What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-03 compared with 2023-06-29 · 191 added, 175 removed, 420 unchanged (47% of the section changed)

1 unchanged sentence

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand McCormick & Company, Incorporated, our operations, and our present business environment from the perspective of management.

MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes thereto, included in Item 1 of this report.

MD&A is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and the accompanying notes thereto, included in Item 1 of this report.

We use certain non-GAAP information – more fully described below under the caption Non-GAAP Financial Measures – that we believe is important for purposes of comparison to prior periods and development of future projections and earnings growth prospects.

19 unchanged sentences

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

We expect that these inflationary cost increases will continue but we anticipate they will be mitigated by our planned 2023 pricing actions, the effect of pricing actions executed in 2022, our organization and streamlining actions, including our Global Operating Effectiveness (GOE) program, and by our Comprehensive Continuous Improvement (CCI) program-led cost savings.

We expect that these inflationary cost increases will continue but we anticipate they will be mitigated by our 2023 pricing actions, the effect of pricing actions executed in 2022, our organization and streamlining actions, including our Global Operating Effectiveness (GOE) program, and by our Comprehensive Continuous Improvement (CCI) program-led cost savings.

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

2 unchanged sentences

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

As of May 31, 2023, we had total outstanding variable rate debt of approximately $513 million.

As of August 31, 2023, we had total outstanding variable rate debt of approximately $438.2 million.

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

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

As of both May 31, 2023 and 2022, we had total outstanding fixed to variable interest rate swaps of $600 million notional.

As of both August 31, 2023 and 2022, we had total outstanding fixed to variable interest rate swaps of $600 million notional.

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

8 unchanged sentences

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

We are making investments to build the McCormick of the future, including the expansion of our Global Business Services (GBS) organization to transform McCormick through globally aligned processes, and innovative services to enable growth.

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

We will concentrate our global ERP focus on our operations in the U.S.

over the next several years, or through 2027.

We expect that our annual capital expenditures, including the capitalized software associated with our ERP program, over the next several years will continue to approximate 4% of our sales.

We expect that our operating expenses associated with our global ERP program through 2027 will approximate $35 million to $50 million annually.

COVID-19 – COVID-19 has impacted our operating results.

7 unchanged sentences

The extent and nature of government actions, customer and end-consumer demand varied during 2022, 2021 and 2020.

However, the impact of COVID-19 during the quarters ended May 31, 2023 and 2022, based upon the then-current extent and severity of the COVID-19 pandemic within the countries, localities and markets where we do business, were generally comparable with the exception of the impact on our results of operations in the Asia/Pacific region, specifically within China where we experienced a negative impact to consumer behavior in 2022, related to the impact of restrictive measures imposed associated with COVID-19 resurgences.

However, the impact of COVID-19 during the quarters ended August 31, 2023 and 2022, based upon the then-current extent and severity of the COVID-19 pandemic within the countries, localities and markets where we do business, were generally comparable with the exception of the impact on our results of operations in the Asia/Pacific (APAC) region, specifically within China where we experienced a negative impact to consumer behavior in 2022, related to the impact of restrictive measures imposed associated with COVID-19 resurgences.

We expect the impact of COVID-19 during 2023 to be mitigated from that experienced in 2022.

8 unchanged sentences

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

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

We anticipate that our volume and product mix will also be impacted by the combined impact of the divestiture of our Giotti canning business early in the fourth quarter of 2023, the divestiture of our Kitchen Basics brand in the third quarter of last year, the exit of our consumer business in Russia during the second quarter of last year, and the pruning of low margin businesses.

We expect our 2023 gross profit margin to range from 110 basis points to 140 basis points higher than our gross profit margin of 35.8% in 2022.

13 unchanged sentences

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

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

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

We also expect that our income from unconsolidated operations, including the performance of our largest joint venture, McCormick de Mexico, will increase.

Diluted earnings per share was $2.52 in 2022.

6 unchanged sentences

RESULTS OF OPERATIONS – COMPANY

Three months ended Six months ended

May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022

Three months ended Nine months ended

August 31, 2023 August 31, 2022 August 31, 2023 August 31, 2022

Net sales $ 1,684.7 $ 1,595.6 $ 4,909.4 $ 4,654.8

Percent increase (decrease) 8.0 % (1.3) % 5.4 % 0.7 %

Percent increase 5.6 % 3.0 % 5.5 % 1.5 %

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

6 unchanged sentences

Gross profit margin 37.0 % 35.5 % 36.7 % 35.4 %

Sales for the second quarter of 2023 increased by 8.0% from the prior year level and increased by 9.5% on a constant currency basis (that is, excluding the impact of foreign currency exchange as more fully described under the caption, Non-GAAP Financial Measures).

Sales for the third quarter of 2023 increased by 5.6% from the prior year level and increased by 5.5% on a constant currency basis (that is, excluding the impact of foreign currency exchange as more fully described under the caption, Non-GAAP Financial Measures).

Pricing actions, taken in response to the inflationary cost environment, increased sales by 7.8% compared to the prior year period.

Unfavorable volume and product mix decreased sales by 2.1%, including the impact of price elasticity.

Both our flavor solutions and consumer segments experienced unfavorable volume and product mix.

The net impact of the recovery experienced from the restrictive measures that existed in the prior year related to COVID-19 resurgences in China and the exit of our consumer operation in Russia favorably impacted volume and product mix by approximately 1.4%.

Also, our decision to discontinue certain low margin businesses also contributed approximately 1.1% to the unfavorable impact of volume and product mix.

Our consumer segment drove that unfavorable volume and product mix.

The impact of the recovery experienced in the prior year quarter from the COVID-19 restrictive measures that existed in China as well as a slower recovery in the third quarter of 2023 unfavorably impacted volume and product mix by approximately 1.2%.

Also, our decisions to exit our consumer operations in Russia and discontinue certain low margin businesses also contributed approximately 0.8% to the unfavorable impact of volume and product mix .

The divestiture of our Kitchen Basics business unfavorably impacted sales by 0.2% as compared to the prior year period.

Sales were also impacted by unfavorable foreign currency rates that decreased net sales by 1.5% in the second quarter of 2023 compared to the year-ago quarter and is excluded from our measure of sales growth of 9.5% on a constant currency basis.

Sales for the six months ended May 31, 2023 increased by 5.4% from the prior year level and increased by 7.4% on a constant currency basis.

Sales were also impacted by favorable foreign currency rates that increased net sales by 0.1% in the third quarter of 2023 compared to the year-ago quarter and is excluded from our measure of sales growth of 5.5% on a constant currency basis.

Sales for the nine months ended August 31, 2023 increased by 5.5% from the prior year level and increased by 6.8% on a constant currency basis.

Pricing actions, taken in response to the inflationary cost environment, increased sales by 9.7% compared to the prior year period.

1 unchanged sentence

Both our flavor solutions and consumer segments experienced unfavorable volume and product mix.

Our decisions to exit our consumer operations in Russia and discontinue certain low margin businesses also contributed approximately 0.8% to the unfavorable impact of volume and product mix.

The divestiture of our Kitchen Basics business unfavorably impacted sales by 0.4% as compared to the prior year period.

Sales were impacted by unfavorable foreign currency rates that decreased sales by 2.0% in the six months ended May 31, 2023 as compared to the year-ago period and is excluded from our measure of sales growth of 7.4% on a constant currency basis.

Gross profit for the second quarter of 2023 increased by $92.5 million, or 17.7%, from the comparable period in 2022.

Our gross profit margin for the three months ended May 31, 2023 was 37.1%, an increase of 310 basis points from the comparable period in 2022.

The increase in gross profit margin in the quarter ended May 31, 2023 was driven by the favorable impact of our pricing actions taken in response to increased costs, favorable product mix within our segments and cost savings led by our CCI and GOE programs.

These favorable impacts were partially offset by increased commodity costs as compared to the 2022 period.

Gross profit for the six months ended May 31, 2023 increased by $95.0 million, or 8.8%, from the comparable period in 2022.

Our gross profit margin for the six months ended May 31, 2023 was 36.5%, an increase of 110 basis points from the same period in 2022 driven by the favorable impact of our pricing actions taken in response to increased costs, favorable product mix within our segments and cost savings led by our CCI and GOE programs.

These favorable impacts were partially offset by increased commodity costs and higher conversion costs, each as compared to the 2022 period.

Three months ended Six months ended

May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022

Sales were impacted by unfavorable foreign currency rates that decreased sales by 1.3% in the nine months ended August 31, 2023 as compared to the year-ago period and is excluded from our measure of sales growth of 6.8% on a constant currency basis.

Gross profit for the third quarter of 2023 increased by $56.1 million, or 9.9%, from the comparable period in 2022.

Our gross profit margin for the three months ended August 31, 2023 was 37.0%, an increase of 150 basis points from the comparable period in 2022.

The increase in gross profit margin in the quarter ended August 31, 2023 was driven by the favorable impact of our pricing actions taken in response to increased costs, favorable transportation costs and cost savings led by our CCI and GOE programs.

These favorable impacts were partially offset by increased commodity costs, and unfavorable segment mix, all as compared to the 2022 period.

Gross profit for the nine months ended August 31, 2023 increased by $151.1 million, or 9.2%, from the comparable period in 2022.

Our gross profit margin for the nine months ended August 31, 2023 was 36.7%, an increase of 130 basis points from the same period in 2022 driven by the favorable impact of our pricing actions taken in response to increased costs, favorable product mix within our segments, favorable transportation costs, and cost savings led by our CCI and GOE programs.

These favorable impacts were partially offset by increased commodity costs, higher conversion costs, and unfavorable segment mix, all as compared to the 2022 period.

Three months ended Nine months ended

August 31, 2023 August 31, 2022 August 31, 2023 August 31, 2022

Selling, general & administrative expense (SG&A) $ 371.7 $ 328.1 $ 1,088.3 $ 1,010.6

Percent of net sales 22.1 % 20.5 % 22.2 % 21.7 %

SG&A increased by $31.3 million in the second quarter of 2023 as compared to the 2022 level, as increased distribution costs, increased selling and marketing costs and higher performance-based employee incentive expense were partially offset by CCI-led and GOE cost savings and favorable investment results associated with non-qualified retirement plan assets, all as compared to the 2022 period.

SG&A increased by $43.6 million in the third quarter of 2023 as compared to the 2022 level, driven primarily by higher performance-based employee incentive expense, along with increases in selling, marketing and distribution costs were partially offset by CCI-led and GOE cost savings and favorable investment results associated with non-qualified retirement plan assets, all as compared to the 2022 period.

SG&A as a percentage of net sales increased by 160 basis points from the prior year levels due primarily to the net impact of the previously mentioned factors, all as compared to the prior year period.

SG&A increased by $34.1 million in the six months ended May 31, 2023 compared to the 2022 level, as increased distribution costs, increased selling and marketing costs and higher performance-based employee incentive expense were partially offset by CCI-led and GOE cost savings and favorable investment results associated with non-qualified retirement plan assets, all as compared to the 2022 period.

SG&A as a percent of net sales for the six months ended May 31, 2023 decreased 10 basis points from prior year as the higher net sales base more than offset, the net impact of the previously mentioned factors, all as compared to the prior year period.

Three months ended Six months ended

May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022

SG&A increased by $77.7 million in the nine months ended August 31, 2023 compared to the 2022 level, as increased distribution costs, increased selling and marketing costs and higher performance-based employee incentive expense were partially offset by CCI-led and GOE cost savings and favorable investment results associated with non-qualified retirement plan assets, all as compared to the 2022 period.

SG&A as a percent of net sales for the nine months ended August 31, 2023 increased 50 basis points from prior year as the net impact of the previously mentioned factors was partially offset by the impact of the higher sales base, all as compared to the prior year period.

Three months ended Nine months ended

August 31, 2023 August 31, 2022 Aug 31, 2023 Aug 31, 2022

Total special charges $ 6.1 $ 3.4 $ 47.1 $ 38.0

During the three months ended May 31, 2023, we recorded $13.2 million of special charges.

During the three months ended August 31, 2023, we recorded $6.1 million of special charges.

Those special charges principally consisted of $3.6 million associated with the GOE program, $1.7 million associated with the transition of a manufacturing facility in Europe, Middle East, and Africa (EMEA), and streamlining actions of $0.8 million in the Americas region.

During the six months ended May 31, 2023, we recorded $41.0 million of special charges.

During the nine months ended August 31, 2023, we recorded $47.1 million of special charges.

Those special charges principally consisted of $37.0 million associated with the GOE program, $3.9 million associated with the transition of a manufacturing facility in EMEA, and streamlining actions of $5.3 million in the Americas region, and $0.9 million in the EMEA region.

During the three months ended May 31, 2022, we recorded $15.1 million of special charges, consisting principally of $22.2 million associated with the exit of our consumer business in Russia, $2.5 million associated with the transition of a manufacturing facility in EMEA, and streamlining actions of $3.2 million in the Americas region, and $2.8 million in the EMEA region.

These charges were offset by a $13.6 million gain, on the sale of Kohinoor brand as well as a reversal of $2.2 million of estimated costs associated with the exit of our rice product line in India upon settlement of a supply agreement related to that product line.

During the six months ended May 31, 2022, we recorded $34.6 million of net special charges.

Those special charge consisted principally of $22.2 million associated with the exit of our consumer business in Russia, $17.4 million associated with the transition of a manufacturing facility in EMEA, as more fully described in note 2 of the notes to the accompanying financial statements, and streamlining actions of $5.3 million in the Americas region and $4.3 million in the EMEA region.

These charges were offset by a $13.6 million gain, on the sale of our Kohinoor brand, as we exited our Kohinoor rice product line in India in the fourth quarter of fiscal 2021, as well as a reversal of $2.2 million of estimated costs associated with the exit of our rice product line in India upon settlement of a supply agreement related to that product line.

Details with respect to the composition of special charges are included in note 2 of the notes to the accompanying financial statements.

Three months ended Six months ended

May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022

During the three months ended August 31, 2022, we recorded $3.4 million of special charges.

Those special charges principally consisted of $1.0 million associated with the transition of a manufacturing facility in EMEA, $0.8 million associated with the exit of our consumer business in Russia, and streamlining actions of $0.4 million in the Americas region, and $1.2 million in the EMEA region.

During the nine months ended August 31, 2022, we recorded $38.0 million of net special charges.

Those special charges consisted principally of $23.0 million associated with the exit of our consumer business in Russia, $18.4 million associated with the transition of a manufacturing facility in EMEA, and streamlining actions of $5.7 million in the Americas region and $5.5 million in the EMEA region.

These charges were offset by a $13.6 million gain during the nine months ended August 31, 2022, on the sale of our Kohinoor brand, as we exited our Kohinoor rice product line in India in the fourth quarter of fiscal 2021, as well as a reversal of $2.2 million of estimated costs associated with the exit of our rice product line in India upon settlement of a supply agreement related to that product line.

Details with respect to the composition of special charges are included in note 2 of the notes to the accompanying condensed consolidated financial statements.

Three months ended Nine months ended

August 31, 2023 August 31, 2022 Aug 31, 2023 Aug 31, 2022

Total integration expenses $ — $ — $ — $ 2.2

During the three months and six months ended May 31, 2022, we recorded $1.5 million and $2.2 million, respectively, of integration expenses related to our acquisition of FONA.

Three months ended Six months ended

May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022

During the nine months ended August 31, 2022, we recorded $2.2 million of integration expenses related to our acquisition of FONA.

Three months ended Nine months ended

August 31, 2023 August 31, 2022 August 31, 2023 August 31, 2022

Interest expense $ 52.7 $ 37.9 $ 155.5 $ 104.7

Other income, net 7.1 77.4 30.7 89.9

Interest expense increased by $18.5 million and $36.0 million in the three and six months ended May 31, 2023, as compared to the prior year periods, as the effects of the higher interest rate environment more than offset lower average borrowing levels.

Other income, net for the three and six months ended May 31, 2023 increased by $6.2 million and $11.1 million, as compared to the prior year periods.

That increase was primarily driven by higher interest income, also principally associated with the higher interest rate environment.

Three months ended Six months ended

May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022

Interest expense increased by $14.8 million and $50.8 million in the three and nine months ended August 31, 2023, as compared to the prior year periods, as the effects of the higher interest rate environment more than offset lower average borrowing levels.

Other income, net for the three and nine months ended August 31, 2023 decreased by $70.3 million and $59.2 million, as compared to the prior year periods.

Other income, net for the three and nine months ended August 31, 2022 included a $49.6 million gain on the sale of our Kitchen Basics business and $18.7 million associated with the settlement of treasury lock arrangements, both of which are more fully described in the notes to the accompanying condensed consolidated financial statements.

The remaining decrease in the third quarter of 2023 was due primarily to fluctuations in foreign exchange rates, partially offset by higher interest income, principally associated with the higher interest rate environment.

The remaining increase for the nine months ended August 31, 2023 was primarily driven by higher interest income, also principally associated with the higher interest rate environment.

Three months ended Nine months ended

August 31, 2023 August 31, 2022 August 31, 2023 August 31, 2022

Income from consolidated operations before income taxes $ 199.4 $ 274.7 $ 541.0 $ 584.5

4 unchanged sentences

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

Income tax expense for the three months ended May 31, 2023 included $3.0 million of net discrete tax benefit consisting principally of (i) $1.2 million of tax benefits from the reversal of certain reserves for unrecognized tax benefits and related interest associated with the expiration of statutes of limitations in a non-U.S.

jurisdiction, (ii) $1.2 million of tax benefits related to a tax settlement, and (iii) $0.6 million of excess tax benefits associated with stock-based compensation.

Income tax expense for the six months ended May 31, 2023 included $6.8 million of net discrete tax benefit consisting principally of (i) $3.2 million of tax benefits associated with the adjustment of a valuation allowance due to changes in judgment about the realizability of the deferred tax asset, (ii) $1.2 million of tax benefits from the reversal of certain reserves for unrecognized tax benefits and related interest associated with the expiration of statutes of limitations in a non-U.S.

jurisdiction, (iii) $1.2 million of tax benefits related to a tax settlement, (iv) $0.8 million of tax benefits related to the revaluation of deferred taxes resulting from changes in tax rates, and (v) $0.4 million of excess tax benefits associated with stock-based compensation.

Income tax expense for the three months ended May 31, 2022 included $9.0 million of net discrete tax benefits consisting principally of the following:

(i) $1.1 million of excess tax benefits associated with stock-based compensation, (ii) $4.1 million of net tax benefits associated with the adjustment of valuation allowances due to changes in judgment about the realizability of deferred tax assets, (iii) $1.3 million of tax benefits from the reversal of certain reserves for unrecognized tax benefits and related interest associated with the expiration of statutes of limitations in a non-U.S.

jurisdiction, and (iv) $2.3 million of tax benefits related to the sale of an asset associated with a previously exited line of business.

Income tax expense for the six months ended May 31, 2022 included $19.3 million of net discrete tax benefits consisting principally of the following:

(i) $8.7 million of excess tax benefits associated with stock-based compensation, (ii) $4.1 million of net tax benefits associated with an adjustment of valuation allowances due to changes in judgment about the realizability of deferred tax assets, (iii) $2.5 million of tax benefits related to the revaluation of deferred taxes resulting from enacted legislation, (iv) $2.3 million of tax benefits related to the sale of an asset associated with a previously exited line of business, and (v) $1.5 million from the resolution of tax uncertainties in non-U.S.

jurisdictions, including the reversal of certain reserves for unrecognized tax benefits and related interest associated with the expiration of statutes of limitations in certain non-US jurisdictions.

Three months ended Six months ended

May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022

Income tax expense for the three months ended August 31, 2023 included $3.3 million of net discrete tax benefits consisting principally of the following:

(i) $2.2 million of tax benefits from the net reversal of certain reserves for unrecognized tax benefits and related interest in non-U.S.

jurisdictions, (ii) $0.8 million of tax benefits from the reversal of certain reserves for unrecognized tax benefits and related interest associated with the expiration of statutes of limitations in non-U.S.

jurisdictions, (iii) $0.6 million of excess tax benefits associated with stock-based compensation, (iv) $1.5 million of tax benefits resulting from an adjustment to a prior year tax accrual, and related deferred taxes, based on the final returns filed, and (v) $1.9 million of tax expense related to certain unremitted prior year earnings.

Income tax expense for the nine months ended August 31, 2023 included $10.1 million of net discrete tax benefits consisting principally of the following:

(i) $3.2 million of tax benefits associated with the adjustment of a valuation allowance due to changes in judgment about the realizability of the deferred tax asset, (ii) $2.2 million of tax benefits from the net reversal of certain reserves for unrecognized tax benefits and related interest in non-U.S.

jurisdictions, (iii) $2.0 million of tax benefits from the reversal of certain reserves for unrecognized tax benefits and related interest associated with the expiration of statutes of limitations in non-U.S.

jurisdictions, (iv) $1.2 million of tax benefit related to a tax settlement, (v) $0.8 million of tax benefits related to the revaluation of deferred taxes resulting from changes in tax rates, (vi) $1.0 million of excess tax benefits associated with stock-based compensation, (vii) $1.5 million of tax benefits resulting from an adjustment to a prior year tax accrual, and related deferred taxes, based on the final returns filed, and (viii) $1.9 million of tax expense related to certain unremitted prior year earnings.

Income tax expense for the three months ended August 31, 2022 included $3.8 million of net discrete tax expense consisting principally of the following:

(i) $11.6 million of tax expense related to the sale of a business, (ii) $1.4 million of net tax benefits related to the revaluation of deferred taxes resulting from enacted legislation, (iii) $4.7 million of tax benefits from the reversal of certain reserves for unrecognized tax benefits and related interest associated with the expiration of statutes of limitations, and (iv) $1.3 million of tax benefits resulting from an adjustment to a prior year tax accrual based on the final return filed.

Income tax expense for the nine months ended August 31, 2022 included $15.5 million of net discrete tax benefits consisting principally of the following:

(i) $9.0 million of excess tax benefits associated with stock-based compensation, (ii) $4.1 million of net tax benefits associated with an adjustment of valuation allowances due to changes in judgment about the realizability of

deferred tax assets, (iii) $3.9 million of tax benefits related to the revaluation of deferred taxes resulting from enacted legislation, (iv) $2.3 million of tax benefits related to the sale of an asset associated with a previously exited line of business, (v) $6.2 million of tax benefits from the resolution of tax uncertainties, including the reversal of certain reserves for unrecognized tax benefits and related interest associated with the expiration of statutes of limitations, (vi) $1.3 million of tax benefits resulting from an adjustment to a prior year tax accrual based on the final return filed, and (vii) $11.6 million of tax expense related to the sale of a business.

Three months ended Nine months ended

August 31, 2023 August 31, 2022 August 31, 2023 August 31, 2022

Income from unconsolidated operations $ 13.4 $ 7.5 $ 37.7 $ 27.2

Income from unconsolidated operations, which is presented net of the elimination of earnings attributable to non-controlling interests, declined slightly for the three months ended May 31, 2023 as compared to the prior year period.

Income from unconsolidated operations increased by $4.6 million for the six months ended May 31, 2023, as compared to the year ago period.

Income from unconsolidated operations, which is presented net of the elimination of earnings attributable to non-controlling interests, increased by $5.9 million and $10.5 million, respectively, for the three and nine months ended August 31, 2023, both as compared to the prior year periods.

The increase was driven by higher earnings of our largest joint venture, McCormick de Mexico.

The following table outlines the major components of the change in diluted earnings per share from 2022 to 2023:

Three months ended May 31,

Six months ended May 31,

Three months ended August 31,

Nine months ended August 31,

2022 Earnings per share – diluted $ 0.82 $ 1.83

1 unchanged sentence

Increase in special charges, net of taxes (0.01) (0.03)

Decrease in integration expenses, net of tax — 0.01

Decrease in transaction and integration expenses, net of taxes — 0.01

Impact from the gain on the sale of a business, net of taxes (0.14) (0.14)

Increase in interest expense (0.04) (0.15)

Increase in other income 0.02 0.03

Decrease in other income, excluding gain on sale of a business (0.06) (0.03)

Increase in income from unconsolidated operations 0.02 0.04

Impact of change in effective income tax rate, excluding taxes on special charges and transaction and integration expenses (0.02) (0.04)

Impact of change in effective income tax rate, excluding taxes on special charges, transaction and integration expenses, and gain on sale of a business — (0.04)

2023 Earnings per share – diluted $ 0.63 $ 1.71

3 unchanged sentences

These transaction and integration expenses excluded from our segment performance measure include costs directly associated with that acquisition and costs associated with integrating the businesses.

See note 10 of the notes to the accompanying financial statements for additional information on our segment measures as well as for a reconciliation by segment of operating income, excluding special charges and transaction and integration expenses, to consolidated operating income.

See note 10 of the notes to the accompanying condensed consolidated financial statements for additional information on our segment measures as well as for a reconciliation by segment of operating income, excluding special charges and transaction and integration expenses, to consolidated operating income.

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

CONSUMER SEGMENT

Three months ended Six months ended

May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022

Three months ended Nine months ended

August 31, 2023 August 31, 2022 August 31, 2023 August 31, 2022

Net sales $ 937.1 $ 927.9 $ 2,758.7 $ 2,720.1

2 unchanged sentences

Segment operating income margin 18.5 % 19.8 % 18.1 % 17.5 %

In the second quarter of 2023, sales of our consumer segment increased by 5.3% as compared to the second quarter of 2022 and increased by 7.0% on a constant currency basis.

That 5.3% increase included higher sales of our consumer business in all regions, as compared to the prior year quarter.

In the third quarter of 2023, sales of our consumer segment increased by 1.0% as compared to the third quarter of 2022 and increased by 1.3% on a constant currency basis.

That 1.0% increase included higher sales of our consumer business in both the Americas and EMEA regions that was partially offset by lower sales in the APAC region, as compared to the prior year quarter.

Pricing actions, taken in response to increased costs, favorably impacted sales by 5.6% as compared to the prior year period.

Unfavorable volume and product mix decreased consumer segment sales by 0.7% in the second quarter of 2023 as compared to the same period last year, including the impact of price elasticity.

Also, our decision to discontinue certain low margin businesses also contributed approximately 1.2% to the unfavorable impact of

volume and product mix.

Unfavorable volume and product mix decreased consumer segment sales by 4.0% in the third quarter of 2023 as compared to the same period last year, including the impact of price elasticity.

The impact of the recovery experienced from the COVID-19 restrictive measures that existed in the prior year in China as well as a slower recovery in the third quarter of 2023 unfavorably impacted volume and product mix by approximately 2.0%.

Also, our decisions to exit our consumer operations in Russia and discontinue certain low margin businesses also contributed approximately 1.2% to the unfavorable impact of volume and product mix.

The divestiture of our Kitchen Basics business unfavorably impacted consumer sales by 0.3% as compared to 2022.

Sales in the second quarter of 2023 reflected an unfavorable impact from foreign currency rates that decreased consumer segment sales by 1.7% compared to the year-ago quarter and is excluded from our measure of sales growth of 7.0% on a constant currency basis.

In the Americas region, consumer sales increased 3.0% in the second quarter of 2023 as compared to the same quarter of 2022 and increased by 3.6% on a constant currency basis.

Sales in the third quarter of 2023 reflected an unfavorable impact from foreign currency rates that decreased consumer segment sales by 0.3% compared to the year-ago quarter and is excluded from our measure of sales growth of 1.3% on a constant currency basis.

In the Americas region, consumer sales increased 1.4% in the third quarter of 2023 as compared to the same quarter of 2022 and increased by 1.7% on a constant currency basis.

Pricing actions, taken in response to inflationary cost environment, increased sales by 4.4% as compared to the prior year period.

For the second quarter of 2023, unfavorable volume and product mix decreased sales by 3.5% as compared to the corresponding period in 2022.

For the third quarter of 2023, unfavorable volume and product mix decreased sales by 2.3% as compared to the corresponding period in 2022.

This reduction included an approximately 1.3% impact of our decision to discontinue a low margin business.

1 unchanged sentence

The unfavorable impact of foreign currency rates decreased sales by 0.3% in the quarter and is excluded from our measure of sales growth of 1.7% on a constant currency basis.

In the EMEA region, consumer sales increased 7.2% in the second quarter of 2023 as compared to the same quarter of 2022 and increased by 9.3% on a constant currency basis.

In the EMEA region, consumer sales increased 14.9% in the third quarter of 2023 as compared to the same quarter of 2022 and increased by 10.4% on a constant currency basis.

Pricing actions, taken in response to the inflationary cost environment, increased sales by 13.0% as compared to the 2022 period.

Sales were impacted by unfavorable volume and product mix during the second quarter of 2023 that decreased sales by 2.5% from the prior year level, including a 2.3% impact associated with the exit of our consumer operations in Russia.

During the second quarter of 2023, an unfavorable impact from foreign currency rates decreased sales by 2.1% compared to the year-ago period and is excluded from our measure of sales growth of 9.3% on a constant currency basis.

In the Asia/Pacific region, consumer sales increased 18.7% in the second quarter of 2023 as compared to the second quarter of 2022 and increased by 27.4% on a constant currency basis.

Sales were impacted by unfavorable volume and product mix during the third quarter of 2023 that decreased sales by 2.6% from the prior year level, including a 1.7% impact associated with the exit of our consumer operations in Russia.

During the third quarter of 2023, a favorable impact from foreign currency rates increased sales by 4.5% compared to the year-ago period and is excluded from our measure of sales growth of 10.4% on a constant currency basis.

In the APAC region, consumer sales decreased 15.8% in the third quarter of 2023 as compared to the third quarter of 2022 and decreased by 10.5% on a constant currency basis.

Pricing actions, taken in response to the inflationary cost environment, increased sales by 4.5% as compared to the prior year period.

For the quarter ended May 31, 2023, favorable volume and product mix increased sales by 21.4%, including a 20.0% favorable impact from the recovery experienced from the restrictive measures that existed in the prior year related to COVID-19 resurgences in China.

During the second quarter of 2023, an unfavorable impact from foreign currency rates decreased sales by 8.7% compared to the year-ago period and is excluded from our measure of sales growth of 27.4% on a constant currency basis.

For the six months ended May 31, 2023, sales of our consumer segment increased 1.6% as compared to the six months ended May 31, 2022 and increased by 3.8% on a constant currency basis.

Pricing actions taken in all of our consumer business in all regions increased sales by 8.6% during the six months ended May 31, 2023 as compared to the prior year period.

For the quarter ended August 31, 2023, unfavorable volume and product mix decreased sales by 15.0%, including a 15.3% unfavorable impact from the higher recovery experienced from the restrictive measures that existed in the prior year related to COVID-19 resurgences in China and a slower recovery in the third quarter of 2023.

During the third quarter of 2023, an unfavorable impact from foreign currency rates decreased sales by 5.3% compared to the year-ago period and is excluded from our measure of sales decline of 10.5% on a constant currency basis.

For the nine months ended August 31, 2023, sales of our consumer segment increased 1.4% as compared to the nine months ended August 31, 2022 and increased by 2.9% on a constant currency basis.

Pricing actions taken in our consumer business in all regions increased sales by 7.6% during the nine months ended August 31, 2023 as compared to the prior year period.

Lower volume and unfavorable product mix decreased sales by 4.0% as compared to the prior year period driven primarily by the impact of price elasticity.

Volume and product mix includes the unfavorable impact of our decisions to exit our consumer business in Russia and discontinue certain low margin businesses of 1.2% .

The sale of our Kitchen Basics business unfavorably impacted sales by 0.7% as compared to 2022.

An unfavorable impact from foreign currency rates decreased sales by 1.5% compared to the prior year and is excluded from our measure of sales growth of 2.9% on a constant currency basis.

Segment operating income for our consumer segment increased by $28.8 million, or 23.1%, in the second quarter of 2023 over the second quarter of 2022.

The increase in segment operating income was driven by the effects of an increase in gross profit primarily due to the higher level of sales, favorable pricing actions, and CCI-led and GOE cost savings partially offset by higher SG&A expenses, including higher distribution costs and higher performance-based employee incentive expense, all as compared to the prior year period.

Segment operating margin for our consumer segment increased by 240 basis points from the second quarter of 2022 to 16.8% in the second quarter of 2023.

That increase was principally the result of an increase in gross margin, including the impacts of pricing actions and CCI-led and GOE cost savings which was partially offset by a higher level of SG&A as a percentage of sales, all as compared to 2022.

On a constant currency basis, segment operating income for our consumer segment increased by 24.5% in the second quarter of 2023 in comparison to the same period in 2022.

Segment operating income for our consumer segment increased by $35.2 million, or 12.1%, for the six months ended May 31, 2023 as compared to the same period in 2022.

The increase in segment operating income was driven by the effects of an increase in gross profit primarily driven by the higher level of sales, favorable pricing actions in response to increased costs, and CCI-led and GOE cost savings which were partially offset by higher SG&A expenses, including higher distribution costs and higher performance-based employee incentive expense, all as compared to the prior year period.

Segment operating margin for our consumer segment increased by 170 basis points from the first half of 2022 to 18.0%.

Segment operating income for our consumer segment decreased by $10.4 million, or 5.7%, in the third quarter of 2023 from the third quarter of 2022.

The decrease in segment operating income was driven by the effects of an increase in gross profit primarily due to the higher level of sales, favorable pricing actions, and CCI-led and GOE cost savings more than offset by increased commodity costs and SG&A expenses, including higher advertising and marketing expenses, increased distribution costs and higher performance-based employee incentive expense, all as compared to the prior year period.

Segment operating margin for our consumer segment decreased by 130 basis points from the third quarter of 2022 to 18.5% in the third quarter of 2023.

That decrease was principally the result of an increase in gross margin, including the impacts of pricing actions, CCI-led and GOE cost savings, as well as increased commodity costs, which were more than offset by a higher level of SG&A as a percentage of sales, all as compared to 2022.

On a constant currency basis, segment operating income for our consumer segment decreased by 5.2% in the third quarter of 2023 in comparison to the same period in 2022.

Segment operating income for our consumer segment increased by $24.8 million, or 5.2%, for the nine months ended August 31, 2023 as compared to the same period in 2022.

including higher advertising and marketing expenses, increased distribution costs and higher performance-based employee incentive expense, all as compared to the prior year period.

Segment operating margin for our consumer segment increased by 60 basis points from the first nine months 2022 to 18.1%.

The increase was the result of an increase in gross margin as previously discussed which was partially offset by a higher level of SG&A as a percentage of sales, principally due to the factors previously described, both as compared to 2022.

On a constant currency basis, segment operating income for our consumer segment increased by 14.0% for the six months ended May 31, 2023 in comparison to the same period in 2022.

On a constant currency basis, segment operating income for our consumer segment increased by 6.6% for the nine months ended August 31, 2023 in comparison to the same period in 2022.

FLAVOR SOLUTIONS SEGMENT

Three months ended Six months ended

May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022

Three months ended Nine months ended

August 31, 2023 August 31, 2022 August 31, 2023 August 31, 2022

Net sales $ 747.6 $ 667.7 $ 2,150.7 $ 1,934.7

2 unchanged sentences

Segment operating income margin 10.4 % 8.2 % 9.9 % 8.5 %

In the second quarter of 2023, sales of our flavor solutions segment increased by 11.4% as compared to the second quarter of 2022 and increased by 12.7% on a constant currency basis.

Pricing actions, taken in response to increased costs, across all regions increased sales by 13.8% in the second quarter of 2023 and was partially offset by 1.1% of unfavorable volume and product mix, both as compared to the prior year quarter.

Volume and product mix includes the net impact of the recovery experienced from the restrictive measures that existed in the prior year related to COVID-19 resurgences in China and our decision to discontinue certain low margin businesses of 1% favorable and 1% unfavorable, respectively.

The unfavorable impact of foreign currency rates decreased flavor solutions segment sales by 1.3% compared to the year-ago quarter and is excluded from our measure of sales growth of 12.7% on a constant currency basis.

In the Americas region, flavor solutions sales increased by 11.9% in the second quarter of 2023 as compared to the second quarter of 2022 and increased by 11.0% on a constant currency basis.

Pricing actions, taken in response to the inflationary cost environment, favorably impacted sales by 12.1% during the quarter ended May 31, 2023, as compared to the prior year period.

Unfavorable volume and product mix decreased flavor solutions sales in the Americas by 1.1% during the second quarter of 2023, including the effects of growth in sales to packaged food and beverage companies, as compared to the prior year period.

A favorable impact from foreign currency rates increased sales by 0.9% compared to the second quarter of 2022 and is excluded from our measure of sales growth of 11.0% on a constant currency basis.

In the EMEA region, flavor solutions sales increased by 8.8% in the second quarter of 2023 as compared to the second quarter of 2022 and increased by 14.6% on a constant currency basis.

Pricing actions, taken in response to the inflationary cost environment, favorably impacted sales by 21.8% in the second quarter of 2023 as compared to the prior period level.

Unfavorable volume and product mix decreased segment sales in the EMEA region by 7.2% as compared to the corresponding period in 2022 including the effects of the inflationary environment impacting consumer spending at quick service restaurants and an approximately 2.1% impact of our decision to discontinue a low margin business.

An unfavorable impact from foreign currency rates decreased sales by 5.8% compared to the second quarter of 2022 and is excluded from our measure of sales growth of 14.6% on a constant currency basis.

In the Asia/Pacific region, flavor solutions sales increased 13.4% in the second quarter of 2023 as compared to the second quarter of 2022 and increased by 21.6% on a constant currency basis.

In the third quarter of 2023, sales of our flavor solutions segment increased by 12.0% as compared to the third quarter of 2022 and increased by 11.4% on a constant currency basis.

Pricing actions, taken in response to increased costs, across all regions increased sales by 10.9% in the third quarter of 2023.

Favorable volume and product mix increased segment sales by 0.5% as compared to the prior period as growth in the Americas and APAC regions were partially offset by lower sales in EMEA.

Volume and product mix includes a 0.3% unfavorable impact from the prior year associated with our decision to discontinue certain low margin businesses.

The favorable impact of foreign currency rates increased flavor solutions segment sales by 0.6% compared to the year-ago quarter and is excluded from our measure of sales growth of 11.4% on a constant currency basis.

In the Americas region, flavor solutions sales increased by 11.3% in the third quarter of 2023 as compared to the third quarter of 2022 and increased by 10.1% on a constant currency basis.

Pricing actions, taken in response to the inflationary cost environment, favorably impacted sales by 8.7% during the quarter ended August 31, 2023, as compared to the prior year period.

Favorable volume and product mix increased flavor solutions sales in the Americas by 1.4% during the third quarter of 2023, including the effects of growth in sales to packaged food and beverage and nutrition and healthcare companies, as compared to the prior year period.

A favorable impact from foreign currency rates increased sales by 1.2% compared to the third quarter of 2022 and is excluded from our measure of sales growth of 10.1% on a constant currency basis.

In the EMEA region, flavor solutions sales increased by 16.7% in the third quarter of 2023 as compared to the third quarter of 2022 and increased by 15.1% on a constant currency basis.

Pricing actions, taken in response to the inflationary cost environment, favorably impacted sales by 20.2% in the third quarter of 2023 as compared to the prior period level.

Unfavorable volume and product mix decreased segment sales in the EMEA region by 5.1% as compared to the corresponding period in 2022 including the effects of the inflationary environment impacting consumer spending at quick service restaurants and packaged food and beverage companies and an approximately 1.4% impact of our decision to discontinue a low margin business.

A favorable impact from foreign currency rates increased sales by 1.6% compared to the third quarter of 2022 and is excluded from our measure of sales growth of 15.1% on a constant currency basis.

In the APAC region, flavor solutions sales increased 7.4% in the third quarter of 2023 as compared to the third quarter of 2022 and increased by 13.0% on a constant currency basis.

Pricing actions, taken in response to the inflationary cost environment, favorably impacted sales by 7.5% as compared to the prior year period.

Favorable volume and product mix increased segment sales by 13.6% in the second quarter of 2023 which was principally driven by the favorable impact from the recovery experienced from the restrictive measures that existed in the prior year related to COVID-19 resurgences in China.

An unfavorable impact from foreign currency rates decreased sales by 8.2% compared to the second quarter of 2022 and is excluded from our measure of sales growth of 21.6% on a constant currency basis.

For the six months ended May 31, 2023, our flavor solutions sales increased 10.7% as compared to the six months ended May 31, 2022 and increased by 12.5% on a constant currency basis.

Pricing actions, taken in response to increased costs, across all regions increased sales by 13.6% during the six months ended May 31, 2023 and was partially offset by 1.1% of unfavorable volume and product mix, both as compared to the prior year period.

Favorable volume and product mix increased segment sales by 5.5% in the third quarter of 2023 which was principally driven by higher sales to quick service customers, including the effects of the timing of their promotional activities.

An unfavorable impact from foreign currency rates decreased sales by 5.6% compared to the third quarter of 2022 and is excluded from our measure of sales growth of 13.0% on a constant currency basis.

For the nine months ended August 31, 2023, our flavor solutions sales increased 11.2% as compared to the nine months ended August 31, 2022 and increased by 12.2% on a constant currency basis.

Pricing actions, taken in response to increased costs, across all regions increased sales by 12.7% during the nine months ended August 31, 2023 and was partially offset by 0.5% of unfavorable volume and product mix, both as compared to the prior year period.

The unfavorable impact of foreign currency rates decreased flavor solutions segment sales by 1.0% compared to the year-ago period and is excluded from our measure of sales growth of 12.2% on a constant currency basis.

Segment operating income for our flavor solutions segment increased by $32.4 million, or 66.1%, in the second quarter of 2023 as compared to the second quarter of 2022.

The increase in segment operating income was driven by the effects of an increase in gross profit primarily due to the higher level of sales, favorable pricing and CCI-led and GOE cost savings which more than offset by increased conversion costs and the higher level of SG&A expenses, including higher distribution costs and higher performance-based employee incentive expense, all as compared to the prior year period.

Segment operating margin for our flavor solutions segment increased by 360 basis points from the prior year level to 10.9% in the second quarter of 2023.

That increase was principally the result of an increase in gross margin as previously described.

On a constant currency basis,

segment operating income for our flavor solutions segment decreased by 65.7% in the second quarter of 2023 as compared to the same period in 2022.

Segment operating income for our flavor solutions segment increased by $25.7 million, or 23.6%, for the six months ended May 31, 2023, as compared to the same period of 2022.

The increase in segment operating income was driven by the effects of an increase in gross profit primarily due to the higher level of sales, favorable pricing and CCI-led and GOE cost savings which more than offset increased conversion costs, including the impact of scrapped inventory, and the higher level of SG&A expenses, including higher distribution costs and higher performance-based employee incentive expense, all as compared to the prior year period.

Segment operating income for our flavor solutions segment increased by $22.9 million, or 41.7%, in the third quarter of 2023 as compared to the third quarter of 2022.

The increase in segment operating income was driven by the effects of an increase in gross profit primarily due to the higher level of sales driven by favorable pricing and CCI-led and GOE cost savings which more than offset increased commodity and conversion costs and the higher level of SG&A expenses, including increased distribution costs and higher performance-based employee incentive expense, as compared to the prior year period.

Segment operating margin for our flavor solutions segment increased by 220 basis points from the prior year level to 10.4% in the third quarter of 2023.

That increase was principally the result of an increase in gross margin, as previously described, which was partially offset by a higher level of SG&A as a percentage of sales, all as compared to 2022.

On a constant currency basis, segment operating income for our flavor solutions segment increased by 40.8% in the third quarter of 2023 as compared to the same period in 2022.

Segment operating income for our flavor solutions segment increased by $48.6 million, or 29.6%, for the nine months ended August 31, 2023, as compared to the same period of 2022.

The increase in segment operating income was driven by the effects of an increase in gross profit primarily due to the higher level of sales, favorable pricing and CCI-led and GOE cost savings which more than offset increased commodity and conversion costs, including the impact of scrapped inventory, and the higher level of SG&A expenses, increased distribution costs and higher performance-based employee incentive expense, all as compared to the prior year period.

Segment operating margin for our flavor solutions segment increased by 140 basis points from the first half of 2022 to 9.9%.

That increase was principally the result of an increase in gross margin as previously described as the higher level of SG&A expenses were lower as a percentage of net sales due to the leverage effect of the higher level of sales as compared to the 2022 level.

On a constant currency basis, segment operating income for our flavor solutions segment increased by 23.7% in the six months ended May 31, 2023, in comparison to the same period in 2022.

That increase was principally the result of an increase in gross margin as previously described.

On a constant currency basis, segment operating income for our flavor solutions segment increased by 29.3% in the nine months ended August 31, 2023, in comparison to the same period in 2022.

MARKET RISK SENSITIVITY

8 unchanged sentences

The following table sets forth the notional values and unrealized net gain (loss) of the portfolio of our forward foreign currency and cross currency swap contracts:

May 31, 2023 November 30, 2022

August 31, 2023 November 30, 2022

Forward foreign currency:

10 unchanged sentences

The following table sets forth the notional values and unrealized net gain (loss) of our interest rate swap contracts:

May 31, 2023 November 30, 2022

August 31, 2023 November 30, 2022

Notional value $ 600.0 $ 600.0

19 unchanged sentences

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

Expenses associated with the approved action are classified as special charges upon recognition and monitored on an on-going basis through completion.

Expenses associated with the approved actions are classified as special charges upon recognition and monitored on an on-going basis through completion.

• Transaction and integration expenses – We exclude certain costs associated with our acquisitions and their subsequent integration into the Company.

1 unchanged sentence

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

As more fully described in note 17 in our Annual Report on Form 10-K for the year ended November 30, 2022, the pre-tax gain associated with the sale was $49.6 million and is included in Other income, net in our consolidated income statement for the year ended November 30, 2022.

Details with respect to the composition of transaction and integration expenses and special charges set forth below are included in note 2 of the notes to the accompanying financial statements.

Details with respect to the composition of transaction and integration expenses and special charges set forth below are included in note 2 of the notes to the accompanying condensed consolidated financial statements.

Details with respect to the composition of transaction and integration expenses, special charges and gain on sale of Kitchen Basics for the year ended November 30, 2022 are included in notes 2 and 3 of the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended November 30, 2022.

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

The exclusion of the items noted above provides additional information that enables enhanced comparisons to prior periods and, accordingly, facilitates the development of future projections and earnings growth prospects.

The exclusion of the items noted above provides additional information that enables enhanced comparisons to prior periods and, accordingly, facilitates the development of future

projections and earnings growth prospects.

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

3 unchanged sentences

A reconciliation of these non-GAAP financial measures to the related GAAP financial measures follows:

For the year ended November 30, 2022 For the three months ended For the six months ended Estimated for the year ending November 30, 2023

May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022

For the year ended November 30, 2022 For the three months ended For the nine months ended Estimated for the year ending November 30, 2023

August 31, 2023 August 31, 2022 August 31, 2023 August 31, 2022

Operating income $ 863.6 $ 245.0 $ 235.2 $ 665.8 $ 599.3

10 unchanged sentences

Impact of special charges (1)

13.3 1.3 0.7 11.0 10.7

Impact of sale of Kitchen Basics (11.6) — (11.6) — (11.6)

16 unchanged sentences

Adjusted earnings per share – diluted $ 2.53 $ 0.65 $ 0.69 $ 1.84 $ 1.80 $2.62 to $2.67

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

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

(1) Special charges are more fully described in note 2 of the notes to the accompanying condensed consolidated financial statements.

Special charges for the nine months ended August 31, 2022 and the year ended November 30, 2022 include a $10.0 million non-cash intangible asset impairment charge associated with our exit of our business operations in Russia.

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

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

Special charges for the nine months ended August 31, 2022 and the year ended November 30, 2022 include a $13.6 million gain associated with the sale of the Kohinoor brand name.

(2) Adjusted operating income margin is calculated as adjusted operating income as a percentage of net sales for each period presented.

(3) Adjusted income tax rate is calculated as adjusted income tax expense as a percentage of income from consolidated operations before income taxes excluding transaction and integration expenses and special charges of $195.3 million and $382.6 million for the three and six months ended May 31, 2023, respectively, $146.4 million and $346.6 million for the three and six months ended May 31, 2022.

(3) Adjusted income tax rate is calculated as adjusted income tax expense as a percentage of income from consolidated operations before income taxes excluding transaction and integration expenses and special charges of $205.5 million and $588.1 million for the three and nine months ended August 31, 2023, respectively, and $228.5 million and $575.1 million for the three and nine months ended August 31, 2022, respectively.

Adjusted income tax rate is calculated as adjusted income tax expense as a percentage of income from consolidated operations before income taxes excluding transaction and integration expenses, special charges and gain on the sale of Kitchen Basics of $817.0 million for the year ended November 30, 2022.

11 unchanged sentences

Rates of constant currency growth (decline) follow:

Three months ended May 31, 2023

Three months ended August 31, 2023

Percentage Change

3 unchanged sentences

EMEA 14.9 % 4.5 % 10.4 %

Asia/Pacific 18.7 % (8.7) % 27.4 %

APAC (15.8) % (5.3) % (10.5) %

Total Consumer segment 1.0 % (0.3) % 1.3 %

2 unchanged sentences

EMEA 16.7 % 1.6 % 15.1 %

Asia/Pacific 13.4 % (8.2) % 21.6 %

APAC 7.4 % (5.6) % 13.0 %

Total Flavor Solutions segment 12.0 % 0.6 % 11.4 %

4 unchanged sentences

Total adjusted operating income 5.2 % (0.2) % 5.4 %

Six months ended May 31, 2023

Nine months ended August 31, 2023

Percentage Change

3 unchanged sentences

EMEA 3.3 % (2.0) % 5.3 %

Asia/Pacific (2.4) % (7.6) % 5.2 %

APAC (7.0) % (6.8) % (0.2) %

Total Consumer segment 1.4 % (1.5) % 2.9 %

2 unchanged sentences

EMEA 10.9 % (4.6) % 15.5 %

Asia/Pacific 5.8 % (7.2) % 13.0 %

APAC 6.4 % (6.6) % 13.0 %

Total Flavor Solutions segment 11.2 % (1.0) % 12.2 %

10 unchanged sentences

LIQUIDITY AND FINANCIAL CONDITION

Six months ended

May 31, 2023 May 31, 2022

Nine months ended

August 31, 2023 August 31, 2022

Net cash provided by operating activities $ 660.1 $ 250.1

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

Operating Cash Flow — Net cash provided by operating activities of $394.2 million for the six months ended May 31, 2023, increased $239.8 million from the same period of 2022.

This increase was primarily driven by higher net income, an improvement in cash provided by working capital, including the lower level of inventory and the lower amount of certain employee benefits accrued as of the prior year-end and paid in the subsequent fiscal year.

Operating Cash Flow — Net cash provided by operating activities of $660.1 million for the nine months ended August 31, 2023, increased $410.0 million from the same period of 2022.

This increase was primarily driven by an improvement in cash provided by working capital, which was driven by the lower level of inventory and the lower amount of certain employee benefits accrued as of the prior year-end and paid in the subsequent fiscal year.

This was partially offset by an increased use of cash associated with accounts payable which partially resulted from our lower level of inventory.

As more fully described in our Annual Report on Form 10-K for the year ended November 30, 2022, we participate in a Supply Chain Financing program (SCF) with several global financial institutions (SCF Banks).

2 unchanged sentences

All outstanding amounts related to suppliers participating in the SCF are recorded within the line entitled Trade accounts payable in our condensed consolidated balance sheets, and the associated payments are included in operating activities within our consolidated statements of cash flows.

As of May 31, 2023 and November 30, 2022, the amounts due to suppliers participating in the SCF and included in trade accounts payable were approximately $327.4 million and $347.0 million, respectively.

Investing Cash Flow — Cash used in investing activities of $116.1 million for the six months ended May 31, 2023 increased by $26.9 million as compared to $89.2 million for the corresponding period in 2022.

As of August 31, 2023 and November 30, 2022, the amounts due to suppliers participating in the SCF and included in trade accounts payable were approximately $316.7 million and $347.0 million, respectively.

Investing Cash Flow — Cash used in investing activities of $184.8 million for the nine months ended August 31, 2023 increased by $129.3 million as compared to $55.5 million for the corresponding period in 2022.

Capital expenditures increased from the 2022 level of $166.8 million to $187.2 million.

We expect 2023 capital expenditures to approximate $260 million to support our planned growth and other initiatives.

Investing cash flow for the six months ended May 31, 2022 includes $12.1 million net cash proceeds received on the sale of the Kohinoor brand name.

Financing Cash Flow — Financing activities used cash of $518.1 million for the first six months of 2023, as compared to the corresponding period in 2022 when financing activities used cash of $81.7 million.

The variability between years is a result of changes in our net borrowings, share issuance activity associated with the exercise of stock options, share repurchase activity, and dividends, all as described below.

Investing cash flow for the nine months ended August 31, 2022 includes $95.2 million net cash proceeds received from the sale of our Kitchen Basics business and $13.6 million net cash proceeds received on the sale of the Kohinoor brand name.

Financing Cash Flow — Financing activities used cash of $701.2 million for the first nine months of 2023 increased $527.5 million as compared to $173.7 million for the corresponding period in 2022.

The increase is a result of changes in our net borrowings, share issuance activity associated with the exercise of stock options, share repurchase activity, and dividends, all as described below.

The following table outlines our net borrowing activities:

Six months ended

May 31, 2023 May 31, 2022

Net increase (decrease) in short-term borrowings $ (776.8) $ 128.0

Nine months ended

August 31, 2023 August 31, 2022

Net (decrease) increase in short-term borrowings $ (850.0) $ 898.1

Proceeds of issuance of long-term debt, net of debt issuance costs 495.3 —

1 unchanged sentence

Net cash (used in) provided by borrowing activities $ (367.4) $ 129.4

During the six months ended May 31, 2023, we issued $500.0 million of 4.95% notes due 2033, with net cash proceeds received of $496.4 million.

The following table outlines the activity in our share repurchase program for the six months ended May 31, 2023 and 2022 (in millions):

During the nine months ended August 31, 2023, we issued $500.0 million of 4.95% notes due 2033, with net cash proceeds received of $496.4 million.

The following table outlines the activity in our share repurchase program for the nine months ended August 31, 2023 and 2022 (in millions):

Number of shares of common stock repurchased 0.32 0.29

Dollar amount $ 26.7 $ 26.1

As of May 31, 2023, $518.6 million remained of the $600 million share repurchase authorization approved by the Board of Directors in November 2019.

As of August 31, 2023, $510.5 million remained of the $600 million share repurchase authorization approved by the Board of Directors in November 2019.

The timing and amount of any shares repurchased is determined by our management based on its evaluation of market conditions and other factors.

During the six months ended May 31, 2023, we received proceeds of $11.1 million from exercised stock options as compared to $36.1 million received in the corresponding 2022 period.

We repurchased $10.8 million and $19.4 million of common stock during the six months ended May 31, 2023 and 2022, respectively, in conjunction with employee tax withholding requirements.

We increased dividends paid to $209.2 million, or a per share quarterly dividend of $0.39, in the first six months of 2023 from $198.2 million, or a per share quarterly dividend of $0.37, of dividends paid in the same period last year.

During the nine months ended August 31, 2023, we received proceeds of $15.9 million from exercised stock options as compared to $39.9 million received in the corresponding 2022 period.

We repurchased $10.8 million and $19.4 million of common stock during the nine months ended August 31, 2023 and 2022, respectively, in conjunction with employee tax withholding requirements.

We increased dividends paid to $313.8 million, or a per share quarterly dividend of $0.39, in the first nine months of 2023 from $297.5 million, or a per share quarterly dividend of $0.37, of dividends paid in the same period last year.

The timing and amount of any future dividends is determined by our Board of Directors.

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

At May 31, 2023 and 2022, we temporarily used $372.7 million and $158.1 million, respectively, of cash from our non-U.S.

At August 31, 2023 and 2022, we temporarily used $449.5 million and $157.3 million, respectively, of cash from our non-U.S.

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

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

The average short-term borrowings outstanding for the three months ended May 31, 2023 and 2022 were $1,315.9 million and $890.7 million, respectively.

Total average debt outstanding for the three months ended May 31, 2023 and 2022 was $5,287.5 million and $5,445.7 million, respectively.

The average short-term borrowings outstanding for the three months ended August 31, 2023 and 2022 were $1,163.1 million and $968.1 million, respectively.

Total average debt outstanding for the three months ended August 31, 2023 and 2022 was $5,245.9 million and $5,439.8 million, respectively.

The reported values of our assets and liabilities are significantly affected by fluctuations in foreign exchange rates between periods.

At May 31, 2023, the exchange rates for the British pound sterling, Euro, and Polish zloty were higher than the U.S.

At August 31, 2023, the exchange rates for the British pound sterling, Euro, Canadian dollar, Mexican peso, and Polish zloty were higher than the U.S.

dollar at November 30, 2022.

At May 31, 2023, the exchange rate for the Canadian dollar, Chinese renminbi, and Australian dollar were lower than the U.S.

At August 31, 2023, the exchange rate for the Chinese renminbi and Australian dollar were lower than the U.S.

dollar at November 30, 2022.

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In April 2023, we issued $500 million aggregate principal amount of 4.95% unsecured senior notes due 2033.

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

Interest is payable semi-annually in April and October of each year.

The net proceeds received from the issuance of this note of $496.4 million was used to repay a portion of the Company's outstanding commercial paper borrowings.

Our committed revolving credit facilities include a five-year $1.5 billion revolving credit facility, which will expire in June 2026 and a 364-day $500 million revolving credit facility, which was entered into in June 2023 and will expire in June 2024.

The 364-day $500 million revolving credit facility that was entered into in July 2022 and was scheduled to expire in July 2023 was cancelled in conjunction with our entry into the June 2023 $500 million 364-day revolving credit facility.

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

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

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

In the next year, our most significant debt service obligations are the maturity of our $250.0 million, 3.50% notes which was repaid September 1, 2023 with proceeds from the issuance of commercial paper, and the maturity of our $700.0 million, 3.15% notes due in August 2024.

Our other cash requirements include raw material purchases, lease payments, income taxes, anticipated quarterly dividends, and pension and postretirement benefits, as well as other contractual obligations.

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New accounting pronouncements are issued periodically that affect our current and future operations.

See note 1 of notes to the accompanying financial statements for further details of these impacts.

See note 1 of notes to the accompanying condensed consolidated financial statements for further details of these impacts.

CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

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expected working capital improvements;

expectations regarding growth potential in various geographies and markets, including the impact from customer, channel,

category, and e-commerce expansion;

expectations regarding growth potential in various geographies and markets, including the impact from customer, channel, category, and e-commerce expansion;

expected trends in net sales and earnings performance and other financial measures;

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

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

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

capital expenditures, and quarterly dividends;

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

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risks associated with the company's information technology systems, including the threat of data breaches and cyber-attacks;

the company's inability to successfully implement our business transformation initiative;

the company's ability to successfully implement our business transformation initiative;

fundamental changes in tax laws;

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis