Forward
201 5 A NNUA L REP ORT
CONTENTS:
2 Letter to Shareholders 8 People 10 Growth
12 Performance—Financial Highlights 14 Directors and Officers 15 A Tribute to Alan Wilson
16 Form 10-K Index 17 Form 10-K 76 Investor Information 77 Corporate Social Responsibility
CORIANDER
Warm lemony coriander is popular among many world cuisines. It enhances meat and seafood rubs, curry, chili, vegetables—even gingerbread and
apple pie. It’s also wonderful on pastries, cottage cheese and other mild cheese dishes, fresh mushrooms, pea soup, stews, corn and green beans.
Coriander is one of the aromatic spices found in Malaysian Rendang Curry which is included in our 2016 Flavor Forecast® Tropical Asian trend.
Food brings people together—and people everywhere rely on
McCormick for the best products and purest flavors to make great-
tasting meals. In markets around the world, demand for real food and
bold flavors is rising. Together with McCormick’s high performance
culture, this set the stage for our strong performance in 2015.
Dear Fellow
Shareholders:
Alan D. Wilson, Chairman &
Chief Executive Officer, and
Lawrence E. Kurzius, President
& Chief Operating Officer, in
McCormick’s new U.S. Consumer
Product Development Lab.
Consumers around the world are exploring new flavors—
and also becoming increasingly interested in the
source and quality of their food.
At McCormick, our products are well-aligned with these
trends, which contributed to strong sales growth in 2015—
along with three acquisitions, product innovation and
increased brand marketing. We are fueling our growth
investments with cost-savings programs that delivered
a record $98 million this year. As we look to the future,
we see continued momentum and business growth.
PERFORMANCE
In 2015, we were pleased with our underlying financial
performance. We had strong sales growth on a constant
currency basis, a significant increase in cost savings and
another year of substantial cash flow.
Net sales rose 1%. Excluding the impact of unfavorable
currency rates, we grew net sales 6% through product
innovation, brand marketing and expanded distribution.
We completed three acquisitions that also contributed to
this growth, along with pricing actions. Both our consumer
and industrial segments achieved a strong rate of sales
growth in constant currency. On this basis, consumer sales
rose 5% with broad-based growth across each region. We
grew industrial sales in constant currency 8%, including a
strong increase in international markets.
We reported operating income of $548 million. Excluding
the impact of special charges, operating income was $614
million in 2015 compared to $608 million in 2014. A record
$98 million in costs savings achieved this year provided fuel
2
2
for a 6% increase in brand marketing and helped offset
increased costs in materials and employee benefits.
In 2015, our earnings per share was $3.11. Excluding the
impact of special charges, adjusted earnings per share rose
3% to $3.48 from $3.37 in 2014. Higher operating income
contributed to this increase, as well as another year of
excellent performance by our joint venture in Mexico and
our share repurchase activity. These gains were offset in
The McCormick Flavor
Forecast inspires culinary
exploration by capturing
the leading trends, insights
and ingredients in food
and flavor.
part by the unfavorable impact of currency rates on
earnings per share.
We have a long history of strong cash flow and
returning cash to shareholders. In 2015, we reached
$590 million of cash flow and returned $351 million to our
shareholders through dividends and share repurchases.
Our focus on performance, growth and people is
driving strong long-term results and shareholder return
that has exceeded both the broader market and food
group in the past 5-, 10- and 20-year periods.
GROWTH
For more than a decade, we have delivered strong and
steady financial performance with an effective growth
model. We invest in the business to drive sales and profit,
and fuel this growth with cost savings.
Our growth model begins with growing sales and we
are delivering strong results. Since 2010, we grew sales at
a compound annual growth rate of 5%, which is right in
line with our long-term objective of 4% to 6%. We expect
to drive this growth through our base business, innovation
and acquisitions.
Across all of our markets, we increased brand marketing
support by 6% in 2015. Increasingly, we are shifting toward
digital marketing, which comprised 38% of our advertising,
up from 11% in 2011. Digital marketing creates a direct
connection to consumers, including Millennials, who
view the McCormick brand positively. As an example, our
mccormick.com site has become a top 50 most visited food/
lifestyle site. Our leadership in this area was recognized once
again in 2015 with a Top 5 ranking among over 100 food
brands by L2, a business intelligence service, in its Digital IQ
Index. This ranking included our work in e-commerce and
our advances in this rapidly growing channel have also
earned us recognition from our customers.
In 2015, we had efforts underway to improve
performance in our consumer segment in the United States,
where consumer interest in flavor is driving mid-single
digit category growth for spices and seasonings. We made
significant progress with these efforts and, in each quarter
of 2015, achieved sequential increases in retail consumption
of our brands. During the 2015 holiday season, we launched
a purity campaign to emphasize the quality of our products
with the tagline “pure tastes better.” We also committed
to labeling over 70% of our spices, herbs and extracts as
not containing genetically modified organisms (non-GMO)
by the end of 2016.
In China, now our second largest market, we grew
sales 9%. In 2015, McCormick gained share in our top three
categories for our consumer business and the addition
of Wuhan Asia Pacific Condiments in 2013 continues to
accelerate our growth. The multinational quick service
restaurants we supply continue to expand in this market
with new locations, driving sales for our industrial business.
To support growth across both businesses, we are expanding
our manufacturing capacity in China and opened a new
headquarter facility in 2015.
Around the world, 8% of our 2015 sales came from new
products launched in the past three years. In the Americas
consumer business, our latest additions included flavored
sea salt grinders, slow cooker sauces and stock cubes. We
have also expanded our grilling products across Europe with
strong results not only in developed markets like the U.K. and
France, but also in Poland and other parts of Eastern Europe.
Building on the success of our ketchup pouch in China, we are
introducing a Thai chili sauce pouch. For our industrial business,
health and wellness are important product attributes for
5%
Since 2010, we grew sales at a compound annual
growth rate of 5%.
8%
Around the world, 8% of our 2015 sales came from
new products launched in the past three years.
$98M
In 2015, we stepped up our CCI program and
organization and streamlining actions, achieving
$98 million in cost savings, a 42% increase from
the previous record.
our customers, accounting for approximately 40% of our
new product projects in 2015. We have a robust pipeline
of innovation for both segments of our business heading
into 2016.
We are also working to keep our core business relevant
to consumers, especially Millennial consumers. Based on
consumer insights, we re-launched our entire premium
gourmet line in the U.S. As part of this relaunch, we:
Changed the label to show more of the product.
Introduced FlavorSealed technology to keep the product
fresher longer.
Added hot new items such as Sriracha seasonings and
chipotle pepper flakes.
Since this re-launch, retail sales have increased 5%. By the
end of 2016, we will convert 80% of these U.S. gourmet items
to organic, up from the recent level of 10%.
McCormick & Company | 2015 Annual Report 3
Page 4 McCormick
Dividends Declared
(dollars)
’11
’12
’13
’14
’15
$1.15
$1.27
$1.39
$1.51
$1.63
Page 4 McCormick
Our innovation spans eating occasions from snacking to
special meals and is based on consumer insights.
Dividends Declared
(dollars)
Dividends Declared
0
’11
’12
’13
’14
’15
1
2
$1.15
$1.27
$1.39
$1.51
$1.63
McCormick has increased its dividend in each of the past 30 years.
We have paid a dividend for 90 consecutive years.
Total Annual Shareholder Return
Total Annual Shareholder Return
1-YR
5-YR
10-YR
20-YR
0
18%
17%
13%
13%
1
2
Total shareholder return has risen at a double-digit rate
for the past 1-, 5-, 10- and 20-year periods.
We expect about one-third of our long-term sales
growth to come from acquisitions, as it has over the last
five years. In 2015, we expanded our portfolio of leading
products with three new acquisitions:
0
Brand Aromatics expanded the range and authenticity of
11
savory products that we develop for industrial customers,
Total Annual Shareholder Return
and includes organic products.
22
We look forward to accelerating the growth for each
of these businesses with our capabilities in innovation and
brand marketing and our customer relationships.
In addition to acquisitions, we are expanding our
core business into new geographies. In the last 12 months,
construction began in Dubai to support the growth of
industrial segment customers in the Middle East and we cut
the ribbon on a new product development center in Brazil
to develop local flavors as our customers move into South
America. In addition, we are expanding distribution in our
consumer segment in Russia, new markets across Central
America and in China.
As we advance these growth strategies, we have added
momentum from the rising demand for flavor. Consumer
purchases for our largest category, spices and seasonings,
are projected to grow 4% annually in developed markets
through 2020. In emerging markets, the projected growth
rate is even higher at 8%, as these consumers trade up from
bulk purchase to spices and seasonings as branded, packaged
product. We are well-positioned to fully participate in this
growth in both developed and emerging markets.
We are fueling this growth through Comprehensive
Continuous Improvement (CCI), our productivity improvement
program. In 2015, we stepped up CCI and organization and
streamlining actions, achieving $98 million in cost savings,
a 42% increase from the previous record of $69 million in
2014. We have added resources to this activity and intend
to maintain this higher level of cost savings going forward.
Drogheria and Alimentari established a leading position
1-YR
for McCormick in Italy with a premium spice and seasoning
line that is exported to 60 countries.
17%
5-YR
18%
13%
10-YR
20-YR
Stubb’s complements our ever-growing line of popular
grilling products with the leading premium barbecue
sauce in the U.S.
13%
4
0
11
22
PEOPLE
McCormick employees throughout the company are
delivering high performance and growth. We engage our
employees through Multiple Management, a philosophy
of participation and inclusion that has been our foundation
for more than 80 years. Together we are driving growth
opportunities, addressing business challenges, and developing
careers and future business leaders. We want to recognize
all of our employees for their accomplishments and thank
them for their efforts behind our success.
McCormick’s Board of Directors and company leaders
have been shaping our strategy, business and resources to
maintain our momentum.
Following his promotion to President & COO early in
2015, Lawrence became a member of the Board in
November and has been appointed President & CEO
starting February 1, 2016.
Effective February 1, 2016, Alan will become Executive
Chairman of McCormick.
We appreciate the many contributions of John P. Bilbrey,
who joined the Board in 2005 and departed in 2015.
We welcomed two other new Board members: Maritza
Montiel, former Deputy CEO and Vice Chairman of
Deloitte LLP and Michael Conway, President, Global
Channel Development for Starbucks Coffee Company.
Their knowledge, insights and leadership will be valuable
assets as we position the company for the future.
Retiring from the company after years of distinguished
service and strong leadership were Cile Perich, Senior
Vice President, Human Relations and Paul Beard, Senior
Vice President, Finance.
During 2015, Brendan Foley, President, Global Consumer
Segment and North America and Lisa Manzone, Senior
Vice President, Human Relations joined the Management
Committee.
Our engaged employees, effective growth strategies
and a business aligned with today’s consumers have us
well-positioned for the future, and we are committed to
building the value of your investment in McCormick.
Alan D. Wilson
Chairman & Chief Executive Officer
Lawrence E. Kurzius
President & Chief Operating Officer
Management
Committee
Standing, left to right: Gordon Stetz, Malcolm Swift, Brendan Foley, Lisa Manzone
Seated, left to right: Lawrence Kurzius, Alan Wilson
McCormick & Company | 2015 Annual Report 5
OUR MISSION
To save your world from boring food!
OUR VISION
McCormick brings the joy of flavor to every day.
$10B
For our consumer segment, we have a leading
share of the $10 billion global spices and
seasonings category, 4x the size of the next
largest competitor.
18%
For our industrial segment, we have achieved
an 18% year-on-year increase in 2015 adjusted
operating income driven by sales growth,
cost savings and a shift toward more value-
added products.
6
6
These five pillars are the foundation
of our business and drive our success
in markets around the world.
Around the globe, home cooks and professional
chefs alike turn to McCormick for flavor and culinary
inspiration. We have substantial and sustained
investment to support innovation with product
development centers in 14 countries. Over the past
five years, we have increased brand marketing
support by 44% to better connect with consumers.
Globally, more than 10,000 McCormick employees
are engaged in McCormick’s participative culture and
driving our success.
Product quality and transparency are increasingly
important to today’s consumer. We are building
on our legacy of corporate social responsibility and
have set new goals to achieve by 2019. McCormick
ranked 27th among U.S. companies in the 2015
Newsweek Green Ranking.
Consumer interest in wellness continues to grow
and we are working to help them achieve a healthier
diet. We are pleased that the new 2015 Dietary
Guidelines for Americans recommends using spices
and herbs to help Americans reduce sodium in
their diets.
In the past 10 years, we grew sales 66%, increased
cash flow from operations 74% and delivered 13%
total annual shareholder return.
McCormick & Company | 2015 Annual Report 7
McCormick & Company | 2014 Annual Report 7
We have facilities in
more than 50 locations
in 26 countries.
5 Ready Talent, Fully Engaged
As our company expands and grows globally, we are strengthening and aligning our talent to
meet our business ambitions, ensuring that we have the organizational capacity to fuel growth.
In 2015, our focus on talent and capacity led to an increase in resources for strategic business
development, category management, an analytic center of excellence and improved productivity
while, at the same time, creating functional capacity in North America and Europe.
WIN event: Employees had a networking
opportunity with three members of McCormick’s
Board of Directors following a panel discussion
organized by McCormick’s Women’s International
Network (WIN). WIN is one of McCormick’s
five employee ambassador groups that offer
participants development opportunities while
strengthening our organization. New chapters
were formed in France and the U.K. in 2015.
8
Employees engaged in CCI/
expansion for growth in Poland:
In our operation in Poland and
locations around the world,
employees work together to
improve productivity and reduce
cost. Globally, over the past five
years, we have achieved more
than $351 million in cost savings.
We are strengthening our talent at the individual level.
Employees have the opportunity to build their skills on the
job and through our Multiple Management Boards, employee
ambassador groups or other networks.
Multiple Management is the foundation of McCormick’s
high performance culture and our leadership development
philosophy. Now in its 83rd year, hundreds of employees in
locations around the world have chosen to participate on one
of 16 Multiple Management Boards, developing core leadership
skills while working on projects that improve our business.
“MySuccess,” a comprehensive management tool,
supports employees taking charge of their performance
feedback, development and career progression. Employees
set specific goals, receive feedback from their supervisor,
and then are measured and rewarded based on a pay-for-
performance approach. Employees also enter their career
experiences, skills and aspirations in a Personal Profile
providing insights into our global talent review discussions.
This tool strengthens our robust talent review process as
we prepare our next generation of business leaders at
McCormick. It also provides our leaders with better visibility
to available talent for projects and assignments, while
providing employees with new opportunities.
We recognize that our global expansion requires diversity
in our workforce and an inclusive environment aligned with
our core values. Our work environment is designed to help
us value and respect one another, through our employee
ambassador groups and annual Diversity & Inclusion Day. In
2015, we introduced performance goals at the top levels of
our organization to measure our progress in creating an
even more diverse workforce.
From locations around the world, employees have clear
goals that are aligned with our growth strategies as part of
the culture of participation that is driving growth. McCormick
employees are the key ingredient to our success.
McCormick & Company | 2015 Annual Report 9
Win Share with Global Focus
Consumers today are exploring new flavors; using fresh, simple ingredients;
thinking more about the source and quality of their food; and making the
connection between good and wellness. As a global leader in flavor, McCormick
is well-aligned with these trends and keeping our product relevant to drive global
growth for our consumer segment and demand from our industrial customers.
Global consumption for our largest category, spices and seasonings, is projected
to grow at a mid-single digit annual rate through 2020.
In 2015, we completed three acquisitions:
Extending our footprint in Europe with Drogheria & Alimentari,
a leading brand of spices and herbs in Italy
Complementing our products that add flavor at the grill with
Stubb’s, the top U.S. premium barbecue sauce
Adding savory product capabilities, including organic, to our
industrial segment flavor solutions with U.S.-based Brand Aromatics
Also in the U.S., we achieved a category
share greater than 10% for our new
liquid skillet sauces just one year after
introduction and added slow cooker
varieties in 2015.
For industrial customers, approximately
40% of innovation is focused on products
that feature health and well ness attributes.
Our recent acquisition of Brand Aromatics
advances our savory flavor capabilities for
these customers.
Through acquisitions, we are expand-
ing the availability of our products and
geographic footprint. Our newest market
is Italy, where we have entered the market
with a leading brand. We are also expand-
ing facilities to support the global growth
of our multi-national industrial customers
in markets such as the Middle East, China
and South America.
With these growth strategies, we
have created significant momentum that
will spur continued innovation and carry
us into the future.
Along with rising demand for flavors, we
are working to build our brand equity.
Our investment in brand marketing rose
6% in 2015 and is up 44% from 2010.
Increasingly, we are shifting toward
digital marketing and have established
McCormick as a leader with customers
and consumers. In 2015, McCormick
ranked fifth out of 114 food brands in
the U.S. market in a “Digital IQ Index,”
which scores companies on factors such
as digital marketing presence and social
media community size, content and
engagement. We also use marketing to
distinguish us from the competition and,
in the latest holiday period, launched
our “purity” campaign to highlight the
superior quality of our products.
We are accelerating innovation that
is scalable globally and refreshing core
product lines for our consumer segment:
We continue to build out our array
of grilling seasoning, rubs and sauces,
especially across markets in Europe.
In the U.S. we re-launched our entire
gourmet line of spices and seasonings,
achieving a 5% increase in retail sales.
10
We continue to shape our product
portfolio to align with the interests
of today’s consumer. In 2015, we
committed to a goal to label over
70% of McCormick brand spices,
herbs and extracts in the U.S. as
non-GMO in the next year.
McCormick & Company | 2015 Annual Report 11
McCormick & Company | 2015 Annual Report 11
Superior Results, Consistently Delivered
FINANCIAL HIGHLIGHTS
For the year ended November 30 (millions except per share data)
2015
2014
% Change
Net sales
Gross profit
Gross profit margin
Operating income
Operating income margin
Net income
Earnings per share—diluted
Cash flow from operations
Dividends paid
Dividends paid per share
$4,296.3
1,737.3
$4,243.2
1,730.2
40.4%
548.4
12.8%
401.6
3.11
590.0
204.9
1.60
40.8%
603.0
14.2%
437.9
3.34
503.6
192.4
1.48
1.3%
0.4%
(9.1)%
(8.3)%
(6.9)%
17.2%
6.5%
8.1%
We are providing below certain non-GAAP financial results excluding items affecting comparability. The details
of these adjustments are provided in the Non-GAAP Financial Measures of the Management’s Discussion & Analysis
on pages 34 and 35.
Adjusted operating income
Adjusted operating income margin
Adjusted net income
Adjusted earnings per share—diluted
2015
2014
% Change
$ 613.9
$ 608.2
14.3%
449.5
3.48
14.3%
441.6
3.37
0.9%
1.8%
3.3%
SEGMENTS AT A GLANCE
We sell leading brands of spices, seasonings and other flavor products to a variety of retail outlets that include
grocery, mass merchandise, discount stores and e-commerce.
Consumer Segment
Products at every price point—premium gourmet
items to value-priced private label.
OUR MOST POPULAR BRANDS
Net Sales
Net Sales
(millions)
(millions)
Adjusted Operating Income
Adjusted Operating Income
(millions)
(millions)
$2,635
$1,999
$456
$402
12
2010
2015
2010
2015
Since 2010, we grew sales 32% and adjusted operating
Net Sales
income 13%.
(millions)
Adjusted Operating Income
(millions)
$1,661
140
$158
Consumers purchase our
brands in more than 140
countries and territories
$1,337
$107
Bertie
2010
2015
2010
2015
2195.833333
1756.666667
1317.500000
878.333333
439.166667
0.000000
1661.000000
1384.166667
1107.333333
830.500000
553.666667
276.833333
0.000000
395
316
237
158
79
0
158.000000
131.666667
105.333333
79.000000
52.666667
26.333333
0.000000
Net Sales by Segment and Region
20%
30%
34%
16%
Net Sales by
Segment and Region
40%
13%
8%
26%
Net Sales by Segment and Region
Net Sales by Segment and Region
40%
40%
14%
14%
8%
8%
DO NOT USE
DO NOT USE
DO NOT USE
DO NOT USE
DO NOT USE
DO NOT USE
8%
8%
5%
5%
5%
8%
Consumer Segment
Americas
Consumer Segment
Europe, Middle East
Americas
and Africa
Europe, Middle East
Asia/Pacific
and Africa
Asia/Pacific
Industrial Segment
Americas
Industrial Segment
Europe, Middle East
Americas
and Africa
Europe, Middle East
Asia/Pacific
and Africa
Asia/Pacific
25%
25%
Cost Savings from CCI
and Organization and
Streamlining Actions
CCI and Other Cost Savings
(millions)
(dollars in millions)
Uses of Cash Flow
from Operations
Net Sales by Segment and Region
13%
$98
20%
8%
$69
$63
$65
40%
$56
Uses of Cash Flow
’11
’12
5%
’13
8%
’14
’15
22%
In the last five years, we have
achieved $351 million in cost
savings.
26%
34%
40%
25%
30%
83.333333
66.666667
50.000000
33.333333
16.666667
16%
0.000000
Dividends
Net Share Repurchases
Acquisitions
13%
Capital Expenditures
Net Sales
(millions)
40%
8%
For the past decade, we have
Balanced Use of Cash
Adjusted Operating Income
had a balanced use of cash,
For the past decade, we have
(millions)
returning 46% to shareholders
had a balanced use of cash,
through dividends and share
returning 48% to shareholders
through dividends and share
repurchases, net of option
$2,635
repurchases, net of option
exercise proceeds.
exercise proceeds.
$456
40%
13%
$1,999
$402
26%
5%
8%
2015
Cost Savings From CCI Program
2015
Since its inception in 2009, we have
achieved $345 million in CCI-related
cost savings.
2010
Industrial Segment
2010
Globally, sell to nine of top 10 food and
beverage companies and each of the
CCI and Other Cost Savings
(dollars in millions)
Net Sales
Net Sales
(millions)
(millions)
Adjusted Operating Income
Adjusted Operating Income
(millions)
(millions)
top 10 foodservice restaurant chains.
$1,661
$158
$70
$1,337
$107
$65
$65
$63
Following growth of our customers, in
2015, opened product development lab
$42
in Brazil and broke ground on production
facility in Dubai.
$56
$54
One of the broadest ranges of flavor
’13
solutions in the industry; includes snack
seasonings, sandwich sauces, branded food
service products, premium gourmet items and
’12
’10
’11
’09
2010
2015
2010
2015
’14
’15
Since 2010, we grew sales 24% and adjusted operating
income 48%.
value-priced private label.
McCormick & Company | 2015 Annual Report 13
13%
8%
2195.833333
26%
1756.666667
5%
8%
1317.500000
878.333333
439.166667
0.000000
1661.000000
1384.166667
1107.333333
830.500000
553.666667
276.833333
0.000000
395
316
237
158
79
0
158.000000
131.666667
105.333333
79.000000
52.666667
26.333333
0.000000
Directors
and Officers
Standing, left to right: Gordon Stetz, Patricia Little,
Michael Conway, Michael Fitzpatrick, Freeman Hrabowski,
Michael Mangan, Maritza Montiel
Seated, left to right: Margaret Preston, Lawrence Kurzius,
Alan Wilson, Jacques Tapiero
BOARD OF DIRECTORS
Michael A. Conway 49
President,
Global Channel Development
Starbucks Corporation
Seattle, Washington
Director since 2015
Audit Committee
J. Michael Fitzpatrick 69
Former Chairman and
Chief Executive Officer
Citadel Plastics Holdings, Inc.
Radnor, Pennsylvania
Director since 2001
Audit Committee
Freeman A. Hrabowski, III 65
President
University of Maryland
Baltimore County
Baltimore, Maryland
Director since 1997
Nominating/Corporate
Governance Committee*
Lawrence E. Kurzius 57
President &
Chief Operating Officer
McCormick & Co., Inc.
Director since 2015
14
Patricia Little 55
Senior Vice President and
Chief Financial Officer
The Hershey Company
Hershey, Pennsylvania
Director since 2010
Audit Committee*
Michael D. Mangan 59
Former President,
Worldwide Power Tools
& Accessories
The Black & Decker Corporation
Towson, Maryland
Director since 2007**
Compensation Committee*
Nominating/Corporate
Governance Committee
Maritza G. Montiel 64
Former Deputy Chief Executive
Officer and Vice Chairman
Deloitte LLP
Washington, D.C.
Director since 2015
Compensation Committee
Margaret M.V. Preston 58
Managing Director,
Private Wealth Management
TD Bank
New York, New York
Director since 2003
Nominating/Corporate
Governance Committee
Gordon M. Stetz, Jr. 55
Executive Vice President &
Chief Financial Officer
McCormick & Company, Inc.
Director since 2011
Jacques Tapiero 57
Former Senior Vice President and
President, Emerging Markets
Eli Lilly and Company
Indianapolis, Indiana
Director since 2012
Compensation Committee
Alan D. Wilson 58
Chairman &
Chief Executive Officer
McCormick & Company, Inc.
Director since 2007
* Indicates Chair Position on
the Committee
** Lead Director
EXECUTIVE OFFICERS
Alan D. Wilson
Chairman & Chief Executive Officer*
Lawrence E. Kurzius
President & Chief Operating Officer*
Brendan F. Foley
President, Global Consumer Segment and
North America
Lisa B. Manzone
Senior Vice President, Human Relations
Nneka L. Rimmer
Senior Vice President,
Corporate Strategy and Development
Jeffery D. Schwartz
Vice President, General Counsel & Secretary
Michael R. Smith
Senior Vice President, Corporate Finance
Gordon M. Stetz, Jr.
Executive Vice President &
Chief Financial Officer
Malcolm Swift
President, Global Industrial Segment
and McCormick International
* Effective February 1, 2016, Alan will become Executive
Chairman and Lawrence will become President & CEO.
A Tribute to Alan Wilson
Alan Wilson’s transition to Executive Chairman
comes at the end of a 23-year career with
McCormick. During the past eight years
as Chief Executive Officer, he led the
advancement of the company as a global
leader in flavor and delivered significant
shareholder return. Sales rose by more
than $1 billion to $4.3 billion and the
market capitalization of the company more
than doubled.
Early in his role as CEO, Alan set our focus on people,
growth and performance, recognizing the interdependence
of these strategic imperatives to drive success. He truly
embraced McCormick’s power of people and spent a
significant portion of his time engaging and inspiring
employees at all levels of the organization. The company’s
Multiple Management culture flourished under his leadership
and he was instrumental in forming the global consumer
and industrial strategy councils.
Under Alan’s leadership, 11 acquisitions were completed.
These new businesses extended the range of flavors we
supply to consumer and industrial customers and expanded
our geographic presence in China, Poland, Russia, India
and Italy. Since 2007, our percentage of sales in emerging
markets rose to 17% from 7% and we moved to a global view
of innovation. To accommodate our growing sales, we
added manufacturing capacity and product development
capabilities in many markets including the U.S., China, the
U.K., the United Arab Emirates, Turkey and Brazil. Alan also
championed the investment in our brands, more than
doubling our brand marketing support.
McCormick’s highly successful Comprehensive Continuous
Improvement program (CCI) created our fuel for growth.
Alan established this program early in his role as CEO,
recognizing the potential for productivity improvement by
employees throughout the company. Since inception, this
program, along with organization and streamlining actions,
has generated nearly $450 million of cost savings and has
significant potential in the years ahead. Alan also promoted
the company’s corporate social responsibility efforts and
led meaningful improvements in our health and wellness
initiatives, diversity and inclusion, corporate governance,
environmental impact and other aspects of the business.
Our shareholders also enjoyed the benefits of Alan’s
years as CEO. During his time as CEO, the stock price has
more than doubled and the quarterly dividend is now $0.43,
up from $0.20 per share.
Alan, we appreciate all of your efforts and contributions.
Thanks and best wishes from the entire McCormick family.
expansion for growth in Poland:
Alan truly embraced McCormick’s power of people and spent a significant portion of his
time engaging and inspiring employees at all levels of the organization.
McCormick & Company | 2015 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
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 Statements
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Cash Flow Statements
Consolidated Statements of Shareholders’ Equity
Notes to Consolidated Financial Statements
Item 9
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Item 9A
Controls and Procedures
Item 9B
Other Information
PART III
Item 10
Item 11
Item 12
Item 13
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
19
21
25
25
26
26
27
28
29
42
43
43
46
46
47
48
49
50
70
70
70
70
71
71
71
71
71
16
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, 2015
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 | 2015 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, 2015: $917,083,126
The aggregate market value of the Non-Voting Common Stock held by non-affiliates at May 31, 2015: $9,100,723,454
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
11,741,812
115,366,241
December 31, 2015
December 31, 2015
DOCUMENTS INCORPORATED BY REFERENCE
Document
Part of 10-K into Which Incorporated
Proxy Statement for
McCormick’s March 30, 2016
Annual Meeting of Stockholders
(the “2016 Proxy Statement”)
Part III
18
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—retailers, food
manufacturers and foodservice businesses. Our major sales, distri-
bution 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.
Demand for flavor is growing globally, and across both segments
we have the customer base and product breadth to participate in all
types of eating occasions. Our products deliver flavor when cooking
at home, dining out, purchasing a quick service meal or enjoying a
snack. We offer our customers and consumers a range of products
to meet the increasing demand for certain product attributes such as
organic, gluten-free and non-GMO (genetically modified organisms)
and that extend from premium to value-priced.
Consistent with market conditions in each segment, our consumer
segment has a higher overall profit margin than our industrial segment.
Historically, the consumer segment contributes approximately 60%
of sales and 80% of operating income, and the industrial segment
contributes approximately 40% of sales and 20% of operating income.
For financial information about our business segments, please refer
to “Management’s Discussion and Analysis—Results of Operations”
and note 16 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.
Consumer Segment. From locations around the world, our brands
reach consumers in more than 140 countries and territories. Our
leading brands in the Americas include McCormick®, Lawry’s®,
Stubb’s® and Club House®. We also market authentic regional
and 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®, Kamis® and Drogheria &
Alimentari® brands of spices, herbs and seasonings and an exten-
sive line of Vahiné® brand dessert items. In the Asia/Pacific region,
we market products under the McCormick and DaQiao® brands in
China. In Australia, we market our spices and seasonings under the
McCormick brand and our dessert products under the Aeroplane®
brand. In India, our majority-owned joint venture trades under the
Kohinoor® brand.
Our customers span a variety of retailers that include grocery,
mass merchandise, warehouse clubs, discount and drug stores,
and e-commerce retailers 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 segment is spices, herbs and
seasonings. For these products, we are a category leader in our
primary markets. There are a number of competitors in the spices,
herbs and seasoning category, many with less than 3% share of sales.
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. In this competitive
environment, we are leading with innovation and brand marketing,
and applying our analytical tools to help customers optimize the
profitability of their spice and seasoning category while simultane-
ously increasing our sales.
Industrial Segment. In our industrial segment, 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 manufac-
turers and foodservice customers, many of our relationships have
been active for decades. 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 addi-
tion to a broad range of flavor solutions, we strive to achieve cus-
tomer intimacy. Our customers benefit from our expertise in many
areas, including sensory testing, culinary research, food safety and
flavor application.
Our industrial segment has a number of competitors. Some tend
to specialize in a particular range of products and have a limited
geographic reach. Other competitors include larger publicly held
flavor companies that are more global in nature, but which also tend
to specialize in a narrower range of flavor solutions than McCormick.
Raw Materials
The most significant raw materials used in our business are pepper,
dairy products, capsicums (red peppers and paprika), rice, onion,
wheat flour and garlic. Pepper and other spices and herbs are gen-
erally 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 loca-
tions. 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,
customer price adjustments and cost savings from our Comprehensive
Continuous Improvement program.
McCormick & Company | 2015 Annual Report 19
Working Capital
In order to meet increased demand for our consumer products during
our fourth quarter, we usually build our inventories during the third
quarter of the fiscal year. We generally finance working capital items
(inventory and receivables) through short-term borrowings, which
include the use of lines of credit and the issuance of commercial
paper. For a description of 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
Each segment operates in markets around the world that are highly
competitive. In this competitive environment, our growth strategies
include customer intimacy and product innovation based on consumer
insights. Additionally, in the consumer segment we are building brand
recognition and loyalty through increased advertising and promotions.
Research and Development
Many of our products are prepared from confidential formulas devel-
oped by our research laboratories and product development teams,
and, in some cases, customer proprietary formulas. Expenditures for
research and development were $60.8 million in 2015, $62.0 million
in 2014, and $61.3 million in 2013. The amount spent on customer-
sponsored research activities is not material.
Governmental Regulation
We are 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 protection laws, and
various other federal, state and local statutes and regulations. Out-
side 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 our business. There were no material capital expenditures for
environmental control facilities in fiscal year 2015, and there are no
material expenditures planned for such purposes in fiscal year 2016.
Employees
We had approximately 10,000 full-time employees worldwide as
of November 30, 2015. Our operations have not been affected signif-
icantly by work stoppages and, in the opinion of management,
employee relations are good. We have no collective bargaining
contracts in the United States. At our foreign subsidiaries, approx-
imately 1,700 employees are covered by collective bargaining
agreements or similar arrangements.
Customers
Our 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 of retail channels, including
grocery, mass merchandise, warehouse clubs, discount and drug
stores, and e-commerce under a variety of brands. In the industrial
segment, products are used by food and beverage manufacturers 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 manufacturers
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 segment customers, Wal-Mart Stores, Inc.,
accounted for 11% of consolidated sales in 2015, 11% of consoli-
dated sales in 2014 and 12% of consolidated sales in 2013. Sales
to one of our industrial segment customers, PepsiCo, Inc., accounted
for 11% of consolidated sales in 2015, 2014 and 2013. In 2015, 2014
and 2013 the top three customers in our industrial segment repre-
sented between 53% 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 ter-
mination of contracts or subcontracts at the election of the U.S.
government.
Trademarks, Licenses and Patents
We own a number of trademark registrations. Although in the aggre-
gate 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,” “Stubb’s,” “Club House,” “Ducros,” “Schwartz,”
“Vahiné,” “Kamis,” “Drogheria & Alimentari,” “DaQiao,” and “Kohinoor”
trademarks, would not have a material adverse effect on our busi-
ness. The “Mc – McCormick” trademark is extensively used by us in
connection 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 material
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 are individually material
to our business.
Seasonality
Due to seasonal factors inherent in our 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 seasonal-
ity reflects customer and consumer buying patterns, primarily in the
consumer segment.
20
Financial Information about Geographic Locations
For information on the net sales and long-lived assets of McCormick
by geographic area, see note 16 of the financial statements.
Foreign Operations
We are subject in varying degrees to certain risks typically associated
with a global business, such as local economic and market conditions,
exchange rate fluctuations, restrictions on investments, royalties
and dividends. In fiscal year 2015, 43% of sales were from non-U.S.
operations. For information on how we manage some of these risks,
see the “Market Risk Sensitivity” section of “Manage ment’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 improvements,
expected trends in net sales and earnings performance and other
financial measures, the expectations of pension and postretirement
plan contributions, the holding period and market risks associated
with financial instruments, the impact of foreign exchange fluc-
tuations, 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 expecta-
tions regarding purchasing shares of our common stock under the
existing authorization.
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 use of private label
or other competitive products; product quality, labeling, or safety
concerns; negative publicity about our products; business interrup-
tions due to natural disasters or unexpected events; actions by, and
the financial condition of, competitors and customers; our inability
to achieve expected and/or needed cost savings or margin improve-
ments; negative employee relations; the lack of successful acquisi-
tion and integration of new businesses; issues affecting our supply
chain and raw materials, including fluctuations in the cost and avail-
ability of raw and packaging materials; government regulation, and
changes in legal and regulatory requirements and enforcement prac-
tices; 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 intellectual 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
documents 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 statements. 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 uncertainties that are
not presently known to us or are currently deemed to be immaterial
also may materially adversely affect our business, financial condi-
tion, 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 securi-
ties could decline, and you may lose part or all of your investment.
Damage to our reputation or brand name, loss of brand
relevance, increase in use of private label or other competitive
brands 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 meas-
ures. From time to time, our customers evaluate their mix of product
offerings, and consumers have the option to purchase private label
or other competitive products instead of our branded products. If a
significant portion of our branded business was switched to private
label or competitive products, it could have a material negative
impact on our consumer segment.
McCormick & Company | 2015 Annual Report 21
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.
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, or that any of our products 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 prod-
ucts or ingredients, any of which could have a negative effect on our
business or financial results and, depending upon the significance
of the affected product, that negative effect could be material to
our business or financial results. Negative publicity about these
concerns, whether or not valid, may discourage customers and con-
sumers 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
consolidation 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 and other competitive prod-
ucts. The economic and competitive landscape for our customers is
constantly changing, and their response to those changes could
impact our business. Our industrial segment may be impacted if the
reputation or perception of the customers of our industrial segment
22
declines. These factors and others could have an adverse impact on
our business, financial condition or results of operations.
The inability to maintain mutually beneficial relationships with
large customers could adversely affect our business.
We have a number of major customers, including two large customers
that, in the aggregate, constituted approximately 22% of our con-
solidated sales in 2015. The loss of either of these large customers
or a material negative change in our relationship with these large
customers or other major customers could have an adverse effect
on our business.
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, capsicums (red peppers and
paprika), rice, onion, wheat flour and garlic. 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, customer
price adjustments and cost savings from our Comprehensive Contin-
uous Improvement program. 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 fluc-
tuations 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 countries,
action or inaction by suppliers in response to laws and regulations,
changes in agricultural programs and other factors beyond our con-
trol. Therefore, we cannot provide assurance that future raw mate-
rial 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 pro-
motional activity, and the ability to identify and satisfy consumer
preferences. 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 require-
ments, the environment, competition, anti-corruption, privacy, rela-
tions with distributors and retailers, foreign supplier verification, the
import and export of products and product ingredients, employment,
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
condition 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 com-
pliance costs and create other obligations that could adversely
affect our business, financial condition or operating results. Govern-
ments may also impose requirements and restrictions that impact
our business, such as labeling disclosures pertaining to ingredients.
For example, “Proposition 65, the Safe Drinking Water and Toxic
Enforcement Act of 1986,” in California exposes all food companies
to the possibility 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, or be rendered unable to accept and fulfill customer orders as
a result of a natural disaster, catastrophic event, epidemic or com-
puter 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 facilities or employees’ and consumers’ health. In addition,
some of our inventory and production facilities are located in areas
that are susceptible 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 or
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 and raw material costs, assumption of unknown
liabilities and indemnities, 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 connection with acquired businesses which may reduce
our profitability. If we are unable to consummate such transactions,
or successfully integrate and grow acquisitions and achieve con-
templated 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 com-
pliance risks.
Our foreign operations are subject to additional risks.
We operate our business and market our products internationally.
In fiscal year 2015, 43% 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 jurisdictions 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 economic
environment throughout the European Union. Addition ally, inter-
national 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 foreign
currency investments in subsidiaries and unconsolidated affiliates
and cash flows related to repatriation of these investments. Primary
exposures include the U.S. dollar versus the Euro, British pound ster-
ling, Canadian dollar, Polish zloty, Australian dollar, Mexican peso,
Chinese renminbi, Indian rupee, Thai baht and Swiss franc, as well
as the British pound sterling versus the Euro. We routinely enter into
foreign currency exchange contracts to facilitate managing certain
of these foreign currency risks. However, these contracts may not
effectively limit or eliminate our exposure to a decline in operating
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.
McCormick & Company | 2015 Annual Report 23
Increases in interest rates may negatively impact us.
We had total outstanding short-term borrowings of $140 million at
an average interest rate of approximately 2.2% on November 30,
2015. 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
changes 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
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 relationships.
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 in the
past that has tightened access to capital markets and other sources
of funding, and such volatility and tightened access could reoccur
in the future. 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 accept-
able 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.
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 significant adverse change in the financial and/or credit position
of a customer 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 and reputation 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
operating our business efficiently. We rely on our information tech-
nology systems to manage our business data, communications, sup-
ply chain, order entry and fulfillment, and other business processes.
The failure of our information technology systems to perform as we
anticipate 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 vulnerable
to security breaches beyond our control, including those involving
cyber attacks using viruses, worms or other destructive software,
process breakdowns, or other malicious activities, or any combina-
tion of the foregoing. Such breaches could result in unauthorized
access to information including customer, consumer or other com-
pany confidential data. We invest in security technology and design
our business processes to mitigate the risk of such breaches. While
we believe these measures are generally effective, there can be
no assurance that security breaches will not occur. Moreover, the
development and maintenance of these measures requires continu-
ous monitoring as technologies change and efforts to overcome
security measures evolve. We have experienced, and expect to con-
tinue to experience, cybersecurity threats and incidents, none of
which has been material to us to date. However, a successful breach
or attack could have a material, negative impact on our operations or
business reputation and subject us to consequences such as litiga-
tion, regu latory enforcement proceedings and direct costs associ-
ated with incident response.
We face risks associated with certain pension assets
and obligations.
The global nature of our business and the resolution of tax
disputes create volatility in our effective tax rate.
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.
24
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
effective tax rate and in evaluating our tax positions. We establish
accruals for certain tax contingencies when, despite the belief that
our tax return positions are appropriately 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 management. When particular matters arise, a number of years
may elapse before such matters are audited and finally resolved.
Favorable resolution of such matters could be recognized as a reduc-
tion 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 or practices, we may be
subject to decreased availability or less favorable pricing for certain
commodities that are necessary for our products. In addition, such
climate change may result in modifications to the eating preferences
of the ultimate consumers of certain of our products, which may also
unfavorably impact our sales and profitability.
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, trade-
marks, 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
proceedings. 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 publicity 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.
Streamlining actions to reduce fixed costs, simplify or improve
processes, and improve our competitiveness may have a
negative effect on employee relations.
During the last three years, we implemented changes to our organiza-
tion structure to reduce fixed costs, simplify or improve proc esses,
and improve our competitiveness, and we expect to continue to eval-
uate such actions in the future. As a result of such fixed cost reduc-
tions and process simplifications or improvements, we may, from
time to time, transfer production from one manufacturing facility to
another or eliminate certain manufacturing, selling and administrative
positions. These actions may result in a deterioration of employee
relations at the impacted locations or elsewhere in McCormick.
If we are unable to fully realize the benefits from our
Comprehensive 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,
Lakewood, New Jersey, Melbourne, Australia, Florence, Italy and a
portion of the facility in Littleborough, England, which are leased.
The manufacturing facilities that we own in Guangzhou, Shanghai
and Wuhan, China and the manufacturing facility that we own in
Dubai, United Arab Emirates (under construction) are each located
on land subject to long-term leases.
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
Lakewood, New Jersey—industrial
McCormick & Company | 2015 Annual Report 25
Canada:
London, Ontario—consumer and industrial
Mexico:
Cuautitlan de Romero Rubio—industrial
United Kingdom:
Haddenham, England— industrial and consumer
Littleborough, England—industrial
France:
Carpentras—consumer and industrial
Monteux—consumer and industrial
Poland:
Stefanowo—consumer
Italy:
Florence—consumer
United Arab Emirates:
Dubai—industrial (under construction)
China:
Guangzhou—consumer and industrial
Shanghai—consumer and industrial
Wuhan—consumer
Australia:
Melbourne—consumer and industrial
India:
New Delhi—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
Not Applicable.
26
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
We have disclosed in note 18 of the financial statements the information relating to the market price and dividends declared and paid on our classes
of common stock. The market price of our common stock at the close of business on December 31, 2015 was $86.37 per share for the Common
Stock and $85.56 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, 2015 was as follows:
Title of class
Common Stock, no par value
Common Stock Non-Voting, no par value
Approximate number
of record holders
2,000
9,700
The following table summarizes our purchases of Common Stock (CS) and Common Stock Non-Voting (CSNV) during the fourth quarter of 2015:
Period
September 1, 2015 to
September 30, 2015
October 1, 2015 to
October 31, 2015
November 1, 2015 to
November 30, 2015
Total
ISSUER PURCHASES OF EQUITY SECURITIES
Total number
of shares
purchased
CS-0
CSNV-0
CS-0
CSNV-756,055
CS-0
CSNV-130,000
CS-0
CSNV-886,055
Average
price
paid per
share
—
—
—
$82.75
—
$84.04
—
$82.94
Total number of
shares purchased
as part of publicly
announced plans
or programs
—
—
—
756,055
—
130,000
—
886,055
Approximate dollar
value of shares
that may yet be
purchased under the
plans or programs
$643 million
$581 million
$570 million
$570 million
As of November 30, 2015, approximately $570 million remained of a $600 million share repurchase authorization approved by the Board of Directors
in March 2015. During the fourth quarter of 2015, the remainder of the $400 million share repurchase authorization approved by the Board of
Directors in April 2013 was utilized in the purchase of the company’s outstanding shares. There is no expiration date for our repurchase program.
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 2015, we issued 831,871 shares of CSNV in exchange for shares of CS and issued 14,643 shares of CS in exchange for shares of CSNV.
McCormick & Company | 2015 Annual Report 27
ITEM 6. SELECTED FINANCIAL DATA
HISTORICAL FINANCIAL SUMMARY
(millions except per share and percentage data)
2015
2014
2013
2012
2011
For the Year
Net sales
Percent increase
Operating income
Income from unconsolidated operations
Net income
Per Common Share
Earnings per share—basic
Earnings per share—diluted
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
$ 4,296.3
$ 4,243.2
$ 4,123.4
$ 4,014.2
$ 3,697.6
1.3%
548.4
36.7
401.6
$ 3.14
3.11
1.63
85.92
13.25
$ 4,507.8
343.0
1,052.7
1,686.9
2.9%
2.7%
8.6%
603.0
29.4
437.9
$ 3.37
3.34
1.51
74.33
14.10
$ 4,414.3
270.8
1,014.1
1,809.4
550.5
23.2
389.0
$ 2.94
2.91
1.39
69.00
14.85
$ 4,449.7
214.1
1,019.0
1,947.7
578.3
21.5
407.8
$ 3.07
3.04
1.27
64.56
12.83
$ 4,165.4
392.6
779.2
1,700.2
10.8%
540.3
25.4
374.2
$ 2.82
2.79
1.15
48.70
12.17
$ 4,087.8
222.4
1,029.7
1,618.5
40.4%
12.8%
40.8%
14.2%
$ 128.4
105.9
145.8
128.0
129.2
$ 132.7
102.7
244.3
129.9
131.0
$
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
$
41.2%
14.6%
96.7
98.3
89.3
132.7
134.3
The historical financial summary includes the impact of certain items that affect the comparability of financial results year to year. In 2015, 2014
and 2013, we recorded special charges related to the completion of organization and streamlining actions for our businesses in EMEA, North
America and Australia. In addition, for 2015, we recorded special charges related to the discontinuance of bulk-packaged and broken basmati rice
product lines for our business in India. Lastly, in 2013, we recognized a loss on a voluntary pension settlement in the U.S. 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
$
2015
(65.5)
(47.9)
(0.37)
$
2014
(5.2)
(3.7)
(0.03)
$
2013
(40.3)
(29.2)
(0.22)
2012
—
—
—
2011
—
—
—
28
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
• These increases were offset by unfavorable currency rates. This
impact reduced the net sales growth rate by 5%.
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
operations and our present business environment. MD&A is pro-
vided 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. We use certain non-GAAP
information that we believe 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. The dollar and share information
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—retailers, 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, customer intimacy and category growth; 2) product innova-
tion; 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, as well as savings from
the organization and streamlining actions described in note 3 to our
financial statements. In addition to funding brand marketing support,
product innovation and other growth initiatives, our CCI program
helps offset higher material costs and is contributing to higher oper-
ating 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 30 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.
In 2015, we continued to grow our business, although sales and
earnings were unfavorably impacted by the strength of the U.S.
dollar and the resultant unfavorable effects of foreign currency
exchange, as compared to 2014. Net sales rose 1% over the 2014
level, as a result of the following factors:
• We grew volume and product mix, with similar increases in both
our consumer and industrial segments. This added 4% of sales
growth. The increases were driven by product innovation, brand
marketing and expanded distribution including new retail channels
and new geographic regions.
• Three acquisitions were completed in 2015, adding 1% of the
increase in net sales.
• Pricing actions to offset a mid-single digit increase in material
cost inflation added 1% of the increase in net sales.
Operating income was $548.4 million in 2015 and $603.0 million in
2014. Excluding special charges, adjusted operating income rose to
$613.9 million from $608.2 million in 2014 or an increase of 1%. As
with net sales, unfavorable currency exchange lowered this growth
rate, with an impact of 4%. For further details and a reconciliation of
non-GAAP to reported amounts, see Non-GAAP Financial Measures.
Excluding this impact, the increase in adjusted operating income
compared to the prior year would have been 5%. This was below our
long-term objective due in part to higher material costs and higher
employee benefit expense in 2015 as compared to the prior year, as
well as an increase in brand marketing. Diluted earnings per share
was $3.11 in 2015 and $3.34 in 2014. Excluding the effect of the
aforementioned special charges, adjusted diluted earnings per share
was $3.48 in 2015, an increase of 3% over adjusted diluted earnings
per share of $3.37 in 2014. This growth rate reflected the increase
in adjusted operating income, higher income from unconsolidated
operations and the impact of our share repurchases. The unfavorable
currency exchange rates had an adverse impact on the increase in
adjusted operating income as previously described, as well as on
income from unconsolidated operations.
McCormick continues to generate strong cash flow. Net cash provided
by operating activities reached $590.0 million in 2015, an increase
from $503.6 million in 2014. 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 2015, that
return of cash to our shareholders was $350.7 million.
RESULTS OF OPERATIONS—2015 COMPARED TO 2014
Net sales
Percent growth
Components of percent growth in
net sales—increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
2015
2014
$4,296.3
$4,243.2
1.3%
2.9%
3.9%
1.1%
1.4%
(5.1)%
(0.2)%
1.9%
1.8%
(0.6)%
Sales for the fiscal year 2015 increased by 1.3% from 2014 and
included a 5.1% unfavorable impact from foreign currency exchange
rates. On a constant currency basis (that is, excluding the impact of
foreign currency exchange as more fully described under the caption,
Non-GAAP Financial Measures), our sales increased 6.4% over 2014,
with growth in both the consumer and industrial segments. Higher
volume and product mix added 3.9% to sales, driven by product
innovation, brand marketing and expanded distribution including new
retail channels and new geographic regions. Pricing actions, taken
in response to increased raw material and packaging costs, added
1.1% to sales. The incremental impact of the three acquisitions com-
pleted in 2015—Brand Aromatics, Drogheria & Alimentari (D&A)
and Stubb’s—added 1.4% to sales.
In 2016, we expect to grow sales on a constant currency basis by
4% to 6% from 2015, driven by further increases in volume and prod-
uct mix, pricing actions to offset a projected increase in material
costs and incremental sales from the acquisitions completed during
2015. We expect this range to be reduced as a result of unfavorable
foreign exchange rates.
McCormick & Company | 2015 Annual Report 29
Gross profit
Gross profit margin
2015
2014
$1,737.3
$1,730.2
40.4%
40.8%
In 2015, gross profit was comparable to 2014. Gross profit margin
declined 40 basis points from the 2014 level to 40.4%. This decrease
in gross profit margin was mainly due to the impact of a mid-single
digit increase in material costs, partially offset by cost savings and
pricing actions. In 2015, CCI cost savings, as well as savings from
the organization and streamlining actions described in note 3 to
our financial statements, totaled $98 million, of which $66 million
lowered cost of goods sold. Lower gross profit from our Kohinoor
business in India also impacted gross profit margin in 2015, and,
as a result, toward the end of 2015 we decided to discontinue the
lower margin bulk-packaged and broken rice product lines of our
Kohinoor business. In 2016, we expect our pricing actions and cost
savings to more than offset an estimated low single-digit increase
in raw material and packaging costs.
Selling, general & administrative
expense (SG&A)
Percent of net sales
2015
2014
$1,127.4
$1,122.0
26.2%
26.5%
Selling, general and administrative expenses were $1,127.4 million in
2015 compared to $1,122.0 million in 2014, an increase of $5.4 million.
SG&A as a percentage of net sales was 26.2%, a 30 basis point
reduction from 2014. Driving this reduction in SG&A as a percentage
of net sales were cost savings from CCI and from the organization
and streamlining actions described in note 3 to our financial state-
ments, as well as the benefit of higher sales, partly offset by higher
benefits expense and a $14 million increase in our brand marketing
from the 2014 level to $240.6 million in 2015. In connection with
our acquisitions of Brand Aromatics, D&A and Stubb’s, we incurred
$3.6 million of transaction costs, which were included in SG&A.
Special charges included in cost of goods sold
Other special charges in the income
statement (including a non-cash brand
impairment charge of $9.6 million in 2015)
Special charges
2015
$ 4.0
61.5
$ 65.5
2014
—
$5.2
$5.2
We are evaluating and implementing changes to our organization
structure to reduce fixed costs, simplify or improve processes, and
improve our competitiveness. Special charges of $65.5 million were
recorded in 2015 and $5.2 million in 2014 to enable us to implement
these changes. Of the $65.5 million of special charges recorded
in 2015, $4.0 million were recorded in cost of goods sold. Of the
$65.5 million, $29.2 million related to employee severance and
related costs associated with our North American effectiveness
initiative, and $24.4 million related to our EMEA reorganization
initiated earlier in 2015. An additional $14.2 million related to our
Kohinoor consumer business in India. Partially offsetting these
charges was a credit of $2.3 million for the 2015 reversal of reserves
previously accrued as part of special charges in 2014 and 2013. See
note 3 of the financial statements for more details on these charges
and our basis for classifying amounts as special charges.
In 2014, we recorded special charges of $2.1 million related to actions
undertaken with respect to the EMEA reorganization announced in
30
late 2013, $1.3 million related to the realignment of certain manufac-
turing activities in the U.S. industrial business, $1.1 million related
to the elimination of certain administrative positions in the U.S.
consumer and industrial businesses, and $0.7 million related to the
elimination of certain administrative and manufacturing positions in
the Australian consumer business.
Interest expense
Other income, net
2015
$53.3
1.1
2014
$49.7
1.1
Interest expense for 2015 was higher than the prior year, primarily
due to higher average borrowings.
Income from consolidated operations
before income taxes
Income taxes
Effective tax rate
2015
2014
$496.2
131.3
26.5% 26.3%
$554.4
145.9
The effective tax rate increased 20 basis points to 26.5% in 2015,
from 26.3% in 2014, primarily as a result of the following factors.
Net discrete tax benefits increased by $8.3 million, from $10.8 mil-
lion in 2014 to $19.1 million in 2015. Both 2015 and 2014 included
reversals of reserves for unrecognized tax benefits, net of additional
taxes provided, for various income tax audit settlements and the
expiration of statutes of limitation in several tax jurisdictions. In
addition, 2015 included a net discrete tax benefit for (i) the reversal
of valuation allowances on non-U.S. deferred tax assets due to a
change in our assessment of the recoverability of those deferred tax
assets, and (ii) a prior year adjustment for the 2014 research tax
credit related to legislation enacted in 2015, offset by (iii) a discrete
tax detriment for the revaluation of deferred tax assets in the U.K.
resulting from legislation enacted in 2015 which reduced the U.K.
statutory tax rate in future periods. The increase in net discrete tax
benefits in 2015, as compared to 2014, was more than offset by an
unfavorable mix of earnings in 2015. That unfavorable mix of earn-
ings in 2015, as compared to the prior year, resulted from the higher
percentage of U.S. pre-tax earnings in 2015 that are taxed at a fed-
eral statutory rate of 35% as well as an increase in non-U.S. losses
in jurisdictions where income tax benefits could not be recognized
as it is more likely than not that the resultant deferred tax assets
will not be realized. See note 12 of the financial statements for a
reconciliation of the U.S. federal tax rate with the effective tax rate.
We expect an effective tax rate in 2016 of approximately 28%.
Income from unconsolidated operations
2015
$36.7
2014
$29.4
Income from unconsolidated operations rose $7.3 million in 2015
from the prior year, which was a 24.8% increase, despite the impact
of unfavorable currency exchange rates. This increase is attributable
to our largest joint venture, McCormick de Mexico, which achieved
higher sales and an increase in gross margin percentage. In 2015,
our 50% interest in the McCormick de Mexico joint venture repre-
sented 60% of the sales and 89% of the income of our unconsoli-
dated operations. We own 50% of most of our other unconsolidated
joint ventures.
In 2016, we expect income from unconsolidated operations to be
comparable to 2015, mainly due to the unfavorable impact of foreign
currency rates and material costs on McCormick de Mexico.
We reported diluted earnings per share of $3.11 in 2015, compared
to $3.34 in 2014. The table below outlines the major components of
the change in diluted earnings per share from 2014 to 2015. The
increase in adjusted operating income and increase in income from
unconsolidated operations in the table below reflect a significant
impact from unfavorable currency exchange rates in 2015.
2014 Earnings per share—diluted
Impact of increase in special charges
Impact of lower shares outstanding
Increase in income from unconsolidated operations
Increase in adjusted operating income
Impact of change in effective income tax rate,
excluding taxes on special charges
Higher interest expense
2015 Earnings per share—diluted
$ 3.34
(0.34)
0.05
0.04
0.03
0.01
(0.02)
$ 3.11
We measure segment performance based on operating income
excluding special charges as these activities are managed separately
from the business segments.
Consumer Segment
Net sales
Percent growth
Components of percent growth in net sales—
increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
Operating income, excluding special charges
Operating income margin, excluding
2015
2014
$2,635.2
$2,625.5
0.4%
3.4%
3.8%
0.1%
1.4%
(4.9)%
(1.1)%
2.0%
2.9%
(0.4)%
$ 456.1
$ 474.3
special charges
17.3%
18.1%
Sales of our consumer segment increased by 0.4%, which included a
4.9% unfavorable impact from foreign currency exchange rates, as
compared to 2014. On a constant currency basis, consumer sales
increased by 5.3% in 2015, due to higher volume and product mix
that added 3.8% to sales and higher pricing related to material cost
changes that added 0.1% to sales. Our acquisitions of D&A and
Stubb’s, during the second and third quarters, respectively, added
1.4% to sales in 2015.
In the Americas, consumer sales rose 1.8% in 2015 as compared to
2014. That increase included a 1.4% unfavorable impact from foreign
currency exchange rates. On a constant currency basis, Americas
consumer sales increased by 3.2%, which included 2.4% from higher
volume and product mix and 0.5% from higher pricing. Higher volume
and product mix was led by U.S. sales growth in spices and season-
ings and recipe mixes. This is an improvement over the 2014 sales
results and is being driven by product innovation, brand marketing,
particularly in digital, and working with retailers on in-store product
assortment, pricing and promotion. The acquisition of Stubb’s, which
closed in August 2015, added 0.3% to sales in 2015.
In the EMEA region, consumer sales decreased 5.0% as compared
to 2014. However, that decrease included an unfavorable impact of
15.3% from foreign currency exchange rates. On a constant currency
basis, EMEA consumer sales increased by 10.3%, which included
4.7% from higher volume and product mix and 0.3% from higher pric-
ing. The acquisition of D&A, which closed in May 2015, added 5.3%
to sales in 2015. Our core business growth in the EMEA region was
led by Poland, France and Russia and driven by our higher brand
marketing, new product innovation and expanded distribution.
In the Asia/Pacific region, consumer sales increased 2.6% as com-
pared to 2014. That increase included an unfavorable impact of 4.0%
from foreign currency exchange rates. On a constant currency basis,
Asia/Pacific consumer sales increased by 6.6%, which included
8.3% from higher volume and product mix, partly offset by a 1.7%
reduction from pricing. In 2015, constant currency sales in both
China and Australia increased at a double-digit rate due in part to
expanded distribution, while sales in India declined due in part to
the discontinuation of lower-margin bulk-packaged and broken rice
product lines, as well as lower pricing on basmati rice.
Operating income, excluding special charges, for our consumer seg-
ment decreased $18.2 million, or 3.8%, compared to 2014. On a con-
stant currency basis, operating income for 2015, excluding special
charges, decreased 0.4%, with the favorable impact of sales growth
and cost savings, offset by the unfavorable impact of higher material
costs, increased employee benefit expense and a 4% increase in
brand marketing. The decrease in operating income led to lower
operating income margin. Excluding the impact of special charges,
the consumer segment operating income margin was 17.3% in 2015
and 18.1% in 2014.
Industrial Segment
Net sales
Percent growth
Components of percent growth in net sales—
increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
Operating income, excluding special charges
Operating income margin, excluding
2015
2014
$1,661.1
$1,617.7
2.7%
2.0%
4.3%
2.6%
1.3%
(5.5)%
0.9%
1.8%
—%
(0.7)%
$ 157.8
$ 133.9
special charges
9.5%
8.3%
Sales of our industrial segment increased by 2.7%, which included
a 5.5% unfavorable impact from foreign currency exchange rates,
as compared to 2014. On a constant currency basis, industrial sales
increased by 8.2% in 2015, due to higher volume and product mix
that added 4.3% to sales and higher pricing related to material cost
changes that added 2.6% to sales. Our acquisition of Brand Aromatics
in the second quarter added 1.3% to sales in 2015.
In the Americas, industrial sales rose 3.2% in 2015 as compared to
2014. That increase included a 3.2% unfavorable impact from foreign
currency exchange rates. On a constant currency basis, Americas
industrial sales increased by 6.4%, which included 1.3% from higher
volume and product mix and 3.1% from higher pricing. Higher volume
and product mix was led by sales of snack seasonings in both the
U.S. and Mexico, as well as branded food service products in the
U.S. The acquisition of Brand Aromatics, which closed in March
2015, added 2.0% to industrial sales in the Americas in 2015.
In the EMEA region, industrial sales increased 0.8% as compared to
2014. That increase included an unfavorable impact of 11.8% from
foreign currency exchange rates. On a constant currency basis,
EMEA industrial sales increased by 12.6%, which included 10.4%
from higher volume and product mix and 2.2% from higher pricing.
McCormick & Company | 2015 Annual Report 31
The strong sales performance reflected our support for the growth
and geographic expansion of leading quick service restaurants and
food manufacturers in this region.
In the Asia/Pacific region, industrial sales increased 2.9% as com-
pared to 2014. That increase included an unfavorable impact of
7.3% from foreign currency exchange rates. On a constant currency
basis, Asia/Pacific industrial sales increased by 10.2%, which
included 9.9% from higher volume and product mix and 0.3% from
pricing. In 2015, we increased sales to quick service restaurant
customers in China and other markets across this region.
Operating income, excluding special charges, for our industrial
segment increased $23.9 million, or 17.8%, compared to 2014. On
a constant currency basis, operating income for 2015, excluding
special charges, increased 24.5% above 2014, with the favorable
impact of sales growth and cost savings more than offsetting the
unfavorable impact of higher material costs and increased employee
benefit expense. The significant increase in operating income led
to higher operating income margin. Excluding the impact of special
charges, the industrial segment operating income margin was 9.5%
in 2015 and 8.3% in 2014. This also reflects a shift in the business
mix to more value-added products, including the acquisition of
Brand Aromatics.
RESULTS OF OPERATIONS—2014 COMPARED TO 2013
Net sales
Percent growth
Components of percent growth in net sales—
increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
2014
2013
$4,243.2
$4,123.4
2.9%
2.7%
(0.2)%
1.9%
1.8%
(0.6)%
0.1%
1.5%
1.5%
(0.4)%
Sales for the fiscal year 2014 increased by 2.9% from 2013 and
included a 0.6% unfavorable impact from foreign currency exchange
rates. On a constant currency basis, our sales increased 3.5% over
2013, with growth in both the consumer and industrial segments.
Pricing actions, taken in response to increased raw material and
packaging costs, added 1.9% to sales. The incremental impact of
the Wuhan Asia Pacific Condiments (WAPC) acquisition, completed
in mid-2013, accounted for a 1.8% increase to sales, while volume
and product mix in the base business reduced sales 0.2%.
Selling, general and administrative expenses were $1,122.0 million in
2014 compared to $1,075.0 million in 2013, an increase of $47.0 mil-
lion or 40 basis points as a percentage of net sales. That 40 basis
point increase was driven by an $18.8 million increase in our brand
marketing support from the 2013 level to $226.6 million in 2014,
with 40% of that increase related to digital marketing, which is one
of our highest return investments in brand marketing support. In
addition, compared to 2013, lower pension and other postretirement
benefit expenses in 2014 were partially offset by increased employee
incentive compensation expenses in 2014.
Special charges
Loss on voluntary pension settlement
2014
$5.2
—
2013
$25.0
15.3
Beginning in 2013, we evaluated and implemented changes to our
organization structure to reduce fixed costs, simplify or improve
proc esses, and improve our competitiveness. Special charges of
$5.2 million, principally related to employee severance and related
benefits, were recorded in 2014 to enable us to implement these
changes. 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. See note 3
of the financial statements for additional information.
In addition to the special charges outlined above, we recorded a
loss on voluntary pension settlement of $15.3 million in 2013 for the
settlement of a portion of our U.S. defined benefit obligation, which
reduced the size of our pension obligation and should reduce poten-
tial 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 10 of
the financial statements for additional information.
Interest expense
Other income, net
2014
$49.7
1.1
2013
$53.3
2.2
Interest expense for 2014 was lower than the prior year, primarily
due to the refinancing of long-term debt in the second half of 2013.
In August 2013, we issued $250 million of 3.50% notes (at an effec-
tive interest rate of 3.30%), the net cash proceeds of which, plus
cash on hand, were used to pay off $250 million of 5.25% notes (at
an effective interest rate of 5.54%) that matured in September 2013.
Gross profit
Gross profit margin
2014
2013
$1,730.2
$1,665.8
40.8%
40.4%
Income from consolidated operations
before income taxes
Income taxes
Effective tax rate
2014
2013
$554.4
145.9
26.3%
$499.4
133.6
26.8%
In 2014, gross profit increased 3.9% while gross profit margin rose
40 basis points over the 2013 level to 40.8%. We offset a low single-
digit increase in raw material and packaging costs with our pricing
actions and CCI cost savings. In 2014, CCI cost savings totaled
$65 million, of which $54 million lowered cost of goods sold.
Selling, general & administrative
expense (SG&A)
Percent of net sales
2014
2013
$1,122.0
$1,075.0
26.5%
26.1%
The effective tax rate declined 50 basis points to 26.3% in 2014 from
26.8% in 2013, primarily as a result of the following factors: Discrete
tax benefits were $10.8 million in 2014 compared to $3.9 million in
2013. That increase in 2014 is primarily due to the reversal of pre-
viously established reserves for unrecognized tax benefits, net
of additional taxes provided, upon the following tax settlements
reached during 2014: (1) a settlement with respect to the French
taxing authority’s audits of the 2007–2013 tax years; and (2) a settle-
ment with respect to the Internal Revenue Service (IRS) examination
of our U.S. federal income tax return for the 2007 and 2008 tax years.
32
Discrete tax benefits in 2013 of $3.9 million resulted from the 2013
recognition of a 2012 U.S. research tax credit and reversal of valua-
tion allowances for two subsidiaries originally established against
net operating losses. During 2013, a new law was enacted that ret-
roactively granted the research tax credit in 2012 and allowed for a
research tax credit in 2013. No research tax credit was recognized in
2014 as the tax law which retroactively granted the research tax
credit for 2014 was not enacted until after the company’s 2014 fiscal
year end. See note 12 of the financial statements for a reconciliation
of the U.S. federal tax rate with the effective tax rate.
Income from unconsolidated operations
2014
$29.4
2013
$23.2
Income from unconsolidated operations rose $6.2 million in 2014
compared to 2013, which was a 26.7% increase. This increase was
attributable to our largest joint venture, McCormick de Mexico,
which benefited in 2014 from its transition to a more efficient
manufacturing facility and from lower commodity costs.
In 2014, our 50% interest in the McCormick de Mexico joint venture
represented 64% of the sales and 91% of the net income of our
unconsolidated joint ventures.
We reported diluted earnings per share of $3.34 in 2014, compared
to $2.91 in 2013. The following table outlines the major components
of the change in diluted earnings per share from 2013 to 2014:
2013 Earnings per share—diluted
Impact of special charge and loss on voluntary pension settlement
Increase in adjusted operating income
Impact of lower shares outstanding
Increase in income from unconsolidated operations
Decrease in effective income tax rate
Lower interest expense
2014 Earnings per share—diluted
$2.91
0.19
0.09
0.07
0.04
0.02
0.02
$3.34
We measure segment performance based on operating income
excluding special charges and the 2013 loss on voluntary pension
settlement as these activities are managed separately from the
business segments.
Consumer Segment
Net sales
Percent growth
Components of percent growth in net sales—
increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
Operating income, excluding special
charges and 2013 loss on voluntary
pension settlement
Operating income margin, excluding
special charges and 2013 loss on
voluntary pension settlement
2014
2013
$2,625.5
$2,538.0
3.4%
5.1%
(1.1)%
2.0%
2.9%
(0.4)%
1.0%
1.7%
2.5%
(0.1)%
$ 474.3
$ 472.3
18.1%
18.6%
Sales of our consumer segment increased by 3.4%, which included a
0.4% unfavorable impact from foreign currency exchange rates, as
compared to 2013. On a constant currency basis, consumer sales
increased by 3.8% in 2014, which included a 2.9% increase due to
the mid-2013 acquisition of WAPC and a 2.0% increase due to higher
pricing, offset in part by a 1.1% decline in volume and product mix in
2014 from 2013.
In the Americas, consumer segment sales declined 0.7% in 2014 as
compared to 2013. That decline included a 0.7% unfavorable impact
from foreign currency exchange rates. On a constant currency basis,
consumer sales in the Americas approximated the prior year level
as higher pricing added 1.6% to sales while a decline in volume and
product mix reduced sales 1.6%. In the latter part of 2013, our sales
growth was hampered as smaller competitors gained category
share. This competitive activity persisted in 2014. Through out 2014,
we had actions underway to regain momentum with this part of our
business that included additional brand marketing support, acceler-
ated innovation and working with our retail customers to optimize
their spices and seasonings and their recipe mix categories while
simultaneously increasing sales of our products to these customers.
We made progress and gained category share in 2014 in recipe
mixes, driven in part by new grilling products, gluten-free products
and liquid skillet sauces. In 2014, our category share of spices and
seasonings had a further decline.
In EMEA, consumer sales increased 3.3% in 2014 over the 2013 level,
with 1.5% added by favorable foreign currency exchange rates. On
a constant currency basis, consumer sales in EMEA increased by
1.8%, as pricing increased sales by 2.0% while volume and product
mix declined slightly, reducing sales by 0.2%. While we had success
with new product introductions, increased brand marketing and
distribution gains, economic conditions across the region remained
challenging. In this region, higher brand marketing support was
devoted to building awareness and trial of new products, as well
as digital marketing.
In 2014, as compared to 2013, consumer sales in the Asia/Pacific
region rose 31.2%, which included unfavorable foreign currency
exchange rates that lowered sales 3.2%. On a constant currency
basis, consumer sales in the Asia/Pacific region increased by 34.4%.
Our mid-2013 acquisition of WAPC added 28.2% to net sales, pricing
actions added 4.0%, and base business volume and product mix added
2.2%. We achieved a double-digit increase in our base business vol-
ume and product mix in China. However, crop shortages of basmati
rice led to another year of steep increases in cost and pricing of
basmati rice in India during 2014, and a subsequent decline in our
sales volume as consumers turned toward lower cost rice varieties.
Operating income, excluding special charges and the 2013 loss on
voluntary pension settlement for our consumer segment rose 0.4%
to $474.3 million from $472.3 million in 2013. On a constant currency
basis, operating income, excluding special charges and the 2013
loss on voluntary pension settlement, for our consumer segment
increased 1.1% in 2014 over the prior year level. Higher sales and
CCI cost savings contributed to this profit growth, but were partly
offset by higher material costs and a $16.8 million increase in brand
marketing support. Operating income margin, excluding the impact
of special charges and the 2013 loss on voluntary pension settle-
ment, was 18.1% in 2014 compared to 18.6% in 2013. This reduction
was due, in part, to the higher brand marketing support and the mix
of business 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.
McCormick & Company | 2015 Annual Report 33
Industrial Segment
Net sales
Percent change—increase (decrease)
Components of percent change in net sales—
increase (decrease):
Volume and product mix
Pricing actions
Foreign exchange
Operating income, excluding special
charges and 2013 loss on voluntary
pension settlement
Operating income margin, excluding
special charges and 2013 loss on
voluntary pension settlement
2014
2013
$1,617.7
$1,585.4
2.0%
(0.8)%
0.9%
1.8%
(0.7)%
(1.2)%
1.2%
(0.8)%
$ 133.9
$ 118.5
8.3%
7.5%
Sales of our industrial segment increased by 2.0%, which included
a 0.7% unfavorable impact from foreign currency exchange rates,
as compared to 2013. On a constant currency basis, industrial sales
increased by 2.7% in 2014, as pricing actions taken to offset the
impact of higher material costs added 1.8% and volume and product
mix added 0.9%. The growth in volume and product mix was led by
sales of snack seasonings in the Americas and sales to quick service
restaurants in our EMEA region.
In the Americas, industrial sales rose 0.4%, which included a 0.9%
unfavorable impact from foreign currency exchange rates. On a con-
stant currency basis, industrial sales in the Americas rose by 1.3%
over 2013, as pricing added 1.0% and volume and product mix added
0.3%. Innovation and category growth drove increased sales of
seasonings for snack products and we also grew sales of branded
foodservice items in 2014. However, demand from quick service
restaurants was weak in the U.S. in 2014.
In EMEA, we grew industrial sales 9.3%, which included a 1.1%
favorable impact from foreign currency exchange rates. On a con-
stant currency basis, industrial sales in EMEA increased by 8.2%
over the prior year, with a 5.0% increase from pricing actions and
a 3.2% increase in volume and product mix. 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.
In the Asia/Pacific region, industrial sales declined by 0.5% from
the 2013 level. That decline included a 2.4% unfavorable impact
from foreign currency exchange rates. On a constant currency basis,
industrial sales in the Asia/Pacific region rose by 1.9% in 2014, as
pricing actions added 1.0% and higher volume and product mix added
0.9%. Sales to quick service restaurants in China were adversely
impacted by consumer concerns regarding quality issues from a
supplier of protein in 2014 and regarding avian flu in 2013.
Operating income, excluding special charges and the 2013 loss
on voluntary pension settlement for our industrial segment, was
$133.9 million in 2014, compared to $118.5 million in 2013. On a con-
stant currency basis, operating income, excluding special charges
and the 2013 loss on voluntary pension settlement, for our industrial
segment increased 13.4% in 2014, as compared to the prior year.
The increase from higher sales, the benefit of CCI cost savings and
a more favorable mix of business, was partly offset by increased
material costs and a $2.0 million increase in marketing support for
branded foodservice items. Industrial segment operating income
34
margin, excluding the impact of special charges and the 2013 loss
on voluntary pension settlement, was 8.3% in 2014 compared to
7.5% in 2013.
NON-GAAP FINANCIAL MEASURES
The tables below include financial measures of adjusted operating
income, adjusted income from unconsolidated operations, adjusted
net income and adjusted diluted earnings per share, each excluding
the impact of special charges in 2015, 2014 and 2013, and loss on
voluntary pension settlement in 2013. 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. In our consolidated income state-
ment, we include a separate line item captioned “special charges”
in arriving at our consolidated operating income. Additionally, we
recorded $4.0 million in cost of goods sold in our income statement
for the twelve months ended November 30, 2015 which we classified
as special charges. Special charges consist of expenses, including
related impairment charges, associated with certain actions under-
taken by the company to reduce fixed costs, simplify or improve
processes, and improve our competitiveness and are of such signifi-
cance in terms of both up-front costs and organizational/structural
impact to require advance approval by our Management Committee,
comprised of our Chairman and Chief Executive Officer; President
and Chief Operating Officer; Executive Vice President and Chief
Financial Officer; President Global Industrial Segment and McCormick
International; President Global Consumer Segment and North America;
and Senior Vice President, Human Relations. Upon presen tation of
any such proposed action (including details with respect to estimated
costs, which generally consist principally of employee severance and
related benefits, together with ancillary costs asso ciated with the
action that may include a non-cash component, such as an asset
impairment, or a component which relates to inventory adjustments
that are included in cost of goods sold; impacted employees or oper-
ations; expected timing; and expected savings) to the Management
Committee and the Committee’s advance approval, expenses associ-
ated with the approved action are classified as special charges upon
recognition and monitored on an ongoing basis through completion.
Details with respect to the composition of special charges recorded
for the periods and in the amounts set forth below are included in
note 3 of the accompanying financial statements.
We believe these non-GAAP financial measures are 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.
Special charges of $65.5 million were recorded in 2015 to enable
us to implement changes to our organization structure in order to
reduce fixed costs, simplify or improve processes, and improve our
competitiveness. Of the $65.5 million of special charges recorded
in 2015, $29.2 million related to our North American effectiveness
initiative, $24.4 million related to streamlining actions in our Europe,
Middle East and Africa (EMEA) region, and $14.2 million related to
our Kohinoor business in India. Partially offsetting these charges
was a reduction of $2.3 million associated with the 2015 reversal of
reserves previously accrued as part of actions undertaken in 2013
and 2014.
In 2014 we recorded special charges of $5.2 million. Of the $5.2
million of special charges recorded in 2014, $2.1 million related
to actions undertaken with respect to the EMEA reorganization
announced in 2013, $1.3 million related to the realignment of
manufacturing activities in the U.S. industrial business, and $1.1
million and $0.7 million related to the elimination of administrative
and/or manufacturing positions in the consumer and industrial
businesses in the U.S. and Australia, respectively.
In 2013, we recorded $25.0 million of special charges related to
reorganization activities in the EMEA region and $15.3 million of
loss on voluntary pension settlement related to our U.S. pension
plan 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
settlement as adjustments to our operating income, income from
unconsolidated operations, 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 2015 financial results to 2014
and 2013. See notes 3 and 10 of the financial statements for addi-
tional 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 considered 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 financial reporting. A reconciliation
of these non-GAAP measures to GAAP financial results is provided below.
Operating income
Impact of loss on voluntary pension settlement
Impact of special charges included in cost of goods sold
Impact of other special charges (including non-cash brand impairment charges of $9.6 million in 2015
and $6.4 million in 2013 and a non-cash fixed asset impairment charge of $1.1 million in 2015)
Total special charges and 2013 loss on voluntary pension settlement
Adjusted operating income
% increase versus prior year
Income from unconsolidated operations
Impact of special charges attributable to non-controlling interests (1)
Adjusted income from unconsolidated operations
% increase versus prior year
Net income
Impact of total special charges and 2013 loss on voluntary pension settlement (2)
Impact of special charges attributable to non-controlling interests (1)
Adjusted net income
% increase versus prior year
Earnings per share—diluted
Impact of total special charges and 2013 loss on voluntary pension settlement
Impact of special charges attributable to non-controlling interests
Adjusted earnings per share—diluted
% increase versus prior year
2015
$ 548.4
—
4.0
61.5
65.5
2014
$ 603.0
—
—
5.2
5.2
2013
$ 550.5
15.3
—
25.0
40.3
$ 613.9
$ 608.2
$ 590.8
0.9%
2.9%
2.2%
$ 36.7
(2.0)
$ 34.7
$ 29.4
—
$ 29.4
$ 23.2
—
$ 23.2
18.0%
26.7%
7.9%
$ 401.6
49.9
(2.0)
$ 449.5
$ 437.9
3.7
—
$ 441.6
$ 389.0
29.2
—
$ 418.2
1.8%
5.6%
2.6%
$ 3.11
0.38
(0.01)
$ 3.48
$ 3.34
0.03
—
$ 3.37
$ 2.91
0.22
—
$ 3.13
3.3%
7.7%
3.0%
(1) Represents the portion of the Kohinoor total special charge of $14.2 million attributable to Kohinoor’s 15% minority stakeholder.
(2) Total special charges of $65.5 million for 2015 and $5.2 million for 2014 are net of taxes of $15.6 million and $1.5 million, respectively. Total special charges and loss on voluntary
pension settlement for 2013 of $40.3 million are net of taxes of $11.1 million.
Percentage changes in sales and adjusted operating income expressed
on a constant currency basis are presented excluding the impact of
foreign currency exchange. To present this information for historical
periods, current year results for entities reporting in currencies other
than the U.S. dollar are translated into U.S. dollars at the average
exchange rates in effect during the prior fiscal year, rather than at
the actual average exchange rates in effect during the current fiscal
year. As a result, the foreign currency impact is equal to the current
year results in local currencies multiplied by the change in the average
foreign currency exchange rate between the current year and the
prior fiscal year. The tables set forth below present constant currency
net sales and operating income growth as follows:
(1) to present constant currency net sales and operating income
growth for 2015, net sales and operating income for the year ended
November 30, 2015 for entities reporting in currencies other than the
U.S. dollar have been translated using the average foreign exchange
rates in effect for the year ended November 30, 2014 and compared
to the reported results for the year ended November 30, 2014; and
(2) to present constant currency net sales and operating income
growth for 2014, net sales and operating income for the year ended
November 30, 2014 for entities reporting in currencies other than the
U.S. dollar have been translated using the average foreign exchange
rates in effect for year ended November 30, 2013 and compared to
the reported results for the year ended November 30, 2013.
McCormick & Company | 2015 Annual Report 35
Net sales:
Consumer segment:
Americas
EMEA
Asia/Pacific
Total Consumer
Industrial segment:
Americas
EMEA
Asia/Pacific
Total Industrial
Total net sales
Adjusted operating income:
Consumer segment
Industrial segment
Total adjusted operating income
Net sales:
Consumer segment:
Americas
EMEA
Asia/Pacific
Total Consumer
Industrial segment:
Americas
EMEA
Asia/Pacific
Total Industrial
Total net sales
Adjusted operating income:
Consumer segment
Industrial segment
Total adjusted operating income
For the year ended November 30, 2015
Percentage
change as
reported
Impact of
foreign
currency
exchange
Percentage
change on
constant
currency basis
1.8%
(5.0)%
2.6%
0.4%
3.2%
0.8%
2.9%
2.7%
1.3%
(3.8)%
17.8%
0.9%
(1.4)%
(15.3)%
(4.0)%
(4.9)%
(3.2)%
(11.8)%
(7.3)%
(5.5)%
(5.1)%
(3.4)%
(6.7)%
(4.2)%
3.2%
10.3%
6.6%
5.3%
6.4%
12.6%
10.2%
8.2%
6.4%
(0.4)%
24.5%
5.1%
For the year ended November 30, 2014
Percentage
change as
reported
Impact of
foreign
currency
exchange
Percentage
change on
constant
currency basis
(0.7)%
3.3%
31.2%
3.4%
0.4%
9.3%
(0.5)%
2.0%
2.9%
0.4%
13.0%
3.0%
(0.7)%
1.5%
(3.2)%
(0.4)%
(0.9)%
1.1%
(2.4)%
(0.7)%
(0.6)%
(0.7)%
(0.4)%
(0.5)%
—
1.8%
34.4%
3.8%
1.3%
8.2%
1.9%
2.7%
3.5%
1.1%
13.4%
3.5%
In addition to the above non-GAAP measures, we use total debt to adjusted earnings before interest, tax, depreciation and amortization (adjusted
EBITDA) as a measure of leverage. We define adjusted EBITDA as net income plus expenses of interest, income taxes, depreciation and amortiza-
tion, special charges and loss on voluntary pension settlement. Adjusted EBITDA and the ratio of total debt to adjusted EBITDA are both non-GAAP
financial measures. This ratio measures our ability to repay outstanding debt obligations. Our target for total debt to adjusted EBITDA is 1.5 to 1.8.
Our total debt to adjusted EBITDA can be temporarily impacted by our acquisition activity. We believe that total debt to adjusted EBITDA is a
meaningful metric to investors in evaluating our financial leverage and may be different than the method used by other companies to calculate
total debt to adjusted EBITDA.
36
The following table reconciles our adjusted EBITDA to our net income:
Net income
Special charges and, for 2013, loss on
voluntary pension settlement
Special charges attributable to
non-controlling interests
Depreciation and amortization
Interest expense
Income tax expense
Adjusted EBITDA
Total debt
2015
2014
2013
$ 401.6
$ 437.9
$ 389.0
65.5
5.2
40.3
(2.0)
105.9
53.3
131.3
—
102.7
49.7
145.9
—
106.0
53.3
133.6
$ 755.6
$ 741.4
$ 722.2
$ 1,395.7
$ 1,284.9
$ 1,233.1
Total debt/adjusted EBITDA
1.85
1.73
1.71
LIQUIDITY AND FINANCIAL CONDITION
2015
2014
2013
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
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:
2015
2014
2013
90.2
91.4
84.8
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
$ 590.0
(338.9)
(199.6)
$ 503.6
(131.6)
(348.9)
$ 465.2
(239.7)
(245.9)
Cash Conversion Cycle
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 2016, we expect
to continue our share repurchase activity and fund all or a portion of
possible future acquisitions with cash flow from operations.
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 pre-
sented 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,
2015, the exchange rate for substantially all foreign currencies,
including the Euro, British pound sterling, Canadian dollar, Polish
zloty, Australian dollar and Chinese renminbi were lower versus the
U.S. dollar than at November 30, 2014.
Operating Cash Flow—Operating cash flow was $590.0 million in
2015, $503.6 million in 2014 and $465.2 million in 2013. The variabil-
ity in cash flow from operations in 2015 compared to 2014 and 2013
is primarily attributable to improvements in the three main compo-
nents of working capital. The change in accounts payable was a
source of cash in 2015, compared to a use of cash in 2014 and a
modest source of cash in 2013. The change in accounts receivable
was also a source of cash in 2015, but a use of cash in 2014 and
2013. The change in inventory also had an impact on the variability
in cash flow from operations, as it was a less significant use of cash
in 2015 when compared to 2014 and 2013. Dividends received from
unconsolidated affiliates were higher in 2015 when compared to
2014 and 2013 as well as in 2014 when compared to 2013, contribut-
ing to the increased cash flow from operations in 2015 and 2014.
Higher adjusted net income, in 2015 compared to 2014 and in 2014
compared to 2013, contributed $7.9 million and $23.4 million to net
cash flow from operating activities in 2015 and 2014, respectively.
The decrease in CCC in 2015 from 2014 is mainly due to a decrease
in our days sales outstanding resulting from new contractual terms
with a strategic customer. The increase in CCC in 2014 from 2013
is mainly due to an increase in our days in inventory as a result of
increased strategic raw material inventory.
Investing Cash Flow—Net cash used in investing activities was
$338.9 million in 2015, $131.6 million in 2014 and $239.7 million in
2013. The variability between years is principally a result of cash
usage related to our acquisitions of businesses, which amounted to
$210.9 million in 2015 and $142.3 million in 2013. We did not make
any acquisitions in 2014. See note 2 of the financial statements for
further details related to the 2015 and 2013 acquisitions. Capital
expenditures were $128.4 million in 2015, $132.7 million in 2014 and
$99.9 million in 2013. We expect 2016 capital expenditures to range
between $150 million and $160 million.
Financing Cash Flow—Net cash used in financing activities was
$199.6 million in 2015, $348.9 million in 2014 and $245.9 million in
2013. The variability between years is principally a result of share
repurchase and dividend activity, described below, and of changes
in our net borrowing activity. In 2015, 2014 and 2013, our net bor-
rowing activity provided cash of $118.0 million, $56.1 million and
$66.7 million, respectively. In 2015, we received net cash proceeds
of $246.5 million from our issuance of $250 million of 3.25% notes
due 2025. The net proceeds from this offering were used to pay
down short-term borrowings and for general corporate purposes. In
December 2015, proceeds from short-term borrowings were used to
pay off $200 million of 5.20% notes that matured in December 2015.
In 2013, 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.
The following table outlines the activity in our share repurchase
programs:
Number of shares of common stock
Dollar amount
2015
2014
2013
1.9
$145.8
3.6
$244.3
2.7
$177.4
McCormick & Company | 2015 Annual Report 37
As of November 30, 2015, $570 million remained of a $600 million
share repurchase program that was authorized by our Board of
Directors in March 2015. During the fourth quarter of 2015, we
completed a previous $400 million share repurchase program that
had been authorized in April 2013.
The common stock issued in 2015, 2014 and 2013 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
2015
2014
2013
$204.9
1.60
8.1%
$192.4
1.48
8.8%
$179.9
1.36
9.7%
In November 2015, the Board of Directors approved a 7.5% increase
in the quarterly dividend from $0.40 to $0.43 per share.
as fair value hedges of the changes in fair value of $100 million of
the $250 million 3.25% medium-term notes due 2025 that we issued
in November 2015. Any unrealized gain or loss on these swaps will
be offset by a corresponding increase or decrease in the value of
the hedged debt. Hedge ineffectiveness of these agreements is
not material.
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 agree-
ments 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 is not material.
Total debt/adjusted EBITDA
2015
1.85
2014
1.73
2013
1.71
See notes 6 and 7 of the financial statements for further details of
these transactions.
The increase in our total debt to adjusted EBITDA from 2014 to 2015
is mainly due to higher long-term debt borrowings in 2015 to fund
our acquisitions of Brand Aromatics, D&A and Stubb’s. Excluding the
impact of special charges, adjusted EBITDA for 2015 was $755.6 mil-
lion and the ratio of total debt to adjusted EBITDA was 1.85. The
increase in our total debt to adjusted EBITDA from 2013 to 2014 is
mainly due to higher short-term borrowings to fund strategic pur-
chases of inventory.
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
subsidiaries could have adverse tax consequences; however, those
balances are generally available without legal restrictions to fund
ordinary business operations, capital projects and future acquisi-
tions. At November 30, 2015, we temporarily used $171.7 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, 2015 and 2014 were $546.0 million and
$423.7 million, respectively. The total average debt outstanding for
the years ended November 30, 2015 and 2014 was $1,571.9 million
and $1,428.7 million, respectively.
During the year ended November 30, 2015, we entered into a total
of $100 million of forward starting interest rate swap agreements to
manage our interest rate risk associated with the anticipated issu-
ance of fixed rate notes in November 2015. We cash settled all of
these agreements, which were designated as cash flow hedges, for
a loss of $1.2 million simultaneous with the issuance of the notes
at an all-in effective fixed rate of 3.45% on the full $250 million of
debt. The loss on these agreements is deferred in accumulated other
comprehensive income and will be amortized to increase interest
expense over the life of the notes. Hedge ineffectiveness of these
agreements is not material.
In November 2015, we entered into an interest rate swap contract
for a notional amount of $100 million to receive interest at 3.25%
and pay a variable rate of interest based on three-month LIBOR plus
1.22%. We designated these swaps, which expire in November 2025,
38
Credit and Capital Markets—The following summarizes the more sig-
nificant 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, share repurchases,
dividends and capital expenditures. 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.
In June 2015, we entered into a five-year $750 million revolving
credit facility which will expire in June 2020. The pricing for this
credit facility, on a fully drawn basis, is LIBOR plus 0.75%. This
credit facility replaces our $600 million revolving credit facility which
was due to expire in June 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 $154.0 million as of November 30, 2015 that will expire in 2016.
We engage in regular communication with all of the banks partici-
pating in our 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
and other aspects of the relationships. Based on these communica-
tions 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 AND OTHER INVESTMENTS—We hold
investments in equity and debt securities in both our qualified
defined benefit pension plans and through a rabbi trust for our
nonqualified defined benefit pension plan. Cash payments to pen-
sion plans, including unfunded plans, were $15.7 million in 2015,
$16.8 million in 2014 and $42.7 million in 2013. It is expected that
the 2016 total pension plan contributions will be approximately
$16 million primarily for international plans. Future increases or
decreases in pension liabilities and required cash contributions
are highly dependent on changes in interest rates and the actual
return on plan assets. We base our investment of plan assets, in
part, on the duration of each plan’s liabilities. Across all of our quali-
fied defined benefit pension plans, approximately 64% of assets are
invested in equities, 26% in fixed income investments and 10% in
other investments. Assets in the rabbi trust are primarily invested in
corporate-owned life insurance, the value of which approximates an
investment mix of 50% in equities and 50% in fixed income invest-
ments. See also note 10 of the financial statements, which 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.
In 2015, we made the following acquisitions:
• We purchased 100% of the shares of Brand Aromatics, a privately
held company located in the U.S. Brand Aromatics is a supplier
of natural savory flavors, marinades, and broth and stock concen-
trates to the packaged food industry. Its addition expands the
breadth of value-added products in our industrial segment. The
purchase price for Brand Aromatics was $62.4 million, net of post-
closing adjustments and was financed with a combination
of cash and short-term borrowings. Brand Aromatics has been
included in our industrial segment since its acquisition.
• We purchased 100% of the shares of Drogheria & Alimentari
(D&A), a privately held company based in Italy, and a leader of the
spice and seasoning category in Italy that supplies both branded
and private label products to consumers. The purchase price for
D&A consisted of a cash payment of $49.0 million, net of cash
acquired of $2.8 million, subject to certain closing adjustments,
and was financed with a combination of cash and short-term
borrowings. In addition, the purchase agreement calls for a poten-
tial earn out payment in 2018 of up to €35 million, based upon
the performance of the acquired business in 2017. D&A has been
included in our consumer segment since its acquisition.
• We purchased 100% of the shares of One World Foods, Inc.,
owner of the Stubb’s brand of barbeque products (Stubb’s), a
privately held company located in Austin, Texas. Stubb’s is the
leading premium barbeque sauce brand in the U.S. In addition
to sauces, Stubb’s products include marinades, rubs and skillet
sauces. Its addition will expand the breadth of value-added
products in our consumer segment. The purchase price for Stubb’s
was $99.4 million, subject to certain closing adjustments, and
was financed with a combination of cash and short-term borrow-
ings. Stubb’s has been included in our consumer segment since
its acquisition.
See note 2 of the financial statements for further details regarding
these acquisitions.
PERFORMANCE GRAPH—SHAREHOLDER RETURN
The following line graph compares 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.
*$100 invested on 11/30/10 in stock or index, including reinvestment of dividends.
Fiscal year ending November 30.
Copyright© 2015 S&P, a division of McGraw Hill Financial. All rights reserved.
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 and Swiss franc, as well as the British pound sterling
versus the Euro. We routinely enter into foreign currency exchange
contracts to manage certain of these foreign currency risks.
During 2015, 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 and Australia. We did not hedge our net invest-
ments in subsidiaries and unconsolidated affiliates.
The following table summarizes the foreign currency exchange con-
tracts held at November 30, 2015. All contracts are valued in U.S.
dollars using year-end 2015 exchange rates and have been desig-
nated as hedges of foreign currency transactional exposures, firm
commitments or anticipated transactions.
McCormick & Company | 2015 Annual Report 39
FOREIGN CURRENCY EXCHANGE CONTRACTS AT
NOVEMBER 30, 2015
Currency sold
Currency received
Average
contractual
exchange
rate
Notional
value
Euro
British pound sterling
Canadian dollar
Australian dollar
Polish zloty
U.S. dollar
U.S. dollar
U.S. dollar
U.S. dollar
British pound sterling
U.S. dollar
U.S. dollar
U.S. dollar
U.S. dollar
U.S. dollar
Canadian dollar
Euro
British pound sterling
Mexican peso
Euro
$11.0
32.0
31.0
3.1
13.8
75.7
12.7
51.1
6.0
13.3
1.11
1.54
0.78
0.74
3.86
0.75
1.06
1.51
16.45
0.72
Fair
value
$ 0.4
0.7
1.1
0.1
0.6
0.1
(0.1)
(0.2)
0.1
(0.3)
We have a number of smaller contracts at November 30, 2015 with an aggregate
notional value of $14.8 million to purchase or sell other currencies, such as the Swiss
franc and the Thai baht. The aggregate fair value of these contracts was $0.2 million
at November 30, 2015.
YEAR OF MATURITY AT NOVEMBER 30, 2015
Included in the table are $140.1 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, 2014, we had foreign currency exchange contracts for the Euro,
British pound sterling, Canadian dollar, Australian dollar and Polish zloty with a
notional value of $262.7 million, all of which matured in 2015. The aggregate fair
value of these contracts was $3.5 million at November 30, 2014.
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 amortiza-
tion of any discounts or fees, by fiscal year of maturity at November
30, 2015. 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.
Debt
Fixed rate
Average interest rate
Variable rate
Average interest rate
2016
2017
2018
2019
Thereafter
Total
Fair value
$200.7
5.20%
$139.8
2.22%
$0.5
7.53%
$0.3
9.23%
$250.5
5.75%
$ 0.4
9.23%
$0.5
7.68%
$0.4
9.23%
$806.4
3.86%
$ 2.4
9.23%
$ 1,258.6
—
$ 143.3
—
$1,321.9
—
$ 143.3
—
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 December 2015 was effectively converted to a variable rate by interest rate swaps
through 2015. Net interest payments were based on 3 month LIBOR minus 0.05% during this period. We issued $250 million of 5.75% notes due in December 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%. We issued $250 million of 3.25% notes due in 2025 in November 2015. Forward treasury lock agreements of $100 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 3.45%. The fixed interest rate on $100 million of the 3.25% notes
due in December 2025 is effectively converted to a variable rate by interest rate swaps through 2025. Net interest payments are based on 3 month LIBOR plus 1.22% during this period.
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 2015, our most significant raw
materials were pepper, dairy products, capsicums (red peppers and
paprika), rice, onion, wheat flour and garlic. 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.
Credit Risk—The customers of our consumer segment are predomi-
nantly 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, discount chains
and e-commerce. This has caused some customers to be less profit-
able and increased our exposure to credit risk. Some of our custom-
ers 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 recog-
nizes trade receivables at realizable value. We consider nonperfor-
mance credit risk for other financial instruments to be insignificant.
40
CONTRACTUAL OBLIGATIONS AND COMMERCIAL
COMMITMENTS
The following table reflects a summary of our contractual obligations
and commercial commitments as of November 30, 2015:
CONTRACTUAL CASH OBLIGATIONS DUE BY YEAR
Short-term borrowings
Long-term debt
Operating leases
Interest payments
Contingent consideration
liability (a)
Raw material purchase
obligations (b)
Other purchase obligations (c)
Total contractual cash
obligations
Total
$ 139.5
1,262.4
94.3
291.1
Less than
1 year
1–3
years
3–5
years
More than
5 years
$139.5
201.0
22.5
48.7
— —
$251.7 $ 1.6
18.3
62.5
31.6
84.3
—
$808.1
21.9
95.6
27.1
—
27.1 —
415.2
16.3
415.2
12.7
— —
3.6 —
—
—
—
$ 2,245.9
$839.6
$398.3 $82.4
$925.6
(a) The contingent consideration liability outstanding as of November 30, 2015 represents
the estimated fair value of a contractual earn out provision associated with our
acquisition of D&A. As more fully described in note 2 of the financial statements,
the D&A purchase agreement calls for a potential earn out payment in 2018 of
up to €35 million based upon the performance of the acquired business in 2017.
Changes in the fair value of this liability, including any increase or decrease to our
estimate of the ultimate payout, determined under the contractual provisions, and
accretion of interest on the discounted liability will occur prior to the ultimate pay-
ment in 2018.
(b) 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.
(c) 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 pre-
sented pension and postretirement funding in the table above.
COMMERCIAL COMMITMENTS EXPIRATION BY YEAR
Guarantees
Standby letters of credit
Total commercial
commitments
Less than
1 year
1–3
years
3–5
years
More than
5 years
Total
$0.5
8.6
$0.5
8.6
—
—
— —
$9.1
$9.1
—
—
—
—
—
OFF-BALANCE SHEET ARRANGEMENTS
We had no off-balance sheet arrangements as of November 30, 2015
and 2014.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
New accounting pronouncements are issued periodically that affect
our current and future operations. See note 1 of the financial state-
ments for further details of these impacts.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
In preparing the financial statements, we are required to make esti-
mates and assumptions that have an impact on the assets, liabilities,
revenue and expenses reported. These estimates can also affect
supplemental information disclosed by us, including information
about contingencies, 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 determin-
ing the net realizable value of accounts receivable, inventory, fixed
assets and prepaid allowances. Our most critical accounting esti-
mates and assumptions are in the following areas:
Customer Contracts
In several of our major geographic markets, the consumer segment
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 recognized based on certain estimated criteria such as sales
volume of indirect customers, customers reaching anticipated vol-
ume thresholds and marketing spending. We routinely review these
criteria and make adjustments as facts and circumstances change.
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 circum-
stances 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
calculate fair value of a reporting unit by using a discounted cash
flow model. Our discounted cash flow model calculates fair value
by present valuing future expected cash flows of our reporting units
using our internal cost of capital as the discount rate. We then com-
pare this fair value to the carrying amount of the reporting unit,
including intangible assets and goodwill. If the carrying amount of
the reporting 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, 2015, we had $1,759.3 million of goodwill recorded in our balance
sheet ($1,587.7 million in the consumer segment and $171.6 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 relief-from-royalty
method or discounted cash flow model and then compare that to the
carrying amount of the indefinite-lived intangible asset.
In the third quarter of 2015, we recorded special charges related to
initiatives to improve the profitability of our Kohinoor consumer busi-
ness in India. This action principally relates to the discontinuance
of Kohinoor’s non-profitable bulk-packaged and broken basmati rice
product lines and other ancillary activities to enable the business to
focus on both its existing consumer-packaged basmati rice product
lines and the launch of consumer-packaged herbs and spices under
the Kohinoor brand name.
In light of the anticipated sales reduction associated with Kohinoor’s
discontinuance of its bulk-packaged and broken basmati rice product
lines, only partially offset by the launch of consumer-packaged herbs
and spices, we determined that an impairment of the Kohinoor brand
name had occurred. Using a relief from royalty method (and a discount
rate reflective of the risk associated with the launch of consumer-
packaged herbs and spices), a level 3 fair value measurement, we
recorded a non-cash impairment charge of $9.6 million to write down
the carrying value of our Kohinoor brand name to its estimated fair
value of $8.3 million. See note 3 of our financial statements for addi-
tional information on this impairment charge.
McCormick & Company | 2015 Annual Report 41
As of November 30, 2015, we had $281.2 million of brand name assets
and trademarks recorded in our balance sheet and none of the bal-
ances exceed their calculated fair values. Excluding the Kohinoor
brand name that was written down to its estimated fair value in the
third quarter of 2015 and the brand names associated with Brand
Aromatics, Drogheria & Alimentari and Stubb’s that were recorded
at fair value upon acquisition in fiscal 2015, the percentage excess
of calculated fair value over book value of our major brand names
and trademarks ranges from a low of 40% to a high of over 90%.
Below is a table which outlines the book value of our major brand
names and trademarks as of November 30, 2015:
Zatarain’s
Lawry’s
Kamis
DaQiao/ChuShiLe
Simply Asia/Thai Kitchen
Stubb’s (a)
Drogheria & Alimentari (a)
Kohinoor
Brand Aromatics
Other
Total
$106.4
48.0
31.2
27.3
18.4
13.3
12.1
8.3
4.2
12.0
$281.2
(a) Book values for the Stubb’s and Drogheria & Alimentari brand names as of
November 30, 2015 are based on preliminary valuations and will be adjusted
upon finalization of those valuations in 2016.
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 appropriately supported, but tax authorities
may challenge certain positions. We evaluate our uncertain tax posi-
tions in accordance with the U.S. GAAP guidance for uncertainty in
income taxes. We believe that our reserve for uncertain tax posi-
tions, 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. We have recorded valuation allowances to reduce
our deferred tax assets to the amount that is more likely than not to
be realized. In doing so, we have 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
actuarial assumptions used in our pension and postretirement bene-
fit reporting are reviewed annually and compared with external
benchmarks to ensure that they appropriately account for our future
pension 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 dis-
count rate would impact 2016 pension and postretirement benefit
expense by approximately $16 million. A 1% increase or decrease
in the expected return on plan assets would impact 2016 pension
expense by approximately $8 million.
42
Assumptions as to mortality of the participants in our pension plan is
a key estimate in measuring the expected payments a participant
may receive over their lifetime and therefore the amount of expense
we will recognize.
During 2014, the Society of Actuaries released a series of updated
mortality tables resulting from recent studies conducted by them
measuring mortality rates for various groups of individuals and mortal-
ity information from the Social Security Administration through 2009.
The updated mortality tables released by the Society of Actuaries in
2014 reflected improved trends in longevity and would, therefore, have
had the effect of increasing the estimate of benefits to be received
by plan participants. During 2015, the Society of Actuaries released
a series of updated mortality tables that reflected updated Social
Security Administration data from 2010 and 2011 and that reflected
smaller improvements in longevity than its 2014 mortality tables.
In determining the most appropriate mortality assumptions for our
U.S. defined benefit pension and other postretirement benefit plans
at November 30, 2014, we considered the updated mortality tables
issued by the Society of Actuaries in 2014, coupled with other mortal-
ity infor mation available from the Social Security Administration
(including the 2010 and 2011 data previously referenced) and our
consulting actuaries that we believe is more closely aligned with our
industry and participant mix to develop assumptions that we believe
are most representative of the various characteristics of our partici-
pant populations. Our use of these updated mortality assumptions
during 2014 increased the benefit obligation for our U.S. defined
benefit pension and other postretirement benefit plans by approxi-
mately $18 million at November 30, 2014 and increased related
pension and other postretirement benefit expense by approximately
$2 million in 2015. Based on our evaluation as of November 30, 2015,
in conjunction with advice from our consulting actuaries, we deter-
mined that no further change was required to our mortality assump-
tions in 2015, other than the following refinement with respect to
our U.S. other postretirement benefit plan. In determining the most
appropriate mortality assumptions for our U.S. other postretirement
benefit plan at November 30, 2015, we modified those mortality
assumptions to reflect a headcount-weighted version of such assump-
tions that we believe is most representative of the characteristics of
our other postretirement benefits population. The effect of this
modification decreased the benefit obligation for our U.S. other
postretirement benefit plan by approximately $1.7 million and will
have an immaterial effect on our related 2016 expense.
We will continue to evaluate the appropriateness of mortality and
other assumptions used in the measurement of our pension and other
postretirement benefit obligations. In addition, see note 10 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 assumptions
for expected volatility of stock, dividend yield and risk-free interest
rate. Our valuation methodology and significant assumptions used
are disclosed in note 11 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.
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
consolidated 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.
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 consoli
dated 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.
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 registered
public accounting firm to review and discuss internal control over
financial reporting and accounting and financial reporting matters.
The independent registered public accounting firm and internal audi
tors report to the Audit Committee and accordingly have full and
free access to the Audit Committee at any time.
We conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in Internal
Control—Integrated Framework issued by the Committee of Spon
soring Organizations of the Treadway Commission (2013 framework).
This evaluation included review of the documentation of controls,
evaluation of the design effectiveness of controls, testing of the
operating effectiveness of controls and a conclusion on this evalua
tion. Although there are inherent limitations in the effectiveness
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, 2015.
Our internal control over financial reporting as of November 30, 2015
has been audited by Ernst & Young LLP.
Alan D. Wilson
Chairman & Chief Executive
Officer
Gordon M. Stetz, Jr.
Executive Vice President &
Chief Financial Officer
Christina M. McMullen
Vice President & Controller
Chief Accounting Officer
McCormick & Company | 2015 Annual Report 43
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, 2015, based on
criteria established in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). McCormick &
Company, Incorporated’s management is responsible for maintain
ing effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial
reporting included in the accompanying Report of Management.
Our responsibility 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
reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial
reporting, 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 main
tenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the
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, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of McCormick & Company, Incorporated
as of November 30, 2015 and 2014, 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, 2015 and our report
dated January 28, 2016 expressed an unqualified opinion thereon.
Baltimore, Maryland
January 28, 2016
44
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, 2015 and
2014, 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, 2015. Our audits also included the financial statement
schedule listed in the Index at Item 15(2). These financial statements
and schedule are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial state
ments and schedule based on our audits.
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, 2015 and
2014, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended November 30,
2015, 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 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
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
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 financial reporting
as of November 30, 2015, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsor
ing Organizations of the Treadway Commission (2013 framework)
and our report dated January 28, 2016 expressed an unqualified
opinion thereon.
Baltimore, Maryland
January 28, 2016
McCormick & Company | 2015 Annual Report 45
CONSOLIDATED INCOME STATEMENTS
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.
CONSOLIDATED STATEMENTS 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
Total other comprehensive income (loss)
Comprehensive income
See Notes to Consolidated Financial Statements.
2015
$4,296.3
2,559.0
1,737.3
1,127.4
61.5
—
548.4
53.3
1.1
496.2
131.3
364.9
36.7
$ 401.6
$ 3.14
$ 3.11
2015
$ 401.6
0.5
27.4
(239.8)
(3.4)
(5.3)
(221.1)
2014
$4,243.2
2,513.0
1,730.2
1,122.0
5.2
—
603.0
49.7
1.1
554.4
145.9
408.5
29.4
$ 437.9
$ 3.37
$ 3.34
2014
$ 437.9
2.5
(89.0)
(134.1)
5.7
31.2
(186.2)
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
2013
$ 389.0
1.3
235.6
(3.5)
11.8
(87.1)
156.8
$ 181.0
$ 254.2
$ 547.1
46
CONSOLIDATED BALANCE SHEETS
at November 30 (millions)
Assets
Cash and cash equivalents
Trade accounts receivable, less allowances of $8.0 for 2015 and $4.0 for 2014
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:
2015—11.7 shares, 2014—12.0 shares
Common stock non-voting, no par value; authorized 320.0 shares; issued and outstanding:
2015—115.6 shares, 2014—116.4 shares
Retained earnings
Accumulated other comprehensive loss
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
See Notes to Consolidated Financial Statements.
2015
2014
$ 112.6
455.2
710.8
127.9
1,406.5
618.4
1,759.3
372.1
351.5
$ 77.3
493.6
713.8
131.5
1,416.2
602.7
1,722.2
330.8
342.4
$4,507.8
$4,414.3
$ 139.5
203.5
411.9
485.3
1,240.2
1,052.7
528.0
2,820.9
384.5
655.1
1,036.7
(406.1)
16.7
1,686.9
$4,507.8
$ 269.6
1.2
372.1
479.1
1,122.0
1,014.1
468.8
2,604.9
367.2
628.4
982.6
(186.0)
17.2
1,809.4
$4,414.3
McCormick & Company | 2015 Annual Report 47
CONSOLIDATED CASH FLOW STATEMENTS
for the year ended November 30 (millions)
2015
2014
2013
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$ 401.6
$ 437.9
$ 389.0
Depreciation and amortization
Stock-based compensation
Brand name impairment included in special charges
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
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 financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) 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.
105.9
18.7
9.6
22.8
—
0.6
1.0
(36.7)
15.6
(18.0)
40.4
(2.4)
30.9
590.0
(210.9)
(128.4)
0.4
(338.9)
(127.4)
247.0
(1.6)
33.1
(145.8)
(204.9)
(199.6)
(16.2)
35.3
77.3
102.7
18.2
—
5.2
—
1.3
6.1
(29.4)
(16.4)
(54.4)
(6.7)
23.3
15.8
503.6
—
(132.7)
1.1
(131.6)
57.7
—
(1.6)
31.7
(244.3)
(192.4)
(348.9)
(8.8)
14.3
63.0
106.0
18.7
6.4
18.6
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
$ 112.6
$ 77.3
$ 63.0
48
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(millions)
Balance, November 30, 2012
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
Balance, November 30, 2013
Net income
Net income attributable to non-controlling interest
Other comprehensive income (loss), net of tax
Dividends
Stock-based compensation
Shares purchased and retired
Shares issued, including tax benefit of $9.0
Equal exchange
Balance, November 30, 2014
Net income
Net income attributable to non-controlling
interest
Other comprehensive income (loss), net of tax
Dividends
Stock-based compensation
Shares purchased and retired
Shares issued, including tax benefit of $5.5
Equal exchange
Balance, November 30, 2015
See Notes to Consolidated Financial Statements.
Accumulated
Other
Comprehensive
(Loss) Income
Non-controlling
Interests
Total
Shareholders’
Equity
Common
Stock
Shares
Common
Stock Non-
Voting
Shares
12.4
120.1
(0.3)
1.1
(1.1)
12.1
(2.5)
0.3
1.1
119.0
Common
Stock
Amount
Retained
Earnings
$ 934.6
$ 908.2
389.0
—
—
—
—
—
— (183.3)
—
—
—
18.7
(169.9)
(19.5)
—
55.0
—
—
$ 970.4
$ 962.4
437.9
—
—
—
—
—
— (195.2)
—
(230.5)
—
—
18.2
(25.3)
40.3
—
$(159.9)
—
—
159.6
—
—
—
—
—
—
$ (0.3)
—
—
(185.7)
—
—
—
—
—
$(186.0)
(3.5)
0.2
0.7
116.4
$ 995.6
$ 982.6
—
401.6
—
—
—
—
—
— (208.2)
—
(139.3)
—
—
18.7
(16.2)
41.5
—
—
(220.1)
—
—
—
—
—
(1.8)
0.1
0.9
(0.2)
0.8
(0.7)
12.0
(0.2)
0.8
(0.9)
11.7
$17.3
—
1.3
(2.8)
—
(0.6)
—
—
—
—
$15.2
—
2.5
(0.5)
—
—
—
—
—
$17.2
—
0.5
(1.0)
—
—
—
—
—
$1,700.2
389.0
1.3
156.8
(183.3)
(0.6)
18.7
(189.4)
55.0
—
$1,947.7
437.9
2.5
(186.2)
(195.2)
18.2
(255.8)
40.3
—
$1,809.4
401.6
0.5
(221.1)
(208.2)
18.7
(155.5)
41.5
—
115.6
$1,039.6
$1,036.7
$(406.1)
$16.7
$1,686.9
McCormick & Company | 2015 Annual Report 49
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.
Reclassifications
Certain prior years’ amounts in the consolidated financial statements
have been reclassified to conform to the presentation used in 2015.
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 com-
prehensive 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 trans-
actions 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 are trans-
lated at the rates of exchange at the balance sheet date, with
the resultant translation adjustments included in accumulated
other comprehensive income (loss) of those affiliates. Income
and expense items of those affiliates are translated at average
monthly rates of exchange. We record our ownership share of the
net assets and accumulated other comprehensive income (loss) of
our unconsolidated affiliates in our consolidated balance sheet on
the lines entitled “Investments and other assets” and “Accumulated
other comprehensive income (loss),” respectively. We record our
ownership share of the net income of our unconsolidated affiliates in
our consolidated statement of income on the line entitled “Income
from unconsolidated operations.”
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 state-
ments 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.
50
Property, Plant and Equipment
Property, plant and equipment is stated at historical cost and depre-
ciated 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, equipment and
computer software. Repairs and maintenance costs are expensed
as incurred.
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 $9.4 million of software development costs during
the year ended November 30, 2015, $11.7 million during the year
ended November 30, 2014 and $16.7 million during the year ended
November 30, 2013.
Goodwill and Other Intangible Assets
We review the carrying value of goodwill and indefinite-lived intan-
gible 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 cir-
cumstances 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 relief-from-royalty
method or discounted cash flow model and then compare that to
the carrying amount of the indefinite-lived intangible asset. If the
carrying 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. Undis-
counted 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
—upon either shipment or delivery, depending upon contractual
terms—and when the sales price is fixed or determinable and col-
lectability 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 allowances
and rebates, 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 the aging of our receivables
and our history of collections.
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 $95.8 million,
$100.3 million and $96.9 million for 2015, 2014 and 2013, 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 $60.8 million,
$62.0 million and $61.3 million for 2015, 2014 and 2013, respectively.
Brand Marketing Support
Total brand marketing support costs, which are included in selling,
general and administrative expense in the income statement, were
$240.6 million, $226.6 million and $207.8 million for 2015, 2014 and
2013, respectively. Brand marketing support costs include adver-
tising, promotions and customer trade funds used for cooperative
advertising. Promotion costs include public relations, shopper mar-
keting, social marketing activities, general consumer promotion
activities and depreciation on assets used in these promotional
activities. Advertising costs include the development, production
and communication of advertisements through television, digital,
print and radio. Development and production costs are expensed in
the period in which the advertisement is first run. All other costs of
advertisement are expensed as incurred. Advertising expense was
$106.8 million, $100.4 million and $85.0 million for 2015, 2014 and
2013, 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 other compre-
hensive 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 November 2015, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update No. 2015-17 Balance Sheet
Classification of Deferred Taxes (Topic 740). This guidance requires
entities with a classified balance sheet to present all deferred tax
assets and liabilities as noncurrent. It will be effective for the first
quarter of our fiscal year ending November 30, 2018, and early
adoption is permitted. We do not expect the adoption of this new
accounting pronouncement to have a material impact on our finan-
cial statements.
In September 2015, the FASB issued Accounting Standards Update
No. 2015-16 Simplifying the Accounting for Measurement-Period
Adjustments (Topic 805). This guidance eliminates the requirement
to retrospectively adjust the financial statements for measurement-
period adjustments that occur in periods after a business combination
is consummated. It will be effective for the first quarter of our fiscal
year ending November 30, 2017, and early adoption is permitted for
not yet issued financial statements. We are unable to determine
the impact from adoption of this new accounting pronouncement
on our results of operations as that impact is dependent upon the
materiality of any acquisitions that we may make in the period prior
to adoption. However, measurement-period adjustments for our
acquisitions over the past several years have not been material.
In July 2015, the FASB issued Accounting Standards Update No.
2015-11 Simplifying the Measurement of Inventory (Topic 330). This
guidance is intended to simplify the subsequent measurement of
inventories by replacing the current lower of cost or market test with
a lower of cost and net realizable value test. It will be effective for
the first quarter of our fiscal year ending November 30, 2018, and
early adoption is permitted. We have not yet determined the impact
from adoption of this new accounting pronouncement on our finan-
cial statements.
McCormick & Company | 2015 Annual Report 51
In May 2015, the FASB issued Accounting Standards Update No.
2015-07 Disclosures for Investments in Certain Entities That Calculate
Net Asset Value per Share (or Its Equivalent) (Topic 820). This guidance
is intended to eliminate the diversity in practice related to how certain
investments measured at net asset value with future redemption
dates are categorized. The proposed amendments would remove
those investments from the fair value hierarchy for which fair values
are measured using the net asset value per share practical expedient.
The proposed amendments will be applied retrospectively for all
periods presented, which requires that an investment for which fair
value is measured using the net asset value per share practical expe-
dient be removed from the fair value hierarchy in all periods presented
in our financial statements upon adoption. This guidance will be
effective for the first quarter of our fiscal year ending November 30,
2018, and early adoption is permitted. We do not expect the adoption
of this new accounting pronouncement to have a material impact
on our financial statements.
In April 2015, the FASB issued Accounting Standards Update No.
2015-03 Simplifying the Presentation of Debt Issuance Costs. This
guidance eliminates the current requirement to recognize debt issu-
ance costs as a deferred charge (that is, an asset) by replacing the
presentation of debt issuance costs in the balance sheet as a direct
deduction from the carrying amount of the debt liability, consistent
with debt discounts. It will be effective for the first quarter of our
fiscal year ending November 30, 2017 and early adoption is permit-
ted for not yet issued financial statements. We do not expect the
adoption of this new accounting pronouncement to have a material
impact on our financial statements.
In May 2014, the FASB issued Accounting Standards Update No.
2014-09 Revenue from Contracts with Customers (Topic 606). This
guidance is intended to improve and converge with international
standards the financial reporting requirements for revenue from
contracts with customers. The new standard will be effective for
the first quarter of our fiscal year ending November 30, 2019. Early
adoption is permitted for all entities, but not before the original
effective date for public business entities (i.e., annual reporting
periods beginning after December 15, 2016 or our fiscal year ending
November 30, 2018). We have not yet determined the impact from
adoption of this new accounting pronouncement on our financial
statements.
2. ACQUISITIONS
Acquisitions are part of our strategy to increase sales and profits.
On March 9, 2015, we acquired 100% of the shares of Brand Aromatics,
a privately held company located in the U.S. Brand Aromatics is a
supplier of natural savory flavors, marinades, and broth and stock
concentrates to the packaged food industry. Its addition expands
the breadth of value-added products in our industrial segment. The
purchase price for Brand Aromatics was $62.4 million, net of post-
closing adjustments and was financed with a combination of cash
and short-term borrowings. At the time of acquisition, annual sales
of Brand Aromatics were approximately $30 million. As of November
30, 2015, we completed the final valuation of the Brand Aromatics
acquisition, which resulted in $5.2 million allocated to tangible net
assets, $4.2 million allocated to a brand name indefinite lived intan-
gible asset, $18.7 million allocated to definite lived intangible assets
with a weighted average life of 11.9 years, and $34.3 million allocated
52
to goodwill. Goodwill related to the Brand Aromatics acquisition,
which will be deductible for tax purposes, primarily represents the
intangible assets that do not qualify for separate recognition, such
as the value of leveraging the customer intimacy and value-added
flavor solutions we provide to our industrial customers to Brand
Aromatics’ relationships with industrial customers of their stocks,
marinades and other savory flavors, as well as from expected syn-
ergies from the combined operations and assembled workforces,
and the future development initiatives of the assembled workforces.
The completion of the final valuation did not result in material changes
to our consolidated income statement or our consolidated balance
sheet from our preliminary purchase price allocation. Brand Aromatics
has been included in our industrial segment since its acquisition.
On May 29, 2015, we completed the purchase of 100% of the shares
of Drogheria & Alimentari (D&A), a privately held company based in
Italy, and a leader of the spice and seasoning category in Italy that
supplies both branded and private label products to consumers. The
purchase price for D&A consisted of a cash payment of $49.0 million,
net of cash acquired of $2.8 million, at the time of acquisition, subject
to certain closing adjustments, and was financed with a combination
of cash and short-term borrowings. In addition, the purchase agree-
ment calls for a potential earn out payment in 2018 of up to €35 mil-
lion, based upon the performance of the acquired business in 2017.
This potential earn out payment had an acquisition-date fair value of
$27.7 million (or approximately €25 million), based on estimates of
projected performance in 2017, payable in fiscal 2018 and discounted
using a probability-weighted approach. At the time of the acquisition,
annual sales of D&A were approximately €50 million. As of the
acquisition date, a preliminary valuation of the acquired net assets
of D&A resulted in $6.3 million allocated to tangible net assets,
$12.6 million allocated to indefinite lived brand assets, $11.7 million
allocated to definite lived intangible assets with a weighted-average
life of 9.7 years and $46.1 million allocated to goodwill. Goodwill
related to the D&A acquisition, which is not deductible for tax pur-
poses, primarily represents the intangible assets that do not qualify
for separate recognition, such as the value of leveraging our brand
building expertise, our customer insights in demand from consumers
for unique and authentic ethnic flavors and our supply chain capabili-
ties, as well as expected synergies from the combined operations
and assembled workforce. The preliminary valuation, based on a
comparison of acquisitions of similar consumer businesses, provided
average percentages of purchase prices assigned to goodwill and
other intangible assets which we used to initially value the D&A
acquisition. We expect to finalize the determination of the fair value
of the acquired net assets of D&A during early 2016. D&A has been
included in our consumer segment since its acquisition.
On August 20, 2015, we completed the purchase of 100% of the
shares of One World Foods, Inc., owner of the Stubb’s brand of
barbeque products (Stubb’s), a privately held company located in
Austin, Texas. Stubb’s is the leading premium barbeque sauce brand
in the U.S. In addition to sauces, Stubb’s products include marinades,
rubs and skillet sauces. Its addition will expand the breadth of value-
added products in our consumer business. At the time of acquisition,
annual sales of Stubb’s were approximately $30 million. The purchase
price for Stubb’s was $99.4 million, subject to certain closing adjust-
ments, and was financed with a combination of cash and short-term
borrowings. As of the acquisition date, a preliminary valuation of the
acquired net assets of Stubb’s resulted in $5.4 million allocated to
tangible assets acquired (less $12.4 million allocated to liabilities
assumed), $13.3 million allocated to indefinite lived brand asset,
$12.5 million allocated to definite lived intangible assets with a
weighted-average life of 14.3 years and $80.6 million allocated to
goodwill. Goodwill related to the Stubb’s acquisition, which is not
deductible for tax purposes, primarily repre sents the intangible
assets that do not qualify for separate recog nition, such as the value
of leveraging our brand building expertise, our customer insights in
demand from customers for unique and authentic barbeque and grill-
ing flavors, and our supply chain capabilities, as well as expected
synergies from the combined operations and assembled workforce.
The pre liminary valuation, based on a comparison of acquisitions of
similar consumer businesses, provided average percentages of pur-
chase prices assigned to goodwill and other identifiable intangible
assets, which we used to initially value the Stubb’s acquisition. We
expect to finalize the determination of the fair value of the acquired
net assets of Stubb’s during the first half of 2016. Stubb’s has been
included in our consumer segment since its acquisition.
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 manufac tures and markets DaQiao and ChuShiLe®
brand bouillon products, which have a leading position in the central
region of China. WAPC has been included in our consumer segment
from the date of acquisition. At the time of acquisition, annual sales of
WAPC were approximately $122 million. During 2014, we completed the
final valuation of the assets of WAPC which resulted in $26.9 million
allocated to tangible net assets, $46.1 million allocated to other
intangible assets and $71.8 million allocated to goodwill. The com-
pletion of the final valuation did not result in material changes to our
consolidated income statement or our consolidated balance sheet
from our preliminary purchase price allocation. Goodwill related to
the WAPC acquisition is not deductible for tax purposes.
During the years ended November 30, 2015 and 2013, we recorded
$3.6 million and $4.3 million, respectively, in transaction-related
expenses associated with the above acquisitions in selling, general
and administrative expenses in our consolidated income statement.
Since the dates of each acquisition in 2015, Brand Aromatics, D&A
and Stubb’s added $21.3 million, $32.3 million and $5.6 million,
respectively, to our sales in the year ended November 30, 2015. Due
to financing, acquisition and integration costs, the aggregate oper-
ating income contribution of Brand Aromatics, D&A and Stubb’s was
not significant to our overall results for 2015. Proforma financial
information for our 2015 acquisitions has not been presented because
the financial impact is not material.
3. SPECIAL CHARGES
We continue to evaluate changes to our organization structure to
reduce fixed costs, simplify or improve processes, and improve
our competitiveness.
In our consolidated income statement, we include a separate line
item captioned “special charges” in arriving at our consolidated
operating income. Special charges consist of expenses, including
related impairment charges, associated with certain actions under-
taken by the company to reduce fixed costs, simplify or improve
processes, and improve our competitiveness and are of such signifi-
cance in terms of both up-front costs and organizational/structural
impact to require advance approval by our Management Committee,
comprised of our senior management, including our Chairman and
Chief Executive Officer. Upon presentation of any such proposed
action (generally including details with respect to estimated costs,
which typically consist principally of employee severance and
related benefits, together with ancillary costs associated with the
action that may include a non-cash component, such as an asset
impairment, or a component which relates to inventory adjustments
that are included in cost of goods sold; impacted employees or oper-
ations; expected timing; and expected savings) to the Management
Com mittee and the Committee’s advance approval, expenses associ-
ated with the approved action are classified as special charges upon
recognition and monitored on an ongoing basis through completion.
The following is a summary of special charges recognized in the
years ended November 30, 2015, 2014 and 2013 (in millions):
Special charges included in cost of goods sold
Other special charges in the income statement
(including non-cash brand impairment charges
of $9.6 million in 2015 and $6.4 million in 2013
and a non-cash fixed asset impairment charge
of $1.1 million in 2015)
Total special charges
2015
2014
2013
$ 4.0
—
—
61.5
$ 65.5
$5.2
$5.2
$25.0
$ 25.0
The following is a breakdown of special charges by business segments
in the years ended November 30, 2015, 2014 and 2013 (in millions):
Consumer segment
Industrial segment
Total special charges
2015
2014
2013
$ 52.8
12.7
$ 65.5
$3.7
1.5
$5.2
$ 22.2
2.8
$ 25.0
Of the $65.5 million of special charges recognized in 2015, $29.2 mil-
lion related to our North American effectiveness initiative, $24.4 mil-
lion related to streamlining actions in our Europe, Middle East, and
Africa (EMEA) region, and $14.2 million related to our Kohinoor busi-
ness in India as more fully described below. Partially offsetting these
charges was a reduction of $2.3 million associated with the 2015
reversal of reserves previously accrued as part of actions undertaken
in 2013 and 2014.
In 2015, we offered a voluntary retirement plan, which included
enhanced separation benefits but did not include supplementary
pension benefits, to certain U.S. employees aged 55 years or older
with at least ten years of service to the company. Upon our receipt
of notification from participants that they accepted this plan, which
closed early in 2015, we accrued special charges of $23.9 million,
consisting of employee severance and related benefits that have been
largely paid in 2015 as substantially all of the affected employees
have left the company in 2015. The voluntary retirement plan is part
of our North American effectiveness initiative. In addition to the
cost of the voluntary retirement plan, we recognized an additional
$5.3 million of special charges in 2015 as part of our North American
effectiveness initiative, of which $3.0 million represented additional
employee severance and related benefits and $2.3 million repre-
sented other related expenses.
McCormick & Company | 2015 Annual Report 53
Our North American effectiveness initiative generated cost savings of
approximately $15 million in 2015 and is expected to generate annual
cost savings with a full year impact of approximately $27 million
beginning in 2016. We do not expect that additional special charges
under our North American effectiveness initiative will be material in
2016. The following table outlines the major components of accrual
balances and activity relating to the special charges associated
with our North American effectiveness initiative for the year ended
November 30, 2015 (in millions):
Special charges
Cash paid
Balance as of November 30, 2015
Employee
severance
and related
benefits
$ 26.9
(24.6)
$ 2.3
Other
related
costs
$ 2.3
(2.3)
Total
$ 29.2
(26.9)
— $ 2.3
In 2015, we recorded special charges of $24.4 million, principally
consisting of severance and related costs, to enhance organization
efficiency and streamline processes in EMEA in order to support our
competitiveness and long-term growth. These initiatives center on
actions intended to reduce fixed costs and improve business proc-
esses, as well as continue to drive simplification across the busi-
ness and supply chain. These actions include the transfer of certain
additional activities to our shared services center in Poland. In addi-
tion to the $24.4 million of special charges recorded in 2015, we
expect to record additional special charges in 2016, ranging from
approximately $3.2 million to $5.5 million, for future actions approved
under these EMEA reorganization and streamlining initiatives began
in 2015, which will be settled in cash and reflected in special charges
upon recognition in 2016. Related annual cost savings are projected
to be approximately $3 million in 2016 and $19 million by the end
of 2017.
The following table outlines the major components of accrual bal-
ances and activity relating to the special charges associated with
the EMEA reorganization plans undertaken in 2015 (in millions):
Special charges
Cash paid
Impairment of fixed assets recorded
Impact of foreign exchange
Balance as of November 30, 2015
Employee
severance
and related
benefits
$21.5
(4.5)
—
(0.8)
$16.2
Other
related
costs
$ 2.9
(1.3)
(1.1)
0.1
$ 0.6
Total
$ 24.4
(5.8)
(1.1)
(0.7)
$ 16.8
Also in 2015, we recorded a total of $14.2 million of special charges
related to initiatives to improve the profitability our Kohinoor con-
sumer business in India. This action principally relates to the dis-
continuance of Kohinoor’s non-profitable bulk-packaged and broken
basmati rice product lines and other ancillary activities to enable the
business to focus on both its existing consumer-packaged basmati
rice product lines and the launch of consumer-packaged herbs and
spices under the Kohinoor brand name.
In light of the anticipated sales reduction associated with Kohinoor’s
discontinuance of its bulk-packaged and broken basmati rice prod-
uct lines, only partially offset by the launch of consumer-packaged
herbs and spices, we determined that an impairment of the Kohinoor
brand name had occurred. Using a relief from royalty method (and
a discount rate associated with the risk of the launch of consumer-
packaged herbs and spices) a level 3 fair value measurement, we
estimated a current fair value of the Kohinoor brand name that rep-
resented a reduction in its previous carrying value by approximately
53%, resulting in a non-cash impairment charge of $9.6 million in
2015. The remaining carrying value of our Kohinoor brand name at
November 30, 2015, was $8.3 million. In addition as a result of the
Kohinoor product line discontinuance in 2015, we recognized a
$4.0 million charge in cost of goods sold, which represents a pro-
vision for the excess of the carrying value of inventories of bulk and
broken basmati rice, determined on a lower of cost or market basis,
over the estimated net realizable value of such discontinued inven-
tories. We also recorded $0.6 million of other exit costs asso ciated
with this plan of which $0.4 million were paid in 2015. In addition to
the $14.2 million of special charges outlined above and recorded in
2015, the future actions approved with respect to Kohinoor’s plan
to improve its profitability consist of costs asso ciated with exiting
certain contractual arrangements and other costs directly related to
the plan. The estimated cost of such future actions, which will be
reflected in special charges upon recognition in 2016, range from
approximately $1.4 million to $3.4 million.
In late 2013, we announced a reorganization of parts of our EMEA
region to further improve EMEA’s profitability and process standard-
ization while supporting its competitiveness and long-term growth.
These actions include the closure of our sales and distribution opera-
tions in The Netherlands, with the transition to a third-party distribu-
tor 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 certain shared
serv ice activity across parts of the region into a newly created
shared services center in Poland. In 2013, we recorded $25.0 million
of charges related to this reorganization. Of the $25.0 million of spe-
cial charges recognized in 2013, $15.9 million related to employee
severance, $6.4 million to asset write-downs, and $2.7 million to
other exit costs. In 2014, we recorded an additional $2.1 million
of special charges associated with this EMEA reorganization, with
$1.1 million related to employee severance and $1.0 million for other
exit costs.
The $6.4 million asset write-down included in the $25.0 million spe-
cial charge for 2013 related to an impairment charge for the reduc-
tion in the value of our Silvo brand name in The Netherlands. Our
decision to transition to a third-party distributor model to continue
to sell the Silvo brand led us to conclude an impairment indicator
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 special
charges of $25.0 million in 2013. The carrying value of the Silvo
brand name as of November 30, 2015 is not significant.
54
The following table outlines the major components of accrual bal-
ances relating to the special charges associated with this EMEA
reorganization as of November 30, 2013, 2014 and 2015 (in millions):
4. GOODWILL AND INTANGIBLE ASSETS
The following table displays intangible assets as of November 30,
2015 and 2014:
Employee
severance
Other exit
costs
Balance as of November 30, 2013
Special charges
Cash paid
Impact of foreign exchange
Balance as of November 30, 2014
Cash paid
Impact of foreign exchange
Reversal into income (special charges)
$15.9
1.1
(6.9)
(0.8)
9.3
(3.5)
(1.6)
(1.9)
Balance as of November 30, 2015
$ 2.3
$ 2.7
1.0
(2.9)
(0.1)
0.7
(0.6)
(0.1)
—
—
Total
$ 18.6
2.1
(9.8)
(0.9)
10.0
(4.1)
(1.7)
(1.9)
$ 2.3
In 2014, we continued to evaluate changes to our organizational
structure to enable us to reduce fixed costs, simplify or improve pro-
cesses, and improve our competitiveness. In addition to the $2.1 mil-
lion of special charges recognized in 2014 related to the previously
described EMEA reorganization, we also undertook reorganization
actions in our U.S. and Australian businesses in 2014 and recognized
$3.1 million of special charges in 2014, consisting of the following:
• $1.3 million of special charges, principally related to employee
severance, to realign certain manufacturing operations in the U.S.
industrial business. In 2015, we reversed $0.4 million of unused
reserves as a credit into income. Cash expenditures in 2015 and
2014 associated with this action totaled $0.4 million for each year.
We expect that this action will be completed by the first quarter
2016 and, upon completion, generate annual savings of approxi-
mately $2.3 million.
• $0.7 million of special charges in the Australian business consist-
ing of employee severance and related expenses, to streamline
costs through the elimination of certain manufacturing and admin-
istrative positions. Cash expenditures in 2015 and 2014 associ-
ated with this reorganization totaled $0.5 million and $0.2 million,
respectively. This reorganization was completed in 2015 and will
generate annual savings of approximately $0.8 million in 2016.
• $1.1 million of special charges, consisting of employee severance
and related expenses, to eliminate certain administrative positions
in the U.S. business. Cash expenditures in 2015 and 2014 associated
with this action totaled $0.9 million and $0.2 million, respectively.
This action was completed in 2015 and will generate annual savings
of approximately $1.2 million in 2016.
• Savings realized in 2015 associated with these actions were not
significant.
With the exception of inventory reserves established with respect
to the Kohinoor actions in 2015, reserves associated with special
charges are included in other accrued liabilities in our consolidated
balance sheet.
2015
2014
Gross
carrying
amount
Accumulated
amortization
Gross
carrying
amount
Accumulated
amortization
(millions)
Finite-lived
intangible assets
$ 131.0
$40.1
$
94.7
$34.7
Indefinite-lived
intangible assets:
Goodwill
Brand names and
trademarks
Total goodwill and
intangible assets
1,759.3
281.2
2,040.5
—
—
—
1,722.2
270.8
1,993.0
—
—
—
$ 2,171.5
$40.1
$ 2,087.7
$34.7
Intangible asset amortization expense was $7.3 million, $5.6 million
and $5.2 million for 2015, 2014 and 2013, respectively. At November
30, 2015, finite-lived intangible assets had a weighted-average
remaining life of approximately 12 years.
The changes in the carrying amount of goodwill by segment for the
years ended November 30, 2015 and 2014 were as follows:
2015
2014
(millions)
Consumer
Industrial
Consumer
Industrial
Beginning of year
Changes in purchase
price allocation
Goodwill acquired
Foreign currency
fluctuations
$1,581.1
$141.1
$1,654.7
$143.8
—
126.7
—
34.3
(6.1)
—
—
—
(120.1)
(3.8)
(67.5)
(2.7)
End of year
$1,587.7
$171.6
$1,581.1
$141.1
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
2015
$ 777.3
286.1
76.6
$ 326.0
114.6
161.5
8.1
2014
2013
$ 766.6
275.7
67.5
$ 320.1
123.6
137.2
6.3
$ 761.4
256.9
53.8
$ 288.9
128.4
141.0
7.2
Our share of undistributed earnings of unconsolidated affiliates was
$114.1 million at November 30, 2015. Royalty income from unconsoli-
dated affiliates was $17.8 million, $18.7 million and $18.4 million for
2015, 2014 and 2013, respectively.
McCormick & Company | 2015 Annual Report 55
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 89% of income from unconsolidated oper-
ations in 2015, 91% in 2014 and 78% in 2013.
As of November 30, 2015, $112.8 million of our consolidated retained
earnings represents undistributed earnings of investments in uncon-
solidated affiliates.
6. FINANCING ARRANGEMENTS
Our outstanding debt was as follows at November 30:
(millions)
Short-term borrowings
Commercial paper
Other
2015
2014
$ 107.5
32.0
$ 239.4
30.2
$ 139.5
$ 269.6
Weighted-average interest rate of short-term
borrowings at year-end
2.2%
1.3%
Long-term debt
5.20% notes due 12/15/2015 (1)
5.75% notes due 12/15/2017(2)
3.90% notes due 7/8/2021(3)
3.50% notes due 8/19/2023 (4)
3.25% notes due 11/15/2025 (5)
7.63%–8.12% notes due 2024
Other
Unamortized discounts, premiums, and
fair value adjustments
Less current portion
$ 200.0
250.0
250.0
250.0
250.0
55.0
7.4
(6.2)
1,256.2
203.5
$ 200.0
250.0
250.0
250.0
—
55.0
8.5
1.8
1,015.3
1.2
$ 1,052.7
$ 1,014.1
(1) The fixed interest rate on $100 million of the 5.20% notes due in December 2015
was effectively converted to a variable rate by interest rate swaps through
December 2015. Net interest payments were based on 3 month LIBOR minus
0.05% during this period (our effective rate as of November 30, 2015 was 0.29%).
(2) 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%.
(3) 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%.
(4) 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%.
(5) The fixed interest rate on $100 million of the 3.25% notes due in 2025 is effectively
converted to a variable rate by interest rate swaps through 2025. Net interest pay-
ments are based on 3 month LIBOR plus 1.22% during this period (our effective rate
as of November 30, 2015 was 1.58%). In addition, separate interest rate swaps,
settled upon the issuance of these notes in 2015, effectively fixed the interest rate
on the $250 million notes at a weighted-average fixed rate of 3.45%.
Maturities of long-term debt during the fiscal years subsequent to
November 30, 2015 are as follows (in millions):
$ 0.8
250.9
0.9
0.7
808.1
2017
2018
2019
2020
Thereafter
56
In November 2015, we issued $250 million of 3.25% notes due 2025,
with net cash proceeds received of $246.5 million. Interest is pay-
able semiannually in arrears in May and November of each year.
Of these notes, $100 million were subject to interest rate hedges
and $100 million of fair value hedges as further disclosed in note 7.
The net proceeds from this offering were used to pay down short-
term borrowings and for general corporate purposes. In December
2015, proceeds from short-term borrowings were used to pay off
$200 million of 5.20% notes that matured in December 2015.
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 2015, we entered into a five-year $750 million revolv-
ing credit facility which will expire in June 2020. The pricing for
this credit facility, on a fully drawn basis, is LIBOR plus 0.75%.
This credit facility replaces our $600 million revolving credit facility
that was due to expire in June 2016. This credit facility supports our
com mercial paper program and we have $642.5 million of capacity
at November 30, 2015, after $107.5 million was used to support
issued commercial paper. In addition, we have several uncommitted
lines totaling $154.0 million which have a total unused capacity at
November 30, 2015 of $122.0 million. These lines by their nature
can be withdrawn based on the lenders’ discretion. Committed
credit facilities require a fee, and annual commitment fees were
$0.5 million for 2015 and 2014.
Rental expense under operating leases (primarily buildings and
equipment) was $39.0 million in 2015, $40.3 million in 2014 and
$37.6 million in 2013. Future annual fixed rental payments for the
years ending November 30 are as follows (in millions):
2016
2017
2018
2019
2020
Thereafter
$22.5
17.8
13.8
10.4
7.9
21.9
At November 30, 2015, we had guarantees outstanding of $0.5 mil-
lion with terms of one year or less. At November 30, 2015 and 2014,
we had outstanding letters of credit of $8.6 million and $8.1 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
$12.4 million at November 30, 2015.
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. We are not a party to master netting arrangements,
and we do not offset the fair value of derivative contracts with the
same counterparty in our financial statement disclosures. The use of
derivative financial instruments is monitored through regular commu-
nication 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 con-
tracts 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, 2015, we had foreign currency exchange contracts
to purchase or sell $264.5 million of foreign currencies versus
$262.7 million at November 30, 2014. All of these contracts were
designated as hedges of anticipated purchases denominated in a
foreign currency or hedges of foreign currency denominated assets or
liabilities. Hedge ineffectiveness was not material. At November 30,
2015, we had $140.1 million of notional contracts that have dura-
tions 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.
During the year ended November 30, 2015, we entered into a total
of $100 million of forward starting interest rate swap agreements to
manage our interest rate risk associated with the anticipated issu-
ance of fixed rate notes in November 2015. We cash settled all of
these agreements, which were designated as cash flow hedges, for
a loss of $1.2 million simultaneous with the issuance of the notes
at an all-in effective fixed rate of 3.45% on the full $250 million of
debt. The loss on these agreements is deferred in accumulated other
comprehensive income and will be amortized to increase interest
expense over the life of the notes. Hedge ineffectiveness of these
agreements was not material.
In November 2015, we entered into an interest rate swap contract
for a notional amount of $100 million to receive interest at 3.25%
and pay a variable rate of interest based on three-month LIBOR plus
1.22%. We designated these swaps, which expire in November 2025,
as fair value hedges of the changes in fair value of $100 million of
the $250 million 3.25% medium-term notes due 2025 that we issued
in November 2015. Any unrealized gain or loss on these swaps will
be offset by a corresponding increase or decrease in the value of the
hedged debt. Hedge ineffectiveness 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 expired in December
2015, as fair value hedges of the changes in fair value of $100 mil-
lion 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 was offset by a corresponding increase or decrease in the
value of the hedged debt. Hedge ineffective ness was not material.
The following tables disclose the derivative instruments on our balance sheet as of November 30, 2015 and 2014, which are all recorded at fair value:
As of November 30, 2015:
(millions)
Asset Derivatives
Liability Derivatives
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
179.5
Other accrued liabilities
Other accrued liabilities
$100.0
85.0
$ 2.5
3.4
$ 5.9
$0.6
0.7
$1.3
Total
As of November 30, 2014:
(millions)
Asset Derivatives
Liability Derivatives
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
106.3
Total
Other accrued liabilities
Other accrued liabilities
—
$156.4
$ 7.4
4.9
$12.3
—
$1.4
$1.4
McCormick & Company | 2015 Annual Report 57
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, 2015, 2014 and 2013:
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)
2015
$ 5.1
2014
$ 5.0
2013
$ 5.0
Gain (loss)
recognized in OCI
2015
2014
2013
$(1.2)
6.2
— $ 9.2
1.0
$4.2
$ 5.0
$4.2
$10.2
Income statement
location
Interest expense
Cost of goods sold
Gain (loss)
reclassified from AOCI
2015
2014
2013
$(0.2)
7.1
$ 6.9
$(0.2)
(1.1)
$(1.3)
$(1.3)
0.3
$(1.0)
The amount of gain or loss recognized in income on the ineffective portion of derivative instruments is not material. The net amount of accumu-
lated other comprehensive income expected to be reclassified into income related to these contracts in the next twelve months is a $2.8 million
increase to earnings.
Fair Value of Financial Instruments
The carrying amount and fair value of financial instruments at November 30, 2015 and 2014 were as follows:
(millions)
Long-term investments
Long-term debt (including current portion)
Derivatives related to:
Interest rates (assets)
Interest rates (liabilities)
Foreign currency (assets)
Foreign currency (liabilities)
Because of their short-term nature, the amounts reported in the bal-
ance sheet for cash and cash equivalents, receivables, short-term
borrowings and trade accounts payable approximate fair value.
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
$80.0 million and $80.1 million at November 30, 2015 and 2014,
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 segment 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, discount chains and
e-commerce. This has caused some customers to be less profitable
and increased our exposure to credit risk. We have a large and
diverse customer base and, other than with respect to the two cus-
tomers disclosed in note 16, each of which accounted for greater
2015
2014
Carrying amount
Fair value
Carrying amount
Fair value
$ 112.6
1,256.2
$ 112.6
1,325.6
$ 113.0
1,015.3
$ 113.0
1,109.0
2.5
0.6
3.4
0.7
2.5
0.6
3.4
0.7
7.4
—
4.9
1.4
7.4
—
4.9
1.4
than 10% of our consolidated sales, there was no material concen-
tration of credit risk in these accounts at November 30, 2015. At
November 30, 2015, amounts due from those two customers aggre-
gated approximately 12% of consolidated trade accounts receivable
and prepaid allowances. 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 custom-
ers 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.
58
• 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 meas urements on a recurring basis at November 30, 2015 and 2014 are as follows:
(millions)
Assets
Cash and cash equivalents
Insurance contracts
Bonds and other long-term investments
Interest rate derivatives
Foreign currency derivatives
Total
Liabilities
Interest rate derivatives
Foreign currency derivatives
Contingent consideration related to acquisition
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
Total
Fair value measurements using fair
value hierarchy as of November 30, 2015
Fair value
Level 1
Level 2
Level 3
$112.6
104.1
8.5
2.5
3.4
$231.1
$ 0.6
0.7
27.1
$ 28.4
$112.6
—
8.5
—
—
$121.1
—
—
—
—
—
$104.1
—
2.5
3.4
$110.0
$ 0.6
0.7
—
$ 1.3
—
—
—
—
—
—
—
—
$27.1
$27.1
Fair value measurements using fair value
hierarchy as of November 30, 2014
Fair value
Level 1
Level 2
Level 3
$ 77.3
104.5
8.5
7.4
4.9
$202.6
$ 1.4
$ 1.4
$ 77.3
—
8.5
—
—
$ 85.8
—
—
—
$104.5
—
7.4
4.9
$116.8
$ 1.4
$ 1.4
—
—
—
—
—
—
—
—
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.
The acquisition-date fair value of the liability for contingent con-
sideration related to our acquisition of D&A was approximately
$27.7 million (see note 2) and was included in other long-term liabili-
ties in our consolidated balance sheet. The fair value of the liability
both at acquisition and as of each reporting period is estimated using
a discounted cash flow technique applied to the expected payout
with significant inputs that are not observable in the market and
thus represents a Level 3 fair value measurement as defined in the
FASB’s Accounting Standards Codification (ASC) 820, Fair Value
Measurements and Disclosures. The significant inputs in the Level 3
measurement not supported by market activity included our esti-
mates of the earnings of D&A in 2017, the year upon which the earn
out payments are based, and the related probability assessments
of the resulting earn out payment calculated in accordance with the
terms of the purchase agreement, discounted considering the uncer-
tainties associated with the obligation. Changes in the fair value
of the liability for contingent consideration, including accretion, but
excluding the impact of foreign currency, will be recognized in income
on a quarterly basis until settlement in fiscal 2018.
The change in fair value of our Level 3 liabilities for the year ended November 30, 2015 is summarized as follows (in millions):
Contingent consideration related to acquisition
—
$27.7
—
$0.5
$(1.1)
$27.1
Beginning
of year
Acquisition-
date fair value
Settlements
Changes in fair
value including
accretion
Impact of
foreign currency
Balance as of
November 30, 2015
McCormick & Company | 2015 Annual Report 59
9. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table sets forth the components of accumulated other comprehensive loss, net of tax where applicable (in millions):
Accumulated other comprehensive loss, net of tax where applicable
Foreign currency translation adjustment
Unrealized gain on foreign currency exchange contracts
Unamortized value of settled interest rate swaps
Pension and other postretirement costs
2015
2014
$ (206.6)
1.5
2.1
(203.1)
$ 32.1
3.0
2.9
(224.0)
$ (406.1)
$ (186.0)
The following table sets forth the amounts reclassified from accumulated other comprehensive income (loss) and into consolidated net income for
the years ended November 30, 2015, 2014 and 2013:
(millions)
Accumulated Other Comprehensive Income (Loss) Components
(Gains)/losses on cash flow hedges:
Interest rate derivatives
Foreign exchange contracts
Total before taxes
Tax effect
Net, after tax
Amortization of pension and postretirement benefit adjustments:
Amortization of prior service costs (1)
Amortization of net actuarial losses (1)
Total before taxes
Tax effect
Net, after tax
2015
2014
2013
$ 0.2
(7.1)
(6.9)
1.8
$ 0.2
1.1
1.3
(0.3)
$ 1.3
(0.3)
1.0
(0.3)
$ (5.1)
$ 1.0
$ 0.7
$ 0.3
22.8
23.1
(7.9)
$ 0.3
16.4
16.7
(5.7)
$ (0.8)
36.5
35.7
(12.1)
$ 15.2
$ 11.0
$ 23.6
Affected line items in the
consolidated income statement
Interest expense
Cost of goods sold
Income taxes
SG&A expense/Cost of goods sold
SG&A expense/Cost of goods sold
Income taxes
(1) This accumulated other comprehensive income (loss) component is included in the computation of total pension expense and total other postretirement expense (refer to note 10 for
additional details).
10. 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, 2015 was $300.2 million ($203.1 million net of tax) related to net unrecognized
actuarial losses of $298.6 million and unrecognized prior service costs of $1.6 million that have not yet been recognized in net periodic pension
or postretirement benefit cost. We expect to recognize $16.9 million ($11.3 million net of tax) in net periodic pension and postretirement benefit
expense during 2016 related to the amortization of actuarial losses of $16.6 million and the amortization of prior service costs 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:
Discount rate—funded plan
Discount rate—unfunded plan
Salary scale
Expected return on plan assets
60
United States
International
2015
4.7%
4.7%
3.8%
2014
4.4%
4.3%
3.8%
2015
2014
3.9%
—
3.0–3.6%
3.8%
—
3.0–3.8%
United States
International
2015
4.4%
4.3%
3.8%
7.8%
2014
5.2%
5.1%
3.8%
8.0%
2013
4.3%
4.2%
3.8%
8.0%
2015
3.8%
—
3.5%
6.3%
2014
2013
4.6%
—
3.0–3.8%
6.8%
4.4%
—
3.0–3.8%
6.9%
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 quarter
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
2015
$ 23.6
31.6
(40.2)
—
—
16.8
—
$ 31.8
2014
2013
$ 20.0
31.1
(38.8)
—
—
11.8
—
$ 23.2
31.2
(41.4)
15.3
—
29.5
—
$ 24.1
$ 57.8
2015
$ 8.2
12.0
(17.2)
—
0.3
6.0
—
$ 9.3
2014
$ 7.8
13.8
(18.7)
—
0.3
4.6
—
$ 7.8
2013
$ 8.8
12.6
(17.2)
—
0.4
5.6
0.1
$ 10.3
A 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:
(millions)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest costs
Employee contributions
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
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
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
United States
International
2015
2014
2015
2014
$ 728.4
23.6
31.6
—
—
(32.0)
(29.6)
—
—
$ 607.7
20.0
31.1
—
—
94.0
(24.4)
—
—
$ 722.0
$ 728.4
$ 576.3
(3.2)
5.1
—
(29.6)
—
—
$ 552.3
43.9
4.5
—
(24.4)
—
—
$ 548.6
$ 576.3
$(173.4)
$(152.1)
$ 722.0
638.8
548.6
$ 91.3
86.7
—
$341.6
8.2
12.0
1.3
—
(10.7)
(13.9)
(0.6)
(29.8)
$308.1
$305.3
11.7
10.6
1.3
(13.9)
(0.6)
(26.1)
$288.3
$ (19.8)
$ 34.4
31.2
20.0
$304.9
7.8
13.8
1.5
(0.6)
49.9
(13.9)
(0.8)
(21.0)
$341.6
$279.9
44.8
12.3
1.5
(13.9)
(0.8)
(18.5)
$305.3
$ (36.3)
$200.4
189.2
174.2
Included in the U.S. in the preceding table is a benefit obligation of $89.6 million and $91.3 million for 2015 and 2014, 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 $86.2 million and $86.7 million as
of November 30, 2015 and 2014, respectively. The assets related to this plan, which totaled $79.5 million and $79.6 million as of November 30,
2015 and 2014, respectively, are held in a rabbi trust and accordingly have not been included in the preceding table.
McCormick & Company | 2015 Annual Report 61
Amounts recorded in the balance sheet for all defined benefit pension plans consist of the following:
United States
International
2015
—
$ 173.4
85.9
140.6
2014
—
$152.1
87.9
144.0
2015
$ 3.8
23.6
13.4
68.2
2014
$ 0.3
36.6
19.3
82.5
The following tables set forth by level, within the fair value
hierarchy as described in note 8, pension plan assets at their fair
value as of November 30, 2015 and 2014 for the United States and
international plans:
As of November 30, 2015
(millions)
Total
fair value
Level 1
Level 2
Level 3
United States
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 funds (g)
Private equity funds (h)
Real estate (i)
Natural resources (j)
—
—
—
—
—
—
—
$ 11.0
$ 11.0
—
270.1
141.2
$128.9
105.7
105.7
—
32.3
33.2
25.2
1.1
37.6
4.9
16.5
11.0
32.3
—
25.2
—
—
—
16.5
—
—
33.2
—
1.1
— $37.6
4.9
—
—
—
—
11.0
Total investments
$548.6
$331.9
$174.2
$42.5
International
As of November 30, 2015
(millions)
Total
fair value
Level 1
Level 2
Level 3
Cash and cash equivalents
International equity
securities (b)
Fixed income securities:
U.S. /government/
corporate bonds (c)
Insurance contracts (f)
$ 0.9
$ 0.9
—
156.8
— $156.8
110.6
20.0
— 110.6
20.0
—
Total investments
$288.3
$ 0.9
$287.4
—
—
—
—
—
(millions)
Non-current pension asset
Accrued pension liability
Deferred income tax assets
Accumulated other comprehensive loss
The accumulated benefit obligation is the present value of pension
benefits (whether vested or unvested) attributed to employee serv-
ice rendered before the measurement date and based on employee
service and compensation prior to that date. The accumulated bene-
fit 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
$638.8 million and $636.7 million as of November 30, 2015 and
2014, respectively. The accumulated benefit obligation for the inter-
national pension plans was $281.5 million and $310.9 million as of
November 30, 2015 and 2014, 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. The investment return perfor-
mances are evaluated quarterly against specific benchmark indices
and against a peer group of funds of the same asset classification.
Our allocations of U.S. pension plan assets as of November 30, 2015
and 2014, by asset category, were as follows:
Asset Category
Equity securities
Fixed income securities
Other
Total
Actual
2015
2014
2015
Target
68.5% 70.4% 65.0%
16.7% 15.5% 17.5%
14.8% 14.1% 17.5%
100.0% 100.0% 100.0%
The allocations of the international pension plans’ assets as of
November 30, 2015 and 2014, by asset category, were as follows:
Asset Category
Equity securities
Fixed income securities
Other
Total
Actual
2015
2014
54.4%
45.3%
0.3%
56.6%
43.2%
0.2%
2015
Target
53.0%
41.0%
6.0%
100.0% 100.0% 100.0%
62
As of November 30, 2014
(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 funds (g)
Private equity funds (h)
Real estate (i)
United States
Total fair
value
Level 1
Level 2
Level 3
$ 15.0
$ 15.0
—
294.6
137.9
$ 156.7
111.1
111.1
—
30.6
31.9
25.9
1.1
54.7
5.0
6.4
30.6
—
25.9
—
—
—
6.4
—
31.9
—
1.1
— $54.7
5.0
—
—
—
—
—
—
—
—
—
—
Total investments
$576.3
$ 326.9
$ 189.7
$59.7
International
As of November 30, 2014
(millions)
Total fair
value
Level 1
Level 2
Level 3
Cash and cash equivalents
International equity securities (b)
Fixed income securities:
U.S./government/
corporate bonds (c)
Insurance contracts (f)
$ 0.6
172.7
$ 0.6
—
— $ 172.7
108.5
23.5
—
—
108.5
23.5
Total investments
$305.3
$ 0.6
$ 304.7
—
—
—
—
—
(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 guaran-
teed investment return.
(g) This category comprises hedge funds investing in strategies represented in various
HFRI Fund Indices.
(h) This category comprises private equity, venture capital and limited partnerships.
This category comprises funds investing in real estate investment trusts (REIT).
(i)
An appropriate benchmark is the MSCI U.S. REIT Index.
This category comprises funds investing in natural resources. An appropriate
benchmark is the Alerian master limited partnerships (MLP) index.
(j)
The change in fair value of the plans’ Level 3 assets for 2015 is
summarized as follows:
(millions)
Hedge funds
Private equity
funds
Total
Beginning
of year
Realized
gains
$54.7
5.0
$59.7
$2.0
0.7
$2.7
Unrealized
gains
(losses)
Net,
purchases
and (sales)
End
of
year
$(2.3)
$(16.8)
$37.6
(0.1)
$(2.4)
(0.7)
4.9
$(17.5)
$42.5
The change in fair value of the plans’ Level 3 assets for 2014 is
summarized as follows:
(millions)
Hedge funds
Private equity
funds
Total
Beginning
of year
Realized
gains
$18.5
4.9
$23.4
$1.5
0.9
$2.4
Unrealized
gains
(losses)
Net,
purchases
and (sales)
End
of
year
$(1.7)
$ 36.4
$54.7
0.2
$(1.5)
(1.0)
5.0
$ 35.4
$59.7
The value for the Level 3 hedge 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 pri-
vate 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 $39.2 million (0.5 million shares and 7.2% of total U.S.
pension plan assets) and $33.0 million (0.5 million shares and 5.7%
of total U.S. pension plan assets) at November 30, 2015 and 2014,
respectively. Dividends paid on these shares were $0.7 million in
2015 and in 2014.
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)
2016
2017
2018
2019
2020
2021–2025
United States
expected payments
$ 26.1
27.9
29.8
32.1
34.3
206.9
It is anticipated that future benefit payments for the international
plans for the next 10 fiscal years will be as follows:
(millions)
2016
2017
2018
2019
2020
2021–2025
International
expected payments
$ 7.8
8.2
8.6
9.5
9.7
57.2
McCormick & Company | 2015 Annual Report 63
Estimated future benefit payments (net of employee contributions)
for the next 10 fiscal years are as follows:
(millions)
2016
2017
2018
2019
2020
2021–2025
Retiree
medical
Retiree life
insurance
$ 5.5
5.5
5.6
5.7
5.8
28.5
$1.3
1.3
1.3
1.3
1.3
6.8
Total
$ 6.8
6.8
6.9
7.0
7.1
35.3
The assumed discount rate was 4.2% and 4.0% for 2015 and 2014,
respectively.
For 2015, the assumed annual rate of increase in the cost of covered
health care benefits is 7.1% (7.0% last year). It is assumed to decrease
gradually to 5.0% in the year 2027 (5.0% in 2022 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 2015.
11. 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 long-term performance plan (LTPP) (formerly known as
our mid-term incentive program or MTIP). Total stock-based compen-
sation expense for 2015, 2014 and 2013 was $18.7 million, $18.2 mil-
lion and $18.7 million, respectively. Total unrecognized stock-based
compensation expense at November 30, 2015 was $12.7 million and
the weighted-average period over which this will be recognized is
1.3 years. As of November 30, 2015, we have 5.5 million shares
remaining available for future issuance under our RSUs, stock option
and LTPP award programs.
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, dis-
counted by foregone dividends, on the date of grant. Substantially
all of the RSUs granted in 2014 and 2015 vest over a three-year term
or upon retirement. Prior to 2014, substantially all of the RSUs
granted vested 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 retire-
ment eligibility date.
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 $9.5 million,
$8.7 million and $8.2 million in 2015, 2014 and 2013, respectively.
At the participant’s election, 401(k) retirement plans held 2.1 million
shares of McCormick stock, with a fair value of $178.4 million, at
November 30, 2015. Dividends paid on these shares in 2015 were
$3.5 million.
Postretirement Benefits Other Than Pensions
We currently provide postretirement medical and life insurance ben-
efits 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)
2015
2014
Service cost
Interest costs
Amortization of prior service costs
Amortization of losses
Postretirement benefit expense
$3.1
3.7
—
—
$6.8
$3.6
4.3
—
—
$7.9
2013
$ 5.1
4.1
(1.2)
1.4
$ 9.4
Rollforwards of the benefit obligation, fair value of plan assets and a
reconciliation of the plans’ funded status at November 30, the mea-
surement date, follow:
(millions)
2015
2014
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest costs
Employee contributions
Demographic assumptions change
Other plan assumptions
Trend rate assumption change
Discount rate change
Actuarial gain
Benefits paid
Benefit obligation at end of year
Change in fair value of plan assets:
Fair value of plan assets at beginning of year
Employer contributions
Employee contributions
Benefits paid
Fair value of plan assets at end of year
$ 96.3
3.1
3.7
3.4
(1.7)
0.3
0.2
(1.5)
(1.6)
(9.8)
$ 92.4
—
$ 6.4
3.4
(9.8)
—
$ 94.9
3.6
4.3
2.9
(5.8)
1.1
0.1
5.8
(2.3)
(8.3)
$ 96.3
—
$ 5.4
2.9
(8.3)
—
Other postretirement benefit liability
$ 92.4
$ 96.3
64
A summary of our RSU activity for the years ended November 30 follows:
(shares in thousands)
Beginning of year
Granted
Vested
Forfeited
Outstanding—end of year
2015
2014
2013
Shares
Weighted-average
price
Shares
Weighted-average
price
Shares
Weighted-average
price
239
135
(90)
(14)
270
$ 67.60
76.06
69.12
73.22
$71.03
161
180
(93)
(9)
239
$60.86
71.15
62.57
70.14
$67.60
192
89
(116)
(4)
161
$49.65
71.60
50.91
59.25
$60.86
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 in 2014 and 2015 vest ratably over a three-year period or
upon retirement and are exercisable over a 10-year period. Prior to
2014, substantially all of the options granted vest ratably over a
four-year period or upon retirement. Upon exercise of the option,
shares are issued from our authorized and unissued shares.
The fair value of the options is estimated with a lattice option pricing
model which uses the assumptions in the following table. We believe
the lattice model provides an appropriate estimate of fair value of
our options as it allows for a range of possible outcomes over an
option term and can be adjusted for changes in certain assumptions
over time. Expected volatilities are based primarily on the his torical
performance of our stock. We also use historical 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 eligibility date.
The per share weighted-average fair value for all options granted
was $12.52, $9.48 and $9.47 in 2015, 2014 and 2013, 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
2015
2014
2013
0.1–2.0%
2.1%
18.8%
7.7 years
0.1–2.7%
2.1%
0.1–1.8%
1.9%
15.6–20.1% 14.5–20.6%
5.8 years
6.2 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.
A summary of our stock option activity for the years ended November 30 follows:
(shares in millions)
Beginning of year
Granted
Exercised
Forfeited
Outstanding—end of year
Exercisable—end of year
2015
2014
2013
Shares
Weighted-average
exercise price
Shares
Weighted-average
exercise price
Shares
Weighted-average
exercise price
4.8
0.8
(0.7)
(0.1)
4.8
3.1
$54.17
76.32
45.22
69.67
59.20
$51.99
4.6
1.1
(0.8)
(0.1)
4.8
2.8
$47.73
71.12
37.19
67.22
54.17
$45.71
5.1
0.9
(1.3)
(0.1)
4.6
2.7
$40.06
71.60
34.11
57.33
47.73
$39.62
As of November 30, 2015, the intrinsic value (the difference between the exercise price and the market price) for all options currently outstanding
was $127.9 million and for options currently exercisable was $104.9 million. At November 30, 2015, the differences between options outstanding
and options expected to vest and their related weighted-average exercise prices, aggregate intrinsic values and weighted-average remaining lives
were not material. The total intrinsic value of all options exercised during the years ended November 30, 2015, 2014 and 2013 was $25.7 million,
$25.9 million and $43.7 million, respectively. A summary of our stock options outstanding and exercisable at November 30, 2015 follows:
(shares in millions)
Range of exercise price
$20.00–$40.00
$40.01–$60.00
$60.01–$80.00
Options outstanding
Options exercisable
Shares
Weighted-average
remaining life (yrs.)
Weighted-average
exercise price
Shares
Weighted-average
remaining life (yrs.)
Weighted-average
exercise price
1.0
1.3
2.5
4.8
3.5
5.8
8.3
6.3
$35.40
50.80
72.95
$59.20
1.0
1.2
0.9
3.1
3.5
5.8
7.8
5.0
$35.40
50.42
71.47
$51.99
McCormick & Company | 2015 Annual Report 65
LTPP
Our LTPP delivers awards in a combination of cash and company stock. The stock compensation portion of the LTPP awards shares of company
stock if certain company 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 pro-
gram based on the number of shares ultimately expected to be awarded using our estimate of the most likely outcome of achieving the perfor-
mance objectives.
A summary of the LTPP award activity for the years ended November 30 follows:
(shares in thousands)
Beginning of year
Granted
Vested
Performance adjustment
Forfeited
Outstanding—end of year
12. INCOME TAXES
2015
2014
2013
Weighted-
average
price
$61.94
74.02
48.78
64.74
70.92
$70.94
Shares
231
96
(65)
(56)
(14)
192
Weighted-
average
price
$51.73
69.04
44.47
48.78
65.42
$61.94
Shares
334
105
(118)
(55)
(35)
231
Weighted-
average
price
$46.63
64.74
—
—
—
$51.73
Shares
240
94
—
—
—
334
Deferred tax assets and liabilities are comprised of the following:
The provision for income taxes consists of the following:
(millions)
Income taxes
Current
Federal
State
International
Deferred
Federal
State
International
2015
2014
2013
$ 78.8
9.1
42.4
$ 91.3
11.3
37.2
$ 96.4
10.3
42.2
130.3
139.8
148.9
9.3
0.4
(8.7)
1.0
2.8
0.3
3.0
6.1
(0.1)
(0.4)
(14.8)
(15.3)
(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
Total income taxes
$ 131.3
$ 145.9
$ 133.6
Net deferred tax liability
2015
2014
$ 148.4
24.5
9.4
39.9
12.3
(14.6)
$ 145.0
23.9
10.8
38.9
11.7
(21.8)
219.9
208.5
41.8
225.1
6.8
273.7
38.8
192.6
8.7
240.1
$ (53.8)
$ (31.6)
The components of income from consolidated operations before
income taxes follow:
(millions)
Pretax income
United States
International
2015
2014
2013
$ 308.3
187.9
$ 333.2
221.2
$ 351.2
148.2
$ 496.2
$ 554.4
$ 499.4
A reconciliation of the U.S. federal statutory rate with the effective
tax rate follows:
2015
2014
2013
35.0%
1.2
(7.6)
35.0%
1.3
(7.0)
35.0%
1.2
(6.9)
1.1
(1.9)
(2.1)
0.8
0.4
(1.6)
(2.0)
0.2
—
(1.8)
0.3
(1.0)
26.5%
26.3%
26.8%
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
Total
66
At November 30, 2015, our non-U.S. subsidiaries have tax loss carry-
forwards of $140.2 million. Of these carryforwards, $2.4 million expire
in 2016, $13.1 million in 2017 and 2018, $37.4 million from 2019
through 2026 and $87.3 million may be carried forward indefinitely.
At November 30, 2015, our non-U.S. subsidiaries have capital loss
carryforwards of $5.7 million. All of these carryforwards may be
carried forward indefinitely.
At November 30, 2015, we have tax credit carryforwards of
$14.9 million, of which $0.7 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 $7.2 million net decrease in the valuation allowance
from 2014 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 allow-
ance related to losses generated in other subsidiaries in 2015 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 $1.43 billion at November 30, 2015. 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,
2015 and November 30, 2014 were $56.5 million and $55.7 million,
respectively. If recognized, $45.6 million of these tax benefits as of
November 30, 2015 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:
13. EARNINGS PER SHARE
The reconciliation of shares outstanding used in the calculation of
basic and diluted earnings per share for the years ended November
30 follows:
(millions)
Average shares outstanding—basic
Effect of dilutive securities:
Stock options/RSUs/LTPP
2015
2014
2013
128.0
129.9
132.1
1.2
1.1
1.5
Average shares outstanding—diluted
129.2
131.0
133.6
The following table sets forth the stock options and RSUs for the
years ended November 30 which were not considered in our earn-
ings per share calculation since they were antidilutive.
(millions)
2015
2014
2013
0.4
1.6
0.6
(millions)
2015
2014
2013
Antidilutive securities
Balance at beginning of year
Additions for current year tax positions
Additions for prior year tax positions
Reductions for prior year tax positions
Settlements
Statute expirations
Foreign currency translation
$ 55.7
8.9
3.2
(0.8)
(0.1)
(8.1)
(2.3)
$ 58.0
11.4
0.7
(9.5)
(3.5)
(0.7)
(0.7)
$ 46.7
10.3
2.2
—
—
(0.1)
(1.1)
Balance at November 30
$ 56.5
$ 55.7
$ 58.0
We record interest and penalties on income taxes in income tax
expense. We recognized interest and penalty (income) expense
of $(0.1) million, $0.5 million and $1.3 million for the years ended
November 30, 2015, 2014 and 2013, respectively. As of November
30, 2015 and 2014, we had accrued $4.5 million and $5.0 million,
respectively, of interest and penalties related to unrecognized
tax benefits.
Tax settlements or statute of limitation expirations could result in
a change to our uncertain tax positions. We believe that the rea-
sonably possible total amount of unrecognized tax benefits as of
November 30, 2015 that could decrease in the next 12 months as
a result of various statute expirations, audit closures and/or tax
settlements would not be material.
We file income tax returns in the U.S. federal jurisdiction and vari-
ous state and non-U.S. jurisdictions. The open years subject to tax
audits vary depending on the tax jurisdictions. In major jurisdictions,
we are no longer subject to income tax audits by taxing authorities
for years before 2008.
We are under normal recurring tax audits in the U.S. and in several
jurisdictions 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.
14. CAPITAL STOCK
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 common stock;
and (3) at such time as such person controls more than 50% of the
vote entitled to be cast by the holders of outstanding shares of Com-
mon 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 statu-
tory 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 con-
solidation of the company.
15. 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,
2015 and 2014, 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.
McCormick & Company | 2015 Annual Report 67
16. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
Business Segments
We operate in two business segments: consumer and industrial. The
consumer and industrial segments manufacture, market and distrib-
ute spices, seasoning mixes, condiments and other flavorful products
throughout the world. Our consumer segment sells to retail channels,
including grocery, mass merchandise, warehouse clubs, discount and
drug stores, and e-commerce 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,” “Kohinoor,” “DaQiao,” “Drogheria & Alimentari”
and “Stubb’s.” 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 seg-
regate 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, manufac-
turing 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. Therefore, 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 segment customers, Wal-Mart Stores, Inc.,
accounted for 11% of consolidated sales in 2015, 11% of consoli-
dated sales in 2014 and 12% of consolidated sales in 2013. Sales to
one of our industrial segment customers, PepsiCo, Inc., accounted
for 11% of consolidated sales in 2015, 2014 and 2013.
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 inven-
tory 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)
2015
Net sales
Operating income excluding special charges
Income from unconsolidated operations
Goodwill
Assets
Capital expenditures
Depreciation and amortization
2014
Net sales
Operating income excluding special charges
Income from unconsolidated operations
Goodwill
Assets
Capital expenditures
Depreciation and amortization
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
Consumer
Industrial
Total
segments
Corporate
& other
Total
$2,635.2
456.1
36.0
1,587.7
—
—
—
$2,625.5
474.3
28.2
1,581.1
—
—
—
$2,538.0
472.3
19.5
1,654.7
—
—
—
$1,661.1
157.8
0.7
171.6
—
—
—
$1,617.7
133.9
1.2
141.1
—
—
—
$1,585.4
118.5
3.7
143.8
—
—
—
$4,296.3
613.9
36.7
1,759.3
4,225.4
102.8
71.8
$4,243.2
608.2
29.4
1,722.2
4,169.7
108.6
71.7
$4,123.4
590.8
23.2
1,798.5
4,142.9
84.2
74.8
—
—
—
—
$282.4
25.6
34.1
—
—
—
—
$244.6
24.1
31.0
—
—
—
—
$306.8
15.7
31.2
$ 4,296.3
613.9
36.7
1,759.3
4,507.8
128.4
105.9
$ 4,243.2
608.2
29.4
1,722.2
4,414.3
132.7
102.7
$ 4,123.4
590.8
23.2
1,798.5
4,449.7
99.9
106.0
A reconciliation of operating income excluding special charges and loss on voluntary pension settlement (which we use to measure segment profit-
ability) to operating income for the years ended November 30, 2015, 2014 and 2013 is as follows:
(millions)
Operating income excluding special charges and loss on voluntary pension settlement
Less: Special charges included in cost of goods sold
Less: Other special charges
Less: Loss on voluntary pension settlement
Operating income
68
2015
$613.9
4.0
61.5
—
$548.4
2014
$608.2
—
5.2
—
$603.0
2013
$590.8
—
25.0
15.3
$550.5
Geographic Areas
We have net sales and long-lived assets in the following geographic areas:
(millions)
2015
Net sales
Long-lived assets
2014
Net sales
Long-lived assets
2013
Net sales
Long-lived assets
United States
EMEA
Other countries
Total
$2,438.1
1,462.2
$2,357.5
1,284.0
$2,357.0
1,275.7
$903.7
871.9
$930.8
920.0
$883.4
989.2
$954.5
415.7
$954.9
451.7
$883.0
443.6
$4,296.3
2,749.8
$4,243.2
2,655.7
$4,123.4
2,708.5
Long-lived assets include property, plant and equipment, goodwill and intangible assets, net of accumulated depreciation and amortization.
17. SUPPLEMENTAL FINANCIAL STATEMENT DATA
Supplemental income statement, balance sheet and cash flow infor-
mation follows:
Dividends paid per share were $1.60 in 2015, $1.48 in 2014 and
$1.36 in 2013. Dividends declared per share were $1.63 in 2015,
$1.51 in 2014, and $1.39 in 2013.
2015
2014
18. SELECTED QUARTERLY DATA (UNAUDITED)
(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
Unrecognized tax benefits
Other
$ 319.9
390.9
$ 303.2
410.6
$ 710.8
$ 713.8
$ 22.4
105.5
$ 20.3
111.2
$ 127.9
$ 131.5
$ 62.7
360.1
725.9
310.2
72.4
(912.9)
$ 57.6
346.4
700.7
301.7
75.0
(878.7)
$ 618.4
$ 602.7
$ 150.6
112.6
20.7
67.6
$ 156.3
113.0
17.3
55.8
$ 351.5
$ 342.4
$ 129.5
114.8
241.0
$ 132.8
127.3
219.0
$ 485.3
$ 479.1
$ 192.8
86.1
132.7
47.6
68.8
$ 182.3
89.5
108.2
47.3
41.5
$ 528.0
$ 468.8
(millions except per share data)
First
Second
Third
Fourth
2015
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
Dividends declared per share—
Common Stock and
Common Stock Non-Voting
Market price—Common Stock
High
Low
Market price—Common Stock
Non-Voting
High
Low
2014
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
Dividends declared per share—
Common Stock and Common
Stock Non-Voting
Market price—Common Stock
High
Low
Market price—Common Stock
Non-Voting
High
Low
$ 1,010.4 $ 1,024.1 $ 1,059.9 $ 1,201.9
521.7
212.2
149.2
1.17
1.16
421.9
138.7
97.6
0.76
0.76
404.0
103.8
84.3
0.66
0.65
389.7
93.7
70.5
0.55
0.55
0.40
0.40
0.40
0.40
—
0.40
0.40
0.83
76.37
71.45
79.53
68.29
84.89
76.13
86.04
77.70
76.78
71.39
79.61
71.98
85.20
76.02
86.03
77.61
$ 993.4 $ 1,033.4 $ 1,042.8 $ 1,173.6
506.1
199.4
148.0
1.15
1.14
420.1
157.3
122.9
0.95
0.94
391.5
124.6
82.5
0.63
0.62
412.5
121.7
84.5
0.65
0.64
0.37
0.37
0.37
0.37
—
0.37
0.37
0.77
70.00
62.80
72.00
65.57
73.04
66.00
73.18
65.90
70.02
63.03
72.31
66.12
73.09
65.78
74.33
65.61
McCormick & Company | 2015 Annual Report 69
(millions)
Depreciation
Software amortization
Interest paid
Income taxes paid
2015
2014
2013
$ 71.5
18.1
52.2
111.5
$ 67.7
20.0
50.0
129.0
$ 67.5
23.6
54.2
106.3
Operating income for the first quarter of 2015 included $28.4 million
of special charges, with an after-tax impact of $19.9 million and a
per share impact of $0.16 and $0.15 for basic and diluted earnings
per share, respectively. Operating income for the second quarter of
2015 included $19.0 million of special charges, with an after-tax
impact of $12.9 million and a per share impact of $0.10 for both
basic and diluted earnings per share. Operating income for the third
quarter of 2015 included $15.1 million of special charges, including
$3.4 million reflected in gross profit, with an after-tax impact of
$12.1 million and a per share impact of $0.09 for both basic and
diluted earnings per share. Operating income for the fourth quarter
of 2015 included $3.0 million of special charges, including $0.6 mil-
lion reflected in gross profit, with an after-tax impact of $3.0 million
and a per share impact of $0.02 for both basic and diluted earnings
per share.
Operating income for the third quarter of 2014 included $2.3 million
of special charges, with an after-tax impact of $1.6 million and a per
share impact of $0.01 for both basic and diluted earnings per share.
Operating income for the fourth quarter of 2014 included special
charges of $2.9 million, with an after-tax impact of $2.1 million and
a per share impact of $0.02 for both basic and diluted earnings
per share.
See note 3 for details with respect to the actions undertaken in
connection with these special charges.
Earnings per share are computed independently for each of the
quarters presented. Therefore, the sum of the quarters may not be
equal to the full year earnings per share.
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 2016 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 2016 Proxy
Statement incorporated by reference in this Item 10 of this Report,
the following individuals are also executive officers of McCormick:
Lisa B. Manzone, Nneka L. Rimmer, Jeffery D. Schwartz and Michael
R. Smith.
Ms. Manzone is 51 years old and, during the last five years, has held
the following positions with McCormick: June 2015 to present—
Senior Vice President, Human Relations; January 2015 to June 2015
—Vice President Global Human Relations; January 2013 to January
2015—Vice President Compensation and Benefits; October 2010 to
January 2013—Vice President, Human Relations U.S. Consumer
Products Division.
70
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 2015
financial statements in Item 8 of this Report under the captions entitled
“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.
Ms. Rimmer is 44 years old and joined McCormick in April 2015 as
Senior Vice President, Corporate Strategy and Development. Before
joining McCormick, Ms. Rimmer was Partner and Managing Director
with the Boston Consulting Group where she had 13 years of expe-
rience designing, executing and leveraging successful large-scale
transformational initiatives, working with large global consumer
goods corporations.
Mr. Schwartz is 46 years old and, during the last five years, has
held the following positions with McCormick: December 2014 to
present—Vice President, General Counsel & Secretary; February
2011 to December 2014—Associate General Counsel & Assistant
Secretary; December 2009 to February 2011—Associate Counsel
& Assistant Secretary.
Mr. Smith is 51 years old and, during the last five years, has held the
following positions with McCormick: June 2015 to present—Senior
Vice President, Corporate Finance; September 2014 to June 2015
—Senior Vice President, Finance Capital Markets & Chief Financial
Officer North America; May 2012 to September 2014—Chief Finan-
cial Officer & Vice President Finance EMEA; September 2011 to
May 2012—Vice President, Treasury & Investor Relations; April
2005 to September 2011—Vice President, Finance & Administration—
U.S. Consumer.
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 2016
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 2016
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
2016 Proxy Statement.
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,” “Retirement 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 2016 Proxy Statement.
PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
2. Consolidated Financial Statement Schedule
List of documents filed as part of this Report.
Supplemental Financial Schedule:
1. Consolidated Financial Statements
II–Valuation and Qualifying Accounts
The Consolidated Financial Statements for McCormick & Company,
Incorporated and related notes, together with the Report of Manage-
ment, and the Reports of Ernst & Young LLP dated January 28, 2016,
are included herein in Part II, Item 8.
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 S-K
The information called for by this item is incorporated herein by
reference from the Exhibit Index included in this Report.
McCormick & Company | 2015 Annual Report 71
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 & Chief Executive Officer
January 28, 2016
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:
Chairman & Chief Executive Officer
January 28, 2016
Executive Vice President & Chief Financial Officer
January 28, 2016
By:
/s/ ChristinA M. MCMullen
Christina M. McMullen
Vice President & Controller
Chief Accounting Officer
January 28, 2016
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, being a majority
of the Board of Directors of McCormick & Company, Incorporated, on the date indicated:
THE BOARD OF DIRECTORS:
/s/ MiChAel A. ConWAy
Michael A. Conway
/s/ J. MiChAel FitzpAtriCk
J. Michael Fitzpatrick
/s/ FreeMAn A. hrAboWski, iii
Freeman A. Hrabowski, III
/s/ lAWrenCe e. kurzius
Lawrence E. Kurzius
/s/ pAtriCiA little
Patricia Little
/s/ MiChAel D. MAnGAn
Michael D. Mangan
/s/ MAritzA G. Montiel
Maritza G. Montiel
/s/ MArGAret M.V. preston
Margaret M.V. Preston
/s/ GorDon M. stetz, Jr.
Gordon M. Stetz, Jr.
/s/ JACques tApiero
Jacques Tapiero
/s/ AlAn D. Wilson
Alan D. Wilson
72
DATE:
January 28, 2016
January 28, 2016
January 28, 2016
January 28, 2016
January 28, 2016
January 28, 2016
January 28, 2016
January 28, 2016
January 28, 2016
January 28, 2016
January 28, 2016
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, 2015:
Allowance for doubtful receivables
Valuation allowance on net deferred tax assets
Deducted from asset accounts:
Year ended November 30, 2014:
Allowance for doubtful receivables
Valuation allowance on net deferred tax assets
Deducted from asset accounts:
Year ended November 30, 2013:
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
21.8
$25.8
$ 4.1
21.2
$25.3
$ 4.0
27.5
$31.5
$ 4.9
5.7
$10.6
$1.1
3.0
$4.1
$1.5
5.2
$6.7
$(0.1)
(3.2)
$(3.3)
$(0.9)
(1.4)
$(2.3)
$(0.1)
(1.6)
$(1.7)
$ (0.8)
(9.7)
$(10.5)
$ (0.3)
(1.0)
$ (1.3)
$ (1.3)
(9.9)
$(11.2)
$ 8.0
14.6
$22.6
$ 4.0
21.8
$25.8
$ 4.1
21.2
$25.3
McCormick & Company | 2015 Annual Report 73
The following exhibits are attached or incorporated herein by reference:
Exhibit Number
Description
EXHIBIT INDEX
(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)
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 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 5.75% 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 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.
Form of 3.25% notes due 2025, incorporated by reference from Exhibit 4.2 of McCormick’s Form 8-K dated November 3, 2015,
File No. 1-14920, as filed with the Securities and Exchange Commission on November 6, 2015.
(10)
Material contracts
(i) McCormick’s supplemental pension plan for certain senior and executive officers, amended and restated with an effec tive 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) at McCormick’s Form 10-K for the fiscal year ended November 30, 2014, File No. 1-14920,
as filed with the Securities and Exchange Commission on January 29, 2015.*
(ii)
(iii)
(iv)
(v)
The 2001 Stock Option Plan, in which officers and certain other management employees participate, is set forth on pages 33
through 36 of 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.*
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.*
74
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
(xiii)
(xiv)
(xv)
(xvi)
(xvii)
Exhibit Number
Description
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 as amended, which Amendment No. 1 is incorporated by reference from Exhibit 10(x) of McCormick’s
Form 10-Q for the quarter ended February 28, 2015, File No. 1-14920, as filed with the Securities and Exchange Commission on
March 31, 2015.*
Form of Long-Term Performance Plan Agreement, formerly known as Mid-Term Incentive Plan, 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(xii) 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, as amended,
which Amendment No. 1 is incorporated by reference from Exhibit 10(xv) of McCormick’s Form 10-Q for the quarter ended February
28, 2015, File No. 1-14920, as filed with the Securities and Exchange Commission on March 31, 2015.
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.
Form of Indemnification Agreement, incorporated by reference from Exhibit 10(xv) of McCormick’s Form 10-Q for the quarter ended
February 28, 2014, File No. 1-14920, as filed with the Securities and Exchange Commission on March 26, 2014.
Employment Agreement between McCormick (UK) Limited and Malcolm Swift, incorporated by reference from Exhibit 10.1 of
McCormick’s Form 8-K, File No. 1-14920, as filed with the Securities and Exchange Commission on January 29, 2015.*
Severance Plan for Executives, incorporated by reference from Exhibit 10(xix) of McCormick’s Form 10-Q for the quarter ended
February 28, 2015, File No. 1-14920, as filed with the Securities and Exchange Commission on March 31, 2015.*
(21)
(23)
(31)
(32)
(101)
Subsidiaries of McCormick
Consents of experts and counsel
Rule 13a-14(a)/15d-14(a) Certifications
Section 1350 Certifications
Filed herewith
Filed herewith
Filed herewith
Filed herewith
The following financial information from the Annual Report on Form 10-K of McCormick for the year ended November 30, 2015,
filed electronically herewith, and formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets;
(ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of
Stockholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to the 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) .
END OF ANNUAL REPORT ON FORM 10-K
McCormick & Company | 2015 Annual Report 75
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
shareowneronline.com
Annual Meeting
The annual meeting of shareholders will be held at 10 a.m.,
Wednesday, March 30, 2016, 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—2016
Record Date
4/11/16
7/11/16
10/11/16
12/30/16
Payment Date
4/25/16
7/25/16
10/25/16
1/17/17
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 reports, press releases
and other filings, 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
76
Corporate Social
Responsibility
OUR CSR VISION IS “To grow our business globally, while driving positive change
to the environment, within our communities, and for our employees”
OUR PRIORITY AREAS ARE:
MAJOR FOCUS AREAS INCLUDE:
Power of People
Empowering our employees and
improving local communities
Taste You Trust
Investing in sustainable agriculture
Inspiring Healthy Choices
Providing healthy flavor solutions and
encouraging healthy eating
Delivering High Performance
Improving operational efficiencies
Increasing the diversity of our workforce
Reducing the safety incident rate in our
global operations
Expanding our participation in the
scientific research and public outreach
around the beneficial nutritional effects
of spices and herbs
Deepening our engagement with our
agricultural suppliers
Reducing the waste we send to landfills
Employee Ambassador Group (EAG)
members network at our 2015 Annual
Diversity and Inclusion Day. During
his remarks, Alan Wilson commented
on the importance of diversity and
inclusion at our company.
Our latest CSR report was published in 2015 and has more
details about our activities.
For more information go to
www.mccormickcorporation.com/Our-Commitment
In the recent Newsweek
Green Rankings, McCormick
ranked 27th overall and 3rd in
terms of U.S. food, beverage,
and agricultural companies.
McCormick & Company | 2015 Annual Report 77
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McCormick & Company, Incorporated
18 Loveton Circle, Sparks, Maryland 21152-6000 U.S.A.
410.771.7301 | www.mccormickcorporation.com