2009 Annual Report

McCormick & Company 2009 Annual Report A PASSION FOR FLAVOR CONTENTS 2009 Highlights 2 Letter to Shareholders 4 A Taste for Innovation 8 A Connection with Consumers 10 A Drive for Expansion 12 A Commitment to Sustainability 14 A Focus on Performance 16 Directors and Officers 18 Management’s Discussion and Analysis 19 Financial Information 37 Investor Information 65 Our culinary experts worked with leading chefs to develop McCormick’s 2010 Flavor Forecast®. On our annual report cover, we feature a pairing of coconut milk with pumpkin pie spice to create a meal inspired by Thai cuisine. As you read through the report, enjoy the aroma of pumpkin pie spice which is an enticing blend of cinnamon, ginger, nutmeg and allspice. In addition to their wonderful scent, both cinnamon and ginger are featured in our group of 7 Super Spices because of their high level of antioxidants. At McCormick, a passion for flavor is shared by employees around the world. This passion has been the foundation of our success throughout the Company’s rich 120 year-old history. It enabled us to deliver a year of solid growth and financial results for 2009 in the midst of a challenging economic environment. McCORMICK & COMPANY 2009 ANNUAL REPORT 1 We successfully integrated Lawry’s®, the largest acquisition in McCormick’s history. We reignited sales growth for this business and enhanced the Company’s overall profit margins. SAVED $42 MILLION Across our global operations, we achieved $42 million of cost savings, exceeding our goal by % . $2.27 40 $1.56 2005 2009 20 09 Earnings per share of $2.27 is up nearly 50% since 2005. With more meals being prepared at home, we stepped-up our marketing activity with increased advertising and coupons. We have increased total marketing support for our leading brands by 35% in the past three years. 2 McCORMICK & COMPANY 2009 ANNUAL REPORT Our largest production facility in the U.K. was named “Sustainable Manufacturer of the Year” by a leading manufacturing publication in recognition of a recent 48% rise in recycling,14% reduction in electricity usage and 13% reduction in water usage. $416 $315 $225 HIGHLIGHTS 2007 2008 2009 For a second consecutive year, we reduced our cash conversion cycle by 5 days which helped boost our cash flow from operations to a 20 09 record $416 million. Financial results for the year ended November 30 (millions except per share data) 2009 2008 % change Net sales $3,192.1 $3,176.6 .5% Gross profit 1,327.2 1,288.2 3.0% Gross profit margin 41.6% 40.6% Operating income 466.9 376.5 24.0% Operating income margin 14.6% 11.9% Net income 299.8 255.8 17.2% Earnings per share – diluted 2.27 1.94 17.0% Average shares outstanding – diluted 132.3 131.8 Dividends paid $ 125.4 $ 113.5 10.5% Dividends paid per share .96 .88 9.1% McCORMICK & COMPANY 2009 ANNUAL REPORT 3 FELLOW SHAREHOLDERS, While global economic profit margin to 41.6%, compared with conditions challenged all 40.6% in 2008. The integration of the companies, 2009 was Lawry’s business with few additional another year of excellent costs was also an important driver of this financial performance and margin improvement. strong operational achieve- With higher margins we are fueling our ment at McCormick. For investments to drive growth. In 2009 we example: invested in our leading brands with n While net sales rose $20 million of incremental marketing slightly, the increase in local support behind Lawry’s, holiday currency was 5%. advertising and new product launches. Lawry’s, new products, expanded distri- n Led by our Comprehen- bution and higher marketing support led sive Continuous Improve- to a 7% increase in consumer business ment (CCI) program, we sales when measured in local currency. exceeded our expense Including the impact of unfavorable Alan D. Wilson reduction goal by 40%, delivering currency exchange rates, we achieved Chairman, President & $42 million of cost savings. Chief Executive Officer higher profits for both our consumer and n We reported earnings per share of industrial segments. Excluding the impact $2.27, near the top end of our $2.24 to of restructuring charges and unusual $2.28 goal for 2009. On a comparable items, we increased operating income by basis, this was an increase of 10%. 16% for our consumer business and 8% n Following a five-day reduction in 2008, for our industrial business. we achieved our goal to reduce our cash While our joint venture in Mexico had conversion cycle another five days in a successful year with sales in local 2009, helping to boost cash flow from currency up 19%, the profit contribu- operations to a record $416 million. tion from this business was hampered Furthermore, with the significant cash by an unfavorable currency impact. generated by our business, we lowered Overcoming a decline in income from the debt related to our acquisition of unconsolidated operations, as well as a Lawry’s in 2008 and maintained our solid higher tax rate, we grew 2009 earnings balance sheet. We also used cash to pay per share 10% on a comparable basis dividends to our shareholders, increasing with 2008. these payments by 10% in 2009. At the core of this extraordinary Restructuring actions, a favorable performance is the one ingredient that business mix and CCI – our ongoing I believe separates McCormick from initiative to reduce costs throughout our other companies – what I refer to as operations – combined to push our gross McCormick’s “passion for flavor,” which lives within our employees around the globe. This passion inspires our product innovation and fuels our drive to grow sales and improve margins year after year through strategic investments in our business. 4 McCORMICK & COMPANY 2009 ANNUAL REPORT A passion for flavor service restaurants, 13% of industrial sales in 2009 were from products More than just an annual report title, launched in the past three years. McCormick’s passion for flavor is a This passion for flavor, coupled with an foundation of our business – a business acute sense of market needs and prefer- that emphasizes the importance of ences, has created an enviable position eating well. in the marketplace for our brands. In our Certainly, taste plays a key role in eating largest geographic markets, our share well. In fact, in a recent U.S. survey, of the spice and seasoning category taste continues to rank first in what we is significantly higher than that of our To reinforce the value of choose to eat, ahead of quality, health our branded products, nearest competitor. and convenience. To that end, each year we increased our coupon We are supporting our brands with our culinary experts convene a council of and promotion activity in record levels of marketing, up 35% in the France and other major leading chefs from around the world to markets. past three years. The effectiveness of define the latest trends and publish our our spending has also increased. For eagerly anticipated “Flavor Forecast.” example, in 2009 our sales lift from both Equally important to eating well, in print and television in the U.S. and our estimation, are the concepts of Europe exceeded the average of other health/wellness and convenience. Thus consumer product companies. To our passion for flavor takes us toward reinforce the added value of our branded products that resonate with consumers products with consumers, we increased who demand more than great taste. our coupon and promotion activity, and in For example, in the U.S. we recently print ads featured ways to make an relaunched our dry seasoning mixes with inexpensive meal with our products. most of them reformulated to remove Likewise, we extended our MSG, transfat and artificial flavors. This communication around the smart solution, coupled with the trend of science validating health more consumers eating at home, led to a benefits of culinary spices 6% increase in units sold during the year. and herbs to consumers in Likewise, we have introduced reduced- Europe and the Asia/Pacific sodium versions of some of our most region. popular products to help consumers We are elevating our address health concerns such as salt relationship within the food content. service industry from spice Similarly, we are helping consumers in and extract expert to flavor France who bake at home by extending partner. Having introduced Schwartz for our popular Vahiné® dessert brand into Chefs® in the U.K., we recently launched new specialty cake mixes. Product a McCormick for Chefs™ campaign in the innovation is also vital to our industrial U.S., which encompasses recipe ideas, customers. Led by new products chef-friendly packaging and a back-of- developed for leading, multinational quick house shelving system. We relaunched our dry Our passion for flavor continues to seasoning mixes to help consumers, who are grow globally as we expand our increasingly preparing meals at home, eat well. McCORMICK & COMPANY 2009 ANNUAL REPORT 5 geographic footprint in developing greenhouse gases by 24%, water usage markets like China. In just the past two by 19% and electricity usage by 14%. years, we doubled the number of major Our impact on the places where we Chinese cities where consumers can operate extends to regions where inde- purchase our products. pendent farmers grow spices and herbs. Our passion for flavor sets the direction During 2009, we funded construction for our acquisition strategy, which of two new health clinics in Indonesia remains a key growth initiative. It has which withstood devastating earth- now been more than a year since we quakes and helped treat many who were acquired Lawry’s, and the profit from this injured.

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