McCormick & Company Annual Report 2017

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FY2017 Annual Report · McCormick & Company

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2 0 1 7 A n n u a l R e p o r t

The of
FLAVOR

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Agencja Reklamowa Opus B, ul. Pijarska 9, 31-015 Kraków, Polska/Poland, www.opusb.pl

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TRAER A LA VIDA
EL PLACER DEL
SABOR

用
美
味
为
生
活
带
来
快
乐

Ginger
Ginger’s modern versatility is
featured in the McCormick Flavor
Forecast ® 2018. Discover ginger
mixed in Ethiopia’s Berbere Spice
Blend and Tanzanian BBQ, stirred
into an evening elixir to help
replenish after a busy day, and
added to Japanese yakitori glazes
and tangy dipping sauces.

NADAWA ´C ZYCIU SMAKSă aducem la viață bucuria aromelorENCHER A VIDA DE SABOR E ALEGRIABertie

TO MAKE EVERY MEAL AND MOMENT BETTER
All over the world, people desire great tasting food and drinking experiences with rich, authentic flavor

and healthy, high quality ingredients. McCormick is well aligned with this demand and we make every

meal and moment better by creating these flavor experiences, each and every day. Bringing the joy

of flavor to life, no matter what the language, is at the heart of everything we do. We are passionate

about offering products that tantalize taste buds and make menus memorable. This passion for flavor,

coupled with our steadfast focus on growth, performance and people, led to record financial results

in 2017 and continues to drive momentum for exceptional growth.

Contents
2 Letter to Shareholders

7 French’s and Frank’s RedHot

8 Broad Global Portfolio

10 McCormick’s Five Principles

15 Financial Highlights

16 Directors and Officers

17 Form 10-K Table of Contents

19 Form 10-K

91 Investor Information

PORTA NELLA TUA VITA LA GIOIA DEI SAPORIПридавать Жизни Радость ВкусаHAYATINIZA LEZZET KATINTO BRING THE JOY OF FLAVOR TO LIFERéveiller le plaisir des saveurs2 McCormick & Company

Fellow
SHAREHOLDERS:

2017 was a milestone year for McCormick. We delivered record financial results driven by both
strong core business performance and acquisitions. The purchase of Reckitt Benckiser’s Food Division

(“RB Foods”)…the largest acquisition in the company’s history…strengthens our flavor leadership and

advances our vision to bring the joy of flavor to consumers worldwide. We continue to differentiate

McCormick through industry-leading growth.

McCormick’s strategic imperatives of
growth, performance and people have
been a consistent focus for us. As we
look ahead to the future of our company,
we have refreshed McCormick’s vision
and mission and launched five principles
to keep our culture contemporary and
ensure our competitiveness. Our vision,
to bring the joy of flavor to life, describes
what we aspire to and what we want
to become. Our mission, to make every
meal and mom ent better, defines our
reason for being and the value we
deliver every day.

To support our refreshed vision and mis-
sion, we introduced five key principles
that speak to our purpose, competitive
advantage and ambitions. These princi-
ples are the foundation of our strategic
imperatives. You can learn about our
Passion for Flavor™, Power of People™,
Taste you Trust®, Driven to Innovate and
Purpose-led Performance principles
starting on page 10. Through the inte-
gration of our vision, mission, principles
and strategies, we are delivering top
tier business performance, building for
the future and doing the right things for
people, communities and planet.

We Are Delivering Top Tier
Business Performance

We grew sales, operating profit and
earnings per share in 2017. Our finan-
cial performance was another record
year. We exceeded each of our long-
term financial goals, which in constant

currency are to grow sales 4% to 6%,
adjusted operating income 7% to 9%
and adjusted earnings per share 9% to
11%. We also delivered substantial cost
savings, expanded adjusted operating
margin and generated strong cash flow.

Net Sales rose 10% with minimal
impact from currency rates. Incre-
men tal sales from our acquisitions of
RB Foods, Giotti and Gourmet Garden
contributed 6% to the sales increase.
The remaining increase was driven
by new products and base business
growth from pricing actions, expanded
distribution and brand marketing. Our
consumer segment delivered strong
sales growth of 8%. In constant
currency, consumer segment sales
also grew 8%. Our indus trial segment
achieved an exceptional rate of sales
growth at 12%. Excluding the impact
of unfavorable currency rates, we
grew industrial segment sales 14%.

Operating income increased to $702
million compared to $641 million in
2016 driven by acquisitions, higher
sales, favorable business mix and
Comprehensive Continuous Improve-
ment (CCI) led cost savings. Partially
offsetting these benefits were trans-
action and integration expenses of
$62 million related to the RB Foods
acquisition and an increase of $6 million
in special charges related to organ-
izational and streamlining actions.
Excluding these costs, adjusted operat-
ing income increased 20% to $786
million compared to $657 million in

2016. Excluding the impact of unfavor-
able currency rates, we grew adjusted
operating income 21%. Our adjusted
operating income margin increased
140 basis points, with expansion
in both our consumer and industrial
segments.

Our CCI program achieved $117 million
of cost savings, a record year. These
savings generated fuel for growth
funding increases in our brand mar-
keting and new products as well as
contributing to our adjusted operating
margin expansion.

Our earnings per share increased to
$3.72, compared to $3.69 in 2016.
Transaction and integration expenses
as well as special charges lowered
earnings per share by $0.54 and
$0.09 in 2017 and 2016, respectively.
Excluding the impact of these costs,
we grew adjusted earnings per share
by 13% to $4.26 compared to $3.78
in 2016. We drove this growth, which
includes the impact of unfav orable
currency rates, with higher operating
income partially offset by an increase
in interest expense.

We have a long history of generating
strong cash flow from operations and
returning cash to shareholders. In 2017,
we reached $815 million of cash from
operations. At the end of 2017, our
Board of Directors authorized an 11%
increase in the quarterly dividend. We
are proud to be a dividend aristocrat
having paid dividends every year since

12%

42%

Net Sales

by Segment

and Region

26%

1925 with increases in the past 32 con-
secutive years.

2.0

Our results reflect the effective execu-
tion of our strategies and the engage-
ment of our employees around the
world. Our performance continues to
give us confidence that the momentum
of our business is sustainable and we
will continue to create shareholder value.

1.5

We Are Building the McCormick
of the Future

1.0

0.5

0.0

At McCormick we are differentiated
with a broad and advantaged portfolio.
As a global flavor leader, we are in cate-
gories that make it easy to enjoy deli-
cious, memorable food experiences and
are a natural fit for healthy eating. With
leading flavor brands, trend-trackers,
research chefs, flavor technologists
and sensory scientists around the globe,
we are the source home cooks and
professional chefs alike turn to for flavor
and culinary inspiration. Our expertise
comes from a long heritage of devel-
oping high-quality flavors that have
become part of families’ traditions, food

2017 Annual Report 3

Dividends Declared

and beverage companies’ flavor foun-
dations, and chefs’ top notes. We are
uniquely positioned to access quantita-
tive and qualitative insights about global
eating habits which strengthens our
$1.93
deep understanding of the consumer
experience of food and flavor.

$1.76

$1.63

$1.51

$1.39

The food industry is going through a
significant change as it adapts to a
fast-evolving consumer landscape, and
McCormick is well positioned to benefit
from these trends. We are aligned with
consumers’ increased interest in bolder
flavors, demand for convenience and
focus on fresh, natural ingredients, and
also with emerging purchase drivers
such as greater transparency around
the sourcing and quality of food. We
2017
2013
continue to capitalize on the growing
McCormick has increased its
consumer interest in healthy, flavorful
dividend in each of the past
eating—we flavor fresh. By adding flavor
32 years. We have paid a dividend
through healthy choices, we are the
for 92 consecutive years.
natural complement to fresh, real food.
For our U.S. industrial customers in 2017,
over 60% of product development
projects included health and wellness
attributes like lowering sodium, artificial

2014

2016

2015

Net Sales
(billions)

$564

$456

2.0

250

$1.9

$222

“The RB Foods acquisition was made from a position of
strength as our global flavor portfolio continues to drive
growth and differentiate McCormick.”

12%

100

150

200

1.0

1.5

$1.6

$122

Adjusted Operating
Income
(millions)

0.5

0.0

140

120

100

Adjusted Operating
40
Income
(millions)

$222

$122

Lawrence E. Kurzius
Chairman, President and
Chief Executive Officer
2012

2017

42%

Net Sales
by Segment
and Region

2012

2017

2012

2017

26%

Cost Savings from CCI and Organization and
Streamlining Actions
(millions)

$117

$109

$98

$69

$63

2013

2014

2015

2016

2017

In the last five years, we have achieved
over $450 million in cost savings.

Adjusted Operating
Income
(millions)

Total Annual Shareholder Return

14%

13%

12%

1-YR

5-YR

10-YR

20-YR

Total annual shareholder return
has risen 12% or more for the past
1-, 5-, 10- and 20-year periods.

3.0

2.5

2.0

1.5

1.0

0.5

0.0

2.0

1.5

1.0

0.5

0.0

1000

800

600

400

200

2.0

1.5

1.0

0.5

0.0

140

120

100

3.0

2.5

2.0

1.5

1.0

0.5

0.0

600

500

400

300

200

100

1000

800

600

400

200

Total Annual Shareholder Return

14%

13%

12%

Net Sales
(billions)

Dividends Declared
$3.0

$2.4

$1.93

$1.76

$1.63

$1.51

$1.39

600

500

400

300

200

100

1-YR

5-YR

10-YR

20-YR

Total annual shareholder return

has risen 12% or more for the past

1-, 5-, 10- and 20-year periods.

Net Sales

(billions)

$3.0

$2.4

Adjusted Operating

Income

(millions)

$564

$456

2012

2017

2012

2017

Cash Flow from Operations
(millions)

2013

2014

2015

2016

2017

McCormick has increased its
dividend in each of the past
32 years. We have paid a dividend
$590
for 92 consecutive years.
$504

$465

$815

$658

Net Sales
(billions)

$1.9

2013

2014

2015

2016
$1.6

2017

Since 2013, we have increased
cash flow from operations by
more than $ 350 million.

250

200

150

100

2012

2017

2012

2017

2012

2017

Cash Flow from Operations

(millions)

$815

$658

$590

$504

$465

Cost Savings from CCI and Organization and

Streamlining Actions

(millions)

$117

$109

$98

$69

$63

2013

2014

2015

2016

2017

2013

2014

2015

2016

2017

Since 2013, we have increased

cash flow from operations by

more than $ 350 million.

In the last five years, we have achieved

over $450 million in cost savings.

4 McCormick & Company

Health and Wellness

Liquid Products

Spices and Seasonings

New product innovation remains an integral part of our growth with 2017 launches spanning our portfolio.

ingredients or calories. Our focus on
growth by investing in our strategies,
driving profit realization and strengthen-
ing our organization is at the foundation
of building our future.

opportunities. We expect to grow
these brands in new ways through our
proven track record of insight-driven
innovation and the ability to leverage
our global footprint.

Our flavor leadership is expanding

McCormick advanced to a leading posi-
tion in condiments with the acquisition
of RB Foods. We are very excited by
the addition of French’s and Frank’s
RedHot to our global portfolio, which

Combination of powerful brands expected
to drive meaningful growth synergies,
such as in tabletop offerings for
fast casual restaurants.

are now our second and third largest
brands, respectively, behind the
McCormick brand. McCormick now
has leading positions in categories that
consumers use most when flavoring
fresh foods. Our one-stop shop for
condiment, spice and seasoning needs,
provides customers and consumers
with an even broader and complete
product offering. The addition of these
iconic brands, with simple, high quality,
clean ingredients, reinforces our focus
on growth across both our consumer
and industrial segments and provides
further international and foodservice

We are several months into integrating
the business and driving plans to capi-
talize on the growth opportunities and
realize synergies. Our enthusiasm for
this acquisition and our confidence that
the combination of our powerful flavor
brands will drive significant shareholder
value continues to grow. This confidence
is also bolstered by our strong history
of successfully integrating and deliv-
ering performance on other recent
acquisitions.

We are making investments for our
brands, customers and consumers

We are driving sales and building our
brand equity. We increased our marketing
investment in 2017—up 39% over the
past five years. In 2017, we expanded
on the success of our North American
purity campaign by introducing it in
the EMEA region. This campaign
emphasizes the flavor and quality of
McCormick’s spices and seasonings.
Globally, digital marketing continues to
be a significant portion of our media
spend. We are achieving returns on
investment higher than consumer prod-
uct industry norms across display, search
and social media spend. Our leadership
in this area was rewarded again in 2017
with reco g nition as a top three brand
by L2, a business intelligence service,
in its Digital IQ Index. This marked our
fourth consec utive year in the top five
ranking of 100 food and beverage
brands based on the effective ness of
our website, digital and social media

We continue to enhance our
global brand marketing with
investments in digital marketing.

as well as our advances in the rapidly
growing e-commerce channel.

E-commerce is a significant growth
opportunity. In 2017, we experienced a
high double-digit sales growth rate in
this channel. We expect a disproportion-
ate amount of growth from e-commerce
and are making investments to capitalize
on this opportunity. We continue to add
resources to enhance content, establish
programs with key e-commerce retailers
and to develop innovative packaging
and products dedicated to the channel.

Breakthrough innovation…such as our
new U.S. breakfast platform…is an
integral part of our growth platform. 9%
of our 2017 sales were from launches
made over the last three years. Con-
tinu ing to capitalize on health and
wellness, we launched organic recipe
mixes and organic honey in North
America, organic core herbs and spices
and homemade dessert products in
France, and gluten free recipe mixes in
the U.K. Expanding our liquid portfolio,
we added Simply Better wet gravies,
new flavors of Kitchen Basics® bone

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2017 Annual Report 5

In 2017, we acquired Giotti, a leading flavor business in Europe with expertise in high-growth health and nutrition products,
including beverage applications. Giotti expands our flavor capability in our EMEA region with flavor manufacturing, research
and development capabilities, complementary products and new customers.

broth and new varieties of Grill Mates®
liquid marinades. Gourmet Garden®
finishing drizzles were introduced in
Australia offering consumers a closer
to fresh alternative to flavor their grilled
meals. In China, we launched new
condiments such as black pepper sauce.
We also increased our level of spice
and seasoning new products. In the
Americas, we launched a new “Super
Deal” format that offers a better value
in a large size format and new flavors.
We also introduced a new range of
Pasta Seasoning blends and premium
garlic products. In the Asia Pacific Zone
(APZ), we launched a Gourmet Garden®
re-sealable pouch of lightly dried herbs
and seasonings in Australia and spice
mixes in India.

In our industrial segment, our on-trend
and better-for-you new products were a
significant driver of our 2017 industrial
segment sales growth. As our cus-
tomers move their portfolios to more
natural and better-for-you they want to
ensure that taste is not compromised.
Our distinctive food first approach, our
deep understanding of food and the
use of natural ingredients like herbs,
spices, and extracts, competitively
differentiates us.

In 2017, we progressed on increasing
our capacity to support our growth in
APZ. We completed the construction
of a new, larger facility in Shanghai to
accommodate increasing demand in
China. In Singapore, we opened a new

regional headquarters and Tech nical
Innovation Center (TIC). This TIC enables
us to leverage the immense potential
the region offers, focusing further on
customer intimacy. We also began con-
struction in Thailand on a new regional
manufacturing facility to expand produc-
tion capability and deliver on both seg-
ments’ growth plans in Southeast Asia.

Our margins are improving from CCI
and a portfolio shift

Along with our focus on sales growth,
we are also focused on profit realization
and in driving operating income growth
at a faster rate than sales. In 2017, we
increased adjusted operating income
margin by 140 basis points driven by
both our CCI program and a portfolio
shift in our industrial segment.

Our CCI program has a two-fold objec-
tive. It generates fuel for growth to
fund investments in brand marketing
and additional sales initiatives, and
also drives margin improvement. Early
in 2016, we set a four-year goal to
achieve $400 million of cost savings
through greater productivity. We are
well on our way to achieving this goal
with a total of $226 million delivered in
the first two years, with $117 million
realized this year. Our efforts in this
area are paying off.

In 2017, we continued to expand our
indus trial margins with the strategic

migration of our portfolio to more
technically insulated and value-added
categories, flavorings and branded
foodservice. Complex flavors are pro-
tected by proprietary research and
technology while our foodservice busi-
ness carries the value of our brands.
This portfolio shift has been a signifi-
cant driver in increasing the industrial
segment’s operating income margin
by 190 basis points in 2017. Giotti, our
most recent industrial acquisition
completed in December 2016, further
migrates the portfolio towards value-
added categories and positions us for
incremental sales growth through the
expansion of our flavor solutions across
Europe. In addition to Giotti, we are
continuing to expand our industrial mar-
gins through the rapid growth across
other flavor categories, such as in
savory, and in branded foodservice,
including Frank’s RedHot and French’s.

We are strengthening our organization

We are strengthening the organization
with a cultural shift to faster decisions,
more personal accountability and action-
able insights. Our growth agenda has
highlighted the need for simpler, more
standardized and efficient global pro-
cesses to provide a platform to grow
while realizing the advantage of our
scale. In 2017, we announced our Global
Enablement organization. This organiza-
tion is reinventing our business pro-
cesses and executing a step change in
working globally and cross functionally.

6 McCormick & Company

Management Committee

Left to right: Malcolm Swift, Nneka Rimmer
Mike Smith, Lawrence Kurzius, Brendan Foley, Lisa Manzone

We Have the Right People and the
Right Culture

Our success is driven by our people and
our deep culture, which began with C.P.
McCormick’s introduction of the Power
of the People. This culture engages all
employees through our Multiple Man-
age ment philosophy of encouraging
participation and inclusion. Our high per-
formance culture is a key differentiator
in today’s highly competitive talent
market. Leveraging the knowledge, skills
and talents of a diverse workforce are
essential to successfully achieving
McCormick’s growth and objectives.
We have approximately 11,700 employ-
ees around the world that are united by
a passion for flavor. Together, with our
winning ways of working, we are driv-
ing growth opportunities, addressing
busi ness challenges, and developing
our people including future business
leaders. On behalf of the executive
team, I would like to thank McCormick
employees for their hard work and
tireless pursuit of excellence.

At the core of our culture is our commit-
ment to creating a diverse and inclusive
global workforce that is as wide-ranging
as the people who trust and love our

products. We encourage diversity
globally through leadership goals related
to women globally and people of color
in the U.S, our annual Diversity and
Inclusion Day activities, our robust Sup-
plier Diversity program and employee
ambassador groups. In 2017, we were
recognized by DiversityInc on their 2017
Top 50 Companies for Diversity. This is
a highly competitive award which high-
lights successes and best practices
that promote the growth and advance-
ment of underrepresented groups in
the workplace. This marks McCormick’s
first time on the list and this recogni-
tion is a testament to our continued
emphasis on embracing and leveraging
diversity and inclusion globally.

This past year we also made changes
to our management structure and our
Board of Directors. Nneka Rimmer
was named Senior Vice President of
Strategy and Global Enablement and
joined the Management Committee.
Two new members of our Board of
Directors, Gary Rodkin, former CEO
of ConAgra and Tony Vernon, former
CEO of Kraft Foods, both bring deep
consumer product industry expertise
to further strengthen our already
impressive Board of Directors.

Our Growth Momentum Continues

I am incredibly proud of where McCormick
is as a company and our continued
growth trajectory. In 2017, we performed
excep tionally well delivering record
financial results. We’re responding
readily to changes in the industry with
new ideas, innovation and purpose. We
continue to perform stronger globally
across our broad portfolio, with a keen
focus on growth, performance and
people. Our people remain our brightest
asset, and bring our best attributes to
bear as we define the future and con-
tinue to bring the joy of flavor to life.
I am confident in our continuing momen-
tum for growth in 2018 and beyond
and look forward to building the value
of your McCormick investment.

Sincerely,

Lawrence E. Kurzius
Chairman, President and
Chief Executive Officer

20%

30%

34%

16%

McCormick Is the Perfect Fit for
FRENCH’S® AND FRANK’S REDHOT®

2017 Annual Report 7
2017 Annual Report 7

OUR

BRAND

20%

30%

OUR

BRAND

FRENCH’S IS CLASSIC AMERICANA

FRANK’S REDHOT IS A CLEAR LEADER

34%

16%

Mustard in the U.S. and Canada delivering
classic flavor for generations.

Hot Sauce in the U.S. and Canada with
a passionate consumer following.

All Other

Frank’s RedHot

Next Largest

French’s Mustard

Frank’s RedHot

All Other

2017 Leading
Market Share
Position

All Other

2017 Leading
Market Share
Position

Next Largest

All Other

Next Largest

HIGH FRUCTOSE CORN
SYRUP, PRESERVATIVES,
ARTIFICIAL FLAVORS,
COLORS AND GLUTEN

French’s products fit in
McCormick’s Taste you
Trust portfolio.

Frank’s RedHot sales outpace
category growth.

Joint Ventures Contribute
~7% of Net Income

8 McCormick & Company

Our Broad Global
PORTFOLIO

McCormick is a global leader in flavor

with a growing and advantaged busi-

ness platform. We have a portfolio of

high quality, innovative flavor brands

that help people enjoy delicious meals

all around the world. We operate in

two segments, consumer and indus-

Total Annual Shareholder Return

Dividends Declared

3.0

2.5

2.0

1.5

1.0

0.5

0.0

600

500

400

300

200

100

1000

800

600

400

200

14%

13%

12%

2.0

1.5

1.0

0.5

0.0

1-YR

5-YR

10-YR

20-YR

Total annual shareholder return

has risen 12% or more for the past

1-, 5-, 10- and 20-year periods.

Net Sales

(billions)

$3.0

$2.4

Adjusted Operating

Income

(millions)

$564

$456

$1.63

$1.51

$1.39

trial, in every region across the globe.

$1.93

$1.76

We have joint ventures contributing

significantly to our global presence.

You probably enjoy something flavored

by us every day no matter where or

what you choose to eat or drink—if

42%

you love to eat it or drink it, chances

are McCormick is in it. With our

diverse and balanced flavor portfolio

we are ideally positioned to meet the

increasing demand for flavor around

2013

2014

2015

2016

2017

12%

Net Sales
by Segment
and Region

26%

McCormick has increased its
dividend in each of the past
32 years. We have paid a dividend
for 92 consecutive years.

the world.

Consumer Segment
• Americas
• Europe, Middle East
and Africa
• Asia/Pacific

Industrial Segment
• Americas
• Europe, Middle East
and Africa
• Asia/Pacific

Net Sales
(billions)

$1.9

$1.6

Adjusted Operating
Income
(millions)

$222

$122

250

200

150

100

2012

2017

2012

2017

2012

2017

2012

2017

Cash Flow from Operations

(millions)

$815

$658

$590

$504

$465

Cost Savings from CCI and Organization and
Streamlining Actions
(millions)

$117

$109

$98

$69

$63

To Make
Every Meal
& Moment
Better

2.0

1.5

1.0

0.5

0.0

140

120

100

2013

2014

2015

2016

2017

2013

2014

2015

2016

2017

Since 2013, we have increased

cash flow from operations by

more than $ 350 million.

In the last five years, we have achieved

over $450 million in cost savings.

Dividends Declared

$1.93

$1.76

$1.63

$1.51

$1.39

12%

2017 Annual Report 9

Consumer Purchase Channels
Consumer Purchase Channels

42%

Net Sales

by Segment

and Region

26%

2014

2015

2016

2017

1-YR

5-YR

20-YR

Consumer Segment
Our global consumer segment has brands in approximately 150 countries
2013
10-YR
and territories. Our iconic brands have leading share positions in many
of our markets. We offer products at every price point from premium
gourmet to value priced. We have compelling offerings for every retail
strategy in a broad range of categories and formats across every channel.

0.0

Total annual shareholder return
has risen 12% or more for the past
1-, 5-, 10- and 20-year periods.

Traditional
Grocery

McCormick has increased its
dividend in each of the past
32 years. We have paid a dividend
for 92 consecutive years.

Total Annual Shareholder Return

14%

13%

12%

2.0

1.5

1.0

0.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

2.0

1.5

1.0

0.5

0.0

140

120

100

1000

800

600

400

200

600

500

400

300

200

100

250

200

150

100

2.0

1.5

1.0

0.5

0.0

Net Sales

(billions)

$3.0

$2.4

Adjusted Operating

Income

(millions)

$564

$456

Cash Flow from Operations

(millions)

$815

$658

$590

$504

$465

3.0

2.5

2.0

1.5

1.0

0.5

0.0

600

500

400

300

200

100

1000

800

600

400

200

Total Annual Shareholder Return

14%

13%

12%

Dividends Declared

$1.93

$1.76

$1.63

$1.51

$1.39

1-YR

5-YR

10-YR

20-YR

Total annual shareholder return

has risen 12% or more for the past

1-, 5-, 10- and 20-year periods.

2013

2014

2015

2016

2017

McCormick has increased its
dividend in each of the past
32 years. We have paid a dividend
for 92 consecutive years.

2013

2014

2015

2016

2017

Net Sales
Since 2013, we have increased
(billions)
cash flow from operations by
more than $ 350 million.

Adjusted Operating
Income
(millions)

$1.9

$1.6

$222

$122

82%

Grew sales 17%
and adjusted
operating income
82% since 2012.

2012

2017

2012

2017

2012

2017

2012

2017

Cost Savings from CCI and Organization and
Streamlining Actions
(millions)

$117

$109

$98

$69

$63

2013

2014

2015

2016

2017

2013

2014

2015

2016

2017

Since 2013, we have increased

cash flow from operations by

more than $ 350 million.

In the last five years, we have achieved

over $450 million in cost savings.

Net Sales
(billions)

$3.0

$2.4

Adjusted Operating
Income
(millions)

$564

$456

2.0

1.5

1.0

0.5

0.0

250

200

150

100

Cash Flow from Operations
(millions)

$815

140

42%

120

Net Sales
by Segment
and Region

$658

100

$465

$590

$504

Industrial Segment
Our global industrial segment’s portfolio consists of flavorings, branded
foodservice products, condiments, coating systems, and ingredients.
We have one of the broadest ranges of flavor solutions among our com-
petitive set. We partner with the top ten packaged food and beverage
companies as well as nine of the top ten foodservice restaurant chains.

Supercenter
and Club

Hard
Discounters

Specialty and
Ethnic

E-commerce

Convenience

Net Sales
(billions)

$1.9

$1.6

Adjusted Operating
Income
(millions)

$222

$122

Cost Savings from CCI and Organization and
Streamlining Actions
(millions)

$117

$109

26%

$98

$69

$63

In December 2016, we completed the

purchase of Enrico Giotti SpA, a leading Italian

flavor manufacturer located in Florence, Italy.
2016
Founded in 1928, Giotti is a manufacturer of an

2014

2013

2017

2015

on-trend portfolio of natural flavors, aromatic herbal

In the last five years, we have achieved
extracts and concentrated juices and is well known
over $450 million in cost savings.
in the industry for its innovative beverage, sweet,

savory and dairy flavor applications.

Giotti added greater scale to McCormick’s industrial

business in the EMEA region, expanding the breadth

of our value-added flavor solutions including expertise

in flavoring health and nutrition products. Our global

technical bench strength was also increased with the

addition of a highly experienced group of talented

professionals to complement our existing resources.

2012

2017

2012

2017

12%

2012

2017

2012

2017

Portfolio includes spices & herbs, recipe mixes, extracts, condiments, marinades, stocks, broths, bouillons,
sauces, toppings, homemade desserts, rice mixes, salad dressings and breadings.

10 McCormick & Company

McCormick’s
FIVE PRINCIPLES

To support our new vision and mission, we launched five key principles that speak to

our purpose, competitive advantage and ambitions. Three of our principles have long

roots in McCormick culture, Passion for Flavor, Power of People and Taste you Trust. We

introduced two new principles, Driven to Innovate and Purpose-led Performance, to

reflect our continuous reinvention of our business and our commitment to delivering

top tier business results with responsibility to people, communities and the planet.

Each principle describes McCormick’s tenets and speaks to our purpose, competitive

advantage and ambitions.

PASSION FOR FLAVOR™

Flavor is at the heart of everything we do. We propel the food and

beverage industry forward by creating flavor products that surprise

and delight our consumers and delivering premium flavor solutions

and unrivaled expertise for our customers. We believe that good

food and beverages can also be good for you: we inspire and

empower all makers—the food lovers and professional chefs, alike—

to make great-tasting, healthy choices.

Read more at
flavorforecast.com

2017 Annual Report 11

POWER OF PEOPLE™

We win with people. Our high performance culture is rooted in our

shared values and the respect for the contributions of each and every

employee. Each day, McCormick flavors come to life through the

diversity of our people, ideas, brands and geographies. Our success

is driven by our employees and the collaborative culture that we have

established and sustained over many years.

TASTE YOU TRUST®

For more than 125 years, McCormick has earned an unmatched

track record in food safety and product integrity. It’s what

makes us the taste our consumers and customers trust. Our

exacting standards start in the communities around the world

from which we source and continue all the way until our flavors

reach the table.

In 2017, approximately half our sales were of
products made from organic, sustainably-sourced or
non-GMO ingredients.

12 McCormick & Company

DRIVEN TO INNOVATE

Driven to innovate reflects our unrelenting focus on what’s next and recognizes that innovation always

has, and always will, propel our business forward. Innovation is everyone’s responsibility, which means

embracing breakthrough ideas across all aspects of our business. It’s how we differentiate our brands,

drive growth and maintain our flavor leadership. It’s not just about products. We design new solutions

across all aspects of our business…informed by best-in-class science, technology and improved ways of

working. Innovation is how we continue to fuel growth and maintain a competitive advantage after

more than a century in business.

New Products
New product innovation is an integral part of our growth

Ways of Working
Across the company, we continue to strengthen our

platform. This year we went beyond just new products

winning ways of working with faster decision making,

as we also extended our U.S. presence into the break-

more personal accountability and actionable insights.

fast occasion with “McCormick Good Morning™”.

In our manufacturing environment, we extend inno-

Breakfast offers a tremendous opportunity to leverage

vation beyond advances in automation to our business

our flavor expertise, beyond where McCormick is

processes. Our Journey to Excellence program

typically found.

centered around continuous improve ment drives

• We have launched a range of four product lines with

innovative solutions.

clean labels and BPA free packaging…breakfast top-

• Our teams are equipped with the right skills and the

pers, breakfast seasonings, slow cooker breakfast and

right information to drive engagement, ownership and

smoothie boosts.

decision making at the line level.

• We are bringing great flavor, with quality ingredients,

• This high performance cultural framework is combined

to today’s breakfast staples for a meal everyone

with standardized problem solving tools and process

can enjoy.

improvement methods to reduce our supply chain

losses worldwide.

2017 Annual Report 13

We have a long commitment in investing in
research and development, such as our new
Singapore Technical Innovation Center, which has
enabled us to make big strides in the technologies
that support our product innovation, differentiation
and our health and wellness agenda.

COMPUTATIONAL
CREATIVITY

We are leveraging groundbreaking information
technology to develop new products rapidly. A
proprietary tool that provides our scientists
worldwide with immediate access to best
product solutions for customer needs.

Science and Technology
Science and technology are critical to our differentiation…whether it be

in the office, research and development centers or across our supply

chain. We will continue to increase the use of technology throughout

our business, including in product development where we stay at the

forefront of consumer trends while not compromising on taste. The

combination of this culinary based approach coupled with our best in

class sensory and technology capabilities differentiates McCormick.

• FlavorCell®, one of our proprietary technologies, allows us to deliver

flavor protected from the effects of time and temperature as well

as to create craveable flavors with a layered, sequential release.

• Computational creativity couples our large repository of consumer

preferences with technology driven advanced analytics to accelerate

new product development with new perspectives.

14 McCormick & Company

PURPOSE-LED
PERFORMANCE

We deliver industry leading financial performance while doing the

right thing for people, communities and planet. Every day we are

driven to do what’s right. It’s an unwavering responsibility to the

long-term vitality and prosperity of our business and the world

around us.

Read more at
mccormickcorporation.com/
our-commitment

People
We are a champion for equality
and health & wellness, among our
employees and in our communi-
ties. This includes maintaining a
high performance culture that val-
ues the diversity and contributions
of each employee and promoting
well-being through products
and programs.

Communities
We are committed to building vibrant,
resilient communities where we live,
work and source. This includes our
charitable giving efforts and our work
to improve livelihoods in farming
communities across the globe. At
McCormick, we also challenge each
other to be involved citizens and
community members who under-
stand the importance of living and
working in a larger world.

Planet
We take responsibility for the long-
term sustainability of our products
and the world around them. We
are working to adopt a systems
approach—informed by science—
to embed sustainability across
our operations and supply chain.

For the second consecutive year, McCormick ranked No. 1 in the food
products industry in the 2018 Global 100 Most Sustainable Corporations
Index by Corporate Knights. Corporate Knights assesses all publicly
traded companies with a market capitalization of at least $2 billion to
create the annual list.

12%

42%

Net Sales

by Segment

and Region

26%

3.0

2.5

2.0

1.5

1.0

0.5

0.0

3.0

2.5

2.0

1.5

1.0

0.5

0.0

600

500

400

300

200

100

600

500

400

300

200

100

1000

800

600

400

200

Total Annual Shareholder Return

Dividends Declared

2017 Annual Report 15

14%

Financial Highlights

2.0

13%

2.0

$1.93

$1.76

12%

For the year ended November 30 (millions except per share data)

2017
$1.51

$1.63

$1.51

2016

% Change

Net sales

Gross profit

1.5

Gross profit margin

1.0

Operating income

Operating income margin

Net income

Earnings per share—diluted

0.5

0.0

1-YR

5-YR

Cash flow from operations
20-YR
10-YR
20-YR
10-YR
Dividends paid
Total annual shareholder return
has risen 12% or more for the past
1-, 5-, 10- and 20-year periods.

Total annual shareholder return
has risen 12% or more for the past
1-, 5-, 10- and 20-year periods.

Dividends paid per share

$1.39
$1.39
$4,834.1

2,010.2

$4,411.5

1,831.7

41.6%

702.4

14.5%

477.4

3.72

41.5%

641.0

14.5%

472.3

3.69

2015

2016

2017

2013

2014

815.3
2014
2013
237.6

658.1
2017
2016
217.8
McCormick has increased its
1.72
dividend in each of the past
32 years. We have paid a dividend
for 92 consecutive years.

McCormick has increased its
1.88
dividend in each of the past
32 years. We have paid a dividend
for 92 consecutive years.

9.6%

9.7%

9.6%

1.1%

0.8%

23.9%

9.1%

9.3%

2017

2016

% Change

$2,031.1

$1,832.0

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 40 to 44.

Adjusted Operating
Adjusted Operating
Net Sales
Net Sales
Adjusted gross profit
Income
Income
(billions)
(billions)
Adjusted gross profit margin
(millions)
(millions)
Adjusted operating income
$3.0

$3.0

$564

$2.4

Adjusted operating income margin
$456
Adjusted net income

$456

$2.4

Adjusted earnings per share—diluted

2012

2017

2012

2017

2012

2017

2012

2017

2.0

1.5

1.0

0.5

0.0

2.0

1.5

1.0

0.5

0.0

42.0%

786.3

250

16.3%

200

546.7

150

4.26

100

250

200

150

100

Net Sales
(billions)

Net Sales
10.9%
(billions)

Adjusted Operating
Adjusted Operating
Income
Income
(millions)
(millions)

41.5%

657.0

14.9%

$1.6

483.4

3.78

19.7%
$1.9

$1.9

$1.6

13.1%

12.7%

$222

$122

2012

2017

2012

2017

2012

2017

2012

2017

Cash Flow from Operations
(millions)

Adjusted Operating Income Margin

$815

140

120

140

120

$658

$590

$465

$504

$465

$504

2013

2014

2013

2015

2014

2016

2015

2017

2016

2017

Since 2013, we have increased
cash flow from operations by
more than $ 350 million.

100

200

60
basis point
expansion
40

With adjusted operating income
growth exceeding sales growth over
the last two years we drove a 200
basis point margin expansion.

Cost Savings from CCI and Organization and
Cost Savings from CCI and Organization and
Streamlining Actions
Streamlining Actions
(millions)
(millions)

$117

$109

$117

$109

$98

$63

$69

$63

$69

2013

2014

2013

2015

2014

2016

2015

2017

2016

2017

In the last five years, we have achieved
over $450 million in cost savings.

BOARD OF DIRECTORS

Michael A. Conway 51
President, Licensed Stores,
U.S. and Latin America
Starbucks Corporation
Seattle, Washington
Director since 2015

Audit Committee

J. Michael Fitzpatrick 71
Former Chairman and
Chief Executive Officer
Citadel Plastics Holdings, Inc.
Radnor, Pennsylvania
Director since 2001

Audit Committee

Freeman A. Hrabowski, III 67
President
University of Maryland
Baltimore County
Baltimore, Maryland
Director since 1997

Nominating/Corporate
Governance Committee*

Lawrence E. Kurzius 59
Chairman, President &
Chief Executive Officer
McCormick & Company, Inc.
Director since 2015

Patricia Little 57
Senior Vice President and
Chief Financial Officer
The Hershey Company
Hershey, Pennsylvania
Director since 2010

Audit Committee*

Michael D. Mangan 61
Former President
Worldwide Power Tools & Accessories
The Black & Decker Corporation
Towson, Maryland
Director since 2007**

Compensation Committee*
Nominating/Corporate
Governance Committee

EXECUTIVE OFFICERS

Lawrence E. Kurzius
Chairman, President &
Chief Executive Officer

Michael R. Smith
Executive Vice President &
Chief Financial Officer

Brendan M. Foley
President, Global Consumer & Americas

Lisa B. Manzone
Senior Vice President, Human Relations

Nneka L. Rimmer
Senior Vice President, Strategy and
Global Enablement

Jeffery D. Schwartz
Vice President, General Counsel
& Secretary

Malcolm Swift
President, Global Industrial &
McCormick International

Maritza G. Montiel 66
Former Deputy Chief Executive
Officer and Vice Chairman
Deloitte LLP
Washington, D.C.
Director since 2015

Compensation Committee

Margaret M.V. Preston 60
Managing Director,
Private Wealth Management
TD Bank
New York, New York
Director since 2003

Nominating/Corporate
Governance Committee

Gary M. Rodkin 65
Former President and
Chief Executive Officer
ConAgra Foods, Inc.
Omaha, Nebraska
Director since 2017

Nominating/Corporate
Governance Committee

Jacques Tapiero 59
Former Senior Vice President and
President, Emerging Markets
Eli Lilly and Company
Indianapolis, Indiana
Director since 2012

Compensation Committee

W. Anthony Vernon 62
Former Chief Executive Officer
Kraft Foods Group, Inc.
Northfield, Illinois
Director since 2017

Compensation Committee

Alan D. Wilson 60
Former Executive Chairman
of the Board
McCormick & Company, Inc.
Director since 2007

* Indicates Chair Position on the Committee
** Lead Director

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
Reports of Independent Registered Public Accounting Firm
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

2017 Annual Report 17

Page

51
51
52
54
54
55
56
57
58

18 McCormick & Company

THIS PAGE LEFT INTENTIONALLY BLANK

2017 Annual Report 19

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, 2017

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 £

20 McCormick & Company

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, a smaller
reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Check one:

Large accelerated filer S

Non-accelerated filer £ (Do not check if a smaller reporting company)

Accelerated filer

Smaller reporting company £
Emerging growth company £

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. £

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, 2017: $1,157,886,402

The aggregate market value of the Non-Voting Common Stock held by non-affiliates at May 31, 2017: $11,809,126,501

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

10,008,182
121,097,928

December 29, 2017
December 29, 2017

DOCUMENTS INCORPORATED BY REFERENCE

Document

Part of 10-K into Which Incorporated

Proxy Statement for
McCormick’s March 28, 2018
Annual Meeting of Stockholders
(the “2018 Proxy Statement”)

Part III

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.

On August 17, 2017, we completed the acquisition of Reckitt Benckiser’s
Food Division (“RB Foods”) from Reckitt Benckiser Group plc. The
purchase price was approximately $4.21 billion, net of acquired
cash of $24.3 million, and included a preliminary working capital
adjustment of $11.2 million. In December 2017, we paid an additional
$4.2 million in connection with the final working capital adjustment.
The acquisition was funded through our issuance of approximately
6.35 million shares of common stock non-voting (see note 13 of the
financial statements) and through new borrowings comprised of
senior unsecured notes and pre-payable term loans (see note 6 of
the financial statements). The acquired market-leading brands of RB
Foods include French’s®, Frank’s RedHot® and Cattlemen’s®, which
are a natural strategic fit with our robust global branded flavor port-
folio. We believe that these additions move us to a leading position
in the attractive U.S. Condiments category and provide significant
international growth opportunities for our consumer and industrial
segments. At the time of the acquisition, annual sales of RB Foods
were approximately $570 million. The transaction was accounted for
under the acquisition method of accounting and, accordingly, the
results of RB Foods’ operations have been included in our financial
statements as a component of our consumer and industrial segments
from the date of acquisition.

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 segment.
In 2017, the consumer segment contributed approximately 61% of
sales and 72% of operating income, and the industrial segment con-
tributed approximately 39% of sales and 28% of operating income.

2017 Annual Report 21

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®, French’s®,
Frank’s RedHot®, 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 the Europe, Middle East and
Africa (EMEA) region, 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, we market our spices and rice products
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 international
markets. Some are owned by large food manufacturers, while others
are supplied by small privately owned companies. In this competitive
environment, we are leading with innovation and brand marketing,
and applying our analytical tools to help customers optimize the
profitability of their spice and seasoning 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 foodservice
customers. The foodservice customers are supplied with branded,
packaged products both directly and indirectly through distributors.
We supply food manufacturers and foodservice customers with cus-
tomized flavor solutions, and many of these customer relationships
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 compound flavors.
In addition to a broad range of flavor solutions, our long-standing
customer relationships are evidence of our effectiveness in building
customer intimacy. Our customers benefit from our expertise in
many areas, including sensory testing, culinary research, food safety
and flavor application.

22 McCormick & Company

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, garlic, vanilla, capsicums (red peppers and paprika),
onion, wheat flour and rice. 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 international loca-
tions. Because the raw materials are agricultural products, they are
subject to fluctuations in market price and availability caused by
weather, growing and harvesting conditions, market conditions, and
other factors beyond our control.

We respond to this volatility in a number of ways, including strategic
raw material purchases, purchases of raw material for future delivery,
customer price adjustments and cost savings from our Comprehensive
Continuous Improvement (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 2017, 2016 and 2015.
Sales to one of our industrial segment customers, PepsiCo, Inc.,
accounted for 11% of consolidated sales in 2017, 2016 and 2015. In
2017, 2016 and 2015 the top three customers in our industrial segment
represented between 50% 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 aggre-
gate these trademarks are material to our business, the loss of any
one of those trademarks, with the exception of our “McCormick,”
“French’s,” “Frank’s RedHot,” “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
terminates the agreement. Those agreements with specific terms
are renewable upon agreement of the parties.

We also own various patents, none of which are individually mate-
rial to our business.

Seasonality
Due to seasonal factors inherent in our business, our sales, income
and cash from operations generally are lower in the first two quarters
of the fiscal year, increase in the third quarter and are significantly
higher in the fourth quarter due to the holiday season. This seasonal-
ity reflects customer and consumer buying patterns, primarily in the
consumer segment.

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 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 $66.1 million in 2017, $61.0 million
in 2016, and $60.8 million in 2015. The amount spent on customer-
sponsored research activities is not material.

Governmental Regulation
We are subject to numerous laws and regulations around the world
that apply to our global businesses. In the United States, the safety,
production, transportation, distribution, advertising, labeling and
sale of many of our products and their ingredients are subject to the
Federal Food, Drug, and Cosmetic Act; the Food Safety Moderniza-
tion Act; the Federal Trade Commission Act; state consumer protec-
tion laws; competition laws, anticorruption 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 2017, and there are no
material expenditures planned for such purposes in fiscal year 2018.

Employees
We had approximately 11,700 full-time employees worldwide as
of November 30, 2017. Our operations have not been affected sig-
nificantly by work stoppages and, in the opinion of management,
employee relations are good. We have approximately 300 employees
covered by a collective bargaining contract in the United States. At
our foreign subsidiaries, approximately 2,600 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, royal-
ties and dividends. In fiscal year 2017, 41% 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, brand marketing support, and
income tax expense are “forward-looking statements” within the
meaning of Section 21E of the Securities Exchange Act of 1934.
These statements 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 the company, including the acquisition of
RB Foods; the expected impact of raw material costs and pricing
actions on the company’s results of operations and gross margins;
the expected impact of productivity improvements, including those
associated with our Comprehensive Continuous Improvement (CCI)
program and global enablement initiative; expected working capital
improvements; expectations regarding growth potential in various
geographies and markets, including the impact from customer, chan-
nel, category, and e-commerce expansion; expected trends in net
sales and earnings performance and other financial measures; the
expected impact of the U.S. tax regulation passed in December 2017;
the expectations of pension and postretirement plan contributions
and anticipated charges associated with those plans; the holding
period and market risks associated with financial instruments; the
impact of foreign exchange fluctuations; the adequacy of internally
generated funds and existing sources of liquidity, such as the avail-
ability of bank financing; the anticipated sufficiency of future cash
flows to enable the payments of interest and repayment of short-
and long-term debt as well as quarterly dividends and the ability to
issue additional debt or equity securities; and expectations regard-
ing purchasing shares of McCormick’s common stock under the
existing repurchase authorization.

2017 Annual Report 23

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 the company’s
reputation or brand name; loss of brand relevance; increased private
label use; product quality, labeling, or safety concerns; negative
publicity about our products; business interruptions due to natural
disasters or unexpected events; actions by, and the financial condition
of, competitors and customers; the company’s 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, including the acquisition of RB Foods;
difficulties or delays in the successful transition of RB Foods from
the information technology systems of the seller to those of
McCormick as well as risks associated with the integration and
transition of the operations, systems and personnel of RB Foods,
within the remaining term of the post-closing transition services
agreement between McCormick and the seller in the first half of 2018;
issues affecting the company’s supply chain and raw materials,
including fluctuations in the cost and availability of raw and packaging
materials; government regulation, and changes in legal and regula-
tory requirements and enforcement practices; global economic and
financial conditions generally, including the availability of financing,
and interest and inflation rates; the effects of increased level of debt
service following the RB Foods acquisition as well as the effects
that such increased debt service may have on the company’s ability
to react to certain economic and industry conditions and ability to
borrow or the cost of any such additional borrowing; the interpreta-
tions and assumptions we have made, and guidance that may be
issued, regarding the U.S. tax legislation enacted on December 22,
2017; assumptions we have made regarding 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 the company’s information
technology systems, including the threat of data breaches and cyber
attacks; fundamental changes in tax laws; volatility in our effective
tax rate; climate change; infringement of intellectual property rights,
and those of customers; litigation, legal and administrative pro-
ceedings; and other risks described herein under Part I, Item 1A
“Risk Factors.”

Actual results could differ materially from those projected in the
forward-looking statements. We undertake no obligation to update
or revise publicly any forward-looking statements, whether as a
result of new information, future events or otherwise, except as
may be required by law.

Available Information
Our principal corporate internet website address is:
www.mccormickcorporation.com. We make available free of
charge through our website our Annual Report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange
Act”) as soon as reasonably practicable after such documents are
electronically filed with, or furnished to, the United States Securities
and Exchange Commission (the “SEC”). The SEC maintains an inter-
net website at www.sec.gov that contains reports, proxy and infor-
mation statements, and other information regarding McCormick. Our
website also includes our Corporate Governance Guidelines, Business
Ethics Policy and charters of the Audit Committee, Compensation

24 McCormick & Company

Committee, and Nominating/Corporate Governance Committee of
our Board of Directors.

ITEM 1A. RISK FACTORS

The following are certain risk factors that could affect our business,
financial condition and results of operations. These risk factors
should be considered in connection with evaluating the forward-
looking statements contained in this Annual Report on Form 10-K
because these factors could cause the actual results and conditions
to differ materially from those projected in forward-looking state-
ments. Before you buy our Common Stock or Common Stock Non-
Voting, you should know that making such an investment involves
risks, including the risks described below. Additional risks and uncer-
tainties that are not presently known to 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 rele-
vance, 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 recognition.
Our success depends on our ability to maintain our brand image for
our existing products, extend our brands to new platforms, and
expand our brand image with new product offerings.

We continually make efforts to maintain and improve relationships
with our customers and consumers and to increase awareness and
relevance of our brands through effective marketing and other
measures. From time to time, our customers evaluate their mix of
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
relationships or failure to adequately protect the relevance of our
brands may lead to litigation, customers purchasing from our
competitors or consumers purchasing other brands or private label
items that may or may not be manufactured by us, any of which
could have a material negative impact on our business, financial
condition or results of operations.

The food industry generally is subject to risks posed by food spoilage
and contamination, product tampering, product recall, import alerts
and consumer product liability claims. For instance, we may be
required to recall certain of our products should they be mislabeled,
contaminated or damaged, and certain of our raw materials could be
blocked from entering the country if they were subject to import alerts.

We also may become involved in lawsuits and legal proceedings 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 products or ingredients,
any of which could have a negative effect on our business or finan-
cial results and, depending upon the significance of the affected
product, that negative effect could be material to our business or
financial results. Negative publicity about these concerns, whether
or not valid, may discourage customers and consumers from buying
our products or cause disruptions in production or distribution of our
products and adversely affect our business, financial condition or
results of operations.

The rising popularity of social networking and other consumer-
oriented technologies has increased the speed and accessibility of
information dissemination (whether or not accurate), and, as a
result, negative, inaccurate, or misleading posts or comments on
websites may generate adverse publicity that could damage our
reputation or brands.

Customer consolidation, and competitive, economic and other
pressures facing our customers, may put pressure on our
operating margins and profitability.

A number of our customers, such as supermarkets, warehouse clubs
and food distributors, have consolidated in recent years and consoli-
dation could continue. Such consolidation could present a challenge
to margin growth and profitability in that it has produced large,
sophisticated customers with increased buying power who are more
capable of operating with reduced inventories; resisting price
increases; demanding lower pricing, increased promotional programs
and specifically tailored products; and shifting shelf space currently
used for our products to private label and other competitive prod-
ucts. 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 seg-
ment 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 2017. The loss of either of these large customers
or a material negative change in our relationship with these large
customers or other major customers could have an adverse effect
on our business.

Disruption of our supply chain and issues regarding
procurement of raw materials may negatively impact us.

Our purchases of raw materials are subject to fluctuations in market
price and availability caused by weather, growing and harvesting
conditions, market conditions, governmental actions and other factors

beyond our control. The most significant raw materials used by us in
our business are pepper, dairy products, garlic, vanilla, capsicums
(red peppers and paprika), onion, wheat flour and rice. 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.

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
promotional activity, and the ability to identify and satisfy consumer
preferences. From time to time, we may need to reduce the prices
for some of our products to respond to competitive and customer
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, storage,
labeling, marketing, advertising and distribution of food products, as
well as laws and regulations relating to financial reporting require-
ments, the environment, competition, anti-corruption, privacy, rela-
tions with distributors and retailers, foreign supplier verification, the
import and export of products and product ingredients, employment,
health and safety, and trade practices. Enforcement of existing laws
and regulations, changes in legal requirements, and/or evolving
interpretations of existing regulatory requirements may result in
increased compliance costs and create other obligations, financial
or otherwise, that could adversely affect our business, financial
condition or operating results. Increased regulatory scrutiny of, and

2017 Annual Report 25

increased litigation involving, product claims and concerns regarding
the attributes of food products and ingredients may increase com-
pliance costs and create other obligations that could adversely affect
our business, financial condition or operating results. Govern ments
may also impose requirements and restrictions that impact our busi-
ness, such as labeling disclosures pertaining to ingredients. For exam-
ple, “Proposition 65, the Safe Drinking Water and Toxic Enforcement
Act of 1986,” in California exposes all food companies to the possi-
bility of having to provide warnings on their products in that state.
If we were required to add warning labels to any of our products or
place warnings in locations where our products are sold in order to
comply with Proposition 65, the sales of those products and other
products of our company could suffer, not only in those locations but
elsewhere. These factors and others could have an adverse impact
on our business, financial condition or results of operations.

Our operations may be impaired as a result of disasters,
business interruptions or similar events.

We could have an interruption in our business, loss of inventory or
data, or be rendered unable to accept and fulfill customer orders as
a result of a natural disaster, catastrophic event, epidemic or com-
puter system failure. Natural disasters could include an earthquake,
fire, flood, tornado or severe storm. A catastrophic event could
include a terrorist attack. An epidemic could affect our operations,
major facilities or employees’ and consumers’ health. In addition,
some of our inventory and production facilities are located in areas
that are susceptible to harsh weather; a major storm, heavy snowfall
or other similar event could prevent us from delivering products in a
timely manner. Production of certain of our products is concentrated
in a single manufacturing site.

We cannot provide assurance that our disaster recovery plan will
address all of the issues we may encounter in the event of a disaster
or other unanticipated issue, and our business interruption insurance
may not adequately compensate us for losses that may occur from
any of the foregoing. In the event that a natural disaster, terrorist
attack or other catastrophic event were to destroy any part of our
facilities or interrupt our operations for any extended period of time,
or if harsh weather or health conditions prevent us from delivering
products in a timely manner, our business, financial condition or
operating results could be adversely affected.

We may not be able to successfully consummate and manage
ongoing acquisition, joint venture and divestiture activities
which could have an impact on our results.

From time to time, we may acquire other businesses and, based on
an evaluation of our business portfolio, divest existing businesses.
These acquisitions, joint ventures and divestitures may present
financial, managerial and operational challenges, including diversion
of management attention from existing businesses, difficulty with
integrating or separating personnel and financial and other systems,
increased expenses and raw material costs, assumption of unknown
liabilities and indemnities, and potential disputes with the buyers or
sellers. In addition, we may be required to incur asset impairment
charges (including charges related to goodwill and other intangible
assets) in connection with acquired businesses which may reduce our
profitability. If we are unable to consummate such transactions, or
successfully integrate and grow acquisitions and achieve contemplated
revenue synergies and cost savings, our financial results could be
adversely affected. Additionally, joint ventures inherently involve a

26 McCormick & Company

lesser degree of control over business operations, thereby potentially
increasing the financial, legal, operational, and/or compliance risks.

Increases in interest rates or changes in our credit ratings may
negatively impact us.

Our foreign and cross-border operations are subject to
additional risks.

We operate our business and market our products internationally. In
fiscal year 2017, 41% of our sales were generated in foreign countries.
Our foreign operations are subject to additional risks, including
fluctuations in currency values, foreign currency exchange controls,
discriminatory fiscal policies, compliance with U.S. and foreign laws,
enforcement of remedies in foreign jurisdictions and other economic
or political uncertainties. 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, interna-
tional 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.

Fluctuations in foreign currency markets may negatively
impact us.

We are exposed to fluctuations in foreign currency in the following
main areas: cash flows related to raw material purchases; the transla-
tion of foreign currency earnings to U.S. dollars; the effects of for-
eign 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 neg-
ative 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.

We had total outstanding short-term borrowings of $258 million at
an average interest rate of approximately 2.3% on November 30, 2017.
We also had total outstanding variable rate long-term debt, including
current maturities, of $1,243 million at an average interest rate of
approximately 2.7% on November 30, 2017. The interest rates under
our term loans and revolving credit facilities can vary based on our
credit ratings. Our policy is to manage our interest rate risk by enter-
ing into both fixed and variable rate debt arrangements. We also use
interest 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 ongo-
ing 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 reg-
ular communication with senior management and the utilization of
written guidelines. However, our use of these instruments may not
effectively limit or eliminate our exposure to changes in interest
rates. Therefore, we cannot provide assurance that future credit
rating or interest rate changes will not have a material negative
impact on our business, financial position or operating results.

Our credit ratings impact the cost and availability of future
borrowings and, accordingly, our cost of capital.

Our credit ratings reflect each rating organization’s opinion of our
financial strength, operating performance and ability to meet our
debt obligations. Our credit ratings were downgraded following our
financing of the acquisition of RB Foods in August 2017, and any
reduction in our credit ratings may limit our ability to borrow at inter-
est rates consistent with the interest rates that were available to us
prior to that acquisition and the related financing transactions. If our
credit ratings are further downgraded or put on watch for a potential
downgrade, we may not be able to sell additional debt securities or
borrow money in the amounts, at the times or interest rates or upon
the more favorable terms and conditions that might be available if
our current credit ratings were maintained.

We have incurred additional indebtedness to finance the
acquisition of RB Foods and may not be able to meet our debt
service requirements.

After financing our acquisition of RB Foods, we have a significant
amount of indebtedness outstanding. As of November 30, 2017, the
indebtedness of McCormick and its subsidiaries is approximately
$5.0 billion. This substantial level of indebtedness could have
important consequences to our business, including, but not limited to:

• reducing the benefits that we expect to receive from the

acquisition of RB Foods;

• increasing our debt service obligations, making it more difficult for

us to satisfy our obligations;

• limiting our ability to borrow additional funds and increasing the

cost of any such borrowing;

• i ncreasing our exposure to negative fluctuations in interest rates;

• subjecting us to financial and other restrictive covenants, the non-

compliance with which could result in an event of default;

• increasing our vulnerability to, and reducing our flexibility to

respond to, general adverse economic and industry conditions;

• limiting our flexibility in planning for, or reacting to, changes in our

business and the industry in which we operate;

• placing us at a competitive disadvantage as compared to our

competitors, to the extent that they are not as highly leveraged; and

• restricting us from pursuing certain business opportunities,

including other acquisitions.

The deterioration of credit and capital markets may adversely
affect our access to sources of funding.

We rely on our revolving credit facilities, or borrowings backed by
these facilities, to fund a portion of our seasonal working capital
needs and other general corporate purposes. If any of the banks in
the syndicates backing these facilities were unable to perform on its
commitments, our liquidity could be impacted, which could adversely
affect funding of seasonal working capital requirements. We engage
in regular communication with all of the banks participating in our
revolving credit facilities. During these communications, none of the
banks have indicated that they may be unable to perform on their
commitments. In addition, we periodically review our banking and
financing relationships, considering the stability of the institutions,
pricing we receive on services and other aspects of the 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 that 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

2017 Annual Report 27

customer or counterparty could require us to assume greater credit
risk relating to that customer or counterparty and could limit our abil-
ity 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, caus-
ing our business and results of operations to suffer.

Furthermore, our information technology systems may be vulnerable
to security breaches beyond our control, including those involving
cyber attacks using viruses, worms or other destructive software,
process breakdowns, or other malicious activities, or any combina-
tion of the foregoing. Such breaches could result in unauthorized
access to information including customer, consumer or other com-
pany confidential data. We invest in security technology and design
our business processes to mitigate the risk of such breaches. While
we believe that 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 con-
tinuous 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
litigation, 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
dispositions, adjustments to our reserves related to uncertain tax
positions, changes in valuation allowances and the portion of the
income of foreign subsidiaries that we expect to remit to the U.S.
and that will be taxable.

In addition, significant judgment is required in determining our effec-
tive tax rate and in evaluating our tax positions. We establish accruals
for certain tax contingencies when, despite the belief that our tax
return positions are appropriately supported, the positions are uncer-
tain. 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 those 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

28 McCormick & Company

reduction to our effective tax rate in the year of resolution.
Unfavorable resolution of any particular issue could increase the
effective tax rate and may require the use of cash in the year
of resolution.

Climate change may negatively affect our business, financial
condition and results of operations.

Unseasonable or unusual weather or long-term climate changes may
negatively impact the price or availability of spices, herbs and other
raw materials. There is concern that greenhouse gases in the atmos-
phere 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, trademarks,
copyrights, patents, business processes and other trade secrets which
are important to our business and relate to some of our products,
our packaging, the processes for their production, and the design
and operation of equipment used in our businesses. We protect our
intellectual property rights, and those of certain customers, globally
through a variety of means, including trademarks, copyrights, patents
and trade secrets, third-party assignments and nondisclosure agree-
ments, 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 and financial condition or
damage our reputation.

We are party to a variety of legal claims and proceedings in the ordi-
nary course of business. Since litigation is inherently uncertain, there
is no guarantee that we will be successful in defending ourselves
against such claims or proceedings, or that management’s assess-
ment of the materiality or immateriality of these matters, including
any reserves taken in connection with such matters, will be consistent
with the ultimate outcome of such claims or proceedings. In the event
that management’s assessment of the materiality or immateriality of
current claims and proceedings proves inaccurate, or litigation that
is material arises in the future, there may be a material adverse
effect on our financial condition. Any adverse publicity resulting
from allegations made in litigation claims or legal or administrative
proceedings (even if untrue) may also adversely affect our reputation.

These factors and others could have an adverse impact on our
business and financial condition or damage our reputation.

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
manufacturing facility to another; transfer certain selling and admin-
istrative functions from one location to another; eliminate certain
manufacturing, selling and administrative positions; and exit certain
businesses or lines of business. These actions may result in a deteri-
oration 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 business,
results of operations and financial position.

We have incurred significant transaction and integration
expenses in connection with the acquisition of RB Foods that
could adversely affect our results of operations.

We have incurred significant transaction expenses in connection with
the RB Foods acquisition, including payment of certain fees and
expenses incurred in connection with the acquisition and related
financing transactions. We have also incurred significant integration
expenses, and expect to continue to incur such expenses in 2018.
Additional unanticipated expenses may be incurred in the integration
process. These could adversely affect our results of operations in
the period in which such expenses are recorded or our cash flow in
the period in which any related costs are actually paid.

RB Foods may underperform relative to our expectations.

We may not be able to maintain the growth rate, levels of revenue,
earnings or operating efficiency that we and RB Foods have achieved
prior to the completion of that acquisition or might have achieved
separately. The business and financial performance of RB Foods are
subject to certain risks and uncertainties. The underperformance of
RB Foods relative to our expectations could have a material adverse
effect on our financial condition and results of operations.

We may fail to realize all of the anticipated benefits that we
envisioned at the time of our acquisition of RB Foods or those
benefits may take longer to realize than expected. We may
also encounter significant difficulties in integrating RB Foods.

Our ability to realize the anticipated benefits of our acquisition of
RB Foods will depend, to a large extent, on our ability to integrate
RB Foods into the rest of our business, which is a complex, costly
and time-consuming process. The nature of a carve-out acquisition,
such as RB Foods, makes it inherently more difficult to assume

2017 Annual Report 29

to that date. Although we believe that we will have access to cash
sufficient to meet our business objectives and capital needs, the less-
ened availability of cash and cash equivalents for a period of time
following the acquisition of RB Foods could constrain our ability to
grow our business. Our more leveraged financial position following
the acquisition of RB Foods could also make us vulnerable to general
economic downturns and industry conditions, and place us at a com-
petitive disadvantage relative to our competitors that have more cash
at their disposal. In the event that we do not have adequate capital
to maintain or develop our business, additional capital may not be
available to us on a timely basis, on favorable terms, or at all.

The acquisition of RB Foods has significantly increased our
goodwill and other intangible assets.

We have a significant amount of goodwill and other intangible assets
on our consolidated financial statements that are subject to impairment
based upon future adverse changes in our business or prospects. The
impairment of any goodwill and other intangible assets may have a
negative impact on our consolidated results of operations.

Curtailment of our share repurchase program may not enhance
shareholder value.

We have curtailed the repurchases of our shares under our share
repurchase program. Upon the acquisition of RB Foods, we announced
our intention to reduce our leverage ratio by curtailing our share repur-
chase program, but there can be no assurance that curtailment of the
program will result in the reduction of our leverage ratio. Our board
of directors reserves the right to expand or terminate the share repur-
chase program at any time. Curtailment of the share repurchase
program may not have the intended effects and may have a negative
impact on our stock price.

The declaration, payment and amount of dividends is made
at the discretion of our board of directors and depends on a
number of factors.

The declaration, payment and amount of any dividends is made pursu-
ant to our dividend policy and is subject to final determination each
quarter by our board of directors in its discretion based on a number of
factors that it deems relevant, including our financial position, results
of operations, available cash resources, cash requirements and alter-
native uses of cash that our board of directors may conclude would
be in the best interest of the company and our shareholders. Our divi-
dend payments are subject to solvency conditions established by the
Maryland General Corporation Law. Accordingly, there can be no
assurance that any future dividends will be equal or similar in amount
to any dividends previously paid or that our board of directors will not
decide to reduce, suspend or discontinue the payment of dividends at
any time in the future.

operations upon closing of the acquisition and to integrate activities,
as certain systems, processes and employees may not all be trans-
ferred with RB Foods to support such activities. As a result, we will be
required to continue to devote significant management attention and
resources to integrate the business practices and operations of
McCormick and RB Foods. Future integration efforts may disrupt our
business and, if implemented ineffectively, could restrict the realiza-
tion of the full expected benefits. The failure to meet the challenges
involved in the integration process and to realize the anticipated bene-
fits of the RB Foods acquisition could cause an interruption of, or a
loss of momentum in, our operations and could adversely affect our
business, financial condition and results of operations.

In addition, the further integration of RB Foods may result in material
unanticipated problems, expenses, liabilities, competitive responses,
loss of customers and other business relationships, and diversion of
management’s attention. Additional integration challenges include:

• difficulties in achieving anticipated cost savings, synergies, busi-
ness opportunities and growth prospects from the acquisition of
RB Foods;

• difficulties in the integration of operations and systems;

• difficulties in conforming standards, controls, procedures and

accounting and other policies, business cultures and compensation
structures;

• difficulties in the assimilation of employees;

• managing the potential impact of competing or duplicative products;

• difficulties in managing the expanded operations of a significantly

larger and more complex company;

• challenges in obtaining new customers;

• challenges in attracting and retaining key personnel; and

• the impact of potential liabilities we may be inheriting from

RB Foods.

Many of these factors will be outside of our control and any one of
them could result in increased costs, decreases in the amount of
expected revenues and diversion of management’s time and energy,
which could adversely affect our business, financial condition and
results of operations and result in us becoming subject to litigation. In
addition, even if RB Foods is integrated successfully, the full antici-
pated benefits of its acquisition may not be realized, including the syn-
ergies, cost savings or sales or growth opportunities that are anticipated.
These benefits may not be achieved within the anticipated time frame,
or at all. Further, additional unanticipated costs may be incurred in the
integration process. Each of these factors could cause reductions in
our earnings per share, decrease or delay the expected accretive effect
of the acquisition and negatively impact the price of shares of our
common stock. As a result, it cannot be assured that the acquisition of
RB Foods will result in the realization of the full anticipated benefits.

We expect that, for a period of time following our acquisition of
RB Foods on August 17, 2017, we will have significantly less cash
on hand than prior to that date.

We expect to have, for a period of time following the August 17, 2017
acquisition of RB Foods, significantly less cash and cash equivalents
on hand than the cash and cash equivalents that we had on hand prior

30 McCormick & Company

ITEM 1B. UNRESOLVED STAFF COMMENTS

Australia:

Melbourne—consumer and industrial
Palmwoods—consumer (2 principal plants)

India:

New Delhi—consumer

El Salvador:

San Salvador—consumer

Thailand:

Chonburi—consumer and industrial (under construction)

In addition to distribution facilities and warehouse space available at
our manufacturing facilities, we lease regional distribution facilities
as follows (i) in the U.S.: Belcamp and Aberdeen, Maryland; Salinas,
California; Byhalia, Mississippi; Irving, Texas; Springfield, Missouri;
(ii) in Canada: Mississauga and London, Ontario; (iii) in Heywood,
United Kingdom and (iv) in Genvilliers, France. We also own distri-
bution facilities in Belcamp, Maryland and Monteux, France. In
addition, we 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.

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 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
Springfield, Missouri—consumer and 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 and industrial (3 principal plants)

China:

Guangzhou—consumer and industrial
Shanghai—consumer and industrial
Wuhan—consumer

2017 Annual Report 31

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 29, 2017 was $100.50 per share for the
Common Stock and $101.91 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 29, 2017 was as follows:

Title of class

Common Stock, no par value
Common Stock Non-Voting, no par value

Approximate number
of record holders

2,000
9,600

The following table summarizes our purchases of Common Stock (CS) and Common Stock Non-Voting (CSNV) during the fourth quarter of 2017:

Period

September 1, 2017 to
September 30, 2017

October 1, 2017 to
October 31, 2017

November 1, 2017 to
November 30, 2017

Total

ISSUER PURCHASES OF EQUITY SECURITIES

Total number
of shares
purchased

CS-0
CSNV-0

CS-20,175(1)
CSNV-0

CS-0
CSNV-0

CS-20,175
CSNV-0

Average
price
paid per
share

—
—

$99.33
—

—
—

$99.33
—

Total number of
shares purchased
as part of publicly
announced plans
or programs

—
—

20,175
—

—
—

20,175
—

Approximate dollar
value of shares
that may yet be
purchased under the
plans or programs

$191 million

$189 million

(1) On October 2, 2017 and October 27, 2017, we purchased 9,797 shares and 10,378 shares, respectively, 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 prices paid per share of $99.80 and $98.88, respectively, represented the closing price of the CS on October 2,
2017 and October 27, 2017, respectively.

As of November 30, 2017, approximately $189 million remained of a $600 million share repurchase authorization approved by the Board of
Directors in March 2015. The timing and amount of any shares repurchased is determined by our management based on its evaluation of market
conditions and other factors. In connection with our August 2017 acquisition of RB Foods, we announced our intention to reduce our leverage ratio
by curtailing the repurchases of shares under our share repurchase program.

In certain circumstances, we issue shares of CS in exchange for shares of CSNV, or issue shares of CSNV in exchange for shares of CS, in either
case pursuant to the exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended. Typically, these exchanges
are made in connection with the administration of our employee benefit plans, executive compensation programs and dividend reinvestment/direct
purchase plans. The number of shares issued in an exchange is generally equal to the number of shares received in the exchange, although the number
may differ slightly to the extent necessary to comply with the requirements of the Employee Retirement Income Security Act of 1974. During fiscal
2017, we issued 1,776,381 shares of CSNV in exchange for shares of CS and issued 94,527 shares of CS in exchange for shares of CSNV.

32 McCormick & Company

ITEM 6. SELECTED FINANCIAL DATA

HISTORICAL FINANCIAL SUMMARY

(millions except per share and percentage data)

2017

2016

2015

2014

2013

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
Dividends paid
Average shares outstanding
Basic
Diluted

$ 4,834.1

$ 4,411.5

$ 4,296.3

$ 4,243.2

$ 4,123.4

9.6%

702.4
33.9
477.4

$ 3.77
3.72
1.93
102.18
19.62

$ 10,385.8
583.2
4,443.9
2,570.9

41.6%
14.5%
182.4
125.2
137.8
237.6

126.8
128.4

2.7%

1.3%

2.9%

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

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

41.5%
14.5%

40.4%
12.8%

40.8%
14.2%

$ 153.8
108.7
242.7
217.8

126.6
128.0

$ 128.4
105.9
145.8
204.9

128.0
129.2

$ 132.7
102.7
244.3
192.4

129.9
131.0

40.4%
13.4%
99.9
106.0
177.4
179.9

132.1
133.6

(1) Total assets and Long-term debt as of fiscal years ended 2015, 2014 and 2013 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 2017, we
recorded transaction and integration expenses related to our acquisition of RB Foods. In 2017, 2016, 2015, 2014 and 2013, we recorded special
charges related to the completion of organization and streamlining actions. 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 vol-
untary 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

2017

(83.9)
(69.3)
(0.54)

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)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

presence in both developed and emerging markets. In addition to
bolt-on opportunities, we were seeking larger acquisitions.

2017 Annual Report 33

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.

Our long-term annual growth objectives in constant currency are to
increase sales 4% to 6%, increase adjusted operating income 7% to
9% and increase adjusted earnings per share 9% to 11%.

Sales growth: Over time, we expect to grow sales with similar con-
tributions from: 1) our base business—driven by brand marketing
support, customer intimacy, expanded distribution and category
growth; 2) new products; and 3) acquisitions.

Base business—In 2017, we increased our investment in brand mar-
keting by 39% over the 2012 level and we plan a further increase
in 2018. We measure the return on our brand marketing investment
and have identified digital marketing as one of our highest return
investments in brand marketing support. Through digital marketing,
we are connecting with consumers in a personalized way to deliver
recipes, provide cooking advice and discover new products.

New Products—For our consumer segment, we believe that scalable
and differentiated innovation continues to be one of the best ways
to distinguish our brands from our competition, including private
label. We are introducing products for every type of cooking occasion,
from gourmet, premium items to convenient and value-priced flavors.

For industrial customers, we are developing seasonings for snacks
and other food products, as well as flavors for new menu items. We
have a solid pipeline of flavor solutions aligned with our customers’
new product launch plans, many of which include “better-for-you”
innovation. With over 20 product innovation centers around the
world, we are supporting the growth of our brands and those of our
industrial customers with products that appeal to local consumers.

Acquisitions—Acquisitions are expected to approximate one-third of
our sales growth. Since the beginning of 2015, we have completed
seven acquisitions, which are driving sales in both our consumer
and industrial segments. We focus on acquisition opportunities that
meet the growing demand for flavor and health. Geographically, our
focus is on acquisitions that build scale where we currently have

On August 17, 2017, we completed the acquisition of Reckitt
Benckiser’s Food Division (“RB Foods”) from Reckitt Benckiser Group
plc. The purchase price was approximately $4.2 billion, net of
acquired cash. The acquisition was funded through our issuance of
approximately 6.35 million shares of common stock non-voting (see
note 13 of the financial statements) and through new borrowings
comprised of senior unsecured notes and pre-payable term loans
(see note 6 of the financial statements). The acquired market-leading
brands of RB Foods include French’s®, Frank’s RedHot® and
Cattlemen’s®, which are a natural strategic fit with our robust global
branded flavor portfolio. We believe that these additions move us
to a leading position in the attractive U.S. condiments category and
provide significant international growth opportunities for our con-
sumer and industrial segments.

The RB Foods acquisition resulted in acquisitions contributing more than
one-third of our sales growth in 2017 and is expected to result in acqui-
sitions contributing more than one-third of our sales growth in 2018.

Cost savings: We are fueling our investment in growth with cost
savings from our CCI program, an ongoing initiative to improve pro-
ductivity and reduce costs throughout the organization, as well as
savings from the organization and streamlining actions described in
note 3 of the financial statements. In addition to funding brand mar-
keting 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.

Cash flow: We continue to generate strong cash flow. Net cash
provided by operating activities reached $815.3 million in 2017, an
increase from $658.1 million in 2016. In 2017, we continued to have
a balanced use of cash for debt repayment, capital expenditures
and the return of cash to shareholders through dividends and share
repurchases. We are using our cash to fund shareholder dividends,
with annual increases in each of the past 32 years, and to fund capi-
tal expenditures, acquisitions and share repurchases. In 2017, the
return of cash to our shareholders through dividends and share
repurchase was $375.4 million. Due to our increased level of indebt-
edness because of the RB Foods acquisition, we expect to curtail our
acquisition and share repurchase activity for a period of time in order
to enable a return to our pre-acquisition credit profile.

On a long-term basis, we expect a combination of acquisitions and
share repurchases to add about 2% to earnings per share growth.

In 2017, 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 2016. Net sales rose
9.6% over the 2016 level, because of the following factors:

• We grew volume and product mix, with increases in both our con-
sumer 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.

• Pricing actions to offset a mid-single digit increase in material
cost inflation contributed 2.1% of the increase in net sales.

34 McCormick & Company

• The incremental impact of acquisitions completed in 2017 and

2016 contributed 6.5% of the increase in net sales.

Led by CCI, we expect to reach cost savings of approximately $100
million in 2018, with a large portion impacting our cost of goods sold.

• These increases were partially offset by unfavorable currency
rates. This impact reduced the net sales growth rate by 0.7%.
Excluding this impact, we grew sales 10.3% on a constant
currency basis.

Operating income was $702.4 million in 2017 and $641.0 million in
2016. We recorded $22.2 million and $16.0 million of special charges
in 2017 and 2016, respectively, related to organization and stream
lining actions. In 2017, we also recorded $61.7 million of transaction
and integration expenses relating to our acquisition of RB Foods that
reduced operating income. In 2017 compared to the yearago period,
the favorable impact of higher sales, including the effects of acquisi
tions, and $117.0 million of cost savings from our CCI program and
organization and streamlining actions more than offset higher spe
cial charges, transaction and integration expenses, material costs
and a $24.1 million increase in brand marketing. Excluding special
charges and, in 2017, transaction and integration expenses related
to our acquisition of RB Foods, adjusted operating income was
$786.3 million, an increase of 19.7% compared to $657.0 million in
the yearago period. In constant currency, adjusted operating income
rose 20.5%. For further details and a reconciliation of nonGAAP to
reported amounts, see NonGAAP Financial Measures.

Diluted earnings per share was $3.72 in 2017 and $3.69 in 2016.
The yearonyear increase in earnings per share was driven mainly
by higher operating income, as described above, which was nearly
offset by higher interest expense and higher shares outstanding.
Special charges lowered earnings per share by $0.12 and $0.09 in
2017 and 2016, respectively. Transaction and integration expenses,
including $15.4 million reflected as other debt costs, lowered earn
ings per share by $0.42 in 2017. Excluding the effect of those special
charges and transaction and integration expenses, adjusted diluted
earnings per share was $4.26 in 2017 and $3.78 in 2016, or an
increase of 12.7%.

2018 Outlook
We project another year of strong financial performance in 2018
and, including the results of RB Foods from its acquisition date of
August 17, 2017, we expect our constant currency growth rate in
sales, operating income and adjusted earnings per share to exceed
our longterm financial growth objectives.

In 2018, we expect to grow sales 12% to 14%, including an estimated
1% favorable impact from currency rates, or 11% to 13% on a con
stant currency basis. The incremental impact of the RB Foods acqui
sition is projected to contribute approximately 8% of that sales
growth. We expect further increases in volume and product mix in
our base business to drive the remaining sales growth anticipated
in 2018 as, with material cost inflation projected in the low single
digits, we do not expect significant pricing impact in 2018 other than
the incremental impact of actions taken in 2017.

In 2018, we expect gross profit margin to be approximately 150 to
200 basis points higher than 2017, due to a projected low single digit
increase in material costs that is more than offset by the effects of
favorable business mix, CCIled cost savings and the lack of $20.9
million of transaction and integration expenses reflected in cost of
goods sold in 2017 related to the RB Foods acquisition.

In 2018, we expect a significant increase in operating income, in
part, due to the effects of the RB Foods acquisition including the
lower amount of transaction and integration expenses. We expect
2018’s adjusted operating income to increase 23% to 25%, which
includes the incremental impact of the RB Foods acquisition and
a 1% favorable impact from currency rates. For 2018, we plan to
increase brand marketing at a rate above our sales growth.

On December 22, 2017, President Trump signed into law H.R. 1, “An
Act to provide for reconciliation pursuant to titles II and V of the con
current resolution on the budget for fiscal year 2018” (this legislation
was formerly called the “Tax Cuts and Jobs Act” and is referred to
herein as the “U.S. Tax Act”). The U.S. Tax Act provides for significant
changes in the U.S. Internal Revenue Code of 1986, as amended. The
U.S. Tax Act contains provisions with separate effective dates but is
generally effective for taxable years beginning after December 31,
2017. Certain provisions of the U.S. Tax Act will be effective during
our fiscal year ending November 30, 2018 with all provisions of the
U.S. Tax Act effective as of the beginning of our fiscal year ending
November 30, 2019.

We expect that U.S. Tax Act will have the following effects on our
income tax expense for the fiscal year ending November 30, 2018:

• The U.S. Tax Act imposes a tax on post1986 earnings of nonU.S.
affiliates that have not been repatriated for purposes of U.S. fed
eral income tax, with those earnings taxed at rates of 15.5% for
earnings reflected by cash and cash equivalent items and 8% for
other assets. We estimate this tax to be in the range of $70 mil
lion to $90 million, which we will recognize as a component of
income tax expense in our first quarter of fiscal 2018. The cash
tax effects of this deemed repatriation can be remitted in install
ments over an eightyear period as follows: (i) for each of the initial
five years, 8% of the net tax liability is required to be remitted on
an annual basis; (ii) in the sixth year, 15% of the net tax liability is
required to be remitted; (iii) in the seventh year, 20% of the net
tax liability is required to be remitted; and (iv) in the eighth year,
the remaining 25% of the net tax liability is required to be remitted.
We anticipate that we will pay this tax in installments over the
eightyear period and anticipate cash payments of the deemed
repatriation tax to approximate $6 million to $7 million in each of
the next five years.

• Under Financial Accounting Standards Board Accounting Standards
Codification (ASC) Topic 740, Income Taxes (“ASC 740”), we are
required to revalue any deferred tax assets or liabilities in the
period of enactment of change in tax rates. The U.S. Tax Act lowers
the corporate income tax rate from 35% to 21%. We estimate that
the revaluation of our U.S. deferred tax assets and liabilities will
reduce our net U.S. deferred income tax liability by approximately
$400 million and will be reflected as a reduction in our income tax
expense in our results for the quarter ending February 28, 2018.

• The U.S. Tax Act is generally effective for tax years beginning after
December 31, 2017. As such, the reduction in the corporate income
tax rate from 35% to 21% will be effective for the final eleven
months of our fiscal year ending November 30, 2018, with our U.S.
earnings for the month of December 2017 taxed at a 35% rate.

We estimate that our consolidated effective tax rate in fiscal
year 2018, excluding the effects of the repatriation tax and the
revaluation of our deferred tax assets and liabilities as described
above and other discrete items, will approximate 24%.

• We estimate that our effective tax rate for fiscal 2018 will be neg-
ative because of the combined impact of the repatriation tax, the
revaluation of our U.S. deferred tax assets and liabilities, and the
lower U.S. corporate tax rate.

As previously noted, the U.S. Tax Act will fully affect us in fiscal
year 2019 as certain other of its provisions related to the taxation of
non-U.S. activity on a current basis will impact our results, particularly
the “global intangible low-taxed income” tax that imposes a tax on
earnings that are not subject to tax by non-U.S. jurisdictions above a
certain minimum rate. Consequently, we estimate that our consoli-
dated effective tax rate, excluding the effects of discrete tax items,
will approximate 25% to 26% in fiscal 2019.

The Securities and Exchange Commission issued Staff Accounting
Bulletin No. 118 (“SAB 118”) on December 23, 2017. SAB 118 pro-
vides a one-year measurement period from a registrant’s reporting
period that includes the U.S. Tax Act’s enactment date to allow the
registrant sufficient time to obtain, prepare and analyze information
to complete the accounting required under ASC 740.

The ultimate impact of the U.S. Tax Act on our reported results in fiscal
2018 and beyond may differ from the estimates provided herein,
possibly materially, due to, among other things, changes in interpre-
tations and assumptions we have made, guidance that may be issued,
and other actions we may take as a result of the U.S. Tax Act differ-
ent from that presently contemplated.

Diluted earnings per share was $3.72 in 2017. Diluted earnings per
share for 2018 are projected to range from $6.89 to $7.14. Excluding
the per share impact of special charges of $0.12 and transaction and
integration expenses related to the RB Foods acquisition (including
the effect of the amortization of the acquisition-date fair value
adjustments of inventories included in cost of goods sold, the bridge
commitment fee included in other debt costs, and other transaction
and integration expenses) of $0.42 in 2017, adjusted diluted earnings
per share was $4.26 in 2017. Adjusted diluted earnings per share
(excluding an estimated $2.33 to $2.48 per share non-recurring benefit
from U.S. Tax Act changes, an estimated $0.11 per share impact from
special charges and an estimated $0.13 per share impact from inte-
gration expenses related to the RB Foods acquisition) are projected
to be $4.80 to $4.90 in 2018. We expect adjusted diluted earnings
per share in 2018 to grow 13% to 15%, which includes a 1% favor-
able impact from currency rates, over adjusted diluted earnings per
share of $4.26 in 2017. We expect this growth rate to be mainly
driven by increased adjusted operating income and a lower effective
tax rate which will more than offset the effects of higher interest
expense and higher diluted shares.

RESULTS OF OPERATIONS—2017 COMPARED TO 2016

Net sales
Percent growth
Components of percent growth in
net sales—increase (decrease):

Volume and product mix

Pricing actions
Acquisitions

Foreign exchange

2017

2016

$4,834.1

$4,411.5

9.6%

2.7%

1.7%
2.1%
6.5%
(0.7)%

1.7%
1.5%
2.3%
(2.8)%

2017 Annual Report 35

Sales for 2017 increased by 9.6% from 2016 and by 10.3% 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 2.1% to sales. The incremental impact of
acquisitions completed in 2017 (both RB Foods and Giotti) and in
2016 (principally, Gourmet Garden) added 6.5% to sales. These factors
offset an unfavorable impact from foreign currency exchange that
reduced sales by 0.7% compared to 2016 and is excluded from our
measure of sales growth of 10.3% on a constant currency basis.

Gross profit

Gross profit margin

2017

2016

$2,010.2

$1,831.7

41.6%

41.5%

In 2017, gross profit rose 10 basis points to 41.6% from 41.5% in
2016, as the favorable impact of pricing actions, CCI-led cost savings
and more favorable business mix more than offset the unfavorable
material cost inflation, including unfavorable foreign currency effects.
In addition, our gross profit for 2017 was burdened by $20.9 million
of transaction and integration expenses, representing the amortiza-
tion of the fair value adjustment to the acquired inventories of RB
Foods, that depressed our fiscal 2017 gross profit margin of 41.6%
by 40 basis points. Excluding those transaction and integration
expenses, adjusted gross profit margin rose 50 basis points from
41.5% in 2016 to 42.0% in 2017.

Selling, general & administrative

expense (SG&A)

Percent of net sales

2017

2016

$1,244.8

$1,175.0

25.8%

26.6%

Selling, general and administrative expense was $1,244.8 million in
2017 compared to $1,175.0 million in 2016, an increase of $69.8 mil-
lion. That increase in SG&A expense was driven by the impact of
acquisitions, together with increased brand marketing and higher
freight costs, partially offset by lower acquisition-related costs related
to both completed and uncompleted acquisitions, all as compared
to the 2016 levels. The lower acquisition-related costs in the 2017
period were primarily the result of costs associated with our investi-
gation in 2016 of a large potential acquisition in the U.K. that we
ultimately declined to pursue. In addition, acquisition-related costs
attributable to RB Foods in 2017 are not included in SG&A expense
but are instead included in transaction and integration expenses in
our income statement (and are further discussed below). SG&A
expense as a percentage of net sales was 25.8%, an 80-basis point
improvement from 2016. Driving this reduction in SG&A expense as a
percentage of net sales, in addition to the items described above,
were lower employee benefit expense, including lower pension and
other postretirement benefit expense, together with benefits from
the organization and streamlining actions described in note 3 of the
financial statements.

Special charges included in cost of goods sold
Other special charges in the income statement

Total

2017

$ —
22.2

$22.2

2016

$ 0.3
15.7

$16.0

36 McCormick & Company

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 Management Committee and classify expenses related
to those changes as special charges in our financial statements.
Special charges of $22.2 million were recorded in 2017 and $16.0 mil-
lion in 2016 to enable us to implement these changes.

During 2017, we recorded $22.2 million of special charges, consisting
primarily of $12.7 million related to third party expenses incurred as
part of our evaluation of changes relating to our global enablement
initiative, $2.8 million related to employee severance benefits and
other costs associated with the relocation of one of our Chinese
manufacturing facilities, $2.5 million for severance and other exit
costs associated with the closure of our manufacturing plant in
Portugal, and $1.7 million related to employee severance benefits
and other costs associated with actions related to the transfer of
certain manufacturing operations to a new facility under construc-
tion in Thailand. See note 3 of the financial statements for more
details on these charges and our basis for classifying amounts as
special charges.

Of the $16.0 million of special charges recorded in 2016, $0.3 million
were recorded in cost of goods sold. The 2016 special charges prin-
cipally consist of $5.7 million related to our EMEA reorganization,
which began in 2015, $2.8 million related to our exit from a consoli-
dated 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 initiated in 2015, $1.8 million associated
with actions in connection with our planned exit of two leased man-
ufacturing facilities in Singapore and Thailand, and $1.7 million for
employee severance actions related to our North American effec-
tiveness initiative begun in 2015.

Transaction expenses included in cost of
goods sold
Transaction expenses included in other debt costs
Other transaction and integration expenses

Total

2017

2016

$20.9
15.4
40.8

$77.1

$—
—
—

$—

Total transaction and integration expenses related to the RB Foods
acquisition are anticipated to approximate $100 million, of which
approximately $60 million represent transaction expenses and the
remainder represent estimated integration expenses. These costs
are anticipated to be incurred through 2018 and primarily consist of
amortization of the acquisition-date fair value adjustment of invento-
ries of $20.9 million that is included in cost of goods sold; outside
advisory, service and consulting costs; employee-related costs; and
other costs related to the acquisition, including the costs related to
the Bridge financing commitment of $15.4 million that is included in
other debt costs. Of the total anticipated transaction and integration
expenses, we incurred $77.1 million in 2017 and expect to incur the
balance in 2018.

Interest expense
Other income, net

2017

$95.7
3.5

2016

$56.0
4.2

Interest expense for 2017 was sharply higher than the prior year, pri-
marily due to higher average borrowings related to our incurrence of
$3.7 billion in debt in August to finance the acquisition of RB Foods
(see note 6 of the financial statements). Other income, net, for 2017
was $0.7 million lower than the 2016 level, primarily due to a gain
on the 2016 sale of a non-operating asset.

Income from consolidated operations
before income taxes
Income taxes

Effective tax rate

2017

2016

$594.8
151.3
25.4% 26.0%

$589.2
153.0

The effective tax rate decreased 60 basis points to 25.4% in 2017,
from 26.0% in 2016, primarily because of an increase in net discrete
tax benefits. Net discrete tax benefits increased by $3.1 million,
from $21.1 million in 2016 to $24.2 million in 2017. In 2017, discrete
items include $10.7 million of excess tax benefits associated with
share-based payments to employees due to our adoption of ASU
No. 2016-09 Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting on a prospective basis
as of the beginning of our 2017 fiscal year (see note 1 of the finan-
cial statements for further details with respect to our adoption of
this accounting standard). Both 2017 and 2016 included discrete tax
benefits for the reversal of reserves for unrecognized tax benefits,
net of additional taxes provided, for the expiration of statutes of
limitation and, in 2017, settlements with taxing authorities in several
tax jurisdictions. Discrete tax expense in 2017 included expense
associated with the establishment 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. Discrete tax items in
2016 included benefits associated with 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. See
note 12 of the financial statements for a reconciliation of the U.S.
federal tax rate with the effective tax rate.

As the U.S. Tax Act was enacted after our year end of November 30,
2017, it had no impact on our fiscal 2017 financial results.

Income from unconsolidated operations

2017

$33.9

2016

$36.1

Income from unconsolidated operations decreased $2.2 million in
2017 from the prior year. This decrease was mainly attributable to
the impact of eliminating earnings associated with our minority
interests in 2017 as compared to a loss in 2016 and lower earnings
from 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.
We own 50% of most of our unconsolidated joint ventures including
McCormick de Mexico which represented 57% of the sales and
74% of the income of our unconsolidated operations in 2017.

We reported diluted earnings per share of $3.72 in 2017, compared
to $3.69 in 2016. The table below outlines the major components of
the change in diluted earnings per share from 2016 to 2017. The

increase in operating income in the table below includes the impact
from unfavorable currency exchange rates in 2017.

2016 Earnings per share—diluted
Increase in operating income
Increase in special charges
Transaction and integration expenses (including other debt

costs) attributable to RB Foods acquisition

Increase in interest expense
Impact of income taxes
Decrease in income from unconsolidated operations
Impact of higher shares

2017 Earnings per share—diluted

$ 3.69
0.75
(0.02)

(0.42)
(0.23)
(0.02)
(0.02)
(0.01)

$ 3.72

We measure the performance of our business segments based on
operating income, excluding special charges and, beginning in 2017,
excluding transaction and integration expenses related to our RB
Foods acquisition. See note 16 of the financial statements for addi-
tional information on our segment measures as well as for a recon-
ciliation by segment of operating income, excluding special charges
as well as transaction and integration expenses related to our RB
Foods acquisition, to consolidated operating income. In the following
discussion, we refer to our previously described measure of segment
profit as segment operating income.

Consumer Segment

Net sales
Percent growth
Components of percent growth in net sales—

increase (decrease):
Volume and product mix
Pricing actions
Acquisitions

Foreign exchange
Segment operating income

Segment operating income margin

2017

2016

$2,970.1

$2,753.2

7.9%

4.5%

0.3%
2.2%
5.5%
(0.1)%

1.7%
1.2%
3.5%
(1.9)%

$ 564.2

$ 490.8

19.0%

17.8%

Sales of our consumer segment grew by 7.9% as compared to 2016
and grew by 8.0% on a constant currency basis. Higher volume and
product mix added 0.3% to sales, and pricing actions, taken in
response to increased material costs, added 2.2%. The incremental
impact of acquisitions—mainly RB Foods and Gourmet Garden, com-
pleted in 2017 and 2016, respectively—added 5.5% to sales. These
factors offset an unfavorable impact from foreign currency rates that
reduced consumer segment sales by 0.1% compared to 2016 and is
excluded from our measure of sales growth of 8.0% on a constant
currency basis.

In the Americas, consumer sales rose 11.2% in 2017 as compared to
2016 and rose by 11.1% on a constant currency basis. Higher volume
and product mix added 0.5% to sales, pricing actions added 2.8% to
sales, and the incremental impact of acquisitions—mainly RB Foods
and Gourmet Garden—added 7.8% to sales. The favorable impact of
foreign currency increased sales by 0.1% compared to 2016 and is
excluded from our measure of sales growth of 11.1% on a constant
currency basis.

2017 Annual Report 37

In the EMEA region, consumer sales declined 1.6% in 2017 as
compared to 2016 and declined 2.3% on a constant currency basis.
Volume and product mix lowered sales by 3.3%, with weakness in
Poland, the U.K. and France. The sales weakness in Poland was
driven by competitive conditions, while weakness in the U.K. related
to a difficult retail environment, including the effects of a reduction
of Schwartz brand products by a large U.K. retailer. Pricing added
0.5% to sales and the incremental impact of the RB Foods and
Gourmet Garden acquisitions added 0.5% to sales. The favorable
impact of foreign currency increased sales by 0.7% compared to
2016 and is excluded from our measure of sales decline of 2.3% on
a constant currency basis.

In the Asia/Pacific region, consumer sales increased 6.4% as com-
pared to 2016 and increased 8.9% on a constant currency basis.
Higher volume and product mix added 5.1% to sales, with strong
results in China that offset a volume and product mix decline in India
in 2017, due in part to India’s discontinuation of lower-margin prod-
uct lines that occurred in 2016. Pricing added 1.7% to sales and the
incremental impact of the Gourmet Garden acquisition added 2.1%
to sales. These factors offset an unfavorable impact from foreign
currency exchange rates that decreased sales by 2.5% compared to
2016 and is excluded from our measure of sales growth of 8.9% on a
constant currency basis.

We grew segment operating income for our consumer segment by
$73.4 million, or 15.0%, in 2017 compared to 2016. The favorable
impact of greater sales and cost savings more than offset the unfa-
vorable impact of higher material costs and an increase in brand
marketing. On a constant currency basis, segment operating income
for our consumer segment rose 14.9%. Segment operating income
margin for our consumer segment rose by 120 basis points to 19.0%
in 2017 from 17.8% in 2016.

Industrial Segment

Net sales
Percent growth (decline)
Components of percent growth in net sales—

increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
Segment operating income

Segment operating income margin

2017

2016

$1,864.0

$1,658.3

12.4%

(0.2)%

4.0%
2.0%
8.0%
(1.6)%

1.5%
2.0%
0.4%
(4.1)%

$ 222.1

$ 166.2

11.9%

10.0%

Sales of our industrial segment increased 12.4% as compared to
2016 and increased by 14.0% on a constant currency basis. Higher
volume and product mix added 4.0% to sales and pricing actions,
taken in response to increased material costs, added 2.0%. The incre-
mental impact on 2017 industrial sales of the RB Foods and Giotti
acquisitions completed in 2017 added 8.0% to sales. These factors
partially offset an unfavorable impact from foreign currency rates
that reduced industrial segment sales by 1.6% compared to 2016
and is excluded from our measure of sales growth of 14.0% on a
constant currency basis.

In the Americas, industrial sales rose 10.8% in 2017 as compared to
2016 and rose 11.2% on a constant currency basis. Higher volume
and product mix added 3.4% to sales and included growth in sales
of branded foodservice products in the U.S. and snack seasonings in

38 McCormick & Company

the U.S. and Mexico. Pricing actions added 2.1% to sales and the
incremental impact of the RB Foods and Gourmet Garden acquisitions
added 5.7% to sales. These factors offset an unfavorable impact
from foreign currency rates that reduced sales by 0.4% compared to
2016 and is excluded from our measure of sales growth of 11.2% on
a constant currency basis.

In the EMEA region, industrial sales increased 20.5% in 2017 as
compared to 2016 and increased 26.9% on a constant currency basis.
Higher volume and product mix added 2.7% to sales and included
growth in sales to leading quick service restaurants in this region.
Pricing actions added 3.1% to sales and the incremental impact of
the Giotti and, to a lesser extent, RB Foods acquisitions added 21.1%
to sales. These factors partially offset an unfavorable impact from
foreign currency exchange rates that decreased sales by 6.4% com-
pared to 2016 and is excluded from our measure of sales growth of
26.9% on a constant currency basis.

In the Asia/Pacific region, industrial sales increased 9.0% in 2017 as
compared to 2016 and increased 10.1% on a constant currency basis.
Higher volume and product mix added 9.6% to sales and included
growth in sales to leading quick service restaurants supplied from
our facilities in both China and Southeast Asia. Pricing actions added
0.1% to sales and the incremental impact of the Gourmet Garden
acquisition added 0.4% to sales. These factors partially offset an
unfavorable impact from foreign currency exchange rates that
reduced sales by 1.1% compared to 2016 and is excluded from our
measure of sales growth of 10.1% on a constant currency basis.

We grew segment operating income for our industrial segment by
$55.9 million, or 33.6%, in 2017 compared to 2016. The favorable
impact of greater sales and cost savings more than offset the unfa-
vorable impact of higher material costs. On a constant currency basis,
segment operating income for our industrial segment rose 37.1%.
Segment operating income margin for our industrial segment rose by
190 basis points to 11.9% in 2017 from 10.0% in 2016 and reflected
the impact of our efforts to shift our business mix to more value-added
products through innovation and acquisitions.

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 2016 increased 2.7% from 2015 and increased by 5.5% on
a constant currency basis, with growth in both the consumer and
industrial segments that drove higher volume and product mix, and
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 acquisitions 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.

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.

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 expense was $1,175.0 million
in 2016 compared to $1,127.4 million in 2015, an increase of $47.6
million. 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 of the financial statements.

Special charges included in cost of goods sold
Other special charges in the income statement

Total

2016

$ 0.3
15.7

$16.0

2015

$ 4.0
61.5

$65.5

Special charges of $16.0 million were recorded in 2016 and $65.5
million in 2015. Of the $16.0 million of special charges recorded in
2016, $0.3 million were recorded in cost of goods sold. The 2016
special charges principally consist of $5.7 million 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 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.

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.

Consumer Segment

Interest expense
Other income, net

2016

$56.0
4.2

2015

$53.3
1.1

Net sales
Percent growth
Components of percent growth in net sales—

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%

$496.2
131.3
26.5%

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 million
in 2015 to $21.1 million in 2016. Both 2016 and 2015 included dis-
crete 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.

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 unfavor-
able 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 venture represented
57% of the sales and 83% of the income of our unconsolidated opera-
tions. We own 50% of most of our other unconsolidated joint ventures.

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 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

2017 Annual Report 39

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)%

$ 490.8

$ 456.1

17.8%

17.3%

increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
Segment operating income

Segment operating income margin

Sales of our consumer segment grew by 4.5% in 2016 as compared
to 2015 and grew by 6.4% on a constant currency basis. Higher vol-
ume and product mix added 1.7% to sales, and pricing actions, taken
in response to increased material costs, added 1.2%. The incremen-
tal impact in 2016 of acquisitions completed in that year—mainly
Gourmet Garden—and two acquisitions completed in 2015—
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 inno-
vation, 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
product mix lowered sales by 0.4%, with growth in Poland and
France offset by weakness in the U.K. The sales growth in Poland
and France was driven by product innovation, brand marketing and
expanded distribution, while weakness in the U.K. related to a diffi-
cult retail environment. Pricing added 1.5% to sales and the incre-
mental 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 the Gourmet
Garden acquisition added 3.8% to sales. These factors offset an
unfavorable 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 segment operating income for our consumer segment by
$34.7 million, or 7.6%, in 2016 compared to 2015. The favorable

40 McCormick & Company

impact of sales growth and cost savings more than offset the unfa-
vorable impact of higher material costs and an increase in brand
marketing. On a constant currency basis, segment operating income
for our consumer segment rose 8.7%. Segment operating income
margin for the consumer segment rose 50 basis points to 17.8% in
2016 from 17.3% in 2015.

Industrial Segment

Net sales
Percent (decline) growth
Components of percent change in net sales—

increase (decrease):
Volume and product mix
Pricing actions
Acquisitions

Foreign exchange
Segment operating income

Segment operating income margin

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)%

$ 166.2

$ 157.8

10.0%

9.5%

Sales of our industrial segment declined 0.2% in 2016 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 industrial 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 unfavorable
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 segment operating income 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 unfa-
vorable impact of higher material costs. On a constant currency
basis, segment operating income for our industrial segment rose
11.6%. Segment operating income margin for the industrial segment
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.

NON-GAAP FINANCIAL MEASURES

The following tables include financial measures of adjusted gross
profit, adjusted gross profit margin, adjusted operating income,
adjusted operating income margin, adjusted income from unconsoli-
dated operations, adjusted net income and adjusted diluted earnings
per share. These financial measures also exclude, for 2018, and the
comparison of our expected results for 2018 to 2017, the net esti-
mated impact of the effects of the deemed repatriation tax and
remeasurement of our U.S. deferred tax assets and liabilities as a
result of the recent U.S. tax legislation as these items will signifi-
cantly impact comparability between years. These represent non-
GAAP financial measures which are prepared as a complement to
our financial results prepared in accordance with United States
generally accepted accounting principles. These financial measures
exclude the impact, as applicable, of the following:

• Special charges—Special charges consist of expenses associated
with certain actions undertaken by the company to reduce fixed
costs, simplify or improve processes, and improve our competitive-
ness 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 Chairman,
President and Chief Executive Officer; Executive Vice President
and Chief Financial Officer; President, Global Industrial Segment
and McCormick International; President, Global Consumer Segment
and Americas; Senior Vice President, Human Relations; and Senior
Vice President, Strategy and Global Enablement. 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
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
Committee 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.

• Transaction and integration expenses associated with the RB

Foods acquisition—Beginning in 2017, we revised our non-GAAP
meas ures to exclude certain costs associated with our acquisition
of RB Foods in August of 2017 and its subsequent integration into
the company. We made this change because of the significance
of the RB Foods acquisition and, therefore, the impact on the com-
parability of our results of the costs associated with the acquisition
and subsequent integration. Such costs, which we refer to as
“transaction and integration expenses” include the impact of the
acquisition-date fair value adjustment for inventory, transaction
costs associated with the acquisition, integration costs following
the acquisition, and the bridge financing costs. In our income
statement, we include the impact of the fair value adjustment for

inventory in cost of goods sold, the bridge financing cost in other
debt costs, and present all other transaction and integration costs
associated with the RB Foods acquisition in our income statement
on the line, “Transaction and integration expenses (related to RB
Foods acquisition).” The size of this acquisition and related costs
distinguishes it from our past, recent and smaller acquisitions, the
costs of which have not been excluded from our non-GAAP finan-
cial measures.

Details with respect to the composition of special charges, as well
as transaction and integration expenses (including other debt costs)
recorded for the periods and in the amounts set forth below are
included in notes 2 and 3, respectively, of the financial statements.

We believe that these non-GAAP financial measures are impo r-
tant. The exclusion of the items noted above provides additional

2017 Annual Report 41

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
management to measure the profitability of our ongoing operations
and analyze our business performance and trends.

These non-GAAP financial measures may be considered in addition
to results prepared in accordance with GAAP, but they should not be
considered a substitute for, or superior to, GAAP results. In addition,
these non-GAAP financial measures may not be comparable to simi-
larly titled measures of other companies because other companies
may not calculate them in the same manner that we do. We intend
to continue to provide these non-GAAP financial measures as part of
our future earnings discussions and, therefore, the inclusion of these
non-GAAP financial measures will provide consistency in our finan-
cial reporting.

A reconciliation of these non-GAAP measures to GAAP financial results is provided below (in millions, except per share data):

Gross profit
Impact of special charges, transaction and integration expenses included in cost of goods sold (1)

Adjusted gross profit

Adjusted gross profit margin (2)

Operating income
Impact of special charges, transaction and integration expenses included in cost of goods sold (1)
Impact of other transaction and integration expenses (1)
Impact of other special charges (3)

Adjusted operating income

% increase versus prior year

Adjusted operating income margin (2)

Income from unconsolidated operations
Impact of special charges attributable to non-controlling interests (4)

Adjusted income from unconsolidated operations

% (decrease) increase versus prior year

Net income
Impact of total transaction and integration expenses (1)
Impact of total special charges (3)
Impact of special charges attributable to non-controlling interests (4)

Adjusted net income

% increase versus prior year

Earnings per share—diluted
Impact of total transactions and integration expenses (1)
Impact of total special charges (3)
Impact of special charges attributable to non-controlling interests (4)

Adjusted earnings per share—diluted

% increase versus prior year

2017

$2,010.2
20.9

$2,031.1

2016

$1,831.7
0.3

$1,832.0

2015

$1,737.3
4.0

$1,741.3

42.0%

41.5%

40.5%

$ 702.4
20.9
40.8
22.2

$ 786.3

19.7%

16.3 %

33.9
—

33.9

$ 641.0
0.3
—
15.7

$ 657.0

7.0%

14.9%

36.1
(1.9)

34.2

$ 548.4
4.0
—
61.5

$ 613.9

0.9%

14.3%

36.7
(2.0)

34.7

(0.9 )%

(1.4)%

18.0%

$ 477.4
53.5
15.8
—

$ 546.7

13.1%

3.72
0.42
0.12
—

$ 472.3
—
13.0
(1.9)

$ 483.4

$ 401.6
—
49.9
(2.0)

$ 449.5

7.5%

1.8%

3.69
—
0.10
(0.01)

3.11
—
0.38
(0.01)

4.26

3.78

3.48

12.7%

8.6%

3.3%

(1) As more fully described in note 2 of the financial statements, transaction and integration expenses related to the acquisition of RB Foods are recorded in our consolidated income

statement as follows for the year ended November 30, 2017 (in millions, except per share amounts):

Transaction and integration expenses included in cost of goods sold
Reflected in transaction and integration expenses

Transaction and integration expenses included in operating income
Transaction and integration expenses included in other debt costs

Total pre-tax transaction and integration expenses
Less: Tax effect

Total after-tax transaction and integration expenses

$ 20.9
40.8

61.7
15.4

77.1
(23.6)

$ 53.5

(2) Adjusted gross profit margin is calculated as adjusted gross profit as a percentage of net sales for each period presented. Adjusted operating income margin is calculated as

adjusted operating income as a percentage of net sales for each period presented.

(3) Total special charges of $22.2 million for 2017, $16.0 million for 2016 and $65.5 million for 2015 are net of taxes of $6.4 million, $3.0 million and $15.6 million, respectively.
(4) In 2016, represents the portion of the total special charge of $2.8 million, net of tax of $0.9 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.

42 McCormick & Company

Earnings per share—diluted
Impact of special charges and

Estimate for the year ending
November 30, 2017

$ 6.89 to $7.14

transaction and integration expenses

0.24

Estimated non-recurring benefit,
net of the U.S. Tax Act

(2.33) to (2.48)

Adjusted earnings per share—diluted

$4.80 to $4.90

Because we are a multi-national company, we are subject to vari-
ability of our reported U.S. dollar results due to changes in foreign
currency exchange rates. Those changes have been volatile over the
past several 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 measure provides additional information that enables enhanced
comparison to prior periods excluding the translation effects of
changes in rates of foreign currency exchange and provides addi-
tional 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).

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 aver-
age foreign 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 2017 on a constant currency basis, net sales
and adjusted operating income for 2017 for entities reporting in
currencies other than the U.S. dollar have been translated using the
average foreign exchange rates in effect for 2016 and compared to
the reported results for 2016; and (2) to present our growth in net
sales and adjusted operating income for 2016 on a constant currency
basis, net sales and 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.

Net sales:
Consumer segment:

Americas
EMEA
Asia/Pacific

Total Consumer

Industrial segment:
Americas
EMEA
Asia/Pacific

Total Industrial

Total net sales

Adjusted operating income:
Consumer segment
Industrial segment

Total adjusted operating income

For the year ended November 30, 2017

Percentage
change as
reported

Impact of
foreign
currency
exchange

Percentage
change on
constant
currency basis

11.2%
(1.6)%
6.4%

7.9%

10.8%
20.5%
9.0%

12.4%

9.6%

15.0%
33.6%

19.7%

0.1%
0.7%
(2.5)%

(0.1)%

(0.4)%
(6.4)%
(1.1)%

(1.6)%

(0.7)%

0.1%
(3.5)%

(0.8)%

11.1%
(2.3)%
8.9%

8.0%

11.2%
26.9%
10.1%

14.0%

10.3%

14.9%
37.1%

20.5%

2017 Annual Report 43

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%

of acquired inventory on cost of goods sold), special charges and
stock-based compensation expenses. Adjusted EBITDA and our
leverage ratio are both non-GAAP financial measures. Our determi-
nation of the leverage ratio is consistent with the terms of our $1.0
billion revolving credit facility and our term loans which require us to
maintain our leverage ratio below certain levels. Under those agree-
ments, the applicable leverage ratio is reduced annually commencing
on November 30, 2018. As of November 30, 2017, our capacity under
the revolving credit facility is not affected by these covenants. We do
not expect that these covenants would limit our access to our revolv-
ing credit facility for the foreseeable future; however, the leverage
ratio could restrict our ability to utilize this facility. We expect to
comply with this financial covenant for the foreseeable future.

The following table reconciles our net income to Adjusted EBITDA
for the years ended November 30, 2017, 2016 and 2015:

Net income
Depreciation and amortization
Interest expense
Income tax expense

EBITDA
Adjustments to EBITDA(1), (2)

Adjusted EBITDA

Net debt (3)

Leverage ratio

2017

2016

2015

$ 477.4
125.2
95.7
151.3

$ 849.6
117.4

$ 472.3
108.7
56.0
153.0

$ 790.0
36.1

$ 401.6
105.9
53.3
131.3

$ 692.1
77.8

$ 967.0

$ 826.1

$ 769.9

$ 4,915.3

$ 1,403.8

$ 1,356.8

(Net debt/Adjusted EBITDA)

5.1

1.7

1.8

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

To present information for the fiscal year 2018 projection on a con-
stant currency basis, projected sales for entities reporting in curren-
cies other than the U.S. dollar are translated into U.S. dollars at the
company’s budgeted exchange rates for 2018 and are compared to
the 2017 results, translated into U.S. dollars using the same 2018
budgeted exchange rates, rather than at the average actual exchange
rates in effect during fiscal year 2017.

Estimate for the year ending
November 30, 2018

Percentage change in net sales
Impact of favorable foreign currency
exchange rates

Percentage change in net sales on a

constant currency basis

12% to 14%

(1)%

11% to 13%

In addition to the above non-GAAP financial measures, we use a
leverage ratio which is determined using non-GAAP measures. A
leverage ratio is a widely-used measure of ability to repay outstand-
ing debt obligations and is a meaningful metric to investors in evalu-
ating financial leverage. We believe that our leverage ratio is a
meaningful metric to investors in evaluating our financial leverage
and may be different than the method used by other companies to
calculate such a leverage ratio. We determine our leverage ratio as
net debt (which we define as total debt, net of cash in excess of
$75.0 million) to adjusted earnings before interest, tax, depreciation
and amortization (Adjusted EBITDA). We define Adjusted EBITDA as
net income plus expenses for interest, income taxes, depreciation
and amortization, less interest income and as further adjusted for
cash and non-cash acquisition-related transaction and integration
expenses (which may include the effect of the fair value adjustment

44 McCormick & Company

(1) Adjustments to EBITDA are determined under the leverage ratio covenant in our
$1.0 billion revolving credit facility and term loan agreements and includes special
charges, stock-based compensation expense and, for the trailing twelve-month
period ended November 30, 2017, transaction and integration expenses (related to
RB Foods acquisition), including other debt costs.

(2) The leverage ratio covenant in our $1.0 billion revolving credit facility and the term
loan agreements provide that Adjusted EBITDA also includes the pro forma impact
of acquisitions. As of November 30, 2017, our leverage ratio under the terms of
those agreements is 4.5.

(3) The leverage ratio covenant in our $1.0 billion revolving credit facility and the term
loan agreements define net debt as the sum of short-term borrowings, current por-
tion of long-term debt, and long-term debt, less the amount of cash and cash equiv-
alents that exceeds $75.0 million.

Our long-term target for our leverage ratio is 1.5 to 1.8. Our leverage
ratio can be temporarily impacted by our acquisition activity.

LIQUIDITY AND FINANCIAL CONDITION

Net cash provided by operating
activities
Net cash used in investing activities
Net cash provided by (used in)

2017

2016

2015

815.3
(4,508.3)

$ 658.1
(267.1)

$ 590.0
(338.9)

financing activities

3,756.0

(371.5)

(199.6)

We generate strong cash flow from operations which enables us to
fund operating projects and investments that are designed to meet
our growth objectives, service our debt, increase our dividend, fund
capital projects and make share repurchases when appropriate. Due
to the cyclical nature of a portion of our business, we generate much
of our cash flow in the fourth quarter of the fiscal year.

In the cash flow statement, the changes in operating assets and
liabilities are presented excluding the effects of changes in foreign
currency exchange rates, as these do not reflect actual cash flows.
Accordingly, the amounts in the cash flow statement do not agree
with changes in the operating assets and liabilities that are pre-
sented in the balance sheet.

The reported values of our assets and liabilities held in our non-U.S.
subsidiaries and affiliates can be significantly affected by fluctua-
tions in foreign exchange rates between periods. At November 30,
2017, the exchange rates for the Euro, the British pound sterling,
Canadian dollar, Australian dollar, Polish zloty and Chinese renminbi
were higher versus the U.S. dollar than at November 30, 2016.

Operating Cash Flow—Operating cash flow was $815.3 million in
2017, $658.1 million in 2016 and $590.0 million in 2015. The improve-
ment in cash flow from operations in 2017 compared to 2016 is
primarily attributable to improvements in cash flow generated from
inventories and accounts payable and a higher level of non-cash
items that impacted net income, which was partially offset by the
timing of employee benefit payments. The improvement in cash flow
from operations in 2016 compared to 2015 is predominantly 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 income tax and employee benefit accruals.

Our working capital management—principally related to inventory,
trade accounts receivable, and accounts payable—impacts our
operating cash flow. The change in inventory had a significant
impact on the variability in cash flow from operations. It was a
significant source of cash in 2017, a significant use of cash in 2016
and a less significant use of cash in 2015, when compared to 2016.

The change in trade accounts receivable has varied in the last three
years, as it was a use of cash in 2017 and 2016 and a source of cash
in 2015. The change in accounts payable was a significant source
of cash in all three years, but more so in 2017 compared to 2016
and 2015. Dividends received from unconsolidated affiliates, which
were lower in 2017 as compared to 2016 and higher in 2016 as
compared to 2015, also impacted our cash flow from operations.

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

2017

76.6

2016

88.5

2015

90.2

The decrease in CCC in 2017 from 2016 is due to an increase in our
days payable outstanding as a result of extending our payment
terms to suppliers and, to a lesser extent, a decrease in our days in
inventory. 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 payment terms to suppliers.

Investing Cash Flow—Net cash used in investing activities was
$4,508.3 million in 2017, $267.1 million in 2016 and $338.9 million in
2015. The variability between years is principally a result of cash
usage related to our acquisitions of businesses, which amounted to
$4,327.4 million in 2017, $120.6 million in 2016 and $210.9 million
in 2015. See note 2 of the financial statements for further details
related to these acquisitions. Capital expenditures were $182.4 mil-
lion in 2017, $153.8 million in 2016 and $128.4 million in 2015. We
expect 2018 capital expenditures to approximate $200 million to
support our planned growth.

Financing Cash Flow—Net cash provided by financing activities was
$3,756.0 million in 2017, as compared to a cash usage of $371.5 mil-
lion in 2016 and $199.6 million in 2015. The variability between years
is principally a result of changes in our net borrowings, share repur-
chase activity and dividends, both as described below. In 2017, 2016
and 2015, our net borrowing activity provided cash of $3,574.6 million,
$55.7 million and $118.0 million, respectively. In 2017, we issued
$4,000.0 million of long-term debt, including $2,500.0 million of
notes and $1,500.0 million of term loans (see note 6 of the financial
statements for additional information with respect to this long-term
debt). The net proceeds from the issuance of this long-term debt
were $3,977.6 million. We also paid $7.7 million of costs associated
with the issuance of debt and our $1.0 billion revolving credit facility.
In 2017, we repaid $272.7 million of long-term debt, including $268.8
million of our $1,500.0 million term loans issued in August 2017.

In 2016, net proceeds from short-term borrowings of $251.7 million
were used to pay off $200 million of 5.20% notes that matured in
December 2015 and for general corporate purposes. In 2015, we
received net cash proceeds of $246.5 million from our issuance of
$250.0 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 2017 and 2015, we repaid $134.6 million and $127.4 million,
respectively, of short-term borrowings.

The following table outlines the activity in our share repurchase
programs:

Number of shares of common stock
Dollar amount

2017

1.4
$137.8

2016

20151

2.6
$242.7

1.9
$145.8

As of November 30, 2017, $189 million remained of a $600 million
share repurchase program that was authorized by our Board of
Directors in March 2015. The timing and amount of any shares repur-
chased is determined by our management based on its evaluation of
market conditions and other factors. In connection with our August
2017 acquisition of RB Foods, we announced our intention to reduce
our leverage ratio by curtailing the repurchases of shares under our
share repurchase program.

During 2017, we issued approximately 6.35 million shares of our
Common Stock Non-Voting to fund our acquisition of RB Foods (see
notes 2 and 13 of the financial statements), which included approxi-
mately 0.8 million shares from the exercise of the underwriters’
option to purchase additional shares. The net proceeds from this
issuance, after the underwriting discount and related expenses, was
$554.0 million. In addition, we also issued $29.5 million of common
stock related to our stock compensation plans in 2017. All of the
common stock issued in 2016 and 2015 relates to our stock compen-
sation plans, including the effects of the related excess tax benefits.

Our dividend history over the past three years is as follows:

Total dividends paid
Dividends paid per share
Percentage increase per share

2017

2016

2015

$237.6
1.88
9.3%

$217.8
1.72
7.5%

$204.9
1.60
8.1%

In November 2017, the Board of Directors approved a 10.6% increase
in the quarterly dividend from $0.47 to $0.52 per share.

The following table presents our leverage ratios for the trailing
twelve month periods ended November 30, 2017, 2016 and 2015:

Leverage ratio

2017

5.1

2016

1.7

2015

1.8

Our leverage ratio was 5.1 as of November 30, 2017, as compared to
the ratios of 1.7 and 1.8 as of November 30, 2016 and 2015, respec-
tively. The increase in the ratio from 1.7 as of November 30, 2016 to
5.1 as of November 30, 2017 is principally due to an increase in total
debt associated with the funding, net of cash flow from operations
for 2017, of our acquisitions of RB Foods and Giotti, repurchases of
common stock and payment of dividends.

2017 Annual Report 45

The leverage ratio covenant in our $1.0 billion revolving credit facility
and the term loan agreements, both outstanding at November 30, 2017,
provide that Adjusted EBITDA under that covenant also include the
pro forma impact of acquisitions. As of November 30, 2017, our
leverage ratio under the terms of those agreements is 4.5.

Most of our cash is in our foreign subsidiaries. We manage our
worldwide cash requirements by considering available funds among
the many subsidiaries through which we conduct our business and
the cost effectiveness with which those funds can be accessed.
Prior to the enactment of the U.S. Tax Act on December 22, 2017, the
permanent repatriation of cash balances from certain of our subsid-
iaries could have had 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, 2017, we temporarily used $43.4 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, 2017 and 2016 were $630.6 million and $603.8 million,
respectively. The total average debt outstanding for the years ended
November 30, 2017 and 2016 was $2,996.6 million and $1,658.8 mil-
lion, respectively.

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 August 2017, we entered into a five-year $1.0 billion revolving
credit facility, which will expire in August 2022. The current pricing
for the credit facility, on a fully drawn basis, is LIBOR plus 1.25%.
The pricing of the credit facility is based on a credit rating grid that
contains a fully drawn maximum pricing of the credit facility equal to
LIBOR plus 1.75%. This facility replaces our prior facilities: (i) a five-
year $750 million revolving credit facility that was due to expire in
June 2020 and (ii) a 364-day $250 million revolving facility, which
we entered into in the second quarter of 2017 and that was due to
expire in March 2018. We generally use this facility to support our
issuance of commercial paper. If the commercial paper market is not
available or viable, we could borrow directly under our revolving
credit facility. The facility is made available by a syndicate of banks,
with various commitments per bank. If any of the banks in this syndi-
cate are unable to perform on their commitments, our liquidity could
be impacted, which could reduce our ability to grow through funding
of seasonal working capital. In addition to our committed revolving
credit facility, we have uncommitted credit facilities for $233.1 mil-
lion as of November 30, 2017 that will expire in 2018. We engage
in regular communication with all banks participating in our credit
facilities. During these communications, none of the banks have indi-
cated that they may be unable to perform on their commitments. In
addition, we periodically review our banking and financing relation-
ships, considering the stability of the institutions and other aspects
of the relationships. Based on these communications and our
monitoring activities, we believe our banks will perform on their

46 McCormick & Company

commitments. See note 6 of the financial statements for more details
on our financing arrangements. We believe that our internally gener-
ated 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,
including unfunded plans, were $18.7 million in 2017, $25.1 million
in 2016 and $15.7 million in 2015. It is expected that the 2018 total
pension plan contributions will be approximately $5 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 64% of assets are invested in equities, 26% in
fixed income investments and 10% in other investments. Assets in the
rabbi trust are primarily invested in corporate-owned life insurance,
the value of which approximates an investment mix of 50% in equi-
ties and 50% in fixed income investments. See note 10 of the finan-
cial statements, which provides details on our pension funding.

CUSTOMERS AND COUNTERPARTIES—See the subsequent
section of this discussion under Market Risk Sensitivity—Credit Risk.

ACQUISITIONS

Acquisitions are part of our strategy to increase sales and profits.

In fiscal 2017, we made the following acquisitions:

• On December 15, 2016, we purchased 100% of the shares of

Enrico Giotti SpA (Giotti), a leading European flavor manufacturer
located in Italy, for a cash payment of $123.8 million, net of cash
acquired of $1.2 million. 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 expanded the breadth of
value-added products for McCormick’s industrial segment, includ-
ing additional expertise in flavoring health and nutrition products.

• On August 17, 2017, we completed the acquisition of RB Foods.

The purchase price was approximately $4.21 billion, net of acquired
cash of $24.3 million, and included a preliminary working capital
adjustment of $11.2 million. In December 2017, we paid an addi-
tional $4.2 million associated with the final working capital
adjustment. The acquisition was funded through our issuance of
approximately 6.35 million shares of common stock non-voting
(see note 13 of the financial statements) and through new borrow-
ings comprised of senior unsecured notes and pre-payable term
loans (see note 6 of the financial statements). The acquired mar-
ket-leading brands of RB Foods include French’s, Frank’s RedHot
and Cattlemen’s, which are a natural strategic fit with our robust
global branded flavor portfolio. We believe that these additions
move us to a leading position in the attractive U.S. condiments
category and provide significant international growth opportuni-
ties for our consumer and industrial segments. The operations of
RB Foods have been included as a component of our consumer and
industrial segments from the date of acquisition.

In fiscal 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 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 2017, the con-
tingent consideration liability specified in the purchase agreement
was settled in advance of its contractual term for approximately
$29.3 million (€26.1 million), with $19.7 million (€17.6 million) paid
in 2017. That €17.6 million was in addition to the €5.0 million pre-
payment of the contingent consideration that we made as of the
acquisition date, with the remaining €3.5 million expected to be
paid in 2018. D&A has been included in our consumer segment
since its acquisition.

• We purchased 100% of the shares of One World Foods, Inc.,

owner of the Stubb’s brand of barbeque products (Stubb’s), a pri-
vately 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 note 2 of the financial statements for further details regarding
these acquisitions.

PERFORMANCE GRAPH—SHAREHOLDER RETURN

The following line graph compares the yearly change in McCormick’s
cumulative total shareholder return (stock price appreciation plus
reinvestment of dividends) on McCormick’s Non-Voting Common
Stock with (1) the cumulative total return of the Standard & Poor’s
500 Stock Price Index, assuming reinvestment of dividends, and
(2) the cumulative total return of the Standard & Poor’s Packaged
Foods & Meats Index, assuming reinvestment of dividends.

*$100 invested on 11/30/12 in stock or index, including reinvestment of dividends.
Fiscal year ending November 30.

MARKET RISK SENSITIVITY

We utilize derivative financial instruments to enhance our ability to
manage risk, including foreign exchange and interest rate exposures,
which exist as part of our ongoing business operations. We do not
enter into contracts for trading purposes, nor are we a party to any
leveraged derivative instrument. The use of derivative financial
instruments is monitored through regular communication with senior
management and the utilization of written guidelines. The informa-
tion presented below should be read in conjunction with notes 6 and
7 of the financial statements.

Foreign Exchange Risk—We are exposed to fluctuations in foreign
currency in the following main areas: cash flows related to raw
material purchases; the translation of foreign currency earnings to
U.S. dollars; the 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 expo-
sures 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.

2017 Annual Report 47

We routinely enter into foreign currency exchange contracts to
manage certain of these foreign currency risks.

During 2017, the foreign currency translation component in other
comprehensive income was principally related to the impact of
exchange rate fluctuations on our net investments in our subsidiar-
ies with a functional currency of the British pound sterling, Euro,
Polish zloty, Chinese yuan and Australian dollar. 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, 2017. All contracts are valued in U.S.
dollars using year-end 2017 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, 2017

Currency sold

Currency received

Average
contractual
exchange
rate

Notional
value

Euro
British pound sterling
Canadian dollar
U.S. dollar
Polish zloty
Australian dollar
Swiss franc
Canadian dollar

U.S. dollar
U.S. dollar
U.S. dollar
Australian dollar
U.S. dollar
Euro
Euro
British pound sterling

$ 11.0
30.0
174.0
17.8
17.9
46.4
67.3
30.4

1.14
1.29
0.78
0.78
3.78
1.50
1.08
1.65

Fair
value

$(0.6)
(1.6)
1.5
(0.4)
(1.3)
2.7
5.6
1.9

We had a number of smaller contracts at November 30, 2017 with an aggregate
notional value of $11.1 million to purchase or sell other currencies, such as the Swiss
franc and the Romanian leu. The aggregate fair value of these contracts was $0.2 mil-
lion at November 30, 2017.

At November 30, 2016, we had foreign currency exchange contracts for the Euro, British
pound sterling, Canadian dollar, Australian dollar and Polish zloty with a notional value
of $449.2 million, all of which matured in 2017. The aggregate fair value of these con-
tracts was $(0.5) million at November 30, 2016.

Interest Rate Risk—Our policy is to manage interest rate risk by
entering into both fixed and variable rate debt arrangements. We
also use interest rate swaps to minimize worldwide financing costs
and to achieve a desired mix of fixed and variable rate debt. The
table that follows provides principal cash flows and related interest
rates, excluding the effect of interest rate swaps and the amortiza-
tion of any discounts or fees, by fiscal year of maturity at November
30, 2017. 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.

48 McCormick & Company

YEAR OF MATURITY AT NOVEMBER 30, 2017

Debt
Fixed rate
Average interest rate

Variable rate
Average interest rate

2018

2019

2020

2021

Thereafter

Total

Fair value

$ 250.6

5.75%

$332.6

2.39%

$ 0.5
7.10%

$76.6
2.72%

$ 0.2

11.94%

$576.6

2.57%

$250.2

3.91%

$ 76.6

2.72%

$3,061.1

3.33%

$ 438.5

2.74%

$ 3,562.6
—

$ 1,500.9
—

$3,615.2
—

$1,500.9
—

The table above displays the debt by the terms of the original debt instrument without consideration of fair value, interest rate swaps and any loan discounts or origination fees. Interest
rate swaps have the following effects:

• 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.

• We issued an aggregate amount of $2.5 billion of senior unsecured notes in August 2017. These notes are due as follows: $750 million due August 15, 2022, $700 million due August 15, 2024,
$750 million due August 15, 2027 and $300 million due August 15, 2047 with stated fixed interest rates of 2.70%, 3.15%, 3.40% and 4.20%, respectively. Forward treasury lock agree-
ments settled upon issuance of the $750 million notes due August 15, 2027 effectively set the interest rate on these $750 million notes at a weighted-average fixed rate of 3.44%.

Commodity Risk—We purchase certain raw materials which are
subject to price volatility caused by weather, market conditions,
growing and harvesting conditions, governmental actions and other
factors beyond our control. In 2017, our most significant raw materials
were pepper, dairy products, garlic, vanilla, capsicums (red peppers
and paprika), onion, wheat flour and rice. While future movements
of raw material costs are uncertain, we respond to this volatility
in a number of ways, including strategic raw material purchases,
purchases of raw material for future delivery and customer price
adjustments. We generally have not used derivatives to manage the
volatility related to this risk. To the extent that we have used deriva-
tives 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 customers
and counterparties are highly leveraged. We continue to closely
monitor the credit worthiness of our customers and counterparties.
We feel that the allowance for doubtful accounts properly recognizes
trade receivables at realizable value. We consider nonperformance
credit risk for other financial instruments to be insignificant.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL
COMMITMENTS

The following table reflects a summary of our contractual obligations
and commercial commitments as of November 30, 2017:

CONTRACTUAL CASH OBLIGATIONS DUE BY YEAR

Less than
1 year

1–3
years

3–5
years

More than
5 years

Total

Short-term borrowings
Long-term debt
Operating leases
Interest payments
Raw material purchase
obligations (a)
Other purchase
obligations (b)

Total contractual cash
obligations

$ 257.6 $ 257.6 $ — $
325.6
4,805.9
41.7
172.0
150.0
1,187.5

653.9
59.6
276.0

— $ —
2,317.0
33.7
528.6

1,509.4
37.0
232.9

469.4

17.8

14.4

—

3.4

—

$ 6,910.2

$1,258.7 $992.9 $1,779.3

$2,879.3

(a) Raw material purchase obligations outstanding as of year end may not be indicative
of outstanding obligations throughout the year due to our response to varying raw
material cycles.

(b) Other purchase obligations consist of advertising media commitments and utility

contracts.

The contractual cash obligations table above does not reflect any esti-
mated lease payment obligation with respect to a 15-year lease for a
headquarters building in Hunt Valley, Maryland, which we 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 state-
ments for additional details.

Pension and postretirement funding can vary significantly each
year due to changes in legislation, our significant assumptions and
investment return on plan assets. As a result, we have not presented
pension and postretirement funding in the table above.

COMMERCIAL COMMITMENTS EXPIRATION BY YEAR

Guarantees
Standby letters of credit

Total commercial
commitments

Less than
1 year

1–3
years

3–5
years

More than
5 years

$0.6
7.3

$— $—
—
—

$—
—

Total

$0.6
7.3

$7.9

$— $—

$—

OFF-BALANCE SHEET ARRANGEMENTS

We had no off-balance sheet arrangements as of November 30, 2017
and 2016.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

New accounting pronouncements are issued periodically that affect
our current and future operations. See note 1 of the financial state-
ments for further details of these impacts.

CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

In preparing the financial statements, we are required to make esti-
mates and assumptions that have an impact on the assets, liabilities,
revenue and expenses reported. These estimates can also affect sup-
plemental information disclosed by us, including information about
contingencies, risk and financial condition. We believe, given current
facts and circumstances, our estimates and assumptions are reason-
able, adhere to U.S. GAAP and are consistently applied. Inherent in
the nature of an estimate or assumption is the fact that actual results
may differ from estimates, and estimates may vary as new facts and
circumstances arise. In preparing the financial statements, we make
routine estimates and judgments in determining the net realizable
value of accounts receivable, inventory, fixed assets and prepaid
allowances. Our most critical accounting estimates and assumptions
are in the following areas:

Customer Contracts
In several of our major geographic markets, the consumer segment
sells our products by entering into annual or multi-year customer con-
tracts. These contracts include provisions for items such as sales dis-
counts, 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.

2017 Annual Report 49

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, 2017,
we had $4,490.1 million of goodwill recorded in our balance sheet
($3,385.4 million in the consumer segment and $1,104.7 million in the
industrial segment). Included in those amounts are $2,546.3 million
($1,697.5 million in the consumer segment and $848.8 million in the
industrial segment) of goodwill related to our acquisition of RB Foods
that, as of November 30, 2017, was determined on a preliminary basis.
The final valuation of the acquired net assets of RB Foods, and the
related goodwill balance by segment, will be completed in 2018. Our
fiscal year 2017 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.

As of November 30, 2017, we had $2,808.5 million of brand name
assets and trademarks recorded in our balance sheet, and none of
the balances exceeded their calculated fair values. Excluding (i) the
brand names associated with the 2017 RB Foods acquisition, which
were based upon a preliminary valuation of the acquired net assets,
(ii) the brand names associated with other acquisitions in 2017, 2016
and 2015, including Giotti, Gourmet Garden, Brand Aromatics, D&A
and Stubbs, (iii) the Kohinoor brand name that was written down to
its estimated fair value in 2015, and (iv) the Kamis brand name as dis-
cussed below, the percentage excess of estimated fair value over
book values for our major brand names and trademarks is 40% or
more as of November 30, 2017.

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 benefit
reporting are reviewed annually and compared with external bench-
marks to ensure that they appropriately account for our future pen-
sion and postretirement benefit obligations. While we believe that
the assumptions used are appropriate, differences between assumed
and actual experience may affect our operating results. A 1% increase
or decrease in the actuarial assumption for the discount rate would
impact 2018 pension and postretirement benefit expense by approxi-
mately $10 million. A 1% increase or decrease in the expected return
on plan assets would impact 2018 pension expense by approximately
$9 million.

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 assump-
tions for expected volatility of stock, dividend yield and risk-free
interest rate. Our valuation methodology and significant assumptions
used are disclosed in note 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.

50 McCormick & Company

The following table which outlines the book value of our major brand
names and trademarks as of November 30, 2017:

RB Foods (French’s, Frank’s RedHot, and Cattlemen’s) (a)
Zatarain’s
Lawry’s
Kamis
Stubb’s
DaQiao/ChuShiLe
Gourmet Garden
Simply Asia/Thai Kitchen
Drogheria & Alimentari
Kohinoor
Giotti
Brand Aromatics
Other

Total

$2,475.0
106.4
48.0
35.7
27.1
26.4
27.3
18.6
13.6
8.6
5.4
4.2
12.2

$2,808.5

(a) Book value for the French’s, Frank’s RedHot, and Cattlemen’s brand names as of

November 30, 2017 is based on a preliminary valuation of the acquired net assets of
RB Foods and will be adjusted upon finalization of this valuation in 2018.

The percentage excess of calculated fair value over book value for
the Kamis brand name as of November 30, 2017, was approximately
14%. A change in assumptions with respect to future performance of
the Kamis business could result in impairment losses in the future.

The brand names and trademarks related to recent acquisitions (in
particular, our most recent—and most significant—acquisition,
RB Foods) may be more susceptible to future impairment as their
carrying values represent recently determined fair values. A change
in assumptions with respect to future performance of these recently
acquired businesses, or a change in other assumptions, could result
in impairment losses in the future.

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.

2017 Annual Report 51

goodwill and intangible assets, include $164 million of assets as of
November 30, 2017, and $190 million in net sales for the year then
ended. We will include RB Foods in our 2018 annual assessment of
internal control over financial reporting. Although there are inherent
limitations in the effectiveness of any system of internal control over
financial reporting, based on our assessment, we have concluded
with reasonable assurance that our internal control over financial
reporting was effective as of November 30, 2017.

Our internal control over financial reporting as of November 30, 2017
has been audited by Ernst & Young LLP.

Lawrence E. Kurzius

Chairman, President &
Chief Executive Officer

Michael R. Smith

Executive Vice President &
Chief Financial Officer

Christina M. McMullen

Vice President & Controller
Chief Accounting Officer

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 assessment of the effectiveness of our internal con-
trol over financial reporting based on the framework in Internal
Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework). This
assessment included review of the documentation of controls, evalu-
ation of the design effectiveness of controls, testing of the operating
effectiveness of controls and a conclusion on this assessment. Our
assessment of the effectiveness of our internal control over financial
reporting as of November 30, 2017 did not include an assessment of
the effectiveness of internal control over financial reporting of RB
Foods, which we acquired on August 17, 2017. The operating results
of RB Foods are included in our consolidated financial statements
from the period subsequent to the acquisition date and, excluding

52 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, 2017, 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 pro-
cedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the mainte-
nance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the com-
pany; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect
on the financial statements.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

As indicated in the accompanying Report of Management, manage-
ment’s assessment of and conclusion on the effectiveness of internal
control over financial reporting did not include the internal controls
of Reckitt Benckiser’s Food Division (“RB Foods”) acquired on August
17, 2017, which is included in the 2017 consolidated financial state-
ments of McCormick & Company, Incorporated and constituted
$164 million of assets, excluding goodwill and intangible assets as
of November 30, 2017 and $190 million of net sales for the year
then ended. Our audit of internal control over financial reporting of
McCormick & Company, Incorporated also did not include an evalua-
tion of the internal control over financial reporting of RB Foods.

In our opinion, McCormick & Company, Incorporated maintained, in
all material respects, effective internal control over financial report-
ing as of November 30, 2017, 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, 2017 and 2016, 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, 2017 and our report dated
January 25, 2018 expressed an unqualified opinion thereon.

Baltimore, Maryland
January 25, 2018

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

2017 Annual Report 53

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, 2017 and
2016, 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, 2017. Our audits also included the financial statement
schedule listed in the Index at Item 15(2). These financial statements
and schedule are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial state-
ments and schedule based on our audits.

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, 2017 and
2016, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended November 30,
2017, 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, 2017, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 frame-
work) and our report dated January 25, 2018 expressed an unquali-
fied opinion thereon.

Baltimore, Maryland
January 25, 2018

54 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
Transaction and integration expenses (related to RB Foods acquisition)
Special charges

Operating income

Interest expense
Other debt costs
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

(including curtailment gains of $76.7 for 2017)

Currency translation adjustments
Change in derivative financial instruments
Deferred taxes

Total other comprehensive income (loss)

Comprehensive income

See Notes to Consolidated Financial Statements.

2017

$4,834.1
2,823.9

2,010.2
1,244.8
40.8
22.2

702.4
95.7
15.4
3.5

594.8
151.3

443.5
33.9

$ 477.4

$ 3.77
$ 3.72

2017

$ 477.4
1.6

103.2
174.6
(12.5)
(30.8)

234.5

$ 713.5

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)

$ 181.0

CONSOLIDATED BALANCE SHEETS

at November 30 (millions)

Assets
Cash and cash equivalents
Trade accounts receivable, less allowances of $6.6 for 2017 and $4.2 for 2016
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
Deferred taxes
Other long-term liabilities

Total liabilities

Shareholders’ equity
Common stock, no par value; authorized 320.0 shares; issued and outstanding:
2017—10.0 shares, 2016—11.4 shares
Common stock non-voting, no par value; authorized 320.0 shares; issued and outstanding:
2017—121.0 shares, 2016—113.9 shares
Retained earnings
Accumulated other comprehensive loss
Non-controlling interests

Total shareholders’ equity

Total liabilities and shareholders’ equity

See Notes to Consolidated Financial Statements.

2017 Annual Report 55

2017

2016

$ 186.8
555.1
793.3
81.8

1,617.0

809.1
4,490.1
3,071.1
398.5

$ 118.4
465.2
756.3
81.9

1,421.8

669.4
1,771.4
424.9
348.4

$10,385.8

$4,635.9

$ 257.6
325.6
639.9
724.2

1,947.3

4,443.9
1,094.5
329.2

7,814.9

$ 390.3
2.9
450.8
578.7

1,422.7

1,054.0
79.9
441.2

2,997.8

378.2

409.7

1,294.7
1,166.5
(279.5)
11.0

2,570.9

674.5
1,056.8
(514.4)
11.5

1,638.1

$10,385.8

$4,635.9

56 McCormick & Company

CONSOLIDATED CASH FLOW STATEMENTS

for the year ended November 30 (millions)

2017

2016

2015

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 and transaction and integration expenses
Amortization of inventory fair value adjustment associated with

acquisition of RB Foods
Loss on sale of assets

Deferred income tax expense (benefit)
Income from unconsolidated operations

Settlement of forward-starting interest rate swaps
Changes in operating assets and liabilities (net of effect of businesses acquired):
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 (net of cash acquired)
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 insurance

Net cash used in investing activities

Financing activities
Short-term borrowings, net
Long-term debt borrowings
Payment of debt issuance costs
Long-term debt repayments
Proceeds from exercised stock options
Taxes withheld and paid on employee stock awards
Payment of contingent consideration
Purchase of minority interest
Issuance of common stock non-voting (net of issuance costs of $0.9)
Common stock acquired by purchase
Dividends paid

Net cash provided by (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.

$ 477.4

$ 472.3

$ 401.6

125.2
23.9
—
19.1

20.9
1.3
24.1
(33.9)
(2.9)

(13.0)
44.6
98.2
6.8
23.6

815.3

(4,327.4)
—
(182.4)
1.1
0.4

(4,508.3)

(134.6)
3,989.6
(7.7)
(272.7)
29.5
(5.8)
(19.7)
(1.2)
554.0
(137.8)
(237.6)

3,756.0

5.4
68.4
118.4

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)
36.8
(3.5)
—
—
—
(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)
38.4
(5.3)
—
—
—
(145.8)
(204.9)

(199.6)

(16.2)
35.3
77.3

$ 186.8

$ 118.4

$ 112.6

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Common
Stock
Shares

Common
Stock Non-
Voting
Shares

12.0

116.4

2017 Annual Report 57

Accumulated
Other
Comprehensive
(Loss) Income

Non-controlling
Interests

Total
Shareholders’
Equity

$(186.0)
—
—
(220.1)
—
—
—
—
—

$(406.1)

—
—
(108.3)
—
—
—
—
—
—
—

$17.2
—
0.5
(1.0)
—
—
—
—
—

$16.7

—
(1.3)
(1.8)
—
(0.6)
(1.5)
—
—
—
—

$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
—

Common
Stock
Amount

$ 995.6
—
—
—
—
18.7
(16.2)
41.5
—

Retained
Earnings

$ 982.6
401.6
—
—
(208.2)
—
(139.3)
—
—

(1.8)
0.1
0.9

115.6

$ 1,039.6

$1,036.7

—
—
—
—
—
—
25.6
(19.9)
38.9
—

472.3
—
—
(222.0)
—
—
—
(230.2)
—
—

(2.5)
0.1
0.7

113.9

$1,084.2

$1,056.8

$(514.4)

—

477.4

—

$11.5

—

$1,638.1

477.4

—
—
—
—
23.9

554.0
(23.8)
34.6
—

—
—
(247.0)
0.6
—

—
(121.3)
—
—

—
234.9
—
—
—

—
—
—
—

6.4
(1.1)
0.1
1.7

1.6
(0.4)
—
(1.7)
—

—
—
—
—

1.6
234.5
(247.0)
(1.1)
23.9

554.0
(145.1)
34.6
—

121.0

$1,672.9

$1,166.5

$(279.5)

$11.0

$2.570.9

(0.2)
0.8
(0.9)

11.7

(0.2)
0.6
(0.7)

11.4

—
(0.4)
0.7
(1.7)

10.0

(millions)

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

Net income
Net income attributable to non-controlling

interest

Other comprehensive income (loss), net of tax
Dividends
Buyout of minority interest
Stock-based compensation
Shares issued in connection with RB Foods
acquisition
Shares purchased and retired
Other shares issued
Equal exchange

Balance, November 30, 2017

See Notes to Consolidated Financial Statements.

58 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 their functional currency—
are included in net earnings.

Our unconsolidated affiliates located outside the U.S. generally use
their local currencies as their functional currencies. The asset and
liability accounts of those unconsolidated affiliates are translated at
the rates of exchange at the balance sheet date, with the resultant
translation adjustments included in accumulated other comprehen-
sive 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 income statement
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 statements
and notes. Actual amounts could differ from these estimates.

Cash and Cash Equivalents
All highly liquid investments purchased with an original maturity of
three months or less are classified as cash equivalents.

Inventories
Inventories are stated at the lower of cost or market. Cost is deter-
mined using standard or average costs which approximate the first-in,
first-out costing method.

Property, Plant and Equipment
Property, plant and equipment is stated at historical cost and 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
internal use. Capitalized software development costs include only
(1) direct costs paid to others for materials and services to develop
or buy the software, (2) payroll and payroll-related costs for employ-
ees 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 $12.8 million, $21.8 million and $9.4 million of soft-
ware development costs during 2017, 2016 and 2015, respectively.

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.

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 Asset Impairment
Fixed assets and amortizable intangible assets are reviewed for
impairment as events or changes in circumstances occur indicating
that the carrying value of the asset may not be recoverable.
Undiscounted cash flow analyses are used to determine if an
impairment exists. If an impairment is determined to exist, the
loss is calculated based on estimated fair value.

Revenue Recognition
We recognize revenue when we have an agreement with the customer
—upon either shipment or delivery, depending upon contractual
terms—and when the sales price is fixed or determinable and col-
lectability is reasonably assured. We reduce revenue for estimated
product returns, allowances and price discounts based on historical
experience and contractual terms.

Trade allowances, consisting primarily of customer pricing allow-
ances 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 $115.4 million, $97.2
million and $95.8 million for 2017, 2016 and 2015, 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 $66.1 million,
$61.0 million and $60.8 million for 2017, 2016 and 2015, respectively.

Brand Marketing Support
Total brand marketing support costs, which are included in selling,
general and administrative expense in the income statement, were
$276.3 million, $252.2 million and $240.6 million for 2017, 2016 and
2015, respectively. Brand marketing support costs include advertis-
ing, promotions and customer trade funds used for cooperative
advertising. Promotion costs include public relations, shopper
marketing, 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

2017 Annual Report 59

the period in which the advertisement is first run. All other costs of
advertisement are expensed as incurred. Advertising expense was
$117.8 million, $102.9 million and $106.8 million for 2017, 2016 and
2015, 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. We contribute to defined contribution plans in locations
outside the U.S., including government-sponsored retirement plans.
We also currently provide postretirement medical and life insurance
benefits to certain U.S. employees and retirees.

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
comprehensive income in the year in which those changes occur.

The expected return on plan assets is determined using the expected
rate of return and a calculated value of plan assets referred to as the
market-related value of plan assets. Differences between assumed
and actual returns are amortized to the market-related value of
assets on a straight-line basis over five years.

We use the corridor approach in the valuation of defined benefit
pension and postretirement benefit plans. The corridor approach
defers all actuarial gains and losses resulting from variances
between actual results and actuarial assumptions. Those unrecog-
nized 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 remain-
ing service period to retirement date of active plan participants.

Accounting Pronouncements Adopted in 2017
In March 2016, the Financial Accounting Standards Board (FASB)
issued ASU No. 2016-09 Compensation—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, among its other
provisions, that excess tax benefits (which represent the excess of
actual tax benefits received at the date of vesting or settlement over
the benefits recognized over the vesting period or upon issuance of
share-based payments) and tax deficiencies (which represent 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 an increase or decrease in income taxes
when the awards vest or are settled. This is in comparison to the
prior requirement that these excess tax benefits be recognized in
additional paid-in capital and these tax deficiencies be recognized
either as an offset to accumulated excess tax benefits, if any, or in
the income statement. The new guidance also requires excess tax
benefits to be classified, together with other income tax cash flows,
as an operating activity in the cash flow statement rather than, as
previously required, a financing activity. The new guidance is
effective for the first quarter of our fiscal year ending November 30,
2018, with early adoption permitted.

60 McCormick & Company

We have elected to early adopt ASU No. 2016-09 effective
December 1, 2016 on a prospective basis, where permitted by the
new standard. As a result of this adoption:

• We recognized discrete tax benefits of $10.7 million in the income
taxes line item of our consolidated income statement for the year
ended November 30, 2017 related to excess tax benefits upon
vesting or settlement in that period.

• We elected to adopt the cash flow presentation of the excess tax
benefits prospectively, commencing with our cash flow state-
ments for periods beginning after November 30, 2016, where
these benefits are classified, together with other income tax cash
flows, as an operating activity.

• We have elected to continue to estimate the number of stock-based
awards expected to vest, rather than electing to account for forfei-
tures as they occur to determine the amount of compensation cost
to be recognized in each period.

• At this time, we have not changed our policy on statutory with-
holding requirements and will continue to allow an employee to
withhold at the minimum statutory withholding rate. Amounts
paid by us to taxing authorities when directly withholding shares
associated with employees’ income tax withholding obligations
are classified as a financing activity in our cash flow statement for
2017. ASU No. 2016-09 requires that this cash flow presentation
be made retrospectively and our cash flow statements for 2016
and 2015 have been restated accordingly.

• We excluded the excess tax benefits from the assumed proceeds
available to repurchase shares in the computation of our diluted
earnings per share for 2017.

Recently Issued Accounting Pronouncements—
Pending Adoption
In August 2017, the FASB issued ASU No. 2017-12 Derivatives and
Hedging (Topic 815)—Targeted Improvements to Accounting for
Hedging Activities. This guidance eliminates the requirement to sep-
arately measure and report hedge ineffectiveness and generally
requires, for qualifying hedges, the entire change in the fair value of
a hedging instrument to be presented in the same income statement
line as the hedged item. The guidance also modifies the accounting
for components excluded from the assessment of hedge effective-
ness, eases documentation and assessment requirements and modi-
fies certain disclosure requirements. The new standard will be
effective for the first quarter of our fiscal year ending November 30,
2020. Early adoption is permitted in any interim period or fiscal year
before the effective date for all entities. If the guidance is early
adopted in an interim period, any adjustments would be reflected as
of the beginning of the fiscal year that includes that interim period.
We have not yet determined the impact from adoption of this new
accounting pronouncement on our financial statements.

In March 2017, the FASB issued ASU No. 2017-07 Compensation-
Retirement Benefits (Topic 715)—Improving the Presentation of Net
Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
This guidance revises how employers that sponsor defined benefit
pension and other postretirement plans present the net periodic ben-
efit cost in their income statement. Under the new standard, the
service cost component of net periodic benefit cost will continue to
be presented in the same income statement line items as other
employee compensation costs from services rendered during the

period. The other components of the net periodic benefit cost must
be presented separately from the line items that include the service
cost and outside of any subtotal of operating income in the income
statement. Of the components of net periodic benefit cost, only the
service cost component will be eligible for asset capitalization. The
new standard will be effective for the first quarter of our fiscal year
ending November 30, 2019. The changes in presentation will be
applied retrospectively when adopted, while the change related to
amounts capitalized in assets will be applied prospectively. We have
not yet determined the impact from adoption of this new accounting
pronouncement on our financial statements.

In January 2017, the FASB issued ASU No. 2017-04 Intangibles—
Goodwill and Other Topics (Topic 350)—Simplifying the Test for
Goodwill Impairment. This guidance eliminates the requirement to
calculate the implied fair value of goodwill of a reporting unit to
measure a goodwill impairment charge. Instead, a company will
record an impairment charge based on the excess of a reporting
unit’s carrying amount over its fair value. The new standard will be
effective for the first quarter of our fiscal year ending November 30,
2021. Early adoption is permitted for all entities for annual and
interim goodwill impairment testing dates after January 1, 2017.
We have not yet determined the impact from adoption of this new
accounting pronouncement on our financial statements.

In January 2017, the FASB issued ASU No. 2017-01 Business
Combinations (Topic 805)—Clarifying the Definition of a Business.
This guidance changes the definition of a business to assist entities
in evaluating when a set of transferred assets and activities con-
stitutes a business. The guidance requires an entity to evaluate if
substantially all of the fair value of the gross assets acquired is
concentrated in a single identifiable asset or a group of similar iden-
tifiable assets; if so, the set of transferred assets and activities is
not a business. The guidance also requires a business to include at
least one substantive process and narrows the definition of outputs
by more closely aligning it with how outputs are described in
Accounting Standards Codification (ASC 606) 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. We have not yet determined
the impact from adoption of this new accounting pronouncement on
our financial statements.

In February 2016, the FASB issued ASU 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 lessors. Our leases princi-
pally relate to: (i) certain real estate, including that related to a num-
ber of administrative, distribution and manufacturing locations; (ii)
certain machinery and equipment, including a corporate airplane and
automobiles; and (iii) certain software. In addition, in 2016, we
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 No. 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 pay-
ments 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 accounting by lessees for operating leases
under ASC 840) while finance leases will result in a front-loaded
expense pattern (similar to current accounting by lessees for capital
leases under ASC 840). The new standard will be effective for the
first quarter of our fiscal year ending November 30, 2020. Early adop-
tion 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. 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 ASU 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 prepa-
ration 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 agreements with our customers in the
U.S. and international locations 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 agreement 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 performance obliga-
tion is satisfied. We are also evaluating the impact of the new stan-
dard 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, mer-
chandising 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.

Acquisition of RB Foods
On August 17, 2017, we completed the acquisition of Reckitt
Benckiser’s Food Division (“RB Foods”) from Reckitt Benckiser
Group plc. The purchase price was approximately $4.21 billion, is
net of acquired cash of $24.3 million, and included a preliminary
working capital adjustment of $11.2 million. In December 2017,
we paid an additional $4.2 million associated with the final

2017 Annual Report 61

working capital adjustment. The acquisition was funded through
our issuance of approximately 6.35 million shares of common stock
non-voting (see note 13) and through new borrowings comprised
of senior unsecured notes and pre-payable term loans (see note 6).
The acquired market-leading brands of RB Foods include French’s®,
Frank’s RedHot® and Cattlemen’s®, which are a natural strategic
fit with our robust global branded flavor portfolio. We believe that
these additions move us to a leading position in the attractive U.S.
Condiments category and provide significant international growth
opportunities for our consumer and industrial segments. At the time
of the acquisition, annual sales of RB Foods were approximately
$570 million. The transaction was accounted for under the acquisi-
tion method of accounting and, accordingly, the results of RB Foods’
operations are included in our consolidated financial statements as a
component of our consumer and industrial segments from the date
of acquisition.

The purchase price of RB Foods was preliminarily allocated to the
underlying assets acquired and liabilities assumed based upon their
estimated fair values at the date of acquisition. We estimated the
fair values based on in-process independent valuations, discounted
cash flow analyses, quoted market prices, and estimates made by
management, a number of which are subject to finalization. The allo-
cation of the purchase price will be finalized within the allowable
measurement period. The preliminary allocation, net of cash acquired,
of the fair value of the RB Foods acquisition is summarized in the
table below (in millions):

Trade accounts receivable
Inventories
Property, plant and equipment
Goodwill
Intangible assets
Other assets
Trade accounts payable
Other accrued liabilities
Deferred taxes
Other long-term liabilities

Total

36.9
68.8
33.1
2,546.3
2,595.0
4.4
(65.5)
(35.4)
(954.8)
(23.1)

$4,205.7

The preliminary fair value of intangible assets was determined using
income methodologies. We valued trademarks using the relief from
royalty method, an income approach. For customer relationships, we
used the distributor method, a variation of the excess earnings
method that uses distributor-based inputs for margins and contribu-
tory asset charges. Some of the more significant assumptions inher-
ent in developing the preliminary valuations included the estimated
annual net cash flows for each indefinite-lived or definite-lived
intangible asset (including net sales, cost of products sold, selling
and marketing costs, and working capital/contributory asset
charges), the discount rate that appropriately reflects the risk inher-
ent in each future cash flow stream, the assessment of each asset’s
life cycle, and competitive trends, as well as other factors. We
determined the assumptions used in the financial forecasts using
historical data, supplemented by current and anticipated market
conditions, estimated product category growth rates, management
plans, and market comparables.

We valued finished goods and work-in-process inventory using a net
realizable value approach, which resulted in a step-up of $20.9 mil-
lion that was recognized in cost of goods sold in 2017 as the related
inventory was sold. Raw materials and packaging inventory was
valued using the replacement cost approach.

62 McCormick & Company

The preliminary fair value of property, plant and equipment was
determined using a combination of the income approach, the market
approach and the cost approach, which is based on current replace-
ment and/or reproduction cost of the asset as new, less depreciation
attributable to physical, functional, and economic factors.

Deferred income tax assets and liabilities represent the expected
future tax consequences of temporary differences between the
fair values of the assets acquired and liabilities assumed and their
tax bases.

We used carrying values to value trade receivables and payables, as
well as certain other current and non-current assets and liabilities,
as we determined that they represented the fair value of those items.

The preliminary valuation of the acquired net assets of RB Foods
includes $2,475.0 million allocated to indefinite-lived brand assets
and $120.0 million allocated to definite-lived intangible assets with
a weighted-average life of 15 years. As a result of the acquisition,
we recognized a total of $2,546.3 million of goodwill. That goodwill,
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 consumer and industrial customers for value-added
flavor solutions, and our supply chain capabilities, as well as
expected synergies from the combined operations and assembled
workforce. The final allocation of the fair value of the RB Foods
acquisition, including the allocation of goodwill to our reporting
units, which are the consumer and industrial segments, was not
complete as of November 30, 2017, but will be finalized within the
allowable measurement period. The results of RB Foods’ operations
have been included in our consumer and industrial segments since
its acquisition.

Total transaction and integration expenses related to the RB Foods
acquisition are anticipated to approximate $100 million, of which
approximately $60 million represent transaction expenses and the
remainder represent estimated integration expenses. These costs
are anticipated to be incurred through fiscal 2018 and primarily con-
sist of the amortization of the acquisition-date fair value adjustment
of inventories in the amount of $20.9 million that is included in cost
of goods sold for 2017; outside advisory, service and consulting
costs; employee-related costs; and other costs related to the acqui-
sition, including the costs of $15.4 million related to the Bridge
financing commitment that is included in other debt costs for 2017.
Of the total anticipated transaction and integration expenses, we
incurred $77.1 million in 2017 and expect to incur the balance in fis-
cal 2018. The following are the transaction and integration expenses
that we have recorded in 2017 related to the RB Foods acquisition
(in millions):

Transaction expenses included in cost of goods sold
Transaction expenses included in other debt costs
Other transaction expenses
Integration expenses

Total

$20.9
15.4
23.2
17.6

$77.1

RB Foods added $190.1 million to our sales for 2017. The impact of
RB Foods on our 2017 consolidated income before taxes, including
the effect of the transaction and integration expenses previously
noted, and financing costs was a loss of approximately $42 million.

The following unaudited pro forma information presents consoli-
dated financial information as if RB Foods had been acquired at the
beginning of fiscal 2016. Interest expense has been adjusted to
reflect the debt issued to finance the acquisition as though that debt
had been outstanding at December 1, 2015. The pro forma results
reflect amortization expense of approximately $8.0 million for each
period presented, relating to definite-lived intangible assets recorded
based upon preliminary third party valuations. The pro forma results
for 2016 also include transaction and integration costs of $40.8 mil-
lion, $20.9 million of amortization of the acquisition-date fair value
adjustment of inventories, and $15.4 million associated with the
Bridge financing commitment, all assuming that the acquisition had
occurred as of December 1, 2015. The pro forma results for 2017
exclude the previously noted items, as they have been included, on a
pro forma basis, in the results for 2016. The pro forma adjustments
previously noted have been adjusted for the applicable income tax
impact. Basic and diluted shares outstanding have been adjusted to
reflect the issuance of 6.35 million shares of our common stock
non-voting to partially finance the acquisition.

Year ended November 30,

(in millions, except per share data)

2017

2016

Net sales
Net income
Earnings per share—basic
Earnings per share—diluted

(Unaudited)

$ 5,209.0
548.7
4.19
4.14

$ 4,969.3
465.5
3.50
3.46

These unaudited pro forma consolidated results are not adjusted for
changes in the business that will take place subsequent to our
acquisition, including, but not limited to, additional transaction and
integration costs that may be incurred. Accordingly, the above
unaudited pro forma results are not necessarily indicative of the
results that actually would have occurred if the acquisition had
been completed as of December 1, 2015, nor are they indicative
of future consolidated results.

Other Acquisitions
On May 5, 2017, we purchased the remaining 15% ownership inter-
est in our joint venture, Kohinoor Specialty Foods India Private
Limited (Kohinoor) in India for a cash payment of $1.6 million, of
which $1.2 million was paid in 2017 and the balance is expected to
be paid in the fourth quarter of 2018. In September 2011, when we
originally entered this joint venture, we invested $113.0 million for
an 85% interest in Kohinoor. In conjunction with our purchase of
the 15% minority interest in 2017, we have eliminated the minority
interest in Kohinoor and recorded an adjustment of $0.6 million in
retained earnings of our shareholders’ equity section of our consoli-
dated balance sheet. The $1.2 million payment is reflected in the
financing activities section of our consolidated cash flow statement
for 2017.

On December 15, 2016, we purchased 100% of the shares of Enrico
Giotti SpA (Giotti), a leading European flavor manufacturer located
in Italy, for a purchase price of $123.8 million (net of cash acquired
of $1.2 million), including the effect of a $0.2 million favorable net
working capital adjustment. 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 approxi-
mately €53 million. Our acquisition of Giotti in fiscal 2017 expands

the breadth of value-added products for McCormick’s industrial seg-
ment, including additional expertise in flavoring health and nutrition
products. During 2017, we completed the final valuation of the
acquired net assets of Giotti that resulted in $7.0 million allocated
to net tangible assets acquired, $4.8 million allocated to indefinite-
lived brand asset, $31.5 million allocated to definite-lived intangible
assets with a weighted-average life of 11.9 years and $80.5 million
allocated to goodwill. Goodwill related to the Giotti 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 the customer intimacy and value-added
flavor solutions we provide to our industrial customers to Giotti’s
relationships with industrial customers of their flavors solutions and
extracts, as well as from expected synergies from the combined
operations and assembled workforces, and the future development
initiatives of the assembled workforces. Giotti has been included in
our industrial segment since its acquisition.

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
New Orleans flavors. Cajun Injector, which has been included in
our consumer segment since its acquisition, complements our
Zatarain’s brand.

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 com-
plement 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 pur-
chase price was $116.2 million, net of cash acquired of $3.3 million
and after closing adjustments, and was financed with a combination
of cash and short-term borrowings. That purchase price reflects a
$1.9 million favorable net working capital adjustment that was
received in the third quarter of 2016. During 2017, we completed the
final valuation of the Gourmet Garden 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 $7.3 million to $27.6 million; (ii) definite-lived intangible assets
increased by $4.7 million to $18.9 million (with a weighted- average
life of 14.2 years); (iii) net tangible assets (net of liabilities assumed,
including the deferred tax liabilities associated with identified intan-
gible assets) acquired decreased by $4.4 million to $16.0 million;
(iv) goodwill decreased by $7.6 million to $53.7 million. There was
no material change to amortization expense as a result of these
changes in the final valuation. Goodwill related to the Gourmet Garden
acquisition, which is not deductible for tax purposes, primarily rep-
resents the intangible assets that do not qualify for separate recog-
nition, 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 oper-
ations and assembled workforce. Gourmet Garden has been included
in our consumer segment since its acquisition. While this business has
an industrial component, the industrial component was not material

2017 Annual Report 63

to its overall business in 2016. Beginning in 2017, the industrial
component of Gourmet Garden is being reflected as a component of
our industrial segment.

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 pur-
chase 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) tan-
gible assets acquired increased by $0.3 million to $5.7 million; (iv)
liabilities 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 amorti-
zation expense for definite-lived intangible assets of $0.9 million
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.

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 called 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
and discounted using a probability-weighted approach. During 2017,
we reached agreement with the sellers to settle the contingent con-
sideration liability prior to its contractual term for approximately
$29.3 million (€26.1 million), with $19.7 million (€17.6 million) paid in
2017. We previously prepaid €5.0 million at the date of acquisition.
The balance of the liability is expected to be paid early in 2018.
Accordingly, during 2017, we recognized a $1.6 million gain on settle-
ment in selling, general and administrative expense in our consoli-
dated income statement. At the time of the acquisition, annual sales
of D&A were approximately €50 million. D&A has been included in
our consumer segment since its acquisition.

64 McCormick & Company

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 addi-
tion 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 combina-
tion of cash and short-term borrowings. At the time of acquisition,
annual sales of Brand Aromatics were approximately $30 million.
Brand Aromatics has been included in our industrial segment since
its acquisition.

Transaction-related expenses include third party expenses related
to commercial and legal due diligence for unconsummated and
completed acquisitions as well as third party expenses related to
accounting, legal and financing activities with respect to completed
acquisitions. Transaction-related expenses associated with the above
acquisitions, excluding amounts related to the RB Foods acquisition
that are separately classified in our consolidated income statement,
are included in selling, general and administrative expense in our con-
solidated income statement and totaled $2.9 million, $5.5 million and
$3.6 million for 2017, 2016 and 2015, respectively.

In 2017, Giotti added $66.5 million and Gourmet Garden added $27.3
million to our sales for the year and first four months of fiscal 2017,
respectively. Due to financing, acquisition and integration costs, the
aggregate incremental operating income contributed by Giotti and
Gourmet Garden was not significant to our overall results for 2017.
Pro forma financial information for our other acquisitions has not
been presented because the financial impact is not material.

3. SPECIAL CHARGES

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 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
senior management, including our Chairman, 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 on-going 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 2017,
2016 and 2015 (in millions):

2017

2016

2015

Special charges included in cost of goods sold
Other special charges in the income statement (1)

$ — $ 0.3
15.7
22.2

$ 4.0
61.5

Total special charges

$22.2

$ 16.0

$ 65.5

(1) Included in special charges for 2017 is a non-cash fixed asset impairment charge of
$0.5 million. Included in special charges for 2016 is a 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 summary of special charges by business segments
in 2017, 2016 and 2015 (in millions):

Consumer segment
Industrial segment

Total special charges

2017

2016

2015

$ 15.3
6.9

$ 9.2
6.8

$ 52.8
12.7

$22.2

$ 16.0

$ 65.5

We continue to evaluate changes to our organization structure to
reduce fixed costs, simplify or improve processes, and improve our
competitiveness.

During 2017, we recorded $22.2 million of special charges, consisting
primarily of: (i) $12.7 million related to third party expenses incurred
associated with our evaluation of changes relating to our global
enablement initiative, which is described below; (ii) $2.8 million
related to employee severance benefits and other costs directly
associated with the relocation of one of our Chinese manufacturing
facilities; (iii) $2.5 million for severance and other exit costs associated
with our Europe, Middle East, and Africa (EMEA) region’s closure of
its manufacturing plant in Portugal in mid-2017; and (iv) $1.7 million
related to employee severance benefits and other costs associated
with action related to the transfer of certain manufacturing opera-
tions in our Asia/Pacific region to a new facility under construction
in Thailand (which began in 2016).

Of the $22.2 million in special charges recorded during 2017, approx-
imately $19.0 million were paid in cash and $0.5 million represented
a non-cash asset impairment, with the remaining accrual expected
to be paid in early 2018.

During 2017, our Management Committee approved a three-year ini-
tiative during which we expect to execute significant changes to our
global processes, capabilities and operating model to provide a scal-
able platform for future growth. We expect this initiative to enable
us to accelerate our ability to work globally and cross-functionally by
aligning and simplifying processes throughout McCormick, in part
building upon our current shared services foundation and expanding
the end-to-end processes presently under that foundation. We
expect this initiative, which we refer to as Global Enablement (GE),
to enable this scalable platform for future growth while reducing
costs, enabling faster decision making, increasing agility and creating
capacity within our organization.

While we are continuing to fully develop the details of our GE oper-
ating model, we expect the cost of the GE initiative—to be recog-
nized as “Special charges” in our consolidated income statement
over its expected three-year course—to range from approximately

$55 million to $65 million. Of that $55 million to $65 million, we esti-
mate that two-thirds will be attributable to employee severance and
related benefit payments and one-third will be attributable to cash
payments associated with related costs of GE implementation and
transition, including outside consulting and other costs directly
related to the initiative. The GE initiative is expected to generate
annual savings, ranging from approximately $30 million to $40 million,
once all actions are implemented.

During 2016, we recorded $16.0 million of special charges, princi-
pally consisting of: (i) $5.7 million related to additional organization
and streamlining actions associated with our EMEA region, which
began in 2015; (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 employee 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
Singapore and Thailand, which are described below; and (v) $1.7
million for employee severance actions and related costs associated
with our North American effectiveness initiative, which began in
2015. 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.

In 2016, we exited our consolidated joint venture in South Africa and
recognized special charges of $2.8 million, principally 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.

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. We have recorded $1.7 million and $1.8 million of
special charges in 2017 and 2016, respectively, principally related to
severance and other related costs associated with employees located
at the existing leased facility in Singapore. We expect to record addi-
tional special charges related to this action of approximately $1.3
million in 2018 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 were
largely paid in 2015 as substantially all of the affected employees

2017 Annual Report 65

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
$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 was effectively completed.

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 business
and supply chain. These actions include the transfer of certain addi-
tional activities to our shared services center in Poland. In 2017 and
2016, we recorded $0.9 million and $5.7 million of special charges,
respectively, principally consisting of other related costs, for EMEA
reorganization and streamlining activities that began in 2015.

The following table outlines the major components of accrual balances
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

Balance as of November 30, 2016
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)

10.5
—
(4.2)
1.1

Other
related
costs

$ 2.9
(1.3)
(1.1)
0.1

0.6
4.5
(4.6)
—

0.5
0.9
(1.2)
0.2

Total

$ 24.4
(5.8)
(1.1)
(0.7)

16.8
5.7
(11.4)
(0.1)

11.0
0.9
(5.4)
1.3

Balance as of November 30, 2017

$ 7.4

$ 0.4

$ 7.8

Also in 2015, we recorded a total of $14.2 million of special charges
related to initiatives to improve the profitability of our Kohinoor con-
sumer business in India. This action principally relates to the discon-
tinuance 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

66 McCormick & Company

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, 2017 is $8.6 million. In addition, as a result of the
Kohinoor product line discontinuance in 2015, we recognized a $4.0
million charge in cost of goods sold, which represents a 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 special 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.

As of November 30, 2017, 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:

2017

2016

Gross
carrying
amount

Accumulated
amortization

Gross
carrying
amount

Accumulated
amortization

(millions)

Definite-lived

intangible assets

$ 329.1

$66.5

$ 161.1

$48.4

Indefinite-lived

intangible assets:
Goodwill

Brand names and
trademarks

Total goodwill and
intangible assets

4,490.1

2,808.5

7,298.6

—

1,771.4

312.2

2,083.6

—

$ 7,627.7

$66.5

$ 2,244.7

$48.4

We acquired RB Foods in August 2017 (see note 2). A preliminary
valuation of the acquired net assets of RB Foods resulted in the allo-
cation of $2,475.0 million to indefinite-lived brand assets and $120.0
million to definite-lived intangible assets. We expect to finalize the
valuation of the acquired net assets of RB Foods, including the related
goodwill and intangible assets, within the one-year measurement
period from the date of acquisition.

Intangible asset amortization expense was $16.3 million, $11.3 million
and $7.3 million for 2017, 2016 and 2015, respectively. At November 30,
2017, definite-lived intangible assets had a weighted-average
remaining life of approximately 12 years.

The changes in the carrying amount of goodwill by segment for the
years ended November 30, 2017 and 2016 were as follows:

(millions)

Consumer

Industrial

Consumer

Industrial

2017

2016

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

$1,608.3

$ 163.1

$1,587.7

$171.6

(7.1)

—

(23.2)

1,697.5

929.3

62.2

—

86.7

—

12.3

—

(18.4)

—

(2.6)

(5.9)

End of year

$3,385.4

$1,104.7

$1,608.3

$163.1

A preliminary valuation of the acquired net assets of RB Foods
resulted in the allocation of $1,697.5 million and $848.8 million of
goodwill to the consumer segment and industrial segment, respec-
tively. We acquired Giotti in December 2016 (see note 2). We com-
pleted the final valuation of the acquired net assets of Giotti during
the fourth quarter of 2017 which resulted in the allocation of $80.5
million of goodwill to the industrial segment. During fiscal 2017, we
also finalized the purchase accounting for our 2016 acquisitions of
Gourmet Garden and Cajun Injector, which resulted in a $7.1 million
reduction in our consumer segment’s goodwill.

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

2017

$775.4
278.5
75.5

$315.4
127.6
146.9
13.6

2016

2015

$ 767.6
245.6
66.4

$ 315.6
113.0
146.2
9.1

$ 777.3
286.1
76.6

$ 326.0
114.6
161.5
8.1

Our share of undistributed earnings of unconsolidated affiliates was
$126.3 million at November 30, 2017. Royalty income from unconsoli-
dated affiliates was $17.5 million, $16.1 million and $17.8 million for
2017, 2016 and 2015, 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 74% of income from unconsolidated operations
in 2017, 83% in 2016 and 89% in 2015.

As of November 30, 2017, $114.0 million of our consolidated retained
earnings represents undistributed earnings of investments in uncon-
solidated affiliates for which we have not provided deferred income
tax liabilities.

6. FINANCING ARRANGEMENTS

Our outstanding debt was as follows at November 30:

(millions)

Short-term borrowings
Commercial paper
Other

2017

2016

$ 219.4
38.2

$ 356.9
33.4

$ 257.6

$ 390.3

Weighted-average interest rate of short-term
borrowings at year-end

2.3%

1.4%

Long-term debt
5.75% notes due 12/15/2017(1)
Term loan due 8/17/2020 (2)
3.90% notes due 7/8/2021(3)
2.70% notes due 8/15/2022
Term loan due 8/17/2022(2)
3.50% notes due 8/19/2023 (4)
3.15% notes due 8/15/2024
3.25% notes due 11/15/2025 (5)
3.40% notes due 8/15/2027(6)
4.20% notes due 8/15/2047
7.63%–8.12% notes due 2024
Other
Unamortized discounts, premiums, debt

issuance costs and fair value adjustments

Less current portion

$ 250.0
500.0
250.0
750.0
731.3
250.0
700.0
250.0
750.0
300.0
55.0
19.6

$ 250.0
—
250.0
—
—
250.0
—
250.0
—
—
55.0
11.1

(36.4)

4,769.5
325.6

(9.2)

1,056.9
2.9

$ 4,443.9

$ 1,054.0

(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) As more fully described below, the term loans are prepayable in whole or in part.
Also, the term loan due in 2022 requires quarterly principal payments of 2.5%
of the initial principal amount.

(3) 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%.

(4) 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%.

(5) 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, 2017 was 2.64%).

(6) Interest rate swaps, settled upon the issuance of these notes in 2017, effectively
set the interest rate on the $750 million notes at a weighted-average fixed rate
of 3.44%.

Maturities of long-term debt during the fiscal years subsequent to
November 30, 2018 are as follows (in millions):

2019
2020
2021
2022
Thereafter

$ 77.1
576.8
326.8
1,182.6
2,317.0

The consideration for our acquisition of RB Foods on August 17, 2017
totaled approximately $4.2 billion in cash (see note 2) and was
funded with (a) borrowings under McCormick’s $1.5 billion Term
Loan Agreement described below; (b) amounts received from the
offering of $2.5 billion aggregate principal amount of McCormick’s
senior unsecured notes described below; and (c) amounts received

2017 Annual Report 67

from the offering of McCormick’s common stock non-voting, which
closed on August 11, 2017 (see note 13).

In connection with our entry into the agreement to acquire RB Foods,
we entered into a commitment letter, dated July 18, 2017 (the
“Commitment Letter”), under which certain banks agreed to provide
a senior unsecured 364-day bridge loan facility (the “Bridge Facility”)
of up to $4.2 billion in the aggregate. On August 7, 2017, we entered
into a Senior Unsecured Bridge Credit Agreement with certain finan-
cial institutions under which those financial institutions agreed to
provide a senior unsecured 364-day bridge loan facility (the “Bridge
Facility”) for the purpose of providing the financing necessary to
fund all or a portion of the consideration to be paid pursuant to the
terms of the agreement related to the acquisition of RB Foods and
related fees and expenses (the “Bridge Loan Commitment”). The
Bridge Facility provided that the Bridge Loan Commitment would be
reduced in equivalent amounts upon any incurrence by McCormick
of, among other things, term loans and/or the issuance of equity or
notes in a public offering or private placement prior to the consum-
mation of the transaction, subject to certain exceptions set forth in
the Bridge Facility. McCormick secured its permanent financing for
the RB Foods acquisition, as described above, prior to the August 17,
2017 acquisition date. As a result, the Bridge Loan Commitment was
reduced to zero without us ever drawing under the Bridge Facility.
Other debt costs of $15.4 million for the year ended November 30,
2017 represents the Bridge Loan Commitment financing fees.

As previously noted, in connection with our acquisition of RB Foods,
we entered into a Term Loan Agreement (“Term Loan”) in August
2017. The Term Loan provides for three-year and five-year senior
unsecured term loans, each for $750 million. The net proceeds
received from the issuance of the Term Loan was $1,498.3 million.
The three-year loan is payable at maturity. The five-year loan is pay-
able in equal quarterly installments in an amount of 2.5% of the ini-
tial principal amount, with the remaining unpaid balance due at
maturity. The three-year and five-year loans are each prepayable in
whole or in part. During the fourth quarter of 2017, we repaid $250
million of the three-year loan. The three-year and five-year loans
currently bear interest at LIBOR plus 1.125% and LIBOR plus 1.25%,
respectively. The interest rates are based on our credit rating with the
maximum potential interest rates of LIBOR plus 1.625% and LIBOR
plus 1.75% for the three-year loan and five-year loan, respectively.

The provisions of our outstanding $1.0 billion revolving credit facility
and the Term Loan restrict subsidiary indebtedness and require us
to maintain certain minimum and maximum financial ratios for inter-
est expense coverage and our leverage ratio. The applicable lever-
age ratio is reduced annually commencing on November 30, 2018.
As of November 30, 2017, our capacity under the revolving credit
facility is not affected by these covenants. We do not expect that
these covenants would limit our access to our revolving credit facil-
ity for the foreseeable future; however, the leverage ratio could
restrict our ability to utilize this facility.

In August 2017, we issued an aggregate amount of $2.5 billion of
senior unsecured notes. These notes are due as follows: $750.0 mil-
lion due August 15, 2022, $700.0 million due August 15, 2024,
$750.0 million due August 15, 2027 and $300.0 million due August
15, 2047 with stated fixed interest rates of 2.70%, 3.15%, 3.40%
and 4.20%, respectively. Interest is payable semiannually in arrears
in August and February of each year. The net proceeds received from

68 McCormick & Company

the issuance of these notes were $2,479.3 million. The net proceeds
from this issuance were used to partially fund our acquisition of RB
Foods. In addition, we used a portion of these proceeds, which in the
interim were used to repay commercial paper borrowings, to repay
our $250 million, 5.75% notes that matured on December 15, 2017.

In November 2015, we issued $250 million of 3.25% notes due 2025,
with net cash proceeds received of $246.5 million. Interest is payable
semiannually in arrears in May and November of each year. Of these
notes, $100 million were subject to cash flow hedges and $100 million
to 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 August 2017, we entered into a five-year $1.0 billion revolv-
ing credit facility, which will expire in August 2022. The current pric-
ing for the credit facility, on a fully drawn basis, is LIBOR plus 1.25%.
The pricing of the credit facility is based on a credit rating grid that
contains a fully drawn maximum pricing of the credit facility equal to
LIBOR plus 1.75%. This credit facility supports our commercial paper
program and, after $219.4 million was used to support issued com-
mercial paper, we have $780.6 million of capacity at November 30,
2017. This facility replaces our prior facilities: (i) a five-year $750
million revolving credit facility that was due to expire in June 2020
and (ii) a 364-day $250 million revolving facility, which we entered
into in March 2017 and that was due to expire in March 2018. The
pricing for the 364-day credit facility, on a fully drawn basis, was
LIBOR plus 0.75%. In addition, we have several uncommitted lines
totaling $233.1 million, which have a total unused capacity at
November 30, 2017 of $184.1 million. These lines by their nature can
be withdrawn based on the lenders’ discretion. Committed credit
facilities require a fee, and commitment fees were $0.8 million and
$0.5 million for 2017 and 2016, respectively.

Rental expense under operating leases (primarily buildings and
equipment) was $46.5 million in 2017, $41.6 million in 2016 and
$39.0 million in 2015. Future annual fixed rental payments (1) for the
years ending November 30 are as follows (in millions):

2018
2019
2020
2021
2022
Thereafter

$41.7
33.4
26.2
20.4
16.6
33.7

(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 mil-
lion 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, 2018
through 2022 and thereafter.

At November 30, 2017, we had guarantees outstanding of $0.6 mil-
lion with terms of one year or less. At November 30, 2017 and 2016,
we had outstanding letters of credit of $7.3 million and $7.2 million,
respectively. These letters of credit typically act as a guarantee of
payment to certain third parties in accordance with specified terms
and conditions. The unused portion of our letter of credit facility was
$13.7 million at November 30, 2017.

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 deriva-
tive financial instruments is monitored through regular communication
with senior management and the use of written guidelines.

Foreign Currency
We are potentially exposed to foreign currency fluctuations affecting
net investments, transactions and earnings denominated in foreign
currencies. We selectively hedge the potential effect of these 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.

From time to time, we enter into fair value foreign currency exchange
contracts to manage exposure to currency fluctuations in certain
intercompany loans between subsidiaries. The notional value of
these contracts was $281.9 million and $109.9 million at November
30, 2017 and 2016, respectively. During fiscal years 2017 and 2016,
we recognized a $12.8 million gain and a $3.5 million loss, respec-
tively, on the change in fair value of these contracts, which was off-
set by a $14.1 million loss and a $3.1 million gain, respectively, on
the change in the currency component of the underlying loans. All of
the losses and the gains for both fiscal years were recognized in our
consolidated income statement as other income, net.

At November 30, 2017, we had foreign currency exchange contracts
to purchase or sell $405.9 million of foreign currencies versus $449.2
million at November 30, 2016. 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, 2017, the notional
contracts that have durations of less than seven days that are used
to hedge short-term cash flow funding was nominal.

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.

During fiscal 2017, we entered into a total of $150 million of forward
starting interest rate swap agreements to manage our interest rate
risk associated with the anticipated issuance of at least $150 million
of fixed rate notes by December 2017. The weighted-average fixed
rate of these agreements was 2.45% and was based upon the appli-
cable U.S. LIBOR swap rate at the inception of each agreement.
We cash settled these agreements upon issuance of the 3.40%
fixed rate notes issued in August 2017 and made a one-time cash
payment to the counterparties of $2.9 million. We designated these
forward starting interest rate swap agreements as cash flow
hedges. Upon settlement, the loss realized was deferred in other
comprehensive income and will be amortized over the life of the
3.40% fixed rate notes due August 15, 2027 as a component of
interest expense. Ineffectiveness associated with these hedges
was not material.

2017 Annual Report 69

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 comprehensive
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 interest rate swap contracts
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.

The following tables disclose the derivative instruments on our balance sheet, all of which are all recorded at fair value:

As of November 30, 2017:
(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

$ —
326.3

Other accrued liabilities
Other accrued liabilities

$100.0
79.6

$ —
12.7

$12.7

$2.5
4.7

$7.2

Asset Derivatives

Liability Derivatives

Balance sheet location

Notional amount

Fair value

Balance sheet location

Notional amount

Fair value

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

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, 2017, 2016 and 2015:

Income statement
location

Interest expense

Income (expense)

2017

$0.9

2016

$1.6

2015

$5.1

Foreign exchange contracts

Other income, net

$12.8

$(3.5)

Intercompany loans

Other income, net

$(14.1)

Income statement
location

Gain (loss)
recognized in income

2017

2016

Hedged item

Income statement
location

Gain (loss)
recognized in income

2017

2016

$3.1

Cash flow hedges (millions)

Derivative

Interest rate contracts
Foreign exchange contracts

Total

Gain (loss)
recognized in OCI

2017

2016

2015

Income statement
location

$ (2.9)
(7.3)

$ — $(1.2)
6.2

4.4

Interest expense
Cost of goods sold

$(10.2)

$ 4.4

$ 5.0

Gain (loss)
reclassified from AOCI

2017

2016

2015

$(0.4)
1.2

$ 0.8

$(0.3)
3.7

$ 3.4

$(0.2)
7.1

$ 6.9

Total

As of November 30, 2016
(millions)

Derivatives

Interest rate contracts
Foreign exchange contracts

Total

Fair value hedges (millions)

Derivative

Interest rate contracts

Derivative

70 McCormick & Company

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 $3.7 million
decrease to earnings.

Fair Value of Financial Instruments
The carrying amount and fair value of financial instruments at November 30, 2017 and 2016 were as follows:

(millions)

Long-term investments
Long-term debt (including current portion)
Derivatives related to:

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.

At November 30, 2017, the fair value of long-term debt includes
$3,615.2 million and $1,243.3 million determined using Level 1 and
Level 2 valuation techniques, respectively. At November 30, 2016,
the fair value of long-term debt was determined using Level 1
valuation techniques. The fair value for Level 2 long-term debt is
determined by using quoted prices for similar debt instruments.

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
$78.4 million and $80.6 million at November 30, 2017 and 2016,
respectively.

2017

2016

Carrying amount

Fair value

Carrying amount

Fair value

$ 127.0
4,769.5

$ 127.0
4,858.5

$ 116.2
1,056.9

$ 116.2
1,118.3

2.5
12.7
4.7

1.2
4.9
5.4

Concentrations of Credit Risk
We are potentially exposed to concentrations of credit risk with
trade accounts receivable and financial instruments. The customers
of our consumer segment are predominantly food retailers and food
wholesalers. Consolidations in these industries have created larger
customers. In addition, competition has increased with the growth in
alternative channels including mass merchandisers, dollar stores,
warehouse clubs, 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 customers disclosed in note 16, each of
which accounted for greater than 10% of our consolidated sales,
there was no material concentration of credit risk in these accounts
at November 30, 2017. At November 30, 2017, amounts due from
those two customers aggregated approximately 16% of consolidated
trade accounts receivable. Current credit markets are highly volatile
and some of our customers and counterparties are highly leveraged.
We continue to closely monitor the credit worthiness of our custom-
ers and counterparties and generally do not require collateral. We
believe that the allowance for doubtful accounts properly recognized
trade receivables at realizable value. We consider nonperformance
credit risk for other financial instruments to be insignificant.

8. FAIR VALUE MEASUREMENTS

Fair value can be measured using valuation techniques, such as the market approach (comparable market prices), the income approach (present
value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). Accounting stan-
dards utilize a fair value hierarchy that prioritizes 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 are as follows:

2017 Annual Report 71

(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

Total

(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, 2017

Fair value

Level 1

Level 2

Level 3

$186.8
119.5
7.5
12.7

$326.5

$ 2.5
4.7

$ 7.2

$186.8
—
7.5
—

$194.3

$ —
—

$ —

$ —
119.5
—
12.7

$132.2

$ 2.5
4.7

$ 7.2

$ —
—
—
—

$ —

$ —
—

$ —

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

The fair values of insurance contracts are based upon the underlying
values of the securities in which they are invested and are from
quoted market prices from various stock and bond exchanges for
similar type assets. The fair values of bonds and other long-term
investments are based on quoted market prices from various stock
and bond exchanges. The fair values for interest rate and foreign
currency derivatives are based on values for similar instruments
using models with market based inputs.

The acquisition-date fair value of the liability for contingent consid-
eration related to our acquisition of Drogheria & Alimentari (D&A) in
May 2015 was approximately $27.7 million (€25.2 million). The fair
value of the liability both at acquisition and as of each reporting
period prior to our agreement to settle the obligation in the second
quarter of 2017, was estimated using a discounted cash flow tech-
nique 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 Codifi-
cation (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 cash flows related to our acquisition of D&A during the calen-
dar 2017 earn-out period, adjusted for expectations of the amounts
and ultimate resolution of likely disputes to be raised by the seller
and by us as provided in the purchase agreement, discounted consid-
ering the uncertainties associated with the obligation, and calcu-
lated in accordance with the terms of the purchase agreement.
Changes in the fair value of the liability for contingent consideration,
excluding the impact of foreign currency, have been recognized in
income on a quarterly basis as of each reporting period prior to our
agreement to settle the obligation in the second quarter of 2017.
We reached agreement with the sellers to settle the contingent
consideration liability prior to its contractual term for approximately
$29.3 million (€26.1 million), with $19.7 million (€17.6 million) paid
during 2017. We previously prepaid €5.0 million at the date of acqui-
sition. The balance of the liability is expected to be paid in the first
quarter of 2018. Accordingly, during 2017, we recognized a $1.6 mil-
lion gain on settlement in selling, general and administrative expense
in our consolidated income statement.

72 McCormick & Company

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 2017
and 2016 is summarized as follows (in millions):

Year ended November 30, 2017

Year ended November 30, 2016

Changes in
fair value
including
accretion

$0.3

$1.8

Beginning
of year

$28.9

$27.1

Impact of
foreign
currency

Effect of
agreed upon
settlement

Balance as of
end of year

$ 1.7

$ —

$(30.9)

$ —

$28.9

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 (loss) gain on foreign currency exchange contracts
Unamortized value of settled interest rate swaps
Pension and other postretirement costs

2017

2016

$(124.4)
(3.6)
0.8
(152.3)

$(299.4)
3.9
2.4
(221.3)

$(279.5)

$(514.4)

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, 2017, 2016 and 2015:

(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 (credits) costs (1)
Amortization of net actuarial losses (1)

Total before taxes
Tax effect

Net, after tax

2017

2016

2015

$ 0.4
(1.2)

(0.8)
0.2

$ 0.3
(3.7)

(3.4)
0.9

$ 0.2
(7.1)

(6.9)
1.8

$ (0.6)

$ (2.5)

$ (5.1)

$ (1.6)
9.7

8.1
(2.8)

$ 0.3
16.7

17.0
(5.8)

$ 0.3
22.8

23.1
(7.9)

$ 5.3

$ 11.2

$ 15.2

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. We contribute to defined contribution plans in locations
outside the U.S., including government-sponsored retirement plans.
We also currently provide postretirement medical and life insurance
benefits to certain U.S. employees and retirees.

During fiscal year 2017, we made the following significant changes
to our employee benefit and retirement plans:

• On December 1, 2016, our 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 was December 31, 2016. Although the U.K. plan has been
frozen, employees who are participants in that plan retained bene-
fits 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, our 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 was January 31, 2017. Although the SERP
has been frozen, executives who are participants in the SERP as of
the date of the freeze, including certain named executive officers,
retained benefits accumulated up to that date, based on credited
service and eligible earnings, in accordance with the SERP’s terms.

2017 Annual Report 73

As a result of these changes, we remeasured pension assets and
benefit obligations as of the dates of the approvals indicated above
and reduced the U.S. and U.K. plan benefit obligations by $69.9 mil-
lion and $7.8 million, respectively. These remeasurements resulted
in non-cash, pre-tax net actuarial gains of $77.7 million, which princi-
pally consist of curtailment gains of $76.7 million, and are included in
our consolidated statement of comprehensive income for 2017, as a
component of Other comprehensive income (loss) on the line entitled
Unrealized components of pension plans. Deferred taxes associated
with these actuarial gains, together with other unrealized components
of pension plans recognized during 2017, are also included in that
statement as a component of Other comprehensive income (loss).

Included in accumulated other comprehensive loss at November 30,
2017 was $225.8 million ($152.3 million net of tax) related to net
unrecognized actuarial losses of $249.7 million and unrecognized
prior service cost credits of $23.9 million that have not yet been
recognized in net periodic pension or postretirement benefit cost.
We expect to recognize $4.1 million ($3.0 million net of tax) in net
periodic pension and postretirement benefit expense during 2018
related to the amortization of actuarial losses of $12.7 million and
the amortization of prior service cost credits of $(8.6) 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

United States

International

2017

4.0%
3.9%
3.8%

2016

4.6%
4.5%
3.8%

2017

2016

3.0%
—
3.0–3.5%

3.2%
—
3.0–3.5%

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

2017

4.6%
4.5%
3.8%
7.3%

2016

4.7%
4.7%
3.8%
7.5%

2015

4.4%
4.3%
3.8%
7.8%

2017

3.2%
—
3.4%
5.5%

2016

3.9%
—
3.5%
6.0%

2015

3.8%
—
3.5%
6.3%

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 assump-
tions 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.

74 McCormick & Company

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
Settlement loss

United States

International

2017

$ 14.8
31.7
(41.4)
—
5.8
—

$ 10.9

2016

2015

$ 21.5
33.3
(40.8)
—
12.6
—

$ 23.6
31.6
(40.2)
—
16.8
—

$ 26.6

$ 31.8

2017

$ 6.2
10.4
(15.3)
0.7
4.1
0.6

$ 6.7

2016

2015

$ 7.1
11.3
(16.2)
0.3
4.1
—

$ 8.2
12.0
(17.2)
0.3
6.0
—

$ 6.6

$ 9.3

A rollforward of the benefit obligation, fair value of plan assets and a reconciliation of the pension plans’ funded status as of November 30, the
measurement date, follows:

(millions)

Change in benefit obligation:
Benefit obligation at beginning of year

Service cost

Interest costs

Employee contributions
Plan amendments
Plan curtailments
Plan settlements
Actuarial loss
Benefits paid
Business combinations
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
Plan settlements
Benefits paid
Business combinations
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

2017

2016

2017

2016

$ 757.0
14.8
31.7
—
—
(68.9)
—
65.6
(35.2)
48.7
—
—

$ 722.0
21.5
33.3
—
—
—
—
10.6
(30.4)
—
—
—

$ 813.7

$ 757.0

$ 558.9
90.9
11.4
—
—
(35.2)
28.2
—
—

$ 548.6
25.3
15.4
—
—
(30.4)
—
—
—

$ 654.2

$ 558.9

$(159.5)

$(198.1)

$ 813.7
797.6
654.2

$ 757.0
674.9
558.9

$324.9
6.2
10.4
0.7
0.3
(7.8)
(3.1)
3.3
(15.3)
—
(0.4)
22.3

$341.5

$289.1
31.5
7.3
0.7
(3.1)
(15.3)
—
(0.4)
21.5

$331.3

$ (10.2)

$ 20.9
16.7
1.6

$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

Included in the U.S. in the preceding table is a benefit obligation of $105.4 million and $95.5 million for 2017 and 2016, respectively, related to the
SERP. The accumulated benefit obligation related to this plan was $105.4 million and $91.8 million as of November 30, 2017 and 2016, respectively.
The assets related to this plan, which totaled $89.2 million and $80.6 million as of November 30, 2017 and 2016, respectively, are held in a rabbi
trust and accordingly have not been included in the preceding table.

As part of our acquisition of RB Foods in August 2017, we assumed a defined benefit pension plan that covers eligible union employees of the
Reckitt Benckiser food business (the “RB Foods Union Pension Plan”). The related plan assets and benefit obligation of the RB Foods Union
Pension Plan are included in the U.S. in the preceding table. As noted in the preceding table, at acquisition date, the funded status of that plan
was $(20.5) million, representing a benefit obligation of $48.7 million less the fair value of plan assets of $28.2 million. Plan assets consist of a
mix of equities, fixed income funds and real estate funds. At the date of acquisition, based upon a preliminary valuation, the accumulated benefit
obligation was $40.9 million. During 2017, we made a $5.0 million contribution to the RB Foods Union Pension Plan.

Amounts recorded in the balance sheet for all defined benefit pension plans consist of the following:

2017 Annual Report 75

United States

International

2017

2016

2017

2016

$ —
159.5
69.4
112.1

$ —
198.1
90.9
149.2

$ 22.5
32.7
14.2
57.4

$ 1.5
37.3
16.9
76.0

The following tables set forth by level, within the fair value hierar-
chy as described in note 8, pension plan assets at their fair value
as of November 30, 2017 and 2016 for the United States and
international plans:

As of November 30, 2017
(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:
Real estate (g)
Natural resources (h)

United States

Total
fair value

Level 1

Level 2

$ 6.4

$ —

305.1

144.2

160.9

144.8

—

45.3
35.6

27.1
1.1

19.8
11.4

45.3
—

27.1
—

18.3
—

—
35.6

—
1.1

1.5
11.4

Total

$596.6

$386.1

$210.5

Investments measured at
net asset value (i)
Hedge funds (j)
Private equity funds (k)
Private debt funds (l)

Total investments

As of November 30, 2017
(millions)

Cash and cash equivalents
International equity
securities (b)
Fixed income securities:
U.S. government/
corporate bonds (c)

Insurance contracts (f)

Total investments

41.5
3.2
12.9

$654.2

International

Total
fair value

Level 1

Level 2

$ 0.3

$ —

178.2

— 178.2

131.6
21.2

— 131.6
21.2
—

$331.3

$ 0.3

$331.0

(millions)

Non-current pension asset
Accrued pension liability
Deferred income tax assets
Accumulated other comprehensive loss

The accumulated benefit obligation is the present value of pension
benefits (whether vested or unvested) attributed to employee 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
$797.6 million and $674.9 million as of November 30, 2017 and 2016,
respectively. The accumulated benefit obligation for the interna-
tional pension plans was $317.2 million and $296.9 million as of
November 30, 2017 and 2016, 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.

The allocations of U.S. pension plan assets as of November 30, by
asset category, were as follows:

Asset Category

Equity securities
Fixed income securities
Other

Total

Actual

2017

2016

2017
Target

68.8% 69.0% 61.0%
16.7% 16.7% 17.0%
14.5% 14.3% 22.0%

100.0% 100.0% 100.0%

The allocations of the international pension plans’ assets as of
November 30, by asset category, were as follows:

Asset Category

Equity securities
Fixed income securities
Other

Total

Actual

2017

2016

53.8%
46.1%
0.1%

55.7%
44.2%
0.1%

2017
Target

53.0%
40.5%
6.5%

100.0% 100.0% 100.0%

76 McCormick & Company

As of November 30, 2016
(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:
Real estate (g)
Natural resources (h)

United States

Total fair
value

Level 1

Level 2

$ 5.9

$ —

273.0

134.0

139.0

112.6

—

33.5
33.6

25.2
1.1

16.8
12.4

33.5
—

25.2
—

16.8
—

—
33.6

—
1.1

—
12.4

Total

$514.1

$328.0

$186.1

Investments measured at
net asset value (i)
Hedge funds (j)
Private equity funds (k)

Total investments

40.7
4.1

$558.9

As of November 30, 2016
(millions)

Cash and cash equivalents
International equity securities (b)
Fixed income securities:
U.S. government/

corporate bonds (c)
Insurance contracts (f)

Total investments

International

Total fair
value

$ 0.1
161.1

Level 1

Level 2

$ 0.1
—

$ —
161.1

107.8
20.1

—
—

107.8
20.1

$289.1

$ 0.1

$289.0

(a) This category comprises equity funds and collective equity trust funds that most

closely track the S&P index and other equity indices.

(b) This category comprises international equity funds with varying benchmark indices.
(c) This category comprises funds consisting of U.S. government and U.S. corporate

bonds and other fixed income securities. An appropriate benchmark is the Barclays
Capital Aggregate Bond Index.

(d) This category comprises funds consisting of real estate related debt securities with

an appropriate benchmark of the Barclays Investment Grade CMBS Index.

(e) This category comprises funds consisting of international government/corporate

bonds and other fixed income securities with varying benchmark indices.

(f) This category comprises insurance contracts, the majority of which have a guaran-

teed investment return.

(g) This category comprises funds investing in real estate investment trusts (REIT).

An appropriate benchmark is the MSCI U.S. REIT Index.

(h) This category comprises funds investing in natural resources. An appropriate

benchmark is the Alerian master limited partnership (MLP) Index.

(i) Certain investments that are valued using the net asset value per share (or its

equivalent) as a practical expedient have not been classified in the fair value hierar-
chy. These are included to permit reconciliation of the fair value hierarchy to the
aggregate pension plan assets.

(j) This category comprises hedge funds investing in strategies represented in various
HFRI Fund Indices. The net asset value is generally based on the valuation of the
underlying investment. Limitations exist on the timing from notice by the plan of its
intent to redeem and actual redemptions of these funds and generally range from a
minimum of one month to several months.

(k) This category comprises private equity, venture capital and limited partnerships.
The net asset value is based on valuation models of the underlying securities as
determined by the general partner or general partner’s designee. These valuation
models include unobservable inputs that cannot be corroborated using verifiable
observable market data. These funds typically have redemption periods of approxi-
mately 10 years.

(l) This category comprises limited partnership funds investing in senior loans, mezza-
nine and distressed debt. The net asset value is based on valuation models of the
underlying securities as determined by the general partner or general partners’s
designee. These valuation models include unobservable inputs that cannot be cor-
roborated using verifiable observable market data. These funds typically have
redemption periods of approximately 10 years.

For the plans’ hedge funds, private equity funds and private debt
funds, 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 pro-
vided to the independent advisor. This provides a basis of compara-
bility relative to similar assets.

Equity securities in the U.S. plan included McCormick stock with a
fair value of $39.0 million (0.4 million shares and 6.0% of total U.S.
pension plan assets) and $35.3 million (0.4 million shares and 6.3%
of total U.S. pension plan assets) at November 30, 2017 and 2016,
respectively. Dividends paid on these shares were $0.7 million in
2017 and in 2016.

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)

2018
2019
2020
2021
2022
2023–2027

United States

International

$ 40.5
38.5
39.0
42.1
43.8
237.0

$15.3
15.9
16.0
16.9
17.0
94.3

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 addition,
we make contributions of 3% of the participant’s salary 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 $12.2 million, $10.4 million and $9.5 million in 2017, 2016
and 2015, respectively.

At the participant’s election, 401(k) retirement plans held 1.9 million
shares of McCormick stock, with a fair value of $196.6 million, at
November 30, 2017. Dividends paid on these shares in 2017 were
$3.8 million.

Postretirement Benefits Other Than Pensions
We currently provide postretirement medical and life insurance ben-
efits to certain U.S. employees who were covered under the active
employees’ plan and retire after age 55 with at least five years of
service. The subsidy provided under these plans is based primarily
on age at date of retirement. These benefits are not pre-funded but
paid as incurred. Employees hired after December 31, 2008 are not
eligible for a company subsidy. They are eligible for coverage on an
access-only basis.

During 2017, we made the following changes to our postretirement
medical and life insurance benefits impacting certain U.S. employees:

• On August 23, 2017, our Management Committee approved

changes to our postretirement medical benefits plan for eligible
U.S. employees and retirees (employees hired after December 31,
2008 are not eligible for the subsidy). These changes included
consolidating benefits providers and simplifying and reducing our
subsidy for postretirement medical benefits. The effective date of
the change in our subsidy is January 1, 2018.

• On August 23, 2017, our Management Committee approved the
elimination of life insurance benefits under our other postretire-
ment benefit plan to eligible U.S. active employees (that life
insurance benefit was available to U.S. employees hired on or
prior to December 31, 2008). The effective date of this plan
amendment is January 1, 2018, unless an employee commits to
their retirement date by December 31, 2017 and retires on or
before December 31, 2018.

As a result of these changes, we remeasured the other postretire-
ment benefit obligation as of August 23, 2017, resulting in a reduc-
tion of the other postretirement benefit obligation of $27.1 million.
These remeasurements resulted in an aggregate non-cash, pre-tax
net prior service cost credit of $27.1 million, which is included in our
consolidated statement of comprehensive income for 2017, as a
component of Other comprehensive income (loss) on the line entitled
Unrealized components of pension and other postretirement plans.
Deferred taxes associated with these aggregate prior service cost
credits, together with other unrealized components of pension plans
recognized during 2017, are also included in that statement as a
component of Other comprehensive income (loss).

2017 Annual Report 77

Our other postretirement benefit expense follows:

(millions)

Service cost
Interest costs
Amortization of prior service credits
Amortization of actuarial gains

Postretirement benefit expense

2017

$ 2.6
3.3
(2.3)
(0.2)

$ 3.4

2016

$2.7
3.8
—
—

$6.5

2015

$3.1
3.7
—
—

$6.8

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)

2017

2016

Change in benefit obligation:
Benefit obligation at beginning of year

Service cost

Interest costs

Employee contributions
Plan amendments
Demographic assumptions change
Other plan assumptions
Discount rate change
Actuarial (gain) loss
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