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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended February 28, 1994 Commission File Number 0-748
McCORMICK & COMPANY, INCORPORATED
(Exact name of registrant as specified in its charter)
MARYLAND 52-0408290
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
18 Loveton Circle, P. O. Box 6000, Sparks, MD 21152-6000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (410) 771-7301
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to filing requirements for
the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Shares Outstanding
February 28, 1994
Common Stock 13,603,000
Common Stock Non-Voting 67,768,000
McCORMICK & COMPANY, INCORPORATED
INDEX
Page No.
Part I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets 2
Condensed Consolidated Statements of Income 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5, 6, 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8, 9
Part II. OTHER INFORMATION 10
PART I. FINANCIAL INFORMATION
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
Feb. 28, Feb. 28, Nov. 30,
ASSETS 1994 1993 1993
Current Assets
Cash and cash equivalents $ 18,201 $ 5,647$ 12,838
Accounts receivable - net 159,968 140,161 175,101
Inventories
Raw materials 113,830 101,650 105,713
Work in process 48,403 38,717 36,418
Finished goods 168,843 137,321 179,120
331,076 277,688 321,251
Prepaid expenses 13,369 16,591 17,960
Deferred income taxes 13,003 6,382 13,003
Total current assets 535,617 446,469 540,153
Investments 66,097 40,329 45,728
Property - net 474,247 429,938 465,610
Excess cost of acquisitions - net 134,330 120,064 130,638
Prepaid allowances 146,902 141,348 126,399
Other assets 4,569 4,364 4,708
Total assets $1,361,762 $1,182,512$1,313,236
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 171,350 $240,790$ 76,389
Current portion of long-term debt 8,275 5,084 8,299
Outstanding checks 12,062 13,543 25,401
Accounts payable, trade 95,621 79,918 113,884
Accrued payroll 15,742 18,030 29,781
Accrued sales allowances 25,719 19,743 31,240
Other accrued expenses and liabilities 81,694 82,228 90,980
Income taxes 17,780 11,074 16,893
Total current liabilities 428,243 470,410 392,867
Long-term debt 343,562 198,810 346,436
Deferred income taxes 39,959 38,013 39,006
Employee benefit liabilities 67,670 54,315 63,875
Other liabilities 4,959 4,837 4,231
Total liabilities 884,393 766,385 846,415
Shareholders' Equity
Common Stock, no par value 50,944 47,867 53,470
Common Stock Non-Voting, no par value 98,919 83,649 93,047
Retained earnings 336,616 289,467 330,327
Foreign currency translation adjustments (9,110) (4,856) (10,023)
Total shareholders' equity 477,369 416,127 466,821
Total liabilities and shareholders'
equity $1,361,762 $1,182,512$1,313,236
See notes to financial statements.
(2)
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars In Thousands Except Per Share Amounts)
Three Months Ended
February 28, February 28,
1994 1993
Net sales $367,723 $339,585
Costs of goods sold 234,952 216,683
Gross profit 132,771 122,902
Selling, general and
administrative expense 96,532 92,744
Profit from operations 36,239 30,158
Other income 1,417 1,827
Interest expense 8,126 7,267
Other expense 1,480 1,259
Income before income taxes 28,050 23,459
Provision for income taxes 10,790 9,000
Income from consolidated operations 17,260 14,459
Income from unconsolidated operations 1,050 2,805
Income before accounting change 18,310 17,264
Cumulative effect on prior years of
accounting change - (26,626)
Net income (loss) $ 18,310 $ (9,362)
Earnings per share before accounting
change $0.23 $ 0.21
Cumulative effect on prior years of
accounting change - (0.33)
Total earnings (loss) per common share $0.23 $(0.12)
Cash dividends declared per
common share $0.12 $ 0.11
See notes to financial statements.
(3)
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars In Thousands)
Three Months Ended
Feb. 28, Feb. 28,
1994 1993
Cash flows from operating activities
Net income $ 18,310 $ (9,362)
Depreciation and amortization 13,130 11,996
Provision for deferred income taxes 932 928
Gain on sale of assets (49) (61)
Share of income from unconsolidated operations (1,050) (2,805)
Dividend received from unconsolidated subsidiary - 3,990
Cumulative effect of accounting change - 26,626
Changes in operating assets and liabilities net of
effects from businesses acquired and disposed (65,344) (89,695)
Net cash used in operating activities (34,071) (58,383)
Cash flows from investing activities
Acquisitions of businesses (23,083) (41,910)
Purchases of property, plant and equipment (21,284) (20,900)
Proceeds from sale of assets 31 225
Proceeds from forward exchange contract - 8,373
Other investments (106) (371)
Net cash used in investing activities (44,442) (54,583)
Cash flows from financing activities
Notes payable 75,182 129,263
Long-term debt
Borrowings 20,059 917
Repayments (2,242) (2,237)
Common stocks
Issued 3,626 9,544
Acquired by purchase (2,577) (11,769)
Dividends Paid (9,724) (8,844)
Net cash provided by financing activities 84,324 116,874
Effect of exchange rate changes on cash and
cash equivalents (448) (67)
Increase/(Decrease) in cash and cash equivalents 5,363 3,841
Cash and cash equivalents at beginning of period 12,838 1,806
Cash and cash equivalents at end of period $ 18,201 $ 5,647
See notes to financial statements.
(4)
McCORMICK & COMPANY, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands Except per Share Amounts)
1. In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly
the financial position as of February 28, 1994, February 28,
1993 and November 30, 1993, and the results of operations for
the three month periods ended February 28, 1994 and February
28, 1993, and the cash flows for the three month periods ended
February 28, 1994 and February 28, 1993. Certain reclassi-
fications have been made to the 1993 financial statements to
conform with the 1994 presentation.
2. The results of consolidated operations for the three month
period ended February 28, 1994 are not necessarily indicative
of the results to be expected for the full year. Histor-
ically, the Company's consolidated sales and profits are lower
in the first two quarters of the fiscal year, and increase in
the third and fourth quarters.
3. Earnings per common share for the three month period ended
February 28, 1994 was computed by dividing net income by the
weighted average number of common shares outstanding
(81,136,000). Earnings per common share for the three month
period ended February 28, 1993 was computed by dividing net
income by the weighted average number of common shares
outstanding (80,485,000), plus dilutive common equivalent
shares applicable to outstanding stock options and purchase
plans (1,382,000). Common stock equivalents were not added
to fiscal year 1994 weighted average common shares outstanding
because they resulted in an insignificant dilution in earnings
per share.
4. Interest paid during the three month periods ended
February 28, 1994 and February 28, 1993 was $11,200 and
$10,400 respectively. Income taxes paid during the same
periods were $7,200 and $17,200 respectively.
5. Changes in foreign currency exchange rates required adjust-
ments to both the Excess Cost of Acquisition account and the
Foreign Currency Translation Adjustments account at
February 28, 1994 and are primarily responsible for the
changes in the translation adjustment account for the periods
presented. These exchange rate changes plus amounts recorded
as a result of business acquisitions largely account for the
change in the Excess Cost of Acquisition account for the
periods presented.
(5)
6. During the first quarter of 1994 the Company renewed certain
prepaid allowance contracts. Payments associated with these
contracts are reflected in the Prepaid Allowance account at
February 28, 1994.
7. During the first quarter of 1994, the Company acquired Grupo
Pesa, a Mexican seasoning company, the spice business of Tuko
Oy of Finland, and the retail seasoning brand of Hy's Fine
Foods, Ltd. of Canada. The assets and liabilities acquired
in these transactions have been recorded using the purchase
method of accounting at their estimated fair values at the
date of acquisition. The aggregate purchase price of these
acquisitions was $23,083. While these acquisitions are
expected to contribute positively to the Company's future
sales and earnings, they are not material in relation to the
Company's consolidated financial statements, and therefore pro
forma financial information has not been presented.
8. In November 1993, the Company adopted SFAS No. 106, "Employers
Accounting for Postretirement Benefits Other Than Pensions"
effective as of December 1, 1992. This accounting standard
requires the expected cost of postretirement benefits be
accrued during the years that employees render services.
Prior to 1993, the Company recognized these expenses based on
claims paid.
The Company recognized a transition obligation which was based
on the aggregate amount that would have been recorded in prior
years had the new standard been in effect for those years, as
a one-time charge to 1993 income of $26,600 or $.33 per share,
net of approximately $17,200 of income tax benefit. The
incremental change to 1993 net income by applying SFAS 106
rather than the previous accounting method was $2,200 net of
income tax benefit, or $.03 per share.
Results for the first three quarters of 1993 have been
restated to reflect this change.
9. In November 1992, the Financial Accounting Standards Board
issued SFAS No. 112, "Employers' Accounting for Postemployment
Benefits." This standard requires that employers accrue a
liability for their obligation to provide postemployment
benefits as employees earn the right to receive them, provided
that payment of the benefits is probable and the amount of the
benefits can be reasonably estimated. The Company has not yet
determined when this standard will be adopted. The effect of
this accounting change on the Company's financial statements
is not expected to be material. The Company must adopt this
standard no later than in its fiscal year ending November 30,
1995.
(6)
10. SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments" requires disclosure of the estimated fair value
of certain financial instruments. Cash, receivables, short-
term borrowings, accounts payable, and accrued liabilities are
reflected in the financial statements at fair value because
of the short-term maturity of these instruments. Investments,
principally in unconsolidated affiliates, are not readily
marketable and therefore it is not practicable to estimate
their fair value. The estimated fair value of long-term debt
at February 28, 1994, using discounted cash flow analysis
based on the Company's current incremental borrowing rate for
debt of similar remaining maturities was $377,966. This
amount excludes $8,275 current portion of long-term debt which
is considered to be at fair value.
11. Through its medium-term note program, at February 28, 1994,
the Company had issued $50,000 of notes with maturities of 12
years and coupon rates ranging from 5.78% to 6.24%. The
Company also had available credit facilities with domestic and
foreign banks in the aggregate of $290,000. There were no
borrowings outstanding against these facilities. At February
28, 1994, the Company's commercial paper issuance amounted to
$257,000, of which $100,000 has been classified as long-term
debt reflecting the Company's ability and intention to
refinance this amount on a long-term basis through its medium-
term note program.
(7)
McCORMICK & COMPANY, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Consolidated net sales for the three months ended February 28, 1994
increased 8% over the corresponding period last year. This
increase was largely attributable to sales volume gains. Almost
every operating unit reported increased sales, with particularly
strong performances coming from the Company's industrial,
international and plastic packaging businesses.
Income from consolidated operations was up 19%. Key contributors
were also the industrial, international and plastic packaging
businesses. This operating improvement was achieved even though
the Company's overall gross profit margin remained approximately
even with last year's first quarter, which was depressed because of
high onion costs at our Gilroy unit. Although the gross margin at
Gilroy has now improved, the overall gross margin for the Company
did not, because a higher percentage of total sales were from the
industrial and plastic packaging businesses which deliver lower
gross margins. These businesses earn good operating profit
margins, however, because they do not require the high level of
advertising and promotion support required by our retail consumer
products businesses. Lower costs resulting from changes the
Company made to its health care benefits program in 1993, also had
a favorable impact on first quarter results. Income from our
unconsolidated joint ventures was down $1.8 million or
approximately $.02 per share. This decline can be attributed
primarily to higher sales promotion expenses in our Mexican retail
operation. We expect improvement in our unconsolidated operations
as the year progresses. Net income rose to $18.3 million while
earnings per share increased to $.23, up 9.5% excluding the effect
of the 1993 one-time charge for postretirement benefits.
Return on equity (ROE), calculated by dividing twelve months to
date net income by average shareholders' equity during that period,
was 21.8% at February 28, 1994. This compares to ROE from
continuing operations of 22.0% at year-end 1993 and 22.7% at
February 28, 1993. ROE from continuing operations excludes the
impact of the one-time charge for postretirement benefits. After
reducing net income and equity for the impact of this one-time
charge, ROE was 17.0% at year-end 1993 and 16.6% at February 28,
1993.
(8)
Financial Condition
The Company's capital structure (excluding $57.6 million
non-recourse debt) was 49.4% debt to total capital at February 28,
1994, up from 44.3% at year-end 1993 and 48.1% at February 28,
1993. During this year's first quarter the Company increased
borrowing to meet seasonal operating capital needs and also to
provide $23 million for three acquisitions. These acquisitions
were (1) Grupo Pesa, a Mexican seasoning company which is a leading
supplier to Mexico's food processing industry, (2) the spice
business of Tuko Oy in Finland, which had been manufacturing
spices, seasonings and specialty foods under license from the
Company and (3) a retail brand previously owned by Hy's Fine Foods
in Canada. Typically the Company reduces borrowing in the fourth
quarter which historically produces its highest percentage of sales
volume, profits and cash flows from operations. The Company's
current ratio declined to 1.3 from 1.5 at year-end 1993, but was
improved over .9 at February 28, 1993. During the first quarter
the Company issued $20 million of notes under its medium-term note
program. These notes have a term of 12 years at 6.24%. The
Company continues to maintain $290 million of committed credit
facilities that provide additional liquidity. These facilities
were not in use at the end of the first quarter.
(9)
PART II - OTHER INFORMATION
No response required.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
McCORMICK & COMPANY, INCORPORATED
Date: April 8, 1994 By:
James A. Hooker
Vice President &
Chief Financial Officer
Date: April 8, 1994 By:
J. Allan Anderson
Vice President & Controller
(10)