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Item 7. Management’s Discussion and Analysis

2022-01-27 compared with 2021-01-28 · 434 added, 481 removed, 512 unchanged (64% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand McCormick & Company, Incorporated, our operations and our present business environment.

MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes thereto contained in Item 8 of this report.

We use certain non-GAAP information that we believe is important for purposes of comparison to prior periods and development of future projections and earnings growth prospects.

We use certain non-GAAP information — more fully described below under the caption Non-GAAP Financial Measures — that we believe is important for purposes of comparison to prior periods and development of future projections and earnings growth prospects.

This information is also used by management to measure the profitability of our ongoing operations and analyze our business performance and trends.

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On November 30, 2020, the Company effected a two-for-one stock split in the form of a stock dividend on all shares of the Company’s two classes of common stock.

On November 30, one like share was issued to each share outstanding to shareholders of record as of November 20, 2020.

All common stock and per share data has been retroactively adjusted to reflect the stock split.

On November 30, 2020, one like share was issued for each share outstanding to shareholders of record as of November 20, 2020.

All common stock and per share data have been retroactively adjusted to reflect the stock split.

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 and beverage industry–retailers, food manufacturers and foodservice businesses.

We manage our business in two operating segments, consumer and flavor solutions, as described in Item 1 of this report.

Our long-term annual growth objectives in constant currency are to increase sales 4% to 6%, increase adjusted operating income 7% to 9% and increase adjusted earnings per share 9% to 11%.

Impact of Global COVID-19 Pandemic –During the year ended November 30, 2020, the effects of a new coronavirus (COVID-19) and related actions to attempt to control its spread significantly impacted not only our operating results but also the global economy.

The impact of the global COVID-19 pandemic on our consolidated operating results in early fiscal 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.

In March 2020, as COVID-19 spread outside of China, significantly impacting the rest of the world, the World Health Organization designated the outbreak as a global pandemic.

The pandemic spread outside of China in the balance of fiscal year 2020 to impact operations in our Americas and Europe, Middle East and Africa (EMEA) regions in addition to elsewhere in our Asia/Pacific region.

The effects of COVID-19 and related actions to attempt to control its spread significantly impacted not only our operating results but also the global economy.

In the U.S., many state and local governments, based on local conditions, either recommended or mandated actions to slow the transmission of COVID-19.

These measures ranged from limitations on crowd size, together with closures of bars and dine-in restaurants, to mandatory orders for non-essential citizens to shelter in place.

Governments in non-U.S.

jurisdictions also implemented shelter-in-place orders, quarantines, significant restrictions on travel, as well as restrictions that prohibited many employees from going to work.

Borders between countries have been closed to contain the spread of COVID-19 contagion.

The extent and nature of government actions varied during fiscal year 2020 and in early fiscal year 2021 based upon the then-current extent and severity of the COVID-19 pandemic within their respective countries and localities.

We identified three priorities while navigating through the period of volatility and uncertainty associated with various stages of the COVID-19 pandemic:

▪ First, to ensure the health and safety of our employees and the quality and integrity of our products.

▪ Second, to keep our brands and our customers' brands in supply and to maintain the financial strength of our business.

▪ Third, to ensure McCormick emerges strong from this event.

The pandemic will come to an end and we believe that we will come out a better company by driving our long-term strategies, responding to changing consumer behavior and capitalizing on opportunities from our relative strength.

We implemented numerous measures over the course of fiscal 2020 to ensure that these priorities were achieved, including:

(i) for our manufacturing and distribution employees, who played a critical role in maintaining the supply of our products to our customers and consumers, we instituted pre-shift temperature checks, temporarily increased pay and benefits, and provided time to enable social distancing and even greater sanitation procedures during shift changes;

(ii) for our other employees, we instituted work-from-home arrangements;

(iii) we maintained close communication with customers and suppliers to enable us to react to changing demand;

and (iv) throughout the organization, we empowered global, regional and local crisis response teams that enabled us to react quickly to the challenging environment.

Our sales increased by 4.7% for the year ended November 30, 2020 over the 2019 level.

That increase was driven by an 10.0% increase in sales of our consumer segment, partially offset by a 3.5% decline in sales of our flavor solutions segment.

Our operating results have and will continue to be impacted by COVID-19, including the related recovery and the shift in consumer demand resulting from the pandemic.

We have partnered with our customers to monitor consumer demand changes and address the shift to at-home versus away-from-home consumption.

We estimate that away-from-home consumption has historically represented approximately 20% of our consolidated sales.

The effects of COVID-19 on consumer behavior have, on a net basis, favorably impacted the operating results of our consumer segment and unfavorably impacted the operating results of our flavor solutions segment during the year ended November 30, 2020.

The impact of COVID-19 on our consumer segment during fiscal 2020 resulted in a significant increase in at-home consumption and related demand for our products.

The unfavorable impact on our flavor solutions segment during the same periods was principally attributable to decreased demand from certain customers that were affected by government mandates related to COVID-19 in many of our markets.

Those measures required closures of, or capacity limitations on, dine-in restaurants or restricted operations of those restaurants to carry-out or delivery only and also restricted operations of quick service restaurants to drive-through pick-up or delivery.

The resulting negative demand impacts in our flavor solutions segment were partially offset by 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 impact of COVID-19 on our consumer segment and flavor solutions segment moderated during our fourth quarter of fiscal 2020.

During that quarter, our sales increased by 4.9% over the comparable period in 2019, driven by a 5.9% increase in sales of our consumer segment and a 3.1% increase in sales of our flavor solutions segment.

The 5.9% fourth quarter growth in sales of our consumer segment was moderated by the lack of availability of certain of our consumer products in the U.S.

following the sustained increase in demand earlier in 2020 that caused us to suspend or curtail production of some secondary products in the fourth quarter to protect the supply of our top selling holiday items.

Upon worsening COVID-19 infection levels in certain localities in late fiscal 2020 and in early fiscal 2021, local governmental authorities have either re-imposed some or all of earlier restrictions or imposed other restrictions, all in an effort to check the spread of COVID-19.

In early fiscal 2021, vaccines effective in combatting 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.

However, initial quantities of vaccines are limited and vaccine distributions, controlled by local authorities, are being allocated, generally first to front-line health care workers and other essential workers and next to those members of individual populations believed most susceptible to severe effects from COVID-19.

Full administration of the COVID-19 vaccines is unlikely to occur in most jurisdictions until mid- to late-2021.

The pace and shape of the COVID-19 recovery described above as well as the impact and extent of 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, incapable of fulfilling that increased demand.

COVID-19 – As a result of the COVID-19 pandemic, governments around the world either recommended or mandated actions to slow the transmission of the virus that included shelter-in-place orders, quarantines, limitations on crowd size, closures of dine-in restaurants and bars, and significant restrictions on travel, as well as work restrictions that prohibited many employees from going to work.

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 years ended November 30, 2021 and 2020 based upon the then-current extent and severity of the COVID-19 pandemic within their respective countries and localities.

We continue to actively monitor 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.

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

In 2021, our flavor solutions segment benefited from a recovery in away-from-home eating that more than offset the net sales declines experienced in 2020 as a result of restrictions imposed to reduce the spread of COVID-19.

The COVID-19 mitigation measures in 2020 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.

Although certain restrictive measures were reinstated during certain periods of 2021, the prevalence and scale of closures and operating limitations were less severe as compared to 2020.

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

For the year ended November 30, 2021 as compared to the year ended November 30, 2019

Percentage change

as reported Impact of foreign currency exchange Percentage change on constant currency basis

Consumer segment 20.4 % 2.1 % 18.3 %

Flavor Solutions segment 14.6 % 0.8 % 13.8 %

Total net sales 18.1 % 1.6 % 16.5 %

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 2.6%, 7.1% and 4.3% 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.

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 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.

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.

Also, governments may impose other laws, regulations or taxes which could adversely impact our business, financial condition or results of operations.

Also, governments may impose other laws, regulations or taxes related to COVID-19 which could adversely impact our business, financial condition, or results of operations.

Further, if our customers’ businesses are similarly affected, they might delay or reduce purchases from us.

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.

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 experienced inflationary cost increases in our commodities, packaging materials and transportation costs.

We expect that these inflationary cost increases will continue but we expect they will be partially mitigated by pricing actions implemented in the fourth quarter of fiscal 2021, those that we plan to implement in fiscal 2022 and by our Comprehensive Continuous Improvement (CCI) program-led cost savings.

During fiscal 2021, we also experienced 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.

In response to these supply chain pressures, we have taken actions build capacity as well as increase our supply chain related resources.

We expect these pressures to continue in 2022.

Sales growth :

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We measure the return on our brand marketing investment and have identified digital marketing as one of our highest return investments in brand marketing support.

Through digital marketing, we are connecting with consumers in a personalized way to deliver recipes, provide cooking advice and discover new products.

Through digital marketing, we are connecting with consumers in a personalized way to deliver recipes, provide cooking advice and help them discover new products.

New Products – For our consumer segment, we believe that scalable and differentiated innovation continues to be one of the best ways to distinguish our brands from our competition, including private label.

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For flavor solutions customers, we are developing seasonings for snacks and other food products, as well as flavors for new menu items.

We have a solid pipeline of flavor solutions aligned with our customers’ new product launch plans, many of which include “better-for-you” innovation.

We have a solid pipeline of flavor solutions products aligned with our customers’ new product launch plans, many of which include clean-label, organic, natural, and “better-for-you” innovation.

With over 20 product innovation centers around the world, we are supporting the growth of our brands and those of our flavor solutions customers with products that appeal to local consumers.

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

Since the beginning of 2015, we have completed nine acquisitions, which are driving sales in both our consumer and flavor solutions segments.

Since the beginning of 2017, we have completed four acquisitions, which are driving sales in both our consumer and flavor solutions segments.

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.

Our acquisitions have included bolt-on opportunities as well as the following recent acquisitions:

• On December 30, 2020, we acquired FONA International, LLC and certain of its affiliates (FONA), a privately owned company, for approximately $710 million, net of cash acquired, subject to certain customary purchase price adjustments.

Information with respect to our three most recent acquisitions is provided below:

• On December 30, 2020, we acquired FONA International, LLC and certain of its affiliates (FONA), a privately owned company, for approximately $708 million, net of cash acquired.

We financed this fiscal 2021 acquisition with cash and short-term borrowings.

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 which expands the breadth of our flavor solutions segment into attractive categories, as well as extends our technology platform, strengthens our capabilities, and accelerates the strategic migration of our portfolio to more value-added and technically insulated products.

• On November 30, 2020, we acquired the parent company of Cholula Hot Sauce® (Cholula) from L Catterton for approximately $803 million, net of cash acquired, subject to certain customary purchase price adjustments.

• On November 30, 2020, we acquired the parent company of Cholula Hot Sauce® (Cholula) from L Catterton for approximately $801 million, net of cash acquired.

Cholula 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 in both our consumer and flavor solutions segments.

• On August 17, 2017, we acquired Reckitt Benckiser's Food Division (RB Foods) for approximately $4.2 billion.

The acquired market-leading brands of 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 acquired iconic brands of 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.

condiments category and provide significant international growth opportunities for our consumer and flavor solutions segments.

The FONA and Cholula acquisitions are expected to contribute more than one-third of our sales growth in 2021.

The RB Foods acquisition contributed more than one-third of our sales growth in 2018 and 2017.

The FONA and Cholula acquisitions contributed approximately one-third of our sales growth in 2021.

Cost savings and business transformation :

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In the second quarter of fiscal 2020, we elected to pause activity related to our ERP for the balance of fiscal 2020 due, in part, to COVID-19 restrictions that restricted necessary travel by internal and external ERP team members and made it difficult for local McCormick personnel to actively participate in the ERP development, data cleansing, and testing prior to then scheduled pilots later in fiscal 2020.

In addition, the pause of this activity enabled all McCormick employees to focus their activities on the three priorities previously described under the heading “Impact of COVID-19 Pandemic” for navigating through the period of volatility and uncertainty associated with various stages of the COVID-19 pandemic.

We expect that, in total over the course of the ERP replacement program from late 2018 through 2023, we will invest from approximately $350 million to $400 million, including expenses related to the go-live activities in our operations, to enable the anticipated completion of the global roll out of our new information technology platform in 2022.

Of that projected, $350 million to $400 million, we expect capitalized software to account for approximately 50% and program expenses to account for approximately 50%.

Of the approximately $175 million to $200 million of operating expenses included in our projected total spending related to our ERP replacement program, approximately $40 million have been recognized through November 30, 2020.

Of the approximately $175 million to $200 million of capitalized software included in our projected total spending related to our ERP program, approximately $87 million has been recognized through November 30, 2020.

During fiscal 2021, we resumed activities related to our ERP replacement program.

We expect that, in total over the course of the ERP replacement program from late 2018 through 2025, we will invest approximately $400 million, including expenses related to the go-live activities in our operations, to enable the anticipated completion of the global roll out of our new information technology platform in 2024.

Of that projected $400 million, we expect capitalized software to account for approximately 50% and program expenses to account for approximately 50%.

Of the approximately $200 million of operating expenses included in our projected total spending related to our ERP replacement program, approximately $85 million has been recognized through November 30, 2021.

Of the approximately $200 million of capitalized software included in our projected total spending related to our ERP program, approximately $115 million has been recognized through November 30, 2021.

The GE initiative is expected to generate annual savings, ranging from approximately $45 million to $55 million, once all actions are implemented, including those that are dependent on the replacement of our global ERP platform.

We continue to generate strong cash flow.

Net cash provided by operating activities reached $1,041.3 million in 2020, an increase of $94.5 million from the $946.8 million realized in 2019.

Net cash provided by operating activities was $828.3 million, $1,041.3 million and $946.8 million in 2021, 2020, and 2019, respectively.

In 2021, we continued to have a balanced use of cash for debt repayment, capital expenditures and the return of cash to shareholders through dividends and share repurchases.

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Operating Results :

On a long-term basis, we expect a combination of acquisitions and share repurchases to add about 2% to earnings per share growth.

On a long-term basis, we expect a combination of acquisitions, share repurchases and debt repayments, and the resulting impact on interest expense, to add about 2% to earnings per share growth.

In 2021, we achieved further growth of our business with net sales rising 12.8% over the 2020 level due to the following factors:

• We grew volume and product mix, which added 3.7% of sales growth.

This growth was driven by sharply higher demand within our consumer segment, as the continuation of measures imposed to mitigate the spread of COVID-19 and the related change in consumer behavior, resulted in a shift in consumer behavior toward at-home meal preparation that more than offset lower demand within our flavor solutions segment principally associated with our branded food service customers.

• We grew volume and product mix, which added 5.5% of sales growth, exclusive of acquisitions.

This growth was driven by increases in both our consumer and flavor solutions segments.

Increased net sales within our consumer segment was driven by strong demand due to a sustained shift in consumer behavior toward at-home meal preparation, which was first seen in 2020 as a response to actions taken to mitigate the spread of COVID-19.

Increased net sales within our flavor solutions segment was principally driven by sales of away-from-home products as compared to 2020, when actions taken to mitigate the spread of COVID-19 significantly impacted demand.

• Pricing actions contributed 0.8% of the increase in net sales.

• Net sales growth was negatively impacted by fluctuations in currency rates that decreased sales growth by 0.6%.

• Acquisitions contributed 4.1% of the increase in net sales.

• Net sales growth was positively impacted by fluctuations in currency rates that increased sales growth by 2.4%.

Excluding this impact, we grew sales by 10.4% over the prior year on a constant currency basis.

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We recorded $51.1 million and $6.9 million of special charges in 2021 and 2020, respectively, related to organization and streamlining actions.

In 2020, we also recorded $12.4 million of transaction and integration expenses related to our acquisitions of Cholula and FONA that reduced operating income.

In 2020, compared to the year-ago period, the favorable impact of higher sales and $113.0 million of cost savings from our CCI program, including organization and streamlining actions, more than offset the impact of increased conversion costs, COVID-19 related expenses, higher incentive compensation, and the unfavorable impact of foreign currency exchange rates.

During 2020, COVID-19 related

expenses included certain actions taken in response to the pandemic, including the impact of temporary arrangements that increased salaries and benefits paid to our manufacturing employees, measures to enable manufacturing and distribution staff to maintain social distancing and permit enhanced cleaning between shifts that reduced productivity, and impact of lower production volumes of flavor solutions inventories.

Excluding special charges together with, for 2020, transaction and integration expenses related to our acquisitions of Cholula and FONA, adjusted operating income was $1,018.8 million in 2020, an increase of 4.1%, compared to $978.5 million in the year-ago period.

Special charges in 2021 included $4.7 million in cost of goods sold related the exit of a low margin business.

In 2021 and 2020, we also recorded $35.3 million and $12.4 million of transaction and integration expenses, respectively, related to our acquisitions of Cholula and FONA that reduced operating income.

In 2021, compared to the year-ago period, the favorable impact of higher sales, $117.0 million of cost savings from our CCI program, including organization and streamlining actions, and lower incentive-based compensation more than offset the impact of increased commodity, packaging materials and transportation costs, higher conversion costs, which include costs associated with COVID-19, and increased brand marketing costs.

Excluding special charges and transaction and integration expenses related to our acquisitions of Cholula and FONA, adjusted operating income was $1,101.5 million in 2021, an increase of 8.1%, compared to $1,018.8 million in the year-ago period.

In constant currency, adjusted operating income rose 6.2%.

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Diluted earnings per share was $2.80 in 2021 and $2.78 in 2020.

The year-on-year increase in earnings per share was driven mainly by higher operating income and decreased interest expense.

Those favorable impacts in 2020 were partially offset by the impact of a higher effective tax rate, a decrease in other income and the impact of higher shares outstanding.

Special charges, and in 2020, transaction and integration expenses lowered earnings per share by $0.05 and $0.06 in 2020 and 2019, respectively.

Excluding the effects of special charges, transaction and integration expenses, and the non-recurring benefit of the U.S.

Tax Act, adjusted diluted earnings per share was $2.83 in 2020 and $2.68 in 2019, or an increase of 5.6%.

In 2021, we expect to grow net sales over the 2020 level by 7% to 9%, including an estimated 2% favorable impact from currency rates, or 5 to 7% 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 7% to 9% sales growth, and higher volume and product mix driven by our category management, brand marketing, new product, and differentiated customer engagement growth plans.

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

We expect our 2021 gross profit margin to range from a decline of 10 basis points to an increase of 15 basis points from our gross profit margin of 41.1% in 2020.

The projected 2021 range of change 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 $6.9 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 expenses of approximately $10 million in 2021 over the 2020 level, and (iv) an anticipated low-single-digit level of inflation in 2021 compared to 2020.

Excluding the $6.9 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 range from comparable to 25 basis points higher than our 2020 gross profit margin of 41.1%.

In 2021, we expect an increase in operating income of 4% to 6%, which includes an estimated 2% favorable impact from currency rates, over the 2020 level.

The projected range of change in operating income in 2021 reflects an expected increase of approximately $30 million in expense related to our global ERP replacement program over the fiscal 2020 level.

Our CCI-led cost savings target in 2021 is approximately $110 million and approximates the $113 million of CCI-led cost savings realized in 2020.

We anticipate transaction and integration expenses related to the Cholula and FONA acquisitions of approximately $50 million to negatively impact operating income in 2021, as compared to $12.4 million of transaction and integration expenses in 2020.

The year-on-year increase in earnings per share was primarily driven by higher operating income.

Special charges and transaction and integration expenses lowered earnings per share by $0.30 and $0.05 in 2021 and 2020, respectively.

A gain on our sale of an unconsolidated operation increased earnings per share by $0.05 in 2021.

Excluding the effects of special charges, transaction and integration expenses, and the gain realized from the sale of an unconsolidated operation, adjusted diluted earnings per share was $3.05 in 2021 and $2.83 in 2020, or an increase of 7.8%.

In 2022, we expect to grow net sales over the 2021 level by 3% to 5%, which includes an estimated 1% unfavorable impact from currency rates, or 4% to 6% on a constant currency basis.

That anticipated 2022 sales growth includes the impact of pricing actions, including those taken in 2021, to partially offset cost increases.

We expect the impact of pricing to be a significant driver of our sales growth.

We expect volume and product mix to be impacted by pricing elasticities, although at a lower level than we have experienced historically.

We anticipate that our volume and product mix will also be impacted by the exit of a lower margin product line in late 2021.

We expect our 2022 gross profit margin to range from an increase of 20 basis points to a decline of 30 basis points from our gross profit margin of 39.5% in 2021.

The projected 2022 change in gross profit margin is principally due to the net effect of (i) a mid-teen percentage impact of inflation in 2022 compared to 2021, (ii) the favorable impact of pricing actions in response to increased commodity, packaging materials and transportation costs, (iii) anticipated unfavorable sales mix in 2022 between our consumer and flavor solutions segments as compared to 2021, (iv) the favorable impact of anticipated CCI cost savings, and (v) the lack of $11.0 million of transaction and integration expenses and special charges reflected in cost of goods sold in 2021.

We expect our 2022 gross profit margin, excluding the $11.0 million of transaction and integration expenses and special charges in 2021, to range from comparable to a decline of 50 basis points from our 2021 adjusted gross profit margin of 39.7%.

In 2022, we expect an increase in operating income of 13% to 15%, which includes an estimated 1% unfavorable impact from currency rates, over the 2021 level.

Our CCI-led cost savings target in 2022 is approximately $85 million.

We anticipate integration expenses related to the FONA acquisition of approximately $3 million to favorably impact operating income in 2022, as compared to $35.3 million of transaction and integration expenses in 2021.

We also expect approximately $30 million of special charges in 2022 that relate to previously announced organization and streamlining actions;

in 2021, special charges were $51.1 million.

Excluding special charges and transaction and integration expenses, we expect 2021’s adjusted operating income to increase by 8% to 10%, which includes an estimated 2% favorable impact from currency rates, or to increase by 6% to 8% on a constant currency basis over the 2020 level.

Excluding special charges and transaction and integration expenses, we expect 2022’s adjusted operating income to increase by 7% to 9%, which includes an estimated 1% unfavorable impact from currency rates, or to increase by 8% to 10% on a constant currency basis over the 2021 level.

Our underlying effective tax rate is projected to be higher in 2022 than in 2021.

We estimate our effective tax rate, including the net favorable impact of anticipated discrete tax items, to approximate 24% in 2021 as compared to 19.8% in 2020.

Excluding projected taxes associated with special charges and transaction and integration expenses, including the unfavorable impact in 2021 of a discrete tax item related to our acquisition of FONA, we 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.

We estimate that our 2022 effective tax rate, including the net favorable impact of anticipated discrete tax items, will be 22% to 23% as compared to 21.5% in 2021.

Excluding projected taxes associated with special charges and transaction and integration expenses, we estimate that our adjusted effective tax rate will be 22% to 23% in 2022, as compared to an adjusted effective tax rate of 20.1% in 2021.

Diluted earnings per share was $2.80 in 2021.

Diluted earnings per share for 2022 is projected to range from $3.07 to $3.12.

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 $0.02 and from transaction and integration expenses of $0.18, including the unfavorable impact of a discrete tax item of $0.04 related to our acquisition of FONA) is projected to range from $2.91 to $2.96 in 2021.

We expect adjusted diluted earnings per share to grow by 3% to 5%, which includes a 2% favorable impact from currency rates, or to grow by 1% to 3% on a constant currency basis over adjusted diluted earnings per share of $2.83 in 2020.

Excluding the per share impact of i) special charges of $0.16;

ii) transaction and integration expenses, including the unfavorable impact of a discrete tax item of $0.04 related to our acquisition of FONA, of $0.14;

and iii) the gain realized upon our sale of an unconsolidated operation of $0.05, adjusted diluted earnings per share was $3.05 in 2021.

Adjusted diluted earnings per share, excluding an estimated per share impact from special charges of $0.09 and from integration expenses of $0.01, is projected to range from $3.17 to $3.22 in 2022.

We expect adjusted diluted earnings per share to grow by 4% to 6%, which includes a 1% unfavorable impact from currency rates, or to grow by 5% to 7% on a constant currency basis over adjusted diluted earnings per share of $3.05 in 2021.

RESULTS OF OPERATIONS—2021 COMPARED TO 2020

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Pricing actions 0.8 % 1.6 %

Acquisitions 4.1 % — %

Foreign exchange 2.4 % (0.6) %

Sales for 2021 increased by 12.8% from 2020 and by 10.4% on a constant currency basis.

That 12.8% sales increase was driven by higher sales in both our consumer and flavor solutions segments.

On a consolidated basis, higher volume and favorable product mix increased sales by 5.5% while pricing actions, which were primarily taken in the fourth quarter, added 0.8% to sales.

That net volume increase and favorable mix was driven by continued levels of strong demand within our consumer segment, as the shift in consumer behavior toward at-home meal preparation, first seen in 2020 as a response to actions taken to mitigate the spread of COVID-19, has persisted.

In addition, our flavor solutions segment volume increased principally due to a recovery in demand for away-from-home products, including higher sales to our branded food service customers, as compared to 2020.

Sales were also impacted by favorable foreign currency rates that increased net sales 2.4% compared to 2020 and is excluded from our measure of sales growth of 10.4% on a constant currency basis.

Gross profit $ 2,494.6 $ 2,300.4

Gross profit margin 39.5 % 41.1 %

In 2021, our gross profit margin decreased 160 basis points to 39.5% from 41.1% in 2020.

The decline was driven by the impact of 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 as compared to 2020.

These unfavorable impacts were partially offset by savings from our CCI program, pricing actions, improved product mix and the accretive impact of the Cholula and FONA acquisitions, each as compared to the prior year period.

In addition, our 2021 gross profit margin was burdened by (i) $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, and (ii) a non-cash special charge of $4.7 million

associated with the exit of a low margin business in our Asia/Pacific region.

Excluding the transaction expense and special charges, adjusted gross profit margin decreased by 140 basis points from 41.1% in 2020 to 39.7% for the year ended November 30, 2021.

Selling, general & administrative expense $ 1,404.1 $ 1,281.6

Percent of net sales 22.3 % 22.9 %

Selling, general and administrative (SG&A) expense was $1,404.1 million in 2021 compared to $1,281.6 million in 2020, an increase of $122.5 million.

That increase in SG&A expense was primarily a result of (i) SG&A associated with the Cholula and FONA acquisitions;

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

and (iii) increased brand marketing costs, 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 2021 decreased by 60 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.

Special charges included in cost of goods sold $ 4.7 $ —

Other special charges 46.4 6.9

Total special charges $ 51.1 $ 6.9

We regularly evaluate whether to implement changes to our organization structure to reduce fixed costs, simplify or improve processes, and improve our competitiveness, and we expect to continue to evaluate such actions in the future.

From time to time, those changes are of such significance in terms of both up-front costs and organizational/ structural impact that we obtain advance approval from our Management Committee and classify expenses related to those changes as special charges in our financial statements.

During 2021, we recorded $51.1 million of special charges, consisting principally of (i) $19.5 million associated with our exit of our rice product line in India, as more fully described below, (ii) $6.2 million associated with the transition of a manufacturing facility in EMEA, (iii) streamlining actions of $10.3 million in the Americas region and $4.8 million in the EMEA region, and (iv) a non-cash asset impairment charge of $6.0 million associated with an administrative site that was sold in conjunction with our decision to employ a hybrid work environment.

As more fully described in note 3 of our notes of consolidated financial statements, the $19.5 million special charge associated with the exit of our rice product line in India consisted of an $11.2 million non-cash impairment charge associated with the impairment of certain intangible assets, $3.6 million of employee severance and other related exit costs, and a $4.7 million charge in cost of goods sold which represents a provision for the excess of the carrying value of rice inventories over the estimated net realizable value and a contractual obligation associated with terminating a rice supply agreement.

During 2020, we recorded $6.9 million of special charges, consisting of $5.3 million related to streamlining actions in our EMEA region and $1.6 million related to our GE initiative.

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

Other transaction and integration expenses 29.0 12.4

Total transaction and integration expenses $ 35.3 $ 12.4

During 2021, we recorded transaction and integration expenses of $35.3 million 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) $15.2 million of integration expenses.

Transaction and integration expenses related to our acquisitions of Cholula and FONA of $11.2 million and $1.2 million, respectively, were incurred late in fiscal 2020.

Operating income $ 1,015.1 $ 999.5

Percent of net sales 16.1 % 17.8 %

Operating income increased by $15.6 million, or 1.6%, from $999.5 million in 2020 to $1,015.1 million in 2021.

Special charges and transaction and integration expenses increased by $67.1 million in 2021, as compared to 2020, and negatively impacted operating income.

Operating income as a percentage of net sales declined by 170 basis points in 2021, to 16.1% in 2021 from 17.8% in 2020 as a result of the factors previously described.

Excluding the effect of special charges and transaction and integration expenses previously described, adjusted operating income was $1,101.5 million in 2021 as compared to $1,018.8 million in 2020, an increase of $82.7 million or 8.1% over the 2020 level.

Adjusted operating income as a percentage of net sales declined by 80 basis points in 2021, to 17.4% in 2021 from 18.2% in 2020.

Interest expense $ 136.6 $ 135.6

Other income, net 17.3 17.6

Interest expense was $1.0 million higher for 2021 as compared to the prior year as an increase in average total borrowings was largely offset by a decrease in interest rates.

Other income, net for 2021 decreased by $0.3 million as lower non-service cost income associated with our pension and postretirement benefit plans was partially offset by higher interest income, as compared to 2020.

The decrease was also impacted by non-operating foreign currency transaction gains in 2021, as compared to non-operating foreign currency transaction losses in the prior period.

Income from consolidated operations before income taxes $ 895.8 $ 881.5

Income tax expense 192.7 174.9

Effective tax rate 21.5 % 19.8 %

The provision for income taxes is based on the estimate of the annual effective tax rate adjusted to reflect the tax impact of items discrete to the fiscal period.

We record tax expense or tax benefits that do not relate to ordinary income in the current fiscal year discretely in the period in which such items occur pursuant to the requirements of U.S.

Examples of such types of discrete items not related to ordinary income include, but are not limited to, excess tax benefits associated with share-based payments to employees, 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 and the tax effects of certain intra-entity asset transfers (other than inventory).

The effective tax rate was 21.5% in 2021 as compared to 19.8% in 2020.

The increase in our effective tax rate was principally attributable to the lower level of net discrete tax benefits in 2021 as compared to 2020.

Net discrete tax benefits were $26.6 million in 2021, a decrease of $16.8 million from $43.4 million in 2020.

Discrete tax benefits in both the 2021 and 2020 periods included excess tax benefits associated with share-based payments to employees ($4.3 million and $14.2 million in 2021 and 2020, respectively), the reversal of reserves for unrecognized tax benefits ($22.5 million and $4.9 million in 2021 and 2020, respectively) due to, in 2021, 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, and in both years due to the expiration of the statues of limitations, the release of valuation allowances due to a change in judgment about realizability of deferred tax assets ($4.4 million and $11.9 million in 2021 and 2020, respectively) and other discrete items.

In 2021, discrete tax items included $4.0 million of tax benefits related to the revaluation of deferred taxes resulting from enacted legislation and $10.4 million of deferred state tax expense directly related to our December 2020 acquisition of FONA.

In 2020, discrete tax items included $9.9 million of tax benefits associated with intra-entity asset transfers that occurred.

See note 13 of notes to our consolidated financial statements for a more detailed reconciliation of the U.S.

federal tax rate with the effective tax rate.

Income from unconsolidated operations $ 52.2 $ 40.8

Income from unconsolidated operations, which is presented net of the elimination of earnings attributable to non-controlling interests, increased $11.4 million in 2021 from the prior year, 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 5 of the notes to the accompanying financial statements.

We own 50% of most of our unconsolidated joint ventures, including our largest joint venture,

McCormick de Mexico, that comprised 62% and 75% of the income of our unconsolidated operations in 2021 and 2020, respectively.

The relative impact of McCormick de Mexico on income from unconsolidated operations in 2021 was impacted by the gain on our sale of an unconsolidated operation.

We reported diluted earnings per share of $2.80 in 2021, compared to $2.78 in 2020.

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

The increase in adjusted operating income in the table below includes the impact from favorable currency exchange rates in 2021.

2020 Earnings per share—diluted $ 2.78

Increase in operating income 0.25

Increase in special charges (0.15)

Increase in transaction and integration expenses, including impact of net discrete tax item related to FONA acquisition (0.10)

Impact of income taxes, excluding taxes on special charges and transaction and integration expenses (0.01)

Increase in income from unconsolidated operations, including an after-tax gain on sale of unconsolidated operation of $0.05 per diluted share 0.04

Impact of higher shares (0.01)

2021 Earnings per share—diluted $ 2.80

Results of Operations—Segments

We measure the performance of our business segments based on operating income, excluding special charges and transaction and integration expenses related to our acquisitions.

See note 16 of notes to our consolidated financial statements for additional information on our segment measures as well as for a reconciliation by segment of operating income, excluding special charges and transaction and integration expenses related to our acquisitions.

In the following discussion, we refer to our previously described measure of segment profit as "Segment operating income".

Consumer Segment

Net sales $ 3,937.5 $ 3,596.7

Percent growth 9.5 % 10.0 %

Components of percent growth in net sales – increase (decrease):

Volume and product mix 4.3 % 8.8 %

Pricing actions 0.6 % 1.5 %

Acquisitions 2.4 % — %

Foreign exchange 2.2 % (0.3) %

Segment operating income $ 804.9 $ 780.9

Segment operating income margin 20.4 % 21.7 %

Sales of our consumer segment in 2021 grew by 9.5% as compared to 2020 and grew by 7.3% on a constant currency basis.

This increase included higher sales of our consumer business in each of our three regions.

Higher volume and product mix increased sales 4.3% while pricing actions added 0.6% to sales, both as compared to the prior year period.

The incremental impact of the Cholula acquisition added 2.4% to segment sales during 2021.

The favorable impact of foreign currency exchange rates increased consumer segment sales by 2.2% compared to 2020 and is excluded from our measure of sales growth of 7.3% on a constant currency basis.

In the Americas region, consumer sales increased 7.3% in 2021 as compared to 2020, which experienced a 13.9% 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 increased by 6.7% on a constant currency basis.

Favorable volume and product mix increased sales by 3.0% as compared to the corresponding period in 2020, as demand continues to be driven by consumers' sustained preference for eating more at home.

In addition, pricing actions, taken in response to higher costs, increased sales by 0.4% as compared to the prior year period.

The incremental impact of the Cholula acquisition added 3.3% to sales in 2021.

The favorable impact of foreign currency exchange rates increased sales by 0.6% compared to 2020 and is excluded from our measure of sales growth of 6.7% on a constant currency basis.

In the EMEA region, consumer sales increased 5.8% in 2021 as compared to 2020, which experienced a 14.5% increase in sales from the 2019 level driven by the COVID-19 impact on greater consumer at-home meal

preparation, and increased by 0.9% on a constant currency basis.

Favorable volume and product mix increased sales by 0.3% as compared to the corresponding period of 2020.

The impact of pricing actions increased sales by 0.6% as compared to the prior year period.

The favorable impact of foreign currency exchange rates increased sales by 4.9% compared to 2020 and is excluded from our measure of sales growth of 0.9% on a constant currency basis.

In the Asia/Pacific region, consumer sales increased 31.6% in 2021 as compared to 2020, which reflected a 16.6% decrease in sales from the 2019 level due mainly to COVID-19 disruption on foodservice sales in China, and increased by 22.9% on a constant currency basis.

Higher volume and favorable product mix increased sales by 21.5% as compared to the corresponding period in 2020.

The increase was driven by sales related to the recovery of demand in away-from-home consumption in China.

Pricing actions increased sales by 1.4% as compared to 2020.

The favorable impact from foreign currency exchange rates increased sales by 8.7% compared to 2020 and is excluded from our measure of sales growth of 22.9% on a constant currency basis.

Segment operating income for our consumer segment increased by $24.0 million, or 3.1%, in 2021 as compared to 2020.

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

The impact of COVID-19 on segment operating income during 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 130 basis points in 2021 to 20.4%, 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 increased by 1.3% in 2021, as compared to 2020.

Flavor Solutions Segment

Net sales $ 2,380.4 $ 2,004.6

Percent growth (decline) 18.7 % (3.5) %

Components of percent change in net sales – increase (decrease):

Volume and product mix 7.2 % (4.2) %

Pricing actions 1.4 % 1.8 %

Acquisitions 7.3 % — %

Foreign exchange 2.8 % (1.1) %

Segment operating income $ 296.6 $ 237.9

Segment operating income margin 12.5 % 11.9 %

Sales of our flavor solutions segment increased 18.7% in 2021 as compared to 2020 and increased by 15.9% on a constant currency basis.

Sales were favorably impacted by the recovery of demand as compared to the lower level of demand in 2020 due to the impact of the COVID-19 disruption on our quick service restaurant and branded food service customers, particularly in the Americas and EMEA regions.

Favorable volume and product mix increased segment sales by 7.2% as compared to 2020, while pricing actions taken in response to increased costs during the period increased sales by 1.4%.

The incremental impact of the Cholula and FONA acquisitions increased sales by 7.3% in 2021.

The favorable impact of foreign currency rates increased flavor solutions segment sales by 2.8% as compared to 2020 and is excluded from our measure of sales growth of 15.9% on a constant currency basis.

In the Americas region, flavor solutions sales increased by 16.6% during 2021 as compared to 2020, which experienced a sales decline of 3.5% 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 15.4% on a constant currency basis.

Favorable volume and improved product mix increased flavor solutions sales in the Americas by 3.2% during 2021, driven primarily by increased sales to branded foodservice and quick service restaurant customers.

Pricing actions increased sales by 1.7% as compared to the prior year period.

The incremental impact of the Cholula and FONA acquisitions increased sales by 10.5% in 2021.

A favorable impact from foreign currency rates increased sales by 1.2% compared to 2020 and is excluded from our measure of sales growth of 15.4% on a constant currency basis.

In the EMEA region, flavor solutions sales in 2021 increased by 27.3% as compared to 2020, which experienced a sales decline of 5.5% 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 21.5% on a constant currency basis.

Favorable volume and product mix increased segment sales by 19.8% in 2021 as compared to 2020.

The increase was primarily attributable to higher sales to branded foodservice, packaged food and quick service restaurant customers.

Pricing actions increased sales by 1.7% in 2021 as compared the prior year level.

A favorable impact from foreign currency rates increased sales by 5.8% compared to 2020 and is excluded from our measure of sales growth of 21.5% on a constant currency basis.

In the Asia/Pacific region, flavor solutions sales increased 16.9% in 2021 as compared to 2020, which experienced a sales increase of 0.4% from the 2019 level driven by higher sales to quick service restaurant customers, and increased by 9.4% on a constant currency basis.

Favorable volume and product mix increased sales by 10.6%, driven by higher sales to quick service restaurant customers.

Pricing actions decreased sales by 1.2% as compared to the prior year period.

A favorable impact from foreign currency rates increased sales by 7.5% compared to 2020 and is excluded from our measure of sales growth of 9.4% on a constant currency basis.

Segment operating income for our flavor solutions segment increased by $58.7 million, or 24.7%, in 2021 as compared to 2020.

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

Segment operating margin for our flavor solutions segment increased by 60 basis points in 2021 to 12.5% 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 2020.

On a constant currency basis, segment operating income for our flavor solutions segment increased by 22.5% in 2021, as compared to 2020.

RESULTS OF OPERATIONS—2020 COMPARED TO 2019

Net sales $ 5,601.3 $ 5,347.4

Percent growth 4.7 % 0.8 %

Components of percent growth in net sales – increase (decrease):

Volume and product mix 3.7 % 2.5 %

Pricing actions 1.6 % 0.2 %

Foreign exchange (0.6) % (1.9) %

Sales for 2020 increased by 4.7% from 2019 and by 5.3% on a constant currency basis.

That 4.7% sales increase was driven by higher sales in our consumer segment, which increased by 10.0% over the 2019 level, partially offset by lower sales in our flavor solutions segment, which declined by 3.5% from the prior year level.

9 unchanged sentences

Percent of net sales 22.9 % 21.8 %

Selling, general and administrative (SG&A) expense was $1,281.6 million in 2020 compared to $1,166.8 million in 2019, an increase of $114.8 million.

SG&A expense was $1,281.6 million in 2020 compared to $1,166.8 million in 2019, an increase of $114.8 million.

That increase in SG&A expense was primarily a result of (i) higher performance-based employee incentive expense accruals, (ii) higher distribution expenses associated with the higher sales volume, (iii) increased brand marketing costs and (iv) a one-time fiscal 2019 expense reduction from the alignment of an employee benefit plan to our global standard that did not recur in 2020, all as compared to 2019.

1 unchanged sentence

Total special charges $ 6.9 $ 20.8

During 2020, we recorded $6.9 million of special charges, consisting of $5.3 million related to streamlining actions in our EMEA region and $1.6 million related to our GE initiative.

4 unchanged sentences

Transaction and integration expenses related to our acquisitions of Cholula and FONA of $11.2 million and $1.2 million, respectively, were incurred late in fiscal 2020.

We expect to incur additional transaction and integration expenses related to these acquisitions in fiscal 2021.

Operating income $ 999.5 $ 957.7

11 unchanged sentences

Effective tax rate 19.8 % 19.2 %

The provision for income taxes is based on the current estimate of the annual effective tax rate adjusted to reflect the tax impact of items discrete to the fiscal period.

We record tax expense or tax benefits that do not relate to ordinary income in the current fiscal year discretely in the period in which such items occur pursuant to the requirements of U.S.

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 associated with share-based payments to employees, 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 and the tax effects of intra-entity asset transfers (other than inventory).

The effective tax rate was 19.8% in 2020 as compared to 19.2% in 2019.

The effective tax rate of 19.2% in 2019 includes a non-recurring net tax benefit of $1.5 million associated with the U.S.

Tax Act, as more fully described in note 13 of notes to our consolidated financial statements.

Net discrete tax benefits were $43.4 million in 2020, which is a decrease of $0.3 million from $43.7 million in 2019, including the $1.5 million non-recurring benefit of the U.S.

Net discrete tax benefits were $43.4 million in 2020, which is a decrease of $0.3 million from $43.7 million in 2019, including the $1.5 million

non-recurring benefit of the U.S.

Tax Act in 2019.

1 unchanged sentence

In 2020, discrete tax benefits included $11.9 million associated with the release of valuation allowances due to a change in judgment about realizability of deferred tax assets.

See note 13 of notes to

our consolidated financial statements for a more detailed reconciliation of the U.S.

See note 13 of notes to our consolidated financial statements for a more detailed reconciliation of the U.S.

federal tax rate with the effective tax rate.

Income from unconsolidated operations $ 40.8 $ 40.9

Income from unconsolidated operations, which is presented net of the elimination of earnings attributable to non-controlling interests, decreased $0.1 million in 2020 from the prior year.

Income from unconsolidated operations decreased $0.1 million in 2020 from the prior year.

We own 50% of most of our unconsolidated joint ventures, including our largest joint venture, McCormick de Mexico, that comprised 75% and 72% of the income of our unconsolidated operations in 2020 and 2019, respectively.

9 unchanged sentences

Impact of income taxes (0.02)

Impact of higher shares (0.01)

Impact of higher shares outstanding (0.01)

2020 Earnings per share—diluted $ 2.78

Results of Operations—Segments

We measure the performance of our business segments based on operating income, excluding special charges and transaction and integration expenses related to our acquisitions.

In the following discussion, we refer to our previously described measure of segment profit as "Segment operating income".

Consumer Segment

15 unchanged sentences

Higher volume and product mix added 11.9% to sales driven by significant growth across the McCormick branded portfolio.

In addition, pricing actions, taken in response to higher costs, increased sales by

2.1% as compared to the prior year period.

The unfavorable impact of foreign currency exchange rates decreased sales by 0.1% compared to 2019 and is excluded from our measure of sales growth of 14.0% on a constant currency basis.

In addition, pricing actions, taken in response to higher costs, increased sales by 2.1% as compared to the prior year period.

The unfavorable impact of foreign currency exchange rates decreased

sales by 0.1% compared to 2019 and is excluded from our measure of sales growth of 14.0% on a constant currency basis.

In the EMEA region, consumer sales increased 14.5% in 2020 as compared to 2019 and rose by 14.3% on a constant currency basis.

47 unchanged sentences

On a constant currency basis, segment operating income for our flavor solutions segment declined by 19.7% in 2020, as compared to the same period in 2019.

RESULTS OF OPERATIONS—2019 COMPARED TO 2018

Net sales $ 5,347.4 $ 5,302.8

Percent growth 0.8 % 12.1 %

Components of percent growth in net sales – increase (decrease):

Volume and product mix 2.5 % 2.2 %

Pricing actions 0.2 % 0.5 %

Acquisitions — % 8.2 %

Foreign exchange (1.9) % 1.2 %

Sales for 2019 increased by 0.8% from 2018 and by 2.7% on a constant currency basis.

Both the consumer and flavor solutions segments drove higher volume and product mix that added 2.5% to sales.

This was driven by product innovation as well as growth in the base business.

Pricing actions added 0.2% to sales.

These factors were partially offset by an unfavorable impact from foreign currency exchange rates that reduced sales by 1.9% compared to 2018 and is excluded from our measure of sales growth of 2.7% on a constant currency basis.

Gross profit $ 2,145.3 $ 2,093.3

Gross profit margin 40.1 % 39.5 %

In 2019, our gross profit margin increased 60 basis points to 40.1% from 39.5% in 2018, driven by the favorable impact of CCI-led cost savings, partially offset by unfavorable conversion costs.

Selling, general & administrative expense $ 1,166.8 $ 1,163.4

Percent of net sales 21.8 % 22.0 %

SG&A expense was $1,166.8 million in 2019 compared to $1,163.4 million in 2018, an increase of $3.4 million.

That increase in SG&A expense was driven by increased stock-based compensation expense and higher distribution costs, partially offset by CCI-led cost savings.

SG&A expense in 2019 also reflected the impact of two significant,

but largely offsetting items:

(i) expenses associated with our investment in a global ERP platform in support of our GE business transformation initiative that increased SG&A expense over the prior year level;

and (ii) a one-time fiscal 2019 expense reduction from the alignment of an employee benefit plan to our global standard that decreased SG&A expense from the prior year level.

As a result of the above factors over an increased net sales base, SG&A expense as a percent of net sales was 21.8%, a 20-basis point improvement from 2018.

Total special charges $ 20.8 $ 16.3

During 2019, we recorded $20.8 million of special charges, consisting primarily of (i) $14.1 million of costs related to our multi-year GE business transformation initiative, including $10.6 million of third-party expenses, $2.1 million related to severance and related benefits, and $1.4 million related to other costs;

(ii) $2.3 million of severance and related benefits associated with streamlining actions in the Americas;

and (iii) $3.9 million related to streamlining actions in our EMEA region.

During 2018, we recorded $16.3 million of special charges, consisting primarily of:

(i) $11.5 million related to our multi-year GE business transformation initiative, consisting of $7.5 million of third party expenses, $1.0 million of employee severance charges and a non-cash asset impairment charge of $3.0 million (that non-cash asset impairment charge was related to the write-off of certain software assets that are incompatible with our move to the new global ERP platform);

(ii) a one-time payment, in the aggregate amount of $2.2 million, made to eligible U.S.

hourly employees to distribute a portion of the non-recurring net income tax benefit recognized in connection with the enactment of the U.S.

(iii) $1.0 million related to employee severance benefits and other costs directly associated with the relocation of one of our Chinese manufacturing facilities;

and (iv) $1.6 million related to employee severance benefits and other costs related to the transfer of certain manufacturing operations in our Asia/Pacific region to a then newly constructed facility in Thailand.

Transaction and integration expenses $ — $ 22.5

Transaction and integration expenses related to the RB Foods acquisition totaled $22.5 million for 2018.

These costs primarily consisted of outside advisory, service and consulting costs;

employee-related costs, and other costs related to the acquisition.

Operating income $ 957.7 $ 891.1

Percent of net sales 17.9 % 16.8 %

Operating income increased by $66.6 million, or 7.5%, from $891.1 million in 2018 to $957.7 million in 2019.

An absence of transaction and integration expenses in 2019, compared to $22.5 million related to our acquisition of RB Foods in 2018, more than offset a $4.5 million increase in special charges in 2019 from $16.3 million in 2018 to $20.8 million in 2019.

Operating income as a percent of net sales rose by 110 basis points in 2019, from 16.8% in 2018 to 17.9% in 2019 as a result of the factors previously described.

Our operating income as a percent of net sales in 2019 was impacted by two large, but substantially offsetting items:

(i) expenses associated with our investment in a global ERP platform in support of our GE business transformation initiative that decreased operating income as a percent of sales by approximately 35 basis points in 2019;

and (ii) a one-time fiscal 2019 expense reduction from the alignment of an employee benefit plan to our global standard that increased operating income as a percent of sales by approximately 40 basis points in 2019.

Excluding the effect of special charges and transaction and integration expenses previously described, adjusted operating income was $978.5 million in 2019 as compared to $929.9 million in 2018, an increase of $48.6 million or 5.2% over the 2018 level.

Adjusted operating income as a percent of sales rose by 80 basis points in 2019, from 17.5% in 2018 to 18.3% in 2019.

Interest expense $ 165.2 $ 174.6

Other income, net 26.7 24.8

Interest expense was $9.4 million lower for 2019 as compared to the prior year primarily due to a decline in average total borrowings.

Other income, net for 2019 increased by $1.9 million from the 2018 level due principally to higher non-service cost income associated with our pension and postretirement benefit plans and higher interest income, which was partially offset by a gain on the sale of a building, which was reflected in our 2018 results and did not recur in 2019.

Income from consolidated operations before income taxes $ 819.2 $ 741.3

Income tax (benefit) expense 157.4 (157.3)

Effective tax rate 19.2 % (21.2) %

As more fully described above and in note 13 of notes to our consolidated financial statements, the U.S.

Tax Act was enacted in December 2017.

Tax Act significantly changed U.S.

corporate income tax laws by, among other things, reducing the U.S.

corporate income tax rate to 21% beginning on January 1, 2018 and creating a territorial tax system with a one-time transition tax on previously deferred post-1986 foreign earnings of U.S.

subsidiaries.

Under GAAP (specifically, ASC Topic 740, Income Taxes), the effects of changes in tax rates and laws on deferred tax balances are recognized in the period in which the new legislation is enacted.

We recorded a net benefit of $301.5 million associated with the U.S.

Tax Act during 2018.

This amount includes a $380.0 million benefit from the revaluation of our net U.S.

deferred tax liabilities as of January 1, 2018, based on the new lower corporate income tax rate offset, in part, by an estimated net transition tax impact of $78.5 million.

That net transition tax impact is comprised of the mandated one-time transition tax on previously deferred post-1986 foreign earnings of U.S.

subsidiaries estimated at $75.3 million, together with additional foreign withholding taxes of $7.9 million associated with previously unremitted prior year earnings of certain foreign subsidiaries that were no longer considered indefinitely reinvested as of the effective date of the U.S.

Tax Act and that were subsequently repatriated in 2018, less a $4.7 million reduction in our fiscal 2018 income taxes directly resulting from the transition tax.

In addition, in 2019, we recorded a benefit of $1.5 million relating to an adjustment to a prior year tax accrual associated with the U.S.

The effective tax rate was an expense of 19.2% in 2019 as compared to a benefit of 21.2% in 2018.

The effective tax rate benefit of 21.2% in 2018 includes the non-recurring net tax benefit of $301.5 million associated with the U.S.

Tax Act, as more fully described above, that had a (40.7)% impact on 2018’s effective tax rate.

Net discrete tax benefits were $43.7 million in 2019, which is an increase of $15.6 million from $28.1 million in 2018, excluding the non-recurring benefit of the U.S.

Tax Act in 2018.

For 2019, the effective tax rate was impacted by $15.2 million of tax benefits associated with an intra-entity asset transfer that occurred during 2019 under the provisions of ASU No.

2016-16, which we adopted on December 1, 2018.

Discrete tax benefits in both periods include excess tax benefits associated with share-based payments to employees ($22.4 million and $21.7 million in 2019 and 2018, respectively), reversal of reserves for unrecognized tax benefits for the expiration of the statues of limitations and settlements with taxing authorities in several jurisdictions, the previously described non-recurring benefit of the U.S.

Tax Act, and other discrete items.

See note 13 of notes to our consolidated financial statements for a more detailed reconciliation of the U.S.

federal tax rate with the effective tax rate.

Income from unconsolidated operations $ 40.9 $ 34.8

Income from unconsolidated operations increased $6.1 million in 2019 from the prior year.

This increase was primarily attributable to the impact of higher earnings from our largest joint venture, McCormick de Mexico, as well as the impact of eliminating a lower level of earnings associated with our minority interests in 2019 as compared to 2018.

We own 50% of most of our unconsolidated joint ventures, including McCormick de Mexico that comprised 72% of the income of our unconsolidated operations in 2019.

We reported diluted earnings per share of $2.62 in 2019, compared to $3.50 in 2018.

The table below outlines the major components of the change in diluted earnings per share from 2018 to 2019.

The increase in adjusted operating income in the table below includes the impact from unfavorable currency exchange rates in 2019.

2018 Earnings per share—diluted $ 3.50

Increase in operating income 0.15

Impact of non-recurring tax benefit recognized as a result of the U.S.

Tax Act (1.13)

Increase in special charges (0.01)

Decrease in transaction and integration expenses 0.06

Decrease in interest expense 0.03

Increase in other income 0.01

Impact of income taxes 0.01

Increase in unconsolidated income 0.02

Impact of higher shares outstanding (0.02)

2019 Earnings per share—diluted $ 2.62

Results of Operations—Segments

Consumer Segment

Net sales $ 3,269.8 $ 3,247.0

Percent growth 0.7 % 11.9 %

Components of percent growth in net sales – increase (decrease):

Volume and product mix 2.4 % 1.7 %

Pricing actions 0.1 % 0.6 %

Acquisitions — % 8.2 %

Foreign exchange (1.8) % 1.4 %

Segment operating income $ 676.3 $ 637.1

Segment operating income margin 20.7 % 19.6 %

Sales of our consumer segment in 2019 grew by 0.7% as compared to 2018 and grew by 2.5% on a constant currency basis.

Higher volume and product mix added 2.4% to sales, and pricing actions added 0.1%.

These factors offset an unfavorable impact from foreign currency exchange rates that reduced consumer segment sales by 1.8% compared to 2018 and is excluded from our measure of sales growth of 2.5% on a constant currency basis.

In the Americas, consumer sales rose 2.4% in 2019 as compared to 2018 and rose by 2.7% on a constant currency basis.

Higher volume and product mix added 2.7% to sales, driven by new product sales as well as base business growth.

The unfavorable impact of foreign currency exchange rates decreased sales by 0.3% compared to 2018 and is excluded from our measure of sales growth of 2.7% on a constant currency basis.

In the EMEA region, consumer sales decreased 5.5% in 2019 as compared to 2018 and decreased 0.2% on a constant currency basis.

Volume and product mix increased sales by 1.0%, led by new products and promotions that were partially offset by declines in private label sales.

The impact of pricing actions reduced sales by 1.2%.

The unfavorable impact of foreign currency exchange rates decreased sales by 5.3% compared to 2018 and is excluded from our measure of sales decline of 0.2% on a constant currency basis.

In the Asia/Pacific region, consumer sales increased 0.8% as compared to 2018 and increased 5.7% on a constant currency basis.

Higher volume and product mix added 2.9% to sales, led by strong sales in India and Southeast Asia.

Pricing actions, primarily in China, added 2.8% to sales as compared to 2018.

These factors offset an unfavorable impact from foreign currency exchange rates that decreased sales by 4.9% compared to 2018 and is excluded from our measure of sales growth of 5.7% on a constant currency basis.

We grew segment operating income for our consumer segment by $39.2 million, or 6.1%, in 2019 compared to 2018.

The favorable impact of higher sales and CCI-led cost savings more than offset increased conversion costs.

On a constant currency basis, segment operating income for our consumer segment rose 7.3%.

Segment operating income margin for our consumer segment rose by 110 basis points to 20.7% in 2019 from 19.6% in 2018, driven by an improvement in gross margin.

Flavor Solutions Segment

Net sales $ 2,077.6 $ 2,055.8

Percent growth 1.1 % 12.4 %

Components of percent growth in net sales – increase (decrease):

Volume and product mix 2.9 % 3.1 %

Pricing actions 0.3 % 0.3 %

Acquisitions — % 8.2 %

Foreign exchange (2.1) % 0.8 %

Segment operating income $ 302.2 $ 292.8

Segment operating income margin 14.5 % 14.2 %

Sales of our flavor solutions segment increased 1.1% in 2019 as compared to 2018 and increased by 3.2% on a constant currency basis.

Higher volume and product mix added 2.9% to sales and pricing actions added 0.3%.

These factors partially offset an unfavorable impact from foreign currency exchange rates that reduced flavor solutions segment sales by 2.1% compared to 2018 and is excluded from our measure of sales growth of 3.2% on a constant currency basis.

In the Americas, flavor solutions sales rose 2.2% in 2019 as compared to 2018 and rose 2.6% on a constant currency basis.

Higher volume and product mix added 2.4% to sales and included growth in new products as well as in base business, led by sales to packaged food companies.

Pricing actions added 0.2% to sales in 2019.

These factors offset an unfavorable impact from foreign currency exchange rates that reduced sales by 0.4% in 2019 compared to 2018 and is excluded from our measure of sales growth of 2.6% on a constant currency basis.

In the EMEA region, flavor solutions sales decreased 0.3% in 2019 as compared to 2018 and increased 6.7% on a constant currency basis.

Higher volume and product mix added 5.4% to sales in 2019 with contributions from new products as well as base business growth.

The increase was led by sales to quick service restaurants and packaged foods companies.

Pricing actions added 1.3% to sales in 2019.

These factors partially offset an unfavorable impact from foreign currency exchange rates that decreased sales by 7.0% in 2019 compared to 2018 and is excluded from our measure of sales growth of 6.7% on a constant currency basis.

In the Asia/Pacific region, flavor solutions sales decreased 3.4% in 2019 as compared to 2018 and increased 0.6% on a constant currency basis.

Higher volume and product mix added 0.9% to sales and included increased sales to quick service restaurants, partially offset by the exit of certain low margin business.

Pricing actions reduced sales in 2019 by 0.3%.

These factors partially offset an unfavorable impact from foreign currency exchange rates that reduced sales by 4.0% in 2019 compared to 2018 and is excluded from our measure of sales growth of 0.6% on a constant currency basis.

We grew segment operating income for our flavor solutions segment by $9.4 million, or 3.2%, in 2019 compared to 2018.

The increase in segment operating income was driven by higher sales as well as lower SG&A expense.

On a constant currency basis, segment operating income for our flavor solutions segment rose 5.3%.

Segment operating income margin for our flavor solutions segment rose by 30 basis points to 14.5% in 2019 from 14.2% in 2018 and reflected the impact of lower SG&A expense as a percentage of net sales.

NON-GAAP FINANCIAL MEASURES

The following tables include financial measures of adjusted operating income, adjusted income tax expense, adjusted income tax rate, adjusted net income and adjusted diluted earnings per share.

The following tables include financial measures of adjusted gross profit, adjusted gross profit margin, adjusted operating income, adjusted operating income margin, adjusted income tax expense, adjusted income tax rate, adjusted net income and adjusted diluted earnings per share.

These represent non-GAAP financial measures which are prepared as a complement to our financial results prepared in accordance with United States generally accepted accounting principles.

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and expected savings) to the Management Committee and the Committee’s advance approval, expenses associated with the approved action are classified as special charges upon recognition and monitored on an ongoing basis through completion.

In 2018, we also included in special charges, as approved by our Management Committee, expense associated with a one-time payment, made to eligible U.S.

hourly employees, to distribute a portion of the non-recurring net income tax benefit recognized in connection with the enactment of the U.S.

Tax Act as that non-recurring income tax benefit is excluded from our computation of adjusted income taxes, adjusted net income and adjusted diluted earnings per share, each a non-GAAP measure.

• Transaction and integration expenses associated with the Cholula, FONA and RB Foods acquisitions – We exclude certain costs associated with our acquisitions of Cholula and FONA in November and December 2020, respectively, and RB Foods in August 2017 and their subsequent integration into the Company.

• 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.

• 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 5 of the notes to the accompanying financial statements, the sale of our 26% interest in Eastern 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.

• Income taxes associated with the U.S.

Tax Act – In connection with the enactment of the U.S.

Tax Act in December 2017, we recorded a net non-recurring income tax benefit of $301.5 million during the year ended November 30, 2018, which included the estimated impact of the tax benefit from revaluation of net U.S.

deferred tax liabilities based on the new lower corporate income tax rate and the tax expense associated with the one-time transition tax on previously unremitted earnings of non-U.S.

subsidiaries.

We recorded an additional net income tax benefit of $1.5 million during the year ended November 30, 2019 associated with a U.S.

Tax Act related provision to return adjustment.

Details with respect to the composition of transaction and integration expenses, special charges and non-recurring income tax benefits associated with the U.S.

Tax Act recorded for the years and in the amounts set forth below are included in notes 2, 3 and 13, respectively, of notes to our consolidated financial statements.

Tax Act – We recorded a net income tax benefit of $1.5 million during the year ended November 30, 2019 associated with the U.S.

Tax Act enacted in December 2017 related provision to return adjustment.

Details with respect to the composition of transaction and integration expenses, special charges and income from the sale of unconsolidated operations recorded for the years and in the amounts set forth below are included in notes 2, 3 and 5, respectively, of notes to our consolidated financial statements.

We believe that these non-GAAP financial measures are important.

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We intend to continue to provide these non-GAAP financial measures as part of our future earnings discussions and, therefore, the inclusion of these non-GAAP financial measures will provide consistency in our financial reporting.

A reconciliation of these non-GAAP measures to GAAP financial results is provided below:

A reconciliation of these non-GAAP financial measures to GAAP financial results is provided below:

2021 2020 2019

Gross profit $ 2,494.6 $ 2,300.4 $ 2,145.3

Impact of transaction and integration expenses included in cost of goods sold (1)

Impact of special charges included in cost of goods sold (2)

Adjusted gross profit $ 2,505.6 $ 2,300.4 $ 2,145.3

Adjusted gross profit margin (3)

39.7 % 41.1 % 40.1 %

Operating income

$ 1,015.1 $ 999.5 $ 957.7

Impact of transaction and integration expenses 12.4 — 22.5

Impact of special charges 6.9 20.8 16.3

Impact of transaction and integration expenses included in cost of goods sold (1)

Impact of other transaction and integration expenses (1)

Impact of special charges included in cost of goods sold (2)

Impact of other special charges (2)

46.4 6.9 20.8

Adjusted operating income $ 1,101.5 $ 1,018.8 $ 978.5

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17.4 % 18.2 % 18.3 %

Income tax expense (benefit) $ 174.9 $ 157.4 $ (157.3)

Income tax expense $ 192.7 $ 174.9 $ 157.4

Non-recurring benefit, net, of the U.S.

Tax Act — — 1.5

Impact of transaction and integration expenses (1)

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Impact of special charges (2)

Non-recurring benefit, net, of the U.S.

44.0 4.8 16.1

Impact of after-tax gain on sale of unconsolidated operations (13.4) — —

Non-recurring benefit, net, of the U.S.

Tax Act — — (1.5)

Adjusted net income $ 823.9 $ 762.7 $ 717.3

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Impact of special charges (2)

Non-recurring benefit, net, of the U.S.

0.16 0.01 0.06

Impact of after-tax gain on sale of unconsolidated operations (0.05) — —

Adjusted earnings per share—diluted $ 3.05 $ 2.83 $ 2.68

(1) Transaction and integration expenses are more fully described in note 2 of notes to our consolidated financial statements and 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 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 an unfavorable impact of $10.4 million or $0.04 per diluted share for the year ended November 30, 2021.

(2) Special charges are more fully described in note 3 of notes to our consolidated financial statements.

Special charges for the year ended November 30, 2021 include $4.7 million which is reflected in Cost of goods sold and an $11.2 million non-cash impairment charge associated with the impairment of certain intangible assets.

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

Adjusted operating income margin is calculated as adjusted operating income as a percent of net sales for each period presented.

(2) The non-recurring income tax benefit, net, associated with enactment of the U.S.

Tax Act of $1.5 million and $301.5 million for the years ended November 30, 2019 and 2018, respectively, is more fully described in note 13 of notes to our consolidated financial statements.

(3) Adjusted income tax rate is calculated as adjusted income tax expense as a percent of income from consolidated operations before income taxes, excluding transaction and integration expenses and special charges, or $900.8 million, $840.0 million, and $780.1 million for the years ended November 30, 2020, 2019, and 2018, respectively.

(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, or $982.2 million, $900.8 million, and $840.0 million for the years ended November 30, 2021, 2020, and 2019, respectively.

Estimate for the year ending November 30, 2022

Earnings per share – diluted $3.07 to $3.12

Impact of transaction and integration expenses (1)

Impact of integration expenses 0.01

Impact of special charges 0.09

Adjusted earnings per share – diluted $3.17 to $3.22

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

These expenses include anticipated 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 on income tax expenses directly related to our December 2020 acquisition of FONA, which we expect will approximate $0.04 per diluted share, and is included in the after-tax impact of transaction and integration expenses of $0.18 per diluted share estimated for the year ending November 30, 2021.

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

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Percentage change in net sales 3% to 5%

Impact of favorable foreign currency exchange 2 %

Impact of unfavorable foreign currency exchange 1 %

Percentage change in net sales in constant currency 4% to 6%

Percentage change in adjusted operating income 7% to 9%

Impact of favorable foreign currency exchange 2 %

Impact of unfavorable foreign currency exchange 1 %

Percentage change in adjusted operating income in constant currency 8% to 10%

Percentage change in adjusted earnings per share— diluted 4% to 6%

Impact of favorable foreign currency exchange 2 %

Impact of unfavorable foreign currency exchange 1 %

Percentage change in adjusted earnings per share— diluted in constant currency 5% to 7%

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, and certain gains or losses (which may include third party fees and expenses and integration costs).

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

Our determination of the leverage ratio is consistent with the terms of our revolving credit facilities, which require us to maintain our leverage ratio below certain levels.

Under those agreements, the applicable leverage ratio is reduced periodically.

As of November 30, 2020, our capacity under the revolving credit facilities was not affected by these covenants.

In early fiscal 2021 following our acquisition of FONA, the levels specified in our 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.

We do not expect that these covenants would limit our access to our revolving credit facilities for the foreseeable future;

however, the leverage ratio could restrict our ability to utilize these facilities.

We expect to comply with this financial covenant for the foreseeable future.

The following table reconciles our net income to Adjusted EBITDA for the years ended November 30:

2020 2019 2018

Net income $ 747.4 $ 702.7 $ 933.4

Depreciation and amortization 165.0 158.8 150.7

Interest expense 135.6 165.2 174.6

Income tax expense (benefit) 174.9 157.4 (157.3)

EBITDA 1,222.9 1,184.1 1,101.4

Adjustments to EBITDA (1)

57.5 47.9 57.3

Adjusted EBITDA $ 1,280.4 $ 1,232.0 $ 1,158.7

$ 4,555.8 $ 4,243.8 $ 4,674.8

Leverage ratio (Net debt/Adjusted EBITDA) (3)

(1) Adjustments to EBITDA are determined under the leverage ratio covenant in our revolving credit facilities and include special charges, stock-based compensation expense, interest income and, for the years ended November 30, 2020 and 2018, transaction and integration expenses.

(2) The leverage ratio covenant in our revolving credit facilities define 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 exceed $75.0 million.

(3) The leverage ratio covenant in our revolving credit facilities provide that Adjusted EBITDA also includes the pro forma impact of acquisitions.

As of November 30, 2020, our leverage ratio under the terms of those agreements, including the pro forma impact of acquisitions was 3.5.

Our long-term target for our leverage ratio is 1.5 to 2.0.

Our leverage ratio can be temporarily impacted by our acquisition activity.

LIQUIDITY AND FINANCIAL CONDITION

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Net cash provided by (used in) financing activities 22.0 220.9 (725.8)

We generate strong cash flow from operations which enables us to fund operating projects and investments that are designed to meet our growth objectives, service our debt, increase our dividend, fund capital projects and other investments, and make share repurchases when appropriate.

Due to the cyclical nature of a portion of our business, our cash flow from operations has historically been the strongest during the fourth quarter.

The primary objective of our financing strategy is to maintain a prudent capital structure that provides us flexibility to pursue our growth objectives.

We use a combination of equity and short- and long-term debt.

We use short-term debt, comprised primarily of commercial paper, principally to finance ongoing operations, including our requirements for working capital (accounts receivable, prepaid expenses and other current assets, and inventories, less accounts payable, accrued payroll, and other accrued liabilities).

We are committed to maintaining investment grade credit ratings.

Our cash flows from operations enable us to fund operating projects and investments that are designed to meet our growth objectives, service our debt, fund or increase our quarterly dividends, fund capital projects and other investments, and make share repurchases when appropriate.

Due to the cyclical nature of a portion of our business, our cash flow from operations has historically been the strongest during the fourth quarter of our fiscal year.

Due to the timing of the interest payments on our debt, interest payments are higher in the first and third quarter of our fiscal year.

We believe that our sources of liquidity, which include existing cash balances, cash flows from operations, existing credit facilities, our commercial paper program, and access to capital markets, will provide sufficient liquidity to meet our debt obligations, including any repayment of debt or refinancing of debt, working capital needs, planned capital expenditures, and payment of anticipated quarterly dividends for at least the next twelve months.

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

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subsidiaries and affiliates can be significantly affected by fluctuations in foreign exchange rates between periods.

At November 30, 2020, the exchange rates for the Euro, British pound sterling, Canadian dollar, Australian dollar, Chinese renminbi and Polish zloty were higher versus the U.S.

At November 30, 2021, the exchange rates for the Canadian dollar and Chinese renminbi were higher versus the U.S.

dollar than at November 30, 2020.

During 2020, we have seen greater-than-normal fluctuations in foreign exchanges rates as a result of increased market volatility driven by the global COVID-19 pandemic.

At November 30, 2021, the exchange rates for the Euro, British pound sterling, Australian dollar, and Polish zloty were lower versus the U.S.

dollar than at November 30, 2020.

Operating Cash Flow – Operating cash flow was $828.3 million in 2021, $1,041.3 million in 2020, and $946.8 million in 2019.

The increases in cash flow from operations in both 2020 and 2019 were primarily due to higher net income, exclusive of the 2018 impact of the non-cash non-recurring net income tax benefit of $309.4 million related to the U.S.

In addition, as more fully described below, our working capital management impacted operating cash flow.

Net income as well as our working capital management, as more fully described below, impacted operating cash flow.

In 2021, the reduction in operating cash flow was the result of increased inventory levels to protect against supply disruption, employee incentive payments, and the payment of transaction and integration costs related to our recent acquisitions.

In 2020, the increases to operating cash flow were the result of a significantly lower use of cash associated with other assets and liabilities, including the timing of certain employee incentive and customer related payments, which was partially offset by the use of cash associated with working capital, driven by the increased level of inventory to meet demand.

In 2019 and 2018, our working capital management favorably impacted operating cash flow.

In 2019, our working capital management favorably impacted operating cash flow.

In 2019, those increases were partially offset by a use of cash associated with other assets and liabilities, totaling $81.5 million.

In 2018, those increases were partially offset by a higher use of cash from other operating assets and liabilities partially related to the timing of our payment of transaction and integration expenses as well as of interest on indebtedness related to our acquisition of RB Foods.

Our working capital management – principally related to inventory, trade accounts receivable, and accounts payable – impacts our operating cash flow.

The change in inventory had a significant impact on the variability in cash flow from operations.

It was a use of cash in 2020, 2019 and 2018.

The change in trade accounts receivable was a source of cash in 2020, 2019 and 2018.

The change in accounts payable was a significant source of cash in all three years.

It was a significant use of cash in 2021 and 2020 and a moderate use of cash in 2019.

The change in trade accounts receivable was a use of cash in 2021 but a source of cash in 2020 and 2019.

The change in accounts payable was a significant source of cash in 2020 and 2019 and a more moderate source of cash in 2021.

In addition to operating cash flow, we also use cash conversion cycle (CCC) to measure our working capital management.

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Cash Conversion Cycle 46 39 43

The decreases in CCC in 2020 from 2019 and in 2019 from 2018 were due, in both instances, to an increase in our days payable outstanding as a result of extending our payment terms to suppliers, as more fully described below, and to a lesser extent, by a decrease in our days sales outstanding.

Our CCC is also impacted by days in inventory which increased in 2020 as compared to 2019 and also in 2019 as compared to 2018.

The increase in CCC in 2021 from 2020 was due primarily to an increase in our days in inventory as a result of efforts to protect against supply chain disruption and to meet increased demand.

This was partially offset by an increase in our days payable outstanding.

The decrease in CCC in 2020 from 2019 was due to an increase in our days payable outstanding as a result of extending our payment terms to suppliers, as more fully described below, which was partially offset by an increase in our days in inventory due to maintaining higher levels of inventory.

Prior to fiscal 2019, in response to evolving market practices, we began a program to negotiate extended payment terms with our suppliers.

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

Cash usage related to our acquisitions of businesses were $803.0 million in 2020 and $4.2 million in 2018.

Cash usage related to our acquisition of businesses was $706.4 million in 2021 and $803.0 million in 2020.

Capital expenditures, including expenditures for capitalized software, were $278.0 million in 2021, $225.3 million in 2020, and $173.7 million in 2019.

We expect 2022 capital expenditures to approximate $320 million to support our planned growth, including the multi-year program to replace our ERP system and other initiatives.

Financing Cash Flow – Net cash associated with financing activities was a source of cash of $220.9 million in 2020.

Net cash used in financing activities was $725.8 million in 2019 and $751.1 million in 2018.

Our primary investing cash inflow in 2021 was the $65.4 million of proceeds received from the sale of an unconsolidated operation, as more fully discussed in note 5 of notes to our consolidated financial statements.

Financing Cash Flow – Net cash associated with financing activities was a source of cash of $22.0 million in 2021 and $220.9 million in 2020.

Net cash used in financing activities was $725.8 million in 2019.

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

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2021 2020 2019

Net increase in short-term borrowings $ 286.5 $ 41.0 $ 305.5

Net (decrease) increase in short-term borrowings $ (346.7) $ 286.5 $ 41.0

Proceeds from issuance of long-term debt, net of debt issuance costs 999.6 525.9 —

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Net cash provided from (used in) borrowing activities $ 395.8 $ 554.7 $ (406.7)

In 2021, we borrowed $1,001.5 million under long-term borrowing arrangements, including net proceeds of $495.7 million of 0.9% notes due February 2026 and net proceeds of $492.8 million of 1.85% notes due February 2031.

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.

We also repaid $257.1 million of long-term debt, including the $250 million, 3.90% notes that matured in July 2021.

In 2020, we borrowed $527.0 million under long-term borrowing arrangements, including net proceeds of $495.0 million of 2.5% notes due April 2030.

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In 2019, we repaid $447.7 million of long-term debt, including $436.3 million of our $1,500.0 million term loans issued in August 2017.

In 2018, we borrowed $25.9 million under long-term borrowing arrangements.

In 2018, we repaid $797.9 million of long-term debt, including the $250 million 5.75% notes that matured on December 15, 2017 and $545.0 million of our $1,500.0 million term loans issued in August 2017.

Through November 30, 2020, we have repaid in full the $1,500.0 million term loans issued in connection with our acquisition of RB Foods in August 2017, with a total of $1,275.0 million of those term loans repaid in advance of their scheduled maturities, which were in August 2020 and August 2022.

The following table outlines the activity in our share repurchase programs:

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

As a result of the increased level of indebtedness related to the acquisition of RB Foods in August 2017, we curtailed our share repurchase activity since that time.

Although we have curtailed our share repurchase activity, we repurchased shares in 2020, 2019 and 2018 to mitigate the effect of shares issued upon the exercise of stock options.

As a result of the additional indebtedness associated with our acquisitions of Cholula and FONA, we expect to continue the curtailment of share repurchase activity in fiscal 2021 while also continuing to mitigate the effect of shares issued upon the exercise of stock options.

Our share repurchase activity in 2021, 2020, and 2019 has principally been executed in order to mitigate the effect of shares issued upon the exercise of stock options.

During 2021, 2020 and 2019, we received proceeds of $13.5 million, $56.6 million and $90.9 million, respectively, from exercised stock options.

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In November 2021, the Board of Directors approved an 8.8% increase in the quarterly dividend from $0.34 to $0.37 per share.

The following table presents our leverage ratios for the years ended November 30, 2020, 2019 and 2018:

2020 2019 2018

Leverage ratio (1)

(1) The leverage ratio covenant in our revolving credit facilities provides that Adjusted EBITDA under that covenant also include the pro forma impact of acquisitions, as applicable.

As of November 30, 2020, our leverage ratio under the terms of those revolving credit facilities, including the pro forma impact of acquisitions, was 3.5.

Our leverage ratio was 3.6 as of November 30, 2020, as compared to the ratios of 3.4 and 4.0 as of November 30, 2019 and 2018, respectively.

The increase in our leverage ratio from 3.4 as of November 30, 2019 to 3.6 as of November 30, 2020 is principally due to an increase in total debt associated with the funding of our acquisition of Cholula, which was partially offset by an increase in adjusted EBITDA.

The decrease in the ratio from 4.0 as of November 30, 2018 to 3.4 as of November 30, 2019 is principally due to an increase in our adjusted EBITDA, which was driven by higher operating income in 2019 as compared to 2018.

In addition, the ratio was favorably impacted by our lower level of net debt at November 30, 2019 as compared to the prior year-end.

As amended, the maximum permitted leverage ratios under the terms of those revolving credit facilities, including the pro form impact of acquisitions, is 4.5 as of the measurement date at the end of each fiscal quarter in the year ending November 30, 2021.

That maximum ratio drops to 4.25 on February 28, 2022, and drops to 3.75 for each fiscal quarter for the remaining term of the facility.

At the same time in early fiscal 2021, a similar amendment was made to our synthetic lease agreement for a to-be-constructed distribution center, which contains covenants consistent with our revolving credit facilities.

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

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

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

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

The average short-term borrowings outstanding for the years ended November 30, 2021 and 2020 were $1,029.9 million and $518.1 million, respectively.

Those average short-term borrowings outstanding for the year ended November 30, 2020 included average commercial paper outstanding of $452.0 million.

Those average short-term borrowings outstanding for the year ended November 30, 2021 included average commercial paper borrowings of $975.0 million.

The total average debt outstanding for the years ended November 30, 2021 and 2020 was $5,574.5 million and $4,327.4 million, respectively.

See notes 6 and 8 of notes to our consolidated financial statements for further details of these transactions.

Credit and Capital Markets – The following summarizes the more significant impacts of credit and capital markets on our business:

CREDIT FACILITIES – Cash flows from operating activities are our primary source of liquidity for funding growth, share repurchases, dividends and capital expenditures.

We also rely on our revolving credit facilities, or borrowings backed by these facilities, to fund seasonal working capital needs and other general corporate requirements.

In August 2017, we entered into a five-year $1.0 billion revolving credit facility, which will expire in August 2022.

We also rely on our revolving credit facility, or borrowings backed by this facility, to fund working capital needs and other general corporate requirements.

In June 2021, we entered into a five-year $1.5 billion revolving credit facility, which will expire in June 2026.

The current pricing for the credit facility, on a fully drawn basis, is LIBOR plus 1.25%.

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%.

In December 2020, we entered into a 364-day $1.0 billion revolving credit facility, which will expire in December 2021.

The current pricing for that 364-day credit facility, on a fully drawn basis, is LIBOR plus 1.25%.

The pricing of the 364-day 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%.

In early fiscal 2021, following our acquisition of FONA, the levels specified in our 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.

Our long-term target for our leverage ratio is 1.5 to 2.0.

Our leverage ratio can be temporarily impacted by our acquisition activity.

We generally use these revolving credit facilities to support our issuance of commercial paper.

If the commercial paper market is not available or viable, we could borrow directly under our revolving credit facilities.

These facilities are made available by a syndicate of banks, with various commitments per bank.

The provisions of this 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:

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

The terms of those revolving credit facilities are more fully described in note 6 of the notes to the consolidated financial statements.

We generally use our revolving credit facility to support our issuance of commercial paper.

If the commercial paper market is not available or viable, we could borrow directly under our revolving credit facility.

This facility is made available by a syndicate of banks, with various commitments per bank.

If any of the banks in this syndicate are unable to perform on their commitments, our liquidity could be impacted, which could reduce our ability to grow through funding of seasonal working capital.

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

We engage in regular communication with all banks participating in our 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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Based on these communications and our monitoring activities, we believe our banks will perform on their commitments.

In addition to our committed revolving credit facilities, we have uncommitted facilities of $316.6 million as of November 30, 2020 that can be withdrawn based upon the lenders' discretion.

In addition to our committed revolving credit facility, we have uncommitted facilities of $308.4 million as of November 30, 2021 that can be withdrawn based upon the lenders' discretion.

See note 6 of notes to our consolidated financial statements for more details on our financing arrangements.

We will continue to have cash requirements to support seasonal working capital needs and capital expenditures, to pay interest, to service debt, and to fund acquisitions.

To meet those cash requirements, we intend to use our existing cash, cash equivalents and internally generated funds, to borrow under our existing credit facilities or under other short-term borrowing facilities, and depending on market conditions and upon the significance of the cost of a particular acquisition to our then-available sources of funds, to obtain additional short- and long-term financing.

We believe that cash provided from these sources will be adequate to meet our cash requirements over the next twelve months.

We recently funded the Cholula and FONA acquisitions with cash and short-term borrowings, principally under commercial paper.

We will continue to monitor our liquidity and may seek to obtain additional long-term financing to further support our business.

As part of our ongoing operations, we enter into contractual arrangements that obligate us to make future cash payments.

Our primary obligations include principal and interest payments on our outstanding short-term borrowings and long-term debt.

In the next year, our most significant debt service obligation is the maturity of our $750.0 million, 2.70% notes due in August 2022.

Detail on these contractual obligations follows:

MATERIAL CASH REQUIREMENTS

The following table reflects a summary of our future material cash requirements as of November 30, 2021:

Total Less than

years More than

Short-term borrowings $ 539.1 $ 539.1 $ — $ — $ —

Long-term debt, including finance leases 4,754.2 770.3 1,061.7 787.2 2,135.0

Interest payments (a)

838.8 126.3 204.3 192.6 315.6

Total contractual cash obligations $ 6,132.1 $ 1,435.7 $ 1,266.0 $ 979.8 $ 2,450.6

(a) Interest payments include interest payments on short-term borrowings and long-term debt.

See notes 6 and 7 of notes to our consolidated financial statements for additional information.

Our other cash requirements at year end include raw material purchases, lease payments, income taxes, and pension and postretirement benefits.

We acquire various raw materials to satisfy our obligations to our customers, and these outstanding purchase obligations can fluctuate throughout the year based on our response to varying raw material cycles;

however, these commitments generally do not extend past one year.

In addition, we also have a series of commercial commitments, largely consisting of standby letters of credit.

Our standby letters of credit, leases, and pension and other post retirement obligations are more fully described in notes 6, 7 and 11, respectively, of notes to our consolidated financial statements.

These obligations impact our liquidity and capital resource needs.

To meet those cash requirements, we intend to use our existing cash, cash equivalents and internally generated funds, to borrow under our existing credit facility or under other short-term borrowing facilities, and depending on market conditions and upon the significance of the cost of a particular debt maturity or acquisition to our then-available sources of funds, to obtain additional short- and long-term financing.

We believe that cash provided from these sources will be adequate to meet our future cash requirements.

PENSION ASSETS AND OTHER INVESTMENTS – We hold investments in equity and debt securities in both our qualified defined benefit pension plans and through a rabbi trust for our nonqualified defined benefit pension plan.

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It is expected that the 2022 total pension plan contributions will be approximately $15 million.

Future increases or decreases in pension liabilities and required cash contributions are highly dependent on changes in interest rates and the actual return on plan assets.

Future increases or decreases in pension liabilities and required cash contributions are highly dependent upon changes in interest rates and the actual return on plan assets.

We base our investment of plan assets, in part, on the duration of each plan’s liabilities.

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In early fiscal 2021, we purchased FONA.

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

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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The acquisition was funded with cash and short-term borrowings.

On November 30, 2020, we purchased Cholula for approximately $803 million, net of cash acquired, subject to certain customary purchase price adjustments.

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 purchased Cholula for approximately $801 million, net of cash acquired.

The acquisition was funded with cash and short-term borrowings.

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We did not have any acquisitions in fiscal 2019.

In fiscal 2018, we purchased the remaining 10% minority ownership interest in our Shanghai subsidiary for a cash payment of $12.7 million.

See notes 2 and 19 of notes to our consolidated financial statements for further details regarding these acquisitions.

See note 2 of notes to our consolidated financial statements for further details regarding these acquisitions.

PERFORMANCE GRAPH — SHAREHOLDER RETURN

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Primary exposures include the U.S.

dollar versus the Euro, British pound sterling, Canadian dollar, Polish zloty, Australian dollar, Mexican peso, Swiss franc, Chinese renminbi, Indian rupee and Thai baht, as well as the Euro versus the British pound sterling and Australian dollar, and finally the Canadian dollar versus British pound sterling.

dollar versus the Euro, British pound sterling, Chinese renminbi, Canadian dollar, Australian dollar, Polish zloty, Singapore dollar, Mexican peso, Swiss franc, and Thai baht, as well as the Euro versus the British pound sterling and Australian dollar, and finally the Canadian dollar versus British pound sterling.

We routinely enter into foreign currency exchange contracts to manage certain of these foreign currency risks.

During 2020, the foreign currency translation component in other comprehensive income was principally related to the impact of exchange rate fluctuations on our net investments in our subsidiaries with a functional currency of the British pound sterling, Euro, Polish zloty, Chinese yuan, Australian dollar, Canadian dollar and Mexican peso.

During 2021, the foreign currency translation component in other comprehensive income was principally related to the impact of exchange rate fluctuations on our net investments in our subsidiaries with a functional currency of the British pound sterling, Euro, Polish zloty, Chinese reminbi, Australian dollar, Canadian dollar and Mexican peso.

We also utilize cross currency interest rate swap contracts, which are designated as net investment hedges, to manage the impact of exchange rate fluctuations on our net investments in subsidiaries with a functional currency of the British pound sterling and Euro.

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dollar $ 54.4 1.41 $ 3.3

Swiss franc U.S.

dollar 72.0 1.13 2.1

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dollar Australian dollar 71.7 0.72 (0.6)

Polish zloty U.S.

dollar 6.9 3.79 (0.1)

dollar Singapore dollar 51.2 1.37 0.1

dollar British pound sterling 52.4 1.33 (0.2)

dollar Euro 49.2 1.13 0.1

Australian dollar Euro 43.6 1.58 0.6

Canadian dollar British pound sterling 30.4 1.74 (0.7)

dollar Mexican peso 24.7 21.37 (0.8)

British pound sterling Euro 29.7 0.86 0.1

Australian dollar Euro 45.1 1.67 (1.1)

Swiss franc U.S.

dollar 73.1 1.04 (4.6)

We had a number of smaller contracts at November 30, 2020 with an aggregate notional value of $21.1 million to purchase or sell other currencies, such as the Romanian leu, Russian ruble, and Singapore dollar.

The aggregate fair value of these contracts was $0.1 million at November 30, 2020.

dollar Thai baht 8.8 32.77 (0.3)

We had a number of smaller contracts at November 30, 2021 with an aggregate notional value of $16.0 million to purchase or sell other currencies, such as the Romanian leu and Russian ruble.

The aggregate fair value of these contracts was a loss of $0.2 million at November 30, 2021.

At November 30, 2020, we had foreign currency exchange contracts for the Euro, British pound sterling, Canadian dollar, Australian dollar, Polish zloty, Swiss franc and other currencies, with a notional value of $383.8 million.

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LIBOR plus 0.685% and pay £194.1 million at three-month GBP LIBOR plus 0.740% and (ii) £194.1 million notional value to receive £194.1 million at three-month GBP LIBOR plus 0.740% and pay €221.8 million at three-month Euro EURIBOR plus 0.808%.

We entered into these cross-currency interest rate swap contracts, which expire in August 2027, in early fiscal 2019.

These cross-currency interest rate swap contracts expire in August 2027.

For more information, refer to note 8 of notes to our consolidated financial statements.

Interest Rate Risk – Our policy is to manage interest rate risk by entering into both fixed and variable rate debt arrangements.

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

We are exposed to interest rate volatility, with primary exposures related to movements in U.S.

Treasury rates, London Interbank Offered Rates (LIBOR), and commercial paper rates.

LIBOR will be subject to a transition, or phase out, that will commence on January 1, 2022 with the phase out expected to be completed by June 30, 2023.

While LIBOR is the current interest rate benchmark used as a reference rate on our variable rate debt, including our revolving credit facility, synthetic lease, interest rate swaps, and cross currency interest rate swaps, we do not anticipate a significant impact to our financial position from the planned phase out of LIBOR, given our current mix of variable and fixed-rate debt.

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

The table that follows provides principal cash flows and related interest rates, excluding the effect of interest rate swaps and the amortization of any discounts or fees, by fiscal year of maturity at November 30, 2021.

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Average interest rate 0.24 % 1.39 % 1.69 % 1.74 % — % —

The table above displays the debt, including capital leases, by the terms of the original debt instrument without consideration of fair value, interest rate swaps and any loan discounts or origination fees.

The table above displays the debt, including finance leases, by the terms of the original debt instrument without consideration of fair value, interest rate swaps and any loan discounts or origination fees.

Interest rate swaps have the following effects:

• We issued $250 million of 3.90% notes due in 2021 in July 2011.

Forward treasury lock agreements, settled upon the issuance of these notes in 2011, effectively set the interest rate on the $250 million notes at a weighted-average fixed rate of 4.01%.

• We issued $250 million of 3.50% notes due in 2023 in August 2013.

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The fixed interest rate on $100 million of the 3.25% notes due in December 2025 was effectively converted to a variable rate by interest rate swaps through 2025.

Net interest payments are based on 3-month LIBOR plus 1.22% during this period.

• We issued an aggregate amount of $2.5 billion of senior unsecured notes in August 2017.

These notes are due as follows:

$750 million due August 15, 2022, $700 million due August 15, 2024, $750 million due August 15, 2027 and $300 million due August 15, 2047 with stated fixed interest rates of 2.70%, 3.15%, 3.40% and 4.20%, respectively.

Forward treasury lock agreements settled upon issuance of the $750 million notes due August 15, 2027 effectively set the interest rate on these $750 million notes at a weighted-average fixed rate of 3.44%.

Net interest payments are based on 3-month LIBOR plus 1.22%.

• We issued $750 million of 3.40% notes due August 15, 2027 and $300 million due in August 2027 in August 2017.

Forward treasury lock agreements settled upon issuance of these notes effectively set the interest rate on these $750 million notes at a weighted-average fixed rate of 3.44%.

The fixed interest rate on $250 million of the 3.40% notes due in 2027 was effectively converted to a variable rate by interest rate swaps through 2027.

Net interest payments are based on 3-month LIBOR plus 0.685% during this period.

Net interest payments are based on 3-month LIBOR plus 0.685%.

Commodity Risk – We purchase certain raw materials which are subject to price volatility caused by weather, market conditions, growing and harvesting conditions, governmental actions and other factors beyond our control.

In 2020, our most significant raw materials were dairy products, pepper, vanilla, capsicums (red peppers and paprika), garlic, onion, rice and wheat flour.

In 2021, our most significant raw materials were dairy products, pepper, capsicums (red peppers and paprika), onion, vanilla, garlic, and salt.

While future movements of raw material costs are uncertain, we respond to this volatility in a number of ways, including strategic raw material purchases, purchases of raw material for future delivery and customer price adjustments.

We generally have not used derivatives to manage the volatility related to this risk.

To the extent that we have used derivatives for this purpose, it has not been material to our business.

Credit Risk – The customers of our consumer segment are predominantly food retailers and food wholesalers.

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We consider nonperformance credit risk for other financial instruments to be insignificant.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table reflects a summary of our contractual obligations and commercial commitments as of November 30, 2020:

CONTRACTUAL CASH OBLIGATIONS DUE BY YEAR

Total Less than

years More than

Short-term borrowings $ 886.7 $ 886.7 $ — $ — $ —

Long-term debt, including finance leases 4,000.8 263.9 1,030.2 1,063.3 1,643.4

Operating leases 164.1 40.5 56.7 35.1 31.8

Interest payments (a)

862.5 124.4 208.5 145.1 384.5

Raw material purchase obligations (b)

505.5 505.5 — — —

Pension and post-retirement benefit plans (c)

184.3 14.9 23.6 23.5 122.3

Other purchase obligations (d)

116.3 46.7 32.0 7.4 30.2

Total contractual cash obligations (e)

$ 6,720.2 $ 1,882.6 $ 1,351.0 $ 1,274.4 $ 2,212.2

(a) Interest payments include interest payments on short-term borrowings and long-term debt.

See notes 6 and 7 of notes to our consolidated financial statements for additional information.

(b) Raw material purchase obligations outstanding as of year-end may not be indicative of outstanding obligations throughout the year due to our response to varying raw material cycles.

and international pension plans, which are generally determined for the next fiscal year, and our expected benefit payments under our post-retirement medical plan.

(d) Other purchase obligations consist of information technology and other service agreements, advertising media commitments and utility contracts.

(e) Contractual obligations do not include any potential future tax settlements.

See note 13 of notes to our consolidated financial statements for additional information.

Pension and postretirement funding can vary significantly each year due to changes in legislation, our significant assumptions and investment return on plan assets.

As a result, we have not presented pension and postretirement funding in the table above.

COMMERCIAL COMMITMENTS EXPIRATION BY YEAR

Total Less than

years More than

Guarantees (a)

$ 0.7 $ 0.7 $ — $ — $ —

Standby letters of credit 32.2 32.2 — — —

Total commercial commitments $ 32.9 $ 32.9 $ — $ — $ —

(a) Guarantees do not include any amounts associated with a residual value guarantee that we provide under a lease arrangement, which is more fully described in note 7 of notes to our consolidated financial statements.

OFF-BALANCE SHEET ARRANGEMENTS

We had no off-balance sheet arrangements as of November 30, 2020 and 2019.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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In preparing the financial statements, we make routine estimates and judgments in determining the net realizable value of accounts receivable, inventory, fixed assets and prepaid allowances.

Our most critical accounting estimates and assumptions are in the following areas:

Our most critical accounting estimates and assumptions, which are those that have or are reasonably likely to have a material impact on our financial condition or results of operations, are in the following areas:

Customer Contracts

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Estimates that affect revenue, such as trade incentives and product returns, are monitored and adjusted each period until the incentives or product returns are realized.

Goodwill and Intangible Asset Valuation

of our customer arrangements are annual arrangements such that the degree of estimates that affects revenue reduces as a year progresses.

We do not believe that there will be significant changes to our estimates of customer consideration when any uncertainties are resolved with customers.

Business Combinations, Goodwill and Intangible Asset Valuation

We use the acquisition method in accounting for acquired businesses.

Under the acquisition method, our financial statements reflect the operations of an acquired business starting from the closing of the acquisition.

The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition.

Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.

Significant judgment is often required in estimating the fair value of assets acquired, particularly intangible assets.

We generally obtain the assistance of a third-party valuation specialist in estimating fair values of tangible and intangible assets.

The fair value estimates are based on available historical information and on expectations and assumptions about the future, considering the perspective of marketplace participants.

While management believes those expectations and assumptions are reasonable, they are inherently uncertain.

Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions.

Determining the useful lives of intangible assets also requires judgment.

Certain brand intangibles are expected to have indefinite lives based on their history and our plans to continue to support and build the acquired brands, while other acquired intangible assets (e.g., customer relationships) are expected to have determinable useful lives.

Our estimates of the useful lives of definite-lived intangible assets are primarily based upon historical experience, the competitive and macroeconomic environment, and our operating plans.

The costs of definite-lived intangibles are amortized to expense over their estimated life.

We review the carrying value of goodwill and non-amortizable intangible assets and conduct tests of impairment on an annual basis as described below.

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We test indefinite-lived intangible assets for impairment if events or changes in circumstances indicate that the asset might be impaired.

Determining the fair value of a reporting unit or an indefinite-lived purchased intangible asset is judgmental in nature and involves the use of significant estimates and assumptions.

We base our fair value estimates on assumptions we believe to be reasonable but that are inherently uncertain.

Actual future results may differ from those estimates.

Determining the fair value of a reporting unit or an indefinite-lived purchased intangible asset is judgmental in nature and involves the use of significant estimates and assumptions, as more fully described in note 1 of notes to our consolidated financial statements.

While we believe those estimates and assumptions are reasonable, they are inherently uncertain.

Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions.

Goodwill Impairment

Our reporting units are the same as our operating segments.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions, as more fully described in note 1 to our consolidated financial statements.

We estimate the fair value of a reporting unit by using a discounted cash flow model.

Our discounted cash flow model calculates fair value by present valuing future expected cash flows of our reporting units using our internal cost of capital as the discount rate.

Our discounted cash flow model calculates fair value by present valuing future expected cash flows of our reporting units using a market-based discount rate.

We then compare this fair value to the carrying amount of the reporting unit, including intangible assets and goodwill.

If the carrying amount of the reporting unit exceeds the estimated fair value, then we would determine the implied fair value of the reporting unit’s goodwill.

An impairment charge would be recognized to the extent the carrying amount of goodwill exceeds the implied fair value.

An impairment charge would be recognized to the extent that the carrying amount of the reporting unit exceeds the estimated fair value of the reporting unit.

The quantitative goodwill impairment test requires an entity to compare the fair value of each reporting unit with its carrying amount.

As of November 30, 2021, we had $5,335.8 million of goodwill recorded in our balance sheet ($3,674.7 million in the consumer segment and $1,661.1 million in the flavor solutions segment).

Included in those amounts are $410.5 million ($273.7 million in the consumer segment and $136.8 million in the flavor solutions segment) of goodwill related to our acquisition of Cholula that, as of November 30, 2020, was determined on a preliminary basis.

The final valuation of the acquired net assets of Cholula, and the related goodwill balance by segment, will be completed in 2021.Our fiscal year 2020 impairment testing indicated that the estimated fair values of our reporting units were significantly in excess of their carrying values.

Our fiscal year 2021 impairment testing indicated that the estimated fair values of our reporting units were significantly in excess of their carrying values.

Accordingly, we believe that only significant changes in the cash flow assumptions would result in an impairment of goodwill.

However, variances between the actual performance of the businesses and the assumptions that were used in developing the estimates of fair value could result in impairment charges in future periods.

Indefinite-lived Intangible Asset Impairment

Our indefinite-lived intangible assets consist of brand names and trademarks.

We estimate fair values primarily through the use of the relief-from-royalty method and then compare those fair values to the related carrying amounts of the indefinite-lived intangible asset.

We estimate fair values through the use of the relief-from-royalty method and then compare those fair values to the related carrying amounts of the indefinite-lived intangible asset.

In the event that the fair value of any of the brand names or trademarks are less than their related carrying amounts, a non-cash impairment loss would be recognized in an amount equal to the difference.

The estimation of fair values of our brand names and trademarks requires us to make significant assumptions, including expectations with respect to sales and profits of the respective brands and trademarks, related royalty rates and appropriate discount rates, which are based, in part, upon current interest rates adjusted for our view of reasonable country- and brand - specific risks based upon the past and anticipated future performance of the related brand names and trademarks .

adjusted for our view of reasonable country- and brand - specific risks based upon the past and anticipated future performance of the related brand names and trademarks .

The assumptions used to assess impairment consider historical trends, macroeconomic conditions, and projections consistent with our operating strategy.

Changes in these estimates can have a significant impact on the assessment of fair value which could result in material impairment losses.

As of November 30, 2021, we had $3,067.4 million of brand name assets and trademarks recorded in our balance sheet, and none of the balances exceeded their estimated fair values at that date.

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(i) $2,320.0 million relates to the French’s, Frank’s RedHot and Cattlemen’s brand names and trademarks, recognized as part of our acquisition of RB Foods in August 2017, that we group for purposes of our impairment analysis;

(ii) $380.0 million relates to the Cholula brand names and trademarks, recognized as part of the preliminary purchase price allocation associated with the acquisition of Cholula in November 2020, and (iii) the remaining $330.0 million represents a number of other brand name assets and trademarks with individual carrying values ranging from $0.2 million to $106.4 million.

The percentage excess of estimated fair value over respective book values for each of our brand names and trademarks, including the $2,320.0 million related to our French’s, Frank's RedHot and Cattlemen’s brands was 20% or more as of November 30, 2020, except for:

(i) the Cholula brand, whose preliminary fair value of $380.0 million was determined as of its November 30, 2020 acquisition date;

and (ii) one additional brand with a carrying value of $7.4 million whose fair value modestly exceeds its carrying value as of year-end 2020.

The brand names and trademarks related to recent acquisitions, including our recent acquisitions of Cholula and, in early fiscal 2021, FONA, may be more susceptible to future impairment as their carrying values represent recently determined fair values.

(ii) $380.0 million relates to the Cholula brand names and trademarks associated with the acquisition of Cholula in November 2020, (iii) $49.0 million relates to the FONA brand names and trademarks associated with the acquisition of FONA in December 2020 and (iv) the remaining $318.4 million represents a number of other brand name assets and trademarks with individual carrying values ranging from $0.2 million to $106.4 million.

Except for our recent acquisitions of Cholula and FONA, the percentage excess of estimated fair value over respective book values for each of our brand names and trademarks, including the $2,320.0 million related to our French’s, Frank's RedHot and Cattlemen’s brands, was 20% or more as of November 30, 2021.

The brand names and trademarks related to recent acquisitions, including our recent acquisitions of Cholula and FONA, may be more susceptible to future impairment as their carrying values represent recently determined fair values.

A change in assumptions with respect to recently acquired businesses, including those affected by rising interest rates or a deterioration in expectations of future sales, profitability or royalty rates as well as future economic and market conditions, or higher income tax rates, could result in non-cash impairment losses in the future.

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A reconciliation of the estimate to the final tax return is done at that time, which will result in changes to the original estimate.

We believe that our tax return positions are appropriately supported, but tax authorities may challenge certain positions.

We believe that our tax return positions are appropriately supported, but tax authorities can challenge certain of our tax positions.

We evaluate our uncertain tax positions in accordance with the GAAP guidance for uncertainty in income taxes.

We believe that our reserve for uncertain tax positions, including related interest, is adequate.

We recognize a tax benefit when it is more likely than not the position will be sustained upon examination, based on its technical merits.

The tax position is then measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

A change in judgment related to the expected ultimate resolution of uncertain tax positions will be recognized in earnings in the quarter of such change.

We believe that our reserve for uncertain tax positions, including related interest and penalties, is adequate.

As of November 30, 2021, the Company had $31.0 million of unrecognized tax benefits, including interest and penalties, recorded in Other long-term liabilities.

The amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and, therefore, could have a material impact on our tax provision, net income and cash flows.

recorded valuation allowances to reduce our deferred tax assets to the amount that is more likely than not to be realized.

We have recorded valuation allowances to reduce our deferred tax assets to the amount that is more likely than not to be realized.

In doing so, we have considered future taxable income and tax planning strategies in assessing the need for a valuation allowance.

Both future taxable income and tax planning strategies include a number of estimates.

Pension and Postretirement Benefits

Pension and other postretirement plans’ costs require the use of assumptions for discount rates, investment returns, projected salary increases, mortality rates and health care cost trend rates.

The actuarial assumptions used in our pension and postretirement benefit reporting are reviewed annually and compared with external benchmarks to ensure that they appropriately account for our future pension and postretirement benefit obligations.

While we believe that the assumptions used are appropriate, differences between assumed and actual experience may affect our operating results.

A 1% increase or decrease in the actuarial assumption for the discount rate would impact 2021 pension and postretirement benefit expense by approximately $1 million.

Both future taxable income and tax planning strategies include a number of estimates, as more fully described in note 1 of notes to our consolidated financial statements.

Pension Benefits

Pension plans’ costs require the use of assumptions for discount rates, investment returns, projected salary increases, and mortality rates.

The actuarial assumptions used in our pension benefit reporting are reviewed annually and compared with external benchmarks to ensure that they appropriately account for our future pension benefit obligations.

While we believe that the assumptions used are appropriate, changes in various assumptions and differences between the actual returns on plan assets and the expected returns on plan assets and changes to projected future rates of return on plan assets will affect the amount of pension expense or income ultimately recognized.

A 1% increase or decrease in the actuarial assumption for the discount rate would impact 2022 pension benefit expense by approximately $1 million.

A 1% increase or decrease in the expected return on plan assets would impact 2022 pension expense by approximately $10 million.

We will continue to evaluate the appropriateness of the assumptions used in the measurement of our pension and other postretirement benefit obligations.

We will continue to evaluate the appropriateness of the assumptions used in the measurement of our pension benefit obligations.

In addition, see note 11 of notes to our consolidated financial statements for a discussion of these assumptions and the effects on the financial statements.

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What changed 10-K

Item 7. Management’s Discussion and Analysis