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 August 31, Nine months ended August 31, 2022 2021 2022 2021 Net sales $ 1,595.6 $ 1,549.4 $ 4,654.8 $ 4,587.6 Cost of goods sold 1,028.9 949.8 3,004.7 2,795.9 Gross profit 566.7 599.6 1,650.1 1,791.7 Selling, general and administrative expense 328.1 327.3 1,010.6 1,005.2 Transaction and integration expenses — 1.3 2.2 27.0 Special charges 3.4 5.8 38.0 20.6 Operating income 235.2 265.2 599.3 738.9 Interest expense 37.9 33.9 104.7 103.3 Other income, net 77.4 3.5 89.9 12.0 Income from consolidated operations before income taxes 274.7 234.8 584.5 647.6 Income tax expense 59.3 31.5 115.4 135.5 Net income from consolidated operations 215.4 203.3 469.1 512.1 Income from unconsolidated operations 7.5 9.1 27.2 45.8 Net income $ 222.9 $ 212.4 $ 496.3 $ 557.9 Earnings per share – basic $ 0.83 $ 0.79 $ 1.85 $ 2.09 Earnings per share – diluted $ 0.82 $ 0.79 $ 1.83 $ 2.07 Average shares outstanding – basic 268.3 267.4 268.1 267.2 Average shares outstanding – diluted 270.2 270.0 270.4 270.0 Cash dividends paid per share – voting and non-voting $ 0.37 $ 0.34 $ 1.11 $ 1.02 Cash dividends declared per share – voting and non-voting $ 0.37 $ 0.34 $ 0.74 $ 0.68 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 August 31, Nine months ended August 31, 2022 2021 2022 2021 Net income $ 222.9 $ 212.4 $ 496.3 $ 557.9 Net income attributable to non-controlling interest 1.5 0.7 5.2 3.5 Other comprehensive income (loss): Unrealized components of pension and other postretirement plans 4.5 5.8 10.5 8.4 Currency translation adjustments ( 114.9 ) ( 78.4 ) ( 162.2 ) 21.5 Change in derivative financial instruments ( 22.1 ) 2.5 4.7 3.1 Deferred taxes ( 3.9 ) ( 2.8 ) ( 18.8 ) 1.4 Total other comprehensive income (loss) ( 136.4 ) ( 72.9 ) ( 165.8 ) 34.4 Comprehensive income $ 88.0 $ 140.2 $ 335.7 $ 595.8 See notes to condensed consolidated financial statements (unaudited). 5 Table of Contents McCORMICK & COMPANY, INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEET (in millions) August 31, 2022 November 30, 2021 (unaudited) ASSETS Cash and cash equivalents $ 343.9 $ 351.7 Trade accounts receivable, net of allowances 565.8 549.5 Inventories, net Finished products 668.8 556.2 Raw materials and work-in-process 710.7 626.1 1,379.5 1,182.3 Prepaid expenses and other current assets 123.6 112.3 Total current assets 2,412.8 2,195.8 Property, plant and equipment, net 1,139.1 1,140.3 Goodwill 5,209.7 5,335.8 Intangible assets, net 3,396.6 3,452.5 Other long-term assets 782.8 781.4 Total assets $ 12,941.0 $ 12,905.8 LIABILITIES AND SHAREHOLDERS’ EQUITY Short-term borrowings $ 1,436.4 $ 539.1 Current portion of long-term debt 20.6 770.3 Trade accounts payable 1,143.5 1,064.2 Other accrued liabilities 539.9 850.2 Total current liabilities 3,140.4 3,223.8 Long-term debt 3,904.8 3,973.3 Deferred taxes 816.3 792.3 Other long-term liabilities 472.8 490.9 Total liabilities 8,334.3 8,480.3 Shareholders’ equity Common stock 564.3 530.0 Common stock non-voting 1,566.6 1,525.1 Retained earnings 3,048.4 2,782.4 Accumulated other comprehensive loss ( 590.0 ) ( 426.5 ) Total McCormick shareholders' equity 4,589.3 4,411.0 Non-controlling interests 17.4 14.5 Total shareholders’ equity 4,606.7 4,425.5 Total liabilities and shareholders’ equity $ 12,941.0 $ 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) Nine months ended August 31, 2022 2021 Operating activities Net income $ 496.3 $ 557.9 Adjustments to reconcile net income to net cash flow provided by operating activities: Depreciation and amortization 148.2 139.1 Stock-based compensation 49.1 54.2 Gain on the sale of intangible asset ( 13.6 ) — Gain on the sale of a business ( 49.6 ) — Asset impairment charge 10.0 6.5 Amortization of inventory fair value adjustments associated with acquisitions — 6.3 Income from unconsolidated operations ( 27.2 ) ( 45.8 ) Changes in operating assets and liabilities (net of businesses acquired and disposed) Trade accounts receivable ( 43.6 ) 1.3 Inventories ( 238.5 ) ( 156.5 ) Trade accounts payable 100.8 ( 16.7 ) Other assets and liabilities ( 209.6 ) ( 195.2 ) Dividends from unconsolidated affiliates 27.8 21.8 Net cash flow provided by operating activities 250.1 372.9 Investing activities Acquisition of businesses (net of cash acquired) — ( 706.4 ) Proceeds from sale of business 95.2 — Proceeds from sale of unconsolidated operation — 65.4 Proceeds from sale of intangible asset 13.6 — Capital expenditures (including software) ( 166.8 ) ( 189.9 ) Other investing activities 2.5 0.3 Net cash flow used in investing activities ( 55.5 ) ( 830.6 ) Financing activities Short-term borrowings, net 898.1 ( 118.9 ) Long-term debt borrowings — 1,001.5 Payment of debt issuance costs — ( 1.9 ) Long-term debt repayments ( 768.7 ) ( 255.3 ) Proceeds from exercised stock options 39.9 10.5 Taxes withheld and paid on employee stock awards ( 19.4 ) ( 13.3 ) Common stock acquired by purchase ( 26.1 ) ( 3.2 ) Dividends paid ( 297.5 ) ( 272.4 ) Net cash flow (used in) provided by financing activities ( 173.7 ) 347.0 Effect of exchange rate changes on cash and cash equivalents ( 28.7 ) ( 0.3 ) Decrease in cash and cash equivalents ( 7.8 ) ( 111.0 ) Cash and cash equivalents at beginning of period 351.7 423.6 Cash and cash equivalents at end of period $ 343.9 $ 312.6 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 August 31, 2022 Balance, May 31, 2022 17.8 250.5 $ 2,119.2 $ 2,933.6 $ ( 454.6 ) $ 16.9 $ 4,615.1 Net income — 222.9 — — 222.9 Net income attributable to non-controlling interest — — — 1.5 1.5 Other comprehensive loss, net of tax — — ( 135.4 ) ( 1.0 ) ( 136.4 ) Dividends — ( 99.2 ) — — ( 99.2 ) Stock-based compensation 12.2 — — — 12.2 Shares purchased and retired ( 0.2 ) — ( 4.8 ) ( 8.9 ) — — ( 13.7 ) Shares issued 0.1 — 4.3 — — — 4.3 Equal exchange ( 0.1 ) 0.1 — — — — — Balance, August 31, 2022 17.6 250.6 $ 2,130.9 $ 3,048.4 $ ( 590.0 ) $ 17.4 $ 4,606.7 Nine months ended August 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 — 496.3 — — 496.3 Net income attributable to non-controlling interest — — — 5.2 5.2 Other comprehensive loss, net of tax — — ( 163.5 ) ( 2.3 ) ( 165.8 ) Dividends — ( 198.4 ) — — ( 198.4 ) Stock-based compensation 49.1 — — — 49.1 Shares purchased and retired ( 0.5 ) — ( 14.9 ) ( 31.9 ) — — ( 46.8 ) Shares issued 1.3 0.1 41.6 — — — 41.6 Equal exchange ( 1.0 ) 1.0 — — — — — Balance, August 31, 2022 17.6 250.6 $ 2,130.9 $ 3,048.4 $ ( 590.0 ) $ 17.4 $ 4,606.7 Three months ended August 31, 2021 Balance, May 31, 2021 18.1 249.2 $ 2,027.1 $ 2,660.5 $ ( 362.3 ) $ 15.5 $ 4,340.8 Net income — 212.4 — — 212.4 Net income attributable to non-controlling interest — — — 0.7 0.7 Other comprehensive income (loss), net of tax — — ( 73.3 ) 0.4 ( 72.9 ) Dividends — ( 90.9 ) — — ( 90.9 ) Stock-based compensation 11.6 — — — 11.6 Shares purchased and retired ( 0.1 ) — ( 0.9 ) ( 2.0 ) — — ( 2.9 ) Shares issued 0.1 — 4.3 — — — 4.3 Equal exchange ( 0.1 ) 0.1 — — — — — Balance, August 31, 2021 18.0 249.3 $ 2,042.1 $ 2,780.0 $ ( 435.6 ) $ 16.6 $ 4,403.1 8 Table of Contents Nine months ended August 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 — 557.9 — — 557.9 Net income attributable to non-controlling interest — — — 3.5 3.5 Other comprehensive income (loss), net of tax — — 35.2 ( 0.8 ) 34.4 Dividends — ( 181.7 ) — — ( 181.7 ) Stock-based compensation 54.2 — — — 54.2 Shares purchased and retired ( 0.2 ) — ( 5.3 ) ( 11.8 ) — — ( 17.1 ) Shares issued 0.6 — 11.9 — — — 11.9 Equal exchange ( 0.4 ) 0.4 — — — — — Balance, August 31, 2021 18.0 249.3 $ 2,042.1 $ 2,780.0 $ ( 435.6 ) $ 16.6 $ 4,403.1 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 nine-month period ended August 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. Arrangements that were entered into during the nine months ended August 31, 2022, including our new revolving credit facility expiring in July 2023 and cross-currency interest rate swaps expiring in April 2030, no longer use LIBOR as a reference rate. However, LIBOR continues to be the reference rate for our variable rate debt, including our revolving credit facility expiring in July 2026, interest rate swaps, and the cross-currency interest rate swaps expiring in August 2027. 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 nine months ended August 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. Recently Issued Accounting Pronouncements — Pending Adoption In September 2022, the FASB issued ASU No. 2022-04: Liabilities - Supplier Finance Programs (Topic 450-50): Disclosure of Supplier Finance Program Obligations that requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose the key terms of the programs and information about obligations outstanding at the end of the reporting period, including a rollforward of those obligations. The guidance does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The new standard’s requirements to disclose the key terms of the programs and information about obligations outstanding are effective for all interim and annual periods of our fiscal year ending November 30, 2024. The new standard’s requirement to disclose a rollforward of obligations outstanding will be effective for our fiscal year ending November 30, 2025. Early adoption is permitted. We are currently evaluating the impact that this new guidance will have on our consolidated financial statements. 2. SPECIAL CHARGES AND TRANSACTION AND INTEGRATION EXPENSES Special Charges 10 Table of Contents 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 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. The following is a summary of special charges recognized in the three and nine months ended August 31, 2022 and 2021 (in millions): Three months ended August 31, Nine months ended August 31, 2022 2021 2022 2021 Employee severance and related benefits $ 1.9 $ 2.8 $ 23.6 $ 7.6 Other costs Cash 0.9 3.0 6.9 6.5 Non-Cash 0.6 — 21.1 6.5 Total special charges 3.4 5.8 51.6 20.6 Gain on sale of exited brand — — ( 13.6 ) — Total $ 3.4 $ 5.8 $ 38.0 $ 20.6 During the three months ended August 31, 2022, we recorded $ 3.4 million of special charges. Those special charges principally consisted of $ 1.0 million associated with the transition of a manufacturing facility in Europe, Middle East, and Africa (EMEA), as more fully described below, $ 0.8 million associated with the exit of our consumer business in Russia, as more fully described below, and streamlining actions of $ 0.4 million in the Americas region, and $ 1.2 million in the EMEA region. During the nine months ended August 31, 2022, we recorded $ 38.0 million of net special charges. Those special charges consisted principally of $ 23.0 million associated with the exit of our consumer business in Russia, as more fully described below, $ 18.4 million associated with the transition of a manufacturing facility in EMEA, as more fully described below, and streamlining actions of $ 5.7 million in the Americas region, and $ 5.5 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, in the second quarter of 2022 we recognized $ 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. During the three months ended August 31, 2022, we recorded an additional $ 0.8 million of employee severance charges. 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 11 Table of Contents related to the initiative. During the three months ended August 31, 2022, we recorded $ 0.6 million in accelerated depreciation and $ 0.4 million in third party expenses and other costs. During the nine months ended August 31, 2022, we recorded $ 12.5 million in severance and related benefits costs, $ 3.3 million in accelerated depreciation and $ 2.6 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 nine months ended August 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 August 31, 2021, we recorded $ 5.8 million of special charges, consisting principally of streamlining actions of $ 1.8 million in the Americas region, $ 1.7 million in the EMEA region, $ 0.8 million in the Asia Pacific (APAC) region, and $ 0.7 million associated with our GE initiative as more fully described below. During the nine months ended August 31, 2021, we recorded $ 20.6 million of special charges, consisting principally of streamlining actions of $ 7.0 million in the Americas region, $ 3.0 million in the EMEA region, $ 0.8 million in the APAC region, and $ 0.7 million associated with our GE initiative, together with 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. 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 August 31, 2022. As of August 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 nine months ended August 31, 2022 and 2021 (in millions): Three months ended August 31, Nine months ended August 31, 2022 2021 2022 2021 Consumer segment $ 1.8 $ 3.5 $ 16.1 $ 13.1 Flavor solutions segment 1.6 2.3 21.9 7.5 Total special charges $ 3.4 $ 5.8 $ 38.0 $ 20.6 Transaction and Integration Expenses The following are the transaction and integration expenses recognized during the three and nine months ended August 31, 2022 and 2021 relating to the acquisitions of Cholula Hot Sauce ("Cholula") and FONA International, LLC ("FONA") (in millions): Three months ended August 31, Nine months ended August 31, 2022 2021 2022 2021 Transaction-related expenses included in cost of goods sold $ — $ — $ — $ 6.3 Other transaction expenses — — — 13.8 Integration expenses — 1.3 2.2 13.2 Total transaction and integration expenses $ — $ 1.3 $ 2.2 $ 33.3 We expect integration expenses related to our acquisition of FONA to total approximately $ 2.2 million in fiscal 2022. 12 Table of Contents 3. FINANCING ARRANGEMENTS AND FINANCIAL INSTRUMENTS During the three months ended August 31, 2022, we entered into a 364-day $ 500 million revolving credit facility, which will expire in July 2023. The current pricing for the credit facility, on a fully drawn basis, is SOFR + 1.23 %. The pricing of the credit facility is based on a credit rating grid that contains a fully drawn maximum pricing of the credit facility equal to SOFR + 1.60 %. The provisions of this revolving credit facility restrict subsidiary indebtedness and require us to maintain a minimum interest coverage ratio, consistent with our $ 1.5 billion five-year revolving credit facility. We do not expect that this covenant would limit our access to this revolving credit facility for the foreseeable future. Also during the three months ended August 31, 2022, we repaid our $ 750 million, 2.70 % notes due in August 2022. 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 nine months ended August 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 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 August 31, 2022, we had foreign currency exchange contracts to purchase or sell $ 539.5 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 $ 381.1 million at August 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 August 31, 2022 have durations of less than 18 months, including $ 151.9 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, to minimize worldwide financing costs and to achieve a desired mix of variable and fixed rate debt. 13 Table of Contents 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 August 31, 2022 Interest rate contracts Other current assets / Other long-term assets $ — $ — Other long-term liabilities $ 600.0 $ 30.8 Foreign exchange contracts Other current assets 316.3 14.9 Other accrued liabilities 223.2 2.3 Cross currency contracts Other current assets / Other long-term assets 439.6 57.5 Other long-term liabilities 443.2 7.7 Total $ 72.4 $ 40.8 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 %). 14 Table of Contents 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 nine-months ended August 31, 2022 and 2021 (in millions): Fair Value Hedges Derivative Income statement location Income (expense) Three months ended August 31, 2022 Three months ended August 31, 2021 Nine months ended August 31, 2022 Nine months ended August 31, 2021 Interest rate contracts Interest expense $ 0.6 $ 2.1 $ 5.4 $ 6.1 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 August 31, Foreign exchange contracts Other income, net $ 3.6 $ 5.6 Intercompany loans Other income, net $ ( 3.2 ) $ ( 5.4 ) Nine months ended August 31, Foreign exchange contracts Other income, net $ 6.9 $ ( 0.3 ) Intercompany loans Other income, net $ ( 6.1 ) $ 1.1 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 nine months ended August 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 August 31, Interest rate contracts $ 1.8 $ — Interest expense/ Other income, net $ 18.8 $ 0.2 Foreign exchange contracts 2.8 1.5 Cost of goods sold 0.7 ( 0.3 ) Total $ 4.6 $ 1.5 $ 19.5 $ ( 0.1 ) Nine months ended August 31, Interest rate contracts $ 18.7 $ 0.3 Interest expense/ Other income, net $ 19.1 $ 0.4 Foreign exchange contracts 5.2 ( 0.9 ) Cost of goods sold 0.7 ( 0.6 ) Total $ 23.9 $ ( 0.6 ) $ 19.8 $ ( 0.2 ) During the three months ended May 31, 2022, we entered into treasury lock arrangements with a notional amount totaling $ 200 million in order 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 had a maturity date of August 12, 2022 and an average fixed rate of 1.89 %. We designated these treasury lock arrangements as cash flow hedges with any unrealized gain, prior to settlement, recognized in accumulated other comprehensive income. During the three months ended August 31, 2022, we settled the $ 200 million notional treasury locks upon determining we would not issue fixed rate debt but rather enter into the previously described $ 500 million 364-day revolving credit facility. The proceeds received upon settlement of these treasury lock arrangements were $ 18.7 million and were recognized in Other income, net in our Condensed consolidated income statements for the three and nine months ended August 31, 2022. 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 $ 3.6 million as an increase to earnings. 15 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 August 31, Cross currency contracts $ 29.7 $ 8.4 Interest expense $ 2.4 $ 0.4 Nine months ended August 31, Cross currency contracts $ 51.8 $ 4.9 Interest expense $ 4.1 $ 1.1 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. 16 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 August 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): August 31, 2022 Fair Value Level 1 Level 2 Assets Cash and cash equivalents $ 343.9 $ 343.9 $ — Insurance contracts 109.1 — 109.1 Bonds and other long-term investments 6.8 6.8 — Foreign currency derivatives 14.9 — 14.9 Cross currency contracts 57.5 — 57.5 Total $ 532.2 $ 350.7 $ 181.5 Liabilities Foreign currency derivatives $ 2.3 $ — $ 2.3 Interest rate derivatives 30.8 — 30.8 Cross currency contracts 7.7 — 7.7 Total $ 40.8 $ — $ 40.8 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 August 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 were 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-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. 17 Table of Contents 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): August 31, 2022 November 30, 2021 Carrying amount $ 3,925.4 $ 4,743.6 Level 1 valuation techniques $ 3,496.2 $ 4,722.3 Level 2 valuation techniques 178.9 199.2 Total fair value $ 3,675.1 $ 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 August 31, 2022 and 2021 (in millions): United States pension International pension Other postretirement benefits 2022 2021 2022 2021 2022 2021 Service cost $ 0.9 $ 0.9 $ 0.2 $ 0.3 $ 0.4 $ 0.5 Interest costs 6.5 6.5 1.7 1.8 0.4 0.4 Expected return on plan assets ( 10.7 ) ( 10.3 ) ( 3.1 ) ( 3.5 ) — — Amortization of prior service costs 0.2 0.2 — — — ( 0.1 ) Amortization of net actuarial losses 2.2 2.7 0.3 0.6 ( 0.1 ) — Settlement loss — — 0.2 0.2 — — Total (income) expense $ ( 0.9 ) $ — $ ( 0.7 ) $ ( 0.6 ) $ 0.7 $ 0.8 The following table presents the components of our pension (income) and other postretirement benefits expense for the nine months ended August 31, 2022 and 2021 (in millions): 18 Table of Contents United States pension International pension Other postretirement benefits 2022 2021 2022 2021 2022 2021 Service cost $ 2.7 $ 2.8 $ 0.6 $ 0.8 $ 1.3 $ 1.5 Interest costs 19.7 19.5 5.3 5.3 1.2 1.2 Expected return on plan assets ( 32.1 ) ( 30.9 ) ( 9.4 ) ( 10.5 ) — — Amortization of prior service costs 0.4 0.4 0.1 0.1 ( 0.2 ) ( 0.3 ) Amortization of net actuarial losses 6.5 8.2 1.0 1.7 ( 0.2 ) — Settlement loss — — 0.2 0.6 — — Total (income) expense $ ( 2.8 ) $ — $ ( 2.2 ) $ ( 2.0 ) $ 2.1 $ 2.4 During the nine months ended August 31, 2022 and 2021, we contributed $ 9.9 million and $ 7.5 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 $( 2.4 ) million and $( 1.5 ) million for the three months ended August 31, 2022 and 2021, respectively. For the nine months ended August 31, 2022 and 2021, the net aggregate amount of pension and other postretirement benefits income was $( 7.5 ) million and $( 4.7 ) 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 August 31, Nine months ended August 31, 2022 2021 2022 2021 Stock-based compensation expense $ 12.2 $ 11.6 $ 49.1 $ 54.2 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 $ 22.08 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 nine months ended August 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 96.92 0.8 89.16 Exercised ( 0.8 ) 47.40 ( 0.2 ) 48.60 Outstanding at end of the period 4.9 $ 67.13 5.1 $ 59.44 Exercisable at end of the period 3.5 $ 57.97 3.7 $ 51.19 19 Table of Contents As of August 31, 2022, the intrinsic value (the difference between the exercise price and the market price) for all options outstanding was $ 95.9 million and for options currently exercisable was $ 93.4 million. The total intrinsic value of all options exercised during the nine months ended August 31, 2022 and 2021 was $ 40.2 million and $ 7.3 million, respectively. The following is a summary of our RSU activity for the nine months ended August 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 208 94.21 219 86.86 Vested ( 251 ) 71.90 ( 284 ) 62.31 Forfeited ( 30 ) 84.27 ( 28 ) 75.02 Outstanding at end of period 490 $ 77.86 621 $ 69.75 The following is a summary of our price-vested stock options activity for the nine months ended August 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 ( 62 ) 9.40 ( 245 ) 9.42 Outstanding at end of period 2,131 $ 9.40 2,252 $ 9.40 The following is a summary of our LTPP activity for the nine months ended August 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 ( 124 ) 51.73 Forfeited ( 4 ) 95.29 ( 23 ) 89.44 Outstanding at end of period 393 $ 93.40 376 $ 86.73 7. INCOME TAXES Income tax expense for the three months ended August 31, 2022 included $ 3.8 million of net discrete tax expense consisting principally of the following: (i) $ 11.6 million of tax expense related to the sale of a business, (ii) $ 1.4 million of net tax benefits related to the revaluation of deferred taxes resulting from enacted legislation, (iii) $ 4.7 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 and (iv) $ 1.3 million of tax benefits resulting from an adjustment to a prior year tax accrual based on the final return filed. Income tax expense for the nine months ended August 31, 2022 included $ 15.5 million of net discrete tax benefits consisting principally of the following: (i) $ 9.0 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) $ 3.9 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, (v) $ 6.2 million of tax benefits from the resolution of tax uncertainties, including the reversal of certain reserves for unrecognized tax benefits and related interest associated with the expiration of statutes of limitations, (vi) $ 1.3 million of tax 20 Table of Contents benefits resulting from an adjustment to a prior year tax accrual based on the final return filed, and (vii) $ 11.6 million of tax expense related to the sale of a business. Income tax expense for the three months ended August 31, 2021 included $ 22.9 million of net discrete tax benefits consisting principally of the following: (i) $ 13.3 million of tax benefits due to the partial release of certain reserves for an unrecognized tax benefit and related interest in a non-U.S. jurisdiction based on a change in our assessment of the technical merits of that position associated with the availability of new information, (ii) $ 4.3 million of tax benefits from the resolution of other tax uncertainties, including the reversal of certain reserves for unrecognized tax benefits and related interest associated with the expiration of statutes of limitations, (iii) $ 2.4 million of tax benefits related to the revaluation of deferred taxes resulting from enacted legislation, (iv) $ 1.1 million of tax benefits resulting from an adjustment to a prior year tax accrual based on the final return filed, and (v) $ 1.0 million of tax benefits resulting from a refinement of deferred state taxes directly related to our December 2020 acquisition of FONA. Income tax expense for the nine months ended August 31, 2021 included $ 22.9 million of net discrete tax benefits consisting primarily of the following: (i) $ 13.3 million of tax benefits due to the partial release of certain reserves for an unrecognized tax benefit and related interest in a non-U.S. jurisdiction based on a change in our assessment of the technical merits of that position associated with the availability of new information, (ii) $ 9.2 million of tax benefits from the resolution of other tax uncertainties, including the reversal of certain reserves for unrecognized tax benefits and related interest associated with the expiration of statutes of limitations, (iii) $ 10.4 million of deferred state tax expense directly related to our December 2020 acquisition of FONA, (iv) $ 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, (v) $ 2.2 million of excess tax benefits associated with share-based compensation, (vi) $ 2.5 million of tax benefits related to the revaluation of deferred taxes resulting from enacted legislation, and (vii) $ 1.1 million of tax benefits resulting from an adjustment to a prior year tax accrual based on the final return filed. 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 nine months ended August 31, 2022. As of August 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 August 31, Nine months ended August 31, 2022 2021 2022 2021 Average shares outstanding – basic 268.3 267.4 268.1 267.2 Effect of dilutive securities: Stock options/RSUs/LTPP 1.9 2.6 2.3 2.8 Average shares outstanding – diluted 270.2 270.0 270.4 270.0 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 August 31, Nine months ended August 31, 2022 2021 2022 2021 Anti-dilutive securities 1.6 0.8 0.7 0.6 21 Table of Contents The following table sets forth common stock activity (in millions): Three months ended August 31, Nine months ended August 31, 2022 2021 2022 2021 Shares issued under stock options, RSUs, LTPP and employee stock purchase plans 0.1 0.1 1.4 0.6 Shares repurchased under the stock repurchase program and shares withheld for taxes under stock options, RSUs, and LTPP 0.2 0.1 0.5 0.2 As of August 31, 2022, $ 549.9 million remained of the $ 600 million share repurchase program authorization approved by our Board of Directors in November 2019. 9. ACCUMULATED OTHER COMPREHENSIVE LOSS The following table sets forth the components of accumulated other comprehensive loss, net of tax, where applicable (in millions): August 31, 2022 November 30, 2021 Foreign currency translation adjustment (1) $ ( 409.7 ) $ ( 233.3 ) Unrealized gain on foreign currency exchange contracts 5.0 0.6 Unamortized value of settled interest rate swaps ( 0.5 ) ( 0.2 ) Pension and other postretirement costs ( 184.8 ) ( 193.6 ) Accumulated other comprehensive loss $ ( 590.0 ) $ ( 426.5 ) (1) During the nine months ended August 31, 2022, the foreign currency translation adjustment of accumulated other comprehensive loss increased on a net basis by $ 176.4 million, net of $ 51.8 million of unrealized gains 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 Nine months ended Affected Line Items in the Condensed Consolidated Income Statement August 31, 2022 August 31, 2021 August 31, 2022 August 31, 2021 (Gains)/losses on cash flow hedges: Interest rate derivatives $ ( 0.1 ) $ ( 0.2 ) $ ( 0.4 ) $ ( 0.4 ) Interest expense Treasury lock contracts (1) ( 18.7 ) — ( 18.7 ) — Other income, net Foreign exchange contracts ( 0.7 ) 0.3 ( 0.7 ) 0.6 Cost of goods sold Total before tax ( 19.5 ) 0.1 ( 19.8 ) 0.2 Tax effect 4.9 — 5.0 — Income tax expense Net, after tax $ ( 14.6 ) $ 0.1 $ ( 14.8 ) $ 0.2 Amortization of pension and postretirement benefit adjustments: Amortization of prior service costs (credit) (2) $ 0.2 $ 0.1 $ 0.3 $ 0.2 Other income, net Amortization of net actuarial losses (2) 2.6 3.5 7.5 10.5 Other income, net Total before tax 2.8 3.6 7.8 10.7 Tax effect ( 0.6 ) ( 0.8 ) ( 1.8 ) ( 2.5 ) Income tax expense Net, after tax $ 2.2 $ 2.8 $ 6.0 $ 8.2 (1) The settlement of these treasury locks is further described in note 3. 22 Table of Contents (2) 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. 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. 23 Table of Contents Consumer Flavor Solutions Total (in millions) Three months ended August 31, 2022 Net sales $ 927.9 $ 667.7 $ 1,595.6 Operating income excluding special charges and transaction and integration expenses 183.7 54.9 238.6 Income from unconsolidated operations 6.6 0.9 7.5 Three months ended August 31, 2021 Net sales $ 921.9 $ 627.5 $ 1,549.4 Operating income excluding special charges and transaction and integration expenses 187.8 84.5 272.3 Income from unconsolidated operations 6.7 2.4 9.1 Nine months ended August 31, 2022 Net sales $ 2,720.1 $ 1,934.7 $ 4,654.8 Operating income excluding special charges and transaction and integration expenses 475.5 164.0 639.5 Income from unconsolidated operations 23.4 3.8 27.2 Nine months ended August 31, 2021 Net sales $ 2,813.9 $ 1,773.7 $ 4,587.6 Operating income excluding special charges and transaction and integration expenses 554.5 238.3 792.8 Income from unconsolidated operations 39.7 6.1 45.8 24 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 August 31, 2022 Operating income excluding special charges and transaction and integration expenses $ 183.7 $ 54.9 $ 238.6 Less: Special charges 1.8 1.6 3.4 Operating income $ 181.9 $ 53.3 $ 235.2 Three months ended August 31, 2021 Operating income excluding special charges and transaction and integration expenses $ 187.8 $ 84.5 $ 272.3 Less: Special charges 3.5 2.3 5.8 Less: Transaction and integration expenses 0.2 1.1 1.3 Operating income $ 184.1 $ 81.1 $ 265.2 Nine months ended August 31, 2022 Operating income excluding special charges and transaction and integration expenses $ 475.5 $ 164.0 $ 639.5 Less: Special charges 16.1 21.9 38.0 Less: Transaction and integration expenses — 2.2 2.2 Operating income $ 459.4 $ 139.9 $ 599.3 Nine months ended August 31, 2021 Operating income excluding special charges and transaction and integration expenses $ 554.5 $ 238.3 $ 792.8 Less: Special charges 13.1 7.5 20.6 Less: Transaction-related expenses included in cost of goods sold 4.0 2.3 6.3 Less: Other transaction and integration expenses 7.5 19.5 27.0 Operating income $ 529.9 $ 209.0 $ 738.9 The following table sets forth our net sales, by geographic area, for the three and nine months ended August 31, 2022 and 2021 (in millions): Americas EMEA Asia/Pacific Total Three months ended August 31, 2022 $ 1,141.7 $ 262.9 $ 191.0 $ 1,595.6 Three months ended August 31, 2021 1,084.5 283.4 181.5 1,549.4 Nine months ended August 31, 2022 3,266.8 841.2 546.8 4,654.8 Nine months ended August 31, 2021 3,130.7 890.7 566.2 4,587.6 11. OTHER INCOME, NET The following is a summary of Other income, net (in millions): 25 Table of Contents Three months ended August 31, Nine months ended August 31, 2022 2021 2022 2021 Gain on sale of business $ 49.6 $ — $ 49.6 $ — Gain on settlement of treasury locks (1) 18.7 — 18.7 — Pension and other postretirement benefit income 2.4 1.5 7.5 4.7 Interest income 4.8 2.4 11.7 6.5 Other 1.9 ( 0.4 ) 2.4 0.8 Total other income, net $ 77.4 $ 3.5 $ 89.9 $ 12.0 (1) The gain on the settlement of these treasury locks is further described in note 3. On August 3, 2022, we sold the Kitchen Basics business for $ 95.2 million in cash, net of transaction expenses of $ 3.8 million. Assets disposed of principally included inventory, intangible assets ($ 6.3 million) and goodwill ($ 21.5 million). The sale of Kitchen Basics resulted in a pre-tax gain of $ 49.6 million. 12. 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.