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 August 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
August 31, 1994
Common Stock 13,261,000
Common Stock Non-Voting 67,953,000
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)
Aug. 31, Aug. 31, Nov. 30,
1994 1993 1993
ASSETS
Current Assets
Cash and cash equivalents $ 14,137 $ 10,881 $ 12,838
Accounts receivable - net 200,476 180,838 175,101
Inventories
Raw materials 116,953 103,173 105,713
Work in process 47,645 36,975 36,418
Finished goods 201,800 169,341 179,120
366,398 309,489 321,251
Prepaid expenses 6,385 3,868 17,960
Deferred income taxes 13,003 6,382 13,003
Total current assets 600,399 511,458 540,153
Investments 51,019 43,267 45,728
Property - net 497,997 460,355 465,610
Excess cost of acquisitions - net 197,221 129,910 130,638
Prepaid allowances 155,201 139,513 126,399
Other assets 5,452 4,350 4,708
Total assets $1,507,289 $1,288,853 $1,313,236
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 272,899 $ 158,603 $ 76,389
Current portion of long-term debt 10,864 8,334 8,299
Outstanding checks 11,676 14,216 25,401
Accounts payable, trade 113,874 94,561 113,884
Accrued payroll 26,715 24,724 29,781
Accrued sales allowances 24,822 23,443 31,240
Other accrued exp. and liabilities 93,196 80,877 90,980
Income taxes 7,148 4,995 16,893
Total current liabilities 561,194 409,753 392,867
Long-term debt 355,303 340,607 346,436
Deferred income taxes 30,169 41,133 39,006
Employee benefit liabilities 61,302 52,080 63,875
Other liabilities 4,083 4,414 4,231
Total liabilities 1,012,051 847,987 846,415
Shareholders' Equity
Common Stock, no par value 49,808 52,136 53,470
Common Stock Non-Voting, no par 100,809 92,494 93,047
Retained earnings 357,235 302,955 330,327
Foreign currency trans. adj. (12,614) (6,719) (10,023)
Total shareholders' equity 495,238 440,866 466,821
Total liabilities and
shareholders' equity $1,507,289 $1,288,853 $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 Nine Months Ended
August 31 August 31
1994 1993 1994 1993
Net sales $422,141 $394,928 $1,186,206$1,095,813
Costs of goods sold 264,086 239,702 753,708 685,258
Gross profit 158,055 155,226 432,498 410,555
Selling, general and
administrative expense 107,627 107,425 308,200 300,485
Profit from operations 50,428 47,801 124,298 110,070
Other income 1,304 1,467 4,346 4,743
Interest expense 9,743 7,736 26,903 22,984
Other expense 1,824 1,695 6,135 4,578
Income before income taxes 40,165 39,837 95,606 87,251
Provision for income taxes 15,030 17,041 36,480 35,283
Income from consol. operations 25,135 22,796 59,126 51,968
Income from unconsol. ops. 1,307 1,571 4,755 7,199
Income before accounting change 26,442 24,367 63,881 59,167
Cumulative effect on prior years of
accounting change - - - (26,626)
Net income $ 26,442 $ 24,367 $ 63,881 $ 32,541
Earnings per share bef. accounting $0.33 $0.30 $0.79 $0.72
change
Cumulative effect on prior years of
accounting change - - - ($0.33)
Total earnings per share $0.33 $0.30 $0.79 $0.39
Cash dividends declared per
common share $0.12 $0.11 $0.36 $0.33
See notes to financial statements.
(3)
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars In Thousands)
Nine Months Ended
August 31, August 31,
1994 1993
Cash flows from operating activities
Net income $ 63,881 $ 32,541
Depreciation and amortization 44,518 37,346
Provision for deferred income taxes 3,614 3,642
Gain (loss) on sale of assets 245 (23)
Share of income from unconsolidated operations (4,755) (7,199)
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 (132,571) (132,646)
Net cash used in operating activities (21,723) (32,456)
Cash flows from investing activities
Acquisitions of businesses (82,413) (73,737)
Purchases of property, plant and equipment (64,950) (56,918)
Proceeds from sale of assets 195 272
Proceeds (payments) from forward exchange contract (520) 9,584
Other investments (4,595) (1,608)
Net cash used in investing activities (152,283) (122,407)
Cash flows from financing activities
Notes payable 122,055 197,568
Long-term debt
Borrowings 102,425 398
Repayments (14,899) (7,389)
Common stocks
Issued 5,034 23,576
Acquired by purchase (8,658) (23,287)
Dividends Paid (29,248) (26,657)
Net cash provided by financing activities 176,709 164,209
Effect of exchange rate changes on cash and
cash equivalents (1,404) (271)
Increase/(Decrease) in cash and cash equivalents 1,299 9,075
Cash and cash equivalents at beginning of period 12,838 1,806
Cash and cash equivalents at end of period $ 14,137 $ 10,881
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 August 31, 1994, August 31, 1993
and November 30, 1993, and the results of operations for the
three and nine month periods ended August 31, 1994 and
August 31, 1993, and the cash flows for the nine month periods
ended August 31, 1994 and August 31, 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 and nine
month periods ended August 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 nine month periods
ended August 31, 1994 were computed by dividing net income by
the weighted average number of common shares outstanding
(81,292,000 - three months and 81,244,000 - nine months).
Earnings per common share for the three and nine month periods
ended August 31, 1993 were computed by dividing net income by
the weighted average number of common shares outstanding
(81,012,000 - three months, 80,744,000 - nine months), plus
dilutive common equivalent shares applicable to outstanding
stock option and purchase plans (768,000 shares - three
months, 1,030,000 shares - nine 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 nine month periods ended August 31,
1994 and August 31, 1993 was $29,862 and $26,300 respectively.
Income taxes paid during the same periods were $54,100 and
$44,500 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
August 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 third quarter of 1994 the Company renewed certain
prepaid allowance contracts. Payments associated with these
contracts are reflected in the Prepaid Allowance account at
August 31, 1994.
7. During the first nine months of 1994, the Company acquired the
following: Grupo Pesa, a Mexican seasoning company, the spice
business of Tuko Oy of Finland, the retail seasoning brand of
Hy's Fine Foods, Ltd. of Canada, the dessert business of
Traders Pty., Ltd. of Australia, Butty, a Swiss herb and spice
business, Minipack, a packaging business in the United
Kingdom, and Noel Holdings, Ltd., a leading supplier of
specialty foods based in the United Kingdom. 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 $82,413. 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 expects to
adopt the standard in the 4th quarter of 1994. The effect of
this accounting change on the Company's financial statements
will not be material.
(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 August 31, 1994, using discounted cash flow analysis based
on the Company's current incremental borrowing rate for debt
of similar remaining maturities was $368,463. This amount
excludes $10,864 current portion of long-term debt which is
considered to be at fair value.
11. Through its medium-term note program, at August 31, 1994, the
Company had issued $105,000 of notes. Included with these issues
$95,000 have maturities of 12 years and coupon rates ranging from
5.78% to 7.77%. The remaining $10 million have a final maturity
of 30 years with a put option in year ten, and a coupon rate of 7.63%.
The Company also had available credit facilities with domestic and
foreign banks in the aggregate of $340,000. There were no
borrowings outstanding against these facilities. At
August 31, 1994, the Company's commercial paper issuance
amounted to $277,540, of which $45,000 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 nine months ended
August 31, 1994 increased 7% and 8% respectively over the
corresponding periods last year. In terms of sales volume alone,
the increases were 7% for both the quarter and the first nine
months. Third quarter sales improved for most of the Company's
businesses. Sales from newly acquired businesses contributed
approximately 2% to the third quarter increase.
Earnings per share increased 10% for both the third quarter and
first nine months of fiscal 1994. Earnings per share for the
quarter were $.33 versus $.30 in 1993. Earnings for the first nine
months of 1994 increased to $.79, compared to the prior year's
earnings of $.72 before the cumulative effect of accounting change.
Operating profit improvement slowed in the third quarter largely
due to margin pressure in our industrial units. Selling, general
and administrative expenses for the quarter were held level with
1993 and helped moderate the effect of lower gross margins. The
Company's overall operating profit margin for the third quarter was
11.9% as compared to 12.1% last year. The operating profit margin
for the first nine months is slightly ahead of last year. Rising
interest rates coupled with a higher debt level drove interest
expense for the quarter up $2 million over last year's third
quarter. This increase was offset by a comparatively lower
provision for income taxes this year. Last year the tax provision
was increased in the third quarter to adjust for the retroactive
federal income tax rate increase. Slightly below last year, income
from unconsolidated operations for the quarter continue to be
affected by lower earnings from our Mexican retail joint venture
which is experiencing increased competition in the markets it
serves.
Return on equity , calculated by dividing twelve months to date net
income by average shareholder's equity during that period, was
21.9% at August 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 54% debt to total capital at August 31,
1994, up from 44.3% at year end and 50.4% at August 31, 1993.
During the third quarter the Company increased borrowings by
approximately $109 million. This cash was primarily used for
acquisitions of businesses, capital spending, shareholder dividends
(8)
and seasonal working capital needs. Typically the Company reduces
borrowing in the fourth quarter which historically produces the
highest percentage of sales volume, profits and cash flows from
operations. The Company's current ratio declined to 1.1 at the end
of the third quarter as compared to 1.4 at year end 1993, and 1.2
at August 31 last year. During the third quarter the Company
issued $30 million of notes under its medium-term note program.
Included with these issues, $20 million have a term of 12 years with
coupon rates ranging from 7.67% to 7.77%. The remaining $10 million
have a final maturity of 30 years with a put option in year ten, and a
coupon rate of 7.63%. 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 third quarter.
Other Events
On October 11, 1994 the Company announced a plan of restructuring
which will result in a charge to 4th quarter 1994 earnings of
approximately $66 million before tax ($44 million after tax). This
plan includes the closing of two domestic manufacturing facilities,
the realignment of the Company's manufacturing operations in the
United Kingdom, the sale of the Company's frozen food subsidiary,
and the consolidation of a number of staff activities. These
actions will result in the reduction of 600 positions or 7% of the
Company's worldwide work force. This restructuring is viewed by
management as an investment in the future to keep the Company in a
leadership position in the markets in which we compete, to assure
our status as a low cost producer and ultimately to enhance
shareholder value.
(9)
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) No response required.
(b) Reports on Form 8-K. On October 12, 1994, the Company filed
a report on Form 8-K, dated October 11, 1994, in response to
Item 5 Other Events of Form 8-K, which incorporated by
reference a Press Release dated October 11, 1994 announcing a
major restructuring program.
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: October 12, 1994 By:
Robert G. Davey
Vice President &
Chief Financial Officer
Date: October 12, 1994 By:
J. Allan Anderson
Vice President & Controller
(10)
5
1000
QTR-3
NOV-30-1994
AUG-31-1994
14137
0
203422
(2946)
366398
600399
819027
(321030)
1507289
561194
355303
150617
0
0
344621
1507289
1186206
1186206
753708
(308200)
(1789)
0
(26903)
95606
(36480)
63881
0
0
0
63881
0.79
0.79
