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, 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, Sparks, Maryland 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
March 31, 1997
Common Stock 10,730,440
Common Stock Non-Voting 65,250,610
<PAGE>
McCORMICK & COMPANY, INCORPORATED
INDEX - FORM 10-Q
February 28, 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 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
Exhibit Index 11
<PAGE>
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
(In Thousands Except Per Share Amounts)
Three Months Ended
February 28, February 29,
1997 1996
Net sales $407,402 $395,799
Cost of goods sold 270,685 262,507
Gross profit 136,717 133,292
Selling, general and
administrative expense 108,005 110,828
Restructuring charges 259 -
Operating Income 28,453 22,464
Interest expense 8,501 8,773
Other (income) expense - net (1,528) (1,186)
Income from consolidated continuing
operations before income taxes 21,480 14,877
Income taxes 7,948 5,361
Net income from consolidated continuing
operations 13,532 9,516
Income from unconsolidated operations 1,683 296
Net income from continuing operations 15,215 9,812
Loss from discontinued operations,
net of income taxes - (462)
Net income $ 15,215 $ 9,350
Earnings per common share:
Continuing operations $.20 $.12
Discontinued operations - -
Earnings per common share $.20 $.12
Average shares outstanding 77,239 81,255
Cash dividends declared per
common share $.15 $.14
See notes to condensed consolidated financial statements.
(2)<PAGE>
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands)
Feb. 28, Feb. 29, Nov. 30,
1997 1996 1996
(Unaudited)(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 23,475 $ 22,398 $ 22,418
Accounts receivable - net 196,081 201,937 217,495
Inventories
Raw materials and supplies 115,256 124,536 188,936
Finished products and work-in
process 134,429 243,976 56,153
249,685 368,512 245,089
Other current assets 47,089 54,861 49,410
Total current assets 516,330 647,708 534,412
Property - net 394,820 527,908 400,394
Goodwill - net 162,020 177,814 165,066
Prepaid allowances 149,500 178,952 149,200
Other assets 77,456 55,142 77,537
Total assets $1,300,126 $1,587,524 $1,326,609
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $177,830 $306,765 $ 98,450
Current portion of long-term debt 10,396 12,743 10,477
Trade accounts payable 122,745 132,867 153,584
Other accrued liabilities 216,804 171,305 236,791
Total current liabilities 527,775 623,680 499,302
Long-term debt 286,338 345,805 291,194
Deferred income taxes 4,890 21,408 4,937
Other long-term liabilities 81,024 80,648 81,133
Total liabilities 900,027 1,071,541 876,566
Shareholders' Equity
Common Stock 46,077 49,163 48,541
Common Stock Non-Voting 111,590 114,538 112,489
Retained earnings 272,762 384,179 313,847
Foreign currency translation adj. (30,330) (31,897) (24,834)
Total shareholders' equity 400,099 515,983 450,043
Total liabilities and
shareholders' equity $1,300,126 $1,587,524 $1,326,609
See notes to condensed consolidated financial statements.
(3)<PAGE>
McCORMICK & COMPANY, INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(In Thousands)
Three Months Ended
Feb. 28, Feb. 29,
1997 1996
Cash flows from operating activities
Net income $ 15,215 $ 9,350
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Non cash charges and credits
Depreciation and amortization 12,769 16,136
Income from unconsolidated operations (1,683) (296)
Other 43 (836)
Changes in selected working capital items
Accounts receivable 18,092 20,389
Inventories (7,427) 14,221
Prepaid allowances (351) 4,382
Accounts payable, trade (28,232) (13,893)
Other assets and liabilities (11,568) (28,642)
Net cash provided by (used in) operating activities (3,142) 20,811
Cash flows from investing activities
Capital expenditures (12,174) (21,505)
Acquisitions of businesses (3,315) -
Proceeds from sale of assets 809 4,306
Other investments (308) (2,176)
Net cash used in investing activities (14,988) (19,375)
Cash flows from financing activities
Short-term borrowings, net 81,189 21,856
Long-term debt borrowings - 1,549
Long-term debt repayments (1,773) (3,687)
Common stock issued 349 4,887
Common stock acquired by purchase (48,382) (3,598)
Dividends paid (11,632) (11,372)
Net cash provided by financing activities 19,751 9,635
Effect of exchange rate changes on cash and
cash equivalents (564) (1,138)
Increase in cash and cash equivalents 1,057 9,933
Cash and cash equivalents at beginning of period 22,418 12,465
Cash and cash equivalents at end of period $ 23,475 $ 22,398
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 Statement of
Income. 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 month period
ended February 28, 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 $259 of these costs in the first quarter 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., and
sold the Minipack business. Subsequent to the first quarter of
1997, as a result of the restructuring plan, the Company sold Giza
National Dehydration Company of Egypt. The Company plans to
complete the restructuring program in 1997.
(5)<PAGE>
The components of the restructuring charge and remaining liability
are as follows:
2/28/97
Restructuring Remaining
Charge Amount
Severance and personnel costs $ 9,983 $ 1,232
Writedown of assets and businesses 44,562 20,759
Other exit costs 3,550 1,317
$58,095 $23,308
In the fourth quarter of 1994, the Company recorded a charge of
$70,445 for restructuring its business operations. At February 28,
1997, the remaining liability was $8,161, principally for
realignment of some of our operations in the United Kingdom which
will be completed in 1997.
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.
(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
Net income for the first quarter of 1997 was $15.2 million or $.20
per common share compared to $9.4 million or $.12 per common share
for the first quarter of 1996.
During the quarter the Company purchased a line of dry seasoning
mixes in Canada which will be marketed under the French's brand
name. This acquisition will expand the Company's market areas in
Canada. In addition the Company also agreed to dissolve the
McCormick & Wild joint venture and the business was split between
the partners.
Results of Operations
Net sales for the quarter ended February 28, 1997 increased 2.9%
over the corresponding quarter of 1996. The effects of higher
foreign currency exchange rates increased sales by slightly over 1%
but were offset by the negative effect of business disposals
(primarily sales transferred to the Signature joint venture and the
disposal of Minipack). Net sales of all operating groups except
U.S. retail were improved to last year with strong performances in
the U.S. industrial and food service businesses and McCormick
Canada. Net sales in our U.S. retail business decreased and were
negatively impacted by the timing and extent of price increases
between the two years.
Operating income as a percentage of net sales increased to 7.0%
from 5.7% in the first quarter of last year.
Gross profit as a percentage of net sales at 33.6% remained
consistent with the first quarter of last year at 33.7%. Most
major operating groups gross profit percentage improved to last
year, including the U.S. retail business. The Company's gross
profit percentage did not improve, however, because of the effect
of mix of our different businesses. In the first quarter of 1997
there was a lower mix of the more profitable U.S. retail business,
as compared to the prior year.
Selling, general and administrative expenses decreased in the first
quarter as compared to last year in both dollar terms and as a
percentage of net sales. 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 increased accruals for employee benefits on
improved earnings and continued information system spending to
allow the Company's computer systems to cope with the change to the
year 2000.
(7)<PAGE>
Interest expense for the quarter decreased by $.3 million as
compared to last year. Interest expense for the first quarter of
1996 excludes $3.6 million of interest allocated to discontinued
operations. The significant decrease in total interest, including
discontinued operations, is primarily due to reduced borrowings as
a result of the sale of Gilroy Foods and Gilroy Energy in 1996.
Short-term borrowing rates in the first quarter of 1997 were
slightly less than in the first quarter of 1996.
Other income in 1997 includes $2.0 million of income from the
Gilroy Energy non-compete agreement, and 1996 other income includes
a $1.4 million gain on the sale of a building.
The Company's effective tax rate for the first quarter of 1997 was
37% as compared to 36% in the first quarter of last year. 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 increased to $1.7 million in
the first quarter of 1997 from $.3 million in the comparable
quarter of last year. The increase is 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.
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 $259 of these costs in the first quarter 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., and
sold the Minipack business. Subsequent to the first quarter of
1997, as a result of the restructuring plan, the Company sold Giza
National Dehydration Company of Egypt. The Company plans to
complete the restructuring program in 1997.
The components of the restructuring charge and remaining liability
are as follows:
2/28/97
Restructuring Remaining
Charge Amount
Severance and personnel costs $ 9,983 $ 1,232
Writedown of assets and businesses 44,562 20,759
Other exit costs 3,550 1,317
$58,095 $23,308
(8)<PAGE>
In the fourth quarter of 1994, the Company recorded a charge of
$70,445 for restructuring its business operations. At February 28,
1997, the remaining liability was $8,161, principally for
realignment of some of our operations in the United Kingdom which
will be completed in 1997.
Financial Condition
In the Condensed Consolidated Statement of Cash Flows, cash flows
from operating activities decreased from a cash inflow of $20.8
million at February 29, 1996 to a cash outflow of $3.1 million at
February 28, 1997. This decrease is mainly driven by a slight
increase in inventories in the first quarter of 1997 versus a
larger decrease in inventories in the first quarter of 1996. This
inventory impact is partially due to the effect of lower sales in
the U.S. retail business in the first quarter of 1997.
Investing activities used cash of $15.0 million in the first
quarter of 1997 versus $19.4 million in the comparable quarter of
1996. Capital expenditures are lower than last year as the Company
focuses its efforts on more effective capital spending. Full year
capital expenditures in 1997 are expected to be below the 1996
level. 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 brand name. This acquisition will expand the
Company's market areas in Canada.
Cash flows from financing activities include the purchase of
2 million shares of common stock under the Company's previously
announced 10 million share buyback program. To date 4.5 million
shares have been repurchased under this program.
The Company's ratio of debt to total capital was 54.3% as of
February 28, 1997, down from 56.3% at February 29, 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.
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.
(9)<PAGE>
PART II - OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K
(a) EXHIBITS
Item 601
Exhibit
Number
PART I EXHIBITS
(11) Statement re: computation Page 12 of this report on Form
of per share earnings. 10-Q.
(27) Financial Data Schedule Submitted in electronic format
only.
PART II EXHIBIT
(10) Material Contracts.
Consulting letter agreement Pages 13 and 14 of this report
between Registrant and on form 10-Q.
Charles P. McCormick, Jr.
dated January 2, 1997.
(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 11, 1997 By: /s/ Robert J. Lawless
Robert J. Lawless
President & Chief Executive
Officer
Date: April 11, 1997 By: /s/ Robert G. Davey
Robert G. Davey
Executive Vice President & Chief
Financial Officer
(10)<PAGE>
Exhibit Index
Item 601
Exhibit
Number Reference or Page
(10) Material Contracts.
Consulting letter agreement Pages 13 and 14 of this report
between Registrant and on Form 10-Q.
Charles P. McCormick, Jr.
dated January 2, 1997.
(11) Statement re computation of Page 12 of this report on
per-share earnings. Form 10-Q.
(27) Financial Data Schedule Submitted in electronic format
only.
(11)<PAGE>
McCormick and Company, Inc. Part I - Exhibit 11
(In Thousands Except Per Share Amounts)
Statement re Computation of Per-Share Earnings*
Three Months Ended
Computation for Statement of Income 2/28/97 2/29/96
Net Income $15,215 $ 9,350
Reconciliation of Weighted Average
Number of Shares Outstanding to
Amount used in Primary Earnings
Per Share Computation
Weighted Average Number of Shares
Outstanding 77,239 81,255
Add - Dilutive Effect of Outstanding
Options (as Determined by the
Application of the Treasury Stock
Method) (1) 161 110
Weighted Average Number of Shares Outstanding
As Adjusted for Equivalent Shares 77,400 81,365
PRIMARY EARNINGS PER SHARE $0.20 $0.12
Three Months Ended
Computation for Statement of Income 2/28/97 2/29/96
Reconciliation of Weighted Average
Number of Shares Outstanding to
Amount used in Fully Diluted Earnings
Per Share Computation
Weighted Average Number of Shares
Outstanding 77,239 81,255
Add - Dilutive Effect of Outstanding
Options (as Determined by the
Application of the Treasury Stock
Method) (1) 161 111
Weighted Average Number of Shares Outstanding
As Adjusted for Equivalent Shares 77,400 81,366
FULLY DILUTED EARNINGS PER SHARE $0.20 $0.12
*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%."
(12)<PAGE>
Part II - Exhibit 10
January 2, 1997
Mr. Charles P. McCormick, Jr.
6761 S.E. North Marina Way
Stuart, Florida 34996
Dear Buzz:
This letter will confirm the terms of your new consulting
arrangement with the Company. Under your existing arrangement, which
is described in a letter dated February 14, 1996, you have provided
services to the Company as Chief Executive Officer as well as Chairman
of the Board. You have expressed a desire to limit your role to
providing services as Chairman of the Board effective January 1, 1997.
In your role as Chairman, you have agreed to provide your
counsel, guidance and expertise regarding the affairs of the Company
as from time to time may be requested by the Board of Directors and/or
the President of the Company. To that end, it is anticipated that
such consultative services will require that you devote approximately
8 - 10 days per month to the affairs of the Company. You have agreed
to continue to provide such services as Chairman until such time as
the Board of Directors has determined that an orderly transition of
that position and its attendant duties can be effectuated.
In consideration of your agreement to render such services, you
will receive a monthly stipend of Thirteen Thousand Seven Hundred
Twenty-Five Dollars ($13,725), 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.
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, Chief Executive Officer
and Chief Operating Officer
(13)<PAGE>
By: /s/Karen D. Weatherholtz
Karen D. Weatherholtz
Vice President - Human Relations
Secretary - Compensation Committee
AGREED AND ACCEPTED THIS
15th day of March, 1997.
By: /s/Charles P. McCormick, Jr.
Charles P. McCormick, Jr.
(14)
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<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> FEB-28-1997
<CASH> 23,475
<SECURITIES> 0
<RECEIVABLES> 199,960
<ALLOWANCES> 3,879
<INVENTORY> 249,685
<CURRENT-ASSETS> 516,330
<PP&E> 689,992
<DEPRECIATION> 295,172
<TOTAL-ASSETS> 1,300,126
<CURRENT-LIABILITIES> 527,775
<BONDS> 286,338
0
0
<COMMON> 157,667
<OTHER-SE> 242,432
<TOTAL-LIABILITY-AND-EQUITY> 1,300,126
<SALES> 407,402
<TOTAL-REVENUES> 407,402
<CGS> 270,685
<TOTAL-COSTS> 108,264
<OTHER-EXPENSES> (1,528)
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<INTEREST-EXPENSE> 8,501
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