MCCORMICK & CO INC 10-Q

ITEM 1. FINANCIAL STATEMENTS McCORMICK & COMPANY, INCORPORATED CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED) (in millions except per share amounts) Three months ended February 28, 2025 February 29, 2024 Net sales $ 1,605.5 $ 1,602.7 Cost of goods sold 1,001.5 1,003.4 Gross profit 604.0 599.3 Selling, general and administrative expense 378.8 361.6 Special charges — 4.2 Operating income 225.2 233.5 Interest expense 48.5 50.3 Other income, net 9.8 11.1 Income from consolidated operations before income taxes 186.5 194.3 Income tax expense 41.6 49.6 Net income from consolidated operations 144.9 144.7 Income from unconsolidated operations 17.4 21.3 Net income $ 162.3 $ 166.0 Earnings per share – basic $ 0.60 $ 0.62 Earnings per share – diluted $ 0.60 $ 0.62 Average shares outstanding – basic 268.3 268.4 Average shares outstanding – diluted 269.5 269.6 Cash dividends paid per share – voting and non-voting $ 0.45 $ 0.42 See notes to condensed consolidated financial statements (unaudited). 4 Table of Contents McCORMICK & COMPANY, INCORPORATED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) (in millions) Three months ended February 28, 2025 February 29, 2024 Net income $ 162.3 $ 166.0 Net income attributable to non-controlling interest 1.1 2.1 Other comprehensive income (loss): Unrealized components of pension and other postretirement plans ( 1.0 ) ( 0.2 ) Currency translation adjustments ( 33.9 ) ( 2.0 ) Change in derivative financial instruments 2.3 ( 3.3 ) Tax (expense) benefit ( 1.0 ) 0.4 Total other comprehensive loss, net of tax ( 33.6 ) ( 5.1 ) Comprehensive income $ 129.8 $ 163.0 See notes to condensed consolidated financial statements (unaudited). 5 Table of Contents McCORMICK & COMPANY, INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEET (in millions) February 28, 2025 November 30, 2024 (unaudited) ASSETS Cash and cash equivalents $ 102.8 $ 186.1 Trade accounts receivable, net of allowances 516.9 587.4 Inventories, net Finished products 607.9 618.3 Raw materials and work-in-process 637.7 621.6 1,245.6 1,239.9 Prepaid expenses and other current assets 147.4 125.6 Total current assets 2,012.7 2,139.0 Property, plant and equipment, net 1,392.9 1,413.0 Goodwill 5,206.1 5,227.5 Intangible assets, net 3,308.1 3,318.9 Other long-term assets 980.0 971.9 Total assets $ 12,899.8 $ 13,070.3 LIABILITIES AND SHAREHOLDERS’ EQUITY Short-term borrowings $ 456.9 $ 483.1 Current portion of long-term debt 755.1 265.2 Trade accounts payable 1,161.9 1,238.1 Other accrued liabilities 728.0 896.4 Total current liabilities 3,101.9 2,882.8 Long-term debt 3,095.7 3,593.6 Deferred taxes 830.0 840.5 Other long-term liabilities 422.5 436.6 Total liabilities 7,450.1 7,753.5 Shareholders’ equity Common stock 588.5 587.6 Common stock non-voting 1,664.8 1,649.6 Retained earnings 3,694.3 3,545.0 Accumulated other comprehensive loss ( 524.6 ) ( 491.2 ) Total McCormick shareholders’ equity 5,423.0 5,291.0 Non-controlling interests 26.7 25.8 Total shareholders’ equity 5,449.7 5,316.8 Total liabilities and shareholders’ equity $ 12,899.8 $ 13,070.3 See notes to condensed consolidated financial statements (unaudited). 6 Table of Contents McCORMICK & COMPANY, INCORPORATED CONDENSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED) (in millions) Three months ended February 28, 2025 February 29, 2024 Operating activities Net income $ 162.3 $ 166.0 Adjustments to reconcile net income to net cash flow provided by operating activities: Depreciation and amortization 53.8 45.8 Stock-based compensation 20.0 11.7 Deferred income tax benefit ( 9.2 ) ( 2.8 ) Income from unconsolidated operations ( 17.4 ) ( 21.3 ) Changes in operating assets and liabilities Trade accounts receivable 65.2 16.5 Inventories ( 11.7 ) ( 2.3 ) Trade accounts payable ( 70.9 ) 14.4 Other assets and liabilities ( 84.9 ) ( 116.0 ) Dividends from unconsolidated affiliates 8.3 26.4 Net cash flow provided by operating activities 115.5 138.4 Investing activities Capital expenditures (including software) ( 37.1 ) ( 62.0 ) Other investing activities — 0.2 Net cash flow used in investing activities ( 37.1 ) ( 61.8 ) Financing activities Short-term borrowings (repayments), net ( 25.9 ) 57.3 Long-term debt repayments ( 11.5 ) ( 14.1 ) Proceeds from exercised stock options 6.7 4.4 Taxes withheld and paid on employee stock awards ( 6.7 ) ( 4.9 ) Common stock acquired by purchase ( 17.2 ) ( 0.3 ) Dividends paid ( 120.7 ) ( 112.7 ) Other financing activities 20.1 2.6 Net cash flow used in financing activities ( 155.2 ) ( 67.7 ) Effect of exchange rate changes on cash and cash equivalents ( 6.5 ) 2.5 (Decrease) increase in cash and cash equivalents ( 83.3 ) 11.4 Cash and cash equivalents at beginning of period 186.1 166.6 Cash and cash equivalents at end of period $ 102.8 $ 178.0 See notes to condensed consolidated financial statements (unaudited). 7 Table of Contents McCORMICK & COMPANY, INCORPORATED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) (in millions) (millions) Common Stock Shares Common Stock Non-Voting Shares Common Stock Amount Retained Earnings Accumulated Other Comprehensive Loss Non-controlling Interests Total Shareholders’ Equity Three months ended February 28, 2025 Balance, November 30, 2024 15.7 252.3 $ 2,237.2 $ 3,545.0 $ ( 491.2 ) $ 25.8 $ 5,316.8 Net income — 162.3 — — 162.3 Net income attributable to non-controlling interest — — — 1.1 1.1 Other comprehensive loss, net of tax — — ( 33.4 ) ( 0.2 ) ( 33.6 ) Stock-based compensation 20.0 — — — 20.0 Shares purchased and retired ( 0.3 ) — ( 11.8 ) ( 13.0 ) — — ( 24.8 ) Shares issued 0.3 0.1 7.9 — — — 7.9 Equal exchange ( 0.2 ) 0.2 — — — — — Balance, February 28, 2025 15.5 252.6 $ 2,253.3 $ 3,694.3 $ ( 524.6 ) $ 26.7 $ 5,449.7 Three months ended February 29, 2024 Balance, November 30, 2023 16.8 251.3 $ 2,199.6 $ 3,249.7 $ ( 388.6 ) $ 22.8 $ 5,083.5 Net income — 166.0 — — 166.0 Net income attributable to non-controlling interest — — — 2.1 2.1 Other comprehensive income (loss), net of tax — — ( 5.1 ) — ( 5.1 ) Stock-based compensation 11.7 — — — 11.7 Shares purchased and retired ( 0.1 ) — ( 3.3 ) ( 2.9 ) — — ( 6.2 ) Shares issued 0.3 — 5.4 — — — 5.4 Equal exchange ( 0.4 ) 0.4 — — — — — Balance, February 29, 2024 16.6 251.7 $ 2,213.4 $ 3,412.8 $ ( 393.7 ) $ 24.9 $ 5,257.4 See notes to condensed consolidated financial statements (unaudited). 8 Table of Contents McCORMICK & COMPANY, INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and notes required by United States Generally Accepted Accounting Principles (GAAP) for complete financial statements. In our opinion, the accompanying condensed consolidated financial statements contain all adjustments, which are of a normal and recurring nature, necessary to present fairly the financial position and the results of operations for the interim periods presented. The results of consolidated operations for the three-month period ended February 28, 2025 are not necessarily indicative of the results to be expected for the full year. Historically, our net sales, net income, and cash flow from operations have been lower in the first half of the fiscal year and higher in the second half of the fiscal year. This historical increase in the second half of the year has largely been due to the consumer business cycle in the U.S., where customers typically purchase more of our products in the fourth quarter due to the Thanksgiving and Christmas holiday seasons. For further information, refer to the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended November 30, 2024. Accounts Payable - Supplier Finance Program As more fully described in our Annual Report on Form 10-K for the year ended November 30, 2024, we participate in a Supply Chain Financing (SCF) program with several global financial institutions (SCF Banks). Under the SCF program, qualifying suppliers may elect to sell their receivables from us to an SCF Bank, enabling participating suppliers to negotiate their receivables sales arrangements directly with the respective SCF Bank. We are not party to those agreements and have no economic interest in a supplier’s decision to sell a receivable. All outstanding amounts related to suppliers participating in the SCF program 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 February 28, 2025 and November 30, 2024, the amounts due to suppliers participating in the SCF program and included in trade accounts payable were approximately $ 385.2 million and $ 417.4 million, respectively. Accounting Pronouncement Partially Adopted In September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-04: Liabilities - Supplier Finance Programs (Topic 450-50): Disclosure of Supplier Finance Program Obligations, that requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose the key terms of the programs and information about obligations outstanding at the end of the reporting period, including a roll-forward of those obligations. The guidance does not affect the recognition, measurement, or financial statement presentation of supplier finance program obligations. We adopted the new standard's requirements to disclose the key terms of the programs and information about obligations outstanding as of November 30, 2023. The standard’s requirement to disclose a roll-forward of obligations outstanding will be effective for our fiscal year ending November 30, 2025. The partial adoption of this standard did not have a material impact on our consolidated financial statements, nor do we expect the adoption of the future disclosure requirements to have a material impact on our consolidated financial statements. Recently Issued Accounting Pronouncements — Pending Adoption In November 2023, the FASB issued ASU No. 2023-07: 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. 2023-09: 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 9 Table of Contents 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. In November 2024, the FASB issued ASU No. 2024-03: Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures that requires more detailed disclosure about certain costs and expenses presented in the income statement, including inventory purchases, employee compensation, selling expense, and depreciation expense. The guidance is effective for our annual period ending November 30, 2028 and our interim periods during the fiscal year ending November 30, 2029. The guidance does not affect recognition or measurement in our consolidated financial statements. 2. SPECIAL CHARGES In our consolidated income statement, we include a separate line item captioned "Special charges" in arriving at our consolidated operating income. Special charges consist of expenses, including related impairment charges, associated with certain actions undertaken to reduce fixed costs, simplify or improve processes, and enhance our competitiveness. These charges 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 President and Chief Executive Officer. Expenses associated with any approved action are classified as special charges upon recognition and monitored on an ongoing basis through completion. Certain ancillary expenses related to these actions, approved by our Management Committee, do not qualify for accrual upon approval but are included as special charges as incurred during the course of the actions. We continue to evaluate changes to our organizational structure to reduce fixed costs, simplify or improve processes, and improve our competitiveness. The following is a summary of special charges recognized in the three months ended February 28, 2025 and February 29, 2024 (in millions): Three months ended February 28, 2025 February 29, 2024 Employee severance and related benefits $ — $ 2.1 Other cash costs — 2.1 Total special charges $ — $ 4.2 During the three months ended February 29, 2024, we recorded $ 4.2 million of special charges, consisting principally of (i) $ 2.8 million associated with our Global Operating Effectiveness (GOE) program, which includes $ 2.1 million in severance and related benefits costs and $ 0.7 million in third-party expenses and other costs, and (ii) $ 1.4 million in third-party expenses and other costs associated with the transition of a manufacturing facility in Europe, Middle East, and Africa (EMEA). Both our GOE program and the EMEA manufacturing facility transition are more fully described in Note 2 of the notes to the consolidated financial statements in our Annual Report on Form 10-K for the year ended November 30, 2024. As of February 28, 2025 and November 30, 2024, reserves associated with special charges of $ 1.0 million and $ 2.7 million are included in "Other accrued liabilities" in our consolidated balance sheet. The following is a breakdown by business segment of special charges for the three months ended February 28, 2025 and February 29, 2024 (in millions): Three months ended February 28, 2025 February 29, 2024 Consumer segment $ — $ 1.8 Flavor solutions segment — 2.4 Total special charges $ — $ 4.2 10 Table of Contents 3. FINANCING ARRANGEMENTS AND FINANCIAL INSTRUMENTS We use derivative financial instruments to enhance our ability to manage risk, including foreign currency, net investment, and interest rate exposures, which exist as part of our ongoing business operations. We do not enter into contracts for trading purposes, nor are we a party to any leveraged derivative instrument, and all derivatives are designated as hedges. We are not a party to master netting arrangements, and we do not offset the fair value of derivative contracts with the same counterparty in our financial statement disclosures. The use of derivative financial instruments is monitored through regular communication with senior management and the use of written guidelines. Foreign currency exchange risk. We are potentially exposed to foreign currency fluctuations affecting net investments in subsidiaries, transactions (both third-party and intercompany), and earnings denominated in foreign currencies. We assess foreign currency risk based on transactional cash flows and translational volatility and may enter into forward contract and currency swaps with highly-rated financial institutions to reduce fluctuations in the long or short currency positions. The following is a summary of the notional amounts of outstanding foreign currency exchange contracts as of February 28, 2025 and November 30, 2024 (in millions): February 28, 2025 November 30, 2024 Fair value hedges $ 878.0 $ 818.1 Cash flow hedge 148.6 216.1 Total $ 1,026.6 $ 1,034.2 All of these contracts were designated as hedges of foreign currency denominated assets or liabilities or hedges of anticipated purchases denominated in a foreign currency. Hedge ineffectiveness was not material. All foreign currency exchange contracts generally have durations of less than 12 months. At February 28, 2025, $ 254.5 million of notional contracts had an initial duration of less than one month and are used to hedge short-term cash flow funding. Contracts which are designated as hedges of foreign currency denominated assets are considered fair value hedges. These foreign currency exchange contracts manage both exposure to currency fluctuations in certain intercompany loans between subsidiaries as well as currency exposure to third-party non-functional currency assets or liabilities. Gains and losses from contracts that are designated as hedges of assets, liabilities, or firm commitments are recognized through income, offsetting the change in fair value of the hedged item. Contracts which are designated as hedges of anticipated purchases denominated in a foreign currency (generally purchases of inventory in U.S. dollars by operating units outside the U.S.) are considered cash flow hedges. The gains and losses on these contracts are deferred in accumulated other comprehensive income until the hedged item is recognized in cost of goods sold, at which time the net amount deferred in accumulated other comprehensive income is also recognized in cost of goods sold. We also utilize cross currency interest rate swap contracts that are designated as net investment hedges. Gains or losses on net investment hedges, exclusive of interest accruals, are included in foreign currency translation adjustments in accumulated other comprehensive loss. We exclude the interest accruals on cross-currency interest rate swap contracts from the assessment and measurement of hedge effectiveness. We recognize the interest accruals on cross-currency interest rate swap contracts within interest expense. Interest rate risk. We finance a portion of our operations with both fixed and variable rate debt instruments, principally commercial paper, notes and bank loans. We utilize interest rate derivative contracts, including interest rate swap agreements, to minimize worldwide financing costs and to achieve a desired mix of variable and fixed rate debt. 11 Table of Contents The following table discloses the notional amount and fair values of derivative instruments on our balance sheet (in millions): Asset Derivatives Liability Derivatives Balance sheet location Notional amount Fair value Balance sheet location Notional amount Fair value As of February 28, 2025 Interest rate contracts Other current assets / Other long-term assets $ — $ — Other accrued liabilities / Other long-term liabilities $ 600.0 $ 35.3 Foreign exchange contracts Other current assets 249.8 7.2 Other accrued liabilities 776.8 15.8 Cross currency contracts Other current assets / Other long-term assets 933.7 44.7 Other accrued liabilities / Other long-term liabilities — — Total $ 51.9 $ 51.1 As of November 30, 2024 Interest rate contracts Other current assets / Other long-term assets $ — $ — Other accrued liabilities / Other long-term liabilities $ 600.0 $ 37.9 Foreign exchange contracts Other current assets 374.4 5.2 Other accrued liabilities 659.8 12.5 Cross currency contracts Other current assets / Other long-term assets 945.5 36.8 Other long-term liabilities — — Total $ 42.0 $ 50.4 The following tables disclose the impact of derivative instruments on our other comprehensive income (OCI), accumulated other comprehensive loss (AOCI), and our consolidated income statement for the three months ended February 28, 2025 and February 29, 2024 (in millions): Fair Value Hedges Derivative Income statement location Expense Three months ended February 28, 2025 Three months ended February 29, 2024 Interest rate contracts Interest expense $ 3.7 $ 5.1 Income statement location Loss recognized in income Income statement location Gain (loss) recognized in income Derivative Three months ended February 28, 2025 Three months ended February 29, 2024 Hedged item Three months ended February 28, 2025 Three months ended February 29, 2024 Foreign exchange contracts Other income, net $ ( 0.6 ) $ ( 2.9 ) Intercompany loans Other income, net $ ( 0.6 ) $ 1.4 T he gains (losses) recognized on fair value hedges relating to currency exposure on third-party non-functional currency assets or liabilities were not material during the three months ended February 28, 2025 and February 29, 2024. 12 Table of Contents Cash Flow Hedges Loss recognized in OCI Income statement location Gain (loss) reclassified from AOCI Derivative Three months ended February 28, 2025 Three months ended February 29, 2024 Three months ended February 28, 2025 Three months ended February 29, 2024 Interest rate contracts $ — $ — Interest expense $ ( 0.1 ) $ ( 0.2 ) Foreign exchange contracts ( 0.8 ) ( 0.2 ) Cost of goods sold ( 0.1 ) 1.3 Total $ ( 0.8 ) $ ( 0.2 ) $ ( 0.2 ) $ 1.1 As of February 28, 2025, the net amount of accumulated other comprehensive loss associated with all cash flow and settled interest rate cash flow hedge derivatives expected to be reclassified in the next 12 months is $ 0.9 million as an increase to earnings. Net Investment Hedges Gain (loss) recognized in OCI Income statement location Gain excluded from the assessment of hedge effectiveness Derivative Three months ended February 28, 2025 Three months ended February 29, 2024 Three months ended February 28, 2025 Three months ended February 29, 2024 Cross currency contracts $ 8.1 $ ( 5.9 ) Interest expense $ 2.5 $ 2.2 For all net investment hedges, no amounts have been reclassified out of accumulated other comprehensive loss. The amounts noted in the tables above for OCI do not include any adjustments for the impact of deferred income taxes. We maintain a nonrecourse accounts receivable sale program whereby certain eligible U.S. receivables are sold to a 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 condensed consolidated balance sheet. The outstanding amounts of receivables sold under this program were $ 257.4 million and $ 106.9 million as of February 28, 2025 and November 30, 2024, respectively. The proceeds from the sales of receivables are included in cash from operating activities in the consolidated statement of cash flows. As collecting agent on the sold receivables, we had $ 29.7 million and $ 9.6 million of cash collected that was not yet remitted to the third-party financial institution as of February 28, 2025 and November 30, 2024, respectively. This obligation is reported within other accrued liabilities on the consolidated balance sheet and within cash flows from financing activities on the consolidated cash flow statement. 4. FAIR VALUE MEASUREMENTS Fair value can be measured using valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). Accounting standards utilize a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: • Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. • Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions. 13 Table of Contents At February 28, 2025 and November 30, 2024, we had no financial assets or liabilities that were subject to a level 3 fair value measurement. Our population of financial assets and liabilities subject to fair value measurements on a recurring basis are as follows (in millions): February 28, 2025 Fair Value Level 1 Level 2 Assets Cash and cash equivalents $ 102.8 $ 102.8 $ — Insurance contracts 120.9 — 120.9 Bonds and other long-term investments 7.3 7.3 — Foreign currency derivatives 7.2 — 7.2 Cross currency contracts 44.7 — 44.7 Total $ 282.9 $ 110.1 $ 172.8 Liabilities Foreign currency derivatives $ 15.8 $ — $ 15.8 Interest rate derivatives 35.3 — 35.3 Total $ 51.1 $ — $ 51.1 November 30, 2024 Fair Value Level 1 Level 2 Assets Cash and cash equivalents $ 186.1 $ 186.1 $ — Insurance contracts 129.2 — 129.2 Bonds and other long-term investments 1.3 1.3 — Foreign currency derivatives 5.2 — 5.2 Cross currency contracts 36.8 — 36.8 Total $ 358.6 $ 187.4 $ 171.2 Liabilities Foreign currency derivatives $ 12.5 $ — $ 12.5 Interest rate derivatives 37.9 — 37.9 Total $ 50.4 $ — $ 50.4 At February 28, 2025 and November 30, 2024, the carrying amounts of interest rate derivatives, foreign currency derivatives, cross currency contracts, insurance contracts, and bond and other long-term investments were equal to their respective fair values. Because of their short-term nature, the amounts reported in the balance sheet for cash and cash equivalents, receivables, short-term borrowings, and trade accounts payable approximate fair value. Investments in affiliates are not readily marketable, and it is not practicable to estimate their fair value. Insurance contracts, bonds, and other long-term investments are comprised of fixed income and equity securities held for certain non-qualified U.S. employee benefit plans and are stated at fair value on the balance sheet. The fair values of insurance contracts are based upon the underlying values of the securities in which they are invested and are from quoted market prices from various stock and bond exchanges for similar type assets. The fair values of bonds and other long-term investments are based on quoted market prices from various stock and bond exchanges. The fair values for interest rate derivatives, foreign currency derivatives, and cross currency contracts are based on values for similar instruments using models with market-based inputs. 14 Table of Contents The following table sets forth the carrying amounts and fair values of our long-term debt including the current portion thereof (in millions): February 28, 2025 November 30, 2024 Carrying amount $ 3,850.8 $ 3,858.8 Level 1 valuation techniques $ 3,570.1 $ 3,557.3 Level 2 valuation techniques 108.3 119.8 Total fair value $ 3,678.4 $ 3,677.1 The fair value for Level 2 long-term debt is determined by using quoted prices for similar debt instruments. 5. EMPLOYEE BENEFIT AND RETIREMENT PLANS We sponsor defined benefit pension plans in the U.S. and certain foreign locations. Additionally, we sponsor defined contribution plans in the U.S. and contribute to defined contribution plans in various locations outside the U.S., including government-sponsored retirement plans. Moreover, we provide postretirement medical and life insurance benefits to certain U.S. employees and retirees. We previously froze the accrual of future benefits under certain defined benefit pension plans in the U.S. and certain foreign locations. Although our defined benefit plans in the U.S., United Kingdom, and Canada have generally been frozen, employees who are participants in the plans retained benefits accumulated up to the date of the freeze, based on credited service and eligible earnings, in accordance with the terms of the plans. The following table presents the components of our pension (income) and other postretirement benefits expense for the three months ended February 28, 2025 and February 29, 2024 (in millions): United States pension International pension Other postretirement benefits 2025 2024 2025 2024 2025 2024 Service cost $ 0.4 $ 0.4 $ 0.2 $ 0.1 $ 0.2 $ 0.2 Interest costs 8.9 9.3 2.5 2.7 0.5 0.6 Expected return on plan assets ( 9.3 ) ( 9.9 ) ( 3.5 ) ( 4.0 ) — — Amortization of prior service costs 0.1 0.1 — — ( 0.1 ) ( 0.1 ) Amortization of net actuarial losses (gains) 0.3 ( 0.1 ) — — ( 0.6 ) ( 0.6 ) Total (income) expense $ 0.4 $ ( 0.2 ) $ ( 0.8 ) $ ( 1.2 ) $ — $ 0.1 During the three months ended February 28, 2025 and February 29, 2024, we contributed $ 1.8 million to our pension plans. Total contributions to our pension plans in fiscal year 2024 were $ 10.0 million. All of the amounts in the tables above for pension (income) and other postretirement benefits expense, other than service cost, were included in other income, net within our consolidated income statements. The net aggregate amount of pension and other postretirement benefits income, excluding service cost components, was $( 1.2 ) million and $( 2.0 ) million for the three months ended February 28, 2025 and February 29, 2024, respectively. 6. STOCK-BASED COMPENSATION We have four types of stock-based compensation awards: restricted stock units (RSUs), stock options, company stock awarded as part of our long-term performance plan (LTPP), and price-vested stock options. The following table sets forth the stock-based compensation expense recorded in selling, general and administrative (SG&A) expense (in millions): Three months ended February 28, 2025 February 29, 2024 Stock-based compensation expense $ 20.0 $ 11.7 Our 2025 annual grant consisted primarily of RSUs and stock awarded under our LTPP and occurred in the first quarter. Our annual grant of stock options and RSUs principally occurred in the second quarter of 2024. Stock options were also granted during the first quarter of 2024. Our annual grant of stock awarded under our LTPP occurred in the first quarter of 2024. Substantially all the stock options and RSUs granted in 2025 and 2024 vest ratably over a three-year period or, if earlier, upon the holder’s retirement eligibility date. Stock awarded under our LTPP vest ratably over a three-year period. 15 Table of Contents The following is a summary of our stock option activity for the three months ended February 28, 2025 and February 29, 2024: 2025 2024 (shares in millions) Number of Shares Weighted- Average Exercise Price Number of Shares Weighted- Average Exercise Price Outstanding at beginning of period 6.1 $ 72.25 5.3 $ 70.43 Granted — — 0.4 65.99 Exercised ( 0.1 ) 49.11 ( 0.1 ) 37.74 Forfeited ( 0.1 ) 84.55 — — Outstanding at end of the period 5.9 $ 72.65 5.6 $ 70.54 Exercisable at end of the period 4.2 $ 70.40 3.9 $ 65.36 As of February 28, 2025, the intrinsic value (the difference between the exercise price and the market price) for all options outstanding was $ 73.4 million and for options currently exercisable was $ 63.5 million. The total intrinsic value of all options exercised during the three months ended February 28, 2025 and February 29, 2024 was $ 3.3 million and $ 2.6 million, respectively. The following is a summary of our RSU activity for the three months ended February 28, 2025 and February 29, 2024: 2025 2024 (shares in thousands) Number of Shares Weighted- Average Grant-Date Fair Value Number of Shares Weighted- Average Grant-Date Fair Value Outstanding at beginning of period 533 $ 73.68 494 $ 76.94 Granted 523 74.74 — — Vested ( 1 ) 77.63 ( 3 ) 92.74 Forfeited ( 6 ) 75.92 ( 9 ) 83.59 Outstanding at end of period 1,049 $ 74.19 482 $ 76.71 There were 2.1 million price-vested stock options with a weighted-average grant-date fair value of $ 9.40 outstanding as of February 28, 2025 and February 29, 2024. The following is a summary of our LTPP activity for the three months ended February 28, 2025 and February 29, 2024: 2025 2024 (shares in thousands) Number of Shares Weighted- Average Grant-Date Fair Value Number of Shares Weighted- Average Grant-Date Fair Value Outstanding at beginning of period 539 $ 83.45 474 $ 94.34 Granted 177 86.92 192 66.49 Vested ( 206 ) 95.00 ( 181 ) 98.30 Forfeited ( 34 ) 79.98 ( 10 ) 91.65 Outstanding at end of period 476 $ 79.97 475 $ 81.53 7. INCOME TAXES Income tax expense for the three months ended February 28, 2025 included $ 5.2 million of net discrete tax benefits consisting principally of a $ 5.0 million net tax benefit resulting from the revaluation of deferred taxes associated with enacted legislation. Income tax expense for the three months ended February 29, 2024 included $ 1.6 million of discrete tax expense consisting principally of $ 1.1 million of tax expense resulting from a state tax matter and $ 0.5 million of tax expense associated with stock-based compensation. Other than additions for current year tax positions, there we re no significant changes to unrecognized tax benefits during the three months ended February 28, 2025. 16 Table of Contents As of February 28, 2025, we believe the reasonably possible total amount of unrecognized tax benefits that could increase or decrease in the next 12 months as a result of various statute expirations, audit closures, and/or tax settlements would not be material to our consolidated financial statements. 8. CAPITAL STOCK AND EARNINGS PER SHARE The following table sets forth the reconciliation of average shares outstanding (in millions): Three months ended February 28, 2025 February 29, 2024 Average shares outstanding – basic 268.3 268.4 Effect of dilutive securities: Stock options/RSUs/LTPP 1.2 1.2 Average shares outstanding – diluted 269.5 269.6 The following table sets forth the stock options and RSUs that were not considered in our earnings per share calculation since they were anti-dilutive (in millions): Three months ended February 28, 2025 February 29, 2024 Anti-dilutive securities 2.6 3.5 The following table sets forth common stock activity (in millions): Three months ended February 28, 2025 February 29, 2024 Shares issued under stock options, RSUs, LTPP and employee stock purchase plans 0.4 0.3 Shares repurchased under the stock repurchase program and shares withheld for taxes under stock options, RSUs, and LTPP 0.3 0.1 As of February 28, 2025, $ 431 million remained of the $ 600 million share repurchase program authorization approved by our Board of Directors in November 2019. 9. ACCUMULATED OTHER COMPREHENSIVE LOSS The following table sets forth the components of accumulated other comprehensive loss, net of tax, where applicable (in millions): February 28, 2025 November 30, 2024 Foreign currency translation adjustment (1) $ ( 426.6 ) $ ( 392.0 ) Unrealized gain on foreign currency exchange contracts 3.7 2.1 Unamortized value of settled interest rate swaps ( 1.4 ) ( 1.6 ) Pension and other postretirement costs ( 100.3 ) ( 99.7 ) Accumulated other comprehensive loss $ ( 524.6 ) $ ( 491.2 ) (1) During the three months ended February 28, 2025, the foreign currency translation adjustment of accumulated other comprehensive loss increased on a net basis by $ 34.6 million, inclusive of $ 8.1 million of unrealized gains associated with net investment hedges. These net investment hedges are more fully described in Note 3. 17 Table of Contents The following table sets forth the amounts reclassified from accumulated other comprehensive income (loss) and into consolidated net income (in millions): Three months ended Affected Line Items in the Condensed Consolidated Income Statement February 28, 2025 February 29, 2024 (Gains)/losses on cash flow hedges: Interest rate derivatives $ 0.1 $ 0.2 Interest expense Foreign exchange contracts 0.1 ( 1.3 ) Cost of goods sold Total before tax 0.2 ( 1.1 ) Tax effect — 0.3 Income tax expense Net, after tax $ 0.2 $ ( 0.8 ) Amortization of pension and postretirement benefit adjustments: Amortization of net actuarial (gains) (1) $ ( 0.3 ) $ ( 0.7 ) Other income, net Total before tax ( 0.3 ) ( 0.7 ) Tax effect 0.1 0.2 Income tax expense Net, after tax $ ( 0.2 ) $ ( 0.5 ) (1) This accumulated other comprehensive income (loss) component is included in the computation of total pension (income) and other postretirement benefits expense (refer to Note 5 for additional details). 10. BUSINESS SEGMENTS We operate in two business segments: consumer and flavor solutions. The consumer and flavor solutions segments manufacture, market and distribute spices, herbs, seasoning mixes, condiments and other flavorful products throughout the world. Our consumer segment sells to retail channels, including grocery, mass merchandise, warehouse clubs, discount and drug stores, and e-commerce under the “McCormick” brand and a variety of brands around the world, including “French’s,” “Frank’s RedHot,” “Lawry’s,” “Zatarain’s,” “Simply Asia,” “Thai Kitchen,” “Ducros,” “Vahiné,” “Cholula,” “Schwartz,” “Club House,” “Kamis,” “DaQiao,” “La Drogheria,” “Stubb’s,” “OLD BAY,” and “Gourmet Garden.” Our flavor solutions segment sells to food manufacturers and the foodservice industry both directly and indirectly through distributors, with the exception of our business in China, where foodservice sales are managed by and reported in our consumer segment. We measure segment performance based on operating income, excluding special charges, as this activity is managed separately from the business segments. Although the segments are managed separately due to their distinct distribution channels and marketing strategies, manufacturing and warehousing are often integrated to maximize cost efficiencies. We do not segregate jointly utilized assets by individual segment for purposes of internal reporting, performance evaluation, or capital allocation. Because of manufacturing integration for certain products within the segments, products are not sold from one segment to another but rather inventory is transferred at cost. Intersegment sales are not material. Consumer Flavor Solutions Total (in millions) Three months ended February 28, 2025 Net sales $ 919.2 $ 686.3 $ 1,605.5 Operating income 146.7 78.5 225.2 Income from unconsolidated operations 16.1 1.3 17.4 Three months ended February 29, 2024 Net sales $ 921.5 $ 681.2 $ 1,602.7 Operating income excluding special charges 176.3 61.4 237.7 Income from unconsolidated operations 21.5 ( 0.2 ) 21.3 18 Table of Contents There were no special charges during the three months ending February 28, 2025. A reconciliation of operating income excluding special charges to operating income for the three months ending February 29, 2024 is as follows: Consumer Flavor Solutions Total (in millions) Operating income excluding special charges $ 176.3 $ 61.4 $ 237.7 Less: Special charges 1.8 2.4 4.2 Operating income $ 174.5 $ 59.0 $ 233.5 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. The following table sets forth our net sales, by geographic area, for the three months ended February 28, 2025 and February 29, 2024 (in millions): Americas EMEA APAC Total Three months ended February 28, 2025 $ 1,118.3 $ 299.5 $ 187.7 $ 1,605.5 Three months ended February 29, 2024 1,117.1 306.7 178.9 1,602.7