrangements as of November 30, 2013 and 2012.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
New accounting pronouncements are issued periodically that affect our current and future operations. See note 1 of the financial statements for
further details of these impacts.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
In preparing the financial statements, we are required to make estimates and assumptions that have an impact on the assets, liabilities, revenue
and expense amounts reported. These estimates can also affect supplemental information disclosed by us, including information about contingen-
cies, risk and financial condition. We believe, given current facts and circumstances, our estimates and assumptions are reasonable, adhere to U.S.
GAAP and are consistently applied. Inherent in the nature of an estimate or assumption is the fact that actual results may differ from estimates,
and estimates may vary as new facts and circumstances arise. In preparing the financial statements, we make routine estimates and judgments in
determining the net realizable value of accounts receivable, inventory, fixed assets and prepaid allowances. Our most critical accounting estimates
and assumptions are in the following areas:
Customer Contracts
In several of our major geographic markets, the consumer business sells our products by entering into annual or multi-year customer contracts.
These contracts include provisions for items such as sales discounts, marketing allowances and performance incentives. These items are
expensed based on certain estimated criteria such as sales volume of indirect customers, customers reaching anticipated volume thresholds
and marketing spending. We routinely review these criteria and make adjustments as facts and circumstances change.
McCormick & Company 2013 Annual Report 37
Income Taxes
We estimate income taxes and file tax returns in each of the taxing
jurisdictions in which we operate and are required to file a tax
return. At the end of each year, an estimate for income taxes is
recorded in the financial statements. Tax returns are generally filed
in the third or fourth quarter of the subsequent year. A reconciliation
of the estimate to the final tax return is done at that time which will
result in changes to the original estimate. We believe that our tax
return positions are fully supported, but tax authorities may chal-
lenge certain positions. We evaluate our uncertain tax positions in
accordance with the U.S. GAAP guidance for uncertainty in income
taxes. We believe that our reserve for uncertain tax positions,
including related interest, is adequate. The amounts ultimately paid
upon resolution of audits could be materially different from the
amounts previously included in our income tax expense and, there-
fore, could have a material impact on our tax provision, net income
and cash flows. Management has recorded valuation allowances to
reduce our deferred tax assets to the amount that is more likely than
not to be realized. In doing so, management has considered future
taxable income and tax planning strategies in assessing the need for
a valuation allowance. Both future taxable income and tax planning
strategies include a number of estimates.
Pension and Postretirement Benefits
Pension and other postretirement plans’ costs require the use of
assumptions for discount rates, investment returns, projected salary
increases, mortality rates and health care cost trend rates. The actu-
arial assumptions used in our pension and postretirement benefit
reporting are reviewed annually and compared with external bench-
marks to ensure that they appropriately account for our future pen-
sion and postretirement benefit obligations. While we believe that
the assumptions used are appropriate, differences between assumed
and actual experience may affect our operating results. A 1%
increase or decrease in the actuarial assumption for the discount rate
would impact 2014 pension and postretirement benefit expense by
approximately $15 million. A 1% increase or decrease in the expected
return on plan assets would impact 2014 pension expense by approxi-
mately $8 million. In addition, see the preceding sections of MD&A
and note 9 of the financial statements for a discussion of these
assumptions and the effects on the financial statements.
Stock-Based Compensation
We estimate the fair value of our stock-based compensation using
fair value pricing models which require the use of significant assump-
tions for expected volatility of stock, dividend yield and risk-free
interest rate. Our valuation methodology and significant assumptions
used are disclosed in note 10 of the financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
This information is set forth in the “Market Risk Sensitivity” section
of “Management’s Discussion and Analysis” and in note 7 of the
financial statements.
Goodwill and Intangible Asset Valuation
We review the carrying value of goodwill and non-amortizable
intangible assets and conduct tests of impairment on an annual
basis as described below. We also test for impairment if events or
circumstances indicate it is more likely than not that the fair value
of a reporting unit is below its carrying amount. We test indefinite-
lived intangible assets for impairment if events or changes in
circumstances indicate that the asset might be impaired.
Determining the fair value of a reporting unit or an indefinite-lived
purchased intangible asset is judgmental in nature and involves the
use of significant estimates and assumptions. These estimates and
assumptions include revenue growth rates and operating margins
used to calculate projected future cash flows, risk-adjusted discount
rates, assumed royalty rates, future economic and market conditions
and determination of appropriate market comparables. We base our
fair value estimates on assumptions we believe to be reasonable but
that are inherently uncertain. Actual future results may differ from
those estimates.
Goodwill Impairment
Our reporting units are the same as our operating segments. We cal-
culate fair value of a reporting unit by using a discounted cash flow
model. Our discounted cash flow model calculates fair value by pres-
ent valuing future expected cash flows of our reporting units using
our internal cost of capital as the discount rate. We then compare
this fair value to the carrying amount of the reporting unit, including
intangible assets and goodwill. If the carrying amount of the report-
ing unit exceeds the calculated fair value, then we would determine
the implied fair value of the reporting unit’s goodwill. An impairment
charge would be recognized to the extent the carrying amount of
goodwill exceeds the implied fair value. As of November 30, 2013,
we had $1,798.5 million of goodwill recorded in our balance sheet
($1,654.7 million in the consumer segment and $143.8 million in the
industrial segment). Our testing indicates that the current fair values
of our reporting units are significantly in excess of carrying values.
Accordingly we believe that only significant changes in the cash
flow assumptions would result in an impairment of goodwill.
Indefinite-lived Intangible Asset Impairment
Our indefinite-lived intangible assets consist of brand names and
trademarks. We calculate fair value by using a discounted cash flow
model or relief-from-royalty method and then compare that to the
carrying amount of the indefinite-lived intangible asset. As of
November 30, 2013, we had $269.7 million of brand name assets
and trademarks recorded in our balance sheet and none of the bal-
ances exceed their estimated fair values. We intend to continue to
support our brand names.
Below is a table which outlines the book value of our major brand
names and trademarks as of November 30, 2013:
Zatarain’s
Lawry’s
Kamis
Wuhan
Kohinoor
Simply Asia/Thai Kitchen
Other
Total
38
$106.4
48.0
40.8
23.0
18.7
18.8
14.0
$269.7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF MANAGEMENT
We are responsible for the preparation and integrity of the consoli-
dated financial statements appearing in our Annual Report. The con-
solidated financial statements were prepared in conformity with
United States generally accepted accounting principles and include
amounts based on our estimates and judgments. All other financial
information in this report has been presented on a basis consistent
with the information included in the financial statements.
The Audit Committee of the Board of Directors, which is composed
solely of independent directors, meets periodically with members
of management, the internal auditors and the independent auditors
to review and discuss internal control over financial reporting and
accounting and financial reporting matters. The independent auditors
and internal auditors report to the Audit Committee and accordingly
have full and free access to the Audit Committee at any time.
We are also responsible for establishing and maintaining adequate
internal control over financial reporting. We maintain a system of
internal control that is designed to provide reasonable assurance
as to the fair and reliable preparation and presentation of the con-
solidated financial statements, as well as to safeguard assets from
unauthorized use or disposition.
Our control environment is the foundation for our system of internal
control over financial reporting and is embodied in our Business
Ethics Policy. It sets the tone of our organization and includes factors
such as integrity and ethical values. Our internal control over finan-
cial reporting is supported by formal policies and procedures which
are reviewed, modified and improved as changes occur in business
conditions and operations.
We conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in Internal
Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (1992 frame-
work). This evaluation included review of the documentation of con-
trols, evaluation of the design effectiveness of controls, testing of
the operating effectiveness of controls and a conclusion on this
evaluation. Although there are inherent limitations in the effective-
ness of any system of internal control over financial reporting, based
on our evaluation, we have concluded with reasonable assurance
that our internal control over financial reporting was effective as
of November 30, 2013.
Our internal control over financial reporting as of November 30,
2013 has been audited by Ernst & Young LLP.
Alan D. Wilson
Chairman, President &
Chief Executive Officer
Gordon M. Stetz, Jr.
Executive Vice President &
Chief Financial Officer
Christina M. McMullen
Vice President & Controller
Chief Accounting Officer
McCormick & Company 2013 Annual Report 39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Internal Control Over Financial Reporting
The Board of Directors and Shareholders of
McCormick & Company, Incorporated
We have audited McCormick & Company, Incorporated’s internal
control over financial reporting as of November 30, 2013, based on
criteria established in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (1992 framework) (the COSO criteria). McCormick &
Company, Incorporated’s management is responsible for maintaining
effective internal control over financial reporting, and for its assess-
ment of the effectiveness of internal control over financial reporting
included in the accompanying Report of Management. Our responsi-
bility is to express an opinion on the company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain rea-
sonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and performing such other pro-
cedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted account-
ing principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding pre-
vention or timely detection of unauthorized acquisition, use or dispo-
sition of the company’s assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, McCormick & Company, Incorporated maintained, in all
material respects, effective internal control over financial reporting
as of November 30, 2013 based on the COSO criteria.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consoli-
dated balance sheets of McCormick & Company, Incorporated as of
November 30, 2013 and 2012 and the related consolidated income
statements, statements of comprehensive income, statements of
shareholders’ equity and cash flow statements for each of the three
years in the period ended November 30, 2013, and our report dated
January 29, 2014 expressed an unqualified opinion thereon.
Baltimore, Maryland
January 29, 2014
40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Consolidated Financial Statements
The Board of Directors and Shareholders of
McCormick & Company, Incorporated
We have audited the accompanying consolidated balance sheets of
McCormick & Company, Incorporated as of November 30, 2013 and
2012, and the related consolidated income statements, statements
of comprehensive income, statements of shareholders’ equity, and
cash flow statements for each of the three years in the period
ended November 30, 2013. Our audits also included the financial
statement schedule listed in the Index at Item 15. These financial
statements and schedule are the responsibility of the company’s
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain rea-
sonable 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 finan-
cial statements. An audit also includes assessing the accounting prin-
ciples 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.
Baltimore, Maryland
January 29, 2014
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
McCormick & Company, Incorporated at November 30, 2013 and
2012, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended November 30,
2013, in conformity with U.S. generally accepted accounting princi-
ples. Also, in our opinion, the related financial statement schedule,
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 have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
McCormick & Company, Incorporated’s internal control over finan-
cial reporting as of November 30, 2013, based on criteria estab-
lished in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (1992 framework) and our report dated January 29,
2014 expressed an unqualified opinion thereon.
McCormick & Company 2013 Annual Report 41
CONSOLIDATED INCOME STATEMENT
for the year ended November 30 (millions except per share data)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expense
Special charges
Loss on voluntary pension settlement
Operating income
Interest expense
Other income, net
Income from consolidated operations before income taxes
Income taxes
Net income from consolidated operations
Income from unconsolidated operations
Net income
Earnings per share—basic
Earnings per share—diluted
See Notes to Consolidated Financial Statements.
2013
$ 4,123.4
2,457.6
1,665.8
1,075.0
25.0
15.3
550.5
53.3
2.2
499.4
133.6
365.8
23.2
$ 389.0
$
$
2.94
2.91
2012
$ 4,014.2
2,396.4
1,617.8
1,039.5
—
—
578.3
54.6
2.4
526.1
139.8
386.3
21.5
$ 407.8
$
$
3.07
3.04
2011
$ 3,697.6
2,175.1
1,522.5
982.2
—
—
540.3
51.2
2.3
491.4
142.6
348.8
25.4
$ 374.2
$
$
2.82
2.79
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended November 30 (millions)
Net income
Net income attributable to non-controlling interest
Other comprehensive income (loss):
Unrealized components of pension and other postretirement plans
Currency translation adjustments
Change in derivative financial instruments
Deferred taxes
Comprehensive income
See Notes to Consolidated Financial Statements.
2013
$ 389.0
1.3
235.6
(3.5)
11.8
(87.1)
2012
$ 407.8
1.9
(126.9)
(15.5)
(2.4)
43.0
2011
$ 374.2
0.8
(81.0)
(8.2)
3.8
25.8
$ 547.1
$ 307.9
$ 315.4
42
CONSOLIDATED BALANCE SHEET
at November 30 (millions)
Assets
Cash and cash equivalents
Trade accounts receivable, less allowances of $4.1 for 2013 and $4.0 for 2012
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Investments and other assets
Total assets
Liabilities
Short-term borrowings
Current portion of long-term debt
Trade accounts payable
Other accrued liabilities
Total current liabilities
Long-term debt
Other long-term liabilities
Total liabilities
Shareholders’ equity
Common stock, no par value; authorized 320.0 shares; issued and outstanding:
2013—12.1 shares, 2012—12.4 shares
Common stock non-voting, no par value; authorized 320.0 shares; issued and outstanding:
2013—119.0 shares, 2012—120.1 shares
Retained earnings
Accumulated other comprehensive loss
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
See Notes to Consolidated Financial Statements.
2013
2012
$
63.0
495.5
676.9
134.8
1,370.2
576.6
1,798.5
333.4
371.0
$
79.0
465.9
615.0
125.5
1,285.4
547.3
1,695.3
323.5
313.9
$ 4,449.7
$ 4,165.4
$ 211.6
2.5
387.3
461.7
1,063.1
1,019.0
419.9
2,502.0
352.8
609.6
970.4
(0.3)
15.2
1,947.7
$ 4,449.7
$ 140.3
252.3
375.8
419.2
1,187.6
779.2
498.4
2,465.2
332.6
575.6
934.6
(159.9)
17.3
1,700.2
$ 4,165.4
McCormick & Company 2013 Annual Report 43
CONSOLIDATED CASH FLOW STATEMENT
for the year ended November 30 (millions)
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Stock-based compensation
Special charges
Loss on voluntary pension settlement
Loss on sale of assets
Deferred income taxes
Income from unconsolidated operations
Changes in operating assets and liabilities:
Trade accounts receivable
Inventories
Trade accounts payable
Other assets and liabilities
Dividends received from unconsolidated affiliates
Net cash provided by operating activities
Investing activities
Acquisitions of businesses and joint venture interests
Capital expenditures
Proceeds from sale of property, plant and equipment
Net cash used in investing activities
Financing activities
Short-term borrowings, net
Long-term debt borrowings
Long-term debt repayments
Proceeds from exercised stock options
Common stock acquired by purchase
Dividends paid
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
See Notes to Consolidated Financial Statements.
2013
2012
2011
$ 389.0
$ 407.8
$ 374.2
106.0
18.7
25.0
15.3
0.3
(15.3)
(23.2)
(29.2)
(59.9)
12.1
21.8
4.6
465.2
(142.3)
(99.9)
2.5
(239.7)
71.9
246.2
(251.4)
44.7
(177.4)
(179.9)
(245.9)
4.4
(16.0)
79.0
102.8
20.2
—
—
0.8
24.3
(21.5)
(38.8)
1.2
8.2
(65.6)
15.6
455.0
—
(110.3)
1.3
(109.0)
(76.6)
0.8
(4.7)
53.1
(132.2)
(164.7)
(324.3)
3.4
25.1
53.9
98.3
13.0
—
—
0.8
38.0
(25.4)
(8.6)
(111.3)
49.3
(104.5)
16.2
340.0
(441.4)
(96.7)
0.6
(537.5)
216.7
252.0
(101.1)
58.0
(89.3)
(148.5)
187.8
12.8
3.1
50.8
$ 63.0
$ 79.0
$ 53.9
44
$ 1,462.7
374.2
0.8
(59.6)
11.9
(152.5)
(0.6)
13.0
(96.4)
65.0
—
$ 1,618.5
407.8
1.9
(101.8)
(168.4)
(0.5)
20.2
(169.1)
91.6
—
$ 1,700.2
389.0
1.3
156.8
(183.3)
(0.6)
18.7
(189.4)
55.0
—
Accumulated
Other
Comprehensive
(Loss) Income
Non-controlling
Interests
Total
Shareholders’
Equity
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(millions)
Balance, November 30, 2010
Net income
Net income attributable to non-controlling interest
Other comprehensive loss, net of tax
Non-controlling interest of acquired business
Dividends
Dividends attributable to non-controlling interest
Stock-based compensation
Shares purchased and retired
Shares issued, including tax benefit of $12.5
Equal exchange
Balance, November 30, 2011
Net income
Net income attributable to non-controlling interest
Other comprehensive loss, net of tax
Dividends
Dividends attributable to non-controlling interest
Stock-based compensation
Shares purchased and retired
Shares issued, including tax benefit of $13.3
Equal exchange
Common
Stock
Shares
Common
Stock
Non-Voting
Shares
Common
Stock
Amount
12.5
120.6
$ 756.5
(0.3)
1.4
(1.2)
(1.8)
0.5
1.2
13.0
(12.6)
65.0
12.4
120.5
$ 821.9
(0.6)
2.0
(1.4)
(2.4)
0.6
1.4
20.2
(25.5)
91.6
Retained
Earnings
$ 700.9
374.2
(152.5)
(83.8)
$ 838.8
407.8
(168.4)
(143.6)
$ (3.7)
$ 9.0
(55.3)
0.8
(4.3)
11.9
(0.6)
$ (59.0)
$ 16.8
(100.9)
1.9
(0.9)
(0.5)
Balance, November 30, 2012
12.4
120.1
$ 908.2
$ 934.6
$(159.9)
$ 17.3
Net income
Net income attributable to non-controlling interest
Other comprehensive income (loss), net of tax
Dividends
Dividends attributable to non-controlling interest
Stock-based compensation
Shares purchased and retired
Shares issued, including tax benefit of $12.6
Equal exchange
(0.3)
1.1
(1.1)
(2.5)
0.3
1.1
18.7
(19.5)
55.0
389.0
(183.3)
(169.9)
159.6
1.3
(2.8)
(0.6)
Balance, November 30, 2013
12.1
119.0
$962.4
$ 970.4
$ (0.3)
$15.2
$1,947.7
See Notes to Consolidated Financial Statements.
McCormick & Company 2013 Annual Report 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The financial statements include the accounts of our majority-owned
or controlled subsidiaries and affiliates. Intercompany transactions
have been eliminated. Investments in unconsolidated affiliates,
over which we exercise significant influence, but not control, are
accounted for by the equity method. Accordingly, our share of net
income or loss of unconsolidated affiliates is included in net income.
Foreign Currency Translation
For majority-owned or controlled subsidiaries and affiliates, if located
outside of the U.S., with functional currencies other than the U.S.
dollar, asset and liability accounts are translated at the rates of
exchange at the balance sheet date and the resultant translation
adjustments are included in accumulated other comprehensive
income (loss), a separate component of shareholders’ equity. Income
and expense items are translated at average monthly rates of
exchange. Gains and losses from foreign currency transactions of
these majority-owned or controlled subsidiaries and affiliates—that
is, transactions denominated in other than the functional currency—
are included in net earnings.
Our unconsolidated affiliates located outside the U.S. generally use
their local currencies as their functional currencies. The asset and
liability accounts of those unconsolidated affiliates, and our invest-
ment in the net assets of those unconsolidated affiliates, are trans-
lated at the rates of exchange at the balance sheet date and the
resultant translation adjustments are included in accumulated other
comprehensive income (loss), a separate component of shareholders’
equity. Our income from these unconsolidated operations is trans-
lated at average monthly rates of exchange.
Use of Estimates
Preparation of financial statements that follow accounting
principles generally accepted in the U.S. requires us to make
estimates and assumptions that affect the amounts reported in
the financial statements and notes. Actual amounts could differ
from these estimates.
Cash and Cash Equivalents
All highly liquid investments purchased with an original maturity
of three months or less are classified as cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is deter-
mined using standard or average costs which approximate the first-in,
first-out costing method.
Property, Plant and Equipment
Property, plant and equipment is stated at historical cost and
depreciated over its estimated useful life using the straight-line
method for financial reporting and both accelerated and straight-line
methods for tax reporting. The estimated useful lives range from
20 to 40 years for buildings and 3 to 12 years for machinery, equip-
ment and computer software. Repairs and maintenance costs are
expensed as incurred.
46
We capitalize costs of software developed or obtained for internal
use. Capitalized software development costs include only (1) direct
costs paid to others for materials and services to develop or buy the
software, (2) payroll and payroll-related costs for employees who
work directly on the software development project and (3) interest
costs while developing the software. Capitalization of these costs
stops when the project is substantially complete and ready for use.
Software is amortized using the straight-line method over a range
of 3 to 8 years, but not exceeding the expected life of the product.
We capitalized $16.7 million of software during the year ended
November 30, 2013, $20.5 million during the year ended November 30,
2012 and $17.3 million during the year ended November 30, 2011.
Goodwill and Other Intangible Assets
We review the carrying value of goodwill and indefinite-lived
intangible assets and conduct tests of impairment on an annual basis
as described below. We also test goodwill for impairment if events or
circumstances indicate it is more likely than not that the fair value of
a reporting unit is below its carrying amount and test indefinite-lived
intangible assets for impairment if events or changes in circumstances
indicate that the asset might be impaired. Separable intangible
assets that have finite useful lives are amortized over those lives.
Determining the fair value of a reporting unit or an indefinite-lived
purchased intangible asset is judgmental in nature and involves the
use of significant estimates and assumptions. These estimates and
assumptions include revenue growth rates and operating margins
used to calculate projected future cash flows, risk-adjusted discount
rates, assumed royalty rates, future economic and market conditions
and determination of appropriate market comparables. We base our
fair value estimates on assumptions we believe to be reasonable but
that are unpredictable and inherently uncertain. Actual future results
may differ from these estimates.
Goodwill Impairment
Our reporting units used to assess potential goodwill impairment
are the same as our business segments. We calculate fair value of
a reporting unit by using a discounted cash flow model and then
compare that to the carrying amount of the reporting unit, including
intangible assets and goodwill. If the carrying amount of the report-
ing unit exceeds the calculated fair value, then we would determine
the implied fair value of the reporting unit’s goodwill. An impairment
charge would be recognized to the extent the carrying amount of
goodwill exceeds the implied fair value.
Indefinite-lived Intangible Asset Impairment
Our indefinite-lived intangible assets consist of brand names and
trademarks. We calculate fair value by using a discounted cash flow
model or relief-from-royalty method and then compare that to the
carrying amount of the indefinite-lived intangible asset. If the carry-
ing amount of the indefinite-lived intangible asset exceeds its fair
value, an impairment charge would be recorded to the extent the
recorded indefinite-lived intangible asset exceeds the fair value.
Long-lived Fixed Asset Impairment
Fixed assets and amortizable intangible assets are reviewed for
impairment as events or changes in circumstances occur indicating
that the carrying value of the asset may not be recoverable.
Undiscounted cash flow analyses are used to determine if an
impairment exists. If an impairment is determined to exist, the
loss is calculated based on estimated fair value.
Revenue Recognition
We recognize revenue when we have an agreement with the
customer, the product has been delivered to the customer, the sales
price is fixed and collectability is reasonably assured. We reduce
revenue for estimated product returns, allowances and price
discounts based on historical experience and contractual terms.
Trade allowances, consisting primarily of customer pricing allow-
ances, merchandising funds and consumer coupons, are offered
through various programs to customers and consumers. Revenue
is recorded net of trade allowances.
Trade accounts receivable are amounts billed and currently due from
customers. We have an allowance for doubtful accounts to reduce
our receivables to their net realizable value. We estimate the allow-
ance for doubtful accounts based on our history of collections and
the aging of our receivables.
Shipping and Handling
Shipping and handling costs on our products sold to customers are
included in selling, general and administrative expense in the income
statement. Shipping and handling expense was $96.9 million, $94.8
million and $89.4 million for 2013, 2012 and 2011, respectively.
Research and Development
Research and development costs are expensed as incurred and are
included in selling, general and administrative expense in the income
statement. Research and development expense was $61.3 million,
$57.8 million and $58.1 million for 2013, 2012 and 2011, respectively.
Brand Marketing Support
Total brand marketing support costs, which are included in selling,
general and administrative expense in the income statement, were
$207.8 million, $198.3 million and $187.3 million for 2013, 2012 and
2011, respectively. Brand marketing support costs include advertis-
ing, promotions and customer trade funds used for cooperative
advertising. Promotion costs include public relations, shopper mar-
keting, digital asset depreciation and general consumer promotion
activities. Advertising costs include the development, production
and communication of advertisements through television, digital,
print and radio. These advertisements are expensed as incurred,
or for development and production, in the period in which they
first run. Advertising expense was $85.0 million, $86.2 million and
$77.2 million for 2013, 2012 and 2011, respectively.
Employee Benefit and Retirement Plans
We sponsor defined benefit pension plans in the U.S. and certain
foreign locations. In addition, we sponsor defined contribution plans
in the U.S. and contribute to government-sponsored retirement plans
in locations outside the U.S. We also currently provide postretirement
medical and life insurance benefits to certain U.S. employees.
We recognize the overfunded or underfunded status of our defined
benefit pension plans as an asset or a liability in the balance sheet,
with changes in the funded status recorded through comprehensive
income in the year in which those changes occur.
The expected return on plan assets is determined using the expected
rate of return and a calculated value of plan assets referred to as the
market-related value of plan assets. Differences between assumed
and actual returns are amortized to the market-related value of assets
on a straight-line basis over five years.
We use the corridor approach in the valuation of defined benefit
pension plans. The corridor approach defers all actuarial gains and
losses resulting from variances between actual results and actuarial
assumptions. For defined benefit pension plans, these unrecognized
gains and losses are amortized when the net gains and losses exceed
10% of the greater of the market-related value of plan assets or the
projected benefit obligation at the beginning of the year. The amount
in excess of the corridor is amortized over the average remaining
service period to retirement date of active plan participants.
Recently Issued Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update No. 2013-02 Comprehensive
Income (Topic 220): Reporting of Amounts Reclassified Out of
Accumulated Other Comprehensive Income. This guidance is intended
to provide disclosure on items reclassified out of accumulated other
comprehensive income either in the notes or parenthetically on
the face of the income statement and will be effective for our first
quarter of 2014. Early adoption is permitted; however, we have not
currently elected to early adopt this standard. We do not expect
any material impact on our financial statements from adoption.
In June 2011, the FASB issued Accounting Standards Update
No. 2011-05 Comprehensive Income (Topic 220): Presentation of
Comprehensive Income. This guidance is intended to increase the
prominence of other comprehensive income in financial statements
by presenting it in either a single statement or two-statement
approach. We adopted this new accounting pronouncement with our
first quarter of 2013 and have included a Consolidated Statement of
Comprehensive Income in this filing.
2. ACQUISITIONS
Acquisitions are part of our strategy to increase sales and profits.
On May 31, 2013, we completed the purchase of the assets of
Wuhan Asia-Pacific Condiments Co. Ltd. (WAPC), a privately held
company based in China, for $144.8 million, which included $142.3
million of cash paid, net of closing adjustments, and the assumption
of $2.5 million of liabilities. The acquisition was financed with a
combination of cash and debt. WAPC manufactures and markets
DaQiao and ChuShiLe brand bouillon products, which have a leading
position in the central region of China. WAPC is included in our con-
sumer business segment from the date of acquisition. At the time of
acquisition, annual sales of WAPC were approximately $122 million.
As of November 30, 2013, a preliminary valuation of the assets of
WAPC resulted in $29.2 million allocated to tangible net assets,
$37.7 million allocated to other intangible assets and $77.9 million
allocated to goodwill. WAPC added $59.4 million to sales during
2013. It had a neutral impact on net income, with integration and
financing costs offsetting operating profit from the business. We
expect the valuation of assets to be completed in the first quarter of
2014. Goodwill related to the WAPC acquisition is not deductible for
tax purposes. During the years ended November 30, 2013 and 2012,
we recorded $4.3 million and $1.7 million, respectively, in transaction-
related expenses associated with the WAPC acquisition in selling,
general and administrative expenses in our income statement.
McCormick & Company 2013 Annual Report 47
In September 2011, we entered into a joint venture with Kohinoor
Foods Ltd. in India whereby we invested $113.0 million for an 85%
interest in the joint venture, Kohinoor Speciality Foods India Private
Limited (Kohinoor), which was financed with a combination of cash
and debt. This joint venture is consolidated and included in our con-
sumer business segment from the date of acquisition. Kohinoor sells
branded basmati rice and other food products in India and had
annual net sales of approximately $85 million at the time of the
formation of the joint venture. During the fourth quarter of 2012,
we completed the final valuation of the assets for Kohinoor which
resulted in $6.0 million allocated to tangible net assets, $40.7 million
allocated to other intangible assets, $78.2 million allocated to goodwill
and $11.9 million allocated to non-controlling interests.
In September 2011, we also purchased all of the outstanding shares
of Kamis S.A. (Kamis), which produces and sells branded spices,
seasonings and mustards in Poland. Kamis also distributes products
into Russia and parts of Central and Eastern Europe and had annual
net sales of approximately $105 million at the time of acquisition.
The purchase price was $287.1 million, which was financed with a
combination of cash and debt. Kamis is included in our consumer
business segment from the date of acquisition. During the fourth
quarter of 2012, we completed the final valuation of the assets
for Kamis which resulted in $41.3 million allocated to tangible net
assets, $59.3 million allocated to other intangible assets and
$186.5 million allocated to goodwill.
In July 2011, we purchased the assets of Kitchen Basics, Inc.
(Kitchen Basics) for $40.0 million, financed with a combination of
cash and debt. Kitchen Basics sells a brand of ready-to-serve, shelf-
stable stock in North America with annual net sales of approximately
$25 million at the time of the acquisition. Kitchen Basics is included
in our consumer business segment from the date of acquisition.
During the third quarter of 2012, we completed the final valuation
of the assets of Kitchen Basics which resulted in $6.4 million allo-
cated to tangible net assets, $8.0 million allocated to other intangi-
ble assets and $25.6 million allocated to goodwill. Goodwill related
to the Kitchen Basics acquisition is deductible for tax purposes.
For the year ended November 30, 2011, we recorded $10.9 million in
transaction-related expenses associated with acquisitions completed
in that year.
The unaudited proforma combined historical results, as if Kohinoor
and Kamis had been acquired at the beginning of fiscal 2011 are
estimated to be:
(millions, except per share data)
Net sales
Net income
Earnings per share—diluted
2011
$3,839.1
383.1
2.85
The proforma results include amortization of certain intangible
assets and interest expense on debt assumed to finance the acquisi-
tions based on the purchase price paid in 2011. These proforma
results were not adjusted for changes in the business that took place
subsequent to our acquisition of these businesses. The proforma
results are not necessarily indicative of what actually would have
occurred if the acquisition had been completed as of the beginning
of the fiscal period presented, nor are they indicative of future
consolidated results.
Proforma financial information for the acquisitions of Wuhan and
Kitchen Basics has not been presented because the financial impact
is not material.
3. SPECIAL CHARGES
In the fourth quarter of 2013, we announced a reorganization in
parts of the Europe, Middle East and Africa (EMEA) region to further
improve EMEA’s profitability and process standardization while sup-
porting its competitiveness and long-term growth. These actions
include the closure of our current sales and distribution operations in
The Netherlands, where we will transition to a third-party distributor
model to continue to sell the Silvo® brand, as well as actions
intended to streamline selling, general and administrative activities
throughout EMEA, including the centralization of shared service
activity across the region into Poland.
We expect to record a total of approximately $27 million of cash
and non-cash charges related to this reorganization. For 2013, we
recorded $25.0 million of special charges related to this reorganiza-
tion, which we have reflected as a separate line in the consolidated
income statement. We expect to record approximately $2 million of
special charges related to this reorganization in 2014 and to complete
the actions by 2015. Of the $25.0 million of special charges recog-
nized in 2013, $15.9 million related to employee severance, $6.4
million to asset write-downs and $2.7 million to other exit costs.
We expect cash expenditures to implement these actions to be
approximately $18 million, with the bulk of the spending occurring
in 2014, and to realize related annual cost savings of approximately
$10 million by 2015. Of the $25.0 million of special charges recorded
in 2013, $22.2 million have been recorded in the consumer business
segment and $2.8 million have been recorded in the industrial busi-
ness segment.
The $6.4 million asset write-down included in the $25.0 million
special charge for 2013 relates to an impairment charge for the
reduction in the value of our Silvo brand name in The Netherlands.
Our decision to transition to a third-party distributor model to con-
tinue to sell the Silvo brand, led us to conclude an impairment indi-
cator related to the Silvo brand was present. We calculated the fair
value of the Silvo brand using the relief-from-royalty method and
determined that it was lower than its carrying value. Consequently,
we recorded a non-cash impairment charge of $6.4 million as part of
the $22.2 million in special charges included in our consumer busi-
ness segment during the fourth quarter of 2013. The carrying value
of the Silvo brand name as of November 30, 2013 is not significant.
48
4. GOODWILL AND INTANGIBLE ASSETS
The following table displays intangible assets as of November 30,
2013 and 2012:
Our principal earnings from unconsolidated affiliates is from our
50% interest in McCormick de Mexico, S.A. de C.V. Profit from this
joint venture represented 78% of income from unconsolidated oper-
ations in 2013, 82% in 2012 and 76% in 2011.
2013
2012
Gross
carrying
amount
Accumulated
amortization
Gross
carrying
amount
Accumulated
amortization
6. FINANCING ARRANGEMENTS
Our outstanding debt was as follows at November 30:
2013
2012
Less current portion
(millions)
Finite-lived
intangible assets
$
93.9
$30.2
$
80.9
$25.0
Indefinite-lived
intangible assets:
Goodwill
Brand names and
trademarks
Total goodwill and
intangible assets
1,798.5
269.7
2,068.2
1,695.3
267.6
1,962.9
$ 2,162.1
$30.2
$ 2,043.8
$25.0
Intangible asset amortization expense was $5.2 million, $4.3 million
and $3.3 million for 2013, 2012 and 2011, respectively. At November
30, 2013, finite-lived intangible assets had a weighted-average
remaining life of approximately 14 years.
The changes in the carrying amount of goodwill by segment for the
years ended November 30, 2013 and 2012 were as follows:
(millions)
Consumer
Industrial
Consumer
Industrial
Beginning of year
Changes in purchase
price allocation
Goodwill acquired
Foreign currency
fluctuations and other
$1,551.0
$144.3
$1,550.7
$143.5
—
77.9
25.8
—
—
26.2
—
(0.5)
(25.9)
—
—
0.8
End of year
$1,654.7
$143.8
$1,551.0
$144.3
5. INVESTMENTS IN AFFILIATES
Summarized annual and year-end information from the financial
statements of unconsolidated affiliates representing 100% of the
businesses follows:
(millions)
Net sales
Gross profit
Net income
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
2013
2012
2011
$761.4
256.9
53.8
$288.9
128.4
141.0
7.2
$727.1
229.2
47.1
$274.4
104.2
129.9
20.5
$708.5
238.7
57.2
$272.0
86.5
113.2
32.1
Our share of undistributed earnings of unconsolidated affiliates was
$94.1 million at November 30, 2013. Royalty income from unconsoli-
dated affiliates was $18.4 million, $17.1 million and $16.1 million for
2013, 2012 and 2011, respectively.
(millions)
Short-term borrowings
Commercial paper
Other
Weighted-average interest rate of short-term
borrowings at year-end
Long-term debt
5.25% notes due 2013 (1)
5.20% notes due 2015 (2)
5.75% notes due 2017(3)
3.90% notes due 2021(4)
3.50% notes due 2023 (5)
7.63%–8.12% notes due 2024
Other
Unamortized discounts and fair
value adjustments
2013
2012
$ 200.3
11.3
$ 138.4
1.9
$ 211.6
$ 140.3
0.7%
0.4%
—
$ 200.0
250.0
250.0
250.0
55.0
10.8
5.7
1,021.5
2.5
$ 250.0
200.0
250.0
250.0
—
55.0
13.6
12.9
1,031.5
252.3
$ 1,019.0
$ 779.2
(1) Interest rate swaps, settled upon the issuance of these notes in 2008, effectively
fixed the interest rate on the $250 million notes at a weighted-average fixed rate
of 5.54%.
(2) The fixed interest rate on $100 million of the 5.20% notes due in 2015 is effectively
converted to a variable rate by interest rate swaps through 2015. Net interest pay-
ments are based on 3 month LIBOR minus 0.05% during this period (our effective
rate as of November 30, 2013 was 0.21%).
(3) Interest rate swaps, settled upon the issuance of these notes in 2007, effectively
fixed the interest rate on the $250 million notes at a weighted-average fixed rate
of 6.25%.
(4) Interest rate swaps, settled upon the issuance of these notes in 2011, effectively
fixed the interest rate on the $250 million notes at a weighted-average fixed rate
of 4.01%.
(5) Interest rate swaps, settled upon the issuance of these notes in 2013, effectively
fixed the interest rate on the $250 million notes at a weighted-average fixed rate
of 3.30%.
Maturities of long-term debt during the years subsequent to
November 30, 2013 are as follows (in millions):
2015
2016
2017
2018
Thereafter
$ 201.5
0.8
250.9
1.0
559.1
In August 2013, we issued $250 million of 3.50% notes due 2023,
with net cash proceeds received of $246.2 million. Interest is pay-
able semiannually in arrears in March and September of each year.
Of these notes, $175 million were subject to interest rate hedges as
further disclosed in note 7. The net proceeds from this offering, plus
cash on hand, were used to pay off $250 million of 5.25% notes that
matured in September 2013.
McCormick & Company 2013 Annual Report 49
We have available credit facilities with domestic and foreign banks
for various purposes. Some of these lines are committed lines and
others are uncommitted lines and could be withdrawn at various
times. In June 2011, we entered into a five-year $600 million revolv-
ing credit facility, which will expire in June 2016. The pricing for this
credit facility, on a fully drawn basis, is LIBOR plus 0.875%. This
credit facility supports our commercial paper program and we have
$399.7 million of capacity at November 30, 2013, after $200.3 mil-
lion was used to support issued commercial paper. In addition, we
have several uncommitted lines which have a total unused capacity
at November 30, 2013 of $114.1 million. These lines by their nature
can be withdrawn based on the lenders’ discretion. Committed
credit facilities require a fee and annual commitment fees at
November 30, 2013 and 2012 were $0.5 million.
Rental expense under operating leases (primarily buildings and
equipment) was $37.6 million in 2013, $32.7 million in 2012 and
$31.9 million in 2011. Future annual fixed rental payments for the
years ending November 30 are as follows (in millions):
2014
2015
2016
2017
2018
Thereafter
$23.6
20.1
14.1
10.6
8.9
8.9
At November 30, 2013, we had guarantees outstanding of $0.6 million
with terms of one year or less. At November 30, 2013 and 2012, we
had outstanding letters of credit of $61.9 million and $59.2 million,
respectively. These letters of credit typically act as a guarantee of
payment to certain third parties in accordance with specified terms
and conditions. The unused portion of our letter of credit facility was
$19.4 million at November 30, 2013.
7. FINANCIAL INSTRUMENTS
We use derivative financial instruments to enhance our ability to
manage risk, including foreign currency and interest rate exposures,
which exist as part of our ongoing business operations. We do not
enter into contracts for trading purposes, nor are we a party to any
leveraged derivative instrument and all derivatives are designated
as hedges. The use of derivative financial instruments is monitored
through regular communication with senior management and the use
of written guidelines.
Foreign Currency
We are potentially exposed to foreign currency fluctuations affecting
net investments, transactions and earnings denominated in foreign
currencies. We selectively hedge the potential effect of these foreign
currency fluctuations by entering into foreign currency exchange
contracts with highly-rated financial institutions.
Contracts which are designated as hedges of anticipated purchases
denominated in a foreign currency (generally purchases of raw mate-
rials in U.S. dollars by operating units outside the U.S.) are consid-
ered cash flow hedges. The gains and losses on these contracts are
deferred in accumulated other comprehensive income until the
hedged item is recognized in cost of goods sold, at which time the
net amount deferred in accumulated other comprehensive income
is also recognized in cost of goods sold. Gains and losses from
contracts which are designated as hedges of assets, liabilities or
firm commitments are recognized through income, offsetting the
change in fair value of the hedged item.
At November 30, 2013, we had foreign currency exchange contracts
to purchase or sell $204.9 million of foreign currencies versus $188.8
million at November 30, 2012. All of these contracts were designated
as hedges of anticipated purchases denominated in a foreign cur-
rency or hedges of foreign currency denominated assets or liabilities.
Hedge ineffectiveness was not material. At November 30, 2013, we
had $96.1 million of notional contracts that have durations of less
than seven days that are used to hedge short-term cash flow funding.
The remaining contracts have durations of one to twelve months.
Interest Rates
We finance a portion of our operations with both fixed and variable
rate debt instruments, primarily commercial paper, notes and bank
loans. We utilize interest rate swap agreements to minimize world-
wide financing costs and to achieve a desired mix of variable and
fixed rate debt.
In November 2012 and in April and August 2013, we entered into a
total of $175 million of forward-starting interest rate swap and
Treasury rate lock agreements to manage our interest rate risk asso-
ciated with the anticipated issuance of fixed rate notes in August
2013. We cash settled all of these agreements, which were desig-
nated as cash flow hedges, for a gain of $9.0 million simultaneous
with the issuance of the notes at an all-in effective fixed rate of
3.30% on the full $250 million of debt. The gain on these agreements
is deferred in accumulated other comprehensive income and will be
amortized to reduce interest expense over the life of the notes.
Hedge ineffectiveness of these agreements was not material.
In March 2006, we entered into interest rate swap contracts for a
total notional amount of $100 million to receive interest at 5.20%
and pay a variable rate of interest based on three-month LIBOR
minus 0.05%. We designated these swaps, which expire in
December 2015, as fair value hedges of the changes in fair value
of $100 million of the $200 million 5.20% medium-term notes
due 2015 that we issued in December 2005. Any unrealized gain
or loss on these swaps will be offset by a corresponding increase
or decrease in the value of the hedged debt. No hedge ineffective-
ness is recognized as the interest rate swaps qualify for the
“shortcut” treatment as defined under U.S. Generally Accepted
Accounting Principles.
50
The following tables disclose the derivative instruments on our balance sheet as of November 30, 2013 and 2012, which are all recorded at
fair value:
As of November 30, 2013:
(millions)
Derivatives
Asset Derivatives
Liability Derivatives
Balance sheet location
Notional amount
Fair value
Balance sheet location
Notional amount
Fair value
Interest rate contracts
Foreign exchange contracts
Other current assets
Other current assets
$100.0
79.2
Other accrued liabilities
Other accrued liabilities
—
$125.7
$12.2
1.1
$13.3
—
$1.6
$ 1.6
Total
As of November 30, 2012:
(millions)
Derivatives
Asset Derivatives
Liability Derivatives
Balance sheet location
Notional amount
Fair value
Balance sheet location
Notional amount
Fair value
Interest rate contracts
Foreign exchange contracts
Other current assets
Other current assets
$100.0
123.1
Total
Other accrued liabilities
Other accrued liabilities
$50.0
65.7
$16.7
0.9
$17.6
$0.1
1.9
$ 2.0
The following tables disclose the impact of derivative instruments on other comprehensive income (OCI), accumulated other comprehensive
income (AOCI) and our income statement for the years ended November 30, 2013, 2012 and 2011:
Fair value hedges (millions)
Derivative
Interest rate contracts
Cash flow hedges (millions)
Derivative
Interest rate contracts
Foreign exchange contracts
Total
Income statement
location
Interest expense
Income (expense)
2013
$5.0
2012
$4.7
2011
$4.9
Gain (loss)
recognized in OCI
2013
$ 9.2
1.0
$10.2
2012
$(0.1)
(2.4)
$(2.5)
2011
—
$(0.4)
$(0.4)
Income statement
location
Interest expense
Cost of goods sold
Gain (loss)
reclassified from AOCI
2013
$(1.3)
0.3
$(1.0)
2012
$(1.4)
0.6
$(0.8)
2011
$(1.4)
(3.4)
$(4.8)
The amount of gain or loss recognized in income on the ineffective portion of derivative instruments is not material. The net amount of other
comprehensive income expected to be reclassified into income related to these contracts in the next twelve months is a $0.6 million increase
to earnings.
Fair Value of Financial Instruments
The carrying amount and fair value of financial instruments at November 30, 2013 and 2012 were as follows:
(millions)
Long-term investments
Long-term debt
Derivatives related to:
Interest rates (assets)
Interest rates (liabilities)
Foreign currency (assets)
Foreign currency (liabilities)
2013
2012
Carrying amount
Fair value
Carrying amount
Fair value
$ 103.4
1,021.5
$ 103.4
1,102.4
$ 86.1
1,031.5
$ 86.1
1,168.5
12.2
—
1.1
1.6
12.2
—
1.1
1.6
16.7
0.1
0.9
1.9
16.7
0.1
0.9
1.9
Because of their short-term nature, the amounts reported in the balance sheet for cash and cash equivalents, receivables, short-term borrowings
and trade accounts payable approximate fair value.
McCormick & Company 2013 Annual Report 51
Investments in affiliates are not readily marketable, and it is not
practicable to estimate their fair value. Long-term investments are
comprised of fixed income and equity securities held on behalf of
employees in certain employee benefit plans and are stated at fair
value on the balance sheet. The cost of these investments was $77.5
million and $69.6 million at November 30, 2013 and 2012, respectively.
Concentrations of Credit Risk
We are potentially exposed to concentrations of credit risk with
trade accounts receivable, prepaid allowances and financial instru-
ments. The customers of our consumer business are predominantly
food retailers and food wholesalers. Consolidations in these indus-
tries have created larger customers. In addition, competition has
increased with the growth in alternative channels including mass
merchandisers, dollar stores, warehouse clubs and discount chains.
This has caused some customers to be less profitable and increased
our exposure to credit risk. Because we have a large and diverse
customer base with no single customer accounting for a significant
percentage of trade accounts receivable, there was no material
concentration of credit risk in these accounts at November 30, 2013.
Current credit markets are highly volatile and some of our customers
and counterparties are highly leveraged. We continue to closely
monitor the credit worthiness of our customers and counterparties
and generally do not require collateral. We believe that the allowance
for doubtful accounts properly recognized trade receivables at
realizable value. We consider nonperformance credit risk for other
financial instruments to be insignificant.
8. FAIR VALUE MEASUREMENTS
Fair value can be measured using valuation techniques, such as the
market approach (comparable market prices), the income approach
(present value of future income or cash flow) and the cost approach
(cost to replace the service capacity of an asset or replacement
cost). Accounting standards utilize a fair value hierarchy that priori-
tizes the inputs to valuation techniques used to measure fair value
into three broad levels. The following is a brief description of those
three levels:
• Level 1: Observable inputs such as quoted prices (unadjusted) in
active markets for identical assets or liabilities.
• Level 2: Inputs other than quoted prices that are observable for
the asset or liability, either directly or indirectly. These include
quoted prices for similar assets or liabilities in active markets and
quoted prices for identical or similar assets or liabilities in markets
that are not active.
• Level 3: Unobservable inputs that reflect management’s
own assumptions.
Our population of assets and liabilities subject to fair value measurements on a recurring basis at November 30, 2013 and 2012 are as follows:
Fair value measurements using fair value
hierarchy as of November 30, 2013
Fair value
Level 1
Level 2
Level 3
$ 63.0
90.1
13.3
12.2
1.1
$179.7
$ 1.6
$ 1.6
$63.0
—
13.3
—
—
$76.3
—
—
—
$ 90.1
—
12.2
1.1
$103.4
$ 1.6
$ 1.6
—
—
—
—
—
—
—
Fair value measurements using fair value
hierarchy as of November 30, 2012
Fair value
Level 1
Level 2
Level 3
$ 79.0
72.5
13.6
16.7
0.9
$182.7
$ 1.9
0.1
$ 2.0
$79.0
—
13.6
—
—
$92.6
—
—
—
—
$72.5
—
16.7
0.9
$90.1
$ 1.9
0.1
$ 2.0
—
—
—
—
—
—
—
—
(millions)
Assets
Cash and cash equivalents
Insurance contracts
Bonds and other long-term investments
Interest rate derivatives
Foreign currency derivatives
Total
Liabilities
Foreign currency derivatives
Total
(millions)
Assets
Cash and cash equivalents
Insurance contracts
Bonds and other long-term investments
Interest rate derivatives
Foreign currency derivatives
Total
Liabilities
Foreign currency derivatives
Interest rate derivatives
Total
52
The fair values of insurance contracts are based upon the underlying values of the securities in which they are invested and are from quoted market
prices from various stock and bond exchanges for similar type assets. The fair values of bonds and other long-term investments are based on quoted
market prices from various stock and bond exchanges. The fair values for interest rate and foreign currency derivatives are based on values for
similar instruments using models with market based inputs.
9. EMPLOYEE BENEFIT AND RETIREMENT PLANS
We sponsor defined benefit pension plans in the U.S. and certain foreign locations. In addition, we sponsor defined contribution plans in the U.S.
and contribute to government-sponsored retirement plans in locations outside the U.S. We also currently provide postretirement medical and life
insurance benefits to certain U.S. employees.
Included in accumulated other comprehensive loss at November 30, 2013 was $242.2 million ($167.7 million net of tax) related to net unrecognized
actuarial losses of $239.6 million and unrecognized prior service credits of $2.6 million that have not yet been recognized in net periodic pension
or postretirement benefit cost. We expect to recognize $16.8 million ($11.3 million net of tax) in net periodic pension and postretirement benefit
expense during 2014 related to the amortization of actuarial losses of $16.5 million and the amortization of prior service credits of $0.3 million.
Defined Benefit Pension Plans
The significant assumptions used to determine benefit obligations are as follows as of November 30:
Discount rate—funded plan
Discount rate—unfunded plan
Salary scale
The significant assumptions used to determine pension expense are as follows:
United States
International
2013
5.2%
5.1%
3.8%
2012
4.3%
4.2%
3.8%
2013
2012
4.6%
—
3.0–3.8%
4.4%
—
3.0–3.8%
Discount rate—funded plan
Discount rate—unfunded plan
Salary scale
Expected return on plan assets
United States
International
2013
2012
2011
2013
2012
2011
4.3%
4.2%
3.8%
8.0%
5.5%
5.4%
3.8%
8.3%
6.0%
5.8%
3.8%
8.3%
4.4%
—
3.0–3.8%
6.6%
5.1%
—
3.0–3.8%
6.7%
5.6%
—
3.0–3.8%
7.2%
Annually, we undertake a process, with the assistance of our external investment consultants, to evaluate the appropriate projected rates of return
to use for our pension plans’ assumptions. We engage our investment consultants’ research teams to develop capital market assumptions for each
asset category in our plans to project investment returns into the future. The specific methods used to develop expected return assumptions vary
by asset category. We adjust the outcomes for the fact that plan assets are invested with actively managed funds and subject to tactical asset
reallocation.
Our 2013 pension expense includes a loss on voluntary pension settlement of $15.3 million related to the U.S. pension plan. During the third quar-
ter of 2013, we offered former employees with deferred vested benefits in that plan the opportunity to settle those benefits in exchange for a
lump sum payment. Based upon the acceptance of that offer by certain employees, $63.3 million was paid from plan assets in the fourth quarter
of 2013 with a corresponding decrease in the benefit obligation and we recognized the $15.3 million settlement loss previously described. The loss
on voluntary pension settlement is reflected as a separate line in the consolidated income statement.
Our pension expense was as follows:
(millions)
Service cost
Interest costs
Expected return on plan assets
Loss on voluntary pension settlement
Amortization of prior service costs
Amortization of net actuarial loss
Other
United States
International
2013
$ 23.2
31.2
(41.4)
15.3
—
29.5
—
$ 57.8
2012
2011
$ 17.5
31.8
(37.8)
—
0.1
18.1
—
$ 29.7
$ 15.1
30.3
(34.1)
—
0.1
13.3
—
$ 24.7
2013
$ 8.8
12.6
(17.2)
—
0.4
5.6
0.1
$ 10.3
2012
$ 6.8
12.8
(16.2)
—
0.4
3.5
—
$ 7.3
2011
$ 6.2
12.5
(15.8)
—
0.7
2.2
0.3
$ 6.1
McCormick & Company 2013 Annual Report 53
Rollforward of the benefit obligation, fair value of plan assets and a reconciliation of the pension plans’ funded status as of November 30, the
measurement date, follows:
United States
International
2013
2012
2013
2012
$ 735.2
23.2
31.2
—
(63.3)
—
(97.8)
(20.8)
—
—
$ 607.7
$ 519.8
84.5
32.1
—
(63.3)
(20.8)
—
—
$ 552.3
$ (55.4)
$ 588.5
17.5
31.8
—
—
—
119.5
(22.1)
—
—
$ 735.2
$ 400.9
56.9
84.1
—
—
(22.1)
—
—
$ 519.8
$ (215.4)
$ 300.8
8.8
12.6
1.7
—
(1.4)
(5.5)
(8.6)
(0.8)
(2.7)
$ 304.9
$ 247.6
31.4
10.6
1.7
—
(8.6)
(0.8)
(2.0)
$ 279.9
$ (25.0)
$ 251.1
6.8
12.8
1.7
—
(0.2)
34.4
(10.2)
(0.7)
5.1
$ 300.8
$ 214.9
17.5
20.2
1.7
—
(10.2)
(0.7)
4.2
$ 247.6
$ (53.2)
$ 76.8
—
$ 660.2
519.8
$ 191.4
176.8
$ 182.2
154.0
benefit obligation differs from the projected benefit obligation in
that it includes no assumption about future compensation or service
levels. The accumulated benefit obligation for the U.S. pension
plans was $532.8 million and $660.2 million as of November 30,
2013 and 2012, respectively. The accumulated benefit obligation for
the international pension plans was $276.5 million and $270.5 mil-
lion as of November 30, 2013 and 2012, respectively.
The investment objectives of the defined benefit pension plans are to
provide assets to meet the current and future obligations of the plans
at a reasonable cost to us. The goal is to optimize the long-term
return across the portfolio of investments at a moderate level of risk.
Higher-returning assets include mutual, co-mingled and other funds
comprised of equity securities, utilizing both active and passive
investment styles. These more volatile assets are balanced with less
volatile assets, primarily mutual, co-mingled and other funds com-
prised of fixed income securities. Professional investment firms are
engaged to provide advice on the selection and monitoring of invest-
ment funds, and to provide advice on the allocation of plan assets
across the various fund managers. This advice is based in part on the
duration of each plan’s liability as some of our plans are active while
others are frozen. The investment return performances are evaluated
quarterly against specific benchmark indices and against a peer group
of funds of the same asset classification.
(millions)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest costs
Employee contributions
Voluntary pension settlement
Plan changes and other
Actuarial (gain) loss
Benefits paid
Expenses paid
Foreign currency impact
Benefit obligation at end of year
Change in fair value of plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Employee contributions
Voluntary pension settlement
Benefits paid
Expenses paid
Foreign currency impact
Fair value of plan assets at end of year
Funded status
Pension plans in which accumulated benefit obligation exceeded
plan assets
Accumulated benefit obligation
Fair value of plan assets
Included in the U.S. in the preceding table is a benefit obligation of
$81.2 million and $87.8 million for 2013 and 2012, respectively,
related to a nonqualified defined benefit plan pursuant to which we
will pay supplemental pension benefits to certain key employees
upon retirement based upon the employees’ years of service and
compensation. The accumulated benefit obligation related to this
plan was $76.8 million and $82.2 million as of November 30, 2013
and 2012, respectively. The assets related to this plan which totaled
$74.4 million and $63.3 million as of November 30, 2013 and 2012,
respectively, are held in a rabbi trust and accordingly have not been
included in the preceding table.
Amounts recorded in the balance sheet for all defined benefit pension
plans consist of the following:
(millions)
Non-current pension asset
Accrued pension liability
Deferred income tax assets
Accumulated other
comprehensive loss
United States
International
2013
$25.8
81.2
59.4
95.5
2012
—
$215.4
128.0
2013
—
$25.0
15.7
2012
—
$53.2
23.9
212.5
74.1
95.3
The accumulated benefit obligation is the present value of pension
benefits (whether vested or unvested) attributed to employee service
rendered before the measurement date and based on employee
service and compensation prior to that date. The accumulated
54
Our allocations of U.S. pension plan assets as of November 30, 2013
and 2012, by asset category, were as follows:
Asset Category
Equity securities
Fixed income securities
Other
Total
Actual
2013
70.2%
23.1%
6.7%
2012
63.4%
24.5%
12.1%
2013
Target
70.0%
25.0%
5.0%
100.0%
100.0%
100.0%
The allocations of the international pension plans’ assets as of
November 30, 2013 and 2012, by asset category, were as follows:
Asset Category
Equity securities
Fixed income securities
Other
Total
Actual
2013
57.6%
42.1%
0.3%
2012
53.9%
42.5%
3.6%
2013
Target
53.0%
41.0%
6.0%
100.0%
100.0%
100.0 %
The following tables set forth by level, within the fair value hierar-
chy as described in note 8, pension plan assets at their fair value
as of November 30, 2013 and 2012 for the United States and
international plans:
As of November 30, 2013
United States
Total
fair value
Level 1
Level 2
Level 3
(millions)
Cash and cash equivalents
Equity securities:
U.S. equity securities (a)
International equity
securities (b)
Fixed income securities:
U.S./government/
corporate bonds (c)
High yield bonds (d)
International/government/
corporate bonds (e)
Insurance contracts (f)
Other types of investments:
Hedge fund of funds (g)
Private equity funds (h)
$ 13.5
$ 13.5
—
277.2
110.7
72.5
29.3
24.7
1.0
18.5
4.9
129.5
$147.7
110.7
—
72.5
—
24.7
—
—
—
—
29.3
—
1.0
—
—
Total investments
$552.3
$ 350.9
$178.0
As of November 30, 2013
International
(millions)
Cash and cash equivalents
International equity
securities (b)
Fixed income securities:
U.S./government/
corporate bonds (c)
Insurance contracts (f)
$ 0.6
$ 0.6
—
161.4
—
$161.4
99.3
18.6
—
—
99.3
18.6
Total investments
$279.9
$ 0.6
$279.3
—
—
—
—
—
—
—
$18.5
4.9
$ 23.4
—
—
—
—
—
Total fair
value
Level 1
Level 2
Level 3
—
—
—
—
—
—
—
$21.1
5.3
$ 26.4
—
—
—
—
—
As of November 30, 2012
United States
Total fair
value
Level 1
Level 2
Level 3
(millions)
Cash and cash equivalents
Equity securities:
U.S. equity securities (a)
International equity
securities (b)
Fixed income securities:
U.S./government/
corporate bonds (c)
High yield bonds (d)
International/government/
corporate bonds (e)
Insurance contracts (f)
Other types of investments:
Hedge fund of funds (g)
Private equity funds (h)
$ 36.3
$ 36.3
—
239.1
107.3
$131.8
90.2
90.2
—
74.2
27.4
25.1
1.1
21.1
5.3
74.2
—
25.1
—
—
—
—
27.4
—
1.1
—
—
Total investments
$ 519.8
$ 333.1
$160.3
As of November 30, 2012
International
(millions)
Cash and cash equivalents
International equity
securities (b)
Fixed income securities:
U.S./government/
corporate bonds (c)
Insurance contracts (f)
Total fair
value
Level 1
Level 2
Level 3
$ 9.0
$ 9.0
—
133.4
—
$133.4
87.4
17.8
—
—
87.4
17.8
Total investments
$ 247.6
$ 9.0
$ 238.6
(a) This category comprises equity funds and collective equity trust funds that most
closely track the S&P index and other equity indices.
(b) This category comprises international equity funds with varying benchmark indices.
(c) This category comprises funds consisting of U.S. government and U.S. corporate
bonds and other fixed income securities. An appropriate benchmark is the Barclays
Capital Aggregate Bond Index.
(d) This category comprises funds consisting of real estate related debt securities with
an appropriate benchmark of the Barclays Investment Grade CMBS Index.
(e) This category comprises funds consisting of international government/corporate
bonds and other fixed income securities with varying benchmark indices.
(f) This category comprises insurance contracts, the majority of which have a
guaranteed investment return.
(g) This category comprises hedge fund of funds investing in strategies represented in
the HFRI Fund of Funds Index.
(h) This category comprises private equity, venture capital and limited partnerships.
The change in fair value of the plans’ Level 3 assets for 2013 is
summarized as follows:
(millions)
Hedge fund of funds
Private equity funds
Total
Beginning
of year
Realized
gains
Unrealized
gains
(losses)
Net,
purchases
and (sales)
$21.1
5.3
$26.4
$0.9
0.5
$ 1.4
$ 1.5
(0.1)
$ 1.4
$ (5.0)
(0.8)
$ (5.8)
End
of
year
$18.5
4.9
$23.4
McCormick & Company 2013 Annual Report 55
At the participant’s election, 401(k) retirement plans held 2.5 million
shares of McCormick stock, with a fair value of $169.7 million, at
November 30, 2013. Dividends paid on these shares in 2013 were
$3.5 million.
Postretirement Benefits Other Than Pensions
We currently provide postretirement medical and life insurance
benefits to certain U.S. employees who were covered under the
active employees’ plan and retire after age 55 with at least five
years of service. The subsidy provided under these plans is based
primarily on age at date of retirement. These benefits are not pre-
funded but paid as incurred. Employees hired after December 31,
2008 are not eligible for a company subsidy. They are eligible for
coverage on an access-only basis.
Our other postretirement benefit expense follows:
(millions)
Service cost
Interest costs
Amortization of prior service costs
Amortization of losses
Special termination benefits
2013 2012
$ 5.1
4.1
(1.2)
1.4
—
$ 4.0
4.9
(4.0)
—
(0.1)
2011
$ 3.8
4.5
(5.9)
0.7
0.3
Postretirement benefit expense
$ 9.4
$ 4.8
$ 3.4
Rollforwards of the benefit obligation, fair value of plan assets and
a reconciliation of the plans’ funded status at November 30, the
measurement date, follow:
(millions)
2013
2012
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest costs
Employee contributions
Medicare prescription subsidy
Demographic assumptions change
Other plan assumptions
Trend rate assumption change
Discount rate change
Special termination benefits
Actuarial gain
Benefits paid
$ 112.8
5.1
4.1
2.9
—
(8.1)
(1.5)
—
(8.7)
—
(3.3)
(8.4)
$ 99.3
4.0
4.9
2.7
0.4
0.8
(1.0)
(0.2)
14.1
(0.1)
(3.5)
(8.6)
Benefit obligation at end of year
$ 94.9
$ 112.8
Change in fair value of plan assets:
Fair value of plan assets at beginning of year
Employer contributions
Employee contributions
Medicare prescription subsidy
Benefits paid
—
$ 5.5
2.9
—
(8.4)
—
$ 5.5
2.7
0.4
(8.6)
Fair value of plan assets at end of year
—
—
Other postretirement benefit liability
$ 94.9
$ 112.8
The change in fair value of the plans’ Level 3 assets for 2012 is
summarized as follows:
(millions)
Hedge fund of funds
Private equity funds
Total
Beginning
of year
Realized
gains
Unrealized
gains
$19.8
4.8
$24.6
—
$ 0.1
$ 0.1
$ 0.6
0.1
$ 0.7
Net,
purchases
and (sales)
$ 0.7
0.3
$ 1.0
End of
year
$21.1
5.3
$26.4
The value for the Level 3 hedge fund of funds’ assets is determined
by an administrator using financial statements of the underlying
funds or estimates provided by fund managers. The value for the
Level 3 private equity funds’ assets is determined by the general
partner or the general partner’s designee. In addition, for the plans’
Level 3 assets, we engage an independent advisor to compare the
funds’ returns to other funds with similar strategies. Each fund is
required to have an annual audit by an independent accountant,
which is provided to the independent advisor. This provides a basis
of comparability relative to similar assets in this category.
Equity securities in the U.S. plan included McCormick stock with a
fair value of $31.6 million (0.5 million shares and 5.7% of total U.S.
pension plan assets) and $29.4 million (0.5 million shares and 5.7%
of total U.S. pension plan assets) at November 30, 2013 and 2012,
respectively. Dividends paid on these shares were $0.6 million in
2013 and in 2012.
Pension benefit payments in our most significant plans are made
from assets of the pension plans. It is anticipated that future bene-
fit payments for the U.S. plans for the next 10 fiscal years will be
as follows:
(millions)
2014
2015
2016
2017
2018
2019–2023
United States
expected payments
$ 22.7
24.0
25.1
27.7
29.7
181.5
It is anticipated that future benefit payments for the international
plans for the next 10 fiscal years will be as follows:
(millions)
2014
2015
2016
2017
2018
2019–2023
International
expected payments
$ 9.3
9.4
10.3
11.5
12.4
80.5
U.S. Defined Contribution Retirement Plans
For the U.S. defined contribution retirement plan, we match 100%
of a participant’s contribution up to the first 3% of the participant’s
salary, and 50% of the next 2% of the participant’s salary. In addi-
tion we make contributions for U.S. employees not covered by the
defined benefit plan. Some of our smaller U.S. subsidiaries sponsor
separate 401(k) retirement plans. Our contributions charged to
expense under all 401(k) retirement plans were $7.7 million, $7.4
million and $7.0 million in 2013, 2012 and 2011, respectively.
56
Estimated future benefit payments (net of employee contributions)
for the next 10 fiscal years are as follows:
(millions)
2014
2015
2016
2017
2018
2019–2023
Retiree
medical
Retiree life
insurance
$ 5.6
5.8
5.8
5.9
6.1
32.6
$1.2
1.2
1.2
1.2
1.2
6.5
Total
$ 6.8
7.0
7.0
7.1
7.3
39.1
The assumed discount rate was 4.7% and 3.8% for 2013 and
2012, respectively.
For 2013, the assumed annual rate of increase in the cost of covered
health care benefits is 7.0% (7.6% last year). It is assumed to decrease
gradually to 5.0% in the year 2021 (5.0% in 2021 last year) and
remain at that level thereafter. A one percentage point increase or
decrease in the assumed health care cost trend rate would have
had an immaterial effect on the benefit obligation and the total of
service and interest cost components for 2013.
10. STOCK-BASED COMPENSATION
We have three types of stock-based compensation awards: restricted
stock units (RSUs), stock options and company stock awarded as part
of our mid-term incentive program (MTIP). Total stock-based compen-
sation expense for 2013, 2012 and 2011 was $18.7 million, $20.2 mil-
lion and $13.0 million, respectively. Total unrecognized stock-based
compensation expense at November 30, 2013 was $14.8 million and
the weighted-average period over which this will be recognized is
1.0 years.
For all awards, forfeiture rates are considered in the calculation of
compensation expense.
Below we have summarized the key terms and the methods of
valuation and expense recognition for each of our stock-based
compensation awards.
RSUs
RSUs are valued at the market price of the underlying stock on the
date of grant. Substantially all of the RSUs vest over a two-year
term or upon retirement. Compensation expense is recorded in the
income statement ratably over the shorter of the period until vested
or the employee’s retirement eligibility date.
A summary of our RSU activity for the years ended November 30 follows:
(shares in thousands)
2013
2012
2011
Beginning of year
Granted
Vested
Forfeited
Outstanding—end of year
Weighted-
average
price
$49.65
71.60
50.91
59.25
$60.86
Shares
192
89
(116)
(4)
161
Weighted-
average
price
$43.23
54.30
42.82
47.88
$49.65
Shares
289
133
(183)
(6)
233
Weighted-
average
price
$35.42
47.40
34.04
40.91
$43.23
Shares
233
113
(147)
(7)
192
Stock Options
Stock options are granted with an exercise price equal to the market price of the stock on the date of grant. Substantially all of the options
granted vest ratably over a four-year period or upon retirement and are exercisable over a 10-year period. Upon exercise of the option, shares
would be issued from our authorized and unissued shares.
The fair value of the options is estimated using a lattice option pricing model which uses the assumptions in the table below. We believe the lat-
tice model provides an appropriate estimate of fair value of our options as it uses a range of possible outcomes over an option term and can be
adjusted for changes in certain assumptions over time. Expected volatilities are based on the historical performance of our stock. We also use his-
torical data to estimate the timing and amount of option exercises and forfeitures within the valuation model. The expected term of the options is
an output of the option pricing model and estimates the period of time that options are expected to remain unexercised. The risk-free interest rate
is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation expense is calculated based on the fair value of the options
on the date of grant. This compensation is recorded in the income statement ratably over the shorter of the period until vested or the employee’s
retirement date.
The per share weighted-average fair value for all options granted was $9.47, $7.17 and $7.99 in 2013, 2012 and 2011, respectively. These fair
values were computed using the following range of assumptions for our various stock compensation plans for the years ended November 30:
Risk-free interest rates
Dividend yield
Expected volatility
Expected lives
2013
0.1–1.8%
1.9%
14.5–20.6%
6.2 years
2012
0.1–2.2%
2.3%
16.5–21.6%
6.1 years
2011
0.1–3.5%
2.4%
15.2–22.2%
6.4 years
Under our stock option plans, we may issue shares on a net basis at the request of the option holder. This occurs by netting the option cost in
shares from the shares exercised.
McCormick & Company 2013 Annual Report 57
A summary of our stock option activity for the years ended November 30 follows:
(shares in millions)
Beginning of year
Granted
Exercised
Forfeited
End of year
Exercisable—end of year
2013
Weighted-
average
exercise
price
$40.06
71.60
34.11
57.33
47.73
$39.62
Shares
5.1
0.9
(1.3)
(0.1)
4.6
2.7
2012
2011
Weighted-
average
exercise
price
$34.98
54.27
31.43
—
40.06
$34.99
Shares
6.6
0.9
(2.4)
—
5.1
2.7
Weighted-
average
exercise
price
$32.01
47.40
29.35
30.08
34.98
$32.26
Shares
7.4
1.0
(1.7)
(0.1)
6.6
4.2
As of November 30, 2013, the intrinsic value (the difference between the exercise price and the market price) for all options outstanding was
$101.2 million and for options currently exercisable was $78.2 million. The total intrinsic value of all options exercised during the years ended
November 30, 2013, 2012 and 2011 was $43.7 million, $62.8 million and $32.4 million, respectively. A summary of our stock options outstanding
and exercisable at November 30, 2013 follows:
(shares in millions)
Options outstanding
Options exercisable
Range of
exercise price
$29.60–$40.10
$40.11–$50.60
$50.61–$61.10
$61.11–$71.60
Weighted-
average
remaining
life (yrs)
Weighted-
average
exercise
price
4.0
7.3
8.3
9.3
6.2
$35.48
47.40
54.24
71.58
$47.73
Shares
2.0
0.4
0.2
0.1
2.7
Weighted-
average
remaining
life (yrs)
Weighted-
average
exercise
price
3.7
7.3
8.3
9.3
4.6
$35.18
47.40
54.24
71.25
$39.62
Shares
2.1
0.8
0.8
0.9
4.6
MTIP
In 2011, we restructured our MTIP to deliver awards in a combination of cash and company stock. Prior to 2011, the MTIP was accounted for as a
liability plan as the awards were paid out in cash only. The stock compensation portion of the MTIP awards shares of company stock if certain com-
pany performance objectives are met at the end of a three-year period. These awards are valued at the market price of the underlying stock on the
date of grant. Compensation expense is recorded in the income statement ratably over the three-year period of the program based on the number
of shares ultimately expected to be awarded using our estimate of the most likely outcome of achieving the performance objectives.
A summary of the MTIP award activity for the years ended November 30 follows:
(shares in thousands)
2013
2012
2011
Beginning of the year
Granted
Outstanding—end of the year
Weighted-
average
exercise
price
$46.63
64.74
$51.73
Shares
240
94
334
Weighted-
average
exercise
price
$44.47
48.78
$46.63
Shares
120
120
240
Weighted-
average
exercise
price
—
$44.47
$44.47
Shares
—
120
120
58
11. INCOME TAXES
The provision for income taxes consists of the following:
(millions)
Income taxes
Current
Federal
State
International
Deferred
Federal
State
International
2013
2012
2011
$ 96.4
10.3
42.2
148.9
(0.1)
(0.4)
(14.8)
(15.3)
$ 79.4
10.1
26.0
115.5
21.3
4.0
(1.0)
24.3
$ 76.5
10.5
17.6
104.6
32.0
4.1
1.9
38.0
Total income taxes
$133.6
$139.8
$142.6
The components of income from consolidated operations before
income taxes follow:
(millions)
Pretax income
United States
International
2013
2012
2011
$351.2
148.2
$499.4
$366.2
159.9
$526.1
$338.7
152.7
$491.4
A reconciliation of the U.S. federal statutory rate with the effective
tax rate follows:
Federal statutory tax rate
State income taxes, net of
federal benefits
International tax at different
effective rates
U.S. tax on remitted and
unremitted earnings
U.S. manufacturing deduction
Changes in prior year tax contingencies
Other, net
2013
35.0%
2012
2011
35.0%
35.0%
1.2
(6.9)
—
(1.8)
0.3
(1.0)
1.7
(6.5)
(2.0)
(1.6)
(0.1)
0.1
1.9
(7.0)
0.2
(1.6)
(0.1)
0.6
Total
26.8%
26.6%
29.0%
Deferred tax assets and liabilities are comprised of the following:
(millions)
Deferred tax assets
Employee benefit liabilities
Other accrued liabilities
Inventory
Tax loss and credit carryforwards
Other
Valuation allowance
Deferred tax liabilities
Depreciation
Intangible assets
Other
2013
2012
$110.3
23.5
11.1
42.1
9.5
(21.2)
$165.2
16.3
14.9
49.7
11.8
(27.5)
175.3
230.4
45.3
178.9
7.4
231.6
48.3
158.8
5.9
213.0
Net deferred tax (liability) asset
$ (56.3)
$ 17.4
At November 30, 2013, our non-U.S. subsidiaries have tax loss
carryforwards of $155.0 million, of which $2.8 million are from the
excess tax benefits related to stock-based compensation deductions
which will increase equity once the benefit is realized through a
reduction of income taxes payable. Of these carryforwards, $43.8
million expire through 2016, $40.6 million from 2017 through 2025
and $70.6 million may be carried forward indefinitely.
At November 30, 2013, our non-U.S. subsidiaries have capital loss
carryforwards of $6.2 million. All of these carryforwards may be
carried forward indefinitely.
At November 30, 2013, we have tax credit carryforwards of $19.3
million, of which $5.2 million expire in 2020, $0.6 million in 2021
and $13.5 million in 2022.
A valuation allowance has been provided to record deferred tax
assets at their net realizable value based on a more likely than not
criteria. The $6.3 million net decrease in the valuation allowance
was mainly due to the recognition of deferred tax assets related to
subsidiaries net operating losses which are now more likely than not
to be realized, offset by additional valuation allowance related to
losses generated in other subsidiaries in 2013 which may not be
realized in future periods.
U.S. income taxes are not provided for unremitted earnings of inter-
national subsidiaries and affiliates where our intention is to reinvest
these earnings permanently. Unremitted earnings of such entities
were $1.1 billion at November 30, 2013. Upon distribution of these
earnings, we could be subject to both U.S. income taxes and with-
holding taxes. Determination of the unrecognized deferred income
tax liability is not practical because of the complexities involved
with this hypothetical calculation.
The total amount of unrecognized tax benefits as of November 30,
2013 and November 30, 2012 were $58.0 million and $46.7 million,
respectively. If recognized, $49.8 million of these tax benefits would
affect the effective tax rate.
The following table summarizes the activity related to our gross
unrecognized tax benefits for the years ended November 30:
(millions)
Balance at beginning of year
Additions for current year tax positions
Additions for prior year tax positions
Reductions for prior year tax positions
Statute expirations
Foreign currency translation
2013
2012
2011
$46.7
10.3
2.2
—
(0.1)
(1.1)
$33.2
10.6
3.9
—
(1.2)
0.2
$20.7
10.3
6.5
(3.1)
(1.2)
—
Balance at November 30
$58.0
$46.7
$33.2
We record interest and penalties on income taxes in income tax
expense. We recognized interest and penalty expense of $1.3 mil-
lion, $1.4 million and $0.6 million for the years ended November 30,
2013, 2012 and 2011, respectively. As of November 30, 2013 and
2012, we had accrued $5.2 million and $4.0 million, respectively,
of interest and penalties related to unrecognized tax benefits.
McCormick & Company 2013 Annual Report 59
Tax settlements or statute of limitation expirations could result in a
change to our uncertain tax positions. We believe that it is reason-
ably possible that the total amount of unrecognized tax benefits as
of November 30, 2013 could decrease by approximately $4.2 million
in the next 12 months as a result of various audit closures and/or
tax settlements.
We file income tax returns in the U.S. federal jurisdiction and various
state and non-U.S. jurisdications. The open years subject to tax
audits vary depending on the tax jurisdications. In major jurisdictions,
we are no longer subject to income tax audits by taxing authorities
for years before 2006.
We are under normal recurring tax audits in several of our major
operations outside the U.S. While it is often difficult to predict the
final outcome or the timing of resolution of any particular uncertain
tax position, we believe that our reserves for uncertain tax positions
are adequate to cover existing risks and exposures.
In 2010, the Internal Revenue Service (IRS) commenced an examina-
tion of our U.S. federal income tax return for the 2007 and 2008
tax years. During the course of the examination, we have held dis-
cussions with the IRS on certain issues and in October 2012 we
received proposed adjustments for these tax years. In November
2012 we deposited $18.8 million with the IRS to stop any potential
interest on these proposed adjustments. We disagree with certain
of the proposed adjustments and in December 2012, we filed a pro-
test to initiate the IRS administrative appeals process. No further
significant events occurred in 2013. We believe we have established
appropriate tax accruals under US GAAP for these issues.
12. EARNINGS PER SHARE
The reconciliation of shares outstanding used in the calculation
of basic and diluted earnings per share for the years ended
November 30 follows:
(millions)
Average shares outstanding—basic
Effect of dilutive securities:
Stock options/RSUs/MTIP
2013 2012
2011
132.1
132.7
132.7
1.5
1.6
1.6
Average shares outstanding—diluted
133.6
134.3
134.3
The following table sets forth the stock options and RSUs for
the years ended November 30 which were not considered in our
earnings per share calculation since they were antidilutive.
(millions)
Antidilutive securities
13. CAPITAL STOCK
2013 2012
2011
0.6
0.3
0.5
Holders of Common Stock have full voting rights except that (1) the
voting rights of persons who are deemed to own beneficially 10%
or more of the outstanding shares of Common Stock are limited to
10% of the votes entitled to be cast by all holders of shares of
Common Stock regardless of how many shares in excess of 10%
are held by such person; (2) we have 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 our com-
mon 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
60
shares of Common Stock, automatically, on a share-for-share basis,
all shares of Common Stock Non-Voting will convert into shares of
Common Stock.
Holders of Common Stock Non-Voting will vote as a separate
class on all matters on which they are entitled to vote. Holders of
Common Stock Non-Voting are entitled to vote on reverse mergers
and statutory share exchanges where our capital stock is converted
into other securities or property, dissolution of the Company and the
sale of substantially all of our assets, as well as forward mergers
and consolidation of the Company.
14. COMMITMENTS AND CONTINGENCIES
During the normal course of our business, we are occasionally
involved with various claims and litigation. Reserves are established
in connection with such matters when a loss is probable and the
amount of such loss can be reasonably estimated. At November 30,
2013 and 2012, no material reserves were recorded. No reserves are
established for losses which are only reasonably possible. The deter-
mination of probability and the estimation of the actual amount of
any such loss is inherently unpredictable, and it is therefore possible
that the eventual outcome of such claims and litigation could exceed
the estimated reserves, if any. However, we believe that the likeli-
hood that any such excess might have a material adverse effect on
our financial statements is remote.
15. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
Business Segments
We operate in two business segments: consumer and industrial.
The consumer and industrial segments manufacture, market and
distribute spices, seasoning mixes, condiments and other flavorful
products throughout the world. Our consumer segment sells to retail
outlets, including grocery, mass merchandise, warehouse clubs, dis-
count and drug stores under the “McCormick” brand and a variety of
brands around the world, including “Lawry’s”, “Zatarain’s”, “Simply
Asia”, “Thai Kitchen”, “Ducros”, “Vahiné”, “Schwartz”, “Club House”,
“Kamis”, “Koohinor” and “DaQiao”. Our industrial segment sells to
food manufacturers and the foodservice industry both directly and
indirectly through distributors.
In each of our segments, we produce and sell many individual
products which are similar in composition and nature. With their
primary attribute being flavor, we regard the products within each
of our segments to be fairly homogenous. It is impracticable to
segregate and identify sales and profits for each of these individual
product lines.
We measure segment performance based on operating income
excluding special charges and loss on voluntary pension settlement
as these activities are managed separately from the business seg-
ments. Although the segments are managed separately due to their
distinct distribution channels and marketing strategies, manufactur-
ing and warehousing are often integrated to maximize cost effi-
ciencies. We do not segregate jointly utilized assets by individual
segment for internal reporting, evaluating performance or allocating
capital. There fore, asset-related information has been disclosed in
the aggregate.
We have a large number of customers for our products. Sales to one of our consumer business customers, Wal-Mart Stores, Inc., accounted for
12% of consolidated sales in 2013 and 11% of consolidated sales in 2012 and 2011. Sales to one of our industrial business customers, PepsiCo,
Inc., accounted for 11% of consolidated sales in 2013, 2012 and 2011.
Accounting policies for measuring segment operating income and assets are consistent with those described in note 1. Because of integrated
manufacturing for certain products within the segments, products are not sold from one segment to another but rather inventory is transferred
at cost. Inter-segment sales are not material. Corporate assets include cash, deferred taxes, investments and certain fixed assets.
Business Segment Results
(millions)
2013
Net sales
Operating income excluding special charges and
loss on voluntary pension settlement
Income from unconsolidated operations
Goodwill
Assets
Capital expenditures
Depreciation and amortization
2012
Net sales
Operating income
Income from unconsolidated operations
Goodwill
Assets
Capital expenditures
Depreciation and amortization
2011
Net sales
Operating income
Income from unconsolidated operations
Goodwill
Assets
Capital expenditures
Depreciation and amortization
Consumer
Industrial
Total
segments
Corporate
& other
Total
$2,538.0
$1,585.4
$4,123.4
—
$4,123.4
472.3
19.5
1,654.7
—
—
—
$2,415.3
456.1
17.3
1,551.0
—
—
—
$2,199.9
428.4
20.5
1,550.7
—
—
—
118.5
3.7
143.8
—
—
—
$1,598.9
122.2
4.2
144.3
—
—
—
$1,497.7
111.9
4.9
143.5
—
—
—
590.8
23.2
1,798.5
4,142.9
84.2
74.8
$4,014.2
578.3
21.5
1,695.3
3,912.2
88.8
75.1
$3,697.6
540.3
25.4
1,694.2
3,895.6
74.8
76.2
—
—
—
$306.8
15.7
31.2
—
—
—
—
$253.2
21.5
27.7
—
—
—
—
$192.2
21.9
22.1
590.8
23.2
1,798.5
4,449.7
99.9
106.0
$4,014.2
578.3
21.5
1,695.3
4,165.4
110.3
102.8
$3,697.6
540.3
25.4
1,694.2
4,087.8
96.7
98.3
A reconciliation of operating income excluding special charges and loss on voluntary pension settlement (which we use to measure segment prof-
itability) to operating income is as follows:
(millions)
2013
Operating income excluding special charges and loss on voluntary pension settlement
Less: Special charges
Less: Loss on voluntary pension settlement
Operating income
Total
$590.8
25.0
15.3
$550.5
McCormick & Company 2013 Annual Report 61
Geographic Areas
We have net sales and long-lived assets in the following geographic areas:
(millions)
2013
Net sales
Long-lived assets
2012
Net sales
Long-lived assets
2011
Net sales
Long-lived assets
United
States
$2,357.0
1,275.7
$2,351.5
1,291.5
$2,220.8
1,284.1
EMEA
$883.4
989.2
$860.5
956.6
$770.8
968.3
Other
countries
$883.0
443.6
$802.2
318.0
$706.0
314.9
Total
$4,123.4
2,708.5
$4,014.2
2,566.1
$3,697.6
2,567.3
Long-lived assets include property, plant and equipment, goodwill and intangible assets, net of accumulated depreciation and amortization.
(millions)
Depreciation
Software amortization
Interest paid
Income taxes paid
2013
2012
2011
$ 67.5
23.6
54.2
106.3
$ 63.6
23.7
54.7
103.3
$ 58.1
24.4
49.6
103.5
(millions)
2013
2012
Accumulated other comprehensive loss,
net of tax where applicable
Foreign currency translation adjustment
Unrealized loss on foreign currency
exchange contracts
Unamortized value of settled interest
rate swaps
Pension and other postretirement costs
$ 165.7
$ 166.3
(0.3)
(1.6)
2.0
(167.7)
(4.1)
(320.5)
$
(0.3)
$ (159.9)
Dividends paid per share were $1.36 in 2013, $1.24 in 2012 and $1.12
in 2011.
16. SUPPLEMENTAL FINANCIAL STATEMENT DATA
Supplemental income statement, balance sheet and cash flow
information follows:
2013
2012
$ 304.6
372.3
$ 273.2
341.8
$ 676.9
$ 615.0
$ 37.7
97.1
$ 34.6
90.9
$ 134.8
$ 125.5
$ 59.3
335.4
661.3
292.5
59.2
(831.1)
$ 43.0
324.9
638.1
275.4
51.7
(785.8)
$ 576.6
$ 547.3
$ 160.6
103.4
19.3
87.7
$ 141.7
86.1
28.4
57.7
$ 371.0
$ 313.9
$ 120.4
124.5
216.8
$ 127.6
118.0
173.6
$ 461.7
$ 419.2
$ 101.0
88.2
139.3
53.0
38.4
$ 263.4
105.5
56.8
41.3
31.4
$ 419.9
$ 498.4
(millions)
Inventories
Finished products
Raw materials and work-in-process
Prepaid expenses
Other current assets
Property, plant and equipment
Land and improvements
Buildings
Machinery and equipment
Software
Construction-in-progress
Accumulated depreciation
Investments and other assets
Investments in affiliates
Long-term investments
Prepaid allowances
Other assets
Other accrued liabilities
Payroll and employee benefits
Sales allowances
Other
Other long-term liabilities
Pension
Postretirement benefits
Deferred taxes
Income taxes payable
Other
62
17. SELECTED QUARTERLY DATA (UNAUDITED)
(millions except per share data)
First
Second
Third
Fourth
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness
of our disclosure controls and procedures, as defined in Rule 13a-15(e)
of the Securities Exchange Act of 1934, as of the end of the period
covered by this report. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that, as of the end of
the period covered by this report, our disclosure controls and proce-
dures were effective.
Internal Control over Financial Reporting
Management’s report on our internal control over financial reporting
and the report of our Independent Registered Public Accounting Firm
on internal control over financial reporting are included in our 2013
financial statements in Item 8 of this Report under the captions enti-
tled “Report of Management” and “Report of Independent Registered
Public Accounting Firm.” No change occurred in our “internal control
over financial reporting” (as defined in Rule 13a-15(f)) during our last
fiscal quarter which has materially affected or is reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
2013
Net sales
Gross profit
Operating income
Net income
Basic earnings per share
Diluted earnings per share
Dividends paid per share—
Common Stock and
Common Stock Non-Voting
Market price—Common Stock
$934.4
361.7
112.0
76.0
0.57
0.57
$1,002.6
394.4
116.0
78.6
0.60
0.59
$1,016.4
407.6
148.4
104.4
0.79
0.78
$1,170.1
502.2
174.1
129.9
0.99
0.98
0.34
0.34
0.34
0.34
High
Low
67.28
61.03
74.60
68.08
73.41
66.85
70.00
63.29
Market price—Common Stock
Non-Voting
High
Low
2012
Net sales
Gross profit
Operating income
Net income
Basic earnings per share
Diluted earnings per share
Dividends paid per share—
Common Stock and
Common Stock Non-Voting
Market price—Common Stock
67.32
61.23
74.76
68.39
73.36
67.09
70.20
64.07
$906.7
355.3
112.5
74.5
0.56
0.55
$ 984.0
388.4
121.3
80.4
0.61
0.60
$ 977.7
391.7
144.2
104.4
0.79
0.78
$1,145.8
482.4
200.2
148.5
1.12
1.11
0.31
0.31
0.31
0.31
High
Low
51.91
48.52
57.26
50.57
61.45
55.08
66.00
61.01
Market price—Common Stock
Non-Voting
High
Low
52.07
48.54
57.40
50.43
61.89
55.18
66.37
61.20
Operating income for the fourth quarter of 2013 includes $25.0 mil-
lion for special charges related to EMEA reorganization activities
and $15.3 million for loss on voluntary pension settlement. The after
tax impact of these two items is $29.2 million and the basic and
diluted earnings per share impact is $0.22.
McCormick & Company 2013 Annual Report 63
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE
Information responsive to this item is set forth in the sections titled
“Corporate Governance,” “Election of Directors” and “Section 16(a)
Beneficial Ownership Reporting Compliance” in our 2014 Proxy
Statement, incorporated by reference herein, to be filed within 120
days after the end of our fiscal year.
In addition to the executive officers described in the 2014 Proxy
Statement incorporated by reference in this Item 10 of this Report,
the following individuals are also executive officers of McCormick:
Paul C. Beard and Cecile K. Perich.
Mr. Beard is 59 years old and, during the last five years, has held the
following positions with McCormick: September 2013 to present—
Senior Vice President Finance; January 2011 to September 2013—
President Asia Pacific Zone; April 2008 to December 2010—Senior
Vice President Finance & Treasurer; March 2002 to April 2008—
Vice President Finance.
Ms. Perich is 62 years old and, during the last five years, has held
the following positions with McCormick: April 2010 to present—
Senior Vice President—Human Relations; January 2007 to April
2010—Vice President—Human Relations.
We have adopted a code of ethics that applies to all employees,
including our principal executive officer, principal financial officer,
principal accounting officer and our Board of Directors. A copy
of the code of ethics is available on our internet website at
www.mccormickcorporation.com. We will satisfy the disclosure
requirement under Item 5.05 of Form 8-K regarding any material
amendment to our code of ethics, and any waiver from a provision
of our code of ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer, or persons
performing similar functions, by posting such information on our
website at the internet website address set forth above.
ITEM 11. EXECUTIVE COMPENSATION
Information responsive to this item is incorporated herein by
reference to the sections titled “Compensation of Directors,”
“Compensation Discussion and Analysis,” “Compensation Committee
Report,” “Summary Compensation Table,” “Grants of Plan-Based
Awards,” “Narrative to the Summary Compensation Table,”
“Outstanding Equity Awards at Fiscal Year-End,” “Option Exercises
and Stock Vested in Last Fiscal Year,” “Pension Benefits,” “Non-
Qualified Deferred Compensation,” “Potential Payments Upon
Termination or Change in Control,” “Compensation Committee
Interlocks and Insider Participation” and “Equity Compensation
Plan Information” in the 2014 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information responsive to this item is incorporated herein by refer-
ence to the sections titled “Principal Stockholders,” “Election of
Directors” and “Equity Compensation Plan Information” in the 2014
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information responsive to this item is incorporated herein by refer-
ence to the section entitled “Corporate Governance” in the 2014
Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information responsive to this item is incorporated herein by
reference to the section titled “Report of Audit Committee and
Fees of Independent Registered Public Accounting Firm” in the
2014 Proxy Statement.
64
PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
List of documents filed as part of this Report.
1. Consolidated Financial Statements
The Consolidated Financial Statements for McCormick & Company,
Incorporated and related notes, together with the Report of
Management, and the Report of Ernst & Young LLP dated
January 29, 2014, are included herein in Part II, Item 8.
2. Consolidated Financial Statement Schedule
Supplemental Financial Schedule:
II—Valuation and Qualifying Accounts
Schedules other than that 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.
3. Exhibits required to be filed by Item 601 of Regulation SK
The information called for by this item is incorporated herein by
reference from the Exhibit Index included in this Report.
McCormick & Company 2013 Annual Report 65
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, McCormick has duly caused this report on Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
McCORMICK & COMPANY, INCORPORATED
By:
/s/ AlAn D. Wilson
Alan D. Wilson
Chairman, President & Chief Executive Officer
January 29, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of
McCormick and in the capacities and on the dates indicated.
Principal Executive Officer:
By:
/s/ AlAn D. Wilson
Alan D. Wilson
Principal Financial Officer:
By:
/s/ GorDon M. stetz, Jr.
Gordon M. Stetz, Jr.
Principal Accounting Officer:
By:
/s/ ChristinA M. MCMullen
Christina M. McMullen
Chairman, President & Chief Executive Officer
January 29, 2014
Executive Vice President & Chief Financial Officer
January 29, 2014
Vice President & Controller
January 29, 2014
66
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:
SIGNATURES
THE BOARD OF DIRECTORS:
/s/ John P. BilBrey
John P. Bilbrey
/s/ J. MiChAel FitzPAtriCk
J. Michael Fitzpatrick
/s/ FreeMAn A. hrABoWski, iii
Freeman A. Hrabowski, III
/s/ PAtriCiA little
Patricia Little
/s/ MiChAel D. MAnGAn
Michael D. Mangan
/s/ MArGAret M.V. Preston
Margaret M.V. Preston
/s/ GeorGe A. roChe
George A. Roche
/s/ GorDon M. stetz, Jr.
Gordon M. Stetz, Jr.
/s/ WilliAM e. steVens
William E. Stevens
/s/ JACques tAPiero
Jacques Tapiero
/s/ AlAn D. Wilson
Alan D. Wilson
DATE:
January 29, 2014
January 29, 2014
January 29, 2014
January 29, 2014
January 29, 2014
January 29, 2014
January 29, 2014
January 29, 2014
January 29, 2014
January 29, 2014
January 29, 2014
McCormick & Company 2013 Annual Report 67
Supplemental Financial Schedule II Consolidated
McCORMICK & COMPANY, INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
Column A
Description
Deducted from asset accounts:
Year ended November 30, 2013:
Allowance for doubtful receivables
Valuation allowance on net deferred tax assets
Deducted from asset accounts:
Year ended November 30, 2012:
Allowance for doubtful receivables
Valuation allowance on net deferred tax assets
Deducted from asset accounts:
Year ended November 30, 2011:
Allowance for doubtful receivables
Valuation allowance on net deferred tax assets
Column B
Column C Additions
Column D
Column E
Balance at
Beginning of
Period
Charged to
Costs and
Expenses
Charged to
Other
Accounts
Deductions
Balance at
End of Period
$ 4.0
27.5
$ 31.5
$ 4.5
26.6
$ 31.1
$ 2.9
22.9
$ 25.8
$1.5
5.2
$ 6.7
$ 0.7
2.3
$ 3.0
$ 1.1
5.2
$ 6.3
$(0.1)
(1.6)
$(1.7)
—
$ 0.8
$ 0.8
$ 1.7
0.9
$ 2.6
$ (1.3)
(9.9)
$(11.2)
$ (1.2)
(2.2)
$ (3.4)
$ (1.2)
(2.4)
$ (3.6)
$ 4.1
21.2
$25.3
$ 4.0
27.5
$31.5
$ 4.5
26.6
$31.1
68
The following exhibits are attached or incorporated herein by reference:
EXHIBIT INDEX
Exhibit Number
Description
(3)
(i)
Articles of Incorporation and By-Laws
Restatement of Charter of McCormick & Company, Incorporated
dated April 16, 1990
Articles of Amendment to Charter of McCormick & Company,
Incorporated dated April 1, 1992
Articles of Amendment to Charter of McCormick & Company,
Incorporated dated March 27, 2003
(ii)
By-Laws
By-Laws of McCormick & Company, Incorporated
Amended and Restated on June 26, 2012
Incorporated by reference from Exhibit 4 of Registration Form
S-8, Registration No. 33-39582 as filed with the Securities and
Exchange Commission on March 25, 1991.
Incorporated by reference from Exhibit 4 of Registration Form
S-8, Registration Statement No. 33-59842 as filed with the
Securities and Exchange Commission on March 19, 1993.
Incorporated by reference from Exhibit 4 of Registration Form
S-8, Registration Statement No. 333-104084 as filed with the
Securities and Exchange Commission on March 28, 2003.
Incorporated by reference from Exhibit 3(ii) of McCormick’s
Form 10-Q for the quarter ended May 31, 2012, File No.
1-14920, as filed with the Securities and Exchange Commission
on July 2, 2012.
(4)
Instruments defining the rights of security holders, including indentures
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
See Exhibit 3 (Restatement of Charter and By-Laws)
Summary of Certain Exchange Rights, incorporated by reference from Exhibit 4.1 of McCormick’s Form 10-Q for the quarter
ended August 31, 2001, File No. 0-748, as filed with the Securities and Exchange Commission on October 12, 2001.
Indenture dated December 5, 2000 between McCormick and SunTrust Bank, incorporated by reference from Exhibit 4(iii) of
McCormick’s Form 10-Q for the quarter ended August 31, 2003, File No. 1-14920, as filed with the Securities and Exchange
Commission on October 14, 2003.
Indenture dated December 7, 2007 between McCormick and The Bank of New York, incorporated by reference from Exhibit 4.1
of McCormick’s Form 8-K dated December 4, 2007, File No. 0-748, as filed with the Securities and Exchange Commission on
December 10, 2007.
Indenture dated July 8, 2011 between McCormick and U.S. Bank National Association, incorporated by reference from Exhibit 4.1 of
McCormick’s Form 8-K dated July 5, 2011, File No. 1-14920, as filed with the Securities and Exchange Commission on July 8, 2011.
Form of 5.20% notes due 2015, incorporated by reference from Exhibit 4.2 of McCormick’s Form 8-K dated December 1, 2005,
File No. 0-748, as filed with the Securities and Exchange Commission on December 6, 2005.
Form of 5.75% notes due 2017, incorporated by reference from Exhibit 4.2 of McCormick’s Form 8-K dated December 4, 2007,
File No. 0-748, as filed with the Securities and Exchange Commission on December 10, 2007.
Form of 5.25% notes due 2013 (issued pursuant to an Indenture between McCormick and The Bank of New York Mellon, formerly
known as The Bank of New York, as trustee, a copy of which was filed with the Securities and Exchange Commission as Exhibit 4.1
to McCormick’s Form 8-K on December 10, 2007, File No. 0-748), incorporated by reference from Exhibit 4.1 of McCormick’s Form
8-K dated September 3, 2008, File No. 1-14920, as filed with the Securities and Exchange Commission on September 4, 2008.
Form of 3.90% notes due 2021, incorporated by reference from Exhibit 4.2 of McCormick’s Form 8-K dated July 5, 2011, File No.
1-14920, as filed with the Securities and Exchange Commission on July 8, 2011.
Form of 3.50% notes due 2023, incorporated by reference from Exhibit 4.2 of McCormick’s Form 8-K dated August 14, 2013, File
No. 1-14920, as filed with the Securities and Exchange Commission on August 19, 2013.
(10)
Material contracts
(i) McCormick’s supplemental pension plan for certain senior and executive officers, amended and restated with an effective date of
January 1, 2005, adopted by the Compensation Committee of the Board of Directors on November 28, 2008, which agreement is
incorporated by reference from Exhibit 10(i) of McCormick’s 10-K for the fiscal year ended November 30, 2009, File No. 1-14920,
as filed with the Securities and Exchange Commission on January 28, 2010.*
(ii)
The 2001 Stock Option Plan, in which officers and certain other management employees participate, is set forth on pages 33
through 36 of McCormick’s definitive Proxy Statement dated February 15, 2001, File No. 1-14920, as filed with the Securities and
Exchange Commission on February 14, 2001, and incorporated by reference herein.*
McCormick & Company 2013 Annual Report 69
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
(xiii)
(xiv)
Exhibit Number
Description
2004 Long-Term Incentive Plan, in which officers and certain other management employees participate, is set forth in Exhibit A
of McCormick’s definitive Proxy Statement dated February 17, 2004, File No. 1-14920, as filed with the Securities and Exchange
Commission on February 17, 2004, and incorporated by reference herein.*
2004 Directors’ Non-Qualified Stock Option Plan, provided to members of McCormick’s Board of Directors who are not also
employees of McCormick, is set forth in Exhibit B of McCormick’s definitive Proxy Statement dated February 17, 2004, File
No. 1-14920, as filed with the Securities and Exchange Commission on February 17, 2004, and incorporated by reference herein.*
Directors’ Share Ownership Program, provided to members of McCormick’s Board of Directors who are not also employees of
McCormick, is set forth on page 28 of McCormick’s definitive Proxy Statement dated February 17, 2004, File No. 1-14920, as
filed with the Securities and Exchange Commission on February 17, 2004, and incorporated by reference herein.*
Deferred Compensation Plan, as restated on January 1, 2000, and amended on August 29, 2000, September 5, 2000 and May 16,
2003, in which directors, officers and certain other management employees participate, a copy of which Plan document and
amendments was attached as Exhibit 10(viii) of McCormick’s Form 10-Q for the quarter ended August 31, 2003, File No. 1-14920,
as filed with the Securities and Exchange Commission on October 14, 2003, and incorporated by reference herein.*
2005 Deferred Compensation Plan, amended and restated with an effective date of January 1, 2005, in which directors, officers and
certain other management employees participate, which agreement is incorporated by reference from Exhibit 4.1 of McCormick’s
Form S-8, Registration No. 333-155775, as filed with the Securities and Exchange Commission on November 28, 2008.*
The 2007 Omnibus Incentive Plan, in which directors, officers and certain other management employees participate, is set forth in
Exhibit A of McCormick’s definitive Proxy Statement dated February 20, 2008, File No. 1-14920, as filed with the Securities and
Exchange Commission on February 20, 2008, and incorporated by reference herein, as amended by Amendment No. 1 thereto, which
Amendment is incorporated by reference from Exhibit 10(xi) of McCormick’s 10-K for the fiscal year ended November 30, 2008, File
No. 1-14920, as filed with the Securities and Exchange Commission on January 28, 2009.*
The 2013 Omnibus Incentive Plan, in which directors, officers and certain other management employees participate, is incorporated
by reference from Exhibit 4.1 of McCormick’s Form S-8, Registration No. 333-187703, as filed with the Securities and Exchange
Commission on April 3, 2013.*
Form of Mid-Term Incentive Program Agreement, incorporated by reference from Exhibit 10(x) of McCormick’s Form 10-Q for the
quarter ended May 31, 2013, File No. 1-14920, as filed with the Securities and Exchange Commission on June 28, 2013.
Form of Restricted Stock Units Agreement, incorporated by reference from Exhibit 10(xi) of McCormick’s Form 10-Q for the
quarter ended May 31, 2013, File No. 1-14920, as filed with the Securities and Exchange Commission on June 28, 2013.
Form of Restricted Stock Units Agreement for Directors, incorporated by reference from Exhibit 10(xi) of McCormick’s Form 10-Q
for the quarter ended May 31, 2013, File No. 1-14920, as filed with the Securities and Exchange Commission on June 28, 2013.
Form of Non-Qualified Stock Option Agreement, incorporated by reference from Exhibit 10(xiii) of McCormick’s Form 10-Q for
the quarter ended May 31, 2013, File No. 1-14920, as filed with the Securities and Exchange Commission on June 28, 2013.
Form of Non-Qualified Stock Option Agreement for Directors, incorporated by reference from Exhibit 10(xiv) of McCormick’s Form
10-Q for the quarter ended May 31, 2013, File No. 1-14920, as filed with the Securities and Exchange Commission on June 28, 2013.
Subsidiaries of McCormick
Filed herewith
Consents of experts and counsel
Filed herewith
Rule 13a-14(a)/15d-14(a) Certifications Filed herewith
Section 1350 Certifications
Filed herewith
The following financial information from the Annual Report on Form 10-K of McCormick for the year ended November 30, 2013,
furnished electronically herewith, and formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated
Balance Sheets; (ii) Condensed Consolidated Statements of Income; (iii) Condensed Consolidated Statement of Stockholders’
Equity and Comprehensive Income; (iv) Condensed Consolidated Statements of Cash Flows; and (v) Notes to the Condensed
Consolidated Financial Statements.
* Management contract or compensatory plan or arrangement.
McCormick hereby undertakes to furnish to the Securities and Exchange Commission, upon its request, copies of additional instru-
ments of McCormick with respect to long-term debt that involve an amount of securities that do not exceed 10 percent of the total
assets of McCormick and its subsidiaries on a consolidated basis, pursuant to Regulation S-K, Item 601(b)(4)(iii)(A).
(21)
(23)
(31)
(32)
(101)
70
END OF ANNUAL REPORT
ON FORM 10-K
McCormick & Company 2013 Annual Report 71
Investor Services Plan (Dividend Reinvestment and
Direct Purchase Plan)
We offer an Investor Services Plan which provides sharehold-
ers of record the opportunity to automatically reinvest divi-
dends, make optional cash purchases of stock, place stock
certificates into safekeeping and sell shares. Individuals who
are not current shareholders may purchase their initial shares
directly through the Plan. All transactions are subject to the
limitations set forth in the Plan prospectus, which may be
obtained by contacting our transfer agent.
Registered Shareholder Inquiries
For questions on your account, statements, dividend payments,
reinvestment and direct deposit, and for address changes,
lost certificates, stock transfers, ownership changes or other
admin istrative matters, contact our transfer agent.
Transfer Agent and Registrar
Wells Fargo Bank, N.A.
Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120-4100
(877) 778-6784 or (651) 450-4064
www.shareowneronline.com
Annual Meeting
The annual meeting of shareholders will be held at 10 a.m.,
Wednesday, March 26, 2014, at Martin’s Valley Mansion,
594 Cranbrook Road, Hunt Valley, MD 21030.
Electronic Delivery of Annual Report and Proxy Statement
If you would like to receive next year’s annual report and
proxy statement electronically, you may enroll on the
website below:
http://enroll.icsdelivery.com/mkc
Trademarks
Use of ® or ™ in this annual report indicates trademarks
including those owned or used by McCormick & Company,
Incorporated and its subsidiaries and affiliates.
I n v es to r I n f o r m at I o n
World Headquarters
McCormick & Company, Incorporated
18 Loveton Circle
Sparks, MD 21152-6000
U.S.A.
(410) 771-7301
www.mccormickcorporation.com
Stock Listing
New York Stock Exchange
Symbol: MKC
Anticipated Dividend Dates—2014
Record Date
Payment Date
4/21/14
4/07/14
7/21/14
7/07/14
10/27/14
10/13/14
1/14/15
12/31/14
McCormick has paid dividends every year since 1925.
Independent Registered Public Accounting Firm
Ernst & Young LLP
621 East Pratt Street
Baltimore, MD 21202
Investor Inquiries
Our investor website, ir.mccormick.com, contains our annual
reports, Securities & Exchange Commission (SEC) filings,
press releases, webcasts, corporate governance principles
and other information.
To obtain without cost a copy of the annual report filed
with the SEC on Form 10-K or for general questions about
McCormick or the information in our annual or quarterly
reports, contact Investor Relations at the world headquarters
address, investor website or telephone:
Report ordering:
Proxy materials: (800) 579-1639
Other materials: (800) 424-5855, (410) 771-7537
or ir.mccormick.com
Investor and securities analysts’ inquiries:
(410) 771-7244
72
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corporate Social responsibility
at Mccormick, we are growing our business globally while driving positive change to
the environment, within our communities, and for our employees.
As a global flavor company, we are sensitive to the issues facing the world at large, our
nation and the local communities where we live and work. Since our earliest days as a
company, we have held a strong commitment to the communities we are a part of and the
planet as a whole.
We are now increasingly focused on the alignment of our corporate social responsibility
(CSR) efforts with our business objectives and strategy recognizing that these efforts are
integrally tied to our business success. From our philanthropic work to the way we run our
business, we are committed to protecting the environment and supporting our communities
across the globe.
Our cSr GOalS fOr 2018
Power of
People™
empowering people and
Improving Communities
Taste You
Trust™
Investing in Quality,
sustainable Agriculture
Inspiring Healthy
Choices
providing Healthy Flavor
solutions
Delivering High
Performance
Improving operational
Impact and efficiencies
Goals:
• Promote an inclusive
environment globally.
• Exceed best-in-class
employee engagement
levels.
• Identify baseline global
employee volunteer hours
by 2014. Global employee
volunteer hours will equal
or exceed 100,000 hours
per year.
Goals:
• Create a more sustainable
product supply chain from
farm to finished product.
• 50% funding increase for
farming community pro-
grams to include complet-
ing and sustaining farming
projects assisting local
farmers in improving
their quality of life and
livelihoods.
Goals:
• Launch the McCormick
employee Eating Well
program globally.
• 20% increase in global
marketing investment
aimed at educating con-
sumers and industry lead-
ers on the role of flavor
in healthier eating.
Goals:*
• 25% reduction in bottle
packaging weight using
sustainable methods.
• Reduce electricity use
by 20%.
• Reduce water use by 20%.
• Reduce solid waste by 50%.
• Reduce greenhouse gases
by 10%.
* adjusted for product mix effects
and production volume.
For more information, visit www.mccormickcorporation.com or write responsibility@mccormick.com.
McCormick & Company 2013 Annual Report 73
McCormick & Company, Incorporated
18 Loveton Circle, Sparks, Maryland 21152-6000 U.S.A. 410-771-7301 www.mccormickcorporation.com