FLAVORING
A BETTER
TOMORROW
2
1
0
9
A N N U A L R E P O R T
McCormick is flavoring
a better tomorrow
McCormick is first and foremost a global flavor company with a passion for
bringing new ideas to the world. In addition to enriching lives through flavor
experiences, we believe that as we build the McCormick of the future we have
a responsibility to do our part to ensure that our people, communities and
planet thrive.
CONTENTS
2 Letter to Shareholders
14 Purpose-led Performance
17 Form 10-K Table of Contents
11 Financial Highlights
16 Directors and Officers
19 Form 10-K
12 Our Broad Global Portfolio
Investor Information on Inside Back Cover
RED PEPPER
This deep and bright red colored fiery spice is used to liven up everything
from pasta sauces to vegetables. It is a favorite spice in many cuisines
across the globe. Recipes using red pepper can be customized for every
heat preference by adding as much or as little as desired.
Fellow Shareholders,
In 2019, we celebrated McCormick’s 130th anniversary and are proud of the many aspects
of our business which are rooted in our heritage and are key to McCormick’s success. We are
continually building upon that heritage with innovation and a commitment to purpose as we
proceed on our transformational journey. Our employees and the culture we have sustained
over the past 130 years have driven our accomplishments and are catalysts for innovation
as we move forward. We are executing against strategies designed to build long-term share-
holder value as is evidenced by our strong 2019 results. With an unrelenting focus on growth,
performance and people, we are looking forward to tomorrow.
Brendan Foley, Lisa Manzone, Lawrence Kurzius, Mike Smith, Malcolm Swift, Nneka Rimmer.
Management Committee, left to right:
Top-Tier Business Performance
20
We delivered top-tier business performance in 2019.
We drove sales, adjusted operating income and adjusted
15
Operating income increased to $958 million com-
16%
15%
pared to $891 million in 2018 driven by higher sales
20
15
10
5
0
20
15
10
5
0
2.5
2.0
1.5
1.0
0.5
0.0
earnings per share growth. We also delivered substan-
and gross margin expansion, including Comprehensive
12%
tial cost savings, expanded adjusted operating margin
10
Continuous Improvement (CCI) led cost savings.
and generated strong cash flow.
Additionally, decreases of $23 million in transaction
5
Net Sales rose 1%, including an unfavorable impact
from currency. Sales growth was driven by new
0
products and growth in the base business from
expanded distribution and brand marketing. Both
our segments contributed to this increase with con-
sumer and flavor solutions each contributing growth
of 1%. In constant currency, sales rose 3%. Our con-
20
sumer segment and flavor solutions segment each
achieved constant currency sales growth of 3%.
15
16%
15%
and integration charges, related to the acquisition
of our Frank’s® and French’s® brands, also contrib-
uted to the increase versus 2018. Partially offsetting
these benefits were increases of $5 million in special
MKC
S&P
500
Packaged
Foods Index
charges related to organizational and streamlining
actions versus 2018. Excluding these costs, adjusted
operating income increased 5% to $979 million
20%
19%
compared to $930 million in 2018 including a 2%
unfavorable impact from currency.
15%
15%
12%
MKC
S&P
500
Packaged
Foods Index
Total Annual
Shareholder Return
20%
20
19%
15%
15
15%
10
5
0
10
5
0
52 Week Return vs. S&P 500 and
S&P 500 Packaged Foods Index
Dividends Declared
(Per Share Data)
1-YR
5-YR
10-YR
20-YR
$2.33
$2.13
$1.93
12%
$1.76
$1.63
2.5
2.0
15%
16%
1.5
1.0
0.5
0.0
2015
2016
2017
2018
2019
McCormick has increased its dividend in
each of the past 34 years. We have paid a
dividend for 94 consecutive years.
2019 Annual Report
03
1-YR
5-YR
10-YR
20-YR
Total annual shareholder return
has been 15% or more for the past
1-, 5-, 10- and 20-year periods.
As of 11/30/2019
20
15
$1.76
$1.63
$2.33
$2.13
$1.93
MKC
S&P
500
Packaged
Foods Index
As of 11/30/2019
20%
19%
15%
15%
10
5
0
2.5
2.0
1.5
1.0
0.5
0.0
2015
2016
2017
2018
2019
1-YR
5-YR
10-YR
20-YR
$2.33
$2.13
$1.93
$1.76
$1.63
2015
2016
2017
2018
2019
Our adjusted operating income margins expanded
in an increase in adjusted earnings per share of 8%,
80 basis points, with expansion in both the consumer
which includes an unfavorable impact of foreign
and flavor solutions segments. This expansion was
currency rates.
primarily driven by our CCI program.
In 2019 we generated strong cash flow from oper-
Our CCI program achieved $119 million of cost savings.
ations, reaching another new high of $947 million
These savings generated fuel for growth, funding
driven by higher operating income and working cap-
investments in brand marketing and new products as
ital improvements. A portion of this cash was used
well as contributing to our adjusted operating margin
to pay down $436 million of acquisition debt. At the
expansion. In early 2016, we established a four-year,
end of 2019, our Board of Directors authorized a 9%
$400 million goal for our CCI program. With our 2019
increase in the quarterly dividend continuing our
results, we have generated $463 million of cost sav-
long history of returning cash to shareholders. We
ings, exceeding our goal significantly. There continues
are proud to be a dividend aristocrat having paid div-
to be a long runway of savings initiatives beyond 2019.
idends every year since 1925 with increases in the
Our earnings per share decreased to $5.24 in 2019
past 34 consecutive years.
compared to $7.00 in 2018. Special charges, partially
The successful execution of our strategies has deliv-
offset by an adjustment associated with the non-
ered differentiated results. Our focus on growth,
recurring impact of the U.S. Tax Act, lowered earnings
performance and people is driving strong long-term
per share by $0.11 in 2019. The net favorable non-
results which generated double-digit shareholder
recurring impact of the recent U.S. Tax Act, partially
return in the past 1-, 5-, 10- and 20-year periods. Our
offset by transaction and integration expenses as
performance continues to give us confidence that the
well as special charges increased earnings per share
momentum of our business is sustainable and we will
by $2.03 in 2018. Excluding these impacts, adjusted
continue to build long-term shareholder value as we
earnings per share grew to $5.35 in 2019 compared
build the McCormick of the future.
to $4.97 in 2018, driven primarily by higher adjusted
operating income, lower interest expense and higher
income from unconsolidated operations. This resulted
Generation Z seeks bolder and
spicier flavors and is fueling the
next generation of flavor growth
04
McCormick & Company, Inc.
Sustainably Positioned for Growth
McCormick’s broad and advantaged global flavor port-
New Product Innovation
folio continues to position us to meet the demand for
flavor around the world and grow our business. Our
breadth and reach across segments, geographies,
channels, customers and product offerings create a
balanced portfolio to drive consistency in our perfor-
mance in a volatile environment. It gives us significant
flexibility to adapt to changing conditions, wherever
they may arise, and continue to drive growth. This is a
differentiator in our current environment where change
is the only thing we can count on with certainty.
Flavor continues to be an advantaged global category
that has grown at a compounded annual growth rate
of five percent over the last five years. The rising con-
sumer demand for great taste and healthy eating is
the foundation of our sales growth. Consumers have
an increased interest in creating flavor experiences
with bold, rich, authentic flavors while demanding
convenience and focusing on fresh, natural and
recognizable ingredients with greater transparency
around the sourcing and quality of food. Generation Z,
the largest consumer segment, even bigger than mil-
lennials, is more experimental and health aware about
food. They are just starting to enter the workforce and
form households. They are carrying the rising demand
for flavor into the future with even greater emphasis.
McCormick’s products are well positioned to meet this
consumer demand for flavor, convenience, health and
sustainably-minded practices.
The combination of our breadth and reach, our align-
ment with consumer trends and our commitment to
stay true to our core principles…a passion for flavor, the
power of people, the taste you trust, driven to innovate
and purpose-led performance…is one of our greatest
competitive advantages and sustainably positions us
for continued growth.
As a global flavor leader, we have an important role in
bringing people together to celebrate their eating and
drinking occasions. People rely on McCormick for the
best products and purest flavors. Our technical inno-
vation centers work closely with consumers and our
customers to develop new products that deliver on con-
sumer demands and drive sales growth. Through our
partnership with IBM®, our product developers are also
using artificial intelligence, combining our consumer
insights with technology, for flavor and product develop-
ment across our business. McCormick’s product inno-
vation, spanning both our consumer and flavor solutions
segments, attracts global consumers to just about
every store shelf, real or virtual, and into restaurants
across the world to discover new tastes and packaging
innovation while seeking healthier, flavorful options.
Our flavor solutions technology platform
is driving new product wins
New products are integral to our sales growth. In 2019,
8% of our sales were generated by products launched in
the last three years. In our flavor solutions segment, we
had strong 2019 new product momentum as our cus-
tomers continue to move their portfolios to on-trend
flavors and healthier, more natural products while not
2019 Annual Report
05
compromising on taste. Our new product success is driven
by several enablers, including our differentiated culinary
foundation, customer collaboration and our technology
platform. Our technologies include FlavorReal, our clean
and natural platform which sets the benchmark for organic,
non-GMO and better-for-you products and FlavorFull, which
enables delivery of solutions for common challenges like
reducing salt or sugar without sacrificing iconic flavor. Our
technologies also include FlavorCell, our patented controlled
release encapsulation technology that is designed to deliver
flavor where, when and how you need it and FlavorSpice,
which delivers flexible natural replacements for ground
spices and herbs. We are creating natural flavor solutions
for our customers that resonate with consumers who prefer
familiar kitchen ingredients to those they don’t recognize.
In our consumer segment, new product innovation differ-
entiates our brands and strengthens our relevance with
the consumer. Our 2019 product launches, inspired by the
consumer’s pursuit of convenience, transparency and flavor
exploration included the expansion of our Street Food line
into the U.S. and Australia; a U.S. “One” product platform
of one-dish recipe mixes; the addition of Frank’s Redhot®
wings and Zatarain’s® entrée rice bowls to our U.S. frozen
portfolio; co-branded Tasty® McCormick® seasoning blends
in the Americas and EMEA; a Ducros® “Grown in France”
range in France; a core packaging redesign and the relaunch
of Frank’s and French’s with Mandarin labels in China; and
authentic flavored Heat and Eat meals in India. Our 2019
launches drove strong growth across all regions and we are
excited about our robust pipeline moving forward.
Differentiated Brand Marketing
In markets around the world, we are building our brand
equity and have made significant increases in brand mar-
keting. With these steady increases over the past several
years, we have lifted our brand marketing as a percentage
of sales to be among the highest versus our consumer
industry peers, resulting in leading share growth in our cat-
egories in key markets. We have not only increased our level
of investment, we are also targeting these investments
to optimize sales and profitability, getting more value out
of each dollar we spend. Our Marketing Excellence organi-
zation is driving greater speed, quality and effectiveness
Consumer new product innovation is an
integral part of our growth with a wide range
of 2019 launches.
across our marketing programs, particularly in the
Digital Acceleration
Americas. Our Marketing Excellence organization
includes an in-house agency where we are scaling
capabilities and processes and have increased our
agility. We have faster social media response times
and are getting more out of our media spend with inno-
vative campaigns. Our initiatives are creating aware-
ness and trial for new products and, importantly, are
building consumer equity for our leading brands and
driving growth across the portfolio.
We are accelerating our digital platform even beyond
brand marketing. Our investments in resources, content
development, programs with retailers and products
developed for e-commerce are driving excellent 2019
global growth with substantial opportunities still ahead
of us. We have strong momentum in our partnership
with Buzzfeed® Tasty®, gaining significant reach from
our product integration into the videos and recipes
used by the younger generations to create fabulous
Our returns on brand marketing investments are also
dishes with the bold and authentic flavors they desire.
differentiated, exceeding the consumer product industry
Additionally, our Flavor Maker App unlocks a world of
norms by over two times. Digital marketing continues to
exciting digital experiences where every swipe and
achieve one of our highest returns on marketing invest-
tap leads the flavor obsessed to new kitchen inspira-
ment. Through digital marketing, we connect directly
tion. Users can discover new recipes, sharpen kitchen
with consumers to provide personalized recipes, build
know-how with how-to cooking videos and tutorials,
communities and bring together those with a common
and save time by tracking all grocery needs in one
interest to build flavor stories. Our digital leadership
place with a convenient, on-the-go shopping list.
was recognized again in 2019 by Gartner L2 Research,
a business intelligence service, in their Digital IQ Index.
McCormick was ranked #1 for Food and was the only
food brand to earn the title of Genius, which represents
the top distinction for Gartner L2 Research’s Digital
IQ Index. This marked our 6th consecutive year in the
top 5 ranking of over 100 food and beverage brands on
the effectiveness of our website, digital, social media,
e-commerce and mobile platforms.
44%
GLOBAL E-COMMERCE
GROWTH 2019
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MCCORMICK
OREGANO LEAVES
WHERE TO BUY
THE OFFICIAL
SPICE OF
#1 DIGITAL
FOOD NETWORK
1.3 BILLION
MKC 2019 GLOBAL
IMPRESSIONS
#1
DIGITAL RANKING
ACROSS U.S. FOOD BRANDS
+1 BILLION
IMPRESSIONS
EARNING +15X
MEDIA VALUE
National Mustard Day
2019 Annual Report
07
Investing in Business Transformation
We are investing in business transformation to fuel
replace our existing Enterprise Resource Planning
our growth to win today as well as to remain agile,
(ERP) systems with a single, global platform. Joining
relevant and scalable to win tomorrow. With a stead-
our new ERP platform with our globally aligned pro-
fast focus on growth, performance and people, our
cesses will not only drive efficiencies, but also elevate
investments will continue to move us forward, build-
operational excellence, enable faster decision making,
ing both the McCormick of the future and long-term
empower our digital ambitions and allow us to remain
shareholder value.
forward-focused on growth.
Supply Chain Technology
Growth Behaviors
Our Technically Advantaged Supply Chain (TASC)
At McCormick, innovation is everyone’s responsibility.
program is continuing to make advances through the
To further enable that responsibility, we are invest-
application of state-of-the-art technologies which
ing in development to ensure all employees have the
will further differentiate McCormick. Our Purpose-led
tools and skillsets to transform McCormick together
Performance iconic raw material sustainable sourcing
to achieve our growth objectives. In 2019, we began
commitments are being achieved through our agricul-
an experience—McCormick INNOVATE.ALL—built on
tural science programs. Digital satellite imagery, drone
four growth behaviors which allow all employees to be
reconnaissance, controlled environment agriculture
more agile, enable more rapid execution of projects
and farmer engagement through use of digital devices
and more effectively achieve innovation and growth.
are at various stages of deployment. The benefits of
these initiatives both create competitive advantage
for our brands as well as support the resilience of the
farming communities from which we source.
In addition to our sourcing programs, we are applying
analytical resources and digital technologies to reduce
Constant reframing to rethink your work
losses and improve productivity throughout our supply
and question basic assumptions to see new
chain. Our manufacturing and distribution locations
opportunities.
continue to increase their contribution to our global CCI
objectives through the application of both our analyt-
ics and supply chain digitalization efforts.
Enterprise Resource Planning
Our Global Enablement organization, a shared service
team, is continuing to reinvent and transform our
operating model through globally aligned and innova-
tive services creating a scalable platform for growth.
As technology provides the backbone for greater pro-
cess alignment, information sharing and scalability,
we are also making investments in our information
systems. We have begun a multi-year program to
08
McCormick & Company, Inc.
Moving faster when pursuing innovative concepts
to experiment quickly and in a smaller scale.
Dynamically allocating resources to ensure they
are assigned to growth opportunities.
Use the whole McCormick brain by access-
ing experiences and opinions from many to
strengthen the quality of ideas and decisions.
These behaviors will continue to strengthen our ability
to progress our Driven to Innovate Principle and accel-
erate our business transformation journey toward the
McCormick of the future.
The Power of People
We are incredibly proud of our culture which began
with C.P. McCormick’s introduction of The Power of
People. Our high-performance culture is rooted in our
shared values and the respect for the contributions of
every employee. Our multiple management philosophy
of encouraging participation and inclusion continues
to be a driving force in our differentiation, solving busi-
ness challenges, creating growth opportunities and
developing careers and business leaders. Our goal is
to ensure McCormick remains a great place to work for
the 12,400 employees around the world.
We want to retain and attract the best talent and we
know our culture is a key differentiator in today’s highly
competitive talent market. We are strengthening our
position to win the war for talent with not only our
Our Singapore employees are volunteering in a not-for-profit
community garden for underprivileged families.
investments in development but also by continuing
a difference beyond financial performance and want
to modernize our workplaces. In 2019, we revamped
to have the opportunity to contribute to that impact.
our EMEA headquarters in the U.K., creating an updated,
Since 1941, McCormick has held a Charity Day, where
open space and technology enabled workplace. The
employees work to donate to local charities annually
new office environment provides additional oppor-
and contributions are matched by McCormick, to raise
tunities for employees to contribute and collaborate
millions of dollars each year. This year our philanthropic
more easily and will help us attract and retain talent.
spirit was in full force with a special campaign to support
Additionally, McCormick’s reputation for sustainability,
hunger-relief efforts. Highlights of activities around the
transparency and community support strongly res-
world included packing holiday meals for the Maryland
onates with our current and prospective employees.
Food Bank at our global headquarters, serving break-
Employees want to work for a company that is making
fast at a hunger relief program in El Salvador, donating
food to schools for underprivileged students in India
and Thailand and many food drives across all our sites.
We are proud to have met our goal and worldwide pro-
vided 1.3 million meals to local communities.
A newly renovated collaborative workspace
in our EMEA headquarters.
2019 Annual Report
09
McCormick’s flavors come to life each day through the
The collective power of our people is driving our dif-
diversity of our people, ideas, brands and geographies.
ferentiated performance. Our people are catalysts
We are creating a global workforce as wide-ranging as
for innovation, the talent to match our ambitions and
the people who trust and love our products through our
ensure McCormick is sustainably positioned for growth.
goals related to ethnically diverse talent and women in
leadership positions, as well as our leadership devel-
opment programs and employee ambassador groups
(EAG’s). We currently have over 1,100 employees
participating in eight EAG’s, including our Women’s
International Network, PRISM (LGBTQ), U.S. Veteran’s
Group and several representing different cultures. Our
success is the work of many and having a diverse and
inclusive workplace results in growth, innovation and a
highly engaged workforce.
Our Focus Is Growth
We are focused on growth, committed to people
and driven by purpose. We are disciplined in concen-
trating on the right opportunities, investing in our
business and attracting and retaining the talent to
meet our ambition. We have a solid foundation and
in an environment that continues to be dynamic and
Our people are the main reason McCormick is a great
fast-paced, we are ensuring we remain agile, relevant
place to work. On behalf of the executive team, I would
and focused on long-term sustainable growth. With
like to thank every employee for their dedicated efforts.
our engaged employees driving our momentum and
the effective execution of our strategies, we are well
positioned. We are confident we will drive top-tier
results, while significantly investing for the future and
will continue our success in 2020 and beyond. Our
overarching focus on growth is relentless as we drive
McCormick forward, flavoring a better tomorrow and
further building the value of your McCormick invest-
ment. On behalf of the McCormick Board of Directors
and the executive team, I would like to thank you for
your continued support and confidence.
Sincerely,
Lawrence E. Kurzius
Chairman, President and Chief Executive Officer
010
McCormick & Company, Inc. Financial Highlights
For the year ended November 30 (millions except per share data)
Net sales
Gross profit
Gross profit margin
Operating income
Operating income margin
Net income
Earnings per share—diluted
Cash flow from operations
Dividends paid
Dividends paid per share
2019
$5,347.4
2,145.3
40.1%
957.7
17.9%
702.7
5.24
946.8
302.2
2.28
2018
% Change
$5,302.8
2,093.3
39.5%
891.1
16.8%
933.4
7.00
821.2
273.4
2.08
0.8%
2.5%
7.5%
(24.7%)
(25.1%)
15.3%
10.5%
9.6%
We are providing below certain Non-GAAP financial results excluding items affecting comparability. The details of these adjustments are
provided in the Non-GAAP Financial Measures of the Management’s Discussion and Analysis.
Adjusted operating income
Adjusted operating income margin
Adjusted net income
Adjusted earnings per share—diluted
Cash Flow
from Operations
(millions)
$947
$815
$821
$815
$658
$590
$658
$590
2019
978.5
18.3%
717.3
5.35
2018
% Change
929.9
17.5%
662.0
4.97
5.2%
8.4%
7.6%
CCI Led Cost Savings
(millions)
$117
$118
$119
$117
$118
$119
$109
$98
Net Debt to Adjusted
$947
EBITDA Ratio
For the year ended
November 30, 2019
$109
$821
$98
3.4x
REDUCED
FROM 4.5x
IN 2017
2015
2016
2017
2018
2015
2019
2016
2017
2018
2019
2015
2016
2017
2018
2015
2019
2016
2017
2018
2019
Since 2015, we have increased cash flow
from operations by more than $350 million.
We have repaid $1.25 billion of the $1.5 billion
in term notes associated with the acquisition
of our Frank’s and French’s brands.
In the past five years, we have achieved
over $550 million in cost savings.
11
2019 Annual Report Our Broad Global Portfolio
McCORMICK IS REACHING ACROSS
THE GLOBE AND EVERY CHANNEL
WITH COMPELLING OFFERINGS…
FOR EVERY RETAIL AND CUSTOMER
STRATEGY…WITH OUR BROAD
RANGE OF CONSUMER FORMATS
AND FLAVOR APPLICATIONS
McCormick is a global leader in flavor and differ-
entiated with a broad and advantaged portfolio.
We operate in two segments—consumer and
flavor solutions—in every region across the globe,
with our joint ventures also adding to our global
presence. We deliver flavor across all eating
occasions as well as across all cuisines and
trends. With our diverse flavor portfolio we are
ideally positioned to fully meet the demand for
flavor around the world. No matter where, what
or when you eat or drink, you are likely enjoying
something flavored by McCormick—we are mak-
ing every meal and moment better.
Global Net Sales by
Product Category
Consumer Segment
Flavor Solutions Segment
U.S. Spices & Seasonings
International Spices & Seasonings
Recipe Mixes
Condiments & Sauces
Regional Leaders
Flavors
Global Net Sales by
Branded Foodservice
Segment and Region
Custom Condiments
Ingredients & Coatings
Global Net Sales by
Product Category
Global Net Sales by
Segment and Region
Consumer Segment
Flavor Solutions Segment
Americas
Europe, Middle East and Africa
Asia/Pacific
Americas
Europe, Middle East and Africa
Asia/Pacific
12
BREADTH & REACH
BALANCES PORTFOLIO FOR
CONSISTENT PERFORMANCE
McCormick & Company, Inc. Consumer Segment
Our consumer segment provides flavor to consumers around the world
with brands in approximately 150 countries and territories. Our iconic
brands have leading share positions in many of our markets and are the
taste consumers trust. We sell products at every price point ranging from
our premium brands to private label and across every channel, from tradi-
tional grocery to e-commerce. Our products are a fraction of the cost of a
meal or snacking occasion, but drive the flavor experience.
Since 2016 we grew...
NET SALES
21.7%
ADJUSTED
OPERATING INCOME
36.2%
[mm]
0
10
20
30
40
50
60
70
80
90
100
Użyte kolory/Used colors:
Klient/Client
Praca/Artwork
Data/Date
KAMIS
LOGO KAMIS.ai
2016.01.05
Cyan
Magenta
Yellow
Black
Agencja Reklamowa Opus B, ul. Pijarska 9, 31-015 Kraków, Polska/Poland, www.opusb.pl
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Bertie
Flavor Solutions Segment
Our flavor solutions segment is a culinary-inspired flavor business with
a deep understanding of the consumer flavor experience from real food
and beverage, and leading technology that delivers consumer-preferred
solutions for our customers, across a wide variety of applications. We offer
one of the broadest ranges of flavor solutions among our competitors
and develop those solutions for consumer food and beverage manufac-
turers, the foodservice industry and restaurant customers.
Since 2016 we grew...
NET SALES
27.7%
ADJUSTED
OPERATING INCOME
78.8%
Flavors designed for a wide range of customer applications
Beverages
Snacks
Dairy
Bakery/
Confectionary
Savory
13
2019 Annual Report Purpose-led
Performance
For 130 years, McCormick has had an unwavering responsibility
to the long-term vitality and prosperity of our business and the
world around us. Our commitment to delivering industry leading
financial performance while doing what’s right for people, com-
munities and the planet we share remains strong. We leverage
the power of our people, innovative technologies and passion
for quality products to deliver consistent results that meet the
expectations of our stakeholders to create a healthier planet with
healthier people. Our Purpose-led Performance is both part of our
heritage and how we will flavor a better tomorrow.
“ We were placed here to improve
the society in which we live and
that should be the goal of busi-
ness and professional leaders
today, tomorrow and forever.”
— C.P. McCormick, 1949
People
Communities
SENIOR LEADERSHIP DIVERSITY
Progress on Our 2025 Goals
2019
2019
49%
Women globally
Goal 50%
24%
Ethnically Diverse Talent in the U.S.
Goal 30%
Since 2017
+69% MSI CITATIONS
Supporting health and wellness by publishing the
benefits of herbs and spices.
14
014
McCormick & Company, Inc.
SMALLHOLDER FARM SUPPORT
increased by
more than 5x
to nearly 16,000 farmers since
2017 through partnerships with
organizations around the world.
+$1.9M
CONTRIBUTED TO HEALTHY
EATING PROGRAMS SINCE 2016
Teaching individuals and families
to reduce salt, fat and sugar intakes
while boosting flavor through the
use of herbs and spices.
We have laid out a series of commitments and performance targets for 2025
which will drive progress against the United Nations Sustainable Development
Goals. Read more about our Purpose-led Performance and our 2025 goals at
www.mccormickcorporation.com/en/responsibility/purpose-led-performance
Recognition
9
15
EXECUTIVE
WOMEN
For the fourth consecutive year, McCormick
ranked No. 1 in the food products industry in their
2020 Global 100 Most Sustainable Corporations
Index by Corporate Knights. Corporate Knights
assesses all publicly traded companies with
gross revenue in excess of $1 billion to create
the annual list.
In 2019, for the second consecutive
year, McCormick was recognized
on Barron’s 100 Most Sustainable
Companies list.
DiversityInc named McCormick to its
Top 50 Companies for Diversity in 2019,
our third year in a row on the Top 50 list
showcasing our commitment to foster-
ing a diverse and inclusive workplace.
Planet
Signed The
New Plastics
Economy Global
Commitment led by
100%
of plastic packaging that
can be reused, recycled
or repurposed by 2025.
ON TRACK TO MEET
2025 GOAL WITH
84%
achieved through 2019.
NEW LEED
CERTIFIED
global headquar-
ters and Thailand
manufacturing
facility.
ON TRACK TO
SUSTAINABLY
SOURCE
100%
of our iconic
branded herbs &
spices by 2025.
2019 Annual Report
01515
Board of Directors—Standing left to right: Maritza Montiel, Freeman Hrabowski, Anthony Vernon, Michael Conway, Margaret Preston, Gary Rodkin.
Seated left to right: Jacques Tapiero, Lawrence Kurzius, Michael Mangan, Patricia Little.
Not pictured due to recent appointment: Anne Bramman.
Board of Directors
Michael A. Conway 53
Executive Vice President
and President, Canada
Starbucks Corporation
Seattle, Washington
Director since 2015
Audit Committee
Freeman A. Hrabowski, III 69
President
University of Maryland
Baltimore County
Baltimore, Maryland
Director since 1997
Nominating/Corporate
Governance Committee*
Lawrence E. Kurzius 61
Chairman, President and
Chief Executive Officer
McCormick & Company, Inc.
Director since 2015
Patricia Little 59
Former Senior Vice President
and Chief Financial Officer
The Hershey Company
Hershey, Pennsylvania
Director since 2010
Nominating/Corporate
Governance Committee
16
McCormick & Company, Inc.
Michael D. Mangan 63
Former President
Worldwide Power Tools & Accessories
The Black & Decker Corporation
Towson, Maryland
Director since 2007**
Compensation Committee
Nominating/Corporate
Governance Committee
Maritza G. Montiel 68
Former Deputy Chief Executive
Officer and Vice Chairman
Deloitte LLP
Washington, D.C.
Director since 2015
Audit Committee*
Margaret M.V. Preston 62
Former Managing Director,
Private Wealth Management
TD Bank
New York, New York
Director since 2003
Compensation Committee
Gary M. Rodkin 67
Former Chief Executive Officer
ConAgra Foods, Inc.
Omaha, Nebraska
Director since 2017
Nominating/Corporate
Governance Committee
Jacques Tapiero 61
Former Senior Vice President and
President, Emerging Markets
Eli Lilly and Company
Indianapolis, Indiana
Director since 2012
Compensation Committee
W. Anthony Vernon 64
Former Chief Executive Officer
Kraft Foods Group, Inc.
Northfield, Illinois
Director since 2017
Compensation Committee*
Anne Bramman, 52
Chief Financial Officer
Nordstrom, Inc.
Seattle, Washington
Appointed in January 2020
Audit Committee
* Indicates Chair Position on
the Committee
** Lead Director
Executive
Officers
Lawrence E. Kurzius
Chairman, President and
Chief Executive Officer
Michael R. Smith
Executive Vice President and
Chief Financial Officer
Brendan M. Foley
President Global Consumer, Americas
and Asia
Lisa B. Manzone
Senior Vice President, Human Relations
Nneka L. Rimmer
Senior Vice President, Business
Transformation
Jeffery D. Schwartz
Vice President, General Counsel
and Secretary
Malcolm Swift
President Global Flavor Solutions,
EMEA and Chief Administrative Officer
Table of Contents to Form 10-K
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
PART II
Item 5
Item 6
Item 7
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
Item 8
Item 9
Item 9A
Item 9B
PART III
Item 10
Item 11
Item 12
Item 13
Financial Statements and Supplementary Data
Report of Management
Reports of Independent Registered Public Accounting Firm
Consolidated Income Statements
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Cash Flow Statements
Consolidated Statements of Shareholders’ Equity
Notes to Consolidated Financial Statements
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and
Director Independence
Item 14
Principal Accountant Fees and Services
PART IV
Item 15
Exhibits, Financial Statement Schedules
Page
21
24
31
31
31
31
32
33
34
51
52
52
53
56
56
57
58
59
60
83
83
84
84
84
84
84
84
85
2019 Annual Report 17
THIS PAGE LEFT INTENTIONALLY BLANK
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
S ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended November 30, 2019
OR
£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number 001-14920
McCORMICK & COMPANY, INCORPORATED
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
24 Schilling Road, Suite 1, Hunt Valley, Maryland
(Address of principal executive offices)
52-0408290
(IRS Employer
Identification No.)
21031
(Zip Code)
Registrant’s telephone number, including area code: (410) 771-7301
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, No Par Value
Common Stock Non-Voting, No Par Value
MKC-V
MKC
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: Not applicable.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes S No £
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes £ No S
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S No £
2019 Annual Report 19
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes S No £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Check one:
Large Accelerated Filer S
Non-accelerated Filer £ (Do not check if a smaller reporting company)
£
Accelerated Filer
Smaller Reporting Company £
Emerging Growth Company £
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No S
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the
price at which the common equity was last sold, or the average bid and asked prices of such common equity, as of the last business
day of the registrant’s most recently completed second fiscal quarter.
The aggregate market value of the Voting Common Stock held by non-affiliates at May 31, 2019: $1,458,501,404
The aggregate market value of the Non-Voting Common Stock held by non-affiliates at May 31, 2019: $19,200,282,923
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class
Number of Shares Outstanding
Date
Common Stock
Common Stock Non-Voting
9,314,335
123,599,379
December 31, 2019
December 31, 2019
DOCUMENTS INCORPORATED BY REFERENCE
Document
Part of 10-K into Which Incorporated
Proxy Statement for
McCormick’s April 1, 2020
Annual Meeting of Stockholders
(the “2020 Proxy Statement”)
Part III
20 McCormick & Company, Inc.
PART I.
As used herein, references to “McCormick,” “we,” “us” and “our”
are to McCormick & Company, Incorporated and its consolidated
subsidiaries or, as the context may require, McCormick & Company,
Incorporated only.
ITEM 1. BUSINESS
McCormick is a global leader in flavor. The company manufactures,
markets and distributes spices, seasoning mixes, condiments and
other flavorful products to the entire food industry—retailers, food
manufacturers and foodservice businesses. We also are partners
in a number of joint ventures that are involved in the manufacture
and sale of flavorful products, the most significant of which is
McCormick de Mexico. Our major sales, distribution and production
facilities are located in North America, Europe and China. Additional
facilities are based in Australia, India, Central America, Thailand and
South Africa. McCormick & Company, Incorporated was formed in
1915 under Maryland law as the successor to a business established
in 1889.
In August 2017, we completed the acquisition of Reckitt Benckiser’s
Food Division (“RB Foods”) from Reckitt Benckiser Group plc. The pur-
chase price was approximately $4.21 billion, net of acquired cash of
$24.3 million. The acquired market-leading brands of RB Foods
include French’s®, Frank’s RedHot® and Cattlemen’s®, which are a
natural strategic fit with our robust global branded flavor portfolio.
We believe that these additions move us to a leading position in the
attractive U.S. Condiments category and provide significant interna-
tional growth opportunities for our consumer and flavor solutions
segments. At the time of the acquisition, annual sales of RB Foods
were approximately $570 million. The results of RB Foods’ operations
have been included in our financial statements as a component of our
consumer and flavor solutions segments from the date of acquisition.
Business Segments
We operate in two business segments, consumer and flavor
solutions. Demand for flavor is growing globally, and across both
segments we have the customer base and product breadth to partici-
pate in all types of eating occasions. Our products deliver flavor
when cooking at home, dining out, purchasing a quick service meal or
enjoying a snack. We offer our customers and consumers a range of
products to meet the increasing demand for certain product attri-
butes such as organic, reduced sodium, gluten-free and non-GMO
(genetically modified organisms) and that extend from premium to
value-priced.
Consistent with market conditions in each segment, our consumer seg-
ment has a higher overall profit margin than our flavor solutions seg-
ment. In 2019, the consumer segment contributed approximately 61% of
sales and 69% of operating income, and the flavor solutions segment
contributed approximately 39% of sales and 31% of operating income.
Consumer Segment. From locations around the world, our brands
reach consumers in approximately 150 countries and territories.
Our leading brands in the Americas include McCormick®, French’s®,
Frank’s RedHot®, Lawry’s® and Club House®, as well as brands
such as Gourmet Garden® and OLD BAY®. We also market authen-
tic 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 season-
ings under the McCormick brand, our dessert products under the
Aeroplane® brand, and packaged chilled herbs under the Gourmet
Garden brand. In India, we market our spices and rice products
under the Kohinoor® brand. Elsewhere in the Asia/Pacific region,
we market our products under the McCormick brand as well as
other brands.
Our customers span a variety of retailers that include grocery,
mass merchandise, warehouse clubs, discount and drug stores, and
e-commerce retailers served directly and indirectly through distrib-
utors or wholesalers. In addition to marketing our branded prod-
ucts to these customers, we are also a leading supplier of private
label items, also known as store brands.
Approximately half of our consumer segment sales are spices,
herbs and seasonings. For these products, we are a category
leader in our primary markets. There are numerous competitive
brands of spices, herbs and seasonings 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 spice and sea-
soning sales 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 and indirectly
through distributors. 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 sen-
sory testing, culinary research, food safety and flavor application.
Our flavor solutions segment has a number of competitors. Some
tend to specialize in a particular range of products and have a
limited geographic reach. Other competitors include larger publicly
held flavor companies that are more global in nature, but which
also tend to specialize in a narrower range of flavor solutions than
McCormick.
2019 Annual Report 21
Raw Materials
The most significant raw materials used in our business are dairy
products, vanilla, pepper, capsicums (red peppers and paprika), garlic,
onion, rice and wheat flour. Pepper and other spices and herbs are
generally sourced from countries other than the United States. Other
raw materials, like dairy products and onion, are primarily sourced
locally, either within the United States or from our international loca-
tions. Because the raw materials are agricultural products, they are
subject to fluctuations in market price and availability caused by
weather, growing and harvesting conditions, market conditions, and
other factors beyond our control.
We respond to this volatility in a number of ways, including strategic
raw material purchases, purchases of raw material for future deliv-
ery, customer price adjustments and cost savings from our
Comprehensive Continuous Improvement (“CCI”) program.
Customers
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 solu-
tions segment, products are used by food and beverage manufactur-
ers as ingredients for their finished goods and by foodservice
customers as ingredients for menu items to enhance the flavor of
their foods. Customers for the flavor solutions segment include food
manufacturers and the foodservice industry supplied both directly
and indirectly through distributors.
We have a large number of customers for our products. Sales to one
of our consumer segment customers, Wal-Mart Stores, Inc., accounted
for approximately 11% of consolidated sales in 2019, 2018 and 2017.
Sales to one of our flavor solutions segment customers, PepsiCo, Inc.,
accounted for approximately 10% in 2019 and 2018 and 11% of con-
solidated sales in 2017. In 2019, 2018 and 2017 the top three custom-
ers in our flavor solutions segment represented between 49% and
52% of our global flavor solutions sales.
The dollar amount of backlog orders for our business is not material to
an understanding of our business, taken as a whole. No material por-
tion of our business is subject to renegotiation of profits or termination
of contracts or subcontracts at the election of the U.S. government.
Trademarks, Licenses and Patents
We own a number of trademark registrations. Although in the aggre-
gate 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,” “Stubb’s,”
“Club House,” “Ducros,” “Schwartz,” “Vahiné,” “OLD BAY,” “Simply
Asia,” “Thai Kitchen,” “Kitchen Basics,” “Kamis,” “Drogheria &
Alimentari,” “DaQiao,” “Kohinoor” and “Gourmet Garden” trade-
marks, would not have a material adverse effect on our business.
The “Mc – McCormick” trademark is extensively used by us in con-
nection 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 have entered into a number of license agreements authorizing the
use of our trademarks by affiliated and non-affiliated entities. The loss
22 McCormick & Company, Inc.
of these license agreements would not have a material adverse effect
on our business. The term of the license agreements is generally three
to five years or until such time as either party terminates the agreement.
Those agreements with specific terms are renewable upon agreement
of the parties.
We also own various patents, none of which are individually material
to our business.
Seasonality
Due to seasonal factors inherent in our business, our sales, income
and cash from operations generally are lower in the first two quar-
ters of the fiscal year, increase in the third quarter and are signifi-
cantly higher in the fourth quarter due to the holiday season. This
seasonality reflects customer and consumer buying patterns, primar-
ily in the consumer segment.
Working Capital
In order to meet increased demand for our consumer products during
our fourth quarter, we usually build our inventories during the third
quarter of the fiscal year. We generally finance working capital items
(inventory and receivables) through short-term borrowings, which
include the use of lines of credit and the issuance of commercial paper.
For a description of our liquidity and capital resources, see note 6 of
the accompanying financial statements and the “Liquidity and Finan-
cial Condition” section of “Management’s Discussion and Analysis.”
Competition
Each segment operates in markets around the world that are highly
competitive. In this competitive environment, our growth strategies
include customer intimacy and product innovation based on consumer
insights. Additionally, in the consumer segment, we are building brand
recognition and loyalty through advertising and promotions.
Governmental Regulation
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 fed-
eral, 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.
Environmental Regulations
The cost of compliance with federal, state and local provisions related
to protection of the environment has had no material effect on our
business. There were no material capital expenditures for environ-
mental control facilities in fiscal year 2019, and there are no material
expenditures planned for such purposes in fiscal year 2020.
Employees
We had approximately 12,400 full-time employees worldwide as of
November 30, 2019. Our operations have not been affected signifi-
cantly by work stoppages and, in the opinion of management,
employee relations are good. We have approximately 300 employees
covered by a collective bargaining contract in the United States. At
our foreign subsidiaries, approximately 2,400 employees are covered
by collective bargaining agreements or similar arrangements.
Information about our Executive Officers
In addition to the executive officers described in the 2020 Proxy
Statement incorporated by reference in Part III, Item 10 of this Report,
the following individuals are also executive officers of McCormick:
Lisa B. Manzone and Nneka L. Rimmer.
Ms. Manzone is 55 years old and, during the last five years, has held
the following positions with McCormick: June 2015 to present–Senior
Vice President, Human Relations; January 2015 to June 2015–Vice
President Global Human Relations; January 2013 to January 2015–
Vice President Compensation and Benefits.
Ms. Rimmer is 48 years old and, during the last five years, has held the
following positions with McCormick: February 2019 to present–Senior
Vice President, Business Transformation; August 2017 to February
2019–Senior Vice President, Strategy and Global Enablement; April
2015 to August 2017–Senior Vice President, Corporate Strategy and
Development. Before joining McCormick in April 2015, Ms. Rimmer
was Partner and Managing Director with the Boston Consulting Group
where she had 13 years of experience designing, executing and lever-
aging successful large-scale transformational initiatives, working with
large global consumer goods corporations.
Foreign Operations
We are subject in varying degrees to certain risks typically associated
with a global business, such as local economic and market conditions,
exchange rate fluctuations, and restrictions on investments, royalties
and dividends. In fiscal year 2019, approximately 40% of sales were
from non-U.S. operations. For information on how we manage some of
these risks, see the “Market Risk Sensitivity” section of “Management’s
Discussion and Analysis.”
Forward-Looking Information
Certain statements contained in this report, including statements con-
cerning expected performance such as those relating to net sales,
earnings, cost savings, special charges, acquisitions, brand marketing
support, volume and product mix, and income tax expense are “for-
ward-looking statements” within the meaning of Section 21E of the
Securities Exchange Act of 1934. These statements may be identified
by the use of words such as “may,” “will,” “expect,” “should,” “antici-
pate,” “intend,” “believe” and “plan.” These statements may relate to:
the expected results of operations of businesses acquired by the com-
pany, including the acquisition of RB Foods; the expected impact of
raw material costs and pricing actions on the company’s results of
operations and gross margins; the expected impact of productivity
improvements, including those associated with our Comprehensive
Continuous Improvement (CCI) program and global enablement initia-
tive; 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 expected impact of the U.S.
Tax Act enacted in December 2017; 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 liquid-
ity, such as the availability of bank financing; the anticipated suffi-
ciency 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 or equity securities; and expec-
tations regarding purchasing shares of McCormick’s common stock
under the existing repurchase authorizations.
These and other forward-looking statements are based on manage-
ment’s current views and assumptions and involve risks and uncertain-
ties that could significantly affect expected results. Results may be
materially affected by factors such as: damage to the company’s repu-
tation 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, competi-
tors and customers; the longevity of mutually beneficial relationships
with our large customers; business interruptions due to natural disas-
ters or unexpected events; issues affecting the company’s supply chain
and raw materials, including fluctuations in the cost and availability of
raw and packaging materials; government regulation, and changes in
legal and regulatory requirements and enforcement practices; the lack
of successful acquisition and integration of new businesses, including
the acquisition of RB Foods; global economic and financial conditions
generally, including the pending exit of the U.K. from the European
Union (Brexit), 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 RB Foods acquisition 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; assumptions we have made regarding the investment
return on retirement plan assets, and the costs associated with pen-
sion obligations; the stability of credit and capital markets; risks asso-
ciated 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; fun-
damental changes in tax laws; including interpretations and assump-
tions we have made, and guidance that may be issued, regarding the
U.S. Tax Act enacted on December 22, 2017 and volatility in our effec-
tive tax rate; climate change; infringement of intellectual property
rights, and those of customers; litigation, legal and administrative pro-
ceedings; 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.”
Actual results could differ materially from those projected in the
forward-looking statements. We undertake no obligation to update or
revise publicly any forward-looking statements, whether as a result of
new information, future events or otherwise, except as may be
required by law.
Available Information
Our principal corporate internet website address is: www.mccormick-
corporation.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 rea-
sonably practicable after such documents are electronically filed with,
or furnished to, the United States Securities and Exchange Commission
(the “SEC”). The SEC maintains an internet website at www.sec.gov
2019 Annual Report 23
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 Committee, and Nominating/
Corporate Governance Committee of our Board of Directors.
ITEM 1A. RISK FACTORS
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 neg-
atively affected. In that case, the trading price of our securities could
decline, and you may lose part or all of your investment.
Damage to our reputation or brand name, loss of brand rele-
vance, increase in use of private label or other competitive
brands by customers or consumers, or product quality or
safety concerns could negatively impact our business, finan-
cial condition or results of operations.
We have many iconic brands with long-standing consumer recognition.
Our success depends on our ability to maintain our brand image for our
existing products, extend our brands to new platforms, and expand our
brand image with new product offerings.
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 evaluate their mix of
product offerings, and consumers have the option to purchase private
label or other competitive products instead of our branded products.
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, and certain of our raw materials could be
blocked from entering the country if they were subject to government-
imposed actions. We also may 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.
The rising popularity of social networking and other consumer-
oriented technologies has increased the speed and accessibility of
information dissemination (whether or not accurate), and, as a
result, negative, inaccurate, or misleading posts or comments on
websites may generate adverse publicity that could damage our
reputation or brands.
Customer consolidation, and competitive, economic and
other pressures facing our customers, may put pressure on
our operating margins and profitability.
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. Our flavor solutions segment may be impacted if
the reputation or perception of the customers of our flavor solutions
segment declines. These factors and others could have an adverse
impact on our business, financial condition or results of operations.
The inability to maintain mutually beneficial relationships
with large customers could adversely affect our business.
We have a number of major customers, including two large custom-
ers that, in the aggregate, constituted approximately 21% of our
consolidated sales in 2019. The loss of either of these large customers
or a material negative change in our relationship with these large
customers or other major customers could have an adverse effect on
our business.
24 McCormick & Company, Inc.
Disruption of our supply chain and issues regarding procure-
ment of raw materials may negatively impact us.
Our purchases of raw materials are subject to fluctuations in market
price and availability caused by weather, growing and harvesting
conditions, market conditions, governmental actions and other factors
beyond our control. The most significant raw materials used by us
in our business are dairy products, vanilla, pepper, capsicums (red
peppers and paprika), garlic, onion, rice and wheat flour. 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.
In addition, we may have very little opportunity to mitigate the risk of
availability of certain raw materials due to the effect of weather on
crop yield, government actions, political unrest in producing countries,
action or inaction by suppliers in response to laws and regulations,
changes in agricultural programs and other factors beyond our control.
Therefore, we cannot provide assurance that future raw material
availability will not have a negative impact on our business, financial
condition or operating results.
Political, socio-economic and cultural conditions, as well as disruptions
caused by terrorist activities or otherwise, could also create additional
risks for regulatory compliance. Although we have adopted rigorous
quality assurance and quality control procedures which are designed
to ensure the safety of our imported products, we cannot provide
assurance that such events will not have a negative impact on our
business, financial condition or operating results.
Our profitability may suffer as a result of competition in our
markets.
The food industry is intensely competitive. Competition in our
product categories is based on price, product innovation, product
quality, brand recognition and loyalty, effectiveness of marketing
and promotional activity, and the ability to identify and satisfy
consumer preferences. From time to time, we may need to reduce
the prices for some of our products to respond to competitive and
customer pressures, which may adversely affect our profitability.
Such pressures could reduce our ability to take appropriate remedial
action to address commodity and other cost increases.
Laws and regulations could adversely affect our business.
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 new 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. Regulations to implement
portions of the CCPA have not been finalized and could significantly
impact CCPA compliance measures. As a company that is subject
to data privacy laws, we bear the costs of compliance with them,
including the GDPR and CCPA, 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.
Our operations may be impaired as a result of disasters,
business interruptions or similar events.
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 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.
2019 Annual Report 25
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.
We may not be able to successfully consummate and
manage ongoing acquisition, joint venture and divestiture
activities which could have an impact on our results.
From time to time, we may acquire other businesses and, based on
an evaluation of our business portfolio, divest existing businesses.
These acquisitions, joint ventures and divestitures may present
financial, managerial and operational challenges, including diversion
of management attention from existing businesses, difficulty with
integrating or separating personnel and financial and other systems,
increased expenses and raw material costs, assumption of unknown
liabilities and indemnities, and potential disputes with the buyers or
sellers. In addition, we may be required to incur asset impairment
charges (including charges related to goodwill and other intangible
assets) in connection with acquired businesses which may reduce
our profitability. If we are unable to consummate such transactions,
or successfully integrate and grow acquisitions and achieve
contemplated revenue synergies and cost savings, our financial
results could be adversely affected. Additionally, joint ventures
inherently involve a lesser degree of control over business
operations, thereby potentially increasing the financial, legal,
operational, and/or compliance risks.
An impairment of the carrying value of goodwill or other
indefinite-lived intangible assets could adversely affect
our results.
As of November 30, 2019, we had approximately $4.5 billion of
goodwill and approximately $2.6 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 the
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 or assumed royalty rates. The
impairment of our goodwill or indefinite-lived intangible assets may
have a negative impact on our consolidated results of operations.
Because indefinite-lived intangible assets are recorded at fair value
at the date of acquisition of the related business, indefinite-lived
intangible assets associated with recent business acquisitions,
26 McCormick & Company, Inc.
particularly those acquired in recent low interest rate environments,
such as RB Foods, are more susceptible to impairment in periods of
rising interest rates than indefinite-lived intangible assets related to
businesses acquired in periods of higher interest rates.
Our foreign and cross-border operations are subject to
additional risks.
We operate our business and market our products internationally. In
fiscal year 2019, approximately 40% of our sales were generated in
foreign countries. Our foreign 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
United Kingdom (“U.K.”) Additionally, international sales, 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.
Fluctuations in foreign currency markets may negatively
impact us.
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, Canadian dollar, Polish zloty,
Australian dollar, Mexican peso, Chinese renminbi, Indian rupee and
Thai baht, as well as the Euro versus the British pound sterling,
Australian dollar and Swiss franc. 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.
The decision by British voters to exit the European Union may
negatively impact our operations.
The U.K. is currently negotiating the terms of its exit from the
European Union (“Brexit”). In November 2018, the U.K. and the
European Union agreed upon a draft Withdrawal Agreement that
sets out the terms of the U.K.’s departure, including commitments
on citizen rights after Brexit, a financial settlement from the U.K.,
and a transition period to allow time for a future trade deal to be
agreed. After the U.K. Parliament failed to approve the Withdrawal
Agreement in October 2019, European Union leaders granted the
U.K. a three-month flexible Brexit extension, avoiding a no-deal
exit on the previous deadline of October 31, 2019. On January 23,
2020, the Withdrawal Act, after clearing all stages in the U.K.
Parliament, received royal assent from the Queen. Assuming
approval by the European Parliament, the U.K. is expected to
officially leave the European Union on January 31, 2020. Following its
departure, the U.K. will enter a transition period until December 31,
2020 during which period of time the U.K.’s trading relationship
with the European Union will remain largely the same while the
two parties negotiate a free trade agreement as well as other
aspects of the U.K.’s relationship with the European Union. The
Withdrawal Agreement allows the U.K./European Union Joint
Committee to extend the transition period by up to two years,
meaning that the terms and eventual date of the U.K.’s withdrawal
remain highly uncertain.
If the U.K. leaves the European Union with no agreement (“hard
Brexit”), it will likely have an adverse impact on labor and trade in
addition to creating further short-term uncertainty and currency
volatility. In the absence of a future trade deal, the U.K.’s trade with
the European Union and the rest of the world would be subject to
tariffs and duties set by the World Trade Organization. Current
volatility and tariffs and duties on trade may also occur under any
trade agreement negotiated between the U.K. and the European
Union, depending on the agreement’s terms. Additionally, under a
hard Brexit or a negotiated trade agreement, the movement of goods
between the U.K. and the remaining member states of the European
Union may be subject to additional inspections and documentation
checks, leading to possible delays at ports of entry and departure.
These changes to the trading relationship between the U.K and
European Union would likely result in increased cost of goods
imported into and exported from the U.K. and may decrease the
profitability of our U.K. and other operations. Additional currency
volatility could drive a weaker British pound, which increases the
cost of goods imported into our U.K. operations and may decrease
the profitability of our U.K. operations. A weaker British pound versus
the U.S. dollar also causes local currency results of our U.K.
operations to be translated into fewer U.S. dollars during a reporting
period. With a range of outcomes still possible, the impact from
Brexit remains uncertain and will depend, in part, on the final
outcome of tariff, trade, regulatory and other negotiations.
Our credit ratings impact the cost and availability of future
borrowings and, accordingly, our cost of capital.
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 financ-
ing 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 further downgraded or put on watch for a potential down-
grade, 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 have incurred additional indebtedness to finance the
acquisition of RB Foods and may not be able to meet our debt
service requirements.
After financing our acquisition of RB Foods, we have a significant
amount of indebtedness outstanding. As of November 30, 2019, the
indebtedness of McCormick and its subsidiaries is approximately
$4.3 billion. This substantial level of indebtedness could have import-
ant consequences to our business, including, but not limited to:
• increasing our debt service obligations, making it more difficult for
us to satisfy our obligations;
• limiting our ability to borrow additional funds and increasing the
cost of any such borrowing;
• increasing our exposure to negative fluctuations in interest rates;
• subjecting us to financial and other restrictive covenants, the non-
compliance with which could result in an event of default;
• increasing our vulnerability to, and reducing our flexibility to
respond to, general adverse economic and industry conditions;
• limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate; and
Increases in interest rates or changes in our credit ratings may
negatively impact us.
• placing us at a competitive disadvantage as compared to our com-
petitors, to the extent that they are not as highly leveraged.
On November 30, 2019 we had total outstanding variable rate debt of
approximately $882 million, including $601 million of short-term bor-
rowings, at a weighted-average interest rate of approximately 2.6%.
The interest rates under our term loans and revolving credit facilities
can vary based on our credit ratings. Our policy is to manage our inter-
est rate risk by entering into both fixed and variable rate debt arrange-
ments. 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 utili-
zation of written guidelines. However, our use of these instruments
may not effectively limit or eliminate our exposure to changes in inter-
est 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.
The deterioration of credit and capital markets may adversely
affect our access to sources of funding.
We rely on our revolving credit facilities, or borrowings backed by
these facilities, to fund a portion of our seasonal working capital
needs and other general corporate purposes. If any of the banks in the
syndicates backing these facilities were unable to perform on its com-
mitments, 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 facilities. 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 com-
mitment is remote.
2019 Annual Report 27
In addition, global capital markets have experienced volatility in the
past that has tightened access to capital markets and other sources
of funding, and such volatility and tightened access could reoccur in
the future. In the event that we need to access the capital markets or
other sources of financing, there can be no assurance that we will be
able to obtain financing on acceptable terms or within an acceptable
time period. Our inability to obtain financing on acceptable terms or
within an acceptable time period could have an adverse impact on our
operations, financial condition and liquidity.
The uncertainty regarding the potential phase-out of LIBOR
may negatively impact our operating results.
LIBOR, the interest rate benchmark used as a reference rate on our
variable rate debt, including our revolving credit facility, interest rate
swaps, and cross currency interest rate swaps is expected to be
phased out after 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. At this time, no consensus exists as to what rate or rates
will become accepted alternatives to LIBOR, although the U.S. Federal
Reserve, in connection with the Alternative Reference Rates
Committee, a steering committee comprised of large U.S. financial
institutions, is considering replacing U.S. dollar LIBOR with the
Secured Overnight Financing Rate (“SOFR”). SOFR is a more generic
measure than LIBOR and considers the cost of borrowing cash over-
night, collateralized by U.S. Treasury securities. Given the inherent dif-
ferences between LIBOR and SOFR or any other alternative benchmark
rate that may be established, there are 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 deriv-
ative 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
Alternative Reference Rates Committee. 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.
We face risks associated with certain pension assets and
obligations.
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.
Uncertain global economic conditions expose us to credit risks
from customers and counterparties.
Consolidations in some of the industries in which our customers oper-
ate 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 operations and reputation may be impaired if our informa-
tion technology systems fail to perform adequately or if we are
the subject of a data breach or cyber-attack.
Our information technology systems are critically important to operat-
ing 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, communi-
cations, 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 tech-
nology 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 dis-
rupt 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 are subject to cyber-at-
tacks or other security incidents, 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 have experienced in the
past, and expect to continue to experience, cybersecurity threats and
incidents, although to date none has been material. To address the risks
to our information technology systems and data, we maintain an infor-
mation security program that includes updating technology, developing
security policies and procedures, implementing and assessing the effec-
tiveness of controls, conducting risk assessments of third party service
providers and designing business processes to mitigate the risk of such
breaches. 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 tech-
nologies change and efforts to overcome security measures evolve. 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. Additionally, we rely on services provided by third-party vendors
28 McCormick & Company, Inc.
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.
The global nature of our business, changes in tax legislation
and the resolution of tax uncertainties create volatility in our
effective tax rate.
If we are not able to successfully implement our business
transformation initiative or utilize information technology
systems and networks effectively, our ability to conduct our
business may be negatively impacted.
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 addition, failure to either deliver the
applications on time, or anticipate the necessary readiness and train-
ing needs, could lead to business disruption and loss of customers
and revenue. In connection with these implementations and resulting
business process changes, we continue to enhance the design and
documentation of business processes and controls, including our
internal control over financial reporting processes, to maintain effec-
tive controls over our financial reporting.
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 adequate-
ly 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.
As a global business, our tax rate from period to period can be affected
by many factors, including changes in tax legislation, our global mix of
earnings, the tax characteristics of our income, the timing and recogni-
tion of goodwill impairments, acquisitions and dispositions, adjust-
ments to our reserves related to uncertain tax positions, changes in
valuation allowances and the portion of the income of foreign subsid-
iaries that we expect to remit to the U.S. and that will be taxable.
In addition, significant judgment is required in determining our effec-
tive 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 uncer-
tain. 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 manage-
ment. When particular matters arise, a number of years may elapse
before such matters are audited and finally resolved. Favorable resolu-
tion of such matters could be recognized as a reduction to our effec-
tive 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.
Climate change may negatively affect our business, financial
condition and results of operations.
Unseasonable or unusual weather or long-term climate changes may
negatively impact the price or availability of spices, herbs and other
raw materials. There is concern that greenhouse gases in the atmo-
sphere may have an adverse impact on global temperatures, weather
patterns and the frequency and severity of extreme weather and natu-
ral 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 commodi-
ties that are necessary for our products. 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 unfa-
vorably impact our sales and profitability.
Our intellectual property rights, and those of our customers,
could be infringed, challenged or impaired, and reduce the value
of our products and brands or our business with customers.
We possess intellectual property rights that are important to our
business, and we are provided access by certain customers to partic-
ular intellectual property rights belonging to such customers. These
intellectual property rights include ingredient formulas, trademarks,
copyrights, patents, business processes and other trade secrets which
are important to our business and relate to some of our products,
our packaging, the processes for their production, and the design
and operation of equipment used in our businesses. We protect our
intellectual property rights, and those of certain customers, globally
2019 Annual Report 29
through a variety of means, including trademarks, copyrights, patents
and trade secrets, third-party assignments and nondisclosure agree-
ments, 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.
Litigation, legal or administrative proceedings could have an
adverse impact on our business and financial condition or
damage our reputation.
We are party to a variety of legal claims and proceedings in the ordi-
nary 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 allega-
tions made in litigation claims or legal or administrative proceedings
(even if untrue) may also adversely affect our reputation. These fac-
tors and others could have an adverse impact on our business and
financial condition or damage our reputation.
Streamlining actions to reduce fixed costs, simplify or improve
processes, and improve our competitiveness may have a
negative effect on employee relations.
We regularly evaluate whether to implement changes to our organiza-
tion 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 rela-
tions at the impacted locations or elsewhere in McCormick.
If we are unable to fully realize the benefits from our CCI
program, our financial results could be negatively affected.
Our future success depends in part on our ability to be an efficient
producer in a highly competitive industry. Any failure by us to achieve
our planned cost savings and efficiencies under our CCI program, an
ongoing initiative to improve productivity and reduce costs throughout
the organization, or other similar programs, could have an adverse
effect on our business, results of operations and financial position.
The declaration, payment and amount of dividends is made
at the discretion of our board of directors and depends on a
number of factors.
The declaration, payment and amount of any dividends is made pursu-
ant 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 divi-
dends at any time in the future.
30 McCormick & Company, Inc.
ITEM 1B. UNRESOLVED STAFF COMMENTS
China:
None.
ITEM 2. PROPERTIES
Our principal executive offices and primary research facilities are
leased and owned, respectively, and are located in suburban
Baltimore, Maryland.
The following is a list of our principal manufacturing properties, all of
which are owned except for the facilities in Commerce, California;
Lakewood, New Jersey; Melbourne, Australia; Florence, Italy; and a
portion of the facility in Littleborough, England, which are leased. The
manufacturing facilities that we own in Guangzhou, Shanghai and
Wuhan, China are each located on land subject to long-term leases:
United States:
Hunt Valley, Maryland–consumer and flavor solutions
(3 principal plants)
Gretna, Louisiana–consumer and flavor solutions
South Bend, Indiana–consumer and flavor solutions
Atlanta, Georgia–flavor solutions
Commerce, California–consumer
Irving, Texas–flavor solutions
Lakewood, New Jersey–flavor solutions
Springfield, Missouri–consumer and flavor solutions
Canada:
London, Ontario–consumer and flavor solutions
Mexico:
Guangzhou–consumer and flavor solutions
Shanghai–consumer and flavor solutions
Wuhan–consumer
Australia:
Melbourne–consumer and flavor solutions
Palmwoods–consumer (2 principal plants)
India:
New Delhi–consumer
Thailand:
Chonburi–consumer and flavor solutions
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 Gennevilliers, France. We also own distribu-
tion 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.
We believe our plants are well maintained and suitable for their
intended use. We further believe that these plants generally have
adequate capacity or the ability to expand, and can accommodate
seasonal demands, changing product mixes and additional growth.
Cuautitlan de Romero Rubio–flavor solutions
ITEM 3. LEGAL PROCEEDINGS
United Kingdom:
Haddenham, England–consumer and flavor solutions
Littleborough, England–flavor solutions
France:
Carpentras–consumer and flavor solutions
Monteux–consumer and flavor solutions
Poland:
Stefanowo–consumer
Italy:
Florence–consumer and flavor solutions (3 principal plants)
There are no material pending legal proceedings in which we or any
of our subsidiaries are a party or to which any of our or their prop-
erty is the subject.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
2019 Annual Report 31
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Our Common Stock and Common Stock Non-Voting are listed and traded on the New York Stock Exchange (“NYSE”). Our Common Stock and
Common Stock Non-Voting trade under the ticker symbols MKCV and MKC, respectively. We have disclosed in note 17 of the accompanying
financial statements the information relating to the dividends declared and paid on our classes of common stock. The market price of our com-
mon stock at the close of business on December 31, 2019 was $171.07 per share for the Common Stock and $169.73 per share for the Common
Stock Non-Voting.
The approximate number of holders of our common stock based on record ownership as of December 31, 2019 was as follows:
Title of class
Common Stock, no par value
Common Stock Non-Voting, no par value
Approximate number
of record holders
2,000
9,400
The following table summarizes our purchases of Common Stock (CS) and Common Stock Non-Voting (CSNV) during the fourth quarter of 2019:
Period
September 1, 2019 to
September 30, 2019
October 1, 2019 to
October 31, 2019
November 1, 2019 to
November 30, 2019
Total
ISSUER PURCHASES OF EQUITY SECURITIES
Total number
of shares
purchased
CS-0
CSNV-0
CS-0
CSNV-72,000
CS-0
CSNV-40,500
CS-0
CSNV-112,500
Average
price
paid per
share
—
—
—
$161.96
—
$160.22
—
$161.33
Total number of
shares purchased
as part of publicly
announced plans
or programs
—
—
—
72,000
—
40,500
—
112,500
Approximate dollar
value of shares that
may yet be
purchased under the
plans or programs
$ 50 million
$ 38 million
$ 632 million(1)
$ 632 million
(1) Includes an additional $600 million of share repurchase authorization approved by our board of directors in November 2019.
As of November 30, 2019, approximately $32 million remained of a $600 million share repurchase authorization approved by the Board of Directors in
March 2015. An additional $600 million share repurchase program was authorized by our Board of Directors in November 2019. The timing and
amount of any shares repurchased is determined by our management based on its evaluation of market conditions and other factors.
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 rein-
vestment/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 2019, we issued 1,563,804 shares of CSNV in exchange for shares of CS and issued 2,268 shares of CS in exchange for
shares of CSNV.
32 McCormick & Company, Inc.
ITEM 6. SELECTED FINANCIAL DATA
HISTORICAL FINANCIAL SUMMARY
(millions except per share and percentage data)
2019
2018
2017
2016
2015
For the Year
Net sales (1)
Operating income (1)
Income from unconsolidated operations
Net income
Per Common Share
Earnings per share–basic
Earnings per share–diluted
Common dividends declared
Closing price, non-voting shares–end of year
Book value per share
At Year-End
Total assets (2)
Current debt
Long-term debt (2)
Shareholders’ equity
Other Financial Measures
Percentage of net sales (1)
Gross profit (1)
Operating income (1)
Capital expenditures
Depreciation and amortization
Common share repurchases
Dividends paid
Average shares outstanding
Basic
Diluted
$ 5,347.4
957.7
40.9
702.7
$ 5.30
5.24
2.33
169.25
26.02
$10,362.1
698.4
3,625.8
3,456.7
$ 5,302.8
891.1
34.8
933.4
$ 7.10
7.00
2.13
150.00
24.09
$10,256.4
643.5
4,052.9
3,182.2
$ 4,730.3
699.8
33.9
477.4
$ 3.77
3.72
1.93
102.18
19.62
$10,385.8
583.2
4,443.9
2,570.9
$4,313.9
649.4
36.1
472.3
$ 3.73
3.69
1.76
91.20
13.07
$4,635.9
393.2
1,054.0
1,638.1
$4,296.3
548.4
36.7
401.6
$ 3.14
3.11
1.63
85.92
13.25
$4,472.6
343.0
1,051.4
1,686.9
40.1%
17.9%
39.5%
16.8%
37.9%
14.8%
38.1%
15.1%
40.4%
12.8%
$ 173.7
158.8
95.1
302.2
132.6
134.1
$ 169.1
150.7
62.3
273.4
131.5
133.2
$ 182.4
125.2
137.8
237.6
126.8
128.4
$ 153.8
108.7
242.7
217.8
126.6
128.0
$ 128.4
105.9
145.8
204.9
128.0
129.2
(1) Amounts set forth above for Net sales, Operating income, Percentage of net sales—Gross profit, and Percentage of net sales—Operating income for the fiscal years ended 2019–
2016 have been recast to reflect the provisions of ASC 606, which we adopted in fiscal 2019 on a full retrospective basis. Amounts set forth above for Operating income, Percentage
of net sales—Gross profit, and Percentage of net sales—Operating income for the fiscal years ended 2019–2016 have also been recast to reflect the provisions of ASU 2017–07
regarding the presentation of net periodic pension cost and net periodic postretirement cost. Amounts set forth for the same items in the fiscal year ended 2015 are presented in
accordance with guidance in effect in that fiscal year.
(2) Total assets and Long-term debt for the fiscal year ended 2015 reflect the provisions of Accounting Standards Updates 2015–03, related to the presentation of debt issuance costs,
and 2015-17, related to the classification of deferred tax assets and liabilities, both of which we adopted as of November 30, 2016.
The historical financial summary includes the impact of certain items that affect the comparability of financial results year to year. The net impact
of these items is reflected in the following table:
(millions except per share data)
Operating income (1)
Net income (2)
Earnings per share–diluted
2019
$ (20.8)
(14.6)
(0.11)
2018
$ (38.8)
271.4
2.03
2017
$ (83.9)
(69.3)
(0.54)
2016
$ (16.0)
(11.1)
(0.09)
2015
$ (65.5)
(47.9)
(0.37)
(1) In 2019, 2018, 2017, 2016 and 2015, we recorded special charges related to the completion of organization and streamlining actions, including, for 2016 and 2015, special charges
related to the discontinuance of bulk-packaged and broken basmati rice product lines for our business in India. In 2018 and 2017, we recorded transaction and integration expenses
related to our acquisition of RB Foods.
(2) In 2019 and 2018, we recorded a non-recurring benefit from the U.S. Tax Act of $1.5 million and $301.5 million, respectively.
2019 Annual Report 33
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
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 opera-
tions and our present business environment. 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 that we believe
is important for purposes of comparison to prior periods and devel-
opment 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.
McCormick is a global leader in flavor. The company manufactures,
markets and distributes spices, seasoning mixes, condiments and
other flavorful products to the entire food industry–retailers, food
manufacturers and foodservice businesses. We manage our business
in two operating segments, consumer and flavor solutions, as
described in Item 1 of this report.
Our long-term annual growth objectives in constant currency are to
increase sales 4% to 6%, increase adjusted operating income 7% to
9% and increase adjusted earnings per share 9% to 11%.
Sales growth: Over time, we expect to grow sales with similar contri-
butions from: 1) our base business–driven by brand marketing support,
customer intimacy, expanded distribution and category growth; 2) new
products; and 3) acquisitions.
Base business—We expect to drive sales growth by optimizing our
brand marketing investment through improved speed, quality and
effectiveness. We measure the return on our brand marketing invest-
ment and have identified digital marketing as one of our highest
return investments in brand marketing support. Through digital mar-
keting, we are connecting with consumers in a personalized way to
deliver recipes, provide cooking advice and discover new products.
New Products—For our consumer segment, we believe that scalable
and differentiated innovation continues to be one of the best ways to
distinguish our brands from our competition, including private label.
We are introducing products for every type of cooking occasion, from
gourmet, premium items to convenient and value-priced flavors.
For flavor solutions customers, we are developing seasonings for
snacks and other food products, as well as flavors for new menu items.
We have a solid pipeline of flavor solutions aligned with our custom-
ers’ new product launch plans, many of which include “better-for-you”
innovation. With over 20 product innovation centers around the world,
we are supporting the growth of our brands and those of our flavor
solutions customers with products that appeal to local consumers.
Acquisitions—Acquisitions are expected to approximate one-third of
our sales growth over time. Since the beginning of 2015, we have com-
pleted seven acquisitions, which are driving sales in both our consumer
and flavor solutions segments. We focus on acquisition opportunities
that meet the growing demand for flavor and health. Geographically,
our focus is on acquisitions that build scale where we currently have
presence in both developed and emerging markets. Our acquisitions
34 McCormick & Company, Inc.
have included bolt-on opportunities and the August 17, 2017 acquisi-
tion of Reckitt Benckiser’s Food Division (“RB Foods”) from Reckitt
Benckiser Group plc. for approximately $4.2 billion, net of acquired
cash. The acquired market-leading brands of RB Foods include
French’s®, Frank’s RedHot® and Cattlemen’s®, which are a natural stra-
tegic fit with our robust global branded flavor portfolio. We believe that
these additions move us to a leading position in the attractive U.S.
condiments category and provide significant international growth
opportunities for our consumer and flavor solutions segments.
The RB Foods acquisition resulted in acquisitions contributing more
than one-third of our sales growth in 2018 and 2017.
Cost savings and business transformation: We are fueling our investment
in growth with cost savings from our CCI program, an ongoing initiative
to improve productivity and reduce costs throughout the organization,
that also includes savings from the organization and streamlining actions
described in note 3 of the accompanying financial statements. In addition
to funding brand marketing support, product innovation and other growth
initiatives, our CCI program helps offset higher costs and is contributing
to higher operating income and earnings per share.
We are making investments to build the McCormick of the future, includ-
ing 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 state-
ments, we expect to incur special charges of approximately $60 million
to $65 million associated with our GE initiative of which approximately
$38 million have been recognized through November 30, 2019. As
technology provides the backbone for this greater process alignment,
information sharing and scalability, we are also making investments in
our information systems. In 2019, we have 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. We expect that, in total over
the course of the ERP replacement program from late 2018 through 2022,
we will invest from approximately $300 million to $350 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 tech-
nology platform in 2022. Of that projected $300 million to $350 million,
we expect capitalized software to account for approximately 40% and
program expenses to account for approximately 60%. Of the approxi-
mately $180 million to $210 million of operating expenses included in our
projected total spending related to our ERP replacement program, approx-
imately $20 million have been recognized through November 30, 2019.
The GE initiative is expected to generate annual savings, ranging
from approximately $45 million to $55 million, once all actions are
implemented, including those that are dependent on the replacement
of our global ERP platform.
Cash flow: We continue to generate strong cash flow. Net cash pro-
vided by operating activities reached $946.8 million in 2019, an
increase of $125.6 million from the $821.2 million realized in 2018. In
2019, we continued to have a balanced use of cash for debt repay-
ment, capital expenditures and the return of cash to shareholders
through dividends and share repurchases. We are using our cash to
fund shareholder dividends, with annual increases in each of the past
34 years, and to fund capital expenditures, acquisitions and share
repurchases. In 2019, the return of cash to our shareholders through
dividends and share repurchases was $397.3 million.
On a long-term basis, we expect a combination of acquisitions and
share repurchases to add about 2% to earnings per share growth.
In 2019, we achieved further growth of our business with net sales
rising 0.8% over the 2018 level due to the following factors:
• We grew volume and product mix, with increases in both our con-
sumer and flavor solutions segments. This added 2.5% of sales
growth. The increases were driven by new products as well as
growth in the base business.
• Pricing actions contributed 0.2% of the increase in net sales.
• Net sales growth was negatively impacted by fluctuations in cur-
rency rates that reduced sales growth by 1.9%. Excluding this
impact, we grew sales 2.7% on a constant currency basis.
Operating income was $957.7 million in 2019 and $891.1 million in 2018.
We recorded $20.8 million and $16.3 million of special charges in 2019
and 2018, respectively, related to organization and streamlining actions.
In 2018, we also recorded $22.5 million of transaction and integration
expenses related to our acquisition of RB Foods that reduced operating
income. In 2019, compared to the year-ago period, the favorable impact
of higher sales, $118.9 million of cost savings from our CCI program,
including organization and streamlining actions, and the impact of the
previously mentioned 2018 integration costs more than offset increased
conversion costs, higher stock-based compensation expense, and the
unfavorable impact of foreign currency exchange rates. Excluding special
charges together with, for 2018, transaction and integration expenses
related to our acquisition of RB Foods, adjusted operating income was
$978.5 million in 2019, an increase of 5.2%, compared to $929.9 million
in the year-ago period. In constant currency, adjusted operating income
rose 6.7%. For further details and a reconciliation of non-GAAP to report-
ed amounts, see Non-GAAP Financial Measures.
Diluted earnings per share was $5.24 in 2019 and $7.00 in 2018.
The year-on-year decrease in earnings per share was driven mainly
by the significant reduction in the non-recurring benefit of the U.S.
Tax Act and, to a much smaller extent, by a higher amount of shares
outstanding and by increased special charges in 2019 as compared
to 2018. Those unfavorable impacts in 2019 were partially offset by
higher operating income as previously described, by the absence of
transaction and integration expenses, by lower interest expense and
by higher income from unconsolidated operations in 2019 as compared
to 2018. Special charges lowered earnings per share by $0.12 and
$0.10 in 2019 and 2018, respectively. Transaction and integration ex-
penses lowered earnings per share by $0.13 in 2018. A non-recurring
benefit from the U.S. Tax Act increased diluted earnings per share by
$0.01 and $2.26 in 2019 and 2018, respectively. Excluding the effects
of special charges, transaction and integration expenses, and the
non-recurring benefit of the U.S. Tax Act, adjusted diluted earnings per
share was $5.35 in 2019 and $4.97 in 2018, or an increase of 7.6%.
2020 Outlook
We are well-positioned for another year of underlying solid performance
in 2020. In 2020, we expect to grow net sales 2% to 4% over 2019’s net
sales of $5,347.4 million. That anticipated 2020 sales growth is primarily
driven by new products, brand marketing, expanded distribution and the
impact of pricing actions, which, in conjunction with cost savings, are
expected to offset an anticipated mid-single digit cost increase. That
increase consists entirely of organic growth as we do not currently
anticipate an incremental sales impact from acquisitions in 2020. We
expect our 2020 gross profit margin to be 25 to 75 basis points higher in
2020 than in 2019, in part driven by our CCI-led cost savings.
In 2020, we expect operating income, compared to 2019’s operating
income of $957.7 million, to range from comparable to an increase
of 2%; that range includes an estimated 600 basis point unfavorable
impact from expenses related to the investment in our global ERP
replacement. Our expectations for 2020 operating income reflect
the impact of lower special charges, estimated at $8 million in 2020
compared to $20.8 million in 2019. Excluding special charges (but
including the estimated 600 basis point unfavorable impact from
expenses related to our global ERP investment), we expect 2020’s
adjusted operating income, compared to 2019’s adjusted operating
income of $978.5 million, to range from a decline of 1% to an increase
of 1%. Our CCI-led cost savings target in 2020 is approximately $105
million. In 2020, we expect to support our sales growth with a mid-sin-
gle-digit increase in brand marketing.
Our underlying effective tax rate is projected to be higher in 2020
than in 2019. Absent the projected impact of discrete tax items, we
estimate our underlying tax rate to be approximately 24% in 2020.
Including the projected impact of estimated discrete tax items, includ-
ing the favorable impact of a discrete item that occurred in December
2019, we estimate that our consolidated effective tax rate will
approximate 22% in fiscal 2020. Excluding the non-recurring benefit
of $1.5 million associated with the U.S. Tax Act and taxes associated
with special charges recognized in fiscal 2019, our adjusted effective
tax rate was approximately 19.5% in 2019. We expect our adjusted
effective tax rate in 2020 to approximate our effective tax rate under
U.S. GAAP of 22%.
Diluted earnings per share was $5.24 in 2019. Diluted earnings per share
for 2020 are projected to range from $5.15 to $5.25. Excluding the per
share impact of the non-recurring benefit from the U.S. Tax Act of $0.01
and special charges of $0.12 in 2019, adjusted diluted earnings per share
was $5.35 in 2019. Adjusted diluted earnings per share (excluding an
estimated $0.05 per share impact from special charges) are projected to
be $5.20 to $5.30 in 2020. Our projected adjusted diluted earnings per
share in 2020, which ranges from a decline of 3% to a decline of 1% from
adjusted diluted earnings per share of $5.35 in 2019, includes an approx-
imate 700 basis point impact from the expenses associated with our ERP
replacement program and a higher adjusted effective tax rate in 2020.
In 2020, we expect minimal impact of foreign currency, as compared
to 2019 levels, on our projections of net sales, operating income and
diluted earnings per share as well as adjusted operating income and
adjusted diluted earnings per share.
RESULTS OF OPERATIONS—2019 COMPARED TO 2018
Net sales
Percent growth
Components of percent growth in net sales—
increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
2019
2018
$5,347.4
$5,302.8
0.8%
12.1%
2.5%
0.2%
—%
(1.9)%
2.2%
0.5%
8.2%
1.2%
Sales for 2019 increased by 0.8% from 2018 and by 2.7% on a constant
currency basis. Both the consumer and flavor solutions segments drove
higher volume and product mix that added 2.5% to sales. This was
driven by product innovation as well as growth in the base business.
Pricing actions added 0.2% to sales. These factors were partially offset
2019 Annual Report 35
by an unfavorable impact from foreign currency exchange rates that
reduced sales by 1.9% compared to 2018 and is excluded from our
measure of sales growth of 2.7% on a constant currency basis.
Gross profit
Gross profit margin
2019
2018
$2,145.3
$2,093.3
40.1%
39.5%
In 2019, our gross profit margin increased 60 basis points to 40.1%
from 39.5% in 2018, driven by the favorable impact of CCI-led cost
savings, partially offset by unfavorable conversion costs.
Selling, general & administrative expense
Percent of net sales
$1,166.8
$ 1,163.4
21.8%
22.0%
2019
2018
Selling, general and administrative (SG&A) expense was $1,166.8 million
in 2019 compared to $1,163.4 million in 2018, an increase of $3.4 million.
That increase in SG&A expense was driven by increased stock-based
compensation expense and higher distribution costs, partially offset by
CCI-led cost savings. SG&A expense in 2019 also reflected the impact of
two significant, but largely offsetting items: (i) expenses associated with
our investment in a global ERP platform in support of our GE business
transformation initiative that increased SG&A expense over the prior year
level; and (ii) a one-time fiscal 2019 expense reduction from the align-
ment of an employee benefit plan to our global standard that decreased
SG&A expense from the prior year level. As a result of the above factors
over an increased net sales base, SG&A expense as a percentage of net
sales was 21.8%, a 20-basis point improvement from 2018.
Total special charges
2019
$20.8
2018
$16.3
We regularly evaluate whether to implement changes to our organiza-
tion 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 in terms of both up-front costs and organizational/
structural impact that we obtain advance approval from our
Management Committee and classify expenses related to those
changes as special charges in our financial statements.
During 2019, we recorded $20.8 million of special charges, consist-
ing primarily of (i) $14.1 million of costs related to our multi-year GE
business transformation initiative, including $10.6 million of third-party
expenses, $2.1 million related to severance and related benefits, and
$1.4 million related to other costs; (ii) $2.3 million of severance and
related benefits associated with streamlining actions in the Americas;
and (iii) $3.9 million related to streamlining actions in our EMEA region.
During 2018, we recorded $16.3 million of special charges, consisting
primarily of: (i) $11.5 million related to our multi-year GE business
transformation initiative, consisting of $7.5 million of third party
expenses, $1.0 million of employee severance charges and a non-cash
asset impairment charge of $3.0 million (which non-cash asset impair-
ment charge was related to the write-off of certain software assets
that are incompatible with our move to the new global ERP platform);
(ii) a one-time payment, in the aggregate amount of $2.2 million,
made to eligible U.S. hourly employees to distribute a portion of the
non-recurring net income tax benefit recognized in connection with
the enactment of the U.S. Tax Act; (iii) $1.0 million related to
36 McCormick & Company, Inc.
employee severance benefits and other costs directly associated with
the relocation of one of our Chinese manufacturing facilities; and
(iv) $1.6 million related to employee severance benefits and other
costs related to the transfer of certain manufacturing operations in
our Asia/Pacific region to a newly constructed facility in Thailand.
Transaction and integration expenses
2019
$ —
2018
$22.5
Transaction and integration expenses related to the RB Foods acquisi-
tion totaled $22.5 million for 2018. These costs primarily consisted of
outside advisory, service and consulting costs; employee-related
costs, and other costs related to the acquisition.
Operating income
Percent of net sales
2019
2018
$ 957.7
$891.1
17.9%
16.8%
Operating income increased by $66.6 million, or 7.5%, from $891.1 mil-
lion in 2018 to $957.7 million in 2019. An absence of transaction and
integration expenses in 2019, compared to $22.5 million related to our
acquisition of RB Foods in 2018, more than offset a $4.5 million
increase in special charges in 2019 from $16.3 million in 2018 to $20.8
million in 2019. Operating income as a percent of net sales rose by 110
basis points in 2019, from 16.8% in 2018 to 17.9% in 2019 as a result
of the factors previously described. Our operating income as a percent
of net sales in 2019 was impacted by two large, but substantially off-
setting items: (i) expenses associated with our investment in a global
ERP platform in support of our GE business transformation initiative
that decreased operating income as a percent of sales by approxi-
mately 35 basis points in 2019; and (ii) a one-time fiscal 2019 expense
reduction from the alignment of an employee benefit plan to our global
standard that increased operating income as a percent of sales by
approximately 40 basis points in 2019. Excluding the effect of special
charges and transaction and integration expenses previously described,
adjusted operating income was $978.5 million in 2019 as compared to
$929.9 million in 2018, an increase of $48.6 million or 5.2% over the
2018 level. Adjusted operating income as a percent of sales rose by 80
basis points in 2019, from 17.5% in 2018 to 18.3% in 2019.
Interest expense
Other income, net
2019
$165.2
26.7
2018
$174.6
24.8
Interest expense was $9.4 million lower for 2019 as compared to the
prior year primarily due to a decline in average total borrowings. Other
income, net for 2019 increased by $1.9 million from the 2018 level
due principally to higher non-service cost income associated with our
pension and postretirement benefit plans and higher interest income,
which was partially offset by a gain on the sale of a building which
was reflected in our 2018 results and did not recur in 2019.
Income from consolidated operations before
income taxes
Income tax expense (benefit)
Effective tax rate
2019
2018
$ 819.2
157.4
19.2%
$741.3
(157.3)
(21.2)%
The provision for income taxes is based on the then-current 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 of the current fiscal year 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 stat-
utes of limitations), provision-to-return adjustments, and the settlement
of tax audits and, beginning in 2019, the tax effects of intra-entity
asset transfers (other than inventory).
As more fully described in note 12 of the accompanying financial state-
ments, the U.S. Tax Act was enacted in December 2017. The U.S. Tax
Act significantly changed U.S. corporate income tax laws by, among
other things, reducing the U.S. corporate income tax rate to 21%
beginning on January 1, 2018 and creating a territorial tax system with
a one-time transition tax on previously deferred post-1986 foreign
earnings of U.S. subsidiaries. Under GAAP (specifically, ASC Topic 740,
Income Taxes), the effects of changes in tax rates and laws on
deferred tax balances are recognized in the period in which the new
legislation is enacted. We recorded a net benefit of $301.5 million
associated with the U.S. Tax Act during 2018. This amount includes a
$380.0 million benefit from the revaluation of our net U.S. deferred tax
liabilities as of January 1, 2018, based on the new lower corporate
income tax rate offset, in part, by an estimated net transition tax
impact of $78.5 million. That net transition tax impact is comprised of
the mandated one-time transition tax on previously deferred post-1986
foreign earnings of U.S. subsidiaries estimated at $75.3 million,
together with additional foreign withholding taxes of $7.9 million asso-
ciated with previously unremitted prior year earnings of certain foreign
subsidiaries that were no longer considered indefinitely reinvested as
of the effective date of the U.S. Tax Act and that were subsequently
repatriated in 2018, less a $4.7 million reduction in our fiscal 2018
income taxes directly resulting from the transition tax. In addition, in
2019, we recorded a benefit of $1.5 million relating to an adjustment
to a prior year tax accrual associated with the U.S. Tax Act.
The effective tax rate was an expense of 19.2% in 2019 as compared
to a benefit of 21.2% in 2018. The effective tax rate benefit of 21.2% in
2018 includes the non-recurring net tax benefit of $301.5 million asso-
ciated with the U.S. Tax Act, as more fully described above, that had a
(40.7)% impact on 2018’s effective tax rate. Net discrete tax benefits
were $43.7 million in 2019, which is an increase of $15.6 million from
$28.1 million in 2018, excluding the non-recurring benefit of the U.S.
Tax Act in 2018. For 2019, the effective tax rate was impacted by $15.2
million of tax benefits associated with an intra-entity asset transfer
that occurred during 2019 under the provisions of ASU No. 2016-16,
which we adopted on December 1, 2018. Discrete tax benefits in both
periods include excess tax benefits associated with share-based pay-
ments to employees ($22.4 million and $21.7 million in 2019 and 2018,
respectively), reversal of reserves for unrecognized tax benefits for the
expiration of the statues of limitations and settlements with taxing
authorities in several jurisdictions, the previously described non-recur-
ring benefit of the U.S. Tax Act, and other discrete items. See note 12
of the accompanying financial statements for a more detailed reconcili-
ation of the U.S. federal tax rate with the effective tax rate.
Income from unconsolidated operations
2019
$40.9
2018
$34.8
Income from unconsolidated operations, which is presented net of
the elimination of earnings attributable to non-controlling interests,
increased $6.1 million in 2019 from the prior year. This increase was
primarily attributable to the impact of higher earnings from our largest
joint venture, McCormick de Mexico, as well as the impact of eliminat-
ing a lower level of earnings associated with our minority interests in
2019 as compared to 2018. We own 50% of most of our unconsolidat-
ed joint ventures, including McCormick de Mexico that comprised 72%
of the income of our unconsolidated operations in 2019.
We reported diluted earnings per share of $5.24 in 2019, compared to
$7.00 in 2018. The table below outlines the major components of the
change in diluted earnings per share from 2018 to 2019. The increase
in adjusted operating income in the table below includes the impact
from unfavorable currency exchange rates in 2019.
2018 Earnings per share—diluted
Increase in operating income
Impact of non-recurring tax benefit recognized as a result of the
U.S. Tax Act
Increase in special charges
Decrease in transaction and integration expenses attributable
to RB Foods acquisition
Decrease in interest expense
Increase in other income
Impact of income taxes
Increase in income from unconsolidated operations
Impact of higher shares
2019 Earnings per share—diluted
$ 7.00
0.29
(2.25)
(0.02)
0.13
0.06
0.01
0.01
0.04
(0.03)
$ 5.24
Results of Operations—Segments
We measure the performance of our business segments based on
operating income, excluding special charges and transaction and
integration expenses related to our RB Foods acquisition. See note 15
of the accompanying financial statements for additional information
on our segment measures as well as for a reconciliation by segment
of operating income, excluding special charges as well as transaction
and integration expenses related to our RB Foods acquisition, to
consolidated operating income. In the following discussion, we refer
to our previously described measure of segment profit as segment
operating income.
In 2019, the Company transferred management responsibility for
certain export operations in both its consumer and flavor solutions seg-
ments between geographies within each respective segment, shifting
from the Americas to the Asia/Pacific regions within each segment,
with no change in segment sales or segment operating income for
either the consumer or flavor solutions segment in total. The dis-
cussion that follows reflects the effect of that realignment of export
operations for all periods presented.
Consumer Segment
Net sales
Percent growth
Components of percent growth in net sales–
increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
Segment operating income
Segment operating income margin
2019
2018
$3,269.8
$ 3,247.0
0.7%
11.9%
2.4%
0.1%
—%
(1.8)%
1.7%
0.6%
8.2%
1.4%
$ 676.3
$ 637.1
20.7%
19.6%
2019 Annual Report 37
Sales of our consumer segment in 2019 grew by 0.7% as compared to
2018 and grew by 2.5% on a constant currency basis. Higher volume
and product mix added 2.4% to sales, and pricing actions added 0.1%.
These factors offset an unfavorable impact from foreign currency
exchange rates that reduced consumer segment sales by 1.8% com-
pared to 2018 and is excluded from our measure of sales growth of
2.5% on a constant currency basis.
In the Americas, consumer sales rose 2.4% in 2019 as compared to
2018 and rose by 2.7% on a constant currency basis. Higher volume
and product mix added 2.7% to sales, driven by new product sales as
well as base business growth. The unfavorable impact of foreign cur-
rency exchange rates decreased sales by 0.3% compared to 2018 and
is excluded from our measure of sales growth of 2.7% on a constant
currency basis.
In the EMEA region, consumer sales decreased 5.5% in 2019 as
compared to 2018 and decreased 0.2% on a constant currency basis.
Volume and product mix increased sales by 1.0%, led by new prod-
ucts and promotions that were partially offset by declines in private
label sales. The impact of pricing actions reduced sales by 1.2%.
The unfavorable impact of foreign currency exchange rates
decreased sales by 5.3% compared to 2018 and is excluded from our
measure of sales decline of 0.2% on a constant currency basis.
In the Asia/Pacific region, consumer sales increased 0.8% as com-
pared to 2018 and increased 5.7% on a constant currency basis.
Higher volume and product mix added 2.9% to sales, led by strong
sales in India and Southeast Asia. Pricing actions, primarily in China,
added 2.8% to sales as compared to 2018. These factors offset an
unfavorable impact from foreign currency exchange rates that
decreased sales by 4.9% compared to 2018 and is excluded from our
measure of sales growth of 5.7% on a constant currency basis.
sales by 2.1% compared to 2018 and is excluded from our measure of
sales growth of 3.2% on a constant currency basis.
In the Americas, flavor solutions sales rose 2.2% in 2019 as compared
to 2018 and rose 2.6% on a constant currency basis. Higher volume
and product mix added 2.4% to sales and included growth in new
products as well as in base business, led by sales to packaged food
companies. Pricing actions added 0.2% to sales in 2019. These factors
offset an unfavorable impact from foreign currency exchange rates
that reduced sales by 0.4% in 2019 compared to 2018 and is excluded
from our measure of sales growth of 2.6% on a constant currency
basis.
In the EMEA region, flavor solutions sales decreased 0.3% in 2019 as
compared to 2018 and increased 6.7% on a constant currency basis.
Higher volume and product mix added 5.4% to sales in 2019 with
contributions from new products as well as base business growth. The
increase was led by sales to quick service restaurants and packaged
foods companies. Pricing actions added 1.3% to sales in 2019. These
factors partially offset an unfavorable impact from foreign currency
exchange rates that decreased sales by 7.0% in 2019 compared to
2018 and is excluded from our measure of sales growth of 6.7% on a
constant currency basis.
In the Asia/Pacific region, flavor solutions sales decreased 3.4% in
2019 as compared to 2018 and increased 0.6% on a constant currency
basis. Higher volume and product mix added 0.9% to sales and included
increased sales to quick service restaurants, partially offset by the exit
of certain low margin business. Pricing actions reduced sales in 2019
by 0.3%. These factors partially offset an unfavorable impact from
foreign currency exchange rates that reduced sales by 4.0% in 2019
compared to 2018 and is excluded from our measure of sales growth
of 0.6% on a constant currency basis.
We grew segment operating income for our consumer segment by
$39.2 million, or 6.1%, in 2019 compared to 2018. The favorable
impact of higher sales and CCI-led cost savings more than offset
increased conversion costs. On a constant currency basis, segment
operating income for our consumer segment rose 7.3%. Segment
operating income margin for our consumer segment rose by 110
basis points to 20.7% in 2019 from 19.6% in 2018, driven by an
improvement in gross margin.
We grew segment operating income for our flavor solutions segment
by $9.4 million, or 3.2%, in 2019 compared to 2018. The increase in
segment operating income was driven by higher sales as well as lower
SG&A costs. On a constant currency basis, segment operating income
for our flavor solutions segment rose 5.3%. Segment operating income
margin for our flavor solutions segment rose by 30 basis points to
14.5% in 2019 from 14.2% in 2018 and reflected the impact of lower
SG&A costs as a percentage of net sales.
Flavor Solutions Segment
RESULTS OF OPERATIONS—2018 COMPARED TO 2017
Net sales
Percent growth
Components of percent change in net sales–
increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
Segment operating income
Segment operating income margin
2019
2018
$2,077.6
$2,055.8
1.1%
12.4%
2.9%
0.3%
—%
(2.1)%
3.1%
0.3%
8.2%
0.8%
$ 302.2
$ 292.8
14.5%
14.2%
Sales of our flavor solutions segment increased 1.1% in 2019 as com-
pared to 2018 and increased by 3.2% on a constant currency basis.
Higher volume and product mix added 2.9% to sales and pricing actions
added 0.3%. These factors partially offset an unfavorable impact from
foreign currency exchange rates that reduced flavor solutions segment
Net sales
Percent growth
Components of percent growth in net sales–
increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
2018
2017
$5,302.8
$4,730.3
12.1%
9.7%
2.2%
0.5%
8.2%
1.2%
1.7%
2.1%
6.6%
(0.7)%
Sales for 2018 increased by 12.1% from 2017 and by 10.9% on a con-
stant currency basis. Both the consumer and flavor solutions segments
drove higher volume and product mix that added 2.2% to sales in
2019. This was driven by new products as well as growth in the base
business. The incremental impact of pricing actions added 0.5% to
sales in 2018, as compared to 2017. The incremental impact of the RB
Foods acquisition added 8.2% to sales during 2018. A favorable
38 McCormick & Company, Inc.
impact from foreign currency exchange rates increased sales by 1.2%
compared to 2017 and is excluded from our measure of sales growth
of 10.9% on a constant currency basis.
Gross profit
Gross profit margin
2018
2017
$2,093.3
$1,794.0
39.5%
37.9%
In 2018, our gross profit margin rose 160 basis points to 39.5% from
37.9% in 2017. While this expansion in 2018 includes the accretive
impact from our acquisition of the RB Foods business, together with
the absence of related transaction and integration expenses of $20.9
million that depressed our 2017 gross profit margin by 50 basis points,
our core business was also a driver of that expansion. In 2018, CCI-led
cost savings and the shift in our core product portfolio to more val-
ue-added products continued to drive profit expansion across both of
our segments, which was partially offset by an increase in freight
costs during 2018 as compared to 2017. Excluding the effect of those
transaction and integration expenses in 2017, adjusted gross profit
margin rose 110 basis points from 38.4% in 2017 to 39.5% in 2018.
Selling, general & administrative expense
Percent of net sales
$1,163.4
$1,031.2
22.0%
21.8%
2018
2017
Selling, general and administrative (“SG&A”) expense was $1,163.4
million in 2018 compared to $1,031.2 million in 2017, an increase of
$132.2 million. That increase in SG&A expense was driven by the
incremental impact of the RB Foods acquisition, together with
increased brand marketing and higher distribution costs, which was
offset in part by CCI-led cost savings, including the benefits from the
organization and streamlining actions described in note 3 of the accom-
panying financial statements. As a result, SG&A expense as a percent-
age of net sales was 22.0%, a 20-basis point increase from 2017.
Total special charges
2018
$16.3
2017
$22.2
During 2018, we recorded $16.3 million of special charges, consist-
ing primarily of: (i) $11.5 million related to our multi-year GE busi-
ness transformation initiative, consisting of $7.5 million of third party
expenses, $1.0 million of employee severance charges and a non-
cash asset impairment charge of $3.0 million (that non-cash asset
impairment charge was related to the write-off of certain software
assets that are incompatible with our move to the new global ERP
platform); (ii) a one-time payment, in the aggregate amount of $2.2
million, made to eligible U.S. hourly employees to distribute a portion
of the non-recurring net income tax benefit recognized in connection
with the enactment of the U.S. Tax Act; (iii) $1.0 million related to
employee severance benefits and other costs directly associated with
the relocation of one of our Chinese manufacturing facilities; and (iv)
$1.6 million related to employee severance benefits and other costs
related to the transfer of certain manufacturing operations in our
Asia/Pacific region to a newly constructed facility in Thailand.
During 2017, we recorded $22.2 million of special charges, consisting
primarily of $12.7 million related to third party expenses incurred as
part of our evaluation of changes relating to our GE transformation
initiative, $2.8 million related to employee severance benefits and
other costs associated with the relocation of one of our Chinese
manufacturing facilities, $2.5 million for severance and other exit costs
associated with the closure of our manufacturing plant in Portugal, and
$1.7 million related to employee severance benefits and other costs
associated with actions related to the transfer of certain manufactur-
ing operations to a new facility then under construction in Thailand.
Transaction expenses included in cost of goods sold
Transaction expenses included in other debt costs
Other transaction and integration expenses
Total
2018
$ —
—
22.5
$22.5
2017
$20.9
15.4
40.8
$77.1
Transaction and integration expenses related to our RB Foods acquisi-
tion totaled $22.5 million and $77.1 million in 2018 and 2017, respec-
tively. In 2018, these costs primarily consisted of outside advisory,
service and consulting costs; employee-related costs; and other costs
related to the acquisition. In 2017, these expenses consisted of amor-
tization of the acquisition-date fair value adjustment of inventories of
$20.9 million that was included in cost of goods sold; outside advi-
sory, service and consulting costs; employee-related costs; and other
costs related to the acquisition, including the costs related to the
bridge financing commitment of $15.4 million that was included in
other debt costs.
Operating income
Percent of net sales
2018
2017
$891.1
16.8%
$699.8
14.8%
Operating income increased by $191.3 million, or 27.3%, from $699.8
million in 2017 to $891.1 million in 2018. The change in operating
income was impacted by (i) a $39.2 million decrease in transaction
and integration expenses, from $61.7 million in 2017 to $22.5 million
in 2018, related to our acquisition of RB Foods in 2018; and (ii) a $5.9
million decrease in special charges in 2018 as compared to 2017.
Operating income as a percent of net sales rose by 200 basis points
in 2018, from 14.8% in 2017 to 16.8% in 2018 as a result of the
factors previously described. Excluding the effect of special charges
and transaction and integration expenses, adjusted operating income
was $929.9 million in 2018 as compared to $783.7 million in 2017,
an increase of $146.2 million or 18.7% over the 2017 level. Adjusted
operating income as a percent of sales rose by 90 basis points in 2018,
from 16.6% in 2017 to 17.5% in 2018.
Interest expense
Other income, net
2018
$174.6
24.8
2017
$95.7
6.1
Interest expense for 2018 of $174.6 million was sharply higher than
the prior year level, primarily due to higher average borrowings in
2018 related to our incurrence of $3.7 billion in debt in August 2017 to
finance the acquisition of RB Foods (see note 6 of the accompanying
financial statements). Other income, net, for 2018 of $24.8 million
was significantly higher than the 2017 level principally due to i) a $9.6
million increase in income related to the non-service component of our
pension and other post-retirement plans, ii) a gain of $6.3 million rec-
ognized on the sale in 2018 of a building vacated as part of our move to
a new global headquarters in Maryland, iii) higher interest income, and
iv) lower non-operating foreign currency transaction losses recognized
in 2018 as compared to 2017.
2019 Annual Report 39
Income from consolidated operations before
income taxes
Income tax (benefit) expense
Effective tax rate
2018
2017
$ 741.3
(157.3)
(21.2)%
$594.8
151.3
25.4%
As more fully described above and in note 12 of the accompanying
financial statements, the U.S. Tax Act was enacted in December 2017.
We recorded a net benefit of $301.5 million associated with the U.S.
Tax Act during 2018. This amount included a $380.0 million benefit
from the revaluation of our net U.S. deferred tax liabilities as of
January 1, 2018, based on the new lower corporate income tax rate
offset, in part, by an estimated net transition tax impact of $78.5 mil-
lion. That net transition tax impact was comprised of the mandated
one-time transition tax on previously deferred post-1986 foreign earn-
ings of U.S. subsidiaries estimated at $75.3 million, together with
additional foreign withholding taxes of $7.9 million associated with
previously unremitted prior year earnings of certain foreign subsidiar-
ies that were no longer considered indefinitely reinvested as of the
effective date of the U.S. Tax Act and that were subsequently repatri-
ated in 2018, less a $4.7 million reduction in our fiscal 2018 income
taxes directly resulting from the transition tax.
The effective tax rate was a benefit of 21.2% in 2018 as compared to
an effective tax rate expense of 25.4% in 2017. The effective tax rate
benefit of 21.2% in 2018 includes the net tax benefit of $301.5 million
associated with the U.S. Tax Act, as more fully described above, that
had a (40.7)% impact on 2018’s effective tax rate. Our 2018 effective
tax rate also reflects the effects of the lower U.S. federal corporate
income tax rate under the U.S. Tax Act and higher other net discrete
tax benefits. Net discrete tax benefits, excluding the effects of the U.S.
Tax Act in 2018, increased by $3.9 million from $24.2 million in 2017
to $28.1 million in 2018. Discrete tax benefits in both periods include
excess tax benefits associated with share-based payments to employ-
ees ($21.7 million and $10.7 million in 2018 and 2017, respectively),
reversal of reserves for unrecognized tax benefits for the expiration of
the statues of limitations and settlements with taxing authorities in
several jurisdictions, and other discrete items, including, in 2017, the
establishment of valuation allowances on non-U.S. deferred tax assets
due to a change in our assessment of the recoverability of those
deferred taxes. See note 12 of the accompanying financial statements
for a more detailed reconciliation of the U.S. federal tax rate with the
effective tax rate.
Income from unconsolidated operations
2018
$34.8
2017
$33.9
Income from unconsolidated operations increased $0.9 million in 2018
from the prior year. This increase was mainly attributable to higher
earnings from our largest joint venture, McCormick de Mexico, partially
offset by the impact of a higher elimination of earnings associated with
our minority interests in 2018 than in 2017. We own 50% of most of our
unconsolidated joint ventures, including McCormick de Mexico, which
comprised 76% of the income of our unconsolidated operations in 2018.
We reported diluted earnings per share of $7.00 in 2018, compared to
$3.72 in 2017. The table below outlines the major components of the
change in diluted earnings per share from 2017 to 2018. The increase
in operating income in the table below includes the impact from favor-
able currency exchange rates in 2018.
40 McCormick & Company, Inc.
2017 Earnings per share—diluted
Increase in operating income
Impact of non-recurring tax benefit recognized as a result of the
U.S. Tax Act
Decrease in special charges
Decrease in transaction and integration expenses attributable to
RB Foods acquisition
Increase in interest expense
Other impact of income taxes
Increase in other income
Increase in unconsolidated income
Impact of higher shares outstanding
2018 Earnings per share—diluted
$3.72
0.84
2.26
0.02
0.29
(0.46)
0.40
0.11
0.01
(0.19)
$7.00
RESULTS OF OPERATIONS—SEGMENTS
Consumer Segment
Net sales
Percent growth
Components of percent growth in net sales—
increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
Segment operating income
Segment operating income margin
2018
2017
$3,247.0
$2,901.6
11.9%
8.0%
1.7%
0.6%
8.2%
1.4%
0.2%
2.3%
5.6%
(0.1)%
$ 637.1
$ 562.4
19.6%
19.4%
Sales of our consumer segment in 2018 grew by 11.9% as compared
to 2017 and grew by 10.5% on a constant currency basis. Higher
volume and product mix added 1.7% to sales, while the impact of 2018
pricing actions added 0.6%. The incremental impact of the RB Foods
acquisition added 8.2% to sales. The favorable impact from foreign
currency exchange rates increased consumer segment sales in 2018
by 1.4% compared to 2017 and is excluded from our measure of sales
growth of 10.5% on a constant currency basis.
In the Americas, consumer sales rose 13.4% in 2018 as compared to
2017 and rose by 13.3% on a constant currency basis. Higher volume
and product mix added 0.6% to sales, pricing actions added 1.0% to
sales, and the incremental impact of acquisitions added 11.7% to
sales. The favorable impact of foreign currency exchange rates in-
creased sales in 2018 by 0.1% compared to 2017 and is excluded from
our measure of sales growth of 13.3% on a constant currency basis.
In the EMEA region, consumer sales increased 6.9% in 2018 as
compared to 2017 and rose 1.6% on a constant currency basis. Volume
and product mix increased sales by 1.8%, led by growth in France
and export sales to developing markets. This growth was partially
offset by sales weakness in Poland driven by competitive conditions.
The incremental impact of the RB Foods acquisition added 0.8% to
sales, while the impact of pricing actions reduced sales by 1.0%. The
favorable impact of foreign currency exchange rates increased sales in
2018 by 5.3% compared to 2017 and is excluded from our measure of
sales increase of 1.6% on a constant currency basis.
In the Asia/Pacific region, consumer sales increased 11.5% in 2018 as
compared to 2017 and increased 9.0% on a constant currency basis.
Higher volume and product mix added 6.7% to sales. Growth was led
by China through product innovation and increased distribution, partially
offset by lower private label sales in Australia. Pricing actions added
1.2% to sales, and the incremental impact of acquisitions added 1.1%
to sales. The favorable impact of foreign currency exchange rates in-
creased sales by 2.5% in 2018 compared to 2017 and is excluded from
our measure of sales growth of 9.0% on a constant currency basis.
We grew segment operating income for our consumer segment by $74.7
million, or 13.3%, in 2018 compared to 2017. The favorable impact
of greater sales and higher CCI-led cost savings more than offset the
unfavorable impact of higher costs and brand marketing expense. On a
constant currency basis, segment operating income for our consumer
segment rose 12.4%. Segment operating income margin for our con-
sumer segment rose by 20 basis points to 19.6% in 2018 from 19.4%
in 2017. The increase in segment operating income margin was driven
by a higher gross profit margin and the leverage of fixed and semi-fixed
elements of SG&A over the higher sales base in 2018 as compared to
2017. Those factors were partially offset by an increase in SG&A as a
percentage of sales, driven by increased investment in brand marketing
and higher distribution costs. The previously described gross profit mar-
gin improvement includes the incremental accretive impact attributable
to the RB Foods acquisition as well as expansion in our core business, in
part, from CCI-led cost savings and favorable product mix.
Flavor Solutions Segment
Net sales
Percent growth
Components of percent growth in net sales—
increase (decrease):
Volume and product mix
Pricing actions
Acquisitions
Foreign exchange
Segment operating income
Segment operating income margin
2018
2017
$2,055.8
$ 1,828.7
12.4%
12.4%
3.1%
0.3%
8.2%
0.8%
3.8%
2.0%
8.2%
(1.6)%
$ 292.8
$ 221.3
14.2%
12.1%
Sales of our flavor solutions segment increased 12.4% in 2018 as
compared to 2017 and increased by 11.6% on a constant currency
basis. Higher volume and product mix added 3.1% to sales and pricing
actions added 0.3%. Flavor solutions segment sales rose in 2018
due to the incremental impact of acquisitions, primarily the RB Foods
acquisition, which added 8.2% to sales. The favorable impact from for-
eign currency exchange rates increased flavor solutions segment sales
in 2018 by 0.8% compared to 2017 and is excluded from our measure
of sales growth of 11.6% on a constant currency basis.
In the Americas, flavor solutions sales rose 15.1% in 2018 as compared
to 2017 and rose 15.0% on a constant currency basis. Higher volume and
product mix added 3.1% to sales led by increased sales to several large
custom flavor solutions customers partially offset by the impact from a
global realignment of a major customer’s sales to EMEA, together with
the exit of certain lower margin business. Pricing actions added 0.2%
to sales and the incremental impact of our RB Foods acquisition added
11.7% to sales. The favorable impact from foreign currency exchange
rates increased sales by 0.1% in 2018 compared to 2017 and is excluded
from our measure of sales growth of 15.0% on a constant currency basis.
In the EMEA region, flavor solutions sales increased 8.6% in 2018
as compared to 2017 and increased 6.3% on a constant currency
basis. Higher volume and product mix added 4.1% to sales, driven by
increased sales to quick service restaurants, broad based growth in
Turkey, and the previously described global realignment of a major cus-
tomer’s sales from the Americas to EMEA. Pricing actions added 1.0%
to sales in 2018 and the incremental impact of the Giotti and RB Foods
acquisitions added 1.2% to sales. The favorable impact from foreign
currency exchange rates increased sales by 2.3% in 2018 compared to
2017 and is excluded from our measure of sales growth of 6.3% on a
constant currency basis.
In the Asia/Pacific region, flavor solutions sales increased 3.9% in
2018 as compared to 2017 and increased 1.6% on a constant currency
basis. Higher volume and product mix increased sales by 1.3%, while
pricing actions reduced sales by 0.5% as compared to 2017. Increased
sales in China, led by new products and limited time offers, were off-
set in part by sales declines in Australia, which were partially attrib-
utable to the exit of certain lower margin business. The incremental
impact of the RB Foods acquisition added 0.8% to sales. The favorable
impact from foreign currency exchange rates increased sales by 2.3%
in 2018 compared to 2017 and is excluded from our measure of sales
growth of 1.6% on a constant currency basis.
We grew segment operating income for our flavor solutions segment
by $71.5 million, or 32.3%, in 2018 compared to 2017. The increase in
segment operating income was due to the incremental impact of the
RB Foods acquisition, coupled with CCI-led cost savings. On a constant
currency basis, segment operating income for our flavor solutions
segment rose 32.3%. Segment operating income margin for our flavor
solutions segment rose by 210 basis points to 14.2% in 2018 from
12.1% in 2017 and was driven by a higher gross profit margin offset,
in part, by higher SG&A as a percentage of net sales, which reflects
higher distribution costs.
NON-GAAP FINANCIAL MEASURES
The following tables include financial measures of adjusted gross profit,
adjusted operating income, adjusted income tax expense, adjusted
income tax rate, adjusted net income and adjusted diluted earnings per
share. These represent non-GAAP financial measures which are pre-
pared as a complement to our financial results prepared in accordance
with United States generally accepted accounting principles. These
financial measures exclude the impact, as applicable, of the following:
• 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 competitive-
ness 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. In 2018,
we also included in special charges, as approved by our
Management Committee, expense associated with a one-time
payment, made to eligible U.S. hourly employees, to distribute a
portion of the non-recurring net income tax benefit recognized in
connection with the enactment of the U.S. Tax Act as that
2019 Annual Report 41
non-recurring income tax benefit is excluded from our computa-
tion of adjusted income taxes, adjusted net income and adjusted
diluted earnings per share, each a non-GAAP measure.
• Transaction and integration expenses associated with the RB Foods
acquisition—We exclude certain costs associated with our acquisi-
tion of RB Foods in August 2017 and its subsequent integration into
the Company. Such costs, which we refer to as “Transaction and
integration costs”, include transaction costs associated with the
acquisition, as well as integration costs following the acquisition.
The size of this acquisition and related costs, and therefore the
impact on the comparability of our results, distinguishes it from our
past, recent and smaller acquisitions, the costs of which have not
been excluded from our non-GAAP financial measures.
• Income taxes associated with the U.S. Tax Act—In connection
with the enactment of the U.S. Tax Act in December 2017, we
recorded a net non-recurring income tax benefit of $301.5 million
during the year ended November 30, 2018, which included the
estimated impact of the tax benefit from revaluation of net U.S.
deferred tax liabilities based on the new lower corporate income
tax rate and the tax expense associated with the one-time transi-
tion tax on previously unremitted earnings of non-U.S. subsidiar-
ies. We recorded an additional net income tax benefit of $1.5
million during the year ended November 30, 2019 associated with a
U.S Tax Act related provision to return adjustment.
Details with respect to the composition of transaction and integration
expenses (including other debt costs), special charges and non-recurring
income tax benefits associated with the U.S. Tax Act recorded for the
years and in the amounts set forth below are included in notes 2, 3
and 12, respectively, of the accompanying financial statements.
We believe that these non-GAAP financial measures are important.
The exclusion of the items noted above provides additional information
that enables enhanced comparisons to prior periods and, accordingly,
facilitates the 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.
These non-GAAP financial measures may be considered in addition
to results prepared in accordance with GAAP, but they should not be
considered a substitute for, or superior to, GAAP results. In addition,
these non-GAAP financial measures may not be comparable to similarly
titled measures of other companies because other companies may not
calculate them in the same manner that we do. We intend to continue
to provide these non-GAAP financial measures as part of our future
earnings discussions and, therefore, the inclusion of these non-GAAP
financial measures will provide consistency in our financial reporting.
A reconciliation of these non-GAAP measures to GAAP financial results is provided below:
Gross profit
Impact of transaction and integration expenses included in cost of goods sold (1)
Adjusted gross profit
Adjusted gross profit margin (2)
Operating income
Impact of transaction and integration expenses included in cost of goods sold (1)
Impact of other transaction and integration expenses (1)
Impact of special charges
Adjusted operating income
% increase versus prior year
Adjusted operating income margin (2)
Income tax expense (benefit)
Non-recurring benefit, net, of the U.S. Tax Act (3)
Impact of transaction and integration expenses
Impact of special charges
Adjusted income tax expense
Adjusted income tax rate (4)
Net income
Impact of total transaction and integration expenses (1)
Impact of total special charges
Non-recurring benefit, net, of the U.S. Tax Act (3)
Adjusted net income
% increase versus prior year
Earnings per share—diluted
Impact of total transaction and integration expenses (1)
Impact of total special charges
Non-recurring benefit, net, of the U.S. Tax Act (3)
Adjusted earnings per share—diluted
% increase versus prior year
42 McCormick & Company, Inc.
2019
$2,145.3
—
$2,145.3
2018
$2,093.3
—
$2,093.3
2017
$ 1,794.0
20.9
$ 1,814.9
40.1%
39.5%
38.4%
$ 957.7
—
—
20.8
$ 978.5
5.2%
18.3%
$ 157.4
1.5
—
4.7
$ 163.6
$ 891.1
—
22.5
16.3
$ 929.9
18.7%
17.5%
$ (157.3)
301.5
4.9
3.8
$ 152.9
$ 699.8
20.9
40.8
22.2
$ 783.7
17.8%
16.6%
$ 151.3
—
23.6
6.4
$ 181.3
19.5%
19.6%
26.1%
$ 702.7
—
16.1
(1.5)
$ 717.3
$ 933.4
17.6
12.5
(301.5)
$ 662.0
$ 477.4
53.5
15.8
—
$ 546.7
8.4%
21.1%
13.1%
$ 5.24
—
0.12
(0.01)
$ 5.35
$ 7.00
0.13
0.10
(2.26)
$ 4.97
$ 3.72
0.42
0.12
—
$ 4.26
7.6%
16.7%
12.7%
(1) There were no transaction and integration expenses related to the acquisition of RB Foods during the year ended November 30, 2019. As more fully described in note 2 of the accom-
panying financial statements, transaction and integration expenses related to the acquisition of RB Foods are recorded in our consolidated income statement as follows for the years
ended November 30, 2018 and 2017 (in millions, except per share amounts):
Transaction and integration expenses included in cost of goods sold
Reflected in transaction and integration expenses
Transaction and integration expenses included in operating income
Transaction and integration expenses included in other debt costs
Total pre-tax transaction and integration expenses
Less: Tax effect
Total after-tax transaction and integration expenses
2018
2017
$ — $ 20.9
40.8
22.5
22.5
—
22.5
(4.9)
61.7
15.4
77.1
(23.6)
$ 17.6
$ 53.5
(2) Adjusted gross profit margin is calculated as adjusted gross profit as a percentage of net sales for each period presented. Adjusted operating income margin is calculated as adjusted
operating income as a percentage of net sales for each period presented.
(3) The non-recurring income tax benefit, net, associated with enactment of the U.S. Tax Act of $1.5 million and $301.5 million for the years ended November 30, 2019 and 2018, respec-
tively, is more fully described in note 12 of the accompanying financial statements.
(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 inte-
gration expenses and special charges, or $840.0 million, $780.1 million, and $694.1 million for the years ended November 30, 2019, 2018, and 2017, respectively.
Estimate for the year ending
November 30, 2020
Earnings per share—diluted
Impact of special charges
$ 5.15 to $ 5.25
0.05
Adjusted earnings per share—diluted
$ 5.20 to $ 5.30
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 sev-
eral 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 mea-
sure 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 percent-
age 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 for-
eign currency exchange. To present this information for historical peri-
ods, 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 cur-
rency 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
2019 on a constant currency basis, net sales and adjusted operating
income for 2019 for entities reporting in currencies other than the U.S.
dollar have been translated using the average foreign exchange rates
in effect for 2018 and compared to the reported results for 2018; and
(2) to present our growth in net sales and adjusted operating income
for 2018 on a constant currency basis, net sales and operating income
for 2018 for entities reporting in currencies other than the U.S. dollar
have been translated using the average foreign exchange rates in
effect for 2017 and compared to the reported results for 2017.
Net sales:
Consumer segment:
Americas
EMEA
Asia/Pacific
Total Consumer
Flavor Solutions segment:
Americas
EMEA
Asia/Pacific
Total Flavor Solutions
Total net sales
Adjusted operating income:
Consumer segment
Flavor Solutions segment
Total adjusted operating income
For the year ended November 30, 2019
Percentage
change as
reported
Impact of
foreign
currency
exchange
Percentage
change on
constant
currency basis
2.4%
(5.5)%
0.8%
0.7%
2.2%
(0.3)%
(3.4)%
1.1%
0.8%
6.1%
3.2%
5.2%
(0.3)%
(5.3)%
(4.9)%
(1.8)%
(0.4)%
(7.0)%
(4.0)%
(2.1)%
(1.9)%
(1.2)%
(2.1)%
(1.5)%
2.7%
(0.2)%
5.7%
2.5%
2.6%
6.7%
0.6%
3.2%
2.7%
7.3%
5.3%
6.7%
2019 Annual Report 43
For the year ended November 30, 2018
Percentage
change as
reported
Impact of
foreign
currency
exchange
Percentage
change on
constant
currency basis
13.4%
6.9%
11.5%
11.9%
15.1%
8.6%
3.9%
12.4%
12.1%
13.3%
32.3%
18.7%
0.1%
5.3%
2.5%
1.4%
0.1%
2.3%
2.3%
0.8%
1.2%
0.9%
—%
0.7%
13.3%
1.6%
9.0%
10.5%
15.0%
6.3%
1.6%
11.6%
10.9%
12.4%
32.3%
18.0%
terms of our $1.0 billion revolving credit facility and our term loans which
require us to maintain our leverage ratio below certain levels. Under
those agreements, the applicable leverage ratio is reduced annually. As
of November 30, 2019, our capacity under the revolving credit facility is
not affected by these covenants. We do not expect that these covenants
would limit our access to our revolving credit facility for the foreseeable
future; however, the leverage ratio could restrict our ability to utilize this
facility. We expect to comply with this financial covenant for the foresee-
able future.
The following table reconciles our net income to Adjusted EBITDA
for the years ended November 30:
Net income
Depreciation and amortization
Interest expense
Income tax expense (benefit)
EBITDA
Adjustments to EBITDA(1)
Adjusted EBITDA
Net debt (2)
Leverage ratio
2019
2018
2017
$ 702.7
158.8
165.2
157.4
1,184.1
47.9
$ 933.4
150.7
174.6
(157.3)
1,101.4
57.3
$ 477.4
125.2
95.7
151.3
849.6
117.4
$ 1,232.0
$ 1,158.7
$ 967.0
$ 4,243.8
$ 4,674.8
$ 4,915.3
(Net debt/Adjusted EBITDA) (3)
3.4
4.0
5.1
(1) Adjustments to EBITDA are determined under the leverage ratio covenant in our
$1.0 billion revolving credit facility and term loan agreements and include special
charges, stock-based compensation expense, interest income and, for the years
ended November 30, 2018 and 2017, transaction and integration expenses (related
to RB Foods acquisition), including other debt costs.
(2) The leverage ratio covenant in our $1.0 billion revolving credit facility and the term
loan agreements define net debt as the sum of short-term borrowings, current por-
tion of long-term debt, and long-term debt, less the amount of cash and cash equiv-
alents that exceed $75.0 million.
(3) The leverage ratio covenant in our $1.0 billion revolving credit facility and the term
loan agreements provide that Adjusted EBITDA also includes the pro forma impact
of acquisitions. As of November 30, 2017, our leverage ratio under the terms of
those agreements, including the pro forma impact of acquisitions was 4.5.
Net sales:
Consumer segment:
Americas
EMEA
Asia/Pacific
Total Consumer
Flavor Solutions segment:
Americas
EMEA
Asia/Pacific
Total Flavor Solutions
Total net sales
Adjusted operating income:
Consumer segment
Flavor Solutions segment
Total adjusted operating income
To present the percentage change in projected 2020 sales, adjusted
operating income and adjusted earnings per share on a constant cur-
rency basis, 2020 projected local currency 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 2020 local cur-
rency projected results, translated into U.S. dollars at the average
actual exchange rates in effect during the corresponding months in
fiscal year 2019 to determine what the 2020 consolidated U.S. dollar
sales, adjusted operating income and adjusted earnings per share
would have been if the relevant currency exchange rates had not
changed from those of the comparable prior-year periods. In 2020, we
expect minimal impact of foreign currency, as compared to 2019 lev-
els, on our projections of net sales, operating income and diluted
earnings per share as well as adjusted operating income and adjusted
diluted earnings per share.
In addition to the above non-GAAP financial measures, we use a leverage
ratio which is determined using non-GAAP measures. A leverage ratio is
a widely-used measure of ability to repay outstanding debt obligations
and is a meaningful metric to investors in evaluating financial leverage.
We believe that our leverage ratio is a meaningful metric to investors in
evaluating our financial leverage, although our method to calculate our
leverage ratio may be different than the method used by other companies
to calculate such a leverage ratio. We determine our leverage ratio as
net debt (which we define as total debt, net of cash in excess of $75.0
million) to adjusted earnings before interest, tax, depreciation and amor-
tization (Adjusted EBITDA). We define Adjusted EBITDA as net income
plus expenses for interest, income taxes, depreciation and amortization,
less interest income and as further adjusted for cash and non-cash acqui-
sition-related expenses (which may include the effect of the fair value
adjustment of acquired inventory on cost of goods sold), special charges,
stock-based compensation expenses, and certain gains or losses (which
may include third party fees and expenses and integration costs).
Adjusted EBITDA and our leverage ratio are both non-GAAP financial
measures. Our determination of the leverage ratio is consistent with the
44 McCormick & Company, Inc.
Our long-term target for our leverage ratio is 1.5 to 2.0. Our leverage
ratio can be temporarily impacted by our acquisition activity.
LIQUIDITY AND FINANCIAL CONDITION
Net cash provided by operating
activities
Net cash used in investing activities
Net cash (used in) provided by
2019
2018
2017
$ 946.8
(171.0)
$ 821.2
(158.5)
$ 815.3
(4,508.3)
financing activities
(725.8)
(751.1)
3,756.0
We generate strong cash flow from operations which enables us to
fund operating projects and investments that are designed to meet our
growth objectives, service our debt, increase our dividend, fund capital
projects and other investments, and make share repurchases when
appropriate. Due to the cyclical nature of a portion of our business, we
generate much of our cash flow in the fourth quarter of the fiscal year.
In the cash flow statement, the changes in operating assets and liabili-
ties are presented excluding the effects of changes in foreign currency
exchange rates, as these do not reflect actual cash flows. Accordingly,
the amounts in the cash flow statement do not agree with changes in the
operating assets and liabilities that are presented in the balance sheet.
The reported values of our assets and liabilities held in our non-U.S.
subsidiaries and affiliates can be significantly affected by fluctuations
in foreign exchange rates between periods. At November 30, 2019, the
exchange rates for the Euro, Australian dollar, Polish zloty and Chinese
renminbi were lower versus the U.S. dollar than at November 30,
2018. At November 30, 2019, the exchange rates for the British pound
sterling and Canadian dollar were higher versus the U.S. dollar than at
November 30, 2018.
Operating Cash Flow—Operating cash flow was $946.8 million in
2019, $821.2 million in 2018, and $815.3 million in 2017. The
increases in cash flow from operations in both 2019 and 2018 were
primarily due to higher net income, exclusive of the 2018 impact of
the non-cash non-recurring net income tax benefit of $309.4 million
related to the U.S. Tax Act. In addition, as more fully described below,
our working capital management favorably impacted operating cash
flow in 2019, 2018 and 2017. In 2019, the increases to operating cash
flow were partially offset by a use of cash associated with other
assets and liabilities, totaling $81.5 million. In 2018, those increases
were partially offset by a higher use of cash from other operating
assets and liabilities partially related to the timing of our payment of
transaction and integration expenses as well as of interest on indebt-
edness related to our acquisition of RB Foods, as compared to the
source of cash in 2017. Dividends received from unconsolidated affili-
ates, which were higher in 2019 compared to 2018 and higher in 2018
as compared to 2017, also impacted our cash flow from operations.
Our working capital management—principally related to inventory,
trade accounts receivable, and accounts payable—impacts our operat-
ing cash flow. The change in inventory had a significant impact on the
variability in cash flow from operations. It was a use of cash in 2019
and 2018 and a source of cash in 2017. The change in trade accounts
receivable has varied in the last three years as well, as it was a source
of cash in 2019 and 2018, and a use of cash in 2017. The change in
accounts payable was a significant source of cash in all three years.
In addition to operating cash flow, we also use cash conversion cycle
(“CCC”) to measure our working capital management. This metric is differ-
ent than operating cash flow in that it uses average balances instead of
specific point in time measures. CCC is a calculation of the number of
days, on average, that it takes us to convert a cash outlay for resources,
such as raw materials, to a cash inflow from collection of accounts receiv-
able. Our goal is to lower our CCC over time. We calculate CCC as follows:
Days sales outstanding (average trade accounts receivable divided
by average daily net sales) plus days in inventory (average inven-
tory divided by average daily cost of goods sold) less days payable
outstanding (average trade accounts payable divided by average
daily cost of goods sold plus the average daily change in inventory).
The following table outlines our cash conversion cycle (in days) over
the last three years:
Cash Conversion Cycle
2019
43
2018
55
2017
76
The decreases in CCC in 2019 from 2018 and in 2018 from 2017 were
due, in both instances, to an increase in our days payable outstanding
as a result of extending our payment terms to suppliers and to a
lesser extent, by a decrease in our days sales outstanding. Our CCC is
also impacted by days in inventory which increased in 2019 as com-
pared to 2018, and decreased in 2018 as compared to 2017.
Investing Cash Flow—Net cash used in investing activities was
$171.0 million in 2019, $158.5 million in 2018, and $4,508.3 million in
2017. Our primary investing cash flows include the usage of cash
associated with acquisition of businesses and capital expenditures.
Cash usage related to our acquisitions of businesses were $4.2 million
in 2018, and $4,327.4 million in 2017. See note 2 of the accompanying
financial statements for further details related to our acquisition of RB
Foods. Capital expenditures, including expenditures for capitalized
software, were $173.7 million in 2019, $169.1 million in 2018, and
$182.4 million in 2017. We expect 2020 capital expenditures to
approximate $265 million to support our planned growth, including the
multi-year program to replace our ERP system and other initiatives.
Financing Cash Flow—Net cash used in financing activities was
$725.8 million in 2019 and $751.1 million in 2018. Net cash provided
by financing activities was $3,756.0 million in 2017. The variability
between years is principally a result of changes in our net borrowings,
share repurchase activity and dividends, all as described below.
In 2019 and 2018, our net borrowing activity used cash of $406.7 mil-
lion and $466.5 million, respectively. In 2017, our net borrowing activ-
ity provided cash of $3,574.6 million.
In 2019, we increased our short-term borrowings, on a net basis, by
$41.0 million. We also repaid $447.7 million of long-term debt, includ-
ing $436.3 million of our $1,500.0 million term loans issued in August
2017. Of that $436.3 million, $361.3 million represent prepayments.
Through November 30, 2019, we have repaid $1,250.0 million of the
$1,500.0 million term loans issued in August 2017, including pre-
payments of $1,081.3 million.
2019 Annual Report 45
In 2018, we increased our short-term borrowings, on a net basis, by
$305.5 million and borrowed $25.9 million under long-term borrow-
ing arrangements. In 2018, we repaid $797.9 million of long-term
debt, including the $250 million 5.75% notes that matured on
December 15, 2017 and $545.0 million of our $1,500.0 million term
loans issued in August 2017.
In 2017, we received $3,977.6 million of net proceeds on the issuance
of $4,000.0 million of long-term debt, including $2,500.0 million of
notes and $1,500.0 million of term loans (see note 6 of the accompa-
nying financial statements for additional information with respect to
this long-term debt). We also paid $7.7 million of costs associated
with the issuance of debt and our $1.0 billion revolving credit facility.
In 2017, we repaid $272.7 million of long-term debt, including $268.8
million of our $1,500.0 million term loans issued in August 2017. In
2017, we repaid $134.6 million of short-term borrowings.
The following table outlines the activity in our share repurchase
programs:
Number of shares of common stock
Dollar amount
2019
0.7
$95.1
2018
0.5
$62.3
2017
1.4
$137.8
As of November 30, 2019, $32 million remained of a $600 million share
repurchase program that was authorized by our Board of Directors in
March 2015. An additional $600 million share repurchase program was
authorized by our Board of Directors in November 2019. The timing and
amount of any shares repurchased is determined by our management
based on its evaluation of market conditions and other factors.
During 2019, 2018 and 2017, we received proceeds of $90.9 million,
$78.2 million and $29.5 million, respectively, from exercised stock
options. We repurchased $12.7 million, $11.6 million and $5.8 million
of common stock during 2019, 2018 and 2017, respectively, in conjunc-
tion with employee tax withholding requirements associated with our
stock compensation plans.
During 2017, we issued approximately 6.35 million shares of our Common
Stock Non-Voting to fund our acquisition of RB Foods (see notes 2 and
13 of the accompanying financial statements), which included approxi-
mately 0.8 million shares from the exercise of the underwriters’ option
to purchase additional shares. The net proceeds from this issuance, after
the underwriting discount and related expenses, was $554.0 million.
Our dividend history over the past three years is as follows:
Total dividends paid
Dividends paid per share
Percentage increase per share
2019
2018
2017
$302.2
2.28
9.6%
$273.4
2.08
10.6%
$237.6
1.88
9.3%
In November 2019, the Board of Directors approved an 8.8% increase
in the quarterly dividend from $0.57 to $0.62 per share.
The following table presents our leverage ratios for the years ended
November 30, 2019, 2018 and 2017:
Leverage ratio
2019
3.4
2018
4.0
2017
5.1(1)
(1) The leverage ratio covenant in our $1.0 billion revolving credit facility and the term
loan agreements, both outstanding at November 30, 2019, 2018, and 2017, provide
that Adjusted EBITDA under that covenant also include the pro forma impact of
acquisitions, as applicable. As of November 30, 2017, our leverage ratio under the
terms of those agreements, including the pro forma impact of acquisitions, was 4.5.
Our leverage ratio was 3.4 as of November 30, 2019, as compared to
the ratios of 4.0 and 5.1 as of November 30, 2018 and 2017, respec-
tively. The decrease in our leverage ratio from 4.0 as of November 30,
2018 to 3.4 as of November 30, 2019 is due to both an increase in our
adjusted EBITDA, which was driven by higher operating income in
2019 as compared to 2018, as well as our lower level of net debt at
November 30, 2019.
The decrease in the ratio from 5.1 as of November 30, 2017 to 4.0 as
of November 30, 2018 is principally due to an increase in our
adjusted EBITDA, which was driven by higher operating income in
2018 as compared to 2017. In addition, the ratio was favorably
impacted by our lower level of net debt at November 30, 2018.
Most of our cash is in our foreign subsidiaries. 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 subsid-
iaries could have had adverse tax consequences; however, those
balances are generally available without legal restrictions to fund
ordinary business operations, capital projects and future acquisi-
tions. Currently, the repatriation of cash balances from certain of our
subsidiaries could still have adverse tax consequences related to the
effects of withholding and other taxes. At November 30, 2019, we
temporarily used $262.8 million of cash from our foreign subsidiaries
to pay down short-term debt in the U.S. The average short-term bor-
rowings outstanding for the years ended November 30, 2019 and 2018
were $848.6 million and $700.0 million, respectively. The total aver-
age debt outstanding for the years ended November 30, 2019 and
2018 was $4,753.8 million and $5,081.6 million, respectively.
See notes 6 and 7 of the accompanying financial statements for further
details of these transactions.
Credit and Capital Markets—The following summarizes the more sig-
nificant impacts of credit and capital markets on our business:
CREDIT FACILITIES—Cash flows from operating activities are our
primary source of liquidity for funding growth, share repurchases,
dividends and capital expenditures. We also rely on our revolving
credit facility, or borrowings backed by this facility, to fund seasonal
working capital needs and other general corporate requirements.
46 McCormick & Company, Inc.
In August 2017, we entered into a five-year $1.0 billion revolving
credit facility, which will expire in August 2022. 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 con-
tains a fully drawn maximum pricing of the credit facility equal to
LIBOR plus 1.75%. This facility replaced our prior facilities: (i) a five-
year $750 million revolving credit facility that was due to expire in
June 2020 and (ii) a 364-day $250 million revolving facility, which we
entered into in the second quarter of 2017 and that was due to expire
in March 2018. We generally use this 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.
The 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. In addition to our committed revolving credit
facility, we have uncommitted credit facilities of $261.5 million as of
November 30, 2019, that can be withdrawn based upon the lenders’
discretion. We engage in regular communication with all banks partic-
ipating in our credit facilities. 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. See note 6 of the accompanying financial state-
ments for more details on our financing arrangements. We believe
that our internally generated funds and the existing sources of liquid-
ity under our credit facilities are sufficient to fund ongoing operations.
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 $11.4 million in 2019, $13.5 million in
2018, and $18.7 million in 2017. It is expected that the 2020 total pen-
sion plan contributions will be approximately $12.0 million. Future
increases or decreases in pension liabilities and required cash contri-
butions are highly dependent on 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 59% of assets
are invested in equities, 31% in fixed income investments and 10% in
other investments. Assets in the rabbi trust are primarily invested in
corporate-owned life insurance, the value of which approximates an
investment mix of 60% in equities and 40% in fixed income invest-
ments. See note 10 of the accompanying financial statements, which
provides details on our pension funding.
CUSTOMERS AND COUNTERPARTIES—See the subsequent
section of this discussion under Market Risk Sensitivity–Credit Risk.
ACQUISITIONS
Acquisitions are part of our strategy to increase sales and profits.
We did not have any acquisition activity in fiscal 2019.
In fiscal 2018 we purchased the remaining 10% minority ownership
interest in our Shanghai subsidiary for a cash payment of $12.7 million.
In fiscal 2017, we made the following acquisitions:
• On December 15, 2016, we purchased 100% of the shares of
Enrico Giotti SpA (Giotti), a leading European flavor manufac-
turer located in Italy, for a cash payment of $123.8 million, net
of cash acquired of $1.2 million. The acquisition was funded
with cash and short-term borrowings. Giotti is well known in
the industry for its innovative beverage, sweet, savory and
dairy flavor applications. Our acquisition of Giotti in fiscal 2017
expanded the breadth of value-added products for McCormick’s
flavor solutions segment, including additional expertise in fla-
voring health and nutrition products.
• On August 17, 2017, we completed the acquisition of RB Foods.
The purchase price was approximately $4.21 billion, net of
acquired cash of $24.3 million, and included a preliminary work-
ing capital adjustment of $11.2 million. In December 2017, we
paid $4.2 million associated with the final working capital
adjustment. The acquisition was funded through our issuance of
approximately 6.35 million shares of common stock non-voting
(see note 13 of the accompanying financial statements) and
through new borrowings comprised of senior unsecured notes
and pre-payable term loans (see note 6 of the accompanying
financial statements). The acquired market-leading brands of
RB Foods include French’s, Frank’s RedHot and Cattlemen’s,
which are a natural strategic fit with our robust global branded
flavor portfolio. We believe that these additions move us to a
leading position in the attractive U.S. condiments category and
provide significant international growth opportunities for our
consumer and flavor solutions segments. The operations of RB
Foods have been included as a component of our consumer and
flavor solutions segments from the date of acquisition.
See note 2 of the accompanying financial statements for further
details regarding these acquisitions.
PERFORMANCE GRAPH—SHAREHOLDER RETURN
The following line graph compares the yearly change in McCormick’s
cumulative total shareholder return (stock price appreciation plus
reinvestment of dividends) on McCormick’s Non-Voting Common
Stock with (1) the cumulative total return of the Standard & Poor’s
500 Stock Price Index, assuming reinvestment of dividends, and
(2) the cumulative total return of the Standard & Poor’s Packaged
Foods & Meats Index, assuming reinvestment of dividends.
2019 Annual Report 47
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among McCormick & Co., Inc., the S&P 500 Index
and the S&P Packaged Foods & Meats Index
$300
$250
$200
$150
$100
$50
$0
11/14
11/15
11/16
11/17
11/18
11/19
McCormick & Co., Inc
S&P 500
S&P Packaged Foods & Meats
*$100 invested on 11/30/14 in stock or index, including reinvestment of dividends.
Fiscal year ending November 30.
Copyright© 2019 Standard & Poor’s, a division of S&P Global. All rights reserved.
MARKET RISK SENSITIVITY
We utilize derivative financial instruments to enhance our ability to
manage risk, including foreign exchange and interest rate exposures,
which exist as part of our ongoing business operations. We do not
enter into contracts for trading purposes, nor are we a party to any
leveraged derivative instrument. The use of derivative financial
instruments is monitored through regular communication with senior
management and the utilization of written guidelines. The informa-
tion presented below should be read in conjunction with notes 6 and
7 of the accompanying financial statements.
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 sub-
sidiaries and unconsolidated affiliates and on cash flows related to
repatriation of earnings of unconsolidated affiliates. Primary expo-
sures include the U.S. dollar versus the Euro, British pound sterling,
Canadian dollar, Polish zloty, Australian dollar, Mexican peso,
Chinese renminbi, Indian rupee and Thai baht, as well as the Euro
versus the British pound sterling, Australian dollar and Swiss franc.
We routinely enter into foreign currency exchange contracts to man-
age certain of these foreign currency risks.
During 2019, the foreign currency translation component in other com-
prehensive income was principally related to the impact of exchange
rate fluctuations on our net investments in our subsidiaries with a
functional currency of the British pound sterling, Euro, Polish zloty,
Chinese yuan, Australian dollar, Canadian dollar and Mexican peso.
Beginning in the first quarter of 2019, we also utilized cross currency
interest rate swap contracts, which are designated as net investment
hedges, to manage the impact of exchange rate fluctuations on our
net investments in subsidiaries with a functional currency of the
British pound sterling and Euro. Gains and losses on these instru-
ments are included in foreign currency translation adjustments in
accumulated other comprehensive income (loss). In 2018 and 2017,
we did not hedge our net investments in subsidiaries or unconsoli-
dated affiliates.
48 McCormick & Company, Inc.
The following table summarizes the foreign currency exchange con-
tracts held at November 30, 2019. All contracts are valued in U.S. dol-
lars using year-end 2019 exchange rates and have been designated as
hedges of foreign currency transactional exposures, firm commitments
or anticipated transactions.
FOREIGN CURRENCY EXCHANGE CONTRACTS AT
NOVEMBER 30, 2019
Currency sold
Currency received
British pound sterling
Canadian dollar
U.S. dollar
Polish zloty
Australian dollar
Swiss franc
Canadian dollar
U.S. dollar
U.S. dollar
U.S. dollar
U.S. dollar
U.S. dollar
U.S. dollar
Australian dollar
U.S. dollar
Euro
Euro
British pound sterling
Australian dollar
British pound sterling
Canadian dollar
Euro
Notional
value
$ 34.5
105.1
16.6
18.5
41.4
66.2
29.5
27.1
102.7
4.2
21.5
Average
contractual
exchange
rate
1.27
0.76
0.70
3.90
1.64
1.13
1.65
0.68
1.29
0.77
1.10
Fair
value
$(0.8)
0.5
(0.4)
0.1
0.1
(1.9)
1.5
(0.1)
0.6
(0.1)
—
We had a number of smaller contracts at November 30, 2019 with an
aggregate notional value of $21.8 million to purchase or sell other
currencies, such as the Romanian leu, Russian ruble, and Singapore
dollar. The aggregate fair value of these contracts was $0.2 million at
November 30, 2019.
At November 30, 2018, we had foreign currency exchange contracts
for the Euro, British pound sterling, Canadian dollar, Australian dollar,
Polish zloty, Swiss franc and other currencies, with a notional value of
$494.9 million. The aggregate fair value of these contracts was $(2.0)
million at November 30, 2018.
Beginning in the first quarter of 2019, we also utilized cross currency
interest rate swap contracts that are considered net investment hedges.
As of November 30, 2019, we had notional values of 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 footnote 7.
Interest Rate Risk—Our policy is to manage interest rate risk by
entering into both fixed and variable rate debt arrangements. We
also use interest rate swaps to minimize worldwide financing costs
and to achieve a desired mix of fixed and variable rate debt. The
table that follows provides principal cash flows and related interest
rates, excluding the effect of interest rate swaps and the amortiza-
tion of any discounts or fees, by fiscal year of maturity at
November 30, 2019. For foreign currency-denominated debt, the
information is presented in U.S. dollar equivalents. Variable interest
rates are based on the weighted-average rates of the portfolio at
the end of the year presented.
YEARS OF MATURITY AT NOVEMBER 30, 2019
Debt
Fixed rate
Average interest rate
Variable rate
Average interest rate
2020
2021
2022
2023
Thereafter
Total
Fair value
$ 7.1
3.45%
$691.3
2.55%
$257.3
$ 757.5
$ 257.8
$2,165.9
3.89%
2.71%
3.50%
3.52%
$ 3,445.6
—
$ 83.8
$ 106.6
$ —
2.89%
2.91%
$ — $ 881.7
—
$3,578.0
—
$ 881.7
—
The table above displays the debt, including capital leases, by the terms of the original debt instrument without consideration of fair value, interest rate swaps and any loan discounts or
origination fees. Interest rate swaps have the following effects:
• We issued $250 million of 3.90% notes due in 2021 in July 2011. Forward treasury lock agreements, settled upon the issuance of these notes in 2011, effectively set the interest rate
on the $250 million notes at a weighted-average fixed rate of 4.01%.
• We issued $250 million of 3.50% notes due in 2023 in August 2013. Forward treasury lock agreements settled upon issuance of these notes effectively set the interest rate on these
notes at a weighted-average fixed rate of 3.30%.
• We issued $250 million of 3.25% notes due in 2025 in November 2015. Forward treasury lock agreements settled upon issuance of these notes effectively set the interest rate on
these notes at a weighted-average fixed rate of 3.45%. The fixed interest rate on $100 million of the 3.25% notes due in December 2025 was effectively converted to a variable rate
by interest rate swaps through 2025. Net interest payments are based on 3-month LIBOR plus 1.22% during this period.
• We issued an aggregate amount of $2.5 billion of senior unsecured notes in August 2017. These notes are due as follows: $750 million due August 15, 2022, $700 million due August
15, 2024, $750 million due August 15, 2027 and $300 million due August 15, 2047 with stated fixed interest rates of 2.70%, 3.15%, 3.40% and 4.20%, respectively. Forward treasury
lock agreements settled upon issuance of the $750 million notes due August 15, 2027 effectively set the interest rate on these $750 million notes at a weighted-average fixed rate of
3.44%. The fixed interest rate on $250 million of the 3.40% notes due in 2027 was effectively converted to a variable rate by interest rate swaps through 2027. Net interest payments
are based on 3-month LIBOR plus 0.685% during this period
Commodity Risk—We purchase certain raw materials which are sub-
ject to price volatility caused by weather, market conditions, growing
and harvesting conditions, governmental actions and other factors
beyond our control. In 2019, our most significant raw materials were
dairy products, vanilla, pepper, capsicums (red peppers and paprika),
garlic, onion, rice and wheat flour. 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 gen-
erally 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.
Credit Risk—The customers of our consumer segment are predomi-
nantly 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 mer-
chandisers, 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.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL
COMMITMENTS
The following table reflects a summary of our contractual obligations
and commercial commitments as of November 30, 2019:
CONTRACTUAL CASH OBLIGATIONS DUE BY YEAR
Short-term borrowings
Long-term debt,
including capital
leases
Operating leases
Interest payments
Raw material purchase
obligations (a)
Other purchase
obligations (b)
Total contractual cash
obligations
Less than
1 year
1–3
years
3–5
years
More than
5 years
Total
$ 600.7 $ 600.7 $ — $
— $ —
3,726.6
162.2
859.9
97.7
41.8
118.5
1,205.3
61.5
212.7
1,020.9
26.6
154.6
1,402.7
32.3
374.1
492.4
492.4
—
—
—
160.4
76.1
35.2
18.4
30.7
$ 6,002.2 $1,427.2 $1,514.7 $1,220.5
$1,839.8
(a) Raw material purchase obligations outstanding as of year end may not be indica-
tive of outstanding obligations throughout the year due to our response to vary-
ing raw material cycles.
(b) Other purchase obligations consist of information technology and other service
agreements, advertising media commitments and utility contracts.
Pension and postretirement funding can vary significantly each year
due to changes in legislation, our significant assumptions and
investment return on plan assets. As a result, we have not presented
pension and postretirement funding in the table above.
2019 Annual Report 49
COMMERCIAL COMMITMENTS EXPIRATION BY YEAR
Guarantees
Standby letters of credit
Total commercial
commitments
Less than
1 year
1–3
years
3–5
years
More than
5 years
$ 0.6
32.2
$— $—
—
—
$—
—
Total
$ 0.6
32.2
$32.8
$32.8
$— $—
$—
OFF-BALANCE SHEET ARRANGEMENTS
We had no off-balance sheet arrangements as of November 30, 2019
and 2018.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
New accounting pronouncements are issued periodically that affect
our current and future operations. See note 1 of the accompanying
financial statements for further details of these impacts.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
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 circum-
stances, 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 prepar-
ing 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 esti-
mates and assumptions are in the following areas:
Customer Contracts
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 quan-
tities ordered, are established on a frequent basis such that most cus-
tomer 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.
Goodwill and Intangible Asset Valuation
We review the carrying value of goodwill and non-amortizable intan-
gible assets and conduct tests of impairment on an annual basis as
described below. We also test for impairment if events or circumstanc-
es 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.
50 McCormick & Company, Inc.
Determining the fair value of a reporting unit or an indefinite-lived
purchased intangible asset is judgmental in nature and involves the
use of significant estimates and assumptions. We base our fair value
estimates on assumptions we believe to be reasonable but that are
inherently uncertain. Actual future results may differ from those
estimates.
Goodwill Impairment
Our reporting units are the same as our operating segments. We esti-
mate 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 our
internal cost of capital as the discount rate. We then compare this fair
value to the carrying amount of the reporting unit, including intangible
assets and goodwill. If the carrying amount of the reporting unit ex-
ceeds the estimated fair value, then we would determine the implied
fair value of the reporting unit’s goodwill. An impairment charge would
be recognized to the extent the carrying amount of goodwill exceeds
the implied fair value. As of November 30, 2019, we had $4,505.2
million of goodwill recorded in our balance sheet ($3,377.6 million
in the consumer segment and $1,127.6 million in the flavor solutions
segment). Our fiscal year 2019 testing indicated that the estimated fair
values of our reporting units were significantly in excess of their carry-
ing values. Accordingly, we believe that only significant changes in the
cash flow assumptions would result in an impairment of goodwill.
Indefinite-lived Intangible Asset Impairment
Our indefinite-lived intangible assets consist of brand names and
trademarks. We estimate fair values primarily through the use of the
relief-from-royalty method and then compare those fair values to the
related carrying amounts of the indefinite-lived intangible asset. In the
event that the fair value of any of the brand names or trademarks are
less than their related carrying amounts, a non-cash impairment loss
would recognized in an amount equal to the difference.
The estimation of fair values of our brand names and trademarks
requires us to make significant assumptions, including expectations
with respect to sales and profits of the respective brands and trade-
marks, related royalty rates and appropriate discount rates, which are
based, in part, upon current interest rates adjusted for our view of rea-
sonable country- and brand-specific risks based upon the past and antic-
ipated future performance of the related brand names and trademarks.
As of November 30, 2019, we had $2,643.0 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 $2,643.0 million of brand names assets and trademarks as of
November 30, 2019: (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; and (ii) the remaining
$323.0 million represents a number of other brand name assets and
trademarks with individual carrying values ranging from $0.2 million
to $106.4 million. 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, 2019,
except for one brand with a carrying value of $27.1 million whose fair
value modestly exceeds its carrying value at that date.
The brand names and trademarks related to recent acquisitions may
be more susceptible to future impairment as their carrying values
represent recently determined fair values. A change in assumptions
with respect to recently acquired businesses, including those affected
by rising interest rates or a deterioration in expectations of future
sales, profitability or royalty rates as well as future economic and
market conditions, or higher income tax rates, could result in non-cash
impairment losses in the future.
Income Taxes
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 may challenge certain
positions. We evaluate our uncertain tax positions in accordance with
the GAAP guidance for uncertainty in income taxes. We believe that
our reserve for uncertain tax positions, including related interest, is
adequate. 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 valu-
ation 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. In addition, inter-
pretative guidance continues to be issued in connection with the
U.S. Tax Act enacted in December 2017. While we have considered
available guidance, there is no assurance that future guidance may
not cause us to revise amounts currently recorded.
Pension and Postretirement Benefits
Pension and other postretirement plans’ costs require the use of
assumptions for discount rates, investment returns, projected salary
increases, mortality rates and health care cost trend rates. The actuar-
ial assumptions used in our pension and postretirement benefit report-
ing are reviewed annually and compared with external benchmarks to
ensure that they appropriately account for our future pension and
postretirement benefit obligations. While we believe that the assump-
tions used are appropriate, differences between assumed and actual
experience may affect our operating results. A 1% increase or
decrease in the actuarial assumption for the discount rate would
impact 2020 pension and postretirement benefit expense by approxi-
mately $1 million. A 1% increase or decrease in the expected return
on plan assets would impact 2020 pension expense by approximately
$9 million.
We will continue to evaluate the appropriateness of the assumptions
used in the measurement of our pension and other postretirement
benefit obligations. In addition, see note 10 of the accompanying
financial statements for a discussion of these assumptions and the
effects on the financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
This information is set forth in the “Market Risk Sensitivity” section
of “Management’s Discussion and Analysis” and in note 7 of the
accompanying financial statements.
2019 Annual Report 51
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF MANAGEMENT
We are responsible for the preparation and integrity of the consol-
idated financial statements appearing in our Annual Report. The
consolidated financial statements were prepared in conformity with
United States generally accepted accounting principles and include
amounts based on our estimates and judgments. All other financial
information in this report has been presented on a basis consistent
with the information included in the financial statements.
We are also responsible for establishing and maintaining adequate
internal control over financial reporting. We maintain a system of
internal control that is designed to provide reasonable assurance as to
the fair and reliable preparation and presentation of the consolidated
financial statements, as well as to safeguard assets from unauthorized
use or disposition.
Our control environment is the foundation for our system of internal
control over financial reporting and is embodied in our Business Ethics
Policy. It sets the tone of our organization and includes factors such
as integrity and ethical values. Our internal control over financial
reporting is supported by formal policies and procedures which are
reviewed, modified and improved as changes occur in business condi-
tions and operations.
The Audit Committee of the Board of Directors, which is composed
solely of independent directors, meets periodically with members of
management, the internal auditors and the independent registered
public accounting firm to review and discuss internal control over
financial reporting and accounting and financial reporting matters. The
independent registered public accounting firm and internal auditors re-
port to the Audit Committee and accordingly have full and free access
to the Audit Committee at any time.
Control—Integrated Framework issued by the Committee of Sponsor-
ing Organizations of the Treadway Commission (2013 framework).
This assessment included review of the documentation of controls, eval-
uation 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, 2019.
Our internal control over financial reporting as of November 30, 2019
has been audited by Ernst & Young LLP.
Lawrence E. Kurzius
Chairman, President &
Chief Executive Officer
Michael R. Smith
Executive Vice President &
Chief Financial Officer
We conducted an assessment of the effectiveness of our internal
control over financial reporting based on the framework in Internal
Christina M. McMullen
Vice President & Controller
Chief Accounting Officer
52 McCormick & Company, Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
McCormick & Company, Incorporated
Opinion on Internal Control over Financial Reporting
We have audited McCormick & Company, Incorporated’s internal
control over financial reporting as of November 30, 2019, based on
criteria established in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). In our opinion,
McCormick & Company, Incorporated (the Company) maintained, in all
material respects, effective internal control over financial reporting as
of November 30, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States) (PCAOB), the
consolidated balance sheets of the Company as of November 30, 2019
and 2018, 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, 2019, and the related notes and the financial statement
schedule listed in the Index at item 15(2) and our report dated January
28, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included in the
accompanying Report of Management. Our responsibility is to express
an opinion on the Company’s internal control over financial reporting
based on our audit. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial
Reporting
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 account-
ing principles. A company’s internal control over financial report-
ing 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 detec-
tion of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Baltimore, Maryland
January 28, 2020
2019 Annual Report 53
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
McCormick & Company, Incorporated
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
McCormick & Company, Incorporated (the Company) as of November 30,
2019 and 2018, 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, 2019, and the related notes and the 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, 2019 and 2018, and the
results of its operations and its cash flows for each of the three years in
the period ended November 30, 2019, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States) (PCAOB), the Com-
pany’s internal control over financial reporting as of November 30, 2019,
based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) and our report dated January 28, 2020
expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s man-
agement. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
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 pro-
cedures 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from
the current period audit of the financial statements that was communi-
cated or required to be communicated to the audit committee and that:
(1) relates to accounts or disclosures that are material to the financial
statements and (2) involved our especially challenging, subjective or
complex judgments. The communication of the critical audit matter does
not alter in any way our opinion on the consolidated financial state-
ments, taken as a whole, and we are not, by communicating the critical
audit matter below, providing a separate opinion on the critical audit
matter or on the account or disclosure to which it relates.
5 4 McCormick & Company, Inc.
Valuation of Indefinite-lived Intangible Assets
Description of
the Matter
At November 30, 2019, the Company’s indefinite-lived intangible assets consist of brand names and trademarks with an aggregate car-
rying value of approximately $2.6 billion. As explained in Note 1 to the consolidated financial statements, these assets are assessed for
impairment at least annually primarily using the relief-from-royalty methodology to determine their fair values. If the fair value of any of
the brand names or trademarks 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 review process, 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 method-
ologies 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
revenues by comparing the current year actual revenues for certain brand names or trademarks to the estimates made in the Compa-
ny’s prior year impairment assessment. We also performed sensitivity analyses of the 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 to
determine the fair value of certain brand names and trademarks.
We have served as the Company’s auditor since 1982.
Baltimore, Maryland
January 28, 2020
2019 Annual Report 55
CONSOLIDATED INCOME STATEMENTS
for the year ended November 30 (millions except per share data)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expense
Transaction and integration expenses (related to RB Foods acquisition)
Special charges
Operating income
Interest expense
Other debt costs
Other income, net
Income from consolidated operations before income taxes
Income tax expense (benefit)
Net income from consolidated operations
Income from unconsolidated operations
Net income
Earnings per share—basic
Earnings per share—diluted
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the year ended November 30 (millions)
Net income
Net income attributable to non-controlling interest
Other comprehensive income (loss):
Unrealized components of pension and other postretirement plans (including
curtailment gains of $18.0 and $76.7 for 2018 and 2017, respectively)
Currency translation adjustments
Change in derivative financial instruments
Deferred taxes
Total other comprehensive income (loss)
Comprehensive income
See Notes to Consolidated Financial Statements.
2019
$5,347.4
3,202.1
2,145.3
1,166.8
—
20.8
957.7
165.2
—
26.7
819.2
157.4
661.8
40.9
$ 702.7
$ 5.30
$ 5.24
2019
$ 702.7
1.9
(149.8)
(25.5)
1.1
33.2
(141.0)
2018
$5,302.8
3,209.5
2,093.3
1,163.4
22.5
16.3
891.1
174.6
—
24.8
741.3
(157.3)
898.6
34.8
$ 933.4
$ 7.10
$ 7.00
2018
$ 933.4
3.3
72.6
(119.8)
2.3
(17.2)
(62.1)
2017
$4,730.3
2,936.3
1,794.0
1,031.2
40.8
22.2
699.8
95.7
15.4
6.1
594.8
151.3
443.5
33.9
$ 477.4
$ 3.77
$ 3.72
2017
$ 477.4
1.6
103.2
174.6
(12.5)
(30.8)
234.5
$ 563.6
$ 874.6
$ 713.5
56 McCormick & Company, Inc.
CONSOLIDATED BALANCE SHEETS
at November 30 (millions)
2019
2018
Assets
Cash and cash equivalents
Trade accounts receivable, less allowances of $5.6 for 2019 and $6.4 for 2018
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Other long-term assets
Total assets
Liabilities
Short-term borrowings
Current portion of long-term debt
Trade accounts payable
Other accrued liabilities
Total current liabilities
Long-term debt
Deferred taxes
Other long-term liabilities
Total liabilities
Shareholders’ equity
Common stock, no par value; authorized 320.0 shares; issued and outstanding:
2019–9.3 shares, 2018–9.6 shares
Common stock non-voting, no par value; authorized 320.0 shares; issued and outstanding:
2019–123.6 shares, 2018–122.5 shares
Retained earnings
Accumulated other comprehensive loss
Total McCormick shareholders’ equity
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
See Notes to Consolidated Financial Statements.
$ 155.4
502.9
801.2
90.7
1,550.2
952.6
4,505.2
2,847.0
507.1
$ 96.6
518.1
786.3
78.9
1,479.9
941.5
4,527.9
2,873.3
433.8
$10,362.1
$10,256.4
$ 600.7
97.7
846.9
609.1
2,154.4
3,625.8
697.6
427.6
6,905.4
$ 560.0
83.5
710.0
648.2
2,001.7
4,052.9
706.5
313.1
7,074.2
447.6
400.2
1,441.0
2,055.8
(500.2)
3,444.2
12.5
3,456.7
1,370.4
1,760.2
(359.9)
3,170.9
11.3
3,182.2
$10,362.1
$10,256.4
2019 Annual Report 57
CONSOLIDATED CASH FLOW STATEMENTS
for the year ended November 30 (millions)
2019
2018
2017
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Stock-based compensation
Noncash nonrecurring income tax benefit (related to enactment of the U.S. Tax Act)
Special charges and transaction and integration expenses
Amortization of inventory fair value adjustment associated with acquisition of RB
Foods
(Gain) loss on sale of assets
Deferred income tax expense
Income from unconsolidated operations
Settlement of forward-starting interest rate swaps
Changes in operating assets and liabilities (net of effect of businesses acquired):
Trade accounts receivable
Inventories
Trade accounts payable
Other assets and liabilities
Dividends received from unconsolidated affiliates
Net cash provided by operating activities
Investing activities
Acquisitions of businesses (net of cash acquired)
Capital expenditures (including expenditures for capitalized software)
Other investing activities
Net cash used in investing activities
Financing activities
Short-term borrowings, net
Long-term debt borrowings
Payment of debt issuance costs
Long-term debt repayments
Proceeds from exercised stock options
Taxes withheld and paid on employee stock awards
Payment of contingent consideration
Purchase of minority interest
Issuance of common stock non-voting (net of issuance costs of $0.9)
Common stock acquired by purchase
Dividends paid
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
See Notes to Consolidated Financial Statements.
$ 702.7
$ 933.4
$ 477.4
158.8
37.2
—
—
—
(1.6)
20.9
(40.9)
—
12.2
(20.9)
128.2
(81.5)
31.7
946.8
—
(173.7)
2.7
(171.0)
41.0
—
—
(447.7)
90.9
(12.7)
—
—
—
(95.1)
(302.2)
(725.8)
8.8
58.8
96.6
150.7
25.6
(309.4)
3.0
—
(5.4)
40.1
(34.8)
—
19.8
(10.0)
72.8
(91.8)
27.2
821.2
(4.2)
(169.1)
14.8
(158.5)
305.5
25.9
—
(797.9)
78.2
(11.6)
(2.5)
(13.0)
—
(62.3)
(273.4)
(751.1)
(1.8)
(90.2)
186.8
125.2
23.9
—
19.1
20.9
1.3
24.1
(33.9)
(2.9)
(13.0)
44.6
98.2
6.8
23.6
815.3
(4,327.4)
(182.4)
1.5
(4,508.3)
(134.6)
3,989.6
(7.7)
(272.7)
29.5
(5.8)
(19.7)
(1.2)
554.0
(137.8)
(237.6)
3,756.0
5.4
68.4
118.4
$ 155.4
$ 96.6
$ 186.8
58 McCormick & Company, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(millions)
Common
Stock
Shares
Common
Stock
Non-Voting
Shares
Common
Stock
Amount
Accumulated
Other
Comprehensive
(Loss) Income
Non-controlling
Interests
Total
Shareholders’
Equity
11.4
Balance, November 30, 2016
Net income
Net income attributable to non-controlling interest
Other comprehensive income (loss), net of tax
Dividends
Buyout of minority interest
Stock-based compensation
Shares issued in connection with RB Foods acquisition —
(0.4)
Shares purchased and retired
0.7
Shares issued, including tax benefit of $8.1
(1.7)
Equal exchange
113.9
6.4
(1.1)
0.1
1.7
10.0
121.0
Balance, November 30, 2017
Net income
Net income attributable to non-controlling interest
Other comprehensive loss, net of tax
Dividends
Adoption of ASU 2018-02
Buyout of minority interest
Stock-based compensation
Shares purchased and retired
Shares issued
Equal exchange
Balance, November 30, 2018
Net income
Net income attributable to non-controlling
interest
Other comprehensive loss, net of tax
Dividends
Stock-based compensation
Shares purchased and retired
Shares issued
Equal exchange
Balance, November 30, 2019
See Notes to Consolidated Financial Statements.
Retained
Earnings
$1,056.8
477.4
—
—
(247.0)
0.6
—
—
(121.3)
—
—
$1,166.5
933.4
—
—
(280.5)
20.9
(12.4)
—
(67.7)
—
—
$1,084.2
—
—
—
—
—
23.9
554.0
(23.8)
34.6
—
$1,672.9
—
—
—
—
—
—
25.6
(16.8)
88.9
—
$ (514.4)
—
—
234.9
—
—
—
—
—
—
—
$ (279.5)
—
—
(59.5)
—
(20.9)
—
—
—
—
—
$ (359.9)
(0.4)
0.1
1.8
(0.3)
1.7
(1.8)
9.6
(0.2)
1.5
(1.6)
9.3
122.5
$1,770.6
$1,760.2
—
702.7
—
—
—
—
37.2
(15.4)
96.2
—
—
—
(309.3)
—
(97.8)
—
—
—
(140.3)
—
—
—
—
—
(0.6)
0.1
1.6
$ 11.5
—
1.6
(0.4)
—
(1.7)
—
—
—
—
—
$ 11.0
—
3.3
(2.6)
—
—
(0.4)
—
—
—
—
$ 11.3
—
1.9
(0.7)
—
—
—
—
—
$ 1,638.1
477.4
1.6
234.5
(247.0)
(1.1)
23.9
554.0
(145.1)
34.6
—
$ 2,570.9
933.4
3.3
(62.1)
(280.5)
—
(12.8)
25.6
(84.5)
88.9
—
$ 3,182.2
702.7
1.9
(141.0)
(309.3)
37.2
(113.2)
96.2
—
123.6
$1,888.6
$2,055.8
$ (500.2)
$ 12.5
$ 3,456.7
2019 Annual Report 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The financial statements include the accounts of our majority-owned
or controlled subsidiaries and affiliates. Intercompany transactions
have been eliminated. Investments in unconsolidated affiliates, over
which we exercise significant influence, but not control, are accounted
for by the equity method. Accordingly, our share of net income or loss
of unconsolidated affiliates is included in net income.
Foreign Currency Translation
For majority-owned or controlled subsidiaries and affiliates, if located
outside of the U.S., with functional currencies other than the U.S. dol-
lar, asset and liability accounts are translated at the rates of exchange
at the balance sheet date and the resultant translation adjustments
are included in accumulated other comprehensive income (loss), a sep-
arate component of shareholders’ equity. Income and expense items
are translated at average monthly rates of exchange. Gains and losses
from foreign currency transactions of these majority-owned or con-
trolled subsidiaries and affiliates—that is, transactions denominated
in other than their functional currency—are included in net earnings.
Our unconsolidated affiliates located outside the U.S. generally use
their local currencies as their functional currencies. The asset and
liability accounts of those unconsolidated affiliates are translated at
the rates of exchange at the balance sheet date, with the resultant
translation adjustments included in accumulated other comprehensive
income (loss) of those affiliates. Income and expense items of those
affiliates are translated at average monthly rates of exchange. We
record our ownership share of the net assets and accumulated other
comprehensive income (loss) of our unconsolidated affiliates in our
consolidated balance sheet on the lines entitled “Other long-term
assets” and “Accumulated other comprehensive loss,” respectively.
We record our ownership share of the net income of our unconsolidat-
ed affiliates in our consolidated income statement on the line entitled
“Income from unconsolidated operations.”
Use of Estimates
Preparation of financial statements that follow accounting principles
generally accepted in the U.S. requires us to make estimates and
assumptions that affect the amounts reported in the financial statements
and notes. Actual amounts could differ from these estimates.
Cash and Cash Equivalents
All highly liquid investments purchased with an original maturity of
three months or less are classified as cash equivalents.
Inventories
Inventories are stated at the lower of cost or net realizable value.
Cost is determined under the first-in, first-out costing method (FIFO),
including the use of average costs which approximate FIFO.
Property, Plant and Equipment
Property, plant and equipment is stated at historical cost and depreciated
over its estimated useful life using the straight-line method for financial
reporting and both accelerated and straight-line methods for tax report-
ing. The estimated useful lives range from 20 to 50 years for buildings
and 3 to 12 years for machinery, equipment and other assets. Assets
leased under capital leases are depreciated over the shorter of the lease
term or their useful lives unless it is reasonably certain that we will
obtain ownership by the end of the lease term. Repairs and maintenance
costs are expensed as incurred.
60 McCormick & Company, Inc.
Computer Software
We capitalize costs of software developed or obtained for internal
use. Capitalized software development costs include only (1) direct
costs paid to others for materials and services to develop or buy the
software, (2) payroll and payroll-related costs for employees who work
directly on the software development project and (3) interest costs
while developing the software. Capitalization of these costs stops
when the project is substantially complete and ready for use.
The net book value of capitalized software totaled $76.4 million and
$43.6 million at November 30, 2019 and 2018, respectively. Such
amounts are recorded within “Other long-term assets” in the consol-
idated balance sheet. Software is amortized using the straight-line
method over a range of 3 to 13 years, but not exceeding the expected
life of the product. The net book value of capitalized software includes
$44.9 million and $9.3 million at November 30, 2019 and 2018, respec-
tively, which had not yet been placed into service and relates to our
future implementation of a global enterprise resource planning (ERP)
system.
Goodwill and Other Intangible Assets
We review the carrying value of goodwill and indefinite-lived intan-
gible assets and conduct tests of impairment on an annual basis as
described below. We also test goodwill 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 and test indefinite-lived
intangible assets for impairment if events or changes in circumstances
indicate that the asset might be impaired. Separable intangible assets
that have finite useful lives are amortized over those lives.
Determining the fair value of a reporting unit or an indefinite-lived
purchased intangible asset is judgmental in nature and involves the
use of significant estimates and assumptions. These estimates and
assumptions include revenue growth rates and operating margins used
to calculate projected future cash flows, risk-adjusted discount rates,
assumed royalty rates, future economic and market conditions and
determination of appropriate market comparables. We base our fair
value estimates on assumptions we believe to be reasonable but that
are unpredictable and inherently uncertain. Actual future results may
differ from these estimates.
Goodwill Impairment
Our reporting units used to assess potential goodwill impairment are
the same as our business segments. We calculate fair value of a report-
ing unit by using a discounted cash flow model and then compare that
to the carrying amount of the reporting unit, including intangible assets
and goodwill. If the carrying amount of the reporting unit exceeds
the calculated fair value, then we would determine the implied fair
value of the reporting unit’s goodwill. An impairment charge would be
recognized to the extent the carrying amount of goodwill exceeds the
implied fair value.
Indefinite-lived Intangible Asset Impairment
Our indefinite-lived intangible assets consist of brand names
and trademarks. We primarily determine fair value by using a
relief-from-royalty method and then compare that to the carrying
amount of the indefinite-lived intangible asset. If the carrying amount
of the indefinite-lived intangible asset exceeds its fair value, an
impairment charge would be recorded to the extent the recorded
indefinite-lived intangible asset exceeds the fair value.
Long-lived Asset Impairment
Fixed assets and amortizable intangible assets are reviewed for
impairment as events or changes in circumstances occur indicating
that the carrying value of the asset may not be recoverable.
Undiscounted cash flow analyses are used to determine if an
impairment exists. If an impairment is determined to exist, the loss
would be calculated based on the excess of the asset’s carrying value
over its estimated fair value.
Revenue Recognition
We manufacture, market and distribute spices, seasoning mixes,
condiments and other flavorful products to the entire food
industry—retailers, food manufacturers and foodservice business-
es. We recognize sales as performance obligations are fulfilled
when control passes to the customer. Revenues are recorded net of
trade and sales incentives and estimated product returns. Known
or expected pricing or revenue adjustments, such as trade dis-
counts, rebates and returns, are estimated at the time of sale. Any
taxes collected on behalf of government authorities are excluded
from net sales. We account for product shipping and handling as
fulfillment activities with costs for these activities recorded within
cost of goods sold. Amounts billed and due from our customers are
classified as accounts receivable on the balance sheet and require
payment on a short-term basis. Our allowance for doubtful accounts
represents our estimate of probable non-payments and credit losses
in our existing receivables, as determined based on a review of past
due balances and other specific account data.
The following table sets forth our net sales by the Americas, Europe,
Middle East and Africa (EMEA) and Asia Pacific (APAC) geographic
regions:
(millions)
2019
Net sales
2018
Net sales
2017
Net sales
Americas
EMEA
APAC
Total
$3,711.3
$ 986.1
$650.0
$5,347.4
$3,627.5
$1,021.1
$654.2
$5,302.8
$3,179.6
$ 948.9
$601.8
$4,730.3
Performance Obligations
Our revenues primarily result from contracts or purchase orders with
customers, which generally are both short-term in nature and have a
single performance obligation—the delivery of our products to cus-
tomers. We assess the goods and services promised in our customers’
contracts or purchase orders and identify a performance obligation
for each promise to transfer a good or service (or bundle of goods or
services) that is distinct. To identify the performance obligations, we
consider all the goods or services promised, whether explicitly stated
or implied based on customary business practices.
Significant Judgments
Sales are recorded net of trade and sales incentives and estimated
product returns. 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 regard-
ing 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. The adjustments recognized
during the year ended November 30, 2019 and 2018 resulting from
updated estimates of revenue for prior year product sales were not
significant. The unsettled portion remaining in accrued liabilities for
these activities was $137.2 million and $142.1 million at November 30,
2019 and 2018, respectively.
Practical Expedients
We have elected the following policy elections and practical expedi-
ents with respect to revenue recognition:
• Shipping and handling costs—We elected to account for shipping
and handling activities that occur before the customer has
obtained control of a good as fulfillment activities (i.e., an
expense) rather than as a promised service.
• Measurement of transaction price—We elected to exclude from
the measurement of transaction price all taxes assessed by a gov-
ernmental authority that are both imposed on and concurrent with
a specific revenue-producing transaction and collected by us from
a customer for sales, value added and other excise taxes.
• Incremental cost of obtaining a contract—We elected to expense
any incremental costs of obtaining a contract when the contract is
for a period of one year or less.
Shipping and Handling
Shipping and handling costs on our products sold to customers related
to activities that occur before the customer has obtained control of
a good are included in cost of goods sold in the consolidated income
statement.
Brand Marketing Support
Total brand marketing support costs, which are included in selling,
general and administrative expense in the consolidated income
statement, were $214.6 million, $218.7 million and $172.5 million for
2019, 2018 and 2017, respectively. Brand marketing support costs
include advertising and promotions but exclude trade funds paid to
customers for such activities. All trade funds paid to customers are
reflected in the consolidated income statement as a reduction of net
sales. Promotion costs include public relations, shopper marketing,
social marketing activities, general consumer promotion activities and
depreciation of assets used in these promotional activities. Advertis-
ing costs include the development, production and communication of
advertisements through television, digital, print and radio. Develop-
ment and production costs are expensed in the period in which the
advertisement is first run. All other costs of advertising are expensed
as incurred. Advertising expense was $150.8 million, $147.2 million
and $117.8 million for 2019, 2018 and 2017, respectively.
Research and Development
Research and development costs are expensed as incurred and are
included in selling, general and administrative expense in the consol-
idated income statement. Research and development expense was
$67.3 million, $69.4 million and $66.1 million for 2019, 2018 and 2017,
respectively.
Derivative Instruments
We record all derivatives on the balance sheet at fair value. The fair
value of derivative instruments is recorded in other current assets,
other long-term assets, other accrued liabilities or other long-term
liabilities. Gains and losses representing either hedge ineffectiveness,
hedge components excluded from the assessment of effectiveness, or
hedges of translational exposure are recorded in the consolidated
income statement in other income (expense), net or in interest
2019 Annual Report 61
Accounting Pronouncements Adopted in 2019
We adopted ASU No. 2014-09 Revenue from Contracts with Customers
(Topic 606) (the “Revenue Recognition ASU”), ASU No. 2017-07 Compen-
sation—Retirement Benefits (Topic 715)—Improving the Presentation
of Net Periodic Pension Cost and Net Periodic Postretirement Benefit
Cost (the “Pension ASU”), and ASU No. 2017-12 Derivatives and Hedg-
ing (Topic 815)—Targeted Improvements to Accounting for Hedging
Activities. We elected to adopt the Revenue Recognition ASU on a full
retrospective basis. We adopted the Pension ASU on a retrospective
basis as required by the standard. These new accounting standards
are summarized below.
In May 2014, the FASB issued the Revenue Recognition ASU, which
supersedes previously existing revenue recognition guidance. Under
this new guidance, companies apply a principles-based five-step model
to recognize revenue upon the transfer of promised goods or services
to customers in an amount that reflects the consideration for which
the company expects to be entitled to in exchange for those goods or
services. The model encompasses the following steps: (1) determi-
nation of whether a contract—an agreement between two or more
parties that creates legally enforceable rights and obligations—exists;
(2) identification of the performance obligations in the contract; (3)
determination of the transaction price; (4) allocation of the transaction
price to the performance obligations in the contract; and (5) recogni-
tion of revenue when (or as) the performance obligation is satisfied.
The new revenue recognition guidance allows companies to account
for shipping and handling activities that occur before and after the
customer has obtained control of a product as fulfillment activities
rather than as a promised service; and we applied this accounting
policy election. In addition, the new revenue guidance requires that
customer payments be accounted for as a reduction in the transaction
price unless the payment to a customer is in exchange for a distinct
good or service. The adoption of this standard did not have and is not
expected to have an effect on the timing of our revenue recognition.
There was no effect on operating income, net income, or basic and
diluted earnings per share upon our adoption of the Revenue Recogni-
tion ASU in 2019.
In March 2017, the FASB issued the Pension ASU. This guidance
revises how employers that sponsor defined benefit pension and other
postretirement plans present the net periodic benefit cost in their
income statement and requires that the service cost component of net
periodic benefit cost be presented in the same income statement line
items as other employee compensation costs from services rendered
during the period. Of the components of net periodic benefit cost, only
the service cost component is eligible for asset capitalization. The
other components of the net periodic benefit cost must be presented
separately from the line items that include the service cost and outside
of any subtotal of operating income on the income statement. The new
standard was adopted as of December 1, 2018 and has been applied
on a retrospective basis. Adoption of the new standard solely impact-
ed classification within our consolidated income statement, with no
change to net income or basic and diluted earnings per share.
The adoption of the Revenue Recognition ASU and the Pension ASU,
on a retrospective basis, impacted our previously reported results for
the years ended November 30, 2018 and 2017 as follows:
expense. In the consolidated cash flow statement, settlements of
cash flow and fair value hedges are classified as operating activities;
settlements of all other derivative instruments, including instruments
for which hedge accounting has been discontinued, are classified
consistent with the nature of the instruments.
Cash flow hedges. Qualifying derivatives are accounted for as cash
flow hedges when the hedged item is a forecasted transaction.
Gains and losses on these instruments are recorded in accumulated
other comprehensive income (loss) until the underlying transaction
is recorded in earnings. When the hedged item is realized, gains or
losses are reclassified from accumulated other comprehensive income
(loss) to the consolidated income statement on the same line item as
the underlying transaction.
Fair value hedges. Qualifying derivatives are accounted for as fair
value hedges when the hedged item is a recognized asset, liability, or
firm commitment. Gains and losses on these instruments are recorded
in earnings, offsetting gains and losses on the hedged item.
Net investment hedges. Qualifying derivative and nonderivative
financial instruments are accounted for as net investment hedges
when the hedged item is a nonfunctional currency investment in
a subsidiary. Gains and losses on these instruments are included
in foreign currency translation adjustments in accumulated other
comprehensive income (loss).
Employee Benefit and Retirement Plans
We sponsor defined benefit pension plans in the U.S. and certain
foreign locations. In addition, we sponsor defined contribution plans
in the U.S. We contribute to defined contribution plans in locations
outside the U.S., including government-sponsored retirement plans.
We also currently provide postretirement medical and life insurance
benefits to certain U.S. employees and retirees. During fiscal years
2018 and 2017 we made significant changes to our employee benefit
and retirement plans as discussed in note 10.
We recognize the overfunded or underfunded status of our defined
benefit pension plans as an asset or a liability in the balance sheet,
with changes in the funded status recorded through other comprehen-
sive income in the year in which those changes occur.
The expected return on plan assets is determined using the expected
rate of return and a calculated value of plan assets referred to as the
market-related value of plan assets. Differences between assumed
and actual returns are amortized to the market-related value of assets
on a straight-line basis over five years.
We use the corridor approach in the valuation of defined benefit
pension and postretirement benefit plans. The corridor approach defers
all actuarial gains and losses resulting from variances between actual
results and actuarial assumptions. Those unrecognized gains and
losses are amortized when the net gains and losses exceed 10% of
the greater of the market-related value of plan assets or the projected
benefit obligation at the beginning of the year. The amount in excess
of the corridor is amortized over the average remaining life expectancy
of retired plan participants, for plans whose benefits have been frozen,
or the average remaining service period to retirement date of active
plan participants.
62 McCormick & Company, Inc.
(in millions)
For the year ended
November 30, 2018:
Net sales
Cost of goods sold
Gross profit
Selling, general
and admin-
istrative
expense
Operating income
Other income, net
For the year ended
November 30, 2017:
Net sales
Cost of goods sold
Gross profit
Selling, general
and admin-
istrative
expense
Operating income
Other income, net
Accounting Changes
Previously
Reported
Revenue
Recognition
Pension
Recast
$5,408.9
3,037.3
2,371.6
1,429.5
903.3
12.6
$4,834.1
2,823.9
2,010.2
1,244.8
702.4
3.5
$(106.1)
169.5
$ — $5,302.8
3,209.5
2.7
(275.6)
(2.7)
2,093.3
(275.6)
—
—
9.5
(12.2)
12.2
1,163.4
891.1
24.8
$(103.8)
111.0
$ — $4,730.3
2,936.3
1.4
(214.8)
(1.4)
1,794.0
(214.8)
—
—
1.2
(2.6)
2.6
1,031.2
699.8
6.1
We adopted the following new accounting standards in 2019 on a
prospective basis:
In August 2017, the FASB issued ASU No. 2017-12 Derivatives and
Hedging (Topic 815)—Targeted Improvements to Accounting for Hedg-
ing Activities. This guidance eliminates the requirement to separately
measure and report hedge ineffectiveness and generally requires, for
qualifying hedges, the entire change in the fair value of a hedging
instrument to be presented in the same income statement line as the
hedged item. The guidance also modifies the accounting for compo-
nents excluded from the assessment of hedge effectiveness, eases
documentation and assessment requirements and modifies certain dis-
closure requirements. The new standard is effective for the first quarter
of our fiscal year ending November 30, 2020, with early adoption per-
mitted in any interim period or fiscal year before the effective date. We
have elected to adopt this guidance effective December 1, 2018. There
was no material impact to our financial statements upon adoption.
In October 2016, the FASB issued ASU No. 2016-16 Accounting for
Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inven-
tory. The ASU eliminates the deferral of the tax effects of intra-entity
asset transfers other than inventory. As a result, the tax expense from
the intercompany sale of assets, other than inventory, and associated
changes to deferred taxes will be recognized when the sale occurs
even though the pre-tax effects of the transaction have not been
recognized. This new standard was effective beginning in fiscal year
2019 and was required to be applied on a modified retrospective basis
through a cumulative-effect adjustment to retained earnings as of the
first day of fiscal year 2019. There was no cumulative-effect adjust-
ment upon adoption. During the year ended November 30, 2019, we
recognized a discrete tax benefit of $15.2 million under the provisions
of this standard. The on-going effect of the adoption of the standard
will depend on the nature and amount of future transactions.
In January 2017, the FASB issued ASU No. 2017-01 Business Com-
binations (Topic 805)—Clarifying the Definition of a Business. This
guidance changes the definition of a business to assist entities in
evaluating when a set of transferred assets and activities constitutes
a business. The guidance requires an entity to evaluate if substantially
all of the fair value of the gross assets acquired is concentrated in
a single identifiable asset or a group of similar identifiable assets; if
so, the set of transferred assets and activities is not a business. The
guidance also requires a business to include at least one substantive
process and narrows the definition of outputs by more closely aligning
it with how outputs are described in the Revenue Recognition ASU.
The new standard was effective beginning in fiscal year 2019. There
was no material impact to our financial statements upon adoption.
In August 2018, the FASB issued ASU No. 2018-15 Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement That Is a Services Contract. The ASU aligns the require-
ment for capitalization of implementation costs incurred in a cloud
hosting arrangement with the requirements for capitalizing implemen-
tation costs incurred to develop or obtain internal use software. The
new standard is effective for the first quarter of our fiscal year ending
November 30, 2021, with early adoption permitted in any interim
period or fiscal year before the effective date. We have elected to
adopt this guidance effective December 1, 2018. In conjunction with
the adoption of this ASU, we classify capitalized software within other
long-term assets and have reclassified prior periods for consistent
presentation. Previously, we classified capitalized software within
property, plant and equipment.
In August 2018, the U.S. Securities and Exchange Commission (“SEC”)
adopted the final rule under SEC Release No. 33-10532 Disclosure
Update and Simplification, to eliminate or modify certain disclosure
rules that are redundant, outdated, or duplicative of U.S. GAAP or
other regulatory requirements. Among other changes, the amendments
eliminated the annual requirement to disclose the high and low trading
prices of our common stock.
Recently Issued Accounting Pronouncements—Pending Adoption
In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic
842). This guidance revises existing practice related to accounting for
leases under Accounting Standards Codification Topic 840 Leases (ASC
840) for both lessees and lessors. Our leases principally relate to: (i)
certain real estate, including that related to a number of administra-
tive, distribution and manufacturing locations; (ii) certain machinery
and equipment, including forklifts; and (iii) certain automobiles,
delivery and other vehicles, including an airplane. The new guidance
in ASU No. 2016-02 requires lessees to recognize a right-of-use asset
and a lease liability for virtually all leases (other than leases that meet
the definition of a short-term lease). The lease liability will be equal
to the present value of lease payments and the right-of-use asset will
be based on the lease liability, subject to adjustment such as for initial
direct costs. For income statement purposes, the new standard retains
a dual model similar to ASC 840, requiring leases to be classified as
either operating or finance. For lessees, operating leases will result
in straight-line expense (similar to current accounting by lessees for
operating leases under ASC 840) while finance leases will result in a
front-loaded expense pattern (similar to current accounting by lessees
for capital leases under ASC 840). In July 2018, the FASB issued ASU
No. 2018-11 Leases (Topic 842) Targeted Improvements which provides
a modified retrospective transition method that allows entities to
initially apply the new standard at the adoption date and recognize
2019 Annual Report 63
a cumulative-effect adjustment to the opening balance of retained
earnings in the period of adoption without restating prior periods.
We will adopt the standard using a modified retrospective approach as
of December 1, 2019, the first day of our fiscal year 2020. We will elect
the package of practical expedients permitted under the transition
guidance, which among other things, allows us to retain the historical
lease classification. In addition, we will elect to combine the lease and
non-lease components for all asset categories other than real estate.
We will also make an accounting policy election to exclude from
balance sheet reporting those leases with initial terms of 12 months or
less (short-term leases).
We estimate that adoption of the standard will result in recognition of
operating lease right-of-use assets and lease liabilities of approxi-
mately $135 million and $140 million, respectively, with the difference
largely due to deferred rent that will be reclassified to the right-of-use
asset value. We do not expect adoption of the standard to materially
affect our consolidated net income or cash flows.
In January 2017, the FASB issued ASU No. 2017-04 Intangibles—
Goodwill and Other Topics (Topic 350)—Simplifying the Test for Good-
will Impairment. This guidance eliminates the requirement to calculate
the implied fair value of goodwill of a reporting unit to measure a
goodwill impairment charge. Instead, a company will record an impair-
ment charge based on the excess of a reporting unit’s carrying amount
over its fair value. The new standard will be effective for the first
quarter of our fiscal year ending November 30, 2021. Early adoption is
permitted for all entities for annual and interim goodwill impairment
testing dates after January 1, 2017. We currently do not expect this
guidance to have a material impact on our financial statements.
In June 2016, the FASB issued ASU No. 2016-13 Financial Instru-
ments—Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments, which institutes a new model for recognizing
credit losses on financial instruments that are not measured at fair
value. The new standard is effective for the first quarter of our fiscal
year ending November 30, 2021, and we anticipate that it will primar-
ily impact our credit losses recognized for trade accounts receivable.
While we are currently evaluating the effect that ASU No. 2016-13
will have on our consolidated financial statements, we do not expect
this guidance to have a material impact.
2. ACQUISITIONS
Acquisitions are part of our strategy to increase sales and profits.
Acquisition of RB Foods
On August 17, 2017, we completed the acquisition of Reckitt Benckiser’s
Food Division (“RB Foods”) from Reckitt Benckiser Group plc. The
purchase price was approximately $4.21 billion, net of acquired cash
of $24.3 million. In December 2017, we paid $4.2 million associated
with the final working capital adjustment. The acquisition was funded
through our issuance of approximately 6.35 million shares of common
stock non-voting (see note 13) and through new borrowings comprised
of senior unsecured notes and pre-payable term loans (see note 6). The
acquired market-leading brands of RB Foods include French’s®, Frank’s
RedHot® and Cattlemen’s®, which are a natural strategic fit with our
robust global branded flavor portfolio. We believe that these additions
move us to a leading position in the attractive U.S. Condiments cate-
gory and provide significant international growth opportunities for our
consumer and flavor solutions segments. At the time of the acquisition,
64 McCormick & Company, Inc.
annual sales of RB Foods were approximately $570 million. The trans-
action was accounted for under the acquisition method of accounting
and, accordingly, the results of RB Foods’ operations are included in
our consolidated financial statements as a component of our consumer
and flavor solutions segments from the date of acquisition.
We valued finished goods and work-in-process inventory using a net
realizable value approach, which resulted in a step-up of $20.9 mil-
lion that was recognized in cost of goods sold in 2017 as the related
inventory was sold. Raw materials and packaging inventory was
valued using the replacement cost approach.
Total transaction and integration expenses related to the RB Foods
acquisition aggregated $99.6 million in 2018 and 2017, of which
$59.8 million and $39.8 million represented transaction expenses
and integration expenses, respectively. These costs primarily consist
of the amortization of the acquisition-date fair value adjustment of
inventories in the amount of $20.9 million that is included in cost of
goods sold for 2017; outside advisory, service and consulting costs;
employee-related costs; and other costs related to the acquisition,
including $15.4 million of costs related to the bridge financing com-
mitment that was included in other debt costs for 2017. The following
are the transaction and integration expenses related to the RB Foods
acquisition that we have recorded for the years ended November 30
(in millions):
Transaction expenses included in cost of goods sold
Transaction expenses included in other debt costs
Other transaction expenses
Integration expenses
Total
2018
$ —
—
0.3
22.2
$22.5
2017
$20.9
15.4
23.2
17.6
$77.1
The incremental impact to our sales from RB Foods was $190.1 million
for 2017. The impact of RB Foods on our 2017 consolidated income
before taxes, including the effect of the transaction and integration
expenses previously noted, and financing costs was a loss of approxi-
mately $42 million.
Other Acquisitions
On September 21, 2018, we purchased the remaining 10% ownership
interest in our Shanghai subsidiary for a cash payment of $12.7 million
In conjunction with our purchase of this remaining 10% minority
interest, we have eliminated the minority interest in that subsidiary
and recorded an adjustment of $12.4 million to retained earnings in
our consolidated balance sheet. The $12.7 million payment is reflected
in the financing activities section of our consolidated cash flow state-
ment for 2018.
On May 5, 2017, we purchased the remaining 15% ownership interest
in our joint venture, Kohinoor Specialty Foods India Private Limited
(Kohinoor), in India for a cash payment of $1.5 million, of which $1.2
million was paid in 2017 and the balance was paid in 2018. In September
2011, when we originally entered this joint venture, we invested
$113.0 million for an 85% interest in Kohinoor. In conjunction with our
purchase of the 15% minority interest in 2017, we have eliminated
the minority interest in Kohinoor and recorded an adjustment of $0.6
million to retained earnings in our consolidated balance sheet. The
$0.3 million and $1.2 million payments are reflected in the financing
activities section of our consolidated cash flow statement for 2018 and
2017, respectively.
On December 15, 2016, we purchased 100% of the shares of Enrico
Giotti SpA (Giotti), a leading European flavor manufacturer located
in Italy, for a purchase price of $123.8 million (net of cash acquired
of $1.2 million). The acquisition was funded with cash and short-term
borrowings. Giotti is well known in the industry for its innovative bev-
erage, sweet, savory and dairy flavor applications. At the time of the
acquisition, annual sales of Giotti were approximately €53 million. Our
acquisition of Giotti in fiscal 2017 expands the breadth of value-added
products for McCormick’s flavor solutions segment, including addition-
al expertise in flavoring health and nutrition products. Giotti has been
included in our flavor solutions segment since its acquisition.
3. SPECIAL CHARGES
In our consolidated income statement, we include a separate line item
captioned “special charges” in arriving at our consolidated operat-
ing 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 inven-
tory 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. In 2018, we also included in special charges,
as approved by our Management Committee, expense associated with
a one-time payment, made to eligible U.S. hourly employees, to dis-
tribute a portion of the non-recurring net income tax benefit recognized
in connection with the enactment of the U.S. Tax Act and as more fully
described in note 12.
The following is a summary of special charges recognized for the years
ended November 30 (in millions):
Employee severance and related benefits
Other costs(1)
Total special charges
2019
2018
2017
$ 6.2
14.6
$ 2.0
14.3
$ 8.3
13.9
$20.8
$16.3
$22.2
(1) Included in other costs for 2018 and 2017 are non-cash fixed asset impairment
charges of $3.0 million and $0.5 million, respectively.
The following is a summary of special charges by business segments
for the years ended November 30 (in millions):
Consumer segment
Flavor solutions segment
Total special charges
2019
2018
2017
$ 13.1
7.7
$ 10.0
6.3
$ 15.3
6.9
$ 20.8
$ 16.3
$ 22.2
We continue to evaluate changes to our organization structure to
reduce fixed costs, simplify or improve processes, and improve our
competitiveness.
During 2019, we recorded $20.8 million of special charges, consisting
primarily of (i) $14.1 million related to our GE initiative, including $10.6
million of third-party expenses, $2.1 million related to severance
and related benefits, and $1.4 million related to other costs, (ii) $2.3
million of employee severance and related benefits associated with
streamlining actions in the Americas and (iii) $3.9 million related to
streamlining actions in our EMEA region.
Of the $20.8 million in special charges recorded during 2019, approx-
imately $16.8 million were paid in cash, with the remaining accrual
expected to be paid in 2020.
During 2018, we recorded $16.3 million of special charges, consist-
ing primarily of: (i) $11.5 million related to our global enablement
initiative, as more fully described below; (ii) a one-time payment,
in the aggregate amount of $2.2 million made to certain U.S. hourly
employees to distribute a portion of the non-recurring net income tax
benefit recognized in connection with the enactment of the U.S. Tax
Act; (iii) $1.0 million related to employee severance benefits and other
costs directly associated with the relocation of one of our Chinese
manufacturing facilities; and (iv) $1.6 million related to employee
severance benefits and other costs related to the transfer of certain
manufacturing operations in our Asia/Pacific region to a new facility
then under construction in Thailand. Of the $11.5 million in special
charges recognized in 2018 related to our GE initiative, $7.5 million
related to third party expenses, $3.0 million represented a non-cash
asset impairment charge, and $1.0 million related to employee sev-
erance benefits. That non-cash asset impairment charge was related
to the write-off of certain software assets that are incompatible with
our future move, approved in 2018, to a new global ERP platform to
facilitate planned actions under our GE initiative to align and simplify
our end-to-end processes to support our future growth.
Of the $16.3 million in special charges recorded during 2018, approxi-
mately $12.3 million were paid in cash and $3.0 million represented a
non-cash asset impairment, with the remaining accrual paid in 2019.
As of November 30, 2019, reserves associated with special charges
are included in accounts payable and other accrued liabilities in our
consolidated balance sheet.
During 2017, we recorded $22.2 million of special charges, consisting
primarily of (i) $12.7 million related to third party expenses incurred
associated with our evaluation of changes relating to our global
enablement initiative, which is described below; (ii) $2.8 million relat-
ed to employee severance benefits and other costs directly associated
with the relocation of one of our Chinese manufacturing facilities;
(iii) $2.5 million for severance and other exit costs associated with
our Europe, Middle East, and Africa (EMEA) region’s closure of its man-
ufacturing plant in Portugal in mid-2017; and (iv) $1.7 million related to
employee severance benefits and other costs associated with action
related to the transfer of certain manufacturing operations in our Asia/
Pacific region to a new facility then under construction in Thailand.
During 2017, our Management Committee approved a multi-year
initiative during which we expect to execute significant changes to
our global processes, capabilities and operating model to provide a
2019 Annual Report 65
scalable platform for future growth. We expect this initiative to enable
us to accelerate our ability to work globally and cross-functionally
by aligning and simplifying processes throughout McCormick, in part
building upon our current shared services foundation and expanding
the end-to-end processes presently under that foundation. We expect
this initiative, which we refer to as Global Enablement (GE), to enable
this scalable platform for future growth while reducing costs, enabling
faster decision making, increasing agility and creating capacity within
our organization.
While we are continuing to fully develop the details of our GE operat-
ing model, we expect the cost of the GE initiative—to be recognized
as “Special charges” in our consolidated income statement over its
multi-year course—to range from approximately $60 million to $65
million. Of that $60 million to $65 million, we estimate that approxi-
mately sixty percent will be attributable to cash payments associated
with related costs of GE implementation and transition, including
outside consulting and other costs and approximately forty percent will
be attributable to employee severance and related benefit payments
both directly related to the initiative. We incurred $14.1 million, $11.5
million and $12.7 million of special charges associated with our GE
initiative during 2019, 2018 and 2017, respectively.
4. GOODWILL AND INTANGIBLE ASSETS
The following table displays intangible assets as of November 30:
2019
2018
Gross
carrying
amount
Accumulated
amortization
Gross
carrying
amount
Accumulated
amortization
(millions)
Definite-lived
intangible assets
$ 308.3
$ 104.3
$ 311.3
$ 84.9
Indefinite-lived
intangible assets:
Goodwill
Brand names and
trademarks
Total goodwill and
intangible assets
4,505.2
2,643.0
7,148.2
—
—
—
4,527.9
2,646.9
7,174.8
—
—
—
$ 7,456.5
$ 104.3
$ 7,486.1
$ 84.9
Intangible asset amortization expense was $20.3 million, $20.6 million
and $16.3 million for 2019, 2018 and 2017, respectively. At November 30,
2019, definite-lived intangible assets had a weighted-average remaining
life of approximately 10 years.
The changes in the carrying amount of goodwill by segment for the
years ended November 30 were as follows:
2019
2018
(millions)
Consumer
Flavor
Solutions
Consumer
Flavor
Solutions
Beginning of year
Changes in preliminary
purchase price
allocation
Foreign currency
fluctuations
$ 3,398.9
$1,129.0
$3,385.4
$ 1,104.7
—
—
68.1
(21.3)
(1.4)
(54.6)
34.1
(9.8)
End of year
$ 3,377.6
$1,127.6
$3,398.9
$1,129.0
66 McCormick & Company, Inc.
In 2018, we finalized our valuation of the acquired net assets of RB
Foods, resulting in the allocation of $1,765.6 million and $882.9 million
of goodwill to the consumer and flavor solutions segment, respectively.
5. INVESTMENTS IN AFFILIATES
Summarized annual and year-end information from the financial
statements of unconsolidated affiliates representing 100% of the
businesses follows:
(millions)
Net sales
Gross profit
Net income
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
2019
$863.0
316.2
90.5
$426.3
134.0
223.8
9.2
2018
2017
$ 807.9
290.5
78.9
$ 342.1
129.9
172.1
10.0
$ 775.4
278.5
75.5
$ 315.4
127.6
146.9
13.6
Our share of undistributed earnings of unconsolidated affiliates was
$150.6 million at November 30, 2019. Royalty income from unconsol-
idated affiliates was $19.0 million, $18.5 million and $17.5 million for
2019, 2018 and 2017, respectively.
Our principal earnings from unconsolidated affiliates is from our 50%
interest in McCormick de Mexico, S.A. de C.V. Profit from this joint
venture represented 72% of income from unconsolidated operations in
2019, 76% in 2018 and 74% in 2017.
As of November 30, 2019, undistributed earnings of investments in
unconsolidated affiliates for which we have not provided deferred
income tax liabilities would not be material.
6. FINANCING ARRANGEMENTS
Our outstanding debt, including capital leases, was as follows at
November 30:
(millions)
Short-term borrowings
Commercial paper
Other
2019
2018
$ 575.3
25.4
$ 600.7
$ 509.9
50.1
$ 560.0
Weighted-average interest rate of short-term
borrowings at year-end
2.5%
2.9%
Long-term debt
Term loan due 8/17/2020(1)
3.90% notes due 7/8/2021(2)
2.70% notes due 8/15/2022
Term loan due 8/17/2022(1)
3.50% notes due 8/19/2023(3)
3.15% notes due 8/15/2024
3.25% notes due 11/15/2025(4)
3.40% notes due 8/15/2027(5)
4.20% notes due 8/15/2047
7.63%–8.12% notes due 2024
Other, including capital leases
Unamortized discounts, premiums, debt
$ —
250.0
750.0
250.0
250.0
700.0
250.0
750.0
300.0
55.0
171.6
$ 130.0
250.0
750.0
556.3
250.0
700.0
250.0
750.0
300.0
55.0
180.5
issuance costs and fair value adjustments(6)
(3.1)
(35.4)
Less current portion
3,723.5
97.7
4,136.4
83.5
$3,625.8
$4,052.9
(1) The term loans are prepayable in whole or in part. Also, the term loan due in 2022
requires quarterly principal payments of 2.5% of the initial principal amount.
(2) Interest rate swaps, settled upon the issuance of these notes in 2011, effectively set
the interest rate on the $250 million notes at a weighted-average fixed rate of 4.01%.
(3) Interest rate swaps, settled upon the issuance of these notes in 2013, effectively
set the interest rate on the $250 million notes at a weighted-average fixed rate of
3.30%.
(4) Interest rate swaps, settled upon the issuance of these notes in 2015, effectively
set the interest rate on the $250 million notes at a weighted-average fixed rate of
3.45%. The fixed interest rate on $100 million of the 3.25% notes due in 2025 is
effectively converted to a variable rate by interest rate swaps through 2025. Net
interest payments are based on 3-month LIBOR plus 1.22% during this period (our
effective rate as of November 30, 2019 was 3.13%).
(5) Interest rate swaps, settled upon the issuance of these notes in 2017, effectively
set the interest rate on the $750 million notes at a weighted-average fixed rate
of 3.44%. The fixed interest rate on $250 million of the 3.40% notes due in 2027 is
effectively converted to a variable rate by interest rate swaps through 2027. Net
interest payments are based on 3-month LIBOR plus 0.685% during this period (our
effective rate as of November 30, 2019 was 2.59%).
(6) Includes unamortized discounts, premiums and debt issuance costs of $(23.6) million
and $(29.0) million as of November 30, 2019 and 2018, respectively. Includes fair
value adjustment associated with interest rate swaps designated as fair value hedges
of $20.5 million and $(6.4) million as of November 30, 2019 and 2018, respectively.
Maturities of long-term debt, including capital leases, during the fiscal
years subsequent to November 30, 2019 are as follows (in millions):
2020
2021
2022
2023
2024
Thereafter
$ 97.7
341.1
864.2
257.8
763.1
1,402.7
In connection with our acquisition of RB Foods, we entered into a Term
Loan Agreement (“Term Loan”) in August 2017. The Term Loan provide
for three-year and five-year senior unsecured term loans, each for $750
million. The net proceeds received from the issuance of the Term Loan
was $1,498.3 million. The three-year loan was payable at maturity.
The five-year loan is payable in equal quarterly installments in an
amount of 2.5% of the initial principal amount, with the remaining
unpaid balance due at maturity. The three-year and five-year loans are
each prepayable in whole or in part. In 2019 and 2018, we repaid the
three-year loan in the amounts of $130.0 million and $370.0 million,
respectively. Prior to payoff, the three-year loan bore interest at LIBOR
plus 1.125%. In 2019 and 2018, we repaid $306.3 million and $175.0
million, respectively, of the five-year loan, which included required
quarterly principal installments of $75.0 million in both years. The five-
year loan currently bears interest at LIBOR plus 1.25%. The interest
rates are based on our credit rating with the maximum potential
interest rate of LIBOR plus 1.75% for the five-year loan.
The provisions of our outstanding $1.0 billion revolving credit facility
and the Term Loan restrict subsidiary indebtedness and require us to
maintain certain minimum and maximum financial ratios for interest
expense coverage and our leverage ratio. The applicable leverage ratio
is reduced annually. As of November 30, 2019, our capacity under the
revolving credit facility is not affected by these covenants. We do not
expect that these covenants would limit our access to our revolving
credit facility for the foreseeable future; however, the leverage ratio
could restrict our ability to utilize this facility.
In August 2017, we issued an aggregate amount of $2.5 billion of
senior unsecured notes. These notes are due as follows: $750.0 million
due August 15, 2022, $700.0 million due August 15, 2024, $750.0
million due August 15, 2027 and $300.0 million due August 15, 2047
with stated fixed interest rates of 2.70%, 3.15%, 3.40% and 4.20%,
respectively. Interest is payable semiannually in arrears in August and
February of each year. The net proceeds received from the issuance
of these notes were $2,479.3 million and were used to partially fund
our acquisition of RB Foods. In addition, we used a portion of these
proceeds to repay our $250.0 million, 5.75% notes that matured on
December 15, 2017.
Other debt costs of $15.4 million for the year ended November 30,
2017 represent the financing fees related to a bridge loan commit-
ment, obtained in connection with our acquisition of RB Foods, that
expired undrawn.
We have available credit facilities with domestic and foreign banks for
various purposes. Some of these lines are committed lines and others
are uncommitted lines and could be withdrawn at various times. We
have a five-year $1.0 billion revolving credit facility, which will expire
in August 2022. 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%. This credit
facility supports our commercial paper program and, after $575.3
million was used to support issued commercial paper, we have $424.7
million of capacity at November 30, 2019. In addition, we have several
uncommitted lines totaling $261.5 million, which have a total unused
capacity at November 30, 2019 of $205.1 million. These lines, by their
nature, can be withdrawn based on the lenders’ discretion. Committed
credit facilities require a fee, and commitment fees were $1.3 million
for both 2019 and 2018.
In 2018, we consolidated our Corporate staff and certain non-
manufacturing U.S. employees into our new headquarters building in
Hunt Valley, Maryland. The 15-year lease for that building requires
monthly lease payments of approximately $0.9 million which began
in April 2019. The $0.9 million monthly lease payment is subject to
adjustment after an initial 60-month period and thereafter on an annu-
al basis as specified in the lease agreement. Upon commencement of
fit-out in the second quarter of 2018, we obtained access to the build-
ing, which resulted in the lease commencement date for accounting
purposes. We have recognized this lease as a capital lease, with the
leased asset of $124.7 million and $133.4 million included in property,
plant and equipment, net, as of November 30, 2019 and 2018, respec-
tively. As of November 30, 2019, the total lease obligation was $137.7
million, of which $6.8 million was included in the current portion of
long-term debt and $130.9 million was included in long-term debt.
As of November 30, 2018, the entire lease liability of $138.6 million
was included in long-term debt. During 2019 and 2018, respectively,
we recognized amortization expense of $8.7 million and $5.2 million
related to the leased asset.
Rental expense under operating leases (primarily buildings and
equipment) was $48.1 million in 2019, $58.5 million in 2018 and $46.5
million in 2017. Future annual fixed rental payments under operating
leases for the years ended November 30 are as follows (in millions):
2020
2021
2022
2023
2024
Thereafter
$41.8
35.7
25.8
16.0
10.6
32.3
2019 Annual Report 67
At November 30, 2019, we had guarantees outstanding of $0.6 million
with terms of one year or less. As of November 30, 2019 and 2018,
we had outstanding letters of credit of $32.2 million and $7.3 million,
respectively. These letters of credit typically act as a guarantee of
payment to certain third parties in accordance with specified terms
and conditions. The unused portion of our letter of credit facility was
$13.8 million at November 30, 2019.
7. FINANCIAL INSTRUMENTS
We use derivative financial instruments to enhance our ability to man-
age risk, including foreign currency and interest rate exposures, which
exist as part of our ongoing business operations. We do not enter into
contracts for trading purposes, nor are we a party to any leveraged
derivative instrument and all derivatives are designated as hedges.
We are not a party to master netting arrangements, and we do not
offset the fair value of derivative contracts with the same counterparty
in our financial statement disclosures. The use of derivative financial
instruments is monitored through regular communication with senior
management and the use of written guidelines.
Foreign Currency
We are potentially exposed to foreign currency fluctuations affecting
net investments in subsidiaries, transactions (both third-party and
intercompany) and earnings denominated in foreign currencies. Man-
agement assesses foreign currency risk based on transactional cash
flows and translational volatility and may enter into forward contract
and currency swaps with highly-rated financial institutions to reduce
fluctuations in the long or short currency positions. Forward contracts
are generally less than 18 months duration. Currency swap agree-
ments are established in conjunction with the terms of the underlying
debt issues.
At November 30, 2019, we had foreign currency exchange contracts
to purchase or sell $489.2 million of foreign currencies as compared
to $494.9 million at November 30, 2018. All of these contracts were
designated as hedges of anticipated purchases denominated in a
foreign currency or hedges of foreign currency denominated assets or
liabilities. Hedge ineffectiveness was not material.
Contracts which are designated as hedges of anticipated purchas-
es denominated in a foreign currency (generally purchases of raw
materials in U.S. dollars by operating units outside the U.S.) are
considered cash flow hedges. The gains and losses on these contracts
are deferred in accumulated other comprehensive income until the
hedged item is recognized in cost of goods sold, at which time the net
amount deferred in accumulated other comprehensive income is also
recognized in cost of goods sold. Gains and losses from contracts that
are designated as hedges of assets, liabilities or firm commitments are
recognized through income, offsetting the change in fair value of the
hedged item.
We also enter into fair value foreign currency exchange contracts to
manage exposure to currency fluctuations in certain intercompany
loans between subsidiaries. The notional value of these contracts was
$357.5 million and $402.0 million at November 30, 2019 and 2018,
respectively. During fiscal years 2019, 2018 and 2017, we recognized a
$0.2 million gain, a $2.9 million loss and a $12.8 million gain, respec-
tively, on the change in fair value of these contracts, which was offset
by a $0.9 million loss, a $2.7 million gain and a $14.1 million loss,
respectively, on the change in the currency component of the under-
lying loans. All of the losses and the gains for both fiscal years were
recognized in our consolidated income statement as other income, net.
At November 30, 2019, we had $151.3 million of notional contracts
that have durations of less than seven days that are used to hedge
short-term cash flow funding. At November 30, 2019, the remaining
contracts have durations of one to twelve months.
Beginning in the first quarter of 2019, we also utilized cross currency
interest rate swap contracts that are designated as net investment
hedges. As of November 30, 2019, we had notional values of 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.
Interest Rates
We finance a portion of our operations with both fixed and variable
rate debt instruments, primarily commercial paper, notes and bank
loans. We utilize interest rate swap agreements to minimize world-
wide financing costs and to achieve a desired mix of variable and fixed
rate debt.
As of November 30, 2019, we have outstanding interest rate swap
contracts for a notional amount of $350.0 million. Those interest rate
swap contracts include a $100 million notional value of interest rate
swap contracts where we receive interest at 3.25% and pay a variable
rate of interest based on three-month LIBOR plus 1.22%. These swaps,
which expire in November 2025, are designated as fair value hedges
of the changes in fair value of $100 million of the $250 million 3.25%
medium-term notes due 2025 that we issued in November 2015. We
also have $250 million notional interest rate swap contracts where we
receive interest at 3.40% and pay a variable rate of interest based on
three-month LIBOR plus 0.685%, which expire in August 2027, and are
designated as fair value hedges of the changes in fair value of $250
million of the $750 million 3.40% term notes due 2027.
Any unrealized gain or loss on these swaps was offset by a corre-
sponding increase or decrease in the value of the hedged debt. Hedge
ineffectiveness was not material.
All derivatives are recognized at fair value in the balance sheet and
recorded in either other current assets, or other long-term assets,
other accrued liabilities or other long-term liabilities depending upon
their nature and maturity.
68 McCormick & Company, Inc.
The following tables disclose the notional amount and fair values of derivative instruments on our consolidated balance sheet:
As of November 30, 2019:
(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
Foreign exchange contracts Other current assets
Cross currency contracts
Other current assets/
Other long-term assets
Total
As of November 30, 2018:
(millions)
$ 350.0
293.1
495.5
$ 20.9
3.3
Other accrued liabilities
Other accrued liabilities
$ —
196.1
3.2
Other long-term liabilities
—
$ 27.4
$ —
3.6
—
$ 3.6
Asset Derivatives
Liability Derivatives
Derivatives
Balance sheet location
Notional amount
Fair value
Balance sheet location
Notional amount
Fair value
Interest rate contracts
Foreign exchange contracts
Other current assets
Other current assets
$ —
199.5
Total
Other accrued liabilities
Other accrued liabilities
$100.0
295.4
$ —
4.4
$ 4.4
$ 6.4
6.4
$ 12.8
The following tables disclose the impact of derivative instruments on other comprehensive income (OCI), accumulated other comprehensive income
(AOCI) and our consolidated income statement for the years ended November 30, 2019, 2018 and 2017:
Fair value hedges (millions)
Derivative
Interest rate contracts
Income statement
location
Interest expense
Income (expense)
2019
$ —
2018
2017
$ (0.1)
$ 0.9
Derivative
Income statement
location
Foreign exchange contracts
Other income, net
2019
$0.2
2018
$(2.9)
Gain (loss) recognized in income
2017
Hedged Item
Income statement
location
Gain (loss) recognized in income
2019
2018
2017
$12.8
Intercompany loans Other income, net
$ (0.9)
$ 2.7
$(14.1)
Cash flow hedges (millions)
Derivative
Interest rate contracts
Foreign exchange contracts
Total
Gain (loss)
recognized in OCI
2019
$ —
(0.2)
$ (0.2)
2018
$ —
2.6
$2.6
2017
$ (2.9)
(7.3)
$(10.2)
Income statement
location
Interest expense
Cost of goods sold
Gain (loss)
reclassified from AOCI
2019
$ 0.5
1.6
$ 2.1
2018
$ 0.5
(3.3)
$(2.8)
2017
$(0.4)
1.2
$ 0.8
The amount of gain or loss recognized in income on the ineffective portion of derivative instruments is not material. The net amount of accumulated
other comprehensive income expected to be reclassified into income related to these contracts in the next twelve months is a $0.2 million increase
to earnings.
Net investment hedges (millions)
Derivative
Cross currency contracts
Gain (loss)
recognized in OCI
Income statement location
Gain (loss)
excluded from the assessment of hedge
effectiveness
2019
$ 1.1
Interest expense
2019
$ 5.4
2019 Annual Report 69
For all net investment hedges, no amounts have been reclassified out of other comprehensive income (loss). The amounts noted in the tables above for
OCI do not include any adjustments for the impact of deferred income taxes.
Fair Value of Financial Instruments
The carrying amount and fair value of financial instruments as of November 30 were as follows:
(millions)
Long-term investments
Long-term debt (including current portion)
Derivatives related to:
Interest rates (assets)
Interest rates (liabilities)
Foreign currency (assets)
Foreign currency (liabilities)
Cross currency (assets)
Because of their short-term nature, the amounts reported in the
balance sheet for cash and cash equivalents, receivables, short-term
borrowings and trade accounts payable approximate fair value.
At November 30, 2019, the fair value of long-term debt includes
$3,437.5 million and $421.5 million determined using Level 1 and
Level 2 valuation techniques, respectively. At November 30, 2018,
the fair value of long-term debt includes $3,172.7 million and $866.7
million determined using Level 1 and Level 2 valuation techniques,
respectively. The fair value for Level 2 long-term debt is determined by
using quoted prices for similar debt instruments.
Investments in affiliates are not readily marketable, and it is not
practicable to estimate their fair value. Long-term investments are
comprised of fixed income and equity securities held on behalf of
employees in certain employee benefit plans and are stated at fair
value on the balance sheet.
Concentrations of Credit Risk
We are potentially exposed to concentrations of credit risk with
trade accounts receivable and financial instruments. 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. We generally have a large and diverse customer base
which limits our concentration of credit risk. At November 30, 2019,
2019
2018
Carrying amount
Fair value
Carrying amount
Fair value
$ 124.4
3,723.5
$ 124.4
3,859.0
$ 120.8
4,136.4
$ 120.8
4,039.4
20.9
—
3.3
3.6
3.2
20.9
—
3.3
3.6
3.2
—
6.4
4.4
6.4
—
—
6.4
4.4
6.4
—
we did not have amounts due from any single customer that exceed
10% of consolidated trade accounts receivable. Current credit markets
are highly volatile and some of our customers and counterparties are
highly leveraged. We continue to closely monitor the credit worthiness
of our customers and counterparties and generally do not require col-
lateral. We believe that the allowance for doubtful accounts properly
recognized trade receivables at realizable value. We consider nonper-
formance credit risk for other financial instruments to be insignificant.
8. FAIR VALUE MEASUREMENTS
Fair value can be measured using valuation techniques, such as the
market approach (comparable market prices), the income approach
(present value of future income or cash flow) and the cost approach
(cost to replace the service capacity of an asset or replacement cost).
Accounting standards utilize a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value into three
broad levels. The following is a brief description of those three levels:
• Level 1: Observable inputs such as quoted prices (unadjusted) in
active markets for identical assets or liabilities.
• Level 2: Inputs other than quoted prices that are observable for the
asset or liability, either directly or indirectly. These include quoted
prices for similar assets or liabilities in active markets and quoted
prices for identical or similar assets or liabilities in markets that are
not active.
• Level 3: Unobservable inputs that reflect management’s own
assumptions.
70 McCormick & Company, Inc.
Our population of assets and liabilities subject to fair value measurements on a recurring basis are as follows:
(millions)
Assets:
Cash and cash equivalents
Insurance contracts
Bonds and other long-term investments
Interest rate derivatives
Foreign currency derivatives
Cross currency contracts
Total
Liabilities:
Foreign currency derivatives
Total
(millions)
Assets:
Cash and cash equivalents
Insurance contracts
Bonds and other long-term investments
Foreign currency derivatives
Total
Liabilities:
Interest rate derivatives
Foreign currency derivatives
Total
Fair value measurements
using fair value hierarchy as
of November 30, 2019
Fair value
Level 1
Level 2
$ 155.4
121.7
2.7
20.9
3.3
3.2
$ 307.2
3.6
$ 3.6
$ 155.4
—
2.7
—
—
—
$ 158.1
$ —
121.7
—
20.9
3.3
3.2
$ 149.1
—
3.6
$ —
$ 3.6
Fair value measurements
using fair value hierarchy as of
November 30, 2018
Fair value
Level 1
Level 2
$ 96.6
118.0
2.8
4.4
$ 221.8
$ 6.4
6.4
$ 12.8
$ 96.6
—
2.8
—
$ 99.4
$ —
—
$ —
$ —
118.0
—
4.4
$ 122.4
$ 6.4
6.4
$ 12.8
The fair values of insurance contracts are based upon the underlying
values of the securities in which they are invested and are from quoted
market prices from various stock and bond exchanges for similar type
assets. The fair values of bonds and other long-term investments are
based on quoted market prices from various stock and bond exchanges.
The fair values for interest rate and foreign currency derivatives are
based on values for similar instruments using models with market-
based inputs.
At November 30, 2019 and 2018, we had no financial assets or liabili-
ties that were subject to a level 3 fair value measurement.
9. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table sets forth the components of accumulated other comprehensive loss, net of tax where applicable, as of November 30 (in millions):
Accumulated other comprehensive loss, net of tax where applicable
Foreign currency translation adjustment (1)
Unrealized loss on foreign currency exchange contracts
Unamortized value of settled interest rate swaps
Pension and other postretirement costs
2019
2018
$ (266.5)
—
0.3
(234.0)
$(241.6)
(1.1)
0.6
(117.8)
$ (500.2)
$(359.9)
(1) The foreign currency translation adjustment of accumulated other comprehensive loss increased by $(24.9) million during the year ended November 30, 2019. Of that increase,
$0.9 million was associated with net investment hedges as more fully described in Note 7.
In conjunction with the adoption of ASU No. 2018-02 Income Statement-
Reporting Comprehensive Income (Topic 220)—Reclassification of
Certain Tax Effects from Accumulated Other Comprehensive Income, we
reclassified $20.9 million of other comprehensive income, primarily
associated with pension and other postretirement plans, from accu-
mulated other comprehensive income to retained earnings effective
December 1, 2017.
2019 Annual Report 7 1
The following table sets forth the amounts reclassified from accumulated other comprehensive income (loss) and into consolidated net income for the
years ended November 30:
(millions)
Accumulated other comprehensive income (loss) components
2019
2018
2017
Affected line items in the consolidated
income statement
(Gains)/losses on cash flow hedges:
Interest rate derivatives
Foreign exchange contracts
Total before taxes
Tax effect
Net, after tax
Amortization of pension and postretirement benefit adjustments:
Amortization of prior service (credits) costs (1)
Amortization of net actuarial losses (1)
Total before taxes
Tax effect
Net, after tax
$ (0.5)
(1.6)
(2.1)
0.4
$ (0.5)
3.3
2.8
(0.6)
$ 0.4
(1.2)
(0.8)
0.2
$ (1.7)
$ 2.2
$ (0.6)
$ (8.0)
2.6
(5.4)
1.2
$ (8.5)
12.6
4.1
(1.0)
$ (1.6)
9.7
8.1
(2.8)
$ (4.2)
$ 3.1
$ 5.3
Interest expense
Cost of goods sold
Income taxes
Other income, net
Other income, net
Income taxes
(1) This accumulated other comprehensive income (loss) component is included in the computation of total pension expense and total other postretirement expense (refer to note 10 for
additional details).
• On January 3, 2017, the Compensation Committee of our Board of
Directors approved the freezing of benefits under the McCormick
Supplemental Executive Retirement Plan (the “SERP”). The effec-
tive date of this freeze was January 31, 2017. Executives who are
participants in the SERP as of the date of the freeze, including cer-
tain named executive officers, retained benefits accumulated up
to that date, based on credited service and eligible earnings, in
accordance with the SERP’s terms.
As a result of these changes, we remeasured pension assets and
benefit obligations as of the dates of the approvals indicated above
and (i) in fiscal year 2018, we reduced the Canadian plan benefit
obligations by $17.5 million; and (ii) in fiscal year 2017, we reduced the
U.S. and U.K. plan benefit obligations by $69.9 million and $7.8 million,
respectively. These remeasurements resulted in non-cash, pre-tax net
actuarial gains of $17.5 million and $77.7 million for fiscal years 2018
and 2017, respectively. These net actuarial gains consist principally
of curtailment gains of $18.0 million and $76.7 million, which are
included in our consolidated statement of comprehensive income for
2018 and 2017, respectively, as a component of Other comprehensive
income (loss) on the line entitled Unrealized components of pension
plans. Deferred taxes associated with these actuarial gains, together
with other unrealized components of pension plans recognized during
2018 and 2017, are also included in that statement as a component of
Other comprehensive income (loss).
Included in accumulated other comprehensive loss at November 30,
2019 was $303.0 million ($234.0 million net of tax) related to net
unrecognized actuarial losses that have not yet been recognized in net
periodic pension or postretirement benefit cost. We expect to recog-
nize $5.6 million ($4.1 million net of tax) in net periodic pension and
postretirement benefit costs during 2020 related to the amortization
of actuarial losses of $9.6 million and the amortization of prior service
cost credits of $4.0 million.
10. EMPLOYEE BENEFIT AND RETIREMENT PLANS
We sponsor defined benefit pension plans in the U.S. and certain
foreign locations. In addition, we sponsor defined contribution plans
in the U.S. We contribute to defined contribution plans in locations
outside the U.S., including government-sponsored retirement plans.
We also currently provide postretirement medical and life insurance
benefits to certain U.S. employees and retirees.
During fiscal years 2018 and 2017, we made the following significant
changes to our employee benefit and retirement plans:
2018
• On December 1, 2017, our Management Committee approved the
freezing of benefits under our pension plans in Canada. The effec-
tive date of this freeze was November 30, 2019. Although those
plans have been frozen, employees who are participants in the
plans retained benefits accumulated up to the date of the freeze,
based on credited service and eligible earnings, in accordance
with the terms of the plans.
2017
• On December 1, 2016, our Management Committee approved the
freezing of benefits under the McCormick U.K. Pension and Life
Assurance Scheme (the U.K. plan). The effective date of this freeze
was December 31, 2016. Although the U.K. plan has been frozen,
employees who are participants in that plan retained benefits
accumulated up to the date of the freeze, based on credited service
and eligible earnings, in accordance with the terms of the plan.
• On January 3, 2017, our Management Committee approved the
freezing of benefits under the McCormick Pension Plan, the
defined benefit pension plan available to U.S. employees hired on
or prior to December 31, 2011. The effective date of this freeze
was November 30, 2018. Employees who are participants in that
plan retained benefits accumulated up to the date of the freeze,
based on credited service and eligible earnings, in accordance
with the terms of the plan.
72 McCormick & Company, Inc.
Defined Benefit Pension Plans
The significant assumptions used to determine benefit obligations are as follows as of November 30:
Discount rate—funded plan
Discount rate—unfunded plan
Salary scale
United States
International
2019
3.4%
3.3%
—
2018
4.7%
4.6%
—
2019
2.2%
—
2018
3.3%
—
2.9%
3.0-3.5%
The significant assumptions used to determine pension expense for the years ended November 30 are as follows:
Discount rate—funded plan
Discount rate—unfunded plan
Salary scale
Expected return on plan assets
United States
International
2019
2018
2017
2019
2018
2017
4.7%
4.6%
—
7.0%
4.0%
3.9%
3.8%
7.3%
4.6%
4.5%
3.8%
7.3%
3.3%
—
3.4%
5.5%
2.9%
—
3.5%
5.6%
3.2%
—
3.4%
5.5%
Annually, we undertake a process, with the assistance of our external investment consultants, to evaluate the appropriate projected rates of return to
use for our pension plans’ assumptions. We engage our investment consultants’ research teams to develop capital market assumptions for each asset
category in our plans to project investment returns into the future. The specific methods used to develop expected return assumptions vary by asset
category. We adjust the outcomes for the fact that plan assets are invested with actively managed funds and subject to tactical asset reallocation.
Our pension expense for the years ended November 30 was as follows:
(millions)
Service cost
Interest costs
Expected return on plan assets
Amortization of prior service costs
Amortization of net actuarial loss
Settlement/curtailment loss
United States
International
2019
2018
2017
2019
2018
2017
$ 2.1
34.4
(42.5)
0.5
2.3
—
$ 17.0
31.6
(43.4)
—
9.9
—
$ 14.8
31.7
(41.4)
—
5.8
—
$ 3.6
9.5
(16.4)
0.2
1.2
—
$ 4.3
9.2
(16.6)
0.1
2.8
0.5
$ 6.2
10.4
(15.3)
0.7
4.1
0.6
$ (3.2)
$ 15.1
$ 10.9
$ (1.9)
$ 0.3
$ 6.7
2019 Annual Report 73
A rollforward of the benefit obligation, fair value of plan assets and a reconciliation of the pension plans’ funded status as of November 30, the
measurement date, follows:
(millions)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest costs
Employee contributions
Plan amendments
Plan curtailments
Actuarial (gain) loss
Benefits paid
Business combinations
Expenses paid
Foreign currency impact
Benefit obligation at end of year
Change in fair value of plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Employee contributions
Benefits paid
Expenses paid
Foreign currency impact
Fair value of plan assets at end of year
Funded status
Pension plans in which accumulated benefit obligation exceeded plan assets
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
United States
International
2019
2018
2019
2018
$ 752.6
2.1
34.4
—
—
—
134.6
(38.9)
—
—
—
$ 813.7
17.0
31.6
—
5.2
—
(76.2)
(36.3)
(2.4)
—
—
$ 292.9
3.6
9.5
0.8
(0.2)
—
51.8
(14.7)
—
(0.3)
2.2
$ 341.5
4.3
9.2
0.7
3.4
(17.5)
(20.2)
(13.2)
—
(0.7)
(14.6)
$ 884.8
$ 752.6
$ 345.6
$ 292.9
$ 640.4
62.2
8.2
—
(38.9)
—
—
$ 654.2
13.6
8.9
—
(36.3)
—
—
$ 306.5
42.7
3.2
0.8
(14.7)
(0.3)
2.7
$ 331.3
(0.7)
4.6
0.7
(13.2)
(0.7)
(15.5)
$ 671.9
$ 640.4
$ 340.9
$ 306.5
$ (212.9)
$ (112.2)
$ (4.7)
$ 13.6
$ 884.8
874.8
671.9
$ 752.6
746.9
640.4
$ 103.9
100.4
83.6
$ 19.1
16.1
1.5
Included in the U.S. in the preceding table is a benefit obligation of $105.4 million and $94.9 million for 2019 and 2018, respectively, related to the
SERP. The assets related to this plan, which totaled $85.5 million and $82.8 million as of November 30, 2019 and 2018, respectively, are held in a rabbi
trust and accordingly have not been included in the preceding table.
As part of our acquisition of RB Foods in August 2017, we assumed a defined benefit pension plan that covers eligible union employees of the Reckitt
Benckiser food business (the “RB Foods Union Pension Plan”). The related plan assets and benefit obligation of the RB Foods Union Pension Plan are
included in the U.S. in the preceding table. At the acquisition date, the funded status of that plan was $(20.5) million, based upon a preliminary valua-
tion. During 2018, we finalized the purchase accounting valuation for this plan which improved the funded status of this plan by $2.4 million, to $(18.1)
million at the date of acquisition. During 2019 and 2018, we made contributions of $1.8 million and $2.5 million, respectively, to the RB Foods Union
Pension Plan.
Amounts recorded in the balance sheet for all defined benefit pension plans as of November 30 consist of the following:
(millions)
Non-current pension asset
Accrued pension liability
Deferred income tax assets
Accumulated other comprehensive loss
United States
International
2019
$ —
212.9
58.5
183.9
2018
$ —
112.2
32.7
97.7
2019
$ 15.6
20.3
13.3
60.1
2018
$ 31.2
17.6
8.8
40.1
The accumulated benefit obligation is the present value of pension
benefits (whether vested or unvested) attributed to employee service
rendered before the measurement date and based on employee
service and compensation prior to that date. The accumulated benefit
obligation differs from the projected benefit obligation in that it
includes no assumption about future compensation or service levels.
The accumulated benefit obligation for the U.S. pension plans was
$874.8 million and $746.9 million as of November 30, 2019 and 2018,
respectively. The accumulated benefit obligation for the international
pension plans was $342.2 million and $286.8 million as of November
30, 2019 and 2018, respectively.
The investment objectives of the defined benefit pension plans are
to provide assets to meet the current and future obligations of the
plans at a reasonable cost to us. The goal is to optimize the long-term
return across the portfolio of investments at a moderate level of risk.
74 McCormick & Company, Inc.
Higher-returning assets include mutual, co-mingled and other funds
comprised of equity securities, utilizing both active and passive invest-
ment styles. These more volatile assets are balanced with less volatile
assets, primarily mutual, co-mingled and other funds comprised of
fixed income securities. Professional investment firms are engaged to
provide advice on the selection and monitoring of investment funds,
and to provide advice on the allocation of plan assets across the
various fund managers. This advice is based in part on the duration of
each plan’s liability. The investment return performances are evaluated
quarterly against specific benchmark indices and against a peer group
of funds of the same asset classification.
The allocations of U.S. pension plan assets as of November 30, by
asset category, were as follows:
Asset Category
Equity securities
Fixed income securities
Other
Total
Actual
2019
2018
63.3%
21.5%
15.2%
65.8%
20.5%
13.7%
2019
Target
59.0%
23.2%
17.8%
100.0% 100.0% 100.0%
The allocations of the international pension plans’ assets as of
November 30, by asset category, were as follows:
Asset Category
Equity securities
Fixed income securities
Other
Total
Actual
2019
2018
50.4%
48.9%
0.7%
52.1%
47.8%
0.1%
2019
Target
53.0%
47.0%
—%
100.0% 100.0% 100.0%
The following tables set forth by level, within the fair value hierarchy
as described in note 8, pension plan assets at their fair value as of
November 30 for the United States and international plans:
As of November 30, 2019
(millions)
Cash and cash equivalents
International equity securities(b)
Fixed income securities:
International/government/
corporate bonds(e)
Insurance contracts(f)
International
Total
fair value
$ 2.5
171.6
Level 1
Level 2
$ 2.5
—
$ —
171.6
144.7
22.1
—
—
144.7
22.1
Total investments
$ 340.9
$ 2.5
$ 338.4
As of November 30, 2018 (millions)
Cash and cash equivalents
Equity securities:
U.S. equity securities(a)
International equity securities(b)
Fixed income securities:
U.S./government/ corporate bonds(c)
High yield bonds(d)
International/government/
corporate bonds(e)
Insurance contracts(f)
Other types of investments:
Real estate(g)
Natural resources(h)
United States
Total
fair value
Level 1
Level 2
$ 16.0
$ 16.0
$ —
283.2
132.7
149.6
126.1
133.6
6.6
46.2
36.7
27.4
1.1
22.3
12.6
44.1
—
27.4
—
18.7
—
2.1
36.7
—
1.1
3.6
12.6
Total
$578.2
$381.9
$196.3
Investments measured at net asset value(i)
Hedge funds(j)
Private equity funds(k)
Private debt funds(l)
Total investments
36.7
5.6
19.9
$640.4
United States
Total
fair value
Level 1
Level 2
$ 15.3
$ 15.3
$ —
As of November 30, 2018 (millions)
As of November 30, 2019
(millions)
Cash and cash equivalents
Equity securities:
U.S. equity securities(a)
International equity securities(b)
Fixed income securities:
U.S. government/corporate
bonds(c)
High yield bonds(d)
International/government/
corporate bonds(e)
Insurance contracts(f)
Other types of investments:
Real estate(g)
Natural resources(h)
276.5
145.5
148.5
134.2
128.0
11.3
51.2
40.1
26.8
1.1
25.9
12.0
49.1
—
26.8
—
22.0
—
2.1
40.1
—
1.1
3.9
12.0
Total
$ 594.4
$ 395.9
$ 198.5
Investments measured at net asset
value(i)
Hedge funds(j)
Private equity funds(k)
Private debt funds(l)
Total investments
49.3
3.2
25.0
$ 671.9
Cash and cash equivalents
International equity securities(b)
Fixed income securities:
International/government/
corporate bonds(e)
Insurance contracts(f)
Total investments
International
Total
fair value
$ 2.0
159.5
Level 1
Level 2
$2.0
—
$ —
159.5
125.2
19.8
—
—
125.2
19.8
$306.5
$2.0
$304.5
(a) This category comprises equity funds and collective equity trust funds that most closely
track the S&P index and other equity indices.
(b) This category comprises international equity funds with varying benchmark indices.
(c) This category comprises funds consisting of U.S. government and U.S. corporate bonds
and other fixed income securities. An appropriate benchmark is the Barclays Capital
Aggregate Bond Index.
(d) This category comprises funds consisting of real estate related debt securities with an
appropriate benchmark of the Barclays Investment Grade CMBS Index.
(e) This category comprises funds consisting of international government/corporate bonds
and other fixed income securities with varying benchmark indices.
(f) This category comprises insurance contracts, the majority of which have a guaranteed
investment return.
(g) This category comprises funds investing in real estate investment trusts (REIT). An
appropriate benchmark is the MSCI U.S. REIT Index.
(h) This category comprises funds investing in natural resources. An appropriate bench-
mark is the Alerian master limited partnership (MLP) Index.
2019 Annual Report 75
(i) Certain investments that are valued using the net asset value per share (or its
equivalent) as a practical expedient have not been classified in the fair value hierarchy.
These are included to permit reconciliation of the fair value hierarchy to the aggregate
pension plan assets.
(j) This category comprises hedge funds investing in strategies represented in various
HFRI Fund Indices. The net asset value is generally based on the valuation of the under-
lying investment. Limitations exist on the timing from notice by the plan of its intent to
redeem and actual redemptions of these funds and generally range from a minimum of
one month to several months.
(k) This category comprises private equity, venture capital and limited partnerships. The
net asset is based on valuation models of the underlying securities as determined by
the general partner or general partner’s designee. These valuation models include
unobservable inputs that cannot be corroborated using verifiable observable market
data. These funds typically have redemption periods of approximately 10 years.
(l) This category comprises limited partnerships funds investing in senior loans, mezzanine
and distressed debt. The net asset is based on valuation models of the underlying
securities as determined by the general partner or general partner’s designee. These
valuation models include unobservable inputs that cannot be corroborated using
verifiable observable market data. These funds typically have redemption periods of
approximately 10 years.
For the plans’ hedge funds, private equity funds and private debt
funds, we engage an independent advisor to compare the funds’
returns to other funds with similar strategies. Each fund is required to
have an annual audit by an independent accountant, which is provided
to the independent advisor. This provides a basis of comparability
relative to similar assets.
Equity securities in the U.S. pension plans included McCormick stock
with a fair value of $64.4 million (0.4 million shares and 9.6% of total
U.S. pension plan assets) and $57.2 million (0.4 million shares and
8.9% of total U.S. pension plan assets) at November 30, 2019 and
2018, respectively. Dividends paid on these shares were $0.9 million
and $0.8 million in 2019 and 2018, respectively.
Pension benefit payments in our most significant plans are made
from assets of the pension plans. It is anticipated that future benefit
payments for the U.S. and International plans for the next 10 fiscal
years will be as follows:
(millions)
2020
2021
2022
2023
2024
2025-2029
United States
International
$ 41.4
41.6
43.1
44.8
46.7
243.8
$ 14.1
14.2
14.4
15.4
15.3
77.3
U.S. Defined Contribution Retirement Plans
Effective December 1, 2018 for the U.S. defined contribution retirement
plan, we match 100% of a participant’s contribution up to the first 3%
of the participant’s salary, and 66.7% of the next 3% of the participant’s
salary. In addition, we make contributions of 3% of the participant’s
salary for all U.S. employees who are employed on December 31 of
each year. Prior to December 1, 2018, for the U.S. defined contribution
retirement plan, we matched 100% of a participant’s contribution up to
the first 3% of the participant’s salary, and 50% of the next 2% of the
participant’s salary. In addition, we made contributions of 3% of the
participant’s salary for U.S. employees not covered by the defined ben-
efit plan. Some of our smaller U.S. subsidiaries sponsor separate 401(k)
retirement plans. We also sponsor a non-qualified defined contribution
retirement plan. Our contributions charged to expense under all U.S.
defined contribution retirement plans were $28.2 million, $15.5 million
and $12.2 million in 2019, 2018 and 2017, respectively.
At the participant’s election, 401(k) retirement plans held 1.6 million
shares of McCormick stock, with a fair value of $266.1 million, at
November 30, 2019. Dividends paid on the shares held in the 401(k)
retirement plans in 2019 and 2018 were $3.9 million in each year.
Postretirement Benefits Other Than Pensions
We currently provide postretirement medical and life insurance
benefits to certain U.S. employees who were covered under the active
employees’ plan and retire after age 55 with at least five years of
service. The subsidy provided under these plans is based primarily on
age at date of retirement. These benefits are not pre-funded but paid
as incurred. Employees hired after December 31, 2008 are not eligible
for a company subsidy. They are eligible for coverage on an access-
only basis.
During 2017, we made the following changes to our postretirement
medical and life insurance benefits impacting certain U.S. employees:
• On August 23, 2017, our Management Committee approved changes
to our postretirement medical benefits plan for eligible U.S. employees
and retirees (employees hired after December 31, 2008 are not eligible
for the subsidy). These changes included consolidating benefits
providers and simplifying and reducing our subsidy for postretirement
medical benefits. The effective date of the change in our subsidy was
January 1, 2018.
• On August 23, 2017, our Management Committee approved the elim-
ination of life insurance benefits under our other postretirement ben-
efit plan to eligible U.S. active employees (that life insurance benefit
was available to U.S. employees hired on or prior to December 31,
2008). The effective date of this plan amendment was January 1,
2018, unless an employee committed to their retirement date by
December 31, 2017 and retired on or before December 31, 2018.
As a result of these changes, we remeasured the other postretirement
benefit obligation as of August 23, 2017, resulting in a reduction of
the other postretirement benefit obligation of $27.1 million. These
remeasurements resulted in an aggregate non-cash, pre-tax net prior
service cost credit of $27.1 million, which is included in our consoli-
dated statement of comprehensive income for 2017, as a component
of Other comprehensive income (loss) on the line entitled Unrealized
components of pension and other postretirement plans. Deferred taxes
associated with these aggregate prior service cost credits, together
with other unrealized components of pension plans recognized during
2017, are also included in that statement as a component of Other
comprehensive income (loss).
Our other postretirement benefit (income) expense for the years ended
November 30 follows:
(millions)
Service cost
Interest costs
Amortization of prior service credits
Amortization of actuarial gains
2019
2018
2017
$ 1.8
2.7
(8.7)
(0.9)
$ 2.0
2.4
(8.6)
(0.1)
$ 2.6
3.3
(2.3)
(0.2)
Postretirement benefit (income) expense
$ (5.1)
$ (4.3)
$ 3.4
76 McCormick & Company, Inc.
Rollforwards of the benefit obligation, fair value of plan assets and
a reconciliation of the plans’ funded status at November 30, the
measurement date, follow:
(millions)
2019
2018
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest costs
Employee contributions
Plan amendments
Other plan assumptions
Discount rate change
Actuarial (gain) loss
Benefits paid
$ 62.9
1.8
2.7
0.3
(0.4)
(1.0)
7.6
(2.5)
(4.2)
$ 70.9
2.0
2.4
0.4
—
(0.1)
(4.5)
(3.0)
(5.2)
Benefit obligation at end of year
$ 67.2
$ 62.9
Change in fair value of plan assets:
Fair value of plan assets at beginning of year
Employer contributions
Employee contributions
Benefits paid
Fair value of plan assets at end of year
Other postretirement benefit liability
$ — $ —
4.8
0.4
(5.2)
3.9
0.3
(4.2)
$ — $ —
$ 67.2
$ 62.9
Estimated future benefit payments (net of employee contributions) for
the next 10 fiscal years are as follows:
(millions)
2020
2021
2022
2023
2024
2025-2029
Retiree
medical
Retiree life
insurance
$ 3.7
3.7
3.7
3.7
3.7
18.0
$1.4
1.4
1.4
1.4
1.4
6.5
Total
$ 5.1
5.1
5.1
5.1
5.1
24.5
The assumed discount rate in determining the benefit obligation was
3.1% and 4.5% for 2019 and 2018, respectively.
A summary of our RSU activity for the years ended November 30 follows:
For 2019, the assumed annual rate of increase in the cost of covered
health care benefits is 6.5% (7.3% last year). It is assumed to decrease
gradually to 4.5% in the year 2030 (4.5% in 2028 last year) and remain
at that level thereafter. A one percentage point increase or decrease in
the assumed health care cost trend rate would have had an immaterial
effect on the benefit obligation and the total of service and interest
cost components for 2019.
11. STOCK-BASED COMPENSATION
We have three types of stock-based compensation awards: restricted
stock units (RSUs), stock options and company stock awarded as part of
our long-term performance plan (LTPP). Total stock-based compensation
expense for 2019, 2018 and 2017 was $37.2 million, $25.6 million and
$23.9 million, respectively. Total unrecognized stock-based compensa-
tion expense related to our RSUs and stock options at November 30,
2019 was $27.5 million and the weighted-average period over which
this will be recognized is 1.4 years. Total unrecognized stock-based
compensation expense related to our LTPP is variable in nature and is
dependent on the company’s execution against established perfor-
mance metrics under performance cycles related to this plan. As of
November 30, 2019, we have 5.1 million shares remaining available for
future issuance under our RSUs, stock option and LTPP award programs.
For all awards, forfeiture rates are considered in the calculation of
compensation expense.
The following summarizes the key terms and the methods of valuation
and expense recognition for each of our stock-based compensation
awards.
RSUs
RSUs are valued at the market price of the underlying stock, discount-
ed by foregone dividends, on the date of grant. Substantially all of the
RSUs granted vest over a three-year term or, if earlier, upon the retire-
ment eligibility date of the holder. Compensation expense is recorded
in the consolidated income statement ratably over the shorter of the
period until vested or the employee’s retirement eligibility date.
(shares in thousands)
Beginning of year
Granted
Vested
Forfeited
Outstanding—end of year
2019
2018
2017
Shares
Weighted-average
price
Shares
Weighted-average
price
Shares
Weighted-average
price
423
129
(159)
(12)
381
$103.05
143.23
104.15
113.55
$ 115.89
267
278
(113)
(9)
423
$ 86.47
112.72
88.15
96.53
$103.05
267
131
(118)
(13)
267
$ 80.08
94.63
80.62
90.85
$ 86.47
Stock Options
Stock options are granted with an exercise price equal to the market
price of the stock on the date of grant. Substantially all of the
options vest ratably over a three-year period or, if earlier, upon the
retirement-eligibility dates of the holders and are exercisable over a
10-year period. Upon exercise of the option, shares are issued from our
authorized and unissued shares.
The fair value of the options is estimated with a lattice option pricing
model which uses the assumptions in the following table. We believe
the lattice model provides an appropriate estimate of fair value of
our options as it allows for a range of possible outcomes over an
option term and can be adjusted for changes in certain assumptions
over time. Expected volatilities are based primarily on the historical
performance of our stock. We also use historical data to estimate
the timing and amount of option exercises and forfeitures within the
2019 Annual Report 7 7
valuation model. The expected term of the options is an output of the
option pricing model and estimates the period of time that options are
expected to remain unexercised. The risk-free interest rate is based on
the U.S. Treasury yield curve in effect at the time of grant. Compen-
sation expense is calculated based on the fair value of the options on
the date of grant. This compensation is recorded in the consolidated
income statement ratably over the shorter of the period until vested or
the employee’s retirement eligibility date.
The per share weighted-average fair value for all options granted was
$27.51, $20.30 and $17.61 in 2019, 2018 and 2017, respectively. These
fair values were computed using the following range of assumptions
for the years ended November 30:
Risk-free interest rates
Dividend yield
Expected volatility
Expected lives
2019
2018
2017
2.2–2.5%
1.5%
17.4%
7.5 years
1.7–2.9%
2.0%
18.4%
7.6 years
0.9–2.4%
1.9%
18.7%
7.6 years
Under our stock option plans, we may issue shares on a net basis at
the request of the option holder. This occurs by netting the option cost
in shares from the shares exercised.
A summary of our stock option activity for the years ended November 30 follows:
(shares in millions)
Beginning of year
Granted
Exercised
Outstanding—end of year
Exercisable—end of year
2019
2018
2017
Shares
Weighted-average
exercise price
Shares
Weighted-average
exercise price
Shares
Weighted-average
exercise price
3.6
0.3
(1.3)
2.6
1.9
$ 82.60
147.39
71.08
96.18
$ 86.61
4.8
0.4
(1.6)
3.6
2.8
$ 71.91
105.95
55.28
82.60
$ 76.54
4.9
0.6
(0.7)
4.8
3.8
$66.00
98.07
50.63
71.91
$65.34
As of November 30, 2019, the intrinsic value (the difference between the exercise price and the market price) for all options currently outstanding
was $189.6 million and for options currently exercisable was $157.6 million. At November 30, 2019, the differences between options outstanding and
options expected to vest and their related weighted-average exercise prices, aggregate intrinsic values and weighted-average remaining lives were
not material. The total intrinsic value of all options exercised during the years ended November 30, 2019, 2018 and 2017 was $111.0 million, $108.0
million and $31.4 million, respectively. A summary of our stock options outstanding and exercisable at November 30, 2019 follows:
(shares in millions)
Range of exercise price
$38.00–$79.00
$79.01–$103.00
$103.01–$149.00
Options outstanding
Options exercisable
Shares
Weighted-average
remaining life (yrs.)
Weighted-average
exercise price
Shares
Weighted-average
remaining life (yrs.)
Weighted-average
exercise price
0.9
1.0
0.7
2.6
4.4
6.8
8.8
6.5
$ 71.40
99.04
125.75
$ 96.18
0.9
0.9
0.1
1.9
4.4
6.7
8.3
5.7
$ 71.40
99.22
106.65
$ 86.61
LTPP
Our LTPP grants in 2018 and 2017 will deliver awards in a combination of cash and company stock. The stock compensation portion of the LTPP awards
shares of company stock if certain company performance objectives are met at the end of a three-year period. LTPP awards granted in 2019 will be
delivered entirely in company stock, with the target award calculated using a combination of a market-based total shareholder return and perfor-
mance-based components. These awards are valued based on the fair value of the underlying stock on the date of grant. Compensation expense is
recorded in the income statement ratably over the three-year period of the program based on the number of shares ultimately expected to be awarded
using our estimate of the most likely outcome of achieving the performance objectives.
A summary of the LTPP award activity for the years ended November 30 follows:
2019
2018
2017
Shares
Weighted-
average price
Shares
Weighted-
average price
Shares
Weighted-
average price
218
68
(57)
(33)
—
196
$ 83.55
150.51
86.40
89.96
—
$ 115.96
220
86
(60)
(26)
(2)
218
$ 84.31
101.90
74.02
86.40
97.41
$ 83.55
201
78
(43)
(16)
—
220
$78.10
89.96
69.04
74.02
—
$84.31
(shares in thousands)
Beginning of year
Granted
Vested
Performance adjustment
Forfeited
Outstanding—end of year
78 McCormick & Company, Inc.
12. INCOME TAXES
The provision for income taxes for the years ended November 30
consists of the following:
(millions)
Income taxes
Current
Federal
State
International
Deferred
Federal
State
International
Total income tax expense (benefit)
2019
2018
2017
$ 52.3
10.7
73.5
136.5
26.4
3.6
(9.1)
20.9
$ 157.4
$ 92.9
11.0
78.7
182.6
(340.3)
1.5
(1.1)
(339.9)
$(157.3)
$ 67.1
6.2
53.9
127.2
23.8
0.9
(0.6)
24.1
$151.3
In December 2017, President Trump signed into law Pub. L. 115-97,
“An Act to provide for reconciliation pursuant to titles II and V of the
concurrent resolution on the budget for fiscal year 2018” (this legisla-
tion is referred to herein as the “U.S. Tax Act”). The U.S. Tax Act pro-
vides for significant changes in the U.S. Internal Revenue Code of
1986, as amended. Certain provisions of the U.S. Tax Act were effec-
tive during our fiscal year ended November 30, 2018 with all provi-
sions of the U.S. Tax Act effective as of the beginning of our fiscal
year beginning December 1, 2018. The U.S. Tax Act contains provi-
sions with separate effective dates but is generally effective for tax-
able years beginning after December 31, 2017. The U.S. Tax Act
creates a new requirement that certain income earned by foreign sub-
sidiaries, known as Global Intangible Low-Taxed Income (GILTI), must
be included in the gross income of the subsidiary’s U.S. shareholder.
This provision of the U.S. Tax Act was effective for us for our fiscal
year beginning December 1, 2018. The FASB allows an accounting
policy election of either recognizing deferred taxes for temporary dif-
ferences expected to reverse as GILTI in future years or recognizing
such taxes as a current period expense when incurred. We have
elected to treat GILTI as a current period expense when incurred.
Beginning on January 1, 2018, the U.S. Tax Act lowered the U.S.
corporate income tax rate from 35% to 21% on our U.S. earnings
from that date and beyond. The revaluation of our U.S. deferred tax
assets and liabilities to the 21% corporate tax rate has reduced our
net U.S. deferred income tax liability by $380.0 million and is reflected
as a reduction in our income tax expense in our results for the year
ended November 30, 2018. The U.S. Tax Act imposes a one-time
transition tax on post-1986 earnings of non-U.S. affiliates that have
not been repatriated for purposes of U.S. federal income tax, with
those earnings taxed at rates of 15.5% for earnings reflected by cash
and cash equivalent items and 8% for other assets. This transition
tax, based on our fiscal 2018 tax return filed in fiscal 2019, was
$76.0 million (we estimated the transition tax to be $75.3 million in
fiscal 2018). The cash tax effects of the transition tax, reduced by
the utilization of $21.1 million of current and carried forward excess
foreign tax credits, as well as other items of $7.7 million, resulted in a
net tax liability of $47.2 million, which can be remitted in installments
over an eight-year period as we are doing. As of November 30, 2019,
our remaining unpaid transition tax is $43.4 million. In addition to
the estimated transition tax of $75.3 million recognized in 2018, we
incurred additional foreign withholding taxes, net of a U.S. foreign tax
credit, of $7.9 million and a $4.7 million reduction in our fiscal 2018
income taxes as a consequence of the transition tax, both of which
we recognized as a component of our income tax expense for the year
ended November 30, 2018, for a net transition tax impact recognized in
2018 of $78.5 million.
In 2019, current federal income tax expense increased by $8.3 million
from $44.0 million (exclusive of non-recurring U.S. Tax Act impacts
of $48.9 million) in 2018 to $52.3 million in 2019. Deferred federal
expense decreased by $2.6 million from $29.0 million (exclusive of
non-recurring U.S. Tax Act impacts of $369.3 million) in 2018 to $26.4
million in 2019. The net change in current federal income tax expense
principally stemmed from higher pretax income in the U.S. in 2019
compared to 2018.
The components of income from consolidated operations before
income taxes for the years ended November 30 follow:
(millions)
Pretax income
United States
International
2019
2018
2017
$ 569.0
250.2
$ 819.2
$492.2
249.1
$741.3
$382.1
212.7
$594.8
A reconciliation of the U.S. federal statutory rate with the effective tax
rate for the years ended November 30 follows:
Federal statutory tax rate
State income taxes, net of federal
benefits
International tax at different effective
rates
U.S. tax on remitted and unremitted
earnings
Stock compensation expense
U.S. manufacturing deduction
Changes in prior year tax contingencies
Non-recurring benefit of U.S. Tax Act
Intra-entity asset transfer
Other, net
2019
21.0%
2018
2017
22.2% 35.0%
1.6
1.6
0.5
(2.8)
—
(0.3)
(0.2)
(1.8)
(0.4)
1.5
0.4
0.6
(2.9)
(0.8)
(0.8)
(40.7)
—
(0.7)
0.8
(4.8)
0.4
(1.6)
(1.8)
(2.1)
—
—
(0.5)
Total
19.2%
(21.2)% 25.4%
Deferred tax assets and liabilities are comprised of the following as of
November 30:
(millions)
Deferred tax assets
Employee benefit liabilities
Other accrued liabilities
Inventory
Tax loss and credit carryforwards
Other
Valuation allowance
Deferred tax liabilities
Depreciation
Intangible assets
Other
2019
2018
$ 103.3
32.3
7.5
46.8
48.1
(32.4)
205.6
82.6
770.5
5.5
858.6
$ 82.7
40.0
8.0
57.2
44.2
(32.9)
199.2
77.8
782.8
5.3
865.9
Net deferred tax liability
$(653.0)
$(666.7)
At November 30, 2019, our non-U.S. subsidiaries have tax loss carry-
forwards of $183.3 million. Of these carryforwards, $2.4 million expire
in 2020, $6.1 million from 2021 through 2022, $59.3 million from 2023
through 2036 and $115.5 million may be carried forward indefinitely.
2019 Annual Report 79
We are under normal recurring tax audits in the U.S. and in several
jurisdictions outside the U.S. While it is often difficult to predict the
final outcome or the timing of resolution of any particular uncertain tax
position, we believe that our reserves for uncertain tax positions are
adequate to cover existing risks and exposures.
13. CAPITAL STOCK, EARNINGS PER SHARE AND STOCK
ISSUANCE
Holders of Common Stock have full voting rights except that (1) the
voting rights of persons who are deemed to own beneficially 10% or
more of the outstanding shares of Common Stock are limited to 10%
of the votes entitled to be cast by all holders of shares of Common
Stock regardless of how many shares in excess of 10% are held by
such person; (2) we have the right to redeem any or all shares of stock
owned by such person unless such person acquires more than 90% of
the outstanding shares of each class of our common stock; and (3) at
such time as such person controls more than 50% of the vote entitled
to be cast by the holders of outstanding shares of Common Stock,
automatically, on a share-for-share basis, all shares of Common Stock
Non-Voting will convert into shares of Common Stock.
Holders of Common Stock Non-Voting will vote as a separate class
on all matters on which they are entitled to vote. Holders of Com-
mon Stock Non-Voting are entitled to vote on reverse mergers and
statutory share exchanges where our capital stock is converted into
other securities or property, dissolution of the company and the sale
of substantially all of our assets, as well as forward mergers and
consolidation of the company.
During 2017, we issued approximately 6.35 million shares of our com-
mon stock non-voting in connection with our acquisition of RB Foods
(see note 2), which included approximately 0.8 million shares from the
exercise of the underwriters’ option to purchase additional shares. The
net proceeds from this issuance, after the underwriting discount and
related expenses, was $554.0 million.
The reconciliation of shares outstanding used in the calculation of
basic and diluted earnings per share for the years ended November 30
follows:
(millions)
Average shares outstanding—basic
Effect of dilutive securities:
Stock options/RSUs/LTPP
2019
2018
2017
132.6
131.5
126.8
1.5
1.7
1.6
Average shares outstanding—diluted
134.1
133.2
128.4
The following table sets forth the stock options and RSUs for the years
ended November 30 which were not considered in our earnings per
share calculation since they were antidilutive:
(millions)
Antidilutive securities
2019
2018
2017
0.1
0.2
1.1
At November 30, 2019, our non-U.S. subsidiaries have capital loss car-
ryforwards of $26.0 million. All of these carryforwards may be carried
forward indefinitely.
A valuation allowance has been provided to record deferred tax assets
at their net realizable value based on a more likely than not criteria. The
$0.5 million net decrease in the valuation allowance from November 30,
2018 to November 30, 2019 mainly relates to subsidiaries’ net operating
losses, capital losses and other tax attributes which may not be realized
in future periods.
Historically, we have not provided deferred income taxes on the cumu-
lative undistributed earnings of our international subsidiaries. During
fiscal 2018, previously undistributed earnings of certain international
subsidiaries were no longer considered indefinitely reinvested as of
January 1, 2018; therefore, we recognized $7.9 million of income tax
expense in fiscal 2018. Our intent is to continue to reinvest the remain-
ing undistributed earnings of our international subsidiaries indefinitely.
Therefore, in 2019 there were no incremental previously undistributed
earnings that no longer met the requirements of indefinite reinvest-
ment. While federal income tax expense has been recognized as a
result of the U.S. Tax Act, we have not provided any additional de-
ferred taxes with respect to items such as foreign withholding taxes,
state income tax or foreign exchange gain or loss. It is not practicable
for us to determine the amount of unrecognized tax expense on these
reinvested international earnings.
The following table summarizes the activity related to our gross unrec-
ognized tax benefits for the years ended November 30:
(millions)
2019
2018
2017
Balance at beginning of year
Additions for current year tax positions
Additions for prior year tax positions
Reductions for prior year tax positions
Settlements
Statute expirations
Foreign currency translation
Balance at November 30
$27.9
6.6
0.6
(0.3)
—
(2.5)
(0.3)
$32.0
$39.1
6.5
0.3
(6.9)
—
(9.1)
(2.0)
$27.9
$58.3
7.3
0.9
(8.4)
(18.1)
(2.1)
1.2
$39.1
As of November 30, 2019, if recognized, all of the $32.0 million of the
unrecognized tax benefits would affect the effective rate.
We record interest and penalties on income taxes in income tax
expense. We recognized interest and penalty expense of $2.1 million,
$0.1 million and $0.4 million in 2019, 2018 and 2017, respectively. As
of November 30, 2019 and 2018, we had accrued $7.1 million and $5.1
million, respectively, of interest and penalties related to unrecognized
tax benefits.
Tax settlements or statute of limitation expirations could result in a
change to our uncertain tax positions. We believe that the reasonably
possible total amount of unrecognized tax benefits as of November 30,
2019 that could decrease in the next 12 months as a result of various
statute expirations, audit closures and/or tax settlements would not
be material.
We file income tax returns in the U.S. federal jurisdiction and various
state and non-U.S. jurisdictions. The open years subject to tax audits
vary depending on the tax jurisdictions. In the U.S federal jurisdiction,
we are no longer subject to income tax audits by taxing authorities for
years before 2016. In other major jurisdictions, we are no longer sub-
ject to income tax audits by taxing authorities for years before 2012.
80 McCormick & Company, Inc.
14. COMMITMENTS AND CONTINGENCIES
During the normal course of our business, we are occasionally involved
with various claims and litigation. Reserves are established in connec-
tion with such matters when a loss is probable and the amount of such
loss can be reasonably estimated. At November 30, 2019 and 2018, no
material reserves were recorded. The determination of probability and
the estimation of the actual amount of any such loss are inherently un-
predictable, and it is therefore possible that the eventual outcome of
such claims and litigation could exceed the estimated reserves, if any.
However, we believe that the likelihood that any such excess might
have a material adverse effect on our financial statements is remote.
15. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
Business Segments
We operate in two business segments: consumer and flavor solutions.
The consumer and flavor solutions segments manufacture, market and
distribute spices, seasoning mixes, condiments and other flavorful
products throughout the world. Our consumer segment sells to retail
channels, including grocery, mass merchandise, warehouse clubs, dis-
count and drug stores, and e-commerce under the “McCormick” brand
and a variety of brands around the world, including “French’s,” “Frank’s
RedHot,” “Lawry’s,” “Zatarain’s,” “Simply Asia,” “Thai Kitchen,”
“Ducros,” “Vahiné,” “Schwartz,” “Club House,” “Kamis,” “Kohinoor,”
“DaQiao,” “Drogheria & Alimentari,” “Stubb’s” and “Gourmet Garden.”
Our flavor solutions segment sells to food manufacturers and the food-
service industry both directly and indirectly through distributors.
In each of our segments, we produce and sell many individual products
which are similar in composition and nature. With their primary
attribute being flavor, the products within each of our segments are
regarded as fairly homogenous. It is impracticable to segregate and
identify sales and profits for each of these individual product lines.
Business Segment Results
(millions)
2019
Net sales
Operating income excluding special charges
Income from unconsolidated operations
Assets
Capital expenditures
Depreciation and amortization
2018
Net sales
Operating income excluding special charges and transaction and integration expenses
Income from unconsolidated operations
Assets
Capital expenditures
Depreciation and amortization
2017
Net sales
Operating income excluding special charges and transaction and integration expenses
Income from unconsolidated operations
Assets
Capital expenditures
Depreciation and amortization
Historically, we have measured segment performance based on
operating income excluding special charges as this activity is managed
separately from the business segments. Beginning in 2017, we
also excluded transaction and integration expenses related to our
acquisition of RB Foods from our measure of segment performance as
these expenses are similarly managed separately from the business
segments. These transaction and integration expenses excluded from
our segment performance measure include the amortization of the
acquisition-date fair value adjustment of inventories that is included
in cost of goods sold, costs directly associated with that acquisition
and costs associated with integrating the RB Foods business. Although
the segments are managed separately due to their distinct distribution
channels and marketing strategies, manufacturing and warehous-
ing are often integrated to maximize cost efficiencies. We do not
segregate jointly utilized assets by individual segment for purposes of
internal reporting, performance evaluation, or capital allocation.
In 2019, the Company transferred management responsibility for
certain export operations in both its consumer and flavor solutions seg-
ments between geographies within each respective segment, shifting
from the Americas to the Asia/Pacific regions within each segment,
with no change in segment sales or segment operating income for
either the consumer or flavor solutions segment in total.
We have a large number of customers for our products. Sales to one
of our consumer segment customers, Wal-Mart Stores, Inc., accounted
for approximately 11% of consolidated sales in 2019, 2018 and 2017.
Sales to one of our flavor solutions segment customers, PepsiCo, Inc.,
accounted for approximately 10% of consolidated sales in both 2019
and 2018 and approximately 11% in 2017.
Accounting policies for measuring segment operating income and as-
sets are consistent with those described in note 1. Because of integrat-
ed manufacturing for certain products within the segments, products are
not sold from one segment to another but rather inventory is transferred
at cost. Inter-segment sales are not material. Corporate assets include
cash, deferred taxes, investments and certain fixed assets.
Consumer
Flavor
Solutions
Total
segments
Corporate
& other
Total
$3,269.8
676.3
31.8
—
—
—
$3,247.0
637.1
29.5
—
—
—
$2,901.6
562.4
28.9
—
—
—
$2,077.6
302.2
9.1
—
—
—
$2,055.8
292.8
5.3
—
—
—
$1,828.7
221.3
5.0
—
—
—
$ 5,347.4
978.5
40.9
9,950.3
121.8
118.0
$ 5,302.8
929.9
34.8
10,015.8
126.3
115.0
$ 4,730.3
783.7
33.9
10,036.7
153.6
99.8
$ —
—
—
411.8
51.9
40.8
$ —
—
—
240.6
42.8
35.7
$ —
—
—
349.1
28.8
25.4
$ 5,347.4
978.5
40.9
10,362.1
173.7
158.8
$ 5,302.8
929.9
34.8
10,256.4
169.1
150.7
$ 4,730.3
783.7
33.9
10,385.8
182.4
125.2
2019 Annual Report 81
A reconciliation of operating income excluding special charges and, for 2018 and 2017, transaction and integration expenses, to operating income for
2019, 2018 and 2017 is as follows:
(millions)
2019
Operating income excluding special charges
Less: Special charges
Operating income
2018
Operating income excluding special charges and transaction and integration expenses
Less: Special charges
Less: Transaction and integration expenses
Operating income
2017
Operating income excluding special charges and transaction and integration expenses
Less: Special charges
Less: Transaction and integration expenses included in cost of goods sold
Less: Other transaction and integration expenses
Operating income
Geographic Areas
We have net sales and long-lived assets in the following geographic areas:
(millions)
2019
Net sales
Long-lived assets
2018
Net sales
Long-lived assets
2017
Net sales
Long-lived assets
Consumer
Flavor
Solutions
$676.3
13.1
$663.2
$637.1
10.0
15.0
$612.1
$562.4
15.3
13.6
27.1
$506.4
$302.2
7.7
$294.5
$292.8
6.3
7.5
$279.0
$221.3
6.9
7.3
13.7
$193.4
Total
$978.5
20.8
$957.7
$929.9
16.3
22.5
$891.1
$783.7
22.2
20.9
40.8
$699.8
United States
EMEA
Other countries
Total
$3,226.3
6,397.0
$3,145.0
6,411.0
$2,748.7
6,329.1
$ 986.1
1,032.4
$1,021.1
1,057.1
$ 948.9
1,125.3
$1,135.0
875.4
$1,136.7
874.6
$1,032.7
881.2
$5,347.4
8,304.8
$5,302.8
8,342.7
$4,730.3
8,335.6
Long-lived assets include property, plant and equipment, goodwill and intangible assets, net of accumulated depreciation and amortization.
16. SUPPLEMENTAL FINANCIAL STATEMENT DATA
Supplemental consolidated information with respect to our income
statement, balance sheet and cash flow follow:
For the year ended November 30 (millions)
2019
2018
2017
Other income, net
Pension and other postretirement
benefit income
Interest income
Other
$17.7
10.1
(1.1)
$26.7
$12.2
7.1
5.5
$24.8
$2.6
5.7
(2.2)
$6.1
At November 30 (millions)
2019
2018
Inventories
Finished products
Raw materials and work-in-process
Prepaid expenses
Other current assets
82 McCormick & Company, Inc.
$413.3
387.9
$801.2
$ 36.0
54.7
$ 90.7
$406.1
380.2
$786.3
$ 27.2
51.7
$ 78.9
At November 30 (millions)
2019
2018
Property, plant and equipment
Land and improvements
Buildings (including capital lease)
Machinery, equipment and other
Construction-in-progress
Accumulated depreciation
Other long-term assets
Investments in affiliates
Long-term investments
Software, net of accumulated amortization
$275.0 for 2019 and $281.5 for 2018
Other
Other accrued liabilities
Payroll and employee benefits
Sales allowances
Other
$ 67.5
658.5
1,007.8
85.8
(867.0)
$ 62.6
626.2
947.5
105.1
(799.9)
$ 952.6
$ 941.5
$ 186.0
124.4
$ 167.2
120.8
76.4
120.3
43.6
102.2
$ 507.1
$ 433.8
$ 184.9
137.2
287.0
$ 176.5
142.1
329.6
$ 609.1
$ 648.2
At November 30 (millions)
Other long-term liabilities
Pension
Postretirement benefits
Unrecognized tax benefits
Other
2019
2018
$ 226.9
62.7
37.6
100.4
$ 123.1
58.5
31.0
100.5
$ 427.6
$ 313.1
For the year ended November 30 (millions)
2019
2018
2017
Depreciation
Software amortization
Interest paid
Income taxes paid
$ 113.6
13.7
169.8
137.2
$ 104.8
14.0
179.8
154.6
$ 85.2
14.5
72.1
155.6
Dividends paid per share were $2.28 in 2019, $2.08 in 2018 and $1.88
in 2017. Dividends declared per share were $2.33 in 2019, $2.13 in
2018, and $1.93 in 2017.
17. SELECTED QUARTERLY DATA (UNAUDITED)
(millions except per share data)
First
Second
Third
Fourth
2019
Net sales
Gross profit
Operating income
Net income
Basic earnings per share
Diluted earnings per share
Dividends paid per share—
Common Stock and
Common Stock Non-Voting
Dividends declared per share—
Common Stock and
Common Stock Non-Voting
2018
Net sales
Gross profit
Operating income
Net income
Basic earnings per share
Diluted earnings per share
Dividends paid per share—
Common Stock and
Common Stock Non-Voting
Dividends declared per share—
Common Stock and
Common Stock Non-Voting
$1,231.5 $1,301.9 $1,329.2 $1,484.8
630.0
299.2
213.4
1.60
1.59
539.9
253.5
191.9
1.45
1.43
466.9
196.9
148.0
1.12
1.11
508.5
208.1
149.4
1.13
1.12
0.57
0.57
0.57
0.57
—
0.57
0.57
1.19
$1,215.4 $1,301.3 $1,318.2 $1,467.9
605.0
291.5
214.0
1.62
1.60
522.5
229.9
173.5
1.32
1.30
505.4
188.6
123.3
0.94
0.93
460.4
181.1
422.6
3.22
3.18
0.52
0.52
0.52
0.52
—
0.52
0.52
1.09
Operating income for the first quarter of 2019 included $2.1 million
of special charges, with an after-tax impact of $1.6 million and a per
share impact of $0.01 for both basic and diluted earnings per share.
Operating income for the second quarter of 2019 included $7.1 million
of special charges, with an after-tax impact of $5.4 million and a per
share impact of $0.04 for both basic and diluted earnings per share.
Operating income for the third quarter of 2019 included $7.7 million
of special charges, with an after-tax impact of $6.1 million and a per
share impact of $0.04 for both basic and diluted earnings per share.
Net income for the third quarter of 2019 included $1.5 million of
non-recurring income tax expense related to enactment of the U.S.
Tax Act, with a per share impact of $0.01 for both basic and diluted
earnings per share. Operating income for the fourth quarter of 2019
included $3.9 million of special charges, with an after-tax impact of
$3.0 million and a per share impact of $0.02 for both basic and diluted
earnings per share.
Operating income for the first quarter of 2018 included $2.2 million
of special charges, with an after-tax impact of $1.6 million and a per
share impact of $0.01 for both basic and diluted earnings per share.
Operating income for the first quarter of 2018 included $8.7 million of
transaction and integration expenses, with an after-tax impact of $6.9
million and a per share impact of $0.05 for both basic and diluted earn-
ings per share. Net income for the first quarter of 2018 included $297.9
million of non-recurring income tax benefit related to enactment of the
U.S. Tax Act, with a per share impact of $2.27 and $2.24 for basic and
diluted earnings per share, respectively. Operating income for the sec-
ond quarter of 2018 included $8.4 million of special charges, with an
after-tax impact of $6.5 million and a per share impact of $0.05 for both
basic and diluted earnings per share. Operating income for the second
quarter of 2018 included $7.8 million of transaction and integration ex-
penses, with an after-tax impact of $6.1 million and a per share impact
of $0.05 and $0.04 for basic and diluted earnings per share, respective-
ly. Operating income for the third quarter of 2018 included $3.3 million
of special charges, with an after-tax impact of $2.5 million and a per
share impact of $0.02 for both basic and diluted earnings per share.
Operating income for the third quarter of 2018 included $5.6 million
of transaction and integration expenses, with an after-tax impact of
$4.3 million and a per share impact of $0.04 for both basic and diluted
earnings per share. Net income for the third quarter of 2018 included
$10.3 million of non-recurring income tax benefit related to enactment
of the U.S. Tax Act, with a per share impact of $0.08 for both basic and
diluted earnings per share. Operating income for the fourth quarter of
2018 included $2.4 million of special charges, with an after-tax impact
of $1.9 million and a per share impact of $0.02 for both basic and dilut-
ed earnings per share. Operating income for the fourth quarter of 2018
included $0.4 million of transaction and integration expenses, with an
after-tax impact of $0.3 million. Net income for the fourth quarter of
2018 included $6.7 million of non-recurring income tax expense related
to enactment of the U.S. Tax Act, with a per share impact of $0.05 for
both basic and diluted earnings per share.
See notes 2 and 3 for details with respect to the transaction and integra-
tion expenses and actions undertaken in connection with these special
charges, respectively. See note 12 for details regarding the non-recurring
income tax benefits related to enactment of the U.S. Tax Act.
Earnings per share are computed independently for each of the quar-
ters presented. Therefore, the sum of the quarters may not be equal to
the full year earnings per share.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of our
disclosure controls and procedures, as defined in Rule 13a-15(e) of the
Securities Exchange Act of 1934, as of the end of the period covered
by this report. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that, as of the end of the period covered
by this report, our disclosure controls and procedures were effective.
2019 Annual Report 83
Internal Control over Financial Reporting
Management’s report on our internal control over financial reporting
and the report of our Independent Registered Public Accounting Firm
on internal control over financial reporting are included in our 2019
financial statements in Item 8 of this Report under the captions enti-
tled “Report of Management” and “Report of Independent Registered
Public Accounting Firm.” No change occurred in our “internal control
over financial reporting” (as defined in Rule 13a-15(f)) during our last
fiscal quarter which has materially affected or is reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE
Information responsive to this item is set forth in the sections titled
“Corporate Governance,” “Election of Directors” and “Delinquent
Section 16(a) Reports” in our 2020 Proxy Statement, incorporated by ref-
erence herein, to be filed within 120 days after the end of our fiscal year.
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.mccormick-
corporation.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.
ITEM 11. EXECUTIVE COMPENSATION
Information responsive to this item is incorporated herein by reference
to the sections titled “Compensation of Directors,” “Compensation
Discussion and Analysis,” “Compensation 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 Compen-
sation,” “Potential Payments Upon Termination or Change in Control,”
“Compensation Committee Interlocks and Insider Participation” and
“Equity Compensation Plan Information” in the 2020 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information responsive to this item is incorporated herein by reference
to the sections titled “Principal Stockholders,” “Election of Direc-
tors” and “Equity Compensation Plan Information” in the 2020 Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information responsive to this item is incorporated herein by reference
to the section entitled “Corporate Governance” in the 2020 Proxy
Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information responsive to this item is incorporated herein by reference
to the section titled “Report of Audit Committee and Fees of Indepen-
dent Registered Public Accounting Firm” in the 2020 Proxy Statement.
84 McCormick & Company, Inc.
PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
II–Valuation and Qualifying Accounts
List of documents filed as part of this Report.
1. Consolidated Financial Statements
The Consolidated Financial Statements for McCormick & Company,
Incorporated and related notes, together with the Report of Manage-
ment, and the Reports of Ernst & Young LLP dated January 28, 2020,
are included herein in Part II, Item 8.
2. Consolidated Financial Statement Schedule
Supplemental Financial Schedule:
Schedules other than that listed above are omitted because of the
absence of the conditions under which they are required or because
the information called for is included in the consolidated financial
statements or notes thereto.
3. Exhibits required to be filed by Item 601 of Regulation S-K
The information called for by this item is incorporated herein by refer-
ence from the Exhibit Index included in this Report.
2019 Annual Report 85
EXHIBIT INDEX
The Stock Purchase Agreement (Exhibit 2(i)) has been filed to provide investors and security holders with information regarding its terms. It is not
intended to provide any other information about the Acquired Business, sellers or McCormick. The Agreement contains representations, warranties
and covenants of the parties thereto made to and solely for the benefit of each other, and such representations, warranties and covenants may be
subject to materiality and other qualifiers applicable to the contracting parties that differ from those that may be viewed as material to investors. The
assertions embodied in those representations, warranties and covenants are qualified by information in confidential disclosure schedules that the
sellers delivered in connection with the execution of the Agreement and were made only as of the date of the Agreement. Accordingly, investors and
security holders should not rely on the representations, warranties and covenants as characterizations of the actual state of facts. Moreover, informa-
tion concerning the subject matter of the representations, warranties and covenants may change after the date of the Agreement, which subsequent
information may or may not be fully reflected in McCormick’s public disclosures.
The following exhibits are attached or incorporated herein by reference:
Exhibit Number
Description
(2)
Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
(i) Stock Purchase Agreement, dated July 18, 2017, by and among McCormick & Company, Incorporated, The R.T. French’s Food
Group Limited, Reckitt Benckiser LLC, and Reckitt Benckiser Group plc, incorporated by reference from Exhibit 2.1 of McCormick’s
Form 8-K dated July 18, 2017, File No. 1-14920, as filed with the Securities and Exchange Commission on July 19, 2017. Disclosure
schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Agreement as filed identifies such
schedules and exhibits, including the general nature of their contents. McCormick agrees to furnish a copy of any omitted attach-
ment to the Securities and Exchange Commission on a confidential basis upon request.
(3)
(i)
Articles of Incorporation and By-Laws
Restatement of Charter of McCormick & Company,
Incorporated dated April 16, 1990
Articles of Amendment to Charter of McCormick & Company,
Incorporated dated April 1, 1992
Articles of Amendment to Charter of McCormick & Company,
Incorporated dated March 27, 2003
(ii)
By-Laws
By-Laws of McCormick & Company, Incorporated Amended
and Restated on November 26, 2019
Incorporated by reference from Exhibit 4 of Registration Form
S-8, Registration No. 33-39582 as filed with the Securities
and Exchange Commission on March 25, 1991.
Incorporated by reference from Exhibit 4 of Registration Form
S-8, Registration Statement No. 33-59842 as filed with the
Securities and Exchange Commission on March 19, 1993.
Incorporated by reference from Exhibit 4 of Registration Form
S-8, Registration Statement No. 333-104084 as filed with the
Securities and Exchange Commission on March 28, 2003.
Incorporated by reference from Exhibit 99.1 of McCormick’s
Form 8-K dated November 26 2019, File No. 1-14920, as filed
with the Securities and Exchange Commission on November 26,
2019.
(4)
Instruments defining the rights of security holders, including indentures
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
See Exhibit 3 (Restatement of Charter and By-Laws)
Summary of Certain Exchange Rights, incorporated by reference from Exhibit 4.1 of McCormick’s Form 10-Q for the quarter ended
August 31, 2001, File No. 0-748, as filed with the Securities and Exchange Commission on October 12, 2001.
Indenture dated July 8, 2011 between McCormick and U.S. Bank National Association, incorporated by reference from Exhibit 4.1 of
McCormick’s Form 8-K dated July 5, 2011, File No. 1-14920, as filed with the Securities and Exchange Commission on July 8, 2011.
Form of 3.90% notes due 2021, incorporated by reference from Exhibit 4.2 of McCormick’s Form 8-K dated July 5, 2011, File
No. 1-14920, as filed with the Securities and Exchange Commission on July 8, 2011.
Form of 2.70% notes due 2022, incorporated by reference from Exhibit 4.2 of McCormick’s Form 8-K dated August 7, 2017, File
No. 1-14920, as filed with the Securities and Exchange Commission on August 11, 2017.
Form of 3.50% notes due 2023, incorporated by reference from Exhibit 4.2 of McCormick’s Form 8-K dated August 14, 2013, File
No. 1-14920, as filed with the Securities and Exchange Commission on August 19, 2013.
Form of 3.15% notes due 2024, incorporated by reference from Exhibit 4.3 of McCormick’s Form 8-K dated August 7, 2017, File
No. 1-14920, as filed with the Securities and Exchange Commission on August 11, 2017.
Form of 3.25% notes due 2025, incorporated by reference from Exhibit 4.2 of McCormick’s Form 8-K dated November 3, 2015, File
No. 1-14920, as filed with the Securities and Exchange Commission on November 6, 2015.
86 McCormick & Company, Inc.
Exhibit Number
Description
(10)
(ix)
(x)
(xi)
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(ix)
(x)
(xi)
(xii)
(xiii)
(xiv)
Form of 3.40% notes due 2027, incorporated by reference from Exhibit 4.4 of McCormick’s Form 8-K dated August 7, 2017, File
No. 1-14920, as filed with the Securities and Exchange Commission on August 11, 2017.
Form of 4.20% notes due 2047, incorporated by reference from Exhibit 4.5 of McCormick’s Form 8-K dated August 7, 2017, File
No. 1-14920, as filed with the Securities and Exchange Commission on August 11, 2017.
Description of Securities of McCormick & Company,
Incorporated
Material contracts
Filed herewith
Directors’ Share Ownership Program, provided to members of McCormick’s Board of Directors who are not also employees of
McCormick, is set forth on page 28 of McCormick’s definitive Proxy Statement dated February 17, 2004, File No. 1-14920, as filed
with the Securities and Exchange Commission on February 17, 2004, and incorporated by reference herein.*
Deferred Compensation Plan, as restated on January 1, 2000, and amended on August 29, 2000, September 5, 2000 and May 16,
2003, in which directors, officers and certain other management employees participate, a copy of which Plan document and
amendments was attached as Exhibit 10(viii) of McCormick’s Form 10-Q for the quarter ended August 31, 2003, File No. 1-14920,
as filed with the Securities and Exchange Commission on October 14, 2003, and incorporated by reference herein.*
Non-Qualified Retirement Savings Plan, with an effective date of February 1, 2017, in which directors, officers and certain other
management employees participate, a copy of which Plan document was attached as Exhibit 10(v) of McCormick’s Form 10-Q for
the quarter ended February 28, 2017, File No. 1-14920, as filed with the Securities and Exchange Commission on March 28, 2017,
and incorporated by reference herein.*
The 2007 Omnibus Incentive Plan, in which directors, officers and certain other management employees participate, is set forth in
Exhibit A of McCormick’s definitive Proxy Statement dated February 20, 2008, File No. 1-14920, as filed with the Securities and Ex-
change Commission on February 20, 2008, and incorporated by reference herein, as amended by Amendment No. 1 thereto, which
Amendment is incorporated by reference from Exhibit 10(xi) of McCormick’s 10-K for the fiscal year ended November 30, 2008, File
No. 1-14920, as filed with the Securities and Exchange Commission on January 28, 2009.*
The Amended and Restated 2013 Omnibus Incentive Plan, in which directors, officers and certain other management employees
participate, is incorporated by reference from Exhibit A of McCormick’s definitive Proxy Statement dated February 14, 2019, File No.
1-14920, as filed with the Securities and Exchange Commission on February 14, 2019.*
Form of Long-Term Performance Plan Agreement
Form of Restricted Stock Units Agreement
(viii)
Form of Restricted Stock Units Agreement for Directors
Form of Non-Qualified Stock Option Agreement
Form of Non-Qualified Stock Option Agreement for Directors
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Form of Indemnification Agreement, incorporated by reference from Exhibit 10(xv) of McCormick’s Form 10-Q for the quarter ended
February 28, 2014, File No. 1-14920, as filed with the Securities and Exchange Commission on March 26, 2014.
Employment Agreement between McCormick (UK) Limited and Malcolm Swift, incorporated by reference from Exhibit 10.1 of
McCormick’s Form 8-K, File No. 1-14920, as filed with the Securities and Exchange Commission on January 29, 2015.*
Severance Plan for Executives, incorporated by reference from Exhibit 10(xix) of McCormick’s Form 10-Q for the quarter ended
February 28, 2015, File No. 1-14920, as filed with the Securities and Exchange Commission on March 31, 2015.*
Term Loan Agreement, dated August 7, 2017, by among the Company, Bank of America, N.A., as administrative agent, and the
lenders party thereto, incorporated by reference from Exhibit 10.1 of McCormick’s Form 8-K dated August 7, 2017, File No. 1-14920,
as filed with the Securities and Exchange Commission on August 11, 2017.
(21)
(23)
Subsidiaries of McCormick
Consents of experts and counsel
Filed herewith
Filed herewith
2019 Annual Report 87
Exhibit Number
Description
(31)
Rule 13a-14(a)/15d-14(a) Certifications
Filed herewith
(32)
(101)
(104)
(i)
(ii)
(i)
(ii)
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.
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.
Section 1350 Certifications
Filed herewith
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.
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.
The following financial information from the Annual Report on Form 10-K of McCormick for the year ended November 30, 2019,
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.
Inline XBRL for the cover page of this Annual Report on Form 10-K of McCormick for the year ended November 30, 2019, 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).
88 McCormick & Company, Inc.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, McCormick has duly caused this report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
McCORMICK & COMPANY, INCORPORATED
By:
/s/ Lawrence e. Kurzius
Lawrence E. Kurzius
Chairman, President & Chief Executive Officer
January 28, 2020
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
Lawrence E. Kurzius
Principal Financial Officer:
By:
/s/ MichaeL r. sMith
Michael R. Smith
Principal Accounting Officer:
Chairman, President & Chief Executive Officer
January 28, 2020
Executive Vice President & Chief Financial Officer
January 28, 2020
By:
/s/ christina M. McMuLLen
Christina M. McMullen
Vice President & Controller
Chief Accounting Officer
January 28, 2020
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:
Anne L. Bramman
/s/ MichaeL a. conway
Michael A. Conway
/s/ FreeMan a. hrabowsKi, iii
Freeman A. Hrabowski, III
/s/ Lawrence e. Kurzius
Lawrence E. Kurzius
/s/ Patricia LittLe
Patricia Little
/s/ MichaeL D. Mangan
Michael D. Mangan
/s/ Maritza g. MontieL
Maritza G. Montiel
/s/ Margaret M.V. Preston
Margaret M.V. Preston
/s/ gary M. roDKin
Gary M. Rodkin
/s/ w. anthony Vernon
W. Anthony Vernon
/s/ Jacques taPiero
Jacques Tapiero
DATE:
January 28, 2020
January 28, 2020
January 28, 2020
January 28, 2020
January 28, 2020
January 28, 2020
January 28, 2020
January 28, 2020
January 28, 2020
January 28, 2020
January 28, 2020
2019 Annual Report 89
Supplemental Financial Schedule II Consolidated
McCORMICK & COMPANY, INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
Column A
Description
Deducted from asset accounts:
Year ended November 30, 2019:
Allowance for doubtful receivables
Valuation allowance on net deferred tax assets
Deducted from asset accounts:
Year ended November 30, 2018:
Allowance for doubtful receivables
Valuation allowance on net deferred tax assets
Deducted from asset accounts:
Year ended November 30, 2017:
Allowance for doubtful receivables
Valuation allowance on net deferred tax assets
Column B
Column C Additions
Column D
Column E
Balance at
beginning of
period
Charged to
costs and
expenses
Charged to
other
accounts
Deductions
Balance at
end of period
$ 6.4
32.9
$39.3
$ 6.6
26.0
$32.6
$ 4.2
10.5
$14.7
$ 1.1
2.6
$ 3.7
$ 1.1
11.1
$ 12.2
$ 2.6
15.1
$17.7
$ (1.8)
(0.5)
$ (2.3)
$(0.6)
(2.2)
$(2.8)
$ 0.3
1.8
$ 2.1
$( 0.1)
(2.6)
$( 2.7)
$ (0.7)
(2.0)
$ (2.7)
$ (0.5)
(1.4)
$ (1.9)
$ 5.6
32.4
$38.0
$ 6.4
32.9
$39.3
$ 6.6
26.0
$32.6
END OF ANNUAL REPORT ON FORM 10-K
90 McCormick & Company, Inc.
Investor Information
Global Headquarters
McCormick & Company, Incorporated
24 Schilling Road
Hunt Valley, MD 21031
U.S.A.
(410) 771-7301
www.mccormickcorporation.com
Stock Listing
New York Stock Exchange
Symbols: MKC, MKC.V
Anticipated Dividend Dates—2020
Record Date
4/13/20
7/6/20
10/5/20
12/31/20
Payment Date
4/27/20
7/20/20
10/19/20
1/11/21
McCormick has paid dividends every year since 1925.
Independent Registered Public
Accounting Firm
Ernst & Young LLP
621 East Pratt Street
Baltimore, MD 21202
Investor Inquiries
Our investor website, ir.mccormick.com, contains our
annual reports, Securities & Exchange Commission (SEC)
filings, press releases, webcasts, corporate governance
principles and other information.
To obtain without cost a copy of the annual report filed with
the SEC on Form 10-K or for general questions about
McCormick or the information in our reports, press releases
and other filings, contact Investor Relations at the world
headquarters address, investor website or telephone
(800) 424-5855 or (410) 771-7537.
Investor Services Plan (Dividend
Reinvestment and Direct Purchase Plan)
We offer an Investor Services Plan which provides share-
holders of record the opportunity to automatically reinvest
dividends, make optional cash purchases of stock, place
stock certificates into safekeeping and sell shares. Indi-
viduals who are not current shareholders may purchase
their initial shares directly through the Plan. All transac-
tions are subject to the limitations set forth in the Plan
prospectus, which may be obtained by contacting our
transfer agent.
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Registered Shareholder Inquiries
For questions on your account, statements, dividend pay-
ments, reinvestment and direct deposit, and for address
changes, lost certificates, stock transfers, ownership
changes or other admin istrative matters, contact our
transfer agent.
Transfer Agent and Registrar
EQ Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120-4100
(877) 778-6784 or (651) 450-4064
shareowneronline.com
Annual Meeting
The annual meeting of shareholders will be held at 10 a.m.,
Wednesday, April 1, 2020, at Martin’s Valley Mansion,
594 Cranbrook Road, Hunt Valley, MD 21030.
Electronic Delivery of Annual Report and
Proxy Statement
If you would like to receive next year’s annual report and
proxy statement electronically, you may enroll on the
website below:
enroll.icsdelivery.com/mkc
Trademarks
Use of ® or ™ in this annual report indicates trademarks
including those owned or used by McCormick & Company,
Incorporated and its subsidiaries and affiliates.
V ISI T OUR C OMPA N Y A ND
C ONSUMER BR A ND S ON:
McCormick has offset 20,000 lbs. of paper used for
the production of this report by planting 241 trees
in Madagascar.
Please visit www.printreleaf.com to learn more.
TX_1CB033F201AB
McCormick & Company, Incorporated
24 Schilling Road, Hunt Valley, MD 21031 U.S.A.
mccormickcorporation.com