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Item 7. Management’s Discussion and Analysis

2023-01-26 compared with 2022-01-27 · 404 added, 357 removed, 589 unchanged (56% of the section changed)

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This information is also used by management to measure the profitability of our ongoing operations and analyze our business performance and trends.

The dollar and share information in the charts and tables in the MD&A are in millions, except per share data.

On November 30, 2020, the Company effected a two-for-one stock split in the form of a stock dividend on all shares of the Company’s two classes of common stock.

On November 30, 2020, one like share was issued for each share outstanding to shareholders of record as of November 20, 2020.

All common stock and per share data have been retroactively adjusted to reflect the stock split.

The dollar and share information in the charts and tables in MD&A are in millions, except per share data.

McCormick is a global leader in flavor.

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Our long-term annual growth objectives in constant currency are to increase sales 4% to 6%, increase adjusted operating income 7% to 9% and increase adjusted earnings per share 9% to 11%.

COVID-19 – As a result of the COVID-19 pandemic, governments around the world either recommended or mandated actions to slow the transmission of the virus that included shelter-in-place orders, quarantines, 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.

Uncertainty with respect to the economic effects of the pandemic has significantly impacted not only our operating results but also the global economy.

The extent and nature of government actions varied during the years ended November 30, 2021 and 2020 based upon the then-current extent and severity of the COVID-19 pandemic within their respective countries and localities.

Our actual results for a year can vary from our long-term growth objectives.

Recent Events

Recent events impacting our business include global economic conditions, inflationary cost environment, disruption in our supply chain, the COVID-19 pandemic, and the ongoing conflict between Russia and Ukraine, each of which are further discussed below.

Each of these factors impacted our fiscal 2022 operating results and we expect each will impact our fiscal 2023 performance.

We expect elevated levels of cost inflation to persist throughout 2023, although at lower levels than experienced in 2022.

We anticipate in 2023 that these headwinds will be partially mitigated by pricing actions in response to inflation, supply chain productivity improvements and cost savings initiatives.

The effects of inflation have also resulted in central banks raising short-term interest rates and, as a result, we expect that our interest expense will increase in 2023.

While we expect the impacts of COVID-19 on our business to moderate, there still remains uncertainty around the pandemic, its effect on labor or other macroeconomic factors, its severity and duration, the continued availability and effectiveness of vaccines and actions taken by third parties or by government authorities in response, including restrictions, laws or regulations, or other responses.

Also, the ongoing conflict between Russia and Ukraine, and the sanctions imposed in response to this conflict, have increased global economic and political uncertainty.

While the impact of these factors remains uncertain, we continue to evaluate the extent to which they may impact our business, financial condition, or results of operations.

These and other uncertainties could result in changes to our current expectations.

The potential effects of these recent events also could impact us in a number of other ways including, but not limited to, variations in the level of our sales, profitability, cash flows, fluctuations in foreign currency markets, the availability of future borrowings, the cost of borrowings, valuation of our pension assets and obligations, credit risks of our customers and counterparties, laws and regulations affecting our business, and potential impairment of the carrying value of goodwill or other indefinite-lived intangible assets.

Global Economic Conditions and Inflationary Cost Environment – During fiscal 2021 and 2022, we experienced inflationary cost increases in our commodities, packaging materials and transportation costs.

We expect that these inflationary cost increases will continue but we expect they will be partially mitigated by our planned 2023 pricing actions, our organization and streamlining actions, including our Global Operating Effectiveness Program, and by our Comprehensive Continuous Improvement (CCI) program-led cost savings.

There has been, and we expect there could continue to be, a difference between the timing of when the impact of cost inflation occurs and when these pricing and other actions impact our results of operations.

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

Our interest expense is impacted by the overall global economic and interest rate environment.

The inflationary environment has also resulted in central banks raising short-term interest rates.

On November 30, 2022, we had total outstanding variable rate debt of approximately $1,295 million.

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 achieve a desired mix of fixed and variable rate debt.

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

We expect that our interest expense will increase in 2023 as a result of the higher interest rate environment.

Supply Chain Disruptio n – Over the past several years, as we have responded to demand volatility, COVID-19 and overall macroeconomic conditions, we have experienced pressures in our supply chain, including inefficiencies associated with demand volatility.

These pressures are in addition to the inflationary cost environment previously noted and have included strained availability of raw materials and transportation capacity, expedited shipping costs, costs incurred in response to COVID-19, incremental warehouse costs to store increased inventory associated with maintaining additional safety stock, additional use of co-manufacturers, and labor shortages and absenteeism, in part, associated with COVID-19.

The severity of those supply chain pressures varied over 2022, 2021 and 2020.

In response to the general economic conditions, inflationary cost environment, and the supply chain pressures and related inefficiencies, we expect to eliminate approximately $125 million of costs during 2023 and 2024, including $100 million of supply chain costs and $25 million of costs across the remainder of the organization under our Global Operating Effectiveness program.

The supply chain actions we are taking, and will continue to evaluate, include returning our manufacturing facilities to a more normal shift schedule, reducing headcount, and stabilizing turnover rates to reduce our labor costs;

increasing our manufacturing capacity and automation to respond to the evaluated demand as well as reduce the use of co-manufacturers;

and executing and evaluating initiatives to reduce the safety stock levels of our inventory that were put in place to protect against supply disruptions.

elimination of other costs across the organization will include a voluntary retirement program and other streamlining initiatives.

COVID-19 – T he COVID-19 pandemic has impacted our operating results.

The extent and nature of government actions, customer and end-consumer demand and the impact on our supply chain varied during the years ended November 30, 2022, 2021 and 2020 based upon the then-current extent and severity of the COVID-19 pandemic within the countries, localities and markets where we do business.

We continue to actively monitor the impact of COVID-19 on all aspects of our business.

The effects of COVID-19 on consumer behavior have impacted the relative balance of at-home versus away-from-home food demand.

The impact of COVID-19 on our consumer segment since the beginning of the pandemic has resulted in a significant increase in at-home consumption and related demand for our products.

In 2021, our flavor solutions segment benefited from a recovery in away-from-home eating that more than offset the net sales declines experienced in 2020 as a result of restrictions imposed to reduce the spread of COVID-19.

The COVID-19 mitigation measures in 2020 impacting certain of our flavor solutions customers 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.

Although certain restrictive measures were reinstated during certain periods of 2021, the prevalence and scale of closures and operating limitations were less severe as compared to 2020.

For comparative purposes, the following provides a summary of growth in net sales as reported and on a constant currency basis for the year ended 2021 as compared to 2019:

However, uncertainty remains with the pandemic and such impact will ultimately depend on the length and severity of the pandemic, including new strains and variants of the virus;

infection rates in the markets where we do business;

the federal, state, and local government actions taken in response;

vaccine effectiveness;

and the macroeconomic environment.

The effects of COVID-19 on consumer behavior have impacted the relative balance of at-home versus away-from-home food consumption and demand.

While we continue to see strong levels of at-home consumption compared to pre-pandemic levels, the favorable impact of increased at-home meal preparation was less significant in the year ended November 30, 2022 as compared to 2021.

This change in consumer behavior was due in part to a decrease in the prevalence and scale of restrictive measures in place to reduce the spread of COVID-19 in the 2022 period as compared to 2021.

Conversely, we continue to see improvements in away-from-home demand associated with the COVID-19 recovery.

During the year ended November 30, 2022, our flavor solutions segment sales improved as away-from-home consumption increased as compared to 2021, in part, due to the continued easing of restrictive COVID-19 mitigation measures in many jurisdictions compared to those that were in place during 2021.

However, during 2022 the impact of restrictive measures related to COVID-19 resurgences in China negatively impacted consumer behavior in China as compared to 2021.

For comparative purposes, the following provides a summary of our compounded annual growth rate in net sales as reported and on a constant currency basis for the year ended 2022 as compared to 2019:

For the year ended November 30, 2022 as compared to the year ended November 30, 2019

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Total net sales 5.9 % (0.3) % 6.2 %

The percentage change in reported net sales and the percentage change on a constant currency basis were

favorably impacted by the acquisitions of Cholula and FONA, which, in aggregate, contributed 2.6%, 7.1% and 4.3% to the consumer segment, flavor solutions segment and total net sales growth rates, respectively, in the preceding table, on both a reported and constant currency basis.

In early fiscal 2021, vaccines effective in combating COVID-19 were approved by health agencies in certain countries/regions in which we operate (including the U.S., U.K., European Union, Canada and Mexico) and began to be administered.

The availability of COVID-19 vaccines and their acceptance by individuals is difficult to predict, and vaccination levels vary across jurisdictions.

The pace and shape of the COVID-19 recovery as well as the impact and extent of COVID-19 variants or potential resurgences is not presently known.

These and other uncertainties with respect to COVID-19 could result in changes to our current expectations in addition to a number of adverse impacts to our business, including but not limited to additional disruption to the economy and consumers’ willingness and ability to spend, temporary or permanent closures by businesses that consume our products, such as restaurants, additional work restrictions, and supply chains being interrupted, slowed, or rendered inoperable or, in the case of significant increased demand for our product, we may be unable to fulfill that increased demand.

As a result, it may be challenging to obtain and process raw materials to support our business needs, and individuals could become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions.

Also, governments may impose other laws, regulations or taxes related to COVID-19 which could adversely impact our business, financial condition, or results of operations.

Further, if our customers’ businesses are similarly affected, they might delay or reduce purchases from us.

The potential effects of COVID-19 also could impact us in a number of other ways including, but not limited to, variations in the level of our profitability, laws and regulations affecting our business, fluctuations in foreign currency markets, the availability of future borrowings, the cost of borrowings, valuation of our pension assets and obligations, credit risks of our customers and counterparties, and potential impairment of the carrying value of goodwill or other indefinite-lived intangible assets.

Inflationary Cost Environment and Supply Chain Disruption – During fiscal 2021, we experienced inflationary cost increases in our commodities, packaging materials and transportation costs.

We expect that these inflationary cost increases will continue but we expect they will be partially mitigated by pricing actions implemented in the fourth quarter of fiscal 2021, those that we plan to implement in fiscal 2022 and by our Comprehensive Continuous Improvement (CCI) program-led cost savings.

During fiscal 2021, we also experienced additional pressure in our supply chain due to strained transportation capacity, as well as due to labor shortages and absenteeism associated with COVID-19, together with the impact of the continued elevated demand.

In response to these supply chain pressures, we have taken actions build capacity as well as increase our supply chain related resources.

We expect these pressures to continue in 2022.

Sales growth :

Over time, we expect to grow sales with similar contributions from:

The percentage change in our compounded annual growth rate in reported net sales and the percentage change on a constant currency basis were favorably impacted by the acquisitions of Cholula and FONA and unfavorably impacted by the sale of Kitchen Basics.

In aggregate on a net basis, these factors contributed 0.6%, 2.1% and 1.3% to the consumer segment, flavor solutions segment and total net sales growth rates, respectively, in the preceding table, on both a reported and constant currency basis.

Conflict Between Russia and Ukraine – The ongoing conflict between Russia and Ukraine, and the sanctions imposed in response to this conflict, have increased global economic and political uncertainty.

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

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

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

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

While neither our operations in Russia nor Ukraine constitute a material portion of our business, a significant escalation or expansion of economic disruption or the conflict's current scope could disrupt our supply chain, broaden inflationary costs, and have a material adverse effect on our results of operations.

Sales Growth – Over time, we expect to grow sales with similar contributions from:

1) our base business – driven by brand marketing support, category management, and differentiated customer engagement;

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Base Business – We expect to drive sales growth by optimizing our brand marketing investment through improved speed, quality and effectiveness.

We measure the return on our brand marketing investment and have identified digital marketing as one of our highest return investments in brand marketing support.

We measure the return on our brand marketing investment and have identified

digital marketing as one of our highest return investments in brand marketing support.

Through digital marketing, we are connecting with consumers in a personalized way to deliver recipes, provide cooking advice and help them discover new products.

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For flavor solutions customers, we are developing seasonings for snacks and other food products, as well as flavors for new menu items.

We have a solid pipeline of flavor solutions products aligned with our customers’ new product launch plans, many of which include clean-label, organic, natural, and “better-for-you” innovation.

We have a strong pipeline of flavor solutions products aligned with our customers’ new product launch plans, many of which include clean-label, organic, natural, and “better-for-you” innovation.

With over 20 product innovation centers around the world, we are supporting the growth of our brands and those of our flavor solutions customers with products that appeal to local consumers.

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Geographically, our focus is on acquisitions that build scale where we currently have presence in both developed and emerging markets.

Information with respect to our three most recent acquisitions is provided below:

Information with respect to our two most recent acquisitions is provided below:

• On December 30, 2020, we acquired FONA International, LLC and certain of its affiliates (FONA), a privately owned company, for approximately $708 million, net of cash acquired.

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• On November 30, 2020, we acquired the parent company of Cholula Hot Sauce® (Cholula) from L Catterton for approximately $801 million, net of cash acquired.

Cholula 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 in both our consumer and flavor solutions segments.

• On August 17, 2017, we acquired Reckitt Benckiser's Food Division (RB Foods) for approximately $4.2 billion.

The acquired iconic brands of 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 and provide significant international growth opportunities for our consumer and flavor solutions segments.

The FONA and Cholula acquisitions contributed approximately one-third of our sales growth in 2021.

Cost savings and business transformation :

We are fueling our investment in growth with cost savings from our CCI program, an ongoing initiative to improve productivity and reduce costs throughout the organization, that also includes savings from the organization and streamlining actions described in note 3 of notes to our consolidated financial statements.

In addition to funding brand marketing support, product innovation and other growth initiatives, our CCI program helps offset higher costs and is contributing to higher operating income and earnings per share.

Cholula 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 in both our consumer and flavor solutions segments.

Cost Savings and Business Transformation – We are fueling our investment in growth with cost savings from our CCI program, an ongoing initiative to improve productivity and reduce costs throughout the organization, as well as savings from the organization and streamlining actions described in note 3 of notes to our consolidated financial statements that includes our expected elimination of approximately $125 million of costs in 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.

Our CCI program funds brand marketing support, product innovation and other growth initiatives.

We expect our CCI program, Global Operating Effectiveness program, and organization and streamlining actions to deliver savings of approximately $75 million in 2023.

We are making investments to build the McCormick of the future, including in our Global Enablement (GE) organization to transform McCormick through globally aligned, innovative services to enable growth.

As more fully described in note 3 of notes to our consolidated financial statements, we expect to incur special charges of approximately $60 million to $65 million associated with our GE initiative of which approximately $40.7 million have been recognized through November 30, 2021.

As technology provides the backbone for this greater process alignment, information sharing and scalability, we are also making investments in our information systems.

From late 2018 through early 2020, we progressed in implementing our global enterprise resource planning (ERP) replacement program which will enable us to accelerate the transformation of our ways of working and provide a scalable platform for growth.

In the second quarter of fiscal 2020, we elected to pause activity related to our ERP for the balance of fiscal 2020 due, in part, to COVID-19 restrictions that restricted necessary travel by internal and external ERP team members and made it difficult for local McCormick personnel to actively participate in the ERP development, data cleansing, and testing prior to then scheduled pilots later in fiscal 2020.

During fiscal 2021, we resumed activities related to our ERP replacement program.

We expect that, in total over the course of the ERP replacement program from late 2018 through 2025, we will invest approximately $400 million, including expenses related to the go-live activities in our operations, to enable the anticipated completion of the global roll out of our new information technology platform in 2024.

We continue to progress our global enterprise resource planning (ERP) replacement program which will enable us to accelerate the transformation of our ways of working and provide a scalable platform for growth.

We expect that, in total over the course of the ERP replacement program for our major markets, we will invest approximately $400 million, including expenses related to the go-live activities in our operations, to enable the anticipated completion of the roll out of our new information technology platform to those markets in 2025.

Of that projected $400 million, we expect capitalized software to account for approximately 50% and program expenses to account for approximately 50%.

Of the approximately $200 million of operating expenses included in our projected total spending related to our ERP replacement program, approximately $85 million has been recognized through November 30, 2021.

Of the approximately $200 million of capitalized software included in our projected total spending related to our ERP program, approximately $115 million has been recognized through November 30, 2021.

The GE initiative is expected to generate annual savings, ranging from approximately $45 million to $55 million, once all actions are implemented, including those that are dependent on the replacement of our global ERP platform.

We continue to generate strong cash flow.

Net cash provided by operating activities was $828.3 million, $1,041.3 million and $946.8 million in 2021, 2020, and 2019, respectively.

In 2021, we continued to have a balanced use of cash for debt repayment, capital expenditures and the return of cash to shareholders through dividends and share repurchases.

Of the approximately $200 million of operating expenses included in our projected total spending, approximately $122 million has been recognized through November 30, 2022.

Of the approximately $200 million of capitalized software included in our projected total spending, approximately $137 million has been recognized through November 30, 2022.

Cash Flow – Net cash provided by operating activities was $651.5 million, $828.3 million and $1,041.3 million in 2022, 2021, and 2020, respectively.

In 2022, we continued to have a balanced use of cash for debt repayment,

capital expenditures and the return of cash to shareholders through dividends and share repurchases.

We are using our cash to fund shareholder dividends, with annual increases in each of the past 37 years, and to fund capital expenditures and acquisitions.

In 2022, the return of cash to our shareholders through dividends and share repurchases was $435.5 million.

Operating Results :

On a long-term basis, we expect a combination of acquisitions, share repurchases and debt repayments, and the resulting impact on interest expense, to add about 2% to earnings per share growth.

Operating Results – On a long-term basis, we expect a combination of acquisitions, share repurchases and debt repayments, and the resulting impact on interest expense, to add about 2% to earnings per share growth.

In 2022, we achieved further growth of our business with net sales rising 0.5% over the 2021 level due to the following factors:

• We grew volume and product mix, which added 5.5% of sales growth, exclusive of acquisitions.

This growth was driven by increases in both our consumer and flavor solutions segments.

Increased net sales within our consumer segment was driven by strong demand due to a sustained shift in consumer behavior toward at-home meal preparation, which was first seen in 2020 as a response to actions taken to mitigate the spread of COVID-19.

Increased net sales within our flavor solutions segment was principally driven by sales of away-from-home products as compared to 2020, when actions taken to mitigate the spread of COVID-19 significantly impacted demand.

• Pricing actions contributed 0.8% of the increase in net sales.

• Pricing actions, including those taken in response to the inflationary cost environment, contributed 7.7% of the increase in net s ales.

• Volume and product mix unfavorably impacted our net sales growth by 4.5%, exclusive of acquisitions and divestitures.

Our consumer segment experienced unfavorable volume and product mix of 9.3% which included the unfavorable impact of price elasticity as well as the impact of restrictive measures related to COVID-19 resurgences in China, the exit of our consumer operations in Russia, and the exit of our rice product line in India which collectively contributed approximately 1.5% to that decline.

Increased volume and product mix of 3.5% in our flavor solutions segment was principally driven by the continued strength of sales to packaged food companies and the continued recovery in away-from-home demand.

• Acquisitions contributed 0.2% of the increase in net sales.

• Net sales growth was positively impacted by fluctuations in currency rates that increased sales growth by 2.4%.

Divestitures negatively impacted our net sales increase by 0.4%.

• Net sales growth was negatively impacted by fluctuations in currency rates that decreased sales growth by 2.5%.

Excluding this impact, we grew sales by 3.0% over the prior year on a constant currency basis.

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In 2022 and 2021, we also recorded $2.2 million and $35.3 million of transaction and integration expenses, respectively, related to our acquisitions of Cholula and FONA that reduced operating income.

In 2021, compared to the year-ago period, the favorable impact of higher sales, $117.0 million of cost savings from our CCI program, including organization and streamlining actions, and lower incentive-based compensation more than offset the impact of increased commodity, packaging materials and transportation costs, higher conversion costs, which include costs associated with COVID-19, and increased brand marketing costs.

Excluding special charges and transaction and integration expenses related to our acquisitions of Cholula and FONA, adjusted operating income was $1,101.5 million in 2021, an increase of 8.1%, compared to $1,018.8 million in the year-ago period.

In constant currency, adjusted operating income rose 6.2%.

In 2022, compared to the year-ago period, the unfavorable impact of increased commodity, packaging materials and transportation costs and higher conversion costs more than offset the favorable impact of higher sales, which included the impact of pricing actions taken in response to the inflationary environment, $112 million of cost savings from our CCI program, including organization and streamlining actions, and lower incentive-based compensation.

Excluding special charges and transaction and integration expenses related to our acquisitions of Cholula and FONA, adjusted operating income was $917.4 million in 2022, a decrease of 16.7%, compared to $1,101.5 million in the year-ago period.

In constant currency, adjusted operating income declined 15.5%.

For further details and a reconciliation of non-GAAP to reported amounts, see the subsequent discussion under the heading "Non-GAAP Financial Measures".

Diluted earnings per share was $2.52 in 2022 and $2.80 in 2021.

The year-on-year increase in earnings per share was primarily driven by higher operating income.

The year-on-year decrease in earnings per share was primarily driven by lower operating income that was partially offset by the favorable effect of a lower level of special charges and transaction and integration expenses in 2022 as compared to 2021.

Special charges and transaction and integration expenses lowered earnings per share by $0.15 and $0.30 in 2022 and 2021, respectively.

A gain on our sale of a business increased earnings per share by $0.14 in 2022.

A gain on our sale of an unconsolidated operation increased earnings per share by $0.05 in 2021.

Excluding the effects of special charges, transaction and integration expenses, and the gain realized from the sale of an unconsolidated operation, adjusted diluted earnings per share was $3.05 in 2021 and $2.83 in 2020, or an increase of 7.8%.

In 2022, we expect to grow net sales over the 2021 level by 3% to 5%, which includes an estimated 1% unfavorable impact from currency rates, or 4% to 6% on a constant currency basis.

That anticipated 2022 sales growth includes the impact of pricing actions, including those taken in 2021, to partially offset cost increases.

We expect the impact of pricing to be a significant driver of our sales growth.

We expect volume and product mix to be impacted by pricing elasticities, although at a lower level than we have experienced historically.

We anticipate that our volume and product mix will also be impacted by the exit of a lower margin product line in late 2021.

We expect our 2022 gross profit margin to range from an increase of 20 basis points to a decline of 30 basis points from our gross profit margin of 39.5% in 2021.

The projected 2022 change in gross profit margin is principally due to the net effect of (i) a mid-teen percentage impact of inflation in 2022 compared to 2021, (ii) the favorable impact of pricing actions in response to increased commodity, packaging materials and transportation costs, (iii) anticipated unfavorable sales mix in 2022 between our consumer and flavor solutions segments as compared to 2021, (iv) the favorable impact of anticipated CCI cost savings, and (v) the lack of $11.0 million of transaction and integration expenses and special charges reflected in cost of goods sold in 2021.

We expect our 2022 gross profit margin, excluding the $11.0 million of transaction and integration expenses and special charges in 2021, to range from comparable to a decline of 50 basis points from our 2021 adjusted gross profit margin of 39.7%.

In 2022, we expect an increase in operating income of 13% to 15%, which includes an estimated 1% unfavorable impact from currency rates, over the 2021 level.

Excluding the effects of special charges, transaction and integration expenses, the gain realized from the sale of a business, and the gain realized from the sale of an unconsolidated operation, adjusted diluted earnings per share was $2.53 in 2022 and $3.05 in 2021, or a decrease of 17.0%.

In 2023, we expect to grow net sales over the 2022 level by 5% to 7%, which includes a minimal impact of foreign currency rates.

We anticipate that the 2023 sales growth will be driven by pricing actions, including the completion of those executed in 2022 combined with new pricing actions we are taking in 2023.

We expect volume and product mix to be impacted by pricing elasticities, although, consistent with 2022, at a lower level than we have experienced historically.

We anticipate that our volume and product mix will also be impacted by the combined impact of lapping last year’s COVID-related disruptions in China, the divestiture of our Kitchen Basics brand in the third quarter of last year, the exit of our consumer business in Russia during the second quarter of last year, and the pruning of low margin businesses.

We expect our 2023 gross profit margin to range from 25 basis points to 75 basis points higher than our gross profit margin of 35.8% in 2022.

The projected 2023 increase in gross profit margin is principally due to the net effect of (i) the favorable impact of pricing actions in response to increased commodity, packaging materials and transportation costs, (ii) the favorable impact of anticipated Global Operating Effectiveness Program and CCI cost savings, and (iii) a low to mid-teen percentage impact of inflation in 2023 compared to 2022.

As we recover the cost inflation of our pricing that has lagged in the past two years, we expect cost pressures to be more than offset by pricing actions and our expected cost savings in 2023.

In 2023, we expect an increase in operating income of 10% to 12%, which includes a minimal impact from foreign currency rates, over the 2022 level.

The projected 2023 change in operating income includes the effects of cost savings from our Global Operating Effectiveness Program and lapping the COVID-19 restrictive measures in China during 2022, which we anticipate will be partially offset by increased employee incentive compensation and the impact of our Kitchen Basics divestiture.

Our CCI-led cost savings target in 2023 is approximately $85 million.

We anticipate integration expenses related to the FONA acquisition of approximately $3 million to favorably impact operating income in 2022, as compared to $35.3 million of transaction and integration expenses in 2021.

We expect that the absence of $2.2 million of integration expenses related to the FONA acquisition in 2022 to favorably impact operating income in 2023.

We also expect approximately $50 million of special charges in 2023 that relate to previously announced organization and streamlining actions;

in 2022, special charges were $51.6 million.

Excluding special charges and transaction and integration expenses, we expect 2022’s adjusted operating income to increase by 7% to 9%, which includes an estimated 1% unfavorable impact from currency rates, or to increase by 8% to 10% on a constant currency basis over the 2021 level.

Excluding special charges and transaction and integration expenses, we expect 2023’s adjusted operating income to increase by 9% to 11%, which includes a minimal impact from foreign currency rates.

We estimate that our interest expense will range from $200 to $210 million in 2023, with the increase over 2022 being driven by the higher interest-rate environment which will impact our variable rate debt.

In 2023, we will also lap the favorable effects associated with the termination of interest rate contracts.

These contracts were entered into to manage the interest rate risk associated with our then anticipated issuance of fixed rate debt, which favorably impacted other income, net in 2022.

Our underlying effective tax rate is projected to be higher in 2023 than in 2022.

We estimate that our 2022 effective tax rate, including the net favorable impact of anticipated discrete tax items, will be 22% to 23% as compared to 21.5% in 2021.

Excluding projected taxes associated with special charges and transaction and integration expenses, we estimate that our adjusted effective tax rate will be 22% to 23% in 2022, as compared to an adjusted effective tax rate of 20.1% in 2021.

We estimate that our 2023 effective tax rate, including the net favorable impact of anticipated discrete tax items, will be 22% as compared to 20.7% in 2022.

Excluding projected taxes associated with special charges, we estimate that our adjusted effective tax rate will be approximately 22% in 2023, as compared to an adjusted effective tax rate of 20.9% in 2022.

Diluted earnings per share was $2.52 in 2022.

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Excluding the per share impact of (i) special charges of $51.6;

ii) transaction and integration expenses, including the unfavorable impact of a discrete tax item of $0.04 related to our acquisition of FONA, of $0.14;

and iii) the gain realized upon our sale of an unconsolidated operation of $0.05, adjusted diluted earnings per share was $3.05 in 2021.

Adjusted diluted earnings per share, excluding an estimated per share impact from special charges of $0.09 and from integration expenses of $0.01, is projected to range from $3.17 to $3.22 in 2022.

We expect adjusted diluted earnings per share to grow by 4% to 6%, which includes a 1% unfavorable impact from currency rates, or to grow by 5% to 7% on a constant currency basis over adjusted diluted earnings per share of $3.05 in 2021.

(ii) integration expenses of $2.2 million;

and (iii) the gain realized upon our sale of Kitchen Basics of $49.6 million, adjusted diluted earnings per share was $2.53 in 2022.

Adjusted diluted earnings per share, excluding an estimated per share impact from special charges of $0.14, is projected to range from $2.56 to $2.61 in 2023.

We expect adjusted diluted earnings per share to grow by 1% to 3% over adjusted diluted earnings per share of $2.53 in 2022, including a minimal impact from foreign currency rates.

RESULTS OF OPERATIONS—2022 COMPARED TO 2021

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Acquisitions 0.2 % 4.1 %

Divestiture (0.4) % — %

Foreign exchange (2.5) % 2.4 %

Sales for 2022 increased by 0.5% from 2021 and by 3.0% on a constant currency basis (that is, excluding the impact of foreign currency exchange as more fully described under the caption, Non-GAAP Financial Measures).

Unfavorable volume and product mix decreased sales by 4.5% with growth in our flavor solutions segment being more than offset by a decline in our consumer segment.

The impact of restrictive measures related to COVID-19 resurgences in China, the exit of our consumer operations in Russia, and the exit of our rice product line in India, contributed approximately 1.0% to that decline as compared to 2021.

In addition, pricing actions, taken in response to the inflationary cost environment, added 7.7% to sales, as compared to the prior year.

Acquisitions and a divestiture added to and decreased sales by 0.2% and 0.4%, respectively, both as compared to the prior year.

Sales were impacted by unfavorable foreign currency rates that decreased sales by 2.5% in 2022 as compared to the prior year and are excluded from our measure of sales growth of 3.0% on a constant currency basis.

Gross profit $ 2,274.5 $ 2,494.6

Gross profit margin 35.8 % 39.5 %

In 2022, gross profit decreased by $220.1 million, or 8.8%, from the comparable period in 2021.

Our gross profit margin for 2022 was 35.8%, a decrease of 370 basis points from 39.5% in 2021.

The decline was driven by the margin dilutive impact of pricing actions taken in response to the inflationary cost environment of approximately 240 basis points, increased commodity, packaging materials and transportation costs, higher conversion costs and a less favorable product mix both within and between our segments, each as compared to 2021.

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

In addition, our gross profit for 2021 was burdened by (i) $6.3 million of transaction expense, representing the amortization of the fair value adjustment to the acquired inventories of Cholula and FONA upon our sale of those acquired inventories in the first quarter of fiscal 2021 and (ii) a non-cash special charge of $4.7 million associated with the exit of a low margin business in our Asia/Pacific region.

Excluding those transaction and integration expenses and special charges, adjusted gross profit margin declined 390 basis points to 35.8% in 2022 from 39.7% in 2021.

Selling, general & administrative expense $ 1,357.1 $ 1,404.1

Percent of net sales 21.4 % 22.3 %

Selling, general and administrative (SG&A) expense decreased by $47.0 million in 2022 as compared to 2021.

That decrease in SG&A expense was primarily a result of lower performance-based employee incentive expenses and variable selling costs, both as compared to the prior year.

This decrease was partially offset by (i) higher distribution costs;

(ii) unfavorable investment results associated with non-qualified retirement plan assets;

and (iii) higher investment associated with the implementation of our global enterprise resource planning (ERP) platform.

SG&A as a percent of net sales for 2022 decreased by 90 basis points from the prior year level, due primarily to the net impact of the previously mentioned factors.

Special charges included in cost of goods sold $ — $ 4.7

Other special charges 51.6 46.4

Total special charges $ 51.6 $ 51.1

We regularly evaluate whether to implement changes to our organization structure to reduce fixed costs, simplify or improve processes, and improve our competitiveness, and we expect to continue to evaluate such actions in the future.

From time to time, those changes are of such significance in terms of both up-front costs and organizational/ structural impact that we obtain advance approval from our Management Committee and classify expenses related to those changes as special charges in our financial statements.

During 2022, we recorded $51.6 million of special charges, consisting principally of (i) $23.3 million associated with the exit of our consumer business in Russia, (ii) $21.5 million associated with the transition of a manufacturing facility in EMEA, and (iii) streamlining actions of $8.0 million in the Americas region, $7.1 million in the EMEA region, and (iv) $5.6 million associated with a U.S.

voluntary retirement program.

As more fully described in note 3 of our notes of consolidated financial statements, these charges were partially offset by a $13.6 million gain on the sale of our Kohinoor brand that was associated with the rice product line in India that we exited in the fourth quarter of fiscal 2021, as well as a reversal of $2.2 million of estimated costs associated with that rice product line exit upon settlement of a supply agreement related to that product line.

During 2021, we recorded $51.1 million of special charges, consisting principally of (i) $19.5 million associated with our exit of our rice product line in India (ii) $6.2 million associated with the transition of a manufacturing facility in EMEA, (iii) streamlining actions of $10.3 million in the Americas region and $4.8 million in the EMEA region, and (iv) a non-cash asset impairment charge of $6.0 million associated with an administrative site that was sold in conjunction with our decision to employ a hybrid work environment.

Details with respect to the composition of special charges are including the accompanying notes to our financial statements contained in Item 8 of this report.

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

Other transaction and integration expenses 2.2 29.0

Total transaction and integration expenses $ 2.2 $ 35.3

During 2022, we recorded $2.2 million of integration expenses related to our acquisition of FONA.

During 2021, we recorded transaction and integration expenses of $35.3 million related to our acquisitions of Cholula and FONA.

These costs consisted of (i) $6.3 million of amortization of the acquisition-date fair value adjustment of inventories that is included in Cost of goods sold, (ii) $13.8 million of other transaction expenses primarily related to outside advisory, service and consulting costs, and (iii) $15.2 million of integration expenses.

Operating income $ 863.6 $ 1,015.1

Percent of net sales 13.6 % 16.1 %

Operating income decreased by $151.5 million, or 14.9%, from $1,015.1 million in 2021 to $863.6 million in 2022.

Special charges and transaction and integration expenses decreased by $32.6 million in 2022, as compared to 2021, and positively impacted operating income.

Operating income as a percentage of net sales declined by 250 basis points in 2022, to 13.6% in 2022 from 16.1% in 2021 as a result of the factors previously described.

Excluding the effect of special charges and transaction and integration expenses previously described, adjusted operating income was $917.4 million in 2022 as compared to $1,101.5 million in 2021, a decrease of $184.1 million or 16.7% from the 2021 level.

Adjusted operating income as a percentage of net sales declined by 300 basis points in 2022, to 14.4% in 2022 from 17.4% in 2021.

Interest expense $ 149.1 $ 136.6

Other income, net 98.3 17.3

Interest expense was $12.5 million higher in 2022 as compared to the prior year as an increase in interest rates during the latter part of 2022 was partially offset by a decrease in average total borrowings.

Other income, net for 2022 increased by $81.0 million, including the impact of a $49.6 million gain on the sale of our Kitchen Basics business and $18.7 million associated with the settlement of treasury lock arrangements, both of which are more fully described in the notes to the accompanying financial statements.

The remaining increase was principally driven by an increase in interest income, as compared to the prior year.

Income from consolidated operations before income taxes $ 812.8 $ 895.8

Income tax expense 168.6 192.7

Effective tax rate 20.7 % 21.5 %

The provision for income taxes is based on the estimate of the annual effective tax rate adjusted to reflect the tax impact of items discrete to the fiscal period.

We record tax expense or tax benefits that do not relate to ordinary income in the current fiscal year discretely in the period in which such items occur pursuant to the requirements of U.S.

Examples of such types of discrete items not related to ordinary income include, but are not limited to, excess tax benefits associated with stock-based compensation, changes in estimates of the outcome of tax matters related to prior years, including reversals of reserves upon the lapsing of statutes of limitations, provision-to-return adjustments, the settlement of tax audits, changes in enacted tax rates, changes in the assessment of deferred tax valuation allowances, acquisition related deferred tax adjustments, and the tax effects of certain intra-entity asset transfers (other than inventory).

The effective tax rate was 20.7% in 2022 as compared to 21.5% in 2021.

The decrease in our effective tax rate was principally attributable to the effects of the lower level of income before income taxes and the higher level of net discrete tax benefits in 2022 as compared to 2021.

Net discrete tax benefits were $27.6 million in 2022, an increase of $1.0 million from $26.6 million in 2021.

Discrete tax benefits in both the 2022 and 2021 periods included excess tax benefits associated with stock-based compensation ($9.1 million and $4.3 million in 2022 and 2021, respectively), the reversal of reserves for unrecognized tax benefits ($6.9 million and $22.5 million in 2022 and 2021, respectively) due to, in 2021, 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, and in both years due to the expiration of the statutes of limitations, the release of valuation allowances due to a change in judgment about realizability of deferred tax assets ($4.6 million and $4.4 million in 2022 and 2021, respectively), tax benefits related to the revaluation of deferred taxes resulting from enacted legislation ($3.9 million and $4.0 million in 2022 and 2021, respectively), and other discrete items.

In 2022, other discrete tax items included $2.3 million of tax benefits related to the sale of an asset associated with a previously exited line of business.

In 2021, other discrete tax items included $10.4 million of deferred state tax expense directly related to our December 2020 acquisition of FONA.

See note 13 of notes to our consolidated financial statements for a more detailed reconciliation of the U.S.

federal tax rate with the effective tax rate.

Income from unconsolidated operations $ 37.8 $ 52.2

Income from unconsolidated operations, which is presented net of the elimination of earnings attributable to non-controlling interests, decreased $14.4 million in 2022 from the prior year.

We own 50% of most of our unconsolidated joint ventures, including our largest joint venture, McCormick de Mexico, that comprised 84% and 62% of the income of our unconsolidated operations in 2022 and 2021, respectively.

The decrease for 2022 as compared to 2021 was primarily driven by the after-tax gain of $13.4 million on the sale of an unconsolidated operation that occurred in 2021.

We reported diluted earnings per share of $2.52 in 2022, compared to $2.80 in 2021.

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

The decrease in operating income in the table below includes the impact from unfavorable currency exchange rates in 2022.

2021 Earnings per share—diluted $ 2.80

Decrease in operating income (0.54)

Decrease in special charges, net of taxes 0.02

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

Gain on the sale of a business, net of taxes 0.14

Increase in other income, excluding gain on the sale of a business 0.09

Decrease in income from unconsolidated operations, including the after-tax gain on sale of unconsolidated operation of $0.05 per diluted share in 2021 (0.05)

Impact of change in effective income tax rate, excluding taxes on special charges, transaction and integration expenses, and the sale of a business (0.03)

Increase in interest expense (0.04)

2022 Earnings per share—diluted $ 2.52

Results of Operations—Segments

We measure the performance of our business segments based on operating income, excluding special charges and transaction and integration expenses related to our acquisitions.

See note 16 of notes to our consolidated financial statements for additional information on our segment measures as well as for a reconciliation by segment of operating income, excluding special charges and transaction and integration expenses related to our acquisitions.

In the following discussion, we refer to our previously described measure of segment profit as "Segment operating income."

Consumer Segment

Net sales $ 3,757.9 $ 3,937.5

Percent - (decline) increase (4.6) % 9.5 %

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

Volume and product mix (9.3) % 4.3 %

Pricing actions 7.4 % 0.6 %

Acquisitions — % 2.4 %

Divestitures (0.6) % — %

Foreign exchange (2.1) % 2.2 %

Segment operating income $ 710.7 $ 804.9

Segment operating income margin 18.9 % 20.4 %

Sales of our consumer segment in 2022 decreased by 4.6% as compared to 2021 and decreased by 2.5% on a constant currency basis.

The sales decrease was driven by lower sales of our consumer business in the Americas, EMEA and Asia/Pacific regions.

Lower volume and unfavorable product mix decreased sales by 9.3%.

Pricing actions, taken in response to inflationary cost pressures, increased sales by 7.4% in 2022 as compared to the prior year level.

The divestiture of our Kitchen Basics business unfavorably impacted sales by 0.6% as compared to 2021.

An unfavorable impact from foreign currency rates decreased sales by 2.1% compared to the prior year and is excluded from our measure of sales decline of 2.5% on a constant currency basis.

In the Americas region, consumer sales decreased 1.1% in 2022 as compared to 2021 and decreased by 0.9% on a constant currency basis.

Unfavorable volume and product mix decreased sales by 8.6% as compared to the corresponding period in 2021, including the unfavorable impact of price elasticity.

Pricing actions, taken in response to higher costs, increased sales by 8.6% as compared to the prior year.

The sale of our Kitchen Basics business unfavorably impacted sales by 0.9% as compared to 2021.

The unfavorable impact of foreign currency rates decreased sales by 0.2% in the year and is excluded from our measure of sales decline of 0.9% on a constant currency basis.

In the EMEA region, consumer sales decreased 14.7% in 2022 as compared to 2021 and decreased by 5.1% on a constant currency basis.

Unfavorable volume and product mix decreased sales by 10.5% as compared to the corresponding period of 2021.

The decrease was driven by lower sales of our consumer business in France as compared to the prior year.

The exit of our consumer operations in Russia also contributed approximately 2.1% to the region's decline in volume and mix.

Pricing actions, taken in response to the inflationary cost environment, increased sales by 5.4% as compared to the 2021 period.

The unfavorable impact of foreign currency exchange rates decreased sales by 9.6% compared to 2021 and is excluded from our measure of sales decline of 5.1% on a constant currency basis.

In the Asia/Pacific region, consumer sales decreased 10.1% in 2022 as compared to 2021 and decreased by 8.1% on a constant currency basis.

Lower volume and unfavorable product mix decreased sales by 11.5% as compared to the corresponding period in 2021.

The impact of restrictive measures related to COVID-19 resurgences in China and the exit of our rice product line in India, contributed approximately 9.5% to that decline as compared to 2021.

Pricing actions, taken in response to the inflationary cost environment, increased sales by 3.4% as compared to the prior year.

The unfavorable impact from foreign currency rates decreased sales by 2.0% compared to the year-ago period and is excluded from our measure of sales decline of 8.1% on a constant currency basis.

Segment operating income for our consumer segment decreased by $94.2 million, or 11.7%, in 2022 as compared to 2021.

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

Segment operating margin for our consumer segment decreased by 150 basis points in 2022 to 18.9%, driven by a decrease in consumer gross profit margin, including the margin dilutive impact of pricing actions, the impact of the inflationary cost environment, and higher conversion costs, which was partially offset by the impact of CCI-led cost savings, all as compared to the 2021 level.

On a constant currency basis, segment operating income for our consumer segment decreased by 10.9% in 2022, as compared to 2021.

Flavor Solutions Segment

Net sales $ 2,592.6 $ 2,380.4

Percent growth 8.9 % 18.7 %

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

Volume and product mix 3.5 % 7.2 %

Pricing actions 8.2 % 1.4 %

Acquisitions 0.4 % 7.3 %

Foreign exchange (3.2) % 2.8 %

Segment operating income $ 206.7 $ 296.6

Segment operating income margin 8.0 % 12.5 %

Sales of our flavor solutions segment increased 8.9% in 2022 as compared to 2021 and increased by 12.1% on a constant currency basis.

Volume and product mix contributed 3.5% of the increase in addition to pricing actions which added 8.2% to sales for 2022, both in comparison to the prior year levels.

The incremental impact of our acquisition of FONA added 0.4% to segment sales for 2022.

An unfavorable impact from foreign currency rates decreased sales by 3.2% compared to the prior year and is excluded from our measure of sales growth of 12.1% on a constant currency basis.

In the Americas region, flavor solutions sales increased by 11.4% during 2022 as compared to 2021 and increased by 11.7% on a constant currency basis.

Favorable volume and product mix increased flavor solutions sales in the Americas by 2.2% during 2022, as growth in sales to packaged food and beverage companies was partially offset by lower sales to quick service restaurants, both as compared to the year ago period.

Pricing actions, taken in response to the inflationary cost environment, favorably impacted sales by 8.9% during 2022 as compared to the prior year.

The incremental impact of our acquisition of FONA added 0.6% to segment sales for 2022.

An unfavorable impact from foreign currency rates decreased sales by 0.3% compared to 2021 and is excluded from our measure of sales growth of 11.7% on a constant currency basis.

In the EMEA region, flavor solutions sales in 2022 increased by 5.5% as compared to 2021 and increased by 17.2% on a constant currency basis.

Favorable volume and product mix increased segment sales by 9.5% in 2022 as compared to 2021.

The increase was driven by higher sales to quick service restaurants, branded foodservice and package food and beverage company customers.

Pricing actions, taken in response to the inflationary cost environment, favorably impacted sales by 7.7% in 2022 as compared to the prior period level.

An unfavorable impact from foreign currency rates decreased sales by 11.7% compared to 2021 and is excluded from our measure of sales growth of 17.2% on a constant currency basis.

In the Asia/Pacific region, flavor solutions sales decreased 0.2% in 2022 as compared to 2021 and increased by 5.2% on a constant currency basis.

Favorable volume and product mix increased sales by 0.3%, driven by higher sales to quick service restaurant customers, partially impacted by the timing of customers' promotional activities.

Pricing actions, taken in response to the inflationary cost environment, favorably impacted sales by 4.9% as compared to the prior year.

An unfavorable impact from foreign currency rates decreased sales by 5.4% compared to 2021 and is excluded from our measure of sales growth of 5.2% on a constant currency basis.

Segment operating income for our flavor solutions segment decreased by $89.9 million, or 30.3%, in 2022 as compared to 2021.

The decrease in segment operating income was driven by increased commodity, transportation and conversion costs, as well as costs related to supply chain investments, which were partially offset by a higher level of sales, including pricing actions in response to the inflationary cost environment, and CCI-led cost savings, all as compared to the prior year.

Segment operating margin for our flavor solutions segment decreased by 450

basis points in 2022 to 8.0% driven by a lower segment gross margin, including the margin dilutive impact of pricing actions, the impact of the inflationary cost environment, and higher conversion costs, including the costs related to our supply chain investments, partially offset by CCI-led cost savings and a decrease in SG&A as percentage of sales associated with the favorable impact of fixed and semi-fixed expenses over a higher sales base, all as compared to the 2021 level.

On a constant currency basis, segment operating income for our flavor solutions segment decreased by 27.9% in 2022, as compared to 2021.

RESULTS OF OPERATIONS—2021 COMPARED TO 2020

Net sales $ 6,317.9 $ 5,601.3

Percent growth 12.8 % 4.7 %

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

Volume and product mix 5.5 % 3.7 %

Pricing actions 0.8 % 1.6 %

Acquisitions 4.1 % — %

Foreign exchange 2.4 % (0.6) %

Sales for 2021 increased by 12.8% from 2020 and by 10.4% on a constant currency basis.

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The decline was driven by the impact of increased commodity, packaging materials and transportation costs, higher conversion costs, which includes costs associated with COVID-19, and a less favorable mix in sales between our consumer and flavor solutions segments as compared to 2020.

These unfavorable impacts were partially offset by savings from our CCI program, pricing actions, improved product mix and the accretive impact of the Cholula and FONA acquisitions, each as compared to the prior year period.

In addition, our 2021 gross profit margin was burdened by (i) $6.3 million of transaction expense, representing the amortization of the fair value adjustment to the acquired inventories of Cholula and FONA upon our sale of those acquired inventories, and (ii) a non-cash special charge of $4.7 million

associated with the exit of a low margin business in our Asia/Pacific region.

Excluding the transaction expense and special charges, adjusted gross profit margin decreased by 140 basis points from 41.1% in 2020 to 39.7% for the year ended November 30, 2021.

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and (iii) increased brand marketing costs, all as compared to the corresponding period in 2020.

Those increases were partially offset by lower performance-based employee incentive expenses, as compared to the prior year period.

Those increases were partially offset by lower performance-based employee incentive expenses, as compared to the prior year.

SG&A as a percent of net sales for 2021 decreased by 60 basis points from the prior year level, driven by the impact of the leverage of fixed and semi-fixed expenses over a higher level of sales during the 2021 period.

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Total special charges $ 51.1 $ 6.9

We regularly evaluate whether to implement changes to our organization structure to reduce fixed costs, simplify and/or improve processes, and improve our competitiveness, and we expect to continue to evaluate such actions in the future.

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Interest expense was $1.0 million higher for 2021 as compared to the prior year as an increase in average total borrowings was largely offset by a decrease in interest rates.

Other income, net for 2021 decreased by $0.3 million as lower non-service cost income associated with our pension and postretirement benefit plans was partially offset by higher interest income, as compared to 2020.

Other income, net for 2021 decreased by $0.3 million

as lower non-service cost income associated with our pension and postretirement benefit plans was partially offset by higher interest income, as compared to 2020.

The decrease was also impacted by non-operating foreign currency transaction gains in 2021, as compared to non-operating foreign currency transaction losses in the prior period.

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We record tax expense or tax benefits that do not relate to ordinary income in the current fiscal year discretely in the period in which such items occur pursuant to the requirements of U.S.

Examples of such types of discrete items not related to ordinary income include, but are not limited to, excess tax benefits associated with share-based payments to employees, changes in estimates of the outcome of tax matters related to prior years, including reversals of reserves upon the lapsing of statutes of limitations, provision-to-return adjustments, the settlement of tax audits, changes in enacted tax rates, changes in the assessment of deferred tax valuation allowances and the tax effects of certain intra-entity asset transfers (other than inventory).

The effective tax rate was 21.5% in 2021 as compared to 19.8% in 2020.

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Net discrete tax benefits were $26.6 million in 2021, a decrease of $16.8 million from $43.4 million in 2020.

Discrete tax benefits in both the 2021 and 2020 periods included excess tax benefits associated with share-based payments to employees ($4.3 million and $14.2 million in 2021 and 2020, respectively), the reversal of reserves for unrecognized tax benefits ($22.5 million and $4.9 million in 2021 and 2020, respectively) due to, in 2021, 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, and in both years due to the expiration of the statues of limitations, the release of valuation allowances due to a change in judgment about realizability of deferred tax assets ($4.4 million and $11.9 million in 2021 and 2020, respectively) and other discrete items.

Discrete tax benefits in both the 2021 and 2020 periods included excess tax benefits associated with stock-based compensation ($4.3 million and $14.2 million in 2021 and 2020, respectively), the reversal of reserves for unrecognized tax benefits ($22.5 million and $4.9 million in 2021 and 2020, respectively) due to, in 2021, 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, and in both years due to the expiration of the statutes of limitations, the release of valuation allowances due to a change in judgment about realizability of deferred tax assets ($4.4 million and $11.9 million in 2021 and 2020, respectively) and other discrete items.

In 2021, discrete tax items included $4.0 million of tax benefits related to the revaluation of deferred taxes resulting from enacted legislation and $10.4 million of deferred state tax expense directly related to our December 2020 acquisition of FONA.

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(Eastern), an unconsolidated operation, during our second quarter of 2021, as more fully described in note 5 of the notes to the accompanying financial statements.

We own 50% of most of our unconsolidated joint ventures, including our largest joint venture,

McCormick de Mexico, that comprised 62% and 75% of the income of our unconsolidated operations in 2021 and 2020, respectively.

We own 50% of most of our unconsolidated joint ventures, including our largest joint venture, McCormick de Mexico, that comprised 62% and 75% of the income of our unconsolidated operations in 2021 and 2020, respectively.

The relative impact of McCormick de Mexico on income from unconsolidated operations in 2021 was impacted by the gain on our sale of an unconsolidated operation.

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The table below outlines the major components of the change in diluted earnings per share from 2020 to 2021.

The increase in adjusted operating income in the table below includes the impact from favorable currency exchange rates in 2021.

The increase in operating income in the table below includes the impact from favorable currency exchange rates in 2021.

2020 Earnings per share—diluted $ 2.78

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Impact of income taxes, excluding taxes on special charges and transaction and integration expenses (0.01)

Increase in income from unconsolidated operations, including an after-tax gain on sale of unconsolidated operation of $0.05 per diluted share 0.04

Increase in income from unconsolidated operations, including the after-tax gain on sale of unconsolidated operation of

$0.05 per diluted share 0.04

Impact of higher shares (0.01)

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Results of Operations—Segments

We measure the performance of our business segments based on operating income, excluding special charges and transaction and integration expenses related to our acquisitions.

In the following discussion, we refer to our previously described measure of segment profit as "Segment operating income".

Consumer Segment

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This increase included higher sales of our consumer business in each of our three regions.

Higher volume and product mix increased sales 4.3% while pricing actions added 0.6% to sales, both as compared to the prior year period.

Higher volume and product mix increased sales 4.3% while pricing actions added 0.6% to sales, both as compared to the prior year.

The incremental impact of the Cholula acquisition added 2.4% to segment sales during 2021.

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Favorable volume and product mix increased sales by 3.0% as compared to the corresponding period in 2020, as demand continues to be driven by consumers' sustained preference for eating more at home.

In addition, pricing actions, taken in response to higher costs, increased sales by 0.4% as compared to the prior year period.

In addition, pricing actions, taken in response to higher costs, increased sales by 0.4% as compared to the prior year.

The incremental impact of the Cholula acquisition added 3.3% to sales in 2021.

The favorable impact of foreign currency exchange rates increased sales by 0.6% compared to 2020 and is excluded from our measure of sales growth of 6.7% on a constant currency basis.

In the EMEA region, consumer sales increased 5.8% in 2021 as compared to 2020, which experienced a 14.5% increase in sales from the 2019 level driven by the COVID-19 impact on greater consumer at-home meal

preparation, and increased by 0.9% on a constant currency basis.

Favorable volume and product mix increased sales by 0.3% as compared to the corresponding period of 2020.

The impact of pricing actions increased sales by 0.6% as compared to the prior year period.

The impact of pricing actions increased sales by 0.6% as compared to the prior year.

The favorable impact of foreign currency exchange rates increased sales by 4.9% compared to 2020 and is excluded from our measure of sales growth of 0.9% on a constant currency basis.

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Segment operating income for our consumer segment increased by $24.0 million, or 3.1%, in 2021 as compared to 2020.

The increase in segment operating income was driven by higher sales, including the impact of acquisitions, CCI-led cost savings and lower incentive-based compensation accruals which were partially offset by increased commodities, packaging materials and transportation costs, increased conversion costs, which include incremental expenses related to COVID-19, and higher brand marketing investment, all as compared to the prior year period.

The increase in segment operating income was driven by higher sales, including the impact of acquisitions,

CCI-led cost savings and lower incentive-based compensation accruals which were partially offset by increased commodities, packaging materials and transportation costs, increased conversion costs, which include incremental expenses related to COVID-19, and higher brand marketing investment, all as compared to the prior year.

The impact of COVID-19 on segment operating income during 2021 reflected actions, including the incremental impact of temporary arrangements to utilize co-manufacturing, that increased our cost to produce certain products and measures to enable manufacturing and distribution staff to maintain social distancing and permit enhanced cleaning that reduced productivity.

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Favorable volume and improved product mix increased flavor solutions sales in the Americas by 3.2% during 2021, driven primarily by increased sales to branded foodservice and quick service restaurant customers.

Pricing actions increased sales by 1.7% as compared to the prior year period.

Pricing actions increased sales by 1.7% as compared to the prior year.

The incremental impact of the Cholula and FONA acquisitions increased sales by 10.5% in 2021.

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In the Asia/Pacific region, flavor solutions sales increased 16.9% in 2021 as compared to 2020, which experienced a sales increase of 0.4% from the 2019 level driven by higher sales to quick service restaurant customers, and increased by 9.4% on a constant currency basis.

Favorable volume and product mix increased sales by 10.6%, driven by higher sales to quick service restaurant customers.

Pricing actions decreased sales by 1.2% as compared to the prior year period.

Favorable volume and product mix increased sales by 10.6%,

driven by higher sales to quick service restaurant customers.

Pricing actions decreased sales by 1.2% as compared to the prior year.

A favorable impact from foreign currency rates increased sales by 7.5% compared to 2020 and is excluded from our measure of sales growth of 9.4% on a constant currency basis.

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On a constant currency basis, segment operating income for our flavor solutions segment increased by 22.5% in 2021, as compared to 2020.

RESULTS OF OPERATIONS—2020 COMPARED TO 2019

Net sales $ 5,601.3 $ 5,347.4

Percent growth 4.7 % 0.8 %

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

Volume and product mix 3.7 % 2.5 %

Pricing actions 1.6 % 0.2 %

Foreign exchange (0.6) % (1.9) %

Sales for 2020 increased by 4.7% from 2019 and by 5.3% on a constant currency basis.

That 4.7% sales increase was driven by higher sales in our consumer segment, which increased by 10.0% over the 2019 level, partially offset by lower sales in our flavor solutions segment, which declined by 3.5% from the prior year level.

On a consolidated basis, higher volume and favorable product mix increased sales by 3.7% while pricing actions added 1.6% to sales.

That net volume increase and favorable mix was driven by higher demand within our consumer segment, as measures imposed to mitigate the spread of COVID-19 and the related change in consumer behavior, resulted in a shift in consumer behavior toward at-home meal preparation that more than offset lower demand within our flavor solutions segment principally associated with our restaurant and branded food service customers.

Sales were also impacted by unfavorable foreign currency rates that decreased net sales 0.6% compared to 2019 and is excluded from our measure of sales growth of 5.3% on a constant currency basis.

Gross profit $ 2,300.4 $ 2,145.3

Gross profit margin 41.1 % 40.1 %

In 2020, our gross profit margin increased 100 basis points to 41.1% from 40.1% in 2019.

This improvement was driven by the favorable impact of CCI-led cost savings, favorable pricing actions and the mix of consumer and flavor solutions sales, partially offset by unfavorable conversion costs and increased material costs.

Higher conversion costs during 2020 reflected certain matters associated with COVID-19, including the impact of temporary arrangements that increased salaries and benefits paid to our manufacturing employees, measures to enable manufacturing and distribution staff to maintain social distancing and permit enhanced cleaning between shifts that reduced productivity, and the impact of lower production volumes of flavor solutions inventories.

Selling, general & administrative expense $ 1,281.6 $ 1,166.8

Percent of net sales 22.9 % 21.8 %

SG&A expense was $1,281.6 million in 2020 compared to $1,166.8 million in 2019, an increase of $114.8 million.

That increase in SG&A expense was primarily a result of (i) higher performance-based employee incentive expense accruals, (ii) higher distribution expenses associated with the higher sales volume, (iii) increased brand marketing costs and (iv) a one-time fiscal 2019 expense reduction from the alignment of an employee benefit plan to our global standard that did not recur in 2020, all as compared to 2019.

SG&A expense as a percent of net sales increased by 110 basis points from the prior year level, primarily as a result of the previously mentioned factors, partially offset by the impact of the leverage of fixed and semi-fixed expenses over a higher level of sales during the 2020 period.

Total special charges $ 6.9 $ 20.8

During 2020, we recorded $6.9 million of special charges, consisting of $5.3 million related to streamlining actions in our EMEA region and $1.6 million related to our GE initiative.

During 2019, we recorded $20.8 million of special charges, consisting primarily of (i) $14.1 million of costs related to our multi-year GE business transformation initiative, including $10.6 million of third-party expenses, $2.1 million related to severance and related benefits, and $1.4 million related to other costs;

(ii) $2.3 million of severance and related benefits associated with streamlining actions in the Americas;

and (iii) $3.9 million related to streamlining actions in our EMEA region.

Transaction and integration expenses $ 12.4 $ —

Transaction and integration expenses related to our acquisitions of Cholula and FONA of $11.2 million and $1.2 million, respectively, were incurred late in fiscal 2020.

Operating income $ 999.5 $ 957.7

Percent of net sales 17.8 % 17.9 %

Operating income increased by $41.8 million, or 4.4%, from $957.7 million in 2019 to $999.5 million in 2020.

Operating income as a percent of net sales declined by 10 basis points in 2020, to 17.8% in 2020 from 17.9% in 2019 as a result of the factors previously described.

Excluding the effect of special charges and transaction and integration expenses previously described, adjusted operating income was $1,018.8 million in 2020 as compared to $978.5 million in 2019, an increase of $40.3 million or 4.1% over the 2019 level.

Adjusted operating income as a percent of net sales declined by 10 basis points in 2020, to 18.2% in 2020 from 18.3% in 2019.

Interest expense $ 135.6 $ 165.2

Other income, net 17.6 26.7

Interest expense was $29.6 million lower for 2020 as compared to the prior year primarily due to a decline in average total borrowings and a lower interest rate environment.

Other income, net for 2020 decreased by $9.1 million from the 2019 level due principally to lower non-service cost income associated with our pension and postretirement benefit plans that declined by $7.6 million in 2020 from the prior year level.

Income from consolidated operations before income taxes $ 881.5 $ 819.2

Income tax expense 174.9 157.4

Effective tax rate 19.8 % 19.2 %

The effective tax rate was 19.8% in 2020 as compared to 19.2% in 2019.

The effective tax rate of 19.2% in 2019 includes a non-recurring net tax benefit of $1.5 million associated with the U.S.

Net discrete tax benefits were $43.4 million in 2020, which is a decrease of $0.3 million from $43.7 million in 2019, including the $1.5 million

non-recurring benefit of the U.S.

Tax Act in 2019.

Discrete tax benefits in both the 2020 and 2019 periods include excess tax benefits associated with share-based payments to employees ($14.2 million and $22.4 million in 2020 and 2019, respectively), the tax benefits associated with intra-entity asset transfers that occurred ($9.9 million and $15.2 million in 2020 and 2019, respectively), the reversal of reserves for unrecognized tax benefits for the expiration of the statues of limitations and other discrete items.

In 2020, discrete tax benefits included $11.9 million associated with the release of valuation allowances due to a change in judgment about realizability of deferred tax assets.

See note 13 of notes to our consolidated financial statements for a more detailed reconciliation of the U.S.

federal tax rate with the effective tax rate.

Income from unconsolidated operations $ 40.8 $ 40.9

Income from unconsolidated operations decreased $0.1 million in 2020 from the prior year.

We own 50% of most of our unconsolidated joint ventures, including our largest joint venture, McCormick de Mexico, that comprised 75% and 72% of the income of our unconsolidated operations in 2020 and 2019, respectively.

We reported diluted earnings per share of $2.78 in 2020, compared to $2.62 in 2019.

The table below outlines the major components of the change in diluted earnings per share from 2019 to 2020.

The increase in adjusted operating income in the table below includes the impact from unfavorable currency exchange rates in 2020.

2019 Earnings per share—diluted $ 2.62

Increase in operating income 0.12

Decrease in special charges 0.05

Increase in transaction and integration expenses (0.04)

Decrease in interest expense 0.09

Decrease in other income (0.03)

Impact of income taxes (0.02)

Impact of higher shares outstanding (0.01)

2020 Earnings per share—diluted $ 2.78

Results of Operations—Segments

Consumer Segment

Net sales $ 3,596.7 $ 3,269.8

Percent growth 10.0 % 0.7 %

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

Volume and product mix 8.8 % 2.4 %

Pricing actions 1.5 % 0.1 %

Foreign exchange (0.3) % (1.8) %

Segment operating income $ 780.9 $ 676.3

Segment operating income margin 21.7 % 20.7 %

Sales of our consumer segment in 2020 grew by 10.0% as compared to 2019 and grew by 10.3% on a constant currency basis.

This increase was driven by sharply higher sales of our consumer business in the Americas and in EMEA, with a partial offset from a sales decline in the Asia/Pacific region.

Asia/Pacific region sales declines were driven by lower sales in China, which includes the impact of away-from-home products included in its consumer portfolio.

Higher volume and product mix added 8.8% to sales as measures imposed to mitigate the spread of COVID-19 resulted in a shift in consumer behavior toward at-home meal preparation.

Pricing actions added 1.5% to sales as compared to the prior year period.

The unfavorable impact of foreign currency exchange rates decreased consumer segment sales by 0.3% compared to 2019 and is excluded from our measure of sales growth of 10.3% on a constant currency basis.

In the Americas, consumer sales rose 13.9% in 2020 as compared to 2019 and rose by 14.0% on a constant currency basis.

Higher volume and product mix added 11.9% to sales driven by significant growth across the McCormick branded portfolio.

In addition, pricing actions, taken in response to higher costs, increased sales by 2.1% as compared to the prior year period.

The unfavorable impact of foreign currency exchange rates decreased

sales by 0.1% compared to 2019 and is excluded from our measure of sales growth of 14.0% on a constant currency basis.

In the EMEA region, consumer sales increased 14.5% in 2020 as compared to 2019 and rose by 14.3% on a constant currency basis.

Volume and product mix increased sales by 13.9%.

The increase was broad based across the region with particular strength in branded spices and seasonings and homemade dessert products in France.

The impact of pricing actions increased sales by 0.4%.

The favorable impact of foreign currency exchange rates increased sales by 0.2% compared to 2019 and is excluded from our measure of sales growth of 14.3% on a constant currency basis.

In the Asia/Pacific region, consumer sales decreased 16.6% as compared to 2019 and decreased 15.1% on a constant currency basis.

Lower volume and product mix reduced sales by 15.0%.

The decrease was driven by products related to away-from-home consumption in China.

Partially offsetting this decline was growth in cooking-at-home products, particularly in Australia.

Pricing actions reduced sales by 0.1% as compared to 2019.

The unfavorable impact from foreign currency exchange rates decreased sales by 1.5% compared to 2019 and is excluded from our measure of sales decline of 15.1% on a constant currency basis.

We grew segment operating income for our consumer segment by $104.6 million, or 15.5%, in 2020 as compared to 2019.

The increase in segment operating income was driven by the impact of higher sales, as previously described, and CCI-led cost savings, partially offset by higher conversion costs, increased material costs, increased brand marketing costs and higher performance-based employee incentive expense accruals.

Higher conversion costs during 2020 reflected certain matters associated with COVID-19, including the impact of temporary arrangements that increased salaries and benefits paid to our manufacturing employees as well as measures to enable manufacturing and distribution staff to maintain social distancing and permit enhanced cleaning between shifts that reduced productivity.

Segment operating margin for our consumer segment rose by 100 basis points in 2020 to 21.7%, driven by an increase in consumer gross profit margin that was partially offset by an increase in SG&A expense as a percentage of net sales as compared to the 2019 period.

Segment operating margin in 2020 benefited from the leverage of fixed and semi-fixed expenses over a higher sales base than compared to the 2019 level.

On a constant currency basis, segment operating income for our consumer segment rose by 15.7% in 2020 in comparison to the same period in 2019.

Flavor Solutions Segment

Net sales $ 2,004.6 $ 2,077.6

Percent (decline) growth (3.5) % 1.1 %

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

Volume and product mix (4.2) % 2.9 %

Pricing actions 1.8 % 0.3 %

Foreign exchange (1.1) % (2.1) %

Segment operating income $ 237.9 $ 302.2

Segment operating income margin 11.9 % 14.5 %

Sales of our flavor solutions segment decreased 3.5% in 2020 as compared to 2019 and decreased by 2.4% on a constant currency basis.

Driving that decrease in sales was lower demand due to the impact of the COVID-19 disruption on our restaurant and branded food service customers, particularly in the Americas and EMEA regions.

Unfavorable volume and product mix decreased segment sales by 4.2% as compared to 2019, while pricing actions, taken in response to increased costs, during the period increased sales by 1.8%.

The unfavorable impact of foreign currency rates decreased flavor solutions segment sales by 1.1% as compared to 2019 and is excluded from our measure of sales decline of 2.4% on a constant currency basis.

In the Americas, flavor solutions sales decreased by 3.5% in 2020 as compared to the prior year level and decreased by 2.5% on a constant currency basis.

Unfavorable volume and product mix decreased flavor solutions sales in the Americas by 4.4% during 2020, driven by lower sales to branded foodservice and quick service restaurant customers, but was partially offset by higher sales to packaged food companies.

Pricing actions increased sales by 1.9% as compared to the prior year period.

An unfavorable impact from foreign currency rates decreased sales by 1.0% compared to 2019 and is excluded from our measure of sales decline of 2.5% on a constant currency basis.

In the EMEA region, flavor solutions sales in 2020 decreased by 5.5% from the prior year level and decreased by 4.2% on a constant currency basis.

Unfavorable volume and product mix decreased segment sales by 7.0% as compared to 2019.

The decline was primarily attributable to lower sales to branded foodservice and quick service restaurant customers, partially offset by higher demand from packaged food companies.

Pricing actions increased sales by 2.8% in 2020 as compared the prior year level.

An unfavorable impact from foreign currency rates decreased sales by 1.3% compared to 2019 and is excluded from our measure of sales decline of 4.2% on a constant currency basis.

In the Asia/Pacific region, flavor solutions sales increased 0.4% in 2020 from the prior year level and increased by 1.6% on a constant currency basis.

Favorable volume and product mix increased sales by 2.2%, driven by higher sales to quick service restaurant customers.

Pricing actions decreased sales by 0.6% as compared to the prior year period.

An unfavorable impact from foreign currency rates decreased sales by 1.2% compared to 2019 and is excluded from our measure of sales growth of 1.6% on a constant currency basis.

Segment operating income for our flavor solutions segment decreased by $64.3 million, or 21.3%, in 2020 as compared to 2019.

The decrease in segment operating income was driven by lower sales, increased conversion costs, the impact of lower production volumes, increased material costs and higher performance-based employee incentive expense accruals that were partially offset by CCI-led cost savings.

Higher conversion costs during 2020 reflected certain matters associated with COVID-19, including the impact of temporary arrangements that increased salaries and benefits paid to our manufacturing employees as well as measures to enable manufacturing and distribution staff to maintain social distancing and permit enhanced cleaning between shifts that reduced productivity, and the impact of lower production volumes of flavor solutions inventories.

Segment operating margin for our flavor solutions segment decreased by 260 basis points from the prior year level to 11.9% in 2020, driven by lower flavor solutions segment gross profit margin and an increase in SG&A expense as a percent of net sales.

Segment operating margin in 2020 also declined due to the deleveraging impact of fixed and semi-fixed expenses over a lower sales base as compared to the 2019 period.

On a constant currency basis, segment operating income for our flavor solutions segment declined by 19.7% in 2020, as compared to the same period in 2019.

NON-GAAP FINANCIAL MEASURES

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These financial measures exclude the impact, as applicable, of the following:

• Special charges – Special charges consist of expenses associated with certain actions undertaken by the Company to reduce fixed costs, simplify or improve processes, and improve our competitiveness and are of such significance in terms of both up-front costs and organizational/structural impact to require advance approval by our Management Committee.

Upon presentation of any such proposed action (including details with respect to estimated costs, which generally consist principally of employee severance and related benefits, together with ancillary costs associated with the action that may include a non-cash component or a component which relates to inventory adjustments that are included in cost of goods sold;

• Special charges – Special charges consist of expenses and income associated with certain actions undertaken by us to reduce fixed costs, simplify or improve processes, and improve our competitiveness and are of such significance in terms of both up-front costs and organizational/structural impact to require advance approval by our Management Committee.

Upon presentation of any such proposed action (generally including details with respect to estimated costs, which typically consist principally of employee severance and related benefits, together with ancillary costs associated with the action that may include a non-cash component, 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;

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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 ongoing basis through completion.

Special charges for the year ended November 30, 2022 include a $13.6 million gain associated with the sale of the Kohinoor brand name.

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

• Transaction and integration expenses associated with the Cholula and FONA acquisitions – We exclude certain costs associated with our acquisitions of Cholula and FONA in November and December 2020, respectively, and their subsequent integration into the Company.

Such costs, which we refer to as “Transaction and integration expenses”, include transaction costs associated with each acquisition, as well as integration costs following the respective acquisition, including the impact of the acquisition date fair value adjustment for inventory, together with the impact of discrete tax items, if any, directly related to each acquisition.

Such costs, which we refer to as “Transaction and integration expenses,” include transaction costs associated with each acquisition, as well as integration costs following the respective acquisition, including the impact of the acquisition date fair value adjustment for inventories, together with the impact of discrete tax items, if any, directly related to each acquisition.

• Income from sale of unconsolidated operations – We exclude the gain realized upon our sale of an unconsolidated operation in March 2021.

As more fully described in note 5 of the notes to the accompanying financial statements, the sale of our 26% interest in Eastern resulted in a gain of $13.4

million, net of tax of $5.7 million.

The gain is included in Income from unconsolidated operations in our consolidated income statement.

• Income taxes associated with the U.S.

Tax Act – We recorded a net income tax benefit of $1.5 million during the year ended November 30, 2019 associated with the U.S.

Tax Act enacted in December 2017 related provision to return adjustment.

Details with respect to the composition of transaction and integration expenses, special charges and income from the sale of unconsolidated operations recorded for the years and in the amounts set forth below are included in notes 2, 3 and 5, respectively, of notes to our consolidated financial statements.

As more fully described in note 5 of the notes to the accompanying financial statements, the sale of our 26% interest in Eastern Condiments resulted in a gain of $13.4 million, net of tax of $5.7 million.

The gain is included in Income from unconsolidated operations in our consolidated income statement for the year ended November 30, 2021.

• Gain on sale of Kitchen Basics – We exclude the gain realized upon our sale of the Kitchen Basics business in August 2022.

As more fully described in note 17 of the notes to the accompanying financial statements, the pre-tax gain associated with the sale was $49.6 million and is included in Other income, net in our consolidated income statement for the year ended November 30, 2022.

Details with respect to the composition of transaction and integration expenses, special charges, income from the sale of unconsolidated operations, and gain on sale of Kitchen Basics for the years and in the amounts set forth below are included in notes 2, 3, and 5, of notes to our consolidated financial statements.

We believe that these non-GAAP financial measures are important.

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Impact of other transaction and integration expenses (1)

2.2 29.0 12.4

Impact of special charges included in cost of goods sold (2)

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Adjusted operating income $ 917.4 $ 1,101.5 $ 1,018.8

% increase versus prior year 8.1 % 4.1 % 5.2 %

% (decrease) increase versus prior year (16.7) % 8.1 % 4.1 %

Adjusted operating income margin (3)

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Income tax expense $ 168.6 $ 192.7 $ 174.9

Non-recurring benefit, net, of the U.S.

Tax Act — — 1.5

Impact of transaction and integration expenses (1)

0.6 (2.7) 1.9

Impact of special charges (2)

Impact of sale of Kitchen Basics (11.6) — —

Adjusted income tax expense $ 170.9 $ 197.1 $ 178.9

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Impact of transaction and integration expenses (1)

1.6 38.0 10.5

Impact of special charges (2)

38.3 44.0 4.8

Impact of after-tax gain on sale of Kitchen Basics (38.0) — —

Impact of after-tax gain on sale of unconsolidated operations — (13.4) —

Non-recurring benefit, net, of the U.S.

Tax Act — — (1.5)

Adjusted net income $ 683.9 $ 823.9 $ 762.7

% increase versus prior year 8.0 % 6.3 % 8.4 %

% (decrease) increase versus prior year (17.0) % 8.0 % 6.3 %

Earnings per share—diluted $ 2.52 $ 2.80 $ 2.78

Impact of transaction and integration expenses (1)

0.01 0.14 0.04

Impact of special charges (2)

0.14 0.16 0.01

Impact of after-tax gain on sale of Kitchen Basics (0.14)

Impact of after-tax gain on sale of unconsolidated operations — (0.05) —

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(1) Transaction and integration expenses are more fully described in note 2 of notes to our consolidated financial statements and include transaction and integration expenses associated with our acquisitions of Cholula and FONA.

These expenses include transaction expenses, integration expenses, including the effect of the fair value adjustment to acquired inventories on Cost of goods sold and the impact of a discrete deferred state income tax expense item, directly related to our December 2020 acquisition of FONA.

This discrete tax item had an unfavorable impact of $10.4 million or $0.04 per diluted share for the year ended November 30, 2021.

(2) Special charges are more fully described in note 3 of notes to our consolidated financial statements.

These expenses include the effect of the fair value adjustment to acquired inventories on cost of goods sold and the impact of a discrete deferred state income tax expense item, directly related to our December 2020 acquisition of FONA.

The discrete tax item had an unfavorable impact of $10.4 million or $0.04 per diluted share for the year ended November 30, 2021.

(2) Special charges are more fully described in note 3 of notes to our accompanying consolidated financial statements.

Special charges for the year ended November 30, 2022 include a $10.0 million non-cash intangible asset impairment charge associated with our exit of our business operations in Russia.

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

Special charges for the year ended November 30, 2022 include a $13.6 million gain associated with the sale of the Kohinoor brand name.

Special charges for the year ended November 30, 2021 include $4.7 million which is reflected in Cost of goods sold and an $11.2 million non-cash impairment charge associated with the impairment of certain intangible assets.

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Earnings per share – diluted $2.42 to $2.47

Impact of integration expenses 0.01

Impact of special charges 0.14

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dollar net sales, adjusted operating income and adjusted earnings per share — diluted would have been if the relevant currency exchange rates had not changed from those of the comparable 2022 periods.

Projections for the Year Ending November 30, 2022

Percentage change in net sales 3% to 5%

Impact of unfavorable foreign currency exchange 1 %

Percentage change in net sales in constant currency 4% to 6%

Percentage change in adjusted operating income 7% to 9%

Impact of unfavorable foreign currency exchange 1 %

Percentage change in adjusted operating income in constant currency 8% to 10%

Percentage change in adjusted earnings per share— diluted 4% to 6%

Impact of unfavorable foreign currency exchange 1 %

Percentage change in adjusted earnings per share— diluted in constant currency 5% to 7%

LIQUIDITY AND FINANCIAL CONDITION

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Net cash used in investing activities (146.4) (908.6) (1,025.6)

Net cash provided by (used in) financing activities 22.0 220.9 (725.8)

Net cash (used in) provided by financing activities (487.2) 22.0 220.9

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

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We believe that our sources of liquidity, which include existing cash balances, cash flows from operations, existing credit facilities, our commercial paper program, and access to capital markets, will provide sufficient liquidity to meet our debt obligations, including any repayment of debt or refinancing of debt, working capital needs, planned capital expenditures, and payment of anticipated quarterly dividends for at least the next twelve months.

In the cash flow statement, the changes in operating assets and liabilities are presented excluding the effects of changes in foreign currency exchange rates, as these do not reflect actual cash flows.

In addition, in the cash flow statement, the changes in operating assets and liabilities are presented excluding the effect of acquired operating assets and liabilities, as the cash flows associated with acquisition of businesses is presented as an investing activity.

In the cash flow statement, the changes in operating assets and liabilities are presented excluding the translation effects of changes in foreign currency exchange rates, as these do not reflect actual cash flows.

In addition, in the cash flow statement, the changes in operating assets and liabilities are presented excluding the effect of acquired or disposed operating assets and liabilities, as the cash flows associated with acquisition or dispositions of businesses is presented as an investing activity.

Accordingly, the amounts in the cash flow statement do not agree with changes in the operating assets and liabilities that are presented in the balance sheet.

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subsidiaries and affiliates can be significantly affected by fluctuations in foreign exchange rates between periods.

At November 30, 2021, the exchange rates for the Canadian dollar and Chinese renminbi were higher versus the U.S.

dollar than at November 30, 2020.

At November 30, 2021, the exchange rates for the Euro, British pound sterling, Australian dollar, and Polish zloty were lower versus the U.S.

At November 30, 2022, the exchange rates for the Euro, British pound sterling, Canadian dollar, Chinese renminbi, Australian dollar, and Polish zloty were lower than the U.S.

dollar than at November 30, 2021.

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Net income as well as our working capital management, as more fully described below, impacted operating cash flow.

In 2022, the decrease was primarily driven by lower net income, including the effect of net income associated with the gain on sale of our Kitchen Basics business and an intangible asset that are reflected as investing cash flows as well as the timing of certain employee incentive payments.

In 2021, the reduction in operating cash flow was the result of increased inventory levels to protect against supply disruption, employee incentive payments, and the payment of transaction and integration costs related to our recent acquisitions.

In 2020, the increases to operating cash flow were the result of a significantly lower use of cash associated with other assets and liabilities, including the timing of certain employee incentive and customer related payments, which was partially offset by the use of cash associated with working capital, driven by the increased level of inventory to meet demand.

In 2019, our working capital management favorably impacted operating cash flow.

In 2019, those increases were partially offset by a use of cash associated with other assets and liabilities, totaling $81.5 million.

In 2020, the increase in operating cash flow was the result of a significantly lower use of cash associated with other assets and liabilities, including the timing of certain employee incentive and customer related payments, which was partially offset by the use of cash associated with working capital, driven by the increased level of inventory to meet demand.

Our working capital management – principally related to inventory, trade accounts receivable, and accounts payable – impacts our operating cash flow.

The change in inventory had a significant impact on the variability in cash flow from operations.

It was a significant use of cash in 2021 and 2020 and a moderate use of cash in 2019.

The change in trade accounts receivable was a use of cash in 2021 but a source of cash in 2020 and 2019.

The change in inventory was a significant use of cash from operations in 2022, 2021, and 2020.

The change in trade accounts receivable was a use of cash in 2022 and 2021 but a source of cash in 2020.

The change in accounts payable was a significant source of cash in 2022 and 2020 and a more moderate source of cash in 2021.

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Cash Conversion Cycle 51 46 39

The increase in CCC in 2022 from 2021 was due primarily to an increase in our days in inventory as a result of cost inflation, strategic purchases to avoid shipping challenges, and lower than forecasted sales.

The increase in CCC in 2021 from 2020 was due primarily to an increase in our days in inventory as a result of efforts to protect against supply chain disruption and to meet increased demand.

This was partially offset by an increase in our days payable outstanding.

The decrease in CCC in 2020 from 2019 was due to an increase in our days payable outstanding as a result of extending our payment terms to suppliers, as more fully described below, which was partially offset by an increase in our days in inventory due to maintaining higher levels of inventory.

Prior to fiscal 2019, in response to evolving market practices, we began a program to negotiate extended payment terms with our suppliers.

We also initiated a Supply Chain Finance program (SCF) with several global financial institutions (SCF Banks).

During both periods, the increase in days in inventory was partially offset by an increase in our days payable outstanding.

We offer certain suppliers access to a third-party Supply Chain Finance program (SCF) with several global financial institutions (SCF Banks).

Under the SCF, qualifying suppliers may elect to sell their receivables from us to an SCF Bank.

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The SCF Bank pays the supplier on the invoice due date for any invoices that were not previously sold by the supplier to the SCF Bank.

The program has been in place for over five years and commenced near the same time we began an initiative to negotiate extended payment terms with our suppliers in response to evolving market practices.

The terms of our payment obligation are not impacted by a supplier’s participation in the SCF.

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Investing Cash Flow – Net cash used in investing activities was $146.4 million in 2022, $908.6 million in 2021, and $1,025.6 million in 2020.

Our primary investing cash flows include the usage of cash associated with acquisition of businesses and capital expenditures.

Cash usage related to our acquisition of businesses was $706.4 million in 2021 and $803.0 million in 2020.

Our primary investing cash flows include the usage of cash associated with acquisition of businesses and capital expenditures as well as cash provided by sale of businesses, unconsolidated operations, or other assets.

Cash usage related to our acquisition of businesses was $706.4 million and $803.0 million in 2021 and 2020, respectively.

Capital expenditures, including expenditures for capitalized software, were $262.0 million in 2022, $278.0 million in 2021, and $225.3 million in 2020.

We expect 2022 capital expenditures to approximate $320 million to support our planned growth, including the multi-year program to replace our ERP system and other initiatives.

We expect 2023 capital expenditures to approximate $280 million to support our planned growth.

In 2022, we received $95.2 million net cash proceeds received from the sale of our Kitchen Basics business and $13.6 million net cash proceeds received on the sale of the Kohinoor brand name which are more fully discussed in notes 2 and 3, respectively, of notes to our consolidated financial statements.

Our primary investing cash inflow in 2021 was the $65.4 million of proceeds received from the sale of an unconsolidated operation, as more fully discussed in note 5 of notes to our consolidated financial statements.

Financing Cash Flow – Net cash associated with financing activities was a source of cash of $22.0 million in 2021 and $220.9 million in 2020.

Net cash used in financing activities was $725.8 million in 2019.

Financing Cash Flow – Net cash associated with financing activities was a use of cash of $487.2 million in 2022 and a source of cash of $22.0 million and $220.9 million in 2021 and 2020, respectively.

The variability between years is principally a result of changes in our net borrowings, share repurchase activity and dividends, all as described below.

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2022 2021 2020

Net (decrease) increase in short-term borrowings $ (346.7) $ 286.5 $ 41.0

Net increase (decrease) in short-term borrowings $ 698.3 $ (346.7) $ 286.5

Proceeds from issuance of long-term debt, net of debt issuance costs — 999.6 525.9

Repayments of long-term debt (772.0) (257.1) (257.7)

Net cash provided from (used in) borrowing activities $ 395.8 $ 554.7 $ (406.7)

Net cash (used in) provided from net borrowing activities $ (73.7) $ 395.8 $ 554.7

In 2022, we repaid $772.0 million of long-term debt, including the $750 million, 2.70% notes that matured on August 15, 2022.

In 2021, we borrowed $1,001.5 million under long-term borrowing arrangements, including net proceeds of $495.7 million of 0.9% notes due February 2026 and net proceeds of $492.8 million of 1.85% notes due February 2031.

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We also repaid $257.7 million of long-term debt, including $250.0 million associated with our term loans due in August 2022.

In 2019, we repaid $447.7 million of long-term debt, including $436.3 million of our $1,500.0 million term loans issued in August 2017.

The following table outlines the activity in our share repurchase programs:

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Percentage increase per share 8.8 % 9.7 % 8.8 %

In November 2021, the Board of Directors approved an 8.8% increase in the quarterly dividend from $0.34 to $0.37 per share.

In November 2022, the Board of Directors approved a 5.4% increase in the quarterly dividend from $0.37 to $0.39 per share.

Most of our cash is in our subsidiaries outside of the U.S.

We manage our worldwide cash requirements by considering available funds among the many subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed.

Prior to the enactment of the U.S.

Tax Act on December 22, 2017, the permanent repatriation of cash balances from certain of our non-U.S.

subsidiaries could have had adverse tax consequences;

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

Those balances are generally available without legal restrictions to fund ordinary business operations, capital projects and future acquisitions.

As of November 30, 2022, we have $1.4 billion of earnings from our non-U.S.

subsidiaries and joint ventures that are considered indefinitely reinvested.

While federal income tax expense has been recognized as a result of the U.S.

Tax Act, we have not provided any additional deferred taxes with respect to items such as foreign withholding taxes, state income taxes, or foreign exchange gains or losses.

It is not practicable for us to determine the amount of unrecognized tax expense on these indefinitely reinvested foreign earnings.

We have not provided any deferred taxes with respect to items such as foreign withholding taxes, other income taxes, or foreign exchange gains or losses.

It is not practicable for us to determine the amount of unrecognized tax expense on these reinvested international earnings.

At November 30, 2022, we temporarily used $191.0 million of cash from our non-U.S.

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

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

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

The average short-term borrowings outstanding for the years ended November 30, 2022 and 2021 were $1,117.0 million and $1,029.9 million, respectively.

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CREDIT FACILITIES – Cash flows from operating activities are our primary source of liquidity for funding growth, share repurchases, dividends and capital expenditures.

We also rely on our revolving credit facility, or borrowings backed by this facility, to fund working capital needs and other general corporate requirements.

In June 2021, we entered into a five-year $1.5 billion revolving credit facility, which will expire in June 2026.

The current pricing for the credit facility, on a fully drawn basis, is LIBOR plus 1.25%.

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 LIBOR plus 1.75%.

The provisions of this revolving credit facility restrict subsidiary indebtedness and require us to maintain a minimum interest coverage ratio.

We do not expect that this covenant would limit our access to this revolving credit facility for the foreseeable future.

This facility replaced the following prior revolving credit facilities:

(i) a five-year $1.0 billion revolving credit facility that was due to expire in August 2022, and (ii) a 364-day $1.0 billion revolving facility, which we entered into in the first quarter of 2021 that was due to expire in December 2021.

We also rely on our revolving credit facilities, or borrowings backed by these facilities, to fund working capital needs and other general corporate requirements.

Our committed revolving credit facilities include a five-year $1.5 billion revolving credit facility, which will expire in June 2026 and a 364-day $500 million revolving credit facility, which was entered into in July 2022 and will expire in July 2023.

The current pricing for the five-year credit facility, on a fully drawn basis, is LIBOR plus 1.25%.

The pricing of that credit facility is based on a credit rating grid that contains a fully drawn maximum pricing of the credit facility equal to LIBOR plus 1.75%.

The current pricing for the 364-day credit facility, on a fully drawn basis, is SOFR plus 1.23%.

The pricing of that credit facility is based on a credit rating grid that contains a fully drawn maximum pricing of the credit facility equal to SOFR plus 1.60%.

The provisions of each revolving credit facility restrict subsidiary indebtedness and require us to maintain a minimum interest coverage ratio.

We do not expect that this covenant would limit our access to either revolving credit facilities for the foreseeable future.

The terms of those revolving credit facilities are more fully described in note 6 of the notes to the consolidated financial statements.

We generally use our revolving credit facility to support our issuance of commercial paper.

If the commercial paper market is not available or viable, we could borrow directly under our revolving credit facility.

This facility is made available by a syndicate of banks, with various commitments per bank.

If any of the banks in this syndicate are unable to perform on their commitments, our liquidity could be impacted, which could reduce our ability to grow through funding of seasonal working capital.

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

We generally use our revolving credit facilities to support our issuance of commercial paper.

If the commercial paper market is not available or viable, we could borrow directly under our revolving credit facilities.

These facilities are made available by a syndicate of banks, with various commitments per bank.

If any of the banks in these syndicates are unable to perform on their commitments, our liquidity could be impacted, which could reduce our ability to grow through funding of seasonal working capital.

We engage in regular communication with all banks participating in our 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 our banks will perform on their commitments.

In addition to our committed revolving credit facility, we have uncommitted facilities of $308.4 million as of November 30, 2021 that can be withdrawn based upon the lenders' discretion.

In addition to our committed revolving credit facilities, we have uncommitted facilities of $302.5 million as of November 30, 2022 that can be withdrawn based upon the lenders' discretion.

See note 6 of notes to our consolidated financial statements for more details on our financing arrangements.

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Our primary obligations include principal and interest payments on our outstanding short-term borrowings and long-term debt.

In the next year, our most significant debt service obligation is the maturity of our $750.0 million, 2.70% notes due in August 2022.

In the next year, our most significant debt service obligation is the maturity of our $250.0 million, 3.50% notes due in September 2023.

Also in July 2023, our $500 million, 364-day revolving credit facility matures.

Detail on these contractual obligations follows:

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Total contractual cash obligations $ 5,942.3 $ 1,617.3 $ 1,243.5 $ 1,425.1 $ 1,656.4

(a) Interest payments include interest payments on short-term borrowings and long-term debt.

See notes 6 and 7 of notes to our consolidated financial statements for additional information.

(a) Interest payments include interest payments on long-term debt.

Our short-term borrowings, principally consisting of commercial paper, have short-term maturities.

We anticipate total interest expense for the year ending November 30, 2023 to approximate $200 million to $210 million, which we expect will also approximate cash interest payments for the same period.

See note 6 of notes to our consolidated financial statements for additional information.

Our other cash requirements at year end include raw material purchases, lease payments, income taxes, and pension and postretirement benefits.

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These obligations impact our liquidity and capital resource needs.

To meet those cash requirements, we intend to use our existing cash, cash equivalents and internally generated funds, to borrow under our existing credit facility or under other short-term borrowing facilities, and depending on market conditions and upon the significance of the cost of a particular debt maturity or acquisition to our then-available sources of funds, to obtain additional short- and long-term financing.

To meet those cash requirements, we intend to use our existing cash, cash equivalents and internally generated funds, to borrow under our existing credit facilities or under other short-term borrowing facilities, and depending on market conditions and upon the significance of the cost of a particular debt maturity or acquisition to our then-available sources of funds, to obtain additional short- and long-term financing.

We believe that cash provided from these sources will be adequate to meet our future cash requirements.

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Acquisitions are part of our strategy to increase sales and profits.

In early fiscal 2021, we purchased FONA.

On December 30, 2020, we purchased FONA.

The purchase price was approximately $708 million, net of cash acquired.

FONA is a leading manufacturer of clean and natural flavors providing solutions for a diverse customer base across various applications for the food, beverage and nutritional markets.

Our acquisition of FONA on December 30, 2020 expands the breadth of our flavor solutions segment into attractive categories, as well as extends our technology platform and strengthens our capabilities.

Our acquisition of FONA expands the breadth of our flavor solutions segment into attractive categories, as well as extends our technology platform and strengthens our capabilities.

The acquisition was funded with cash and short-term borrowings.

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The acquisition was funded with cash and short-term borrowings.

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.

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.

We did not have any acquisitions in fiscal 2019.

See note 2 of notes to our consolidated financial statements for further details regarding these acquisitions.

PERFORMANCE GRAPH — SHAREHOLDER RETURN

The following line graph compares the yearly change in McCormick’s cumulative total shareholder return (stock price appreciation plus reinvestment of dividends) on McCormick’s Non-Voting Common Stock with (1) the cumulative total return of the Standard & Poor’s 500 Stock Price Index, assuming reinvestment of dividends, and (2) the cumulative total return of the Standard & Poor’s Packaged Foods & Meats Index, assuming reinvestment of dividends.

(2) the cumulative total return of the Standard & Poor’s Packaged Foods & Meats Index, assuming reinvestment of dividends.

MARKET RISK SENSITIVITY

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Primary exposures include the U.S.

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

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

During 2021, the foreign currency translation component in other comprehensive income was principally related to the impact of exchange rate fluctuations on our net investments in our subsidiaries with a functional currency of the British pound sterling, Euro, Polish zloty, Chinese reminbi, Australian dollar, Canadian dollar and Mexican peso.

During 2022, the foreign currency translation component in other comprehensive income was principally related to the impact of exchange rate fluctuations on our net investments in our subsidiaries with a functional currency of the British pound sterling, Euro, Polish zloty, Chinese renminbi, Australian dollar, Canadian dollar and Mexican peso.

We also utilize cross currency interest rate swap contracts, which are designated as net investment hedges, to manage the impact of exchange rate fluctuations on our net investments in subsidiaries with a functional currency of the British pound sterling and Euro.

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dollar 70.4 1.33 1.1

dollar 49.0 1.05 0.2

Polish zloty U.S.

dollar 9.8 4.67 (0.1)

dollar Australian dollar 55.2 0.67 —

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Australian dollar Euro 22.2 1.49 0.8

Polish zloty Euro 14.1 4.89 (0.1)

Canadian dollar British pound sterling 28.8 1.54 1.5

dollar Mexican peso 24.7 21.37 (0.8)

British pound sterling Euro 23.9 0.86 0.3

dollar Thai baht 7.2 36.71 0.4

We had a number of smaller contracts at November 30, 2021 with an aggregate notional value of $16.0 million to purchase or sell other currencies, such as the Romanian leu and Russian ruble.

The aggregate fair value of these contracts was a loss of $0.2 million at November 30, 2021.

We had a number of smaller contracts at November 30, 2022 with an aggregate notional value of $11.5 million to purchase or sell other currencies, such as the Romanian leu.

The aggregate fair value of these contracts was insignificant at November 30, 2022.

At November 30, 2021, we had foreign currency exchange contracts for the Euro, British pound sterling, Canadian dollar, Australian dollar, Polish zloty, Swiss franc and other currencies, with a notional value of $583.6 million.

The aggregate fair value of these contracts was a loss of $6.8 million at November 30, 2020.

The aggregate fair value of these contracts was a gain of $5.5 million at November 30, 2021.

We also utilized cross currency interest rate swap contracts that are considered net investment hedges.

As of November 30, 2021, we had cross currency interest rate swap contracts of (i) $250 million notional value to receive $250 million at three-month U.S.

LIBOR plus 0.685% and pay £194.1 million at three-month GBP LIBOR plus 0.740% and (ii) £194.1 million notional value to receive £194.1 million at three-month GBP LIBOR plus 0.740% and pay €221.8 million at three-month Euro EURIBOR plus 0.808%.

As of November 30, 2022 and 2021, we had cross currency interest rate swap contracts of (i) $250 million notional value to receive $250 million at three-month U.S.

LIBOR plus 0.685% and pay £194.1 million at three-month GBP SONIA plus 0.859% and (ii) £194.1 million notional value to receive £194.1 million at three-month GBP SONIA plus 0.859% and pay €221.8 million at three-month Euro EURIBOR plus 0.808%.

These cross-currency interest rate swap contracts expire in August 2027.

For more information, refer to note 8 of notes to our consolidated financial statements.

In conjunction with the phase-out of LIBOR, during 2022 we amended the terms of this cross currency swaps such that, effective February 15, 2022, we now pay and receive at GBP SONIA plus 0.859% (previously GBP LIBOR plus 0.740%).

As of November 30, 2022, we also had 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%.

These contracts expire in April 2030.

Interest Rate Risk – Our policy is to manage interest rate risk by entering into both fixed and variable rate debt arrangements.

We are exposed to interest rate volatility, with primary exposures related to movements in U.S.

Treasury rates, London Interbank Offered Rates (LIBOR), and commercial paper rates.

LIBOR will be subject to a transition, or phase out, that will commence on January 1, 2022 with the phase out expected to be completed by June 30, 2023.

While LIBOR is the current 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, we do not anticipate a significant impact to our financial position from the planned phase out of LIBOR, given our current mix of variable and fixed-rate debt.

Treasury rates, London Interbank Offered Rates (LIBOR), Secured Overnight Financing Rate (SOFR), and commercial paper rates.

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

Arrangements that were entered into during the year ended November 30, 2022, including our $500 million

364-day revolving credit facility expiring in July 2023, fixed to variable interest rate swaps expiring in April 2030, 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 $1.5 billion five-year revolving credit facility expiring in July 2026, interest rate swaps expiring in November 2025 and August 2027, and the cross-currency interest rate swaps expiring in August 2027.

Through the year ended November 30, 2022, there was no material impact to our consolidated financial statements as a result of the LIBOR phase-out, nor do we expect it to have a material impact on our consolidated financial statements during the duration of the LIBOR transition period.

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

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Forward treasury lock agreements settled upon issuance of these notes effectively set the interest rate on these notes at a weighted-average fixed rate of 3.45%.

The fixed interest rate on $100 million of the 3.25% notes due in December 2025 was effectively converted to a variable rate by interest rate swaps through 2025.

Net interest payments are based on 3-month LIBOR plus 1.22%.

• We issued $750 million of 3.40% notes due August 15, 2027 and $300 million due in August 2027 in August 2017.

The fixed interest rate on $100 million of the 3.25% notes due in December 2025 was effectively converted to a variable rate by interest rate swaps through the notes maturity in 2025.

Net interest payments are based on 3-month LIBOR plus 1.22% with an effective variable rate of 5.83% as of November 30, 2022.

• We issued $750 million of 3.40% notes due August 15, 2027 in August 2017.

Forward treasury lock agreements settled upon issuance of these notes effectively set the interest rate on these $750 million notes at a weighted-average fixed rate of 3.44%.

The fixed interest rate on $250 million of the 3.40% notes due in 2027 was effectively converted to a variable rate by interest rate swaps through 2027.

Net interest payments are based on 3-month LIBOR plus 0.685%.

The fixed interest rate on $250 million of the 3.40% notes due in August 2027 was effectively converted to a variable rate by interest rate swaps through the notes maturity in 2027.

Net interest payments are based on 3-month LIBOR plus 0.685% with an effective variable rate of 5.29% as of November 30, 2022.

• We issued $500 million of 2.50% notes due April 15, 2030.

Forward treasury lock agreements settled upon issuance of these notes effectively set the interest rate on these $500 million notes at a weighted-average fixed rate of 2.62%.

The fixed interest rate on $250 million of the 2.50% notes due in April 2030 was effectively converted to a variable rate by interest rate swaps through the notes maturity in 2030.

Net interest payments are based on USD SOFR plus 0.684% with an effective variable rate of 4.94% as of November 30, 2022.

Commodity Risk – We purchase certain raw materials which are subject to price volatility caused by weather, market conditions, growing and harvesting conditions, governmental actions and other factors beyond our control.

In 2021, our most significant raw materials were dairy products, pepper, capsicums (red peppers and paprika), onion, vanilla, garlic, and salt.

I n 2022, our most significant raw materials were dairy products, pepper, onion, capsicums (red peppers and paprika), garlic, wheat products, vegetable oils, and vanilla.

While future movements of raw material costs are uncertain, we respond to this volatility in a number of ways, including strategic raw material purchases, purchases of raw material for future delivery and customer price adjustments.

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Known or expected pricing or revenue adjustments, such as trade discounts, rebates or returns, are estimated at the time of sale.

Where applicable, future reimbursements are estimated based on a combination of historical patterns and future expectations regarding these programs.

Where applicable, future reimbursements are estimated based on current expectations regarding what was earned through these programs as of the balance sheet date.

Key sales terms, such as pricing and quantities ordered, are established on a frequent basis such that most customer arrangements and related incentives have a one-year or shorter duration.

Estimates that affect revenue, such as trade incentives and product returns, are monitored and adjusted each period until the incentives or product returns are realized.

of our customer arrangements are annual arrangements such that the degree of estimates that affects revenue reduces as a year progresses.

Certain of our customer arrangements are annual arrangements such that the degree of estimates that affects revenue reduces as a year progresses.

We do not believe that there will be significant changes to our estimates of customer consideration when any uncertainties are resolved with customers.

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In the event that the fair value of any of the brand names or trademarks are less than their related carrying amounts, a non-cash impairment loss would be recognized in an amount equal to the difference.

adjusted for our view of reasonable country- and brand - specific risks based upon the past and anticipated future performance of the related brand names and trademarks .

The estimation of fair values of our brand names and trademarks requires us to make significant assumptions, including expectations with respect to sales and profits of the respective brands and trademarks, related royalty rates, income tax rates and appropriate discount rates, which are based, in part, upon current interest rates adjusted for our view of reasonable country- and brand - specific risks based upon the past and anticipated future performance of the related brand names and trademarks .

The assumptions used to assess impairment consider historical trends, macroeconomic conditions, and projections consistent with our operating strategy.

Changes in these estimates can have a significant impact on the assessment of fair value which could result in material impairment losses.

As of November 30, 2021, we had $3,067.4 million of brand name assets and trademarks recorded in our balance sheet, and none of the balances exceeded their estimated fair values at that date.

As of November 30, 2022, we had $3,043.4 million of brand names assets and trademarks recognized in our consolidated balance sheet, and none of the balances exceeded their estimated fair values at that date.

Of the $3,043.4 million of brand names assets and trademarks as of November 30, 2022:

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(ii) $380.0 million relates to the Cholula brand names and trademarks associated with the acquisition of Cholula in November 2020, (iii) $49.0 million relates to the FONA brand names and trademarks associated with the acquisition of FONA in December 2020 and (iv) the remaining $294.4 million represents a number of other brand name assets and trademarks with individual carrying values ranging from $0.2 million to $106.4 million.

Except for our recent acquisitions of Cholula and FONA, the percentage excess of estimated fair value over respective book values for each of our brand names and trademarks, including the $2,320.0 million related to our French’s, Frank's RedHot and Cattlemen’s brands, was 20% or more as of November 30, 2021.

Except for four brand names assets and trademarks with a carrying value of approximately $460 million, including our recent acquisitions of Cholula and FONA, the percentage excess of estimated fair value over respective book values for each of our brand names and trademarks, was 20% or more as of our fourth quarter annual impairment assessment.

The brand names and trademarks related to recent acquisitions, including our recent acquisitions of Cholula and FONA, may be more susceptible to future impairment as their carrying values represent recently determined fair values.

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We believe that our tax return positions are appropriately supported, but tax authorities can challenge certain of our tax positions.

We evaluate our uncertain tax positions in accordance with the GAAP guidance for uncertainty in income taxes.

We evaluate our uncertain tax positions in accordance with the GAAP guidance for uncertainty in income

We recognize a tax benefit when it is more likely than not the position will be sustained upon examination, based on its technical merits.

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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 7. Management’s Discussion and Analysis