McCormick is a global leader in flavor with the manufacturing, marketing and distribution of spices, seasonings, specialty foods and flavorings to the entire food industry. Our major sales, distribution and production facilities are located in North America and Europe. Additional facilities are based in Mexico, Central America, Australia, China, Singapore, Thailand and South Africa. McCormick & Company, Incorporated was formed in 1915 under Maryland law as the successor to a business established in 1889.
We operate in two business segments, consumer and industrial. The consumer segment sells spices, herbs, extracts, seasoning blends, sauces, marinades, and specialty foods to the consumer food market under a variety of brands worldwide, including “Mc®,” “McCormick®,” “Lawry’s®,” “Zatarain’s®,” “Old Bay®,” “Thai Kitchen®,” “Simply Asia®,” “Ducros®,” “Schwartz®,” “Vahine®,” “Silvo®,” “Club House®,” El Guapo®,” Aeroplane®,” and “Billy Bee®.” The industrial segment sells seasoning blends, natural spices and herbs, wet flavors, coating systems, and compound flavors to multinational food manufacturers and foodservice customers both directly and indirectly through distributors.
Please refer to pages 16 through 18, of our Annual Report to Stockholders for 2010 for descriptions of our consumer and industrial businesses, and pages 10 through 14 of our Annual Report to Stockholders for 2010 for a discussion of growth initiatives for the business. These pages of our Annual Report to Stockholders for 2010, as well as all other page references to our Annual Report to Stockholders for 2010 contained in this Form 10-K, are incorporated herein by reference.
For financial information about our business segments, please refer to pages 19 through 24, “Management’s Discussion and Analysis – Results of Operations” of our Annual Report to Stockholders for 2010, and Note 16, “Business Segments and Geographic Areas” of the Notes to Consolidated Financial Statements on pages 55 and 56 of the Annual Report to Stockholders for 2010.
For a discussion of our recent acquisition activity, please refer to page 27 “Management’s Discussion and Analysis – Acquisitions” of our Annual Report to Stockholders for 2010, and Note 2, “Acquisitions” of the Notes to Consolidated Financial Statements on page 42 of the Annual Report to Stockholders for 2010.
Raw Materials
The most significant raw materials used by us in our business are dairy products, pepper, capsicums, onion, wheat, soybean oil, and garlic. Pepper and other spices and herbs are generally sourced from countries other than the United States. Other raw materials, like cheese and onion, are primarily sourced from within the United States. We are not aware of any government restrictions or other factors that would have a material adverse effect on the availability of these raw materials. Because the raw materials are agricultural products, they are subject to fluctuations in market price and availability caused by weather, growing and harvesting conditions, market conditions, and other factors beyond our control. We respond to this volatility in a number of ways, including strategic raw material purchases, purchases of raw material for future delivery, and customer price adjustments.
Customers
McCormick’s products are sold directly to customers and also through brokers, wholesalers, and distributors. In the consumer segment, products are resold to consumers through a variety of retail outlets, including grocery, mass merchandise, warehouse clubs, discount, and drug stores under a variety of brands. In the industrial segment, products are used by food and beverage manufacturers as ingredients for their finished goods and by food service customers as ingredients for menu items to enhance the flavor of their foods. Customers for the industrial segment include food manufacturers and the food service industry supplied both directly and indirectly through distributors.
We have a large number of customers for our products. In fiscal year 2008, sales to one of our customers, PepsiCo, Inc., accounted for approximately 10% of consolidated net sales. In fiscal year 2009, sales to two of our customers, PepsiCo, Inc. and Wal-Mart Stores, Inc., each accounted for approximately 11% of consolidated net sales. In fiscal year 2010, sales to two of our customers, PepsiCo, Inc. and Wal-Mart Stores, Inc., accounted for approximately 10% and 11% of consolidated net sales, respectively. Sales to our five largest customers represented approximately 34% of consolidated net sales for the 2010 fiscal year.
The dollar amount of backlog orders for our business is not material to an understanding of our business, taken as a whole. No material portion of our business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the U.S. government.
1
| /s/ Ernst & Young LLP |