What changed in this filing

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Item 1. Business

2022-01-27 compared with 2021-01-28 · 53 added, 54 removed, 146 unchanged (42% of the section changed)

McCormick is a global leader in flavor.

The company manufactures, markets and distributes spices, seasoning mixes, condiments and other flavorful products to the entire food industry–retailers, food manufacturers and foodservice businesses.

We manufacture, market and distribute spices, seasoning mixes, condiments and other flavorful products to the entire food industry–retailers, food manufacturers and foodservice businesses.

We also are partners in a number of joint ventures that are involved in the manufacture and sale of flavorful products, the most significant of which is McCormick de Mexico.

Our major sales, distribution and production facilities are located in North America, Europe and China.

Additional facilities are based in Australia, India, Central America, Thailand and South Africa.

In early fiscal 2021, we completed the purchase of FONA International, LLC and certain of its affiliates (FONA), a privately held company.

The purchase price was approximately $710 million, net of cash acquired, subject to certain customary purchase price adjustments.

Additional facilities are based in Australia, Central America, Thailand and South Africa.

On December 30, 2020, we completed the purchase of FONA International, LLC and certain of its affiliates (FONA), a privately held company.

The purchase price was approximately $708 million, net of cash acquired.

FONA is a leading manufacturer of clean and natural flavors providing solutions for a diverse customer base across various applications for the food, beverage and nutritional markets.

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At the time of the acquisition, annual sales of FONA were approximately $114 million.

The results of FONA’s operations will be included in our financial statements as a component of our flavor solutions segment from the date of FONA’s acquisition on December 30, 2020.

Unless expressly noted, our disclosures contained in this Annual Report on Form 10-K for the year ended November 30, 2020 exclude the impact of our acquisition of FONA.

The results of FONA’s operations have been included in our financial statements as a component of our flavor solutions segment from the date of acquisition.

On November 30, 2020, we completed the purchase of the parent company of Cholula Hot Sauce ® (Cholula) from L Catterton.

The purchase price was approximately $803 million, net of cash acquired, subject to certain customary purchase price adjustments.

The purchase price was approximately $801 million, net of cash acquired.

Cholula, a premium Mexican hot sauce brand, is a strong addition to McCormick’s global branded flavor portfolio, which broadens the Company’s offering in the high growth hot sauce category to consumers and foodservice operators and accelerates our condiment growth opportunities with a complementary authentic Mexican flavor hot sauce.

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The purchase price was approximately $4.2 billion.

The market-leading brands we acquired from RB Foods included French’s ® , Frank’s RedHot ® and Cattlemen’s ® , which are a natural strategic fit with our robust global branded flavor portfolio.

The iconic brands we acquired from RB Foods included French’s ® , Frank’s RedHot ® and Cattlemen’s ® , which are a natural strategic fit with our robust global branded flavor portfolio.

We believe that these additions moved us to a leading position in the attractive U.S.

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Our products deliver flavor when cooking at home, dining out, purchasing a quick service meal or enjoying a snack.

We offer our customers and consumers a range of products to meet the increasing demand for certain product attributes such as organic, reduced sodium, gluten-free and non-GMO (genetically modified organisms) and that extend from premium to value-priced.

We offer our customers and consumers a range of products to meet the increasing demand for certain product attributes such as clean-label, organic, natural, reduced sodium, gluten-free and non-GMO (genetically modified organisms) and that extend from premium to value-priced.

Consistent with market conditions in each segment, our consumer segment has a higher overall profit margin than our flavor solutions segment.

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We also market authentic regional and ethnic brands such as Zatarain’s ® , Stubb's ® , Thai Kitchen ® and Simply Asia ® .

In the Europe, Middle East and Africa (EMEA) region, our major brands include the Ducros ® , Schwartz ® , Kamis ® and Drogheria &

Alimentari ® brands of spices, herbs and seasonings and an extensive line of Vahiné ® brand dessert items.

In the Europe, Middle East and Africa (EMEA) region, our major brands include the Ducros ® , Schwartz ® , Kamis ® and Drogheria & Alimentari ® brands of spices, herbs and seasonings and an extensive line of Vahiné ® brand dessert items.

In China, we market our products under the McCormick and DaQiao ® brands.

In Australia, we market our spices and seasonings under the McCormick brand, our dessert products under the Aeroplane ® brand, and packaged chilled herbs under the Gourmet Garden brand.

In India, we market our spices and rice products under the Kohinoor ® brand.

In Australia, we market our spices and

seasonings under the McCormick brand, our dessert products under the Aeroplane ® brand, and packaged chilled herbs under the Gourmet Garden brand.

Elsewhere in the Asia/Pacific region, we market our products under the McCormick brand as well as other brands.

Approximately half of our consumer segment sales are spices, herbs and seasonings.

For these products, we are a category leader in our primary markets.

There are numerous competitive brands of spices, herbs and seasonings in the U.S.

Approximately two thirds of our consumer segment sales are spices and seasonings and condiments and sauces.

Within the spices and seasoning category, we are the brand leader globally and a category leader in our key markets.

In the condiments and sauces category, we are one of the brand leaders globally and in the U.S.

There are numerous competitive brands of spices and seasonings, and condiments and sauces in the U.S.

and additional brands in international markets.

Some are owned by large food manufacturers, while others are supplied by small privately-owned companies.

In this competitive environment, we are leading with innovation and brand marketing, and applying our analytical tools to help customers optimize the profitability of their spice and seasoning sales while simultaneously working to increase our sales and profit.

In this competitive environment, we are leading with innovation and brand marketing, and applying our analytical tools to help customers optimize the profitability of their sales of these categories while simultaneously working to increase our sales and profit.

Our customers span a variety of retailers that include grocery, mass merchandise, warehouse clubs, discount and drug stores, and e-commerce retailers served directly and indirectly through distributors or wholesalers.

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Some tend to specialize in a particular range of products and have a limited geographic reach.

Other competitors include larger publicly held flavor companies that are more global in nature, but which also tend to specialize in a narrower range of flavor solutions than McCormick.

Other competitors include large publicly held flavor companies that are more global in nature, but which also tend to focus on providing integrated solutions extending beyond flavor through the use of other functional and nutritional ingredients.

Raw Materials

The most significant raw materials used in our business are dairy products, pepper, vanilla, capsicums (red peppers and paprika), garlic, onion, rice and wheat flour.

The most significant raw materials used in our business are dairy products, pepper, capsicums (red peppers and paprika), onion, vanilla, garlic, and salt.

Pepper and other spices and herbs are generally sourced from countries other than the United States.

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We respond to this volatility in a number of ways, including strategic raw material purchases, purchases of raw material for future delivery, customer price adjustments and cost savings from our Comprehensive Continuous Improvement (CCI) program.

In addition, we rely on third-party transportation providers to deliver raw materials as well as our product to our customers.

Reduced availability of transportation capacity due to labor shortages, primarily as a result of the COVID-19 pandemic, has caused an increase in the cost of transportation for us and our suppliers.

Our products are sold directly to customers and also through brokers, wholesalers and distributors.

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In the flavor solutions segment, products are used by food and beverage manufacturers as ingredients for their finished goods and by foodservice customers as ingredients for menu items, as well as provided to their own customers for use in dine-in and take-out eating occasions, all to enhance the flavor of their foods.

Customers for the flavor solutions segment include food manufacturers and the foodservice industry supplied both directly and indirectly through distributors.

Customers for the flavor solutions segment include food manufacturers and the foodservice industry supplied through a variety of channels including directly and indirectly through distributors, wholesale foodservice suppliers and e-commerce.

We have a large number of customers for our products.

Sales to one of our consumer segment customers, Wal-Mart Stores, Inc., accounted for approximately 12% of consolidated sales in 2020 and 11% of consolidated sales in 2019 and 2018.

Sales to one of our flavor solutions segment customers, PepsiCo, Inc., accounted for approximately 11% of consolidated sales in 2020 and 10% of consolidated sales in both 2019 and 2018.

In 2020, 2019 and 2018,

the top three customers in our flavor solutions segment represented between 49% and 52% of our global flavor solutions sales.

Sales to one of our consumer segment customers, Wal-Mart Stores, Inc., accounted for approximately 11% of consolidated sales in 2021 and 2020 and 12% of consolidated sales in 2019.

Sales to one of our flavor solutions segment customers, PepsiCo, Inc., accounted for approximately 11% of consolidated sales in 2021, 2020 and 2019.

In 2021, 2020 and 2019, the top three customers in our flavor solutions segment represented between 48% and 52% of our global flavor solutions sales.

Trademarks, Licenses and Patents

We own a number of trademark registrations.

Although in the aggregate these trademarks are material to our business, the loss of any one of those trademarks, with the exception of our “McCormick,” “French’s ,” “Frank’s RedHot,” “Lawry’s,” “Zatarain’s,” “Cholula,” “Stubb's,” “Club House,” “Ducros,” “Schwartz,” “Vahiné,” "OLD BAY," "Simply Asia," "Thai Kitchen," "Kitchen Basics," “Kamis,” “Drogheria & Alimentari,” "DaQiao," “Kohinoor” and "Gourmet Garden" trademarks, would not have a material adverse effect on our business.

Although in the aggregate these trademarks are material to our business, the loss of any one of those trademarks, with the exception of our “McCormick,” “French’s ,” “Frank’s RedHot,” “Lawry’s,” “Zatarain’s,” “Cholula,” “Stubb's,” “Club House,” “Ducros,” “Schwartz,” “Vahiné,” "OLD BAY," "Simply Asia," "Thai Kitchen," "Kitchen Basics," “Kamis,” “Drogheria & Alimentari,” "DaQiao," and "Gourmet Garden" trademarks, would not have a material adverse effect on our business.

The “Mc – McCormick” trademark is extensively used by us in connection with the sale of our food products in the U.S.

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The loss of these license agreements would not have a material adverse effect on our business.

The term of the license agreements is generally three to five years or until such time as either party terminates the agreement.

Those agreements with specific terms are renewable upon agreement of the parties.

The term of the license agreements is generally two to three years or until such time as either party terminates the agreement.

Those agreements with specific terms may be renewable upon agreement of the parties.

We also own various patents, none of which are individually material to our business.

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Each segment operates in markets around the world that are highly competitive.

In this competitive environment, our growth strategies include customer intimacy and product innovation based on consumer insights.

In this competitive environment, our growth strategies include customer engagement and product innovation based on consumer insights.

Additionally, in the consumer segment, we are building brand recognition and loyalty through advertising and promotions.

Additionally, in our flavor solutions segment, we are differentiated by our culinary and consumer inspired flavor development as well the breadth of our product offering and customer engagement.

Governmental Regulation

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We employ various human resource programs in support of these objectives.

We had approximately 13,000 full-time employees worldwide as of November 30, 2020.

Our operations have not been affected significantly by work stoppages, other than those associated with temporary closures of plants related to the COVID-19 pandemic in fiscal 2020 and, in the opinion of management, employee relations are good.

In 2020, our employees demonstrated resiliency, agility and engagement in support of business continuity despite the challenges that arose in the pandemic.

We have approximately 300 employees in the United States who are covered by a collective bargaining contract, which is subject to renegotiation upon its expiration in 2021.

At our subsidiaries outside the U.S., approximately 2,500 employees are covered by collective bargaining agreements or similar arrangements.

We believe diversity and inclusion are at the core of our values and strategic business priorities.

We believe diversity, equity and inclusion are at the core of our values and strategic business priorities.

Throughout our business, we champion equality, supporting parity for women and under-represented groups as we work to create ethical, safe and supportive workplaces where our employees thrive.

We believe a diverse and inclusive workplace results in business growth and encourages increased innovation, retention of talent and a more engaged workforce.

We have various employee ambassador groups that provide a supportive, collaborative space for employees to come together to promote inclusion.

We have various employee ambassador groups that provide a supportive,

collaborative space for employees to come together to promote inclusion.

Respect for human rights is fundamental to our business and its commitment to ethical business conduct.

We measure employee engagement on an ongoing basis to solicit feedback and understand views of our employees, work environment and culture.

The results from engagement surveys are used to implement programs and processes designed to enhance employee engagement and improve the employee experience.

We had approximately 14,000 full-time employees worldwide as of November 30, 2021.

Since the onset of COVID-19 in 2020, our employees have demonstrated resiliency, agility and engagement in support of business continuity despite the challenges that have arisen in the pandemic.

We have approximately 400 employees in the United States who are covered by a collective bargaining contract.

At our subsidiaries outside the U.S., approximately 2,600 employees are covered by collective bargaining agreements or similar arrangements.

Through our continuous listening strategy, we measure employee engagement on an ongoing basis to solicit feedback and understand views of our employees, work environment and culture.

The results from these surveys are used to implement programs and processes designed to enhance employee engagement and improve the employee experience.

We are committed to the safety, health, and security of our employees.

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Information about our Executive Officers

In addition to the executive officers described in the 2021 Proxy Statement incorporated by reference in Part III, Item 10 of this Report, the following individuals are also executive officers of McCormick:

Manzone and Nneka L.

Manzone is 56 years old and, during the last five years, has held the following positions with McCormick:

June 2015 to present – Senior Vice President, Human Relations;

January 2015 to June 2015 – Vice President Global Human Relations;

January 2013 to January 2015 – Vice President Compensation and Benefits.

Rimmer is 49 years old and, during the last five years, has held the following positions with McCormick:

August 2020 to present – President Global Flavors and Extracts (part of our flavor solutions segment);

February 2019 to August 2020 – Senior Vice President, Business Transformation;

August 2017 to February 2019 – Senior Vice President, Strategy and Global Enablement;

April 2015 to August 2017 – Senior Vice President, Corporate Strategy and Development.

In addition to the executive officers indicated in the 2022 Proxy Statement incorporated by reference in Part III, Item 10 of this Report, the other executive officer of McCormick is Lisa B.

Manzone is 57 years old and has held the position of Senior Vice President, Human Relations since June 2015.

Operations Outside of the U.S.

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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 adequacy of internally generated funds and existing sources of liquidity, such as the availability of bank financing;

the anticipated sufficiency of future cash flows to enable the payments of interest and repayment of short- and long-term debt as well as quarterly dividends and the ability to issue additional debt or equity securities;

and expectations regarding purchasing shares of McCormick's common stock under the existing repurchase authorization.

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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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business interruptions due to natural disasters, unexpected events or public health crisis, including COVID-19;

issues affecting the company's supply chain and raw materials, including fluctuations in the cost and availability of raw and packaging materials;

issues affecting the company's supply chain and procurement of raw materials, including fluctuations in the cost and availability of raw and packaging materials;

labor shortage, turnover and labor cost increases;

government regulation, and changes in legal and regulatory requirements and enforcement practices;

the lack of successful acquisition and integration of new businesses, including the acquisitions of Cholula and FONA;

the lack of successful acquisition and integration of new businesses;

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;

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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;

risks associated with the phase-out of LIBOR;

impairments of indefinite-lived intangible assets;

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fundamental changes in tax laws;

including interpretations and assumptions we have made, and guidance that may be issued, regarding the U.S.

Tax Act enacted on December 22, 2017 and volatility in our effective tax rate;

including interpretations and assumptions we have made, and guidance that may be issued, and volatility in our effective tax rate;

climate change;

Environmental, Social and Governance (ESG) matters;

infringement of intellectual property rights, and those of customers;

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We make available free of charge through our website our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the United States Securities and Exchange Commission (the SEC).

The information and other content contained on our website are not part of (or incorporated by reference in) this report or any other document we file with the SEC.

The SEC maintains an internet website at www.sec.gov that contains reports, proxy and information statements, and other information regarding McCormick.

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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-K

Item 1. Business