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)