-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, dPP5tVMgpi5bJY+vpGxgHCM7cYa0utJYNjIo1Qhsg9XL434lhhefAgt9OawHtrFx UTlm9PpgYy4PcCTOMJX3CA== 0000063754-94-000010.txt : 19940411 0000063754-94-000010.hdr.sgml : 19940411 ACCESSION NUMBER: 0000063754-94-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940228 FILED AS OF DATE: 19940408 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCCORMICK & CO INC CENTRAL INDEX KEY: 0000063754 STANDARD INDUSTRIAL CLASSIFICATION: 2090 IRS NUMBER: 520408290 STATE OF INCORPORATION: MD FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 34 SEC FILE NUMBER: 000-00748 FILM NUMBER: 94520950 BUSINESS ADDRESS: STREET 1: 18 LOVETON CIRCLE STREET 2: P O BOX 6000 CITY: SPARKS STATE: MD ZIP: 21152 BUSINESS PHONE: 4107717301 FORMER COMPANY: FORMER CONFORMED NAME: MCCORMICK & CO DATE OF NAME CHANGE: 19660620 10-Q 1 MCCORMICK & CO 1ST QTR 1994 10-Q 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 February 28, 1994 Commission File Number 0-748 McCORMICK & COMPANY, INCORPORATED (Exact name of registrant as specified in its charter) MARYLAND 52-0408290 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 18 Loveton Circle, P. O. Box 6000, Sparks, MD 21152-6000 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (410) 771-7301 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Shares Outstanding February 28, 1994 Common Stock 13,603,000 Common Stock Non-Voting 67,768,000 McCORMICK & COMPANY, INCORPORATED INDEX Page No. Part I. FINANCIAL INFORMATION Condensed Consolidated Balance Sheets 2 Condensed Consolidated Statements of Income 3 Condensed Consolidated Statements of Cash Flows 4 Notes to Condensed Consolidated Financial Statements 5, 6, 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8, 9 Part II. OTHER INFORMATION 10 PART I. FINANCIAL INFORMATION McCORMICK & COMPANY, INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands) Feb. 28, Feb. 28, Nov. 30, ASSETS 1994 1993 1993 Current Assets Cash and cash equivalents $ 18,201 $ 5,647$ 12,838 Accounts receivable - net 159,968 140,161 175,101 Inventories Raw materials 113,830 101,650 105,713 Work in process 48,403 38,717 36,418 Finished goods 168,843 137,321 179,120 331,076 277,688 321,251 Prepaid expenses 13,369 16,591 17,960 Deferred income taxes 13,003 6,382 13,003 Total current assets 535,617 446,469 540,153 Investments 66,097 40,329 45,728 Property - net 474,247 429,938 465,610 Excess cost of acquisitions - net 134,330 120,064 130,638 Prepaid allowances 146,902 141,348 126,399 Other assets 4,569 4,364 4,708 Total assets $1,361,762 $1,182,512$1,313,236 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes payable $ 171,350 $240,790$ 76,389 Current portion of long-term debt 8,275 5,084 8,299 Outstanding checks 12,062 13,543 25,401 Accounts payable, trade 95,621 79,918 113,884 Accrued payroll 15,742 18,030 29,781 Accrued sales allowances 25,719 19,743 31,240 Other accrued expenses and liabilities 81,694 82,228 90,980 Income taxes 17,780 11,074 16,893 Total current liabilities 428,243 470,410 392,867 Long-term debt 343,562 198,810 346,436 Deferred income taxes 39,959 38,013 39,006 Employee benefit liabilities 67,670 54,315 63,875 Other liabilities 4,959 4,837 4,231 Total liabilities 884,393 766,385 846,415 Shareholders' Equity Common Stock, no par value 50,944 47,867 53,470 Common Stock Non-Voting, no par value 98,919 83,649 93,047 Retained earnings 336,616 289,467 330,327 Foreign currency translation adjustments (9,110) (4,856) (10,023) Total shareholders' equity 477,369 416,127 466,821 Total liabilities and shareholders' equity $1,361,762 $1,182,512$1,313,236 See notes to financial statements. (2) McCORMICK & COMPANY, INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Dollars In Thousands Except Per Share Amounts) Three Months Ended February 28, February 28, 1994 1993 Net sales $367,723 $339,585 Costs of goods sold 234,952 216,683 Gross profit 132,771 122,902 Selling, general and administrative expense 96,532 92,744 Profit from operations 36,239 30,158 Other income 1,417 1,827 Interest expense 8,126 7,267 Other expense 1,480 1,259 Income before income taxes 28,050 23,459 Provision for income taxes 10,790 9,000 Income from consolidated operations 17,260 14,459 Income from unconsolidated operations 1,050 2,805 Income before accounting change 18,310 17,264 Cumulative effect on prior years of accounting change - (26,626) Net income (loss) $ 18,310 $ (9,362) Earnings per share before accounting change $0.23 $ 0.21 Cumulative effect on prior years of accounting change - (0.33) Total earnings (loss) per common share $0.23 $(0.12) Cash dividends declared per common share $0.12 $ 0.11 See notes to financial statements. (3) McCORMICK & COMPANY, INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars In Thousands) Three Months Ended Feb. 28, Feb. 28, 1994 1993 Cash flows from operating activities Net income $ 18,310 $ (9,362) Depreciation and amortization 13,130 11,996 Provision for deferred income taxes 932 928 Gain on sale of assets (49) (61) Share of income from unconsolidated operations (1,050) (2,805) Dividend received from unconsolidated subsidiary - 3,990 Cumulative effect of accounting change - 26,626 Changes in operating assets and liabilities net of effects from businesses acquired and disposed (65,344) (89,695) Net cash used in operating activities (34,071) (58,383) Cash flows from investing activities Acquisitions of businesses (23,083) (41,910) Purchases of property, plant and equipment (21,284) (20,900) Proceeds from sale of assets 31 225 Proceeds from forward exchange contract - 8,373 Other investments (106) (371) Net cash used in investing activities (44,442) (54,583) Cash flows from financing activities Notes payable 75,182 129,263 Long-term debt Borrowings 20,059 917 Repayments (2,242) (2,237) Common stocks Issued 3,626 9,544 Acquired by purchase (2,577) (11,769) Dividends Paid (9,724) (8,844) Net cash provided by financing activities 84,324 116,874 Effect of exchange rate changes on cash and cash equivalents (448) (67) Increase/(Decrease) in cash and cash equivalents 5,363 3,841 Cash and cash equivalents at beginning of period 12,838 1,806 Cash and cash equivalents at end of period $ 18,201 $ 5,647 See notes to financial statements. (4) McCORMICK & COMPANY, INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands Except per Share Amounts) 1. In the opinion of the Company, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of February 28, 1994, February 28, 1993 and November 30, 1993, and the results of operations for the three month periods ended February 28, 1994 and February 28, 1993, and the cash flows for the three month periods ended February 28, 1994 and February 28, 1993. Certain reclassi- fications have been made to the 1993 financial statements to conform with the 1994 presentation. 2. The results of consolidated operations for the three month period ended February 28, 1994 are not necessarily indicative of the results to be expected for the full year. Histor- ically, the Company's consolidated sales and profits are lower in the first two quarters of the fiscal year, and increase in the third and fourth quarters. 3. Earnings per common share for the three month period ended February 28, 1994 was computed by dividing net income by the weighted average number of common shares outstanding (81,136,000). Earnings per common share for the three month period ended February 28, 1993 was computed by dividing net income by the weighted average number of common shares outstanding (80,485,000), plus dilutive common equivalent shares applicable to outstanding stock options and purchase plans (1,382,000). Common stock equivalents were not added to fiscal year 1994 weighted average common shares outstanding because they resulted in an insignificant dilution in earnings per share. 4. Interest paid during the three month periods ended February 28, 1994 and February 28, 1993 was $11,200 and $10,400 respectively. Income taxes paid during the same periods were $7,200 and $17,200 respectively. 5. Changes in foreign currency exchange rates required adjust- ments to both the Excess Cost of Acquisition account and the Foreign Currency Translation Adjustments account at February 28, 1994 and are primarily responsible for the changes in the translation adjustment account for the periods presented. These exchange rate changes plus amounts recorded as a result of business acquisitions largely account for the change in the Excess Cost of Acquisition account for the periods presented. (5) 6. During the first quarter of 1994 the Company renewed certain prepaid allowance contracts. Payments associated with these contracts are reflected in the Prepaid Allowance account at February 28, 1994. 7. During the first quarter of 1994, the Company acquired Grupo Pesa, a Mexican seasoning company, the spice business of Tuko Oy of Finland, and the retail seasoning brand of Hy's Fine Foods, Ltd. of Canada. The assets and liabilities acquired in these transactions have been recorded using the purchase method of accounting at their estimated fair values at the date of acquisition. The aggregate purchase price of these acquisitions was $23,083. While these acquisitions are expected to contribute positively to the Company's future sales and earnings, they are not material in relation to the Company's consolidated financial statements, and therefore pro forma financial information has not been presented. 8. In November 1993, the Company adopted SFAS No. 106, "Employers Accounting for Postretirement Benefits Other Than Pensions" effective as of December 1, 1992. This accounting standard requires the expected cost of postretirement benefits be accrued during the years that employees render services. Prior to 1993, the Company recognized these expenses based on claims paid. The Company recognized a transition obligation which was based on the aggregate amount that would have been recorded in prior years had the new standard been in effect for those years, as a one-time charge to 1993 income of $26,600 or $.33 per share, net of approximately $17,200 of income tax benefit. The incremental change to 1993 net income by applying SFAS 106 rather than the previous accounting method was $2,200 net of income tax benefit, or $.03 per share. Results for the first three quarters of 1993 have been restated to reflect this change. 9. In November 1992, the Financial Accounting Standards Board issued SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This standard requires that employers accrue a liability for their obligation to provide postemployment benefits as employees earn the right to receive them, provided that payment of the benefits is probable and the amount of the benefits can be reasonably estimated. The Company has not yet determined when this standard will be adopted. The effect of this accounting change on the Company's financial statements is not expected to be material. The Company must adopt this standard no later than in its fiscal year ending November 30, 1995. (6) 10. SFAS No. 107, "Disclosures About Fair Value of Financial Instruments" requires disclosure of the estimated fair value of certain financial instruments. Cash, receivables, short- term borrowings, accounts payable, and accrued liabilities are reflected in the financial statements at fair value because of the short-term maturity of these instruments. Investments, principally in unconsolidated affiliates, are not readily marketable and therefore it is not practicable to estimate their fair value. The estimated fair value of long-term debt at February 28, 1994, using discounted cash flow analysis based on the Company's current incremental borrowing rate for debt of similar remaining maturities was $377,966. This amount excludes $8,275 current portion of long-term debt which is considered to be at fair value. 11. Through its medium-term note program, at February 28, 1994, the Company had issued $50,000 of notes with maturities of 12 years and coupon rates ranging from 5.78% to 6.24%. The Company also had available credit facilities with domestic and foreign banks in the aggregate of $290,000. There were no borrowings outstanding against these facilities. At February 28, 1994, the Company's commercial paper issuance amounted to $257,000, of which $100,000 has been classified as long-term debt reflecting the Company's ability and intention to refinance this amount on a long-term basis through its medium- term note program. (7) McCORMICK & COMPANY, INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Consolidated net sales for the three months ended February 28, 1994 increased 8% over the corresponding period last year. This increase was largely attributable to sales volume gains. Almost every operating unit reported increased sales, with particularly strong performances coming from the Company's industrial, international and plastic packaging businesses. Income from consolidated operations was up 19%. Key contributors were also the industrial, international and plastic packaging businesses. This operating improvement was achieved even though the Company's overall gross profit margin remained approximately even with last year's first quarter, which was depressed because of high onion costs at our Gilroy unit. Although the gross margin at Gilroy has now improved, the overall gross margin for the Company did not, because a higher percentage of total sales were from the industrial and plastic packaging businesses which deliver lower gross margins. These businesses earn good operating profit margins, however, because they do not require the high level of advertising and promotion support required by our retail consumer products businesses. Lower costs resulting from changes the Company made to its health care benefits program in 1993, also had a favorable impact on first quarter results. Income from our unconsolidated joint ventures was down $1.8 million or approximately $.02 per share. This decline can be attributed primarily to higher sales promotion expenses in our Mexican retail operation. We expect improvement in our unconsolidated operations as the year progresses. Net income rose to $18.3 million while earnings per share increased to $.23, up 9.5% excluding the effect of the 1993 one-time charge for postretirement benefits. Return on equity (ROE), calculated by dividing twelve months to date net income by average shareholders' equity during that period, was 21.8% at February 28, 1994. This compares to ROE from continuing operations of 22.0% at year-end 1993 and 22.7% at February 28, 1993. ROE from continuing operations excludes the impact of the one-time charge for postretirement benefits. After reducing net income and equity for the impact of this one-time charge, ROE was 17.0% at year-end 1993 and 16.6% at February 28, 1993. (8) Financial Condition The Company's capital structure (excluding $57.6 million non-recourse debt) was 49.4% debt to total capital at February 28, 1994, up from 44.3% at year-end 1993 and 48.1% at February 28, 1993. During this year's first quarter the Company increased borrowing to meet seasonal operating capital needs and also to provide $23 million for three acquisitions. These acquisitions were (1) Grupo Pesa, a Mexican seasoning company which is a leading supplier to Mexico's food processing industry, (2) the spice business of Tuko Oy in Finland, which had been manufacturing spices, seasonings and specialty foods under license from the Company and (3) a retail brand previously owned by Hy's Fine Foods in Canada. Typically the Company reduces borrowing in the fourth quarter which historically produces its highest percentage of sales volume, profits and cash flows from operations. The Company's current ratio declined to 1.3 from 1.5 at year-end 1993, but was improved over .9 at February 28, 1993. During the first quarter the Company issued $20 million of notes under its medium-term note program. These notes have a term of 12 years at 6.24%. The Company continues to maintain $290 million of committed credit facilities that provide additional liquidity. These facilities were not in use at the end of the first quarter. (9) PART II - OTHER INFORMATION No response required. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. McCORMICK & COMPANY, INCORPORATED Date: April 8, 1994 By: James A. Hooker Vice President & Chief Financial Officer Date: April 8, 1994 By: J. Allan Anderson Vice President & Controller (10) -----END PRIVACY-ENHANCED MESSAGE-----