MCCORMICK & CO INC 10-Q

ITEM 1. FINANCIAL STATEMENTS McCORMICK & COMPANY, INCORPORATED CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED) (in millions except per share amounts) Three months ended May 31, Six months ended May 31, 2022 2021 2022 2021 Net sales $ 1,536.8 $ 1,556.7 $ 3,059.2 $ 3,038.2 Cost of goods sold 1,013.8 942.1 1,975.8 1,846.1 Gross profit 523.0 614.6 1,083.4 1,192.1 Selling, general and administrative expense 349.2 356.6 682.5 677.9 Transaction and integration expenses 1.5 6.9 2.2 25.7 Special charges 15.1 13.7 34.6 14.8 Operating income 157.2 237.4 364.1 473.7 Interest expense 33.7 35.6 66.8 69.4 Other income, net 6.3 3.9 12.5 8.5 Income from consolidated operations before income taxes 129.8 205.7 309.8 412.8 Income tax expense 21.7 45.4 56.1 104.0 Net income from consolidated operations 108.1 160.3 253.7 308.8 Income from unconsolidated operations 10.4 23.4 19.7 36.7 Net income $ 118.5 $ 183.7 $ 273.4 $ 345.5 Earnings per share – basic $ 0.44 $ 0.69 $ 1.02 $ 1.29 Earnings per share – diluted $ 0.44 $ 0.68 $ 1.01 $ 1.28 Average shares outstanding – basic 268.3 267.3 268.1 267.2 Average shares outstanding – diluted 270.5 270.0 270.5 270.0 Cash dividends paid per share – voting and non-voting $ 0.37 $ 0.34 $ 0.74 $ 0.68 Cash dividends declared per share – voting and non-voting $ 0.37 $ 0.34 $ 0.37 $ 0.34 See notes to condensed consolidated financial statements (unaudited). 4 Table of Contents McCORMICK & COMPANY, INCORPORATED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) (in millions) Three months ended May 31, Six months ended May 31, 2022 2021 2022 2021 Net income $ 118.5 $ 183.7 $ 273.4 $ 345.5 Net income attributable to non-controlling interest 1.2 2.0 3.7 2.8 Other comprehensive income (loss): Unrealized components of pension and other postretirement plans 3.8 1.5 6.0 2.6 Currency translation adjustments, including for the three and six months ended May 31, 2022, $7.9 associated with the exit of our business in Russia ( 51.0 ) 54.2 ( 47.3 ) 99.9 Change in derivative financial instruments 21.7 1.6 26.8 0.6 Deferred taxes ( 13.9 ) 1.2 ( 14.9 ) 4.2 Total other comprehensive income (loss) ( 39.4 ) 58.5 ( 29.4 ) 107.3 Comprehensive income $ 80.3 $ 244.2 $ 247.7 $ 455.6 See notes to condensed consolidated financial statements (unaudited). 5 Table of Contents McCORMICK & COMPANY, INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEET (in millions) May 31, 2022 November 30, 2021 (unaudited) ASSETS Cash and cash equivalents $ 325.8 $ 351.7 Trade accounts receivable, net of allowances 493.1 549.5 Inventories, net Finished products 630.9 556.2 Raw materials and work-in-process 713.7 626.1 1,344.6 1,182.3 Prepaid expenses and other current assets 161.2 112.3 Total current assets 2,324.7 2,195.8 Property, plant and equipment, net 1,136.1 1,140.3 Goodwill 5,300.2 5,335.8 Intangible assets, net 3,419.7 3,452.5 Other long-term assets 777.2 781.4 Total assets $ 12,957.9 $ 12,905.8 LIABILITIES AND SHAREHOLDERS’ EQUITY Short-term borrowings $ 667.0 $ 539.1 Current portion of long-term debt 770.8 770.3 Trade accounts payable 1,126.4 1,064.2 Other accrued liabilities 568.8 850.2 Total current liabilities 3,133.0 3,223.8 Long-term debt 3,920.3 3,973.3 Deferred taxes 811.0 792.3 Other long-term liabilities 478.5 490.9 Total liabilities 8,342.8 8,480.3 Shareholders’ Equity Common stock 558.0 530.0 Common stock non-voting 1,561.2 1,525.1 Retained earnings 2,933.6 2,782.4 Accumulated other comprehensive loss ( 454.6 ) ( 426.5 ) Total McCormick shareholders' equity 4,598.2 4,411.0 Non-controlling interests 16.9 14.5 Total shareholders’ equity 4,615.1 4,425.5 Total liabilities and shareholders’ equity $ 12,957.9 $ 12,905.8 See notes to condensed consolidated financial statements (unaudited). 6 Table of Contents McCORMICK & COMPANY, INCORPORATED CONDENSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED) (in millions) Six months ended May 31, 2022 2021 Operating activities Net income $ 273.4 $ 345.5 Adjustments to reconcile net income to net cash flow provided by operating activities: Depreciation and amortization 98.2 91.9 Stock-based compensation 36.9 42.6 Gain on the sale of intangible asset ( 13.6 ) — Asset impairment charge 10.0 6.5 Amortization of inventory fair value adjustments associated with acquisitions — 6.3 Income from unconsolidated operations ( 19.7 ) ( 36.7 ) Changes in operating assets and liabilities (net of businesses acquired) Trade accounts receivable 47.3 51.4 Inventories ( 160.5 ) ( 90.4 ) Trade accounts payable 66.5 ( 8.4 ) Other assets and liabilities ( 202.7 ) ( 200.0 ) Dividends from unconsolidated affiliates 18.6 20.0 Net cash flow provided by operating activities 154.4 228.7 Investing activities Acquisition of businesses (net of cash acquired) — ( 706.4 ) Proceeds from sale of unconsolidated operation — 65.4 Proceeds from sale of intangible asset 12.1 — Capital expenditures (including software) ( 101.6 ) ( 112.8 ) Other investing activities 0.3 0.2 Net cash flow used in investing activities ( 89.2 ) ( 753.6 ) Financing activities Short-term borrowings, net 128.0 ( 429.4 ) Long-term debt borrowings — 1,001.5 Payment of debt issuance costs — ( 1.9 ) Long-term debt repayments ( 15.3 ) ( 3.5 ) Proceeds from exercised stock options 36.1 6.2 Taxes withheld and paid on employee stock awards ( 19.4 ) ( 13.0 ) Common stock acquired by purchase ( 12.9 ) ( 0.4 ) Dividends paid ( 198.2 ) ( 181.6 ) Net cash flow (used in) provided by financing activities ( 81.7 ) 377.9 Effect of exchange rate changes on cash and cash equivalents ( 9.4 ) 15.2 Decrease in cash and cash equivalents ( 25.9 ) ( 131.8 ) Cash and cash equivalents at beginning of period 351.7 423.6 Cash and cash equivalents at end of period $ 325.8 $ 291.8 See notes to condensed consolidated financial statements (unaudited). 7 Table of Contents McCORMICK & COMPANY, INCORPORATED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) (in millions) (millions) Common Stock Shares Common Stock Non-Voting Shares Common Stock Amount Retained Earnings Accumulated Other Comprehensive (Loss) Income Non-controlling Interests Total Shareholders’ Equity Three months ended May 31, 2022 Balance, February 28, 2022 17.8 250.2 $ 2,091.3 $ 2,922.4 $ ( 416.0 ) $ 16.5 $ 4,614.2 Net income — 118.5 — — 118.5 Net income attributable to non-controlling interest — — — 1.2 1.2 Other comprehensive loss, net of tax — — ( 38.6 ) ( 0.8 ) ( 39.4 ) Dividends — ( 99.2 ) — — ( 99.2 ) Stock-based compensation 25.8 — — — 25.8 Shares purchased and retired ( 0.1 ) — ( 3.6 ) ( 8.1 ) — — ( 11.7 ) Shares issued 0.3 0.1 5.7 — — — 5.7 Equal exchange ( 0.2 ) 0.2 — — — — — Balance, May 31, 2022 17.8 250.5 $ 2,119.2 $ 2,933.6 $ ( 454.6 ) $ 16.9 $ 4,615.1 Six months ended May 31, 2022 Balance, November 30, 2021 17.8 249.5 $ 2,055.1 $ 2,782.4 $ ( 426.5 ) $ 14.5 $ 4,425.5 Net income — 273.4 — — 273.4 Net income attributable to non-controlling interest — — — 3.7 3.7 Other comprehensive loss, net of tax — — ( 28.1 ) ( 1.3 ) ( 29.4 ) Dividends — ( 99.2 ) — — ( 99.2 ) Stock-based compensation 36.9 — — — 36.9 Shares purchased and retired ( 0.3 ) — ( 10.1 ) ( 23.0 ) — — ( 33.1 ) Shares issued 1.2 0.1 37.3 — — — 37.3 Equal exchange ( 0.9 ) 0.9 — — — — — Balance, May 31, 2022 17.8 250.5 $ 2,119.2 $ 2,933.6 $ ( 454.6 ) $ 16.9 $ 4,615.1 Three months ended May 31, 2021 Balance, February 28, 2021 18.0 249.0 $ 1,998.4 $ 2,573.6 $ ( 422.5 ) $ 15.2 $ 4,164.7 Net income — 183.7 — — 183.7 Net income attributable to non-controlling interest — — — 2.0 2.0 Other comprehensive income (loss), net of tax — — 60.2 ( 1.7 ) 58.5 Dividends — ( 90.8 ) — — ( 90.8 ) Stock-based compensation 28.4 — — — 28.4 Shares purchased and retired — — ( 2.8 ) ( 6.0 ) — — ( 8.8 ) Shares issued 0.3 — 3.1 — — — 3.1 Equal exchange ( 0.2 ) 0.2 — — — — — Balance, May 31, 2021 18.1 249.2 $ 2,027.1 $ 2,660.5 $ ( 362.3 ) $ 15.5 $ 4,340.8 8 Table of Contents Six months ended May 31, 2021 Balance, November 30, 2020 18.0 248.9 $ 1,981.3 $ 2,415.6 $ ( 470.8 ) $ 13.9 $ 3,940.0 Net income — 345.5 — — 345.5 Net income attributable to non-controlling interest — — — 2.8 2.8 Other comprehensive income (loss), net of tax — — 108.5 ( 1.2 ) 107.3 Dividends — ( 90.8 ) — — ( 90.8 ) Stock-based compensation 42.6 — — — 42.6 Shares purchased and retired ( 0.1 ) — ( 4.4 ) ( 9.8 ) — — ( 14.2 ) Shares issued 0.5 — 7.6 — — — 7.6 Equal exchange ( 0.3 ) 0.3 — — — — — Balance, May 31, 2021 18.1 249.2 $ 2,027.1 $ 2,660.5 $ ( 362.3 ) $ 15.5 $ 4,340.8 See notes to condensed consolidated financial statements (unaudited). 9 Table of Contents McCORMICK & COMPANY, INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and notes required by United States generally accepted accounting principles (U.S. GAAP) for complete financial statements. In our opinion, the accompanying condensed consolidated financial statements contain all adjustments, which are of a normal and recurring nature, necessary to present fairly the financial position and the results of operations for the interim periods presented. The results of consolidated operations for the six-month period ended May 31, 2022 are not necessarily indicative of the results to be expected for the full year. Historically, our net sales, net income and cash flow from operations have been lower in the first half of the fiscal year and higher in the second half. The historical increase in net sales, net income and cash flow from operations in the second half of the year has largely been due to the consumer business cycle in the U.S., where customers typically purchase more products in the fourth quarter due to the Thanksgiving and Christmas holiday seasons. For further information, refer to the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended November 30, 2021. Accounting Pronouncements Adopted in 2022 In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . The new guidance removes certain exceptions to the general principles for income taxes and also improves consistent application of accounting by clarifying or amending existing guidance. The new standard was adopted effective December 1, 2021. There was no material impact to our consolidated financial statements. In March 2020, the FASB issued ASU No. 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting that provides optional expedients for a limited period of time for accounting for contracts, hedging relationships, and other transactions affected by the London Interbank Offered Rate (LIBOR) or other reference rates expected to be discontinued. These optional expedients can be applied from March 2020 through December 31, 2022. LIBOR is used as a reference rate on our variable rate debt, including our revolving credit facility, synthetic lease, interest rate swaps, and cross currency interest rate swaps. The phase out of LIBOR reference rates will occur at different dates and began on January 1, 2022. Our adoption of this new standard occurred during the three months ended February 28, 2022, in conjunction with the first phase-out of a LIBOR reference rate. There was no material impact to our consolidated financial statements during the six months ended May 31, 2022, nor do we expect the adoption of this standard to have a material impact on our consolidated financial statements during the LIBOR transition period. 2. SPECIAL CHARGES AND TRANSACTION AND INTEGRATION EXPENSES Special Charges In our consolidated income statement, we include a separate line item captioned "Special charges" in arriving at our consolidated operating income. Special charges consist of expenses, including related impairment charges, associated with certain actions undertaken 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, comprised of our senior management, including our Chairman, President and Chief Executive Officer. 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, such as an asset impairment, 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. Certain ancillary expenses related to these actions approved by our Management Committee do not qualify for accrual upon approval but are included as special charges as incurred during the course of the actions. We continue to evaluate changes to our organizational structure to enable us to reduce fixed costs, simplify or improve processes, and improve our competitiveness. 10 Table of Contents The following is a summary of special charges recognized in the three and six months ended May 31, 2022 and 2021 (in millions): Three months ended May 31, Six months ended May 31, 2022 2021 2022 2021 Employee severance and related benefits $ 7.5 $ 4.5 $ 21.7 $ 4.8 Other costs Cash 2.1 2.7 6.0 3.5 Non-Cash 19.1 6.5 20.5 6.5 Total special charges 28.7 13.7 48.2 14.8 Gain on sale of exited brand ( 13.6 ) — ( 13.6 ) — Total $ 15.1 $ 13.7 $ 34.6 $ 14.8 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 below, $ 2.5 million associated with the transition of a manufacturing facility in Europe, Middle East, and Africa (EMEA), as more fully described below, and 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 discussed below 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 charges consisted principally of $ 22.2 million associated with the exit of our consumer business in Russia, as more fully described below, $ 17.4 million associated with the transition of a manufacturing facility in EMEA, as more fully described below, and 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 discussed below 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. In the second quarter of 2022, our Management Committee approved the exit of our consumer business in Russia. As a result, we recorded $ 22.2 million of special charges. These special charges included a non-cash impairment charge of $ 10.0 million associated with the Kamis brand name to reduce its carrying value to its estimated fair value, $ 2.5 million of employee severance and $ 1.8 million of other related exit costs directly associated with the exit plan that we anticipated will be paid in the next twelve months, and a non-cash $ 7.9 million reclassification of the cumulative translation adjustment previously reflected in accumulated other comprehensive income (loss) to earnings associated with the exit of our business in Russia. In the first quarter of 2022, our Management Committee approved an initiative to consolidate our manufacturing operations in the United Kingdom into a net-zero carbon condiments manufacturing and distribution center facility with state-of-the-art technology. We expect to execute these changes to our supply chain operations and improve profitability, from a combination of lower headcount and non-headcount costs, by consolidating our operations into a scalable platform while expanding our capacity. We expect the cost of the initiative to approximate $ 30 million—to be recognized as special charges in our consolidated income statement through 2023. Of that $ 30 million, we expect the costs to include employee severance and related benefits, non-cash accelerated depreciation, decommissioning and other property related lease exit costs, all directly related to the initiative. During the three months ended May 31, 2022, we recorded $ 1.3 million in accelerated depreciation and $ 1.2 million in third party expenses and other costs. During the six months ended May 31, 2022, we recorded $ 12.5 million in severance and related benefits costs, $ 2.7 million in accelerated depreciation and $ 2.2 million in third party expenses and other costs. We exited our Kohinoor rice product line in India in the fourth quarter of fiscal 2021. During the three months ended May 31, 2022, we sold the Kohinoor brand name for $ 13.6 million, net of costs associated with the sale of $ 1.4 million, and reflected the gain of $ 13.6 million associated with this sale within special charges. 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 was exited in conjunction with our decision to employ a hybrid work environment and $ 4.7 million of streamlining actions in the Americas region. 11 Table of Contents 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. In 2017, our Management Committee approved a multi-year initiative during which we expect to execute significant changes to our global processes, capabilities and operating model to provide a scalable platform for future growth. We expect this initiative to enable us to accelerate our ability to work globally and cross-functionally by aligning and simplifying processes throughout McCormick, in part building upon our current shared services foundation and expanding the end-to-end processes presently under that foundation. We expect this initiative, which we refer to as Global Enablement ("GE"), to enable this scalable platform for future growth while reducing costs, enabling faster decision making, increasing agility and creating capacity within our organization. While we are continuing to fully develop the details of our GE operating model, we expect the cost of the GE initiative — to be recognized as special charges in our consolidated income statement over its expected multi-year course — to range from approximately $ 60 million to $ 65 million. Of that $ 60 million to $ 65 million, we estimate that approximately sixty percent will be attributable to cash payments associated with the related costs of the GE implementation and transition, including outside consulting and other costs, and approximately forty percent will be attributable to severance and related benefit payments, all directly related to this initiative. We have spent a cumulative total of $ 40.7 million on this initiative through May 31, 2022. As of May 31, 2022, reserves associated with special charges, which are expected to be paid during the next twelve months, are included in trade accounts payable and other accrued liabilities in our consolidated balance sheet. The following is a breakdown by business segment of special charges for the three and six months ended May 31, 2022 and 2021 (in millions): Three months ended May 31, Six months ended May 31, 2022 2021 2022 2021 Consumer segment $ 10.7 $ 8.8 $ 14.3 $ 9.6 Flavor solutions segment 4.4 4.9 20.3 5.2 Total special charges $ 15.1 $ 13.7 $ 34.6 $ 14.8 Transaction and Integration Expenses The following are the transaction and integration expenses recognized during the three and six months ended May 31, 2022 and 2021 relating to the acquisitions of Cholula Hot Sauce ("Cholula") and FONA International, LLC ("FONA") (in millions): Three months ended May 31, Six months ended May 31, 2022 2021 2022 2021 Transaction-related expenses included in cost of goods sold $ — $ — $ — $ 6.3 Other transaction expenses — — — 13.8 Integration expenses 1.5 6.9 2.2 11.9 Total transaction and integration expenses $ 1.5 $ 6.9 $ 2.2 $ 32.0 We expect integration expenses related to our acquisition of FONA to total approximately $ 3 million in fiscal 2022. 3. FINANCIAL INSTRUMENTS We use derivative financial instruments to enhance our ability to manage risk, including foreign currency, net investment 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, and all derivatives are designated as hedges. For the three and six months ended May 31, 2022 and 2021, hedge ineffectiveness was not material. We are not a party to master netting arrangements, and we do not offset the fair value of derivative contracts with the same counterparty in our financial statement disclosures. The use of derivative financial instruments is monitored through regular communication with senior management and the use of written guidelines. Foreign currency exchange risk. We are potentially exposed to foreign currency fluctuations affecting net investments in subsidiaries, transactions (both third-party and intercompany) and earnings denominated in foreign currencies. We assess foreign currency risk based on transactional cash flows and translational volatility and may enter into forward contract and 12 Table of Contents currency swaps with highly-rated financial institutions to reduce fluctuations in the long or short currency positions. Forward contracts are generally less than 18 months duration. Currency swap agreements are established in conjunction with the terms of the underlying debt issues. At May 31, 2022, we had foreign currency exchange contracts to purchase or sell $ 482.0 million of foreign currencies as compared to $ 583.6 million at November 30, 2021. All of these contracts were designated as hedges of anticipated purchases denominated in a foreign currency or hedges of foreign currency denominated assets or liabilities. Hedges of foreign currency denominated assets and liabilities include foreign currency exchange contracts with a notional value of $ 381.9 million at May 31 , 2022. These foreign currency exchange contracts manage both exposure to currency fluctuations in certain intercompany loans between subsidiaries as well as currency exposure to third-party non-functional currency assets or liabilities. All foreign exchange contracts outstanding at May 31, 2022 have durations of less than 18 months, including $ 140.0 million of notional contracts that have durations of less than one month and are used to hedge short-term cash flow funding . We also utilize cross currency interest rate swap contracts that are designated as net investment hedges. Any gains or losses on net investment hedges are included in foreign currency translation adjustments in accumulated other comprehensive loss. Interest rate risk. We finance a portion of our operations with both fixed and variable rate debt instruments, principally commercial paper, notes and bank loans. We utilize interest rate derivative contracts, including interest rate swap agreements and treasury locks, to minimize worldwide financing costs and to achieve a desired mix of variable and fixed rate debt. The following table discloses the notional amount and fair values of derivative instruments on our balance sheet (in millions): Asset Derivatives Liability Derivatives Balance sheet location Notional amount Fair value Balance sheet location Notional amount Fair value As of May 31, 2022 Interest rate contracts Other current assets / Other long-term assets $ 200.0 $ 16.9 Other long-term liabilities $ 600.0 $ 16.8 Foreign exchange contracts Other current assets 308.6 7.1 Other accrued liabilities 173.4 4.7 Cross currency contracts Other current assets / Other long-term assets 715.2 25.2 Other long-term liabilities 235.2 6.0 Total $ 49.2 $ 27.5 As of November 30, 2021 Interest rate contracts Other current assets / Other long-term assets $ 350.0 $ 23.1 Other long-term liabilities $ — $ — Foreign exchange contracts Other current assets 380.8 8.3 Other accrued liabilities 202.8 2.8 Cross currency contracts Other current assets / Other long-term assets 251.0 4.4 Other long-term liabilities 257.5 8.0 Total $ 35.8 $ 10.8 In the first quarter of 2022, we entered into $ 250 million notional value interest rate swap contracts where we receive interest at 2.50 % and pay a variable rate of interest based on USD SOFR plus 0.684 %, which expire in April 2030, and are designated as fair value hedges of the changes in fair value of $ 250 million of the $ 500 million 2.50 % term notes due in 2030. The fair value of these interest rate swap contracts is offset by a corresponding increase or decrease in the value of the hedged debt. Also during the first quarter of 2022, we entered into cross currency interest rate swap contracts of (i) $ 250 million notional value to receive $ 250 million at USD SOFR plus 0.684 % and pay £ 184.1 million at GBP SONIA plus 0.5740 % and (ii) £ 184.1 million notional value to receive £ 184.1 million at GBP SONIA plus 0.574 % and pay € 219.2 million at Euro ESTR plus 0.667 %, both of which expire in April 2030. In conjunction with the phase-out of LIBOR, during the first quarter of 2022 we amended our previously existing cross currency swaps which expire in August 2027 such that, effective February 15, 2022, we now pay and receive at GBP SONIA plus 0.859 % (previously GBP LIBOR plus 0.740 %). 13 Table of Contents During the three months ended May 31, 2022, we entered into a total of $ 200 million of treasury locks to manage our interest rate risk associated with the anticipated issuance of at least $ 200 million of fixed rate debt by August 2022. These treasury locks have a maturity date of August 12, 2022. The weighted average fixed rate of these agreements was 1.89 %. We designated these treasury lock arrangements as cash flow hedges. Amounts associated with these agreements, which currently include the related estimated fair value, are deferred in accumulated other comprehensive income. The following tables disclose the impact of derivative instruments on our other comprehensive income (OCI), accumulated other comprehensive loss (AOCI) and our consolidated income statement for the three- and six-months ended May 31, 2022 and 2021 (in millions): Fair Value Hedges Derivative Income statement location Income (expense) Three months ended May 31, 2022 Three months ended May 31, 2021 Six months ended May 31, 2022 Six months ended May 31, 2021 Interest rate contracts Interest expense $ 2.6 $ 2.0 $ 4.8 $ 4.0 Income statement location Gain (loss) recognized in income Income statement location Gain (loss) recognized in income Derivative 2022 2021 Hedged item 2022 2021 Three months ended May 31, Foreign exchange contracts Other income, net $ 3.7 $ ( 3.8 ) Intercompany loans Other income, net $ ( 3.3 ) $ 4.0 Six months ended May 31, Foreign exchange contracts Other income, net $ 3.3 $ ( 5.9 ) Intercompany loans Other income, net $ ( 2.9 ) $ 6.5 The gains (losses) recognized on fair value hedges relating to currency exposure on third-party non-functional currency assets or liabilities were not material during the three- and six-months ended May 31, 2022 and 2021. Cash Flow Hedges Derivative Gain (loss) recognized in OCI Income statement location Gain (loss) reclassified from AOCI 2022 2021 2022 2021 Three months ended May 31, Interest rate contracts $ 16.9 $ — Interest expense $ 0.2 $ 0.1 Foreign exchange contracts ( 0.5 ) ( 0.8 ) Cost of goods sold 0.2 ( 0.6 ) Total $ 16.4 $ ( 0.8 ) $ 0.4 $ ( 0.5 ) Six months ended May 31, Interest rate contracts $ 16.9 $ 0.3 Interest expense $ 0.3 $ 0.2 Foreign exchange contracts 2.4 ( 2.4 ) Cost of goods sold — ( 0.3 ) Total $ 19.3 $ ( 2.1 ) $ 0.3 $ ( 0.1 ) For all cash flow and settled interest rate fair value hedge derivatives, the net amount of accumulated other comprehensive loss expected to be reclassified in the next 12 months is $ 2.2 million as an increase to earnings. 14 Table of Contents Net Investment Hedges Derivative Gain (loss) recognized in OCI Income statement location Gain (loss) excluded from the assessment of hedge effectiveness 2022 2021 2022 2021 Three months ended May 31, Cross currency contracts $ 21.4 $ ( 1.5 ) Interest expense $ 1.2 $ 0.3 Six months ended May 31, Cross currency contracts $ 22.1 $ ( 3.5 ) Interest expense $ 1.7 $ 0.7 For all net investment hedges, no amounts have been reclassified out of accumulated other comprehensive loss. The amounts noted in the tables above for OCI do not include any adjustments for the impact of deferred income taxes. 15 Table of Contents 4. FAIR VALUE MEASUREMENTS Fair value can be measured using valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). Accounting standards utilize a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: • Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. • Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions. At May 31, 2022 and November 30, 2021, we had no financial assets or liabilities that were subject to a level 3 fair value measurement. Our population of financial assets and liabilities subject to fair value measurements on a recurring basis are as follows (in millions): May 31, 2022 Fair Value Level 1 Level 2 Assets Cash and cash equivalents $ 325.8 $ 325.8 $ — Insurance contracts 119.5 — 119.5 Bonds and other long-term investments 1.4 1.4 — Interest rate derivatives 16.9 — 16.9 Foreign currency derivatives 7.1 — 7.1 Cross currency contracts 25.2 — 25.2 Total $ 495.9 $ 327.2 $ 168.7 Liabilities Foreign currency derivatives $ 4.7 $ — $ 4.7 Interest rate derivatives 16.8 — 16.8 Cross currency contracts 6.0 — 6.0 Total $ 27.5 $ — $ 27.5 November 30, 2021 Fair Value Level 1 Level 2 Assets Cash and cash equivalents $ 351.7 $ 351.7 $ — Insurance contracts 132.2 — 132.2 Bonds and other long-term investments 5.1 5.1 — Interest rate derivatives 23.1 — 23.1 Foreign currency derivatives 8.3 — 8.3 Cross currency contracts 4.4 — 4.4 Total $ 524.8 $ 356.8 $ 168.0 Liabilities Foreign currency derivatives $ 2.8 $ — $ 2.8 Cross currency contracts 8.0 — 8.0 Total $ 10.8 $ — $ 10.8 At May 31, 2022 and November 30, 2021, the carrying amounts of interest rate derivatives, foreign currency derivatives, cross currency contracts, insurance contracts, and bond and other long-term investments are equal to their respective fair values. Because of their short-term nature, the amounts reported in the balance sheet for cash and cash equivalents, receivables, short- 16 Table of Contents term borrowings and trade accounts payable approximate fair value. Investments in affiliates are not readily marketable, and it is not practicable to estimate their fair value. Insurance contracts, bonds, and other long-term investments are comprised of fixed income and equity securities held for certain non-qualified U.S. employee benefit plans and are stated at fair value on the balance sheet. The fair values of insurance contracts are based upon the underlying values of the securities in which they are invested and are from quoted market prices from various stock and bond exchanges for similar type assets. The fair values of bonds and other long-term investments are based on quoted market prices from various stock and bond exchanges. The fair values for interest rate derivatives, foreign currency derivatives, and cross currency contracts are based on values for similar instruments using models with market-based inputs. The following table sets forth the carrying amounts and fair values of our long-term debt including the current portion thereof (in millions): May 31, 2022 November 30, 2021 Carrying amount $ 4,691.1 $ 4,743.6 Level 1 valuation techniques $ 4,320.5 $ 4,722.3 Level 2 valuation techniques 183.5 199.2 Total fair value $ 4,504.0 $ 4,921.5 The fair value for Level 2 long-term debt is determined by using quoted prices for similar debt instruments. 5. EMPLOYEE BENEFIT AND RETIREMENT PLANS We sponsor defined benefit pension plans in the U.S. and certain foreign locations. In addition, we sponsor defined contribution plans in the U.S. We also contribute to defined contribution plans in locations outside the U.S., including government-sponsored retirement plans. We also currently provide postretirement medical and life insurance benefits to certain U.S. employees and retirees. We previously froze the accrual of future benefits under certain defined benefit pension plans in the U.S. and certain foreign locations. Although our defined benefit plans in the U.S., United Kingdom and Canada have generally been frozen, employees who are participants in the plans retained benefits accumulated up to the date of the freeze, based on credited service and eligible earnings, in accordance with the terms of the plans. The following table presents the components of our pension (income) and other postretirement benefits expense for the three months ended May 31, 2022 and 2021 (in millions): United States pension International pension Other postretirement benefits 2022 2021 2022 2021 2022 2021 Service cost $ 0.9 $ 1.0 $ 0.2 $ 0.2 $ 0.5 $ 0.5 Interest costs 6.6 6.5 1.8 1.8 0.4 0.4 Expected return on plan assets ( 10.7 ) ( 10.3 ) ( 3.1 ) ( 3.5 ) — — Amortization of prior service costs 0.1 0.1 0.1 0.1 ( 0.1 ) ( 0.1 ) Amortization of net actuarial losses 2.1 2.7 0.3 0.5 ( 0.1 ) — Settlement loss — — — 0.4 — — Total (income) expense $ ( 1.0 ) $ — $ ( 0.7 ) $ ( 0.5 ) $ 0.7 $ 0.8 The following table presents the components of our pension (income) and other postretirement benefits expense for the six months ended May 31, 2022 and 2021 (in millions): 17 Table of Contents United States pension International pension Other postretirement benefits 2022 2021 2022 2021 2022 2021 Service cost $ 1.8 $ 1.9 $ 0.4 $ 0.5 $ 0.9 $ 1.0 Interest costs 13.2 13.0 3.6 3.5 0.8 0.8 Expected return on plan assets ( 21.4 ) ( 20.6 ) ( 6.3 ) ( 7.0 ) — — Amortization of prior service costs 0.2 0.2 0.1 0.1 ( 0.2 ) ( 0.2 ) Amortization of net actuarial losses 4.3 5.5 0.7 1.1 ( 0.1 ) — Settlement loss — — — 0.4 — — Total (income) expense $ ( 1.9 ) $ — $ ( 1.5 ) $ ( 1.4 ) $ 1.4 $ 1.6 During the six months ended May 31, 2022 and 2021, we contributed $ 4.1 million and $ 5.2 million, respectively, to our pension plans. Total contributions to our pension plans in fiscal year 2021 were $ 15.0 million. All of the amounts in the tables above for pension (income) and other postretirement benefits expense, other than service cost, were included in other income, net within our consolidated income statements. The net aggregate amount of pension and other postretirement benefits (income), excluding service cost components, was $( 2.6 ) million and $( 1.4 ) million for the three months ended May 31, 2022 and 2021, respectively. For the six months ended May 31, 2022 and 2021, the net aggregate amount of pension and other postretirement benefits income was $( 5.1 ) million and $( 3.2 ) million, respectively. 6. STOCK-BASED COMPENSATION We have four types of stock-based compensation awards: restricted stock units ("RSUs"), stock options, company stock awarded as part of our long-term performance plan ("LTPP") and price-vested stock options. The following table sets forth the stock-based compensation expense recorded in selling, general and administrative ("SG&A") expense (in millions): Three months ended May 31, Six months ended May 31, 2022 2021 2022 2021 Stock-based compensation expense $ 25.8 $ 28.5 $ 36.9 $ 42.6 Our 2022 annual grant of stock options and RSUs occurred in the second quarter, similar to the 2021 annual grant. The weighted-average grant-date fair value of each stock option granted in 2022 was $ 22.14 and in 2021 was $ 18.36 as calculated under a lattice pricing model. Substantially all of the stock options and RSUs granted in 2022 and 2021 vest ratably over a three-year period or, if earlier, upon the retirement eligibility date of the holder. The fair values of stock option grants in the stated periods were computed using the following range of assumptions for our various stock compensation plans: 2022 2021 Risk-free interest rates 0.2 - 2.5% 0.0 - 1.8% Dividend yield 1.5 % 1.5 % Expected volatility 21.2 % 21.3 % Expected lives (in years) 7.6 7.9 The following is a summary of our stock option activity for the six months ended May 31, 2022 and 2021: 2022 2021 (shares in millions) Number of Shares Weighted- Average Exercise Price Number of Shares Weighted- Average Exercise Price Outstanding at beginning of period 5.0 $ 59.71 4.5 $ 53.56 Granted 0.7 97.26 0.8 89.16 Exercised ( 0.7 ) 46.25 ( 0.1 ) 44.22 Outstanding at end of the period 5.0 $ 67.06 5.2 $ 59.46 Exercisable at end of the period 3.6 $ 57.87 3.8 $ 51.08 18 Table of Contents As of May 31, 2022, the intrinsic value (the difference between the exercise price and the market price) for all options outstanding was $ 130.3 million and for options currently exercisable was $ 124.3 million. The total intrinsic value of all options exercised during the six months ended May 31, 2022 and 2021 was $ 38.2 million and $ 4.9 million, respectively. The following is a summary of our RSU activity for the six months ended May 31, 2022 and 2021: 2022 2021 (shares in thousands) Number of Shares Weighted- Average Grant-Date Fair Value Number of Shares Weighted- Average Grant-Date Fair Value Outstanding at beginning of period 563 $ 69.52 714 $ 61.74 Granted 204 94.43 219 86.86 Vested ( 251 ) 71.90 ( 282 ) 62.19 Forfeited ( 20 ) 82.64 ( 12 ) 60.12 Outstanding at end of period 496 $ 78.02 639 $ 70.03 The following is a summary of our price-vested stock options activity for the six months ended May 31, 2022 and 2021: 2022 2021 (shares in thousands) Number of Shares Weighted- Average Grant-Date Fair Value Number of Shares Weighted- Average Grant-Date Fair Value Outstanding at beginning of period 2,193 $ 9.40 2,482 $ 9.40 Granted — — 15 9.66 Forfeited ( 35 ) 9.40 ( 121 ) 9.40 Outstanding at end of period 2,158 $ 9.40 2,376 $ 9.40 The following is a summary of our LTPP activity for the six months ended May 31, 2022 and 2021: 2022 2021 (shares in thousands) Number of Shares Weighted- Average Grant-Date Fair Value Number of Shares Weighted- Average Grant-Date Fair Value Outstanding at beginning of period 497 $ 83.74 382 $ 71.20 Granted 151 95.00 141 98.30 Vested ( 251 ) 75.26 ( 121 ) 50.95 Forfeited ( 2 ) 95.58 ( 12 ) 88.06 Outstanding at end of period 395 $ 93.41 390 $ 86.80 7. INCOME TAXES 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 19 Table of Contents 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 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. Other than the discrete tax benefits previously mentioned and additions for current year tax positions, there were no significant changes to unrecognized tax benefits during the six months ended May 31, 2022. As of May 31, 2022, we believe the reasonably possible total amount of unrecognized tax benefits that could increase or decrease in the next 12 months as a result of various statute expirations, audit closures, and/or tax settlements would not be material to our consolidated financial statements. 8. CAPITAL STOCK AND EARNINGS PER SHARE The following table sets forth the reconciliation of average shares outstanding (in millions): Three months ended May 31, Six months ended May 31, 2022 2021 2022 2021 Average shares outstanding – basic 268.3 267.3 268.1 267.2 Effect of dilutive securities: Stock options/RSUs/LTPP 2.2 2.7 2.4 2.8 Average shares outstanding – diluted 270.5 270.0 270.5 270.0 The following table sets forth the stock options and RSUs that were not considered in our earnings per share calculation since they were anti-dilutive (in millions): Three months ended May 31, Six months ended May 31, 2022 2021 2022 2021 Anti-dilutive securities 0.5 0.6 0.5 0.1 The following table sets forth common stock activity (in millions): Three months ended May 31, Six months ended May 31, 2022 2021 2022 2021 Shares issued under stock options, RSUs, LTPP and employee stock purchase plans 0.4 0.3 1.3 0.5 Shares repurchased under the stock repurchase program and shares withheld for taxes under stock options, RSUs, and LTPP 0.1 — 0.3 0.1 As of May 31, 2022, $ 563.1 million remained of the $ 600 million share repurchase program authorization approved by our Board of Directors in November 2019. 9. ACCUMULATED OTHER COMPREHENSIVE LOSS 20 Table of Contents The following table sets forth the components of accumulated other comprehensive loss, net of tax, where applicable (in millions): May 31, 2022 November 30, 2021 Foreign currency translation adjustment (1) $ ( 287.0 ) $ ( 233.3 ) Unrealized gain on foreign currency exchange contracts 8.6 0.6 Fair value of treasury locks 12.9 — Unamortized value of settled interest rate swaps ( 0.4 ) ( 0.2 ) Pension and other postretirement costs ( 188.7 ) ( 193.6 ) Accumulated other comprehensive loss $ ( 454.6 ) $ ( 426.5 ) (1) During the six months ended May 31, 2022, the foreign currency translation adjustment of accumulated other comprehensive loss increased on a net basis by $ 53.7 million, net of a $ 22.1 million increase associated with net investment hedges. These net investment hedges are more fully described in note 3. The following table sets forth the amounts reclassified from accumulated other comprehensive income (loss) and into consolidated net income (in millions): Three months ended Six months ended Affected Line Items in the Condensed Consolidated Income Statement May 31, 2022 May 31, 2021 May 31, 2022 May 31, 2021 (Gains)/losses on cash flow hedges: Interest rate derivatives $ ( 0.2 ) $ ( 0.1 ) $ ( 0.3 ) $ ( 0.2 ) Interest expense Foreign exchange contracts ( 0.2 ) 0.6 — 0.3 Cost of goods sold Total before tax ( 0.4 ) 0.5 ( 0.3 ) 0.1 Tax effect 0.1 ( 0.1 ) 0.1 — Income tax expense Net, after tax $ ( 0.3 ) $ 0.4 $ ( 0.2 ) $ 0.1 Amortization of pension and postretirement benefit adjustments: Amortization of prior service costs (credit) (1) $ 0.1 $ 0.1 $ 0.1 $ 0.1 Other income, net Amortization of net actuarial losses (1) $ 2.3 $ 3.6 4.9 7.0 Other income, net Total before tax 2.4 3.7 5.0 7.1 Tax effect ( 0.6 ) ( 0.9 ) ( 1.2 ) ( 1.7 ) Income tax expense Net, after tax $ 1.8 $ 2.8 $ 3.8 $ 5.4 (1) This accumulated other comprehensive income (loss) component is included in the computation of total pension (income) and other postretirement benefits expense (refer to note 5 for additional details). Amortization of net actuarial losses includes settlement losses. 10. BUSINESS SEGMENTS We operate in two business segments: consumer and flavor solutions. The consumer and flavor solutions segments manufacture, market and distribute spices, herbs, seasoning mixes, condiments and other flavorful products throughout the world. Our consumer segment sells to retail channels, including grocery, mass merchandise, warehouse clubs, discount and drug stores, and e-commerce under the “McCormick” brand and a variety of brands around the world, including “French’s”, “Frank’s RedHot”, “OLD BAY”, “Lawry’s”, “Zatarain’s”, “Simply Asia”, “Thai Kitchen”, “Ducros”, “Vahine”, “Cholula”, “Schwartz”, “Club House”, “Kamis”, “DaQiao”, “La Drogheria”, “Stubb's”, and “Gourmet Garden”. Our flavor solutions segment sells to food manufacturers and the foodservice industry both directly and indirectly through distributors, with the exception of our businesses in China and India, where foodservice sales are managed by and reported in our consumer segment. In each of our segments, we produce and sell many individual products which are similar in composition and nature. With their primary attribute being flavor, we regard the products within each of our segments to be fairly homogenous. It is impracticable to segregate and identify sales and profits for each of these individual product lines. 21 Table of Contents We measure segment performance based on operating income excluding special charges, as this activity is managed separately from the business segments. We also exclude transaction and integration expenses related to our acquisitions, including the recent 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. Although the segments are managed separately due to their distinct distribution channels and marketing strategies, manufacturing and warehousing are often integrated to maximize cost efficiencies. We do not segregate jointly utilized assets by individual segment for internal reporting, evaluating performance or allocating capital. Because of manufacturing integration for certain products within the segments, products are not sold from one segment to another but rather inventory is transferred at cost. Intersegment sales are not material. Consumer Flavor Solutions Total (in millions) Three months ended May 31, 2022 Net sales $ 866.1 $ 670.7 $ 1,536.8 Operating income excluding special charges and transaction and integration expenses 124.8 49.0 173.8 Income from unconsolidated operations 8.4 2.0 10.4 Three months ended May 31, 2021 Net sales $ 945.2 $ 611.5 $ 1,556.7 Operating income excluding special charges and transaction and integration expenses 176.8 81.2 258.0 Income from unconsolidated operations 22.2 1.2 23.4 Six months ended May 31, 2022 Net sales $ 1,792.2 $ 1,267.0 $ 3,059.2 Operating income excluding special charges and transaction and integration expenses 291.8 109.1 400.9 Income from unconsolidated operations 16.8 2.9 19.7 Six months ended May 31, 2021 Net sales $ 1,892.0 $ 1,146.2 $ 3,038.2 Operating income excluding special charges and transaction and integration expenses 366.7 153.8 520.5 Income from unconsolidated operations 33.0 3.7 36.7 22 Table of Contents A reconciliation of operating income excluding special charges and transaction and integration expenses, to operating income is as follows (in millions): Consumer Flavor Solutions Total Three months ended May 31, 2022 Operating income excluding special charges and transaction and integration expenses $ 124.8 $ 49.0 $ 173.8 Less: Special charges 10.7 4.4 15.1 Less: Transaction and integration expenses — 1.5 1.5 Operating income $ 114.1 $ 43.1 $ 157.2 Three months ended May 31, 2021 Operating income excluding special charges and transaction and integration expenses $ 176.8 $ 81.2 $ 258.0 Less: Special charges 8.8 4.9 13.7 Less: Transaction and integration expenses 3.1 3.8 6.9 Operating income $ 164.9 $ 72.5 $ 237.4 Six months ended May 31, 2022 Operating income excluding special charges and transaction and integration expenses $ 291.8 $ 109.1 $ 400.9 Less: Special charges 14.3 20.3 34.6 Less: Transaction and integration expenses — 2.2 2.2 Operating income $ 277.5 $ 86.6 $ 364.1 Six months ended May 31, 2021 Operating income excluding special charges and transaction and integration expenses $ 366.7 $ 153.8 $ 520.5 Less: Special charges 9.6 5.2 14.8 Less: Transaction-related expenses included in cost of goods sold 4.0 2.3 6.3 Less: Other transaction and integration expenses 7.3 18.4 25.7 Operating income $ 345.8 $ 127.9 $ 473.7 The following table sets forth our net sales, by geographic area, for the three and six months ended May 31, 2022 and 2021 (in millions): Americas EMEA Asia/Pacific Total Three months ended May 31, 2022 $ 1,102.6 $ 287.8 $ 146.4 $ 1,536.8 Three months ended May 31, 2021 1,081.4 304.9 170.4 1,556.7 Six months ended May 31, 2022 2,125.0 578.3 355.9 3,059.2 Six months ended May 31, 2021 2,046.2 607.3 384.7 3,038.2 11. SALE OF UNCONSOLIDATED OPERATIONS On March 1, 2021, we sold our 26 % interest in Eastern Condiments Private Ltd (Eastern) for $ 65.4 million in cash, net of transaction expenses of $ 1.4 million. Eastern was accounted for as an equity method investment with our proportionate share of earnings, prior to the sale, reflected in Income from unconsolidated operations in our consolidated income statement. The sale of Eastern resulted in a gain of $ 13.4 million, net of tax of $ 5.7 million. That gain is included in Income from unconsolidated operations in our consolidated income statement. That gain also reflects a write-off of $ 1.4 million of foreign currency translation adjustment, a component of accumulated other comprehensive income. 23 Table of Contents