<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, 2001 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, 2001
------------------
Common Stock 7,925,616
Common Stock Non-Voting 61,231,565
</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,
2001 2000 2001 2000
---- ---- ---- ----
Net sales $ 570,710 $ 495,866 $ 1,671,354 $ 1,443,993
Cost of goods sold 341,765 323,011 1,012,401 936,824
----------- ----------- ----------- -----------
Gross profit 228,945 172,855 658,953 507,169
Selling, general and
administrative expense 172,506 121,707 508,005 378,058
Special charges 0 57 0 1,023
----------- ----------- ----------- -----------
Operating income 56,439 51,091 150,948 128,088
Interest expense 12,699 9,089 40,770 24,808
Other (income)/expense (1,370) 19 (2,270) 105
----------- ----------- ----------- -----------
Income before income taxes . 45,110 41,983 112,448 103,175
Income taxes 14,931 14,950 37,220 36,788
----------- ----------- ----------- -----------
Net income from consolidated
operations 30,179 27,033 75,228 66,387
Income from unconsolidated
operations 4,639 4,232 13,899 13,497
Minority interest (506) 0 (1,593) 0
----------- ----------- ----------- -----------
Net income $ 34,312 $ 31,265 $ 87,534 $ 79,884
=========== =========== =========== ===========
Earnings per common share -
basic $ 0.50 $ 0.46 $ 1.27 $ 1.16
=========== =========== =========== ===========
Earnings per common share -
assuming dilution $ 0.49 $ 0.45 $ 1.25 $ 1.15
=========== =========== =========== ===========
Cash dividends declared per
common share $ 0.20 $ 0.19 $ 0.60 $ 0.57
=========== =========== =========== ===========
</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,
2001 2000 2000
---------- ----------- ------------
(Unaudited) (Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 32,134 $ 35,922 $ 23,890
Accounts receivable, net 271,405 186,456 303,340
Inventories
Raw materials and supplies 123,439 109,004 120,556
Finished products and work-in process 171,649 165,166 153,483
----------- ----------- -----------
295,088 274,170 274,039
Other current assets 21,246 17,373 18,806
----------- ----------- -----------
Total current assets 619,873 513,921 620,075
----------- ----------- -----------
Property, plant and equipment 862,433 757,449 780,000
Less: Accumulated depreciation (453,747) (402,602) (407,001)
----------- ----------- -----------
Total property, plant and equipment, net 408,686 354,847 372,999
----------- ----------- -----------
Intangible assets, net 467,288 136,942 453,038
Prepaid allowances 103,697 114,216 96,072
Other assets 130,574 490,613 117,756
----------- ----------- -----------
Total assets $ 1,730,118 $ 1,610,539 $ 1,659,940
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 326,286 $ 602,820 $ 473,132
Current portion of long-term debt 2,592 4,012 78,829
Trade accounts payable 160,500 141,718 185,256
Other accrued liabilities 248,618 179,867 289,939
----------- ----------- -----------
Total current liabilities 737,996 928,417 1,027,156
----------- ----------- -----------
Long-term debt 454,212 233,334 160,192
Other long-term liabilities 112,611 101,289 113,249
----------- ----------- -----------
Total liabilities 1,304,819 1,263,040 1,300,597
----------- ----------- -----------
Shareholders' Equity
Common stock 59,110 50,481 49,824
Common stock non-voting 140,936 124,270 125,522
Retained earnings 300,114 220,379 263,262
Accumulated other comprehensive income (74,861) (47,631) (79,265)
----------- ----------- -----------
Total shareholders' equity 425,299 347,499 359,343
----------- ----------- -----------
Total liabilities and shareholders' equity $ 1,730,118 $ 1,610,539 $ 1,659,940
=========== =========== ===========
</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,
2001 2000
---- ----
Cash flows from operating activities
Net income $ 87,534 $ 79,884
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 54,857 42,753
Special charges -- 1,023
Income from unconsolidated operations (13,899) (13,497)
Changes in operating assets and liabilities (77,427) (62,181)
Other (8,941) 720
--------- ---------
Net cash provided by operating activities 42,124 48,702
--------- ---------
Cash flows from investing activities
Capital expenditures (80,111) (35,556)
Acquisitions of businesses -- (384,624)
Other 999 (2,434)
--------- ---------
Net cash used in investing activities (79,112) (422,614)
--------- ---------
Cash flows from financing activities
Short-term borrowings, net (146,837) 506,609
Long-term debt borrowings 297,806 0
Long-term debt repayments (79,832) (8,034)
Common stock issued 26,183 4,438
Common stock acquired by purchase (10,877) (66,397)
Dividends paid (41,294) (39,274)
--------- ---------
Net cash provided by financing activities 45,149 397,342
--------- ---------
Effect of exchange rate changes on cash and
cash equivalents 83 531
Increase in cash and cash equivalents 8,244 23,961
Cash and cash equivalents at beginning of period 23,890 11,961
--------- ---------
Cash and cash equivalents at end of period $ 32,134 $ 35,922
========= =========
</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, 2001 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, 2000.
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." The effective date of this bulletin has been deferred by the SEC
until the fourth quarter of fiscal years beginning after December 15, 1999, and
accordingly will be adopted by the Company in the fiscal year ending November
30, 2001. The Company is currently evaluating the impact of SAB 101, however no
significant adjustment is anticipated.
The Emerging Issues Task Force (EITF) issued EITF 00-10, which will require the
Company to reclassify certain shipping and handling costs billed to customers as
sales. EITF 00-10 is required to be implemented for the fiscal year ending
November 30, 2001. These reclassifications will not impact net income, and are
not expected to be significant.
The Emerging Issues Task Force (EITF) issued EITF 00-14 and EITF 00-25, which
will require the Company to reclassify certain marketing expenses as a reduction
of sales. EITF 00-14 and EITF 00-25 are required to be adopted in fiscal
quarters beginning after December 15, 2001. The estimated effects of these
reclassifications on 2001 would be to decrease sales 6-7%, with a corresponding
decrease in selling, general and administrative expense. These reclassifications
would accordingly decrease gross margin as a percentage of sales and increase
operating profit as a percentage of sales. These reclassifications will not
impact net income.
In June 2001, the Financial Accounting Standards Board (FASB) issued
(5)
<Page>
Statements of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," and No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141
applies to all business combinations with a closing date after June 30, 2001.
This Statement eliminates the pooling-of-interests method of accounting, and
further clarifies the criteria for recognition of intangible assets separately
from goodwill. Under SFAS No. 142, goodwill and indefinite lived intangible
assets will no longer be amortized but will be subject to annual impairment
tests in accordance with the new standard. Separable intangible assets that have
finite lives will continue to be amortized over their useful lives. The Company
anticipates adopting SFAS No. 142 beginning December 1, 2001. Although the
Company is still reviewing the provisions of these Statements, it is
management's preliminary assessment that goodwill impairment will not result
upon adoption. The Company has recorded $9.7 million of goodwill amortization
expense for the nine months ended August 31, 2001.
RECLASSIFICATIONS AND OTHER
In the fourth quarter of 2000, the Company reclassified goodwill amortization
expense from other (income)/expense to selling, general and administrative
expense. All prior period financial information has been reclassified to conform
to the current presentation. Goodwill amortization expense for the third quarter
of 2001 and 2000 was $3.1 million and $1.3 million, respectively. Goodwill
amortization expense for the nine months ended August 31, 2001 and 2000 was $9.7
million and $3.8 million, respectively.
As of August 31, 2000 the purchase price of the Ducros acquisition had not been
distributed, and was therefore included in other assets on the Condensed
Consolidated Balance Sheet. In 2001, the purchase price allocation was finalized
and goodwill has been included within intangible assets at August 31, 2001.
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,
2001 2000 2001 2000
---- ---- ---- ----
(in thousands)
Average shares outstanding - basic 69,085 68,425 68,809 68,908
Effect of dilutive securities:
Stock options and employee stock purchase plan 1,360 622 1,170 703
------ ------ ------ ------
Average shares outstanding - assuming dilution 70,445 69,047 69,979 69,611
====== ====== ====== ======
</Table>
(6)
<Page>
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,
2001 2000 2001 2000
---- ---- ---- ----
(in thousands)
Net income $ 34,312 $ 31,265 $ 87,534 $ 79,884
Other comprehensive income:
Foreign currency translation
adjustments 30,822 (1,819) 13,394 (13,453)
Derivative financial instruments (1,961) (3,514) (8,990) (34)
-------- -------- -------- --------
Comprehensive income $ 63,173 $ 25,932 $ 91,938 $ 66,397
======== ======== ======== ========
</Table>
4. 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 brand in
the U.S., Ducros in continental Europe, 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.
In each of its segments, the Company produces and sells many individual products
that are similar in composition and nature. It is impractical to segregate and
identify profits for each of these individual product lines.
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)
QUARTER ENDED AUGUST 31, 2001
Net sales $261.6 $263.3 $ 524.9 $ 45.8 $ -- $ 570.7
Intersegment sales -- 2.0 2.0 11.1 (13.1) --
Operating income 28.4 30.3 58.7 4.7 (7.0) 56.4
Income from unconsolidated operations 4.2 0.4 4.6 -- -- 4.6
NINE MONTHS ENDED AUGUST 31, 2001
Net sales $791.6 $739.6 $1,531.2 $140.2 $ -- $1,671.4
Intersegment sales -- 7.1 7.1 29.3 (36.4) --
Operating income 82.0 73.9 155.9 15.8 (20.8) 150.9
Income from unconsolidated operations 12.9 1.0 13.9 -- -- 13.9
</Table>
<Table>
<Caption>
Total Corporate &
Consumer Industrial Food Packaging Eliminations Total
-------- ---------- ----- --------- ------------ -----
(in millions)
QUARTER ENDED AUGUST 31, 2000
Net sales $201.9 $248.6 $ 450.5 $ 45.4 $ -- $ 495.9
Intersegment sales -- 1.8 1.8 10.6 (12.4) --
Operating income 29.7 23.3 53.0 4.8 (6.7) 51.1
Income from unconsolidated operations 3.8 0.4 4.2 -- -- 4.2
NINE MONTHS ENDED AUGUST 31, 2000
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 76.2 59.1 135.3 16.3 (23.5) 128.1
Income from unconsolidated operations 12.2 1.3 13.5 -- -- 13.5
</Table>
5. LONG-TERM DEBT
During the first quarter of 2001 the Company issued a total of $300 million in
medium-term notes under a $375 million shelf registration statement filed with
the Securities and Exchange Commission (SEC) in January 2001. The primary
purpose of these notes was to finance the acquisition of Ducros, which was
completed in August 2000, and replace substantially all of the existing
commercial paper notes that were used to temporarily finance the acquisition.
Medium-term notes in the amount of $150 million were issued in January 2001 and
mature in 2006, with interest paid semi-annually at the rate of 6.4%. Additional
medium-term notes in the amount of $150 million were issued in January 2001 and
mature in 2008, with interest paid semi-annually at the rate of 6.8%.
In September 2000 the Company entered into forward starting interest rate swaps
to manage the interest rate risk associated with the anticipated issuance of
fixed-rate medium-term notes. These forward starting swaps were settled in the
first quarter of 2001, concurrent with the issuance of the medium-term notes.
The settlement costs on these swaps in the first quarter of 2001 included in
other comprehensive income was $14.7 million. The notes were issued at a
discount of $2.2 million and $1.1 million of debt origination fees were
incurred. The discount, swap settlement and debt issuance costs are being
amortized over the life of the medium-term notes and included as a component of
interest expense. With these costs considered, the effective interest rate on
the medium-term notes is 7.62%.
(8)
<Page>
In July 2001 the Company retired $75.0 million of 8.95% fixed-rate
notes with commercial paper. The variable interest on the commercial paper is
being hedged by interest rate swaps from 2001 through 2011. Net interest
payments will be fixed at 6.35% over that period. The interest rate swap settles
at six month intervals beginning in January, 2002.
(9)
<Page>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
For the quarter ended August 31, 2001, the Company reported net income of $34.3
million versus $31.3 million for the comparable period last year. Diluted
earnings per share were $.49 for the third quarter of 2001 compared to $.45 last
year. For the nine months ended August 31, 2001, net income was $87.5 million
versus $79.9 million for the comparable period last year. Diluted earnings per
share were $1.25 for the first nine months of 2001, compared to $1.15 last year.
Earnings per share for the quarter ended August 31, 2001, increased to $.49 from
$.45 in 2000. Results from Ducros for the quarter diluted earnings by $.03 per
share. In the third quarter, excluding dilution from the Ducros acquisition,
earnings per share for 2001 were $.52, an increase of $.07 versus the prior
year. This was achieved through $.02 of higher operating income, $.03 in reduced
interest expense, $.01 of other income and $.01 from a lower effective tax rate.
RESULTS OF OPERATIONS
Net sales for the quarter ended August 31, 2001 increased 15.1% over the
comparable quarter of 2000. Excluding foreign exchange and the Ducros business,
sales increased 3.8% over the comparable quarter of 2000.
For the nine months ended August 31, 2001, net sales increased 15.7% over the
comparable period last year. Excluding foreign exchange and the Ducros business,
sales grew 4.1% over the comparable period last year.
<Table>
<Caption>
Three months ended Nine months ended
August 31, August 31,
2001 2000 2001 2000
---- ---- ---- ----
(in millions)
NET SALES
Consumer $261.6 $201.9 $ 791.6 $ 606.3
Industrial 263.3 248.6 739.6 705.2
Packaging 45.8 45.4 140.2 132.5
------ ------ -------- --------
$570.7 $495.9 $1,671.4 $1,444.0
</Table>
Consumer sales rose 29.6% versus last year's third quarter and increased 3.7%
excluding the impact of Ducros and foreign exchange. In local currency, consumer
sales were up 3.7% in the Americas, due primarily to favorable sales volume and
pricing. In Europe, sales in local currency were up 3.2% (excluding Ducros).
This increase is mainly attributable to favorable product mix. In local
currency, sales in Asia Pacific increased 5.9% due to higher volume in China and
favorable product mix. For the nine months ended August 31, 2001, consumer sales
increased $185.3 million or 30.6%. Excluding the
(10)
<Page>
impact of Ducros and foreign exchange, sales increased 4.0% due primarily to
volume growth and favorable product mix.
Industrial sales increased 5.9% versus last year's third quarter and increased
4.3% excluding the impact of Ducros and foreign exchange. In local currency,
industrial sales increased 4.6% in the Americas primarily due to higher
restaurant sales, strong snack seasoning sales, and increased sales to
membership clubs in the food service business. In local currency, sales in
Europe increased 2.7%(excluding Ducros) due to increased volume. Sales in Asia
Pacific, in local currency, rose 4.1% primarily attributable to increased
restaurant sales offset slightly by soft retail sales. For the nine months ended
August 31, 2001, industrial sales increased $34.4 million or 4.9%. Excluding the
impact of Ducros and foreign exchange, sales increased 3.9% due to volume growth
offset slightly by product mix.
The packaging business reported third party sales up slightly from $45.4 million
to $45.8 million as compared to the third quarter last year. Sales for the nine
months ended August 31, 2001, increased $7.6 million or 5.8%. Strong tube and
bottle sales in the first half of the year account for the increase
year-to-date.
Gross profit margin for the third quarter was 40.1%, 5.2 percentage points above
last year. In the industrial business, gross profit margin improvement was
mainly due to a shift in product mix to higher margin, more value added products
as well as cost reductions. In our consumer business gross profit margin
improvement was due to a combination of the addition of the Ducros business,
price increases in the U.S. business, cost reductions and lower pepper costs,
partially offset by higher costs of other commodities. These factors also
impacted the nine months ended August 31, 2001, improving the Company's gross
profit margin to 39.4% from 35.1% in the comparable period last year.
Selling, general and administrative expenses increased in the third quarter and
nine months ended August 31, 2001, as compared to last year in both dollar terms
and as a percentage of net sales. These increases were primarily due to the new
Ducros business, including $6.1 million in related goodwill amortization expense
year to date, increased distribution expenses due to higher energy costs, and
higher investment spending. In the first quarter of 2000, the Company booked a
reserve in the amount of $3.8 million for the AmeriServ bankruptcy. In 2001,
investment spending included advertising in the third quarter, which was a shift
from the first half of the year, as well as continued spending for the Beyond
2000 program in the third quarter and nine months ended August 31, 2001.
(11)
<Page>
<Table>
<Caption>
Three months ended Nine months ended
August 31, August 31,
2001 2000 2001 2000
---- ---- ---- ----
(in millions)
OPERATING INCOME
Consumer $28.3 $29.7 $82.0 $76.2
Industrial 30.3 23.3 73.9 59.1
Packaging 4.8 4.8 15.9 16.3
----- ----- ------ -----
Combined segments (1) $63.4 $57.8 $171.8 $151.6
</Table>
(1) Excludes impact of general corporate expenses included as Corporate &
Eliminations. See Note 4 in the Notes to Condensed Consolidated Financial
Statements.
Total operating income for the Company increased $5.3 million or 10.5% and
operating margin decreased to 9.9% from 10.3% for the quarter ended August 31,
2001, as compared to last year. In the consumer segment, operating income was
$28.3 million, 4.7% below last year's quarter. As a percent of net sales,
operating income decreased to 10.8% from 14.7%. This quarter, the consumer
segment was impacted by incremental advertising spending and expenses related to
cost saving initiatives. Operating income for the quarter in the industrial
segment was $30.3 million, a 30.5% increase versus last year. As a percent of
net sales, operating income increased to 11.5% from 9.4% in the third quarter of
2000. Margin improvement in the industrial business was particularly strong due
to product mix in the food service and restaurant divisions, as well as cost
reduction initiatives. Operating income, including inter-segment business, in
the packaging division was $4.8 million, even with last year's result. For the
nine months ended August 31, 2001, operating income for the total Company
increased $22.9 million or 17.8%, and operating income margin increased from
8.9% to 9.0% over the comparable period last year.
Interest expense for the three and nine months ended August 31, 2001, was $12.7
million and $40.8 million, respectively, versus $9.1 million and $24.8 million
for the comparable period last year. The total debt levels in 2001 are
significantly higher compared to last year as a result of the Ducros
acquisition. Excluding Ducros, interest expense for the quarter would have been
down compared to the prior year due to favorable interest rates and lower debt
levels.
Other income for the quarter ended August 31, 2001 was $1.4 million and for the
nine months ended August 31, 2001 was $2.3 million. The majority of the increase
is interest income but is also attributable to exchange gains on foreign
currency transactions.
The effective tax rate for both the quarter and nine months ended August 31,
2001, was 33.1% versus 35.6% for the third quarter and 35.7% for the nine months
ended August 31, 2000. The Company transacts business in many different taxing
jurisdictions around the world, which all incur differing tax rates. The mix of
earnings among these jurisdictions is what has caused a lower tax rate in 2001
versus 2000.
Income from unconsolidated operations was $4.6 million and $13.9
(12)
<Page>
million for the three and nine months ended August 31, 2001, respectively, which
is comparable to last year. The Ducros acquisition included an investment in a
joint venture with a minority interest. This minority interest was $.5 million
and $1.6 million for the three and nine months ended August 31, 2001,
respectively.
MARKET RISK SENSITIVITY
FOREIGN CURRENCY
The fair value of the Company's portfolio of forward contracts was $0.2 million
and $0.5 million as of August 31, 2001 and August 31, 2000, respectively.
INTEREST RATES
The fair value of the Company's interest rate swaps was ($4.3) million and $3.4
million as of August 31, 2001 and August 31, 2000, respectively. The Company
intends to hold the interest rate swaps until maturity.
During the first quarter of 2001, the Company settled the forward starting
interest rate swaps used to manage the interest rate risk associated with the
medium-term notes issued during that quarter. See Note 5 of Notes to Condensed
Consolidated Financial Statements for more details.
The following table details the maturity values and average interest rates by
year for the Company's fixed and variable debt instruments:
<Table>
<Caption>
Year of Maturity
There-
(millions) 2001 2002 2003 2004 after Total
---------------------------------------------------------------------------------------------------------------------------
Fixed rate $ 77.3 (1) $0.2 $0.1 $16.0 $432.2 $525.8
Ave. interest rate 6.43% 8.00% 8.00% 7.17% 7.48%
---------------------------------------------------------------------------------------------------------------------------
Variable rate $251.6 $0.3 $0.3 $ 0.3 $ 4.8 $257.3
Ave. interest rate 3.72% 6.61% 6.61% 6.61% 5.12%
---------------------------------------------------------------------------------------------------------------------------
</Table>
(1) $75.0 million of commercial paper is classified as fixed rate debt, as the
commercial paper has been hedged by an interest rate swap which converts the
interest rate from floating to fixed.
The fair value of the Company's short-term borrowings approximates its carrying
value. The fair value of long-term borrowings including the current portion of
long-term debt is $484.0 million at August 31, 2001.
FINANCIAL CONDITION
In the Condensed Consolidated Statement of Cash Flows, cash flows provided by
operating activities decreased from $48.7 million to $42.1 million for the nine
months ended August 31, 2000 and 2001, respectively. This decrease is due
primarily to the timing of the working capital components of prepaid expenses
and accounts payable. In addition, there was a $14.7 million swap settlement in
the first quarter of 2001 as a result of the Ducros acquisition financing. The
decrease was partially offset with favorable profits excluding depreciation and
amortization, increases in dividends received from unconsolidated operations,
and favorable changes in inventories and trade receivables.
(13)
<Page>
Investing activities used cash of $79.1 million in the first nine months of 2001
versus $422.6 million in the comparable period of 2000. In 2000, the Company
acquired a regional line of Hispanic consumer food products in the U.S., a 50%
interest in a company which offers a full line of fresh herbs for sale in both
consumer and foodservice markets, and completed the acquisition of Ducros.
Capital expenditures in 2001 may exceed the Company's initial target range of
$85-$95 million due to incremental capital spending on certain recently
identified projects that provide future cost reduction benefits or that support
newly identified growth opportunities.
Cash flows from financing activities provided cash of $45.1 million in the nine
months ended August 31, 2001, compared to $397.3 million in the same period last
year. In the third quarter of 2000, the Company acquired Ducros which resulted
in increased cash flows from short-term borrowings. In the first quarter of
2001, the Company finalized its medium-term note program for the Ducros
acquisition, which replaced substantially all of the existing commercial paper
notes used to finance the transaction. Last year, 2.1 million shares of common
stock were repurchased under the Company's share repurchase program. This
program was suspended due to the Ducros acquisition, therefore no shares were
repurchased this year under the plan. In the nine months ended August 31, 2001,
the activity in the Company's stock option plan resulted in an increase in
common stock issued and accounted for the majority of the $10.9 million of
common stock acquired. In addition, during the third quarter of 2001, the
Company retired $75.0 million of 8.95% fixed rate notes with commercial paper.
The variable rate on the commercial paper is being hedged by interest rate swaps
from 2001 through 2011.
The Company's ratio of debt-to-total capital was 64.1% as of August 31, 2001,
down from 70.7% at August 31, 2000 and 65.8% at November 30, 2000. The decrease
was primarily due to both cash generated and earnings generated from operations
since the Ducros acquisition.
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.
The Company does not anticipate that the September 11, 2001 terrorist attacks
against the United States will have any material effect on its results of
operations.
FORWARD-LOOKING INFORMATION
Certain statements contained in this report, including those related to 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 may be materially
affected by external factors such as: actions of competitors, customer
relationships, and final negotiation of third-
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party contracts, 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. The Company undertakes no obligation to update
or revise publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
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,
2000. 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.
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 12, 2001 By: /s/ FRANCIS A. CONTINO
------------------------- -----------------------------
Francis A. Contino
Executive Vice President & Chief
Financial Officer
Date: October 12, 2001 By: /s/ KENNETH A. KELLY, JR.
------------------------- -------------------------------
Kenneth A. Kelly, Jr.
Vice President & Controller
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EXHIBIT INDEX
<Table>
<Caption>
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 & Company, Incorporated by reference from Registration
Incorporated dated April l6, 1990 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 from Registration Form S-8
McCormick & Company, Incorporated Registration Statement No. 33-59842 as filed with the
dated April 1, 1992 Securities and Exchange Commission on March 19, 1993.
By-laws of McCormick & Company, Incorporated by reference from Registrant's Form 10-Q for
Incorporated-Restated and the quarter ended May 31, 1996 as filed with the Securities
Amended as of June 17, 1996. and Exchange Commission on July 12, 1996.
(4) Instruments defining the rights of With respect to rights of holders of equity securities, see
security holders, including Exhibits 3(Restatement of Charter) and 4.1 (Summary of
indentures. Certain Exchange Rights). 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>
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(4.1) Summary of certain exchange Attached as Exhibit 4.1
rights.
(10) Material contracts.
(i) Registrant's supplemental pension plan for certain senior
officers, as amended and restated effective June 19, 2001, is
described in the McCormick Supplemental Executive Retirement
Plan, a copy of which is attached to this report as Exhibit
10.1.
(ii) 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.
(iii) Stock Purchase Agreement among the Registrant, Eridania
Beghin-Say and Compagnie Francaise de Sucrerie - CFS, dated
August 31, 2000, which agreement is incorporated by reference
from Registrant's Report on Form 8-K, as filed with the
Securities and Exchange Commission on September 15, 2000, as
amended on Form 8-K/A filed with the Securities and Exchange
Commission on November 14, 2000.
(iv) 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.
(v) 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.
(vi) Stock option plans, in which directors, officers and certain
other management employees participate, are described in
Registrant's S-8 Registration Statement No. 333-57590 as filed
with the Securities and Exchange Commission on March 25, 2001,
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.
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(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.
(99) Additional exhibits.
(99.1) Financial data schedule. Submitted in electronic
format only.
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