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, 1997 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, 1997
Common Stock 10,540,379
Common Stock Non-Voting 64,674,882
<PAGE>
McCORMICK & COMPANY, INCORPORATED
INDEX - FORM 10-Q
May 31, 1997
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Income Statement 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
Exhibit Index 13
<PAGE>
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
(In Thousands Except Per Share Amounts)
Three Months Ended Six Months Ended
May 31, May 31,
1997 1996 1997 1996
Net sales $413,720 $393,828 $821,122 $789,627
Cost of goods sold 279,257 273,333 549,942 535,840
Gross profit 134,463 120,495 271,180 253,787
Selling, general and
administrative expense 105,690 98,563 213,695 209,391
Restructuring charges 127 - 386 -
Operating income 28,646 21,932 57,099 44,396
Interest expense 9,183 7,952 17,684 16,725
Other (inc.) expense-net (1,782) 818 (3,310) (368)
Income from consolidated
continuing operations
before income taxes 21,245 13,162 42,725 28,039
Income taxes 7,860 4,695 15,808 10,056
Net income from consolidated
continuing operations 13,385 8,467 26,917 17,983
Income from unconsolidated
operations 1,426 929 3,109 1,225
Net income from continuing
operations 14,811 9,396 30,026 19,208
Income from discontinued
operations, net of
income taxes - 1,599 - 1,137
Net income $ 14,811 $ 10,995 $ 30,026 $ 20,345
Earnings per common share:
Continuing operations $0.20 $0.12 $0.39 $0.24
Discontinued operations - 0.02 - 0.01
Earnings per common share $0.20 $0.14 $0.39 $0.25
Average shares outstanding 75,761 81,305 76,536 81,275
Cash dividends declared per
common share $0.15 $0.14 $0.30 $0.28
See notes to condensed consolidated financial statements.
(2)<PAGE>
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands)
May 31, May 31, Nov. 30,
1997 1996 1996
(unaudited) (unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 10,955 $ 20,787 $ 22,418
Accounts receivable - net 180,929 185,330 217,495
Inventories
Raw materials and supplies 116,869 139,261 188,936
Finished products and work-in
process 136,574 214,005 56,153
253,443 353,266 245,089
Other current assets 48,348 51,590 49,410
Total current assets 493,675 610,973 534,412
Property - net 388,356 528,434 400,394
Goodwill - net 160,536 175,500 165,066
Prepaid allowances 146,033 167,618 149,200
Other assets 80,675 68,688 77,537
Total assets $1,269,275 $1,551,213 $1,326,609
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $178,122 $281,247 $ 98,450
Current portion of long-term debt 9,902 13,101 10,477
Trade accounts payable 128,978 134,082 153,584
Other accrued liabilities 206,462 165,025 236,791
Total current liabilities 523,464 593,455 499,302
Long-term debt 277,818 337,805 291,194
Deferred income taxes 4,230 19,428 4,937
Other long-term liabilities 81,454 92,150 81,133
Total liabilities 886,966 1,042,838 876,566
Shareholders' Equity
Common stock 45,580 49,843 48,541
Common stock non-voting 113,706 116,302 112,489
Retained earnings 254,254 378,354 313,847
Foreign currency translation adj. (31,231) (36,124) (24,834)
Total shareholders' equity 382,309 508,375 450,043
Total liabilities and
shareholders' equity $1,269,275 $1,551,213 $1,326,609
See notes to condensed consolidated financial statements.
(3)<PAGE>
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(In Thousands)
Six Months Ended
May 31, May 31,
1997 1996
Cash flows from operating activities
Net income $ 30,026 $ 20,345
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Non cash charges and credits
Depreciation and amortization 24,570 33,007
Income from unconsolidated operations (3,109) (1,225)
Other 1,552 (1,362)
Changes in selected working capital items
Accounts receivable 32,329 36,020
Inventories (12,874) 24,075
Prepaid allowances 3,118 5,243
Accounts payable, trade (21,915) (11,053)
Other assets and liabilities (16,212) (29,616)
Net cash provided by operating activities 37,485 75,434
Cash flows from investing activities
Capital expenditures (27,011) (40,144)
Acquisitions of businesses (3,315) -
Proceeds from sale of assets 2,784 15,074
Other investments (2,505) (1,089)
Currency hedging contracts (300) -
Net cash used in investing activities (30,347) (26,159)
Cash flows from financing activities
Short-term borrowings, net 81,124 (3,615)
Long-term debt borrowings - 2,242
Long-term debt repayments (8,662) (13,176)
Common stock issued 3,757 7,904
Common stock acquired by purchase (72,080) (9,586)
Dividends paid (23,041) (22,768)
Net cash used in financing activities (18,902) (38,999)
Effect of exchange rate changes on cash and
cash equivalents 301 (1,954)
Increase (decrease) in cash and cash equivalents (11,463) 8,322
Cash and cash equivalents at beginning of period 22,418 12,465
Cash and cash equivalents at end of period $ 10,955 $ 20,787
See notes to condensed consolidated financial statements.
(4)<PAGE>
McCORMICK & COMPANY, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts In Thousands Except As Otherwise Noted)
(Unaudited)
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 necessary to present fairly the financial position
and the results of operations for the interim periods. Results for
1996 have been reclassified to separately report the results of
discontinued operations in the Condensed Consolidated Income
Statement. Certain other reclassifications have been made to the
1996 financial statements to conform with the 1997 presentation.
As of January 1, 1997, the Company's Mexican operations were
measured using the U.S. dollar as the functional currency due to
the highly inflationary nature of the Mexican economy.
The results of consolidated operations for the three and six month
periods ended May 31, 1997 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
half of the fiscal year, and increase in the second half.
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, 1996.
Business Restructuring
In the third quarter of 1996, the Company began implementation of
a restructuring plan and recorded a restructuring charge of $58,095
in 1996. This charge reduced net income by $39,582 or $.49 per
share. In addition there are additional charges directly related
to the restructuring plan which could not be accrued in 1996. The
Company has expensed $386 of these costs in the first half of 1997.
Under the restructuring plan the Company has closed the Brooklyn,
New York packaging plant, converted from a direct sales force to a
broker sales force for certain regions in the U.S., exited from
certain minor non-core product lines, closed its manufacturing
facility in Switzerland and moved that production to its U.K.
facility, sold the Minipack business, and sold Giza National
Dehydration Company of Egypt.
(5)<PAGE>
The components of the restructuring charge and remaining liability
are as follows:
5/31/97
Restructuring Remaining
Charge Amount
Severance and personnel costs $ 9,983 $ 902
Writedown of assets and businesses 44,562 9,290
Other exit costs 3,550 2,434
$58,095 $12,626
In the fourth quarter of 1994, the Company recorded a charge of
$70,445 for restructuring its business operations. At May 31,
1997, the remaining liability was $6,139, principally for
realignment of some of our operations in the United Kingdom.
The Company expects to have all restructuring programs completed in
1998.
Accounting and Disclosure Changes
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share." The Statement is
effective for financial statements issued for periods ending after
December 15, 1997. The Statement will have no significant effect
on the reported earnings per share for the Company.
Financial Instruments
During the second quarter of 1997, the Company entered into foreign
currency hedge contracts. The Company sold Mexican pesos forward to
cover its net investment in its Mexican subsidiary and affiliate.
These contracts, which expire in November 1997, have a combined
nominal amount of $28,357 at May 31, 1997.
(6)<PAGE>
McCORMICK & COMPANY, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Amounts in Thousands Except as Otherwise Noted)
Overview
For the second quarter ended May 31, 1997 the Company reported net
income of $14.8 million or $.20 per common share compared to net
income of $11.0 million or $.14 per common share for the comparable
period last year. For the six months ended May 31, 1997 the net
income was $30.0 million or $.39 per common share compared to
$20.3 million or $.25 per common share for the same period last
year.
During the first quarter of 1997, the Company purchased a line of
dry seasoning mixes in Canada which will be marketed under the
French's (registered trademark) brand name. This acquisition will
expand the Company's market areas in Canada. During the second
quarter of 1997, the Company dissolved the McCormick & Wild joint
venture and the business was split between the partners. Also,
under the 1996 restructuring plan, the Company completed the sales
of Giza National Dehydration Company of Egypt and Minipack Systems
Limited of England, exited from certain non-core product lines, and
closed its manufacturing facility in Switzerland and moved that
production to its U.K. facility.
Results of Operations
Consolidated net sales increased 5.1% and 4.0% for the quarter and
for the six month period ended May 31, 1997, respectively, as
compared to the corresponding periods of 1996. For the quarter
ended May 31, 1997 the effect of foreign currency exchange rate
changes increased sales by less than 1% when compared to last year.
This increase was offset by the net decrease in sales dollars
resulting from business disposals, net of acquisitions (primarily
sales transferred to the Signature joint venture and the disposals
of Giza National Dehydration and Minipack). Unit volume increased
1.8% as compared to last year. The combined effects of price
changes and changes in mix of products increased sales by 3.6%.
There was improved performance in the U.S. industrial and food
service businesses, the packaging business, the Europe group, and
the Asia Pacific group. The U.S. retail business was flat compared
to last year's quarter with volume decreases offset by favorable
price changes and changes in mix.
For the six months ended May 31, 1997, the 4.0% increase in
consolidated net sales was mainly driven by unit volume increases.
An approximate 1.0% increase due to foreign exchange effects was
offset by a 1.0% decrease due to the effect of business disposals,
net of acquisitions. Net sales improved compared to last year in
all operating groups except the U.S. retail business whose volume
decrease was partially offset by favorable price changes and
changes in mix.
(7)<PAGE>
Operating income as a percentage of net sales increased from 5.6%
to 6.9% for the quarter and increased from 5.6% to 7.0% for the six
months as compared to last year.
Gross profit as a percentage of net sales increased from 30.6% to
32.5% for the quarter as compared to last year. Gross margin
percentage improvements were led by the U.S. retail, industrial,
and packaging businesses. The improvement in the Company's
packaging business was partially due to a write-off of packaging
inventory for obsolete products during the second quarter of 1996.
For the six months ended May 31, 1997, gross profit as a percentage
of net sales increased from 32.1% to 33.0%. Gross margin percentage
improvements for the six months ended May 31, 1997 were again led
by the U.S. retail, industrial, and packaging businesses. For both
the quarter and six months ended May 31, 1997, gross profit
improved as a result of the favorable impact of restructuring
moves, and favorable product mix.
Selling, general, and administrative expenses as a percentage of
sales increased slightly in the second quarter and decreased
slightly in the six months ended May 31, 1997 as compared to last
year's comparable periods. For the six months ended May 31, 1997,
promotional spending is down due to lower U.S. retail sales and the
effect on volume based promotions. Advertising spending, while
lower than last year, is still higher than historical levels as the
Company continues its focus on brand recognition. The decreases in
advertising and promotion were partially offset by increases in
earnings-based employee compensation costs.
Interest expense decreased $2.9 million and $6.7 million for the
quarter and six months as compared to last year. Interest expense
for the second quarter and six months of 1996 excludes $4.1 million
and $7.7 million of interest allocated to discontinued operations.
The significant decrease in total interest is primarily due to
reduced borrowings as a result of the sale of Gilroy Foods and
Gilroy Energy in 1996. Short term borrowing rates for the quarter
and six months ended May 31, 1997 were slightly lower than the
comparable periods last year.
Other income includes $2.0 million for the quarter and $4.0 million
for the six months ended May 31, 1997 from the three year non-
compete agreement with Calpine Corporation. The total income
expected for fiscal 1997 for this agreement is $8.0 million. The
other income for the six months ended May 31, 1996 includes a
$1.4 million gain on the sale of a building.
The Company's effective tax rate for 1997 is 37% as compared to 36%
in 1996. The increase in the tax rate is primarily due to the
favorable effect, recorded in 1996, of refunds of certain U.S. tax
credits from prior years.
Income from unconsolidated operations improved in the second
quarter and six months ended May 31, 1997 mainly due to improved
earnings in our Mexican joint venture and earnings from our
Signature Brands joint venture which was formed in the second
quarter of 1996.
(8)<PAGE>
Business Restructuring
In the third quarter of 1996, the Company began implementation of
a restructuring plan and recorded a restructuring charge of $58,095
in 1996. This charge reduced net income by $39,582 or $.49 per
share. In addition there are additional charges directly related
to the restructuring plan which could not be accrued in 1996. The
Company has expensed $386 of these costs in the first half of 1997.
Under the restructuring plan the Company has closed the Brooklyn,
New York packaging plant, converted from a direct sales force to a
broker sales force for certain regions in the U.S., exited from
certain minor non-core product lines, closed its manufacturing
facility in Switzerland and moved that production to its U.K.
facility, sold the Minipack business, and sold Giza National
Dehydration Company of Egypt.
The components of the restructuring charge and remaining liability
are as follows:
5/31/97
Restructuring Remaining
Charge Amount
Severance and personnel costs $ 9,983 $ 902
Writedown of assets and businesses 44,562 9,290
Other exit costs 3,550 2,434
$58,095 $12,626
In the fourth quarter of 1994, the Company recorded a charge of
$70,445 for restructuring its business operations. At May 31,
1997, the remaining liability was $6,139, principally for
realignment of some of our operations in the United Kingdom.
The Company expects to have all restructuring programs completed in
1998.
Financial Condition
Cash flows from operating activities decreased from a cash inflow
of $75.4 million at May 31, 1996 to a cash inflow of $37.5 million
at May 31, 1997. This decrease is mainly driven by a change in
inventory levels. In May 1996, the Gilroy Foods operation showed
a $31.0 million decrease in inventory from year end 1995. This was
a result of a thorough inventory review that was performed in 1996
on all operations, as well as the seasonality of the Gilroy Foods
business. The increase in inventory since year end 1996 is due to
the normal building of inventory to supply our busier second half
of the year.
Investing activities used cash of $30.3 million in the first six
months of 1997 versus $26.2 million in the comparable period last
year. Capital expenditures are lower than last year as the Company
focuses its efforts on completion of the restructuring programs and
implementing only higher return projects. Full year capital
expenditures in 1997 are expected to be below the 1996 level. The
proceeds from sale of assets in 1996 include the sale of certain
(9)<PAGE>
assets to the Signature Brands joint venture which is now operating
the Cake Mate business, and also includes the sale of property no
longer used in the business. The proceeds from sale of assets in
1997 include the sale of Giza National Dehydration and the proceeds
received from the dissolution of the McCormick & Wild joint venture
as well as the sale of property no longer used in the business.
Acquisitions of businesses in 1997 are for the purchase of a line
of dry seasoning mixes in Canada which will be marketed under the
French's (registered trademark) brand name. This acquisition will
expand the Company's market areas in Canada.
Cash flows from financing activities include the purchase of
2.9 million shares of common stock under the Company's previously
announced 10 million share buyback program. To date 5.4 million
shares have been repurchased under this program.
The Company's ratio of debt to total capital was 54.9% as of
May 31, 1997, down from 55.4% at May 31, 1996, but up from 47.1% at
November 30, 1996. The improvement in the ratio from one year ago
is the result of the sale of Gilroy Foods and Gilroy Energy and
working capital improvement programs partially offset by the effect
of the stock buyback program. The change in the ratio since year
end is due to the stock buyback program.
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)<PAGE>
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 19,
1997.
(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 10,751,910,
withheld 61,267; James S. Cook - for 10,751,017, withheld
62,160; Robert G. Davey - for 10,709,325, withheld 103,852;
Freeman A. Hrabowski, III - for 10,750,715, withheld
62,462; Robert J. Lawless - for 10,720,012, withheld
93,165; Charles P. McCormick, Jr. - for 10,742,641,
withheld 70,536; George V. McGowan - for 10,742,466,
withheld 70,711; Carroll D. Nordhoff - for 10,737,299,
withheld 75,878; Robert W. Schroeder - for 10,752,748,
withheld 60,429; Richard W. Single, Sr. - for 10,743,324,
withheld 69,853; William E. Stevens - for 10,753,410,
withheld 59,767; Karen D. Weatherholtz - for 10,750,943,
withheld 62,234.
2. Approval of 1997 Employee Stock Purchase Plan. The number
of votes for, against or abstaining is as follows: For
10,173,155; Against 115,932; Abstain 524,090.
3. Approval of the 1997 Stock Option Plan. The number of
votes for, against or abstaining is as follows: For
10,099,755; Against 156,439, Abstain 556,983.
4. The ratification of the appointment of Ernst & Young LLP as
independent auditors. The number of votes for, against or
abstaining is as follows: For 10,681,988; Against 28,125;
Abstain 103,064.
(d) No response required.
Item 6 Exhibits and Reports on Form 8-K
(a) Item 601 Exhibit No.:
(11) Statement regarding Page 14 of this report on
computation of per share Form 10-Q.
earnings.
(27) Financial Data Schedule Submitted in electronic
format only.
(b) Reports on Form 8-K. None
(11)<PAGE>
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, 1997 By: /s/ Carroll D. Nordhoff
Carroll D. Nordhoff
Executive Vice President
Date: July 14, 1997 By: /s/ J. Allan Anderson
J. Allan Anderson
Vice President & Controller
(12)<PAGE>
Exhibit Index
Item 601
Exhibit
Number Reference or Page
(11) Statement re computation of Page 14 of this report on
per-share earnings. Form 10-Q.
(27) Financial Data Schedule Submitted in electronic format
only.
(13)<PAGE>
McCormick and Company, Inc. Part I - Exhibit 11
(In Thousands Except Per Share Amounts)
Statement re Computation of Per-Share Earnings*
Three Six
Months Ended Months Ended
Computation for Statement of Income 5/31/97 5/31/96 5/31/97 5/31/96
Net Income $14,811 $10,995 $30,026 $20,345
Reconciliation of Weighted Average
Number of Shares Outstanding to
Amount used in Primary Earnings
Per Share Computation
Weighted Average Number of Shares
Outstanding 75,761 81,305 76,536 81,275
Add - Dilutive Effect of
Outstanding Options (as
Determined by the Application of
the Treasury Stock Method) (1) 188 18 175 64
Weighted Average Number of Shares
Outstanding As Adjusted for
Equivalent Shares 75,949 81,323 76,711 81,339
PRIMARY EARNINGS PER SHARE $0.20 $0.14 $0.39 $0.25
Three Six
Months Ended Months Ended
Computation for Statement of Income 5/31/97 5/31/96 5/31/97 5/31/96
Net Income $14,811 $10,995 $30,026 $20,345
Reconciliation of Weighted Average
Number of Shares Outstanding to
Amount used in Fully Diluted Earnings
Per Share Computation
Weighted Average Number of Shares
Outstanding 75,761 81,305 76,536 81,275
Add - Dilutive Effect of
Outstanding Options (as
Determined by the Application of
the Treasury Stock Method) (1) 296 57 229 84
Weighted Average Number of Shares
Outstanding As Adjusted for
Equivalent Shares 76,057 81,362 76,765 81,359
FULLY DILUTED EARNINGS PER SHARE $0.19 $0.14 $0.39 $0.25
*See 1996 Annual Report, Note (1) of the Notes to Financial Statements.
(1) "This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%."
(14)
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<PERIOD-END> MAY-31-1997
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<ALLOWANCES> 3,771
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0
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