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McCORMICK & COMPANY 2007 ANNUAL REPORT



	MANAGEMENT’S DISCUSSION AND ANALYSIS

    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 .05%. We designated these swaps, which expire on December 15, 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. As of November 30, 2007, the fair value of these swap contracts was an unrealized gain of $4.9 million, which was offset by a corresponding increase in value of the hedged debt. Any unrealized gain or loss on these swaps will be offset by a corresponding increase or decrease in value of the hedged debt. No hedge ineffectiveness was recognized as these interest rate swaps qualify for the “shortcut” treatment.
     We have available credit facilities with domestic and foreign banks for various purposes. In July 2007, we entered into a $500 million five-year revolving credit agreement with various domestic banks for general business purposes. Our current pricing under the new credit agreement, on a fully drawn basis, is LIBOR plus 0.25%. The agreement, which replaces a previously existing $400 million revolving credit agreement, expires in July 2012, and supports our commercial paper borrowing arrangement. The amount of unused credit facilities at November 30, 2007 was $605.8 million. We believe that internally generated funds and the existing sources of liquidity under our credit facilities are sufficient to meet current liquidity needs and fund ongoing operations.
     In November 2007, we entered into a definitive agreement to purchase the assets of Lawry’s for $605 million in cash. Upon the closing of this transaction (expected in the second half of fiscal year 2008), we will finance this purchase through cash from operations, bank lines and commercial paper borrowings. Additional bank facilities are being negotiated and we anticipate no difficulties in obtaining financing. Post-closing, an appropriate longerterm capital structure will be put in place.

ACQUISITIONS

Acquisitions of new brands are part of our strategy to improve margins and increase sales and profits.
     On November 13, 2007, we signed a definitive agreement with Unilever to purchase the assets of the Lawry’s business for $605 million in cash. The transaction is expected to close in 2008. Lawry’s manufactures and sells a variety of marinades and seasoning blends under the well-known Lawry’s® and Adolph’s® brands. The acquisition includes the rights to the brands as well as related inventory and a small number of dedicated production lines. It does not include any manufacturing facilities or employees.The closing of the Lawry’s acquisition is subject to the expiration or termination of the Hart-Scott-Rodino (HSR) waiting period and other customary closing conditions. We have agreed to pay Unilever a $30 million termination fee, subject to certain limited conditions, in the event that HSR clearance is not obtained.
     On June 27, 2006, we purchased the assets of the Simply Asia Foods business for $97.6 million in cash. The $97.6 million purchase price was initially funded with commercial paper. In July 2006, we issued $100 million of 5.80% senior notes due 2011 to pay down this commercial paper debt. This business operates in North America and has been included in our consumer segment since the date of acquisition. Simply Asia Foods develops, imports and markets a line of authentic, easy-to-prepare Asian products under the Thai Kitchen® and Simply Asia® brands. Its primary products include noodle and soup bowls, meal kits, coconut milk, and various sauces and pastes. In 2007, we completed the final valuation of assets for Simply Asia Foods which resulted in $4.8 million being allocated to tangible net assets, $28.2 million allocated to other intangibles assets and $64.6 million allocated to goodwill. This valuation was not significantly different than the preliminary valuation. The value for brands and other intangible assets consists of $12.1 million which is amortizable and $16.1 million which is non-amortizable.
     On July 30, 2007, we purchased Thai Kitchen SA for $12.8 million in cash, a business which operates the Thai Kitchen brand in Europe. This acquisition complements our U.S. purchase of Simply Asia Foods in 2006. The annual sales are approximately $7 million.
     On August 1, 2006, we invested $5.0 million in an industrial joint venture in South Africa.

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