<PAGE>
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, 2000 Commission File Number 0-748
McCORMICK & COMPANY, INCORPORATED
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(Exact name of registrant as specified in its charter)
MARYLAND 52-0408290
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(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
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(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, 2000
-------------------
Common Stock 8,417,957
Common Stock Non-Voting 59,998,064
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 31, May 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $485,724 $468,178 $948,127 $909,721
Cost of goods sold 315,242 310,443 613,813 606,647
-------- -------- -------- --------
Gross profit 170,482 157,735 334,314 303,074
Selling, general and
administrative expense 127,799 120,824 253,737 232,179
Special charges 464 14,665 966 14,665
-------- -------- -------- --------
Operating income 42,219 22,246 79,611 56,230
Interest expense 8,313 8,154 15,719 16,288
Other expense 1,255 79 2,700 307
-------- -------- -------- --------
Income before income taxes 32,651 14,013 61,192 39,635
Income taxes 11,649 10,274 21,838 19,472
-------- -------- -------- --------
Net income from consolidated
operations 21,002 3,739 39,354 20,163
Income from unconsolidated
operations 3,200 2,057 9,265 3,803
-------- -------- -------- --------
Net income $ 24,202 $ 5,796 $ 48,619 $ 23,966
======== ======== ======== ========
Earnings per common share -
basic and assuming dilution $ 0.35 $ 0.08 $ 0.70 $ 0.33
======== ======== ======== ========
Cash dividends declared per
common share $ 0.19 $ 0.17 $ 0.38 $ 0.34
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
(2)
<PAGE>
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
May 31, May 31, Nov. 30,
2000 1999 1999
---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 28,451 $ 13,510 $ 11,961
Accounts receivable, net 175,195 182,866 213,926
Inventories
Raw materials and supplies 100,301 114,690 101,608
Finished products and work-in
process 151,732 147,511 132,563
---------- ---------- ----------
252,033 262,201 234,171
Other current assets 19,213 22,687 30,499
---------- ---------- ----------
Total current assets 474,892 481,264 490,557
---------- ---------- ----------
Property, plant and equipment 750,627 718,165 734,982
Less: Accumulated depreciation (394,180) (351,572) (371,731)
---------- ---------- ----------
Total property, plant and
equipment, net 356,447 366,593 363,251
---------- ---------- ----------
Intangible assets, net 138,059 147,305 142,849
Prepaid allowances 124,082 150,255 109,253
Other assets 101,837 77,149 82,869
---------- ---------- ----------
Total assets $1,195,317 $1,222,566 $1,188,779
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 196,421 $ 191,545 $ 92,940
Current portion of long-term debt 5,812 15,133 7,731
Trade accounts payable 143,505 146,166 148,755
Other accrued liabilities 181,029 174,600 221,206
---------- ---------- ----------
Total current liabilities 526,767 527,444 470,632
---------- ---------- ----------
Long-term debt 235,084 243,401 241,432
Other long-term liabilities 99,047 100,675 94,293
---------- ---------- ----------
Total liabilities 860,898 871,520 806,357
---------- ---------- ----------
Shareholders' Equity
Common stock 50,130 51,648 49,761
Common stock non-voting 123,724 121,820 124,041
Retained earnings 202,863 219,367 242,764
Accumulated other comprehensive income (42,298) (41,789) (34,144)
---------- ---------- ----------
Total shareholders' equity 334,419 351,046 382,422
---------- ---------- ----------
Total liabilities and
shareholders' equity $1,195,317 $1,222,566 $1,188,779
========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
(3)
<PAGE>
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
May 31,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income $ 48,619 $ 23,966
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 28,377 28,529
Special charges 966 14,665
Income from unconsolidated operations (9,265) (3,803)
Changes in operating assets and liabilities (30,853) (23,038)
Other 280 1,759
--------- ---------
Net cash provided by operating activities 38,124 42,078
--------- ---------
Cash flows from investing activities
Capital expenditures (23,075) (22,105)
Acquisitions of businesses (4,115) --
Other 123 293
--------- ---------
Net cash used in investing activities (27,067) (21,812)
--------- ---------
Cash flows from financing activities
Short-term borrowings, net 100,266 52,549
Long-term debt repayments (5,431) (14,472)
Common stock issued 4,030 8,281
Common stock acquired by purchase (66,143) (46,327)
Dividends paid (26,264) (24,481)
--------- ---------
Net cash provided by (used in) financing activities 6,458 (24,450)
--------- ---------
Effect of exchange rate changes on cash and
cash equivalents (1,025) (17)
Increase (decrease) in cash and cash equivalents 16,490 (4,201)
Cash and cash equivalents at beginning of period 11,961 17,711
--------- ---------
Cash and cash equivalents at end of period $ 28,451 $ 13,510
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
(4)
<PAGE>
McCORMICK & COMPANY, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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, 2000 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, 1999.
Accounting and Disclosure Changes
In December 1999, the Securities and Exchange Commission (SEC) released Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." This bulletin, which is effective for fiscal years beginning after
December 15, 1999, summarizes certain views of the SEC staff on applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company is currently assessing the impact of this SAB.
Reclassifications
The Company has reclassified royalty income to be included in operating income.
Amounts previously included in other expense have been reclassified to selling,
general and administrative expense. All prior period financial information has
been reclassified to conform to the current presentation. Total royalty income
for the second quarter of 2000 and 1999 was $2.4 million and $1.3 million,
respectively. Total royalty income for the six months ended May 31, 2000 and
1999 was $5.0 million and $2.6 million, respectively.
(5)
<PAGE>
2. EARNINGS PER SHARE
The following table sets forth the reconciliation of shares outstanding:
<TABLE>
<CAPTION>
Three months ended Six months ended
May 31, May 31,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Average shares outstanding -
basic 68,675 71,502 69,112 71,922
Effect of dilutive securities:
Stock options and
Employee stock purchase plan 930 417 478 508
------ ------ ------ ------
Average shares outstanding -
assuming dilution 69,605 71,919 69,590 72,430
====== ====== ====== ======
</TABLE>
3. COMPREHENSIVE INCOME
The following table sets forth the components of comprehensive income:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 31, May 31,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Net income $24,202 $ 5,796 $48,619 $23,966
Other comprehensive income:
Foreign currency
translation adjustments (9,568) 4,344 (11,634) (12)
Derivative financial
instruments 1,288 1,739 3,480 1,408
------- ------- ------- -------
Comprehensive income $15,922 $11,879 $40,465 $25,362
======= ======= ======= =======
</TABLE>
4. SPECIAL CHARGES
During the second quarter of 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 announced actions to consolidate certain United Kingdom
facilities, improve efficiencies within previously consolidated European
operations and realign operations between the United Kingdom and other European
locations.
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) recorded in the second quarter of 1999.
(6)
<PAGE>
During the second quarter of 2000, the Company recorded special charges of $0.5
million ($0.3 million after-tax). These charges, which primarily related to
severance and personnel costs anticipated in the streamlining actions discussed
above, could not be recognized until certain actions were implemented. The
Company utilized $1.6 million of special charge accruals, primarily related to
severance and personnel costs, in the second quarter of 2000. As of May 31,
2000, approximately 240 positions were eliminated under the streamlining
program.
In total, the Company expects to recognize $2.0 million of special charges and
complete the program in 2000.
The major components of the special charges (credits) and the remaining accrual
balance as of May 31, 2000 follow:
<TABLE>
<CAPTION>
Severance Asset Other Actuarial
and personnel write- exit method
costs downs costs change Total
-------- ------ ----- ------ -----
(in millions)
<S> <C> <C> <C> <C> <C>
1999
----
Special charges (credits) $ 7.9 $ 15.8 $ 3.0 $(7.7) $ 19.0
Amounts utilized (4.0) (15.8) (1.2) 7.7 (13.3)
----- ------ ----- ----- ------
Balance at November 30, 1999 $ 3.9 $ -- $ 1.8 $ -- $ 5.7
2000
----
Special charges (credits) 0.8 (0.3) 0.5 -- 1.0
Amounts utilized (2.8) 0.3 (0.7) -- (3.2)
----- ------ ----- ----- ------
Balance at May 31, 2000 $ 1.9 $ -- $ 1.6 $ -- $ 3.5
</TABLE>
For further information, please refer to the Company's Annual Report on Form
10-K for the year ended November 30, 1999.
5. BUSINESS SEGMENTS
The Company operates in three business segments: consumer, industrial and
packaging. The consumer and industrial segments manufacture, market and
distribute spices, herbs, seasonings, flavorings and other specialty food
products throughout the world. The consumer segment sells consumer spices,
herbs, extracts, proprietary seasoning blends, sauces and marinades to the
consumer food market under a variety of brands, including the McCormick and
Schilling brands in the U.S., Club House in Canada, and Schwartz in the U.K. The
industrial segment sells to food processors, restaurant chains, distributors,
warehouse clubs and institutional operations. The packaging segment manufactures
and markets plastic packaging products for food, personal care and other
industries, predominantly in the U.S. Tubes and bottles are also produced for
the Company's food segments.
The Company measures segment performance based on operating income.
Intersegment sales are generally accounted for at current
(7)
<PAGE>
market value or cost plus markup. Because of manufacturing integration for
certain products within the food segments, inventory cost, including the
producing segment's overhead and depreciation, is transferred and recognized in
the operating income of the receiving segment. Corporate and eliminations
includes general corporate expenses, intercompany eliminations and other charges
not directly attributable to the segments.
<TABLE>
<CAPTION>
Total Corporate &
Consumer Industrial Food Packaging Eliminations Total
-------- ---------- ---- --------- ------------ -----
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Quarter ended May 31, 2000
--------------------------
Net sales $201.4 $239.2 $440.6 $45.1 $ -- $485.7
Intersegment sales -- 2.6 2.6 10.0 (12.6) --
Operating income 22.7 21.2 43.9 6.4 (8.1) 42.2
Operating income excluding
special charges 22.5 21.9 44.4 6.4 (8.1) 42.7
Income from unconsolidated
operations 2.7 0.5 3.2 -- -- 3.2
Six months ended May 31, 2000
-----------------------------
Net sales $404.4 $456.6 $861.0 $87.1 $ -- $948.1
Intersegment sales -- 5.1 5.1 18.2 (23.3) --
Operating income 48.5 36.3 84.8 11.6 (16.8) 79.6
Operating income excluding
special charges 48.5 37.3 85.8 11.6 (16.8) 80.6
Income from unconsolidated
operations 8.4 0.9 9.3 -- -- 9.3
<CAPTION>
Total Corporate &
Consumer Industrial Food Packaging Eliminations Total
-------- ---------- ---- --------- ------------ -----
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Quarter ended May 31, 1999
--------------------------
Net sales $189.3 $235.9 $425.2 $43.0 $ -- $468.2
Intersegment sales -- 1.8 1.8 7.1 (8.9) --
Operating income 11.8 10.5 22.3 8.0 (8.1) 22.2
Operating income excluding
special charges 20.7 19.1 39.8 5.6 (8.5) 36.9
Income from unconsolidated
operations 2.1 -- 2.1 -- -- 2.1
Six months ended May 31, 1999
-----------------------------
Net sales $380.9 $446.5 $827.4 $82.3 $ -- $909.7
Intersegment sales -- 11.5 11.5 34.3 (45.8) --
Operating income 34.7 24.1 58.8 11.8 (14.4) 56.2
Operating income excluding
special charges 43.7 32.8 76.5 9.4 (15.0) 70.9
Income from unconsolidated
operations 3.8 -- 3.8 -- -- 3.8
</TABLE>
6. SUBSEQUENT EVENTS
On June 28, 2000, the Company reached an agreement in principle, subject to
execution of a definitive agreement, to purchase the Ducros business from
Eridania Beghin-Say, for FFr. 2.75 billion in cash. With annual sales of
approximately $250 million, Ducros has two basic businesses - spices and herbs,
and dessert aid products. Headquartered in France, the Ducros business has five
manufacturing locations in France, Portugal, and Albania. Key brands include
Ducros, Vahine, Malile, and Margao with sales primarily in France, Belgium,
Spain, Italy, Portugal, and Poland. Subject to customary regulatory approvals,
the purchase is expected to be completed this summer and will be financed
through the company's operating cash flow, borrowings from existing credit
lines, and long-term debt.
(8)
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
For the quarter ended May 31, 2000, the Company reported net income of $24.2
million versus $5.8 million for the comparable period last year. Diluted
earnings per share was $0.35 for the second quarter of 2000 compared to $0.08
last year. For the six months ended May 31, 2000, net income was $48.6 million
versus $24.0 million for the comparable period last year. Diluted earnings per
share was $0.70 for the first six months of 2000, compared to $0.33 last year.
During the second quarter of 1999, the Company recorded special charges related
to streamlining operations and an actuarial change. During 2000, the Company
recognized special charges primarily related to severance and personnel costs
anticipated in the streamlining actions which could not be recognized until
certain actions were implemented. Excluding these special charges, net income
for the quarter and six months ended May 31, 2000 was $24.5 million and $49.3
million and diluted earnings per share was $0.35 and $0.71, respectively, as
compared to $20.4 million and $38.6 million and $0.28 and $0.53 per share,
respectively, for the same periods last year.
The Company continued to realize improved financial performance throughout its
global operations in 2000. In the quarter and six months ended May 31, 2000,
sales and operating income in each business segment improved versus the
comparable period last year. New distribution, new products, favorable product
mix and operating efficiencies continued to favorably impact the Company's
results. In addition, the Company's unconsolidated affiliates recorded
significant improvement over the comparable period last year.
RESULTS OF OPERATIONS
Net sales for the quarter ended May 31, 2000 increased 3.7% over the comparable
quarter of 1999. Unit volume increased 3.9% as compared to last year, while the
combined effects of price and product mix had no impact on sales. The effect of
foreign currency exchange rate changes, primarily in our United Kingdom and
Australian operations, decreased sales by 0.7% compared to last year. The
acquisition of a Hispanic food products business in the first quarter of 2000
contributed 0.5% in sales growth over the second quarter of the prior year.
For the six months ended May 31, 2000, the 4.2% increase in net sales versus the
prior year was mainly driven by unit volume increases in all business segments.
These volume increases were partially offset by a 0.3% decrease due to the
effect of foreign currency rate changes.
(9)
<PAGE>
Three months ended Six months ended
May 31, May 31,
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
Net sales
---------
Consumer $201.4 $189.3 $404.4 $380.9
Industrial 239.2 235.9 456.6 446.5
Packaging 45.1 43.0 87.1 82.3
------ ------ ------ ------
$485.7 $468.2 $948.1 $909.7
For the quarter, consumer sales increased 6.4%, or 7.5% excluding unfavorable
foreign exchange impact, due to volume growth throughout the global business. In
the Americas, sales increased 6.7% primarily due to strong volume growth in the
U.S. In this market, effective promotional and marketing programs, new products,
new distribution and the acquisition of a Hispanic food products business
increased sales. Consumer sales in Europe and Asia were up 3.5% and 14.7%,
respectively, due to new products, new merchandising and market expansion.
Without the unfavorable foreign exchange rate changes, Europe and Asia's sales
increased 7.3% and 20.1%, respectively. For the six months ended May 31, 2000,
consumer sales increased 6.2% due to volume growth offset slightly by
unfavorable foreign currency exchange rate changes.
Industrial sales for the second quarter increased 1.4%, due to volume growth and
an improved price and product mix combination. Foreign currency exchange rate
changes had a 0.4% unfavorable impact on sales. In the Americas, sales increased
3.1% as distribution gains at warehouse clubs and improved performance in Mexico
contributed to volume growth. European sales decreased 9.3% versus the prior
period as continued strong competition and unfavorable foreign exchange rates
negatively impacted the business. Sales in Asia were up 6.2% versus the prior
year primarily due to volume increases in China partially offset by an
unfavorable foreign exchange rate impact in Australia. For the first six months
of 2000, industrial sales were up 2.3% due to volume growth and an improved
combination of price and product mix, while foreign currency exchange rates had
no impact on sales.
Packaging sales increased 4.9% and 5.8% for the quarter and six months,
respectively, as improved market conditions continued to fuel volume growth.
Gross profit margin increased to 35.1% from 33.7% in the second quarter of last
year. Gross profit margins were favorably impacted by global growth in the
higher margin consumer segment. Within the industrial segment, increased sales
of higher margin products, new products, operating efficiencies and increased
sales to foodservice customers improved margins. These factors also impacted the
six months ended May 31, 2000, improving the Company's gross profit margin to
35.3% from 33.3% in the comparable period last year.
Selling, general and administrative expenses increased in the second quarter and
six months ended May 31, 2000 as compared to last year in both dollar terms and
as a percentage of net sales.
(10)
<PAGE>
These increases were primarily due to expenditures in support of higher sales
and income levels, including promotional and advertising spending in support of
new products, primarily in the consumer segment, research and development and
incentive-based employee compensation. In addition, the six month results were
impacted by a $3.8 million reserve in the first quarter of 2000 for the
bankruptcy of AmeriServe, an industrial customer.
Three months ended Six months ended
May 31, May 31,
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
Operating income
Consumer $ 22.7 $11.8 $48.5 $34.7
Industrial 21.2 10.5 36.3 24.1
Packaging 6.4 8.0 11.6 11.8
----- ----- ----- ----
Combined segments (1) $ 50.3 $30.3 $96.4 $70.6
Operating income
excluding special
charges
Consumer $ 22.5 $20.7 $48.5 $43.7
Industrial 21.9 19.1 37.3 32.8
Packaging 6.4 5.6 11.6 9.4
----- ----- ----- ----
Combined segments (1) $ 50.8 $45.4 $97.4 $85.9
(1)- Excludes impact of general corporate expenses included as Corporate &
Eliminations. See Note 5 in the Notes to Condensed Consolidated Financial
Statements.
Operating income margin, excluding special charges, increased to 8.8% from 7.9%
for the three months ended May 31, 2000 as compared to last year. Operating
income, excluding special charges, increased $5.8 million or 15.6% for the
quarter ended May 31, 2000 versus the comparable period last year. Consumer
operating income, excluding special charges, improved 8.7% versus the prior
period due to increased sales and higher levels of royalty income. Industrial
operating income, excluding special charges, increased 14.7% due to product mix,
pricing and operating efficiencies. Excluding special charges, packaging
operating income grew 14.3% due to higher volumes and operating efficiencies.
These factors for all segments also impacted the six months ended May 31, 2000,
improving the Company's operating income margin, excluding special charges, to
8.5% from 7.8% in the comparable period last year. For the six months, operating
income, excluding special charges, increased $9.7 million or 13.7%.
(11)
<PAGE>
Interest expense for the second quarter of 2000 increased $0.2 million versus
the comparable period last year. This increase is primarily due to higher
short-term interest rates for the quarter versus last year, offset partially by
lower debt levels than last year. Interest expense for the six months ended May
31, 2000 decreased $0.6 million versus the comparable period last year. Although
short-term interest rates for the six months rose versus last year's comparable
period, the retirement of higher interest rate long term debt in 1999 and a
greater weighting to short-term debt in the six months favorably impacted the
Company.
Other expense for the second quarter and first six months of 1999 included $1.2
million and $2.3 million, respectively, of income from the three year
non-compete agreement with Calpine Corporation. This agreement, entered into as
a part of the 1996 sale of Gilroy Energy Company, Inc., ended in 1999.
Due to the impact of certain nondeductible expenses related to the special
charges, the effective tax rate for the quarter and six months ended May 31,
1999 was 73.3% and 49.1%, respectively, versus 35.7% for both the quarter and
six months ended May 31, 2000. Excluding special charges, the effective tax rate
for the quarter and six months ended May 31, 1999 was 35.9% versus 35.6% in the
current year's comparable periods.
Income from unconsolidated operations increased to $3.2 million in the second
quarter of 2000 from $2.1 million in the comparable quarter last year. The
increase is primarily due to improved sales and income at our Mexican joint
venture. Signature Brands and the Company's joint ventures in Japan also
improved their results over last year. Income from unconsolidated operations for
the first six months of 2000 was also favorably impacted by these joint
ventures.
SPECIAL CHARGES
In 1999, the Company announced plans to streamline operations. During the three
and six months ended May 31, 2000, the Company recorded special charges of $0.5
million ($0.3 million after-tax) and $1.0 million ($0.7 million after-tax),
respectively. These charges, which primarily related to severance and personnel
costs anticipated in these streamlining actions, could not be recognized until
certain actions were implemented.
For further information, please refer to Note 4 in the Notes to Condensed
Consolidated Financial Statements and the Company's Annual Report on Form 10-K
for the year ended November 30, 1999.
MARKET RISK SENSITIVITY
Foreign Currency
The fair value of the Company's portfolio of forward and option contracts
was $1.2 million and $0.7 million as of May 31, 2000 and 1999, respectively.
(12)
<PAGE>
Interest Rates
The fair value of the Company's forward starting interest rate swaps was $6.3
million and $1.3 million as of May 31, 2000 and 1999, respectively. The Company
intends to hold the interest rate swaps until maturity.
FINANCIAL CONDITION
In the Condensed Consolidated Statement of Cash Flows, cash flows provided by
operating activities decreased from $42.1 million to $38.1 million for the six
months ended May 31, 1999 and 2000, respectively. This decrease is primarily due
to changes in working capital components. Compared to the prior year, cash flows
related to inventory were unfavorable due to the significant improvements
experienced in the first half of 1999, while prepaid allowances were unfavorable
due to the timing of customer contract renewals. In addition, other liabilities
were unfavorable due to the payment of incentive-based employee compensation
costs.
Investing activities used cash of $27.1 million in the first six months of 2000
versus $21.8 million in the comparable period of 1999. The Company continues to
maintain its capital expenditures at depreciation levels. In the first quarter
of 2000, the Company acquired a regional line of Hispanic consumer food products
in the U.S. These products, which include spices, herbs, chili pods and other
authentic Hispanic food products, will expand the Company's existing business in
this category. In the second quarter of 2000, the Company acquired a 50%
interest in a company which offers a full line of fresh herbs for sale in both
consumer and foodservice markets.
Cash flows from financing activities include the purchase of 2.1 million shares
of common stock under the Company's previously announced $250 million share
repurchase program. Through May 31, 2000, 3.6 million shares, totaling $108.7
million, were purchased under this program. Due to the pending acquisition of
Ducros, the Company has suspended the share repurchase program.
The Company's ratio of debt to total capital was 56.7% as of May 31, 2000, up
slightly from 56.2% at May 31, 1999 and up from 47.2% at November 30, 1999. 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 share
repurchase program.
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. Management intends to use a portion of this
availability in conjunction with long-term debt borrowings to finance the Ducros
acquisition.
(13)
<PAGE>
YEAR 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 (Y2K) ready. As a result of these plans, the Company has not
experienced significant Y2K issues subsequent to 1999's fiscal year end. The
Company will continue to monitor business-critical information technology
applications and critical third parties throughout the year 2000.
FORWARD-LOOKING INFORMATION
Certain statements contained in this report, including those related to special
charge project spending and completion, Y2K readiness, the stock repurchase
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 repurchase program, fluctuations in the cost and
availability of supply-chain resources and global economic conditions, including
interest and currency rate fluctuations and inflation rates.
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
Company's Annual Report on Form 10-K for the year ended November 30, 1999.
Except as described in the Management's Discussion and Analysis of Financial
Condition and Results of Operations, there have been no significant changes in
the Company's financial instrument portfolio or market risk exposures since year
end.
(14)
<PAGE>
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 15, 2000.
(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 8,448,111, withheld 62,184; Francis A.
Contino - for 8,358,820, withheld 151,475; Robert G. Davey - for
8,370,315 withheld 139,980; Edward S. Dunn, Jr. - for 8,448,111,
withheld 62,184 ; Freeman A. Hrabowski, III - for 8,448,111, withheld
62,184; Robert J. Lawless - for 8,376,421, withheld 133,874; Carroll
D. Nordhoff - for 8,447,964, withheld 62,331; Robert W. Schroeder -
for 8,448,669, withheld 61,626; William E. Stevens - for 8,448,540,
withheld 61,755; Karen D. Weatherholtz - for 8,447,377, withheld
62,918.
2. The ratification of the appointment of Ernst & Young as
independent auditors. The number of votes for, against or abstaining
is as follows: For 8,368,379; Against 112,690; Abstain 29,226.
(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.
(15)
<PAGE>
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 14, 2000 By: /s/ Francis A. Contino
---------------------------- ------------------------------------
Francis A. Contino
Executive Vice President & Chief
Financial Officer
Date: July 14, 2000 By: /s/ Kenneth A. Kelly, Jr.
---------------------------- ------------------------------------
Kenneth A. Kelly, Jr.
Vice President & Controller
(16)
<PAGE>
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 S-8,
1990 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.
(17)
<PAGE>
(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 Commission on February 17,
1998, which pages are incorporated by reference.
(vi) 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.
(vii) Deferred Compensation Plan in which directors, officers and certain
other management employees participate, a description of which is
incorporated by reference from the Registrant's S-8 Registration
Statement No. 333-93231 as filed with the Securities and Exchange
Commission on December 12, 1999, which statement is incorporated by
reference.
(11) Statement re computation of per- Not applicable.
share earnings.
(15) Letter re unaudited interim Not applicable.
financial information.
(18)
<PAGE>
(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.
(19)
