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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 May 31, 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
May 31, 1994
Common Stock 13,355,000
Common Stock Non-Voting 67,957,000
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
Part II. OTHER INFORMATION 9
PART I. FINANCIAL INFORMATION
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
May 31, May 31, November 30,
1994 1993 1993
ASSETS
Current Assets
Cash and cash equivalents $ 19,061 $ 5,915 $ 12,838
Accounts receivable - net 169,199 154,737 175,101
Inventories
Raw materials 118,745 105,142 105,713
Work in process 47,824 41,739 36,418
Finished goods 172,363 136,683 179,120
338,932 283,564 321,251
Prepaid expenses 6,061 9,738 17,960
Deferred income taxes 13,003 6,382 13,003
Total current assets 546,256 460,336 540,153
Investments 48,588 39,783 45,728
Property - net 485,544 457,124 465,610
Excess cost of acquisitions - net 146,916 134,314 130,638
Prepaid allowances 137,497 136,372 126,399
Other assets 4,954 4,303 4,708
Total assets $1,369,755 $1,232,232 $1,313,236
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 180,297 $270,666 $ 76,389
Current portion of long-term debt 9,693 4,853 8,299
Outstanding checks 14,421 13,894 25,401
Accounts payable, trade 97,394 92,182 113,884
Accrued payroll 23,423 20,482 29,781
Accrued sales allowances 23,410 21,896 31,240
Other accr.exp. and liabilities 89,680 85,597 90,980
Income taxes 4,591 2,115 16,893
Total current liabilities 442,909 511,685 392,867
Long-term debt 340,244 194,346 346,436
Deferred income taxes 31,622 39,443 39,006
Employee benefit liabilities 67,204 53,509 63,875
Other liabilities 4,896 4,308 4,231
Total liabilities 886,875 803,291 846,415
Shareholders' Equity
Common Stock, no par value 50,181 50,063 53,470
Com.Stock Non-Voting,no par value 99,933 88,380 93,047
Retained earnings 343,671 293,329 330,327
Foreign currency translation
adjustments (10,905) (2,831) (10,023)
Total shareholders' equity 482,880 428,941 466,821
Total liabilities and
shareholders' equity $1,369,755 $1,232,232 $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 Three Six Six
Months Months Months Months
Ended Ended Ended Ended
May 31 May 31 May 31 May 31
1994 1993 1994 1993
Net sales $396,342 $361,300 $764,065 $700,885
Costs of goods sold 254,670 228,873 489,622 445,556
Gross profit 141,672 132,427 274,443 255,329
Selling, general and
administrative expense 104,041 100,316 200,573 193,060
Profit from operations 37,631 32,111 73,870 62,269
Other income 1,625 1,449 3,042 3,276
Interest expense 9,034 7,981 17,160 15,248
Other expense 2,831 1,624 4,311 2,883
Income before income taxes 27,391 23,955 55,441 47,414
Provision for income taxes 10,660 9,242 21,450 18,242
Income from consol operations 16,731 14,713 33,991 29,172
Income from unconsol ops 2,398 2,823 3,448 5,628
Income before accounting change 19,129 17,536 37,439 34,800
Cumulative effect on prior years
of accounting change - - - (26,626)
Net income $19,129 $17,536 $37,439 $ 8,174
Earnings per share before
accounting change $0.24 $0.21 $0.46 $0.43
Cumulative effect on prior years
of accounting change - - -($0.33)
Total earnings per share $0.24 $0.21 $0.46 $0.10
Cash dividends declared per
common share $0.12 $0.11 $0.24 $0.22
See notes to financial statements.
(3)
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars In Thousands)
Six Six
Months Months
Ended Ended
May 31, May 31,
1994 1993
Cash flows from operating activities
Net income $ 37,439 $ 8,174
Depreciation and amortization 27,624 24,955
Provision for deferred income taxes 2,008 1,892
Gain (loss) on sale of assets 124 (35)
Share of income from unconsolidated operations (3,448) (5,628)
Dividend received from unconsolidated subsidiary 3,345 7,257
Cumulative effect of accounting change - 26,626
Changes in operating assets and liabilities net
of effects from businesses acquired and disposed (69,001) (87,630)
Net cash used in operating activities (1,909) (24,389)
Cash flows from investing activities
Acquisitions of businesses (26,083) (74,661)
Purchases of property, plant and equipment (41,903) (40,146)
Proceeds from sale of assets 124 267
Proceeds(payments) from forward exchange contract (518) 8,373
Other investments (2,970) (71)
Net cash used in investing activities (71,350) (106,238)
Cash flows from financing activities
Notes payable 59,052 159,202
Long-term debt
Borrowings 56,713 380
Repayments (14,869) (7,138)
Common stocks
Issued 4,236 16,904
Acquired by purchase (5,245) (16,991)
Dividends Paid (19,489) (17,727)
Net cash provided by financing activities 80,398 134,630
Effect of exchange rate changes on cash and
cash equivalents (916) 106
Increase/(Decrease) in cash and cash equivalents 6,223 4,109
Cash and cash equivalents at beginning of period 12,838 1,806
Cash and cash equivalents at end of period $ 19,061 $ 5,915
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 May 31, 1994, May 31, 1993 and
November 30, 1993, and the results of operations for the three
and six month periods ended May 31, 1994 and May 31, 1993, and
the cash flows for the six month periods ended May 31, 1994
and May 31, 1993. Certain reclassifications have been made to
the 1993 financial statements to conform with the 1994
presentation.
2. The results of consolidated operations for the three and six
month periods ended May 31, 1994 are not necessarily
indicative of the results to be expected for the full year.
Historically, 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 and six month periods
ended May 31, 1994 were computed by dividing net income by the
weighted average number of common shares outstanding
(81,353,000 - three months and 81,227,000 - six months).
Earnings per common share for the three and six month periods
ended May 31, 1993 were computed by dividing net income by the
weighted average number of common shares outstanding
(80,776,000 - three months, 80,616,000 - six months), plus
dilutive common equivalent shares applicable to outstanding
stock option and purchase plans (941,000 shares - three
months, 1,162,000 shares - six months). Common stock
equivalents were not added to fiscal year 1994 weighted
average common shares outstanding because they resulted in an
insignificant dilution of earnings per share.
4. Interest paid during the six month periods ended May 31, 1994
and May 31, 1993 was $20,840 and $16,600 respectively. Income
taxes paid during the same periods were $38,905 and $33,100
respectively.
5. Changes in foreign currency exchange rates required
adjustments to both the Excess Cost of Acquisition account and
the Foreign Currency Translation Adjustments account at
May 31, 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 second quarter of 1994 the Company renewed certain
prepaid allowance contracts. Payments associated with these
contracts are reflected in the Prepaid Allowance account at
May 31, 1994.
7. During the first half 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 $26,083. 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 May 31, 1994, using discounted cash flow analysis based on
the Company's current incremental borrowing rate for debt of
similar remaining maturities was $357,525. This amount
excludes $9,693 current portion of long-term debt which is
considered to be at fair value.
11. Through its medium-term note program, at May 31, 1994, the
Company had issued $75,000 of notes with maturities of 12
years and coupon rates ranging from 5.78% to 7.40%. 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 May 31,
1994, the Company's commercial paper issuance amounted to
$237,540, of which $75,000 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 and six months ended May 31,
1994 increased 10% and 9% respectively over the corresponding
periods last year. In terms of sales volume alone, the increases
were 7% for both the quarter and the first half. Second quarter
sales improved for all of the Company's businesses with the most
significant increases coming from the industrial and packaging
units, and to a lesser extent, from acquisitions.
Earnings per share for the second quarter and were $.24, a 14%
increase over 1993. For the first six months of 1994, earnings per
share increased to $.46, compared to last year's $.43 before
cumulative effect of accounting change. As expected, second
quarter earnings were favorably impacted by the Company's Gilroy
Foods subsidiary, whose profitability has improved over last year
when it experienced exceptionally high onion costs. Although most
of our other operating units had improved second quarter results,
operating profits were adversely affected by lower margins in the
industrial flavoring and seasoning business and also by flat sales
and competitive pressures in the domestic retail business. These
are also reasons for the decline in the Company's overall gross
margin. The Company's overall operating profit margin for the
second quarter was 9.5% as compared to 8.9% last year. Results for
the first half show a similar improvement. Although slightly below
last year, income from unconsolidated operations improved over
first quarter, primarily because of improved earnings from our
Mexican retail operation.
Return on equity , calculated by dividing twelve months to date net
income by average shareholder's equity during that period, was
21.7% at May 31, 1994. This meets the Company's objective of
exceeding a 20% return on equity.
Financial Condition
The Company's capital structure (excluding $57.6 million
non-recourse debt) was 49.5% debt to total capital at May 31, 1994,
up from 44.3% at year end and 48.9% at May 31, 1993. Typically the
Company reduces borrowing in the fourth quarter which historically
produces the highest percentage of sales volume, profits and cash
flows from operations. During the second quarter the Company
generated approximately $32 million cash from operations. This
cash was primarily used for capital spending and shareholder
dividends. The Company's current ratio declined to 1.2 at the end
of the second quarter as compared to 1.4 at year end 1993, but was
improved over .9 at May 31 last year. During the second quarter
the Company issued $25 million of notes under its medium-term note
program to permanently finance commercial paper that was previously
classified as long-term. These notes have a term of 12 years at a
range from 6.79% to 7.4%. 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
second quarter.
(8)
PART II - OTHER INFORMATION
Item 4 Submission of matters to a Vote of Security Holders
(a) The Company held its annual meeting of stockholders on
March 16, 1994.
(b) No response required.
(c) No response required.
(d) 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: By:
Robert G. Davey
Vice President &
Chief Financial Officer
Date: By:
J. Allan Anderson
Vice President & Controller
(9)