PART I [ITEM 1. BUSINESS](index=3&type=section&id=ITEM%201.%20BUSINESS) McCormick is a global leader in flavor, distributing spices, seasoning mixes, and condiments across Consumer and Flavor Solutions segments - McCormick is a global leader in flavor, serving the entire food industry with spices, seasoning mixes, condiments, and other flavorful products[11](index=11&type=chunk) - Acquired FONA International, LLC in December 2020 for approximately **$708 million**, expanding its flavor solutions segment with clean and natural flavors[12](index=12&type=chunk) - Acquired Cholula Hot Sauce in November 2020 for approximately **$801 million**, strengthening its global branded flavor portfolio in the high-growth hot sauce category[13](index=13&type=chunk) 2022 Segment Contribution to Consolidated Net Sales and Operating Income | Segment | Consolidated Net Sales (%) | Consolidated Operating Income (%) | | :---------------- | :------------------------- | :-------------------------------- | | Consumer | 59% | 80% | | Flavor Solutions | 41% | 20% | - Key raw materials (dairy, pepper, onion, capsicums, garlic, wheat, vegetable oils, vanilla) are subject to price and availability fluctuations due to weather, market conditions, and inflation[21](index=21&type=chunk) - Sales to Wal-Mart Stores, Inc. accounted for approximately **12% of consolidated sales** in 2022, and sales to PepsiCo, Inc. accounted for approximately **11% of consolidated sales** in 2022[25](index=25&type=chunk)[26](index=26&type=chunk) - The company had approximately **14,200 full-time employees** worldwide as of November 30, 2022, with a focus on diversity, equity, and inclusion[34](index=34&type=chunk)[36](index=36&type=chunk) - Approximately **38% of sales in fiscal year 2022 were from non-U.S. operations**, exposing the company to global business risks like exchange rate fluctuations and local economic conditions[41](index=41&type=chunk) [ITEM 1A. RISK FACTORS](index=7&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company faces significant risks from global economic conditions, inflation, supply chain disruptions, geopolitical conflicts, and extensive regulations - Global economic conditions, including inflation, rising interest rates, and geopolitical uncertainties (e.g., Russia-Ukraine conflict), can adversely affect customer and consumer spending and demand for products[48](index=48&type=chunk) - The COVID-19 pandemic has caused shifts in consumer behavior, increased raw material costs, and supply chain disruptions, with ongoing uncertainty regarding its future impact[49](index=49&type=chunk)[50](index=50&type=chunk) - Damage to brand reputation, loss of brand relevance, increased private label use, or product quality/safety concerns could negatively impact business, financial condition, or results of operations[52](index=52&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk) - Procurement of raw materials is subject to price and availability fluctuations due to inflationary pressures, weather, climate change, and governmental actions, which may not be fully mitigated by pricing actions or cost savings[60](index=60&type=chunk)[61](index=61&type=chunk) - Labor shortages, increased turnover, and rising labor costs (including transportation) can adversely affect operations and financial results[65](index=65&type=chunk)[66](index=66&type=chunk) - The company's significant indebtedness (approximately **$5.1 billion** as of November 30, 2022) could limit its ability to borrow additional funds, increase exposure to interest rate fluctuations, and impose restrictive covenants[93](index=93&type=chunk)[94](index=94&type=chunk) - IT system failures, data breaches, or cyber-attacks pose risks to operations and reputation, despite existing security programs[103](index=103&type=chunk)[104](index=104&type=chunk) - Extensive global regulations on food products, privacy laws (e.g., GDPR, CCPA), and international operational risks (currency fluctuations, fiscal policies) could increase compliance costs and affect profitability[107](index=107&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk)[113](index=113&type=chunk) - Climate change and related ESG matters (e.g., greenhouse gas emissions, plastic waste) may negatively impact raw material availability, increase costs, and affect reputation if sustainability goals are not met[82](index=82&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk)[87](index=87&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=20&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) There are no unresolved staff comments from the SEC - No unresolved staff comments were reported[116](index=116&type=chunk) [ITEM 2. PROPERTIES](index=20&type=section&id=ITEM%202.%20PROPERTIES) McCormick's principal executive offices and primary research facilities are in suburban Baltimore, Maryland, with numerous global manufacturing and distribution facilities - Principal executive offices and primary research facilities are in suburban Baltimore, Maryland[117](index=117&type=chunk) - Key manufacturing facilities are located in the United States (e.g., Hunt Valley, Gretna, South Bend), Canada (London, Ontario), Mexico (Cuautitlán de Romero Rubio), United Kingdom (Haddenham, Littleborough, Peterborough), France (Carpentras, Monteux), Poland (Stefanowo), Italy (Florence), China (Guangzhou, Shanghai, Wuhan), Australia (Melbourne, Palmwoods), and Thailand (Chonburi)[118](index=118&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk) - The company believes its plants are well-maintained, suitable for their intended use, and generally have adequate capacity or the ability to expand to accommodate seasonal demands, changing product mixes, and additional growth[121](index=121&type=chunk) [ITEM 3. LEGAL PROCEEDINGS](index=22&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) There are no material pending legal proceedings involving McCormick or its subsidiaries - No material pending legal proceedings were reported[122](index=122&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=22&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to McCormick & Company, Incorporated - Mine safety disclosures are not applicable to the registrant[123](index=123&type=chunk) PART II [ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=22&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) McCormick's Common Stock (MKC.V) and Common Stock Non-Voting (MKC) are listed on the NYSE, with share repurchases and exchanges primarily for employee benefit plans - Common Stock (MKC.V) and Common Stock Non-Voting (MKC) are traded on the New York Stock Exchange[124](index=124&type=chunk) Common Stock Market Prices and Holders (December 30, 2022) | Class | Market Price per Share | Approximate Number of Record Holders | | :-------------------- | :--------------------- | :----------------------------------- | | Common Stock | $82.17 | 2,100 | | Common Stock Non-Voting | $82.89 | 9,300 | Issuer Purchases of Equity Securities (Q4 2022) | Period | Class | Shares Purchased | Average Price Paid per Share | | :---------------------- | :---- | :--------------- | :--------------------------- | | Sep 1 - Sep 30, 2022 | CS | 0 | - | | | CSNV | 0 | - | | Oct 1 - Oct 31, 2022 | CS | 0 | - | | | CSNV | 0 | - | | Nov 1 - Nov 30, 2022 | CS | 160,000 | $79.34 | | | CSNV | 0 | - | | **Total** | CS | 160,000 | $79.34 | | | CSNV | 0 | - | - As of November 30, 2022, approximately **$537 million** remained of a **$600 million** share repurchase authorization approved in November 2019[128](index=128&type=chunk) - In fiscal 2022, **1,168,764 shares** of Common Stock Non-Voting were issued in exchange for Common Stock, and **37,024 shares** of Common Stock were issued in exchange for Common Stock Non-Voting, primarily for employee benefit plans[129](index=129&type=chunk) [ITEM 6. [RESERVED]](index=23&type=section&id=ITEM%206.%20%5BRESERVED%5D) This item is reserved and contains no information [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=23&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section reviews McCormick's operations, financial condition, and business environment, detailing recent events, financial results, segment performance, liquidity, and critical accounting estimates - McCormick's long-term annual growth objectives in constant currency are to increase sales **4% to 6%**, adjusted operating income **7% to 9%**, and adjusted earnings per share **9% to 11%**[132](index=132&type=chunk) - Recent events impacting the business include global economic conditions, inflationary costs, supply chain disruption, the COVID-19 pandemic, and the Russia-Ukraine conflict, with elevated cost inflation expected to persist in 2023[133](index=133&type=chunk) - The company plans to eliminate approximately **$125 million of costs** during 2023 and 2024 through its Global Operating Effectiveness Program, including **$100 million in supply chain costs** and **$25 million across the rest of the organization**[138](index=138&type=chunk) - Investments are being made in a multi-year global enterprise resource planning (ERP) replacement program, with a total projected investment of approximately **$400 million** through 2025[150](index=150&type=chunk)[151](index=151&type=chunk) [Overview](index=23&type=section&id=Overview) McCormick is a global flavor leader, aiming for long-term annual growth in sales, adjusted operating income, and adjusted EPS, despite ongoing impacts from global economic conditions and supply chain issues - McCormick is a global leader in flavor, operating in consumer and flavor solutions segments[131](index=131&type=chunk) Long-Term Annual Growth Objectives (Constant Currency) | Metric | Growth Objective | | :---------------------- | :--------------- | | Sales | 4% to 6% | | Adjusted Operating Income | 7% to 9% | | Adjusted Earnings Per Share | 9% to 11% | - Fiscal 2022 operating results were impacted by global economic conditions, inflationary costs, supply chain disruption, COVID-19, and the Russia-Ukraine conflict, with these factors expected to continue influencing 2023 performance[133](index=133&type=chunk) [Recent Events](index=24&type=section&id=Recent%20Events) Recent events, including global economic conditions, inflation, and supply chain disruptions, significantly impacted McCormick's fiscal 2022 results and are expected to continue affecting 2023 - Experienced inflationary cost increases in commodities, packaging, and transportation in fiscal 2021 and 2022, expected to continue in 2023, partially offset by pricing actions and cost savings[135](index=135&type=chunk) - Interest expense is expected to increase in 2023 due to higher interest rates, impacting variable rate debt[136](index=136&type=chunk) - Supply chain pressures, including raw material availability, transportation capacity, and labor shortages, led to a plan to eliminate approximately **$125 million in costs** during 2023-2024 through the Global Operating Effectiveness Program[137](index=137&type=chunk)[138](index=138&type=chunk) - COVID-19 impacted operating results, with a moderation in increased at-home meal preparation in 2022 compared to 2021, and improvements in away-from-home demand, though China experienced negative impacts from resurgences[140](index=140&type=chunk)[141](index=141&type=chunk) Compounded Annual Growth Rate in Net Sales (2019-2022) | Segment | Percentage Change as Reported | Impact of Foreign Currency Exchange | Percentage Change on Constant Currency Basis | | :---------------------- | :---------------------------- | :---------------------------------- | :------------------------------------------- | | Consumer segment | 4.7% | (0.2)% | 4.9% | | Flavor Solutions segment | 7.7% | (0.4)% | 8.1% | | Total net sales | 5.9% | (0.3)% | 6.2% | - The Russia-Ukraine conflict led to the suspension and exit of the consumer business in Russia, increasing global economic and political uncertainty[143](index=143&type=chunk) - Sales growth is expected from base business (brand marketing, category management), new products (innovation in consumer and flavor solutions), and acquisitions (targeting flavor and health, building scale)[144](index=144&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) - Cost savings from the CCI program and Global Operating Effectiveness Program are expected to deliver approximately **$75 million in savings** in 2023[149](index=149&type=chunk) - Net cash provided by operating activities decreased from **$1,041.3 million** in 2020 to **$651.5 million** in 2022, with a balanced use of cash for debt repayment, capital expenditures, and shareholder returns[152](index=152&type=chunk)[153](index=153&type=chunk) 2022 Operating Results Highlights | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (%) | | :------------------------------------------------------------------ | :------------------ | :------------------ | :--------- | | Net Sales | $6,350.5 | $6,317.9 | 0.5% | | Operating Income | $863.6 | $1,015.1 | (14.9)% | | Adjusted Operating Income (excluding special charges & integration) | $917.4 | $1,101.5 | (16.7)% | | Diluted EPS | $2.52 | $2.80 | (10.0)% | | Adjusted Diluted EPS (excluding specific items) | $2.53 | $3.05 | (17.0)% | [2023 Outlook](index=28&type=section&id=2023%20Outlook) For 2023, McCormick projects net sales growth of 5% to 7%, with gross profit margin increasing by 25 to 75 basis points, and adjusted diluted EPS growing by 1% to 3% 2023 Financial Outlook | Metric | 2023 Projection | | :-------------------------------------- | :-------------------------------------------- | | Net Sales Growth | 5% to 7% (minimal FX impact) | | Gross Profit Margin | 25 to 75 basis points higher than 2022 (35.8%) | | Operating Income Increase | 10% to 12% (minimal FX impact) | | Adjusted Operating Income Increase | 9% to 11% (minimal FX impact) | | CCI-led Cost Savings Target | ~$85 million | | Interest Expense | $200 to $210 million | | Effective Tax Rate | 22% | | Adjusted Diluted EPS Growth | 1% to 3% (minimal FX impact) | | Projected Adjusted Diluted EPS | $2.56 to $2.61 | - Sales growth in 2023 is anticipated to be driven by pricing actions, with volume and product mix impacted by pricing elasticities and the lapping of prior year disruptions (China COVID, Kitchen Basics divestiture, Russia exit)[156](index=156&type=chunk) - Gross profit margin increase is primarily due to pricing actions offsetting increased commodity, packaging, and transportation costs, along with Global Operating Effectiveness Program and CCI cost savings[157](index=157&type=chunk) [RESULTS OF OPERATIONS—2022 COMPARED TO 2021](index=29&type=section&id=RESULTS%20OF%20OPERATIONS%E2%80%942022%20COMPARED%20TO%202021) In 2022, net sales increased by 0.5% (3.0% constant currency), but gross profit and operating income decreased due to inflationary costs and unfavorable mix Net Sales Growth Components (2022 vs. 2021) | Component | Increase (Decrease) (%) | | :-------------------- | :---------------------- | | Volume and product mix | (4.5)% | | Pricing actions | 7.7% | | Acquisitions | 0.2% | | Divestiture | (0.4)% | | Foreign exchange | (2.5)% | | **Total Net Sales** | **0.5%** | | **Constant Currency** | **3.0%** | Gross Profit and Margin (2022 vs. 2021) | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (Millions USD) | Change (%) | | :---------------- | :------------------ | :------------------ | :-------------------- | :--------- | | Gross profit | $2,274.5 | $2,494.6 | $(220.1) | (8.8)% | | Gross profit margin | 35.8% | 39.5% | (370 bps) | | - Gross profit margin decline was driven by margin-dilutive pricing actions (240 bps impact), increased commodity, packaging, and transportation costs, higher conversion costs, and less favorable product mix[164](index=164&type=chunk) Selling, General & Administrative Expense (2022 vs. 2021) | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (Millions USD) | Change (%) | | :------------------------------------ | :------------------ | :------------------ | :-------------------- | :--------- | | SG&A Expense | $1,357.1 | $1,404.1 | $(47.0) | (3.3)% | | SG&A as Percent of Net Sales | 21.4% | 22.3% | (90 bps) | | Special Charges (2022 vs. 2021) | Category | 2022 (Millions USD) | 2021 (Millions USD) | | :-------------------------------------- | :------------------ | :------------------ | | Special charges in cost of goods sold | $0.0 | $4.7 | | Other special charges | $51.6 | $46.4 | | **Total Special Charges** | **$51.6** | **$51.1** | - 2022 special charges included **$23.3 million** for Russia consumer business exit, **$21.5 million** for EMEA manufacturing facility transition, and **$5.6 million** for a U.S. voluntary retirement program, partially offset by a **$13.6 million gain** on Kohinoor brand sale[168](index=168&type=chunk) Transaction and Integration Expenses (2022 vs. 2021) | Category | 2022 (Millions USD) | 2021 (Millions USD) | | :---------------------------------------------- | :------------------ | :------------------ | | Transaction expenses in cost of goods sold | $0.0 | $6.3 | | Other transaction and integration expenses | $2.2 | $29.0 | | **Total Transaction and Integration Expenses** | **$2.2** | **$35.3** | Operating Income and Margin (2022 vs. 2021) | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (Millions USD) | Change (%) | | :------------------------------------------------------------------ | :------------------ | :------------------ | :-------------------- | :--------- | | Operating Income | $863.6 | $1,015.1 | $(151.5) | (14.9)% | | Operating Income as Percent of Net Sales | 13.6% | 16.1% | (250 bps) | | | Adjusted Operating Income (excluding special charges & integration) | $917.4 | $1,101.5 | $(184.1) | (16.7)% | | Adjusted Operating Income as Percent of Net Sales | 14.4% | 17.4% | (300 bps) | | Interest Expense and Other Income, Net (2022 vs. 2021) | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (Millions USD) | | :---------------- | :------------------ | :------------------ | :-------------------- | | Interest expense | $149.1 | $136.6 | $12.5 | | Other income, net | $98.3 | $17.3 | $81.0 | - Other income, net, increased significantly due to a **$49.6 million gain** on the sale of Kitchen Basics and **$18.7 million** from treasury lock settlements[173](index=173&type=chunk) Income Tax Expense and Effective Tax Rate (2022 vs. 2021) | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (Millions USD) | Change (%) | | :---------------------- | :------------------ | :------------------ | :-------------------- | :--------- | | Income from operations before income taxes | $812.8 | $895.8 | $(83.0) | (9.3)% | | Income tax expense | $168.6 | $192.7 | $(24.1) | (12.5)% | | Effective tax rate | 20.7% | 21.5% | (80 bps) | | - Effective tax rate decreased due to lower income before taxes and higher net discrete tax benefits in 2022[174](index=174&type=chunk) Income from Unconsolidated Operations (2022 vs. 2021) | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (Millions USD) | | :----------------------------------- | :------------------ | :------------------ | :-------------------- | | Income from unconsolidated operations | $37.8 | $52.2 | $(14.4) | - Decrease in income from unconsolidated operations primarily due to an after-tax gain of **$13.4 million** on the sale of an unconsolidated operation in 2021[175](index=175&type=chunk) Diluted Earnings Per Share Change (2021 to 2022) | Component | Impact on EPS ($) | | :---------------------------------------------------------------------------------------------------- | :---------------- | | 2021 Earnings per share—diluted | $2.80 | | Decrease in operating income | (0.54) | | Decrease in special charges, net of taxes | 0.02 | | Decrease in transaction and integration expenses, including impact of net discrete tax item related to FONA acquisition | 0.13 | | Gain on the sale of a business, net of taxes | 0.14 | | Increase in other income, excluding gain on the sale of a business | 0.09 | | Decrease in income from unconsolidated operations, including the after-tax gain on sale of unconsolidated operation of $0.05 per diluted share in 2021 | (0.05) | | Impact of change in effective income tax rate, excluding taxes on special charges, transaction and integration expenses, and the sale of a business | (0.03) | | Increase in interest expense | (0.04) | | **2022 Earnings per share—diluted** | **$2.52** | [Results of Operations—Segments (2022 vs. 2021)](index=33&type=section&id=Results%20of%20Operations%E2%80%94Segments) In 2022, Consumer segment sales and operating income declined, while Flavor Solutions sales grew but operating income decreased significantly due to cost increases Consumer Segment Net Sales and Operating Income (2022 vs. 2021) | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (%) | | :----------------------------------- | :------------------ | :------------------ | :--------- | | Net sales | $3,757.9 | $3,937.5 | (4.6)% | | Volume and product mix | (9.3)% | 4.3% | | | Pricing actions | 7.4% | 0.6% | | | Foreign exchange | (2.1)% | 2.2% | | | Segment operating income | $710.7 | $804.9 | (11.7)% | | Segment operating income margin | 18.9% | 20.4% | (150 bps) | - Consumer segment sales decline was impacted by COVID-19 resurgences in China, exit of Russia consumer operations, and exit of India rice product line, contributing approximately **1.5%** to the volume/mix decline[179](index=179&type=chunk) Flavor Solutions Segment Net Sales and Operating Income (2022 vs. 2021) | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (%) | | :----------------------------------- | :------------------ | :------------------ | :--------- | | Net sales | $2,592.6 | $2,380.4 | 8.9% | | Volume and product mix | 3.5% | 7.2% | | | Pricing actions | 8.2% | 1.4% | | | Foreign exchange | (3.2)% | 2.8% | | | Segment operating income | $206.7 | $296.6 | (30.3)% | | Segment operating income margin | 8.0% | 12.5% | (450 bps) | - Flavor Solutions segment operating income decreased due to increased commodity, transportation, and conversion costs, and supply chain investments, despite higher sales[188](index=188&type=chunk) [RESULTS OF OPERATIONS—2021 COMPARED TO 2020](index=35&type=section&id=RESULTS%20OF%20OPERATIONS%E2%80%942021%20COMPARED%20TO%202020) In 2021, net sales increased by 12.8% (10.4% constant currency), driven by volume, acquisitions, and favorable foreign currency, while operating income saw modest growth Net Sales Growth Components (2021 vs. 2020) | Component | Increase (Decrease) (%) | | :-------------------- | :---------------------- | | Volume and product mix | 5.5% | | Pricing actions | 0.8% | | Acquisitions | 4.1% | | Foreign exchange | 2.4% | | **Total Net Sales** | **12.8%** | | **Constant Currency** | **10.4%** | - Net sales increase was driven by strong demand in the consumer segment (at-home meal preparation) and recovery in away-from-home demand in the flavor solutions segment[190](index=190&type=chunk) Gross Profit and Margin (2021 vs. 2020) | Metric | 2021 (Millions USD) | 2020 (Millions USD) | Change (Millions USD) | Change (%) | | :---------------- | :------------------ | :------------------ | :-------------------- | :--------- | | Gross profit | $2,494.6 | $2,300.4 | $194.2 | 8.4% | | Gross profit margin | 39.5% | 41.1% | (160 bps) | | - Gross profit margin decline was due to increased commodity, packaging, and transportation costs, higher conversion costs (including COVID-19 related), and a less favorable sales mix[191](index=191&type=chunk) Selling, General & Administrative Expense (2021 vs. 2020) | Metric | 2021 (Millions USD) | 2020 (Millions USD) | Change (Millions USD) | Change (%) | | :------------------------------------ | :------------------ | :------------------ | :-------------------- | :--------- | | SG&A Expense | $1,404.1 | $1,281.6 | $122.5 | 9.6% | | SG&A as Percent of Net Sales | 22.3% | 22.9% | (60 bps) | | Special Charges (2021 vs. 2020) | Category | 2021 (Millions USD) | 2020 (Millions USD) | | :-------------------------------------- | :------------------ | :------------------ | | Special charges in cost of goods sold | $4.7 | $0.0 | | Other special charges | $46.4 | $6.9 | | **Total Special Charges** | **$51.1** | **$6.9** | - 2021 special charges included **$19.5 million** for the exit of the India rice product line, **$6.2 million** for EMEA manufacturing transition, and **$6.0 million** asset impairment for an administrative site[194](index=194&type=chunk) Transaction and Integration Expenses (2021 vs. 2020) | Category | 2021 (Millions USD) | 2020 (Millions USD) | | :---------------------------------------------- | :------------------ | :------------------ | | Transaction expenses in cost of goods sold | $6.3 | $0.0 | | Other transaction and integration expenses | $29.0 | $12.4 | | **Total Transaction and Integration Expenses** | **$35.3** | **$12.4** | Operating Income and Margin (2021 vs. 2020) | Metric | 2021 (Millions USD) | 2020 (Millions USD) | Change (Millions USD) | Change (%) | | :------------------------------------------------------------------ | :------------------ | :------------------ | :-------------------- | :--------- | | Operating Income | $1,015.1 | $999.5 | $15.6 | 1.6% | | Operating Income as Percent of Net Sales | 16.1% | 17.8% | (170 bps) | | | Adjusted Operating Income (excluding special charges & integration) | $1,101.5 | $1,018.8 | $82.7 | 8.1% | | Adjusted Operating Income as Percent of Net Sales | 17.4% | 18.2% | (80 bps) | | Interest Expense and Other Income, Net (2021 vs. 2020) | Metric | 2021 (Millions USD) | 2020 (Millions USD) | Change (Millions USD) | | :---------------- | :------------------ | :------------------ | :-------------------- | | Interest expense | $136.6 | $135.6 | $1.0 | | Other income, net | $17.3 | $17.6 | $(0.3) | Income Tax Expense and Effective Tax Rate (2021 vs. 2020) | Metric | 2021 (Millions USD) | 2020 (Millions USD) | Change (Millions USD) | Change (%) | | :---------------------- | :------------------ | :------------------ | :-------------------- | :--------- | | Income from operations before income taxes | $895.8 | $881.5 | $14.3 | 1.6% | | Income tax expense | $192.7 | $174.9 | $17.8 | 10.2% | | Effective tax rate | 21.5% | 19.8% | 170 bps | | - Effective tax rate increased due to lower net discrete tax benefits in 2021 compared to 2020[201](index=201&type=chunk) Income from Unconsolidated Operations (2021 vs. 2020) | Metric | 2021 (Millions USD) | 2020 (Millions USD) | Change (Millions USD) | | :----------------------------------- | :------------------ | :------------------ | :-------------------- | | Income from unconsolidated operations | $52.2 | $40.8 | $11.4 | - Increase in income from unconsolidated operations was driven by an after-tax gain of **$13.4 million** on the sale of a **26% interest** in Eastern Condiments Private Ltd. in 2021[202](index=202&type=chunk) Diluted Earnings Per Share Change (2020 to 2021) | Component | Impact on EPS ($) | | :---------------------------------------------------------------------------------------------------- | :---------------- | | 2020 Earnings per share—diluted | $2.78 | | Increase in operating income | 0.25 | | Increase in special charges | (0.15) | | Increase in transaction and integration expenses, including impact of net discrete tax item related to FONA acquisition | (0.10) | | Impact of income taxes, excluding taxes on special charges and transaction and integration expenses | (0.01) | | Increase in income from unconsolidated operations, including the after-tax gain on sale of unconsolidated operation of $0.05 per diluted share | 0.04 | | Impact of higher shares | (0.01) | | **2021 Earnings per share—diluted** | **$2.80** | [Results of Operations—Segments (2021 vs. 2020)](index=38&type=section&id=Results%20of%20Operations%E2%80%94Segments_2) In 2021, the Consumer segment's net sales grew by 9.5% (7.3% constant currency), while the Flavor Solutions segment's net sales increased by 18.7% (15.9% constant currency) Consumer Segment Net Sales and Operating Income (2021 vs. 2020) | Metric | 2021 (Millions USD) | 2020 (Millions USD) | Change (%) | | :----------------------------------- | :------------------ | :------------------ | :--------- | | Net sales | $3,937.5 | $3,596.7 | 9.5% | | Volume and product mix | 4.3% | 8.8% | | | Pricing actions | 0.6% | 1.5% | | | Acquisitions | 2.4% | 0.0% | | | Foreign exchange | 2.2% | (0.3)% | | | Segment operating income | $804.9 | $780.9 | 3.1% | | Segment operating income margin | 20.4% | 21.7% | (130 bps) | - Consumer segment sales growth in Americas (**7.3%**) was driven by sustained at-home eating preference, while Asia/Pacific (**31.6%**) saw recovery in away-from-home consumption in China[206](index=206&type=chunk)[208](index=208&type=chunk) Flavor Solutions Segment Net Sales and Operating Income (2021 vs. 2020) | Metric | 2021 (Millions USD) | 2020 (Millions USD) | Change (%) | | :----------------------------------- | :------------------ | :------------------ | :--------- | | Net sales | $2,380.4 | $2,004.6 | 18.7% | | Volume and product mix | 7.2% | (4.2)% | | | Pricing actions | 1.4% | 1.8% | | | Acquisitions | 7.3% | 0.0% | | | Foreign exchange | 2.8% | (1.1)% | | | Segment operating income | $296.6 | $237.9 | 24.7% | | Segment operating income margin | 12.5% | 11.9% | 60 bps | - Flavor Solutions segment sales were favorably impacted by recovery of demand from quick service restaurants and branded food service customers, particularly in Americas and EMEA[211](index=211&type=chunk) [NON-GAAP FINANCIAL MEASURES](index=40&type=section&id=NON-GAAP%20FINANCIAL%20MEASURES) McCormick uses non-GAAP financial measures to provide enhanced comparisons and insights into ongoing operational performance, excluding specific items and foreign currency impacts - Non-GAAP financial measures (adjusted gross profit, operating income, EPS) are used to provide enhanced comparisons to prior periods and measure ongoing operational profitability[217](index=217&type=chunk)[219](index=219&type=chunk) - Exclusions from GAAP measures include special charges, transaction and integration expenses from Cholula and FONA acquisitions, income from the sale of unconsolidated operations, and gains on the sale of Kitchen Basics[217](index=217&type=chunk)[218](index=218&type=chunk) Reconciliation of GAAP to Non-GAAP Financial Measures (2020-2022) | Metric (Millions USD, except EPS) | 2022 | 2021 | 2020 | | :-------------------------------- | :-------- | :-------- | :-------- | | Gross profit | $2,274.5 | $2,494.6 | $2,300.4 | | Adjusted gross profit | $2,274.5 | $2,505.6 | $2,300.4 | | Adjusted gross profit margin | 35.8% | 39.7% | 41.1% | | Operating income | $863.6 | $1,015.1 | $999.5 | | Adjusted operating income | $917.4 | $1,101.5 | $1,018.8 | | Adjusted operating income margin | 14.4% | 17.4% | 18.2% | | Net income | $682.0 | $755.3 | $747.4 | | Adjusted net income | $683.9 | $823.9 | $762.7 | | Earnings per share—diluted | $2.52 | $2.80 | $2.78 | | Adjusted earnings per share—diluted | $2.53 | $3.05 | $2.83 | - The 'constant currency basis' non-GAAP measure excludes foreign currency exchange translation effects to provide insight into underlying operational performance outside the U.S[223](index=223&type=chunk) Net Sales and Adjusted Operating Income Growth on Constant Currency Basis (2022 vs. 2021) | Segment | Net Sales (Reported) | Net Sales (Constant Currency) | Adj. Op. Income (Reported) | Adj. Op. Income (Constant Currency) | | :---------------------- | :------------------- | :---------------------------- | :------------------------- | :---------------------------------- | | Consumer segment | (4.6)% | (2.5)% | (11.7)% | (10.9)% | | Flavor Solutions segment | 8.9% | 12.1% | (30.3)% | (27.9)% | | Total | 0.5% | 3.0% | (16.7)% | (15.5)% | [LIQUIDITY AND FINANCIAL CONDITION](index=44&type=section&id=LIQUIDITY%20AND%20FINANCIAL%20CONDITION) McCormick maintains a prudent capital structure with sufficient liquidity for debt, working capital, capital expenditures, and dividends, despite a decrease in operating cash flow in 2022 - Primary financing objective is to maintain a prudent capital structure for growth, using equity and short/long-term debt, while maintaining investment-grade credit ratings[228](index=228&type=chunk) - Sources of liquidity (cash, operating cash flows, credit facilities, commercial paper, capital markets) are believed to be sufficient for debt obligations, working capital, capital expenditures, and dividends for at least the next twelve months[230](index=230&type=chunk) Net Cash Flow Summary (2020-2022) | Activity | 2022 (Millions USD) | 2021 (Millions USD) | 2020 (Millions USD) | | :---------------------------- | :------------------ | :------------------ | :------------------ | | Net cash provided by operating activities | $651.5 | $828.3 | $1,041.3 | | Net cash used in investing activities | $(146.4) | $(908.6) | $(1,025.6) | | Net cash (used in) provided by financing activities | $(487.2) | $22.0 | $220.9 | - Operating cash flow decreased in 2022 primarily due to lower net income and timing of employee incentive payments; in 2021, it decreased due to increased inventory and acquisition-related payments[233](index=233&type=chunk) Cash Conversion Cycle (CCC) in Days (2020-2022) | Year | CCC (Days) | | :--- | :--------- | | 2022 | 100 | | 2021 | 89 | | 2020 | 79 | - CCC increased in 2022 and 2021 mainly due to increased days in inventory, driven by cost inflation, strategic purchases, and efforts to protect against supply chain disruption[236](index=236&type=chunk) - Net cash used in investing activities was **$146.4 million** in 2022, including **$262.0 million** in capital expenditures, offset by **$95.2 million** from the sale of Kitchen Basics and **$13.6 million** from the sale of the Kohinoor brand[240](index=240&type=chunk) - Net cash used in financing activities was **$487.2 million** in 2022, primarily due to **$772.0 million** in long-term debt repayments, partially offset by an increase in short-term borrowings[241](index=241&type=chunk) Net Borrowing Activities (2020-2022) | Metric | 2022 (Millions USD) | 2021 (Millions USD) | 2020 (Millions USD) | | :-------------------------------------- | :------------------ | :------------------ | :------------------ | | Net increase (decrease) in short-term borrowings | $698.3 | $(346.7) | $286.5 | | Proceeds from issuance of long-term debt, net of costs | $0.0 | $999.6 | $525.9 | | Repayments of long-term debt | $(772.0) | $(257.1) | $(257.7) | | **Net cash (used in) provided from net borrowing activities** | **$(73.7)** | **$395.8** | **$554.7** | Dividends Paid (2020-2022) | Metric | 2022 (Millions USD) | 2021 (Millions USD) | 2020 (Millions USD) | | :---------------------- | :------------------ | :------------------ | :------------------ | | Total dividends paid | $396.7 | $363.3 | $330.1 | | Dividends paid per share | $1.48 | $1.36 | $1.24 | | Percentage increase per share | 8.8% | 9.7% | 8.8% | - Committed revolving credit facilities include a **$1.5 billion** facility expiring in June 2026 and a **$500 million** facility expiring in July 2023, supporting commercial paper issuance[248](index=248&type=chunk) Future Material Cash Requirements (as of Nov 30, 2022) | Obligation | Total (Millions USD) | Less than 1 year (Millions USD) | 1–3 years (Millions USD) | 3–5 years (Millions USD) | More than 5 years (Millions USD) | | :------------------------------ | :------------------- | :------------------------------ | :----------------------- | :----------------------- | :------------------------------- | | Short-term borrowings | $1,236.7 | $1,236.7 | $0.0 | $0.0 | $0.0 | | Long-term debt, including finance leases | $3,981.1 | $270.6 | $1,066.6 | $1,268.8 | $1,375.1 | | Interest payments | $724.5 | $110.0 | $176.9 | $156.3 | $281.3 | | **Total contractual cash obligations** | **$5,942.3** | **$1,617.3** | **$1,243.5** | **$1,425.1** | **$1,656.4** | [ACQUISITIONS](index=48&type=section&id=ACQUISITIONS) Acquisitions are a key part of McCormick's strategy, with FONA International and Cholula Hot Sauce acquired in late 2020 to expand its flavor portfolio - Acquisitions are a strategic component for increasing sales and profits[256](index=256&type=chunk) - Acquired FONA International, LLC on December 30, 2020, for approximately **$708 million**, expanding the flavor solutions segment with clean and natural flavors[257](index=257&type=chunk) - Acquired Cholula Hot Sauce on November 30, 2020, for approximately **$801 million**, adding a premium Mexican hot sauce brand to its global branded flavor portfolio[258](index=258&type=chunk) [PERFORMANCE GRAPH — SHAREHOLDER RETURN](index=48&type=section&id=PERFORMANCE%20GRAPH%20%E2%80%94%20SHAREHOLDER%20RETURN) This section refers to a line graph comparing McCormick's cumulative total shareholder return against the S&P 500 and S&P Packaged Foods & Meats Indices - The section provides a comparative line graph of McCormick's cumulative total shareholder return (Non-Voting Common Stock) against the S&P 500 and S&P Packaged Foods & Meats Indices[260](index=260&type=chunk)[261](index=261&type=chunk) [MARKET RISK SENSITIVITY](index=49&type=section&id=MARKET%20RISK%20SENSITIVITY) McCormick manages market risks, including foreign exchange, interest rate, commodity, and credit risks, using derivative financial instruments for hedging purposes - Utilizes derivative financial instruments to manage foreign exchange and interest rate exposures, not for trading purposes[262](index=262&type=chunk) - Foreign exchange risk is managed through forward contracts and currency swaps, primarily for the U.S. dollar against the Euro, British pound sterling, Chinese renminbi, Canadian dollar, Australian dollar, Polish zloty, Swiss franc, and Mexican peso[263](index=263&type=chunk) Foreign Currency Exchange Contracts (as of Nov 30, 2022) | Currency Sold | Currency Received | Notional Value (Millions USD) | Fair Value (Millions USD) | | :-------------------- | :-------------------- | :---------------------------- | :------------------------ | | British pound sterling | U.S. dollar | $89.9 | $6.0 | | Swiss franc | U.S. dollar | $69.6 | $(0.2) | | Canadian dollar | U.S. dollar | $70.4 | $1.1 | | Euro | U.S. dollar | $49.0 | $0.2 | | Polish zloty | U.S. dollar | $9.8 | $(0.1) | | U.S. dollar | Australian dollar | $55.2 | $0.0 | | U.S. dollar | Singapore dollar | $44.5 | $0.2 | | U.S. dollar | British pound sterling | $30.4 | $(0.3) | | U.S. dollar | Euro | $34.0 | $(0.3) | | Australian dollar | Euro | $22.2 | $0.8 | | Polish zloty | Euro | $14.1 | $(0.1) | | Canadian dollar | British pound sterling | $28.8 | $1.5 | | British pound sterling | Euro | $23.9 | $0.3 | | U.S. dollar | Thai baht | $7.2 | $0.4 | - Interest rate risk is managed through a mix of fixed and variable rate debt and interest rate swaps, with ongoing transition from LIBOR to alternative reference rates like SOFR[271](index=271&type=chunk)[272](index=272&type=chunk) Debt Maturities and Interest Rates (as of Nov 30, 2022) | Debt Type | 2023 (Millions USD) | 2024 (Millions USD) | 2025 (Millions USD) | 2026 (Millions USD) | Thereafter (Millions USD) | Total (Millions USD) | | :------------ | :------------------ | :------------------ | :------------------ | :------------------ | :------------------------ | :------------------- | | Fixed rate | $257.4 | $763.1 | $258.7 | $509.2 | $2,134.7 | $3,923.1 | | Avg. Int. Rate | 3.50% | 3.50% | 3.25% | 0.94% | 1.74% | - | | Variable rate | $1,249.9 | $33.8 | $11.0 | $0.0 | $0.0 | $1,294.7 | | Avg. Int. Rate | 4.20% | 1.85% | 1.84% | - | - | - | - Commodity risk from raw material price volatility is addressed through strategic purchases, future delivery contracts, and customer price adjustments, generally without derivatives[275](index=275&type=chunk) - Credit risk from large, consolidated customers in the consumer segment is monitored, and an allowance for doubtful accounts is maintained[276](index=276&type=chunk) [RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS](index=51&type=section&id=RECENTLY%20ISSUED%20ACCOUNTING%20PRONOUNCEMENTS) McCormick adopted ASU No. 2019-12 and ASU No. 2020-04 in 2022 with no material impact, and is evaluating ASU No. 2022-04 for future disclosures - Adopted ASU No. 2019-12 (Income Taxes) and ASU No. 2020-04 (Reference Rate Reform) in 2022 with no material impact on financial statements[273](index=273&type=chunk)[274](index=274&type=chunk)[275](index=275&type=chunk) - Currently evaluating ASU No. 2022-04 (Supplier Finance Programs), which requires new disclosures on program terms and obligations, effective for fiscal year ending November 30, 2024[276](index=276&type=chunk) [CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS](index=52&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES%20AND%20ASSUMPTIONS) McCormick's financial statements rely on critical accounting estimates for customer contracts, business combinations, goodwill, intangible assets, income taxes, and pension benefits, which can materially impact results - Critical accounting estimates include customer contracts (trade discounts, rebates), business combinations (fair value of acquired assets, particularly intangible assets), goodwill and indefinite-lived intangible asset valuations, income taxes, and pension benefits[279](index=279&type=chunk) - Goodwill impairment testing involves comparing the fair value of reporting units (estimated via discounted cash flow models) to their carrying amounts; as of November 30, 2022, goodwill was **$5,212.9 million**, with fair values significantly exceeding carrying values[283](index=283&type=chunk)[284](index=284&type=chunk) - Indefinite-lived intangible assets (brand names and trademarks) are tested for impairment using the relief-from-royalty method; as of November 30, 2022, these assets totaled **$3,043.4 million**, with recent acquisitions being more susceptible to future impairment[285](index=285&type=chunk)[287](index=287&type=chunk)[288](index=288&type=chunk) - Income tax estimates involve judgments on tax positions, uncertain tax benefits (**$29.6 million** unrecognized as of November 30, 2022), and valuation allowances for deferred tax assets, with potential material impacts from audit resolutions[289](index=289&type=chunk)[290](index=290&type=chunk) - Pension plan costs rely on assumptions for discount rates, investment returns, salary increases, and mortality rates; a **1% change** in discount rate or expected return on assets could significantly impact pension expense[291](index=291&type=chunk) [ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=54&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section refers to the detailed discussion of market risk sensitivity, including foreign exchange, interest rate, commodity, and credit risks, provided elsewhere in the report - Information on market risk sensitivity is incorporated by reference from the 'Market Risk Sensitivity' section of MD&A and Note 8 to the consolidated financial statements[293](index=293&type=chunk) [ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=55&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents McCormick's audited consolidated financial statements, management's report on internal control, and the independent auditor's reports, highlighting indefinite-lived intangible asset valuation as a critical audit matter - Includes consolidated financial statements (income, comprehensive income, balance sheets, cash flow, shareholders' equity) for fiscal years ended November 30, 2022, 2021, and 2020[322](index=322&type=chunk)[323](index=323&type=chunk)[325](index=325&type=chunk)[327](index=327&type=chunk)[328](index=328&type=chunk) - Management concluded that internal control over financial reporting was effective as of November 30, 2022[300](index=300&type=chunk) - The Independent Registered Public Accounting Firm (Ernst & Young LLP) issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[303](index=303&type=chunk)[311](index=311&type=chunk)[312](index=312&type=chunk) - The valuation of indefinite-lived intangible assets, particularly brand names and trademarks (totaling approximately **$3.0 billion** at November 30, 2022), was identified as a critical audit matter due to significant estimation and judgment involved in determining fair value and impairment[317](index=317&type=chunk)[318](index=318&type=chunk) [REPORT OF MANAGEMENT](index=56&type=section&id=REPORT%20OF%20MANAGEMENT) Management is responsible for the integrity of consolidated financial statements, conforming to U.S. GAAP, and maintaining an effective system of internal control over financial reporting - Management is responsible for the preparation and integrity of consolidated financial statements in conformity with U.S. GAAP[296](index=296&type=chunk) - Management concluded that internal control over financial reporting was effective as of November 30, 2022, based on the COSO (2013 framework)[297](index=297&type=chunk)[300](index=300&type=chunk) [REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Internal Control)](index=57&type=section&id=REPORT%20OF%20INDEPENDENT%20REGISTERED%20PUBLIC%20ACCOUNTING%20FIRM%20%28Internal%20Control%29) Ernst & Young LLP issued an unqualified opinion on McCormick's internal control over financial reporting as of November 30, 2022, based on COSO criteria - Ernst & Young LLP issued an unqualified opinion on the effectiveness of McCormick's internal control over financial reporting as of November 30, 2022[303](index=303&type=chunk) - The audit was conducted in accordance with PCAOB standards, obtaining reasonable assurance about the maintenance of effective internal control[306](index=306&type=chunk) [REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Financial Statements)](index=58&type=section&id=REPORT%20OF%20INDEPENDENT%20REGISTERED%20PUBLIC%20ACCOUNTING%20FIRM%20%28Financial%20Statements%29) Ernst & Young LLP provided an unqualified opinion on McCormick's consolidated financial statements, highlighting the valuation of indefinite-lived intangible assets as a critical audit matter - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements for the period ended November 30, 2022, confirming fair presentation in conformity with U.S. GAAP[311](index=311&type=chunk) - The valuation of indefinite-lived intangible assets (brand names and trademarks, approximately **$3.0 billion**) was identified as a critical audit matter due to the significant estimation and judgment required for fair value determination and impairment assessment[317](index=317&type=chunk)[318](index=318&type=chunk) [CONSOLIDATED INCOME STATEMENTS](index=60&type=section&id=CONSOLIDATED%20INCOME%20STATEMENTS) The consolidated income statements present McCormick's financial performance for 2022, 2021, and 2020, including net sales, gross profit, operating income, and earnings per share Consolidated Income Statement Summary (2020-2022) | Metric (Millions USD, except per share data) | 2022 | 2021 | 2020 | | :----------------------------------------- | :-------- | :-------- | :-------- | | Net sales | $6,350.5 | $6,317.9 | $5,601.3 | | Gross profit | $2,274.5 | $2,494.6 | $2,300.4 | | Operating income | $863.6 | $1,015.1 | $999.5 | | Net income | $682.0 | $755.3 | $747.4 | | Earnings per share–diluted | $2.52 | $2.80 | $2.78 | [CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME](index=60&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME) The consolidated statements of comprehensive income present net income and other comprehensive income (loss) components for 2022, 2021, and 2020 Consolidated Statements of Comprehensive Income Summary (2020-2022) | Metric (Millions USD) | 2022 | 2021 | 2020 | | :---------------------------------------- | :-------- | :-------- | :-------- | | Net income | $682.0 | $755.3 | $747.4 | | Total other comprehensive income (loss) | $(56.1) | $36.9 | $26.5 | | Comprehensive income | $632.1 | $800.2 | $778.2 | - Other comprehensive income (loss) components include unrealized gains/losses on pension plans, currency translation adjustments, and changes in derivative financial instruments[323](index=323&type=chunk) [CONSOLIDATED BALANCE SHEETS](index=61&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) The consolidated balance sheets provide a snapshot of McCormick's financial position as of November 30, 2022, and 2021, detailing assets, liabilities, and shareholders' equity Consolidated Balance Sheet Summary (as of Nov 30) | Metric (Millions USD) | 2022 | 2021 | | :------------------------------ | :---------- | :---------- | | Total current assets | $2,386.7 | $2,195.8 | | Property, plant and equipment, net | $1,198.0 | $1,140.3 | | Goodwill | $5,212.9 | $5,335.8 | | Intangible assets, net | $3,387.9 | $3,452.5 | | Total assets | $13,124.9 | $12,905.8 | | Total current liabilities | $3,432.4 | $3,223.8 | | Long-term debt | $3,642.3 | $3,973.3 | | Total liabilities | $8,425.7 | $8,480.3 | | Total shareholders' equity | $4,699.2 | $4,425.5 | [CONSOLIDATED CASH FLOW STATEMENTS](index=62&type=section&id=CONSOLIDATED%20CASH%20FLOW%20STATEMENTS) The consolidated cash flow statements detail cash flows from operating, investing, and financing activities for 2022, 2021, and 2020, showing a decrease in operating cash flow in 2022 Consolidated Cash Flow Summary (2020-2022) | Activity (Millions USD) | 2022 | 2021 | 2020 | | :---------------------------------------- | :---------- | :---------- | :---------- | | Net cash provided by operating activities | $651.5 | $828.3 | $1,041.3 | | Net cash used in investing activities | $(146.4) | $(908.6) | $(1,025.6) | | Net cash (used in) provided by financing activities | $(487.2) | $22.0 | $220.9 | | (Decrease) increase in cash and cash equivalents | $(17.7) | $(71.9) | $268.2 | | Cash and cash equivalents at end of year | $334.0 | $351.7 | $423.6 | - Operating cash flow decreased in 2022, driven by lower net income and changes in operating assets and liabilities, including increased inventories[327](index=327&type=chunk) - Investing activities in 2022 included **$262.0 million** in capital expenditures and proceeds from the sale of Kitchen Basics (**$95.2 million**) and the Kohinoor brand (**$13.6 million**)[327](index=327&type=chunk) [CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY](index=63&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20SHAREHOLDERS%27%20EQUITY) The consolidated statements of shareholders' equity present changes in equity components for 2022, 2021, and 2020, reflecting net income, other comprehensive income, dividends, and share transactions Consolidated Statements of Shareholders' Equity Summary (2020-2022) | Metric (Millions USD) | 2022 | 2021 | 2020 | | :------------------------------ | :---------- | :---------- | :---------- | | Balance, beginning of year | $4,425.5 | $3,940.0 | $3,456.7 | | Net income | $682.0 | $755.3 | $747.4 | | Other comprehensive income (loss), net of tax | $(56.1) | $36.9 | $26.5 | | Dividends | $(402.3) | $(371.5) | $(338.5) | | Stock-based compensation | $60.3 | $66.6 | $46.0 | | Shares purchased and retired | $(59.6) | $(24.8) | $(62.7) | | Shares issued | $43.2 | $15.0 | $60.3 | | **Balance, end of year** | **$4,699.2** | **$4,425.5** | **$3,940.0** | [NOTES TO CONSOLIDATED FINANCIAL STATEMENTS](index=64&type=section&id=NOTES%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) The Notes provide detailed information on McCormick's accounting policies, financial instruments, acquisitions, special charges, and other financial disclosures [1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=64&type=section&id=1.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines McCormick's key accounting principles, including consolidation, foreign currency translation, inventory valuation, asset impairment, revenue recognition, and recent accounting pronouncements - Financial statements consolidate majority-owned subsidiaries; investments in unconsolidated affiliates are accounted for by the equity method[330](index=330&type=chunk) - Assets and liabilities of foreign subsidiaries are translated at balance sheet date rates, income/expense at average monthly rates; translation adjustments are in accumulated other comprehensive income (loss)[331](index=331&type=chunk) - Inventories are stated at the lower of cost or net realizable value, using the FIFO method[335](index=335&type=chunk) - Goodwill and indefinite-lived intangible assets are tested for impairment at least annually; definite-lived intangibles are amortized over their useful lives[340](index=340&type=chunk) - Revenue is recognized when control of products passes to the customer, net of trade and sales incentives and estimated returns[349](index=349&type=chunk) - Total brand marketing support costs were **$240.4 million** in 2022, and R&D costs were **$87.5 million**, both expensed as incurred[355](index=355&type=chunk)[356](index=356&type=chunk) - Income taxes are recognized using the liability method, with deferred taxes for temporary differences and valuation allowances for unrealizable deferred tax assets[357](index=357&type=chunk)[358](index=358&type=chunk) - Stock-based compensation expense for RSUs and stock options is recognized over the vesting period or retirement eligibility date; LTPP awards are based on performance metrics[361](index=361&type=chunk)[362](index=362&type=chunk) - All derivatives are recorded at fair value on the balance sheet and designated as hedges (cash flow, fair value, net investment hedges)[365](index=365&type=chunk) - Adopted ASU No. 2019-12 (Income Taxes) and ASU No. 2020-04 (Reference Rate Reform) in 2022 with no material impact; evaluating ASU No. 2022-04 (Supplier Finance Programs) for future disclosures[373](index=373&type=chunk)[374](index=374&type=chunk)[376](index=376&type=chunk) [2. ACQUISITIONS AND DISPOSITIONS](index=69&type=section&id=2.%20ACQUISITIONS%20AND%20DISPOSITIONS) McCormick completed two significant acquisitions in late 2020 (FONA and Cholula) and disposed of its Kitchen Basics business in 2022, resulting in a pre-tax gain - Acquired FONA International, LLC on December 30, 2020, for approximately **$708.2 million**, expanding the flavor solutions segment[378](index=378&type=chunk) - Acquired Cholula Hot Sauce on November 30, 2020, for approximately **$801.2 million**, adding a premium Mexican hot sauce brand[380](index=380&type=chunk) Transaction and Integration Expenses (2020-2022) | Category | 2022 (Millions USD) | 2021 (Millions USD) | 2020 (Millions USD) | | :---------------------------------------------- | :------------------ | :------------------ | :------------------ | | Transaction-related expenses in cost of goods sold | $0.0 | $6.3 | $0.0 | | Other transaction expenses | $0.0 | $13.8 | $12.4 | | Integration expenses | $2.2 | $15.2 | $0.0 | | **Total** | **$2.2** | **$35.3** | **$12.4** | - Sold the Kitchen Basics business on August 3, 2022, for **$95.2 million** in cash, resulting in a pre-tax gain of **$49.6 million**[383](index=383&type=chunk) [3. SPECIAL CHARGES](index=70&type=section&id=3.%20SPECIAL%20CHARGES) McCormick recognized **$51.6 million** in special charges in 2022, primarily related to the exit of its Russia consumer business and an EMEA manufacturing facility transition - Special charges are expenses associated with actions to reduce fixed costs, simplify processes, and improve competitiveness, requiring Management Committee approval[384](index=384&type=chunk) Summary of Special Charges (2020-2022) | Category | 2022 (Millions USD) | 2021 (Millions USD) | 2020 (Millions USD) | | :-------------------------------------- | :------------------ | :------------------ | :------------------ | | Employee severance and related benefits | $33.8 | $10.5 | $4.1 | | Other costs (Cash) | $7.4 | $18.7 | $2.8 | | Other costs (Non-Cash) | $24.0 | $17.2 | $0.0 | | Gain on sale of exited brand | $(13.6) | $0.0 | $0.0 | | Special charges in Cost of goods sold | $0.0 | $4.7 | $0.0 | | **Total Special Charges** | **$51.6** | **$51.1** | **$6.9** | - 2022 special charges included **$23.3 million** for exiting the Russia consumer business (including a **$10.0 million** brand impairment), **$21.5 million** for an EMEA manufacturing facility transition, and **$5.6 million** for a U.S. voluntary retirement program[386](index=386&type=chunk)[388](index=388&type=chunk)[389](index=389&type=chunk)[390](index=390&type=chunk) - 2021 special charges included **$19.5 million** for exiting the India rice product line (including **$11.2 million** in intangible asset impairment) and **$6.0 million** asset impairment for an administrative site[391](index=391&type=chunk)[392](index=392&type=chunk) [4. GOODWILL AND INTANGIBLE ASSETS](index=72&type=section&id=4.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) As of November 30, 2022, McCormick's goodwill totaled **$5,212.9 million** and indefinite-lived intangible assets were **$3,043.4 million**, with a **$10.0 million** impairment charge recognized for the Kamis brand Intangible Assets (as of Nov 30) | Category | 2022 (Millions USD) | 2021 (Millions USD) | | :------------------------------ | :------------------ | :------------------ | | Definite-lived intangible assets | $344.5 | $385.1 | | Goodwill | $5,212.9 | $5,335.8 | | Brand names and trademarks | $3,043.4 | $3,067.4 | | **Total Goodwill and Intangible Assets** | **$8,792.9** | **$8,952.8** | - In 2022, a **$10.0 million** non-cash impairment charge was recognized for the Kamis brand name due to the exit of the Russia consumer business[395](index=395&type=chunk) Changes in Goodwill by Segment (2021-2022) | Segment | Beginning of Year 2021 (Millions USD) | End of Year 2021 (Millions USD) | Beginning of Year 2022 (Millions USD) | End of Year 2022 (Millions USD) | | :---------------- | :------------------------------------ | :------------------------------ | :------------------------------------ | :------------------------------ | | Consumer | $3,711.2 | $3,674.7 | $3,674.7 | $3,568.2 | | Flavor Solutions | $1,275.1 | $1,661.1 | $1,661.1 | $1,644.7 | | **Total** | **$4,986.3** | **$5,335.8** | **$5,335.8** | **$5,212.9** | - Goodwill decreased by **$21.5 million** in the consumer segment due to the sale of Kitchen Basics in 2022[396](index=396&type=chunk) [5. INVESTMENTS IN AFFILIATES](index=72&type=section&id=5.%20INVESTMENTS%20IN%20AFFILIATES) Income from unconsolidated operations decreased to **$37.8 million** in 2022, primarily due to a gain on the sale of Eastern Condiments Private Ltd. in 2021 Income from Unconsolidated Operations (2020-2022) | Metric | 2022 (Millions USD) | 2021 (Millions USD) | 2020 (Millions USD) | | :----------------------------------- | :------------------ | :------------------ | :------------------ | | Income from unconsolidated operations | $37.8 | $52.2 | $40.8 | - The decrease in 2022 income from unconsolidated operations was primarily due to the **$13.4 million** after-tax gain on the sale of Eastern Condiments Private Ltd. in 2021[397](index=397&type=chunk)[399](index=399&type=chunk) - McCormick de Mexico, S.A. de C.V. accounted for **84%** of income from unconsolidated operations in 2022[397](index=397&type=chunk) Summarized Financial Information of Unconsolidated Affiliates (2020-2022) | Metric (Millions USD) | 2022 | 2021 | 2020 | | :-------------------- | :------ | :------ | :------ | | Net sales | $998.1 | $925.1 | $870.3 | | Net income | $86.5 | $95.8 | $93.7 | | Current assets | $494.8 | $464.2 | $421.7 | | Current liabilities | $257.7 | $218.5 | $192.3 | [6. FINANCING ARRANGEMENTS](index=73&type=section&id=6.%20FINANCING%20ARRANGEMENTS) McCormick's total outstanding debt decreased to **$3,912.9 million** in 2022, with short-term borrowings increasing and significant long-term debt maturities in 2023 Outstanding Debt (as of Nov 30) | Debt Category (Millions USD) | 2022 | 2021 | | :--------------------------- | :---------- | :---------- | | Short-term borrowings | $1,236.7 | $539.1 | | Long-term debt | $3,912.9 | $4,743.6 | | Less current portion | $(270.6) | $(770.3) | | **Total Long-term debt, net** | **$3,642.3** | **$3,973.3** | - Weighted-average interest rate of short-term borrowings increased from **0.2%** in 2021 to **4.2%** in 2022[400](index=400&type=chunk) Maturities of Long-Term Debt (Millions USD) | Fiscal Year | Amount | | :---------- | :----- | | 2023 | $270.6 | | 2024 | $796.9 | | 2025 | $269.7 | | 2026 | $509.2 | | 2027 | $759.6 | | Thereafter | $1,375.1 | - Committed revolving credit facilities include a **$1.5 billion** facility expiring in June 2026 and a **$500 million** facility expiring in July 2023, with **$775.4 million** capacity available at November 30, 2022[405](index=405&type=chunk)[406](index=406&type=chunk) [7. LEASES](index=74&type=section&id=7.%20LEASES) McCormick's lease portfolio includes real estate, machinery, and vehicles, with total net lease cost of **$60.1 million** in 2022 and a significant synthetic lease for a distribution center - Lease portfolio primarily consists of real estate, machinery, equipment, and vehicles[409](index=409&type=chunk) Lease Expense Components (2020-2022) | Metric (Millions USD) | 2022 | 2021 | 2020 | | :------------------------ | :---- | :---- | :---- | | Operating lease cost | $47.0 | $45.0 | $41.2 | | Finance lease amortization | $9.0 | $9.0 | $9.0 | | Finance lease interest | $4.1 | $4.3 | $4.5 | | **Net lease cost** | **$60.1** | **$58.3** | **$54.7** | Lease-Related Balance Sheet Information (as of Nov 30) | Metric (Millions USD) | 2022 | 2021 | | :-------------------------- | :------ | :------ | | Operating lease ROU assets | $218.9 | $136.8 | | Finance lease ROU assets | $103.0 | $112.1 | | Total leased assets | $321.9 | $248.9 | | Total lease liabilities | $348.8 | $266.1 | - A non-cancellable synthetic lease for a distribution facility, entered in October 2020, has a five-year term expiring in November 2027, with a residual value guarantee of **76.5%** of the lessor's construction cost (approx. **$310 million**)[412](index=412&type=chunk) Future Lease Liabilities Maturity (as of Nov 30, 2022) | Year | Operating Leases (Millions USD) | Finance Leases (Millions USD) | Total (Millions USD) | | :-------- | :------------------------------ | :---------------------------- | :------------------- | | 2023 | $58.3 | $11.3 | $69.6 | | 2024 | $50.9 | $11.5 | $62.4 | | 2025 | $43.3 | $11.7 | $55.0 | | 2026 | $39.0 | $11.9 | $50.9 | | 2027 | $34.1 | $12.2 | $46.3 | | Thereafter | $31.8 | $89.9 | $121.7 | | **Total Lease Payments** | **$257.4** | **$148.5** | **$405.9** | [8. FINANCIAL INSTRUMENTS](index=76&type=section&id=8.%20FINANCIAL%20INSTRUMENTS) McCormick uses derivative financial instruments, including forward contracts, currency swaps, and interest rate swaps, to manage foreign currency and interest rate risks, not for trading - Uses derivative financial instruments (forward contracts, currency swaps, interest rate swaps) to manage foreign currency and interest rate exposures, not for trading[416](index=416&type=chunk) - Foreign currency exchange contracts totaled **$560.5 million** notional value at November 30, 2022, designated as hedges of anticipated purchases or foreign currency denominated assets/liabilities[418](index=418&type=chunk) - Cross currency interest rate swap contracts are designated as net investment hedges, managing exchange rate fluctuations on net investments in subsidiaries[422](index=422&type=chunk) - Outstanding interest rate swap contracts for a notional amount of **$600 million** at November 30, 2022, are used to minimize financing costs and achieve a desired mix of fixed and variable rate debt[426](index=426&type=chunk) Derivative Instruments Fair Values (as of Nov 30, 2022) | Category | Asset Derivatives Fair Value (Millions USD) | Liability Derivatives Fair Value (Mi

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| --- | --- | --- | --- | |---------------------------------------------------------------------------------------------------------------------------------|-------|-------|-------| | | | | | | | | | | | McCormick & Company, Inc. 4TH QUARTER 2021 FINANCIAL RESULTS AND 2022 OUTLOOK | | | | | January 27, 2022 The following slides accompany a January 27th, 2022, earnings release conference call. This information should | | | | | | | | | | | | | | FORWARD-LOOKING INFORMATION Certain information contained in thi ...