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, 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
June 30, 1996
Common Stock 11,779,473
Common Stock Non-Voting 69,359,717
10Q.mz
McCORMICK & COMPANY, INCORPORATED
INDEX - FORM 10-Q
May 31, 1996
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statement of Income 2
Condensed Consolidated Balance Sheet 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 7
Part II. OTHER INFORMATION
Item 4. Submission of matters to a vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands Except Per Share Amounts)
Three Months Ended Six Months Ended
May 31, May 31,
1996 1995 1996 1995
Net sales $435,664 $444,983 $867,486 $870,416
Cost of goods sold 301,786 293,672 590,574 577,289
Gross profit 133,878 151,311 276,912 293,127
Selling, general and
administrative expense 105,607 111,570 223,501 209,443
Profit from operations 28,271 39,741 53,411 83,684
Other inc. (expense)-net (633) (1,268) 608 581
Interest expense 12,042 14,137 24,394 27,787
Income before income taxes 15,596 24,336 29,625 56,478
Income taxes 5,530 8,760 10,505 20,760
Income from consolidated
operations 10,066 15,576 19,120 35,718
Income (loss) from uncon-
solidated operations 929 466 1,225 (330)
Net income $ 10,995 $ 16,042 $ 20,345 $ 35,388
Earnings per common share $0.14 $0.20 $0.25 $0.44
Cash dividends declared per
common share $0.14 $0.13 $0.28 $0.26
Weighted average common
shares outstanding 81,305 81,161 81,275 81,170
See notes to condensed consolidated financial statements.
(2)
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands)
May 31, May 31, Nov. 30,
1996 1995 1995
ASSETS
Current Assets
Cash and cash equivalents $ 20,787 $ 18,607 $ 12,465
Accounts receivable - net 185,330 201,106 223,958
Inventories
Raw materials and supplies 139,261 136,681 132,357
Finished products and work-in
process 214,005 252,749 250,865
353,266 389,430 383,222
Other current assets 51,590 61,524 51,073
Total current assets 610,973 670,667 670,718
Property - net 528,434 512,770 524,807
Goodwill - net 175,500 186,265 180,751
Prepaid allowances 167,618 207,672 183,357
Other assets 68,688 57,374 54,708
Total assets $1,551,213 $1,634,748 $1,614,341
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $294,348 $335,940 $297,313
Accounts payable, trade 134,082 152,983 146,674
Accrued liabilities 165,025 190,183 202,880
Total current liabilities 593,455 679,106 646,867
Long-term debt 337,805 362,952 349,111
Deferred income taxes 19,428 23,120 25,436
Employee benefit liabilities 89,824 75,253 72,088
Other liabilities 2,326 16,488 1,586
Total liabilities 1,042,838 1,156,919 1,095,088
Shareholders' Equity
Common Stock 49,843 49,180 48,133
Common Stock Non-Voting 116,302 107,689 112,522
Retained earnings 378,354 346,802 387,657
Foreign currency translation adj. (36,124) (25,842) (29,059)
Total shareholders' equity 508,375 477,829 519,253
Total liabilities and
shareholders' equity $1,551,213 $1,634,748 $1,614,341
See notes to condensed consolidated financial statements.
(3)
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(In Thousands)
Six Months Ended
May 31, May 31,
1996 1995
Operating Activities
Net income $ 20,345 $ 35,388
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Non cash charges and credits
Depreciation and amortization 33,007 31,680
Restructuring credits 0 (3,904)
(Income) loss from unconsolidated operations (1,225) 330
Other (1,362) 1,192
Changes in selected working capital items
Accounts receivable 36,020 5,173
Inventories 24,075 (16,829)
Prepaid allowances 5,243 (64,479)
Accounts payable, trade (11,053) 8,022
Other assets and liabilities (29,616) (41,231)
Net cash provided by (used in) operating activities 75,434 (44,658)
Investing Activities
Capital expenditures (40,144) (35,445)
Proceeds from sale of assets 15,074 383
Other investments (1,089) (3,879)
Proceeds from forward exchange contract 0 4,361
Net cash used in investing activities (26,159) (34,580)
Financing Activities
Short-term borrowings, net (3,615) 126,257
Long-term debt
Borrowings 2,242 1,021
Repayments (13,176) (17,028)
Common stock
Issued 7,904 5,326
Acquired by purchase (9,586) (12,554)
Dividends paid (22,768) (21,096)
Net cash (used in) provided by financing activities (38,999) 81,926
Effect of exchange rate changes on cash and
cash equivalents (1,954) 353
Increase in cash and cash equivalents 8,322 3,041
Cash and cash equivalents at beginning of period 12,465 15,566
Cash and cash equivalents at end of period $ 20,787 $ 18,607
See notes to condensed consolidated financial statements.
(4)
McCORMICK & COMPANY, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 and six month
periods ended May 31, 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 - 1994
In the fourth quarter of 1994, the Company recorded a $70.4 million
charge for restructuring its business operations.
The components of the restructuring charge and remaining liability,
in thousands of dollars, are as follows:
5/31/96 11/30/95
Remaining Remaining Restructuring
Liability Liability Charge
Work force reduction $ 681 $ 977 $24,375
Plant consolidations
and closings 16,563 17,563 33,477
Other restructuring
projects 143 378 12,593
$17,387 $18,918 $70,445
(5)
McCORMICK & COMPANY, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands Except per Share Amounts)
Subsequent Event
In June 1996, the Company's Board of Directors approved and the
Company announced a restructuring plan designed to position the
organization for the future. In connection with this plan the
Company will record a charge of approximately $57 million in the
third quarter of 1996. This charge will reduce net income by
$39 million or $.48 per share. In addition there are approximately
$3 million of additional charges ($.02 per share) directly related
to the restructuring plan which could not be accrued in the third
quarter but will be expensed as the plan is implemented.
Specific actions under this plan include the divestiture of certain
small non-core businesses; the divestiture of Giza National
Dehydration Company of Cairo, Egypt (Giza), which is consistent with
the Company's decision to sell Gilroy Foods, Giza's parent company;
closing the Brooklyn, NY packaging plant; the exit from certain
minor, non-core product lines; the rationalization of certain
overseas manufacturing facilities; and in our consumer business the
conversion from a direct sales force to a broker sales force for
certain regions in the U.S.
Major components of the restructuring charge include: severance and
personnel costs of $10 million; a $45 million writedown of assets
and businesses identified for disposal to net realizable value; and
other exit costs of $2 million. The $3 million of additional
charges which will be expensed during the implementation are
principally costs to move equipment and personnel.
These actions are expected to be completed within one year and will
require net cash outflows of approximately $12 million. Net sales
related to these actions, principally the divestiture of certain
small non-core businesses and Giza, were approximately 5% of
consolidated net sales.
(6)
McCORMICK & COMPANY, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
For the second quarter ended May 31, 1996 the Company reported net
income of $11.0 million or $.14 per common share compared to $16.0
million or $.20 per common share for the comparable period last
year. For the six months ended May 31, 1996 net income was $20.3
million or $.25 per common share compared to $35.4 million or $.44
per common share for the same period last year. The decrease in
net income for the second quarter is mainly due to the effect of
decreased sales volumes in domestic consumer products and a
writeoff of obsolete product in the Company's Tubed Products
packaging business. Net income for the six months decreased mainly
due to the second quarter issues noted above and significant
planned spending increases in the first quarter of 1996 on consumer
advertising and promotion. Earnings for 1995 included net income
of $1.4 million for a change in accounting cycle for certain
foreign operations and $2.3 million net income for a reversal of
restructuring liability.
In the second quarter the Company announced the signing of letters
of intent to sell the Gilroy Foods and Gilroy Energy businesses.
Gilroy Foods is the Company's garlic and onion dehydration business
and the letter of intent was signed with ConAgra, Inc. Gilroy
Energy is a 120 megawatt cogeneration unit and the letter of intent
was signed with Calpine Corporation. Both transactions are subject
to Board approval by both companies and completion of definitive
agreements. Combined 1995 sales of both businesses were $233
million, including sales to McCormick.
Business Restructuring
Over the past several years the Company has experienced a
significantly increased global competitive environment and expects
this to continue into the foreseeable future. Additionally, there
have been several changes in management of the Company. These two
factors have been the primary drivers in a reassessment of the
global strategic direction and focus of the Company. As a result
the Company has been conducting a portfolio review of its
businesses with the intent of increasing focus on core businesses.
Additionally, the Company is continually evaluating methods of
improving its cost structure as it responds to the competitive
environment.
As a result of both the portfolio review and the cost structure
improvement process the Company's Board of Directors approved and
the Company announced a business restructuring plan in June 1996.
In connection with this plan the Company will record a charge of
approximately $57 million in the third quarter of 1996. This
charge will reduce net income by approximately $39 million or $.48
per share. In addition there are approximately $3 million of
additional charges ($.02 per share) directly related to the
restructuring plan which could not be accrued in the third quarter
but will be expensed as the plan is implemented.
(7)
Specific actions under this plan include the divestiture of certain
small non-core businesses; the divestiture of Giza National
Dehydration Company of Cairo, Egypt (Giza), which is consistent
with the Company's decision to sell Gilroy Foods, Giza's parent
company; closing the Brooklyn, NY packaging plant; the exit from
certain minor, non-core product lines; the rationalization of
certain overseas manufacturing facilities; and in our consumer
business the conversion from a direct sales force to a broker sales
force for certain regions in the U.S.
Major components of the restructuring charge include: severance and
personnel costs of $10 million; a $45 million writedown of assets
and businesses identified for disposal, to net realizable value;
and other exit costs of $2 million. The $3 million of additional
charges which will be expensed during the implementation are
principally costs to move equipment and personnel.
These actions are expected to be completed within one year and will
require net cash outflows of approximately $12 million. Net Sales
related to these actions, principally the divestiture of certain
small non-core businesses and Giza, were approximately 5% of
consolidated net sales.
The Company believes that the benefits from these actions will be
twofold. First, the Company will be strategically aligned to
concentrate on its core businesses. Secondly, the Company
anticipates savings as a result of these actions. These savings
will be used to invest in the Company's brands through product
development and consumer promotional activity, maintain low-cost
producer status in our core businesses, and support our global
expansion strategy.
The Company believes that this restructuring will significantly
enhance its ability to achieve its financial objectives.
Realization of the savings from these actions, however, is
dependent on the timing and effectiveness of the execution of these
actions and the response of our competitors and customers.
Results of Operations
Consolidated net sales for the quarter ended May 31, 1996 decreased
2% and were flat for the six month period ended May 31, 1996 as
compared to the corresponding periods of 1995. Net sales in 1995
included the effect of an accounting cycle change for certain
foreign operations and sales of certain divested businesses.
Excluding these factors, net sales were flat for the quarter and
increased 5% for the six month period. For the second quarter unit
volume increased 1% as compared to last year but was offset by the
negative effects of translating sales of foreign operations. The
combined effects of price changes and changes in mix of products
had no effect on sales. U.S. sales of consumer products decreased
significantly for the quarter as compared to last year. The two
principal reasons for this decrease compared to last year were: the
timing of price increases which caused 1996 sales to be higher in
(8)
the first quarter while 1995 sales were affected in the second
quarter, and a general trade movement to reduce inventories. The
decrease in U.S. consumer product sales was offset by increases in
most other businesses and geographic areas. For the six months the
5% increase over last year was all driven by unit volume increases.
A 1% decrease due to foreign exchange effects was offset by a
corresponding increase due to price and mix of product.
Profit from operations as a percentage of sales decreased from 8.9%
to 6.5% for the quarter and from 9.6% to 6.2% for the six months as
compared to last year.
Gross profit as a percentage of sales decreased from 34.0% to 30.7%
and from 33.7% to 31.9% for the quarter ended and six months ended,
respectively as compared to last year. The decrease in the gross
margin percentage in the second quarter is due to the effect of
sales volume decreases in U.S. consumer products, a writeoff of
inventory for products that have been discontinued in the Tubed
Product packaging business, and continued competitive pressure.
For the six months the gross profit percentage decreased due to the
second quarter inventory writeoff and continued competitive
pressure.
Selling, general and administrative expenses for the second quarter
were lower than last year on both a dollar basis and as a
percentage of sales. The principal reason for the decrease as a
percentage of sales was the effect of changes in sales mix between
retail and industrial businesses on advertising and promotion.
While advertising and promotion as a percentage of sales for the
U.S. retail business was up slightly, on a decreased sales base,
this was more than offset by the change in mix to more industrial
business sales in the second quarter which require less advertising
and promotion. For the six months, selling, general and
administrative expenses have increased in both dollar terms and as
a percentage of sales as compared to last year. This increase is
due to increased advertising and promotion in the first quarter of
1996 and the reversal of restructuring reserves in the first
quarter of 1995.
Interest expense decreased $2.1 million and $3.4 million for the
second quarter and six months ended May 31, 1996, respectively.
This decrease is due to both declines in borrowing levels and lower
borrowing rates.
The Company's effective tax rate for the six months ended May 1996
was 35.5% as compared to 36.8% for the same period last year. The
decrease in the effective tax rate reflects the Company's emphasis
on increased tax planning.
Income from unconsolidated operations improved in the second
quarter and six months ended May 1996 mainly due to improved
results of our Mexican joint venture.
(9)
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 $1.4 million.
Return on equity (ROE) increased to 17% at May 31, 1996, from 12%
at May 31, 1995.
Restructuring - 1994
In the fourth quarter of 1994, the Company recorded a charge of
$70.4 million for restructuring its business operations. As of
May 31, 1996, $17.4 million remains to be spent against the
restructuring liability. 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 was closed in the second quarter of 1996, and
production was transferred to another facility. A consolidated
distribution facility was also 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
$44.7 million for the six months ended May 31, 1995 to a cash
inflow of $75.4 million for the six months ended May 31, 1996. The
reduction in 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 1995.
Cash outflow from investing activities are less than last year.
Capital expenditures are slightly higher in the first six months of
1996 as compared to last year, however, they are expected to be
slightly below last year on a full year basis. The proceeds from
sale of assets include the sale of certain assets to a joint
venture which is now operating the Cake Mate business and the sale
of property no longer used in the business.
The Company's ratio of interest-bearing debt to total capital was
55.4% as of May 31, 1996, comparable to 55.5% at November 30, 1995,
but down significantly from 59.4% at May 31, 1995. The improvement
in the debt to capital ratio from the prior year is the result of
working capital improvement programs. Total debt decreased $14.3
million during the first six months of 1996 and $66.7 million since
May 31, 1995.
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.
(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 20, 1996.
(b) No response required.
(c) 1. The following individuals were nominees for The Board of
Directors. The number of votes for or withheld for each
nominee is as follows: James J. Albrecht - for 11,384,114,
withheld 57,414; James S. Cook - for 11,381,267, withheld
60,261; Robert G. Davey - for 11,377,753, withheld 63,775;
George W. Koch - for 11,381,337, withheld 60,191; Robert J.
Lawless - for 11,390,235, withheld 51,293; Charles P.
McCormick, Jr. - for 11,372,568, withheld 68,960; George V.
McGowan - for 11,381,337, withheld 60,191; Carroll D.
Nordhoff - for 11,385,739, withheld 55,789; Richard W.
Single, Sr. - for 11,383,477, withheld 58,051; William E.
Stevens - for 11,388,127, withheld 53,401; Karen D.
Weatherholtz - for 11,392,567, withheld 48,961.
2. The ratification of the appointment of Ernst & Young as
independent auditors. The number of votes for, against or
abstaining is as follows: For 11,341,965; Against 32,995;
Abstain 66,568.
(d) No response required.
Item 6 Exhibits and Reports on Form 8-K
(a) Item 601 Exhibit No.:
(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 June 17, 1996.
(b) Report on Form 8-K. On June 13, 1996, the Company filed a
report on Form 8-K, in response to Item 5 Other Events of
Form 8-K, which incorporated by reference a Press Release
dated June 7, 1996 announcing a major restructuring program.
(11)
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 12, 1996 By: /s/ Robert G. Davey
Robert G. Davey
Vice President &
Chief Financial Officer
Date: July 12, 1996 By: /s/ J. Allan Anderson
J. Allan Anderson
Vice President & Controller
10Q-2.mz (12)