MCCORMICK & COMPANY 2004 ANNUAL REPORT notes to consolidated financial statements At November 30, 2004, non-U.S. subsidiaries of the Company have tax loss carryforwards of $22.0 million. Of these carryforwards, $11.6 million expire through 2014 and $10.4 million may be carried forward indefinitely. The current statutory rates in these countries range from 19% to 35%. At November 30, 2004, non-U.S. subsidiaries of the Company have capital loss carryforwards of $15.8 million. Of these carryforwards, $2.9 million expire in 2009 and $12.9 million may be carried forward indefinitely. The current statu- tory rates in these countries range from 30% to 35%. A valuation allowance has been provided to record deferred tax assets at their net realizable value. The 2004 net change in valuation allowance for deferred tax assets was an increase of $6.3 million. During 2004, the Company utilized $2.5 million of non-U.S. subsidiary tax loss carryforwards which previously had valuation allowances. This was offset by $8.8 million of additions to the valuation allowance for tax assets added in 2004 which may not be realized in future periods. U.S. income taxes are not provided for unremitted earnings of international subsidiaries and affiliates where the Company’s intention is to reinvest these earnings perma- nently or to repatriate the earnings when it is tax effective to do so. Accordingly, the Company believes that any U.S. tax on repatriated earnings would be substantially offset by U.S. foreign tax credits. Unremitted earnings of such entities were $230.5 million at November 30, 2004. Under the Company’s various stock option plans, options to purchase shares of the Company’s common stock were granted to employees and directors. The option price for shares granted under these plans is the fair market value on the grant date and the grants have ten-year terms. The Company has Employee Stock Purchase Plans (ESPP) enabling employees in the U.S. and certain other countries to purchase the Company’s Common Stock Non-Voting at the lower of the stock price on the grant date or the exercise date. Similarly, options are granted for certain foreign-based employ- ees in lieu of their participation in the ESPP. Options granted under these plans have two- or three-year terms. A summary of the Company’s stock option activity for the years ended November 30, 2004, 2003 and 2002 follows: Holders of Common Stock have full voting rights except that (1) the voting rights of persons who are deemed to own beneficially 10% or more of the outstanding shares of Common Stock are limited to 10% of the votes entitled to be cast by all holders of shares of Common Stock regardless of how many shares in excess of 10% are held by such person; (2) the Company has the right to redeem any or all shares of stock owned by such person unless such person acquires more than 90% of the outstanding shares of each class of the Company’s common stock; and (3) at such time as such person controls more than 50% of the vote entitled to be cast by the holders of outstanding shares of Common Stock, auto- matically, on a share-for-share basis, all shares of Common Stock Non-Voting will convert into shares of Common Stock. Holders of Common Stock Non-Voting will vote as a sepa- rate class on all matters on which they are entitled to vote. Holders of Common Stock Non-Voting are entitled to vote on reverse mergers and statutory share exchanges where the capital stock of the Company is converted into other securi- ties or property, dissolution of the Company and the sale of substantially all of the assets of the Company, as well as forward mergers and consolidation of the Company. The reconciliation of shares outstanding used in the calcula- tion of basic and diluted earnings per share for the years ended November 30, 2004, 2003 and 2002 follows: Included in stock options exercised are non-cash option swaps and taxes paid with shares of $12.8 million, $1.1 million and $1.7 million for November 30, 2004, 2003 and 2002, respectively. These amounts have been excluded from common stock issued and acquired by purchase in the consol- idated cash flow statement as these are non-cash transactions. Under all stock purchase and option plans, there were 12.6 million and 9.8 million shares reserved for future grants at November 30, 2004 and 2003, respectively. A summary of the Company’s stock options outstanding at November 30, 2004 follows: (shares in millions) Options outstanding Options exercisable  Weighted- Weighted- Weighted-  Range of average average average  exercise remaining exercise exercise  price Shares life (yrs) price Shares price  $ 9.29 - $16.26 2.7 4.8 $13.38 2.7 $13.38 $16.26 - $23.23 10.4 6.7 $20.43 5.5 $19.64 $23.23 - $30.19 .3 1.6 $24.71 .3 $24.49 $30.19 - $37.16 4.0 8.9 $30.71 .2 $32.16 17.4 6.8 $21.81 8.7 $18.24 (millions) 2004 2003 2002 Average shares outstanding – basic 137.0 139.2 139.5 Effect of dilutive securities: Stock options and ESPP 4.3 3.4 2.8 Average shares outstanding – diluted 141.3 142.6 142.3 (shares in millions) 2004 2003 2002 Weighted- Weighted- Weighted-  average average average exercise exercise exercise Shares price Shares price Shares price  Beginning of year 17.4 $18.60 14.6 $17.25 13.0 $15.46 Granted 4.1 $30.71 4.6 $22.57 3.8 $21.39 Exercised (3.9) $16.75 (1.6) $17.43 (1.9) $13.36 Forfeited (.2) $24.16 (.2) $20.58 (.3) $17.09 End of year 17.4 $21.81 17.4 $18.60 14.6 $17.25 Exercisable –  end of year 8.7 $18.24 8.8 $16.69 6.4 $15.67 52 14. CAPITAL STOCKS 13. EARNINGS PER SHARE 12. EMPLOYEE STOCK OPTION AND PURCHASE PLANS