What changed in this filing

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Item 1. Business

2023-01-26 compared with 2022-01-27 · 46 added, 37 removed, 162 unchanged (34% of the section changed)

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The purchase price was approximately $801 million, net of cash acquired.

Cholula, a premium Mexican hot sauce brand, is a strong addition to McCormick’s global branded flavor portfolio, which broadens the Company’s offering in the high growth hot sauce category to consumers and foodservice operators and accelerates our condiment growth opportunities with a complementary authentic Mexican flavor hot sauce.

Cholula, a premium Mexican hot sauce brand, is a strong addition to our global branded flavor portfolio, which broadens our offerings in the high growth hot sauce category to consumers and foodservice operators and accelerates our condiment growth opportunities with a complementary authentic Mexican flavor hot sauce.

At the time of the acquisition, annual sales of Cholula were approximately $96 million.

The results of Cholula’s operations have been included in our financial statements as a component of our consumer and flavor solutions segments from the date of acquisition.

In August 2017, we completed the acquisition of Reckitt Benckiser's Food Division (RB Foods) from Reckitt Benckiser Group plc.

The purchase price was approximately $4.2 billion.

The iconic brands we acquired from RB Foods included French’s ® , Frank’s RedHot ® and Cattlemen’s ® , which are a natural strategic fit with our robust global branded flavor portfolio.

We believe that these additions moved us to a leading position in the attractive U.S.

Condiments category, while providing significant international growth opportunities for our consumer and flavor solutions segments.

Business Segments

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Our products deliver flavor when cooking at home, dining out, purchasing a quick service meal or enjoying a snack.

We offer our customers and consumers a range of products to meet the increasing demand for certain product attributes such as clean-label, organic, natural, reduced sodium, gluten-free and non-GMO (genetically modified organisms) and that extend from premium to value-priced.

We offer our customers and consumers a range of products, extending from premium to value-priced, to meet the increasing demand for certain product attributes such as clean-label, organic, natural, reduced sodium, gluten-free and non-GMO (genetically modified organisms).

Consistent with market conditions in each segment, our consumer segment has a higher overall profit margin than our flavor solutions segment.

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We also market authentic regional and ethnic brands such as Zatarain’s ® , Stubb's ® , Thai Kitchen ® and Simply Asia ® .

In the Europe, Middle East and Africa (EMEA) region, our major brands include the Ducros ® , Schwartz ® , Kamis ® and Drogheria & Alimentari ® brands of spices, herbs and seasonings and an extensive line of Vahiné ® brand dessert items.

In the Europe, Middle East and Africa (EMEA) region, our major brands include the Ducros ® , Schwartz ® , Kamis ® and La Drogheria ® brands of spices, herbs and seasonings and an extensive line of Vahiné ® brand dessert items.

In China, we market our products under the McCormick and DaQiao ® brands.

In Australia, we market our spices and

seasonings under the McCormick brand, our dessert products under the Aeroplane ® brand, and packaged chilled herbs under the Gourmet Garden brand.

In Australia, we market our spices and seasonings under the McCormick brand, our dessert products under the Aeroplane ® brand, and packaged chilled herbs under the Gourmet Garden brand.

Elsewhere in the Asia/Pacific region, we market our products under the McCormick brand as well as other brands.

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In the condiments and sauces category, we are one of the brand leaders globally and in the U.S.

There are numerous competitive brands of spices and seasonings, and condiments and sauces in the U.S.

are numerous competitive brands of spices and seasonings, and condiments and sauces in the U.S.

and additional brands in international markets.

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In addition to marketing our branded products to these customers, we are also a leading supplier of private label items, also known as store brands.

In our businesses in China and India, foodservice sales are managed by and reported in our consumer segment.

In our businesses in China and, prior to 2022, India, foodservice sales are managed by and reported in our consumer segment.

Flavor Solutions Segment.

In our flavor solutions segment, we provide a wide range of products to multinational food manufacturers and foodservice customers.

The foodservice customers are supplied with branded, packaged products both directly by us 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.

The foodservice customers are supplied with branded, packaged products both directly by us and indirectly through distributors, with the exception of our businesses in China and, prior to 2022, India, where foodservice sales are managed by and reported in our consumer segment.

We supply food manufacturers and foodservice customers with customized flavor solutions, and many of these customer relationships have been active for decades.

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Raw Materials

The most significant raw materials used in our business are dairy products, pepper, capsicums (red peppers and paprika), onion, vanilla, garlic, and salt.

The most significant raw materials used in our business are dairy products, pepper, onion, capsicums (red peppers and paprika), garlic, wheat products, vegetable oils, and vanilla.

Pepper and other spices and herbs are generally sourced from countries other than the United States.

Other raw materials, like dairy products and onion, are primarily sourced locally, either within the United States or from our international locations.

Because the raw materials are agricultural products, they are subject to fluctuations in market price and availability caused by weather, growing and harvesting conditions, market conditions, and other factors beyond our control.

Because these raw materials are agricultural products, they are subject to fluctuations in market price and availability caused by weather, growing and harvesting conditions, market conditions, including inflationary cost increases, and other factors beyond our control.

We respond to this volatility in a number of ways, including strategic raw material purchases, purchases of raw material for future delivery, customer price adjustments and cost savings from our Comprehensive Continuous Improvement (CCI) program.

In addition, we rely on third-party transportation providers to deliver raw materials as well as our product to our customers.

Reduced availability of transportation capacity due to labor shortages, primarily as a result of the COVID-19 pandemic, has caused an increase in the cost of transportation for us and our suppliers.

There has been, and there could continue to be, a difference between the timing of when these customer price adjustments and cost savings impact our results of operations and when the impact of cost inflation occurs.

Additionally, in some instances the pricing actions we take have been impacted by price elasticity which unfavorably impacts our sales volume and mix.

In addition, we rely on third-party transportation providers to deliver raw materials as well as our products to our customers.

Reduced availability of transportation capacity due to labor shortages and higher fuel costs has caused an increase in the cost of transportation for us and our suppliers.

Our products are sold directly to customers and also through brokers, wholesalers and distributors.

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We have a large number of customers for our products.

Sales to one of our consumer segment customers, Wal-Mart Stores, Inc., accounted for approximately 11% of consolidated sales in 2021 and 2020 and 12% of consolidated sales in 2019.

Sales to one of our flavor solutions segment customers, PepsiCo, Inc., accounted for approximately 11% of consolidated sales in 2021, 2020 and 2019.

Sales to one of our consumer segment customers, Wal-Mart Stores, Inc., accounted for approximately 12% of consolidated sales in 2022, 11% of consolidated sales in 2021 and 12% of consolidated sales in 2020.

Sales to one of our flavor solutions segment customers, PepsiCo, Inc.,

accounted for approximately 11% of consolidated sales in 2022, 2021 and 2020.

In 2022, 2021 and 2020, the top three customers in our flavor solutions segment represented between 47% and 52% of our global flavor solutions sales.

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We own a number of trademark registrations.

Although in the aggregate these trademarks are material to our business, the loss of any one of those trademarks, with the exception of our “McCormick,” “French’s ,” “Frank’s RedHot,” “Lawry’s,” “Zatarain’s,” “Cholula,” “Stubb's,” “Club House,” “Ducros,” “Schwartz,” “Vahiné,” "OLD BAY," "Simply Asia," "Thai Kitchen," "Kitchen Basics," “Kamis,” “Drogheria & Alimentari,” "DaQiao," and "Gourmet Garden" trademarks, would not have a material adverse effect on our business.

Although in the aggregate these trademarks are material to our business, the loss of any one of those trademarks, with the exception of our “McCormick,” “French’s ,” “Frank’s RedHot,” “Lawry’s,” “Zatarain’s,” “Cholula,” “Stubb's,” “Club House,” “Ducros,” “Schwartz,” “Vahiné,” "OLD BAY," "Simply Asia," "Thai Kitchen," “Kamis,” “La Drogheria,” "DaQiao," and "Gourmet Garden" trademarks, would not have a material adverse effect on our business.

The “Mc – McCormick” trademark is extensively used by us in connection with the sale of our food products in the U.S.

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We also own various patents, none of which are individually material to our business.

Due to seasonal factors inherent in our business, our sales, income and cash from operations generally are lower in the first two quarters of the fiscal year, increase in the third quarter and are significantly higher in the fourth quarter due to the holiday season.

Due to seasonal factors inherent in our business, our sales, income and cash from operations generally are higher in the fourth quarter due to the holiday season.

This seasonality reflects customer and consumer buying patterns, primarily in the consumer segment.

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We generally finance working capital items (inventory and receivables) through short-term borrowings, which include the use of lines of credit and the issuance of commercial paper.

For a description of our liquidity and capital resources, see note 6 of the accompanying financial statements and the “Liquidity and Financial Condition” section of “Management’s Discussion and Analysis.”

For a description of our liquidity and capital resources, see note 6 of notes to our consolidated financial statements and the “Liquidity and Financial Condition” section of “Management’s Discussion and Analysis.”

Each segment operates in markets around the world that are highly competitive.

In this competitive environment, our growth strategies include customer engagement and product innovation based on consumer insights.

Additionally, in the consumer segment, we are building brand recognition and loyalty through advertising and promotions.

Additionally, in our flavor solutions segment, we are differentiated by our culinary and consumer inspired flavor development as well the breadth of our product offering and customer engagement.

In the consumer segment, we are building brand recognition and loyalty through advertising and promotions.

In our flavor solutions segment, we are differentiated by our culinary and consumer inspired flavor development as well as the breadth of our product offering and customer engagement.

Governmental Regulation

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federal, state and local workplace health and safety laws;

privacy laws;

various federal, state and local environmental protection laws;

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We believe a diverse and inclusive workplace results in business growth and encourages increased innovation, retention of talent and a more engaged workforce.

We have various employee ambassador groups that provide a supportive,

collaborative space for employees to come together to promote inclusion.

We have various employee ambassador groups that provide a supportive, collaborative space for employees to come together to promote inclusion.

We prioritize the mental health and

wellness of our employees by offering and encouraging participation in various programs and initiatives.

Respect for human rights is fundamental to our business and its commitment to ethical business conduct.

We had approximately 14,200 full-time employees worldwide as of November 30, 2022.

Our operations have not been affected significantly by work stoppages, other than those associated with temporary closures of plants related to the COVID-19 pandemic in fiscal 2020 and, in the opinion of management, employee relations are good.

Since the onset of COVID-19 in 2020, our employees have demonstrated resiliency, agility and engagement in support of business continuity despite the challenges that have arisen in the pandemic.

Our operations have not been affected significantly by work stoppages, other than those associated with temporary closures of plants related to the COVID-19 pandemic, and, in the opinion of management, employee relations are good.

We have approximately 400 employees in the United States who are covered by a collective bargaining contract.

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Information about our Executive Officers

In addition to the executive officers indicated in the 2022 Proxy Statement incorporated by reference in Part III, Item 10 of this Report, the other executive officer of McCormick is Lisa B.

Manzone is 57 years old and has held the position of Senior Vice President, Human Relations since June 2015.

In addition to the executive officers indicated in the 2023 Proxy Statement incorporated by reference in Part III, Item 10 of this Report, the other executive officer of McCormick is Sarah Piper.

Piper is 46 years old and has held the position of Chief Human Relations Officer since December 2022.

Starting in 2017, Ms.

Piper served as Vice President of Total Rewards.

In 2020, she assumed the role of Vice President, Human Relations for the Americas.

Prior to holding her most current position, she served as Senior Vice President, Global Human Relations Business Partners where she was responsible for leading the global HR Business Partner organization to deliver human capital strategies.

Operations Outside of the U.S.

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Certain statements contained in this report, including statements concerning expected performance such as those relating to net sales, gross margin, earnings, cost savings, transaction and integration expenses, special charges, acquisitions, brand marketing support, volume and product mix, income tax expense, and the impact of foreign currency rates are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.

These statements may be identified by the use of words such as “may,” “will,” “expect,” "should," "anticipate," "intend," “believe” and “plan.” These statements may relate to:

These statements may be identified by the use of words such as “may,” “will,” “expect,” "should," "anticipate," "intend," “believe” and “plan” and similar expressions.

These statements may relate to:

the impact of the COVID-19 pandemic on our business, suppliers, consumers, customers, and employees;

disruptions or inefficiencies in the supply chain, including any impact of COVID-19;

the expected results of operations of businesses acquired by the company, including the acquisitions of Cholula and FONA;

the expected results of operations of businesses acquired by the Company;

the expected impact of the inflationary cost environment, including commodity, packaging materials and transportation costs on our business;

the expected impact of pricing actions on the Company's results of operations and gross margins;

the impact of price elasticity on our sales volume and mix;

the expected impact of factors affecting our supply chain, including transportation capacity, labor shortages, and absenteeism;

the expected impact of productivity improvements, including those associated with our Comprehensive Continuous Improvement (CCI) program and global enablement initiative;

the expected impact of productivity improvements, including those associated with our Comprehensive Continuous Improvement (CCI) program, streamlining actions, including our Global Operating Effectiveness Program (GOEP) and global enablement initiative;

the impact of the ongoing conflict between Russia and Ukraine, including the potential for broader economic disruption;

expected working capital improvements;

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the impact of foreign exchange fluctuations;

the adequacy of internally generated funds and existing sources of liquidity, such as the availability of bank financing;

the anticipated sufficiency of future cash flows to enable the payments of interest and repayment of short- and long-term debt as well as quarterly dividends and the ability to issue additional debt securities;

the adequacy of internally generated funds and existing sources of liquidity,

such as the availability of bank financing;

the anticipated sufficiency of future cash flows to enable the payments of interest and repayment of short- and long-term debt, working capital needs, planned capital expenditures, and quarterly dividends;

our ability to obtain additional short- and long- term financing or issue additional debt securities;

and expectations regarding purchasing shares of McCormick's common stock under the existing repurchase authorization.

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increased private label use;

the company's ability to drive productivity improvements, including those related to our CCI program and streamlining actions, including our GOEP;

product quality, labeling, or safety concerns;

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the ability to identify, interpret and react to changes in consumer preference and demand;

business interruptions due to natural disasters, unexpected events or public health crisis, including COVID-19;

business interruptions due to natural disasters, unexpected events or public health crises, including COVID-19;

issues affecting the company's supply chain and procurement of raw materials, including fluctuations in the cost and availability of raw and packaging materials;

labor shortage, turnover and labor cost increases;

the impact of the ongoing conflict between Russia and Ukraine, including the potential for broader economic disruption;

government regulation, and changes in legal and regulatory requirements and enforcement practices;

the lack of successful acquisition and integration of new businesses;

global economic and financial conditions generally, including the on-going impact of the exit of the United Kingdom (U.K.) from the European Union, availability of financing, interest and inflation rates, and the imposition of tariffs, quotas, trade barriers and other similar restrictions;

global economic and financial conditions generally, availability of financing, interest and inflation rates, and the imposition of tariffs, quotas, trade barriers and other similar restrictions;

foreign currency fluctuations;

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

What changed 10-K

Item 1. Business