SEC Filing | McCormick & Company, Inc.

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, 1999 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 June 30, 1999 Common Stock 9,230,531 Common Stock Non-Voting 62,073,462 McCORMICK & COMPANY, INCORPORATED INDEX - FORM 10-Q May 31, 1999 Page No. Part I. FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Statement of Income 2 Condensed Consolidated Balance Sheet 3 Condensed Consolidated Statement of Cash Flows 4 Notes to Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 15 Part II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 16 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17 Exhibit Index 18 PART I - FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS McCORMICK & COMPANY, INCORPORATED CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (In Thousands Except Per Share Amounts) Three Months Ended Six Months Ended May 31, May 31, 1999 1998 1999 1998 Net sales $468,178 $435,453 $909,721 $850,655 Cost of goods sold 310,443 294,165 606,647 576,195 Gross profit 157,735 141,288 303,074 274,460 Selling, general and administrative expense 122,084 110,238 234,762 213,313 Special charges 14,665 611 14,665 679 Operating income 20,986 30,439 53,647 60,468 Interest expense 8,154 9,308 16,288 17,697 Other (income) expense, net (1,181) (1,226) (2,276) (2,741) Income before income taxes 14,013 22,357 39,635 45,512 Income Taxes 10,274 8,048 19,472 16,384 Net income from consolidated operations 3,739 14,309 20,163 29,128 Income from unconsolidated operations 2,057 1,782 3,803 3,172 Net income $ 5,796 $ 16,091 $ 23,966 $ 32,300 Earnings per common share - $0.08 $0.22 $0.33 $0.44 basic and diluted Cash dividends declared per common share $0.17 $0.16 $0.34 $0.32 See notes to condensed consolidated financial statements. (2) McCORMICK & COMPANY, INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEET (In Thousands) May 31, May 31, Nov. 30, 1999 1998 1998 (Unaudited)(Unaudited) ASSETS Current Assets Cash and cash equivalents $ 13,510 $ 12,689 $ 17,711 Accounts receivable, net 182,866 173,906 212,804 Inventories Raw materials and supplies 114,690 121,525 112,254 Finished products and work-in process 147,511 153,525 138,639 262,201 275,050 250,893 Other current assets 22,687 25,119 22,325 Total current assets 481,264 486,764 503,733 Property, plant and equipment 718,165 710,272 723,323 Less: Accumulated depreciation (351,572) (330,249) (346,291) Total property, plant and equipment, net 366,593 380,023 377,032 Intangible assets, net 147,305 151,157 160,901 Prepaid allowances 150,255 158,083 143,722 Other assets 77,149 76,038 73,665 Total assets $1,222,566 $1,252,065 $1,259,053 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings $191,545 $217,260 $139,140 Current portion of long-term debt 15,133 14,390 24,539 Trade accounts payable 146,166 121,918 145,829 Other accrued liabilities 174,600 178,047 208,426 Total current liabilities 527,444 531,615 517,934 Long-term debt 243,401 258,971 250,363 Other long-term liabilities 100,675 88,942 102,585 Total liabilities 871,520 879,528 870,882 Shareholders' Equity Common stock 51,648 48,474 48,991 Common stock non-voting 121,820 121,159 120,019 Retained earnings 219,367 241,577 262,346 Accumulated other comprehensive income (41,789) (38,673) (43,185) Total shareholders' equity 351,046 372,537 388,171 Total liabilities and shareholders' equity $1,222,566 $1,252,065 $1,259,053 See notes to condensed consolidated financial statements. (3) McCORMICK & COMPANY, INCORPORATED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (In Thousands) Six Months Ended May 31, 1999 1998 Cash flows from operating activities Net income $ 23,966 $ 32,300 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization 28,529 26,054 Special charges 14,665 679 Income from unconsolidated operations (3,803) (3,172) Other 1,759 212 Changes in operating assets and liabilities Receivables 28,794 40,240 Inventories (12,233) (25,995) Prepaid allowances (6,323) (27,645) Trade accounts payable 876 (26,709) Other assets and liabilities (34,152) (40,762) Net cash provided by (used in) operating activities 42,078 (24,798) Cash flows from investing activities Capital expenditures (22,105) (27,302) Proceeds from sale of assets 87 493 Other 206 (749) Net cash used in investing activities (21,812) (27,558) Cash flows from financing activities Short-term borrowings, net 52,549 105,751 Long-term debt borrowings - 48 Long-term debt repayments (14,472) (9,291) Common stock issued 8,281 13,528 Common stock acquired by purchase (46,327) (34,806) Dividends paid (24,481) (23,570) Net cash (used in) provided by financing activities (24,450) 51,660 Effect of exchange rate changes on cash and cash equivalents (17) (115) Decrease in cash and cash equivalents (4,201) (811) Cash and cash equivalents at beginning of period 17,711 13,500 Cash and cash equivalents at end of period $ 13,510 $ 12,689 See notes to condensed consolidated financial statements. (4) McCORMICK & COMPANY, INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except As Otherwise Noted) (Unaudited) 1. ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position and the results of operations for the interim periods. The results of consolidated operations for the three and six month periods ended May 31, 1999 are not necessarily indicative of the results to be expected for the full year. Historically, the Company's consolidated sales and net income are lower in the first half of the fiscal year and increase in the second half. For further information, refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended November 30, 1998. Accounting and Disclosure Changes In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products, services, geographic areas and major customers. The Company will adopt this statement in 1999. Adoption of this standard will not impact the Company's results of operations and financial position and will be limited to the presentation of its disclosures. In the first quarter of 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive Income". The adoption of this statement had no impact on the Company's net income or shareholders' equity. SFAS No. 130 establishes standards for reporting comprehensive income in financial statements. Comprehensive income includes all changes in equity during a period except those resulting from investments by or distributions to shareholders. The Company's comprehensive income for all periods presented consisted primarily of net income and foreign currency translation adjustments. Amounts in prior year financial statements have been reclassified to conform to the requirements of SFAS No. 130. In the first quarter of 1999, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement requires the Company to recognize all derivatives on (5) the balance sheet at fair value. Derivatives that do not qualify as hedges under the new standard are adjusted to fair value through income. If a derivative qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in value is immediately recognized in earnings. Adoption of SFAS No. 133 did not have a material impact on the Company's results of operations and financial position. 2. SPECIAL CHARGES During the quarter ended May 31, 1999, the Company recorded special charges of $22.4 million ($19.5 million after-tax or $0.27 per share) associated with streamlining actions including workforce reductions, building and equipment disposals, write-down of intangible assets and other related expenses. In Europe, the Company will consolidate certain United Kingdom facilities, improve efficiencies within previously consolidated European operations and realign operations between the United Kingdom and other European locations. Specifically, the Company will close a facility located in Oswaldtwistle, one of three liquid manufacturing operations in the United Kingdom. During the third quarter, Oswaldtwistle production will be consolidated into the remaining facilities, resulting in asset disposals and write-downs and position eliminations. Capitalizing on improved systems and processes at the recently consolidated European operations, the Company has identified additional opportunities to streamline manufacturing and administrative functions. In addition, the realignment of operations between the United Kingdom and other European locations will result in an overall reduction of positions and the write-down of assets, primarily goodwill from prior acquisitions in Finland and Switzerland. Finally, system and process improvements throughout the Company's global operations resulted in asset write- downs and position eliminations. The Company expects these actions will be completed by the second quarter of 2000 and will require net cash outflows of $7.9 million. Beginning in 2000, these actions are expected to generate $6 million in after-tax savings. A portion of these annual savings will be reinvested in programs to generate growth opportunities. In its entirety, expenses associated with the streamlining actions are expected to total $29.3 million. This includes amounts recognized in the second quarter of 1999 and future expenses which could not be accrued, but will be expensed as the actions are implemented. Although all expenses in the second quarter are classified as special charges on the Consolidated Statement of Income, it is expected that $2.8 million of future expenses will be classified as cost of goods sold or selling, general and administrative expense. (6) In addition, the Company changed its actuarial method of calculating the market-related value of plan assets used in determining the expected return-on-asset component of annual pension expense. This modification resulted in a one-time special credit of $7.7 million ($4.8 million after-tax or $0.07 per share). Under the previous method, all realized and unrealized gains and losses were gradually included in the calculated market-related value of plan assets over a five-year period. Under the new method, the total expected investment return, which anticipates realized and unrealized gains and losses on plan assets, is included in the calculated market-related value of plan assets each year. Only the difference between total actual investment return, including realized and unrealized gains and losses, and the expected investment return is gradually included in the calculated market-related value of plan assets over a five-year period. Under the new actuarial method, the calculated market-related value of plan assets more closely approximates fair value, while still mitigating the effects of annual market value fluctuations. It also reduces the growing difference between the fair value and calculated market-related value of plan assets that has resulted from the recent accumulation of unrecognized gains and losses. While this change better represents the amount of ongoing pension expense, the new method will not have a material impact on the Company's results of operations and financial condition. The major components of the special charges and the remaining accrual balance as of May 31, 1999 were as follows: Accrued Special Amounts Special Charges Utilized Charges (In Thousands) Severance and personnel costs $ 5,991 $ - $5,991 Write-down of assets 14,541 14,541 - Other exit costs 1,875 - 1,875 Actuarial method change (7,742) (7,742) - $14,665 $ 6,799 $7,866 Severance and personnel costs do not represent all of the amounts to be recorded in connection with the elimination of positions, as additional costs will be recognized in the future as eligibility requirements are met. In total, the streamlining actions will result in the elimination of approximately 300 positions, primarily outside the U.S. Write-down of assets consists primarily of fixed asset or other long-term asset impairments recorded as a direct result of the Company's decision to exit facilities, businesses or operating activities. These actions resulted in write-down of $5.1 million of property, plant and equipment and $9.4 million in intangible assets. The fair value of the intangible assets was based on a discounted value of estimated future cash flows. Other exit costs consist primarily of employee and equipment relocation costs, lease exit costs and consulting fees, some of which will be recognized as incurred. (7) 3. EARNINGS PER SHARE The following table sets forth the reconciliation of shares outstanding in accordance with the provisions of SFAS No. 128, "Earnings Per Share." Three Months Ended Six Months Ended May 31, May 31, 1999 1998 1999 1998 (In Thousands) Average shares outstanding - basic 71,502 73,457 71,922 73,615 Effect of dilutive securities: Stock options and Employee stock purchase plan 417 702 508 616 Average shares outstanding - diluted 71,919 74,159 72,430 74,231 4. COMPREHENSIVE INCOME The following table sets forth the components of comprehensive income in accordance with the provisions of SFAS No. 130. Three Months Ended Six Months Ended May 31, May 31, 1999 1998 1999 1998 (In Thousands) Net income $ 5,796 $16,091 $23,966 $32,300 Other comprehensive income: Foreign currency translation adjustments 4,344 (3,818) (12) (8,024) Other 1,739 - 1,408 - Comprehensive income $11,879 $12,273 $25,362 $24,276 (8) ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In Thousands Except As Otherwise Noted) OVERVIEW For the quarter ended May 31, 1999, the Company reported net income of $5.8 million versus $16.1 million for the comparable period last year. Basic and diluted earnings per share were $0.08 for the second quarter of 1999 compared to $0.22 last year. For the six months ended May 31, 1999, net income was $24.0 million versus $32.3 million for the comparable period last year. Basic and diluted earnings per share were $0.33 for the first six months of 1999, compared to $0.44 last year. During the second quarter, the Company recorded special charges related to streamlining operations and an actuarial change. Excluding these special charges, net income for the quarter and six months ended May 31, 1999 would have been $20.4 million and $38.6 million, respectively, while basic and diluted earnings per share would have been $0.28 and $0.53, respectively. The increase in second quarter net income, before the impact of special charges, was due to sales and income increases in the Company's worldwide food businesses. Net sales for these businesses grew 8% versus the comparable period last year, while operating income, before special charges, increased more than 15%. Volume growth continued to favorably impact the Company's U.S. Consumer food business and Industrial and Food Service businesses. SPECIAL CHARGES On June 7, 1999, the Company announced several actions to streamline operations. These actions, primarily focused on our European operations, are consistent with the Company's strategies to improve gross margins, simplify operations, improve underperforming units and achieve growth through new products, new distribution and acquisitions. In addition, the Company announced a change in the actuarial method used to estimate pension expense. During the quarter ended May 31, 1999, the Company recorded special charges of $22.4 million ($19.5 million after-tax or $0.27 per share) associated with streamlining actions including workforce reductions, building and equipment disposals, write-down of intangible assets and other related expenses. In Europe, the Company will consolidate certain United Kingdom facilities, improve efficiencies within previously consolidated European operations and realign operations between the United Kingdom and other European locations. Specifically, the Company will close a facility located in Oswaldtwistle, one of three liquid manufacturing operations in the United Kingdom. During the third quarter, Oswaldtwistle production will be consolidated into the remaining facilities, resulting in asset disposals and write-downs and position eliminations. Capitalizing on improved systems and processes at the recently (9) consolidated European operations, the Company has identified additional opportunities to streamline manufacturing and administrative functions. In addition, the realignment of operations between the United Kingdom and other European locations will result in an overall reduction of positions and the write-down of assets, primarily goodwill from prior acquisitions in Finland and Switzerland. Finally, system and process improvements throughout the Company's global operations resulted in asset write- downs and position eliminations. The Company expects these actions will be completed by the second quarter of 2000 and will require net cash outflows of $7.9 million. Beginning in 2000, these actions are expected to generate $6 million in after-tax savings. A portion of these annual savings will be reinvested in programs to generate growth opportunities. In its entirety, expenses associated with the streamlining actions are expected to total $29.3 million. This includes amounts recognized in the second quarter of 1999 and future expenses which could not be accrued, but will be expensed as the future actions are implemented. Although all expenses in the second quarter are classified as special charges on the Consolidated Statement of Income, it is expected that $2.8 million of future expenses will be classified as cost of goods sold or selling, general and administrative expense. In addition, the Company changed its actuarial method of calculating the market-related value of plan assets used in determining the expected return-on-asset component of annual pension expense. This modification resulted in a one-time special credit of $7.7 million ($4.8 million after-tax or $0.07 per share). While this change better represents the amount of ongoing pension expense, the new method will not have a material impact on the Company's results of operations and financial condition. Refer to Note 2 in the Notes to Condensed Consolidated Financial Statements for further information. RESULTS OF OPERATIONS Net sales for the quarter ended May 31, 1999 increased 7.5% over the corresponding quarter of 1998. The effect of foreign currency exchange rate changes, primarily in our United Kingdom and Canadian operations, decreased sales by slightly over 1% compared to last year. Unit volume increased 10.2% as compared to last year, while the combined effects of price and product mix decreased sales by 1.6%. The worldwide consumer food business experienced 8% sales growth versus last year, primarily due to volume growth in each of the Company's major consumer food markets. The U.S. Consumer business experienced continued growth in the branded dry seasoning mix (DSM) and spice and herb businesses, primarily due to promotional and marketing programs and distribution gains. The Company's industrial and food service businesses were also favorably impacted by volume growth primarily related to new distribution. Packaging sales were up versus the prior year with volume increases offset by a combination of price and product mix changes. (10) For the six months ended May 31, 1999, the 6.9% increase in net sales versus the prior year was mainly driven by volume increases in all operating groups. These volume increases, primarily from new distribution and the promotional and marketing programs, were partially offset by a 1% decrease due to the effect of foreign currency exchange rate changes. Operating income as a percentage of net sales, before special charges, increased to 7.6% from 7.1% for the quarter and increased to 7.5% from 7.2% for the six months ended May 31, 1999 as compared to last year. Gross profit as a percentage of net sales increased to 33.7% from 32.4% in the second quarter of last year. The U.S. Consumer business experienced volume growth in the higher margin branded DSM and spice and herb businesses. U.S. Industrial and Food Service margins were favorably impacted by increased sales of higher margin flavor products, partially offset by raw material pricing pressures and customer mix. Increased volumes in our Asian markets contributed to improved margins during the second quarter. Although Packaging continued to experience competitive pricing pressures, increased volumes and improved operating efficiencies increased margins. These factors also impacted the six months ended May 31, 1999, improving the Company's gross profit as a percentage of net sales to 33.3% from 32.3% in the comparable period last year. Selling, general and administrative expenses increased in the second quarter and six months ended May 31, 1999 as compared to last year in both dollar terms and as a percentage of net sales. These increases were primarily due to expenditures in support of higher sales levels, including promotional spending, research and development and incentive-based employee compensation. Interest expense decreased $1.2 million and $1.4 million for the second quarter and six months ended May 31, 1999, respectively, due to lower debt levels and interest rates. Other income for the second quarter of 1999 and 1998 included $1.2 million and $1.8 million, respectively, of income from the three year non-compete agreement with Calpine Corporation, entered into as a part of the 1996 sale of Gilroy Energy Company, Inc. For the first six months of 1999 and 1998, $2.3 million and $3.5 million, respectively, has been realized. Due to the impact of certain nondeductible expenses related to the special charges recorded in the second quarter of 1999, the effective tax rate for the quarter and six months ended May 31, 1999 was 73.3% and 49.1%, respectively, versus 36.0% in the comparable periods last year. Excluding the impact of these special charges, the effective tax rate for the quarter and six months ended May 31, 1999 was 35.9%. Income from unconsolidated operations increased to $2.1 million in the second quarter of 1999 from $1.8 million in the comparable quarter last year. The increase is due to the improved performance (11) at our Japanese consumer joint venture, partially offset by decreased translation gains at our Mexican joint venture. In 1998, translation gains and losses from the devaluation of the Mexican peso were recognized in accordance with hyper-inflationary accounting rules. As of January 1, 1999, Mexico was no longer considered a hyper-inflationary economy. For the first six months of 1999, income from unconsolidated operations increased due to improved performance in our Asian joint ventures, primarily in Japan. MARKET RISK SENSITIVITY Foreign Currency In the first quarter of 1999, a Mexican peso option contract with a notional value of $9.0 million matured. Also in the first quarter of 1999, the Company entered into a foreign currency forward contract to sell Mexican pesos. This contract, which expires in 1999, had a notional value of $2.3 million as of May 31, 1999. The fair value of the Company's entire portfolio of forward and option contracts was $0.7 million as of May 31, 1999. Interest Rates The fair value of the Company's forward starting interest rate swaps was $1.3 million as of May 31, 1999. The Company intends to hold the interest rate swaps until maturity. FINANCIAL CONDITION In the Condensed Consolidated Statement of Cash Flows, cash flows from operating activities increased from a cash outflow of $24.8 million at May 31, 1998 to a cash inflow of $42.1 million at May 31, 1999. This increase is primarily due to changes in working capital components. Inventory levels were favorably impacted by increased net sales and additional focus on supply chain management. Higher net sales also resulted in increased receivables versus the comparable period of 1998. Cash outflows related to prepaid allowances were favorably impacted by a higher level of customer renewals and distribution gains experienced in the first six months of 1998. Accounts payable was favorably impacted by the increased focus on working capital management. Investing activities used cash of $21.8 million in the first six months of 1999 versus $27.6 million in the comparable period of 1998. Capital expenditures decreased versus the prior year because 1998 contained expenditures to implement projects to support new distribution in several businesses and the consolidation of Packaging facilities. The Company continued its efforts to limit capital expenditures to depreciation levels. (12) Cash flows from financing activities include the purchase of 1.1 million shares of common stock, completing the Company's previously announced 10 million share buyback program. On March 18, 1999, the Company announced a new repurchase program to buy back up to $250 million of the Company's outstanding stock from time to time in the open market. During the first six months of 1999, 0.4 million shares were repurchased under this program. The Company's ratio of debt to total capital was 56.2% as of May 31, 1999, down slightly from 56.8% at May 31, 1998 and up from 51.6% at November 30, 1998. The increase since year end was due to the Company's historical trend of lower income in the first half of the fiscal year and the effect of the stock buyback program, partially offset by better working capital management. Management believes that internally generated funds and its existing sources of liquidity are sufficient to meet current and anticipated financing requirements over the next 12 months. YEAR 2000 The Year 2000 (Y2K) issue is the result of computer programs written using two digits (rather than four) to define the applicable year. Without corrective actions, programs with date- sensitive logic may recognize "00" as 1900 rather than 2000. This could result in miscalculations or system failures, significantly impacting our business operations. The Company's work on the Y2K compliance program officially began in 1996. A Corporate project team, working with outside consultants, developed a process to identify and correct Y2K issues on all information technology (IT) platforms and non-IT systems. In addition, all operating units have undertaken Y2K initiatives with direction from the Corporate project team. As a result of this process, the Company has inventoried and assessed all systems and developed remediation programs where necessary for all business-critical information technology applications. The Company is on target with its remediation and testing work. A similar program is also in place for non-IT systems. Final completion and implementation will extend into the third quarter of 1999. The risk of internal business-critical computer systems failure is mitigated by extensive testing, verification and validation efforts. These efforts, which include program and systems testing, simulate operations in the year 2000. Review of the remediation process and program code by independent third parties has been completed. Contingency plans, including system continuity plans, are being developed to mitigate this risk. Because noncompliant external systems could cause disruptions to various business activities and significant additional costs, the Company has identified and contacted critical suppliers, customers and other third parties to determine their stage of Y2K readiness. For certain third parties with key system connections, interface testing is being performed. Although the Company believes it is taking the appropriate steps to assess Y2K readiness, there is no (13) guarantee that the Company's efforts will prevent a material adverse impact on the results of operations and financial condition. The Company believes its Y2K program, including the contingency plans and readiness program discussed below, should significantly reduce this risk. The Company is developing contingency plans to mitigate potential disruptions to the Company's operations. These include action plans to address system failures by third parties, including identifying and securing alternate sources of materials and developing backup systems to ensure internal communications are not impacted by external disruptions affecting voice and data transmission. Plans are also being developed to address individual location failures since the most likely impact will occur within individual systems or at specific locations. The Company expects to complete its contingency plans in late 1999. A Company-wide Y2K readiness program was developed to ensure that all employees are aware of the risks associated with the Y2K changes. These include risks associated with third-party transactions or the Company's internal processes. The Y2K readiness program has been launched throughout the Company. Since the compliance program began, the Company has incurred approximately $11.0 million in expenses, including consulting fees, internal staff costs and other expenses. The Company expects to incur additional expenses of approximately $2.0 million through 2000. The Company has also procured replacement systems that, in addition to being Y2K compliant, provide enhanced capability to benefit future operations. Management believes that internally generated funds and existing sources of liquidity are sufficient to meet the expected funding requirements. FORWARD-LOOKING INFORMATION Certain statements contained in this report, including those related to position eliminations, cash requirements and savings related to the special charges, expected Y2K readiness and cost, the impact of accounting and disclosure changes, capital spending, the stock buyback program, the holding period and market risks associated with financial instruments, the impact of foreign exchange fluctuations and the adequacy of internally generated funds and existing sources of liquidity are "forward-looking statements" within the meaning of Section 21E of the Securities and Exchange Act of 1934. Forward-looking statements are based on management's current views and assumptions and involve risks and uncertainties that could significantly affect expected results. Operating results could be materially affected by external factors such as: actions of competitors, customer relationships, actual amounts and timing of special charge items, including severance payments, removal and disposal costs and final negotiation of third-party contracts, third party Y2K readiness, the impact of stock market conditions on the stock buyback program, fluctuations in the cost and availability of supply-chain resources and global economic conditions, including interest and currency rate fluctuations and inflation rates. (14) ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For information regarding the Company's exposure to certain market risks, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in the Annual Report on Form 10-K for the year ended November 30, l998. Except as described in the Management's Discussion and Analysis of Financial conditions and Results of Operations, there have been no significant changes in the Company's financial instrument portfolio or market risk exposures since year end. (15) 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 17, 1999. (b) No response required. (c) 1. The following individuals were nominees for The Board of Directors. The number of votes for or withheld for each nominee is as follows: James T. Brady - for 8,565,342, withheld 187,149; Francis A. Contino - for 8,511,250, withheld 241,241; Robert G. Davey - for 8,514,083, withheld 238,408; Edward S. Dunn, Jr. - for 8,566,804, withheld 185,687; Freeman A. Hrabowski, III - for 8,567,963, withheld 184,528; Robert J. Lawless - for 8,564,029, withheld 188,462; Carroll D. Nordhoff - for 8,563,827, withheld 188,664; Robert W. Schroeder - for 8,569,144, withheld 183,347; William E. Stevens - for 8,567,963, withheld 184,528; Karen D. Weatherholtz - for 8,562,436, withheld 190,055. 2. Approval of the 1999 Directors' Non-Qualified Stock Option Plan. The number of votes for, against or abstaining is as follows: For 8,359,897; Against 267,566; Abstain 125,028. 3. Approval of the 1999 Employees Stock Purchase Plan. The number of votes for, against or abstaining is as follows: For 8,616,263; Against 97,057; Abstain 39,171. 4. The ratification of the appointment of Ernst & Young as independent auditors. The number of votes for, against or abstaining is as follows: For 8,643,141; Against 84,548; Abstain 24,802. (d) No response required. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits See Exhibit Index at pages 18-20 of this Report on Form 10-Q. (b) Reports on Form 8-K. None. (16) 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: July 13, 1999 By: /s/Francis A. Contino Francis A. Contino Executive Vice President & Chief Financial Officer Date: July 13, 1999 By: /s/J. Allan Anderson J. Allan Anderson Vice President & Controller (17) EXHIBIT INDEX ITEM 601 EXHIBIT NUMBER REFERENCE OR PAGE (2) Plan of acquisition, reorganization, arrangement, liquidation or succession Not applicable. (3) Articles of Incorporation and By-Laws Restatement of Charter of McCormick & Incorporated by reference Company, Incorporated dated April l6, from Registration Form 1990 S-8, Registration No. 33-39582 as filed with the Securities and Exchange Commission on March 25, 1991. Articles of Amendment to Charter of Incorporated by reference McCormick & Company, Incorporated from Registration Form dated April 1, 1992 S-8 Registration Statement No. 33-59842 as filed with the Securities and Exchange Commission on March 19, 1993. By-laws of McCormick & Company, Incorporated by reference Incorporated-Restated and from Registrant's Form Amended as of June 17, 1996. 10-Q for the quarter ended May 31, 1996 as filed with the Securities and Exchange Commission on July 12, 1996. (4) Instruments defining the rights of With respect to rights of security holders, including holders of equity indentures. securities, see Exhibit 3 (Restatement of Charter). No instrument of Registrant with respect to long-term debt involves an amount of authorized securities which exceeds 10 percent of the total assets of the Registrant and its subsidiaries on a consolidated basis. Registrant agrees to furnish a copy of any instrument upon request of the Securities and Exchange Commission. (18) (10) Material contracts. (i) Registrant's supplemental pension plan for certain senior officers is described in the McCormick Supplemental Executive Retirement Plan, a copy of which was attached as Exhibit 10.1 to the Registrant's Report on Form 10-K for the fiscal year 1992 as filed with the Securities and Exchange Commission on February 17, 1993, which report is incorporated by reference. (ii) Stock option plans, in which directors, officers and certain other management employees participate, are described in Registrant's S-8 Registration Statements Nos. 33-33725 and 33-23727 as filed with the Securities and Exchange Commission on March 2, 1990 and March 23, 1997 respectively, which statements are incorporated by reference. (iii) Asset Purchase Agreement among the Registrant, Gilroy Foods, Inc. and ConAgra, Inc. dated August 28, 1996 which agreement is incorporated by reference from Registrant's Report on Form 8-K as filed with the Securities and Exchange Commission on September 13, 1996. (iv) Asset Purchase Agreement among the Registrant, Gilroy Energy Company, Inc. and Calpine Gilroy Cogen, L.P., dated August 28, 1996 which agreement is incorporated by reference from Registrant's Report on Form 8-K as filed with the Securities and Exchange Commission on September 13, 1996. (v) Mid-Term Incentive Program provided to a limited number of senior executives, a description of which is incorporated by reference from pages 19 and 20 of the Registrant's definitive Proxy Statement dated February 18, 1998, as filed with the Securities and Exchange Commission on February 17, 1998, which pages are incorporated by reference. (vi) Amendment to the Letter Agreement between Registrant and Charles P. McCormick, Jr. effective December 1, 1998, which letter is attached as Exhibit 10.1 to the Registrant's Report on Form 10-K for the fiscal year 1998, as filed with the Securities and Exchange Commission on February 24, 1999, which report is incorporated by reference. (vii) Directors' Non-Qualified Stock Option Plan provided to members of the Registrant's Board of Directors who are not also employees of the Registrant, is described in Registrant's S-8 Registration Statement No. 333-74963 as filed with the Securities and Exchange Commission on March 24, 1999, which statement is incorporated by reference. (19) (11) Statement re computation of per-share Not applicable. earnings. (15) Letter re unaudited interim financial Not applicable. information. (18) Letter re change in accounting Not applicable. principles. (19) Report furnished to security holders. Not applicable. (22) Published report regarding matters Not applicable. submitted to vote of securities holders. (23) Consent of experts. Not applicable. (24) Power of attorney. Not applicable. (27) Financial data schedule. Submitted in electronic format only. (99) Additional exhibits. Not applicable. (20)

5 1,000 6-MOS NOV-30-1999 MAY-31-1999 13,510 0 187,052 4,186 262,201 481,264 718,165 351,572 1,222,566 527,444 243,401 0 0 173,468 177,578 1,222,566 909,721 909,721 606,647 249,427 (2,276) 0 16,288 39,635 19,472 23,966 0 0 0 23,966 0.33 0.33