MCCORMICK & COMPANY 2004 ANNUAL REPORT sale of Packaging of $11.6 million partially offset by the loss on the sale of Jenks of $2.6 million. All amounts included in discontinued operations were net of income taxes.  In the fourth quarter of 2003, the Company recorded a cumulative effect of an accounting change that reduced net income by $2.1 million, net of tax. This charge was recorded in accordance with the adoption of certain provi- sions of a new accounting interpretation that required the consolidation of the lessor of a leased distribution center. Previously, this entity was not consolidated and the distri- bution center was accounted for as an operating lease. Consolidation of this entity increased fixed assets by $11.2 million, long-term debt by $14.0 million and minority interest by $0.5 million. The effect of consolidation of this entity in prior years would have reduced net income in 2002 and 2001 by $0.3 million. end of 2003, the discount rate was reduced from 7.0% to 6.0% and the expected long-term rate of return on assets was reduced from 9.0% to 8.5%. These changes were reflective of poor market returns in recent years and a con- tinued low interest rate environment. The changes in assumptions along with investment returns below the assumed rate resulted in the increased pension expense in 2003 and will continue to impact expense going forward. Interest expense from continuing operations decreased in 2003 versus 2002 due to favorable interest rates.  Other income increased to $13.1 million in 2003 com- pared to $0.7 million in 2002. In the second quarter of 2003, the Company received $5.4 million of interest income on the Ducros purchase price refund. Also, in the fourth quarter of 2003, the Company recorded a one-time gain of $5.2 million from the sale of an interest in non- strategic royalty agreements. The Company entered into these agreements in 1995 and since then had benefited modestly from tax credits and royalty income. The effective tax rate for 2003 was 30.9%, down from 31.0% in 2002. Income from unconsolidated operations decreased 26.8% in 2003 when compared to 2002. This decline is mainly attributable to lower income from the McCormick de Mexico joint venture during the first half of 2003 and to a lesser extent, the Signature Brands joint venture in the fourth quarter of 2003. The McCormick de Mexico busi- ness, which markets the leading brand of mayonnaise in Mexico, experienced profit pressure from aggressive com- petition, higher raw material costs and a weak peso versus the prior year. The Signature Brands business, a cake deco- rating business in the U.S., was impacted in part by the timing of customers’ purchases of holiday products. Consumer Business for the year ended November 30 (millions) 2003 2002 Net sales $1,162.3 $993.9 Operating income 230.9 191.9 Operating income margin 19.9% 19.3% In 2003, sales from continuing operations for the con- sumer business increased 16.9% compared to 2002. The acquisitions of Zatarain’s and Uniqsauces contributed 6.3% of the sales increase, and the impact of foreign exchange added another 5.8%. Sales rose 15.3% in the Americas, with Zatarain’s contributing 7.1% of sales increase and foreign exchange contributing 0.9% of increase. The remaining 7.3% of sales increase was due primarily to higher volumes in the U.S. and Canada. In 2003, the Company achieved new distribution in the dollar store channel and with a major grocery retailer in the U.S. Sales in Europe rose 21.7%, with foreign exchange con- tributing 16.9% of increase, and the remaining increase due to the acquisition of Uniqsauces. Sales in the Asia/Pacific region increased 12.3%, with foreign exchange contributing 11.7% of the increase. Sales in this region were adversely affected by competitive conditions in Australia and an initiative to discontinue certain lower margin products in China. Income from continuing operations was $199.2 million in 2003 compared to $173.8 million in 2002. Diluted earn- ings per share from continuing operations increased $0.18, comprised of $0.12 from higher sales and operating margin, $0.04 from acquisitions and $0.06 from other income, offset by a $0.04 decline in income from uncon- solidated operations.  Income from discontinued operations was $4.7 million in 2003 compared to $6.0 million in 2002. Income from dis- continued operations for 2003 included 7 months of the operating results of Jenks and 8 1/2 months of the operat- ing results of Packaging. Also included in discontinued oper- ations in 2003 was a net gain on the sale of discontinued operations of $9.0 million. This consisted of the gain on the Operating income from continuing operations for the consumer business reached $230.9 million, an increase of 20.3%. Operating income margin (operating income as a percentage of sales) went up from 19.3% in 2002 to 19.9% in 2003. Pricing actions and cost savings on supply chain initiatives more than offset higher expenses of pen- sion, promotion and advertising, distribution and certain commodities. Special charges in the consumer business 25