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 29, 1996 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 29, 1996
Common Stock 12,020,000
Common Stock Non-Voting 69,295,000
10Q.mz
McCORMICK & COMPANY, INCORPORATED
INDEX - FORM 10-Q
February 29, 1996
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet 2
Condensed Consolidated Statement of Income 3
Condensed Consolidated Statement of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6,7,8
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 9
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands)
Feb. 29, Feb. 28, Nov. 30,
1996 1995 1995
ASSETS
Current Assets
Cash and cash equivalents $ 22,398 $ 11,460 $ 12,465
Accounts receivable - net 201,937 185,426 223,958
Inventories
Raw materials and supplies 124,536 134,931 132,357
Finished products and work-in
process 243,976 266,865 250,865
368,512 401,796 383,222
Other current assets 54,861 59,486 51,073
Total current assets 647,708 658,168 670,718
Property - net 527,908 505,506 524,807
Goodwill - net 177,814 187,281 180,751
Prepaid allowances 178,952 209,499 183,357
Other assets 55,142 58,967 54,708
Total assets $1,587,524 $1,619,421 $1,614,341
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $319,508 $339,194 $297,313
Accounts payable, trade 132,867 134,806 146,674
Accrued liabilities 171,305 194,259 202,880
Total current liabilities 623,680 668,259 646,867
Long-term debt 345,805 368,265 349,111
Deferred income taxes 21,408 20,383 25,436
Employee benefit liabilities 79,410 70,902 72,088
Other liabilities 1,238 16,592 1,586
Total liabilities 1,071,541 1,144,401 1,095,088
Shareholders' Equity
Common Stock 49,163 50,758 48,133
Common Stock Non-Voting 114,538 104,760 112,522
Retained earnings 384,179 345,790 387,657
Foreign currency translation adj. (31,897) (26,288) (29,059)
Total shareholders' equity 515,983 475,020 519,253
Total liabilities and
shareholders' equity $1,587,524 $1,619,421 $1,614,341
See notes to condensed consolidated financial statements.
(2)
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(In Thousands Except Per Share Amounts)
Three Months Ended
February 29, February 28,
1996 1995
Net sales $431,822 $425,433
Cost of goods sold 288,788 283,617
Gross profit 143,034 141,816
Selling, general and
administrative expense 117,894 97,873
Profit from operations 25,140 43,943
Other income - net 1,241 1,849
Interest expense 12,352 13,650
Income before income taxes 14,029 32,142
Income taxes 4,975 12,000
Income from consolidated operations 9,054 20,142
Income (loss) unconsolidated
operations 296 (796)
Net income $ 9,350 $ 19,346
Earnings per common share $0.12 $0.24
Cash dividends declared per
common share $0.14 $0.13
Weighted average common shares
outstanding 81,255 81,191
See notes to condensed consolidated financial statements.
(3)
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(In Thousands)
Three Months Ended
Feb. 29, Feb. 28,
1996 1995
Cash flows from operating activities
Net income $ 9,350 $ 19,346
Depreciation and amortization 16,136 16,050
Provision for deferred income taxes 513 1,208
Gain on sale of assets (1,349) (1)
Share of (income) loss unconsolidated oper. (296) 796
Restructuring credits - (3,904)
Changes in assets and liabilities (3,543) (127,153)
Net cash provided by (used in) operating activities 20,811 (93,658)
Cash flows from investing activities
Purchases of property, plant and equipment (21,505) (16,805)
Proceeds from sale of assets 4,306 67
Other investments (2,176) (3,505)
Net cash used in investing activities (19,375) (20,243)
Cash flows from financing activities
Short-term borrowings 21,856 123,897
Long-term debt
Borrowings 1,549 110
Repayments (3,687) (3,633)
Common stock
Issued 4,887 5,097
Acquired by purchase (3,598) (7,314)
Dividends paid (11,372) (10,544)
Net cash provided by financing activities 9,635 107,613
Effect of exchange rate changes on cash and
cash equivalents (1,138) 2,182
Increase/(Decrease) in cash and cash equivalents 9,933 (4,106)
Cash and cash equivalents at beginning of period 12,465 15,566
Cash and cash equivalents at end of period $ 22,398 $ 11,460
See notes to condensed consolidated financial statements.
(4)
McCORMICK & COMPANY, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands Except per Share Amounts)
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, consisting of only normal recurring accruals,
necessary to present fairly the financial position and the results
of operations for the interim periods. Certain reclassifications
have been made to the 1995 financial statements to conform with the
1996 presentation.
The results of consolidated operations for the three month period
ended February 29, 1996 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.
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, 1995.
RESTRUCTURING
In the fourth quarter of 1994, the Company recorded a $70,445
charge for restructuring its business operations.
The components of the restructuring charge and remaining liability
are as follows:
2/29/96 11/30/95
Remaining Remaining Restructuring
Liability Liability Charge
Work force reduction $ 852 $ 977 $24,375
Plant consolidations
and closings 18,109 17,563 33,477
Other restructuring
projects 157 378 12,593
$19,118 $18,918 $70,445
The increase in the liability balance in the first quarter of 1996
is due to the sale of an asset at a gain.
(5)
McCORMICK & COMPANY, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
For the three-month period ended February 29, 1996, the Company
reported net income of $9.4 million or $.12 per common share
compared to $19.3 million or $.24 per common share for the
comparable period last year. The decrease in net income is mainly
due to planned spending on consumer advertising and promotion.
First quarter earnings for 1995 included net income of $0.8 million
for a change in accounting cycle for certain foreign operations and
$2.3 million net income for a reversal of restructuring liability.
On March 15, 1996 the Company announced the signing of a letter of
intent to sell its garlic and onion dehydration subsidiary, Gilroy
Foods, Incorporated, to ConAgra, Inc. The transaction is subject
to board approval by both companies, completion of a definitive
agreement, and compliance with the Hart-Scott-Rodino Act.
According to the letter of intent, McCormick will sell Gilroy
Foods' businesses and assets in the United States, exluding Gilroy
Energy Company and its interest in SupHerb Farms of Turlock,
California. Acquired by McCormick in 1961, Gilroy Foods had 1995
sales of approximately $200 million, including sales to McCormick.
Results of Operations
Consolidated net sales for the quarter ended February 29, 1996 rose
1.5% over the corresponding quarter of 1995. Net sales in 1995
included the effect of an accounting cycle change for certain
foreign operations and sales of a frozen food business which was
subsequently sold. Excluding these factors, net sales increased
9.7%. U.S. sales of consumer products were up strongly over last
year as a result of a higher level of consumer advertising and
higher customer purchases in anticipation of an early second
quarter price increase. Industrial and foodservice sales were up
modestly.
Profit from operations as a percentage of sales decreased from
10.3% in the first quarter of 1995 to 5.8% in the first quarter of
1996. Gross profit as a percentage of sales decreased from 33.3%
in the first quarter of 1995 to 33.1% in the first quarter of 1996.
Selling, general and administrative expenses in the first quarter
of 1996 increased significantly over the comparable quarter of last
year. This is primarily due to increases in advertising and
promotion spending in 1996 over 1995, which is expensed as
incurred, and the reversal of restructuring accruals in the first
quarter of 1995. The increase in advertising and promotion is part
of the "Flavor Up" advertising campaign which is directed at
creating brand recognition and demand with the consumer.
(6)
Interest expense decreased $1.3 million in the first quarter of
1996 when compared to 1995, which is due to a decline in borrowing
rates.
The Company's effective tax rate for the first quarter of 1996 was
35.5% as compared to 37.3% last year. The decrease in the
effective rate reflects the Company's emphasis on increased tax
planning.
Income from unconsolidated operations was $0.3 million in the first
quarter of 1996 as compared to a loss of $0.8 million in the
comparable quarter last year. This change reflects improvement in
our Mexican joint venture.
In the first quarter of fiscal 1995, the Company changed the end of
the reporting period for foreign subsidiaries from October 31 to
November 30 to provide uniform reporting on a worldwide basis.
Accordingly, an additional month of operating results for those
subsidiaries is included in the first quarter 1995 results, which
increased net income by $0.8 million.
Return on equity (ROE) increased to 18% at February 29, 1996, from
13% at February 28, 1995. The restructuring charge recorded in the
fourth quarter of 1994 is the primary reason for the increase in
ROE.
Restructuring
In the fourth quarter of 1994, the Company recorded a charge of
$70.4 million for restructuring its business operations. As of
February 29, 1996, $19.1 million remains to be charged against the
restructuring. The Company has reduced its workforce by
approximately 540 positions, an industrial products plant has been
closed, a frozen food business has been sold and a number of
administrative activities have been consolidated. A foodservice
products plant will be closed in the second quarter of 1996, and
production will be transferred to another facility. A consolidated
distribution facility will be completed in the second quarter of
1996. A realignment of some of our operations in the United
Kingdom will occur over the balance of 1996 and be completed in
1997.
Financial Condition
In the Condensed Consolidated Statement of Cash Flows, cash flow
from operating activities increased from a cash outflow of
$93.7 million for the first quarter of 1995 to a cash inflow of
$20.8 million for the first quarter of 1996. The reduction in the
first quarter of 1996 net income was more than offset by reduced
spending on restructuring and reductions in prepaid allowances and
inventory as opposed to those balances increasing in the first
quarter of 1995.
(7)
Cash flow from investing activities are comparable to last year.
Purchases of property, plant and equipment are slightly higher in
the first quarter of 1996 as compared to last year, however, they
are expected to be slightly down on a full year basis. The
proceeds from sale of assets relate to the sale of property no
longer used in the business.
The Company's ratio of interest-bearing debt to total capital was
56.3% as of February 29, 1996, up from 55.5% at November 30, 1995,
but down significantly from 59.8% at February 28, 1995. The
improvement in the debt to capital ratio from the prior year is the
result of working capital improvement programs. Total debt
increased by $19 million or 3% during the first quarter of 1996 due
to the seasonal demands of the business. However, when compared to
the first quarter of the previous year, total debt declined by $42
million or 6%.
Programs to improve working capital management will continue
throughout 1996. The following table compares the Company's
current assets and liabilities and current ratio to the prior year:
(in thousands) 2/29/96 2/28/95
Current Assets $647,708 $658,168
Current Liabilities 623,680 668,259
Working Capital $ 24,028 $(10,091)
Current Ratio 1.04 .98
(8)
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Item 601
Exhibit
Number Reference
(3) Articles of Incorporation
and By-Laws
Restatement of Charter of Incorporated by reference
McCormick & Company, from Registrant's Form S-8
Incorporated dated Registration Statement
April 16, 1990. No. 33-39582 as filed with
the Securities and Exchange
Commission on March 25, 1991.
Articles of Amendment to Incorporated by reference
Charter of McCormick & from Registration Form S-8
Company, Incorporated Registration Statement
dated April 1, 1992. No. 33-59842 as filed with
the SEC on March 19, 1993.
By-Laws of McCormick & Incorporated by reference
Company, Incorporated - from Registrant's Form 10-Q
Restated and Amended as for the quarter ended
of March 18, 1992. February 28, 1995 as filed
with the SEC on April 14,
1995.
(10) Material Contracts Consulting letter agreement
between Registrant and Charles
P. McCormick, Jr. dated
February 14, 1996.
(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: April 12, 1996 By: /s/ Robert J. Lawless
Robert J. Lawless
President &
Chief Operating Officer
Date: April 12, 1996 By: /s/ J. Allan Anderson
J. Allan Anderson
Vice President & Controller
10Q.mz (9)
(EXHIBIT 10)
February 14, 1996
Mr. Charles P. McCormick, Jr.
6761 S.E. North Marina Way
Stuart, Florida 34996
Dear Buzz:
On behalf of the Board of Directors of McCormick & Company,
Incorporated (the "Company"), this letter agreement will confirm
your election, effective as of December 1, 1995, to the roles of
Chairman of the Board and Chief Executive Officer of the Company by
unanimous vote of the Board at its meeting on November 20, 1995.
In your capacity as Chairman and Chief Executive Officer, you
have agreed to provide your counsel, guidance and expertise
regarding the business of the Company, as requested by the Board of
Directors. To that end, it is anticipated that such consultative
services will require that you devote your full time and attention
to the affairs of the Company. You have agreed to continue to
provide such services as Chairman and Chief Executive Officer until
such time as the Board of Directors has determined that an orderly
transition of those positions and their attendant duties can be
effectuated.
In consideration of your agreement to render such services,
you will receive a monthly stipend of Forty-Seven Thousand Five
Hundred Eighty-Three Dollars and Thirty-Three Cents ($47,583.33)
payable on or about the fifteenth day of each month, together with
such additional cash payments as may be deemed appropriate by the
Compensation Committee of the Board of Directors consistent with
the performance of the Company. In addition, the Company will
reimburse you for reasonable and customary expenses incurred by you
in providing such services, including, but not necessarily limited
to, travel expenses, meals, lodging, and business related
entertainment.
Charles P. McCormick, Jr.
February 14, 1996
Page 2
If the foregoing correctly expresses our understanding, please
sign a copy of this letter in the space provided below and return
it to me.
Very truly yours,
McCORMICK & COMPANY, INCORPORATED
By: /s/ Robert J. Lawless
Robert J. Lawless
President & COO
By: /s/ Karen D. Weatherholtz
Karen D. Weatherholtz
Vice President-Human Relations
Secretary-Compensation
Committee
AGREED AND ACCEPTED this
14th day of February, 1996.
By: /s/ Charles P. McCormick, Jr.
Charles P. McCormick, Jr.
5
1000
3-MOS
NOV-30-1996
FEB-29-1996
22,398
0
204,726
2,789
368,512
647,708
906,918
379,010
1,587,524
623,680
345,805
0
0
163,701
352,282
1,587,524
431,822
431,822
288,788
117,894
(1,241)
0
12,352
14,029
4,975
9,350
0
0
0
9,350
.12
.12
