MCCORMICK & COMPANY 2004 ANNUAL REPORT McCormick’s industrial business markets blended seasonings, spices and herbs, condiments, compound flavors and extracts, and coating systems to other food processors and to the away-from-home  channel, both directly and through distributors and warehouse clubs.  For restaurant customers and other food processors, we develop and deliver consumer-preferred  flavors. In fact, new  products launched over the last three years accounted for 22% of  2004 sales. Net sales rose 7% in 2004. Volume, price and product mix increased 4%. Favorable foreign exchange added another 3%. Sales growth in the Americas resulted from new product successes, particularly with restaurant customers, as well as higher pricing for higher cost vanilla, dairy products and other raw materials. In Europe, growth in more value-added products was offset by reduced sales of ingredients. This shift in mix was driven by our decision to exit certain lower margin products and regions. Operating income rose 4%. Higher sales, an improved product mix, and initiatives to reduce costs provided an offset to cost pressure from other areas including fuel and employee benefits. During 2004, we increased product development expense 18%. Interest in flavors continues to grow. A report published by The Freedonia Group states that “flavors and flavor enhancers will continue to account for the largest share of overall food additives, due to their extensive use in many processed foods, dairy prod- ucts, baked goods and candy...opportunities are constantly being created by consumer demand for new flavors based on ethnic cuisines and more intense flavor preparations.” With blended seasonings, spices and herbs, condi- ments, compound flavors and extracts, and coating systems,  Beverage flavors Dairy flavors Confectionery flavors Meat flavors Savory flavors Seasoning blends Salty snack seasonings Side dish seasonings  (rice, pasta, potato) Sauces and gravies Batters Breaders Marinades Glazes Rubs Sandwich sauces Ketchup Mustards Jams and jellies Seafood cocktail sauces Salad dressings Flavored oils Spices and herbs Extracts Essential oils and oleoresins Fruit and vegetable powders Tomato powder To further improve our productivity, a new  formula management system introduced in 2004 will provide a  running start on new projects and reduce the new product cycle time for delivery to our  customers beginning  in 2005. INGREDIENTS CONDIMENTS COATING SYSTEMS SEASONINGS PROCESSED FLAVORS market position COMPOUND FLAVORS 2004 financial results 13