McCormick & Company, Incorporated (MKC, NYSE)
Industry: Packaged Foods
Annual report, fiscal year 2014


2014 ANNUAL REPORT

















## SHAWARMA
SPICE BLEND

This year’s report has the scent of a shawarma spice blend. This exotic Middle Eastern mixture combines cumin, black pepper, clove, cinnamon, paprika, turmeric, ginger, coriander and garlic. It is used as a spice rub on grilled or roasted chicken, beef and lamb that’s eaten as a sandwich or wrap. One Middle Eastern food reviewer called the casual shawarma-flavored meal “a little piece of heaven right here on Earth.” Shawarma is one of the “Global Blends on the Move” featured in the McCormick 2015 Flavor Forecast.

Contents:
4 Letter to Shareholders
8 People
10 Growth
12 Performance—Financial Highlights
13 Segments at a Glance
14 Directors and Officers
15 Form 10-K Index
17 Form 10-K
72 Investor Information
73 Corporate Social Responsibility



## A LOOK AHEAD
A LOOK INSIDE

In 2014 we celebrated 125 years of success and focused on our future. In this year’s annual report, we look at what’s ahead for McCormick...and look inside at how we build value for our shareholders through our people, growth and performance.



## A LOOK AHEAD

With Boomers looking to eat healthier and Millennials showing interest in home-cooking and ethnic fare, demand for bigger and bolder flavors is on the rise. As a global leader in flavor, McCormick meets this challenge through iconic brands, trend-setting innovation and customer intimacy.

Taste remains the No. 1 purchasing driver, followed by price. Healthfulness is No. 3, earning a



response rate up from 61% just 2 years ago.

Source: IFIC Foundation’s U.S. 2014 Food and Health Survey

In 2014, 17% of McCormick sales came from emerging markets, up from 10% just 3 years ago.



## We own a 22% share of the

## $10 billion

global packaged spice and herb category, 4x that of the next largest competitor.



6%

The global spice and herb category is projected to grow at a 6% compound annual growth rate over the next 5 years.



We meet consumer demand for flavor with a robust pipeline of new products—in fact

8-10%

of our annual sales come from products launched in the past 3 years.

60% of our consumer business sales are comprised of brands with a No. 1 position in markets across the globe. In addition to our leadership in

spices and seasonings, we have the No. 1 brand of dessert products in France, wet marinades in U.S., honey in Canada, ketchup in China and mustard in Poland.



Source: Euromonitor International

McCormick features a diverse product portfolio with flavors for food at home and away from home, products from premium to value-priced, and flavors beyond spices and herbs.



## A LOOK INSIDE

We operate from more than 50 locations in 24 countries.



These five pillars are the foundation of our business and drive our success in markets around the world.

## Passion for Flavor \( ^{TM} \) 

Around the globe, home cooks and professional chefs alike turn to McCormick for flavor and culinary inspiration. We have substantial and sustained investment to support innovation with product development centers in 12 countries. Over the past 5 years, we have increased brand marketing support by 50% to better connect with consumers.

## Power of People \( ^{™} \) 

Globally, more than 10,000 McCormick employees are catalysts for innovation and, together, keep the company growing.

## Sales

(dollars in billions)



## Taste You Trust \( ^{™} \) 

We are building on our legacy of corporate social responsibility and working toward ambitious goals. McCormick was named a top 10 U.S. company in the 2014 Newsweek Green Ranking.

## Inspiring Healthy Choice

In 2014, we convened a summit for academia, health professionals, chefs, government and the food industry to examine the state of the science on spices and herbs, and to cultivate a dialogue on how flavorful eating can offer potential solutions to improve America’s health.

## Delivering High Performance

In the past 10 years, we increased sales 68% and more than doubled adjusted earnings per share.



McCormick Employees by Location



# FELLOW
SHAREHOLDERS,

This past year as we celebrated our 125th anniversary, we connected with consumers all over the world and gained inspiration from them. Today, we see a growing desire for more authentic, bigger and bolder flavors, led by the more adventurous, collaborative, and tech-savvy Millennial generation, a rising middle-class in emerging markets and an overall desire to eat healthier.

As a global leader in flavor with a mission to save your world from boring food, McCormick is well positioned for growth. While many aspects of our business are rooted in our heritage, we are evolving very rapidly with a focus on innovation. If you take a look inside McCormick, you will see people throughout the company and across the globe committed to making food taste great and be better for you. Together, we will leverage our passion for flavor to deliver high performance.

## Total Annual Shareholder Return



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

## PERFORMANCE

In 2014 we delivered a solid increase in sales, profit and cash flow. While we continue to operate in a challenging environment, we made progress with our growth initiatives and improved productivity through our Comprehensive Continuous Improvement (CCI) program.

We grew net sales 3% with increases in both our consumer and industrial businesses. For our consumer business we grew sales of our leading brands through pricing actions, product innovation, brand marketing support and an acquisition in China that was completed in mid-2013. Our industrial business sales increased primarily through pricing actions and new products.

We reported operating income of $603 million. Adjusted operating income, which excludes the impact of special charges and a 2013 charge related to a voluntary pension settlement, rose 3% to $608 million. The benefit of higher sales and $69 million of CCI and other cost savings was offset in part by higher material costs and a greater investment in brand marketing. We continue to measure a positive return on our brand marketing and raised our level of spending by 9% in 2014 to build further momentum.

In 2014, our earnings per share was $3.34. On a comparable basis, adjusted earnings per share rose 8% to $3.37 from $3.13 in 2013. In addition to higher operating income, we lowered our shares outstanding and our joint venture in Mexico had excellent results. We congratulate Grupo Herdez, our partner in this joint venture, on their 100th anniversary.



“Our engaged teams are united by a passion for flavor and are the key ingredient to our success.”

—Alan D. Wilson
Chairman & CEO



We have a long history of cash generation and returning cash to shareholders. In 2014, we reached $504 million of cash flow and returned a record $437 million to our shareholders through dividends and share repurchases, an increase of 22% from the previous year.

Our focus on performance, growth and people has led to strong long-term results for the past decade. During this period, we have grown sales 68%, more than doubled earnings per share, increased our quarterly dividend 150% and achieved 10% total annual shareholder return.

## GROWTH

Our financial performance in 2014, and over the long term, demonstrates the effectiveness of our growth model. We invest in the business to drive sales and profit, fueling this growth with cost savings from our CCI program. In each of the past five years, annual cost savings from this program have exceeded $50 million.

New products launched in the past three years accounted for 8% of sales in 2014. Consumer insights drive our product development work, which has led to the introduction of gluten-free recipe mixes and the expansion of salt-free seasoning blends to inspire healthy choices. For price conscious consumers, we added squeeze pouch ketchup in China and Grill Mates \( ^{®} \)  burger seasonings and value-priced grinders in the U.S. New skillet sauces meet demand for convenience in the U.S., and we introduced gourmet cooks in the U.K. to new FlavorLock \( ^{™} \)  herbs. In our industrial business, sales contribution from new products was particularly strong in 2014, led by snack seasonings and flavors for new restaurant menu items. Across our consumer and industrial business, new products

## 29 YEARS

We have increased dividends for each of the past 29 years and paid dividends every year since 1925.




FOREFRONT OF
EATING
TRENDS

Now in its 15th year, the McCormick Flavor Forecast \( ^{®} \)  is on the forefront of identifying top trends, insights and ingredients driving the future of flavor.

$227 MILLION

In 2014 we increased our investment in brand marketing support to $227 million, and are planning further increases to create momentum for future growth.
increase our ability to flavor all types of eating occasions, from preparing a meal at home to fine dining to grabbing a quick snack.

In 2014 we increased our investment in brand marketing support to $227 million, and are planning further increases to create momentum for future growth. While a portion of this spending is devoted to creating awareness and trial for new products, the majority is aimed at building consumer equity for our leading brands in markets around the world. We are emphasizing product freshness, our role in preparing healthy food and the ability of a homemade meal to bring people together.

Digital marketing continues to achieve one of our highest returns on investment in brand marketing, and in 2014 we spent twice as much in this area compared to 2011. Through digital marketing we connect directly with consumers to provide personalized recipes, build grilling communities—now one million strong—and bring together those with a common interest to share flavor stories. Because of these efforts, L2, a business intelligence service, recognized McCormick as a food industry leader in its Digital IQ Index.

Customer intimacy is another growth strategy for our business. Among our broad range of customers are multi-national industry leaders: for our industrial business, top customers include food manufacturers and restaurants, while on the consumer side of our business we are a category leader for food retailers in markets around the world. Our sales teams collaborate with these retailers on merchandising, product assortment and pricing to create solutions that are optimal for us, our customers and consumers.

In China, we also work with customers to expand our geographic reach. Including both consumer and industrial sales, China is now our third largest country in sales. Acquisitions played a role in this growth in China, where in mid-2014 we celebrated the first anniversary of our acquisition of Wuhan Asia Pacific Condiments, which is exceeding our sales and profit projections. Since 2008, we have invested $1.3 billion in acquisitions and are pursuing other acquisitions with a focus on emerging markets, which now account for 17% of consolidated sales.

Importantly, we continue to grow our business responsibly and are making great progress with our goals to improve our environmental impact, source sustainably and inspire healthy food choices. Also in 2014, we were pleased, through our 125th anniversary Flavor of Together program, to donate $1.25 million to United Way Worldwide to help feed those in need.

## PEOPLE

Our engaged teams—the Power of People \( ^{™} \) —are catalysts for innovation and a source of support for the communities where we operate. We recognize the efforts of our employees in making 2014 a year of strong financial performance and positioning the company for long-term growth. As we conclude our 125th anniversary, our theme—the Flavor of Together—endures. The spirit of “together” has its foundation in McCormick’s




Across our consumer and industrial business, new products increase our ability to flavor all types of eating occasions.

Multiple Management, a philosophy that dates back to 1932 and is the cornerstone of our culture steeped in participation and inclusion. Multiple Management continues to be a driving force in solving business challenges, creating growth opportunities and developing our next generation of business leaders.

McCormick’s Board of Directors and company leaders have been effective in adapting our strategy to address today’s business challenges and pursue compelling growth opportunities. Lawrence Kurzius has been promoted to Chief Operating Officer & President and will also serve as President Global Consumer. As a respected leader, Lawrence has driven growth and efficiency in both the U.S. and international markets since joining the company in 2003. In addition, the leadership of Malcolm Swift, President Europe, Middle East and Africa and Asia Pacific, has been expanded to include President Global Industrial. We appreciate the many contributions of Bill Stevens, who is departing from the Board. He has served as a director since 1988. Retiring from the company after more than 30 years of distinguished service and strong leadership are Chuck Langmead, President—Global Industrial Business and Geoff Carpenter, Vice President, General Counsel & Secretary.

I am confident that we have the right team, strategies and portfolio to continue our momentum. As we embark on the next 125 years, I want to thank you, McCormick’s shareholders. We appreciate your support and are dedicated to building the value of your investment in our company.



Alan D. Wilson
Chairman & CEO

## OUR
MISSION

To save your world from boring food!

## OUR
VISION

McCormick brings the joy of flavor to every day.



Teamwork and plant modernization in the manufacturing of bouillon and other products in China led to a seamless integration of Wuhan Asia Pacific Condiments, capped off by record results for this business in 2014.



# PEOPLE
Ready Talent, Fully Engaged

McCormick employees are the key ingredient to our success. While our business continues to grow globally, we are committed to strengthening and aligning our workforce to meet our ambitious growth objectives. McCormick’s High Performance Organization principles provide a common global framework to leverage process excellence and the strength of our culture with a focus on teamwork, engagement and the foundation of our Multiple Management Board (MMB) system. Additionally, we are excited about the potential of “MySuccess,” a recently introduced, comprehensive tool to further ready our talent with development opportunities, performance management and career progression. This new tool enhances an already robust talent review process and will ensure we have the right leaders in key roles across the organization.

We are proud that our employees are engaged in the company’s success.

More than 1,000 of our current business leaders have participated in and developed through our MMB system, now in its 82nd year.

In addition, we had a best-in-class global participation rate of 92% in our latest Voice of the Employee survey.

In our 125th year, many employees participated in our annual Charity Day program.

In just the past three years, employees have formed five different employee ambassador groups, which are advancing a spirit of inclusion at McCormick.

All of these efforts have led to a lower-than-average employee turnover rate in each of our major markets.









Employees around the world gathered to celebrate McCormick's 125th anniversary.



# GROWTH
Win Share with Global Focus

McCormick is a global leader in flavor. In our consumer business, 60% of sales come from brands that are No. 1 in their category. For spices and seasonings our global retail category share is more than four times that of the next largest competitor. Recipe mixes represent our second largest category, and, in 2014, we increased our category share in the U.S. Rounding out our consumer business are “regional leaders,” brands with a leading category share in a specific market, such as Vahiné \( ^{®} \)  dessert products in France and McCormick \( ^{®} \)  ketchup in China. With our broad range of flavor solutions in our industrial business, we are a leading supplier of seasonings to the snack industry and of condiments and other flavor products to restaurants worldwide.



In 2014, digital marketing exceeded 15% of total brand marketing and included the launch of FlavorPrint, a personalized recipe engine.



Across both segments, we drive sales growth with innovation. In recent years 8% to 10% of sales came from products launched in the past three years. We are gaining consumer insights and identifying flavor trends to develop products that are preferred by consumers. With 16 innovation centers in 12 countries we adapt proven McCormick concepts like grinders and grilling to local tastes. This global scope also supports the geographic expansion of our industrial customers that include multi-national food manufacturers and restaurants. Our acquisition activity provides another avenue of growth across regions and into new flavor categories. Primarily through acquisitions, we have more than doubled the percentage of sales in emerging markets to 17% in 2014 from 8% in 2009. In addition to building our business through acquisitions, we are investing in brand marketing to grow sales. We benefit from a strong return on our marketing programs and invested twice as much in brand marketing in 2014 as we did in 2007.



This “global pantry” is stocked with iconic McCormick products from around the world.







# PERFORMANCE
Superior Results, Consistently Delivered

## FINANCIAL HIGHLIGHTS

<table><tr><td>For the year ended November 30 (millions except per share data)</td><td>2014</td><td>2013</td><td>% Change</td></tr><tr><td>Net sales</td><td>$4,243.2</td><td>$4,123.4</td><td>2.9%</td></tr><tr><td>Gross profit</td><td>1,730.2</td><td>1,665.8</td><td>3.9%</td></tr><tr><td>Gross profit margin</td><td>40.8%</td><td>40.4%</td><td></td></tr><tr><td>Operating income</td><td>603.0</td><td>550.5</td><td>9.5%</td></tr><tr><td>Operating income margin</td><td>14.2%</td><td>13.4%</td><td></td></tr><tr><td>Net income</td><td>437.9</td><td>389.0</td><td>12.6%</td></tr><tr><td>Earnings per share—diluted</td><td>3.34</td><td>2.91</td><td>14.8%</td></tr><tr><td>Cash flow from operations</td><td>503.6</td><td>465.2</td><td>8.3%</td></tr><tr><td>Dividends paid</td><td>192.4</td><td>179.9</td><td>6.9%</td></tr><tr><td>Dividends paid per share</td><td>1.48</td><td>1.36</td><td>8.8%</td></tr></table>

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 33 and 34.

<table><tr><td></td><td>2014</td><td>2013</td><td>% Change</td></tr><tr><td>Adjusted operating income</td><td>$ 608.2</td><td>$ 590.8</td><td>2.9%</td></tr><tr><td>Adjusted operating income margin</td><td>14.3%</td><td>14.3%</td><td></td></tr><tr><td>Adjusted net income</td><td>441.6</td><td>418.2</td><td>5.6%</td></tr><tr><td>Adjusted earnings per share—diluted</td><td>3.37</td><td>3.13</td><td>7.7%</td></tr></table>

Net Sales by Segment and Region



Consumer Business

Americas

Europe,
Middle East
and Africa

Asia/Pacific

Industrial Business

Americas

Europe,
Middle East
and Africa

Asia/Pacific

CGI
(dollars in millions)



Cost Savings From CCI Program
Since its inception in 2009, we have
achieved $345 million in CCI-related
cost savings.

Uses of Cash Flow
2005–2014



Dividends

Net Share Repurchases

Capital Expenditures

Acquisitions

## Balanced Use of Cash

For the past decade, we have had a balanced use of cash, returning 48% to shareholders through dividends and share repurchases, net of option exercise proceeds.



## SEGMENTS AT A GLANCE

## Consumer Business



135

We have brands in more than 135 countries and territories.

## 31%

We grew sales 31% and adjusted operating income 18% in the past 5 years.

Products at every price point—from premium gourmet to value-priced.

Our Leading Brands Stand for Flavor.



## Industrial Business



Globally, we sell to 9 of the top 10 food and beverage companies and 9 of the top 10 foodservice and restaurant chains.

WE HAVE ONE OF THE BROADEST RANGES OF FLAVOR SOLUTIONS IN THE INDUSTRY, including snack seasonings, sandwich sauces and branded foodservice products.

21%

## Performance

We grew sales 21% and adjusted operating income 25% in the past 5 years.

Net Sales
(dollars in billions)

Adjusted Operating Income
(dollars in millions)








## Board of Directors



John P. Bilbrey 58
President and
Chief Executive Officer
The Hershey Company
Hershey, Pennsylvania
Director since 2005
Compensation Committee



Michael D. Mangan 58
Former President, Worldwide
Power Tools & Accessories
The Black & Decker Corporation
Towson, Maryland
Director since 2007**
Compensation Committee
Nominating/Corporate
Governance Committee



Jacques Tapiero 56
Former Senior Vice President and
President, Emerging Markets
Eli Lilly and Company
Indianapolis, Indiana
Director since 2012
Audit Committee



J. Michael Fitzpatrick 68
Former Chairman and
Chief Executive Officer
Citadel Plastics Holdings, Inc.
Radnor, Pennsylvania
Director since 2001
Audit Committee



Margaret M.V. Preston 57
Managing Director
Private Wealth Management
TD Bank
New York, New York
Director since 2003
Nominating/Corporate
Governance Committee



Alan D. Wilson 57
Chairman & Chief Executive Officer
McCormick & Company, Inc.
Director since 2007



Freeman A. Hrabowski, III 64
President
University of Maryland
Baltimore County
Baltimore, Maryland
Director since 1997
Nominating/Corporate
Governance Committee*



Gordon M. Stetz, Jr. 54
Executive Vice President &
Chief Financial Officer
McCormick & Company, Inc.
Director since 2011



Patricia Little 54
Executive Vice President and
Chief Financial Officer
Kelly Services, Inc.
Troy, Michigan
Director since 2010
Audit Committee*



William E. Stevens 72
Chairman
BBI Group, Inc.
St. Louis, Missouri
Director since 1988
Compensation Committee*

## Executive Officers

Alan D. Wilson
Chairman & Chief Executive Officer

Gordon M. Stetz, Jr.
Executive Vice President &
Chief Financial Officer

Paul C. Beard
Senior Vice President, Finance

Jeffery D. Schwartz
Vice President, General Counsel
& Corporate Secretary

Lawrence E. Kurzius
Chief Operating Officer & President
President Global Consumer
Cecile K. Perich
Senior Vice President,
Human Relations

Michael R. Smith
Senior Vice President, Finance
Capital Markets & Chief Financial
Officer North America

Malcolm Swift
President, EMEA and Asia Pacific
President Global Industrial



## Table of Contents to Form 10-K

Page

PART I

Item 1 Business 19

Item 1A Risk Factors 21

Item 1B Unresolved Staff Comments 25

Item 2 Properties 25

Item 3 Legal Proceedings 25

Item 4 Mine Safety Disclosures 25

PART II

Item 5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 26

Item 6 Selected Financial Data 27

Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 28

Item 7A Quantitative and Qualitative Disclosures About Market Risk 40

Item 8 Financial Statements and Supplementary Data 41

Report of Management 41

Reports of Independent Registered Public Accounting Firm 42

Consolidated Income Statement 44

Consolidated Statement of Comprehensive Income 44

Consolidated Balance Sheet 45

Consolidated Cash Flow Statement 46

Consolidated Statement of Shareholders' Equity 47

Notes to Consolidated Financial Statements 48

Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 65

Item 9A Controls and Procedures 65

Item 9B Other Information 65

PART III

Item 10 Directors, Executive Officers and Corporate Governance 66

Item 11 Executive Compensation 66

Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 66

Item 13 Certain Relationships and Related Transactions, and Director Independence 66

Item 14 Principal Accountant Fees and Services 66

PART IV

Item 15 Exhibits, Financial Statement Schedules 66



# UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended November 30, 2014

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)

52-0408290
(IRS Employer Identification No.)

18 Loveton Circle, Sparks, Maryland
(Address of principal executive offices)

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
Common Stock, No Par Value
Common Stock Non-Voting, No Par Value

Name of Each Exchange on Which Registered
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 ☒ 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 ☒

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 ☒ No ☐



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 ☑ 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. ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Check one:

Large accelerated filer ☒

Accelerated filer

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

Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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, 2014: $859,593,668

The aggregate market value of the Non-Voting Common Stock held by non-affiliates at May 31, 2014: $8,504,657,615

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

<table><tr><td>Class</td><td>Number of Shares Outstanding</td><td>Date</td></tr><tr><td>Common Stock</td><td>11,963,137</td><td>December 31, 2014</td></tr><tr><td>Common Stock Non-Voting</td><td>116,305,343</td><td>December 31, 2014</td></tr></table>

## DOCUMENTS INCORPORATED BY REFERENCE

Document

Part of 10-K into Which Incorporated

Proxy Statement for
McCormick's March 25, 2015
Annual Meeting of Stockholders
(the "2015 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—retail outlets, food manufacturers and foodservice businesses. Our major sales, distribution and production facilities are located in North America, Europe and China. Additional facilities are based in Australia, Mexico, India, Singapore, Central America, Thailand and South Africa. McCormick & Company, Incorporated was formed in 1915 under Maryland law as the successor to a business established in 1889.

## Business Segments

We operate in two business segments, consumer and industrial. 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 from premium to value-priced.

Consistent with market conditions in each segment, our consumer business has a higher overall profit margin than our industrial business. Historically, the consumer business contributes approximately 60% of sales and 80% of operating income, and the industrial business contributes approximately 40% of sales and 20% of operating income.

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 Business. From locations around the world, our brands reach consumers in more than 135 countries and territories. Our leading brands in the Americas include McCormick \( ^{®} \) , Lawry’s \( ^{®} \)  and Club House \( ^{®} \) . We also market authentic ethnic brands such as Zatarain’s \( ^{®} \) , Thai Kitchen \( ^{®} \)  and Simply Asia \( ^{®} \) . In Europe, the Middle East and Africa (EMEA) our major brands include the Ducros \( ^{®} \) , Schwartz \( ^{®} \)  and Kamis \( ^{®} \)  brands of spices, herbs and seasonings and an extensive line of Vahine \( ^{®} \)  brand dessert items. In the Asia/Pacific region, we market products under the McCormick and DaQiao \( ^{®} \)  brands in China. In Australia, we market our spices, herbs and seasonings under the McCormick brand and our dessert products under the Aeroplane \( ^{®} \)  brand. In India, our majority-owned joint venture owns and trades under the Kohinoor \( ^{®} \)  brand.

Our customers span a variety of retail outlets that include grocery, mass merchandise, warehouse clubs, discount and drug stores, served directly and indirectly through distributors or wholesalers. In addition to marketing our branded products to these customers, we are also a leading supplier of private label items, also known as store brands.

Approximately half of our consumer business is spices, herbs and seasonings. For these products, we are a category leader in our primary markets. There are a number of competitors in the spices, herbs and seasoning category, many with less than 3% share of sales.

More than 250 other brands of spices, herbs and seasonings are sold in the U.S. with additional brands in international markets. Some are owned by large food manufacturers, while others are supplied by small privately owned companies. In this competitive environment, we are leading with innovation and brand marketing, and applying our analytical tools to help customers optimize the profitability of their spice and seasoning category while simultaneously increasing our sales.

Industrial Business. In our industrial business, we provide a wide range of products to multinational food manufacturers and food-service customers. The foodservice customers are supplied both directly and indirectly through distributors. Among food manufacturers and foodservice customers, many of our relationships have been active for decades. We focus our resources on our strategic partners that we believe offer the greatest prospects for growth. Our range of products remains one of the broadest in the industry and includes seasoning blends, spices and herbs, condiments, coating systems and compound flavors. In addition to a broad range of flavor solutions, we strive to achieve customer intimacy. Our customers benefit from our expertise in many areas, including sensory testing, culinary research, food safety and flavor application.

Our industrial business has a number of competitors. Some tend to specialize in a particular range of products and have a limited geographic reach. Other competitors include larger publicly held flavor companies that are more global in nature, but which also tend to specialize in a more limited range of flavor solutions.

## Raw Materials

The most significant raw materials used in our business are pepper, dairy products, rice, capsicums (red peppers and paprika), onion, garlic and wheat flour. 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 locations. Because the raw materials are agricultural products, they are subject to fluctuations in market price and availability caused by weather, growing and harvesting conditions, market conditions, and other factors beyond our control.

We respond to this volatility in a number of ways, including strategic raw material purchases, purchases of raw material for future delivery, customer price adjustments and cost savings from our Comprehensive Continuous Improvement 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 through a variety of retail outlets, including grocery, mass merchandise, warehouse clubs, discount and drug stores under a variety of brands. In the industrial segment, products are used by food and beverage 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 business customers, Wal-Mart Stores, Inc., accounted for 11% of consolidated sales in 2014, 12% of consolidated sales in 2013 and 11% of consolidated sales in 2012. Sales to one of our industrial business customers, PepsiCo, Inc., accounted for 11% of consolidated sales in 2014, 2013 and 2012. In 2014, 2013 and 2012 the top three customers in our industrial business represented between 53% and 54% of our global industrial sales.

The dollar amount of backlog orders for our business is not material to an understanding of our business, taken as a whole. No material portion of our business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the U.S. government.

## Trademarks, Licenses and Patents

We own a number of trademark registrations. Although in the aggregate these trademarks are material to our business, the loss of any one of those trademarks, with the exception of our “McCormick,” “Lawry’s,” “Zatarain’s,” “Club House,” “Ducros,” “Schwartz,” “Vahiné,” “Kamis,” “DaQiao” and “Kohinoor” 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 individually are material to our business.

## Seasonality

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

## Working Capital

In order to meet increased demand for our consumer products during our fourth quarter, we usually build our inventories during the third quarter of the fiscal year. We generally finance working capital items (inventory and receivables) through short-term borrowings, which include the use of lines of credit and the issuance of commercial paper. For a description of our liquidity and capital resources, see note 6 of the financial statements and the “Liquidity and Financial Condition” section of “Management’s Discussion and Analysis.”

## Competition

Each segment operates in markets around the world that are highly competitive. In this competitive environment, our growth strategies include customer intimacy and product innovation based on consumer insights. Additionally, in the consumer segment we are building brand recognition and loyalty through increased advertising and promotions.

## Research and Development

Many of our products are prepared from confidential formulas developed by our research laboratories and product development teams, and, in some cases, customer proprietary formulas. Expenditures for research and development were $62.0 million in 2014, $61.3 million in 2013, and $57.8 million in 2012. The amount spent on customer-sponsored research activities is not material.

## Governmental Regulation

We are subject to numerous laws and regulations around the world that apply to our global businesses. In the United States, the safety, production, transportation, distribution, advertising, labeling and sale of many of our products and their ingredients are subject to the Federal Food, Drug, and Cosmetic Act, the Food Safety Modernization Act, the Federal Trade Commission Act, state consumer protection laws, competition laws, anti-corruption laws, customs and trade laws, federal, state and local workplace health and safety laws, various federal, state and local environmental protection laws, and various other federal, state and local statutes and regulations. 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 2014, and there are no material expenditures planned for such purposes in fiscal year 2015.

## Employees

We had approximately 10,000 full-time employees worldwide as of November 30, 2014. Our operations have not been affected significantly by work stoppages and, in the opinion of management, employee relations are good. We have no collective bargaining contracts in the United States. At our foreign subsidiaries, approximately 1,300 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, restrictions on investments, royalties and dividends. Approximately 45% of sales in fiscal year 2014 were from non-U.S. operations. For information on how we manage some of these risks, see the “Market Risk Sensitivity” section of “Management’s Discussion and Analysis.”



## Forward-Looking Information

Certain statements contained in this report, including statements concerning expected performance such as those relating to net sales, earnings, cost savings, acquisitions and brand marketing support, are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. These 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 us, the expected impact of raw material costs and our pricing actions on our results of operations and gross margins, the expected productivity and working capital improvements, expected trends in net sales and earnings performance and other financial measures, the expectations of pension and postretirement plan contributions, the holding period and market risks associated with financial instruments, the impact of foreign exchange fluctuations, the adequacy of internally generated funds and existing sources of liquidity, such as the availability of bank financing, our ability to issue additional debt or equity securities and our expectations regarding purchasing shares of our common stock under the existing authorizations.

These and other forward-looking statements are based on management’s current views and assumptions and involve risks and uncertainties that could significantly affect expected results. Results may be materially affected by factors such as: damage to our reputation or brand name; loss of brand relevance; increased use of private label or other competitive products; product quality, labeling, or safety concerns; negative publicity about our products; business interruptions due to natural disasters or unexpected events; actions by, and the financial condition of, competitors and customers; our ability to achieve expected and/or needed cost savings or margin improvements; negative employee relations; the successful acquisition and integration of new businesses; issues affecting our supply chain and raw materials, including fluctuations in the cost and availability of raw and packaging materials; government regulation, and changes in legal and regulatory requirements and enforcement practices; global economic and financial conditions generally, including the availability of financing, and interest and inflation rates; the investment return on retirement plan assets, and the costs associated with pension obligations; foreign currency fluctuations; the stability of credit and capital markets; risks associated with our information technology systems, the threat of data breaches and cyber attacks; volatility in our effective tax rate; climate change; infringement of our intellectual property rights, and those of customers; litigation, legal and administrative proceedings; and other risks described herein under Part I, Item 1A “Risk Factors.”

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

## Available Information

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

## ITEM 1A. RISK FACTORS

The following are certain risk factors that could affect our business, financial condition and results of operations. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Annual Report on Form 10-K because these factors could cause the actual results and conditions to differ materially from those projected in forward-looking statements. Before you buy our Common Stock or Common Stock Non-Voting, you should know that making such an investment involves risks, including the risks described below. Additional risks and uncertainties that are not presently known to the company or are currently deemed to be immaterial also may materially adversely affect our business, financial condition, or results of operations in the future. If any of the risks actually occur, our business, financial condition or results of operations could be negatively affected. In that case, the trading price of our securities could decline, and you may lose part or all of your investment.

Damage to our reputation or brand name, loss of brand relevance, increase in use of private label or other competitive brands by customers or consumers, or product quality or safety concerns could negatively impact our business, financial condition or results of operations.

We have many iconic brands with long-standing consumer 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 business.

Our reputation for manufacturing high-quality products is widely recognized. In order to safeguard that reputation, we have adopted rigorous quality assurance and quality control procedures which are designed to ensure the safety of our products. A serious breach of our quality assurance or quality control procedures, deterioration of our quality image, impairment of our customer or consumer 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, 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 financial results and, depending upon the significance of the affected product, that negative effect could be material to our business or financial results. Negative publicity about these concerns, whether or not valid, may discourage customers and 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 consolidation could continue. Such consolidation could present a challenge to margin growth and profitability in that it has produced large, sophisticated customers with increased buying power who are more capable of operating with reduced inventories; resisting price increases; demanding lower pricing, increased promotional programs and specifically tailored products; and shifting shelf space currently used for our products to private label products. The economic and competitive landscape for our customers is constantly changing, and their response to those changes could impact our business. Our industrial business may be impacted if the reputation or perception of the customers of our industrial business declines. These factors and others could have an adverse impact on our business, financial condition or results of operations.

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 consolidated sales in 2014. 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, rice, capsicums (red pepper and paprika), onion, garlic and wheat flour. 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 Comprehensive Continuous Improvement program. We generally have not used derivatives to manage the volatility related to this risk. To the extent that we have used derivatives for this purpose, it has not been material to our business. Any actions we take in response to market price 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 countries, action or inaction by suppliers in response to laws and regulations, 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 disruptions 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, manufacture, storage, labeling, marketing, advertising and distribution of food products, as well as laws and regulations relating to financial reporting requirements, the environment, competition, anti-corruption, privacy, relations with distributors and retailers, foreign supplier verification, the import and export of products and product ingredients, employment, health and safety, and trade practices. Enforcement of existing laws and regulations, changes in legal requirements, and/or evolving interpretations of existing regulatory requirements may result in increased compliance costs and create other obligations, financial or otherwise, that could adversely affect our business, financial



condition or operating results. Increased regulatory scrutiny of, and increased litigation involving, product claims and concerns regarding the attributes of food products and ingredients may increase compliance costs and create other obligations that could adversely affect our business, financial condition or operating results. Governments may also impose requirements and restrictions that impact our business, such as labeling disclosures pertaining to ingredients. For example, “Proposition 65, the Safe Drinking Water and Toxic Enforcement Act of 1986,” in California exposes all food companies to the possibility of having to provide warnings on their products in that state. If we were required to add warning labels to any of our products or place warnings in locations where our 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 computer system failure. Natural disasters could include an earthquake, fire, flood, tornado or severe storm. A catastrophic event could include a terrorist attack. An epidemic could affect our operations, major 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 lesser degree of control over business operations, thereby potentially increasing the financial, legal, operational and/or compliance risks.

## Our foreign operations are subject to additional risks.

We operate our business and market our products internationally. In fiscal year 2014, approximately 45% of our sales were generated in foreign countries. Our foreign operations are subject to additional risks, including fluctuations in currency values, foreign currency exchange controls, discriminatory fiscal policies, compliance with U.S. and foreign laws, enforcement of remedies in foreign jurisdictions and other economic or political uncertainties. Beginning in 2011, several countries within the European Union experienced sovereign debt and credit issues. This has caused more volatility in the economic environment throughout the European Union. Additionally, international sales are subject to risks related to imposition of tariffs, quotas, trade barriers and other similar restrictions. All of these risks could result in increased costs or decreased revenues, which could adversely affect our profitability.

## Fluctuations in foreign currency markets may negatively impact us.

We are exposed to fluctuations in foreign currency in the following main areas: cash flows related to raw material purchases; the translation of foreign currency earnings to U.S. dollars; the value of foreign currency investments in subsidiaries and unconsolidated affiliates and cash flows related to repatriation of these investments. Primary exposures include the U.S. dollar versus the Euro, British pound sterling, Canadian dollar, Polish zloty, Australian dollar, Mexican peso, Chinese renminbi, Indian rupee, Thai baht and Swiss franc, as well as the British pound sterling versus the Euro. We routinely enter into foreign currency exchange contracts to facilitate managing certain of these foreign currency risks. However, these contracts may not effectively limit or eliminate our exposure to a decline in operating results due to foreign currency exchange changes. Therefore, we cannot provide assurance that future exchange rate fluctuations will not have a negative impact on our business, financial position or operating results.

## Increases in interest rates may negatively impact us.

We had total outstanding short-term borrowings of $270 million at an average interest rate of approximately 1.3% on November 30, 2014. Our policy is to manage our interest rate risk by entering 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 ongoing business operations. We do not enter into contracts for trading purposes, nor are we a party to any leveraged derivative instruments. Our use of derivative financial instruments is monitored through regular 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 interest rate changes will not have a material negative impact on our business, financial position or operating results.



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

We rely on our revolving credit facilities, or borrowings backed by these facilities, to fund a portion of our seasonal working capital needs and other general corporate purposes. If any of the banks in the syndicates backing these facilities were unable to perform on its commitments, our liquidity could be impacted, which could adversely affect funding of seasonal working capital requirements. We engage in regular communication with all of the banks participating in our revolving credit facilities. During these communications none of the banks have indicated that they may be unable to perform on their commitments. In addition, we periodically review our banking and financing relationships, considering the stability of the institutions, pricing we receive on services and other aspects of the relationships. Based on these communications and our monitoring activities, we believe the likelihood of one of our banks not performing on its commitment is remote.

In addition, global capital markets have experienced volatility in the past that has tightened access to capital markets and other sources of funding, and such volatility and tightened access could reoccur in the future. In the event we need to access the capital markets or other sources of financing, there can be no assurance that we will be able to obtain financing on acceptable terms or within an acceptable time. Our inability to obtain financing on acceptable terms or within an acceptable time period could have an adverse impact on our operations, financial condition and liquidity.

## We face risks associated with certain pension assets and obligations.

We hold investments in equity and debt securities in our qualified defined benefit pension plans and in a rabbi trust for our U.S. non-qualified pension plan. Deterioration in the value of plan assets resulting from a general financial downturn or otherwise, or an increase in the actuarial valuation of the plans' liability due to a low interest rate environment, could cause (or increase) an underfunded status of our defined benefit pension plans, thereby increasing our obligation to make contributions to the plans. An obligation to make contributions to pension plans could reduce the cash available for working capital and other corporate uses, and may have an adverse impact on our operations, financial condition and liquidity.

## The global financial downturn exposes us to credit risks from customers and counterparties.

Consolidations in some of the industries in which our customers operate have created larger customers, some of which are highly leveraged. In addition, competition has increased with the growth in alternative channels through our customer base. These factors have caused some customers to be less profitable and increased our exposure to credit risk. Current credit markets are volatile, and some of our customers and counterparties are highly leveraged. A significant adverse change in the financial and/or credit position of a customer or counterparty could require us to assume greater credit risk relating to that customer or counterparty and could limit our ability to collect receivables. This could have an adverse impact on our financial condition and liquidity.

Our operations may be impaired if our information technology systems fail to perform adequately or if we are the subject of a data breach or cyber attack.

Our information technology systems are critically important to operating our business efficiently. We rely on our information technology systems to manage our business data, communications, supply chain, order entry and fulfillment, and other business processes. The failure of our information technology systems to perform as we anticipate could disrupt our business and could result in transaction errors, processing inefficiencies and the loss of sales and customers, causing our business and results of operations to suffer.

Furthermore, our information technology systems may be vulnerable to security breaches beyond our control. We invest in security technology to protect our data and business processes against risk of data security breaches and cyber attacks. While we believe these measures provide some protection against security breaches and mitigate cyber security risks, there can be no assurance that security breaches and cyber attacks will not occur. A breach or successful attack could have a negative impact on our operations or business reputation.

## The global nature of our business and the resolution of tax disputes create volatility in our effective tax rate.

As a global business, our tax rate from period to period can be affected by many factors, including changes in tax legislation, our global mix of earnings, the tax characteristics of our income, the timing and recognition of goodwill impairments, acquisitions and dispositions, adjustments to our reserves related to uncertain tax positions, changes in valuation allowances and the portion of the income of foreign subsidiaries that we expect to remit to the U.S. and that will be taxable.

In addition, significant judgment is required in determining our effective tax rate and in evaluating our tax positions. We establish accruals for certain tax contingencies when, despite the belief that our tax return positions are appropriately supported, the positions are uncertain. The tax contingency accruals are adjusted in light of changing facts and circumstances, such as the progress of tax audits, case law and emerging legislation. Our effective tax rate includes the impact of tax contingency accruals and changes to the accruals, including related interest and penalties, as considered appropriate by management. When particular matters arise, a number of years may elapse before such matters are audited and finally resolved. Favorable resolution of such matters could be recognized as a reduction to our effective tax rate in the year of resolution. Unfavorable resolution of any particular issue could increase the effective tax rate and may require the use of cash in the year of resolution.

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

Unseasonable or unusual weather or long-term climate changes may negatively impact the price or availability of spices, herbs and other raw materials. There is concern that greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters. In the event that such climate change has a negative effect on agricultural productivity or practices, we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products.

Our intellectual property rights, and those of our customers, could be infringed, challenged or impaired, and reduce the value of our products and brands or our business with customers.

We possess intellectual property rights that are important to our business, and we are provided access by certain customers to particular intellectual property rights belonging to such customers. These intellectual property rights include ingredient formulas, trademarks,



copyrights, patents, business processes and other trade secrets which are important to our business and relate to some of our products, our packaging, the processes for their production, and the design and operation of equipment used in our businesses. We protect our intellectual property rights, and those of certain customers, globally through a variety of means, including trademarks, copyrights, patents and trade secrets, third-party assignments and nondisclosure agreements, and monitoring of third-party misuses of intellectual property. If we fail to obtain or adequately protect our intellectual property (and the intellectual property of customers to which we have been given access), the value of our products and brands could be reduced and there could be an adverse impact on our business, financial condition and results of operations.

## Litigation, legal or administrative proceedings could have an adverse impact on our business, financial condition and results of operations, and damage our reputation.

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

## Streamlining actions to reduce fixed costs, simplify or improve processes, and improve our competitiveness may have a negative effect on employee relations.

During 2014 and 2013, we evaluated changes to our organization structure to enable us to reduce fixed costs, simplify or improve processes, and improve our competitiveness, and we expect to continue such actions in the future. As a result of such fixed cost reductions and process simplifications or improvements, we may, from time to time, transfer production from one manufacturing facility to another or eliminate certain manufacturing, selling and administrative positions. These actions may result in a deterioration of employee relations at the impacted locations or elsewhere in McCormick.

## If we are unable to fully realize the benefits from our Comprehensive Continuous Improvement (CCI) program, our financial results could be negatively affected.

Our future success depends in part on our ability to be an efficient producer in a highly competitive industry. Any failure by us to achieve our planned cost savings and efficiencies under our CCI program, or other similar programs, could have an adverse effect on our business, results of operations and financial position.

## ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

## ITEM 2. PROPERTIES

Our principal executive offices and primary research facilities are owned and are located in suburban Baltimore, Maryland.

The following is a list of our principal manufacturing properties, all of which are owned except for the facilities in Commerce, California and Melbourne, Australia, and a portion of the facility in Littleborough, England, which are leased:

United States:
Hunt Valley, Maryland—consumer and industrial
(3 principal plants)
Gretna, Louisiana—consumer and industrial
South Bend, Indiana—industrial and consumer
Atlanta, Georgia—industrial
Commerce, California—consumer
Irving, Texas—industrial

Canada:
London, Ontario—consumer and industrial

Mexico:
Cuautitlan de Romero Rubio—industrial

United Kingdom:
Haddenham, England—consumer and industrial
Littleborough, England—industrial

France:
Carpentras—consumer and industrial
Monteux—consumer and industrial

Poland:
Stefanowo—consumer

India:
New Dehli—consumer

Australia:
Melbourne—consumer and industrial

China:
Guangzhou—consumer and industrial
Shanghai—consumer and industrial
Wuhan—consumer

In addition to distribution facilities and warehouse space available at our manufacturing facilities, we lease regional distribution facilities in Belcamp, Maryland; Salinas, California; Irving, Texas; Mississauga and London, Ontario, Canada; and Genvilliers, France; and own distribution facilities in Monteux, France. We also own, lease or contract other properties used for manufacturing consumer and industrial products and for sales, warehousing, distribution and administrative functions.

We believe our plants are well maintained and suitable for their intended use. We further believe that these plants generally have adequate capacity or the ability to expand, and can accommodate seasonal demands, changing product mixes and additional growth.

## ITEM 3. LEGAL PROCEEDINGS

There are no material pending legal proceedings in which we or any of our subsidiaries are a party or to which any of our other property is the subject.

## ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.



## 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 paid on our classes of common stock. The market price of our common stock at the close of business on December 31, 2014 was $75.96 per share for the Common Stock and $74.30 per share for the Common Stock Non-Voting.

Our Common Stock and Common Stock Non-Voting are listed and traded on the New York Stock Exchange (“NYSE”). The approximate number of holders of our common stock based on record ownership as of December 31, 2014 was as follows:

<table><tr><td>Title of Class</td><td>Approximate Number of Record Holders</td></tr><tr><td>Common Stock, no par value</td><td>2,000</td></tr><tr><td>Common Stock Non-Voting, no par value</td><td>9,900</td></tr></table>

The following table summarizes our purchases of Common Stock (CS) and Common Stock Non-Voting (CSNV) during the fourth quarter of 2014:

ISSUER PURCHASES OF EQUITY SECURITIES

<table><tr><td>Period</td><td>Total Number of Shares Purchased</td><td>Average Price Paid per Share</td><td>Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs</td><td>Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs</td></tr><tr><td>September 1, 2014 to September 30, 2014</td><td>CS-0</td><td>—</td><td>—</td><td>$160 million</td></tr><tr><td>October 1, 2014 to October 31, 2014</td><td>CSN-315,000</td><td>$68.59</td><td>315,000</td><td></td></tr><tr><td>November 1, 2014 to November 30, 2014</td><td>CS-17,677</td><td>$66.40</td><td>17,677</td><td>$135 million</td></tr><tr><td>Total</td><td>CSN-345,000</td><td>$67.65</td><td>345,000</td><td></td></tr><tr><td></td><td>CS-18,106</td><td>$72.22</td><td>18,106</td><td>$116 million</td></tr><tr><td></td><td>CSN-257,376</td><td>$72.00</td><td>257,376</td><td></td></tr><tr><td></td><td>CS-35,783</td><td>$69.34</td><td>35,783</td><td>$116 million</td></tr><tr><td></td><td>CSN-917,376</td><td>$69.19</td><td>917,376</td><td></td></tr></table>

As of November 30, 2014, approximately $116 million remained of a $400 million share repurchase authorization approved by the Board of Directors in April 2013. There is no expiration date for our repurchase program. The timing and amount of any shares repurchased is determined by our management based on its evaluation of market conditions and other factors. The repurchase program may be suspended or discontinued at any time.

In certain circumstances, we issue shares of CS in exchange for shares of CSNV, or issue shares of CSNV in exchange for shares of CS, in either case pursuant to the exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended. Typically, these exchanges are made in connection with the administration of our employee benefit plans, executive compensation programs and dividend reinvestment/direct purchase plans. The number of shares issued in an exchange is generally equal to the number of shares received in the exchange, although the number may differ slightly to the extent necessary to comply with the requirements of the Employee Retirement Income Security Act of 1974. During fiscal 2014, we issued 801,705 shares of CSNV in exchange for shares of CS and issued 21,490 shares of CS in exchange for shares of CSNV.



## ITEM 6. SELECTED FINANCIAL DATA

## HISTORICAL FINANCIAL SUMMARY

<table><tr><td>(millions except per share and percentage data)</td><td>2014</td><td>2013</td><td>2012</td><td>2011</td><td>2010</td></tr><tr><td>For the Year</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net sales</td><td>$4,243.2</td><td>$4,123.4</td><td>$4,014.2</td><td>$3,697.6</td><td>$3,336.8</td></tr><tr><td>Percent increase</td><td>2.9%</td><td>2.7%</td><td>8.6%</td><td>10.8%</td><td>4.5%</td></tr><tr><td>Operating income</td><td>603.0</td><td>550.5</td><td>578.3</td><td>540.3</td><td>509.8</td></tr><tr><td>Income from unconsolidated operations</td><td>29.4</td><td>23.2</td><td>21.5</td><td>25.4</td><td>25.5</td></tr><tr><td>Net income</td><td>437.9</td><td>389.0</td><td>407.8</td><td>374.2</td><td>370.2</td></tr><tr><td>Per Common Share</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Earnings per share—basic</td><td>$ 3.37</td><td>$ 2.94</td><td>$ 3.07</td><td>$ 2.82</td><td>$ 2.79</td></tr><tr><td>Earnings per share—diluted</td><td>3.34</td><td>2.91</td><td>3.04</td><td>2.79</td><td>2.75</td></tr><tr><td>Common dividends declared</td><td>1.51</td><td>1.39</td><td>1.27</td><td>1.15</td><td>1.06</td></tr><tr><td>Closing price, non-voting shares—end of year</td><td>74.33</td><td>69.00</td><td>64.56</td><td>48.70</td><td>44.01</td></tr><tr><td>Book value per share</td><td>14.10</td><td>14.85</td><td>12.83</td><td>12.17</td><td>11.00</td></tr><tr><td>At Year-End</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Total assets</td><td>$4,414.3</td><td>$4,449.7</td><td>$4,165.4</td><td>$4,087.8</td><td>$3,419.7</td></tr><tr><td>Current debt</td><td>270.8</td><td>214.1</td><td>392.6</td><td>222.4</td><td>100.4</td></tr><tr><td>Long-term debt</td><td>1,014.1</td><td>1,019.0</td><td>779.2</td><td>1,029.7</td><td>779.9</td></tr><tr><td>Shareholders&#x27; equity</td><td>1,809.4</td><td>1,947.7</td><td>1,700.2</td><td>1,618.5</td><td>1,462.7</td></tr><tr><td>Other Financial Measures</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Percentage of net sales</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Gross profit</td><td>40.8%</td><td>40.4%</td><td>40.3%</td><td>41.2%</td><td>42.5%</td></tr><tr><td>Operating income</td><td>14.2%</td><td>13.4%</td><td>14.4%</td><td>14.6%</td><td>15.3%</td></tr><tr><td>Capital expenditures</td><td>$ 132.7</td><td>$ 99.9</td><td>$ 110.3</td><td>$ 96.7</td><td>$ 89.0</td></tr><tr><td>Depreciation and amortization</td><td>102.7</td><td>106.0</td><td>102.8</td><td>98.3</td><td>95.1</td></tr><tr><td>Common share repurchases</td><td>244.3</td><td>177.4</td><td>132.2</td><td>89.3</td><td>82.5</td></tr><tr><td>Average shares outstanding</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Basic</td><td>129.9</td><td>132.1</td><td>132.7</td><td>132.7</td><td>132.9</td></tr><tr><td>Diluted</td><td>131.0</td><td>133.6</td><td>134.3</td><td>134.3</td><td>134.7</td></tr></table>

The historical financial summary includes the impact of certain items that affect the comparability of financial results year to year. In 2014 and 2013, we recorded special charges related to the completion of a reorganization in EMEA and streamlining actions in the U.S. and Australian businesses. Also in 2013, we recognized a loss on voluntary pension settlement in the U.S. In 2010, we had the benefit of the reversal of a significant tax accrual for a closed tax year. This tax accrual was recorded in a prior period based on uncertainties about the tax aspects of transactions related to the reorganization of our European operations and divestment of certain of our joint ventures. The net impact of these items is reflected in the following table:

<table><tr><td>(millions except per share data)</td><td>2014</td><td>2013</td><td>2012</td><td>2011</td><td>2010</td></tr><tr><td>Operating income</td><td>$ (5.2)</td><td>$ (40.3)</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Net income</td><td>(3.7)</td><td>(29.2)</td><td>—</td><td>—</td><td>$ 13.9</td></tr><tr><td>Earnings per share—diluted</td><td>(0.03)</td><td>(0.22)</td><td>—</td><td>—</td><td>0.10</td></tr></table>



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

## Overview

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand McCormick & Company, Incorporated, our operations and our present business environment. MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying notes thereto contained in Item 8 of this report. We use certain non-GAAP information that we believe is important for purposes of comparison to prior periods and development of future projections and earnings growth prospects. This information is also used by management to measure the profitability of our ongoing operations and analyze our business performance and trends. The dollar and share information in the charts and tables in the MD&A are in millions, except per share data.

McCormick is a global leader in flavor. The company manufactures, markets and distributes spices, seasoning mixes, condiments and other flavorful products to the entire food industry—retail outlets, food manufacturers and foodservice businesses. We manage our business in two operating segments, consumer and industrial, as described in Item 1 of this report.

Our long-term annual growth objectives are to increase sales 4% to 6%, increase operating income 7% to 9% and increase earnings per share 9% to 11%. Over time, we expect to grow sales with similar contributions from: 1) our base business—driven by brand marketing support, customer intimacy and category growth; 2) product innovation; and 3) acquisitions. We are fueling our investment in growth with cost savings from our Comprehensive Continuous Improvement (CCI) program, an ongoing initiative to improve productivity and reduce costs throughout the organization. In addition to funding brand marketing support, product innovation and other growth initiatives, our CCI program helps offset higher material costs and is contributing to higher operating income and earnings per share.

Our business generates strong cash flow, and we have a balanced use of cash. We are using our cash to fund shareholder dividends, with annual increases in each of the past 29 years, and to fund capital expenditures, acquisitions and share repurchases. Each year, we expect a combination of acquisitions and share repurchases to add about 2% to earnings per share growth.

In 2014, we grew net sales 3% with increases in both our consumer and industrial business. This rate of growth was below our long-term goal as a result of challenging conditions in certain parts of our business. In the U.S., our consumer business was impacted by smaller competitors that have gained retail distribution. We are addressing this competition through accelerated innovation, increased brand marketing and the sharing of our analytics with retail customers to help optimize their sales and profitability while simultaneously increasing our sales to those customers. In China, our industrial business was impacted by weak demand from quick service restaurants that related to a product quality issue from a protein supplier. We expect this situation to improve in 2015 as these quick service restaurants have addressed this issue and continue to invest in new restaurant locations in China. Operating income was $603.0 million in 2014. Excluding special charges and, in 2013, a loss on a voluntary pension settlement, adjusted operating income rose to $608.2 million from $590.8 million in 2013. This was an increase of 3% and below our long-term objective due in part to a significant increase in brand marketing support and a less favorable mix of business. Diluted earnings per share was $3.34 in 2014. Excluding the effect of the aforementioned special charges and the 2013 loss on voluntary pension settlement, adjusted diluted earnings per share was $3.37 in 2014, an increase of approximately 8% over adjusted diluted earnings per share of $3.13 in 2013. This increase was mainly driven by higher adjusted operating income, higher income from unconsolidated operations and our share repurchases.

McCormick continues to generate strong cash flow. Net cash provided by operating activities reached $503.6 million in 2014, an increase from $465.2 million in 2013. We continued to have a balanced use of cash for capital expenditures, acquisitions and the return of cash to shareholders through dividends and share repurchases. In 2014, that return of cash to our shareholders was a record $436.7 million.

RESULTS OF OPERATIONS—2014 COMPARED TO 2013

<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>Net sales</td><td>$4,243.2</td><td>$4,123.4</td></tr><tr><td>Percent growth</td><td>2.9%</td><td>2.7%</td></tr><tr><td>Components of percent growth in net sales—increase (decrease):</td><td></td><td></td></tr><tr><td>Volume and product mix</td><td>(0.2)%</td><td>0.1%</td></tr><tr><td>Pricing actions</td><td>1.9%</td><td>1.5%</td></tr><tr><td>Acquisitions</td><td>1.8%</td><td>1.5%</td></tr><tr><td>Foreign exchange</td><td>(0.6)%</td><td>(0.4)%</td></tr></table>

Sales for the fiscal year 2014 rose 2.9% from 2013, with growth in both the consumer and industrial segments. Pricing actions, taken in response to increased raw material and packaging costs, added 1.9% to sales. The incremental impact of the Wuhan Asia Pacific Condiments (WAPC) acquisition, completed in mid-2013, accounted for a 1.8% increase to sales, while volume and product mix in the base business reduced sales 0.2%. The impact of foreign exchange rates was unfavorable in 2014, reducing sales by 0.6%.

In 2015, we expect to grow sales in local currency by 4% to 6% from 2014, to include the impact of higher volume and pricing. We expect this range to be significantly reduced as a result of unfavorable foreign currency exchange rates.

<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>Gross profit</td><td>$1,730.2</td><td>$1,665.8</td></tr><tr><td>Gross profit margin</td><td>40.8%</td><td>40.4%</td></tr></table>

In 2014, gross profit increased 3.9% while gross profit margin rose 40 basis points over the 2013 level to 40.8%. We offset a low single-digit increase in raw material and packaging costs with our pricing actions and CCI cost savings. Our CCI program generated cost savings of $65 million in 2014, of which $54 million lowered cost of goods sold. In 2015, we expect a favorable impact from pricing actions and cost savings, largely offset by a mid-single digit increase in raw material and packaging costs.

<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>Selling, general &amp; administrative expense (SG&amp;A)</td><td>$1,122.0</td><td>$1,075.0</td></tr><tr><td>Percent of net sales</td><td>26.5%</td><td>26.1%</td></tr></table>



Selling, general and administrative expenses were $1,122.0 million in 2014 compared to $1,075.0 million in 2013, an increase of $47.0 million or 40 basis points as a percentage of net sales. That 40 basis point increase was driven by an $18.8 million increase in our brand marketing support from the 2013 level to $226.6 million in 2014, with 40% of that increase related to digital marketing, which is one of our highest return investments in brand marketing support. In addition, compared to 2013, lower pension and other postretirement benefit expenses in 2014 were partially offset by increased employee incentive compensation expenses in 2014.

<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>Special charges</td><td>$5.2</td><td>$25.0</td></tr><tr><td>Loss on voluntary pension settlement</td><td>—</td><td>15.3</td></tr></table>

We are evaluating changes to our organization structure to enable us to reduce fixed costs, simplify or improve processes, and improve our competitiveness. Special charges of $5.2 million were recorded in 2014 to enable us to implement these changes. Of the $5.2 million of special charges recorded in 2014, which were principally related to employee severance, $2.1 million related to actions undertaken with respect to the EMEA reorganization announced in late 2013, $1.3 million related to the realignment of certain manufacturing activities in the U.S. industrial business, $1.1 million related to the elimination of certain administrative positions in the U.S. consumer and industrial businesses, and $0.7 million related to the elimination of certain administrative and manufacturing positions in the Australian consumer business.

In late 2013, we announced several reorganization activities in the EMEA region to further improve EMEA’s profitability and process standardization while supporting its competitiveness and long-term growth. At that time, we indicated our expectation that we would recognize approximately $27 million of cash and non-cash charges related to this plan, of which $25.0 million in special charges was recognized in 2013, with $15.9 million related to employee severance, $6.4 million for asset write-downs and $2.7 million for other exit costs. Total cash expenditures to implement this EMEA reorganization plan were $10.7 million in 2014. We expect to complete the implementation of this plan in 2015, spending an additional $10 million in cash in that year. See note 3 of the financial statements for further information with respect to special charges recorded in 2014 and 2013.

In addition to the special charges outlined above, we recorded a loss on voluntary pension settlement of $15.3 million in 2013 for the settlement of a portion of our U.S. defined benefit obligation, which reduced the size of our pension obligation and should reduce potential pension volatility in the future. The settlement charge relates to a lump sum distribution elected by certain former U.S. employees in exchange for their deferred vested pension plan benefits. This lump sum payout program was completed in 2013. See note 10 of the financial statements for additional information.

<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>Interest expense</td><td>$49.7</td><td>$53.3</td></tr><tr><td>Other income, net</td><td>1.1</td><td>2.2</td></tr></table>

Interest expense for 2014 was lower than the prior year, primarily due to the refinancing of long-term debt in the second half of 2013. In August 2013, we issued $250 million of 3.50% notes (at an effective interest rate of 3.30%), the net cash proceeds of which, plus cash on hand, were used to pay off $250 million of 5.25% notes (at an effective interest rate of 5.54%) that matured in September 2013.

<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>Income from consolidated operations</td><td></td><td></td></tr><tr><td>before income taxes</td><td>$554.4</td><td>$499.4</td></tr><tr><td>Income taxes</td><td>145.9</td><td>133.6</td></tr><tr><td>Effective tax rate</td><td>26.3%</td><td>26.8%</td></tr></table>

The effective tax rate declined 50 basis points to 26.3% in 2014 from 26.8% in 2013, primarily as a result of the following factors: Discrete tax benefits were $10.8 million in 2014 compared to $3.9 million in 2013. That increase in 2014 is primarily due to the reversal of previously established reserves for unrecognized tax benefits, net of additional taxes provided, upon the following tax settlements reached during 2014: (1) a settlement with respect to the French taxing authority’s audits of the 2007–2013 tax years; and (2) a settlement with respect to the Internal Revenue Service (IRS) examination of our U.S. federal income tax return for the 2007 and 2008 tax years. Discrete tax benefits in 2013 of $3.9 million resulted from the 2013 recognition of a 2012 U.S. research tax credit and reversal of valuation allowances for two subsidiaries originally established against net operating losses. During 2013, a new law was enacted that retroactively granted the research tax credit in 2012 and allowed for a research tax credit in 2013. No research tax credit was recognized in 2014 as the tax law which retroactively granted the research tax credit for 2014 was not enacted until after the company’s 2014 fiscal year end. See note 12 of the financial statements for a reconciliation of the U.S. federal tax rate with the effective tax rate.

In November 2012, we deposited $18.8 million with the IRS to stop any potential interest on proposed adjustments associated with the IRS examination of our U.S. federal income tax returns for the 2007 and 2008 tax years. In November 2014, $14.9 million of that deposit was refunded to us upon our settlement with the IRS.

We expect the effective tax rate in 2015 to range from 27% to 28%.

<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>Income from unconsolidated operations</td><td>$29.4</td><td>$23.2</td></tr></table>

Income from unconsolidated operations rose $6.2 million in 2014 compared to 2013, which was a 26.7% increase. This increase is attributable to our largest joint venture, McCormick de Mexico, which benefited in 2014 from its transition to a more efficient manufacturing facility and from lower commodity costs.

In 2014, our 50% interest in the McCormick de Mexico joint venture represented 64% of the sales and 91% of the net income of our unconsolidated joint ventures. We own 50% of most of our other unconsolidated joint ventures.



We reported diluted earnings per share of $3.34 in 2014, compared to $2.91 in 2013. The following table outlines the major components of the change in diluted earnings per share from 2013 to 2014:

<table><tr><td>2013 Earnings per share—diluted</td><td>$2.91</td></tr><tr><td>Impact of reduction in special charges and loss on voluntary pension settlement</td><td>0.19</td></tr><tr><td>Increase in adjusted operating income</td><td>0.09</td></tr><tr><td>Impact of lower shares outstanding</td><td>0.07</td></tr><tr><td>Increase in income from unconsolidated operations</td><td>0.04</td></tr><tr><td>Decrease in effective income tax rate</td><td>0.02</td></tr><tr><td>Lower interest expense</td><td>0.02</td></tr><tr><td>2014 Earnings per share—diluted</td><td>$3.34</td></tr></table>

We measure segment performance based on operating income excluding special charges and, in 2013, the loss on voluntary pension settlement as these activities are managed separately from the business segments.

## Consumer Business

<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>Net sales</td><td>$2,625.5</td><td>$2,538.0</td></tr><tr><td>Percent growth</td><td>3.4%</td><td>5.1%</td></tr><tr><td>Components of percent growth in net sales—increase (decrease):</td><td></td><td></td></tr><tr><td>Volume and product mix</td><td>(1.1)%</td><td>1.0%</td></tr><tr><td>Pricing actions</td><td>2.0%</td><td>1.7%</td></tr><tr><td>Acquisitions</td><td>2.9%</td><td>2.5%</td></tr><tr><td>Foreign exchange</td><td>(0.4)%</td><td>(0.1)%</td></tr><tr><td>Operating income, excluding special charges and loss on voluntary pension settlement</td><td>$ 474.3</td><td>$ 472.3</td></tr><tr><td>Operating income margin, excluding special charges and loss on voluntary pension settlement</td><td>18.1%</td><td>18.6%</td></tr></table>

We grew sales in the consumer business 3.4% in 2014 from 2013. This growth rate included a 2.9% increase due to the mid-2013 acquisition of WAPC and a 2.0% increase due to higher price, offset in part by a 1.1% decline in volume and product mix and 0.4% decline from unfavorable foreign exchange rates in 2014 from 2013.

In the Americas, consumer business sales declined 0.7%. Although higher pricing added 1.6%, a decline in volume and product mix reduced sales 1.6% and unfavorable foreign exchange rates reduced sales 0.7%. In the latter part of 2013, our sales growth was hampered as smaller competitors gained category share. This competitive activity persisted in 2014. Throughout 2014, we had actions underway to regain momentum with this part of our business that included additional brand marketing support, accelerated innovation and working with our retail customers to optimize their spices and seasonings and their recipe mix categories while simultaneously increasing sales of our products to these customers. We are making progress and have gained category share in 2014 in recipe mixes, driven in part by new grilling products, gluten-free products and liquid skillet sauces. In 2014, our category share of spices and seasonings had a further decline, although we expect better results in 2015 as we continue with our actions to improve the performance of our consumer business in the Americas.

In EMEA, consumer business sales increased 3.3%, with 2.0% added by pricing and 1.5% added by favorable foreign currency exchange rates. Volume and product mix declined slightly, reducing sales by 0.2%. While we had success with new product introductions, increased brand marketing and distribution gains, economic conditions across the region remained challenging. Our innovation activity in 2014 included the roll-out of Flavour Shots in the U.K., dessert items in France and additional recipe mixes in Poland. In this region, higher brand marketing support was devoted to building awareness and trial of new products, as well as digital marketing.

In the Asia/Pacific region, sales rose 31.2%. Our mid-2013 acquisition of WAPC added 28.2% to net sales, pricing actions added 4.0%, and base business volume and product mix added 2.2%, while unfavorable foreign currency exchange rates lowered sales 3.2%. We achieved a double-digit increase in our base business volume and product mix in China. However, crop shortages of basmati rice led to another year of steep increases in cost and pricing of basmati rice in India during 2014, and a subsequent decline in our sales volume as consumers turned toward lower cost rice varieties.

Consumer business operating income, excluding special charges and, for 2013, loss on voluntary pension settlement, rose 0.4% to $474.3 million from $472.3 million in 2013. Higher sales and CCI cost savings contributed to this profit growth, but were largely offset by higher material costs and a $16.8 million increase in brand marketing support. Operating income margin, excluding the impact of special charges and the 2013 loss on voluntary pension settlement, was 18.1% in 2014 compared to 18.6% in 2013. This reduction was due, in part, to the higher brand marketing support and the mix of business across regions, as sales in international markets grew at a faster rate than in the U.S., where our profit margin is higher due to larger scale and less complexity.

## Industrial Business

<table><tr><td></td><td>2014</td><td>2013</td></tr><tr><td>Net sales</td><td>$1,617.7</td><td>$1,585.4</td></tr><tr><td>Percent change—increase (decrease)</td><td>2.0%</td><td>(0.8)%</td></tr><tr><td>Components of percent change in net sales—increase (decrease):</td><td></td><td></td></tr><tr><td>Volume and product mix</td><td>0.9%</td><td>(1.2)%</td></tr><tr><td>Pricing actions</td><td>1.8%</td><td>1.2%</td></tr><tr><td>Foreign exchange</td><td>(0.7)%</td><td>(0.8)%</td></tr><tr><td>Operating income, excluding special charges and loss on voluntary pension settlement</td><td>$ 133.9</td><td>$ 118.5</td></tr><tr><td>Operating income margin, excluding special charges and loss on voluntary pension settlement</td><td>8.3%</td><td>7.5%</td></tr></table>

We grew sales for the industrial business 2.0% in 2014. Pricing actions taken to offset the impact of higher material costs added 1.8% and volume and product mix added 0.9%. Unfavorable foreign exchange rates decreased sales 0.7%. The growth in volume and product mix was led by sales of snack seasonings in the Americas and sales to quick service restaurants in our EMEA region.

In the Americas, industrial business sales rose 0.4%. Pricing added 1.0% and volume and product mix added 0.3% to sales, offset in part by unfavorable foreign currency exchange rates that lowered sales 0.9%. Innovation and category growth drove increased sales of seasonings for snack products and we also grew sales of branded foodservice items in 2014. However, demand from quick service restaurants was weak in the U.S. in 2014. This weakness is likely to extend into the first part of 2015.



In EMEA, we grew industrial business sales 9.3%, with a 5.0% increase from pricing actions, a 3.2% increase in volume and product mix, and a 1.1% increase from favorable foreign exchange rates. Demand from quick service restaurants remained robust, and we met this demand with products that we supply from our facilities in the U.K., Turkey and South Africa.

In the Asia/Pacific region, industrial business sales declined by 0.5%. While pricing actions added 1.0% and higher volume and product mix added 0.9%, unfavorable foreign exchange rates reduced sales 2.4%. Sales to quick service restaurants in China were adversely impacted by consumer concerns regarding quality issues from a supplier of protein in 2014 and regarding avian flu in 2013. In 2015, we expect demand from these quick service restaurant customers to improve in China as they address these issues and continue to expand the number of restaurant locations.

Industrial business operating income, excluding special charges and, for 2013, loss on voluntary pension settlement, was $133.9 million compared to $118.5 million in 2013. Higher sales, the benefit of CCI cost savings and a more favorable mix of business, more than offset increased material costs and a $2.0 million increase in marketing support for branded foodservice items. Industrial business operating income margin, excluding the impact of special charges and the 2013 loss on voluntary pension settlement, was 8.3% in 2014 compared to 7.5% in 2013.

RESULTS OF OPERATIONS—2013 COMPARED TO 2012

<table><tr><td></td><td>2013</td><td>2012</td></tr><tr><td>Net sales</td><td>$4,123.4</td><td>$4,014.2</td></tr><tr><td>Percent growth</td><td>2.7%</td><td>8.6%</td></tr><tr><td>Components of percent growth in net sales—increase (decrease):</td><td></td><td></td></tr><tr><td>Volume and product mix</td><td>0.1%</td><td>1.4%</td></tr><tr><td>Pricing actions</td><td>1.5%</td><td>4.4%</td></tr><tr><td>Acquisitions</td><td>1.5%</td><td>4.3%</td></tr><tr><td>Foreign exchange</td><td>(0.4)%</td><td>(1.5)%</td></tr></table>

Sales for the fiscal year 2013 rose 2.7% from 2012, with growth in the consumer segment partially offset by a decline in the industrial segment. Pricing actions, taken in response to increased raw material and packaging costs, added 1.5% to sales. The incremental impact of the WAPC acquisition, completed in mid-2013, accounted for a 1.5% increase to sales, and increased volume and product mix in the base business added 0.1% to sales. The impact of foreign exchange rates was unfavorable in 2013, reducing sales by 0.4%.

<table><tr><td></td><td>2013</td><td>2012</td></tr><tr><td>Gross profit</td><td>$1,665.8</td><td>$1,617.8</td></tr><tr><td>Gross profit margin</td><td>40.4%</td><td>40.3%</td></tr></table>

In 2013, gross profit increased 3.0% while gross profit margin rose 10 basis points. We were able to offset the dollar impact of 3% inflation in raw material and packaging costs with our pricing actions and CCI cost savings. In 2013, CCI cost savings totaled $63 million, of which $48 million lowered cost of goods sold.

<table><tr><td></td><td>2013</td><td>2012</td></tr><tr><td>Selling, general &amp; administrative expense (SG&amp;A)</td><td>$1,075.0</td><td>$1,039.5</td></tr><tr><td>Percent of net sales</td><td>26.1%</td><td>25.9%</td></tr></table>

Selling, general and administrative expenses were $1,075.0 million in 2013 compared to $1,039.5 million in 2012, an increase of $35.5 million or 20 basis points as a percentage of net sales. Retirement benefit expense increased $20.0 million in 2013 largely as a result of a lower interest rate environment at the November 30, 2012 pension measurement date which negatively impacted 2013 expense. Of the increase in retirement benefit expense, approximately 60% impacted selling, general and administrative expenses. In addition, we increased our brand marketing support by $9.6 million to $207.8 million in 2013, with about half of the increase in digital marketing, which is one of our highest return investments in brand marketing support.

<table><tr><td></td><td>2013</td></tr><tr><td>Special charges</td><td>$25.0</td></tr><tr><td>Loss on voluntary pension settlement</td><td>15.3</td></tr></table>

In 2013, we announced several reorganization activities in the EMEA region and our expectation that we would record approximately $27 million of cash and non-cash charges related to this plan. For 2013, we recorded $25.0 million of special charges, with $15.9 million related to employee severance, $6.4 million for asset write-downs and $2.7 million for other exit costs. We expect to complete the implementation of this plan in 2015. See note 3 of the financial statements for additional information.

In addition to the $25.0 million in special charges outlined above, we recorded a loss on voluntary pension settlement of $15.3 million in 2013 for the settlement of a portion of our U.S. defined benefit obligation, which reduced the size of our pension obligation and should reduce potential pension volatility in the future. The settlement charge relates to a lump sum distribution elected by certain former U.S. employees in exchange for their deferred vested pension plan benefits. This lump sum payout program was completed in 2013. See note 10 of the financial statements for additional information.

<table><tr><td></td><td>2013</td><td>2012</td></tr><tr><td>Interest expense</td><td>$53.3</td><td>$54.6</td></tr><tr><td>Other income, net</td><td>2.2</td><td>2.4</td></tr></table>

Interest expense for 2013 was lower than the prior year. Most of this decrease is due to the impact of lower average debt balances for 2013 compared to 2012, and was partially aided by slightly lower average interest rates in 2013. The higher average debt balances in 2012 were due to the acquisitions completed late in 2011.

<table><tr><td></td><td>2013</td><td>2012</td></tr><tr><td>Income from consolidated operations before income taxes</td><td>$499.4</td><td>$526.1</td></tr><tr><td>Income taxes</td><td>133.6</td><td>139.8</td></tr><tr><td>Effective tax rate</td><td>26.8%</td><td>26.6%</td></tr></table>

Discrete tax benefits in 2013 were $3.9 million compared to $2.0 million in 2012. The increase in 2013 was due to the 2013 recognition of a 2012 U.S. research tax credit and reversal of valuation allowances for two subsidiaries originally established against net operating losses. A new law was enacted in 2013 that retroactively granted the research tax credit in 2012.

Tax expense for 2012 benefited from U.S. foreign tax credits that reduced tax expense by $9.7 million due to the repatriation of $70 million of cash from foreign subsidiaries. While no such benefit or repatriation occurred in 2013, tax expense in 2013 as a percentage of pre-tax income approximated the 2012 level due primarily to certain favorable



items in 2013, which included the utilization of non-U.S. operating losses, lower state and local income taxes, and the inclusion of the U.S. research tax credit for 2013, as well as the increase in discrete tax benefits described above.

In addition, see note 12 of the financial statements for a reconciliation of the U.S. federal statutory tax rate with the effective tax rate.

<table><tr><td></td><td>2013</td><td>2012</td></tr><tr><td>Income from unconsolidated operations</td><td>$23.2</td><td>$21.5</td></tr></table>

Income from unconsolidated operations increased $1.7 million in 2013 compared to 2012. Most of this increase was attributable to our largest joint venture, McCormick de Mexico, through strong sales growth, along with improved performance by our Eastern Condiments joint venture in India.

In 2013, our McCormick de Mexico joint venture represented 63% of the sales and 78% of the net income of our unconsolidated joint ventures.

We reported diluted earnings per share of $2.91 in 2013, compared to $3.04 in 2012. The following table outlines the major components of the change in diluted earnings per share from 2012 to 2013:

<table><tr><td>2012 Earnings per share—diluted</td><td>$ 3.04</td></tr><tr><td>Impact of special charge and loss on voluntary pension settlement</td><td>(0.22)</td></tr><tr><td>Increase in adjusted operating income</td><td>0.06</td></tr><tr><td>Impact of lower shares outstanding</td><td>0.02</td></tr><tr><td>Increase in income from unconsolidated operations</td><td>0.01</td></tr><tr><td>Increase in effective income tax rate</td><td>(0.01)</td></tr><tr><td>Lower interest expense</td><td>0.01</td></tr><tr><td>2013 Earnings per share—diluted</td><td>$ 2.91</td></tr></table>

We measure segment performance based on operating income excluding special charges and the loss on a voluntary pension settlement as these activities are managed separately from the business segments.

## Consumer Business

<table><tr><td></td><td>2013</td><td>2012</td></tr><tr><td>Net sales</td><td>$2,538.0</td><td>$2,415.3</td></tr><tr><td>Percent growth</td><td>5.1%</td><td>9.8%</td></tr><tr><td>Components of percent growth in net sales—increase (decrease):</td><td></td><td></td></tr><tr><td>Volume and product mix</td><td>1.0%</td><td>0.3%</td></tr><tr><td>Pricing actions</td><td>1.7%</td><td>3.7%</td></tr><tr><td>Acquisitions</td><td>2.5%</td><td>7.2%</td></tr><tr><td>Foreign exchange</td><td>(0.1)%</td><td>(1.4)%</td></tr><tr><td>Operating income, excluding special charges and loss on voluntary pension settlement</td><td>$ 472.3</td><td>$ 456.1</td></tr><tr><td>Operating income margin, excluding special charges and loss on voluntary pension settlement</td><td>18.6%</td><td>18.9%</td></tr></table>

We grew sales in the consumer business 5.1% in 2013 from 2012, which included a 2.5% increase due to the mid-2013 acquisition of WAPC, a 1.7% increase due to higher price, and a 1.0% increase from higher volumes and improved product mix. The effect of foreign exchange rates in 2013 from 2012 was slightly unfavorable, reducing sales by 0.1%.
In the Americas, consumer business sales rose 2.4%, with volume and product mix adding 1.7%, higher pricing adding 0.9% and unfavorable foreign exchange rates lowering sales by 0.2%. Higher volume and product mix was the result of new product introductions and increased brand marketing. In 2013, our new product launches included grilling items, premium recipe mixes, authentic Hispanic rice mixes and new varieties of Lawry's, Zatarain's and Simply Asia brand products in the U.S. In Canada, we had particular success with gluten-free gravy mixes, introduced new grilling items and imported products from our business in China and affiliate in the Philippines. Across the Americas region, a portion of our incremental brand marketing support was in support of our new products and seasonal events. We also increased our digital marketing activity, which offers a more personalized way to interact with consumers. While we made good progress with these growth initiatives which contributed to strong consumer demand for spices and seasonings throughout 2013, our U.S. sales slowed in the second half of the year. During this period, private label and smaller competitors gained category share. In 2014, we had actions underway to regain momentum with this part of our business that include a significant increase in brand marketing support, accelerated innovation and improved agility in the marketplace.

In EMEA, consumer business sales increased 3.3%, with pricing and favorable foreign currency exchange rates each adding 1.3%, and higher volume and product mix adding 0.7%. While we had success with new product introductions, increased brand marketing and distribution gains, economic conditions across the region remained challenging. Our innovation in 2013 included the development and introduction of recipe mixes in France and Poland, the launch of grilling items in a number of markets, and new varieties of Vahiné brand dessert items. As in the Americas, higher brand marketing support was devoted to building awareness and trial of new products and towards digital marketing.

In the Asia/Pacific region, sales rose 32.6%. The impact of our 2013 acquisition of WAPC added 30.6% to net sales, pricing added 10.0%, base business volume and product mix declined 4.7% and unfavorable foreign currency exchange rates lowered sales by 3.3%. We achieved a double-digit increase in our base business volume and product mix in China. However, crop shortages of basmati rice led to a steep increase in cost and pricing of basmati rice in India during 2013, and a subsequent decline in our sales volume as consumers turned toward lower cost rice varieties.

Consumer business operating income, excluding special charges and loss on voluntary pension settlement, rose to $472.3 million from $456.1 million in 2012, a 3.6% increase. The growth in operating income was the result of higher sales and CCI savings, offset, in part, by higher retirement benefit expense, a $6.9 million increase in brand marketing support, $4.3 million of transaction costs related to the acquisition of WAPC and higher material costs. Operating income margin, excluding the impact of special charges and loss on voluntary pension settlement, was 18.6% in 2013 compared to 18.9% in 2012. This reduction was due, in part, to the mix of business across regions, as sales in international markets grew at a faster rate than in the U.S., where our profit margin is higher due to larger scale and less complexity.



## Industrial Business

<table><tr><td></td><td>2013</td><td>2012</td></tr><tr><td>Net sales</td><td>$1,585.4</td><td>$1,598.9</td></tr><tr><td>Percent change—increase (decrease)</td><td>(0.8)%</td><td>6.8%</td></tr><tr><td>Components of percent change in net sales—increase (decrease):</td><td></td><td></td></tr><tr><td>Volume and product mix</td><td>(1.2)%</td><td>3.1%</td></tr><tr><td>Pricing actions</td><td>1.2%</td><td>5.3%</td></tr><tr><td>Foreign exchange</td><td>(0.8)%</td><td>(1.6)%</td></tr><tr><td>Operating income, excluding special charges and loss on voluntary pension settlement</td><td>$ 118.5</td><td>$ 122.2</td></tr><tr><td>Operating income margin, excluding special charges and loss on voluntary pension settlement</td><td>7.5%</td><td>7.6%</td></tr></table>

Sales for the industrial business declined 0.8% in 2013. Pricing actions taken to offset the impact of higher material costs added 1.2%, while volume and product mix lowered sales by 1.2% and unfavorable foreign exchange rates decreased sales 0.8%. The decline in volume and product mix was largely attributable to weak demand from quick service restaurants in the U.S. and China. In the U.S., sales to quick service restaurants were impacted by lower restaurant traffic and customer emphasis on menu items for which McCormick is not a leading supplier. In China, consumer concerns, including avian flu, led to reduced demand for poultry throughout most of 2013. As a leading supplier of coatings and seasonings for chicken, this adversely impacted our sales in 2013.

In the Americas, industrial business sales declined 1.7%. While pricing added 1.2% to sales and favorable foreign currency exchange rates added 0.1%, lower volume and product mix reduced sales 3.0%. Innovation and category growth drove increased sales of seasonings for snack products and sales of branded foodservice items were steady in 2013. However, as indicated, demand from quick service restaurants was weak in the U.S. in 2013.

In EMEA, industrial business sales rose 1.4%, with a 3.9% increase in volume and product mix as well as a 2.0% increase from pricing actions. These increases were partially offset by unfavorable foreign exchange rates that reduced sales by 4.5%. Demand from quick service restaurants remained robust, and we met this demand with products that we supply from our facilities in the U.K., Turkey and South Africa.

Industrial business sales in the Asia/Pacific region rose slightly, increasing by 0.2%. Higher volume and product mix added 0.6% and was largely offset by lower pricing of 0.1% and unfavorable foreign exchange rates of 0.3%. Product innovation in other parts of the region largely offset the weaker demand from quick service restaurants in China that was previously described. By the end of our fiscal year 2013, the situation in China had improved.
Industrial business operating income, excluding special charges and loss on voluntary pension settlement, was $118.5 million compared to $122.2 million in 2012. The benefit of CCI cost savings was more than offset by higher retirement benefit expense, increased material costs and a $2.7 million increase in marketing support for branded foodservice items. Industrial business operating income margin, excluding the impact of special charges and loss on voluntary pension settlement, was 7.5% in 2013 compared to 7.6% in 2012.

## NON-GAAP FINANCIAL MEASURES

The tables below include financial measures of adjusted operating income, adjusted net income and adjusted diluted earnings per share, each excluding the impact of special charges in 2014 and 2013, and loss on voluntary pension settlement in 2013. There were no adjustments to 2012 financial results. These represent non-GAAP financial measures, which are prepared as a complement to our financial results prepared in accordance with United States generally accepted accounting principles. We believe this non-GAAP information is important for purposes of comparison to prior periods and development of future projections and earnings growth prospects. This information is also used by management to measure the profitability of our ongoing operations and analyze our business performance and trends.

Special charges of $5.2 million were recorded in 2014 to enable us to implement changes to our organization structure in order to reduce fixed costs, simplify or improve processes, and improve our competitiveness. Of the $5.2 million of special charges recorded in 2014, $2.1 million related to actions undertaken with respect to the EMEA reorganization announced in 2013, $1.3 million related to the realignment of manufacturing activities in the U.S. industrial business, and $1.1 million and $0.7 million related to the elimination of administrative and/or manufacturing positions in the consumer and industrial businesses in the U.S. and Australia, respectively.

In 2013, we recorded $25.0 million of special charges related to reorganization activities in the EMEA region and $15.3 million of loss on voluntary pension settlement related to our U.S. pension plan for a lump sum distribution to former employees in exchange for their deferred vested pension plan benefits.

We are treating these special charges and loss on voluntary pension settlement as adjustments to our operating income, net income and diluted earnings per share. We are providing non-GAAP results that exclude the impact of these special charges and loss on voluntary pension settlement as it allows for a better comparison of 2014 financial results to 2013 and 2012. See notes 3 and 10 of the financial statements for additional information on the special charges and the loss on voluntary pension settlement, respectively.



These non-GAAP measures may be considered in addition to results prepared in accordance with GAAP, but they should not be considered a substitute for, or superior to, GAAP results. We intend to continue to provide these non-GAAP financial measures as part of our future earnings discussions and, therefore, the inclusion of these non-GAAP financial measures will provide consistency in our financial reporting. A reconciliation of these non-GAAP measures to GAAP financial results is provided below.

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Operating income</td><td>$603.0</td><td>$550.5</td><td>$578.3</td></tr><tr><td>Impact of special charges and loss on voluntary pension settlement</td><td>5.2</td><td>40.3</td><td>—</td></tr><tr><td>Adjusted operating income</td><td>$608.2</td><td>$590.8</td><td>$578.3</td></tr><tr><td>% increase versus prior year</td><td>2.9%</td><td>2.2%</td><td>7.0%</td></tr><tr><td>Net income</td><td>$437.9</td><td>$389.0</td><td>$407.8</td></tr><tr><td>Impact of special charges and loss on voluntary pension settlement</td><td>3.7</td><td>29.2</td><td>—</td></tr><tr><td>Adjusted net income</td><td>$441.6</td><td>$418.2</td><td>$407.8</td></tr><tr><td>% increase versus prior year</td><td>5.6%</td><td>2.6%</td><td>9.0%</td></tr><tr><td>Earnings per share—diluted</td><td>$ 3.34</td><td>$ 2.91</td><td>$ 3.04</td></tr><tr><td>Impact of special charges and loss on voluntary pension settlement</td><td>0.03</td><td>0.22</td><td>—</td></tr><tr><td>Adjusted earnings per share—diluted</td><td>$ 3.37</td><td>$ 3.13</td><td>$ 3.04</td></tr><tr><td>% increase versus prior year</td><td>7.7%</td><td>3.0%</td><td>9.0%</td></tr></table>

In addition to the above non-GAAP measures, we use total debt to adjusted earnings before interest, tax, depreciation and amortization (adjusted EBITDA) as a measure of leverage. We define adjusted EBITDA as net income plus expenses of interest, income taxes, depreciation and amortization, special charges and loss on voluntary pension settlement. Adjusted EBITDA and the ratio of total debt to adjusted EBITDA are both non-GAAP financial measures. This ratio measures our ability to repay outstanding debt obligations. Our target for total debt to adjusted EBITDA, excluding the temporary impact from acquisition activity, is 1.5 to 1.8. We believe that total debt to adjusted EBITDA is a meaningful metric to investors in evaluating our financial leverage and may be different than the method used by other companies to calculate total debt to adjusted EBITDA.

The following table reconciles our adjusted EBITDA to our net income:

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Net income</td><td>$ 437.9</td><td>$ 389.0</td><td>$ 407.8</td></tr><tr><td>Special charges and loss on voluntary pension settlement</td><td>5.2</td><td>40.3</td><td>—</td></tr><tr><td>Depreciation and amortization</td><td>102.7</td><td>106.0</td><td>102.8</td></tr><tr><td>Interest expense</td><td>49.7</td><td>53.3</td><td>54.6</td></tr><tr><td>Income tax expense</td><td>145.9</td><td>133.6</td><td>139.8</td></tr><tr><td>Adjusted EBITDA</td><td>$ 741.4</td><td>$ 722.2</td><td>$ 705.0</td></tr><tr><td>Total debt</td><td>$1,284.9</td><td>$1,233.1</td><td>$1,171.8</td></tr><tr><td>Total debt/adjusted EBITDA</td><td>1.73</td><td>1.71</td><td>1.66</td></tr></table>

## LIQUIDITY AND FINANCIAL CONDITION

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Net cash provided by operating activities</td><td>$ 503.6</td><td>$ 465.2</td><td>$ 455.0</td></tr><tr><td>Net cash used in investing activities</td><td>(131.6)</td><td>(239.7)</td><td>(109.0)</td></tr><tr><td>Net cash used in financing activities</td><td>(348.9)</td><td>(245.9)</td><td>(324.3)</td></tr></table>

We generate strong cash flow from operations which enables us to fund operating projects and investments that are designed to meet our growth objectives, increase our dividend, fund capital projects and make share repurchases when appropriate. In 2015, we expect to continue our share repurchase activity and fund all or a portion of possible future acquisitions with cash flow from operations.

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

The reported values of our assets and liabilities held in our non-U.S. subsidiaries and affiliates can be significantly affected by fluctuations in foreign exchange rates between periods. At November 30, 2014, the exchange rates for the Euro, British pound sterling, Canadian dollar, Polish zloty and Australian dollar were lower versus the U.S. dollar than at November 30, 2013.

Operating Cash Flow—Operating cash flow was $503.6 million in 2014, $465.2 million in 2013 and $455.0 million in 2012. The variability between years is due in part to changes in pension contributions, which were $16.8 million in 2014, $42.7 million in 2013 and $104.3 million in 2012. These contributions include payments to unfunded plans. We did not make any contribution to our major U.S. pension plan in 2014 as the plan was already within our company funding guidelines. The change in inventory also had an impact on the variability in cash flow from operations, as it was a use of cash in 2014 and 2013 and a modest source of cash in 2012. Higher adjusted net income, which excludes the impact of special charges in 2014 and 2013 and the loss on voluntary pension settlement in 2013, in 2014 compared to 2013 and in 2013 compared to 2012 was also a factor in the increased cash flow from operations in 2014 and in 2013, respectively.

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:

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Cash Conversion Cycle</td><td>91.4</td><td>84.8</td><td>82.1</td></tr></table>

The increase in CCC from 2013 to 2014 is mainly due to an increase in our days in inventory as a result of increased strategic raw material inventory. In the future, we expect to reduce CCC by decreasing our days in inventory. The increase in CCC from 2012 to 2013 is due to an increase in our days sales outstanding and a decrease in our days payable outstanding. The increase in days sales outstanding was due in part to a greater customer response in 2013 to our U.S. holiday display program, which includes extended terms, than in 2012.

Investing Cash Flow—Net cash used in investing activities was $131.6 million in 2014, $239.7 million in 2013 and $109.0 million in 2012. The variability between years is principally a result of cash usage related to our acquisitions of businesses and joint venture interests, which amounted to $142.3 million in 2013. We made no acquisitions in either 2014 or 2012. See note 2 of the financial statements for further details related to the 2013 acquisition. Capital expenditures were $132.7 million in 2014, $99.9 million in 2013 and $110.3 million in 2012. We expect 2015 capital expenditures to range between $130 million and $140 million.

Financing Cash Flow—Net cash used in financing activities was $348.9 million in 2014, $245.9 million in 2013 and $324.3 million in 2012. The variability between years is principally a result of share repurchase and dividend activity, described below, and of changes in our net borrowing activity. In 2014 and 2013, our net borrowing activity provided cash of $56.1 million and $66.7 million, respectively. In 2013, we received net cash proceeds of $246.2 million from our issuance of $250 million of 3.50% notes due 2023. We used these net proceeds, together with cash on hand, to repay $250 million of maturing 5.25% notes and $1.4 million of other long-term debt, and we increased our net short-term borrowings by $71.9 million in 2013. In 2012, our net borrowing activity used cash of $80.5 million, due principally to a $76.6 million net reduction in short-term borrowings.

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

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Number of shares of common stock</td><td>3.6</td><td>2.7</td><td>2.4</td></tr><tr><td>Dollar amount</td><td>$244.3</td><td>$177.4</td><td>$132.2</td></tr></table>

As of November 30, 2014, $116 million remained of a $400 million share repurchase program that was authorized by our Board of Directors in April 2013. During the fourth quarter of 2013, we completed a previous $400 million share repurchase program that had been authorized in June 2010.

The common stock issued in 2014, 2013 and 2012 relates to our stock compensation plans.
Our dividend history over the past three years is as follows:

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Total dividends paid</td><td>$192.4</td><td>$179.9</td><td>$164.7</td></tr><tr><td>Dividends paid per share</td><td>1.48</td><td>1.36</td><td>1.24</td></tr><tr><td>Percentage increase per share</td><td>8.8%</td><td>9.7%</td><td>10.7%</td></tr></table>

In November 2014, the Board of Directors approved an 8.1% increase in the quarterly dividend from $0.37 to $0.40 per share. During the past five years, dividends per share have risen at a compound annual rate of 9.0%.

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Total debt/adjusted EBITDA</td><td>1.73</td><td>1.71</td><td>1.66</td></tr></table>

For 2014, our total debt has increased slightly over the prior year to bring the ratio of total debt to adjusted EBITDA to 1.73. The increase was due to higher short-term borrowings to fund strategic purchases of inventory. The changes in our total debt to adjusted EBITDA from 2012 to 2013 are mainly due to changes in our debt in conjunction with acquisition activity and the subsequent reduction of that debt. In 2011, we increased our debt levels to help fund our Kohinoor, Kamis and Kitchen Basics \( ^{®} \)  acquisitions. During 2012, the debt associated with these acquisitions was reduced to bring our total debt to adjusted EBITDA within our target range of 1.5 to 1.8. For 2013, our EBITDA is lower due to the impact of the special charges and loss on voluntary pension settlement. Excluding the impact of special charges and loss on voluntary pension settlement, adjusted EBITDA for 2013 was $722.2 million and the ratio of total debt to adjusted EBITDA was 1.71.

Most of our cash is in our foreign subsidiaries. We manage our worldwide cash requirements by considering available funds among the many subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. The permanent repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences; however, those balances are generally available without legal restrictions to fund ordinary business operations, capital projects and future acquisitions. At November 30, 2014, we temporarily used $201.4 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, 2014 and 2013 were $423.7 million and $390.7 million, respectively. The total average debt outstanding for the years ended November 30, 2014 and 2013 was $1,428.7 million and $1,395.7 million, respectively.

In November 2012 and in April and August 2013, we entered into a total of $175 million of forward-starting interest rate swap and Treasury rate lock agreements to manage our interest rate risk associated with the anticipated issuance of fixed rate notes in August 2013. We cash settled all of these agreements, which were designated as cash flow hedges, for a gain of $9.0 million simultaneous with the issuance of the notes at an all-in effective fixed rate of 3.30% on the full $250 million of debt. The gain on these agreements is deferred in accumulated other comprehensive income and will be amortized to reduce interest expense over the life of the notes. Hedge ineffectiveness of these agreements was not material.

See notes 6 and 7 of the financial statements for further details of these transactions.



Credit and Capital Markets—Global credit and capital markets continued to improve in 2014. 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.

Our major revolving credit facility has a total committed capacity of $600 million, which expires in 2016. We generally use this facility to support our issuance of commercial paper. If the commercial paper market is not available or viable, we could borrow directly under our revolving credit facility. The facility is made available by a syndicate of banks, with various commitments per bank. If any of the banks in this syndicate are unable to perform on their commitments, our liquidity could be impacted, which could reduce our ability to grow through funding of seasonal working capital. In addition to our committed revolving credit facility, we have uncommitted credit facilities for $125.4 million as of November 30, 2014, that will expire in 2015. We engage in regular communication with all of the banks participating in our credit facilities. During these communications, none of the banks have indicated that they may be unable to perform on their commitments. In addition, we periodically review our banking and financing relationships, considering the stability of the institutions and other aspects of the relationships. Based on these communications and our monitoring activities, we believe our banks will perform on their commitments. See also note 6 of the financial statements for more details on our financing arrangements. We believe that our internally generated funds and the existing sources of liquidity under our credit facilities are sufficient to fund ongoing operations.

PENSION ASSETS 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 non-qualified defined benefit pension plan. Cash payments to pension plans, including unfunded plans, were $16.8 million in 2014, $42.7 million in 2013 and $104.3 million in 2012. Our cash contributions in 2012 included a $35 million contribution made late in that fiscal year to bring the pension plan’s funding status within our company guidelines. It is expected that the 2015 total pension plan contributions will be approximately $16 million primarily for international plans. Future increases or decreases in pension liabilities and required cash contributions are highly dependent on changes in interest rates and the actual return on plan assets. We base our investment of plan assets, in part, on the duration of each plan’s liabilities. Across all of our qualified defined benefit pension plans, approximately 66% of assets are invested in equities, 25% in fixed income investments and 9% in other investments. Assets in the rabbi trust are primarily invested in corporate-owned life insurance, the value of which approximates an investment mix of approximately 50% in equities and 50% in fixed income investments. See also note 10 of the financial statements, which provides details on our pension funding.

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

## ACQUISITIONS

Acquisitions are part of our strategy to increase sales and profits. We have a particular interest in emerging markets.

In 2013, we purchased the assets of Wuhan Asia-Pacific Condiments Co. Ltd. (WAPC), a privately held company based in China, for $144.8 million, which included $142.3 million of cash paid, net of closing adjustments, and the assumption of $2.5 million of liabilities. The acquisition was financed with a combination of cash and debt. WAPC, included in our consumer business segment, manufactures and markets DaQiao and ChuShiLe \( ^{®} \)  brand bouillon products, which have a leading position in the central region of China.

See note 2 of the financial statements for further details of this acquisition.

## PERFORMANCE GRAPH—SHAREHOLDER RETURN

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



*$100 invested on 11/30/09 in stock or index, including reinvestment of dividends. Fiscal year ending November 30.

Copyright © 2014 S&P, a division of The McGraw-Hill Companies, Inc. All rights reserved.

## MARKET RISK SENSITIVITY

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



Foreign Exchange Risk—We are exposed to fluctuations in foreign currency in the following main areas: cash flows related to raw material purchases; the translation of foreign currency earnings to U.S. dollars; the value of foreign currency investments in subsidiaries and unconsolidated affiliates and cash flows related to repatriation of these investments. Primary exposures include the U.S. dollar versus the Euro, British pound sterling, Canadian dollar, Polish zloty, Australian dollar, Mexican peso, Chinese renminbi, Indian rupee, Thai baht and Swiss franc, as well as the British pound sterling versus the Euro. We routinely enter into foreign currency exchange contracts to manage certain of these foreign currency risks.

During 2014, the foreign currency translation component in other comprehensive income was principally related to the impact of exchange rate fluctuations on our net investments in France, the U.K., Poland, Canada and Australia. We did not hedge our net investments in subsidiaries and unconsolidated affiliates.

The following table summarizes the foreign currency exchange contracts held at November 30, 2014. All contracts are valued in U.S. dollars using year-end 2014 exchange rates and have been designated as hedges of foreign currency transactional exposures, firm commitments or anticipated transactions.

## FOREIGN CURRENCY EXCHANGE CONTRACTS AT
NOVEMBER 30, 2014

<table><tr><td>Currency sold</td><td>Currency received</td><td>Notional value</td><td>Average contractual exchange rate</td><td>Fair value</td></tr><tr><td>Euro</td><td>U.S. dollar</td><td>$22.5</td><td>1.27</td><td>$0.4</td></tr><tr><td>British pound sterling</td><td>U.S. dollar</td><td>11.7</td><td>1.68</td><td>0.9</td></tr><tr><td>Canadian dollar</td><td>U.S. dollar</td><td>35.8</td><td>0.93</td><td>2.1</td></tr><tr><td>Australian dollar</td><td>U.S. dollar</td><td>3.3</td><td>0.91</td><td>0.2</td></tr><tr><td>Polish zloty</td><td>U.S. dollar</td><td>9.5</td><td>3.19</td><td>0.5</td></tr><tr><td>U.S. dollar</td><td>Canadian dollar</td><td>59.5</td><td>0.89</td><td>(1.0)</td></tr><tr><td>U.S. dollar</td><td>Euro</td><td>28.0</td><td>1.25</td><td>(0.1)</td></tr><tr><td>U.S. dollar</td><td>British pound sterling</td><td>39.1</td><td>1.57</td><td>(0.2)</td></tr><tr><td>U.S. dollar</td><td>Mexican peso</td><td>14.4</td><td>13.67</td><td>0.3</td></tr><tr><td>British pound sterling</td><td>Euro</td><td>26.2</td><td>0.80</td><td>—</td></tr></table>

We have a number of smaller contracts with an aggregate notional value of $12.7 million to purchase or sell other currencies, such as the Swiss franc and the Thai baht, as of November 30, 2014. The aggregate fair value of these contracts was $0.4 million at November 30, 2014.

Included in the table above are $127.1 million notional value of contracts that have durations of less than seven days that are used to hedge short-term cash flow funding. Remaining contracts have durations of one to 12 months.

At November 30, 2013, we had foreign currency exchange contracts for the Euro, British pound sterling, Canadian dollar, Australian dollar and Polish zloty with a notional value of $204.9 million, all of which matured in 2014. The aggregate fair value of these contracts was $0.5 million at November 30, 2013.

Interest Rate Risk—Our policy is to manage interest rate risk by entering into both fixed and variable rate debt arrangements. We also use interest rate swaps to minimize worldwide financing costs and to achieve a desired mix of fixed and variable rate debt. The table that follows provides principal cash flows and related interest rates, excluding the effect of interest rate swaps and the amortization of any discounts or fees, by fiscal year of maturity at November 30, 2014. For foreign currency-denominated debt, the information is presented in U.S. dollar equivalents. Variable interest rates are based on the weighted-average rates of the portfolio at the end of the year presented.

YEAR OF MATURITY AT NOVEMBER 30, 2014

<table><tr><td></td><td>2015</td><td>2016</td><td>2017</td><td>2018</td><td>Thereafter</td><td>Total</td><td>Fair value</td></tr><tr><td>Debt</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fixed rate</td><td>$ 0.9</td><td>$200.2</td><td>$ 0.2</td><td>$250.2</td><td>$556.3</td><td>$1,007.8</td><td>$1,103.3</td></tr><tr><td>Average interest rate</td><td>6.90%</td><td>5.21%</td><td>11.94%</td><td>5.76%</td><td>4.14%</td><td>—</td><td>—</td></tr><tr><td>Variable rate</td><td>$269.9</td><td>$ 0.4</td><td>$ 0.5</td><td>$ 0.5</td><td>$ 4.0</td><td>$ 275.3</td><td>$ 275.3</td></tr><tr><td>Average interest rate</td><td>1.28%</td><td>8.79%</td><td>8.79%</td><td>8.79%</td><td>8.79%</td><td>—</td><td>—</td></tr></table>

The table above displays the debt by the terms of the original debt instrument without consideration of fair value, interest rate swaps and any loan discounts or origination fees. Interest rate swaps have the following effects. The fixed interest rate on $100 million of the 5.20% notes due in December 2015 is effectively converted to a variable rate by interest rate swaps through 2015. Net interest payments are based on 3 month LIBOR minus 0.05% during this period. We issued $250 million of 5.75% notes due in December 2017 in December 2007. Forward treasury lock agreements of $150 million were settled upon the issuance of these notes and effectively fixed the interest rate on the full $250 million of notes at a weighted-average fixed rate of 6.25%. We issued $250 million of 3.90% notes due in 2021 in July 2011. Forward treasury lock agreements of $200 million were settled upon the issuance of these notes and effectively fixed the interest rate on the full $250 million of notes at a weighted-average fixed rate of 4.01%. We issued $250 million of 3.50% notes due in 2023 in August 2013. Forward treasury lock agreements of $175 million were settled upon the issuance of these notes and effectively fixed the interest rate on the full $250 million of notes at a weighted-average fixed rate of 3.30%.

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 2014, our most significant raw materials were pepper, dairy products, rice, capsciums (red peppers and paprika), onion, garlic and wheat flour. While future movements of raw material costs are uncertain, we respond to this volatility in a number of ways, including strategic raw material purchases, purchases of raw material for future delivery and customer price adjustments. We generally have not used derivatives to manage the volatility related to this risk. To the extent that we have used derivatives for this purpose, it has not been material to our business.

Credit Risk—The customers of our consumer business are predominantly food retailers and food wholesalers. Consolidations in these industries have created larger customers. In addition, competition has increased with the growth in alternative channels including mass merchandisers, dollar stores, warehouse clubs and discount chains. This has caused some customers to be less profitable and increased our exposure to credit risk. Some of our customers and counterparties are highly leveraged. We continue to closely monitor the credit worthiness of our customers and counterparties. We feel that the allowance for doubtful accounts properly recognizes trade receivables at realizable value. We consider nonperformance credit risk for other financial instruments to be insignificant.



## CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table reflects a summary of our contractual obligations and commercial commitments as of November 30, 2014:

## CONTRACTUAL CASH OBLIGATIONS DUE BY YEAR

<table><tr><td></td><td>Total</td><td>Less than 1 year</td><td>1-3 years</td><td>3-5 years</td><td>More than 5 years</td></tr><tr><td>Short-term borrowings</td><td>$ 269.6</td><td>$269.6</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Long-term debt</td><td>1,013.5</td><td>1.2</td><td>$201.3</td><td>$251.5</td><td>$559.5</td></tr><tr><td>Operating leases</td><td>92.3</td><td>23.4</td><td>31.5</td><td>19.8</td><td>17.6</td></tr><tr><td>Interest payments</td><td>252.7</td><td>43.2</td><td>78.1</td><td>53.7</td><td>77.7</td></tr><tr><td>Raw material purchase obligations \( ^{(a)} \)</td><td>377.0</td><td>377.0</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Other purchase obligations \( ^{(b)} \)</td><td>16.7</td><td>16.7</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Total contractual cash obligations</td><td>$2,021.8</td><td>$731.1</td><td>$310.9</td><td>$325.0</td><td>$654.8</td></tr></table>

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

(b) Other purchase obligations primarily consist of advertising media commitments and electricity contracts.

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

## COMMERCIAL COMMITMENTS EXPIRATION BY YEAR

<table><tr><td></td><td>Total</td><td>Less than 1 year</td><td>1-3 years</td><td>3-5 years</td><td>More than 5 years</td></tr><tr><td>Guarantees</td><td>$0.6</td><td>$0.6</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Standby letters of credit</td><td>8.1</td><td>8.1</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Total commercial commitments</td><td>$8.7</td><td>$8.7</td><td>—</td><td>—</td><td>—</td></tr></table>

## OFF-BALANCE SHEET ARRANGEMENTS

We had no off-balance sheet arrangements as of November 30, 2014 and 2013.

## RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

## CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

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

## Customer Contracts

In several of our major geographic markets, the consumer business sells our products by entering into annual or multi-year customer contracts. These contracts include provisions for items such as sales discounts, marketing allowances and performance incentives. These items are 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 intangible assets and conduct tests of impairment on an annual basis as described below. We also test for impairment if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is below its carrying amount. We test indefinite-lived intangible assets for impairment if events or changes in circumstances indicate that the asset might be impaired.

Determining the fair value of a reporting unit or an indefinite-lived purchased intangible asset is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, assumed royalty rates, future economic and market conditions and determination of



appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but that are inherently uncertain. Actual future results may differ from those estimates.

## Goodwill Impairment

Our reporting units are the same as our operating segments. We calculate fair value of a reporting unit by using a discounted cash flow model. Our discounted cash flow model calculates fair value by present valuing future expected cash flows of our reporting units using our internal cost of capital as the discount rate. We then compare this fair value to the carrying amount of the reporting unit, including intangible assets and goodwill. If the carrying amount of the reporting unit exceeds the calculated fair value, then we would determine the implied fair value of the reporting unit's goodwill. An impairment charge would be recognized to the extent the carrying amount of goodwill exceeds the implied fair value. As of November 30, 2014, we had $1,722.2 million of goodwill recorded in our balance sheet ($1,581.1 million in the consumer segment and $141.1 million in the industrial segment). Our testing indicates that the current fair values of our reporting units are significantly in excess of carrying values. Accordingly we believe that only significant changes in the cash flow assumptions would result in an impairment of goodwill.

## Indefinite-lived Intangible Asset Impairment

Our indefinite-lived intangible assets consist of brand names and trademarks. We calculate fair value by using a relief-from-royalty method or discounted cash flow model and then compare that to the carrying amount of the indefinite-lived intangible asset. As of November 30, 2014, we had $270.8 million of brand name assets and trademarks recorded in our balance sheet and none of the balances exceed their calculated fair values. At November 30, 2014, the percentage excess of calculated fair value over book value of our major brand names and trademarks ranges from a low of 8% to a high of over 70%. While we believe that it is reasonably possible that, in the event of an increase in discount rates and/or a decline in forecasted revenues, a non-cash impairment charge may be required, we do not believe that the amount of such an impairment charge would be significant. At November 30, 2014, a hypothetical 15% reduction in the calculated fair values of our major brand names and trademarks would result in an impairment charge for only one of our major brand names and trademarks and that impairment charge would be approximately $1.5 million. We intend to continue to support our brand names and trademarks.

Below is a table which outlines the book value of our major brand names and trademarks as of November 30, 2014:

<table><tr><td>Zatarain&#x27;s</td><td>$106.4</td></tr><tr><td>Lawry&#x27;s</td><td>48.0</td></tr><tr><td>Kamis</td><td>37.5</td></tr><tr><td>DaQiao/ChuShiLe</td><td>28.4</td></tr><tr><td>Kohinoor</td><td>18.8</td></tr><tr><td>Simply Asia/Thai Kitchen</td><td>18.6</td></tr><tr><td>Other</td><td>13.1</td></tr><tr><td>Total</td><td>$270.8</td></tr></table>

## Income Taxes

We estimate income taxes and file tax returns in each of the taxing jurisdictions in which we operate and are required to file a tax return. At the end of each year, an estimate for income taxes is recorded in the financial statements. Tax returns are generally filed in the third or fourth quarter of the subsequent year. A reconciliation of the estimate to the final tax return is done at that time which will result in changes to the original estimate. We believe that our tax return positions are appropriately supported, but tax authorities may challenge certain positions. We evaluate our uncertain tax positions in accordance with the U.S. GAAP guidance for uncertainty in income taxes. We believe that our reserve for uncertain tax positions, including related interest, is adequate. The amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and, 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.

## 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 benchmarks to ensure that they appropriately account for our future pension and postretirement benefit obligations. While we believe that the assumptions used are appropriate, differences between assumed and actual experience may affect our operating results. A 1% increase or decrease in the actuarial assumption for the discount rate would impact 2015 pension and postretirement benefit expense by approximately $17 million. A 1% increase or decrease in the expected return on plan assets would impact 2015 pension expense by approximately $8 million.

Assumptions as to mortality of the participants in our pension plan is a key estimate in measuring the expected payments a participant may receive over their lifetime and therefore the amount of expense we will recognize. During 2014, the Society of Actuaries released a series of updated mortality tables resulting from recent studies conducted by them measuring mortality rates for various groups of individuals. The updated mortality tables released in 2014 reflect improved trends in longevity and therefore have the effect of increasing the estimate of benefits to be received by plan participants.

In determining the most appropriate mortality assumptions for our U.S. defined benefit pension and other postretirement benefit plans at November 30, 2014, we considered the updated mortality tables issued by the Society of Actuaries, coupled with other mortality information available from the Social Security Administration and our consulting actuaries that we believe is more closely aligned with our industry and participant mix to develop assumptions that we believe are most representative of the various characteristics of our participant populations.



The use of these updated mortality assumptions increased the benefit obligation for our U.S. defined benefit pension and other post-retirement benefit plans by approximately $18 million at November 30, 2014 and will have the effect of increasing related expense by approximately $2 million in 2015. We will continue to evaluate the appropriateness of mortality and other assumptions used in the measurement of our pension obligations. In addition, see the preceding sections of MD&A and note 10 of the financial statements for a discussion of these assumptions and the effects on the financial statements.

## Stock-Based Compensation

We estimate the fair value of our stock-based compensation using fair value pricing models which require the use of significant assumptions for expected volatility of stock, dividend yield and risk-free interest rate. Our valuation methodology and significant assumptions used are disclosed in note 11 of the financial statements.

## ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information is set forth in the “Market Risk Sensitivity” section of “Management’s Discussion and Analysis” and in note 7 of the financial statements.



## ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

## REPORT OF MANAGEMENT

We are responsible for the preparation and integrity of the consolidated financial statements appearing in our Annual Report. The consolidated financial statements were prepared in conformity with United States generally accepted accounting principles and include amounts based on our estimates and judgments. All other financial information in this report has been presented on a basis consistent with the information included in the financial statements.

We are also responsible for establishing and maintaining adequate internal control over financial reporting. We maintain a system of internal control that is designed to provide reasonable assurance as to the fair and reliable preparation and presentation of the consolidated 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 financial 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 auditors report to the Audit Committee and accordingly have full and free access to the Audit Committee at any time.

We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework). This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Although there are inherent limitations in the effectiveness of any system of internal control over financial reporting, based on our evaluation, we have concluded with reasonable assurance that our internal control over financial reporting was effective as of November 30, 2014.

Our internal control over financial reporting as of November 30, 2014 has been audited by Ernst & Young LLP.



Alan D. Wilson

Chairman & Chief Executive Officer



Gordon M. Stetz, Jr.

Executive Vice President & Chief Financial Officer



Christina M. McMullen

Vice President & Controller
Chief Accounting Officer



# 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, 2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). McCormick & Company, Incorporated’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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

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

In our opinion, McCormick & Company, Incorporated maintained, in all material respects, effective internal control over financial reporting as of November 30, 2014, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of McCormick & Company, Incorporated as of November 30, 2014 and 2013, 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, 2014 and our report dated January 29, 2015 expressed an unqualified opinion thereon.

## Emnet + Young LLP

Baltimore, Maryland
January 29, 2015



# REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Consolidated Financial Statements

The Board of Directors and Shareholders of McCormick & Company, Incorporated

We have audited the accompanying consolidated balance sheets of McCormick & Company, Incorporated as of November 30, 2014 and 2013, 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, 2014. 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 statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable 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 financial 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.

Emmett + Young LLP

Baltimore, Maryland
January 29, 2015

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, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended November 30, 2014, in conformity with U.S. generally accepted accounting principles. 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, 2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated January 29, 2015 expressed an unqualified opinion thereon.



CONSOLIDATED INCOME STATEMENT

<table><tr><td>for the year ended November 30 (millions except per share data)</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Net sales</td><td>$4,243.2</td><td>$4,123.4</td><td>$4,014.2</td></tr><tr><td>Cost of goods sold</td><td>2,513.0</td><td>2,457.6</td><td>2,396.4</td></tr><tr><td>Gross profit</td><td>1,730.2</td><td>1,665.8</td><td>1,617.8</td></tr><tr><td>Selling, general and administrative expense</td><td>1,122.0</td><td>1,075.0</td><td>1,039.5</td></tr><tr><td>Special charges</td><td>5.2</td><td>25.0</td><td>—</td></tr><tr><td>Loss on voluntary pension settlement</td><td>—</td><td>15.3</td><td>—</td></tr><tr><td>Operating income</td><td>603.0</td><td>550.5</td><td>578.3</td></tr><tr><td>Interest expense</td><td>49.7</td><td>53.3</td><td>54.6</td></tr><tr><td>Other income, net</td><td>1.1</td><td>2.2</td><td>2.4</td></tr><tr><td>Income from consolidated operations before income taxes</td><td>554.4</td><td>499.4</td><td>526.1</td></tr><tr><td>Income taxes</td><td>145.9</td><td>133.6</td><td>139.8</td></tr><tr><td>Net income from consolidated operations</td><td>408.5</td><td>365.8</td><td>386.3</td></tr><tr><td>Income from unconsolidated operations</td><td>29.4</td><td>23.2</td><td>21.5</td></tr><tr><td>Net income</td><td>$ 437.9</td><td>$ 389.0</td><td>$ 407.8</td></tr><tr><td>Earnings per share—basic</td><td>$ 3.37</td><td>$ 2.94</td><td>$ 3.07</td></tr><tr><td>Earnings per share—diluted</td><td>$ 3.34</td><td>$ 2.91</td><td>$ 3.04</td></tr></table>

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

<table><tr><td>for the year ended November 30 (millions)</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Net income</td><td>$ 437.9</td><td>$ 389.0</td><td>$ 407.8</td></tr><tr><td>Net income attributable to non-controlling interest</td><td>2.5</td><td>1.3</td><td>1.9</td></tr><tr><td>Other comprehensive income (loss):</td><td></td><td></td><td></td></tr><tr><td>Unrealized components of pension and other postretirement plans</td><td>(89.0)</td><td>235.6</td><td>(126.9)</td></tr><tr><td>Currency translation adjustments</td><td>(134.1)</td><td>(3.5)</td><td>(15.5)</td></tr><tr><td>Change in derivative financial instruments</td><td>5.7</td><td>11.8</td><td>(2.4)</td></tr><tr><td>Deferred taxes</td><td>31.2</td><td>(87.1)</td><td>43.0</td></tr><tr><td>Total other comprehensive income (loss)</td><td>(186.2)</td><td>156.8</td><td>(101.8)</td></tr><tr><td>Comprehensive income</td><td>$ 254.2</td><td>$ 547.1</td><td>$ 307.9</td></tr></table>

See Notes to Consolidated Financial Statements.



CONSOLIDATED BALANCE SHEET

<table><tr><td>at November 30 (millions)</td><td>2014</td><td>2013</td></tr><tr><td>Assets</td><td></td><td></td></tr><tr><td>Cash and cash equivalents</td><td>$ 77.3</td><td>$ 63.0</td></tr><tr><td>Trade accounts receivable, less allowances of $4.0 for 2014 and $4.1 for 2013</td><td>493.6</td><td>495.5</td></tr><tr><td>Inventories</td><td>713.8</td><td>676.9</td></tr><tr><td>Prepaid expenses and other current assets</td><td>131.5</td><td>134.8</td></tr><tr><td>Total current assets</td><td>1,416.2</td><td>1,370.2</td></tr><tr><td>Property, plant and equipment, net</td><td>602.7</td><td>576.6</td></tr><tr><td>Goodwill</td><td>1,722.2</td><td>1,798.5</td></tr><tr><td>Intangible assets, net</td><td>330.8</td><td>333.4</td></tr><tr><td>Investments and other assets</td><td>342.4</td><td>371.0</td></tr><tr><td>Total assets</td><td>$4,414.3</td><td>$4,449.7</td></tr><tr><td>Liabilities</td><td></td><td></td></tr><tr><td>Short-term borrowings</td><td>$ 269.6</td><td>$ 211.6</td></tr><tr><td>Current portion of long-term debt</td><td>1.2</td><td>2.5</td></tr><tr><td>Trade accounts payable</td><td>372.1</td><td>387.3</td></tr><tr><td>Other accrued liabilities</td><td>479.1</td><td>461.7</td></tr><tr><td>Total current liabilities</td><td>1,122.0</td><td>1,063.1</td></tr><tr><td>Long-term debt</td><td>1,014.1</td><td>1,019.0</td></tr><tr><td>Other long-term liabilities</td><td>468.8</td><td>419.9</td></tr><tr><td>Total liabilities</td><td>2,604.9</td><td>2,502.0</td></tr><tr><td>Shareholders&#x27; equity</td><td></td><td></td></tr><tr><td>Common stock, no par value; authorized 320.0 shares; issued and outstanding:</td><td></td><td></td></tr><tr><td>2014—12.0 shares, 2013—12.1 shares</td><td>367.2</td><td>352.8</td></tr><tr><td>Common stock non-voting, no par value; authorized 320.0 shares; issued and outstanding:</td><td></td><td></td></tr><tr><td>2014—116.4 shares, 2013—119.0 shares</td><td>628.4</td><td>609.6</td></tr><tr><td>Retained earnings</td><td>982.6</td><td>970.4</td></tr><tr><td>Accumulated other comprehensive loss</td><td>(186.0)</td><td>(0.3)</td></tr><tr><td>Non-controlling interests</td><td>17.2</td><td>15.2</td></tr><tr><td>Total shareholders&#x27; equity</td><td>1,809.4</td><td>1,947.7</td></tr><tr><td>Total liabilities and shareholders&#x27; equity</td><td>$4,414.3</td><td>$4,449.7</td></tr></table>

See Notes to Consolidated Financial Statements.



CONSOLIDATED CASH FLOW STATEMENT

<table><tr><td>for the year ended November 30 (millions)</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Operating activities</td><td></td><td></td><td></td></tr><tr><td>Net income</td><td>$ 437.9</td><td>$ 389.0</td><td>$ 407.8</td></tr><tr><td>Adjustments to reconcile net income to net cash provided by operating activities:</td><td></td><td></td><td></td></tr><tr><td>Depreciation and amortization</td><td>102.7</td><td>106.0</td><td>102.8</td></tr><tr><td>Stock-based compensation</td><td>18.2</td><td>18.7</td><td>20.2</td></tr><tr><td>Special charges</td><td>5.2</td><td>25.0</td><td>—</td></tr><tr><td>Loss on voluntary pension settlement</td><td>—</td><td>15.3</td><td>—</td></tr><tr><td>Loss on sale of assets</td><td>1.3</td><td>0.3</td><td>0.8</td></tr><tr><td>Deferred income taxes</td><td>6.1</td><td>(15.3)</td><td>24.3</td></tr><tr><td>Income from unconsolidated operations</td><td>(29.4)</td><td>(23.2)</td><td>(21.5)</td></tr><tr><td>Changes in operating assets and liabilities:</td><td></td><td></td><td></td></tr><tr><td>Trade accounts receivable</td><td>(16.4)</td><td>(29.2)</td><td>(38.8)</td></tr><tr><td>Inventories</td><td>(54.4)</td><td>(59.9)</td><td>1.2</td></tr><tr><td>Trade accounts payable</td><td>(6.7)</td><td>12.1</td><td>8.2</td></tr><tr><td>Other assets and liabilities</td><td>23.3</td><td>21.8</td><td>(65.6)</td></tr><tr><td>Dividends received from unconsolidated affiliates</td><td>15.8</td><td>4.6</td><td>15.6</td></tr><tr><td>Net cash provided by operating activities</td><td>503.6</td><td>465.2</td><td>455.0</td></tr><tr><td>Investing activities</td><td></td><td></td><td></td></tr><tr><td>Acquisitions of businesses and joint venture interests</td><td>—</td><td>(142.3)</td><td>—</td></tr><tr><td>Capital expenditures</td><td>(132.7)</td><td>(99.9)</td><td>(110.3)</td></tr><tr><td>Proceeds from sale of property, plant and equipment</td><td>1.1</td><td>2.5</td><td>1.3</td></tr><tr><td>Net cash used in investing activities</td><td>(131.6)</td><td>(239.7)</td><td>(109.0)</td></tr><tr><td>Financing activities</td><td></td><td></td><td></td></tr><tr><td>Short-term borrowings, net</td><td>57.7</td><td>71.9</td><td>(76.6)</td></tr><tr><td>Long-term debt borrowings</td><td>—</td><td>246.2</td><td>0.8</td></tr><tr><td>Long-term debt repayments</td><td>(1.6)</td><td>(251.4)</td><td>(4.7)</td></tr><tr><td>Proceeds from exercised stock options</td><td>31.7</td><td>44.7</td><td>53.1</td></tr><tr><td>Common stock acquired by purchase</td><td>(244.3)</td><td>(177.4)</td><td>(132.2)</td></tr><tr><td>Dividends paid</td><td>(192.4)</td><td>(179.9)</td><td>(164.7)</td></tr><tr><td>Net cash used in financing activities</td><td>(348.9)</td><td>(245.9)</td><td>(324.3)</td></tr><tr><td>Effect of exchange rate changes on cash and cash equivalents</td><td>(8.8)</td><td>4.4</td><td>3.4</td></tr><tr><td>Increase (decrease) in cash and cash equivalents</td><td>14.3</td><td>(16.0)</td><td>25.1</td></tr><tr><td>Cash and cash equivalents at beginning of year</td><td>63.0</td><td>79.0</td><td>53.9</td></tr><tr><td>Cash and cash equivalents at end of year</td><td>$ 77.3</td><td>$ 63.0</td><td>$ 79.0</td></tr></table>

See Notes to Consolidated Financial Statements.



CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<table><tr><td>(millions)</td><td>Common Stock Shares</td><td>Common Stock Non-Voting Shares</td><td>Common Stock Amount</td><td>Retained Earnings</td><td>Accumulated Other Comprehensive (Loss) Income</td><td>Non-controlling Interests</td><td>Total Shareholders&#x27; Equity</td></tr><tr><td>Balance, November 30, 2011</td><td>12.4</td><td>120.5</td><td>$821.9</td><td>$838.8</td><td>$ (59.0)</td><td>$16.8</td><td>$1,618.5</td></tr><tr><td>Net income</td><td></td><td></td><td>—</td><td>407.8</td><td>—</td><td>—</td><td>407.8</td></tr><tr><td>Net income attributable to non-controlling interest</td><td></td><td></td><td>—</td><td>—</td><td>—</td><td>1.9</td><td>1.9</td></tr><tr><td>Other comprehensive loss, net of tax</td><td></td><td></td><td>—</td><td>—</td><td>(100.9)</td><td>(0.9)</td><td>(101.8)</td></tr><tr><td>Dividends</td><td></td><td></td><td>—</td><td>(168.4)</td><td>—</td><td>—</td><td>(168.4)</td></tr><tr><td>Dividends attributable to non-controlling interest</td><td></td><td></td><td>—</td><td>—</td><td>—</td><td>(0.5)</td><td>(0.5)</td></tr><tr><td>Stock-based compensation</td><td></td><td></td><td>20.2</td><td>—</td><td>—</td><td>—</td><td>20.2</td></tr><tr><td>Shares purchased and retired</td><td>(0.6)</td><td>(2.4)</td><td>(25.5)</td><td>(143.6)</td><td>—</td><td>—</td><td>(169.1)</td></tr><tr><td>Shares issued, including tax benefit of $13.3</td><td>2.0</td><td>0.6</td><td>91.6</td><td>—</td><td>—</td><td>—</td><td>91.6</td></tr><tr><td>Equal exchange</td><td>(1.4)</td><td>1.4</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Balance, November 30, 2012</td><td>12.4</td><td>120.1</td><td>$908.2</td><td>$ 934.6</td><td>$(159.9)</td><td>$17.3</td><td>$1,700.2</td></tr><tr><td>Net income</td><td></td><td></td><td>—</td><td>389.0</td><td>—</td><td>—</td><td>389.0</td></tr><tr><td>Net income attributable to non-controlling interest</td><td></td><td></td><td>—</td><td>—</td><td>—</td><td>1.3</td><td>1.3</td></tr><tr><td>Other comprehensive loss, net of tax</td><td></td><td></td><td>—</td><td>—</td><td>159.6</td><td>(2.8)</td><td>156.8</td></tr><tr><td>Dividends</td><td></td><td></td><td>—</td><td>(183.3)</td><td>—</td><td>—</td><td>(183.3)</td></tr><tr><td>Dividends attributable to non-controlling interest</td><td></td><td></td><td>—</td><td>—</td><td>—</td><td>(0.6)</td><td>(0.6)</td></tr><tr><td>Stock-based compensation</td><td></td><td></td><td>18.7</td><td>—</td><td>—</td><td>—</td><td>18.7</td></tr><tr><td>Shares purchased and retired</td><td>(0.3)</td><td>(2.5)</td><td>(19.5)</td><td>(169.9)</td><td>—</td><td>—</td><td>(189.4)</td></tr><tr><td>Shares issued, including tax benefit of $12.6</td><td>1.1</td><td>0.3</td><td>55.0</td><td>—</td><td>—</td><td>—</td><td>55.0</td></tr><tr><td>Equal exchange</td><td>(1.1)</td><td>1.1</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Balance, November 30, 2013</td><td>12.1</td><td>119.0</td><td>$962.4</td><td>$ 970.4</td><td>$ (0.3)</td><td>$15.2</td><td>$1,947.7</td></tr><tr><td>Net income</td><td></td><td></td><td>—</td><td>437.9</td><td>—</td><td>—</td><td>437.9</td></tr><tr><td>Net income attributable to non-controlling interest</td><td></td><td></td><td>—</td><td>—</td><td>—</td><td>2.5</td><td>2.5</td></tr><tr><td>Other comprehensive loss, net of tax</td><td></td><td></td><td>—</td><td>—</td><td>(185.7)</td><td>(0.5)</td><td>(186.2)</td></tr><tr><td>Dividends</td><td></td><td></td><td>—</td><td>(195.2)</td><td>—</td><td>—</td><td>(195.2)</td></tr><tr><td>Stock-based compensation</td><td></td><td></td><td>18.2</td><td>—</td><td>—</td><td>—</td><td>18.2</td></tr><tr><td>Shares purchased and retired</td><td>(0.2)</td><td>(3.5)</td><td>(25.3)</td><td>(230.5)</td><td>—</td><td>—</td><td>(255.8)</td></tr><tr><td>Shares issued, including tax benefit of $9.0</td><td>0.8</td><td>0.2</td><td>40.3</td><td>—</td><td>—</td><td>—</td><td>40.3</td></tr><tr><td>Equal exchange</td><td>(0.7)</td><td>0.7</td><td>—</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Balance, November 30, 2014</td><td>12.0</td><td>116.4</td><td>$995.6</td><td>$ 982.6</td><td>$(186.0)</td><td>$17.2</td><td>$1,809.4</td></tr></table>

See Notes to Consolidated Financial Statements.



## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

## 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

## Consolidation

The financial statements include the accounts of our majority-owned or controlled subsidiaries and affiliates. Intercompany transactions have been eliminated. Investments in unconsolidated affiliates, over which we exercise significant influence, but not control, are accounted for by the equity method. Accordingly, our share of net income or loss of unconsolidated affiliates is included in net income.

## Foreign Currency Translation

For majority-owned or controlled subsidiaries and affiliates, if located outside of the U.S., with functional currencies other than the U.S. dollar, asset and liability accounts are translated at the rates of exchange at the balance sheet date and the resultant translation adjustments are included in accumulated other comprehensive income (loss), a separate component of shareholders' equity. Income and expense items are translated at average monthly rates of exchange. Gains and losses from foreign currency transactions of these majority-owned or controlled subsidiaries and affiliates—that is, transactions denominated in other than the functional currency—are included in net earnings.

Our unconsolidated affiliates located outside the U.S. generally use their local currencies as their functional currencies. The asset and liability accounts of those unconsolidated affiliates, and our investment in the net assets of those unconsolidated affiliates, are translated at the rates of exchange at the balance sheet date and the resultant translation adjustments are included in accumulated other comprehensive income (loss), a separate component of shareholders' equity. Our income from these unconsolidated operations is translated at average monthly rates of exchange.

## Use of Estimates

Preparation of financial statements that follow accounting principles generally accepted in the U.S. requires us to make estimates and assumptions that affect the amounts reported in the financial statements and notes. Actual amounts could differ from these estimates.

## Cash and Cash Equivalents

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

## Inventories

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

## Property, Plant and Equipment

Property, plant and equipment is stated at historical cost and depreciated over its estimated useful life using the straight-line method for financial reporting and both accelerated and straight-line methods for tax reporting. The estimated useful lives range from 20 to 40 years for buildings and 3 to 12 years for machinery, equipment and computer software. Repairs and maintenance costs are expensed as incurred.
We capitalize costs of software developed or obtained for internal use. Capitalized software development costs include only (1) direct costs paid to others for materials and services to develop or buy the software, (2) payroll and payroll-related costs for employees who work directly on the software development project and (3) interest costs while developing the software. Capitalization of these costs stops when the project is substantially complete and ready for use. Software is amortized using the straight-line method over a range of 3 to 8 years, but not exceeding the expected life of the product. We capitalized $11.7 million of software development costs during the year ended November 30, 2014, $16.7 million during the year ended November 30, 2013 and $20.5 million during the year ended November 30, 2012.

## Goodwill and Other Intangible Assets

We review the carrying value of goodwill and indefinite-lived intangible assets and conduct tests of impairment on an annual basis as described below. We also test goodwill for impairment if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is below its carrying amount and test indefinite-lived intangible assets for impairment if events or changes in circumstances indicate that the asset might be impaired. Separable intangible assets that have finite useful lives are amortized over those lives.

Determining the fair value of a reporting unit or an indefinite-lived purchased intangible asset is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, assumed royalty rates, future economic and market conditions and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from these estimates.

## Goodwill Impairment

Our reporting units used to assess potential goodwill impairment are the same as our business segments. We calculate fair value of a reporting unit by using a discounted cash flow model and then compare that to the carrying amount of the reporting unit, including intangible assets and goodwill. If the carrying amount of the reporting unit exceeds the calculated fair value, then we would determine the implied fair value of the reporting unit's goodwill. An impairment charge would be recognized to the extent the carrying amount of goodwill exceeds the implied fair value.

## Indefinite-lived Intangible Asset Impairment

Our indefinite-lived intangible assets consist of brand names and trademarks. We calculate fair value by using a relief-from-royalty method or discounted cash flow model and then compare that to the carrying amount of the indefinite-lived intangible asset. If the carrying amount of the indefinite-lived intangible asset exceeds its fair value, an impairment charge would be recorded to the extent the recorded indefinite-lived intangible asset exceeds the fair value.



## Long-lived Fixed Asset Impairment

Fixed assets and amortizable intangible assets are reviewed for impairment as events or changes in circumstances occur indicating that the carrying value of the asset may not be recoverable. 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 collectability is reasonably assured. We reduce revenue for estimated product returns, allowances and price discounts based on historical experience and contractual terms.

Trade allowances, consisting primarily of customer pricing allowances, 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 allowance 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 $100.3 million, $96.9 million and $94.8 million for 2014, 2013 and 2012, 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 $62.0 million, $61.3 million and $57.8 million for 2014, 2013 and 2012, respectively.

## Brand Marketing Support

Total brand marketing support costs, which are included in selling, general and administrative expense in the income statement, were $226.6 million, $207.8 million and $198.3 million for 2014, 2013 and 2012, respectively. Brand marketing support costs include advertising, 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 the period in which the advertisement is first run. All other costs of advertisement are expensed as incurred. Advertising expense was $100.4 million, $85.0 million and $86.2 million for 2014, 2013 and 2012, respectively.

## Employee Benefit and Retirement Plans

We sponsor defined benefit pension plans in the U.S. and certain foreign locations. In addition, we sponsor defined contribution plans in the U.S. and contribute to government-sponsored retirement plans in locations outside the U.S. We also currently provide postretirement medical and life insurance benefits to certain U.S. employees.

We recognize the overfunded or underfunded status of our defined benefit pension plans as an asset or a liability in the balance sheet, with changes in the funded status recorded through comprehensive income in the year in which those changes occur.

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

We use the corridor approach in the valuation of defined benefit pension plans. The corridor approach defers all actuarial gains and losses resulting from variances between actual results and actuarial assumptions. For defined benefit pension plans, these unrecognized gains and losses are amortized when the net gains and losses exceed 10% of the greater of the market-related value of plan assets or the projected benefit obligation at the beginning of the year. The amount in excess of the corridor is amortized over the average remaining service period to retirement date of active plan participants.

## Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 Revenue from Contracts with Customers (Topic 606). This guidance is intended to improve and converge with international standards the financial reporting requirements for revenue from contracts with customers. It will be effective for our first quarter of 2018 and early adoption is not permitted. We have not yet determined the impact from adoption of this new accounting pronouncement on our financial statements.

In February 2013, the FASB issued Accounting Standards Update No. 2013-02 Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This guidance is intended to provide disclosure on items reclassified out of accumulated other comprehensive income (loss) either in the notes or parenthetically on the face of the income statement. We adopted this new accounting pronouncement in 2014 and have included the necessary disclosures in note 9, Accumulated Other Comprehensive Loss. There was no impact on our financial statements from adoption, other than the additional disclosures.

## 2. ACQUISITIONS

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

On May 31, 2013, we completed the purchase of the assets of Wuhan Asia-Pacific Condiments Co. Ltd. (WAPC), a privately held company based in China, for $144.8 million, which included $142.3 million of cash paid, net of closing adjustments, and the assumption



of $2.5 million of liabilities. The acquisition was financed with a combination of cash and debt. WAPC manufactures and markets DaQiao and ChuShile brand bouillon products, which have a leading position in the central region of China. WAPC is included in our consumer business segment from the date of acquisition. At the time of acquisition, annual sales of WAPC were approximately $122 million. During the second quarter of 2014, we completed the final valuation of the assets of WAPC which resulted in $26.9 million allocated to tangible net assets, $46.1 million allocated to other intangible assets and $71.8 million allocated to goodwill. The completion of the final valuation did not result in material changes to our consolidated income statement or our consolidated balance sheet from our preliminary purchase price allocation. Goodwill related to the WAPC acquisition is not deductible for tax purposes. During the years ended November 30, 2013 and 2012, we recorded $4.3 million and $1.7 million, respectively, in transaction-related expenses associated with the WAPC acquisition in selling, general and administrative expenses in our income statement.

Proforma financial information for the Wuhan acquisition has not been presented because the financial impact is not material.

## 3. SPECIAL CHARGES

In the fourth quarter of 2013, we announced a reorganization in parts of the Europe, Middle East and Africa (EMEA) region to further improve EMEA’s profitability and process standardization while supporting its competitiveness and long-term growth. These actions include the closure of our current sales and distribution operations in The Netherlands, with the transition to a third-party distributor model to continue to sell the Silvo \( ^{®} \)  brand, as well as actions intended to streamline selling, general and administrative activities throughout EMEA, including the centralization of certain shared service activity across parts of the region into Poland.

In 2014, we recorded $2.1 million of charges associated with this previously announced EMEA reorganization, with $1.1 million related to employee severance and $1.0 million for other exit costs. For 2013, we recorded $25.0 million of charges related to this reorganization. For both years, these charges have been included on a separate line in the consolidated income statement. Of the $25.0 million of special charges recognized in 2013, $15.9 million related to employee severance, $6.4 million to asset write-downs, and $2.7 million to other exit costs.

These reorganization actions in the EMEA region are expected to generate annual cost savings of approximately $10 million when completed in 2015. Total cash expenditures for the EMEA reorganization were $10.7 million in 2014 and are expected to be approximately $10 million in 2015. Of the $2.1 million of special charges recognized with respect to this reorganization in 2014, all have been recorded in the consumer business segment. Of the $25.0 million of special charges recognized in 2013, $22.2 million were recorded in the consumer business segment and $2.8 million were recorded in the industrial business segment.
The $6.4 million asset write-down included in the $25.0 million special charge for 2013 relates to an impairment charge for the reduction in the value of our Silvo brand name in The Netherlands. Our decision to transition to a third-party distributor model to continue to sell the Silvo brand led us to conclude an impairment indicator to the Silvo brand was present. We calculated the fair value of the Silvo brand using the relief-from-royalty method and determined that it was lower than its carrying value. Consequently, we recorded a non-cash impairment charge of $6.4 million as part of the $22.2 million in special charges included in our consumer business segment during the fourth quarter of 2013. The carrying value of the Silvo brand name as of November 30, 2014 is not significant.

The following table outlines the major components of accrual balances relating to the special charges associated with this EMEA reorganization as of November 30, 2013 and November 30, 2014 (in millions):

<table><tr><td></td><td>Employee severance</td><td>Other exit costs</td><td>Total</td></tr><tr><td>Balance as of November 30, 2013</td><td>$15.9</td><td>$2.7</td><td>$18.6</td></tr><tr><td>Special charges</td><td>1.1</td><td>1.0</td><td>2.1</td></tr><tr><td>Amounts utilized</td><td>(7.7)</td><td>(3.0)</td><td>(10.7)</td></tr><tr><td>Balance as of November 30, 2014</td><td>$9.3</td><td>$0.7</td><td>$10.0</td></tr></table>

In 2014, we continued to evaluate changes to our organizational structure to enable us to reduce fixed costs, simplify or improve processes, and improve our competitiveness. In addition to the $2.1 million of special charges recognized in 2014 related to the previously announced EMEA reorganization, we also undertook reorganization actions in the U.S. and Australian businesses in 2014 and recognized an additional $3.1 million of special charges, consisting of the following: (1) During the third quarter of 2014, we recorded special charges in the amount of $1.3 million, principally related to employee severance, to realign certain manufacturing operations in the U.S. industrial business. Cash expenditures in 2014 associated with this action totaled $0.4 million. We expect that this action will be completed by 2015 and, upon completion, generate annual savings of approximately $2.3 million. (2) During the fourth quarter of 2014, we recorded special charges in the Australian business in the amount of $0.7 million, all related to the consumer segment business, consisting of employee severance and related expenses, to streamline costs through the elimination of certain manufacturing and administrative positions. Cash expenditures in 2014 associated with this reorganization totaled $0.2 million. We expect that this reorganization will be completed in 2015 and, upon completion, generate annual savings of approximately $0.8 million. (3) During the fourth quarter of 2014, we recorded special charges of $1.1 million, consisting of employee severance and related expenses, to eliminate certain administrative positions in the U.S. business. Of the $1.1 million in special charges, $0.9 million and $0.2 million related to the consumer business segment and industrial business segment, respectively. Cash expenditures in 2014 associated with this action totaled $0.2 million. We expect that this action will be completed in 2015 and, upon completion, generate annual savings of approximately $1.2 million.



## 4. GOODWILL AND INTANGIBLE ASSETS

The following table displays intangible assets as of November 30, 2014 and 2013:

<table><tr><td></td><td colspan="2">2014</td><td colspan="2">2013</td></tr><tr><td>(millions)</td><td>Gross carrying amount</td><td>Accumulated amortization</td><td>Gross carrying amount</td><td>Accumulated amortization</td></tr><tr><td>Finite-lived intangible assets</td><td>$ 94.7</td><td>$34.7</td><td>$ 93.9</td><td>$30.2</td></tr><tr><td>Indefinite-lived intangible assets:</td><td></td><td></td><td></td><td></td></tr><tr><td>Goodwill</td><td>1,722.2</td><td></td><td>1,798.5</td><td></td></tr><tr><td>Brand names and trademarks</td><td>270.8</td><td></td><td>269.7</td><td></td></tr><tr><td></td><td>1,993.0</td><td></td><td>2,068.2</td><td></td></tr><tr><td>Total goodwill and intangible assets</td><td>$2,087.7</td><td>$34.7</td><td>$2,162.1</td><td>$30.2</td></tr></table>

Intangible asset amortization expense was $5.6 million, $5.2 million and $4.3 million for 2014, 2013 and 2012, respectively. At November 30, 2014, finite-lived intangible assets had a weighted-average remaining life of approximately 13 years.

The changes in the carrying amount of goodwill by segment for the years ended November 30, 2014 and 2013 were as follows:

<table><tr><td></td><td colspan="2">2014</td><td colspan="2">2013</td></tr><tr><td>(millions)</td><td>Consumer</td><td>Industrial</td><td>Consumer</td><td>Industrial</td></tr><tr><td>Beginning of year</td><td>$1,654.7</td><td>$143.8</td><td>$1,551.0</td><td>$144.3</td></tr><tr><td>Changes in purchase price allocation</td><td>(6.1)</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Goodwill acquired</td><td>—</td><td>—</td><td>77.9</td><td>—</td></tr><tr><td>Foreign currency fluctuations and other</td><td>(67.5)</td><td>(2.7)</td><td>25.8</td><td>(0.5)</td></tr><tr><td>End of year</td><td>$1,581.1</td><td>$141.1</td><td>$1,654.7</td><td>$143.8</td></tr></table>

## 5. INVESTMENTS IN AFFILIATES

Summarized annual and year-end information from the financial statements of unconsolidated affiliates representing 100% of the businesses follows:

<table><tr><td>(millions)</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Net sales</td><td>$766.6</td><td>$761.4</td><td>$727.1</td></tr><tr><td>Gross profit</td><td>275.7</td><td>256.9</td><td>229.2</td></tr><tr><td>Net income</td><td>67.5</td><td>53.8</td><td>47.1</td></tr><tr><td>Current assets</td><td>$320.1</td><td>$288.9</td><td>$274.4</td></tr><tr><td>Noncurrent assets</td><td>123.6</td><td>128.4</td><td>104.2</td></tr><tr><td>Current liabilities</td><td>137.2</td><td>141.0</td><td>129.9</td></tr><tr><td>Noncurrent liabilities</td><td>6.3</td><td>7.2</td><td>20.5</td></tr></table>

Our share of undistributed earnings of unconsolidated affiliates was $96.7 million at November 30, 2014. Royalty income from unconsolidated affiliates was $18.7 million, $18.4 million and $17.1 million for 2014, 2013 and 2012, 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 91% of income from unconsolidated operations in 2014, 78% in 2013 and 82% in 2012.

## 6. FINANCING ARRANGEMENTS

Our outstanding debt was as follows at November 30:

<table><tr><td>(millions)</td><td>2014</td><td>2013</td></tr><tr><td>Short-term borrowings</td><td></td><td></td></tr><tr><td>Commercial paper</td><td>$ 239.4</td><td>$ 200.3</td></tr><tr><td>Other</td><td>30.2</td><td>11.3</td></tr><tr><td></td><td>$ 269.6</td><td>$ 211.6</td></tr><tr><td>Weighted-average interest rate of short-term borrowings at year-end</td><td>1.3%</td><td>0.7%</td></tr><tr><td>Long-term debt</td><td></td><td></td></tr><tr><td>5.20% notes due 12/15/2015(1)</td><td>$ 200.0</td><td>$ 200.0</td></tr><tr><td>5.75% notes due 12/15/2017(2)</td><td>250.0</td><td>250.0</td></tr><tr><td>3.90% notes due 7/8/2021(3)</td><td>250.0</td><td>250.0</td></tr><tr><td>3.50% notes due 8/19/2023(4)</td><td>250.0</td><td>250.0</td></tr><tr><td>7.63% - 8.12% notes due 2024</td><td>55.0</td><td>55.0</td></tr><tr><td>Other</td><td>8.5</td><td>10.8</td></tr><tr><td>Unamortized discounts and fair value adjustments</td><td>1.8</td><td>5.7</td></tr><tr><td>Less current portion</td><td>1,015.3</td><td>1,021.5</td></tr><tr><td></td><td>1.2</td><td>2.5</td></tr><tr><td></td><td>$1,014.1</td><td>$1,019.0</td></tr></table>

(1) The fixed interest rate on $100 million of the 5.20% notes due in 2015 is effectively converted to a variable rate by interest rate swaps through 2015. Net interest payments are based on 3 month LIBOR minus 0.05% during this period (our effective rate as of November 30, 2014 was 0.19%).

(2) Interest rate swaps, settled upon the issuance of these notes in 2007, effectively fixed the interest rate on the $250 million notes at a weighted-average fixed rate of 6.25%.

(3) Interest rate swaps, settled upon the issuance of these notes in 2011, effectively fixed the interest rate on the $250 million notes at a weighted-average fixed rate of 4.01%.

(4) Interest rate swaps, settled upon the issuance of these notes in 2013, effectively fixed the interest rate on the $250 million notes at a weighted-average fixed rate of 3.30%.

Maturities of long-term debt during the fiscal years subsequent to November 30, 2014 are as follows (in millions):

<table><tr><td>2016</td><td>$200.6</td></tr><tr><td>2017</td><td>0.7</td></tr><tr><td>2018</td><td>250.7</td></tr><tr><td>2019</td><td>0.8</td></tr><tr><td>Thereafter</td><td>559.5</td></tr></table>

In August 2013, we issued $250 million of 3.50% notes due 2023, with net cash proceeds received of $246.2 million. Interest is payable semiannually in arrears in March and September of each year. Of these notes, $175 million were subject to interest rate hedges as further disclosed in note 7. The net proceeds from this offering, plus cash on hand, were used to pay off $250 million of 5.25% notes that matured in September 2013.



We have available credit facilities with domestic and foreign banks for various purposes. Some of these lines are committed lines and others are uncommitted lines and could be withdrawn at various times. In June 2011, we entered into a five-year $600 million revolving credit facility, which will expire in June 2016. The pricing for this credit facility, on a fully drawn basis, is LIBOR plus 0.875%. This credit facility supports our commercial paper program and we have $360.6 million of capacity at November 30, 2014, after $239.4 million was used to support issued commercial paper. In addition, we have several uncommitted lines which have a total unused capacity at November 30, 2014 of $125.4 million. These lines by their nature can be withdrawn based on the lenders' discretion. Committed credit facilities require a fee, and annual commitment fees were $0.5 million for 2014 and 2013.

Rental expense under operating leases (primarily buildings and equipment) was $40.3 million in 2014, $37.6 million in 2013 and $32.7 million in 2012. Future annual fixed rental payments for the years ending November 30 are as follows (in millions):

<table><tr><td>2015</td><td>$23.4</td></tr><tr><td>2016</td><td>17.6</td></tr><tr><td>2017</td><td>13.9</td></tr><tr><td>2018</td><td>11.3</td></tr><tr><td>2019</td><td>8.5</td></tr><tr><td>Thereafter</td><td>17.6</td></tr></table>

At November 30, 2014, we had guarantees outstanding of $0.6 million with terms of one year or less. At November 30, 2014 and 2013, we had outstanding letters of credit of $8.1 million and $61.9 million, respectively. These letters of credit typically act as a guarantee of payment to certain third parties in accordance with specified terms and conditions. The unused portion of our letter of credit facility was $12.9 million at November 30, 2014.

## 7. FINANCIAL INSTRUMENTS

We use derivative financial instruments to enhance our ability to manage risk, including foreign currency and interest rate exposures, which exist as part of our ongoing business operations. We do not enter into contracts for trading purposes, nor are we a party to any leveraged derivative instrument and all derivatives are designated as hedges. We are not a party to master netting arrangements, and we do not offset the fair value of derivative contracts with the same counterparty in our financial statement disclosures. The use of derivative financial instruments is monitored through regular communication with senior management and the use of written guidelines.

## Foreign Currency

We are potentially exposed to foreign currency fluctuations affecting net investments, transactions and earnings denominated in foreign currencies. We selectively hedge the potential effect of these foreign currency fluctuations by entering into foreign currency exchange contracts with highly-rated financial institutions.
Contracts which are designated as hedges of anticipated purchases denominated in a foreign currency (generally purchases of raw materials in U.S. dollars by operating units outside the U.S.) are considered cash flow hedges. The gains and losses on these contracts are deferred in accumulated other comprehensive income until the hedged item is recognized in cost of goods sold, at which time the net amount deferred in accumulated other comprehensive income is also recognized in cost of goods sold. Gains and losses from contracts which are designated as hedges of assets, liabilities or firm commitments are recognized through income, offsetting the change in fair value of the hedged item.

At November 30, 2014, we had foreign currency exchange contracts to purchase or sell $262.7 million of foreign currencies versus $204.9 million at November 30, 2013. 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, 2014, we had $127.1 million of notional contracts that have durations of less than seven days that are used to hedge short-term cash flow funding. The remaining contracts have durations of one to twelve months.

## Interest Rates

We finance a portion of our operations with both fixed and variable rate debt instruments, primarily commercial paper, notes and bank loans. We utilize interest rate swap agreements to minimize worldwide financing costs and to achieve a desired mix of variable and fixed rate debt.

In November 2012 and in April and August 2013, we entered into a total of $175 million of forward-starting interest rate swap and Treasury rate lock agreements to manage our interest rate risk associated with the anticipated issuance of fixed rate notes in August 2013. We cash settled all of these agreements, which were designated as cash flow hedges, for a gain of $9.0 million simultaneous with the issuance of the notes at an all-in effective fixed rate of 3.30% on the full $250 million of debt. The gain on these agreements is deferred in accumulated other comprehensive income and will be amortized to reduce interest expense over the life of the notes. Hedge ineffectiveness of these agreements was not material.

In March 2006, we entered into interest rate swap contracts for a total notional amount of $100 million to receive interest at 5.20% and pay a variable rate of interest based on three-month LIBOR minus 0.05%. We designated these swaps, which expire in December 2015, as fair value hedges of the changes in fair value of $100 million of the $200 million 5.20% medium-term notes due 2015 that we issued in December 2005. Any unrealized gain or loss on these swaps will be offset by a corresponding increase or decrease in the value of the hedged debt. No hedge ineffectiveness is recognized as the interest rate swaps qualify for the “shortcut” treatment as defined under U.S. Generally Accepted Accounting Principles.



The following tables disclose the derivative instruments on our balance sheet as of November 30, 2014 and 2013, which are all recorded at fair value:

<table><tr><td colspan="7">As of November 30, 2014:</td></tr><tr><td colspan="2">(millions)</td><td colspan="2">Asset Derivatives</td><td colspan="3">Liability Derivatives</td></tr><tr><td>Derivatives</td><td>Balance sheet location</td><td>Notional amount</td><td>Fair value</td><td>Balance sheet location</td><td>Notional amount</td><td>Fair value</td></tr><tr><td>Interest rate contracts</td><td>Other current assets</td><td>$100.0</td><td>$ 7.4</td><td>Other accrued liabilities</td><td>—</td><td>—</td></tr><tr><td>Foreign exchange contracts</td><td>Other current assets</td><td>106.3</td><td>4.9</td><td>Other accrued liabilities</td><td>$156.4</td><td>$1.4</td></tr><tr><td colspan="3">Total</td><td colspan="2">$12.3</td><td colspan="2">$1.4</td></tr></table>

As of November 30, 2013:

<table><tr><td colspan="2">(millions)</td><td colspan="2">Asset Derivatives</td><td colspan="3">Liability Derivatives</td></tr><tr><td>Derivatives</td><td>Balance sheet location</td><td>Notional amount</td><td>Fair value</td><td>Balance sheet location</td><td>Notional amount</td><td>Fair value</td></tr><tr><td>Interest rate contracts</td><td>Other current assets</td><td>$100.0</td><td>$12.2</td><td>Other accrued liabilities</td><td>—</td><td>—</td></tr><tr><td>Foreign exchange contracts</td><td>Other current assets</td><td>79.2</td><td>1.1</td><td>Other accrued liabilities</td><td>$125.7</td><td>$1.6</td></tr><tr><td colspan="3">Total</td><td colspan="2">$13.3</td><td colspan="2">$1.6</td></tr></table>

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, 2014, 2013 and 2012:

<table><tr><td rowspan="2">Derivative</td><td rowspan="2">Income statement location</td><td colspan="3">Income (expense)</td></tr><tr><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Interest rate contracts</td><td>Interest expense</td><td>$5.0</td><td>$5.0</td><td>$4.7</td></tr></table>

<table><tr><td rowspan="2">Derivative</td><td colspan="3">Gain (loss) recognized in OCI</td><td rowspan="2">Income statement location</td><td colspan="3">Gain (loss) reclassified from AOCI</td></tr><tr><td>2014</td><td>2013</td><td>2012</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Interest rate contracts</td><td>—</td><td>$ 9.2</td><td>$(0.1)</td><td>Interest expense</td><td>$0.2)</td><td>$(1.3)</td><td>$1.4)</td></tr><tr><td>Foreign exchange contracts</td><td>$4.2</td><td>1.0</td><td>(2.4)</td><td>Cost of goods sold</td><td>(1.1)</td><td>0.3</td><td>0.6</td></tr><tr><td>Total</td><td>$4.2</td><td>$10.2</td><td>$(2.5)</td><td></td><td>$1.3)</td><td>$1.0)</td><td>$(0.8)</td></tr></table>

The amount of gain or loss recognized in income on the ineffective portion of derivative instruments is not material. The net amount of other comprehensive income expected to be reclassified into income related to these contracts in the next twelve months is a $4.3 million increase to earnings.

## Fair Value of Financial Instruments

The carrying amount and fair value of financial instruments at November 30, 2014 and 2013 were as follows:

<table><tr><td rowspan="2">(millions)</td><td colspan="2">2014</td><td colspan="2">2013</td></tr><tr><td>Carrying amount</td><td>Fair value</td><td>Carrying amount</td><td>Fair value</td></tr><tr><td>Long-term investments</td><td>$ 113.0</td><td>$ 113.0</td><td>$ 103.4</td><td>$ 103.4</td></tr><tr><td>Long-term debt</td><td>1,015.3</td><td>1,109.0</td><td>1,021.5</td><td>1,102.4</td></tr><tr><td>Derivatives related to:</td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rates (assets)</td><td>7.4</td><td>7.4</td><td>12.2</td><td>12.2</td></tr><tr><td>Foreign currency (assets)</td><td>4.9</td><td>4.9</td><td>1.1</td><td>1.1</td></tr><tr><td>Foreign currency (liabilities)</td><td>1.4</td><td>1.4</td><td>1.6</td><td>1.6</td></tr></table>

Because of their short-term nature, the amounts reported in the balance sheet for cash and cash equivalents, receivables, short-term borrowings and trade accounts payable approximate fair value.

Investments in affiliates are not readily marketable, and it is not practicable to estimate their fair value. Long-term investments are comprised of fixed income and equity securities held on behalf of employees in certain employee benefit plans and are stated at fair value on the balance sheet. The cost of these investments was $80.1 million and $77.5 million at November 30, 2014 and 2013, respectively.



## Concentrations of Credit Risk

We are potentially exposed to concentrations of credit risk with trade accounts receivable, prepaid allowances and financial instruments. The customers of our consumer business are predominantly food retailers and food wholesalers. Consolidations in these industries have created larger customers. In addition, competition has increased with the growth in alternative channels including mass merchandisers, dollar stores, warehouse clubs and discount chains. This has caused some customers to be less profitable and increased our exposure to credit risk. 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, 2014. At November 30, 2014, amounts due from those two customers aggregated approximately 21% of consolidated trade accounts receivable and prepaid allowances. Current credit markets are highly volatile and some of our customers and counterparties are highly leveraged. We continue to closely monitor the credit worthiness of our customers and counterparties and generally do not require collateral. We believe that the allowance for doubtful accounts properly recognized trade receivables at realizable value. We consider nonperformance credit risk for other financial instruments to be insignificant.

## 8. FAIR VALUE MEASUREMENTS

Fair value can be measured using valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). Accounting standards utilize a fair value hierarchy that 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 measurements on a recurring basis at November 30, 2014 and 2013 are as follows:

<table><tr><td rowspan="2">(millions)</td><td rowspan="2">Fair value</td><td colspan="3">Fair value measurements using fair value hierarchy as of November 30, 2014</td></tr><tr><td>Level 1</td><td>Level 2</td><td>Level 3</td></tr><tr><td>Assets</td><td></td><td></td><td></td><td></td></tr><tr><td>Cash and cash equivalents</td><td>$ 77.3</td><td>$77.3</td><td>—</td><td>—</td></tr><tr><td>Insurance contracts</td><td>104.5</td><td>—</td><td>$104.5</td><td>—</td></tr><tr><td>Bonds and other long-term investments</td><td>8.5</td><td>8.5</td><td>—</td><td></td></tr><tr><td>Interest rate derivatives</td><td>7.4</td><td>—</td><td>7.4</td><td>—</td></tr><tr><td>Foreign currency derivatives</td><td>4.9</td><td>—</td><td>4.9</td><td>—</td></tr><tr><td>Total</td><td>$202.6</td><td>$85.8</td><td>$116.8</td><td>—</td></tr><tr><td>Liabilities</td><td></td><td></td><td></td><td></td></tr><tr><td>Foreign currency derivatives</td><td>$ 1.4</td><td>—</td><td>$ 1.4</td><td>—</td></tr><tr><td>Total</td><td>$ 1.4</td><td>—</td><td>$ 1.4</td><td>—</td></tr></table>

<table><tr><td rowspan="2">(millions)</td><td rowspan="2">Fair value</td><td colspan="3">Fair value measurements using fair value hierarchy as of November 30, 2013</td></tr><tr><td>Level 1</td><td>Level 2</td><td>Level 3</td></tr><tr><td>Assets</td><td></td><td></td><td></td><td></td></tr><tr><td>Cash and cash equivalents</td><td>$ 63.0</td><td>$63.0</td><td>—</td><td>—</td></tr><tr><td>Insurance contracts</td><td>90.1</td><td>—</td><td>$ 90.1</td><td>—</td></tr><tr><td>Bonds and other long-term investments</td><td>13.3</td><td>13.3</td><td>—</td><td></td></tr><tr><td>Interest rate derivatives</td><td>12.2</td><td>—</td><td>12.2</td><td>—</td></tr><tr><td>Foreign currency derivatives</td><td>1.1</td><td>—</td><td>1.1</td><td>—</td></tr><tr><td>Total</td><td>$179.7</td><td>$76.3</td><td>$103.4</td><td>—</td></tr><tr><td>Liabilities</td><td></td><td></td><td></td><td></td></tr><tr><td>Foreign currency derivatives</td><td>1.6</td><td>—</td><td>1.6</td><td>—</td></tr><tr><td>Total</td><td>$ 1.6</td><td>—</td><td>$ 1.6</td><td>—</td></tr></table>

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



## 9. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table sets forth the components of accumulated other comprehensive loss, net of tax where applicable (in millions):

<table><tr><td>(millions)</td><td>2014</td><td>2013</td></tr><tr><td>Accumulated other comprehensive loss, net of tax where applicable:</td><td></td><td></td></tr><tr><td>Foreign currency translation adjustment</td><td>$ 32.1</td><td>$ 165.7</td></tr><tr><td>Unrealized gain (loss) on foreign currency exchange contracts</td><td>3.0</td><td>(0.3)</td></tr><tr><td>Unamortized value of settled interest rate swaps</td><td>2.9</td><td>2.0</td></tr><tr><td>Pension and other postretirement costs</td><td>(224.0)</td><td>(167.7)</td></tr><tr><td></td><td>$(186.0)</td><td>$ (0.3)</td></tr></table>

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, 2014, 2013 and 2012:

<table><tr><td>(millions)</td><td>2014</td><td>2013</td><td>2012</td><td>Affected Line Items in the Consolidated Income Statement</td></tr><tr><td>Accumulated Other Comprehensive Income (Loss) Components</td><td></td><td></td><td></td><td></td></tr><tr><td>Gains/(losses) on cash flow hedges:</td><td></td><td></td><td></td><td></td></tr><tr><td>Interest rate derivatives</td><td>$ (0.2)</td><td>$ (1.3)</td><td>$ (1.4)</td><td>Interest expense</td></tr><tr><td>Foreign exchange contracts</td><td>(1.1)</td><td>0.3</td><td>0.6</td><td>Cost of goods sold</td></tr><tr><td>Total before taxes</td><td>(1.3)</td><td>(1.0)</td><td>(0.8)</td><td></td></tr><tr><td>Tax effect</td><td>0.3</td><td>0.3</td><td>0.2</td><td>Income taxes</td></tr><tr><td>Net, after tax</td><td>$ (1.0)</td><td>$ (0.7)</td><td>$ (0.6)</td><td></td></tr><tr><td>Amortization of pension and postretirement benefit adjustments:</td><td></td><td></td><td></td><td></td></tr><tr><td>Amortization of prior service costs \( ^{(1)} \)</td><td>$ 0.3</td><td>$ (0.8)</td><td>$ (3.5)</td><td>SG&amp;A expense/Cost of goods sold</td></tr><tr><td>Amortization of net actuarial losses \( ^{(1)} \)</td><td>16.4</td><td>36.5</td><td>21.6</td><td>SG&amp;A expense/Cost of goods sold</td></tr><tr><td>Total before taxes</td><td>16.7</td><td>35.7</td><td>18.1</td><td></td></tr><tr><td>Tax effect</td><td>(5.7)</td><td>(12.1)</td><td>(6.2)</td><td>Income taxes</td></tr><tr><td>Net, after tax</td><td>$11.0</td><td>$ 23.6</td><td>$11.9</td><td></td></tr></table>

(1) This accumulated other comprehensive income (loss) component is included in the computation of total pension expense and total other postretirement expense (refer to note 10 for additional details).

## 10. EMPLOYEE BENEFIT AND RETIREMENT PLANS

We sponsor defined benefit pension plans in the U.S. and certain foreign locations. In addition, we sponsor defined contribution plans in the U.S. and contribute to government-sponsored retirement plans in locations outside the U.S. We also currently provide postretirement medical and life insurance benefits to certain U.S. employees.

Included in accumulated other comprehensive loss at November 30, 2014 was $330.0 million ($224.0 million net of tax) related to net unrecognized actuarial losses of $327.9 million and unrecognized prior service costs of $2.1 million that have not yet been recognized in net periodic pension or postretirement benefit cost. We expect to recognize $23.4 million ($15.7 million net of tax) in net periodic pension and postretirement benefit expense during 2015 related to the amortization of actuarial losses of $23.1 million and the amortization of prior service costs of $0.3 million.

## Defined Benefit Pension Plans

The significant assumptions used to determine benefit obligations are as follows as of November 30:

<table><tr><td></td><td colspan="2">United States</td><td colspan="2">International</td></tr><tr><td></td><td>2014</td><td>2013</td><td>2014</td><td>2013</td></tr><tr><td>Discount rate—funded plan</td><td>4.4%</td><td>5.2%</td><td>3.8%</td><td>4.6%</td></tr><tr><td>Discount rate—unfunded plan</td><td>4.3%</td><td>5.1%</td><td>—</td><td>—</td></tr><tr><td>Salary scale</td><td>3.8%</td><td>3.8%</td><td>3.0-3.8%</td><td>3.0-3.8%</td></tr></table>



The significant assumptions used to determine pension expense are as follows:

<table><tr><td></td><td colspan="3">United States</td><td colspan="3">International</td></tr><tr><td></td><td>2014</td><td>2013</td><td>2012</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Discount rate—funded plan</td><td>5.2%</td><td>4.3%</td><td>5.5%</td><td>4.6%</td><td>4.4%</td><td>5.1%</td></tr><tr><td>Discount rate—unfunded plan</td><td>5.1%</td><td>4.2%</td><td>5.4%</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Salary scale</td><td>3.8%</td><td>3.8%</td><td>3.8%</td><td>3.0-3.8%</td><td>3.0-3.8%</td><td>3.0.3-3.8%</td></tr><tr><td>Expected return on plan assets</td><td>8.0%</td><td>8.0%</td><td>8.3%</td><td>6.4%</td><td>6.6%</td><td>6.7%</td></tr></table>

Annually, we undertake a process, with the assistance of our external investment consultants, to evaluate the appropriate projected rates of return to use for our pension plans' assumptions. We engage our investment consultants' research teams to develop capital market assumptions for each asset category in our plans to project investment returns into the future. The specific methods used to develop expected return assumptions vary by asset category. We adjust the outcomes for the fact that plan assets are invested with actively managed funds and subject to tactical asset reallocation.

Our 2013 pension expense includes a loss on voluntary pension settlement of $15.3 million related to the U.S. pension plan. During the third quarter of 2013, we offered former employees with deferred vested benefits in that plan the opportunity to settle those benefits in exchange for a lump sum payment. Based upon the acceptance of that offer by certain employees, $63.3 million was paid from plan assets in the fourth quarter of 2013 with a corresponding decrease in the benefit obligation and we recognized the $15.3 million settlement loss previously described. The loss on voluntary pension settlement is reflected as a separate line in the consolidated income statement.

Our pension expense was as follows:

<table><tr><td></td><td colspan="3">United States</td><td colspan="3">International</td></tr><tr><td>(millions)</td><td>2014</td><td>2013</td><td>2012</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Service cost</td><td>$ 20.0</td><td>$ 23.2</td><td>$ 17.5</td><td>$ 7.8</td><td>$ 8.8</td><td>$ 6.8</td></tr><tr><td>Interest costs</td><td>31.1</td><td>31.2</td><td>31.8</td><td>13.8</td><td>12.6</td><td>12.8</td></tr><tr><td>Expected return on plan assets</td><td>(38.8)</td><td>(41.4)</td><td>(37.8)</td><td>(18.7)</td><td>(17.2)</td><td>(16.2)</td></tr><tr><td>Loss on voluntary pension settlement</td><td>—</td><td>15.3</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Amortization of prior service costs</td><td>—</td><td>—</td><td>0.1</td><td>0.3</td><td>0.4</td><td>0.4</td></tr><tr><td>Amortization of net actuarial loss</td><td>11.8</td><td>29.5</td><td>18.1</td><td>4.6</td><td>5.6</td><td>3.5</td></tr><tr><td>Other</td><td>—</td><td>—</td><td>—</td><td>—</td><td>0.1</td><td>—</td></tr><tr><td></td><td>$ 24.1</td><td>$ 57.8</td><td>$ 29.7</td><td>$ 7.8</td><td>$ 10.3</td><td>$ 7.3</td></tr></table>

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:

<table><tr><td></td><td colspan="3">United States</td><td colspan="2">International</td></tr><tr><td>(millions)</td><td>2014</td><td>2013</td><td>2014</td><td>2013</td><td></td></tr><tr><td>Change in benefit obligation:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Benefit obligation at beginning of year</td><td>$607.7</td><td>$735.2</td><td>$304.9</td><td>$300.8</td><td></td></tr><tr><td>Service cost</td><td>20.0</td><td>23.2</td><td>7.8</td><td>8.8</td><td></td></tr><tr><td>Interest costs</td><td>31.1</td><td>31.2</td><td>13.8</td><td>12.6</td><td></td></tr><tr><td>Employee contributions</td><td>—</td><td>—</td><td>1.5</td><td>1.7</td><td></td></tr><tr><td>Voluntary pension settlement</td><td>—</td><td>(63.3)</td><td>—</td><td>—</td><td></td></tr><tr><td>Plan changes and other</td><td>—</td><td>—</td><td>(0.6)</td><td>(1.4)</td><td></td></tr><tr><td>Actuarial (gain) loss</td><td>94.0</td><td>(97.8)</td><td>49.9</td><td>(5.5)</td><td></td></tr><tr><td>Benefits paid</td><td>(24.4)</td><td>(20.8)</td><td>(13.9)</td><td>(8.6)</td><td></td></tr><tr><td>Expenses paid</td><td>—</td><td>—</td><td>(0.8)</td><td>(0.8)</td><td></td></tr><tr><td>Foreign currency impact</td><td>—</td><td>—</td><td>(21.0)</td><td>(2.7)</td><td></td></tr><tr><td>Benefit obligation at end of year</td><td>$728.4</td><td>$607.7</td><td>$341.6</td><td>$304.9</td><td></td></tr></table>



<table><tr><td rowspan="2">(millions)</td><td colspan="2">United States</td><td colspan="2">International</td></tr><tr><td>2014</td><td>2013</td><td>2014</td><td>2013</td></tr><tr><td>Change in fair value of plan assets:</td><td></td><td></td><td></td><td></td></tr><tr><td>Fair value of plan assets at beginning of year</td><td>$ 552.3</td><td>$519.8</td><td>$279.9</td><td>$247.6</td></tr><tr><td>Actual return on plan assets</td><td>43.9</td><td>84.5</td><td>44.8</td><td>31.4</td></tr><tr><td>Employer contributions</td><td>4.5</td><td>32.1</td><td>12.3</td><td>10.6</td></tr><tr><td>Employee contributions</td><td>—</td><td>—</td><td>1.5</td><td>1.7</td></tr><tr><td>Voluntary pension settlement</td><td>—</td><td>(63.3)</td><td>—</td><td>—</td></tr><tr><td>Benefits paid</td><td>(24.4)</td><td>(20.8)</td><td>(13.9)</td><td>(8.6)</td></tr><tr><td>Expenses paid</td><td>—</td><td>—</td><td>(0.8)</td><td>(0.8)</td></tr><tr><td>Foreign currency impact</td><td>—</td><td>—</td><td>(18.5)</td><td>(2.0)</td></tr><tr><td>Fair value of plan assets at end of year</td><td>$ 576.3</td><td>$552.3</td><td>$305.3</td><td>$279.9</td></tr><tr><td>Funded status</td><td>$ (152.1)</td><td>$ (55.4)</td><td>$ (36.3)</td><td>$ (25.0)</td></tr><tr><td>Pension plans in which accumulated benefit obligation exceeded plan assets</td><td></td><td></td><td></td><td></td></tr><tr><td>Accumulated benefit obligation</td><td>$ 86.7</td><td>$ 76.8</td><td>$189.2</td><td>$191.4</td></tr><tr><td>Fair value of plan assets</td><td>—</td><td>—</td><td>174.2</td><td>176.8</td></tr></table>

Included in the U.S. in the preceding table is a benefit obligation of $91.3 million and $81.2 million for 2014 and 2013, respectively, related to a nonqualified defined benefit plan pursuant to which we will pay supplemental pension benefits to certain key employees upon retirement based upon the employees' years of service and compensation. The accumulated benefit obligation related to this plan was $86.7 million and $76.8 million as of November 30, 2014 and 2013, respectively. The assets related to this plan, which totaled $79.6 million and $74.4 million as of November 30, 2014 and 2013, respectively, are held in a rabbi trust and accordingly have not been included in the preceding table.

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

<table><tr><td></td><td colspan="2">United States</td><td colspan="2">International</td></tr><tr><td>(millions)</td><td>2014</td><td>2013</td><td>2014</td><td>2013</td></tr><tr><td>Non-current pension asset</td><td>—</td><td>$25.8</td><td>$ 0.3</td><td>—</td></tr><tr><td>Accrued pension liability</td><td>$152.1</td><td>81.2</td><td>36.6</td><td>$25.0</td></tr><tr><td>Deferred income tax assets</td><td>87.9</td><td>59.4</td><td>19.3</td><td>15.7</td></tr><tr><td>Accumulated other comprehensive loss</td><td>144.0</td><td>95.5</td><td>82.5</td><td>74.1</td></tr></table>

The accumulated benefit obligation is the present value of pension benefits (whether vested or unvested) attributed to employee service rendered before the measurement date and based on employee service and compensation prior to that date. The accumulated benefit obligation differs from the projected benefit obligation in that it includes no assumption about future compensation or service levels. The accumulated benefit obligation for the U.S. pension plans was $636.7 million and $532.8 million as of November 30, 2014 and 2013, respectively. The accumulated benefit obligation for the international pension plans was $310.9 million and $276.5 million as of November 30, 2014 and 2013, 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 comprised of fixed income securities. Professional investment firms are engaged to provide advice on the selection and monitoring of investment funds, and to provide advice on the allocation of plan assets across the various fund managers. This advice is based in part on the duration of each plan’s liability. The investment return performances are evaluated quarterly against specific benchmark indices and against a peer group of funds of the same asset classification.

Our allocations of U.S. pension plan assets as of November 30, 2014 and 2013, by asset category, were as follows:

<table><tr><td></td><td colspan="2">Actual</td><td>2014</td></tr><tr><td>Asset Category</td><td>2014</td><td>2013</td><td>Target</td></tr><tr><td>Equity securities</td><td>70.4%</td><td>70.2%</td><td>65.0%</td></tr><tr><td>Fixed income securities</td><td>15.5%</td><td>23.1%</td><td>17.5%</td></tr><tr><td>Other</td><td>14.1%</td><td>6.7%</td><td>17.5%</td></tr><tr><td>Total</td><td>100.0%</td><td>100.0%</td><td>100.0%</td></tr></table>

The allocations of the international pension plans’ assets as of November 30, 2014 and 2013, by asset category, were as follows:

<table><tr><td></td><td colspan="2">Actual</td><td>2014</td></tr><tr><td>Asset Category</td><td>2014</td><td>2013</td><td>Target</td></tr><tr><td>Equity securities</td><td>56.6%</td><td>57.6%</td><td>53.0%</td></tr><tr><td>Fixed income securities</td><td>43.2%</td><td>42.1%</td><td>41.0%</td></tr><tr><td>Other</td><td>0.2%</td><td>0.3%</td><td>6.0%</td></tr><tr><td>Total</td><td>100.0%</td><td>100.0%</td><td>100.0%</td></tr></table>



The following tables set forth by level, within the fair value hierarchy as described in note 8, pension plan assets at their fair value as of November 30, 2014 and 2013 for the United States and international plans:

<table><tr><td colspan="2">As of November 30, 2014</td><td colspan="3">United States</td></tr><tr><td>(millions)</td><td>Total fair value</td><td>Level 1</td><td>Level 2</td><td>Level 3</td></tr><tr><td>Cash and cash equivalents</td><td>$ 15.0</td><td>$ 15.0</td><td>—</td><td>—</td></tr><tr><td>Equity securities:</td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. equity securities \( ^{(a)} \)</td><td>301.0</td><td>144.3</td><td>$156.7</td><td>—</td></tr><tr><td>International equity securities \( ^{(b)} \)</td><td>111.1</td><td>111.1</td><td>—</td><td>—</td></tr><tr><td>Fixed income securities:</td><td></td><td></td><td></td><td></td></tr><tr><td>U.S./government/ corporate bonds \( ^{(c)} \)</td><td>30.6</td><td>30.6</td><td>—</td><td>—</td></tr><tr><td>High yield bonds \( ^{(d)} \)</td><td>31.9</td><td>—</td><td>31.9</td><td>—</td></tr><tr><td>International/government/ corporate bonds \( ^{(e)} \)</td><td>25.9</td><td>25.9</td><td>—</td><td>—</td></tr><tr><td>Insurance contracts \( ^{(f)} \)</td><td>1.1</td><td>—</td><td>1.1</td><td>—</td></tr><tr><td>Other types of investments:</td><td></td><td></td><td></td><td></td></tr><tr><td>Hedge funds \( ^{(g)} \)</td><td>54.7</td><td>—</td><td>—</td><td>$54.7</td></tr><tr><td>Private equity funds \( ^{(h)} \)</td><td>5.0</td><td>—</td><td>—</td><td>5.0</td></tr><tr><td>Total investments</td><td>$576.3</td><td>$326.9</td><td>$189.7</td><td>$59.7</td></tr></table>

<table><tr><td colspan="2">As of November 30, 2014</td><td colspan="4">International</td></tr><tr><td>(millions)</td><td>Total fair value</td><td>Level 1</td><td>Level 2</td><td>Level 3</td><td></td></tr><tr><td>Cash and cash equivalents</td><td>$ 0.6</td><td>$0.6</td><td>—</td><td>—</td><td></td></tr><tr><td>International equity securities \( ^{(h)} \)</td><td>172.7</td><td>—</td><td>$172.7</td><td>—</td><td></td></tr><tr><td>Fixed income securities:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S./government/ corporate bonds \( ^{(c)} \)</td><td>108.5</td><td>—</td><td>108.5</td><td>—</td><td></td></tr><tr><td>Insurance contracts \( ^{(i)} \)</td><td>23.5</td><td>—</td><td>23.5</td><td>—</td><td></td></tr><tr><td>Total investments</td><td>$305.3</td><td>$0.6</td><td>$304.7</td><td>—</td><td></td></tr></table>

<table><tr><td colspan="2">As of November 30, 2013</td><td colspan="4">United States</td></tr><tr><td>(millions)</td><td>Total fair value</td><td>Level 1</td><td>Level 2</td><td>Level 3</td><td></td></tr><tr><td>Cash and cash equivalents</td><td>$ 13.5</td><td>$ 13.5</td><td>—</td><td>—</td><td></td></tr><tr><td>Equity securities:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. equity securities \( ^{(a)} \)</td><td>277.2</td><td>129.5</td><td>$147.7</td><td>—</td><td></td></tr><tr><td>International equity securities \( ^{(b)} \)</td><td>110.7</td><td>110.7</td><td>—</td><td>—</td><td></td></tr><tr><td>Fixed income securities:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S./government/ corporate bonds \( ^{(c)} \)</td><td>72.5</td><td>72.5</td><td>—</td><td>—</td><td></td></tr><tr><td>High yield bonds \( ^{(d)} \)</td><td>29.3</td><td>—</td><td>29.3</td><td>—</td><td></td></tr><tr><td>International/government/ corporate bonds \( ^{(e)} \)</td><td>24.7</td><td>24.7</td><td>—</td><td>—</td><td></td></tr><tr><td>Insurance contracts \( ^{(f)} \)</td><td>1.0</td><td>—</td><td>1.0</td><td>—</td><td></td></tr><tr><td>Other types of investments:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Hedge funds \( ^{(g)} \)</td><td>18.5</td><td>—</td><td>—</td><td>$18.5</td><td></td></tr><tr><td>Private equity funds \( ^{(h)} \)</td><td>4.9</td><td>—</td><td>—</td><td>4.9</td><td></td></tr><tr><td>Total investments</td><td>$552.3</td><td>$350.9</td><td>$178.0</td><td>$23.4</td><td></td></tr></table>

<table><tr><td colspan="2">As of November 30, 2013</td><td colspan="4">International</td></tr><tr><td>(millions)</td><td>Total fair value</td><td>Level 1</td><td>Level 2</td><td>Level 3</td><td></td></tr><tr><td>Cash and cash equivalents</td><td>$ 0.6</td><td>$0.6</td><td>—</td><td>—</td><td></td></tr><tr><td>International equity securities \( ^{(h)} \)</td><td>161.4</td><td>—</td><td>$161.4</td><td>—</td><td></td></tr><tr><td>Fixed income securities:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S./government/ corporate bonds \( ^{(c)} \)</td><td>99.3</td><td>—</td><td>99.3</td><td>—</td><td></td></tr><tr><td>Insurance contracts \( ^{(i)} \)</td><td>18.6</td><td>—</td><td>18.6</td><td>—</td><td></td></tr><tr><td>Total investments</td><td>$279.9</td><td>$0.6</td><td>$279.3</td><td>—</td><td></td></tr></table>

(a) This category comprises equity funds and collective equity trust funds that most closely track the S&P index and other equity indices.

(b) This category comprises international equity funds with varying benchmark indices.

(c) This category comprises funds consisting of U.S. government and U.S. corporate bonds and other fixed income securities. An appropriate benchmark is the Barclays Capital Aggregate Bond Index.

(d) This category comprises funds consisting of real estate related debt securities with an appropriate benchmark of the Barclays Investment Grade CMBS Index.

(e) This category comprises funds consisting of international government/corporate bonds and other fixed income securities with varying benchmark indices.

(f) This category comprises insurance contracts, the majority of which have a guaranteed investment return.

(g) This category comprises hedge funds investing in strategies represented in various HFRI Fund indices.

(h) This category comprises private equity, venture capital and limited partnerships.

The change in fair value of the plans’ Level 3 assets for 2014 is summarized as follows:

<table><tr><td>(millions)</td><td>Beginning of year</td><td>Realized gains</td><td>Unrealized gains (losses)</td><td>Net, purchases and (sales)</td><td>End of year</td></tr><tr><td>Hedge funds</td><td>$18.5</td><td>$1.5</td><td>$1.7)</td><td>$36.4</td><td>$54.7</td></tr><tr><td>Private equity funds</td><td>4.9</td><td>0.9</td><td>0.2</td><td>(1.0)</td><td>5.0</td></tr><tr><td>Total</td><td>$23.4</td><td>$2.4</td><td>$1.5)</td><td>$35.4</td><td>$59.7</td></tr></table>

The change in fair value of the plans’ Level 3 assets for 2013 is summarized as follows:

<table><tr><td>(millions)</td><td>Beginning of year</td><td>Realized gains</td><td>Unrealized gains (losses)</td><td>Net, purchases and (sales)</td><td>End of year</td></tr><tr><td>Hedge funds</td><td>$21.1</td><td>$0.9</td><td>$1.5</td><td>$(5.0)</td><td>$18.5</td></tr><tr><td>Private equity funds</td><td>5.3</td><td>0.5</td><td>(0.1)</td><td>(0.8)</td><td>4.9</td></tr><tr><td>Total</td><td>$26.4</td><td>$1.4</td><td>$1.4</td><td>$9.5</td><td>$22.4</td></tr></table>

The value for the Level 3 hedge funds’ assets is determined by an administrator using financial statements of the underlying funds or estimates provided by fund managers. The value for the Level 3 private equity funds’ assets is determined by the general partner or the general partner’s designee. In addition, for the plans’ Level 3 assets, we engage an independent advisor to compare the funds’ returns to other funds with similar strategies. Each fund is required to have an annual audit by an independent accountant, which is provided to the independent advisor. This provides a basis of comparability relative to similar assets in this category.



Equity securities in the U.S. plan included McCormick stock with a fair value of $33.0 million (0.5 million shares and 5.7% of total U.S. pension plan assets) and $31.6 million (0.5 million shares and 5.7% of total U.S. pension plans assets) at November 30, 2014 and 2013, respectively. Dividends paid on these shares were $0.7 million in 2014 and $0.6 million in 2013.

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. plans for the next 10 fiscal years will be as follows:

<table><tr><td>(millions)</td><td>United States expected payments</td></tr><tr><td>2015</td><td>$ 24.5</td></tr><tr><td>2016</td><td>25.5</td></tr><tr><td>2017</td><td>27.4</td></tr><tr><td>2018</td><td>30.1</td></tr><tr><td>2019</td><td>31.7</td></tr><tr><td>2020-2024</td><td>195.4</td></tr></table>

It is anticipated that future benefit payments for the international plans for the next 10 fiscal years will be as follows:

<table><tr><td>(millions)</td><td>International expected payments</td></tr><tr><td>2015</td><td>$ 8.5</td></tr><tr><td>2016</td><td>8.9</td></tr><tr><td>2017</td><td>9.9</td></tr><tr><td>2018</td><td>10.8</td></tr><tr><td>2019</td><td>12.3</td></tr><tr><td>2020-2024</td><td>79.7</td></tr></table>

## 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 for U.S. employees not covered by the defined benefit plan. Some of our smaller U.S. subsidiaries sponsor separate 401(k) retirement plans. Our contributions charged to expense under all 401(k) retirement plans were $7.7 million, $7.7 million and $7.4 million in 2014, 2013 and 2012, respectively.

At the participant’s election, 401(k) retirement plans held 2.3 million shares of McCormick stock, with a fair value of $164.9 million, at November 30, 2014. Dividends paid on these shares in 2014 were $3.5 million.

## Postretirement Benefits Other Than Pensions

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

Our other postretirement benefit expense follows:

<table><tr><td>(millions)</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Service cost</td><td>$3.6</td><td>$ 5.1</td><td>$ 4.0</td></tr><tr><td>Interest costs</td><td>4.3</td><td>4.1</td><td>4.9</td></tr><tr><td>Amortization of prior service costs</td><td>—</td><td>(1.2)</td><td>(4.0)</td></tr><tr><td>Amortization of losses</td><td>—</td><td>1.4</td><td>—</td></tr><tr><td>Special termination benefits</td><td>—</td><td>—</td><td>(0.1)</td></tr><tr><td>Postretirement benefit expense</td><td>$7.9</td><td>$ 9.4</td><td>$ 4.8</td></tr></table>

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:

<table><tr><td>(millions)</td><td>2014</td><td>2013</td></tr><tr><td>Change in benefit obligation:</td><td></td><td></td></tr><tr><td>Benefit obligation at beginning of year</td><td>$94.9</td><td>$112.8</td></tr><tr><td>Service cost</td><td>3.6</td><td>5.1</td></tr><tr><td>Interest costs</td><td>4.3</td><td>4.1</td></tr><tr><td>Employee contributions</td><td>2.9</td><td>2.9</td></tr><tr><td>Demographic assumptions change</td><td>(5.8)</td><td>(8.1)</td></tr><tr><td>Other plan assumptions</td><td>1.1</td><td>(1.5)</td></tr><tr><td>Trend rate assumption change</td><td>0.1</td><td>—</td></tr><tr><td>Discount rate change</td><td>5.8</td><td>(8.7)</td></tr><tr><td>Actuarial gain</td><td>(2.3)</td><td>(3.3)</td></tr><tr><td>Benefits paid</td><td>(8.3)</td><td>(8.4)</td></tr><tr><td>Benefit obligation at end of year</td><td>$96.3</td><td>$ 94.9</td></tr><tr><td>Change in fair value of plan assets:</td><td></td><td></td></tr><tr><td>Fair value of plan assets at beginning of year</td><td>—</td><td>—</td></tr><tr><td>Employer contributions</td><td>$ 5.4</td><td>$ 5.5</td></tr><tr><td>Employee contributions</td><td>2.9</td><td>2.9</td></tr><tr><td>Benefits paid</td><td>(8.3)</td><td>(8.4)</td></tr><tr><td>Fair value of plan assets at end of year</td><td>—</td><td>—</td></tr><tr><td>Other postretirement benefit liability</td><td>$96.3</td><td>$ 94.9</td></tr></table>

Estimated future benefit payments (net of employee contributions) for the next 10 fiscal years are as follows:

<table><tr><td>(millions)</td><td>Retiree medical</td><td>Retiree life insurance</td><td>Total</td></tr><tr><td>2015</td><td>$ 5.8</td><td>$1.1</td><td>$ 6.9</td></tr><tr><td>2016</td><td>5.7</td><td>1.1</td><td>6.8</td></tr><tr><td>2017</td><td>5.7</td><td>1.2</td><td>6.9</td></tr><tr><td>2018</td><td>5.8</td><td>1.2</td><td>7.0</td></tr><tr><td>2019</td><td>5.9</td><td>1.2</td><td>7.1</td></tr><tr><td>2020-2024</td><td>29.4</td><td>6.3</td><td>35.7</td></tr></table>

The assumed discount rate was 4.0% and 4.7% for 2014 and 2013, respectively.

For 2014, the assumed annual rate of increase in the cost of covered health care benefits is 7.0% (7.0% last year). It is assumed to decrease gradually to 5.0% in the year 2022 (5.0% in 2021 last year) and remain at that level thereafter. A one percentage point increase or decrease in the assumed health care cost trend rate would have had an immaterial effect on the benefit obligation and the total of service and interest cost components for 2014.



## 11. STOCK-BASED COMPENSATION

We have three types of stock-based compensation awards: restricted stock units (RSUs), stock options and company stock awarded as part of our long-term performance plan (LTPP) (formerly known as our mid-term incentive program or MTIP). Total stock-based compensation expense for 2014, 2013 and 2012 was $18.2 million, $18.7 million and $20.2 million, respectively. Total unrecognized stock-based compensation expense at November 30, 2014 was $18.9 million and the weighted-average period over which this will be recognized is 1.1 years. As of November 30, 2014, we have 5.8 million shares remaining available for future issuance under our RSUs, stock option and LTPP award programs.

For all awards, forfeiture rates are considered in the calculation of compensation expense.

Below we have summarized the key terms and the methods of valuation and expense recognition for each of our stock-based compensation awards.

## RSUs

RSUs are valued at the market price of the underlying stock, discounted by foregone dividends, on the date of grant. Substantially all of the RSUs granted in 2014 vest over a three-year term or upon retirement. Prior to 2014, substantially all of the RSUs granted vested over a two-year term or upon retirement. Compensation expense is recorded in the income statement ratably over the shorter of the period until vested or the employee’s retirement eligibility date.

A summary of our RSU activity for the years ended November 30 follows:

<table><tr><td>(shares in thousands)</td><td colspan="2">2014</td><td colspan="2">2013</td><td colspan="2">2012</td></tr><tr><td></td><td>Shares</td><td>Weighted-average price</td><td>Shares</td><td>Weighted-average price</td><td>Shares</td><td>Weighted-average price</td></tr><tr><td>Beginning of year</td><td>161</td><td>$60.86</td><td>192</td><td>$49.65</td><td>233</td><td>$43.23</td></tr><tr><td>Granted</td><td>180</td><td>71.15</td><td>89</td><td>71.60</td><td>113</td><td>54.30</td></tr><tr><td>Vested</td><td>(93)</td><td>62.57</td><td>(116)</td><td>50.91</td><td>(147)</td><td>42.82</td></tr><tr><td>Forfeited</td><td>(9)</td><td>70.14</td><td>(4)</td><td>59.25</td><td>(7)</td><td>47.88</td></tr><tr><td>Outstanding—end of year</td><td>239</td><td>$67.60</td><td>161</td><td>$60.86</td><td>192</td><td>$49.65</td></tr></table>

## Stock Options

Stock options are granted with an exercise price equal to the market price of the stock on the date of grant. Substantially all of the options granted in 2014 vested ratably over a three-year period or upon retirement and are exercisable over a 10-year period. Prior to 2014, substantially all of the options granted vest ratably over a four-year period or upon retirement. Upon exercise of the option, shares are issued from our authorized and unissued shares.

The fair value of the options is estimated with a lattice option pricing model which uses the assumptions in the table below. We believe the lattice model provides an appropriate estimate of fair value of our options as it allows for a range of possible outcomes over an option term and can be adjusted for changes in certain assumptions over time. Expected volatilities are based on the historical performance of our stock. We also use historical data to estimate the timing and amount of option exercises and forfeitures within the valuation model. The expected term of the options is an output of the option pricing model and estimates the period of time that options are expected to remain unexercised. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation expense is calculated based on the fair value of the options on the date of grant. This compensation is recorded in the income statement ratably over the shorter of the period until vested or the employee's retirement eligibility date.

The per share weighted-average fair value for all options granted was $9.48, $9.47 and $7.17 in 2014, 2013 and 2012, respectively. These fair values were computed using the following range of assumptions for our various stock compensation plans for the years ended November 30:

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Risk-free interest rates</td><td>0.1-2.7%</td><td>0.1-1.8%</td><td>0.1-2.2%</td></tr><tr><td>Dividend yield</td><td>2.1%</td><td>1.9%</td><td>2.3%</td></tr><tr><td>Expected volatility</td><td>15.6-20.1%</td><td>14.5-20.6%</td><td>16.5-21.6%</td></tr><tr><td>Expected lives</td><td>5.8 years</td><td>6.2 years</td><td>6.1 years</td></tr></table>

Under our stock option plans, we may issue shares on a net basis at the request of the option holder. This occurs by netting the option cost in shares from the shares exercised.



A summary of our stock option activity for the years ended November 30 follows:

<table><tr><td>(shares in millions)</td><td colspan="2">2014</td><td colspan="2">2013</td><td colspan="2">2012</td></tr><tr><td></td><td>Shares</td><td>Weighted-average exercise price</td><td>Shares</td><td>Weighted-average exercise price</td><td>Shares</td><td>Weighted-average exercise价格</td></tr><tr><td>Beginning of year</td><td>4.6</td><td>$47.73</td><td>5.1</td><td>$40.06</td><td>6.6</td><td>$34.98</td></tr><tr><td>Granted</td><td>1.1</td><td>71.12</td><td>0.9</td><td>71.60</td><td>0.9</td><td>54.27</td></tr><tr><td>Exercised</td><td>(0.8)</td><td>37.19</td><td>(1.3)</td><td>34.11</td><td>(2.4)</td><td>31.43</td></tr><tr><td>Forfeited</td><td>(0.1)</td><td>67.22</td><td>(0.1)</td><td>57.33</td><td>—</td><td>—</td></tr><tr><td>Outstanding—end of year</td><td>4.8</td><td>54.17</td><td>4.6</td><td>47.73</td><td>5.1</td><td>40.06</td></tr><tr><td>Exercisable—end of year</td><td>2.8</td><td>$45.71</td><td>2.7</td><td>$39.62</td><td>2.7</td><td>$34.99</td></tr></table>

As of November 30, 2014, the intrinsic value (the difference between the exercise price and the market price) for all options currently outstanding was $96.5 million and for options currently exercisable was $81.0 million. At November 30, 2014, the differences between options outstanding and options expected to vest and their related weighted-average exercise prices, aggregate intrinsic values and weighted-average remaining lives were not material. The total intrinsic value of all options exercised during the years ended November 30, 2014, 2013 and 2012 was $25.9 million, $43.7 million and $62.8 million, respectively. A summary of our stock options outstanding and exercisable at November 30, 2014 follows:

<table><tr><td>(shares in millions)</td><td colspan="3">Options outstanding</td><td colspan="3">Options exercisable</td></tr><tr><td>Range of exercise price</td><td>Shares</td><td>Weighted-average remaining life (yrs)</td><td>Weighted-average exercise price</td><td>Shares</td><td>Weighted-average remaining life (yrs)</td><td>Weight-ed-average exercise price</td></tr><tr><td>$20.00-$40.00</td><td>1.4</td><td>3.9</td><td>$35.71</td><td>1.4</td><td>3.9</td><td>$35.71</td></tr><tr><td>$40.01-$60.00</td><td>1.5</td><td>6.8</td><td>50.77</td><td>1.0</td><td>6.7</td><td>50.24</td></tr><tr><td>$60.01-$80.00</td><td>1.9</td><td>8.9</td><td>71.33</td><td>0.4</td><td>8.5</td><td>71.48</td></tr><tr><td></td><td>4.8</td><td>6.5</td><td>$54.17</td><td>2.8</td><td>5.1</td><td>$45.71</td></tr></table>

## LTPP

Our LTPP delivers awards in a combination of cash and company stock. The stock compensation portion of the LTPP awards shares of company stock if certain company performance objectives are met at the end of a three-year period. These awards are valued at the market price of the underlying stock on the date of grant. Compensation expense is recorded in the income statement ratably over the three-year period of the program based on the number of shares ultimately expected to be awarded using our estimate of the most likely outcome of achieving the performance objectives.

A summary of the LTPP award activity for the years ended November 30 follows:

<table><tr><td>(shares in thousands)</td><td colspan="2">2014</td><td colspan="2">2013</td><td colspan="2">2012</td></tr><tr><td></td><td>Shares</td><td>Weighted-average price</td><td>Shares</td><td>Weighted-average price</td><td>Shares</td><td>Weighted-average price</td></tr><tr><td>Beginning of the year</td><td>334</td><td>$51.73</td><td>240</td><td>$46.63</td><td>120</td><td>$44.47</td></tr><tr><td>Granted</td><td>105</td><td>69.04</td><td>94</td><td>64.74</td><td>120</td><td>48.78</td></tr><tr><td>Vested</td><td>(118)</td><td>44.47</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Performance adjustment</td><td>(55)</td><td>48.78</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Forfeited</td><td>(35)</td><td>65.42</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Outstanding—end of the year</td><td>231</td><td>$61.94</td><td>334</td><td>$51.73</td><td>240</td><td>$46.63</td></tr></table>



## 12. INCOME TAXES

The provision for income taxes consists of the following:

<table><tr><td>(millions)</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Income taxes</td><td></td><td></td><td></td></tr><tr><td>Current</td><td></td><td></td><td></td></tr><tr><td>Federal</td><td>$ 91.3</td><td>$ 96.4</td><td>$ 79.4</td></tr><tr><td>State</td><td>11.3</td><td>10.3</td><td>10.1</td></tr><tr><td>International</td><td>37.2</td><td>42.2</td><td>26.0</td></tr><tr><td></td><td>139.8</td><td>148.9</td><td>115.5</td></tr><tr><td>Deferred</td><td></td><td></td><td></td></tr><tr><td>Federal</td><td>2.8</td><td>(0.1)</td><td>21.3</td></tr><tr><td>State</td><td>0.3</td><td>(0.4)</td><td>4.0</td></tr><tr><td>International</td><td>3.0</td><td>(14.8)</td><td>(1.0)</td></tr><tr><td></td><td>6.1</td><td>(15.3)</td><td>24.3</td></tr><tr><td>Total income taxes</td><td>$145.9</td><td>$133.6</td><td>$139.8</td></tr></table>

The components of income from consolidated operations before income taxes follow:

<table><tr><td>(millions)</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Pretax income</td><td></td><td></td><td></td></tr><tr><td>United States</td><td>$333.2</td><td>$351.2</td><td>$366.2</td></tr><tr><td>International</td><td>221.2</td><td>148.2</td><td>159.9</td></tr><tr><td></td><td>$554.4</td><td>$499.4</td><td>$526.1</td></tr></table>

A reconciliation of the U.S. federal statutory rate with the effective tax rate follows:

<table><tr><td></td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Federal statutory tax rate</td><td>35.0%</td><td>35.0%</td><td>35.0%</td></tr><tr><td>State income taxes, net of federal benefits</td><td>1.3</td><td>1.2</td><td>1.7</td></tr><tr><td>International tax at different effective rates</td><td>(7.0)</td><td>(6.9)</td><td>(6.5)</td></tr><tr><td>U.S. tax on remitted and unremitted earnings</td><td>0.4</td><td>—</td><td>(2.0)</td></tr><tr><td>U.S. manufacturing deduction</td><td>(1.6)</td><td>(1.8)</td><td>(1.6)</td></tr><tr><td>Changes in prior year tax contingencies</td><td>(2.0)</td><td>0.3</td><td>(0.1)</td></tr><tr><td>Other, net</td><td>0.2</td><td>(1.0)</td><td>0.1</td></tr><tr><td>Total</td><td>26.3%</td><td>26.8%</td><td>26.6%</td></tr></table>

Deferred tax assets and liabilities are comprised of the following:

<table><tr><td>(millions)</td><td>2014</td><td>2013</td></tr><tr><td>Deferred tax assets</td><td></td><td></td></tr><tr><td>Employee benefit liabilities</td><td>$145.0</td><td>$110.3</td></tr><tr><td>Other accrued liabilities</td><td>23.9</td><td>23.5</td></tr><tr><td>Inventory</td><td>10.8</td><td>11.1</td></tr><tr><td>Tax loss and credit carryforwards</td><td>38.9</td><td>41.4</td></tr><tr><td>Other</td><td>11.7</td><td>9.5</td></tr><tr><td>Valuation allowance</td><td>(21.8)</td><td>(21.2)</td></tr><tr><td></td><td>208.5</td><td>174.6</td></tr><tr><td>Deferred tax liabilities</td><td></td><td></td></tr><tr><td>Depreciation</td><td>38.8</td><td>45.3</td></tr><tr><td>Intangible assets</td><td>192.6</td><td>178.2</td></tr><tr><td>Other</td><td>8.7</td><td>7.4</td></tr><tr><td></td><td>240.1</td><td>230.9</td></tr><tr><td>Net deferred tax liability</td><td>$ (31.6)</td><td>$ (56.3)</td></tr></table>

At November 30, 2014, our non-U.S. subsidiaries have tax loss carryforwards of $142.3 million. Of these carryforwards, $26.9 million expire through 2016, $48.5 million from 2017 through 2025 and $66.9 million may be carried forward indefinitely.

At November 30, 2014, our non-U.S. subsidiaries have capital loss carryforwards of $5.9 million. All of these carryforwards may be carried forward indefinitely.

At November 30, 2014, we have tax credit carryforwards of $17.5 million, of which $3.4 million expire in 2020, $0.6 million in 2021 and $13.5 million in 2022.

A valuation allowance has been provided to record deferred tax assets at their net realizable value based on a more likely than not criteria. The $0.6 million net increase in the valuation allowance was mainly due to the recognition of deferred tax assets related to subsidiaries net operating losses which are now more likely than not to be realized, offset by additional valuation allowance related to losses generated in other subsidiaries in 2014 which may not be realized in future periods.

U.S. income taxes are not provided for unremitted earnings of international subsidiaries and affiliates where our intention is to reinvest these earnings permanently. Unremitted earnings of such entities were $1.25 billion at November 30, 2014. Upon distribution of these earnings, we could be subject to both U.S. income taxes and withholding taxes. Determination of the unrecognized deferred income tax liability is not practical because of the complexities involved with this hypothetical calculation.

The total amount of unrecognized tax benefits as of November 30, 2014 and November 30, 2013 were $55.7 million and $58.0 million, respectively. If recognized, $45.6 million of these tax benefits would affect the effective tax rate.

The following table summarizes the activity related to our gross unrecognized tax benefits for the years ended November 30:

<table><tr><td>(millions)</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Balance at beginning of year</td><td>$58.0</td><td>$46.7</td><td>$33.2</td></tr><tr><td>Additions for current year tax positions</td><td>11.4</td><td>10.3</td><td>10.6</td></tr><tr><td>Additions for prior year tax positions</td><td>0.7</td><td>2.2</td><td>3.9</td></tr><tr><td>Reductions for prior year tax positions</td><td>(9.5)</td><td>—</td><td>—</td></tr><tr><td>Settlements</td><td>(3.5)</td><td>—</td><td>—</td></tr><tr><td>Statute expirations</td><td>(0.7)</td><td>(0.1)</td><td>(1.2)</td></tr><tr><td>Foreign currency translation</td><td>(0.7)</td><td>(1.1)</td><td>0.2</td></tr><tr><td>Balance at November 30</td><td>$55.7</td><td>$58.0</td><td>$46.7</td></tr></table>

We record interest and penalties on income taxes in income tax expense. We recognized interest and penalty expense of $0.5 million, $1.3 million and $1.4 million for the years ended November 30, 2014, 2013 and 2012, respectively. As of November 30, 2014 and 2013, we had accrued $5.0 million and $5.2 million, respectively, of interest and penalties related to unrecognized tax benefits.

Tax settlements or statute of limitation expirations could result in a change to our uncertain tax positions. We believe that it is reasonably possible that the total amount of unrecognized tax benefits as of November 30, 2014 could decrease by approximately $2.1 million in the next 12 months as a result of various statute expirations, audit closures and/or tax settlements.



We file income tax returns in the U.S. federal jurisdiction and various state and non-U.S. jurisdictions. The open years subject to tax audits vary depending on the tax jurisdictions. In major jurisdictions, we are no longer subject to income tax audits by taxing authorities for years before 2007.

We reached the following tax settlements during 2014: (1) a settlement with respect to the French taxing authority’s audits of the 2007–2013 tax years; and (2) a settlement with respect to the Internal Revenue Service (IRS) examination of our U.S. federal income tax return for the 2007 and 2008 tax years.

We are under normal recurring tax audits in several of our major operations outside the U.S. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our reserves for uncertain tax positions are adequate to cover existing risks and exposures.

## 13. EARNINGS PER SHARE

The reconciliation of shares outstanding used in the calculation of basic and diluted earnings per share for the years ended November 30 follows:

<table><tr><td>(millions)</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Average shares outstanding—basic</td><td>129.9</td><td>132.1</td><td>132.7</td></tr><tr><td>Effect of dilutive securities:</td><td></td><td></td><td></td></tr><tr><td>Stock options/RSUs/LTPP</td><td>1.1</td><td>1.5</td><td>1.6</td></tr><tr><td>Average shares outstanding—diluted</td><td>131.0</td><td>133.6</td><td>134.3</td></tr></table>

The following table sets forth the stock options and RSUs for the years ended November 30 which were not considered in our earnings per share calculation since they were antidilutive.

<table><tr><td>(millions)</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Antidilutive securities</td><td>1.6</td><td>0.6</td><td>0.3</td></tr></table>

## 14. CAPITAL STOCK

Holders of Common Stock have full voting rights except that (1) the voting rights of persons who are deemed to own beneficially 10% or more of the outstanding shares of Common Stock are limited to 10% of the votes entitled to be cast by all holders of shares of Common Stock regardless of how many shares in excess of 10% are held by such person; (2) we have the right to redeem any or all shares of stock owned by such person unless such person acquires more than 90% of the outstanding shares of each class of our common stock; and (3) at such time as such person controls more than 50% of the vote entitled to be cast by the holders of outstanding shares of Common Stock, automatically, on a share-for-share basis, all shares of Common Stock Non-Voting will convert into shares of Common Stock.

Holders of Common Stock Non-Voting will vote as a separate class on all matters on which they are entitled to vote. Holders of Common Stock Non-Voting are entitled to vote on reverse mergers and statutory share exchanges where our capital stock is converted into other securities or property, dissolution of the company and the sale of substantially all of our assets, as well as forward mergers and consolidation of the company.

## 15. COMMITMENTS AND CONTINGENCIES

During the normal course of our business, we are occasionally involved with various claims and litigation. Reserves are established in connection with such matters when a loss is probable and the amount of such loss can be reasonably estimated. At November 30, 2014 and 2013, no material reserves were recorded. No reserves are established for losses which are only reasonably possible. The determination of probability and the estimation of the actual amount of any such loss is inherently unpredictable, and it is therefore possible that the eventual outcome of such claims and litigation could exceed the estimated reserves, if any. However, we believe that the likelihood that any such excess might have a material adverse effect on our financial statements is remote.

## 16. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS

## Business Segments

We operate in two business segments: consumer and industrial. The consumer and industrial segments manufacture, market and distribute spices, seasoning mixes, condiments and other flavorful products throughout the world. Our consumer segment sells to retail outlets, including grocery, mass merchandise, warehouse clubs, discount and drug stores under the “McCormick” brand and a variety of brands around the world, including “Lawry’s”, “Zatarain’s”, “Simply Asia”, “Thai Kitchen”, “Ducros”, “Vahine”, “Schwartz”, “Club House”, “Kamis”, “Kohinoor” and “DaQiao”. Our industrial segment sells to food manufacturers and the foodservice industry both directly and indirectly through distributors.

In each of our segments, we produce and sell many individual products which are similar in composition and nature. With their primary attribute being flavor, we regard the products within each of our segments to be fairly homogenous. It is impracticable to segregate and identify sales and profits for each of these individual product lines.

We measure segment performance based on operating income excluding special charges and loss on voluntary pension settlement as these activities are managed separately from the business segments. Although the segments are managed separately due to their distinct distribution channels and marketing strategies, manufacturing and warehousing are often integrated to maximize cost efficiencies. We do not segregate jointly utilized assets by individual segment for internal reporting, evaluating performance or allocating capital. Therefore, asset-related information has been disclosed in the aggregate.

We have a large number of customers for our products. Sales to one of our consumer business customers, Wal-Mart Stores, Inc., accounted for 11% of consolidated sales in 2014, 12% of consolidated sales in 2013 and 11% of consolidated sales in 2012. Sales to one of our industrial business customers, PepsiCo, Inc., accounted for 11% of consolidated sales in 2014, 2013 and 2012.

Accounting policies for measuring segment operating income and assets are consistent with those described in note 1. Because of integrated manufacturing for certain products within the segments, products are not sold from one segment to another but rather inventory is transferred at cost. Inter-segment sales are not material. Corporate assets include cash, deferred taxes, investments and certain fixed assets.



<table><tr><td>(millions)</td><td>Consumer</td><td>Industrial</td><td>Total segments</td><td>Corporate &amp; other</td><td>Total</td></tr><tr><td>2014</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net sales</td><td>$2,625.5</td><td>$1,617.7</td><td>$4,243.2</td><td>—</td><td>$4,243.2</td></tr><tr><td>Operating income excluding special charges</td><td>474.3</td><td>133.9</td><td>608.2</td><td>—</td><td>608.2</td></tr><tr><td>Income from unconsolidated operations</td><td>28.2</td><td>1.2</td><td>29.4</td><td>—</td><td>29.4</td></tr><tr><td>Goodwill</td><td>1,581.1</td><td>141.1</td><td>1,722.2</td><td>—</td><td>1,722.2</td></tr><tr><td>Assets</td><td>—</td><td>—</td><td>4,169.7</td><td>$244.6</td><td>4,414.3</td></tr><tr><td>Capital expenditures</td><td>—</td><td>—</td><td>108.6</td><td>24.1</td><td>132.7</td></tr><tr><td>Depreciation and amortization</td><td>—</td><td>—</td><td>71.7</td><td>31.0</td><td>102.7</td></tr><tr><td>2013</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net sales</td><td>$2,538.0</td><td>$1,585.4</td><td>$4,123.4</td><td>—</td><td>$4,123.4</td></tr><tr><td>Operating income excluding special charges and loss on voluntary pension settlement</td><td>472.3</td><td>118.5</td><td>590.8</td><td>—</td><td>590.8</td></tr><tr><td>Income from unconsolidated operations</td><td>19.5</td><td>3.7</td><td>23.2</td><td>—</td><td>23.2</td></tr><tr><td>Goodwill</td><td>1,654.7</td><td>143.8</td><td>1,798.5</td><td>—</td><td>1,798.5</td></tr><tr><td>Assets</td><td>—</td><td>—</td><td>4,142.9</td><td>$306.8</td><td>4,449.7</td></tr><tr><td>Capital expenditures</td><td>—</td><td>—</td><td>84.2</td><td>15.7</td><td>99.9</td></tr><tr><td>Depreciation and amortization</td><td>—</td><td>—</td><td>74.8</td><td>31.2</td><td>106.0</td></tr><tr><td>2012</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net sales</td><td>$2,415.3</td><td>$1,598.9</td><td>$4,014.2</td><td>—</td><td>$4,014.2</td></tr><tr><td>Operating income</td><td>456.1</td><td>122.2</td><td>578.3</td><td>—</td><td>578.3</td></tr><tr><td>Income from unconsolidated operations</td><td>17.3</td><td>4.2</td><td>21.5</td><td>—</td><td>21.5</td></tr><tr><td>Goodwill</td><td>1,551.0</td><td>144.3</td><td>1,695.3</td><td>—</td><td>1,695.3</td></tr><tr><td>Assets</td><td>—</td><td>—</td><td>3,912.2</td><td>$253.2</td><td>4,165.4</td></tr><tr><td>Capital expenditures</td><td>—</td><td>—</td><td>88.8</td><td>21.5</td><td>110.3</td></tr><tr><td>Depreciation and amortization</td><td>—</td><td>—</td><td>75.1</td><td>27.7</td><td>102.8</td></tr></table>

A reconciliation of operating income excluding special charges and loss on voluntary pension settlement (which we use to measure segment profitability) to operating income for the years ended November 30, 2014 and 2013 is as follows:

<table><tr><td>(millions)</td><td>2014</td><td>2013</td></tr><tr><td>Operating income excluding special charges and loss on voluntary pension settlement</td><td>$608.2</td><td>$590.8</td></tr><tr><td>Less: Special charges</td><td>5.2</td><td>25.0</td></tr><tr><td>Less: Loss on voluntary pension settlement</td><td>—</td><td>15.3</td></tr><tr><td>Operating income</td><td>$603.0</td><td>$550.5</td></tr></table>

## Geographic Areas

We have net sales and long-lived assets in the following geographic areas:

<table><tr><td>(millions)</td><td>United States</td><td>EMEA</td><td>Other countries</td><td>Total</td></tr><tr><td>2014</td><td></td><td></td><td></td><td></td></tr><tr><td>Net sales</td><td>$2,357.5</td><td>$930.8</td><td>$954.9</td><td>$4,243.2</td></tr><tr><td>Long-lived assets</td><td>1,284.0</td><td>920.0</td><td>451.7</td><td>2,655.7</td></tr><tr><td>2013</td><td></td><td></td><td></td><td></td></tr><tr><td>Net sales</td><td>$2,357.0</td><td>$883.4</td><td>$883.0</td><td>$4,123.4</td></tr><tr><td>Long-lived assets</td><td>1,275.7</td><td>989.2</td><td>443.6</td><td>2,708.5</td></tr><tr><td>2012</td><td></td><td></td><td></td><td></td></tr><tr><td>Net sales</td><td>$2,351.5</td><td>$860.5</td><td>$802.2</td><td>$4,014.2</td></tr><tr><td>Long-lived assets</td><td>1,291.5</td><td>956.6</td><td>318.0</td><td>2,566.1</td></tr></table>

Long-lived assets include property, plant and equipment, goodwill and intangible assets, net of accumulated depreciation and amortization.

## 17. SUPPLEMENTAL FINANCIAL STATEMENT DATA

Supplemental income statement, balance sheet and cash flow information follows:

<table><tr><td>(millions)</td><td>2014</td><td>2013</td></tr><tr><td>Inventories</td><td></td><td></td></tr><tr><td>Finished products</td><td>$ 303.2</td><td>$ 304.6</td></tr><tr><td>Raw materials and work-in-process</td><td>410.6</td><td>372.3</td></tr><tr><td></td><td>$ 713.8</td><td>$ 676.9</td></tr><tr><td>Prepaid expenses</td><td>$ 20.3</td><td>$ 37.7</td></tr><tr><td>Other current assets</td><td>111.2</td><td>97.1</td></tr><tr><td></td><td>$ 131.5</td><td>$ 134.8</td></tr><tr><td>Property, plant and equipment</td><td></td><td></td></tr><tr><td>Land and improvements</td><td>$ 57.6</td><td>$ 59.3</td></tr><tr><td>Buildings</td><td>346.4</td><td>335.4</td></tr><tr><td>Machinery and equipment</td><td>700.7</td><td>661.3</td></tr><tr><td>Software</td><td>301.7</td><td>292.5</td></tr><tr><td>Construction-in-progress</td><td>75.0</td><td>59.2</td></tr><tr><td>Accumulated depreciation</td><td>(878.7)</td><td>(831.1)</td></tr><tr><td></td><td>$ 602.7</td><td>$ 576.6</td></tr><tr><td>Investments and other assets</td><td></td><td></td></tr><tr><td>Investments in affiliates</td><td>$ 156.3</td><td>$ 160.6</td></tr><tr><td>Long-term investments</td><td>113.0</td><td>103.4</td></tr><tr><td>Prepaid allowances</td><td>17.3</td><td>19.3</td></tr><tr><td>Other assets</td><td>55.8</td><td>87.7</td></tr><tr><td></td><td>$ 342.4</td><td>$ 371.0</td></tr><tr><td>Other accrued liabilities</td><td></td><td></td></tr><tr><td>Payroll and employee benefits</td><td>$ 132.8</td><td>$ 120.4</td></tr><tr><td>Sales allowances</td><td>127.3</td><td>124.5</td></tr><tr><td>Other</td><td>219.0</td><td>216.8</td></tr><tr><td></td><td>$ 479.1</td><td>$ 461.7</td></tr></table>



<table><tr><td>(millions)</td><td>2014</td><td>2013</td></tr><tr><td>Other long-term liabilities</td><td></td><td></td></tr><tr><td>Pension</td><td>$182.3</td><td>$101.0</td></tr><tr><td>Postretirement benefits</td><td>89.5</td><td>88.2</td></tr><tr><td>Deferred taxes</td><td>108.2</td><td>139.3</td></tr><tr><td>Unrecognized tax benefits</td><td>47.3</td><td>53.0</td></tr><tr><td>Other</td><td>41.5</td><td>38.4</td></tr><tr><td></td><td>$468.8</td><td>$419.9</td></tr></table>

<table><tr><td>(millions)</td><td>2014</td><td>2013</td><td>2012</td></tr><tr><td>Depreciation</td><td>$ 67.7</td><td>$ 67.5</td><td>$ 63.6</td></tr><tr><td>Software amortization</td><td>20.0</td><td>23.6</td><td>23.7</td></tr><tr><td>Interest paid</td><td>50.0</td><td>54.2</td><td>54.7</td></tr><tr><td>Income taxes paid</td><td>129.0</td><td>106.3</td><td>103.3</td></tr></table>

Dividends paid per share were $1.48 in 2014, $1.36 in 2013 and $1.24 in 2012.

## 18. SELECTED QUARTERLY DATA (UNAUDITED)

<table><tr><td>(millions except per share data)</td><td>First</td><td>Second</td><td>Third</td><td>Fourth</td></tr><tr><td>2014</td><td></td><td></td><td></td><td></td></tr><tr><td>Net sales</td><td>$993.4</td><td>$1,033.4</td><td>$1,042.8</td><td>$1,173.6</td></tr><tr><td>Gross profit</td><td>391.5</td><td>412.5</td><td>420.1</td><td>506.1</td></tr><tr><td>Operating income</td><td>124.6</td><td>121.7</td><td>157.3</td><td>199.4</td></tr><tr><td>Net income</td><td>82.5</td><td>84.5</td><td>122.9</td><td>148.0</td></tr><tr><td>Basic earnings per share</td><td>0.63</td><td>0.65</td><td>0.95</td><td>1.15</td></tr><tr><td>Diluted earnings per share</td><td>0.62</td><td>0.64</td><td>0.94</td><td>1.14</td></tr><tr><td>Dividends paid per share—</td><td></td><td></td><td></td><td></td></tr><tr><td>Common Stock and</td><td></td><td></td><td></td><td></td></tr><tr><td>Common Stock Non-Voting</td><td>0.37</td><td>0.37</td><td>0.37</td><td>0.37</td></tr><tr><td>Market price—Common Stock</td><td></td><td></td><td></td><td></td></tr><tr><td>High</td><td>70.00</td><td>72.00</td><td>73.04</td><td>73.18</td></tr><tr><td>Low</td><td>62.80</td><td>65.57</td><td>66.00</td><td>65.90</td></tr><tr><td>Market price—Common Stock</td><td></td><td></td><td></td><td></td></tr><tr><td>Non-Voting</td><td></td><td></td><td></td><td></td></tr><tr><td>High</td><td>70.02</td><td>72.31</td><td>73.09</td><td>74.33</td></tr><tr><td>Low</td><td>63.03</td><td>66.12</td><td>65.78</td><td>65.61</td></tr><tr><td>2013</td><td></td><td></td><td></td><td></td></tr><tr><td>Net sales</td><td>$934.4</td><td>$1,002.6</td><td>$1,016.4</td><td>$1,170.1</td></tr><tr><td>Gross profit</td><td>361.7</td><td>394.4</td><td>407.6</td><td>502.2</td></tr><tr><td>Operating income</td><td>112.0</td><td>116.0</td><td>148.4</td><td>174.1</td></tr><tr><td>Net income</td><td>76.0</td><td>78.6</td><td>104.4</td><td>129.9</td></tr><tr><td>Basic earnings per share</td><td>0.57</td><td>0.60</td><td>0.79</td><td>0.99</td></tr><tr><td>Diluted earnings per share</td><td>0.57</td><td>0.59</td><td>0.78</td><td>0.98</td></tr><tr><td>Dividends paid per share—</td><td></td><td></td><td></td><td></td></tr><tr><td>Common Stock and</td><td></td><td></td><td></td><td></td></tr><tr><td>Common Stock Non-Voting</td><td>0.34</td><td>0.34</td><td>0.34</td><td>0.34</td></tr><tr><td>Market price—Common Stock</td><td></td><td></td><td></td><td></td></tr><tr><td>High</td><td>67.28</td><td>74.60</td><td>73.41</td><td>70.00</td></tr><tr><td>Low</td><td>61.03</td><td>68.08</td><td>66.85</td><td>63.29</td></tr><tr><td>Market price—Common Stock</td><td></td><td></td><td></td><td></td></tr><tr><td>Non-Voting</td><td></td><td></td><td></td><td></td></tr><tr><td>High</td><td>67.32</td><td>74.76</td><td>73.36</td><td>70.20</td></tr><tr><td>Low</td><td>61.23</td><td>68.39</td><td>67.09</td><td>64.07</td></tr></table>

Operating income for the third and fourth quarters of 2014 included special charges of $2.3 million and $2.9 million, respectively, related to EMEA reorganization and other streamlining activities. For the third and fourth quarters of 2014, the after tax impact of these charges was $1.6 million and $2.1 million, respectively, and the basic and diluted earnings per share impact was $0.01 for the third quarter and $0.02 for the fourth quarter.
Operating income for the fourth quarter of 2013 included $25.0 million for special charges related to EMEA reorganization activities and $15.3 million of loss on voluntary pension settlements. The after tax impact of these two items is $29.2 million and the basic and diluted earnings per share impact is $0.22.

Earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarters may not be equal to the full year earnings per share.

## 19. SUBSEQUENT EVENTS

On January 26, 2015, we approved a voluntary early retirement plan to be offered to certain U.S. employees aged 55 years or older with at least ten years of service to the company. The cost of the voluntary early retirement plan (which includes enhanced separation benefits but does not include supplementary pension benefits) is expected to approximate $13 million, with the actual cost to be determined based upon acceptance by eligible employees, and to be recorded in the second quarter of 2015. This plan is part of a North American effectiveness initiative that, upon completion, is expected to generate cost savings of approximately $10 million in 2015 and annual cost savings of approximately $25 million beginning in 2016. We currently estimate the total cost to implement the North American effectiveness initiative to approximate $20 million, including the cost of the voluntary early retirement plan and other actions necessary to achieve the cost savings previously described, consisting principally of severance and related benefits that will be paid in cash. We continue to evaluate changes to our organization structure in certain other locations to enable us to reduce fixed costs, simplify or improve processes, and improve our competitiveness.

## ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

## ITEM 9A. CONTROLS AND PROCEDURES

## Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

## Internal Control over Financial Reporting

Management’s report on our internal control over financial reporting and the report of our Independent Registered Public Accounting Firm on internal control over financial reporting are included in our 2014 financial statements in Item 8 of this Report under the captions entitled “Report of Management” and “Report of Independent Registered Public Accounting Firm.” No change occurred in our “internal control over financial reporting” (as defined in Rule 13a-15(f)) during our last fiscal quarter which has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.

## ITEM 9B. OTHER INFORMATION

None.



## PART III.

## ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information responsive to this item is set forth in the sections titled “Corporate Governance,” “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our 2015 Proxy Statement, incorporated by reference herein, to be filed within 120 days after the end of our fiscal year.

In addition to the executive officers described in the 2015 Proxy Statement incorporated by reference in this Item 10 of this Report, the following individuals are also executive officers of McCormick: Paul C. Beard, Cecile K. Perich, Jeffery D. Schwartz and Michael R. Smith.

Mr. Beard is 60 years old and, during the last five years, has held the following positions with McCormick: September 2013 to present—Senior Vice President, Finance; January 2011 to September 2013—President, Asia Pacific Zone; April 2008 to December 2010—Senior Vice President, Finance & Treasurer; March 2002 to April 2008—Vice President, Finance.

Ms. Perich is 63 years old and, during the last five years, has held the following positions with McCormick: April 2010 to present—Senior Vice President, Human Relations; January 2007 to April 2010—Vice President, Human Relations.

Mr. Schwartz is 45 years old and, during the last five years, has held the following positions with McCormick: December 2014 to present—Vice President, General Counsel & Secretary; February 2011 to December 2014—Associate General Counsel & Assistant Secretary; December 2009 to February 2011—Associate Counsel & Assistant Secretary.

Mr. Smith is 50 years old and, during the last five years, has held the following positions with McCormick: September 2014 to present—Senior Vice President, Finance Capital Markets & Chief Financial Officer North America; May 2012 to September 2014—Chief Financial Officer & Vice President Finance EMEA; September 2011 to May 2012—Vice President, Treasury & Investor Relations; April 2005 to September 2011—Vice President, Finance & Administration—U.S. Consumer.

We have adopted a code of ethics that applies to all employees, including our principal executive officer, principal financial officer, principal accounting officer, and our Board of Directors. A copy of the code of ethics is available on our internet website at

## PART IV.

## ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

List of documents filed as part of this Report.

## 1. Consolidated Financial Statements

The Consolidated Financial Statements for McCormick & Company, Incorporated and related notes, together with the Report of Management, and the Report of Ernst & Young LLP dated January 29, 2015, are included herein in Part II, Item 8.

## 2. Consolidated Financial Statement Schedule

Supplemental Financial Schedule:
www.mccormickcorporation.com. We will satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any material amendment to our code of ethics, and any waiver from a provision of our code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, or persons performing similar functions, by posting such information on our website at the internet website address set forth above.

## ITEM 11. EXECUTIVE COMPENSATION

Information responsive to this item is incorporated herein by reference to the sections titled “Compensation of Directors,” “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Summary Compensation Table,” “Grants of Plan-Based Awards,” “Narrative to the Summary Compensation Table,” “Outstanding Equity Awards at Fiscal Year-End,” “Option Exercises and Stock Vested in Last Fiscal Year,” “Pension Benefits,” “Non-Qualified Deferred Compensation,” “Potential Payments Upon Termination or Change in Control,” “Compensation Committee Interlocks and Insider Participation” and “Equity Compensation Plan Information” in the 2015 Proxy Statement.

## ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information responsive to this item is incorporated herein by reference to the sections titled “Principal Stockholders,” “Election of Directors” and “Equity Compensation Plan Information” in the 2015 Proxy Statement.

## ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information responsive to this item is incorporated herein by reference to the section entitled “Corporate Governance” in the 2015 Proxy Statement.

## ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information responsive to this item is incorporated herein by reference to the section titled “Report of Audit Committee and Fees of Independent Registered Public Accounting Firm” in the 2015 Proxy Statement.

## II—Valuation and Qualifying Accounts

Schedules other than that listed above are omitted because of the absence of the conditions under which they are required or because the information called for is included in the consolidated financial statements or notes thereto.

## 3. Exhibits required to be filed by Item 601 of Regulation S-K

The information called for by this item is incorporated herein by reference from the Exhibit Index included in this Report.



## SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, McCormick has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

## McCormick & Company, Incorporated

By:

/s/ ALAN D. WILSON

Alan D. Wilson

Chairman & Chief Executive Officer

January 29, 2015

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of McCormick and in the capacities and on the dates indicated.

Principal Executive Officer:

By:

/s/ ALAN D. WILSON

Alan D. Wilson

Chairman & Chief Executive Officer

January 29, 2015

Principal Financial Officer:

By:

/s/ GORDON M. STETZ, JR.

Gordon M. Stetz, Jr.

Executive Vice President & Chief Financial Officer

January 29, 2015

Principal Accounting Officer:

By:

/s/ CHRISTINA M. McMULLEN

Christina M. McMullen

Vice President & Controller

Chief Accounting Officer

January 29, 2015



## SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, being a majority of the Board of Directors of McCormick & Company, Incorporated, on the date indicated:

<table><tr><td colspan="2">THE BOARD OF DIRECTORS:</td><td>DATE:</td></tr><tr><td>/s/</td><td>John P. Bilbrey</td><td>January 29, 2015</td></tr><tr><td colspan="2">John P. Bilbrey</td><td></td></tr><tr><td>/s/</td><td>J. Michael Fitzpatrick</td><td>January 29, 2015</td></tr><tr><td colspan="2">J. Michael Fitzpatrick</td><td></td></tr><tr><td>/s/</td><td>Freeman A. Hrabowski, III</td><td>January 29, 2015</td></tr><tr><td colspan="2">Freeman A. Hrabowski, III</td><td></td></tr><tr><td>/s/</td><td>Patricia Little</td><td>January 29, 2015</td></tr><tr><td colspan="2">Patricia Little</td><td></td></tr><tr><td>/s/</td><td>Michael D. Mangan</td><td>January 29, 2015</td></tr><tr><td colspan="2">Michael D. Mangan</td><td></td></tr><tr><td>/s/</td><td>Margaret M.V. Preston</td><td>January 29, 2015</td></tr><tr><td colspan="2">Margaret M.V. Preston</td><td></td></tr><tr><td>/s/</td><td>Gordon M. Stetz, Jr.</td><td>January 29, 2015</td></tr><tr><td colspan="2">Gordon M. Stetz, Jr.</td><td></td></tr><tr><td>/s/</td><td>William E. Stevens</td><td>January 29, 2015</td></tr><tr><td colspan="2">William E. Stevens</td><td></td></tr><tr><td>/s/</td><td>Jacques Tapiero</td><td>January 29, 2015</td></tr><tr><td colspan="2">Jacques Tapiero</td><td></td></tr><tr><td>/s/</td><td>Alan D. Wilson</td><td>January 29, 2015</td></tr><tr><td colspan="2">Alan D. Wilson</td><td></td></tr></table>



## Supplemental Financial Schedule II Consolidated

## McCormick & Company, Incorporated
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)

<table><tr><td>Column A</td><td>Column B</td><td colspan="2">Column C Additions</td><td>Column D</td><td>Column E</td></tr><tr><td>Description</td><td>Balance at Beginning of Period</td><td>Charged to Costs and Expenses</td><td>Charged to Other Accounts</td><td>Deductions</td><td>Balance at End of Period</td></tr><tr><td>Deducted from asset accounts:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Year ended November 30, 2014:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Allowance for doubtful receivables</td><td>$ 4.1</td><td>$1.1</td><td>$ (0.9)</td><td>$ (0.3)</td><td>$ 4.0</td></tr><tr><td>Valuation allowance on net deferred tax assets</td><td>21.2</td><td>3.0</td><td>(1.4)</td><td>(1.0)</td><td>21.8</td></tr><tr><td></td><td>$25.3</td><td>$4.1</td><td>$(2.3)</td><td>$ (1.3)</td><td>$25.8</td></tr><tr><td>Deducted from asset accounts:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Year ended November 30, 2013:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Allowance for doubtful receivables</td><td>$ 4.0</td><td>$1.5</td><td>$ (0.1)</td><td>$ (1.3)</td><td>$ 4.1</td></tr><tr><td>Valuation allowance on net deferred tax assets</td><td>27.5</td><td>5.2</td><td>(1.6)</td><td>(9.9)</td><td>21.2</td></tr><tr><td></td><td>$31.5</td><td>$6.7</td><td>$ (1.7)</td><td>$ (11.2)</td><td>$25.3</td></tr><tr><td>Deducted from asset accounts:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Year ended November 30, 2012:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Allowance for doubtful receivables</td><td>$ 4.5</td><td>$0.7</td><td>—</td><td>$ (1.2)</td><td>$ 4.0</td></tr><tr><td>Valuation allowance on net deferred tax assets</td><td>26.6</td><td>2.3</td><td>$ 0.8</td><td>(2.2)</td><td>27.5</td></tr><tr><td></td><td>$31.1</td><td>$3.0</td><td>$ 0.8</td><td>$ (3.4)</td><td>$31.5</td></tr></table>



## EXHIBIT INDEX

The following exhibits are attached or incorporated herein by reference:

<table><tr><td>Exhibit Number</td><td>Description</td></tr><tr><td>(3) (i) Articles of Incorporation and By-Laws</td><td></td></tr><tr><td>Restatement of Charter of McCormick &amp; Company, Incorporated dated April 16, 1990</td><td>Incorporated by reference from Exhibit 4 of Registration Form S-8, Registration Statement No. 33-39582 as filed with the Securities and Exchange Commission on March 25, 1991.</td></tr><tr><td>Articles of Amendment to Charter of McCormick &amp; Company, Incorporated dated April 1, 1992</td><td>Incorporated by reference from Exhibit 4 of Registration Form S-8, Registration Statement No. 33-59842 as filed with the Securities and Exchange Commission on March 19, 1993.</td></tr><tr><td>Articles of Amendment to Charter of McCormick &amp; Company, Incorporated dated March 27, 2003</td><td>Incorporated by reference from Exhibit 4 of Registration Form S-8, Registration Statement No. 333-104084 as filed with the Securities and Exchange Commission on March 28, 2003.</td></tr><tr><td>(ii) By-Laws</td><td></td></tr><tr><td>By-Laws of McCormick &amp; Company, Incorporated Amended and Restated on June 26, 2012</td><td>Incorporated by reference from Exhibit 3(ii) of McCormick&#x27;s Form 10-Q for the quarter ended May 31, 2012, File No. 1-14920, as filed with the Securities and Exchange Commission on July 2, 2012.</td></tr><tr><td>(4) Instruments defining the rights of security holders, including indentures</td><td></td></tr><tr><td>(i) See Exhibit 3 (Restatement of Charter and By-Laws)</td><td></td></tr><tr><td>(ii) Summary of Certain Exchange Rights, incorporated by reference from Exhibit 4.1 of McCormick&#x27;s Form 10-Q for the quarter ended August 31, 2003, File No. 0-748, as filed with the Securities and Exchange Commission on October 12, 2001.</td><td></td></tr><tr><td>(iii) Indenture dated December 5, 2000 between McCormick and SunTrust Bank, incorporated by reference from Exhibit 4(iii) of McCormick&#x27;s Form 10-Q for the quarter ended August 31, 2003, File No. 1-14920, as filed with the Securities and Exchange Commission on October 14, 2003.</td><td></td></tr><tr><td>(iv) Indenture dated December 7, 2007 between McCormick and The Bank of New York, incorporated by reference from Exhibit 4.1 of McCormick&#x27;s Form 8-K dated December 4, 2007, File No. 0-748, as filed with the Securities and Exchange Commission on December 10, 2007.</td><td></td></tr><tr><td>(v) Indenture dated July 8, 2011 between McCormick and U.S. Bank National Association, incorporated by reference from Exhibit 4.1 of McCormick&#x27;s Form 8-K dated July 5, 2011, File No. 1-14920, as filed with the Securities and Exchange Commission on July 8, 2011.</td><td></td></tr><tr><td>(vi) Form of 5.20% notes due 2015, incorporated by reference from Exhibit 4.2 of McCormick&#x27;s Form 8-K dated December 1, 2005, File No. 0-748, as filed with the Securities and Exchange Commission on December 6, 2005.</td><td></td></tr><tr><td>(vii) Form of 5.75% notes due 2017, incorporated by reference from Exhibit 4.2 of McCormick&#x27;s Form 8-K dated December 4, 2007, File No. 0-748, as filed with the Securities and Exchange Commission on December 10, 2007.</td><td></td></tr><tr><td>(viii) Form of 3.90% notes due 2021, incorporated by reference from Exhibit 4.2 of McCormick&#x27;s Form 8-K dated July 5, 2011, File No. 1-14920, as filed with the Securities and Exchange Commission on July 8, 2011.</td><td></td></tr><tr><td>(ix) Form of 3.50% notes due 2023, incorporated by reference from Exhibit 4.2 of McCormick&#x27;s Form 8-K dated August 14, 2013, File No. 1-14920, as filed with the Securities and Exchange Commission on August 19, 2013.</td><td></td></tr><tr><td>(10) Material contracts</td><td></td></tr><tr><td>(i) McCormick&#x27;s supplemental pension plan for certain senior and executive officers, amended and restated with an effective date of January 1, 2005, adopted by the Compensation Committee of the Board of Directors on November 28, 2008.</td><td>Filed herewith</td></tr><tr><td>(ii) The 2001 Stock Option Plan, in which officers and certain other management employees participate, is set forth on pages 33 through 36 of McCormick&#x27;s definitive Proxy Statement dated February 15, 2001, File No. 1-14920, as filed with the Securities and Exchange Commission on February 14, 2001, and incorporated by reference herein.*</td><td></td></tr><tr><td>(iii) 2004 Long-Term Incentive Plan, in which officers and certain other management employees participate, is set forth in Exhibit A of McCormick&#x27;s definitive Proxy Statement dated February 17, 2004, File No. 1-14920, as filed with the Securities and Exchange Commission on February 17, 2004, and incorporated by reference herein.*</td><td></td></tr></table>



(iv) 2004 Directors' Non-Qualified Stock Option Plan, provided to members of McCormick's Board of Directors who are not also employees of McCormick, is set forth in Exhibit B of McCormick's definitive Proxy Statement dated February 17, 2004, File No. 1-14920, as filed with the Securities and Exchange Commission on February 17, 2004, and incorporated by reference herein.*

(v) Directors' Share Ownership Program, provided to members of McCormick's Board of Directors who are not also employees of McCormick, is set forth on page 28 of McCormick's definitive Proxy Statement dated February 17, 2004, File No. 1-14920, as filed with the Securities and Exchange Commission on February 17, 2004, and incorporated by reference herein.*

(vi) Deferred Compensation Plan, as restated on January 1, 2000, and amended on August 29, 2000, September 5, 2000 and May 16, 2003, in which directors, officers and certain other management employees participate, a copy of which Plan document and amendments was attached as Exhibit 10(viii) of McCormick's Form 10-Q for the quarter ended August 31, 2003, File No. 1-14920, as filed with the Securities and Exchange Commission on October 14, 2003, and incorporated by reference herein.*

(vii) 2005 Deferred Compensation Plan, amended and restated with an effective date of January 1, 2005, in which directors, officers and certain other management employees participate, which agreement is incorporated by reference from Exhibit 4.1 of McCormick's Form S-8, Registration No. 333-155775, as filed with the Securities and Exchange Commission on November 28, 2008.*

(viii) The 2007 Omnibus Incentive Plan, in which directors, officers and certain other management employees participate, is set forth in Exhibit A of McCormick's definitive Proxy Statement dated February 20, 2008, File No. 1-14920, as filed with the Securities and Exchange Commission on February 20, 2008, and incorporated by reference herein, as amended by Amendment No. 1 thereto, which Amendment is incorporated by reference from Exhibit 10(xi) of McCormick's 10-K for the fiscal year ended November 30, 2008, File No. 1-14920, as filed with the Securities and Exchange Commission on January 28, 2009.*

(ix) The 2013 Omnibus Incentive Plan, in which directors, officers and certain other management employees participate, is incorporated by reference from Exhibit 4.1 of McCormick's Form S-8, Registration No. 333-187703, as filed with the Securities and Exchange Commission on April 3, 2013.*

(x) Form of Mid-Term Incentive Program Agreement, incorporated by reference from Exhibit 10.10 of McCormick's Form 10-Q for the quarter ended May 31, 2013, File No. 1-14920, as filed with the Securities and Exchange Commission on June 28, 2013.

(xi) Form of Restricted Stock Units Agreement, incorporated by reference from Exhibit 10.11 of McCormick's Form 10-Q for the quarter ended May 31, 2013, File No. 1-14920, as filed with the Securities and Exchange Commission on June 28, 2013.

(xii) Form of Restricted Stock Units Agreement for Directors, incorporated by reference from Exhibit 10.12 of McCormick's Form 10-Q for the quarter ended May 31, 2013, File No. 1-14920, as filed with the Securities and Exchange Commission on June 28, 2013.

(xiii) Form of Non-Qualified Stock Option Agreement, incorporated by reference from Exhibit 10.13 of McCormick's Form 10-Q for the quarter ended May 31, 2013, File No. 1-14920, as filed with the Securities and Exchange Commission on June 28, 2013.

(xiv) Form of Non-Qualified Stock Option Agreement for Directors, incorporated by reference from Exhibit 10.14 of McCormick's Form 10-Q for the quarter ended May 31, 2013, File No. 1-14920, as filed with the Securities and Exchange Commission on June 28, 2013.

(xv) Form of Indemnification Agreement, incorporated by reference from Exhibit 10(xv) of McCormick's Form 10-Q for the quarter ended February 28, 2014, File No. 1-14920, as filed with the Securities and Exchange Commission on March 26, 2014.

(21) Subsidiaries of McCormick Filled herewith

(23) Consents of experts and counsel Filled herewith

(31) Rule 13a-14(a)/15d-14(a) Certifications Filled herewith

(32) Section 1350 Certifications Filled herewith

(101) The following financial information from the Annual Report on Form 10-K of McCormick for the year ended November 30, 2014, furnished electronically herewith, and formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statement of Comprehensive Income; (iv) Consolidated Statement of Stockholders' Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to the Condensed Consolidated Financial Statements.

* Management contract or compensatory plan or arrangement.

McCormick hereby undertakes to furnish to the Securities and Exchange Commission, upon its request, copies of additional instruments of McCormick with respect to long-term debt that involve an amount of securities that do not exceed 10 percent of the total assets of McCormick and its subsidiaries on a consolidated basis, pursuant to Regulation S-K, Item 601(b)(4)(iii)(A).



## World Headquarters

McCormick & Company, Incorporated
18 Loveton Circle
Sparks, MD 21152-6000
U.S.A.
(410) 771-7301
www.mccormickcorporation.com

## Stock Listing

New York Stock Exchange
Symbol: MKC

## Anticipated Dividend Dates—2015

<table><tr><td>Record Date</td><td>Payment Date</td></tr><tr><td>4/06/15</td><td>4/20/15</td></tr><tr><td>7/13/15</td><td>7/27/15</td></tr><tr><td>10/13/15</td><td>10/27/15</td></tr><tr><td>12/31/15</td><td>1/15/16</td></tr></table>

McCormick has paid dividends every year since 1925.

## Independent Registered Public Accounting Firm

Ernst & Young LLP
621 East Pratt Street
Baltimore, MD 21202

## Investor Inquiries

Our investor website, ir.mccormick.com, contains our annual reports, Securities & Exchange Commission (SEC) filings, press releases, webcasts, corporate governance principles and other information.

To obtain without cost a copy of the annual report filed with the SEC on Form 10-K or for general questions about McCormick or the information in our reports, press releases and other filings, contact Investor Relations at the world headquarters address, investor website or telephone:

## Report ordering:

Proxy materials: (800) 579-1639

Other materials: (800) 424-5855, (410) 771-7537

or ir.mccormick.com

Investor and securities analysts' inquiries: (410) 771-7244

## Investor Services Plan (Dividend Reinvestment and Direct Purchase Plan)

We offer an Investor Services Plan which provides shareholders of record the opportunity to automatically reinvest dividends, make optional cash purchases of stock, place stock certificates into safekeeping and sell shares. Individuals who are not current shareholders may purchase their initial shares directly through the Plan. All transactions are subject to the limitations set forth in the Plan prospectus, which may be obtained by contacting our transfer agent.

## Registered Shareholder Inquiries

For questions on your account, statements, dividend payments, reinvestment and direct deposit, and for address changes, lost certificates, stock transfers, ownership changes or other administrative matters, contact our transfer agent.

## Transfer Agent and Registrar

Wells Fargo Bank, N.A.
Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120-4100
(877) 778-6784 or (651) 450-4064
shareowneronline.com

## Annual Meeting

The annual meeting of shareholders will be held at 10 a.m., Wednesday, March 25, 2015, at Martin's Valley Mansion, 594 Cranbrook Road, Hunt Valley, MD 21030.

## Electronic Delivery of Annual Report and Proxy Statement

If you would like to receive next year’s annual report and proxy statement electronically, you may enroll on the website below:

http://enroll.icsdelivery.com/mkc

## Trademarks

Use of  \( {®} \)  or  \( {™} \)  in this annual report indicates trademarks including those owned or used by McCormick & Company, Incorporated and its subsidiaries and affiliates.






# Corporate Social Responsibility

At McCormick, we are growing our business globally while driving positive change to the environment, within our communities and for our employees.

## Empowering People and
Improving Communities

We commemorated our 125th anniversary by celebrating the role flavor plays in all of our lives, inspiring flavorful conversation and giving back to communities around the world. Through the Flavor of Together program, McCormick donated $1.25 million—$1 for every story shared—to United Way Worldwide to help feed those in need.



## Investing in Quality,
Sustainable Agriculture

We are committed to supporting the growing communities where we source our spices and herbs. For example, vanilla farmers in Madagascar are improving their profits through our

efforts to improve their farming techniques and form a cooperative for drying the vanilla beans.











www.flavoroftogether.com

















## Providing Healthy
Flavor Solutions



Pasta with the delicious flavor of garlic, you won't miss the salt.

## Improving Operational
Impact and Efficiencies

We are working to improve our environmental impact. We have made particular progress lowering solid waste, which is down 50% since 2009, on a per unit basis.

At McCormick we believe flavor is the missing link to healthier eating by helping food taste better and be better for you. We offer hundreds of salt-free or reduced sodium items, introduced gluten-free products and expanded our employee wellness programs. The McCormick Science Institute is supporting scientific research on the health benefits of herbs and spices for consumers and health professionals.









McCormick & Company, Incorporated
18 Loveton Circle, Sparks, Maryland 21152-6000 U.S.A.
410.771.7301 | www.mccormickcorporation.com