OVERVIEW

Our Business

We are a global leader in the manufacture, marketing and distribution of spices, herbs, seasonings, specialty foods and flavors to the entire food industry. Customers range from retail outlets and food manufacturers to food service businesses. Our major sales, distribution and production facilities are located in North America and Europe. Additional facilities are based in Mexico, Central America, Australia, China, Singapore, Thailand and South Africa. Annually, approximately 40% of our sales have been outside of the United States.

We operate in two business segments, consumer and industrial. Profit margins in our consumer business are higher than the profit margins in our industrial business, which is consistent with the experience of other manufacturers operating in the same business segments. On average, approximately 80% of our product costs are from materials and packaging and approximately 20% are from labor and overhead. Across both segments, we have the customer base and product breadth to participate in all types of eating occasions, whether it is cooking at home, dining out, purchasing a quick service meal or enjoying a snack. We offer consumers a range of products from premium to value-priced.

Our Strategy

Our strategy is to improve margins, invest in our business and increase sales and profits. We believe this strategy is as effective now as when we developed it in 1998.

Improving Margins - Beginning in the latter part of 2007, our progress with margin improvement has been hampered by an environment of volatile costs for many raw and packaging materials. However, we have continued to make progress with cost-savings programs, new capabilities and improved processes. We are also improving margins with the acquisition of strong consumer brands such as Lawry's and the introduction of higher-margin, more value-added industrial products.

With the benefit of the Lawry's acquisition and our Comprehensive Continuous Improvement program, we expect to increase gross profit margin in 2009. Under the Comprehensive Continuous Improvement program each business unit develops cost reduction opportunities and sets specific goals. Projects fall into the areas of cost optimization, cost avoidance and productivity that include SAP utilization and streamlining processes. Our long-term goal is to continue to increase gross profit margin and to achieve a higher operating income margin.

Investing in the Business - We are investing in our consumer business by revitalizing our core brands in the United States and abroad, including new products, new packaging and more effective merchandising such as gravity feed shelving. Dry seasoning mixes, which have shown an increase in sales due to value pricing and convenience, will feature more natural ingredients and new packaging beginning in 2009. There is a revitalization of our Vahine dessert products underway in France and gravity feed shelving has been introduced in China and Australia.

As an industry leader, McCormick brings innovative ideas to consumers. We are on the forefront of taste trends and develop an annual Flavor Forecast® for the benefit of chefs, food editors, customers and consumers. Many of the new products currently being developed provide convenience, ethnic flavors and bold taste. Industrial customers are particularly interested in more natural flavor solutions that utilize our expertise in spices and herbs. We founded the McCormick Science Institute in 2007 to conduct research on the health benefits of spices and herbs.

We are increasing our marketing support to drive growth of our brands. In 2008 our marketing support expenditures were 13% higher than in 2007 and were up 51% from 2003. Our goal in 2009 is to increase marketing support by an additional $20 million over 2008 with three quarters of the increase due to the addition of the Lawry's business.

Through acquisitions we are adding leading brands to extend our reach into new geographic regions where we currently have little or no distribution. We have a particular interest in emerging markets that offer high growth potential, such as India, China and Eastern Europe. In our developed markets, we are seeking consumer brands that have a defensible niche position and meet a growing consumer trend.

Increasing Sales and Profits - With the investments in our business, we have long-term annual objectives to grow sales 4 to 6% and increase earnings per share 9 to 11%. In 2009, the global economy has weakened considerably, leading to a less certain environment. In addition to a more difficult economy, the dollar has strengthened which unfavorably impacts our net sales and profits from international operations. For fiscal year 2009, we expect these factors to impact our financial results which are projected to be below the long-term annual objectives.

Our business generates strong cash flow. Actions to grow profit and improve our working capital, as well as our cash conversion cycle, are designed to lead to higher levels of cash generation. Although currently curtailed while we pay down debt from the Lawry's acquisition, we have a share repurchase program that has lowered our shares outstanding. We are also building shareholder return with consistent dividend payments. We have paid dividends every year since 1925 and increased the dividend in each of the past 23 years.

RESULTS OF OPERATIONS - COMPANY



                                             Three months ended
                                           Feb 28,        Feb 29,
                    (in millions)            2009           2008
                    Net sales             $    718.5      $  724.0
                    Percent decrease             0.8 %
                    Gross profit          $    284.2      $  285.8
                    Gross profit margin         39.6 %        39.5 %

The sales decline of 0.8% for the first quarter includes an 8.0% unfavorable impact from foreign currency exchange rates. With a stronger dollar in the first quarter of fiscal year 2009, exchange rates have had a negative effect on sales.

Excluding the foreign currency impact, we grew sales 7.2%. Pricing increased sales 4.6% in the first quarter. Volume and product mix added 2.6% to sales, with a strong contribution from the consumer business partially offset by slightly lower volume and mix in the industrial business. Included in the 2.6% increase of volume and product mix were incremental sales from acquisitions, which added 5.4% to the quarter. These included Lawry's and Billy Bee in Canada, less the reduction in sales from the disposition of Season-All.

Gross profit decreased slightly for the first quarter of the year over the comparable period from last year, while the gross profit margin increased slightly by 10 basis points. The slight gross profit decrease was related to the unfavorable foreign currency impact on sales. However, due to productivity improvements and stronger sales in our consumer business which has a higher margin than the industrial business, we increased gross profit margin for the quarter.

                                                           Three months ended
                                                         Feb 28,        Feb 29,
     (in millions)                                         2009           2008
     Selling, general & administrative expense (SG&A)   $    193.9      $  204.8
     Percent of net sales                                     27.0 %        28.3 %

With marketing support about the same as last year, the decrease in SG&A reflects our efforts to manage expenses, improve productivity and integrate the Lawry's business with few incremental operating costs. In this quarter, we had little incremental brand support behind Lawry's as our comprehensive marketing program for this brand is being launched in the second quarter.

                                            Three months ended
                                          Feb 28,       Feb 29,
                     (in millions)          2009          2008
                     Interest expense    $     14.4    $     14.8
                     Other income, net           .5           3.3

Lower interest rates led to a favorable variance in interest expense, offsetting the impact of higher total average debt outstanding in 2009 when compared to 2008. In addition, interest income, which is included in other income above, was lower in 2009 when compared to 2008.