MCCORMICK & CO INC annual report, FY2010

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McCormick & Company, Inc. 2010 Form 10-K Summary

Business context and reporting period

McCormick & Company is a global producer and distributor of spices, seasonings, specialty foods and flavorings. It operates through consumer and industrial segments, with major operations in North America and Europe and additional facilities across Mexico, Central America, Australia, China, Singapore, Thailand and South Africa.

The filing covers the fiscal year ended November 30, 2010, and was filed January 27, 2011. Approximately 39% of fiscal 2010 sales were generated outside the United States. The business is seasonal, with sales, income and operating cash flow generally strongest in the fourth quarter.

Financial metrics and capital resources

  • The filing text provided does not include clear consolidated values for net sales, operating income, net income, diluted earnings per share, operating cash flow, total assets, total debt, liquidity or operating margins. These amounts are incorporated by reference to the 2010 Annual Report to Stockholders and should be verified there.
  • Research and development expense was $52.7 million in 2010, compared with $48.9 million in 2009 and $51.0 million in 2008.
  • Short-term borrowings were approximately $0.2 million at November 30, 2010, at an average interest rate of approximately 8.8%.
  • The company finances seasonal working capital needs through lines of credit, commercial paper and revolving credit facilities.
  • At November 30, 2010, $359 million remained available under a $400 million share repurchase authorization approved in June 2010. The earlier $400 million authorization approved in June 2005 was fully used.
  • During the fourth quarter, the company repurchased 1.005 million non-voting common shares at an average price of $42.86 and 100 voting common shares at $43.96.
  • Sales to PepsiCo and Wal-Mart represented approximately 10% and 11%, respectively, of fiscal 2010 consolidated net sales. The five largest customers represented approximately 34%.

Material changes versus prior comparable periods

  • Research and development spending increased $3.8 million, or approximately 8%, from 2009 to 2010.
  • The company initiated a new $400 million share repurchase authorization in June 2010 and repurchased approximately $41 million of shares during the fourth quarter based on disclosed share counts and average prices.
  • The filing identifies customer concentration as broadly similar to 2009: PepsiCo and Wal-Mart each represented approximately 10% to 11% of consolidated sales in 2010.
  • The allowance for doubtful receivables declined from $4.5 million at the end of 2009 to $2.9 million at the end of 2010, while the valuation allowance on net deferred tax assets increased from $20.5 million to $22.9 million.
  • Detailed year-over-year changes in revenue, profitability, cash flow, debt and segment performance are not provided in the submitted filing text and require review of the incorporated Annual Report to Stockholders.

Guidance, outlook, commentary, risks and unusual items

The submitted text does not provide specific fiscal 2011 financial guidance. Management describes growth initiatives and acquisition activity by reference to the Annual Report to Stockholders, but the referenced details are not included here.

  • Key operating risks include volatility in agricultural raw-material prices and availability, weather and crop conditions, food safety and product recalls, customer consolidation, private-label competition and pricing pressure.
  • International operations expose the company to foreign-exchange, political, regulatory, tariff and economic risks.
  • The company uses foreign-currency contracts, interest-rate swaps and other derivatives to manage selected exposures, but does not enter into derivatives for trading purposes.
  • Liquidity depends in part on revolving credit facilities and related bank commitments used for seasonal working capital. Management believed the risk of a participating bank failing to perform was remote at year-end.
  • Pension asset declines, customer credit deterioration, capital-market disruption, disasters, business interruptions and difficulties integrating acquisitions could reduce liquidity or profitability.
  • No material pending legal proceedings were reported. Environmental compliance had no material effect on the business, and no material environmental-control capital expenditures were planned for 2011.
  • Management concluded that disclosure controls and procedures were effective at November 30, 2010, and reported no material change in internal control over financial reporting during the last fiscal quarter.

Important facts for investors to verify

  1. Verify consolidated 2010 and 2009 net sales, operating income, net income, diluted EPS, margins and operating cash flow in the incorporated Annual Report.
  2. Review the balance sheet for total debt, cash, working-capital balances, revolving-credit availability and debt maturities, including notes due in 2011, 2013, 2015 and 2017.
  3. Assess segment and geographic performance, including the effect of 39% non-U.S. sales and foreign-currency movements.
  4. Review acquisition-related activity, purchase accounting, goodwill and intangible assets, and any impairment or restructuring charges.
  5. Evaluate exposure to PepsiCo, Wal-Mart and other concentrated customers, as well as commodity costs and the company’s ability to pass through price increases.
  6. Confirm fiscal 2011 guidance or outlook, if issued in the Annual Report or subsequent filings, because no specific guidance is included in the submitted text.