Management's Discussion and Analysis

Executive Summary

Business Overview

McCormick & Company is a global leader in the manufacture, marketing and distribution of spices, herbs, seasonings and other flavors to the entire food industry. Our major sales, distribution and production facilities are located in North America and Europe, and our products reach nearly 100 countries around the world. Additional facilities are based in Mexico, Central America, Australia, China, Singapore, Thailand and South Africa. In 2005, approximately 39% of sales were outside the U.S.

We operate in two business segments, consumer and industrial. In 2005, our consumer business was 54% of sales and our industrial business was 46% of sales. Consistent with market conditions in each segment, our consumer business has a higher overall profit margin than our industrial business.

Our consumer business supplies a variety of retail outlets that include grocery, mass merchandise, discount and drug stores. Customers are serviced both directly and indirectly through distributors or wholesalers. Products for our consumer segment include spices, herbs, extracts, seasoning blends, sauces, marinades and specialty foods. In 2005, 66% of net sales were in the Americas, 30% in Europe and 4% in the Asia/Pacific region. In our primary markets, we supply both branded and private label products and have a leading share that is more than twice the size of the next largest competitor. We are growing our consumer business by developing innovative products, increasing marketing effectiveness, expanding distribution and acquiring leading brands and niche products.

Our industrial business works closely with customers to develop leading products that become marketplace winners. We supply both food manufacturers and the food service industry. Food service customers are supplied both directly and indirectly through distributors. Products for our industrial segment include seasoning blends, spices, herbs, wet flavors, compound flavors and coating systems. In 2005, 74% of net sales were in the Americas, 18% in Europe and 8% in the Asia/Pacific region. We have many competitors who also supply products to food manufacturers, as well as the food service industry. We are driving sales for our industrial business by supporting the global expansion of our customers, building current and new strategic partnerships, and developing consumer-preferred, value-added products.

With our consumer and industrial segments, we have the customer base and product development skills to provide flavor solutions for all types of eating occasions, whether it is cooking at home, dining out, purchasing a quick service meal or enjoying a snack.

We purchase a significant amount of raw materials from areas throughout the world. The most significant raw materials are cheese, packaging supplies, pepper, capsicums, garlic, onion and vanilla. Some of these are subject to price volatility caused by weather, market conditions, growing and harvesting conditions, governmental actions and other unpredictable factors. While future movements of raw material costs and availability 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.