What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-06-29 compared with 2022-03-29 · 240 added, 160 removed, 375 unchanged (52% of the section changed)

15 unchanged sentences

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.

While we expect the impacts of COVID-19 on our business to moderate, other than the impacts of COVID-19 on our operations in China, 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

imposed in response to this conflict have increased global economic and political uncertainty.

Also, the invasion of Ukraine by Russia and the sanctions 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.

2 unchanged sentences

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.

The extent and nature of government actions varied during the quarters ended May 31, 2022 and 2021 based upon the then-current extent and severity of the COVID-19 pandemic within their respective countries and localities.

In the second quarter of 2022, sales in our Asia/Pacific region declined by $24.0 million from the corresponding quarter in 2021, driven by the decline in sales of our China operations.

The decline associated with China approximated $18 million and was driven by the effect of the restrictive measures put in place related to COVID-19 resurgences in China .

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.

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 May 31, 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.

During the three months ended May 31, 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 outside of our Asia/Pacific region that were in place during the second 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.

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 and first half of fiscal 2022, pricing actions that we plan to implement in the second half of 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.

3 unchanged sentences

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.

It is not possible to predict the broader or longer-term consequences of this conflict or the sanctions imposed to date, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, security conditions, energy and fuel prices, currency exchange rates and financial markets.

We announced on March 11, 2022, that we were suspending our business operations in Russia.

In May 2022, we made the decision to the exit of our consumer business in Russia.

Our operations in Ukraine were also temporarily paused in order to focus on the safety of our employees, but we have resumed, where appropriate, a reduced level of operating activities.

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.

In 2022, we expect to grow net sales over the 2021 level by 3% to 5%, which includes an estimated 2% unfavorable impact from currency rates, or 5% to 7% 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.

That anticipated 2022 sales growth includes the impact of pricing actions taken in 2021, the first half of fiscal 2022, and those we plan to implement in the second half of fiscal 2022, to partially offset inflationary 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%.

We expect volume and product mix to be impacted by price elasticity, 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 demand disruptions caused by COVID-related lockdowns in China, the conflict in Ukraine, including the exit of our consumer business in Russia, and the exit of a lower margin product line in late 2021.

We plan to drive continued growth through the strength of our brands as well as our brand marketing, category management, new products, and differentiated customer engagement.

We expect our 2022 gross profit margin to range from a 130 to 180 basis point decline 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 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 to range from a 150 to 200 basis points decline from our 2021 adjusted gross profit margin of 39.7%, which excludes the impact of $11.0 million of transaction and integration expenses and special charges.

In 2022, we expect an increase in operating income of 4% to 6%, which includes an estimated 2% unfavorable impact from currency rates, over the 2021 level.

1 unchanged sentence

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;

We also expect approximately $46 million of special charges in 2022 that relate to previously approved 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.

Excluding special charges and transaction and integration expenses, we expect 2022’s adjusted operating income to range from comparable to an increase of 2%, which includes an estimated 2% unfavorable impact from currency rates, or to increase by 2% to 4% on a constant currency basis over the 2021 level.

In 2022, we expect the effects of the termination of interest rate contracts that were entered into to manage our interest rate risk associated with our anticipated issuance of fixed rate debt to favorably impact other income, net by approximately $15 million.

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.

We estimate that our 2022 effective tax rate, including the net favorable impact of anticipated discrete tax items, will approximate 22% 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 approximate 22% in 2022, as compared to an adjusted effective tax rate of 20.1% in 2021.

Diluted earnings per share was $2.80 in 2021.

2 unchanged sentences

(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.

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 $0.13 and from integration expenses of $0.01, is projected to range from $3.03 to $3.08 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.

We expect adjusted diluted earnings per share to range from a decline of 1% to an increase of 1%, which includes a 2% unfavorable impact from currency rates, or to grow by 1% to 3% 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

Three months ended Six months ended

May 31, 2022 May 31, 2021 May 31, 2022 May 31, 2021

Net sales $ 1,536.8 $ 1,556.7 $ 3,059.2 $ 3,038.2

Percent increase 2.8 % 22.2 %

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

Percent (decrease) increase (1.3) % 11.1 % 0.7 % 16.3 %

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

Volume and product mix (6.6) % 3.3 % (4.0) % 8.9 %

4 unchanged sentences

Gross profit margin 34.0 % 39.5 % 35.4 % 39.2 %

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).

Sales for the second quarter of 2022 decreased by 1.3% from the prior year level and increased by 0.2% 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).

The impact of restrictive measures related to COVID-19 resurgences in China, our operations in Russia and Ukraine, the exit of our rice product line in India, and the effects of a trade replenishment that occurred in the quarter ended May 31, 2021, contributed approximately 4% to our sales decline as compared to 2021.

Unfavorable volume and product mix decreased sales by 6.6%.

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

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

That decrease was driven by our consumer segment, including the previously noted effects of a trade replenishment that occurred in the quarter ended May 31, 2021, and lower sales in China, Russia, Ukraine and India, as compared to the second quarter of 2021.

The decrease in consumer segment sales was partially offset by higher sales of our flavor solutions segment, as demand was elevated as compared to the corresponding period in 2021.

Pricing actions, taken in response to the inflationary cost environment, increased sales by 6.8% compared to the prior year period.

Sales were also impacted by unfavorable foreign currency rates that decreased net sales by 1.5% in the second quarter of 2022 compared to the year-ago quarter and is excluded from our measure of sales growth of 0.2% on a constant currency basis.

Sales for the six months ended May 31, 2022 increased by 0.7% from the prior year level and by 2.1% on a constant currency basis.

The impact of restrictive measures related to COVID-19 resurgences in China, our operations in Russia and Ukraine, and the exit of our rice product line in India contributed 1.3% of our sales decline as compared to 2021.

Unfavorable volume and product mix decreased sales by 4.0% with growth from flavor solutions segment sales being more than offset by a decline in consumer segment sales.

In addition, pricing actions, taken in response to the inflationary cost environment, added 5.8% and acquisitions added 0.3% to sales, both as compared to the prior year period.

Sales were impacted by unfavorable foreign currency rates that decreased sales by 1.4% in the six months ended May 31, 2022 as compared to the year-ago period and is excluded from our measure of sales growth of 2.1% on a constant currency basis.

Gross profit for the second quarter of 2022 decreased by $91.6 million, or 14.9%, from the comparable period in 2021.

Our gross profit margin for the three months ended May 31, 2022 was 34.0%, a decrease of 550 basis points from the comparable period in 2021.

The decrease in gross profit margin in the quarter ended May 31, 2022 was driven by the margin dilutive impact of pricing actions taken in response to the inflationary cost environment of 250 basis points, increased commodity, packaging materials and transportation costs, higher conversion costs and a less favorable product mix both within and between our segments, each as compared to the 2021 period.

These unfavorable impacts were partially offset by cost savings led by our Comprehensive Continuous Improvement ("CCI") program.

Gross profit for the six months ended May 31, 2022 decreased by $108.7 million, or 9.1%, from the comparable period in 2021.

Our gross profit margin for the six months ended May 31, 2022 was 35.4%, a decrease of 380 basis points from the same period in 2021 driven by the margin dilutive impact of pricing actions taken in response to the inflationary cost environment of 220 basis points, increased commodity, packaging materials and transportation costs, higher conversion costs and a less favorable product mix both within and between our segments, each as compared to the 2021 period.

These unfavorable impacts were partially offset by cost savings led by our CCI program.

In addition, our gross profit for the six months ended May 31, 2021 was burdened by $6.3 million of transaction expense, representing the amortization of the fair value adjustment to the acquired

inventories of Cholula and FONA upon our sale of those acquired inventories in the first quarter of fiscal 2021.

Excluding those transaction and integration expenses, adjusted gross profit margin declined 400 basis points to 35.4% in 2022 from 39.4% in 2021.

Three months ended Six months ended

May 31, 2022 May 31, 2021 May 31, 2022 May 31, 2021

Selling, general & administrative expense (SG&A) $ 349.2 $ 356.6 $ 682.5 $ 677.9

Percent of net sales 22.7 % 22.9 % 22.3 % 22.3 %

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

SG&A decreased by $7.4 million in the second quarter of 2022 compared to the 2021 level, driven by lower performance-based employee incentive expenses, partially offset by less favorable investment results associated with non-qualified retirement plan assets, higher investment associated with the implementation of our global enterprise resource planning (ERP) platform and increased distribution costs, all as compared to the 2021 period.

SG&A as a percentage of net sales decreased by 20 basis points from the prior year level, due primarily to the net impact of the previously mentioned factors.

SG&A increased by $4.6 million in the six months ended May 31, 2022 compared to the 2021 level, driven by less favorable investment results associated with non-qualified retirement plan assets, higher investment associated with the implementation of our global ERP platform, increased distribution costs and SG&A associated with the acquired FONA business, partially offset by lower performance-based employee incentive expenses, all as compared to the 2021 period.

SG&A as a percent of net sales for the six months ended May 31, 2022 was comparable to the prior year level, due primarily the offsetting impacts of the previously mentioned factors.

Three months ended Six months ended

May 31, 2022 May 31, 2021 May 31, 2022 May 31, 2021

Total special charges $ 15.1 $ 13.7 $ 34.6 $ 14.8

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.

During the three months ended May 31, 2022, we recorded $15.1 million of net special charges.

Those special charges principally consisted of $22.2 million associated with the exit of our consumer business in Russia, as more fully described in note 2 of the notes to the accompanying financial statements, $2.5 million associated with the transition of a manufacturing facility in Europe, Middle East, and Africa (EMEA), streamlining actions of $3.2 million in the Americas region, and $2.8 million in the EMEA region.

These charges were offset by a $13.6 million gain, on the sale of our Kohinoor brand as well as a reversal of $-2.2 million of estimated costs associated with the exit of our rice product line in India upon settlement of a supply agreement related to that product line.

During the six months ended May 31, 2022, we recorded $34.6 million of net special charges.

Those special charge consisted principally of $22.2 million associated with the exit of our consumer business in Russia, as more fully described in note 2 of the notes to the accompanying financial statements, $17.4 million associated with the transition of a manufacturing facility in EMEA, as more fully described in note 2 of the notes to the accompanying financial statements, streamlining actions of $5.3 million in the Americas region, and $4.3 million in the EMEA region.

These charges were offset by a $13.6 million gain, on the sale of our Kohinoor brand, as we exited our Kohinoor rice product line in India in the fourth quarter of fiscal 2021, as well as a reversal of $-2.2 million of estimated costs associated with the exit of our rice product line in India upon settlement of a supply agreement related to that product line.

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

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

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

Three months ended Six months ended

May 31, 2022 May 31, 2021 May 31, 2022 May 31, 2021

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

1 unchanged sentence

Total transaction and integration expenses $ 1.5 $ 6.9 $ 2.2 $ 32.0

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

During the three months ended May 31, 2022, we recorded $1.5 million of integration expenses related to our acquisition of FONA, as compared to $6.9 million of integration expenses in the 2021 period related to our acquisitions of Cholula and FONA.

During the six months ended May 31, 2022, we recorded $2.2 million of integration expenses related to our acquisition of FONA.

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

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

Three months ended Six months ended

May 31, 2022 May 31, 2021 May 31, 2022 May 31, 2021

Interest expense $ 33.7 $ 35.6 $ 66.8 $ 69.4

Other income, net 6.3 3.9 12.5 8.5

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

Interest expense decreased by $1.9 million and $2.6 million for the three and six months ended May 31, 2022, respectively, driven by a decrease in average total borrowings, as compared to the prior year periods.

Other income, net for the three and six months ended May 31, 2022 increased by $2.4 million and $4.0 million, respectively, driven by higher non-service cost income associated with our pension and postretirement benefit plans and an increase in interest income, each as compared to the prior year period.

Three months ended Six months ended

May 31, 2022 May 31, 2021 May 31, 2022 May 31, 2021

Income from consolidated operations before income taxes $ 129.8 $ 205.7 $ 309.8 $ 412.8

3 unchanged sentences

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 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

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 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 May 31, 2022 included $9.0 million of net discrete tax benefits consisting principally of the following:

(i) $1.1 million of excess tax benefits associated with stock-based compensation, (ii) $4.1 million of net tax benefits associated with the adjustment of valuation allowances due to changes in judgment about the realizability of deferred tax assets, (iii) $1.3 million of tax benefits from the reversal of certain reserves for unrecognized tax benefits and related interest associated with the expiration of statutes of limitations in a non-U.S.

jurisdiction, and (iv) $2.3 million of tax benefits related to the sale of an asset associated with a previously exited line of business.

Income tax expense for the six months ended May 31, 2022 included $19.3 million of net discrete tax benefits consisting principally of the following:

(i) $8.7 million of excess tax benefits associated with stock-based compensation, (ii) $4.1 million of net tax benefits associated with an adjustment of valuation allowances due to changes in judgment about the realizability of deferred tax assets, (iii) $2.5 million of tax benefits related to the revaluation of deferred taxes resulting from enacted legislation, (iv) $2.3 million of tax benefits related to the sale of an asset associated with a previously exited line of business, and (v) $1.5 million from the resolution of tax uncertainties in non-U.S.

jurisdictions, including the reversal of certain reserves for unrecognized tax benefits and related interest associated with the expiration of statutes of limitations in certain non-US jurisdictions.

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

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

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

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

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

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

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

Three months ended Six months ended

May 31, 2022 May 31, 2021 May 31, 2022 May 31, 2021

Income from unconsolidated operations $ 10.4 $ 23.4 $ 19.7 $ 36.7

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.

Income from unconsolidated operations, which is presented net of the elimination of earnings attributable to non-controlling interests, decreased by $13.0 million and $17.0 million for the three and six months ended May 31, 2022, as compared to the year ago period.

Both the three and six months ended May 31, 2021 include an after-tax gain of $13.4 million on the sale of an unconsolidated operation.

The decrease for the six months ended May 31, 2022 was also impacted by lower earnings of our largest joint venture, McCormick de Mexico, as compared to the 2021 period.

The following table outlines the major components of the change in diluted earnings per share from 2021 to 2022:

Three months ended February 28,

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

2021 Earnings per share – diluted $ 0.68 $ 1.28

2 unchanged sentences

Decrease in transaction and integration expenses, including impact of net discrete tax item related to FONA acquisition 0.02 0.13

Increase in other income 0.01 0.01

Decrease in income from unconsolidated operations (0.05) (0.06)

8 unchanged sentences

CONSUMER SEGMENT

Three months ended

February 28, 2022 February 28, 2021

Three months ended Six months ended

May 31, 2022 May 31, 2021 May 31, 2022 May 31, 2021

Net sales $ 866.1 $ 945.2 $ 1,792.2 $ 1,892.0

2 unchanged sentences

Segment operating income margin 14.4 % 18.7 % 16.3 % 19.4 %

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.

In the second quarter of 2022, sales of our consumer segment decreased 8.4% as compared to the second quarter of 2021 and decreased by 6.9% on a constant currency basis.

That 8.4% decrease included lower sales of our consumer business in all regions, as compared to the prior year quarter.

Unfavorable volume and product mix decreased consumer segment sales by 13.3% in the second quarter of 2022 as compared to the same period last year, including the previously noted effects of a trade replenishment that occurred in the quarter ended May 31, 2021, lower sales in China, Russia, Ukraine and India, and the impact of price elasticity, all as compared to the second quarter of 2021.

Pricing actions, taken in response to increased costs, favorably impacted sales by 6.4% 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.

Sales in the second quarter of 2022 reflected an unfavorable impact from foreign currency rates that decreased consumer segment sales by 1.5% compared to the year-ago quarter and is excluded from our measure of sales decline of 6.9% on a constant currency basis.

In the Americas region, consumer sales decreased 4.2% in the second quarter of 2022 as compared to the same quarter of 2021 and decreased by 4.1% on a constant currency basis.

For the second quarter of 2022, unfavorable volume and product mix decreased sales by 11.5% as compared to the corresponding period in 2021.

This reduction included the effect of a trade replenishment that occurred in the quarter ended May 31, 2021 as well as the impact of price elasticity.

Pricing actions increased sales by 7.4% as compared to the prior year period.

The unfavorable impact of foreign currency rates decreased sales by 0.1% in the quarter and is excluded from our measure of sales decline of 4.1% on a constant currency basis.

In the EMEA region, consumer sales decreased 18.1% in the second quarter of 2022 as compared to the same quarter of 2021 and decreased by 10.8% on a constant currency basis.

Sales were impacted by unfavorable volume and product mix during the second quarter of 2022 that decreased sales by 15.5% from the prior year level.

The decrease was driven by an easing of at-home consumption, including lower sales of our homemade dessert products in France and the impact of less restrictive COVID-19 related measures, all as compared to the three months ended May 31, 2021.

Additionally, the invasion of Ukraine by Russia has resulted in a decrease in sales due to our suspension of operations in Ukraine and our exit of the consumer business in Russia.

Pricing actions, taken in response to the inflationary cost environment, increased sales by 4.7% 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.

During the second quarter of 2022, an unfavorable impact from foreign currency rates decreased sales by 7.3% compared to the year-ago period and is excluded from our measure of sales decline of 10.8% on a constant currency basis.

In the Asia/Pacific region, consumer sales decreased 17.6% in the second quarter of 2022 as compared to the second quarter of 2021, with minimal impact from foreign currency rates.

For the quarter ended May 31, 2022, lower volume and unfavorable product mix decreased sales by 20.7%, driven by the effect of restrictive measures related to COVID-19 resurgences in China and the exit of our rice product line in India.

Pricing actions, taken in response to the inflationary cost environment, increased sales by 3.1% 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.

For the six months ended May 31, 2022, our consumer segment sales decreased 5.3% as compared to the six months ended May 31, 2021 and decreased by 4.2% on a constant currency basis.

That 5.3% sales decrease was driven by lower sales of our consumer business in all regions during the six months ended May 31, 2022, as compared to the prior year period.

Lower volume and unfavorable product mix decreased sales by 9.6%.

Pricing actions, taken in response to inflationary cost pressures, increased sales by 5.4% in the first half of 2022 as comparison to the prior year level.

An unfavorable impact from foreign currency rates decreased sales by 1.1% compared to the prior year and is excluded from our measure of sales decline of 4.2% on a constant currency basis.

Segment operating income for our consumer segment decreased by $52.0 million, or 29.4%, in the second quarter of 2022 as compared to the second quarter of 2021.

The decrease in segment operating income was driven by lower sales and increased commodity, transportation and conversion costs, partially offset by pricing actions in response to increased costs, CCI-led cost savings and lower performance-based employee incentive expenses, all as compared to the prior year period.

Segment operating margin for our consumer segment decreased by 430 basis points from the second quarter of 2021 to 14.4% in the second quarter of 2022.

SG&A as a percentage of net sales, including increased distribution costs, and the unfavorable impact of fixed and semi-fixed expenses over a lower sales base as compared to the 2021 level, also contributed to the decrease.

On a constant currency basis, segment operating income for our consumer segment decreased by 28.5% in the second quarter of 2022 in comparison to the same period in 2021.

Segment operating income for our consumer segment decreased by $74.9 million, or 20.4%, for the six months ended May 31, 2022 as compared to the same period in 2021.

Segment operating margin for our consumer segment decreased by 310 basis points from the first half of 2021 to 16.3%, driven by a decrease in consumer gross profit margin, including the margin dilutive impact of pricing actions, the impact of the inflationary cost environment, and a less favorable product mix, all as compared to the 2021 level.

Higher SG&A as a percentage of net sales, including increased distribution costs, and the unfavorable impact of fixed and semi-fixed expenses over a lower sales base as compared to the 2021 level, also contributed to the decrease.

On a constant currency basis, segment operating income for our consumer segment declined by 19.9% in the six months ended May 31, 2022 in comparison to the same period in 2021.

FLAVOR SOLUTIONS SEGMENT

Three months ended

February 28, 2022 February 28, 2021

Three months ended Six months ended

May 31, 2022 May 31, 2021 May 31, 2022 May 31, 2021

Net sales $ 670.7 $ 611.5 $ 1,267.0 $ 1,146.2

2 unchanged sentences

Segment operating income margin 7.3 % 13.3 % 8.6 % 13.4 %

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%.

In the second quarter of 2022, sales of our flavor solutions segment increased by 9.7% as compared to the second quarter of 2021, and increased by 11.4% on a constant currency basis.

The sales increase in the second quarter of 2022 was driven by growth in our Americas and EMEA regions, partially offset by our Asia/Pacific region, which was unfavorably impacted by the restrictive measures in place during the 2022 quarter related to COVID-19 resurgences in China.

Favorable volume and product mix increased segment sales by 4.1% in the second 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 second quarter of 2022 also increased sales by 7.3%.

The unfavorable impact of foreign currency rates decreased flavor solutions segment sales by 1.7% compared to the year-ago quarter and is excluded from our measure of sales growth of 11.4% 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.

In the Americas region, flavor solutions sales increased by 11.6% in the second quarter of 2022 as compared to the second quarter of 2021, with minimal impact from foreign currency rates.

Favorable volume and product mix increased flavor solutions sales in the Americas by 3.0% during the second 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.

Pricing actions, taken in response to the inflationary cost environment, favorably impacted sales by 8.6% during the quarter ended May 31, 2022 as compared to the prior year period.

In the EMEA region, flavor solutions sales increased by 12.2% in the second quarter of 2022 as compared to the second quarter of 2021 and increased by 19.2% on a constant currency basis.

Favorable volume and product mix increased segment sales in the EMEA region by 13.6% 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 5.6% in the second quarter of 2022 as compared to the prior period level.

An unfavorable impact from foreign currency rates decreased sales by 7.0% compared to the second quarter of 2021 and is excluded from our measure of sales growth of 19.2% on a constant currency basis.

In the Asia/Pacific region, flavor solutions sales decreased 8.2% in the second quarter of 2022 as compared to the second quarter of 2021, and decreased by 5.9% on a constant currency basis.

Lower volume and unfavorable product mix decreased sales by 8.6% in the second quarter of 2022 driven by lower sales to our quick service restaurant customers in China that were significantly impacted by restrictive measures taken in response to a resurgence of COVID-19 in the country.

Pricing actions, taken in response to the inflationary cost environment, favorably impacted sales by 2.7% 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.

An unfavorable impact from foreign currency rates decreased sales by 2.3% compared to the second quarter of 2021 and is excluded from our measure of sales decline of 5.9% on a constant currency basis.

For the six months ended May 31, 2022, our flavor solutions sales increased 10.5% as compared to the six months ended May 31, 2021 and increased by 12.4% on a constant currency basis.

Driving that increase in sales was higher demand during the 2022 period due to the aforementioned improvement in away-from-home eating, which was partially offset by the impact of the restrictive measures taken in response to a resurgence of COVID-19 in China.

Volume and product mix contributed 5.1% of the increase in addition to pricing actions which added 6.4% to sales for the first half of 2022, both in comparison to the prior year levels.

The incremental impact of our acquisition of FONA added 0.9% to segment sales for the six months ended May 31, 2022.

An unfavorable impact from foreign currency rates decreased sales by 1.9% compared to the prior year and is excluded from our measure of sales growth of 12.4% on a constant currency basis.

Segment operating income for our flavor solutions segment decreased by $32.2 million, or 39.7%, in the second quarter of 2022 as compared to the second quarter of 2021.

The decrease in segment operating income was driven by increased commodity, transportation and conversion costs, 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, lower performance-based employee incentive expenses and CCI-led cost savings, all as compared to the prior year period.

Segment operating margin for our flavor solutions segment decreased by 600 basis points from the prior year level to 7.3% in the second quarter of 2022.

That decrease was principally the result of a decrease in gross margin, including the margin dilutive impact of pricing actions, the impact of the inflationary cost environment, and higher conversion costs, including the costs related to our supply chain investments, partially offset by CCI-led cost savings and a decrease in SG&A as percentage of sales, all as compared to the 2021 period.

On a constant currency basis, segment operating income for our flavor solutions segment decreased by 38.8% in the second quarter of 2022 as compared to the same period in 2021.

Segment operating income for our flavor solutions segment decreased by $44.7 million, or 29.1%, for the six months ended May 31, 2022 as compared to the same period of 2021.

The decrease in segment operating income was driven by increased commodity, transportation and conversion costs, 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 480 basis points in the first half of 2022 to 8.6%, driven by a lower segment gross margin, including the margin dilutive impact of pricing actions, the impact of the inflationary cost environment, and higher conversion costs, including the costs related to our supply chain investments, partially offset by CCI-led cost savings and a decrease in SG&A as percentage of sales, all as compared to the first six months of 2021.

On a constant currency basis, segment operating income for our flavor solutions segment decreased by 25.5% in the six months ended May 31, 2022, in comparison to the same period in 2021.

MARKET RISK SENSITIVITY

3 unchanged sentences

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.

We are 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.

2 unchanged sentences

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

May 31, 2022 November 30, 2021

Forward foreign currency:

3 unchanged sentences

Notional value 950.4 508.5

Unrealized net loss (3.2) (3.6)

Unrealized net gain (loss) 19.2 (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.

1 unchanged sentence

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

We also use treasury lock contracts to manage our interest rate risk associated with the anticipated issuance of fixed 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

May 31, 2022 November 30, 2021

Notional value $ 600.0 $ 350.0

Unrealized net (loss) gain (16.8) 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 derivative contracts.

The following table sets forth the notional values and unrealized net gain of our treasury lock contracts:

November 30, 2021

Notional value

Unrealized net gain

Commodity Risk

15 unchanged sentences

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.

• Special charges – Special charges consist of expenses and income 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;

2 unchanged sentences

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.

Special charges for the three and six months ended May 31, 2022 include a $13.6 million gain associated with the sale of the Kohinoor brand name.

We exited our Kohinoor rice product line in India in the fourth quarter of fiscal 2021.

• 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.

1 unchanged sentence

• 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.

As more fully described in note 11 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 for the three months ended May 31, 2021, six months ended May 31, 2021, and 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.

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

For the year ended November 30, 2021 For the three months ended Estimated for the year ending November 30, 2022

February 28, 2022 February 28, 2021

For the year ended November 30, 2021 For the three months ended For the six months ended Estimated for the year ending November 30, 2022

May 31, 2022 May 31, 2021 May 31, 2022 May 31, 2021

Gross profit $ 2,494.6 $ 523.0 $ 614.6 $ 1,083.4 $ 1,192.1

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 unchanged sentences

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)

28 unchanged sentences

(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.

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 six months ended May 31, 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.

Special charges for the three and six months ended May 31, 2022 include a $10.0 million non-cash intangible asset impairment charge associated with our exit of our business operations in Russia.

We exited our Kohinoor rice product line in India in the fourth quarter of fiscal 2021.

Special charges for the three and six months ended May 31, 2022 include a $13.6 million gain associated with the sale of the Kohinoor brand name.

(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.

(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 $146.4 million and $346.6 million for the three and six months ended May 31, 2022, respectively, $226.3 million and $459.6 million for the three and six months ended May 31, 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.

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Rates of constant currency growth (decline) follow:

Three Months Ended February 28, 2022

Three Months Ended May 31, 2022

Percentage Change

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Total adjusted operating income (32.6) % (0.9) % (31.7) %

Six Months Ended May 31, 2022

Percentage Change

as Reported Impact of Foreign Currency Exchange Percentage Change on Constant Currency Basis

Consumer segment:

Americas (1.1) % — % (1.1) %

EMEA (16.1) % (6.0) % (10.1) %

Asia/Pacific (9.8) % 1.0 % (10.8) %

Total Consumer (5.3) % (1.1) % (4.2) %

Flavor Solutions segment:

Americas 11.8 % (0.1) % 11.9 %

EMEA 13.6 % (7.9) % 21.5 %

Asia/Pacific (2.9) % (2.0) % (0.9) %

Total Flavor Solutions 10.5 % (1.9) % 12.4 %

Total net sales 0.7 % (1.4) % 2.1 %

Adjusted operating income:

Consumer segment (20.4) % (0.5) % (19.9) %

Flavor Solutions segment (29.1) % (3.6) % (25.5) %

Total adjusted operating income (23.0) % (1.4) % (21.6) %

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.

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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)

Six months ended

May 31, 2022 May 31, 2021

Net cash provided by operating activities $ 154.4 $ 228.7

Net cash used in investing activities (89.2) (753.6)

Net cash provided by financing activities 4.4 612.7

Net cash (used in) provided by financing activities (81.7) 377.9

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

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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.

Operating Cash Flow — Net cash provided by operating activities of $154.4 million for the six months ended May 31, 2022, decreased $74.3 million from the same period of 2021.

This decrease was primarily driven by lower net income.

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).

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

As of 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.

As of May 31, 2022 and November 30, 2021, the amounts due to suppliers participating in the SCF and included in trade accounts payable were approximately $351.3 million and $274.3 million, respectively.

Investing Cash Flow — Cash used in investing activities of $89.2 million for the six months ended May 31, 2022 decreased by $664.4 million as compared to $753.6 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.

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

Investing cash flow for the six months ended May 31, 2022 includes $12.1 million net cash proceeds received on the sale of the Kohinoor brand name.

During the first six months of 2022, capital expenditures decreased by $11.2 million from the 2021 level to $101.6 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.

Financing Cash Flow — Financing activities used cash of $81.7 million for the first six months of 2022, as compared to the corresponding period in 2021 when financing activities provided cash of $377.9 million.

The variability between years is a result of changes in our net borrowings, share issuance activity associated with the exercise of stock options, share repurchase activity, and dividends, all as described below.

The following table outlines our net borrowing activities:

Three months ended

February 28, 2022 February 28, 2021

Six months ended

May 31, 2022 May 31, 2021

Net increase (decrease) in short-term borrowings $ 128.0 $ (429.4)

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Net cash provided from borrowing activities $ 112.7 $ 566.7

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.

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

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):

The following table outlines the activity in our share repurchase program for the six months ended May 31, 2022 and 2021 (in millions):

Number of shares of common stock repurchased 0.13 —

Dollar amount $ 12.9 $ 0.4

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.

As of May 31, 2022, $563.1 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.

During the six months ended May 31, 2022, we received proceeds of $36.1 million from exercised stock options as compared to $6.2 million received in the corresponding 2021 period.

We repurchased $19.4 million and $13.0 million of common stock during the six months ended May 31, 2022 and 2021, respectively, in conjunction with employee tax withholding requirements.

We increased dividends paid to $198.2 million, or a per share dividend of $0.37, in the first six months of 2022 from $181.6 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.

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

At February 28, 2022 and 2021, we temporarily used $325.4 million and $221.2 million, respectively, of cash from our non-U.S.

At May 31, 2022 and 2021, we temporarily used $158.1 million and $302.6 million, respectively, of cash from our non-U.S.

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

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

The average short-term borrowings outstanding for the 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 average short-term borrowings outstanding for the six months ended May 31, 2022 and 2021 were $890.7 million and $1,057.2 million, respectively.

Those average short-term borrowings outstanding for the six months ended May 31, 2022 included average commercial paper outstanding of $851.8 million.

Total average debt outstanding for the six months ended May 31, 2022 and 2021 was $5,445.7 million and $5,528.9 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.

At May 31, 2022, the exchange rates for the Canadian dollar 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.

At May 31, 2022, the exchange rates for the British pound sterling, Euro, Chinese renminbi, and Polish zloty were lower than the U.S.

dollar at November 30, 2021.

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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;

global economic and financial conditions generally, 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

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;

the effects of increased level of debt service following the Cholula and FONA acquisitions as well as the effects that such increased debt service may have on the company's ability to borrow or the cost of any such additional

borrowing, our credit rating, and our ability to react to certain economic and industry conditions;

risks associated with the phase-out of LIBOR;

16 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis