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, 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
August 31, 1995
Common Stock 12,465,000
Common Stock Non-Voting 68,710,000
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 8,9,10
Part II. OTHER INFORMATION 11
PART I. FINANCIAL INFORMATION
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
Aug. 31, Aug. 31, Nov. 30,
ASSETS 1995 1994 1994
Current Assets
Cash and cash equivalents $ 30,528 $ 14,137 $ 15,566
Accounts receivable - net 191,935 200,476 208,811
Inventories
Raw materials 131,278 116,953 125,413
Work in process 53,354 47,645 42,987
Finished goods 222,942 201,800 206,067
407,574 366,398 374,467
Prepaid expenses 21,407 6,385 15,343
Deferred income taxes 43,470 13,003 43,470
Total current assets 694,914 600,399 657,657
Investments 54,709 51,019 62,410
Property - net 514,024 497,997 504,599
Excess cost of acquisitions - net 183,933 197,221 196,166
Prepaid allowances 208,417 155,201 143,181
Other assets 5,376 5,452 4,688
Total assets $1,661,373 $1,507,289$1,568,701
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $371,080 $272,899 $202,542
Current portion long-term debt 12,242 10,864 11,532
Outstanding checks 15,078 11,676 17,955
Accounts payable, trade 140,081 113,874 128,236
Accrued payroll 21,646 26,715 30,424
Accrued sales allowances 24,148 24,822 38,373
Accrued restructuring costs 12,260 - 50,334
Other accrued expenses and liab. 99,988 93,196 107,125
Income taxes 5,711 7,148 14,307
Total current liabilities 702,234 561,194 600,828
Long-term debt 349,945 355,303 374,288
Deferred income taxes 27,260 30,169 19,229
Employee benefit liabilities 78,850 61,302 68,375
Other liabilities 17,413 4,083 16,017
Total liabilities 1,175,702 1,012,051 1,078,737
Shareholders' Equity
Common Stock, no par value 48,733 49,808 50,006
Common Stock Non-Voting, no par 110,048 100,809 101,697
Retained earnings 354,199 357,235 343,285
Foreign currency translation adj. (27,309) (12,614) (5,024)
Total shareholders' equity 485,671 495,238 489,964
Total liabilities and
shareholders' equity $1,661,373 $1,507,289$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 Nine Months Ended
August 31 August 31
1995 1994 1995 1994
Net sales $431,982 $422,141 $1,302,398 $1,186,206
Cost of goods sold 288,359 264,086 865,648 753,708
Gross profit 143,623 158,055 436,750 432,498
Selling, general and
administrative expense 99,912 107,627 309,355 308,200
Profit from operations 43,711 50,428 127,395 124,298
Other income (expense)-net (380) (520) 201 (1,789)
Interest expense 13,992 9,743 41,779 26,903
Income before income taxes 29,339 40,165 85,817 95,606
Provision for income taxes 10,130 15,030 30,890 36,480
Income from consolidated
operations 19,209 25,135 54,927 59,126
Income from unconsolidated
operations 706 1,307 376 4,755
Net income $ 19,915 $ 26,442 $ 55,303 $ 63,881
Earnings per common share $0.25 $0.33 $0.68 $0.79
Cash dividends declared per
common share $0.13 $0.12 $0.39 $0.36
See notes to financial statements.
(3)
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars In Thousands)
Nine Months Ended
Aug. 31, Aug. 31,
1995 1994
Cash flows from operating activities
Net income $ 55,303 $ 63,881
Depreciation and amortization 45,749 44,518
Provision for deferred income taxes 2,312 3,614
Gain on sale of assets 167 245
Share of income unconsolidated oper. (376) (4,755)
Dividend received unconsolidated subsidiary - 3,345
Changes in assets and liabilities net of
businesses acquired and disposed (141,801) (132,571)
Net cash used in operating activities (38,646) (21,723)
Cash flows from investing activities
Acquisitions of businesses (981) (82,413)
Purchases of property, plant and equipment (58,659) (64,950)
Proceeds from sale of assets 2,030 195
Proceeds (payments) from forward exchange contract 4,361 (520)
Other investments (3,065) (4,595)
Net cash used in investing activities (56,314) (152,283)
Cash flows from financing activities
Notes payable 169,299 122,055
Long-term debt
Borrowings 1,194 102,425
Repayments (20,529) (14,899)
Common stocks
Issued 7,517 5,034
Acquired by purchase (14,766) (8,658)
Dividends paid (31,652) (29,248)
Net cash provided by financing activities 111,063 176,709
Effect of exchange rate changes on cash and
cash equivalents (1,141) (1,404)
Increase in cash and cash equivalents 14,962 1,299
Cash and cash equivalents at beginning of period 15,566 12,838
Cash and cash equivalents at end of period $ 30,528 $ 14,137
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 August 31, 1995, August 31, 1994
and November 30, 1994, and the results of operations for the
three and nine month periods ended August 31, 1995 and
August 31, 1994, and the cash flows for the nine month periods
ended August 31, 1995 and August 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 nine
month periods ended August 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 nine month periods
ended August 31, 1995 were computed by dividing net income by
the weighted average number of common shares outstanding
(81,194,000 - three months and 81,179,000 - nine months).
Earnings per common share for the three and nine month periods
ended August 31, 1994 were computed by dividing net income by
the weighted average number of common shares outstanding
(81,292,000 - three months and 81,244,000 - nine months). The
dilutive effect of common stock equivalents is not material.
4. Interest paid during the nine month periods ended August 31,
1995 and August 31, 1994 was $38,700 and $29,900 respectively.
Income taxes paid during the same periods were $26,800 and
$54,100 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
August 31, 1995 and are primarily responsible for the changes
in the translation adjustment account for the periods
presented. These exchange rate changes plus amortization of
excess cost, largely account for the change in the Excess Cost
of Acquisition account for the periods presented.
6. During the first nine months of 1995 the Company renewed
certain prepaid allowance contracts. Payments associated with
these contracts are reflected in the Prepaid Allowance account
at August 31, 1995, less amortization as of that date.
(5)
7. The estimated fair values of the Company's significant
financial instruments at August 31, 1995 follows:
Estimated Carrying
Fair Value Amount
Cash & cash equivalents................ $ 30,528 $ 30,528
Trade receivables...................... 173,303 173,303
Short-term borrowings.................. 371,080 371,080
Current portion of long-term debt...... 12,242 12,242
Accounts payable and accrued expenses.. 298,123 298,123
Long-term debt......................... 358,690 349,945
8. At August 31, 1995 the Company had available credit facilities
with domestic and foreign banks in the aggregate of $370,000.
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 August 31, 1995, the Company has reduced its work force
by approximately 530 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; has sold its frozen food business, Golden West
Foods, Inc.; and has consolidated several functional
activities primarily at the Hunt Valley operations. The
components of the restructuring charge and remaining liability
at August 31, 1995 are as follows:
Restructuring 11/30/94 8/31/95
Charge Liability Liability
Work force reduction $ 24,375 $ 24,263 $ 1,302
Plant consolidations
and closings 33,477 33,414 22,904
Other restructuring
projects 12,593 6,513 2,135
70,445 64,190 26,341
Income tax benefits (24,150) (23,434) (9,030)
$ 46,295 $ 40,756 $17,311
(6)
Included in the remaining liability are fixed asset write-offs
of $6,294 and other asset write-offs of $940.
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.
10. In March 1995, the Financial Accounting Standards Board (FASB)
issued Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
The Statement requires that assets to be held and used be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset
in question may not be recoverable. 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, 1996.
(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 nine months ended
August 31, 1995 increased 2% and 10% 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 periods with particularly
strong performance coming from the foreign markets. Sales from
newly acquired businesses contributed approximately two-thirds of
the third quarter net sales increase. A price increase late in the
third quarter of 1994 had the effect of increasing sales in the
domestic consumer business, as customers made purchases prior to
the price increase taking effect. No similar price increase
occurred in the third quarter of 1995.
The third quarter's gross profit margin declined to 33.2% versus
37.4% for the same period last year. Also the nine month margin
dropped to 33.5% compared to 36.5% of the prior nine month period.
The overall decline in margins was due to higher raw material
costs, higher mix of lower margin industrial sales and lower crop
yields for Gilroy garlic. Profit from operations was down 13.3% or
$6.7 million for the third quarter but up 2.5% or $3.1 million for
the first nine months. The weakening in quarterly profits, due
mainly to lower margins, was somewhat offset by lower
administrative expenses and marketing costs. The nine months'
profits continue to benefit from an increase in earnings from our
foreign operations and industrial spice and seasoning business, and
favorable first quarter adjustments from our restructuring program.
Net income of $19.9 million or $.25 per share for the three months
ended August 31, 1995 was below the $26.4 million or $.33 per share
reported for 1994's third quarter. Net income for the nine months
ended August 31, 1995 decreased to $55.3 million or $.68 per share
from $63.9 million or $.79 per share for the same period last year.
Earnings continue to be unfavorably impacted by increased interest
expense which was higher by $4.2 million for the quarter and $14.9
million for the first nine months due to both higher debt levels
and higher interest rates. Net income was also negatively impacted
by weakness in our Mexican operations brought on by the devaluation
of the Mexican peso, as discussed below. These impacts were
somewhat offset by a comparatively lower effective tax rate in
fiscal 1995.
(8)
Income from our unconsolidated joint ventures was down $4.4 million
or $.05 per share for the first nine months compared to the
respective period of the prior year, due primarily to economic
problems in Mexico. The Mexican peso was devalued by approximately
45% during 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 itself has not had
a significant impact on the results of operations through nine
months of fiscal 1995. The impact of the devaluation on the
Mexican economy, however, has had a very unfavorable impact on
sales and profits of our Mexican operations. Management has taken
steps where possible to help mitigate the impact on earnings of the
devaluation, including price increases, identifying U.S. import
opportunities for Mexican-sourced raw materials and additional
sales opportunities.
The peso has further weakened during the fourth quarter and will
likely have an additional unfavorable effect on quarterly earnings.
Return on equity (ROE) calculated by dividing twelve months to date
net income by average shareholders' equity during that period,
decreased to 11.0% at August 31, 1995 from 12.8% at year-end 1994
versus 21.9% at August 31, 1994. The restructuring charge booked
in the fourth quarter of FY 1994 is the primary reason for the
decline in ROE versus the third 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.
The majority of the restructuring plan will be completed in 1995,
the following progress has been made during the first nine months
of 1995:
* The worldwide work force has been reduced by approximately 530
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 $5.4 million were paid and charged to the
restructuring liability in the first nine months 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 1995. The remainder of the work
force reduction 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.
(9)
* 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.
* The realignment of certain operating facilities in the U.K.
has begun and is expected to be completed in 1997.
* In conjunction with the work force reduction effected
February 1, 1995, the Company has substantially completed the
consolidation of certain administrative functions.
* 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 and capital expenditures associated with the restructuring
plan during the first nine months of 1995 were approximately $16
million net of anticipated tax benefits.
Savings from the portions of the restructuring plan that were
completed in the first nine months 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 58.3% debt to total capital at August 31,
1995, up from 52.0% at year-end 1994 and 54.0% at August 31, 1994.
During the third quarter the Company increased its net short-term
borrowings by $40 million. This cash, plus cash generated from
operations, was used to meet cash needs that mainly included
seasonal working capital requirements, capital asset additions and
shareholder dividends. The Company has begun a plan to improve
working capital management which is anticipated to result in
reductions in the investment in inventories, most of which
reduction will occur in the fourth quarter. Further reductions are
planned for 1996. 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
third quarter at 1.0, down from 1.1 at year-end 1994 largely due to
the Company's increased use of commercial paper borrowings. The
Company maintains $370 million of committed credit facilities that
provide additional liquidity. These facilities were not in use at
the end of the third quarter.
(10)
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) No response required.
(b) 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 16, 1995 By: /s/ Robert G. Davey
Robert G. Davey
Vice President &
Chief Financial Officer
Date: October 16, 1995 By: /s/ J. Allan Anderson
J. Allan Anderson
Vice President & Controller
10Q.mz (11)
5
1000
9-MOS
NOV-30-1995
AUG-31-1995
30528
0
195003
3068
407574
694914
871752
357728
1661373
702234
349945
158781
0
0
326890
1661373
1302398
1302398
865648
309355
(201)
0
41779
85817
30890
55303
0
0
0
55303
.68
.68
