MCCORMICK & CO INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 52 REPORT OF MANAGEMENT We are responsible for the preparation and integrity of the consolidated financial statements appearing in our Annual Report. The consolidated financial statements were prepared in conformity with United States generally accepted accounting principles and include amounts based on our estimates and judgments. All other financial information in this report has been presented on a basis consistent with the information included in the financial statements. We are also responsible for establishing and maintaining adequate internal control over financial reporting. We maintain a system of internal control that is designed to provide reasonable assurance as to the fair and reliable preparation and presentation of the consolidated financial statements, as well as to safeguard assets from unauthorized use or disposition. Our control environment is the foundation for our system of internal control over financial reporting and is embodied in our Business Ethics Policy. It sets the tone of our organization and includes factors such as integrity and ethical values. Our internal control over financial reporting is supported by formal policies and procedures which are reviewed, modified and improved as changes occur in business conditions and operations. The Audit Committee of the Board of Directors, which is composed solely of independent directors, meets periodically with members of management, the internal auditors and the independent registered public accounting firm to review and discuss internal control over financial reporting and accounting and financial reporting matters. The independent registered public accounting firm and internal auditors report to the Audit Committee and accordingly have full and free access to the Audit Committee at any time. We conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). This assessment included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this assessment. Although there are inherent limitations in the effectiveness of any system of internal control over financial reporting, based on our assessment, we have concluded with reasonable assurance that our internal control over financial reporting was effective as of November 30, 2022. Our internal control over financial reporting as of November 30, 2022 has been audited by Ernst & Young LLP. Lawrence E. Kurzius Chairman & Chief Executive Officer Michael R. Smith Executive Vice President & Chief Financial Officer Gregory P. Repas Vice President & Controller 53 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of McCormick & Company, Incorporated Opinion on Internal Control Over Financial Reporting We have audited McCormick & Company, Incorporated’s internal control over financial reporting as of November 30, 2022, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, McCormick & Company, Incorporated (the Company) maintained, in all material respects, effective internal control over financial reporting as of November 30, 2022, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of November 30, 2022 and 2021, the related consolidated income statements, statements of comprehensive income, cash flow statements and statements of shareholders’ equity for each of the three years in the period ended November 30, 2022, and the related notes and the financial statement schedule listed in the Index at item 15(2) and our report dated January 26, 2023 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Baltimore, Maryland January 26, 2023 54 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of McCormick & Company, Incorporated Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of McCormick & Company, Incorporated (the Company) as of November 30, 2022 and 2021, the related consolidated income statements, statements of comprehensive income, cash flow statements and statements of shareholders’ equity for each of the three years in the period ended November 30, 2022, and the related notes and financial statement schedule listed in the Index at item 15(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at November 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended November 30, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of November 30, 2022, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated January 26, 2023 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 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. 55 Valuation of Indefinite-lived Intangible Assets Description of the Matter At November 30, 2022, the Company's indefinite-lived intangible assets consist of brand names and trademarks with an aggregate carrying value of approximately $3.0 billion. As explained in Note 1 to the consolidated financial statements, these assets are assessed for impairment at least annually using the relief-from-royalty methodology to determine their fair values. If the fair value of any brand name or trademark is less than its carrying amount, an impairment loss is recognized in an amount equal to the difference. Auditing the Company's impairment assessments is complex due to the significant estimation required in determining the fair value of the brand names and trademarks. Significant management judgment is also involved in determining whether individual brand names and trademarks should be grouped for purposes of the fair value determination or must be evaluated individually. The Company's methodologies for estimating the fair value of these assets involve significant assumptions and inputs, including projected financial information for net sales and operating profit by brand, royalty rates, and discount rates, all of which are sensitive to and affected by economic, industry, and company-specific qualitative factors. These significant assumptions and inputs 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 the Company’s indefinite-lived intangible asset impairment assessment, including controls over management’s review of its asset groupings and the significant assumptions described above. We tested controls over the review of methodologies used, significant assumptions and inputs, and completeness and accuracy of the data used in the measurements. To test the estimated fair value of the Company’s indefinite-lived intangible assets, we performed audit procedures that included, among others, evaluating the asset groupings used by the Company to perform its impairment assessment, assessing the methodologies, and testing the significant assumptions discussed above and the underlying data used by the Company in its analyses. We compared the significant assumptions to current industry, market and economic trends, to the Company's historical results, to other guideline companies within the same industry, and to other relevant data. In addition, we evaluated management’s ability to estimate net sales by comparing the current year actual net sales for certain brand names or trademarks to the estimates made in the Company’s prior year impairment assessment. We also performed sensitivity analyses of certain significant assumptions to evaluate the potential change in the fair values of the brand names and trademarks resulting from hypothetical changes in underlying assumptions. 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. We have served as the Company’s auditor since 1982. Baltimore, Maryland January 26, 2023 56 CONSOLIDATED INCOME STATEMENTS for the year ended November 30 (millions except per share data) 2022 2021 2020 Net sales $ 6,350.5 $ 6,317.9 $ 5,601.3 Cost of goods sold 4,076.0 3,823.3 3,300.9 Gross profit 2,274.5 2,494.6 2,300.4 Selling, general and administrative expense 1,357.1 1,404.1 1,281.6 Transaction and integration expenses 2.2 29.0 12.4 Special charges 51.6 46.4 6.9 Operating income 863.6 1,015.1 999.5 Interest expense 149.1 136.6 135.6 Other income, net 98.3 17.3 17.6 Income from consolidated operations before income taxes 812.8 895.8 881.5 Income tax expense 168.6 192.7 174.9 Net income from consolidated operations 644.2 703.1 706.6 Income from unconsolidated operations 37.8 52.2 40.8 Net income $ 682.0 $ 755.3 $ 747.4 Earnings per share–basic $ 2.54 $ 2.83 $ 2.80 Earnings per share–diluted $ 2.52 $ 2.80 $ 2.78 See Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME for the year ended November 30 (millions) 2022 2021 2020 Net income $ 682.0 $ 755.3 $ 747.4 Net income attributable to non-controlling interest 6.2 8.0 4.3 Other comprehensive income (loss): Unrealized components of pension and other postretirement plans 149.2 134.8 ( 80.4 ) Currency translation adjustments ( 161.8 ) ( 68.8 ) 89.7 Change in derivative financial instruments 3.3 1.1 ( 0.9 ) Deferred taxes ( 46.8 ) ( 30.2 ) 18.1 Total other comprehensive income (loss) ( 56.1 ) 36.9 26.5 Comprehensive income $ 632.1 $ 800.2 $ 778.2 See Notes to Consolidated Financial Statements. 57 CONSOLIDATED BALANCE SHEETS at November 30 (millions) 2022 2021 Assets Cash and cash equivalents $ 334.0 $ 351.7 Trade accounts receivable, net of allowances 573.7 549.5 Inventories 1,340.1 1,182.3 Prepaid expenses and other current assets 138.9 112.3 Total current assets 2,386.7 2,195.8 Property, plant and equipment, net 1,198.0 1,140.3 Goodwill 5,212.9 5,335.8 Intangible assets, net 3,387.9 3,452.5 Other long-term assets 939.4 781.4 Total assets $ 13,124.9 $ 12,905.8 Liabilities Short-term borrowings $ 1,236.7 $ 539.1 Current portion of long-term debt 270.6 770.3 Trade accounts payable 1,171.0 1,064.2 Other accrued liabilities 754.1 850.2 Total current liabilities 3,432.4 3,223.8 Long-term debt 3,642.3 3,973.3 Deferred taxes 866.3 792.3 Other long-term liabilities 484.7 490.9 Total liabilities 8,425.7 8,480.3 Shareholders’ equity Common stock; authorized 640.0 shares; issued and outstanding: 2022–17.4 shares, 2021–17.8 shares 568.6 530.0 Common stock non-voting; authorized 640.0 shares; issued and outstanding: 2022–250.6 shares, 2021–249.5 shares 1,570.0 1,525.1 Retained earnings 3,022.5 2,782.4 Accumulated other comprehensive loss ( 480.6 ) ( 426.5 ) Total McCormick shareholders’ equity 4,680.5 4,411.0 Non-controlling interests 18.7 14.5 Total shareholders’ equity 4,699.2 4,425.5 Total liabilities and shareholders’ equity $ 13,124.9 $ 12,905.8 See Notes to Consolidated Financial Statements. 58 CONSOLIDATED CASH FLOW STATEMENTS for the year ended November 30 (millions) 2022 2021 2020 Operating activities Net income $ 682.0 $ 755.3 $ 747.4 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 200.6 186.3 165.0 Stock-based compensation 60.3 66.6 46.0 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 — (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 and disposed): Trade accounts receivable ( 45.8 ) ( 22.6 ) 4.8 Inventories ( 205.3 ) ( 153.7 ) ( 200.2 ) Trade accounts payable 125.3 34.9 164.2 Other assets and liabilities ( 129.9 ) ( 81.4 ) 133.8 Dividends received from unconsolidated affiliates 34.0 35.4 29.3 Net cash provided by operating activities 651.5 828.3 1,041.3 Investing activities Acquisitions of businesses (net of cash acquired) — ( 706.4 ) ( 803.0 ) 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 Net cash used in investing activities ( 146.4 ) ( 908.6 ) ( 1,025.6 ) Financing activities 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 ) Long-term debt repayments ( 772.0 ) ( 257.1 ) ( 257.7 ) Proceeds from exercised stock options 41.4 13.5 56.6 Taxes withheld and paid on employee stock awards ( 19.4 ) ( 15.4 ) ( 13.0 ) Common stock acquired by purchase ( 38.8 ) ( 8.6 ) ( 47.3 ) Dividends paid ( 396.7 ) ( 363.3 ) ( 330.1 ) 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 (Decrease) increase in cash and cash equivalents ( 17.7 ) ( 71.9 ) 268.2 Cash and cash equivalents at beginning of year 351.7 423.6 155.4 Cash and cash equivalents at end of year $ 334.0 $ 351.7 $ 423.6 See Notes to Consolidated Financial Statements. 59 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (millions) Common Stock Shares Common Stock Non-Voting Shares Common Stock Amount Retained Earnings Accumulated Other Comprehensive (Loss) Income Non-controlling Interests Total Shareholders’ Equity Balance, November 30, 2019 18.6 247.2 $ 1,888.6 $ 2,055.8 $ ( 500.2 ) $ 12.5 $ 3,456.7 Net income — 747.4 — — 747.4 Net income attributable to non-controlling interest — — — 4.3 4.3 Other comprehensive income (loss), net of tax — — 29.4 ( 2.9 ) 26.5 Dividends — ( 338.5 ) — — ( 338.5 ) Stock-based compensation 46.0 — — — 46.0 Shares purchased and retired ( 0.3 ) ( 0.2 ) ( 13.6 ) ( 49.1 ) — — ( 62.7 ) Shares issued 1.6 — 60.3 — — — 60.3 Equal exchange ( 1.9 ) 1.9 — — — — — Balance, November 30, 2020 18.0 248.9 $ 1,981.3 $ 2,415.6 $ ( 470.8 ) $ 13.9 $ 3,940.0 Net income — 755.3 — — 755.3 Net income attributable to non-controlling interest — — — 8.0 8.0 Other comprehensive income (loss), net of tax — — 44.3 ( 7.4 ) 36.9 Dividends — ( 371.5 ) — — ( 371.5 ) Stock-based compensation 66.6 — — — 66.6 Shares purchased and retired ( 0.3 ) — ( 7.8 ) ( 17.0 ) — — ( 24.8 ) Shares issued 0.7 — 15.0 — — — 15.0 Equal exchange ( 0.6 ) 0.6 — — — — — Balance, November 30, 2021 17.8 249.5 $ 2,055.1 $ 2,782.4 $ ( 426.5 ) $ 14.5 $ 4,425.5 Net income 682.0 — — 682.0 Net income attributable to non-controlling interest — — — 6.2 6.2 Other comprehensive loss, net of tax — — ( 54.1 ) ( 2.0 ) ( 56.1 ) Dividends — ( 402.3 ) — — ( 402.3 ) Stock-based compensation 60.3 — — — 60.3 Shares purchased and retired ( 0.7 ) — ( 20.0 ) ( 39.6 ) — — ( 59.6 ) Shares issued 1.4 — 43.2 — — — 43.2 Equal exchange ( 1.1 ) 1.1 — — — — — Balance, November 30, 2022 17.4 250.6 $ 2,138.6 $ 3,022.5 $ ( 480.6 ) $ 18.7 $ 4,699.2 See Notes to Consolidated Financial Statements. 60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation The financial statements include the accounts of our majority-owned or controlled subsidiaries and affiliates. Intercompany transactions have been eliminated. Investments in unconsolidated affiliates, over which we exercise significant influence, but not control, are accounted for by the equity method. Accordingly, our share of net income or loss from unconsolidated affiliates is included in net income. Foreign Currency Translation For majority-owned or controlled subsidiaries and affiliates, if located outside of the U.S., with functional currencies other than the U.S. dollar, asset and liability accounts are translated at the rates of exchange at the balance sheet date and the resultant translation adjustments are included in accumulated other comprehensive income (loss), a separate component of shareholders’ equity. 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 income. Our unconsolidated affiliates located outside the U.S. generally use their local currencies as their functional currencies. The asset and liability accounts of those unconsolidated affiliates are translated at the rates of exchange at the balance sheet date, with the resultant translation adjustments included in accumulated other comprehensive income (loss) of those affiliates. Income and expense items of those affiliates are translated at average monthly rates of exchange. We record our ownership share of the net assets and accumulated other comprehensive income (loss) of our unconsolidated affiliates in our consolidated balance sheet on the lines entitled “Other long-term assets” and “Accumulated other comprehensive loss,” respectively. We record our ownership share of the net income of our unconsolidated affiliates, or a gain or loss associated with the sale of our ownership interest in our unconsolidated affiliates, in our consolidated income statement on the line entitled “Income from unconsolidated operations.” Use of Estimates Preparation of financial statements that follow accounting principles generally accepted in the U.S. requires us to make estimates and assumptions that affect the amounts reported in the financial statements and notes. Actual amounts could differ from these estimates. Cash and Cash Equivalents All highly liquid investments purchased with an original maturity of three months or less are classified as cash equivalents. Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined under the first-in, first-out costing method (FIFO), including the use of average costs which approximate FIFO. Property, Plant and Equipment Property, plant and equipment is stated at historical cost and depreciated over its estimated useful life using the straight-line method for financial reporting and both accelerated and straight-line methods for tax reporting. 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 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. Computer Software We capitalize costs of software developed or obtained for internal use. Capitalized software development costs include only (1) direct costs paid to others for materials and services to develop or buy the software, (2) payroll and payroll-related costs for employees who work directly on the software development project and (3) interest costs while developing the software. Capitalization of these costs stops when the project is substantially complete and ready for use. The net book value of capitalized software totaled $ 160.6 million and $ 141.1 million at November 30, 2022 and 2021, respectively. Capitalized software is classified within "Other long-term assets" in the consolidated balance 61 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. Goodwill and Other Intangible Assets We review the carrying value of goodwill and indefinite-lived intangible assets and conduct tests of impairment on an annual basis as described below. We also test goodwill for impairment if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is below its carrying amount and test indefinite-lived intangible assets for impairment if events or changes in circumstances indicate that the asset might be impaired. Separable intangible assets that have finite useful lives are amortized over those lives. Determining the fair value of a reporting unit or an indefinite-lived purchased intangible asset is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, assumed royalty rates, future economic and market conditions and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from these estimates. Goodwill Impairment Our reporting units used to assess potential goodwill impairment are the same as our business segments. 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 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 Fixed assets and amortizable intangible assets are reviewed for impairment as events or changes in circumstances occur indicating that the carrying value of the asset may not be recoverable. Undiscounted cash flow analyses are used to determine if an impairment exists. If an impairment is determined to exist, the loss would be calculated based on the excess of the asset’s carrying value over its estimated fair value. Leases We determine whether a contract is or contains a lease at contract inception based on the presence of identified assets and our right to obtain substantially all the economic benefit from or to direct the use of such assets. When we determine a lease exists, we record a right-of-use (“ROU”) asset and corresponding lease liability on our consolidated balance sheet. ROU assets represent our right to use an underlying asset for the lease term. Lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets are recognized at the lease commencement date at the value of the lease liability and are adjusted for any prepayments, lease incentives received, and initial direct costs incurred. Lease liabilities are recognized at the lease commencement date based on the present value of remaining lease payments over the lease term. As the discount rate implicit in the lease is not readily determinable in most of our leases, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. We do not record lease contracts with a term of 12 months or less on our consolidated balance sheets. When our real estate lease arrangements include lease and non-lease components (for example, common area maintenance), we account for each component separately, based on their relative standalone prices. For all other asset categories, we combine lease components and non-lease components into a single lease commitment. We recognize fixed lease expense for operating leases on a straight-line basis over the lease term. For finance leases, we recognize amortization expense over the shorter of the estimated useful life of the underlying assets or the lease term. In instances of title transfer, expense is recognized over the useful life. Interest expense on a finance lease is recognized using the effective interest method over the lease term. Revenue Recognition 62 We manufacture, market and distribute spices, seasoning mixes, condiments and other flavorful products to the entire food industry—retailers, food manufacturers and foodservice businesses. Our revenue arrangements generally include a single performance obligation relating to the fulfillment of a customer order, which in some cases are governed by a master sales agreement, for the purchase of our products. We recognize revenue at a point in time when control of the ordered products passes to the customer, which principally occurs either upon shipment or delivery to the customer or upon pick-up by the customer, depending upon terms included in the particular customer arrangement. Revenues are recorded net of trade and sales incentives and estimated product returns. Known or expected pricing or revenue adjustments, such as trade discounts, rebates and returns, are estimated at the time of sale. 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 expense any incremental costs of obtaining a contract when the contract is for a period of one year or less. Amounts billed and due from our customers are classified as accounts receivable on the balance sheet and require payment on a short-term basis. Our allowance for doubtful accounts represents our estimate of probable non-payments and credit losses in our existing receivables, as determined based on a review of past due balances and other specific account data. The following table sets forth our net sales by the Americas, Europe, Middle East and Africa (EMEA) and Asia/Pacific (APAC) geographic regions: (millions) Americas EMEA APAC Total 2022 Net sales $ 4,551.7 $ 1,116.4 $ 682.4 $ 6,350.5 2021 Net sales $ 4,396.1 $ 1,191.3 $ 730.5 $ 6,317.9 2020 Net sales $ 3,974.9 $ 1,046.7 $ 579.7 $ 5,601.3 Performance Obligations Our revenues primarily result from contracts or purchase orders with customers, which generally are both short-term in nature and have a single performance obligation—the delivery of our products to customers. We assess the goods and services promised in our customers’ contracts or purchase orders and identify a performance obligation for each promise to transfer a good or service (or bundle of goods or services) that is distinct. To identify the performance obligations, we consider all the goods or services promised, whether explicitly stated or implied based on customary business practices. Significant Judgments Sales are recorded net of trade and sales incentives and estimated product returns. 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 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. 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. The adjustments recognized during the year ended November 30, 2022, 2021 and 2020 resulting from updated estimates of revenue for prior year product sales were not significant. The unsettled portion remaining in accrued liabilities for these activities was $ 181.0 million and $ 189.3 million at November 30, 2022 and 2021, respectively. Shipping and Handling Shipping and handling costs on our products sold to customers related to activities that occur before the customer has obtained control of a good are included in cost of goods sold in the consolidated income statement. Brand Marketing Support 63 Total brand marketing support costs, which are included in our consolidated income statement in the line entitled "Selling, general and administrative expense", were $ 240.4 million, $ 237.8 million and $ 230.3 million for 2022, 2021 and 2020, respectively. Brand marketing support costs include advertising and promotions but exclude trade funds paid to customers for such activities. All trade funds paid to customers are reflected in the consolidated income statement as a reduction of net sales. Promotion costs include public relations, shopper marketing, social marketing activities, general consumer promotion activities and depreciation of assets used in these promotional activities. Advertising costs include the development, production and communication of advertisements through television, digital, print and radio. Development and production costs are expensed in the period in which the advertisement is first run. All other costs of advertising are expensed as incurred. Advertising expense was $ 187.2 million, $ 182.6 million and $ 174.8 million for 2022, 2021 and 2020, respectively. 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 $ 87.5 million, $ 87.3 million and $ 68.6 million for 2022, 2021 and 2020, respectively. Income Taxes Income taxes are recognized in accordance with the liability method of accounting. Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax law. Inherent in determining our annual tax rate are judgments regarding business plans, planning opportunities, and expectations about future outcomes. Realization of certain deferred tax assets, primarily net operating loss and other carryforwards, is dependent upon generating sufficient taxable income in the appropriate jurisdiction prior to the expiration of the carryforward periods. Changes in enacted tax rates are reflected in the tax provision as they occur. We record valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. When assessing the need for valuation allowances, we consider future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, we would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding adjustment to our provision for income taxes. We recognize a tax position in our financial statements when it is more likely than not that the position will be sustained upon examination based on the technical merits of the position. That position is then measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. 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. 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. shareholder. Accounting principles generally accepted in the U.S. provide for an accounting policy election of either recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years or recognizing such taxes as a current period expense when incurred. We have elected to treat GILTI as a current period expense when incurred. Stock-Based Compensation We recognize stock-based compensation expense associated with options and restricted stock units (RSUs), which contain provisions that such awards fully vest upon an employee’s retirement, ratably over the shorter of the vesting period or the employees’ retirement eligibility date. Accordingly, we recognize stock-based compensation associated with options and RSUs subject to immediate retirement eligible vesting provisions on the date of grant. Compensation expense associated with our long-term performance plan (LTPP) is recorded in the income statement ratably over the three-year period of the program based on the number of shares ultimately expected to be awarded using our estimate of the most likely outcome of achieving the performance objectives. We recognize stock-based compensation expense associated with price-vested stock options ratably over the vesting period as such options do not contain provisions that fully vest these awards upon an employee becoming retirement eligible. 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. 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 64 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. Cash flow hedges. Qualifying derivatives are accounted for as cash flow hedges when the hedged item is a forecasted transaction. Gains and losses on these instruments are recorded in our consolidated balance sheet on the line entitled “Accumulated other comprehensive income (loss)" until the underlying transaction is recorded in earnings. When the hedged item is realized, gains or losses are reclassified from "Accumulated other comprehensive income (loss)" in our consolidated balance sheet to our consolidated income statement on the same line items as the underlying transactions. Fair value hedges. Qualifying derivatives are accounted for as fair value hedges when the hedged item is a recognized asset, liability, or firm commitment. Gains and losses on these instruments are recorded in earnings, offsetting gains and losses on the hedged item. Net investment hedges. Qualifying derivative and nonderivative financial instruments are accounted for as net investment hedges when the hedged item is a nonfunctional currency investment in a subsidiary. Gains and losses on these instruments are included in foreign currency translation adjustments, a component of “Accumulated other comprehensive income (loss)" in our consolidated balance sheet. Employee Benefit and Retirement Plans We sponsor defined benefit pension plans in the U.S. and certain foreign locations. In addition, we sponsor defined contribution plans in the U.S. We contribute to defined contribution plans in locations outside the U.S., including government-sponsored retirement plans. We also currently provide postretirement medical and life insurance benefits to certain U.S. employees and retirees. We recognize the overfunded or underfunded status of our defined benefit pension plans as an asset or a liability in our balance sheet, with changes in the funded status recorded through other comprehensive income in the year in which those changes occur. The expected return on plan assets is determined using the expected rate of return and a calculated value of plan assets referred to as the market-related value of plan assets. Differences between assumed and actual returns are amortized to the market-related value of assets on a straight-line basis over five years. We use the corridor approach in the valuation of defined benefit pension and postretirement benefit plans. The corridor approach defers all actuarial gains and losses resulting from variances between actual results and actuarial assumptions. Those unrecognized gains and losses are amortized when the net gains and losses exceed 10% of the greater of the market-related value of plan assets or the projected benefit obligation at the beginning of the year. The amount in excess of the corridor is amortized over the average remaining life expectancy of retired plan participants, for plans whose benefits have been frozen, or the average remaining service period to retirement date of active plan participants. Accounting Pronouncements Adopted in 2022 In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . The new guidance removes certain exceptions to the general principles for income taxes and also improves consistent application of accounting by clarifying or amending existing guidance. The new standard was adopted effective December 1, 2021. There was no material impact to our consolidated financial statements. In March 2020, the FASB issued ASU No. 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting that provides optional expedients for a limited period of time for accounting for contracts, hedging relationships, and other transactions affected by the London Interbank Offered Rate (LIBOR) or other reference rates expected to be discontinued. These optional expedients can be applied from March 2020 through December 31, 2022. 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 65 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. 2022-04: Liabilities - Supplier Finance Programs (Topic 450-50): Disclosure of Supplier Finance Program Obligations that requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose the key terms of the programs and information about obligations outstanding at the end of the reporting period, including a 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. 2. ACQUISITIONS AND DISPOSITIONS Acquisitions are part of our strategy to increase sales and profits. Acquisition of FONA International, LLC On December 30, 2020, we purchased FONA International, LLC and certain of its affiliates (FONA), a privately held company, for a purchase price of approximately $ 708.2 million, net of cash acquired. That purchase price includes the payment of $ 2.6 million during 2021 associated with the final working capital adjustment. 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. The 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 commercial paper. At the time of the acquisition, annual sales of FONA were approximately $ 114 million. 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. 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. Acquisition of Cholula Hot Sauce On November 30, 2020, we completed the acquisition of the parent company of Cholula Hot Sauce ® (Cholula) from L Catterton. The purchase price was approximately $ 801.2 million, net of cash acquired. That purchase price is also net of $ 1.5 million received during 2021 associated with the final working capital adjustment. 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 we believe broadens our 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. At the time of the acquisition, annual sales of Cholula were approximately $ 96 million. The results of Cholula’s operations have been included in our financial statements as a component of our consumer and flavor solutions segments from the date of acquisition. 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. 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): 66 2022 2021 2020 Transaction-related expenses included in cost of goods sold $ — $ 6.3 $ — Other transaction expenses — 13.8 12.4 Integration expenses 2.2 15.2 — Total transaction and integration expenses $ 2.2 $ 35.3 $ 12.4 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. 3. 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 and Chief Executive Officer. Upon presentation of any such proposed action (generally including details with respect to estimated costs, which typically consist principally of employee severance and related benefits, together with ancillary costs associated with the action that may include a non-cash component, such as an asset impairment, or a component which relates to inventory adjustments that are included in cost of goods sold; impacted employees or operations; expected timing; and expected savings) to the Management Committee and the Committee’s advance approval, expenses associated with the approved action are classified as special charges upon recognition and monitored on an ongoing 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. The following is a summary of special charges recognized for the years ended November 30 (in millions): 2022 2021 2020 Employee severance and related benefits in the income statement $ 33.8 $ 10.5 $ 4.1 Other costs in the income statement 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 The following is a summary of special charges by business segments for the years ended November 30 (in millions): 2022 2021 2020 Consumer segment $ 23.9 $ 36.3 $ 5.5 Flavor solutions segment 27.7 14.8 1.4 Total special charges $ 51.6 $ 51.1 $ 6.9 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 67 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 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. This action principally relates to the discontinuance of Kohinoor's rice business consistent with our focus on higher margin products to enable the business to focus on both its flavor solutions and non-rice consumer business. As a result of the Kohinoor rice product line exit, we determined that an impairment of the Kohinoor brand name had occurred in 2021 and recorded a non-cash impairment charge of $ 7.4 million reducing its carrying value to zero. Also, as a result of this action, we determined that the value of our customer relationship asset in India was also impaired as a result of the lower level of anticipated sales and recorded a non-cash impairment charge of $ 3.8 million. We also recorded $ 3.6 million of employee severance and other related exit costs associated directly associated with the exit plan. 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 2022, we sold the Kohinoor brand name for $ 13.6 million, net of costs associated with the sale of $ 1.4 million, and reflected the gain of $ 13.6 million associated with this sale within special charges. During 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 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. 4. GOODWILL AND INTANGIBLE ASSETS The following table displays intangible assets as of November 30: 2022 2021 (millions) Gross carrying amount Accumulated amortization Gross carrying amount Accumulated amortization Definite-lived intangible assets $ 536.6 $ 192.1 $ 549.6 $ 164.5 Indefinite-lived intangible assets: Goodwill 5,212.9 — 5,335.8 — Brand names and trademarks 3,043.4 — 3,067.4 — 8,256.3 — 8,403.2 — Total goodwill and intangible assets $ 8,792.9 $ 192.1 $ 8,952.8 $ 164.5 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. At November 30, 2022, definite-lived intangible assets had a weighted-average remaining life of approximately 11 years. The changes in the carrying amount of goodwill by segment for the years ended November 30 were as follows: 2022 2021 (millions) Consumer Flavor Solutions Consumer Flavor Solutions 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 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 (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. 5. INVESTMENTS IN AFFILIATES Income from unconsolidated operations was $ 37.8 million, $ 52.2 million, and $ 40.8 million in 2022, 2021 and 2020, respectively. 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 are from our 50 % interest in McCormick de Mexico, S.A. de C.V. Profit from this joint venture represented 84 % of income from unconsolidated operations in 2022, 62 % in 2021 and 75 % in 2020. The relative impact of McCormick de Mexico, S.A. de C.V. on income from unconsolidated operations in 2021 was impacted by the gain on our sale of an unconsolidated operation. Summarized annual and year-end information from the financial statements of unconsolidated affiliates representing 100 % of the businesses follows: (millions) 2022 2021 2020 Net sales $ 998.1 $ 925.1 $ 870.3 Gross profit 338.1 328.8 318.0 Net income 86.5 95.8 93.7 Current assets $ 494.8 $ 464.2 $ 421.7 Noncurrent assets 109.7 105.8 126.2 Current liabilities 257.7 218.5 192.3 Noncurrent liabilities 8.4 9.0 12.2 Royalty income from unconsolidated affiliates was $ 27.3 million, $ 22.8 million and $ 19.5 million for 2022, 2021 and 2020, respectively. Sale of Unconsolidated Operation On March 1, 2021, we sold our 26 % interest in Eastern Condiments Private Ltd (Eastern) for $ 65.4 million in cash, net of transaction expenses of $ 1.4 million. Eastern was accounted for as an equity method investment with our proportionate share of earnings, prior to the sale, reflected in Income from unconsolidated operations before income taxes in our consolidated income statement. The sale of Eastern resulted in a gain of $ 13.4 million, net of tax of $ 5.7 million. That gain is included in Income from unconsolidated operations before income taxes in our consolidated income statement. That gain also reflects a write-off of $ 1.4 million of foreign currency translation adjustment, a component of Accumulated other comprehensive loss. 6. FINANCING ARRANGEMENTS Our outstanding debt, including finance leases, was as follows at November 30: (millions) 2022 2021 Short-term borrowings Commercial paper $ 1,224.6 $ 530.8 Other 12.1 8.3 $ 1,236.7 $ 539.1 Weighted-average interest rate of short-term borrowings at year-end 4.2 % 0.2 % Long-term debt 2.70% notes due 8/15/2022 $ — $ 750.0 3.50% notes due 9/1/2023 (1) 250.0 250.0 3.15% notes due 8/15/2024 700.0 700.0 3.25% notes due 11/15/2025 (2) 250.0 250.0 0.90% notes due 2/15/2026 500.0 500.0 3.40% notes due 8/15/2027 (3) 750.0 750.0 2.50% notes due 4/15/2030 (4) 500.0 500.0 1.85% notes due 2/15/2031 500.0 500.0 4.20% notes due 8/15/2047 300.0 300.0 7.63%–8.12% notes due 2024 55.0 55.0 Other, including finance leases 176.1 199.2 Unamortized discounts, premiums, debt issuance costs and fair value adjustments (5) ( 68.2 ) ( 10.6 ) 3,912.9 4,743.6 Less current portion 270.6 770.3 $ 3,642.3 $ 3,973.3 (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 70 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 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 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. Includes fair value adjustment associated with interest rate swaps designated as fair value hedges of $( 42.3 ) million and $ 21.2 million as of November 30, 2022 and 2021, respectively. Maturities of long-term debt, including finance leases, during the fiscal years subsequent to November 30, 2022 are as follows (in millions): 2023 $ 270.6 2024 796.9 2025 269.7 2026 509.2 2027 759.6 Thereafter 1,375.1 In February 2021, we issued $ 500.0 million of 0.90 % notes due February 15, 2026, with cash proceeds received of $ 495.7 million, net of discounts and underwriters' fees. 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. 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. 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. 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. These letters of credit typically act as a guarantee of payment to certain third parties in accordance with specified terms and conditions. The unused portion of our letter of credit facility was $ 13.6 million at November 30, 2022. 7. LEASES Our lease portfolio primarily consists of (i) certain real estate, including those related to a number of administrative, distribution and manufacturing locations; (ii) certain machinery and equipment, including forklifts; and (iii) automobiles, delivery trucks and other vehicles, including an airplane. A limited number of our lease agreements include rental payments that are adjusted periodically based on a market rate or index. Our lease agreements 71 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 Finance lease cost: Amortization of ROU assets 9.0 9.0 9.0 Interest on lease liabilities 4.1 4.3 4.5 Net lease cost $ 60.1 $ 58.3 $ 54.7 (1) Net lease cost does not include short-term leases, variable lease costs or sublease income, all of which are immaterial. Supplemental balance sheet information related to leases as of November 30 were as follows (in millions): Leases Classification 2022 2021 Assets: Operating lease ROU assets Other long-term assets $ 218.9 $ 136.8 Finance lease ROU assets Property, plant and equipment, net 103.0 112.1 Total leased assets $ 321.9 $ 248.9 Liabilities: Current Operating Other accrued liabilities $ 54.4 $ 34.3 Finance Current portion of long-term debt 7.8 7.5 Non-current Operating Other long-term liabilities 176.1 106.1 Finance Long-term debt 110.5 118.2 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 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. As of November 30, 2022, the total lease obligation associated with this building was $ 116.4 million, of which $ 7.6 million was included in the current portion of long-term debt and $ 108.8 million was included in long-term debt. As of November 30, 2021, the total lease obligation was $ 123.8 million, of which $ 7.3 million was included in the current portion of long-term debt and $ 116.5 million was included in long-term debt. Information regarding our lease terms and discount rates as of November 30 were as follows: 72 2022 2021 Weighted-average remaining lease term (years) Weighted-average discount rate Weighted-average remaining lease term (years) Weighted-average discount rate Operating leases 5.8 3.7 % 6.8 1.9 % Finance leases 11.9 3.3 % 12.9 3.3 % The future maturity of our lease liabilities as of November 30, 2022 were as follows (in millions): Operating leases Finance leases Total 2023 $ 58.3 $ 11.3 $ 69.6 2024 50.9 11.5 62.4 2025 43.3 11.7 55.0 2026 39.0 11.9 50.9 2027 34.1 12.2 46.3 Thereafter 31.8 89.9 121.7 Total lease payments 257.4 148.5 405.9 Less: Imputed interest 26.9 30.2 57.1 Total lease liabilities $ 230.5 $ 118.3 $ 348.8 Supplemental cash flow and other information related to leases for the years ended November 30 were as follows (in millions): 2022 2021 Cash paid for amounts included in the measurements of lease liabilities: Operating cash flows used for operating leases $ 41.4 $ 45.4 Operating cash flows used for finance leases 4.1 4.3 Financing cash flows used for finance leases 7.3 7.1 ROU assets obtained in exchange for lease liabilities Operating leases $ 133.8 $ 47.8 8. FINANCIAL INSTRUMENTS We use derivative financial instruments to enhance our ability to manage risk, including foreign currency and interest rate exposures, which exist as part of our ongoing business operations. We do not enter into contracts for trading purposes, nor are we a party to any leveraged derivative instrument and all derivatives are designated as hedges. We are not a party to master netting arrangements, and we do not offset the fair value of derivative contracts with the same counterparty in our financial statement disclosures. The use of derivative financial instruments is monitored through regular communication with senior management and the use of written guidelines. Foreign Currency We are potentially exposed to foreign currency fluctuations affecting net investments in subsidiaries, transactions (both third-party and intercompany) and earnings denominated in foreign currencies. Management assesses foreign currency risk based on transactional cash flows and translational volatility and may enter into forward contract and currency swaps with highly-rated financial institutions to reduce fluctuations in the long or short currency positions. Forward contracts are generally less than 18 months duration. Currency swap agreements are established in conjunction with the terms of the underlying debt issues. At November 30, 2022, we had foreign currency exchange contracts to purchase or sell $ 560.5 million of foreign currencies as compared to $ 583.6 million at November 30, 2021. All of these contracts were designated as hedges of anticipated purchases denominated in a foreign currency or hedges of foreign currency denominated assets or liabilities. Hedge ineffectiveness was not material. All foreign currency exchange contracts outstanding at November 73 30, 2022 have durations of less than 18 months, including $ 150.9 million of notional contracts that have durations of less than one month and are used to hedge short-term cash flow funding. Contracts which are designated as hedges of anticipated purchases denominated in a foreign currency (generally purchases of raw materials in U.S. dollars by operating units outside the U.S.) are considered cash flow hedges. 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 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 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 We finance a portion of our operations with both fixed and variable rate debt instruments, primarily commercial paper, notes and bank loans. 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, 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. Hedge ineffectiveness was not material. 74 The following tables disclose the notional amount and fair values of derivative instruments on our consolidated balance sheet: As of November 30, 2022: (millions) Asset Derivatives Liability Derivatives Derivatives Balance sheet location Notional amount Fair value Balance sheet location Notional amount Fair value Interest rate contracts Other current assets/Other long-term assets $ — $ — Other accrued liabilities $ 600.0 $ 42.4 Foreign exchange contracts Other current assets 344.9 11.0 Other accrued liabilities 215.6 1.5 Cross currency contracts Other current assets/Other long-term assets 680.0 44.5 Other long-term liabilities 226.1 8.3 Total $ 55.5 $ 52.2 As of November 30, 2021: (millions) Asset Derivatives Liability Derivatives Derivatives Balance sheet location Notional amount Fair value Balance sheet location Notional amount Fair value Interest rate contracts Other current assets/Other long-term assets $ 350.0 $ 23.1 Other accrued liabilities $ — $ — Foreign exchange contracts Other current assets 380.8 8.3 Other accrued liabilities 202.8 2.8 Cross currency contracts Other current assets/Other long-term assets 251.0 4.4 Other long-term liabilities 257.5 8.0 Total $ 35.8 $ 10.8 The following tables disclose the impact of derivative instruments on other comprehensive income (OCI), accumulated other comprehensive income (AOCI) and our consolidated income statement for the years ended November 30, 2022, 2021 and 2020: Fair value hedges (millions) Income statement location Income (expense) Derivative 2022 2021 2020 Interest rate contracts Interest expense $ 4.0 $ 8.2 $ 5.2 Income statement location Gain (loss) recognized in income Income statement location Gain (loss) recognized in income Derivative 2022 2021 2020 Hedged Item 2022 2021 2020 Foreign exchange contracts Other income, net $ 6.6 $ ( 1.9 ) $ ( 4.0 ) Intercompany loans Other income, net $ ( 6.3 ) $ 2.9 $ 3.0 Cash flow hedges (millions) Gain (loss) recognized in OCI Income statement location Gain (loss) reclassified from AOCI Derivative 2022 2021 2020 2022 2021 2020 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 75 364-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. 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) Gain (loss) recognized in OCI Income statement location Gain (loss) excluded from the assessment of hedge effectiveness Derivative 2022 2021 2020 2022 2021 2020 Cross currency contracts $ 37.6 $ 15.5 $ ( 20.8 ) Interest expense $ 7.3 $ 1.5 $ 3.1 For all net investment hedges, no amounts have been reclassified out of other comprehensive income (loss). The amounts noted in the tables above for OCI do not include any adjustments for the impact of deferred income taxes. Concentrations of Credit Risk We are potentially exposed to concentrations of credit risk with trade accounts receivable and financial instruments. The customers of our consumer segment are predominantly food retailers and food wholesalers. Consolidations in these industries have created larger customers. In addition, competition has increased with the growth in alternative channels including mass merchandisers, dollar stores, warehouse clubs, discount chains and e-commerce. This has caused some customers to be less profitable and increased our exposure to credit risk. We generally have a large and diverse customer base which limits our concentration of credit risk. At November 30, 2022, we did not have amounts due from any single customer that exceed 10 % of consolidated trade accounts receivable. Current credit markets are highly volatile and some of our customers and counterparties are highly leveraged. We continue to closely monitor the credit worthiness of our customers and counterparties and generally do not require collateral. We believe that the allowance for doubtful accounts properly recognized trade receivables at realizable value. We consider nonperformance credit risk for other financial instruments to be insignificant. 9. FAIR VALUE MEASUREMENTS Fair value can be measured using valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). Accounting standards utilize a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: • Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. • Level 3: Unobservable inputs that reflect management’s own assumptions. 76 Our population of assets and liabilities subject to fair value measurements on a recurring basis are as follows: Fair value measurements using fair value hierarchy as of November 30, 2022 (millions) Fair value Level 1 Level 2 Assets: Cash and cash equivalents $ 334.0 $ 334.0 $ — Insurance contracts 110.0 — 110.0 Bonds and other long-term investments 5.1 5.1 — Foreign currency derivatives 11.0 — 11.0 Cross currency contracts 44.5 — 44.5 Total $ 504.6 $ 339.1 $ 165.5 Liabilities: Interest rate derivatives $ 42.4 $ — $ 42.4 Foreign currency derivatives 1.5 — 1.5 Cross currency contracts 8.3 — 8.3 Total $ 52.2 $ — $ 52.2 Fair value measurements using fair value hierarchy as of November 30, 2021 (millions) Fair value Level 1 Level 2 Assets: Cash and cash equivalents $ 351.7 $ 351.7 $ — Insurance contracts 132.2 — 132.2 Bonds and other long-term investments 5.1 5.1 — Interest rate derivatives 23.1 — 23.1 Foreign currency derivatives 8.3 — 8.3 Cross currency contracts 4.4 — 4.4 Total $ 524.8 $ 356.8 $ 168.0 Liabilities: Foreign currency derivatives 2.8 — 2.8 Cross currency contracts 8.0 — 8.0 Total $ 10.8 $ — $ 10.8 At November 30, 2022 and 2021, we had no financial assets or liabilities that were subject to a level 3 fair value measurement. At November 30, 2022 and 2021, the carrying amount of interest rate derivatives, foreign currency derivatives, cross currency contracts, insurance contracts, and bond and other long-term investments are equal to their respective fair values. Because of their short-term nature, the amounts reported in the balance sheet for cash and cash equivalents, receivables, short-term borrowings and trade accounts payable approximate fair value. Investments in affiliates are not readily marketable, and it is not practicable to estimate their fair value. Insurance contracts, bonds, and other long-term investments are comprised of fixed income and equity securities held for certain non-qualified U.S. employee benefit plans and are stated at fair value on the balance sheet. The fair values of insurance contracts are based upon the underlying values of the securities in which they are invested and are from quoted market prices from various stock and bond exchanges for similar type assets. The fair values of bonds and other long-term investments are based on quoted market prices from various stock and bond exchanges. The fair values for interest rate derivatives, foreign currency derivatives, and cross currency contracts are based on values for similar instruments using models with market-based inputs. 77 The carrying amount and fair value of long-term debt, including the current portion, as of November 30 were as follows: (millions) 2022 2021 Carrying amount Fair value Carrying amount Fair value Long-term debt (including current portion) $ 3,912.9 $ 3,600.9 $ 4,743.6 $ 4,921.5 Level 1 valuation techniques 3,424.8 4,722.3 Level 2 valuation techniques 176.1 199.2 The fair value for Level 2 long-term debt is determined by using quoted prices for similar debt instruments. 10 . ACCUMULATED OTHER COMPREHENSIVE LOSS The following table sets forth the components of accumulated other comprehensive loss, net of tax where applicable, as of November 30 (in millions): 2022 2021 Accumulated other comprehensive loss, net of tax where applicable Foreign currency translation adjustment (1) $ ( 405.3 ) $ ( 233.3 ) Unrealized net gain on foreign currency exchange contracts 3.8 0.6 Unamortized value of settled interest rate swaps ( 0.6 ) ( 0.2 ) Pension and other postretirement costs ( 78.5 ) ( 193.6 ) $ ( 480.6 ) $ ( 426.5 ) (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. The following table sets forth the amounts reclassified from accumulated other comprehensive income (loss) and into consolidated net income for the years ended November 30: (millions) Affected line items in the consolidated income statement Accumulated other comprehensive income (loss) components 2022 2021 2020 (Gains)/losses on cash flow hedges: 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 Total before taxes ( 20.8 ) 0.2 ( 2.1 ) Tax effect 4.9 — 0.5 Income taxes Net, after tax $ ( 15.9 ) $ 0.2 $ ( 1.6 ) Amortization of pension and postretirement benefit adjustments: Amortization of prior service (credits) costs (2) $ 0.3 $ 0.3 $ ( 4.0 ) Other income, net Amortization of net actuarial losses (2) 9.9 13.9 11.0 Other income, net Total before taxes 10.2 14.2 7.0 Tax effect ( 2.4 ) ( 3.3 ) ( 1.6 ) Income taxes 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). 11. EMPLOYEE BENEFIT AND RETIREMENT PLANS We sponsor defined benefit pension plans in the U.S. and certain foreign locations. In addition, we sponsor defined contribution plans in the U.S. We contribute to defined contribution plans in locations outside the U.S., including government-sponsored retirement plans. We also currently provide postretirement medical and life insurance benefits to certain U.S. employees and retirees. We previously froze the accrual of 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, we 78 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. Defined Benefit Pension Plans The significant assumptions used to determine benefit obligations are as follows as of November 30: United States International 2022 2021 2022 2021 Discount rate—funded plans 5.4 % 2.9 % 4.5 % 2.1 % Discount rate—unfunded plan 5.4 % 2.8 % — % — % Salary scale — % — % 2.9 % 2.9 % The significant assumptions used to determine pension expense for the years ended November 30 are as follows: United States International 2022 2021 2020 2022 2021 2020 Discount rate—funded plans 2.9 % 2.8 % 3.4 % 2.1 % 1.9 % 2.2 % Discount rate—unfunded plan 2.8 % 2.7 % 3.3 % — % — % — % Salary scale — % — % — % 2.9 % 2.9 % 2.9 % Expected return on plan assets 6.8 % 6.8 % 6.8 % 3.7 % 4.1 % 4.9 % Annually, we undertake a process, with the assistance of our external investment consultants, to evaluate the appropriate projected rates of return to use for our pension plans’ assumptions. We engage our investment consultants' research teams to develop capital market assumptions for each asset category in our plans to project investment returns into the future. The specific methods used to develop expected return assumptions vary by asset category. We adjust the outcomes for the fact that plan assets are invested with actively managed funds and subject to tactical asset reallocation. Our pension expense (income) for the years ended November 30 was as follows: United States International (millions) 2022 2021 2020 2022 2021 2020 Service cost $ 3.6 $ 3.7 $ 3.2 $ 0.9 $ 1.1 $ 1.3 Interest costs 26.3 25.9 29.3 7.0 7.1 7.5 Expected return on plan assets ( 42.8 ) ( 41.1 ) ( 40.6 ) ( 12.3 ) ( 14.0 ) ( 15.3 ) Amortization of prior service costs 0.5 0.5 0.5 0.1 0.1 0.1 Amortization of net actuarial loss 8.6 11.0 7.8 1.3 2.2 2.0 Settlement loss — — — 0.3 0.7 1.3 Total pension expense (income) $ ( 3.8 ) $ — $ 0.2 $ ( 2.7 ) $ ( 2.8 ) $ ( 3.1 ) 79 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 (millions) 2022 2021 2022 2021 Change in benefit obligation: Benefit obligation at beginning of year $ 921.5 $ 958.0 $ 354.7 $ 371.7 Service cost 3.6 3.7 0.9 1.1 Interest costs 26.3 25.9 7.0 7.1 Plan amendments — — — 0.5 Actuarial (gain) loss ( 221.2 ) ( 21.9 ) ( 101.7 ) ( 7.4 ) Benefits paid ( 42.7 ) ( 44.2 ) ( 15.7 ) ( 16.6 ) Foreign currency impact — — ( 25.1 ) ( 1.7 ) Benefit obligation at end of year $ 687.5 $ 921.5 $ 220.1 $ 354.7 Change in fair value of plan assets: Fair value of plan assets at beginning of year $ 754.0 $ 688.2 $ 398.4 $ 368.7 Actual return on plan assets ( 64.0 ) 96.6 ( 79.0 ) 47.1 Employer contributions 10.4 13.4 1.0 1.6 Benefits paid ( 42.7 ) ( 44.2 ) ( 15.7 ) ( 16.6 ) Foreign currency impact — — ( 29.6 ) ( 2.4 ) Fair value of plan assets at end of year $ 657.7 $ 754.0 $ 275.1 $ 398.4 Funded status $ ( 29.8 ) $ ( 167.5 ) $ 55.0 $ 43.7 Pension plans in which accumulated benefit obligation exceeded plan assets Projected benefit obligation $ 120.3 $ 921.5 $ 14.6 $ 19.7 Accumulated benefit obligation 116.1 912.3 12.4 16.3 Fair value of plan assets 35.0 754.0 1.5 1.8 The accumulated benefit obligation is the present value of pension benefits (whether vested or unvested) attributed to employee service rendered before the measurement date and based on employee service and compensation prior to that date. The accumulated benefit obligation differs from the projected benefit obligation in that it includes no assumption about future compensation or service levels. The accumulated benefit obligation for the U.S. pension plans was $ 683.2 million and $ 912.3 million as of November 30, 2022 and 2021, respectively. The accumulated benefit obligation for the international pension plans was $ 217.9 million and $ 351.3 million as of November 30, 2022 and 2021, respectively. Included in the U.S. in the preceding table is a benefit obligation of $ 80.1 million and $ 104.2 million for 2022 and 2021, respectively, related to our Supplemental Executive Retirement Plan (SERP). The assets related to this plan, which totaled $ 74.1 million and $ 90.3 million as of November 30, 2022 and 2021, respectively, are held in a rabbi trust and accordingly have not been included in the preceding table. Amounts recorded in the balance sheet for all defined benefit pension plans as of November 30 consist of the following: United States International (millions) 2022 2021 2022 2021 Non-current pension asset $ 55.4 $ — $ 68.1 $ 61.6 Accrued pension liability 85.2 167.5 13.1 18.0 Deferred income tax assets 23.9 52.9 0.7 3.9 Accumulated other comprehensive loss, net of tax 73.2 167.8 20.7 32.2 The investment objectives of the defined benefit pension plans are to provide assets to meet the current and future obligations of the plans at a reasonable cost to us. The goal is to optimize the long-term return across the portfolio of investments at a moderate level of risk. Higher-returning assets include mutual, co-mingled and other funds comprised of equity securities, utilizing both active and passive investment styles. These more volatile assets are balanced with less volatile assets, primarily mutual, co-mingled and other funds comprised of fixed income securities. Professional investment firms are engaged to provide advice on the selection and monitoring of investment funds, and to provide advice on the allocation of plan assets across the various fund managers. This advice is based in part on the duration of each plan’s liability. The investment return performances are evaluated quarterly against specific benchmark indices and against a peer group of funds of the same asset classification. 80 The allocations of U.S. pension plan assets as of November 30, by asset category, were as follows: Actual 2022 Asset Category 2022 2021 Target Equity securities 61.6 % 62.2 % 59.0 % Fixed income securities 20.4 % 20.9 % 23.2 % Other 18.0 % 16.9 % 17.8 % Total 100.0 % 100.0 % 100.0 % The allocations of the international pension plans’ assets as of November 30, by asset category, were as follows: Actual 2022 Asset Category 2022 2021 Target Equity securities 41.0 % 40.5 % 42.9 % Fixed income securities 58.6 % 59.1 % 57.1 % Other 0.4 % 0.4 % — % Total 100.0 % 100.0 % 100.0 % The following tables set forth by level, within the fair value hierarchy as described in note 9, pension plan assets at their fair value as of November 30 for the United States and international plans: As of November 30, 2022 United States (millions) Total fair value Level 1 Level 2 Cash and cash equivalents $ 22.5 $ 22.5 $ — Equity securities: U.S. equity securities (a) 251.2 136.1 115.1 International equity securities (b) 147.0 136.2 10.8 Fixed income securities: U.S. government/corporate bonds (c) 72.1 69.8 2.3 High yield bonds (d) 37.4 — 37.4 Insurance contracts (f) 1.1 — 1.1 Other types of investments: Real estate (g) 27.6 23.1 4.5 Natural resources (h) 18.0 — 18.0 Total $ 576.9 $ 387.7 $ 189.2 Investments measured at net asset value (i) Hedge funds (j) 50.1 Private equity funds (k) 7.3 Private debt funds (l) 23.4 Total investments $ 657.7 As of November 30, 2022 International (millions) Total fair value Level 1 Level 2 Cash and cash equivalents $ 1.2 $ 1.2 $ — International equity securities (b) 112.6 — 112.6 Fixed income securities: International/government/corporate bonds (e) 147.7 — 147.7 Insurance contracts (f) 13.6 — 13.6 Total investments $ 275.1 $ 1.2 $ 273.9 81 As of November 30, 2021 United States (millions) Total fair value Level 1 Level 2 Cash and cash equivalents $ 34.4 $ 34.4 $ — Equity securities: U.S. equity securities (a) 290.7 147.5 143.2 International equity securities (b) 170.2 161.7 8.5 Fixed income securities: U.S./government/ corporate bonds (c) 86.9 84.4 2.5 High yield bonds (d) 41.0 — 41.0 Insurance contracts (f) 1.1 — 1.1 Other types of investments: Real estate (g) 31.4 27.1 4.3 Natural resources (h) 13.3 — 13.3 Total $ 669.0 $ 455.1 $ 213.9 Investments measured at net asset value (i) Hedge funds (j) 48.0 Private equity funds (k) 8.3 Private debt funds (l) 28.7 Total investments $ 754.0 As of November 30, 2021 International (millions) Total fair value Level 1 Level 2 Cash and cash equivalents $ 1.6 $ 1.6 $ — International equity securities (b) 161.3 — 161.3 Fixed income securities: International/government/corporate bonds (e) 214.1 — 214.1 Insurance contracts (f) 21.4 — 21.4 Total investments $ 398.4 $ 1.6 $ 396.8 (a) This category comprises equity funds and collective equity trust funds that most closely track the S&P index and other equity indices. (b) This category comprises international equity funds with varying benchmark indices. (c) This category comprises funds consisting of U.S. government and U.S. corporate bonds and other fixed income securities. An appropriate benchmark is the Barclays Capital Aggregate Bond Index. (d) This category comprises funds consisting of real estate related debt securities with an appropriate benchmark of the Barclays Investment Grade CMBS Index. (e) This category comprises funds consisting of international government/corporate bonds and other fixed income securities with varying benchmark indices. (f) This category comprises insurance contracts, the majority of which have a guaranteed investment return. (g) This category comprises funds investing in real estate investment trusts (REIT). An appropriate benchmark is the MSCI U.S. REIT Index. (h) This category comprises funds investing in natural resources. An appropriate benchmark is the Alerian master limited partnership (MLP) Index. (i) Certain investments that are valued using the net asset value per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy. These are included to permit reconciliation of the fair value hierarchy to the aggregate pension plan assets. (j) This category comprises hedge funds investing in strategies represented in various HFRI Fund Indices. The net asset value is generally based on the valuation of the underlying investment. Limitations exist on the timing from notice by the plan of its intent to redeem and actual redemptions of these funds and generally range from a minimum of one month to several months. (k) This category comprises private equity, venture capital and limited partnerships. The net asset is based on valuation models of the underlying securities as determined by the general partner or general partner's designee. These valuation models include unobservable inputs that cannot be corroborated using verifiable observable market data. These funds typically have redemption periods of approximately 10 years. (l) This category comprises limited partnerships funds investing in senior loans, mezzanine and distressed debt. The net asset is based on valuation models of the underlying securities as determined by the general partner or general partner's designee. These valuation models include unobservable inputs that cannot be corroborated using verifiable observable market data. These funds typically have redemption periods of approximately 10 years. For the plans’ hedge funds, private equity funds and private debt funds, we engage an independent advisor to compare the funds’ returns to other funds with similar strategies. Each fund is required to have an annual audit by an independent accountant, which is provided to the independent advisor. This provides a basis of comparability relative to similar assets. 82 Equity securities in the U.S. pension plans included McCormick stock with a fair value of $ 46.2 million ( 0.6 million shares and 7.0 % of total U.S. pension plan assets) and $ 47.7 million ( 0.6 million shares and 6.3 % of total U.S. pension plan assets) at November 30, 2022 and 2021, respectively. Dividends paid on these shares were $ 0.8 million and $ 0.7 million in 2022 and 2021, respectively. Pension benefit payments in our most significant plans are made from assets of the pension plans. It is anticipated that future benefit payments for the U.S. and international plans for the next 10 fiscal years will be as follows: (millions) United States International 2023 $ 46.2 $ 11.1 2024 46.7 11.4 2025 48.2 12.2 2026 49.3 12.2 2027 50.6 12.8 2028-2032 254.2 67.0 U.S. Defined Contribution Retirement Plans For our 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. Some of our smaller subsidiaries sponsor separate 401(k) retirement plans. Our contributions charged to expense under all U.S. defined contribution retirement plans were $ 30.5 million, $ 29.8 million and $ 30.8 million in 2022, 2021 and 2020, respectively. 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 2022 and 2021 were $ 3.9 million in each year. Postretirement Benefits Other Than Pensions We currently provide postretirement medical and life insurance benefits to certain U.S. employees who were covered under the active employees’ plan and retire after age 55 with at least five years of service. The subsidy provided under these plans is based primarily on age at date of retirement. These benefits are not pre-funded but paid as incurred. Employees hired after December 31, 2008 are not eligible for a company subsidy. They are eligible for coverage on an access-only basis. Our other postretirement benefit expense (income) for the years ended November 30 follows: (millions) 2022 2021 2020 Service cost $ 1.8 $ 2.0 $ 1.9 Interest costs 1.7 1.6 2.0 Amortization of prior service credits ( 0.3 ) ( 0.3 ) ( 4.6 ) Amortization of actuarial gains ( 0.3 ) — ( 0.1 ) Postretirement benefit expense (income) $ 2.9 $ 3.3 $ ( 0.8 ) 83 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 Change in benefit obligation: Benefit obligation at beginning of year $ 65.9 $ 70.7 Service cost 1.8 2.0 Interest costs 1.7 1.6 Participant contributions 2.1 2.0 Actuarial (gain) loss ( 12.5 ) ( 4.3 ) Benefits paid ( 6.1 ) ( 6.1 ) Benefit obligation at end of year $ 52.9 $ 65.9 Change in fair value of plan assets: Fair value of plan assets at beginning of year $ — $ — Employer contributions 4.0 4.1 Participant contributions 2.1 2.0 Benefits paid ( 6.1 ) ( 6.1 ) Fair value of plan assets at end of year $ — $ — Other postretirement benefit liability $ 52.9 $ 65.9 Estimated future benefit payments (net of employee contributions) for the next 10 fiscal years are as follows: (millions) Retiree medical Retiree life insurance Total 2023 $ 3.4 $ 1.7 $ 5.1 2024 3.5 1.6 5.1 2025 3.6 1.5 5.1 2026 3.6 1.5 5.1 2027 3.6 1.4 5.0 2028-2032 16.3 6.3 22.6 The assumed discount rate in determining the benefit obligation was 5.0 % and 2.7 % for 2022 and 2021, respectively. For 2022, the assumed annual rate of increase in the cost of covered health care benefits is 7.5 % ( 6.3 % last year). 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. 12. STOCK-BASED COMPENSATION We have four types of stock-based compensation awards: restricted stock units (RSUs), stock options, company stock awarded as part of our long-term performance plan (LTPP), and beginning in 2020, price-vested stock options. Total stock-based compensation expense for 2022, 2021 and 2020 was $ 60.3 million, $ 66.6 million and $ 46.0 million, respectively. 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, 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. As of November 30, 2022, we have 5.9 million shares remaining available for future issuance under our RSUs, stock option and LTPP award programs. The following summarizes the key terms, a summary of activity, and the methods of valuation for each of our stock-based compensation awards. RSUs RSUs are valued at the market price of the underlying stock, discounted by foregone dividends, on the date of grant. Substantially all of the RSUs granted vest over a three-year term or, if earlier, upon the retirement eligibility date of the holder. 84 A summary of our RSU activity for the years ended November 30 follows: (shares in thousands) 2022 2021 2020 Shares Weighted- average price Shares Weighted- average price Shares Weighted- average price Beginning of year 563 $ 69.52 714 $ 61.74 762 $ 57.95 Granted 208 94.21 219 86.86 296 67.03 Vested ( 251 ) 71.86 ( 336 ) 63.69 ( 325 ) 57.56 Forfeited ( 40 ) 85.42 ( 34 ) 75.49 ( 19 ) 62.96 Outstanding—end of year 480 $ 77.62 563 $ 69.52 714 $ 61.74 Stock Options (Other than Price-Vested Stock Options) Stock options are granted with an exercise price equal to the market price of the stock on the date of grant. Substantially all of the options, with the exception of price-vested options detailed below, vest ratably over a three-year period or, if earlier, upon the retirement-eligibility dates of the holders and are exercisable over a 10 -year period. Upon exercise of the option, shares are issued from our authorized and unissued shares. The fair value of the options is estimated with a lattice option pricing model which uses the assumptions in the following table. We believe the lattice model provides an appropriate estimate of fair value of our options as it allows for a range of possible outcomes over an option term and can be adjusted for changes in certain assumptions over time. Expected volatilities are based primarily on the historical performance of our stock. We also use historical data to estimate the timing and amount of option exercises and forfeitures within the valuation model. The expected term of the options is an output of the option pricing model and estimates the period of time that options are expected to remain unexercised. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation expense is calculated based on the fair value of the options on the date of grant. The per share weighted-average fair value for all options granted was $ 22.08 , $ 18.36 and $ 13.27 in 2022, 2021 and 2020, respectively. These fair values were computed using the following range of assumptions for the years ended November 30: 2022 2021 2020 Risk-free interest rates 0.2 - 2.5% 0.0 - 1.8% 0.0 - 0.6% Dividend yield 1.5 % 1.5 % 1.8 % Expected volatility 21.2 % 21.3 % 22.8 % Expected lives 7.6 years 7.9 years 7.9 years Under our stock option plans, we may issue shares on a net basis at the request of the option holder. This occurs by netting the option cost in shares from the shares exercised. 85 A summary of our stock option activity for the years ended November 30 follows: (shares in millions) 2022 2021 2020 Shares Weighted- average exercise price Shares Weighted- average exercise price Shares Weighted- average exercise price Beginning of year 5.0 $ 59.71 4.5 $ 53.56 5.2 $ 48.09 Granted 0.7 97.26 0.8 89.16 0.7 69.31 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 Exercisable—end of year 3.5 $ 58.03 3.6 $ 51.51 3.2 $ 47.76 As of November 30, 2022, the intrinsic value (the difference between the exercise price and the market price) for all options currently outstanding was $ 98.7 million and for options currently exercisable was $ 96.0 million. At November 30, 2022 the differences between options outstanding and options expected to vest and their related weighted-average exercise prices, aggregate intrinsic values and weighted-average remaining lives were not material. The total intrinsic value of all options exercised during the years ended November 30, 2022, 2021 and 2020 was $ 41.0 million, $ 10.7 million and $ 68.4 million, respectively. A summary of our stock options outstanding and exercisable at November 30, 2022 follows: (shares in millions) Options outstanding Options exercisable Range of exercise price Shares Weighted- average remaining life (yrs.) Weighted- average exercise price Shares Weighted- average remaining life (yrs.) Weighted- average exercise price $27.00 - $51.00 1.7 3.4 $ 46.49 1.7 3.4 $ 46.49 $51.01 - $75.00 1.6 6.4 65.39 1.4 6.3 64.93 $75.01 - $99.00 1.5 8.8 92.85 0.4 8.4 89.48 4.8 6.1 $ 67.08 3.5 5.9 $ 65.89 Price-Vested Stock Options In November 2020, we granted approximately 2,482,000 price-vested stock options to certain employees. The price-vested stock options were granted with an exercise price of $ 93.49 which was equal to the market price of our stock on the date of grant. The price-vested options are not exercisable until a three year service condition is achieved, and will become exercisable after that time period only if the average closing price of our stock price equals or exceeds thresholds of 60 %, 80 % or 100 % appreciation from the exercise price for 30 consecutive trading days within a five-year period from the date of grant. If the options become exercisable, they are exercisable up to 10 years from the date of grant. The options granted were divided equally between the three appreciation thresholds. 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. The fair value of the price-vested options was estimated using a lattice model. The per share weighted-average fair value for the price-vested stock options granted was $ 11.88 , $ 9.26 , and $ 7.05 , for the 60 %, 80 % and 100 % appreciation thresholds, respectively. These fair values were computed using the following range of assumptions: Risk-free interest rates 0.85 % Dividend yield 1.5 % Expected volatility 21.2 % Expected lives 5.6 - 6.2 years 86 The following is a summary of our Price-Vested Stock Options activity for the years ended November 30: (shares in thousands) 2022 2021 2020 Number of Shares Weighted- Average Grant-Date Fair Value Number of Shares Weighted- Average Grant-Date Fair Value Number of Shares Weighted- Average Grant-Date Fair Value Beginning of year 2,193 $ 9.40 2,482 $ 9.40 — $ — Granted — 15 9.66 2,482 9.40 Forfeited ( 86 ) 9.40 ( 304 ) 9.41 — — Outstanding—end of year 2,107 $ 9.40 2,193 $ 9.40 2,482 $ 9.40 As of November 30, 2022, 2021, and 2020, the outstanding options are divided equally between the three appreciation thresholds. LTPP LTPP awards granted in 2022, 2021 and 2020 will be delivered in company stock, with the award attainment calculated as a percentage of target based on a combination of a performance-based component and a market-based total shareholder return. These awards are valued based on the fair value of the underlying stock on the date of grant. A summary of the LTPP award activity for the years ended November 30 follows: (shares in thousands) 2022 2021 2020 Shares Weighted- average price Shares Weighted- average price Shares Weighted- average price Beginning of year 497 $ 83.74 382 $ 71.20 392 $ 57.98 Granted 152 95.00 141 98.30 130 86.14 Vested ( 251 ) 75.26 ( 124 ) 51.73 ( 88 ) 44.98 Performance adjustment 59 86.14 126 75.26 ( 44 ) 50.95 Forfeited ( 6 ) 95.37 ( 28 ) 90.32 ( 8 ) 65.68 Outstanding—end of year 451 $ 106.32 497 $ 83.74 382 $ 71.20 87 13. INCOME TAXES The provision for income taxes for the years ended November 30 consists of the following: (millions) 2022 2021 2020 Income taxes Current Federal $ 62.8 $ 71.7 $ 98.3 State 14.8 14.0 14.8 International 69.2 71.0 73.0 146.8 156.7 186.1 Deferred Federal 37.1 23.5 4.6 State ( 3.2 ) 16.8 0.5 International ( 12.1 ) ( 4.3 ) ( 16.3 ) 21.8 36.0 ( 11.2 ) Total income tax expense (benefit) $ 168.6 $ 192.7 $ 174.9 The components of income from consolidated operations before income taxes for the years ended November 30 follow: (millions) 2022 2021 2020 Pretax income United States $ 600.7 $ 588.1 $ 624.3 International 212.1 307.7 257.2 $ 812.8 $ 895.8 $ 881.5 A reconciliation of the U.S. federal statutory rate with the effective tax rate for the years ended November 30 follows: 2022 2021 2020 Federal statutory tax rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal benefits 1.2 1.6 1.5 International tax at different effective rates ( 0.1 ) 0.8 1.3 U.S. tax on remitted and unremitted earnings 0.6 0.1 0.8 Stock compensation expense ( 1.1 ) ( 0.4 ) ( 1.5 ) Changes in prior year tax contingencies ( 0.8 ) ( 2.5 ) ( 0.3 ) Acquisition-related state tax rate change, net of federal benefits — 1.2 — Valuation allowance release ( 0.6 ) ( 0.5 ) ( 1.4 ) Intra-entity asset transfer — — ( 1.1 ) Other, net 0.5 0.2 ( 0.5 ) Total 20.7 % 21.5 % 19.8 % 88 Deferred tax assets and liabilities are comprised of the following as of November 30: (millions) 2022 2021 Deferred tax assets Employee benefit liabilities $ 49.9 $ 91.2 Other accrued liabilities 36.1 39.8 Inventory 17.4 12.9 Tax loss and credit carryforwards 59.7 56.6 Lease liabilities 18.1 33.3 Other 22.7 21.7 Valuation allowance ( 26.4 ) ( 32.7 ) 177.5 222.8 Deferred tax liabilities Depreciation 93.0 97.5 Intangible assets 847.4 841.3 Lease ROU assets 12.3 3.3 Other 18.6 5.9 971.3 948.0 Net deferred tax liability $ ( 793.8 ) $ ( 725.2 ) At November 30, 2022, we have tax loss carryforwards of $ 162.6 million. 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. At November 30, 2022, we also have U.S. 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 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. 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. 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. The following table summarizes the activity related to our gross unrecognized tax benefits for the years ended November 30: (millions) 2022 2021 2020 Balance at beginning of year $ 26.8 $ 39.3 $ 32.0 Additions for current year tax positions 4.7 4.8 7.8 Additions for prior year tax positions 0.1 0.1 2.5 Reductions of prior year tax positions ( 0.8 ) ( 11.6 ) — Statute expirations ( 5.0 ) ( 6.0 ) ( 4.2 ) Settlements — ( 0.2 ) — Foreign currency translation ( 0.7 ) 0.4 1.2 Balance at November 30 $ 25.1 $ 26.8 $ 39.3 As of November 30, 2022, 2021, and 2020, if recognized, $ 25.1 million, $ 26.8 million, and $ 39.3 million, respectively, of the unrecognized tax benefits would affect the effective rate. We record interest and penalties on income taxes in income tax expense. We recognized interest and penalty expense (benefit) of $ 0.2 million, $( 3.7 ) million, and $ 0.8 million in 2022, 2021, and 2020, respectively. 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. We believe that the reasonably possible total amount of unrecognized tax benefits as of November 30, 2022 that could decrease in the next 12 months as a result of various statute expirations, audit closures and/or tax settlements would not be material. 89 We file income tax returns in the U.S. federal jurisdiction and various state and non-U.S. jurisdictions. The open years subject to tax audits vary depending on the tax jurisdictions. In the U.S federal jurisdiction, we are no longer subject to income tax audits by taxing authorities for years before 2019. In other major jurisdictions, we are no longer subject to income tax audits by taxing authorities for years before 2014. We are under normal recurring tax audits in the U.S. and in several jurisdictions outside the U.S. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our reserves for uncertain tax positions are adequate to cover existing risks and exposures. 14. CAPITAL STOCK AND EARNINGS PER SHARE On April 5, 2021, following approval by the Company’s shareholders on March 31, 2021, amendments to the Company’s Charter became effective that increased the number of authorized shares of each class of common stock from 320,000,000 to 640,000,000 and established the par value of each class of common stock at $ 0.01 per share. 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 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. 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; (2) we have the right to redeem any or all shares of Common Stock owned by such person unless such person acquires more than 90 % of the outstanding shares of each class of our common stock; and (3) at such time as such person controls more than 50 % of the votes entitled to be cast by the holders of outstanding shares of Common Stock, automatically, on a share-for-share basis, all shares of Common Stock Non-Voting will convert into shares of Common Stock. Holders of Common Stock Non-Voting will vote as a separate class on all matters on which they are entitled to vote. Holders of Common Stock Non-Voting are entitled to vote on reverse mergers and statutory share exchanges where our capital stock is converted into other securities or property, dissolution of the company and the sale of substantially all of our assets, as well as forward mergers and consolidation of the company or any amendment to our charter repealing the right of the Common Stock Non-Voting to vote on any such matters. The reconciliation of shares outstanding used in the calculation of basic and diluted earnings per share for the years ended November 30 follows: (millions) 2022 2021 2020 Average shares outstanding—basic 268.2 267.3 266.5 Effect of dilutive securities: Stock options/RSUs/LTPP 2.0 2.6 2.6 Average shares outstanding—diluted 270.2 269.9 269.1 The following table sets forth the stock options and RSUs for the years ended November 30 which were not considered in our earnings per share calculation since they were antidilutive: (millions) 2022 2021 2020 Antidilutive securities 0.9 0.6 0.1 15. COMMITMENTS AND CONTINGENCIES During the normal course of our business, we are occasionally involved with various claims and litigation. Reserves are established in connection with such matters when a loss is probable and the amount of such loss can be reasonably estimated. At November 30, 2022 and 2021, no material reserves were recorded. The determination of probability and the estimation of the actual amount of any such loss are inherently unpredictable, and it is therefore possible that the eventual outcome of such claims and litigation could exceed the estimated reserves, if any. However, we do not expect the outcome of the matters currently pending will have a material adverse effect on our financial statements. 90 16. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS Business Segments We operate in two business segments: consumer and flavor solutions. 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," "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. With their primary attribute being flavor, the products within each of our segments are regarded as fairly homogenous. It is impracticable to segregate and identify sales and profits for each of these individual product lines. We measure segment performance based on operating income excluding special charges as this activity is managed separately from the business segments. We also excluded transaction and integration expenses related to our acquisitions, including the recent acquisitions of Cholula and FONA, from our measure of segment performance as these expenses are similarly managed separately from the business segments. These transaction and integration expenses excluded from our segment performance measure include the amortization of the acquisition-date fair value adjustment of inventories that is included in cost of goods sold, costs directly associated with that acquisition and costs associated with integrating the businesses. Although the segments are managed separately due to their distinct distribution channels and marketing strategies, manufacturing and warehousing are often integrated to maximize cost efficiencies. We do not segregate jointly utilized assets by individual segment for purposes of internal reporting, performance evaluation, or capital allocation. We have a large number of customers for our products. Sales to one of our consumer segment customers, Wal-Mart Stores, Inc., accounted for approximately 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 % 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. Because of integrated manufacturing for certain products within the segments, products are not sold from one segment to another but rather inventory is transferred at cost. Inter-segment sales are not material. Corporate assets include cash, deferred taxes, investments and certain fixed assets. 91 Business Segment Results (millions) Consumer Flavor Solutions Total segments Corporate & other Total 2022 Net sales $ 3,757.9 $ 2,592.6 $ 6,350.5 $ — $ 6,350.5 Operating income excluding special charges and transaction and integration expenses 710.7 206.7 917.4 — 917.4 Income from unconsolidated operations 33.1 4.7 37.8 — 37.8 Assets — — 12,332.9 792.0 13,124.9 Capital expenditures — — 220.1 41.9 262.0 Depreciation and amortization — — 153.4 47.2 200.6 2021 Net sales $ 3,937.5 $ 2,380.4 $ 6,317.9 $ — $ 6,317.9 Operating income excluding special charges and transaction and integration expenses 804.9 296.6 1,101.5 — 1,101.5 Income from unconsolidated operations 47.8 4.4 52.2 — 52.2 Assets — — 12,185.1 720.7 12,905.8 Capital expenditures — — 227.6 50.4 278.0 Depreciation and amortization — — 147.0 39.3 186.3 2020 Net sales $ 3,596.7 $ 2,004.6 $ 5,601.3 $ — $ 5,601.3 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 Assets — — 11,339.2 750.5 12,089.7 Capital expenditures — — 150.1 75.2 225.3 Depreciation and amortization — — 123.9 41.1 165.0 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 2022 Operating income excluding special charges and transaction and integration expenses $ 710.7 $ 206.7 $ 917.4 Less: Special charges 23.9 27.7 51.6 Less: Transaction and integration expenses — 2.2 2.2 Operating income $ 686.8 $ 176.8 $ 863.6 2021 Operating income excluding special charges and transaction and integration expenses $ 804.9 $ 296.6 $ 1,101.5 Less: Special charges and transaction-related expenses included in cost of goods sold 8.7 2.3 11.0 Less: Other special charges 31.5 14.9 46.4 Less: Other transaction and integration expenses 7.8 21.2 29.0 Operating income $ 756.9 $ 258.2 $ 1,015.1 2020 Operating income excluding special charges and transaction and integration expenses $ 780.9 $ 237.9 $ 1,018.8 Less: Special charges 5.5 1.4 6.9 Less: Transaction and integration expenses 7.5 4.9 12.4 Operating income $ 767.9 $ 231.6 $ 999.5 92 Geographic Areas We have net sales and long-lived assets in the following geographic areas: (millions) United States EMEA Other countries Total 2022 Net sales $ 3,921.3 $ 1,116.4 $ 1,312.8 $ 6,350.5 Long-lived assets 7,892.5 1,051.7 854.6 9,798.8 2021 Net sales $ 3,817.5 $ 1,191.3 $ 1,309.1 $ 6,317.9 Long-lived assets 7,872.2 1,146.6 909.8 9,928.6 2020 Net sales $ 3,445.9 $ 1,046.7 $ 1,108.7 $ 5,601.3 Long-lived assets 7,202.0 1,135.6 916.5 9,254.1 Long-lived assets include property, plant and equipment, goodwill and intangible assets, net of accumulated depreciation and amortization. 93 17. SUPPLEMENTAL FINANCIAL STATEMENT DATA Supplemental consolidated information with respect to our income statement, balance sheet and cash flow follow: For the year ended November 30 (millions) 2022 2021 2020 Other income, net Gain on sale of business (1) $ 49.6 $ — $ — Gain on settlement of treasury locks (2) 18.7 — — Pension and other postretirement benefit income 9.6 6.4 10.0 Interest income 17.8 9.3 7.8 Other 2.6 1.6 ( 0.2 ) $ 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 Trade accounts receivable allowance for doubtful accounts $ 7.3 $ 5.2 Inventories Finished products $ 649.0 $ 556.2 Raw materials and work-in-process 691.1 626.1 $ 1,340.1 $ 1,182.3 Prepaid expenses $ 61.7 $ 41.7 Other current assets 77.2 70.6 $ 138.9 $ 112.3 Property, plant and equipment Land and improvements $ 90.1 $ 95.1 Buildings (including finance leases) 738.8 694.7 Machinery, equipment and other 1,265.4 1,200.5 Construction-in-progress 238.7 211.9 Accumulated depreciation ( 1,135.0 ) ( 1,061.9 ) $ 1,198.0 $ 1,140.3 Other long-term assets Investments in affiliates $ 167.9 $ 164.0 Long-term investments 115.1 137.3 Right of use asset 218.9 136.8 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 $ 939.4 $ 781.4 Other accrued liabilities Payroll and employee benefits $ 141.9 $ 229.4 Sales allowances 181.0 189.3 Dividends payable 104.6 99.0 Other 326.6 332.5 $ 754.1 $ 850.2 Other long-term liabilities Pension $ 92.0 $ 179.4 Postretirement benefits 47.6 60.8 Operating lease liability 176.1 106.1 Unrecognized tax benefits 29.6 31.0 Other 139.4 113.6 $ 484.7 $ 490.9 For the year ended November 30 (millions) 2022 2021 2020 Depreciation $ 136.3 $ 124.6 $ 121.1 Software amortization 18.9 12.6 12.4 Interest paid 148.8 135.7 134.1 Income taxes paid 192.4 179.3 183.3 94 Dividends paid per share were $ 1.48 in 2022, $ 1.36 in 2021 and $ 1.24 in 2020. Dividends declared per share were $ 1.50 in 2022, $ 1.39 in 2021, and $ 1.27 in 2020. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.