What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-09-30 compared with 2021-07-01 · 224 added, 260 removed, 400 unchanged (55% of the section changed)

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We manage our business in two business segments, consumer and flavor solutions.

Recent Events

R ecent Events

Recent events impacting our business include COVID-19, the acquisitions of Cholula and FONA, the inflationary cost environment and disruption in our supply chain, each of which are further discussed below.

As more fully described below, we expect the largest factors impacting our fiscal 2021 performance to be the relative balance of at-home versus away-from-home consumption and the inflationary cost environment, including escalating transportation costs, both which remain uncertain.

On March 11, 2020, the World Health Organization designated a new coronavirus (“COVID-19”) as a global pandemic.

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Uncertainty with respect to the economic effects of the pandemic has significantly impacted not only our operating results but also the global economy.

The extent and nature of government actions varied during the three and six-months ended May 31, 2021 and 2020 based upon the then-current extent and severity of the COVID-19 pandemic within their respective countries and localities.

As the COVID-19 pandemic continues, we expect the largest factor impacting our fiscal 2021 performance will be the relative balance of at-home versus away-from-home food demand.

The extent and nature of government actions varied during the three and nine-months ended August 31, 2021 and 2020 based upon the then-current extent and severity of the COVID-19 pandemic within their respective countries and localities.

We are actively monitoring the impact of COVID-19 on all aspects of our business.

The effects of COVID-19 on consumer behavior have impacted the relative balance of at-home versus away-from-home food demand and have added volatility to our sales over the course of the pandemic.

For example, our consolidated sales for the second quarter of 2020 increased by 7.6% over the 2019 level.

That 7.6% sales increase was driven by a surge in demand in sales of the consumer segment that rose by 26.0% over the second quarter of 2019, as government-mandated measures, imposed to mitigate the spread of COVID-19 in the second quarter of 2020 and the ensuing change in consumer behavior, resulted in shift in consumer behavior toward at-home meal preparation that more than offset sharply lower demand within the flavor solutions segment, principally associated with our quick service restaurant and branded food service customers.

That sharply lower demand drove an 18.5% decline in sales of the flavor solutions segment during the second quarter of 2020 from the 2019 level as dine-in restaurants and bars were closed to limit the spread of COVID-19 early in the pandemic.

The extent of the at-home consumption and away-from-home demand has varied during the pandemic and has impacted our results, as compared to the prior year results, at different levels in any individual quarter.

For the quarter ended May 31, 2021, our consolidated sales increased by 11.1% over the comparable period in 2020, driven by sharply higher sales in the flavor solution segment, which increased by 39.5% over a weak 2020 quarter, partially offset by a 1.8% decrease in sales of the consumer segment from an extremely strong 2020 quarter.

For comparative purposes, the following provides a summary of growth in net sales as reported and on a constant currency basis for the second quarter of 2021 as compared to the second quarter of 2019:

Three Months Ended May 31, 2021 as compared to

Three Months Ended May 31, 2019

The effects of COVID-19 on consumer behavior have impacted the relative balance of at-home versus away-from-home food demand.

The impact of COVID-19, since the onset of the pandemic, has resulted in net sales growth as the increase in at-home consumption has more than offset declines in away-from-home demand.

The impact of COVID-19 on our consumer segment since the beginning of COVID-19 pandemic has resulted in a significant increase in at-home consumption and related demand for our products.

The impact of COVID-19 on our flavor solutions segment has been two-fold, including both (i) an unfavorable impact attributable to decreased demand from certain customers that were affected by government measures related to COVID-19 mitigation in many of our markets that reduced away-from-home food demand;

and (ii) a favorable impact attributable to increased at-home consumption from certain customers that use our products to flavor their own brands for at-home consumption.

The COVID-19 mitigation measures impacting certain of our flavor solutions customers included the following:

(i) with respect to dine-in restaurants, closures, limitations on dine-in capacity, or restrictions on the operations of those restaurants to carry-out or delivery only;

and (ii) with respect to quick service restaurants, limitations on operations to drive-through pick-up or delivery.

For comparative purposes, the following provides a summary of growth in net sales as reported and on a constant currency basis for the third quarter of 2021 as compared to the third quarter of 2019:

Three Months Ended August 31, 2021 as compared to

Three Months Ended August 31, 2019

Percentage Change

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Total net sales 16.6 % 2.0 % 14.6 %

The percentage change in reported net sales and the percentage change on a constant currency basis were favorably impacted by the acquisitions of Cholula and FONA, which contributed 2.7%, 7.5% and 4.7% to the consumer segment, flavor solutions segment and total net sales growth rates, respectively, in the preceding table, on both a reported and constant currency basis.

The impact of COVID-19 on our consumer segment since the beginning of the COVID 19 pandemic has resulted in a significant increase in at-home consumption and related demand for our products.

While we continue to see strong levels of consumer demand compared to the pre-pandemic levels, during the three months ended May 31, 2021 retail demand declined when compared to the comparable quarter of the prior year based on the surge in consumer demand at the beginning of the pandemic.

The impact of COVID-19 on our flavor solutions segment has included both the unfavorable impact attributable to decreased demand from certain customers that were affected by government measures related to COVID-19 in many of our markets that reduced away-from-home food demand and the favorable impact of increased at-home consumption from certain customers in our flavor solutions segment that use our products to flavor their own brands for at-home consumption.

The measures impacting certain of our flavor solutions customers included the following:

(i) with respect to dine-in restaurants, closures, limitations on dine-in capacity, or restrictions on the operations of those restaurants to carry-out or delivery only;

and (ii) with respect to quick service restaurants, limitations on operations to drive-through pick-up or delivery.

The percentage change in reported net sales and the percentage change on a constant currency basis were favorably impacted by the acquisitions of Cholula and FONA, which, in aggregate, contributed 2.9%, 7.8% and 4.8% to the consumer segment, flavor solutions segment and total net sales growth rates, respectively, in the preceding table, on both a reported and constant currency basis.

While we continue to see strong levels of consumer demand compared to the pre-pandemic levels, during the three months ended August 31, 2021 retail demand declined when compared to the comparable quarter of the prior year based on strong consumer demand at the beginning of the pandemic.

We continue to see recovery in away-from-home demand associated with the COVID-19 recovery.

During the three months ended May 31, 2021 our flavor solutions segment sales and operating results improved as away-from-home consumption increased as compared to the comparable quarter in the prior year, in part, due to the lifting of much more restrictive COVID-19 measures that were in place at the beginning of the pandemic.

During the three months ended August 31, 2021 our flavor solutions segment sales and operating results improved as away-from-home

consumption increased as compared to the corresponding quarter in 2020, in part, due to the lifting of much more restrictive COVID-19 mitigation measures that were in place during the early stages of the pandemic.

The impact of the COVID-19 pandemic on our consolidated operating results during the three months ended February 29, 2020 was limited, in all material respects, to our operations in China where the Chinese government mandated numerous measures, including closures of businesses, limitations on movements of individuals and goods, and the imposition of other restrictive measures, in its efforts to mitigate the spread of COVID-19 within the country.

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In early fiscal 2021, vaccines effective in combating COVID-19 were approved by health agencies in certain countries/regions in which we operate (including the U.S., U.K., European Union, Canada and Mexico) and began to be administered.

The availability of COVID-19 vaccines and their take-up by individuals is difficult to predict, and vaccination levels are likely to vary across jurisdictions.

The availability of COVID-19 vaccines and their acceptance by individuals is difficult to predict, and vaccination levels vary across jurisdictions.

The pace and shape of the COVID-19 recovery as well as the impact and extent of COVID-19 variants or potential resurgences is not presently known.

These and other uncertainties with respect to COVID-19 could result in changes to our current expectations in addition to a number of adverse impacts to our business, including but not limited to additional disruption to the economy and consumers’ willingness and ability to spend, temporary or permanent closures by businesses that consume our products, such as restaurants, additional work restrictions, and supply chains being interrupted, slowed, or rendered inoperable or, in the case of significant increased demand for our product, incapability of fulfilling that increased demand.

As a result, it may be challenging to obtain and process raw materials to support our business needs, and individuals could become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions.

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The potential effects of COVID-19 also could impact us in a number of other ways including, but not limited to, variations in the level of our profitability, laws and regulations affecting our business, fluctuations in foreign currency markets, the availability of future borrowings, the cost of borrowings, valuation of our pension assets and obligations, credit risks of our customers and counterparties, and potential impairment of the carrying value of goodwill or other indefinite-lived intangible assets.

Inflationary Cost Environment and Supply Chain Disruption:

During fiscal 2021, we have experienced inflationary cost increases in our commodities, packaging materials and transportation costs.

We expect that these inflationary cost increases will be partially mitigated by pricing actions we expect to implement in the fourth quarter of fiscal 2021 and by our Comprehensive Continuous Improvement (CCI) program-led cost savings.

We are also experiencing additional pressure in our supply chain due to strained transportation capacity, as well as due to labor shortages and absenteeism associated with COVID-19, together with the impact of the continued elevated demand.

Acquisitions:

Acquisitions are expected to approximate one-third of our sales growth over time.

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We focus on acquisition opportunities that meet the growing demand for flavor and health.

Geographically, our focus is on acquisitions that

build scale where we currently have presence in both developed and emerging markets.

Geographically, our focus is on acquisitions that build scale where we currently have presence in both developed and emerging markets.

Information with respect to our recent acquisitions is provided below:

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At the same time, we issued $500.0 million of 1.85% notes due February 15, 2031, with net cash proceeds received of $492.8 million.

The net proceeds from these issuances were used to pay down short-term borrowings, including a portion of the $1,443.0 million of commercial paper issued to finance our acquisitions of FONA and Cholula, and for general corporate purposes.

The net proceeds from these issuances were used to pay down short-term borrowings, including a portion of the $1,443.0 million of commercial paper issued to finance our acquisitions of

FONA and Cholula, and for general corporate purposes.

For further information regarding our issuance of these notes, see note 5 of the notes to the accompanying financial statements.

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In 2021, we expect to grow net sales over the 2020 level by 12% to 13%, including an estimated 3% favorable impact from currency rates, or 9% to 10% on a constant currency basis.

That anticipated 2021 sales growth includes the incremental impact of the Cholula and FONA acquisitions, which we expect to comprise 3.5% to 4.0% of the expected 11% to 13% sales growth, and higher volume and product mix driven by our brand marketing, new product, category management, and differentiated customer engagement growth plans.

That sales growth is also expected to include the impact of pricing actions taken to partially offset an anticipated increase in costs.

The 2021 sales growth forecast includes the estimated incremental impact of the Cholula and FONA acquisitions, which we expect to comprise 4.0% of the expected 12% to 13% sales growth, and higher volume and product mix driven by our brand marketing, new product, category management, and differentiated customer engagement growth plans.

That sales growth forecast also includes the expected impact of pricing actions taken to partially offset an anticipated increase in costs.

We expect to have organic sales growth in both our consumer and flavor solutions segments.

We expect our 2021 gross profit margin to decline 160 to 180 basis points from our gross profit margin of 41.1% in 2020.

The projected 2021 decline in gross profit margin is principally due to (i) expected accretion from our acquisitions of Cholula and FONA, net of transaction and integration expenses of $6.3 million related to the amortization of the step-up of the acquired inventories of Cholula and FONA to fair value, (ii) anticipated unfavorable sales mix in 2021 between our consumer and flavor solutions segments as compared to 2020, (iii) an expected increase in COVID-19 related expenses of approximately $10 million in 2021 over the 2020 level, and (iv) an anticipated mid-single-digit level of inflation in 2021 compared to 2020.

The projected 2021 decline in gross profit margin is principally due to the net effect of (i) an anticipated mid-single-digit level of inflation in 2021 compared to 2020, (ii) anticipated unfavorable sales mix in 2021 between our consumer and flavor solutions segments as compared to 2020, (iii) expected accretion from our acquisitions of Cholula and FONA, net of transaction and integration expenses of $6.3 million related to the amortization of the step-up of the acquired inventories of Cholula and FONA to fair value, and (iv) an expected increase in COVID-19 related expenses of approximately $10 million in 2021 over the 2020 level.

Excluding the $6.3 million of transaction and integration expenses related to our acquisitions of Cholula and FONA included in our projected range of gross profit margin anticipated in 2021, we expect our adjusted gross profit margin to be 150 to 170 basis points lower than our 2020 gross profit margin of 41.1%.

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We estimate our effective tax rate, including the net favorable impact of anticipated discrete tax items, to approximate 22.0% in 2021 as compared to 19.8% in 2020.

projected taxes associated with special charges and transaction and integration expenses, including the unfavorable impact in the first quarter of 2021 of a deferred state tax discrete tax item directly related to our acquisition of FONA that increased tax expense by $11.4 million, we also estimate that our adjusted effective tax rate will approximate 23% in fiscal 2021, as compared to an adjusted effective tax rate of 19.9% in 2020.

Excluding projected taxes associated with special charges and transaction and integration expenses, including the unfavorable impact in the first nine months of 2021 of a deferred state tax discrete tax item directly related to our acquisition of FONA that increased tax expense by $10.4 million, we also estimate that our adjusted effective tax rate will approximate 21.0% in fiscal 2021, as compared to an adjusted effective tax rate of 19.9% in 2020.

Diluted earnings per share was $2.78 in 2020.

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Excluding the per share impact of special charges and transaction and integration expenses of $0.01 and $0.04, respectively, adjusted diluted earnings per share was $2.83 in 2020.

Adjusted diluted earnings per share (excluding an estimated per share impact from special charges of $0.06, $0.16 from transaction and integration expenses, including the unfavorable impact of a discrete tax item of $0.04 related to our acquisition of FONA, and $0.05 gain from the sale of an unconsolidated operation) is projected to range from $3.00 to $3.05 in 2021.

Adjusted diluted earnings per share (excluding an estimated per share impact of $0.07 from special charges, $0.15 from transaction and integration expenses, including the unfavorable impact of a discrete tax item of $0.04 related to our acquisition of FONA, and $0.05 gain from the sale of an unconsolidated operation) is projected to range from $2.97 to $3.02 in 2021.

We expect adjusted diluted earnings per share to grow by 5% to 7%, which includes a 2% favorable impact from currency rates, over adjusted diluted earnings per share of $2.83 in 2020.

RESULTS OF OPERATIONS – COMPANY

Three months ended Six months ended

May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020

Three months ended Nine months ended

August 31, 2021 August 31, 2020 August 31, 2021 August 31, 2020

Net sales $ 1,549.4 $ 1,430.3 $ 4,587.6 $ 4,043.4

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Gross profit margin 38.7 % 41.3 % 39.1 % 40.6 %

Sales for the second quarter of 2021 increased by 11.1% from the prior year level and by 7.6% on a constant currency basis (that is, excluding the impact of foreign currency exchange as more fully described under the caption, Non-GAAP Financial Measures).

Sales for the third quarter of 2021 increased by 8.3% from the prior year level and by 5.3% on a constant currency basis (that is, excluding the impact of foreign currency exchange as more fully described under the caption, Non-GAAP Financial Measures).

Higher volume and favorable product mix increased sales by 0.7%.

This increase was driven by sharply higher demand in the flavor solutions segment across all regions, as compared to the corresponding period in 2020 when away-from-home sales were sharply reduced by measures imposed to mitigate the spread of COVID-19.

The flavor solutions segment sales increase in the second quarter of 2021 was partially offset by lower sales in the consumer segment, due to lapping exceptionally high demand for our products in the second quarter of 2020 when a surge in demand for our products resulted from more consumers cooking at home at the onset of the COVID-19 pandemic.

Pricing actions reduced sales by 0.1%, while the incremental impact of the Cholula and FONA acquisitions added 4.4% to sales in the second quarter of 2021.

Sales were also impacted by favorable foreign currency rates that increased net sales by 3.5% in the second quarter of 2021 compared to the year-ago quarter and is excluded from our measure of sales growth of 7.6% on a constant currency basis.

Sales for the six months ended May 31, 2021 increased by 16.3% from the prior year level and increased by 13.4% on a constant currency basis.

This increase was driven by increased sales of our flavor solutions segment across all regions, as demand was elevated as compared to the corresponding period in 2020 when away-from-home sales were negatively impacted by measures imposed to mitigate the spread of COVID-19.

Pricing actions increased sales by 0.1%, while the incremental impact of the Cholula and FONA acquisitions added 4.5% to sales in the third quarter of 2021.

Sales were also impacted by favorable foreign currency rates that increased net sales by 3.0% in the third quarter of 2021 compared to the year-ago quarter and is excluded from our measure of sales growth of 5.3% on a constant currency basis.

Sales for the nine months ended August 31, 2021 increased by 13.5% from the prior year level and increased by 10.5% on a constant currency basis.

Favorable volume and product mix increased sales by 6.0% with growth from both the consumer and flavor solutions segments.

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Sales were impacted by favorable foreign currency rates that increased sales by 3.0% as compared to the same period in 2020 and is excluded from our measure of sales growth of 10.5% on a constant currency basis.

Gross profit for the second quarter of 2021 increased by $35.1 million, or 6.1%, over the comparable period in 2020.

Gross profit for the six months ended May 31, 2021 increased by $142.7 million, or 13.6% over the comparable period in 2020.

Our gross profit margins for the three and six months ended May 31, 2021 were 39.5% and 39.2%, respectively, a decrease of 190 basis points and 100 basis points, respectively, from the same periods in 2020.

The decrease in gross profit margin in the quarter ended May 31, 2021 was driven by a less favorable mix in sales between our consumer and flavor solutions segments and increased material costs, which were partially offset by cost savings led by our Comprehensive Continuous Improvement ("CCI") program, all as compared to the corresponding quarter in 2020.

The decrease in gross profit margin in the six months ended May 31, 2021 was driven by increased material costs, higher costs associated with COVID-19 and a less favorable mix in sales between our consumer and flavor solutions segments, partially offset by savings from our CCI program, each as compared to the prior year.

In addition, our gross profit for the six months ended May 31, 2021 was burdened by $6.3 million of

transaction expense, representing the amortization of the fair value adjustment to the acquired inventories of Cholula and FONA upon our sale of those acquired inventories in the first quarter of fiscal 2021.

Excluding those transaction and integration expenses, adjusted gross profit margin for the six months ended May 31, 2021 decreased by 80 basis points from 40.2% in the six months ended May 31, 2020 to 39.4% in the corresponding period in 2021.

Three months ended Six months ended

May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020

Gross profit for the third quarter of 2021 increased by $9.3 million, or 1.6%, over the comparable period in 2020.

Our gross profit margin for the three months ended August 31, 2021 was 38.7%, a decrease of 260 basis points from the comparable period in 2020.

The decrease in gross profit margin in the quarter ended August 31, 2021 was driven by increased commodity, packaging materials and transportation costs, and a less favorable mix in sales between our consumer and flavor solutions segments, which was partially offset by cost savings led by our Comprehensive Continuous Improvement ("CCI") program and the accretive impact of the Cholula and FONA acquisitions, as compared to the corresponding quarter in 2020.

Gross profit for the nine months ended August 31, 2021 increased by $152.0 million, or 9.3% over the comparable period in 2020.

Our gross profit margin for the nine months ended August 31, 2021 was 39.1%, a decrease of 150 basis points from the same period in 2020.

The decrease in gross profit margin in the nine months ended August 31, 2021 was driven by increased commodity, packaging materials and transportation costs, higher conversion costs, which includes costs associated with COVID-19, and a less favorable mix in sales between our consumer and flavor solutions segments, which were partially offset by savings from our CCI program, improved product mix and the accretive impact of the Cholula and FONA acquisitions, each as compared to the prior year period.

In addition, our gross profit for the nine months ended August 31, 2021 was burdened by $6.3 million of transaction expense, representing the amortization of the fair value adjustment to the acquired inventories of Cholula and FONA upon our sale of those acquired inventories in the first quarter of fiscal 2021.

Excluding those transaction and integration expenses, adjusted gross profit margin for the nine months ended August 31, 2021 decreased by 140 basis points from 40.6% in the nine months ended August 31, 2020 to 39.2% in the corresponding period in 2021.

Three months ended Nine months ended

August 31, 2021 August 31, 2020 August 31, 2021 August 31, 2020

Selling, general & administrative expense (SG&A) $ 327.3 $ 317.2 $ 1,005.2 $ 911.1

Percent of net sales 21.1 % 22.2 % 21.9 % 22.6 %

SG&A increased by $37.4 million in the second quarter of 2021 compared to the 2020 level, driven by (i) SG&A associated with the acquired Cholula and FONA businesses, (ii) increased brand marketing costs, and (iii) greater selling and distribution expenses associated with the higher sales volume.

SG&A increased by $10.1 million in the third quarter of 2021 compared to the 2020 level, driven by (i) SG&A associated with the acquired Cholula and FONA businesses;

(ii) greater selling and distribution expenses associated with the higher sales

and (iii) higher investments associated with the implementation of a global ERP platform that was paused in 2020 as a response to the inherent operational limitations caused by the onset of the COVID-19 pandemic.

Those increases were partially offset by lower performance-based employee incentive expenses, as compared to the prior year period.

SG&A as a percent of net sales increased by 10 basis points from the prior year level as increased brand marketing investment was partially offset by the impact of the leverage of fixed and semi-fixed expenses over a higher level of sales during the 2021 period.

SG&A increased by $84.0 million in the six months ended May 31, 2021 compared to the 2020 level, primarily as a result of (i) SG&A associated with the Cholula and FONA acquisitions, (ii) increased brand marketing costs, and (iii) greater selling and distribution expenses associated with the higher sales volume, all as compared to the corresponding period in 2020.

SG&A as a percent of net sales for the six months ended May 31, 2021 decreased by 50 basis points from the prior year level, driven by the impact of the leverage of fixed and semi-fixed expenses over a higher level of sales during the 2021 period.

Three months ended Six months ended

May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020

SG&A as a percentage of net sales decreased by 110 basis points from the prior year level as the net impact of the previously mentioned factors were more than offset by the impact of the leverage of fixed and semi-fixed expenses over a higher level of sales during the 2021 period.

SG&A increased by $94.1 million in the nine months ended August 31, 2021 compared to the 2020 level, primarily as a result of (i) SG&A associated with the Cholula and FONA acquisitions, (ii) increased brand marketing costs, and (iii) greater selling and distribution expenses associated with the higher sales volume, all as compared to the corresponding period in 2020.

Those increases were partially offset by lower performance-based employee incentive expenses, as compared to the prior year period.

SG&A as a percent of net sales for the nine months ended August 31, 2021 decreased by 70 basis points from the prior year level, driven by the impact of the leverage of fixed and semi-fixed expenses over a higher level of sales during the 2021 period, which was partially offset by the net impact of the aforementioned factors.

Three months ended Nine months ended

August 31, 2021 August 31, 2020 Aug 31, 2021 Aug 31, 2020

Total special charges $ 5.8 $ 0.1 $ 20.6 $ 4.0

During the three months ended May 31, 2021, we recorded $13.7 million of special charges consisting principally of a non-cash asset impairment charge of $6.5 million associated with an administrative site that will be exited in conjunction with our decision to employ a hybrid work environment and $4.7 million of streamlining actions in the Americas region.

During the six months ended May 31, 2021, we recorded $14.8 million of special charges consisting principally of the previously described non-cash asset impairment charge of $6.5 million, $5.2 million of streamlining actions in the Americas region, and $1.3 million of streamlining actions in the EMEA region.

During the three months ended May 31, 2020, we recorded $2.9 million of special charges consisting primarily of $2.8 million of streamlining actions in the EMEA region, including $1.9 million related to severance and related benefits, $0.6 million of third-party expenses, and $0.3 million related to other costs.

During the six months ended May 31, 2020, we recorded $3.9 million of special charges consisting of $2.8 million of streamlining actions in the EMEA region and $1.1 million related to our Global Enablement initiative.

Three months ended Six months ended

May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020

During the three months ended August 31, 2021, we recorded $5.8 million of special charges, consisting principally of streamlining actions of $1.8 million in the Americas region, $1.7 million in the Europe, Middle East, and Africa (EMEA) region and $0.8 million in the Asia Pacific (APAC) region, and $0.7 million related to our GE initiative.

During the nine months ended August 31, 2021, we recorded $20.6 million of special charges, consisting principally of streamlining actions of $7.0 million in the Americas region, $3.0 million in the EMEA region and $0.8 million in the Asia Pacific (APAC) region, and $0.7 million related to our GE initiative, together with a non-cash asset impairment charge of $6.5 million associated with an administrative site that will be exited in conjunction with our decision to employ a hybrid work environment.

During the three months ended August 31, 2020, we recorded $0.1 million of special charges related to streamlining actions in our EMEA region.

During the nine months ended August 31, 2020, we recorded $4.0 million of special charges, consisting of $2.9 million related to streamlining actions in our EMEA region together with $1.1 million related to our GE initiative.

Three months ended Nine months ended

August 31, 2021 August 31, 2020 Aug 31, 2021 Aug 31, 2020

Transaction expenses included in cost of goods sold $ — $ — $ 6.3 $ —

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Total transaction and integration expenses $ 1.3 $ — $ 33.3 $ —

During the three months ended May 31, 2021, we recorded $6.9 million of integration expenses related to our acquisitions of Cholula and FONA.

During the six months ended May 31, 2021, we recorded $32.0 million of transaction and integration expense related to our acquisitions of Cholula and FONA.

These costs consisted of (i) $6.3 million of amortization of the acquisition-date fair value adjustment of inventories that is included in cost of goods sold, (ii) $13.8 million of other transaction costs primarily related to outside advisory, service and consulting costs, and (iii) $11.9 million of integration expenses.

We expect transaction and integration expenses related to our acquisitions of Cholula and FONA to negatively impact operating income in the second half of fiscal 2021 by approximately $10 million.

Three months ended Six months ended

May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020

During the three months ended August 31, 2021, we recorded $1.3 million of integration expenses related to our acquisitions of Cholula and FONA.

During the nine months ended August 31, 2021, we recorded $33.3 million of transaction and integration expense related to our acquisitions of Cholula and FONA.

These costs consisted of (i) $6.3 million of amortization of the acquisition-date fair value adjustment of inventories that is included in Cost of goods sold, (ii) $13.8 million of other transaction expenses primarily related to outside advisory, service and consulting costs, and (iii) $13.2 million of integration expenses.

We expect transaction and integration expenses related to our acquisitions of Cholula and FONA to negatively impact operating income in the fourth quarter of fiscal 2021 by approximately $5 million.

Three months ended Nine months ended

August 31, 2021 August 31, 2020 August 31, 2021 August 31, 2020

Interest expense $ 33.9 $ 33.5 $ 103.3 $ 103.2

Other income, net 3.5 3.9 12.0 12.5

Interest expense increased by $1.2 million in the second quarter of 2021, compared to the same period in 2020, as an increase in average total borrowings was partially offset by a decrease in interest rates.

Interest expense decreased by $0.3 million in the six months ended May 31, 2021, compared to the same period in 2020, as an increase in average total borrowings was more than offset by a decrease in interest rates.

Other income, net for the three months ended May 31, 2021 increased by $0.8 million, while other income, net for the six months ended May 31, 2021 decreased by $0.1 million, both as compared to the prior year period.

Three months ended Six months ended

May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020

Interest expense increased by $0.4 million and $0.1 million in the three and nine months ended August 31, 2021, respectively, both as compared to the prior year periods, as an increase in average total borrowings was largely offset by a decrease in

interest rates.

Other income, net for the three and nine months ended August 31, 2021 decreased by $0.4 million and $0.5 million, both as compared to the prior year periods.

Decreases in the quarter and year-to-date periods were driven by lower non-service cost income associated with our pension and postretirement benefit plans, which was partially offset by higher interest income, as compared to the corresponding periods in 2020.

Three months ended Nine months ended

August 31, 2021 August 31, 2020 August 31, 2021 August 31, 2020

Income from consolidated operations before income taxes $ 234.8 $ 243.4 $ 647.6 $ 633.9

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Examples of such types of discrete items not related to ordinary income of the current fiscal year include, but are not limited to, excess tax benefits related to share-based compensation, changes in estimates of the outcome of tax matters related to prior years (including reversals of reserves upon the lapsing of statutes of limitations), provision-to-return adjustments, the settlement of tax audits, changes in enacted tax rates, changes in the assessment of deferred tax valuation allowances, acquisition related deferred tax adjustments and the tax effects of intra-entity asset transfers (other than inventory).

Income tax expense for the three months ended May 31, 2021 included $5.3 million of net discrete tax benefits consisting principally of the following:

(i) $3.7 million of tax benefits from the reversal of certain reserves for unrecognized tax benefits and related interest associated with the expiration of a statute of limitations in a non-U.S.

jurisdiction, and (ii) $1.5 million of excess tax benefits associated with share-based compensation.

Income tax expense for the six months ended May 31, 2021 was not impacted, on a net basis, by discrete tax items as discrete tax benefits and discrete tax expenses offset during the period.

Discrete tax items recognized during the six months ended May 31, 2021 consisted principally of the following:

(i) $11.4 million of deferred state tax expense directly related to our December 2020 acquisition of FONA, (ii) $4.9 million of tax benefits from the resolution of tax uncertainties in non-U.S.

jurisdictions, including the reversal of certain reserves for unrecognized tax benefits and related interest associated with the expiration of a statutes of limitations, (iii) $4.5 million of tax benefits associated with the release of a valuation allowance due to a change in judgment about realizability of deferred tax assets, and (iv) $1.9 million of excess tax benefits associated with share-based compensation.

Income tax expense for the three months ended May 31, 2020 included $16.5 million of discrete tax benefits consisting principally of the following:

(i) $9.3 million of tax benefits associated with the release of a valuation allowance due to a change in judgment about realizability of deferred tax assets, (ii) $4.0 million of excess tax benefits associated with share-based compensation, and (iii) $3.2 million of tax benefits related to the reversal of unrecognized tax benefits and related interest associated with the expiration of a statute of limitations in a non-U.S.

jurisdiction.

Income tax expense for the six months ended May 31, 2020 included $26.9 million of net discrete tax benefits consisting principally of the following:

(i) $9.9 million of tax benefits associated with an intra-entity asset transfer that occurred during the first quarter;

(ii) $9.3 million of tax benefits associated with the release of a valuation allowance due to a change in judgment about realizability of deferred tax assets;

(iii) $5.7 million of excess tax benefits associated with share-based compensation, (iv) $3.4 million of tax benefits related to the reversal of unrecognized tax benefits and related interest associated with the expiration of statutes of limitations in non-U.S.

jurisdictions;

and (v) $1.4 million of expense related to the revaluation of deferred tax liabilities resulting from enacted legislation in certain non-U.S.

jurisdictions.

Three months ended Six months ended

May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020

Income tax expense for the three months ended August 31, 2021 included $22.9 million of net discrete tax benefits consisting primarily of the following:

(i) $13.3 million of tax benefits due to the partial release of certain reserves for an unrecognized tax benefit and related interest in a non-U.S.

jurisdiction based on a change in our assessment of the technical merits of that position associated with the availability of new information, (ii) $4.3 million of tax benefits from the resolution of other tax uncertainties, including the reversal of certain reserves for unrecognized tax benefits and related interest associated with the expiration of statutes of limitations, (iii) $2.4 million of tax benefits related to the revaluation of deferred taxes resulting from enacted legislation, (iv) $1.1 million of tax benefits resulting from an adjustment to a prior year tax accrual based on the final return filed, and (v) $1.0 million of tax benefits resulting from a refinement of deferred state taxes directly related to our December 2020 acquisition of FONA.

Income tax expense for the nine months ended August 31, 2021 included $22.9 million of net discrete tax benefits consisting primarily of the following:

(i) $13.3 million of tax benefits due to the partial release of certain reserves for an unrecognized tax benefit and related interest in a non-U.S.

jurisdiction based on a change in our assessment of the technical merits of that position associated with the availability of new information, (ii) $9.2 million of tax benefits from the resolution of other tax uncertainties, including the reversal of certain reserves for unrecognized tax benefits and related interest associated with the expiration of statutes of limitations, (iii) $10.4 million of deferred state tax expense directly related to our December 2020 acquisition of FONA, (iv) $4.5 million of tax benefits associated with the release of a valuation allowance due to a change in judgment about realizability of deferred tax assets, (v) $2.2 million of excess tax benefits associated with share-based compensation, (vi) $2.5 million of tax benefits related to the revaluation of deferred taxes resulting from enacted legislation, and (vii) $1.1 million of tax benefits resulting from an adjustment to a prior year tax accrual based on the final return filed.

Income taxes for the three months ended August 31, 2020 included $13.2 million of discrete tax benefits consisting principally of the following:

(i) $7.3 million of excess tax benefits associated with share-based compensation, (ii) $2.1 million of tax benefits related to the reversal of unrecognized tax benefits and related interest associated with the expiration of statutes of limitations, (iii) $2.0 million for an adjustment to a prior year tax accrual based on the final return filed, and (iv) $1.1 million related to the revaluation of deferred taxes resulting from enacted legislation.

Income taxes for the nine months ended August 31, 2020 included $40.1 million of discrete tax benefits consisting principally of the following:

(i) $13.0 million of excess tax benefits associated with share-based compensation, (ii) $9.9 million of tax benefits associated with an intra-entity asset transfer that occurred during the first quarter, (iii) $9.3 million of tax benefits associated with the release of a valuation allowance due to a change in judgment about realizability of deferred tax assets, (iv) $5.5 million of tax benefits related to the reversal of unrecognized tax benefits and related interest associated with the expiration of statutes of limitations in various jurisdictions, and (v) $2.0 million for an adjustment to a prior year tax accrual based on the final return filed.

Three months ended Nine months ended

August 31, 2021 August 31, 2020 August 31, 2021 August 31, 2020

Income from unconsolidated operations $ 9.1 $ 9.6 $ 45.8 $ 30.2

Income from unconsolidated operations, which is presented net of the elimination of earnings attributable to non-controlling interests, increased by $13.2 million and $16.1 million for the three and six months ended May 31, 2021, respectively, as compared to the year ago periods.

Both the three and six months ended May 31, 2021 include an after-tax gain of $13.4 million on the sale of our 26% interest in Eastern Condiments Private Ltd., an unconsolidated operation, as more fully described in note 2 of the notes to the accompanying financial statements.

In the three and six months ended May 31, 2021, earnings of our largest joint venture, McCormick de Mexico, increased by $0.3 million and $3.1 million, respectively, as compared to the prior year periods.

Income from unconsolidated operations, which is presented net of the elimination of earnings attributable to non-controlling interests, decreased by $0.5 million for the three months ended August 31, 2021, as compared to the year ago period.

The decrease was driven by lower earnings of our largest joint venture, McCormick de Mexico.

In the nine months ended August 31, 2021, income from unconsolidated operations increased by $15.6 million, as compared to the prior year period, driven by an after-tax gain of $13.4 million on the sale of our 26% interest in Eastern Condiments Private Ltd.

(Eastern), an unconsolidated operation, during our second quarter of 2021, as more fully described in note 2 of the notes to the accompanying financial statements.

The following table outlines the major components of the change in diluted earnings per share from 2020 to 2021:

Three months ended May 31, Six months ended May 31,

Three months ended August 31, Nine months ended August 31,

2020 Earnings per share – diluted $ 0.76 $ 2.03

2 unchanged sentences

Increase in transaction and integration expenses, including impact of net discrete tax item related to FONA acquisition — (0.14)

Increase in income from unconsolidated operations 0.05 0.06

Increase in income from unconsolidated operations, including, for the nine months ended August 31, 2021, an after-tax gain on sale of unconsolidated operation of $0.05 per diluted share — 0.06

Impact of change in effective income tax rate, excluding taxes on special charges and transaction and integration expenses 0.04 (0.03)

8 unchanged sentences

CONSUMER SEGMENT

Three months ended Six months ended

May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020

(in millions)

Three months ended Nine months ended

August 31, 2021 August 31, 2020 August 31, 2021 August 31, 2020

Net sales $ 921.9 $ 910.9 $ 2,813.9 $ 2,573.0

Percent (decrease) increase (1.8) % 26.0 % 13.8 % 10.2 %

Percent increase 1.2 % 14.7 % 9.4 % 11.7 %

Segment operating income $ 187.8 $ 209.0 $ 554.5 $ 560.2

Segment operating income margin 20.4 % 22.9 % 19.7 % 21.8 %

In the second quarter of 2021, sales of our consumer segment decreased 1.8% as compared to the second quarter of 2020, which experienced a 26.0% increase in sales from the 2019 level as a result of government-mandated measures—imposed in the second quarter of 2020 to mitigate the spread of COVID-19—resulted in a shift in consumer behavior toward at-home meal preparation, and decreased by 4.7% on a constant currency basis.

That 1.8% decrease was driven by lower sales of our consumer business in the Americas region, which was partially offset by growth in the Asia/Pacific region, both as compared to the prior year quarter.

Unfavorable volume and product mix decreased consumer segment sales by 6.5% in the second quarter of 2021 as compared to the same period last year, as the exceptionally strong demand that existed at the onset of the pandemic in the year ago period has eased but remains strong.

Pricing actions decreased sales by 0.4% as compared to the prior year period, while the incremental impact of the Cholula acquisition added 2.2% to sales.

Sales in the second quarter of 2021 reflected a favorable impact from foreign currency rates that increased consumer segment sales by 2.9% compared to the year-ago quarter and is excluded from our measure of sales decline of 4.7% on a constant currency basis.

In the Americas region, consumer sales decreased 6.4% in the second quarter of 2021 as compared to the second quarter of 2020, which experienced a 35.8% increase in sales from the 2019 level as a result of exceptionally strong demand for our products at the onset of the COVID-19 pandemic, and decreased by 7.2% on a constant currency basis.

For the second quarter of 2021, unfavorable volume and product mix decreased sales by 9.3% as compared to the corresponding period in 2020, as the exceptionally strong demand that existed at the onset of the pandemic in the year ago period has eased but remains strong.

The impact of trade replenishment during the quarter ended May 31, 2021 partially offset the decline.

The incremental impact of the Cholula acquisition added 3.0% to sales in the quarter ended May 31, 2021 and pricing actions decreased sales by 0.9% as compared to the prior year period.

In the third quarter of 2021, sales of our consumer segment increased 1.2% as compared to the third quarter of 2020, which experienced a 14.7% increase in sales from the 2019 level as a result of government-mandated measures—imposed in 2020 to mitigate the spread of COVID-19—resulted in a shift in consumer behavior toward at-home meal preparation, and decreased by 1.2% on a constant currency basis.

That 1.2% increase was driven by higher sales of our consumer business in our Asia/Pacific region, which was partially offset by lower sales in our EMEA region, both as compared to the prior year quarter.

Unfavorable volume and product mix decreased consumer segment sales by 3.3% in the third quarter of 2021 as compared to the same period last year, as the exceptionally strong demand that existed in the early stages of the pandemic in the year ago period has eased but remains strong.

Pricing actions decreased sales by 0.4% as compared to the prior year period, while the incremental

impact of the Cholula acquisition added 2.5% to sales.

Sales in the third quarter of 2021 reflected a favorable impact from foreign currency rates that increased consumer segment sales by 2.4% compared to the year-ago quarter and is excluded from our measure of sales decline of 1.2% on a constant currency basis.

In the Americas region, consumer sales increased 0.2% in the third quarter of 2021 as compared to the third quarter of 2020, which experienced a 17.2% increase in sales from the 2019 level as a result of exceptionally strong demand for our products in the early stages of the COVID-19 pandemic, and decreased by 0.6% on a constant currency basis.

For the third quarter of 2021, unfavorable volume and product mix decreased sales by 3.2% as compared to the corresponding period in 2020, as the exceptionally strong demand that existed in the early stages of the pandemic in the year ago period has eased but remains strong.

The incremental impact of the Cholula acquisition added 3.4% to sales in the quarter ended August 31, 2021 and pricing actions decreased sales by 0.8% as compared to the prior year period.

The favorable impact of foreign currency rates increased sales by 0.8% in the quarter and is excluded from our measure of sales decline of 0.6% on a constant currency basis.

In the EMEA region, consumer sales increased 3.6% in the second quarter of 2021 as compared to the second quarter of 2020, which experienced a 22.0% increase in sales from the 2019 level driven by the onset of the COVID-19 impact on greater consumer at-home meal preparation, and decreased by 4.2% on a constant currency basis.

Sales were impacted by unfavorable volume and product mix during the second quarter of 2021 that decreased sales by 5.2% from the prior year level.

The decrease, which included a decline in sales of homemade dessert products in France, was driven by a shift in the relative balance of at-home and away-from-home eating, as consumption began to ease from the unprecedented level of at home eating seen in the year ago period.

In the EMEA region, consumer sales decreased 6.0% in the third quarter of 2021 as compared to the third quarter of 2020, which experienced a 23.0% increase in sales from the 2019 level driven by the COVID-19 impact on greater consumer at-home meal preparation, and decreased by 10.6% on a constant currency basis.

Sales were impacted by unfavorable volume and product mix during the third quarter of 2021 that decreased sales by 11.0% from the prior year level.

The decrease was driven by a shift in the relative balance of at-home and away-from-home eating, as consumption eased from the level of at-home eating seen in 2020.

Pricing actions increased sales by 0.4% as compared to the 2020 period.

During the second quarter of 2021, a favorable impact from foreign currency rates increased sales by 7.8% compared to the year-ago period and is excluded from our measure of sales decline of 4.2% on a constant currency basis.

In the Asia/Pacific region, consumer sales increased 25.5% in the second quarter of 2021 as compared to the second quarter of 2020, which reflected a 17.9% decrease in sales from the 2019 level due mainly to COVID-19 disruption on foodservice sales in China, and increased by 15.0% on a constant currency basis.

For the quarter ended May 31, 2021, favorable volume and product mix increased sales by 14.0%.

The increase was driven by sharply higher sales in the foodservice component of our China business in the quarter ended May 31, 2021 and represents a strong rebound from the significant unfavorable impact of government mandated closures in response to COVID-19 during the comparable period of 2020.

Unfavorable volume and product mix across the rest of the region, including cooking-from-home products in China, partially offset the increase.

During the third quarter of 2021, a favorable impact from foreign currency rates increased sales by 4.6% compared to the year-ago period and is excluded from our measure of sales decline of 10.6% on a constant currency basis.

In the Asia/Pacific region, consumer sales increased 20.2% in the third quarter of 2021 as compared to the third quarter of 2020, which reflected an 8.7% decrease in sales from the 2019 level due mainly to COVID-19 disruption on foodservice sales in China, and increased by 10.6% on a constant currency basis.

For the quarter ended August 31, 2021, favorable volume and product mix increased sales by 9.9%.

The increase was driven by sharply higher sales in the foodservice component of our China business in the quarter ended August 31, 2021, as compared to a 2020 period that was slowly recovering from the unfavorable impacts of COVID-19 on away-from-home consumption.

Partially offsetting this increase were sales declines of cooking at-home products across the region from the elevated demand in the year-ago period.

Pricing actions increased sales by 0.7% as compared to the prior year period.

A favorable impact from foreign currency rates, which increased sales by 10.5% compared to the second quarter of 2020, is excluded from our measure of sales growth of 15.0% on a constant currency basis.

For the six months ended May 31, 2021, our consumer segment sales increased 13.8% as compared to the six months ended May 31, 2020 and increased by 10.7% on a constant currency basis.

That 13.8% sales increase was driven by higher sales of our consumer business in all regions during the six months ended May 31, 2021 and is in comparison to a 10.2% increase in sales during the six months ended May 31, 2020 as compared to the corresponding period in 2019.

Improved volume and product mix added 8.2% to sales and pricing actions reduced sales by 0.1% in the first half of 2021, both in comparison to the prior year levels.

The incremental impact of the Cholula acquisition added 2.6% to segment sales for the six months ended March 31, 2021.

A favorable impact from foreign currency rates, which increased sales by 9.6% compared to the third quarter of 2020, is excluded from our measure of sales growth of 10.6% on a constant currency basis.

For the nine months ended August 31, 2021, our consumer segment sales increased 9.4% as compared to the nine months ended August 31, 2020 and increased by 6.6% on a constant currency basis.

That 9.4% sales increase was driven by higher sales of our consumer business in all regions during the nine months ended August 31, 2021 and is in comparison to a 11.7% increase in sales during the nine months ended August 31, 2020 as compared to the corresponding period in 2019.

Improved volume and product mix added 4.2% to sales and pricing actions reduced sales by 0.2% in the first nine months of 2021, both in comparison to the prior year levels.

The incremental impact of the Cholula acquisition added 2.6% to segment sales for the nine months ended August 31, 2021.

A favorable impact from foreign currency rates increased sales by 2.8% compared to the prior year and is excluded from our measure of sales growth of 6.6% on a constant currency basis.

Segment operating income for our consumer segment decreased by $54.8 million, or 23.7%, in the second quarter of 2021 as compared to the second quarter of 2020.

The decrease in segment operating income was driven by the impact of increased material costs and higher brand marketing investment, partially offset by lower incentive-based compensation accruals and CCI-led cost savings, all as compared to the prior year period.

Segment operating margin for our consumer segment decreased by 540 basis points from the second quarter of 2020 to 18.7% in the second quarter of 2021.

That decrease was principally the result of the previously mentioned factors in conjunction with the unfavorable leverage of fixed and semi-fixed expenses over a lower sales base, as compared to the second quarter of 2020.

On a constant currency basis, segment operating income for our consumer segment decreased by 25.7% in the second quarter of 2021 in comparison to the same period in 2020.

We grew segment operating income for our consumer segment by $15.5 million, or 4.4%, for the six months ended May 31, 2021 as compared to the same period in 2020.

The increase in segment operating income was driven by the impact of higher sales and CCI-led cost savings, partially offset by incremental costs associated with COVID-19 and increased brand marketing investment.

The impact of COVID-19 on operating income during the six months ended May 31, 2021 reflected matters including the incremental impact of temporary arrangements to utilize co-manufacturing that increased our cost to produce certain products and measures to enable manufacturing and distribution staff to maintain social distancing and permit enhanced cleaning that reduced productivity.

On a constant currency basis, segment operating income for our consumer segment rose by 1.5% in the six months ended May 31, 2021 in comparison to the same period in 2020.

Segment operating margin for our consumer segment decreased by 170 basis points in the first half of 2021 to 19.4%, driven by a decrease in consumer gross profit margin, which was partially offset by the benefit from the leverage of fixed and semi-fixed expenses over a higher sales base as compared to the 2020 level.

Segment operating income for our consumer segment decreased by $21.2 million, or 10.1%, in the third quarter of 2021 as compared to the third quarter of 2020.

The decrease in segment operating income was driven by the impact of increased commodity costs, including transportation costs, partially offset by the sales impact of the Cholula acquisition, lower incentive-based compensation accruals and CCI-led cost savings, all as compared to the prior year period.

Segment operating margin for our consumer segment decreased by 250 basis points from the third quarter of 2020 to 20.4% in the third quarter of 2021.

That decrease was principally the result of a decrease in gross margin, including the impact of the inflationary cost environment, that was partially offset by a decrease in SG&A as a percentage of net sales, as compared to the third quarter of 2020.

On a constant currency basis, segment operating income for our consumer segment decreased by 11.6% in the third quarter of 2021 in comparison to the same period in 2020.

Segment operating income for our consumer segment decreased by $5.7 million, or 1.0%, for the nine months ended August 31, 2021 as compared to the same period in 2020.

The decrease in segment operating income was driven by the impact of increased commodities, packaging materials and transportation costs, increased conversion costs, which include incremental expenses related to COVID-19, and higher brand marketing investment, partially offset by higher sales, CCI-led cost savings and lower incentive-based compensation accruals, all as compared to the prior year period.

The impact of COVID-19 on operating income during the nine months ended August 31, 2021 reflected actions, including the incremental impact of temporary arrangements to utilize co-manufacturing, that increased our cost to produce certain products and measures to enable manufacturing and distribution staff to maintain social distancing and permit enhanced cleaning that reduced productivity.

Segment operating margin for our consumer segment decreased by 210 basis points in the first nine months of 2021 to 19.7%, driven by a decrease in segment gross profit margin, including the impact of the inflationary cost environment, which was partially offset by the

benefit from the leverage of fixed and semi-fixed expenses over a higher sales base as compared to the 2020 level.

On a constant currency basis, segment operating income for our consumer segment declined by 3.4% in the nine months ended August 31, 2021 in comparison to the same period in 2020.

FLAVOR SOLUTIONS SEGMENT

Three months ended Six months ended

May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020

Three months ended Nine months ended

August 31, 2021 August 31, 2020 August 31, 2021 August 31, 2020

Net sales $ 627.5 $ 519.4 $ 1,773.7 $ 1,470.4

2 unchanged sentences

Segment operating income margin 13.5 % 12.3 % 13.4 % 11.5 %

In the second quarter of 2021, sales of our flavor solutions segment increased by 39.5% as compared to the second quarter of 2020, which experienced an 18.5% decrease in sales from the 2019 level due to lower demand resulting from the broad-based impact of COVID-19 disruption on our quick service restaurant and branded food service customers at the onset of the pandemic, and increased by 34.6% on a constant currency basis.

The sales increase in the second quarter of 2021 included growth in all regions.

The incremental impact of our Cholula and FONA acquisitions added 9.2% to sales in the quarter ended May 31, 2021.

Favorable volume and product mix increased segment sales by 25.1% in the second quarter of 2021 as compared to the same period in 2020, as away-from-home consumption improved, in part, due to the less restrictive COVID-19 measures that were in place in the second quarter of 2021 than at the onset of the pandemic.

Pricing actions during the second quarter of 2021 increased sales by 0.3%.

In the third quarter of 2021, sales of our flavor solutions segment increased by 20.8% as compared to the third quarter of 2020, which experienced a 2.9% decrease in sales from the 2019 level due to lower demand resulting from the broad-based impact of COVID-19 disruption on our quick service restaurant and branded food service customers in the early stages of the pandemic, and increased by 16.6% on a constant currency basis.

The sales increase in the third quarter of 2021 included growth in all regions.

The incremental impact of our Cholula and FONA acquisitions added 8.0% to sales in the quarter ended August 31, 2021.

Favorable volume and product mix increased segment sales by 7.5% in the third quarter of 2021 as compared to the same period in 2020, as away-from-home consumption improved, in part, due to less restrictive COVID-19 measures that were in place in the third quarter of 2021 as compared to those in the early stages of the pandemic.

Pricing actions during the third quarter of 2021 increased sales by 1.1%.

The favorable impact of foreign currency rates increased flavor solutions segment sales by 4.2% compared to the year-ago quarter and is excluded from our measure of sales growth of 16.6% on a constant currency basis.

In the Americas region, flavor solutions sales increased by 31.6% during the second quarter of 2021 as compared to the second quarter of 2020, which experienced a sales decline of 15.0% from the 2019 level driven by lower sales to quick service restaurant and branded food service customers as a result of COVID-19 restrictions imposed at the onset of the pandemic, and increased by 29.7% on a constant currency basis.

Favorable volume and product mix increased flavor solutions sales in the Americas by 16.6% during the second quarter of 2021, driven by growth in branded foodservice that benefited from an increase in away-from-home eating that resulted from the easing of measures taken at the onset of the pandemic to address COVID-19, as compared to the year ago period.

The increase was partially offset by a decline in sales to quick service restaurant customers, including the effects of exiting certain low margin business.

The incremental impact of the Cholula and FONA acquisitions increased sales by 12.6% during the second quarter of 2021.

Pricing actions during the quarter ended May 31, 2021 increased sales by 0.5% as compared to the prior year period.

A favorable impact from foreign currency rates increased sales by 1.9% compared to the second quarter of 2020 and is excluded from our measure of sales growth of 29.7% on a constant currency basis.

In the EMEA region, flavor solutions sales in the second quarter of 2021 increased by 77.7% as compared to the second quarter of 2020, which experienced a sales decline of 34.3% from the 2019 level primarily as a result of decreased sales to quick service restaurants and lower branded food service sales that were partially offset by higher demand from packaged food service companies in response to COVID-19 restrictions implemented in 2020, and increased by 64.7% on a constant currency basis.

In the Americas region, flavor solutions sales increased by 20.8% during the third quarter of 2021 as compared to the third quarter of 2020, which experienced a sales decline of 4.7% from the 2019 level driven by lower sales to quick service restaurant and branded food service customers as a result of COVID-19 restrictions imposed in the early stages of the pandemic, and increased by 18.6% on a constant currency basis.

Favorable volume and product mix increased flavor solutions sales in the Americas by 5.4% during the third quarter of 2021, driven by growth in branded foodservice that benefited from an increase in away-from-home eating that resulted from the easing of measures taken in the early stages of the pandemic to address COVID-19, and growth with packaged food and beverage companies, each as compared to the year ago period.

The incremental impact of the Cholula and FONA acquisitions increased sales by 11.8% during the third quarter of 2021.

Pricing actions during the quarter ended August 31, 2021 increased sales by 1.4% as compared to the prior year period.

A favorable impact from foreign currency rates increased sales by 2.2% compared to the third quarter of 2020 and is excluded from our measure of sales growth of 18.6% on a constant currency basis.

In the EMEA region, flavor solutions sales in the third quarter of 2021 increased by 28.1% as compared to the third quarter of 2020, which experienced a sales decline of 1.0% from the 2019 level primarily as a result of decreased sales to quick service restaurants and lower branded food service sales that were partially offset by higher demand from packaged food service companies in response to COVID-19 restrictions implemented in 2020, and increased by 19.4% on a constant currency basis.

Favorable volume and product mix increased segment sales in the EMEA region by 18.5% as compared to the corresponding period in 2020.

The increase was broad based across the region with particular strength in sales to quick service restaurant customers.

The sharp increase in sales was primarily attributable to a relative shift toward away-from-home eating due to easing in the second quarter of 2021 of the more restrictive COVID-19 measures that were in place in the corresponding period in 2020 at the onset of the pandemic.

Pricing actions increased sales by 1.7% in the second quarter of 2021 as compared to the prior period level.

A favorable impact from foreign currency rates increased sales by 13.0% compared to the second quarter of 2020 and is excluded from our measure of sales growth of 64.7% on a constant currency basis.

In the Asia/Pacific region, flavor solutions sales increased 35.5% in the second quarter of 2021 as compared to the second quarter of 2020, which experienced a sales decline of 11.3% from the 2019 level driven by the impact of COVID-19 on sales to our flavor solutions customers outside of China, and increased by 22.6% on a constant currency basis.

Favorable volume and product mix increased sales by 25.6% in the second quarter of 2021, driven by broad based growth across the region, with particular strength in sales to quick service restaurant customers.

The sharp increase in sales in the second quarter of 2021 as compared to the corresponding 2020 period was primarily attributable to an improvement in away-from-home eating, in part, due to the easing of more restrictive COVID-19 measures that were in place during the onset of the pandemic in 2020.

The increase was driven by higher sales to quick service restaurants and branded foodservice customers combined with strong growth with packaged food companies.

Pricing actions increased sales by 0.9% in the third quarter of 2021 as compared to the prior period level.

A favorable impact from foreign currency rates increased sales by 8.7% compared to the third quarter of 2020 and is excluded from our measure of sales growth of 19.4% on a constant currency basis.

In the Asia/Pacific region, flavor solutions sales increased 8.4% in the third quarter of 2021 as compared to the third quarter of 2020, which experienced a sales increase of 4.9% from the 2019 level driven by higher sales to quick service restaurant customers in China and Australia, and increased by 0.8% on a constant currency basis.

Favorable volume and product mix increased sales by 1.6% in the third quarter of 2021.

Pricing actions decreased sales by 0.8% as compared to the prior year period.

A favorable impact from foreign currency rates increased sales by 12.9% compared to the second quarter of 2020 and is excluded from our measure of sales growth of 22.6% on a constant currency basis.

For the six months ended May 31, 2021, our flavor solutions sales increased 20.5% as compared to the six months ended May 31, 2020 and is in contrast to a 7.2% decline in segment sales during the six months ended May 31, 2020 from the 2019 level and increased by 17.8% on a constant currency basis.

Driving that increase in sales was higher demand during the second quarter of 2021 due to the aforementioned improvement in away-from-home eating.

Volume and product mix contributed 9.9% of the increase in addition to pricing actions which added 1.0% to sales for the first half of 2021, both in comparison to the prior year levels.

The incremental impact of our acquisitions of Cholula and FONA added 6.9% to segment sales for the six months ended March 31, 2021.

A favorable impact from foreign currency rates increased sales by 7.6% compared to the third quarter of 2020 and is excluded from our measure of sales growth of 0.8% on a constant currency basis.

For the nine months ended August 31, 2021, our flavor solutions sales increased 20.6% as compared to the nine months ended August 31, 2020 and is in contrast to a 5.7% decline in segment sales during the nine months ended August 31, 2020 from the 2019 level and increased by 17.3% on a constant currency basis.

Driving that increase in sales was higher demand during the

2021 period due to the aforementioned improvement in away-from-home eating.

Volume and product mix contributed 9.0% of the increase in addition to pricing actions which added 1.0% to sales for the first nine months of 2021, both in comparison to the prior year levels.

The incremental impact of our acquisitions of Cholula and FONA added 7.3% to segment sales for the nine months ended August 31, 2021.

A favorable impact from foreign currency rates increased sales by 3.3% compared to the prior year and is excluded from our measure of sales growth of 17.3% on a constant currency basis.

Segment operating income for our flavor solutions segment increased by $52.5 million, or 182.9%, in the second quarter of 2021 as compared to the second quarter of 2020.

The increase in segment operating income was driven by sharply higher sales, including the impact of acquisitions, favorable product mix, lower incentive based compensation accruals and CCI-led cost savings, which were partially offset by increased material costs.

Segment operating margin for our flavor solutions segment increased by 680 basis points from the prior year level to 13.3% in the second quarter of 2021, as the benefit from the leverage of fixed and semi-fixed expenses over a higher sales base as compared to the 2020 level, together with the accretive impact of the Cholula and FONA acquisitions on gross margins, were partially offset by higher material costs.

On a constant currency basis, segment operating income for our flavor solutions segment increased by 175.0% in the second quarter of 2021 as compared to the same period in 2020.

Segment operating income for our flavor solutions segment increased by $49.5 million, or 47.5%, for the six months ended May 31, 2021 as compared to the same period of 2020.

The increase in segment operating income was driven by higher sales, including the impact of acquisitions, CCI-led cost savings and favorable product mix, which was partially offset by increased material costs.

On a constant currency basis, segment operating income for our flavor solutions segment increased by 45.2% in the six months ended May 31, 2021, in comparison to the same period in 2020.

Segment operating margin for our flavor solutions segment increased by 240 basis points in the first half of 2021 to 13.4%, driven by higher segment gross margin as compared to the first six months of 2020.

Segment operating income for our flavor solutions segment increased by $20.4 million, or 31.8%, in the third quarter of 2021 as compared to the third quarter of 2020.

The increase in segment operating income was driven by sharply higher sales, including the impact of acquisitions, favorable product mix, lower incentive-based compensation accruals and CCI-led cost savings, which were partially offset by increased commodities, packaging materials and transportation costs.

Segment operating margin for our flavor solutions segment increased by 120 basis points from the prior year level to 13.5% in the third quarter of 2021, as the benefit from the leverage of fixed and semi-fixed expenses over a higher sales base as compared to the 2020 level, together with the accretive impact of the Cholula and FONA acquisitions on gross margins, were partially offset by higher commodities costs.

On a constant currency basis, segment operating income for our flavor solutions segment increased by 26.6% in the third quarter of 2021 as compared to the same period in 2020.

Segment operating income for our flavor solutions segment increased by $69.9 million, or 41.5%, for the nine months ended August 31, 2021 as compared to the same period of 2020.

Segment operating margin for our flavor solutions segment increased by 190 basis points in the first nine months of 2021 to 13.4% as the benefits from the leverage of fixed and semi-fixed expenses over a higher sales base as compared to the 2020 level, together with the accretive impact of the Cholula and FONA acquisitions on gross margins, were partially offset by the impact of the inflationary cost environment as compared to the first nine months of 2020.

On a constant currency basis, segment operating income for our flavor solutions segment increased by 38.1% in the nine months ended August 31, 2021, in comparison to the same period in 2020.

MARKET RISK SENSITIVITY

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All derivatives are designated as hedges.

The following table sets forth the notional values and unrealized net loss of the portfolio of our forward foreign currency and cross currency swap contracts:

May 31, 2021 November 30, 2020

The following table sets forth the notional values and unrealized net gain (loss) of the portfolio of our forward foreign currency and cross currency swap contracts:

August 31, 2021 November 30, 2020

Forward foreign currency:

Notional value $ 598.1 $ 383.8

Unrealized net loss (6.1) (6.8)

Unrealized net gain (loss) 4.6 (6.8)

Cross currency swaps:

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We also use interest rate swaps to minimize worldwide financing costs and to achieve a desired mix of fixed and variable rate debt.

We do not enter into

contracts for trading purposes, nor are we a party to any leveraged derivative instruments, and all derivatives are designated as hedges.

We do not enter into contracts for trading purposes, nor are we a party to any leveraged derivative instruments, and all derivatives are designated as hedges.

The following table sets forth the notional values and fair values of our interest rate swap contracts:

May 31, 2021 November 30, 2020

August 31, 2021 November 30, 2020

Notional value $ 350.0 $ 350.0

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CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

As of May 31, 2021, there have been no material changes in our contractual obligations and commercial commitments outside the ordinary course of business since November 30, 2020 other than the following, which are more fully described in notes 5 and 13 of the notes to the accompanying financial statements included in Item 1:

As of August 31, 2021, there have been no material changes in our contractual obligations and commercial commitments outside the ordinary course of business since November 30, 2020 other than the following, which are more fully described in note 5 of the notes to the accompanying financial statements included in Part I, Item 1 of this report:

(i) in February 2021, we issued $500.0 million of 0.90% notes due February 15, 2026;

(ii) in February 2021, we issued $500.0 million of 1.85% notes due February 15, 2031;

and (iii) in June 2021, we entered into a $1.5 billion five-year revolving credit facility, which will expire in June 2027 and which replaced both our prior five-year $1.0 billion revolving credit facility that was due to expire in August 2022 and our prior 364-day revolving credit facility that was due to expire in December 2021.

and (iii) in June 2021, we entered into a $1.5 billion five-year revolving credit facility, which will expire in June 2026 and which replaced both our prior five-year $1.0 billion revolving credit facility that was due to expire in August 2022 and our 364-day revolving credit facility that was due to expire in December 2021.

NON-GAAP FINANCIAL MEASURES

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• Special charges – Special charges consist of expenses associated with certain actions undertaken by the Company to reduce fixed costs, simplify or improve processes, and improve our competitiveness and are of such significance in terms of both up-front costs and organizational/structural impact to require advance approval by our Management Committee.

Upon presentation of any such proposed action (including details with respect to estimated costs, which generally consist principally of employee severance and related benefits, together with ancillary costs associated with the action that may include a non-cash component or a component which relates to inventory adjustments that are included in cost of goods sold;

Upon presentation of any such proposed action (generally including details with respect to estimated costs, which typically consist principally of employee severance and related benefits, together with ancillary costs associated with the action that may include a non-cash component or a component which relates to inventory adjustments that are included in cost of goods sold;

impacted employees or operations;

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• Transaction and integration expenses associated with the Cholula and FONA acquisitions – We exclude certain costs associated with our acquisitions of Cholula and FONA in November and December 2020, respectively, and their subsequent integration into the Company.

Such costs, which we refer to as “Transaction and integration expenses”, include transaction costs associated with each acquisition, as well as integration costs following the respective acquisition, including the impact of the acquisition date fair value adjustment for inventory, together with the impact of discrete tax items, if any, directly related to each acquisition.

Such costs, which we refer to as Transaction and integration expenses,

include transaction costs associated with each acquisition, as well as integration costs following the respective acquisition, including the impact of the acquisition date fair value adjustment for inventories, together with the impact of discrete tax items, if any, directly related to each acquisition.

• Income from sale of unconsolidated operations — We exclude the gain realized upon our sale of an unconsolidated operation in March 2021.

As more fully described in note 2 of the notes to the accompanying financial statements included in Item 1, our sale of our 26% interest in Eastern in resulted in a gain of $13.4 million, net of tax of $5.7 million.

As more fully described in note 2 of the notes to the accompanying financial statements included in Part I, Item 1 of this report, the sale of our 26% interest in Eastern in resulted in a gain of $13.4 million, net of tax of $5.7 million.

The gain is included in Income from unconsolidated operations in our consolidated income statement.

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A reconciliation of these non-GAAP financial measures to the related GAAP financial measures follows:

For the year ended November 30, 2020 For the three months ended For the six months ended Estimated for the year ending November 30, 2021

May 31, 2021 May 31, 2020 May 31, 2021 May 31, 2020

For the year ended November 30, 2020 For the three months ended For the nine months ended Estimated for the year ending November 30, 2021

August 31, 2021 August 31, 2020 August 31, 2021 August 31, 2020

Gross profit $ 2,300.4 $ 599.6 $ 590.3 $ 1,791.7 $ 1,639.7

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(1) Transaction and integration expenses include transaction and integration expenses associated with our acquisitions of Cholula and FONA.

These expenses include transaction expenses, integration expenses, including the effect of the fair value adjustment of acquired inventory on cost of goods sold and the unfavorable impact of a discrete item related to deferred State income tax expense during the first quarter of 2021, directly related to our December 2020 acquisition of FONA.

This unfavorable discrete tax item had an impact of $11.4 million or $0.04 per diluted share for the six months ended May 31, 2021.

These expenses include transaction expenses, integration expenses, including the effect of the fair value adjustment to acquired inventories on Cost of goods sold and the impact of a discrete deferred state income tax expense item, directly related to our December 2020 acquisition of FONA.

This discrete tax item had a favorable impact of $1.0 million for the three months ended August 31, 2021 and a net unfavorable impact of $10.4 million or $0.04 per diluted share for the nine months ended August 31, 2021.

(2) Adjusted gross profit margin is calculated as adjusted gross profit as a percentage of net sales for each period presented.

(3) Adjusted operating income margin is calculated as adjusted operating income as a percentage of net sales for each period presented.

(4) Adjusted income tax rate is calculated as adjusted income tax expense as a percentage of income from consolidated operations before income taxes excluding transaction and integration expenses and special charges of $226.3 million and $459.6 million for the three and six months ended May 31, 2021, respectively, $229.0 million and $394.4 million for the three and six months ended May 31, 2020, respectively, and $900.8 million for the year ended November 30, 2020.

(4) Adjusted income tax rate is calculated as adjusted income tax expense as a percentage of income from consolidated operations before income taxes excluding transaction and integration expenses and special charges of $241.9 million and $701.5 million for the three and nine months ended August 31, 2021, respectively, $243.5 million and $637.9 million for the three and nine months ended August 31, 2020, respectively, and $900.8 million for the year ended November 30, 2020.

Because we are a multi-national company, we are subject to variability of our reported U.S.

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Rates of constant currency growth (decline) follow:

Three Months Ended May 31, 2021

Three Months Ended August 31, 2021

Percentage Change

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Total adjusted operating income (0.3) % 2.4 % (2.7) %

Six Months Ended May 31, 2021

Nine Months Ended August 31, 2021

Percentage Change

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Total adjusted operating income 8.8 % 2.6 % 6.2 %

In addition, the following provides a summary of growth in net sales as reported and on a constant currency basis for the second quarter of 2021 as compared to the second quarter of 2019:

Three Months Ended May 31, 2021 as compared to

Three Months Ended May 31, 2019

In addition, the following provides a summary of growth in net sales as reported and on a constant currency basis for the third quarter of 2021 as compared to the third quarter of 2019:

Three Months Ended August 31, 2021 as compared to

Three Months Ended August 31, 2019

Percentage Change

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Percentage change in adjusted earnings per share in constant currency — diluted 3% to 5%

In addition to the above non-GAAP financial measures, we use a leverage ratio which is determined using non-GAAP measures.

A leverage ratio is a widely-used measure of ability to repay outstanding debt obligations and is a meaningful metric to investors in evaluating financial leverage.

We believe that our leverage ratio is a meaningful metric to investors in evaluating our financial leverage, although our method to calculate our leverage ratio may be different than the method used by other companies to calculate such a leverage ratio.

We determine our leverage ratio as net debt (which we define as total debt, net of cash in excess of $75.0 million) to adjusted earnings before interest, tax, depreciation and amortization (Adjusted EBITDA).

We define Adjusted EBITDA as net income plus expenses for interest, income taxes, depreciation and amortization, less interest income and as further adjusted for cash and non-cash acquisition-related expenses (which may include the effect of the fair value adjustment of acquired inventory on cost of goods sold), special charges, stock-based compensation expenses, certain gains or losses (which may include third party fees and expenses and transaction and integration costs), and pro forma Adjusted EBITDA of businesses acquired during the trailing twelve-month period then ended.

Adjusted EBITDA and our leverage ratio are both non-GAAP financial measures.

Our definition of the leverage ratio, which is based in part on Adjusted EBITDA, is consistent with the terms of our revolving credit facilities and non-cancellable synthetic lease for a to-be-constructed distribution facility that were in place as of May 31, 2021, which require us to maintain our leverage ratio below certain levels.

For further information with respect to the previously described revolving credit facilities and synthetic lease agreement, refer to note 6 and note 7, respectively, of the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended November 30, 2020.

As of May 31, 2021, our revolving credit facilities consisted of a five-year $1.0 billion revolving credit facility, which was scheduled to expire in August 2022, and a 364-day $1.0 billion revolving credit facility, which was scheduled to expire in December 2021.

In early fiscal 2021 following our acquisition of FONA, the levels specified in these revolving credit facilities under which we are required to maintain our leverage ratios were amended by the participating banks to increase the permitted maximum leverage ratios.

As amended, the maximum permitted leverage ratio under the terms of those revolving credit facilities was 4.5 as of the measurement dates at the end of each fiscal quarter in the year ending November 30, 2021.

That maximum ratio would have dropped to 4.25 on February 28, 2022 and to 3.75 for each measurement date at the end of each fiscal quarter for the remaining term of the five-year facility.

At the same time in early fiscal 2021, a similar amendment was made to our non-cancelable synthetic lease agreement for a to-be-constructed distribution facility.

In June 2021, the revolving credit facilities outstanding at May 31, 2021 were replaced by a five-year $1.5 billion revolving credit facility that will expire in June 2026.

That $1.5 billion revolving credit facility does not include a leverage ratio.

In July 2021, the previously described synthetic lease agreement was amended to eliminate the leverage ratio.

As of May 31, 2021, our leverage ratio as determined under the previously described facilities outstanding on that date was 3.7 as compared to the then maximum permitted leverage ratio of 4.5.

As more fully described in note 13 of the notes to the accompanying financial statements included in Item 1, in June 2021, we entered into a five-year $1.5 billion revolving credit facility, which will expire in June 2026.

This facility replaced (i) the five-year $1.0 billion revolving credit facility that was due to expire in August 2022 and (ii) the 364-day $1.0 billion revolving credit facility, which we entered into in the first quarter of fiscal 2021 and was due to expire December 2021.

The provisions of the new $1.5 billion revolving credit facility restrict subsidiary indebtedness and require us to maintain a minimum interest coverage ratio.

We anticipate that we will comply with the previously described financial covenant for the foreseeable future.

In an unforeseen event of non-compliance with this financial covenant, we anticipate that we would undertake to renegotiate the covenant with the existing bank groups or obtain additional financing to repay the outstanding amounts under the previously described revolving credit facilities and synthetic lease, in either case the expected impact of which would be an increase in the cost of these borrowings.

The following table reconciles our net income to Adjusted EBITDA and provides the computation of the leverage ratio, determined in accordance with the respective financial covenant under our previously described revolving credit facilities and synthetic lease, for the trailing twelve-month periods ended May 31, 2021 and November 30, 2020:

May 31, 2021 November 30, 2020

Net income $ 752.3 $ 747.4

Interest expense 135.3 135.6

Income tax expense 208.4 174.9

Depreciation and amortization 175.4 165.0

EBITDA $ 1,271.4 $ 1,222.9

Adjustments to EBITDA (1)

Adjusted EBITDA $ 1,407.8 $ 1,312.4

$ 5,244.2 $ 4,555.8

Leverage ratio (1)

(1) Adjustments to EBITDA are determined under the leverage ratio covenant in our previously described revolving credit facilities and synthetic lease agreement.

Those Adjustments to EBITDA include special charges, stock-based compensation expense, interest income, transaction and integration expenses, non-recurring gains on dispositions of businesses, and pro forma Adjusted EBITDA of businesses acquired by McCormick in the trailing twelve-month period.

That pro forma Adjusted EBITDA of acquired businesses represents the pre-acquisition date Adjusted EBITDA of an acquired business for a period that, together with that acquired business’ Adjusted EBITDA subsequent to the acquisition included in McCormick’s consolidated results, comprises twelve months of Adjusted EBITDA of the acquired business for the trailing twelve-month period.

Pro forma Adjusted EBITDA of acquired businesses included in Adjustments to EBITDA for the trailing twelve-month periods ended May 31, 2021 and November 30, 2020, were $33.7 million and $32.0 million, respectively.

(2) The leverage ratio covenant in our previously described revolving credit facilities and synthetic lease agreement defines net debt as the sum of short-term borrowings, current portion of long-term debt, and long-term debt, less the amount of cash and cash equivalents that exceeds $75.0 million.

LIQUIDITY AND FINANCIAL CONDITION

Six months ended

May 31, 2021 May 31, 2020

Nine months ended

August 31, 2021 August 31, 2020

Net cash provided by operating activities $ 372.9 $ 626.7

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Net cash provided by (used in) financing activities 347.0 (432.7)

In the condensed consolidated cash flow statements, the changes in operating assets and liabilities are presented excluding the translation effects of changes in foreign currency exchange rates as these do not reflect actual cash flows.

In the condensed consolidated cash flow statement, the changes in operating assets and liabilities are presented excluding the translation effects of changes in foreign currency exchange rates as these do not reflect actual cash flows.

In addition, in the cash flow statement, the changes in operating assets and liabilities are presented excluding the effect of acquired operating assets and liabilities, as the cash flow associated with acquisitions of businesses is presented as an investing activity.

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Operating Cash Flow — Net cash provided by operating activities (“cash flow from operations”) is historically lowest in the first quarter and highest in the fourth quarter of our fiscal year.

For the six months ended May 31, 2021 cash flow from operations of $228.7 million decreased $126.8 million from the same period of 2020.

For the nine months ended August 31, 2021 cash flow from operations of $372.9 million decreased $253.8 million from the same period of 2020.

This decrease was primarily driven by a higher use of cash associated with operating assets and liabilities, including the impact of higher cash used by working capital, the higher amount of certain employee benefits accrued as of the prior year-end and paid in the first quarter of the subsequent fiscal year, and the payment of transaction and integration costs associated with our recent acquisitions, each as compared to the prior year.

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All outstanding amounts related to suppliers participating in the SCF are recorded within the line entitled Trade accounts payable in our condensed consolidated balance sheets, and the associated payments are included in operating activities within our consolidated statements of cash flows.

As of May 31, 2021 and November 30, 2020 the amount due to suppliers participating in the SCF and included in "Trade accounts payable" was approximately $284.1 million and $273.6 million, respectively.

Investing Cash Flow — Cash used in investing activities of $753.6 million for the six months ended May 31, 2021 increased by $668.4 million as compared to $85.2 million for the corresponding period in 2020.

As of August 31, 2021 and November 30, 2020, the amount due to suppliers participating in the SCF and included in Trade accounts payable was approximately $291.1 million and $273.6 million, respectively.

Investing Cash Flow — Cash used in investing activities of $830.6 million for the nine months ended August 31, 2021 increased by $687.3 million as compared to $143.3 million for the corresponding period in 2020.

Our primary investing cash flows include the usage of cash associated with our acquisition of businesses and capital expenditures.

Our primary investing cash inflow in the six months ended May 31, 2021 was the $65.4 million of proceeds received from the sale of an unconsolidated operation, as more fully discussed in note 2 of the notes to the accompanying financial statements.

Cash usage related to the acquisition of businesses was $706.4 million during the six months ended May 31, 2021, principally related to our acquisition of FONA.

During the first six months of 2021, capital expenditures increased by $25.7 million from the 2020 level to $112.8 million.

Our primary investing cash inflow in the nine months ended August 31, 2021 was the $65.4 million of proceeds received from the sale of an unconsolidated operation, as more fully discussed in note 2 of the notes to the accompanying financial statements.

Cash usage related to the acquisition of businesses was $706.4 million during the nine months ended August 31, 2021, principally related to our acquisition of FONA.

During the first nine months of 2021, capital expenditures increased by $44.3 million from the 2020 level to $189.9 million.

We expect 2021 capital expenditures to approximate $275 million to support our planned growth, including the multi-year program to replace our global enterprise resource planning (ERP) system and other initiatives.

Financing Cash Flow — Financing activities provided cash of $377.9 million for the first six months of 2021, as compared to the corresponding period in 2020 when financing activities used cash of $230.5 million.

Financing Cash Flow — Financing activities provided cash of $347.0 million for the first nine months of 2021, as compared to the corresponding period in 2020 when financing activities used cash of $432.7 million.

The variability between years is principally a result of changes in our net borrowings, share repurchase activity, and dividends, all as described below.

The following table outlines our net borrowing activities:

Six months ended

May 31, 2021 May 31, 2020

Nine months ended

August 31, 2021 August 31, 2020

Net decrease in short-term borrowings $ (118.9) $ (432.0)

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Net cash provided from (used in) borrowing activities $ 625.4 $ (182.7)

During the six months ended May 31, 2021, we issued $500.0 million of 0.90% notes due February 15, 2026, with net cash proceeds received of $495.7 million.

During the nine months ended August 31, 2021, we issued $500.0 million of 0.90% notes due February 15, 2026, with net cash proceeds received of $495.7 million.

We also issued $500.0 million of 1.85% notes due February 15, 2031, with net cash proceeds received of $492.8 million.

The net proceeds from these issuances were used to pay down short-term borrowings, including a portion of the $1,443.0 million of commercial paper issued to fund our acquisitions of Cholula and FONA, and for general corporate purposes.

In the first six months of 2020, we issued $500 million of long-term debt with net proceeds from the issuance of $495.0 million.

We also repaid $41.7 million of long-term debt principally comprised of the required quarterly installment of $18.8 million on our 5-year term loan due August 2022.

The following table outlines the activity in our share repurchase program for the six months ended May 31, 2021 and May 31, 2020 (in millions):

During the three months ended August 31, 2021, we repaid the $250 million, 3.90% notes that matured on July 8, 2021.

In the first nine months of 2020, we issued $500 million of long-term debt with net proceeds from the issuance of $495.0 million.

We also repaid $256.0 million of long-term debt which consisted primarily of $250.0 million on our term loans due August 2022.

The following table outlines the activity in our share repurchase program for the nine months ended August 31, 2021 and 2020 (in millions):

Number of shares of common stock repurchased 0.04 0.52

Dollar amount $ 3.2 $ 46.0

As of May 31, 2021, $584.3 million remained of the $600 million share repurchase authorization approved by the Board of Directors in November 2019.

As of August 31, 2021, $581.4 million remained of the $600 million share repurchase authorization approved by the Board of Directors in November 2019.

The timing and amount of any shares repurchased is determined by our management based on its evaluation of market conditions and other factors.

During the three months ended May 31, 2021, we received proceeds of $6.2 million from exercised stock options as compared to $26.7 million received in the corresponding 2020 period.

We repurchased $13.0 million and $9.2 million of common stock during the six months ended May 31, 2021 and May 31, 2020, respectively, in conjunction with employee tax withholding requirements.

We increased dividends paid to $181.6 million in the first six months of 2021 from $164.9 million of dividends paid in the same period last year.

During the nine months ended August 31, 2021, we received proceeds of $10.5 million from exercised stock options as compared to $54.1 million received in the corresponding 2020 period.

We repurchased $13.3 million and $10.7 million of common stock during the nine months ended August 31, 2021 and August 31, 2020, respectively, in conjunction with employee tax withholding requirements.

We increased dividends paid to $272.4 million in the first nine months of 2021 from $247.4 million of dividends paid in the same period last year.

The timing and amount of any future dividends is determined by our Board of Directors.

The following table presents our leverage ratio for the trailing twelve-month periods ended May 31, 2021 and November 30, 2020:

May 31, 2021 November 30, 2020

Leverage ratio 3.7 3.5

Our leverage ratio was 3.7 as of May 31, 2021 as compared to the ratio of 3.5 as of November 30, 2020.

That increase is due to an increase in our net debt balance, primarily associated with the acquisition of FONA, which was partially offset by the increase to our trailing twelve-month Adjusted EBITDA.

Most of our cash is in our subsidiaries outside of the U.S.

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however, those balances are generally available without legal restrictions to fund ordinary business operations, capital projects and any possible future acquisitions.

At May 31, 2021 and May 31, 2020, we temporarily used $302.6 million and $118.9 million, respectively, of cash from our non-U.S.

At August 31, 2021 and August 31, 2020, we temporarily used $329.3 million and $184.6 million, respectively, of cash from our non-U.S.

subsidiaries to pay down short-term debt in the U.S.

During a quarter, our short-term borrowings vary, but are lower at the end of a quarter.

The average short-term borrowings outstanding for the six months ended May 31, 2021 and May 31, 2020 were $1,057.2 million and $757.0 million, respectively.

Those average short-term borrowings outstanding for the six months ended May 31, 2021 included average commercial paper outstanding of $994.2 million.

Total average debt outstanding for the six months ended May 31, 2021 and May 31, 2020 was $5,528.9 million and $4,468.9 million, respectively.

The average short-term borrowings outstanding for the nine months ended August 31, 2021 and August 31, 2020 were $1,023.7 million and $567.3 million, respectively.

Those average short-term borrowings outstanding for the nine months ended August 31, 2021 included average commercial paper outstanding of $963.8 million.

Total average debt outstanding for the nine months ended August 31, 2021 and August 31, 2020 was $5,564.8 million and $4,378.0 million, respectively.

The reported values of our assets and liabilities are significantly affected by fluctuations in foreign exchange rates between periods.

At May 31, 2021, the exchange rates for the Euro, British pound sterling, Canadian dollar, Australian dollar, Chinese renminbi and Polish zloty were higher than at November 30, 2020.

At August 31, 2021, the exchange rates for the British pound sterling, Canadian dollar, and Chinese renminbi were higher than at November 30, 2020.

At August 31, 2021, the exchange rates for Euro, Polish zloty, and Australian dollar were lower than at November 30, 2020.

Credit and Capital Markets

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The pricing of the credit facility is based on a credit rating grid that contains a fully drawn maximum pricing of the credit facility equal to LIBOR plus 1.75%.

The provisions of this new revolving credit facility restrict subsidiary indebtedness and require us to maintain certain minimum and maximum financial ratios.

We do not expect that these covenants would limit our access to this revolving credit facility for the foreseeable future.

The provisions of this new revolving credit facility restrict subsidiary indebtedness and require us to maintain a minimum interest coverage ratio.

We do not expect that this covenant would limit our access to this revolving credit facility for the foreseeable future.

This facility replaced the following prior revolving credit facilities:

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The terms of those revolving credit facilities are more fully described in note 6 of the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended November 30, 2020.

We engage in regular communication with all banks participating in our revolving credit facilities.

We engage in regular communication with all banks participating in our revolving credit facility.

During these communications, none of the banks have indicated that they may be unable to perform on their commitments.

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the expected results of operations of businesses acquired by the company, including the acquisitions of Cholula and FONA;

the expected impact of material costs and pricing actions on the company's results of operations and gross margins;

the expected impact of the inflationary cost environment, including commodity, packaging materials and transportation costs on our business;

the expected impact of pricing actions on the company's results of operations and gross margins;

the expected impact of factors affecting our supply chain, including transportation capacity, labor shortages, and absenteeism;

the expected impact of productivity improvements, including those associated with our Comprehensive Continuous Improvement (CCI) program and global enablement initiative;

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the company's ability to drive revenue growth;

the company's ability to increase pricing to offset, or partially offset, inflationary pressures on the cost of our products;

damage to the company's reputation or brand name;

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global economic and financial conditions generally, including the on-going impact of the exit of the United Kingdom (U.K.) from the European Union, availability of financing, interest and inflation rates, and the imposition of tariffs, quotas, trade barriers and other similar restrictions;

foreign currency fluctuations;

foreign currency

fluctuations;

the effects of increased level of debt service following the Cholula and FONA acquisitions as well as the effects that such increased debt service may have on the company's ability to borrow or the cost of any such additional borrowing, our credit rating, and our ability to react to certain economic and industry conditions;

impairments of indefinite-lived intangible

risks associated with the phase-out of LIBOR;

impairments of indefinite-lived intangible assets;

assumptions we have made regarding the investment return on retirement plan assets, and the costs associated with pension obligations;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis