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Item 1A. Risk Factors

2023-01-26 compared with 2022-01-27 · 137 added, 100 removed, 223 unchanged (52% of the section changed)

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Additional risks and uncertainties that are not presently known to us or are currently deemed to be immaterial also may materially adversely affect our business, financial condition, or results of operations in the future.

If any of the risks actually occur, our business, financial condition or results of operations could be negatively affected.

the risks actually occur, our business, financial condition or results of operations could be negatively affected.

In that case, the trading price of our securities could decline, and you may lose part or all of your investment.

Risks Related to Our Company, Business and Operations

Deterioration of global economic conditions, an economic recession, periods of inflation, or economic uncertainty in our key markets may adversely affect customer and consumer spending as well as demand for our products.

Global economic conditions can be uncertain and volatile.

Our business and results of operations have in the past been, and may continue to be, adversely affected by changes in global economic conditions including inflation, rising interest rates, availability of capital markets, consumer spending rates, energy availability and costs, the negative impacts caused by pandemics and public health crises, such as the COVID-19 pandemic, as well as the potential impacts of geopolitical uncertainties, including the ongoing conflict between Russia and Ukraine, and the effect of governmental initiatives to manage economic conditions.

As global economic conditions continue to be volatile or economic uncertainty remains, trends in consumer spending also remain unpredictable and subject to reductions due to credit constraints and uncertainties about the future.

We are a manufacturer and distributor of flavor products.

As such, many of our products are purchased by our customers based on end-user demand from consumers.

Some of the factors that may influence consumer spending include general economic conditions, high levels of unemployment, health crises (such as the COVID-19 pandemic), higher consumer debt levels, reductions in net worth based on market declines and uncertainty, home foreclosures and reductions in home values, fluctuating interest and foreign currency exchange rates and credit availability, fluctuating fuel and other energy costs, fluctuating commodity prices, inflationary pressure, tax rates and general uncertainty regarding the overall future economic environment.

Unfavorable economic conditions may lead customers and consumers to delay or reduce purchases of our products.

Consumer demand for our products may not reach our targets, or may decline, when there is an economic downturn or economic uncertainty in our key markets.

Our sensitivity to economic cycles and any related fluctuation in customer and consumer demand may have a material negative impact on our business, financial conditions or results of operations.

A pandemic, including COVID-19, could have an adverse impact on our business, financial condition, and results of operations.

The COVID-19 pandemic has had, and could continue to have, a negative impact on financial markets, economic conditions, and portions of our industry as a result of changes in consumer behavior, retailer inventory levels, cost inflation, manufacturing and supply chain disruption, and overall macroeconomic conditions.

The extent and nature of government actions, including limitations on crowd size, closures of dine-in restaurants and bars, and significant restrictions on travel, as well as work restrictions that prohibited many employees from going to work, varied during fiscal 2020 and 2021 based upon the then-current extent and severity of the COVID-19 pandemic within the respective countries and localities.

Although our consumer business has benefited from increased at-home consumption due to restrictions related to COVID-19, our ability to sustain heightened sales is dependent on consumer purchasing behavior.

The COVID-19 mitigation measures impacting certain of our flavor solutions customers have included the following:

(i) with respect to dine-in restaurants, closures, limitations on dine-in capacity, or restrictions on the operations of those restaurants to carry-out or delivery only;

and (ii) with respect to quick service restaurants, limitations on operations to drive-through pick-up or delivery.

The continued availability and effectiveness of vaccines and treatments may partially mitigate the risks around the continued spread of COVID-19, however, with the spread of the COVID-19 variants, the ongoing implications of the COVID-19 pandemic could adversely impact our business and results of operations in a number of ways, including but not limited to:

• Significant reductions in demand or significant volatility in demand for one or more of our products, which may be caused by, among other things:

the temporary inability of consumers to purchase our products due to illness, quarantine or other travel restrictions, or financial hardship, shifts in demand away from one or more of our more discretionary or higher priced products to lower priced products, or stockpiling or similar activity.

If prolonged, such impacts can further increase the difficulty of business or operations planning and may adversely impact our results of operations and cash flows;

• Inability to meet our customers’ needs and achieve cost targets due to disruptions in our manufacturing and supply arrangements caused by constrained workforce capacity or the loss or disruption of other essential manufacturing and supply elements such as raw materials or other finished product components, transportation, enhanced cleaning and sanitation protocols, or other manufacturing and distribution capability;

• Failure of third parties on which we rely, including our suppliers, contract manufacturers, distributors, contractors, commercial banks, joint venture partners and external business partners, to meet their obligations to the Company, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties and may adversely impact our operations;

• Significant changes in the political conditions in markets in which we manufacture, sell or distribute our products, including quarantines, import/export restrictions, price controls, or governmental or regulatory actions, closures or other restrictions that limit or close our operating and manufacturing facilities, restrict our employees’ ability to travel or perform necessary business functions, or otherwise prevent our third-party partners, suppliers, or customers from sufficiently staffing operations, including operations necessary for the production, distribution, sale, and support of our products, which could adversely impact our results of operations and cash flows.

The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the emergence and spread of variants, infection rates in areas where we operate, the extent and effectiveness of containment actions, including the continued availability and effectiveness of vaccines in the markets where we operate, the impact of actions taken by governmental authorities and other third parties in response to the pandemic, each of which is uncertain, rapidly changing and difficult to predict, and the impact of these and other factors on our employees, customers, and suppliers.

Should these conditions persist for a prolonged period, including any of the above factors and others that are currently unknown, the COVID-19 pandemic could have a material adverse effect on our business, financial condition, and results of operations.

The ongoing implications of the COVID-19 pandemic could adversely impact our business and results of operations in a number of ways, including but not limited to:

• Shifts and volatility in consumer spending and purchasing behaviors;

• Continued increase in raw material and commodity costs;

• Shutdowns or slowdowns of one or more of our production facilities;

• Further disruptions in our supply chain and in our ability to obtain ingredients, packaging, and other sourced materials due to continued labor shortages and/or volatility in the labor market, governmental restrictions, or the failure of our suppliers, distributors, or manufacturers to meet their obligations to us;

The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the emergence and spread of variants, infection rates in areas we operate, the extent and effectiveness of containment actions, including the continued availability and effectiveness of vaccines in the markets where we operate, and the impact of these and other factors on our employees, customers, suppliers, distributors, and manufacturers.

The impact of the COVID-19 pandemic may also exacerbate other risks discussed in this Item 1A, Risk Factors , any of which could have a material effect on us.

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The economic and competitive landscape for our customers is constantly changing, such as the emergence of new sales channels like e-commerce, and our customers' responses to those changes could impact our business.

The trend towards e-commerce and its impact of consumer habits and preferences has accelerated since the onset of the COVID-19 pandemic in many of the markets we serve and our financial results may be impacted if we are unable to adapt to changing consumer preferences and market dynamics.

The continued growth of e-commerce and its impact of consumer habits and preferences has accelerated since the onset of the COVID-19 pandemic in many of the markets we serve and our financial results may be impacted if we are unable to adapt to changing consumer

preferences and market dynamics.

In addition, our flavor solutions segment may be impacted if the reputation or perception of the customers of our flavor solutions segment declines.

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The inability to maintain mutually beneficial relationships with large customers could adversely affect our business, financial condition and results of operations.

We have a number of major customers, including two large customers that, in the aggregate, constituted approximately 22% of our consolidated sales in 2021.

We have a number of major customers, including two large customers that, in the aggregate, constituted approximately 23% of consolidated sales in 2022.

The loss of either of these large customers due to events beyond our control, or a material negative change in our relationship with these large customers or other major customers could have an adverse effect on our business, financial condition and results of operations.

Issues regarding procurement of raw materials may negatively impact us.

Our purchases of raw materials are subject to fluctuations in market price and availability caused by weather, growing and harvesting conditions, climate change, market conditions, governmental actions and other factors beyond our control, including the COVID-19 pandemic.

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

Our purchases of raw materials are subject to fluctuations in market price and availability caused by inflationary pressures, weather, growing and harvesting conditions, climate change, market conditions, governmental actions and other factors beyond our control, including the COVID-19 pandemic.

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

While future price movements of raw material costs are uncertain, we seek to mitigate the market price risk 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 CCI program.

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Therefore, we cannot provide assurance that future raw material price fluctuations will not have a negative impact on our business, financial condition or operating results.

In addition, we may have very little opportunity to mitigate the risk of availability of certain raw materials due to the effect of weather on crop yield, government actions, political unrest in producing countries, action or inaction by suppliers in response to laws and regulations, changes in agricultural programs and other factors beyond our control.

In addition, we may have very little opportunity to mitigate the risk of availability of certain raw materials due to the effect of weather on crop yield, fire, natural disasters, growing and harvesting conditions, government actions, political unrest in producing countries, action or inaction by suppliers in response to laws and regulations, changes in agricultural programs and other factors beyond our control.

Therefore, we cannot provide assurance that future raw material availability will not have a negative impact on our business, financial condition or operating results.

Political, socio-economic and cultural conditions, as well as disruptions caused by terrorist activities or otherwise, could also create additional risks for regulatory compliance.

Political, socio-economic, cultural and geopolitical (including the ongoing conflict between Russia and Ukraine) conditions, as well as disruptions caused by terrorist activities or otherwise, could also create additional risks for regulatory compliance.

Although we have adopted rigorous quality assurance and quality control procedures which are designed to ensure the safety of our imported products, we cannot provide assurance that such events will not have a negative impact on our business, financial condition or operating results.

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Our ability to make, move, and sell products is critical to our success.

Damage or disruption to raw material supplies or our manufacturing or distribution capabilities due to weather, climate change, natural disaster, fire, terrorism, cyber-attack, pandemics (such as the COVID-19 pandemic), governmental restrictions or mandates, strikes, import/export restrictions, or other factors could impair our ability to manufacture or sell our products.

Damage or disruption to raw material supplies or our manufacturing or distribution capabilities due to weather, climate change, natural disaster, fire, terrorism, cyber-attack, health epidemics, pandemics (such as the COVID-19 pandemic) or other contagious outbreaks, governmental restrictions or mandates, strikes, import/export restrictions, or other factors could impair our ability to manufacture or sell our products.

Many of our product lines are manufactured at a single location.

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Labor is a primary component of operating our business.

A number of factors may adversely affect the labor force available to us or increase labor costs, including high unemployment levels, federal unemployment subsidies, including unemployment benefits offered in response to the COVID-19 pandemic, and other government regulations.

We are also experiencing and may continue to experience additional pressure in our supply chain due to labor shortages and absenteeism associated with COVID-19, together with the impact of the continued elevated demand.

A sustained labor shortage or increased turnover rates within our employee base, caused by COVID-19 or as a result of general macroeconomic factors, could lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees, and could negatively affect our ability to efficiently operate our manufacturing and distribution facilities and overall business.

A number of factors may adversely affect the labor force available to us or increase labor costs, a shift towards remote work, higher unemployment subsidies, other government regulations and general macroeconomic factors.

We also have experienced and may continue to experience additional pressure in our supply chain due to labor shortages, increased turnover rates and absenteeism associated with COVID-19.

A sustained labor shortage or increased turnover rates within our employee base, caused by COVID-19 or as a result of general macroeconomic factors, could lead to increased costs, such as increased overtime to meet demand and increased wage rates and employee benefits costs to attract and retain employees, and could negatively affect our ability to efficiently operate our manufacturing and distribution facilities and overall business.

If we are unable to hire and retain employees capable of performing at a high-level, or if mitigation measures we may take to respond to a decrease in labor availability, such as overtime and third-party outsourcing, have negative effects, our business could be adversely affected.

In addition, we distribute our products and receive raw materials primarily by truck.

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

An overall labor shortage,

lack of skilled labor, increased turnover or labor inflation, caused by COVID-19 or as a result of general macroeconomic factors, could have a material adverse impact on our business, financial condition or operating results.

Reduced availability of trucking capacity due to shortages of drivers has caused an increase in the cost of transportation for us and our suppliers.

An overall labor shortage, lack of skilled labor, increased turnover or labor inflation, caused by COVID-19 or as a result of general macroeconomic factors, could have a material adverse impact on our business, financial condition or operating results.

We may not be able to increase prices to fully offset inflationary pressures on costs, such as raw and packaging materials, labor and distribution costs, which may impact our financial condition or results of operations.

As a manufacturer and distributor of flavor products, we rely on raw materials, packaging materials, plant labor, distribution resources, and transportation providers.

In 2021 and the early part of 2022, the costs of raw materials, packaging materials, labor, energy, fuel, transportation and other inputs necessary for the production and distribution of our products have rapidly increased.

In addition, many of these materials are subject to price fluctuations from a number of factors, including, but not limited to, market conditions, demand for raw materials, weather, growing and harvesting conditions, climate change, energy costs, currency fluctuations, supplier capacities, governmental actions, import and export requirements (including tariffs), and other factors beyond our control.

Although we are unable to predict the impact on our ability to source materials in the future, we expect these supply pressures to continue into 2022.

We also expect the pressures of input cost inflation to continue into 2022.

During recent years, we have experienced significantly elevated commodity and supply chain costs, including the costs of raw materials, packaging materials, labor, energy, fuel, transportation and other inputs necessary for the production and distribution of our products, and we expect elevated levels of inflation to continue in 2023.

In addition, many of these materials and costs are subject to price fluctuations from a number of factors, including, but not limited to, market conditions, demand for raw materials, weather, growing and harvesting conditions, climate change, energy costs, currency fluctuations, supplier capacities, governmental actions, import and export requirements (including tariffs), armed hostilities (including the ongoing conflict between Russia and Ukraine) and other factors beyond our control.

Our attempts to offset these cost pressures, such as through increases in the selling prices of some of our products, may not be successful.

Higher product prices may result in reductions in sales volume.

Consumers may be less willing to pay a price differential for our branded products and may increasingly purchase lower-priced offerings, or may forego some purchases altogether, during an economic downturn.

To the extent that price increases or packaging size decreases are not sufficient to offset these increased costs adequately or in a timely manner, and/or if they result in significant decreases in sales volume, our business, financial condition or operating results may be adversely affected.

Furthermore, we may not be able to offset any cost increases through productivity initiatives or through our commodity hedging activity.

Furthermore, we may not be able to fully offset any cost increases through our productivity or efficiency initiatives.

Our profitability may suffer as a result of competition in our markets.

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Competition in our product categories is based on price, product innovation, product quality, brand recognition and loyalty, effectiveness of marketing and promotional activity, and the ability to identify and satisfy consumer preferences.

From time to time, we may need to reduce the prices for some of our products to respond to competitive and customer pressures, which may adversely affect our profitability.

Weak economic conditions, recessions, significant inflation and other factors, such as pandemics, could affect consumer preferences and demand.

From time to time, we may need to reduce the prices for some of our products to respond to competitive and customer pressures, particularly during periods of economic uncertainty or significant inflation, which may adversely affect our profitability.

Such pressures could reduce our ability to take appropriate remedial action to address commodity and other cost increases.

The conflict between Russia and Ukraine and the related implications may negatively impact our operations.

In February 2022, Russia invaded Ukraine.

As a result, the U.S.

and certain other countries have imposed sanctions on Russia and could impose further sanctions that could damage or disrupt international commerce and the global economy.

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

Such geopolitical instability and uncertainty could have a negative impact on our ability to sell to, ship products to, collect payments from, and support customers in certain regions based on trade restrictions,

embargoes and export control law restrictions, and logistics restrictions including closures of air space, and could increase the costs, risks and adverse impacts from supply chain and logistics challenges.

The potential effects of the ongoing conflict between Russia and Ukraine also could impact many of the other risk factors described herein.

These potential effects could include, but are not limited to, variations in the level of our profitability, changes in laws and regulations affecting our business, fluctuations in foreign currency markets, the availability of future borrowings, the cost of borrowings, credit risks of our customers and counterparties, and potential impairment of the carrying value of goodwill or other indefinite-lived intangible assets.

Given the evolving nature of this conflict, the related sanctions, potential governmental actions and economic impact, such potential impacts remain uncertain.

While we expect the impacts of conflict between Russia and Ukraine to continue to have an effect on our business, financial condition and results of operations, we are unable to predict the extent or nature of these impacts at this time.

Our operations may be impaired as a result of disasters, business interruptions or similar events.

We could have an interruption in our business, loss of inventory or data, or be rendered unable to accept and fulfill customer orders as a result of a natural disaster, catastrophic event, epidemic or computer system failure.

Natural disasters could include an earthquake, fire, flood, tornado or severe storm.

A catastrophic event could include a terrorist attack.

An epidemic or pandemic could affect our operations, major facilities or employees’ and consumers’ health.

A health epidemic, pandemic, or other contagious outbreak could affect our operations, major facilities or employees’ and consumers’ health.

In addition, some of our inventory and production facilities are located in areas that are susceptible to harsh weather;

a major storm, heavy snowfall or other similar event could prevent us from delivering products in a timely manner.

a major storm, wildfires, heavy snowfall or other similar event could prevent us from delivering products in a timely manner.

Production of certain of our products is concentrated in a single manufacturing site.

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These acquisitions, joint ventures and divestitures may present financial, managerial and operational challenges, including diversion of management attention from existing businesses, difficulty with integrating or separating personnel and financial and other systems, increased expenses and raw material costs, assumption of unknown liabilities and indemnities, and potential disputes with the buyers or sellers.

In addition, we

may be required to incur asset impairment charges (including charges related to goodwill and other intangible assets) in connection with acquired businesses, which may reduce our profitability.

In addition, we may be required to incur asset impairment charges (including charges related to goodwill and other intangible assets) in connection with acquired businesses, which may reduce our profitability.

If we are unable to consummate such transactions, or successfully integrate and grow acquisitions and achieve contemplated revenue synergies and cost savings, our financial results could be adversely affected.

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Similarly, we test indefinite-lived intangible assets by comparing the fair value of those assets to their carrying values.

If the carrying values of the reporting unit or indefinite-lived intangible assets exceed their fair value, the goodwill or indefinite-lived intangible assets are considered impaired and reduced to their implied fair value or fair value, respectively.

Factors that could result in an impairment include a change in revenue growth rates, operating margins, weighted average cost of capital, future economic and market conditions, higher income tax rates, or assumed royalty rates.

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and exit certain businesses or lines of business.

These actions may result in a deterioration of employee relations at the impacted locations or elsewhere in McCormick.

If we are unable to fully realize the benefits from our CCI program, our financial results could be negatively affected.

Our future success depends in part on our ability to be an efficient producer in a highly competitive industry.

These actions may result in a deterioration of employee relations at the impacted locations or elsewhere in our business.

If we are unable to fully realize the benefits from our CCI program or streamlining actions to reduce fixed costs, simplify or improve our competitiveness, our financial results could be negatively affected.

Our future success depends in part on our ability to be an efficient producer in a highly competitive industry, including our plan to eliminate approximately $125 million of costs during 2023 and 2024 as part of our Global Operating Effectiveness Program, including $100 million of supply costs and $25 million of costs across the remainder of the organization.

Any failure by us to achieve our planned cost savings and efficiencies under our CCI program, an ongoing initiative to improve productivity and reduce costs throughout the organization, or other similar programs, could have an adverse effect on our business, results of operations and financial position.

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the effects of foreign currency on loans between subsidiaries and unconsolidated affiliates and on cash flows related to repatriation of earnings of unconsolidated affiliates.

We have both translation and transaction exposures to the fluctuation of exchange rates.

Translation exposures relate to exchange rate impacts of measuring income statements of foreign subsidiaries that do not use the U.S.

dollar as their functional currency.

Transaction exposures relate to the impact from input costs that are denominated in a currency other than the local reporting currency and the revaluation of transaction-related working capital balances or loans between subsidiaries and unconsolidated affiliates denominated in currencies other than the functional currency.

Historically, weakening of certain foreign currencies versus the U.S.

dollar have resulted in significant foreign exchange impacts leading to lower net sales, net earnings and cash flows.

Primary exposures include the U.S.

dollar versus the Euro, British pound sterling, Chinese renminbi, Canadian dollar, Australian dollar, Polish zloty, and Mexican peso, as well as the Euro versus the British pound sterling and Australian dollar, and finally the Canadian dollar versus British pound sterling.

dollar versus the Euro, British pound sterling, Chinese renminbi, Canadian dollar, Australian dollar, Polish zloty, Singapore dollar, Swiss franc, and Mexican peso, as well as the Euro versus the British pound sterling and Australian dollar, and Polish zloty, and finally the Canadian dollar versus British pound sterling.

We routinely enter into foreign currency exchange contracts to facilitate managing certain of these foreign currency risks.

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Therefore, we cannot provide assurance that future exchange rate fluctuations will not have a negative impact on our business, financial position or operating results.

The on-going effects of the decision by British voters to exit the European Union may negatively impact our operations.

On January 1, 2021, the EU-UK Trade and Cooperation Agreement (the EU-UK trade deal) took effect.

The EU-UK trade deal was formally approved by the European Union legislature on April 28, 2021.

While the EU-UK trade deal has removed uncertainty and a significant amount of financial risk associated with the U.K.’s exit from the European Union, we are still assessing its details and related impact on our U.K business and other operations.

We believe that the new trading relationship between the U.K and the European Union will result in increased costs of goods imported into the U.K.

from the European Union and exported from the U.K.

into the European Union.

The movement of goods between the U.K.

and the European Union will continue to be subject to additional inspections and documentation checks, leading to possible delays at ports of entry and departure.

Also, there will be additional costs related to goods that are deemed to originate outside of the U.K.

or European Union, and for which the originating country has no trade agreement with the U.K.

Our ability to increase pricing of our products in light of increased costs is uncertain and, to the extent we are unable to fully do so, our profitability will decline.

We face risks associated with certain pension assets and obligations.

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An obligation to make contributions to pension plans could reduce the cash available for working capital and other corporate uses, and may have an adverse impact on our operations, financial condition and liquidity.

Climate change may negatively affect our business, financial condition and results of operations.

Climate change, or legal, regulatory or market measures to address climate change, may negatively affect our business, financial condition and results of operations.

Unseasonable or unusual weather or long-term climate changes may negatively impact the price or availability of spices, herbs and other raw materials.

Scientific consensus shows that greenhouse gases in the atmosphere have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters.

Scientific consensus shows that greenhouse gases in the atmosphere have

an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters.

In the event that such climate change has a negative effect on agricultural productivity or practices, we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products.

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In addition, such climate change may result in modifications to the eating preferences of the ultimate consumers of certain of our products, which may also unfavorably impact our sales and profitability.

There is an increased focus by foreign, federal, state and local regulatory and legislative bodies regarding environmental policies relating to climate change, regulating greenhouse gas emissions, energy policies, and sustainability.

Increased compliance costs and expenses due to the impacts of climate change and additional legal or regulatory requirements regarding climate change or designed to reduce or mitigate the effects of carbon dioxide and other greenhouse gas emissions on the environment may cause disruptions in, or an increase in the costs associated with, the running of our manufacturing facilities and our business, as well as increase distribution and supply chain costs.

Moreover, compliance with any such legal or regulatory requirements may require us to make significant changes in our business operations and strategy, which will likely require us to devote substantial time and attention to these matters and cause us to incur additional costs.

Even if we make changes to align ourselves with such legal or regulatory requirements, we may still be subject to significant penalties or potential litigation if such laws and regulations are interpreted and applied in a manner inconsistent with our practices.

The effects of climate change and legal or regulatory initiatives to address climate change could have a long-term adverse impact on our business and results of operations.

Additionally, we might fail to effectively address increased attention from the media, stockholders, activists and other stakeholders on climate change and related environmental sustainability matters.

Such failure, or the perception that we have failed to act responsibly regarding climate change, whether or not valid, could result in adverse publicity and negatively affect our business and reputation.

Moreover, from time to time we establish and publicly announce goals and commitments, including to reduce our impact on the environment.

For example, we established science-based target 2025 – 2030 goals for Scope 1, 2 and 3 greenhouse gas emissions.

Our ability to achieve any stated goal, target or objective is subject to numerous factors and conditions, many of which are outside of our control.

Examples of such factors include evolving regulatory requirements affecting sustainability standards or disclosures or imposing different requirements, the pace of changes in technology, the availability of requisite financing and the availability of suppliers that can meet our sustainability and other standards.

If we fail to achieve, or are perceived to have failed or been delayed in achieving, or improperly report our progress toward achieving these goals and commitments, it could negatively affect consumer preference for our products or investor confidence in our stock, as well as expose us to enforcement actions and litigation

ESG issues, including those related to climate change and sustainability, may have an adverse effect on our business, financial condition and results of operations and damage our reputation.

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or increased consumer concerns or perceptions (whether accurate or inaccurate) regarding the effects of ingredients or substances present in certain consumer products.

These demands could cause us to incur additional costs or to make changes to our operations to comply with such demands.

These demands could impact the profitability of some of our products or cause us to incur additional costs, to make changes to our operations to make additional commitments, set targets or establish additional goals and take actions to meet them, which could expose us to market, operational and execution costs or risk.

In addition to environmental issues these constituencies are also focused on social and other governance issues, including matters such as, but not limited to, human capital and social issues.

We also have established diversity, equity and inclusion goals as part of our ESG initiative.

We also have established diversity,

equity and inclusion goals as part of our ESG initiative.

Our initiatives also extend from individuals to entire communities, including those we serve and, just as importantly, those from which we source.

Concern over climate change, including plastics and packaging materials, in particular, may result in new or increased legal and regulatory requirements.

Increased regulatory requirements related to environmental causes, and related ESG disclosure rules, may result in increased compliance costs or increased costs of energy, raw materials or compliance with emissions standards, which may cause disruptions in the manufacture of our products

or an increase in operating costs.

Increased regulatory requirements related to environmental causes, and related ESG disclosure rules, including the SEC's recent disclosure proposal on climate change, may result in increased compliance costs or increased costs of energy, raw materials or compliance with emissions standards, which may cause disruptions in the manufacture of our products or an increase in operating costs.

Any failure to achieve our ESG goals or a perception (whether or not valid) of our failure to act responsibly with respect to the environmental, human capital, or social issues, or to effectively respond to new, or changes in, legal or regulatory requirements concerning environmental or other ESG matters, or increased operating or manufacturing costs due to increased regulation or environmental causes could adversely affect our business and reputation and increase risk of litigation.

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On November 30, 2022, we had total outstanding variable rate debt of approximately $1,295 million, including $1,237 million of short-term borrowings, at a weighted-average interest rate of approximately 4.2%.

The interest rates under our revolving credit facility can vary based on our credit ratings.

The interest rates under our revolving credit facilities can vary based on our credit ratings.

We also regularly access the commercial paper markets for ongoing funding requirements.

A downgrade in our credit ratings would increase our borrowing costs and could affect our ability to issue commercial paper.

Additionally, disruptions in the commercial paper market or other effects of volatile economic conditions on the credit markets could also reduce the amount of commercial paper that we could issue and raise our borrowing costs.

Our policy is to manage our interest rate risk by entering into both fixed and variable rate debt arrangements.

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

On November 30, 2022, we had total outstanding fixed to variable interest rate swaps with a notional value of $600 million.

We utilize derivative financial instruments to enhance our ability to manage risk, including interest rate exposures that exist as part of our ongoing business operations.

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Therefore, we cannot provide assurance that future credit rating or interest rate changes will not have a material negative impact on our business, financial position or operating results.

Uncertain global economic conditions expose us to credit risks from customers and counterparties.

Consolidations in some of the industries in which our customers operate have created larger customers, some of which are highly leveraged.

In addition, competition has increased with the growth in alternative channels through our customer base.

These factors have caused some customers to be less profitable and increased our exposure to credit risk.

Current credit markets are volatile, and some of our customers and counterparties are highly leveraged.

A significant adverse change in the financial and/or credit position of a customer or counterparty could require us to assume greater credit risk relating to that customer or counterparty and could limit our ability to collect receivables.

This could have an adverse impact on our financial condition and liquidity.

Our credit ratings impact the cost and availability of future borrowings and, accordingly, our cost of capital.

Our credit ratings reflect each rating organization's opinion of our financial strength, operating performance and ability to meet our debt obligations.

Our credit ratings were downgraded following our financing of the acquisition of RB Foods in August 2017 and any reduction in our credit ratings may limit our ability to borrow at interest rates consistent with the interest rates that were available to us prior to that acquisition and the related financing transactions.

Any reduction in our credit ratings may limit our ability to borrow as well as the interest rates that are associated with any such borrowing.

If our credit ratings are downgraded or put on watch for a potential downgrade, we may not be able to sell additional debt securities or borrow money in the amounts, at the times or interest rates, or upon the more favorable terms and conditions that might be available if our current credit ratings were maintained.

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We have a significant amount of indebtedness outstanding.

As of November 30, 2021, the indebtedness of McCormick and its subsidiaries is approximately $5.3 billion.

As of November 30, 2022, our indebtedness of McCormick and its subsidiaries is approximately $5.1 billion.

This substantial level of indebtedness could have important consequences to our business, including, but not limited to:

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The deterioration of credit and capital markets may adversely affect our access to sources of funding.

We rely on our revolving credit facility, or borrowings backed by this facility, to fund a portion of our seasonal working capital needs and other general corporate purposes, including funding of acquisitions.

We rely on our revolving credit facilities, or borrowings backed by these facilities, to fund a portion of our working capital needs and other general corporate purposes, including funding of acquisitions.

If any of the banks in the syndicates backing these facilities were unable to perform on its commitments, our liquidity could be impacted, which could adversely affect funding of seasonal working capital requirements.

We engage in regular communication with all of the banks participating in our revolving credit facility.

We engage in regular communication with all of the banks participating in our revolving credit facilities.

During these communications, none of the banks have indicated that they may be unable to perform on their commitments.

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Based on these communications and our monitoring activities, we believe the likelihood of one of our banks not performing on its commitment is remote.

In addition, global capital markets have experienced volatility in the past that has tightened access to capital markets and other sources of funding, and such volatility and tightened access could reoccur in the future.

In addition, global capital markets have experienced volatility in the past, including related to recession, financial instability or inflation, that has tightened access to capital markets and other sources of funding, and such volatility and tightened access could reoccur in the future.

In the event that we need to access the capital markets or other sources of financing, there can be no assurance that we will be able to obtain financing on acceptable terms or within an acceptable time period.

Our inability to obtain financing on acceptable terms or within an acceptable time period could have an adverse impact on our operations, financial condition and liquidity.

Uncertain global economic conditions expose us to credit risks from customers and counterparties.

Consolidations in some of the industries in which our customers operate have created larger customers, some of which are highly leveraged.

In addition, competition has increased with the growth in alternative channels through our customer base.

These factors have caused some customers to be less profitable and increased our exposure to credit risk.

Current credit markets are volatile, and some of our customers and counterparties are highly leveraged.

This could have an adverse impact on our financial condition and liquidity.

The uncertainty regarding the planned phase-out of LIBOR may negatively impact our operating results.

LIBOR, the interest rate benchmark 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 is expected to be phased out beginning after December 31, 2021 when private-sector banks are no longer required to report the information used to set the rate.

Without this data, LIBOR may no longer be published, or the lack of quality and quantity of data may cause the rate to no longer be representative of the market.

On March 5, 2021, the U.K.

Financial Conduct Authority (FCA) published a statement confirming that all LIBOR settings will either cease to be provided or no longer be representative (i) immediately after December 31, 2021, in the case of all sterling, euro, Swiss franc and Japanese yen settings, and the 1-week and 2-month US dollar settings, and (ii) immediately after June 30, 2023, in the case of all remaining US dollar settings.

The International Swaps and Derivative Association (ISDA) or Alternative Reference Rates Committee (ARRC) fallback spread adjustments were fixed as of the FCA announcement date and are expected to be implemented at the point each relevant reference rate ceases or becomes non-representative.

There continue to be many uncertainties regarding a transition from LIBOR, including but not limited to the need to amend all contracts with LIBOR as the referenced rate and how this will impact the Company’s cost of variable rate debt and certain derivative financial instruments.

The Company will also need to consider new contracts and if they should reference an alternative benchmark rate or include suggested fallback language, as published by the ARRC.

The consequences of these developments with respect to LIBOR cannot be entirely predicted and span multiple future periods but could result in an increase in the cost of our variable rate debt or derivative financial instruments which may be detrimental to our financial position or operating results.

The phase out of LIBOR reference rates began on January 1, 2022 and will occur at different dates.

After December 31, 2021, all sterling, euro, Swiss franc and Japanese yen settings, and the 1-week and 2-month U.S.

dollar settings were phased out.

We have revised certain of our agreements to include the new reference rates.

However, LIBOR is the interest rate benchmark used as a reference rate on our revolving credit facility expiring in July 2026, interest rate swaps expiring in November 2025 and August 2027, and cross currency interest rate swaps expiring in August 2027.

Certain of these agreements include fallback language, or the contractual provisions that lay out the process through which a replacement rate can be identified if the previously identified benchmark is not available, that will facilitate the transition to a new reference rate.

We anticipate that all of our affected contractual reference rates will be revised by the second quarter of 2023, in advance of the June 30, 2023 phase out of all of our remaining U.S.

dollar LIBOR settings.

There continue to be many uncertainties regarding a transition from LIBOR, including but not limited to the need to amend all contracts with LIBOR as the referenced rate and how this will impact our cost of variable rate debt and certain derivative financial instruments.

The consequences of these developments with respect to LIBOR cannot be entirely predicted but could result in an increase in the cost of our variable rate debt or derivative financial instruments which may be detrimental to our financial position or operating results.

The declaration, payment and amount of dividends is made at the discretion of our board of directors and depends on a number of factors.

The declaration, payment and amount of any dividends is made pursuant to our dividend policy and is subject to final determination each quarter by our board of directors in its discretion based on a number of factors that it deems relevant, including our financial position, results of operations, available cash resources, cash requirements and alternative uses of cash that our board of directors may conclude would be in the best interest of the company and our shareholders.

Our dividend payments are subject to solvency conditions established by the Maryland General Corporation Law.

Our dividend payments are subject to solvency conditions established by the Maryland

General Corporation Law.

Accordingly, there can be no assurance that any future dividends will be equal or similar in amount to any dividends previously paid or that our board of directors will not decide to reduce, suspend or discontinue the payment of dividends at any time in the future.

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We possess intellectual property rights that are important to our business, and we are provided access by certain customers to particular intellectual property rights belonging to such customers.

These intellectual property rights include ingredient formulas, trademarks, copyrights, patents, business processes and other trade secrets which are important to our business and relate to some of our products, our packaging, the processes for their production, and

the design and operation of equipment used in our businesses.

We protect our intellectual property rights, and those of certain customers, globally through a variety of means, including trademarks, copyrights, patents and trade secrets, third-party assignments and nondisclosure agreements, and monitoring of third-party misuses of intellectual property.

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Our information technology systems are critically important to operating our business.

We rely on our information technology systems, some of which are or may be managed or hosted by or out-sourced to third party service providers, to manage our business data, communications, supply chain, order entry and fulfillment, and other business processes.

We rely on our information technology systems, some of which are or may be managed or hosted by or outsourced to third party service providers, to manage our business data, communications, supply chain, order entry and fulfillment, and other business processes.

If we do not allocate and effectively manage the resources necessary to build, sustain, and protect appropriate information technology systems and infrastructure, or we do not effectively implement system upgrades or oversee third party service providers, our business or financial results could be negatively impacted.

The failure of our information technology systems to perform as we anticipate could disrupt our business and could result in transaction or reporting errors, processing inefficiencies and the loss of sales and customers, causing our business and results of operations to suffer.

Furthermore, our information technology systems, and the systems of our customers, vendors, suppliers, and other third-party service providers, are subject to cyber-attacks or other security incidents including computer viruses or other malicious codes, phishing attacks, ransomware, or other service disruptions, or other system or process failures.

Furthermore, our information technology systems, and the systems of our customers, vendors, suppliers, and other third-party service providers, are subject to cyber-attacks or other security incidents including computer viruses or other malicious codes, phishing attacks, unauthorized access attempts, cyber extortion, business email compromise, social engineering, denial of service attacks, hacking, ransomware, or other cyberattacks attempting to exploit vulnerabilities.

Continued geographical turmoil, including the ongoing conflict between Russia and Ukraine, has heightened the risk of cyberattack.

Such incidents could result in unauthorized access to information including customer, consumer or other company confidential data as well as disruptions to operations.

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As technology provides the backbone for greater process alignment, information sharing and scalability, we are also making investments in our information systems, including the multi-year program to replace our enterprise resource planning (ERP) system currently underway, which includes the transformation of our financial processing systems to enterprise-wide systems solutions.

These systems implementations are part of our ongoing business transformation initiative, and we plan to implement these systems throughout all parts of our businesses.

These systems implementations are part of our ongoing business transformation initiative, and we currently plan to implement these systems throughout all parts of our businesses.

If we do not allocate and effectively manage the resources necessary to build and sustain the proper information technology infrastructure, or if we fail to achieve the expected benefits from this initiative, it may impact our ability to process transactions accurately and efficiently and remain in step with the changing needs of our business, which could result in the loss of customers and revenue.

addition, failure to either deliver the applications on time (due to operational limitations caused by COVID-19 or otherwise), or anticipate the necessary readiness and training needs, could lead to business disruption and loss of customers and revenue.

In addition, failure to either deliver the applications on time (due to operational limitations caused by the COVID-19 pandemic or otherwise), or anticipate the necessary readiness and training needs, could lead to business disruption and loss of customers and revenue.

In connection with these implementations and resulting business process changes, we continue to enhance the design and documentation of business processes and controls, including our internal control over financial reporting processes, to maintain effective controls over our financial reporting.

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If we were required to add warning labels to any of our products or place warnings in locations where our products are sold in order to comply with Proposition 65, the sales of those products and other products of our company could suffer, not only in those locations but elsewhere.

In addition, there are various compliance obligations for companies that process personal data of certain individuals, including such obligations required by the European Union’s General Data Protection Regulation (GDPR), which came into effect in May 2018, and the California Consumer Privacy Act (CCPA), which came into effect in January 2020.

affects all member states of the European Economic Area, and the California Consumer Privacy Act (CCPA).

These types of data privacy laws create a range of compliance obligations for companies that process personal data of certain individuals and increases financial penalties for non-compliance.

For example, the CCPA imposes requirements on companies that do business in California and collect personal information from customers, including notice, consent and service provider requirements.

Our efforts to comply with these privacy and data protection laws may not be successful, or may be perceived to be unsuccessful, which could adversely affect our business in the United States, the European Union and in other countries.

In the United States, for example, the CCPA imposes requirements on companies that do business in California and collect personal information from certain individuals, including notice, consent and service provider requirements.

The CCPA also provides for civil penalties for companies that fail to comply with these requirements, as well as a private right of action for data breaches.

Further, in November 2020, the California Privacy Rights Act (“CPRA”) was passed into law and goes into full effect on January 1, 2023 (with a ‘look-back’ to January 1, 2022).

Further, the California Privacy Rights Act (“CPRA”) went into full effect on January 1, 2023 (with a ‘look-back’ to January 1, 2022).

The CPRA builds on the CCPA and among other things, requires the establishment of a dedicated agency to regulate privacy issues.

In 2021, Virginia and Colorado adopted laws which will take effect on January 1, 2023, and July 1, 2023, respectively, introducing new privacy obligations, which may require us to develop additional compliance mechanisms and processes.

As a company that is subject to data privacy laws, we bear the costs of compliance with them, including the GDPR and U.S.

state laws, and are subject to the potential for fines and penalties in the event of a breach of these laws, which continue to evolve.

These factors and others could have an adverse impact on our business, financial condition or results of operations.

In 2021, Virginia, Colorado, Connecticut and Utah all have adopted laws which will take effect introducing new privacy obligations, which may require us to develop additional compliance mechanisms and processes.

Many other states are considering similar legislation.

A broad range of legislative measures also have been introduced at the federal level.

There also is a wide range of enforcement agencies at both the state and federal levels that can review companies for privacy and data security concerns based on general consumer protection laws.

The Federal Trade Commission and state Attorneys General all are aggressive in reviewing privacy and data security protections for consumers.

Accordingly, failure to comply with federal and state laws (both those currently in effect and future legislation) regarding privacy and security of personal information could expose us to fines and penalties under such laws.

There also is the threat of consumer class actions related to these laws and the overall protection of personal data.

Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our reputation and our business.

Similarly, outside of the United States, there are various laws and regulations governing the collection, use, disclosure, transfer, or other processing of personal data.

For instance, the GDPR, which applies to the processing of personal data of individuals in the European Union, is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including strict rules on the transfer of personal data to countries outside the European Union, including the United States.

Beyond GDPR, there are privacy and data security laws in a growing number of countries around the world (including in the United Kingdom as a result of Brexit).

While many loosely follow GDPR as a model, other laws contain different or conflicting provisions.

These laws may impact our ability to conduct our business activities and the costs associated with these activities.

Litigation, legal or administrative proceedings could have an adverse impact on our business and financial condition or damage our reputation.

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As a global business, our tax rate from period to period can be affected by many factors, including changes in tax

legislation, our global mix of earnings, the tax characteristics of our income, the timing and recognition of goodwill

impairments, acquisitions and dispositions, adjustments to our reserves related to uncertain tax positions, changes in valuation allowances and the portion of the income of international subsidiaries that we expect to remit to the U.S.

legislation, our global mix of earnings, the tax characteristics of our income, acquisitions and dispositions, adjustments to our reserves related to uncertain tax positions, changes in valuation allowances and the portion of the income of international subsidiaries that we expect to remit to the U.S.

and that will be taxable.

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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 1A. Risk Factors