<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 August 31, 2000 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.
<TABLE>
<CAPTION>
Shares Outstanding
September 30, 2000
<S> <C>
Common Stock 8,375,171
Common Stock Non-Voting 60,058,258
</TABLE>
<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 Nine Months Ended
August 31, August 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 495,866 $ 476,761 $1,443,993 $1,386,482
Cost of goods sold 323,011 312,532 936,824 919,179
---------- ---------- ---------- ----------
Gross profit 172,855 164,229 507,169 467,303
Selling, general and
administrative expense 120,403 118,723 374,140 350,902
Special charges 57 3,039 1,023 17,704
---------- ---------- ---------- ----------
Operating income 52,395 42,467 132,006 98,697
Interest expense 9,089 8,231 24,808 24,519
Other expense 1,323 485 4,023 792
---------- ---------- ---------- ----------
Income before income taxes 41,983 33,751 103,175 73,386
Income taxes 14,950 12,904 36,788 32,376
---------- ---------- ---------- ----------
Net income from consolidated
operations 27,033 20,847 66,387 41,010
Income from unconsolidated
operations 4,232 4,514 13,497 8,317
---------- ---------- ---------- ----------
Net income $ 31,265 $ 25,361 $ 79,884 $ 49,327
========== ========== ========== ==========
Earnings per common share -
basic $ 0.46 $ 0.36 $ 1.16 $ 0.69
========== ========== ========== ==========
Earnings per common share -
assuming dilution $ 0.45 $ 0.35 $ 1.15 $ 0.68
========== ========== ========== ==========
Cash dividends declared per
common share $ 0.19 $ 0.17 $ 0.57 $ 0.51
========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
(2)
<PAGE>
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
August 31, August 31, Nov. 30,
2000 1999 1999
---------- ---------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 35,922 $ 13,864 $ 11,961
Accounts receivable, net 186,456 183,294 213,926
Inventories
Raw materials and supplies 109,004 111,229 101,608
Finished products and work-in
process 165,166 160,178 132,563
----------- ----------- -----------
274,170 271,407 234,171
Other current assets 17,373 37,836 30,499
----------- ----------- -----------
Total current assets 513,921 506,401 490,557
----------- ----------- -----------
Property, plant and equipment 757,449 726,783 734,982
Less: Accumulated depreciation (402,602) (362,325) (371,731)
----------- ----------- -----------
Total property, plant and
equipment, net 354,847 364,458 363,251
----------- ----------- -----------
Intangible assets, net 136,942 145,364 142,849
Prepaid allowances 114,216 136,653 109,253
Other assets 490,613 81,067 82,869
----------- ----------- -----------
Total assets $ 1,610,539 $ 1,233,943 $ 1,188,779
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 602,820 $ 205,764 $ 92,940
Current portion of long-term debt 4,012 7,256 7,731
Trade accounts payable 141,718 134,373 148,755
Other accrued liabilities 179,867 186,393 221,206
----------- ----------- -----------
Total current liabilities 928,417 533,786 470,632
----------- ----------- -----------
Long-term debt 233,334 242,197 241,432
Other long-term liabilities 101,289 101,680 94,293
----------- ----------- -----------
Total liabilities 1,263,040 877,663 806,357
----------- ----------- -----------
Shareholders' Equity
Common stock 50,481 50,248 49,761
Common stock non-voting 124,270 125,076 124,041
Retained earnings 220,379 221,240 242,764
Accumulated other comprehensive income (47,631) (40,284) (34,144)
----------- ----------- -----------
Total shareholders' equity 347,499 356,280 382,422
----------- ----------- -----------
Total liabilities and
shareholders' equity $ 1,610,539 $ 1,233,943 $ 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>
Nine Months Ended
August 31,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 79,884 $ 49,327
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 42,753 42,010
Special charges 1,023 17,704
Income from unconsolidated operations (13,497) (8,317)
Changes in operating assets and liabilities (62,181) (32,462)
Other 720 2,085
--------- ---------
Net cash provided by operating activities 48,702 70,347
--------- ---------
Cash flows from investing activities
Capital expenditures (35,556) (34,199)
Acquisitions of businesses (384,624) --
Other (2,434) 447
--------- ---------
Net cash used in investing activities (422,614) (33,752)
--------- ---------
Cash flows from financing activities
Short-term borrowings, net 506,609 66,789
Long-term debt repayments (8,034) (23,609)
Common stock issued 4,438 11,361
Common stock acquired by purchase (66,397) (58,923)
Dividends paid (39,274) (36,195)
--------- ---------
Net cash provided by (used in) financing activities 397,342 (40,577)
--------- ---------
Effect of exchange rate changes on cash and
cash equivalents 531 135
Increase (decrease) in cash and cash equivalents 23,961 (3,847)
Cash and cash equivalents at beginning of period 11,961 17,711
--------- ---------
Cash and cash equivalents at end of period $ 35,922 $ 13,864
========= =========
</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 nine month periods
ended August 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 third quarter of 2000 and 1999 was $2.6 million and $1.6 million,
respectively. Total royalty income for the nine months ended August 31, 2000 and
1999 was $7.6 million and $4.1 million, respectively.
(5)
<PAGE>
2. EARNINGS PER SHARE
The following table sets forth the reconciliation of shares outstanding:
<TABLE>
<CAPTION>
Three months ended Nine months ended
August 31, August 31,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Average shares outstanding -
basic 68,425 71,220 68,908 71,700
Effect of dilutive securities:
Stock options and
Employee stock purchase plan 622 580 703 530
------ ------ ------ -------
Average shares outstanding -
assuming dilution 69,047 71,800 69,611 72,230
====== ====== ====== ======
</TABLE>
3. COMPREHENSIVE INCOME
The following table sets forth the components of comprehensive income:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
August 31, August 31,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Net income $31,265 $25,361 $79,884 $49,327
Other comprehensive income:
Foreign currency
translation adjustments (1,819) (1,728) (13,453) (1,740)
Derivative financial
instruments (3,514) 3,233 (34) 4,641
------ ------ ------ ------
Comprehensive income $25,932 $26,866 $66,397 $52,228
====== ====== ====== ======
</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 third quarter of 2000, the Company recorded special charges of $0.06
million ($0.04 million after-tax). During the same period in 1999, the Company
recorded special charges of $3.0 million ($2.8 million after-tax or $0.04 per
share). 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 $0.4 million of
special charge accruals, primarily related to severance and personnel costs, in
the third quarter of 2000. As of August 31, 2000, approximately 240 positions
were eliminated under the streamlining program.
The Company expects to complete the program in 2000.
The major components of the special charges (credits) and the remaining accrual
balance as of August 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 (3.1) 0.3 (0.7) -- (3.5)
---- --- ---- --- -----
Balance at August 31, 2000 $1.6 $ -- $1.6 $ -- $3.2
</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 to the consumer food
market under a variety of brands, including the McCormick and Schilling brands
in the U.S., Ducros and Vahine in France, 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 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.
(7)
<PAGE>
<TABLE>
<CAPTION>
Total Corporate &
Consumer Industrial Food Packaging Eliminations Total
-------- ---------- ----- --------- ------------ -----
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Quarter ended August 31, 2000
-----------------------------
Third party net sales $ 201.9 $ 248.6 $ 450.5 $ 45.4 $ -- $ 495.9
Intersegment sales -- 2.3 2.3 10.6 (12.9) --
Operating income 31.3 24.1 55.4 4.9 (7.9) 52.4
Operating income excluding
special charges 31.6 24.0 55.6 4.9 (7.9) 52.6
Income from unconsolidated
operations 3.8 0.4 4.2 -- -- 4.2
Nine months ended August 31, 2000
---------------------------------
Third party net sales $ 606.3 $ 705.2 $ 1,311.5 $ 132.5 $ -- $1,444.0
Intersegment sales -- 7.4 7.4 28.8 (36.2) --
Operating income 79.9 60.4 140.3 16.5 (24.8) 132.0
Operating income excluding
special charges 80.1 61.2 141.3 16.5 (24.8) 133.0
Income from unconsolidated
operations 12.3 1.2 13.5 -- -- 13.5
</TABLE>
<TABLE>
<CAPTION>
Total Corporate &
Consumer Industrial Food Packaging Eliminations Total
-------- ---------- ----- --------- ------------ -----
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Quarter ended August 31, 1999
-----------------------------
Third party net sales $ 193.3 $ 241.5 $ 434.8 $ 42.0 $ -- $ 476.8
Intersegment sales -- 6.1 6.1 9.4 (15.5) --
Operating income 25.5 21.2 46.7 5.2 (9.4) 42.5
Operating income excluding
special charges 27.0 22.7 49.7 5.2 (9.4) 45.5
Income from unconsolidated
operations 4.1 0.4 4.5 -- -- 4.5
Nine months ended August 31, 1999
---------------------------------
Third party net sales $ 574.2 $ 688.0 $ 1,262.2 $ 124.3 $ -- $ 1,386.5
Intersegment sales -- 9.5 9.5 25.2 (34.7) --
Operating income 60.2 45.3 105.5 17.0 (23.8) 98.7
Operating income excluding
special charges 70.7 55.5 126.2 14.6 (24.4) 116.4
Income from unconsolidated
operations 7.9 0.4 8.3 -- -- 8.3
</TABLE>
6. BUSINESSES ACQUIRED
On August 31, 2000, the Company acquired Ducros, S.A. ("Ducros") and Sodis,
S.A.S. ("Sodis") from Eridania Beghin-Say, for 2.75 billion French Francs
(equivalent to approximately Euro 419 million and US$379 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.
Sodis manages the racking and merchandising of the Ducros products in
supermarkets and hypermarkets, and manages a warehouse in France.
Approximately US$370 million of the purchase price was financed through 6.72%
commercial paper notes with the remainder funded by internally generated funds.
It is the intention of the Company to replace the commercial paper notes with
notes issued under a medium term note program filed in September 2000 with the
Securities and Exchange Commission. Due to the timing of this acquisition, Other
assets includes all of the acquired net assets of Ducros. This balance will be
reclassified when the purchase price allocation is complete.
(8)
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
For the quarter ended August 31, 2000, the Company reported net income of $31.3
million versus $25.4 million for the comparable period last year. Diluted
earnings per share was $0.45 for the third quarter of 2000 compared to $0.35
last year. For the nine months ended August 31, 2000, net income was $79.9
million versus $49.3 million for the comparable period last year. Diluted
earnings per share was $1.15 for the first nine months of 2000, compared to
$0.68 last year.
During the third quarters of 1999 and 2000, the Company recognized special
charges primarily related to severance and personnel costs. These costs were
anticipated in the streamlining announced in the second quarter of 1999,
however, could not be recognized until other actions were implemented. Excluding
these special charges, net income for the quarter and nine months ended August
31, 2000 was $31.3 million and $80.6 million and diluted earnings per share was
$0.45 and $1.16, respectively, as compared to $28.1 million and $66.7 million
and $0.39 and $0.92 per share, respectively, for the same periods last year.
The Company continued to realize improved financial performance in its
operations in 2000. In the quarter and nine months ended August 31, 2000,
consumer and industrial sales and operating income improved versus the
comparable periods last year. Packaging sales increased for the quarter and nine
months ended August 31, 2000 compared to the same periods in 1999. Operating
profit for the quarter in packaging was slightly below last year due to this
quarter's product mix in the plastic bottle business as well as increased resin
costs. The Company's unconsolidated affiliates recorded third quarter results
slightly below very strong results of last year, however, well ahead of last
year on a year to date basis.
RESULTS OF OPERATIONS
Net sales for the quarter ended August 31, 2000 increased 4.0% over the
comparable quarter of 1999. Volume accounted for more than the total increase as
the effect of foreign currency exchange rate changes, primarily in Europe and
Australia, decreased sales by 1.3%. The acquisition of a Hispanic food products
business in the first quarter of 2000 contributed 0.4% in sales growth over the
third quarter of the prior year.
For the nine months ended August 31, 2000, the 4.1% increase in net sales versus
the prior year was mainly driven by volume increases in all business segments.
These volume increases were partially offset by a 0.6% decrease due to the
effect of foreign currency rate changes.
(9)
<PAGE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
August 31, August 31,
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
Third party net sales
---------------------
Consumer $201.9 $193.2 $ 606.3 $ 574.1
Industrial 248.6 241.5 705.2 688.1
Packaging 45.4 42.0 132.5 124.3
------ -------- -------- --------
$495.9 $476.8 $1,444.0 $1,386.5
</TABLE>
For the quarter, consumer sales increased 4.1%, or 5.9% excluding unfavorable
foreign exchange impact, due to volume growth throughout the global business. In
the Americas, sales increased 6.5% 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 decreased 3.4% primarily due to the
impact of foreign exchange rate changes. Consumer sales in Asia increased 5.0%
due to new products, new merchandising and market expansion. Without the
unfavorable foreign exchange rate changes, Europe and Asia's sales increased
2.4% and 12.7%, respectively. For the nine months ended August 31, 2000,
consumer sales increased 5.2% due primarily to volume growth and partially
offset by 1.1% unfavorable foreign currency exchange rate changes.
Industrial sales for the third quarter increased 3.3%, or 4.4% excluding
unfavorable foreign exchange impact. In the Americas, sales increased 4.5%
through volume growth to U.S. warehouse clubs and distributors and improved
performance in Mexico and Canada. European net sales were relatively unchanged
versus the prior period excluding the impact of foreign currency exchange rate
changes. Sales in Asia were up 7.2% versus the prior year primarily due to
volume increases in China. These Asian sales were up 10.3% excluding an
unfavorable foreign exchange rate impact in Australia. For the first nine months
of 2000, industrial sales were up 2.8% due to volume growth, while foreign
currency exchange rates reduced sales 0.4%, compared to the same period in 1999.
Packaging third party sales increased 8.0% and 6.6% for the quarter and nine
months, respectively, with the increase primarily in tubes.
Gross profit margin increased to 34.9% from 34.4% in the third 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
nine months ended August 31, 2000, improving the Company's gross profit margin
to 35.1% from 33.7% in the comparable period last year.
(10)
<PAGE>
Selling, general and administrative expenses increased for the nine months ended
August 31, 2000 as compared to last year in both dollar terms and as a
percentage of net sales. However, these costs for the quarter as a percent of
net sales decreased to 24.3% from 24.9% compared to the same period last year.
These year to date 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 nine
month results were impacted by a $3.8 million reserve in the first quarter of
2000 for the bankruptcy of AmeriServe, an industrial customer.
<TABLE>
<CAPTION>
Three months ended Nine months ended
August 31, August 31,
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C>
Operating income
-----------------
Consumer $31.3 $25.5 $79.9 $60.2
Industrial 24.1 21.2 60.4 45.3
Packaging 4.9 5.2 16.5 17.0
----- ----- ------ ------
Combined segments (1) $60.3 $51.9 $156.8 $122.5
Operating income
----------------
excluding special charges
-------------------------
Consumer $31.6 $27.0 $80.1 $70.7
Industrial 24.0 22.7 61.2 55.5
Packaging 4.9 5.2 16.5 14.6
----- ----- ------ ------
Combined segments (1) $60.5 $54.9 $157.8 $140.8
</TABLE>
(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 10.6% from 9.5%
for the three months ended August 31, 2000 as compared to last year. Consumer
operating income margin, excluding special charges, improved from 14.0% to 15.6%
due to higher levels of royalty income and operational efficiencies. Industrial
operating income margin, excluding special charges, improved from 9.4% to 9.6%
due to product mix, pricing and operating efficiencies. Excluding special
charges, packaging operating income margin (including inter-segment business)
decreased from 10.2% to 8.7% due to this quarter's product mix in the plastic
bottle business and increased resin costs. These factors for all segments also
impacted the nine months ended August 31, 2000, improving the Company's
operating income margin, excluding special charges, to 9.2% from 8.4% in the
comparable period last year.
Interest expense for the third quarter of 2000 increased $0.9 million versus the
comparable period last year. This increase is
(11)
<PAGE>
primarily due to higher short-term interest rates for the quarter versus last
year, offset partially by lower average debt levels than last year. Interest
expense for the nine months ended August 31, 2000 increased $0.3 million versus
the comparable period last year. Short-term interest rates for the nine months
rose versus last year's comparable period and a greater weighting to short-term
debt in the nine months unfavorably impacted the Company.
Other expense for the third quarter and first nine months of 1999 included $1.2
million and $3.5 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 nine months ended August 31,
1999 was 38.2% and 44.1%, respectively, versus 35.6% and 35.7% for the quarter
and nine months ended August 31, 2000, respectively. Excluding special charges,
the effective tax rate for the quarter and nine months ended August 31, 1999 was
35.9% versus 35.6% in the current year's comparable periods.
Income from unconsolidated operations was $4.2 million in the third quarter of
2000 compared to $4.5 million in the comparable quarter last year. Income from
unconsolidated operations for the first nine months of 2000 increased to $13.5
million from $8.3 million in the comparable period last year. The third quarter
of 2000 is comparable to the third quarter of 1999, when our Mexican
joint-venture operations improved significantly.
SPECIAL CHARGES
In 1999, the Company announced plans to streamline operations. Charges during
the quarter and nine months ended August 31, 2000 primarily related to severance
and personnel costs anticipated in these streamlining actions, which 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
$0.5 million and $0.2 million as of August 31, 2000 and 1999, respectively.
(12)
<PAGE>
Interest Rates
The fair value of the Company's forward starting interest rate swaps was $3.4
million and $4.6 million as of August 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 $70.3 million to $48.7 million for the nine
months ended August 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 income taxes payable were
unfavorable due to the timing of refunds and payments in the first nine months
of 1999. In addition, other liabilities were unfavorable due to the payment of
incentive-based employee compensation costs.
Investing activities used cash of $422.6 million in the first nine months of
2000 versus $33.7 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. In the third quarter of 2000, the
company acquired Ducros. See Footnote 6 to the condensed consolidated financial
statements for more detail on the Ducros acquisition.
Financing activities provided cash of $397.3 million in the first nine months of
2000, compared to the use of $40.6 million in the comparable period of 1999.
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 August 31, 2000, 3.6 million shares, totaling $108.7
million, were purchased under this program. Due to the acquisition of Ducros,
the Company has suspended the share repurchase program. The Ducros acquisition
has increased cash flows from short-term borrowings, which the company intends
to refinance as long-term debt.
The Company's ratio of debt to total capital was 70.7% as of August 31, 2000, up
from 56.1% at August 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, the effect of the share repurchase
program and the acquisition of Ducros.
(13)
<PAGE>
Management believes that internally generated funds and its existing sources of
liquidity are sufficient to meet current and anticipated operating requirements
over the next 12 months. It is the intention of the Company to replace the
commercial paper notes with notes issued under a medium term note program filed
in September 2000 with the Securities and Exchange Commission.
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. As
described in the Management's Discussion and Analysis of Financial Condition and
Results of Operations, there have been significant changes in the Company's
financial instrument portfolio and market risk since year end due to the
acquisition of Ducros. With Ducros' operations primarily in central Europe, the
results of operations for the Company and its financial condition in the future
will be impacted by currency rate fluctuations in the Euro. Additionally,
financing of this acquisition may increase the Company's exposure to interest
rate changes.
(14)
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits See Exhibit Index at pages 16 - 18
of this Report on Form 10-Q.
(b) Reports on Form 8-K. None.
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 13, 2000 By: /s/ Francis A. Contino
------------------------- -----------------------------
Francis A. Contino
Executive Vice President & Chief
Financial Officer
Date: October 13, 2000 By: /s/ Kenneth A. Kelly, Jr.
------------------------- -------------------------------
Kenneth A. Kelly, Jr.
Vice President & Controller
(15)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
ITEM 601
EXHIBIT
NUMBER REFERENCE OR PAGE
<S> <C>
(2) Plan of acquisition, reorganization, Not applicable.
arrangement, liquidation or succession
(3) Articles of Incorporation and By-Laws
Restatement of Charter of McCormick & Incorporated by reference from
Company, Incorporated dated April l6, 1990 Registration Form 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.
</TABLE>
(16)
<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.
(17)
<PAGE>
(11) Statement re computation of per- Not applicable.
share earnings.
(15) Letter re unaudited interim Not applicable.
financial 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.
(18)
