mkc-20211130

On December 30, 2020, we completed the purchase of FONA International, LLC and certain of its affiliates (FONA), a privately held company. The purchase price was approximately $708 million, net of cash acquired. FONA is a leading manufacturer of clean and natural flavors providing solutions for a diverse customer base across various applications for the food, beverage and nutritional markets. The acquisition of FONA broadens our value-add offerings with products that are highly complementary to our existing portfolio. By combining the portfolios and infrastructures, we have added manufacturing capacity as well as greater scale and expect to accelerate our global flavor growth. At the time of the acquisition, annual sales of FONA were approximately $114 million. The results of FONA’s operations have been included in our financial statements as a component of our flavor solutions segment from the date of acquisition.

On November 30, 2020, we completed the purchase of the parent company of Cholula Hot Sauce® (Cholula) from L Catterton. The purchase price was approximately $801 million, net of cash acquired. Cholula, a premium Mexican hot sauce brand, is a strong addition to McCormick’s global branded flavor portfolio, which broadens the Company’s offering in the high growth hot sauce category to consumers and foodservice operators and accelerates our condiment growth opportunities with a complementary authentic Mexican flavor hot sauce. At the time of the acquisition, annual sales of Cholula were approximately $96 million. The results of Cholula’s operations have been included in our financial statements as a component of our consumer and flavor solutions segments from the date of acquisition.

Consumer Segment. From locations around the world, our brands reach consumers in approximately 160 countries and territories. Our leading brands in the Americas include McCormick®, French’s®, Frank’s RedHot®, Lawry’s® Cholula Hot Sauce® and Club House®, as well as brands such as Gourmet Garden® and OLD BAY®. We also market authentic regional and ethnic brands such as Zatarain’s®, Stubb's®, Thai Kitchen® and Simply Asia®. In the Europe, Middle East and Africa (EMEA) region, our major brands include the Ducros®, Schwartz®, Kamis® and Drogheria & Alimentari® brands of spices, herbs and seasonings and an extensive line of Vahiné® brand dessert items. In China, we market our products under the McCormick and DaQiao® brands. In Australia, we market our spices and

Approximately two thirds of our consumer segment sales are spices and seasonings and condiments and sauces. Within the spices and seasoning category, we are the brand leader globally and a category leader in our key markets. In the condiments and sauces category, we are one of the brand leaders globally and in the U.S. There are numerous competitive brands of spices and seasonings, and condiments and sauces in the U.S. and additional brands in international markets. Some are owned by large food manufacturers, while others are supplied by small privately-owned companies. In this competitive environment, we are leading with innovation and brand marketing, and applying our analytical tools to help customers optimize the profitability of their sales of these categories while simultaneously working to increase our sales and profit.

Flavor Solutions Segment. In our flavor solutions segment, we provide a wide range of products to multinational food manufacturers and foodservice customers. The foodservice customers are supplied with branded, packaged products both directly by us and indirectly through distributors, with the exception of our businesses in China and India, where foodservice sales are managed by and reported in our consumer segment. We supply food manufacturers and foodservice customers with customized flavor solutions, and many of these customer relationships have been active for decades. Our range of flavor solutions remains one of the broadest in the industry and includes seasoning blends, spices and herbs, condiments, coating systems and compound flavors. In addition to a broad range of flavor solutions, our long-standing customer relationships are evidence of our effectiveness in building customer intimacy. Our customers benefit from our expertise in many areas, including sensory testing, culinary research, food safety and flavor application.

Our products are sold directly to customers and also through brokers, wholesalers and distributors. In the consumer segment, products are then sold to consumers under a number of brands through a variety of retail channels, including grocery, mass merchandise, warehouse clubs, discount and drug stores, and e-commerce. In the flavor solutions segment, products are used by food and beverage manufacturers as ingredients for their finished goods and by foodservice customers as ingredients for menu items, as well as provided to their own customers for use in dine-in and take-out eating occasions, all to enhance the flavor of their foods. Customers for the flavor solutions segment include food manufacturers and the foodservice industry supplied through a variety of channels including directly and indirectly through distributors, wholesale foodservice suppliers and e-commerce.

We own a number of trademark registrations. Although in the aggregate these trademarks are material to our business, the loss of any one of those trademarks, with the exception of our “McCormick,” “French’s ,” “Frank’s RedHot,” “Lawry’s,” “Zatarain’s,” “Cholula,” “Stubb's,” “Club House,” “Ducros,” “Schwartz,” “Vahiné,” "OLD BAY," "Simply Asia," "Thai Kitchen," "Kitchen Basics," “Kamis,” “Drogheria & Alimentari,” "DaQiao," and "Gourmet Garden" trademarks, would not have a material adverse effect on our business. The “Mc – McCormick” trademark is extensively used by us in connection with the sale of our food products in the U.S. and certain non-U.S. markets. The terms of the trademark registrations are as prescribed by law, and the registrations will be renewed for as long as we deem them to be useful.

We are subject to numerous laws and regulations around the world that apply to our global businesses. In the United States, the safety, production, transportation, distribution, advertising, labeling and sale of many of our products and their ingredients are subject to the Federal Food, Drug, and Cosmetic Act; the Food Safety Modernization Act; the Federal Trade Commission Act; state consumer protection laws; competition laws, anti-corruption laws, customs and trade laws; federal, state and local workplace health and safety laws; various federal, state and local environmental protection laws; and various other federal, state and local statutes and regulations. Outside the United States, our business is subject to numerous similar statutes, laws and regulatory requirements.

We believe in the Power of People – our employees and customers across the world. Our high-performance culture is rooted in our shared values and respect for all contributions of every employee. Our key human capital objectives are to attract, retain and develop the highest quality talent. We employ various human resource programs in support of these objectives. We believe diversity, equity and inclusion are at the core of our values and strategic business priorities. Throughout our business, we champion equality, supporting parity for women and under-represented groups as we work to create ethical, safe and supportive workplaces where our employees thrive. We believe a diverse and inclusive workplace results in business growth and encourages increased innovation, retention of talent and a more engaged workforce. We have various employee ambassador groups that provide a supportive,

We had approximately 14,000 full-time employees worldwide as of November 30, 2021. Our operations have not been affected significantly by work stoppages, other than those associated with temporary closures of plants related to the COVID-19 pandemic in fiscal 2020 and, in the opinion of management, employee relations are good. Since the onset of COVID-19 in 2020, our employees have demonstrated resiliency, agility and engagement in support of business continuity despite the challenges that have arisen in the pandemic. We have approximately 400 employees in the United States who are covered by a collective bargaining contract. At our subsidiaries outside the U.S., approximately 2,600 employees are covered by collective bargaining agreements or similar arrangements.

Certain statements contained in this report, including statements concerning expected performance such as those relating to net sales, gross margin, earnings, cost savings, transaction and integration expenses, special charges, acquisitions, brand marketing support, volume and product mix, income tax expense, and the impact of foreign currency rates are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These statements may be identified by the use of words such as “may,” “will,” “expect,” "should," "anticipate," "intend," “believe” and “plan.” These statements may relate to: the impact of the COVID-19 pandemic on our business, suppliers, consumers, customers, and employees; disruptions or inefficiencies in the supply chain, including any impact of COVID-19; the expected results of operations of businesses acquired by the company, including the acquisitions of Cholula and FONA; the expected impact of the inflationary cost environment, including commodity, packaging materials and transportation costs on our business; the expected impact of pricing actions on the company's results of operations and gross margins; the expected impact of factors affecting our supply chain, including transportation capacity, labor shortages, and absenteeism; the expected impact of productivity improvements, including those associated with our Comprehensive Continuous Improvement (CCI) program and global enablement initiative; expected working capital improvements; expectations regarding growth potential in various geographies and markets, including the impact from customer, channel, category, and e-commerce expansion; expected trends in net sales and earnings performance and other financial measures; the expected timing and costs of implementing our business transformation initiative, which includes the implementation of a global enterprise resource planning (ERP) system; the expected impact of accounting pronouncements; the expectations of pension and postretirement plan contributions and anticipated charges associated with those plans; the holding period and market risks associated with financial instruments; the impact of foreign exchange fluctuations; the adequacy of internally generated funds and existing sources of liquidity, such as the availability of bank financing; the anticipated sufficiency of future cash flows to enable the payments of interest and repayment of short- and long-term debt as well as quarterly dividends and the ability to issue additional debt securities; and expectations regarding purchasing shares of McCormick's common stock under the existing repurchase authorization.

These and other forward-looking statements are based on management’s current views and assumptions and involve risks and uncertainties that could significantly affect expected results. Results may be materially affected by factors such as: the company's ability to drive revenue growth; the company's ability to increase pricing to offset, or partially offset, inflationary pressures on the cost of our products; damage to the company's reputation or brand name; loss of brand relevance; increased private label use; product quality, labeling, or safety concerns; negative publicity about our products; actions by, and the financial condition of, competitors and customers; the longevity of mutually beneficial relationships with our large customers; the ability to identify, interpret and react to changes in consumer preference and demand; business interruptions due to natural disasters, unexpected events or public health crisis, including COVID-19; issues affecting the company's supply chain and procurement of raw materials, including fluctuations in the cost and availability of raw and packaging materials; labor shortage, turnover and labor cost increases; government regulation, and changes in legal and regulatory requirements and enforcement practices; the lack of successful acquisition and integration of new businesses; global economic and financial conditions generally, including the on-going impact of the exit of the United Kingdom (U.K.) from the European Union, availability of financing, interest and inflation rates, and the imposition of tariffs, quotas, trade barriers and other similar restrictions; foreign currency fluctuations; the effects of increased level of debt service following the Cholula and FONA acquisitions as well as the effects that such increased debt service may have on the company's ability to borrow or the cost of any such additional borrowing, our credit rating, and our ability to react to certain economic and industry conditions; risks associated with the phase-out of LIBOR; impairments of indefinite-lived intangible assets; assumptions we have made regarding the investment return on retirement plan assets, and the costs associated with pension obligations; the stability of credit and capital markets; risks associated with the company's information technology systems, including the threat of data breaches and cyber-attacks; the company's inability to successfully implement our business transformation initiative; fundamental changes in tax laws; including interpretations and assumptions we have made, and guidance that may be issued, and volatility in our effective tax rate; climate change; Environmental, Social and Governance (ESG) matters; infringement of intellectual property rights, and those of customers; litigation, legal and administrative proceedings; the company's inability to achieve expected and/or needed cost savings or margin improvements; negative employee relations; and other risks described herein under Part I, Item 1A "Risk Factors."

Our principal corporate internet website address is: www.mccormickcorporation.com. We make available free of charge through our website our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the United States Securities and Exchange Commission (the SEC). The information and other content contained on our website are not part of (or incorporated by reference in) this report or any other document we file with the SEC. The SEC maintains an internet website at www.sec.gov that contains reports, proxy and information statements, and other information regarding McCormick. Our website also includes our Corporate Governance Guidelines, Business Ethics Policy and charters of the Audit Committee, Compensation & Human Capital Committee, and Nominating/Corporate Governance Committee of our Board of Directors.

The following are certain risk factors that could affect our business, financial condition and results of operations. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Annual Report on Form 10-K because these factors could cause the actual results and conditions to differ materially from those projected in forward-looking statements. Before you buy our Common Stock or Common Stock Non-Voting, you should know that making such an investment involves risks, including the risks described below. Additional risks and uncertainties that are not presently known to us or are currently deemed to be immaterial also may materially adversely affect our business, financial condition, or results of operations in the future. If any of the risks actually occur, our business, financial condition or results of operations could be negatively affected. In that case, the trading price of our securities could decline, and you may lose part or all of your investment.

The COVID-19 pandemic has had, and could continue to have, a negative impact on financial markets, economic conditions, and portions of our industry as a result of changes in consumer behavior, retailer inventory levels, cost inflation, manufacturing and supply chain disruption, and overall macroeconomic conditions. The extent and nature of government actions, including limitations on crowd size, closures of dine-in restaurants and bars, and significant restrictions on travel, as well as work restrictions that prohibited many employees from going to work, varied during fiscal 2020 and 2021 based upon the then-current extent and severity of the COVID-19 pandemic within the respective countries and localities. Although our consumer business has benefited from increased at-home consumption due to restrictions related to COVID-19, our ability to sustain heightened sales is dependent on consumer purchasing behavior. The COVID-19 mitigation measures impacting certain of our flavor solutions customers have included the following: (i) with respect to dine-in restaurants, closures, limitations on dine-in capacity, or restrictions on the operations of those restaurants to carry-out or delivery only; and (ii) with respect to quick service restaurants, limitations on operations to drive-through pick-up or delivery. The continued availability and effectiveness of vaccines and treatments may partially mitigate the risks around the continued spread of COVID-19, however, with the spread of the COVID-19 variants, the ongoing implications of the COVID-19 pandemic could adversely impact our business and results of operations in a number of ways, including but not limited to:

•Significant changes in the political conditions in markets in which we manufacture, sell or distribute our products, including quarantines, import/export restrictions, price controls, or governmental or regulatory actions, closures or other restrictions that limit or close our operating and manufacturing facilities, restrict our employees’ ability to travel or perform necessary business functions, or otherwise prevent our third-party partners, suppliers, or customers from sufficiently staffing operations, including operations necessary for the production, distribution, sale, and support of our products, which could adversely impact our results of operations and cash flows.

The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the emergence and spread of variants, infection rates in areas where we operate, the extent and effectiveness of containment actions, including the continued availability and effectiveness of vaccines in the markets where we operate, the impact of actions taken by governmental authorities and other third parties in response to the pandemic, each of which is uncertain, rapidly changing and difficult to predict, and the impact of these and other factors on our employees, customers, and suppliers. Should these conditions persist for a prolonged period, including any of the above factors and others that are currently unknown, the COVID-19 pandemic could have a material adverse effect on our business, financial condition, and results of operations. The impact of the COVID-19 pandemic may also exacerbate other risks discussed in this Item 1A, Risk Factors, any of which could have a material effect on us.

We continually make efforts to maintain and improve relationships with our customers and consumers and to increase awareness and relevance of our brands through effective marketing and other measures. From time to time, our customers reevaluate their mix of product offerings, and consumers have the option to purchase private label or other competitive products instead of our branded products. In the event that we are unable to supply our products to customers in the time frame and quantities that they desire, whether due to increased demand or other factors, our customers may discontinue all or a portion of their purchases from us and source competitive brands. If a significant portion of our branded business was switched to private label or competitive products, it could have a material negative impact on our consumer segment.

Our reputation for manufacturing high-quality products is widely recognized. In order to safeguard that reputation, we have adopted rigorous quality assurance and quality control procedures which are designed to ensure the safety of our products. A serious breach of our quality assurance or quality control procedures, deterioration of our quality image, impairment of our customer or consumer relationships or failure to adequately protect the relevance of our brands may lead to litigation, customers purchasing from our competitors or consumers purchasing other brands or private label items that may or may not be manufactured by us, any of which could have a material negative impact on our business, financial condition or results of operations.

The food industry generally is subject to risks posed by food spoilage and contamination, product tampering, product recall, import alerts and consumer product liability claims. For instance, we may be required to recall certain of our products should they be mislabeled, contaminated or damaged. Additionally, certain of our raw materials could be blocked from entering the country if they were subject to government-imposed actions. We have and may continue to become involved in lawsuits and legal proceedings if it is alleged that the consumption of any of our products could cause injury or illness, or that any of our products are mislabeled or fail to meet applicable legal requirements (even if the allegation is untrue). A product recall, import alert or an adverse result in any such litigation, or negative perceptions regarding food products and ingredients, could result in our having to pay fines or damages, incur additional costs or cause customers and consumers in our principal markets to lose confidence in the safety and quality of certain products or ingredients, any of which could have a negative effect on our business or financial results and, depending upon the significance of the affected product, that negative effect could be material to our business or financial results. Negative publicity about these concerns, whether or not valid, may discourage customers and consumers from buying our products or cause disruptions in production or distribution of our products and adversely affect our business, financial condition or results of operations.

A number of our customers, such as supermarkets, warehouse clubs and food distributors, have consolidated in recent years and consolidation could continue. Such consolidation could present a challenge to margin growth and profitability in that it has produced large, sophisticated customers with increased buying power who are more capable of operating with reduced inventories; resisting price increases; demanding lower pricing, increased promotional programs and specifically tailored products; and shifting shelf space currently used for our products to private label and other competitive products. The economic and competitive landscape for our customers is constantly changing, such as the emergence of new sales channels like e-commerce, and our customers' responses to those changes could impact our business. The trend towards e-commerce and its impact of consumer habits and preferences has accelerated since the onset of the COVID-19 pandemic in many of the markets we serve and our financial results may be impacted if we are unable to adapt to changing consumer preferences and market dynamics. In addition, our flavor solutions segment may be impacted if the reputation or perception of the customers of our flavor solutions segment declines. These factors could have an adverse impact on our business, financial condition or results of operations.

Our purchases of raw materials are subject to fluctuations in market price and availability caused by weather, growing and harvesting conditions, climate change, market conditions, governmental actions and other factors beyond our control, including the COVID-19 pandemic. The most significant raw materials used by us in our business are dairy products, pepper, capsicums (red peppers and paprika), onion, vanilla, garlic, and salt. While future price movements of raw material costs are uncertain, we seek to mitigate the market price risk in a number of ways, including strategic raw material purchases, purchases of raw material for future delivery, customer price adjustments and cost savings from our CCI program. We generally have not used derivatives to manage the volatility related to this risk. To the extent that we have used derivatives for this purpose, it has not been material to our business. Any actions we take in response to market price fluctuations may not effectively limit or eliminate our exposure to changes in raw material prices. Therefore, we cannot provide assurance that future raw material price fluctuations will not have a negative impact on our business, financial condition or operating results.

Our ability to make, move, and sell products is critical to our success. Damage or disruption to raw material supplies or our manufacturing or distribution capabilities due to weather, climate change, natural disaster, fire, terrorism, cyber-attack, pandemics (such as the COVID-19 pandemic), governmental restrictions or mandates, strikes, import/export restrictions, or other factors could impair our ability to manufacture or sell our products. Many of our product lines are manufactured at a single location. The failure of third parties on which we rely, including those third parties who supply our ingredients, packaging, capital equipment and other necessary operating materials, contract manufacturers, commercial transport, distributors, contractors, and external business partners, to meet their obligations to us, or significant disruptions in their ability to do so, may negatively impact our operations. Our suppliers’ policies and practices can damage our reputation and the quality and safety of our products. Disputes with significant suppliers, including disputes regarding pricing or performance, could adversely affect our ability to supply products to our customers and could materially and adversely affect our sales, financial condition, and results of operations. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, particularly when a product is manufactured from a single location, could adversely affect our business and results of operations, as well as require additional resources to restore our supply chain.

Labor is a primary component of operating our business. A number of factors may adversely affect the labor force available to us or increase labor costs, including high unemployment levels, federal unemployment subsidies, including unemployment benefits offered in response to the COVID-19 pandemic, and other government regulations. We are also experiencing and may continue to experience additional pressure in our supply chain due to labor shortages and absenteeism associated with COVID-19, together with the impact of the continued elevated demand. A sustained labor shortage or increased turnover rates within our employee base, caused by COVID-19 or as a result of general macroeconomic factors, could lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees, and could negatively affect our ability to efficiently operate our manufacturing and distribution facilities and overall business. If we are unable to hire and retain employees capable of performing at a high-level, or if mitigation measures we may take to respond to a decrease in labor availability, such as overtime and third-party outsourcing, have negative effects, our business could be adversely affected. In addition, we distribute our products and receive raw materials primarily by truck. Reduced availability of trucking capacity due to shortages of drivers, primarily as a result of the COVID-19 pandemic, has caused an increase in the cost of transportation for us and our suppliers. An overall labor shortage,

As a manufacturer and distributor of flavor products, we rely on raw materials, packaging materials, plant labor, distribution resources, and transportation providers. In 2021 and the early part of 2022, the costs of raw materials, packaging materials, labor, energy, fuel, transportation and other inputs necessary for the production and distribution of our products have rapidly increased. In addition, many of these materials are subject to price fluctuations from a number of factors, including, but not limited to, market conditions, demand for raw materials, weather, growing and harvesting conditions, climate change, energy costs, currency fluctuations, supplier capacities, governmental actions, import and export requirements (including tariffs), and other factors beyond our control. Although we are unable to predict the impact on our ability to source materials in the future, we expect these supply pressures to continue into 2022. We also expect the pressures of input cost inflation to continue into 2022.

Our attempts to offset these cost pressures, such as through increases in the selling prices of some of our products, may not be successful. Higher product prices may result in reductions in sales volume. Consumers may be less willing to pay a price differential for our branded products and may increasingly purchase lower-priced offerings, or may forego some purchases altogether, during an economic downturn. To the extent that price increases or packaging size decreases are not sufficient to offset these increased costs adequately or in a timely manner, and/or if they result in significant decreases in sales volume, our business, financial condition or operating results may be adversely affected. Furthermore, we may not be able to offset any cost increases through productivity initiatives or through our commodity hedging activity.

We could have an interruption in our business, loss of inventory or data, or be rendered unable to accept and fulfill customer orders as a result of a natural disaster, catastrophic event, epidemic or computer system failure. Natural disasters could include an earthquake, fire, flood, tornado or severe storm. A catastrophic event could include a terrorist attack. An epidemic or pandemic could affect our operations, major facilities or employees’ and consumers’ health. In addition, some of our inventory and production facilities are located in areas that are susceptible to harsh weather; a major storm, heavy snowfall or other similar event could prevent us from delivering products in a timely manner. Production of certain of our products is concentrated in a single manufacturing site.

We cannot provide assurance that our disaster recovery plan will address all of the issues we may encounter in the event of a disaster or other unanticipated issue, and our business interruption insurance may not adequately compensate us for losses that may occur from any of the foregoing. In the event that a natural disaster, terrorist attack or other catastrophic event were to destroy any part of our facilities or interrupt our operations for any extended period of time, or if harsh weather or health conditions prevent us from delivering products in a timely manner, our business, financial condition or operating results could be adversely affected.

As of November 30, 2021, we had approximately $5.3 billion of goodwill and approximately $3.5 billion of other indefinite-lived intangible assets. Goodwill and indefinite-lived intangible assets are initially recorded at fair value and not amortized but are tested for impairment at least annually or more frequently if impairment indicators arise. We test goodwill at the reporting unit level by comparing the carrying value of the net assets of the reporting unit, including goodwill, to the unit's fair value. Similarly, we test indefinite-lived intangible assets by comparing the fair value of those assets to their carrying values. If the carrying values of the reporting unit or indefinite-lived intangible assets exceed their fair value, the goodwill or indefinite-lived intangible assets are considered impaired and reduced to their implied fair value or fair value, respectively. Factors that could result in an impairment include a change in revenue growth rates, operating margins, weighted average cost of capital, future economic and market conditions, higher income tax rates, or assumed royalty rates. The impairment of our goodwill or indefinite-lived intangible assets would have a negative impact on our consolidated results of operations.

We regularly evaluate whether to implement changes to our organization structure to reduce fixed costs, simplify or improve processes, and improve our competitiveness, and we expect to continue to evaluate such actions in the future. From time to time, those changes are of such significance that we may transfer production from one manufacturing facility to another; transfer certain selling and administrative functions from one location to another; eliminate certain manufacturing, selling and administrative positions; and exit certain businesses or lines of business. These actions may result in a deterioration of employee relations at the impacted locations or elsewhere in McCormick.

We are exposed to fluctuations in foreign currency in the following main areas: cash flows related to raw material purchases; the translation of foreign currency earnings to U.S. dollars; the effects of foreign currency on loans between subsidiaries and unconsolidated affiliates and on cash flows related to repatriation of earnings of unconsolidated affiliates. Primary exposures include the U.S. dollar versus the Euro, British pound sterling, Chinese renminbi, Canadian dollar, Australian dollar, Polish zloty, and Mexican peso, as well as the Euro versus the British pound sterling and Australian dollar, and finally the Canadian dollar versus British pound sterling. We routinely enter into foreign currency exchange contracts to facilitate managing certain of these foreign currency risks. However, these contracts may not effectively limit or eliminate our exposure to a decline in operating results due to foreign currency exchange changes. Therefore, we cannot provide assurance that future exchange rate fluctuations will not have a negative impact on our business, financial position or operating results.

On January 1, 2021, the EU-UK Trade and Cooperation Agreement (the EU-UK trade deal) took effect. The EU-UK trade deal was formally approved by the European Union legislature on April 28, 2021. While the EU-UK trade deal has removed uncertainty and a significant amount of financial risk associated with the U.K.’s exit from the European Union, we are still assessing its details and related impact on our U.K business and other operations. We believe that the new trading relationship between the U.K and the European Union will result in increased costs of goods imported into the U.K. from the European Union and exported from the U.K. into the European Union. The movement of goods between the U.K. and the European Union will continue to be subject to additional inspections and documentation checks, leading to possible delays at ports of entry and departure. Also, there will be additional costs related to goods that are deemed to originate outside of the U.K. or European Union, and for which the originating country has no trade agreement with the U.K. Our ability to increase pricing of our products in light of increased costs is uncertain and, to the extent we are unable to fully do so, our profitability will decline.

We hold investments in equity and debt securities in our qualified defined benefit pension plans and in a rabbi trust for our U.S. non-qualified pension plan. Deterioration in the value of plan assets resulting from a general financial downturn or otherwise, or an increase in the actuarial valuation of the plans' liability due to a low interest rate environment, could cause (or increase) an underfunded status of our defined benefit pension plans, thereby increasing our obligation to make contributions to the plans. An obligation to make contributions to pension plans could reduce the cash available for working capital and other corporate uses, and may have an adverse impact on our operations, financial condition and liquidity.

Unseasonable or unusual weather or long-term climate changes may negatively impact the price or availability of spices, herbs and other raw materials. Scientific consensus shows that greenhouse gases in the atmosphere have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters. In the event that such climate change has a negative effect on agricultural productivity or practices, we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products. As a result of climate change, we may also be subjected to decreased availability of water, deteriorated quality of water or less favorable pricing for water, which could adversely impact our manufacturing and distribution operations. In addition, such climate change may result in modifications to the eating preferences of the ultimate consumers of certain of our products, which may also unfavorably impact our sales and profitability.

Companies across all industries are facing increasing scrutiny relating to their ESG policies. If we are unable to meet our ESG goals or evolving investor, industry or stakeholder expectations and standards, or if we are perceived to have not responded appropriately to the growing concern for ESG issues, customers and consumers may choose to stop purchasing our products or purchase products from another company or a competitor, and our reputation, business or financial condition may be adversely affected. Increased focus and activism on ESG topics may hinder our access to capital, as investors may reconsider their capital investment as a result of their assessment of our ESG practices. In particular, these constituencies are increasingly focusing on environmental issues, including climate change, water use, deforestation, plastic waste, and other sustainability concerns. Changing consumer preferences may result in increased demands regarding plastics and packaging materials, including single-use and non-recyclable plastic packaging, and other components of our products and their environmental impact on sustainability; a growing demand for natural or organic products and ingredients; or increased consumer concerns or perceptions (whether accurate or inaccurate) regarding the effects of ingredients or substances present in certain consumer products. These demands could cause us to incur additional costs or to make changes to our operations to comply with such demands.

On November 30, 2021, we had total outstanding variable rate debt of approximately $613 million, including $539 million of short-term borrowings, at a weighted-average interest rate of approximately 0.2%. The interest rates under our revolving credit facility can vary based on our credit ratings. Our policy is to manage our interest rate risk by entering into both fixed and variable rate debt arrangements. We also use interest rate swaps to minimize worldwide financing cost and to achieve a desired mix of fixed and variable rate debt. We utilize derivative financial instruments to enhance our ability to manage risk, including interest rate exposures that 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 instruments. Our use of derivative financial instruments is monitored through regular communication with senior management and the utilization of written guidelines. However, our use of these instruments may not effectively limit or eliminate our exposure to changes in interest rates. Therefore, we cannot provide assurance that future credit rating or interest rate changes will not have a material negative impact on our business, financial position or operating results.

Consolidations in some of the industries in which our customers operate have created larger customers, some of which are highly leveraged. In addition, competition has increased with the growth in alternative channels through our customer base. These factors have caused some customers to be less profitable and increased our exposure to credit risk. Current credit markets are volatile, and some of our customers and counterparties are highly leveraged. A significant adverse change in the financial and/or credit position of a customer or counterparty could require us to assume greater credit risk relating to that customer or counterparty and could limit our ability to collect receivables. This could have an adverse impact on our financial condition and liquidity.

Our credit ratings reflect each rating organization's opinion of our financial strength, operating performance and ability to meet our debt obligations. Our credit ratings were downgraded following our financing of the acquisition of RB Foods in August 2017 and any reduction in our credit ratings may limit our ability to borrow at interest rates consistent with the interest rates that were available to us prior to that acquisition and the related financing transactions. If our credit ratings are downgraded or put on watch for a potential downgrade, we may not be able to sell additional debt securities or borrow money in the amounts, at the times or interest rates, or upon the more favorable terms and conditions that might be available if our current credit ratings were maintained.

We rely on our revolving credit facility, or borrowings backed by this facility, to fund a portion of our seasonal working capital needs and other general corporate purposes, including funding of acquisitions. If any of the banks in the syndicates backing these facilities were unable to perform on its commitments, our liquidity could be impacted, which could adversely affect funding of seasonal working capital requirements. We engage in regular communication with all of the banks participating in our revolving credit facility. During these communications, none of the banks have indicated that they may be unable to perform on their commitments. In addition, we periodically review our banking and financing relationships, considering the stability of the institutions, pricing we receive on services and other aspects of the relationships. Based on these communications and our monitoring activities, we believe the likelihood of one of our banks not performing on its commitment is remote.

LIBOR, the interest rate benchmark used as a reference rate on our variable rate debt, including our revolving credit facility, synthetic lease, interest rate swaps, and cross currency interest rate swaps is expected to be phased out beginning after December 31, 2021 when private-sector banks are no longer required to report the information used to set the rate. Without this data, LIBOR may no longer be published, or the lack of quality and quantity of data may cause the rate to no longer be representative of the market. On March 5, 2021, the U.K. Financial Conduct Authority (FCA) published a statement confirming that all LIBOR settings will either cease to be provided or no longer be representative (i) immediately after December 31, 2021, in the case of all sterling, euro, Swiss franc and Japanese yen settings, and the 1-week and 2-month US dollar settings, and (ii) immediately after June 30, 2023, in the case of all remaining US dollar settings. The International Swaps and Derivative Association (ISDA) or Alternative Reference Rates Committee (ARRC) fallback spread adjustments were fixed as of the FCA announcement date and are expected to be implemented at the point each relevant reference rate ceases or becomes non-representative.

There continue to be many uncertainties regarding a transition from LIBOR, including but not limited to the need to amend all contracts with LIBOR as the referenced rate and how this will impact the Company’s cost of variable rate debt and certain derivative financial instruments. The Company will also need to consider new contracts and if they should reference an alternative benchmark rate or include suggested fallback language, as published by the ARRC. The consequences of these developments with respect to LIBOR cannot be entirely predicted and span multiple future periods but could result in an increase in the cost of our variable rate debt or derivative financial instruments which may be detrimental to our financial position or operating results.

The declaration, payment and amount of any dividends is made pursuant to our dividend policy and is subject to final determination each quarter by our board of directors in its discretion based on a number of factors that it deems relevant, including our financial position, results of operations, available cash resources, cash requirements and alternative uses of cash that our board of directors may conclude would be in the best interest of the company and our shareholders. Our dividend payments are subject to solvency conditions established by the Maryland General Corporation Law. Accordingly, there can be no assurance that any future dividends will be equal or similar in amount to any dividends previously paid or that our board of directors will not decide to reduce, suspend or discontinue the payment of dividends at any time in the future.

the design and operation of equipment used in our businesses. We protect our intellectual property rights, and those of certain customers, globally through a variety of means, including trademarks, copyrights, patents and trade secrets, third-party assignments and nondisclosure agreements, and monitoring of third-party misuses of intellectual property. If we fail to obtain or adequately protect our intellectual property (and the intellectual property of customers to which we have been given access), the value of our products and brands could be reduced and there could be an adverse impact on our business, financial condition and results of operations.

Our information technology systems are critically important to operating our business. We rely on our information technology systems, some of which are or may be managed or hosted by or out-sourced to third party service providers, to manage our business data, communications, supply chain, order entry and fulfillment, and other business processes. If we do not allocate and effectively manage the resources necessary to build, sustain, and protect appropriate information technology systems and infrastructure, or we do not effectively implement system upgrades or oversee third party service providers, our business or financial results could be negatively impacted. The failure of our information technology systems to perform as we anticipate could disrupt our business and could result in transaction or reporting errors, processing inefficiencies and the loss of sales and customers, causing our business and results of operations to suffer.

Furthermore, our information technology systems, and the systems of our customers, vendors, suppliers, and other third-party service providers, are subject to cyber-attacks or other security incidents including computer viruses or other malicious codes, phishing attacks, ransomware, or other service disruptions, or other system or process failures. Such incidents could result in unauthorized access to information including customer, consumer or other company confidential data as well as disruptions to operations. We, and the third-parties we do business with, have experienced in the past, and expect to continue to experience, cybersecurity threats and attacks, although to date none has been material. To address the risks to our information technology systems and data, we maintain an information security program that includes updating technology, developing security policies and procedures, implementing and assessing the effectiveness of controls, monitoring and routine testing of our information systems, conducting risk assessments of third party service providers and designing business processes to mitigate the risk of such breaches. We believe that these preventative actions provide adequate measures of protection against security breaches and generally reduce our cybersecurity risks. However, cyber-threats are constantly evolving, are becoming more sophisticated and are being made by groups of individuals with a wide range of expertise and motives, which increases the difficulty of detecting and successfully defending against them. There can be no assurance that these measures will prevent or limit the impact of a future incident. Moreover, the development and maintenance of these measures requires continuous monitoring as technologies change and efforts to overcome security measures evolve. Additionally, we rely on services provided by third-party vendors for certain information technology processes and functions, which makes our operations vulnerable to a failure by any one of these vendors to perform adequately or maintain effective internal controls. If we are unable to prevent or adequately respond to and resolve an incident, it may have a material, negative impact on our operations or business reputation, and we may experience other adverse consequences such as loss of assets, remediation costs, litigation, regulatory investigations, and the failure by us to retain or attract customers following such an event.

We continue to implement our multi-year business transformation initiative to execute significant change to our global processes, capabilities and operating model, including in our Global Enablement (GE) organization, in order to provide a scalable platform for future growth, while reducing costs. As technology provides the backbone for greater process alignment, information sharing and scalability, we are also making investments in our information systems, including the multi-year program to replace our enterprise resource planning (ERP) system currently underway, which includes the transformation of our financial processing systems to enterprise-wide systems solutions. These systems implementations are part of our ongoing business transformation initiative, and we plan to implement these systems throughout all parts of our businesses. If we do not allocate and effectively manage the resources necessary to build and sustain the proper information technology infrastructure, or if we fail to achieve the expected benefits from this initiative, it may impact our ability to process transactions accurately and efficiently and remain in step with the changing needs of our business, which could result in the loss of customers and revenue. In

We utilize cloud-based services and systems and networks managed by third-party vendors to process, transmit and store information and to conduct certain of our business activities and transactions with employees, customers, vendors and other third parties. Our utilization of these cloud-based services and systems will increase as we implement our business transformation initiatives. If any of these third-party service providers or vendors do not perform effectively, or if we fail to adequately monitor their performance (including compliance with service-level agreements or regulatory or legal requirements), we may not be able to achieve expected cost savings, we may have to incur additional costs to correct errors made by such service providers, our reputation could be harmed or we could be subject to litigation, claims, legal or regulatory proceedings, inquiries or investigations. Depending on the function involved, such errors may also lead to business disruption, processing inefficiencies, the loss of or damage to intellectual property or sensitive data through security breaches or otherwise, incorrect or adverse effects on financial reporting, litigation or remediation costs, or damage to our reputation, which could have a negative impact on employee morale. In addition, the management of multiple third-party service providers increases operational complexity and decreases our control.

Food products are extensively regulated in most of the countries in which we sell our products. We are subject to numerous laws and regulations relating to the growing, sourcing, manufacturing, storage, labeling, marketing, advertising and distribution of food products, as well as laws and regulations relating to financial reporting requirements, the environment, consumer protection, competition, anti-corruption, privacy, relations with distributors and retailers, foreign supplier verification, customs and trade laws, including the import and export of products and product ingredients, employment, and health and safety. Enforcement of existing laws and regulations, changes in legal requirements, and/or evolving interpretations of existing regulatory requirements may result in increased compliance costs and create other obligations, financial or otherwise, that could adversely affect our business, financial condition or operating results. Increased regulatory scrutiny of, and increased litigation involving, product claims and concerns regarding the attributes of food products and ingredients may increase compliance costs and create other obligations that could adversely affect our business, financial condition or operating results. Governments may also impose requirements and restrictions that impact our business, such as labeling disclosures pertaining to ingredients. For example, "Proposition 65, the Safe Drinking Water and Toxic Enforcement Act of 1986," in California exposes all food companies to the possibility of having to provide warnings on their products in that state. If we were required to add warning labels to any of our products or place warnings in locations where our products are sold in order to comply with Proposition 65, the sales of those products and other products of our company could suffer, not only in those locations but elsewhere.

In addition, there are various compliance obligations for companies that process personal data of certain individuals, including such obligations required by the European Union’s General Data Protection Regulation (GDPR), which came into effect in May 2018, and the California Consumer Privacy Act (CCPA), which came into effect in January 2020. These types of data privacy laws create a range of compliance obligations for companies that process personal data of certain individuals and increases financial penalties for non-compliance. For example, the CCPA imposes requirements on companies that do business in California and collect personal information from customers, including notice, consent and service provider requirements. The CCPA also provides for civil penalties for companies that fail to comply with these requirements, as well as a private right of action for data breaches. Further, in November 2020, the California Privacy Rights Act (“CPRA”) was passed into law and goes into full effect on January 1, 2023 (with a ‘look-back’ to January 1, 2022). The CPRA builds on the CCPA and among other things, requires the establishment of a dedicated agency to regulate privacy issues. In 2021, Virginia and Colorado adopted laws which will take effect on January 1, 2023, and July 1, 2023, respectively, introducing new privacy obligations, which may require us to develop additional compliance mechanisms and processes. As a company that is subject to data privacy laws, we bear the costs of compliance with them, including the GDPR and U.S. state laws, and are subject to the potential for fines and penalties in the event of a breach of these laws, which continue to evolve. These factors and others could have an adverse impact on our business, financial condition or results of operations.

We are party to a variety of legal claims and proceedings in the ordinary course of business. Since litigation is inherently uncertain, there is no guarantee that we will be successful in defending ourselves against such claims or proceedings, or that management’s assessment of the materiality or immateriality of these matters, including any reserves taken in connection with such matters, will be consistent with the ultimate outcome of such claims or proceedings. In the event that management’s assessment of the materiality or immateriality of current claims and proceedings proves inaccurate, or litigation that is material arises in the future, there may be a material adverse effect on our financial condition. Any adverse publicity resulting from allegations made in litigation claims or legal or administrative proceedings (even if untrue) may also adversely affect our reputation. These factors and others could have an adverse impact on our business and financial condition or damage our reputation.

We operate our business and market our products internationally. In fiscal year 2021, approximately 40% of our sales were generated in countries other than the U.S. Our international operations are subject to additional risks, including fluctuations in currency values, foreign currency exchange controls, discriminatory fiscal policies, compliance with U.S. and foreign laws, enforcement of remedies in foreign jurisdictions and other economic or political uncertainties. Several countries within the European Union continue to experience sovereign debt and credit issues, which causes more volatility in the economic environment throughout the European Union and the U.K. Additionally, sales in countries other than the U.S., together with finished goods and raw materials imported into the U.S., are subject to risks related to fundamental changes to tax laws as well as the imposition of tariffs, quotas, trade barriers and other similar restrictions. All of these risks could result in increased costs or decreased revenues, which could adversely affect our profitability.

In addition, significant judgment is required in determining our effective tax rate and in evaluating our tax positions. We establish accruals for certain tax contingencies when, despite the belief that our tax return positions are appropriately supported, the positions are uncertain. The tax contingency accruals are adjusted in light of changing facts and circumstances, such as the progress of tax audits, case law and emerging legislation. Our effective tax rate includes the impact of tax contingency accruals and changes to those accruals, including related interest and penalties, as considered appropriate by management. When particular matters arise, a number of years may elapse before such matters are audited and finally resolved. Favorable resolution of such matters could be recognized as a reduction to our effective tax rate in the year of resolution. Unfavorable resolution of any particular issue could increase the effective tax rate and may require the use of cash in the year of resolution.

In addition to distribution facilities and warehouse space available at our manufacturing facilities, we lease regional distribution facilities as follows (i) in the U.S.: Belcamp and Aberdeen, Maryland; Salinas, California; Byhalia, Mississippi; Irving, Texas; and Springfield, Missouri; (ii) in Canada: Mississauga and London, Ontario; (iii) in Heywood, U.K. and (iv) in Compans, France. We also own distribution facilities in Belcamp, Maryland and Monteux, France. In addition, we own, lease or contract other properties used for manufacturing consumer and flavor solutions products and for sales, warehousing, distribution and administrative functions.

ISSUER PURCHASES OF EQUITY SECURITIES

Period

Total number of
shares purchased

Average price
paid per share

Total number of shares purchased as part of publicly announced plans or programs

Approximate dollar value of shares that may yet be purchased under the plans or programs

September 1, 2021 to
September 30, 2021

CS-33,191 (1)

CSNV-0

$85.75
-

33,191
-

$579 million

October 1, 2021 to
October 31, 2021

CS-11,640
CSNV-1,600

$79.88
$80.96

11,640
1,600

$578 million

November 1, 2021 to
November 30, 2021

CS-18,007 (2)

CSNV-0

$85.68
-

18,007
-

$576 million

Total

CS-62,838
CSNV-1,600

$84.64
$80.96

62,838
1,600

$576 million

In certain circumstances, we issue shares of CS in exchange for shares of CSNV, or issue shares of CSNV in exchange for shares of CS, in either case pursuant to the exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended. Typically, these exchanges are made in connection with the administration of our employee benefit plans, executive compensation programs and dividend reinvestment/direct purchase plans. The number of shares issued in an exchange is generally equal to the number of shares received in the exchange, although the number may differ slightly to the extent necessary to comply with the requirements of the Employee Retirement Income Security Act of 1974. During fiscal 2021, we issued 617,155 shares of CSNV in exchange for shares of CS and issued 14,262 shares of CS in exchange for shares of CSNV.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand McCormick & Company, Incorporated, our operations and our present business environment from the perspective of management. MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes thereto contained in Item 8 of this report. We use certain non-GAAP information — more fully described below under the caption Non-GAAP Financial Measures — that we believe is important for purposes of comparison to prior periods and development of future projections and earnings growth prospects. This information is also used by management to measure the profitability of our ongoing operations and analyze our business performance and trends. The dollar and share information in the charts and tables in the MD&A are in millions, except per share data. On November 30, 2020, the Company effected a two-for-one stock split in the form of a stock dividend on all shares of the Company’s two classes of common stock. On November 30, 2020, one like share was issued for each share outstanding to shareholders of record as of November 20, 2020. All common stock and per share data have been retroactively adjusted to reflect the stock split.

COVID-19 – As a result of the COVID-19 pandemic, governments around the world either recommended or mandated actions to slow the transmission of the virus that included shelter-in-place orders, quarantines, limitations on crowd size, closures of dine-in restaurants and bars, and significant restrictions on travel, as well as work restrictions that prohibited many employees from going to work. Uncertainty with respect to the economic effects of the pandemic has significantly impacted not only our operating results but also the global economy. The extent and nature of government actions varied during the years ended November 30, 2021 and 2020 based upon the then-current extent and severity of the COVID-19 pandemic within their respective countries and localities.

We continue to actively monitor the impact of COVID-19 on all aspects of our business. The effects of COVID-19 on consumer behavior have impacted the relative balance of at-home versus away-from-home food demand. The impact of COVID-19 on our consumer segment since the beginning of the pandemic has resulted in a significant increase in at-home consumption and related demand for our products. In 2021, our flavor solutions segment benefited from a recovery in away-from-home eating that more than offset the net sales declines experienced in 2020 as a result of restrictions imposed to reduce the spread of COVID-19. The COVID-19 mitigation measures in 2020 impacting certain of our flavor solutions customers included the following: (i) with respect to dine-in restaurants, closures, limitations on dine-in capacity, or restrictions on the operations of those restaurants to carry-out or delivery only; and (ii) with respect to quick service restaurants, limitations on operations to drive-through pick-up or delivery. Although certain restrictive measures were reinstated during certain periods of 2021, the prevalence and scale of closures and operating limitations were less severe as compared to 2020. For comparative purposes, the following provides a summary of growth in net sales as reported and on a constant currency basis for the year ended 2021 as compared to 2019:

In early fiscal 2021, vaccines effective in combating COVID-19 were approved by health agencies in certain countries/regions in which we operate (including the U.S., U.K., European Union, Canada and Mexico) and began to be administered. The availability of COVID-19 vaccines and their acceptance by individuals is difficult to predict, and vaccination levels vary across jurisdictions. The pace and shape of the COVID-19 recovery as well as the impact and extent of COVID-19 variants or potential resurgences is not presently known. These and other uncertainties with respect to COVID-19 could result in changes to our current expectations in addition to a number of adverse impacts to our business, including but not limited to additional disruption to the economy and consumers’ willingness and ability to spend, temporary or permanent closures by businesses that consume our products, such as restaurants, additional work restrictions, and supply chains being interrupted, slowed, or rendered inoperable or, in the case of significant increased demand for our product, we may be unable to fulfill that increased demand. As a result, it may be challenging to obtain and process raw materials to support our business needs, and individuals could become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions. Also, governments may impose other laws, regulations or taxes related to COVID-19 which could adversely impact our business, financial condition, or results of operations. Further, if our customers’ businesses are similarly affected, they might delay or reduce purchases from us. The potential effects of COVID-19 also could impact us in a number of other ways including, but not limited to, variations in the level of our profitability, laws and regulations affecting our business, fluctuations in foreign currency markets, the availability of future borrowings, the cost of borrowings, valuation of our pension assets and obligations, credit risks of our customers and counterparties, and potential impairment of the carrying value of goodwill or other indefinite-lived intangible assets.

Inflationary Cost Environment and Supply Chain Disruption – During fiscal 2021, we experienced inflationary cost increases in our commodities, packaging materials and transportation costs. We expect that these inflationary cost increases will continue but we expect they will be partially mitigated by pricing actions implemented in the fourth quarter of fiscal 2021, those that we plan to implement in fiscal 2022 and by our Comprehensive Continuous Improvement (CCI) program-led cost savings. During fiscal 2021, we also experienced additional pressure in our supply chain due to strained transportation capacity, as well as due to labor shortages and absenteeism associated with COVID-19, together with the impact of the continued elevated demand. In response to these supply chain pressures, we have taken actions build capacity as well as increase our supply chain related resources. We expect these pressures to continue in 2022.

•On December 30, 2020, we acquired FONA International, LLC and certain of its affiliates (FONA), a privately owned company, for approximately $708 million, net of cash acquired. We financed this fiscal 2021 acquisition with cash and short-term borrowings. FONA is a leading manufacturer of clean and natural flavors providing solutions for a diverse customer base across various applications for the food, beverage and nutritional markets which expands the breadth of our flavor solutions segment into attractive categories, as well as extends our technology platform, strengthens our capabilities, and accelerates the strategic migration of our portfolio to more value-added and technically insulated products.

We are making investments to build the McCormick of the future, including in our Global Enablement (GE) organization to transform McCormick through globally aligned, innovative services to enable growth. As more fully described in note 3 of notes to our consolidated financial statements, we expect to incur special charges of approximately $60 million to $65 million associated with our GE initiative of which approximately $40.7 million have been recognized through November 30, 2021. As technology provides the backbone for this greater process alignment, information sharing and scalability, we are also making investments in our information systems. From late 2018 through early 2020, we progressed in implementing our global enterprise resource planning (ERP) replacement program which will enable us to accelerate the transformation of our ways of working and provide a scalable platform for growth. In the second quarter of fiscal 2020, we elected to pause activity related to our ERP for the balance of fiscal 2020 due, in part, to COVID-19 restrictions that restricted necessary travel by internal and external ERP team members and made it difficult for local McCormick personnel to actively participate in the ERP development, data cleansing, and testing prior to then scheduled pilots later in fiscal 2020. During fiscal 2021, we resumed activities related to our ERP replacement program.

We expect that, in total over the course of the ERP replacement program from late 2018 through 2025, we will invest approximately $400 million, including expenses related to the go-live activities in our operations, to enable the anticipated completion of the global roll out of our new information technology platform in 2024. Of that projected $400 million, we expect capitalized software to account for approximately 50% and program expenses to account for approximately 50%. Of the approximately $200 million of operating expenses included in our projected total spending related to our ERP replacement program, approximately $85 million has been recognized through November 30, 2021. Of the approximately $200 million of capitalized software included in our projected total spending related to our ERP program, approximately $115 million has been recognized through November 30, 2021.

•We grew volume and product mix, which added 5.5% of sales growth, exclusive of acquisitions. This growth was driven by increases in both our consumer and flavor solutions segments. Increased net sales within our consumer segment was driven by strong demand due to a sustained shift in consumer behavior toward at-home meal preparation, which was first seen in 2020 as a response to actions taken to mitigate the spread of COVID-19. Increased net sales within our flavor solutions segment was principally driven by sales of away-from-home products as compared to 2020, when actions taken to mitigate the spread of COVID-19 significantly impacted demand.

Operating income was $1,015.1 million in 2021 and $999.5 million in 2020. We recorded $51.1 million and $6.9 million of special charges in 2021 and 2020, respectively, related to organization and streamlining actions. Special charges in 2021 included $4.7 million in cost of goods sold related the exit of a low margin business. In 2021 and 2020, we also recorded $35.3 million and $12.4 million of transaction and integration expenses, respectively, related to our acquisitions of Cholula and FONA that reduced operating income. In 2021, compared to the year-ago period, the favorable impact of higher sales, $117.0 million of cost savings from our CCI program, including organization and streamlining actions, and lower incentive-based compensation more than offset the impact of increased commodity, packaging materials and transportation costs, higher conversion costs, which include costs associated with COVID-19, and increased brand marketing costs. Excluding special charges and transaction and integration expenses related to our acquisitions of Cholula and FONA, adjusted operating income was $1,101.5 million in 2021, an increase of 8.1%, compared to $1,018.8 million in the year-ago period. In constant currency, adjusted operating income rose 6.2%. For further details and a reconciliation of non-GAAP to reported amounts, see the subsequent discussion under the heading "Non-GAAP Financial Measures".

In 2022, we expect to grow net sales over the 2021 level by 3% to 5%, which includes an estimated 1% unfavorable impact from currency rates, or 4% to 6% on a constant currency basis. That anticipated 2022 sales growth includes the impact of pricing actions, including those taken in 2021, to partially offset cost increases. We expect the impact of pricing to be a significant driver of our sales growth. We expect volume and product mix to be impacted by pricing elasticities, although at a lower level than we have experienced historically. We anticipate that our volume and product mix will also be impacted by the exit of a lower margin product line in late 2021.

We expect our 2022 gross profit margin to range from an increase of 20 basis points to a decline of 30 basis points from our gross profit margin of 39.5% in 2021. The projected 2022 change in gross profit margin is principally due to the net effect of (i) a mid-teen percentage impact of inflation in 2022 compared to 2021, (ii) the favorable impact of pricing actions in response to increased commodity, packaging materials and transportation costs, (iii) anticipated unfavorable sales mix in 2022 between our consumer and flavor solutions segments as compared to 2021, (iv) the favorable impact of anticipated CCI cost savings, and (v) the lack of $11.0 million of transaction and integration expenses and special charges reflected in cost of goods sold in 2021. We expect our 2022 gross profit margin, excluding the $11.0 million of transaction and integration expenses and special charges in 2021, to range from comparable to a decline of 50 basis points from our 2021 adjusted gross profit margin of 39.7%.

In 2022, we expect an increase in operating income of 13% to 15%, which includes an estimated 1% unfavorable impact from currency rates, over the 2021 level. Our CCI-led cost savings target in 2022 is approximately $85 million. We anticipate integration expenses related to the FONA acquisition of approximately $3 million to favorably impact operating income in 2022, as compared to $35.3 million of transaction and integration expenses in 2021. We also expect approximately $30 million of special charges in 2022 that relate to previously announced organization and streamlining actions; in 2021, special charges were $51.1 million. Excluding special charges and transaction and integration expenses, we expect 2022’s adjusted operating income to increase by 7% to 9%, which includes an estimated 1% unfavorable impact from currency rates, or to increase by 8% to 10% on a constant currency basis over the 2021 level.

Diluted earnings per share was $2.80 in 2021. Diluted earnings per share for 2022 is projected to range from $3.07 to $3.12. Excluding the per share impact of i) special charges of $0.16; ii) transaction and integration expenses, including the unfavorable impact of a discrete tax item of $0.04 related to our acquisition of FONA, of $0.14; and iii) the gain realized upon our sale of an unconsolidated operation of $0.05, adjusted diluted earnings per share was $3.05 in 2021. Adjusted diluted earnings per share, excluding an estimated per share impact from special charges of $0.09 and from integration expenses of $0.01, is projected to range from $3.17 to $3.22 in 2022. We expect adjusted diluted earnings per share to grow by 4% to 6%, which includes a 1% unfavorable impact from currency rates, or to grow by 5% to 7% on a constant currency basis over adjusted diluted earnings per share of $3.05 in 2021.

Sales for 2021 increased by 12.8% from 2020 and by 10.4% on a constant currency basis. That 12.8% sales increase was driven by higher sales in both our consumer and flavor solutions segments. On a consolidated basis, higher volume and favorable product mix increased sales by 5.5% while pricing actions, which were primarily taken in the fourth quarter, added 0.8% to sales. That net volume increase and favorable mix was driven by continued levels of strong demand within our consumer segment, as the shift in consumer behavior toward at-home meal preparation, first seen in 2020 as a response to actions taken to mitigate the spread of COVID-19, has persisted. In addition, our flavor solutions segment volume increased principally due to a recovery in demand for away-from-home products, including higher sales to our branded food service customers, as compared to 2020. Sales were also impacted by favorable foreign currency rates that increased net sales 2.4% compared to 2020 and is excluded from our measure of sales growth of 10.4% on a constant currency basis.


	2021			2020
Gross profit	$	2,494.6		$	2,300.4
Gross profit margin	39.5		%	41.1		%

In 2021, our gross profit margin decreased 160 basis points to 39.5% from 41.1% in 2020. The decline was driven by the impact of increased commodity, packaging materials and transportation costs, higher conversion costs, which includes costs associated with COVID-19, and a less favorable mix in sales between our consumer and flavor solutions segments as compared to 2020. These unfavorable impacts were partially offset by savings from our CCI program, pricing actions, improved product mix and the accretive impact of the Cholula and FONA acquisitions, each as compared to the prior year period. In addition, our 2021 gross profit margin was burdened by (i) $6.3 million of transaction expense, representing the amortization of the fair value adjustment to the acquired inventories of Cholula and FONA upon our sale of those acquired inventories, and (ii) a non-cash special charge of $4.7 million

Selling, general and administrative (SG&A) expense was $1,404.1 million in 2021 compared to $1,281.6 million in 2020, an increase of $122.5 million. That increase in SG&A expense was primarily a result of (i) SG&A associated with the Cholula and FONA acquisitions; (ii) greater selling and distribution expenses associated with the higher sales volume; and (iii) increased brand marketing costs, all as compared to the corresponding period in 2020. Those increases were partially offset by lower performance-based employee incentive expenses, as compared to the prior year period. SG&A as a percent of net sales for 2021 decreased by 60 basis points from the prior year level, driven by the impact of the leverage of fixed and semi-fixed expenses over a higher level of sales during the 2021 period.


	2021		2020
Special charges included in cost of goods sold	$	4.7	$	—
Other special charges	46.4		6.9
Total special charges	$	51.1	$	6.9

During 2021, we recorded $51.1 million of special charges, consisting principally of (i) $19.5 million associated with our exit of our rice product line in India, as more fully described below, (ii) $6.2 million associated with the transition of a manufacturing facility in EMEA, (iii) streamlining actions of $10.3 million in the Americas region and $4.8 million in the EMEA region, and (iv) a non-cash asset impairment charge of $6.0 million associated with an administrative site that was sold in conjunction with our decision to employ a hybrid work environment. As more fully described in note 3 of our notes of consolidated financial statements, the $19.5 million special charge associated with the exit of our rice product line in India consisted of an $11.2 million non-cash impairment charge associated with the impairment of certain intangible assets, $3.6 million of employee severance and other related exit costs, and a $4.7 million charge in cost of goods sold which represents a provision for the excess of the carrying value of rice inventories over the estimated net realizable value and a contractual obligation associated with terminating a rice supply agreement.

Operating income increased by $15.6 million, or 1.6%, from $999.5 million in 2020 to $1,015.1 million in 2021. Special charges and transaction and integration expenses increased by $67.1 million in 2021, as compared to 2020, and negatively impacted operating income. Operating income as a percentage of net sales declined by 170 basis points in 2021, to 16.1% in 2021 from 17.8% in 2020 as a result of the factors previously described. Excluding the effect of special charges and transaction and integration expenses previously described, adjusted operating income was $1,101.5 million in 2021 as compared to $1,018.8 million in 2020, an increase of $82.7 million or 8.1% over the 2020 level. Adjusted operating income as a percentage of net sales declined by 80 basis points in 2021, to 17.4% in 2021 from 18.2% in 2020.

The provision for income taxes is based on the estimate of the annual effective tax rate adjusted to reflect the tax impact of items discrete to the fiscal period. We record tax expense or tax benefits that do not relate to ordinary income in the current fiscal year discretely in the period in which such items occur pursuant to the requirements of U.S. GAAP. Examples of such types of discrete items not related to ordinary income include, but are not limited to, excess tax benefits associated with share-based payments to employees, changes in estimates of the outcome of tax matters related to prior years, including reversals of reserves upon the lapsing of statutes of limitations, provision-to-return adjustments, the settlement of tax audits, changes in enacted tax rates, changes in the assessment of deferred tax valuation allowances and the tax effects of certain intra-entity asset transfers (other than inventory).

The effective tax rate was 21.5% in 2021 as compared to 19.8% in 2020. The increase in our effective tax rate was principally attributable to the lower level of net discrete tax benefits in 2021 as compared to 2020. Net discrete tax benefits were $26.6 million in 2021, a decrease of $16.8 million from $43.4 million in 2020. Discrete tax benefits in both the 2021 and 2020 periods included excess tax benefits associated with share-based payments to employees ($4.3 million and $14.2 million in 2021 and 2020, respectively), the reversal of reserves for unrecognized tax benefits ($22.5 million and $4.9 million in 2021 and 2020, respectively) due to, in 2021, the partial release of certain reserves for an unrecognized tax benefit and related interest in a non-U.S. jurisdiction based on a change in our assessment of the technical merits of that position associated with the availability of new information, and in both years due to the expiration of the statues of limitations, the release of valuation allowances due to a change in judgment about realizability of deferred tax assets ($4.4 million and $11.9 million in 2021 and 2020, respectively) and other discrete items. In 2021, discrete tax items included $4.0 million of tax benefits related to the revaluation of deferred taxes resulting from enacted legislation and $10.4 million of deferred state tax expense directly related to our December 2020 acquisition of FONA. In 2020, discrete tax items included $9.9 million of tax benefits associated with intra-entity asset transfers that occurred. See note 13 of notes to our consolidated financial statements for a more detailed reconciliation of the U.S. federal tax rate with the effective tax rate.

We reported diluted earnings per share of $2.80 in 2021, compared to $2.78 in 2020. The table below outlines the major components of the change in diluted earnings per share from 2020 to 2021. The increase in adjusted operating income in the table below includes the impact from favorable currency exchange rates in 2021.


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 an 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

In the Americas region, consumer sales increased 7.3% in 2021 as compared to 2020, which experienced a 13.9% increase in sales from the 2019 level as a result of exceptionally strong demand for our products in the early stages of the COVID-19 pandemic, and increased by 6.7% on a constant currency basis. Favorable volume and product mix increased sales by 3.0% as compared to the corresponding period in 2020, as demand continues to be driven by consumers' sustained preference for eating more at home. In addition, pricing actions, taken in response to higher costs, increased sales by 0.4% as compared to the prior year period. The incremental impact of the Cholula acquisition added 3.3% to sales in 2021. The favorable impact of foreign currency exchange rates increased sales by 0.6% compared to 2020 and is excluded from our measure of sales growth of 6.7% on a constant currency basis.

In the Asia/Pacific region, consumer sales increased 31.6% in 2021 as compared to 2020, which reflected a 16.6% decrease in sales from the 2019 level due mainly to COVID-19 disruption on foodservice sales in China, and increased by 22.9% on a constant currency basis. Higher volume and favorable product mix increased sales by 21.5% as compared to the corresponding period in 2020. The increase was driven by sales related to the recovery of demand in away-from-home consumption in China. Pricing actions increased sales by 1.4% as compared to 2020. The favorable impact from foreign currency exchange rates increased sales by 8.7% compared to 2020 and is excluded from our measure of sales growth of 22.9% on a constant currency basis.

Segment operating income for our consumer segment increased by $24.0 million, or 3.1%, in 2021 as compared to 2020. The increase in segment operating income was driven by higher sales, including the impact of acquisitions, CCI-led cost savings and lower incentive-based compensation accruals which were partially offset by increased commodities, packaging materials and transportation costs, increased conversion costs, which include incremental expenses related to COVID-19, and higher brand marketing investment, all as compared to the prior year period. The impact of COVID-19 on segment operating income during 2021 reflected actions, including the incremental impact of temporary arrangements to utilize co-manufacturing, that increased our cost to produce certain products and measures to enable manufacturing and distribution staff to maintain social distancing and permit enhanced cleaning that reduced productivity. Segment operating margin for our consumer segment decreased by 130 basis points in 2021 to 20.4%, driven by a decrease in segment gross profit margin, including the impact of the inflationary cost environment, which was partially offset by the benefit from the leverage of fixed and semi-fixed expenses over a higher sales base as compared to the 2020 level. On a constant currency basis, segment operating income for our consumer segment increased by 1.3% in 2021, as compared to 2020.

Sales of our flavor solutions segment increased 18.7% in 2021 as compared to 2020 and increased by 15.9% on a constant currency basis. Sales were favorably impacted by the recovery of demand as compared to the lower level of demand in 2020 due to the impact of the COVID-19 disruption on our quick service restaurant and branded food service customers, particularly in the Americas and EMEA regions. Favorable volume and product mix increased segment sales by 7.2% as compared to 2020, while pricing actions taken in response to increased costs during the period increased sales by 1.4%. The incremental impact of the Cholula and FONA acquisitions increased sales by 7.3% in 2021. The favorable impact of foreign currency rates increased flavor solutions segment sales by 2.8% as compared to 2020 and is excluded from our measure of sales growth of 15.9% on a constant currency basis.

In the Americas region, flavor solutions sales increased by 16.6% during 2021 as compared to 2020, which experienced a sales decline of 3.5% from the 2019 level driven by lower sales to quick service restaurant and branded food service customers as a result of COVID-19 restrictions imposed in the early stages of the pandemic, and increased by 15.4% on a constant currency basis. Favorable volume and improved product mix increased flavor solutions sales in the Americas by 3.2% during 2021, driven primarily by increased sales to branded foodservice and quick service restaurant customers. Pricing actions increased sales by 1.7% as compared to the prior year period. The incremental impact of the Cholula and FONA acquisitions increased sales by 10.5% in 2021. A favorable impact from foreign currency rates increased sales by 1.2% compared to 2020 and is excluded from our measure of sales growth of 15.4% on a constant currency basis.

In the EMEA region, flavor solutions sales in 2021 increased by 27.3% as compared to 2020, which experienced a sales decline of 5.5% from the 2019 level primarily as a result of decreased sales to quick service restaurants and lower branded food service sales that were partially offset by higher demand from packaged food service companies in response to COVID-19 restrictions implemented in 2020, and increased by 21.5% on a constant currency basis. Favorable volume and product mix increased segment sales by 19.8% in 2021 as compared to 2020. The increase was primarily attributable to higher sales to branded foodservice, packaged food and quick service restaurant customers. Pricing actions increased sales by 1.7% in 2021 as compared the prior year level. A favorable impact from foreign currency rates increased sales by 5.8% compared to 2020 and is excluded from our measure of sales growth of 21.5% on a constant currency basis.

Segment operating income for our flavor solutions segment increased by $58.7 million, or 24.7%, in 2021 as compared to 2020. The increase in segment operating income was driven by higher sales, including the impact of acquisitions, CCI-led cost savings, lower incentive-based compensation accruals and favorable product mix, which was partially offset by increased commodities, packaging materials and transportation costs. Segment operating margin for our flavor solutions segment increased by 60 basis points in 2021 to 12.5% as the benefits from the leverage of fixed and semi-fixed expenses over a higher sales base as compared to the 2020 level, together with the accretive impact of the Cholula and FONA acquisitions on gross margins, were partially offset by the impact of the inflationary cost environment as compared to 2020. On a constant currency basis, segment operating income for our flavor solutions segment increased by 22.5% in 2021, as compared to 2020.

Sales for 2020 increased by 4.7% from 2019 and by 5.3% on a constant currency basis. That 4.7% sales increase was driven by higher sales in our consumer segment, which increased by 10.0% over the 2019 level, partially offset by lower sales in our flavor solutions segment, which declined by 3.5% from the prior year level. On a consolidated basis, higher volume and favorable product mix increased sales by 3.7% while pricing actions added 1.6% to sales. That net volume increase and favorable mix was driven by higher demand within our consumer segment, as measures imposed to mitigate the spread of COVID-19 and the related change in consumer behavior, resulted in a shift in consumer behavior toward at-home meal preparation that more than offset lower demand within our flavor solutions segment principally associated with our restaurant and branded food service customers. Sales were also impacted by unfavorable foreign currency rates that decreased net sales 0.6% compared to 2019 and is excluded from our measure of sales growth of 5.3% on a constant currency basis.

In 2020, our gross profit margin increased 100 basis points to 41.1% from 40.1% in 2019. This improvement was driven by the favorable impact of CCI-led cost savings, favorable pricing actions and the mix of consumer and flavor solutions sales, partially offset by unfavorable conversion costs and increased material costs. Higher conversion costs during 2020 reflected certain matters associated with COVID-19, including the impact of temporary arrangements that increased salaries and benefits paid to our manufacturing employees, measures to enable manufacturing and distribution staff to maintain social distancing and permit enhanced cleaning between shifts that reduced productivity, and the impact of lower production volumes of flavor solutions inventories.

SG&A expense was $1,281.6 million in 2020 compared to $1,166.8 million in 2019, an increase of $114.8 million. That increase in SG&A expense was primarily a result of (i) higher performance-based employee incentive expense accruals, (ii) higher distribution expenses associated with the higher sales volume, (iii) increased brand marketing costs and (iv) a one-time fiscal 2019 expense reduction from the alignment of an employee benefit plan to our global standard that did not recur in 2020, all as compared to 2019. SG&A expense as a percent of net sales increased by 110 basis points from the prior year level, primarily as a result of the previously mentioned factors, partially offset by the impact of the leverage of fixed and semi-fixed expenses over a higher level of sales during the 2020 period.

non-recurring benefit of the U.S. Tax Act in 2019. Discrete tax benefits in both the 2020 and 2019 periods include excess tax benefits associated with share-based payments to employees ($14.2 million and $22.4 million in 2020 and 2019, respectively), the tax benefits associated with intra-entity asset transfers that occurred ($9.9 million and $15.2 million in 2020 and 2019, respectively), the reversal of reserves for unrecognized tax benefits for the expiration of the statues of limitations and other discrete items. In 2020, discrete tax benefits included $11.9 million associated with the release of valuation allowances due to a change in judgment about realizability of deferred tax assets. See note 13 of notes to our consolidated financial statements for a more detailed reconciliation of the U.S. federal tax rate with the effective tax rate.

Sales of our consumer segment in 2020 grew by 10.0% as compared to 2019 and grew by 10.3% on a constant currency basis. This increase was driven by sharply higher sales of our consumer business in the Americas and in EMEA, with a partial offset from a sales decline in the Asia/Pacific region. Asia/Pacific region sales declines were driven by lower sales in China, which includes the impact of away-from-home products included in its consumer portfolio. Higher volume and product mix added 8.8% to sales as measures imposed to mitigate the spread of COVID-19 resulted in a shift in consumer behavior toward at-home meal preparation. Pricing actions added 1.5% to sales as compared to the prior year period. The unfavorable impact of foreign currency exchange rates decreased consumer segment sales by 0.3% compared to 2019 and is excluded from our measure of sales growth of 10.3% on a constant currency basis.

We grew segment operating income for our consumer segment by $104.6 million, or 15.5%, in 2020 as compared to 2019. The increase in segment operating income was driven by the impact of higher sales, as previously described, and CCI-led cost savings, partially offset by higher conversion costs, increased material costs, increased brand marketing costs and higher performance-based employee incentive expense accruals. Higher conversion costs during 2020 reflected certain matters associated with COVID-19, including the impact of temporary arrangements that increased salaries and benefits paid to our manufacturing employees as well as measures to enable manufacturing and distribution staff to maintain social distancing and permit enhanced cleaning between shifts that reduced productivity. Segment operating margin for our consumer segment rose by 100 basis points in 2020 to 21.7%, driven by an increase in consumer gross profit margin that was partially offset by an increase in SG&A expense as a percentage of net sales as compared to the 2019 period. Segment operating margin in 2020 benefited from the leverage of fixed and semi-fixed expenses over a higher sales base than compared to the 2019 level. On a constant currency basis, segment operating income for our consumer segment rose by 15.7% in 2020 in comparison to the same period in 2019.

Sales of our flavor solutions segment decreased 3.5% in 2020 as compared to 2019 and decreased by 2.4% on a constant currency basis. Driving that decrease in sales was lower demand due to the impact of the COVID-19 disruption on our restaurant and branded food service customers, particularly in the Americas and EMEA regions. Unfavorable volume and product mix decreased segment sales by 4.2% as compared to 2019, while pricing actions, taken in response to increased costs, during the period increased sales by 1.8%. The unfavorable impact of foreign currency rates decreased flavor solutions segment sales by 1.1% as compared to 2019 and is excluded from our measure of sales decline of 2.4% on a constant currency basis.

In the Americas, flavor solutions sales decreased by 3.5% in 2020 as compared to the prior year level and decreased by 2.5% on a constant currency basis. Unfavorable volume and product mix decreased flavor solutions sales in the Americas by 4.4% during 2020, driven by lower sales to branded foodservice and quick service restaurant customers, but was partially offset by higher sales to packaged food companies. Pricing actions increased sales by 1.9% as compared to the prior year period. An unfavorable impact from foreign currency rates decreased sales by 1.0% compared to 2019 and is excluded from our measure of sales decline of 2.5% on a constant currency basis.

In the EMEA region, flavor solutions sales in 2020 decreased by 5.5% from the prior year level and decreased by 4.2% on a constant currency basis. Unfavorable volume and product mix decreased segment sales by 7.0% as compared to 2019. The decline was primarily attributable to lower sales to branded foodservice and quick service restaurant customers, partially offset by higher demand from packaged food companies. Pricing actions increased sales by 2.8% in 2020 as compared the prior year level. An unfavorable impact from foreign currency rates decreased sales by 1.3% compared to 2019 and is excluded from our measure of sales decline of 4.2% on a constant currency basis.

Segment operating income for our flavor solutions segment decreased by $64.3 million, or 21.3%, in 2020 as compared to 2019. The decrease in segment operating income was driven by lower sales, increased conversion costs, the impact of lower production volumes, increased material costs and higher performance-based employee incentive expense accruals that were partially offset by CCI-led cost savings. Higher conversion costs during 2020 reflected certain matters associated with COVID-19, including the impact of temporary arrangements that increased salaries and benefits paid to our manufacturing employees as well as measures to enable manufacturing and distribution staff to maintain social distancing and permit enhanced cleaning between shifts that reduced productivity, and the impact of lower production volumes of flavor solutions inventories. Segment operating margin for our flavor solutions segment decreased by 260 basis points from the prior year level to 11.9% in 2020, driven by lower flavor solutions segment gross profit margin and an increase in SG&A expense as a percent of net sales. Segment operating margin in 2020 also declined due to the deleveraging impact of fixed and semi-fixed expenses over a lower sales base as compared to the 2019 period. On a constant currency basis, segment operating income for our flavor solutions segment declined by 19.7% in 2020, as compared to the same period in 2019.

•Special charges – Special charges consist of expenses associated with certain actions undertaken by the Company to reduce fixed costs, simplify or improve processes, and improve our competitiveness and are of such significance in terms of both up-front costs and organizational/structural impact to require advance approval by our Management Committee. Upon presentation of any such proposed action (including details with respect to estimated costs, which generally consist principally of employee severance and related benefits, together with ancillary costs associated with the action that may include a non-cash component or a component which relates to inventory adjustments that are included in cost of goods sold; impacted employees or operations; expected timing; and expected savings) to the Management Committee and the Committee’s advance approval, expenses associated with the approved action are classified as special charges upon recognition and monitored on an ongoing basis through completion.

A reconciliation of these non-GAAP financial measures to GAAP financial results is provided below:


	2021			2020			2019
Gross profit	$	2,494.6		$	2,300.4		$	2,145.3
Impact of transaction and integration expenses included in cost of goods sold (1)	6.3			—			—
Impact of special charges included in cost of goods sold(2)	4.7			—			—
Adjusted gross profit	$	2,505.6		$	2,300.4		$	2,145.3
Adjusted gross profit margin (3)	39.7		%	41.1		%	40.1		%
Operating income	$	1,015.1		$	999.5		$	957.7
Impact of transaction and integration expenses included in cost of goods sold (1)	6.3			—			—
Impact of other transaction and integration expenses (1)	29.0			12.4			—
Impact of special charges included in cost of goods sold(2)	4.7			—			—
Impact of other special charges(2)	46.4			6.9			20.8
Adjusted operating income	$	1,101.5		$	1,018.8		$	978.5
% increase versus prior year	8.1		%	4.1		%	5.2		%
Adjusted operating income margin (3)	17.4		%	18.2		%	18.3		%
Income tax expense	$	192.7		$	174.9		$	157.4
Non-recurring benefit, net, of the U.S. Tax Act	—			—			1.5
Impact of transaction and integration expenses(1)	(2.7)			1.9			—
Impact of special charges(2)	7.1			2.1			4.7
Adjusted income tax expense	$	197.1		$	178.9		$	163.6
Adjusted income tax rate(4)	20.1		%	19.9		%	19.5		%
Net income	$	755.3		$	747.4		$	702.7
Impact of transaction and integration expenses(1)	38.0			10.5			—
Impact of special charges(2)	44.0			4.8			16.1
Impact of after-tax gain on sale of unconsolidated operations	(13.4)			—			—
Non-recurring benefit, net, of the U.S. Tax Act	—			—			(1.5)
Adjusted net income	$	823.9		$	762.7		$	717.3
% increase versus prior year	8.0		%	6.3		%	8.4		%
Earnings per share—diluted	$	2.80		$	2.78		$	2.62
Impact of transaction and integration expenses(1)	0.14			0.04			—
Impact of special charges(2)	0.16			0.01			0.06
Impact of after-tax gain on sale of unconsolidated operations	(0.05)			—			—

Adjusted earnings per share—diluted	$	3.05		$	2.83		$	2.68













(1)			Transaction and integration expenses are more fully described in note 2 of notes to our consolidated financial statements and include transaction and integration expenses associated with our acquisitions of Cholula and FONA. These expenses include transaction expenses, integration expenses, including the effect of the fair value adjustment to acquired inventories on Cost of goods sold and the impact of a discrete deferred state income tax expense item, directly related to our December 2020 acquisition of FONA. This discrete tax item had an unfavorable impact of $10.4 million or $0.04 per diluted share for the year ended November 30, 2021.
(2)			Special charges are more fully described in note 3 of notes to our consolidated financial statements. Special charges for the year ended November 30, 2021 include $4.7 million which is reflected in Cost of goods sold and an $11.2 million non-cash impairment charge associated with the impairment of certain intangible assets.
(3)			Adjusted gross profit margin is calculated as adjusted gross profit as a percent of net sales for each period presented. Adjusted operating income margin is calculated as adjusted operating income as a percent of net sales for each period presented.

(4)			Adjusted income tax rate is calculated as adjusted income tax expense as a percentage of income from consolidated operations before income taxes, excluding transaction and integration expenses and special charges, or $982.2 million, $900.8 million, and $840.0 million for the years ended November 30, 2021, 2020, and 2019, respectively.

Because we are a multi-national company, we are subject to variability of our reported U.S. dollar results due to changes in foreign currency exchange rates. Those changes have been volatile over the past several years. The exclusion of the effects of foreign currency exchange, or what we refer to as amounts expressed “on a constant currency basis,” is a non-GAAP measure. We believe that this non-GAAP measure provides additional information that enables enhanced comparison to prior periods excluding the translation effects of changes in rates of foreign currency exchange and provides additional insight into the underlying performance of our operations located outside of the U.S. It should be noted that our presentation herein of amounts and percentage changes on a constant currency basis does not exclude the impact of foreign currency transaction gains and losses (that is, the impact of transactions denominated in other than the local currency of any of our subsidiaries in their local currency reported results).

Percentage changes in sales and adjusted operating income expressed on a constant currency basis are presented excluding the impact of foreign currency exchange. To present this information for historical periods, current year results for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average exchange rates in effect during the prior fiscal year, rather than at the actual average exchange rates in effect during the current fiscal year. As a result, the foreign currency impact is equal to the current year results in local currencies multiplied by the change in the average foreign currency exchange rate between the current year and the prior fiscal year. The tables set forth below present our growth in net sales and adjusted operating income on a constant currency basis as follows: (1) to present our growth in net sales and adjusted operating income for 2021 on a constant currency basis, net sales and adjusted operating income for 2021 for entities reporting in currencies other than the U.S. dollar have been translated using the average foreign exchange rates in effect for 2020 and compared to the reported results for 2020; and (2) to present our growth in net sales and adjusted operating income for 2020 on a constant currency basis, net sales and operating income for 2020 for entities reporting in currencies other than the U.S. dollar have been translated using the average foreign exchange rates in effect for 2019 and compared to the reported results for 2019.


	For the year ended November 30, 2020
	Percentage change as reported		Impact of foreign currency exchange		Percentage change on constant currency basis
Net sales:
Consumer segment:
Americas	13.9	%	(0.1)	%	14.0	%
EMEA	14.5	%	0.2	%	14.3	%
Asia/Pacific	(16.6)	%	(1.5)	%	(15.1)	%
Total Consumer	10.0	%	(0.3)	%	10.3	%
Flavor Solutions segment:
Americas	(3.5)	%	(1.0)	%	(2.5)	%
EMEA	(5.5)	%	(1.3)	%	(4.2)	%
Asia/Pacific	0.4	%	(1.2)	%	1.6	%
Total Flavor Solutions	(3.5)	%	(1.1)	%	(2.4)	%
Total net sales	4.7	%	(0.6)	%	5.3	%

Adjusted operating income:
Consumer segment	15.5	%	(0.2)	%	15.7	%
Flavor Solutions segment	(21.3)	%	(1.6)	%	(19.7)	%
Total adjusted operating income	4.1	%	(0.7)	%	4.8	%

To present the percentage change in projected 2022 net sales, adjusted operating income and adjusted earnings per share — diluted on a constant currency basis, 2022 projected local currency net sales, adjusted operating income, and adjusted net income for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at currently prevailing exchange rates and are compared to those 2022 local currency projected results, translated into U.S. dollars at the average actual exchange rates in effect during the corresponding months in fiscal year 2021 to determine what the 2022 consolidated U.S. dollar net sales, adjusted operating income and adjusted earnings per share — diluted would have been if the relevant currency exchange rates had not changed from those of the comparable 2021 periods.

Projections for the Year Ending November 30, 2022

Percentage change in net sales

3% to 5%

Impact of unfavorable foreign currency exchange

Percentage change in net sales in constant currency

4% to 6%

Percentage change in adjusted operating income

7% to 9%

Impact of unfavorable foreign currency exchange

Percentage change in adjusted operating income in constant currency

8% to 10%

Percentage change in adjusted earnings per share— diluted

4% to 6%

Impact of unfavorable foreign currency exchange

Percentage change in adjusted earnings per share— diluted in constant currency

5% to 7%

Operating Cash Flow – Operating cash flow was $828.3 million in 2021, $1,041.3 million in 2020, and $946.8 million in 2019. Net income as well as our working capital management, as more fully described below, impacted operating cash flow. In 2021, the reduction in operating cash flow was the result of increased inventory levels to protect against supply disruption, employee incentive payments, and the payment of transaction and integration costs related to our recent acquisitions. In 2020, the increases to operating cash flow were the result of a significantly lower use of cash associated with other assets and liabilities, including the timing of certain employee incentive and customer related payments, which was partially offset by the use of cash associated with working capital, driven by the increased level of inventory to meet demand. In 2019, our working capital management favorably impacted operating cash flow. In 2019, those increases were partially offset by a use of cash associated with other assets and liabilities, totaling $81.5 million.

Prior to fiscal 2019, in response to evolving market practices, we began a program to negotiate extended payment terms with our suppliers. We also initiated a Supply Chain Finance program (SCF) with several global financial institutions (SCF Banks). Under the SCF, qualifying suppliers may elect to sell their receivables from us to an SCF Bank. These participating suppliers negotiate their receivables sales arrangements directly with the respective SCF Bank. While we are not party to those agreements, the SCF Banks allow the participating suppliers to utilize our creditworthiness in establishing credit spreads and associated costs. This generally provides the suppliers with more favorable terms than they would be able to secure on their own. We have no economic interest in a supplier’s decision to sell a receivable. Once a qualifying supplier elects to participate in the SCF and reaches an agreement with a SCF Bank, the supplier elects which of our individual invoices they sell to the SCF bank. However, all of our payments to participating suppliers are paid to the SCF Bank on the invoice due date, regardless of whether the individual invoice is sold by the supplier to the SCF Bank. The SCF Bank pays the supplier on the invoice due date for any invoices that were not previously sold by the supplier to the SCF Bank.

The terms of our payment obligation are not impacted by a supplier’s participation in the SCF. Our payment terms with our suppliers for similar materials within individual markets are consistent between those suppliers that elect to participate in the SCF and those suppliers that do not participate. Accordingly, our average days outstanding are not significantly impacted by the portion of suppliers or related input costs that are included in the SCF. For our participating suppliers, we believe substantially all of their receivables with us are sold to the SCF Banks. Accordingly, we would expect that at each balance sheet date, a similar proportion of amounts originally due to suppliers would instead be payable to SCF Banks. All outstanding amounts related to suppliers participating in the SCF are recorded within the line entitled "Trade accounts payable" in our consolidated balance sheets, and the associated payments are included in operating activities within our consolidated statements of cash flows. As of November 30, 2021 and 2020, the amount due to suppliers participating in the SCF and included in "Trade accounts payable" were approximately $274.3 million and $273.6 million, respectively.

Investing Cash Flow – Net cash used in investing activities was $908.6 million in 2021, $1,025.6 million in 2020, and $171.0 million in 2019. Our primary investing cash flows include the usage of cash associated with acquisition of businesses and capital expenditures. Cash usage related to our acquisition of businesses was $706.4 million in 2021 and $803.0 million in 2020. Capital expenditures, including expenditures for capitalized software, were $278.0 million in 2021, $225.3 million in 2020, and $173.7 million in 2019. We expect 2022 capital expenditures to approximate $320 million to support our planned growth, including the multi-year program to replace our ERP system and other initiatives. Our primary investing cash inflow in 2021 was the $65.4 million of proceeds received from the sale of an unconsolidated operation, as more fully discussed in note 5 of notes to our consolidated financial statements.

Most of our cash is in our subsidiaries outside of the U.S. We manage our worldwide cash requirements by considering available funds among the many subsidiaries through which we conduct our business and the cost effectiveness with which those funds can be accessed. Prior to the enactment of the U.S. Tax Act on December 22, 2017, the permanent repatriation of cash balances from certain of our non-U.S. subsidiaries could have had adverse tax consequences; however, those balances are generally available without legal restrictions to fund ordinary business operations, capital projects and future acquisitions. As of November 30, 2021, we have $1.3 billion of earnings from our non-U.S. subsidiaries and joint ventures that are considered indefinitely reinvested. While federal income tax expense has been recognized as a result of the U.S. Tax Act, we have not provided any additional deferred taxes with respect to items such as foreign withholding taxes, state income taxes, or foreign exchange gains or losses. It is not practicable for us to determine the amount of unrecognized tax expense on these indefinitely reinvested foreign earnings.

In June 2021, we entered into a five-year $1.5 billion revolving credit facility, which will expire in June 2026. The current pricing for the credit facility, on a fully drawn basis, is LIBOR plus 1.25%. The pricing of the credit facility is based on a credit rating grid that contains a fully drawn maximum pricing of the credit facility equal to LIBOR plus 1.75%. The provisions of this revolving credit facility restrict subsidiary indebtedness and require us to maintain a minimum interest coverage ratio. We do not expect that this covenant would limit our access to this revolving credit facility for the foreseeable future. This facility replaced the following prior revolving credit facilities: (i) a five-year $1.0 billion revolving credit facility that was due to expire in August 2022, and (ii) a 364-day $1.0 billion revolving facility, which we entered into in the first quarter of 2021 that was due to expire in December 2021. The terms of those revolving credit facilities are more fully described in note 6 of the notes to the consolidated financial statements.

We generally use our revolving credit facility to support our issuance of commercial paper. If the commercial paper market is not available or viable, we could borrow directly under our revolving credit facility. This facility is made available by a syndicate of banks, with various commitments per bank. If any of the banks in this syndicate are unable to perform on their commitments, our liquidity could be impacted, which could reduce our ability to grow through funding of seasonal working capital. We engage in regular communication with all banks participating in our credit facility. During these communications, none of the banks have indicated that they may be unable to perform on their commitments. In addition, we periodically review our banking and financing relationships, considering the stability of the institutions and other aspects of the relationships. Based on these communications and our monitoring activities, we believe our banks will perform on their commitments. In addition to our committed revolving credit facility, we have uncommitted facilities of $308.4 million as of November 30, 2021 that can be withdrawn based upon the lenders' discretion. See note 6 of notes to our consolidated financial statements for more details on our financing arrangements.

Our other cash requirements at year end include raw material purchases, lease payments, income taxes, and pension and postretirement benefits. We acquire various raw materials to satisfy our obligations to our customers, and these outstanding purchase obligations can fluctuate throughout the year based on our response to varying raw material cycles; however, these commitments generally do not extend past one year. In addition, we also have a series of commercial commitments, largely consisting of standby letters of credit. Our standby letters of credit, leases, and pension and other post retirement obligations are more fully described in notes 6, 7 and 11, respectively, of notes to our consolidated financial statements.

PENSION ASSETS AND OTHER INVESTMENTS – We hold investments in equity and debt securities in both our qualified defined benefit pension plans and through a rabbi trust for our nonqualified defined benefit pension plan. Cash contributions to pension plans, including unfunded plans, were $15.0 million in 2021, $11.9 million in 2020, and $11.4 million in 2019. It is expected that the 2022 total pension plan contributions will be approximately $15 million. Future increases or decreases in pension liabilities and required cash contributions are highly dependent upon changes in interest rates and the actual return on plan assets. We base our investment of plan assets, in part, on the duration of each plan’s liabilities. Across all of our qualified defined benefit pension plans, approximately 55% of assets are invested in equities, 34% in fixed income investments and 11% in other investments. Assets associated with our nonqualified defined benefit pension plan are primarily invested in corporate-owned life insurance, the value of which approximates an investment mix of 55% in equities and 45% in fixed income investments. See note 11 of notes to our consolidated financial statements, which provides details on our pension funding.

In early fiscal 2021, we purchased FONA. The purchase price was approximately $708 million, net of cash acquired. FONA is a leading manufacturer of clean and natural flavors providing solutions for a diverse customer base across various applications for the food, beverage and nutritional markets. Our acquisition of FONA on December 30, 2020 expands the breadth of our flavor solutions segment into attractive categories, as well as extends our technology platform and strengthens our capabilities. The acquisition was funded with cash and short-term borrowings. The results of FONA's operations have been included in our financial statements as a component of our flavor solutions segment from the date of acquisition.

On November 30, 2020, we purchased Cholula for approximately $801 million, net of cash acquired. The acquisition was funded with cash and short-term borrowings. Cholula, a premium Mexican hot sauce brand, is a strong addition to McCormick’s global branded flavor portfolio, which broadens the Company’s offering in the high growth hot sauce category to consumers and foodservice operators and accelerates our condiment growth opportunities with a complementary authentic Mexican flavor hot sauce. The results of Cholula’s operations have been included in our financial statements as a component of our consumer and flavor solutions segments from the date of acquisition.

Foreign Exchange Risk – We are exposed to fluctuations in foreign currency in the following main areas: cash flows related to raw material purchases; the translation of foreign currency earnings to U.S. dollars; the effects of foreign currency on loans between subsidiaries and unconsolidated affiliates and on cash flows related to repatriation of earnings of unconsolidated affiliates. Primary exposures include the U.S. dollar versus the Euro, British pound sterling, Chinese renminbi, Canadian dollar, Australian dollar, Polish zloty, Singapore dollar, Mexican peso, Swiss franc, and Thai baht, as well as the Euro versus the British pound sterling and Australian dollar, and finally the Canadian dollar versus British pound sterling. We routinely enter into foreign currency exchange contracts to manage certain of these foreign currency risks.

FOREIGN CURRENCY EXCHANGE CONTRACTS AT NOVEMBER 30, 2021


Currency sold	Currency received	Notional value		Average contractual exchange rate	Fair value
British pound sterling	U.S. dollar	$	54.4	1.41	$	3.3
Swiss franc	U.S. dollar	72.0		1.13	2.1
Canadian dollar	U.S. dollar	79.5		1.25	2.0
U.S. dollar	Australian dollar	71.7		0.72	(0.6)
U.S. dollar	Singapore dollar	51.2		1.37	0.1
U.S. dollar	British pound sterling	52.4		1.33	(0.2)
U.S. dollar	Euro	49.2		1.13	0.1
Australian dollar	Euro	43.6		1.58	0.6
Canadian dollar	British pound sterling	30.4		1.74	(0.7)
U.S. dollar	Mexican peso	24.7		21.37	(0.8)
British pound sterling	Euro	29.7		0.86	0.1
U.S. dollar	Thai baht	8.8		32.77	(0.3)

We also utilized cross currency interest rate swap contracts that are considered net investment hedges. As of November 30, 2021, we had cross currency interest rate swap contracts of (i) $250 million notional value to receive $250 million at three-month U.S. LIBOR plus 0.685% and pay £194.1 million at three-month GBP LIBOR plus 0.740% and (ii) £194.1 million notional value to receive £194.1 million at three-month GBP LIBOR plus 0.740% and pay €221.8 million at three-month Euro EURIBOR plus 0.808%. These cross-currency interest rate swap contracts expire in August 2027. For more information, refer to note 8 of notes to our consolidated financial statements.

Interest Rate Risk – Our policy is to manage interest rate risk by entering into both fixed and variable rate debt arrangements. We are exposed to interest rate volatility, with primary exposures related to movements in U.S. Treasury rates, London Interbank Offered Rates (LIBOR), and commercial paper rates. LIBOR will be subject to a transition, or phase out, that will commence on January 1, 2022 with the phase out expected to be completed by June 30, 2023. While LIBOR is the current interest rate benchmark used as a reference rate on our variable rate debt, including our revolving credit facility, synthetic lease, interest rate swaps, and cross currency interest rate swaps, we do not anticipate a significant impact to our financial position from the planned phase out of LIBOR, given our current mix of variable and fixed-rate debt.

Commodity Risk – We purchase certain raw materials which are subject to price volatility caused by weather, market conditions, growing and harvesting conditions, governmental actions and other factors beyond our control. In 2021, our most significant raw materials were dairy products, pepper, capsicums (red peppers and paprika), onion, vanilla, garlic, and salt. While future movements of raw material costs are uncertain, we respond to this volatility in a number of ways, including strategic raw material purchases, purchases of raw material for future delivery and customer price adjustments. We generally have not used derivatives to manage the volatility related to this risk.

Credit Risk – The customers of our consumer segment are predominantly food retailers and food wholesalers. Consolidations in these industries have created larger customers. In addition, competition has increased with the growth in alternative channels including mass merchandisers, dollar stores, warehouse clubs, discount chains and e-commerce. This has caused some customers to be less profitable and increased our exposure to credit risk. Some of our customers and counterparties are highly leveraged. We continue to closely monitor the credit worthiness of our customers and counterparties. We feel that the allowance for doubtful accounts properly recognizes trade receivables at realizable value. We consider nonperformance credit risk for other financial instruments to be insignificant.

In preparing the financial statements, we are required to make estimates and assumptions that have an impact on the assets, liabilities, revenue and expenses reported. These estimates can also affect supplemental information disclosed by us, including information about contingencies, risk and financial condition. We believe, given current facts and circumstances, our estimates and assumptions are reasonable, adhere to U.S. GAAP and are consistently applied. Inherent in the nature of an estimate or assumption is the fact that actual results may differ from estimates, and estimates may vary as new facts and circumstances arise. In preparing the financial statements, we make routine estimates and judgments in determining the net realizable value of accounts receivable, inventory, fixed assets and prepaid allowances. Our most critical accounting estimates and assumptions, which are those that have or are reasonably likely to have a material impact on our financial condition or results of operations, are in the following areas:

In several of our major geographic markets, the consumer segment sells our products by entering into annual or multi-year customer arrangements. Known or expected pricing or revenue adjustments, such as trade discounts, rebates or returns, are estimated at the time of sale. Where applicable, future reimbursements are estimated based on a combination of historical patterns and future expectations regarding these programs. Key sales terms, such as pricing and quantities ordered, are established on a frequent basis such that most customer arrangements and related incentives have a one-year or shorter duration. Estimates that affect revenue, such as trade incentives and product returns, are monitored and adjusted each period until the incentives or product returns are realized. Certain

We use the acquisition method in accounting for acquired businesses. Under the acquisition method, our financial statements reflect the operations of an acquired business starting from the closing of the acquisition. The assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. Significant judgment is often required in estimating the fair value of assets acquired, particularly intangible assets. We generally obtain the assistance of a third-party valuation specialist in estimating fair values of tangible and intangible assets. The fair value estimates are based on available historical information and on expectations and assumptions about the future, considering the perspective of marketplace participants. While management believes those expectations and assumptions are reasonable, they are inherently uncertain. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions.

Determining the useful lives of intangible assets also requires judgment. Certain brand intangibles are expected to have indefinite lives based on their history and our plans to continue to support and build the acquired brands, while other acquired intangible assets (e.g., customer relationships) are expected to have determinable useful lives. Our estimates of the useful lives of definite-lived intangible assets are primarily based upon historical experience, the competitive and macroeconomic environment, and our operating plans. The costs of definite-lived intangibles are amortized to expense over their estimated life. We review the carrying value of goodwill and non-amortizable intangible assets and conduct tests of impairment on an annual basis as described below. We also test for impairment if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is below its carrying amount. We test indefinite-lived intangible assets for impairment if events or changes in circumstances indicate that the asset might be impaired.

Goodwill Impairment
Our reporting units are the same as our operating segments. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions, as more fully described in note 1 to our consolidated financial statements. We estimate the fair value of a reporting unit by using a discounted cash flow model. Our discounted cash flow model calculates fair value by present valuing future expected cash flows of our reporting units using a market-based discount rate. We then compare this fair value to the carrying amount of the reporting unit, including intangible assets and goodwill. An impairment charge would be recognized to the extent that the carrying amount of the reporting unit exceeds the estimated fair value of the reporting unit. The quantitative goodwill impairment test requires an entity to compare the fair value of each reporting unit with its carrying amount. As of November 30, 2021, we had $5,335.8 million of goodwill recorded in our balance sheet ($3,674.7 million in the consumer segment and $1,661.1 million in the flavor solutions segment). Our fiscal year 2021 impairment testing indicated that the estimated fair values of our reporting units were significantly in excess of their carrying values. Accordingly, we believe that only significant changes in the cash flow assumptions would result in an impairment of goodwill. However, variances between the actual performance of the businesses and the assumptions that were used in developing the estimates of fair value could result in impairment charges in future periods.

As of November 30, 2021, we had $3,067.4 million of brand name assets and trademarks recorded in our balance sheet, and none of the balances exceeded their estimated fair values at that date. Of the $3,067.4 million of brand names assets and trademarks as of November 30, 2021: (i) $2,320.0 million relates to the French’s, Frank’s RedHot and Cattlemen’s brand names and trademarks, recognized as part of our acquisition of RB Foods in August 2017, that we group for purposes of our impairment analysis; (ii) $380.0 million relates to the Cholula brand names and trademarks associated with the acquisition of Cholula in November 2020, (iii) $49.0 million relates to the FONA brand names and trademarks associated with the acquisition of FONA in December 2020 and (iv) the remaining $318.4 million represents a number of other brand name assets and trademarks with individual carrying values ranging from $0.2 million to $106.4 million. Except for our recent acquisitions of Cholula and FONA, the percentage excess of estimated fair value over respective book values for each of our brand names and trademarks, including the $2,320.0 million related to our French’s, Frank's RedHot and Cattlemen’s brands, was 20% or more as of November 30, 2021.

We estimate income taxes and file tax returns in each of the taxing jurisdictions in which we operate and are required to file a tax return. At the end of each year, an estimate for income taxes is recorded in the financial statements. Tax returns are generally filed in the third or fourth quarter of the subsequent year. A reconciliation of the estimate to the final tax return is done at that time, which will result in changes to the original estimate. We believe that our tax return positions are appropriately supported, but tax authorities can challenge certain of our tax positions. We evaluate our uncertain tax positions in accordance with the GAAP guidance for uncertainty in income taxes. We recognize a tax benefit when it is more likely than not the position will be sustained upon examination, based on its technical merits. The tax position is then measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. A change in judgment related to the expected ultimate resolution of uncertain tax positions will be recognized in earnings in the quarter of such change. We believe that our reserve for uncertain tax positions, including related interest and penalties, is adequate. As of November 30, 2021, the Company had $31.0 million of unrecognized tax benefits, including interest and penalties, recorded in Other long-term liabilities. The amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and, therefore, could have a material impact on our tax provision, net income and cash flows. We have recorded valuation allowances to reduce our deferred tax assets to the amount that is more likely than not to be realized. In doing so, we have considered future taxable income and tax planning strategies in assessing the need for a valuation allowance. Both future taxable income and tax planning strategies include a number of estimates, as more fully described in note 1 of notes to our consolidated financial statements.

Pension plans’ costs require the use of assumptions for discount rates, investment returns, projected salary increases, and mortality rates. The actuarial assumptions used in our pension benefit reporting are reviewed annually and compared with external benchmarks to ensure that they appropriately account for our future pension benefit obligations. While we believe that the assumptions used are appropriate, changes in various assumptions and differences between the actual returns on plan assets and the expected returns on plan assets and changes to projected future rates of return on plan assets will affect the amount of pension expense or income ultimately recognized. A 1% increase or decrease in the actuarial assumption for the discount rate would impact 2022 pension benefit expense by approximately $1 million. A 1% increase or decrease in the expected return on plan assets would impact 2022 pension expense by approximately $10 million.

We conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). This assessment included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this assessment. Although there are inherent limitations in the effectiveness of any system of internal control over financial reporting, based on our assessment, we have concluded with reasonable assurance that our internal control over financial reporting was effective as of November 30, 2021.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of McCormick & Company, Incorporated (the Company) as of November 30, 2021 and 2020, the related consolidated income statements, statements of comprehensive income, cash flow statements and statements of shareholders’ equity for each of the three years in the period ended November 30, 2021, and the related notes and financial statement schedule listed in the Index at item 15(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at November 30, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended November 30, 2021, in conformity with U.S. generally accepted accounting principles.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.


			Valuation of Indefinite-lived Intangible Assets

Description of the Matter			At November 30, 2021, the Company's indefinite-lived intangible assets consist of brand names and trademarks with an aggregate carrying value of approximately $3.1 billion. As explained in Note 1 to the consolidated financial statements, these assets are assessed for impairment at least annually using the relief-from-royalty methodology to determine their fair values. If the fair value of any brand name or trademark is less than its carrying amount, an impairment loss is recognized in an amount equal to the difference. Auditing the Company's impairment assessments is complex due to the significant estimation required in determining the fair value of the brand names and trademarks. Significant management judgment is also involved in determining whether individual brand names and trademarks should be grouped for purposes of the fair value determination or must be evaluated individually. The Company's methodologies for estimating the fair value of these assets involve significant assumptions and inputs, including projected financial information for net sales and operating profit by brand, royalty rates, and discount rates, all of which are sensitive to and affected by economic, industry, and company-specific qualitative factors. These significant assumptions and inputs are forward-looking and could be affected by future economic and market conditions.
How We Addressed the Matter in Our Audit			We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company's controls over the Company’s indefinite-lived intangible asset impairment assessment, including controls over management’s review of its asset groupings and the significant assumptions described above. We tested controls over the review of methodologies used, significant assumptions and inputs, and completeness and accuracy of the data used in the measurements. To test the estimated fair value of the Company’s indefinite-lived intangible assets, we performed audit procedures that included, among others, evaluating the asset groupings used by the Company to perform its impairment assessment, assessing the methodologies and testing the significant assumptions discussed above and the underlying data used by the Company in its analyses. We compared the significant assumptions to current industry, market and economic trends, to the Company's historical results, to other guideline companies within the same industry, and to other relevant data. In addition, we evaluated management’s ability to estimate net sales by comparing the current year actual net sales for certain brand names or trademarks to the estimates made in the Company’s prior year impairment assessment. We also performed sensitivity analyses of certain significant assumptions to evaluate the potential change in the fair values of the brand names and trademarks resulting from hypothetical changes in underlying assumptions. We used an internal valuation specialist to assist in our evaluation of the methodologies used and significant assumptions and inputs used by the Company to determine the estimated fair value of certain brand names and trademarks.

			Valuation of Acquired Intangible Assets


Description of the Matter			During fiscal 2021, the Company completed its acquisition of FONA International, LLC for net consideration of $708 million, and recognized identifiable intangible assets of $401 million, as disclosed in Note 2 to the consolidated financial statements. The transaction was accounted for as a business combination. Auditing the Company's purchase accounting for its acquisition of FONA International, LLC was complex due to the significant estimation required by management to determine the fair value of the acquired intangible assets, which consisted of customer relationships, trade names, and intellectual property. The estimation complexity was primarily due to the valuation models used to measure the fair value of the intangible assets and the sensitivity of the respective fair values to the significant underlying assumptions. The significant assumptions used to estimate the fair value of the intangible assets included discount rates, royalty rates, customer attrition, and certain assumptions that form the basis of the forecasted results (e.g. net sales and operating profit metrics). These significant assumptions are forward-looking and could be affected by future economic and market conditions.
How We Addressed the Matter in Our Audit			We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company's controls over its accounting for acquisitions. For example, we tested controls over the recognition and measurement of intangible assets, including the valuation models and underlying assumptions used to develop such estimates. We also tested management’s controls over the completeness and accuracy of the data used in the models. To test the estimated fair value of the intangible assets, we performed audit procedures that included, among others, evaluating the Company's valuation models and testing the significant assumptions used in the models, as well as testing the completeness and accuracy of the underlying data. We compared the significant assumptions to current industry, market and economic trends, to the assumptions used to value similar assets in other acquisitions, and to the historical results of the acquired business. We also involved an internal valuation specialist to assist in our evaluation of the significant assumptions and those procedures included the completion of independent calculations of the fair value of the acquired intangible assets.

CONSOLIDATED INCOME STATEMENTS


for the year ended November 30 (millions except per share data)	2021		2020		2019
Net sales	$	6,317.9	$	5,601.3	$	5,347.4
Cost of goods sold	3,823.3		3,300.9		3,202.1
Gross profit	2,494.6		2,300.4		2,145.3
Selling, general and administrative expense	1,404.1		1,281.6		1,166.8
Transaction and integration expenses	29.0		12.4		—
Special charges	46.4		6.9		20.8
Operating income	1,015.1		999.5		957.7
Interest expense	136.6		135.6		165.2

Other income, net	17.3		17.6		26.7
Income from consolidated operations before income taxes	895.8		881.5		819.2
Income tax expense	192.7		174.9		157.4
Net income from consolidated operations	703.1		706.6		661.8
Income from unconsolidated operations	52.2		40.8		40.9
Net income	$	755.3	$	747.4	$	702.7
Earnings per share–basic	$	2.83	$	2.80	$	2.65
Earnings per share–diluted	$	2.80	$	2.78	$	2.62

CONSOLIDATED BALANCE SHEETS


at November 30 (millions)	2021		2020
Assets
Cash and cash equivalents	$	351.7	$	423.6
Trade accounts receivable, net of allowances	549.5		528.5
Inventories	1,182.3		1,032.6
Prepaid expenses and other current assets	112.3		98.9
Total current assets	2,195.8		2,083.6
Property, plant and equipment, net	1,140.3		1,028.4
Goodwill	5,335.8		4,986.3
Intangible assets, net	3,452.5		3,239.4
Other long-term assets	781.4		752.0
Total assets	$	12,905.8	$	12,089.7
Liabilities
Short-term borrowings	$	539.1	$	886.7
Current portion of long-term debt	770.3		263.9
Trade accounts payable	1,064.2		1,032.3
Other accrued liabilities	850.2		863.6
Total current liabilities	3,223.8		3,046.5
Long-term debt	3,973.3		3,753.8
Deferred taxes	792.3		727.2
Other long-term liabilities	490.9		622.2
Total liabilities	8,480.3		8,149.7
Shareholders’ equity
Common stock; authorized 640.0 shares; issued and outstanding: 2021–17.8 shares, 2020–18.0 shares	530.0		484.0
Common stock non-voting; authorized 640.0 shares; issued and outstanding: 2021–249.5 shares, 2020–248.9 shares	1,525.1		1,497.3
Retained earnings	2,782.4		2,415.6
Accumulated other comprehensive loss	(426.5)		(470.8)
Total McCormick shareholders’ equity	4,411.0		3,926.1
Non-controlling interests	14.5		13.9
Total shareholders’ equity	4,425.5		3,940.0
Total liabilities and shareholders’ equity	$	12,905.8	$	12,089.7

CONSOLIDATED CASH FLOW STATEMENTS


for the year ended November 30 (millions)	2021		2020		2019
Operating activities
Net income	$	755.3	$	747.4	$	702.7
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	186.3		165.0		158.8
Stock-based compensation	66.6		46.0		37.2
Asset impairment included in special charges	17.2		—		—

Amortization of inventory fair value adjustments associated with acquisitions	6.3		—		—
Loss (gain) on sale of assets	0.2		3.0		(1.6)
Deferred income tax expense (benefit)	36.0		(11.2)		20.9
Income from unconsolidated operations	(52.2)		(40.8)		(40.9)

Changes in operating assets and liabilities (net of effect of businesses acquired):
Trade accounts receivable	(22.6)		4.8		12.2
Inventories	(153.7)		(200.2)		(20.9)
Trade accounts payable	34.9		164.2		128.2
Other assets and liabilities	(81.4)		133.8		(81.5)
Dividends received from unconsolidated affiliates	35.4		29.3		31.7
Net cash provided by operating activities	828.3		1,041.3		946.8
Investing activities
Acquisitions of businesses (net of cash acquired)	(706.4)		(803.0)		—

Capital expenditures (including expenditures for capitalized software)	(278.0)		(225.3)		(173.7)
Proceeds from sale of unconsolidated operation	65.4		—		—
Other investing activities	10.4		2.7		2.7
Net cash used in investing activities	(908.6)		(1,025.6)		(171.0)
Financing activities
Short-term borrowings, net	(346.7)		286.5		41.0
Long-term debt borrowings	1,001.5		527.0		—
Payment of debt issuance costs	(1.9)		(1.1)		—
Long-term debt repayments	(257.1)		(257.7)		(447.7)
Proceeds from exercised stock options	13.5		56.6		90.9
Taxes withheld and paid on employee stock awards	(15.4)		(13.0)		(12.7)

Common stock acquired by purchase	(8.6)		(47.3)		(95.1)
Dividends paid	(363.3)		(330.1)		(302.2)
Net cash provided by (used in) financing activities	22.0		220.9		(725.8)
Effect of exchange rate changes on cash and cash equivalents	(13.6)		31.6		8.8
(Decrease) increase in cash and cash equivalents	(71.9)		268.2		58.8
Cash and cash equivalents at beginning of year	423.6		155.4		96.6
Cash and cash equivalents at end of year	$	351.7	$	423.6	$	155.4

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


(millions)	Common Stock Shares	Common Stock Non-Voting Shares	Common Stock Amount		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Non-controlling Interests		Total Shareholders’ Equity
Balance, November 30, 2018	19.1	245.1	$	1,770.6	$	1,760.2	$	(359.9)	$	11.3	$	3,182.2
Net income			—		702.7		—		—		702.7
Net income attributable to non-controlling interest			—		—		—		1.9		1.9
Other comprehensive loss, net of tax			—		—		(140.3)		(0.7)		(141.0)
Dividends			—		(309.3)		—		—		(309.3)
Stock-based compensation			37.2		—		—		—		37.2

Shares purchased and retired	(0.4)	(1.2)	(15.4)		(97.8)		—		—		(113.2)
Shares issued	3.0	0.2	96.2		—		—		—		96.2
Equal exchange	(3.1)	3.1	—		—		—		—		—
Balance, November 30, 2019	18.6	247.2	$	1,888.6	$	2,055.8	$	(500.2)	$	12.5	$	3,456.7
Net income			—		747.4		—		—		747.4
Net income attributable to non-controlling interest			—		—		—		4.3		4.3
Other comprehensive income (loss), net of tax			—		—		29.4		(2.9)		26.5
Dividends			—		(338.5)		—		—		(338.5)


Stock-based compensation			46.0		—		—		—		46.0

Shares purchased and retired	(0.3)	(0.2)	(13.6)		(49.1)		—		—		(62.7)
Shares issued	1.6	—	60.3		—		—		—		60.3
Equal exchange	(1.9)	1.9	—		—		—		—		—
Balance, November 30, 2020	18.0	248.9	$	1,981.3	$	2,415.6	$	(470.8)	$	13.9	$	3,940.0
Net income			—		755.3		—		—		755.3
Net income attributable to non-controlling interest			—		—		—		8.0		8.0
Other comprehensive income (loss), net of tax			—		—		44.3		(7.4)		36.9
Dividends			—		(371.5)		—		—		(371.5)


Stock-based compensation			66.6		—		—		—		66.6

Shares purchased and retired	(0.3)	—	(7.8)		(17.0)		—		—		(24.8)
Shares issued	0.7	—	15.0		—		—		—		15.0
Equal exchange	(0.6)	0.6	—		—		—		—		—
Balance, November 30, 2021	17.8	249.5	$	2,055.1	$	2,782.4	$	(426.5)	$	14.5	$	4,425.5

In our consolidated income statement, we include a separate line item captioned “Special charges” in arriving at our consolidated operating income. Special charges consist of expenses, including related impairment charges, associated with certain actions undertaken to reduce fixed costs, simplify or improve processes, and improve our competitiveness and are of such significance in terms of both up-front costs and organizational/structural impact to require advance approval by our Management Committee, comprised of our senior management, including our Chairman, President and Chief Executive Officer. Upon presentation of any such proposed action (generally including details with respect to estimated costs, which typically consist principally of employee severance and related benefits, together with ancillary costs associated with the action that may include a non-cash component, such as an asset impairment, or a component which relates to inventory adjustments that are included in cost of goods sold; impacted employees or operations; expected timing; and expected savings) to the Management Committee and the Committee’s advance approval, expenses associated with the approved action are classified as special charges upon recognition and monitored on an on-going 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.

During our fourth quarter of 2021, we migrated certain financial processing systems as part of our enterprise resource planning (ERP) replacement program which will enable us to accelerate the transformation of our ways of working and provide a scalable platform for growth. We expect future migration of financial processing systems throughout all parts of our business over the course of the ERP replacement program through 2025. In connection with these implementations and resulting business process changes, we continue to enhance the design and documentation of our internal control over financial reporting processes to maintain effective controls over our financial reporting.

We have adopted a code of ethics that applies to all employees, including our principal executive officer, principal financial officer, principal accounting officer, and our Board of Directors. A copy of the code of ethics is available on our internet website at www.mccormickcorporation.com. We will satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any material amendment to our code of ethics, and any waiver from a provision of our code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, or persons performing similar functions, by posting such information on our website at the internet website address set forth above.

Information responsive to this item is incorporated herein by reference to the sections titled “Compensation of Directors,” “Compensation Discussion and Analysis,” “Compensation and Human Capital Committee Report,” “Summary Compensation Table,” “Grants of Plan-Based Awards,” “Narrative to the Summary Compensation Table,” “Outstanding Equity Awards at Fiscal Year-End,” “Option Exercises and Stock Vested in Last Fiscal Year,” “Retirement Benefits,” “Non-Qualified Deferred Compensation,” “Potential Payments Upon Termination or Change in Control,” “Compensation Committee Interlocks and Insider Participation” and “Equity Compensation Plan Information” in the 2022 Proxy Statement.


		Exhibit Number	Description

(31)		Rule 13a-14(a)/15d-14(a) Certifications	Filed herewith

	(i)	Certification of Lawrence E. Kurzius, Chairman, President and Chief Executive Officer, pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	(ii)	Certification of Michael R. Smith, Executive Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(32)		Section 1350 Certifications	Filed herewith

	(i)	Certification of Lawrence E. Kurzius, Chairman, President and Chief Executive Officer, pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	(ii)	Certification of Michael R. Smith, Executive Vice President and Chief Financial Officer, pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(101)		The following financial information from the Annual Report on Form 10-K of McCormick for the year ended November 30, 2021, filed electronically herewith, and formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Income Statements; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Shareholders’ Equity; (v) Consolidated Cash Flow Statements; and (vi) Notes to Consolidated Financial Statements.
(104)		Inline XBRL for the cover page of this Annual Report on Form 10-K of McCormick for the year ended November 30, 2021, filed electronically herewith, included in the Exhibit 101 Inline XBRL Document Set.

	*	Management contract or compensatory plan or arrangement.

		McCormick hereby undertakes to furnish to the Securities and Exchange Commission, upon its request, copies of additional instruments of McCormick with respect to long-term debt that involve an amount of securities that do not exceed 10% of the total assets of McCormick and its subsidiaries on a consolidated basis, pursuant to Regulation S-K, Item 601(b)(4)(iii)(A).

McCORMICK & COMPANY, INCORPORATED


By:	/s/ LAWRENCE E. KURZIUS	Chairman, President &	January 27, 2022
	Lawrence E. Kurzius	Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of McCormick and in the capacities and on the dates indicated.
Principal Executive Officer:

By:	/s/ LAWRENCE E. KURZIUS	Chairman, President &	January 27, 2022
	Lawrence E. Kurzius	Chief Executive Officer

Principal Financial Officer:

By:	/s/ MICHAEL R. SMITH	Executive Vice President & Chief	January 27, 2022
	Michael R. Smith	Financial Officer

Principal Accounting Officer:

By:	/s/ GREGORY P. REPAS	Vice President & Controller	January 27, 2022
	Gregory P. Repas	Principal Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, being a majority of the Board of Directors of McCormick & Company, Incorporated, on the date indicated:


THE BOARD OF DIRECTORS:						DATE:

/s/ ANNE L. BRAMMAN						January 27, 2022
Anne L. Bramman

/s/ MICHAEL A. CONWAY						January 27, 2022
Michael A. Conway

/s/ FREEMAN A. HRABOWSKI, III						January 27, 2022
Freeman A. Hrabowski, III

/s/ LAWRENCE E. KURZIUS						January 27, 2022
Lawrence E. Kurzius

/s/ PATRICIA LITTLE						January 27, 2022
Patricia Little

/s/ MICHAEL D. MANGAN						January 27, 2022
Michael D. Mangan

/s/ MARITZA G. MONTIEL						January 27, 2022
Maritza G. Montiel

/s/ MARGARET M.V. PRESTON						January 27, 2022
Margaret M.V. Preston

/s/ GARY M. RODKIN						January 27, 2022
Gary M. Rodkin

/s/ W. ANTHONY VERNON						January 27, 2022
W. Anthony Vernon

/s/ JACQUES TAPIERO						January 27, 2022
Jacques Tapiero


Maryland			52-0408290
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)


24 Schilling Road, Suite 1,	Hunt Valley,	Maryland	21031
(Address of principal executive offices)			(Zip Code)


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, Par Value $0.01 per share	MKC.V	New York Stock Exchange
Common Stock Non-Voting, Par Value $0.01 per share	MKC	New York Stock Exchange


Class	Number of Shares Outstanding	Date
Common Stock	17,789,317	December 31, 2021
Common Stock Non-Voting	249,742,929	December 31, 2021


Document			Part of 10-K into Which Incorporated
Proxy Statement for McCormick’s March 30, 2022 Annual Meeting of Stockholders (the “2022 Proxy Statement”)			Part III


☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Title of class			Approximate number of record holders
Common Stock, par value $0.01 per share			2,100
Common Stock Non-Voting, par value $0.01 per share			9,400


	For the year ended November 30, 2021 as compared to the year ended November 30, 2019
	Percentage change as reported		Impact of foreign currency exchange		Percentage change on constant currency basis
Net sales:
Consumer segment	20.4	%	2.1	%	18.3	%
Flavor Solutions segment	14.6	%	0.8	%	13.8	%
Total net sales	18.1	%	1.6	%	16.5	%


	2021			2020
Selling, general & administrative expense	$	1,404.1		$	1,281.6
Percent of net sales	22.3		%	22.9		%


	2021		2020
Transaction expenses included in cost of goods sold	$	6.3	$	—
Other transaction and integration expenses	29.0		12.4
Total transaction and integration expenses	$	35.3	$	12.4


2019 Earnings per share—diluted	$	2.62
Increase in operating income	0.12
Decrease in special charges	0.05
Increase in transaction and integration expenses	(0.04)
Decrease in interest expense	0.09
Decrease in other income	(0.03)
Impact of income taxes	(0.02)
Impact of higher shares outstanding	(0.01)
2020 Earnings per share—diluted	$	2.78


						Estimate for the year ending November 30, 2022

Earnings per share – diluted						$3.07 to $3.12
Impact of integration expenses						0.01
Impact of special charges						0.09
Adjusted earnings per share – diluted						$3.17 to $3.22


	For the year ended November 30, 2021
	Percentage change as reported		Impact of foreign currency exchange		Percentage change on constant currency basis
Net sales:
Consumer segment:
Americas	7.3	%	0.6	%	6.7	%
EMEA	5.8	%	4.9	%	0.9	%
Asia/Pacific	31.6	%	8.7	%	22.9	%
Total Consumer	9.5	%	2.2	%	7.3	%
Flavor Solutions segment:
Americas	16.6	%	1.2	%	15.4	%
EMEA	27.3	%	5.8	%	21.5	%
Asia/Pacific	16.9	%	7.5	%	9.4	%
Total Flavor Solutions	18.7	%	2.8	%	15.9	%
Total net sales	12.8	%	2.4	%	10.4	%

Adjusted operating income:
Consumer segment	3.1	%	1.8	%	1.3	%
Flavor Solutions segment	24.7	%	2.2	%	22.5	%
Total adjusted operating income	8.1	%	1.9	%	6.2	%


	Total		Less than 1 year		1–3 years		3–5 years		More than 5 years
Short-term borrowings	$	539.1	$	539.1	$	—	$	—	$	—
Long-term debt, including finance leases	4,754.2		770.3		1,061.7		787.2		2,135.0
Interest payments(a)	838.8		126.3		204.3		192.6		315.6
Total contractual cash obligations	$	6,132.1	$	1,435.7	$	1,266.0	$	979.8	$	2,450.6


PART I.


PART II.


	2022			2023			2024			2025			Thereafter			Total		Fair value
Debt
Fixed rate	$	756.8		$	257.8		$	763.2		$	258.6		$	2,644.2		$	4,680.6	$	4,848.0
Average interest rate	2.71		%	3.50		%	3.50		%	3.26		%	2.38		%	—
Variable rate	$	552.6		$	6.7		$	34.0		$	19.4		$	—		$	612.7	$	612.7
Average interest rate	0.24		%	1.39		%	1.69		%	1.74		%	—		%	—


Lawrence E. Kurzius

Chairman, President & Chief Executive Officer


Michael R. Smith

Executive Vice President & Chief Financial Officer


	2021		2020
Transaction-related expenses included in cost of goods sold	$	6.3	$	—
Other transaction expenses	13.8		12.4
Integration expenses	15.2		—
Total transaction and integration expenses	$	35.3	$	12.4


	2021		2020
Operating lease cost	$	45.0	$	41.2
Finance lease cost:
Amortization of ROU assets	9.0		9.0
Interest on lease liabilities	4.3		4.5
Net lease cost	$	58.3	$	54.7

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


Leases	Classification	2021		2020
Assets:
Operating lease ROU assets	Other long-term assets	$	136.8	$	136.8
Finance lease ROU assets	Property, plant and equipment, net	112.1		120.7
Total leased assets		$	248.9	$	257.5

Liabilities:
Current
Operating	Other accrued liabilities	$	34.3	$	37.3
Finance	Current portion of long-term debt	7.5		7.3
Non-current
Operating	Other long-term liabilities	106.1		103.5
Finance	Long-term debt	118.2		125.5
Total lease liabilities		$	266.1	$	273.6


	2021			2020
	Weighted-average remaining lease term (years)	Weighted-average discount rate		Weighted-average remaining lease term (years)	Weighted-average discount rate
Operating leases	6.8	1.9	%	5.6	1.9	%
Finance leases	12.9	3.3	%	13.9	3.3	%


	2021		2020
Cash paid for amounts included in the measurements of lease liabilities:
Operating cash flows used for operating leases	$	45.4	$	41.5
Operating cash flows used for finance leases	4.3		4.5
Financing cash flows used for finance leases	7.1		6.9

ROU assets obtained in exchange for lease liabilities
Operating leases	$	47.8	$	36.6


As of November 30, 2021:
(millions)	Asset Derivatives					Liability Derivatives
Derivatives	Balance sheet location	Notional amount		Fair value		Balance sheet location	Notional amount		Fair value
Interest rate contracts	Other current assets/Other long-term assets	$	350.0	$	23.1	Other accrued liabilities	$	—	$	—
Foreign exchange contracts	Other current assets	380.8		8.3		Other accrued liabilities	202.8		2.8
Cross currency contracts	Other current assets/Other long-term assets	251.0		4.4		Other long-term liabilities	257.5		8.0
Total				$	35.8				$	10.8
As of November 30, 2020:
(millions)	Asset Derivatives					Liability Derivatives
Derivatives	Balance sheet location	Notional amount		Fair value		Balance sheet location	Notional amount		Fair value
Interest rate contracts	Other current assets/Other long-term assets	$	350.0	$	43.1	Other accrued liabilities	$	—	$	—
Foreign exchange contracts	Other current assets	27.5		1.4		Other accrued liabilities	356.3		8.2
Cross currency contracts	Other current assets/Other long-term assets	—		—		Other long-term liabilities	524.4		18.8
Total				$	44.5				$	27.0


Fair value hedges (millions)
	Income statement location	Income (expense)
Derivative	Income statement location	2021		2020		2019
Interest rate contracts	Interest expense	$	8.2	$	5.2	$	—


	Income statement location	Gain (loss) recognized in income							Income statement location	Gain (loss) recognized in income
Derivative	Income statement location	2021		2020		2019		Hedged Item	Income statement location	2021		2020		2019
Foreign exchange contracts	Other income, net	$	(1.9)	$	(4.0)	$	0.2	Intercompany loans	Other income, net	$	2.9	$	3.0	$	(0.9)


Cash flow hedges (millions)
	Gain (loss) recognized in OCI						Income statement location	Gain (loss) reclassified from AOCI
Derivative	2021		2020		2019		Income statement location	2021		2020		2019
Interest rate contracts	$	0.3	$	—	$	—	Interest expense	$	0.5	$	0.5	$	0.5
Foreign exchange contracts	(2.0)		1.9		(0.2)		Cost of goods sold	(0.7)		1.6		1.6
Total	$	(1.7)	$	1.9	$	(0.2)		$	(0.2)	$	2.1	$	2.1


Net investment hedges (millions)
	Gain (loss) recognized in OCI						Income statement location	Gain (loss) excluded from the assessment of hedge effectiveness
Derivative	2021		2020		2019			2021		2020		2019
Cross currency contracts	$	15.5	$	(20.8)	$	1.1	Interest expense	$	1.5	$	3.1	$	5.4


			Fair value measurements using fair value hierarchy as of November 30, 2021
(millions)	Fair value		Level 1		Level 2
Assets:
Cash and cash equivalents	$	351.7	$	351.7	$	—
Insurance contracts	132.2		—		132.2
Bonds and other long-term investments	5.1		5.1		—
Interest rate derivatives	23.1		—		23.1
Foreign currency derivatives	8.3		—		8.3
Cross currency contracts	4.4		—		4.4
Total	$	524.8	$	356.8	$	168.0
Liabilities:

Foreign currency derivatives	2.8		—		2.8
Cross currency contracts	8.0		—		8.0
Total	$	10.8	$	—	$	10.8


	2021		2020
Accumulated other comprehensive loss, net of tax where applicable
Foreign currency translation adjustment (1)	$	(233.3)	$	(174.0)
Unrealized gain (loss) on foreign currency exchange contracts	0.6		(0.4)
Unamortized value of settled interest rate swaps	(0.2)		(0.1)
Pension and other postretirement costs	(193.6)		(296.3)
	$	(426.5)	$	(470.8)


(millions)							Affected line items in the consolidated income statement
Accumulated other comprehensive income (loss) components	2021		2020		2019
(Gains)/losses on cash flow hedges:
Interest rate derivatives	$	(0.5)	$	(0.5)	$	(0.5)	Interest expense
Foreign exchange contracts	0.7		(1.6)		(1.6)		Cost of goods sold
Total before taxes	0.2		(2.1)		(2.1)
Tax effect	—		0.5		0.4		Income taxes
Net, after tax	$	0.2	$	(1.6)	$	(1.7)

Amortization of pension and postretirement benefit adjustments:
Amortization of prior service (credits) costs (1)	$	0.3	$	(4.0)	$	(8.0)	Other income, net
Amortization of net actuarial losses (1)	13.9		11.0		2.6		Other income, net
Total before taxes	14.2		7.0		(5.4)
Tax effect	(3.3)		(1.6)		1.2		Income taxes
Net, after tax	$	10.9	$	5.4	$	(4.2)


	United States				International
	2021		2020		2021		2020
Discount rate—funded plans	2.9	%	2.8	%	2.1	%	1.9	%
Discount rate—unfunded plan	2.8	%	2.7	%	—		—
Salary scale	—		—		2.9	%	2.9	%


	Actual				2021
Asset Category	2021		2020		Target
Equity securities	62.2	%	63.2	%	59.0	%
Fixed income securities	20.9	%	22.0	%	23.2	%
Other	16.9	%	14.8	%	17.8	%
Total	100.0	%	100.0	%	100.0	%


As of November 30, 2021	United States
(millions)	Total fair value		Level 1		Level 2
Cash and cash equivalents	$	34.4	$	34.4	$	—
Equity securities:
U.S. equity securities(a)	290.7		147.5		143.2
International equity securities(b)	170.2		161.7		8.5
Fixed income securities:
U.S. government/corporate bonds(c)	86.9		84.4		2.5
High yield bonds(d)	41.0		—		41.0

Insurance contracts(f)	1.1		—		1.1
Other types of investments:
Real estate (g)	31.4		27.1		4.3
Natural resources (h)	13.3		—		13.3

Total	$	669.0	$	455.1	$	213.9
Investments measured at net asset value(i)
Hedge funds(j)	48.0
Private equity funds(k)	8.3
Private debt funds(l)	28.7
Total investments	$	754.0


As of November 30, 2020	United States
(millions)	Total fair value		Level 1		Level 2
Cash and cash equivalents	$	28.1	$	28.1	$	—
Equity securities:
U.S. equity securities(a)	271.1		138.2		132.9
International equity securities(b)	159.2		147.6		11.6
Fixed income securities:
U.S./government/ corporate bonds(c)	57.1		54.9		2.2
High yield bonds(d)	37.3		—		37.3
International/government/ corporate bonds(e)	29.1		29.1		—
Insurance contracts(f)	1.1		—		1.1
Other types of investments:
Real estate (g)	24.5		20.6		3.9
Natural resources (h)	9.7		—		9.7
Total	$	617.2	$	418.5	$	198.7
Investments measured at net asset value(i)
Hedge funds(j)	39.5
Private equity funds(k)	4.8
Private debt funds(l)	26.7
Total investments	$	688.2