MCCORMICK & CO INC 10-Q

ITEM 1. LEGAL PROCEEDINGS There are no material pending legal proceedings in which we or our subsidiaries is a party or in which any of our or their property is the subject. ITEM 1.A RISK FACTORS There have been no material changes in our risk factors from those disclosed in Part I, Item 1A to our Annual Report on Form 10-K for the fiscal year ended November 30, 2025, except as follows. Risks Related to Our Company, Business and Operations The conflict between the United States, Israel, and Iran and related geopolitical instability may adversely affect our business. In February 2026, the United States and Israel launched coordinated military strikes against Iran, which retaliated with missile attacks across the region. Although we do not have material operations in the Middle East, the ongoing conflict and any further escalation, including additional military actions, retaliatory measures, sanctions, disruptions to trade or transportation routes, 43 Table of Contents cyberattacks, or other governmental or market responses, has and could continue to lead to significant disruption of global energy supplies and increases in global energy prices, heighten inflationary pressures on our input costs and supply chain, adversely affect global supply chains, energy markets, commodity prices, currency exchange rates, financial markets and overall macroeconomic conditions, and adversely impact customer spending patterns in markets in which we operate. While we expect the impacts of conflict between the United States, Israel, and Iran to continue to have an effect on our business, financial condition and results of operations, we are unable to predict the extent or nature of these impacts at this time. Risks Relating to the Proposed Transaction We may fail to complete the proposed transaction or may not complete it on the terms described herein or in our other filings with the SEC. The proposed transaction is subject to the satisfaction or waiver of customary closing conditions, including, among other things, approval by the requisite vote of our shareholders of the issuance of our voting and non-voting stock in connection with the transaction and an amendment to our charter, the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, obtaining certain other regulatory approvals, and the effectiveness of a registration statement on Form S-4 to be filed by us. As a result, the possible timing and likelihood of completion are uncertain and, accordingly, there can be no assurance that the proposed transaction will be completed on the anticipated schedule, if at all. Any delay in completing the proposed transaction could cause us not to realize some or all of the anticipated benefits when expected, if at all. If the proposed transaction is not completed, we could be subject to a number of risks that may adversely affect our business and operating results, including, among other things: • our stock price could decline to the extent it reflects an assumption that we will complete the proposed transaction; • our incurrence of significant transaction costs that we would be unable to recoup; • under certain specified circumstances we could be required to pay Unilever a termination fee, as more fully described in the Merger Agreement; • we may be subject to litigation related to any failure to complete the proposed transaction or related to any enforcement proceeding commenced against us to perform our obligations under the Merger Agreement; and • negative publicity and other negative impacts on our relationships with customers, suppliers, and employees resulting from failure to complete the proposed transaction. In addition, the terms of the definitive agreements governing the proposed transaction, including, but not limited to, a stockholders’ agreement, a transition services agreement, a tax matters agreement and certain intellectual property and asset purchase agreements, to be entered into by us at closing, have not been finalized and remain subject to negotiation. The final terms of such agreements may differ materially from those described herein and in our other filings with the SEC. There can be no assurance that the parties will reach agreement on mutually acceptable final terms for all definitive agreements, or that the definitive agreements, once executed, will reflect the economic or legal terms currently anticipated or described herein. The proposed transaction is subject to the receipt of governmental approvals that may impose conditions that could have an adverse effect on us or, if not obtained, could prevent completion of the proposed transaction. Completion of the proposed transaction is conditioned upon the receipt of certain governmental authorizations, consents, or other approvals, including certain antitrust approvals and any foreign investment approvals. There can be no assurance that these approvals will be obtained and that the other conditions to completing the proposed transaction will be satisfied. In addition, the governmental authorities from which these approvals are required may impose conditions on the completion of the proposed transaction or require changes to the terms of the proposed transaction or agreements to be entered into in connection with the proposed transaction, including the divestiture of certain businesses or assets. Such conditions or changes and the process of obtaining these approvals could have the effect of delaying or impeding completion of the proposed transaction or of imposing additional costs or limitations on us following completion of the proposed transaction, and could jeopardize or delay completion of the proposed transaction or reduce the anticipated benefits of the proposed transaction, any of which might have an adverse effect on our business, operating results and financial condition. The pendency of the proposed transaction may adversely affect our business and operations. While the proposed transaction is pending, uncertainty about the effect of the proposed transaction on our employees, customers, suppliers, and other business relationships may adversely affect our business and operations. Such uncertainty may impair our ability to retain and motivate key personnel, and our current and prospective customers and suppliers may defer decisions concerning us, or seek to change or terminate existing relationships with us. In addition, the Merger Agreement restricts us from taking certain actions outside the ordinary course of business prior to closing, including, among other things, certain acquisitions, certain amendments to material contracts, and non-ordinary course changes to compensation arrangements, 44 Table of Contents in each case without the consent of Unilever. These restrictions may prevent us from pursuing business opportunities or taking actions with respect to our business that we would otherwise consider advisable, and may adversely affect our ability to attract and retain key employees prior to the closing of the proposed transaction. Any of these factors could adversely affect our business, operating results and financial condition. Failure to realize the benefits expected from the proposed transaction could adversely affect our business, operating results and financial condition. The anticipated benefits we expect from the proposed transaction are based on projections and assumptions about our combined business with Unilever Foods, which may not materialize as expected or which may prove to be inaccurate. We may encounter risks, costs and expenses associated with any undisclosed or other unanticipated liabilities and use more cash and other financial resources on integration and implementation activities than we expect, including as a result of any adjustments to the terms of the proposed transaction and any changes to the configuration of the businesses included in the separation. Our business, operating results and financial condition could be adversely affected if we are unable to realize the anticipated benefits from the proposed transaction on a timely basis, if at all, including, among other things, realizing the anticipated synergies from the proposed transaction in the anticipated amounts or within the anticipated timeframes or cost expectations, if at all. Achieving the benefits of the proposed transaction will depend, in part, on our ability to integrate the business and operations of Unilever Foods successfully and efficiently with our business. The challenges involved in this integration, which may be complex and time-consuming, include, among others, the following: • preserving customer and supplier and other important relationships of Unilever Foods and attracting new business and operational relationships; • coordinating and integrating independent research and development and commercial teams across product platforms to enhance product development while reducing costs; • integrating financial forecasting and controls, procedures and reporting cycles; • consolidating and integrating corporate, IT, finance and administrative infrastructures, including addressing the possibility of incompatibility between the two companies’ information technology systems; • coordinating sales and marketing efforts to effectively position the combined company’s capabilities and the direction of product development; • integrating Unilever Foods’ operations and product lines; • obligations that we will have to counterparties of Unilever Foods that arise as a result of the change in control of Unilever Foods; • integrating employees and related HR systems and benefits, maintaining employee productivity and retaining key employees; • harmonizing standards, controls, procedures, accounting policies, compensation structures and corporate cultures across the combined organization; • aligning regulatory, quality, safety and sustainability practices across the combined organization, including with respect to Unilever Foods’ international operations; and • addressing contingent and unknown liabilities of Unilever Foods, including those that may not have been identified during due diligence. If we do not successfully manage these issues and the other challenges inherent in integrating an acquired business, then we may not achieve the anticipated benefits of the proposed transaction on our anticipated timeframe, if at all, and additional integration costs may dilute the earnings per share of the combined company, and our business, revenue, expenses, operating results, financial condition and stock price could be materially adversely affected. The successful completion of the proposed transaction and the integration of the Unilever Foods business will require significant management attention both before and after the completion of the proposed transaction, and may divert the attention of management from our normal business operations. As a result of the proposed transaction, we anticipate that the scope and size of our operations and business will substantially change and will result in certain incremental risks to us, including increased competition. We anticipate that the proposed transaction will substantially expand the scope and size of our business by adding substantial assets and operations to our existing business. The anticipated future growth of our business will impose significant added responsibilities on management, including, among other things, the need to identify, recruit, train and integrate additional employees. Our senior management’s attention may be diverted from the management of our business and its daily operations to the completion of the proposed transaction and the integration of the assets acquired in the proposed transaction. Further, the proposed transaction could also create uncertainty for our or Unilever Foods’ employees and customers, particularly during the post-closing integration process. It could also disrupt existing business relationships, make it more difficult to develop new business relationships, or otherwise negatively impact the way that we operate our business. 45 Table of Contents We also anticipate that the proposed transaction will result in increased competition. We and Unilever Foods operate in a highly competitive food industry and competition in our combined product categories is based on price, product innovation, product quality, brand recognition and loyalty, effectiveness of marketing and promotional activity, and the ability to identify and satisfy consumer preferences. Weak economic conditions, recessions, significant inflation and other factors could further intensify these competitive pressures, and may result in decreased sales volumes, price reductions and/or increased operating costs, and could result in lower revenues, margins and net income for the combined company. These impacts could also result in our failure to realize expected synergies or cost savings as a result of the proposed transaction. The proposed transaction could increase the competition we face in certain categories and regions. In addition, the completion of the proposed transaction may heighten the potential adverse effects on our business, operating results or financial condition described elsewhere in the Risk Factors in this Quarterly Report. Our significant debt may limit our financial flexibility following the proposed transaction. We expect to incur a substantial amount of debt in connection with the proposed transaction and have entered into the Bridge Commitment Letter providing for the Bridge Facility in an aggregate principal amount of up to $15.7 billion for the purpose of financing all or a portion of the cash consideration to be paid in the proposed transaction and paying related fees and expenses in connection with the proposed transaction and the other transactions contemplated by the Merger Agreement. We anticipate replacing some or all of the Bridge Facility commitments on or prior to closing with Permanent Financing. See "Bridge Commitment Letter and Financing Arrangements" in the notes to our accompanying condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information. In addition to direct transaction costs, we expect to incur substantial transition and integration-related costs following the closing of the proposed transaction, the incurrence of which, together with additional indebtedness, could adversely affect our credit rating, cash flows, operating results, and ability to return capital to shareholders. Our ability to obtain and the terms of the Permanent Financing will depend on, among other factors, prevailing market conditions and other factors beyond our control. There can be no assurance that we will be able to obtain the Permanent Financing on terms acceptable to us or at all, in which case we may need to draw on the Bridge Facility to fund the cash consideration and related fees and expenses at closing of the proposed transaction. Our obligation to complete the proposed transaction is not conditioned upon the receipt of any financing. Following the proposed transaction, the substantial indebtedness incurred in connection with the proposed transaction could have adverse effects on our business, operating results and financial condition, including, among other things: • increasing our vulnerability to changing economic, regulatory and industry conditions; • limiting our ability to compete and our flexibility in planning for, or reacting to, changes in our business and the industry; • placing us at a competitive disadvantage compared to our competitors with less indebtedness; • increasing our interest expense and potentially requiring us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of cash to fund our business needs; • limiting our ability to borrow additional funds in the future to fund growth, acquisitions, working capital, capital expenditures or other purposes; and • limiting our ability to pursue other strategic opportunities or acquisitions that might otherwise be beneficial to us and our shareholders. Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness following the proposed transaction will depend on, among other factors, our financial position and performance as well as prevailing market conditions and other factors beyond our control. Our combined business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures and meet other liquidity needs. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital or debt refinancing on terms less favorable to us than our existing indebtedness. In the event we are unable to complete any of the foregoing, we may default on our debt obligations which, if not cured or waived, could accelerate the repayment obligations under all of our outstanding debt, which could have a material adverse effect on our business, operating results or financial condition. See also "Increases in interest rates or changes in our credit ratings may negatively impact us" and "Our credit ratings impact the cost and availability of future borrowings and, accordingly, our cost of capital" in Part I, Item 1A (Risk Factors) to our Annual Report on Form 10-K for the fiscal year ended November 30, 2025. In addition, the level and quality of our earnings, operations, business and management, among other things, will impact the determination of our credit ratings by credit rating agencies. A decrease in the ratings assigned to us may negatively impact our access to the debt capital markets and increase our cost of borrowing. There can be no assurance that we will be able to obtain 46 Table of Contents any future required financing on acceptable terms, if at all. In addition, there can be no assurance that we will be able to maintain the current credit worthiness or prospective credit rating of the combined company. Any actual or anticipated changes, or adverse conditions in the debt capital markets, could: • adversely affect the trading price of, or market for, our debt securities; • increase interest expense under our existing debt; • increase the cost of, and adversely affect our ability to refinance, our existing debt; and • adversely affect our ability to raise additional debt. The issuance of our common stock in connection with the proposed transaction will dilute the ownership interests of our existing shareholders. Investors holding our shares prior to the completion of proposed transaction will, in the aggregate, have a significantly reduced ownership and voting interest in the combined company after the proposed transaction and will exercise less influence over management. As a result of the proposed transaction, and subject to Unilever not electing to dispose of its interest in the combined company under the Merger Agreement, our existing shareholders are expected to own approximately 35.0% of the combined company, with current Unilever shareholders expected to own approximately 55.1% and Unilever retaining approximately 9.9%, subject to a one-year lock-up period. This significant dilution in ownership will reduce the ability of holders of our voting securities to influence our management and policies after closing of the proposed transaction, and could have an adverse effect on the trading price of our securities.