SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended February 28, 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
February 28, 1995
Common Stock 13,091,000
Common Stock Non-Voting 68,127,000
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)
Feb. 28, Feb. 28, Nov. 30,
ASSETS 1995 1994 1994
Current Assets
Cash and cash equivalents $ 11,460 $ 18,201 $ 15,566
Accounts receivable - net 185,426 159,968 208,811
Inventories
Raw materials 134,931 113,830 125,413
Work in process 54,311 48,403 42,987
Finished goods 212,554 168,843 206,067
401,796 331,076 374,467
Prepaid expenses 16,016 13,369 15,343
Deferred income taxes 43,470 13,003 43,470
Total current assets 658,168 535,617 657,657
Investments 52,581 66,097 62,410
Property - net 505,506 474,247 504,599
Excess cost of acquisitions - net 187,281 134,330 196,166
Prepaid allowances 209,499 146,902 143,181
Other assets 6,386 4,569 4,688
Total assets $1,619,421 $1,361,762 1,568,701
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $325,469 $171,350 $202,542
Current portion long-term debt 13,725 8,275 11,532
Outstanding checks 21,188 12,062 17,955
Accounts payable, trade 113,618 95,621 128,236
Accrued payroll 30,720 15,742 30,424
Accrued sales allowances 26,449 25,719 38,373
Accrued restructuring costs 22,070 - 50,334
Other accrued expenses and liab. 103,265 81,694 107,125
Income taxes 11,755 17,780 14,307
Total current liabilities 668,259 428,243 600,828
Long-term debt 368,265 343,562 374,288
Deferred income taxes 20,383 39,959 19,229
Employee benefit liabilities 70,902 67,670 68,375
Other liabilities 16,592 4,959 16,017
Total liabilities 1,144,401 884,393 1,078,737
Shareholders' Equity
Common Stock, no par value 50,758 50,944 50,006
Common Stock Non-Voting, no par 104,760 98,919 101,697
Retained earnings 345,790 336,616 343,285
Foreign currency translation adj. (26,288) (9,110) (5,024)
Total shareholders' equity 475,020 477,369 489,964
Total liabilities and
shareholders' equity $1,619,421 $1,361,762 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
February 28, February 28,
1995 1994
Net sales $425,433 $367,723
Cost of goods sold 283,617 234,952
Gross profit 141,816 132,771
Selling, general and
administrative expense 97,873 96,532
Profit from operations 43,943 36,239
Other income (expense) - net 1,849 (63)
Interest expense 13,650 8,126
Income before income taxes 32,142 28,050
Provision for income taxes 12,000 10,790
Income from consolidated operations 20,142 17,260
Income (loss) unconsolidated operations (796) 1,050
Net income $ 19,346 $ 18,310
Earnings per common share $0.24 $0.23
Cash dividends declared per
common share $0.13 $0.12
See notes to financial statements.
(3)
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars In Thousands)
Three Months Ended
Feb. 28, Feb. 28,
1995 1994
Cash flows from operating activities
Net income $ 19,346 $ 18,310
Depreciation and amortization 16,050 13,130
Provision for deferred income taxes 1,208 932
Gain on sale of assets (1) (49)
Share of (income) loss unconsolidated oper. 796 (1,050)
Dividend received unconsolidated subsidiary - -
Changes in assets and liabilities net of
businesses acquired and disposed (131,556) (65,344)
Net cash used in operating activities (94,157) (34,071)
Cash flows from investing activities
Acquisitions of businesses (981) (23,083)
Purchases of property, plant and equipment (16,805) (21,284)
Proceeds from sale of assets 67 31
Other investments (2,524) (106)
Net cash used in investing activities (20,243) (44,442)
Cash flows from financing activities
Notes payable 123,897 75,182
Long-term debt
Borrowings 110 20,059
Repayments (3,633) (2,242)
Common stocks
Issued 5,097 3,626
Acquired by purchase (7,314) (2,577)
Dividends paid (10,544) (9,724)
Minority interest 499 -
Net cash provided by financing activities 108,112 84,324
Effect of exchange rate changes on cash and
cash equivalents 2,182 (448)
Increase/(Decrease) in cash and cash equivalents (4,106) 5,363
Cash and cash equivalents at beginning of period 15,566 12,838
Cash and cash equivalents at end of period $ 11,460 $ 18,201
See notes to financial statements.
(4)
McCORMICK & COMPANY, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands Except per Share Amounts)
1. In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly
the financial position as of February 28, 1995, February 28,
1994 and November 30, 1994, and the results of operations for
the three month periods ended February 28, 1995 and February
28, 1994, and the cash flows for the three month periods ended
February 28, 1995 and February 28, 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 month
periods ended February 28, 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 month period ended
February 28, 1995 was computed by dividing net income by the
weighted average number of common shares outstanding
(81,191,000). Earnings per common share for the three month
period ended February 28, 1994 was computed by dividing net
income by the weighted average number of common shares
outstanding (81,136,000). The dilutive effect of common stock
equivalents is not material.
4. Interest paid during the three month periods ended February
28, 1995 and February 28, 1994 was $12,300 and $11,200
respectively. Income taxes paid during the same periods were
$12,200 and $7,200 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
February 28, 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 largely account for the
change in the Excess Cost of Acquisition account for the
periods presented.
6. During the first quarter of 1995 the Company renewed certain
prepaid allowance contracts. Payments associated with these
contracts are reflected in the Prepaid Allowance account at
February 28, 1995.
(5)
The estimated fair values of the Company's significant
financial instruments at February 28, 1995 follows:
Estimated Carrying
Fair Value Amount
Cash & cash equivalents................ $ 11,460 $ 11,460
Trade receivables...................... 162,913 162,913
Short-term borrowings.................. 325,469 325,469
Current portion of long-term debt...... 13,725 13,725
Accounts payable and accrued expenses.. 296,122 296,122
Long-term debt......................... 354,997 368,265
The table below summarizes by currency the contractual amounts
of the Company's forward exchange contracts, all of which are
held for purposes other than trading, at February 28, 1995:
Asset
Forward Carrying Fair
Contracts Amount Value
Currency: Mexican Peso $10,000 $5,485 $4,024
8. At February 28, 1995 the Company had available credit
facilities with domestic and foreign banks in the aggregate of
$320,000. 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
workforce 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 February 28, 1995, the Company has reduced its workforce
by approximately 250 positions due to position eliminations
and retirements; has begun 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 February 28,
1995 are as follows:
(6)
Restructuring 11/30/94 2/28/95
Charge Liability Liability
Workforce reduction $ 24,375 $ 24,263 $ 2,915
Plant consolidations
and closings 33,477 33,414 29,849
Other restructuring
projects 12,593 6,513 5,210
70,445 64,190 37,974
Income tax benefits (24,150) (23,434) (13,000)
$ 46,295 $ 40,756 $ 24,974
Included in the remaining liability are fixed asset write-offs
of $11,791 and other asset write-offs of $2,097.
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 quarter ended February 28, 1995
increased 16% over the corresponding period last year. This
increase was largely attributable to sales volume gains. Sales
increases were posted by the Company's industrial, European and
Asia/Pacific operations. Acquisitions made during the past twelve
months accounted for 6% of the increase.
Earnings per share was $.24, up slightly from $.23 last year. Net
income increased 5.7%. Gross profit margins, however, declined to
33.3% from 36.1% last year as a result of a higher mix of
industrial sales which have a lower gross margin.
Profit from operations was up 21% or $7.7 million from last year.
This was due to an increase in earnings from our foreign
operations, our industrial spice and flavorings business and
favorable results and adjustments from our restructuring program
announced in the fourth quarter of 1994. Earnings were unfavorably
impacted by $5.5 million of higher interest expense which resulted
from both higher debt levels and interest rates.
Income from our unconsolidated joint ventures was down $1.8 million
or approximately $.02 per share due primarily to the economic
problems in Mexico. The Mexican peso was devalued by approximately
40% in the first quarter of 1995. This devaluation had the effect
of reducing shareholders' equity in the amount of approximately
$13 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 to a devaluation of this particular currency,
therefore, the devaluation did not have a significant impact on the
results of operations for the first quarter of 1995. 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,
increased to 13.0% at February 28, 1995 from 12.8% at year-end 1994
versus 21.8% at February 28, 1994. The restructuring charge booked
in the fourth quarter of FY 1994 is the primary reason for the
decline in ROE versus the first quarter of 1994.
In the first quarter the Company changed the accounting cycle for
certain foreign operations to be concurrent with, and achieve
uniformity with the domestic cycle. This was done in preparation
for the reengineering of global financial systems. The effect of
this change increased net income by $0.8 million.
(8)
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
quarter of 1995:
* The worldwide workforce has been reduced by approximately 250
positions effective February 1, 1995 through position
eliminations and a special early retirement program. In
conjunction with this workforce reduction, termination
benefits of approximately $3.5 million were paid and charged
to the restructuring liability in the first quarter of 1995.
The remaining cost of this portion of the workforce 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 million and have been charged to the
restructuring liability in the first quarter of 1995. The
remainder of the workforce 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 are underway. It is expected that these
plants will be closed and their production needs absorbed by
other facilities by year end. Negotiations for the sale of
Golden West Foods, Inc. are currently underway. The expected
before tax loss on the disposal of these facilities was
reduced by $1.5 million on the basis of current estimates.
* 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 workforce 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 sale of the Company's interest in a Moroccan joint venture
was completed during the quarter with a reserve reduction of
$1 million.
(9)
* The Company is negotiating for the construction of a
$20 million consolidated distribution center to distribute the
finished goods produced by all of its Hunt Valley plants.
Construction of this facility is expected to be completed in
early 1996. Upon completion of the facility, the Company will
have the option to either purchase or lease the facility. On
the basis of negotiations thus far, the reserve for costs
associated with this project has been reduced by $0.9 million.
Cash expenditures associated with the restructuring plan during the
first quarter of 1995 totaled $2.6 million net of anticipated tax
benefits.
Savings from the portions of the restructuring plan that were
completed in the first quarter 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 57.9% debt to total capital at February 28,
1995, up from 52.0% at year-end 1994 and 49.4% at February 28,
1994. During the first quarter of 1995, the Company increased its
net borrowings approximately $120 million. This cash was primarily
used to secure long term business contracts, provide for capital
spending, fund seasonal working capital needs in the first quarter,
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 declined during the quarter to 1.0 from 1.1 at year-
end 1994 largely due to the Company's increased use of commercial
paper borrowings. The Company maintains $320 million of committed
credit facilities that provide additional liquidity. These
facilities were not in use at the end of the first quarter.
(10)
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 & Attached.
Company, Incorporated -
Restated and Amended as
of March 18, 1992.
(10) Material Contracts Consulting agreement between
Registrant and Charles P.
McCormick, Jr. dated
August 1, 1994.
(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 14, 1995 By:
Robert G. Davey
Vice President &
Chief Financial Officer
Date: April 14, 1995 By:
J. Allan Anderson
Vice President & Controller
(11)