What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-01-26 compared with 2022-01-27 · 207 added, 258 removed, 1290 unchanged (26% of the section changed)

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Our internal control over financial reporting as of November 30, 2022 has been audited by Ernst & Young LLP.

Chairman, President &

Chief Executive Officer

Chairman & Chief Executive Officer

Executive Vice President &

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.

Valuation of Indefinite-lived Intangible Assets

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We used an internal valuation specialist to assist in our evaluation of the methodologies used and significant assumptions and inputs used by the Company to determine the estimated fair value of certain brand names and trademarks.

Valuation of Acquired Intangible Assets

Description of the Matter During fiscal 2021, the Company completed its acquisition of FONA International, LLC for net consideration of $708 million, and recognized identifiable intangible assets of $401 million, as disclosed in Note 2 to the consolidated financial statements.

The transaction was accounted for as a business combination.

Auditing the Company's purchase accounting for its acquisition of FONA International, LLC was complex due to the significant estimation required by management to determine the fair value of the acquired intangible assets, which consisted of customer relationships, trade names, and intellectual property.

The estimation complexity was primarily due to the valuation models used to measure the fair value of the intangible assets and the sensitivity of the respective fair values to the significant underlying assumptions.

The significant assumptions used to estimate the fair value of the intangible assets included discount rates, royalty rates, customer attrition, and certain assumptions that form the basis of the forecasted results (e.g.

net sales and operating profit metrics).

These significant assumptions are forward-looking and could be affected by future economic and market conditions.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company's controls over its accounting for acquisitions.

For example, we tested controls over the recognition and measurement of intangible assets, including the valuation models and underlying assumptions used to develop such estimates.

We also tested management’s controls over the completeness and accuracy of the data used in the models.

To test the estimated fair value of the intangible assets, we performed audit procedures that included, among others, evaluating the Company's valuation models and testing the significant assumptions used in the models, as well as testing the completeness and accuracy of the underlying data.

We compared the significant assumptions to current industry, market and economic trends, to the assumptions used to value similar assets in other acquisitions, and to the historical results of the acquired business.

We also involved an internal valuation specialist to assist in our evaluation of the significant assumptions and those procedures included the completion of independent calculations of the fair value of the acquired intangible assets.

We have served as the Company’s auditor since 1982.

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Stock-based compensation 60.3 66.6 46.0

Asset impairment included in special charges 17.2 — —

Gain on the sale of a business and intangible asset ( 63.2 ) — —

Asset impairments included in special charges 10.0 17.2 —

Amortization of inventory fair value adjustments associated with acquisitions — 6.3 —

Loss (gain) on sale of assets 0.2 3.0 ( 1.6 )

(Gain) loss on sale of assets ( 0.5 ) 0.2 3.0

Deferred income tax expense (benefit) 21.8 36.0 ( 11.2 )

Income from unconsolidated operations ( 37.8 ) ( 52.2 ) ( 40.8 )

Changes in operating assets and liabilities (net of effect of businesses acquired):

Changes in operating assets and liabilities (net of effect of businesses acquired and disposed):

Trade accounts receivable ( 45.8 ) ( 22.6 ) 4.8

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Acquisitions of businesses (net of cash acquired) — ( 706.4 ) ( 803.0 )

Capital expenditures (including expenditures for capitalized software) ( 278.0 ) ( 225.3 ) ( 173.7 )

Proceeds from sale of business 95.2 — —

Proceeds from sale of unconsolidated operation — 65.4 —

Proceeds from sale of intangible asset 13.6 — —

Capital expenditures (including expenditures for capitalized software) ( 262.0 ) ( 278.0 ) ( 225.3 )

Other investing activities 6.8 10.4 2.7

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Financing activities

Short-term borrowings, net ( 346.7 ) 286.5 41.0

Long-term debt borrowings 1,001.5 527.0 —

Short-term borrowings (repayments), net 698.3 ( 346.7 ) 286.5

Proceeds from issuances of long-term debt — 1,001.5 527.0

Payment of debt issuance costs — ( 1.9 ) ( 1.1 )

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Dividends paid ( 396.7 ) ( 363.3 ) ( 330.1 )

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

Effect of exchange rate changes on cash and cash equivalents ( 35.6 ) ( 13.6 ) 31.6

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Net income attributable to non-controlling interest — — — 4.3 4.3

Other comprehensive loss, net of tax — — ( 140.3 ) ( 0.7 ) ( 141.0 )

Other comprehensive income (loss), net of tax — — 29.4 ( 2.9 ) 26.5

Dividends — ( 338.5 ) — — ( 338.5 )

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Net income attributable to non-controlling interest — — — 6.2 6.2

Other comprehensive income (loss), net of tax — — 44.3 ( 7.4 ) 36.9

Other comprehensive loss, net of tax — — ( 54.1 ) ( 2.0 ) ( 56.1 )

Dividends — ( 402.3 ) — — ( 402.3 )

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Income and expense items are translated at average monthly rates of exchange.

Gains and losses from foreign currency transactions of these majority-owned or controlled subsidiaries and affiliates — that is, transactions denominated in other than their functional currency — other than intercompany transactions designated as long-term investments, are included in net earnings.

Our unconsolidated affiliates located outside the U.S.

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The estimated useful lives range from 20 to 50 years for buildings and 3 to 15 years for machinery, equipment and other assets.

Assets leased under finance leases are depreciated over the shorter of the lease term or their useful lives unless it is reasonably certain that we will obtain ownership by the end of the lease term.

Assets leased under finance leases are depreciated over the shorter of the lease term or their estimated useful lives unless it is reasonably certain that we will obtain ownership by the end of the lease term.

Repairs and maintenance costs are expensed as incurred.

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The net book value of capitalized software totaled $ 160.6 million and $ 141.1 million at November 30, 2022 and 2021, respectively.

Such amounts are recorded within "Other long-term assets" in the consolidated balance sheet.

Software is amortized using the straight-line method over estimated useful lives ranging from 3 to 13 years, but not

exceeding the expected life of the product.

The net book value of capitalized software includes $ 12.2 million and $ 86.7 million at November 30, 2021 and 2020, respectively, which had not yet been placed into service and relates to our future implementation of a global enterprise resource planning (ERP) system.

Capitalized software is classified within "Other long-term assets" in the consolidated balance

Software is amortized using the straight-line method over estimated useful lives ranging from 3 to 13 years, but not exceeding the expected life of the product.

Goodwill and Other Intangible Assets

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Our reporting units used to assess potential goodwill impairment are the same as our business segments.

We calculate fair value of a reporting unit by using a discounted cash flow model and then compare that to the carrying amount of the reporting unit, including intangible assets and goodwill.

An impairment charge would be recognized to the extent that the carrying amount of the reporting unit exceeds the calculated fair value of the reporting unit.

We estimate the fair value of a reporting unit by using a discounted cash flow model and then compare that to the carrying amount of the reporting unit, including intangible assets and goodwill.

An impairment charge would be recognized to the extent that the carrying amount of the reporting unit exceeds the estimated fair value of the reporting unit.

Indefinite-lived Intangible Asset Impairment

Our indefinite-lived intangible assets consist of acquired brand names and trademarks.

We determine fair value by using a relief-from-royalty method and then compare that to the carrying amount of the indefinite-lived intangible asset.

If the carrying amount of the indefinite-lived intangible asset exceeds its fair value, an impairment charge would be recorded to the extent the recorded indefinite-lived intangible asset exceeds the fair value.

We estimate fair value by using a relief-from-royalty method and then compare that to the carrying amount of the indefinite-lived intangible asset.

If the carrying amount of the indefinite-lived intangible asset exceeds its estimated fair value, an impairment charge would be recorded to the extent the recorded indefinite-lived intangible asset exceeds the fair value.

Long-lived Asset Impairment

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All taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by us from a customer for sales, value added and other excise taxes are excluded from net sales.

We account for product shipping and handling activities that occur before the customer has obtained control of a good as fulfillment activities (i.e.

an expense) rather than as a promised service with costs for these activities recorded within Cost of goods sold.

We account for product shipping and handling activities that occur before the customer has obtained control of a good as fulfillment activities (i.e., an expense) rather than as a promised service with costs for these activities recorded within Cost of goods sold.

We expense any incremental costs of obtaining a contract when the contract is for a period of one year or less.

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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 a combination of historical patterns and the Company's then-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.

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Research and Development

Research and development costs are expensed as incurred and are included in our consolidated income statement in the line entitled "Selling, general and administrative expense".

Research and development expense was $ 87.3 million, $ 68.6 million and $ 67.3 million for 2021, 2020 and 2019, respectively.

Research and development costs are expensed as incurred and are included in our consolidated income statement in the line entitled "Selling, general and administrative expense." Research and development expense was $ 87.5 million, $ 87.3 million and $ 68.6 million for 2022, 2021 and 2020, respectively.

Income taxes are recognized in accordance with the liability method of accounting.

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The resolution of tax reserves and changes in valuation allowances could be material to our results of operations for any period but is not expected to be material to our financial position.

Effective December 1, 2018, we are subject to a U.S.

We are subject to a U.S.

tax requirement that certain income earned by foreign subsidiaries, referred to as Global Intangible Low-Taxed Income (GILTI), must be included in the gross income of the subsidiary’s U.S.

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We estimate forfeitures associated with all stock-based compensation at the time of grant based on historical experience and revise this estimate in subsequent periods if actual forfeitures differ.

On September 28, 2020, our Board of Directors approved a 2-for-1 stock split in the form of a stock dividend on all shares of the Company’s two classes of common stock, Common Stock and Common Stock Non-Voting.

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

Trading of the Company’s common stock began on a split-adjusted basis on December 1, 2020.

All common stock and per-share data have been retroactively adjusted for the impact of the stock split.

Derivative Instruments

We record all derivatives on our balance sheet at fair value.

The fair value of derivative instruments is recorded in our consolidated balance sheet on the lines entitled “Other current assets", "Other long-term assets", "Other accrued liabilities" or "Other long-term liabilities" depending on their fair value and maturity.

In our consolidated cash flow statement, settlements of cash flow and fair value hedges are classified as operating activities;

The fair value of derivative instruments is recorded in our consolidated balance sheet on the lines entitled “Other current assets", "Other long-term assets", "Other

accrued liabilities" or "Other long-term liabilities" depending on their fair value and maturity.

Gains and losses representing either hedge ineffectiveness, hedge components excluded from the assessment of effectiveness, or hedges of translational exposure are recorded in our consolidated income statement in the lines entitled "Other income (expense), net" or "Interest expense." In our consolidated cash flow statement, settlements of cash flow and fair value hedges are classified as operating activities;

settlements of all other derivative instruments, including instruments for which hedge accounting has been discontinued, are classified consistent with the nature of the instruments.

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Accounting Pronouncements Adopted in 2022

In January 2017, the FASB issued ASU No.

2017-04 Intangibles — Goodwill and Other Topics (Topic 350) :

Simplifying the Test for Goodwill Impairment.

This guidance eliminates the requirement to calculate the implied fair value of goodwill of a reporting unit to measure a goodwill impairment charge.

Instead, a company will record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value.

This new standard

was adopted effective December 1, 2020 and will be applied upon recognition of any future goodwill impairment charge.

This ASU has not had a material impact on our financial statements.

In June 2016, the FASB issued ASU No.

2016-13 Financial Instruments — Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which instituted a new model for recognizing credit losses on financial instruments that are not measured at fair value.

This standard was adopted by the Company on December 1, 2020.

As this ASU did not have a material impact on our consolidated financial statements upon adoption, a cumulative-effect adjustment to retained earnings was not necessary.

Recently Issued Accounting Pronouncements — Pending Adoption

In December 2019, the FASB issued ASU No.

2019-12 Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , which simplifies the accounting for income taxes.

Simplifying the Accounting for Income Taxes .

The new guidance removes certain exceptions to the general principles for income taxes and also improves consistent application of accounting by clarifying or amending existing guidance.

The new standard is effective for the first quarter of our fiscal year ending November 30, 2022, and interim periods within those years.

We do not expect the new guidance will have a material impact on our consolidated financial statements.

The new standard was adopted effective December 1, 2021.

There was no material impact to our consolidated financial statements.

In March 2020, the FASB issued ASU No.

2020-04 Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting that provides optional expedients for a limited period of time for accounting for contracts, hedging relationship, and other transactions affected by the London Interbank Offered Rate (LIBOR) or other reference rates expected to be discontinued.

Facilitation of the Effects of Reference Rate Reform on Financial Reporting that provides optional expedients for a limited period of time for accounting for contracts, hedging relationships, and other transactions affected by the London Interbank Offered Rate (LIBOR) or other reference rates expected to be discontinued.

These optional expedients can be applied from March 2020 through December 31, 2022.

We are currently evaluating the impact that the new guidance will have on our consolidated financial statements.

In December 2022, the FASB issued ASU No.

2022-06 Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 which deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024.

Arrangements that were entered into during the year ended November 30, 2022, including our new 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.

LIBOR continues to be the reference rate for our variable rate debt, including our 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.

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

Our adoption of this new standard occurred during the year ended November 30, 2022, in conjunction with the first phase-out of a LIBOR reference rate.

There was no material impact to our consolidated financial statements, nor do we expect the adoption of this standard to have a material impact on our consolidated financial statements during the LIBOR transition period.

Recently Issued Accounting Pronouncements — Pending Adoption

In September 2022, the FASB issued ASU No.

Liabilities - Supplier Finance Programs (Topic 450-50):

Disclosure of Supplier Finance Program Obligations that requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose the key terms of the programs and information about obligations outstanding at the end of the reporting period, including a roll forward of those obligations.

The guidance does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations.

The new standard’s requirements to disclose the key terms of the programs and information about obligations outstanding are effective for all interim and annual periods of our fiscal year ending November 30, 2024.

The new standard’s requirement to disclose a roll forward of obligations outstanding will be effective for our fiscal year ending November 30, 2025.

Early adoption is permitted.

We are currently evaluating the impact that this new guidance will have on our consolidated financial statements.

ACQUISITIONS AND DISPOSITIONS

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

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The results of FONA’s operations have been included in our financial statements as a component of our flavor solutions segment from the date of acquisition.

The purchase price of FONA was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition.

We estimated the fair values based on independent valuations, discounted cash flow analyses, quoted market prices, and estimates made by management.

The final purchase price allocation for FONA resulted in the following fair value allocations, net of cash acquired (in millions):

Trade accounts receivable $ 12.4

Inventories 10.3

Goodwill 389.7

Intangible assets 266.0

Property, plant and equipment 36.3

Other assets 5.5

Trade accounts payable ( 3.7 )

Other accrued liabilities ( 6.9 )

Deferred taxes ( 0.3 )

Other long-term liabilities ( 1.1 )

Total $ 708.2

We determined the fair value of intangible assets using the following methodologies.

We valued the acquired brand names and trademarks and intellectual property using the relief from royalty method, an income approach.

We valued the acquired customer relationships using the excess earnings method, an income approach.

Some of the more significant assumptions inherent in developing the valuations included the estimated annual net cash flows for each indefinite-lived or definite-lived intangible asset (including net sales, operating profit margin, and working capital/contributory asset charges), royalty rates, the discount rate that appropriately reflects the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, and competitive trends, as well as other factors.

We determined the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated product category growth rates, management plans, and market comparables.

We used carrying values to value trade receivables and payables, as well as certain other current and non-current assets and liabilities, as we determined that they represented the fair value of those items.

We valued finished goods and work-in-process inventory using a net realizable value approach, which resulted in a step-up of $ 1.4 million that was recognized in Cost of goods sold during 2021, as the related inventory was sold.

Raw materials and packaging inventory were valued using the replacement cost approach.

The valuation of the acquired net assets of FONA includes $ 49.0 million allocated to indefinite-lived brand assets, $ 173.0 million allocated to customer relationships with an estimated useful life of 15 years and $ 44.0 million allocated to intellectual property with an estimated useful life of 12 years.

As a result of the acquisition, we recognized a total of $ 389.7 million of goodwill.

That goodwill primarily represents the intangible assets that do not qualify for separate recognition, such as the value of leveraging our brand building expertise, our insights in demand from customers for value-added flavor solutions, and our supply chain capabilities, as well as expected synergies from the combined operations and assembled workforce.

Our aggregate income tax basis in the acquired intangible assets and goodwill approximates their aggregate book value at the acquisition date.

Acquisition of Cholula Hot Sauce

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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.

The purchase price of Cholula was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition.

We estimated the fair values based on independent valuations, discounted cash flow analyses, quoted market prices, and estimates made by management.

During 2021, we completed the Cholula purchase price allocation.

The final purchase price allocation for Cholula resulted in the following fair value allocations, net of cash acquired (in millions):

Trade accounts receivable $ 15.0

Inventories 16.5

Goodwill 411.3

Intangible assets 401.0

Other assets 10.5

Trade accounts payable ( 7.0 )

Other accrued liabilities ( 8.1 )

Deferred taxes ( 35.1 )

Other long-term liabilities ( 2.9 )

Total $ 801.2

The fair value of intangible assets was determined using income methodologies.

We valued the acquired brand names and trademarks using the relief from royalty method, an income approach.

For customer relationships, we

used the distributor method, a variation of the excess earnings method that uses distributor-based inputs for margins and contributory asset charges.

We valued finished goods and work-in-process inventory using a net realizable value approach, which resulted in a step-up of $ 4.9 million that was recognized in cost of goods sold in 2021 as the related inventory was sold.

Raw materials and packaging inventory was valued using the replacement cost approach.

Deferred income tax assets and liabilities represent the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax bases.

The valuation of the acquired net assets of Cholula includes $ 380.0 million allocated to indefinite-lived brand assets and $ 21.0 million allocated to definite-lived intangible assets with an estimated useful life of 15 years.

As a result of the acquisition, we recognized a total of $ 411.3 million of goodwill.

That goodwill primarily represents the intangible assets that do not qualify for separate recognition, such as the value of leveraging our brand building expertise, our insights in demand from consumer and flavor solutions customers for value-added flavor solutions, and our supply chain capabilities, as well as expected synergies from the combined operations and assembled workforce.

Our income tax basis in the acquired intangible assets and goodwill approximates $ 285 million.

Transaction and Integration Expenses Associated with the Cholula and FONA Acquisitions

The following are the transaction and integration expenses recognized related to the Cholula and FONA acquisitions for the years ended November 30 (in millions):

2022 2021 2020

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

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Total transaction and integration expenses $ 2.2 $ 35.3 $ 12.4

We expect additional transaction and integration expenses related to our acquisition of Cholula and FONA to total approximately $ 3 million in 2022.

Disposal of Kitchen Basics

On August 3, 2022, we sold the Kitchen Basics business for $ 95.2 million in cash, net of transaction expenses of $ 3.8 million.

Assets disposed of principally included inventory, intangible assets ($ 6.3 million) and goodwill ($ 21.5 million).

The sale of Kitchen Basics resulted in a pre-tax gain of $ 49.6 million.

SPECIAL CHARGES

In our consolidated income statement, we include a separate line item captioned “Special charges” in arriving at our consolidated operating income.

Special charges consist of expenses, including related impairment charges, associated with certain actions undertaken to reduce fixed costs, simplify or improve processes, and improve our competitiveness and are of such significance in terms of both up-front costs and organizational/structural impact to require advance approval by our Management Committee, comprised of our senior management, including our Chairman, President and Chief Executive Officer.

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

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expected timing;

and expected savings) to the Management Committee and the Committee’s advance approval, expenses associated with the approved action are classified as special charges upon recognition and monitored on an on-going basis through completion.

Certain ancillary expenses related to these actions approved by our Management Committee do not qualify for accrual upon approval but are included as special charges as incurred during the course of the actions.

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Other costs in the income statement

35.9 2.8 14.6

Special charges $ 46.4 $ 6.9 $ 20.8

Cash 7.4 18.7 2.8

Non-Cash 24.0 17.2 —

Total special charges $ 65.2 $ 46.4 $ 6.9

Gain on sale of exited brand ( 13.6 ) — —

Special charges included in Cost of goods sold — 4.7 —

Total special charges $ 51.6 $ 51.1 $ 6.9

(1) Included in other costs for 2021 are non-cash intangible asset impairment charges of $ 11.2 million and a non-cash fixed asset impairment charge of $ 6.0 million.

The following is a summary of special charges by business segments for the years ended November 30 (in millions):

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We continue to evaluate changes to our organization structure to reduce fixed costs, simplify or improve processes, and improve our competitiveness.

During 2022, we recorded $ 51.6 million of special charges, consisting principally of $ 23.3 million associated with the exit of our consumer business in Russia, as more fully described below, $ 21.5 million associated with the transition of a manufacturing facility in EMEA, as more fully described below, and streamlining actions of $ 8.0 million in the Americas region, and $ 7.1 million in the EMEA region, and $ 5.6 million associated with a U.S.

voluntary retirement program, as more fully described below.

These charges were partially offset by a $ 13.6 million gain on the sale of our Kohinoor brand, discussed below, as well as a reversal of $ 2.2 million of estimated costs associated with the

exit of our rice product line in India upon settlement of a supply agreement related to that product line.

As of November 30, 2022, reserves associated with special charges of $ 26.7 million are included in "Other accrued liabilities" in our consolidated balance sheet.

In 2022, our Management Committee approved a voluntary retirement plan, which included enhanced separation benefits to certain U.S.

employees aged 55 years or older with at least ten years of service to the company.

This voluntary retirement plan commenced in November 2022 and participants were required to submit their notifications by December 30, 2022.

Upon our receipt of notification from participants through November 30, 2022 that they accepted this plan, we accrued special charges of $ 5.6 million, consisting of employee severance and related benefits.

Upon all eligible employees submitting their notifications by the end of December 2022, the total employee severance and related benefits will total approximately $ 24 million with the remainder to be recognized during the first quarter of fiscal year 2023.

All related payments will be made in fiscal year 2023 as all of the affected employees will leave the company in 2023.

The voluntary retirement plan is part of our Global Operating Effectiveness Program.

In 2022, our Management Committee approved the exit of our consumer business in Russia.

As a result, during the year, we recognized $ 23.3 million of special charges.

These special charges included a non-cash impairment charge of $ 10.0 million associated with the Kamis brand name to reduce its carrying value to its estimated fair value, $ 3.3 million of employee severance and $ 2.1 million of other related exit costs directly associated with the exit plan, and a non-cash $ 7.9 million reclassification of the cumulative translation adjustment previously reflected in accumulated other comprehensive income (loss) to earnings associated with the exit of our business in Russia.

In 2022, our Management Committee approved an initiative to consolidate our manufacturing operations in the United Kingdom into a net-zero carbon condiments manufacturing and distribution center facility with state-of-the-art technology.

We expect to execute these changes to our supply chain operations and improve profitability, from a combination of lower headcount and non-headcount costs, by consolidating our operations into a scalable platform while expanding our capacity.

We expect the cost of the initiative to approximate $ 40 million—to be recognized as special charges in our consolidated income statement through 2023.

Of that $ 40 million, we expect the costs to include employee severance and related benefits, non-cash accelerated depreciation, equipment relocation costs, decommissioning and other property related lease exit costs, all directly related to the initiative.

During 2022, we recognized $ 12.6 million in severance and related benefits costs, $ 6.2 million in accelerated depreciation and $ 2.7 million in third party expenses and other costs.

During 2021, we recorded $ 51.1 million of special charges, of which $ 46.4 million was recognized in Special charges and $ 4.7 million was recognized in Cost of goods sold on our consolidated income statement.

Special charges in 2021 consist principally of $ 19.5 million associated with our exit of our rice product line in India, as more fully described below, $ 6.2 million associated with the transition of a manufacturing facility in EMEA, streamlining actions of $ 10.3 million in the Americas region, $ 4.8 million in the EMEA region and $ 0.8 million in the APAC region, and $ 0.8 million related to our GE initiative, together with 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.

As of November 30, 2021, reserves associated with special charges are included in the line entitled "Trade accounts payable" and "Other accrued liabilities" in our consolidated balance sheet.

Special charges in 2021 consisted principally of $ 19.5 million associated with our exit of our rice product line in India, as more fully described below, $ 6.2 million associated with the transition of a manufacturing facility in EMEA, streamlining actions of $ 10.3 million in the Americas region, $ 4.8 million in the EMEA region and $ 0.8 million in the APAC region, and $ 0.8 million related to our Global Enablement (GE) operating model initiative, together with 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.

In 2021, we recorded a total of $ 19.5 million of special charges related to the exit of our Kohinoor rice product line in India.

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We also recorded $ 3.6 million of employee severance and other related exit costs associated directly associated with the exit plan.

We anticipate that these costs will be paid within the next twelve months.

In addition, as a result of the Kohinoor product line discontinuance in 2021, we recognized a $ 4.7 million charge in cost of goods sold, which represents a provision for the excess of the carrying value of rice inventories over the estimated net realizable value of such discontinued inventories and a contractual obligation associated with terminating a rice supply agreement.

During 2020, we recorded $ 6.9 million of special charges, consisting of (i) $ 5.3 million related to streamlining actions in our EMEA region, including $ 3.8 million related to severance and related benefits and $ 1.0 million of third party expenses and $ 0.5 million related to other costs;

and (ii) $ 1.6 million related to our GE initiative.

Of the $ 6.9 million in special charges recorded during 2020, approximately $ 4.8 million were paid in cash, with the remaining accrual paid in 2021.

During 2019, we recorded $ 20.8 million of special charges, consisting primarily of (i) $ 14.1 million related to our GE 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 employee severance and related benefits associated with streamlining actions in the Americas and (iii) $ 3.9 million related to streamlining actions in our EMEA region.

During 2022, we sold the Kohinoor brand name for $ 13.6 million, net of costs associated with the sale of $ 1.4 million, and reflected the gain of $ 13.6 million associated with this sale within special charges.

party expenses and $ 0.5 million related to other costs;

and (ii) $ 1.6 million related to our GE operating model initiative.

Of the $ 6.9 million in special charges recorded during 2020, approximately $ 4.8 million were paid in cash, with the remaining accrual paid in 2021.

During 2017, our Management Committee approved a multi-year initiative during which we have executed and expect to continue to execute significant changes to our global processes, capabilities and operating model to provide a scalable platform for future growth.

We expect this initiative to enable us to accelerate our ability to work globally and cross-functionally by aligning and simplifying processes throughout McCormick, in part building upon our current shared services foundation and expanding the end-to-end processes presently under that foundation.

We expect this initiative, which we refer to as Global Enablement (GE), to enable this scalable platform for future growth while reducing costs, enabling faster decision making, increasing agility and creating capacity within our organization.

While we are continuing to fully develop the details of our GE operating model, we expect the cost of the GE initiative—to be recognized as “Special charges” in our consolidated income statement over its multi-year course—to range from approximately $ 60 million to $ 65 million.

Of that $ 60 million to $ 65 million, we estimate that approximately sixty percent will be attributable to cash payments associated with related costs of GE implementation and transition, including outside consulting and other costs and approximately forty percent will be attributable to employee severance and related benefit payments both directly related to the initiative.

Since its inception through November 30, 2021, we have recognized a total of $ 40.7 million of special charges associated with our GE initiative.

GOODWILL AND INTANGIBLE ASSETS

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Total goodwill and intangible assets $ 8,792.9 $ 192.1 $ 8,952.8 $ 164.5

We acquired FONA in December 2020 (see note 2).

The valuation of the acquired net assets of FONA resulted in the allocation of $ 389.7 million to goodwill, $ 49.0 million to indefinite-lived intangible assets associated with the acquired brand names and trademarks, and $ 217.0 million to definite-lived intangible assets.

We acquired Cholula in November 2020 (see note 2).

The valuation of the acquired net assets of Cholula resulted in the allocation of $ 411.3 million to goodwill, $ 380.0 million to indefinite-lived intangible assets associated with the acquired brand names and trademarks, and $ 21.0 million to definite-lived intangible assets.

As more fully described in note 3, in 2022, we exited our consumer business in Russia and recognized a non-cash impairment charge of $ 10.0 million associated with the Kamis brand name to reduce its carrying value to its estimated fair value.

Also as more fully described in note 3, we exited our Kohinoor rice product line in India in 2021 and recorded non-cash impairment charges of $ 7.4 million and $ 3.8 million associated with the Kohinoor brand name and customer relationship asset in India, respectively.

Intangible asset amortization expense was $ 35.1 million, $ 35.6 million and $ 20.2 million for 2022, 2021 and 2020, respectively.

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Beginning of year $ 3,674.7 $ 1,661.1 $ 3,711.2 $ 1,275.1

Increase from acquisition — — — 389.7

Changes in preliminary purchase price allocation — — 0.5 0.3

Increases from acquisitions — 389.7 273.7 136.8

Decrease from sale of business (1)

( 21.5 ) — — —

Foreign currency fluctuations ( 85.0 ) ( 16.4 ) ( 37.0 ) ( 4.0 )

End of year $ 3,568.2 $ 1,644.7 $ 3,674.7 $ 1,661.1

In 2020, a preliminary valuation of the acquired net assets of Cholula resulted in the allocation of $ 273.7 million and $ 136.8 million of goodwill to the consumer segment and flavor solutions segment, respectively.

In 2021, we finalized the allocation of the purchase price of Cholula, which resulted in an increase in goodwill of $ 0.5 million to the

consumer segment and $ 0.3 million to the flavor solutions segment.

(1) The sale of Kitchen basics is further described in note 2.

The December 2020 FONA acquisition resulted in the allocation of $ 389.7 million of goodwill to the flavor solutions segment.

As more fully described in note 3, in 2021, we recorded non-cash impairment charges of $ 7.4 million and $ 3.8 million associated with the Kohinoor brand name and customer relationship asset in India, respectively.

INVESTMENTS IN AFFILIATES

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Income from unconsolidated operations in 2021 includes a gain on a sale of unconsolidated operations of $ 13.4 million as described below.

Our principal earnings from unconsolidated affiliates is from our 50 % interest in McCormick de Mexico, S.A.

Our principal earnings from unconsolidated affiliates are from our 50 % interest in McCormick de Mexico, S.A.

Profit from this joint venture represented 84 % of income from unconsolidated operations in 2022, 62 % in 2021 and 75 % in 2020.

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7.63%–8.12% notes due 2024 55.0 55.0

Other, including finance leases 176.1 199.2

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$ 3,642.3 $ 3,973.3

(1) Interest rate swaps, settled upon the issuance of these notes in 2013, effectively set the interest rate on the $ 250 million notes at a weighted-average fixed rate of 3.30 %.

(2) Interest rate swaps, settled upon the issuance of these notes in 2015, effectively set the interest rate on the $ 250 million notes at a weighted-average fixed rate of 3.45 % .

(1) Interest rate swaps, settled upon the issuance of these notes, effectively set the interest rate on the $ 250 million notes at a weighted-average fixed rate of 3.30 %.

(2) Interest rate swaps, settled upon the issuance of these notes, effectively set the interest rate on the $ 250 million notes at a weighted-average fixed rate of 3.45 % .

The fixed interest rate on $ 100 million of the 3.25 % notes due in 2025 is effectively converted to a variable rate

by interest rate swaps through 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.

(3) Interest rate swaps, settled upon the issuance of these notes, effectively set the interest rate on the $ 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 is effectively converted to a variable rate by interest rate swaps through 2027.

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

Our effective rate as of November 30, 2021 was 1.38 %.

(3) Interest rate swaps, settled upon the issuance of these notes in 2017, effectively set the interest rate on the $ 750 million notes at a weighted-average fixed rate of 3.44 %.

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

(4) Interest rate swaps, settled upon the issuance of these notes, effectively set the interest rate on the $ 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 2030 is effectively converted to a variable rate by interest rate swaps through 2030.

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

Our effective rate as of November 30, 2021 was 0.84 %.

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

(5) Includes unamortized discounts, premiums and debt issuance costs of $( 25.9 ) million and $( 31.8 ) million as of November 30, 2022 and 2021, respectively.

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Also in February 2021, we issued $ 500.0 million of 1.85 % notes due February 15, 2031, with cash proceeds received of $ 492.8 million, net of discounts and underwriters' fees.

Interest is payable semiannually on both these notes in arrears in February and August of each year.

The net proceeds from these issuances were used to pay down short-term borrowings, including a portion of the

$ 1,443.0 million of commercial paper issued to finance our acquisitions of Cholula and FONA, and for general corporate purposes.

In April 2020, we issued $ 500.0 million of 2.50 % notes due April 15, 2030, with cash proceeds received of $ 495.0 million, net of discounts and underwriters' fees.

Interest is payable semiannually in arrears in April and October of each year.

The net proceeds from these issuances were used to pay down short-term borrowings, including a portion of the $ 1,443.0 million of commercial paper issued to finance our acquisitions of Cholula and FONA, and for general corporate purposes.

We have available credit facilities with domestic and foreign banks for various purposes.

Some of these lines are committed lines and others are uncommitted lines and could be withdrawn at various times.

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 %.

This credit facility supports our commercial paper program and, after $ 530.8 million was used to support issued commercial paper, we have $ 969.2 million of capacity at November 30, 2021.

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

As of November 30, 2021, our capacity under the five -year $ 1.5 billion revolving credit facility was not affected by these covenants.

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

This facility replaced our prior revolving credit facilities which included:

(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 December 2020 and that was due to expire in December 2021.

The pricing for our prior five-year $ 1.0 billion revolving credit facility, on a fully drawn basis, was LIBOR plus 1.25 %.

The pricing for our prior 364 -day $ 1.0 billion revolving credit facility, on a fully drawn basis, was LIBOR plus 1.25 %.

The pricing of those credit facilities was 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 our previous revolving credit facilities restricted subsidiary indebtedness and required us to maintain certain minimum and maximum financial ratios for interest expense coverage and our leverage ratio.

Our committed lines 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 Secured Overnight Financing Rate (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 %.

These credit facilities require a fee, and commitment fees were $ 2.1 million, $ 2.0 million and $ 1.3 million for 2022, 2021, and 2020, respectively.

These credit facilities support our commercial paper program and, after $ 1,224.6 million was used to support issued commercial paper, we have $ 775.4 million of capacity at November 30, 2022.

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

As of November 30, 2022, our capacity under both revolving credit facilities was not affected by these covenants.

We do not expect that these covenants would limit our access to our revolving credit facilities for the foreseeable future.

In addition, we have several uncommitted lines totaling $ 302.5 million, which have a total unused capacity at November 30, 2022 of $ 232.6 million.

These lines, by their nature, can be withdrawn based on the lenders’ discretion.

Committed credit facilities require a fee, and commitment fees were $ 2.0 million, $ 1.3 million and $ 1.3 million for 2021, 2020 and 2019, respectively.

We entered into a Term Loan Agreement (Term Loan) in August 2017.

The Term Loan provided for three -year and five -year senior unsecured term loans, each for $ 750 million.

The three-year loan was payable at maturity.

The five-year loan was payable in equal quarterly installments in an amount of 2.5 % of the initial principal amount, with the remaining unpaid balance due at maturity.

The three-year and five-year loans were each prepayable in whole or in part.

In 2020, we repaid the five-year loan.

Prior to payoff, the five-year loan bore interest at LIBOR plus 1.25 %.

In 2019, we repaid the three-year loan.

Prior to payoff, the three-year loan bore interest at LIBOR plus 1.125 %.

The interest rates were based on our credit rating.

At November 30, 2021, we had guarantees outstanding of $ 0.6 million with terms of one year or less.

At November 30, 2022, we had no outstanding guarantees with terms of one year or less.

As of November 30, 2022 and 2021, we had outstanding letters of credit of $ 60.8 million and $ 63.7 million, respectively.

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A limited number of our lease agreements include rental payments that are adjusted periodically based on a market rate or index.

Our lease agreements generally do not contain residual value guarantees or material restrictive covenants, with the exception of the non-cancellable synthetic lease discussed below.

Our lease agreements

generally do not contain residual value guarantees or material restrictive covenants, with the exception of the non-cancellable synthetic lease discussed below.

The following presents the components of our lease expense for the years ended November 30 (in millions):

2022 2021 2020

Operating lease cost $ 47.0 $ 45.0 $ 41.2

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(1) Net lease cost does not include short-term leases, variable lease costs or sublease income, all of which are immaterial.

Rental expense under operating leases (primarily buildings and equipment) was $ 48.1 million in 2019.

Supplemental balance sheet information related to leases as of November 30 were as follows (in millions):

8 unchanged sentences

Total lease liabilities $ 348.8 $ 266.1

In October 2020, we entered into a non-cancellable synthetic lease to consolidate as well as expand our distribution footprint in the mid-Atlantic region.

We began to utilize this facility in September 2022.

The five-year lease term will expire in November 2027.

As of November 30, 2022, the total ROU asset associated with this building was $ 78.9 million with a related lease obligation of $ 83.4 million, of which $ 18.7 million was included in the other accrued liabilities and $ 64.7 million was included in other long-term liabilities.

Rental payments include both a fixed and a variable component.

The variable component is based on SOFR plus a margin, based on our credit rating.

During the year ended November 30, 2022, we recognized rent expense of $ 5.2 million related to the leased asset.

The lease contains options to negotiate a renewal of the lease or to purchase or request the lessor to sell the facility at the end of the lease term.

The lease arrangement contains a residual value guarantee of 76.5 % of the lessor’s total construction cost, which approximated $ 310 million.

We do not believe it is probable that any material amounts will be owed under these guarantees.

Therefore, no material amounts related to the residual value guarantees are included in the lease payments used to measure the right-of-use assets and lease liabilities.

The lease also contains covenants that are consistent with our revolving credit facilities, as disclosed in note 6.

Our Corporate functions, Americas' leadership, and U.S.

staff reside in our Hunt Valley, Maryland headquarters office building.

The 15-year lease for that building requires monthly lease payments of approximately $ 0.9 million which began in April 2019.

The $ 0.9 million monthly lease payment is subject to adjustment after an initial 60-month period and thereafter on an annual basis as specified in the lease agreement.

We recognized this lease as a finance lease, with the leased asset of $ 107.4 million and $ 116.1 million included in property, plant and equipment, net, as of November 30, 2021 and 2020, respectively.

staff operate out of our Hunt Valley, Maryland headquarters office building.

The 15 -year lease for that building began in April 2019 and is recognized as a finance lease.

During each of the years ended November 30, 2022, 2021 and 2020, we recognized amortization expense of $ 8.7 million related to the leased asset.

23 unchanged sentences

Operating leases $ 133.8 $ 47.8

During October 2020, we entered into a non-cancellable synthetic lease for a distribution facility with an estimated construction cost of $ 315 million.

The lease will commence upon completion of construction of the facility, for which we are the construction agent, which is expected to be in the later part of fiscal 2022.

The term of the lease is five years after commencement.

The lease contains options to negotiate a renewal of the lease or to purchase or sell the facility at the end of the lease term.

Upon lease commencement, the ROU asset and lease liability will be determined and recorded.

The lease arrangement also contains a residual value guarantee of approximately 75 % of the total construction cost.

The lease also contains covenants that are consistent with our $ 1.5 billion, five -year revolving credit agreement as disclosed in note 6.

FINANCIAL INSTRUMENTS

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The gains and losses on these contracts are deferred in accumulated other comprehensive income until the hedged item is recognized in cost of goods sold, at which time the net amount deferred in accumulated other comprehensive income is also recognized in cost of goods sold.

Hedges of foreign currency denominated assets and liabilities include contracts with a notional value of $ 355.5 million and $ 449.3 million at November 30, 2022 and 2021, respectively.

We enter into these fair value foreign currency exchange contracts to manage exposure to currency fluctuations in certain intercompany loans between subsidiaries as well as currency exposure to third-party non-functional currency assets or liabilities.

Gains and losses from contracts that are designated as hedges of assets, liabilities or firm commitments are recognized through income, offsetting the change in fair value of the hedged item.

We also enter into fair value foreign currency exchange contracts to manage exposure to currency fluctuations in certain intercompany loans between subsidiaries as well as currency exposure to third-party non-functional currency assets or liabilities.

The notional value of these contracts was $ 449.3 million and $ 212.3 million at November 30, 2021 and 2020, respectively.

Any gains or losses recorded based on both the change in fair value of these contracts and the change in the currency component of the underlying loans are recognized in our consolidated income statement as other income, net.

We also utilize cross currency interest rate swap contracts that are designated as net investment hedges.

Any gains or losses on net investment hedges are included in foreign currency translation adjustments in accumulated other comprehensive loss.

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 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 %.

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.

In conjunction with the phase-out of LIBOR, during 2022 we amended the terms of this cross currency swap 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 $ 250 million notional value to receive $ 250 million at USD SOFR plus 0.684 % and pay £ 184.1 million at GBP SONIA plus 0.574 % and (ii) £ 184.1 million notional value to receive £ 184.1 million at GBP SONIA plus 0.574 % and pay € 219.2 million at Euro ESTR plus 0.667 %, both of which expire in April 2030.

Interest Rates

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We utilize interest rate swap agreements to minimize worldwide financing costs and to achieve a desired mix of variable and fixed rate debt.

As of November 30, 2021 and 2020, we have outstanding interest rate swap contracts for a notional amount of $ 350.0 million.

Those interest rate swap contracts include a $ 100 million notional value of interest rate swap contracts where we receive interest at 3.25 % and pay a variable rate of interest based on three-month LIBOR plus 1.22 %.

These swaps, which expire in November 2025, are designated as fair value hedges of the changes in fair value of $ 100 million of the $ 250 million 3.25 % medium-term notes due 2025.

We also have $ 250 million notional interest rate swap contracts where we receive interest at 3.40 % and pay a variable rate of interest based on three-month LIBOR plus 0.685 %, which expire in August 2027, and are designated as fair value hedges of the changes in fair value of $ 250 million of the $ 750 million 3.40 % term notes due 2027.

As of November 30, 2022 and 2021, we have outstanding interest rate swap contracts for a notional amount of $ 600 million and $ 350 million, respectively.

The following is a summary of our outstanding interest rate swaps as of November 30, 2022 and 2021 ($ amounts in millions).

Fair value hedge of changes in fair value of:

$250 3.25% notes due 2025 $750 3.40% notes due 2027 $500 2.50% notes due 2030 (1)

Notional $ 100.0 $ 250.0 $ 250.0

Receive rate 3.25 % 3.40 % 2.50 %

Pay rate Three-month LIBOR + 1.22% Three-month LIBOR + 0.685% SOFR + 0.684%

Expiration November 2025 August 2027 April 2030

(1) The $ 250 million notional swap that expires in April 2030 was entered into during 2022.

Any unrealized gain or loss on these swaps was offset by a corresponding increase or decrease in the value of the hedged debt.

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Derivative 2022 2021 2020 2022 2021 2020

Interest rate contracts $ 0.3 $ — $ — Interest expense $ 0.5 $ 0.5 $ 0.5

Interest rate contracts $ 18.7 $ 0.3 $ — Interest expense, Other income, net $ 19.2 $ 0.5 $ 0.5

Foreign exchange contracts 5.3 ( 2.0 ) 1.9 Cost of goods sold 1.6 ( 0.7 ) 1.6

Total $ 24.0 $ ( 1.7 ) $ 1.9 $ 20.8 $ ( 0.2 ) $ 2.1

In March 2022, we entered into treasury lock arrangements with a notional amount totaling $ 200 million in order to manage our interest rate risk associated with the anticipated issuance of at least $ 200 million of fixed rate debt by August 2022.

These treasury locks had a maturity date of August 12, 2022 and an average fixed rate of 1.89 %.

We designated these treasury lock arrangements as cash flow hedges with any unrealized gain, prior to settlement, recognized in accumulated other comprehensive income.

In July 2022, we settled the $ 200 million notional treasury locks upon determining we would not issue fixed rate debt but rather enter into the previously described $ 500 million

364-day revolving credit facility.

The proceeds received upon settlement of these treasury lock arrangements were $ 18.7 million and were recognized in Other income, net in our consolidated income statements for the year ended November 30, 2022.

The amount of gain or loss recognized in income on the ineffective portion of derivative instruments is not material.

The net amount of accumulated other comprehensive income expected to be reclassified into income related to

these contracts in the next twelve months is a $ 0.2 million decrease to earnings.

For all cash flow and settled interest rate fair value hedge derivatives, the net amount of accumulated other comprehensive income expected to be reclassified into income related to these contracts in the next twelve months is a $ 3.3 million increase to earnings.

Net investment hedges (millions)

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Bonds and other long-term investments 5.1 5.1 —

Interest rate derivatives 23.1 — 23.1

Foreign currency derivatives 11.0 — 11.0

1 unchanged sentence

Total $ 504.6 $ 339.1 $ 165.5

Interest rate derivatives $ 42.4 $ — $ 42.4

Foreign currency derivatives 1.5 — 1.5

10 unchanged sentences

Foreign currency derivatives 8.3 — 8.3

Cross currency contracts 4.4 — 4.4

Total $ 524.8 $ 356.8 $ 168.0

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$ ( 405.3 ) $ ( 233.3 )

Unrealized gain (loss) on foreign currency exchange contracts 0.6 ( 0.4 )

Unrealized net gain on foreign currency exchange contracts 3.8 0.6

Unamortized value of settled interest rate swaps ( 0.6 ) ( 0.2 )

1 unchanged sentence

$ ( 480.6 ) $ ( 426.5 )

(1) During the year ended November 30, 2021, the foreign currency translation adjustment of accumulated other comprehensive loss increased by $( 59.3 ) million, including the impact of a $ 15.5 million decrease associated with net investment hedges.

During the year ended November 30, 2020, the foreign currency translation adjustment of accumulated other comprehensive loss decreased by $ 92.5 million, including the impact of a $ 20.8 million increase associated with net investment hedges.

(1) During the year ended November 30, 2022, the foreign currency translation adjustment of accumulated other comprehensive loss increased on a net basis by $ 172.0 million, inclusive of $ 37.6 million of unrealized gains associated with net investment hedges.

During the year ended November 30, 2021, the foreign currency translation adjustment of accumulated other comprehensive loss increased on a net basis by $ 59.3 million, inclusive of $ 15.5 million of unrealized gains associated with net investment hedges.

These net investment hedges are more fully described in note 8.

4 unchanged sentences

Interest rate derivatives $ ( 0.5 ) $ ( 0.5 ) $ ( 0.5 ) Interest expense

Treasury lock contracts (1)

( 18.7 ) — — Other income, net

Foreign exchange contracts ( 1.6 ) 0.7 ( 1.6 ) Cost of goods sold

10 unchanged sentences

Net, after tax $ 7.8 $ 10.9 $ 5.4

(1) The settlement of these treasury locks is further described in note 8.

(2) This accumulated other comprehensive income (loss) component is included in the computation of total pension expense and total other postretirement expense (refer to note 11 for additional details).

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employees and retirees.

During fiscal year 2017, we made significant changes to certain of our employee benefit plans and retirements plans that froze the accrual of certain defined benefit pension plans in the U.S.

We previously froze the accrual of certain defined benefit pension plans in the U.S.

and the United Kingdom with effective dates of the plan being frozen occurring between December 31, 2016 and November 30, 2018.

Also, on December

1, 2017, the freezing of benefits under our pension plans in Canada was approved with an effective date of November 30, 2019.

previously froze the accrual of future benefits under our pension plans in Canada with an effective date of November 30, 2019.

Although those plans have been frozen, employees who are participants in the plans retained benefits accumulated up to the date of the freeze, based on credited service and eligible earnings, in accordance with the terms of the plans.

Included in our consolidated balance sheet as of November 30, 2022 on the line entitled "Accumulated other comprehensive loss" was $ 98.8 million ($ 78.5 million net of tax) related to net unrecognized actuarial losses that have not yet been recognized in net periodic pension or postretirement benefit cost.

We expect to recognize $ 10.0 million ($ 7.3 million net of tax) in net periodic pension and postretirement benefit costs during 2022 related to the amortization of actuarial losses of $ 9.7 million and the amortization of prior service cost of $ 0.3 million.

Defined Benefit Pension Plans

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Total pension expense (income) $ ( 3.8 ) $ — $ 0.2 $ ( 2.7 ) $ ( 2.8 ) $ ( 3.1 )

A rollforward of the benefit obligation, fair value of plan assets and a reconciliation of the pension plans’ funded status as of November 30, the measurement date, follows:

A roll forward of the benefit obligation, fair value of plan assets and a reconciliation of the pension plans’ funded status as of November 30, the measurement date, follows:

United States International

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Benefits paid ( 42.7 ) ( 44.2 ) ( 15.7 ) ( 16.6 )

Expenses paid — — — ( 0.2 )

Foreign currency impact — — ( 25.1 ) ( 1.7 )

96 unchanged sentences

High yield bonds (d)

International/government/ corporate bonds (e)

Insurance contracts (f)

65 unchanged sentences

Defined Contribution Retirement Plans

qualified and non-qualified defined contribution retirement plans, we match 100 % of a participant’s contribution up to the first 3 % of the participant’s salary, and 66.7 % of the next 3 % of the participant’s salary.

In addition, we make contributions of 3 % of the participant's salary for all U.S.

qualified and non-qualified defined contribution retirement plans, we match 100 % of a participant’s contribution up to the first 3 % of the participant’s eligible compensation, and 66.7 % of the next 3 % of the participant’s salary.

In addition, we make contributions of 3 % of the participant's eligible compensation for all U.S.

employees who are employed on December 31 of each year.

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At the participants' election, 401(k) retirement plans held 2.6 million shares of McCormick stock, with a fair value of $ 215.4 million, at November 30, 2022.

Dividends paid on the shares held in the 401(k) retirement plans in 2021 and 2020 were $ 3.9 million and $ 3.8 million, respectively, in each year.

Dividends paid on the shares held in the 401(k) retirement plans in 2022 and 2021 were $ 3.9 million in each year.

Postretirement Benefits Other Than Pensions

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Postretirement benefit expense (income) $ 2.9 $ 3.3 $ ( 0.8 )

Rollforwards of the benefit obligation, fair value of plan assets and a reconciliation of the plans’ funded status at November 30, the measurement date, follow:

Roll forwards of the benefit obligation, fair value of plan assets and a reconciliation of the plans’ funded status at November 30, the measurement date, follow:

(millions) 2022 2021

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It is assumed to decrease gradually to 4.5 % in the year 2034 ( 4.5 % in 2032 last year) and remain at that level thereafter.

A one percentage point increase or decrease in the assumed health care cost trend rate would have had an immaterial effect on the benefit obligation and the total of service and interest cost components for 2021.

STOCK-BASED COMPENSATION

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Total unrecognized stock-based compensation expense related to our RSUs and stock options at November 30, 2022 was $ 20.1 million and the weighted-average period over which this will be recognized is 1.3 years.

Total unrecognized stock-based compensation expense related to our price-vested stock options at November 30, 2021 was $ 13.5 million and the weighted-average period over which this will be recognized is 2.0 years.

Total unrecognized stock-based compensation expense related to our price-vested stock options at November 30, 2022 was $ 6.4 million and the weighted-average period over which this will be recognized is 1.0 year.

Total unrecognized stock-based compensation expense related to our LTPP is variable in nature and is dependent on the company's execution against established performance metrics under performance cycles related to this plan.

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Exercised ( 0.8 ) 47.58 ( 0.3 ) 45.93 ( 1.4 ) 41.01

Forfeited ( 0.1 ) 88.40 — — — —

Outstanding—end of year 4.8 67.08 5.0 59.71 4.5 53.56

19 unchanged sentences

The options granted were divided equally between the three appreciation thresholds.

Employees who are retirement eligible vest on a pro-rata basis over a three-year period if the market condition is met in the five-year period from the date of grant.

Employees who retire vest on a pro-rata basis over a three-year period if the market condition is met in the five-year period from the date of grant.

If the market conditions are not met in the five-year period from the date of grant, the options do not become exercisable and will be forfeited.

6 unchanged sentences

Expected lives 5.6 - 6.2 years

The following is a summary of our Price-Vested Stock Options activity for the year ended November 30, 2021:

The following is a summary of our Price-Vested Stock Options activity for the years ended November 30:

(shares in thousands) 2022 2021 2020

2 unchanged sentences

Shares Weighted-

Grant-Date Fair Value Number

Shares Weighted-

Grant-Date Fair Value

46 unchanged sentences

Intra-entity asset transfer — — ( 1.1 )

Non-recurring benefit of U.S.

Tax Act — — ( 0.2 )

Other, net 0.5 0.2 ( 0.5 )

7 unchanged sentences

Tax loss and credit carryforwards 59.7 56.6

Operating lease liabilities 4.0 33.0

Lease liabilities 18.1 33.3

Other 22.7 21.7

8 unchanged sentences

Of these carryforwards, $ 5.1 million expire in 2023, $ 16.1 million from 2024 through 2025, $ 54.6 million from 2026 through 2039, and $ 86.8 million may be carried forward indefinitely.

In addition, one of our non-U.S.

subsidiaries has a capital loss carryforward of $ 5.0 million which may be carried forward indefinitely.

At November 30, 2022, we also have U.S.

foreign tax credit carryforwards of $ 7.0 million and $ 5.3 million which expire in 2030 and 2031, respectively.

foreign tax credit carryforwards of $ 7.0 million, $ 3.9 million, and $ 5.3 million which expire in 2030, 2031, and 2032, respectively.

A valuation allowance has been provided to cover deferred tax assets that are not more likely than not realizable.

The net increase of $ 1.2 million in the valuation allowance from November 30, 2020 to November 30, 2021 resulted primarily from the net increase of valuation allowances for net operating losses and other tax attributes in the U.S.

The net decrease of $ 6.3 million in the valuation allowance from November 30, 2021 to November 30, 2022 resulted primarily from the net decrease of valuation allowances for net operating losses and other tax attributes in the U.S.

and certain non-U.S.

jurisdictions.

In December 2017, "An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018" was enacted into law as Pub.

115-9 (hereafter referred to as the "U.S.

Prior to the U.S.

Tax Act, we asserted that substantially all of the undistributed earnings of our international subsidiaries and joint ventures were considered indefinitely invested and accordingly, no deferred taxes were provided.

Pursuant to the provisions of the U.S.

Tax Act, these earnings were subjected to a one-time transition tax in 2018.

The transition tax was recognized in 2018 and was based on cumulative earnings prior to the U.S.

Our intent is to continue to reinvest undistributed earnings of our international subsidiaries and joint ventures indefinitely.

Our intent is to continue to reinvest undistributed earnings of our non-U.S.

subsidiaries and joint ventures indefinitely.

As of November 30, 2022, we have $ 1.4 billion of earnings 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 tax or foreign exchange gain or loss.

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

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

12 unchanged sentences

We recognized interest and penalty expense (benefit) of $ 0.2 million, $( 3.7 ) million, and $ 0.8 million in 2022, 2021, and 2020, respectively.

November 30, 2021 and 2020, we had accrued $ 4.7 million and $ 8.3 million, respectively, of interest and penalties related to unrecognized tax benefits.

As of November 30, 2022 and 2021, we had accrued $ 4.7 million and $ 4.7 million, respectively, of interest and penalties related to unrecognized tax benefits.

Tax settlements or statute of limitation expirations could result in a change to our uncertain tax positions.

12 unchanged sentences

The par value and additional paid in capital associated with each class of common stock is recorded in Common stock and Common stock non-voting in our consolidated balance sheet.

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

Trading of the Company’s common stock began on a split-adjusted basis on December 1, 2020.

All common stock and per-share data have been retroactively adjusted for the impact of the stock split.

Holders of Common Stock have full voting rights except that (1) the voting rights of persons who are deemed to own beneficially 10% or more of the outstanding shares of Common Stock are limited to 10 % of the votes entitled to be cast by all holders of shares of Common Stock regardless of how many shares in excess of 10% are held by such person;

23 unchanged sentences

The consumer and flavor solutions segments manufacture, market and distribute spices, seasoning mixes, condiments and other flavorful products throughout the world.

Our consumer segment sells to retail channels, including grocery, mass merchandise, warehouse clubs, discount and drug stores, and e-commerce under the “McCormick” brand and a variety of brands around the world, including “French's,” “Frank's RedHot,” “Lawry’s,” “Zatarain’s,” “Simply Asia,” “Thai Kitchen,” “Ducros,” “Vahiné,” "Cholula," “Schwartz,” “Club House,” “Kamis,” "DaQiao," "Drogheria & Alimentari," "Stubb's," "OLD BAY" and "Gourmet Garden." Our flavor solutions segment sells to food manufacturers and the foodservice industry both directly and indirectly through distributors, with the exception of our businesses in China and India, where foodservice sales are managed by and reported in our consumer segment.

Our consumer segment sells to retail channels, including grocery, mass merchandise, warehouse clubs, discount and drug stores, and e-commerce under the “McCormick” brand and a variety of brands around the world, including “French's,” “Frank's RedHot,” “Lawry’s,” “Zatarain’s,” “Simply Asia,” “Thai Kitchen,” “Ducros,” “Vahiné,” "Cholula," “Schwartz,” “Club House,” “Kamis,” "DaQiao," "La Drogheria," "Stubb's," "OLD BAY" and "Gourmet Garden." Our flavor solutions segment sells to food manufacturers and the foodservice industry both directly and indirectly through distributors, with the exception of our businesses in China and, prior to 2022, India, where foodservice sales are managed by and reported in our consumer segment.

In each of our segments, we produce and sell many individual products which are similar in composition and nature.

8 unchanged sentences

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

Sales to one of our flavor solutions segment customers, PepsiCo, Inc., accounted for approximately 11 %, 11 %, and 10 % of consolidated sales in 2021, 2020, and 2019, respectively.

Sales to one of our flavor solutions segment customers, PepsiCo, Inc., accounted for approximately 11 % of consolidated sales in 2022, 2021, and 2020.

Accounting policies for measuring segment operating income and assets are consistent with those described in note 1.

20 unchanged sentences

Net sales $ 3,596.7 $ 2,004.6 $ 5,601.3 $ — $ 5,601.3

Operating income excluding special charges 676.3 302.2 978.5 — 978.5

Operating income excluding special charges and transaction and integration expenses 780.9 237.9 1,018.8 — 1,018.8

Income from unconsolidated operations 34.1 6.7 40.8 — 40.8

2 unchanged sentences

Depreciation and amortization — — 123.9 41.1 165.0

A reconciliation of operating income excluding special charges and, for 2021 and 2020, transaction and integration expenses, to operating income for 2021, 2020 and 2019 is as follows:

A reconciliation of operating income excluding special charges and transaction and integration expenses, to operating income for 2022, 2021 and 2020 is as follows:

(millions) Consumer Flavor Solutions Total

1 unchanged sentence

expenses $ 710.7 $ 206.7 $ 917.4

Special charges 23.9 27.7 51.6

Transaction and integration expenses — 2.2 2.2

Operating income $ 686.8 $ 176.8 $ 863.6

Operating income excluding special charges and transaction and integration

expenses $ 804.9 $ 296.6 $ 1,101.5

Special charges and transaction-related expenses included in cost of

3 unchanged sentences

Operating income $ 756.9 $ 258.2 $ 1,015.1

Operating income excluding special charges and transaction and integration

expenses $ 780.9 $ 237.9 $ 1,018.8

Operating income excluding special charges and transaction and integration expenses $ 780.9 $ 237.9 $ 1,018.8

Special charges 5.5 1.4 6.9

1 unchanged sentence

Operating income $ 767.9 $ 231.6 $ 999.5

Operating income excluding special charges $ 676.3 $ 302.2 $ 978.5

Special charges 13.1 7.7 20.8

Operating income $ 663.2 $ 294.5 $ 957.7

Geographic Areas

14 unchanged sentences

Other income, net

Gain on sale of business (1)

$ 49.6 $ — $ —

Gain on settlement of treasury locks (2)

Pension and other postretirement benefit income 9.6 6.4 10.0

2 unchanged sentences

$ 98.3 $ 17.3 $ 17.6

(1) The sale of Kitchen Basics is further described in note 2.

(2) The settlement of these treasury locks is further described in note 8.

At November 30 (millions) 2022 2021

18 unchanged sentences

Software, net of accumulated amortization of $251.6 for 2022 and $248.5 for 2021 160.6 141.1

Pension asset 123.5 61.6

Other 153.4 140.6

22 unchanged sentences

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 8. Financial Statements and Supplementary Data