McCORMICK & COMPANY 2007 ANNUAL REPORT
McCORMICK & COMPANY 2007 ANNUAL REPORT |
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| MANAGEMENT’S DISCUSSION AND ANALYSIS |  |
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| The increase in sales for 2007 was due to pricing actions taken to offset higher material cost, favorable product mix and higher volumes (including the 0.9% impact of Simply Asia Foods, acquired in June of 2006). Favorable foreign exchange rates added 2.9% for the year. The 2007 sales also reflect the impact of actions to eliminate low margin business, which lowered sales approximately 1%. | |
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Pre-tax restructuring charges for both 2007 and 2006 related to actions under our restructuring program to consolidate our global manufacturing, rationalize our distribution facilities, improve our go-to-market strategy and eliminate administrative redundancies. The gain on the sale of unconsolidated operations in 2006 is primarily for the redemption of our ownership investment in Signature Brands LLC (Signature). More details of the restructuring charges are discussed later in MD&A and in note 3 of the financial statements. | |
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| Gross profit margin in 2007 decreased 0.1 percentage
point. Included in cost of goods sold were restructuring
charges for production facilities that are being closed.
These charges in 2007 were less than in 2006 and
increased gross profit margin by 0.4 percentage point.
Cost savings related to restructuring activity lowered cost
of goods sold, adding nearly 1.0 percentage point to gross
profit margin. Gross profit margin was unfavorably
impacted by higher material costs in 2007 that were only
partially offset by price increases. Production costs in
certain facilities were also affected by incremental costs
early in 2007 to maintain customer service during our
facility consolidation. |
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| The increase in interest expense was due to higher average
short-term borrowings and higher short-term interest
rates in 2007 when compared to 2006. However, these
effects were partially offset by the refinancing of higher
interest rate long-term debt in 2006, which has reduced
the average interest rate on our total debt in 2007 when
compared to 2006.
The increase in other income was due to higher interest income. |
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| Selling, general and administrative expenses were higher in 2007 than 2006 on a dollar basis but declined as a percentage of net sales. As a percentage of net sales, administrative expense decreased while distribution, selling, promotion, advertising and research and development in total were relatively unchanged. The decrease in administrative expense during 2007 was driven by the benefit of expense reductions from our restructuring program. | |
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| The increase in the effective tax rate was due to a reduction in discrete tax benefits in 2007. The 2006 discrete items of $5.2 million included the favorable resolution of an international tax audit, a reduction of accruals recorded for state tax audits and additional tax benefit related to the closure of our operation in Finland. Income taxes in 2007 | |
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McCormick & Company 2007 Annual Report 18 |
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