What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-01-25 compared with 2023-01-26 · 169 added, 127 removed, 1370 unchanged (18% of the section changed)

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Our internal control over financial reporting as of November 30, 2023 has been audited by Ernst & Young LLP.

Chairman & Chief Executive Officer

President & Chief Executive Officer

Executive Vice President &

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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.

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 assessments, 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.

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 assessments, 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.

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Stock-based compensation 63.4 60.3 66.6

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

Loss (gain) on the sale of businesses and intangible assets 1.2 ( 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

Loss (gain) on sale of assets 0.2 ( 0.5 ) 0.2

Deferred income tax expense (benefit) ( 5.4 ) 21.8 36.0

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Dividends paid ( 418.5 ) ( 396.7 ) ( 363.3 )

Other financing activities 1.6 — —

Net cash (used in) provided by financing activities ( 1,184.2 ) ( 487.2 ) 22.0

Effect of exchange rate changes on cash and cash equivalents 40.0 ( 35.6 ) ( 13.6 )

(Decrease) increase in cash and cash equivalents ( 17.7 ) ( 71.9 ) 268.2

Decrease in cash and cash equivalents ( 167.4 ) ( 17.7 ) ( 71.9 )

Cash and cash equivalents at beginning of year 334.0 351.7 423.6

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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.

Capitalization of these costs stops, and amortization begins, when the project is substantially complete and ready for use.

The net book value of capitalized software totaled $ 159.9 million and $ 160.6 million at November 30, 2023 and 2022, respectively.

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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.

Accounts Payable - Supplier Finance Program

In order to manage our cash flow and related liquidity, we work with our suppliers to optimize our terms and conditions, which include the extension of payment terms.

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

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

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

These participating suppliers negotiate their receivables sales arrangements directly with the respective SCF Bank.

While we are not party to those agreements, the SCF Banks allow the participating suppliers to utilize our creditworthiness in establishing credit spreads and associated costs.

This generally provides the suppliers with more favorable terms than they would be able to secure on their own.

We have no economic interest in a supplier’s decision to sell a receivable.

Once a qualifying supplier elects to participate in the SCF and reaches an agreement with a SCF Bank, the supplier elects which of our individual invoices they sell to the SCF bank.

However, all of our payments to participating suppliers are paid to the SCF Bank on the invoice due date, regardless of whether the individual invoice is sold by the supplier to the SCF Bank.

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

Our current payment terms with our suppliers, which we deem to be commercially reasonable, generally range from zero to 180 days dependent upon their respective industry and geography.

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

As of November 30, 2023 and 2022, the amount due to suppliers participating in the SCF and included in "Trade accounts payable" were approximately $ 300.5 million and $ 347.0 million, respectively.

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.

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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.

Our revenue arrangements generally include a single performance obligation relating to the fulfillment of a customer order, which in some cases is 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.

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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.

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.

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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 adjustments recognized during the years ended November 30, 2023, 2022 and 2021 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 $ 195.3 million and $ 181.0 million at November 30, 2023 and 2022, respectively.

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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.

Compensation expense associated with our long-term performance plan (LTPP) is recorded in the income statement 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.

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

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

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

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

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

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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.

Accounting Pronouncements Adopted in 2022 and 2023

In March 2020, the FASB issued ASU No.

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

Arrangements that were entered into during the year ended November 30, 2022, including our new revolving credit facility expiring in July 2023, fixed to variable interest rate swaps expiring in April 2030, and cross-currency interest rate swaps expiring in April 2030, no longer use LIBOR as a

reference rate.

LIBOR continues to be the reference rate for our variable rate debt, including our revolving credit facility expiring in July 2026, interest rate swaps expiring in November 2025 and August 2027, and the cross-currency interest rate swaps expiring in August 2027.

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

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

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

Recently Issued Accounting Pronouncements — Pending Adoption

The phase out of LIBOR reference rates occurred at different times and began on January 1, 2022.

During 2022 and 2023, we amended our interest rate swaps expiring in November 2025 and August 2027, the cross-currency interest rate swap expiring in August 2027, and our five-year revolving credit facility expiring in July 2026 to no longer use LIBOR.

Our adoption of this standard was completed during 2023.

There was no material impact to our consolidated financial statements associated with adopting this new standard.

Accounting Pronouncements Partially Adopted in 2023

In September 2022, the FASB issued ASU No.

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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.

We include disclosure regarding the key terms of the program and information about obligations outstanding at the end of the reporting period in Note 1.

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

We have not adopted the disclosure requirements regarding the roll forward of the obligation.

The partial adoption of this standard did not have a material impact on our consolidated financial statements.

We do not expect the adoption of the future disclosure requirements will have a material impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements — Pending Adoption

In November 2023, the FASB issued ASU No.

Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures that requires entities to report incremental information about significant segment expenses included in a segment’s profit or loss measure as well as the name and title of the chief operating decision maker.

The guidance also requires interim disclosures related to reportable segment profit or loss and assets that had previously only been disclosed annually.

The new standard is effective for our annual period ending November 30, 2025 and our interim periods during the fiscal year ending November 30, 2026.

The guidance does not affect recognition or measurement in our consolidated financial statements.

In December 2023, the FASB issued ASU No.

Income Taxes (Topic 740):

Improvements to Income Tax Disclosures that requires entities to disclose additional information about federal, state, and foreign income taxes primarily related to the income tax rate reconciliation and income taxes paid.

The new standard also eliminates certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred tax liabilities.

The guidance is effective for our fiscal year ending November 30, 2026.

The guidance does not affect recognition or measurement in our consolidated financial statements.

ACQUISITIONS AND DISPOSITIONS

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

Acquisition of FONA International LLC

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

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

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Total transaction and integration expenses $ — $ 2.2 $ 35.3

We valued finished goods and work-in-process inventory associated with our December 30, 2020, purchase of FONA International, LLC and certain of its affiliates (FONA) and our November 30, 2020 acquisition of Cholula using a net realizable value approach, which resulted in total a step-up of $ 6.3 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.

Disposal of Kitchen Basics

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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;

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Total special charges $ 61.2 $ 51.6 $ 51.1

As of November 30, 2023 and 2022, reserves associated with special charges of $ 25.2 million and $ 26.7 million respectively, are included in "Other accrued liabilities" in our consolidated balance sheet.

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

During 2023, we recorded $ 61.2 million of special charges, consisting principally of $ 42.8 million associated with our GOE program, as more fully described below, $ 8.7 million associated with the transition of a manufacturing facility in EMEA, as more fully described below, and streamlining actions of $ 8.8 million in the Americas region, and $ 0.9 million in the EMEA region.

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

voluntary retirement program, as more fully described below.

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

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

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

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

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

In 2022, our Management Committee approved the GOE program.

The GOE program included 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.

As of November 30, 2022, we had 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, we accrued an additional $ 19.7 million during the first quarter of 2023.

All related payments were made in fiscal year 2023 as all of the affected employees retired from the company in 2023.

Other special charges recognized during the year ended November 30, 2023, under our GOE program included $ 13.4 million in severance and related benefits costs and $ 9.7 million of third-party expenses and other costs.

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.

As a result, during the year ended November 30, 2022, 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.

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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 2023, we recognized $ 1.6 million in accelerated depreciation and $ 7.1 million in third party expenses and other costs.

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.

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 Business Services (GBS) operating model initiative, together with a non-cash asset impairment charge of $ 6.0 million associated with an administrative site that was sold in conjunction with our decision to employ a hybrid work environment.

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

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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.

We also recognized $ 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.

GOODWILL AND INTANGIBLE ASSETS

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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 $ 34.9 million, $ 35.1 million and $ 35.6 million for 2023, 2022 and 2021, respectively.

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

Increase from acquisition — — — 389.7

Changes in preliminary purchase price allocation — — 0.5 0.3

Decrease from sale of business (1)

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(1) The 2022 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.

INVESTMENTS IN AFFILIATES

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(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 3.45 % .

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

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

by interest rate swaps through 2025.

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

Separately, t he fixed interest rate on $ 100 million of the 3.25 % notes due in 2025 is effectively converted to a variable rate by interest rate swaps through 2025.

Net interest payments are based on USD SOFR plus 1.487 % (previously U.S.

three-month LIBOR plus 1.22 %) with an effective variable rate of 6.94 % as of November 30, 2023.

(2) 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.

Separately, 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 USD SOFR plus 0.907 % (previously U.S.

three-month LIBOR plus 0.685 %) with an effective rate of 6.32 % as of November 30, 2023.

(3) 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.

Separately, 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 6.13 % as of November 30, 2023.

(4) Treasury lock agreements, settled upon issuance of these notes, effectively set the interest rate on these $ 500 million notes at a weighted-average fixed rate of 5.00 %.

(5) Includes unamortized discounts, premiums and debt issuance costs of $( 25.4 ) million and $( 25.9 ) million as of November 30, 2023 and 2022, respectively.

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Thereafter 1,865.6

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.

In April 2023, we issued $ 500 million aggregate principal amount of 4.950 % unsecured senior notes due 2033.

Interest is payable semi-annually in April and October of each year, beginning on October 15, 2023.

As part of the issuance of new debt, we entered and settled treasury locks in a notional amount of $ 250.0 million to manage our interest rate risk associated with the issuance of the unsecured senior notes.

We designated the treasury lock

arrangements as cash flow hedges with the realized loss of $ 2.6 million to be amortized to interest expense over the life of the underlying debt.

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 %.

Upon entering into the June 2023 364 -day $ 500 million revolving credit facility, we simultaneously cancelled the 364 -day $ 500 million revolving credit facility which was set to expire in July 2023.

In the second quarter of 2023, we amended our five -year revolving credit facility expiring in June 2026 to no longer use LIBOR.

The current pricing for the five -year credit facility, on a fully drawn basis, is SOFR plus 1.25 % (previously 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 SOFR plus 1.75 % (previously LIBOR plus 1.75 %).

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

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

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

In 2023, we executed a nonrecourse accounts receivable sale program whereby certain eligible U.S.

receivables are sold to third party financial institution in exchange for cash.

The program provides us with an additional means for managing liquidity.

Under the terms of the arrangement, we act as the collecting agent on behalf of the financial institution.

We account for the transfer of receivables as a sale at the point control is transferred through derecognition of the receivable on our consolidated balance sheet.

The outstanding amount of receivables sold under this program were approximately $ 19.6 million at November 30, 2023.

The incremental costs of factoring receivables under this arrangement were insignificant in 2023.

The proceeds from the sales of receivables are included in cash flows from operating activities on the consolidated cash flow statement.

As collecting agent on the sold receivables, we had $ 1.6 million of cash collected that was not yet remitted to the third party financial institution as of November 30, 2023.

This obligation is reported within other accrued liabilities on the consolidated balance sheet as of November 30, 2023 and within cash flows from financing activities on the consolidated cash flow statement.

At November 30, 2023, we had no outstanding guarantees with terms of one year or less.

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

Our lease agreements

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

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

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

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Net lease cost (1)

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

$ 87.5 $ 60.1 $ 58.3

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

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

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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.

As of November 30, 2023, the total ROU asset associated with this facility was $ 64.9 million with a related lease obligation of $ 68.0 million, of which $ 16.2 million was included in the other accrued liabilities and $ 51.8 million was included in other long-term liabilities.

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 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.

During the years ended November 30, 2023 and 2022, we recognized $ 27.9 million and $ 5.2 million, respectively, of rent expense 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.

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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 %.

As of November 30, 2023 and 2022, we had cross currency interest rate swap contracts of (i) $ 250 million notional value to receive $ 250 million at USD SOFR plus 0.907 % 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 %).

In conjunction with the phase-out of LIBOR, during 2023 we amended the terms of this cross currency swap such that, effective February 15, 2023, we pay and receive at USD SOFR plus 0.907 % (previously USD LIBOR plus 0.685 %).

As of November 30, 2023, 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.

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

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

As of November 30, 2023 and 2022, we have outstanding interest rate swap contracts for a notional amount of $ 600 million.

The following is a summary of our outstanding interest rate swaps as of November 30, 2023 and 2022 ($ amounts in millions).

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Receive rate 3.25 % 3.40 % 2.50 %

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

Pay rate SOFR + 1.487% (1)

SOFR + 0.907% (2)

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.

(1) We amended our $ 100 million interest rate swaps which expire in November 2025 such that, effective February 15, 2023, we pay and receive at USD SOFR plus 1.487 % (previously U.S.

three-month LIBOR plus 1.22 %).

(2) We amended our $ 250 million interest rate swaps which expire in August 2027 such that, effective February 15, 2023, we pay and receive at USD SOFR plus 0.907 % (previously U.S.

three-month LIBOR plus 0.685 %).

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

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Bonds and other long-term investments 5.1 5.1 —

Interest rate derivatives 23.1 — 23.1

Foreign currency derivatives 11.0 — 11.0

1 unchanged sentence

Total $ 504.6 $ 339.1 $ 165.5

Interest rate derivatives $ 42.4 $ — $ 42.4

Foreign currency derivatives 1.5 — 1.5

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$ ( 388.6 ) $ ( 480.6 )

(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.

(1) During the year ended November 30, 2023, the foreign currency translation adjustment of accumulated other comprehensive loss decreased on a net basis by $( 99.6 ) million, inclusive of $( 18.4 ) million of unrealized losses associated with net investment hedges.

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.

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Amortization of pension and postretirement benefit adjustments:

Amortization of prior service (credits) costs (2)

Amortization of prior service costs (2)

$ 0.3 $ 0.3 $ 0.3 Other income, net

Amortization of net actuarial losses (2)

Amortization of net actuarial (gains) losses (2)

( 2.1 ) 9.9 13.9 Other income, net

41 unchanged sentences

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

Amortization of net actuarial loss (gain) 0.2 8.6 11.0 ( 0.1 ) 1.3 2.2

Settlement loss — — — — 0.3 0.7

7 unchanged sentences

Interest costs 36.1 26.3 9.9 7.0

Plan amendments — — — 0.5

Plan settlements — — ( 0.1 ) —

Actuarial (gain) loss ( 34.7 ) ( 221.2 ) ( 11.1 ) ( 101.7 )

58 unchanged sentences

International equity securities (b)

147.0 136.2 10.8

Fixed income securities:

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Real estate (g)

27.6 23.1 4.5

Natural resources (h)

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Private debt funds (l)

Real estate (m)

Total investments $ 630.7

4 unchanged sentences

International equity securities (b)

112.6 — 112.6

Fixed income securities:

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Insurance contracts (f)

Real estate (g)

Total investments $ 267.0 $ 10.6 $ 256.4

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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.

(d) This category comprises funds consisting of a variety of fixed income securities with varying benchmark indices.

(e) This category comprises funds consisting of international government/corporate bonds and other fixed income securities with varying benchmark indices.

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(g) This category comprises funds investing in real estate investment trusts (REIT).

An appropriate benchmark is the MSCI U.S.

Appropriate benchmarks are the MSCI U.S.

REIT Index and the MSCI REALPAC Canada Property Index, for the U.S.

and International holdings, respectively.

(h) This category comprises funds investing in natural resources.

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These funds typically have redemption periods of approximately 10 years.

(m) This category comprises private real estate funds.

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 have no redemption restrictions.

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.

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.

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At the participants' election, 401(k) retirement plans held 2.3 million shares of McCormick stock, with a fair value of $ 147.0 million, at November 30, 2023.

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

Dividends paid on the shares held in the 401(k) retirement plans in 2023 and 2022 were $ 3.8 million and $ 3.9 million, respectively.

Postretirement Benefits Other Than Pensions

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They are eligible for coverage on an access-only basis.

Our other postretirement benefit expense (income) for the years ended November 30 follows:

Our other postretirement benefit expense for the years ended November 30 follows:

(millions) 2023 2022 2021

3 unchanged sentences

Amortization of actuarial gains ( 2.2 ) ( 0.3 ) —

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

Postretirement benefit expense $ 1.4 $ 2.9 $ 3.3

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:

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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.

restricted stock units (RSUs), stock options, company stock awarded as part of our long-term performance plan (LTPP), and price-vested stock options.

Total stock-based compensation expense for 2023, 2022 and 2021 was $ 63.4 million, $ 60.3 million and $ 66.6 million, respectively.

Total unrecognized stock-based compensation expense related to our RSUs and stock options at November 30, 2023 was $ 22.7 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.

All stock-based compensation expense related to our price-vested stock options was fully recognized as of November 30, 2023.

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.

As of November 30, 2023, we have 4.6 million shares remaining available for future issuance under our stock-based compensation programs.

The following summarizes the key terms, a summary of activity, and the methods of valuation for each of our stock-based compensation awards.

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Exercisable—end of year 4.0 $ 64.74 3.5 $ 58.03 3.6 $ 51.51

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.

As of November 30, 2023, the intrinsic value (the difference between the exercise price and the market price) for options currently outstanding and exercisable was $ 32.2 million.

At November 30, 2023 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.

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LTPP awards granted in 2023, 2022 and 2021 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.

These awards are valued based on the fair value of the underlying stock and the estimated fair value associated with the total shareholder return on the date of grant.

A summary of the LTPP award activity for the years ended November 30 follows:

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Valuation allowance release ( 0.4 ) ( 0.6 ) ( 0.5 )

Intra-entity asset transfer — — ( 1.1 )

research credits ( 1.5 ) ( 1.0 ) ( 0.8 )

Other, net 0.4 1.5 1.0

8 unchanged sentences

Lease liabilities 13.6 18.1

Research expenditures 31.4 —

Other 27.7 22.7

9 unchanged sentences

At November 30, 2023, 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.

foreign tax credit carryforwards of $ 6.5 million, $ 3.9 million, $ 4.2 million and $ 3.2 million which expire in 2030, 2031, 2032, and 2033, respectively.

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

22 unchanged sentences

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.

We believe that the reasonably possible total amount of unrecognized tax benefits as of November 30, 2023 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.

We file income tax returns in the U.S.

10 unchanged sentences

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

On 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;

24 unchanged sentences

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.

We also exclude 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.

3 unchanged sentences

Sales to one of our consumer segment customers, Wal-Mart Stores, Inc., accounted for approximately 12 %, 12 % and 11 % of consolidated sales in 2023, 2022, and 2021, respectively.

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

Sales to one of our flavor solutions segment customers, PepsiCo, Inc., accounted for approximately 13 % of consolidated sales in 2023, and approximately 11 % of consolidated sales in both 2022 and 2021.

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

7 unchanged sentences

Net sales $ 3,807.3 $ 2,854.9 $ 6,662.2 $ — $ 6,662.2

Operating income excluding special charges and transaction and integration expenses 710.7 206.7 917.4 — 917.4

Operating income excluding special charges 735.5 288.7 1,024.2 — 1,024.2

Income from unconsolidated operations 54.7 1.7 56.4 — 56.4

17 unchanged sentences

(millions) Consumer Flavor Solutions Total

Operating income excluding special charges $ 735.5 $ 288.7 $ 1,024.2

Special charges 35.8 25.4 61.2

Operating income $ 699.7 $ 263.3 $ 963.0

Operating income excluding special charges and transaction and integration

10 unchanged sentences

Operating income $ 756.9 $ 258.2 $ 1,015.1

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

Special charges 5.5 1.4 6.9

Transaction and integration expenses 7.5 4.9 12.4

Operating income $ 767.9 $ 231.6 $ 999.5

Total segment operating income as disclosed in the preceding table represents our consolidated operating income.

The reconciliation of that operating income to income from consolidated operations before income taxes, which includes interest expense and other income, net is presented on the consolidated income statement.

Geographic Areas

10 unchanged sentences

Long-lived assets include property, plant and equipment, goodwill and intangible assets, net of accumulated depreciation and amortization.

Product Categories

Our net sales by product categories consist of the following:

For the year ended November 30 (millions) 2023 2022 2021

Consumer segment:

Spices & seasoning $ 1,578.3 $ 1,538.7 $ 1,680.8

Recipe mixes 430.5 428.0 433.2

Condiments & sauces 921.0 858.2 800.1

Regional leaders 877.5 933.0 1,023.4

Flavor solutions segment:

Flavors 1,585.7 1,420.6 1,262.7

Branded foodservice 598.4 552.9 490.8

Custom condiments 317.1 280.8 297.0

Coatings, bulk spices & herbs 353.7 338.3 329.9

Total net sales $ 6,662.2 $ 6,350.5 $ 6,317.9

SUPPLEMENTAL FINANCIAL STATEMENT DATA

2 unchanged sentences

Other income, net

Gain on sale of business (1)

Gain (loss) on sale of business (1)

$ ( 1.2 ) $ 49.6 $ —

51 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data