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WINNING
FLAVOR
2016 A N N UA L REP ORT
McCormick brings the
joy of f lavor to
We come together to celebrate food and flavor.
All over the world, people are seeking authentic
flavors, bold taste and healthy ingredients.
McCormick is meeting this demand with high
quality products, and expanding the breadth of
its business by channel and by market. Our
success led to record financial results in 2016 and
set the stage for our continued growth.
Contents:
2 Letter to Shareholders
11 Q&A with CEO and CFO
12 Financial Highlights
13 Segments at a Glance
14 CSR Highlights
16 Directors and Officers
17 Form 10-K Table of Contents
19 Form 10-K
81 Investor Information
Clove
Sweet, pungent and aromatic cloves are traditional in spiced cider, chai tea
and gingerbread, as well as savory dishes, such as chili, barbeque pork and
sweet potatoes. In addition, clove is one of the spices in baharat seasoning,
an indispensable spice blend for Eastern Mediterranean cooking. This
spice blend is featured in the McCormick Flavor Forecast® 2017.
2016 Annual Report 1
Fellow
Shareholders,
It is an honor to send you my first shareholder
letter as CEO. 2016 was an excellent year for
McCormick. We delivered breakthrough innova-
tion, cutting-edge digital marketing campaigns,
value-enhancing acquisitions and substantial
cost savings. Importantly, actions like non-GMO
labeling and a transition to more organic prod-
ucts are keeping our brands on-trend and top of
mind for consumers. Simply put, McCormick is
winning flavor. I am also proud to let you know
that this year marked our 31st consecutive year
of increased quarterly dividends. Looking ahead,
our steadfast focus on growth, performance and
people will continue to drive McCormick’s strat-
egy and momentum forward.
We Are Delivering Record Financial Results
McCormick achieved record financial results in 2016, meeting
each of our key financial targets. We delivered strong growth
in sales and profit, and saw a fifth consecutive year of record
cash flow. Highlights include:
→ Net sales rose 3%, driven by increases in our base business,
new products, expanded distribution and acquisitions.
Excluding the impact of unfavorable currency rates, the
growth rate was nearly 6%. Our consumer segment led this
increase with sales up 4%, while industrial segment sales
were comparable to 2015. Excluding the impact of unfavor-
able currency rates, we grew consumer segment sales 6%
and industrial segment sales 4%, with increases in each of
our three regions.
→ Operating income of $641 million compared to $548 million
in 2015 due in part to higher sales and a favorable business
mix. In addition, we achieved $109 million of cost savings
and used a portion of these cost savings as fuel for a $12
million increase in brand marketing and a $7 million
increase in acquisition-related transaction expenses.
Special charges lowered operating income by $16 million in
2 McCormick & Company
Lawrence E. Kurzius
President and Chief Executive Officer
2016 and $66 million in 2015. Excluding the impact of spe-
cial charges and unfavorable currency rates, we grew
adjusted operating income by 9%.
→ Our earnings per share increased to $3.69, compared to
$3.11 in 2015. This result exceeded our initial 2016 goal due
in part to the strong operating income performance and a
favorable tax rate. Excluding a $0.09 impact from special
charges in 2016 and a $0.37 impact in 2015, we grew
adjusted earnings per share 9% to $3.78. This increase
includes the impact of unfavorable currency rates.
→ We continue to generate strong cash flow from our opera-
tions and reached a new high of $658 million in 2016.
→ With our teams on-track to meet our growth targets, we
were able to return $461 million of cash flow to our share-
holders through dividends and share repurchases, finance
two acquisitions and expand our manufacturing capacity to
accommodate our growth. At the end of the year, our Board
of Directors authorized a 9% increase in the quarterly
dividend, making 2016 the 31st consecutive year of divi-
dend increases!
Long-term, our goals in constant currency are to grow sales
4% to 6%, operating income 7% to 9% and earnings per share
9% to 11%. We performed well and achieved sales and
adjusted operating income growth toward the top end of
these goals in 2016. We are executing against strategies to
continue this strong performance in 2017 and beyond. For
those invested in McCormick stock, total shareholder return
exceeded the broader market in 2016 and in the past 5-, 10-
and 20-year periods.
McCormick Is Driving Growth in 2017 and Beyond
At McCormick, our focus is on flavor. In an environment where
consumers are seeking simple ingredients, fresh food and
new tastes, flavor is an advantaged category. In the U.S.,
while convenience, health and price are all important, when
20%
“We performed well and met each of
our long-term goals in 2016. We are executing
against strategies to continue this strong
performance in 2017 and beyond.”
consumers choose what to eat, taste ranks #1. Globally, retail
sales of packaged spices and seasoning are $11 billion and
projected to grow at a 5% compound annual growth rate
for the next five years. We are well-positioned for growth
with a leading share in this market of approximately 20%;
nearly four times the size of our next largest competitor.
30%
Total Annual
Shareholder Return
34%
16%
2016 Global
Category Share
Dividends Declared
19.6%
5.0%
3.2%
1.9%
Total annual shareholder return has
risen 8% or more for the past 1-, 5-,
10- and 20-year periods.
71.2%
• McCormick
• Competitor A
• Competitor B
• Competitor C
• All Others
McCormick has increased its
dividend in each of the past 31 years.
We have paid a dividend for 91
consecutive years.
2016 Annual Report 3
Dividends DeclaredTotal AnnualShareholder Return1-YR10-YR20-YR5-YR0.00.51.01.52.005101520’13$1.39’12$1.27’14$1.51’15$1.63’16$1.768%16%11%13%Dividends DeclaredTotal AnnualShareholder Return1-YR10-YR20-YR5-YR0.00.51.01.52.005101520’13$1.39’12$1.27’14$1.51’15$1.63’16$1.768%16%11%13% We Are Enhancing Our Global Brand Marketing Efforts
In markets around the world, we are building our brand equity, and in 2016 our brand marketing surpassed $250 million. We are connecting directly
with consumers and achieving some of our highest returns on investment through our effective use of digital marketing, which now accounts for
nearly half of our advertising. In its annual “Digital IQ” ranking, L2 Research listed McCormick fifth among approximately 100 U.S. food brands
for three consecutive years—a great accomplishment. This ranking is based on the effectiveness of our social media, mobile, digital marketing and
e-commerce investments. We highlight here some of our most effective digital marketing programs that are driving sales.
United States
As the U.S. social footprint
expands, unique website visits
reached 35 million in 2016, with
greater emphasis on millennials
through compelling content and
increased digital investment.
Poland
A breakthrough television partner-
ship extends content opportunities,
reach and engagement via digital
channels for our Kamis® brand.
France
Total reach through social media
platforms grew 46% in this market,
increasing impressions to 33 million
for our Vahiné® and Ducros® brands.
China
Further development of e-Content
and interactive social games has
led to stronger conversion rates
on new products.
Australia
Higher reach and engagement rates
for Aeroplane® Jelly puts us in a strong
position to capitalize on the iconic
brand’s 90th anniversary in 2017.
4 McCormick & Company
We are driving sales through increases in our base business,
product innovation and acquisitions. This has led to a 5-year
average sales growth rate that is at the upper end of our
long-term, constant currency goal of 4% to 6%. In 2016, we
made great progress with each of our three avenues for
growth; expanding our base business, innovating new prod-
ucts and making value-enhancing acquisitions. Our Board
and management team continue to be closely aligned on our
go-forward plan, and we are diligently executing our strategy
to continue this progress in the coming years.
We are growing McCormick’s base business and increasing
the appeal of our brands.
In particular:
→ Consumers are seeking transparency in their food. This
past year we added “non-GMO” to the label for approxi-
mately 70% of our everyday spices and seasonings in the
U.S., making us the largest brand of spices and seasonings
bearing the non-GMO label in this market.
→ We are the #1 organic brand of spices and seasonings in
the U.S., following the conversion of 75% of our premium
gourmet line to organic. This has been a welcomed move
with consumers and retail customers—four of the top ten
U.S. retailers expanded their range of our gourmet products.
→ Also in the U.S., we introduced organic versions of our most
popular recipe mixes and new organic Kitchen Basics® stocks.
→ In 2017, we are planning to move toward “clean label” on
all of our Zatarain’s® rice mixes, with no artificial flavors or
dyes and no MSG added.
Enhanced brand marketing is a key growth driver of our base
business. We measured our returns on this investment and
they are exceeding benchmarks for the food industry. As
a result:
→ We have increased our brand marketing by 35% in the past
five years and plan to increase further in 2017.
→ In 2016, we introduced a new marketing campaign in
North America that emphasizes the flavor and quality of
McCormick’s spices and seasonings. In the U.S., we increased
millennial household penetration 2 percentage points
with this powerful message.
These five pillars are the
foundation of our business
and underpin our success in
markets around the world.
Passion for Flavor TM
Around the globe, home cooks and professional chefs
alike turn to McCormick for flavor and culinary inspira-
tion. With over 20 product innovation centers in loca-
tions around the world, we are positioned as the local
expert and are well-equipped to meet the growing
demand for flavor.
Power of People TM
Globally, approximately 11,000 McCormick employees
are engaged through our participative culture and are
a key ingredient to our success.
Taste You Trust TM
We are a leader in high quality spices and herbs and
well-positioned in today’s market where purity
is paramount to consumers. McCormick’s quality
standards are of critical importance to our retail and
industrial customers.
Inspiring Healthy Choices
Consumers around the world have a growing interest
in wellness and healthy eating. Our McCormick Science
Institute is helping advance the healthy attributes
of spices and herbs, especially as an alternative
to sodium.
Delivering High Performance
We have an enviable long-term financial record. In the
past 10 years, we grew sales 62%, more than doubled
cash flow from operations and delivered 12% total
shareholder return.
2016 Annual Report 5
→ Globally, we are shifting toward more digital marketing
which ended 2016 at 46% of our total advertising, double
the percentage from five years ago. We are targeting mil-
lennial audiences in particular through a variety of digital
media, social platforms and new content approaches,
such as “how to” cooking videos.
Continued distribution expansion is another important aspect
of our base business growth strategy.
→ For our industrial segment, we excel in customer intimacy
and as a trusted partner are supporting the geographic
growth of multi-national packaged food companies and
quick service restaurants.
→ We are reaching an increasing network of restaurants with
our branded foodservice products, and in 2016, had par-
ticularly strong sales growth in the U.S. and China.
→ In 2016, we began
construction on a
new, larger facil-
ity in Shanghai to
accom modate our
growth in China for
both our consumer
and industrial seg-
ments. In addition, we established a manufacturing facil-
ity in Dubai and acquired a construction site for a new
regional manufacturing facility in Thailand to service
Southeast Asia.
Our innovation strategy has delivered results. In 2016, 9% of our sales
came from new products launched in the past three years.
McCormick is driving growth through innovation.
In addition to growing our base business, our strategy of
accelerating scalable and differentiated new products has
demonstrated its effectiveness.
In our industrial segment, we have a particularly high rate of
innovation. We are shifting our industrial segment portfolio
toward more value-added products and, together with our
greater scale and efficiency, we have increased adjusted
operating income as a percentage of sales to 10.0% from
7.5% five years ago.
→ Recent product development wins include seasonings for
snack chips and crackers, beverage flavors, sandwich
sauces and burger seasonings. With our focus on flavorful,
healthy eating, we are an ideal partner for industrial cus-
tomers working to improve the health profile of their
products with actions such as reducing sodium or elimi-
nating artificial flavors and colors.
→ An increasing number of our new product briefs in the
industrial segment have health and wellness attributes. In
2016, this percentage in the U.S. was approximately 50%,
up from 40% in 2014.
→ We are developing advanced flavor delivery capabilities
that include technology like FlavorCell®, a proprietary
encapsulation system.
→ Our innovation and customer intimacy earned us global
flavor supplier status with four large packaged food com-
panies in the last two years.
For our consumer segment, a great example of scalable and
differentiated innovation is the expanding use of liquid pouch
packaging, which provides consumers with another way to
enjoy the flavor of fresh. We have introduced skillet sauces,
slow cooker sauces and most recently, baking sauces across
North America and squeeze pouch condiments in China.
In 2016, we expanded our popular Grill Mates® brand to
single-use liquid marinade that exceeded our sales projec-
tions by nearly 20%.
Our latest breakthrough innovation is herb grinders. Herb
grinders are a unique product line that provides a convenient
alternative to fresh herbs for use in cooking, serving and at
the table. These products were awarded the top consumer
product innovation of the year by the U.S. Grocery
Manufacturer’s Association and recognized in France by con-
sumers as a “new product of the year.”
2016 Acquisition
Gourmet Garden® is a global market leader
in chilled packaged herbs, a convenient
alternative to fresh herbs. Based in Australia,
these unique products reach 16 countries,
with the U.S. being the largest market.
We anticipate strong growth for these
products, particularly among consumers that
appreciate the value and accessibility of
cooking with a more convenient flavoring
alternative. In 2016, we began to expand
distribution in the U.S. and gained the
brand’s first direct distribution in Canada,
and in 2017, we plan to introduce
Gourmet Garden in China.
2016 Annual Report 7
In 2016, a McCormick Shared Services team implemented a global
automated account reconciliation tool resulting in paperwork reduction,
process standardization, and other efficiencies—a great example of a
winning team at McCormick.
→ Our herb grinders are bringing in new consumers with
approximately 30% of sales incremental to the dried herb
category in the U.S.
→ We see broad appeal for these products and by the end of
2016 won distribution in six other countries, including
Canada, U.K. and France.
Successfully integrating valuable acquisitions remains at
the forefront of our strategy.
We expect acquisitions to account for about a third of our sales
increase. We continue to seek businesses that expand our
portfolio of flavors, build scale and make financial sense. Our
acquisition pipeline includes both bolt-on and larger assets.
Innovation for our consumer segment in 2016 also included:
→ In the U.S. we developed Lawry’s® Casero seasoning blends
that deliver authentic Mexican and Latino flavors, as well
as Kitchen Basics bone broth that provides a simple way to
add flavor and protein.
→ Across Europe, we expanded our variety of recipe mixes
and in France, added new ingredients and value-added
packaging to our Vahiné brand dessert items.
→ We are expanding our recipe mix varieties in China and
iconic Aeroplane brand dessert mixes in Australia.
Overall, our innovation strategy has delivered results. In
2016, 9% of our sales came from new products launched in
the past three years.
→ We were pleased to acquire Gourmet Garden this past
year. Based in Australia and with exports to markets
around the world, Gourmet Garden is a leader in chilled
packaged herbs. Nearly two-thirds of sales are in the U.S.
and this product is merchandised in the high-traffic produce
aisle. Gourmet Garden is a great addition to our portfolio
of flavors and we plan to grow this business globally
through increased household penetration, expanded dis-
tribution in current and new markets and leveraging our
marketing expertise.
→ Toward the end of the year, we announced an agreement
to acquire Giotti, a leading flavor supplier in Europe. Based
in Italy, Giotti expands our value-added flavor solutions
across Europe and provides additional expertise in flavor-
ing health and nutrition products.
8 McCormick & Company
Our Comprehensive Continuous Improvement program
is driving margin improvement at McCormick.
Along with our strategies to grow sales, we are working to
increase operating income margin by driving operating
income growth at a faster rate than sales. In 2016, we
increased adjusted operating income as a percentage of
sales by 60 basis points from the year-ago period. Our
Comprehensive Continuous Improve ment (CCI) program, is
driving margin improvement at McCormick. Since 2009, we
have been improving productivity throughout the company
and recently increased our resources to step-up our efforts.
These efforts are paying off.
Early in 2016, we set a goal to achieve $400 million of cost
savings through greater productivity over the next four
years. We are well on our way to achieving this goal with a
record $109 million of cost savings delivered in the first year.
In addition to driving margins, these cost savings are our fuel
for growth, funding increases in brand marketing and addi-
tional sales initiatives.
We Have the Right Team to Win Business
Employees throughout the company are the backbone of our
success. On behalf of the executive team, I would like to thank
them for their dedicated efforts and accomplishments. The
foundation of our culture began with C.P. McCormick and I
am proud to say we still engage all employees through our
Multiple Management philosophy of encouraging participa-
tion and inclusion.
Our people are the reason McCormick is a great place to work.
In order to compete effectively and attract the best talent we
are strengthening our winning ways of working with faster
decision making, more personal accountability and action-
able insights. In this regard, we have taken a number of steps
that include developing tools to help achieve strategic goals
that cascade to the individual employee and provide a direct
link to compensation. We have also increased global resources
behind innovation, analytics, digital marketing, our CCI pro-
gram and business development.
Gordon M.
Stetz, Jr.
Executive Vice President &
Chief Financial Officer
2007–2016
“I am so proud of our teams
in Finance, Shared Services
and Information Technology,
and appreciate all of their
efforts and accomplishments.”
At the end of 2016, Gordon Stetz retired from
McCormick as an executive and Board member,
ending his 29-year career at the company.
Since 2007, Gordon served as Executive Vice
President & CFO and during that time built a
world-class finance team. He has helped deliver
exceptional returns for our shareholders
through his strategic leadership. As CFO,
Gordon led a successful acquisition agenda,
the expansion of our shared services and
information technology around the world, and
managed our costs and cash, including the
establishment of our CCI program.
Gordon is the embodiment of McCormick
values and teamwork and will truly be missed
by employees throughout the organization.
Congratulations to him on a successful career
and best wishes in retirement from the entire
McCormick family.
2016 Annual Report 9
Executive Officers
Standing, left to right: Lisa Manzone, Jeff Schwartz, Nneka Rimmer, Brendan Foley, Malcolm Swift, Alan Wilson
Seated, left to right: Mike Smith, Lawrence Kurzius
We are devoting resources to heighten our diversity and
inclusion, and now have seven employee ambassador groups
underway. The largest of these is the Women’s International
Network—it currently has three chapters spanning several
countries.
This past year we also saw a number of changes to our man-
agement structure and are confident that we have the right
team in place to deliver sustained growth in 2017.
→ Alan Wilson, who served as CEO for eight years through
February 1, 2016 and since then as Executive Chairman,
will retire January 31, 2017. On this date, he will remain a
member of McCormick’s Board of Directors, but will end his
role as Chairman. We thank Alan for his outstanding leader-
ship, an enviable track record of financial performance and
delivering significant shareholder return. I was honored to
have been named McCormick’s new Chairman of the Board.
→ Gordon Stetz stepped down from his roles of Executive
Vice President & CFO and Board member and retired in
December 2016. (Please see our tribute to Gordon on page 9.)
→ Mike Smith was named Executive Vice President & CFO
effective September 1, 2016. Mike brings extensive experi-
ence in financial roles at the company that span both our
consumer and industrial segments.
10 McCormick & Company
McCormick Is Poised for Success
I would like to express how proud I am of what we accom-
plished in 2016. Our business and products are on trend with
today’s consumers and we are well-positioned for continued
momentum. Our leaders and employees are executing on
effective growth strategies—strategies designed to win with
our customers and consumers. As part of this strategy we are
stepping up our performance and I am confident McCormick
is on track for a very successful 2017. As we enter the new
year, I look forward to continued progress as we focus on
growth, performance and people to build the value of your
investment in McCormick.
Thank you for your interest in McCormick.
Sincerely,
Lawrence E. Kurzius
President and Chief Executive Officer
CEO Lawrence Kurzius and CFO Mike Smith address some recent
questions from shareholders and prospective employees.
How are you connecting with
millennial consumers?
Lawrence: Millennials want to make
ordinary dishes extraordinary and are
above-average consumers of spices and
seasonings, which is a positive for our
business. McCormick by far is their most
preferred brand. The McCormick brand
indexes well with this generation in the
U.S. and studies of brand attitude,
household penetration and share of pur-
chases are all positive. We are building
on this strength through our innovation,
digital marketing and core product ren-
ovations, such as non-GMO labeling
and more organic items.
What is your outlook for raw material
costs and how do you manage any
increases?
Mike: As a 128-year-old company,
McCormick has a long history of effec-
tively managing the cost volatility that is
inherent in many of the spices and herbs
we buy. We source from over 40 coun-
tries where the supply can be impacted
by a number of factors, such as weather
and crop disease. In 2017, we anticipate
a mid-single digit increase in raw mate-
rial costs. We plan to offset this increase
with pricing actions and cost savings,
and expect to deliver another year of
operating income margin improvement.
How do you stay on the forefront of
flavor trends?
Lawrence: As a leader in flavor, it is
imperative that we stay at the forefront
of flavor trends. Many of these originate
in the restaurant industry and our
research chefs closely track what is cut-
ting edge. Each year they gather to
collaborate and develop our Flavor
Forecast, a global look at what is up and
coming in flavor. This news is eagerly
awaited by our retail and industrial cus-
tomers, as well as food editors and
bloggers. Over the past decade we
have predicted the rise of chipotle,
pumpkin pie spice and sriracha, and in
2016, we launched more than 50 prod-
ucts inspired by our Flavor Forecast.
Read more at flavorforecast.com.
How do you prioritize your use of cash?
Lawrence: At McCormick, we have a
balanced use of cash. We are committed
to returning a portion of cash to our
shareholders through our dividends and
have a 31-year track record of increasing
our dividend annually. We use a portion
of cash for capital expenditures, includ-
ing projects that support our growth. A
third important priority is acquisitions,
followed by share repurchases.
Mike: We are working to increase our
cash flow across the organization
through our CCI program. As an example,
we extended our payment terms with
suppliers in Europe and have begun
implementing this program in North
America and other regions.
What makes McCormick a good place
to work?
Lawrence: McCormick is a great place to
work because of our dedicated, talented
employees. As evidence of employee
engagement, we had over a 90% par-
ticipation rate on our latest global
employee survey, which is well ahead of
industry averages. This survey helps
shape our employee and cultural initia-
tives. At McCormick, employees have
an oppor tunity to build their skills on
the job and through our Multiple Man-
age ment Boards, employee ambassa-
dor groups and other networks. Across
our organization, we have a winning
team, strengthened by our shared val-
ues, our winning ways of working and
our respect for one another.
2016 Annual Report 11
Financial Highlights
For the year ended November 30 (millions except per share data)
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
2016
$4,411.5
1,831.7
41.5%
641.0
14.5%
472.3
3.69
658.1
217.8
1.72
2015
$4,296.3
1,737.3
40.4%
548.4
12.8%
401.6
3.11
590.0
204.9
1.60
% Change
2.7%
5.4%
16.9%
17.6%
18.6%
11.5%
6.3%
7.5%
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 36 to 39.
$109
120
$98
$69
$63
Adjusted operating income
Adjusted operating income margin
$56
Adjusted net income
Adjusted earnings per share—diluted
’12
’16
’13
’15
’14
Cash Flow
from Operations
(millions)
$658
$590
$504
$455
$465
’12
’13
’14
’15
’16
Since 2012, we have increased
cash flow from operations by
more than $200 million.
100
80
60
40
20
0
700
525
350
175
0
41%
20%
30%
2016
2015
% Change
$ 657.0
$ 613.9
14.9%
483.4
3.78
14.3%
449.5
3.48
7.0%
7.5%
8.6%
34%
16%
Net Sales by
Segment and Region
13%
8%
26%
Cost Savings from CCI and
Organization and Streamlining Actions
(millions)
$109
$98
$69
$63
$56
5%
7%
’12
’13
’14
’15
’16
Consumer Segment
• Americas
• Europe, Middle East and Africa
• Asia/Pacific
Industrial Segment
• Americas
• Europe, Middle East and Africa
• Asia/Pacific
In the last five years, we have
achieved nearly $400 million
in cost savings.
$590
$658
$504
$455
$465
12 McCormick & Company
’12
’13
’14
’15
’16
120
100
80
60
40
20
0
700
525
350
175
0
Segments at a Glance
Between our consumer and industrial segments, you are likely to enjoy food flavored by McCormick every day.
Our Most
Popular Brands
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, as
well as the foodservice industry.
Consumer Segment
Products at every price point—
premium gourmet items to value-
priced private label.
$2.8
$2.8
$2.2
$2.2
’11
’11
’16
’16
3.0
Net Sales
2.5
(billions)
2.0
1.5
1.0
0.5
0.0
3.0
2.5
2.0
1.5
1.0
0.5
0.0
$2.8
$2.8
$2.2
$2.2
’11
’11
’16
’16
3.0
Adjusted
3.0
2.5
Operating
2.5
2.0
Income
2.0
1.5
(millions)
1.5
1.0
1.0
0.5
0.5
0.0
0.0
~ 150
We have brands
in approximately
150 countries and
territories.
$491
$428
$491
$428
500
400
300
200
100
500
400
300
200
100
0
’11
’11
’16
’16
0
’11
’11
’16
’16
$491
$491
$428
$428
500
500
400
400
300
300
200
200
100
100
0
0
Industrial Segment
48%
Globally, sell to nine of the top
10 food and beverage companies
and nine of the top 10 foodservice
restaurant chains.
Grew sales 11% and
adjusted operating
income 48% since
2011.
Bertie
$1.7
$1.5
$1.7
$1.5
’11
’11
’16
’16
[mm]
0
10
20
30
40
50
60
70
80
90
100
Użyte kolory/Used colors:
Klient/Client
Praca/Artwork
Data/Date
KAMIS
LOGO KAMIS.ai
2016.01.05
Cyan
Magenta
Yellow
Black
Agencja Reklamowa Opus B, ul. Pijarska 9, 31-015 Kraków, Polska/Poland, www.opusb.pl
-
-
-
-
2.0
1.5
1.0
0.5
0.0
2.0
1.5
Net Sales
(billions)
1.0
0.5
0.0
$1.7
$1.7
$1.5
$1.5
’11
’11
’16
’16
$112
2.0
Adjusted
2.0
Operating
1.5
1.5
Income
1.0
(millions)
1.0
0.5
0.5
0.0
0.0
’11
$166
$166
$112
’11
’16
’16
200
150
100
50
0
200
150
100
50
0
2016 Annual Report 13
$166
$166
$112
$112
’11
’11
’16
’16
200
200
150
150
100
100
50
50
0
0
Our CSR Vision
To grow our business globally, while driving positive change to
the environment, within our communities and for our employees.
2016 CSR Highlights
ASSIST OUR SOURCE
FARMING COMMUNITIES
REDUCE OUR
ENVIRONMENTAL IMPACT
12,800
Reuse
Targeted number of farmers positively impacted by
McCormick sustainability initiatives
$10 million investment in wastewater projects
through 2018
63,800
Number of livelihoods improved
800 & 600
Farmers in India & Turkey, respectively, benefiting
from new technology through demo farm operations
1,200
Farmers in India with harvests protected by
integrated pest management practices
Reduce
43% carbon footprint reduction by using fewer
trucks for transport
Recycle
Transitioning from BPA (Bisphenol A) product
packaging formats across several product
lines globally
Renew
5% reduction in greenhouse gas emissions goal
already achieved—3 years early
Field-to-Bottle Oversight
Progress Report
Through education and training, we’re achieving better
outcomes for our farmers and higher quality products
for our customers.
We’re on track to meet many of our 2019 goals in
2017 or 2018.
Since 1941, our company has held this special day that has
become known as “C-Day.” Employees volunteer, work extra
hours and donate pay, which is matched dollar-for-dollar by
the company to benefit local charities. Employees worldwide
participate and in 2016, $1.8 million was donated to local
charities as a result.
14 McCormick & Company
GLOBAL 100 MOST SUSTAINABLE CORPORATIONS
McCormick ranked No. 14 in the 2017 Global 100 Most Sustainable Corporations
Index by Corporate Knights, and No. 1 in the food products industry. Corporate
Knights assesses all publicly traded companies with a market capitalization of at
least $2 billion to create the annual ranking. This demonstrates that the shared
responsibility we have for our communities and the planet is making an impact.
Read more at
mccormickcorporation.com/our-commitment
INCREASE OUR
WORKFORCE DIVERSITY
CONTRIBUTE TO HEALTHIER
EATING HABITS
Board of Directors
2016
27%
27%
Leadership
2016
28%
18%
Women globally
People of color in the U.S.
Leadership Goals for 2019
Leadership
50% Women globally
25% People of color in the U.S.
28%
2016
18%
Supported by university research sponsored by the
McCormick Science Institute, the latest edition of the
Dietary Guidelines for Americans recognized the nutri-
tional benefits of McCormick products and recommended
using herbs and spices to reduce sodium intake.
To better inspire healthy
choices and educate the
communities we serve,
McCormick launched our
Flavor For Life charitable
giving program in 2016.
0
5
10
15
20
25
30
2015
2015
27%
27%
28%
20%
2016 Annual Report 15
Board of Directors
Michael A. Conway 50
Executive Vice President,
Licensed Stores, U.S. and Latin America
Starbucks Corporation
Seattle, Washington
Director since 2015
Audit Committee
J. Michael Fitzpatrick 70
Former Chairman and
Chief Executive Officer
Citadel Plastics Holdings, Inc.
Radnor, Pennsylvania
Director since 2001
Audit Committee
Freeman A. Hrabowski, III 66
President
University of Maryland
Baltimore County
Baltimore, Maryland
Director since 1997
Nominating/Corporate
Governance Committee*
Lawrence E. Kurzius 58
President & Chief Executive Officer
McCormick & Company, Inc.
Director since 2015
Patricia Little 56
Senior Vice President and
Chief Financial Officer
The Hershey Company
Hershey, Pennsylvania
Director since 2010
Audit Committee*
Michael D. Mangan 60
Former President,
Worldwide Power Tools & Accessories
The Black & Decker Corporation
Towson, Maryland
Director since 2007**
Compensation Committee*
Nominating/Corporate
Governance Committee
Maritza G. Montiel 65
Former Deputy Chief Executive
Officer and Vice Chairman
Deloitte LLP
Washington, D.C.
Director since 2015
Compensation Committee
Margaret M.V. Preston 59
Managing Director,
Private Wealth Management
TD Bank
New York, New York
Director since 2003
Nominating/Corporate
Governance Committee
EXECUTIVE OFFICERS
Alan D. Wilson
Executive Chairman of the Board
Lawrence E. Kurzius
President & Chief Executive Officer
Michael R. Smith
Executive Vice President &
Chief Financial Officer
Brendan F. Foley
President, Global Consumer &
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
Malcolm Swift
President, Global Industrial &
McCormick International
Gary M. Rodkin 64
Former President and
Chief Executive Officer
ConAgra Foods, Inc.
Omaha, Nebraska
Director since 2017
Nominating/Corporate
Governance Committee
Jacques Tapiero 58
Former Senior Vice President and
President, Emerging Markets
Eli Lilly and Company
Indianapolis, Indiana
Director since 2012
Compensation Committee
Alan D. Wilson 59
Executive Chairman of the Board
McCormick & Company, Inc.
Director since 2007
* Indicates Chair Position on the Committee
** Lead Director
16 McCormick & Company
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
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
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
Item 8
Item 9
Item 9A
Item 9B
PART III
Item 10
Item 11
Item 12
Item 13
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
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and
Director Independence
Item 14
Principal Accountant Fees and Services
PART IV
Item 15
Exhibits, Financial Statement Schedules
Page
21
23
28
28
28
28
29
30
31
45
46
46
49
49
50
51
52
53
75
75
75
76
76
76
76
76
76
2016 Annual Report 17
THIS PAGE LEFT INTENTIONALLY BLANK
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, 2016
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 £
2016 Annual Report 19
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, 2016: $1,108,629,399
The aggregate market value of the Non-Voting Common Stock held by non-affiliates at May 31, 2016: $11,169,292,363
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
11,533,159
113,656,332
December 30, 2016
December 30, 2016
DOCUMENTS INCORPORATED BY REFERENCE
Document
Part of 10-K into Which Incorporated
Proxy Statement for
McCormick’s March 29, 2017
Annual Meeting of Stockholders
(the “2017 Proxy Statement”)
Part III
20 McCormick & Company
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. We also are partners
in a number of joint ventures that are involved in the manufacture
and sale of flavorful products, the most significant of which is
McCormick de Mexico. Our major sales, distribution and production
facilities are located in North America, Europe and China. Additional
facilities are based in Australia, Mexico, India, Singapore, Central
America, Thailand and South Africa. McCormick & Company,
Incorporated was formed in 1915 under Maryland law as the
successor to a business established in 1889.
Business Segments
We operate in two business segments, consumer and industrial.
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, reduced sodium, 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 seg-
ment. The consumer segment contributes approximately 60% of sales
and 75% of operating income, and the industrial segment contributes
approximately 40% of sales and 25% 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 approximately 150 countries and territories.
Our leading brands in the Americas include McCormick®, Lawry’s®
and Club House®, as well as niche brands such as Gourmet Garden®
and OLD BAY®. We also market authentic regional and ethnic brands
such as Zatarain’s®, Stubb’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 extensive line of
Vahiné® brand dessert items. In the Asia/Pacific region, we market
our products under the following brands. In China, we market our
products under the McCormick and DaQiao® brands. In Australia,
we market our spices and seasonings under the McCormick brand,
our dessert products under the Aeroplane® brand, and packaged
chilled herbs under the Gourmet Garden 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 distribu-
tors 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 sales are spices, herbs
and seasonings. For these products, we are a category leader in our
primary markets. There are numerous competitive brands of spices,
herbs and seasonings in the U.S. and additional brands in interna-
tional 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 sales while
simultaneously working to increase our sales and profit.
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 with
branded, packaged products both directly and indirectly through dis-
tributors. We supply food manufacturers and foodservice customers
with customized flavor solutions, and many of these customer rela-
tionships have been active for decades. Our range of flavor solutions
remains one of the broadest in the industry and includes seasoning
blends, spices and herbs, condiments, coating systems and com-
pound flavors. In addition to a broad range of flavor solutions, our
long-standing customer relationships are evidence of our effective-
ness in building customer 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 geo-
graphic reach. Other competitors include larger publicly held flavor
companies that are more global in nature, but which also tend to
specialize in a 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), garlic, onion,
rice, wheat flour and vanilla. Pepper and other spices and herbs
are generally 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 interna-
tional locations. Because the raw materials are agricultural prod-
ucts, they are subject to fluctuations in market price and availability
caused by weather, growing and harvesting conditions, market con-
ditions, and other factors beyond our control.
2016 Annual Report 21
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.
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, from proprietary customer formulas. Expenditures
for research and development were $61.0 million in 2016, $60.8 million
in 2015, and $62.0 million in 2014. 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
Fed eral Food, Drug, and Cosmetic Act; the Food Safety Moderniza-
tion Act; the Federal Trade Commission Act; state consumer protec-
tion 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.
Outside the United States, our business is subject to numerous
similar statutes, laws and regulatory requirements.
Environmental Regulations
The cost of compliance with federal, state and local provisions
related to protection of the environment has had no material effect
on our business. There were no material capital expenditures for
environmental control facilities in fiscal year 2016, and there are no
material expenditures planned for such purposes in fiscal year 2017.
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 (CCI) program.
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 under a number of brands through a variety
of retail channels, including grocery, mass merchandise, warehouse
clubs, discount and drug stores, and e-commerce. 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 2016, 2015 and 2014. Sales to one of
our industrial segment customers, PepsiCo, Inc., accounted for 11% of
consolidated sales in 2016, 2015 and 2014. In 2016, 2015 and 2014 the
top three customers in our industrial segment represented 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 por-
tion of our business is subject to renegotiation of profits or termination
of contracts or subcontracts at the election of the U.S. government.
Trademarks, Licenses and Patents
We own a number of trademark registrations. Although in the
aggregate these trademarks are material to our business, the
loss of any one of those trademarks, with the exception of our
“McCormick,” “Lawry’s,” “Zatarain’s,” “Stubb’s,” “Club House,”
“Ducros,” “Schwartz,” “Vahiné,” “OLD BAY,” “Simply Asia,” “Thai
Kitchen,” “Kitchen Basics,” “Kamis,” “Drogheria & Alimentari,”
“DaQiao,” “Kohinoor” and “Gourmet Garden” trademarks, would not
have a material adverse effect on our business. 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 ter-
minates 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.
22 McCormick & Company
Employees
We had approximately 10,500 full-time employees worldwide as
of November 30, 2016. Our operations have not been affected sig-
nificantly 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, approxi-
mately 2,800 employees are covered by collective bargaining
agreements or similar arrangements.
Financial Information about Geographic Locations
For information on the net sales and long-lived assets of McCormick
by geographic area, see note 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, and restrictions on investments, royalties
and dividends. In fiscal year 2016, 42% 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 “Management’s
Discussion and Analysis.”
Forward-Looking Information
Certain statements contained in this report, including statements
concerning expected performance such as those relating to net
sales, earnings, cost savings, acquisitions and brand marketing
support, are “forward-looking statements” within the meaning of
Section 21E of the Securities Exchange Act of 1934. These state-
ments may be identified by the use of words such as “may,” “will,”
“expect,” “should,” “anticipate,” “intend,” “believe” and “plan.”
These statements may relate to: the expected results of operations
of businesses acquired by us, the expected impact of raw material
costs and our pricing actions on our results of operations and gross
margins, the expected productivity and working capital 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 fluctua-
tions, 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 repurchase 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
interruptions 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
improvements; negative employee relations; the lack of successful
acquisition and integration of new businesses; issues affecting our
supply chain and raw materials, including fluctuations in the cost
and availability of raw and packaging materials; government regula-
tion, and changes in legal and regulatory requirements and enforce-
ment practices; global economic and financial conditions generally,
including the availability of financing, and interest and inflation
rates; the investment return on retirement plan assets, and the costs
associated with pension obligations; foreign currency fluctuations;
the stability of credit and capital markets; risks associated with our
information technology systems, including the threat of data breaches
and cyber attacks; fundamental changes in tax law; volatility in our
effective tax rate; climate change; infringement of our intellectual
property rights, and those of customers; litigation, legal and admin-
istrative 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 electroni-
cally 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 web-
site 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 uncertain-
ties that are not presently known to us or are currently deemed to
be immaterial also may materially adversely affect our business,
financial condition, or results of operations in the future. If any of
the risks actually occur, our business, financial condition or results
of operations could be negatively affected. In that case, the trading
price of our securities could decline, and you may lose part or all of
your investment.
Damage to our reputation or brand name, loss of brand
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.
2016 Annual Report 23
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 mea-
sures. 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.
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 mate-
rial 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 con-
cerns, whether or not valid, may discourage customers and consum-
ers 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
24 McCormick & Company
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 products. The economic and competitive landscape for
our customers is constantly changing, such as the emergence of
new sales channels like e-commerce, and our customers’ responses
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 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 2016. 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 mar-
ket price and availability caused by weather, growing and harvest-
ing 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), garlic, onion, rice, wheat flour and
vanilla. While future price movements of raw material costs are
uncertain, we seek to mitigate the market price risk 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 CCI 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 fluctuations may not effectively limit or eliminate our
exposure to changes in raw material prices. Therefore, we cannot
provide assurance that future raw material price fluctuations will
not have a negative impact on our business, financial condition or
operating results.
In addition, we may have very little opportunity to mitigate the risk
of availability of certain raw materials due to the effect of weather
on crop yield, government actions, political unrest in producing coun-
tries, action or inaction by suppliers in response to laws and regula-
tions, changes in agricultural programs and other factors beyond our
control. Therefore, we cannot provide assurance that future raw
material availability will not have a negative impact on our business,
financial condition or operating results.
Political, socio-economic and cultural conditions, as well as disrup-
tions caused by terrorist activities or otherwise, could also create
additional risks for regulatory compliance. Although we have adopted
rigorous quality assurance and quality control procedures which are
designed to ensure the safety of our imported products, we cannot
provide assurance that such events will not have a negative impact
on our business, financial condition or operating results.
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.
Our profitability may suffer as a result of competition in
our markets.
The food industry is intensely competitive. Competition in our product
categories is based on price, product innovation, product quality,
brand recognition and loyalty, effectiveness of marketing and promo-
tional activity, and the ability to identify and satisfy consumer prefer-
ences. From time to time, we may need to reduce the prices for some
of our products to respond to competitive and customer pressures,
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, manufacturing, stor-
age, labeling, marketing, advertising and distribution of food prod-
ucts, as well as laws and regulations relating to financial reporting
requirements, the environment, competition, anti-corruption, privacy,
relations with distributors and retailers, foreign supplier verification,
the import and export of products and product ingredients, employ-
ment, health and safety, and trade practices. Enforcement of exist-
ing 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 compliance costs and create other obligations that could
adversely affect our business, financial condition or operating
results. Governments may also impose requirements and restrictions
that impact our 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 prod-
ucts 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
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 contem-
plated revenue synergies and cost savings, our financial results could
be adversely affected. Additionally, joint ventures inherently involve a
lesser degree of control over business operations, thereby potentially
increasing the financial, legal, operational, and/or compliance risks.
Our foreign and cross-border operations are subject to
additional risks.
We operate our business and market our products internationally.
In fiscal year 2016, 42% of our sales were generated in foreign coun-
tries. 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. Several countries within the European
Union continue to experience sovereign debt and credit issues which
causes more volatility in the economic environment throughout the
European Union and the United Kingdom (U.K.) Additionally, inter-
national sales, together with finished goods and raw materials
imported into the U.S., are subject to risks related to fundamental
changes to tax laws as well as the 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.
2016 Annual Report 25
Fluctuations in foreign currency markets may negatively
impact us.
The deterioration of credit and capital markets may adversely
affect our access to sources of funding.
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 effects
of foreign currency on loans between subsidiaries and unconsolidated
affiliates and on cash flows related to repatriation of earnings of
unconsolidated affiliates. 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 and
Thai baht, as well as the Euro versus the British pound sterling,
Australian dollar and Swiss franc. 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.
The decision by British voters to exit the European Union may
negatively impact our operations.
The June 2016 referendum by British voters to exit the European
Union (“Brexit”) adversely impacted global markets and resulted
in a sharp decline in the value of the British pound, as compared to
the U.S. dollar and other currencies. As the U.K. negotiates its exit
from the European Union, volatility in exchange rates and in U.K.
interest rates may continue. In the near term, a weaker British pound
compared to the U.S. dollar during a reporting period causes local
currency results of our U.K. operations to be translated into fewer
U.S. dollars; a weaker British pound compared to other currencies
increases the cost of goods imported into our U.K. operations and may
decrease the profitability of our U.K. operations; and a higher U.K.
interest rate may have a dampening effect on the U.K. economy.
In the longer term, any impact from Brexit on our U.K. operations
will depend, in part, on the outcome of tariff, trade, regulatory and
other negotiations.
Increases in interest rates may negatively impact us.
We had total outstanding short-term borrowings of $390 million at
an average interest rate of approximately 1.4% on November 30,
2016. 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.
26 McCormick & Company
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 relation-
ships. Based on these communications and our monitoring activities,
we believe the likelihood of one of our banks not performing on its
commitment is remote.
In addition, global capital markets have experienced volatility 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 period. Our inability to obtain financing on acceptable
terms or within an acceptable time period could have an adverse
impact on our operations, financial condition and liquidity.
We face risks associated with certain pension assets
and obligations.
We hold investments in equity and debt securities in our qualified
defined benefit pension plans and in a rabbi trust for our U.S.
non-qualified pension plan. Deterioration in the value of plan
assets resulting from a general financial downturn or otherwise,
or an increase in the actuarial valuation of the plans’ liability due
to a low interest rate environment, could cause (or increase) an
underfunded status of our defined benefit pension plans, thereby
increasing our obligation to make contributions to the plans. An
obligation to make contributions to pension plans could reduce the
cash available for working capital and other corporate uses, and
may have an adverse impact on our operations, financial condition
and liquidity.
Uncertain global economic conditions expose us to credit risks
from customers and counterparties.
Consolidations in some of the industries in which our customers
operate have created larger customers, some of which are highly
leveraged. In addition, competition has increased with the growth in
alternative channels through our customer base. These factors have
caused some customers to be less profitable and increased our
exposure to credit risk. Current credit markets are volatile, and some
of our customers and counterparties are highly leveraged. A signifi-
cant adverse change in the financial and/or credit position of a cus-
tomer or counterparty could require us to assume greater credit risk
relating to that customer or counterparty and could limit our ability
to collect receivables. This could have an adverse impact on our
financial condition and liquidity.
Our operations 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 oper-
ating our business efficiently. We rely on our information technology
systems to manage our business data, communications, supply
chain, order entry and fulfillment, and other business processes.
The failure of our information technology systems to perform as we
anticipate 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 combination
of the foregoing. Such breaches could result in unauthorized access
to information including customer, consumer or other company con-
fidential data. We invest in security technology and design our busi-
ness 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, regulatory enforcement proceedings and direct costs associated
with incident response.
The global nature of our business and the resolution of tax
disputes create volatility in our effective tax rate.
As a global business, our tax rate from period to period can be
affected by many factors, including changes in tax legislation, our
global mix of earnings, the tax characteristics of our income, the
timing and recognition of goodwill impairments, acquisitions and dis-
positions, adjustments to our reserves related to uncertain tax posi-
tions, 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 par-
ticular 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 custom-
ers, globally through a variety of means, including trademarks, copy-
rights, 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
damage our reputation.
We are party to a variety of legal claims and proceedings in the
ordinary course of business. Since litigation is inherently uncertain,
there is no guarantee that we will be successful in defending our-
selves against such claims or proceedings, or that management’s
assessment of the materiality or immateriality of these matters,
including any reserves taken in connection with such matters, will
be consistent with the ultimate outcome of such claims or proceed-
ings. In the event that management’s assessment of the materiality
or immateriality of current claims and proceedings proves inaccurate,
or litigation that is material arises in the future, there may be a mate-
rial adverse effect on our financial condition. Any adverse publicity
resulting from allegations made in litigation claims or legal or admin-
istrative 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 damage our reputation.
2016 Annual Report 27
Streamlining actions to reduce fixed costs, simplify or improve
processes, and improve our competitiveness may have a
negative effect on employee relations.
We regularly evaluate whether to implement changes to our organi-
zation structure to reduce fixed costs, simplify or improve processes,
and improve our competitiveness, and we expect to continue to eval-
uate such actions in the future. From time to time, those changes are
of such significance that we may transfer production from one man-
ufacturing facility to another, eliminate certain manufacturing, sell-
ing and administrative positions, and exit certain businesses or lines
of business. 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 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 busi-
ness, 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 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
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
China:
Guangzhou—consumer and industrial
Shanghai—consumer and industrial
(2 plants, one of which is under construction and the
other which will be exited upon the move to the newly
completed facility in 2017)
Wuhan—consumer
Australia:
Melbourne—consumer and industrial
Palmwoods—consumer (2 principal plants)
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 prop-
erty is the subject.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
28 McCormick & Company
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 30, 2016 was $93.10 per share for the
Common Stock and $93.33 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 30, 2016 was as follows:
Title of class
Common Stock, no par value
Common Stock Non-Voting, no par value
Approximate number
of record holders
2,100
9,700
The following table summarizes our purchases of Common Stock (CS) and Common Stock Non-Voting (CSNV) during the fourth quarter of 2016:
Period
September 1, 2016 to
September 30, 2016
October 1, 2016 to
October 31, 2016
November 1, 2016 to
November 30, 2016
Total
ISSUER PURCHASES OF EQUITY SECURITIES
Total number
of shares
purchased
CS-0
CSNV-0
CS-33,920(1)
CSNV-455,986
CS-0
CSNV-181,305
CS-33,920
CSNV-637,291
Average
price
paid per
share
—
—
$95.65
$95.09
—
$94.50
$95.65
$94.92
Total number of
shares purchased
as part of publicly
announced plans
or programs
—
—
33,920
455,986
—
181,305
33,920
637,291
Approximate dollar
value of shares
that may yet be
purchased under the
plans or programs
$391 million
$344 million
$327 million
$327 million
(1) On October 4, 2016, we purchased 18,375 shares of our CS from our domestic pension plan to facilitate the plan’s rebalancing of its asset allocations. The price paid per share of
$96.62 represented the closing price of the CS on October 4, 2016. On October 19, 2016, we purchased 15,545 shares of our CS from our U.S. defined contribution retirement plan to
manage shares, based upon participant activity, in the plan’s company stock fund. The price paid per share of $94.50 represented the closing price of the CS on October 19, 2016.
As of November 30, 2016, approximately $327 million remained of a $600 million share repurchase authorization approved by the Board of Directors
in March 2015. 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 num-
ber may differ slightly to the extent necessary to comply with the requirements of the Employee Retirement Income Security Act of 1974. During
fiscal 2016, we issued 773,787 shares of CSNV in exchange for shares of CS and issued 39,729 shares of CS in exchange for shares of CSNV.
2016 Annual Report 29
ITEM 6. SELECTED FINANCIAL DATA
HISTORICAL FINANCIAL SUMMARY
(millions except per share and percentage data)
2016
2015
2014
2013
2012
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 (1)
Current debt
Long-term debt(1)
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
$ 4,411.5
$ 4,296.3
$ 4,243.2
$ 4,123.4
$ 4,014.2
2.7%
641.0
36.1
472.3
$ 3.73
3.69
1.76
91.20
13.07
$ 4,635.9
393.2
1,054.0
1,638.1
1.3%
2.9%
2.7%
8.6%
548.4
36.7
401.6
$ 3.14
3.11
1.63
85.92
13.25
$ 4,472.6
343.0
1,051.4
1,686.9
603.0
29.4
437.9
$ 3.37
3.34
1.51
74.33
14.10
$ 4,382.3
270.8
1,013.1
1,809.4
550.5
23.2
389.0
$ 2.94
2.91
1.39
69.00
14.85
$ 4,416.0
214.1
1,017.8
1,947.7
578.3
21.5
407.8
$ 3.07
3.04
1.27
64.56
12.83
$ 4,130.9
392.6
778.4
1,700.2
41.5%
14.5%
40.4%
12.8%
40.8%
14.2%
$ 153.8
108.7
242.7
126.6
128.0
$ 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
(1) Total assets and Long-term debt as of fiscal year-ends 2015, 2014, 2013 and 2012 have been restated to reflect the provisions of Accounting Standards Updates 2015-03, related to
the presentation of debt issuance costs, and 2015-17, related to the classification of deferred tax assets and liabilities, both of which we adopted as of November 30, 2016.
The historical financial summary includes the impact of certain items that affect the comparability of financial results year to year. In 2016, 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 2016 and 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
$
2016
(16.0)
(11.1)
(0.09)
$
2015
(65.5)
(47.9)
(0.37)
$
2014
(5.2)
(3.7)
(0.03)
$
2013
(40.3)
(29.2)
(0.22)
2012
$ —
—
—
30 McCormick & Company
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The following Management’s Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) is intended to help the
reader understand McCormick & Company, Incorporated, our opera-
tions and our present business environment. MD&A is provided as a
supplement to, and should be read in conjunction with, our 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 devel-
opment 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 busi-
ness in two operating segments, consumer and industrial, as
described in Item 1 of this report.
Our long-term annual growth objectives in constant currency 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, expanded distribu-
tion and category growth; 2) product innovation; and 3) acquisitions.
We are fueling our investment in growth with cost savings from our
CCI program, an ongoing initiative to improve productivity and reduce
costs throughout the organization, as well as savings from the orga-
nization 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 operating income
and earnings per share.
Our business generates strong cash flow, and we have a balanced
use of cash. We are using our cash to fund shareholder dividends,
with annual increases in each of the past 31 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 2016, we achieved further growth of our business although sales
and earnings reported in U.S. dollars were unfavorably impacted by
the strength of the U.S. dollar and the resultant unfavorable effects
of foreign currency exchange, as compared to 2015. Net sales rose
2.7% over the 2015 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 1.7% of sales
growth. The increases were driven by product innovation, brand
marketing and expanded distribution including new retail channels
and new geographic regions.
• Pricing actions to offset a low-single digit increase in material
cost inflation added 1.5% of the increase in net sales.
• The incremental impact of acquisitions completed in 2015 and
2016 added 2.3% of the increase in net sales.
• These increases were partially offset by unfavorable currency
rates. This impact reduced the net sales growth rate by 2.8%.
Excluding this impact, we grew sales 5.5% on a constant
currency basis.
Operating income was $641.0 million in 2016 and $548.4 million in
2015. We recorded $16.0 million of special charges in 2016 related to
organization and streamlining actions, and in 2015 recorded $65.5 mil-
lion of special charges. In 2016 compared to the year-ago period, the
favorable impact of higher sales and $109.0 million of cost savings
from our CCI program and organization and streamlining actions more
than offset higher material costs and an $11.6 million increase in brand
marketing. Excluding the aforementioned special charges, adjusted
operating income was $657.0 million, an increase of 7% compared to
$613.9 million in the year-ago period. In constant currency, adjusted
operating income rose 9%. For further details and a reconciliation of
non-GAAP to reported amounts, see Non-GAAP Financial Measures.
Diluted earnings per share was $3.69 in 2016 and $3.11 in 2015. The
year-on-year increase in earnings per share was driven mainly by
higher operating income, which reflected lower special charges, and
lower shares outstanding. Special charges lowered earnings per
share by $0.09 and $0.37 in 2016 and 2015, respectively. Excluding
the effect of the aforementioned special charges, adjusted diluted
earnings per share was $3.78 in 2016 and $3.48 in 2015. This was
an increase of 9%, despite the unfavorable impact of foreign cur-
rency exchange.
McCormick continues to generate strong cash flow. Net cash provided
by operating activities reached $658.1 million in 2016, an increase
from $590.0 million in 2015. 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 2016, that
return of cash to our shareholders was $460.5 million.
RESULTS OF OPERATIONS—2016 COMPARED TO 2015
Net sales
Percent growth
Components of percent growth in
net sales—increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
2016
2015
$4,411.5
$4,296.3
2.7%
1.3%
1.7%
1.5%
2.3%
(2.8)%
3.9%
1.1%
1.4%
(5.1)%
Sales for the fiscal year 2016 increased 2.7% from 2015 and by 5.5%
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). Both the consumer and industrial seg-
ments drove higher volume and product mix that added 1.7% to sales.
This was driven by product innovation, brand marketing and expanded
distribution. Pricing actions, taken in response to increased material
costs, added 1.5% to sales. The incremental impact of acquisitions
completed in 2016—mainly Gourmet Garden—and three acquisi-
tions completed in 2015—Brand Aromatics, Drogheria & Alimentari
(D&A) and Stubb’s—added 2.3% to sales. These factors offset an
unfavorable impact from foreign currency exchange that reduced
sales by 2.8% compared to 2015 and is excluded from our measure
of sales growth of 5.5% on a constant currency basis.
2016 Annual Report 31
In 2017, we expect to grow sales 3% to 5%, with further increases in
volume and product mix and pricing actions to offset a projected
increase in material costs. We also expect incremental sales from
the acquisition of Gourmet Garden, completed during fiscal year
2016, and an industrial acquisition completed in December 2016
and described in note 19 to our financial statements. We anticipate
that these sales increases will be offset in part by an unfavorable
impact from foreign currency exchange during 2017.
Gross profit
Gross profit margin
2016
2015
$1,831.7
$1,737.3
41.5%
40.4%
In 2016, gross profit rose 110 basis points to 41.5% from 40.4% in
2015, as the favorable impact of pricing actions, CCI-led cost savings
and more favorable business mix more than offset the unfavorable
impact of higher material costs. In 2017, we expect gross profit margin
to range from comparable to approximately 50 basis points higher
than 2016, due to the favorable impact of pricing actions and cost
savings, net of the unfavorable impact of higher material costs.
Selling, general & administrative
expense (SG&A)
Percent of net sales
2016
2015
$1,175.0
$1,127.4
26.6%
26.2%
Selling, general and administrative expenses were $1,175.0 million in
2016 compared to $1,127.4 million in 2015, an increase of $47.6 mil-
lion. SG&A as a percentage of net sales was 26.6%, a 40 basis
point increase from 2015. Driving this increase in SG&A as a per-
centage of net sales were higher employee related expenses, an
$11.6 million increase in our brand marketing from the 2015 level
to $252.2 million in 2016 and a $6.5 million increase in transaction
costs, related to both completed and uncompleted acquisitions, from
the 2015 level to $13.4 million in 2016. Partially offsetting these
increases were cost savings from CCI and from the organization and
streamlining actions described in note 3 to our financial statements.
Special charges included in cost of goods sold
Other special charges in the income statement
Special charges
2016
$ 0.3
15.7
$16.0
2015
$ 4.0
61.5
$ 65.5
We regularly evaluate whether to implement changes to our organi-
zation structure to reduce fixed costs, simplify or improve processes,
and improve our competitiveness, and we expect to continue to eval-
uate such actions in the future. From time to time, those changes are
of such significance in terms of both up-front costs and organizational/
structural impact that we obtain advance approval from our Man-
agement Committee and classify expenses related to those changes
as special charges in our financial statements. Special charges of
$16.0 million were recorded in 2016 and $65.5 million in 2015 to
enable us to implement these changes. Of the $16.0 million of spe-
cial charges recorded in 2016, $0.3 million were recorded in cost of
goods sold. The 2016 special charges principally consist of $5.7 mil-
lion related to our EMEA reorganization which began in 2015, $2.8
million related to our exit from a consolidated joint venture in South
Africa, $1.9 million for other exit costs related to the discontinuance
of non-profitable product lines of our Kohinoor business in India
32 McCormick & Company
initiated in 2015, $1.8 million associated with actions in connection
with our planned exit of two leased manufacturing facilities in
Singapore and Thailand and $1.7 million for employee severance
actions related to our North American effectiveness initiative begun
in 2015. See note 3 of the financial statements for more details on these
charges and our basis for classifying amounts as special charges.
In 2015, we recorded special charges of $65.5 million, of which $29.2
million related to employee severance and related costs associated
with our North American effectiveness initiative and $24.4 million
related to a reorganization of our EMEA business. An additional $14.2
million, including a non-cash brand impairment charge of $9.6 million,
related to the discontinuance by our Kohinoor consumer business in
India of sales of non-profitable bulk-packaged and broken basmati
rice product lines. 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.
Interest expense
Other income, net
2016
$56.0
4.2
2015
$53.3
1.1
Interest expense for 2016 was higher than the prior year, primarily
due to higher average borrowings. Other income, net for 2016 rose
by $3.1 million over the 2015 level, primarily due to higher interest
income and lower non-operating foreign currency losses, both
as compared to 2015, as well as to a gain on the 2016 sale of a
non-operating asset.
Income from consolidated operations
before income taxes
Income taxes
Effective tax rate
2016
2015
$589.2
153.0
26.0% 26.5%
$496.2
131.3
The effective tax rate decreased 50 basis points to 26.0% in 2016,
from 26.5% in 2015, primarily as a result of the following factors.
Net discrete tax benefits increased by $2.0 million, from $19.1 mil-
lion in 2015 to $21.1 million in 2016. Both 2016 and 2015 included
discrete tax benefits for (i) the reversal of reserves for unrecognized
tax benefits, net of additional taxes provided, for the expiration of
statutes of limitation in several tax jurisdictions, (ii) 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 (iii) prior year adjustments for the research tax credit
related to legislation enacted subsequent to the reporting dates.
A portion of the 2015 discrete tax benefit was offset by a discrete
tax detriment for the revaluation of deferred tax assets in the U.K
resulting from legislation enacted in 2015 reducing the statutory tax
rate for future periods. 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 2017 of approximately 28%,
including a favorable effect from our planned adoption of the new
Accounting Standards Update No. 2016-09 Stock Compensation
(Topic 718): Improvements to Employee Share-Based Payment
Account ing as more fully described in note 1 of the financial state-
ments. We expect that the adoption of this new guidance in fiscal
2017 will reduce our effective income tax rate; however, the ultimate
amount of that reduction is dependent upon the underlying vesting
or exercise activity and related future stock prices.
Income from unconsolidated operations
2016
$36.1
2015
$36.7
Income from unconsolidated operations decreased $0.6 million in
2016 from the prior year. This decrease was mainly attributable
to our largest joint venture, McCormick de Mexico, for which the
unfavorable impact of foreign exchange rates more than offset the
favorable impact, in local currency, of higher sales and net income.
In 2016, our 50% interest in the McCormick de Mexico joint ven-
ture represented 57% of the sales and 83% of the income of our
unconsolidated operations. We own 50% of most of our other
unconsolidated joint ventures.
In 2017, we expect income from unconsolidated operations to be
comparable to 2016, mainly due to the continued unfavorable impact
of foreign exchange rates on McCormick de Mexico.
We reported diluted earnings per share of $3.69 in 2016, compared
to $3.11 in 2015. The table below outlines the major components of
the change in diluted earnings per share from 2015 to 2016. The
increase in adjusted operating income in the table below includes
the impact from unfavorable currency exchange rates in 2016.
2015 Earnings per share—diluted
Impact of decrease in special charges
Increase in adjusted operating income
Impact of lower shares outstanding
Increase in other income
Impact of change in effective income tax rate,
excluding taxes on special charges
Higher interest expense
2016 Earnings per share—diluted
$ 3.11
0.28
0.25
0.03
0.02
0.02
(0.02)
$ 3.69
We measure segment performance based on operating income exclud-
ing 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
2016
2015
$2,753.2
$2,635.2
4.5%
0.4%
1.7%
1.2%
3.5%
(1.9)%
3.8%
0.1%
1.4%
(4.9)%
Operating income, excluding special charges
(our measure of segment profit)
$ 490.8
$ 456.1
Operating income margin, excluding
special charges
17.8%
17.3%
We grew sales of our consumer segment by 4.5% as compared to
2015 and by 6.4% on a constant currency basis. Higher volume and
product mix added 1.7% to sales, and pricing actions, taken in
response to increased material costs, added 1.2%. The incremental
impact in 2016 of acquisitions completed in that year—mainly
Gourmet Garden—and two acquisitions completed in 2015—
Drogheria & Alimentari (D&A) and Stubb’s—added 3.5% to sales.
These factors offset an unfavorable impact from foreign currency
rates that reduced consumer segment sales by 1.9% compared to
2015 and is excluded from our measure of sales growth of 6.4%
on a constant currency basis.
In the Americas, consumer sales rose 5.8% in 2016 as compared to
2015 and rose by 6.3% on a constant currency basis. Higher volume
and product mix added 2.2% to sales, led by U.S. sales growth in
spices and seasonings and recipe mixes and driven by product innova-
tion, brand marketing, particularly in digital, and working with retailers
on in-store product assortment, pricing and promotion. Pricing actions
added 1.4% to sales and the incremental impact of acquisitions—
mainly Gourmet Garden and Stubb’s—added 2.7% to sales. These
factors offset an unfavorable impact of foreign currency that reduced
sales by 0.5% compared to 2015 and is excluded from our measure
of sales growth of 6.3% on a constant currency basis.
In the EMEA region, consumer sales rose 2.4% in 2016 as compared
to 2015 and rose 6.9% on a constant currency basis. Volume and prod-
uct mix lowered sales by 0.4%, with growth in Poland and France off-
set by weakness in the U.K. The sales growth in Poland and France
was driven by product innovation, brand marketing and expanded dis-
tribution, while weakness in the U.K. related to a difficult retail envi-
ronment. Pricing added 1.5% to sales and the incremental impact of
acquisitions—mainly D&A—added 5.8% to sales. An unfavorable
impact from foreign currency rates reduced sales by 4.5% compared
to 2015 and is excluded from our measure of sales growth of 6.9% on
a constant currency basis.
In the Asia/Pacific region, consumer sales increased 1.5% as com-
pared to 2015 and increased 6.3% on a constant currency basis.
Higher volume and product mix added 2.2% to sales, with strong
results in both China and Australia. Volume and product mix in India
declined in 2016 compared to 2015, due in part to the discontinuation
of lower-margin bulk-packaged and broken rice product lines. Pricing
added 0.3% to sales and the incremental impact of acquisitions—
Gourmet Garden—added 3.8% to sales. These factors offset an unfa-
vorable impact from foreign currency exchange rates that decreased
sales by 4.8% compared to 2015 and is excluded from our measure of
sales growth of 6.3% on a constant currency basis.
We grew operating income, excluding special charges—our measure
of segment profit—for our consumer segment by $34.7 million, or
7.6%, in 2016 compared to 2015. The favorable impact of sales growth
and cost savings more than offset the unfavorable impact of higher
material costs and an increase in brand marketing. On a constant
currency basis, operating income, excluding special charges rose
8.7%. Excluding the impact of special charges, the consumer seg-
ment operating income margin rose by 50 basis points to 17.8% in
2016 from 17.3% in 2015.
Industrial Segment
Net sales
Percent growth
Components of percent growth in net sales—
increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
2016
2015
$1,658.3
$1,661.1
(0.2)%
2.7%
1.5%
2.0%
0.4%
(4.1)%
4.3%
2.6%
1.3%
(5.5)%
Operating income, excluding special charges
(our measure of segment profit)
Operating income margin, excluding
special charges
$ 166.2
$ 157.8
10.0%
9.5%
2016 Annual Report 33
Sales of our industrial business declined 0.2% as compared to 2015
but increased by 3.9% on a constant currency basis. Higher volume
and product mix added 1.5% to sales and pricing actions, taken in
response to increased material costs, added 2.0%. The incremental
impact on 2016 industrial sales of the Brand Aromatics acquisition
completed in 2015 added 0.4% to sales. These factors partially offset
an unfavorable impact from foreign currency rates that reduced indus-
trial segment sales by 4.1% compared to 2015 and is excluded from
our measure of sales growth of 3.9% on a constant currency basis.
In the Americas, industrial sales rose 1.7% in 2016 as compared to
2015 and rose 3.7% on a constant currency basis. Higher volume and
product mix added 1.4% to sales and included growth in sales of
branded foodservice products in the U.S. and snack seasonings in
the U.S. and Mexico. Pricing actions added 1.7% to sales and the
incremental impact of the Brand Aromatics acquisition added 0.6%
to sales. These factors offset an unfavorable impact from foreign
currency rates that reduced sales by 2.0% compared to 2015 and is
excluded from our measure of sales growth of 3.7% on a constant
currency basis.
In the EMEA region, industrial sales declined 6.4% in 2016 as com-
pared to 2015, but increased 4.8% on a constant currency basis.
Higher volume and product mix added 1.1% to sales and included
growth in sales to leading quick service restaurants in this region.
Pricing actions added 3.7% to sales. These factors partially offset
an unfavorable impact from foreign currency exchange rates that
decreased sales by 11.2% compared to 2015 and is excluded from
our measure of sales growth of 4.8% on a constant currency basis.
In the Asia/Pacific region, industrial sales declined 0.1% in 2016 as
compared to 2015, but increased by 3.8% on a constant currency
basis. Higher volume and product mix added 3.0% to sales and
included growth in sales to leading quick service restaurants sup-
plied from our facilities in both Australia and Southeast Asia that
offset weakness in China that resulted, in large part, from a decision
by a large customer to add a secondary supply source. Pricing
actions added 0.8% to sales. These factors partially offset an unfa-
vorable impact from foreign currency exchange rates that reduced
sales by 3.9% compared to 2015 and is excluded from our measure
of sales growth of 3.8% on a constant currency basis.
We grew operating income, excluding special charges—our mea-
sure of segment profit—for our industrial segment by $8.4 million,
or 5.3%, in 2016 compared to 2015. The favorable impact of sales
growth and cost savings more than offset the unfavorable impact
of higher material costs. On a constant currency basis, operating
income, excluding special charges rose 11.6%. Excluding the impact
of special charges, the industrial segment operating income margin
rose by 50 basis points to 10.0% in 2016 from 9.5% in 2015 and
included the impact of our efforts to shift our business mix to more
value-added products through innovation and acquisitions.
RESULTS OF OPERATIONS—2015 COMPARED TO 2014
Sales for the fiscal year 2015 increased by 1.3% from 2014 and by
6.4% on a constant currency basis, 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 pack-
aging costs, added 1.1% to sales. The incremental impact of the three
acquisitions completed in 2015—Brand Aromatics, Drogheria &
Alimentari (D&A) and Stubb’s—added 1.4% to sales. These factors
offset an unfavorable impact from foreign currency rates that reduced
2015 sales compared to 2014 by 5.1% and is excluded from our
measure of sales growth on a constant currency basis.
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 finan-
cial 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.
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 mil-
lion. 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
Net sales
Percent growth
Components of percent growth in net sales—
increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
34 McCormick & Company
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)%
Special charges of $65.5 million were recorded in 2015 and $5.2 mil-
lion in 2014 to enable us to implement changes to our organization
structure to reduce fixed costs, simplify or improve processes and
improve our competitiveness. Of the $65.5 million of special charges
recorded in 2015, $4.0 million were recorded in cost of goods sold.
Of that $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
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. con-
sumer and industrial businesses, and $0.7 million related to the elimi-
nation 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.
2015
2014
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 includes 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
Income from consolidated operations
before income taxes
Income taxes
Effective tax rate
$496.2
131.3
26.5%
$554.4
145.9
26.3%
Net sales
Percent growth
Components of percent growth in net sales—
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 million in
2014 to $19.1 million in 2015. Both 2015 and 2014 included reversals
of reserves for unrecognized tax benefits, net of additional taxes pro-
vided, 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 legis-
lation 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 earnings in 2015, as com-
pared to the prior year, resulted from the higher percentage of U.S.
pre-tax earnings in 2015 that are taxed at a federal 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.
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 unfa-
vorable 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 represented 60%
of the sales and 89% of the income of our unconsolidated operations.
We own 50% of most of our other unconsolidated joint ventures.
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
increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
Operating income, excluding special
charges (our measure of segment profit)
Operating income margin, excluding
special charges
17.3%
18.1%
Sales of our consumer segment increased 0.4% as compared to 2014
and increased 5.3% on a constant currency basis. Higher volume and
product mix added 3.8% to consumer sales and higher pricing related
to material cost changes added 0.1%. Our acquisitions of D&A and
Stubb’s, during the second and third quarters, respectively, added
1.4% to sales in 2015. These factors offset an unfavorable impact
from foreign currency exchange rates that reduced consumer sales
by 4.9% compared to 2014 and is excluded from our measure of
sales growth of 5.3% on a constant currency basis.
In the Americas, consumer sales rose 1.8% in 2015 as compared to
2014 and rose 3.2% on a constant currency basis. Higher volume and
product mix increased sales by 2.4% and pricing added 0.5%. Higher
volume and product mix was led by U.S. sales growth in spices and
seasonings and recipe mixes. This is an improvement over the 2014
sales results and was driven by product innovation, brand marketing,
particularly in digital, and our work 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. These factors
offset an unfavorable impact from foreign currency exchange rates
that decreased sales by 1.4% from the 2014 level and is excluded
from our measure of sales growth on a constant currency basis.
In the EMEA region, consumer sales decreased 5.0% as compared to
2014, but increased by 10.3% on a constant currency basis. Higher
volume and product mix increased sales by 4.7% as compared to
2014 and higher pricing added 0.3%. The acquisition of D&A, which
2016 Annual Report 35
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. These factors partially offset an unfavor-
able impact from foreign currency exchange rates that reduced sales
by 15.3% compared to 2014 and is excluded from our measure of
sales growth on a constant currency basis.
led by sales of snack seasonings in both the U.S. and Mexico, as
well as branded foodservice products in the U.S. The acquisition of
Brand Aromatics added 2.0% to industrial sales in the Americas in
2015. These factors offset an unfavorable impact from foreign cur-
rency exchange rates that reduced sales by 3.2% as compared to
2014 and is excluded from our measure of sales growth on a constant
currency basis.
In the Asia/Pacific region, consumer sales increased 2.6% as com-
pared to 2014 and increased by 6.6% on a constant currency basis.
Higher volume and product mix increased sales by 8.3% as com-
pared to 2014 but were partly offset by a 1.7% reduction from pric-
ing. In 2015, sales in China 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 bro-
ken rice product lines, as well as lower pricing on basmati rice.
The net effect of these factors offset an unfavorable impact from
foreign currency exchange rates that reduced sales by 4.0% com-
pared to 2014 and is excluded from our measure of sales growth
on a constant currency basis.
Operating income, excluding special charges—our measure of seg-
ment profit—for our consumer segment decreased $18.2 million, or
3.8%, compared to 2014. On a constant 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 ben-
efit 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 change in net sales—
increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
Operating income, excluding special
charges (our measure of segment profit)
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% in 2015 as com-
pared to 2014 and increased by 8.2% on a constant currency basis.
Higher volume and product mix added 4.3% to sales as compared to
2014 and higher pricing related to material cost changes added 2.6%.
Our acquisition of Brand Aromatics in March 2015 added 1.3% to
sales. These factors offset an unfavorable impact from foreign cur-
rency exchange rates which reduced sales by 5.5% from the 2014
level and is excluded from our measure of sales growth on a constant
currency basis.
In the Americas, industrial sales rose 3.2% as compared to 2014 and
increased by 6.4% on a constant currency basis. Higher volume and
product mix increased sales by 1.3% compared to 2014 and higher
pricing increased sales by 3.1%. Higher volume and product mix was
36 McCormick & Company
In the EMEA region, industrial sales increased by 0.8% as compared
to 2014 and increased by 12.6% on a constant currency basis. Sales
in 2015 reflected an increase of 10.4% attributable to higher volume
and product mix and 2.2% from higher pricing. The strong sales
performance reflected our support for the growth and geographic
expansion of leading quick service restaurants and food manufactur-
ers in this region. These factors offset an unfavorable impact from
foreign currency exchange rates that decreased sales by 11.8% from
the 2014 level and is excluded from our measure of sales growth on
a constant currency basis.
In the Asia/Pacific region, industrial sales increased 2.9% as com-
pared to 2014 and increased by 10.2% on a constant currency basis.
Higher volume and product mix increased sales by 9.9% as com-
pared to the prior year and higher pricing increased sales by 0.3%.
In 2015, we increased sales to quick service restaurant customers in
China and other markets across this region. These factors offset an
unfavorable impact from foreign currency exchange rates that
decreased sales by 7.3% as compared to 2014 and is excluded from
our measure of sales growth on a constant currency basis.
Operating income, excluding special charges—our measure of seg-
ment profit—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.
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 2016, 2015 and 2014. These repre-
sent non-GAAP financial measures, which are prepared as a comple-
ment to our financial results prepared in accordance with United
States generally accepted accounting principles. In our consolidated
income statement, we include a separate line item captioned
“special charges” in arriving at our consolidated operating income.
Additionally, we recorded $0.3 million and $4.0 million in cost of
goods sold in our income statements for 2016 and 2015, respectively,
which we classified as special charges.
Special charges consist of expenses, including related impairment
charges, associated with certain actions undertaken by the company
to reduce fixed costs, simplify or improve processes, and improve
our competitiveness and are of such significance in terms of both
up-front costs and organizational/structural impact to require
advance approval by our Management Committee, comprised of our
President and Chief Executive Officer; Executive Vice President and
Chief Financial Officer; President Global Industrial and McCormick
International; President Global Consumer and North America; and
Senior Vice President, Human Relations. Upon presentation 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 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
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.
Certain ancillary expenses related to these actions approved by our
Management Committee do not qualify for accrual upon approval
but are included as special charges as incurred during the course
of the action. 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 to
investors. The exclusion of special charges provides additional infor-
mation that enables enhanced comparisons to prior periods and,
accordingly, facilitates the development of future projections and
earnings growth prospects. This information is also used by manage-
ment to measure the profitability of our ongoing operations and
analyze our business performance and trends.
These non-GAAP measures may be considered in addition to results
prepared in accordance with GAAP, but they should not be consid-
ered a substitute for, or superior to, GAAP results. In addition, these
non-GAAP financial measures may not be comparable to similarly
titled measures of other companies because other companies may
not calculate them in the same manner as we do. We intend to con-
tinue to provide these non-GAAP financial measures as part of our
future earnings discussions where applicable and, therefore, the
inclusion of these non-GAAP financial measures will provide consis-
tency in our financial reporting. A reconciliation of these non-GAAP
measures to GAAP financial results is provided below (in millions,
except per share data):
Operating income
Impact of special charges included in cost of goods sold
Impact of other special charges
Total special charges
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
% (decrease) increase versus prior year
Net income
Impact of total special charges (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
Impact of special charges attributable to non-controlling interests
Adjusted earnings per share—diluted
% increase versus prior year
2016
$641.0
0.3
15.7
16.0
$657.0
2015
$ 548.4
4.0
61.5
65.5
$ 613.9
2014
$ 603.0
—
5.2
5.2
$ 608.2
7.0%
0.9%
2.9%
$ 36.1
(1.9)
$ 34.2
$ 36.7
(2.0)
$ 34.7
$ 29.4
—
$ 29.4
(1.4)%
18.0%
26.7%
$ 472.3
13.0
(1.9)
$ 483.4
$ 401.6
49.9
(2.0)
$ 449.5
$ 437.9
3.7
—
$ 441.6
7.5%
1.8%
5.6%
$ 3.69
0.10
(0.01)
$ 3.78
$ 3.11
0.38
(0.01)
$ 3.48
$ 3.34
0.03
—
$ 3.37
8.6%
3.3%
7.7%
(1) In 2016, represents the portion of the total special charge of $2.8 million, associated with our exit of a consolidated joint venture in South Africa, attributable to our former joint
venture partner. In 2015, 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 $16.0 million for 2016, $65.5 million for 2015 and $5.2 million for 2014 are net of taxes of $3.0 million, $15.6 million and $1.5 million, respectively.
Because we are a multi-national company, we are subject to variability
of our reported U.S. dollar results due to changes in foreign currency
exchange rates. Those changes have been volatile over the past sev-
eral years. The exclusion of the effects of foreign currency exchange,
or what we refer to as amounts expressed “on a constant currency
basis,” is a non-GAAP measure. We believe that this non-GAAP mea-
sure provides additional information that enables enhanced compari-
son to prior periods excluding the translation effects of changes in
rates of foreign currency exchange and provides additional insight into
the underlying performance of our operations located outside of the
U.S. It should be noted that our presentation herein of amounts and
percentage changes on a constant currency basis does not exclude the
impact of foreign currency transaction gains and losses (that is, the
impact of transactions denominated in other than the local currency of
any of our subsidiaries in their local currency reported results).
2016 Annual Report 37
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 for-
eign currency exchange rate between the current year and the prior
fiscal year. The tables set forth below present our growth in net sales
and adjusted operating income on a constant currency basis as
follows: (1) to present our growth in net sales and adjusted operating
income for 2016 on a constant currency basis, net sales and adjusted
operating income for 2016 for entities reporting in currencies other
than the U.S. dollar have been translated using the average foreign
exchange rates in effect for 2015 and compared to the reported
results for 2015; and (2) to present our growth in net sales and
adjusted operating income for 2015 on a constant currency basis, net
sales and operating income for 2015 for entities reporting in curren-
cies other than the U.S. dollar have been translated using the average
foreign exchange rates in effect for 2014 and compared to the
reported results for 2014.
For the year ended November 30, 2016
Percentage
change as
reported
Impact of
foreign
currency
exchange
Percentage
change on
constant
currency basis
5.8%
2.4%
1.5%
4.5%
1.7%
(6.4)%
(0.1)%
(0.2)%
2.7%
7.6%
5.3%
7.0%
(0.5)%
(4.5)%
(4.8)%
(1.9)%
(2.0)%
(11.2)%
(3.9)%
(4.1)%
(2.8)%
(1.1)%
(6.3)%
(2.4)%
6.3%
6.9%
6.3%
6.4%
3.7%
4.8%
3.8%
3.9%
5.5%
8.7%
11.6%
9.4%
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%
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
38 McCormick & Company
In addition to the above non-GAAP measures, we use total debt
to earnings before interest, tax, depreciation and amortization
(EBITDA) as a measure of leverage. We define EBITDA as net
income plus expenses of interest, income taxes, depreciation and
amortization. EBITDA and the ratio of total debt to EBITDA are both
non-GAAP financial measures. This ratio measures our ability to
repay outstanding debt obligations. Our target for total debt to
EBITDA is 1.5 to 1.8. Our total debt to EBITDA can be temporarily
impacted by our acquisition activity. We believe that total debt to
EBITDA is a meaningful metric to investors in evaluating our finan-
cial leverage and may be different than the method used by other
companies to calculate total debt to EBITDA.
The following table reconciles our EBITDA to our net income:
Net income
Depreciation and amortization
Interest expense
Income tax expense
EBITDA
Total debt
2016
2015
2014
$ 472.3
108.7
56.0
153.0
$ 401.6
105.9
53.3
131.3
$ 437.9
102.7
49.7
145.9
$ 790.0
$ 692.1
$ 736.2
$ 1,447.2
$ 1,394.4
$ 1,283.9
Total debt/EBITDA
1.83
2.01
1.74
LIQUIDITY AND FINANCIAL CONDITION
2016
2015
2014
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
$ 658.1
(267.1)
(371.5)
$ 590.0
(338.9)
(199.6)
$ 503.6
(131.6)
(348.9)
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 2017, 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
presented in the balance sheet.
The reported values of our assets and liabilities held in our non-U.S.
subsidiaries and affiliates can be significantly affected by fluctuations
in foreign exchange rates between periods. At November 30, 2016,
the exchange rates for the British pound sterling, Canadian dollar,
Polish zloty and Chinese renminbi were lower versus the U.S. dollar
than at November 30, 2015. At November 30, 2016, the exchange
rate for the Australian dollar was higher versus the U.S. dollar than
at November 30, 2015. At November 30, 2016, the exchange rate for
the Euro versus the U.S. dollar approximated the comparable rate at
November 30, 2015.
Operating Cash Flow—Operating cash flow was $658.1 million in 2016,
$590.0 million in 2015 and $503.6 million in 2014. The improvement
in cash flow from operations in 2016 compared to 2015 is predomi-
nantly due to higher net income, resulting principally from higher
sales and gross profit, a decrease in cash payments related to special
charges and the impact of higher employee benefit accruals. The
improvement in cash flow from operations in 2015 compared to 2014
is primarily attributable to improvements in the three main compo-
nents of working capital (trade accounts receivable, inventories
and accounts payable). The change in trade accounts receivable has
varied in the last three years, as it was a use of cash in 2016, a
source of cash in 2015 and a use of cash in 2014. While the change
in inventory also had an impact on the variability in cash flow from
operations, it was a less significant use of cash in 2015 when com-
pared to 2016 and 2014. The change in accounts payable was a signif-
icant source of cash in 2016 and 2015, compared to a moderate use
of cash in 2014. Dividends received from unconsolidated affiliates
were higher in 2016 and 2015 when compared to 2014, contributing
to the increased cash flow from operations in 2016 and 2015.
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 outstanding (average trade accounts payable
divided by average daily cost of goods sold plus the average
daily change in inventory).
The following table outlines our cash conversion cycle (in days) over
the last three years:
Cash Conversion Cycle
2016
88.5
2015
90.2
2014
91.4
The decrease in CCC in 2016 from 2015 is mainly due to an increase
in our days payable outstanding as a result of extending our pay-
ment terms to suppliers. 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 large customer.
Investing Cash Flow—Net cash used in investing activities was
$267.1 million in 2016, $338.9 million in 2015 and $131.6 million in
2014. The variability between years is principally a result of cash
usage related to our acquisitions of businesses, which amounted to
$120.6 million in 2016 and $210.9 million in 2015. We did not make
any acquisitions in 2014. See note 2 of the financial statements for
further details related to the 2016 and 2015 acquisitions. Capital
expenditures were $153.8 million in 2016, $128.4 million in 2015
and $132.7 million in 2014. We expect 2017 capital expenditures to
range between $170 million and $190 million to support our growth.
Financing Cash Flow—Net cash used in financing activities was
$371.5 million in 2016, $199.6 million in 2015 and $348.9 million in
2014. The variability between years is principally a result of share
repurchase activity, described below, and of changes in our net bor-
rowings. In 2016, 2015 and 2014, our net borrowing activity provided
cash of $55.7 million, $118.0 million and $56.1 million, respectively.
2016 Annual Report 39
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 2015. In 2016, proceeds from short-
term borrowings were used to pay off $200 million of 5.20% notes
that matured in December 2015 and for general corporate purposes.
The following table outlines the activity in our share repurchase
programs:
Number of shares of common stock
Dollar amount
2016
2.6
$242.7
2015
2014
1.9
$145.8
3.6
$244.3
As of November 30, 2016, $327 million remained of a $600 million
share repurchase program that was authorized by our Board of
Directors in March 2015.
The common stock issued in 2016, 2015 and 2014 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
2016
2015
2014
$217.8
1.72
7.5%
$204.9
1.60
8.1%
$192.4
1.48
8.8%
In November 2016, the Board of Directors approved a 9.3% increase
in the quarterly dividend from $0.43 to $0.47 per share.
Total debt/EBITDA
2016
1.83
2015
2.01
2014
1.74
The decrease in our total debt to EBITDA from 2015 to 2016 is due to
higher net income. EBITDA used in the 2016 calculation is $97.9 mil-
lion higher than the EBITDA used in the 2015 calculation. EBITDA for
2015 was lower, in part, due to the impact of a higher level of special
charges. The increase in our total debt to 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, combined with
the lower EBITDA for 2015. Special charges were $16.0 million, $65.5
million and $5.2 million for 2016, 2015 and 2014, respectively. Those
special charges reduced EBITDA and, accordingly, increased the
ratios of total debt to EBITDA for 2016, 2015 and 2014 shown in the
preceding table by 0.03, 0.16 and 0.01, respectively.
Most of our cash is in our foreign subsidiaries. We manage our world-
wide 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 per-
manent 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 acquisitions. At November 30,
2016, we temporarily used $218.9 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,
2016 and 2015 were $603.8 million and $546.0 million, respectively.
The total average debt outstanding for the years ended November 30,
2016 and 2015 was $1,658.8 million and $1,571.9 million, respectively.
40 McCormick & Company
See notes 6 and 7 of the financial statements for further details of
these transactions.
Credit and Capital Markets—The following summarizes the more
significant impacts of credit and capital markets on our business:
CREDIT FACILITIES—Cash flows from operating activities are our
primary source of liquidity for funding growth, 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%. We gen-
erally 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 capi-
tal. In addition to our committed revolving credit facility, we have
uncommitted credit facilities for $182.8 million as of November 30,
2016 that will expire in 2017. We engage in regular communication
with all of the banks participating 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, consider-
ing the stability of the institutions and other aspects of the relation-
ships. Based on these communications and our monitoring activities,
we believe our banks will perform on their commitments. See also
note 6 of the financial statements for more details on our financing
arrangements. We believe that our internally generated funds and
the existing sources of liquidity under our credit facilities are
sufficient to fund ongoing operations.
PENSION ASSETS 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 pension plans, includ-
ing unfunded plans, were $25.1 million in 2016, $15.7 million in 2015
and $16.8 million in 2014. It is expected that the 2017 total pension
plan contributions will be approximately $13 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 qualified defined benefit pension plans,
approximately 65% of assets are invested in equities, 26% in fixed
income investments and 9% 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 equi-
ties and 50% in fixed income investments. 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.
On December 15, 2016 (after our fiscal year end), we purchased 100%
of the shares of Enrico Giotti SpA (Giotti), a leading European flavor
manufacturer located in Italy for a cash payment of $125.5 million,
subject to certain post-closing adjustments. The acquisition was
funded with cash and short-term borrowings. Giotti is well known in
the industry for its innovative beverage, sweet, savory and dairy flavor
applications. Our acquisition of Giotti in fiscal 2017 expands the
breadth of value-added products for McCormick’s industrial segment,
including additional expertise in flavoring health and nutrition products.
In fiscal year 2016, we made the following acquisitions:
• On April 19, 2016, we completed the purchase of 100% of the
shares of Botanical Food Company, Pty Ltd, owner of the Gourmet
Garden brand of packaged herbs (Gourmet Garden), a privately
held company based in Australia. Gourmet Garden is a global mar-
ket leader in chilled convenient packaged herbs. Gourmet Garden’s
products complement our existing branded herb portfolio with the
addition of chilled convenient herbs located in the perimeter of the
grocery store. We plan to drive sales of the Gourmet Garden brand
by expanding global distribution and building awareness with
increased brand investment. The purchase price was $116.2 mil-
lion, net of cash acquired of $3.3 million, and was financed with a
combination of cash and short-term borrowings. Gourmet Garden
has been included in our consumer segment since its acquisition.
While this business has an industrial component, the industrial
component is not currently material to its overall business.
• On September 1, 2016, we acquired the Cajun Injector business for
$4.4 million. Cajun Injector has been included in our consumer
segment since its acquisition.
In fiscal year 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 expanded 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 D&A, a privately held com-
pany based in Italy, and a leader of the spice and seasoning cate-
gory 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 potential 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 seg-
ment 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 a leading
premium barbeque sauce brand in the U.S. In addition to sauces,
Stubb’s products include marinades, rubs and skillet sauces. Its
addition expanded the breadth of value-added products in our con-
sumer 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 borrowings. Stubb’s has been
included in our consumer segment since its acquisition.
See notes 2 and 19 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 11/30/11 in stock or index, including reinvestment of dividends.
Fiscal year ending November 30.
Copyright© 2016 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.
2016 Annual Report 41
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 effects of foreign currency on loans between sub-
sidiaries and unconsolidated affiliates and on cash flows related
to repatriation of earnings of unconsolidated affiliates. 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 and Thai baht, as well as the Euro
versus the British pound sterling, Australian dollar and Swiss franc.
We routinely enter into foreign currency exchange contracts to man-
age certain of these foreign currency risks.
During 2016, 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, Mexico, Canada and Australia. We did not hedge our
net investments in subsidiaries and unconsolidated affiliates.
The following table summarizes the foreign currency exchange con-
tracts held at November 30, 2016. All contracts are valued in U.S.
dollars using year-end 2016 exchange rates and have been desig-
nated as hedges of foreign currency transactional exposures, firm
commitments or anticipated transactions.
FOREIGN CURRENCY EXCHANGE CONTRACTS AT
NOVEMBER 30, 2016
Currency sold
Currency received
Average
contractual
exchange
rate
Notional
value
Euro
British pound sterling
Canadian dollar
Australian dollar
Polish zloty
Australian dollar
Swiss franc
U.S. dollar
U.S. dollar
U.S. dollar
Mexican peso
U.S. dollar
U.S. dollar
U.S. dollar
U.S. dollar
U.S. dollar
Euro
Euro
Canadian dollar
Australian dollar
British pound sterling
U.S. dollar
$16.3
30.2
40.1
3.6
16.5
45.3
65.0
59.6
79.8
49.9
19.5
1.13
1.27
0.77
0.75
3.85
1.53
1.09
0.74
0.75
1.24
21.02
Fair
value
$ 0.9
0.3
1.3
0.1
1.4
(2.4)
(1.2)
0.2
(0.9)
0.3
(0.1)
We had a number of smaller contracts at November 30, 2016 with an aggregate
notional value of $23.4 million to purchase or sell other currencies, such as the Swiss
franc and the Thai baht. The aggregate fair value of these contracts was $(0.4) million
at November 30, 2016.
Included in the table are $189.4 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, 2015, we had foreign currency exchange contracts for the Euro, British
pound sterling, Canadian dollar, Australian dollar and Polish zloty with a notional value of
$264.5 million, all of which matured in 2016. The aggregate fair value of these
contracts was $2.7 million at November 30, 2015.
Interest Rate Risk—Our policy is to manage interest rate risk by entering into both fixed and variable rate debt arrangements. We also use interest
rate swaps to minimize worldwide financing costs and to achieve a desired mix of fixed and variable rate debt. The table that follows provides
principal cash flows and related interest rates, excluding the effect of interest rate swaps and the amortization of any discounts or fees, by fiscal
year of maturity at November 30, 2016. For foreign currency-denominated debt, the information is presented in U.S. dollar equivalents. Variable
interest rates are based on the weighted-average rates of the portfolio at the end of the year presented.
YEAR OF MATURITY AT NOVEMBER 30, 2016
Debt
Fixed rate
Average interest rate
Variable rate
Average interest rate
2017
2018
2019
2020
Thereafter
Total
Fair value
$ 0.6
6.30%
$392.6
1.45%
$250.6
5.74%
$ —
—
$0.4
7.65%
$ —
—
$0.2
10.39%
$812.0
3.86%
$ —
—
$ —
—
$ 1,063.8
—
$ 392.6
—
$1,116.0
—
$ 392.6
—
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:
• We issued $250 million of 5.75% notes due in December 2017 in December 2007. Forward treasury lock agreements settled upon issuance of these notes effectively set the interest
rate on these 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 settled upon issuance of these notes effectively set the interest rate on these
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 settled upon issuance of these notes effectively set the interest rate on these
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 settled upon issuance of these notes effectively set the interest rate on
these 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 was 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.
42 McCormick & Company
Commodity Risk—We purchase certain raw materials which are sub-
ject to price volatility caused by weather, market conditions, growing
and harvesting conditions, governmental actions and other factors
beyond our control. In 2016, our most significant raw materials were
pepper, dairy products, capsicums (red peppers and paprika), garlic,
onion, rice, wheat flour and vanilla. While future movements of raw
material costs are uncertain, we respond to this volatility in a num-
ber 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 recognizes
trade receivables at realizable value. We consider nonperformance
credit risk for other financial instruments to be insignificant.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL
COMMITMENTS
The following table reflects a summary of our contractual obligations
and commercial commitments as of November 30, 2016:
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
$ 390.3
1,066.1
108.7
233.2
Less than
1 year
1–3
years
3–5
years
More than
5 years
$390.3
2.9
27.8
44.5
$ — $ — $ —
561.8
250.4
251.0
23.8
21.0
36.1
61.0
60.2
67.5
28.9
—
28.9
460.9
460.9
29.8
24.5
—
5.3
—
—
—
—
—
—
$ 2,317.9
$950.9
$388.8 $331.6
$646.6
(a) The contingent consideration liability outstanding as of November 30, 2016 rep-
resents 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 state-
ments, 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 indica-
tive 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.
The contractual cash obligations table above does not reflect any
estimated lease payment obligation with respect to a 15-year lease
for a headquarters building in Hunt Valley, Maryland, which was
entered into in July 2016. The lease, which is expected to commence
upon completion of building construction and fit-out, currently
scheduled for the second half of 2018, will require monthly lease
payments of approximately $0.9 million beginning six months after
lease commencement. That monthly lease payment is subject to
adjustment after an initial 60-month period and thereafter on an
annual basis as specified in the lease agreement. In addition, the
initial $0.9 million monthly lease payment is subject to an increase
in the event of agreed-upon changes to specifications related to the
headquarters building. See note 6 of the financial statements for
additional details.
Pension and postretirement funding can vary significantly each year
due to changes in legislation, our significant assumptions and invest-
ment return on plan assets. As a result, we have not presented
pension and postretirement funding in the table above.
COMMERCIAL COMMITMENTS EXPIRATION BY YEAR
Guarantees
Standby letters of credit
Total commercial
commitments
Less than
1 year
1–3
years
3–5
years
More than
5 years
$0.6
7.2
$— $—
—
—
$—
—
Total
$0.6
7.2
$7.8
$7.8
$— $—
$—
OFF-BALANCE SHEET ARRANGEMENTS
We had no off-balance sheet arrangements as of November 30,
2016 and 2015.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
New accounting pronouncements are issued periodically that affect
our current and future operations. See note 1 of the financial
statements for further details of these impacts.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
In preparing the financial statements, we are required to make 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 state-
ments, we make routine estimates and judgments in determining the
net realizable value of accounts receivable, inventory, fixed assets
and prepaid allowances. Our most critical accounting estimates and
assumptions are in the following areas:
2016 Annual Report 43
As of November 30, 2016, we had $312.2 million of brand name
assets and trademarks recorded in our balance sheet and none
of the balances exceed their calculated fair values. Excluding (i) the
Kohinoor brand name that was written down to its estimated fair
value in the third quarter of 2015, (ii) the brand names associated
with Brand Aromatics, D&A and Stubb’s that had their fair value
brand valuations finalized during fiscal 2016 and (iii) the Gourmet
Garden brand name preliminarily determined in fiscal 2016, the per-
centage excess of calculated fair value over book value of our major
brand names and trademarks is 40% or more as of November 30, 2016.
Below is a table which outlines the book value of our major brand
names and trademarks as of November 30, 2016:
Zatarain’s
Lawry’s
Kamis
Stubb’s
DaQiao/ChuShiLe
Gourmet Garden (a)
Simply Asia/Thai Kitchen
Drogheria & Alimentari
Kohinoor
Brand Aromatics
Other
Total
$106.4
48.0
30.0
27.1
25.3
19.7
18.4
12.1
8.1
4.2
12.9
$312.2
(a) Book value for the Gourmet Garden brand name as of November 30, 2016 is based
on a preliminary valuation and will be adjusted upon finalization of this valuation
in 2017.
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 esti-
mate 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 posi-
tions are appropriately supported, but tax authorities may challenge
certain positions. We evaluate our uncertain tax positions in accor-
dance with the U.S. GAAP guidance for uncertainty in income taxes.
We believe that our reserve for uncertain tax positions, including
related interest, is adequate. The amounts ultimately paid upon reso-
lution of audits could be materially different from the amounts previ-
ously included in our income tax expense and, therefore, 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.
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 volume
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 intan-
gible assets and conduct tests of impairment on an annual basis as
described below. We also test for impairment if events or circum-
stances indicate it is more likely than not that the fair value of a
reporting unit is below its carrying amount. We test indefinite-lived
intangible assets for impairment if events or changes in circumstances
indicate that the asset might be impaired.
Determining the fair value of a reporting unit or an indefinite-lived
purchased intangible asset is judgmental in nature and involves the
use of significant estimates and assumptions. These estimates and
assumptions include revenue growth rates and operating margins
used to calculate projected future cash flows, risk-adjusted discount
rates, assumed royalty rates, future economic and market conditions
and determination of appropriate market comparables. We base our
fair value estimates on assumptions we believe to be reasonable but
that are inherently uncertain. Actual future results may differ from
those estimates.
Goodwill Impairment
Our reporting units are the same as our operating segments. We cal-
culate fair value of a reporting unit by using a discounted cash flow
model. Our discounted cash flow model calculates fair value by pres-
ent valuing future expected cash flows of our reporting units using
our internal cost of capital as the discount rate. We then compare
this fair value to the carrying amount of the reporting unit, including
intangible assets and goodwill. If the carrying amount of the report-
ing unit exceeds the calculated fair value, then we would determine
the implied fair value of the reporting unit’s goodwill. An impairment
charge would be recognized to the extent the carrying amount of
goodwill exceeds the implied fair value. As of November 30, 2016,
we had $1,771.4 million of goodwill recorded in our balance sheet
($1,608.3 million in the consumer segment and $163.1 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.
44 McCormick & Company
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 2017 pension and postretirement benefit
expense by approximately $14 million. A 1% increase or decrease in
the expected return on plan assets would impact 2017 pension
expense by approximately $8 million.
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.
In 2014 the Society of Actuaries released a series of updated mortal-
ity tables resulting from studies they conducted that measured mor-
tality rates for various groups of individuals and mortality information
from the Social Security Administration. The updated mortality tables
released by the Society of Actuaries in 2014 reflected improved trends
in longevity, and therefore increased the estimate of benefits to be
received by plan participants. In 2015, the Society of Actuaries
released a series of updated mortality tables that reflected updated
Social Security Administration data and that reflected smaller
improvements in longevity than its 2014 mortality tables.
In determining the mortality assumptions for our U.S. defined bene-
fit pension and other postretirement benefit plans, we have consid-
ered the updated mortality tables issued by the Society of Actuaries
in 2014 and 2015, coupled with other mortality information from the
Social Security Administration and from our consulting actuaries
that we believe is more closely aligned with our industry and partic-
ipant mix to develop assumptions that we believe are most repre-
sentative of the characteristics of our participant populations. Our
use of these updated mortality assumptions increased pension and
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 determined that no
further change was required to our mortality assumptions 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
plans at November 30, 2015, we modified those mortality assump-
tions to reflect a headcount-weighted version of such assumptions
that we believe is most representative of the characteristics of our
other postretirement benefits population. The effect of this modifi-
cation decreased the benefit obligation for our U.S. other postre-
tirement benefit plan by approximately $1.7 million and had an
immaterial effect on our related 2016 expense. Based on our evalu-
ation as of November 30, 2016, in conjunction with advice from our
consulting actuaries, we have updated the mortality improvement
scale for our defined benefit pension and other postretirement bene-
fit plans to reflect actual data from the Social Security Administration
through 2013. The effect of this modification decreased the benefit
obligation for our U.S. defined benefit pension and other postretire-
ment benefit plans by approximately $2.6 million and will have an
immaterial effect on our related 2017 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.
2016 Annual Report 45
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF MANAGEMENT
We are responsible for the preparation and integrity of the consoli-
dated financial statements appearing in our Annual Report. The con-
solidated financial statements were prepared in conformity with
United States generally accepted accounting principles and include
amounts based on our estimates and judgments. All other financial
information in this report has been presented on a basis consistent
with the information included in the financial statements.
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
Sponsoring Organizations of the Treadway Commission (2013 frame-
work). This evaluation included review of the documentation of con-
trols, evaluation of the design effectiveness of controls, testing of
the operating effectiveness of controls and a conclusion on this eval-
uation. 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, 2016.
Our internal control over financial reporting as of November 30, 2016
has been audited by Ernst & Young LLP.
Lawrence E. Kurzius
President &
Chief Executive Officer
Michael R. Smith
Executive Vice President &
Chief Financial Officer
Christina M. McMullen
Vice President & Controller
Chief Accounting Officer
46 McCormick & Company
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, 2016, 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 maintaining
effective internal control over financial reporting, and for its assess-
ment of the effectiveness of internal control over financial reporting
included in the accompanying Report of Management. Our responsi-
bility is to express an opinion on the company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain rea-
sonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and performing such other proce-
dures 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
accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial state-
ments in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding pre-
vention or timely detection of unauthorized acquisition, use, or dis-
position 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, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consoli-
dated balance sheets of McCormick & Company, Incorporated as of
November 30, 2016 and 2015, 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, 2016 and our report dated
January 25, 2017 expressed an unqualified opinion thereon.
Baltimore, Maryland
January 25, 2017
2016 Annual Report 47
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, 2016 and
2015, 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, 2016. Our audits also included the financial statement
schedule listed in the Index at Item 15(2). These financial state-
ments and schedule are the responsibility of the Company’s manage-
ment. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain rea-
sonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the finan-
cial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
McCormick & Company, Incorporated at November 30, 2016 and
2015, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended November 30,
2016, in conformity with U.S. generally accepted accounting princi-
ples. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information
set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
McCormick & Company, Incorporated’s internal control over
financial reporting as of November 30, 2016, based on criteria
established in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) and our report dated January 25,
2017 expressed an unqualified opinion thereon.
Baltimore, Maryland
January 25, 2017
48 McCormick & Company
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
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 (loss) 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.
2016
$4,411.5
2,579.8
1,831.7
1,175.0
15.7
641.0
56.0
4.2
589.2
153.0
436.2
36.1
$ 472.3
$ 3.73
$ 3.69
2016
$ 472.3
(1.3)
(28.5)
(94.6)
4.1
8.9
(110.1)
$ 360.9
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)
$ 181.0
$ 254.2
2016 Annual Report 49
CONSOLIDATED BALANCE SHEETS
at November 30 (millions)
Assets
Cash and cash equivalents
Trade accounts receivable, less allowances of $4.2 for 2016 and $8.0 for 2015
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:
2016—11.4 shares, 2015—11.7 shares
Common stock non-voting, no par value; authorized 320.0 shares; issued and outstanding:
2016—113.9 shares, 2015—115.6 shares
Retained earnings
Accumulated other comprehensive loss
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
See Notes to Consolidated Financial Statements.
2016
2015
$ 118.4
465.2
756.3
81.9
1,421.8
669.4
1,771.4
424.9
348.4
$ 112.6
455.2
710.8
78.8
1,357.4
618.4
1,759.3
372.1
365.4
$4,635.9
$4,472.6
$ 390.3
2.9
450.8
578.7
1,422.7
1,054.0
521.1
2,997.8
$ 139.5
203.5
411.9
483.7
1,238.6
1,051.4
495.7
2,785.7
409.7
384.5
674.5
1,056.8
(514.4)
11.5
1,638.1
655.1
1,036.7
(406.1)
16.7
1,686.9
$4,635.9
$4,472.6
50 McCormick & Company
CONSOLIDATED CASH FLOW STATEMENTS
for the year ended November 30 (millions)
2016
2015
2014
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Stock-based compensation
Brand name impairment included in special charges
Special charges
Loss on sale of assets
Deferred income tax (benefit) expense
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
Proceeds from exit of consolidated joint venture (net of cash paid of $0.9)
Capital expenditures
Proceeds from sale of property, plant and equipment
Proceeds from corporate life insurance
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 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.
$ 472.3
$ 401.6
$ 437.9
108.7
25.6
—
7.2
1.5
(40.0)
(36.1)
(21.0)
(39.0)
47.0
94.5
37.4
658.1
(120.6)
4.2
(153.8)
1.7
1.4
(267.1)
251.7
6.0
(202.0)
33.3
(242.7)
(217.8)
(371.5)
(13.7)
5.8
112.6
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
$ 118.4
$ 112.6
$ 77.3
2016 Annual Report 51
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Accumulated
Other
Comprehensive
(Loss) Income
Non-controlling
Interests
Total
Shareholders’
Equity
Common
Stock
Shares
Common
Stock Non-
Voting
Shares
12.1
119.0
(0.2)
0.8
(0.7)
12.0
(3.5)
0.2
0.7
116.4
Common
Stock
Amount
Retained
Earnings
$ 970.4
$ 962.4
437.9
—
—
—
—
—
— (195.2)
—
(230.5)
—
—
18.2
(25.3)
40.3
—
$ 982.6
$ 995.6
401.6
—
—
—
—
—
— (208.2)
—
(139.3)
—
—
18.7
(16.2)
41.5
—
$ (0.3)
—
—
(185.7)
—
—
—
—
—
$(186.0)
—
—
(220.1)
—
—
—
—
—
$(406.1)
(1.8)
0.1
0.9
115.6
$1,039.6
$1,036.7
—
472.3
—
—
—
—
—
— (222.0)
—
—
—
—
—
25.6
(230.2)
(19.9)
—
38.9
—
—
—
(108.3)
—
—
—
—
—
—
—
(2.5)
0.1
0.7
(0.2)
0.8
(0.9)
11.7
(0.2)
0.6
(0.7)
11.4
$15.2
—
2.5
(0.5)
—
—
—
—
—
$17.2
—
0.5
(1.0)
—
—
—
—
—
$16.7
—
(1.3)
(1.8)
—
(0.6)
(1.5)
—
—
—
—
$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
—
$1,686.9
472.3
(1.3)
(110.1)
(222.0)
(0.6)
(1.5)
25.6
(250.1)
38.9
—
113.9
$1,084.2
$1,056.8
$(514.4)
$11.5
$1,638.1
(millions)
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
Net income
Net income attributable to non-controlling
interest
Other comprehensive income (loss), net of tax
Dividends
Dividends attributable to non-controlling interest
Exit from consolidated joint venture
Stock-based compensation
Shares purchased and retired
Shares issued, including tax benefit of $ 8.1
Equal exchange
Balance, November 30, 2016
See Notes to Consolidated Financial Statements.
52 McCormick & Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The financial statements include the accounts of our majority-owned
or controlled subsidiaries and affiliates. Intercompany transactions
have been eliminated. Investments in unconsolidated affiliates,
over which we exercise significant influence, but not control, are
accounted for by the equity method. Accordingly, our share of net
income or loss of unconsolidated affiliates is included in net income.
Foreign Currency Translation
For majority-owned or controlled subsidiaries and affiliates, if
located outside of the U.S., with functional currencies other than
the U.S. dollar, asset and liability accounts are translated at the
rates of exchange at the balance sheet date and the resultant trans-
lation adjustments are included in accumulated other comprehensive
income (loss), a separate component of shareholders’ equity. Income
and expense items are translated at average monthly rates of
exchange. Gains and losses from foreign currency transactions of
these majority-owned or controlled subsidiaries and affiliates—that
is, transactions denominated in other than the functional currency—
are included in net earnings.
Our unconsolidated affiliates located outside the U.S. generally use
their local currencies as their functional currencies. The asset and lia-
bility accounts of those unconsolidated affiliates are translated at the
rates of exchange at the balance sheet date, with the resultant trans-
lation 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 loss,” respec-
tively. 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.
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 meth-
ods for tax reporting. The estimated useful lives range from 20 to 50
years for buildings and 3 to 12 years for machinery, equipment and
computer software. Repairs and maintenance costs are expensed
as incurred.
We also capitalize costs of software developed or obtained for inter-
nal 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 $21.8 million of software development costs
during the year ended November 30, 2016, $9.4 million during the
year ended November 30, 2015 and $11.7 million during the year
ended November 30, 2014.
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 circumstances
indicate that the asset might be impaired. Separable intangible assets
that have finite useful lives are amortized over those lives.
Determining the fair value of a reporting unit or an indefinite-lived
purchased intangible asset is judgmental in nature and involves the
use of significant estimates and assumptions. These estimates and
assumptions include revenue growth rates and operating margins
used to calculate projected future cash flows, risk-adjusted discount
rates, assumed royalty rates, future economic and market conditions
and determination of appropriate market comparables. We base our
fair value estimates on assumptions we believe to be reasonable but
that are unpredictable and inherently uncertain. Actual future results
may differ from these estimates.
Goodwill Impairment
Our reporting units used to assess potential goodwill impairment are
the same as our business segments. We calculate fair value of a
reporting unit by using a discounted cash flow model and then com-
pare 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.
2016 Annual Report 53
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 carry-
ing amount of the indefinite-lived intangible asset exceeds its fair
value, an impairment charge would be recorded to the extent the
recorded indefinite-lived intangible asset exceeds the fair value.
Long-lived Fixed Asset Impairment
Fixed assets and amortizable intangible assets are reviewed for
impairment as events or changes in circumstances occur indicating
that the carrying value of the asset may not be recoverable. 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
collectability is reasonably assured. We reduce revenue for estimated
product returns, allowances and price discounts based on historical
experience and contractual terms.
Trade allowances, consisting primarily of customer pricing 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 $97.2 million, $95.8
million and $100.3 million for 2016, 2015 and 2014, respectively.
Research and Development
Research and development costs are expensed as incurred and are
included in selling, general and administrative expense in the income
statement. Research and development expense was $61.0 million,
$60.8 million and $62.0 million for 2016, 2015 and 2014, respectively.
Brand Marketing Support
Total brand marketing support costs, which are included in selling,
general and administrative expense in the income statement, were
$252.2 million, $240.6 million and $226.6 million for 2016, 2015 and
2014, respectively. Brand marketing support costs include advertis-
ing, promotions and customer trade funds used for cooperative
advertising. Promotion costs include public relations, shopper mar-
keting, 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
54 McCormick & Company
advertisement are expensed as incurred. Advertising expense was
$102.9 million, $106.8 million and $100.4 million for 2016, 2015 and
2014, 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 postretire-
ment 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.
Accounting Pronouncements Adopted in 2016
In August 2016, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update No. 2016-15 Statement of Cash
Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments. The standard is intended to eliminate diversity in practice in
how certain cash receipts and cash payments are presented and
classified in the statement of cash flows. The standard is effective
for the first quarter of our fiscal year ending November 30, 2019.
We have elected to early adopt ASU No. 2016-15, as permitted, as
of the year ended November 30, 2016. The adoption of this new
accounting pronouncement did not have a material impact on our
financial statements.
In November 2015, the 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 and is
effective for the first quarter of our fiscal year ending November 30,
2018. We have elected to early adopt ASU No. 2015-17, as permitted,
as of November 30, 2016, and have retrospectively reclassified all
deferred tax assets and liabilities as noncurrent in our accompanying
consolidated balance sheet as of November 30, 2015. The adoption
of this new accounting pronouncement did not have a material impact
on our financial 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 and is effective for the first quarter of our fiscal
year ending November 30, 2017. As described in note 2, we elected
to early adopt ASU No. 2015-16, as permitted, in fiscal year 2016
with the completion of our final valuation related to the purchase of
100% of the shares of One World Foods, Inc.
In April 2015, the FASB issued Accounting Standards Update No.
2015-03 Simplifying the Presentation of Debt Issuance Costs. This
guidance eliminates the pre-existing requirement to recognize debt
issuance 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. The new guidance is effective for the
first quarter of our fiscal year ending November 30, 2017. We have
elected to early adopt ASU No. 2015-03 as of November 30, 2016,
as permitted, and have retrospectively reclassified debt issuance
costs from investments and other assets to long-term debt in our
accompanying consolidated balance sheet as of November 30, 2015.
The adoption of this new accounting pronouncement did not have a
material impact on our financial statements.
Recently Issued Accounting Pronouncements—
Pending Adoption
In March 2016, the FASB issued Accounting Standards Update No.
2016-09 Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting, which changes the accounting for
certain aspects of share-based payments to employees. The new
guidance requires that excess tax benefits (which represent the
excess of actual tax benefits received at the date of vesting or set-
tlement over the benefits recognized over the vesting period or upon
issuance of share-based payments) and tax deficiencies (which rep-
resent the amount by which actual tax benefits received at the date
of vesting or settlement is lower than the benefits recognized over
the vesting period or upon issuance of share-based payments) be
recorded in the income statement as a reduction of income taxes
when the awards vest or are settled. The new guidance also
requires excess tax benefits to be classified as an operating activity
in the statement of cash flows rather than as a financing activity.
The new guidance is effective for the first quarter of our fiscal year
ending November 30, 2018. We expect to early adopt the new guid-
ance, as permitted, effective as of the first quarter of our fiscal year
ending November 30, 2017. We expect that the adoption of this
new guidance in fiscal 2017 will reduce our reported income taxes
and will increase cash flows from operating activities; however, the
amounts of that reduction/increase is dependent upon the underlying
vesting or exercise activity and related future stock prices.
In February 2016, the FASB issued Accounting Standards Update No.
2016-02 Leases (Topic 842). This guidance revises existing practice
related to accounting for leases under Accounting Standards
Codification Topic 840 Leases (ASC 840) for both lessees and les-
sors. Our leases as of November 30, 2016 principally relate to: (i)
certain real estate, including that related to a number of administra-
tive, distribution and manufacturing locations; (ii) certain machinery
and equipment, including a corporate airplane and automobiles; and
(iii) certain software. In addition, as of that date, we have entered
into a 15-year lease for a headquarters building, which is expected
to commence upon completion of building construction and fit-out,
currently scheduled for the second half of 2018. The new guidance in
ASU 2016-02 requires lessees to recognize a right-of-use asset and
a lease liability for virtually all of their leases (other than leases that
meet the definition of a short-term lease). The lease liability will be
equal to the present value of lease payments and the right-of-use
asset will be based on the lease liability, subject to adjustment such
as for initial direct costs. For income statement purposes, the new
standard retains a dual model similar to ASC 840, requiring leases to
be classified as either operating or finance. For lessees, operating
leases will result in straight-line expense (similar to current account-
ing by lessees for operating leases under ASC 840) while finance
leases will result in a front-loaded expense pattern (similar to cur-
rent accounting by lessees for capital leases under ASC 840). While
the new standard maintains similar accounting for lessors as under
ASC 840, the new standard reflects updates to, among other things,
align with certain changes to the lessee model. The new standard
will be effective for the first quarter of our fiscal year ending
November 30, 2020. Early adoption is permitted for all entities.
We have not yet determined the impact from adoption of this new
accounting pronouncement on our financial statements.
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.
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 guid-
ance 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 practi-
cal expedient. The proposed amendments will be applied retrospec-
tively for all periods presented, which requires that an investment
for which fair value is measured using the net asset value per share
practical expedient 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 end-
ing 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 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 (that is, annual reporting
periods beginning after December 15, 2016 or our fiscal year ending
November 30, 2018). We do not expect to early adopt this new
accounting pronouncement. In preparation for our adoption of the
new standard in our fiscal year ending November 30, 2019, we have
obtained representative samples of contracts and other forms of
2016 Annual Report 55
agreements with our customers in the U.S. and international loca-
tions and are evaluating the provisions contained therein in light of
the five-step model specified by the new guidance. That five-step
model includes: (1) determination of whether a contract—an agree-
ment between two or more parties that creates legally enforceable
rights and obligations—exists; (2) identification of the performance
obligations in the contract; (3) determination of the transaction price;
(4) allocation of the transaction price to the performance obligations
in the contract; and (5) recognition of revenue when (or as) the per-
formance obligation is satisfied. We are also evaluating the impact
of the new standard on certain common practices currently employed
by us and by other manufacturers of consumer products, such as
slotting fees, co-operative advertising, rebates and other pricing
allowances, merchandising funds and consumer coupons. We have
not yet determined the impact of the new standard on our financial
statements or whether we will adopt on a prospective or retrospective
basis in the first quarter of our fiscal year ending November 30, 2019.
2. ACQUISITIONS
Acquisitions are part of our strategy to increase sales and profits.
On April 19, 2016, we completed the purchase of 100% of the shares
of Botanical Food Company, Pty Ltd, owner of the Gourmet Garden
brand of packaged herbs (Gourmet Garden), a privately held company
based in Australia. Gourmet Garden is a global market leader in
chilled convenient packaged herbs. Gourmet Garden’s products
complement our existing branded herb portfolio with the addition
of chilled convenient herbs located in the perimeter of the grocery
store. We plan to drive sales of the Gourmet Garden brand by
expanding global distribution and building awareness with increased
brand investment. At the time of acquisition, annual sales of
Gourmet Garden were approximately 70 million Australian dollars.
The purchase price was $116.2 million, net of cash acquired of $3.3
million, and was financed with a combination of cash and short-term
borrowings. A preliminary valuation of the acquired net assets of
Gourmet Garden resulted in $20.4 million allocated to net tangible
assets acquired, $20.3 million allocated to indefinite-lived brand
asset, $14.2 million allocated to definite-lived intangible assets with
a weighted-average life of 12.0 years and $61.3 million allocated to
goodwill. Goodwill related to the Gourmet Garden acquisition, which is
not deductible for tax purposes, primarily represents the intangible
assets that do not qualify for separate recognition, such as the value
of leveraging our brand building expertise, our insights in demand
from consumers for herbs, and our supply chain capabilities, 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 per-
centages of purchase prices assigned to goodwill and other identifi-
able intangible assets, which we used to initially value the Gourmet
Garden acquisition. We expect to finalize the determination of the
fair value of the acquired net assets of Gourmet Garden in early 2017.
Gourmet Garden has been included in our consumer segment since
its acquisition. While this business has an industrial component, the
industrial component is not currently material to its overall business.
On September 1, 2016, we acquired a small niche business for
$4.4 million. That business, Cajun Injector, whose annual sales were
approximately $5 million at the time of acquisition, sells injectable
marinades, along with seasonings and fry mixes that feature
56 McCormick & Company
New Orleans flavors. Cajun Injector, which has been included in
our consumer segment since its acquisition, complements our
Zatarain’s brand.
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 a leading premium barbeque sauce brand
in the U.S. In addition to sauces, Stubb’s products include marinades,
rubs and skillet sauces. Its addition expanded the breadth of value-
added products in our consumer segment. At the time of acquisition,
annual sales of Stubb’s were approximately $30 million. The purchase
price for Stubb’s was $99.4 million, net of cash acquired of $0.8
million, and was financed with a combination of cash and short-term
borrowings. During 2016, we completed the final valuation of the
Stubb’s acquisition, which resulted in the following changes from
the preliminary valuation to the acquired assets and liabilities:
(i) the indefinite-lived brand asset increased by $13.8 million to $27.1
million; (ii) definite-lived intangible assets increased by $11.9 million
to $24.4 million (with a weighted average life of 13.9 years); (iii) tangi-
ble assets acquired increased by $0.3 million to $5.7 million; (iv) lia-
bilities assumed (including the deferred tax liabilities associated
with identified intangible assets) increased by $7.0 million to $19.4
million; and (v) goodwill decreased by $19.0 million to $61.6 million.
As a result of these changes in the final valuation, additional
amortization expense for definite-lived intangible assets of $0.9 mil-
lion was recorded for the year ended November 30, 2016. Goodwill
related to the Stubb’s acquisition, which is not deductible for tax
purposes, primarily represents the intangible assets that do not
qualify for separate recognition, such as the value of leveraging our
brand building expertise, our insights in demand from consumers for
unique and authentic barbeque and grilling flavors, and our supply
chain capabilities, as well as expected synergies from the combined
operations and assembled workforce. With the completion of the
final valuation of Stubb’s, we have elected to adopt ASU No. 2015-16,
which eliminates the requirement to retrospectively adjust the finan-
cial statements for measurement-period adjustments that occur in
periods after a business combination is consummated. Stubb’s has
been included in our consumer 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. This
acquisition complemented our strong brands and expanded our cur-
rent spice and seasoning leadership in Europe with a sizable foot-
print in Italy. The purchase price for D&A consisted of a cash
payment of $49.0 million, net of cash acquired of $2.8 million, and
was financed with a combination of cash and short-term borrowings.
In addition, the 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. 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. During 2016, we completed the final valu-
ation of the D&A acquisition, which resulted in $3.2 million allocated
to tangible net assets, $12.6 million allocated to indefinite-lived brand
assets, $19.8 million allocated to definite-lived intangible assets
with a weighted-average life of 13.8 years and $41.1 million allo-
cated to goodwill. Goodwill related to the D&A acquisition, which is
not deductible for tax purposes, 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 capabilities, as well as expected synergies from the
combined operations and assembled workforce. The completion of the
final valuation did not result in material changes to our consolidated
income statement or consolidated balance sheet from our preliminary
purchase price allocation. D&A has been included in our consumer
segment since its acquisition.
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 expanded the breadth of value-added products in our indus-
trial 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 valua-
tion of the Brand Aromatics acquisition, which resulted in $5.2 mil-
lion allocated to tangible net assets, $4.2 million allocated to a
brand name indefinite-lived intangible asset, $18.7 million allocated
to definite-lived intangible assets with a weighted average life of
11.9 years, and $34.3 million allocated to goodwill. Goodwill related
to the Brand Aromatics acquisition, which is deductible for tax pur-
poses, primarily represents the intangible assets that do not qualify
for separate recognition, such as the value of leveraging the cus-
tomer intimacy and value-added flavor solutions we provide to our
industrial customers to Brand Aromatics’ relationships with indus-
trial customers of their stocks, marinades and other savory flavors,
as well as from expected synergies 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 state-
ment or our consolidated balance sheet from our preliminary pur-
chase price allocation. Brand Aromatics has been included in our
industrial segment since its acquisition.
During the years ended November 30, 2016 and 2015, we recorded
$5.5 million and $3.6 million, respectively, in transaction-related
expenses associated with the above acquisitions (including, for 2016,
an acquisition completed subsequent to year end as described in
note 19) in selling, general and administrative expenses in our
consolidated income statement.
Since the dates of each acquisition in 2016, Gourmet Garden and
Cajun Injector added $40.0 million, in aggregate, to our sales for the
year ended November 30, 2016. Due to financing, acquisition and
integration costs, the aggregate operating income contribution of
Gourmet Garden and Cajun Injector was not significant to our overall
results for 2016. Pro forma financial information for our 2016 and
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 pro-
cesses, and improve our competitiveness and are of such significance
in terms of both up-front costs and organizational/structural impact
to require advance approval by our Management Committee, com-
prised of our senior management, including our President 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 bene-
fits, 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 operations;
expected timing; and expected savings) to the Management Com-
mittee and the Committee’s advance approval, expenses associated
with the approved action are classified as special charges upon
recognition and monitored on an ongoing basis through completion.
Certain ancillary expenses related to these actions approved by our
Management Committee do not qualify for accrual upon approval
but are included as special charges as incurred during the course
of the actions.
The following is a summary of special charges recognized in the
years ended November 30, 2016, 2015 and 2014 (in millions):
2016
2015
2014
Special charges included in cost of goods sold
Other special charges in the income statement (1)
$ 0.3
15.7
$ 4.0
61.5
Total special charges
$ 16.0
$ 65.5
$—
5.2
$5.2
(1) Included in special charges for 2016 are non-cash goodwill impairment charge of
$2.6 million recognized upon the exit of a consolidated joint venture. Included in
special charges for 2015 are non-cash brand impairment charges of $9.6 million and
non-cash fixed asset impairment charges of $1.1 million.
The following is a breakdown of special charges by business segments
in the years ended November 30, 2016, 2015 and 2014 (in millions):
Consumer segment
Industrial segment
Total special charges
2016
2015
2014
$ 9.2
6.8
$ 52.8
12.7
$ 16.0
$ 65.5
$3.7
1.5
$5.2
During 2016, we recorded $16.0 million of special charges, principally
consisting of: (i) $5.7 million related to additional organization and
streamlining actions associated with our Europe, Middle East, and
Africa (EMEA) region, which began in 2015 and are included in the
table below; (ii) $2.8 million associated with the exit from our con-
solidated joint venture in South Africa, which is described below;
(iii) $1.9 million for employees severance actions and other exit
costs related to the discontinuance of non-profitable product lines
of our Kohinoor business in India, which began in 2015 and is further
described below; (iv) $1.8 million associated with actions in connec-
tion with our planned exit of two leased manufacturing facilities in
2016 Annual Report 57
Singapore and Thailand, which are described below; and (v) $1.7 mil-
lion for employee severance actions and related costs associated
with our North American effectiveness initiative, which began in
2015 and are included in the table below. The remainder principally
relates to other streamlining actions in 2016, as approved by our
Management Committee, in our operations in North America, EMEA
and Asia/Pacific.
As approved by our Management Committee, we reached agreement
with our joint venture partner in South Africa to exit the consolidated
joint venture and recognized special charges of $2.8 million, princi-
pally related to the write-off of $2.6 million of goodwill upon the
receipt of regulatory approval to terminate the joint venture in the
fourth quarter of 2016. As part of the negotiated agreement related
to the exit, our former joint venture partner paid the joint venture
$5.1 million for inventory and fixed assets and the joint venture paid
$0.9 million to the former partner to settle their joint venture interest.
We will liquidate the remaining assets and liabilities of the now
wholly owned venture in 2017 and, upon liquidation, will write off
the foreign currency translation adjustment associated with this
entity, which is included as a component of accumulated other
comprehensive income. That amount, which totals $0.7 million at
November 30, 2016, will fluctuate in 2017 with changes in the value
of the South African rand versus the U.S. dollar and will be included
as special charges upon the entity’s liquidation.
In 2016, our Management Committee approved a plan to construct
a new manufacturing facility in Thailand for our Asia/Pacific region,
with anticipated completion in 2018. Upon completion of construc-
tion, we will exit two leased manufacturing facilities in Singapore
and Thailand. The $1.8 million of special charges recorded in 2016
principally relates to severance and other related costs associated
with employees located at the existing leased facility in Singapore.
We expect to record additional special charges related to this action
of approximately $2.2 million over the next two years associated
with other exit costs.
Of the $65.5 million of special charges recognized in 2015, $29.2 million
related to our North American effectiveness initiative, $24.4 million
related to streamlining actions in our EMEA region, and $14.2 million
related to our Kohinoor business 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 employ-
ees had 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. In 2016, we recorded an additional
58 McCormick & Company
$1.7 million associated with employee severance and related
expenses as part of our North American effectiveness initiative.
Our North American effectiveness initiative generated cost savings
of approximately $15 million in 2015 and full year annual cost sav-
ings of approximately $27 million in 2016. As of November 30, 2016,
our North American effectiveness initiative is effectively completed.
The following table outlines the major components of accrual bal-
ances and activity relating to the special charges associated with
our North American effectiveness initiative for the years ended
November 30, 2015 and 2016 (in millions):
Special charges
Cash paid
Balance as of November 30, 2015
Special charge
Cash paid
Employee
severance
and related
benefits
$ 26.9
(24.6)
2.3
1.7
(2.9)
Other
related
costs
$ 2.3
(2.3)
—
—
—
Total
$ 29.2
(26.9)
2.3
1.7
(2.9)
Balance as of November 30, 2016
$ 1.1
— $ 1.1
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 pro-
cesses, 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 2016,
we recorded $5.7 million of special charges, principally consisting of
other related costs, for EMEA reorganization and streamlining activi-
ties that began in 2015. We expect to record additional special charges
in 2017, of approximately $1.6 million for future actions approved
under these EMEA reorganization and streamlining initiatives that
began in 2015, which will be settled in cash and reflected in special
charges upon recognition in 2017. Related annual cost savings were
$7.5 million in 2016 and are projected to be approximately $13 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 initiated in 2015 (in millions):
Special charges
Cash paid
Impairment of fixed assets recorded
Impact of foreign exchange
Balance as of November 30, 2015
Special charges
Cash paid
Impact of foreign exchange
Employee
severance
and related
benefits
$21.5
(4.5)
—
(0.8)
16.2
1.2
(6.8)
(0.1)
Other
related
costs
$ 2.9
(1.3)
(1.1)
0.1
0.6
4.5
(4.6)
—
Total
$ 24.4
(5.8)
(1.1)
(0.7)
16.8
5.7
(11.4)
(0.1)
Balance as of November 30, 2016
$10.5
$ 0.5
$ 11.0
Also in 2015, we recorded a total of $14.2 million of special charges
related to initiatives to improve the profitability of our Kohinoor
consumer 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.
Due to 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 in 2015. 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
recorded a non-cash impairment charge of $9.6 million in 2015. The
remaining carrying value of our Kohinoor brand name as of November
30, 2016 is $8.1 million. In addition, as a result of the Kohinoor prod-
uct line discontinuance in 2015, we recognized a $4.0 million charge
in cost of goods sold, which represents a provision 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 inventories. We also
recorded $0.6 million of other exit costs associated with this plan of
which $0.4 million were paid in 2015 and the balance of $0.2 million
paid in 2016. In addition to the $14.2 million of special charges outlined
above and recorded in 2015, we recorded and paid $1.9 million of spe-
cial charges in 2016 consisting of costs associated with exiting certain
contractual arrangements to improve Kohinoor’s profitability and
other severance and related costs directly associated with the plan.
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 distrib-
utor 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 ser-
vice 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. In 2014, we recorded an addi-
tional $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. In 2015, we reversed $1.9 million of
these special charges due to attrition that rendered the severance
accruals unnecessary.
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, 2014, 2015 and 2016 (in millions):
Employee
severance
Other exit
costs
Balance as of November 30, 2014
Cash paid
Impact of foreign exchange
Reversal into income (special charges)
Balance as of November 30, 2015
Cash paid
Impact of foreign exchange
Balance as of November 30, 2016
$ 9.3
(3.5)
(1.6)
(1.9)
2.3
(1.8)
0.1
$ 0.6
$ 0.7
(0.6)
(0.1)
—
—
—
—
—
Total
$10.0
(4.1)
(1.7)
(1.9)
2.3
(1.8)
0.1
$ 0.6
In 2014, in addition to the $2.1 million of special charges recognized
related to the previously described 2013 EMEA reorganization, we
also undertook reorganization actions in our U.S. and Australian busi-
nesses in 2014 and recognized $3.1 million of special charges. Actions
associated with these U.S and Australian plans have been completed
as of 2016 and generated annual savings of $4.0 million.
As of November 30, 2016, reserves associated with special charges are
included in other accrued liabilities in our consolidated balance sheet.
4. GOODWILL AND INTANGIBLE ASSETS
The following table displays intangible assets as of November 30,
2016 and 2015:
2016
2015
Gross
carrying
amount
Accumulated
amortization
Gross
carrying
amount
Accumulated
amortization
(millions)
Finite-lived
intangible assets
$ 161.1
$48.4
$ 131.0
$40.1
Indefinite-lived
intangible assets:
Goodwill
Brand names and
trademarks
Total goodwill and
intangible assets
1,771.4
312.2
2,083.6
—
—
—
1,759.3
281.2
2,040.5
—
—
—
$ 2,244.7
$48.4
$ 2,171.5
$40.1
Intangible asset amortization expense was $11.3 million, $7.3 million
and $5.6 million for 2016, 2015 and 2014, respectively. At November
30, 2016, finite-lived intangible assets had a weighted-average
remaining life of approximately 11 years.
2016 Annual Report 59
The changes in the carrying amount of goodwill by segment for the
years ended November 30, 2016 and 2015 were as follows:
6. FINANCING ARRANGEMENTS
Our outstanding debt was as follows at November 30:
(millions)
Consumer
Industrial
Consumer
Industrial
2016
2015
Beginning of year
Changes in preliminary
purchase price
allocation
Increases in goodwill
from acquisitions
Decreases in goodwill
from exit of
consolidated joint
venture
Foreign currency
fluctuations
$1,587.7
$171.6
$1,581.1
$141.1
(23.2)
62.2
—
(18.4)
—
—
(2.6)
(5.9)
—
126.7
—
(120.1)
—
34.3
—
(3.8)
End of year
$1,608.3
$163.1
$1,587.7
$171.6
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
2016
$ 767.6
245.6
66.4
$ 315.6
113.0
146.2
9.1
2015
2014
$ 777.3
286.1
76.6
$ 326.0
114.6
161.5
8.1
$ 766.6
275.7
67.5
$ 320.1
123.6
137.2
6.3
Our share of undistributed earnings of unconsolidated affiliates was
$95.8 million at November 30, 2016. Royalty income from unconsoli-
dated affiliates was $16.1 million, $17.8 million and $18.7 million for
2016, 2015 and 2014, respectively.
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 83% of income from unconsolidated
operations in 2016, 89% in 2015 and 91% in 2014.
As of November 30, 2016, $102.3 million of our consolidated retained
earnings represents undistributed earnings of investments in
unconsolidated affiliates for which we have not provided deferred
income tax liabilities.
(millions)
Short-term borrowings
Commercial paper
Other
2016
2015
$ 356.9
33.4
$ 107.5
32.0
$ 390.3
$ 139.5
Weighted-average interest rate of short-term
borrowings at year-end
1.4%
2.2%
Long-term debt
5.20% notes due 12/15/2015
5.75% notes due 12/15/2017(1)
3.90% notes due 7/8/2021(2)
3.50% notes due 8/19/2023 (3)
3.25% notes due 11/15/2025 (4)
7.63%–8.12% notes due 2024
Other
Unamortized discounts, premiums, debt
$ —
250.0
250.0
250.0
250.0
55.0
11.1
$ 200.0
250.0
250.0
250.0
250.0
55.0
7.4
issuance costs and fair value adjustments
(9.2)
(7.5)
Less current portion
1,056.9
2.9
1,254.9
203.5
$ 1,054.0
$ 1,051.4
(1) Interest rate swaps, settled upon the issuance of these notes in 2007, effectively
set the interest rate on the $250 million notes at a weighted-average fixed rate
of 6.25%.
(2) Interest rate swaps, settled upon the issuance of these notes in 2011, effectively
set the interest rate on the $250 million notes at a weighted-average fixed rate
of 4.01%.
(3) Interest rate swaps, settled upon the issuance of these notes in 2013, effectively
set the interest rate on the $250 million notes at a weighted-average fixed rate
of 3.30%.
(4) Interest rate swaps, settled upon the issuance of these notes in 2015, effectively
set the interest rate on the $250 million notes at a weighted-average fixed rate of
3.45%. 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 payments are based on 3 month LIBOR plus 1.22% during this period (our
effective rate as of November 30, 2016 was 2.13%).
Maturities of long-term debt during the fiscal years subsequent to
November 30, 2015 are as follows (in millions):
2018
2019
2020
2021
Thereafter
$250.6
0.4
0.2
250.2
561.8
60 McCormick & Company
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 issuance were used to pay down short-term
borrowings and for general corporate purposes. In December of
2015, proceeds from short-term borrowings were used to pay off
$200 million of 5.20% notes that matured in that month.
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 supports our commercial paper program and, after
$356.9 million was used to support issued commercial paper, we
have $393.1 million of capacity at November 30, 2016. In addition,
we have several uncommitted lines totaling $182.8 million, which
have a total unused capacity at November 30, 2016 of $151.1 million.
These lines by their nature can be withdrawn based on the lenders’
discretion. Committed credit facilities require a fee, and annual
commitment fees were $0.5 million for 2016 and 2015.
Rental expense under operating leases (primarily buildings and
equipment) was $41.6 million in 2016, $39.0 million in 2015 and
$40.3 million in 2014. Future annual fixed rental payments (1) for the
years ending November 30 are as follows (in millions):
2017
2018
2019
2020
2021
Thereafter
$27.8
21.3
14.8
11.6
9.4
23.8
(1) In July 2016, we entered into a 15-year lease for a headquarters building in Hunt
Valley, Maryland. The lease, which is expected to commence upon completion of
building construction and fit-out, currently scheduled for the second half of 2018,
requires monthly lease payments of approximately $0.9 million beginning six
months after lease commencement. The $0.9 million monthly lease payment is
subject to adjustment after an initial 60-month period and thereafter on an annual
basis as specified in the lease agreement. In addition, the initial $0.9 million
monthly lease payment is subject to increase in the event of agreed-upon changes
to specifications related to the headquarters building. We expect to consolidate our
Corporate staff and certain non-manufacturing U.S. employees, currently housed in
four locations in the suburban Baltimore, Maryland area, to the new headquarters
building. Due to uncertainty as to the exact date when the lease will commence,
these lease payments are not reflected in the preceding table of annual fixed rental
payments for the years ending November 30, 2017 through 2021 and thereafter.
At November 30, 2016, we had guarantees outstanding of $0.6 mil-
lion with terms of one year or less. At November 30, 2016 and 2015,
we had outstanding letters of credit of $7.2 million and $8.6 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
$13.8 million at November 30, 2016.
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 deriv-
ative financial instruments is monitored through regular communica-
tion 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 for-
eign 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.
During fiscal year 2016, we entered into multiple fair value foreign
currency exchange contracts to hedge the currency component of
certain intercompany loans between our subsidiaries. At November
30, 2016, the notional value of these contracts was $109.9 million.
During fiscal year 2016, we recognized a $3.5 million loss on the
change in fair value of these contracts, which was offset by a $3.1 mil-
lion gain on the change in the currency component of the underlying
loans. Both the loss and the gain were recognized in our consoli-
dated income statement as other income, net.
At November 30, 2016, we had foreign currency exchange contracts
to purchase or sell $449.2 million of foreign currencies versus $264.5
million at November 30, 2015. 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, 2016, we had
$189.4 million of notional contracts that have durations of less than
seven days that are used to hedge short-term cash flow funding. The
remaining contracts have durations of one to twelve months.
Interest Rates
We finance a portion of our operations with both fixed and variable
rate debt instruments, primarily commercial paper, notes and bank
loans. We utilize interest rate swap agreements to minimize world-
wide financing costs and to achieve a desired mix of variable and
fixed rate debt.
2016 Annual Report 61
Total
As of November 30, 2015:
(millions)
During fiscal 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 issuance 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 was deferred in accumulated other comprehen-
sive income and is being 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 was
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 ineffectiveness was not material.
The following tables disclose the derivative instruments on our balance sheet as of November 30, 2016 and 2015, which are all recorded at fair value:
As of November 30, 2016:
(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
$ —
204.3
Other accrued liabilities
Other accrued liabilities
$100.0
244.9
$—
4.9
$4.9
$1.2
5.4
$6.6
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
Total
Other accrued liabilities
Other accrued liabilities
$100.0
85.0
$2.5
3.4
$5.9
$0.6
0.7
$1.3
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, 2016, 2015 and 2014:
Fair value hedges (millions)
Derivative
Interest rate contracts
Derivative
Foreign exchange contracts
Cash flow hedges (millions)
Derivative
Interest rate contracts
Foreign exchange contracts
Total
Income statement
location
Interest expense
Income (expense)
2016
$1.6
2015
$5.1
2014
$5.0
Income statement
location
Other income, net
Gain (loss)
recognized in income
2016
$(3.5)
Hedged item
Income statement
location
Intercompany loans
Other income, net
Gain (loss)
recognized in income
2016
$3.1
Gain (loss)
recognized in OCI
2016
2015
2014
$— $(1.2)
6.2
4.4
$4.4
$ 5.0
$—
4.2
$4.2
Income statement
location
Interest expense
Cost of goods sold
Gain (loss)
reclassified from AOCI
2016
2015
2014
$(0.3)
3.7
$ 3.4
$(0.2)
7.1
$ 6.9
$(0.2)
(1.1)
$(1.3)
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 $3.4 million
increase to earnings.
62 McCormick & Company
Fair Value of Financial Instruments
The carrying amount and fair value of financial instruments at November 30, 2016 and 2015 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 $80.6
million and $80.0 million at November 30, 2016 and 2015, 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
than 10% of our consolidated sales, there was no material concen-
tration of credit risk in these accounts at November 30, 2016. At
November 30, 2016, amounts due from those two customers aggre-
gated approximately 9% of consolidated trade accounts receivable.
2016
2015
Carrying amount
Fair value
Carrying amount
Fair value
$ 116.2
1,056.9
$ 116.2
1,118.3
$ 112.6
1,254.9
$ 112.6
1,325.6
—
1.2
4.9
5.4
—
1.2
4.9
5.4
2.5
0.6
3.4
0.7
2.5
0.6
3.4
0.7
Current credit markets are highly volatile and some of our customers
and counterparties are highly leveraged. We continue to closely
monitor the credit worthiness of our customers and counterparties
and generally do not require collateral. We believe that the allow-
ance for doubtful accounts properly recognized trade receivables at
realizable value. We consider nonperformance credit risk for other
financial instruments to be insignificant.
8. FAIR VALUE MEASUREMENTS
Fair value can be measured using valuation techniques, such as the
market approach (comparable market prices), the income approach
(present value of future income or cash flow) and the cost approach
(cost to replace the service capacity of an asset or replacement
cost). Accounting standards utilize a fair value hierarchy that priori-
tizes the inputs to valuation techniques used to measure fair value
into three broad levels. The following is a brief description of those
three levels:
• Level 1: Observable inputs such as quoted prices (unadjusted) in
active markets for identical assets or liabilities.
• Level 2: Inputs other than quoted prices that are observable for
the asset or liability, either directly or indirectly. These include
quoted prices for similar assets or liabilities in active markets
and quoted prices for identical or similar assets or liabilities in
markets that are not active.
• Level 3: Unobservable inputs that reflect management’s own
assumptions.
Our population of assets and liabilities subject to fair value meas urements on a recurring basis at November 30, 2016 and 2015 are as follows:
(millions)
Assets
Cash and cash equivalents
Insurance contracts
Bonds and other long-term investments
Foreign currency derivatives
Total
Liabilities
Interest rate derivatives
Foreign currency derivatives
Contingent consideration related to acquisition
Total
Fair value measurements using fair
value hierarchy as of November 30, 2016
Fair value
Level 1
Level 2
Level 3
$118.4
106.0
10.2
4.9
$239.5
$ 1.2
5.4
28.9
$ 35.5
$118.4
—
10.2
—
$128.6
$ —
—
—
$ —
$ —
106.0
—
4.9
$110.9
$ 1.2
5.4
—
$ 6.6
$ —
—
—
—
$ —
$ —
—
28.9
$28.9
2016 Annual Report 63
(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
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
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 simi-
lar type assets. The fair values of bonds and other long-term invest-
ments are based on quoted market prices from various stock and bond
exchanges. The fair values for interest rate and foreign currency deriv-
atives are based on values for similar instruments using models with
market based inputs.
The acquisition-date fair value of the liability for contingent consid-
eration related to our acquisition of D&A was approximately $27.7
million (see note 2) and was included in other long-term liabilities 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 probability
assessments of expected future earnings before interest, taxes,
depreciation and amortization related to our acquisition of D&A during
the calendar 2017 earn-out period, adjusted for expectations of the
amounts and ultimate resolution of likely disputes to be raised by the
sellers and by us as provided in the purchase agreement, discounted
considering the uncertainties associated with the obligation, and cal-
culated in accordance with the terms of the purchase agreement.
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, which relates solely to the contingent consideration related to our acquisition of D&A, for the
years ended November 30, 2016 and 2015 is summarized as follows (in millions):
Year ended November 30, 2016
Year ended November 30, 2015
$27.1
$ —
$ —
$27.7
$ —
$ —
$1.8
$0.5
$ —
$(1.1)
$28.9
$27.1
Beginning
of year
Acquisition-
date fair value
Settlements
Changes in fair
value including
accretion
Impact of
foreign currency
Balance as of
end of year
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
2016
2015
$(299.4)
3.9
2.4
(221.3)
$(206.6)
1.5
2.1
(203.1)
$(514.4)
$(406.1)
64 McCormick & Company
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, 2016, 2015 and 2014:
(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
2016
2015
2014
$ 0.3
(3.7)
(3.4)
0.9
$ 0.2
(7.1)
(6.9)
1.8
$ 0.2
1.1
1.3
(0.3)
$ (2.5)
$ (5.1)
$ 1.0
$ 0.3
16.7
17.0
(5.8)
$ 0.3
22.8
23.1
(7.9)
$ 0.3
16.4
16.7
(5.7)
$ 11.2
$ 15.2
$ 11.0
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, 2016 was $327.8 million ($221.3 million net of tax) related to net unrecognized
actuarial losses of $326.6 million and unrecognized prior service costs of $1.2 million that have not yet been recognized in net periodic pension or
postretirement benefit cost. We expect to recognize $16.6 million ($11.1 million net of tax) in net periodic pension and postretirement benefit
expense during 2017 related to the amortization of actuarial losses of $15.9 million and the amortization of prior service costs of $0.7 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
United States
International
2016
4.6%
4.5%
3.8%
2015
4.7%
4.7%
3.8%
2016
2015
3.2%
—
3.0–3.5%
3.9%
—
3.0–3.6%
United States
International
2016
4.7%
4.7%
3.8%
7.5%
2015
4.4%
4.3%
3.8%
7.8%
2014
5.2%
5.1%
3.8%
8.0%
2016
3.9%
—
3.5%
6.0%
2015
3.8%
—
3.5%
6.3%
2014
4.6%
—
3.0–3.8%
6.8%
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.
2016 Annual Report 65
Our pension expense was as follows:
(millions)
Service cost
Interest costs
Expected return on plan assets
Amortization of prior service costs
Amortization of net actuarial loss
United States
International
2016
$ 21.5
33.3
(40.8)
—
12.6
$ 26.6
2015
2014
$ 23.6
31.6
(40.2)
—
16.8
$ 20.0
31.1
(38.8)
—
11.8
$ 31.8
$ 24.1
2016
$ 7.1
11.3
(16.2)
0.3
4.1
$ 6.6
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
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
Actuarial loss (gain)
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
2016
2015
2016
2015
$ 722.0
21.5
33.3
—
10.6
(30.4)
—
—
$ 728.4
23.6
31.6
—
(32.0)
(29.6)
—
—
$ 757.0
$ 722.0
$ 548.6
25.3
15.4
—
(30.4)
—
—
$ 576.3
(3.2)
5.1
—
(29.6)
—
—
$ 558.9
$ 548.6
$(198.1)
$(173.4)
$ 757.0
674.9
558.9
$ 722.0
638.8
548.6
$308.1
7.1
11.3
1.1
47.5
(14.9)
(0.5)
(34.8)
$324.9
$288.3
38.3
9.7
1.1
(14.9)
(0.5)
(32.9)
$289.1
$ (35.8)
$218.8
208.8
191.9
$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
Included in the U.S. in the preceding table is a benefit obligation of $95.5 million and $89.6 million for 2016 and 2015, 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 $91.8 million and $86.2 mil-
lion as of November 30, 2016 and 2015, respectively. The assets related to this plan, which totaled $80.6 million and $79.5 million as of November
30, 2016 and 2015, respectively, are held in a rabbi trust and accordingly have not been included in the preceding table.
Amounts recorded in the balance sheet for all defined benefit pension plans consist of the following:
(millions)
Non-current pension asset
Accrued pension liability
Deferred income tax assets
Accumulated other comprehensive loss
66 McCormick & Company
United States
International
2016
2015
2016
2015
$ —
198.1
90.9
149.2
$ —
173.4
85.9
140.6
$ 1.5
37.3
16.9
76.0
$ 3.8
23.6
13.4
68.2
The accumulated benefit obligation is the present value of pension
benefits (whether vested or unvested) attributed to employee ser-
vice 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
$674.9 million and $638.8 million as of November 30, 2016 and 2015,
respectively. The accumulated benefit obligation for the interna-
tional pension plans was $296.9 million and $281.5 million as of
November 30, 2016 and 2015, 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 performances
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, 2016
and 2015, by asset category, were as follows:
Asset Category
Equity securities
Fixed income securities
Other
Total
Actual
2016
2015
2016
Target
69.0% 68.5% 61.0%
16.7% 16.7% 17.0%
14.3% 14.8% 22.0%
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, 2016 and 2015 for the United States and
international plans:
United States
As of November 30, 2016
(millions)
Total
fair value
Level 1
Level 2
Level 3
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)
$ 5.9
$ 5.9
$ — $ —
273.0
134.0
139.0
112.6
112.6
—
33.5
33.6
25.2
1.1
40.7
4.1
16.8
12.4
33.5
—
25.2
—
—
—
16.8
—
—
33.6
—
1.1
—
—
—
12.4
—
—
—
—
—
—
40.7
4.1
—
—
Total investments
$558.9
$328.0
$186.1
$44.8
International
As of November 30, 2016
(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)
$ 0.1
$ 0.1
$ — $ —
161.1
— 161.1
—
107.8
20.1
— 107.8
20.1
—
—
—
100.0% 100.0% 100.0%
Total investments
$289.1
$ 0.1
$289.0
$ —
The allocations of the international pension plans’ assets as of
November 30, 2016 and 2015, by asset category, were as follows:
Asset Category
Equity securities
Fixed income securities
Other
Total
Actual
2016
2015
55.7%
44.2%
0.1%
54.4%
45.3%
0.3%
2016
Target
53.0%
40.5%
6.5%
100.0% 100.0% 100.0%
2016 Annual Report 67
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 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 $35.3 million (0.4 million shares and 6.3% of total U.S.
pension plan assets) and $39.2 million (0.5 million shares and 7.2%
of total U.S. pension plan assets) at November 30, 2016 and 2015,
respectively. Dividends paid on these shares were $0.7 million in
2016 and in 2015.
Pension benefit payments in our most significant plans are made
from assets of the pension plans. It is anticipated that future benefit
payments for the U.S. and International plans for the next 10 fiscal
years will be as follows:
(millions)
2017
2018
2019
2020
2021
2022–2026
United States
International
$ 29.3
30.3
31.7
34.1
36.3
215.6
$ 8.9
9.0
9.8
10.0
10.6
61.1
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 $10.4 million, $9.5
million and $8.7 million in 2016, 2015 and 2014, respectively.
At the participant’s election, 401(k) retirement plans held 2.1 million
shares of McCormick stock, with a fair value of $189.6 million, at
November 30, 2016. Dividends paid on these shares in 2016 were
$3.5 million.
As of November 30, 2015
(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)
Natural resources (j)
United States
Total fair
value
Level 1
Level 2
Level 3
$ 11.0
$ 11.0
$ — $ —
270.1
141.2
128.9
105.7
105.7
—
—
—
—
—
—
—
—
33.2
—
1.1
— 37.6
4.9
—
—
—
—
11.0
32.3
33.2
25.2
1.1
37.6
4.9
16.5
11.0
32.3
—
25.2
—
—
—
16.5
—
Total investments
$548.6
$331.9
$174.2
$42.5
As of November 30, 2015
(millions)
Cash and cash equivalents
International equity securities (b)
Fixed income securities:
U.S. government/
corporate bonds (c)
Insurance contracts (f)
International
Total fair
value
$ 0.9
156.8
Level 1
Level 2
Level 3
$ 0.9
—
$ — $ —
—
156.8
110.6
20.0
—
—
110.6
20.0
—
—
Total investments
$288.3
$ 0.9
$287.4
$ —
(a) This category comprises equity funds and collective equity trust funds that most
closely track the S&P index and other equity indices.
(b) This category comprises international equity funds with varying benchmark indices.
(c) This category comprises funds consisting of U.S. government and U.S. corporate
bonds and other fixed income securities. An appropriate benchmark is the Barclays
Capital Aggregate Bond Index.
(d) This category comprises funds consisting of real estate related debt securities with
an appropriate benchmark of the Barclays Investment Grade CMBS Index.
(e) This category comprises funds consisting of international government/corporate
bonds and other fixed income securities with varying benchmark indices.
(f) This category comprises insurance contracts, the majority of which have a
guaranteed investment return.
(g) This category comprises hedge funds investing in strategies represented in various
HFRI Fund Indices.
(h) This category comprises private equity, venture capital and limited partnerships.
(i) This category comprises funds investing in real estate investment trusts (REIT).
An appropriate benchmark is the MSCI U.S. REIT Index.
(j) This category comprises funds investing in natural resources. An appropriate
benchmark is the Alerian master limited partnership (MLP) Index.
The change in fair value of the plans’ Level 3 assets for 2016 is
summarized as follows:
(millions)
Hedge funds
Private equity
funds
Total
Beginning
of year
Realized
gains
(losses)
Unrealized
gains
(losses)
Net,
purchases
and (sales)
End
of
year
$37.6
$(1.1)
$ 1.0
$ 3.2
$40.7
4.9
$42.5
0.8
$(0.3)
(0.5)
$ 0.5
(1.1)
4.1
$ 2.1
$44.8
68 McCormick & Company
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)
Service cost
Interest costs
Postretirement benefit expense
2016
$2.7
3.8
$6.5
2015
$3.1
3.7
$6.8
2014
$3.6
4.3
$7.9
Rollforwards of the benefit obligation, fair value of plan assets and
a reconciliation of the plans’ funded status at November 30, the
measurement date, follow:
(millions)
2016
2015
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 loss (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
Other postretirement benefit liability
$ 92.4
2.7
3.8
3.6
(0.2)
(0.1)
—
0.8
2.0
(9.5)
$ 95.5
$ —
5.9
3.6
(9.5)
$ —
$ 95.5
$ 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)
$ —
$ 92.4
Estimated future benefit payments (net of employee contributions)
for the next 10 fiscal years are as follows:
(millions)
2017
2018
2019
2020
2021
2022–2026
Retiree
medical
Retiree life
insurance
$ 6.1
6.1
6.0
6.0
5.9
28.5
$1.3
1.3
1.3
1.3
1.3
6.9
Total
$ 7.4
7.4
7.3
7.3
7.2
35.4
The assumed discount rate in determining the benefit obligation was
4.1% and 4.2% for 2016 and 2015, respectively.
For 2016, the assumed annual rate of increase in the cost of covered
health care benefits is 7.6% (7.1% last year). It is assumed to
decrease gradually to 4.5% in the year 2028 (5.0% in 2027 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 2016.
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). Total stock-based compen-
sation expense for 2016, 2015 and 2014 was $25.6 million, $18.7 mil-
lion and $18.2 million, respectively. Total unrecognized stock-based
compensation expense related to our RSUs and stock options at
November 30, 2016 was $14.1 million and the weighted-average
period over which this will be recognized is 1.3 years. Total unrecog-
nized stock-based compensation expense related to our LTPP is vari-
able in nature and is dependent on the company’s execution against
established performance metrics under performance cycles related
to this plan. As of November 30, 2016, we have 4.7 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.
The following summarizes 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, discounted by foregone dividends, on the date of grant. Substantially all of the RSUs
granted vest over a three-year term or upon retirement. Compensation expense is recorded in the income statement ratably over the shorter of the
period until vested or the employee’s retirement eligibility date.
A summary of our RSU activity for the years ended November 30 follows:
(shares in thousands)
Beginning of year
Granted
Vested
Forfeited
Outstanding—end of year
2016
2015
2014
Shares
Weighted-average
price
Shares
Weighted-average
price
Shares
Weighted-average
price
270
105
(94)
(14)
267
$71.03
96.59
72.21
82.10
$ 80.08
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
2016 Annual Report 69
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 vest ratably over a three-year period or upon retirement and
are exercisable over a 10-year period. 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 historical per-
formance of our stock. We also use historical data to estimate the
timing and amount of option exercises and forfeitures within the valu-
ation 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 $17.50, $12.52 and $9.48 in 2016, 2015 and 2014, 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
2016
2015
2014
0.5–1.9%
1.7%
18.7%
7.6 years
0.1–2.0%
2.1%
18.8%
7.7 years
0.1–2.7%
2.1%
15.6–20.1%
5.8 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
2016
2015
2014
Shares
Weighted-average
exercise price
Shares
Weighted-average
exercise price
Shares
Weighted-average
exercise price
4.8
0.7
(0.6)
—
4.9
3.4
$59.20
99.92
51.26
—
66.00
$56.97
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
As of November 30, 2016, the intrinsic value (the difference between the exercise price and the market price) for all options currently outstanding
was $130.0 million and for options currently exercisable was $115.9 million. At November 30, 2016, 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, 2016, 2015 and 2014 was $25.4 million,
$25.7 million and $25.9 million, respectively. A summary of our stock options outstanding and exercisable at November 30, 2016 follows:
(shares in millions)
Range of exercise price
$29.00–$54.00
$54.01–$79.00
$79.01–$100.00
Options outstanding
Options exercisable
Shares
Weighted-average
remaining life (yrs.)
Weighted-average
exercise price
Shares
Weighted-average
remaining life (yrs.)
Weighted-average
exercise price
1.3
2.9
0.7
4.9
3.4
7.0
9.3
5.9
$40.26
69.40
99.92
$66.00
1.3
2.1
—
3.4
3.4
6.7
—
4.8
$40.26
67.49
—
$56.97
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 program based on
the number of shares ultimately expected to be awarded using our estimate of the most likely outcome of achieving the performance objectives.
70 McCormick & Company
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
2016
2015
2014
Weighted-
average
price
$70.94
86.40
64.74
69.04
81.78
$78.10
Shares
192
108
(18)
(41)
(40)
201
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
Deferred tax assets and liabilities are comprised of the following:
The provision for income taxes consists of the following:
(millions)
(millions)
Income taxes
Current
Federal
State
International
Deferred
Federal
State
International
2016
2015
2014
$ 127.7
15.1
50.2
$ 78.8
9.1
42.4
$ 91.3
11.3
37.2
193.0
130.3
139.8
(29.6)
(2.4)
(8.0)
(40.0)
9.3
0.4
(8.7)
1.0
2.8
0.3
3.0
6.1
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
$ 153.0
$ 131.3
$ 145.9
Net deferred tax liability
2016
2015
$ 184.5
42.2
5.5
39.3
15.1
(10.5)
$ 148.4
27.8
6.1
39.9
12.3
(14.6)
276.1
219.9
38.1
262.5
6.1
306.7
41.8
225.1
6.8
273.7
$ (30.6)
$ (53.8)
In 2016, current federal income tax expense increased by $48.9 mil-
lion from $78.8 million in 2015 to $127.7 million in 2016. That change
was largely offset by a net increase in deferred federal tax benefit
of $38.9 million, from a deferred expense of $9.3 million in 2015 to
a deferred benefit of $29.6 million in 2016. These changes principally
stemmed from higher pretax income in the U.S. in 2016 compared to
the prior year as well as to an increase in deductible temporary dif-
ferences in 2016, with a resultant increase in deferred tax assets, in
order to maximize certain available tax credits.
The components of income from consolidated operations before
income taxes follow:
(millions)
Pretax income
United States
International
2016
2015
2014
$ 383.3
205.9
$ 308.3
187.9
$ 333.2
221.2
$ 589.2
$ 496.2
$ 554.4
A reconciliation of the U.S. federal statutory rate with the effective
tax rate follows:
Federal statutory tax rate
State income taxes, net of federal benefits
International tax at different effective rates
U.S. tax on remitted and unremitted
earnings
U.S. manufacturing deduction
Changes in prior year tax contingencies
Other, net
Total
2016
2015
2014
35.0%
1.4
(6.7)
35.0%
1.2
(7.6)
35.0%
1.3
(7.0)
0.4
(2.2)
(1.8)
(0.1)
1.1
(1.9)
(2.1)
0.8
0.4
(1.6)
(2.0)
0.2
26.0%
26.5%
26.3%
At November 30, 2016, our non-U.S. subsidiaries have tax loss carry-
forwards of $137.1 million. Of these carryforwards, $3.4 million expire
in 2017, $11.0 million from 2018 through 2019, $39.2 million from 2020
through 2027 and $83.5 million may be carried forward indefinitely.
At November 30, 2016, our non-U.S. subsidiaries have capital loss
carryforwards of $4.7 million. All of these carryforwards may be car-
ried forward indefinitely.
At November 30, 2016, we have tax credit carryforwards of $14.8
million, of which $0.3 million expire in 2021, $13.5 million in 2022
and $1.0 million in 2026.
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 $4.1 million net decrease in the valuation allowance
from 2015 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 2016 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 $1.64 billion at November 30, 2016. 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.
2016 Annual Report 71
The total amount of unrecognized tax benefits as of November 30,
2016 and November 30, 2015 were $58.3 million and $56.5 million,
respectively. If recognized, $46.1 million of these tax benefits as of
November 30, 2016 would affect the effective tax rate.
The following table summarizes the activity related to our gross
unrecognized tax benefits for the years ended November 30:
(millions)
Balance at beginning of year
Additions for current year tax positions
Additions for prior year tax positions
Reductions for prior year tax positions
Settlements
Statute expirations
Foreign currency translation
2016
2015
2014
$ 56.5
10.3
2.4
—
—
(10.0)
(0.9)
$ 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)
Balance at November 30
$ 58.3
$ 56.5
$ 55.7
We record interest and penalties on income taxes in income tax
expense. We recognized interest and penalty expense (income)
of $1.2 million, $(0.1) million and $0.5 million for the years ended
November 30, 2016, 2015 and 2014, respectively. As of November
30, 2016 and 2015, we had accrued $5.7 million and $4.5 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 reasonably
possible total amount of unrecognized tax benefits as of November 30,
2016 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 various
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 2009.
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.
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
2016
2015
2014
126.6
128.0
129.9
1.4
1.2
1.1
Average shares outstanding—diluted
128.0
129.2
131.0
72 McCormick & Company
The following table sets forth the stock options and RSUs for the
years ended November 30 which were not considered in our earnings
per share calculation since they were antidilutive.
(millions)
Antidilutive securities
14. CAPITAL STOCK
2016
2015
2014
0.5
0.4
1.6
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 Common Stock,
automatically, on a share-for-share basis, all shares of Common Stock
Non-Voting will convert into shares of Common Stock.
Holders of Common Stock Non-Voting will vote as a separate class
on all matters on which they are entitled to vote. Holders of
Common Stock Non-Voting are entitled to vote on reverse mergers
and statutory share exchanges where our capital stock is converted
into other securities or property, dissolution of the company and the
sale of substantially all of our assets, as well as forward mergers
and consolidation of the company.
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,
2016 and 2015, 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 are inherently unpredictable, and it is therefore possi-
ble that the eventual outcome of such claims and litigation could
exceed the estimated reserves, if any. However, we believe that the
likelihood that any such excess might have a material adverse effect
on our financial statements is remote.
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
distribute 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,” “Stubb’s” and “Gourmet
Garden.” 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 prod-
ucts which are similar in composition and nature. With their primary
attribute being flavor, we regard the products within each of our seg-
ments to be fairly homogenous. It is impracticable to segregate and
identify sales and profits for each of these individual product lines.
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 2016, 2015 and 2014.
Sales to one of our industrial segment customers, PepsiCo, Inc.,
accounted for 11% of consolidated sales in 2016, 2015 and 2014.
We measure segment performance based on operating income
excluding special charges as these activities are managed separately
from the business segments. Although the segments are managed
separately due to their distinct distribution channels and marketing
strategies, manufacturing and warehousing are often integrated to
maximize cost efficiencies. We do not segregate jointly utilized
assets by individual segment for internal reporting, evaluating perfor-
mance or allocating capital. Therefore, asset-related information has
been disclosed in the aggregate.
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)
2016
Net sales
Operating income excluding special charges
Income from unconsolidated operations
Goodwill
Assets
Capital expenditures
Depreciation and amortization
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
Consumer
Industrial
Total
segments
Corporate
& other
Total
$2,753.2
490.8
30.7
1,608.3
—
—
—
$2,635.2
456.1
36.0
1,587.7
—
—
—
$2,625.5
474.3
28.2
1,581.1
—
—
—
$1,658.3
166.2
5.4
163.1
—
—
—
$1,661.1
157.8
0.7
171.6
—
—
—
$1,617.7
133.9
1.2
141.1
—
—
—
$4,411.5
657.0
36.1
1,771.4
4,387.8
120.1
71.7
$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
$ —
—
—
—
248.1
33.7
37.0
$ —
—
—
—
247.2
25.6
34.1
$ —
—
—
—
212.6
24.1
31.0
$ 4,411.5
657.0
36.1
1,771.4
4,635.9
153.8
108.7
$ 4,296.3
613.9
36.7
1,759.3
4,472.6
128.4
105.9
$ 4,243.2
608.2
29.4
1,722.2
4,382.3
132.7
102.7
A reconciliation of operating income excluding special charges (which we use to measure segment profitability) to operating income for the years
ended November 30, 2016, 2015 and 2014 is as follows:
(millions)
2016
Operating income excluding special charges
Less: Special charges included in cost of goods sold
Less: Other special charges
Operating income
2015
Operating income excluding special charges
Less: Special charges included in cost of goods sold
Less: Other special charges
Operating income
2014
Operating income excluding special charges
Less: Special charges
Operating income
Consumer
Industrial
Total
$490.8
0.3
8.9
$481.6
$456.1
4.0
48.8
$403.3
$474.3
3.7
$470.6
$166.2
—
6.8
$159.4
$157.8
—
12.7
$145.1
$133.9
1.5
$132.4
$657.0
0.3
15.7
$641.0
$613.9
4.0
61.5
$548.4
$608.2
5.2
$603.0
2016 Annual Report 73
Geographic Areas
We have net sales and long-lived assets in the following geographic areas:
(millions)
2016
Net sales
Long-lived assets
2015
Net sales
Long-lived assets
2014
Net sales
Long-lived assets
United States
EMEA
Other countries
Total
$2,565.3
1,499.9
$2,438.1
1,462.2
$2,357.5
1,284.0
$896.0
846.5
$903.7
871.9
$930.8
920.0
$950.2
519.3
$954.5
415.7
$954.9
451.7
$4,411.5
2,865.7
$4,296.3
2,749.8
$4,243.2
2,655.7
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
information follows:
Dividends paid per share were $1.72 in 2016, $1.60 in 2015 and
$1.48 in 2014. Dividends declared per share were $1.76 in 2016,
$1.63 in 2015, and $1.51 in 2014.
(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
(millions)
Depreciation
Software amortization
Interest paid
Income taxes paid
74 McCormick & Company
2016
2015
18. SELECTED QUARTERLY DATA (UNAUDITED)
$ 336.3
420.0
$ 319.9
390.9
$ 756.3
$ 710.8
$ 23.6
58.3
$ 22.4
56.4
$ 81.9
$ 78.8
$ 62.4
402.9
730.1
317.8
117.0
(960.8)
$ 62.7
360.1
725.9
310.2
72.4
(912.9)
$ 669.4
$ 618.4
$ 134.6
116.2
16.7
80.9
$ 150.6
112.6
20.7
81.5
$ 348.4
$ 365.4
$ 161.5
125.0
292.2
$ 129.5
114.8
239.4
$ 578.7
$ 483.7
$ 231.1
88.4
79.9
49.7
72.0
$ 192.8
86.1
100.4
47.6
68.8
$ 521.1
$ 495.7
2016
2015
2014
$ 71.2
17.1
57.5
151.0
$ 71.5
18.1
52.2
111.5
$ 67.7
20.0
50.0
129.0
(millions except per share data)
First
Second
Third
Fourth
2016
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
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
$ 1,030.2 $ 1,063.3 $ 1,091.0 $ 1,227.0
540.0
219.1
157.4
1.25
1.24
432.8
125.0
93.8
0.74
0.73
405.0
129.1
93.4
0.73
0.73
453.9
167.8
127.7
1.01
1.00
0.43
0.43
0.43
0.43
—
0.43
0.43
0.90
94.10
79.53
100.06
91.32
107.05
96.92
102.01
91.06
94.10
79.78
100.71
91.39
107.07
97.18
101.98
91.08
$ 1,010.4 $ 1,024.1 $ 1,059.9 $ 1,201.9
521.7
212.2
149.2
1.17
1.16
389.7
93.7
70.5
0.55
0.55
404.0
103.8
84.3
0.66
0.65
421.9
138.7
97.6
0.76
0.76
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
Operating income for the first quarter of 2016 included $1.6 million
of special charges, with an after-tax impact of $1.3 million and a per
share impact of $0.01 and $0.01 for basic and diluted earnings per
share, respectively. Operating income for the second quarter of 2016
included $3.9 million of special charges, with an after-tax impact of
$2.7 million and a per share impact of $0.02 for both basic and
diluted earnings per share. Operating income for the third quarter
of 2016 included $4.3 million of special charges, with an after-tax
impact of $3.4 million and a per share impact of $0.03 for both basic
and diluted earnings per share. Operating income for the fourth
quarter of 2016 included $6.2 million of special charges, including
$0.3 million reflected in gross profit, with an after-tax impact of
$3.7 million and a per share impact of $0.03 for both basic and
diluted earnings per share.
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 million 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.
See note 3 for details with respect to the actions undertaken in
connection with these special charges.
• On January 3, 2017, the Management Committee approved the
freezing of benefits under the McCormick Pension Plan, the
defined benefit pension plan available to U.S. employees hired on
or prior to December 31, 2011. The effective date of this freeze is
November 30, 2018. Although the U.S. Pension plan will be frozen,
employees who are participants in that plan will retain benefits
accumulated up to the date of the freeze, based on credited service
and eligible earnings, in accordance with the terms of the plan.
• On January 3, 2017, the Compensation Committee of our Board of
Directors approved the freezing of benefits under the McCormick
Supplemental Executive Retirement Plan (the “SERP”). The effec-
tive date of this freeze is January 31, 2017. Although the SERP will
be frozen, executives who are participants in the SERP as of the
date of the freeze, including certain named executive officers, will
retain benefits accumulated up to that date, based on credited serv-
ice and eligible earnings, in accordance with the SERP’s terms.
These changes are in alignment with ongoing initiatives to create a
market competitive, cost competitive and consistent health, welfare
and retirement benefit structure across our organization. As a result
of these pension benefit plan changes, we expect to recognize lower
retirement benefit expense in 2017 and future periods. That lower
retirement benefit expense in 2017 will be partially offset by certain
amounts provided by the Company to mitigate the impact of the 2017
freeze on certain employees, including: (i) expenses relating to spe-
cial one-time grants of restricted stock units to be provided to certain
executives in 2017 who are participants in the SERP at the time of
freeze; and (ii) cash payments, equivalent in value to the Company’s
contribution prior to the freeze, provided to effected employees of
the U.K. plan as of December 1, 2016 (which will continue for a
period of two years).
Earnings per share are computed independently for each of the quar-
ters presented. Therefore, the sum of the quarters may not be equal
to the full year earnings per share.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
19. SUBSEQUENT EVENTS
None.
Acquisition—On December 15, 2016, we purchased 100% of the
shares of Enrico Giotti SpA (Giotti), a leading European flavor manu-
facturer located in Italy for a cash payment of $125.5 million, subject
to certain post-closing adjustments. The acquisition was funded
with cash and short-term borrowings. Giotti is well known in the
industry for its innovative beverage, sweet, savory and dairy flavor
applications. At the time of the acquisition, annual sales of Giotti
were approximately €53 million. Our acquisition of Giotti in fiscal
2017 expands the breadth of value-added products for McCormick’s
industrial segment, including additional expertise in flavoring health
and nutrition products.
Employee benefit and retirement plans—Subsequent to our fiscal
year ended November 30, 2016, we made several significant
changes to the following employee benefit and retirement plans:
• On December 1, 2016, the Management Committee approved the
freezing of benefits under the McCormick U.K. Pension and Life
Assurance Scheme (the U.K. plan). The effective date of this
freeze is December 31, 2016. Although the U.K .plan will be frozen,
employees who are participants in that plan will retain benefits
accumulated up to the date of the freeze, based on credited service
and eligible earnings, in accordance with the terms of the plan.
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 2016
financial statements in Item 8 of this Report under the captions enti-
tled “Report of Management” and “Report of Independent Registered
Public Accounting Firm.” No change occurred in our “internal control
over financial reporting” (as defined in Rule 13a-15(f)) during our last
fiscal quarter which has materially affected or is reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
2016 Annual Report 75
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 2017 Proxy State-
ment, 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 2017 Proxy
Statement incorporated by reference in this Item 10 of this Report,
the following individuals are also executive officers of McCormick:
Lisa B. Manzone and Nneka L. Rimmer.
Ms. Manzone is 52 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.
Ms. Rimmer is 45 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 experi-
ence designing, executing and leveraging successful large-scale
trans formational initiatives, working with large global consumer
goods corporations.
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,
PART IV.
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 2017 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information responsive to this item is incorporated herein by refer-
ence to the sections titled “Principal Stockholders,” “Election of
Directors” and “Equity Compensation Plan Information” in the 2017
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 2017
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
2017 Proxy Statement.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
II–Valuation and Qualifying Accounts
List of documents filed as part of this Report.
1. Consolidated Financial Statements
The Consolidated Financial Statements for McCormick & Company,
Incorporated and related notes, together with the Report of Manage-
ment, and the Reports of Ernst & Young LLP dated January 25, 2017,
are included herein in Part II, Item 8.
2. Consolidated Financial Statement Schedule
Supplemental Financial Schedule:
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.
76 McCormick & Company
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/ Lawrence e. Kurzius
Lawrence E. Kurzius
President & Chief Executive Officer
January 25, 2017
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/ Lawrence e. Kurzius
Lawrence E. Kurzius
Principal Financial Officer:
By:
/s/ MichaeL r. sMith
Michael R. Smith
Principal Accounting Officer:
President & Chief Executive Officer
January 25, 2017
Executive Vice President & Chief Financial Officer
January 25, 2017
By:
/s/ christina M. McMuLLen
Christina M. McMullen
Vice President & Controller
Chief Accounting Officer
January 25, 2017
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
Gary M. Rodkin
/s/ Jacques tapiero
Jacques Tapiero
/s/ aLan D. wiLson
Alan D. Wilson
DATE:
January 25, 2017
January 25, 2017
January 25, 2017
January 25, 2017
January 25, 2017
January 25, 2017
January 25, 2017
January 25, 2017
January 25, 2017
January 25, 2017
January 25, 2017
2016 Annual Report 77
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, 2016:
Allowance for doubtful receivables
Valuation allowance on net deferred tax assets
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
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
$ 8.0
14.6
$22.6
$ 4.0
21.8
$25.8
$ 4.1
21.2
$25.3
$ 0.7
3.5
$ 4.2
$ 4.9
5.7
$10.6
$ 1.1
3.0
$ 4.1
$ —
—
$ —
$(0.1)
(3.2)
$(3.3)
$(0.9)
(1.4)
$(2.3)
$ (4.5)
(7.6)
$ (12.1)
$ (0.8)
(9.7)
$(10.5)
$ (0.3)
(1.0)
$ (1.3)
$ 4.2
10.5
$14.7
$ 8.0
14.6
$22.6
$ 4.0
21.8
$25.8
78 McCormick & Company
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 November 29, 2016
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 99.1 of McCormick’s
Form 8-K dated November 29, 2016, File No. 1-14920, as
filed with the Securities and Exchange Commission on
November 30, 2016.
(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 effective date of
January 1, 2005, adopted by the Compensation Committee of the Board of Directors on November 28, 2008, which agreement is
incorporated by reference from Exhibit 10(i) of McCormick’s 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 Directors’ Non-Qualified Stock Option Plan, provided to members of McCormick’s Board of Directors who are not also
employees of McCormick, is set forth in Exhibit B of McCormick’s definitive Proxy Statement dated February 17, 2004, File No.
1-14920, as filed with the Securities and Exchange Commission on February 17, 2004, and incorporated by reference herein.*
Directors’ Share Ownership Program, provided to members of McCormick’s Board of Directors who are not also employees of
McCormick, is set forth on page 28 of McCormick’s definitive Proxy Statement dated February 17, 2004, File No. 1-14920, as filed
with the Securities and Exchange Commission on February 17, 2004, and incorporated by reference herein.*
Deferred Compensation Plan, as restated on January 1, 2000, and amended on August 29, 2000, September 5, 2000 and May 16,
2003, in which directors, officers and certain other management employees participate, a copy of which Plan document and
amendments was attached as Exhibit 10(viii) of McCormick’s Form 10-Q for the quarter ended August 31, 2003, File No. 1-14920,
as filed with the Securities and Exchange Commission on October 14, 2003, and incorporated by reference herein.*
2016 Annual Report 79
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
(xiii)
(xiv)
(xv)
(xvi)
Exhibit Number
Description
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 incorpo-
rated 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, 2016,
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
instruments of McCormick with respect to long-term debt that involve an amount of securities that do not exceed 10% 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
80 McCormick & Company
Investor Information
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—2017
Record Date
4/10/17
7/10/17
10/10/17
12/29/17
Payment Date
4/24/17
7/24/17
10/24/17
1/16/18
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) 771-7140
Investor Services Plan (Dividend Reinvestment and
Direct Purchase Plan)
We offer an Investor Services Plan which provides shareholders
of record the opportunity to automatically reinvest dividends,
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 29, 2017, 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.
Visit our company and consumer brands on:
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2016 Annual Report 81
McCormick & Company, Incorporated
18 Loveton Circle, Sparks, Maryland 21152-6000 U.S.A.
410.771.7301 | www.mccormickcorporation.com