MCCORMICK & CO INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW 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, included in Item 1 of this report. 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. Unless otherwise noted, the dollar and share information in the charts and tables in MD&A are in millions, except per share data. Business profile McCormick is a global leader in flavor. We manufacture, market and distribute spices, seasoning mixes, condiments and other flavorful products to the entire food industry – retailers, food manufacturers and the foodservice business. In fiscal year 2021, approximately 40% of our sales were outside of the U.S. We also are partners in a number of joint ventures that are involved in the manufacture and sale of flavorful products, the most significant of which is McCormick de Mexico. We manage our business in two business segments, consumer and flavor solutions. Recent Events Recent events impacting our business include COVID-19, the inflationary cost environment and disruption in our supply chain, and Russia’s invasion of Ukraine, each of which are further discussed below. As more fully described below, we expect each of these factors will impact our fiscal 2022 performance. We anticipate that fiscal 2022 will continue to be a dynamic macroeconomic environment. While we expect the impacts of COVID-19 on our business to moderate, there still remains uncertainty around the pandemic, its effect on labor or other macroeconomic factors, the severity and duration of the pandemic, the continued availability and effectiveness of vaccines and actions taken by government authorities, including restrictions, laws or regulations, and other third parties in response to the pandemic. We expect elevated levels of cost inflation to persist throughout 2022. We anticipate that these headwinds will be partially mitigated by pricing actions in response to inflation, supply chain productivity improvements and cost savings initiatives. Also, the invasion of Ukraine by Russia and the sanctions 20 Table of Contents imposed in response to this conflict have increased global economic and political uncertainty. While the impact of these factors remains uncertain, we will continue to evaluate the extent to which these factors will impact our business, financial condition, or results of operations. These and other uncertainties with respect to these recent events could result in changes to our current expectations. The potential effects of these recent events 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. COVID-19: As a result of the COVID-19 pandemic, uncertainty with respect to its economic effects has impacted not only our operating results but also the global economy. The extent and nature of government actions varied during the quarters ended February 28, 2022 and 2021 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. While we continue to see strong levels of at-home consumption compared to pre-pandemic levels, the favorable impact of increased at-home meal preparation was less significant in the three months ended February 28, 2022 as compared to the comparable period of 2021. This change in consumer behavior was due in part to a decrease in the prevalence and scale of restrictive measures in place to reduce the spread of COVID-19 in the 2022 period as compared to 2021. Conversely, we continue to see improvements in away-from-home demand associated with the COVID-19 recovery. During the three months ended February 28, 2022 our flavor solutions segment sales improved as away-from-home consumption increased as compared to the corresponding quarter in 2021, in part, due to the continued easing of restrictive COVID-19 mitigation measures that were in place during the first quarter of 2021. Inflationary Cost Environment and Supply Chain Disruption – During fiscal 2021, we experienced inflationary cost increases in our commodities, packaging materials and transportation costs. These inflationary cost increases have continued in 2022, 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 to build capacity as well as increase our supply chain related resources. We expect these pressures to continue throughout 2022. Russia’s Invasion of Ukraine: The invasion of Ukraine by Russia and the sanctions imposed in response to this conflict have increased global economic and political uncertainty. As we announced on March 11, 2022, we suspended our business operations in Russia. Our operations in Ukraine have been paused to focus on the safety of our employees. While neither Russia nor Ukraine constitutes a material portion of our business, a significant escalation or expansion of economic disruption or the conflict's current scope could disrupt our supply chain, broaden inflationary costs, and have a material adverse effect on our results of operations. 2022 Outlook 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 is, excluding the impact of foreign currency exchange as more fully described under the caption, Non-GAAP Financial Measures). 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 also anticipate that our volume and product mix will be negatively 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-to-high-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 absence 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%. 21 Table of Contents 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 unfavorably 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 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 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 (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 – COMPANY Three months ended February 28, 2022 February 28, 2021 Net sales $ 1,522.4 $ 1,481.5 Percent increase 2.8 % 22.2 % Components of percent growth in net sales – increase (decrease): Volume and product mix (1.5) % 15.2 % Pricing actions 4.8 % 0.8 % Acquisitions 0.7 % 4.0 % Foreign exchange (1.2) % 2.2 % Gross profit $ 560.4 $ 577.5 Gross profit margin 36.8 % 39.0 % Sales for the first quarter of 2022 increased by 2.8% from the prior year level and by 4.0% on a constant currency basis (that is, excluding the impact of foreign currency exchange as more fully described under the caption, Non-GAAP Financial Measures). Unfavorable volume and product mix decreased sales by 1.5%. That decrease was driven by our consumer segment as compared to the first quarter of 2021 which experienced a 35.4% increase in sales, including a 28.6% increase from favorable volume and product mix, from the 2020 level. The decrease in consumer segment sales was partially offset by higher sales of our flavor solutions segment across all regions, as demand was elevated as compared to the corresponding period in 2021 when away-from-home sales were more impacted by measures imposed to mitigate the spread of COVID-19. Pricing actions, taken in response to the inflationary cost environment, increased sales by 4.8%. The incremental impact of the FONA acquisition added 0.7% to sales in the first quarter of 2022. Sales were also impacted by unfavorable foreign currency rates that decreased net sales by 1.2% in the first quarter of 2022 compared to the year-ago quarter and is excluded from our measure of sales growth of 4.0% on a constant currency basis. Gross profit for the first quarter of 2022 decreased by $17.1 million, or 3.0%, from the comparable period in 2021. Our gross profit margin for the three months ended February 28, 2022 was 36.8%, a decrease of 220 basis points from the comparable period in 2021. The decrease in gross profit margin in the quarter ended February 28, 2022 was driven by the margin dilutive impact of pricing actions taken in response to the inflationary cost environment, increased commodity, packaging materials and transportation costs, higher conversion costs and a less favorable mix in sales between our consumer and flavor solutions segments, each as compared to the 2021 period. These unfavorable impacts were partially offset by cost savings led by our 22 Table of Contents Comprehensive Continuous Improvement ("CCI") program as well as a reduction in COVID-19 related costs. In addition, our gross profit for the three months ended February 28 2021 was burdened by $6.3 million of transaction expense, representing the amortization of the fair value adjustment to the acquired inventories of Cholula and FONA upon our sale of those acquired inventories in the first quarter of fiscal 2021. Excluding those transaction and integration expenses, adjusted gross profit margin declined 260 basis points to 36.8% from 39.4% in 2021. Three months ended February 28, 2022 February 28, 2021 Selling, general & administrative expense (SG&A) $ 333.3 $ 321.3 Percent of net sales 21.9 % 21.7 % SG&A increased by $12.0 million in the first quarter of 2022 compared to the 2021 level, driven by SG&A associated with the acquired FONA business, increased distribution costs, and higher investment associated with the implementation of our global enterprise resource planning (ERP) platform, all as compared to the 2021 period. SG&A as a percentage of net sales increased by 20 basis points from the prior year level, due primarily to the net impact of the previously mentioned factors. Three months ended February 28, 2022 February 28, 2021 Total special charges $ 19.5 $ 1.1 During the three months ended February 28, 2022, we recorded $19.5 million of special charges, consisting principally of $14.9 million associated with the transition of a manufacturing facility in Europe, Middle East, and Africa (EMEA), streamlining actions of $2.1 million in the Americas region, and $1.5 million in the EMEA region. During the three months ended February 28, 2021, we recorded $1.1 million of special charges, consisting principally of streamlining actions of $0.6 million in the EMEA region and $0.5 million in the Americas region. Details with respect to the composition of special charges are included in note 2 of the notes to the accompanying financial statements. Three months ended February 28, 2022 February 28, 2021 Transaction expenses included in cost of goods sold $ — $ 6.3 Other transaction and integration expenses 0.7 18.8 Total transaction and integration expenses $ 0.7 $ 25.1 During the three months ended February 28, 2022, we recorded $0.7 million of integration expenses related to our acquisition of FONA, as compared to $25.1 million of transaction and integration expenses in the 2021 period related to our acquisitions of Cholula and FONA. The 2021 costs consisted of (i) $6.3 million of amortization of the acquisition-date fair value adjustment of inventories that is included in cost of goods sold, (ii) $13.8 million of other transaction costs primarily related to outside advisory, service and consulting costs, and (iii) $5.0 million of integration expenses. Three months ended February 28, 2022 February 28, 2021 Interest expense $ 33.1 $ 33.8 Other income, net 6.2 4.6 Interest expense decreased by $0.7 million in the three months ended February 28, 2022, as compared to the prior year period. Other income, net for the three months ended February 28, 2022 increased by $1.6 million, as compared to the prior year period, driven by higher interest income. Three months ended February 28, 2022 February 28, 2021 Income from consolidated operations before income taxes $ 180.0 $ 207.1 Income tax expense 34.4 58.6 Effective tax rate 19.1 % 28.3 % 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. GAAP. Examples of such 23 Table of Contents 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 stock-based compensation, changes in estimates of the outcome of tax matters related to prior years, including reversals of reserves upon the lapsing of statutes of limitations, provision-to-return adjustments, the settlement of tax audits, changes in enacted tax rates, changes in the assessment of deferred tax valuation allowances, acquisition related deferred tax adjustments and the tax effects of certain intra-entity asset transfers (other than inventory). Income tax expense for the three months ended February 28, 2022 included $10.3 million of net discrete tax benefits consisting primarily of $7.6 million of excess tax benefits associated with stock-based compensation and $2.5 million of tax benefits related to the revaluation of deferred taxes resulting from legislation enacted during the period. Income taxes for the three months ended February 28, 2021 included $5.3 million of net discrete tax expense consisting principally of the following: (i) $11.4 million of deferred state tax expense directly related to our December 2020 acquisition of FONA, partially offset by (ii) $4.5 million of tax benefits associated with the release of a valuation allowance due to a change in judgment about realizability of deferred tax assets and (iii) $1.2 million of tax benefits from the reversal of certain reserves for unrecognized tax benefits associated with the resolution of tax uncertainties. Three months ended February 28, 2022 February 28, 2021 Income from unconsolidated operations $ 9.3 $ 13.3 Income from unconsolidated operations, which is presented net of the elimination of earnings attributable to non-controlling interests, decreased by $4.0 million for the three months ended February 28, 2022, as compared to the year ago period. The decrease was driven by lower earnings of our largest joint venture, McCormick de Mexico, as well as the impact of eliminating a higher level of earnings of our non-controlling interests, both as compared to the 2021 periods. The following table outlines the major components of the change in diluted earnings per share from 2021 to 2022: Three months ended February 28, 2021 Earnings per share – diluted $ 0.60 Impact of change in operating income (0.10) Increase in special charges, net of taxes (0.05) Decrease in transaction and integration expenses, including impact of net discrete tax item related to FONA acquisition 0.11 Decrease in income from unconsolidated operations (0.01) Impact of change in effective income tax rate, excluding taxes on special charges and transaction and integration expenses 0.02 2022 Earnings per share – diluted $ 0.57 RESULTS OF OPERATIONS — SEGMENTS We measure the performance of our business segments based on operating income, excluding special charges. We also exclude transaction and integration expenses related to our acquisitions of Cholula and FONA from our measure of segment performance as these expenses are similarly managed separately from the business segments. These transaction and integration expenses excluded from our segment performance measure include the amortization of the acquisition-date fair value adjustment of inventories that is included in cost of goods sold, costs directly associated with that acquisition and costs associated with integrating the businesses. See note 10 of the notes to the accompanying 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, to consolidated operating income. In the following discussion, we refer to our previously described measure of segment profit as segment operating income. CONSUMER SEGMENT 24 Table of Contents Three months ended February 28, 2022 February 28, 2021 Net sales $ 926.1 $ 946.8 Percent (decrease) increase (2.2) % 35.4 % Segment operating income $ 167.0 $ 189.9 Segment operating income margin 18.0 % 20.1 % In the first quarter of 2022, sales of our consumer segment decreased 2.2% as compared to the first quarter of 2021, which experienced a 35.4% increase in sales from the 2020 level, and decreased by 1.5% on a constant currency basis. That 2.2% decrease was driven by lower sales of our consumer business in the EMEA and Asia/Pacific regions, which was partially offset by growth in the Americas region, as compared to the prior year quarter. Unfavorable volume and product mix decreased consumer segment sales by 5.9% in the first quarter of 2022 as compared to the same period last year, as the exceptionally high demand that existed in the year ago period has eased but continues to reflect strong at-home consumption. Pricing actions, taken in response to increased costs, favorably impacted sales by 4.4% as compared to the prior year period. Sales in the first quarter of 2022 reflected an unfavorable impact from foreign currency rates that decreased consumer segment sales by 0.7% compared to the year-ago quarter and is excluded from our measure of sales decline of 1.5% on a constant currency basis. In the Americas region, consumer sales increased 2.3% in the first quarter of 2022 as compared to the first quarter of 2021, which experienced a 29.8% increase in sales from the 2020 level, and increased by 2.2% on a constant currency basis. For the first quarter of 2022, unfavorable volume and product mix decreased sales by 3.3% as compared to the corresponding period in 2021, as lower private label sales and unfavorable trade replenishment were partially offset by improved branded product sales, all as compared to the prior year period. Pricing actions, taken in response to higher costs, increased sales by 5.5% as compared to the prior year period. The favorable impact of foreign currency rates increased sales by 0.1% in the quarter and is excluded from our measure of sales growth of 2.2% on a constant currency basis. In the EMEA region, consumer sales decreased 14.2% in the first quarter of 2022 as compared to the first quarter of 2021, which experienced a 34.6% increase in sales from the 2020 level, and decreased by 9.4% on a constant currency basis. Sales were impacted by unfavorable volume and product mix during the first quarter of 2022 that decreased sales by 11.2% from the prior year level. The decrease was driven by an easing of at-home consumption as compared to the three months ended February 28, 2021. Lower sales of our homemade dessert products in France contributed to the sales decrease from the year ago quarter. Pricing actions, taken in response to the inflationary cost environment, increased sales by 1.8% as compared to the 2021 period. During the first quarter of 2022, an unfavorable impact from foreign currency rates decreased sales by 4.8% compared to the year-ago period and is excluded from our measure of sales decline of 9.4% on a constant currency basis. In the Asia/Pacific region, consumer sales decreased 4.3% in the first quarter of 2022 as compared to the first quarter of 2021, which reflected a 64.7% increase in sales from the 2020 level, and decreased by 6.0% on a constant currency basis. For the quarter ended February 28, 2022, lower volume and unfavorable product mix decreased sales by 9.7%, driven by the exit of our rice product line in India as well as the effect of more restrictive measures relating to COVID-19 resurgences impacting Chinese new year related sales. Pricing actions, taken in response to the inflationary cost environment, increased sales by 3.7% as compared to the prior year period. A favorable impact from foreign currency rates, which increased sales by 1.7% compared to the first quarter of 2021, is excluded from our measure of sales decline of 6.0% on a constant currency basis. Segment operating income for our consumer segment decreased by $22.9 million, or 12.1%, in the first quarter of 2022 as compared to the first quarter of 2021. The decrease in segment operating income was driven by increased commodity, transportation and conversion costs, partially offset by pricing actions in response to increased costs, CCI-led cost savings as well as a reduction in COVID-19 related costs, all as compared to the prior year period. Segment operating margin for our consumer segment decreased by 210 basis points from the first quarter of 2021 to 18.0% in the first quarter of 2022. That decrease was principally the result of a decrease in gross margin, including the margin dilutive impact of pricing actions and the impact of the inflationary cost environment, which was partially offset by CCI-led cost savings. Higher SG&A as a percentage of net sales, including increased distribution costs, also contributed to the decrease as compared to the 2021 period. On a constant currency basis, segment operating income for our consumer segment decreased by 11.9% in the first quarter of 2022 in comparison to the same period in 2021. 25 Table of Contents FLAVOR SOLUTIONS SEGMENT Three months ended February 28, 2022 February 28, 2021 Net sales $ 596.3 $ 534.7 Percent increase 11.5 % 4.3 % Segment operating income $ 60.1 $ 72.6 Segment operating income margin 10.1 % 13.6 % In the first quarter of 2022, sales of our flavor solutions segment increased by 11.5% as compared to the first quarter of 2021, and increased by 13.7% on a constant currency basis. The sales increase in the first quarter of 2022 included growth in all regions. The incremental impact of our FONA acquisition added 1.9% to sales in the quarter ended February 28, 2022. Favorable volume and product mix increased segment sales by 6.4% in the first quarter of 2022 as compared to the same period in 2021, due, in part, to the continued recovery of away-from-home demand. Pricing actions during the first quarter of 2022 also increased sales by 5.4%. The unfavorable impact of foreign currency rates decreased flavor solutions segment sales by 2.2% compared to the year-ago quarter and is excluded from our measure of sales growth of 13.7% on a constant currency basis. In the Americas region, flavor solutions sales increased by 12.1% in the first quarter of 2022 as compared to the first quarter of 2021 and increased by 12.4% on a constant currency basis. Favorable volume and product mix increased flavor solutions sales in the Americas by 4.3% during the first quarter of 2022, driven by growth in sales to packaged food and beverage companies and branded foodservice customers that benefited from the continued recovery of away-from-home demand, each as compared to the year ago period. The incremental impact of the FONA acquisition increased sales by 2.7% during the first quarter of 2022. Pricing actions, taken in response to the inflationary cost environment, favorably impacted sales by 5.4% during the quarter ended February 28, 2022 as compared to the prior year period. An unfavorable impact from foreign currency rates decreased sales by 0.3% compared to the first quarter of 2021 and is excluded from our measure of sales growth of 12.4% on a constant currency basis. In the EMEA region, flavor solutions sales increased by 15.2% in the first quarter of 2022 as compared to the first quarter of 2021 and increased by 24.2% on a constant currency basis. Favorable volume and product mix increased segment sales in the EMEA region by 17.0% as compared to the corresponding period in 2021. The increase was driven by higher sales to quick service restaurants and branded foodservice customers due, in part, to the continued recovery of away-from-home demand. Pricing actions, taken in response to the inflationary cost environment, favorably impacted sales by 7.2% in the first quarter of 2022 as compared to the prior period level. An unfavorable impact from foreign currency rates decreased sales by 9.0% compared to the first quarter of 2021 and is excluded from our measure of sales growth of 24.2% on a constant currency basis. In the Asia/Pacific region, flavor solutions sales increased 2.5% in the first quarter of 2022 as compared to the first quarter of 2021, and increased by 4.3% on a constant currency basis. Favorable volume and product mix increased sales by 1.7% in the first quarter of 2022 driven by higher sales to quick service restaurants. Pricing actions, taken in response to the inflationary cost environment, favorably impacted sales by 2.6% as compared to the prior year period. An unfavorable impact from foreign currency rates decreased sales by 1.8% compared to the first quarter of 2021 and is excluded from our measure of sales growth of 4.3% on a constant currency basis. Segment operating income for our flavor solutions segment decreased by $12.5 million, or 17.2%, in the first quarter of 2022 as compared to the first quarter of 2021. The decrease in segment operating income was driven by increased commodity, transportation and conversion costs, an unfavorable shift in product mix, as well as costs related to supply chain investments, which was partially offset by a higher level of sales, including pricing actions in response to the inflationary cost environment, and CCI-led cost savings, all as compared to the prior year period. Segment operating margin for our flavor solutions segment decreased by 350 basis points from the prior year level to 10.1% in the first quarter of 2022. That decrease was principally the result of a decrease in gross margin, including the margin dilutive impact of pricing actions and the impact of an inflationary cost environment, partially offset by CCI-led cost savings. On a constant currency basis, segment operating income for our flavor solutions segment decreased by 10.6% in the first quarter of 2022 as compared to the same period in 2021. MARKET RISK SENSITIVITY 26 Table of Contents We utilize derivative financial instruments to enhance our ability to manage risk, including foreign exchange and interest rate exposures, which exist as part of our ongoing business operations. We do not enter into contracts for trading purposes, nor are we a party to any leveraged derivative instrument. The use of derivative financial instruments is monitored through regular communication with senior management and the utilization of written guidelines. Foreign Exchange Risk We are potentially exposed to foreign currency risk affecting net investments in subsidiaries, transactions (both third-party and intercompany) and earnings denominated in foreign currencies. Management assesses foreign currency risk based on transactional cash flows and translational volatility and may enter into forward contract and currency swaps with highly-rated financial institutions to reduce fluctuations in the long or short currency positions. We do not enter into contracts for trading purposes, nor are we a party to any leveraged derivative instruments. All derivatives are designated as hedges. The following table sets forth the notional values and unrealized net gain (loss) of the portfolio of our forward foreign currency and cross currency swap contracts: February 28, 2022 November 30, 2021 Forward foreign currency: Notional value $ 636.5 $ 583.6 Unrealized net gain 4.9 5.5 Cross currency swaps: Notional value 1,001.0 508.5 Unrealized net loss (3.2) (3.6) The outstanding notional value is a result of our decisions on foreign currency exposure coverage, based on our foreign currency and foreign currency translation exposures. Interest Rate Risk We manage our interest rate exposure 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 do not enter into contracts for trading purposes, nor are we a party to any leveraged derivative instruments, and all derivatives are designated as hedges. The following table sets forth the notional values and unrealized net gain (loss) of our interest rate swap contracts: February 28, 2022 November 30, 2021 Notional value $ 600.0 $ 350.0 Unrealized net gain 14.6 23.1 The change in fair values of our interest rate swap contracts is due to changes in interest rates on the notional amounts outstanding as of each date as well as the remaining duration of our interest rate derivatives. 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. Our most significant raw materials are 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. Credit Risk The customers of our consumer segment are predominantly food retailers and food wholesalers. Consolidations in these industries have created larger customers. In addition, competition has increased with the growth in alternative channels including mass merchandisers, dollar stores, warehouse clubs, discount chains and e-commerce. This has caused some customers to be less profitable and increased our exposure to credit risk. Some of our customers and counterparties are highly leveraged. We continue to closely monitor the credit worthiness of our customers and counterparties. We believe that our allowance for doubtful accounts properly recognizes trade receivables at realizable value. We consider nonperformance credit risk for other financial instruments to be insignificant. 27 Table of Contents NON-GAAP FINANCIAL MEASURES The following table includes 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. These financial measures exclude the impact, as applicable, of the following: • Special charges – Special charges consist of expenses associated with certain actions undertaken by the Company to reduce fixed costs, simplify or improve processes, and improve our competitiveness and are of such significance in terms of both up-front costs and organizational/structural impact to require advance approval by our Management Committee. Upon presentation of any such proposed action (generally including details with respect to estimated costs, which typically consist principally of employee severance and related benefits, together with ancillary costs associated with the action that may include a non-cash component or a component which relates to inventory adjustments that are included in cost of goods sold; impacted employees or operations; expected timing; 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 on-going basis through completion. • 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 inventories, together with the impact of discrete tax items, if any, directly related to each acquisition. • Income from sale of unconsolidated operations — We exclude the gain realized upon our sale of an unconsolidated operation in March 2021. As more fully described in note 5 in our Annual Report on Form 10-K for the year ended November 30, 2021, 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 for the year ended November 30, 2021. Details with respect to the composition of transaction and integration expenses and special charges set forth below are included in note 2 of the notes to the accompanying financial statements. Details with respect to the composition of transaction and integration expenses, special charges and income from the sale of unconsolidated operations for the year ended November 30, 2021 are included in notes 2, 3 and 5, respectively, of the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended November 30, 2021. We believe that these non-GAAP financial measures are important. The exclusion of the items noted above provides additional information that enables enhanced comparisons to prior periods and, accordingly, facilitates the 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. These non-GAAP financial measures may be considered in addition to results prepared in accordance with GAAP, but they should not be considered a substitute for, or superior to, GAAP results. In addition, these non-GAAP financial measures may not be comparable to similarly titled measures of other companies because other companies may not calculate them in the same manner that we do. 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. 28 Table of Contents A reconciliation of these non-GAAP financial measures to the related GAAP financial measures follows: For the year ended November 30, 2021 For the three months ended Estimated for the year ending November 30, 2022 February 28, 2022 February 28, 2021 Gross profit $ 2,494.6 $ 560.4 $ 577.5 Impact of transaction and integration expenses included in cost of goods sold (1) 6.3 — 6.3 Impact of special charges included in cost of goods sold (2) 4.7 — — Adjusted gross profit $ 2,505.6 $ 560.4 $ 583.8 Adjusted gross profit margin (3) 39.7 % 36.8 % 39.4 % Operating income $ 1,015.1 $ 206.9 $ 236.3 Impact of transaction and integration expenses included in cost of goods sold (1) 6.3 — 6.3 Impact of other transaction and integration expenses (1) 29.0 0.7 18.8 Impact of special charges included in cost of goods sold (2) 4.7 — — Impact of other special charges (2) 46.4 19.5 1.1 Adjusted operating income $ 1,101.5 $ 227.1 $ 262.5 Adjusted operating income margin (4) 17.4 % 14.9 % 17.7 % Income tax expense $ 192.7 $ 34.4 $ 58.6 Impact of transaction and integration expenses (1) (2.7) 0.2 (5.9) Impact of special charges 7.1 4.9 0.3 Adjusted income tax expense $ 197.1 $ 39.5 $ 53.0 Adjusted income tax rate (5) 20.1 % 19.7 % 22.7 % Net income $ 755.3 $ 154.9 $ 161.8 Impact of transaction and integration expenses (1) 38.0 0.5 31.0 Impact of special charges (2) 44.0 14.6 0.8 Impact of after-tax gain on sale of unconsolidated operation (13.4) — — Adjusted net income $ 823.9 $ 170.0 $ 193.6 Earnings per share – diluted $ 2.80 $ 0.57 $ 0.60 $3.07 to $3.12 Impact of transaction and integration expenses (1) 0.14 — 0.12 0.01 Impact of special charges (2) 0.16 0.06 — 0.09 Impact of after-tax gain on sale of unconsolidated operation (0.05) — — — Adjusted earnings per share – diluted $ 3.05 $ 0.63 $ 0.72 $3.17 to $3.22 29 Table of Contents (1) Transaction and integration expenses include transaction and integration expenses associated with our acquisitions of Cholula and FONA. These expenses include the effect of the fair value adjustment to acquired inventories on cost of goods sold and the unfavorable impact of a discrete deferred state income tax expense item, directly related to our December 2020 acquisition of FONA, of $11.4 million or $0.04 per diluted share for the three months ended February 28, 2021, and $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 2 of notes to our accompanying 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 percentage of net sales for each period presented. (4) Adjusted operating income margin is calculated as adjusted operating income as a percentage of net sales for each period presented. (5) Adjusted income tax rate is calculated as adjusted income tax expense as a percentage of income from consolidated operations before income taxes excluding transaction and integration expenses and special charges of $200.2 million and $233.3 million for the three months ended February 28, 2022 and 2021, respectively, and $982.2 million for the year ended November 30, 2021. Because we are a multi-national company, we are subject to variability of our reported U.S. dollar results due to changes in foreign currency exchange rates. Those changes have been volatile over the past several years. The exclusion of the effects of foreign currency exchange, or what we refer to as amounts expressed “on a constant currency basis”, is a non-GAAP measure. We believe that this non-GAAP measure provides additional information that enables enhanced comparison to prior periods excluding the translation effects of changes in rates of foreign currency exchange and provides additional insight into the underlying performance of our operations located outside of the U.S. It should be noted that our presentation herein of amounts and percentage changes on a constant currency basis does not exclude the impact of foreign currency transaction gains and losses (that is, the impact of transactions denominated in other than the local currency of any of our subsidiaries in their local currency reported results). Percentage changes in sales and adjusted operating income expressed on a constant currency basis are presented excluding the impact of foreign currency exchange. To present this information for historical periods, current period results for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average exchange rates in effect during the corresponding period of the comparative year, rather than at the actual average exchange rates in effect during the current fiscal year. As a result, the foreign currency impact is equal to the current year results in local currencies multiplied by the change in the average foreign currency exchange rate between the current fiscal period and the corresponding period of the comparative year. 30 Table of Contents Rates of constant currency growth (decline) follow: Three Months Ended February 28, 2022 Percentage Change as Reported Impact of Foreign Currency Exchange Percentage Change on Constant Currency Basis Net sales: Consumer segment: Americas 2.3 % 0.1 % 2.2 % EMEA (14.2) % (4.8) % (9.4) % Asia/Pacific (4.3) % 1.7 % (6.0) % Total Consumer (2.2) % (0.7) % (1.5) % Flavor Solutions segment: Americas 12.1 % (0.3) % 12.4 % EMEA 15.2 % (9.0) % 24.2 % Asia/Pacific 2.5 % (1.8) % 4.3 % Total Flavor Solutions 11.5 % (2.2) % 13.7 % Total net sales 2.8 % (1.2) % 4.0 % Adjusted operating income: Consumer segment (12.1) % (0.2) % (11.9) % Flavor Solutions segment (17.2) % (6.6) % (10.6) % Total adjusted operating income (13.5) % (2.0) % (11.5) % To present “constant currency” information for the fiscal year 2022 projection, projected sales and adjusted operating income for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the company’s budgeted exchange rates for 2022 and are compared to the 2021 results, translated into U.S. dollars using the same 2022 budgeted exchange rates, rather than at the average actual exchange rates in effect during fiscal year 2021. To estimate the percentage change in adjusted earnings per share on a constant currency basis, a similar calculation is performed to arrive at adjusted net income divided by historical shares outstanding for fiscal year 2021 or projected shares outstanding for fiscal year 2022, as appropriate. Projections for the Year Ending November 30, 2022 Percentage change in net sales 3% to 5% 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 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 unfavorable foreign currency exchange 1 % Percentage change in adjusted earnings per share in constant currency — diluted 5% to 7% LIQUIDITY AND FINANCIAL CONDITION Three months ended February 28, 2022 February 28, 2021 Net cash provided by (used in) operating activities $ 17.9 $ (32.2) Net cash used in investing activities (43.7) (755.2) Net cash provided by financing activities 4.4 612.7 31 Table of Contents 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 condensed consolidated cash flow statement, the changes in operating assets and liabilities are presented excluding the translation effects of changes in foreign currency exchange rates as these do not reflect actual cash flows. In addition, in the cash flow statement, the changes in operating assets and liabilities are presented excluding the effect of acquired operating assets and liabilities, as the cash flow associated with acquisitions of businesses is presented as an investing activity. Accordingly, the amounts in the cash flow statement do not agree with changes in the operating assets and liabilities that are presented in the balance sheet. Operating Cash Flow — Net cash provided by operating activities of $17.9 million for the three months ended February 28, 2022, increased $50.1 million from the same period of 2021. This increase was primarily driven by a lower use of cash associated with operating assets and liabilities, including the impact of lower cash used by working capital which included the impact of the payment of transaction and integration costs in the 2021 period. As more fully described in our Annual Report on Form 10-K for the year ended November 30, 2021, we participate in a Supply Chain Financing program (SCF) with several global financial institutions (SCF Banks). Under the SCF, qualifying suppliers may elect to sell their receivables from us to an SCF Bank, enabling participating suppliers to negotiate their receivables sales arrangements directly with the respective SCF Bank. We are not party to those agreements and have no economic interest in a supplier’s decision to sell a receivable. All outstanding amounts related to suppliers participating in the SCF are recorded within the line entitled Trade accounts payable in our condensed consolidated balance sheets, and the associated payments are included in operating activities within our consolidated statements of cash flows. As of February 28, 2022 and November 30, 2021, the amounts due to suppliers participating in the SCF and included in trade accounts payable were approximately $311.0 million and $274.3 million, respectively. Investing Cash Flow — Cash used in investing activities of $43.7 million for the three months ended February 28, 2022 decreased by $711.5 million as compared to $755.2 million for the corresponding period in 2021. Our primary investing cash flows include the usage of cash associated with our acquisition of businesses and capital expenditures. Cash usage related to the acquisition of businesses was $706.6 million during the three months ended February 28, 2021, principally related to our acquisition of FONA. During the first three months of 2022, capital expenditures decreased by $4.9 million from the 2021 level to $43.7 million. We expect 2022 capital expenditures to approximate $320 million to support our planned growth, including the multi-year program to replace our global enterprise resource planning (ERP) system and other initiatives. Financing Cash Flow — Financing activities provided cash of $4.4 million for the first three months of 2022, as compared to the corresponding period in 2021 when financing activities provided cash of $612.7 million. The variability between years is principally a result of changes in our net borrowings, share repurchase activity, and dividends, all as described below. 32 Table of Contents The following table outlines our net borrowing activities: Three months ended February 28, 2022 February 28, 2021 Net increase (decrease) in short-term borrowings $ 97.3 $ (292.4) Proceeds from issuance of long-term debt, net of debt issuance costs — 999.3 Repayments of long-term debt (3.5) (1.8) Net cash provided from borrowing activities $ 93.8 $ 705.1 During the three months ended February 28 2021, we issued $500.0 million of 0.90% notes due February 15, 2026, with net cash proceeds received of $495.7 million. We also issued $500.0 million of 1.85% notes due February 15, 2031, with net cash proceeds received of $492.8 million. The net proceeds from these issuances were used to pay down short-term borrowings, including a portion of the $1,443.0 million of commercial paper issued to fund our acquisitions of Cholula and FONA, and for general corporate purposes. The following table outlines the activity in our share repurchase program for the three months ended February 28, 2022 and 2021 (in millions): 2022 2021 Number of shares of common stock repurchased 0.10 — Dollar amount $ 8.7 $ 0.1 As of February 28, 2022, $567.4 million remained of the $600 million share repurchase authorization approved by the Board of Directors in November 2019. The timing and amount of any shares repurchased is determined by our management based on its evaluation of market conditions and other factors. During the three months ended February 28, 2022, we received proceeds of $30.3 million from exercised stock options as compared to $3.6 million received in the corresponding 2021 period. We repurchased $12.0 million and $5.1 million of common stock during the three months ended February 28, 2022 and 2021, respectively, in conjunction with employee tax withholding requirements. We increased dividends paid to $99.0 million, or a per share dividend of $0.37, in the first three months of 2022 from $90.8 million, or a per share dividend of $0.34, of dividends paid in the same period last year. The timing and amount of any future dividends is determined by our Board of Directors. Most of our cash is in our subsidiaries outside of the U.S. We manage our worldwide cash requirements by considering available funds among the many subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. Prior to the enactment of the U.S. Tax Act in December 2017, the permanent repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences; however, those balances are generally available without legal restrictions to fund ordinary business operations, capital projects and any possible future acquisitions. At February 28, 2022 and 2021, we temporarily used $325.4 million and $221.2 million, respectively, of cash from our non-U.S. subsidiaries to pay down short-term debt in the U.S. During a quarter, our short-term borrowings vary, but are lower at the end of a quarter. The average short-term borrowings outstanding for the three months ended February 28, 2022 and 2021 were $883.4 million and $1,287.1 million, respectively. Those average short-term borrowings outstanding for the three months ended February 28, 2022 included average commercial paper outstanding of $842.0 million. Total average debt outstanding for the three months ended February 28, 2022 and 2021 was $5,438.4 million and $5,425.5 million, respectively. The reported values of our assets and liabilities are significantly affected by fluctuations in foreign exchange rates between periods. At February 28, 2022, the exchange rates for the British pound sterling, Canadian dollar, Chinese renminbi, and Australian dollar were higher than the U.S. dollar at November 30, 2021. At February 28, 2022, the exchange rates for Euro and Polish zloty were lower than the U.S. dollar at November 30, 2021. Credit and Capital Markets Cash flows from operating activities are our primary source of liquidity for funding growth, dividends, capital expenditures and share repurchases. We also rely on our revolving credit facility, or borrowings backed by this facility, to fund working capital needs and other general corporate requirements. 33 Table of Contents 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%. 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. 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 our working capital. 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. In addition, we periodically review our banking and financing relationships, considering the stability of the institutions and other aspects of the relationships. Based on these communications and our monitoring activities, we believe our banks will perform on their commitments. Material Cash Requirements 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. 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. Our other cash requirements include raw material purchases, lease payments, income taxes, and pension and postretirement benefits. 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. 34 Table of Contents RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS New accounting pronouncements are issued periodically that affect our current and future operations. See note 1 of notes to the accompanying financial statements for further details of these impacts. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS In preparing the financial statements, we are required to make estimates and assumptions that have an impact on the assets, liabilities, revenue and expenses reported. These estimates can also affect supplemental information disclosed by us, including information about contingencies, risk and financial condition. We believe, given current facts and circumstances, our estimates and assumptions are reasonable, adhere to U.S. GAAP and are consistently applied. Inherent in the nature of an estimate or assumption is the fact that actual results may differ from estimates, and estimates may vary as new facts and circumstances arise. 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 included in our Annual Report on Form 10-K for the fiscal year ended November 30, 2021. There have been no changes in our critical accounting estimates and assumptions included in our Annual Report on Form 10-K for the fiscal year ended November 30, 2021. FORWARD-LOOKING INFORMATION Certain statements contained in this report, including statements concerning expected performance such as those relating to net sales, gross margin, earnings, cost savings, transaction and integration expenses, special charges, acquisitions, brand marketing support, volume and product mix, income tax expense, and the impact of foreign currency rates are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These statements may be identified by the use of words such as “may,” “will,” “expect,” "should," "anticipate," "intend," “believe” and “plan.” These statements may relate to: the impact of the COVID-19 pandemic on our business, suppliers, consumers, customers, and employees; disruptions or inefficiencies in the supply chain, including any impact of COVID-19; the expected results of operations of businesses acquired by the company, including the acquisitions of Cholula and FONA; the expected impact of the inflationary cost environment, including commodity, packaging materials and transportation costs on our business; the expected impact of pricing actions on the company's results of operations and gross margins; the expected impact of factors affecting our supply chain, including transportation capacity, labor shortages, and absenteeism; the expected impact of productivity improvements, including those associated with our Comprehensive Continuous Improvement (CCI) program and global enablement initiative; the impact of the Russia-Ukraine conflict, including the potential for broader economic disruption; expected working capital improvements; expectations regarding growth potential in various geographies and markets, including the impact from customer, channel, category, and e-commerce expansion; expected trends in net sales and earnings performance and other financial measures; the expected timing and costs of implementing our business transformation initiative, which includes the implementation of a global enterprise resource planning (ERP) system; the expected impact of accounting pronouncements; the expectations of pension and postretirement plan contributions and anticipated charges associated with those plans; the holding period and market risks associated with financial instruments; the impact of foreign exchange fluctuations; the adequacy of internally generated funds and existing sources of liquidity, such as the availability of bank financing; the anticipated sufficiency of future cash flows to enable the payments of interest and repayment of short- and long-term debt as well as quarterly dividends and the ability to issue additional debt securities; and expectations regarding purchasing shares of McCormick's common stock under the existing repurchase authorization. These and other forward-looking statements are based on management’s current views and assumptions and involve risks and uncertainties that could significantly affect expected results. Results may be materially affected by factors such as: the company's ability to drive revenue growth; the company's ability to increase pricing to offset, or partially offset, inflationary pressures on the cost of our products; damage to the company's reputation or brand name; loss of brand relevance; increased private label use; product quality, labeling, or safety concerns; negative publicity about our products; actions by, and the financial condition of, competitors and customers; the longevity of mutually beneficial relationships with our large customers; the ability to identify, interpret and react to changes in consumer preference and demand; business interruptions due to natural disasters, unexpected events or public health crises, including COVID-19; issues affecting the company's supply chain and procurement of raw materials, including fluctuations in the cost and availability of raw and packaging materials; labor shortage, turnover and labor cost increases; the impact of the Russia-Ukraine conflict, including the potential for broader economic disruption; government regulation, and changes in legal and regulatory requirements and enforcement practices; the lack of successful acquisition and integration of new businesses; global economic and financial conditions generally, including the on-going impact of the exit of the United Kingdom (U.K.) from the European Union, availability of financing, interest and inflation rates, and the imposition of tariffs, quotas, trade barriers and other similar restrictions; foreign currency fluctuations; the effects of increased level of debt service following the Cholula and FONA acquisitions as well as the effects that such 35 Table of Contents increased debt service may have on the company's ability to borrow or the cost of any such additional borrowing, our credit rating, and our ability to react to certain economic and industry conditions; risks associated with the phase-out of LIBOR; impairments of indefinite-lived intangible assets; assumptions we have made regarding the investment return on retirement plan assets, and the costs associated with pension obligations; the stability of credit and capital markets; risks associated with the company's information technology systems, including the threat of data breaches and cyber-attacks; the company's inability to successfully implement our business transformation initiative; fundamental changes in tax laws; including interpretations and assumptions we have made, and guidance that may be issued, and volatility in our effective tax rate; climate change; Environmental, Social and Governance (ESG) matters; infringement of intellectual property rights, and those of customers; litigation, legal and administrative proceedings; the company's inability to achieve expected and/or needed cost savings or margin improvements; negative employee relations; and other risks described in the company’s filings with the Securities and Exchange Commission. Actual results could differ materially from those projected in the forward-looking statements. We undertake no obligation to update or revise publicly, any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.