SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended May 31, 1995 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
May 31, 1995
Common Stock 12,616,000
Common Stock Non-Voting 68,555,000
10Q.mz
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 8,9,10
Part II. OTHER INFORMATION 11
PART I. FINANCIAL INFORMATION
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
May 31, May 31, Nov. 30,
ASSETS 1995 1994 1994
Current Assets
Cash and cash equivalents $ 18,607 $ 19,061 $ 15,566
Accounts receivable - net 201,106 169,199 208,811
Inventories
Raw materials 136,681 118,745 125,413
Work in process 54,959 47,824 42,987
Finished goods 197,790 172,363 206,067
389,430 338,932 374,467
Prepaid expenses 18,054 6,061 15,343
Deferred income taxes 43,470 13,003 43,470
Total current assets 670,667 546,256 657,657
Investments 53,726 48,588 62,410
Property - net 512,770 485,544 504,599
Excess cost of acquisitions - net 186,265 146,916 196,166
Prepaid allowances 207,672 137,497 143,181
Other assets 3,648 4,954 4,688
Total assets $1,634,748 $1,369,755$1,568,701
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $327,821 $180,297 $202,542
Current portion long-term debt 8,119 9,693 11,532
Outstanding checks 12,360 14,421 17,955
Accounts payable, trade 140,623 97,394 128,236
Accrued payroll 19,923 23,423 30,424
Accrued sales allowances 26,457 23,410 38,373
Accrued restructuring costs 18,794 - 50,334
Other accrued expenses and liab. 117,511 89,680 107,125
Income taxes 7,498 4,591 14,307
Total current liabilities 679,106 442,909 600,828
Long-term debt 362,952 340,244 374,288
Deferred income taxes 23,120 31,622 19,229
Employee benefit liabilities 75,253 67,204 68,375
Other liabilities 16,488 4,896 16,017
Total liabilities 1,156,919 886,875 1,078,737
Shareholders' Equity
Common Stock, no par value 49,180 50,181 50,006
Common Stock Non-Voting, no par 107,689 99,933 101,697
Retained earnings 346,802 343,671 343,285
Foreign currency translation adj. (25,842) (10,905) (5,024)
Total shareholders' equity 477,829 482,880 489,964
Total liabilities and
shareholders' equity $1,634,748 $1,369,755$1,568,701
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 Six Months Ended
May 31 May 31
1995 1994 1995 1994
Net sales $444,983 $396,342 $870,416 $764,065
Cost of goods sold 293,672 254,670 577,289 489,622
Gross profit 151,311 141,672 293,127 274,443
Selling, general and
administrative expense 111,570 104,041 209,443 200,573
Profit from operations 39,741 37,631 83,684 73,870
Other income (expense) - net (1,268) (1,206) 581 (1,269)
Interest expense 14,137 9,034 27,787 17,160
Income before income taxes 24,336 27,391 56,478 55,441
Provision for income taxes 8,760 10,660 20,760 21,450
Income from consolidated
operations 15,576 16,731 35,718 33,991
Income (loss) unconsolidated
operations 466 2,398 (330) 3,448
Net income $ 16,042 $ 19,129 $ 35,388 $ 37,439
Earnings per common share $0.20 $0.24 $0.44 $0.46
Cash dividends declared per
common share $0.13 $0.12 $0.26 $0.24
See notes to financial statements.
(3)
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars In Thousands)
Six Months Ended
May 31, May 31,
1995 1994
Cash flows from operating activities
Net income $ 35,388 $ 37,439
Depreciation and amortization 31,680 27,624
Provision for deferred income taxes 1,117 2,008
Gain on sale of assets 75 124
Share of (income) loss unconsolidated oper. 330 (3,448)
Dividend received unconsolidated subsidiary - 3,345
Changes in assets and liabilities net of
businesses acquired and disposed (113,951) (69,001)
Net cash used in operating activities (45,361) (1,909)
Cash flows from investing activities
Acquisitions of businesses (981) (26,083)
Purchases of property, plant and equipment (35,445) (41,903)
Proceeds from sale of assets 383 124
Proceeds (payments) from forward exchange contract 4,361 (518)
Other investments (2,898) (2,970)
Net cash used in investing activities (34,580) (71,350)
Cash flows from financing activities
Notes payable 126,257 59,052
Long-term debt
Borrowings 1,021 56,713
Repayments (17,028) (14,869)
Common stocks
Issued 5,326 4,236
Acquired by purchase (12,554) (5,245)
Dividends paid (21,096) (19,489)
Minority interest 703 -
Net cash provided by financing activities 82,629 80,398
Effect of exchange rate changes on cash and
cash equivalents 353 (916)
Increase/(Decrease) in cash and cash equivalents 3,041 6,223
Cash and cash equivalents at beginning of period 15,566 12,838
Cash and cash equivalents at end of period $ 18,607 $ 19,061
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 May 31, 1995, May 31, 1994 and
November 30, 1994, and the results of operations for the three
and six month periods ended May 31, 1995 and May 31, 1994, and
the cash flows for the six month periods ended May 31, 1995
and May 31, 1994. Certain reclassifications have been made
to the 1994 financial statements to conform with the 1995
presentation.
2. The results of consolidated operations for the three and six
month periods ended May 31, 1995 are not necessarily
indicative of the results to be expected for the full year.
Historically, 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 and six month periods
ended May 31, 1995 were computed by dividing net income by the
weighted average number of common shares outstanding
(81,161,000 - three months and 81,170,000 - six months).
Earnings per common share for the three and six month periods
ended May 31, 1994 were computed by dividing net income by the
weighted average number of common shares outstanding
(81,353,000 - three months and 81,227,000 - six months). The
dilutive effect of common stock equivalents is not material.
4. Interest paid during the six month periods ended May 31, 1995
and May 31, 1994 was $22,990 and $20,840 respectively. Income
taxes paid during the same periods were $21,300 and $38,900
respectively.
5. Changes in foreign currency exchange rates required
adjustments to both the Excess Cost of Acquisition account and
the Foreign Currency Translation Adjustments account at
May 31, 1995 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 in the last half of fiscal 1994,
largely account for the change in the Excess Cost of
Acquisition account for the periods presented.
6. During the second quarter of 1995 the Company renewed certain
prepaid allowance contracts. Payments associated with these
contracts are reflected in the Prepaid Allowance account at
May 31, 1995, less amortization as of that date.
(5)
7. The estimated fair values of the Company's significant
financial instruments at May 31, 1995 follows:
Estimated Carrying
Fair Value Amount
Cash & cash equivalents................ $ 18,607 $ 18,607
Trade receivables...................... 184,741 184,741
Short-term borrowings.................. 327,821 327,821
Current portion of long-term debt...... 8,119 8,119
Accounts payable and accrued expenses.. 323,308 323,308
Long-term debt......................... 373,756 362,952
8. At May 31, 1995 the Company had available credit facilities
with domestic and foreign banks in the aggregate of $340,000.
There were no borrowings outstanding against these facilities.
9. In the fourth quarter of 1994, the Company recorded a $70,445
charge for restructuring its business operations. This
restructuring charge reduced 1994 net income for the year and
for the fourth quarter by $46,295 or $.57 per share. The
charge provides for costs associated with reducing the work
force and a program that will eliminate redundant facilities
and positions, improve productivity and efficiency, and
eliminate certain businesses and product lines. Specific
actions include a reduction of approximately 600 positions
worldwide through position eliminations and a voluntary
special retirement program; closing an industrial products
plant and a foodservice products plant and transferring the
production to other existing facilities; realignment of some
of our operations in the U.K.; offering for sale the Golden
West Foods, Inc. frozen foods subsidiary; and consolidating
certain administrative activities.
As of May 31, 1995, the Company has reduced its work force by
approximately 280 positions due to position eliminations and
retirements; has begun the process of closing its production
facilities in Hayward, California and Hunt Valley, Maryland
and is transferring the production to other existing
facilities; and has consolidated several functional activities
primarily at the Hunt Valley operations. The components of
the restructuring charge and remaining liability at May 31,
1995 are as follows:
Restructuring 11/30/94 5/31/95
Charge Liability Liability
Work force reduction $ 24,375 $ 24,263 $ 1,978
Plant consolidations
and closings 33,477 33,414 27,906
Other restructuring
projects 12,593 6,513 2,991
70,445 64,190 32,875
Income tax benefits (24,150) (23,434) (11,270)
$ 46,295 $ 40,756 $ 21,605
(6)
Included in the remaining liability are fixed asset write-offs
of $11,780 and other asset write-offs of $1,394.
The pre-tax restructuring liability which is anticipated to be
expended in the next 12 months is included as a current
liability in the balance sheet. The remaining portion is
included in other non-current liabilities.
(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 and six months ended May 31,
1995 increased 12% and 14% respectively over the corresponding
periods last year. These increases were largely attributable to
sales volume gains with most operating units reporting volume
increases for both the second quarter and the first half. In terms
of volume alone, the increases were 11% for the quarter and 9% for
the year. Sales from newly acquired businesses contributed
approximately 3% to the second quarter net sales increase.
The gross profit margin for the second quarter was up slightly at
34.0% versus 33.3% in the first quarter but down from the 35.7%
posted in the second quarter of the previous year. The six month
margin was also down at 33.7% compared to 35.9% of the prior six
month period. The overall decline in margins was due to higher raw
material costs and to a higher mix of industrial sales which have
a lower gross profit margin than the Company as a whole. Profit
from operations was up 6% or $2.1 million for the second quarter
and 13% or $9.8 million for the first half. This was due to an
increase in earnings from our foreign operations, our industrial
spice business and favorable first quarter adjustments from our
restructuring program announced in the fourth quarter of 1994.
Net income of $16.0 million or $.20 per share for the three months
ended May 31, 1995 was below the $19.1 million or $.24 per share
reported for 1994's second quarter. Net income for the six months
ended May 31, 1995 decreased to $35.4 million or $.44 per share
from $37.4 million or $.46 per share for the same period last year.
Earnings continue to be unfavorably impacted by increased interest
expense of $5.1 million for the quarter and $10.6 million for the
first half due to both higher debt levels and higher interest
rates. These increases were somewhat offset by comparatively lower
tax provisions in fiscal 1995.
Income from our unconsolidated joint ventures was down $1.9 million
or $.02 per share in the second quarter and down $3.8 million or
$.05 per share for the first six months compared to the respective
periods of the prior year, due primarily to economic problems in
Mexico. The Mexican peso was devalued by approximately 43% in the
first half of fiscal 1995. This devaluation had the effect of
reducing shareholders' equity in the amount of approximately
$20 million. During 1994, the Company had entered into a forward
contract for the delivery of Mexican pesos in April of 1995 to
hedge its exposure, therefore, the devaluation did not have a
significant impact on the results of operations for the first half
of 1995.
(8)
Management is taking steps to help mitigate the impact on future
earnings of the devaluation, including price increases where
possible, identifying U.S. import opportunities for Mexican-sourced
raw materials and additional sales opportunities.
Return on equity (ROE) calculated by dividing twelve months to date
net income by average shareholders' equity during that period,
decreased to 12.4% at May 31, 1995 from 12.8% at year-end 1994
versus 21.7% at May 31, 1994. The restructuring charge booked in
the fourth quarter of FY 1994 is the primary reason for the decline
in ROE versus the second quarter of 1994.
Restructuring
In the fourth quarter of 1994, the Company announced a
comprehensive restructuring of its business operations. As a
result of this program, the Company recorded a restructuring charge
in the amount of $70 million before tax and $46 million after tax.
While the majority of the restructuring plan will be completed late
in 1995, the following progress has been made during the first half
of 1995:
* The worldwide work force has been reduced by approximately
280 positions since February 1, 1995 through position
eliminations and a special early retirement program. In
conjunction with this work force reduction, termination
benefits of approximately $4.7 million were paid and charged
to the restructuring liability in the first half of 1995. The
remaining cost of this portion of the work force reduction
will be paid by the Company's employee benefit plans as
retirement benefits. The additional employee benefit plan
liabilities associated with these retirement benefits
approximate $18.0 million and have been charged to the
restructuring liability in the first half of 1995. The
remainder of the work force reduction up to our goal of the
elimination of 600 positions will be completed as production
facilities identified for closure in the restructuring plan
are closed. Severance costs were reduced by approximately
$0.5 million as a result of a higher than expected rate of
employee elections to transfer to positions at other locations
and other opportunities to continue employment.
* The process of closing the McCormick Flavor Group's plant in
Hayward, California and the Food Service Division's plant in
Hunt Valley, Maryland is underway. It is expected that these
plants will be closed and their production needs absorbed by
other facilities by the end of the first quarter of 1996. The
sale of Golden West Foods, Inc. was completed July 6, 1995.
The expected before tax loss on the disposal of these
facilities was reduced by $1.5 million in the first quarter.
The current adjusted restructuring reserve is adequate to
cover losses associated with the disposal of these facilities.
(9)
* Plans for the realignment of some operating facilities in the
U.K. are being finalized. The physical realignment is
expected to begin late in 1995 and be completed in 1996.
* In conjunction with the work force reduction effected
February 1, 1995, the Company has completed or has plans to
complete the consolidation of certain administrative
functions. These remaining consolidations will be completed
during 1995.
* The Company will lease a $20 million consolidated distribution
center to distribute the finished goods produced by all of its
Hunt Valley plants. Construction of this facility has begun
and is expected to be completed in early 1996. The
restructuring reserve for costs associated with this project
were reduced by $0.9 million in the first quarter. The
adjusted reserve balance is adequate to cover remaining costs
associated with this project.
Cash expenditures associated with the restructuring plan during the
first half of 1995 totaled $4.3 million net of anticipated tax
benefits.
Savings from the portions of the restructuring plan that were
completed in the first half of 1995 will consist principally of
lower personnel costs after February 1, 1995. These savings will
be invested in the Company's brands through product development and
consumer promotion activities.
Financial Condition
The Company's capital structure (excluding $55.4 million
non-recourse debt) was 57.4% debt to total capital at May 31, 1995,
up from 52.0% at year-end 1994 and 49.5% at May 31, 1994. During
the second quarter of 1995, the Company generated approximately $49
million in cash from operations. This cash was mostly used for
repayment of long-term debt, capital spending, and shareholder
dividends. For the six months ended May 31, 1995 the Company's net
borrowings were approximately $110 million, down from $120 million
at the end of the first quarter, where the funds were primarily
used to secure long-term business contracts, provide for capital
spending, fund seasonal working capital needs, and to temporarily
fund the cash payments made under the restructuring plan. The
Company has begun a plan to improve working capital management
which is anticipated to result in reductions in the investment in
inventories by the end of 1995. Working capital reductions under
this plan will be used to reduce debt and fund the costs of the
restructuring plan. The Company's current ratio remained the same
during the second quarter at 1.0, down from 1.1 at year-end 1994
largely due to the Company's increased use of commercial paper
borrowings in the first quarter. The Company maintains $340
million of committed credit facilities that provide additional
liquidity. These facilities were not in use at the end of the
second quarter.
(10)
PART II - OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
(a) The Company held its annual meeting of stockholders on
March 15, 1995.
(b) No response required.
(c) A proposal to approve the 1995 Employees Stock Purchase Plan,
as described in the Company's Proxy Statement dated
February 15, 1995, was approved by a vote of 11,971,560
shares cast for; 17,286 shares cast against; and
555,256 shares abstaining.
(d) 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: July 14, 1995 By: /s/ Robert G. Davey
Robert G. Davey
Vice President &
Chief Financial Officer
Date: July 14, 1995 By: /s/ J. Allan Anderson
J. Allan Anderson
Vice President & Controller
(11)
5
1000
6-MOS
NOV-30-1995
MAY-31-1995
18607
0
203951
2845
389430
670667
866600
353830
1634748
679106
362952
156869
0
0
320960
1634748
870416
870416
577289
209443
(581)
0
27787
56478
20760
35388
0
0
0
35388
.44
.44
