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McCORMICK & COMPANY 2007 ANNUAL REPORT



	MANAGEMENT’S DISCUSSION AND ANALYSIS

million and taxes of $7.2 million, we recorded a net after-tax gain of $26.5 million which is shown on the line entitled “(Loss) gain on sale of unconsolidated operations” in our income statement. On the acquisition of the 49% minority interest of DPI, the fair value of these shares was assessed at $46.9 million. Since this business was consolidated, the book value of this 49% share was shown as $29.9 million of minority interest on our balance sheet. After consideration of transaction costs of $0.7 million, we allocated $17.7 million to goodwill. The impact of increasing our share in DPI and disposing of Signature on future net income is not material. In 2006, in connection with exiting an unconsolidated joint venture in Japan, we recorded a net gain of $0.3 million, after-tax. Finalization of these unconsolidated joint venture transactions resulted in a loss of $0.8 million, after tax, in 2007.
     These actions are part of our plan to simplify our joint venture structure under the restructuring program and focus on those areas we believe have strong growth potential.
     Other Restructuring Costs – In 2007, we recorded restructuring charges of $34.0 million, of which $30.7 million is reflected in restructuring charges and $3.3 million is reflected in cost of goods sold in our income statement. We recorded $14.9 million of severance costs, primarily associated with the reduction of administrative personnel in the U.S. and Europe. In addition, we recorded $16.7 million of other exit costs resulting from the closure of manufacturing facilities in Salinas, California and Hunt Valley, Maryland and the consolidation of production facilities in Europe. The remaining $2.4 million of asset write-downs is comprised of inventory write-offs as a result of the closure of the manufacturing facilities in Salinas, California and Hunt Valley, Maryland and accelerated depreciation of assets, mostly offset by the asset gain from the sale of our manufacturing facility in Paisley, Scotland.
     In 2006, we recorded restructuring charges, exclusive of the gain on Signature, of $84.1 million, of which $72.4 million is reflected in restructuring charges and $11.7 million is reflected in cost of goods sold in our income statement. We recorded $54.9 million of severance costs and special early retirement benefits associated with our voluntary separation program in several functions in the U.S.; closures of manufacturing facilities in Salinas, California; Hunt Valley, Maryland; Sydney, Australia; Paisley, Scotland; and Kerava, Finland; and reorganization

of administrative functions in Europe. In addition, we recorded $15.7 million of other exit costs associated with the consolidation of production facilities and the reorganization of the sales and distribution networks in the U.S. and Europe and contract termination costs associated with customers and distributors in connection with the closure of the business in Finland. The $13.5 million of restructuring charges for asset write-downs is primarily accelerated depreciation related to the closure of manufacturing facilities in Salinas, California and Hunt Valley, Maryland, the closure of the plants in Paisley, Scotland and Kerava, Finland and inventory write-offs as a result of the plant closings. These expenses were partially offset by net gains on the disposition of assets.
     In 2005, we recorded $10.7 million of charges as a result of actions taken under the restructuring plan. These charges included certain severance costs associated with the closing of our consumer manufacturing plant in Salinas, California, closing costs for a small plant in Belgium and costs associated with the reorganization of the sales and distribution networks in the U.S. and Europe.
     In our income statement, restructuring charges under this program are displayed in three line items. The gain related to our disposition of Signature and a joint venture in Japan as described under joint venture transactions is on the line entitled “(Loss) gain on sale of unconsolidated operations.” Other restructuring costs are included in restructuring charges and cost of goods sold.
     The business segment components of the restructuring charges recorded in 2007, 2006 and 2005 are as follows:

The restructuring charges recorded in the consumer business include severance costs and special early retirement benefits associated with our voluntary separation program in several functions in the U.S. and Europe; consolidation of certain manufacturing facilities in Europe; and closures of manufacturing facilities in Salinas, California, Sydney, Australia, and Kerava, Finland.

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